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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Matria Healthcare, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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MATRIA HEALTHCARE, INC.
1850 PARKWAY PLACE
MARIETTA, GEORGIA 30067
NOTICE OF 1997 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 15, 1997
NOTICE IS HEREBY GIVEN THAT the 1997 Annual Meeting of Stockholders of
Matria Healthcare, Inc. (the "Company"), will be held on December 15, 1997, at
10:30 a.m. local time at 1850 Parkway Place, Suite 320, Marietta, Georgia 30067,
for the following purposes:
(1) To elect two Class II directors of the Company for a three year
term until the 2000 Annual Meeting of Stockholders and until their
respective successors are duly elected and qualified;
(2) To approve the Matria Healthcare, Inc. 1997 Stock Incentive Plan;
and
(3) To transact such other business as may properly come before the
Annual Meeting and any adjournment or postponement thereof.
Your vote is important regardless of the number of shares you own. Each
stockholder, even though he or she now plans to attend the Annual Meeting, is
requested to sign, date and return the enclosed proxy card without delay in the
enclosed postage-paid envelope. You may revoke your proxy at any time prior to
its exercise. Any stockholder present at the Annual Meeting or any adjournment
or postponement thereof may revoke his or her proxy and vote personally on each
matter brought before the meeting.
I look forward to welcoming you at the meeting.
Very truly yours,
/s/ J. Brent Burkey
J. Brent Burkey
Secretary
Marietta, Georgia
November 5, 1997
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MATRIA HEALTHCARE, INC.
1850 PARKWAY PLACE
MARIETTA, GEORGIA 30067
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
DECEMBER 15, 1997
GENERAL INFORMATION
This proxy statement and the accompanying proxy card are being furnished to
stockholders in connection with the solicitation of proxies by the Board of
Directors of Matria Healthcare, Inc. (the "Company") for use at the 1997 Annual
Meeting of Stockholders (the "Annual Meeting") to be held on December 15, 1997
at 10:30 a.m. local time at 1850 Parkway Place, Suite 320, Marietta, Georgia
30067, and at any adjournment or postponement thereof.
At the Annual Meeting, stockholders will consider and vote upon a proposal
to elect two Class II directors, a proposal to approve and adopt the Company's
1997 Stock Incentive Plan and upon such other matters as properly may come
before the Annual Meeting. The Board unanimously urges stockholders to vote FOR
the re-election of the Class II directors named herein and FOR the adoption of
the 1997 Stock Incentive Plan.
It is anticipated that this proxy statement and accompanying proxy will
first be mailed to the Company's stockholders on or about November 6, 1997. The
Company's 1996 Annual Report was previously mailed to stockholders.
RECORD DATE
The Board of Directors has fixed the close of business on November 4, 1997
as the record date (the "Record Date") for the determination of stockholders
entitled to notice of, and to vote at, the Annual Meeting and at any adjournment
or postponement thereof. At the close of business on the Record Date, 36,704,081
shares of Common Stock were issued and outstanding.
PROXIES
When a proxy card is returned, properly signed and dated, the shares
represented thereby will be voted in accordance with the instructions on the
proxy card. If a stockholder does not attend the Annual Meeting and does not
return the signed proxy card, such stockholder's shares will not be voted. If a
stockholder returns a signed proxy card but does not indicate how his or her
shares are to be voted, such shares will be voted FOR the election of the two
Class II directors named herein and FOR approval of the 1997 Stock Incentive
Plan. As of the date of this proxy statement, the Board of Directors does not
know of any other matters which are to come before the Annual Meeting. If any
other matters are properly presented at the Annual Meeting for consideration,
the persons named in the enclosed form of proxy and acting thereunder will have
discretion to vote on such matters in accordance with their best judgment.
Any proxy given may be revoked by the person giving it at any time before
it is voted. Proxies may be revoked by (i) filing with the Secretary of the
Company, at or before the taking of the vote at the Annual Meeting, a written
notice of revocation bearing a later date than the proxy, (ii) duly executing a
later dated proxy relating to the same shares of Common Stock and delivering it
to the Secretary of the Company at or before the taking of the vote at the
Annual Meeting or (iii) attending the Annual Meeting and voting in person
(although attendance at the Annual Meeting will not in and of itself constitute
a revocation of a proxy). Any written notice of revocation or subsequent proxy
should be sent so as to be delivered to Matria Healthcare, Inc., 1850 Parkway
Place, Marietta, Georgia 30067, Attention: Corporate Secretary, or hand
delivered to the Secretary of the Company at or before the taking of the vote at
the Annual Meeting.
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The Company will bear the cost of the solicitation of proxies from its
stockholders. In addition to solicitation by use of the mails, proxies may be
solicited by directors, officers and employees of the Company in person or by
telephone or other means of communication. Such directors, officers and
employees will not be additionally compensated, but may be reimbursed for
out-of-pocket expenses incurred in connection with such solicitation.
Arrangements also will be made with custodians, nominees and fiduciaries for the
forwarding of proxy solicitation materials to beneficial owners of shares held
of record by such custodians, nominees and fiduciaries, and the Company will
reimburse such custodians, nominees and fiduciaries for reasonable expenses
incurred in connection therewith. In addition, D. F. King & Co., Inc. ("D.F.
King") will assist in the solicitation of proxies by the Company for a fee of
$5,000, plus reimbursement of reasonable out-of-pocket expenses.
QUORUM
The presence, either in person or by properly executed proxies, of the
holders of a majority of the outstanding shares of the Company's Common Stock is
necessary to constitute a quorum at the Annual Meeting.
VOTE REQUIRED
The Company's stockholders are entitled to one vote at the Annual Meeting
for each share of Common Stock held of record by them on the Record Date. Votes
may be cast for or withheld from each nominee for Class II directors and for,
against or withheld from approval of the 1997 Stock Incentive Plan. The
affirmative vote of the holders of a majority of the shares of Common Stock
represented at the Annual Meeting is required to elect the Class II directors
and to approve and adopt the 1997 Incentive Stock Plan. Therefore, under
applicable Delaware law, abstentions will have the effect of votes against the
approval of the matter. Broker non-votes will count for purposes of determining
the presence of a quorum, but will have no effect on voting with respect to the
election of directors or approval of the 1997 Stock Incentive Plan.
PROPOSAL ONE
ELECTION OF DIRECTORS
BACKGROUND
The Company was formed for the purpose of participating in the merger (the
"Merger") of Healthdyne, Inc., a Georgia corporation ("Healthdyne"), and Tokos
Medical Corporation, a Delaware corporation ("Tokos"), with and into the
Company.
Upon consummation of the Merger, which was effected on March 8, 1996 (the
"Merger Date") the Company's Board of Directors consisted of ten members divided
into three classes. Five of the initial directors were designated by Healthdyne
and the other five were designated by Tokos. Pursuant to the Agreement and Plan
of Merger dated as of October 2, 1995, as amended, Carl E. Sanders and Craig T.
Davenport were elected as directors of the Company for terms expiring at the
1996 Annual Meeting of Stockholders; Jackie M. Ward, Frederick P. Zuspan, M.D.,
Thomas W. Erickson and David L. Goldsmith were elected as directors for terms
expiring at the 1997 Annual Meeting of Stockholders; and Parker H. Petit, Robert
F. Byrnes, Morris S. Weeden and Gene P. Guselli were elected as directors of the
Company for terms expiring at the 1998 Annual Meeting of Stockholders. In
addition, for a period of three years following the Merger Date and continuing
through the Company's 1998 Annual Meeting of Stockholders, (i) any vacancy on
the Company's Board of Directors, or any committee thereof, arising among the
Tokos Nominated Directors and any nominee selected to fill a director position
occupied by a Tokos Nominated Director was to be filled or selected by the
remaining Tokos Nominated Directors and (ii) any vacancy on the Company's Board
of Directors, or any committee thereof, arising among the Healthdyne Nominated
Directors and any nominee selected to fill a director position occupied by a
Healthdyne Nominated Director was to be filled or selected by the remaining
Healthdyne Nominated Directors.
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Robert F. Byrnes, the President and Chief Executive Officer of Tokos,
served as the President and Chief Executive Officer of the Company until
December 31, 1996, when his employment agreement expired. At a meeting held on
September 30, 1997, the Board of Directors approved a settlement with Mr. Byrnes
of certain matters relating to the termination of his employment, including
severance payments. See "Change of Control Severance Agreements" herein
regarding the terms of this settlement. At this same meeting the Board of
Directors voted unanimously to reduce the size of the Board from ten to five
members. Messrs. Byrnes, Goldsmith, Davenport, Erickson and Busch resigned from
the Board without protest in order to accommodate these changes. The five
resigning directors were all former Tokos directors or persons selected by
former Tokos directors to fill vacancies created by previous resignations.
At a meeting held on October 20, 1997, the Board of Directors elected
Donald R. Millard as President and Chief Executive Officer of the Company. Mr.
Millard replaced a three-person "Office of the President" composed of Messrs.
Parker H. Petit, Robert F. Byrnes and Donald R. Millard, which had performed the
duties of President of the Company since the non-renewal of the employment
agreement of Mr. Byrnes. Frank D. Powers, the Executive Vice President of the
Company, was elected Chief Operating Officer. In recognition of the importance
of their new positions, their salaries were increased and they were granted
additional stock options. In addition, the size of the Board was increased to
seven members and Messrs. Millard and Powers were elected as Class I and Class
III directors, respectively.
The following biographical information is furnished with respect to each of
the two nominees for election as Class II directors at the Annual Meeting and
for each of the other five directors whose terms will continue after the 1997
Annual Meeting.
CLASS II NOMINEES FOR THE TERM EXPIRING IN 2000
JACKIE M. WARD, age 59, has served as a director of the Company since the
Merger Date. Ms. Ward is President and Chief Executive Officer of Computer
Generation Incorporated, a privately-held, Atlanta based corporation engaged in
designing and producing "turnkey" computer hardware and software systems for
telecommunications and other specialized applications, which she founded in
1968. Ms. Ward is also a former Chairperson of the Board of Regents of the
University System of Georgia and current Chairman of the Metro Atlanta Chamber
of Commerce, as well as a director of SCI Systems, Inc., Trigon Blue Cross Blue
Shield and NationsBank, N.A. and a member of several other civic and government
organizations.
FREDERICK P. ZUSPAN, M.D., age 75, has served as a director of the Company
since the Merger Date and previously served as a director of Healthdyne from
1993 until the Merger. Dr. Zuspan, who has been a physician since 1951, has been
Professor and Chairman Emeritus, Department of Obstetrics and Gynecology at the
Ohio State University College of Medicine since July 1991 and Editor-in-Chief of
the American Journal of Obstetrics and Gynecology since 1991. Dr. Zuspan was
previously Professor of the Ohio State University College of Medicine from 1987
to 1991 and Professor and Chairman of the Department of Obstetrics and
Gynecology at the Ohio State University College of Medicine from 1975 to 1987,
at the University of Chicago, Pritzker School of Medicine from 1966 to 1975, and
at the Medical College of Georgia from 1960 to 1966.
CLASS III DIRECTORS CONTINUING IN OFFICE UNTIL 1998
PARKER H. PETIT, age 57, has served as Chairman of the Board of the Company
since the Merger Date. In addition, he served as a member of the three-person
Office of the President during the period in 1997 preceding the election of
Donald R. Millard as President and Chief Executive Officer of the Company. Mr.
Petit was the founder of Healthdyne and served as its Chairman of the Board of
Directors and Chief Executive Officer from 1970 until the Merger. Mr. Petit is
also Chairman of the Board of Directors of Healthdyne Technologies, Inc. and
Healthdyne Information Enterprises, Inc. and a director of Atlantic Southeast
Airlines, Inc., Intelligent Systems, Inc. and Logility, Inc.
