<PAGE> 1
As filed with the Securities and Exchange Commission on August 27, 1996
Registration Statement 333-09407
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
APRIA HEALTHCARE GROUP INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8090 33-0488566
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code No.) Identification No.)
</TABLE>
3560 HYLAND AVENUE
COSTA MESA, CALIFORNIA 92626
(714) 957-2000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
ROBERT S. HOLCOMBE
VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
APRIA HEALTHCARE GROUP INC.
3560 HYLAND AVENUE
COSTA MESA, CALIFORNIA 92626
(714) 957-2000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
WILLIAM G. ADAMS, ESQ. ROBERT J. WALDMAN, ESQ.
KEVIN R. BAKER, ESQ. HOWARD I. FLACK, ESQ.
O'MELVENY & MYERS LLP HOGAN & HARTSON L.L.P.
610 NEWPORT CENTER DRIVE COLUMBIA SQUARE, 555 13TH ST., NW
NEWPORT BEACH, CALIFORNIA 92660-6429 WASHINGTON, D.C. 20004-1109
(714) 760-9600 (202) 637-5600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
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<PAGE> 2
APRIA HEALTHCARE GROUP INC.
CROSS-REFERENCE SHEET BETWEEN ITEMS IN FORM S-4 AND
PROSPECTUS PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
Item Location of Caption in
No. Form S-4 Caption Proxy Statement/Prospectus
- ------ ------------------------------------------------- ------------------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus........... Facing Page of Registration Statement; Outside
Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Inside Front Cover Page; Available Information;
Incorporation of Certain Documents by Reference;
Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information.................... Summary; Selected Financial Information;
Investment Considerations; The Special Meeting;
The Merger; Comparative Per Share Data
4. Terms of the Transaction......................... Summary; The Merger; The Merger Agreement;
Comparison of Apria and Vitas Stockholder Rights
5. Pro Forma Financial Information.................. Selected Financial Information; Unaudited Pro
Forma Condensed Combined Financial Statements
6. Material Contracts with the Company Being
Acquired......................................... The Merger
7. Additional Information Required for Reoffering
by Persons and Parties Deemed to Be
Underwriters..................................... Not Applicable
8. Interests of Named Experts and Counsel........... Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... Not Applicable
10. Information With Respect to S-3 Registrants...... Incorporation of Certain Documents by Reference
11. Incorporation of Certain Information by
Reference........................................ Incorporation of Certain Documents by Reference
12. Information With Respect to S-2 or S-3
Registrants...................................... Not Applicable
13. Incorporation of Certain Information by
Reference........................................ Not Applicable
14. Information With Respect to Registrants Other
Than S-2 or S-3 Registrants...................... Not Applicable
15. Information With Respect to S-3 Companies........ Not Applicable
16. Information With Respect to S-2 or S-3
Companies........................................ Not Applicable
17. Information With Respect to Companies Other
Than S-2 or S-3 Companies........................ Summary; Selected Financial Information; Selected
Quarterly Financial Information - Vitas; Vitas
Management's Discussion and Analysis of Financial
Condition and Results of Operations
18. Information if Proxies, Consents or
Authorizations Are to be Solicited............... Notice of Special Meeting of Stockholders; Outside
Front Cover Page; Summary; The Special Meeting;
The Merger; Principal Stockholders
19. Information if Proxies, Consents, or
Authorizations Are Not to be Solicited, or in an
Exchange Offer................................... Not Applicable
</TABLE>
<PAGE> 3
VITAS HEALTHCARE CORPORATION
100 SOUTH BISCAYNE BOULEVARD
MIAMI, FLORIDA 33131
SEPTEMBER __, 1996
TO THE STOCKHOLDERS OF VITAS HEALTHCARE CORPORATION:
You are cordially invited to attend a Special Meeting of Stockholders
of Vitas Healthcare Corporation ("Vitas") on October __, 1996, at 10:00 a.m.,
local time, at 100 South Biscayne Boulevard, Miami, Florida 33131 (together with
any adjournment or postponement thereof, the "Special Meeting").
As described in the enclosed Proxy Statement/Prospectus, at the Special
Meeting, (i) the holders of common stock, par value $.001 per share, of Vitas
("Vitas Common Stock"), voting separately as a class, and the holders of Series
B Convertible Preferred Stock, par value $1.00 per share, of Vitas ("Series B
Preferred"), voting separately as a class, will be asked to approve and adopt an
Agreement and Plan of Merger, dated as of June 28, 1996 and amended by an
Amendment No. 1 dated as of August 26, 1996 to Agreement and Plan of Merger (as
amended, the "Merger Agreement"), among Apria Healthcare Group Inc. ("Apria"),
Apria Number Two, Inc., a Delaware corporation which has not engaged in any
material operations since its incorporation and is a wholly-owned subsidiary of
Apria ("Apria Sub"), and Vitas, and the transactions contemplated thereunder,
including a merger pursuant to which Apria Sub would be merged with and into
Vitas, with Vitas being the surviving corporation (the "Merger"), and Vitas
would become a wholly owned subsidiary of Apria; and (ii) the holders of Vitas
Common Stock and Series B Preferred, voting together as one class, will be asked
to approve separately the payments to be made to me and Collibrook Consultants,
Inc., a Florida corporation ("Collibrook") owned and controlled by me and Esther
T. Colliflower, the Vice Chairperson of Vitas, pursuant to a Consulting,
Severance and Confidentiality Agreement (the "Severance Agreement") to be
entered into among Vitas, me, Ms. Colliflower and Collibrook at or prior to (but
subject to) the closing of the Merger and the payments to be made to me pursuant
to a Noncompetition Agreement (the "Noncompetition Agreement") to be entered
into between Vitas and me at or prior to (but subject to) the closing of the
Merger in order that such payments not be characterized as "parachute payments"
for purposes of Sections 280G and 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"). A copy of the Merger Agreement (which includes as exhibits
the Severance Agreement and the Noncompetition Agreement) is attached as
Appendix A to the Proxy Statement/Prospectus.
In connection with the Merger, (i) each share of Vitas Common Stock
issued and outstanding as of the Effective Time (as defined in the Merger
Agreement) other than shares owned by Vitas, Apria or any of their respective
subsidiaries (including Apria Sub) and other than shares as to which dissenters'
rights have been perfected under the Delaware General Corporation Law would be
converted into the right to receive 0.290 shares of common stock, par value
$.001 per share, of Apria ("Apria Common Stock"), subject to certain adjustments
(such exchange ratio, after giving effect to such adjustments, is hereinafter
referred to as the "Exchange Ratio"); (ii) each share of 9.0% Cumulative
Nonconvertible Preferred Stock, par value $1.00 per share, of Vitas ("9%
Preferred"), would remain outstanding, and, upon surrender of the certificate
representing the 9% Preferred, in accordance with the terms of the Merger
Agreement and a Significant Securityholders Agreement, dated as of June 28, 1996
(the "Significant Securityholders Agreement", a copy of which is attached as
Appendix B to the Proxy Statement/Prospectus), executed by certain
securityholders of Vitas in connection with the Merger Agreement, would be
purchased by Apria at a price equal to its "Stated Value" of $100 per share,
together with all accrued and unpaid dividends thereon; (iii) each share of
Series B Preferred issued and outstanding as of the Effective Time, together
with all associated rights, preferences and restrictions set forth in the
Stockholders' Agreement, dated June 4, 1993, among Vitas and the parties named
therein, would, in accordance with the terms of the Merger Agreement and the
Significant Securityholders Agreement, first, be converted into a number of
shares of Vitas Common Stock issuable upon conversion of such share of Series B
Preferred and would then be converted into the right to receive a number of
shares of Apria Common Stock equal to the Exchange Ratio multiplied by the
number of shares of Vitas Common Stock so issued; (iv) each of the stock
purchase warrants issued by Vitas on December 17, 1991 and designated Warrant A
and Warrant B to purchase an aggregate of 3,952,958 shares of Vitas Common Stock
(collectively, the "Warrants"), and all associated rights, preferences and
restrictions set forth in the Investor Agreement, dated
<PAGE> 4
December 17, 1991, among Vitas and the parties named therein, would, in
accordance with the provisions of the Significant Securityholders Agreement, be
exchanged for a number of shares of Apria Common Stock equal to the product of
(x) the quotient obtained by dividing (A) $9.32 less the sum of (I) any Excess
Per Share Debt Amount (as defined in the Merger Agreement) and (II) the exercise
price per share of Vitas Common Stock issuable upon exercise of the Warrant by
(B) $32.125, times (y) the number of shares of Vitas Common Stock covered by
such Warrant, subject to certain adjustments; and (v) any stock option to
purchase shares of Vitas Common Stock outstanding immediately prior to the
Effective Time that has not been exercised in accordance with its terms would be
exchanged for the right to receive shares of Apria Common Stock as provided in
the Merger Agreement upon surrender of the stock option agreement applicable
thereto and provision for all applicable tax withholding, unless the holder
objects in writing to such exchange, in which case such stock option would
terminate in accordance with its terms. Cash would be paid in lieu of fractional
shares of Apria Common Stock. Each share of Apria Common Stock carries with it a
preferred share purchase right which entitles the holder to purchase, on the
occurrence of certain events, preferred stock, par value $.001 per share, of
Apria.
In unanimously approving the Merger Agreement, your Board of Directors
has determined that the Merger Agreement is in the best interests of Vitas and
all of Vitas' securityholders and recommends that the stockholders of Vitas vote
in favor of the Merger Agreement and the transactions contemplated thereunder,
including the Merger. In voting in favor of the Merger Agreement and such
transactions, Ms. Colliflower and I abstained from voting with respect to the
Severance Agreement and the Noncompetition Agreement. In addition, J.R.
Williams, M.D. abstained from voting with respect to the proposed amendment to
his severance agreement contemplated by the Merger Agreement.
Vitas retained the investment banking firm of Furman Selz LLC ("Furman
Selz") to act as its financial advisor in connection with the proposed Merger.
Furman Selz has delivered its written opinion, dated June 28, 1996, to Vitas
that the consideration to be received by the holders of Vitas Common Stock in
the Merger is fair to such holders from a financial point of view. A copy of
this opinion is attached as Appendix C to the Proxy Statement/Prospectus.
The close of business on _______ __, 1996 has been fixed by the Vitas
Board of Directors as the record date (the "Vitas Record Date") for the
determination of stockholders entitled to vote at the Special Meeting. The
affirmative vote of the holders of a majority of the Vitas Common Stock
outstanding on the Vitas Record Date, voting separately as a class, and the
affirmative vote of the holders of a majority of the Series B Preferred
outstanding on the Vitas Record Date, voting separately as a class, is necessary
to approve the Merger Agreement and the transactions contemplated thereunder,
including the Merger. THE SEPARATE AFFIRMATIVE VOTE OF THE HOLDERS OF 75% OF THE
TOTAL VOTES ATTRIBUTABLE TO THE AGGREGATE ISSUED AND OUTSTANDING SHARES OF VITAS
COMMON STOCK AND SERIES B PREFERRED ON THE VITAS RECORD DATE (EXCLUDING ANY
SHARES HELD DIRECTLY OR INDIRECTLY BY ME), VOTING TOGETHER AS ONE CLASS, IS
NECESSARY TO APPROVE THE PAYMENTS TO BE MADE TO ME AND COLLIBROOK UNDER THE
SEVERANCE AGREEMENT AND THE PAYMENTS TO BE MADE TO ME UNDER THE NONCOMPETITION
AGREEMENT IN ORDER THAT SUCH PAYMENTS NOT BE CHARACTERIZED AS "PARACHUTE
PAYMENTS" FOR PURPOSES OF SECTIONS 280G AND 4999 OF THE CODE AND IS A CONDITION
TO APRIA'S OBLIGATION TO EFFECT THE MERGER AND THE TRANSACTIONS CONTEMPLATED
UNDER THE MERGER AGREEMENT. Pursuant to the Significant Securityholders
Agreement, certain securityholders of Vitas, including me, among other things,
have agreed (i) to vote or cause to be voted all shares of capital stock of
Vitas owned of record or beneficially or held in any capacity by or under their
control and entitled to vote in favor of the Merger and the transactions
contemplated by the Merger Agreement and against any inconsistent actions,
proposals or transactions, (ii) to not claim or exercise any dissenter or
appraisal rights with respect to the Merger and (iii) to take other actions
contemplated by the Merger Agreement. Such securityholders own, as of the Vitas
Record Date, 1,948,944 shares of Vitas Common Stock (approximately 44.2% of the
outstanding Vitas Common Stock) and 200,000 shares of Series B Preferred
(approximately 76.2% of the outstanding Series B Preferred), which constitutes
approximately 39.2% of the total votes eligible to be voted by the holders of
Vitas Common Stock and Series B Preferred voting together as one class,
excluding any shares held directly or indirectly by me.
2
<PAGE> 5
The accompanying Proxy Statement/Prospectus contains a detailed
description of the terms of the Merger Agreement and the transactions
contemplated thereunder, and includes a description of the respective businesses
of Vitas and Apria, summary financial information of Vitas and Apria, a
description of the Apria Common Stock to be received in connection with the
Merger and additional information regarding the proposed Merger. YOU ARE URGED
TO READ THE PROXY STATEMENT/PROSPECTUS CAREFULLY. IT IS VERY IMPORTANT THAT YOUR
SHARES BE REPRESENTED AT THE SPECIAL MEETING. WHETHER OR NOT YOU PLAN TO ATTEND
THE SPECIAL MEETING, YOU ARE REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE
ENCLOSED PROXY CARD PROMPTLY IN THE ENCLOSED PRE-ADDRESSED AND PRE-PAID
ENVELOPE. If you attend the Special Meeting, you may vote in person if you
wish, even though you have previously returned your proxy. FAILURE TO RETURN A
PROPERLY EXECUTED PROXY OR TO VOTE AT THE SPECIAL MEETING WILL HAVE THE SAME
EFFECT AS A VOTE AGAINST THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREUNDER, INCLUDING THE MERGER.
Sincerely,
Hugh A. Westbrook
Chairman and Chief Executive Officer
3
<PAGE> 6
VITAS HEALTHCARE CORPORATION
100 SOUTH BISCAYNE BOULEVARD
MIAMI, FLORIDA 33131
NOTICE OF SPECIAL MEETING OF
STOCKHOLDERS TO BE HELD ON OCTOBER __, 1996
TO THE STOCKHOLDERS OF VITAS HEALTHCARE CORPORATION:
A Special Meeting of Stockholders of Vitas Healthcare Corporation
("Vitas") will be held at 100 South Biscayne Boulevard, Miami, Florida 33131, on
October __, 1996, at 10:00 a.m., local time (together with any adjournment or
postponement thereof, the "Special Meeting"), for the following purposes:
1. FOR THE HOLDERS OF COMMON STOCK, PAR VALUE $.001 PER SHARE, OF VITAS
("VITAS COMMON STOCK"), VOTING SEPARATELY AS A CLASS, AND THE HOLDERS OF
SERIES B CONVERTIBLE PREFERRED STOCK, PAR VALUE $1.00 PER SHARE, OF VITAS
("SERIES B PREFERRED"), VOTING SEPARATELY AS A CLASS, TO CONSIDER AND VOTE
UPON A PROPOSAL TO APPROVE AND ADOPT AN AGREEMENT AND PLAN OF MERGER,
DATED AS OF JUNE 28, 1996 AND AMENDED BY AN AMENDMENT NO. 1 DATED AS OF
AUGUST 26, 1996 TO AGREEMENT AND PLAN OF MERGER (AS AMENDED, THE "MERGER
AGREEMENT"), AMONG APRIA HEALTHCARE GROUP INC. ("APRIA"), APRIA NUMBER
TWO, INC., A DELAWARE CORPORATION WHICH HAS NOT ENGAGED IN ANY MATERIAL
OPERATIONS SINCE ITS INCORPORATION AND IS A WHOLLY-OWNED SUBSIDIARY OF
APRIA ("APRIA SUB"), AND VITAS, AND THE TRANSACTIONS CONTEMPLATED
THEREUNDER, INCLUDING A MERGER PURSUANT TO WHICH APRIA SUB WOULD BE MERGED
WITH AND INTO VITAS, WITH VITAS BEING THE SURVIVING CORPORATION (THE
"MERGER"), AND VITAS WOULD BECOME A WHOLLY OWNED SUBSIDIARY OF APRIA. A
copy of the Merger Agreement is attached as Appendix A to the accompanying
Proxy Statement/Prospectus. In connection with the Merger, (i) each share
of Vitas Common Stock issued and outstanding as of the Effective Time (as
defined in the Merger Agreement) other than shares owned by Vitas, Apria
or any of their respective subsidiaries (including Apria Sub) and other
than shares as to which dissenters' rights have been perfected under the
Delaware General Corporation Law would be converted into the right to
receive 0.290 shares of common stock, par value $.001 per share, of Apria
("Apria Common Stock"), subject to certain adjustments (such exchange
ratio, after giving effect to such adjustments, is hereinafter referred to
as the "Exchange Ratio"); (ii) each share of 9.0% Cumulative
Nonconvertible Preferred Stock, par value $1.00 per share, of Vitas
("9% Preferred"), would remain outstanding, and, upon surrender of the
certificate representing the 9% Preferred, in accordance with the terms of
the Merger Agreement and a Significant Securityholders Agreement, dated as
of June 28, 1996 (the "Significant Securityholders Agreement," a copy of
which is attached as Appendix B to the Proxy Statement/Prospectus),
executed by certain securityholders of Vitas in connection with the Merger
Agreement, would be purchased by Apria at a price equal to its "Stated
Value" of $100 per share, together with all accrued but unpaid dividends
thereon; (iii) each share of Series B Preferred issued and outstanding as
of the Effective Time, together with all associated rights, preferences
and restrictions set forth in the Stockholders' Agreement, dated June 4,
1993, among Vitas and the parties named therein, would, in accordance with
the terms of the Merger Agreement and the Significant Securityholders
Agreement, first be converted into a number of shares of Vitas Common
Stock issuable upon conversion of such share of Series B Preferred and
would then be converted into the right to receive a number of shares of
Apria Common Stock equal to the Exchange Ratio multiplied by the number of
shares of Vitas Common Stock so issued; (iv) each of the stock purchase
warrants issued by Vitas on December 17, 1991 and designated Warrant A and
Warrant B to purchase an aggregate of 3,952,958 shares of Vitas Common
Stock (collectively, the "Warrants"), and all associated rights,
preferences and restrictions set forth in the Investor Agreement, dated
December 17, 1991, among Vitas and the parties named therein, would, in
accordance with the provisions of the Significant Securityholders
Agreement, be exchanged for a number of shares of Apria Common Stock equal
to the product of (x) the quotient obtained by dividing (A) $9.32 less the
sum of (I) any Excess Per Share Debt Amount (as defined in the Merger
Agreement) and (II) the exercise price per share of Vitas Common Stock
issuable upon exercise of the Warrant by (B) $32.125, times (y) the number
of shares of Vitas Common Stock covered by such Warrant, subject to
certain adjustments; and (v) any stock option to purchase shares of Vitas
Common Stock outstanding immediately prior to the Effective Time that has
not been exercised in accordance with its terms would be exchanged for the
right to receive shares of Apria Common Stock as provided in the Merger
Agreement upon surrender of the stock option agreement applicable thereto
and provision for all applicable tax withholding, unless the holder
objects in writing to such
<PAGE> 7
exchange, in which case such stock option would terminate in accordance
with its terms. Cash would be paid in lieu of fractional shares of Apria
Common Stock. Each share of Apria Common Stock carries with it a preferred
share purchase right which entitles the holder to purchase, on the
occurrence of certain events, preferred stock, par value $.001 per share,
of Apria.
2. FOR THE HOLDERS OF VITAS COMMON STOCK AND SERIES B PREFERRED, VOTING
TOGETHER AS ONE CLASS, TO APPROVE SEPARATELY THE PAYMENTS TO BE MADE TO
HUGH A. WESTBROOK, THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF VITAS, AND
COLLIBROOK CONSULTANTS, INC., A FLORIDA CORPORATION ("COLLIBROOK") OWNED
AND CONTROLLED BY MR. WESTBROOK AND ESTHER T. COLLIFLOWER, THE VICE
CHAIRPERSON OF VITAS, PURSUANT TO A CONSULTING, SEVERANCE AND
CONFIDENTIALITY AGREEMENT (THE "SEVERANCE AGREEMENT") TO BE ENTERED INTO
AMONG VITAS, MR. WESTBROOK, MS. COLLIFLOWER AND COLLIBROOK AT OR PRIOR TO
(BUT SUBJECT TO) THE CLOSING OF THE MERGER AND THE PAYMENTS TO BE MADE TO
MR. WESTBROOK PURSUANT TO A NONCOMPETITION AGREEMENT (THE "NONCOMPETITION
AGREEMENT") TO BE ENTERED INTO BETWEEN VITAS AND MR. WESTBROOK AT OR PRIOR
TO (BUT SUBJECT TO) THE CLOSING OF THE MERGER IN ORDER THAT SUCH PAYMENTS
NOT BE CHARACTERIZED AS "PARACHUTE PAYMENTS" FOR PURPOSES OF SECTIONS 280G
AND 4999 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE").
The Severance Agreement and the Noncompetition Agreement are included as
exhibits to the Merger Agreement attached as Appendix A to the Proxy
Statement/Prospectus.
3. To transact such other business as may properly come before the meeting or
any adjournment or postponement thereof.
The close of business on ________ __, 1996 has been fixed by the Vitas
Board of Directors as the record date (the "Vitas Record Date") for the
determination of stockholders entitled to vote at the Special Meeting. The
affirmative vote of the holders of a majority of the Vitas Common Stock
outstanding on the Vitas Record Date, voting separately as a class, and the
affirmative vote of the holders of a majority of the Series B Preferred
outstanding on the Vitas Record Date, voting separately as a class, is necessary
to approve the Merger Agreement and the transactions contemplated thereunder,
including the Merger. THE SEPARATE AFFIRMATIVE VOTE OF THE HOLDERS OF 75% OF THE
TOTAL VOTES ATTRIBUTABLE TO THE AGGREGATE ISSUED AND OUTSTANDING SHARES OF VITAS
COMMON STOCK AND SERIES B PREFERRED ON THE VITAS RECORD DATE (EXCLUDING ANY
SHARES HELD DIRECTLY OR INDIRECTLY BY MR. WESTBROOK), VOTING TOGETHER AS ONE
CLASS, IS NECESSARY TO APPROVE THE PAYMENTS TO BE MADE TO MR. WESTBROOK AND
COLLIBROOK UNDER THE SEVERANCE AGREEMENT AND THE PAYMENTS TO BE MADE TO MR.
WESTBROOK UNDER THE NONCOMPETITION AGREEMENT IN ORDER THAT SUCH PAYMENTS NOT BE
CHARACTERIZED AS "PARACHUTE PAYMENTS" FOR PURPOSES OF SECTIONS 280G AND 4999 OF
THE CODE AND IS A CONDITION TO APRIA'S OBLIGATION TO EFFECT THE MERGER AND THE
TRANSACTIONS CONTEMPLATED UNDER THE MERGER AGREEMENT. Pursuant to the
Significant Securityholders Agreement, certain securityholders of Vitas,
including Mr. Westbrook, among other things, have agreed (i) to vote or cause to
be voted all shares of capital stock of Vitas owned of record or beneficially or
held in any capacity by or under their control and entitled to vote in favor of
the Merger and the transactions contemplated by the Merger Agreement and against
any inconsistent actions, proposals or transactions, (ii) to not claim or
exercise any dissenter or appraisal rights with respect to the Merger and (iii)
to take other actions contemplated by the Merger Agreement. Such securityholders
own, as of the Vitas Record Date, 1,948,944 shares of Vitas Common Stock
(approximately 44.2% of the outstanding Vitas Common Stock) and 200,000 shares
of Series B Preferred (approximately 76.2% of the outstanding Series B
Preferred), which constitutes approximately 39.2% of the total votes eligible to
be voted by the holders of Vitas Common Stock and Series B Preferred voting
together as one class, excluding any shares held directly or indirectly by Mr.
Westbrook. A complete list of stockholders entitled to vote at the Special
Meeting will be available for examination by any Vitas stockholder, for any
purpose germane to the Special Meeting, at the office of the Secretary of Vitas,
Vitas Healthcare Corporation, 100 South Biscayne Boulevard, Miami, Florida 33131
during the twenty-day period preceding the Special Meeting.
All shares represented by properly executed proxies will be voted in
accordance with the specifications on the proxy card. If no such specifications
are made, proxies will be voted FOR approval and adoption of the Merger
Agreement and the transactions contemplated thereunder, including the Merger,
and FOR the payments to be made to Mr. Westbrook and Collibrook under the
Severance Agreement and the payments to be made to Mr. Westbrook under the
Noncompetition Agreement in order that such payments not be characterized as
"parachute payments" for purposes of Sections 280G and 4999 of the Code.
Stockholders of Vitas who do not vote in favor of or otherwise consent to
approval and adoption of the Merger Agreement and the Merger and who otherwise
comply with the provisions of Section 262 of the Delaware General Corporation
Law will have the right, if the Merger is consummated, to dissent and to demand
an appraisal of the fair value of their shares. A copy of Section 262 is
2
<PAGE> 8
attached to the Proxy Statement/Prospectus as Appendix D. See "RIGHTS OF
DISSENTING VITAS STOCKHOLDERS" in the Proxy Statement/Prospectus for a
description of how to properly exercise dissenters' rights.
The accompanying Proxy Statement/Prospectus contains a detailed
description of the terms of the Merger Agreement and the transactions
contemplated thereunder, and includes a description of the respective businesses
of Vitas and Apria, summary financial information of Vitas and Apria, a
description of the Apria Common Stock to be received in connection with the
Merger and additional information regarding the proposed Merger. YOU ARE URGED
TO READ THE PROXY STATEMENT/PROSPECTUS CAREFULLY. IT IS VERY IMPORTANT THAT YOUR
SHARES BE REPRESENTED AT THE SPECIAL MEETING. WHETHER OR NOT YOU PLAN TO ATTEND
THE SPECIAL MEETING, YOU ARE REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE
ENCLOSED PROXY CARD PROMPTLY IN THE ENCLOSED PRE-ADDRESSED AND PRE-PAID
ENVELOPE. If you attend the Special Meeting, you may vote in person if you wish,
even though you have previously returned your proxy. FAILURE TO RETURN A
PROPERLY EXECUTED PROXY OR TO VOTE AT THE SPECIAL MEETING WILL HAVE THE SAME
EFFECT AS A VOTE AGAINST THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREUNDER, INCLUDING THE MERGER.
By Order of the Vitas Board of Directors
Hugh A. Westbrook
Chairman and Chief Executive Officer
Miami, Florida
September __, 1996
3
<PAGE> 9
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, dated August 27, 1996
APRIA HEALTHCARE GROUP INC.
PROSPECTUS
VITAS HEALTHCARE CORPORATION
PROXY STATEMENT
Vitas Healthcare Corporation, a Delaware corporation ("Vitas"), is
furnishing this Proxy Statement/Prospectus to the stockholders of Vitas in
connection with the solicitation of proxies by the Board of Directors of Vitas
for use at its Special Meeting of stockholders to be held on October __, 1996
(together with any adjournment or postponement thereof, the "Special Meeting").
At the Special Meeting, (i) the holders of common stock, par value
$.001 per share, of Vitas ("Vitas Common Stock"), voting separately as a class,
and the holders of Series B Convertible Preferred Stock, par value $1.00 per
share, of Vitas ("Series B Preferred"), voting separately as a class, will be
asked to approve and adopt an Agreement and Plan of Merger, dated as of June 28,
1996 and amended by an Amendment No. 1 dated as of August 26, 1996 to Agreement
and Plan of Merger (as amended, the "Merger Agreement"), among Apria Healthcare
Group Inc. ("Apria"), Apria Number Two, Inc., a Delaware corporation which has
not engaged in any material operations since its incorporation and is a
wholly-owned subsidiary of Apria ("Apria Sub"), and Vitas and the transactions
contemplated thereunder, including a merger pursuant to which Apria Sub would be
merged with and into Vitas, with Vitas being the surviving corporation (the
"Merger"), and Vitas would become a wholly owned subsidiary of Apria; and (ii)
the holders of Vitas Common Stock and Series B Preferred, voting together as one
class, will be asked to approve separately the payments to be made to Hugh A.
Westbrook, the Chairman and Chief Executive Officer of Vitas, and Collibrook
Consultants, Inc., a Florida corporation ("Collibrook") owned and controlled by
Mr. Westbrook and Esther T. Colliflower, the Vice Chairperson of Vitas, pursuant
to a Consulting, Severance and Confidentiality Agreement (the "Severance
Agreement") to be entered into among Vitas, Mr. Westbrook, Ms. Colliflower and
Collibrook at or prior to (but subject to) the closing of the Merger and the
payments to be made to Mr. Westbrook pursuant to a Noncompetition Agreement (the
"Noncompetition Agreement") to be entered into between Vitas and Mr. Westbrook
at or prior to (but subject to) the closing of the Merger in order that such
payments not be characterized as "parachute payments" for purposes of Sections
280G and 4999 of the Internal Revenue Code of 1986, as amended (the "Code"),
which approval is a condition to Apria's obligation to effect the Merger and the
transactions contemplated under the Merger Agreement. A copy of the Merger
Agreement (which includes as exhibits the Severance Agreement and the
Noncompetition Agreement) is attached as Appendix A to this Proxy
Statement/Prospectus.
In connection with the Merger, (i) each share of Vitas Common Stock
issued and outstanding as of the Effective Time (as defined in the Merger
Agreement) other than shares owned by Vitas, Apria or any of their respective
subsidiaries (including Apria Sub) and other than shares as to which dissenters'
rights have been perfected under the Delaware General Corporation Law ("Delaware
GCL") would be converted into the right to receive 0.290 shares of common stock,
par value $.001 per share, of Apria ("Apria Common Stock"), subject to certain
adjustments (such exchange ratio, after giving effect to such adjustments, is
hereinafter referred to as the "Exchange Ratio"); (ii) each share of 9.0%
Cumulative Nonconvertible Preferred Stock, par value $1.00 per share, of Vitas
("9% Preferred"), would remain outstanding, and, upon surrender of the
certificate representing the 9% Preferred, in accordance with the terms of the
Merger Agreement and a Significant Securityholders Agreement, dated as of June
28, 1996 (the "Significant Securityholders Agreement", a copy of which is
attached as Appendix B to this Proxy Statement/Prospectus), executed by certain
securityholders of Vitas in connection with the Merger Agreement, would be
purchased by Apria at a price equal to its "Stated Value" of $100 per share,
together with all accrued but unpaid dividends thereon; (iii) each share of
Series B Preferred issued and outstanding as of the Effective Time, together
with all associated rights, preferences and restrictions set forth in the
Stockholders' Agreement, dated June 4, 1993, among Vitas and the parties named
therein would, in accordance with the terms of the Merger Agreement and the
Significant Securityholders Agreement, first be converted into a number of
shares of Vitas Common Stock issuable upon conversion of such share of Series B
Preferred and would then be converted into the right to receive a number of
shares of Apria Common Stock equal to the Exchange Ratio multiplied by the
number of shares of Vitas Common Stock so issued; (iv) each of the stock
purchase warrants issued by Vitas on December 17, 1991 and designated Warrant A
and Warrant B to purchase an aggregate of 3,952,958 shares of Vitas Common Stock
(collectively, the "Warrants"), and all associated rights, preferences and
restrictions set forth in the Investor Agreement, dated December 17, 1991, among
Vitas and the parties named therein, would, in accordance with the
<PAGE> 10
provisions of the Significant Securityholders Agreement, be exchanged for a
number of shares of Apria Common Stock equal to the product of (x) the quotient
obtained by dividing (A) $9.32 less the sum of (I) any Excess Per Share Debt
Amount (as defined below) and (II) the exercise price per share of Vitas Common
Stock issuable upon exercise of the Warrant by (B) $32.125, times (y) the number
of shares of Vitas Common Stock covered by such Warrant, subject to certain
adjustments; and (v) any stock option to purchase shares of Vitas Common Stock
outstanding immediately prior to the Effective Time that has not been exercised
in accordance with its terms would be exchanged for the right to receive shares
of Apria Common Stock as provided in the Merger Agreement upon surrender of the
stock option agreement applicable thereto and provision for tax withholding as
provided in the Merger Agreement, unless the holder objects in writing to such
exchange, in which case such stock option would terminate in accordance with its
terms. Cash would be paid in lieu of fractional shares of Apria Common Stock.
Each share of Apria Common Stock carries with it a preferred share purchase
right which entitles the holder to purchase, on the occurrence of certain
events, preferred stock, par value $.001 per share, of Apria.
Stockholders of Vitas who do not vote in favor of or otherwise consent
to approval and adoption of the Merger Agreement and the Merger and who
otherwise comply with the provisions of Section 262 of the Delaware GCL will
have the right, if the Merger is consummated, to dissent and to demand an
appraisal of the fair value of their shares. A copy of Section 262 is attached
to this Proxy Statement/Prospectus as Appendix D. See "RIGHTS OF DISSENTING
VITAS STOCKHOLDERS."
This Proxy Statement/Prospectus is first being mailed to stockholders
of Vitas on or about September __, 1996.
This Proxy Statement/Prospectus also constitutes the Prospectus of
Apria under the Securities Act of 1933, as amended (the "1933 Act"), for the
public offering of up to 5,020,000 shares of Apria Common Stock issuable in
connection with the Merger. This Proxy Statement/Prospectus does not cover
resales of such stock, and no person is authorized to use this Proxy
Statement/Prospectus in connection with any such resale. All information
concerning Apria contained in this Proxy Statement/Prospectus has been furnished
by Apria and all information concerning Vitas has been furnished by Vitas. All
information concerning the Significant Securityholders (as defined in the
Significant Securityholders Agreement) contained in this Proxy
Statement/Prospectus has been furnished by such Significant Securityholders.
SEE "INVESTMENT CONSIDERATIONS" FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED IN EVALUATING THE SECURITIES OFFERED HEREBY.
THE SHARES OF APRIA COMMON STOCK TO BE ISSUED IN THE MERGER HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS SEPTEMBER ___, 1996.
2
<PAGE> 11
TABLE OF CONTENTS
<TABLE>
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AVAILABLE INFORMATION........................................................... 6
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................................. 7
SUMMARY......................................................................... 8
Introduction........................................................... 8
Parties................................................................ 8
The Special Meeting.................................................... 9
The Merger............................................................. 10
SELECTED FINANCIAL INFORMATION.................................................. 17
SELECTED QUARTERLY FINANCIAL INFORMATION - VITAS................................ 19
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA................... 20
MARKET PRICE AND DIVIDENDS...................................................... 21
COMPARATIVE PER SHARE DATA...................................................... 22
INVESTMENT CONSIDERATIONS....................................................... 23
Integration of the Businesses.......................................... 23
Healthcare Reform/Pricing Pressure..................................... 23
Regulatory Environment................................................. 23
Competition............................................................ 25
Dependence on Relationships with Third Parties......................... 25
Concentration of Large Payors.......................................... 25
Potential Liability.................................................... 26
Certain Anti-takeover Provisions....................................... 26
Dependence on Key Personnel............................................ 26
Possible Volatility of Stock Price..................................... 26
Dividend Policy ....................................................... 26
THE SPECIAL MEETING............................................................. 27
Voting Information for Vitas Stockholders.............................. 27
Solicitation of Proxies................................................ 28
THE MERGER...................................................................... 30
General................................................................ 30
Background of the Merger............................................... 30
Reasons for the Merger and Recommendation of the Board of Directors.... 32
Fairness Opinion of Vitas' Financial Advisor........................... 33
Interests of Certain Persons in the Merger............................. 35
Certain Federal Income Tax Consequences................................ 37
Regulatory Approvals................................................... 39
Accounting Treatment................................................... 39
Restrictions on Sales by Affiliates; Pooling Considerations............ 39
THE MERGER AGREEMENT............................................................ 41
The Merger............................................................. 41
Effective Time of the Merger........................................... 41
Conversion of Securities............................................... 41
Treatment of Stock Options............................................. 43
Exchange of Stock Certificates and Warrants............................ 45
</TABLE>
3
<PAGE> 12
<TABLE>
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Fractional Shares...................................................... 46
Vitas Indebtedness..................................................... 46
Representations and Warranties......................................... 46
Covenants; Conduct of Business Prior to Effective Time................. 46
Negotiations with Others............................................... 48
Management after the Merger............................................ 49
Indemnification and Insurance.......................................... 49
Conditions to the Merger............................................... 49
Amendment.............................................................. 51
Termination............................................................ 51
Effect of Termination.................................................. 52
Listing on Stock Exchange.............................................. 53
APRIA HEALTHCARE GROUP INC...................................................... 53
VITAS HEALTHCARE CORPORATION.................................................... 53
COMPARISON OF APRIA AND VITAS STOCKHOLDER RIGHTS................................ 54
Authorized Stock....................................................... 54
Preemptive Rights...................................................... 55
Business Combinations.................................................. 55
Apria Rights Agreement................................................. 57
Amendment of Certificate of Incorporation.............................. 59
Amendment of Bylaws.................................................... 59
Stockholder Voting Rights Generally.................................... 60
Stockholder Action by Written Consent.................................. 61
Special Stockholder Meetings........................................... 61
Number and Election of Directors....................................... 62
Removal of Directors................................................... 63
Vacancies on the Board of Directors.................................... 63
Transactions Involving Officers or Directors........................... 64
Indemnification of Directors........................................... 64
Limitation of Personal Liability of Directors.......................... 65
Declaration of Dividends............................................... 65
Stock Ownership and Transfer Restrictions.............................. 66
Appraisal Rights....................................................... 67
Inspection of Stockholder List......................................... 67
Liquidation Rights Upon Dissolution.................................... 68
Redemption of Securities............................................... 68
APRIA HEALTHCARE GROUP INC. CAPITAL STOCK....................................... 69
RIGHTS OF DISSENTING VITAS STOCKHOLDERS......................................... 70
PROPOSAL TO APPROVE SEPARATELY THE PAYMENTS TO HUGH A. WESTBROOK AND
COLLIBROOK PURSUANT TO THE SEVERANCE AND NONCOMPETITION AGREEMENTS TO BE
ENTERED INTO IN CONNECTION WITH THE MERGER IN ORDER THAT SUCH PAYMENTS
NOT BE CHARACTERIZED AS "PARACHUTE PAYMENTS" FOR PURPOSES OF SECTIONS
280G AND 4999 OF THE CODE....................................................... 71
PRINCIPAL STOCKHOLDERS.......................................................... 73
Apria Security Ownership............................................... 73
Vitas Security Ownership............................................... 76
</TABLE>
4
<PAGE> 13
<TABLE>
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LEGAL OPINION................................................................... 80
EXPERTS......................................................................... 80
Apria Healthcare Group Inc............................................. 80
Vitas Healthcare Corporation........................................... 80
VITAS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.................................................. 80
Introduction ....................................................... 80
Results of Operations.................................................. 81
Nine Months Ended June 30, 1996 Compared to Nine Months Ended
June 30, 1995........................................................ 81
Fiscal Year Ended September 30, 1995 Compared to Fiscal Year Ended
September 30, 1994................................................... 82
Fiscal Year Ended September 30, 1994 Compared to Fiscal Year Ended
September 30, 1993................................................... 83
Liquidity and Capital Resources........................................ 83
Effect of Inflation.................................................... 84
FORWARD LOOKING STATEMENTS...................................................... 84
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS..................... 86
INDEX TO FINANCIAL STATEMENTS OF VITAS HEALTHCARE CORPORATION................... F-1
Appendix A -- Agreement and Plan of Merger...................................... A-1
Appendix B -- Significant Securityholders Agreement............................. B-1
Appendix C -- Fairness Opinion of Vitas' Financial Advisor...................... C-1
Appendix D -- Section 262 of the General Corporation Law of the
State of Delaware................................................. D-1
</TABLE>
5
<PAGE> 14
AVAILABLE INFORMATION
Apria is subject to the information reporting requirements of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and in accordance
therewith files reports, proxy statements, information statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements, information statements and other information can be
inspected and copied at the Commission's public reference room located at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and
at the public reference facilities maintained by the Commission at its regional
offices located at Suite 1400, Northwestern Atrium Center, 500 West Madison
Street, Chicago, Illinois 60661, and 7 World Trade Center, Suite 1300, New York,
New York 10048. Copies of such materials can be obtained from the Commission at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a Web site
that contains reports, proxy and information statements and other information
regarding Apria and other registrants that file electronically with the
Commission at http://www.sec.gov. Apria Common Stock is listed on the New York
Stock Exchange, and reports, proxy statements, information statements and other
information concerning Apria also may be inspected at the offices of such
exchange.
Apria has filed with the Commission a Registration Statement (No.
333-09407) under the 1933 Act relating to the shares of Apria Common Stock
issuable in connection with the Merger. This Proxy Statement/Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits thereto, certain parts of which are omitted in accordance with the
rules and regulations of the Commission. The Registration Statement and any
amendments thereto, including exhibits filed as a part thereof, are available
for inspection and copying as set forth above.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER
THAN EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS) AND CERTAIN EXHIBITS TO THE
MERGER AGREEMENT WHICH HAVE BEEN OMITTED FROM THIS PROXY STATEMENT/ PROSPECTUS
ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO
WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED UPON WRITTEN OR ORAL REQUEST
TO LAWRENCE H. SMALLEN, CHIEF FINANCIAL OFFICER, SENIOR VICE PRESIDENT-FINANCE
AND TREASURER, APRIA HEALTHCARE GROUP INC., 3560 HYLAND AVENUE, COSTA MESA,
CALIFORNIA 92626; TELEPHONE NUMBER (714) 427-2000. IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BEFORE OCTOBER , 1996
6
<PAGE> 15
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by Apria with the Commission
pursuant to the 1934 Act are hereby incorporated by reference in this Proxy
Statement/Prospectus:
(1) Apria's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995;
(2) Apria's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1996;
(3) Apria's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1996;
(4) Apria's definitive Proxy Statement, dated May 8, 1996, used in
connection with Apria's Annual Meeting of Stockholders held on June 12, 1996;
and
(5) Registration Statement on Form 8-A filed on February 11, 1992,
under Apria's prior name, Abbey Healthcare Group Incorporated.
All documents filed by Apria pursuant to Sections 13(a), 13(c), 14 and
15(d) of the 1934 Act subsequent to the date of this Proxy Statement/Prospectus
and prior to the date of the Special Meeting and any and all adjournments
thereof, shall be deemed to be incorporated herein by reference and to be a part
hereof from the date any such document is filed. Any statement contained in a
document incorporated or deemed to be incorporated herein by reference, or
contained in this Proxy Statement/Prospectus, shall be deemed to be modified or
superseded for purposes of this Proxy Statement/Prospectus to the extent that a
statement contained herein (or in any other subsequently filed document which
also is incorporated herein by reference) modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed to constitute a part
hereof except as so modified or superseded. All information appearing in this
Proxy Statement/Prospectus is qualified in its entirety by the information and
financial statements (including notes thereto) appearing in the documents
incorporated herein by reference.
No person is authorized to give any information or to make any
representations with respect to the matters described in this Proxy
Statement/Prospectus other than those contained herein or in the documents
incorporated herein by reference. Any information or representations with
respect to such matters not contained herein or therein must not be relied upon
as having been authorized by Apria or Vitas. This Proxy Statement/Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy
securities in any jurisdiction to any person to whom it is unlawful to make such
offer or solicitation in such jurisdiction. Neither the delivery of this Proxy
Statement/Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that there has been no change in the affairs of Apria or
Vitas since the date hereof or that the information in this Proxy
Statement/Prospectus or in the documents incorporated herein by reference is
correct as of any time subsequent to the dates hereof or thereof.
7
<PAGE> 16
SUMMARY
The following is a brief summary of certain information contained
elsewhere in this Proxy Statement/Prospectus. This summary is qualified in its
entirety by reference to the full text of this Proxy Statement/Prospectus and
the Appendices hereto. Stockholders are urged to read this Proxy
Statement/Prospectus before voting on the matters discussed herein.
Information contained or incorporated by reference in this Proxy
Statement/Prospectus contains "forward- looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995, which can be identified
by the use of forward-looking terminology, such as "may," "will," "expect,"
"anticipate," "estimate" or "continue" or the negative thereof or other
variations thereon or comparable terminology. See "FORWARD LOOKING STATEMENTS."
The matters set forth under the caption "INVESTMENT CONSIDERATIONS" in this
Proxy Statement/Prospectus constitute cautionary statements identifying
important factors with respect to such forward-looking statements, including
certain risks and uncertainties, that could cause actual results to differ
materially from those in such forward-looking statements.
INTRODUCTION
A Special Meeting of Stockholders of Vitas Healthcare Corporation
("Vitas") will be held on October __, 1996, at 10:00 a.m., local time, at 100
South Biscayne Boulevard, Miami, Florida 33131, (together with any adjournment
or postponement thereof, the "Special Meeting"). At the Special Meeting, (i) the
holders of common stock, par value $.001 per share, of Vitas ("Vitas Common
Stock"), voting separately as a class, and the holders of Series B Convertible
Preferred Stock, par value $1.00 per share, of Vitas ("Series B Preferred"),
voting separately as a class, will be asked to approve and adopt an Agreement
and Plan of Merger, dated as of June 28, 1996 and amended by an Amendment No.
1 dated as of August 26, 1996 to Agreement and Plan of Merger (as amended, the
"Merger Agreement"), among Apria Healthcare Group Inc. ("Apria"), Apria Number
Two, Inc., a Delaware corporation which has not engaged in any material
operations since its incorporation and is a wholly-owned subsidiary of Apria
("Apria Sub"), and Vitas, and the transactions contemplated thereunder,
including a merger pursuant to which Apria Sub would be merged with and into
Vitas (the "Merger"), with Vitas being the surviving corporation (the "Surviving
Corporation"), and Vitas would become a wholly owned subsidiary of Apria; and
(ii) the holders of Vitas Common Stock and Series B Preferred, voting together
as one class, will be asked to approve separately the payments to be made to
Hugh A. Westbrook, the Chairman and Chief Executive Officer of Vitas, and
Collibrook Consultants, Inc., a Florida corporation ("Collibrook") owned and
controlled by Mr. Westbrook and Esther T. Colliflower, the Vice Chairperson of
Vitas, pursuant to a Consulting, Severance and Confidentiality Agreement (the
"Severance Agreement") to be entered into among Vitas, Mr. Westbrook, Ms.
Colliflower and Collibrook at or prior to (but subject to) the closing of the
Merger and the payments to be made to Mr. Westbrook pursuant to a Noncompetition
Agreement (the "Noncompetition Agreement") to be entered into between Vitas and
Mr. Westbrook at or prior to (but subject to) the closing of the Merger in order
that such payments not be characterized as "parachute payments" for purposes of
Sections 280G and 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"). A copy of the Merger Agreement (which includes as exhibits the
Severance Agreement and the Noncompetition Agreement) is attached hereto as
Appendix A. See "THE MERGER" and "THE MERGER AGREEMENT."
PARTIES
Apria Healthcare Group Inc. Apria provides and/or manages comprehensive
integrated homecare services including home infusion therapy, home respiratory
therapy, home medical equipment, women's healthcare and nursing. Apria also
coordinates the care of patients who may require any of the aforementioned
services or a combination thereof. Apria provides its services through 350
branch locations which serve patients in 49 states. Apria was formed on June 28,
1995, by the merger of Homedco Group, Inc. ("Homedco") with and into Abbey
Healthcare Group Incorporated ("Abbey"). In connection with the merger
transaction (the "Abbey/Homedco Merger"), Apria issued 21,547,529 shares of
common stock, par value $.001 per share ("Apria Common Stock"), for 15,391,092
issued and outstanding shares of common stock, par value $.001 per share, of
Abbey and 26,034,612 shares of Apria Common Stock for 13,017,306 issued and
outstanding shares of common stock, par value $.01
8
<PAGE> 17
per share, of Homedco. The mailing address of Apria's principal executive
offices is 3560 Hyland Avenue, Costa Mesa, California 92626, and Apria's
telephone number is (714) 427-2000. Directors and executive officers of Apria
and affiliates of such directors and officers beneficially owned on August 15,
1996, 2,238,001 shares of Apria Common Stock (approximately 4.3% of the shares
of Apria Common Stock then outstanding). See "APRIA HEALTHCARE GROUP INC." and
"PRINCIPAL STOCKHOLDERS--Apria Security Ownership."
Vitas Healthcare Corporation. Vitas is the largest provider of hospice
services in the United States, caring for the palliative medical and
psychosocial needs of more than 29,000 terminally ill patients in fiscal 1995.
Vitas provides an integrated and comprehensive range of services to its patients
and their families in the home (including long-term care facilities) and
inpatient facilities. The mailing address of Vitas' principal executive offices
is 100 South Biscayne Boulevard, Miami, Florida 33131, and Vitas' telephone
number is (305) 374-4143. Directors and executive officers of Vitas and their
affiliates beneficially owned as of August 15, 1996, 14,727,338 shares of Vitas
Common Stock (approximately 74.6% of the shares of Vitas Common Stock then
outstanding on a fully diluted basis). See "VITAS HEALTHCARE CORPORATION" and
"PRINCIPAL STOCKHOLDERS--Vitas Security Ownership."
Apria Number Two, Inc. Apria Sub is a Delaware corporation and a
wholly owned subsidiary of Apria. Apria Sub has not engaged in any material
operations since its incorporation.
Significant Securityholders. Pursuant to a Significant Securityholders
Agreement (the "Significant Securityholders Agreement," a copy of which is
attached hereto as Appendix B), dated as of June 28, 1996, among Hugh A.
Westbrook, Carole S. Westbrook, Westbrook Family Partnership, Ltd., Esther
Colliflower, Colliflower Family Partnership, Ltd., Chemed Corporation
("Chemed"), OCR Holding Company ("OCR"), Galen Partners II, L.P., Galen Partners
International II, L.P., Galen Employee Fund, L.P. and Warburg, Pincus Investors,
L.P. (collectively, the "Significant Securityholders"), the Significant
Securityholders, among other things, have agreed (i) to vote or cause to be
voted all shares of capital stock of Vitas owned of record or beneficially or
held in any capacity by or under their control and entitled to vote in favor of
the Merger and the transactions contemplated by the Merger Agreement and against
any inconsistent actions, proposals or transactions, (ii) to not claim or
exercise any dissenter or appraisal rights with respect to the Merger and (iii)
to take other actions contemplated by the Merger Agreement. See Appendix B. Such
securityholders own, as of the Vitas Record Date, 1,948,944 shares of Vitas
Common Stock (approximately 44.2% of the outstanding Vitas Common Stock) and
200,000 shares of Series B Preferred (approximately 76.2% of the outstanding
Series B Preferred), which constitutes approximately 39.2% of the total votes
eligible to be voted by the holders of Vitas Common Stock and Series B Preferred
voting together as one class, excluding any shares held directly or indirectly
by Mr. Westbrook. See "THE SPECIAL MEETING."
THE SPECIAL MEETING
The close of business on __________ __, 1996 has been fixed by the
Vitas Board of Directors as the record date (the "Vitas Record Date") for the
determination of stockholders entitled to vote at the Special Meeting. As of the
Vitas Record Date, there were issued and outstanding 4,408,842 shares of Vitas
Common Stock and 262,500 shares of Series B Preferred. The affirmative vote of
the holders of a majority of the Vitas Common Stock outstanding on the Vitas
Record Date, voting separately as a class, and the affirmative vote of the
holders of a majority of the Series B Preferred outstanding on the Vitas Record
Date, voting separately as a class, is necessary to approve the Merger Agreement
and the transactions contemplated thereunder, including the Merger. THE SEPARATE
AFFIRMATIVE VOTE OF THE HOLDERS OF 75% OF THE TOTAL VOTES ATTRIBUTABLE TO THE
AGGREGATE ISSUED AND OUTSTANDING SHARES OF VITAS COMMON STOCK AND SERIES B
PREFERRED ON THE VITAS RECORD DATE (EXCLUDING ANY SHARES HELD DIRECTLY OR
INDIRECTLY BY MR. WESTBROOK), VOTING TOGETHER AS ONE CLASS, IS NECESSARY TO
APPROVE THE PAYMENTS TO BE MADE TO MR. WESTBROOK AND COLLIBROOK UNDER THE
SEVERANCE AGREEMENT AND THE PAYMENTS TO BE MADE TO MR. WESTBROOK UNDER THE
NONCOMPETITION AGREEMENT IN ORDER THAT SUCH PAYMENTS NOT BE CHARACTERIZED AS
"PARACHUTE PAYMENTS" FOR PURPOSES OF SECTIONS 280G AND 4999 OF THE CODE AND IS A
CONDITION TO APRIA'S OBLIGATION TO EFFECT THE MERGER AND THE TRANSACTIONS
CONTEMPLATED UNDER THE MERGER AGREEMENT. Any other matter properly considered
and acted upon at the Special Meeting must be approved by the affirmative vote
of at least a majority of the votes attributable to the aggregate issued and
outstanding shares of Vitas Common Stock and Series B Preferred on the Vitas
Record Date,
9
<PAGE> 18
voting together as one class, entitled to vote and be represented at the Special
Meeting (whether in person or by proxy), except for such matters which by
statute, the Amended and Restated Certificate of Incorporation of Vitas, as
amended, the Certificate of Designation, Preferences and Other Rights of the
Series B Preferred, as amended (the "Series B Preferred Certificate"), the
Certificate of Designation, Preferences and Other Rights of the 9.0% Cumulative
Nonconvertible Preferred Stock, par value $1.00 per share, of Vitas ("9%
Preferred"), as amended (the "9% Preferred Certificate"; the Amended and
Restated Certificate of Incorporation of Vitas, as amended, together with the
Series B Preferred Certificate and the 9% Preferred Certificate, are
collectively referred to herein as the "Vitas Certificate"), or the Amended and
Restated By-laws of Vitas (the "Vitas By-laws"), require otherwise.
