1
FILED PURSUANT TO RULE 424(b)(3)
FILE NUMBER 333-67476
PROSPECTUS PROSPECTUS DATED AUGUST 27, 2001
--------------------------------------------------------------------------------
MATRIA LOGO
MATRIA HEALTHCARE, INC.
OFFER TO EXCHANGE 11% SERIES B SENIOR NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OUTSTANDING 11% SENIOR NOTES DUE 2008
$122,000,000
AGGREGATE PRINCIPAL AMOUNT OUTSTANDING
------------------
- The exchange offer expires 5:00 p.m., New York City time, on Thursday,
September 27, 2001, unless extended.
- We will exchange your validly tendered unregistered notes (the "old notes")
for an equal principal amount of registered exchange notes (the "exchange
notes") with substantially identical terms.
- The exchange offer is not subject to any condition other than the condition
that the exchange offer not violate applicable law or any applicable
interpretation of the staff of the Securities and Exchange Commission and
certain other customary conditions.
- You may withdraw your tender of old notes at any time prior to the expiration
of the exchange offer.
- The exchange of notes will not be a taxable exchange for U.S. federal income
tax purposes.
- We will not receive any proceeds from the exchange offer.
- The terms of the exchange notes to be issued are substantially identical to
the old notes, except for certain transfer restrictions and registration
rights relating to the old notes.
- You may tender outstanding old notes only in denominations of $1,000 and
multiples of $1,000.
- Affiliates of our company may not participate in the exchange offer.
------------------
PLEASE REFER TO "RISK FACTORS" BEGINNING ON PAGE 15 OF THIS DOCUMENT FOR CERTAIN
IMPORTANT INFORMATION.
Neither the Securities and Exchange Commission nor any State Securities
Commission has approved or disapproved of the Notes to be issued in the Exchange
Offer or passed upon the adequacy or accuracy of this Prospectus. Any
representation to the contrary is a criminal offense.
2
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:
Judiciary Plaza Citicorp Center Seven World Trade Center
Room 1024 500 West Madison Street 13th Floor
450 Fifth Street, NW Suite 1400 New York, New York 10048
Washington, DC 20549 Chicago, Illinois 60661
The documents are also available for view and copying at the offices of The
National Association of Securities Dealers, 1735 K Street, N.W., Washington, DC
20006.
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
prospectus 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). Please direct such
requests to Matria Healthcare, Inc., 1850 Parkway Place, Marietta, Georgia 30067
Attention: Corporate Secretary (770) 767-4500.
IF YOU WOULD LIKE TO REQUEST DOCUMENTS, YOU MUST DO SO BY NO LATER THAN
FIVE BUSINESS DAYS PRIOR TO THE EXPIRATION OF THE EXCHANGE OFFER. THE EXCHANGE
OFFER WILL EXPIRE ON SEPTEMBER 27, 2001.
INCORPORATION BY REFERENCE
This prospectus incorporates important business and financial information
about Matria and the Guarantors that is not included in or delivered with the
prospectus. Specifically, this prospectus incorporates the following documents
by reference to the following SEC filings:
- Annual Report on Form 10-K for the year ended December 31, 2000;
- Quarterly Reports on Form 10-Q for the quarters ended March 31, 2001 and
June 30, 2001; and
- Current Reports on Forms 8-K filed on June 15, 2001 (which includes,
without limitation, updated information located in Exhibit 99.1 on
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" and in Exhibit 99.2 on "Business"), July 3, 2001 and July
19, 2001.
All documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act after the date of this offering memorandum are incorporated by
reference into and are made a part of this offering memorandum from the date of
filing of those documents.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS 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 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.
i
3
PROSPECTUS SUMMARY
This summary highlights selected information appearing elsewhere in this
prospectus and may not contain all of the information that is important to you.
This prospectus includes the specific terms of the exchange notes, as well as
information regarding our business and detailed financial data. In this
prospectus, the terms "we," "us," "our," "our company" and "Matria" refer to the
business of Matria Healthcare, Inc. and its consolidated subsidiaries, and the
"Notes" refer to the old notes and the exchange notes issued under the
indenture, unless otherwise specified or the context otherwise requires. We
encourage you to read this prospectus in its entirety.
THE COMPANY
We are a leading comprehensive, integrated disease management company
offering our 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 for individuals with
high-cost or chronic diseases and conditions. Our strategy is to focus on
providing effective cost-saving solutions for four of the most costly chronic
diseases and medical conditions in the nation: diabetes, pregnancy and select
respiratory and cardiovascular diseases. Our disease management services seek to
lower healthcare costs and improve patient outcomes through a broad range of
disease management, fulfillment and telemedicine services. We have over 1,000
contracts with managed care organizations and self-insured employers for the
provision of our services for which we are generally compensated on a fee-
for-service basis. In 2001, we are enjoying what we believe to be a favorable
customer mix in that only approximately 26% of our revenues are derived from
governmental sources and no single commercial customer represents more than 10%
of our revenues. Our common stock is traded on the Nasdaq National Market under
the symbol "MATR." For the 12 months ended June 30, 2001, we had revenues of
$240 million and EBITDA of $39.0 million.
Our principal executive offices are located at 1850 Parkway Place,
Marietta, Georgia 30067 and our phone number is (770) 767-4500. Our corporate
Website address is http://www.matria.com. Information contained on our Website
is not part of this prospectus.
INDUSTRY OVERVIEW
The Health Care Financing Administration ("HCFA") estimates that healthcare
expenditures in the United States represent approximately 13% ($1.3 trillion) of
the gross domestic product. By 2008, HCFA projects the nation's healthcare
spending will rise to approximately $2.3 trillion. A disproportionate percentage
of these costs are related to a small number of chronic diseases and medical
conditions, with industry analysts estimating that roughly $500 billion is spent
annually in the United States on chronic diseases. According to the National
Institute of Diabetes and Digestive and Kidney Disease, diabetes, one of the
fastest growing chronic diseases in the nation, accounts for approximately 14%
of total healthcare expenditures. Left untreated, diabetes leads to other costly
medical complications, such as blindness, kidney disease and cardiovascular
disease. According to the American Heart Association, cardiovascular disease and
respiratory disease account for approximately 30% and 8%, respectively, of
national healthcare expenditures. While published figures quantifying the total
dollar amount spent on pregnancy vary, the National Center for Health Statistics
reported an increased rate of preterm births from approximately 10% in 1988 to
approximately 12% in 1998. Industry analysts estimate that costs for complicated
births range from $20,000 to $400,000 per baby compared to about $6,400 for an
uncomplicated delivery. The disease management industry has emerged in response
to this environment of increasing healthcare costs.
1
4
In addition to the desire for health plans and employers to reduce costs,
what we believe to be favorable demographic trends are also positively
influencing the demand for disease management services. For example, based on
United States Census Bureau projections, one of the fastest growing segments of
the nation's population is the over 65 age group. This group is expected to
increase by approximately 12% to 39.3 million persons by 2010. This group
currently has the largest incidence of diabetes in the United States, with an
18% prevalence rate, versus an 8% prevalence rate for adults above the age of
20.
OUR OPERATIONS
Our disease management services emphasize a multidisciplinary approach to
care that involves our customer service representatives, nurses and clinicians
coordinating with physicians to oversee adherence to treatment plans. Our
services focus on the patient's behavior between visits to the physician and
seek to improve the patient's compliance with the physician's care plan. Our
disease management programs encourage routine check-ups and the use of patient
self-management tools in order to manage costs more effectively and proactively
treat high cost or chronic diseases and medical conditions. We utilize our call
center infrastructure, national network of skilled clinicians, supply
distribution channels and information systems to serve this critical period of
patient care. We believe managing patients during this period can reduce costly
events, such as emergency room visits and hospitalizations, but more
importantly, can improve the patient's health outcome, reduce sick days and
increase productivity. With our coordinated disease management programs, we
believe we are especially well positioned to provide employers and other payors
with solutions for these problems. In addition, TRAX(TM), our proprietary
patient management and clinical record system, enables us to leverage our
disease management programs with our telemedicine and fulfillment services.
Our operations focus on two principal business segments:
- Our women's health segment offers a wide range of specialized disease
management and telemedicine services designed to assist physicians and
payors in the cost-effective management of maternity patients, including
risk assessment, patient education and compliance management,
physiological data monitoring, outcomes reporting and other clinical
services prescribed by physicians.
- Our diabetes disease management and fulfillment segment provides disease
management services to payors and employees and sells glucose testing
supplies, insulin, insulin pumps, syringes and other prescription and
non-prescription drugs to patients with diabetes in the United States and
in Germany. Additionally, we are a leading supplier of microsampling
products (which are used to obtain and test small samples of blood) to
major medical device manufacturers across the world.
We also provide respiratory disease management programs and are planning to
enter select portions of the cardiovascular disease management market this year.
2
5
As described in the following chart, we generally offer our customers three
main services: disease management programs, telemedicine and fulfillment.
DISEASE STATES
DIABETES WOMEN'S HEALTH RESPIRATORY CARDIOVASCULAR
---------------------------------------------------------------------------------------------------------
DISEASE - Diabetes - MaternaLink(R) - Asthma - Congestive Heart
MANAGEMENT Management - Chronic Failure*
PROGRAMS Solutions Obstructive - Coronary Artery
Pulmonary Disease Disease*
---------------------------------------------------------------------------------------------------------
TELEMEDICINE - Preterm Labor
Management
- Hypertension
- Gestational
Diabetes
- Nausea and
Vomiting
- Coagulation
Disorders
---------------------------------------------------------------------------------------------------------
FULFILLMENT - Diagnostic - Nutriceuticals - Supplies*
Supplies
- Pharmaceuticals
- Microsampling
products
---------------------------------------------------------------------------------------------------------
* In development
Disease Management
Our disease management programs are focused on reducing healthcare costs,
while at the same time improving health outcomes. Our services include risk
assessment, patient education, compliance management, clinical interventions and
outcomes reporting. We currently offer disease management programs for
pregnancy, diabetes, asthma and chronic obstructive pulmonary disease. We intend
to introduce congestive heart failure and coronary artery disease management
programs later in 2001 as part of our strategy to be a full service provider to
payors and employers.
Telemedicine
Our telemedicine services assist physicians and payors in the
cost-effective management of preterm labor, pregnancy-induced hypertension,
gestational diabetes, nausea and vomiting in pregnancy and coagulation
disorders. Our patients transmit physiological data telephonically to our
patient monitoring centers. Specialized obstetrical nurses review and assess
patient data, provide patient education and, in conjunction with the patient's
physician, recommend acuity-based clinical interventions. Our women's health
division currently has 41 sites of service throughout the United States, 14 of
which are patient monitoring centers.
Fulfillment
We sell a full line of diabetes supplies in the United States and Germany.
These products, which include insulin, glucose meters, test strips, syringes and
microsampling products, are primarily sold on a mail order basis. Additionally,
we are a leading designer, developer, and manufacturer of microsampling
products, which we sell on a wholesale basis to medical device manufacturers.
3
6
COMPETITIVE STRENGTHS
We believe the following are our key competitive strengths:
Market Leadership
We believe that we are a leader in the nation's disease management market.
By providing a broad range of services across multiple high-cost disease states
and conditions, we believe we represent a compelling value proposition to our
payor and employer customers. We believe our market position enhances our
ability to:
- provide a consistent level of high quality services on a nationwide
basis;
- generate economies of scale; and
- market our disease management programs to employers and managed care
customers.
Established Customer Relationships
We have established relationships with numerous payors, employers, medical
device manufacturers and physicians. We have over 1,000 contracts with managed
care organizations and self-insured employers. A significant portion of our
diabetes disease management and fulfillment business caters to patients who, by
the nature of their chronic disease, remain clients for multiple years.
Commitment to Customer Service
We conduct customer satisfaction surveys to ensure that we meet high levels
of performance. Our annual surveys focus on a number of important issues related
to clinical expertise, customer service, and communication. In addition, we use
the results of our surveys to identify ways to optimize the services we provide
as well as assess new opportunities. Our recent surveys indicate that over 95%
of respondents were satisfied with our services and 98% of such respondents
would recommend Matria to others. Reflecting our strong customer satisfaction,
in 2001 we were selected as Black & Decker's "Vendor of the Year".
Strong Sales Network
We maintain a sales force of more than 170 sales representatives throughout
our business lines. Our sales force consists of:
- 81 persons offering telemedicine services by calling on physicians who
generate referrals;
- 67 persons marketing fulfillment services to referral sources and medical
device manufacturers; and
- 23 persons responsible for sales of our programs to managed care
organizations and employers.
Broad Range of Services
We offer comprehensive disease management services and focus on four of the
most costly chronic diseases and medical conditions in the nation: diabetes,
pregnancy and select respiratory and cardiovascular diseases. We intend to
provide health plans and other payors with a full service provider for their
disease management programs. We believe the combination of our complementary
service offerings allows us to meet our customers' needs for disease management
programs and provides us with multiple revenue streams from our customer base.
4
7
Proprietary TRAX(TM) System
To support our disease management programs, we have developed the TRAX
system. We believe the TRAX system provides Matria with a unique advantage in
addressing the needs of the growing disease management market. Through a
web-based open architecture, TRAX allows us to connect with patients, care
coordinators, health plans and providers to facilitate the assessment of a
patient using claims data, past medical history, laboratory, diagnostic and
monitoring data and health risk assessments. TRAX(TM) allows our case managers
to identify at-risk health plan members with diabetes, respiratory disorders or
an associated co-morbidity, such as congestive heart failure. TRAX is able to
manage large populations and integrate large data sets across multiple disease
states. Additional diseases and conditions can also be added to TRAX to manage
co-morbidities associated with chronic diseases.
Experienced Management Team
Our management team has extensive experience in the health care industry.
Chairman, President and Chief Executive Officer Parker H. ("Pete") Petit and
Executive Vice President and Chief Operating Officer Jeffrey D. Koepsell have
over 31 and 29 years of health care experience, respectively. Our senior
management team has over 150 years of combined healthcare experience and has
completed more than 20 acquisitions and divestitures over the last 20 years. In
addition to our senior leadership, we have assembled seasoned and professional
management in our operating units.
BUSINESS STRATEGY
Going forward, our business strategy is to enhance our market position by
focusing our disease management services on four of the most costly chronic
diseases and medical conditions in the nation: diabetes, pregnancy and select
respiratory and cardiovascular diseases. In our disease management programs, we
intend to continue to leverage our technology and customer service platforms to
be a full service provider for employers and managed care customers. In the
telemedicine area, we intend to capitalize on existing relationships with select
OB-GYN physicians and develop and acquire new products and services. In our
fulfillment business, we intend to expand our services and technology base. By
following our business strategy, we expect to continue to grow in the disease
management market.
THE EXCHANGE OFFER
On July 9, 2001, we issued $125,000,000 aggregate principal amount of our
11% Senior Notes due 2008 in a private offering. The old notes are guaranteed by
certain of our domestic subsidiaries. As of the date of this prospectus, there
is $122,000,000 principal amount of old notes outstanding. See "Description of
Notes -- Principal, Maturity and Interest."
We and the Guarantors entered into a registration rights agreement with the
Initial Purchasers in the private offering in which we agreed, among other
things, to deliver to you this prospectus and to complete the exchange offer on
or prior to December 6, 2001. You are entitled to exchange in the exchange offer
your old notes for registered exchange notes with substantially identical terms.
If we do not complete various tasks by their deadlines, as we discuss in the
"Registration Rights" section of this prospectus, liquidated damages will accrue
on the old notes at a rate of .25% over the stated interest rate on the old
notes for the first 90 days immediately following such deadlines, and will
increase by an additional .25% at the beginning of each subsequent 90-day period
up to a maximum of 1.0% in the aggregate, until the exchange offer is completed.
You should also read the discussion under the headings "Summary of Terms of the
Exchange Notes" and "Description of the Notes" for further information regarding
the registered exchange notes.
5
8
We believe that the exchange notes issued in the exchange offer may be
resold by you without compliance with the registration and prospectus delivery
requirements of the Securities Act of 1933, subject to certain conditions and
limited exceptions. Following the exchange offer, any old notes held by you that
are not exchanged in the exchange offer will continue to be subject to the
existing restrictions on transfer on the old notes and, except in certain
limited circumstances, we will have no further obligation to you to provide for
registration under the Securities Act of transfers of outstanding old notes held
by you. You should read the discussions under the heading "The Exchange Offer"
for further information regarding the exchange offer and the resale of old
notes.
ISSUER..................... Matria Healthcare, Inc.
THE EXCHANGE OFFER......... We previously issued $125 million aggregate
principal amount of our 11% Senior Notes due 2008
in a private offering. These securities were not
registered under the Securities Act. At the time we
issued the old notes, we entered into a
registration rights agreement in which we agreed to
offer to exchange your unregistered old notes for
new exchange notes which have been registered under
the Securities Act. This exchange offer is intended
to satisfy that obligation. We are offering to
exchange $1,000 principal amount of registered
exchange notes for each $1,000 principal amount of
your unregistered old notes. After the exchange
offer is completed, except in certain limited
circumstances, you will no longer be entitled to
any registration rights with respect to your old
notes. Under certain circumstances, certain holders
of outstanding old notes may require us to file a
shelf registration statement under the Securities
Act.
As of this date, there is $122,000,000 aggregate
principal amount of old notes outstanding.
REQUIRED REPRESENTATION.... In order to participate in this exchange offer, you
will be required to make certain representations to
us in a letter of transmittal, including that:
any exchange notes will be acquired by you in
the ordinary course of your business; you
have not engaged in, do not intend to engage
in, and do not have an arrangement or
understanding with any person to participate
in a distribution of the exchange notes; and
you are not an affiliate of our company.
RESALE..................... We believe that, subject to limited exceptions, the
exchange notes issued in the exchange offer may be
freely traded by you without compliance with the
registration and prospectus delivery provisions of
the Securities Act provided that:
the exchange notes issued in the exchange
offer are being acquired in the ordinary
course of your business; you are not
participating, do not intend to participate
and have no arrangement or understanding with
any person to participate in the distribution
of the exchange notes issued to you in the
exchange offer; and you are not an
"affiliate" of our company.
If our belief is inaccurate and you transfer any
exchange note issued to you in the exchange offer
without delivering a prospectus meeting the
requirements of the Securities Act or without an
exemption from registration of your exchange notes
from such requirements, you may incur liability
under the Securities Act. We do not assume, or
indemnify you against, such liability.
6
9
Each broker-dealer that is issued exchange notes in
the exchange offer for its own account in exchange
for old notes which were acquired by such
broker-dealer as a result of market-making or other
trading activities must also acknowledge that it
has not entered into any arrangement or
understanding with Matria or any affiliate of
Matria to distribute the exchange notes and will
deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale of
the exchange notes issued in the exchange offer.
We have agreed in the registration rights agreement
that a broker-dealer may use this prospectus for an
offer to resell or otherwise retransfer the
exchange notes issued to it in the exchange offer.
EXPIRATION DATE............ The exchange offer will expire at 5:00 p.m., New
York City time, on September 27, 2001, unless
extended, in which case the term "expiration date"
shall mean the latest date and time to which we
extend the exchange offer.
CONDITIONS TO THE EXCHANGE
OFFER.................... The exchange offer is subject to certain customary
conditions, which may be waived by us. The exchange
offer is not conditioned upon any minimum principal
amount of old notes being tendered.
PROCEDURES FOR TENDERING
OLD NOTES................ If you wish to tender your old notes for exchange
pursuant to the exchange offer, you must transmit
on or before the expiration date:
either:
- a properly completed and duly executed letter of
transmittal, which accompanies this prospectus,
or a facsimile of the letter of transmittal,
together with your old notes and any other
required documentation, to the exchange agent at
the address set forth in this prospectus under
the heading "The Exchange Offer -- Exchange
Agent," and on the front cover of the letter of
transmittal; or
- a computer generated message transmitted by means
of The Depository Trust Company's Automated
Tender Offer Program system and received by the
exchange agent and forming a part of a
confirmation of book entry transfer in which you
acknowledge and agree to be bound by the terms of
the letter of transmittal.
If either of these procedures cannot be satisfied
on a timely basis, then you should comply with the
guaranteed delivery procedures described below. By
executing the letter of transmittal, each holder of
old notes will make certain representations to us
described under "The Exchange Offer -- Procedures
for Tendering."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS.......... If you are a beneficial owner whose old notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
you wish to tender your old notes in the exchange
offer, you should contact such registered holder
promptly and instruct such registered holder to
tender on your behalf. If you wish to tender on
7
10
your own behalf, you must, prior to completing and
executing the letter of transmittal and delivering
your old notes, either make appropriate
arrangements to register ownership of the old notes
in your name or obtain a properly completed bond
power from the registered holder. The transfer of
registered ownership may take considerable time and
may not be able to be completed prior to the
expiration date.
GUARANTEED DELIVERY
PROCEDURES................. If you wish to tender your old notes and time will
not permit the documents required by the letter of
transmittal to reach the exchange agent prior to
the expiration date, or the procedure for
book-entry transfer cannot be completed on a timely
basis, you must tender your old notes according to
the guaranteed delivery procedures described under
"The Exchange Offer -- Guaranteed Delivery
Procedures."
ACCEPTANCE OF OLD NOTES AND
DELIVERY OF EXCHANGE
NOTES.................... Subject to the conditions described under "The
Exchange Offer -- Conditions to the Exchange
Offer", we will accept for exchange any and all old
notes which are validly tendered in the exchange
offer and not withdrawn, prior to 5:00 p.m., New
York City time, on the expiration date.
WITHDRAWAL RIGHTS.......... You may withdraw the tender of your old notes at
any time prior to 5:00 p.m., New York City time, on
the expiration date, subject to compliance with the
procedures for withdrawal described in this
prospectus under the heading "The Exchange
Offer -- Withdrawal of Tenders."
FEDERAL INCOME TAX
CONSIDERATIONS........... For a discussion of the material federal income tax
considerations relating to the exchange of old
notes for the exchange notes, see "Material U.S.
Federal Income Tax Considerations."
EXCHANGE AGENT............. Wells Fargo Bank Minnesota, National Association,
the trustee under the indenture governing the old
notes, is serving as the exchange agent. The
address, telephone number and facsimile number of
the exchange agent are set forth in this prospectus
under the heading "The Exchange Offer -- Exchange
Agent."
CONSEQUENCES OF FAILURE TO
EXCHANGE OLD NOTES....... If you do not exchange your old notes for exchange
notes pursuant to the exchange offer, you will
continue to be subject to the restrictions on
transfer provided in the old notes and in the
indenture governing the old notes. In general, the
unregistered old notes may not be offered or sold,
unless they are registered under the Securities
Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and
applicable state securities laws. We do not
currently intend to register the old notes under
the Securities Act.
SUMMARY OF TERMS OF THE EXCHANGE NOTES
This exchange offer relates to the exchange of up to $122,000,000 aggregate
principal amount of exchange notes for up to an equal principal amount of the
unregistered outstanding old notes. The form and terms of the exchange notes are
substantially the same as the form and terms of the outstanding old notes,
except that the exchange notes will be registered under the Securities Act, and
therefore, the exchange notes generally will not be subject to transfer
restrictions or registration rights, and the provisions
8
11
of the registration rights agreement relating to liquidated damages on the
outstanding old notes under certain circumstances will be eliminated. The
exchange notes issued in the exchange offer will evidence the same debt as the
outstanding old notes, which they replace, and both the outstanding old notes
and the exchange notes are governed by the same indenture. We sometimes refer to
the old notes and the exchange notes collectively in this prospectus as the
notes.
EXCHANGE NOTES OFFERED..... We are offering $122,000,000 aggregate principal
amount of our 11% Series B Senior Notes due 2008.
The exchange notes will be issued under an
indenture dated as of July 9, 2001.
INTEREST................... Interest on the exchange notes will accrue from the
last interest payment date on which interest was
paid on the old notes surrendered in exchange
therefor or, if no interest has been paid on the
old notes, from the issue date of the old notes.
Interest on the exchange notes will be payable
semi-annually on May 1 and November 1 of each year,
commencing November 1, 2001.
MATURITY DATE.............. May 1, 2008.
ORIGINAL ISSUE DISCOUNT.... The old notes were issued at an issue price of $935
per $1,000 principal amount of notes, which
represents original issue discount of 6.5% from the
principal amount payable at maturity. Purchasers of
the old notes in the initial offering will
generally be taxed on such original issue discount
as it accrues, and thus prior to the receipt of any
payments attributable thereto. See "Material
Federal Income Tax Considerations."
SINKING FUND............... None.
OPTIONAL REDEMPTION........ We may redeem the notes, in whole or in part, at
any time, on or after May 1, 2005, at a redemption
price equal to 100% of the principal amount thereof
plus a premium declining ratably to par plus
accrued interest.
In addition, prior to May 1, 2004, we may redeem up
to 35% of the original aggregate principal amount
of the notes with the proceeds of qualified equity
offerings at a redemption price of 111% of the
principal amount plus accrued and unpaid interest,
provided that:
- at least 65% of the aggregate principal amount of
the notes issued under the indenture remains
outstanding immediately after the occurrence of
such redemption; and
- such redemption occurs within 90 days of the date
of the closing of any such equity offering.
CHANGE OF CONTROL.......... If we experience a change of control, we may be
required to offer to repurchase the notes at 101%
of the principal amount plus accrued and unpaid
interest. We may not be able to pay you the
required price for notes you present to us at the
time of a change of control because our other then
outstanding indebtedness may prohibit payment or we
may not have enough funds at the time. See
"Description of Notes -- Repurchase at the Option
of Holders -- Change of Control."
GUARANTEES................. Generally, our current and future domestic
subsidiaries will guarantee the exchange notes on a
senior unsecured basis. See "Description of Notes."
9
12
RANKING.................... The notes will be senior unsecured obligations. All
of our existing and future domestic restricted
subsidiaries will guarantee the notes on a senior
unsecured basis.
The notes will rank equally with all of our and our
subsidiary guarantors' existing and future senior
unsecured debt.
The notes will rank senior to all of our and our
subsidiary guarantors' unsecured debt that is
expressly subordinated to the notes, but will be
effectively subordinated to all of our senior
secured indebtedness, if any, with respect to the
assets securing that indebtedness and effectively
subordinated to all liabilities of our subsidiaries
that are not guarantors with respect to the assets
of such subsidiaries. See "Risk Factors -- We Will
Have Substantial Outstanding Indebtedness Following
the Offering." The term "senior debt" is defined in
the "Description of Notes" section of this
prospectus.
At July 9, 2001 we and our guarantor subsidiaries
had approximately $125.9 million of senior
unsecured indebtedness outstanding on a
consolidated basis.
RESTRICTIVE COVENANTS...... The indenture governing the notes contains
covenants that, among other things, limit our
ability and the ability of our restricted
subsidiaries to:
- incur additional indebtedness or liens;
- pay dividends or make other distributions or
repurchase or redeem our stock;
- make investments;
- sell assets;
- engage in business activities unrelated to our
current business;
- enter into agreements restricting our
subsidiaries' ability to pay dividends;
- enter into transactions with affiliates; and
- consolidate, merge or sell all or substantially
all of our assets.
In addition, under certain circumstances we will be
required to make an offer to purchase notes with
excess cash flows or with proceeds received from
asset sales.
These covenants are subject to important exceptions
and qualifications, which are described under the
heading "Description of Notes" in this prospectus.
FORM OF EXCHANGE NOTES..... The exchange notes issued in the exchange offer
will be represented by one or more permanent global
certificates, in fully registered form, deposited
with a custodian for, and registered in the name of
a nominee of, The Depository Trust Company, as
depositary. You will not receive exchange notes in
certificated form unless one of the events set
forth under "Description of Notes -- Book Entry;
Delivery and Form" occurs. Instead, beneficial
interests in the exchange notes will be shown on,
and transfers of these exchange notes will be
10
13
effected through, records maintained in book-entry
form by The Depository Trust Company and its
participants.
USE OF PROCEEDS............ We will not receive any proceeds from the exchange
offer.
11
14
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data should be read in
conjunction with our historical consolidated financial statements and related
notes and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this prospectus.
The summary consolidated financial data as of and for each of the years
ended December 31, 1996, 1997, 1998, 1999 and 2000 set forth below have been
derived from our audited consolidated financial statements. The summary
consolidated financial data as of and for the six months ended June 30, 2001 and
2000 set forth below 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.
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------------- -------------------
1996 1997 1998 1999 2000 2000 2001
--------- --------- ---------- -------- -------- -------- --------
(In thousands) (Unaudited)
STATEMENT OF OPERATIONS DATA:
Revenues..................................... $ 130,806 $ 144,533 $ 128,572 $231,739 $225,767 $111,943 $126,206
Cost of revenues............................. 55,911 57,610 51,278 118,305 116,179 57,775 68,475
Selling and administrative expenses(1)....... 66,775 65,020 60,613 73,653 68,468 32,197 36,606
Provision for doubtful accounts.............. 7,591 6,599 6,342 7,193 7,043 3,511 3,773
Amortization of intangible accounts.......... 30,083 36,604 27,700 9,439 9,803 4,896 4,913
Restructuring charges(2)..................... 22,525 -- -- 4,241 1,599 1,599 --
Asset impairment charges(2).................. -- -- 82,885 -- -- -- --
--------- --------- ---------- -------- -------- -------- --------
Operating earnings (loss) from continuing
operations............................... (52,079) (21,300) (100,246) 18,908 22,675 11,965 12,439
Interest income.............................. 1,177 794 475 474 444 269 167
Interest expense............................. (353) (311) (1,083) (8,185) (8,600) (4,381) (3,392)
Other income (expense), net.................. 134 (85) 448 16,169 8,275 6,783 (738)
--------- --------- ---------- -------- -------- -------- --------
Earnings (loss) from continuing operations
before income taxes...................... (51,121) (20,902) (100,406) 27,366 22,794 14,636 8,476
Income tax benefit (expense)................. -- -- -- 4,000 (9,100) (5,689) (3,400)
--------- --------- ---------- -------- -------- -------- --------
Earnings (loss) from continuing
operations............................... (51,121) (20,902) (100,406) 31,366 13,694 8,947 5,076
Earnings (loss) from discontinued operations,
net of income taxes........................ -- -- (1,136) 2,640 -- 375 --
--------- --------- ---------- -------- -------- -------- --------
Net earnings (loss)........................ (51,121) (20,902) (101,542) 34,006 13,694 9,322 5,076
Redeemable preferred stock dividends......... -- -- -- (3,049) (3,200) (1,600) (1,596)
Accretion of Series B redeemable preferred
stock...................................... -- -- -- (420) (441) (219) (218)
Gain on repurchase of preferred stock........ -- -- -- -- -- -- 2,139
--------- --------- ---------- -------- -------- -------- --------
Net earnings (loss) available to common
shareholders............................. $ (51,121) $ (20,902) $ (101,542) $ 30,537 $ 10,053 $ 7,503 $ 5,401
========= ========= ========== ======== ======== ======== ========
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- -------------------
1996 1997 1998 1999 2000 2000 2001
-------- -------- -------- -------- -------- -------- --------
(In thousands) (Unaudited)
OTHER OPERATING DATA:
EBITDA(3)....................................... $ 5,498 $ 20,612 $ 15,692 $ 36,457 $ 39,486 $ 20,440 $ 19,967
Capital expenditures from continuing
operations.................................... 3,868 2,529 3,941 5,128 7,395 3,021 4,123
Segment revenues
Women's Health................................ 122,261 128,489 115,147 109,986 109,716 55,230 52,386
Diabetes Supplies and Services................ -- -- 39 110,529 114,694 56,004 72,674
Other segments(4)............................. 8,545 16,044 20,029 11,224 1,357 709 1,146
12
15
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- -------------------
1996 1997 1998 1999 2000 2000 2001
-------- -------- -------- -------- -------- -------- --------
(Unaudited)
SELECTED RATIOS:
Ratio of earnings to fixed charges(5).......... (23.5) (7.9) (29.9) 3.6 3.1 3.6 2.9
Ratio of EBITDA to interest expense............ 15.6 66.3 14.5 4.5 4.6 4.7 5.9
Ratio of total debt to EBITDA(6)............... 0.9 0.1 1.2 2.8 2.2 2.0 2.3
Ratio of total debt to total
capitalization(6)............................ 2.8% 1.7% 27.7% 42.0% 38.8% 36.6% 42.1%
DECEMBER 31, JUNE 30, 2001
--------------------------------------------------- -------------------------
1996 1997 1998 1999 2000 ACTUAL AS ADJUSTED(7)
-------- -------- ------- -------- -------- -------- --------------
(In thousands) (Unaudited)
BALANCE SHEET DATA:
Cash and cash equivalents............. $ 6,930 $ 9,086 $ 9,109 $ 9,548 $ 3,915 $ 959 $ --
Working capital....................... 22,025 41,152 36,341 58,404 51,603 23,354 47,587
Total assets.......................... 223,188 191,132 97,034 285,713 268,293 248,519 252,311
Long-term debt (including current
portion)............................ 5,020 2,596 19,103 101,452 88,811 89,857 119,410
Shareholders' equity.................. 173,178 153,169 49,881 99,244 98,850 103,034 98,258
------------
(1) Includes $1,228,000 of executive severance expense in 2000.
(2) See Notes to Consolidated Financial Statements included herein.
(3) EBITDA is defined as earnings (loss) from continuing operations before
depreciation and amortization, net interest expense, and nonrecurring items
(including restructuring charges, asset impairment charges, executive
severance expenses, earnings (loss) from our divested infertility practice
management services business ($789,000 in 1996, $(32,000) in 1997, $761,000
in 1998 and $(679,000) in 1999), and other income, net). EBITDA is commonly
used as an analytical indicator within the healthcare industry, and also
serves as a measure of leverage capacity and debt service ability. EBITDA
should not be considered as a measure of financial performance under
generally accepted accounting principles, and the items excluded from EBITDA
are significant components in understanding and assessing financial
performance. EBITDA should not be considered in isolation or as an
alternative to net income, cash flows generated by operating, investing or
financing activities or other financial statement data presented in the
consolidated financial statements as an indicator of financial performance
or liquidity. Because EBITDA is not a measurement determined in accordance
with generally accepted accounting principles and is thus susceptible to
varying calculations, EBITDA as presented may not be comparable to other
similarly titled measures of other companies.
(4) Other segments include respiratory disease management, clinical records
software and services (a business we exited in the second quarter of 2000)
and infertility practice management services (portions of which were sold
during the third and fourth quarters of 1999).
(5) The ratio of earnings to fixed charges was calculated by dividing (i)
earnings (loss) from continuing operations before income taxes plus fixed
charges by (ii) fixed charges, which consist of interest expense and the
portion of rental expense under operating leases estimated to be
representative of the interest factor. Giving effect to the offering of old
notes to repay outstanding indebtedness and to repurchase certain debt
securities and the application of a portion of the net proceeds from the
offering for that purpose, as if these transactions occurred on the first
day of the period, our pro forma ratio of earnings to fixed charges would
have been (i) 2.5 for the year ended December 31, 2000, (ii) 2.9 for the six
months ended June 30, 2000, and (iii) 2.2 for the six months ended June 30,
2001.
(6) Includes the current portion of long-term debt.
(7) Adjusted to reflect the use of the proceeds from the offering of old notes
to repurchase outstanding Series A convertible preferred stock, Series B
redeemable preferred stock, warrants to purchase common stock and
subordinated notes and to repay all of the outstanding indebtedness under
our existing term and revolving credit facility.
13
16
FORWARD-LOOKING INFORMATION
This prospectus, and documents incorporated by reference to the
registration statement of which this prospectus forms a part, contain numerous
forward-looking statements about the financial condition, results of operations,
cash flows, dividends, financing plans, business strategies, capital or other
expenditures, competitive positions, growth opportunities, plans and objectives
of management, markets for debt securities and other matters. The words
"estimate," "project," "intend," "expect," "believe," "forecast," and similar
expressions are intended to identify these forward-looking statements, but some
of these statements may use other phrasing. In addition, any statement in this
prospectus that is not a historical fact is a "forward-looking statement." Such
forward-looking statements are not guarantees of future performance and are
subject to risks, uncertainties and other factors that may cause the actual
results, performance or achievements of Matria to differ materially from
historical results or from any results expressed or implied by such
forward-looking statements. In addition to the specific risk factors described
in the section entitled "Risk Factors," important factors that could cause
actual results to differ materially from those suggested by the forward-looking
statements include, but are not limited to:
- changes in reimbursement rates, policies or payment practices by
third-party payors, whether initiated by the payor or legislatively
mandated;
- the loss of major customers;
- termination of our exclusive supply agreement with Nipro Corporation or
failure to continue the agreement on the terms currently in effect;
- impairment of our rights in our intellectual property;
- increased or more effective competition;
- new technologies that render obsolete or non-competitive products and
services offered by us;
- changes in laws or regulations applicable to us or failure to comply with
existing laws and regulations;
- future healthcare or budget legislation or other health reform
initiatives;
- increased exposure to professional negligence liability;
- losses due to foreign currency exchange rate fluctuations or
deterioration of economic conditions in foreign markets;
- changes in company-wide or business unit strategies;
- the effectiveness of our advertising, marketing and promotional programs;
- market acceptance of our disease management products; and
- increases in interest rates.
Many of such factors are beyond our ability to control or predict, and
readers are cautioned not to put undue reliance on such forward-looking
statements. Except as required by law, we expressly disclaim any obligation to
publicly release any revisions to these forward-looking statements to reflect
events or circumstances after the date of this prospectus or to reflect the
occurrence of unanticipated events.
14
17
RISK FACTORS
You should carefully consider the following factors in addition to all
other information contained in this prospectus.
RISK RELATING TO OUR BUSINESS
THIRD PARTY PAYORS AND GOVERNMENT-SPONSORED PROGRAMS MAY REDUCE PAYMENTS TO US.
Of our total revenues, 75% depend on reimbursement from third-party payors,
such as managed care companies and government-sponsored health insurance
programs. In the first six months of 2001, 49% of our total revenues were
derived from nongovernmental third-party payors (including employers), 14% were
derived from domestic governmental payors and 12% were derived from foreign
governmental healthcare systems.
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.
GOVERNMENT REGULATION MAY ADVERSELY AFFECT OUR BUSINESS.
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. Because nurses from our Women's Health segment occasionally make home
visits to conduct an assessment of a patient or educate a patient on the use of
equipment, many states require us to be licensed as a nursing or a home health
agency and to have medical waste disposal permits. Some states have established
Certificate of Need ("CON") programs regulating the establishment or expansion
of our operations. In addition, the operations of our diabetes disease
management businesses require us to be licensed as a pharmacy in several states.
Moreover, some of our employees are subject to state laws and regulations
regarding the ethics and professional practice of pharmacy and nursing. We also
may be required to obtain certification to participate in governmental payment
programs, such as Medicare and Medicaid. The failure to obtain, renew or
maintain any of the required licenses, permits, CONs or certifications could
adversely affect our businesses.