FRANK D. POWERS, age 49, has been an Executive Vice President of the
Company since the Merger Date and also has served as a member of the Board and
as Chief Operating Officer since October 20, 1997. Prior
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thereto, he served as President of Healthdyne Maternity Management, a subsidiary
of Healthdyne, from October 1989 until March 1996, and as President of
Healthdyne's Home Care Group from November 1986 to October 1989. In addition, he
was President of Healthdyne's Home Care Products Division from September 1984 to
November 1986.
MORRIS S. WEEDEN, age 77, has served as a director of the Company since the
Merger Date and previously served as a director of Healthdyne from 1987 until
the Merger. Mr. Weeden, who is retired, was Vice Chairman -- Board of Directors
of Morton Thiokol Inc., a salt, chemical, household and aerospace products
manufacturer, from March 1980 to December 1984. Prior thereto, Mr. Weeden was
Executive Vice President of Morton Norwich Products, Inc. in charge of
pharmaceutical operations, President of Morton International, a pharmaceutical
division of Morton Norwich Products, Inc. and President of Bristol Laboratories,
a pharmaceutical division of Bristol Myers Corp.
CLASS I DIRECTORS CONTINUING IN OFFICE UNTIL 1999
DONALD R. MILLARD, age 50, has served as a member of the Board and as
President, Chief Executive Officer and Chief Financial Officer since October 20,
1997 and prior thereto served as Senior Vice President -- Finance, Chief
Financial Officer and Treasurer of the Company since the Merger Date. Mr.
Millard served as Vice President -- Finance and Chief Financial Officer of
Healthdyne from July 1987 to March 1996 and, in addition, was Treasurer of
Healthdyne from March 1990 to March 1996. Mr. Millard is also a director of
Coast Dental Services, Inc.
CARL E. SANDERS, age 72, has served as a director of the Company since the
Merger Date and previously served as a director of Healthdyne from 1986 until
the Merger. Mr. Sanders, a former governor of the State of Georgia, is Chairman
of Troutman Sanders LLP, an Atlanta based law firm which provides legal services
to the Company. Mr. Sanders is also a director of Carmike Cinemas, Inc.,
Metromedia International Group, Inc., Norrell Corporation and Healthdyne
Information Enterprises, Inc.
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BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth certain information as to the beneficial
ownership of shares of the Company's Common Stock as of October 26, 1997 by (i)
each person who is known by the Company to own beneficially more than 5% of the
outstanding shares, (ii) each director of the Company, (iii) each Named
Executive Officer (as hereinafter defined), and (iv) all executive officers and
directors as a group. Unless otherwise indicated, the holders listed below have
sole voting and investment power with respect to all shares beneficially owned
by them.
AMOUNT AND NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1)(2) CLASS (1)(2)
- ------------------------ --------------------------- ------------
Foreign and Colonial Management............................ 1,954,000 5.3%
Limited and Hypo Foreign & Colonial Management (Holdings)
Limited(3)
Exchange House, Primrose Street
London EC2A2NY England
Parker H. Petit(4)......................................... 643,790 1.8%
Donald R. Millard(5)....................................... 146,641 --
Robert F. Byrnes(6)........................................ 760,000 2.0%
Terry P. Bayer(7).......................................... 155,000 --
Frank D. Powers(8)......................................... 87,436 --
J. Brent Burkey(9)......................................... 113,693 --
Carl E. Sanders(10)........................................ 64,500 --
Jackie M. Ward(11)......................................... 5,004 --
Morris S. Weeden(12)....................................... 25,000 --
Frederick P. Zuspan(13).................................... 15,000 --
All executive officers and directors
as a group (10 persons).................................. 2,016,064 5.5%
- ---------------
- -- Less than 1%
(1) Under the rules of the Securities and Exchange Commission (the "SEC"), a
person is deemed to be a beneficial owner of a security if he or she has or
shares the power to vote or to direct the voting of such security, or the
power to dispose or to direct the disposition of such security. A person is
also deemed to be a beneficial owner of any securities of which that person
has the right to acquire beneficial ownership within 60 days as well as any
securities owned by such person's spouse, children or relatives living in
the same house. Accordingly, more than one person may be deemed to be a
beneficial owner of the same securities. Unless otherwise indicated by
footnote, the named persons have sole voting and investment power with
respect to the shares held by them.
(2) With respect to each person in the table, assumes that such person has
exercised all options, warrants and other rights to purchase Common Stock
exercisable within 60 days.
(3) This information is as of the date set forth in and based solely on the
Schedule 13G dated February 10, 1997 furnished to the Company by this
entity.
(4) Includes 581,290 shares owned by Mr. Petit, 52,500 shares held by Petit
Investments Limited Partnership and 10,000 shares held by Petit Grantor
Trust.
(5) Represents 39,421 shares owned by Mr. Millard, 105,180 shares which are
subject to purchase upon exercise of options exercisable within 60 days,
and 2,040 shares issuable upon conversion of 8% Convertible Subordinated
Debentures owned by Mr. Millard.
(6) Represents 500,000 shares held by Mr. and Mrs. Byrnes as trustees of The
Byrnes Family Trust and pledged to the Company to secure certain
indebtedness, as to which shares Mr. and Mrs. Byrnes share voting and
dispositive power, and 260,000 shares which are subject to purchase upon
exercise of options exercisable within 60 days.
(7) Represents 155,000 shares which are subject to purchase upon exercise of
options exercisable within 60 days.
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(8) Represents 21,436 shares owned by Mr. Powers and 66,000 shares which are
subject to purchase upon exercise of options exercisable within 60 days.
(9) Represents 20,360 shares owned by Mr. Burkey and 93,333 shares which are
subject to purchase upon exercise of options exercisable within 60 days.
(10) Represents 54,500 shares owned by Mr. Sanders and 10,000 shares which are
subject to purchase upon exercise of options exercisable within 60 days.
(11) Represents 4 shares issuable upon conversion of 8% Convertible Subordinated
Debentures owned by Ms. Ward and 5,000 shares which are subject to purchase
upon exercise of options exercisable within 60 days.
(12) Represents 15,000 shares owned by Mr. Weeden and 10,000 shares which are
subject to purchase upon exercise of options exercisable within 60 days.
(13) Represents 15,000 shares which are subject to purchase upon exercise of
options exercisable within 60 days.
BOARD COMMITTEES AND ATTENDANCE
In addition to an Executive Committee and other single purpose committees
established from time to time to assist the Board of Directors with particular
tasks, the Company's Board of Directors has the following standing committees: a
Compensation and Stock Option Committee (the "Compensation Committee"), an Audit
Committee and a Nominating Committee.
The Compensation Committee is composed of Morris S. Weeden and Frederick P.
Zuspan. In addition, Parker H. Petit is an ex-officio, non-voting member of the
Compensation Committee. The Compensation Committee is responsible for the
recommendation and approval of salaries of executive officers and the review and
approval of incentive plans, including stock options and related programs. The
Compensation Committee held five meetings during the year ended December 31,
1996.
The Audit Committee is composed of Jackie M. Ward and Morris S. Weeden. The
Audit Committee reviews the scope of the audit of the Company's consolidated
financial statements by independent public accountants and their report on such
audit, evaluates audit performance and reports on such matters to the Board of
Directors. The Audit Committee held one meeting during the year ended December
31, 1996.
The Nominating Committee is composed of Parker H. Petit and Frederick P.
Zuspan, M.D. The Nominating Committee shall to the extent not inconsistent with
the Bylaws of the Company identify, screen and recommend candidates for
appointment to the Board of Directors for consideration by the full Board of
Directors of the Company and by the stockholders of the Company. In that the
nomination of the standing Class II Directors for election at the Annual Meeting
was contained in the Bylaws of the Company, the Nominating Committee held no
meetings during the year ended December 31, 1996.
During the year ended December 31, 1996, the Board of Directors held seven
meetings. Each of the Directors attended more than 75% of the total number of
Board meetings and meetings of committees of which he or she was a member during
1996.
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EXECUTIVE COMPENSATION
The following table sets forth compensation paid to the Company's current
Chief Executive Officer, its former Chief Executive Officer and the four other
most highly compensated executive officers (collectively, the "Named Executive
Officers") for their services in all capacities to the Company and its
subsidiaries from March 8, 1996 (the Merger Date) to December 31, 1996:
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)
- --------------------------- ---- --------- -------- ------------ ---------------
Parker H. Petit(1)........................ 1996 $204,711 $0 -- $ 3,750(2)
Chairman of the Board
Robert F. Byrnes(3)....................... 1996 274,970 0 60,000 1,028,940(4)
Former President and Chief Executive
Officer
Terry P. Bayer(5)......................... 1996 184,819 0 40,000 3,750(2)
Former Executive Vice President
Frank D. Powers(6)........................ 1996 181,923 0 40,000 3,750(2)
Executive Vice President and Chief
Operating Officer
J. Brent Burkey........................... 1996 170,769 0 30,000 3,750(2)
Senior Vice President, General Counsel
and Secretary
Donald R. Millard(6)...................... 1996 170,769 0 30,000 3,750(2)
President, Chief Executive Officer and
Chief Financial Officer
- ---------------
(1) Mr. Petit terminated his employment with the Company for "good reason"
effective December 31, 1996 but remains as Chairman of the Board of
Directors in his capacity as a director. His termination entitles him to
severance compensation payable in installments. See "Change of Control
Severance Agreements" herein.
(2) Represents the Company's matching contributions to the Named Executive
Officers under the Company's tax-qualified 401(k) Profit Sharing Plan
accrued during 1996.
(3) The Employment Agreement, dated as of May 1, 1995, as amended, between Mr.
Byrnes and Tokos under which Mr. Byrnes was employed as President and Chief
Executive Officer of the Company expired at the end of its stated term on
December 31, 1996 without renewal, entitling Mr. Byrnes to severance
compensation thereunder. See "Change of Control Severance Agreements"
herein.
(4) The Compensation Committee of the Board of Directors on March 28, 1996
agreed to reimburse Mr. Byrnes, in addition to the relocation expenses and
closing costs on his residence covered by the standard relocation policy of
the Company, for the excess of the cost and expenses invested by him in his
primary residence in Villa Park, California and condominium in Palm Springs,
California over the expected selling price thereof in order to induce him to
relocate his residence to the Marietta, Georgia metropolitan area. The
aggregate amount of this reimbursement was $1,025,190 and is included above.
Also includes $3,750 representing the Company's matching contribution to Mr.
Byrnes under the Company's tax-qualified 401(k) Profit Sharing Plan accrued
during 1996. See "Change of Control Severance Agreements" herein.
(5) The Employment Agreement, dated as of January 1, 1995, as amended, between
Ms. Bayer and Tokos under which Ms. Bayer was employed as an Executive
Officer of the Company expired at the end of its stated term on December 31,
1996 without renewal, entitling Ms. Bayer to severance compensation
thereunder. See "Change of Control Severance Agreements" herein.
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(6) Reflects compensation earned during 1996 by Mr. Powers in his capacity as
Executive Vice President and Mr. Millard in his capacity as Senior Vice
President -- Finance, Chief Financial Officer and Treasurer.