Each holder of Vitas Common Stock is entitled to one vote for each
share on all matters submitted to a vote of stockholders. Except as otherwise
required by law or when a class vote is required pursuant to the Series B
Preferred Certificate (as in the case of the vote on the Merger Agreement and
the transactions contemplated thereunder, including the Merger), the holders of
Series B Preferred are entitled to vote on all matters together with the holders
of shares of Vitas Common Stock, subject to certain limitations set forth in the
Series B Preferred Certificate and the Stockholders' Agreement, dated June 4,
1993, among Vitas, Hugh A. Westbrook, Carole S. Westbrook, Galen Partners II,
L.P., Galen Partners International II, L.P., Galen Associates, Warburg, Pincus
Investors, L.P., and the other parties named therein (the "Stockholders'
Agreement"). As a result of these voting rights and the limitations imposed in
the Series B Preferred Certificate and in the Stockholders' Agreement, the
holders of the Series B Preferred, when voting together with the holders of
Vitas Common Stock (as in the case of the separate vote on the payments to be
made to Mr. Westbrook and Collibrook pursuant to the Severance Agreement and the
payments to be made to Mr. Westbrook pursuant to the Noncompetition Agreement)
are currently entitled to cast that number of votes equal to approximately 28%
of the total votes eligible to be voted at a meeting of stockholders. The
presence at the Special Meeting, in person or by proxy, of the holders of a
majority of the outstanding shares of Vitas Common Stock and Series B Preferred
entitled to vote at such meeting will constitute a quorum for the transaction of
business. Abstentions will be treated as shares that are present and entitled to
vote for purposes of determining the presence of a quorum. Because both of the
proposals to be voted on at the Special Meeting require a percentage of the
outstanding shares, abstentions (other than the exclusion of shares held
directly or indirectly by Mr. Westbrook with respect to the payments to be made
to Mr. Westbrook and Collibrook pursuant to the Severance Agreement and the
payments to be made to Mr. Westbrook pursuant to the Noncompetition Agreement)
will be equivalent to votes cast against the Merger Agreement and the
transactions contemplated thereunder, including the Merger, and separate votes
cast against the payments to be made to Mr. Westbrook and Collibrook pursuant
to the Severance Agreement and the payments to be made to Mr. Westbrook
pursuant to the Noncompetition Agreement.
THE MERGER
Conversion of Securities. In connection with the Merger:
Vitas Common Stock. Each share of Vitas Common Stock issued
and outstanding as of the Effective Time (as defined below) other than shares
owned by Vitas, Apria or any of their respective subsidiaries (including Apria
Sub) and other than shares as to which dissenters' rights have been perfected
under the Delaware General Corporation Law ("Delaware GCL") would be converted
into the right to receive 0.290 shares of Apria Common Stock, subject to certain
adjustments. An adjustment will occur if the closing price of Apria Common Stock
on the New York Stock Exchange (the "NYSE") on the trading day next preceding
the Closing Date (as defined in the Merger Agreement) is lower than $27.125 or
higher than $37.125 (a "Collar Adjustment"). In addition, an adjustment will
occur if the Total Debt (as defined below) of Vitas reflected on the Closing
Balance Sheet (as defined below) exceeds $39.1 million (a "Debt Adjustment").
Such exchange ratio, after giving effect to such adjustments, is hereinafter
referred to as the "Exchange Ratio." See "THE MERGER AGREEMENT--Conversion of
Securities--Common Stock" for a further discussion of these adjustments. The
discussion also includes an illustrative table that sets forth examples of
possible Exchange Ratios based upon different adjustment scenarios. Such table
does not purport to include every possible Exchange Ratio. Thus, the actual
Exchange Ratio (and, consequently, the effective merger consideration) may be
higher or lower.
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9% Preferred. Each share of 9% Preferred would remain
outstanding, and, upon surrender of the certificate representing the 9%
Preferred, in accordance with the terms of the Merger Agreement and the
Significant Securityholders Agreement, would be purchased by Apria at a price
equal to its "Stated Value" of $100 per share, together with all accrued and
unpaid dividends thereon. See "THE MERGER AGREEMENT--Conversion of Securities--
9% Preferred."
Series B Preferred. The Merger Agreement contemplates that
each share of Series B Preferred issued and outstanding prior to the Effective
Time, together with all associated rights, preferences and restrictions set
forth in the Stockholders' Agreement, will be converted by the holder into a
number of shares of Vitas Common Stock issuable upon conversion of such share of
Series B Preferred and that such Vitas Common Stock would then be converted into
the right to receive a number of shares of Apria Common Stock equal to the
Exchange Ratio multiplied by the number of shares of Vitas Common Stock so
issued. See "THE MERGER AGREEMENT--Conversion of Securities--Series B
Preferred." The obligations of Apria under the Merger Agreement are conditioned
upon all Series B Preferred holders voluntarily converting their shares. If a
holder of Series B Preferred does not timely convert or agree to convert its
shares of Series B Preferred, Apria could waive such condition, in which case
the Series B Preferred would remain outstanding, but would cease to be
convertible, in accordance with its terms. Pursuant to the Significant
Securityholders Agreement, the holders of approximately 76.2% of the Series B
Preferred have agreed to effect the conversion contemplated by these provisions.
Warrants. Each of the stock purchase warrants issued by Vitas
on December 17, 1991 and designated Warrant A and Warrant B to purchase an
aggregate of 3,952,958 shares of Vitas Common Stock (collectively, the
"Warrants"), and all associated rights, preferences and restrictions set forth
in the Investor Agreement, dated December 17, 1991 (the "Investor Agreement"),
among Vitas, Chemed and OCR would, in accordance with the provisions of the
Significant Securityholders Agreement, be exchanged for a number of shares of
Apria Common Stock equal to the product of (x) the quotient obtained by dividing
(I) $9.32 less the sum of (A) any Excess Per Share Debt Amount (as defined
below) and (B) the exercise price per share of Vitas Common Stock issuable upon
exercise of the Warrant by (II) $32.125, times (y) the number of shares of Vitas
Common Stock covered by such Warrant, subject to certain adjustments. OCR, the
holder of the 9% Preferred and the Warrants, and its parent, Chemed, have agreed
to the purchase of the 9% Preferred and the exchange of the Warrants described
above pursuant to the Significant Securityholders Agreement. See "THE MERGER
AGREEMENT-- Conversion of Securities--Warrants."
Stock Options. In accordance with the terms of certain stock
option agreements to purchase shares of Vitas Common Stock ("Stock Option"), the
exercisability of vested options will be accelerated as a result of the Merger.
Any Stock Option outstanding immediately prior to the Effective Time that has
not been exercised in accordance with its terms would be exchanged into the
right to receive from Apria, upon surrender of the applicable stock option
agreement to which such Stock Option relates ("Stock Option Agreement") and,
subject to the terms of the Merger Agreement, confirmation of payment in cash by
the holder to Apria (or other provision for cash withholding from the holder by
Apria) of all applicable withholding taxes associated with the exchange, a
number of shares of Apria Common Stock equal to the product of (x) the quotient
obtained by dividing (I) $9.32 less the sum of (A) any Excess Per Share Debt
Amount, (B) the exercise price per share of Vitas Common Stock issuable upon
exercise of the Stock Option and (C) any applicable Vesting Discount Amount (as
defined in "THE MERGER AGREEMENT--Treatment of Stock Options") by (II) $32.125,
times (y) the number of shares of Vitas Common Stock covered by such Stock
Option, subject to certain adjustments. See "THE MERGER AGREEMENT--Treatment of
Stock Options" for a further discussion of these adjustments and applicable
provisions for payment of withholding taxes.
Fractional Shares; Rights. Cash would be paid in lieu of
fractional shares of Apria Common Stock. Each share of Apria Common Stock
carries with it a preferred share purchase right (a "Right") which entitles the
holder to purchase, on the occurrence of certain events, preferred stock, par
value $.001 per share, of Apria. See "THE MERGER AGREEMENT--Fractional Shares"
and "COMPARISON OF APRIA AND VITAS STOCKHOLDER RIGHTS--Apria Rights Agreement."
Cancellation of Vitas Common Stock, Warrants and Stock
Options. As of the Effective Time, all shares of Vitas Common Stock and the
Warrants will no longer be outstanding and will automatically be canceled and
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<PAGE> 20
retired and will cease to exist, and the holders of certificates previously
evidencing the shares of Vitas Common Stock or the Warrants or the Stock Options
will cease to have any rights with respect thereto, except as otherwise provided
in the Merger Agreement or by law (including any rights of dissenting
stockholders).
Reasons for the Merger and Recommendation of the Board of Directors.
In unanimously approving the Merger Agreement, the Vitas Board of Directors has
determined that the Merger Agreement is in the best interests of Vitas and all
of Vitas' securityholders and recommends that the stockholders of Vitas vote in
favor of the Merger Agreement and the transactions contemplated thereunder,
including the Merger. In voting in favor of the Merger Agreement and such
transactions, Mr. Westbrook and Ms. Colliflower abstained from voting with
respect to the Severance Agreement and the Noncompetition Agreement. In
addition, J.R. Williams, M.D. abstained from voting with respect to the proposed
amendment to his severance agreement contemplated by the Merger Agreement.
In approving the Merger Agreement and the transactions contemplated
thereby, and in recommending that Vitas' stockholders approve the same, Vitas'
Board of Directors consulted with Vitas management, as well as its financial and
legal advisors, and considered a number of factors, including, but not limited
to, Apria's business, market presence, current business strategy and competitive
position in the health care industry, the opportunities for joint business
development between Vitas and Apria in both Vitas' existing geographic markets
and in potential new markets, the market capitalization of Apria, the structure,
form and amount of consideration to be paid in the Merger and the terms of the
Merger Agreement, including the fairness opinion of Furman Selz LLC ("Furman
Selz"), and the opportunity, through the Merger, for Vitas' stockholders to have
increased liquidity in their investment as holders of publicly traded stock, the
opportunities to achieve cost savings and efficiencies through the combination
of certain Vitas and Apria business processes, the receptivity of Apria
management to the unique mission and values of Vitas and its employees and the
continued ability to satisfy the distinctive needs of the patient population and
communities which Vitas serves, Vitas' need to raise capital to meet near term
capital maturities and to finance the growth of Vitas in a manner that would
maximize stockholder value, as well as a number of other factors. See "THE
MERGER--Reasons for the Merger and Recommendation of the Board of Directors."
If the Merger Agreement is not approved and adopted by Vitas'
stockholders or if the Merger is not otherwise consummated, there are
significant potential consequences to Vitas and its stockholders. Pursuant to
the terms of Vitas' bank credit facilities, all borrowings outstanding under
such facilities are scheduled to mature on October 1, 1996. As of July 31, 1996,
amounts outstanding under such bank facilities total $31.5 million. In addition,
on August 8, 1996 Vitas incurred additional indebtedness under such facilities
in the amount of $4.75 million in connection with the acquisition of certain of
the assets of Hospice of Central Florida, Inc. as discussed under "VITAS
HEALTHCARE CORPORATION." See Note 6 to Notes to Consolidated Financial
Statements for the year ended September 30, 1995 for additional information
regarding Vitas' outstanding debt. In addition, Vitas is required to redeem (to
the extent funds are legally available therefor) approximately $8.3 million of
the 9% Preferred on December 31, 1996 and to make additional redemptions on each
of June 30 and December 31 of 1997 and 1998 thereafter. See Note 3 to Notes to
Consolidated Financial Statements for the year ended September 30, 1995 for
additional information regarding Vitas' redeemable preferred stock. In the event
that the Merger is not consummated, there can be no assurance that Vitas could
successfully obtain replacement debt or equity capital or that, if obtainable,
such debt or equity capital could be obtained in sufficient time to avoid
material disruption in its business. There also can be no assurance that could
such replacement debt or equity capital be obtained, it would be obtained on as
favorable terms as those which exist under Vitas' current bank facilities and
the 9% Preferred.
The Apria Board of Directors believes that the Merger is in the best
interests of Apria and its stockholders. In reaching such determination, the
Apria Board of Directors considered a number of factors including its
expectations concerning costs savings and efficiencies which could be obtained
as a result of the Merger, the greater financial resources, competitive
strengths, management skills and business opportunities available as a result of
the Merger and the risks associated with the acquisition of Vitas and Apria's
entry into the hospice market. See "THE MERGER--Reasons for the Merger and
Recommendation of the Board of Directors."
Fairness Opinion of Vitas' Financial Advisor. Furman Selz has acted as
financial advisor to Vitas in connection with the Merger. Furman Selz has
delivered to the Board of Directors of Vitas Furman Selz's written
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<PAGE> 21
opinion dated June 28, 1996, to the effect that, as of the date of such opinion
and based upon and subject to certain matters as stated therein, the
consideration to be received in the Merger by the holders of the Vitas Common
Stock is fair, from a financial point of view, to the holders of Vitas Common
Stock. The opinion only addresses consideration to be received by the holders of
Vitas Common Stock pursuant to Article II and other applicable provisions of the
Merger Agreement. The full text of the written opinion of Furman Selz, which
sets forth the assumptions made, matters considered and limitations on the
review undertaken by Furman Selz, is attached as Appendix C hereto. Vitas
stockholders are urged to read the opinion carefully in its entirety. See "THE
MERGER--Fairness Opinion of Vitas' Financial Advisor."
Effective Time of the Merger. The Merger will become effective upon the
filing of a Certificate of Merger or other appropriate documents (in any such
case, the "Certificate of Merger") with the Delaware Secretary of State, or at
such later time as Apria Sub and Vitas specify in the Certificate of Merger (the
close of business on such date of filing, or such later date as set forth
therein, is hereinafter referred to as the "Effective Time"). The Effective Time
is currently expected to occur on or as promptly as practicable after October
__, 1996, subject to approval by the stockholders of Vitas of the matters
described herein and satisfaction or waiver of the conditions precedent to the
Merger set forth in the Merger Agreement. See "THE MERGER AGREEMENT--Effective
Time of the Merger" and "--Conditions to the Merger."
Recent Market Price of Apria Common Stock. On August 22, 1996, the
closing price of Apria Common Stock on the NYSE composite tape was $24.00.
See "MARKET PRICE AND DIVIDENDS."
Conditions to Merger. The respective obligations of Vitas and Apria to
effect the Merger are subject to the satisfaction or waiver on or prior to the
Closing Date of the following conditions: (i) the requisite approvals of the
Vitas stockholders shall have been obtained; (ii) the shares of Apria Common
Stock issuable to Vitas' securityholders (including holders of the Stock
Options, Warrants and Series B Preferred) pursuant to the Merger Agreement shall
have been approved for listing on the NYSE, subject to official notice of
issuance; (iii) no litigation brought by a Governmental Entity (as defined in
the Merger Agreement) shall be pending, and no litigation shall be threatened by
any Governmental Entity, which seeks to enjoin or prohibit the consummation of
the Merger, and no temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or other
legal restraint or prohibition preventing the consummation of the Merger shall
be in effect; (iv) the Registration Statement on Form S-4 of Apria with respect
to the shares of Apria Common Stock to be issued in connection with the Merger
(the "Registration Statement") shall have been declared effective by the
Commission under the 1933 Act and no stop order suspending the effectiveness of
the Registration Statement shall have been issued by the Commission, and no
proceedings for that purpose shall have been initiated or, to the knowledge of
Apria or Vitas, threatened by the Commission; (v) any applicable waiting period
(and any extension thereof) under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "Hart-Scott Act"), shall have expired or been
terminated; and (vi) other than the filing of merger documents in accordance
with the Delaware GCL, all authorizations, consents, waivers, orders or
approvals required to be obtained, and all filings, notices or declarations
required to be made, by Apria, Apria Sub and Vitas prior to the consummation of
the Merger and the transactions contemplated under the Merger Agreement shall
have been obtained from, and made with, all required Governmental Entities
except for such authorizations, consents, waivers, orders, approvals, filings,
notices or declarations the failure to obtain or make which would not have a
material adverse effect, at or after the Effective Time, on Vitas or Apria or on
the effectiveness of the Merger. See "THE MERGER AGREEMENT -- Conditions to the
Merger."
The obligations of Apria and Apria Sub to effect the Merger also are
subject to certain additional conditions, including without limitation the
following: (i) Apria shall have received from Ernst & Young LLP, as independent
auditors of Apria, letters regarding its concurrence with the conclusion of the
management of Apria as to the appropriateness of pooling-of-interests accounting
for the Merger under Accounting Principles Board Opinion No. 16 if the Merger is
consummated in accordance with the terms of the Merger Agreement; (ii) at or
immediately prior to the Closing Date, the holder of the 9% Preferred, subject
to consummation of the Merger, shall have sold or made a binding and enforceable
commitment to sell the 9% Preferred to Apria as contemplated by the Merger
Agreement and the holders of the Warrants shall have surrendered the Warrants
for exchange as contemplated by the Merger Agreement and, in each case, Apria
shall have received all instruments reasonably required to be delivered by the
holders of the 9% Preferred and the Warrants to ensure compliance with such
commitments to sell and exchange; (iii) at or immediately prior to the Closing
Date, the holders of all the Series B Preferred, subject to consummation
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<PAGE> 22
of the Merger, shall have converted or made binding and enforceable commitments
to convert the Series B Preferred into shares of Vitas Common Stock in
accordance with the terms of the Series B Preferred Certificate, and Apria shall
have received all instruments reasonably required to be delivered by the holders
of the Series B Preferred to ensure compliance with such commitment to convert;
(iv) Apria shall have received from each Person (as such term is defined in the
Merger Agreement) who may be deemed to be an affiliate of Vitas (under Rule 145
of the 1933 Act or otherwise under applicable Commission accounting releases
with respect to pooling-of-interests accounting treatment) on or prior to the
Closing Date a signed agreement substantially in the form of an exhibit to the
Merger Agreement (an "Affiliate Letter"); (v) each signatory to the Significant
Securityholders Agreement shall have complied in all material respects with all
agreements or covenants required by the Significant Securityholders Agreement to
be performed or complied with by such Person to the extent such compliance was
called for at or prior to the Closing Date; (vi) the aggregate number of shares
as to which appraisal rights shall have been perfected shall not exceed 9% of
the outstanding shares of Vitas Common Stock nor include any outstanding shares
of the Series B Preferred; (vii) the named investors (or any successors or
assigns of their rights) under the Investor Agreement and the Stockholders'
Agreement shall have acknowledged their waiver of any preemptive rights to any
new common stock of the Surviving Corporation and any other ongoing obligations
of the Surviving Corporation under either such agreement and such agreements
shall be terminated as of the Closing Date, subject to consummation of the
Merger; (viii) the holders of Vitas Common Stock and Series B Preferred shall
have approved separately the payments to be made to Mr. Westbrook and Collibrook
under the Severance Agreement and the payments to be made to Mr. Westbrook under
the Noncompetition Agreement; (ix) on or prior to the Closing Date, the
aggregate number of shares of Vitas Common Stock issued upon exercise of Stock
Options and the Warrants shall not exceed 10% of the aggregate number of shares
of Vitas Common Stock issuable upon exercise thereof and Vitas shall not have
received any notice of exercise that would result in the issuance of more than
said number of shares of Vitas Common Stock; and (x) Apria shall have received
the opinions of counsel to Vitas concerning certain legal matters. See "THE
MERGER AGREEMENT -- Conditions to the Merger."
The obligation of Vitas to effect the Merger also is subject to certain
additional conditions, including without limitation the following: (i) Vitas
shall have received from Ernst & Young LLP, as independent auditors of Vitas,
letters regarding its concurrence with the conclusion of the management of Vitas
as to the appropriateness of pooling-of-interests accounting for the Merger
under Accounting Principles Board Opinion No. 16 if the Merger is consummated in
accordance with the terms of the Merger Agreement; and (ii) Vitas shall have
received the opinion of counsel to Apria concerning certain legal matters. See
"THE MERGER AGREEMENT -- Conditions to the Merger."
Exchange of Stock Certificates and Warrants. After the Effective Time,
holders of Vitas Common Stock will be furnished with a letter of transmittal to
be used to exchange their certificates and securities for certificates
representing shares of Apria Common Stock to which they respectively are
entitled. Securityholders should not return any stock certificates with the form
of proxy accompanying this Proxy Statement/Prospectus. See "THE MERGER
AGREEMENT--Exchange of Stock Certificates and Warrants."
Management after the Merger. Each member of the Board of Directors of
Vitas will resign as a director, effective upon consummation of the Merger. The
Chairman of the Board of Directors of Apria, Jeremy M. Jones, will, immediately
following the Effective Time, be the sole director of Vitas. The officers of
Vitas immediately prior to the Effective Time (other than Mr. Westbrook, Ms.
Colliflower and Dr. Williams, each of whom are expected to resign or otherwise
terminate their employment with Vitas as of the Effective Time) will continue as
the officers of Vitas and will serve at the pleasure of the Vitas Board. Raymond
H. Noeker, Jr. will become the Chief Executive Officer of Vitas at the Effective
Time. Mr. Noeker has been employed by Apria for over 15 years in various
executive level positions both at the corporate and operating levels. See "THE
MERGER AGREEMENT--Management After the Merger" and "--Conditions to the Merger."
Interests of Certain Persons in the Merger. At or prior to the Closing
Date, Vitas and Apria will enter into the Noncompetition Agreement with Mr.
Westbrook and the Severance Agreement with Mr. Westbrook, Ms. Colliflower and
Collibrook. Pursuant to the Severance Agreement, Mr. Westbrook will be entitled
to receive, at the Effective Time, a cash severance payment of $1.25 million
less certain offsets based on other benefits payable to him and the value of
life insurance policies to be assigned to him. The Severance Agreement will also
entitle
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<PAGE> 23
Collibrook to receive $0.25 million payable at the Effective Time for
providing consulting services to Vitas for a period of one year. Pursuant to the
Noncompetition Agreement, Mr. Westbrook will be entitled to receive an aggregate
payment of $7.0 million, payable $5.0 million at the Effective Time and $1.0
million on each of the first two anniversaries of the Effective Time. The
payments to be made to Mr. Westbrook and Collibrook under the Severance
Agreement and the payments to be made to Mr. Westbrook under the Noncompetition
Agreement are subject to the consummation of the Merger. See "THE MERGER --
Interests of Certain Persons in the Merger -- Payments to Mr. Westbrook" and
"PROPOSAL TO APPROVE SEPARATELY THE PAYMENTS TO HUGH A. WESTBROOK AND COLLIBROOK
PURSUANT TO THE SEVERANCE AND NONCOMPETITION AGREEMENTS TO BE ENTERED INTO IN
CONNECTION WITH THE MERGER IN ORDER THAT SUCH PAYMENTS NOT BE CHARACTERIZED AS
"PARACHUTE PAYMENTS" FOR PURPOSES OF SECTIONS 280G AND 4999 OF THE CODE."
Vitas also has entered into Special Severance Agreements ("SSAs") with,
among others persons, the following five executive officers of Vitas: Esther T.
Colliflower, a co-founder of Vitas and a Vice Chairperson; J.R. Williams, M.D.,
Executive Vice President and Chief Patient Care Officer; Richard I. Nevin, Jr.,
Executive Vice President -- Operations; Mark Ohlendorf, Vice President, Chief
Financial Officer, Treasurer and Assistant Secretary; and Mark A. Sterling, Vice
President -- Legal and Regulatory Affairs and Secretary. Pursuant to the
respective SSAs, the executive officers are entitled to certain severance
benefits if their employment is terminated within certain time periods after a
change in control other than for "cause" or if they end their employment for
"good reason." Pursuant to the terms of the Merger Agreement, Vitas has agreed
to offer to amend such SSAs and, to the extent applicable, any other relevant
agreements, to provide, effective as of the Effective Time, (a) that the total
severance benefit payable to such persons shall be a minimum of $650,000,
$600,000, $272,250, $355,925 and $412,400, respectively (it being understood
that such modifications will not impair the existing agreements of Ms.
Colliflower or Dr. Williams to refrain from competing with Vitas), and (b) that
as a condition of such amendments, such persons shall waive any and all claims
against Vitas, Apria and their respective affiliates. If such SSAs and other
agreements are not amended, the total severance benefits payable to such persons
would be $406,440, $315,000, $272,250, $177,963 and $206,200, respectively. The
Merger Agreement contemplates that the payments to Ms. Colliflower and Dr.
Williams are to be paid on the Closing Date because their employment with
Vitas is expected to be terminated immediately prior to the Effective Time. See
"THE MERGER--Interests of Certain Persons in the Merger--Special Severance
Agreements."
The Merger Agreement provides that for six years from the Effective
Time, the Surviving Corporation will maintain in effect directors' and officers'
liability insurance against claims asserted based on acts or omissions occurring
at or prior to the Effective Time covering those Persons who are currently
covered by Vitas' directors' and officers' liability insurance policy, on terms
substantially as favorable as the terms of such insurance coverage, subject to
certain limitations. The Merger Agreement also provides that the Surviving
Corporation will keep in effect the provisions in its Certificate of
Incorporation and Bylaws providing for exculpation of director and officer
liability and indemnification to the fullest extent permitted under the Delaware
GCL, subject to certain limitations. See "THE MERGER--Interests of Certain
Persons in the Merger--Indemnification."
William P. Ferretti and Timothy S. O'Toole, directors of Vitas,
currently hold vested Stock Options that will become exercisable as a result of
the Merger and that are expected to be exchanged for Apria Common Stock. In
addition, certain Stock Options held by Messrs. Nevin, Ohlendorf and Sterling
will vest and become exercisable or will otherwise be exchangeable for Apria
Common Stock as a result of the Merger and are expected to be exchanged for
Apria Common Stock. See "THE MERGER--Interests of Certain Persons in the
Merger--Stock Options."
The Stockholders' Agreement provides that, so long as the Stockholders'
Agreement remains in effect and provided either of the Principal Investors
(defined therein to mean Galen Partners II, L.P. and Galen Partners
International II, L.P. (collectively, the "Principal Galen Entities") and
Warburg, Pincus Investors, L.P.) has voting power through its ownership of
voting securities of Vitas equal to at least five percent of the total votes
entitled to be cast at meetings of Vitas' stockholders when all classes are
voting together and not as individual classes ("Voting Power"), the holders of a
majority of the outstanding shares of Series B Preferred shall be entitled to
vote for and elect as directors either one or both of the Principal Investors'
designees to the Vitas Board of Directors, depending on whether one or both of
the Principal Investors have Voting Power. Bruce F. Wesson and Patrick T.
Hackett, the designees of the Principal Galen Entities and Warburg, Pincus
Investors, L.P., respectively, are serving as directors
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<PAGE> 24
of Vitas in accordance
with this provision. The Investor Agreement provides that, as long as OCR
beneficially owns at least ten percent of the outstanding shares of Vitas Common
Stock, Vitas is obligated to nominate one person designated by OCR for election
as a director of Vitas. Mr. O'Toole, an officer and director of Chemed, was
nominated to serve as a director of Vitas in accordance with this provision. The
Investor Agreement provides, among other things, that, as long as the Vitas
Board of Directors is composed of ten or fewer directors, OCR shall be entitled
to only one designee. See "THE MERGER -- Interests of Certain Persons in the
Merger."
Regulatory Matters. Apria and Vitas each filed pre-merger notification
forms with the Federal Trade Commission and the Department of Justice under the
Hart-Scott Act. Early termination of the required waiting period under the
Hart-Scott Act was effective on June 24, 1996 without Apria or Vitas receiving a
request for additional information. Apria and Vitas also reviewed other
applicable government regulations to determine whether consummation of the
Merger, as structured, would require notice, consent or re-licensure of the
hospice and other healthcare programs operated by Vitas and its subsidiaries. In
one or more states, notice of the Merger and/or an application for a new license
is required. It is a condition precedent to the Merger that all such notices and
applications have been filed, and any consents have been obtained, except for
those notices, applications and consents the failure of which to file or obtain,
as the case may be, would not have a material adverse effect on Apria or Vitas.
No other material federal or state regulatory approvals must be obtained in
order to consummate the Merger. See "THE MERGER--Regulatory Approvals."
Accounting Treatment. The Merger will be accounted for by Apria as a
pooling-of-interests. See "THE MERGER--Accounting Treatment."
Certain Federal Income Tax Consequences. The Merger will constitute a
taxable sale of Vitas Common Stock and other Vitas securities. Gain or loss will
be recognized by Vitas securityholders on the exchange of Vitas Common Stock and
other Vitas securities for Apria Common Stock. See "THE MERGER--Certain Federal
Income Tax Consequences."
Termination. The Merger Agreement may be terminated and the Merger may
be abandoned by action of the Board of Directors of either Apria or Vitas, and
notice thereof given in writing to the other party (i) if any Governmental
Entity shall have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the consummation of
the Merger and such order, decree or ruling or other action shall have become
final and nonappealable, (ii) if the Merger shall not have occurred by October
31, 1996, unless the failure to consummate the Merger is the result of a breach
of a covenant set forth in the Merger Agreement or a misrepresentation or breach
of any warranty set forth in the Merger Agreement by the party seeking to
terminate the Merger Agreement (the "Expiration Date") or (iii) if the Market
Price (as defined below) is greater than $42.125 or less than $22.125. The
Merger Agreement also may be terminated by Apria and Vitas as more specifically
set forth in the Merger Agreement. See "THE MERGER AGREEMENT--Termination."
Certain termination fees may be payable by Vitas in the event the Merger
Agreement is terminated for certain reasons. See "THE MERGER AGREEMENT--Effect
of Termination."
Dissenters' Rights. Vitas stockholders have the right to dissent from
the Merger and perfect appraisal rights as to the fair value of the Vitas stock
held by them as of the Effective Time. To exercise the appraisal rights, a
stockholder must file with Vitas a written demand for appraisal prior to the
vote on the Merger at the Special Meeting. Failure to comply with the foregoing
condition will result in the loss of those appraisal rights. Since the
preservation and exercise of appraisal rights are conditioned upon strict
observance of the applicable section of the Delaware GCL, each Vitas stockholder
who might exercise appraisal rights should consult and strictly observe the
statute. A copy of the statute is attached to this Proxy Statement/Prospectus as
Appendix D. See "THE SPECIAL MEETING"; "THE MERGER"; "RIGHTS OF DISSENTING VITAS
STOCKHOLDERS" and "PRINCIPAL STOCKHOLDERS -- Vitas Security Ownership."
Resales of Apria Common Stock. The shares of Apria Common Stock to be
issued pursuant to the Merger Agreement have been registered under the 1933 Act,
and therefore may be resold without restriction by persons who are not deemed to
be "affiliates" (as such term is defined under the 1933 Act) of either Apria or
Vitas. See "THE MERGER--Restrictions on Sales by Affiliates; Pooling
Considerations."
16
<PAGE> 25
SELECTED FINANCIAL INFORMATION
Apria and Subsidiaries. The following selected financial data for the
five years ended December 31, 1995 are derived from the audited consolidated
financial statements of Apria. The financial data for the six month periods
ended June 30, 1995 and 1996 are derived from unaudited financial statements.
The unaudited financial statements include all adjustments, consisting of normal
recurring accruals, that Apria considers necessary for a fair presentation of
the financial position and the results of operations for these periods.
Operating results for the six months ended June 30, 1996 are not necessarily
indicative of the results that may be expected for the entire year ending
December 31, 1996. The data should be read in conjunction with Apria's
consolidated financial statements, related notes and other financial information
incorporated herein by reference. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------------- ----------------------
1991(1)(2) 1992(1)(3) 1993(1)(4) 1994(1)(5) 1995(1)(6) 1995(1) 1996
---------- --------- --------- --------- --------- -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues ............................ $420,338 $513,269 $748,901 $962,812 $1,133,600 $571,895 $ 601,882
Gross profit ............................ 291,582 359,237 522,777 675,122 772,601 398,089 410,848
Income (loss) from continuing
operations before extraordinary items
and cumulative effect of change in
accounting method ..................... 2,747 22,752 35,845 35,616 (71,478) 23,289 42,234
Net income (loss) ....................... 30,343 27,256 37,311 39,031 (74,476) 20,291 42,234
Per common and common equivalent
share:
(Loss) income from continuing
operations before extraordinary
items and cumulative effect of
change in accounting method .......... $ (0.26) $ 0.61 $ 0.94 $ 0.81 $ (1.52) $ 0.49 $ 0.81
Net income (loss) per common share .... $ 0.68 $ 0.73 $ 0.98 $ 0.89 $ (1.58) $ 0.43 $ 0.81
Per common and common equivalent
share assuming full dilution:
(Loss) income from continuing
operations before extraordinary
items and cumulative effect of
change in accounting method .......... $ (0.26) $ 0.61 $ 0.89 $ 0.78 $ (1.52) $ 0.47 $ 0.81
Net income (loss) per common share .... $ 0.68 $ 0.73 $ 0.93 $ 0.85 $ (1.58) $ 0.41 $ 0.81
BALANCE SHEET DATA:
Working capital ....................... $ 42,172 $109,122 $187,370 $157,608 $ 198,630 $ 260,123 $ 336,185
Total assets .......................... 224,929 402,216 710,122 856,167 979,985 1,009,706 1,111,478
Long-term obligations, including
current maturities ................... 106,745 202,071 391,822 438,304 500,307 512,816 621,066
Stockholders' equity .................. 33,647 80,401 176,632 261,910 284,238 349,798 348,703
</TABLE>
- ----------------------
(1) The Statement of Operations and Balance Sheet Data reflect the June 28,
1995 Abbey/Homedco Merger using the pooling-of-interests method of
accounting. Accordingly, the financial data for all periods prior to June
28, 1995 have been restated as though the two companies had been combined.
(2) Net income (loss) applicable to common stockholders and net income (loss)
per common share prior to May 1991 include the impact of (a) the accretion
to fair market value of a warrant with put option of $5,702 and (b) the
accretion of preferred stock dividends of $591 in accordance with generally
accepted accounting principles. The warrant was exercised upon consummation
of Homedco's initial public offering in 1991 and the put feature which
necessitated the accretion of fair market value terminated. In addition,
Apria redeemed a portion of the outstanding preferred stock thereby
eliminating the dividend accretion thereon.
(3) The Statement of Operations and Balance Sheet Data reflect the acquisition
on August 7, 1992 of substantially all of the business and assets of
Glasrock Home Healthcare, Inc. and a related restructuring charge of
approximately $4.3 million.
(4) The Statement of Operations and Balance Sheet Data reflect the acquisition
on November 10, 1993 of the outstanding stock of Total Pharmaceutical Care,
Inc.
(5) In 1994, Apria disposed of a subsidiary as described in the notes to the
consolidated financial statements incorporated into this Proxy
Statement/Prospectus by reference.
(6) In 1995, Apria incurred charges related to the Abbey/Homedco Merger,
restructuring and integration activities as discussed in the notes to the
consolidated financial statements incorporated into this Proxy
Statement/Prospectus by reference.
17
<PAGE> 26
Vitas. The following table sets forth certain selected financial data
for the fiscal years ended September 30, 1991 through 1995 and for the
nine-month periods ended June 30, 1995 and 1996. The financial data for the five
years ended September 30, 1995 have been derived from the audited consolidated
financial statements and notes thereto, certain of which are contained elsewhere
in this Proxy Statement/Prospectus. The financial data for the nine-month
periods ended June 30, 1995 and 1996 are derived from unaudited consolidated
financial statements of Vitas. The unaudited Vitas consolidated financial
statements include all adjustments, consisting of normal recurring accruals,
that Vitas considers necessary for a fair presentation of the financial position
and the results of operations for these periods. Operating results for the nine
months ended June 30, 1996 are not necessarily indicative of the results that
may be expected for the entire year ending September 30, 1996. The following
selected financial data should be read in conjunction with the Vitas
consolidated financial statements and notes thereto included in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net patient service revenue................... $90,104 $116,787 $150,964 $175,832 $230,854 $165,815 $191,514
Gross profit ................................. 33,585 40,300 56,739 66,990 82,292 60,523 65,914
Income (loss) before cumulative effect of
change in accounting method ............... 1,386 1,986 (183) 5,141 (2,845) (2,515) 598
Net income (loss) ............................ 1,386 1,986 76 5,141 (2,845) (2,515) 598
Net income (loss) applicable to common
stockholders .............................. 1,386 265 (3,038) 543 (7,443) (5,965) (2,852)
Per common and common equivalent share (1):
Income (loss) before cumulative effect of
change in accounting method ............. $ .21 $ .03 $ (.60) $ .15 $ (1.69) $ (1.36) $ (.65)
Net income (loss) per common share ........ $ .21 $ .03 $ (.55) $ .15 $ (1.69) $ (1.36) $ (.65)
BALANCE SHEET DATA:
Working capital (deficiency)............... $(1,503) $ 1,282 $ 12,663 $ 14,813 $ 7,414 $ 11,540 $(27,332)
Total assets .............................. 23,279 39,363 56,276 53,936 98,007 103,315 94,428
Long-term obligations, including
current maturities ...................... 5,547 6,001 2,891 5,912 45,812 48,728 45,668
Redeemable preferred stock ................ - 27,053 53,987 56,155 58,323 54,781 59,949
Stockholders' deficit ..................... (146) (19,227) (31,204) (30,283) (37,267) (35,304) (39,146)
</TABLE>
- ---------------------
(1) Per share net income (loss) applicable to common stockholders includes the
accretion of preferred stock dividends in accordance with generally
accepted accounting principles. Fully diluted earnings per share are
antidilutive for the periods and are not presented.
18
<PAGE> 27
SELECTED QUARTERLY FINANCIAL INFORMATION - VITAS
The following table presents the consolidated operating results of
Vitas for each of the eleven quarters in the period ended June 30, 1996. The
information for each of these quarters is unaudited and has been prepared on the
same basis as the audited consolidated financial statements appearing elsewhere
in this Proxy Statement/Prospectus. In the opinion of Vitas management, all
adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the results of operations for the interim periods presented have
been reflected herein. For further information, refer to the Vitas consolidated
financial statements and notes thereto included in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------
Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1993 1994 1994 1994 1994 1995
------- ------- ------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net patient service
revenue............... $43,275 $41,862 $44,940 $45,755 $47,421 $53,954
Gross profit.............. 16,393 16,271 17,367 16,959 18,575 20,103
Net income (loss)......... 1,687 1,703 1,596 155 1,073 (771)
Net income (loss)
applicable to common
stockholders.......... 537 554 446 (994) (76) (1,922)
PER COMMON AND COMMON
EQUIVALENT SHARE (1):
Net income (loss) per
common share.......... .07 .07 .06 (.23) (.02) (.44)
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------
June 30, Sept. 30, Dec. 31, Mar. 31, June 30,
1995 1995 1995 1996 1996
------- -------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net patient service
revenue............... $64,440 $65,039 $65,065 $64,454 $61,995
Gross profit.............. 21,845 21,768 22,564 22,343 21,007
Net income (loss)......... (2,817) (330) 372 396 (170)
Net income (loss)
applicable to common
stockholders.......... (3,967) (1,478) (778) (754) (1,320)
PER COMMON AND COMMON
EQUIVALENT SHARE (1):
Net income (loss) per
common share.......... (.90) (.34) (.18) (.17) (.30)
</TABLE>
- ----------------------
(1) Fully diluted earnings per share are antidilutive for the periods and are
not presented.
19
<PAGE> 28
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following table presents summary unaudited pro forma selected
operations data for each of the three years in the period ended December 31,
1995 and the six month periods ended June 30, 1995 and June 30, 1996, after
giving effect to the Merger as if such Merger were consummated on January 1,
1993, and unaudited pro forma selected balance sheet data at June 30, 1996,
giving effect to the Merger as if the Merger were consummated on that date,
using the pooling-of-interests method of accounting.
The following summary unaudited pro forma condensed combined financial
data is provided for comparative purposes only and should be read in conjunction
with the unaudited pro forma condensed combined financial statements and notes
thereto (see "UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS"), and
the separate audited consolidated financial statements and related notes thereto
incorporated herein by reference for Apria and included elsewhere in this Proxy
Statement/Prospectus for Vitas. The following summary unaudited pro forma
condensed combined financial data does not purport to be indicative of the
results which actually would have occurred if the Merger had been consummated on
the dates indicated or which may be obtained in the future.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------- -----------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net revenues....................................... $898,665 $1,137,438 $1,363,192 $672,724 $726,904
Cost of net revenues............................... 319,149 395,326 508,299 235,957 272,706
-------- ---------- ---------- -------- --------
Gross profit..................................... 579,516 742,112 854,893 436,767 454,198
Selling, distribution and administrative expenses.. 458,663 570,991 675,268 326,103 322,448
Provision for doubtful accounts, net of
recoveries....................................... 37,759 50,689 59,851 29,389 30,440
Amortization of intangible assets.................. 4,822 12,665 18,097 8,805 9,718
Restructuring costs................................ - - 70,324 2,661 -
Merger costs....................................... - - 12,193 6,988 -
Special provision for uncollectible accounts....... - - 47,440 - -
Employee contracts, benefit plan and claim
settlements...................................... - - 20,367 3,206 -
Forgiveness of officer loans....................... 4,700 - - - -
Loss on disposal of U.K. subsidiary................ - - 500 500 -
-------- ---------- ---------- -------- --------
Operating income (loss).......................... 73,572 107,767 (49,147) 59,115 91,592
Interest expense, net of interest (income)......... 18,169 36,756 45,705 22,314 25,193
-------- ---------- ---------- -------- --------
Income (loss) from continuing operations
before taxes, extraordinary charge and
cumulative effect of change in accounting
method......................................... 55,403 71,011 (94,852) 36,801 66,399
Income tax provision (benefit)..................... 19,741 30,254 (20,529) 13,210 23,939
-------- ---------- ---------- -------- --------
Income (loss) from continuing operations
before extraordinary charge and cumulative
effect of change in accounting method.......... $ 35,662 $ 40,757 $ (74,323) $ 23,591 $ 42,460
======== ========== ========== ======== ========
Income (loss) from continuing operations
before extraordinary charge and cumulative
effect of change in accounting method
applicable to common stockholders.............. $ 32,548 $ 36,159 $ (78,921) $ 21,291 $ 40,160
======== ========== ========== ======== ========
Per common and common equivalent share:
Primary.......................................... $.82 $.78 $(1.63) $.44 $.75
Fully diluted.................................... $.79 $.76 $(1.63) $.42 $.75
Number of shares used in calculation:
Primary.......................................... 39,741 47,724 48,389 48,772 53,565
Fully diluted.................................... 45,467 53,008 48,389 52,427 53,678
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30,
1996
---------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................................... $ 26,680
Working capital................................................. 337,211
Total assets.................................................... 1,217,021
Long-term obligations, including current maturities............. 698,820
Stockholders' equity............................................ 338,006
</TABLE>
20
<PAGE> 29
MARKET PRICE AND DIVIDENDS
Vitas Common Stock. Vitas Common Stock was owned by 44 stockholders of
record as of the Vitas Record Date and there is not and has been no public
market for Vitas Common Stock. No dividends have been declared or paid by Vitas
on Vitas Common Stock since its inception.
Apria Common Stock. Apria Common Stock is traded on the NYSE under the
symbol AHG. Prior to May 16, 1996, Apria Common Stock was listed and traded on
the Nasdaq National Market under the symbol APRA. The table below sets forth,
for the calendar periods indicated, the high and low market prices per share of
Apria Common Stock as reported by the NYSE and Nasdaq, adjusted to give
retroactive effect to the Abbey/Homedco Merger. At the close of business on June
6, 1996, the trading day immediately preceding the public announcement of the
proposed Merger, the closing sales price on the NYSE composite tape of Apria
Common Stock was $31.875 per share. For current price information, stockholders
are encouraged to consult publicly available sources. No cash dividends have
been declared or paid by Apria in the last five years.
<TABLE>
<CAPTION>
HOMEDCO ABBEY APRIA
----------------- ----------------- ------------------
HIGH LOW HIGH LOW HIGH LOW
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31,
1994
First Quarter.............. $19.500 $14.875 $20.714 $16.964 -- --
Second Quarter............. 18.625 13.313 17.143 10.536 -- --
Third Quarter.............. 17.500 14.313 13.571 10.893 -- --
Fourth Quarter............. 19.250 16.250 16.786 12.500 -- --
Year ended December 31,
1995
First Quarter.............. $27.563 $18.500 $26.339 $19.911 -- --
Second Quarter............. 29.938 24.250 29.464 24.643 -- --
Third Quarter.............. -- -- -- -- $35.250 $24.000
Fourth Quarter............. -- -- -- -- 30.250 20.000
Year ended December 31,
1996
First Quarter.............. -- -- -- -- $32.000 $24.250
Second Quarter (1)......... -- -- -- -- 35.250 29.250
Third Quarter (2).......... -- -- -- -- 32.750 23.375
</TABLE>
- -------------------
(1) These figures represent the high and low market prices per share of
Apria's Common Stock on the Nasdaq Stock Market and on the NYSE.
(2) Through August 15, 1996.
21
<PAGE> 30
COMPARATIVE PER SHARE DATA
The following table presents historical per share data of Apria and
historical and equivalent pro forma per share data of Vitas after giving effect
to the Merger using the pooling-of-interests method of accounting, assuming the
Merger had been effective during all periods presented. The pro forma equivalent
data of Vitas are based on the pro forma combined amounts per share multiplied
by .290, representing the number of shares of Apria Common Stock issuable in
exchange for one share of Vitas Common Stock in the Merger, excluding the effect
of certain adjustments. The pro forma data does not purport to be indicative of
the results of future operations or the results that would have occurred had the
Merger been consummated at the beginning of the periods presented. The
information set forth below should be read in conjunction with the financial
statements and notes thereto of Apria incorporated herein by reference and the
financial statements and notes thereto of Vitas and the unaudited pro forma
combined condensed financial statements included elsewhere in this Proxy
Statement/Prospectus. Neither Apria nor Vitas paid any cash dividends on their
Common Stock during the periods presented.
<TABLE>
<CAPTION>
Apria Vitas
---------- ----------------------------
Pro forma Equivalent
Combined Historical Historical (1) Pro Forma
-------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Book value per share of common stock outstanding:
At December 31, 1995.................................... $5.05 $5.72 $(8.47) $1.46
At June 30, 1996........................................ $6.09 $6.84 $(8.88) $1.77
Fully diluted income (loss) per share from continuing
operations before extraordinary charge and cumulative
effect of change in accounting method (1):
1995...................................................... (1.63) (1.52) (1.69) (.47)
1994...................................................... .76 .78 .15 .22
1993...................................................... .79 .89 (.60) .23
Six months ended June 30, 1996............................ .75 .81 (.47) .22
Six months ended June 30, 1995 (2)........................ .42 .47 (.45) .12
</TABLE>
- ----------------------------
(1) The annual information with respect to Vitas is for the fiscal years ended
September 30, 1995, 1994 and 1993.
(2) The information for the six months in 1995 with respect to Vitas is for
the six months ended March 31, 1995.
22
<PAGE> 31
INVESTMENT CONSIDERATIONS
The following factors should be considered carefully by the
stockholders of Vitas in connection with voting upon the Merger Agreement and
the transactions contemplated thereby. The following discussion contains
"forward- looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, which can be identified by the use of
forward-looking terminology, such as "may," "will," "expect," "anticipate,"
"estimate" or "continue" or the negative thereof or other variations thereon or
comparable terminology. See "FORWARD LOOKING STATEMENTS." The matters set forth
below constitute cautionary statements identifying important factors with
respect to such forward-looking statements, including certain risks and
uncertainties, that could cause actual results to differ materially from those
in such forward-looking statements. For a discussion of potential consequences
to Vitas and its stockholders if the Merger Agreement is not approved and
adopted by Vitas' stockholders, see "The MERGER--Reasons for the Merger and
Recommendation of the Board of Directors," and "Vitas Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
INTEGRATION OF THE BUSINESSES
The Merger involves the partial integration of two companies that have
previously operated independently. Among the factors considered by the Boards of
Directors of Apria and Vitas in connection with their approval of the Merger
Agreement were the opportunities for operating efficiencies that should result
from the Merger. While Apria and Vitas expect to achieve savings in operating
costs as a result of the Merger, Apria previously has not provided hospice
services and no assurance can be given that difficulties will not be encountered
by Apria in operating Vitas or in partially integrating the operations of Apria
and Vitas or that the benefits expected from such operation and partial
integration will be realized. Any delays or unexpected costs incurred in
connection with such operation or partial integration could have a material
adverse effect on Apria's and Vitas' business, results of operations or
financial condition. See "The MERGER."
HEALTHCARE REFORM/PRICING PRESSURE
Healthcare is an area of extensive and dynamic regulatory change.
Changes in the law, new interpretations of existing laws, or changes in payment
methodology, may have a dramatic effect on the definition of permissible or
impermissible activities, the relative costs associated with doing business and
the amount of reimbursement by both government and other third-party payors. In
addition to specific legislative and regulatory influences, efforts to reduce
the growth of the federal budget and the Medicare and Medicaid programs have
spurred healthcare reform proposals by the current administration and by members
of Congress. In addition, state legislatures periodically consider various
healthcare reform proposals. Congress and state legislatures can be expected to
continue to review and assess alternative healthcare delivery systems and
payment methodologies, and public debate of these issues can be expected to
continue in the future.
In addition, the healthcare industry is currently experiencing
market-driven reforms from forces within and outside the industry that are
exerting pressure on healthcare companies to reduce healthcare costs. These
market- driven reforms are resulting in industry-wide consolidation that is
expected to increase the downward pressure on home healthcare and hospice
margins, as larger buyer and supplier groups exert pricing pressure on home
healthcare and hospice providers. The ultimate timing or effect of legislative
efforts and market driven reforms cannot be predicted, and short-term cost
containment initiatives may vary substantially from long-term reforms and may
impact Apria and Vitas in different ways. No assurance can be given that any
such efforts or reforms will not have a material adverse effect on Apria's and
Vitas' business, results of operations or financial condition.
REGULATORY ENVIRONMENT
A substantial portion of each of Apria's and Vitas' revenues is
attributable to payments received from third-party payors, including the
Medicare and Medicaid programs and private insurers. Many payors are increasing
pressures to control healthcare costs. In addition, both public and private
payors are increasing pressures to decrease or limit increases in reimbursement
rates for healthcare services. The levels of revenues and profitability of Apria
and Vitas, similar to those of other healthcare companies, will be subject to
the effect of possible reductions in coverage or payment rates by third-party
payors. Such changes could have a material adverse effect on the business and
results of operations of Apria and Vitas. For example, in October 1995, the U.S.
House of Representatives and the Senate each passed federal budget bills aimed
at, among other things, containing Medicare and Medicaid spending. In early
December, the President vetoed the legislation in its then-current form and
announced a counter-proposal which included Medicare and Medicaid reductions
less drastic than those passed by Congress. The Medicare
23
<PAGE> 32
reimbursement reductions envisioned in these competing proposals could, if
passed into law, have a material adverse effect on Apria's and Vitas'
business, results of operations or financial condition.
Under Medicaid, hospice services are optional to the states. Most
states in which Vitas operates cover Medicaid hospice services; however, there
can be no assurance that the states in which Vitas is presently operating or
states into which it could expand operations will continue to cover Medicaid
hospice services. In addition, the Medicare and Medicaid programs are subject to
statutory and regulatory changes, retroactive and prospective rate and payment
adjustments, administrative rulings, freezes, and funding reductions, all of
which may adversely affect the level of program payments. Medicare and Medicaid
carriers and fiscal intermediaries also periodically conduct post-payment
reviews and other audits of claims submitted. These Medicare and Medicaid
contractors are under increasing pressure to scrutinize more closely health care
claims. There can be no assurance that reviews and/or audits of Apria's or
Vitas' claims will not result in material recoupments or denials which could
have a material adverse effect on Apria's and Vitas' business, results of
operations or financial condition.
As suppliers and providers of services under the Medicare and Medicaid
programs, Apria and Vitas are subject to Medicare and state healthcare program
fraud and abuse laws. These laws include the Medicare and Medicaid anti-kickback
statute, which prohibits, among other things, the offer, payment, solicitation
or receipt of any remuneration in return for the referral of patients for items
or services, or arranging for the furnishing of items or services, for which
payment may be made under the Medicare, Medicaid or other federally funded
health care programs. Violations of these provisions may result in civil and
criminal penalties and exclusion from participation in Medicare and state health
programs such as Medicaid. Several healthcare reform proposals have included an
expansion of the anti-kickback laws to include referrals of any patients
regardless of payor source.