We are also subject to federal and state laws that regulate and, in some
cases, prohibit certain direct and indirect payments between healthcare
providers. These laws prohibit payments intended to induce or encourage the
referral of patients to, or the recommendation of, a particular provider of
items or services. Violation of these laws can result in the loss of licenses,
civil and criminal penalties and exclusion from Medicare, Medicaid and other
federal healthcare programs.
15
18
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 (the "FDC Act") and are subject to regulation by the United States
Food and Drug Administration ("FDA"). Several recent FDA actions with respect to
home uterine activity monitors may affect our home uterine activity monitoring
business. Currently, we have exclusive rights to use and purchase the only
uterine activity monitor that has received pre-market approval from the FDA for
home use on patients with a history of previous preterm birth. In the past, our
rights to the monitors have been a material competitive advantage in marketing
our uterine activity monitoring services. However, in 2001, the FDA reclassified
the monitors from Class III to Class II devices, which will make substantially
equivalent devices available to our competitors without their having to receive
pre-market approval. As part of the reclassification, the FDA has imposed
special controls on the use of such devices. It is not clear what impact these
developments will have on 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. Any 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.
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.
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.
THE LOSS OF CERTAIN OF OUR CUSTOMERS WOULD ADVERSELY AFFECT OUR BUSINESS.
In the first six months of 2001, approximately 20% of our total revenues
were attributable to sales to three large commercial customers in our diabetes
management and fulfillment segment. We have multiple contracts covering various
products with these customers that have expirations ranging from six months to
two years. The loss of any one of these customers may have a material adverse
effect on our results of operations. In addition, 14% of our revenues are
derived from domestic governmental payors, primarily in the disease management
diabetes segment, and another 12% of our revenues are derived from foreign
16
19
governmental payors. Any change in coverage by governmental payors or in our
status as a participating provider in these government programs may have a
material adverse effect on our business.
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.
SOME ASPECTS OF OUR DISEASE MANAGEMENT BUSINESS ARE RELATIVELY UNPROVEN.
Our domestic diabetes disease management program identifies, classifies and
manages the care of patients with diabetes. This particular aspect of our
disease management services is a relatively new component of our business and of
the overall healthcare industry. The success of this component 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
program.
Since this aspect of our disease management business is 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 disease management market.
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 provides 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.
OUR OPERATING RESULTS HAVE FLUCTUATED IN THE PAST AND ARE LIKELY TO CONTINUE TO
FLUCTUATE SIGNIFICANTLY.
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:
- the impact of substantial divestitures and acquisitions;
- the loss or addition of customers and referral sources;
- changes in the mix of our products and customers;
- changes in healthcare reimbursement policies and amounts;
17
20
- increases in operating expenses;
- increases in selling, general and administrative expenses;
- increased or more effective competition; and
- regulatory changes.
In addition, demand for women's health services historically increases
during the first calendar quarter and decreases during the third and fourth
calendar quarters. The seasonal variability of demand for these services
significantly affects, and we believe will continue to affect, our quarterly
operating results.
In 1999 and 2000, our results of operations were favorably impacted by
significant gains realized on our investment in WebMD Corporation. We have
disposed of much of this investment and do not anticipate realizing similar
gains on our remaining investment in WebMD or on other investments in the
future.
Since mid-2000, we have been making significant investments in an effort to
grow our disease management business. Largely as a result of increased
expenditures associated with these efforts and as contemplated by our public
statements, we expect that our results of operations for the second quarter of
2001 will be less favorable than our results of operations for the comparable
period in 2000. We cannot assure you that our operating results for future
periods will not be similarly less favorable as compared to prior year periods.
THE ACCELERATION OF AMORTIZATION OR WRITE OFF OF OUR INTANGIBLE ASSETS COULD
ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.
As of June 30, 2001, we had net unamortized intangible assets of
approximately $114.6 million, which constituted 46% of our total assets. These
intangible assets include goodwill of approximately $112.1 million, which we
amortize over eight to 15 years. We periodically evaluate the rate of
amortization of our intangible assets based on a number of factors, including
the prospects of the acquired companies to which the goodwill relates and
whether changed circumstances indicate that all or a portion of the carrying
value of our intangible assets may no longer be recoverable. Any determination
requiring the significant acceleration of amortization, or the write off of a
significant portion of the unamortized portion, of our intangible assets could
adversely affect our results of operations. In 1998, we recorded an $82.9
million asset impairment charge to write-down goodwill and intangible assets
associated with the merger that resulted in our formation in 1996. There can be
no assurance that we will not be required to take similar charges in the future.
WE OPERATE IN HIGHLY COMPETITIVE BUSINESSES.
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, technical and 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 business and adversely affect our operating results.
FROM TIME TO TIME WE MAY BE SUBJECT TO COSTLY LITIGATION.
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
18
21
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 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 FOREIGN OPERATIONS ARE SUBJECT TO ADDITIONAL RISKS.
Although the majority of our operations are in the United States, in the
first six months of 2001 and the years 2000 and 1999, 15%, 16% and 16%,
respectively, of our revenues were from sales by our operations outside of the
United States. 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.
RISKS RELATING TO THE EXCHANGE NOTES
WE HAVE SUBSTANTIAL OUTSTANDING INDEBTEDNESS FOLLOWING THE OFFERING OF THE OLD
NOTES.
At June 30, 2001, our total consolidated long-term debt (including current
maturities), after giving effect to the offering of the old notes and the
application of the net proceeds from the offering of the old notes and the
repayment of indebtedness, accounted for approximately 55% of our total
capitalization. In addition, subject to restrictions in the indenture, we may
incur additional indebtedness.
The degree to which we are leveraged could have important consequences to
you, including:
- a substantial portion of our cash flow from operations will be required
to be dedicated to interest and principal payments and may not be
available for operations, working capital, capital expenditures,
expansion, acquisitions or general corporate or other purposes;
- our ability to obtain additional financing in the future may be impaired;
- we may be more highly leveraged than our competitors, which may place us
at a competitive disadvantage;
- our flexibility in planning for, or reacting to, changes in our business
and industry may be limited; and
- our degree of leverage may make us more vulnerable in the event of a
downturn in our business or in our industry or the economy in general.
In addition, the indenture imposes significant operating and financial
restrictions on us. These restrictions limit our ability to, among other things,
incur additional indebtedness, make investments, sell assets, pay dividends,
engage in business activities or enter into certain transactions.
Our ability to make payments on and to refinance our debt, including the
notes, will depend on our ability to generate cash in the future. This, to a
certain extent, is subject to general economic, business, financial,
competitive, legislative, regulatory and other factors that are beyond our
control.
We cannot assure you that our business will generate sufficient cash flow
from operations or that future borrowings will be available to us under credit
facilities in an amount sufficient to enable us to pay our debt, including the
notes, or to fund our other liquidity needs. We may need to refinance all or a
portion of our debt, including the notes, on or before maturity, and such
refinancing may be prohibited or costly under the terms of the notes. We cannot
assure you that we would be able to refinance any of our debt, including any
credit facilities and the notes, on commercially reasonable terms or at all.
19
22
OUR ABILITY TO REPURCHASE THE NOTES UPON A CHANGE OF CONTROL OR IN CONNECTION
WITH AN ASSET SALE, OR TO MAKE AN EXCESS CASH FLOW OFFER, MAY BE LIMITED.
In the event of certain changes of control involving us, you will have the
right, at your option, to require us to repurchase all or a portion of the notes
you hold at a purchase price equal to 101% of the aggregate principal amount of
your notes plus accrued interest thereon to the repurchase date. In addition,
under certain circumstances we may be required by the terms of the indenture to
make an offer to repurchase notes with proceeds from asset sales or with excess
cash flow. Our ability to repurchase the notes upon a change of control or in
connection with an asset sale or with excess cash flow may be limited by the
terms of any credit facility we may have in place at the time. Further, our
ability to repurchase the notes upon a change of control or in connection with
an asset sale or with excess cash flow will be dependent on the availability of
sufficient funds and our ability to comply with applicable securities laws.
Accordingly, there can be no assurance that we will be in a position to
repurchase the notes upon a change of control or in connection with an asset
sale or with excess cash flow. The term "change of control" under the indenture
is limited to certain specified transactions and may not include other events
that might adversely affect our financial condition or result in a downgrade of
the credit rating (if any) of the notes. The requirement that we offer to
repurchase the notes upon a change of control would not necessarily afford
holders of the notes protection in the event of a highly leveraged
reorganization.
THE NOTES ARE UNSECURED AND EFFECTIVELY SUBORDINATED TO OUR SECURED DEBT AND
STRUCTURALLY SUBORDINATED TO THE LIABILITIES OF SOME OF OUR SUBSIDIARIES.
The notes will not be secured. Our current credit facility is, and any
successor credit facility likely may be, secured by accounts receivable,
inventories, property and equipment and certain of our other assets. If we
become insolvent or are liquidated, or if payment under any of this facility or
any of our other secured debt obligations is accelerated, our lenders would be
entitled to exercise the remedies available to a secured lender under applicable
law and will have a claim on those assets before the holders of the notes. As a
result, the notes are effectively subordinated to our secured indebtedness to
the extent of the value of the assets securing that indebtedness and the holders
of the notes may recover ratably less than the lenders of our secured debt in
the event of our bankruptcy or liquidation. The notes will also be structurally
subordinated to all existing and future obligations, including indebtedness, of
our subsidiaries that do not guarantee the notes and the claims of creditors of
these subsidiaries, including trade creditors, will have priority as to the
assets of these subsidiaries.
YOUR ABILITY TO ENFORCE THE GUARANTEES OF THE NOTES MAY BE LIMITED.
Although the notes are obligations of Matria Healthcare, Inc., they will be
unconditionally guaranteed on an unsecured senior basis by certain of our
domestic subsidiaries. The performance by each subsidiary guarantor of its
obligations with respect to its guarantee may be subject to review under
relevant federal and state fraudulent conveyance and similar statutes in a
bankruptcy or reorganization lawsuit by or on behalf of unpaid creditors of such
subsidiary guarantor. If a court were to find under relevant federal or state
fraudulent conveyance statutes that a subsidiary guarantor did not receive fair
consideration or reasonably equivalent value for incurring its guarantee of the
notes, and that, at the time of such incurrence, the subsidiary guarantor: (i)
was insolvent, (ii) was rendered insolvent by reason of such incurrence, (iii)
was engaged in a business or transaction for which the assets remaining with
such subsidiary guarantor constituted unreasonably small capital or (iv)
intended to incur, or believed that it would incur, debts beyond its ability to
pay such debts as they matured, then the court, subject to applicable statutes
of limitation, could void the subsidiary guarantor's obligations under its
guarantee, recover payments made under the guarantee, subordinate the guarantee
to other indebtedness of the subsidiary guarantor or take other action
detrimental to the holders of the notes.
The measure of insolvency for these purposes will depend upon the governing
law of the relevant jurisdiction. Generally, however, a company will be
considered insolvent for these purposes if the sum of that company's debts is
greater than the fair value of all of that company's property or if the present
fair salable value of that company's assets is less than the amount that will be
required to pay its probable
20
23
liability on its existing debts as they become absolute and matured or if a
company is not able to pay its debts as they become due. Moreover, regardless of
solvency, a court could avoid an incurrence of indebtedness, including the
guarantees, if it determined that such transaction was made with the intent to
hinder, delay or defraud creditors. In addition, a court could subordinate the
indebtedness, including the guarantees, to the claims of all existing and future
creditors on similar grounds. The guarantees could also be subject to the claim
that, since the guarantees were incurred for our benefit (and only indirectly
for the benefit of the subsidiary guarantors), the obligations of the subsidiary
guarantors under the guarantees were incurred for less than reasonably
equivalent value or fair consideration.
There can be no assurance as to what standard a court would apply in order
to determine whether a subsidiary guarantor was "insolvent" upon the sale of the
notes or that, regardless of the method of valuation, a court would not
determine that the subsidiary guarantor was insolvent upon consummation of the
sale of the notes.
IF YOU DO NOT PROPERLY TENDER YOUR OLD NOTES FOR NEW NOTES, YOU WILL CONTINUE TO
HOLD UNREGISTERED NOTES WHICH ARE SUBJECT TO TRANSFER RESTRICTIONS.
We will only issue exchange notes in exchange for old notes that are timely
received by the exchange agent together with all required documents. Therefore,
you should allow sufficient time to ensure timely delivery of the old notes and
you should carefully follow the instructions on how to tender your old notes set
forth under "The Exchange Offer -- Procedures for Tendering" and in the letter
of transmittal that you will receive with this prospectus. Neither we nor the
exchange agent are required to tell you of any defects or irregularities with
respect to your tender of the old notes. If you do not tender your old notes or
if we do not accept your old notes because you did not tender your old notes
properly, then you will continue to hold old notes that are subject to the
existing transfer restrictions. In addition, if you tender your old notes for
the purpose of participating in a distribution of the exchange notes, you will
be required to comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale of the exchange notes. If
you continue to hold any old notes after the exchange offer is completed, you
may have difficulty selling them because of the restrictions on transfer and
because there will be fewer old notes outstanding. In addition, if a large
amount of old notes are not tendered or are tendered improperly, the limited
amount of exchange notes that would be issued and outstanding after we complete
the exchange offer could lower the market price of the exchange notes.
IF AN ACTIVE TRADING MARKET DOES NOT DEVELOP FOR THE EXCHANGE NOTES, YOU MAY BE
UNABLE TO SELL THE EXCHANGE NOTES OR TO SELL THEM AT A PRICE YOU DEEM
SUFFICIENT.
The exchange notes will be new securities for which there is no established
trading market. We do not intend to list the exchange notes on any exchange. We
cannot give you any assurance as to:
- the liquidity of any trading market that may develop;
- the ability of holders to sell their exchange notes; or
- the price at which holders would be able to sell their exchange notes.
Even if a trading market develops, the exchange notes may trade at higher
or lower prices than their principal amount or purchase price, depending
on many factors, including:
- prevailing interest rates;
- the number of holders of the notes;
- the interest of securities dealers in making a market for the notes;
- the market for similar notes; and
- our financial performance.
Finally, if a large number of holders of old notes do not tender old notes
or tender old notes improperly, the limited amount of exchange notes that would
be issued and outstanding after we complete the exchange offer could adversely
affect the development of a market for the exchange notes.
21
24
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The old notes were originally sold to UBS Warburg LLC and First Union
Securities, Inc. as Initial Purchasers in a private offering by Matria, closing
on July 9, 2001. In connection with the private offering of the old notes, we,
the Guarantors and the Initial Purchasers entered into a registration rights
agreement in which we and the Guarantors agreed to:
- file a registration statement no later than 60 days after the closing
date of the private offering of the old notes;
- use commercially reasonable efforts to cause the registration statement
to become effective no later than 120 days after the closing date of the
private offering of the old notes; and
- upon the effectiveness of the registration statement, offer to the
holders of the old notes the opportunity to exchange their old notes for
a like principal amount of exchange notes, and to hold such exchange
offer open for at least 20 business days after the date notice of the
exchange offer is mailed to holders.
The exchange notes will be issued without a restrictive legend and may be
reoffered and resold by the holder without restrictions or limitations under the
Securities Act of 1933, except as described below. We have agreed in the
registration rights agreement to use commercially reasonable efforts to complete
the exchange offer and issue the exchange notes no later than 150 days after the
closing date of the private offering of the old notes. This exchange offer is
intended to satisfy our exchange offer obligations under the registration rights
agreement.
For each old note surrendered to us pursuant to the exchange offer, the
holder of such old note will receive an exchange note having a principal amount
equal to that of the surrendered old note. The term "holder" with respect to the
exchange offer means any person in whose name old notes are registered on our
books or any other person who has obtained a properly completed bond power from
the registered holder or any person whose old notes are held of record by The
Depository Trust Company ("DTC") who desires to deliver such old notes by
book-entry transfer through DTC.
Under existing interpretations of the Securities Act by the staff of the
SEC contained in several no-action letters to third parties, we believe that the
exchange notes will generally be freely transferable by holders who have validly
participated in the exchange offer without further registration under the
Securities Act (assuming the truth of certain representations required to be
made by each holder of notes, as set forth below). For additional information on
the SEC's position, we refer you to the following no-action letters: Exxon
Capital Holdings Corporation, available April 13, 1988; Morgan Stanley & Co.
Incorporated, available June 5, 1991; and Shearman & Sterling, available July 2,
1993. However, any purchaser of old notes who is one of our "affiliates," who
intends to participate in the exchange offer for the purpose of distributing the
exchange notes, or who is a broker-dealer who purchased old notes from us to
resell pursuant to Rule 144A or any other available exemption under the
Securities Act:
- will not be able to tender its old notes in the exchange offer;
- will not be able to rely on the interpretations of the staff of the SEC;
and
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any sale or transfer of the old
notes unless such sale or transfer is made pursuant to an exemption from
these requirements.
If you wish to exchange your old notes for exchange notes in the exchange
offer, you will be required to make representations in a letter of transmittal
which is attached to this prospectus, including that:
- you are not our "affiliate" (as defined in Rule 405 under the Securities
Act);
- any exchange notes to be received by you will be acquired in the ordinary
course of your business;
22
25
- you have no arrangement or understanding with any person to participate
in the distribution of the exchange notes in violation of the provisions
of the Securities Act;
- if you are not a broker-dealer, you are not engaged in, and do not intend
to engage in, a distribution of exchange notes; and
- if you are a broker-dealer (a "participating broker-dealer"), you
acquired the old notes for your own account as a result of market-making
or other trading activities, you have not entered into any arrangement or
understanding with Matria or an affiliate of Matria to distribute the
exchange notes and you will deliver a prospectus meeting the requirements
of the Securities Act in connection with any resale of the exchange
notes.
The SEC has taken the position that participating broker-dealers may be
deemed to be "underwriters" with the meaning of the Securities Act, and
accordingly may fulfill their prospectus delivery requirements with respect to
the exchange notes, other than a resale of an unsold allotment from the original
sale of the notes, with the prospectus contained in the exchange offer
registration statement. Under the registration rights agreement, we are required
to allow participating broker-dealers and other persons, if any, subject to
similar prospectus delivery requirements, to use the prospectus contained in the
exchange offer registration statement in connection with the resale of the
exchange notes.
Under the registration rights agreement, our obligations to register the
new notes will terminate upon the completion of the exchange offer. However, the
SEC interpretations referred to above may be subject to change, hindering our
ability to complete the exchange offer. If:
- any changes in applicable law or the applicable interpretations of the
staff of the SEC do not permit us to conduct the exchange offer;
- for any other reason the exchange offer is not completed within 150 days
following the date of the first issuance of the old notes;
- a holder of old notes notifies Matria within 20 business days after the
consummation deadline that the holder (1) was prohibited by law or SEC
policy from participating in the exchange offer, (2) may not resell the
new notes acquired by it in the exchange offer to the public without
delivering a prospectus and the prospectus contained in this registration
statement is not appropriate or available for such resales by such
holder, or (3) is a broker-dealer and holds notes acquired directly from
Matria or any of its affiliates,
then, we and the Guarantors will, at our cost:
- as promptly as practicable and in any event on or prior to 45 days after
such filing obligation arises, use our commercially reasonable efforts to
file a shelf registration statement covering resales of the old notes or
exchange notes, as applicable;
- use our commercially reasonable efforts to cause the shelf registration
statement to be declared effective under the Securities Act within 90
days after such filing obligation arises; and
- use our commercially reasonable efforts to keep effective the shelf
registration until two years after its effective date, or until one year
after the effective date if the shelf registration statement is filed
solely at the request of an initial purchaser.
If we file a shelf registration statement, we will provide you copies of
the prospectus which is a part of the shelf registration statement, notify you
when the shelf registration statement for the old notes has become effective and
take other actions as are required to permit unrestricted resales of the old
notes. A holder of old notes that sells the old notes pursuant to the shelf
registration statement generally will be:
- required to be named as a selling security holder in the related
prospectus and deliver a prospectus to purchasers;
- subject to certain of the civil liability provisions under the Securities
Act in connection with the sales; and
23
26
- bound by the provisions of the registration rights agreement which are
applicable to such a holder, including indemnification obligations.
In addition, each holder of the old notes will be required to deliver
information to be used in connection with the shelf registration statement and
to provide any comments on the shelf registration statement within the time
periods described in the registration rights agreement in order to have their
old notes included in the shelf registration statement and to benefit from the
provisions regarding liquidated damages described below.
If any of the following (each a "registration default") occurs:
- either one of these registration statements required to be filed by us is
not filed with the SEC on or before its required deadline;
- either one of these registration statements required to be filed by us is
not declared effective on or before its required deadline;
- the exchange offer is not completed on or before the 150th calendar day
following the date of the first issuance of the old notes; or
- either one of these registration statements required to be filed is filed
and declared effective but thereafter ceases to be effective or usable
(subject to certain exceptions),
the interest rate borne by the old notes will be increased by 0.25% per annum
upon the occurrence of a registration default. This rate will continue to
increase by 0.25% each 90 day period that the liquidated damages (as defined
below) continue to accrue under any such circumstance. However, the maximum
total increase in the interest rate will in no event exceed one percent (1.00%)
per year. We refer to this increase in the interest rate on the old notes as
"liquidated damages." Such interest is payable in addition to any other interest
payable from time to time with respect to the old notes and the exchange notes
in cash on each interest payment date to the holders of record for such interest
payment date. After the cure of registration defaults, the accrual of liquidated
damages will stop and the interest rate will revert to the original rate.
The above summary highlights the material provisions of the registration
rights agreement, but does not restate that agreement in its entirety. We urge
you to review all of the provisions of the registration rights agreement,
because it, and not this description, defines your rights as holders to exchange
your old notes for registered exchange notes. A copy of the registration rights
agreement has previously been filed with the SEC by us, and is incorporated by
reference in the registration statement of which this prospectus forms a part.
Following the consummation of the exchange offer, holders of old notes who
were eligible to participate in the exchange offer but who did not tender their
old notes will not have any further registration rights, and the old notes will
continue to be subject to certain restrictions on transfer. Accordingly, the
liquidity of the market for the old notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
This prospectus and the accompanying letter of transmittal contain the
terms and conditions of the exchange offer. Upon the terms and subject to the
conditions set forth in this prospectus and in the accompanying letter of
transmittal, we will accept for exchange all old notes which are properly
tendered and not withdrawn on or prior to 5:00 p.m., New York City time, on the
expiration date. After authentication of the exchange notes by the trustee or an
authentication agent, we will issue and deliver $1,000 principal amount of
exchange notes in exchange for each $1,000 principal amount of outstanding old
notes accepted in the exchange offer. Holders may tender some or all of their
old notes in the exchange offer in denominations of $1,000 and integral
multiples thereof.
24
27
The form and terms of the exchange notes are identical in all material
respects to the form and terms of the old notes, except that:
(1) the offering of the exchange notes has been registered under the
Securities Act;
(2) the exchange notes will generally not be subject to transfer
restrictions or registration rights; and
(3) certain provisions relating to liquidated damages on the old notes
provided for under certain circumstances will be eliminated.
The exchange notes will evidence the same debt as the old notes. The
exchange notes will be issued under and entitled to the benefits of the
indenture.
As of the date of this prospectus, $122,000,000 aggregate principal amount
of the old notes is outstanding. In connection with the issuance of the old
notes, arrangements were made for the old notes to be issued and transferable in
book-entry form through the facilities of DTC, acting as a depositary. The
exchange notes will also be issuable and transferable in book-entry form through
DTC.
This prospectus, together with the accompanying letter of transmittal, is
initially being sent to all registered holders of the old notes as of August 28,
2001. The exchange offer is not conditioned upon any minimum aggregate principal
amount of old notes being tendered. However, our obligation to accept old notes
for exchange pursuant to the exchange offer is subject to certain customary
conditions that we describe under "-- Conditions to the Exchange Offer" below.
We shall be deemed to have accepted validly tendered old notes when, as and
if we have given oral or written notice thereof to the exchange agent. The
exchange agent will act as agent for the tendering holders for the purpose of
receiving exchange notes from us and delivering exchange notes to such holders.
If any tendered old notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted old notes will be returned, at our cost, to
the tendering holder thereof as promptly as practicable after the expiration
date.
Holders who tender old notes in the exchange offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the letter
of transmittal, transfer taxes with respect to the exchange of old notes
pursuant to the exchange offer. We will pay all charges and expenses, other than
certain applicable taxes, in connection with the exchange offer. See
"-- Solicitation of Tenders; Fees and Expenses" for more detailed information
regarding the expenses of the exchange offer.
By executing or otherwise becoming bound by the letter of transmittal, you
will be making the representations described under "-- Procedures for Tendering"
below.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "expiration date" shall mean 5:00 p.m., New York City time, on
September 27, 2001, unless we, in our sole discretion, extend the exchange
offer, in which case the term "expiration date" shall mean the latest date to
which the exchange offer is extended. We may extend the exchange offer at any
time and from time to time by giving oral or written notice to the exchange
agent and by timely public announcement.
We expressly reserve the right, at any time, to extend the period of time
during which the exchange offer is open, and thereby delay acceptance of any old
notes, by giving oral or written notice of such extension to the exchange agent
and notice of such extension to the holders as described below. During any such
extension, all old notes previously tendered will remain subject to the exchange
offer and may be accepted for exchange by us. Any old notes not accepted for
exchange for any reason will be returned without expense to the tendering holder
thereof as promptly as practicable after the expiration or termination of the
exchange offer.
25
28
We expressly reserve the right to amend or terminate the exchange offer,
and not to accept for exchange any old notes that we have not yet accepted for
exchange, if any of the conditions set forth herein under "-- Conditions to the
Exchange Offer" shall have occurred and shall not have been waived by us, if
such conditions are permitted to be waived by us.
We will give oral or written notice of any such extension, amendment,
termination or non-acceptance described above to holders of the old notes as
promptly as practicable. If the exchange offer is amended in a manner determined
by us to constitute a material change, we will promptly disclose such amendment
in a manner reasonably calculated to inform the holders of such amendment and we
will extend the exchange offer to the extent required by law.
Without limiting the manner in which we may choose to make public
announcements of any extension, amendment, termination or non-acceptance of the
exchange offer, and subject to applicable law, we will have no obligation to
publish, advertise or otherwise communicate any such public announcement other
than by issuing a timely release to the Dow Jones News Service.
INTEREST ON THE EXCHANGE NOTES
Interest on the exchange notes will accrue from the last interest payment
date on which interest was paid on the old notes surrendered in exchange
therefor or, if no interest has been paid on the old notes, from the issue date
of the old notes. Interest on the exchange notes will be payable semi-annually
on May 1 and November 1 of each year, commencing November 1, 2001.
PROCEDURES FOR TENDERING
WHAT TO SUBMIT AND HOW
Each holder of old notes wishing to accept the exchange offer must
complete, sign and date the letter of transmittal, or a facsimile thereof, in
accordance with the instructions contained herein and therein. Each holder
should then mail or otherwise deliver such letter of transmittal, or such
facsimile, together with the old notes to be exchanged and any other required
documentation, to Wells Fargo Bank Minnesota, National Association, as exchange
agent, at the address set forth below under "-- Exchange Agent" on or prior to
the expiration date. A holder may also effect a tender of old notes pursuant to
the procedures for book-entry transfer as provided for herein and therein.
Any financial institution that is a participant in DTC's Book-Entry
Transfer Facility system may make book-entry delivery of the old notes by
causing DTC to transfer such old notes into the exchange agent's account in
accordance with DTC's procedure for such transfer. Although delivery of old
notes may be effected through book-entry transfer into the exchange agent's
account at DTC, the letter of transmittal, or a facsimile thereof, with any
required signature guarantees and any other required documents, must, in any
case, be transmitted to and received by the exchange agent at its address set
forth herein under "Exchange Agent" prior to 5:00 p.m., New York City time, on
the expiration date. Delivery of documents to DTC in accordance with its
procedures does not constitute delivery to the exchange agent.
Only a holder may tender its old notes in the exchange offer. To tender in
the exchange offer, a holder must:
(1) complete, sign and date the letter of transmittal or a facsimile
thereof;
(2) have the signatures thereof guaranteed if required by the letter
of transmittal; and
(3) unless such tender is being effected pursuant to the procedure for
book-entry transfer, mail or otherwise deliver such letter of transmittal
or such facsimile, together with the old notes and other required
documents, to the exchange agent, prior to 5:00 p.m., New York City time,
on the expiration date.
The tender by a holder will constitute an agreement between such holder,
our company and the exchange agent in accordance with the terms and subject to
the conditions set forth herein and in the
26
29
letter of transmittal. If less than all of the old notes are tendered, a
tendering holder should fill in the amount of old notes being tendered in the
appropriate box on the letter of transmittal. The entire amount of old notes
delivered to the exchange agent will be deemed to have been tendered unless
otherwise indicated.
The method of delivery of old notes and the letter of transmittal and all
other required documents to the exchange agent is at the election and risk of
the holders. Instead of delivery by mail, it is recommended that holders use an
overnight or hand delivery service. In all cases, sufficient time should be
allowed to ensure delivery to the exchange agent prior to the expiration date.
No letter of transmittal or old notes should be sent to Matria. Holders may also
request that their respective brokers, dealers, commercial banks, trust
companies or nominees effect such tender for holders. in each case as set forth
herein and in the letter of transmittal.
Any beneficial owner whose old notes are registered in the name of his
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial owner wishes to
tender on his own behalf, such beneficial owner must, prior to completing and
executing the letter of transmittal and delivering his old notes, either make
appropriate arrangements to register ownership of the old notes in such owner's
name or obtain a properly completed bond power from the registered holder. The
transfer of record ownership may take considerable time.
REQUIRED REPRESENTATIONS IN LETTER OF TRANSMITTAL
The letter of transmittal will include representations to our company that,
among other things:
(1) the exchange notes acquired pursuant to the exchange offer are
being acquired in the ordinary course of business of the person receiving
such exchange notes, whether or not such person is the holder;
(2) neither the holder nor any such other person is engaged in,
intends to engage in or has any arrangement or understanding with any
person to participate in the distribution of such exchange notes;
(3) neither the holder nor any such other person is an "affiliate," as
defined in Rule 405 under the Securities Act of 1933, of our company; and
(4) if the tendering holder is a broker or dealer as defined in the
Exchange Act, then
(a) it acquired the old notes for its own account as a result of
market-making activities or other trading activities; and
(b) it has not entered into any arrangement or understanding with
our company or any "affiliate" of our company within the meaning of Rule
405 under the Securities Act of 1933 to distribute the exchange notes to
be received in the exchange offer.
In the case of a broker-dealer that receives exchange notes for its own
account in exchange for old notes which were acquired by it as a result of
market-making or other trading activities, the letter of transmittal will also
include an acknowledgement that the broker-dealer will deliver a copy of this
prospectus in connection with the resale by it of exchange notes received
pursuant to the exchange offer; however, by so acknowledging and by delivering a
prospectus, such holder will not be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act of 1933. See "Plan of Distribution."
HOW TO SIGN YOUR LETTER OF TRANSMITTAL AND OTHER DOCUMENTS
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the
27
30
Exchange Act (each an "Eligible Institution"), unless the old notes tendered
pursuant thereto are tendered
(1) by a registered holder who has not completed the box entitled
"Special Registration Instructions" or "Special Delivery Instruction" of
the letter of transmittal; or
(2) for the account of an Eligible Institution.
If the letter of transmittal is signed by a person other than the registered
holder of old notes, such old notes must be endorsed or accompanied by
appropriate bond powers which authorize such person to tender the old notes
on behalf of the registered holder, in either case signed as the name of the
registered holder or holders appears on the old notes. If the letter of
transmittal or any old notes or bond powers are signed or endorsed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and unless waived by us,
evidence satisfactory to us of their authority to so act must be submitted
with such letter of transmittal.
IMPORTANT RULES CONCERNING THE EXCHANGE OFFER
You should note that:
- All questions as to the validity, form, eligibility, including time of
receipt, acceptance and withdrawal of the tendered old notes will be
determined by us in our sole discretion, which determination will be
final and binding;
- We reserve the absolute right to reject any and all old notes not
properly tendered or any old notes the acceptance of which would, in our
judgment or the judgment of our counsel, be unlawful;
- We also reserve the absolute right to waive any irregularities or
conditions of tender as to particular old notes. Our company's
interpretation of the terms and conditions of the exchange offer,
including the instructions in the letter of transmittal, will be final
and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of old notes must be cured within such time as
we shall determine;
- Although we intend to notify holders of defects or irregularities with
respect to any tender of old notes, neither our company, the exchange
agent nor any other person shall be under any duty to give notification
of any defect or irregularity with respect to tenders of old notes, nor
shall any of them incur any liability for failure to give such
notification; and
Tenders of old notes will not be deemed to have been made until such
irregularities have been cured or waived. Any old notes received by the exchange
agent that we determine are not properly tendered or the tender of which is
otherwise rejected by us and as to which the defects or irregularities have not
been cured or waived by us will be returned by the exchange agent to the
tendering holder unless otherwise provided in the letter of transmittal, as soon
as practicable following the expiration date.
BOOK-ENTRY TRANSFER
The exchange agent will make a request promptly after the date of this
prospectus to establish accounts with respect to the old notes at the DTC for
the purpose of facilitating the exchange offer. Any financial institution that
is a participant in the DTC's system may make book-entry delivery of old notes
by causing the DTC to transfer such old notes into the exchange agent's account
with respect to the old notes in accordance with DTC's Automated Tender Offer
Program procedures for such transfer. However, the exchange for the old notes so
tendered will only be made after timely confirmation of such book-entry transfer
of old notes into the exchange agent's account, and timely receipt by the
exchange agent of an agent's message and any other documents required by the
letter of transmittal. The term "agent's message" means a message, transmitted
by DTC and received by the exchange agent and forming a part of the confirmation
of a book-entry transfer, which states that DTC has received an express
acknowledgment from a participant that is tendering old notes that such
participant has received the letter
28
31
of transmittal and agrees to be bound by the terms of the letter of transmittal,
and that we may enforce such agreement against the participant.
Although delivery of old notes may be effected through book-entry transfer
into the exchange agent's account at DTC, an appropriate letter of transmittal
properly completed and duly executed with any required signature guarantee and
all other required documents must in each case be transmitted to and received or
confirmed by the exchange agent at its address set forth below on or prior to
the expiration date, or you must comply with the guaranteed delivery procedures
described below. Delivery of documents to DTC does not constitute delivery to
the exchange agent.
GUARANTEED DELIVERY PROCEDURES
If you are a registered holder of old notes and you wish to tender such old
notes but your initial notes are not immediately available, or time will not
permit your old notes or other required documents to reach the exchange agent
before the expiration date, or the procedure for book-entry transfer cannot be
completed on a timely basis, you may effect a tender if:
(1) the tender is made through an Eligible Institution;
(2) prior to the expiration date, the exchange agent receives from
such Eligible Institution a properly completed and duly executed notice of
guaranteed delivery, by facsimile transmittal, mail or hand delivery
(a) stating the name and address of the holder, the certificate
number or numbers of such holder's old notes and the principal amount of
such old notes tendered;
(b) stating that the tender is being made thereby; and
(c) guaranteeing that, within three New York Stock Exchange trading
days after the expiration date, the letter of transmittal, or a
facsimile thereof, together with the certificate(s) representing the old
notes to be tendered in proper form for transfer, or confirmation of a
book-entry transfer into the exchange agent's account at DTC of old
notes delivered electronically, and any other documents required by the
letter of transmittal, will be deposited by the Eligible Institution
with the exchange agent; and
(3) such properly completed and executed letter of transmittal, or a
facsimile thereof, together with the certificate(s) representing all
tendered old notes in proper form for transfer, or confirmation of a
book-entry transfer into the exchange agent's account at DTC of old notes
delivered electronically and all other documents required by the letter of
transmittal are received by the exchange agent within three NYSE trading
days after the expiration date.
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their old notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of old notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the expiration date.
For a withdrawal to be effective, a written or facsimile transmission
notice of withdrawal must be received by the exchange agent at its address set
forth herein prior to 5:00 p.m., New York City time, on the expiration date. Any
such notice of withdrawal must:
- specify the name of the person having deposited the old notes to be
withdrawn (the "Depositor"),
- identify the old notes to be withdrawn, including the certificate number
or number and principal amount of such old notes or, in the case of old
notes transferred by book-entry transfer, the name and number of the
account at DTC to be credited,
29
32
- be signed by the Depositor in the same manner as the original signature
on the letter of transmittal by which such old notes were tendered,
including any required signature guarantee, or be accompanied by
documents of transfer sufficient to permit the trustee with respect to
the old notes to register the transfer of such old notes into the name of
the Depositor withdrawing the tender, and
- specify the name in which any such old notes are to be registered, if
different from that of the Depositor.
Please note that all questions as to the validity, form and eligibility,
including time of receipt, of such withdrawal notices will be determined by us,
and our determination shall be final and binding on all parties. Any old notes
so withdrawn will be deemed not to have been validly tendered for purposes of
the exchange offer, and no exchange notes will be issued with respect thereto
unless the old notes so withdrawn are validly retendered. Properly withdrawn old
notes may be retendered by following one of the procedures described above under
"-- Procedures for Tendering" at any time prior to the expiration date.
EXCHANGE AGENT
Wells Fargo Bank Minnesota, National Association, the trustee under the
indenture, has been appointed as exchange agent for the exchange offer. All
executed letters of transmittal should be directed to the exchange agent at one
of the addresses set forth below. In such capacity, the exchange agent has no
fiduciary duties and will be acting solely on the basis of directions of our
company. Questions, requests for assistance and requests for additional copies
of this prospectus or of the letter of transmittal should be directed to the
exchange agent addressed as follows:
By Courier: Wells Fargo Bank Minnesota, National Association
Attention: Corporate Trust Services
213 Court Street, Suite 902
Middletown, CT 06457
By Mail: Wells Fargo Bank Minnesota, National Association
Attention: Corporate Trust Services
213 Court Street, Suite 902
Middletown, CT 06457
By Hand Delivery: Wells Fargo Bank Minnesota, National Association
Attention: Corporate Trust Services
213 Court Street, Suite 902
Middletown, CT 06457
Facsimile for Eligible Institutions: (860)
704-6219
Delivery to an address or facsimile number other than those listed above
will not constitute a valid delivery.
SOLICITATION OF TENDERS, FEES AND EXPENSES
We will pay all expenses of soliciting tenders pursuant to the exchange
offer. The principal solicitation pursuant to the exchange offer is being made
by mail. Additional solicitations may be made by officers and regular employees
of our company and our affiliates in person, by telegraph, telephone or
telecopier.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer. We will, however, pay the exchange
agent reasonable and customary fees for its services and will reimburse the
exchange agent for its reasonable out-of-pocket costs and expenses in connection
therewith and will indemnify the exchange agent for all losses and claims
incurred by it as a result of the exchange offer.
We may also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding
copies of this prospectus, letters of transmittal and
30
33
related documents to the beneficial owners of the old notes and in handling or
forwarding tenders for exchange.
The expenses to be incurred in connection with the exchange offer,
including fees and expenses of the exchange agent and trustee and accounting and
legal fees and printing costs, will be paid by our company.