STOCK OPTIONS
The following table contains information as of the end of the last fiscal
year concerning the grant of stock options under the Company's 1996 Stock
Incentive Plan (the "1996 Stock Plan") to the Named Executive Officers of the
Company.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
-----------------------------------------------
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE
SECURITIES OPTIONS EXERCISE VALUE AT ASSUMED ANNUAL
UNDERLYING GRANTED TO OR RATES OF STOCK PRICE
OPTIONS EMPLOYEES BASE APPRECIATION FOR OPTION TERM
GRANTED IN FISCAL PRICE EXPIRATION -----------------------------
NAME (#)(1)(2) YEAR ($/SH) DATE 5% 10%
- ---- ---------- ---------- -------- ---------- ----------- -----------
Parker H. Petit........ 0 0 $ -- -- $ -- $ --
Robert F. Byrnes....... 60,000 6.62% 8.50 3/28/2006(3) 321,000(3) 812,808(3)
Terry P. Bayer......... 40,000 4.41% 8.50 3/28/2006(3) 214,000(3) 541,872(3)
Frank D. Powers........ 40,000 4.41% 8.50 3/28/2006 214,000 541,872
J. Brent Burkey........ 30,000 3.31% 8.50 3/28/2006 160,500 406,404
Donald R. Millard...... 30,000 3.31% 8.50 3/28/2006 160,500 406,404
- ---------------
(1) These options to purchase the Company's Common Stock were granted on March
28, 1996. For each option granted, 33% of the shares subject to the option
become exercisable in cumulative increments on the first, second and third
anniversary dates of the option grants. The options each have a term of ten
years from the date of grant and are not transferable, otherwise than by
will or the laws of descent and distribution. Except as provided in each of
the option agreements, the options may not be exercised unless employment
with the Company or an affiliate or subsidiary continues. Options granted
under the 1996 Stock Plan will expire (i) immediately upon the employee's
termination for good cause; (ii) three months after the date of termination
for reason other than good cause; (iii) three months after the employee's
voluntary termination; (iv) one year after the employee's death or
disability; or (v) ten years from the date of the grant, whichever shall
occur first. The purchase price of the shares subject to these options may
be paid (i) in cash, (ii) through the surrender of previously owned stock of
the Company, or (iii) a combination of cash and previously owned stock of
the Company. The optionees are obligated to reimburse the Company at the
time of any exercises of the options for any taxes required to be withheld
by the Company under federal, state or local law as the result of the
exercise of the options.
(2) Does not include options that were assumed by the Company in the Merger.
(3) As a result of the non-renewal of their respective Employment Agreements
with the Company, these options expired on March 31, 1997 without exercise.
Consequently, no value was realized therefrom.
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STOCK OPTION EXERCISES
The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of options from March 8, 1996 through
December 31, 1996 and unexercised options held as of the end of the fiscal year:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
SHARES OPTIONS AT FISCAL YEAR THE-MONEY OPTIONS AT
ACQUIRED VALUE REALIZED END(#) FISCAL YEAR END(#)(1)
ON EXERCISE (MARKET PRICE AT EXERCISE --------------------------- ---------------------------
NAME (#) LESS EXERCISE PRICE) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------------------- ----------- ------------- ----------- -------------
Parker H. Petit...... -0- $ -- 146,667 -- $307,619 $-0-
Robert F. Byrnes..... -0- -- 200,000 -- 37,500 -0-
Terry P. Bayer....... -0- -- 155,000 -- -0- -0-
Frank D. Powers...... -0- -- 52,667 40,000 99,795 -0-
J. Brent Burkey...... -0- -- 85,000 30,000 164,026 -0-
Donald R. Millard.... 20,000 65,690 100,000 30,000 204,593 -0-
- ---------------
(1) Based on $4.75, the last sale price of the Company's Common Stock on
December 31, 1996.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company receive no additional
compensation for serving on the Board of Directors. Directors who are not
full-time employees of the Company receive a fee of $3,000 per quarter, plus
$1,000 for each Board meeting attended and $750 for each Committee meeting
attended on a day other than the date of a regular meeting of the Board, and are
reimbursed for any travel expenses incurred. The Chairman of the Board, in lieu
of the above retainer and meeting fees, is paid a fee of $12,500 per quarter.
In addition, in order to reflect his services as part of the Office of the
President, Mr. Byrnes' director compensation for the period from January 1, 1997
to October 1, 1997 was adjusted to the rate of $12,500 per quarter, less the
aggregate amount of any other retainer fees and meeting fees paid to him during
that period. See "Change of Control Severance Agreements."
CHANGE OF CONTROL SEVERANCE AGREEMENTS
Prior to the Merger, Tokos and Healthdyne had certain Change of Control
Agreements with the Named Executive Officers, the terms of which were assumed by
the Company, as follows:
Tokos: During 1994 and 1995, Tokos entered into employment agreements with
Mr. Byrnes, Ms. Bayer and certain other officers of Tokos who did not become
executive officers of the Company. These agreements provided for severance
payments and certain benefits in the event of a voluntary or involuntary
termination upon a "change of control," a "termination for failure to renew" and
a "termination other than for cause." The executive officers were not entitled
to any compensation or benefits if they were "terminated for cause." A
"termination for failure to renew" meant a failure to renew or extend the term
of the agreement beyond the December 31, 1996 termination date or any extension
thereof. A "termination other than for cause" was defined as constructive
termination of the executive officer or material breach of the employment
agreement by Tokos. A "termination for cause" was defined as a termination for
any willful dishonesty towards, fraud upon or deliberate injury to Tokos by the
executive officer.
Amendments to the employment agreements described above were approved by
Tokos, executed on October 2, 1995 and became effective on the Merger Date. The
amendments increased the amount of severance and other cash compensation payable
in the event of a termination upon a "change of control" or "termination for
failure to renew" from 18 months continuation of salary plus 150% of the highest
bonus earned by the employee, to an amount equal to three times the executive
officer's average annual base salary
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and other income derived from Tokos or the Company which is reportable for
federal tax purposes for the five years ending prior to the date of termination.
The amount of severance payable under the employment agreements was limited to
amounts which are deductible by the Company under Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"). In addition, the covenants
against competition and soliciting customers and employees included in the
employment agreements were revised to provide greater protection to Tokos and
the Company.
The employment agreements of Mr. Byrnes and Ms. Bayer were not renewed by
the Board of Directors of the Company and expired at the end of their stated
term on December 31, 1996, thereby entitling each employee to severance
compensation based upon a "termination for failure to renew." The Board of
Directors, in return for an agreement by Ms. Bayer to continue her employment
beyond the expiration of the employment agreement for a limited period of time,
agreed to accelerate the payment of Ms. Bayer's severance and other cash
compensation into a lump sum amount payable upon the termination of such
additional employment period. On or about March 14, 1997, Ms. Bayer's employment
terminated and she was paid $701,606 in cash compensation as severance and an
agreement not to compete, and she was provided with a continuation for a three
year period of time of the fringe benefits to which she was entitled under the
employment agreement.
As a result of the nonrenewal of his employment agreement, Mr. Byrnes'
employment with the Company terminated on December 31, 1996 and he became
entitled to cash compensation for severance and an agreement not to compete.
Although certain items were initially in dispute, it was agreed that Mr. Byrnes
would receive (i) $2.6 million in aggregate cash compensation payable in three
installments of $1.6 million, $500,000 and $500,000 on October 1, 1997, January
10, 1998 and January 10, 1999, respectively, (ii) a revision in the method of
calculating the retirement benefit to which Mr. Byrnes was otherwise entitled at
age 65 to reflect his rate of annual compensation at the Company as his base
rate of compensation and to add two additional years of service to the vesting
calculation, (iii) a six month extension to the three year period of time for
continuation of fringe benefits, (iv) a stock option to acquire 60,000 shares of
Common Stock at a price per share equal to the fair market value of such stock
on the date of grant, and (v) an amendment of the existing $3.5 million of
indebtedness incurred by Mr. Byrnes while at Tokos and owing to the Company to
eliminate interest under certain circumstances, to extend the maturity from
January 1, 1999 to June 30, 2002, and to provide that in the event the Common
Stock of the Company does not trade at or above $10 per share for fifteen
consecutive trading days prior to the maturity date of the amended note the
indebtedness can be repaid at any time after October 1, 2000 by the surrender of
the 500,000 shares of the Company's Common Stock held as collateral regardless
of the price of such shares when surrendered. After reaching agreement on this
matter, Mr. Byrnes and the four other former Tokos Directors resigned from the
Board of Directors of the Company.
Healthdyne: In February 1988, Healthdyne entered into agreements with
Messrs. Petit, Millard, Burkey and certain other officers of Healthdyne who did
not become officers of the Company, entitling such executive officers to certain
benefits upon specified terminations of employment within three years following
a "change in control" of Healthdyne. The Merger, as well as several other
transactions engaged in by Healthdyne prior to the Merger, constituted a "change
in control" under these agreements. Each agreement provided that in the event of
a "change in control" of Healthdyne, the executive officer concerned would be
entitled to certain benefits upon his subsequent termination of employment
during the term of the agreement unless such termination is (i) because of his
death, disability or retirement, (ii) by the Company for cause, or (iii) with
respect to termination by the executive officer, other than for "good reason."
Under these agreements, a number of circumstances entitle the executive officer
to treat a good faith termination on his part as being a termination for "good
reason." These include an adverse change in the executive officer's
compensation, discontinuation of certain benefits, the assignment of duties
inconsistent with his status or duties in effect immediately prior to the
"change in control," the relocation of the Company's principal executive office
to a location outside of Marietta, Georgia or requiring the executive officer to
be based anywhere other than the Company's principal executive office.
Under the agreements, if an executive officer's employment with the Company
terminates following the consummation of a "change in control" other than under
the circumstances set forth in clauses (i), (ii), or
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(iii) of the preceding paragraph, the executive officer will be entitled to
receive his full base salary through the date of termination and a lump sum
severance payment equal to three times the executive officer's average annual
salary and other income derived from Healthdyne or the Company which is
reportable for federal tax purposes for the five years ending prior to the date
of termination. In addition, such executive officer will be entitled to receive,
for a period of three years after the date of termination, all life, disability
and health insurance coverage, automobile allowances and other fringe benefits
equivalent to those in effect at the date of termination and is entitled to
receive additional amounts, if any, relating to any excise taxes imposed on the
executive officer as a result of Section 280G of the Internal Revenue Code.
Healthdyne entered into amended and restated agreements with each of the
executive officers mentioned above and a new agreement with Frank D. Powers (the
"Restated Agreements") upon the effective date of the Merger, which superseded
the prior agreements described above. The Restated Agreements did not increase
the amount of compensation payable upon a "change of control," but acknowledged
that the Merger constituted a "change in control," as defined in the Restated
Agreements, and extended the term of the Restated Agreements from a term ending
in February 1997 to a term ending three years after the Merger. In addition,
under the Restated Agreements the executive officer agrees to comply with
certain protective covenants not to compete which, for a period of three years
following the later of the Merger Date or the effective time of any other
"change in control" of the Company that occurs within three years after the
Merger Date and during the executive officer's continued employment with the
Company, prohibit the executive officer from competing with the Company or
soliciting customers or personnel of the Company. The Restated Agreements
otherwise are substantially similar to the change in control agreements
previously in effect.
Mr. Petit, the Chairman of the Board of Directors, terminated his
employment as an employee of the Company for "good reason" in December 1996 and
became entitled to receive compensation in the amount of $4,307,600 under his
Restated Agreement, plus a continuation of his fringe benefits for a period of
three years. Although entitled by the express terms of his agreement to a lump
sum payment of this amount, Mr. Petit voluntarily agreed to accept payments in
annual installments over a three year period without interest.
Mr. Burkey, the Senior Vice President and General Counsel of the Company,
informed the Company in October 1997 that he will be terminating his employment
for "good reason", but at the request of the Company has agreed to continue to
provide services to the Company on a full-time basis through the end of 1997 in
order to assist in the transition of his duties and thereafter if requested by
the Company on a part-time basis. At such time, he will become entitled to
receive compensation in the approximate amount of $1,400,000 under his Restated
Agreement, plus a continuation of fringe benefits for a period of three years.