The broad language of the anti-kickback statute has been interpreted by
the courts and governmental enforcement agencies in a manner which could impose
liability on healthcare providers for engaging in a wide variety of business
transactions. Limited "safe harbor" regulations exempt certain practices from
enforcement action under the prohibitions. However, these safe harbors are only
available to transactions which fall entirely within the narrowly defined
guidelines. Transactions that do not fall within the safe harbors do not
necessarily violate the fraud and abuse laws and, therefore, either may or may
not be subject to prosecution. In addition, an increasing number of states in
which Apria and Vitas operate have laws, which vary from state to state,
prohibiting certain direct or indirect remuneration or fee-splitting
arrangements between healthcare providers, regardless of payor source, for the
referral of patients to a particular provider. In addition, under separate
statutes, submission of claims for payment that are "not provided as claimed"
may lead to civil money penalties, criminal fines and imprisonment, and/or
exclusion from participation in Medicare, Medicaid and other federally funded
state healthcare programs. These false claims statutes include the Federal False
Claims Act, which allows any person to bring suit alleging false or fraudulent
Medicare or Medicaid claims or other violations of the statute and to share in
any amounts paid by the entity to the government in fines or settlement. Such
qui tam actions have increased significantly in recent years and have increased
the risk that a healthcare company will have to defend a false claims action,
pay fines or be excluded from the Medicare and/or Medicaid programs as a result
of an investigation arising out of such an action. Finally, Congress enacted in
1993 the so-called "Stark Law," which prohibits referrals by physicians to
certain entities with which they have a financial relationship unless an
exception applies. Several states in which Apria and Vitas operate also have
similar laws. Possible sanctions for violation of these laws include denial of
payment, loss of licensure and civil and criminal penalties.
Recently, the federal government made a policy decision to increase
significantly the financial and human resources allocated to enforcing the fraud
and abuse laws. Under Operation Restore Trust ("ORT"), the Office of the
Inspector General (the "OIG"), in cooperation with other federal and state
agencies, has focused on the activities of home health agencies, hospices,
durable medical equipment suppliers and nursing homes in New York, Florida,
Illinois, Texas and California, states in which Apria and Vitas have significant
operations. As part of ORT, certain of Vitas' programs have been audited. See
Note 5 to Notes to Condensed Consolidated Financial Statements (Unaudited) of
Vitas for the period ended June 30, 1996. Due to the early stage of the OIG's
hospice audit activities, the ultimate disposition of this audit and its
possible impact on Vitas cannot currently be predicted, and there can be no
assurance that this audit will not have a material adverse effect on Vitas'
business, results of operations or financial condition. Private insurers and
various state enforcement agencies also have increased their scrutiny of
healthcare claims in an effort to identify and prosecute fraudulent and abusive
practices. Apria and Vitas each maintains an internal regulatory compliance
review program and from time to time retains special counsel for guidance on
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applicable laws and regulations. However, no assurance can be given that the
practices of Apria or Vitas, if reviewed, would be found to be in compliance
with such laws, as such laws ultimately may be interpreted.
The federal government and all states regulate various aspects of the
home healthcare and hospice industries. In particular, Apria's and Vitas'
operations are subject to federal and state laws covering the repackaging and
dispensing of drugs (including oxygen) and regulating interstate motor-carrier
transportation, pharmacies, nursing services and certain types of home health
agency and hospice activities. Certain of Apria's and Vitas' employees are
subject to state laws and regulations governing the ethics and professional
practice of medicine, respiratory therapy, pharmacy and nursing. Apria's and
Vitas' operations are subject to periodic survey by governmental and private
accrediting entities to assure compliance with applicable state licensing,
Medicare and Medicaid certification, and accreditation standards, as the case
may be. From time to time in the ordinary course of business, Apria and Vitas,
like other healthcare companies, receive survey reports containing deficiencies
for alleged failure to comply with applicable requirements. The companies review
such reports and attempt to take appropriate corrective action. The failure to
effect such action or to obtain, renew or maintain any of the required
regulatory approvals, certifications or licenses could adversely affect Apria's
and Vitas' business, results of operations or financial condition and could
prevent the programs involved from offering products and services to patients.
In addition, laws and regulations often are adopted to regulate new products,
services and industries. There can be no assurances that either the states or
the federal government will not impose additional regulations upon the
activities of Apria and Vitas which might adversely affect their business,
results of operations or financial condition.
COMPETITION
The home healthcare and hospice markets are highly competitive and
include a limited number of national providers and numerous regional and local
providers. Apria and Vitas compete with a large number of organizations in many
areas in which their branch facilities and programs are located. Apria's and
Vitas' competitors include major national and regional companies, hospital-based
programs, numerous local companies, physician groups, nursing homes, home health
agencies, infusion therapy companies and nursing agencies. Some of the current
and potential competitors of Apria and Vitas have or may obtain significantly
greater financial and marketing resources than Apria or Vitas. In addition,
relatively few barriers to entry exist in the local markets served by Apria and
Vitas. Accordingly, other companies, including hospitals and healthcare
organizations that are not currently serving the home healthcare or hospice
markets, may enter the markets and expand the variety of services offered. There
can be no assurance that Apria and Vitas will not encounter increased
competition in the future that could limit their ability to maintain or increase
their market share. Such increased competition could have a material adverse
effect on Apria's and Vitas' business, results of operations or financial
condition.
DEPENDENCE ON RELATIONSHIPS WITH THIRD PARTIES
The profitability and growth of Apria's and Vitas' businesses depend on
their ability to establish and maintain close working relationships with managed
care organizations, private and governmental third-party payors, hospitals,
physicians, physician groups, home health agencies, long-term care facilities
and other institutional healthcare providers, and large self-insured employers.
There can be no assurance that Apria's or Vitas' existing relationships will be
successfully maintained or that additional relationships will be successfully
developed and maintained in existing or future markets. The loss of such
existing relationships or the failure to continue to develop such relationships
in the future could have a material adverse effect on Apria's and Vitas'
business, results of operations or financial condition.
CONCENTRATION OF LARGE PAYORS
Managed care organizations have grown substantially in terms of the
percentage of the population that is covered by such organizations and in terms
of their control over an increasing portion of the healthcare economy. Managed
care plans have continued to consolidate to enhance their ability to influence
the delivery of healthcare services. Apria and Vitas each have a number of
contractual arrangements with managed care organizations and other parties. None
of these arrangements accounted for more than 3% of Vitas' net revenues or 5% of
Apria's net revenues in fiscal 1995.
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POTENTIAL LIABILITY
Participants in the home healthcare and hospice markets are subject to
lawsuits alleging negligence, product liability or other similar legal theories,
many of which involve large claims and significant defense costs. From time to
time, Apria and Vitas each are subject to such lawsuits as a result of the
nature of their businesses. Although Apria and Vitas currently maintain
liability insurance intended to cover such claims, there can be no assurance
that the coverage limits of such insurance policies will be adequate or that all
such claims will be covered by the insurance. In addition, these insurance
policies must be renewed annually. While Apria and Vitas have been able to
obtain liability insurance in the past, such insurance varies in cost, is
difficult to obtain and may not be available in the future on terms acceptable
to Apria and Vitas, if at all. A successful claim in excess of the insurance
coverage could have a material adverse effect on Apria's and Vitas' results of
operations or financial condition. Claims, regardless of their merit or eventual
outcome, also may have a material adverse effect on the business and reputation
of Apria and Vitas.
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Certificate of Incorporation and Bylaws of
Apria may make an unsolicited acquisition of control of Apria more difficult or
expensive. In addition, the Apria stockholders rights plan may also make an
unsolicited acquisition more difficult or expensive. See "COMPARISON OF APRIA
AND VITAS STOCKHOLDER RIGHTS--Apria Rights Agreement."
DEPENDENCE ON KEY PERSONNEL
Apria and Vitas are dependent on the continued services and management
experience of their executive officers. If such executive officers were to
leave, the operating results of Apria and Vitas could be adversely affected. In
addition, the continued growth of Apria and Vitas depends on their ability to
attract, retain and motivate skilled employees, and on the ability of their
officers and key employees to manage growth successfully. See "THE
MERGER--Interests of Certain Persons in the Merger" and "THE MERGER
AGREEMENT--Management after the Merger."
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Apria Common Stock will be subject to
significant fluctuations in response to variations in Apria's quarterly
operating results, general trends in the market for home healthcare and hospice
products and services and other factors. In addition, broad market fluctuations,
as well as general economic or political conditions, or specific legislative and
regulatory influences, such as healthcare reform, may adversely affect the
market price of the Apria Common Stock, regardless of the actual performance of
Apria.
DIVIDEND POLICY
No cash dividends have ever been paid on Apria Common Stock. Apria's
present intention is to retain all earnings for working capital, capital
expenditures, the repayment of outstanding indebtedness and general corporate
purposes. Accordingly, Apria does not anticipate paying any dividends on the
Apria Common Stock in the foreseeable future.
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THE SPECIAL MEETING
This Proxy Statement/Prospectus is being furnished by Vitas to its
stockholders in connection with the solicitation of proxies by the Board of
Directors of Vitas for use at the Special Meeting. At the Special Meeting, (i)
the holders of Vitas Common Stock, voting separately as a class, and the holders
of Series B Preferred, voting separately as a class, will be asked to approve
and adopt the Merger Agreement and the transactions contemplated thereunder,
including a merger pursuant to which Apria Sub would be merged with and into
Vitas, with Vitas being the surviving corporation, and Vitas would become a
wholly owned subsidiary of Apria; and (ii) the holders of Vitas Common Stock and
Series B Preferred, voting together as one class, will be asked to approve
separately the payments to be made to Hugh A. Westbrook, the Chairman and Chief
Executive Officer of Vitas, and Collibrook pursuant to the Severance Agreement
to be entered into among Vitas, Mr. Westbrook, Ms. Colliflower and Collibrook at
or prior to (but subject to) the closing of the Merger and the payments to be
made to Mr. Westbrook pursuant to the Noncompetition Agreement to be entered
into between Vitas and Mr. Westbrook at or prior to (but subject to) the closing
of the Merger in order that such payments not be characterized as "parachute
payments" for purposes of Sections 280G and 4999 of the Code.
VOTING INFORMATION FOR VITAS STOCKHOLDERS
The close of business on ____________ __, 1996 has been fixed by the
Vitas Board of Directors as the Vitas Record Date. As of the Vitas Record Date,
there were issued and outstanding 4,408,842 shares of Vitas Common Stock and
262,500 shares of Series B Preferred. The affirmative vote of the holders of a
majority of the Vitas Common Stock outstanding on the Vitas Record Date, voting
separately as a class, and the affirmative vote of the holders of a majority of
the Series B Preferred outstanding on the Vitas Record Date, voting separately
as a class, is necessary to approve the Merger Agreement and the transactions
contemplated thereunder, including the Merger. THE SEPARATE AFFIRMATIVE VOTE OF
THE HOLDERS OF 75% OF THE TOTAL VOTES ATTRIBUTABLE TO THE AGGREGATE ISSUED AND
OUTSTANDING SHARES OF VITAS COMMON STOCK AND SERIES B PREFERRED ON THE VITAS
RECORD DATE (EXCLUDING ANY SHARES HELD DIRECTLY OR INDIRECTLY BY MR. WESTBROOK),
VOTING TOGETHER AS ONE CLASS, IS NECESSARY TO APPROVE THE PAYMENTS TO BE MADE TO
MR. WESTBROOK AND COLLIBROOK PURSUANT TO THE SEVERANCE AGREEMENT AND THE
PAYMENTS TO BE MADE TO MR. WESTBROOK PURSUANT TO THE NONCOMPETITION AGREEMENT IN
ORDER THAT SUCH PAYMENTS NOT BE CHARACTERIZED AS "PARACHUTE PAYMENTS" FOR
PURPOSES OF SECTIONS 280G AND 4999 OF THE CODE AND IS A CONDITION TO APRIA'S
OBLIGATION TO EFFECT THE MERGER AND THE TRANSACTIONS CONTEMPLATED UNDER THE
MERGER AGREEMENT. Any other matter properly considered and acted upon at the
Special Meeting must be approved by the affirmative vote of at least a majority
of the votes attributable to the aggregate issued and outstanding shares of
Vitas Common Stock and Series B Preferred on the Vitas Record Date, voting
together as one class, entitled to vote and be represented at the Special
Meeting (whether in person or by proxy), except for such matters which by
statute, the Vitas Certificate or the Vitas By-laws require otherwise.
Each holder of Vitas Common Stock is entitled to one vote for each
share on all matters submitted to a vote of stockholders. Except as otherwise
required by law or when a class vote is required pursuant to the Series B
Preferred Certificate (as in the case of the vote on the Merger Agreement and
the transactions contemplated thereunder, including the Merger), the holders of
Series B Preferred are entitled to vote on all matters together with the holders
of shares of Vitas Common Stock, subject to certain limitations set forth in the
Series B Preferred Certificate and the Stockholders' Agreement. As a result of
these voting rights and the limitations imposed in the Series B Preferred
Certificate and in the Stockholders' Agreement, the holders of the Series B
Preferred, when voting together with the holders of Vitas Common Stock (as in
the case of the separate vote on the payments to be made to Mr. Westbrook and
Collibrook pursuant to the Severance Agreement and the payments to be made to
Mr. Westbrook pursuant to the Noncompetition Agreement) are currently entitled
to cast that number of votes equal to approximately 28% of the total votes
eligible to be voted at a meeting of stockholders. The presence at the Special
Meeting, in person or by proxy, of the holders of a majority of the outstanding
shares of Vitas Common Stock and Series B Preferred entitled to vote at such
meeting will constitute a quorum for the transaction of business. Abstentions
will be treated as shares that are present and entitled to vote for purposes of
determining the presence of a quorum. Because both of the proposals to be voted
on at the Special Meeting require a percentage of the outstanding shares,
abstentions (other than the exclusion of shares held directly or indirectly by
Mr. Westbrook with respect to the payments to be made to Mr. Westbrook and
Collibrook pursuant to the Severance Agreement and the payments to be made to
Mr. Westbrook pursuant to the Noncompetition Agreement) will be equivalent to
votes cast against the Merger Agreement, the transactions contemplated
thereunder, including the Merger, and separate votes cast against the payments
to be made to Mr. Westbrook and Collibrook pursuant to the Severance Agreement
and the payments to be made to Mr. Westbrook pursuant to the Noncompetition
Agreement.
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Pursuant to the Significant Securityholders Agreement, the Significant
Securityholders, among other things, have agreed (i) to vote or cause to be
voted all shares of capital stock of Vitas owned of record or beneficially or
held in any capacity by or under their control and entitled to vote in favor of
the Merger and the transactions contemplated by the Merger Agreement and against
any inconsistent actions, proposals or transactions, (ii) to not claim or
exercise any dissenter or appraisal rights with respect to the Merger and (iii)
to take other actions contemplated by the Merger Agreement. Pursuant to the
Significant Securityholders Agreement, the holders of the 9% Preferred and the
Warrants have agreed to sell the 9% Preferred to Apria and exchange the Warrants
for shares of Apria Common Stock, as contemplated by the Merger Agreement, and
the holders of the Series B Preferred have agreed to convert the Series B
Preferred into shares of Vitas Common Stock which will then be exchanged for
shares of Apria Common Stock. See Appendix B. The Significant Securityholders
own, as of the Vitas Record Date, 1,948,944 shares of Vitas Common Stock
(approximately 44.2% of the outstanding Vitas Common Stock) and 200,000 shares
of Series B Preferred (approximately 76.2% of the outstanding Series B
Preferred), which constitutes approximately 39.2% of the total votes eligible to
be voted by the holders of Vitas Common Stock and Series B Preferred voting
together as one class, excluding any shares held directly or indirectly by Mr.
Westbrook.
Stockholders of Vitas who do not vote in favor of or otherwise consent
to approval and adoption of the Merger Agreement and who otherwise comply with
the provisions of Section 262 of the Delaware GCL will have the right, if the
Merger is consummated, to dissent and to demand an appraisal of the fair value
of their shares. A copy of Section 262 is attached to this Proxy
Statement/Prospectus as Appendix D. See "RIGHTS OF DISSENTING VITAS
STOCKHOLDERS."
SOLICITATION OF PROXIES
The accompanying proxy sent to Vitas stockholders is being solicited by
the Vitas Board of Directors. All proxies in the enclosed form of proxy that are
properly executed and returned to Vitas prior to commencement of voting at the
Special Meeting will be voted at the Special Meeting in accordance with the
instructions thereon. All executed but unmarked Vitas proxies will be voted FOR
approval and adoption of the Merger Agreement and the transactions contemplated
thereunder, including the Merger, and FOR the payments to be made to Mr.
Westbrook and Collibrook under the Severance Agreement and the payments to be
made to Mr. Westbrook under the Noncompetition Agreement in order that such
payments not be characterized as "parachute payments" for purposes of Sections
280G and 4999 of the Code. A stockholder may revoke a proxy at any time before
it is voted by filing with the Secretary of Vitas either an instrument revoking
the proxy or a duly executed proxy bearing a later date, or by attending the
Special Meeting and voting in person. Such filing should be sent to Mark A.
Sterling, Vice President -- Legal and Regulatory Affairs and Secretary of Vitas,
at Vitas Healthcare Corporation, 100 South Biscayne Boulevard, Miami, Florida
33131. Attendance at the Special Meeting will not by itself revoke the proxy. At
the Special Meeting, stockholder votes will be tabulated by persons appointed by
the Vitas Board of Directors to act as inspectors of election.
VITAS STOCKHOLDERS SHOULD NOT SEND THEIR STOCK CERTIFICATES WITH THEIR
PROXY CARDS
The management of Vitas does not know of any other matters other than
those set forth herein which may come before the Special Meeting. If any other
matters are properly presented to the Special Meeting for action, it is intended
that the persons named in the applicable form of proxy will vote on such matters
as determined by the majority of the Vitas Board of Directors.
The expense of printing this Proxy Statement/Prospectus and the proxies
solicited hereby will be shared equally by Apria and Vitas. In addition to the
use of the mails, proxies may be solicited by officers and directors and regular
employees of Vitas, without additional remuneration, by personal interviews,
telephone, telegraph or otherwise.
IN UNANIMOUSLY APPROVING THE MERGER AGREEMENT, THE VITAS BOARD OF DIRECTORS HAS
DETERMINED THAT THE MERGER AGREEMENT IS IN THE BEST INTERESTS OF VITAS AND ALL
OF VITAS' SECURITYHOLDERS AND RECOMMENDS THAT THE STOCKHOLDERS OF VITAS VOTE IN
FAVOR OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREUNDER,
INCLUDING THE MERGER, AND IN FAVOR OF THE PAYMENTS TO BE MADE TO MR. WESTBROOK
AND COLLIBROOK UNDER THE SEVERANCE AGREEMENT AND THE PAYMENTS
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TO BE MADE TO MR. WESTBROOK UNDER THE NONCOMPETITION AGREEMENT IN ORDER THAT
SUCH PAYMENTS NOT BE CHARACTERIZED AS "PARACHUTE PAYMENTS" FOR PURPOSES OF
SECTIONS 280G AND 4999 OF THE CODE. In voting in favor of the Merger Agreement
and such transactions, Mr. Westbrook and Ms. Colliflower abstained from voting
with respect to the Severance Agreement and the Noncompetition Agreement. In
addition, Dr. Williams abstained from voting with respect to the proposed
amendment to his SSA contemplated by the Merger Agreement. The names of the
members of the Vitas Board of Directors and the stockholdings of such persons
and certain information regarding their interests in the Merger are set forth
elsewhere in this Proxy Statement/Prospectus. See "THE MERGER--Interests of
Certain Persons in the Merger" and "PRINCIPAL STOCKHOLDERS--Vitas Security
Ownership."
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THE MERGER
GENERAL
In the Merger, Apria Sub would be merged with and into Vitas, with
Vitas being the surviving corporation, and Vitas would become a wholly owned
subsidiary of Apria. In connection with the Merger, the securities of Vitas
would be converted, purchased or exchanged (except as otherwise noted in this
Proxy Statement/Prospectus), as more fully described below in "THE MERGER
AGREEMENT--Conversion of Securities."
BACKGROUND OF THE MERGER
For the last several years, the healthcare industry in the United
States has undergone significant evolution. The ultimate payors for healthcare,
including governmental entities and employers, have become highly economically
driven in their healthcare purchasing decisions. As a result of these economic
pressures applied by the ultimate payors for healthcare, the market presence of
managed care organizations has grown at a rapid pace. As more organized
purchasers of healthcare, managed care organizations have, in turn, applied
significant pricing pressure on providers of healthcare services. Healthcare
providers have responded by pursuing various strategies to broaden their market
presence, gain economies of scale and organize their operations to meet the
rapidly changing needs of managed care organizations. As a result, the
healthcare provider industry is undergoing significant consolidation.
Vitas, as the largest provider of hospice services in the United
States, has pursued various developmental strategies as the hospice industry has
grown and matured including the establishment of de novo sites in high
opportunity markets and the acquisition of other hospice providers. In addition,
Vitas has sought to align itself with other non-hospice healthcare providers
through joint venture or similar arrangements.
During 1995, representatives of Vitas approached various national
healthcare providers to assess their interest in pursuing a joint venture
development strategy related to hospice services. Apria was among those
contacted. After initial discussions between Vitas and Apria, it became clear
that significant collaborative opportunities existed, particularly relating to
service delivery to patients with respiratory diseases. Associated with these
joint venture discussions, the Chairmen and Chief Executive Officers of Apria
(Mr. Jeremy M. Jones) and Vitas (Mr. Hugh A. Westbrook) met first in September
1995 in New Orleans, Louisiana and again in February 1996 in Miami, Florida to
discuss this joint venture development opportunity. Mr. Westbrook and Mr. Jones
also discussed, in general, the possibility of a business combination of Vitas
and Apria in both of these initial meetings.
Prior to the fall of 1995, Vitas had considered various capital
financing alternatives, including a possible initial public offering of its
common stock and alternatively a possible issuance of high-yield subordinated
notes. In the fall of 1995, Vitas initiated discussions with various possible
sources of financing to refinance bank debt and redeemable equity securities
which were to mature starting in October 1996. Vitas also sought to obtain
sufficient capital in the refinancing to continue its hospice acquisition
strategy. Vitas pursued various possible refinancing alternatives including a
private equity placement with a related restructuring of its bank facilities and
a high-yield subordinated note with exchangeable equity offering. The assessment
of these refinancing alternatives continued through March 30, 1996 when Vitas
was prepared to commence the process of a high-yield subordinated note with
exchangeable equity offering.
Mr. Westbrook visited Apria's headquarters on March 4 and 5, 1996 to
continue discussions of joint venture development opportunities and the
possibility of a business combination. During that visit, Mr. Westbrook met with
various members of Apria management. Following those meetings, Mr. Westbrook
contacted Vitas' financial advisor, Furman Selz, to seek advice and assistance
in the evolving discussions with Apria. On March 11, 1996, Vitas and Apria
entered into a Confidentiality Agreement under which Vitas agreed to provide
Apria with certain information related to Vitas and its operations. On or about
March 12, 1996, Furman Selz provided Apria with a package of detailed historical
and projected financial information with respect to Vitas. On March 18, 1996,
Apria's financial advisor, Robertson Stephens & Co., sent a preliminary due
diligence request through Furman Selz to Vitas which information was generally
delivered to Furman Selz on March 22, 1996. Representatives of Apria and
Robertson Stephens & Co. reviewed this information at the offices of Furman Selz
during the week of March 25, 1996.
Vitas entered into an engagement letter with Furman Selz on March 25,
1996 pursuant to which Furman Selz agreed to represent Vitas in a possible sale
or business combination. Related to this engagement, Furman Selz
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contacted six healthcare companies (including Apria) and two potential financial
buyers regarding a possible acquisition of Vitas. All eight of the prospects
were provided with detailed historical and projected financial information with
respect to Vitas. Both of the potential financial buyers expressed some limited
interest in an acquisition of Vitas but were not interested in completing
thorough due diligence or in making a specific proposal. All six of the
healthcare companies, which included companies involved in the home healthcare,
nursing home, acute care and managed care industries, undertook a review of
Vitas' business. Four of the six healthcare companies met with members of Vitas
management including Mr. Westbrook and Mark Ohlendorf, Vitas' Chief Financial
Officer. Three of the six healthcare companies completed a review of various
documentary information related to Vitas made available at the offices of Furman
Selz. These meetings and document reviews by the other healthcare companies were
completed principally during April 1996 and through May 14, 1996.
On April 2, 1996, Messrs. Westbrook and Ohlendorf met with various
members of Apria management and Robertson Stephens & Co. at the offices of
Furman Selz in New York. At the April 2, 1996 meeting, Apria management asked
various questions raised by their document review of the prior week and the
parties discussed their views as to the possible synergies between Vitas and
Apria should a business combination occur. Various telephonic discussions ensued
during April 1996 in which Apria made further due diligence inquiry concerning
Vitas and its operations. Mr. Ohlendorf had brief discussions with Mr. Jones on
April 13 and 14, 1996 relative to various possible synergies which might result
from a business combination. On April 22, 1996 representatives of Robertson
Stephens & Co. met with representatives of Furman Selz in New York at which
meeting Apria's financial advisor indicated that it was prepared to make an
initial proposal for a business combination at an enterprise value of $184
million (which value included the total debt and redeemable securities of
Vitas). Acting on behalf of Vitas, Vitas' financial advisor rejected the initial
proposal as inadequate. The status of these Apria and other discussions were
reported to the Vitas Board of Directors at a meeting held on April 30, 1996.
Thereafter, Apria continued its due diligence inquiry of Vitas which
resulted in a meeting in Washington, D.C. on May 7, 1996 attended by Mr.
Ohlendorf and Deirdre Lawe, a Vitas Regional Vice President, and various
representatives of Apria. The May 7, 1996 meeting focused on exploring various
possible merger synergies including overhead savings and market development
opportunities which might result. On May 11, 1996, Ms. Lawe and Richard I.
Nevin, Jr., Vitas' Executive Vice President--Operations, met at Apria's
headquarters with various members of Apria management to discuss further these
market development opportunities and Vitas' operations in general. On May 13,
1996, Apria's financial advisor indicated to Vitas' financial advisor that Apria
was prepared to make a second proposal for a business combination at an
enterprise value of $200 million. Vitas' financial advisor indicated that it
would discuss the second proposal with Vitas management. On May 14, 1996,
Apria's financial advisor contacted Vitas' financial advisor to indicate that
Apria was prepared to make a third proposal for a business combination at an
enterprise value of $212 million on the condition that Vitas cease the
solicitation of competitive bids from other possible acquirors. Mr. Westbrook
telephonically polled the Vitas Board of Directors on or about May 14, 1996 to
discuss the third proposal and the members of the Vitas Board of Directors
unanimously concurred with Mr. Westbrook's recommendation to work toward an
agreement with Apria based, in principle, on the $212 million enterprise value
for Vitas.
Representatives of Vitas and Apria, together with their legal and
financial advisors, continued discussions and negotiations as to more specific
terms related to a business combination through May 23, 1996. At a telephonic
meeting held on May 28, 1996, Vitas management briefed the Vitas Board of
Directors as to the status of the discussions and the Board authorized
management to proceed toward the negotiation of a definitive agreement with
Apria. On June 3, 1996, representatives of Vitas and Apria convened in
Washington, D.C. and continued the negotiations leading to the signing of a
Letter Agreement on June 6, 1996 between Vitas, certain Vitas securityholders
and Apria, the principal terms of which had been approved by the Vitas Board of
Directors in a telephonic meeting commenced on June 4, 1996 and reconvened on
June 6, 1996. Representatives of Vitas and Apria then commenced discussions
leading to definitive documentation of the merger resulting in the execution of
the Merger Agreement and related agreements as of June 28, 1996. The Merger
Agreement and related transactions contemplated thereby had been unanimously
approved by the Vitas Board of Directors at a telephonic meeting commenced on
June 21, 1996, that was recessed and later reconvened on June 24, 1996, when the
Vitas Board voted unanimously to approve the Merger Agreement. Furman Selz made
a presentation to the Vitas Board of Directors during the June 21, 1996
telephonic meeting, and subsequently delivered its opinion dated June 28, 1996
that the consideration to be received in the Merger by the holders of the Vitas
Common Stock is fair to such stockholders from a financial point of view.
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Apria, Sub and Vitas entered into an Amendment No. 1 to Agreement and
Plan of Merger dated as of August 26, 1996 (the "Amendment") in order, among
other things, to extend the Expiration Date through October 31, 1996, clarify
the withholding arrangements for holders of Stock Options and clarify the forms
of the Affiliate Letter, the Severance Agreement and the Noncompetition
Agreement. A copy of the Amendment is included as part of Appendix A attached
hereto.
REASONS FOR THE MERGER AND RECOMMENDATION OF THE BOARD OF DIRECTORS
In approving the Merger Agreement and the transactions contemplated
thereby, and in recommending that Vitas' stockholders approve the same, Vitas'
Board of Directors consulted with Vitas management, as well as its financial and
legal advisors, and considered a number of factors, including the following:
(i) Apria's business, market presence, current business strategy
and competitive position in the healthcare industry;
(ii) The opportunities for joint business development between Vitas
and Apria in both Vitas' existing geographic markets and in potential new
markets;
(iii) The market capitalization of Apria and the opportunity, through
the Merger, for Vitas' stockholders to have increased liquidity in their
investment as holders of publicly traded stock;
(iv) The opportunities to achieve cost savings and efficiencies
through the combination of certain Vitas and Apria business processes;
(v) The receptivity of Apria management to the unique mission and
values of Vitas and its employees and the continued ability to satisfy the
distinctive needs of the patient population and communities which Vitas serves;
(vi) The structure, form and amount of consideration to be paid in
the Merger and the terms of the Merger Agreement, including the opinion of
Furman Selz that the consideration to be received in the Merger by the holders
of the Vitas Common Stock is fair to such stockholders from a financial point of
view;
(vii) Vitas' need to raise capital to meet after term capital
maturities and to finance the growth of Vitas in a manner that would maximize
stockholder value;
(viii) The financial resources which would be made available to Vitas
after the Merger to deal with uncertainties and changes which may result from
the ongoing consolidation and maturation of the healthcare industry; and
(ix) The ability, through the Merger, to recognize value from the
strategic assets which Vitas has developed, including its methods of operations,
leading market presence and systems capabilities.
IN UNANIMOUSLY APPROVING THE MERGER AGREEMENT, THE VITAS BOARD OF
DIRECTORS HAS DETERMINED THAT THE MERGER AGREEMENT IS IN THE BEST INTERESTS OF
VITAS AND ALL OF VITAS' SECURITYHOLDERS AND RECOMMENDS THAT THE STOCKHOLDERS OF
VITAS VOTE IN FAVOR OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREUNDER, INCLUDING THE MERGER. IN VOTING IN FAVOR OF THE MERGER AGREEMENT AND
SUCH TRANSACTIONS, MR. WESTBROOK AND MS. COLLIFLOWER ABSTAINED FROM VOTING WITH
RESPECT TO THE SEVERANCE AGREEMENT AND THE NONCOMPETITION AGREEMENT. IN
ADDITION, DR. WILLIAMS ABSTAINED FROM VOTING WITH RESPECT TO THE PROPOSED
AMENDMENT TO HIS SSA CONTEMPLATED BY THE MERGER AGREEMENT. THE NAMES OF THE
MEMBERS OF THE VITAS BOARD OF DIRECTORS AND THE STOCKHOLDINGS OF SUCH PERSONS
AND CERTAIN INFORMATION REGARDING THEIR INTERESTS IN THE MERGER ARE SET FORTH
ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS. SEE "THE MERGER--INTERESTS OF
CERTAIN PERSONS IN THE MERGER" AND "PRINCIPAL STOCKHOLDERS--VITAS SECURITY
OWNERSHIP."
If the Merger Agreement is not approved and adopted by Vitas'
stockholders or if the Merger is not otherwise consummated, there are
significant potential consequences to Vitas and its stockholders. Pursuant to
the terms of Vitas' bank credit facilities, all borrowings outstanding under
such facilities are scheduled to mature on October 1, 1996. As of July 31,
1996, amounts outstanding under such bank facilities total $31.5 million. In
addition, on August 8, 1996 Vitas incurred additional indebtedness under such
facilities in the amount of $4.75
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million in connection with the acquisition of certain of the assets of Hospice
of Central Florida, Inc. as discussed under "VITAS HEALTHCARE CORPORATION." See
Note 6 to Notes to Consolidated Financial Statements for the year ended
September 30, 1995 for additional information regarding Vitas' outstanding debt.
In addition, Vitas is required to redeem (to the extent funds are legally
available therefor) approximately $8.3 million of the 9% Preferred on December
31, 1996 and to make additional redemptions on each of June 30 and December 31
of 1997 and 1998 thereafter. See Note 3 to Notes to Consolidated Financial
Statements for the year ended September 30, 1995 for additional information
regarding Vitas' redeemable preferred stock. In the event that the Merger is not
consummated, there can be no assurance that Vitas could successfully obtain
replacement debt or equity capital or that, if obtainable, such debt or equity
capital could be obtained in sufficient time to avoid material disruption in its
business. There also can be no assurance that could such replacement debt or
equity capital be obtained, it would be obtained on as favorable terms as those
which exist under Vitas' current bank facilities and the 9% Preferred.
The Apria Board of Directors believes that the Merger is in the best
interests of Apria and its stockholders. In reaching such determination, the
Apria Board of Directors considered a number of factors including its
expectations concerning costs savings and efficiencies which could be obtained
as a result of the Merger, the greater financial resources, competitive
strengths, management skills and business opportunities available as a result of
the Merger and the risks associated with the acquisition of Vitas and Apria's
entry into the hospice market.
FAIRNESS OPINION OF VITAS' FINANCIAL ADVISOR
Furman Selz has delivered to the Board of Directors of Vitas its
written opinion dated June 28, 1996, to the effect that, as of the date of such
opinion and based upon and subject to certain matters as stated therein, the
consideration to be received in the Merger by the holders of the Vitas Common
Stock is fair, from a financial point of view, to the holders of Vitas Common
Stock.
The full text and the written opinion of Furman Selz, which sets forth
the assumptions made, matters considered and limitations on the review
undertaken by Furman Selz, is attached as Appendix C hereto. Vitas stockholders
are urged to read the opinion carefully in its entirety. Furman Selz did not
recommend to Vitas that any specific exchange ratios constituted the appropriate
Exchange Ratios for the merger. Furman Selz's opinion is directed only to the
fairness of the consideration to be received in the Merger by the holders of
Vitas Common Stock from a financial point of view and does not constitute a
recommendation to any Vitas stockholder as to how such stockholder should vote
at the Special Meeting. The summary of the opinion of Furman Selz set forth in
this Proxy Statement/Prospectus is qualified in its entirety by reference to the
full text of such opinion.
To arrive at its opinion, Furman Selz, among other things, (i) analyzed
certain publicly available financial statements and other information of Vitas
and Apria, (ii) analyzed certain internal financial statements and other
financial and operating data concerning Apria and Vitas prepared by the
management of Apria and Vitas, respectively, (iii) analyzed certain financial
projections prepared by the management of Vitas, (iv) discussed the past and
current operations and financial condition and the prospects of Apria with
senior executives of Apria, (v) discussed the past and current operations and
financial condition and the prospects of Vitas with senior executives of Vitas,
and analyzed the pro forma impact of the Merger on Vitas' earnings per share,
consolidated capitalization and financial ratios, (vi) reviewed the reported
prices and trading activity for the Apria Common Stock, (vii) compared the
financial performance of Apria and Vitas and the prices and trading activity of
the Apria Common Stock with that of certain other comparable publicly traded
companies and their securities, (viii) reviewed the financial terms, to the
extent publicly available, of certain comparable acquisition transactions, (ix)
discussed with the respective managements of Vitas and Apria certain synergies
and other benefits expected to be derived from the Merger, (x) reviewed the
Merger Agreement and certain related documents and (xi) performed such other
analyses as it deemed appropriate.
In rendering its opinion, Furman Selz assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by Furman Selz for purposes of its opinion. With respect to the
financial projections including the synergies and other benefits expected to
result from the Merger, Furman Selz assumed that they were reasonably prepared
on bases reflecting the best currently available estimates and judgments of the
future financial performance of each of Vitas and Apria. Furman Selz's opinion
was necessarily based on economic, market and other conditions as in effect on,
and the information made available to Furman Selz as of, the date of its
opinion.
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In connection with its June 21, 1996 presentation to the Vitas Board
and preparation of its opinion, Furman Selz performed certain financial and
comparative analyses, including those described below. The preparation of a
fairness opinion involves various determinations as to the most appropriate and
relevant methods of financial analysis and the application of those methods to
the particular circumstances, and therefore such an opinion is not readily
susceptible to summary description. Furthermore, in arriving at its fairness
opinion, Furman Selz did not attribute any particular weight to any analysis or
factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Furman Selz
believes that its analyses must be considered as a whole and that considering
any portions of such analyses and of the factors, could create a misleading or
incomplete view of the process underlying the opinion. In its analyses, Furman
Selz made numerous assumptions with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond the
control of Vitas and Apria. Any estimates contained in these analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than as set forth
therein. In addition, analyses relating to the value of businesses do not
purport to be appraisals or to reflect the prices at which businesses actually
may be sold.
No limitations were imposed by Vitas on the scope of Furman Selz's
investigation or the procedures to be followed by Furman Selz in rendering its
opinion. In arriving at its opinion, Furman Selz did not ascribe a specific
range of value to Vitas, but made its determination as to the fairness, from a
financial point of view, of the consideration to be paid by Apria in the Merger
on the basis of financial and comparative analyses including those referenced
below. Furman Selz's opinion is directed to the Vitas Board only and does not
constitute a recommendation to any stockholder of Vitas as to how such
stockholder should vote. Furman Selz was not requested to opine as to, and its
opinion does not in any manner address, the allocation of consideration among
Vitas' stockholders or Vitas' underlying business decision to proceed with or
effect the Merger.
The following is a brief summary of the analyses performed by Furman
Selz in preparation of its opinion dated June 28, 1996, and reviewed with the
Vitas Board of Directors.
(i) Discounted Cash Flow Analysis. Using a discounted cash flow
("DCF") methodology, Furman Selz valued Vitas and Apria by estimating the
present value of future free cash flows to their respective equity holders if
Vitas and Apria were to perform on a stand-alone basis in accordance with
management forecasts for a one year period that were extrapolated through 2000.
Free cash flow represents the amount of cash generated and available for
principal, interest and dividend payments after providing for ongoing business
operations. For both companies, Furman Selz aggregated (x) the present value of
the projected free cash flow over the four-and-a-half year period from June 30,
1996 to December 31, 2000 with (y) the present value of the range of terminal
values described below. The range of terminal values was calculated by applying
multiples ranging from 10.0x to 15.0x to both of Vitas' and Apria's earnings
before interest and taxes ("EBIT"). This range of terminal values represented,
for both Vitas and Apria, their respective projected value beyond 2000. As part
of the DCF analysis Furman Selz derived an implied equity value (assuming net
debt of $28.1 million as of April 30, 1996 and 9.809 million options/warrants
exercised at $3.97) for Vitas of $118.7 million to $284.4 million (or $6.01 to
$14.40 per share) and for Apria (assuming net debt of $560.4 million as of March
31, 1996) of $1,180.8 million to $2,975.8 million (or $23.25 to $58.59 per
share).
(ii) Comparable Company Analysis. Using publicly available
information, Furman Selz compared selected financial data of Vitas and Apria
with similar data of selected publicly traded companies engaged in businesses
considered by Furman Selz to be comparable to those of Vitas and Apria.
Specifically, Furman Selz included in its review American HomePatient, Apria
Healthcare Group, Inc., Coram Healthcare Corporation, Home Health Corporation of
America, Lincare Holdings, Inc., Olsten Corporation, Pediatric Services of
America, Quantum Health Resources, Inc., RoTech Medical Corporation, and Vencor,
Inc. (collectively the "Comparable Universe"). Furman Selz calculated, among
other things, the last twelve months ("LTM") earnings before interest, taxes,
depreciation and amortization expenses ("EBITDA"), EBITDA margin and estimated
margin for 1996 and 1997, LTM EBIT, EBIT margin and estimated margin for 1996
and 1997, LTM earnings per share and estimated LTM earnings per share for 1996
and 1997.
Because of the inherent differences between the business, operations
and prospects of the companies included in the Comparable Universe, and because
the multiples of companies in the Comparable Universe reflected the value of
shares traded in the public markets and did not necessarily reflect a price a
purchaser would pay to purchase
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control of a home health services company in a private transaction, Furman Selz
believed that it was inappropriate to, and therefore did not, rely solely on the
quantitative results of this analysis.
(iii) Comparable Transaction Analysis. Furman Selz reviewed the prices
paid, or proposed to be paid, to the extent publicly available, of selected
acquisition transactions in the home healthcare industry. Furman Selz reviewed
the transaction value plus net debt as a multiple of revenue, EBIT, and EBITDA.
In certain situations Furman Selz utilized its industry expertise derived from
working with buyers and sellers of home healthcare companies over time to
determine values for certain transactions.
Because the reasons for and the circumstances surrounding each of the
transactions analyzed were specific to each transaction and because of the
inherent differences between the businesses, operations and prospects of Vitas
and the businesses, operations and prospects of the selected acquired companies
analyzed, Furman Selz believes that it was inappropriate to, and therefore did
not, rely solely on the quantitative results of the analysis, and accordingly
also made qualitative judgments concerning differences between the
characteristics of these transactions and the Merger that would affect the
acquisition value of Vitas and such acquired companies.
(iv) Apria Public Trading Analysis. Furman Selz examined the trading
history of Apria Common Stock in terms of both price and volume during the
period from June 29, 1995 to June 20, 1996. This analysis showed that over that
period the Common Stock of Apria traded in a range of $20.00 to $35.25.
(v) Have/Get Analysis. Using actual 1995 figures and estimated 1996
and 1997 results and assuming $10 million in savings for the combined entity,
Furman Selz compared the revenue, EBIT, net income, earnings per share, total
assets and total debt that the respective stockholders of Vitas and Apria each
have by virtue of their ownership of the respective companies with the amount of
revenue, EBIT, net income, earnings per share, total assets and total debt that
the respective stockholders of Vitas and Apria would each receive in the
proposed combined entity.
(vi) Contribution Analysis. Using actual 1995 figures and estimated
1996 and 1997 results, Furman Selz analyzed the relative contributions of Vitas
and Apria to the proposed combined entity with respect to net revenue, gross
profits, EBITDA, EBIT, pretax income and net income. For each of these
categories, Furman Selz expressed the comparisons as Vitas' and Apria's
percentage contribution to the combined entity. In addition, by formulating an
implied exchange ratio for each of these categories, Furman Selz was able to
compare these results to Vitas' post-transaction ownership of the combined
entity.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Payments to Mr. Westbrook. Mr. Westbrook currently has an employment
agreement with Vitas that provides for his services as Chief Executive Officer
and Chairman through June 4, 1998 and an annual base salary of $600,000, subject
to increase in the Board of Directors' sole discretion. In July 1995, Mr.
Westbrook voluntarily agreed to reduce his base salary under his employment
agreement to $420,000. The existing employment agreement also provides that Mr.
Westbrook is entitled to any bonuses as authorized by the Board of Directors of
Vitas in its sole discretion. In addition, the existing agreement provides for
remaining payments in the aggregate amount of $120,882 for covenants not to
compete, $65,000 per year in respect of a $5 million split dollar life insurance
policy, and certain other benefits and perquisites. The changes in management
contemplated by the Merger Agreement would entitle Mr. Westbrook to continuing
payments under his employment agreement, absent other arrangements. The
Noncompetition Agreement with Mr. Westbrook and the Severance Agreement with Mr.
Westbrook, Ms. Colliflower and Collibrook will supersede and replace the
existing obligations of Vitas under Mr. Westbrook's employment agreement. The
Noncompetition Agreement provides for a longer noncompetition period than under
Mr. Westbrook's existing employment agreement. See "PROPOSAL TO APPROVE
SEPARATELY THE PAYMENTS TO HUGH A. WESTBROOK AND COLLIBROOK PURSUANT TO THE
SEVERANCE AND NONCOMPETITION AGREEMENTS TO BE ENTERED INTO IN CONNECTION WITH
THE MERGER IN ORDER THAT SUCH PAYMENTS NOT BE CHARACTERIZED AS "PARACHUTE
PAYMENTS" FOR PURPOSES OF SECTIONS 280G AND 4999 OF THE CODE."
Special Severance Agreements. Vitas also has entered into SSAs with,
among others persons, the following five executive officers of Vitas: Esther
T. Colliflower, a co-founder of Vitas and a Vice Chairperson; J.R. Williams,
M.D., Executive Vice President and Chief Patient Care Officer; Richard I.
Nevin, Jr., Executive Vice
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President--Operations; Mark Ohlendorf, Vice President, Chief Financial Officer,
Treasurer and Assistant Secretary; and (v) Mark A. Sterling, Vice
President--Legal and Regulatory Affairs and Secretary. Pursuant to the SSAs, the
executive officers are entitled to certain severance benefits if their
employment is terminated within certain time periods after a change of control
other than for "cause" or if they end their employment for "good reason."
Pursuant to the terms of the Merger Agreement, Vitas has agreed to offer to
amend such SSAs and, to the extent applicable, any other relevant agreements, to
provide, effective as of the Effective Time, (a) that the total severance
benefit which would have otherwise been payable to such persons shall be a
minimum of $650,000, $600,000, $272,250, $355,925 and $412,400, respectively (it
being understood that such modifications will not impair the existing agreements
of Ms. Colliflower and Dr. Williams to refrain from competing with Vitas), and
(b) that as a condition of such amendments, such persons shall waive any and all
claims against Vitas, Apria and their respective affiliates and agents. If such
SSAs and other agreements are not amended, the total severance benefits payable
to such persons would be $406,440, $315,000, $272,250, $177,963 and $206,200,
respectively. The Merger Agreement contemplates that the payments to Ms.
Colliflower and Dr. Williams are to be paid on the Closing Date because their
employment with Vitas is expected to be terminated immediately prior to the
Effective Time.
Indemnification. The Merger Agreement provides that for six years from
the Effective Time, the Surviving Corporation will maintain in effect directors'
and officers' liability insurance against claims asserted based on acts or
omissions occurring at or prior to the Effective Time covering those Persons who
are currently covered by Vitas' directors' and officers' liability insurance
policy, on terms substantially as favorable as the terms of such insurance
coverage; provided, however, that in no event will the Surviving Corporation be
required to expend in any one year an amount in excess of 200% of the annual
premiums currently paid by Vitas for such insurance; and provided further that
if the annual premiums of such insurance coverage exceed such amount, the
Surviving Corporation will be obligated to obtain a policy with the best
coverage available in its reasonable judgment, after reasonable inquiry of at
least three carriers, for a cost not exceeding such amount. The Merger Agreement
also provides that the Surviving Corporation will keep in effect the provisions
in its Certificate of Incorporation and Bylaws providing for exculpation of
director and officer liability and indemnification to the fullest extent
permitted under the Delaware GCL, which provisions will not be amended, repealed
or otherwise modified except as required by applicable law, or except for
changes permitted by law that would enlarge the right of indemnification or
would not adversely affect the rights thereunder of individuals who on or prior
to the Effective Time were directors, officers, employees or agents of Vitas and
its subsidiaries or fiduciaries of its employee benefit plans.
Stock Options. Mr. Ferretti currently holds 25,000 Stock Options, all
of which are vested. As a result of the Merger, such Stock Options will become
exercisable and are expected to be exchanged for Apria Common Stock.
Mr. O'Toole currently holds 20,000 Stock Options, all of which are
vested. As a result of the Merger, such Stock Options will become exercisable
and are expected to be exchanged for Apria Common Stock.
Mr. Nevin currently holds 75,000 Stock Options, 32,500 of which are
vested or would vest by their terms prior to the expected Effective Time. As a
result of the Merger, (i) the 32,500 Stock Options that are vested or would vest
by their terms prior to the expected Effective Time will become exercisable and
are expected to be exchanged for Apria Common Stock and (ii) an additional
15,000 Stock Options will vest and become exercisable by their terms and are
expected to be exchanged for Apria Common Stock. In addition, the 27,500 Stock
Options that are not currently vested or expected to vest prior to the expected
Effective Time and that would not vest or become exercisable as a result of the
Merger are expected to be exchanged for shares of Apria Common Stock, subject to
the Vesting Discount Amount.
Mr. Ohlendorf currently holds 85,000 Stock Options, 30,000 of which are
vested and exercisable by their terms. As a result of the Merger, an additional
36,250 vested Stock Options will become exercisable and are expected to be
exchanged for Apria Common Stock. In addition, the 18,750 Stock Options that are
not currently vested or expected to vest prior to the expected Effective Time
and that would not vest or become exercisable as a result of the Merger are
expected to be exchanged for shares of Apria Common Stock, subject to the
Vesting Discount Amount.
Mr. Sterling currently holds 70,000 Stock Options, 35,000 of which are
vested or would vest by their terms prior to the expected Effective Time. As a
result of the Merger, the 35,000 Stock Options that are vested or would vest by
their terms prior to the expected Effective Time will become exercisable and are
expected to be exchanged for Apria Common Stock. In addition, the 35,000 Stock
Options that are not currently vested or expected to vest
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prior to the expected Effective Time and that would not vest or become
exercisable as a result of the Merger are expected to be exchanged for shares of
Apria Common Stock, subject to the Vesting Discount Amount.
The Stockholders' Agreement provides that, so long as the Stockholders'
Agreement remains in effect and provided either of the Principal Investors
(defined therein to mean the Principal Galen Entities and Warburg, Pincus
Investors, L.P.) has Voting Power, the holders of a majority of the outstanding
shares of Series B Preferred shall be entitled to vote for and elect as
directors either one or both of the Principal Investors' designees to the Vitas
Board of Directors, depending on whether one or both of the Principal Investors
have Voting Power. Bruce F. Wesson and Patrick T. Hackett, the designees of the
Principal Galen Entities and Warburg, Pincus Investors, L.P., respectively, are
serving as directors of Vitas in accordance with this provision. The Investor
Agreement provides that, as long as OCR beneficially owns at least ten percent
of the outstanding shares of Vitas Common Stock, Vitas is obligated to nominate
one person designated by OCR for election as a director of Vitas. Mr. O'Toole,
an officer and director of Chemed, was nominated to serve as a director of Vitas
in accordance with this provision. The Investor Agreement provides, among other
things, that, as long as the Vitas Board of Directors is composed of ten or
fewer directors, OCR shall be entitled to only one designee.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is expected to have the following tax consequences to Vitas
securityholders:
(1) The Merger will constitute a taxable sale of Vitas Common Stock.
(2) Capital gain (or capital loss) will be recognized by a Vitas
stockholder whose Vitas Common Stock is converted into Apria Common Stock in the
Merger (assuming that the Vitas stock is a capital asset in the stockholder's
hands).
(3) The amount of gain (or loss) will be measured by the difference
between the stockholder's tax basis in Vitas Common Stock and the fair market
value of Apria Common Stock at the Effective Time of the Merger.
(4) In order to qualify for long-term capital gain treatment, the
stockholder must have held Vitas Common Stock for at least one year at the
Effective Time of the Merger.
(5) The basis of holders of Vitas Common Stock in the Apria Common
Stock received as a result of the Merger will equal the fair market value of
Apria Common Stock at the Effective Time of the Merger.
(6) The holding period of Apria Common Stock received by the holders
of Vitas Common Stock as a result of the Merger will commence at the Effective
Time of the Merger.
(7) Each holder of a Warrant who surrenders such Warrant in
connection with the Merger in exchange for Apria Common Stock will recognize
gain or loss equal to the difference between the amount of the fair market value
of the Apria Common Stock received in exchange for the Warrant and the basis of
the holder in the Warrant. Such gain or loss will be capital gain or loss if, at
the Effective Time, the Warrant is a capital asset in the hands of the holder
and the Vitas Common Stock underlying the Warrant would be a capital asset in
the hands of the holder if it were acquired by the holder pursuant to the
Warrant.
The tax consequences to Vitas optionees are expected to be the
following: Upon exercise of a Stock Option, an optionee will recognize ordinary
income in an amount equal to the difference between the exercise price and the
fair market value of the stock on the date of exercise (except that if the
optionee is subject to certain restrictions to comply with the
"Pooling-of-Interests Accounting" rules, the date on which such income is
determined will be deferred to the end of the restriction period unless the
optionee files a special tax election under Section 83(b) of the Code -- See
"--Special Tax Election--Affiliates" below). Upon exchange of a Stock Option for
Apria Common Stock, an optionee will recognize ordinary income in an amount
equal to the fair market value of the Apria Common Stock received in the
exchange (except that if the optionee is subject to certain restrictions to
comply with the "Pooling-of-Interests Accounting" rules, the date on which such
income is determined will be deferred to the end of the restriction period
unless the optionee files the special tax election--See "--Special Tax
Election--Affiliates" below). If it complies with applicable reporting
requirements, Vitas will be entitled to a business expense deduction in the same
amount and at the same time as the optionee recognizes ordinary income. Upon a
subsequent sale or
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exchange of shares acquired pursuant to the exercise or exchange of a Stock
Option, the optionee will have taxable gain or loss, measured by the difference
between the amount realized on the disposition and the tax basis of the shares,
in the case of an exercise, generally, the amount paid for the shares plus the
amount treated as ordinary income at the time the Stock Option was exercised,
or, in the case of an exchange, the value of the shares at the time the income
was determined.