We will pay all transfer taxes, if any, applicable to the exchange of old
notes pursuant to the exchange offer. If, however, certificates representing
exchange notes or old notes for principal amounts not tendered or accepted for
exchange are to be delivered to, or are to be registered or issued in the name
of, any person other than the registered holder of the old notes tendered, or if
tendered old notes are registered in the name of any person other than the
person signing the letter of transmittal, or if the transfer tax is imposed for
any reason other than the exchange of old notes pursuant to the exchange offer,
then the amount of any such transfer taxes, whether imposed on the registered
holder or any other persons, will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the letter of transmittal, the amount of such transfer taxes will
be billed by us directly to such tendering holder.
ACCOUNTING TREATMENT
The exchange notes will be recorded at the same carrying value as the old
notes, as reflected in our accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by us as
a result of the consummation of the exchange offer. The expenses of the exchange
offer will be amortized by us over the term of the exchange notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of the making of, and upon acceptance for exchange of all
validly tendered old notes pursuant to the terms of, this exchange offer, we
will have fulfilled certain obligations contained in the registration rights
agreement. Holders of the old notes who do not tender their old notes in the
exchange offer will continue to hold such old notes and will be entitled to all
the rights, and subject to the limitations applicable thereto, under the
indenture and the registration rights agreement, except for any such rights
under the registration rights agreement that by their terms terminate or cease
to have further effect as a result of the making of this exchange offer. All
untendered old notes will continue to be subject to the restrictions on transfer
set forth in the Indenture. Accordingly, such old notes may be resold only:
(1) to Matria;
(2) pursuant to a registration statement which has been declared
effective under the Securities Act;
(3) in the United States to qualified institutional buyers within the
meaning of Rule 144A in reliance upon the exemption from the registration
requirements of the Securities Act provided by Rule 144A;
(4) in the United States to institutional "accredited investors", as
defined in Rule 501(a)(1), (2), (3) or (7) promulgated under the Securities
Act, in transactions exempt from the registration requirements of the
Securities Act;
(5) outside the United States in transactions complying with the
provisions of Regulation S under the Securities Act; or
(6) pursuant to any other available exemption from the registration
requirements under the Securities Act.
To the extent that old notes are tendered and accepted in the exchange
offer, the liquidity of the trading market for untendered old notes could be
adversely affected.
31
34
USE OF PROCEEDS
The exchange offer is intended to satisfy certain of our obligations under
the registration rights agreement. We will not receive any cash proceeds from
the exchange offer.
CAPITALIZATION
The following table sets forth our historical capitalization as of June 30,
2001 and our capitalization on an as adjusted basis to reflect the sale of the
old notes and the application of the net proceeds from the old notes to repay
bank debt and repurchase certain outstanding securities.
You should read the information in this table together with our unaudited
consolidated condensed financial statements and the notes to those statements
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" for the quarter and six months ended June 30, 2001, incorporated by
reference into this prospectus.
JUNE 30, 2001
--------------------------
AS
ACTUAL ADJUSTED
----------- -----------
(Unaudited, in thousands)
Cash and cash equivalents................................... $ 959 $ --
========= =========
Accrued liabilities:
Accrued interest.......................................... $ 1,578 $ 69
Accrued preferred stock dividends......................... 425 --
--------- ---------
Total accrued interest and dividends............... $ 2,003 $ 69
========= =========
Long-term debt:
Current portion of long-term debt......................... $ 27,792 $ 2,403
Long-term obligations, net of current portion:
Long-term debt and capital lease obligations............ 62,065 132
11% Senior Notes due 2008 (net of discount)............. -- 116,875
--------- ---------
Total long-term debt............................... 89,857 119,410
--------- ---------
Redeemable preferred stock, $.01 par value. Authorized
50,000 shares:
Series A convertible, redeemable; 2.5 shares outstanding,
actual and no shares outstanding as adjusted............ 2,500 --
Series B redeemable; 20 shares outstanding actual and no
shares outstanding, as adjusted......................... 18,094 --
--------- ---------
Total redeemable preferred stock................... 20,594 --
--------- ---------
Common shareholders' equity:
Common stock, $.01 par value. Authorized 25,000 shares:
issued and outstanding 8,721 shares actual and as
adjusted................................................ 87 87
Additional paid-in capital................................ 290,021 285,245
Accumulated deficit....................................... (182,602) (182,602)
Accumulated other comprehensive loss...................... (937) (937)
Notes receivable and accrued interest from shareholder.... (3,535) (3,535)
--------- ---------
Total common shareholders' equity.................. 103,034 98,258
--------- ---------
Total capitalization............................... $ 213,485 $ 217,668
========= =========
32
35
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with our historical consolidated financial statements and related
notes and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for the quarter and six months ended June 30, 2001,
incorporated by reference into this prospectus.
The selected consolidated financial data as of and for each of the years
ended December 31, 1996, 1997, 1998, 1999 and 2000 set forth below have been
derived from our audited consolidated financial statements. The selected
consolidated financial data as of and for the six months ended June 30, 2001 and
2000 set forth below 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.
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- -------------------
1996 1997 1998 1999 2000 2000 2001
-------- -------- --------- -------- -------- -------- --------
(In thousands, except for per share amounts) (Unaudited)
STATEMENT OF OPERATIONS DATA:
Revenues........................................ $130,806 $144,533 $ 128,572 $231,739 $225,767 $111,943 $126,206
Cost of revenues................................ 55,911 57,610 51,278 118,305 116,179 57,775 68,475
Selling and administrative expenses(1).......... 66,775 65,020 60,613 73,653 68,468 32,197 36,606
Provision for doubtful accounts................. 7,591 6,599 6,342 7,193 7,043 3,511 3,773
Amortization of intangible accounts............. 30,083 36,604 27,700 9,439 9,803 4,896 4,913
Restructuring charges(2)........................ 22,525 -- -- 4,241 1,599 1,599 --
Asset impairment charges(2)..................... -- -- 82,885 -- -- -- --
-------- -------- --------- -------- -------- -------- --------
Operating earnings (loss) from continuing
operations.................................. (52,079) (21,300) (100,246) 18,908 22,675 11,965 12,439
Interest income................................. 1,177 794 475 474 444 269 167
Interest expense................................ (353) (311) (1,083) (8,185) (8,600) (4,381) (3,392)
Other income (expense), net..................... 134 (85) 448 16,169 8,275 6,783 (738)
-------- -------- --------- -------- -------- -------- --------
Earnings (loss) from continuing operations
before income taxes......................... (51,121) (20,902) (100,406) 27,366 22,794 14,636 8,476
Income tax benefit (expense).................... -- -- -- 4,000 (9,100) (5,689) (3,400)
-------- -------- --------- -------- -------- -------- --------
Earnings (loss) from continuing operations.... (51,121) (20,902) (100,406) 31,366 13,694 8,947 5,076
Earnings (loss) from discontinued operations,
net of income taxes........................... -- -- (1,136) 2,640 -- 375 --
-------- -------- --------- -------- -------- -------- --------
Net earnings (loss)..................... (51,121) (20,902) (101,542) 34,006 13,694 9,322 5,076
Redeemable preferred stock dividends............ -- -- -- (3,049) (3,200) (1,600) (1,596)
Accretion of Series B redeemable preferred
stock......................................... -- -- -- (420) (441) (219) (218)
Gain on repurchase of preferred stock........... -- -- -- -- -- -- 2,139
-------- -------- --------- -------- -------- -------- --------
Net earnings (loss) available to common
shareholders.......................... $(51,121) $(20,902) $(101,542) $ 30,537 $ 10,053 $ 7,503 $ 5,401
======== ======== ========= ======== ======== ======== ========
Net earnings (loss) per common share
Basic:
Continuing operations....................... $ (6.33) $ (2.29) $ (10.98) $ 3.05 $ 1.10 $ 0.77 $ 0.62
Discontinued operations..................... -- -- (0.12) 0.29 -- 0.04 --
-------- -------- --------- -------- -------- -------- --------
$ (6.33) $ (2.29) $ (11.10) $ 3.34 $ 1.10 $ 0.81 $ 0.62
======== ======== ========= ======== ======== ======== ========
Diluted:
Continuing operations....................... $ (6.33) $ (2.29) $ (10.98) $ 2.82 $ 1.05 $ 0.72 $ 0.61
Discontinued operations..................... -- -- (0.12) 0.26 -- 0.04 --
-------- -------- --------- -------- -------- -------- --------
$ (6.33) $ (2.29) $ (11.10) $ 3.08 $ 1.05 $ 0.76 $ 0.61
======== ======== ========= ======== ======== ======== ========
Weighted average shares outstanding(3):
Basic......................................... 8,082 9,132 9,145 9,151 9,139 9,212 8,735
Diluted....................................... 8,082 9,132 9,145 10,036 9,946 10,159 9,003
33
36
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- -------------------
1996 1997 1998 1999 2000 2000 2001
-------- -------- --------- -------- -------- -------- --------
(In thousands, except for ratios) (Unaudited)
OTHER OPERATING DATA:
EBITDA(4)....................................... $ 5,498 $ 20,612 $ 15,692 $ 36,457 $ 39,486 $ 20,440 $ 19,967
Capital expenditures from continuing
operations.................................... 3,868 2,529 3,941 5,128 7,395 3,021 4,123
Segment revenues:
Women's Health................................ 122,261 128,489 115,147 109,986 109,716 55,230 52,386
Diabetes Supplies and Services................ -- -- 39 110,529 114,694 56,004 72,674
Other segments(5)............................. 8,545 16,044 20,029 11,224 1,357 709 1,146
SELECTED RATIOS:
Ratio of earnings to fixed charges(6)........... (23.5) (7.9) (29.9) 3.6 3.1 3.6 2.9
Ratio of EBITDA to interest expense............. 15.6 66.3 14.5 4.5 4.6 4.7 5.9
Ratio of total debt to EBITDA(7)................ 0.9 0.1 1.2 2.8 2.2 2.0 2.3
Ratio of total debt to total
capitalization(7)............................. 2.8% 1.7% 27.7% 42.0% 38.8% 36.6% 42.1%
DECEMBER 31, JUNE 30,
--------------------------------------------------- -------------------
1996 1997 1998 1999 2000 2000 2001
-------- -------- ------- -------- -------- -------- --------
(In thousands) (Unaudited)
BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 6,930 $ 9,086 $ 9,109 $ 9,548 $ 3,915 $ 725 $ 959
Working capital................................ 22,025 41,152 36,341 58,404 51,603 41,240 23,354
Total assets................................... 223,188 191,132 97,034 285,713 268,293 264,237 248,519
Long-term debt (including current portion)..... 5,020 2,596 19,103 101,452 88,811 82,181 89,857
Shareholders' equity........................... 173,178 153,169 49,881 99,244 98,850 100,961 103,034
------------
(1) Includes $1,228,000 of executive severance expenses in 2000.
(2) See Notes to Consolidated Financial Statements included herein.
(3) Adjusted to reflect a four-for-one stock split, effective in December 2000,
under which every four shares of our common stock were converted into one
new share of common stock.
(4) EBITDA is defined as earnings (loss) from continuing operations before
depreciation and amortization, net interest expense, and nonrecurring items
(including restructuring charges, asset impairment charges, executive
severance expenses, earnings (loss) from our divested infertility practice
management services business ($789,000 in 1996, $(32,000) in 1997, $761,000
in 1998 and $(679,000) in 1999), and other income, net). EBITDA is commonly
used as an analytical indicator within the healthcare industry, and also
serves as a measure of leverage capacity and debt service ability. EBITDA
should not be considered as a measure of financial performance under
generally accepted accounting principles, and the items excluded from EBITDA
are significant components in understanding and assessing financial
performance. EBITDA should not be considered in isolation or as an
alternative to net income, cash flows generated by operating, investing or
financing activities or other financial statement data presented in the
consolidated financial statements as an indicator of financial performance
or liquidity. Because EBITDA is not a measurement determined in accordance
with generally accepted accounting principles and is thus susceptible to
varying calculations, EBITDA as presented may not be comparable to other
similarly titled measures of other companies.
(5) Other segments include respiratory disease management, clinical records
software and services (business was exited in the second quarter of 2000)
and infertility practice management services (portions of which were sold
during the third and fourth quarters of 1999).
(6) The ratio of earnings to fixed charges was calculated by dividing (i)
earnings (loss) from continuing operations before income taxes plus fixed
charges by (ii) fixed charges, which consist of interest expense and the
portion of rental expense under operating leases estimated to be
representative of the interest factor. Giving effect to this offering to
repay outstanding indebtedness and to repurchase certain debt securities and
the application of a portion of the net proceeds from the offering of old
notes for that purpose, as if these transactions occurred on the first day
of the period, our pro forma ratio of earnings to fixed charges would have
been (i) 2.5 for the year ended December 31, 2000, (ii) 2.9 for the six
months ended June 30, 2000 and (iii) 2.2 for the six months ended June 30,
2001.
(7) Includes the current portion of long-term debt.
34
37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The "Management's Discussion and Analysis of Financial Condition and
Results of Operations" description included as Exhibit 99.1 to our Current
Report on Form 8-K filed on June 15, 2001 (file number 000-20619) is
incorporated herein by reference.
BUSINESS
The "Business" description included as Exhibit 99.2 to our Current Report
on Form 8-K filed on June 15, 2001 (file number 000-20619) is incorporated
herein by reference.
MANAGEMENT
The following table sets forth information with respect to our executive
officers and directors as of July 10, 2001.
NAME AGE POSITION
---- --- --------
Parker H. Petit............................ 61 Chairman, President and Chief Executive
Officer, Director
Jeffrey D. Koepsell........................ 54 Executive Vice President and Chief
Operating Officer, Director
Frank D. Powers............................ 52 President -- Population Health Management
James P. Reichmann......................... 44 President -- Women's Health Division
George W. Dunaway.......................... 40 Vice President -- Finance and Chief
Financial Officer
Yvonne V. Scoggins......................... 51 Vice President -- Financial Planning and
Analysis
Roberta L. McCaw........................... 46 Vice President -- Legal, General Counsel
and Secretary
Thornton A. Kuntz, Jr. .................... 47 Vice President -- Administration
Richard F. Levy............................ 70 Director
Guy W. Millner............................. 65 Director
Carl E. Sanders............................ 75 Director
Thomas S. Stribling........................ 58 Director
Jackie M. Ward............................. 62 Director
Donald W. Weber............................ 64 Director
Morris S. Weeden........................... 81 Director
Frederick P. Zuspan, M.D. ................. 79 Director
------------
Mr. Petit has served as Chairman of the Board of Directors of Matria since
the merger of Tokos Medical Corporation and Healthdyne Maternity Management, a
subsidiary of Healthdyne, Inc. with and into Matria in 1996. He has also served
as President and Chief Executive Officer of Matria since October 5, 2000. Mr.
Petit founded Healthdyne in 1970 and served as its Chairman of the Board of
Directors and Chief Executive Officer until the 1996 Matria merger. In 1994,
Healthdyne sold its majority ownership in Home Nutritional Services, Inc. to
W.R. Grace & Co. Prior to the spinoff of its subsidiaries Healthdyne
Technologies, Inc. in 1995 and Healthcare.com Corporation (formerly, Healthdyne
Information Enterprises, Inc.) in 1995, Healthdyne was a national provider of
home healthcare services, medical devices and specialty products. Prior to the
1996 Matria merger, Healthdyne had one remaining business unit, Healthdyne
Maternity Management, which was the predecessor to Matria's Women's Health
division. In 1997, Healthdyne Technologies was acquired by Respironics, Inc. Mr.
Petit serves as the Chairman of the Board of Directors of Healthcare.com, which
recently entered into an agreement to be acquired by XCare.net, Inc. Mr. Petit
also serves as a director of Intelligent Systems Corp. and Logility, Inc.
35
38
Mr. Koepsell 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 in 1992. Mr.
Koepsell is also a former executive of Healthdyne.
Mr. Powers has been President -- Population Health Management since May 17,
2000. The Population Health Management division includes domestic diabetes
disease management and fulfillment services and RMS. Mr. Powers was previously
Executive Vice President and Chief Operating Officer of Matria from October 20,
1997 to May 17, 2000 and Executive Vice President from March 8, 1996 to October
20, 1997. Prior thereto, he served as President of Healthdyne Maternity
Management, a subsidiary of Healthdyne, from October 1989 until March 1996, and
as President of Healthdyne's Home Care Group from November 1986 to October 1989.
In addition, he was President of Healthdyne's Home Care Products Division from
September 1984 to November 1986 and Corporate Controller of Healthdyne from
January 1983 to September 1984.
Mr. Reichmann has been President -- Women's Health Division since June 1,
1999, and was Vice President-Operations of that division from January 1997 to
June 1999. Prior thereto, Mr. Reichmann was Vice President of Sales at RIK
Medical, L.L.C., a specialty support services company, and was Executive Vice
President of Healthdyne Perinatal Services, a subsidiary of Healthdyne, from
February 1992 to March 1996.
Mr. Dunaway has been Vice President -- Finance and Chief Financial Officer
since October 5, 1999. Prior thereto, Mr. Dunaway was employed by The Dun &
Bradstreet Corporation, a commercial credit information services provider, in
the following capacities: Chief Financial Officer of Dun & Bradstreet, United
States from 1996 to October 1999; Vice President -- Finance, Dun & Bradstreet,
U. S. from 1995 to 1996; Chief Financial Officer of Dun & Bradstreet Plan
Services from 1992 to 1995 and Assistant Vice President -- Strategic Planning,
Dun & Bradstreet Plan Services from 1989 to 1992.
Ms. Scoggins has been Vice President -- Financial Planning and Analysis
since February 28, 2001 and previously was Vice President, Treasurer and Chief
Accounting Officer of Matria from December 15, 1997 to February 28, 2001 and
also Vice President and Controller from March 8, 1996 to December 15, 1997.
Prior thereto, she was Vice President and Controller of Healthdyne from May 1995
to March 8, 1996; Vice President -- Planning and Analysis of Healthdyne from May
1993 to May 1995; and Vice President and Chief Financial Officer of Home
Nutritional Services, Inc., a former majority owned subsidiary of Healthdyne,
from February 1990 to April 1993.
Ms. McCaw has been Vice President -- Legal, General Counsel and Secretary
of Matria since April 23, 1998 and previously was Assistant General Counsel and
Assistant Secretary of Matria from December 15, 1997 to April 23, 1998, and
Assistant General Counsel from July 1996 to December 1997. Prior thereto, Ms.
McCaw was a partner at Tyler, Cooper & Alcorn, a Connecticut-based law firm,
from January 1990 to July 1996.
Mr. Kuntz has been Vice President -- Administration since February 24, 1998
and previously was Vice President -- Human Resources of Matria from March 8,
1996 to February 24, 1998. Prior thereto, he served as Vice
President -- Administration of Healthdyne from August 1992 to March 1996.
Mr. Levy has been a director of Matria since September 20, 2000. Mr. Levy
is a partner at Altheimer & Gray, an international law firm based in Chicago,
Illinois. Mr. Levy also serves as Vice Chairman and Director of Amalgamated
Investments Company, a bank holding company in Chicago, and is also a director
of Danka Business Systems. Prior to 1998, he was a director of Ambassador
Apartments, a large apartment real estate investment trust, and prior to 1997,
he was a senior partner at Kirkland & Ellis. Mr. Levy was elected as a director
pursuant to the agreement under which we acquired substantially all of the
assets of Gainor Medical Management, LLC in 1999.
36
39
Mr. Millner 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. Mr. Millner currently serves as a director of Spherion
Corporation.
Mr. Sanders has served as a director of Matria since the merger of Tokos
and Healthdyne and previously served as a director of Healthdyne from 1986 until
the merger. Mr. Sanders, a former governor of the State of Georgia, is Chairman
of Troutman Sanders LLP, an Atlanta based law firm that provides legal services
to Matria. Mr. Sanders is also a director of First Union Corporation of Georgia
and Healthcare.com Corporation.
Mr. Stribling has served as a director of Matria since May 18, 2000. Mr.
Stribling is an entrepreneur and private investor. 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.
Ms. Ward has served as a director of Matria since the merger of Tokos and
Healthdyne. Ms. Ward is Outside Managing Director of Computer Generation
Incorporated, a privately-held, Atlanta based corporation engaged in designing
and producing "turnkey" computer hardware and software systems for
telecommunications and other specialized applications, which she founded in
1968. She also served as its President and Chief Executive Officer until
December 22, 2000, when it was sold to Intec Telecom Systems. 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 Trigon Healthcare, Inc., Bank of America Corporation, Equifax, Inc.,
PTEK Holdings, Inc., The Profit Recovery Group International, Inc., SCI Systems,
Inc. and Flowers Industries, Inc. and a member of several other civic and
government organizations.
Mr. Weber 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 Healthcare.com Corporation, Powertel, Inc., and Knology
Holdings, Inc.
Mr. Weeden has served as a director of Matria since the merger of Tokos and
Healthdyne 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.
Dr. Zuspan has served as a director of Matria since the merger of Tokos and
Healthdyne and previously served as a director of Healthdyne from 1993 until the
merger. Dr. Zuspan, who has been a physician since 1951, has been Professor and
Chairman Emeritus, Department of Obstetrics and Gynecology at the Ohio State
University College of Medicine since July 1991 and Editor-in-Chief of the
American Journal of Obstetrics and Gynecology since 1991. Dr. Zuspan was
previously Professor of the Ohio State University College of Medicine from 1987
to 1991 and Professor and Chairman of the Department of Obstetrics and
Gynecology at the Ohio State University College of Medicine from 1975 to 1987,
at the University of Chicago, Pritzker School of Medicine from 1966 to 1975, and
at the Medical College of Georgia from 1960 to 1966.
37
40
DESCRIPTION OF NOTES
As used below in this "Description of Notes" section, "Matria" means Matria
Healthcare, Inc., a Delaware corporation, and its successors, but not any of its
subsidiaries. Matria issued the old notes and will issue the exchange notes
described in this prospectus (the "notes") under an indenture, dated as of July
9, 2001 (the "indenture"), among Matria, the Guarantors and Wells Fargo Bank
Minnesota, National Association, as trustee (the "trustee"). The indenture is
subject to and governed by the Trust Indenture Act of 1939, as amended. The
terms of the notes include those set forth in the indenture and those made part
of the indenture by reference to the Trust Indenture Act.
Matria has previously filed a copy of the indenture with the SEC, and the
indenture is incorporated by reference as an exhibit to the registration
statement of which this prospectus forms a part. Copies of the indenture and the
registration rights agreement are available as set forth below under
"-- Additional Information." You can find definitions of certain terms used in
this description under the heading "--Certain Definitions." Certain defined
terms used in this description but not defined below under "-- Certain
Definitions" have the meanings assigned to them in the indenture. The registered
holder of a note will be treated as the owner of it for all purposes. Only
registered holders will have rights under the indenture.
The following is a summary of the material terms and provisions of the
notes. The following summary does not purport to be a complete description of
the notes and is subject to the detailed provisions of, and qualified in its
entirety by reference to, the indenture.
BRIEF DESCRIPTION OF THE EXCHANGE NOTES AND THE GUARANTEES
THE EXCHANGE NOTES
The exchange notes:
- are senior unsecured obligations of Matria;
- are pari passu in right of payment with any existing and future senior
unsecured indebtedness of Matria;
- are unconditionally guaranteed by the Guarantors named in the indenture;
and
- have terms that are substantially identical to the old notes, except that
the exchange notes will be registered under the Securities Act, and
therefore, generally will not be subject to transfer restrictions or
registration rights, and the provisions of the registration rights
agreement relating to liquidated damages on the outstanding old notes
under certain circumstances will be eliminated.
THE GUARANTEES
The exchange notes, like the old notes, are guaranteed by all of Matria's
domestic subsidiaries except the excluded subsidiaries.
Each guarantee of the exchange notes:
- is a senior unsecured obligation of the Guarantor; and
- is pari passu in right of payment with any future senior unsecured
indebtedness of that Guarantor.
As of July 9, 2001, Matria and the Guarantors had total senior unsecured
indebtedness of approximately $125.9 million on a consolidated basis. An
additional $30 million was available to Matria for borrowing under the Credit
Facility that Matria entered into as of that date. Payments on the notes and
under these guarantees will be subordinated to the payment of senior unsecured
indebtedness. The indenture will permit us and the Guarantors to incur
additional senior unsecured indebtedness.
38
41
PRINCIPAL, MATURITY AND INTEREST
The notes will mature on May 1, 2008. The notes will bear interest at the
rate shown on the cover page of this prospectus, payable on May 1 and November 1
of each year, commencing on November 1, 2001, to holders of record at the close
of business on April 15 or October 15, as the case may be, immediately preceding
the relevant interest payment date. Interest on the notes will be computed on
the basis of a 360-day year of twelve 30-day months.
The notes are issued in registered form, without coupons, and in
denominations of $1,000 and integral multiples of $1,000.
On July 9, 2001, we issued $125,000,000 aggregate principal amount of our
old notes in a private offering. Since July 9, 2001, we have repurchased a
portion of the old notes and we may repurchase additional notes after the date
hereof. These repurchases will reduce our obligation to repurchase notes if we
have excess cash flow at year end. These repurchases are permitted under the
indenture that governs the notes. See "Description of the Notes -- Certain
Covenants -- Excess Cash Flow Purchase Offer." An aggregate principal amount of
exchange notes equal to $122,000,000 is being issued in this offering. Matria
may issue additional notes of up to $50.0 million aggregate principal amount
having identical terms and conditions to the notes being issued in this offering
(the "additional notes"), subject to compliance with the "Limitations on
Additional Indebtedness" covenant described below. Any additional notes will be
part of the same issue as the notes being issued in this offering and will vote
on all matters as one class with the notes being issued in this offering,
including, without limitation, waivers, amendments, redemptions and offers to
purchase. For purposes of this "Description of Notes," except for the covenant
described under "-- Certain Covenants -- Limitations on Additional
Indebtedness," references to the notes include additional notes, if any.
The old notes were issued with original issue discount (the excess of the
principal amount of the notes at maturity over the issue price) of 6.5% from
their principal amount at maturity. For federal income tax purposes, purchasers
of the old notes in the initial offering will be required to include such
original issue discount accrual in income (on a constant yield basis) ratably
over the term of the note in accordance with, and computed pursuant to,
applicable tax rules. See "Material U.S. Federal Income Tax Considerations."
PAYING AGENT AND REGISTRAR FOR THE NOTES
The trustee is paying agent and registrar. Matria may change the paying
agent or registrar without prior notice to the holders of the notes, and Matria
or any of its subsidiaries may act as paying agent or registrar.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
If a holder has given wire transfer instructions to Matria and the trustee
at least ten business days prior to the applicable payment date, Matria will
make all payments on such holder's notes in accordance with those instructions.
Otherwise, payments on the notes will be made at the office or agency of the
paying agent (the "paying agent") and registrar (the "registrar") for the notes
within the City and State of New York unless Matria elects to make interest
payments by check mailed to the holders at their addresses set forth in the
register of holders.
RANKING
The notes will be general unsecured obligations of Matria. The notes will
rank senior in right of payment to all future obligations of Matria that are, by
their terms, expressly subordinated in right of payment to the notes and pari
passu in right of payment with all existing and future unsecured obligations of
Matria that are not so subordinated. Each note guarantee (as defined below) will
be a general unsecured obligation of the Guarantor thereof and will rank senior
in right of payment to all future obligations of such Guarantor that are, by
their terms, expressly subordinated in right of payment to such
39
42
note guarantee and pari passu in right of payment with all existing and future
unsecured obligations of such Guarantor that are not so subordinated.
The notes and each note guarantee will be effectively subordinated to
secured indebtedness of Matria and the applicable Guarantor (including
indebtedness under the Credit Facility) to the extent of the value of the assets
securing such indebtedness.
The notes will also be effectively subordinated to all existing and future
obligations, including indebtedness, of any unrestricted subsidiaries and our
other subsidiaries that do not guarantee the notes. Claims of creditors of these
subsidiaries, including trade creditors, will generally have priority as to the
assets of these subsidiaries over the claims of Matria and the holders of
Matria's indebtedness, including the notes.
NOTE GUARANTEES
Matria's obligations under the notes and the indenture will be jointly and
severally guaranteed (the "note guarantees") by each restricted subsidiary
(other than the foreign subsidiaries) of Matria.
Not all of our subsidiaries will guarantee the notes. Foreign subsidiaries
and unrestricted subsidiaries will not be Guarantors. In the event of a
bankruptcy, liquidation or reorganization of any of these non-guarantor
subsidiaries, these non-guarantor subsidiaries will pay the holders of their
debts and their trade creditors before they will be able to distribute any of
their assets to us.
All of our domestic subsidiaries are Guarantors. However, foreign
subsidiaries will not guarantee the notes. As of December 31, 2000 and June 30,
2001, the foreign subsidiaries accounted for approximately 4% and 5%,
respectively, of our total assets. Our foreign subsidiaries accounted for
approximately 16% and 15% of our revenues for the year ended December 31, 2000
and the six months ended June 30, 2001, respectively. In addition, under the
circumstances described below under the subheading "-- Certain
Covenants -- Designation of Unrestricted Subsidiaries," Matria will be permitted
to designate some of our other subsidiaries as "unrestricted subsidiaries." The
effect of designating a subsidiary as an "unrestricted subsidiary" will be:
- an unrestricted subsidiary will not be subject to many of the restrictive
covenants in the indenture;
- a subsidiary that has previously been a Guarantor and that is designated
an unrestricted subsidiary will be released from its note guarantee; and
- the assets, income, cash flow and other financial results of an
unrestricted subsidiary will not be consolidated with those of Matria for
purposes of calculating compliance with the restrictive covenants
contained in the indenture.
The obligations of each Guarantor under its note guarantee are limited to
the maximum amount as will, after giving effect to all other contingent and
fixed liabilities of such Guarantor (including, without limitation, any
guarantees under the Credit Facility permitted under clause (1) of "-- Certain
Covenants -- Limitations on Additional Indebtedness") and after giving effect to
any collections from or payments made by or on behalf of any other Guarantor in
respect of the obligations of such other Guarantor under its note guarantee or
pursuant to its contribution obligations under the indenture, result in the
obligations of such Guarantor under its note guarantee not constituting a
fraudulent conveyance or fraudulent transfer under federal or state law. Each
Guarantor that makes a payment for distribution under its note guarantee is
entitled to a contribution from each other Guarantor in a pro rata amount based
on adjusted net assets of each Guarantor.
In the event of a sale or other disposition of all of the assets of any
Guarantor, by way of merger, consolidation or otherwise, or a sale or other
disposition of all of the equity interests of any Guarantor then held by Matria
and the restricted subsidiaries, then that Guarantor will be released and
relieved of any obligations under its note guarantee; provided that the net
available proceeds of such sale or other disposition shall be applied in
accordance with the applicable provisions of the indenture, to the extent
required thereby. See "-- Certain Covenants -- Limitations on Asset Sales." In
addition, the indenture
40
43
will provide that any Guarantor that is designated as an unrestricted subsidiary
or that otherwise ceases to be a Guarantor, in each case in accordance with the
provisions of the indenture, will be released from its note guarantee upon
effectiveness of such designation or when it first ceases to be a restricted
subsidiary, as the case may be.
OPTIONAL REDEMPTION
Except as set forth below, the notes may not be redeemed prior to May 1,
2005. At any time on or after May 1, 2005, Matria, at its option, may redeem the
notes, in whole or in part, at the redemption prices (expressed as percentages
of principal amount) set forth below, together with accrued and unpaid interest
thereon, if any, to the redemption date, if redeemed during the 12-month period
beginning May 1 of the years indicated:
OPTIONAL
YEAR REDEMPTION PRICE
---- ----------------
2005................................................. 105.50%
2006................................................. 102.75%
2007 and thereafter.................................. 100.00%
At any time prior to May 1, 2004, Matria may redeem up to 35% of the
aggregate principal amount of the notes with the net cash proceeds of one or
more qualified equity offerings at a redemption price equal to 111% of the
principal amount of the notes to be redeemed, plus accrued and unpaid interest
thereon, if any, to the date of redemption; provided that (1) at least 65% of
the aggregate principal amount of notes issued under the indenture remains
outstanding immediately after the occurrence of such redemption and (2) the
redemption occurs within 90 days of the date of the closing of any such
qualified equity offering.
Matria may acquire notes by means other than a redemption, whether pursuant
to an issuer tender offer, open market purchase or otherwise, so long as the
acquisition does not otherwise violate the terms of the Indenture.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the notes are to be redeemed at any time
pursuant to an optional redemption, selection of the notes for redemption will
be made by the trustee in compliance with the requirements of the principal
national securities exchange, if any, on which the notes are listed or, if the
notes are not then listed on a national security exchange, on a pro rata basis,
by lot or by such method as the trustee shall deem fair and appropriate;
provided, however, that no notes of a principal amount of $1,000 or less shall
be redeemed in part. In addition, if a partial redemption is made pursuant to
the provisions described in the second paragraph under "-- Optional Redemption,"
selection of the notes or portions thereof for redemption shall be made by the
trustee only on a pro rata basis or on as nearly a pro rata basis as is
practicable (subject to the procedures of The Depository Trust Company), unless
that method is otherwise prohibited.
Notice of redemption will be mailed by first-class mail at least 30 but not
more than 60 days before the date of redemption to each holder of notes to be
redeemed at its registered address. If any note is to be redeemed in part only,
the notice of redemption that relates to that note will state the portion of the
principal amount of the note to be redeemed. A new note in a principal amount
equal to the unredeemed portion of the note will be issued in the name of the
holder of the note upon cancellation of the original note. On and after the date
of redemption, interest will cease to accrue on notes or portions thereof called
for redemption so long as Matria has deposited with the paying agent for the
notes funds in satisfaction of the redemption price (including accrued and
unpaid interest on the notes to be redeemed) pursuant to the indenture.
41
44
CHANGE OF CONTROL
Upon the occurrence of any change of control as defined herein, each holder
will have the right to require that Matria purchase that holder's notes for a
cash price (the "change of control purchase price") equal to 101% of the
principal amount of the notes to be purchased, plus accrued and unpaid interest
thereon, if any, to the date of purchase.
Within 30 days following any change of control, Matria will mail, or caused
to be mailed, to the holders a notice:
(1) describing the transaction or transactions that constitute the
change of control;
(2) offering to purchase, pursuant to the procedures required by the
indenture and described in the notice (a "change of control offer"), on a
date specified in the notice (which shall be a business day not earlier
than 30 days nor later than 60 days from the date the notice is mailed) and
for the change of control purchase price, all notes properly tendered by
such holder pursuant to such change of control offer; and
(3) describing the procedures that holders must follow to accept the
change of control offer. The change of control offer is required to remain
open for at least 20 business days or for such longer period as is required
by law.
Matria will publicly announce the results of the change of control offer on or
as soon as practicable after the date of purchase.
If a change of control offer is made, there can be no assurance that Matria
will have available funds sufficient to pay for all or any of the notes that
might be delivered by holders seeking to accept the change of control offer. In
addition, we cannot assure you that in the event of a change of control Matria
will be able to obtain the consents necessary to consummate a change of control
offer from the lenders under agreements governing outstanding indebtedness which
may prohibit the offer.
The provisions described above that require us to make a change of control
offer following a change of control will be applicable regardless of whether any
other provisions of the indenture are applicable. Except as described above with
respect to a change of control, the indenture does not contain provisions that
permit the holders of the notes to require that Matria purchase or redeem the
notes in the event of a takeover, recapitalization or similar transaction.
Matria's obligation to make a change of control offer will be satisfied if
a third party makes the change of control offer in the manner and at the times
and otherwise in compliance with the requirements applicable to a change of
control offer made by Matria and purchases all notes properly tendered and not
withdrawn under the change of control offer.
A "change of control" includes certain sales of all or substantially all of
the assets of Matria and the restricted subsidiaries taken as a whole. The
phrase "all or substantially all" as used in the indenture (including as set
forth under " -- Certain Covenants -- Limitations on Mergers, Consolidations,
Etc." below) varies according to the facts and circumstances of the subject
transaction, has no clearly established meaning under New York law (which
governs the indenture) and is subject to judicial interpretation. Accordingly,
in certain circumstances there may be a degree of uncertainty in ascertaining
whether a particular transaction would involve a disposition of "all or
substantially all" of the assets of Matria, and therefore it may be unclear as
to whether a change of control has occurred and whether the holders have the
right to require Matria to purchase notes.
None of the provisions relating to a purchase upon a change of control is
waivable by the board of directors of Matria. However, Matria could enter into
certain transactions that would not result in a change of control, but would
increase the amount of indebtedness outstanding at such time or otherwise affect
Matria's capital structure or credit ratings.
Failure by Matria to purchase the notes when required upon a change of
control will result in an event of default with respect to the notes. As a
result, these provisions could have the effect of deterring
42
45
hostile or friendly acquisitions of Matria where the person attempting the
acquisition views itself as unable to finance the purchase of the principal
amount of notes which may be tendered to Matria upon the occurrence of a change
of control.
Matria will comply with applicable tender offer rules, including the
requirements of Rule 14e-l under the Exchange Act and any other applicable laws
and regulations in connection with the purchase of notes pursuant to a change of
control offer. To the extent that the provisions of any securities laws or
regulations conflict with the "change of control" provisions of the indenture,
Matria shall comply with the applicable securities laws and regulations and will
not be deemed to have breached its obligations under the "Change of Control"
provisions of the indenture by virtue of this compliance.
CERTAIN COVENANTS
The indenture contains, among others, the following covenants:
LIMITATIONS ON ADDITIONAL INDEBTEDNESS
Matria will not, and Matria will not permit any restricted subsidiary to,
directly or indirectly, incur any indebtedness; provided that Matria or any
Guarantor may incur additional indebtedness (including what we define as
"acquired indebtedness") if no default shall have occurred and be continuing at
the time of or as a consequence of the incurrence of the indebtedness and if,
after giving effect thereto, the consolidated fixed charge coverage ratio on the
date thereof would be at least:
(i) 2.25 to 1.00, if such date is on or prior to May 1, 2002
(ii) 2.50 to 1.00, if such date is after May 1, 2002 and on or prior
to May 1, 2003, and
(iii) 2.75 to 1.00, if such date is after May 1, 2003,
in each case determined on a pro forma basis as if the incurrence of such
additional indebtedness and the application of the net proceeds therefrom, had
occurred at the beginning of the four-quarter period used to calculate the
Company's consolidated fixed charge coverage ratio (the "coverage ratio
exception").