PENSION PLAN
The following table shows the estimated pension benefits payable to a
covered participant at normal retirement age under the Company's nonqualified
pension plan, which provides benefits based on remuneration that is covered
under the plan and years of service with the Company and its affiliates.
PENSION PLAN TABLE
YEARS OF SERVICE
-------------------------------------------------------------
REMUNERATION 10 15 20 25 30 35
- ------------ ------- ------- -------- -------- -------- --------
$ 75,000............................ $ 7,000 $18,250 $ 29,500 $ 29,500 $ 29,500 $ 29,500
100,000............................ 14,500 29,500 44,500 44,500 44,500 44,500
125,000............................ 22,000 40,750 59,500 59,500 59,500 59,500
150,000............................ 29,500 52,000 74,500 74,500 74,500 74,500
175,000............................ 37,000 63,250 89,500 89,500 89,500 89,500
200,000............................ 44,500 74,500 104,500 104,500 104,500 104,500
Unless otherwise agreed, remuneration covered by the benefit award is based
on the average base salary of the executive for the three years in which his
base salary is the highest. This amount for each of the Named Executive Officers
participating in the plan as of the end of the last fiscal year was $370,417,
$350,000, $195,757, $218,667, $166,700 and $206,060 for Mr. Petit, Mr. Byrnes,
Mr. Millard, Ms. Bayer, Mr. Powers
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and Mr. Burkey, respectively. The estimated years of service for each Named
Executive Officer as of the end of the last fiscal year was 24 years for Mr.
Petit, 16 years for Mr. Byrnes, 10 years for Mr. Millard, 6 years for Ms. Bayer,
14 years for Mr. Powers and 14 years for Mr. Burkey. Benefits shown are computed
as a diminishing single life annuity beginning at age 65 with annual reductions
equal to the annual increases in primary social security benefits.
In the event of a "change of control" of the Company as defined in the
benefit awards, all benefits accrued to date immediately vest and each Named
Executive Officer may require the Company to place in trust for the Named
Executive Officer's benefit an amount of money equal to the present value of the
participant's accrued retirement benefit and, on an annual basis thereafter, to
make additional contributions to such trust for any additional benefit accruals
of the Named Executive Officer. The Merger was deemed to be a "change of
control". The Named Executive Officers who received these benefit awards and the
amounts that the Company would be required to place in trust for each such Named
Executive Officer as of December 31, 1996, if requested thereunder, was as
follows: Parker H. Petit -- $998,000; Robert F. Byrnes -- $334,000; Donald R.
Millard -- $158,583, Terry P. Bayer -- $-0-; Frank D. Powers -- $159,000; and J.
Brent Burkey -- $242,000.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this proxy statement, in whole or in part, the following report and
the stock performance graph shall not be incorporated by reference into any such
filings.
COMPENSATION COMMITTEE REPORT ON CORPORATE COMPENSATION
Overall Objectives and Approach. Prior to the Merger, the levels of
compensation of the Named Executive Officers were determined by the respective
Compensation Committees and Board of Directors of the companies (Tokos or
Healthdyne) by whom such individuals were employed. Although certain adjustments
were made to reflect revised responsibilities following the Merger and the
consolidation of benefit plans, in 1996 the Company did not undertake an overall
review of its compensation programs for executives. In 1997 the Company engaged
William M. Mercer, Incorporated ("Mercer"), a recognized consulting firm with a
specialty in employee compensation and headquartered in Atlanta, Georgia, to
conduct a review of its overall compensation program, including base
compensation, incentive compensation and stock option programs and to compare
the Named Executive Officers to positions of similar responsibility at other
companies both within and outside of the healthcare industry. A report was
presented by Mercer to the Compensation Committee in April 1997 and, in part,
formed the basis for the Compensation Committee 1997 compensation
recommendations.
In making its compensation determinations, the Compensation Committee
evaluates, on both an absolute and relative basis, a variety of Company
financial results (including sales, earnings, return on equity, return on assets
and balance sheet strength), market share and competitive position, the
potential for future growth, the overall importance of the individual to the
organization, the individual and group performance of senior management, and
compensation levels at comparable companies, especially within the healthcare
industry. In formulating its determinations, it recognizes and rewards
achievements on an annual basis, while emphasizing the value and importance of
sustained long-term performance and recognition of developing trends within the
healthcare industry. The Compensation Committee reviews information prepared or
compiled by or on behalf of the Company, as well as the business experience of
the individual members of the Compensation Committee.
Cash Compensation. Officers and other employees are compensated within
salary ranges that are generally based on similar positions in companies of
comparable size and complexity to the Company. The actual base pay level for
each officer is based on a combination of experience, performance and other
factors that are determined to be important by the Committee. The salary of most
officers is generally reviewed annually at the beginning of each year, with the
amount of any increases based on factors such as Company performance, general
economic conditions, marketplace compensation trends and individual performance.
Raises in salaries were granted in 1996 and 1997 based upon the factors
described above, as well as recognition
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that no increases in salary levels had been granted to executive officers of
Tokos during the year preceding the Merger.
Except for a limited number of discretionary bonuses paid to employees
other than the Named Executive Officers, bonuses were not paid under the
incentive bonus plan for 1996 which was based upon a financial formula and the
performance of the Company in comparison to its operating budget. A similar
bonus program based upon Company achievement as compared to budgeted goals is in
effect for 1997. In the Compensation Committee's view, the cash compensation set
out in the Summary Compensation Table appropriately reflects the above factors
in the context of the current competitive environment and historical practices.
Stock Options. The Company grants stock options to a substantial number of
its employees, a policy followed since the Merger. The grants generally have
been based on guidelines that take salary level, tenure, individual performance
rating and importance to the Company into account. Stock options have been
granted at exercise prices equal to the market price on the date of grant,
typically become exercisable in three annual installments commencing on the
first anniversary of the grant, and expire on the tenth anniversary. The Mercer
report recommended that the Company continue its practice of granting stock
option incentives, but consider concentrating the number of options granted
among a smaller group of employees with adjustments in the vesting schedule and
amount of future option grants based upon the financial performance of the
Company. The Compensation Committee has begun to implement these
recommendations.
CEO Compensation. Mr. Byrnes was compensated for his services pursuant to
an employment agreement originally entered into with Tokos, as amended in
contemplation of the Merger. The compensation of Mr. Byrnes as CEO of the
Company in 1996 reflected both the level of compensation paid to Mr. Petit as
CEO of Healthdyne prior to the Merger and the fact that Mr. Byrnes had not
received an increase in salary at Tokos since 1992.
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Parker H. Petit, (ex-officio non-voting member)
Morris S. Weeden
Frederick P. Zuspan
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is responsible for executive compensation
decisions as described above. During 1996, the Compensation Committee consisted
of Craig T. Davenport, Thomas W. Erickson, Carl E. Sanders and Morris S. Weeden,
with Mr. Parker H. Petit and Mr. Robert F. Byrnes participating as ex-officio
non-voting members of the Compensation Committee. Mr. Sanders is the Chairman of
a law firm which provided legal services to the Company during 1996 and which
will provide legal services to the Company in the future. Mr. Sanders resigned
as a member of the Compensation Committee in February 1997, at which time Dr.
Zuspan was elected to fill the vacancy created by Mr. Sanders' resignation on
the Compensation Committee.
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PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total returns for the
periods in question for the Company, the S&P 500 Index and the S&P Healthcare
Composite Index. The graph assumes that the value of the investment in the
Company's Common Stock and each index was $100 at April 1, 1996 (the first day
of the first full month of trading of the Common Stock of the Company), and that
all dividends (there were none) were reinvested. The Company's Common Stock
commenced trading on March 8, 1996; closing at a price of $8.875 on that date
and $8.375 on April 1, 1996.
Measurement Period Matria Healthcare, S&P HealthCare
(Fiscal Year Covered) Inc. S&P 500 Index Composite
April 1, 1996 100.00 100.00 100.00
1996 56.72 116.70 116.23
1997 through Sept. 30 71.64 151.14 151.93
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CERTAIN TRANSACTIONS
The following indebtedness formerly due to Tokos and Healthdyne became due
and owing to the Company upon the Merger Date:
In July 1981, 248,000 shares of common stock reserved under the Healthdyne
1981 Incentive Stock Option Plan were sold to Mr. Petit for $1.33 per share in
exchange for $330,000 principal amount of an 8% promissory note (the "1981
Promissory Note") payable in four years and secured by the purchased shares.
Healthdyne's Board of Directors extended the maturity date of the 1981
Promissory Note, forgave interest accrued thereon from July 1985 through
December 1987, and stayed the accrual of any additional interest until the stock
was sold. The maximum outstanding principal indebtedness of Mr. Petit to the
Company since the Merger Date was $873,182, of which $325,800 related to the
1981 Promissory Note, $350,000 to a loan evidenced by a promissory note, dated
September 24, 1992 bearing interest at a floating rate which was 8.25% at year
end, payable on December 31, 1996, $100,000 related to a loan evidenced by a
promissory note, dated March 16, 1993, bearing interest at a floating rate which
was 8.25% at year end, payable on demand, and $125,000 related to a loan
evidenced by a promissory note, dated June 27, 1994, bearing interest at a
floating rate which was 8.25% at year end, payable on demand. In connection with
his termination of employment, Mr. Petit repaid in full all indebtedness
outstanding to the Company on December 31, 1996.
Mr. Byrnes was indebted to the Company in the aggregate amount of
$3,414,107 (the maximum amount outstanding in 1996) as of December 31, 1996 and
$3,500,000 as of November 1, 1997. The indebtedness was evidenced by a series of
promissory notes, bearing interest at 6% per annum, and was secured by an
aggregate of 930,013 shares of Common Stock having an aggregate value of
$4,417,562 on December 31, 1996 and $5,580,078 on September 30, 1997.
Approximately one-third of such indebtedness represented 6% interest bearing
promissory notes delivered by Mr. Byrnes to Tokos to exercise stock options
issued under Tokos' 1985 and 1995 Stock Option Plans. The remainder represented
interest bearing loans of $1,012,000 and $900,000 advanced by Tokos to Mr.
Byrnes to extinguish a third party debt he initiated to pay the taxes associated
with stock option exercises. The Company understands that the Board of Directors
of Tokos approved these tax loans so that Mr. Byrnes would not be forced to sell
shares of Tokos stock to repay this tax related debt. Mr. Byrnes' indebtedness
to the Company was otherwise due and payable on December 31, 1996, but payment
thereof was deferred by the terms of his employment agreement, which provided
that the payment of any loans due and owing by Mr. Byrnes to the Company on the
date of his termination of employment would become due and payable two years
after the effective date of the termination or one year after re-employment,
whichever is sooner. As discussed previously under "Change of Control Severance
Agreements," the parties further revised the terms of and collateral for this
indebtedness in connection with the termination of Mr. Byrnes' employment. Among
other things, interest was deferred unless and until the price of Common Stock
of the Company trades at or above $10 per share for fifteen (15) consecutive
trading days, the maturity date was extended, the collateral was reduced to
500,000 shares of Common Stock having an aggregate value of $2,375,000 on
December 31, 1996 and $3,000,000 on September 30, 1997, and the Company agreed
that the loans could be repaid in full after October 1, 2000 by the tender of
the collateral if the Common Stock of the Company does not trade at or above the
$10 price. In order to facilitate the settlement, Messrs. Millard, Powers and
Burkey agreed to guarantee the payment of up to $300,000 of such indebtedness in
the event that the value of the shares of Common Stock if and when surrendered
is insufficient to repay the Company in full and Mr. Byrnes is not otherwise
obligated to pay the same.