Under current federal income tax law, the highest tax rate on ordinary
income and short-term capital gains is 39.6% and long-term capital gains are
subject to a maximum tax rate of 28%. A sale of stock acquired as a consequence
of the exercise of a Stock Option should constitute long-term capital gain if
the stock is held for more than one year after exercise. However, because of
certain provisions in the law relating to the "phase out" of personal exemptions
and certain limitations on itemized deductions, the federal income tax
consequences to a particular taxpayer of receiving additional amounts of
ordinary income or capital gain may be greater than would be indicated by
application of the foregoing tax rates to the additional amount of income or
gain.
Therefore, in determining the federal income tax consequences of the
exercise of a Stock Option, the exchange of a Stock Option or the sale of Apria
Common Stock acquired pursuant to the exercise or exchange of a Stock Option, an
optionee will need to consider both his or her own tax rate and the effect on
his or her personal exemptions and itemized deductions. Additionally, when an
optionee exercises or exchanges a Stock Option he or she should also determine
whether the increase in his or her tax liability is sufficient to cause him or
her to be required to make payments of estimated taxes during the year (or to
increase such payments). Generally, an optionee probably will not have to make
estimated tax payments if all of the optionee's income is subject to withholding
(including withholding on the optionee's income on exercise or exchange of a
Stock Option), but tax law changes have greatly complicated the rules on
estimated taxes.
THE FOREGOING IS A BRIEF SUMMARY OF CERTAIN OF THE FEDERAL TAX
CONSEQUENCES OF THE EXERCISE OR EXCHANGE OF A STOCK OPTION AND THE SALE OF APRIA
COMMON STOCK ACQUIRED THEREBY. OPTIONEES ARE URGED TO CONSULT WITH THEIR
PERSONAL TAX ADVISORS IN ORDER TO OBTAIN CURRENT AND INDIVIDUALIZED TAX ADVICE
ON THE CONSEQUENCES OF SUCH TRANSACTIONS TO THEM. SEE "THE MERGER
AGREEMENT--TREATMENT OF STOCK OPTIONS--WITHHOLDING ARRANGEMENTS" FOR A
DESCRIPTION OF TAX WITHHOLDING REQUIREMENTS WITH RESPECT TO THE EXCHANGE.
Special Tax Election--Affiliates. Certain employees who are subject to
restrictions to comply with the "Pooling-of-Interests Accounting" rules can make
a special tax election under Section 83(b) of the Code. If the election is
filed, the employee will recognize ordinary income at the time the Stock Options
are exercised or exchanged, generally in an amount equal to the fair market
value of the Apria Common Stock received (without regard to any restrictions),
and the employee's basis in such shares generally will be equal to the amount of
ordinary income recognized. Any gain or loss recognized on a subsequent
disposition of shares as to which the election has been made generally will be
capital gain or loss. Employees should consult with their personal tax advisors
concerning this election. The special tax election must be filed within 30 days
of the date on which the Stock Option is exercised or exchanged. The Internal
Revenue Service will not grant any extension of the 30-day deadline.
THE DISCUSSION REGARDING FEDERAL INCOME TAX CONSEQUENCES SET FORTH
ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY. IT DOES NOT ADDRESS THE STATE,
LOCAL OR FOREIGN TAX ASPECTS OF THE MERGER. THIS DISCUSSION RELATES ONLY TO
VITAS COMMON STOCK HELD AS CAPITAL ASSETS WITHIN THE MEANING OF SECTION 1221 OF
THE CODE, AND TO STOCK OPTIONS HELD BY PERSONS WHO ARE CITIZENS OR RESIDENTS OF
THE UNITED STATES. THIS DISCUSSION DOES NOT ADDRESS TAX CONSEQUENCES TO
CATEGORIES OF HOLDERS ENTITLED TO SPECIAL TREATMENT UNDER THE CODE (INCLUDING,
WITHOUT LIMITATION, FOREIGN PERSONS, TAX-EXEMPT ORGANIZATIONS, INSURANCE
COMPANIES, FINANCIAL INSTITUTIONS AND DEALERS IN STOCKS AND SECURITIES). IT IS
BASED ON CURRENTLY EXISTING PROVISIONS OF THE CODE, EXISTING AND PROPOSED
TREASURY REGULATIONS THEREUNDER AND CURRENT ADMINISTRATIVE RULINGS AND COURT
DECISIONS. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE, AND ANY SUCH CHANGE COULD
AFFECT THE ACCURACY OF THIS DISCUSSION. NO RULING HAS BEEN SOUGHT FROM THE
INTERNAL REVENUE SERVICE WITH RESPECT TO THE FEDERAL INCOME TAX CONSEQUENCES OF
THE MERGER. VITAS STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD
TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO THEM, INCLUDING THE
APPLICATION AND EFFECT OF ANY CURRENT OR PROPOSED STATE, LOCAL AND FOREIGN TAX
LAWS OR PROPOSED FEDERAL INCOME TAX LAW CHANGES.
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REGULATORY APPROVALS
Under the Hart-Scott Act, and the rules promulgated thereunder by the
Federal Trade Commission (the "FTC"), the Merger may not be consummated until
notifications have been given and certain information has been furnished to the
FTC and the Antitrust Division of the Department of Justice (the "Antitrust
Division"), and specified waiting period requirements have been satisfied. Apria
and Vitas filed premerger notification and report forms with the FTC and the
Antitrust Division on June 14, 1996.
Early termination of the waiting period under the Hart-Scott Act for
Apria and Vitas was effective on June 24, 1996, without Apria or Vitas receiving
a request for additional information from the FTC or the Antitrust Division.
At any time before or after the Effective Time, the Antitrust Division,
the FTC or a private person or entity could seek under the antitrust laws, among
other things, to enjoin the Merger or to cause Apria to divest itself, in whole
or in part, of the Surviving Corporation or of other businesses conducted by the
Surviving Corporation. There can be no assurance that a challenge to the Merger
will not be made or that, if such a challenge is made, Apria will prevail. The
obligations of Apria and Vitas to consummate the Merger are subject to the
condition that there be no temporary restraining order, preliminary or permanent
injunction or other order by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Merger. Each party
has agreed to use its best efforts to have any such injunction or order lifted.
See "THE MERGER AGREEMENT--Conditions to the Merger" and "--Termination."
In connection with the Merger, Vitas will be required to submit
regulatory notices and/or licensure applications in one or more of the states in
which Vitas and its subsidiaries operate. Some states only require notice to the
applicable agencies, while others may require a new license to be obtained. In
some instances, these regulatory notices and/or approvals are required to be
filed a specified period in advance of the effective date of the transaction. In
addition, while not required, Vitas intends to provide courtesy notices prior to
the Effective Time to government entities which have issued certain licenses,
certifications and similar healthcare regulatory approvals to Vitas and its
subsidiaries. Apria and Vitas believe that any material licenses or other
regulatory approvals will be issued in the normal course; however, there can be
no assurance that all approvals will be issued by the Effective Time.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling-of-interests for
accounting and financial reporting purposes. Consummation of the Merger is
conditioned upon the receipt by Apria and Vitas of letters on the effective date
of the Proxy Statement/Prospectus and on the Closing Date, in each case dated as
of such respective dates, from Ernst & Young LLP, regarding its concurrence with
the conclusions of Apria and Vitas management as to the appropriateness of
pooling-of-interests accounting for the Merger under Accounting Principles Board
Opinion No. 16 if it is closed and consummated in accordance with the Merger
Agreement. See "THE MERGER AGREEMENT--Conditions to the Merger." Under the
pooling-of-interests accounting method, (i) the recorded historical cost basis
of the assets and liabilities of Vitas will be carried forward and consolidated
in the operations of Apria generally at their recorded amounts and (ii) the
consolidated financial statements of Apria issued subsequent to the consummation
of the Merger will be restated to include the combined financial position,
results of operations and cash flows for Apria and Vitas for all periods
presented therein. Certain events, including certain transactions with respect
to Apria Common Stock or Vitas Common Stock by affiliates of Apria or Vitas,
respectively, may prevent the Merger from qualifying as a pooling-of-interests
for accounting and financial representation purposes. See"--Restrictions on
Sales by Affiliates; Pooling Considerations."
RESTRICTIONS ON SALES BY AFFILIATES; POOLING CONSIDERATIONS
The shares of Apria Common Stock to be issued in connection with the
Merger have been registered under the 1933 Act. Such shares will be freely
transferable under the 1933 Act, except for shares issued to any person who may
be deemed to be an affiliate of Vitas (as such term is defined in Rule 145 under
the 1933 Act) ("Vitas Affiliates"). Vitas Affiliates may not sell their shares
of Apria Common Stock acquired in connection with the Merger except pursuant to
(a) an effective registration statement under the 1933 Act covering such shares,
(b) paragraph (d) of Rule 145, or (c) another applicable exemption. The
Significant Securityholders Agreement includes these and other restrictions on
transfer of Vitas or Apria shares (or rights with respect to those shares)
intended to assure compliance with applicable laws and to avoid transactions
that might affect the accounting for the transaction. Vitas has agreed to use
its reasonable efforts to obtain at least 30 days prior to the Effective Time a
written agreement
39
<PAGE> 48
regarding such transfer restrictions from each Vitas Affiliate
who has not signed the Significant Securityholders Agreement.
Commission guidelines indicate that the pooling-of-interests method of
accounting will generally not be challenged on the basis of sales by affiliates
of the acquiring or acquired company if these persons do not dispose of any of
the shares of either corporation they own or received in connection with a
merger during the period beginning 30 days before the merger and ending when
financial results covering at least 30 days of post-merger operations of the
combined entity have been published. Apria has agreed to publish results
covering the first calendar month of combined operations of Vitas and Apria
within 45 days of such calendar month end.
Each party has agreed to use its reasonable efforts to cause the Merger
to qualify, and will not take any actions which could prevent the Merger from
qualifying, for pooling-of-interests accounting treatment. Subject to the prior
consent of Apria, which will not be unreasonably withheld, Vitas has agreed to
use its best efforts to take such other actions as are necessary to cure any
facts or circumstances that could prevent the Merger from qualifying for
pooling-of-interests accounting treatment. Apria also has agreed to use its best
efforts to take such other actions as are necessary to cure any facts or
circumstances that could prevent the Merger from qualifying for
pooling-of-interests accounting treatment. For so long as resales of shares of
Apria Common Stock issued pursuant to the Merger are subject to resale
restrictions set forth in Rule 145 under the 1933 Act, Apria has agreed to use
its reasonable efforts to comply with Rule 144(c)(1) under the 1933 Act.
40
<PAGE> 49
THE MERGER AGREEMENT
THE MERGER AGREEMENT AND CERTAIN RELATED MATTERS ARE SUMMARIZED BELOW.
THE SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE COMPLETE TEXT OF THE MERGER AGREEMENT, WHICH IS ATTACHED AS
APPENDIX A TO THIS PROXY STATEMENT/PROSPECTUS AND INCORPORATED HEREIN BY
REFERENCE.
THE MERGER
Subject to the terms and conditions of the Merger Agreement, at the
Effective Time, Apria Sub would be merged with and into Vitas with Vitas
continuing as the Surviving Corporation. The Merger will have the effects
specified in the Delaware GCL.
EFFECTIVE TIME OF THE MERGER
The Merger will be effective upon the filing of the Certificate of
Merger with the Delaware Secretary of State, or at such later time as Apria Sub
and Vitas specify in the Certificate of Merger. The Effective Time is currently
expected to occur on or as promptly as practicable after October __, 1996,
subject to the approval by the stockholders of Vitas of the matters described
herein and satisfaction or waiver of the conditions precedent to the Merger set
forth in the Merger Agreement.
CONVERSION OF SECURITIES
Common Stock. In the Merger, each share of Vitas Common Stock issued
and outstanding as of the Effective Time (other than shares owned by Vitas,
Apria or any of their respective subsidiaries (including Apria Sub) and other
than shares as to which dissenters' rights have been perfected under the
Delaware GCL) would be converted into the right to receive a number of shares of
Apria Common Stock equal to the Exchange Ratio. The Exchange Ratio will be (i)
initially 0.290 (the "Initial Exchange Ratio"), subject to any Collar Adjustment
if no Debt Adjustment is deemed to occur or (ii) the Recalculated Exchange Ratio
(as defined below), subject to any Collar Adjustment if a Debt Adjustment is
deemed to occur, as the case may be. The term "Exchange Ratio" means the Initial
Exchange Ratio or the Recalculated Exchange Ratio (as adjusted by any Collar
Adjustment), whichever is applicable. In addition, if, prior to the Effective
Time, Apria should split, recapitalize, reclassify, subdivide, exchange or
combine the Apria Common Stock, or pay a stock dividend or other stock
distribution in Apria Common Stock, then the Initial Exchange Ratio or the
Recalculated Exchange Ratio, as the case may be (as well as all references to
prices of Apria Common Stock used for purposes of any Collar Adjustment or
related termination right), will be appropriately adjusted to reflect such
split, recapitalization, reclassification, subdivision, exchange, combination,
dividend or other distribution.
If the closing price of Apria Common Stock on the NYSE on the trading
day next preceding the Closing Date (the "Market Price") is between $27.125 and
$37.125 (inclusive) there will be no Collar Adjustment. If the Market Price is
less than $27.125 and there is no Recalculated Exchange Ratio, the Initial
Exchange Ratio will be multiplied by a fraction of which the numerator will be
$27.125 less 50% of the difference between $27.125 and the Market Price (the
"Market Price Decline Numerator") and the denominator will be the Market Price.
If the Market Price is more than $37.125 and there is no Recalculated Exchange
Ratio, the Initial Exchange Ratio will be multiplied by a fraction of which the
numerator will be $37.125 plus 50% of the difference between the Market Price
and $37.125 (the "Market Price Increase Numerator") and the denominator will be
the Market Price. If the Market Price is less than $27.125 and there is a
Recalculated Exchange Ratio, the Recalculated Exchange Ratio will be multiplied
by a fraction of which the numerator will be the Market Price Decline Numerator
and the denominator will be the Market Price, and the result will be the
Exchange Ratio as referred to in the next-to-last sentence of the preceding
paragraph. If the Market Price is more than $37.125 and there is a Recalculated
Exchange Ratio, the Recalculated Exchange Ratio will be multiplied by a fraction
of which the numerator will be the Market Price Increase Numerator and the
denominator will be the Market Price, and the result will be the Exchange Ratio
as referred to in the next-to-last sentence of the preceding paragraph. If the
Market Price is greater than $42.125 or less than $22.125, either party may
terminate the Merger Agreement, but if neither party elects to terminate the
Merger Agreement the foregoing formulae, which constitute the Collar Adjustment,
will continue to be applicable.
Vitas will prepare a balance sheet as of the last day of the month
ending immediately prior to the Closing Date unless the Closing Date is within
20 business days after the end of a month, in which event such balance sheet
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<PAGE> 50
will be as of the last day of the month ending immediately prior to the month
ending immediately prior to the Closing Date (the "Closing Balance Sheet"). If
the Total Debt of Vitas exceeds $39.1 million as reflected on the Closing
Balance Sheet, a Debt Adjustment will be deemed to occur. If a Debt Adjustment
is deemed to occur, the Initial Exchange Ratio will be replaced by the
"Recalculated Exchange Ratio" which will be determined by dividing (i) $9.32
less the Excess Per Share Debt Amount by (ii) $32.125. The "Excess Per Share
Debt Amount" means the Total Debt of Vitas in excess of $39.1 million divided by
19,738,635 (rounded to the nearest whole cent). "Total Debt" means all bank
debt, notes payable, other indebtedness for borrowed money, including any
indebtedness incurred in the acquisition by Vitas or its subsidiary of the
assets of Hospice of Central Florida, Inc., a Florida nonprofit corporation
("HCF"), and the current portions of all of the foregoing, but excluding
capitalized leases and the amount due under the Vitas Employee Stock Ownership
Plan loan documents (the "ESOP Note"), and all reduced by (A) Vitas' then cash
equivalents and cash on hand as reflected on the Closing Balance Sheet, (B) the
positive difference, if any, between (1) $1.554 million and (2) the book value
of the ESOP Note as reflected on the Closing Balance Sheet, and (C) the sum of
(x) the amount, if any, by which Vitas' then net non-cash non-debt working
capital (defined as current assets excluding cash, cash equivalents and current
deferred tax assets, minus current liabilities, excluding current capital lease
obligations, current portion of long-term debt and current deferred tax
liabilities) exceeds $(200,000) and (y) the amount of any capital expenditures
in excess of $500,000 per month which have previously been approved in writing
by Apria, and (z) the amount of any indebtedness incurred in the acquisition by
Vitas or its subsidiary of the assets of HCF up to a maximum of $4.75 million.
If a Debt Adjustment is deemed to occur and is in excess of $4 million, Apria
will have the right to terminate the Merger Agreement.
The following table provides examples of Exchange Ratios based upon
differing Market Prices of Apria Common Stock and differing Debt Adjustments:
<TABLE>
<CAPTION>
Effective Merger Consideration
Per Share of Vitas Common
Exchange Ratio After Stock After Effect of Debt
Market Effect of Debt Adjustment In an Amount of Adjustment In an Amount of
Price ----------------------------------------- ----------------------------------------------
for Apria $0 $1 $2 $3 $0 $1 $2 $3
Common -- -- -- -- -- -- -- --
Stock Million Million Million Million Million Million
----- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$42.125 0.2728 0.2715 0.2700 0.2685 $11.492 $11.437 $11.374 $11.311
41.125 0.2759 0.2746 0.2730 0.2715 11.346 11.293 11.227 11.165
40.125 0.2792 0.2778 0.2763 0.2747 11.203 11.147 11.087 11.022
39.125 0.2826 0.2812 0.2797 0.2781 11.057 11.002 10.943 10.881
38.125 0.2862 0.2848 0.2832 0.2817 10.911 10.858 10.797 10.740
37.125 0.2900 0.2886 0.2870 0.2854 10.766 10.714 10.655 10.595
36.125 0.2900 0.2886 0.2870 0.2854 10.476 10.426 10.368 10.310
35.125 0.2900 0.2886 0.2870 0.2854 10.186 10.137 10.081 10.025
34.125 0.2900 0.2886 0.2870 0.2854 9.896 9.848 9.794 9.739
33.125 0.2900 0.2886 0.2870 0.2854 9.606 9.560 9.507 9.454
32.125 0.2900 0.2886 0.2870 0.2854 9.316 9.271 9.220 9.168
31.125 0.2900 0.2886 0.2870 0.2854 9.026 8.983 8.933 8.883
30.125 0.2900 0.2886 0.2870 0.2854 8.736 8.694 8.646 8.598
29.125 0.2900 0.2886 0.2870 0.2854 8.446 8.405 8.359 8.312
28.125 0.2900 0.2886 0.2870 0.2854 8.156 8.117 8.072 8.027
27.125 0.2900 0.2886 0.2870 0.2854 7.866 7.828 7.785 7.741
26.125 0.2955 0.2941 0.2921 0.2904 7.720 7.683 7.631 7.587
25.125 0.3015 0.3001 0.2981 0.2964 7.575 7.540 7.490 7.447
24.125 0.3080 0.3065 0.3046 0.3029 7.431 7.394 7.348 7.307
23.125 0.3150 0.3136 0.3118 0.3099 7.284 7.252 7.210 7.166
22.125 0.3228 0.3212 0.3194 0.3176 7.142 7.107 7.067 7.027
21.125 0.3312 0.3296 0.3278 0.3259 6.997 6.963 6.925 6.885
20.125 0.3404 0.3388 0.3369 0.3350 6.851 6.818 6.780 6.742
19.125 0.3507 0.3490 0.3470 0.3451 6.707 6.675 6.636 6.600
18.125 0.3620 0.3603 0.3583 0.3563 6.561 6.530 6.494 6.458
17.125 0.3747 0.3729 0.3708 0.3687 6.417 6.386 6.350 6.314
16.125 0.3889 0.3870 0.3849 0.3827 6.271 6.240 6.207 6.171
15.125 0.4050 0.4031 0.4009 0.3986 6.126 6.097 6.064 6.029
14.125 0.4235 0.4214 0.4191 0.4167 5.982 5.952 5.920 5.886
13.125 0.4447 0.4425 0.4401 0.4376 5.837 5.808 5.776 5.744
</TABLE>
This table does not purport to include every possible Exchange Ratio.
The actual Exchange Ratio (and, consequently, the effective Merger
consideration) may be higher or lower. On August 22, 1996, the Market Price of
Apria Common Stock on the NYSE composite tape was $24.00.
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<PAGE> 51
9% Preferred. At the Effective Time, each share of 9% Preferred would
remain outstanding, and, upon surrender of the certificate representing the 9%
Preferred, in accordance with the terms of the Merger Agreement and the
Significant Securityholders Agreement, would be purchased by Apria at a price
equal to its "Stated Value" of $100 per share, together with all accrued and
unpaid dividends thereon. As of June 30, 1996, the accrued and unpaid dividends
were $1,215,000 on the aggregate "Stated Value" of $27,000,000. All of the 9%
Preferred is held by OCR, which has agreed to the sale on these terms.
Series B Preferred. The Merger Agreement contemplates that each share
of Series B Preferred issued and outstanding prior to the Effective Time,
together with all associated rights, preferences and restrictions set forth in
the Stockholders' Agreement, will be converted by the holder into a number of
shares of Vitas Common Stock issuable upon conversion of such share of Series B
Preferred and that such Vitas Common Stock would then be converted into the
right to receive a number of shares of Apria Common Stock equal to the Exchange
Ratio multiplied by the number of shares of Vitas Common Stock so issued. The
obligations of Apria under the Merger Agreement are conditioned upon all Series
B Preferred holders voluntarily converting their shares. If a holder of Series B
Preferred does not timely convert or agree to convert its shares of Series B
Preferred, Apria could waive such condition, in which case the Series B
Preferred would remain outstanding, but would cease to be convertible, in
accordance with its terms. Apria would not waive the condition in any event, if
doing so would affect the accounting treatment of the Merger. Pursuant to the
Significant Securityholders Agreement, the holders of approximately 76.2% of the
Series B Preferred have agreed to effect the conversion contemplated by these
provisions.
Warrants. At or immediately prior to the Closing Date, the holder of
each of the Warrants, and all associated rights, preferences and restrictions
set forth in the Investor Agreement, will, in accordance with the provisions of
the Significant Securityholders Agreement surrender the Warrants in exchange for
a number of shares of Apria Common Stock in the Merger equal to the product of
(x) the quotient obtained by dividing (I) $9.32 less the sum of (A) any Excess
Per Share Debt Amount and (B) the exercise price per share of Vitas Common Stock
issuable upon exercise of the Warrant by (II) $32.125 (such quotient referred to
herein as the "Warrant Spread Value Exchange Ratio"), times (y) the number of
shares of Vitas Common Stock covered by such Warrant, subject to the following
adjustments. If the Market Price is less than $27.125, the Warrant Spread Value
Exchange Ratio will be multiplied by a fraction of which the numerator will be
the Market Price Decline Numerator and the denominator will be the Market Price.
If the Market Price is more than $37.125, the Warrant Spread Value Exchange
Ratio will be multiplied by a fraction of which the numerator will be the Market
Price Increase Numerator and the denominator will be the Market Price. Both of
the Warrants are held by OCR, which has agreed to the exchange on these terms.
TREATMENT OF STOCK OPTIONS
Exchange of Options. In accordance with the terms of certain of the
Stock Options, the exercisability of certain vested options will be accelerated
as a result of the Merger and, to the extent vested and exercisable, the option
may be exercised immediately prior to the Effective Time. At the Effective Time,
any Stock Option outstanding immediately prior to the Effective Time that has
not otherwise been exercised in accordance with its terms will be exchanged for
the right to receive from Apria, upon surrender of the applicable Stock Option
Agreement and confirmation of payment in cash by the holder to Apria (or other
provision for cash withholding from the holder by Apria) of all applicable
withholding taxes associated with the exchange, a number of shares of Apria
Common Stock equal to the product of (x) the quotient obtained by dividing (i)
$9.32 less the sum of (A) any Excess Per Share Debt Amount, (B) the exercise
price per share of Vitas Common Stock issuable upon exercise of the Stock Option
and, (C) any applicable Vesting Discount Amount (as defined below) by (ii)
$32.125 (such quotient referred to herein as "Option Spread Value Exchange
Ratio"), times (y) the number of shares of Vitas Common Stock covered by such
Stock Option, subject to any adjustments which may be called for by the next two
sentences. If the Market Price is less than $27.125, the Option Spread Value
Exchange Ratio will be multiplied by a fraction of which the numerator will be
the Market Price Decline Numerator and the denominator will be the Market Price.
If the Market Price is more than $37.125, the Option Spread Value Exchange Ratio
will be multiplied by a fraction of which the numerator will be the Market Price
Increase Numerator and the denominator will be the Market Price. Any "Vesting
Discount Amount" will be equal to the undiscounted per share gain under each
Stock Option minus the present value of the per share gain under each Stock
Option (calculating such present value from the date(s) such Stock Option would
have vested by its terms).
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<PAGE> 52
ANY HOLDER OF A STOCK OPTION MAY OBJECT TO THE EXCHANGE DESCRIBED
ABOVE. IF THE HOLDER OBJECTS IN WRITING TO THE EXCHANGE, THE STOCK OPTION WILL
TERMINATE AT THE EFFECTIVE TIME IN ACCORDANCE WITH ITS TERMS AND THE HOLDER WILL
RECEIVE NOTHING FOR HIS OR HER STOCK OPTION. IF THE HOLDER DOES NOTHING, THE
EXCHANGE OF OPTIONS FOR APRIA SHARES, AS DESCRIBED ABOVE, WILL OCCUR PROVIDED
THE APPLICABLE TAXES ARE PAID AND THE STOCK OPTION AGREEMENT IS SURRENDERED. THE
HOLDER DOES NOT NEED TO "EXERCISE" THE STOCK OPTION TO RECEIVE THE APRIA SHARES.
HOWEVER, IF PAYMENT OF WITHHOLDING TAXES IS NOT MADE OR DULY PROVIDED FOR BY THE
OPTIONEE IN CASH AT THE EFFECTIVE TIME OF THE MERGER, ONE-HALF OF THE APRIA
SHARES WILL BE HELD AS SECURITY FOR THE PAYMENT OF SUCH WITHHOLDING TAXES IN
ACCORDANCE WITH PROCEDURES DESCRIBED UNDER "--WITHHOLDING ARRANGEMENTS" BELOW.
The Stock Options include provisions that limit benefits under the
Stock Option and other agreements to amounts that would avoid the
characterization of any payment or benefit as a "parachute payment" within the
meaning of Section 280G(b)(2) of the Code to the extent that the "cut back"
would enhance the after tax benefit to such holder after giving effect to
Section 280G penalty provisions. To the extent necessary, Vitas will use its
best efforts to require or encourage optionees to designate other rights,
payments or benefits received or to be received to be reduced or eliminated so
as to avoid the characterization of any option payment or benefit as a
"parachute payment." See "PROPOSAL TO APPROVE SEPARATELY THE PAYMENTS TO HUGH A.
WESTBROOK AND COLLIBROOK PURSUANT TO THE SEVERANCE AND NONCOMPETITION AGREEMENTS
TO BE ENTERED INTO IN CONNECTION WITH THE MERGER IN ORDER THAT SUCH PAYMENTS NOT
BE CHARACTERIZED AS "PARACHUTE PAYMENTS" FOR PURPOSES OF SECTIONS 280G AND 4999
OF THE CODE."
Termination of Options. All Stock Options including Stock Options under
Stock Option Agreements not surrendered will terminate as of the Effective Time
in accordance with their terms; the provisions in any compensatory plan,
agreement or arrangement of Vitas or any of its subsidiaries ("Benefit Plan")
(other than the ESOP) providing for the issuance, vesting, transfer or grant of
any capital stock of Vitas or any right or interest in respect of any capital
stock of Vitas will be deleted or will terminate as of the Effective Time. Vitas
has agreed to take reasonable steps to ensure that following the Effective Time
no holder of a Stock Option and no participant in any stock option plan or stock
option agreement identified on the Vitas Disclosure Schedule to the Merger
Agreement or other Benefit Plan (other than the ESOP) will have any right
thereunder to acquire any capital stock of Vitas or of the Surviving
Corporation, or, except as provided above, any shares of Apria Common Stock.
Withholding Arrangements--Non-Affiliates. Each holder of an exchanged
Stock Option (other than a holder who also is an affiliate of Vitas) may, in
lieu of paying cash to Apria to cover all applicable withholding taxes, instruct
the Exchange Agent (as defined below) to deliver to a broker approved by Apria
(the "Designated Broker") the holder's rights to a sufficient number of shares
of Apria Common Stock received upon the exchange of such holder's Stock Options
to satisfy the holder's withholding tax liability, with instructions to the
Designated Broker to pay all sale proceeds directly to Apria to cover all
determined to be taxes.
Withholding Arrangements--Affiliates. Each holder of a Stock Option who
is determined to be an affiliate of Vitas will receive shares of Apria Common
Stock in exchange for each of his or her Stock Options upon consummation of the
Merger. The certificates representing such shares will bear legends to refer to
the restrictions on transfer of such shares by affiliates under SEC Rule 145 and
applicable SEC pooling restrictions (as set forth in the Affiliate Letters) and,
as to one-half of the shares covered by such Stock Options, to a pledge of such
shares as partial security for the payment of tax withholding obligations. Such
shares will be registered in the name of the Optionee ("holder"), who will have
all voting and dividend rights in respect thereof. Each holder who is determined
to be an affiliate of Vitas and who has not paid all applicable withholding
taxes or provided to Apria's satisfaction for payment in cash of such
withholding taxes on or before the applicable Tax Date (as defined below) shall
have an amount equal to one-half of the shares (and any dividends thereon) held
by the Exchange Agent on behalf of Apria solely as security for the holder's
obligation to pay in cash all applicable withholding taxes at the time such
withholding is required by law to occur (the "Tax Date"). The Tax Date is the
Effective Time (if the holder makes a timely Section 83(b) election) or the date
the pooling restrictions lapse (if the Section 83(b) election is not made). This
date will not be determinable until, at the earliest, 30 days after the Merger,
the deadline for making a Section 83(b) election.
If the Section 83(b) election is made, Apria will be deemed to have
made a loan to the holder, and the holder will be obligated to pay and deliver
to Apria a full recourse Demand Promissory Note ("Demand Note") dated as of the
Effective Time, as contemplated by Section 5.4.4 of the Merger Agreement. As
indicated above, if the Section 83(b) election is not made, the Tax Date will be
the date the pooling restrictions lapse (the "Lapse Date"), which date will not
necessarily be known until that time. In this case, Apria will be deemed to have
made a loan to the holder, and the holder will
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<PAGE> 53
be obligated to pay and deliver a Demand Note dated as of the Lapse Date, as
contemplated by Section 5.4.4 of the Merger Agreement. In either event, the cash
withholding tax obligation of the Optionee is due and payable as of the Tax
Date. At any time at or before the Tax Date, the Optionee may obtain a release
of the shares (subject to any remaining pooling and securities law restrictions
referred to above other than the pledge) by paying or adequately providing (to
Apria's satisfaction) for payment of the withholding obligation in cash. After
the Tax Date, the holder may obtain the release of the shares by paying or
arranging for third party payment of an amount equal to the balance then due
(with accrued interest) on the obligation evidenced by the Demand Note. The
obligation evidenced by the Demand Note is due and payable five business days
after notice from Apria, but in no event is the obligation payable prior to five
business days after the Lapse Date.
At any time on or after the Lapse Date as to which Apria has provided
an affiliate holder with at least five business days' notice that the Demand
Note is payable (or deemed payable) and prior to Apria's receipt of payment,
Apria may cause the Exchange Agent, subject to any applicable legal
requirements, to sell the pledged shares (to the extent required) to remit to
Apria net proceeds sufficient to discharge the withholding obligations (as
certified by Apria) and evidenced by the Demand Note obligation, and any accrued
interest thereon. Any amount, or any remaining shares, in excess of the amount
required to discharge the obligations shall be promptly delivered to the holder
by the Exchange Agent. To the extent permitted by law, any deficiency in payment
to Apria may be recovered directly against the holder. The obligation to pay
withholding (and accrued interest) and the pledge are made with full recourse
against the holder. See also "THE MERGER--Restrictions on Sales by Affiliates;
Pooling Considerations." On the Lapse Date, procedures for sales through
Designated Brokers comparable to those applicable to non-affiliates, as
described above, will be available with respect to the payment of withholding
taxes by affiliates.
EXCHANGE OF STOCK CERTIFICATES AND WARRANTS
As soon as reasonably practicable after the Effective Time, Apria will
instruct Norwest Bank Minnesota, N.A., as exchange agent ("Exchange Agent") to
mail a letter of transmittal and instructions to each holder of a Stock Option
and to each holder of a certificate or certificates which immediately prior to
the Effective Time represented outstanding shares of Vitas Common Stock
(including holders of certificates previously representing converted Series B
Preferred) other than shares to which dissenters' rights have been perfected
under the Delaware GCL (for convenience of reference, the certificates,
converted Series B Preferred and Stock Option Agreements are referred to as the
"Certificates"), advising the securityholder of the procedure for surrendering
the Certificates in exchange for certificates representing shares of Apria
Common Stock. Upon surrender of Certificates for cancellation to the Exchange
Agent, together with a duly executed letter of transmittal and such other
documents as may be reasonably required by the Exchange Agent or by the Merger
Agreement, the holder of the Certificates will be entitled to receive in
exchange therefor a certificate evidencing that number of whole shares of Apria
Common Stock which such holder has the right to receive in respect of the rights
formerly evidenced by such Certificates and cash in lieu of fractional shares.
No dividends or other distributions declared or made after the Effective Time
with respect to Apria Common Stock with a record date after the Effective Time
will be paid to the holder of any unsurrendered Certificate, and no cash payment
in lieu of fractional shares will be paid to any such holder pursuant to the
Merger Agreement, in each case until the surrender of such Certificate in
accordance with the terms of the Merger Agreement. Subject to the effect of
applicable escheat laws, following surrender of such Certificate, there will be
paid to the holder of the certificate representing whole shares of Apria Common
Stock issued in exchange therefor (subject in the case of Stock Options to
certain tax withholding requirements), without interest, (i) at the time of such
surrender, the amount of any such cash payable in lieu of a fractional share of
Apria Common Stock to which such holder is entitled and the amount of dividends
or other distributions with a record date after the Effective Time theretofore
paid with respect to such whole shares of Apria Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to such surrender and with a
payment date subsequent to such surrender payable with respect to such whole
shares of Apria Common Stock. At or immediately prior to the Closing, the
holders of the Warrants will have surrendered the Warrants for exchange as
contemplated by the Merger Agreement. See "--Conversion of
Securities--Warrants." CERTIFICATES SHOULD NOT BE SURRENDERED UNTIL THE LETTER
OF TRANSMITTAL IS RECEIVED.
Apria or the Exchange Agent will be entitled to deduct and withhold
from the consideration otherwise payable to any holder of Certificates, Warrants
and 9% Preferred such amounts as Apria or the Exchange Agent, as the case may
be, is required under the Code, or any provision of state, local or foreign tax
law to deduct and withhold with respect to the making of such payments. To the
extent that amounts are so withheld by Apria or the Exchange Agent, such
withheld amounts will be treated as having been paid to the holder of the
Certificates in respect of which such deduction and withholding have been made
by Apria or the Exchange Agent. Except as set forth in "--Treatment
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of Stock Options--Withholding Arrangements," withholding obligations in respect
of Stock Options must be paid by the holders of the Stock Options to Apria and
must be evidenced by a certificate of satisfaction of withholding signed by
Apria and delivered to the Exchange Agent before any shares of Apria Common
Stock to be held as security for such payment are released to optionees in
respect of their Stock Options. Apria will promptly provide such certificate
after receipt of such funds.
FRACTIONAL SHARES
No certificates or scrip representing fractional shares of Apria Common
Stock will be issued upon the surrender for exchange of Certificates, and no
Apria dividend, stock split or interest will relate to any fractional share. No
fractional share interests will entitle the owner thereof to vote or to any
rights of a stockholder of Apria. In lieu of any such fractional shares, each
securityholder who otherwise would be entitled to receive a fractional share of
Apria Common Stock in connection with the Merger will receive a cash payment
representing the value of such fractional share interest, as realized through
sales of Excess Shares (as defined in the Merger Agreement) of Apria Common
Stock by the Exchange Agent on the NYSE at the then prevailing prices.
VITAS INDEBTEDNESS
At or immediately following the Effective Time, Apria will repay, or
cause to be repaid, in full (or assume, if permitted under the existing terms
thereof) the then outstanding principal of Vitas Notes (as defined in the Merger
Agreement) and repay or cause to be repaid in full the ESOP Note, together with
interest accrued but unpaid thereon, and any premium, charge or prepayment
penalty (including the LIBOR breakage fee under Vitas' Amended and Restated
Revolving Credit Term Loan and Reimbursement Agreement, dated as of February 7,
1995), to the holders of the Vitas Notes and to the holder of the ESOP Note,
respectively.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains certain mutual representations and
warranties with respect to, among other things, financial statements and
regulatory matters, the absence of material adverse changes and the absence of
certain legal proceedings. The Merger Agreement also contains additional
representations of Vitas and additional representations of Apria that are
customary for the types of transactions contemplated by the Merger Agreement.
The representations and warranties of each of Apria and Vitas in the Merger
Agreement, if untrue as of the Closing Date or the date of the Merger Agreement,
generally constitute a basis for termination of the Merger Agreement by the
other party.
COVENANTS; CONDUCT OF BUSINESS PRIOR TO EFFECTIVE TIME
Vitas has agreed that, among other things, between the date of the
Merger Agreement and the Effective Time, Vitas will, and will cause its
subsidiaries to, carry on their respective businesses in the ordinary course and
use all reasonable efforts to preserve intact their current business
organizations, keep available the services of their current officers and
employees and preserve their relationships with suppliers, providers and others
having business dealings with them.
Vitas also has agreed that, between the date of the Merger Agreement
and the Effective Time, except as otherwise provided in the Merger Agreement,
Vitas will not, and will not permit any of its subsidiaries to: (a) (i) declare,
set aside or pay (whether in cash, stock, property or otherwise) any dividends
on, or make any other distributions in respect of, any of its capital stock,
other than dividends and distributions by any direct or indirect wholly owned
subsidiary of Vitas to its parent and other than the semi-annual dividend due on
the 9% Preferred for the period from January 1, 1996 through June 30, 1996 or
thereafter, (ii) split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, or (iii) purchase, redeem or
otherwise acquire any shares of capital stock of Vitas or any of its
subsidiaries or any other securities thereof or any rights, warrants or options
to acquire any such shares or other securities; (b) other than the issuance of
Vitas Common Stock upon the exercise of the Warrants or Stock Options and upon
the conversion of the Series B Preferred outstanding on June 28, 1996 in
accordance with their present terms, (i) issue, deliver, sell, award, pledge,
dispose of or otherwise encumber or authorize or propose the issuance, delivery,
grant, sale, award, pledge or other encumbrance (including limitations in voting
rights) or authorization of, any shares of its capital stock, any other equity
or voting securities or any securities convertible into, or any rights,
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warrants or options to acquire, any such shares, equity or voting securities or
convertible securities, (ii) amend or otherwise modify the terms of any such
rights, warrants or options other than as a result of the Merger, (iii)
accelerate the vesting or exercisability of the Warrants or any of the Stock
Options other than as a result of the Merger, or (iv) contribute to the Vitas
Employee Stock Ownership Plan ("ESOP") any of its capital stock or other
employer security, or cause or allow the ESOP to acquire or become obligated to
acquire any of its capital stock or other employer security; (c) amend its
certificate of incorporation, bylaws or other comparable charter or
organizational documents other than as contemplated by the Merger Agreement; (d)
acquire or agree to acquire (for cash or shares of stock or otherwise) (i) by
merging or consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership,
joint venture, association or other business organization or division thereof or
(ii) any assets except purchases of equipment and supplies in the ordinary
course of business consistent with past practice; (e) mortgage or otherwise
encumber or subject to any lien other than pursuant to agreements or covenants
existing on June 28, 1996 and identified in the Vitas Disclosure Schedule to the
Merger Agreement, or sell, lease, exchange or otherwise dispose of any of, its
properties or assets, except for sales of its properties or assets (or leases
entered into) in the ordinary course of business consistent with past practice;
(f) (i) incur any indebtedness for borrowed money (except for advances in the
ordinary course under existing credit agreements) or guarantee any such
indebtedness of another Person, issue or sell any debt securities or warrants or
other rights to acquire any debt securities of Vitas or any of its subsidiaries,
guarantee any debt securities of another Person, enter into any "keep well" or
other agreement to maintain any financial statement condition of another Person
or enter into any arrangement to extend its credit or having the economic effect
of any of the foregoing, except in each case in the ordinary course of business
or (ii) make any loans, advances or capital contributions to, or investments in,
any other Person, other than to Vitas or any direct or indirect wholly owned
subsidiary of Vitas; (g) incur or commit to incur capital expenditures in excess
of a total of $500,000 per calendar month; (h) make or rescind any express or
deemed election relating to taxes, settle or compromise any claim, action, suit,
litigation, proceeding, arbitration, investigation, audit or controversy
relating to taxes, or change any of its methods of reporting income or
deductions for federal income tax purposes from those employed in the
preparation of its federal income tax return for the taxable year ending
September 30, 1994, except (in all such cases, relating to taxes), as may be
required by applicable law; (i) pay, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction, in
the ordinary course of business consistent with past practice, of liabilities
reflected or reserved against in, or contemplated by, the consolidated financial
statements (or the notes thereto) of Vitas for the fiscal year ended September
30, 1995 or incurred in the ordinary course of business consistent with past
practice; (j) (i) increase the rate or terms of compensation payable or to
become payable generally to any of Vitas' directors, officers, employees or
independent contractors other than in the ordinary course of business consistent
with past practice, (ii) pay or agree to pay any pension, retirement allowance
or other benefit not provided for by (or in a manner or at a time not provided
in) any existing pension plan, Benefit Plan or employment agreement described in
the Vitas Disclosure Schedule to the Merger Agreement, (iii) commit itself to
any additional pension, profit sharing, bonus, incentive, deferred compensation,
stock purchase, stock option, stock appreciation right, performance or incentive
program, group insurance, severance pay, continuation pay, termination pay,
retirement or other employee benefit plan, agreement or arrangement, or increase
the rate or terms of any plan or benefit arrangement other than as contemplated
by the Merger Agreement, (iv) enter into any employment agreement with or for
the benefit of any Person other than employment at will or (v) increase the rate
of compensation under or otherwise change the terms of any existing employment
agreement other than in the ordinary course of business consistent with past
practice; provided, however, that nothing in clause (j) shall preclude payments
(x) under the terms of the existing incentive compensation plans of Vitas in
accordance with past practice or (y) pursuant to normal salary adjustments on
the anniversary of hire dates or other benchmark dates in accordance with past
practice; (k) except in the ordinary course of business, modify, amend, renew,
fail to renew or terminate any material contract to which Vitas or any
subsidiary is a party or waive, release or assign any material rights or claims;
(l) enter into any group enrollment contract, insurance policy or any other
agreement pursuant to the terms of which Vitas or any subsidiary agrees or is
required to underwrite, administer, insure, reinsure or arrange for the
provision of healthcare services arising from any group or individual health
insurance plan or program; (m) terminate the participation of any program of
Vitas or its subsidiaries in Medicare, Medicaid or CHAMPUS, or, except in the
ordinary course of business consistent with past practice, other third party
payor program; (n) take any action which would have the effect of interfering
with or delaying the transactions contemplated by the Merger Agreement; or (o)
authorize any of, or commit or agree to take any of, the foregoing actions.
Apria has agreed that, among other things, between the date of the
Merger Agreement and the Effective Time, except as otherwise provided in the
Merger Agreement, Apria will not, and will not permit any, of its
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subsidiaries to: (a) (i) declare, set aside or pay (whether in cash or property,
but excluding stock dividends) any dividends on, or make any other distributions
in respect of, any capital stock other than dividends and distributions by any
direct or indirect wholly owned subsidiary of Apria to its parent, (ii) combine
or reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of
Apria's capital stock, except for a stock dividend or stock split or (iii)
purchase, redeem or otherwise acquire any shares of Apria Common Stock; (b)
amend its certificate of incorporation, bylaws or other comparable charter or
organizational documents in a manner which would reasonably be expected to be
materially adverse to the stockholders of Vitas; (c) amend the Rights or the
agreements under which the Rights are issued in any manner adverse to the
stockholders of Vitas; (d) change its fiscal year; (e) take any action which
would have the effect of interfering with or delaying the transactions
contemplated by the Merger Agreement; or (f) authorize, or commit or agree to
take any of, the foregoing actions.
Vitas and Apria have agreed that they will not, and will not permit any
of their respective subsidiaries to, take any action that would result in (i)
any of the representations and warranties of such party set forth in the Merger
Agreement that are qualified as to materiality, becoming untrue, (ii) any of
such representations and warranties that are not so qualified becoming untrue in
any material respect, or (iii) Apria being prevented from accounting for the
business combination to be effected by the Merger as a pooling-of-interests.
NEGOTIATIONS WITH OTHERS
Vitas has agreed that it will not, nor will it permit any of its
subsidiaries to, nor will it authorize or permit any stockholder, officer,
director or employee of, or any investment banker, attorney or other advisor or
representative of, Vitas or any of its subsidiaries to, solicit or initiate, or
encourage the submission of, any proposal, or participate in any discussions or
negotiations regarding, or furnish to any Person any information with respect
to, or take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
Acquisition Transaction (as defined below); provided, however, that if at any
time prior to the Effective Time or the earlier termination of the Merger
Agreement the Board of Directors of Vitas reasonably determines in good faith,
(i) after consultation with one or more of Vitas' independent financial
advisors, that providing confidential or non-public information to a financially
capable Person (a "Potential Acquiror") could lead to an Acquisition Transaction
more favorable to the holders of Vitas Common Stock than the Merger and (ii)
after consultation with Vitas' outside legal counsel, that there is a
significant risk that the failure to provide such confidential or non-public
information to such Potential Acquiror would constitute a breach of its
fiduciary duty to the stockholders of Vitas, Vitas may, in response to a
Competing Proposal (as defined below) received by Vitas after the date of the
Merger Agreement, (x) furnish confidential or non-public information with
respect to Vitas to such Potential Acquiror pursuant to a customary
confidentiality agreement and (y) participate in negotiations with such
Potential Acquiror regarding such Competing Proposal. "Acquisition Transaction"
means the direct or indirect acquisition or purchase of all or any substantial
amount of the business or assets of Vitas or any of its subsidiaries or any
substantial amount of capital stock or other equity interests of Vitas or any of
its subsidiaries, whether by merger, consolidation, business combination, sale
of assets, sale of securities, tender offer, exchange offer, recapitalization,
liquidation, dissolution or otherwise, and whether for cash, securities or any
other consideration or combination thereof. "Competing Proposal" means any
proposal or offer (whether or not in writing and whether or not delivered to
Vitas' stockholders generally) from a Potential Acquiror relating to an
Acquisition Transaction.
In the event that, prior to the Effective Time or the earlier
termination of the Merger Agreement, the Board of Directors of Vitas reasonably
determines in good faith (x) after consultation with its financial advisor, that
a Competing Proposal made to Vitas after the date of the Merger Agreement is
more favorable to the stockholders of Vitas than the Merger and that acceptance
of such Competing Proposal is in the best interests of the stockholders of Vitas
and (y) after consultation with its outside legal counsel, that there is a
significant risk that the failure to take any such action would constitute a
breach of its fiduciary duties to Vitas' stockholders, the Board of Directors of
Vitas may withdraw or modify its approval or recommendation of the Merger
Agreement and the Merger, approve or recommend such Competing Proposal or cause
Vitas to accept the Competing Proposal and enter into an agreement with respect
to such Competing Proposal; provided, however, that the Board of Directors of
Vitas may only take any such action if: (A) at least seven days prior to the
withdrawal or modification by the Vitas Board of Directors of its approval or
recommendation of the Merger Agreement or the acceptance by Vitas of such
Competing Proposal, Vitas will have furnished Apria with a written notice
advising Apria that the Board of Directors of Vitas has received such Competing
Proposal and enclosing a copy of such Competing Proposal and identifying the
Potential Acquiror making such Competing Proposal, (B) any agreement entered
into with respect to the Competing Proposal will be made
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expressly subject to a right of first refusal granted to Apria (exercisable by
Apria at any time within 30 days after Apria's receipt of the agreement with the
Potential Acquiror) to enter into an agreement with Vitas to complete the
Acquisition Transaction contemplated by the Competing Proposal in accordance
with the terms thereof, and (C) in the event Apria advises Vitas in writing that
Apria does not elect to exercise such right of first refusal, Vitas will
promptly pay to Apria or its designee, on demand, the Termination Fee (as
defined below) of $10 million. See "--Effect of Termination."
Pursuant to the Merger Agreement, Vitas must promptly advise Apria
orally and in writing of any request for information or of any Competing
Proposal, or any inquiry with respect to or which could reasonably be expected
to lead to any Competing Proposal, the material terms and conditions of such
request, Competing Proposal or inquiry, and the identity of the person making
any such Competing Proposal or inquiry. Vitas has agreed to keep Apria
reasonably informed of the status and details of any such request, Competing
Proposal or inquiry.
MANAGEMENT AFTER THE MERGER
Apria and Vitas have agreed that the Chairman of the Board of Directors
of Apria, Jeremy M. Jones, will, immediately following the Effective Time, be
the sole director of Vitas. Pursuant to the terms of the Merger Agreement, the
officers of Vitas immediately prior to the Effective Time (other than Mr.
Westbrook, Ms. Colliflower and Dr. Williams, each of whom is expected to resign
or otherwise terminate their employment with Vitas as of the Effective Time)
will continue as the officers of Vitas and will serve at the pleasure of the
Vitas Board. Raymond H. Noeker, Jr. will become the Chief Executive Officer of
Vitas at the Effective Time. Mr. Noeker has been employed by Apria for over 15
years in various executive level positions both at the corporate and operating
levels.
INDEMNIFICATION AND INSURANCE
The Merger Agreement provides that for six years from the Effective
Time, the Surviving Corporation will maintain in effect directors' and officers'
liability insurance against claims asserted based on acts or omissions occurring
at or prior to the Effective Time covering those Persons who are currently
covered by Vitas' directors' and officers' liability insurance policy, on terms
substantially as favorable as the terms of such insurance coverage; provided,
however, that in no event will the Surviving Corporation be required to expend
in any one year an amount in excess of 200% of the annual premiums currently
paid by Vitas for such insurance; and provided further that if the annual
premiums of such insurance coverage exceed such amount, the Surviving
Corporation will be obligated to obtain a policy with the best coverage
available in its reasonable judgment, after reasonable inquiry of at least three
carriers, for a cost not exceeding such amount. The Merger Agreement also
provides that the Surviving Corporation will keep in effect the provisions in
its Certificate of Incorporation and Bylaws providing for exculpation of
director and officer liability and indemnification to the fullest extent
permitted under the Delaware GCL, which provisions will not be amended, repealed
or otherwise modified except as required by applicable law, or except for
changes permitted by law that would enlarge the right of indemnification or
would not adversely affect the rights thereunder of individuals who on or prior
to the Effective Time were directors, officers, employees or agents of Vitas and
its subsidiaries or fiduciaries of its employee benefit plans.
CONDITIONS TO THE MERGER
The respective obligations of Vitas and Apria to effect the Merger are
subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions: (i) the requisite approvals of the Vitas stockholders
shall have been obtained; (ii) the shares of Apria Common Stock issuable to
Vitas' securityholders (including holders of the Stock Options, Warrants and
Series B Preferred) pursuant to the Merger Agreement shall have been approved
for listing on the NYSE, subject to official notice of issuance; (iii) no
litigation brought by a Governmental Entity shall be pending, and no litigation
shall be threatened by any Governmental Entity, which seeks to enjoin or
prohibit the consummation of the Merger, and no temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect; (iv) the Registration Statement
shall have been declared effective by the Commission under the 1933 Act and no
stop order suspending the effectiveness of the Registration Statement shall have
been issued by the Commission, and no proceedings for that purpose shall have
been initiated or, to the knowledge of Apria or Vitas, threatened by the
Commission; (v) any applicable waiting period (and any extension thereof) under
the Hart-Scott Act shall have expired or been terminated; and (vi) other than
the filing of merger documents in accordance with the Delaware GCL, all
authorizations, consents, waivers, orders or approvals required to be obtained,
and all filings,
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notices or declarations required to be made, by Apria, Apria Sub and Vitas prior
to the consummation of the Merger and the transactions contemplated under the
Merger Agreement shall have been obtained from, and made with, all required
Governmental Entities except for such authorizations, consents, waivers, orders,
approvals, filings, notices or declarations the failure to obtain or make which
would not have a material adverse effect, at or after the Effective Time, on
Vitas or Apria or on the effectiveness of the Merger.