Notwithstanding the above, so long as no default shall have occurred and be
continuing at the time of or as a consequence of the incurrence of the following
indebtedness, each of the following shall be permitted (the "permitted
indebtedness"):
(1) indebtedness of Matria and any Guarantor under the Credit Facility
in an aggregate amount at any time outstanding (whether incurred under the
coverage ratio exception or as permitted indebtedness) not to exceed the
greater of (x) $30.0 million and (y) the amount of the borrowing base as of
the date of such incurrence (provided that in no case shall the
indebtedness permitted pursuant to this clause (1) exceed $35.0 million at
any one time outstanding);
(2) the notes and the note guarantees issued on the issue date;
(3) indebtedness of Matria and the restricted subsidiaries to the
extent outstanding on the issue date (other than indebtedness referred to
in clauses (1) and (2) above, and after giving effect to the use of
proceeds of the old notes);
(4) indebtedness of Matria and the restricted subsidiaries under
hedging obligations; provided that (a) such hedging obligations relate to
payment obligations on indebtedness otherwise permitted to be incurred by
this covenant, and (b) the notional principal amount of such hedging
obligations at the time incurred does not exceed the principal amount of
the indebtedness to which such hedging obligations relate;
(5) indebtedness of Matria owed to a Guarantor and indebtedness of any
Guarantor owed to Matria or any other Guarantor; provided, however, that
(a) any indebtedness of Matria owed to a guarantor is unsecured and
subordinated, pursuant to a written agreement, to Matria's obligation,
under the indenture and the notes and (b) upon any such Guarantor ceasing
to be a Guarantor or
43
46
such indebtedness being owed to any person other than Matria or a
Guarantor, Matria or such Guarantor, as applicable, shall be deemed to have
incurred indebtedness not permitted by this clause (5);
(6) indebtedness in respect of bid, performance or surety bonds issued
for the account of Matria or any restricted subsidiary in the ordinary
course of business, including guarantees or obligations of Matria or any
restricted subsidiary with respect to letters of credit supporting such
bid, performance or surety obligations (in each case other than for an
obligation for money borrowed);
(7) purchase money indebtedness incurred by Matria or any Guarantor,
in an aggregate amount not to exceed at any time outstanding the greater of
(x) $10.0 million and (y) 5% of consolidated tangible assets;
(8) indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business; provided, however, that such
indebtedness is extinguished within five business days of incurrence;
(9) indebtedness arising in connection with endorsement of instruments
for deposit in the ordinary course of business;
(10) refinancing indebtedness with respect to indebtedness incurred
pursuant to the coverage ratio exception or clause (2) or (3) above;
(11) indebtedness of unrestricted subsidiaries; and
(12) indebtedness of Matria or any Guarantor in an aggregate amount
not to exceed $10.0 million at any time outstanding.
For purposes of determining compliance with this covenant, in the event
that an item of indebtedness meets the criteria of more than one of the
categories of permitted indebtedness described in clauses (1) through (12) above
or is entitled to be incurred pursuant to the coverage ratio exception, Matria
shall, in its sole discretion, classify such item of indebtedness and may divide
and classify such indebtedness in more than one of the types of indebtedness
described, except that indebtedness outstanding under the Credit Facility shall
be deemed to have been incurred under clause (1) above.
LIMITATIONS ON LAYERING INDEBTEDNESS
Matria will not, and will not permit any Guarantor to, directly or
indirectly, incur any indebtedness that is or purports to be by its terms (or by
the terms of any agreement governing such indebtedness) contractually
subordinated to any other indebtedness of Matria or of such Guarantor, as the
case may be, unless such indebtedness is also by its terms (or by the terms of
any agreement governing such indebtedness) contractually made expressly
subordinate to the notes or the note guarantee of such Guarantor, to the same
extent and in the same manner as such indebtedness is contractually subordinated
to such other indebtedness of Matria or such Guarantor, as the case may be.
LIMITATIONS ON RESTRICTED PAYMENTS
Matria will not, and will not permit any restricted subsidiary to, directly
or indirectly, make any restricted payment if at the time of such restricted
payment:
(1) a default under the indenture shall have occurred and be
continuing or shall occur as a consequence thereof;
(2) Matria cannot incur $1.00 of additional indebtedness pursuant to
the coverage ratio exception; or
(3) the amount of such restricted payment, when added to the aggregate
amount of all other restricted payments made after the issue date (other
than restricted payments made pursuant to
44
47
clause (2), (3) or (5) of the next paragraph), exceeds the sum (the
"restricted payments basket") of (without duplication):
(a) 50% of consolidated net income for the period (taken as one
accounting period) commencing on the first day of the first full fiscal
quarter commencing after the issue date to and including the last day of
the fiscal quarter ended immediately prior to the date of such
calculation for which consolidated financial statements are available
(or, if such consolidated net income shall be a deficit, minus 100% of
such aggregate deficit), plus
(b) 100% of the aggregate net cash proceeds received by Matria
either (x) as contributions to the common equity of Matria after the
issue date or (y) from the issuance and sale of qualified equity
interests after the issue date, other than to the extent any such
proceeds are used to redeem notes in accordance with the second
paragraph under "-- Optional Redemption," plus
(c) the aggregate amount by which indebtedness (other than
subordinated indebtedness) of Matria or any restricted subsidiary is
reduced on Matria's balance sheet upon the conversion or exchange (other
than by a subsidiary of Matria) subsequent to the issue date into
qualified equity interests (less the amount of any cash, or the fair
value of assets, distributed by Matria or any restricted subsidiary upon
such conversion or exchange), plus
(d) in the case of the disposition or repayment of or return on any
investment that was treated as a restricted payment made after the issue
date, an amount (to the extent not included in the computation of
consolidated net income) equal to the lesser of (i) the return of
capital with respect to such investment and (ii) the amount of such
investment that was treated as a restricted payment, in either case,
less the cost of the disposition of such investment and net of taxes,
plus
(e) upon a redesignation of an unrestricted Subsidiary as a
restricted subsidiary, the lesser of (i) the fair market value of
Matria's proportionate interest in such subsidiary immediately following
such redesignation, and (ii) the aggregate amount of Matria's
investments in such subsidiary to the extent such investments reduced
the amount available for subsequent restricted payments under this
clause (3) and were not previously repaid or otherwise reduced, plus
(f) $2.5 million.
The foregoing provisions will not prohibit:
(1) the payment by Matria or any restricted subsidiary of any dividend
within 60 days after the date of declaration thereof, if on the date of
declaration the payment would have complied with the provisions of the
indenture;
(2) so long as no default shall have occurred and be continuing at the
time of or as a consequence of such redemption, the redemption of any
equity interests of Matria or any Guarantor in exchange for, or out of the
proceeds of the substantially concurrent issuance and sale of, qualified
equity interests;
(3) so long as no default shall have occurred and be continuing at the
time of or as a consequence of such redemption, the redemption of
subordinated indebtedness of Matria or any Guarantor (a) in exchange for,
or out of the proceeds of the substantially concurrent issuance and sale
of, qualified equity interests or (b) in exchange for, or out of the
proceeds of the substantially concurrent incurrence of, refinancing
indebtedness permitted to be incurred under the "Limitations on Additional
Indebtedness" covenant and the other terms of the indenture;
(4) so long as no default shall have occurred and be continuing at the
time of or as a consequence of such redemption, the redemption of equity
interests of Matria held by officers, directors or employees or former
officers, directors or employees (or their transferees, estates or
beneficiaries under their estates), upon their death, disability,
retirement, severance or termination of
45
48
employment or service; provided that the aggregate cash consideration paid
for all such redemptions shall not exceed $4.0 million during any calendar
year;
(5) so long as no default shall have occurred and be continuing at the
time of or as a consequence of such redemption, the redemption, for a
purchase price of up to $60 million, of our Series A Convertible Preferred
Stock, our Series B Redeemable Preferred Stock, the prepayment of our
non-negotiable subordinated promissory notes in the aggregate principal
amount of $13,963,159 and the purchase of warrants to purchase 1,000,000
shares of our common stock pursuant to the Securities Purchase Agreement,
dated May 10, 2001 among us, Gainor Medical Management, L.L.C., Mark J.
Gainor and SZ Investments, L.L.C.,; or
(6) repurchases of equity interests deemed to occur upon the exercise
of stock options if the equity interests represents a portion of the
exercise price thereof;
provided that no issuance and sale of qualified equity interests pursuant to
clause (2) or (3) above shall increase the restricted payments basket, except to
the extent the proceeds thereof exceed the amounts used to effect the
transactions described therein.
LIMITATIONS ON DIVIDEND AND OTHER RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
Matria will not, and will not permit any restricted subsidiary to, directly
or indirectly, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or consensual restriction on the ability of any
restricted subsidiary to:
(a) pay dividends or make any other distributions on or in respect of
its equity interests;
(b) make loans or advances or pay any indebtedness or other obligation
owed to Matria or any other restricted subsidiary; or
(c) transfer any of its assets to Matria or any other restricted
subsidiary; except for:
(1) encumbrances or restrictions existing under or by reason of
applicable law;
(2) encumbrances or restrictions existing under the indenture, the
notes and the note guarantees;
(3) non-assignment provisions of any contract or any lease entered
into in the ordinary course of business;
(4) encumbrances or restrictions existing under agreements existing
on the date of the Indenture (including, without limitation, the Credit
Facility) as in effect on that date;
(5) restrictions on the transfer of assets subject to any lien
permitted under the indenture imposed by the holder of such lien;
(6) restrictions on the transfer of assets imposed under any
agreement to sell such assets permitted under the indenture to any
person pending the closing of such sale;
(7) any instrument governing acquired indebtedness, which
encumbrance or restriction is not applicable to any person, or the
assets of any person, other than the person or the assets so acquired;
(8) encumbrances or restrictions arising in connection with
refinancing indebtedness; provided, however, that any such encumbrances
and restrictions are not materially more restrictive with respect to any
restricted subsidiary than those in effect on the issue date with
respect to that restricted subsidiary pursuant to the agreements
creating or evidencing the indebtedness being refinanced;
(9) customary provisions in leases, partnership agreements, limited
liability company organizational governance documents, joint venture
agreements and other similar agreements
46
49
entered into in the ordinary course of business that restrict the
transfer of leasehold interests or ownership interests in such
partnership, limited liability company, joint venture or similar person;
(10) purchase money indebtedness incurred in compliance with the
covenant described under "-- Limitations on Additional Indebtedness"
that impose restrictions of the nature described in clause (c) above on
the assets acquired; and
(11) any encumbrances or restrictions imposed by any amendments or
refinancings of the contracts, instruments or obligations referred to in
clauses (1) through (10) above; provided that such amendments or
refinancings are, in the good faith judgment of Matria's board of
directors, no more materially restrictive with respect to such
encumbrances and restrictions than those prior to such amendment or
refinancing.
LIMITATIONS ON TRANSACTIONS WITH AFFILIATES
Matria will not, and will not permit any restricted subsidiary to, directly
or indirectly, in one transaction or a series of related transactions, sell,
lease, transfer or otherwise dispose of any of its assets to, or purchase any
assets from, or enter into any contract, agreement, understanding, loan, advance
or guarantee with, or for the benefit of, any affiliate (an "affiliate
transaction"), unless:
(1) such affiliate transaction is on terms that are no less favorable
to Matria or the relevant restricted subsidiary than those that may have
been obtained in a comparable transaction at such time on an arm's-length
basis by Matria or that restricted subsidiary from a person that is not an
affiliate of Matria or that restricted subsidiary; and
(2) Matria delivers to the trustee:
(a) with respect to any affiliate transaction involving aggregate
value in excess of $1.0 million, an officers' certificate certifying
that such affiliate transaction complies with clause (1) above and a
secretary's certificate which sets forth and authenticates a resolution
that has been adopted by the independent directors approving such
affiliate transaction; and
(b) with respect to any affiliate transaction involving aggregate
value of $5.0 million or more, the certificates described in the
preceding clause (a) and (x) a written opinion as to the fairness of
such affiliate transaction to Matria or such restricted subsidiary from
a financial point of view or (y) a written appraisal supporting the
value of such affiliate transaction, in either case, issued by an
independent financial advisor.
The foregoing restrictions shall not apply to:
(1) transactions exclusively between or among (a) Matria and one or
more restricted subsidiaries or (b) restricted subsidiaries; provided, in
each case, that no affiliate of Matria (other than another restricted
subsidiary) owns equity interests of any such restricted subsidiary;
(2) reasonable director, officer, employee and consultant compensation
(including bonuses) and other benefits (including retirement, health, stock
and other benefit plans) and indemnification arrangements;
(3) loans and advances permitted by clause (3) of the definition of
"permitted investments";
(4) any agreement as in effect as of the issue date or any extension,
amendment or modification thereto (so long as any such extension, amendment
or modification satisfies the requirements set forth in clause (1) of the
first paragraph of this covenant) or any transaction contemplated thereby;
(5) restricted payments of the type described in clause (1), (2) or
(4) of the definition of "restricted payment" and which are made in
accordance with the covenant described under "-- Limitations on Restricted
Payments"; or
(6) sales of qualified equity interests for cash by the Matria to an
affiliate.
47
50
LIMITATIONS ON LIENS
Matria shall not, and shall not permit any restricted subsidiary to,
directly or indirectly, create, incur, assume or permit or suffer to exist any
lien of any nature whatsoever against (other than permitted liens) any assets of
Matria or any restricted subsidiary (including equity interests of a restricted
subsidiary), whether owned at the issue date or thereafter acquired, or any
proceeds therefrom, or assign or otherwise convey any right to receive income or
profits therefrom, which lien secures indebtedness or trade payables, unless
contemporaneously therewith:
(1) in the case of any lien securing an obligation that ranks pari
passu with the notes or a note guarantee, effective provision is made to
secure the notes or such note guarantee, as the case may be, at least
equally and ratably with or prior to such obligation with a lien on the
same collateral; and
(2) in the case of any lien securing an obligation that is
subordinated in right of payment to the notes or a note guarantee,
effective provision is made to secure the notes or such note guarantee, as
the case may be, with a lien on the same collateral that is prior to the
lien securing such subordinated obligation, in each case, for so long as
such obligation is secured by such lien.
LIMITATIONS ON ASSET SALES
Matria will not, and will not permit any restricted subsidiary to, directly
or indirectly, consummate any asset sale unless:
(1) Matria or such restricted subsidiary receives consideration at the
time of such asset sale at least equal to the fair market value of the
assets included in such asset sale; and
(2) at least 80% of the total consideration received in such asset
sale or series of related asset sales consists of cash or cash equivalents.
For purposes of clause (2), the following shall be deemed to be cash:
(a) the amount (without duplication) of any indebtedness (other than
subordinated indebtedness) of Matria or such restricted subsidiary that is
expressly assumed by the transferee in such asset sale and with respect to
which Matria or such restricted subsidiary, as the case may be, is
unconditionally released by the holder of such indebtedness, and
(b) the amount of any obligations received from such transferee that
are within 30 days converted by Matria or such restricted subsidiary to
cash (to the extent of the cash actually so received).
If at any time any non-cash consideration received by Matria or any
restricted subsidiary of Matria, as the case may be, in connection with any
asset sale is repaid or converted into or sold or otherwise disposed of for cash
(other than interest received with respect to any such non-cash consideration),
then the date of such repayment, conversion or disposition shall be deemed to
constitute the date of an asset sale hereunder and the net available proceeds
thereof shall be applied in accordance with this covenant.
If Matria or any restricted subsidiary engages in an asset sale, Matria or
such restricted subsidiary shall, no later than one year following the
consummation thereof, apply all or any of the net available proceeds therefrom
to:
(1) repay any indebtedness under the Credit Facility; and/or
(2) invest all or any part of the net available proceeds thereof in
the purchase of assets (other than securities, unless such securities
represent equity interests in an entity engaged solely in a permitted
business, such entity becomes a restricted subsidiary and Matria or a
restricted subsidiary acquires voting and management control of such
entity) to be used by Matria or any restricted subsidiary in a permitted
business.
The amount of net available proceeds not applied or invested as provided in
this paragraph will constitute "excess proceeds."
48
51
When the aggregate amount of excess proceeds equals or exceeds $10.0
million, Matria will be required to make an offer to purchase from all holders
and, if applicable, redeem (or make an offer to do so) any pari passu
indebtedness of Matria the provisions of which require Matria to redeem such
indebtedness with the proceeds from any asset sales (or offer to do so), in an
aggregate principal amount of notes and such pari passu indebtedness equal to
the amount of such excess proceeds as follows:
(1) Matria will (a) make an offer to purchase (a "net proceeds offer")
to all holders in accordance with the procedures set forth in the
indenture, and (b) redeem (or make an offer to do so) any such other pari
passu indebtedness, pro rata in proportion to the respective principal
amounts of the notes and such other indebtedness required to be redeemed,
the maximum accreted value of notes and pari passu indebtedness that may be
redeemed out of the amount (the "payment amount") of such excess proceeds;
(2) the offer price for the notes will be payable in cash in an amount
equal to the accreted value of the notes tendered, plus accrued and unpaid
interest thereon, if any, to the date such net proceeds offer is
consummated (the "offered price"), in accordance with the procedures set
forth in the indenture and the redemption price for such pari passu
indebtedness (the "pari passu indebtedness price") shall be as set forth in
the related documentation governing such indebtedness;
(3) if the aggregate offered price of notes validly tendered and not
withdrawn by holders thereof exceeds the pro rata portion of the payment
amount allocable to the notes, notes to be purchased will be selected on a
pro rata basis; and
(4) upon completion of such net proceeds offer in accordance with the
foregoing provisions, the amount of excess proceeds with respect to which
such net proceeds offer was made shall be deemed to be zero.
To the extent that the sum of the aggregate offered price of notes tendered
pursuant to a net proceeds offer and the aggregate pari passu indebtedness price
paid to the holders of such pari passu indebtedness is less than the payment
amount relating thereto (such shortfall constituting a "net proceeds
deficiency"), Matria may use the net proceeds deficiency, or a portion thereof,
for general corporate purposes, subject to the provisions of the indenture.
In the event of the transfer of substantially all (but not all) of the
assets of Matria and the restricted subsidiaries as an entirety to a person in a
transaction covered by and effected in accordance with the covenant described
under "-- Limitations on Mergers, Consolidations, Etc.," the successor
corporation shall be deemed to have sold for cash at fair market value the
assets of Matria and the restricted subsidiaries not so transferred for purposes
of this covenant, and shall comply with the provisions of this covenant with
respect to such deemed sale as if it were an asset sale (with such fair market
value being deemed to be net available proceeds for such purpose).
Matria will comply with applicable tender offer rules, including the
requirements of Rule 14e-1 under the Exchange Act and any other applicable laws
and regulations in connection with the purchase of notes pursuant to a net
proceeds offer. To the extent that the provisions of any securities laws or
regulations conflict with the "Limitations on Asset Sales" provisions of the
indenture, Matria shall comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under the
"Limitations on Asset Sales" provisions of the indenture by virtue of this
compliance.
EXCESS CASH FLOW PURCHASE OFFER
If, for the period beginning on the date of the indenture and ending on
December 31, 2001 or for any fiscal year of Matria ending thereafter, Matria's
ratio of consolidated indebtedness at the end of such period to consolidated
cash flow available for fixed charges during such period is greater than
2.00:1.00 and Matria shall have excess cash flow for such period, then Matria
shall make an offer to purchase (an "excess cash flow offer") to all holders of
notes, in accordance with the procedures set forth in the indenture, notes
having an aggregate principal amount (the "excess cash flow payment amount")
equal to 50% of the excess cash flow for such period (but not to exceed $50
million). The excess cash flow offer
49
52
shall be made not later than 10 business days after the earlier of (i) the date
on which Matria publicly announces its financial results for the applicable
period and (ii) the date on which Matria files its audited financial statements
for such period with the SEC (or the date by which such filing would otherwise
be required, if Matria is no longer subject to the reporting requirements of the
Exchange Act). Matria shall no longer be subject to this covenant if it shall
have purchased notes having an aggregate principal amount of $50 million in
connection with one or more offers to purchase notes pursuant to this covenant.
The offer price for the notes will be payable in cash in an amount equal to
100% of the principal amount of the notes tendered pursuant to an excess cash
flow offer, plus accrued and unpaid interest thereon, if any, to the date such
excess cash flow offer is consummated. If the aggregate principal amount of the
notes validly tendered pursuant to the excess cash flow offer and not withdrawn
by holders thereof exceeds the excess cash flow payment amount, notes to be
purchased will be selected on a pro rata basis.
The foregoing notwithstanding, the excess cash flow payment amount with
respect to any fiscal period shall be reduced by an amount, if any, equal to the
aggregate repurchase price with respect to those notes, if any, repurchased by
Matria in the open market at a price equal to 98% or less of the principal
amount of such notes within the twelve months preceding the making of the excess
cash flow offer.
To the extent that the aggregate principal amount of the notes tendered
pursuant to an excess cash flow offer is less than the excess cash flow payment
amount relating thereto, Matria may use such amount remaining after repurchase
of those notes tendered in the excess cash flow offer for general corporate
purposes, subject to the provisions of the indenture.
Matria will comply with applicable tender offer rules, including the
requirements of Rule 14e-1 under the Exchange Act and any other applicable laws
and regulations in connection with the purchase of notes pursuant to an excess
cash flow offer. To the extent that the provisions of any securities laws or
regulations conflict with this covenant, Matria shall comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under this covenant by virtue of this compliance.
LIMITATIONS ON DESIGNATION OF UNRESTRICTED SUBSIDIARIES
Matria may designate any subsidiary of Matria as an "unrestricted
subsidiary" under the indenture (a "designation") only if:
(1) no default shall have occurred and be continuing at the time of or
after giving effect to such designation; and
(2) Matria would be permitted to make, at the time of such
designation, (a) a permitted investment or (b) an investment pursuant to
the first paragraph of "-- Limitations on Restricted Payments" above, in
either case, in an amount (the "designation amount") equal to the fair
market value of Matria's proportionate interest in such subsidiary on such
date.
No subsidiary shall be designated as an "unrestricted subsidiary" unless such
subsidiary:
(1) has no indebtedness other than permitted unrestricted subsidiary
debt;
(2) is not party to any agreement, contract, arrangement or
understanding with Matria or any restricted subsidiary unless the terms of
the agreement, contract, arrangement or understanding are no less favorable
to Matria or the restricted subsidiary than those that might be obtained at
the time from persons who are not affiliates of Matria or such restricted
subsidiary;
(3) is a person with respect to which neither Matria nor any
restricted subsidiary has any direct or indirect obligation (a) to
subscribe for additional equity interests or (b) to maintain or preserve
the person's financial condition or to cause the person to achieve any
specified levels of operating results; and
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any indebtedness of Matria or any restricted subsidiary,
except for any guarantee given solely to support the pledge by Matria or
any restricted subsidiary of the equity interests of such unrestricted
50
53
subsidiary, which guarantee is not recourse to Matria or any restricted
subsidiary, and except to the extent the amount thereof constitutes a
restricted payment permitted pursuant to the covenant described under
"-- Limitations on Restricted Payments."
If, at any time, any unrestricted subsidiary fails to meet the preceding
requirements as an unrestricted subsidiary, it shall thereafter cease to be an
unrestricted subsidiary for purposes of the indenture and any indebtedness of
the subsidiary and any liens on assets of such subsidiary shall be deemed to be
incurred by a restricted subsidiary as of the date and, if the indebtedness is
not permitted to be incurred under the covenant described under "-- Limitations
on Additional Indebtedness" or the lien is not permitted under the covenant
described under "-- Limitations on Liens," Matria shall be in default of the
applicable covenant.
Matria may redesignate an unrestricted subsidiary as a restricted
subsidiary (a "redesignation") only if:
(1) no default shall have occurred and be continuing at the time of
and after giving effect to such redesignation; and
(2) all liens, indebtedness and investments of such unrestricted
subsidiary outstanding immediately following such redesignation would, if
incurred or made at such time, have been permitted to be incurred or made
for all purposes of the indenture.
Unrestricted subsidiaries are generally not restricted by the covenants of
the indenture. The indenture generally places no restriction on an unrestricted
subsidiary's ability to, among other things, incur indebtedness, make restricted
payments (including investments), or merge, consolidate or sell all or any
portion of its assets.
All designations and redesignations must be evidenced by resolutions of the
board of directors of Matria, delivered to the trustee certifying compliance
with the foregoing provisions.
LIMITATIONS ON SALE AND LEASEBACK TRANSACTIONS
Matria will not, and will not permit any restricted subsidiary to, directly
or indirectly, enter into any sale and leaseback transaction; provided that
Matria or any restricted subsidiary may enter into a sale or leaseback
transaction if:
(1) Matria or such restricted subsidiary could have (a) incurred the
indebtedness attributable to such sale and leaseback transaction pursuant
to the covenant described under "-- Limitations on Additional Indebtedness"
and (b) incurred a lien to secure such indebtedness pursuant to the
covenant described under "-- Limitations on Liens";
(2) the gross cash proceeds of such sale and leaseback transaction are
at least equal to the fair market value of the asset that is the subject of
such sale and leaseback transaction;
(3) the transfer of assets in such sale and leaseback transaction is
permitted by, and Matria or the applicable restricted subsidiary applies
the proceeds of such transaction in accordance with, the covenant described
under "-- Limitations on Asset Sales."
LIMITATIONS ON MERGERS, CONSOLIDATIONS, ETC.
Matria will not, directly or indirectly, in a single transaction or a
series of related transactions, (a) consolidate or merge with or into (other
than a merger that satisfies the requirements of clause (1) below with a
wholly-owned restricted subsidiary solely for the purpose of changing Matria's
jurisdiction of incorporation to another State of the United States), or sell,
lease, transfer, convey or
51
54
otherwise dispose of or assign all or substantially all of the assets of Matria
or Matria and the restricted subsidiaries (taken as a whole) or (b) adopt a plan
of liquidation unless, in either case:
(1) either:
(a) Matria will be the surviving or continuing person; or
(b) the person formed by or surviving such consolidation or merger
or to which such sale, lease, conveyance or other disposition shall be
made (or, in the case of a plan of liquidation, any person to which
assets are transferred) (collectively, the "successor") is a corporation
organized and existing under the laws of any State of the United States
of America or the District of Columbia, and the successor expressly
assumes, by supplemental indenture in form and substance satisfactory to
the trustee, all of the obligations of Matria under the notes, the
indenture and the registration rights agreement;
(2) immediately prior to and immediately after giving effect to such
transaction and the assumption of the obligations as set forth in clause
(1)(b) above and the incurrence of any indebtedness to be incurred in
connection therewith, no default shall have occurred and be continuing; and
(3) immediately after and giving effect to such transaction and the
assumption of the obligations set forth in clause (1)(b) above and the
incurrence of any indebtedness to be incurred in connection therewith, and
the use of any net proceeds therefrom on a pro forma basis, (a) the
consolidated net worth of Matria or the successor, as the case may be,
would be at least equal to the consolidated net worth of Matria immediately
prior to such transaction and (b) Matria or the successor, as the case may
be, could incur $1.00 of additional indebtedness pursuant to the coverage
ratio exception.
For purposes of this covenant, any indebtedness of the successor which was
not indebtedness of Matria immediately prior to the transaction shall be deemed
to have been incurred in connection with such transaction.
Except as provided under the caption " -- Note Guarantees," no Guarantor
may consolidate with or merge with or into (whether or not such Guarantor is the
surviving person) another person, whether or not affiliated with such Guarantor,
unless:
(1) either:
(a) such Guarantor, another Guarantor or Matria will be the
surviving or continuing person; or
(b) the person formed by or surviving any such consolidation or
merger assumes, by supplemental indenture in form and substance
satisfactory to the trustee, all of the obligations of such Guarantor
under the note guarantee of such Guarantor, the indenture and the
registration rights agreement; and
(2) immediately after giving effect to such transaction, no default
shall have occurred and be continuing.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the assets of one or more restricted subsidiaries, the
equity interests of which constitute all or substantially all of the assets of
Matria, will be deemed to be the transfer of all or substantially all of the
assets of Matria.
Upon any consolidation, combination or merger of Matria or a Guarantor, or
any transfer of all or substantially all of the assets of Matria in accordance
with the foregoing, in which Matria or such Guarantor is not the continuing
obligor under the notes or its note guarantee, the surviving entity formed by
such consolidation or into which Matria or such Guarantor is merged or to which
the conveyance, lease or transfer is made will succeed to, and be substituted
for, and may exercise every right and power of, Matria or such Guarantor under
the indenture, the notes and the note guarantees with the same effect as
52
55
if such surviving entity had been named therein as Matria or such Guarantor and,
except in the case of a conveyance, transfer or lease, Matria or such Guarantor,
as the case may be, will be released from the obligation to pay the principal of
and interest on the notes or in respect of its note guarantee, as the case may
be, and all of Matria's or such Guarantor's other obligations and covenants
under the notes, the indenture and its note guarantee, if applicable.
Notwithstanding the foregoing, any restricted subsidiary may merge into
Matria or a Guarantor.
ADDITIONAL NOTE GUARANTEES
If, after the issue date, (a) Matria or any restricted subsidiary shall
acquire or create another subsidiary (other than a subsidiary that has been
designated an unrestricted subsidiary) or (b) any unrestricted subsidiary is
redesignated a restricted subsidiary, then, in each such case, Matria shall
cause such restricted subsidiary to:
(1) execute and deliver to the trustee (a) a supplemental indenture in
form and substance satisfactory to the trustee pursuant to which such
restricted subsidiary shall unconditionally guarantee all of Matria's
obligations under the notes and the indenture and (b) a notation of
guarantee in respect of its note guarantee; and
(2) deliver to the trustee one or more opinions of counsel that such
supplemental indenture (a) has been duly authorized, executed and delivered
by such restricted subsidiary and (b) constitutes a valid and legally
binding obligation of such restricted subsidiary in accordance with its
terms.
The obligations of each guarantor under its note guarantee will be limited
to the maximum amount as will, after giving effect to all other contingent and
fixed liabilities of such Guarantor (including, without limitation, any
guarantees under the Credit Facility permitted under clause "-- Certain
Covenants -- Limitations on Additional Indebtedness") and after giving effect to
any collections from or payments made by or on behalf of any other Guarantor in
respect of the obligations of such other Guarantor under its note guarantee or
pursuant to its contribution obligations under the indenture, result in the
obligations of such Guarantor under its note guarantee not constituting a
fraudulent conveyance or fraudulent transfer under federal or state law. Each
Guarantor that makes a payment for distribution under its note guarantee is
entitled to a contribution from each other Guarantor in a pro rata amount based
on adjusted net assets of each Guarantor.
In the event of a sale or other disposition of all of the assets of any
Guarantor, by way of merger, consolidation or otherwise, or a sale or other
disposition of all of the capital stock of any Guarantor then held by Matria and
the restricted subsidiaries, then that Guarantor will be released and relieved
of any obligations under its note guarantee; provided that the net available
proceeds of such sale or other disposition are applied in accordance with the
applicable provisions of the indenture, to the extent required thereby. See
"-- Certain Covenants -- Limitations on Asset Sales." In addition, the indenture
provides that any Guarantor that is designated as an unrestricted subsidiary or
that otherwise ceases to be a Guarantor, in each case in accordance with the
provisions of the indenture, will be released from its note guarantee upon
effectiveness of such designation or when it first ceases to be a restricted
subsidiary, as the case may be.
CONDUCT OF BUSINESS
Matria will not, and will not permit any restricted subsidiary to, engage
in any business other than the permitted business.
53
56
REPORTS
Whether or not required by the SEC, so long as any notes are outstanding,
Matria will furnish to the holders of notes, within the time periods specified
in the SEC's rules and regulations (including any grace periods or extensions
permitted by the SEC):
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the SEC on Forms 10-Q and 10-K if
Matria were required to file these forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and, with respect to the annual information only, a report on the annual
financial statements by Matria's certified independent accountants; and
(2) all current reports that would be required to be filed with the
SEC on Form 8-K if Matria were required to file these reports.
In addition, whether or not required by the SEC, Matria will file a copy of
all of the information and reports referred to in clauses (1) and (2) above with
the SEC for public availability within the time periods specified in the SEC's
rules and regulations (unless the SEC will not accept the filing) and make the
information available to securities analysts and prospective investors upon
request. Matria and the Guarantors have agreed that, for so long as any notes
remain outstanding, Matria will furnish to the holders and to securities
analysts and prospective investors, upon their request, the information required
to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT
Each of the following is an "event of default":
(1) failure by Matria to pay interest on any of the notes when it
becomes due and payable and the continuance of any such failure for 30
days;
(2) failure by Matria to pay the principal on any of the notes when it
becomes due and payable, whether at stated maturity, upon redemption, upon
purchase, upon acceleration or otherwise;
(3) failure by Matria to comply with any of its agreements or
covenants described above under "-- Certain Covenants -- Limitations on
Mergers, Consolidations, Etc.," "-- Limitations on Asset Sales" or in
respect of its obligations to make a change of control offer as described
above under "-- Change of Control";
(4) failure by Matria to comply with any other agreement or covenant
in the indenture and continuance of this failure for 30 days after notice
of the failure has been given to Matria by the trustee or by the holders of
at least 25% of the aggregate principal amount of the notes then
outstanding;
(5) default under any mortgage, indenture or other instrument or
agreement under which there may be issued or by which there may be secured
or evidenced indebtedness of Matria or any restricted subsidiary, whether
such indebtedness now exists or is incurred after the issue date, which
default:
(a) is caused by a failure to pay when due principal on such
indebtedness within the applicable express grace period,
(b) results in the acceleration of such indebtedness prior to its
express final maturity or
(c) results in the commencement of judicial proceedings to
foreclose upon, or to exercise remedies under applicable law or
applicable security documents to take ownership of, the assets securing
such indebtedness, and
in each case, the principal amount of such indebtedness, together with any
other indebtedness with respect to which an event described in clause (a),
(b) or (c) has occurred and is continuing, aggregates $10.0 million or
more;
54
57
(6) one or more judgments or orders that exceed $10.0 million in the
aggregate (net of amounts covered by insurance or bonded) for the payment
of money have been entered by a court or courts of competent jurisdiction
against Matria or any restricted subsidiary and such judgment or judgments
have not been satisfied, stayed, annulled or rescinded within 60 days of
being entered;
(7) Matria or any restricted subsidiary pursuant to or within the
meaning of any bankruptcy law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief against it in an
involuntary case,
(c) consents to the appointment of a custodian of it or for all or
substantially all of its assets, or
(d) makes a general assignment for the benefit of its creditors;
(8) a court of competent jurisdiction enters an order or decree under
any bankruptcy law that:
(a) is for relief against Matria or any restricted subsidiary as
debtor in an involuntary case,
(b) appoints a custodian of Matria or any restricted subsidiary or
a custodian for all or substantially all of the assets of Matria or any
restricted subsidiary, or
(c) orders the liquidation of Matria or any restricted subsidiary,
and the order or decree remains unstayed and in effect for 60 days; or
(9) any note guarantee of any restricted subsidiary ceases to be in
full force and effect (other than in accordance with the terms of such note
guarantee and the indenture) or is declared null and void and unenforceable
or found to be invalid or any guarantor denies its liability under its note
guarantee (other than by reason of release of a Guarantor from its note
guarantee in accordance with the terms of the indenture and the note
guarantee).
If an event of default (other than an event of default specified in clause
(7) or (8) above with respect to Matria), shall have occurred and be continuing
under the indenture, the trustee, by written notice to Matria, or the holders of
at least 25% in aggregate principal amount of the notes then outstanding by
written notice to Matria and the trustee, may declare all amounts owing under
the notes to be due and payable immediately. Upon such declaration of
acceleration, the aggregate principal of and accrued and unpaid interest on the
outstanding notes shall immediately become due and payable; provided, however,
that after such acceleration, but before a judgment or decree based on
acceleration, the holders of a majority in aggregate principal amount of such
outstanding notes may, under certain circumstances, rescind and annul such
acceleration if all events of default, other than the nonpayment of accelerated
principal and interest, have been cured or waived as provided in the indenture.
If an event of default specified in clause (7) or (8) with respect to Matria
occurs, all outstanding notes shall become due and payable without any further
action or notice.
The trustee shall, within 30 days after the occurrence of any default with
respect to the notes, give the holders notice of all uncured defaults thereunder
known to it; provided, however, that, except in the case of an event of default
in payment with respect to the notes or a default in complying with "-- Certain
Covenants -- Limitations on Mergers, Consolidations, Etc.," the trustee shall be
protected in withholding such notice if and so long as a committee of its trust
officers in good faith determines that the withholding of such notice is in the
interest of the holders.
No holder will have any right to institute any proceeding with respect to
the indenture or for any remedy thereunder, unless the trustee:
(1) has failed to act for a period of 60 days after receiving written
notice of a continuing event of default by such holder and a request to act
by holders of at least 25% in aggregate principal amount of notes
outstanding;
(2) has been offered indemnity satisfactory to it in its reasonable
judgment; and
55
58
(3) has not received from the holders of a majority in aggregate
principal amount of the outstanding notes a direction inconsistent with
such request.
However, such limitations do not apply to a suit instituted by a holder of
any note for enforcement of payment of the principal of or interest on such note
on or after the due date therefor (after giving effect to the grace period
specified in clause (1) of the first paragraph of this "-- Events of Default"
section).
Matria is required to deliver to the trustee annually a statement regarding
compliance with the indenture and, upon any officer of Matria becoming aware of
any default, a statement specifying such default and what action Matria is
taking or proposes to take with respect thereto.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Matria may, at its option and at any time, elect to have its obligations
and the obligations of the Guarantors discharged with respect to the outstanding
notes ("legal defeasance"). Legal defeasance means that Matria and the
Guarantors shall be deemed to have paid and discharged the entire indebtedness
represented by the notes and the note guarantees, and the indenture shall cease
to be of further effect as to all outstanding notes and note guarantees, except
as to
(1) rights of holders to receive payments in respect of the principal
of and interest on the notes when such payments are due from the trust
funds referred to below,
(2) Matria's obligations with respect to the notes concerning issuing
temporary notes, registration of notes, mutilated, destroyed, lost or
stolen notes, and the maintenance of an office or agency for payment and
money for security payments held in trust,
(3) the rights, powers, trust, duties, and immunities of the trustee,
and Matria's obligation in connection therewith, and
(4) the legal defeasance provisions of the indenture.
In addition, Matria may, at its option and at any time, elect to have its
obligations and the obligations of the Guarantors released with respect to most
of the covenants under the indenture, except as described otherwise in the
indenture ("covenant defeasance"), and thereafter any omission to comply with
such obligations shall not constitute a default. In the event covenant
defeasance occurs, certain events of default (not including non-payment and,
solely for a period of 91 days following the deposit referred to in clause (1)
of the next paragraph, bankruptcy, receivership, rehabilitation and insolvency
events) will no longer apply. Covenant defeasance will not be effective until
such bankruptcy, receivership, rehabilitation and insolvency events no longer
apply. Matria may exercise its legal defeasance option regardless of whether it
previously exercised covenant defeasance.