Mr. Carl E. Sanders, a director of the Company, is also the Chairman of
Troutman Sanders LLP, a law firm based in Atlanta, Georgia which provided
certain legal services to the Company in fiscal year 1996 and is expected to be
retained by the Company in the future.
2. APPROVAL OF 1997 STOCK INCENTIVE PLAN
The Board of Directors has approved and recommends the stockholders of the
Company approve the adoption of the Matria Healthcare, Inc. 1997 Stock Incentive
Plan (the "1997 Stock Plan"). Approval of the 1997 Stock Plan by the
stockholders is intended, among other things, to qualify options and stock
appreciation rights ("SARs") granted under the 1997 Stock Plan to certain
executive officers of the Company as
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"performance-based compensation," which is not subject to the limits on
deductibility of Section 162(m) of the Code, described further below.
PURPOSE OF THE 1997 STOCK PLAN
In large part as a result of stock options granted to a broad group of
employees following the Merger and recent grants to the newly elected Chief
Executive Officer and Chief Operating Officer, the Company does not have
sufficient shares available for future grants under its previously approved
stock option plan. The Board of Directors believes that stock options are an
important element of the Company's compensation package, particularly for senior
employees. The purpose of the 1997 Stock Plan is to provide incentives to
selected individuals and entities for increased efforts and successful
achievement on behalf of or in the interest of the Company. To have options,
SARs or stock granted to them under the Plan, eligible individuals shall be such
employees, officers, independent contractors and consultants of the Company or
an Affiliate as the Board of Directors or Stock Option Committee (in either
event, the "Committee"), in its discretion, shall designate from time to time.
As of November 4, 1997, the Company employed 852 persons and approximately 35
independent contractors and consultants.
The 1997 Stock Plan has three components: a stock option component, a stock
bonus/stock purchase component and a SAR component. The stock option component
of the 1997 Stock Plan provides a means whereby participants are given an
opportunity to purchase shares of the Company's Common Stock pursuant to: (i)
options that may qualify as incentive stock options ("ISOs") under Section 422
of the Code, or (ii) nonqualified stock options ("NQSOs"). ISOs may be granted
only to persons who are officers or employees of the Company or any of its
subsidiaries. ISOs may not be granted to any person who, at the time that the
ISO is granted owns stock possessing more than 10% of the combined voting power
of all classes of the Company's stock or any of the Company's subsidiaries stock
("10% Stockholders"), unless the exercise price of the shares of the Company
Common Stock covered by the option is at least 110% of the fair market value of
such shares at the date of grant and such ISO by its terms is not exercisable
after the expiration of five years from the date of grant.
Except for 10% Stockholders, ISOs may be granted under the stock option
component of the 1997 Stock Plan for terms up to ten years from the date of
grant. Except for 10% Stockholders, the exercise price of ISOs granted under the
1997 Stock Plan must be at least equal to 100% of the fair market value of the
Company's Common Stock as of the date of grant. The exercise price of NQSOs
granted under the 1997 Stock Incentive Plan must be at a price determined by the
Committee. However, NQSOs granted to the chief executive officer or the four
other most highly compensated officers of the Company (referred to herein as
"Covered Employees") must have an exercise price which is not less than the fair
market value of the shares covered by the option on the date the option is
granted.
The stock bonus/stock purchase component of the 1997 Stock Plan provides a
means whereby participants in the 1997 Stock Plan may receive bonuses of shares
of the Company's Common Stock or the right to purchase shares of the Company's
Common Stock, subject to the restrictions, if any, imposed by the Committee. The
purchase price for rights to purchase shares of the Company's Common Stock
granted under the 1997 Stock Plan will be at a price determined by the
Committee. Stock bonuses may be granted under the 1997 Stock Plan with such
terms and provisions and for such consideration, if any, as may be determined by
the Committee.
The SAR component of the 1997 Stock Plan provides a means whereby
participants may receive compensation based on appreciation in value of the
Company's Common Stock after the date of grant. SARs may be granted either
separately or in tandem with stock options, as determined by the Committee.
Although the Company reserves the right to utilize both the stock
bonus/stock purchase and SAR components of the 1997 Stock Plan, the Company, as
well as Tokos and Healthdyne, historically issued ISOs and NQSOs only, and the
Company anticipates that this trend will continue. The 1997 Stock Plan is
administered by the Committee. The Committee has broad discretion, subject to
the terms of the 1997 Stock Plan, to determine the persons entitled to receive
options, stock bonuses, SARS or the right to purchase shares of the Company's
Common Stock, the terms and conditions thereof, and the number of shares for
which such
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options, bonuses of stock, rights to purchase stock and SARS may be granted. The
Committee also has discretion to determine the nature of the consideration to be
paid upon the exercise of any option or right to purchase stock granted under
the 1997 Stock Plan; provided that such consideration may, in the case of
options, at the discretion of the Committee, consist of: (i) shares of the
Company's Common Stock; (ii) an irrevocable direction to a broker to sell shares
of the Company's Common Stock and deliver all or a portion of the proceeds to
the Company in payment of the exercise price; (iii) a promissory note with such
terms as the Committee shall approve; or (iv) any combination of the foregoing.
Grants made under the 1997 Stock Plan to Covered Employees may be made only by a
subcommittee (referred to herein as the "Section 162(m) Subcommittee") of the
Committee which is composed solely of two or more "outside directors," as such
term is defined in Section 162(m) of the Code and the Regulations thereunder.
Further, the effectiveness of any grant to a Covered Employee under the 1997
Stock Plan is contingent upon stockholder approval of the 1997 Stock Plan.
The Company also has the discretion to provide in any stock option, SAR,
stock bonus or stock purchase agreement under the 1997 Stock Plan that, in the
event of a change of control or a corporation transaction, any such option or
SAR will become immediately exercisable and any stock covered by a stock bonus
or stock purchase award will become released from any restrictions on transfer
and repurchase or forfeiture rights. Under the 1997 Stock Plan, a "change of
control" occurs upon (i) the acquisition of more than 50% of the voting power of
the Company by any person or more than one person acting as a group, or (ii) a
change in the composition of the members of the Board over a three-year period
or less to include a majority of persons not serving on the Board at the
beginning of the period or nominated by such persons. Under the plan, a
"corporate transaction" consists of approval by the stockholders of (i) a merger
or consolidation in which the Company is not the surviving entity, (ii) the sale
of all or substantially all of the assets of the Company, or (iii) any reverse
merger or other acquisition or business combination in which the Company is the
surviving entity in which holders of the Company's voting securities prior to
the merger do not own at least 50% of the voting power in the Company after the
merger.
Options, stock bonuses and rights to purchase the Company's Common Stock
may be granted under the 1997 Stock Plan to exercise or purchase an aggregate of
not more than 1,800,000 shares of the Company's Common Stock. The aggregate
number of shares of the Company's Common Stock as to which incentive stock
options may be granted under the 1997 Stock Plan shall not exceed 1,800,000
(subject to adjustment to reflect certain corporate transactions). The 1997
Stock Plan contains a $100,000 limitation on the aggregate fair market value of
ISOs which become exercisable in any calendar year. In addition, under the 1997
Stock Plan, the maximum number of shares of stock with respect to which SARs or
options to acquire stock may be granted, or sale or bonus grants of stock may be
made, to any individual per calendar year shall not exceed 500,000 shares
(subject to adjustment to reflect certain corporate transactions).
Awards under the 1997 Stock Plan will be based on guidelines that take
salary level, tenure, individual performance rating and importance to the
Company into account. Accordingly, future awards ("new plan benefits") under the
1997 Stock Option Plan are not determinable at this time. Reference is made to
the sections captioned "Executive Compensation," "Stock Options" and "Stock
Option Exercises" at pages 6 to 10 of this proxy statement for detailed
information on stock incentive awards and exercises of such awards by certain
executive officers under the 1996 Stock Plan since the Merger Date.
The 1997 Stock Plan cannot be amended without stockholder approval to
materially increase the number of shares of Common Stock available under the
plan or to materially modify the eligibility requirements for participation in
the plan.
FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options. If an option under the 1997 Stock Plan is treated
as an ISO, the optionee generally recognizes no regular taxable income as the
result of the grant or exercise of the option. However, an amount equal to the
difference between the fair market value of the stock on the date of exercise
and the exercise price is classified as an item of alternative minimum taxable
income in the year of exercise for purposes of the alternative minimum tax.
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The Company will not be allowed a deduction for federal income tax purposes
in connection with the grant or exercise of an ISO, regardless of the
applicability of the alternative minimum tax to the optionee. The Company will
be entitled to a deduction, however, to the extent that ordinary income is
recognized by the optionee upon a disqualifying disposition (see below).
Upon a sale or exchange of the shares at least two years after the grant of
an ISO and one year from exercise of the option, gain or loss will be recognized
by the optionee equal to the difference between the sale price and the exercise
price. Such gain or loss will be characterized for federal income tax purposes
as long-term capital gain or loss. The Company is not entitled to any deduction
under these circumstances.
If an optionee disposes of shares acquired upon exercise of an ISO prior to
completion of either of the above holding periods, the optionee will have made a
"disqualifying disposition" of the shares. In such event, the optionee will
recognize ordinary income at the time of disposition equal to the difference
between the exercise price and the lower of the fair market value of the stock
at the date of the option exercise or the sale price of the stock. The Company
generally will be entitled to a deduction in the same amount as the ordinary
income recognized by the optionee on a disqualifying disposition if the
optionee's total compensation is deemed reasonable in amount.
The optionee also will recognize capital gain or loss on such disqualifying
disposition in an amount equal to the difference between (i) the amount realized
by the optionee upon such disqualifying disposition of the stock and (ii) the
exercise price, increased by the total amount of ordinary income, if any,
recognized by the optionee upon such disqualifying disposition (as described in
the second sentence of the preceding paragraph). Any such capital gain or loss
resulting from a disqualifying disposition of shares acquired upon exercise of
an ISO will be long-term capital gain or loss if the shares with respect to
which such gain or loss is realized have been held for more than twelve months
and will qualify for the lowest rate under the capital gains tax if held for at
least 18 months.
Nonqualified Stock Options. An optionee generally recognizes no taxable
income as the result of the grant of an NQSO, assuming that the option does not
have a readily ascertainable fair market value at the time it is granted (which
is usually the case with plans of this type). Upon exercise of an NQSO, an
optionee will normally recognize ordinary compensation income for federal tax
purposes equal to the excess, if any, of the then fair market value of the
shares over the exercise price. Optionees who are employees will be subject to
withholding with respect to income recognized upon exercise of a NQSO.
The Company will be entitled to a tax deduction to the extent and in the
year that ordinary income is recognized by the exercising optionee, so long as
the optionee's total compensation is deemed reasonable in amount.
Upon a sale of shares acquired pursuant to the exercise of an NQSO, any
difference between the sale price and the fair market value of the shares on the
date of exercise will be treated as capital gain or loss, and will qualify for
long-term capital gain or loss treatment if the shares have been held for more
than twelve months and will qualify for the lowest rate under the capital gains
tax if held for at least 18 months.
Stock Bonus/Stock Purchase. The federal income tax treatment of
individuals who receive property in connection with the performance of services
is governed by Section 83 of the Code. That section requires that the recipient
of the property recognize income from the transfer in an amount equal to the
excess of the fair market value of the property received over the amount (if
any) paid for the property. Income is recognized by the recipient in the first
year in which the rights of the recipient to the property become "vested," i.e.,
are transferable or are no longer subject to a substantial risk of forfeiture,
whichever occurs first. The income is taxable at ordinary income rates and (in
the case of participating individuals who are employees) is subject to
withholding of income and applicable employment taxes at the time of vesting.