The obligations of Apria and Apria Sub to effect the Merger also are
subject to the following conditions: (i) each of the representations and
warranties of Vitas contained in the Merger Agreement shall be true and correct
in all material respects (except that where any statement in a representation or
warranty expressly includes a standard of materiality, such statement shall be
true and correct in all respects giving effect to such standard) as of the
Closing Date as though made on and as of the Closing Date, provided that those
representations and warranties that address matters only as of a particular date
(including the date of the Merger Agreement) shall remain true and correct in
all respects (except that where any statement in a representation or warranty
expressly includes a standard of materiality, such statement shall be true and
correct in all respects giving effect to such standard) as of such date and
Apria shall have received a certificate of the Chief Executive Officer and Chief
Financial Officer of Vitas certifying to the best of their knowledge, to such
effect and to the effect that there has been no antidilution adjustment of the
Series B Preferred, the Warrants or the Stock Options and no event or
transaction has occurred that has required or will, as of the Effective Time,
require an antidilution adjustment of any thereof; (ii) Vitas shall have
performed or complied in all material respects with all agreements and covenants
required by the Merger Agreement to be performed or complied with by it on or
prior to the Closing Date and Apria shall have received a certificate of the
Chief Executive Officer and Chief Financial Officer of Vitas certifying to the
best of their knowledge, to that effect; (iii) Vitas shall have obtained all
consents and approvals required in connection with the Merger under all loan or
credit agreements, notes, leases or other agreements to which it or any of its
subsidiaries is a party, except those for which failure to obtain such consents
and approvals would not have a material adverse effect on the Surviving
Corporation after the Effective Time; (iv) each member of the Board of Directors
of Vitas shall have submitted to Vitas a written resignation as a director,
effective upon consummation of the Merger; (v) Apria shall have received from
Ernst & Young LLP, as independent auditors of Apria, on the effective date of
the Proxy Statement/Prospectus and on the Closing Date, letters, in each case
dated as of such respective dates, regarding its concurrence with the conclusion
of the management of Apria as to the appropriateness of pooling-of-interests
accounting for the Merger under Accounting Principles Board Opinion No. 16 if
the Merger is consummated in accordance with the terms of the Merger Agreement
and no action shall have been taken by any Governmental Entity or any statute,
rule, regulation or order enacted, promulgated or issued by any Governmental
Entity, or any proposal made for any such action by any Governmental Entity
which is reasonably likely to be put into effect, that would prevent Apria from
accounting for the business combination to be effected by the Merger as a
pooling-of-interests; (vi) Apria shall have received signed Affiliate Letters
from all persons who may be deemed to be affiliates of Vitas under Rule 145 of
the 1933 Act; (vii) at or immediately prior to the Closing Date, the holder of
the 9% Preferred, subject to consummation of the Merger, shall have sold or made
a binding and enforceable commitment to sell the 9% Preferred to Apria and the
holders of the Warrants shall have surrendered the Warrants for exchange and, in
each case, Apria shall have received all instruments reasonably required to be
delivered by the holders of the 9% Preferred and the Warrants to ensure
compliance with such commitments to sell and exchange; (viii) at or immediately
prior to the Closing Date, the holders of all the Series B Preferred, subject to
consummation of the Merger, shall have converted or made binding and enforceable
commitments to convert the Series B Preferred into shares of Vitas Common Stock
in accordance with the terms of the Series B Preferred Certificate, and Apria
shall have received all instruments reasonably required to be delivered by the
holders of the Series B Preferred to ensure compliance with such commitment to
convert; (ix) each signatory to the Significant Securityholders Agreement shall
have complied in all material respects with all agreements or covenants required
by the Significant Securityholders Agreement to be performed or complied with by
such Person to the extent such compliance was called for at or prior to the
Closing Date; (x) the aggregate number of shares as to which dissenters' rights
have been perfected under the Delaware GCL shall not exceed 9% of the
outstanding shares of Vitas Common Stock nor include any outstanding shares of
the Series B Preferred; (xi) the named investors (or any successors or assigns
of their rights) under the Investor Agreement and the Stockholders' Agreement
shall have acknowledged their waiver of any preemptive rights to any new common
stock of the Surviving Corporation and any other ongoing obligations of the
Surviving Corporation under either such agreement and such agreements shall be
terminated as of the Closing Date, subject to consummation of the Merger; (xii)
the holders of Vitas Common Stock and Series B Preferred shall have approved
separately the payments to be made under the Severance Agreement and the
Noncompetition Agreement in the manner contemplated by the Merger Agreement;
(xiii) on or prior to the Closing Date, the aggregate number of shares of Vitas
Common Stock issued upon exercise of Stock Options and the Warrants shall not
exceed 10% of the aggregate number of shares of Vitas Common Stock
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issuable upon exercise thereof and Vitas shall not have received any notice of
exercise that (individually or together with such other issuances) would result
in the issuance of more than said number of shares of Vitas Common Stock; and
(xiv) Apria shall have received opinions of counsel for Vitas regarding certain
legal matters.
In addition, the obligations of Vitas to effect the Merger also are
subject to the following conditions: (i) each of the representations of Apria
contained in the Merger Agreement shall be true and correct in all material
respects (except that where any statement in a representation or warranty
expressly includes a standard of materiality, such statement shall be true and
correct in all respects giving effect to such standard) as of the Closing Date
as though made on and as of the Closing Date, provided that those
representations and warranties that address matters only as of a particular date
(including the date of the Merger Agreement) shall remain true and correct in
all material respects (except that where any statement in a representation or
warranty expressly includes a standard of materiality, such statement shall be
true and correct in all respects giving effect to such standard) as of such date
and Vitas shall have received a certificate of the Chief Executive Officer and
the Chief Financial Officer of Apria certifying to the best of their knowledge,
to such effect; (ii) Apria shall have performed or complied in all material
respects with all agreements and covenants required by the Merger Agreement to
be performed or complied with by it on or prior to the Closing Date and Vitas
shall have received a certificate of the Chief Executive Officer and the Chief
Financial Officer of Apria certifying to the best of their knowledge, to such
effect; (iii) Vitas shall have received from Ernst & Young LLP, as independent
auditors of Vitas, on the effective date of the Proxy Statement/Prospectus and
on the Closing Date, letters, in each case dated as of such respective dates,
regarding its concurrence with the conclusion of the management of Vitas as to
the appropriateness of pooling-of-interests accounting for the Merger under
Accounting Principles Board Opinion No. 16 if the Merger is consummated in
accordance with the terms of the Merger Agreement and no action shall have been
taken by any Governmental Entity or any statute, rule, regulation or order
enacted, promulgated or issued by any Governmental Entity, or any proposal made
for any such action by any Governmental Entity which is reasonably likely to be
put into effect, that would prevent Apria from accounting for the business
combination to be effected by the Merger as a pooling-of-interests; and (iv)
Vitas shall have received an opinion of counsel for Apria regarding certain
legal matters.
It is intended that the Merger will constitute a taxable sale of Vitas
Common Stock. See "THE MERGER--Certain Federal Income Tax Consequences."
The Merger Agreement provides that at any time prior to the Effective
Time, the parties may (i) extend the time for the performance of any of the
obligations or other acts of the other parties, (ii) waive any inaccuracies in
the representations and warranties contained in the Merger Agreement or in any
document delivered pursuant to the Merger Agreement or (iii) subject to the
conditions set forth in the Merger Agreement, waive compliance with any of the
agreements or conditions contained in the Merger Agreement.
AMENDMENT
The Merger Agreement may be amended by the parties at any time before
or after approval of the Merger Agreement by the stockholders of Vitas,
provided, however, that after such stockholder approval no amendment shall be
made which by law requires further approval by the stockholders of Vitas, such
as an amendment that would (i) alter or change the amount or kind of shares,
securities, cash, property or rights to be received in exchange for or on
conversion of all or any of the shares of any class or series thereof of Vitas,
(ii) alter or change any term of the Certificate of Incorporation of the
Surviving Corporation to be effected by the Merger or (iii) alter or change any
of the terms and conditions of the Merger Agreement if such alteration or change
would adversely affect the holders of any class or series of shares of Vitas,
without the further approval of such stockholders. The Merger Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties.
TERMINATION
The Merger Agreement may be terminated by mutual written consent of
Apria and Vitas at any time prior to the Effective Time, whether before or after
approval by the stockholders of Vitas. The Merger Agreement may be terminated
and the Merger may be abandoned by action of the Board of Directors of either
Apria or Vitas, and notice thereof given in writing to the other party (i) if
any Governmental Entity shall have issued an order, decree or ruling or taken
any other action permanently enjoining, restraining or otherwise prohibiting the
consummation of the Merger and such order, decree or ruling or other action
shall have become final and nonappealable, (ii) if the
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Merger shall not have occurred by the Expiration Date or (iii) if the Market
Price is greater than $42.125 or less than $22.125.
The Merger Agreement may be terminated by Apria and the Merger may be
abandoned at any time prior to the Effective Time, either before or after
approval by the stockholders of Vitas, by action of the Board of Directors of
Apria and notice thereof given in writing to Vitas if (i) there has been a
breach in any material respect (except that where any statement in a
representation or warranty includes a standard of materiality, such statement
shall be true and correct in all respects giving effect to such standard) of any
representation, warranty, covenant or agreement on the part of Vitas set forth
in the Merger Agreement which breach is not curable or, if curable is not cured
within 15 days after written notice of such breach is given by Apria to Vitas
promptly after Apria's becoming aware of such breach, (ii) any representation or
warranty of Vitas has become untrue in any material respect, such that the
condition precedent set forth in the Merger Agreement concerning the truth and
correctness of Vitas' representations in Apria's reasonable view would be
incapable of being cured or satisfied by the Expiration Date after written
notice of such untruth is given by Apria to Vitas promptly after Apria's
becoming aware of such untruth, (iii) approval of the Merger Agreement and the
Merger by the stockholders of Vitas is not obtained at the Special Meeting by
the Expiration Date unless due to delay or default on the part of Apria, (iv)
separate approval by the stockholders of Vitas concerning the payments to be
made to Mr. Westbrook and Collibrook under the Severance Agreement and Mr.
Westbrook under the Noncompetition Agreement has not been obtained by the
Expiration Date, (v) Vitas accepts a Competing Proposal in accordance with the
Merger Agreement, (vi) more than 9% of the issued and outstanding shares of
Vitas Common Stock entitled to vote to approve the Merger shall have properly
demanded (and not withdrawn) appraisal of such shares in accordance with Section
262 of the Delaware GCL with respect to the Merger, or (vii) the Debt Adjustment
is deemed to occur and is in excess of $4 million as provided in the Merger
Agreement.
The Merger Agreement may be terminated by Vitas and the Merger may be
abandoned at any time prior to the Effective Time, either before or after
approval by the stockholders of Vitas, by action of the Board of Directors of
Vitas and notice thereof given in writing to Apria if (i) there is a breach in
any material respect (except that where any statement in a representation or
warranty includes a standard of materiality, such statement shall be true and
correct in all respects giving effect to such standard) of any representation,
warranty, covenant or agreement on the part of Apria set forth in the Merger
Agreement which breach is not curable or, if curable is not cured within 15 days
after written notice of such breach is given by Vitas to Apria promptly after
Vitas' becoming aware of such breach, (ii) any representation or warranty of
Apria has become untrue in any material respect, such that the condition
precedent set forth in the Merger Agreement concerning the truth and correctness
of Apria's representations in Vitas' reasonable view would be incapable of being
cured or satisfied by the Expiration Date after written notice of such untruth
is given by Vitas to Apria promptly after Vitas' becoming aware of such untruth
or (iii) Vitas accepts a Competing Proposal in accordance with the provisions of
the Merger Agreement.
EFFECT OF TERMINATION
In the event of termination of the Merger Agreement by either Vitas or
Apria (or by the mutual written consent of Vitas and Apria) as provided in the
Merger Agreement, the Merger Agreement will forthwith become void and have no
effect, without any liability or obligation on the part of Apria, Apria Sub or
Vitas, other than the certain provisions concerning confidentiality, fees and
expenses incurred in connection with the Merger and the termination fees
described below which will survive termination and except to the extent that
such termination results from the willful and material breach by a party of any
of its representations, warranties, covenants or agreements set forth in the
Merger Agreement.
If the Merger Agreement is terminated by Vitas because Vitas has
accepted a Competing Proposal and Apria does not elect to exercise its right of
first refusal, or if Vitas enters into any Acquisition Transaction with a third
party without complying with the terms of the Merger Agreement, and Apria is not
otherwise in material breach of its obligations under the Merger Agreement,
Vitas will immediately pay to Apria the sum of $10 million in cash. In addition,
upon any such termination, Vitas also will reimburse Apria (not later than one
business day after submission of statements therefor) for all reasonable fees
and expenses incurred by Apria in connection with the transactions contemplated
by the Merger Agreement (including, without limitation, consulting, accounting,
legal and investment banking fees and expenses incurred by Apria in connection
with the transactions contemplated by the Merger Agreement and the evaluation of
the Competing Proposal).
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LISTING ON STOCK EXCHANGE
An application has been or will be filed for listing the shares of
Apria Common Stock to be issued in the Merger on the NYSE.
APRIA HEALTHCARE GROUP INC.
Apria Healthcare Group Inc. provides and/or manages comprehensive
integrated homecare services including home infusion therapy, home respiratory
therapy, home medical equipment, women's healthcare and nursing. Apria also
coordinates the care of patients who may require any of the aforementioned
services or a combination thereof. Apria provides its services through 350
branch locations which serve patients in 49 states.
Apria derives substantially all of its revenue from the home healthcare
segment of the healthcare market in principally three service lines: home
infusion therapy, home respiratory therapy and home medical equipment. In all
three lines, Apria provides patients with a variety of clinical services,
related products and supplies, most of which are prescribed by a physician as
part of a care plan. These services include high-tech infusion nursing,
respiratory care and pharmacy services, educating patients and their caregivers
about their illness and instructing them on the proper use of products in the
home, monitoring patient compliance with individualized treatment plans,
reporting to the physician and/or managed care organization, maintaining
equipment and processing claims to third party payors. Approximately 35% of
Apria's business is derived from managed care organizations for its integrated
service offerings, with the remainder being derived from traditional
referral/payor sources. Apria purchases or rents the products needed to provide
services to its patients.
Home infusion therapy involves the administration of nutritional
supplements, anti-infectives and other intravenous and injectable medications.
Depending on the therapy, a broad range of venous access devices and pump
technology may be used to facilitate homecare and patient independence. Apria
employs licensed pharmacists, registered nurses and dietitians who have
specialized skills in the delivery of home infusion therapy. Apria currently
operates 60 pharmacy locations to serve its home infusion patients.
Apria provides home respiratory therapy services to patients with a
variety of conditions, including chronic obstructive pulmonary disease (e.g.,
emphysema, chronic bronchitis and asthma), cystic fibrosis and neurologically-
related respiratory conditions. Apria employs a clinical staff of respiratory
care professionals to provide support to its home respiratory therapy patients,
according to physician-directed treatment plans.
Apria's primary emphasis in the home medical equipment line of business
is on the provision of patient room equipment, principally hospital beds and
wheelchairs, to its patients receiving respiratory or infusion therapy. Apria's
integrated services approach allows patients and managed care systems accessing
either respiratory or infusion therapy services also to access needed home
medical equipment through a single source.
Apria is a Delaware corporation, its principal executive offices are
located at 3560 Hyland Avenue, Costa Mesa, California 92626, and its telephone
number is (714) 427-2000.
VITAS HEALTHCARE CORPORATION
Vitas is the largest provider of hospice services in the United States,
caring for the palliative medical and psychosocial needs of more than 29,000
terminally ill patients in fiscal 1995. Vitas provides an integrated and
comprehensive range of services to its patients and their families in the home
(including long-term care facilities) and inpatient facilities. These services
include nursing and pastoral care, social work and counseling services,
physician services, short-term inpatient care and respite care. Vitas also
provides home health aide and homemaker services, drugs for symptom management
and pain control, medical equipment and supplies, and ancillary services such as
physical, speech and occupational therapy. These services are coordinated
through an integrated team of professionals and volunteers. In addition, Vitas
provides various support and psychosocial services and bereavement counseling to
the families of its patients. Vitas' services are provided through its own staff
of over 3,000 employees and through contractual relationships with hospitals,
physicians, long-term care facilities and suppliers.
To receive Medicare or Medicaid coverage for hospice services, a
hospice physician and the patient's attending physician (if any) must certify
that the patient has a life expectancy of six months or less if the illness runs
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its normal course. Vitas is compensated generally on the basis of a fixed per
diem payment for each patient, in exchange for which Vitas manages and assumes
responsibility for all medical and psychosocial care, and certain support
services, associated with the patient's terminal illness. In fiscal 1995, more
than 95% of Vitas' days of care related to patients served in the home
(including long-term care and assisted living facilities). A substantial portion
of Vitas' patients are over 65 years of age and suffer from cancer, heart
disease, AIDS, chronic obstructive pulmonary disease, ALS, Alzheimer's disease
and other terminal or life limiting diseases. Because of the age and
circumstances of most of Vitas' patient population, Medicare and Medicaid
revenues together constituted approximately 92% of Vitas' revenues in fiscal
1995.
Vitas' hospice programs in South Florida began operations in 1978.
Since 1983, Vitas has established programs through de novo start-ups in Texas,
Illinois, Indiana, Ohio, Wisconsin, Pennsylvania and New Jersey, and its service
areas extend to patients residing in Oklahoma. In fiscal 1995, Vitas acquired
the operations of Community Hospice Care, Inc. and its affiliated partnerships,
which operated six hospice locations in Southern California. In fiscal 1996,
Vitas acquired the operations of Hospice of the Miami Valley, Inc., which
operated a hospice in the greater Cincinnati, Ohio area, and these operations
have been combined with Vitas' existing operations in Cincinnati. In August
1996, Vitas also acquired the operations of Hospice of Central Florida, Inc.,
located in Orlando, Florida. To support its growth and expansion, Vitas has
invested heavily in its infrastructure including information and
telecommunication systems and has developed a proprietary enterprise-wide
information system called the "Vitas Exchange" or Vx.
Hospice offers choices to individuals with terminal illnesses who find
that the more traditional mode of treatment is not suitable to their physical
and emotional needs and the needs of their families. The traditional medical
treatment in the United States for patients with terminal illnesses often has
involved technologically intense and uncoordinated clinical care, aggressive
curative procedures and high-cost, acute care hospital stays. This treatment
frequently involves costly and painful procedures that occur shortly before a
patient's death. In contrast, hospice emphasizes palliative care rather than
curative treatment of these illnesses, with the focus on care outside of a
hospital setting and on patient and family participation in care planning and
delivery. In 1995, the National Hospice Organization estimated that there were
over 2,500 hospice programs in the United States and Puerto Rico, each caring
for an average of 134 patients per year. Over three-fourths of these hospice
programs were identified as not-for-profit or governmental organizations.
Vitas is a Delaware corporation, its principal executive offices are
located at 100 South Biscayne Boulevard, Miami, Florida 33131, and its telephone
number is (305) 374-4143.
COMPARISON OF APRIA AND VITAS STOCKHOLDER RIGHTS
Apria and Vitas are incorporated in the State of Delaware. The rights
of stockholders of Vitas are currently governed by the Delaware GCL and by the
Vitas Certificate and the Vitas By-laws. Upon consummation of the Merger,
holders of Vitas Common Stock will become stockholders of Apria and their rights
as such will be governed by the Delaware GCL and by Apria's Restated Certificate
of Incorporation (the "Apria Certificate") and Restated Bylaws (the "Apria
By-laws").
Certain significant differences between the rights of stockholders of
Vitas and stockholders of Apria are set forth below. This summary is qualified
in its entirety by reference to the full text of the Apria Certificate and the
Apria By-laws. For information as to how such documents may be obtained, see
"AVAILABLE INFORMATION."
AUTHORIZED STOCK
Apria. The Apria Certificate authorizes a total of 160,000,000 shares
of stock consisting of 150,000,000 shares of Common Stock, par value $0.001 per
share, and 10,000,000 shares of Preferred Stock, par value $0.001 per share. As
of August 15, 1996, Apria had 51,085,708 shares of Common Stock issued and
outstanding and no shares of Preferred Stock issued and outstanding. See
"PRINCIPAL STOCKHOLDERS--Apria Security Ownership." Each share of Apria Common
Stock carries with it a preferred share purchase right which entitles the holder
thereof to purchase, on the occurrence of certain events, Apria Preferred Stock.
See "--Apria Rights Agreement."
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Vitas. The Vitas Certificate authorizes a total of 44,500,000 shares of
stock consisting of 40,000,000 shares of Vitas Common Stock and 4,500,000 shares
of Vitas preferred stock. As of August 15, 1996, Vitas had 4,408,842 shares of
Vitas Common Stock issued and outstanding. The Vitas Certificate designates
270,000 shares of Vitas preferred stock as 9% Preferred. As of August 15, 1996,
Vitas had 270,000 shares of 9% Preferred issued and outstanding. The Vitas
Certificate designates 262,500 shares of preferred stock as Series B Preferred.
As of August 15, 1996, Vitas had 262,500 shares of Series B Preferred issued and
outstanding. See "PRINCIPAL STOCKHOLDERS--Vitas Security Ownership."
The Vitas Certificate requires Vitas to redeem the Series B Preferred
under certain circumstances. Further, the Vitas Certificate provides the holders
of Series B Preferred with certain rights to convert the Series B Preferred into
Vitas Common Stock pursuant to a conversion rate set forth in the Series B
Preferred Certificate. With respect to the 9% Preferred, the Vitas Certificate
provides for certain optional and mandatory redemption provisions pursuant to
which (i) Vitas may redeem all or part of the 9% Preferred at certain stated
prices and (ii) Vitas must redeem the 9% Preferred in accordance with the
schedule stated in the Vitas Certificate. See"--Redemption of Securities" and
"THE MERGER AGREEMENT--Conversion of Securities" and "--Treatment of Stock
Options."
PREEMPTIVE RIGHTS
Delaware GCL. Under the Delaware GCL, security holders of a corporation
have only such preemptive rights as may be provided in the corporation's
certificate of incorporation.
Apria. The Apria Certificate does not provide for preemptive rights.
Vitas. The Vitas Certificate provides that the holders of Series B
Preferred shall be entitled to certain rights to purchase newly-issued
securities of Vitas as, and to the extent, set forth in the Stockholders'
Agreement, as long as the Stockholders' Agreement is in effect. The
Stockholders' Agreement provides that the purchasers of the Series B Preferred
have certain preemptive rights to purchase new capital stock that Vitas may
issue in the future, which rights would terminate upon the closing of a public
offering that satisfies certain minimum criteria as specified therein. Although
the Merger may not be an event that would invoke these preemptive rights,
Apria's obligations under the Merger Agreement are conditioned upon a waiver of
any rights or claims of preemptive rights by these holders.
BUSINESS COMBINATIONS
Delaware GCL. Under the Delaware GCL, the principal terms of a merger
generally require the approval of the stockholders of each of the merging
corporations, but do not require the approval of the stockholders of any parent
corporation, even when the parent corporation's securities are to be used as
consideration for the merger. Unless otherwise required in a corporations'
certificate of incorporation, the Delaware GCL does not require a stockholder
vote of the surviving corporation in a merger if (i) the merger agreement does
not amend the existing certificate of incorporation, (ii) each share of the
surviving corporation outstanding before the merger is an identical outstanding
or treasury share after the merger, and (iii) either no shares of the surviving
corporation and no securities convertible into such stock are to be issued in
the merger or the number of shares to be issued by the surviving corporation in
the merger does not exceed 20% of the shares outstanding immediately prior to
the merger.
When a shareholder vote is required under the Delaware GCL to approve a
merger, the affirmative vote of the majority of shares present in person or
represented by proxy for each class of shares entitled to vote on the merger,
shall be required to approve the merger. If multiple classes of stock are
entitled to vote on the merger as separate classes, then a majority of each
class entitled to vote to approve the merger, voting separately as a class,
shall be required to approve the merger.
Section 203 of the Delaware GCL provides that, subject to certain
exceptions specified therein, a corporation will not engage in any business
combination with any "interested stockholder" for a three-year period following
the date that such stockholder becomes an interested stockholder unless (i)
prior to such date, the board of directors of the corporation approved either
the business combination or the transaction which resulted in the stockholder
becoming an interested stockholder, (ii) upon consummation of the transaction
which resulted in the stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding
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at the time the transaction commenced (excluding shares held by directors who
are also officers and shares subject to employee stock purchase plans in which
employee participants do not have the right to determine confidentially whether
plan shares will be tendered in a tender or exchange offer) or (iii) on or
subsequent to such date, the business combination is approved by the board of
directors of the corporation and by the affirmative vote at an annual or special
meeting, and not by written consent, of at least 662/3% of the outstanding
voting stock which is not owned by the interested stockholder. Except as
specified in Section 203 of the Delaware GCL, an interested stockholder is
defined to include (a) any person that is the owner of 15% or more of the
outstanding voting stock of the corporation or is an affiliate or associate of
the corporation and was the owner of 15% or more of the outstanding voting stock
of the corporation, at any time within three years immediately prior to the
relevant date and (b) the affiliates and associates of any such person. Section
203(b)(4) exempts from the restrictions in Section 203 a corporation that does
not have a class of voting stock that is (i) listed on a national securities
exchange, (ii) authorized for quotation on The NASDAQ Stock Market or (iii) held
of record by more than 2,000 stockholders, unless any of the foregoing results
from action taken, directly or indirectly, by an interested stockholder or from
a transaction in which a person becomes an interested stockholder.
Apria. Under certain circumstances, Section 203 of the Delaware GCL may
make it more difficult for a person who would be an "interested stockholder" to
effect various business combinations with a corporation for a three-year period,
although the corporation's certificate of incorporation or stockholders may
elect to exclude a corporation from the restrictions imposed thereunder. The
Apria Certificate does not exclude Apria from the restrictions imposed under
Section 203 of the Delaware GCL. It is anticipated that the provisions of
Section 203 of the Delaware GCL may encourage companies interested in acquiring
Apria to negotiate in advance with Apria's Board of Directors, since the
stockholder approval requirement would be avoided if a majority of the directors
then in office approve either the business combination or the transaction which
results in the stockholder becoming an interested stockholder.
Vitas. The Vitas Certificate provides that, upon a merger or
consolidation having certain consequences, the holders of 9% Preferred are
entitled to receive preferred shares of the successor or resulting company with,
to the extent possible, the same powers, preferences and relative,
participating, optional or other special rights and restrictions thereon. Upon
notice of such a merger or consolidation, the holders of 9% Preferred are
entitled, at their option, to receive a cash payment equal to the stated value
of the 9% Preferred plus all accrued and unpaid dividends in exchange for the 9%
Preferred. Regardless of whether this provision applies to the Merger, the
holder of the 9% Preferred has agreed to sell to Apria all shares of 9%
Preferred held by such holder for a purchase price equal to the 9% Preferred's
"Stated Value" of $100 per share, together with all accrued and unpaid dividends
as of the Effective Time. The Vitas Certificate also provides that Vitas may
not, without the affirmative vote or consent of the holders of at least a
majority of the 9% Preferred, sell all or substantially all of the assets of
Vitas in a transaction to be submitted to the vote of the stockholders of Vitas,
and, without the affirmative vote or consent of the holders of at least a
majority of the Series B Preferred (i) sell all or substantially all of the
assets of Vitas in a transaction to be submitted to the vote of the stockholders
of Vitas, (ii) merge or consolidate or (iii) acquire the assets or stock of
another entity in a transaction for consideration having a fair market value in
excess of $20,000,000.
The Stockholders' Agreement provides that the holders of Series B
Preferred are entitled to certain rights of first refusal and tag along rights
in the event of certain transfers of stock by Hugh A. Westbrook or Carole S.
Westbrook. Vitas, however, may enter into a merger, consolidation or
reorganization or certain other transactions without regard to the application
of the provisions regarding rights of first refusal or tag along rights if such
transaction is approved by a majority of Vitas' Board of Directors and the
holders of more than 50% of the outstanding shares of each class of stock
entitled to vote thereon.
The Vitas Certificate does not exclude Vitas from the restrictions
imposed under Section 203 of the Delaware GCL. However, Vitas should be exempt
from said restrictions pursuant to Section 203(b)(4) because Vitas' securities
are not (i) listed on a national exchange, (ii) authorized for quotation on The
NASDAQ Stock Market or (iii) held of record by more than 2,000 stockholders.
Regardless, by resolution adopted at a meeting of the Vitas Board of Directors,
the Board determined that the authorization, approval and adoption by the Vitas
Board of Directors of the Merger Agreement and all of the transactions described
therein and contemplated thereunder, constitute authorization, adoption and
approval of the Merger Agreement and all of the transactions described therein
and contemplated thereunder for, among other things, purposes of Section 203 of
the Delaware GCL. Therefore, the restrictions in Section 203 of the Delaware GCL
should not be applicable to Apria's acquisition of Vitas capital stock in
connection with the Merger.
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APRIA RIGHTS AGREEMENT
In connection with the Rights Agreement (the "Rights Agreement")
between Apria and U.S. Stock Transfer Corporation, as Rights Agent (the "Rights
Agent"), dated as of February 8, 1995, the Apria Board of Directors created a
series of Apria Preferred Stock designated as Series A Junior Participating
Preferred Stock (the "Apria Series A Preferred Stock"). Pursuant to the Rights
Agreement, a Preferred Stock Purchase Right is issued with respect to each share
of Apria Common Stock issued by Apria. Each Right entitles the registered holder
to purchase from Apria one one-hundredth of a share of Apria Series A Preferred
Stock at a price of $130, subject to adjustment (the "Purchase Price").
Currently, the Rights are attached to all certificates representing
shares of outstanding Apria Common Stock and are not represented by separate
Rights certificates. The Rights are evidenced by the Apria Common Stock
certificates and are transferable only in connection with the transfer of the
underlying Apria Common Stock until the earlier of (i) the tenth day following a
public announcement that a person or group of affiliated or associated persons
(an "Acquiring Person") has acquired, or obtained the right to acquire,
beneficial ownership of 20% or more of the Apria Common Stock (the "Shares
Acquisition Date") or (ii) the tenth day after the commencement of (or a public
announcement of an intention to make) a tender offer or exchange offer which
would result in any person or group of persons becoming an Acquiring Person (the
earlier of (i) and (ii) being called the "Rights Distribution Date"). Since no
person will become an Acquiring Person as a result of the Merger, the Merger
will not constitute a Rights Distribution Date and the Rights will not become
exercisable as a result of the Merger. Until the Rights Distribution Date (or
earlier redemption or expiration of the Rights), the surrender for transfer of
any certificates for Apria Common Stock outstanding as of the Record Date also
will constitute the transfer of the Rights associated with the Apria Common
Stock represented by any such certificate. The Apria Board of Directors has the
power, under certain circumstances, to postpone the Rights Distribution Date. As
soon as practicable following the Rights Distribution Date, separate
certificates evidencing the Rights (the "Rights Certificates") will be mailed to
holders of record of the Apria Common Stock as of the close of business on the
Rights Distribution Date. As of the Rights Distribution Date, the Rights will be
evidenced solely by such Rights Certificates.
The Rights are not exercisable until the Rights Distribution Date. The
Rights expire on the earliest of (i) the close of business on February 7, 2005,
(ii) the redemption of the Rights by Apria as described below, (iii) the
consummation of certain mergers, acquisitions and other transactions involving
Apria pursuant to an agreement approved by the Apria Board of Directors or (iv)
the exchange of the Rights as described below.
The Purchase Price payable, and the number of shares of Apria Series A
Preferred Stock or other securities issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Apria Series A Preferred Stock, (ii) upon the grant to holders of the Apria
Series A Preferred Stock of certain rights, options or warrants to subscribe for
or purchase Apria Series A Preferred Stock or certain convertible securities at
less than the current market price of the Apria Series A Preferred Stock or
(iii) upon the distribution to holders of Apria Series A Preferred Stock, except
in certain circumstances, of evidences of indebtedness, cash, securities or
assets or of convertible securities, subscription rights or warrants (other than
those referred to above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least one
percent (1%) in the Purchase Price. No fractional shares of Apria Series A
Preferred Stock will be issued and, in lieu thereof, an adjustment in cash will
be made based on the market price of the Apria Series A Preferred Stock on the
last trading date prior to the date of exercise.
If a person becomes an Acquiring Person (except pursuant to certain
cash offers for all outstanding shares of Apria Common Stock approved by at
least a majority of the Continuing Directors (as defined below)) or if Apria
were the surviving corporation in a merger with an Acquiring Person or any
associate or affiliate of any Acquiring Person and the shares of Apria Common
Stock were not changed or exchanged, each holder of a Right (other than those
persons triggering such event) will thereafter have the right to receive upon
exercise that number of shares of Apria Common Stock which at the time of such
transaction would have a market value of two times the then current Purchase
Price of the Right. With certain exceptions, if, following the time that a
person has become an Acquiring Person, Apria is acquired in a merger or other
business combination transaction or more than 50% of Apria's assets or earning
power is sold, each holder of a Right will have the right to receive, upon the
exercise thereof at the then
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current Purchase Price, that number of shares of common stock of the acquiring
company which at the time of such transaction would have a market value of two
times the then current Purchase Price.
At any time after a person becomes an Acquiring Person and prior to the
acquisition by such Acquiring Person of 50% or more of the then outstanding
shares of Apria Common Stock, the Apria Board of Directors may cause Apria to
acquire the Rights (other than Rights which have become void), in whole or in
part, in exchange for that number of shares of Apria Common Stock having an
aggregate value equal to the excess of the value of the shares of Apria Common
Stock issuable upon exercise of a Right after a person becomes an Acquiring
Person over the Purchase Price per Right, appropriately adjusted to reflect any
stock split, stock dividend, recapitalization or similar transaction (the
"Exchange Consideration"). Effective immediately upon the action of the Apria
Board of Directors electing to exchange any Rights, the right to exercise such
Rights will terminate and the only right of the holders of such Rights will be
to receive the Exchange Consideration. Any partial exchange will be effected pro
rata based on the number of Rights (other than Rights which have become void)
held by each holder of Rights.
At any time prior to the close of business on the tenth day following
the Shares Acquisition Date, the Apria Board of Directors may redeem in whole,
but not in part, all of the then outstanding Rights at a redemption price of
$.01 per Right, appropriately adjusted to reflect any stock split, stock
dividend, recapitalization or similar transaction (the "Redemption Price");
provided, however, that if Apria authorizes the redemption after an Acquiring
Person becomes such, then Continuing Directors must be in office and the
authorization will require the approval of at least a majority of such
Continuing Directors. Prior to the expiration of the period during which the
Rights may be redeemed (as discussed above), the Apria Board of Directors may
extend, one or more times, the period during which Rights may be redeemed beyond
the close of business on the tenth day following the Shares Acquisition Date;
provided, however, that Continuing Directors must be in office and any extension
will require the approval of at least a majority of such Continuing Directors.
Effective immediately upon the action of the Apria Board of Directors ordering
the redemption of the Rights, the right to exercise the Rights will terminate
and the only right of the holders of Rights will be to receive the Redemption
Price.
Any of the provisions of the Rights Agreement may be amended by the
Apria Board of Directors prior to the Rights Distribution Date. After the Rights
Distribution Date, Apria and the Rights Agent may amend or supplement the Rights
Agreement without the approval of any holders of Rights Certificates to cure any
ambiguity, defect or inconsistency, shorten or lengthen any time period under
the Rights Agreement (subject to approval of a majority of the Continuing
Directors) or make changes which do not adversely affect the interests of
holders of Rights (excluding the interests of any Acquiring Person or affiliate
or associate thereof). Apria may, at any time prior to a person becoming an
Acquiring Person, lower the thresholds described above to not less than the
greater of (i) any percentage greater than the largest percentage of the
outstanding shares of Apria Common Stock then known by Apria to be beneficially
owned by any person or group of affiliated or associated persons or (ii) ten
percent.
The term "Continuing Directors" means any member of the Apria Board of
Directors who was a director prior to the time that any person became an
Acquiring Person, and any person who is subsequently elected to the Apria Board
of Directors if such person is recommended or approved by a majority of the
Continuing Directors. Continuing Directors do not include an Acquiring Person,
an affiliate or associate of an Acquiring Person or any representative of any of
the foregoing.
The Apria Series A Preferred Stock purchasable upon exercise of the
Rights will be nonredeemable and junior to any other series of preferred stock
Apria may issue (unless otherwise provided in the terms of such stock). Each
share of Apria Series A Preferred Stock will have a preferential quarterly
dividend in an amount equal to the greater of (i) 100 times the dividend
declared on each share of Apria Common Stock or (ii) $1.00. In the event of
liquidation, the holders of Apria Series A Preferred Stock will be entitled to
receive a minimum preferred liquidation payment of $100 per share, but will also
be entitled to an aggregate payment of 100 times the payment made per Apria
Common Share. Each share of Apria Series A Preferred Stock will entitle the
holder thereof to 100 votes on all matters submitted to a vote of the
stockholders of Apria. The holders of the shares of Apria Series A Preferred
Stock and the holders of the shares of Apria Common Stock shall vote together as
one class on all matters submitted to a vote of stockholders of Apria. In the
event of any merger, consolidation or other transaction in which shares of Apria
Common Stock are exchanged, each share of Apria Series A Preferred Stock will be
entitled to receive 100 times the amount and type of consideration received per
share of Apria Common Stock. The rights of Apria Series A Preferred Stock as to
dividends, liquidation and voting, and in the event of mergers and
consolidations, are protected by customary antidilution provisions.
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Until a Right is exercised, the holder thereof, as such, has no rights
as a stockholder of Apria, including, without limitation, the right to vote or
to receive dividends.
The Rights will cause substantial dilution to a person or group that
acquires 20% or more of the outstanding Apria Common Stock on terms not approved
by the Apria Board of Directors, except pursuant to an offer conditioned on a
substantial number of Rights being acquired. The Rights should not interfere
with any merger or other business combination approved by the Apria Board of
Directors prior to ten days after the time that a person or group has become an
Acquiring Person as the Rights may be redeemed by Apria at $.01 per Right prior
to such time.
The foregoing summary of certain terms of the Rights is qualified in
its entirety by reference to the Rights Agreement, a copy of which is
incorporated herein by reference.
AMENDMENT OF CERTIFICATE OF INCORPORATION
Delaware GCL. Under the Delaware GCL, an amendment to a corporation's
certificate of incorporation requires the approval of the board of directors and
the approval of a majority of the outstanding stock entitled to vote thereon and
a majority of the outstanding stock of each class entitled to vote thereon.
Under the Delaware GCL, the holders of the outstanding shares of a class are
entitled to vote as a separate class on a proposed amendment that would increase
or decrease the aggregate number of authorized shares of such class, increase or
decrease the par value of the shares of such class or alter or change the
powers, preferences or special rights of the shares of such class so as to
affect them adversely. If any proposed amendment would alter or change the
powers, preferences or special rights of one or more series of any class so as
to affect them adversely, but would not so affect the entire class, then only
the shares of the series so affected by the amendment will be considered a
separate class for purposes of voting by classes.
Apria. The Apria Certificate does not address amendments to the Apria
Certificate. Accordingly, any amendment to the Apria Certificate is governed by
the Delaware GCL.
Vitas. The Vitas Certificate provides that Vitas shall not, without the
affirmative vote or consent of the holders of at least a majority of the 9%
Preferred, authorize, issue or assume the obligations under, or increase the
stated or par value of other Vitas securities that are determined to be senior
to or in parity with the 9% Preferred; amend the Vitas Certificate so as
adversely to effect or change the powers, preferences or special rights of the
9% Preferred or authorize additional shares or change the par value of the 9%
Preferred. The Vitas Certificate also provides that Vitas shall not, without the
affirmative vote or consent of the holders of at least a majority of the Series
B Preferred, authorize, issue or assume the obligations under, or increase the
stated or par value of, other Vitas securities that are determined to be senior
to or in parity with the Series B Preferred; amend the Vitas Certificate so as
adversely to effect or change the powers, preferences or special rights of the
Series B Preferred; or authorize additional shares or change the par value of
the Series B Preferred. See "--Stockholder Voting Rights Generally."
AMENDMENT OF BYLAWS
Delaware GCL. Under the Delaware GCL, an amendment to a corporation's
by-laws requires the approval of the stockholders, unless the certificate of
incorporation confers the power to amend the by-laws upon the board of
directors.
Apria. The Apria Certificate provides that the Apria Board of Directors
is authorized to adopt, amend or repeal the Apria By-Laws. The Apria By-laws may
be amended or repealed, or new By-laws may be adopted (a) by the affirmative
vote of the holders of at least a majority of the Common Stock of Apria, or (b)
by the affirmative vote of the majority of the whole Board of Directors of Apria
at any regular or special meeting. Any By-laws adopted or amended by the
stockholders may be amended or repealed by the Board or the stockholders.
Vitas. The Vitas Certificate provides that the Vitas Board of Directors
is expressly empowered to adopt, amend and repeal the Vitas By-laws. The Vitas
By-laws provide that they may be altered, amended or repealed and new By-laws
may be adopted by the Vitas Board of Directors or the stockholders. As a result,
the Vitas Bylaws may be altered, amended or repealed and new By-laws adopted by
the vote of a majority of the Vitas Board of Directors or by the vote of a
majority of the Vitas stockholders entitled to vote thereon.
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STOCKHOLDER VOTING RIGHTS GENERALLY
Delaware GCL. Under the Delaware GCL, the affirmative vote of the
majority of shares present in person or represented by proxy at a duly held
meeting at which a quorum is present and entitled to vote on the subject matter
is deemed to be the act of the stockholders, unless the Delaware GCL, the
certificate of incorporation or the by-laws specify a different voting
requirement.
Apria. The Apria By-laws provide that in all matters, when a quorum is
present at any meeting, the vote of the holders of a majority of the capital
stock having voting power present in person or represented by proxy shall decide
any question brought before such meeting, unless the question is one upon which
by express provision of applicable law or of the Apria Certificate, a different
vote is required in which case such express provision shall govern and control
the decision of such question. Such vote may be by voice or by written ballot;
provided, however, that the Apria Board may, in its discretion, require a
written ballot for any vote, and further provided that all elections for
directors must be by written ballot upon demand made by a stockholder at any
election and before the voting begins.
Each stockholder shall at every meeting of the stockholders be entitled
to one vote in person or by proxy for each share of the capital stock having
voting power held by such stockholder. The Apria Certificate provides that the
Apria Common Stock shall possess the full voting power of Apria and the number
of authorized shares of any class or classes of stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of Apria entitled to
vote.
Vitas. Each stockholder shall be entitled to one vote on each matter
for each share of Vitas' capital stock having voting power. The Vitas By-laws
provide that all matters shall be determined, adopted and approved by the vote
of a majority of the votes cast with respect to such matter, unless the proposed
action is one upon which, by the Delaware GCL or the Vitas Certificate, requires
a different vote, and except with respect to the election of directors.
The Vitas Certificate provides that holders of 9% Preferred have no
voting rights, except that, so long as any shares of the 9% Preferred are
outstanding, Vitas shall not, without the affirmative vote or consent of the
holders of at least a majority of the 9% Preferred: (i) authorize, issue or
assume the obligations under, or increase the stated or par value of, any Senior
Securities (as defined therein) or any obligation or security convertible into
or evidencing the right to purchase any Senior Securities; (ii) authorize, issue
or assume the obligations under, or increase the stated or par value of, any
Parity Securities (as defined therein) or any obligation or security convertible
into or evidencing the right to purchase any Parity Securities; (iii) amend the
Vitas Certificate so as adversely to alter or change the powers, preferences or
special rights of the 9% Preferred or authorize additional shares of 9%
Preferred or increase or decrease the par value of the 9% Preferred; or (iv)
sell all or substantially all of the assets of Vitas in a transaction that is to
be submitted to a vote of the Vitas stockholders.
The Vitas Certificate also provides that, except as otherwise required
by law or when a class vote is required, each holder of Series B Preferred shall
be entitled to vote on all matters together with the holders of Vitas Common
Stock. The number of votes allocated to each holder of Series B Preferred is
based on a formula specified in the Vitas Certificate. In addition, so long as
any shares of Series B Preferred are outstanding, Vitas shall not, without the
affirmative vote or consent of the holders of at least a majority of the Series
B Preferred outstanding at the time: (i) authorize, issue or assume the
obligations under, or increase the stated or par value of, any Senior Securities
(as defined therein) or any obligation or security convertible into or
evidencing the right to purchase any Senior Securities; (ii) authorize, issue or
assume the obligations under, or increase the stated or par value of, any Parity
Securities (as defined therein) or any obligation or security convertible into
or evidencing the right to purchase any Parity Securities; (iii) amend the Vitas
Certificate so as adversely to alter or change the powers, preferences or
special rights of the Series B Preferred or authorize additional shares of
Series B Preferred or increase or decrease the par value of the Series B
Preferred; (iv) sell all or substantially all of the assets of Vitas in a
transaction that is to be submitted to a vote of the Vitas stockholders; (v)
merge or consolidate Vitas with or into any other corporation in a transaction
that is to be submitted to a vote of Vitas stockholders; (vi) acquire the assets
or stock of another entity in a transaction for consideration having a Fair
Market Value (as defined therein) in excess of $20,000,000; (vii) issue or
transfer shares of any class or series of Vitas capital stock to Vitas' Employee
Stock Ownership Plan/Trust unless such issuance or transfer has been approved or
recommended by a disinterested majority of the members of the
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Compensation Committee of the Vitas Board of Directors; or (viii) redeem or
repurchase outstanding shares of any class or series of Vitas capital stock
except for (A) shares repurchased at or less than Fair Market Value from current
or former directors, officers, employees or consultants or of any direct or
indirect subsidiary up to an aggregate of $1,000,000, (B) shares of Series B
Preferred, (C) shares redeemed pursuant to the redemption provisions of the 9%
Preferred, (D) shares purchased pursuant to a right of first refusal, call,
option or similar right to purchase granted to Vitas and (E) the Stock
Repurchases, as defined in the Preferred Stock Repurchase Agreement dated as of
June 3, 1993, between Vitas and certain investors listed therein.
The Stockholders' Agreement provides that holders of Vitas Common Stock
issued upon conversion of Series B Preferred are entitled to vote on matters
together with the holders of Vitas Common Stock, but the voting rights of such
issued conversion shares are limited in certain respects by requiring that
certain votes attributable to such shares be restricted in an amount and manner
comparable to the voting rights such holders had as holders of Series B
Preferred, and in other respects by requiring that certain other votes
attributable to such shares be voted pro rata based on the total votes cast on
such matters. In addition, the Investor Group (as defined therein) has agreed
that so long as they have total voting power of less than 51%, they will not,
among other things, propose a director or directors in opposition to the
nominees proposed by the Board or management of Vitas (other than as permitted
in the Stockholders' Agreement), exercise, directly or indirectly, control or
controlling influence over the management, policies or business operations of
Vitas or, until the closing of a public offering, publicly propose or solicit
any person or company to acquire Vitas or more than ten percent of Vitas Common
Stock. The Stockholders' Agreement also contains certain voting covenants with
respect to the election and removal of directors.
The Investor Agreement provides that, so long as they beneficially own
at least five percent of the outstanding Vitas Common Stock and no change in
control of Vitas (as defined therein) has occurred, neither Chemed nor OCR or
their affiliates or associates will: (i) call a special meeting of stockholders
unless supported by the Vitas Board of Directors; (ii) institute, encourage or
participate in any proxy solicitation with respect to any matter submitted or
proposed to be submitted to a vote of Vitas stockholders; (iii) announce,
publicly propose or solicit any person or company to acquire, offer to acquire
or agree to acquire Vitas; (iv) seek to designate any Chemed/OCR designee as
Chairman of the Board of Directors; (v) propose a director in opposition to the
nominees proposed by management except as otherwise permitted in the Investor
Agreement; or (vi) exercise or attempt to exercise control or a controlling
influence over the management, policies or business operations of Vitas.
STOCKHOLDER ACTION BY WRITTEN CONSENT
Delaware GCL. Under the Delaware GCL, unless otherwise provided in a
corporation's certificate of incorporation, any action that may be taken at any
annual or special meeting of stockholders may be taken without a meeting,
without prior notice and without a vote, if a consent (or consents) in writing,
setting forth the action so taken, is delivered to the corporation and is signed
by the holders of outstanding shares having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted.
Apria. The Apria Certificate provides that any action required or
permitted to be taken by the stockholders of Apria must be taken at a meeting of
such stockholders and may not be taken by consent in writing, except (i) as
permitted by resolutions of the Apria Board of Directors fixing the powers and
preferences of any class or series of shares as to which the Board of Directors
has been expressly vested with authority to fix the powers and preferences, or
(ii) for the purpose of approving, authorizing, or adopting any action or
proposal theretofore approved, authorized or adopted by the Board of Directors.
Vitas. The Vitas By-laws provide that stockholder action may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken, are (i) signed by the
holders of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted and
(ii) delivered to Vitas.
SPECIAL STOCKHOLDER MEETINGS
Delaware GCL. Under the Delaware GCL, a special meeting of stockholders
may be called by the board of directors or by any other person authorized to do
so in the certificate of incorporation or the by-laws.
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Apria. The Apria By-laws provide that special meetings of the Apria
stockholders may be called at any time by the Apria Board of Directors and shall
be called by the President or the Secretary at the request in writing of a
majority of the Board, or at the request in writing of stockholders owning a
majority of the entire capital stock of Apria issued and outstanding and
entitled to vote.
Vitas. The Vitas By-laws provide that special meetings of the
stockholders may be called by the Board of Directors, by the Chairman of the
Board, or by the President and shall be called by the President or Secretary at
the request in writing of stockholders owning a majority in amount of the entire
capital stock of Vitas issued and outstanding and entitled to vote generally for
the election of directors.
NUMBER AND ELECTION OF DIRECTORS
Delaware GCL. Under the Delaware GCL, the minimum number of directors
is one. The Delaware GCL provides that the number of directors shall be fixed
by, or in the manner provided in, the by-laws, unless the certificate of
incorporation fixes the number of directors, in which case a change in the
number of directors may be made only upon amendment of the certificate of
incorporation. The vote of the majority of the directors present at a meeting at
which a quorum is present shall be the act of the board of directors unless the
certificate of incorporation or the by-laws shall require a vote of greater
number. In addition, the Delaware GCL permits, but does not require, a
classified board of directors, with staggered terms under which one-half or
one-third of the directors are elected for terms of two or three years,
respectively. A classified board is one in which a certain number, but not all,
of the directors are elected on a rotating basis each year.
Apria. The Apria Certificate provides that the number of directors
constituting the Apria Board of Directors shall be fixed, initially, by the
Apria By-Laws. The Apria By-Laws provide that the Apria Board shall initially
consist of eight members. Thereafter the number of directors shall be fixed or
altered exclusively by resolutions adopted by the Board of Directors. The
directors shall be divided into three classes as nearly equal in number as
possible, designated Class I, Class II and Class III. The initial term of office
of Class I directors shall expire at the 1996 annual meeting of stockholders; of
Class II directors at the 1997 annual meeting of stockholders; and of Class III
directors at the 1998 annual meeting of stockholders. At each annual meeting of
stockholders, successors to the class of directors whose terms of office expire
in that year shall be elected to hold office for a term of three years. Each
director shall hold office until his successor is elected and qualified or until
his earlier resignation. No decrease in the number of directors shall shorten
the term of any incumbent director. The current number of directors is seven.
Vitas. The Vitas Certificate provides that the number of directors
shall be fixed by or determined in accordance with the Vitas By-laws. The Vitas
By-laws provide that the number of directors is to be determined by resolution
of the Board of Directors. The number of directors is currently fixed at nine.
One seat is currently vacant. The Vitas Board of Directors is divided into three
classes, each consisting of approximately one-third of the total number of
directors. The term of office for each director is three years and such terms
expire in successive years at the time of the annual meeting of stockholders.
The Vitas By-laws provide that candidates for election as members of the Board
of Directors who receive the highest number of votes, up to the number of
directors to be chosen, shall stand elected, and an absolute majority of the
votes cast is not a prerequisite to the election of any candidate to the Board
of Directors.