In order to exercise either legal defeasance or covenant defeasance:
(1) Matria must irrevocably deposit with the trustee, in trust, for
the benefit of the holders, U.S. legal tender, U.S. Government Obligations
or a combination thereof, in such amounts as will be sufficient (without
reinvestment) in the opinion of a nationally recognized firm of independent
public accountants selected by Matria, to pay the principal of and interest
on the notes on the stated date for payment or on the redemption date of
the principal or installment of principal of or interest on the notes, and
the trustee must have a valid, perfected, exclusive security interest in
such trust,
(2) in the case of legal defeasance, Matria shall have delivered to
the trustee an opinion of counsel in the United States reasonably
acceptable to the trustee confirming that:
(a) Matria has received from, or there has been published by the
Internal Revenue Service, a ruling, or
(b) tax law, since the date of the indenture, there has been a
change in the applicable U.S. federal income tax law,
56
59
in either case to the effect that, and based thereon this opinion of
counsel shall confirm that, the holders will not recognize income, gain or
loss for U.S. federal income tax purposes as a result of the legal
defeasance and will be subject to U.S. federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such legal defeasance had not occurred,
(3) in the case of covenant defeasance, Matria shall have delivered to
the trustee an opinion of counsel in the United States reasonably
acceptable to the trustee confirming that the holders will not recognize
income, gain or loss for U.S. federal income tax purposes as a result of
such covenant defeasance and will be subject to U.S. federal income tax on
the same amounts, in the same manner and at the same times as would have
been the case if the covenant defeasance had not occurred,
(4) no default shall have occurred and be continuing on the date of
such deposit (other than a default resulting from the borrowing of funds to
be applied to such deposit and the grant of any lien securing such
borrowing),
(5) the legal defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under the indenture or any
other material agreement or instrument to which Matria or any of its
subsidiaries is a party or by which Matria or any of its subsidiaries is
bound,
(6) Matria shall have delivered to the trustee an officers'
certificate stating that the deposit was not made by it with the intent of
preferring the holders over any other of its creditors or with the intent
of defeating, hindering, delaying or defrauding any other of its creditors
or others, and
(7) Matria shall have delivered to the trustee an officers'
certificate and an opinion of counsel, each stating that the conditions
provided for in, in the case of the officers' certificate, clauses (1)
through (6) and, in the case of the opinion of counsel, clauses (1) (with
respect to the validity and perfection of the security interest), (2)
and/or (3) and (5) of this paragraph have been complied with.
If the funds deposited with the trustee to effect covenant defeasance are
insufficient to pay the principal of and interest on the notes when due, then
our obligations and the obligations of Guarantors under the indenture will be
revived and no such defeasance will be deemed to have occurred.
SATISFACTION AND DISCHARGE
The indenture will be discharged and will cease to be of further effect
(except as to rights of registration of transfer or exchange of notes which
shall survive until all notes have been canceled) as to all outstanding notes
when either
(1) all the notes that have been authenticated and delivered (except
lost, stolen or destroyed notes which have been replaced or paid and notes
for whose payment money has been deposited in trust or segregated and held
in trust by Matria and thereafter repaid to Matria or discharged from this
trust) have been delivered to the trustee for cancellation, or
(2)(a) all notes not delivered to the trustee for cancellation
otherwise have become due and payable or have been called for redemption
pursuant to the provisions described under "-- Optional Redemption," and
Matria has irrevocably deposited or caused to be deposited with the trustee
trust funds in trust in an amount of money sufficient to pay and discharge
the entire indebtedness (including all principal and accrued interest) on
the notes not theretofore delivered to the trustee for cancellation,
(b) Matria has paid all sums payable by it under the indenture,
(c) Matria has delivered irrevocable instructions to the trustee to
apply the deposited money toward the payment of the notes at maturity or on
the date of redemption, as the case may be, and
(d) the trustee, for the benefit of the holders, has a valid,
perfected, exclusive security interest in this trust.
57
60
In addition, Matria must deliver an officers' certificate and an opinion of
counsel (as to legal matters) stating that all conditions precedent to
satisfaction and discharge have been complied with.
TRANSFER AND EXCHANGE
A holder will be able to register the transfer of or exchange notes only in
accordance with the provisions of the indenture. The registrar may require a
holder, among other things, to furnish appropriate endorsements and transfer
documents and to pay any taxes and fees required by law or permitted by the
indenture. Without the prior consent of Matria, the registrar is not required
(1) to register the transfer of or exchange any note selected for redemption,
(2) to register the transfer of or exchange any note for a period of 15 days
before a selection of notes to be redeemed or (3) to register the transfer or
exchange of a note between a record date and the next succeeding interest
payment date.
The notes will be issued in registered form and the registered holder will
be treated as the owner of such note for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the indenture or the notes may be amended
with the consent (which may include consents obtained in connection with a
tender offer or exchange offer for notes) of the holders of at least a majority
in principal amount of the notes then outstanding, and any existing default
under, or compliance with any provision of, the indenture may be waived (other
than any continuing default in the payment of the principal or interest on the
notes) with the consent (which may include consents obtained in connection with
a tender offer or exchange offer for notes) of the holders of a majority in
principal amount of the notes then outstanding; provided that:
(a) no such amendment may, without the consent of the holders of
two-thirds in aggregate principal amount of notes then outstanding, amend
the obligation of Matria under the heading "-- Change of Control" or the
related definitions that could adversely affect the rights of any holder;
and
(b) without the consent of each holder affected, Matria and the
trustee may not:
(1) change the maturity of any note;
(2) reduce the amount, extend the due date or otherwise affect the
terms of any scheduled payment of interest on or principal of the notes;
(3) reduce any premium payable upon optional redemption of the
notes, change the date on which any notes are subject to redemption or
otherwise alter the provisions with respect to the redemption of the
notes;
(4) make any note payable in money or currency other than that
stated in the notes;
(5) modify or change any provision of the indenture or the related
definitions to affect the ranking of the notes or any note guarantee in
a manner that adversely affects the holders;
(6) reduce the percentage of holders necessary to consent to an
amendment or waiver to the indenture or the notes;
(7) impair the rights of holders to receive payments of principal
of or interest on the notes;
(8) release any Guarantor from any of its obligations under its
note guarantee or the Indenture, except as permitted by the indenture;
or
(9) make any change in these amendment and waiver provisions.
Notwithstanding the foregoing, Matria and the trustee may amend the
indenture, the note guarantees or the notes without the consent of any holder,
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
notes in addition to or in place of certificated notes, to provide for the
assumption of
58
61
Matria's obligations to the holders in the case of a merger or acquisition, to
release any Guarantor from any of its obligations under its note guarantee or
the indenture (to the extent permitted by the indenture), to make any change
that does not materially adversely affect the rights of any holder or, in the
case of the indenture, to maintain the qualification of the indenture under the
Trust Indenture Act.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of Matria will
have any liability for any obligations of Matria under the notes or the
indenture or of any Guarantor under its note guarantee or for any claim based
on, in respect of, or by reason of, such obligations or their creation. Each
holder by accepting a note waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the notes and the note
guarantees.
CONCERNING THE TRUSTEE
Wells Fargo Bank Minnesota, National Association, is the trustee under the
indenture and has been appointed by Matria as registrar and paying agent with
regard to the notes. The indenture contains certain limitations on the rights of
the trustee, should it become a creditor of Matria, to obtain payment of claims
in certain cases, or to realize on certain assets received in respect of any
such claim as security or otherwise. The trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest (as defined
in the indenture), it must eliminate such conflict or resign.
The holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indenture provides that, in case an event of default
occurs and is not cured, the trustee will be required, in the exercise of its
power, to use the degree of care of a prudent person in similar circumstances in
the conduct of his or her own affairs. Subject to such provisions, the trustee
will be under no obligation to exercise any of its rights or powers under the
indenture at the request of any holder, unless such holder shall have offered to
the trustee security and indemnity satisfactory to the trustee.
GOVERNING LAW
The indenture, the notes and the note guarantees are governed by, and
construed in accordance with, the laws of the State of New York.
ADDITIONAL INFORMATION
Anyone who receives this prospectus may obtain a copy of the indenture and
registration rights agreement without charge by writing to Matria Healthcare,
Inc., 1850 Parkway Place, 12th Floor, Marietta, Georgia, 30067, Attention:
General Counsel.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
indenture. Reference is made to the indenture for the full definition of all
such terms.
"acquired indebtedness" means (1) with respect to any person that becomes a
restricted subsidiary after the issue date, indebtedness of such person and its
subsidiaries existing at the time such person becomes a restricted subsidiary
that was not incurred in connection with, or in contemplation of, such person
becoming a restricted subsidiary and (2) with respect to Matria or any
restricted subsidiary, any indebtedness of a person (other than Matria or a
restricted subsidiary) existing at the time such person is merged with or into
Matria or a restricted subsidiary, or indebtedness expressly assumed by Matria
or any restricted subsidiary in connection with the acquisition of an asset or
assets from another person, which indebtedness was not, in any case, incurred by
such other person in connection with, or in contemplation of, such merger or
acquisition.
59
62
"affiliate" of any person means any other person which directly or
indirectly controls or is controlled by, or is under direct or indirect common
control with, the referent person. For purposes of the covenant described under
"-- Certain Covenants -- Limitations on Transactions with Affiliates,"
affiliates shall be deemed to include, with respect to any person, any other
person (1) which beneficially owns or holds, directly or indirectly, 10% or more
of any class of the voting stock of the referent person, (2) of which 10% or
more of the voting stock is beneficially owned or held, directly or indirectly,
by the referenced person or (3) with respect to an individual, any immediate
family member of such person. For purposes of this definition, "control" of a
person shall mean the power to direct the management and policies of such
person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise.
"amend" means to amend, supplement, restate, amend and restate or otherwise
modify; and "amendment" shall have a correlative meaning.
"asset" means any asset or property.
"asset acquisition" means
(1) an investment by Matria or any restricted subsidiary of Matria in
any other person if, as a result of such investment, such person shall
become a restricted subsidiary of Matria, or shall be merged with or into
Matria or any restricted subsidiary of Matria, or
(2) the acquisition by Matria or any restricted subsidiary of Matria
of all or substantially all of the assets of any other person or any
division or line of business of any other person.
"asset sale" means any sale, issuance, conveyance, transfer, lease,
assignment or other disposition by Matria or any restricted subsidiary to any
person other than Matria or any restricted subsidiary (including by means of a
sale and leaseback transaction or a merger or consolidation) (collectively, for
purposes of this definition, a "transfer"), in one transaction or a series of
related transactions, of any assets (including equity interests) of Matria or
any of its restricted subsidiaries other than in the ordinary course of
business. For purposes of this definition, the term "asset sale" shall not
include:
(1) transfers of cash or cash equivalents;
(2) transfers of assets (including equity interests) that are governed
by, and made in accordance with, the provisions described under "-- Certain
Covenants -- Limitations on Mergers, Consolidations, Etc.";
(3) permitted investments and restricted payments permitted under the
covenant described under "-- Certain Covenants -- Limitations on Restricted
Payments";
(4) the creation or realization of any permitted lien; and
(5) any transfer or series of related transfers that, but for this
clause, would be asset sales, if after giving effect to such transfers, the
aggregate fair market value of the assets transferred in such transaction
or any such series of related transactions does not exceed $1.0 million.
"attributable indebtedness", when used with respect to any sale and
leaseback transaction, means, as at the time of determination, the present value
(discounted at a rate equivalent to Matria's then-current weighted average cost
of funds for borrowed money as at the time of determination, compounded on a
semi-annual basis) of the total obligations of the lessee for rental payments
during the remaining term of any capitalized lease included in any such sale and
leaseback transaction.
"bankruptcy law" means Title 11 of the United States Code, as amended, or
any similar federal or state law for the relief of debtors.
"board of directors" means, with respect to any person, the board of
directors or comparable governing body of such person.
60
63
"borrowing base" means, as of any date, an amount equal to:
(1) 85% of the face amount of all accounts receivable owned by Matria
and its restricted subsidiaries as of the end of the most recent fiscal
quarter preceding such date that were not more than 90 days past due; plus
(2) 50% of the net book value of all inventory owned by Matria and its
restricted subsidiaries as of the end of the most recent fiscal quarter
preceding such date,
in each case calculated on a consolidated basis and in accordance with GAAP.
"business day" means a day other than a Saturday, Sunday or other day on
which banking institutions in New York are authorized or required by law to
close.
"capital expenditures" shall mean, with respect to any person, for any
period, all expenditures by such Person which should be capitalized in
accordance with GAAP during such period, including all such expenditures with
respect to fixed or capital assets (including, without limitation, expenditures
for maintenance and repairs which should be capitalized in accordance with GAAP)
and, without duplication, the amount of all capitalized lease obligations
incurred by such person during such period.
"capitalized lease" means a lease required to be capitalized for financial
reporting purposes in accordance with GAAP.
"capitalized lease obligations" of any person means the obligations of such
person to pay rent or other amounts under a capitalized lease, and the amount of
such obligation shall be the capitalized amount thereof determined in accordance
with GAAP.
"capital stock" of any person means (1) any and all shares or other equity
interests (including common stock, preferred stock and partnership interests) in
such person and (2) all rights to purchase, warrants or options (whether or not
currently exercisable), participations or other equivalents of or interests in
(however designated) such shares or other interests in such person.
"cash equivalents" means:
(1) marketable obligations with a maturity of 360 days or less issued
or directly and fully guaranteed or insured by the United States of America
or any agency or instrumentality thereof;
(2) demand and time deposits and certificates of deposit or
acceptances with a maturity of 180 days or less of any financial
institution that is a member of the Federal Reserve System having combined
capital and surplus and undivided profits of not less than $500 million and
is assigned at least a "B" rating by Thomson Financial BankWatch;
(3) commercial paper maturing no more than 180 days from the date of
creation thereof issued by a corporation that is not Matria or an affiliate
of Matria, and is organized under the laws of any State of the United
States of America or the District of Columbia and rated at least A-1 by S&P
or at least P-1 by Moody's;
(4) repurchase obligations with a term of not more than ten days for
underlying securities of the types described in clause (1) above entered
into with any commercial bank meeting the specifications of clause (2)
above; and
(5) investments in money market or other mutual funds substantially
all of whose assets comprise securities of the types described in clauses
(1) through (4) above.
"change of control" means the occurrence of any of the following events:
(1) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the beneficial owner (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that for
purposes of this clause that person or group shall be deemed to have
"beneficial ownership" of all securities that any such person or group has
the right to acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of
61
64
voting stock representing more than 50% of the voting power of the total
outstanding voting stock of Matria;
(2) during any period of two consecutive years, individuals who at the
beginning of such period constituted the board of directors (together with
any new directors whose election to such board of directors or whose
nomination for election by the stockholders of Matria was approved by a
vote of the majority of the directors of Matria then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the board of directors of Matria;
(3) (a) all or substantially all of the assets of Matria and the
restricted subsidiaries taken as a whole are sold or otherwise transferred
to any person or (b) Matria consolidates or merges with or into another
person or any person consolidates or merges with or into Matria, in either
case under this clause (3), in one transaction or a series of related
transactions in which immediately after the consummation thereof persons
owning voting stock representing in the aggregate 100% of the total voting
power of the voting stock of Matria immediately prior to such consummation
do not own voting stock representing a majority of the total voting power
of the voting stock of Matria or the surviving or transferee person; or
(4) Matria shall adopt a plan of liquidation or dissolution or any
such plan shall be approved by the stockholders of Matria.
"consolidated amortization expense" for any period means the amortization
expense of Matria and the restricted subsidiaries for such period, determined on
a consolidated basis in accordance with GAAP.
"consolidated cash flow available for fixed charges" for any period means,
without duplication, the sum of the amounts for such period of
(1) consolidated net income, plus
(2) in each case only to the extent (and in the same proportion)
deducted in determining consolidated net income and with respect to the
portion of consolidated net income attributable to any restricted
subsidiary only if a corresponding amount would be permitted at the date of
determination to be distributed to Matria by such restricted subsidiary
without prior approval (that has not been obtained), pursuant to the terms
of its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to such restricted
subsidiary or its stockholders,
(a) consolidated income tax expense,
(b) consolidated amortization expense (but only to the extent not
included in consolidated interest expense),
(c) consolidated depreciation expense,
(d) consolidated interest expense, and
(e) all other non-cash items reducing the consolidated net income
(excluding any non-cash charge that results in an accrual of a reserve
for cash charges in any future period) for such period, in each case
determined on a consolidated basis in accordance with GAAP, minus
(3) the aggregate amount of all non-cash items, determined on a
consolidated basis, to the extent such items increased consolidated net
income for such period.
"consolidated depreciation expense" for any period means the depreciation
expense of Matria and the restricted subsidiaries for such period, determined on
a consolidated basis in accordance with GAAP.
"consolidated fixed charge coverage ratio" means the ratio of consolidated
cash flow available for fixed charges during the most recent four consecutive
full fiscal quarters for which financial statements are available (the
"four-quarter period") ending on or prior to the date of the transaction giving
rise to the
62
65
need to calculate the consolidated fixed charge coverage ratio (the "transaction
date") to consolidated interest expense for the four-quarter period. For
purposes of this definition, consolidated cash flow available for fixed charges
and consolidated interest incurred shall be calculated after giving effect on a
pro forma basis for the period of such calculation to:
(1) the incurrence of any indebtedness or the issuance of any
preferred stock of Matria or any restricted subsidiary (and the application
of the proceeds thereof) and any repayment of other indebtedness or
redemption of other preferred stock (and the application of the proceeds
therefrom) (other than the incurrence or repayment of indebtedness in the
ordinary course of business for working capital purposes pursuant to any
revolving credit arrangement) occurring during the four-quarter period or
at any time subsequent to the last day of the four-quarter period and on or
prior to the transaction date, as if such incurrence, repayment, issuance
or redemption, as the case may be (and the application of the proceeds
thereof), occurred on the first day of the four-quarter period; and
(2) any asset sale or asset acquisition (including, without
limitation, any asset acquisition giving rise to the need to make such
calculation as a result of Matria or any restricted subsidiary (including
any person who becomes a restricted subsidiary as a result of such asset
acquisition) incurring acquired indebtedness and also including any
consolidated cash flow available for fixed charges (including any pro forma
expense and cost reductions calculated on a basis consistent with
Regulation S-X under the Exchange Act) associated with any such asset
acquisition) occurring during the four-quarter period or at any time
subsequent to the last day of the four-quarter period and on or prior to
the transaction date, as if such asset sale or asset acquisition or other
disposition (including the incurrence of, or assumption or liability for,
any such indebtedness or acquired indebtedness) occurred on the first day
of the four-quarter period.
If Matria or any restricted subsidiary directly or indirectly guarantees
indebtedness of a third person, the preceding sentence shall give effect to the
incurrence of such guaranteed indebtedness as if Matria or such restricted
subsidiary had directly incurred or otherwise assumed such guaranteed
indebtedness.
In calculating consolidated interest incurred for purposes of determining
the denominator (but not the numerator) of the consolidated fixed charge
coverage ratio:
(1) interest on outstanding indebtedness determined on a fluctuating
basis as of the transaction date and which will continue to be so
determined thereafter shall be deemed to have accrued at a fixed rate per
annum equal to the rate of interest on this indebtedness in effect on the
transaction date;
(2) if interest on any indebtedness actually incurred on the
transaction date may optionally be determined at an interest rate based
upon a factor of a prime or similar rate, a eurocurrency interbank offered
rate, or other rates, then the interest rate in effect on the transaction
date will be deemed to have been in effect during the four-quarter period;
and
(3) notwithstanding clause (1) or (2) above, interest on indebtedness
determined on a fluctuating basis, to the extent such interest is covered
by agreements with a term of at least one year after the transaction date
relating to hedging obligations, shall be deemed to accrue at the rate per
annum resulting after giving effect to the operation of these agreements.
"consolidated income tax expense" for any period means the provision for
taxes of Matria and the restricted subsidiaries, determined on a consolidated
basis in accordance with GAAP.
"consolidated indebtedness" means, as of any date, the total indebtedness
of Matria and the restricted subsidiaries as of such date, determined on a
consolidated basis.
63
66
"consolidated interest expense" for any period means the sum, without
duplication, of the total interest expense of Matria and the restricted
subsidiaries for such period, determined on a consolidated basis in accordance
with GAAP and including without duplication,
(1) imputed interest on capitalized lease obligations and attributable
indebtedness,
(2) commissions, discounts and other fees and charges owed with
respect to letters of credit securing financial obligations, bankers'
acceptance financing and receivables financings,
(3) the net costs associated with hedging obligations,
(4) amortization of debt issuance costs, debt discount or premium and
other financing fees and expenses,
(5) the interest portion of any deferred payment obligations,
(6) all other non-cash interest expense,
(7) the product of (a) all dividend payments on any series of
disqualified equity interests of Matria or any preferred stock of any
restricted subsidiary (other than any such disqualified equity interests or
any preferred stock held by Matria or a wholly-owned restricted
subsidiary), multiplied by (b) a fraction, the numerator of which is one
and the denominator of which is one minus the then current combined
federal, state and local statutory tax rate of Matria and the restricted
subsidiaries, expressed as a decimal,
(8) all interest payable with respect to discontinued operations, and
(9) all interest on any indebtedness of any other person guaranteed by
Matria or any restricted subsidiary.
"consolidated net income" for any period means the net income (or loss) of
Matria and the restricted subsidiaries for such period determined on a
consolidated basis in accordance with GAAP; provided that there shall be
excluded from such net income (to the extent otherwise included therein),
without duplication:
(1) the net income (or loss) of any person (other than a restricted
subsidiary) in which any person other than Matria and the restricted
subsidiaries has an ownership interest, except to the extent that cash in
an amount equal to any such income has actually been received by Matria or
any of its restricted subsidiaries during such period;
(2) except to the extent includible in the consolidated net income of
Matria pursuant to the foregoing clause (1), the net income (or loss) of
any person that accrued prior to the date that (a) such person becomes a
restricted subsidiary or is merged into or consolidated with Matria or any
restricted subsidiary or (b) the assets of such person are acquired by
Matria or any restricted subsidiary;
(3) the net income of any restricted subsidiary during such period to
the extent that the declaration or payment of dividends or similar
distributions by such restricted subsidiary of that income is not permitted
by operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to that subsidiary during such period;
(4) for the purposes of calculating the restricted payments basket
only, in the case of a successor to Matria by consolidation, merger or
transfer of its assets, any income (or loss) of the successor prior to such
merger, consolidation or transfer of assets;
(5) other than for purposes of calculating the restricted payments
basket, any gain (or loss), together with any related provisions for taxes
on any such gain (or the tax effect of any such loss), realized during such
period by Matria or any restricted subsidiary upon (a) the acquisition of
any
64
67
securities, or the extinguishment of any indebtedness, of Matria or any
restricted subsidiary or (b) any asset sale by Matria or any restricted
subsidiary; and
(6) other than for purposes of calculating the restricted payments
basket, any extraordinary gain (or extraordinary loss), together with any
related provision for taxes on any such extraordinary gain (or the tax
effect of any such extraordinary loss), realized by Matria or any
restricted subsidiary during such period.
In addition, any return of capital with respect to an investment that
increased the restricted payments basket pursuant to clause (3)(d) of the first
paragraph under "-- Certain Covenants -- Limitations on Restricted Payments" or
decreased the amount of investments outstanding pursuant to clause (12) of the
definition of "permitted investments" shall be excluded from consolidated net
income for purposes of calculating the restricted payments basket.
"consolidated net worth" means, with respect to any person as of any date,
the consolidated stockholders' equity of such person, determined on a
consolidated basis in accordance with GAAP, less (without duplication)
(1) any amounts thereof attributable to disqualified equity interests
of such person or its subsidiaries or any amount attributable to
unrestricted subsidiaries and (2) all write-ups (other than write-ups
resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within twelve months after the
acquisition of such business) subsequent to the issue date in the book
value of any asset owned by such person or a subsidiary of such person.
"consolidated tangible assets" means, as of any date, the total amount of
assets of Matria and the restricted subsidiaries on a consolidated basis at the
end of the fiscal quarter immediately preceding such date, as determined in
accordance with GAAP, less intangible assets.
"consolidated tangible net worth" means, with respect to any person as of
any date, the consolidated net worth of such person as of such date less
(without duplication) all intangible assets of such person as of such date.
"coverage ratio exception" has the meaning set forth in the proviso in the
first paragraph of the covenant described under "-- Certain
Covenants -- Limitations on Additional Indebtedness."
"Credit Facility" means the $30 million senior credit facility entered into
by Matria, as of July 9, 2001, including any notes, guarantees, collateral and
security documents, instruments and agreements executed in connection therewith
(including hedging obligations related to the indebtedness incurred thereunder),
and in each case as amended or refinanced from time to time, including any
agreement extending the maturity of, refinancing, replacing or otherwise
restructuring (including increasing the amount of borrowings or other
indebtedness outstanding or available to be borrowed thereunder) all or any
portion of the indebtedness under such agreements, and any successor or
replacement agreement or agreements with the same or any other agents, creditor,
lender or group of creditors or lenders.
"custodian" means any receiver, trustee, assignee, liquidator or similar
official under any bankruptcy law.
"default" means (1) any event of default or (2) any event, act or condition
that, after notice or the passage of time or both, would be an event of default.
"designation" has the meaning given to this term in the covenant described
under "-- Certain Covenants -- Limitations on Designation of Unrestricted
Subsidiaries."
"designation amount" has the meaning given to this term in the covenant
described under "-- Certain Covenants -- Limitations on Designation of
Unrestricted Subsidiaries."
"disqualified equity interests" of any person means any equity interests of
such person that, by their terms, or by the terms of any related agreement or of
any security into which they are convertible, puttable or exchangeable, are, or
upon the happening of any event or the passage of time would be, required to be
65
68
redeemed by such person, whether or not at the option of the holder thereof, or
mature or are mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, in whole or in part, on or prior to the date which is 91 days after
the final maturity date of the notes; provided, however, that any class of
equity interests of such person that, by its terms, authorizes such person to
satisfy in full its obligations with respect to the payment of dividends or upon
maturity, redemption (pursuant to a sinking fund or otherwise) or repurchase
thereof or otherwise by the delivery of equity interests that are not
disqualified equity interests, and that are not convertible, puttable or
exchangeable for disqualified equity interests or indebtedness, will not be
deemed to be disqualified equity interests so long as such person satisfies its
obligations with respect thereto solely by the delivery of equity interests that
are not disqualified equity interests; provided, further, however, that any
equity interests that would not constitute disqualified equity interests but for
provisions thereof giving holders thereof (or the holders of any security into
or for which such equity interests are convertible, exchangeable or exercisable)
the right to require Matria to redeem such equity interests upon the occurrence
of a change in control occurring prior to the final maturity date of the notes
shall not constitute disqualified equity interests if the change in control
provisions applicable to such equity interests are no more favorable to such
holders than the provisions described under the caption "-- Change of Control"
and such equity interests specifically provide that Matria will not redeem any
such equity interests pursuant to such provisions prior to Matria's purchase of
the notes as required pursuant to the provisions described under the caption
"-- Change of Control."
"domestic subsidiary" means any restricted subsidiary organized under the
laws of the United States or any state of the United States or the District of
Columbia.
"excess cash flow" for any person for any period means:
(1) consolidated cash flow available for fixed charges of such person
and its restricted subsidiaries for such period; plus
(2) the amount, if any, by which net working capital of such person
and its restricted subsidiaries decreased during such period; minus
(3) consolidated interest expense of such person and its restricted
subsidiaries for such period; minus
(4) capital expenditures of such person and its restricted
subsidiaries for such period; minus
(5) cash expenditures for acquisitions of a permitted business made in
such period (except to the extent financed with Indebtedness); minus
(6) cash taxes paid by such person and its restricted subsidiaries for
such period; minus
(7) to the extent included in consolidated cash flow available for
fixed charges for such period, proceeds from asset sales consummated during
such period; minus
(8) the amount, if any, by which net working capital of such person
and its restricted subsidiaries increased during such period; and minus
(9) the amount, if any, of net indebtedness outstanding at the end of
such period under the Credit Facility.
"equity interests" of any person means (1) any and all shares or other
equity interests (including common stock, preferred stock, limited liability
company interests and partnership interests) in such person and (2) all rights
to purchase, warrants or options (whether or not currently exercisable),
participations or other equivalents of or interests in (however designated) such
shares or other interests in such person.
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended.
"fair market value" means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) that would be
negotiated in an arm's-length transaction for cash between a willing seller and
a willing and able buyer, neither of which is under any compulsion to complete
the
66
69
transaction, as such price is determined in good faith by the board of directors
of Matria or a duly authorized committee thereof, as evidenced by a resolution
of such board or committee.
"foreign subsidiary" means any restricted subsidiary that is not a domestic
subsidiary.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, as in effect on the issue date.
"guarantee" means a direct or indirect guarantee by any person of any
indebtedness of any other person and includes any obligation, direct or
indirect, contingent or otherwise, of such person: (1) to purchase or pay (or
advance or supply funds for the purchase or payment of) indebtedness of such
other person (whether arising by virtue of partnership arrangements, or by
agreements to keep-well, to purchase assets, goods, securities or services
(unless such purchase arrangements are on arm's-length terms and are entered
into in the ordinary course of business), to take-or-pay, or to maintain
financial statement conditions or otherwise); or (2) entered into for purposes
of assuring in any other manner the obligee of such indebtedness of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part). "Guarantee," when used as a verb, and "guaranteed" have correlative
meanings.
"Guarantors" means each domestic subsidiary of Matria on the issue date,
and each other person that is required to become a Guarantor by the terms of the
indenture after the issue date, in each case, until such person is released from
its note guarantee.
"hedging obligations" of any person means the obligations of such person
pursuant to (1) any interest rate swap agreement, interest rate collar agreement
or other similar agreement or arrangement designed to protect such person
against fluctuations in interest rates, (2) agreements or arrangements designed
to protect such person against fluctuations in foreign currency exchange rates
in the conduct of its operations, or (3) any forward contract, commodity swap
agreement, commodity option agreement or other similar agreement or arrangement
designed to protect such person against fluctuations in commodity prices, in
each case entered into in the ordinary course of business for bona fide hedging
purposes and not for the purpose of speculation.
"holder" means any registered holder, from time to time, of the notes.
"incur" means, with respect to any indebtedness or obligation, incur,
create, issue, assume, guarantee or otherwise become directly or indirectly
liable, contingently or otherwise, with respect to such indebtedness or
obligation; provided that (1) the indebtedness of a person existing at the time
such person became a restricted subsidiary or at the time such person merged
with or into Matria or a restricted subsidiary shall be deemed to have been
incurred at such time and (2) neither the accrual of interest nor the accretion
of original issue discount shall be deemed to be an incurrence of indebtedness.
"indebtedness" of any person at any date means, without duplication:
(1) all liabilities, contingent or otherwise, of such person for
borrowed money (whether or not the recourse of the lender is to the whole
of the assets of such person or only to a portion thereof);
(2) all obligations of such person evidenced by bonds, debentures,
notes or other similar instruments;
(3) all obligations of such person in respect of letters of credit or
other similar instruments (or reimbursement obligations with respect
thereto);
(4) all obligations of such person to pay the deferred and unpaid
purchase price of property or services, except trade payables and accrued
expenses incurred by such person in the ordinary course of business in
connection with obtaining goods, materials or services;
67
70
(5) the maximum fixed redemption or repurchase price of all
disqualified equity interests of such person;
(6) all capitalized lease obligations of such person;
(7) all indebtedness of others secured by a lien on any asset of such
person, whether or not such indebtedness is assumed by such person;
(8) all indebtedness of others guaranteed by such person to the extent
of such guarantee; provided that indebtedness of Matria or a restricted
subsidiary that is guaranteed by Matria or another restricted subsidiary
shall be counted only once in the calculation of the amount of indebtedness
of Matria and its subsidiaries on a consolidated basis;
(9) all attributable indebtedness;
(10) to the extent not otherwise included in this definition, hedging
obligations of such person;
(11) all obligations of such person under conditional sale or other
title retention agreements relating to assets purchased by such person; and
(12) the liquidation value of preferred stock of a subsidiary of such
person issued and outstanding and held by any person other than such person
(or one of its wholly-owned restricted subsidiaries).
The amount of indebtedness of any person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above, the maximum liability of such person for any such contingent obligations
at such date and, in the case of clause (7), the lesser of (a) the fair market
value of any asset subject to a lien securing the indebtedness of others on the
date that the lien attaches and (b) the amount of the indebtedness secured. For
purposes of clause (5), the "maximum fixed redemption or repurchase price" of
any disqualified equity interests that do not have a fixed redemption or
repurchase price shall be calculated in accordance with the terms of such
disqualified equity interests as if such disqualified equity interests were
redeemed on any date on which an amount of indebtedness outstanding shall be
required to be determined pursuant to the indenture.
The indenture will not restrict any unrestricted subsidiary from incurring
indebtedness nor will indebtedness of any unrestricted subsidiaries be included
in the consolidated fixed charge coverage ratio or the ratio of consolidated
indebtedness to consolidated tangible net worth hereunder, as long as the
unrestricted subsidiary incurring such indebtedness remains an unrestricted
subsidiary.
"independent director" means a director of Matria who
(1) is independent with respect to the transaction at issue;
(2) does not have any material financial interest in Matria or any of
its affiliates (other than as a result of holding securities of Matria);
and
(3) has not and whose affiliates or affiliated firm has not, at any
time during the twelve months prior to the taking of any action hereunder,
directly or indirectly, received, or entered into any understanding or
agreement to receive, compensation, payment or other benefit, of any type
or form, from Matria or any of its affiliates in excess of $60,000, other
than customary directors' fees for serving on the board of directors of
Matria or any affiliate and reimbursement of out-of-pocket expenses for
attendance at Matria's or affiliate's board and board committee meetings.
"independent financial advisor" means an accounting, appraisal or
investment banking firm of nationally recognized standing that is, in the
reasonable judgment of Matria's board of directors, qualified to perform the
task for which it has been engaged and disinterested and independent with
respect to Matria and its affiliates; provided, however, that the prior
rendering of service to Matria or an affiliate of Matria shall not, by itself,
disqualify the advisor.
"Initial Purchasers" mean UBS Warburg LLC and First Union Securities, Inc.
68
71
"intangible assets" means, with respect to any person, all unamortized debt
discount and expense, unamortized deferred charges, goodwill, patents,
trademarks, service marks, trade names, copyrights, write-ups of assets over
their carrying value (other than write-ups which occurred prior to the issue
date and other than, in connection with the acquisition of an asset, the
write-up of the value of such asset to its fair market value in accordance with
GAAP on the date of acquisition) and all other items which would be treated as
intangibles on the consolidated balance sheet of such person prepared in
accordance with GAAP.
"interest" means, with respect to the notes, interest and liquidated
damages, if any, on the notes.
"investments" of any person means:
(1) all direct or indirect investments by such person in any other
person in the form of loans, advances or capital contributions or other
credit extensions constituting indebtedness of such other person, and any
guarantee of indebtedness of any other person;
(2) all purchases (or other acquisitions for consideration) by such
person of indebtedness, equity interests or other securities of any other
person;
(3) all other items that would be classified as investments on a
balance sheet of such person prepared in accordance with GAAP; and
(4) the designation of any subsidiary as an unrestricted subsidiary.
Except as otherwise expressly specified in this definition, the amount of
any investment (other than an investment made in cash) shall be the fair market
value thereof on the date such investment is made. The amount of investment
pursuant to clause (4) shall be the designation amount determined in accordance
with the covenant described under "-- Certain Covenants -- Limitations on
Designation of Unrestricted Subsidiaries." If Matria or any subsidiary sells or
otherwise disposes of any equity interests of any direct or indirect subsidiary
such that, after giving effect to any such sale or disposition, such person is
no longer a subsidiary, Matria shall be deemed to have made an investment on the
date of any such sale or other disposition equal to the fair market value of the
equity interests of and all other investments in such subsidiary not sold or
disposed of, which amount shall be determined by the board of directors of
Matria. Notwithstanding the foregoing, redemptions of equity interests of Matria
shall be deemed not to be investments.
"issue date" means the date on which the notes are originally issued.
"lien" means, with respect to any asset, any mortgage, deed of trust, lien
(statutory or other), pledge, lease, easement, restriction, covenant, charge,
security interest or other encumbrance of any kind or nature in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law, including any conditional sale or other title retention agreement, and any
lease in the nature thereof, any option or other agreement to sell, and any
filing of, or agreement to give, any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction (other than
cautionary filings in respect of operating leases).
"liquidated damages" has the meaning set forth in the registration rights
agreement.
"Moody's" means Moody's Investors Service, Inc., and its successors.
"net available proceeds" means, with respect to any asset sale, the
proceeds thereof in the form of cash or cash equivalents, net of
(1) brokerage commissions and other fees and expenses (including fees
and expenses of legal counsel, accountants and investment banks) of such
asset sale;
(2) provisions for taxes payable as a result of such asset sale (after
taking into account any available tax credits or deductions and any tax
sharing arrangements);
69
72
(3) amounts required to be paid to any person (other than Matria or
any restricted subsidiary) owning a beneficial interest in the assets
subject to the asset sale or having a lien thereon;
(4) payments of unassumed liabilities (not constituting indebtedness)
relating to the assets sold at the time of, or within 30 days after the
date of, such asset sale; and
(5) appropriate amounts to be provided by Matria or any restricted
subsidiary, as the case may be, as a reserve required in accordance with
GAAP against any liabilities associated with such asset sale and retained
by Matria or any restricted subsidiary, as the case may be, after such
asset sale, including pensions and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities
under any indemnification obligations associated with such asset sale, all
as reflected in an officers' certificate delivered to the trustee;
provided, however, that any amounts remaining after adjustments,
revaluations or liquidations of such reserves shall constitute net
available proceeds.
"net indebtedness" at the end of any period means the amount of
indebtedness outstanding at the end of such period under the credit facility (if
any), less cash and cash equivalents at the end of such period in excess of $15
million (provided that if net indebtedness shall be negative, then net
indebtedness shall be deemed to be zero).
"net working capital" means, at any date, (a) the consolidated current
assets of Matria and its restricted subsidiaries as of such date (excluding cash
and cash equivalents) minus (b) the consolidated current liabilities of Matria
and its restricted subsidiaries as of such date (excluding current liabilities
in respect of indebtedness). Net working capital at any date may be a positive
or negative number. Net working capital increases when it becomes more positive
or less negative and decreases when it becomes less positive or more negative.
"non-recourse indebtedness" with respect to any person means indebtedness
of such person for which
(1) the sole legal recourse for collection of principal and interest
on such indebtedness is against the specific property identified in the
instruments evidencing or securing such indebtedness and such property was
acquired with the proceeds of such indebtedness or such indebtedness was
incurred within 90 days after the acquisition of such property and
(2) no other assets of such person may be realized upon in collection
of principal or interest on such indebtedness.
"obligation" means any principal, interest, penalties, fees,
indemnification, reimbursements, costs, expenses, damages and other liabilities
payable under the documentation governing any indebtedness.
"officer" means any of the following of Matria: the Chairman of the board
of directors, the Chief Executive Officer, the Chief Financial Officer, the
President, any Vice President, the Treasurer or the Secretary.
"officers' certificate" means a certificate signed by two officers.
"pari passu indebtedness" means any indebtedness of Matria or any Guarantor
that ranks pari passu as to payment with the notes or the note guarantees, as
applicable.
"permitted business" means the businesses engaged in by Matria and its
subsidiaries on the issue date as described in this offering memorandum and
businesses that are reasonably related thereto or reasonable extensions thereof
within the health care industry.