Under the 1997 Stock Plan, participating individuals may or may not pay any
consideration for stock transferred to them under the stock bonus/stock purchase
component of the Plan, and the stock transferred may or may not be subject to
restrictions. If stock is granted to a recipient without restrictions, the
recipient will recognize ordinary income (calculated as described in the
preceding paragraph) in the recipient's taxable year in which the stock is
granted.
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If stock granted under the 1997 Stock Plan is nontransferable and subject
to a substantial risk of forfeiture, then (unless an election is made under
Section 83(b) of the Code, as described in the next paragraph), recipients of
stock will recognize taxable income as of each date on which they become vested
in stock received under the 1997 Stock Plan in the amount of the fair market
value of the stock then vesting (less the amount, if any, paid for such stock).
Participating individuals may elect under Section 83(b) of the Code to
report as taxable income in the year of award an amount equal to the stock's
fair market value at the date of award (less the amount, if any, paid for such
stock). If such an election is made, the electing employee is not required
thereafter to report any further compensation income upon becoming vested in the
stock covered by the election. Such an election must be made within 30 days of
receipt of the stock. Such election may not be revoked except with the consent
of the government. Participating individuals making this election who are
employees will be subject to withholding with respect to the taxable income they
recognize at the time the stock is awarded to them.
The Company will be entitled to a tax deduction to the extent and in the
year that ordinary income is recognized by the participating individuals, so
long as the individual's total compensation is deemed reasonable in amount.
Dividends paid on stock transferred under the 1997 Stock Plan are generally
treated as additional compensation prior to vesting, but are treated as true
dividends after vesting (or after a Section 83(b) election). Dividends are not
deductible by the Company.
Participating individuals will recognize gain upon the disposition of their
stock equal to the excess of (a) the amount realized on such disposition over
(b) the ordinary income recognized with respect to their stock under the
principles set forth above (plus the amount, if any, paid for such stock). That
gain will be taxable as long or short term capital gain depending on the period
held.
If a participating individual disposes of his or her stock for an amount
less than the amount of ordinary income recognized with respect to the stock
(plus the amount, if any, paid with respect to the stock), he or she will
generally recognize a capital loss (long or short-term, depending on the holding
period) equal to the difference between any ordinary income recognized with
respect to the stock under the principles described previously (plus the amount,
if any, paid for the stock) and the amount realized upon disposition of the
stock. If a participating individual forfeits unvested stock with respect to
which no Section 83(b) election has been made upon termination of employment, he
or she will generally recognize ordinary income or loss equal to the difference
between the amount, if any, paid by the employee for the stock and the amount
received as a result of the forfeiture. If a participating individual forfeits
unvested stock with respect to which a Section 83(b) election has been made upon
termination of employment, he or she will generally recognize a capital gain or
loss equal to the difference between the amount, if any, paid by the employee
for the stock and the amount received as a result of the forfeiture, but no loss
or deduction is allowed with respect to the amount previously included in income
as a result of the Section 83(b) election.
SARs. Recipients of SARs generally should not recognize income until such
rights are exercised (assuming there is no ceiling on the value of the right).
Upon exercise, the participating individual will normally recognize ordinary
compensation income for federal income tax purposes equal to the amount of cash
and the fair market value of stock, if any, received upon such exercise.
Participating individuals who are employees will be subject to withholding with
respect to income recognized upon exercise of an SAR.
The Company will be entitled to a tax deduction to the extent and in the
year that ordinary income is recognized by the participating individual, so long
as the individual's total compensation is deemed reasonable in amount.
Participating individuals will recognize gain upon the disposition of any
stock received on exercise of an SAR equal to the excess of (a) the amount
realized on such disposition over (b) the ordinary income recognized with
respect to such stock under the principles set forth above. That gain will be
taxable as long or short term capital gain depending on whether the stock was
held for at least one year and will qualify for the lowest rate under the
capital gains tax if held for at least 18 months.
Section 162(m) of the Code. Under Section 162(m) of the Code, compensation
paid to any Covered Employee is potentially nondeductible by the Company to the
extent that it exceeds $1,000,000. However,
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certain "performance-based compensation" is exempt from the $1,000,000 cap on
deductibility. The 1997 Stock Plan contains provisions designed to qualify
options and SARs granted thereunder to Covered Employees as "performance-based
compensation" under Section 162(m). These provisions include: (1) grants to
Covered Employees are made only by the Section 162(m) Subcommittee; (2) the 1997
Stock Plan states a maximum number of shares with respect to which options or
SARs may be granted to any individual per calendar year; (3) in the case of
grants to Covered Employees, the option exercise price must be at least equal to
the fair market value of the stock on the date the option is granted; and (4)
the effectiveness of grants to Covered Employees is contingent upon stockholder
approval of the 1997 Stock Plan.
MARKET PRICE OF THE COMMON STOCK
The closing price of the Common Stock as reported on the Nasdaq National
Market System was $6.00 per share on October 28, 1997. As of such date, the
aggregate market value of the shares of Common Stock issuable under the 1997
Stock Plan was $10,800,000.
TEXT OF THE PLAN
The preceding summary of the 1997 Stock Plan is qualified in its entirety
by reference to the complete text of the 1997 Stock Plan which is set forth in
Exhibit A to this proxy statement.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
THE ADOPTION OF THE 1997 INCENTIVE STOCK PLAN
INDEPENDENT AUDITORS
The Board of Directors has appointed KPMG Peat Marwick LLP to audit the
accounts of the Company and its subsidiaries for the fiscal year ending December
31, 1997. A representative of KPMG Peat Marwick LLP will be present at the
Annual Meeting and will have the opportunity to make a statement if he or she so
desires and will be available to respond to appropriate stockholder questions.
STOCKHOLDER PROPOSALS AT THE COMPANY'S NEXT
ANNUAL MEETING OF STOCKHOLDERS
Stockholders of the Company who intend to submit proposals to the Company's
1998 Annual Meeting of Stockholders must submit such proposals to the Company in
accordance with the Company's Bylaws, in order for such proposal to be presented
to the 1998 Annual Meeting and to be considered for inclusion in the proxy
statement and form of proxy to be distributed by the Board in connection with
that meeting. The Company's Bylaws provide that to be timely a stockholder's
proposal must be delivered to or mailed and received at the Company's principal
executive offices not less than sixty days nor more than ninety days prior to
the meeting; provided, however, that in the event that less than forty days'
notice or prior public notice of the date of the annual meeting is given or made
to stockholders, a stockholder's proposal, to be timely, must be received no
later than the close of business on the tenth day following the day on which
such notice was mailed or such public disclosure was made, whichever first
occurs. Stockholder proposals should be submitted to Matria Healthcare, Inc.,
1850 Parkway Place, Marietta, Georgia 30067, Attention: Corporate Secretary.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 as amended (the
"Act"), requires the Company's directors and executive officers and persons who
own more than ten percent of a registered class of the Company's equity
securities to file reports with the SEC regarding beneficial ownership of Common
Stock and other equity securities of the Company. To the Company's knowledge,
based solely on a review of copies of such reports furnished to the Company and
written representations that no other reports were required, during the fiscal
year ended December 31, 1996, all officers, directors and greater than ten
percent beneficial owners complied with the Section 16(a) filing requirements of
the Act in all instances with the exception of late
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filings with respect to the reporting of two transactions relating to (i) the
exercise of a stock option by Donald R. Millard and (ii) the disposition of
Common Stock by gift by Parker H. Petit.
ANNUAL REPORT AND FINANCIAL STATEMENTS
The Company will furnish without charge an additional copy of its 1996
Annual Report to Stockholders and a copy of its Annual Report on Form 10-K filed
with the SEC for the fiscal year ended December 31, 1996 including financial
statements and schedules, to any record or beneficial owner of its Common Stock
as of November 4, 1997 upon written or oral request of such person. Requests for
such copies should be directed to:
Matria Healthcare, Inc.
1850 Parkway Place
Marietta, Georgia 30067
Attention: J. Brent Burkey, Secretary
(770) 767-4500
If the person requesting such Reports was not a stockholder of record on
November 4, 1997, the request must include a representation that such person was
a beneficial owner of the Common Stock on that date. Copies of any exhibit(s) to
the Form 10-K will be furnished on request and upon the payment of the Company's
expenses in furnishing such exhibit(s).
GENERAL
Management does not know of any other business to come before the 1997
Annual Meeting. If, however, other matters do properly come before the 1997
Annual Meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
/s/ J. Brent Burkey
J. Brent Burkey
Secretary
November 5, 1997
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EXHIBIT A
MATRIA HEALTHCARE, INC.
1997 STOCK INCENTIVE PLAN
1. ESTABLISHMENT, PURPOSE, AND DEFINITIONS.
(a) Matria Healthcare, Inc. (the "Company") hereby adopts the Matria
Healthcare, Inc. 1997 Stock Incentive Plan (the "Plan").
(b) The purpose of the Plan is to allow the Company to attract and retain
eligible individuals (as defined in Section 5 below) and to provide incentives
to such individuals for their services, increased efforts, and successful
achievements on behalf of or in the interests of the Company and its Affiliates
and to maximize the rewards due them for those efforts and achievements. The
Plan provides employees (including officers and directors who are employees) of
the Company and of its Affiliates an opportunity to purchase shares of common
stock, $0.01 par value per share, of the Company (the "Stock") pursuant to
options which may qualify as incentive stock options (referred to as "incentive
stock options") under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), and employees, officers, independent contractors, and
consultants of the Company and of its Affiliates an opportunity to purchase
shares of Stock pursuant to options which are not described in Sections 422 or
423 of the Code (referred to as "non-qualified stock options"). The Plan also
provides for the sale or bonus grant of Stock to eligible individuals in
connection with the performance of services for the Company or its Affiliates.
Finally, the Plan authorizes the grant of stock appreciation rights ("SARs"),
either separately or in tandem with stock options, entitling holders to cash
compensation measured by appreciation in the value of the Stock.
(c) The term "Affiliate" as used in the Plan means parent or subsidiary
corporations of the Company, as defined in Sections 424(e) and (f) of the Code
(but substituting "the Company" for "employer corporation"), including parents
or subsidiaries of the Company that become such after adoption of the Plan.
2. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by the Board of Directors of the Company
(the "Board"). Subject to Section 2(f) below, the Board may delegate the
responsibility for administering the Plan to a committee, under such terms and
conditions as the Board shall determine (the "Committee"). If required by Rule
16b-3 (or any successor thereto) promulgated under the Securities Exchange Act
of 1934, as amended ("Rule 16b-3"): (i) the Committee shall consist of two (2)
or more members of the Board or such lesser number of members of the Board as
permitted by Rule 16b-3; and (ii) none of the members of the Committee shall
receive, while serving on the Committee, or during the one-year period preceding
appointment to the Committee, a grant or award of equity securities under the
Plan or under any other plan of the Company or its Affiliates under which the
participants are entitled to acquire Stock (including restricted stock), stock
options, stock bonuses, related rights, or stock appreciation rights of the
Company or any of its Affiliates, other than pursuant to transactions in any
such other plan which do not disqualify a director from being a disinterested
person under Rule 16b-3. Members of the Committee shall serve at the pleasure of
the Board. The Committee shall select one of its members as chair of the
Committee and shall hold meetings at such times and places as it may determine.