The Vitas Certificate also provides that the holders of Series B
Preferred, voting separately as a class, are entitled to vote for and elect as
directors only those persons whom the holders of Series B Preferred are entitled
to designate pursuant to the terms of the Stockholders' Agreement. The
Stockholders' Agreement provides that, so long as the Stockholders' Agreement
remains in effect and provided either of the Principal Investors (defined
therein to mean the Principal Galen Entities and Warburg, Pincus Investors,
L.P.) has Voting Power, the holders of a majority of the outstanding shares of
Series B Preferred shall be entitled to vote for and elect as directors either
one or both of the Principal Investors' designees to the Vitas Board of
Directors, depending on whether one or both of the Principal Investors have
Voting Power. Bruce F. Wesson and Patrick T. Hackett, the designees of the
Principal Galen Entities and Warburg, Pincus Investors, L.P., respectively, are
serving as directors of Vitas in accordance with this provision.
The Investor Agreement provides that, as long as OCR beneficially owns
at least ten percent of the outstanding shares of Vitas Common Stock, Vitas is
obligated to nominate one person designated by OCR for election
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as a director of Vitas. Mr. O'Toole, an officer and director of Chemed, was
nominated to serve as a director of Vitas in accordance with this provision. The
Investor Agreement provides, among other things, that, as long as the Vitas
Board of Directors is composed of ten or fewer directors, OCR shall be entitled
to only one designee.
REMOVAL OF DIRECTORS
Delaware GCL. The Delaware GCL provides that a director of a
corporation may be removed with or without cause by the holders of a majority of
the shares then entitled to vote at an election of directors, provided, that,
when a corporation has a classified board of directors, a director may be
removed only for cause, unless the certificate of incorporation otherwise
provides.
Apria. Neither the Apria Certificate nor the Apria By-laws provide for
the removal of directors. Accordingly, stockholders of Apria may remove
directors only for cause and by the affirmative vote of the holders of at least
a majority of the capital stock entitled to vote.
Vitas. Neither the Vitas Certificate nor the Vitas By-laws provide for
the removal of directors. Accordingly, stockholders of Vitas may remove
directors only for cause and by the affirmative vote of the holders of at least
a majority of the capital stock entitled to vote thereon.
The Investor Agreement provides that, in the event OCR ceases to
beneficially own at least ten percent of the Vitas Common Stock, at the request
of a majority of the members of the Vitas Board of Directors, OCR will cause its
designee on the Vitas Board of Directors to resign.
The Stockholders' Agreement provides that the Investor Group, acting by
a majority of the then outstanding shares of Series B Preferred, shall at all
times have the right to remove with or without cause, a director designated
pursuant to the terms of the Stockholders' Agreement.
VACANCIES ON THE BOARD OF DIRECTORS
Delaware GCL. Under the Delaware GCL, vacancies and newly created
directorships may be filled by a majority of the directors then in office,
although less than a quorum, unless otherwise provided in the certificate of
incorporation or the by-laws. However, if the certificate of incorporation
directs that a particular class is to elect such director, such vacancy may be
filled only by the other directors elected by such class. If, at the time of
filling any vacancy or newly created directorship, the directors then in office
constitute less than a majority of the whole board as constituted immediately
prior to such increase, the Delaware Court of Chancery may, upon application of
stockholders holding at least ten percent of the total number of shares
outstanding having the right to vote for such directors, order an election to be
held to fill any such vacancies or newly created directorships or to replace the
directors chosen by the directors then in office.
Apria. The Apria By-laws provide that, through the 1998 Annual Meeting
of Stockholders, any vacancy on the Board of Directors arising among Jeremy M.
Jones, David L. Goldsmith, Terry Hartshorn and Charles D. Martin (or any other
individual or individuals selected (i) as a replacement director for the
foregoing individuals or (ii) by the foregoing individuals or their successors)
and any nominee selected to fill a director position occupied by any of the
foregoing individuals will be filled or selected by a majority vote of the
remaining foregoing individuals, and any vacancy arising among Timothy M.
Aitken, Frederick S. Moseley, IV, Leonard Green and Vincent M. Prager (or any
other individual or individuals selected (i) as a replacement director for the
foregoing individuals or (ii) by the foregoing individuals or their successors)
and any nominee selected to fill a director position occupied by any of the
foregoing individuals will be filled or selected by a majority vote of the
remaining foregoing individuals. Mr. Aitken resigned in November 1995, and the
vacancy created by his resignation has not yet been filled. After the 1998
Annual Meeting of Stockholders, any vacancy on the Board, including any newly
created directorship resulting from an increase in the number of directors, may
be filled by a majority of the Board then in office, provided that a quorum is
present.
Vitas. The Vitas By-laws provide that vacancies and newly created
directorships may be filled, for the unexpired term, by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. Each director so chosen shall hold office for the remainder of the
full term of the class of directors in which
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the new directorship was created or the vacancy occurred. The Vitas By-laws
further provide that, if, at the time of filling any vacancy or any newly
created directorship, the directors then in office constitute less than a
majority of the whole Board, the Court of Chancery of the State of Delaware may,
upon application of any stockholder or stockholders holding at least ten percent
of the total number of then outstanding shares having the right to vote for such
directors, summarily order an election to be held to fill any such vacancies or
newly created directorships, or to replace the directors chosen by the directors
then in office, in accordance with the Delaware GCL. The Vitas By-laws further
provide that, in the event a director resigns effective at a future date, a
majority of the directors then in office including those who have resigned,
shall have the power to fill such vacancy or vacancies, the vote to be taken
when such resignation or resignations shall become effective, and each director
so chosen shall hold office for the remainder of the full term of the class of
directors in which the vacancy occurs.
The Stockholders' Agreement provides that, in the event of a vacancy
caused by the death, removal or resignation of a director elected in accordance
with the terms of the Stockholders' Agreement, such vacancy shall be filled at a
special meeting unless otherwise filled by the Vitas Board of Directors in
accordance with the terms of the Stockholders' Agreement.
TRANSACTIONS INVOLVING OFFICERS OR DIRECTORS
Delaware GCL. Under the Delaware GCL, no contract or transaction
between a corporation and one or more of its directors or officers, or between a
corporation and any other entity in which one or more of its directors or
officers are directors or officers, or have a financial interest, is void or
voidable if (i) the material facts as to the director's or officer's
relationship or interest and as to the contract or transaction are disclosed or
known to the board of directors or committee which authorizes the contract or
transaction by the affirmative vote of a majority of the disinterested
directors; (ii) the material facts as to the director's or officer's
relationship or interest and as to the contract or transaction are disclosed or
known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved by the stockholders; or (iii) the contract
or transaction is fair as to the corporation as of the time it is authorized,
approved or ratified by the board of directors, a committee thereof or the
stockholders. A corporation may make loans to, guarantee the obligations of or
otherwise assist its officers or other employees and those of its subsidiaries,
including directors who are also officers or employees, when such action, in the
judgment of the directors, may reasonably be expected to benefit the
corporation.
Apria. The Apria Certificate and the Apria By-laws do not address
contracts, loans or other transactions between Apria and its directors, officers
or employees.
Vitas. The Vitas Certificate and the Vitas By-laws do not address
contracts, loans or other transactions between Vitas and its directors, officers
or employees.
INDEMNIFICATION OF DIRECTORS
Delaware GCL. Under the Delaware GCL, directors may be indemnified for
liabilities incurred in connection with specified actions (other than any action
brought by or in the right of the corporation), if they acted in good faith and
in a manner they reasonably believed to be in and not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful. The
same standard of conduct is applicable for indemnification in the case of
derivative actions brought by or in the right of the corporation, except that in
such cases the Delaware GCL authorizes indemnification only for expenses
(including attorneys' fees) incurred in connection with the defense or
settlement of such cases. Moreover, the Delaware GCL requires court approval
before there can be any such indemnification where the person seeking
indemnification has been found liable to the corporation in a derivative action.
The Delaware GCL states expressly that the indemnification provided by or
granted pursuant to the Delaware GCL is not deemed exclusive of any
non-statutory indemnification rights existing under any bylaws, agreement, vote
of stockholders or disinterested directors or otherwise.
Apria. The Apria Certificate generally requires that Apria provide
indemnification to the fullest extent permitted by Delaware law. Insofar as
indemnification for liabilities arising under the 1933 Act may be permitted to
directors, officers or persons controlling Apria pursuant to the foregoing
provisions, Apria has been informed that
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in the opinion of the Commission such indemnification is against public policy
as expressed in the 1933 Act and is therefore unenforceable.
Vitas. The Vitas By-laws generally require that Vitas provide
indemnification of expenses to the fullest extent permitted by Delaware law. In
addition to the general indemnification provision in the Vitas By-laws, Vitas
also has entered into indemnification agreements ("Indemnification Agreements")
with certain directors and officers of Vitas, which agreements provide, among
other things, that Vitas shall indemnify and hold harmless such director or
officer in the event that he or she is or was a party to or involved or becomes
involved in any manner or is threatened to be so involved in any Proceeding (as
defined therein) by reason of the fact that such person is or was a director or
officer of Vitas, against all expenses, liabilities and losses reasonably
incurred by such person in connection with such Proceeding, and includes the
advancement of certain expenses. A person is entitled to indemnification under
an Indemnification Agreement if, among other things, a Change of Control (as
defined therein to include, among other things, a merger involving Vitas) shall
have occurred and the officer or director so requests indemnification in
connection with a Proceeding.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS
Delaware GCL. The Delaware GCL provides that a corporation's
Certificate of Incorporation may include a provision eliminating or limiting the
personal liability of a director to the corporation or its stockholders for
monetary damages resulting from certain breaches of fiduciary duties.
Apria. The Apria Certificate contains such a provision limiting the
personal liability of a director.
Vitas. The Vitas Certificate contains such a provision limiting the
personal liability of a director.
DECLARATION OF DIVIDENDS
Delaware GCL. Under the Delaware GCL, a corporation is permitted to
declare and pay dividends out of surplus (as defined in the Delaware GCL) or, if
there is no surplus, out of net profits for the fiscal year in which the
dividend is declared and/or for the preceding fiscal year as long as the amount
of capital of the corporation following the declaration and payment of the
dividend is not less than the aggregate amount of the capital represented by the
issued and outstanding stock of all classes having a preference upon the
distribution of assets. In addition, the Delaware GCL generally provides that a
corporation may redeem or repurchase its shares only if such redemption or
repurchase would not impair the capital of the corporation.
Apria. The Apria By-laws provide that dividends on the capital stock of
Apria, subject to the provisions of the Apria Certificate, if any, may be
declared by the Apria Board at any regular or special meeting, pursuant to law,
and may be paid in cash, in property or in shares of capital stock. Before
payment of any dividend, there may be set aside out of any funds of Apria
available for dividends such sums as the directors from time to time, in their
absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of Apria, or for such other purpose as the directors shall determine to
be in the best interest of Apria, and the directors may modify or abolish any
such reserve in the manner in which it was created.
Vitas. The Vitas By-laws provide that the Board of Directors shall have
the power to declare dividends at any regular or special meeting. Such dividends
may be paid out of surplus or out of the net profits for the fiscal year in
which the dividend is declared and/or the preceding fiscal year. Dividends may
be paid in cash, property or shares of Vitas stock. The Vitas Certificate
provides that whenever a dividend is paid or declared and set aside for payment
to the holders of the outstanding shares of any class of stock having preference
over the Vitas Common Stock as to the payment of dividends, then dividends may
be paid on the Vitas Common Stock and on any class or series of stock entitled
to participate as to dividends out of any assets legally available for the
payment of dividends, but only if declared by the Board of Directors.
The Vitas Certificate also provides that the dividend rate on the 9%
Preferred shall be nine percent per annum, calculated on the stated value of the
9% Preferred. Dividends on the 9% Preferred accrue semiannually. So long as any
shares of 9% Preferred remain outstanding, Vitas may not (i) declare, pay or set
aside for payment
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any dividend upon any Junior Securities (as defined in the Vitas Certificate)
(other than a dividend paid in Vitas Common Stock or in any other stock ranking
junior to the 9% Preferred) or upon any Parity Securities (as defined therein)
(other than a dividend paid in Parity Securities or Junior Securities or a
dividend paid in accordance with certain other requirements); (ii) make any
payment on account of, or set apart for payment money for a sinking or other
similar fund for, the repurchase, redemption or other retirement of any Junior
Securities or Parity Securities or any warrants, rights, or options exercisable
for or convertible into any Junior Securities or Parity Securities; or (iii)
make any distribution in respect of any Junior Securities or Parity Securities,
either directly or indirectly, and whether in cash, obligations, stock or
certain other property, unless Vitas first complies with certain conditions
relating to the payment and redemption of 9% Preferred; provided, that, Vitas
may, in certain circumstances, repurchase or redeem Vitas Common Stock from
current or former employees, consultants or directors or from Vitas
subsidiaries.
The Vitas Certificate also provides that, so long as any shares of
Series B Preferred remain outstanding, Vitas may not (i) declare, pay or set
aside for payment any dividend upon any Junior Securities (as defined therein)
(other than a dividend paid in Vitas Common Stock or in any other stock ranking
junior to the Series B Preferred) or upon any Parity Securities (as defined
therein) (other than a dividend paid in Parity Securities or Junior Securities
or a dividend paid in accordance with certain other requirements); (ii) make any
payment on account of, or set apart for payment money for a sinking or other
similar fund for, the repurchase, redemption or other retirement of any Junior
Securities or Parity Securities or any warrants, rights, or options exercisable
for or convertible into any Junior Securities or Parity Securities (other than
certain stock repurchases referred to in the Preferred Stock Purchase Agreement,
dated December 17, 1991, between Vitas, Chemed and OCR); or (iii) make any
distribution in respect of any Junior Securities or Parity Securities, either
directly or indirectly, and whether in cash, obligations, stock or certain other
property, unless, in each case, prior thereto or concurrently therewith, Vitas
declares and pays a dividend on the outstanding shares of Series B Preferred
equal to eight percent per annum based on the stated value from the Original
Issue Date (as defined therein) and Vitas complies with certain redemption
obligations set forth in the Vitas Certificate; provided, that, Vitas may, in
certain circumstances, repurchase or redeem Vitas Common Stock from current or
former employees, consultants or directors or from Vitas subsidiaries.
In addition, the holders of Series B Preferred are entitled to
participate equally with any dividend declared on the Vitas Common Stock. The
Vitas Certificate further prohibits Vitas from paying any cash dividends on the
Series B Preferred or any Junior or Parity Securities (as defined therein) that
would exceed 50% of the Cumulative Net Income (as defined therein) as measured
from March 31, 1993 through the month ended immediately preceding the proposed
payment date. The Vitas Certificate provides that the 9% Preferred ranks senior
to the Series B Preferred.
The Warrants provide that Vitas may not pay a cash dividend on the
Vitas Common Stock or effect a Pro Rata Repurchase (as defined therein) of Vitas
Common Stock at a purchase price in excess of the Fair Market Value (as defined
therein) thereof, if the aggregate amount of all cash dividends paid by Vitas
since September 30, 1991 to holders of Vitas Common Stock combined with the
aggregate amount of all Pro Rata Repurchases since September 30, 1991 exceeds
15% of the Cumulative Consolidated Net Income of Vitas (as defined therein).
STOCK OWNERSHIP AND TRANSFER RESTRICTIONS
Delaware GCL. Under the Delaware GCL, a written restriction on the
transfer of a security, if permitted by the Delaware GCL and noted conspicuously
on the certificate representing the security or, in the case of uncertificated
shares, contained in the notice required to be sent to the security holder
pursuant to the Delaware GCL, may be enforced against the holder or any
successor or transferee of the holder. A restriction on the transfer of
securities of a corporation may be imposed either by the certificate of
incorporation or by the by-laws or by an agreement among any number of security
holders or among such holders and the corporation. A restriction on the transfer
of securities of a corporation is permitted under the Delaware GCL if it (i)
contains a right of first refusal in favor of the corporation or any other
person, to be exercised within a reasonable time; (ii) obligates the corporation
or any other person to purchase the securities; (iii) requires the corporation
or the holders of any class of securities of the corporation to consent to any
proposed transfer of the restricted securities or to approve the proposed
transferee; or (iv) prohibits the transfer of the restricted securities to
designated persons or classes of persons, and such designation is not manifestly
unreasonable. Any other lawful restriction on the transfer of securities also is
permitted under the Delaware GCL.
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Apria. Neither the Apria Certificate nor the Apria By-laws provides for
restrictions on the transfer of Apria securities.
Vitas. The Vitas Certificate provides that the Series B Preferred may
be transferred only in accordance with the terms of the Stockholders' Agreement.
The Vitas Certificate also provides that the 9% Preferred cannot be transferred
without the consent of Vitas. The Warrants provide that they cannot be
transferred without the consent of Vitas. Pursuant to the terms of the Investor
Agreement, Vitas has a right of first refusal to purchase the Vitas Warrants or
Vitas Common Stock owned by OCR prior to the sale of such Warrants or Common
Stock in a private transaction. In addition, the Investor Agreement provides
that, in the event of a Change in Control (as defined therein) of Chemed and/or
OCR, Vitas has the right to repurchase the 9% Preferred, Warrants and Vitas
Common Stock owned by Chemed and OCR.
The Stockholders' Agreement provides that the Series B Preferred is
subject to certain restrictions on the transfer of shares of any voting
securities owned or acquired by the holders of the Series B Preferred, including
certain rights of first refusal granted to Vitas, certain rights to be
designated as Vitas' designee for purposes of exercising rights of first refusal
initially granted to Vitas or transferred by other stockholders and certain tag
along rights granted to the holders of Series B Preferred that arise in the
event of certain transfers by Hugh A. Westbrook or Carole S. Westbrook. The
Stockholders' Agreement also provides that the Investor Group (as defined
therein) has agreed that, until the closing of a public offering, such persons
will not transfer any voting securities of Vitas to certain persons or entities
including competitors of Vitas or persons or entities whose ownership is
reasonably likely to cause certain adverse business effects or other regulatory
consequences.
On June 4, 1993, Vitas entered into a Registration Rights Agreement
(the "Equity Registration Rights Agreement") with certain holders of Common
Stock of Vitas, Chemed and the purchasers of the Series B Preferred pursuant to
which such parties are entitled to certain registration rights in the event
Vitas engages in a Qualified Public Offering (as defined therein), registers its
securities or otherwise becomes a reporting company under Section 12 of the 1934
Act.
In addition to the above-mentioned restrictions on transfer, various
agreements involving Mr. Westbrook and other significant Vitas securityholders
contain restrictions on the transferability of Vitas capital stock, including
rights of first refusal and tag along rights.
APPRAISAL RIGHTS
Delaware GCL. Under the Delaware GCL, the right to receive the fair
market value of dissenting shares is made available to stockholders of a
constituent corporation in a merger or consolidation effected under the Delaware
Code. Dissenters' rights of appraisal are not available (i) with respect to a
merger or consolidation by a corporation the shares of which are either listed
on a national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or are held of record by more than 2,000 holders if
such stockholders receive only shares of the surviving corporation or shares of
any other corporation which are either listed on a national securities exchange
or held of record by more than 2,000 holders, plus cash in lieu of fractional
shares; or (ii) to stockholders of a parent corporation that is not itself a
constituent corporation in a merger transaction. See Appendix D.
Apria. Neither the Apria Certificate nor the Apria By-laws contain any
additional provisions relating to dissenters' rights of appraisal.
Vitas. Neither the Vitas Certificate nor the Vitas By-laws contain any
additional provisions relating to dissenters' rights of appraisal.
INSPECTION OF STOCKHOLDER LIST
Delaware GCL. Under the Delaware GCL, any stockholder is allowed,
during the usual hours of business, to inspect and copy a corporation's
stockholder list for a purpose reasonably related to such person's interest as a
stockholder.
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Apria. The Apria By-laws provide that the officer who has charge of the
stock ledger of Apria shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting or at the place of the meeting, and the list also shall be available at
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
Vitas. The Vitas By-laws provide that the officer who has charge of the
stock ledger shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present. The stock ledger is the only evidence as to those stockholders who are
entitled to examine the stock ledger.
LIQUIDATION RIGHTS UPON DISSOLUTION
Delaware GCL. Under the Delaware GCL, unless the board of directors
approves a proposal to dissolve a corporation, the dissolution must be approved
by stockholders holding 100% of the total voting power of the corporation. If
the dissolution is initiated by the board of directors, it need only be approved
by a majority of the corporation's stockholders.
Apria. Neither the Apria Certificate nor the Apria By-laws contain any
additional provisions relating to liquidation rights upon dissolution.
Vitas. The Vitas Certificate provides that, upon liquidation, the
holders of 9% Preferred are entitled to priority over holders of Vitas Common
Stock and certain other securities determined to be junior to the 9% Preferred,
and are entitled to receive an amount equal to accrued and unpaid dividends plus
the "Stated Value" of the 9% Preferred. Thereafter, the holders of 9% Preferred
have no other right or claim to the assets of Vitas. The above-mentioned
liquidation provisions are not triggered by a merger involving Vitas.
The Vitas Certificate also provides that, upon liquidation, the holders
of Series B Preferred are entitled to priority over the holders of Vitas Common
Stock and certain other securities determined to be junior to the Series B
Preferred, and are entitled to receive an amount equal to accrued and unpaid
dividends plus the "Stated Value" of the Series B Preferred. Thereafter, the
holders of Series B Preferred are entitled to participate with the holders of
Vitas Common Stock in the distribution of the remaining assets of Vitas. The
above-mentioned liquidation provisions are not triggered by a merger involving
Vitas. The Vitas Certificate further provides that the Series B Preferred is
junior to the 9% Preferred on liquidation.
REDEMPTION OF SECURITIES
Delaware GCL. The Delaware GCL provides that the stock of any class or
series may be made subject to redemption for cash, property or rights by the
corporation at its option or at the option of the holders of such stock or upon
the happening of a specified event so long as, at the time of such redemption,
the corporation has outstanding shares of at least one class or series of stock
with full voting powers which shall not be subject to redemption. A corporation
may purchase, or redeem its own securities; provided, that (i) the capital of
the corporation is not impaired or such purchase or redemption would not cause
any impairment of the capital of the corporation, except that a corporation may
purchase or redeem out of capital any of its own shares which are entitled upon
any distribution of its assets, whether by dividend or in liquidation, to a
preference over another class or series of its stock if such shares will be
retired upon their acquisition and the capital of the corporation is reduced in
accordance with the relevant provisions of the Delaware GCL and (ii) shares
which are redeemable at the option of the corporation
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are not purchased for more than the price at which they may then be redeemed.
Special redemption provisions must be set forth in the certificate of
incorporation or resolutions of the board of directors of the corporation.
Apria. The Rights Agreement provides that at any time prior to the
close of business on the tenth day following the Shares Acquisition Date, the
Apria Board of Directors may redeem in whole, but not in part, all of the then
outstanding Rights at a redemption price of $.01 per Right, appropriately
adjusted to reflect any stock split, stock dividend, recapitalization or similar
transaction (the "Redemption Price"); provided, however, that if Apria
authorizes the redemption after an Acquiring Person becomes such, then
Continuing Directors must be in office and the authorization will require the
approval of at least a majority of such Continuing Directors. Prior to the
expiration of the period during which the Rights may be redeemed (as discussed
above), the Apria Board of Directors may extend, one or more times, the period
during which Rights may be redeemed beyond the close of business on the tenth
day following the Shares Acquisition Date; provided, however, that Continuing
Directors must be in office and any extension will require the approval of at
least a majority of such Continuing Directors. Effective immediately upon the
action of the Apria Board of Directors ordering the redemption of the Rights,
the right to exercise the Rights will terminate and the only right of the
holders of Rights will be to receive the Redemption Price. See "--Apria Rights
Agreement."
Vitas. The Vitas Certificate provides that, at any time, Vitas may, at
its option, redeem all or a portion of the 9% Preferred at the redemption price
per share set forth in the Vitas Certificate, subject to appropriate
adjustments, plus the amount equal to all accrued and unpaid dividends thereon
to the date fixed for redemption, out of funds legally available for such
redemption. In addition, the Vitas Certificate provides for mandatory redemption
of the 9% Preferred in accordance with a redemption schedule included in the
Vitas Certificate, subject to appropriate adjustments in the event funds legally
available for such redemption are insufficient for such purpose. Upon each
mandatory redemption date, all accrued and unpaid dividends with respect to the
shares being redeemed are required to be paid. All shares to be redeemed must be
redeemed pro rata from all holders, unless otherwise required by law. See Note 3
to Notes to Consolidated Financial Statements of Vitas for the years ended
September 30, 1995.
The Vitas Certificate also contains redemption provisions with respect
to the Series B Preferred. On the earlier of June 30, 1999 or six months
following the redemption in full of the 9% Preferred, but in no event prior to
June 30, 1996, any holder of Series B Preferred may require Vitas to redeem all
of such holder's shares of Series B Preferred at a price per share equal to the
"Stated Value" plus the Series B Dividend Preference Amount (as defined therein)
less any dividends declared and paid on the shares prior to the Redemption Date
(as defined therein), out of funds legally available for such redemption. The
Vitas Certificate further provides that, in the event the cumulative effect of
any redemption of Series B Preferred would cause 2/3 of the shares of Series B
Preferred outstanding on the Original Issue Date (as defined therein) to have
been redeemed, Vitas shall redeem all of the remaining outstanding shares of
Series B Preferred, out of funds legally available for such redemption.
The Investor Agreement provides that, in the event of a Change in
Control (as defined therein) of Chemed and/or OCR, Vitas or its designee shall
have the right to repurchase the Warrants and any Vitas capital stock owned by
Chemed and OCR in accordance with the terms and conditions specified in the
Investor Agreement.
APRIA HEALTHCARE GROUP INC. CAPITAL STOCK
The authorized capital stock of Apria consists of 150,000,000 shares of
Common Stock, $.001 par value, and 10,000,000 shares of Preferred Stock, $.001
par value. As of August 15, 1996, Apria had 51,085,708 shares of Common Stock
and no shares of Preferred Stock issued and outstanding.
Each share of Apria Common Stock entitles the holder thereof to one
vote on all matters submitted to stockholders. The voting rights of the Apria
Common Stock are noncumulative, which means that the holders of more than 50% of
the shares voting for the election of directors can elect all of the directors
being elected if they choose to do so. However, at each annual meeting of
stockholders, directors of only one of the three classes of directors are
elected. Apria Common Stock is not subject to redemption or to liability for
further calls, and all outstanding shares of Apria Common Stock are fully paid
and nonassessable. Subject to any prior rights of holders of Preferred Stock
then outstanding, holders of Apria Common Stock will be entitled to receive such
dividends as may be declared by the Board of Directors out of funds legally
available therefor and to share pro rata in any distribution to stockholders.
The holders of the Apria Common Stock have no conversion, preemptive or other
subscription rights.
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Apria Preferred Stock may be issued from time to time in one or more
series. The Board of Directors of Apria is authorized to fix the number of
shares of any series of Apria Preferred Stock and to determine the designation
of any such series. The Board of Directors also is authorized to determine or
alter the rights (including voting rights, if any, and conversion rights, if
any), preferences, privileges and restrictions granted to or imposed upon any
wholly unissued series of Apria Preferred Stock and, within the limits and
restrictions stated in any resolution of the Board of Directors originally
fixing the number of shares constituting any series, to increase or decrease
(but not below the number of shares of such series then outstanding) the number
of shares of any series subsequent to the issue of shares of that series. See
"COMPARISON OF APRIA AND VITAS STOCKHOLDER RIGHTS--Apria Rights Agreement."
The Apria Certificate provides that any action required or permitted to
be taken by the stockholders of Apria must be taken at a meeting and may not be
taken by consent in writing, except (i) as permitted by resolutions of the Board
of Directors fixing the powers and preferences of any class or series of shares
as to which the Board of Directors has been expressly vested with authority to
fix the powers and preferences, or (ii) for the purpose of approving,
authorizing, or adopting any action or proposal theretofore approved, authorized
or adopted by the Board of Directors. The Apria By-laws may be amended or
repealed, or new By-laws may be adopted (a) by the affirmative vote of the
holders of at least a majority of the Common Stock of Apria, or (b) by the
affirmative vote of the majority of the whole Board at any regular or special
meeting. Any Bylaws adopted or amended by the stockholders may be amended or
repealed by the Board or the stockholders.
Apria Common Stock is listed on the NYSE. The transfer agent and
registrar for Apria Common Stock is Norwest Bank Minnesota, N.A. Apria furnishes
its stockholders with annual reports, which include audited financial
statements, and quarterly unaudited reports of its operations.
RIGHTS OF DISSENTING VITAS STOCKHOLDERS
Under Section 262 of the Delaware GCL, a copy of which is included as
Appendix D to this Proxy Statement/Prospectus, each holder of Vitas stock
entitled to vote thereon who does not vote in favor of (or otherwise consent to)
approval and adoption of the Merger Agreement will be entitled to dissent and
demand an appraisal of the "fair value" of its stock if, prior to the vote on
the Merger at the Special Meeting, such stockholder has delivered to Vitas a
written demand for appraisal.
Section 262 represents the exclusive statutory remedy available under
the Delaware GCL to holders of Vitas stock entitled to vote on the Merger who
elect to seek appraisal of the fair value of their shares. Persons who are
beneficial owners of shares of such Vitas stock but whose shares are held of
record by another person, such as a broker, bank or nominee, should instruct
the record holder to follow the procedures outlined below and in Section 262 if
such persons wish to dissent with respect to any or all of their shares. Failure
to take any necessary step may result in a termination or waiver of appraisal
rights under Section 262.
Under Section 262, not less than 20 days prior to the Special Meeting,
Vitas is required to notify each stockholder eligible for appraisal rights of
the availability of such appraisal rights. This Proxy Statement/Prospectus
constitutes notice to Vitas' stockholders that appraisal rights are available
to them. Vitas stockholders of record who desire to exercise their appraisal
rights must satisfy all of the following conditions. A written demand for
appraisal of any shares of Vitas stock must be filed with Vitas before the
taking of the vote on the Merger. Such written demand must reasonably inform
Vitas of the identity of the stockholder of record and of such stockholder's
intention to demand appraisal of the shares held by such stockholder. This
written demand for appraisal of shares must be in addition to and separate from
any proxy or vote abstaining from or voting against the Merger. Neither voting
against, abstaining from voting on, failing to return a proxy with respect to,
nor failing to vote on the Merger will constitute a demand for appraisal within
Section 262. A written demand for appraisal by a Vitas stockholder should be
sent to Mark A. Sterling, Vice President--Legal and Regulatory Affairs and
Secretary of Vitas, at Vitas Healthcare Corporation, 100 South Biscayne
Boulevard, Miami, Florida 33131.
Only the holder of record of Vitas stock is entitled to seek appraisal
of the fair value of the shares registered in such holder's name. A demand for
appraisal must be executed by or for the stockholder of record, fully and
correctly, as such stockholder's name appears on the certificate(s)
representing the shares. If the shares are owned of record in a fiduciary
capacity (such as by a trustee, guardian or custodian), such demand must be
executed by the fiduciary. If the shares are owned of record by more than one
person (as in a joint tenancy or tenancy in common), such demand must be
executed by all owners. An authorized agent, including an agent for two or more
joint owners, may execute the demand for appraisal for a stockholder of record;
however, the agent must identify the record owner and expressly disclose the
fact that, in exercising the demand, such agent is acting as agent for the
record owner.
A record owner, such as a broker who holds shares as a nominee for
others, may exercise the right of appraisal with respect to the shares held for
all or fewer than all beneficial owners of shares of Vitas stock as to which
the holder is the record owner. In such case, the written demand must set forth
the number of shares covered by such demand. Where the number of shares is
expressly stated, the demand will be presumed to cover all shares of Vitas
stock outstanding in the name of such record owner. A dissent submitted by a
beneficial owner who is not the record owner will not be honored.
Within ten days after the Effective Time, Vitas shall notify each
stockholder exercising appraisal rights in compliance with Section 262 of the
Delaware GCL of the date that the Merger has become effective. At any time
within 60 days after the effective date of the Merger, any stockholder shall
have the right to withdraw a demand for appraisal and to accept the terms
offered upon the Merger. If the Merger is approved and becomes effective, any
Vitas stockholder that fails to comply with the requirements described above
will be bound by the terms of the Merger.
Within 120 days after the effective date of the Merger, Vitas, as the
surviving corporation, or any Vitas stockholder who perfected appraisal rights
may file a petition in the Delaware Court of Chancery (the "Court") demanding a
determination of the value of the stock of all such stockholders. If no
petition for appraisal is filed with the Court within 120 days after the
effective date of the Merger, stockholders' rights to appraisal shall cease,
and all stockholders shall be entitled to accept the terms offered upon the
Merger. Inasmuch as Vitas has no obligation to file such a petition, and has no
present intention to do so, any stockholder who desires such a petition to be
filed is advised to file it on a timely basis. However, no petition timely
filed in the Court demanding appraisal shall be dismissed as to any stockholder
without the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.
At the hearing on such petition, the Court shall determine the Vitas
stockholders who have complied with Section 262 of the Delaware GCL and who have
become entitled to appraisal rights. The Court may require that the stockholders
submit their certificates of stock, if any, to the Register in Chancery for
notation thereon of the pendency of the appraisal proceedings, and if any
stockholder fails to comply with such direction, the Court may dismiss the
proceedings as to such stockholder.
After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares as to their fair value. In determining their fair
value, the Court shall take into account all relevant factors. In Weinberger v.
UOP, Inc., 457 A.2d 701 (1983), the Delaware Supreme Court expanded the factors
that could be considered in determining fair value in an appraisal proceeding,
stating that "proof of value by any techniques or methods which are generally
considered acceptable in the financial community and otherwise admissible in
court" should be considered and that "fair price obviously requires
consideration of all relevant facts involving the value of a company. . . ." The
Delaware Supreme Court stated that in making this determination of fair value,
the court must consider market value, asset value, dividends, earnings
prospects, the nature of the enterprise and any other facts which could be
ascertained as of the date of the merger which throw any light on future
prospects of the merged corporation. Section 262 provides that fair value is to
be "exclusive of any element of value arising from the accomplishment or
expectation of the merger." In Weinberger, the Delaware Supreme Court held that
"elements of future value, including the nature of the enterprise, which are
known or susceptible of proof as of the date of the merger and not the product
of speculation, may be considered."
Vitas stockholders considering seeking appraisal should be aware that
the fair value of their shares determined under Section 262 could be more than,
the same as or less than the value of the consideration received for such
shares pursuant to the Merger Agreement if they did not seek appraisal rights,
and that investment banking opinions as to fairness from a financial point of
view are not necessarily opinions as to fair value under Section 262.
The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by Vitas to the stockholders entitled to such
payment. The costs of the proceedings may be determined by the Court and taxed
against either Vitas, the stockholders or both as the Court deems equitable
under the circumstances.
Any stockholder who has duly demanded appraisal in compliance with
Section 262 will not, after the effective date of the Merger, be entitled to
vote for any purpose the shares subject to such demand for appraisal or to
receive payment of dividends or other distributions on such shares, except for
dividends or distributions payable to stockholders of record at a date prior to
the effective date of the Merger.
THE FOREGOING SUMMARY OF THE RIGHTS OF STOCKHOLDERS REQUESTING AN
APPRAISAL CONTAINS MATERIAL INFORMATION RELATING TO THE EXERCISE OF APPRAISAL
RIGHTS BUT DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF THE PROCEDURES TO BE
FOLLOWED BY VITAS STOCKHOLDERS DESIRING TO EXERCISE THEIR RIGHTS OF APPRAISAL.
THE PRESERVATION AND EXERCISE OF APPRAISAL RIGHTS ARE CONDITIONED ON STRICT
ADHERENCE TO THE APPLICABLE PROVISIONS OF SECTION 262
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<PAGE> 79
OF THE DELAWARE GCL. EACH VITAS STOCKHOLDER DESIRING TO EXERCISE APPRAISAL
RIGHTS SHOULD REFER TO SECTION 262 OF THE DELAWARE GCL FOR A COMPLETE STATEMENT
OF THE STOCKHOLDER'S RIGHTS AND THE STEPS WHICH MUST BE FOLLOWED IN CONNECTION
WITH THE EXERCISE OF THOSE RIGHTS.
For further information relating to the exercise of appraisal rights,
see Appendix D to this Proxy Statement/Prospectus.
PROPOSAL TO APPROVE SEPARATELY THE PAYMENTS TO
HUGH A. WESTBROOK AND COLLIBROOK PURSUANT TO THE SEVERANCE
AND NONCOMPETITION AGREEMENTS TO BE
ENTERED INTO IN CONNECTION WITH THE MERGER
IN ORDER THAT SUCH PAYMENTS NOT BE CHARACTERIZED AS "PARACHUTE PAYMENTS"
FOR PURPOSES OF SECTIONS 280G AND 4999 OF THE CODE
The stockholders of Vitas are being asked to approve separately certain
payments to Hugh A. Westbrook, the Chairman and Chief Executive Officer of
Vitas, and Collibrook as set forth below, in connection with the proposed
Merger. The separate approval by the stockholders of Vitas of the payments
described below is being solicited because such payments may otherwise be deemed
"parachute payments" under Sections 280G and 4999 of the Code. Approval of such
payments is a condition to Apria's obligation to effect the Merger and the
transactions contemplated under the Merger Agreement.
Under Sections 280G and 4999 of the Code, payments of compensation made
to specified "disqualified individuals," including officers of the employer
corporation, that are contingent on a change in control of the employer and
exceed certain amounts may be characterized as "excess parachute payments"
subject to adverse tax treatment. Excess parachute payments are nondeductible by
the employer and subject to a 20% excise tax on the recipient (in addition to
the regular income tax due with respect to such payments). However, an exception
to the foregoing treatment applies to any payment made by a non-publicly traded
employer corporation if (i) such payment is approved by a vote of holders of
more than 75% of the voting power of all outstanding stock (not including stock
owned or constructively owned by or for the recipient of such payments under
Code Section 318(a)) immediately prior to the change in control, and (ii) there
is adequate disclosure to the stockholders of all material facts concerning such
payments.
At or prior to the Closing Date, it is contemplated that Vitas would
enter into the Noncompetition Agreement with Mr. Westbrook and the Severance
Agreement with Mr. Westbrook, Ms. Colliflower and Collibrook. As set forth
below, Mr. Westbrook will receive $8,250,000 and Collibrook will receive an
additional $250,000, subject to stockholder approval, in cash under the terms
of these agreements.
Pursuant to the Severance Agreement, Mr. Westbrook will no longer be an
employee of Vitas and his current employment agreement with Vitas would be
terminated. Mr. Westbrook's existing employment agreement would otherwise expire
June 4, 1998. Under that agreement Mr. Westbrook would have been entitled to an
annual base salary of $600,000 plus discretionary bonuses and coverage under a
$5,000,000 life insurance policy with an annual premium of $65,000. (In July
1995, Mr. Westbrook voluntarily agreed to reduce his base salary under his
employment agreement to $420,000.) Under the existing agreement, Mr. Westbrook
is also subject to a noncompete provision under which aggregate payments of
$120,882 are due through June 4, 1998. This provision would expire one year
after the employment agreement's expiration. Pursuant to the Severance
Agreement, Mr. Westbrook will be entitled to receive, at the Effective Time, a
cash severance payment of $1,250,000 less certain offsets for, among other
things, property of Vitas, such as life insurance policies, which will be
assigned to him.
The Severance Agreement will also entitle Collibrook to receive
$250,000 payable at the Effective Time for providing consulting services to
Vitas for a period of one year. The services of Collibrook would be provided by
Mr. Westbrook on its behalf unless he dies or becomes disabled, in which case
the services would be performed by Ms. Colliflower. The consulting services will
include consultation and assistance to Vitas in connection with issues involving
acquisitions, operations, finance, industry conditions, legislation, litigation,
or other matters or developments involving or affecting Vitas or associated
entities. The consulting services will be provided whenever reasonably
71
<PAGE> 80
requested by either of the top two senior executive officers of Apria or Vitas
at reasonable times taking into account Mr. Westbrook's other activities.
Pursuant to the Noncompetition Agreement, Mr. Westbrook will agree that
for a period of seven years, he would not compete with the business of Vitas in
the business areas of home health care, hospice care, hospice or other related
business segments in the geographic areas in which Vitas is currently engaged in
business specified in the Noncompetition Agreement or actively invest in those
industry segments. Furthermore, under the Noncompetition Agreement, Mr.
Westbrook would agree to maintain the confidentiality of Vitas trade secrets for
ten years. He will be entitled to receive an aggregate payment of $7,000,000 in
exchange for this agreement payable $5,000,000 at the Effective Time and
$1,000,000 on each of the first two anniversaries of the Effective Time.
The Severance Agreement and the Noncompetition Agreement provide that
notwithstanding any other provision of such agreements or of any other
agreement, contract, or understanding theretofore, concurrently or thereafter
entered into by Mr. Westbrook with Vitas or any subsidiary or affiliate, except
an agreement, contract, or understanding thereafter entered into that expressly
modifies or excludes application of the following provisions (the "Other
Agreements"), and notwithstanding any formal or informal plan or other
arrangement theretofore or thereafter adopted by Vitas or any subsidiary or
affiliate for the direct or indirect compensation of Mr. Westbrook (including
groups or classes of participants or beneficiaries of which Mr. Westbrook is a
member), whether or not such compensation is deferred, is in cash, or is in the
form of an option or other benefit to or for Mr. Westbrook (a "Covered Benefit
Plan"), Mr. Westbrook and Collibrook shall not have any right to receive any
payment or other benefit under such agreement, any Other Agreement, or any
Covered Benefit Plan if such right to exercise, payment, or benefit, taking into
account all other rights, payments, or benefits to or for Mr. Westbrook under
the Noncompetition Agreement and Mr. Westbrook and/or Collibrook under the
Severance Agreement, all Other Agreements, and all Covered Benefit Plans, would
cause any right, payment, or benefit to Mr. Westbrook under the Noncompetition
Agreement or Mr. Westbrook or Collibrook under the Severance Agreement to be
considered a "parachute payment" within the meaning of Section 280G(b)(2) of the
Code as then in effect (a "Parachute Payment"). The Severance Agreement and the
Noncompetition Agreement further provide that in the event that the receipt of
any such right to exercise or any other payment or benefit under such agreement,
any Other Agreement, or any Covered Benefit Plan would cause Mr. Westbrook to be
considered to have received a Parachute Payment under such agreement, then Mr.
Westbrook shall have the right, in Mr. Westbrook's sole discretion, to designate
those rights, payments, or benefits under such agreement, any Other Agreements,
and/or any Covered Benefit Plans, that should be reduced or eliminated so as to
avoid having the right, payment, or benefit to Mr. Westbrook under the
Noncompetition Agreement or Mr. Westbrook or Collibrook under the Severance
Agreement be deemed to be a Parachute Payment.
The Vitas Board of Directors recommends that stockholders approve the
payments to be made to Mr. Westbrook and Collibrook pursuant to the Severance
Agreement and the payments to be made to Mr. Westbrook pursuant to the
Noncompetition Agreement. In recommending approval of such payments, the Board
of Directors of Vitas considered various factors, including without limitation
the amounts to be paid under such agreements when compared to the amounts Mr.
Westbrook could have earned over the seven year post-Merger period of
restriction. In the event such payments are not separately approved by the Vitas
stockholders, Apria may elect to waive such condition and consummate the Merger,
in which case such payments would be made to Mr. Westbrook and Collibrook,
subject to the limitations described in the preceding paragraph if such payments
are deemed to constitute "parachute payments" under Sections 280G and 4999 of
the Code. In voting in favor of the Merger Agreement and the transactions
contemplated thereunder, including the Merger, Mr. Westbrook and Ms. Colliflower
abstained from voting with respect to the Severance Agreement and the
Noncompetition Agreement.
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<PAGE> 81
PRINCIPAL STOCKHOLDERS
APRIA SECURITY OWNERSHIP
The following table sets forth information as of August 15, 1996 with
respect to the beneficial ownership of Apria Common Stock by each person who is
known by Apria to beneficially own more than 5% of Apria's Common Stock, each
director of Apria, the Chief Executive Officer of Apria, the former President of
Apria, Apria's six most highly compensated executive officers other than the
Chief Executive Officer and former President, and by all directors and officers
as a group. Except as otherwise indicated, beneficial ownership includes both
voting and investment power with respect to the shares shown.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP CLASS
- ------------------------ ----------- ---------
<S> <C> <C> <C>
Jurika & Voyles, Inc.(1).................................................. 3,087,581 6.0%
George C. Argyros(2)...................................................... 2,753,768 5.4%
Putnam Investments, Inc. (3).............................................. 2,697,110 5.3%
Jeremy M. Jones(4)(19)(20)................................................ 1,085,114 2.1%
Timothy M. Aitken(5)...................................................... 143,346 *
David L. Goldsmith(6)(19)................................................. 308,569 *
Charles D. Martin(7)(19).................................................. 185,085 *
Leonard Green(8)(19)...................................................... 10,000 *
Frederick S. Moseley IV(9)(19)............................................ 69,996 *
Terry Hartshorn(10)(19)................................................... 36,333 *
Vincent M. Prager (11)(19)................................................ 14,830 *
Steven T. Plochocki(12)(20)............................................... 70,600 *
Lawrence H. Smallen(13)(20)............................................... 149,060 *
Manny A. Brown(14)(20).................................................... 39,000 *
Thomas A. Robbins(15)(20)................................................. 30,600 *
Sarah L. Eames(16)........................................................ 7,428 *
Richard J. Rapp (17)...................................................... 14,000 *
All directors and executive officers as a group (15 persons)(18).......... 2,238,001 4.3%
</TABLE>
- -------------
* Less than one percent.
(1) According to a Schedule 13G, dated February 12, 1996, filed with
the Commission, Jurika & Voyles, Inc., a registered investment
advisor ("Jurika"), has shared voting power as to 2,970,781 of the
shares and shared dispositive power as to 3,087,581 of the shares.
The mailing address of Jurika is 1999 Harrison Street, Suite 700,
Oakland, California 94612.
(2) According to a Schedule 13D, Amendment No. 2, dated April 7, 1995,
filed with the Commission, this number includes 2,430,670 and 636
shares owned by HBI Financial, Inc. and GLA Financial Corporation,
respectively. Mr. Argyros is the sole shareholder of HBI Financial,
Inc. and GLA Financial Corporation. This number also includes (i)
267,560 shares owned by a nonprofit corporation of which Mr.
Argyros is a director and officer, (ii) 11,252 shares held in
trust by a private charitable foundation of which Mr. Argyros is
a trustee, (iii) 2,600 shares held in a charitable
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<PAGE> 82
trust of which Mr. Argyros is a trustee and (iv) 31,050 shares
held in a trust for the benefit of Mr. Argyros' children, for
which Mr. Argyros disclaims beneficial ownership. The mailing
address for Mr. Argyros is c/o Arnel & Affiliates, 950 South
Coast Drive, Suite 200, Costa Mesa, California 92626.
(3) According to a Schedule 13G, dated January 15, 1996, filed with the
Commission, this number includes (i) 2,507,630 shares beneficially
owned by Putnam Investment Management, Inc., a registered
investment advisor ("PIM"), and (ii) 189,480 shares beneficially
owned by the Putnam Advisory Company, Inc., a registered investment
advisor ("PAC"). PIM and PAC each have shared voting power over
121,123 of the shares and shared dispositive power over 2,507,630
and 189,480 of the shares, respectively. The mailing address of
Putnam Investments, Inc. is One Post Office Square, Boston,
Massachusetts 02109.
(4) Includes 298,260 shares subject to options that are currently
exercisable or will become exercisable before October 15, 1996.
Also includes 702,124 shares held in a family trust of which Mr.
Jones is a trustee and 19,730 shares held in a trust for the
benefit of Mr. Jones' children for which Mr. Jones disclaims
beneficial ownership.
(5) Includes 100,000 shares subject to options that are currently
exercisable or will become exercisable before October 15, 1996.
Mr. Aitken resigned from the Company as of November 7, 1995.
(6) Includes 8,333 shares subject to options that are currently
exercisable or will become exercisable before October 15, 1996.
(7) Includes 8,333 shares subject to options that are currently
exercisable or will become exercisable before October 15, 1996.
(8) Includes 10,000 shares subject to options that are currently
exercisable or will become exercisable before October 15, 1996.
(9) Includes 18,000 shares subject to options that are currently
exercisable or will become exercisable before October 15, 1996.
(10) Includes 36,333 shares subject to options that are currently
exercisable or will become exercisable before October 15, 1996.
(11) Includes 14,000 shares subject to options that are currently
exercisable or will become exercisable before October 15, 1996.
(12) Includes 70,600 shares subject to options that are currently
exercisable or will become exercisable before October 15, 1996.
(13) Includes 55,320 shares subject to options that are currently
exercisable or will become exercisable before October 15, 1996.
(14) Includes 39,000 shares subject to options that are currently
exercisable or will become exercisable before October 15, 1996.
(15) Includes 30,600 shares subject to options that are currently
exercisable or will become exercisable before October 15, 1996.
(16) Ms. Eames resigned from the Company as of November 22, 1995.
(17) Includes 14,000 shares subject to options that are currently
exercisable or will become exercisable before October 15, 1996.
Mr. Rapp resigned as an executive officer of the Company as of July
1, 1995.
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<PAGE> 83
(18) Includes shares owned by certain trusts. Also includes 716,219
shares subject to options that are currently exercisable or will
become exercisable before October 15, 1996. Does not include
shares beneficially owned by Messrs. Aitken or Rapp or Ms. Eames.
See Notes 4 through 17.
(19) Messrs. Jones, Goldsmith, Martin, Green, Moseley, Hartshorn and
Prager are all directors of Apria.
(20) Mr. Jones serves as the Chairman of the Board and the Chief
Executive Officer. Mr. Plochocki serves as the President and Chief
Operating Officer. Mr. Smallen serves as the Chief Financial
Officer, Senior Vice President - Finance and Treasurer. Mr. Brown
serves as the Senior Vice President, Midwest Zone. Mr. Robbins
serves as the Senior Vice President, Southern Zone.
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<PAGE> 84
VITAS SECURITY OWNERSHIP
The following table sets forth certain information with respect to
beneficial ownership of Vitas Common Stock as of August 15, 1996 by (i) each
person known to Vitas to be the beneficial owner of more than five percent of
the outstanding shares of Vitas Common Stock or Series B Preferred, (ii) by each
executive officer and director of Vitas and (iii) all executive officers and
directors of Vitas as a group. In addition, certain information with respect to
the ownership of the Series B Preferred is reflected on the following table.
Further, the voting power of the holders of Vitas Common Stock and Series B
Preferred voting together as one class is also indicated on the following table
as of August 15, 1996. Under the Vitas Certificate, the Series B Preferred has
certain rights to vote together with the holders of Vitas Common Stock as to
certain matters (including the separate approval of the payments to be made to
Mr. Westbrook and Collibrook pursuant to the Severance Agreement and the
payments to be made to Mr. Westbrook pursuant to the Noncompetition Agreement),
but is subject to certain limitations on voting power. See "COMPARISON OF APRIA
AND VITAS STOCKHOLDER RIGHTS--Stockholder Voting Rights Generally."
<TABLE>
<CAPTION>
Common
Shares Beneficially Series B Common Voting
Owned(1) Preferred Stock Power(2)
------------------------- -------------------- ----------------------
PERCENT PERCENT NUMBER PERCENT
Name of Beneficial Owner NUMBER OF CLASS NUMBER OF CLASS OF VOTES OF VOTES
- ------------------------ ------ -------- ------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Hugh A. Westbrook(3)(4)(5)(20)(22)..... 4,600,000 23.3% -- -- 1,009,000 16.5%
Carole S. Westbrook(3)(5).............. 398,944 2.0% -- -- 107,944 1.8%
Westbrook Family Partnership, L.P.
c/o Westbrook Family Corporation,
General Partner(5)................... 291,000 1.5% -- -- 291,000 4.8%
Chemed Corporation(6).................. 3,952,958 20.0% -- -- -- --
Galen Entities(7)...................... 2,355,264 11.9% 100,000 38.1% 796,734 13.0%
Warburg, Pincus Investors, L.P.(8)..... 2,105,264 10.7% 100,000 38.1% 653,527 10.7%
Vitas Healthcare Corporation Employee
Stock Ownership Trust(4)(5).......... 1,000,000 5.1% -- -- 1,000,000 16.3%
Earl M. Collier, Jr.(9)................ 862,500 4.4% -- -- 67,857 1.1%
Esther T. Colliflower(5)(10)(20)(22)... 644,702 3.2% -- -- 3,702 *
Colliflower Family Partnership, L.P.
c/o The Colliflower Family
Corporation, General Partner(5)...... 291,000 1.5% -- -- 291,000 4.8%
Donald J. Gaetz(5)(11)(20)............. 507,054 2.6% -- -- 407,054 6.6%
J.R. Williams, MD(5)(12)(20)(22)....... 366,202 1.8% -- -- 28,702 *
The Formanek Investment Trust(13)...... 328,947 1.7% -- -- 274,507 4.5%
Mark W. Ohlendorf(5)(14)(22)........... 85,167 * -- -- 167 *
Richard I. Nevin, Jr.(5)(15)(22)....... 75,000 * -- -- -- --
Mark A. Sterling(5)(16)(22)............ 70,000 * -- -- -- --
William P. Ferretti(17)(20)............ 57,000 * -- -- 32,000 *
Timothy O'Toole(18)(20)................ 20,000 * -- -- -- --
Patrick T. Hackett(19)(20)............. -- * -- -- -- --
Bruce F. Wesson (20)(21)............... -- * -- -- -- --
Deutsche Beteiligungsgesellschaft
mbH(23) ............................... -- * 22,500 8.6% 147,043 2.4%
All directors and executive officers as
a group(11 persons).................... 14,738,312 74.7% 200,000 76.2% 3,620,830 59.1%
</TABLE>
- ----------------------------
* Less than one percent.