"permitted investment" means:
(1) investments by Matria or any restricted subsidiary in (a) any
restricted subsidiary or (b) in any person that is or will become
immediately after such investment a restricted subsidiary or that will
merge or consolidate into Matria or a restricted subsidiary;
(2) investments in Matria by any restricted subsidiary;
70
73
(3) loans and advances to directors, employees and officers of Matria
and the restricted subsidiaries for bona fide business purposes and to
purchase equity interests of Matria not in excess of $2.0 million at any
one time outstanding;
(4) hedging obligations incurred pursuant to clause (4) of the second
paragraph under the covenant described under "-- Certain
Covenants -- Limitations on Additional Indebtedness";
(5) cash equivalents;
(6) receivables owing to Matria or any restricted subsidiary if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however,
that such trade terms may include such concessionary trade terms as Matria
or any such restricted subsidiary deems reasonable under the circumstances;
(7) investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers;
(8) investments made by Matria or any restricted subsidiary as a
result of consideration received in connection with an asset sale made in
compliance with the covenant described under "-- Certain
Covenants -- Limitations on Asset Sales";
(9) lease, utility and other similar deposits in the ordinary course
of business;
(10) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to Matria or any
restricted subsidiary or in satisfaction of judgments;
(11) investments in existence on the issue date; and
(12) other investments in an aggregate amount not to exceed $5.0
million at any one time outstanding (with each investment being valued as
of the date made and without regard to subsequent changes in value).
The amount of investments outstanding at any time pursuant to clause (12)
above shall be deemed to be reduced:
(a) upon the disposition or repayment of or return on any investment
made pursuant to clause (12) above, by an amount equal to the return of
capital with respect to such investment to Matria or any restricted
subsidiary (to the extent not included in the computation of consolidated
net income), less the cost of the disposition of such investment and net of
taxes; and
(b) upon a redesignation of an unrestricted subsidiary as a restricted
subsidiary, by an amount equal to the lesser of (x) the fair market value
of Matria's proportionate interest in such subsidiary immediately following
such redesignation, and (y) the aggregate amount of investments in such
subsidiary that increased (and did not previously decrease) the amount of
investments outstanding pursuant to clause (12) above.
"permitted liens" means the following types of liens:
(1) (a) statutory liens of landlords and liens of carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen and other liens
imposed by law incurred in the ordinary course of business and
(b) liens for taxes, assessments or governmental charges or claims,
in either case, for sums not yet delinquent or being contested in good
faith, if such reserve or other appropriate provision, if any, as shall
be required by GAAP shall have been made in respect thereof;
(2) liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
71
74
contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
(3) liens upon specific items of inventory or other goods and proceeds
of any person securing such person's obligations in respect of bankers'
acceptances issued or created for the account of such person to facilitate
the purchase, shipment or storage of such inventory or other goods;
(4) liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other assets
relating to such letters of credit and products and proceeds thereof;
(5) liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements of Matria or
any restricted subsidiary, including rights of offset and setoff;
(6) bankers' liens, rights of setoff and other similar liens existing
solely with respect to cash and cash equivalents on deposit in one or more
accounts maintained by Matria or any restricted subsidiary, in each case
granted in the ordinary course of business in favor of the bank or banks
with which such accounts are maintained, securing amounts owing to such
bank with respect to cash management and operating account arrangements,
including those involving pooled accounts and netting arrangements;
provided that in no case shall any such liens secure (either directly or
indirectly) the repayment of any indebtedness;
(7) leases or subleases (or any liens related thereto) granted to
others that do not materially interfere with the ordinary course of
business of Matria or any restricted subsidiary;
(8) liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(9) liens securing all of the notes and liens securing any note
guarantee;
(10) liens existing on the issue date securing indebtedness
outstanding on the issue date and liens securing refinancing indebtedness
with respect to indebtedness incurred pursuant to clause (2) of the
definition of "permitted indebtedness;"
(11) liens in favor of Matria or a Guarantor;
(12) liens securing indebtedness of up to $35.0 million incurred
pursuant to clause (1) of "-- Limitations on Additional Indebtedness;"
(13) liens securing non-recourse indebtedness of Matria or any
restricted subsidiary permitted to be incurred under the indenture;
provided, that such liens apply only to the property financed out of the
net proceeds of such non-recourse indebtedness within 90 days after the
incurrence of such non-recourse indebtedness;
(14) liens securing purchase money indebtedness permitted to be
incurred under the indenture; provided that such liens apply only to the
property acquired, constructed or improved with the proceeds of such
purchase money indebtedness within 90 days after the incurrence of such
purchase money indebtedness;
(15) liens securing acquired indebtedness permitted to be incurred
under the indenture; provided that the liens do not extend to assets not
subject to such lien at the time of acquisition (other than improvements
thereon) and are no more favorable to the lienholders than those securing
such acquired indebtedness prior to the incurrence of such acquired
indebtedness by Matria or a restricted subsidiary;
(16) liens on assets of a person existing at the time such person is
acquired or merged with or into or consolidated with Matria or any such
restricted subsidiary (and not created in anticipation or contemplation
thereof);
72
75
(17) liens to secure attributable indebtedness permitted to be
incurred under the indenture; provided that any such lien shall not extend
to or cover any assets of Matria or any restricted subsidiary other than
the assets which are the subject of the sale and leaseback transaction in
which the attributable indebtedness is incurred;
(18) attachment or judgment liens not giving rise to a default and
which are being contested in good faith by appropriate proceedings;
(19) easements, rights-of-way, restrictions and other similar charges
or encumbrances not materially interfering with the ordinary course of
business of Matria and its subsidiaries;
(20) zoning restrictions, licenses, restrictions on the use of real
property or minor irregularities in title thereto, which do not materially
impair the use of such real property in the ordinary course of business of
Matria and its subsidiaries or the value of such real property for the
purpose of such business;
(21) any option, contract or other agreement to sell an asset;
provided such sale is not otherwise prohibited under the indenture; and
(22) liens incurred in the ordinary course of business of Matria or
any restricted subsidiary with respect to obligations that do not exceed
$5.0 million at any one time outstanding.
"permitted unrestricted subsidiary debt" means indebtedness of an
unrestricted subsidiary:
(1) as to which neither Matria nor any restricted subsidiary (a)
provides credit support of any kind (including any undertaking, agreement
or instrument that would constitute indebtedness), (b) is directly or
indirectly liable as a guarantor or otherwise, or (c) constitutes the
lender;
(2) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an unrestricted
subsidiary) would permit upon notice, lapse of time or both any holder of
any other indebtedness (other than the notes) of Matria or any restricted
subsidiary to declare a default on the other Indebtedness or cause the
payment thereof to be accelerated or payable prior to its stated maturity;
and
(3) as to which the lenders have been notified in writing that they
will not have any recourse to the equity interests or assets of Matria or
any restricted subsidiary.
"person" means any individual, corporation, partnership, limited liability
company, joint venture, incorporated or unincorporated association, joint-stock
company, trust, unincorporated organization or government or other agency or
political subdivision thereof or other entity of any kind.
"plan of liquidation" with respect to any person, means a plan that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously, in phases or
otherwise): (1) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such person otherwise than as an entirety or
substantially as an entirety; and (2) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or other disposition of all
or substantially all of the remaining assets of such person to creditors and
holders of equity interests of such person.
"preferred stock" means, with respect to any person, any and all preferred
or preference stock or other equity interests (however designated) of such
person whether now outstanding or issued after the issue date.
"principal" means, with respect to the notes, the principal of, and
premium, if any, on the notes.
"purchase money indebtedness" means indebtedness, including capitalized
lease obligations, of Matria or any restricted subsidiary incurred for the
purpose of financing all or any part of the purchase price of property, plant or
equipment used in the business of Matria or any restricted subsidiary or the
cost of installation, construction or improvement thereof; provided, however ,
that (1) the amount of such indebtedness shall not exceed such purchase price or
cost, (2) such indebtedness shall not be secured by
73
76
any asset other than the specified asset being financed or, in the case of real
property or fixtures, including additions and improvements, the real property to
which such asset is attached and (3) such indebtedness shall be incurred within
90 days after such acquisition of such asset by Matria or such restricted
subsidiary or such installation, construction or improvement.
"qualified equity interests" means equity interests of Matria other than
disqualified equity interests; provided that such equity interests shall not be
deemed qualified equity interests to the extent sold or owed to a subsidiary of
Matria or financed, directly or indirectly, using funds (1) borrowed from Matria
or any subsidiary of Matria until and to the extent such borrowing is repaid or
(2) contributed, extended, guaranteed or advanced by Matria or any subsidiary of
Matria (including, without limitation, in respect of any employee stock
ownership or benefit plan).
"qualified equity offering" means the issuance and sale of qualified equity
interests of Matria to persons other than any person who is not, prior to such
issuance and sale, an affiliate of Matria.
"redeem" means to redeem, repurchase, purchase, defease, retire, discharge
or otherwise acquire or retire for value; and "redemption" shall have a
correlative meaning.
"redesignation" has the meaning given to such term in the covenant
described under "-- Certain Covenants -- Limitations on Designation of
Unrestricted Subsidiaries."
"refinance" means to refinance, repay, prepay, replace, renew or refund.
"refinancing indebtedness" means indebtedness of Matria or a restricted
subsidiary issued in exchange for, or the proceeds from the issuance and sale or
disbursement of which are used substantially concurrently to redeem or refinance
in whole or in part, or constituting an amendment of, any indebtedness of Matria
or any restricted subsidiary (the "refinanced indebtedness") in a principal
amount not in excess of the principal amount of the refinanced indebtedness so
repaid or amended (plus the amount of any premium paid and the amount of
reasonable expenses incurred by Matria or any restricted subsidiary in
connection with such repayment or amendment) (or, if such refinancing
indebtedness refinances indebtedness under a revolving credit facility or other
agreement providing a commitment for subsequent borrowings, with a maximum
commitment not to exceed the maximum commitment under such revolving credit
facility or other agreement); provided that:
(1) if the refinanced indebtedness was subordinated to or pari passu
with the notes or the note guarantees, as the case may be, then such
refinancing indebtedness, by its terms, is expressly pari passu with (in
the case of refinanced indebtedness that was pari passu with) or
subordinate in right of payment to (in the case of refinanced indebtedness
that was subordinated to) the notes or the note guarantees, as the case may
be, at least to the same extent as the refinanced indebtedness;
(2) the refinancing indebtedness is scheduled to mature either (a) no
earlier than the Refinanced Indebtedness being repaid or amended or (b)
after the maturity date of the notes;
(3) the portion, if any, of the refinancing indebtedness that is
scheduled to mature on or prior to the maturity date of the notes has a
weighted average life to maturity at the time such refinancing indebtedness
is incurred that is equal to or greater than the weighted average life to
maturity of the portion of the refinanced indebtedness being repaid that is
scheduled to mature on or prior to the maturity date of the notes; and
(4) the refinancing indebtedness is secured only to the extent, if at
all, and by the assets, that the Refinanced Indebtedness being repaid,
extended or amended is secured.
"registration rights agreement" means the registration rights agreement
dated as of the issue date among Matria, the Guarantors and the Initial
Purchasers.
"restricted payment" means any of the following:
(1) the declaration or payment of any dividend or any other
distribution on equity interests of Matria or any restricted subsidiary or
any payment made to the direct or indirect holders (in their
74
77
capacities as such) of equity interests of Matria or any restricted
subsidiary, including, without limitation, any payment in connection with
any merger or consolidation involving Matria, but excluding (a) dividends
or distributions payable solely in qualified equity interests and (b) in
the case of restricted subsidiaries, dividends or distributions payable to
Matria or to a restricted subsidiary and pro rata dividends or
distributions payable to minority stockholders of any restricted
subsidiary;
(2) the redemption of any equity interests of Matria or any restricted
subsidiary, including, without limitation, any payment in connection with
any merger or consolidation involving Matria, but excluding any such equity
interests held by Matria or any restricted subsidiary;
(3) any investment other than a permitted investment; or
(4) any redemption prior to the scheduled maturity or prior to any
scheduled repayment of principal or sinking fund payment, as the case may
be, in respect of subordinated indebtedness.
"restricted payments basket" has the meaning given to such term in the
first paragraph of the covenant described under "-- Certain
Covenants -- Limitations on Restricted Payments."
"restricted subsidiary" means any subsidiary of Matria other than an
unrestricted subsidiary.
"S&P" means Standard & Poor's Ratings Services, a division of the
McGraw-Hill Companies, Inc., and its successors.
"sale and leaseback transaction" means, with respect to any person, an
arrangement with any bank, insurance company or other lender or investor or to
which such lender or investor is a party, providing for the leasing by such
person of any asset of such person which has been or is being sold or
transferred by such person to such lender or investor or to any person to whom
funds have been or are to be advanced by such lender or investor on the security
of such asset.
"SEC" means the U.S. Securities and Exchange Commission.
"secretary's certificate" means a certificate signed by the Secretary of
Matria.
"Securities Act" means the U.S. Securities Act of 1933, as amended.
"significant subsidiary" means (1) any restricted subsidiary that would be
a "significant subsidiary" as defined in Regulation S-X promulgated pursuant to
the Securities Act as such Regulation is in effect on the issue date and (2) any
restricted subsidiary that, when aggregated with all other restricted
subsidiaries that are not otherwise significant subsidiaries and as to which any
event described in clause (7) or (8) under "-- Events of Default" has occurred
and is continuing, would constitute a significant subsidiary under clause (1) of
this definition.
"subordinated indebtedness" means indebtedness of Matria or any Guarantor
that is subordinated in right of payment to the notes or the note guarantees,
respectively.
"subsidiary" means, with respect to any person:
(1) any corporation, limited liability company, association or other
business entity of which more than 50% of the total voting power of the
equity interests entitled (without regard to the occurrence of any
contingency) to vote in the election of the board of directors thereof are
at the time owned or controlled, directly or indirectly, by such person or
one or more of the other subsidiaries of that person (or a combination
thereof); and
(2) any partnership (a) the sole general partner or the managing
general partner of which is such person or a subsidiary of such person or
(b) the only general partners of which are such person or one or more
subsidiaries of such person (or any combination thereof).
Unless otherwise specified, "subsidiary" refers to a subsidiary of Matria.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
75
78
"unrestricted subsidiary" means (1) any subsidiary that at the time of
determination shall be designated an unrestricted subsidiary by the board of
directors of Matria in accordance with the covenant described under "-- Certain
Covenants -- Limitations on Designation of Unrestricted Subsidiaries" and (2)
any subsidiary of an unrestricted subsidiary.
"U.S. Government obligations" means direct non-callable obligations of, or
obligations guaranteed by, the United States of America for the payment of which
guarantee or obligations the full faith and credit of the United States is
pledged.
"voting stock" with respect to any person, means securities of any class of
equity interests of such person entitling the holders thereof (whether at all
times or only so long as no senior class of stock or other relevant equity
interest has voting power by reason of any contingency) to vote in the election
of members of the board of directors of such person.
"weighted average life to maturity" when applied to any indebtedness at any
date, means the number of years obtained by dividing (1) the sum of the products
obtained by multiplying (a) the amount of each then remaining installment,
sinking fund, serial maturity or other required payment of principal, including
payment at final maturity, in respect thereof by (b) the number of years
(calculated to the nearest one-twelfth) that will elapse between such date and
the making of such payment by (2) the then outstanding principal amount of such
indebtedness.
"wholly-owned restricted subsidiary" means a restricted subsidiary of which
100% of the equity interests (except for directors' qualifying shares or certain
minority interests owned by other persons solely due to local law requirements
that there be more than one stockholder, but which interest is not in excess of
what is required for such purpose) are owned directly by Matria or through one
or more wholly-owned restricted subsidiaries.
BOOK-ENTRY, DELIVERY AND FORM OF NOTES
The notes will be represented by one or more global notes in definitive
form. The global notes will be deposited on the issue date with, or on behalf
of, the Depository Trust Company ("DTC") and registered in the name of Cede &
Co., as nominee of DTC (such nominee being referred to herein as the "global
note holder"). The global notes will be subject to certain restrictions on
transfer and will bear the legend regarding these restrictions set forth under
the heading "Notice to Investors." DTC will maintain the notes in denominations
of $1,000 and integral multiples thereof through its book-entry facilities.
DTC has advised the Company as follows:
DTC is a limited-purpose trust company that was created to hold securities
for its participating organizations, including the Euroclear System and
Clearstream Banking, Societe Anonyme, Luxembourg (collectively, the
"Participants" or the "Depositary's Participants"), and to facilitate the
clearance and settlement of transactions in these securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Depositary's Participants include securities brokers and
dealers (including the Initial Purchasers), banks and trust companies, clearing
corporations and certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, dealers and trust companies
(collectively, the "Indirect Participants" or the "Depositary's Indirect
Participants") that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. Persons who are not Participants may
beneficially own securities held by or on behalf of DTC only through the
Depositary's Participants or the Depositary's Indirect Participants. Pursuant to
procedures established by DTC, ownership of the Notes will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by DTC (with respect to the interests of the Depositary's Participants) and the
records of the Depositary's Participants (with respect to the interests of the
Depositary's Indirect Participants).
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer the Notes will be limited to such extent.
76
79
So long as the global note holder is the registered owner of any notes, the
global note holder will be considered the sole holder of outstanding notes
represented by such global notes under the indenture. Except as provided below,
owners of notes will not be entitled to have notes registered in their names and
will not be considered the owners or holders thereof under the indenture for any
purpose, including with respect to the giving of any directions, instructions,
or approvals to the trustee thereunder. None of Matria, the Guarantors or the
trustee will have any responsibility or liability for any aspect of the records
relating to or payments made on account of notes by DTC, or for maintaining,
supervising or reviewing any records of DTC relating to such notes.
Payments in respect of the principal of, premium, if any, and interest on
any notes registered in the name of a global note holder on the applicable
record date will be payable by the trustee to or at the direction of such global
note holder in its capacity as the registered holder under the indenture. Under
the terms of the indenture, Matria and the trustee may treat the persons in
whose names any notes, including the global notes, are registered as the owners
thereof for the purpose of receiving such payments and for any and all other
purposes whatsoever. Consequently, neither Matria nor the trustee has or will
have any responsibility or liability for the payment of such amounts to
beneficial owners of notes (including principal, premium, if any, and interest).
Matria believes, however, that it is currently the policy of DTC to immediately
credit the accounts of the relevant Participants with such payments, in amounts
proportionate to their respective beneficial interests in the relevant security
as shown on the records of DTC. Payments by the Depositary's Participants and
the Depositary's Indirect Participants to the beneficial owners of Notes will be
governed by standing instructions and customary practice and will be the
responsibility of the Depositary's Participants or the Depositary's Indirect
Participants.
Subject to certain conditions, any person having a beneficial interest in
the global notes may, upon request to the trustee and confirmation of such
beneficial interest by the Depositary or its Participants or Indirect
Participants, exchange such beneficial interest for notes in definitive form.
Upon any such issuance, the trustee is required to register such notes in the
name of and cause the same to be delivered to, such person or persons (or the
nominee of any thereof). Such notes would be issued in fully registered form and
would be subject to the legal requirements described in this offering memorandum
under the caption "Notice to Investors." In addition, if (1) Matria notifies the
trustee in writing that DTC is no longer willing or able to act as a depositary
and Matria is unable to locate a qualified successor within 90 days or (2)
Matria, at its option, notifies the trustee in writing that it elects to cause
the issuance of notes in definitive form under the indenture, then, upon
surrender by the relevant global note holder of its global note, notes in such
form will be issued to each person that such global note holder and DTC
identifies as being the beneficial owner of the related notes.
Neither Matria nor the trustee will be liable for any delay by the global
note holder or DTC in identifying the beneficial owners of notes and Matria and
the trustee may conclusively rely on, and will be protected in relying on,
instructions from the global note holder or DTC for all purposes.
The information in this section concerning DTC, Euroclear and Clearstream
and their book-entry systems has been obtained from sources that Matria believes
to be reliable, but Matria takes no responsibility for the accuracy thereof.
77
80
REGISTRATION RIGHTS
The following description is a summary of the material provisions of the
registration rights agreement. It does not restate that agreement in its
entirety. We urge you to read the proposed form of registration rights agreement
in its entirety because it, and not this description, defines your registration
rights as holders of the notes.
Matria, the Guarantors and the Initial Purchasers entered into the
registration rights agreement in connection with the private offering of the old
notes. Pursuant to the registration rights agreement, Matria and the Guarantors
agreed to file with the SEC the exchange offer registration statement on the
appropriate form under the Securities Act with respect to the exchange notes.
Pursuant to the registration rights agreement, Matria and the Guarantors are
offering to holders of transfer restricted securities who are able to make
certain representations the opportunity to exchange their transfer restricted
securities for exchange notes.
If:
(1) Matria and the Guarantors are not permitted to consummate the
exchange offer because the exchange offer is not permitted by applicable
law or SEC policy; or
(2) for any reason the exchange offer is not consummated within 150
days after the closing date of the private offering of the old notes; or
(3) any holder of transfer restricted securities notifies Matria
within 20 business days following the consummation deadline that:
(a) it was prohibited by law or SEC policy from participating in
the exchange offer; or
(b) that it may not resell the exchange notes acquired by it in the
exchange offer to the public without delivering a prospectus and the
prospectus contained in the exchange offer registration statement is not
appropriate or available for such resales; or
(c) that it is a broker-dealer and owns old notes acquired directly
from Matria or an affiliate of Matria,
then, Matria and the Guarantors will file with the SEC a shelf registration
statement to cover resales of the old notes by the holders of the old notes who
satisfy certain conditions relating to the provision of information in
connection with the shelf registration statement.
For purposes of the preceding, "transfer restricted securities" means:
- each old note, until the earliest to occur of
(i) the date on which such old note is exchanged in the exchange offer
for an exchange note which is permitted to be resold to the public by its
holder without complying with the prospectus delivery requirements of the
Securities Act,
(ii) the date on which such old note has been disposed of in
accordance with a shelf registration statement (and the purchasers thereof
have been issued exchange notes), or
(iii) the date on which such old note is distributed to the public
pursuant to Rule 144 under the Securities Act; and
- each exchange note held by a broker-dealer until the date on which such
exchange note is disposed of by a broker-dealer pursuant to the "Plan of
Distribution" section herein.
78
81
The registration rights agreement provides that:
(1) unless the exchange offer would not be permitted by applicable law
or SEC policy, Matria and the Guarantors will
(a) commence the exchange offer; and
(b) use commercially reasonable efforts to issue on or prior to 150
days after the date on which the old notes were issued, exchange notes
in exchange for all old notes tendered prior thereto in the exchange
offer; and
(2) if obligated to file the shelf registration statement, Matria and
the Guarantors will use commercially reasonable efforts to file the shelf
registration statement with the SEC on or prior to 45 days after such
filing obligation arises and use commercially reasonable efforts to cause
the shelf registration statement to be declared effective by the SEC on or
prior to 90 days after such obligation arises.
If:
(1) Matria and the Guarantors fail to file any one of the registration
statements required by the registration rights agreement on or before the
date specified for such filing; or
(2) any of such registration statements is not declared effective by
the Commission on or prior to the date specified for such effectiveness
(the "effectiveness target date"); or
(3) Matria and the Guarantors fail to consummate the exchange offer
within 150 days after the date on which the old notes were issued; or
(4) any one of the required shelf registration statement or the
exchange offer registration statement is declared effective but thereafter
ceases to be effective or usable for its intended purpose without being
succeeded immediately by a post-effective amendment that cures such failure
and that is itself declared effective immediately in connection with
resales of transfer restricted securities during the periods specified in
the registration rights agreement
(each such event referred to in clauses (1) through (4) above, a "registration
default"), then Matria and the Guarantors will pay liquidated damages to each
holder of transfer restricted securities affected thereby, with respect to the
first 90-day period immediately following the occurrence of the first
registration default in an amount equal to 0.25% per annum. The amount of the
liquidated damages will increase by an additional 0.25% per annum for each
subsequent 90-day period until such registration default is cured, up to a
maximum aggregate amount of liquidated damages of 1.00% per annum with respect
to all registration defaults. The liquidated damages will cease accruing on such
old notes when the registration default has been cured.
All accrued liquidated damages will be paid by Matria and the Guarantors on
each interest payment date in the same manner as interest is paid on the old
notes.
Following the cure of all registration defaults, the accrual of liquidated
damages will cease.
As described elsewhere in this prospectus, holders of old notes are
required to make certain representations to Matria in order to participate in
the exchange offer and will be required to deliver certain information to be
used in connection with any shelf registration statement within the time period
set forth in the registration rights agreement in order to have their old notes
included in any shelf registration statement and benefit from the provisions
regarding liquidated damages set forth above. By acquiring transfer restricted
securities, a holder will be deemed to have agreed to indemnify Matria and the
Guarantors against certain losses arising out of information furnished by such
holder in writing for inclusion in any shelf registration statement. Holders of
old notes will also be required to suspend their use of the prospectus included
in the shelf registration statement under certain circumstances upon receipt of
written notice to that effect from Matria.
79
82
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of the material U.S. federal income
tax consequences of the exchange, as well as the ownership and disposition of
the exchange notes. This discussion is based on current provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), 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 discussion applies only to holders that hold notes as capital assets
and that acquired the old notes upon original issuance at their "issue price" as
defined in Section 1273 of the Code. This discussion is for general information
only and does not address all of the U.S. federal income tax consequences that
may be important to particular holders in light of their individual
circumstances. Such holders may include banks and other financial institutions,
insurance companies, individual retirement and other tax-deferred accounts,
tax-exempt entities, dealers in securities, certain former citizens or former
long-term residents of the United States, hybrid entities, persons holding the
notes as part of a hedging or conversion transaction or a straddle or U.S.
holders that have a functional currency other than the U.S. dollar. In addition,
this discussion does not include any description of the tax laws of any state,
local or foreign government that may be applicable to a particular beneficial
owner.
As used herein, the term "U.S. holder" means a beneficial owner of a note
that is, for U.S. federal income tax purposes: (i) a citizen or resident of the
United States; (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or any State thereof,
including the District of Columbia; (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 "non-U.S. holder" means a beneficial owner of a note that is
not a U.S. holder.
THE FOLLOWING DISCUSSION IS INTENDED FOR GENERAL INFORMATION PURPOSES AND
IS NOT TAX ADVICE. ACCORDINGLY, HOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE PARTICULAR U.S. FEDERAL INCOME AND OTHER TAX CONSEQUENCES TO
THEM OF THE EXCHANGE AND THE OWNERSHIP AND DISPOSITION OF THE EXCHANGE NOTES AS
WELL AS ANY TAX CONSEQUENCES UNDER STATE, LOCAL AND FOREIGN TAX LAWS, AND THE
POSSIBLE EFFECTS OF CHANGES IN TAX LAWS.
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE
The exchange of old notes for the exchange notes in the exchange offer will
not be treated as an "exchange" for federal income tax purposes because the
exchange notes do not differ materially in kind or extent from the old notes.
Accordingly:
- holders will not recognize taxable gain or loss upon the receipt of the
exchange notes in exchange for old notes in the exchange offer;
- the holding period for an exchange note received in the exchange offer
will include the holding period of the old note surrendered in exchange
therefor; and
- the adjusted tax basis of an exchange note immediately after the exchange
will be the same as the adjusted tax basis of the old note surrendered in
exchange therefor.
U.S. FEDERAL INCOME TAXATION OF U.S. HOLDERS
Stated Interest. In general, stated interest on an exchange note will be
taxable to an exchange U.S. holder as ordinary income at the time it accrues or
is actually or constructively received, in accordance with the U.S. holder's
method of accounting for federal income tax purposes. As a general rule, a U.S.
holder of an exchange note using the accrual method of tax accounting is
required to include stated interest on such note in gross income as such
interest accrues. A U.S. holder using the cash method of tax
80
83
accounting must include stated interest on such exchange note in gross income
when cash payments of such interest are actually (or constructively) received by
such U.S. holder.
Original Issue Discount. Since the exchange notes will be considered as
having been issued with "original issue discount" ("OID"), U.S. holders
generally will include OID in gross income in advance of the receipt of cash
attributable to that income, regardless of whether they use the cash or accrual
method of tax accounting. The Company will furnish to the Internal Revenue
Service (the "IRS") and to record U.S. holders of the exchange notes information
with respect to OID, if any, accruing during the calendar year (as well as
interest paid during that year).
The amount of OID includible in gross income for a taxable year by a U.S.
holder of an exchange note is the sum of the "daily portions" of OID for each
day of the taxable year during which the U.S. holder holds the exchange note.
The daily portions of OID required to be included in a U.S. holder's gross
income in a taxable year are determined under a constant yield method by
allocating to each day during the taxable year on which the U.S. holder holds
the exchange note a pro rata portion of the OID on the note that is attributable
to the "accrual period" in which such day is included. For this purpose, the
term "accrual period" means an interval of time of one year or less; provided
that each scheduled payment of principal or interest occurs either on the final
day of an accrual period or the first day of an accrual period. The amount of
the OID attributable to each accrual period is an amount equal to the excess, if
any, of (a) the product of the exchange note's "adjusted issue price" at the
beginning of the accrual period, and its "yield to maturity" (the discount rate
which, when used in computing the present value of all principal and interest
payments to be made under the exchange note, produces an amount equal to the
exchange note's issue price) over (b) the sum of any qualified stated interest
allocable to the accrual period. OID allocable to a final accrual period is the
difference between the amount payable at maturity and the adjusted issue price
at the beginning of the final accrual period.
The "adjusted issue price" of the exchange note at the beginning of the
first accrual period is its issue price. Thereafter, the adjusted issue price at
the beginning of any other accrual period will be (a) the sum of the exchange
note's issue price, and the aggregate amount of OID that accrued for all prior
accrual periods, less (b) any payments made on the exchange note (other than
qualified stated interest), if any, on or before the first day of the accrual
period.
Dispositions. Upon the sale or other disposition of an exchange note, a
U.S. holder generally will recognize taxable gain or loss unless a
non-recognition provision of the Code applies. The amount of such gain or loss
is equal to the difference between (1) the sum of cash and the fair market value
of other property received on such disposition (except to the extent such cash
or property is attributable to accrued but unpaid interest which will be taxable
as ordinary income), and (2) such U.S. holder's adjusted tax basis in the
exchange note. A U.S. holder's adjusted tax basis in an exchange note generally
will equal the cost of the exchange note to the U.S. holder, increased by the
amount of OID, if any, previously included in income by the U.S. holder with
respect to the note and reduced by the amount of payments (other than payments
of stated interest) previously received by the U.S. holder of the exchange note.
Provided that the exchange note is a capital asset in the hands of the U.S.
holder, such gain or loss generally will be capital gain or loss, and will be
long-term capital gain or loss if the exchange note was held for more than one
year on the date of disposition.
U.S. FEDERAL TAXATION OF NON-U.S. HOLDERS
The discussion set forth below is a summary of certain U.S. federal income
and withholding tax considerations that may be relevant to a non-U.S. holder of
exchange notes.
If a non-U.S. holder is engaged in a trade or business in the United States
and interest on the exchange note (including OID) is effectively connected with
the conduct of such trade or business, such non-U.S. holder generally will be
subject to U.S. federal income tax on such interest and OID in the same manner
as if it were a U.S. holder. In addition, if such non-U.S. holder is a foreign
corporation, it may be subject to a branch profits tax equal to 30% of its
effectively connected earnings and profits (subject to adjustment) for that
taxable year unless it qualifies for a lower rate under an applicable income tax
treaty.
81
84
If the interest income on the exchange note is not effectively connected
with the conduct of a United States trade or business, then a non-U.S. holder
generally will not be subject to U.S. federal withholding tax in respect of
payments of interest on the exchange note or in respect of payments attributable
to accrued OID, if the non-U.S. holder qualifies for the "portfolio interest
exception." A non-U.S. holder generally will qualify for the portfolio interest
exception if:
- the non-U.S. holder does not actually or constructively own 10% or more
of the total combined voting power of all classes of our voting stock,
- the non-U.S. holder is not a controlled foreign corporation that is
related to us through stock ownership, and
- the non-U.S. holder is not a bank extending credit pursuant to a loan
agreement entered into in the ordinary course of business.
If the interest income (including any OID) of a non-U.S. holder is not
effectively connected with the conduct of a United States trade or business, and
does not qualify for the portfolio interest exception, it will be subject to
United States federal withholding tax at a 30% rate unless the holder
establishes it is entitled to an exemption or a reduced rate of tax pursuant to
a treaty between the United States and the non-U.S. holder's country of
residence.
To claim the benefit of a tax treaty or an exemption from withholding
either because the income is effectively connected to a U.S. trade or business
or under the portfolio interest exception, the non-U.S. holder must provide a
properly executed Internal Revenue Service ("IRS") Form W-8BEN, W-8IMY or
W-8ECI, as applicable, prior to the payment of the interest. These forms must be
periodically updated. The United States Treasury Department issued new tax
regulations that took effect on January 1, 2001 relating to the withholding of
payments made to foreign persons. non-U.S. holders are advised to consult their
tax advisors to ensure compliance with the new rules.
Any capital gain realized upon a sale, exchange, redemption, or other
disposition of an exchange note by a non-U.S. holder generally will not be
subject to U.S. federal income tax unless (i) such gain is effectively connected
with the conduct of a U.S. trade or business of the non-U.S. holder, or (ii) in
the case of an individual, such non-U.S. holder is present in the United States
for 183 days or more in the taxable year of the sale, exchange, redemption, or
other disposition and certain other conditions are satisfied.
Exchange notes held at the time of death, or previously transferred subject
to certain retained rights or powers, by an individual who at the time of death
is not a citizen or resident of the United States will not be included in such
holder's gross estate for U.S. federal estate tax purposes, provided that the
individual does not actually or constructively own 10% or more of the total
combined voting power of all classes of our stock entitled to vote and the
income on the notes is not effectively connected with the conduct of a U.S.
trade or business of the individual.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Generally, a backup withholding tax and information reporting applies to
payments of interest (including OID) or proceeds of the sale or other
disposition of the exchange notes with respect to certain non-corporate U.S.
Holders. Backup withholding and information reporting will apply to a payment of
principal or interest (including OID) to, or the proceeds of the sale of the
exchange notes by, a U.S. holder that (i) fails to provide a taxpayer
identification number, certified under penalties of perjury, as well as certain
other information to the payer, (ii) fails to provides certain other required
information, or (iii) is not otherwise exempt from backup withholding and
information reporting. Any amount withheld under the backup withholding rules
will be allowed as a refund or a credit against such U.S. holder's federal
income tax liability upon furnishing the required information to the IRS.
Backup withholding generally will not apply to payments of interest
(including OID) or principal to a non-U.S. holder made by us or our paying agent
(absent actual knowledge that the holder is actually a
82
85
U.S. holder), or to payments made on the sale, exchange or other disposition of
an exchange note (absent actual knowledge that the holder is actually a U.S.
holder) if the holder properly certifies its non-U.S. status, under penalties of
perjury or otherwise establishes an exemption. Recently promulgated Treasury
regulations provide certain presumptions under which a non-U.S. holder will be
subject to backup withholding and information reporting unless it certifies its
non-U.S. status or otherwise establishes an exemption. In addition, the Treasury
regulations also provide certain rules for backup withholding and information
reporting if the payments to a non-U.S. holder are effected through a U.S.
office or a foreign office outside the United States.
Non-U.S. holders should consult their tax advisors regarding the
application of the information reporting and backup withholding in their
particular situations, the availability of an exemption from such requirements
and the procedure for obtaining an exemption. A non-U.S. holder may obtain a
refund or a credit against its United States federal income tax liability of any
amounts withheld under the backup withholding rules, provided the required
information is furnished to the IRS.
83
86
PLAN OF DISTRIBUTION
Any broker-dealer who holds old notes that were acquired for its account as
a result of market-making activities or other trading activities (other than old
notes acquired directly from us or any of our affiliates) may participate in the
exchange offer. Each participating broker-dealer that receives exchange notes
for its own account pursuant to the exchange offer must acknowledge that it will
deliver a prospectus in connection with any resale of such exchange notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a participating broker-dealer in connection with resales of exchange notes
received in exchange for old notes where such old notes were acquired as a
result of market-making activities or other trading activities. We have agreed
that, until December 6, 2002, or until all transfer restricted securities
covered by the exchange offer registration statement have been sold, whichever
period is shorter, we will make this prospectus, as it may be amended or
supplemented, available to any participating broker-dealer for use in connection
with any such resale.
We will not receive any proceeds from any sale of exchange notes by
participating broker-dealers.
Exchange notes received by participating broker-dealers for their own
account pursuant to the exchange offer may be sold from time to time in one or
more transactions
- in the over-the-counter market,
- in negotiated transactions,
- through the writing of options on the exchange notes or
- a combination of such methods of resale,
- at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices.
Any such resale may be made directly to purchasers or to or through brokers
or dealers who may receive compensation in the form of commissions or
concessions from any such participating broker-dealer or the purchasers of any
such exchange notes.
Any participating broker-dealer that resells exchange notes that were
received by it for its own account pursuant to the exchange offer and any broker
or dealer that participates in a distribution of such new notes may be deemed to
be an "underwriter" within the meaning of the Securities Act and any profit on
any such resale of exchange notes and any commission or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The letter of transmittal states that, by acknowledging that it
will deliver and by delivering a prospectus, a participating broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
Up until December 6, 2002, or until all transfer restricted securities
covered by the exchange offer registration statement have been sold, whichever
is earlier, we will promptly send additional copies of this prospectus and any
amendment or supplement to this prospectus to any participating broker-dealer
that requests such documents in the letter of transmittal. We have agreed to pay
all expenses incident to the exchange offer, including the expenses of one
counsel for the holders of the old notes, other than commissions and concessions
of any participating broker-dealer and will indemnify the holders of the old
notes, including any participating broker-dealers, against certain liabilities,
including liabilities under the Securities Act.
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 notes offered by this prospectus. As of June 30, 2001, Carl E.
Sanders, a partner and Chairman of Troutman Sanders LLP and one of our
directors, beneficially owns 6,125 shares of our common stock and options
exercisable within 60 days to purchase 13,750 shares of our common stock.
84
87
EXPERTS
The consolidated financial statements of Matria Healthcare, Inc. and its
subsidiaries as of December 31, 2000 and 1999 and for each of the years in the
three-year period ended December 31, 2000, 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.
85
88
MATRIA HEALTHCARE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 2000 and
1999...................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998.......................... F-4
Consolidated Statements of Common Shareholders' Equity and
Comprehensive Earnings for the years ended December 31,
2000, 1999 and 1998....................................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
F-1
89
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Matria Healthcare, Inc.:
We have audited the accompanying consolidated balance sheets of Matria
Healthcare, Inc. and subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of operations, common shareholders' equity and
comprehensive earnings, and cash flows for each of the years in the three-year
period ended December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with 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 audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Matria Healthcare,
Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America.