A majority of the Committee shall constitute a quorum, and acts of the Committee
at which a quorum is present, or acts reduced to or approved in writing by all
members of the Committee, shall be the valid acts of the Committee. If the Board
does not delegate administration of the Plan to the Committee, then each
reference in this Plan to the "Committee" shall be construed to refer to the
Board.
(b) The Committee shall determine which eligible individuals (as defined in
Section 5 below) shall be granted options under the Plan, the timing of such
grants, the terms thereof (including any restrictions on the Stock, and the
number of shares subject to such options).
(c) The Committee shall also determine which eligible individuals (as
defined in Section 5 below) shall be granted or issued SARs or Stock (other than
pursuant to the exercise of options) under the Plan, the
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timing of such grants or issuances, the terms thereof (including any
restrictions and the consideration, if any, to be paid therefor), and the number
of shares or SARs to be granted.
(d) The Committee may amend the terms of any outstanding option or SAR
granted under this Plan, but any amendment that would adversely affect the
holder's rights under an outstanding option or SAR shall not be made without the
holder's written consent. The Committee may, with the holder's written consent,
cancel any outstanding option or SAR or accept any outstanding option or SAR in
exchange for a new option, SAR, or Stock under the Plan on such terms determined
by the Committee. The Committee also may amend any stock purchase agreement or
stock bonus agreement relating to sales or bonuses of Stock under the Plan, but
any amendment that would adversely affect the individual's rights to the Stock
shall not be made without his or her written consent.
(e) The Committee shall have the sole authority, in its absolute
discretion, to adopt, amend, and rescind such rules and regulations as, in its
opinion, may be advisable in the administration of the Plan, to construe and
interpret the Plan, the rules and regulations, and the instruments evidencing
options, SARs, or Stock granted or issued under the Plan, and to make all other
determinations deemed necessary or advisable for the administration of the Plan.
All decisions, determinations, and interpretations of the Committee shall be
binding on all participants.
(f) Notwithstanding the foregoing provisions of this Section 2, grants of
options or SARs or Stock to any "Covered Employee," as such term is defined by
Section 162(m) of the Code, shall be made only by a subcommittee of the
Committee which, in addition to meeting other applicable requirements of this
Section 2, is composed solely of two (2) or more outside directors within the
meaning of Section 162(m) of the Code and the regulations thereunder (the
"Subcommittee") to the extent necessary to qualify such grants as
"performance-based compensation" under Section 162(m) of the Code and the
regulations thereunder. In the case of grants to Covered Employees, references
to the "Committee" shall be deemed to be references to the Subcommittee, as
specified above.
3. FAIR MARKET VALUE.
Where this Plan uses the term "fair market value" in connection with the
Stock, such fair market value shall be determined by the Committee as follows:
(a) If the Stock is listed on any established stock exchange or a
national market system, including, without limitation, the NASDAQ National
Market, its fair market value shall be the closing selling price for such
stock on the principal securities exchange or national market system on
which the Stock is at the time listed for trading. If there are no sales of
Stock on that date, then the closing selling price for the Stock on the
next preceding day for which such closing price is quoted shall be
determinative of fair market value; or
(b) If the Stock is not traded on an exchange or national market
system, its fair market value shall be determined in good faith by the
Committee, and such determination shall be conclusive and binding on all
persons.
4. STOCK SUBJECT TO THE PLAN.
(a) Subject to adjustment pursuant to Section 4(c) below, the aggregate
number of shares of Stock available for issuance under the Plan and during the
life of the Plan shall be 1,800,000 shares of Stock (subject to adjustment
pursuant to Section 4(c) below).
(b) If an option is surrendered or for any other reason ceases to be
exercisable in whole or in part, the shares of Stock that were subject to such
option, but as to which the option had not been exercised, shall continue to be
available under the Plan. Any shares of Stock forfeited to the Company pursuant
to the terms of agreements evidencing sales or bonus grants under the Plan shall
continue to be available under the Plan.
(c) If there is any change in the Stock through merger, consolidation,
reorganization, recapitalization, reincorporation, stock split, stock dividend
(in excess of two percent (2%)), or other change in the corporate
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structure of the Company, appropriate adjustments shall be made by the Committee
in order to preserve but not to increase the benefits to the outstanding
options, SARs and stock purchase or stock bonus awards under the Plan, including
adjustments to the aggregate number and kind of shares subject to the Plan, or
to outstanding stock purchase or stock bonus agreements, or SAR agreements, and
the number and kind of shares and the price per share subject to outstanding
options.
5. ELIGIBLE INDIVIDUALS.
Individuals who shall be eligible to have granted to them options, SARs, or
Stock under the Plan shall be such employees, officers, independent contractors,
and consultants of the Company or an Affiliate as the Committee, in its
discretion, shall designate from time to time. Notwithstanding the foregoing,
only employees of the Company or an Affiliate (including officers and directors
who are bona fide employees) shall be eligible to receive incentive stock
options.
6. TERMS AND CONDITIONS OF OPTIONS AND SARS.
(a) Each option granted pursuant to the Plan will be evidenced by a written
stock option agreement executed by the Company and the person to whom such
option is granted.
(b) The Committee shall determine the term of each option granted under the
Plan; provided, however, that the term of an incentive stock option shall not be
for more than ten (10) years and that, in the case of an incentive stock option
granted to a person possessing more than ten percent (10%) of the combined
voting power of the Company or an Affiliate, the term of each incentive stock
option shall be no more than five (5) years.
(c) In the case of incentive stock options, the aggregate fair market value
(determined as of the time such option is granted) of the Stock with respect to
which incentive stock options are exercisable for the first time by an eligible
employee in any calendar year (under this Plan and any other plans of the
Company or its Affiliates) shall not exceed $100,000. If the aggregate fair
market value of stock with respect to which incentive stock options are
exercisable by an optionee for the first time during any calendar year exceeds
$100,000, such options shall be treated as non-qualified options to the extent
required by Section 422 of the Code. The rule set forth in the preceding
sentence shall be applied by taking options into account in the order in which
they were granted.
(d) The exercise price of each incentive stock option shall be not less
than the per share fair market value of the Stock subject to such option on the
date the option is granted. The exercise price of each non-qualified stock
option shall be as determined by the Committee. Notwithstanding the foregoing,
(i) in the case of an incentive stock option granted to a person possessing more
than ten percent (10%) of the combined voting power of the Company or an
Affiliate, the exercise price shall be not less than one hundred ten percent
(110%) of the fair market value of the Stock on the date the option is granted;
and (ii) in the case of an option granted to a Covered Employee, the exercise
price shall be not less than the per share fair market value of the Stock
subject to such option on the date the option is granted. The exercise price of
an option or SAR shall be subject to adjustment to the extent provided in
Section 4(c) above, but, in the case of a grant to a Covered Employee, only to
the extent such adjustment does not cause the grant to fail to qualify as
"performance-based compensation" within the meaning of Section 162(m) of the
Code and the regulations thereunder.
(e) The Committee may, under such terms and conditions as it deems
appropriate, authorize the issuance of SARs evidenced by a written SAR agreement
(which, in the case of tandem options, may be part of the option agreement to
which the SAR relates) executed by the Company and the person to whom the SARs
are granted. The SAR agreement shall specify the term for the SARs covered
thereby, the cash amount payable or securities issuable upon exercise of the
SAR, and contain such other terms, provisions, and conditions consistent with
this Plan, as may be determined by the Committee.
(f) Payment of the purchase price and any withholding amounts pursuant to
Section 11 upon the exercise of any option or SAR granted under this Plan shall
be made in cash or by optionee's personal check, a certified check, a bank
draft, or a postal or express money order payable to the order of the Company in
lawful
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money of the United States; provided, however, that the Committee, in its sole
discretion, may permit an optionee to pay the option price and any such
withholding amounts in whole or in part (i) with shares of Stock owned by the
optionee (provided that any shares of stock tendered for payment shall have been
owned for a period of six (6) months, or such other period as in the opinion of
the Committee shall be sufficient to avoid an accounting compensation charge
with respect to the shares used to pay the option price); (ii) by delivery on a
form prescribed by the Committee of an irrevocable direction to a securities
broker approved by the Committee to sell shares of Stock and deliver all or a
portion of the proceeds to the Company in payment for the Stock; (iii) by
delivery of the optionee's promissory note with such recourse, interest,
security, and redemption provisions as the Committee in its discretion
determines appropriate; or (iv) in any combination of the foregoing. Any Stock
used to exercise options shall be valued at its fair market value on the date of
the exercise of the option.
(g) In the event that the exercise price is satisfied by shares withheld
from the shares of Stock otherwise deliverable to the optionee, the Committee
may issue the optionee an additional option, with terms identical to the option
agreement under which the option was exercised, entitling the optionee to
purchase additional shares of Stock equal to the number of shares so withheld
but at an exercise price equal to the fair market value of the Stock on the
grant date of the new option. Such additional option shall be subject to the
provisions of Section 6(i) below.
(h) The stock option agreement or SAR Agreement may contain such other
terms, provisions, and conditions consistent with this Plan, as may be
determined by the Committee. If an option, or any part thereof, is intended to
qualify as an incentive stock option, the stock option agreement shall contain
those terms and conditions which are necessary to qualify it.
(i) The maximum number of shares of Stock with respect to which SARs or
options to acquire Stock may be granted, or sales or bonus grants of Stock may
be made, to any individual per calendar year under this Plan shall not exceed
500,000 shares (which number may be increased without shareholder approval to
reflect adjustments under Section 4(c) above, to the extent such adjustment, in
the case of a grant to a Covered Employee, does not cause the grant to fail to
qualify as "performance-based compensation" within the meaning of Section 162(m)
of the Code and the regulations thereunder). To the extent required to cause
options granted to Covered Employees to qualify as "performance-based
compensation" under Section 162(m) of the Code and the regulations thereunder,
in applying the foregoing limitation with respect to an employee, if any option
is canceled, the canceled option shall continue to count against the maximum
number of shares for which options may be granted to the employee under this
Section 6(i). For this purpose, the repricing of an option shall be treated as a
cancellation of the existing option and the grant of a new option to the extent
required by Section 162(m) of the Code or the regulations thereunder. The
preceding sentence shall also apply in the case of an SAR, if, after the award
is made, the base amount on which stock appreciation is calculated is reduced to
reflect a reduction in the fair market value of the Stock.
7. TERMS AND CONDITIONS OF STOCK PURCHASES AND BONUSES.
(a) Each sale or bonus grant of Stock pursuant to the Plan will be
evidenced by a written stock purchase agreement or stock bonus agreement, as
applicable, executed by the Company and the person to whom such stock is sold or
granted.
(b) The stock purchase agreement or stock bonus agreement may contain such
other terms, provisions, and conditions consistent with this Plan, as may be
determined by the Committee, including, not by way of limitation, the
consideration, if any, to be paid for the Stock, restrictions on transfer,
forfeiture provisions, repurchase provisions, and vesting provisions.
8. USE OF PROCEEDS.
Cash proceeds realized from the exercise of options granted under the Plan
or from other sales of Stock under the Plan shall constitute general funds of
the Company.
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9. AMENDMENT, SUSPENSION, OR TERMINATION OF THE PLAN.
(a) The Board may at any time amend, suspend, or terminate the Plan as it
deems advisable; provided that such amendment, suspension, or termination
complies with all applicable requirements of state and federal law, including
any applicable requirement that the Plan or an amendment to the Plan be approved
by the shareholders, and provided further that, except as provided in Section
4(c) above and Section 15 below, the Board shall in no event amend the Plan in
the following respects without the approval of shareholders then sufficient to
approve the Plan in the first instance:
(i) to increase the maximum number of shares of Stock provided in
Section 6(i) above, with respect to which restricted stock, SARs, or
options to acquire Stock may be granted to any Covered Employee per
calendar year under the Plan;
(ii) to materially increase the number of shares of Stock available
under the Plan, or to increase the number of shares of Stock available for
grant of incentive stock options under the Plan; or
(iii) to materially modify the eligibility requirements for
participation in the Plan or the class of employees eligible to receive
options under the Plan, or to change the designation or class of persons
eligible to receive incentive stock options under the Plan.