(1) Under Rule 13d-3 under the 1934 Act, a person has beneficial
ownership of any securities as to which such person, directly or
indirectly, through any contract, arrangement, undertaking,
relationship or otherwise has or shares voting power and/or
investment power and as to which such person has the right to
acquire such voting and/or investment power within 60 days.
Beneficial ownership as to any person as of a particular date is
calculated by dividing the number of shares beneficially owned by
such person by the sum of the number of shares outstanding as of
such date and the number of shares as to which such person has the
right to acquire voting and/or investment power within 60 days. The
Merger Agreement contemplates that the Series B Preferred would be
converted by the holders thereof into Vitas Common Stock at or
immediately prior to the Closing Date and Vitas' outstanding stock
options would be exchanged for shares of Apria Common Stock (whether
or not then vested pursuant to the terms of the related option
agreements) at the Effective Time. This table reflects percentage of
beneficial ownership after giving effect to the conversion of the
Series B Preferred and the exchange of the Vitas
76
<PAGE> 85
stock options and is based on 19,728,905 shares of Vitas Common
Stock and equivalents outstanding as of August 15, 1996.
(2) Voting Power means one vote per share in the case of shares of Vitas
Common Stock and a formula- determined number of votes per share in
the case of shares of Series B Preferred when holders of Series B
Preferred vote together with holders of Vitas Common Stock. As of
August 15, 1996, a potential maximum of 6,124,350 votes attributable
to the Vitas Common Stock and Series B Preferred would be cast at a
meeting of Vitas stockholders. For Mr. Westbrook, excludes votes
attributable to shares of Vitas Common Stock he might exercise as
Trustee of the ESOP and through his interest in the Westbrook Family
Corporation, the general partner of the Westbrook Family
Partnership, L.P. For Ms. Colliflower, excludes her voting influence
through her interest in The Colliflower Family Corporation, the
general partner of the Colliflower Family Partnership, L.P.
(3) Includes 291,000 shares owned by the Westbrook Family Partnership,
L.P. whose general partner is the Westbrook Family Corporation (a
corporation owned by Hugh A. Westbrook and Carole S. Westbrook)
which votes the shares held by the partnership. Mr. Westbrook
disclaims beneficial ownership of shares held by his wife, Carole S.
Westbrook, and Carole S. Westbrook disclaims beneficial ownership of
shares held by her husband, Hugh A. Westbrook. For Mr. Westbrook,
includes 2,300,000 shares issuable upon the exercise of options that
are exercisable on or before the Closing Date and 1,000,000 shares
held by the ESOP, as to which Mr. Westbrook is the sole Trustee.
(But see footnote 4).
(4) Mr. Westbrook is the sole Trustee of the ESOP and as such votes
certain of the shares held by the ESOP. However, in connection with
the Merger, Vitas is engaging Consulting Fiduciaries, Inc. ("CFI"),
an independent professional fiduciary service, to evaluate the
proposed Merger and the other items to be voted on at the Special
Meeting, to prepare transmittal material to be sent to plan
participants, and to supervise confidential voting with respect to
such matters. In connection with the Merger, all roles of the
Trustee in connection with the voting of the shares held by the ESOP
are to be performed by CFI.
(5) The business mailing address of the named person or entity is c/o
Vitas Healthcare Corporation, 100 South Biscayne Boulevard, Suite
1500, Miami, Florida 33131.
(6) As of August 15, 1996, Chemed, through its wholly-owned subsidiary
OCR, held warrants to purchase 3,952,958 shares of Vitas Common
Stock. The mailing address of Chemed is 2600 Chemed Center, 255 East
Fifth Street, Cincinnati, Ohio 45202.
(7) As of August 15, 1996, includes shares owned by the following Galen
entities (collectively, the "Galen Entities") which are affiliates
through common ownership and/or control: (i) Galen Partners II, L.P.
which held 72,114 shares of Series B Preferred which are convertible
into 1,518,190 shares of Vitas Common Stock and 180,036 shares of
Vitas Common Stock, or a total of 1,698,226 equivalent shares of
Vitas Common Stock; (ii) Galen Partners International II, L.P. which
held 27,591 shares of Series B Preferred which are convertible into
580,863 shares of Vitas Common Stock and 68,883 shares of Vitas
Common Stock, or a total of 649,746 equivalent shares of Vitas
Common Stock; and (iii) Galen Employee Fund, L.P. which held 295
shares of Series B Preferred Stock which are convertible into 6,211
shares of Vitas Common Stock and 1,081 shares of Vitas Common Stock,
or a total of 7,292 equivalent shares of Vitas Common Stock. The
mailing address of the Galen Entities is 666 Third Avenue, Suite
1400, New York, New York 10017.
(8) The sole general partner of Warburg, Pincus Investors, L.P.
("Investors") is Warburg, Pincus & Co., a New York general
partnership ("WP"). Lionel I. Pincus is the managing partner of WP
and may be deemed to control it. E.M. Warburg, Pincus & Company, a
New York general partnership ("E.M. Warburg"), manages Investors. WP
has a 20% interest in the profit of Investors and through its wholly
owned subsidiary, E.M. Warburg, Pincus & Co., Inc. ("EMW") owns
1.13% of the limited partnership interests in Investors. Patrick T.
Hackett, a director of Vitas, is a General Partner of WP and E.M.
Warburg and a Managing Director of EMW. As such, Mr. Hackett may be
deemed to have an indirect pecuniary interest (within the meaning of
Rule 16a-1 of the 1934 Act) in an indeterminate portion of the
shares beneficially owned by Investors, EMW and WP. The mailing
address of Investors is 466 Lexington Avenue, New York, New York
10017.
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<PAGE> 86
(9) Includes 794,643 shares issuable upon the exercise of options that
are exercisable on or before the Closing Date and 67,857 shares of
Vitas Common Stock.
(10) Includes 291,000 shares owned by the Colliflower Family Partnership,
L.P. whose general partner is The Colliflower Family Corporation (a
corporation owned by Esther T. Colliflower and her husband Owen
Colliflower) which votes the shares held by the partnership.
Includes 350,000 shares issuable upon the exercise of options that
are exercisable on or before the Closing Date. Includes 3,702 shares
held by the ESOP allocated to Ms. Colliflower's ESOP account.
(11) Pursuant to a call agreement between Mr. Gaetz, Ms. Colliflower and
Mr. Westbrook, Mr. Gaetz has the right to purchase up to 50,000
shares of Vitas Common Stock from each of Ms. Colliflower and Mr.
Westbrook at $3.58 per share, which call right becomes exercisable
in increments, subject to certain terms and conditions, through
December 17, 1998. Under such call agreement, as of August 15, 1996,
Mr. Gaetz has the right to purchase 35,000 shares of Vitas Common
Stock from each of Ms. Colliflower and Mr. Westbrook. As a result of
the Merger, Mr. Gaetz will be entitled to exercise his rights to
purchase all shares subject to the call agreement, including those
shares with respect to which the call has not yet vested. Includes
3,702 shares held by the ESOP allocated to Mr. Gaetz's ESOP account.
(12) Includes 337,500 shares issuable upon the exercise of options that
are exercisable on or before the Closing Date and 25,000 shares of
Vitas Common Stock. Includes 3,702 shares held by the ESOP allocated
to Dr. Williams' ESOP account.
(13) Includes 3,750 shares of Series B Preferred which are convertible
into 78,947 shares of Vitas Common Stock and 250,000 shares of Vitas
Common Stock. Peter R. Formanek is the sole Trustee of The Formanek
Investment Trust.
(14) Includes 85,000 shares issuable upon the exercise of options that
are exercisable or will become exchangeable for Apria Common Stock
on or before the Closing Date. Certain of these stock options will
be subject to a Vesting Discount Amount. See "THE MERGER
AGREEMENT--Treatment of Stock Options." Includes 167 shares held by
the ESOP allocated to Mr. Ohlendorf's ESOP account.
(15) Consists of 75,000 shares issuable upon the exercise of options that
are exercisable or will become exchangeable for Apria Common Stock
on or before the Closing Date. Certain of these stock options will
be subject to a Vesting Discount Amount. See "THE MERGER
AGREEMENT--Treatment of Stock Options."
(16) Consists of 70,000 shares issuable upon the exercise of options that
are exercisable or will become exchangeable for Apria Common Stock
on or before the Closing Date. Certain of these stock options will
be subject to a Vesting Discount Amount. See "THE MERGER
AGREEMENT--Treatment of Stock Options."
(17) Consists of 25,000 shares issuable upon the exercise of options that
are exercisable or will become exchangeable for Apria Common Stock
on or before the Closing Date and 32,000 shares of Vitas Common
Stock.
(18) Consists of 20,000 shares issuable upon the exercise of options that
are exercisable or will become exchangeable for Apria Common Stock
on or before the Closing Date.
(19) Mr. Hackett disclaims beneficial ownership of the shares
beneficially owned by Investors, EMW and WP within Rule 13d-3 under
the 1934 Act. Mr. Hackett's mailing address is c/o Warburg, Pincus
Investors, L.P., 466 Lexington Avenue, New York, New York 10017.
(20) Messrs. Westbrook, Gaetz, Williams, Ferretti, O'Toole, Hackett,
Wesson and Ms. Colliflower are all directors of Vitas.
(21) Bruce F. Wesson, a director of Vitas, is a General Partner of the
General Partner of Galen Partners II, L.P. and Galen Partners
International II, L.P. and a General Partner of Galen Employee Fund,
L.P.
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<PAGE> 87
Except to the extent of his partnership interest, Mr. Wesson
disclaims beneficial ownership of the shares held by the Galen
Entities.
(22) Mr. Westbrook serves as the Chairman and Chief Executive Officer.
Ms. Colliflower serves as Vice Chairperson. Dr. Williams serves as
Executive Vice President and Chief Patient Care Officer. Mr. Nevin
serves as Executive Vice President -- Operations. Mr. Ohlendorf
serves as Vice President, Chief Financial Officer, Treasurer and
Assistant Secretary. Mr. Sterling serves as Vice
President -- Legal and Regulatory Affairs and Secretary.
(23) The mailing address for Deutsche Beteiligungsgesellschaft mbH is
Bockenheimer Landstrasse 42, D-6000 Frankfurt am Main 1, Germany
841.
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<PAGE> 88
LEGAL OPINION
The validity of the shares of Apria Common Stock offered hereby will be
passed upon by O'Melveny & Myers LLP, Newport Beach, California, counsel to
Apria.
EXPERTS
APRIA HEALTHCARE GROUP INC.
The consolidated financial statements of Apria Healthcare Inc.
incorporated by reference in this Proxy Statement/Prospectus have been audited
by Ernst & Young LLP, independent auditors, to the extent indicated in their
reports thereon also incorporated by reference. The consolidated financial
statements of Abbey Healthcare Group Incorporated for the year ended December
31, 1993 have been audited by KPMG Peat Marwick LLP, independent auditors, as
set forth in their report thereon and incorporated by reference. Such
consolidated financial statements have been incorporated herein by reference in
reliance upon such reports given the authority of such firms as experts in
accounting and auditing.
VITAS HEALTHCARE CORPORATION
The consolidated financial statements of Vitas Healthcare Corporation
as of September 30, 1995 and 1994 and for each of the three years in the period
ended September 30, 1995, appearing in this Proxy Statement/Prospectus have been
audited by Ernst & Young LLP, independent certified public accountants, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
VITAS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of Vitas' financial condition and results of
operations should be read in conjunction with the Financial Statements and notes
thereto included elsewhere in this Proxy Statement/Prospectus.
INTRODUCTION
In fiscal 1995, 70% of Vitas' total revenue was from the Medicare
program and 22% of Vitas' total revenue was from various state Medicaid
programs. Approximately 99% of Vitas' days of care in fiscal 1995 were
reimbursed on a "per diem" basis, while approximately 1% of Vitas' days of care
were billed based upon "fee for service" arrangements with private payors. Under
such "fee for service" arrangements, services are billed based on the quantity
and type of services and supplies delivered at pre-established rates. Under the
per diem method of hospice payment, Vitas is paid a pre-established rate per day
of hospice service, which daily rate of payment typically differs depending on
the type of care provided. Medicare currently provides reimbursement for five
different types of services: routine home care (which also includes the hospice
care for patients who reside in long-term care facilities), general inpatient
care, continuous home care, inpatient respite care, and physician services.
Vitas' daily reimbursement under the per diem method of payment does not differ
(other than distinguishing between the types of care) based upon the cost of
services delivered to individual patients. The cost of services delivered to
individual patients varies by the number and type of visits which the patient
receives, the type and quantity of pharmaceuticals required to treat the
patient, the type and quantity of medical equipment and supplies required to
treat the patient and various other factors. Vitas also bills and collects and
includes in its total revenue the Medicaid "room and board" benefit for its
Medicaid-eligible hospice patients who reside in long-term care facilities.
Vitas contracts with various nursing homes for the nursing homes' provision of
certain "room and board" services. Federal law requires that state Medicaid
programs pay to hospices, for the "room and board" of such patients, an amount
equal to at least 95% of the amount that would otherwise have been payable
directly to the nursing home under the state's Medicaid plan. Under this
"unified rate" arrangement, this amount is paid to the hospice in addition to
the applicable Medicare or Medicaid hospice per diem rate for routine home care.
Direct hospice care costs consist of the various labor, employee
benefit and supply costs related to the direct delivery of hospice services to
patients. General and administrative costs include other costs including those
related
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<PAGE> 89
to admission activities, local program administrative costs and the
costs associated with the operation of Vitas' corporate office.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
consolidated financial data expressed as a percentage of revenue.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended September 30, June 30,
-------------------------------------- -------------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
Net revenue........................ 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Operating expenses:
Direct hospice care costs.......... 62.4 61.9 64.3 63.5 65.6
General and administrative......... 32.0 30.7 31.7 32.9 29.1
Provision for bad debts............ 2.2 2.2 3.0 3.0 2.1
Amortization of intangibles........ 0.5 0.7 0.8 0.8 1.0
Other operating expenses........... 3.1 -- 0.9 1.2 --
----- ----- ----- ----- -----
Total operating expenses........... 100.2 95.5 100.7 101.4 97.8
----- ----- ----- ----- -----
Income (loss) from operations...... (0.2) 4.5 (0.7) (1.4) 2.2
----- ----- ----- ----- -----
Interest expense (income), net..... (0.1) (0.2) 1.2 1.0 1.6
----- ----- ----- ----- -----
Income (loss) before taxes......... (0.1)% 4.7% (1.9)% (2.4)% 0.6%
===== ===== ===== ===== =====
</TABLE>
NINE MONTHS ENDED JUNE 30, 1996 COMPARED TO NINE MONTHS ENDED JUNE 30, 1995
Revenue increased 15.5%, or $25.7 million, from $165.8 million in 1995
to $191.5 million in 1996. The increase in revenue was primarily attributable to
an increase in average patient census of 14.0%, which change in average patient
census related principally to an increase in average census resulting from the
acquisitions of substantially all of the assets of Community Hospice Care, Inc.
and its affiliated limited partnerships ("CHC") and substantially all of the
assets of Hospice of the Miami Valley Inc. ("HMV"), partially offset by census
decreases in Vitas' mature programs. In addition, the 1996 period reflects the
effect of a Medicare rate increase, effective October 1, 1995, of 2.0%.
Direct hospice care costs increased 19.3%, or $20.3 million, from
$105.3 million in 1995 to $125.6 million in 1996. The increase in direct care
costs related principally to the increased average patient census in the period.
Direct hospice care costs as a percentage of revenue also increased by 2.1% of
revenue, from 63.5% in 1995 to 65.6% in 1996 due primarily to the higher cost
structure of the CHC and HMV operations which are reflected in the 1996 results
and due to some margin deterioration caused by census decreases in Vitas' mature
programs.
General and administrative costs increased 2.4%, or $1.3 million, from
$54.5 million in 1995 to $55.8 million in 1996. The change in general and
administrative costs related principally to increased costs due to the addition
of the CHC and HMV operations in the 1996 period offset by lower costs
associated with Vitas' corporate office operations in 1996. General and
administrative costs as a percentage of revenue decreased by 3.8% of revenue,
from 32.9% in 1995 to 29.1% in 1996 due primarily to the effect of reduced
corporate office costs with increased revenue between 1995 and 1996.
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<PAGE> 90
Provision for bad debts decreased both in dollars (from $5.0 million in
1995 to $4.0 million in 1996) and as a percentage of revenue (from 3.0% in 1995
to 2.1% in 1996) due to improvements in Vitas' admission and billing processes
in 1996. Net interest expense increased (from $1.6 million in 1995 to $3.1
million in 1996) primarily due to borrowings outstanding in 1996 related to the
acquisitions of CHC and HMV. Expenses associated with the amortization of
intangible assets also increased (from $1.3 million in 1995 to $1.9 million in
1996) due primarily to the acquisitions of CHC and HMV which acquisitions were
accounted for as purchases. The 1995 period was also affected by a $2.0 million
(or 1.2% of revenue) charge related to restructuring costs incurred principally
to establish a severance reserve related to an overhead reduction program
implemented in 1995.
As a result of these various changes between the periods discussed
above, income before taxes increased from a loss of $3.9 million to a profit of
$1.1 million and net income increased from a loss of $2.5 million to a profit of
$0.6 million between 1995 and 1996, respectively.
FISCAL YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO FISCAL YEAR ENDED
SEPTEMBER 30, 1994
Revenue increased 31.3%, or $55.1 million, from $175.8 million in 1994
to $230.9 million in 1995. The increase in revenue was attributable to an
increase in average patient census of 28.3%, which change in average patient
census related principally to an increase in average census resulting from the
acquisition of CHC and increased census in certain Vitas programs which had
initially commenced operations in fiscal 1993 and fiscal 1994. In addition, the
1995 period reflects the effect of a Medicare rate increase, effective October
1, 1994, of 2.1%.
Direct hospice care costs increased 36.6%, or $39.8 million, from
$108.8 million in 1994 to $148.6 million in 1995. The increase in direct care
costs related principally to the increased average patient census in the period.
Direct hospice care costs as a percentage of revenue also increased by 2.4% of
revenue, from 61.9% in 1994 to 64.3% in 1995 due primarily to the higher cost
structure of the CHC operations which are reflected in a portion of the 1995
results and due to some margin deterioration caused by the high cost structure
of certain Vitas programs which had initially commenced operations in fiscal
1993 and fiscal 1994.
General and administrative costs increased 35.7%, or $19.3 million,
from $54.0 million in 1994 to $73.3 million in 1995. The change in general and
administrative costs related principally to increased costs due to the addition
of the CHC operations in the 1995 period. General and administrative costs as a
percentage of revenue increased by 1.0% of revenue, from 30.7% in 1994 to 31.7%
in 1995 due primarily to higher spending as a percentage of revenue in 1995 on
admission activities. General and administrative costs in 1995 were also higher
due to a total of approximately $2.2 million of costs recorded related to the
termination of certain employee benefit programs and a charge recorded related
to the settlement of litigation. Vitas also incurred $2.0 million (or 0.9% of
revenue) of restructuring costs in 1995 which related principally to the
establishment of a severance reserve related to an overhead reduction program
implemented in 1995.
Provision for bad debts increased both in dollars (from $4.0 million in
1994 to $6.8 million in 1995) and as a percentage of revenue (from 2.2% in 1994
to 3.0% in 1995) due primarily to the increased revenues between the periods and
due, in part, to a failure to collect certain billings related to the
application of more stringent documentation requirements by certain of Vitas'
third-party payors, especially state Medicaid programs. Net interest expense
(income) increased (from ($0.4) million in 1994 to $2.8 million in 1995)
primarily due to borrowings outstanding in 1995 related to the acquisition of
CHC and due to lower interest income resulting from lower invested cash levels
in 1995. Expenses associated with the amortization of intangible assets also
increased (from $1.2 million in 1994 to $1.8 million in 1995) due primarily to
the acquisition of CHC which acquisition was accounted for as a purchase.
As a result of these various changes between the periods discussed
above, income before taxes decreased from $8.3 million to a loss of $4.4 million
and net income decreased from $5.1 million to a loss of $2.8 million between
1994 and 1995, respectively.
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FISCAL YEAR ENDED SEPTEMBER 30, 1994 COMPARED TO FISCAL YEAR ENDED
SEPTEMBER 30, 1993
Revenue increased 16.4%, or $24.8 million, from $151.0 million in 1993
to $175.8 million in 1994. The increase in revenue was attributable to an
increase in average patient census of 17.9%, which change in average patient
census related principally to an increase in average census throughout Vitas'
operations. In addition, the 1994 period reflects the effect of a Medicare rate
increase, effective October 1, 1993, of 2.3%.
Direct hospice care costs increased 15.5%, or $14.6 million, from $94.2
million in 1993 to $108.8 million in 1994. The increase in direct care costs
related principally to the increased average patient census in the period.
Direct hospice care costs as a percentage of revenue decreased by 0.5% of
revenue, from 62.4% in 1993 to 61.9% in 1994 due primarily to cost efficiencies
related to the higher average patient census and revenue in 1994.
General and administrative costs increased 11.8%, or $5.7 million, from
$48.3 million in 1993 to $54.0 million in 1994. The change in general and
administrative costs related principally to increased costs due to additional
hospice programs opened in 1993 and 1994 and due to increased spending in the
corporate office due to Vitas' continued growth and expansion. General and
administrative costs as a percentage of revenue decreased by 1.3% of revenue,
from 32.0% in 1993 to 30.7% in 1994 due primarily to the effect of reduced
corporate office costs with increased revenue between 1993 and 1994. In 1993,
certain officers' loans were forgiven, resulting in a $4.7 million charge
related to the forgiveness of the loans and related accrued interest and the
payment of a bonus to cover the income tax consequences of the loan and accrued
interest forgiveness.
Provision for bad debts increased from $3.3 million in 1993 to $4.0
million in 1994 while bad debt expense as a percentage of revenue remained
relatively constant between the periods. Net interest income increased (from
$0.1 million in 1993 to $0.4 million in 1994) primarily due to the prepayment
of $3.6 million of outstanding notes in September 1993 and due to higher
interest earnings in 1994 principally relating to earnings on the cash proceeds
from the placement of the Series B Preferred in June 1993.
As a result of these various changes between the periods discussed
above, income before taxes improved from a loss of $0.1 million to a profit of
$8.3 million and net income (before the cumulative effect of a change in
accounting principle related to income taxes) improved from a loss of $0.2
million to a profit of $5.1 million between 1993 and 1994, respectively.
LIQUIDITY AND CAPITAL RESOURCES
In June 1993, Vitas improved its liquidity and capital position with
the issuance of the Series B Preferred. The net proceeds from the issuance of
the Series B Preferred was $24.1 million, and $8.2 million of such net proceeds
were utilized to redeem $8.1 million of Vitas Common Stock from two of Vitas'
principal stockholders, directors and executive officers.
In August 1994, Vitas established a $15 million revolving credit
facility with a commercial bank and also arranged third-party replacement
financing through that commercial bank for $2.4 million principal balance of
Vitas' loan to the ESOP. In February 1995, Vitas' bank credit facilities were
amended to provide a $20 million revolving credit facility and a $25 million
term loan which was funded in conjunction with the CHC acquisition. Outstanding
draws against the revolving credit facility currently bear interest at the prime
rate plus 1% or at certain LIBOR rates plus 2.5%. The term loan facility
currently bears interest at the prime rate plus 1.5% or at certain LIBOR rates
plus 3.0%. In conjunction with the CHC acquisition, CHC agreed to accept a
portion of the purchase consideration in the form of two subordinated notes
(Note A in an initial amount of $6.0 million and Note B in an initial amount of
$5.4 million) both bearing interest at 9%.
Net cash provided by (used in) operations was $4.0 million in fiscal
1993, $3.1 million in fiscal 1994, ($2.3) million in fiscal 1995 and $6.9
million in the nine months ended June 30, 1996. Cash, cash equivalents and
marketable securities totaled $17.2 million, $13.8 million, $4.5 million and
$2.4 million at September 30, 1993, September 30, 1994, September 30, 1995 and
June 30, 1996, respectively. Vitas' cash position was affected beginning in the
September 30, 1995 period by the initial working capital funding of the CHC and
HMV operations.
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<PAGE> 92
Capital expenditures were $5.2 million in fiscal 1993, $6.7 million in
fiscal 1994, $5.3 million in fiscal 1995 and $4.6 million in the nine months
ended June 30, 1996 or 3.4%, 3.8%, 2.3% and 2.4% of net revenue, respectively.
Capital expenditures were made principally to purchase computer hardware, to
purchase or develop computer software, to purchase telephone systems and for
various leasehold improvements and equipment. Capital expenditures were
financed, in part, by capital leases in amounts of $2.1 million, $2.5 million,
$1.3 million and $0.3 million in fiscal 1993, 1994, 1995 and the nine months
ended June 30, 1996, respectively.
Cash dividend payments on the outstanding shares of 9% Preferred
amounted to $2.4 million in fiscal 1993 through 1995 and $1.2 million in the
nine months ended June 30, 1996.
Subsequent to the quarter ended March 31, 1996, Vitas' results of
operations have been adversely affected by a number of factors, including the
disruption to operations resulting from the proposed Merger. Due to such
factors, management of Vitas believes that Vitas' results of operations will be
increasingly adversely affected in the months leading up to the closing of the
Merger. By letter dated August 5, 1996, Vitas' bank lender amended, effective as
of April 1, 1996, certain covenants in Vitas' bank loan agreement relating to
Vitas' consolidated interest coverage ratio and consolidated fixed charge ratio.
Such amendments are effective through September 29, 1996. As a result of such
amendments, Vitas continued to be in compliance with such covenants as of June
30, 1996. However, given Vitas' recent operating results and Vitas' expectations
that its results of operations will be increasingly adversely affected pending
the Merger, Vitas believes it would no longer be in compliance with such
covenants if such covenants were calculated as of the date hereof. There is no
assurance that Vitas' bank lender will agree to further amendments or waivers to
such financial covenants or other terms of Vitas' bank credit agreements.
However, Vitas believes, based on discussions with its bank lender, that pending
the Merger the bank will not declare an event of default with respect to such
debt or take any other action under the bank loan agreement, although there is
no assurance that this will be the case.
If the Merger Agreement is not approved and adopted by Vitas'
stockholders or if the Merger is not otherwise consummated, there are
significant potential consequences to Vitas and its stockholders. Pursuant to
the terms of Vitas' bank credit facilities, all borrowings outstanding under
such facilities are scheduled to mature on October 1, 1996. As of July 31, 1996,
amounts outstanding under such bank facilities total $31.5 million. In addition,
on August 8, 1996 Vitas incurred additional indebtedness under such facilities
in the amount of $4.75 million in connection with the acquisition of certain of
the assets of Hospice of Central Florida, Inc. as discussed under "VITAS
HEALTHCARE CORPORATION." See Note 6 to Notes to Consolidated Financial
Statements for the year ended September 30, 1995 for additional information
regarding Vitas' outstanding debt. In addition, Vitas is required to redeem (to
the extent funds are legally available therefor) approximately $8.3 million of
the 9% Preferred on December 31, 1996 and to make additional redemptions on each
of June 30 and December 31 of 1997 and 1998 thereafter. See Note 3 to Notes to
Consolidated Financial Statements for the year ended September 30, 1995 for
additional information regarding Vitas' redeemable preferred stock. In the event
that the Merger is not consummated, there can be no assurance that Vitas could
successfully obtain replacement debt or equity capital or that, if obtainable,
such debt or equity capital could be obtained in sufficient time to avoid
material disruption in its business. There also can be no assurance that, could
such replacement debt or equity capital be obtained, it would be obtained on as
favorable terms as those which exist under Vitas' current bank facilities and
the 9% Preferred.
EFFECT OF INFLATION
The effect of inflation on Vitas' results of operations has not been
material over the last three years. However, annual inflationary rate increases
under the Medicare program (and as a result, state Medicaid programs) were
reduced in the Omnibus Budget Reconciliation Act of 1993 by 2.0% for fiscal 1993
and fiscal 1994, 1.5% for fiscal 1995 and 1996, and 0.5% for fiscal 1997.
Additional future reductions in inflationary rate increases are possible and
normal inflationary increases in Vitas' operating costs could in the future be
at rates higher than those of Vitas' Medicare rate increases.
FORWARD LOOKING STATEMENTS
Information set forth in this Proxy Statement/Prospectus under the
captions "INVESTMENT CONSIDERATIONS," "VITAS MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and "UNAUDITED PRO
FORMA CONDENSED COMBINED FINANCIAL STATEMENTS" and information set forth in
Apria's Annual Report on Form 10-K for the fiscal year ended December 31, 1995
and in Apria's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1996 and June 30, 1996, which reports are incorporated herein by reference,
contain various "forward looking statements" within the meaning of Section 27A
of the 1933 Act, and Section 21E of the 1934 Act, which statements represent
Apria's and Vitas' reasonable judgment concerning the future and are subject to
risks and uncertainties that could cause Apria's and Vitas' actual operating
results and financial position to differ materially. Such forward looking
statements include the following: Apria's belief that it will achieve savings in
operating costs as a result of the Merger; the expectation that Congress and
state legislatures will continue to review and assess alternative healthcare
delivery systems and payment methodologies and that public debate of these
issues will continue in the future; Apria's belief that the levels of revenues
and profitability of Apria and Vitas, similar to those of other healthcare
companies, will be subject to the effect of possible reductions in coverage or
payment rates by third-party payors; Apria's intention not to pay any dividends
on the Apria Common Stock in the foreseeable future; Apria's expectation that it
will complete standardization of its branch information systems by the end of
the third quarter of 1996, at which time Apria's management expects the accounts
receivable position to begin to improve; Apria's belief that managed care plans
will continue to increase their influence over the delivery and cost of the
healthcare services; Apria's belief that any liability that might be incurred by
Apria upon the resolution of certain legal proceedings in which it is involved
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<PAGE> 93
will not, in the aggregate, have a material adverse effect on the consolidated
financial condition or results of operations of Apria; Apria's belief that
restructuring activities resulting in payroll, rent and other cost savings from
workforce reductions and branch consolidations will continue in the near term to
be partially offset by integration costs; Apria's belief that the disruption of
the day to day operations caused by the consolidation and integration activities
arising from the Abbey/Homedco Merger will not continue long term; Apria's
intention to increase collections and reduce accounts receivable and days' sales
in outstanding receivables by implementing operational processes and incentive
programs in 1996; Apria's belief that cash provided by operations and amounts
available under its new and existing credit and lease financing will be
sufficient to finance its current operations for at least the next 12 months;
Apria's expectation that its plan to restructure and consolidate its operating
locations and administrative functions within specific geographic areas will be
substantially completed by September 1996; Apria's belief that alternate
suppliers to the limited number of suppliers currently being used by Apria could
provide similar products on comparable terms; Apria's expectation that
company-wide cash collections will improve by the fourth quarter of 1996 as
normal processing resumes; Apria's belief that payments made against the
restructuring cost accrual will continue (through the year 2000, according to
contractual terms; Vitas' belief that Vitas' results of operations will
increasingly be adversely affected in the months leading up to the closing of
the Merger; Vitas' belief that it would no longer be in compliance with certain
covenants in Vitas' bank loan agreement relating to Vitas' consolidated interest
coverage ratio and consolidated fixed charge ratio if such covenants were
calculated as of the date hereof; Vitas' belief that, based on discussions with
its bank lender, that pending the Merger the bank will not declare an event of
default with respect to such debt or take any other action under the bank loan
agreement; Vitas' belief that future reductions in inflationary rate increases
are possible and that normal inflationary increases in Vitas' operating costs
could in the future be at rates higher than those of Vitas' Medicare rate
increases; and Apria's expectation that no significant stock option or stock
purchase right exercises will result from the Merger.
Apria and Vitas caution that the above statements are further qualified by
important factors that could cause Apria's and Vitas' actual operating results
to differ materially from those in the forward looking statements. Such factors
include, without limitation, those set forth in this Proxy Statement/Prospectus
under "INVESTMENT CONSIDERATIONS" and the following: difficulties encountered in
the integration of the operations of Apria and Vitas; reforms in the healthcare
industry and increased pricing pressures on home healthcare and hospice
providers; changes in the regulatory environment with respect to Medicare and
Medicaid programs; greater than anticipated competition; possible loss of
existing relationships with managed care organizations, private and governmental
third-party payors, hospitals, physicians, physician groups, home health
agencies, long-term care facilities and other institutional healthcare
providers, and large self-insured employers; an increase in the concentration of
large payors; inability to maintain adequate liability insurance to cover legal
claims; dependence on key personnel; possible volatility of the stock price; and
Apria's intention not to pay any dividends on Apria Common Stock in the
foreseeable future. See "INVESTMENT CONSIDERATIONS."
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial
statements are presented assuming the Merger has been consummated and accounted
for as a pooling of interests. The pro forma condensed combined statements of
operations for each of the three years in the period ended December 31, 1995,
and the six month periods ended June 30, 1995 and June 30, 1996 have been
prepared as if the Merger had occurred on January 1, 1993. The pro forma
condensed combined balance sheet as of June 30, 1996 has been prepared as if
the Merger had occurred on June 30, 1996. The pro forma combined data is based
on the separate historical consolidated financial statements of Apria and Vitas
giving effect to the Merger under the assumptions and adjustments outlined in
the accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements. The unaudited pro forma condensed combined financial statements are
provided for comparative purposes only and are not necessarily indicative of the
results that would have been obtained had the Merger occurred on the dates
indicated or that may be achieved in the future.
For all applicable periods presented in the unaudited pro forma
condensed combined statements of operations, shares used in the computation of
earnings per common and common equivalent share and supplemental earnings per
common and common equivalent share give effect to the Exchange Ratio, excluding
the adjustments contemplated by the Merger Agreement.
The unaudited pro forma condensed combined financial statements should
be read in conjunction with the separate audited consolidated financial
statements of Apria incorporated herein by reference and those of Vitas included
in this Proxy Statement/Prospectus.
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APRIA/VITAS
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------ ---------------------------------------------
Apria Vitas Adjustments Reference Combined
---------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents.................... $ 20,089 $ 2,396 $ 4,195 (4)(a) $ 26,680
Accounts receivable, net..................... 334,586 26,683 (108) (4)(e) 361,161
Other current assets......................... 135,085 5,159 250 (6) 140,494
---------- --------- --------- ----------
Total current assets.................... 489,760 34,238 4,337 528,335
Patient service equipment, net............... 192,187 - 192,187
Property, equipment and improvements, net.... 105,916 15,470 121,386
Goodwill, net................................ 296,135 42,034 338,169
Other assets................................. 27,480 2,686 6,778 (4)(b)(7) 36,944
---------- --------- --------- ----------
Total assets............................ $1,111,478 $ 94,428 $ 11,115 $1,217,021
========== ========= ========= ==========
Accounts payable............................. $ 62,276 $ 15,590 $ 10,119 (4)(a)(c)(e)(6) $ 87,985
Other current liabilities.................... 91,299 45,980 (34,140) (4)(c)(6)(8) 103,139
---------- --------- --------- ----------
Total current liabilities............... 153,575 61,570 (24,021) 191,124
Long-term debt............................... 609,200 10,459 65,887 (4)(b)(d)(8) 685,546
Other non-current liabilities................ - 1,596 749 (4)(d)(7) 2,345
Redeemable preferred stock:
9% Preferred Stock......................... - 27,308 (27,308) (9) -
Series B Preferred Stock................... - 32,641 (32,641) (9) -
Stockholders' equity (deficiency):
Common Stock............................... 51 4 55
Additional paid-in capital................. 316,752 (30,644) 32,641 (9) 318,749
Retained earnings (deficit)................ 31,900 (7,071) (4,192) (9) 20,637
Indebtedness of employee stock
ownership plan .......................... - (1,435) - (1,435)
---------- --------- --------- ----------
Total stockholders' equity (deficiency). 348,703 (39,146) 28,449 338,006
---------- --------- --------- ----------
Total liabilities and stockholders'
equity (deficiency)................... $1,111,478 $ 94,428 $ 11,115 $1,217,021
========== ========= ========= ==========
Common shares outstanding as of June 30, 1996 51,014 4,409 100 (9) 55,523
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed
Combined Financial Statements
87
<PAGE> 96
APRIA/VITAS
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------------ -------------------------------------------------
Apria Vitas Adjustments Reference Combined
-------- ------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net revenues................................. $571,895 $101,375 $ (546) (5) $ 672,724
Cost of net revenues......................... 173,806 62,697 (546) (5) 235,957
-------- -------- -------- ---------
Gross profit............................... 398,089 38,678 - 436,767
Selling, distribution and
administrative expenses .................... 292,090 34,013 326,103
Provision for doubtful accounts.............. 26,363 3,026 29,389
Amortization of intangible assets............ 8,134 671 8,805
Restructuring costs.......................... 2,661 - 2,661
Merger costs................................. 6,988 - 6,988
Employee contract settlements................ 3,206 - 3,206
Loss on disposition of U.K. subsidiary....... 500 - 500
-------- -------- -------- ---------
Operating income........................... 58,147 968 - 59,115
Interest expense, net of interest (income)... 21,816 498 22,314
-------- -------- -------- ---------
Income before taxes and extraordinary
charge................................... 36,331 470 - 36,801
Income taxes................................. 13,042 168 13,210
-------- -------- -------- ---------
Income before extraordinary charge......... $ 23,289 $ 302 $ - $ 23,591
======== ======== ======== =========
Income before extraordinary charge
applicable to common stockholders........ $ 23,289 $ (1,998) $ - $ 21,291
======== ======== ======== =========
Per common and common equivalent share:
Primary.................................... $ 0.49 $ (.45) $ .44
Fully diluted.............................. $ 0.47 $ (.45) $ .42
Number of shares used in calculation:
Primary.................................... 47,495 4,402 (3,125) (11) 48,772
Fully diluted.............................. 51,150 4,402 (3,125) (11) 52,427
Supplemental per common and common
equivalent share(11):
Primary.................................... $ .46
Fully diluted.............................. $ .44
Supplemental number of shares used
in calculation(11):
Primary.................................... 51,977
Fully diluted.............................. 55,632
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed
Combined Financial Statements
88
<PAGE> 97
APRIA/VITAS
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------------ -------------------------------------------------
Apria Vitas Adjustments Reference Combined
--------- ------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net revenues................................. $ 601,882 $126,449 $ (1,427) (5) $ 726,904
Cost of net revenues......................... 191,034 83,099 (1,427) (5) 272,706
--------- ------- --------- ---------
Gross profit............................... 410,848 43,350 - 454,198
Selling, distribution and administrative
expenses .................................. 285,437 37,011 322,448
Provision for doubtful accounts.............. 27,858 2,582 30,440
Amortization of intangible assets............ 8,451 1,267 9,718
--------- ------- --------- ---------
Operating income........................... 89,102 2,490 - 91,592
Interest expense, net of interest (income)... 23,111 2,082 25,193
--------- ------- --------- ---------
Income before taxes........................ 65,991 408 - 66,399
Income taxes................................. 23,757 182 23,939
--------- ------- --------- ---------
Net income................................. $ 42,234 $ 226 $ - $ 42,460
========= ======= ========= =========
Net income (loss) applicable to common
stockholders........................... $ 42,234 $(2,074) $ - $ 40,160
========= ======= ========= =========
Per common and common equivalent share:
Primary.................................... $ .81 $ (.47) $ .75
Fully diluted.............................. $ .81 $ (.47) $ .75
Number of shares used in calculation:
Primary.................................... 52,286 4,409 (3,130) (11) 53,565
Fully diluted.............................. 52,399 4,409 (3,130) (11) 53,678
Supplemental per common and common
equivalent share(11):
Primary.................................... $ .73
Fully diluted.............................. $ .72
Supplemental number of shares used
in calculation(11):
Primary.................................... 56,788
Fully diluted.............................. 56,900
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed
Combined Financial Statements
89
<PAGE> 98
APRIA/VITAS
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Historical Pro Forma
----------------------------- -------------------------------------------------
Apria Vitas Adjustments Reference Combined
---------- -------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
Net revenues..................................... $ 748,901 $150,964 $ (1,200) (5) $898,665
Cost of net revenues............................. 226,124 94,225 (1,200) (5) 319,149
---------- -------- --------- --------
Gross profit................................... 522,777 56,739 - 579,516
Selling, distribution and administrative expenses 410,392 48,271 458,663
Provision for doubtful accounts.................. 34,476 3,283 37,759
Amortization of intangible assets................ 4,103 719 4,822
Forgiveness of officer loans..................... - 4,700 4,700
---------- -------- --------- --------
Operating income (loss)........................ 73,806 (234) - 73,572
Interest expense, net of interest (income)....... 18,266 (97) 18,169
---------- -------- --------- --------
Income (loss) from continuing
operations before taxes
and cumulative effect of change
in accounting method....................... 55,540 (137) - 55,403
Income taxes..................................... 19,695 46 19,741
---------- -------- --------- --------
Income (loss) from continuing operations before
cumulative effect of change
in accounting method....................... $ 35,845 $ (183) $ - $ 35,662
========== ======== ========= ========
Income (loss) from continuing operations before
cumulative effect of change in
accounting method applicable to common
stockholders .............................. $ 35,845 $ (3,297) $ - $ 32,548
========== ======== ========= ========
Per common and common equivalent share:
Primary........................................ $ 0.94 $ (.60) $ .82
Fully diluted.................................. $ 0.89 $ (.60) $ .79
Number of shares used in calculation:
Primary........................................ 38,138 5,527 (3,924) (11) 39,741
Fully diluted.................................. 43,864 5,527 (3,924) (11) 45,467
Supplemental per common and common equivalent
share(11):
Primary........................................ $ .77
Fully diluted.................................. $ .75
Supplemental number of shares used in
calculation(11):
Primary........................................ 42,880
Fully diluted.................................. 48,606
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed
Combined Financial Statements
90
<PAGE> 99
APRIA/VITAS
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------ ---------------------------------------
APRIA VITAS ADJUSTMENTS REFERENCE COMBINED
---------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Net revenues ............................................. $ 962,812 $ 175,832 $ (1,206) (5) $1,137,438
Cost of net revenues ..................................... 287,690 108,842 (1,206) (5) 395,326
---------- ---------- ---------- ----------
Gross profit ........................................... 675,122 66,990 -- 742,112
Selling, distribution and administrative expenses ........ 517,027 53,964 570,991
Provision for doubtful accounts .......................... 46,716 3,973 50,689
Amortization of intangible assets ........................ 11,504 1,161 12,665
---------- ---------- ---------- ----------
Operating income ....................................... 99,875 7,892 -- 107,767
Interest expense, net of interest (income) ............... 37,155 (399) 36,756
---------- ---------- ---------- ----------
Income from continuing operations before taxes ......... 62,720 8,291 -- 71,011
Income taxes ............................................. 27,104 3,150 30,254
---------- ---------- ---------- ----------
Income from continuing operations ...................... $ 35,616 $ 5,141 $ -- $ 40,757
========== ========== ========== ==========
Income from continuing operations applicable to
common stockholders ................................ $ 35,616 $ 543 $ -- $ 36,159
========== ========== ========== ==========
Per common and common equivalent share:
Primary ................................................ $ 0.81 $ .15 $ .78
Fully diluted .......................................... $ 0.78 $ .15 $ .76
Number of shares used in calculation:
Primary ................................................ 44,096 12,511 (8,883) (11) 47,724
Fully diluted .......................................... 49,284 12,843 (9,119) (11) 53,008
Supplemental per common and common
equivalent share(11):
Primary ................................................ $ .79
Fully diluted .......................................... $ .76
Supplemental number of shares used in
calculation(11):
Primary ................................................ 48,572
Fully diluted .......................................... 53,759
</TABLE>
See accompanying Notes to Unaudited Pro Forma
Condensed Combined Financial Statements
91
<PAGE> 100
APRIA/VITAS
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------ ---------------------------------------
APRIA VITAS ADJUSTMENTS REFERENCE COMBINED
---------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Net revenues ....................................... $1,133,600 $ 230,854 $ (1,262) (5) $1,363,192
Cost of net revenues ............................... 360,999 148,562 (1,262) (5) 508,299
---------- ---------- ----------- ----------
Gross profit ..................................... 772,601 82,292 -- 854,893
Selling, distribution and administrative expenses .. 601,978 73,290 675,268
Provision for doubtful accounts .................... 53,023 6,828 59,851
Amortization of intangible assets .................. 16,273 1,824 18,097
Restructuring costs ................................ 68,304 2,020 70,324
Merger costs ....................................... 12,193 -- 12,193
Special provisions for uncollectible accounts ...... 47,440 -- 47,440
Employee contracts, benefit plan and claim
settlements ...................................... 20,367 -- 20,367
Loss on disposition of U.K. subsidiary ............. 500 -- 500
---------- ---------- ----------- ----------
Operating loss ................................... (47,477) (1,670) -- (49,147)
Interest expense, net of interest (income) ......... 42,942 2,763 45,705
---------- ---------- ----------- ----------
Loss before taxes and extraordinary charge ....... (90,419) (4,433) -- (94,852)
Income tax benefit ................................. (18,941) (1,588) (20,529)
---------- ---------- ----------- ----------
Net loss before extraordinary charge ............. $ (71,478) $ (2,845) $ -- $ (74,323)
========== ========== =========== ==========
Net loss before extraordinary charge applicable to
common stockholders .......................... $ (71,478) $ (7,443) $ -- $ (78,921)
========== ========== =========== ==========
Per common and common equivalent share:
Primary .......................................... $ (1.52) $ (1.69) $ (1.63)
Fully diluted .................................... $ (1.52) $ (1.69) $ (1.63)
Number of shares used in calculation:
Primary .......................................... 47,112 4,402 (3,125) (11) 48,389
Fully diluted .................................... 47,112 4,402 (3,125) (11) 48,389
Supplemental per common and common equivalent
share(11):
Primary .......................................... $ (1.49)
Fully diluted .................................... $ (1.49)
Supplemental number of shares used in
calculation(11):
Primary .......................................... 51,600
Fully diluted .................................... 51,600
</TABLE>
See accompanying Notes to Unaudited Pro Forma
Condensed Combined Financial Statements
92
<PAGE> 101
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The unaudited pro forma condensed combined financial statements have been
prepared by combining the historical balances of Apria and Vitas. The following
notes describe the adjustments and other items relevant to the pro forma
statements.
(1) ACCOUNTING PERIOD DIFFERENCES
The results of operations for Vitas included in the unaudited pro forma
condensed combined statements of operations for the three years ended December
31, 1993, 1994 and 1995 were derived from Vitas' audited financial statements
for the three fiscal years ended September 30, 1993, 1994 and 1995. The
unaudited results of operations for the quarters ended December 31, 1993, 1994
and 1995 were as follows:
<TABLE>
<CAPTION>
Three Months Ended
December 31,
------------------------------------
1993 1994 1995
---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C>
Net revenues ......................... 43,275 47,421 65,065
Net income ........................... 1,687 1,073 372
Net income (loss) applicable to common
stockholders ...................... 537 (76) (778)
Net income (loss) per common share ... $ .07 $ (.02) $ (.18)
</TABLE>
If Vitas' operating results for the twelve months ended December 31, 1995 had
been used in preparing the unaudited pro forma condensed combined statements of
operations for the year ended December 31, 1995, pro forma revenues and loss
before extraordinary item would be $1,380,836,000 and $(75,024,000),
respectively.
The results of operations for Vitas included in the unaudited pro forma
condensed combined statements of operations for the six month periods ended June
30, 1995 and 1996 were derived from Vitas' unaudited statements of operations
for the six month periods ended March 31, 1995 and June 30, 1996, respectively.
The balance sheet for Vitas included in the unaudited pro forma condensed
combined balance sheet as of June 30, 1996 was derived from Vitas' unaudited
balance sheet as of June 30, 1996.
(2) RESTRUCTURING AND INTEGRATION COSTS
Certain expenses are expected to be incurred in connection with the
restructuring and consolidation of Vitas' regional and corporate functions with
those of Apria. Such expenses may include the cost of reducing personnel. These
expenses are not currently estimable with a reasonable degree of accuracy.
Accordingly, they have not been reflected in the unaudited pro forma condensed
combined financial statements. The estimated costs associated with the
restructuring activities will be expensed in the period in which the
restructuring plan is completed.
(3) ACCOUNTING CONFORMITY
Under the pooling of interests accounting method, the accounting policies
followed by the combining companies must be conformed. A review of the
accounting policies of Apria and Vitas uncovered no significant differences.
(4) RECLASSIFICATIONS
The unaudited pro forma condensed combined financial statements reflect the
following reclassifications to conform all periods to Apria's current year
presentation.
(a) Vitas' outstanding checks in excess of bank balances of $4,195,000
as accounts payable rather than a reduction of cash.
93
<PAGE> 102
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(continued)
(b) Vitas' deferred debt costs of $222,000 as a reduction of long-term
debt rather than as a non-current asset.
(c) Vitas' payroll withholdings of $768,000 as other liabilities
rather than accounts payable.
(d) Vitas' capitalized lease obligations of $1,251,000 as long-term
debt rather than other non-current liabilities.
(e) Vitas' prepaid unified rate of $108,000 as accounts payable
rather than accounts receivable.
(5) INTERCOMPANY TRANSACTIONS
The unaudited pro forma condensed combined statements of operations reflect
adjustments necessary to eliminate transactions between Apria and Vitas.
(6) TRANSACTION FEES AND CEO SEVERANCE
Under the pooling of interests accounting method, direct transactions costs are
expensed in the period in which the transaction is consummated. Such costs are
estimated to be $5,300,000 and include investment banking, legal, accounting,
printing, solicitation, filing fees and similar expenses. The accrual of these
expenses, net of estimated tax benefits of $1,908,000, has been reflected in the
unaudited pro forma condensed combined balance sheet at June 30, 1996 but not in
the unaudited pro forma condensed combined statement of operations for the six
month period then ended.
Concurrent with the closing of the Merger, Vitas' Chief Executive Officer
("CEO") will receive a severance payment of $1,250,000 and a prepaid consulting
fee of $250,000. These amounts, net of estimated tax benefits of $450,000, have
been reflected in the unaudited pro forma condensed combined balance sheet at
June 30, 1996 but not in the unaudited pro forma condensed combined statements
of operations for the six month period then ended.
(7) NON-COMPETITION COVENANT
The seven year Non-Competition Agreement negotiated with Vitas' CEO will result
in three installment payments totalling $7,000,000: $5,000,000 at the closing of
the Merger and $1,000,000 on each of the first two anniversaries of the closing
of the Merger. The unaudited pro forma condensed combined balance sheet at June
30, 1996 reflects a $2,000,000 liability for future amounts due and a $5,000,000
increase in debt for the covenant payment made at the closing of the Merger.
(8) LONG-TERM DEBT
In order to effect the Merger and to meet the working capital needs of the
combined company, additional financing has been obtained. Effective August 9,
1996, Apria entered into an agreement with a syndicate of banks which provides
for borrowings of up to $800,000,000. The agreement is structured as an
unsecured five year revolving line of credit, and provides for two variable
interest rate options subject to discount based on Apria achieving certain
targeted ratios of debt to earnings before interest, taxes, depreciation and
amortization. The agreement contains restrictive covenants requiring the
maintenance of certain financial ratios, limitations on additional borrowings
and capital expenditures and restrictions on cash dividends and other
distributions.
94
<PAGE> 103
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(continued)
The unaudited pro forma condensed combined balance sheet at June 30, 1996
reflects an increase in long-term debt due to the following:
<TABLE>
<S> <C>
Purchase of Vitas 9% Preferred Stock................. $27,308,000
Non-compete covenant payment......................... 5,000,000
-----------
$32,308,000
===========
</TABLE>
Long-term debt and other accrued liabilities have been adjusted by
$32,550,000 to reflect the payoff of the current portion of Vitas'
long-term debt with long term borrowings.
(9) STOCKHOLDERS' EQUITY
The exchanges of Vitas equity securities for Apria Common Stock are computed
based on the Initial Exchange Ratio of .290. Application of this ratio assumes
the market price of Apria Common Stock at the effective date of the Merger will
be at least $27.125 and will not exceed $37.125. Should the market price at the
effective date not fall within this range, the Initial Exchange Ratio is subject
to certain adjustments as stipulated in the Merger Agreement. Also, the Initial
Exchange Ratio is subject to additional adjustments if Vitas' long-term debt
exceeds certain levels at the effective date of the Merger.