KPMG LLP
Atlanta, Georgia
February 15, 2001,
except as to Note 19,
which is as of July 9, 2001
F-2
90
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
------------------------------
2000 1999
------------ ------------
(AMOUNTS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,915 $ 9,548
Short-term investments (notes 2 and 17)................... 130 8,243
Trade accounts receivable, less allowances of $6,937 and
$11,963 at December 31, 2000 and 1999, respectively
(note 5)................................................ 39,969 41,651
Other receivables (note 16)............................... 27,608 7,312
Assets of discontinued operations (note 16)............... -- 15,831
Inventories (note 5)...................................... 17,035 10,310
Deferred income taxes (note 7)............................ 3,182 5,122
Prepaid expenses.......................................... 2,011 1,924
--------- ---------
Total current assets............................... 93,850 99,941
Property and equipment, net (notes 4 and 5)................. 15,644 13,418
Intangible assets, net (notes 1 and 2)...................... 119,486 128,724
Deferred income taxes (note 7).............................. 27,315 31,603
Cash surrender value of life insurance (note 10)............ 10,813 10,803
Other assets................................................ 1,185 1,224
--------- ---------
$ 268,293 $ 285,713
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (notes 5 and 12)... $ 11,815 $ 10,362
Accounts payable, principally trade....................... 21,734 18,826
Accrued liabilities (notes 6, 11 and 16).................. 8,698 12,349
--------- ---------
Total current liabilities.......................... 42,247 41,537
Long-term debt, excluding current installments (notes 2, 5
and 12)................................................... 76,996 91,090
Accrued benefit costs (note 10)............................. 5,052 8,030
Other long-term liabilities (note 11)....................... 3,702 4,807
--------- ---------
Total liabilities.................................. 127,997 145,464
--------- ---------
Redeemable preferred stock, $.01 par value. Authorized
50,000 shares (note 9):
Series A convertible: issued and outstanding -- 10 shares
at December 31, 2000 and 1999; redemption value of
$10,000................................................. 10,000 10,000
Series B: issued and outstanding -- 35 shares at December
31, 2000 and 1999; redemption value of $35,000.......... 31,446 31,005
--------- ---------
Total redeemable preferred stock................... 41,446 41,005
--------- ---------
Common shareholders' equity (note 8):
Common stock, $.01 par value. Authorized 25,000 shares;
issued and outstanding -- 8,777 and 9,193 at December
31, 2000 and 1999, respectively......................... 88 92
Additional paid-in capital................................ 288,900 293,486
Accumulated deficit....................................... (186,082) (196,576)
Accumulated other comprehensive earnings (loss), net of
income taxes............................................ (521) 5,777
Notes receivable and accrued interest from shareholder.... (3,535) (3,535)
--------- ---------
Total common shareholders' equity.................. 98,850 99,244
--------- ---------
Commitments and contingencies (notes 10, 12 and 13).........
$ 268,293 $ 285,713
========= =========
See accompanying notes to consolidated financial statements.
F-3
91
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
----------------------------------
2000 1999 1998
--------- --------- ----------
(Amounts in thousands, except per
share amounts)
Revenues.................................................... $225,767 $231,739 $ 128,572
Cost of revenues............................................ 116,179 118,305 51,278
Selling and administrative expenses......................... 68,468 73,653 60,613
Provision for doubtful accounts............................. 7,043 7,193 6,342
Amortization of intangible assets........................... 9,803 9,439 27,700
Restructuring charges (note 11)............................. 1,599 4,241 --
Asset impairment charges (note 3)........................... -- -- 82,885
-------- -------- ---------
Operating earnings (loss) from continuing operations...... 22,675 18,908 (100,246)
Interest income............................................. 444 474 475
Interest expense............................................ (8,600) (8,185) (1,083)
Other income, net (note 17)................................. 8,275 16,169 448
-------- -------- ---------
Earnings (loss) from continuing operations before income
taxes................................................... 22,794 27,366 (100,406)
Income tax benefit (expense) (note 7)....................... (9,100) 4,000 --
-------- -------- ---------
Earnings (loss) from continuing operations................ 13,694 31,366 (100,406)
Earnings (loss) from discontinued operations, net of income
taxes (note 16)........................................... -- 2,640 (1,136)
-------- -------- ---------
Net earnings (loss)....................................... 13,694 34,006 (101,542)
Redeemable preferred stock dividends........................ (3,200) (3,049) --
Accretion of Series B redeemable preferred stock............ (441) (420) --
-------- -------- ---------
Net earnings (loss) available to common shareholders...... $ 10,053 $ 30,537 $(101,542)
======== ======== =========
Net earnings (loss) per common share (note 1):
Basic:
Continuing operations................................... $ 1.10 $ 3.05 $ (10.98)
Discontinued operations................................. -- 0.29 (0.12)
-------- -------- ---------
$ 1.10 $ 3.34 $ (11.10)
======== ======== =========
Diluted:
Continuing operations................................... $ 1.05 $ 2.82 $ (10.98)
Discontinued operations................................. -- 0.26 (0.12)
-------- -------- ---------
$ 1.05 $ 3.08 $ (11.10)
======== ======== =========
Weighted average shares outstanding:
Basic..................................................... 9,139 9,151 9,145
======== ======== =========
Diluted................................................... 9,946 10,036 9,145
======== ======== =========
See accompanying notes to consolidated financial statements.
F-4
92
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
AND COMPREHENSIVE EARNINGS
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
--------------- PAID-IN ACCUMULATED COMPREHENSIVE
SHARES AMOUNT CAPITAL DEFICIT EARNINGS (LOSS)
------ ------ ---------- ----------- ---------------
(Amounts and shares in thousands)
BALANCE, DECEMBER 31, 1997................ 9,198 $92 $282,603 $(125,991) $ --
Issuance of common stock:
Exercise of options...................... 30 -- 273 -- --
Employee stock purchase plan............. 30 -- 365 -- --
Conversion of subordinated debentures.... 1 -- 13 -- --
Purchase of treasury stock................ (156) (1) (2,396) -- --
Net loss.................................. -- -- -- (101,542) --
----- --- -------- --------- -------
BALANCE, DECEMBER 31, 1998................ 9,103 91 280,858 (227,533) --
Issuance of common stock:
Exercise of options...................... 37 -- 309 -- --
Employee stock purchase plan............. 49 1 527 -- --
Conversion of subordinated debentures.... 4 -- 87 -- --
Recognition of deferred tax effect of
exercise of options...................... -- -- 7,710 -- --
Issuance of warrants on Series B
redeemable preferred stock............... -- -- 4,415 -- --
Accretion on Series B redeemable preferred
stock.................................... -- -- (420) -- --
Dividends on redeemable preferred stock... -- -- -- (3,049) --
Net earnings.............................. -- -- -- 34,006 --
Change in foreign currency translation
adjustment............................... -- -- -- -- (537)
Change in unrealized appreciation on
available-for-sale securities............ -- -- -- -- 6,314
----- --- -------- --------- -------
BALANCE, DECEMBER 31, 1999................ 9,193 92 293,486 (196,576) 5,777
Issuance of common stock:
Exercise of options...................... 5 -- 65 -- --
Employee stock purchase plan............. 40 1 558 -- --
Conversion of subordinated debentures.... -- -- 5 -- --
Repurchase of common stock................ (460) (5) (4,728) -- --
Fractional shares retired after reverse
stock split.............................. (1) -- (45) -- --
Accretion on Series B redeemable preferred
stock.................................... -- -- (441) -- --
Dividends on redeemable preferred stock... -- -- -- (3,200) --
Net earnings.............................. -- -- -- 13,694 --
Change in foreign currency translation
adjustment, net of income taxes.......... -- -- -- -- (25)
Change in unrealized appreciation on
available-for-sale securities, net of
income taxes............................. -- -- -- -- (6,273)
----- --- -------- --------- -------
BALANCE, DECEMBER 31, 2000................ 8,777 $88 $288,900 $(186,082) $ (521)
===== === ======== ========= =======
NOTES
RECEIVABLE TOTAL
AND ACCRUED COMMON COMPREHENSIVE
INTEREST FROM SHAREHOLDERS' EARNINGS
SHAREHOLDER EQUITY (LOSS)
------------- ------------- -------------
(Amounts and shares in thousands)
BALANCE, DECEMBER 31, 1997................ $(3,535) $ 153,169 --
Issuance of common stock:
Exercise of options...................... -- 273 --
Employee stock purchase plan............. -- 365 --
Conversion of subordinated debentures.... -- 13 --
Purchase of treasury stock................ -- (2,397) --
Net loss.................................. -- (101,542) $(101,542)
------- --------- =========
BALANCE, DECEMBER 31, 1998................ (3,535) 49,881
Issuance of common stock:
Exercise of options...................... -- 309 --
Employee stock purchase plan............. -- 528 --
Conversion of subordinated debentures.... -- 87 --
Recognition of deferred tax effect of
exercise of options...................... -- 7,710 --
Issuance of warrants on Series B
redeemable preferred stock............... -- 4,415 --
Accretion on Series B redeemable preferred
stock.................................... -- (420) --
Dividends on redeemable preferred stock... -- (3,049) --
Net earnings.............................. -- 34,006 $ 34,006
Change in foreign currency translation
adjustment............................... -- (537) (537)
Change in unrealized appreciation on
available-for-sale securities............ -- 6,314 6,314
------- --------- ---------
BALANCE, DECEMBER 31, 1999................ (3,535) 99,244 $ 39,783
=========
Issuance of common stock:
Exercise of options...................... -- 65 --
Employee stock purchase plan............. -- 559 --
Conversion of subordinated debentures.... -- 5 --
Repurchase of common stock................ -- (4,733) --
Fractional shares retired after reverse
stock split.............................. -- (45) --
Accretion on Series B redeemable preferred
stock.................................... -- (441) --
Dividends on redeemable preferred stock... -- (3,200) --
Net earnings.............................. -- 13,694 $ 13,694
Change in foreign currency translation
adjustment, net of income taxes.......... -- (25) (25)
Change in unrealized appreciation on
available-for-sale securities, net of
income taxes............................. -- (6,273) (6,273)
------- --------- ---------
BALANCE, DECEMBER 31, 2000................ $(3,535) $ 98,850 $ 7,396
======= ========= =========
See accompanying notes to consolidated financial statements.
F-5
93
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
------------------------------
2000 1999 1998
------- -------- ---------
(Amounts in thousands)
Cash Flows from Operating Activities:
Net earnings (loss)....................................... $13,694 $ 34,006 $(101,542)
Less, earnings (loss) from discontinued operations, net of
income taxes............................................ -- 2,640 (1,136)
------- -------- ---------
Earnings (loss) from continuing operations................ 13,694 31,366 (100,406)
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization........................... 13,984 13,987 32,292
Provision for doubtful accounts......................... 7,043 7,193 6,342
Deferred tax expense (benefit).......................... 9,100 (4,000) --
Gains on sales of investments........................... (6,077) (17,349) --
Asset impairment charges................................ -- -- 82,885
Other, net.............................................. -- -- 146
Changes in assets and liabilities, net of effect of
acquisitions:
Trade accounts receivable............................. (5,583) (5,319) (5,151)
Inventories........................................... (6,735) (191) (559)
Other current assets.................................. 347 419 (827)
Intangible and other noncurrent assets................ (4,818) (3,503) (2,398)
Accounts payable...................................... 3,713 (5,667) 1,839
Accrued and other liabilities......................... (4,550) (4,458) (11,143)
------- -------- ---------
Net cash provided by continuing operations......... 20,118 12,478 3,020
Net cash provided by (used in) discontinued
operations....................................... (623) 710 1,911
------- -------- ---------
Net cash provided by operating activities.......... 19,495 13,188 4,931
------- -------- ---------
Cash Flows from Investing Activities:
Purchases of property and equipment....................... (7,395) (5,128) (3,941)
Purchases of property and equipment related to
discontinued operations................................. (3,492) (2,233) (2,001)
Acquisition of businesses, net of cash acquired........... -- (93,022) (19,947)
Proceeds from sales of short-term investments............. 7,298 23,579 8,997
Investment in an affiliated company....................... -- (2,680) (2,010)
Proceeds from disposal of property and equipment.......... -- 1,257 --
------- -------- ---------
Net cash used in investing activities.............. (3,589) (78,227) (18,902)
------- -------- ---------
Cash Flows from Financing Activities:
Borrowings under credit agreement......................... 23,000 108,000 16,659
Proceeds from issuance of debt............................ 891 979 781
Principal repayments of long-term debt.................... (37,650) (41,552) (1,627)
Proceeds from issuance of common stock.................... 579 837 638
Repurchases of common stock............................... (4,733) -- (2,397)
Preferred stock dividend payments......................... (3,200) (2,249) --
Other, net................................................ -- -- (60)
------- -------- ---------
Net cash provided by (used in) financing
activities....................................... (21,113) 66,015 13,994
------- -------- ---------
Effect of exchange rate changes on cash and cash
equivalents............................................... (426) (537) --
------- -------- ---------
Net increase (decrease) in cash and cash
equivalents...................................... (5,633) 439 23
Cash and cash equivalents at beginning of year.............. 9,548 9,109 9,086
------- -------- ---------
Cash and cash equivalents at end of year.................... $ 3,915 $ 9,548 $ 9,109
======= ======== =========
Supplemental disclosures of cash paid for:
Interest.................................................. $ 8,596 $ 6,325 $ 1,161
======= ======== =========
Income taxes.............................................. $ 2,167 $ 457 $ 10
======= ======== =========
Supplemental disclosure of noncash investing and financing
activities:
Equipment acquired under capital lease obligations........ $ 266 $ 526 $ 707
======= ======== =========
See accompanying notes to consolidated financial statements.
F-6
94
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999, and 1998
(Amounts in Thousands, Except Share and Per Share Amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BUSINESS
Prior to 1998, Matria Healthcare, Inc. ("Matria" or the "Company"), a Delaware
corporation, was primarily a nationwide provider of women's health services.
During 1998, Matria established itself as a diversified provider of disease
management. In July 1998, the Company acquired Quality Diagnostic Services, Inc.
("QDS") and entered the cardiovascular disease management market. In October
1998, the Company entered the respiratory disease management market by signing a
licensing agreement with National Jewish Medical Research Center ("National
Jewish") that gives Matria exclusive rights to market the comprehensive asthma
and chronic obstructive pulmonary disease management programs developed by
National Jewish. In 1998, the Company expanded its existing
diabetes-in-pregnancy program to include the general diabetes population. In
January 1999, the Company significantly expanded its offering of diabetes
supplies and disease management services through the acquisitions of Gainor
Medical Management, L.L.C. ("Gainor Medical") and Diabetes Management Systems,
Inc. ("DMS"). See note 2 for a summary of acquisitions, note 15 for a
description of the revenues, operating earnings, identifiable assets,
depreciation and amortization and capital expenditures of the Company's
reportable business segments and note 16 for a summary of dispositions of
businesses, including the sale of QDS in February 2001.
(B) BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States. In preparing the
consolidated financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
date of the consolidated balance sheets, and revenues, other income and expenses
for the periods. Actual results could differ from those estimates.
The consolidated financial statements include the accounts of Matria and all of
its majority owned subsidiaries and partnerships. All significant intercompany
balances and transactions have been eliminated in consolidation.
(C) REVENUES AND ALLOWANCES FOR UNCOLLECTIBLE ACCOUNTS
Revenues for the Women's Health and Other segments are generated by providing
services through patient service centers. Revenues from these segments are
recognized as the related services are rendered and are net of contractual
allowances and related discounts. The Diabetes Supplies and Services segment
provides services through its patient service center, provides supplies to
patients, and assembles, packages and distributes lancing products to original
equipment manufacturers. Revenues for services are recognized when services are
provided and revenues from product sales are recognized when product is shipped.
Revenues from this segment are recorded net of contractual and other discounts.
A significant portion of the Company's revenues is billed to third-party
reimbursement sources. Accordingly, the ultimate collectibility of a substantial
portion of the Company's trade accounts receivable is susceptible to changes in
third-party reimbursement policies.
A provision for doubtful accounts is made for revenues estimated to be
uncollectible and is adjusted periodically based upon the Company's evaluation
of current industry conditions, historical collection experience, and other
relevant factors which, in the opinion of management, deserve recognition in
estimating the allowance for uncollectible accounts.
F-7
95
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 2000, 1999, and 1998
(D) CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially expose the Company to concentrations of
credit risk, consist primarily of accounts receivable from third-party payors.
The collectibility of accounts receivable from third-party payors is directly
affected by conditions and changes in the insurance industry and governmental
programs, which are taken into account by the Company in computing and
evaluating its allowance for uncollectible accounts.
(E) CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and interest-bearing deposits. The
Company considers all highly liquid debt instruments with original maturities of
three months or less to be cash equivalents.
(F) SHORT-TERM INVESTMENTS
At December 31, 2000, short-term investments consist of the Company's holdings
in marketable equity securities (see notes 2 and 17). Under the provisions of
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities ("SFAS 115"), the Company classifies
these short-term investments as available-for-sale securities which are carried
at fair value with any unrealized gains and losses included in accumulated other
comprehensive earnings in common shareholders' equity. Unrealized gains of $41
and $6,314 are included in common shareholders' equity in the consolidated
balance sheets at December 31, 2000 and 1999.
(G) INVENTORIES
Inventories, which consist primarily of disposable medical products, drugs and
patient supplies, are stated at the lower of cost (first-in, first-out) or
market (net realizable value).
(H) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation is provided primarily on the straight-line method
over the estimated useful lives of the assets ranging from three to ten years.
Amortization of leasehold improvements and leased equipment is recorded over the
shorter of the lives of the related assets or the lease terms.
(I) INTANGIBLE ASSETS
A summary of intangible assets follows:
DECEMBER 31,
-------------------
2000 1999
-------- --------
Goodwill.................................................... $135,045 $134,326
Other intangible assets..................................... 3,825 3,978
-------- --------
138,870 138,304
Less accumulated amortization............................... 19,384 9,580
-------- --------
$119,486 $128,724
======== ========
Intangible assets consist of goodwill and other intangible assets, primarily
resulting from the Company's acquisitions (see note 2). Goodwill is being
amortized using the straight-line method over periods ranging from 8 to 15
years. At each balance sheet date, the Company assesses the recoverability of
goodwill by determining whether the amortization of the goodwill balance over
its remaining life can be recovered through undiscounted future operating cash
flows of the acquired operation. The amount of goodwill
F-8
96
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 2000, 1999, and 1998
impairment, if any, is measured based upon projected discounted future operating
cash flows using a discount rate reflecting the Company's average cost of funds
(see note 3).
Other intangible assets consist of customer lists, purchased software, covenants
not to compete and patents. These costs are being amortized on a straight-line
basis over periods ranging from four to ten years.
(J) LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company reviews long-lived assets and certain identifiable intangibles for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets (see note 3). Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
(K) STOCK OPTION PLANS
Prior to January 1, 1996, the Company accounted for its stock option plans in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense to be recognized over the related vesting period
would generally be determined on the date of grant only if the current market
price of the underlying stock exceeded the exercise price. On January 1, 1996,
the Company adopted Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation ("SFAS 123"), which permits entities to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS 123 also allows entities to
continue to apply the provisions of APB Opinion No. 25 and provide pro forma net
earnings (loss) and pro forma earnings (loss) per share disclosures for employee
stock option grants as if the fair value-based method defined in SFAS 123 had
been applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosures required by SFAS 123 (see
note 8).
(L) INCOME TAXES
The Company accounts for income taxes using an asset and liability approach.
Deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to future years
to differences between the financial statement carrying amounts and the tax
bases of existing assets and liabilities and net operating loss and tax credit
carryforwards. Additionally, the effect on deferred taxes of a change in tax
rates is recognized in earnings in the period that includes the enactment date.
Investment and research and experimental tax credits are accounted for by the
flow-through method.
(M) NET EARNINGS (LOSS) PER SHARE OF COMMON STOCK
Basic net earnings (loss) per common share are based on the weighted average
number of common shares outstanding. Diluted net earnings (loss) per common
share are based on the weighted average number of common shares outstanding and
dilutive potential common shares, such as dilutive stock options and warrants,
determined using the treasury stock method, and dilutive convertible preferred
shares, determined using the if-converted method. In 1998, the computation of
diluted net earnings (loss) per common share was antidilutive; therefore, the
amounts reported for basic and diluted net earnings (loss) per common share are
the same.
F-9
97
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 2000, 1999, and 1998
The computations for basic and diluted net earnings (loss) per common share are
as follows:
YEARS ENDED DECEMBER 31,
-----------------------------
2000 1999 1998
------- ------- ---------
BASIC
Earnings (loss) from continuing operations............ $13,694 $31,366 $(100,406)
Earnings (loss) from discontinued operations, net of
income taxes........................................ -- 2,640 (1,136)
------- ------- ---------
13,694 34,006 (101,542)
Redeemable preferred stock dividends.................. (3,200) (3,049) --
Accretion on Series B redeemable preferred stock...... (441) (420) --
------- ------- ---------
Net earnings (loss) available to common
shareholders........................................ $10,053 $30,537 $(101,542)
======= ======= =========
Weighted average number of common shares
outstanding......................................... 9,139 9,151 9,145
======= ======= =========
Net earnings (loss) per common share:
Continuing operations............................... $ 1.10 $ 3.05 $ (10.98)
Discontinued operations............................. -- 0.29 (0.12)
------- ------- ---------
$ 1.10 $ 3.34 $ (11.10)
======= ======= =========
DILUTED
Net earnings (loss) available to common
shareholders........................................ $10,053 $30,537 $(101,542)
Dividends on convertible preferred shares............. 400 381 --
------- ------- ---------
Net earnings (loss) for diluted calculation........... $10,453 $30,918 $(101,542)
======= ======= =========
Shares:
Weighted average number of common shares
outstanding...................................... 9,139 9,151 9,145
Shares issuable from assumed exercise of options and
warrants......................................... 251 356 --
Convertible preferred stock......................... 556 529 --
------- ------- ---------
9,946 10,036 9,145
======= ======= =========
Net earnings (loss) per common share:
Continuing operations............................... $ 1.05 $ 2.82 $ (10.98)
Discontinued operations............................. -- 0.26 (0.12)
------- ------- ---------
$ 1.05 $ 3.08 $ (11.10)
======= ======= =========
All basic and diluted net earnings (loss) per common share amounts reflected for
all periods in the accompanying consolidated financial statements and these
notes thereto have been restated to reflect the reverse stock split (see note
8).
(N) COMPREHENSIVE EARNINGS
Comprehensive earnings generally include all changes in equity during a period
except those resulting from investments by owners and distributions to owners.
Until 1999, the Company had no elements of comprehensive earnings other than net
earnings (loss). For 2000 and 1999, comprehensive earnings consists of net
earnings, foreign currency translation adjustments and changes in unrealized
appreciation on available-for-sale securities.
F-10
98
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 2000, 1999, and 1998
(O) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company uses financial instruments in the normal course of business. The
carrying values of cash equivalents, short-term investments, accounts
receivable, accounts payable, and accrued liabilities approximate fair value due
to the short-term nature of these assets and liabilities. The Company estimates
that the carrying amounts of the Company's long-term debt approximate the fair
value based on the current rates offered to the Company for debt with the same
remaining maturities.
(P) RECLASSIFICATIONS
Certain amounts in the 1999 and 1998 consolidated financial statements have been
reclassified to conform to presentations adopted in 2000.
2. ACQUISITIONS
Effective January 1, 1999, the Company acquired substantially all of the assets
of Gainor Medical for an initial purchase price of approximately $134,000. The
acquisition was accounted for under the purchase method of accounting and
resulted in the recognition of intangible assets of $3,800, consisting of
purchased U.S. patient lists and executive noncompete agreements (being
amortized over five years), international patient lists (being amortized over
ten years), and goodwill of $106,044 (being amortized over 15 years). Results of
its operations have been included in the Company's consolidated results of
operations effective January 1, 1999.
In connection with the acquisition of the Gainor Medical business, the Company
recognized a $25,015 deferred tax asset for the estimated tax benefits of the
net operating loss carryforwards to be realized in the future as a result of the
acquisition (see note 7).
The acquisition agreement also provided for an additional contingent purchase
price adjustment based on 1999 financial performance of the Gainor Medical
business. In 2000, an additional $13,719 of purchase price was paid by the
issuance of subordinated notes. These notes bear an interest rate of 12% per
annum and principal payments will be made in the amount of one-third of the
respective note amounts on the third, fourth and fifth anniversaries of the
notes.
At the closing of the transaction, the Company paid $83,758 of the purchase
price in cash, assumed approximately $1,242 in debt and issued $45,000 in
redeemable preferred stock and warrants of the Company (see note 9). The
transaction also included a cash adjustment payable by the Company of
approximately $6,573, one-half of which was paid at the closing and the
remaining one-half of which was paid during the second quarter of 1999.
The cash portion of the purchase price was financed partially through a $125,000
five-year bank credit facility, which the Company entered into in January 1999.
The credit facility consists of an $80,000 term loan facility and a $45,000
revolving credit facility (see note 5).
In January 1998, the Company converted a $250 note receivable from DMS and paid
$500 cash to acquire a 10% equity interest in DMS. During 1998, the Company made
advances to fund the working capital of DMS totaling $1,335. In January 1999,
the Company converted the note receivable for these advances and paid cash of
$6,500 to acquire the remaining equity interests of DMS. The acquisition was
accounted for using the purchase method of accounting and resulted in the
recognition of $10,765 of goodwill, which is being amortized over 15 years.
Results of operations of this business have been included in the Company's
consolidated results of operations effective January 1, 1999.
On July 21, 1998, Matria purchased certain assets of QDS, a cardiac event
monitoring company, a Georgia corporation and wholly owned subsidiary of
Endeavor Technologies, Inc. (subsequently named
F-11
99
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 2000, 1999, and 1998
WebMD Corporation) ("WebMD") for $17,000 in cash. The acquisition agreement also
provided for additional cash payments of up to $6,000 contingent upon 1999
revenues of the cardiovascular businesses. The 1999 revenue amounts required to
earn additional consideration were not achieved and no additional payments will
be made. The assets purchased include intellectual property, accounts
receivable, and contract rights. The acquisition was accounted for in accordance
with the purchase method of accounting with the results of operations of the
business acquired included in the consolidated financial statements from the
effective date of the acquisition, July 1, 1998. The acquisition resulted in
expensed acquired in-process research and development of $2,482, intangible
assets of $3,846, including noncompete agreements and workforce (amortized over
five years), customer lists and trade names (amortized over 15 years), and
goodwill of $8,254 (amortized over 15 years). In connection with the
acquisition, the Company made a $2,010 preferred stock investment in WebMD,
which was reflected in other long-term assets at December 31, 1998. In 1999, the
Company made an additional $2,680 investment to exercise options and warrants to
purchase additional shares of WebMD. At December 31, 2000, the Company's
remaining investment in WebMD is reflected in short-term investments. In
December 2000, the Company formalized its decision to sell the QDS business and
accordingly reported all results of operations as discontinued operations. See
note 17 for a summary of gains from sales of shares of WebMD and note 16 for a
discussion about the disposition of this business.
The following is a summary of the fair value of assets acquired and
consideration paid in connection with these acquisitions:
GAINOR QDS DMS
-------- ------- ------
Cash paid for the assets acquired, net of cash
acquired.............................................. $ 81,770 $17,000 $8,492
Preferred stock issued for assets acquired.............. 45,000 -- --
Contingent consideration................................ 13,719 -- --
Cash paid for acquisition costs......................... 5,337 370 --
-------- ------- ------
Fair value of assets acquired, including goodwill....... $145,826 $17,370 $8,492
======== ======= ======
3. ASSET IMPAIRMENT CHARGES
In 1998, the Company recorded an $82,885 asset impairment charge to reflect
management's revised expectations of revenue and earnings growth and the
strategic plan to expand beyond maternity management. Most of the charge was
related to the write-down of goodwill and intangible assets, which resulted from
the 1996 merger ("Merger") of Tokos Medical Corporation (Delaware) ("Tokos") and
Healthdyne, Inc. ("Healthdyne"). Based on projections of future revenue growth
of its preterm labor management business, the Company determined that estimated
future undiscounted cash flows of the Women's Health segment were below the
carrying value of its long-lived assets and goodwill. Accordingly, the Company
reduced the carrying value of these assets by $74,496 to their estimated fair
value. The operations of Tokos and Healthdyne are included in the Women's Health
operating segment (see note 15).
Likewise, the Company determined that the estimated future undiscounted cash
flows of National Reproductive Medical Center, Inc. ("NRMC") were below the
carrying value of its long-lived assets due to continued operational issues,
including the termination of the employment of the founding physician in July
1998. As a result, the Company adjusted the carrying value of NRMC's long-lived
assets, primarily goodwill, to their estimated fair value by recording an $8,389
asset impairment charge. The operations of NRMC are included in Other Segments
(see note 15). See further discussion of the disposition of NRMC in note 16.
The estimated fair value in each case was based on anticipated cash flows
discounted at a rate commensurate with the risk involved.
F-12
100
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 2000, 1999, and 1998
4. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
DECEMBER 31,
------------------
2000 1999
------- -------
Machinery, equipment and fixtures........................... $20,278 $17,116
Medical equipment........................................... 18,623 17,744
Leasehold improvements...................................... 2,124 1,801
------- -------
41,025 36,661
Less accumulated depreciation and amortization.............. 25,381 23,243
------- -------
$15,644 $13,418
======= =======
5. LONG-TERM DEBT
Long-term debt is summarized as follows:
DECEMBER 31,
-----------------
2000 1999
------- -------
Secured term loan, variable interest at the LIBOR rate plus
2.5%; payable in quarterly installments; maturing in March
2004...................................................... $43,669 $59,000
Secured revolving line of credit, variable interest at the
LIBOR rate plus 2.5%; outstanding principal balance plus
all accrued but unpaid interest payable March 2004........ 29,000 27,000
Subordinated acquisition note, interest at 8% payable
quarterly; interest at 4% payable annually; payable in
annual installments beginning in 2003 and maturing in
2005...................................................... 13,963 13,000
Convertible subordinated debentures (net of discount of $87
and $35 at December 31, 2000 and 1999, respectively);
interest at 8% payable annually; maturing on December 31,
2001; convertible into the Company's common stock at
$19.60 per share; redeemable by the Company at face
value..................................................... 1,146 1,187
Capital lease obligations; interest ranging from
approximately 7% to 13% with various monthly payments and
maturing at various dates through December 2003 (note 12)
dates through October 2001................................ 602 754
Other debt; interest at rates ranging from approximately
7.5% to 9%; payable in monthly installments through May
2002...................................................... 431 511
------- -------
Total long-term debt............................... 88,811 101,452
Less current installments................................... 11,815 10,362
------- -------
Long-term debt, excluding current installments..... $76,996 $91,090
======= =======
In connection with the acquisitions of Gainor Medical and DMS in January 1999
(see note 2), the Company entered into a $125,000 five-year bank credit
facility. This facility consisted of an $80,000 term loan facility and a $45,000
revolving credit facility. The facility is collateralized by accounts
receivable, inventories, property and equipment, and certain other assets of the
Company. Borrowings under this agreement bear interest, at the Company's option,
of (i) prime plus 1.25% to 2.25% or (ii) the LIBOR rate plus 2.25% to 3.25%. As
of December 31, 2000, interest rates under this agreement ranged from 9.1875% to
11.0%. The weighted average interest rate on this facility for 2000 was 9.43%.
The facility requires a commitment fee payable quarterly, in arrears, of 0.375%
to 0.500%, based upon the unused portion. Under this agreement, the Company is
required to maintain certain financial ratios and certain limitations are placed
on cash dividends. At December 31, 2000, the Company was in compliance with
these requirements.
F-13
101
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 2000, 1999, and 1998
Approximate aggregate minimum annual payments due on long-term debt for the five
years subsequent to December 31, 2000 are as follows:
2001........................................................ $11,815
2002........................................................ 11,415
2003........................................................ 18,819
2004........................................................ 42,107
2005........................................................ 4,655
Thereafter.................................................. --
-------
$88,811
=======
In February 2001, $18,000 of the term loan facility was repaid from the proceeds
of the sale of QDS (see note 16). All subsequent payments due on the term loan
facility will be proportionately reduced from the amounts reflected in the table
above.
6. ACCRUED LIABILITIES
Accrued liabilities are summarized as follows:
DECEMBER 31,
----------------
2000 1999
------ -------
Accrued salaries, wages and incentives...................... $2,466 $ 2,960
Accrued liabilities of business dispositions (note 16)...... 1,460 2,751
Accrued interest............................................ 1,431 1,893
Accrued preferred stock dividends........................... 800 800
Accrued restructuring costs (note 11)....................... 764 1,369
Other....................................................... 1,777 2,576
------ -------
$8,698 $12,349
====== =======
7. INCOME TAXES
The provision (benefit) for income taxes consisted of:
YEARS ENDED DECEMBER 31,
--------------------------
2000 1999 1998
------- -------- -----
Current tax provision:
U.S. federal.............................................. $ 768 $ 87 $ 10
State and local........................................... 692 162 --
Non-U.S. ................................................. 707 208 --
------ ------- ----
Total current tax provision........................ 2,167 457 10
------ ------- ----
Deferred tax provision:
U.S. federal.............................................. 6,456 (4,087) (10)
State and local........................................... 509 (162) --
Non-U.S. ................................................. (32) (208) --
------ ------- ----
Total deferred tax provision....................... 6,933 (4,457) (10)
------ ------- ----
Total income tax expense (benefit)................. $9,100 $(4,000) $ --
====== ======= ====
F-14
102
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 2000, 1999, and 1998
Below is a reconciliation of the expected income tax expense (benefit) - (based
on the U.S. federal statutory income tax rate) to the actual income taxes:
YEARS ENDED DECEMBER 31,
----------------------------
2000 1999 1998
------ -------- --------
Computed expected income tax expense (benefit).............. $7,978 $ 10,202 $(35,540)
Increase (decrease) resulting from:
State and local income taxes, net of federal benefit...... 781 1,188 --
Non-U.S. municipal taxes and tax rate differences......... 159 -- --
Nondeductible expenses.................................... 182 1,194 39,563
Losses in excess of allowable carrybacks.................. -- -- 796
Nontaxable municipal interest income...................... -- -- (83)
Change in effective tax rate.............................. -- (3,886) --
Tax benefits realized as a result of acquisitions......... -- 25,015 --
Benefit of deductions attributable to stock options
credited to additional paid-in capital.................. -- 7,710 --
Reduction in valuation allowance.......................... -- (45,339) (4,624)
Other, net................................................ -- (84) (112)
------ -------- --------
Income tax expense (benefit)................................ $9,100 $ (4,000) $ --
====== ======== ========
At December 31, 1998, the Company had a deferred tax asset of approximately
$45,339 before an offsetting valuation allowance. The valuation allowance was
based on an assessment of the likelihood of whether the deferred tax asset would
be realized. The elimination of the valuation allowance of $45,339 during 1999
was attributable to the following items: (1) 1999 income which utilized $12,500
of net operating losses; (2) an increase in deferred income taxes to include the
state income tax benefits of $(3,886); (3) a reduction of $25,015 based upon an
assessment of future operating earnings of the combined businesses in
conjunction with the acquisition of Gainor Medical (see note 2); (4) a $7,710
credit to additional paid-in capital related to the operating loss carryforward
generated by the exercise of stock options; and (5) a $4,000 credit to income
tax benefit on the consolidated statement of operations as the Company believes
now, more likely than not, that it will realize the related deferred income tax
assets.
At December 31, 2000 and 1999, the deferred income tax assets consist of future
tax benefits attributable to:
2000 1999
------- -------
Deferred income tax assets:
Current:
Allowance for doubtful accounts......................... $ 2,432 $ 3,017
Accruals and reserves not deducted for tax purposes..... 750 2,105
------- -------
3,182 5,122
------- -------
Non-current:
Accruals and reserves not deducted for tax purposes..... 1,287 1,764
Depreciation and amortization........................... 1,959 2,608
Net operating loss carryforwards........................ 21,045 25,766
Credit carryforwards.................................... 2,657 2,010
Other................................................... 367 (545)
------- -------
27,315 31,603
------- -------
Total deferred income tax assets................... $30,497 $36,725
======= =======
F-15
103
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 2000, 1999, and 1998
At December 31, 2000, the Company had the following estimated credit and
operating loss carryforwards available for federal income tax reporting purposes
to be applied against future taxable income and tax liabilities:
GENERAL NET
BUSINESS OPERATING
YEAR OF EXPIRATION CREDITS LOSS
------------------ -------- ---------
2001........................................................ $ 34 $ --
2002........................................................ 38 --
2003........................................................ 89 --
2004........................................................ 43 --
2005........................................................ 61 --
2006........................................................ 151 --
2007........................................................ -- 29
2008........................................................ -- 1,011
2009........................................................ -- 4,599
2010........................................................ -- 11,364
2011........................................................ -- 34,070
2012........................................................ -- 1,824
2018........................................................ -- 414
2019........................................................ -- 354
2020........................................................ -- 436
---- -------
$416 $54,101
==== =======
The Company also has available alternative minimum tax ("AMT") credit
carryforwards of approximately $2,241 available to offset regular income tax, if
any, in future years. The AMT credit carryforwards do not expire. The AMT net
operating loss carryforward is approximately $45,965.
8. COMMON SHAREHOLDERS' EQUITY
REVERSE STOCK SPLIT
In December 2000, the Company executed a one-for-four reverse stock split under
which every four shares of the Company's common stock were converted into one
new share of common stock. All amounts reflected for common stock and additional
paid-in capital, and all amounts of authorized and outstanding common shares and
per share amounts reflected for all periods in the accompanying financial
statements and these notes thereto have been restated to reflect the reverse
stock split.
STOCK OPTION PLANS
During 2000, the Board of Directors of the Company adopted the 2000 Stock
Incentive Plan for employees, officers, independent contractors and consultants
of the Company. The 2000 Stock Plan has three components: a stock option
component, a stock bonus/stock purchase component and a stock appreciation
rights component. Under the terms of this plan, a total of 550,000 shares of
common stock were reserved for issuance. The Stock Option Committee shall
determine the term of each option granted, provided that the term shall not be
for more than ten years. The options are exercisable based on established
performance goals, provided, however, that they are exercisable in no less than
two years and no more than four years and expire after ten years.
F-16
104
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 2000, 1999, and 1998
Also during 2000, the Board of Directors of the Company adopted the 2000
Non-employee Director Stock Option Plan, which provides for the issuance of
non-qualified stock options to the Company's non-employee directors. Under the
terms of this plan, a total of 62,500 shares of common stock were reserved for
issuance. The options are granted with an exercise price equal to the fair
market value of the Company's common stock on the date the option is granted and
vest monthly over the 12 months from the date of grant. The term of each option
is ten years from the date of grant.
During 1997, the Board of Directors of the Company adopted the 1997 Stock
Incentive Plan for key employees, officers, independent contractors, and
consultants of the Company. The 1997 Stock Option Plan has three components: a
stock option component, a stock bonus/stock purchase component, and a Stock
Appreciation Right component. A total of 450,000 shares of the Company's common
stock have been authorized for issuance under this Plan. The Stock Option
Committee shall determine the term of each option granted under the Plan,
provided, however, that the term does not exceed ten years. These options are
exercisable based upon established performance goals, provided, however, that
they are not exercisable in less than two years or more than four years and
expire after ten years.