(b) No option or SAR may be granted nor may any Stock be issued (other than
upon exercise of outstanding options) under the Plan during any suspension or
after the termination of the Plan, and no amendment, suspension, or termination
of the Plan shall, without the affected individual's consent, alter or impair
any rights or obligations under any option or SAR previously granted under the
Plan. The Plan shall terminate with respect to the grant of incentive stock
options on the tenth anniversary of the date of adoption of the Plan, unless
previously terminated by the Board pursuant to this Section 9.
10. ASSIGNABILITY.
To the extent required by Rule 16b-3, no option or SAR granted pursuant to
this Plan shall be transferable by the holder except by operation of law or by
will or the laws of descent and distribution; provided that, if Rule 16b-3 is
amended after the date of the Board's adoption of the Plan to permit broader
transferability of options or SARs under that Rule, (i) any option or SAR
granted after such amendment shall be transferable to the extent provided in the
option agreement or the SAR agreement covering the option or the SAR; and (ii)
outstanding options and SARs may, in the Committee's discretion, be amended to
provide for broader transferability of those options and SARs as the Committee
may authorize within the limitations of Rule 16b-3. Stock subject to a stock
purchase agreement or a stock bonus agreement shall be transferable only as
provided in such agreement. Notwithstanding the foregoing, if required by the
Code, each incentive stock option under the Plan shall be transferable by the
optionee only by will or the laws of descent and distribution, and, during the
optionee's lifetime, be exercisable only by the optionee.
11. WITHHOLDING TAXES.
No Stock shall be granted or sold under the Plan to any individual, and no
option or SAR may be exercised, until the individual has made arrangements
acceptable to the Committee for the satisfaction of federal, state, and local
income and employment tax withholding obligations, including, without
limitation, obligations incident to the receipt of Stock under the Plan, the
lapsing of restrictions applicable to such Stock, the failure to satisfy the
conditions for treatment as incentive stock options under the applicable tax
law, or the receipt of cash payments.
12. RESTRICTIONS ON TRANSFER OF SHARES.
The Committee may require that the Stock acquired pursuant to the Plan be
subject to such restrictions and agreements regarding sale, assignment,
encumbrances, or other transfer as are in effect among the shareholders of the
Company at the time such Stock is acquired, as well as to such other
restrictions as the Committee shall deem appropriate.
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13. CHANGE IN CONTROL.
(a) For purposes of this Section 13, a "Change in Control" shall be deemed
to occur upon:
(i) the direct or indirect acquisition by any person or related group
of persons (other than an acquisition from or by the Company or by a
Company-sponsored employee benefit plan) of beneficial ownership (within
the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") of securities possessing more than fifty
percent (50%) of the total combined voting power of the Company's
outstanding Stock;
(ii) a change in the composition of the Board over a period of
thirty-six (36) months or less, such that a majority of the Board members
(rounded up to the next whole number) ceases, by reason of one or more
contested elections for Board membership or by one or more actions by
written consent of shareholders, to be comprised of individuals who either
(A) have been Board members continuously since the beginning of such
period, or (B) have been elected or nominated for election as Board members
during such period by at least a majority of the Board members described in
clause (A) who were still in office at the time such election or nomination
was approved by the Board.
(b) For purposes of this Section 13, a "Corporate Transaction" shall be
deemed to occur upon any of the following transactions to which the Company is a
party:
(i) approval by the Company's shareholders of a merger or
consolidation in which the Company is not the surviving entity, except for
a transaction the principal purpose of which is to change the state in
which the Company is incorporated;
(ii) approval by the Company's shareholders of the sale, transfer, or
other disposition of all or substantially all of the assets of the Company
(including the capital stock of the Company's subsidiary corporations) in
connection with a complete liquidation or dissolution of the Company; or
(iii) approval by the Company's shareholders of any reverse merger in
which the Company is the surviving entity but in which securities
possessing more than fifty percent (50%) of the total combined voting power
of the Company's outstanding securities are transferred to a person or
persons different from those who held such securities immediately prior to
such merger.
(c) In its discretion, the Committee may provide in any stock option, SAR,
Stock bonus, or Stock purchase agreement (or in an amendment thereto) evidencing
an option, SAR, Stock bonus, or Stock purchase agreement hereunder that, in the
event of any Corporate Transaction or an event giving rise to a Change in
Control, any outstanding options or SARs covered by such an agreement shall be
fully vested, non-forfeitable, and become exercisable, and that any restricted
Stock covered by such an agreement shall be released from restrictions on
transfer and repurchase or forfeiture rights, as of the date of the Change in
Control or Corporate Transaction. However, the Committee may provide in any such
agreement that, in the case of a Corporate Transaction, the Committee may
determine that an outstanding option will not be so accelerated if and to the
extent, (i) such option is either to be assumed by the successor or parent
thereof or to be replaced with a comparable option to purchase shares of the
capital stock of the successor corporation or parent thereof; or (ii) such
option is to be replaced with a cash incentive program of the successor
corporation that preserves the option spread existing at the time of the
Corporate Transaction and provides for subsequent payment in accordance with the
same vesting schedule applicable to such option.
(d) If the Committee determines to incorporate a Change in Control or
Corporate Transaction acceleration provision in any option or SAR agreement
hereunder, the agreement shall provide that, (i) in the event of a Change in
Control or Corporate Transaction described in clauses (a)(i), (a)(ii), and
(b)(iii) of Section 13 above, the option or SAR shall remain exercisable for the
remaining term of the option or SAR; and (ii) in the event of a Corporate
Transaction described in clauses (i) or (ii) of Section 13(b) above, the option
or SAR shall terminate as of the effective date of the Corporate Transaction
described therein, unless such option or SAR is assumed by a successor
corporation in the event of a Corporate Transaction described in clause (i) of
Section 13(b). If an option or SAR is assumed in the event of a Corporate
Transaction described in clause (i) of Section 13(b) above, the option or SAR
shall remain exercisable for the remaining
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30
term of the option or SAR. In no event shall any option or SAR under the Plan be
exercised after the expiration of the term provided for in the related stock
option agreement or SAR agreement pursuant to Section 6(b) or (e).
(e) The Committee may provide in any option or SAR agreement hereunder that
should the Company dispose of its equity holding in any subsidiary effected by,
(i) merger or consolidation involving that subsidiary; (ii) the sale of all or
distribution of substantially all of the assets of that subsidiary; or (iii) the
Company's sale of or distribution to shareholders of substantially all of the
outstanding capital stock of such subsidiary ("Subsidiary Disposition") while a
holder of the option or SAR is engaged in the performance of services for the
affected subsidiary corporation, then such option or SAR shall, immediately
prior to the effective date of such Subsidiary Disposition, become fully
exercisable with respect to all of the shares at the time represented by such
option or SAR and may be exercised with respect to any or all of such shares.
Any such option or SAR shall remain exercisable until the expiration or sooner
termination of the term of the option or SAR.
14. SHAREHOLDER APPROVAL.
Continuance of the Plan shall be subject to approval by the shareholders of
the Company within twelve (12) months before or after the date the Plan is
adopted. Any incentive stock options granted hereunder and any options, SARs, or
Stock granted to Covered Employees hereunder shall become effective only upon
such shareholder approval. The Committee may grant incentive stock options or
may grant options, SARs, or Stock to Covered Employees under the Plan prior to
such shareholder approval, but until shareholder approval is obtained, no such
option or SAR shall be exercisable and no such Stock grant shall be effective.
In the event that such shareholder approval is not obtained within the period
provided above, all options, SARs, or Stock grants previously granted above
shall terminate. If such shareholder approval is obtained at a duly held
shareholders' meeting, the Plan must be approved by a majority of the votes cast
at such shareholders' meeting at which a quorum, representing a majority of all
outstanding voting stock of the Company, is, either in person or by proxy,
present and voting on the Plan. If such shareholder approval is obtained by
written consent, it must be obtained by the written consent of the holders of a
majority of all outstanding voting stock of the Company. However, approval at a
meeting or by written consent may be obtained to a lesser degree of shareholder
approval if the Board determines, in its discretion after consultation with the
Company's legal counsel, that such a lesser degree of shareholder approval will
comply with all applicable laws and will not adversely affect the qualification
of the Plan under either Section 162(m) or 422 of the Code.
15. RULE 16B-3 COMPLIANCE.
(a) With respect to persons subject to Section 16 of the Exchange Act
("Insiders"), transactions under the Plan are intended to comply with all
applicable conditions of Rule 16b-3. To the extent any provision of the Plan or
action by the Committee fails to so comply, it shall be deemed null and void, to
the extent permitted by law and deemed advisable by the Committee. Moreover, in
the event the Plan does not include a provision required by Rule 16b-3 to be
stated therein, such provision (other than one relating to eligibility
requirements or the price and amount of awards) shall be deemed automatically to
be incorporated by reference into the Plan insofar as Insiders are concerned.
(b) If, subsequent to the Board's adoption of the Plan, Rule 16b-3 is
amended to delete any of the Rule 16b-3 requirements addressed by the provisions
of the Plan governing grants or awards to Insiders, the Board may amend the Plan
without shareholder approval (unless such approval is required by Rule 16b-3, as
so amended) to delete or otherwise amend any such provisions no longer required
for grants of options, SARs, and Stock under the Plan to Insiders to be exempt
from Section 16(b) liability under the Exchange Act.
16. THE RIGHT OF THE COMPANY TO TERMINATE EMPLOYMENT.
No provision in the Plan or any Option shall confer upon any Optionee any
right to continue in the employment of the Company or an Affiliate or to
interfere in any way with the right of the Company or an Affiliate to terminate
his employment at any time.
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APPENDIX
MATRIA HEALTHCARE, INC.
1850 PARKWAY PLACE
MARIETTA, GEORGIA 30067
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF STOCKHOLDERS, DECEMBER 15, 1997
The undersigned hereby appoints Donald R. Millard and J. Brent Burkey, and
each of them, proxies, with full power of substitution and with discretionary
authority, to represent and to vote in accordance with the instructions set
forth below, all shares of Common Stock of Matria Healthcare, Inc. held of
record by the undersigned on November 4, 1997 at the 1997 Annual Meeting of
Stockholders to be held at 1850 Parkway Place, Suite 320, Marietta, Georgia, at
10:30 a.m. on Monday, December 15, 1997 and any adjournments thereof.
1. Election of Class II Directors [ ] FOR all nominees listed below (except as
written to the contrary below)
1. Election of Class II Directors [ ] WITHHOLD AUTHORITY to vote for all
nominees listed below
Jackie M. Ward and Frederick P. Zuspan, M.D..
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.)
- --------------------------------------------------------------------------------
2. Proposal to approve the Matria Healthcare, Inc. 1997 Stock Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
(Continued on reverse side)
(Continued from other side)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
"FOR" ITEMS 1 AND 2.
PLEASE SIGN EXACTLY AS NAME APPEARS ON STOCK CERTIFICATE.
If stock is held in the name
of two or more persons, all must
sign. When signing as attorney,
as executor, administrator,
trustee, or guardian, please
give full title as such. If a
corporation, please sign in full
corporate name by President or
other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
Dated:____________________, 1997
________________________________
Signature
________________________________
Signature if Held Jointly
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.