The Company has elected to adopt the disclosure-only provisions of SFAS 123
which require presentation of pro forma net earnings (loss) and pro forma
earnings (loss) per share as if the Company had accounted for its employee stock
options under the fair value method. For purposes of pro forma disclosure, the
estimated fair value of the options is amortized to expense over the vesting
period. Under the fair value method, the Company's net earnings (loss) from
continuing operations and earnings (loss) per common share from continuing
operations would have been as follows:
2000 1999 1998
------ ------- ---------
Pro forma net earnings (loss) from continuing
operations available to common shareholders.......... $8,221 $25,989 $(101,343)
====== ======= =========
Pro forma basic net earnings (loss) per common share
from continuing operations........................... $ 0.90 $ 2.84 $ (11.08)
====== ======= =========
The weighted average fair value of the individual options granted during 2000,
1999 and 1998 is estimated at $10.67, $9.50 and $9.89, respectively, on the date
of grant. The fair values for those years were determined using the
Black-Scholes option-pricing model with the following assumptions.
2000 1999 1998
------- ------- -------
Dividend yield............................................ None None None
Volatility................................................ 57% 58% 50%
Risk-free interest rate................................... 6.15% 5.54% 5.15%
Expected life............................................. 5 Years 5 Years 5 Years
F-17
105
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 2000, 1999, and 1998
A summary of stock option transactions under these plans is shown below:
2000 1999 1998
-------------------- ------------------ -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- ------- -------- -------- --------
Outstanding at beginning of year.... 884,729 $23.16 806,280 $23.63 726,346 $24.92
Granted............................. 234,105 19.16 196,605 17.20 232,880 20.04
Exercised........................... (16,875) 14.62 (39,586) 8.68 (30,368) 9.00
Canceled............................ (53,615) 22.73 (78,570) 20.48 (122,578) 26.84
--------- ------ ------- ------ -------- ------
Outstanding at end of year.......... 1,048,344 $22.41 884,729 $23.16 806,280 $23.63
========= ====== ======= ====== ======== ======
Exercisable at end of year.......... 634,478 $24.67 499,078 $25.32 496,267 $23.96
========= ====== ======= ====== ======== ======
The following table summarizes information concerning outstanding and
exercisable options at December 31, 2000:
OPTIONS OUTSTANDING
------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
SHARES CONTRACTUAL EXERCISE SHARES EXERCISE
RANGE OF EXERCISE PRICE OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
----------------------- ----------- ------------ -------- ----------- --------
$ 7.50 -- $ 10.00..................... 5,250 9.3 $ 9.23 646 $ 7.50
$10.00 -- $ 20.00..................... 289,121 8.2 16.34 107,111 16.65
$20.00 -- $ 30.00..................... 681,762 6.5 23.77 454,510 24.95
$30.00 -- $ 40.00..................... 71,260 5.1 33.97 71,260 33.97
$40.00 -- $126.00..................... 951 1.5 106.56 951 106.56
--------- -------
1,048,344 634,478
========= =======
EMPLOYEE STOCK PURCHASE PLAN
The Company maintains an Employee Stock Purchase Plan (the "Purchase Plan") to
encourage ownership of its common stock by employees. The Purchase Plan provides
for the purchase of up to 125,000 shares of the Company's common stock by
eligible employees of the Company and its subsidiaries. Under the Purchase Plan,
the Company may conduct an offering each fiscal quarter of its common stock to
eligible employees. The participants in the Purchase Plan can elect to purchase
common stock at the lower of 85% of the fair market value per share on either
the first or last business day of the quarter, limited to a maximum of either
10% of the employee's compensation or 1,000 shares of common stock per quarter.
A participant immediately ceases to be a participant in the Purchase Plan upon
termination of his or her employment for any reason. During 2000, 1999 and 1998,
respectively, 39,755, 48,469 and 30,133 shares of common stock were issued under
the Purchase Plan. Compensation costs related to this plan determined under SFAS
123 were insignificant to the Company's consolidated statements of operations
for the three years ended December 31, 2000.
SHAREHOLDERS' RIGHTS PLAN
In connection with the Merger, Matria established a Shareholders' Rights
Agreement. If a person or group acquires beneficial ownership of 15% or more of
the Company's outstanding common stock or announces a tender offer or exchange
that would result in the acquisition of a beneficial ownership of 20% or more
F-18
106
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 2000, 1999, and 1998
of the Company's outstanding common stock, the rights detach from the common
stock and are distributed to shareholders as separate securities. Each right
entitles its holder to purchase one one-hundredth of a share (a unit) of common
stock, at a purchase price of $244 per unit. The rights, which do not have
voting power, expire on March 9, 2006 unless previously distributed and may be
redeemed by the Company in whole at a price of $0.01 per right any time before
and within ten days after their distribution. If the Company is acquired in a
merger or other business combination transaction, or 50% of its assets or
earnings power are sold at any time after the rights become exercisable, the
rights entitle a holder to buy a number of common shares of the acquiring
company having a market value of twice the exercise price of the right. If a
person acquires 20% of the Company's common stock or if a 15% or larger holder
merges with the Company and the common stock is not changed or exchanged in such
merger, or engages in self-dealing transactions with the Company, each right not
owned by such holder becomes exercisable for the number of common shares of the
Company having a market value of twice the exercise price of the right.
9. REDEEMABLE PREFERRED STOCK
In connection with the purchase of the Gainor Medical business (see note 2), the
Company designated 16,500 shares and issued 10,000 shares of 4% Series A
convertible preferred stock ("Series A CRPS"), and designated 60,000 shares and
issued 35,000 shares of 8% Series B redeemable preferred stock ("Series B RPS")
with attached warrants to purchase 1,000,000 shares of the Company's common
stock at $12.00 per share.
The Series A CRPS is convertible at any time into 555,556 shares of common
stock. At its option, the Company may redeem the Series A CRPS, at any time
beginning two years after the acquisition date, after the 30-day moving average
of the closing price of the Company's stock has exceeded $21.60 per share, at a
redemption price of $1,222 per share. The Series A CRPS has a mandatory
redemption feature which requires the Company to redeem one-third of the shares
issued on each of the eighth, ninth and tenth anniversary dates of the original
issuance date at the redemption price of $1,000 per share. Redemption may occur
at the holder's request, in the event there is a change of control of the
Company, as defined in the applicable shareholder agreement. Dividends are
payable quarterly, in arrears, in cash or additional shares of Series A CRPS, or
a combination thereof, at the option of the Company. The Series A CRPS has been
recorded at the mandatory redemption value.
At its option, the Company may redeem the Series B RPS in whole or in part at
any time at the redemption price of $1,000 per share. The Series B RPS has a
mandatory redemption feature which requires the Company to redeem one-third of
the shares issued on each of the eighth, ninth and tenth anniversary dates of
the original issuance date, at the redemption price of $1,000 per share. At
issuance date, the Company allocated $4,415 of the $35,000 total redemption
value of Series B RPS to the fair value of the warrants issued, using a
Black-Scholes option pricing model. This amount was recorded as a credit to
additional paid-in capital and is being accreted over the term of the Series B
RPS.
In the event of liquidation, holders of Series A CRPS and Series B RPS are
entitled to receive, from the assets available for distribution to the
shareholders, an amount in cash or property at fair market value, equal to
$1,000 per share plus unpaid dividends. The Company is restricted from paying
dividends on the Company's common stock until all unpaid dividends on the Series
A CRPS and Series B RPS are paid.
10. EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) defined contribution plan for the benefit of its
employees. The Company's obligation for contributions under the 401(k) plan is
limited to each participant's contribution but not more than 3% of the
participant's compensation. Discretionary Company contributions are allowed
F-19
107
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 2000, 1999, and 1998
under the plan. Contributions to the plan for the years ended December 31, 2000,
1999 and 1998 were approximately $784, $833 and $814, respectively.
During 1996, the Company established a nonqualified defined benefit pension plan
for the benefit of a certain select group of senior management. The benefits are
based on the employee's compensation during the three calendar years in which
the individual's base salary is the highest and actual years of service. During
1997, the Company terminated this nonqualified defined benefit pension plan and
allowed existing participants to either receive a lump-sum payment or roll over
their investment into a split-dollar life insurance contract whereby the
participants or their beneficiaries are entitled to the greater of the
contract's cash surrender value or the contract's death benefit, less insurance
premiums paid by the Company. The participants who chose the lump-sum payout
were paid approximately $1,328 on January 2, 1998.
During 1998, the Company entered into split-dollar life insurance contracts with
additional members of senior management. These contracts operate in the same
manner as the contracts entered into in 1997.
On the earlier date that occurs of: (i) the date the employee reaches age 65;
(ii) the date of the employee's death; or (iii) the date of termination of the
employee prior to the completion of ten years of service, the Company has the
right to be repaid an amount, up to the amount of premiums paid, by which the
cash surrender value of the policy exceeds the employee's vested life insurance
plan benefit.
During 2000, 1999 and 1998, the Company paid $2,754, $2,754 and $2,640,
respectively, in insurance premiums related to these split-dollar life insurance
contracts. At December 31, 2000 and 1999, respectively, the cash surrender value
of life insurance policies was $10,813 and $10,803 and the related liability was
$5,052 and $8,030.
11. RESTRUCTURING
During the second quarter of 2000, the Company incurred restructuring expenses
of $1,599 related to its decision to exit its clinical patient record software
business, Clinical-Management Systems, Inc. Of these costs, $568 relates to
customer contract fulfillment costs, $518 relates to remaining software
development costs, $312 relates to payroll costs and related involuntary
severance of employees and $201 relates to other costs and expenses for the
shutdown of the business.
During the third quarter of 1999, the Company began an assessment of the cost
structure of its Women's Health segment and decided that the number of its
monitoring centers could be significantly reduced without compromising patient
care or reducing services provided to patients, physicians or payors. These
cost-savings initiatives continued into the fourth quarter of 1999 and resulted
in total restructuring charges of $4,241 in 1999. Of these costs, $3,201 relates
to future lease payments and other related costs of closed facilities, $668
relates to involuntary severance of employees and $372 relates to the write-down
of capital equipment.
F-20
108
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 2000, 1999, and 1998
12. COMMITMENTS
The Company is committed under noncancelable lease agreements for facilities and
equipment. Future minimum operating lease payments and the present value of the
future minimum capital lease payments as of December 31, 2000 are as follows:
OPERATING CAPITAL
YEARS ENDING DECEMBER 31, LEASES LEASES
------------------------- --------- -------
2001........................................................ $ 6,281 $447
2002........................................................ 5,368 125
2003........................................................ 2,454 80
2004........................................................ 971 --
2005........................................................ 826 --
Thereafter.................................................. 1,375 --
------- ----
$17,275 652
=======
Less interest............................................... 50
----
Present value of future minimum capital lease payments...... $602
====
Amortization of leased assets is included in depreciation expense. Rental
expense for cancelable and noncancelable leases was approximately $6,673, $7,460
and $6,500 for the years ended December 31, 2000, 1999 and 1998, respectively.
13. CONTINGENCIES
The Company and its subsidiaries are involved in various claims and legal
actions arising in the ordinary course of business. In the opinion of
management, based in part on the advice of counsel, the ultimate disposition of
these matters will not have a material adverse effect on the Company's
consolidated balance sheet, results of operations or liquidity.
14. QUARTERLY FINANCIAL INFORMATION -- UNAUDITED
Presented below is a summary of the unaudited consolidated quarterly financial
information for the years ended December 31, 2000 and 1999.
QUARTER
-------------------------------------
FOURTH THIRD SECOND FIRST
------- ------- ------- -------
2000:
Revenues............................................... $56,390 $57,434 $58,197 $53,746
Net earnings (loss)
Continuing operations................................ $ 2,089 $ 2,658 $ 3,621 $ 5,326
Discontinued operations.............................. (180) (195) (55) 430
------- ------- ------- -------
Total........................................ $ 1,909 $ 2,463 $ 3,566 $ 5,756
======= ======= ======= =======
Net earnings (loss) per diluted common share
Continuing operations................................ $ 0.13 $ 0.18 $ 0.28 $ 0.44
Discontinued operations.............................. (0.02) (0.01) (0.01) 0.04
------- ------- ------- -------
Total........................................ $ 0.11 $ 0.17 $ 0.27 $ 0.48
======= ======= ======= =======
F-21
109
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 2000, 1999, and 1998
QUARTER
-------------------------------------
FOURTH THIRD SECOND FIRST
------- ------- ------- -------
1999:
Revenues............................................... $57,679 $59,999 $58,392 $55,669
Net earnings
Continuing operations................................ $19,961 $ 7,189 $ 3,327 $ 889
Discontinued operations.............................. 599 548 711 782
------- ------- ------- -------
Total........................................ $20,560 $ 7,737 $ 4,038 $ 1,671
======= ======= ======= =======
Net earnings per diluted common share
Continuing operations................................ $ 1.91 $ 0.62 $ 0.25 $ 0.02
Discontinued operations.............................. 0.06 0.05 0.07 0.08
------- ------- ------- -------
Total........................................ $ 1.97 $ 0.67 $ 0.32 $ 0.10
======= ======= ======= =======
The sum of the four quarterly net earnings (loss) per diluted common share
amounts may not equal the annual amount reflected on the consolidated statements
of operations due to rounding.
15. BUSINESS SEGMENT INFORMATION
The Company's reportable business segments are the strategic business units that
offer different products and services. They are managed separately and the
Company evaluates performance based on operating earnings of each respective
business unit.
As of December 31, 2000, the Company's operations have been classified into two
reportable business segments: Women's Health and Diabetes Supplies and Services.
The Women's Health segment offers services designed to assist physicians and
payors in the cost-effective management of maternity patients, including:
specialized home nursing, risk assessment, patient education and management,
home uterine contraction monitoring, infusion therapy, gestational diabetes
management and other monitoring and clinical services as prescribed by the
patient's physician. The Diabetes Supplies and Services segment has two
components, diabetes disease management and fulfillment services, and medical
device design, development and manufacturing services. The Other Segments
include three business segments that are below the quantitative threshold for
disclosure: respiratory disease management, clinical records software and
services (business was exited in the second quarter of 2000) and infertility
practice management services (sold during the third and fourth quarters of
1999). In December 2000, the Board of Directors of the Company approved the sale
of the business and certain assets of its Cardiovascular segment, a business
that provided cardiac event monitoring, holter monitoring and pacemaker
follow-up services (see note 16). The results of operations of this business
segment are classified as discontinued operations and are not included in the
Company's segment information, but are included in the reconciliations to
consolidated amounts.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. There are no intersegment sales, and
operating earnings (loss) by business segment excludes interest income, interest
expense and corporate expenses.
F-22
110
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 2000, 1999, and 1998
Summarized financial information as of and for the years ended December 31,
2000, 1999 and 1998 by business segment follows:
REVENUES OPERATING EARNINGS (LOSS)
------------------------------ -----------------------------
2000 1999 1998 2000 1999 1998
-------- -------- -------- ------- ------- ---------
Women's Health......... $109,716 $109,986 $115,147 $24,292 $15,566 $ (8,584)
Diabetes Supplies and
Services............. 114,694 110,529 39 9,729 11,402 39
Other Segments......... 1,357 11,224 13,386 (3,601) (2,409) (4,956)
-------- -------- -------- ------- ------- ---------
Total
segments... 225,767 231,739 128,572 30,420 24,559 (13,501)
General corporate...... -- -- -- (7,745) (5,651) (3,860)
Asset impairment
charges (note 3)..... -- -- -- -- -- (82,885)
Interest expense,
net.................. -- -- -- (8,156) (7,711) (608)
Other income, net...... -- -- -- 8,275 16,169 448
-------- -------- -------- ------- ------- ---------
$225,767 $231,739 $128,572 $22,794 $27,366 $(100,406)
======== ======== ======== ======= ======= =========
IDENTIFIABLE ASSETS DEPRECIATION AND AMORTIZATION
------------------------------ -----------------------------
2000 1999 1998 2000 1999 1998
-------- -------- -------- ------- ------- ---------
Women's Health......... $ 38,343 $ 39,575 $ 57,088 $ 2,381 $ 3,380 $ 29,150
Diabetes Supplies and
Services............. 153,620 153,772 39 9,922 9,610 --
Other Segments......... 764 2,462 6,543 151 571 3,041
General corporate...... 75,566 74,073 16,916 1,530 426 101
Net assets of
discontinued
operations........... -- 15,831 16,448 -- -- --
-------- -------- -------- ------- ------- ---------
$268,293 $285,713 $ 97,034 $13,984 $13,987 $ 32,292
======== ======== ======== ======= ======= =========
CAPITAL EXPENDITURES
------------------------------
2000 1999 1998
-------- -------- --------
Women's Health......... $ 2,212 $ 2,933 $ 2,828
Diabetes Supplies and
Services............. 3,558 787 --
Other Segments......... 25 541 406
General corporate...... 1,600 867 707
-------- -------- --------
$ 7,395 $ 5,128 $ 3,941
======== ======== ========
The Company's revenues from operations outside the U.S. were approximately 12%
and 11% of total revenues in 2000 and 1999, respectively, and less than 1% of
total revenues in 1998. No single customer accounted for 10% of consolidated net
revenues in 2000, 1999 or 1998.
16. DISPOSITIONS OF BUSINESSES
In February 2001, the Company sold the business and certain assets of QDS and
received cash proceeds totaling approximately $18,000. The accounts receivable
of QDS, totaling approximately $8,800 at December 31, 2000, were excluded from
the sale. The proceeds to be received and the accounts receivable
F-23
111
MATRIA HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 2000, 1999, and 1998
of QDS are reflected in "other receivables" on the consolidated balance sheets
at December 31, 2000. No gain or loss was recognized on the sale of these
assets. As of December 31, 2000, an accrued liability totaling $1,217 was
recorded for estimated future salary and severance costs of personnel retained
to collect the accounts receivable and for net costs of operating activities
through the sale date. The accompanying consolidated financial statements have
been restated to reflect QDS as a discontinued operation for all periods
presented.
The operating results of discontinued operations are as follows:
2000 1999 1998
------- ------- -------
Revenues................................................ $15,336 $15,596 $ 6,644
Earnings (loss) before income taxes..................... $ -- $ 2,640 $(1,136)
Income tax expense...................................... -- -- --
------- ------- -------
Net earnings (loss) from discontinued operations........ $ -- $ 2,640 $(1,136)
======= ======= =======
In 1999, the Company determined that its infertility business, NRMC, no longer
fit the Company's diversified disease management strategy. During the third and
fourth quarters of 1999, the Company sold the assets of these clinics and
realized cash proceeds of $1,257 and received notes from the buyers of NRMC
totaling $1,079. Due to the uncertainty of collection of the notes and an
accrual for future patient refunds, no gain or loss was recognized on the sale
of these assets in 1999. In 2000, the Company received $750 in full settlement
of notes receivable from one purchaser and recognized a gain of $1,746 from the
sale of these assets, which reflected the realization of most of the proceeds
and a re-assessment of remaining obligations. As of December 31, 2000, an
accrual for future patient refunds and other costs totaling $243 was reflected
in accrued liabilities, and an additional $109 for long-term commitments was
reflected in other long-term liabilities.
17. SALES OF SHORT-TERM INVESTMENTS
In connection with the acquisition of QDS (see note 2), the Company invested
$2,010 in 1998 in preferred stock of WebMD and received options and warrants to
purchase additional shares of WebMD for $2,680, which were exercised in 1999. In
1999, the Company sold shares of WebMD generating proceeds of $20,720 and a gain
of $17,349, which was reflected in "other income" in the consolidated statements
of operations. In 2000, additional shares were sold generating proceeds of
$7,298 and gains of $6,077. At December 31, 2000, the Company has a remaining
investment in WebMD of 16,423 shares.
18. SUPPLEMENTAL GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION
Supplemental financial information is being provided in connection with the
Company's private offering of $125,000 of 11% senior notes (see note 19). These
senior notes are unconditionally guaranteed by the Company and its domestic
subsidiaries. All guarantees are joint and several. Each of the domestic and
foreign subsidiaries is 100% owned by the Company.
The following financial information presents the consolidating condensed balance
sheets, statements of operations and cash flows of the Company, the guarantor
domestic subsidiaries on a combined basis and the non-guarantor foreign
subsidiaries on a combined basis.
F-24
112
CONSOLIDATING CONDENSED BALANCE SHEETS
DECEMBER 31, 2000
(AMOUNTS IN THOUSANDS)
NON-
MATRIA GUARANTOR GUARANTOR
HEALTHCARE, DOMESTIC FOREIGN
INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------ ------------
ASSETS
Cash and cash equivalents............. $ 1,524 $ 1,045 $ 1,346 $ -- $ 3,915
Short-term investments................ 130 -- -- -- 130
Trade accounts receivable, net........ 27,134 10,278 2,557 -- 39,969
Other receivables..................... 134 27,156 318 -- 27,608
Inventories........................... 1,454 10,043 5,538 -- 17,035
Other current assets.................. 4,747 440 6 -- 5,193
--------- -------- -------- --------- ---------
Total current assets........ 35,123 48,962 9,765 -- 93,850
Property and equipment, net........... 11,217 3,903 524 -- 15,644
Intangible assets, net................ 3,247 105,938 10,301 -- 119,486
Investment in subsidiaries............ 116,214 -- -- (116,214) --
Deferred income taxes................. 26,408 -- 907 -- 27,315
Other long-term assets................ 11,879 119 -- -- 11,998
--------- -------- -------- --------- ---------
$ 204,088 $158,922 $ 21,497 $(116,214) $ 268,293
========= ======== ======== ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current installments of long-term
debt................................ $ 11,712 $ 103 $ -- $ -- $ 11,815
Other current liabilities............. 10,639 15,137 4,656 -- 30,432
--------- -------- -------- --------- ---------
Total current liabilities... 22,351 15,240 4,656 -- 42,247
Long-term debt, excluding current
installments........................ 70,384 73 6,539 -- 76,996
Intercompany.......................... (4,384) 19,977 (15,593) -- --
Other long-term liabilities........... 8,102 617 35 -- 8,754
--------- -------- -------- --------- ---------
Total liabilities........... 96,453 35,907 (4,363) -- 127,997
--------- -------- -------- --------- ---------
Redeemable preferred stock............ 41,446 -- -- -- 41,446
--------- -------- -------- --------- ---------
Common shareholders' equity
Common stock........................ 88 -- -- -- 88
Additional paid-in capital.......... 288,900 105,913 10,301 (116,214) 288,900
Accumulated earnings (deficit)...... (223,231) 25,275 11,874 -- (186,082)
Accumulated other comprehensive
earnings......................... 376 37 (934) -- (521)
Other............................... 56 (8,210) 4,619 -- (3,535)
--------- -------- -------- --------- ---------
Total common shareholders'
equity.................... 66,189 123,015 25,860 (116,214) 98,850
--------- -------- -------- --------- ---------
$ 204,088 $158,922 $ 21,497 $(116,214) $ 268,293
========= ======== ======== ========= =========
F-25
113
CONSOLIDATING CONDENSED BALANCE SHEETS
DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
NON-
MATRIA GUARANTOR GUARANTOR
HEALTHCARE, DOMESTIC FOREIGN
INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------ ------------
ASSETS
Cash and cash equivalents............ $ 5,702 $ 1,622 $ 2,224 $ -- $ 9,548
Short-term investments............... 8,243 -- -- -- 8,243
Trade accounts receivable, net....... 28,030 11,280 2,341 -- 41,651
Other receivables.................... 212 6,659 441 -- 7,312
Assets of discontinued operations.... -- 15,831 -- -- 15,831
Inventories.......................... 1,482 4,800 4,028 -- 10,310
Other current assets................. 6,881 164 1 -- 7,046
--------- --------- -------- --------- ---------
Total current assets....... 50,550 40,356 9,035 -- 99,941
Property and equipment, net.......... 11,136 1,685 597 -- 13,418
Intangible assets, net............... 3,811 113,751 11,162 -- 128,724
Investment in subsidiaries........... 124,735 -- -- (124,735) --
Deferred income taxes................ 31,603 -- -- -- 31,603
Other long-term assets............... 15,610 (3,587) 4 -- 12,027
--------- --------- -------- --------- ---------
$ 237,445 $ 152,205 $ 20,798 $(124,735) $ 285,713
========= ========= ======== ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current installments of long-term
debt............................... $ 10,200 $ 106 $ 56 $ -- $ 10,362
Other current liabilities............ 12,098 15,439 3,638 -- 31,175
--------- --------- -------- --------- ---------
Total current
liabilities.............. 22,298 15,545 3,694 -- 41,537
Long-term debt, excluding current
installments....................... 84,047 170 6,873 -- 91,090
Intercompany......................... (10,825) 25,552 (14,727) -- --
Other long-term liabilities.......... 12,731 106 -- -- 12,837
--------- --------- -------- --------- ---------
Total liabilities.......... 108,251 41,373 (4,160) -- 145,464
--------- --------- -------- --------- ---------
Redeemable preferred stock........... 41,005 -- -- -- 41,005
--------- --------- -------- --------- ---------
Common shareholders' equity
Common stock....................... 92 -- -- -- 92
Additional paid-in capital......... 293,486 113,573 11,162 (124,735) 293,486
Accumulated earnings (deficit)..... (213,928) 7,636 9,716 -- (196,576)
Accumulated other comprehensive
earnings........................ 6,313 3 (539) -- 5,777
Other.............................. 2,226 (10,380) 4,619 -- (3,535)
--------- --------- -------- --------- ---------
Total common shareholders'
equity................... 88,189 110,832 24,958 (124,735) 99,244
--------- --------- -------- --------- ---------
$ 237,445 $ 152,205 $ 20,798 $(124,735) $ 285,713
========= ========= ======== ========= =========
F-26
114
CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
(AMOUNTS IN THOUSANDS)
NON-
MATRIA GUARANTOR GUARANTOR
HEALTHCARE, DOMESTIC FOREIGN
INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------ ------------
Revenues............................... $111,065 $79,590 $36,416 $(1,304) $225,767
Cost of revenues....................... 40,716 47,002 29,765 (1,304) 116,179
Selling and administrative expenses.... 52,384 11,964 4,120 -- 68,468
Provision for doubtful accounts........ 5,641 1,370 32 -- 7,043
Amortization of intangible assets...... 9,803 -- -- -- 9,803
Restructuring charges.................. (128) 1,727 -- -- 1,599
-------- ------- ------- ------- --------
Operating earnings from continuing
operations........................ 2,649 17,527 2,499 -- 22,675
Interest income........................ 262 81 101 -- 444
Interest expense....................... (8,102) (19) (479) -- (8,600)
Other income, net...................... 8,188 50 37 -- 8,275
-------- ------- ------- ------- --------
Earnings from continuing operations
before income taxes............... 2,997 17,639 2,158 -- 22,794
Income tax expense..................... (9,100) -- -- -- (9,100)
-------- ------- ------- ------- --------
Earnings (loss) from continuing
operations........................ (6,103) 17,639 2,158 -- 13,694
Earnings (loss) from discontinued
operations........................... -- -- -- -- --
-------- ------- ------- ------- --------
Net earnings (loss).................. $ (6,103) $17,639 $ 2,158 $ -- $ 13,694
======== ======= ======= ======= ========
F-27
115
CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
NON-
MATRIA GUARANTOR GUARANTOR
HEALTHCARE, DOMESTIC FOREIGN
INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------ ------------
Revenues................................ $110,547 $84,250 $37,272 $(330) $231,739
Cost of revenues........................ 39,729 55,862 23,044 (330) 118,305
Selling and administrative expenses..... 52,954 16,406 4,293 -- 73,653
Provision for doubtful accounts......... 5,945 1,245 3 -- 7,193
Amortization of intangible assets....... 9,439 -- -- -- 9,439
Restructuring charges................... 4,241 -- -- -- 4,241
-------- ------- ------- ----- --------
Operating earnings (loss) from
continuing operations.............. (1,761) 10,737 9,932 -- 18,908
Interest income......................... 353 90 31 -- 474
Interest expense........................ (7,913) (62) (210) -- (8,185)
Other income, net....................... 16,776 (570) (37) -- 16,169
-------- ------- ------- ----- --------
Earnings from continuing operations
before income taxes................ 7,455 10,195 9,716 -- 27,366
Income tax benefit...................... 4,000 -- -- -- 4,000
-------- ------- ------- ----- --------
Earnings from continuing operations... 11,455 10,195 9,716 -- 31,366
Earnings from discontinued operations... -- 2,640 -- -- 2,640
-------- ------- ------- ----- --------
Net earnings.......................... $ 11,455 $12,835 $ 9,716 $ -- $ 34,006
======== ======= ======= ===== ========
F-28
116
CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS)
NON-
MATRIA GUARANTOR GUARANTOR
HEALTHCARE, DOMESTIC FOREIGN
INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------ ------------
Revenues............................... $115,230 $13,342 $ -- $ -- $ 128,572
Cost of revenues....................... 42,682 8,596 -- -- 51,278
Selling and administrative expenses.... 53,479 7,134 -- -- 60,613
Provision for doubtful accounts........ 6,342 -- -- -- 6,342
Amortization of intangible assets...... 27,700 -- -- -- 27,700
Asset impairment charges............... 82,885 -- -- -- 82,885
-------- ------- ---- ---- ---------
Operating loss from continuing
operations........................ (97,858) (2,388) -- -- (100,246)
Interest income........................ 489 (14) -- -- 475
Interest expense....................... (1,070) (13) -- -- (1,083)
Other income, net...................... 406 42 -- -- 448
-------- ------- ---- ---- ---------
Loss from continuing operations...... (98,033) (2,373) -- -- (100,406)
Loss from discontinued operations...... -- (1,136) -- -- (1,136)
-------- ------- ---- ---- ---------
Net loss............................. $(98,033) $(3,509) $ -- $ -- $(101,542)
======== ======= ==== ==== =========
F-29
117
CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2000
(AMOUNTS IN THOUSANDS)
MATRIA GUARANTOR NON-GUARANTOR
HEALTHCARE, DOMESTIC FOREIGN
INC. SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
----------- ------------ ------------- ------------
Cash Flows from Operating Activities:
Net cash provided by continuing operations.... $ 2,965 $16,519 $ 634 $ 20,118
Net cash used in discontinued operations...... -- (623) -- (623)
-------- ------- ------ --------
Net cash provided by operating
activities.......................... 2,965 15,896 634 19,495
-------- ------- ------ --------
Cash Flows from Investing Activities:
Purchases of property and equipment........... (3,961) (3,303) (131) (7,395)
Purchases of property and equipment related to
discontinued operations.................... -- (3,492) -- (3,492)
Proceeds from sales of short-term
investments................................ 7,298 -- -- 7,298
-------- ------- ------ --------
Net cash provided by (used in)
investing activities................ 3,337 (6,795) (131) (3,589)
-------- ------- ------ --------
Cash Flows from Financing Activities:
Borrowings under credit agreement............. 23,000 -- -- 23,000
Proceeds from issuance of debt................ 891 -- -- 891
Principal repayments of long-term debt........ (37,492) (149) (9) (37,650)
Proceeds from issuance of common stock........ 579 -- -- 579
Repurchases of common stock................... (4,733) -- -- (4,733)
Preferred stock dividend payments............. (3,200) -- -- (3,200)
-------- ------- ------ --------
Net cash used in financing
activities.......................... (20,955) (149) (9) (21,113)
-------- ------- ------ --------
Effect of exchange rate changes on cash and cash
equivalents................................... -- -- (426) (426)
Net change in intercompany balances............. 10,475 (9,529) (946) --
-------- ------- ------ --------
Net decrease in cash and cash
equivalents......................... (4,178) (577) (878) (5,633)
Cash and cash equivalents at beginning of
year.......................................... 5,702 1,622 2,224 9,548
-------- ------- ------ --------
Cash and cash equivalents at end of year........ $ 1,524 $ 1,045 $1,346 $ 3,915
======== ======= ====== ========
F-30
118
CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
MATRIA GUARANTOR NON-GUARANTOR
HEALTHCARE, DOMESTIC FOREIGN
INC. SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
----------- ------------ ------------- ------------
Cash Flows from Operating Activities:
Net cash provided by (used in) continuing
operations................................ $ (595) $ 1,939 $11,134 $ 12,478
Net cash provided by discontinued
operations................................ -- 710 -- 710
-------- ------- ------- --------
Net cash provided by (used in)
operating activities............... (595) 2,649 11,134 13,188
-------- ------- ------- --------
Cash Flows from Investing Activities:
Purchases of property and equipment.......... (3,921) (1,022) (185) (5,128)
Purchases of property and equipment related
to discontinued operations................ -- (2,233) -- (2,233)
Acquisition of businesses, net of cash
acquired.................................. (93,022) -- -- (93,022)
Proceeds from sales of short-term
investments............................... 23,579 -- -- 23,579
Investment in an affiliated company.......... (2,680) -- -- (2,680)
Proceeds from disposition of business........ -- 1,257 -- 1,257
-------- ------- ------- --------
Net cash used in investing
activities......................... (76,044) (1,998) (185) (78,227)
-------- ------- ------- --------
Cash Flows from Financing Activities:
Borrowing under credit agreement............. 108,000 -- -- 108,000
Proceeds from issuance of debt............... 979 -- -- 979
Principal repayments of long-term debt....... (41,552) -- -- (41,552)
Proceeds from issuance of common stock....... 837 -- -- 837
Preferred stock dividend payments............ (2,249) -- -- (2,249)
-------- ------- ------- --------
Net cash provided by financing
activities......................... 66,015 -- -- 66,015
-------- ------- ------- --------
Effect of exchange rate changes on cash and
cash equivalents............................. -- -- (537) (537)
Net change in intercompany balances............ 8,819 (631) (8,188) --
-------- ------- ------- --------
Net increase (decrease) in cash and
cash equivalents................... (1,805) 20 2,224 439
Cash and cash equivalents at beginning of
year......................................... 7,507 1,602 -- 9,109
-------- ------- ------- --------
Cash and cash equivalents at end of year....... $ 5,702 $ 1,622 $ 2,224 $ 9,548
======== ======= ======= ========
F-31
119
CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS)
MATRIA GUARANTOR NON-GUARANTOR
HEALTHCARE, DOMESTIC FOREIGN
INC. SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
----------- ------------ ------------- ------------
Cash Flows from Operating Activities:
Net cash provided by (used in) continuing
operations................................ $ 6,349 $(3,329) $ -- $ 3,020
Net cash provided by discontinued
operations................................ -- 1,911 -- 1,911
-------- ------- ----- -------
Net cash provided by (used in)
operating activities............... 6,349 (1,418) -- 4,931
-------- ------- ----- -------
Cash Flows from Investing Activities:
Purchases of property and equipment.......... (3,893) (48) -- (3,941)
Purchases of property and equipment related
to discontinued operations................ -- (2,001) -- (2,001)
Acquisition of businesses, net of cash
acquired.................................. (19,947) -- -- (19,947)
Proceeds from sales of short-term
investments............................... 8,997 -- -- 8,997
Investment in an affiliated company.......... (2,010) -- -- (2,010)
-------- ------- ----- -------
Net cash used in investing
activities......................... (16,853) (2,049) -- (18,902)
-------- ------- ----- -------
Cash Flows from Financing Activities:
Borrowings under credit agreement............ 16,659 -- -- 16,659
Proceeds from issuance of debt............... 781 -- -- 781
Principal repayments of long-term debt....... (1,569) (58) -- (1,627)
Proceeds from issuance of common stock....... 638 -- -- 638
Repurchases of common stock.................. (2,397) -- -- (2,397)
Other, net................................... (60) -- -- (60)
-------- ------- ----- -------
Net cash provided by (used in)
financing activities............... 14,052 (58) -- 13,994
-------- ------- ----- -------
Net change in intercompany balances............ (2,582) 2,582 -- --
-------- ------- ----- -------
Net increase (decrease) in cash and
cash equivalents................... 966 (943) -- 23
Cash and cash equivalents at beginning of
year......................................... 6,541 2,545 -- 9,086
-------- ------- ----- -------
Cash and cash equivalents at end of year....... $ 7,507 $ 1,602 $ -- $ 9,109
======== ======= ===== =======
19. SUBSEQUENT EVENT
On July 9, 2001, the Company issued $125 million of 11% senior notes in a
private offering. The senior notes were issued with an original issue discount
of 6.5% from the principal amount. Interest will be payable semi-annually in
arrears on May 1 and November 1. The senior notes are unsecured and will mature
on May 1, 2008.
F-32
120
ALL TENDERED OLD NOTES, EXECUTED LETTERS OF TRANSMITTAL AND OTHER RELATED
DOCUMENTS SHOULD BE DIRECTED TO THE EXCHANGE AGENT. QUESTIONS AND REQUESTS FOR
ASSISTANCE AND REQUESTS FOR ADDITIONAL COPIES OF THE PROSPECTUS, THE LETTER OF
TRANSMITTAL AND OTHER RELATED DOCUMENTS SHOULD BE ADDRESSED TO THE EXCHANGE
AGENT AS FOLLOWS:
By Mail: By Hand: By Courier:
Wells Fargo Bank Minnesota Wells Fargo Bank Minnesota Wells Fargo Bank Minnesota
National Association National Association National Association
Attn: Corporate Trust Services Attn: Corporate Trust Services Attn: Corporate Trust Services
213 Court Street, Suite 902 213 Court Street, Suite 902 213 Court Street, Suite 902
Middletown, CT 16437 Middletown, CT 16437 Middletown, CT 16437
By Facsimile for Eligible
Institutions:
(860) 704-6219
ORIGINALS OF ALL DOCUMENTS SUBMITTED BY FACSIMILE SHOULD BE SENT PROMPTLY BY
HAND, OVERNIGHT DELIVERY, OR REGISTERED BY CERTIFIED MAIL.
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION TO
OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT RELY ON
ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS AN OFFER TO
EXCHANGE OLD NOTES ONLY FOR THE EXCHANGE NOTES OFFERED HEREBY, BUT ONLY UNDER
CIRCUMSTANCES AND IN JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION
CONTAINED IN THIS PROSPECTUS IS CURRENT ONLY AS OF ITS DATE.
121
------------------------------------------------------
------------------------------------------------------
TABLE OF CONTENTS
Where You Can Find More
Information........................ i
Incorporation by Reference........... i
Prospectus Summary................... 1
Forward Looking Information.......... 14
Risk Factors......................... 15
The Exchange Offer................... 22
Use of Proceeds...................... 32
Capitalization....................... 32
Selected Consolidated Historical
Financial Data..................... 33
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 35
Business............................. 35
Management........................... 35
Description of Notes................. 38
Book-Entry, Delivery and Form of
Notes.............................. 76
Registration Rights.................. 78
Material U.S. Federal Income Tax
Considerations..................... 80
Plan of Distribution................. 84
Legal Matters........................ 84
Experts.............................. 85
Index to Consolidated Financial
Statements......................... F-1
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
$122,000,000
MATRIA HEALTHCARE, INC.
MATRIA LOGO
11% SERIES B SENIOR NOTES DUE 2008
------------------------
PROSPECTUS
AUGUST 27, 2001
------------------------
------------------------------------------------------
------------------------------------------------------