The unaudited pro forma condensed combined balance sheet at June 30, 1996
reflects the following adjustments to stockholders' equity:
9% Preferred Stock has been eliminated to reflect the purchase of
270,000 of such issued and outstanding shares by Apria.
Series B Preferred Stock, Common Stock, and additional paid-in capital
have been adjusted to reflect the conversion of 262,500 issued and
outstanding shares of Vitas Series B Preferred Stock into 5,526,316
shares of Vitas Common Stock.
Common Stock and additional paid-in capital have been adjusted to
reflect the issuance of approximately 2,881,000 shares of Apria Common
Stock with a par value of $.001 in exchange for 9,935,158 issued and
outstanding shares of Vitas Common Stock (which reflects the shares
issued upon conversion of the Series B Preferred Stock). In addition,
Common Stock and additional paid-in capital have been adjusted to
reflect the issuance of approximately 1,628,000 shares of Apria Common
Stock with a par value of $.001 to holders of Vitas warrants and stock
options. Adjusted exchange ratios of .2670 and .3228 would result in
the issuance of approximately 4,160,000 and 5,020,000 shares of Apria
Common Stock, respectively, in exchange for Vitas Common Stock,
Warrants and Stock Options.
Retained earnings has been adjusted for the net effects of the
aforementioned pro forma adjustments as follows:
<TABLE>
<S> <C>
Accrual of transaction costs, net of estimated tax effects of $1,908,000 $3,392,000
Accrual of CEO severance, net of estimated tax effects of $450,000 800,000
----------
$4,192,000
==========
</TABLE>
No significant stock option or stock purchase right exercises are expected to
result from the Merger.
(10) INCOME TAXES
The tax effects of the aforementioned pro forma adjustments have been reflected
in the unaudited pro forma condensed combined balance sheet at June 30, 1996
assuming a 36% effective tax rate.
95
<PAGE> 104
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(continued)
The transaction is not expected to result in a further limitation of Apria's net
operating loss carryforward under Code Section 382.
(11) EARNINGS PER SHARE
The weighted average common share amounts reflected in the unaudited pro forma
condensed combined statements of operations represent the aggregate weighted
average shares of Apria and Vitas adjusted to reflect the Initial Exchange Ratio
of .290 shares of Apria Common Stock for Vitas Common Stock. The Initial
Exchange Ratio applied in this computation excludes the adjustments contemplated
by the Merger Agreement (see Note 9). At adjusted exchange ratios of .2670 and
.3228, the pro forma per share earnings (loss) amounts would not differ by more
than $.01 from the amounts presented.
The weighted average common share amounts reflected in the supplemental earnings
per share computation assume the exchange of Vitas Common Stock, Series B
Preferred Stock, Stock Options and Warrants for Apria Common Stock (at the
Initial Exchange Ratio of .290) at the beginning of the periods presented.
Accordingly, net income (loss) applicable to common stockholders used in the
supplemental earnings per share computation excludes adjustments related to the
aforementioned Vitas equity items.
96
<PAGE> 105
INDEX TO FINANCIAL STATEMENTS
OF VITAS HEALTHCARE CORPORATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
A. Audited Financial Statements for the Years Ended September 30, 1993, 1994 and 1995
1. Report of Independent Certified Public Accountants...................................... F-2
2. Consolidated Balance Sheets--September 30, 1994 and 1995................................ F-3
3. Consolidated Statements of Operations--Years ended
September 30, 1993, 1994 and 1995.............................................. F-5
4. Consolidated Statements of Changes in Redeemable Preferred
Stock and Stockholders' Deficit--Years ended
September 30, 1993, 1994 and 1995.............................................. F-6
5. Consolidated Statements of Cash Flows--Years ended
September 30, 1993, 1994 and 1995.............................................. F-7
6. Notes to Consolidated Financial Statements.............................................. F-9
B. Condensed Consolidated Financial Statements for the Periods Ended June 30, 1996 and 1995
(unaudited)
1. Condensed Consolidated Balance Sheets................................................... F-27
2. Condensed Consolidated Statements of Operations ........................................ F-29
3. Condensed Consolidated Statements of Cash Flows......................................... F-30
4. Notes to Condensed Consolidated Financial Statements.................................... F-31
</TABLE>
F-1
<PAGE> 106
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Vitas Healthcare Corporation and Subsidiaries
We have audited the consolidated balance sheets of Vitas Healthcare Corporation
and Subsidiaries as of September 30, 1994 and 1995, and the related consolidated
statements of operations, changes in redeemable preferred stock and
stockholders' deficit and cash flows for each of the three years in the period
ended September 30, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Vitas
Healthcare Corporation and Subsidiaries as of September 30, 1994 and 1995, and
the results of their operations and their cash flows for each of the three years
in the period ended September 30, 1995 in conformity with generally accepted
accounting principles.
As discussed in Note 9 to the financial statements, in 1993 the Company changed
its method of accounting for income taxes.
Miami, Florida
December 14, 1995
F-2
<PAGE> 107
VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1994 1995
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,715 $ 4,545
Marketable securities 8,077 --
Accounts receivable from patient services,
net of allowance for uncollectible accounts of
$3,500 in 1994 and $5,300 in 1995 19,587 30,576
Income tax receivable -- 1,322
Deferred taxes - current 896 1,997
Other current assets 2,961 2,295
------- -------
Total current assets 37,236 40,735
Property and equipment, net 12,748 15,104
Notes receivable from stockholders and employees 394 121
Intangible assets, net 2,161 39,405
Other assets 1,114 1,696
Deferred taxes 283 946
------- -------
Total assets $53,936 $98,007
======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE> 108
VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1994 1995
-------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 12,082 $ 18,877
Accrued compensation 5,308 5,168
Accrued health insurance 1,191 768
Other accrued expenses 2,147 5,972
Current portion of long-term debt and capital lease obligations 1,039 2,536
Income taxes payable 656 --
-------- --------
Total current liabilities 22,423 33,321
Long-term debt and line of credit 10 39,294
Capital lease obligations 2,596 2,190
Other long-term liabilities 768 354
Guarantee of Employee Stock Ownership Plan loan 2,267 1,792
Commitments and contingencies
Redeemable preferred stock, $100 stated value,
$1 par value
Authorized shares--4,500,000
Issued and outstanding shares:
9% Preferred Stock, cumulative, nonconvertible, redeemable--
270,000 shares; liquidation preference equal to stated value per
share plus all accrued and unpaid dividends 27,189 27,257
Series B-- convertible, redeemable--262,500 shares; liquidation
preference equal to stated value per share plus a dividend preference
amount of 8% per annum from date of issuance less
any dividends paid 28,966 31,066
Stockholders' deficit
Common Stock, $.001 par value:
Authorized shares--40,000,000
Issued and outstanding shares--4,401,842 in 1994 and 1995 4 4
Additional paid-in capital (26,892) (29,047)
Indebtedness of Employee Stock Ownership Plan (2,267) (1,792)
Accumulated deficit (1,128) (6,432)
-------- --------
Total stockholders' deficit (30,283) (37,267)
-------- --------
Total liabilities and stockholders' equity $ 53,936 $ 98,007
======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 109
VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net patient service revenue $ 150,964 $ 175,832 $ 230,854
Operating expenses:
Direct hospice care costs 94,225 108,842 148,562
General and administrative 48,271 53,964 73,290
Provision for doubtful accounts, net of recoveries 3,283 3,973 6,828
Amortization of intangible assets 719 1,161 1,824
Restructuring costs -- -- 2,020
Officers' loans forgiven 4,700 -- --
------------ ------------ ------------
151,198 167,940 232,524
------------ ------------ ------------
(Loss) income from operations (234) 7,892 (1,670)
Interest expense (income), net of interest (income) (97) (399) 2,763
------------ ------------ ------------
(Loss) income before provision for income (137) 8,291 (4,433)
taxes
Provision for income taxes (benefit) 46 3,150 (1,588)
------------ ------------ ------------
(Loss) income before cumulative effect of
change in accounting principle for income taxes (183) 5,141 (2,845)
Cumulative effect of change in accounting
principle for income taxes 259 -- --
------------ ------------ ------------
Net income (loss) $ 76 $ 5,141 $ (2,845)
============ ============ ============
Net (loss) income attributable to common
stockholders $ (3,038) $ 543 $ (7,443)
============ ============ ============
(Loss) earnings per share:
Before cumulative effect of change in
accounting principle $ (.60) $ .15 $ (1.69)
Cumulative effect of change in
accounting principle .05 -- --
------------ ------------ ------------
(Loss) income per common share $ (.55) $ .15 $ (1.69)
============ ============ ============
Weighted average number of common and
common stock equivalents 5,526,686 12,510,629 4,401,842
============ ============ ============
</TABLE>
See accompanying notes.
F-5
<PAGE> 110
VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
9% SERIES B COMMON
PREFERRED STOCK PREFERRED STOCK STOCK
SHARES DOLLARS SHARES DOLLARS SHARES DOLLARS
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 1, 1992 270 $ 27,053 -- $ -- 6,088 $ 6
Common Stock purchased by the Company -- -- -- -- (1,736) (2)
Issuance of Series B Preferred Stock -- -- 263 26,250 -- --
Payments on ESOP note receivable -- -- -- -- -- --
9% Preferred Stock dividends paid -- -- -- -- -- --
Amortization of accelerated vesting of
compensatory stock options -- -- -- -- -- --
Accretion of preferred stock -- 68 -- 616 -- --
Net income -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Balance at September 30, 1993 270 27,121 263 26,866 4,352 4
Net reduction of ESOP indebtedness -- -- -- -- -- --
9% Preferred Stock dividends paid -- -- -- -- -- --
Accretion of preferred stock -- 68 -- 2,100 -- --
Exercise of stock options and related income
tax benefits -- -- -- -- 50 --
Net income -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Balance at September 30, 1994 270 27,189 263 28,966 4,402 4
Net reduction of ESOP indebtedness -- -- -- -- -- --
9% Preferred Stock dividends paid -- -- -- -- -- --
Accretion of preferred stock -- 68 -- 2,100 -- --
Exercise of stock options and related income
tax benefits -- -- -- -- 5 1
Common Stock purchased by the Company
and retired -- -- -- -- (5) (1)
Net loss -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Balance at September 30, 1995 270 $ 27,257 263 $ 31,066 4,402 $ 4
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
PAID-IN DEFERRED INDEBTEDNESS ACCUMULATED STOCKHOLDERS'
CAPITAL COMPENSATION OF ESOP DEFICIT DEFICIT
---------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at October 1, 1992 $(13,905) $ (979) $ (2,864) $ (1,485) $(19,227)
Common Stock purchased by the Company (8,145) -- -- -- (8,147)
Issuance of Series B Preferred Stock (2,106) -- -- -- (2,106)
Payments on ESOP note receivable -- -- 335 -- 335
9% Preferred Stock dividends paid -- -- -- (2,430) (2,430)
Amortization of accelerated vesting of
compensatory stock options -- 979 -- -- 979
Accretion of preferred stock (684) -- -- -- (684)
Net income -- -- -- 76 76
-------- -------- -------- -------- --------
Balance at September 30, 1993 (24,840) -- (2,529) (3,839) (31,204)
Net reduction of ESOP indebtedness -- -- 262 -- 262
9% Preferred Stock dividends paid -- -- -- (2,430) (2,430)
Accretion of preferred stock (2,168) -- -- -- (2,168)
Exercise of stock options and related income
tax benefits 116 -- -- -- 116
Net income -- -- -- 5,141 5,141
-------- -------- -------- -------- --------
Balance at September 30, 1994 (26,892) -- (2,267) (1,128) (30,283)
Net reduction of ESOP indebtedness -- -- 475 -- 475
9% Preferred Stock dividends paid -- -- -- (2,430) (2,430)
Accretion of preferred stock (2,168) -- -- -- (2,168)
Exercise of stock options and related income
tax benefits 13 -- -- -- 14
Common Stock purchased by the Company
and retired -- -- -- (29) (30)
Net loss -- -- -- (2,845) (2,845)
-------- -------- -------- -------- --------
Balance at September 30, 1995 $(29,047) $ -- $ (1,792) $ (6,432) $(37,267)
======== ======== ======== ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE> 111
VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 76 $ 5,141 $ (2,845)
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Cumulative effect of change in accounting
principle 259 -- --
Depreciation 1,792 2,424 3,462
Amortization 719 1,161 2,391
Provision for deferred income taxes (200) (379) (2,200)
Accelerated depreciation in nonrecurring charges 311 -- --
Provision for losses on accounts receivable 3,283 3,973 6,828
Amortization of deferred compensation 979 -- --
(Increase) decrease in assets:
Accounts receivable from patient services (6,667) (8,398) (17,817)
Income tax receivable -- -- (1,322)
Other current assets 540 (799) 666
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 4,106 (630) 9,128
Income taxes payable (1,347) 656 (220)
Other long-term liabilities 191 (47) (414)
-------- -------- --------
Net cash provided by (used in) operating activities 4,042 3,102 (2,343)
INVESTING ACTIVITIES
Purchase of property and equipment, net (3,040) (4,230) (3,932)
Assets of business acquired -- -- (27,466)
(Purchase) sale of investments -- (8,077) 8,077
Increase in intangible assets (315) (219) (567)
Decrease in notes receivable 2,368 178 273
Increase in other assets (197) (795) (416)
Decrease in indebtedness of Employee Stock
Ownership Plan 334 262 475
-------- -------- --------
Net cash used in investing activities $ (850) $(12,881) $(23,556)
</TABLE>
F-7
<PAGE> 112
VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Proceeds from long-term debt and line of credit $ -- $ -- $ 36,000
Principal payments on long-term debt and capital lease
obligations (5,223) (1,706) (8,350)
Proceeds from Series B Preferred Stock 24,144 -- --
Dividends on 9% Preferred Stock (2,430) (2,430) (2,430)
Purchase of Common Stock (8,147) -- (30)
Proceeds from exercise of stock options and related
income tax benefits -- 116 14
Proceeds from repayment of ESOP loan (ESOP
contribution) -- 2,267 (475)
-------- -------- --------
Net cash provided by (used in) financing activities 8,344 (1,753) 24,729
-------- -------- --------
Net increase (decrease) in cash 11,536 (11,532) (1,170)
Cash and cash equivalents, beginning of period 5,711 17,247 5,715
-------- -------- --------
Cash and cash equivalents, end of period $ 17,247 $ 5,715 $ 4,545
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash interest paid $ 689 $ 316 $ 1,464
======== ======== ========
Cash income taxes paid $ 1,114 $ 2,753 $ 1,962
======== ======== ========
Property and equipment financed by capital leases $ 2,113 $ 2,460 $ 1,325
======== ======== ========
</TABLE>
See accompanying notes.
F-8
<PAGE> 113
VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMPANY
Vitas Healthcare Corporation and its subsidiaries, collectively "Vitas" or the
"Company," provides palliative medical and psychosocial services to individuals
with terminal or life-limiting illnesses through state-licensed and
federally-certified hospice programs. These services include physician services,
nursing care, social services, counseling services and pastoral care, short-term
inpatient and respite care, drugs for symptom management and pain control,
medical equipment and supplies, home health aide and homemaker services,
bereavement counseling and ancillary services, such as physical, speech and
occupational therapy. In addition, the Company provides various support and
psychosocial services and bereavement care to families of its patients. The
Company provides services through interdisciplinary teams of professionals and
staff that include physicians, registered nurses, social workers, chaplains and
other counselors, home health aides, psychological and bereavement
professionals, volunteers and homemakers, managing care in various settings,
including the home, long-term care facilities, and inpatient settings with the
goal of making a patient's final stage of life as dignified and comfortable as
possible. In providing these services, the Company manages and assumes clinical
and financial responsibility for all medical, psychosocial care and certain
other support services associated with the patient's terminal illness.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Vitas Healthcare
Corporation and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include currency, checks on hand and overnight
repurchase agreements of government securities.
ACCOUNTS RECEIVABLE
Accounts receivable represent amounts due from patients, third-party payors
(Medicare and Medicaid), and others for services rendered. Approximately 47% and
35% of the accounts receivable at September 30, 1994 and 1995, respectively, are
due in aggregate from the four Medicaid programs in Florida, Illinois, Texas and
California.
F-9
<PAGE> 114
VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MARKETABLE SECURITIES
Marketable securities, which consist of state and local government agency
obligations, are stated at cost, which approximates quoted market value.
Effective October 1, 1994, the Company adopted Statement of Accounting Standards
No. 115, Accounting for Certain Investments in Debt and Equity Securities, which
requires that certain investment securities be recorded at market value with
unrealized gains and losses reported as a separate component of stockholders'
equity. Adoption of Statement No. 115 had no impact on the Company's financial
position.
CHARITY CARE
The Company has a policy of providing charity care to patients who are unable to
pay and maintains records to identify and monitor the level of charity care it
provides. These records include the amount of charges for services provided
which are computed using established rates. Because the Company does not pursue
collection of amounts determined to qualify as charity care, they are not
reported as revenue.
Charity care amounted to $2.4 million, $2.9 million and $3.4 million for the
years ended September 30, 1993, 1994 and 1995, respectively.
NET PATIENT SERVICE REVENUE
Net patient service revenue is reported at the estimated net realizable amounts
from patients, third-party payors (primarily Medicare and Medicaid), and others
for services rendered. Payors may determine that the services provided are not
covered and do not qualify for reimbursement. Management has provided an
estimate for such adjustments. Changes in the estimate will be adjusted in
future periods as final settlements are determined. The percentage of net
patient service revenue derived under the Medicare and Medicaid programs was 93%
in 1993 and 1994, and 92% in 1995.
F-10
<PAGE> 115
VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Intangible assets are comprised primarily of costs in excess of net tangible
assets acquired and deferred costs and are amortized on a straight-line basis
over periods ranging from five to thirty years. Accumulated amortization is $4.2
million at September 30, 1994 and $5.3 million at September 30, 1995.
The carrying value of costs in excess of net tangible assets acquired will be
reviewed if the facts and circumstances suggest that it may be impaired. If this
review indicates that these costs will not be recoverable, as determined based
on the undiscounted cash flows of the entity acquired over the remaining
amortization period, the Company's carrying value will be reduced by the
estimated shortfall of cash flows.
START-UP COSTS
The Company expenses costs incident to the start-up of hospice operations in new
locations as incurred.
PROPERTY AND EQUIPMENT
Property and equipment, including improvements to existing facilities, are
recorded at cost. Amortization of assets recorded under capital lease
obligations is included in depreciation expense. Certain software development
costs are capitalized. Capitalization of software development costs begins upon
the establishment of technological feasibility. Amortization of capitalized
software costs begins when the software is placed into service and is included
in amortization expense.
Depreciation and amortization are calculated principally using the straight-line
method over the estimated useful lives of the assets. Estimated useful lives for
major asset categories are 4 to 5 years for leasehold improvements, 3 to 5 years
for equipment, 5 years for software development costs, and 5 years for office
furniture.
F-11
<PAGE> 116
VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CAPITAL LEASES
Assets and related obligations for equipment under capital leases are initially
recorded at an amount equal to the present value of the future minimum lease
payments using interest rates implicit within the leases. Equipment under
capital leases is amortized over the estimated useful lives of the assets.
(LOSS) EARNINGS PER SHARE
(Loss) earnings per share is computed by dividing net (loss) earnings, after
reduction for dividends on the 9% Preferred Stock and dividends which would have
been payable under the mandatory redemption features of the Series B Preferred
Stock by the weighted average number of common and common equivalent shares
outstanding. Common equivalent shares included in the computation represent
shares issuable upon assumed exercise of stock options and warrants (calculated
using the modified treasury stock method) in years where their assumed exercise
has a dilutive effect. Common stock equivalents are antidilutive in 1993 and
1995. Fully diluted earnings per share are antidilutive for all periods and have
not been presented.
INCOME TAXES
Effective October 1, 1992, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109).
The effects of adoption are described in Note 9.
2. ACQUISITIONS
On February 17, 1995, Vitas Healthcare Corporation of California
(Vitas-California), a wholly owned subsidiary of the Company, acquired
substantially all of the assets and assumed certain liabilities of Community
Hospice Care, Inc. and its affiliated limited partnerships (CHC) which offered
hospice, home health and other related healthcare and support services through
hospice programs in several communities in Southern California. The acquisition
was accounted for as a purchase and the results of operations of CHC have been
included in the consolidated financial statements since the date of acquisition.
F-12
<PAGE> 117
VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS (CONTINUED)
The acquisition cost was approximately $38.9 million, including expenses
associated with the acquisition of approximately $3.6 million. The purchase
price was paid with $23.9 million in cash and the issuance of $11.4 million in
subordinated notes payable due in monthly installments through 1998. Cost in
excess of net assets acquired were approximately $38.3 million and are being
amortized over thirty years.
The following unaudited pro forma information presents a summary of consolidated
results of operations of the Company and CHC as if the acquisition had occurred
at the beginning of 1994 after giving effect to certain pro forma adjustments,
including, among others, adjustments to owner's compensation and amortization of
goodwill, together with related income tax effects. This pro forma financial
information is presented for informational purposes only and may not be
indicative of the results of operations as they would have been if the Company
and CHC had been a single entity during 1994 and 1995, or is it necessarily
indicative of the results of operations which may occur in the future (in
thousands except per share data):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1994 1995
--------- ---------
<S> <C> <C>
Net revenue $ 230,923 $ 254,309
Net income (loss) 3,858 (3,567)
Net loss attributable to common
stockholders (740) (8,165)
Net loss per common share and
common stock equivalent outstanding $ (.17) $ (1.85)
</TABLE>
Effective November 3, 1995, the Company completed the acquisition of
substantially all of the assets and assumed certain liabilities of Hospice of
Miami Valley, Inc., a nonprofit provider of hospice services located near
Cincinnati, Ohio, for approximately $1.8 million in cash plus related
acquisition costs. The acquisition has been accounted for using the purchase
method of accounting. Pro forma results of operations have not been presented
because the effect of this acquisition is not significant.
F-13
<PAGE> 118
VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. REDEEMABLE PREFERRED STOCK
The 9% Preferred Stock has a stated value of $100 per share and accrues
cumulative dividends. The 9% Preferred Stock is nonvoting and mandatorily
redeemable in December 1996 through December 1998 with a portion being redeemed
at a premium of $243,000. Following is the redemption schedule:
<TABLE>
<CAPTION>
MANDATORY NUMBER OF SHARES REDEMPTION PRICE
REDEMPTION DATE TO BE REDEEMED PER SHARE
- ----------------- ---------------- ----------------
<S> <C> <C>
December 31, 1996 81,000 $102
June 30, 1997 40,500 $101
December 31, 1997 40,500 $101
June 30, 1998 54,000 $100
December 31, 1998 54,000 $100
</TABLE>
Cumulative unpaid dividends on the 9% Preferred Stock totaled approximately
$608,000 at September 30, 1994 and 1995.
The Series B Preferred Stock, which is subject to redemption at the option of
the holders in certain circumstances, has a stated value of $100 per share, a
par value of $1 per share and a cumulative dividend preference of 8%. Dividends
may not be paid on the Company's Common Stock prior to the payment of dividends
on the Series B Preferred Stock from the original issue date. However, unless
dividends are paid on the Company's Common Stock, no dividends are payable on
the Series B Preferred Stock unless the Series B Preferred Stock is redeemed.
The carrying amount of the Series B Preferred Stock has been increased for
amounts representing dividends not currently declared or paid, but which would
be payable upon redemption. Costs related to the issuance of the Series B
Preferred Stock totaled approximately $2.1 million.
Shares of Series B Preferred Stock are redeemable (including dividends from the
original issue date not previously paid) at the option of the holder at the
earlier of six months after the redemption in full of the Company's 9% Preferred
Stock or June 30, 1999, but in no event prior to June 30, 1996. The Company has
certain rights to effect the redemption of the Series B Preferred Stock in three
annual installment payments. The Series B Preferred Stock is convertible into
5,526,308 of the Company's Common Stock, or approximately 28% of the Company's
Common Stock on a fully diluted basis subject to adjustment under certain
circumstances. Such conversion may be made at the election of the holder of the
Series B Preferred Stock, and will be mandatory and automatic should the Company
complete a public offering of its Common Stock which meets certain minimum
requirements.
F-14
<PAGE> 119
VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. REDEEMABLE PREFERRED STOCK (CONTINUED)
The Series B Preferred Stock has certain voting rights along with the holders of
the Company's Common Stock. As a result, the holders of the Series B Preferred
Stock are currently entitled to cast that number of votes equal to approximately
28% of the total shares of Common Stock entitled to vote at a meeting of
stockholders. Holders of the Series B Preferred Stock also have the right to
elect two directors of the Company's Board of Directors. Registration rights
were also granted to the purchasers of the Series B Preferred Stock which rights
allow registration of the Common Stock obtained through the conversion of the
Series B Preferred Stock under certain circumstances.
4. STOCK OPTIONS AND WARRANTS
The Company has outstanding two Common Stock purchase warrants covering a total
of 2,556,153 and 1,396,805 shares of Common Stock, respectively, which were
originally issued on December 17, 1991 to the original holder of the 9%
Preferred Stock. The holder of the warrants is entitled to purchase each share
of Common Stock thereunder at an exercise price of approximately $4.55
(approximately $11.6 million total purchase price) and $4.56 per share
(approximately $6.4 million total purchase price), respectively, subject to
various anti-dilution adjustments. The warrants may be exercised at any time,
unless previously repurchased, through December 16, 1999. The warrant for
2,556,153 shares would expire earlier upon the completion of a public offering
of the Company's Common Stock which meets certain minimum requirements.
The Company has granted nonqualified stock options (NQSOs) to purchase the
Company's Common Stock to various employees, officers, directors and consultants
in conjunction with their employment or service with the Company. All NQSOs
expire between five and ten years after the initial grant and are
nontransferable. Proceeds from the issuance of shares under these plans are
included in stockholders' equity.
F-15
<PAGE> 120
VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. STOCK OPTIONS AND WARRANTS (CONTINUED)
On June 30, 1992 and January 24, 1994 the Company adopted the 1992 Management
Equity Incentive Plan (MEIP) and the 1994 MEIP, respectively. These MEIP options
are issued at prices not less than market value at date of grant and generally
become nonforfeitable at 25% per year beginning the year subsequent to the
grant, but currently are not exercisable. At September 30, 1994 and 1995,
3,018,768 and 4,075,601 options, respectively, are vested under these plans.
Transactions under the option plans are as follows:
<TABLE>
<CAPTION>
1992 1994 OPTION PRICE
MEIP MEIP OTHER TOTAL PER SHARE
---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Outstanding at October 1, 1993 1,152,000 -- 3,967,143 5,119,143 $0.09 - $4.75
Granted 118,500 597,000 150,000 865,500 $5.75 - $6.00
Exercised -- -- (50,000) (50,000) $0.09 - $6.00
---------- ---------- ---------- ----------
Outstanding at September 30, 1994 1,270,500 597,000 4,067,143 5,934,643 $0.09 - $6.00
Granted -- 379,000 -- 379,000 $6.00 - $7.00
Exercised -- -- (5,000) (5,000) $ 0.10
Canceled (148,979) (175,500) (150,000) (474,479) $3.90 - $7.00
---------- ---------- ---------- ----------
Outstanding at September 30, 1995 1,121,521 800,500 3,912,143 5,834,164 $ .09 - $7.00
========== ========== ========== ==========
</TABLE>
Included in stock options outstanding are options to purchase 725,000 shares of
Common Stock, exercisable at $.70 per share, which were issued to two of the
Company's executive officers, directors and stockholders. This is a discount
from the fair market value of the Company's shares at the date of grant of
approximately $1.80 per share or $1.3 million. These options are fully vested.
The amount of discount from the fair market value of the Company's shares at the
date of grant charged to expense in fiscal 1993 was $979,000.
At September 30, 1995, the Company had reserved Common Stock for future issuance
under warrant and option agreements and upon conversion of the Series B
Preferred Stock as follows:
<TABLE>
<S> <C>
Stock option plans 5,834,164
Ungranted options under 1992 MEIP and 1994 MEIP 351,979
Common Stock purchase warrants 3,952,958
Conversion of Series B Preferred Stock 5,526,308
----------
Total 15,665,409
==========
</TABLE>
F-16
<PAGE> 121
VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 30,
-------------------------
1994 1995
-------- --------
<S> <C> <C>
Leasehold improvements $ 1,485 $ 2,146
Equipment (including equipment under
capital lease) 12,083 15,906
Software development costs 3,372 4,191
Office furniture 1,994 3,148
-------- --------
18,934 25,391
Less accumulated depreciation and
amortization (6,186) (10,287)
-------- --------
$ 12,748 $ 15,104
======== ========
</TABLE>
6. DEBT
On August 11, 1994, the Company obtained a revolving credit facility of up to
$15.0 million, including a revolving letter of credit sub-facility of up to $2.5
million. In connection with the CHC acquisition described in Note 2, effective
February 17, 1995, the credit agreement was amended and restated to increase the
revolving credit facility from $15 million to $20 million and to provide for a
$25 million term loan facility secured by substantially all of the assets of the
Company. Under the terms of the credit agreement, which was further amended
effective June 30, 1995, the Company is required to meet certain financial and
other covenants, such as minimum net worth requirements and the maintenance of
certain financial ratios.
Pursuant to the terms of the credit agreement, the Company is prohibited from
making dividend payments on its common stock. The revolving credit facility and
term loan are due on October 1, 1996. The Company must pay a fee of 0.5%
annually on the unused portion of the revolving credit facility commitment.
Interest is payable quarterly. Outstanding draws bear interest at the prime rate
plus 1% or at certain LIBOR rates plus 2.5%. At September 30, 1995, the Company
had $4.5 million of outstanding draws against the revolving credit facility.
F-17
<PAGE> 122
VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. DEBT (CONTINUED)
Under the term loan, the Company can select to pay the quarterly interest due
based on the LIBOR rate plus 2.5% or the floating rate plus 1.0%. If on or
before January 31, 1996 the Company does not prepay at least $6.0 million of
principal on the term loan facility, the interest rate on the term loan
increases to LIBOR plus 2.75% or floating rate plus 1.25% through April 30, 1996
and subsequent to that date, to LIBOR plus 3.0% or floating rate plus 1.5%
through maturity.
Debt is as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1994 1995
------- -------
<S> <C> <C>
Term loan. Payments of principal and
interest are due as described above $ -- $25,000
Line of credit -- 4,500
Subordinated note payable, bearing interest at 9% per
annum. Principal and interest payable commencing on
March 31, 1995 as follows: twenty-four monthly
installments of $100,000 each with the unpaid principal
balance plus all accrued and unpaid interest due on
March 31, 1997 -- 5,623
Subordinated note payable, bearing interest at 9% per
annum. Principal and interest payable commencing on
March 31, 1995 as follows: twelve monthly installments
of $75,000 each, followed by twenty-four monthly
installments of $50,000 each with the unpaid principal
balance plus all accrued and unpaid interest due on
March 31, 1998 -- 5,169
Other 120 105
------- -------
120 40,397
Less current portion 110 1,103
------- -------
$ 10 $39,294
======= =======
</TABLE>
F-18
<PAGE> 123
VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. DEBT (CONTINUED)
Scheduled maturities of long-term debt outstanding at September 30, 1995 are
(based on a fiscal year end of September 30): 1996--$1.1 million; 1997--$34.6
million; 1998--$4.7 million.
At September 30, 1995, the Company has outstanding a standby letter of credit
under the line of credit sub-facility of $1.4 million, in favor of the Company's
workers compensation program administrator, which is maintained as security for
the obligation for unpaid claims.
7. CAPITAL LEASE OBLIGATIONS
The Company leases certain of its equipment under capital leases. Obligations
under capital lease agreements are payable as follows (in thousands):
<TABLE>
<CAPTION>
Year ending September 30:
<S> <C>
1996 $1,662
1997 1,268
1998 722
1999 405
------
4,057
Less amounts representing interest (434)
------
$3,623
======
</TABLE>
8. DEFERRED RENT
The Company entered into lease agreements for office space in which monthly
rental payments are deferred for a specific period of time. The resulting
liability for deferred rent of $794,000 and $688,000 at September 30, 1994 and
1995, respectively, represents the difference between the monthly expense
accrued on a straight-line basis from the date of occupancy through the
expiration of the lease terms and the actual payments in accordance with the
lease agreement.
9. INCOME TAXES
Effective October 1, 1992, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by SFAS
109. The cumulative effect of adopting SFAS 109 as of October 1, 1992 was to
increase net income by $259,000.
F-19
<PAGE> 124
VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1994 1995
------ ------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $ 453 $ 374
Prepaid insurance 40 9
------ ------
Total deferred tax liabilities 493 383
Deferred tax assets:
Book over tax amortization 145 50
Deferred compensation amortization 515 515
Accrued expenses 1,012 1,045
Bad debt reserves -- 610
Restructuring reserves -- 1,061
Other -- 45
------ ------
Total deferred tax assets 1,672 3,326
------ ------
Net deferred tax assets $1,179 $2,943
====== ======
</TABLE>
Significant components of the provision (benefit) for income taxes are as
follows (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Current:
Federal $ 174 $ 3,050 $ 522
State 72 479 90
Deferred:
Federal (173) (326) (1,894)
State (27) (53) (306)
------- ------- -------
$ 46 $ 3,150 $(1,588)
======= ======= =======
</TABLE>
F-20
<PAGE> 125
VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (CONTINUED)
The reconciliation of income tax attributable to continuing operations computed
at the U.S. federal statutory tax rates to income tax expense (benefit) is (in
thousands):
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Tax at U.S. statutory rate $ (47) $ 2,819 $(1,508)
State income tax--net of
federal tax benefit 30 278 (160)
Permanent differences 81 33 167
Other items, net (18) 20 (87)
------- ------- -------
$ 46 $ 3,150 $(1,588)
======= ======= =======
</TABLE>
10. EMPLOYEE BENEFIT PLANS
Effective October 1, 1989, the Company formed an Employee Stock Ownership Plan
(ESOP) covering all employees who meet service period requirements. Effective
October 1, 1992, the Company amended the ESOP to exclude certain management
employees from participation. The Company, at its option, may make annual
contributions to the ESOP in the form of Common Stock or cash. On December 17,
1991, the Company and its ESOP acquired 596,648 and 800,000 shares,
respectively, of the outstanding Common Stock of the Company from an individual
who is a director, stockholder, and a former executive officer for approximately
$2.1 million and $2.9 million, respectively. The 596,648 shares of Common Stock
acquired by the Company were restored to the authorized but unissued shares of
Common Stock.
The ESOP initially obtained a loan for approximately $2.9 million from the
Company to acquire its shares. The loan accrued interest at the prime rate plus
2% per annum and was payable in quarterly installments of $47,733, plus accrued
interest. Interest income on this loan totaled $207,000 in 1993 and $254,000 in
1994. On August 11, 1994, the Company refinanced the ESOP loan. Under the terms
of the new agreement, the ESOP trust is directly liable for principal and
interest payments, with the Company serving as guarantor. The Company will make
contributions to the ESOP equal to the required principal and interest payments
on the note. Interest accrues at the prime rate or certain LIBOR rates plus 2%.
Contribution expense related to the ESOP was $406,000 in 1993, $396,000 in 1994
and $669,000 in 1995. The outstanding balance of the ESOP loan was approximately
$1.8 million at September 30, 1995.
F-21
<PAGE> 126
VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. EMPLOYEE BENEFIT PLANS (CONTINUED)
In January 1993, the Company established a voluntary 401(k) savings plan
covering all eligible employees. Contributions made by the Company to the 401(k)
plan are based on a specified percentage of employee contributions. Expense for
the plan totaled $128,000, $180,000 and $234,000 in 1993, 1994 and 1995,
respectively.
During 1993, the Company entered into agreements with certain officers pursuant
to which the Company will provide annual supplemental retirement benefits for
life upon retirement or for ten years upon death. The projected benefit
obligation accrued at September 30, 1994 was $309,000. This program was
terminated during 1995.
11. RELATED PARTY TRANSACTIONS
The Company has engaged in the following transactions with related parties:
- At September 30, 1994 and 1995, notes receivable from stockholders,
employees and officers were approximately $394,000 and $121,500,
respectively. The notes bear interest ranging from five to nine percent
and are due through October 1997.
- In conjunction with the issuance of the Series B Preferred Stock, the
Board of Directors of the Company voted to terminate a previously
adopted performance bonus arrangement with two of the Company's
executive officers who are also significant stockholders and directors.
Pursuant to the termination of the performance bonus arrangement, the
Company forgave the principal and interest of two notes due from these
individuals and paid certain bonuses to these individuals to cover the
income tax consequences of the forgiveness of these amounts. The
termination of the performance bonus arrangement together with the
forgiveness of certain other notes and the related bonus to cover
income tax consequences totaled $4.7 million which is reported as
officers' loans forgiven in 1993.
- In June 1993, the Company acquired and subsequently retired 1,302,079
shares of the outstanding Common Stock of the Company from two of its
principal stockholders, executive officers and directors for
approximately $8.2 million.
F-22
<PAGE> 127
VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. RELATED PARTY TRANSACTIONS (CONTINUED)
- During 1992, the Company entered into employment and noncompete
agreements with two principal stockholders, executive officers and
directors. In June of 1993, the noncompete agreements were amended to
reduce the payments due thereunder from $3.5 million to $2.1 million,
such amount to be paid over the next five years in exchange for
agreements not to compete with the Company for a period of six years.
An additional amendment effective January 1, 1995 reduced the future
payments to a total of $462,000. The agreements will expire in June
1999. Payments made under the noncompete agreements totaled $375,000 in
1994 and $135,000 in 1995. At September 30, 1994 and 1995, $604,000 and
$520,000, respectively, of previously paid noncompete payments are
being deferred over future periods.
12. RESTRUCTURING COSTS
During the third quarter of 1995, as a result of the Company's review of its
operating strategies and in order to improve competitiveness and future
profitability, the Company recorded a restructuring charge of $2.0 million in
connection with the establishment of a severance reserve.
F-23
<PAGE> 128
VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES
The Company contracts with various healthcare providers for inpatient services
for its patients. In most cases, the Company is charged for inpatient services
at negotiated rates determined on a per diem basis. In some instances, the
Company leases or makes arrangements for the use of the space and operates
inpatient units using its own employees. These lease costs are included in
hospice program costs in the accompanying financial statements. The Company also
leases office space at its various locations.
Total rental expense was approximately $4.0 million, $4.1 million and $5.7
million for the years ended September 30, 1993, 1994 and 1995, respectively.
Future minimum rental commitments under noncancelable operating leases for the
years subsequent to September 30, 1995 are as follows (in thousands):
<TABLE>
<S> <C>
1996 $ 3,980
1997 3,159
1998 2,321
1999 2,101
2000 698
-------
$12,259
=======
</TABLE>
Effective July 1, 1992, for its Florida locations, and July 1, 1993, for its
remaining locations, the Company became self-insured for workers compensation
insurance coverages. The Company records an accrual for the self-insured portion
of these costs and maintains certain per occurrence and aggregate stop-loss
insurance for this self-insured program.
In May 1995, President Clinton announced a coordinated effort by federal and
state agencies, named Operation Restore Trust (ORT), to review industry
practices and regulatory compliance of home health agencies, nursing homes, and
certain durable medical equipment suppliers. This initiative was targeted to
California, Florida, Illinois, Texas, and New York, the five states in which
Medicare spending is the highest. In June 1995, federal officials announced
their intention to conduct a review as part of ORT in these five states of
hospice eligibility issues, based upon a study by the Office of Inspector
General (OIG) of the Department of Health and Human Services which involved two
Puerto Rico hospices unrelated to the Company in which the OIG found a
substantial number of patients not eligible for the Medicare hospice benefit.
F-24
<PAGE> 129
VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company operates in four of the five ORT states. As a part of its review of
hospices under ORT, the OIG has conducted an audit at various of the Company's
hospice programs and at the Company's corporate offices. Based upon public
information, the Company understands that the OIG's audit of the hospice
industry is planned to continue at least through the end of fiscal year 1996.
The OIG's review of hospices under ORT is ongoing, and no formal reports have
been issued by the OIG on the outcome of the audit of Company locations. Based
upon recent public comments made by representatives of the OIG, it appears that
the OIG may be of the view that general hospice industry practices regarding
documentation of eligibility for the Medicare hospice benefit, particularly
those relative to long stay patients (those who are in a hospice program for
longer than 210 days), do not meet the OIG's interpretation of applicable
Medicare requirements. The Company strongly disagrees with this view and based
upon advice from outside regulatory counsel believes, among other things, that
it meets applicable Medicare eligibility documentation requirements in all
material respects. Due to the early stage of the OIG's hospice audit activities,
however, the ultimate disposition of this audit and its possible impact on the
Company cannot currently be predicted.
F-25
<PAGE> 130
THIS PAGE INTENTIONALLY
LEFT BLANK
<PAGE> 131
VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1996 1995
----------- -------------
(Unaudited) (Note 1)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 2,396 $ 4,545
Accounts receivable from patient services, net 26,683 30,576
Income tax receivable 465 1,322
Deferred taxes--current 1,832 1,997
Other current assets 2,862 2,295
------- -------
Total current assets 34,238 40,735
Property and equipment, net 15,470 15,104
Intangible assets, net 42,034 39,405
Other assets 2,686 2,763
------- -------
Total assets $94,428 $98,007
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
F-27
<PAGE> 132
VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1996 1995
----------- -------------
(Unaudited) (Note 1)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 15,590 $ 18,877
Accrued compensation 7,482 5,168
Other accrued expenses 4,540 6,740
Current portion of long-term debt and capital lease obligations 33,958 2,536
-------- --------
Total current liabilities 61,570 33,321
Long-term debt and line of credit 9,024 39,294
Other long-term liabilities 1,596 2,544
Guarantee of Employee Stock Ownership Plan loan 1,435 1,792
Redeemable preferred stock:
Redeemable preferred stock, $100 stated value,
$1 par value
Authorized shares--4,500,000
Issued and outstanding shares:
9% Preferred Stock, cumulative, nonconvertible,
redeemable--270,000 shares; liquidation preference equal
to stated value per share plus all accrued and unpaid
dividends 27,308 27,257
Series B--convertible, redeemable--262,500 shares;
liquidation preference equal to stated value per share plus
a dividend preference amount of 8% per annum from date
of issuance less any dividends paid 32,641 31,066
Stockholders' deficit:
Common Stock, $.001 par value:
Authorized shares--40,000,000
Issued and outstanding shares--4,408,842 in 1996
and 4,401,842 in 1995 4 4
Additional paid-in capital (30,644) (29,047)
Indebtedness of Employee Stock Ownership Plan (1,435) (1,792)
Accumulated deficit (7,071) (6,432)
-------- --------
Total stockholders' deficit (39,146) (37,267)
-------- --------
Total liabilities and stockholders' equity $ 94,428 $ 98,007
======== ========
</TABLE>
Note: The balance sheet at September 30, 1995 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
F-28
<PAGE> 133
VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTERS ENDED JUNE 30, NINE MONTHS ENDED JUNE 30,
-------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net patient service revenue $ 61,995 $ 64,440 $ 191,514 $ 165,815
Operating expenses:
Direct hospice care costs 40,988 42,595 125,600 105,292
General and administrative 18,327 20,544 55,768 54,544
Provision for doubtful accounts, net
of recoveries 1,333 1,945 4,035 4,971
Amortization of intangible assets 644 579 1,930 1,263
Restructuring costs -- 2,020 -- 2,020
----------- ----------- ----------- -----------
61,292 67,683 187,333 168,090
----------- ----------- ----------- -----------
Income (loss) from operations 703 (3,243) 4,181 (2,275)
Interest expense, net of interest income 1,013 1,146 3,094 1,643
----------- ----------- ----------- -----------
Income (loss) before provision for
income taxes (310) (4,389) 1,087 (3,918)
Provision for income taxes (benefit) (140) (1,572) 489 (1,403)
----------- ----------- ----------- -----------
Net income (loss) $ (170) $ (2,817) $ 598 $ (2,515)
=========== =========== =========== ===========
Net loss attributable to common
stockholders $ (1,320) $ (3,967) $ (2,852) $ (5,965)
=========== =========== =========== ===========
Net loss per common share $ (.30) $ (.90) $ (.65) $ (1.36)
=========== =========== =========== ===========
Weighted average number of shares of
common stock outstanding 4,408,842 4,401,842 4,406,397 4,401,842
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
F-29
<PAGE> 134
VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
----------------------
1996 1995
-------- --------
<S> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 6,859 $(13,772)
INVESTING ACTIVITIES
Purchase of property and equipment, net (4,336) (4,175)
Assets of business acquired (2,910) (23,514)
Sale of investments -- 8,077
Increase in intangible assets (844) --
Increase (decrease) in other assets 77 (1,300)
Decrease in indebtedness of Employee Stock
Ownership Plan 357 356
-------- --------
Net cash used in investing activities (7,656) (20,556)
FINANCING ACTIVITIES
Proceeds from long-term debt and line of credit 2,751 32,984
Principal payments on long-term debt and capital lease
obligations (2,538) (1,212)
Dividends on 9% Preferred Stock (1,215) (1,215)
Proceeds from exercise of stock options and related
income tax benefits, net 7 (17)
Proceeds ESOP contributions (357) (356)
-------- --------
Net cash (used in) provided by financing activities (1,352) 30,184
-------- --------
Net decrease in cash 2,149 (4,144)
Cash and cash equivalents, beginning of period 4,545 5,715
-------- --------
Cash and cash equivalents, end of period $ 2,396 $ 1,571
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
F-30
<PAGE> 135
VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three- and nine-month periods ended
June 30, 1996 are not necessarily indicative of the results that may be expected
for the year ended September 30, 1996. For further information, refer to the
Company's consolidated financial statements and footnotes thereto for the year
ended September 30, 1995.
The condensed consolidated financial statements include the accounts of Vitas
Healthcare Corporation and its subsidiaries (the Company). All significant
intercompany accounts and transactions have been eliminated in consolidation.
2. CHANGE IN OWNERSHIP
On June 6, 1996 the Company signed a letter of intent to merge with a subsidiary
of Apria Healthcare Group Inc. in a transaction to be accounted for as a pooling
of interests. This transaction is expected to be consummated by September 30,
1996.
3. ACQUISITIONS
On February 17, 1995, Vitas Healthcare Corporation of California
(Vitas-California), a wholly owned subsidiary of the Company, acquired
substantially all of the assets and assumed certain liabilities of Community
Hospice Care, Inc. and its affiliated limited partnerships (CHC) which offered
hospice, home health and other related healthcare and support services through
hospice programs in several communities in Southern California. The acquisition
was accounted for as a purchase and the results of operations of CHC have been
included in the consolidated financial statements since the date of acquisition.
F-31
<PAGE> 136
VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS (CONTINUED)
On November 3, 1995, the Company acquired substantially all of the assets and
assumed certain liabilities of the Hospice of the Miami Valley Inc. (HMV) for
approximately $2.8 million, including expenses associated with the acquisition
of approximately $1.0 million. The acquisition was accounted for as a purchases
and the results of operations of HMV have been included in the consolidated
financial statements since the date of acquisition. Pro forma results of
operations of HMV have not been presented because the effect of the acquisition
is not significant.
On August 8, 1996, the Company acquired substantially all of the assets and
assumed certain liabilities of Hospice of Central Florida, Inc. (HCF) for
approximately $4.75 million.
The following unaudited pro forma information presents a summary of consolidated
results of operations of the Company, CHC and HCF, assuming the acquisitions had
occurred on October 1, 1994 and after giving effect to certain pro forma
adjustments, including, among others, adjustments to owner's compensation and
amortization of goodwill, together with related income tax effects (in thousands
except per share data):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
--------------------------
1995 1996
-------- --------
<S> <C> <C>
Net revenue $197,078 $199,629
Net income (loss) $ (3,068) $ 759
Net loss attributable to common
stockholders $ (6,517) $ (2,690)
Net loss per common share $ (1.48) $ (.61)
</TABLE>
F-32
<PAGE> 137
VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES
Income taxes have been provided at the effective tax rate expected for the year.
The Company's effective tax rate differs from statutory rates primarily as a
result of certain costs which are not deductible for income tax purposes and
state income taxes, net of federal benefit.
5. CONTINGENCIES
In May 1995, President Clinton announced a coordinated effort by federal and
state agencies, named Operation Restore Trust (ORT), to review industry
practices and regulatory compliance of home health agencies, nursing homes, and
certain durable medical equipment suppliers. This initiative was targeted to
California, Florida, Illinois, Texas, and New York, the five states in which
Medicare spending is the highest. In June 1995, federal officials announced
their intention to conduct a review as part of ORT in these five states of
hospice eligibility issues, based upon a study by the Office of Inspector
General (OIG) of the Department of Health and Human Services which involved two
Puerto Rico hospices unrelated to the Company in which the OIG found a
substantial number of patients not eligible for the Medicare hospice benefit.
The Company operates in four of the five ORT states. As a part of its review of
hospices under ORT, the OIG has conducted an audit at various of the Company's
hospice programs and at the Company's corporate offices. Based upon public
information, the Company understands that the OIG's audit of the hospice
industry is planned to continue at least through the end of fiscal year 1997.
The OIG's review of hospices under ORT is ongoing, and no formal reports have
been issued by the OIG on the outcome of the audit of Company locations. Based
upon recent public comments made by representatives of the OIG, it appears that
the OIG may be of the view that general hospice industry practices regarding
documentation of eligibility for the Medicare hospice benefit, particularly
those relative to long stay patients (those who are in a hospice program for
longer than 210 days), do not meet the OIG's interpretation of applicable
Medicare requirements. The Company strongly disagrees with this view and
believes, based upon advice from outside regulatory counsel, among other things,
that it meets applicable Medicare eligibility documentation requirements in all
material respects. Due to the early stage of the OIG's hospice audit activities,
however, the ultimate disposition of this audit and its possible impact on the
Company cannot currently be predicted.
6. BANK DEBT MATURITY
Subsequent to the quarter ended March 31, 1996, Vitas' results of
operations have been adversely affected by a number of factors, including the
disruption to operations resulting from the proposed Merger. Due to such
factors, management of Vitas believes that Vitas' results of operations will be
increasingly adversely affected in the months leading up to the closing of the
Merger. By letter dated August 5, 1996, Vitas' bank lender amended, effective as
of April 1, 1996, certain covenants in Vitas' bank loan agreement relating to
Vitas' consolidated interest coverage ratio and consolidated fixed charge ratio.
Such amendments are effective through September 29, 1996. As a result of such
amendments, Vitas continued to be in compliance with such covenants as of June
30, 1996. However, given Vitas' recent operating results and Vitas' expectations
that its results of operations will be increasingly adversely affected pending
the Merger, Vitas believes it would no longer be in compliance with such
covenants if such covenants were calculated as of the date hereof. There is no
assurance that Vitas' bank lender will agree to further amendments or waivers to
such financial covenants or other terms of Vitas' bank credit agreements.
However, Vitas believes, based on discussions with its bank lender, that pending
the Merger the bank will not declare an event of default with respect to such
debt or take any other action under the bank loan agreement, although there is
no assurance that this will be the case. All bank debt is classified as a
current liability in the June 30, 1996 Condensed Consolidated Balance Sheet.
F-33
<PAGE> 138
APPENDIX A
[MERGER AGREEMENT]
A-1
<PAGE> 139
EXHIBIT 2
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF JUNE 28, 1996
AMONG
APRIA HEALTHCARE GROUP INC.,
APRIA NUMBER TWO, INC.
AND
VITAS HEALTHCARE CORPORATION
- --------------------------------------------------------------------------------
<PAGE> 140
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
ARTICLE I
THE MERGER
1.1 The Merger....................................................................... 1
1.2 Closing.......................................................................... 1
1.3 Effective Time................................................................... 1
1.4 Effects of the Merger............................................................ 2
1.5 Certificate of Incorporation and Bylaws.......................................... 2
1.5.1 Certificate of Incorporation............................................ 2
1.5.2 Bylaws.................................................................. 2
1.6 Directors........................................................................ 2
1.7 Officers......................................................................... 2
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES;
PURCHASE OF 9% PREFERRED
2.1 Effect on Capital Stock.......................................................... 2
2.1.1 Capital Stock of Sub.................................................... 2
2.1.2 Cancellation of Treasury Stock and Apria Owned Stock.................... 2
2.1.3 Conversion of Vitas Common Stock........................................ 2
2.1.4 9% Preferred............................................................ 3
2.1.5 Series B Preferred...................................................... 3
2.1.6 Warrants................................................................ 3
2.1.7 Stock Options........................................................... 3
2.1.8 Exchange Ratio.......................................................... 3
2.1.9 Collar Adjustment....................................................... 4
2.1.10 Debt Adjustment......................................................... 4
2.1.11 Certain Apria Adjustments............................................... 4
2.1.12 Cancellation of Stock, Warrants and Stock Options....................... 5
2.2 Exchange of Certificates......................................................... 5
2.2.1 Exchange Agent.......................................................... 5
2.2.2 Exchange Procedure...................................................... 5
2.2.3 Distributions with Respect to Unexchanged Common Shares................. 6
2.2.4 No Further Ownership Rights in Vitas Stock.............................. 6
2.2.5 No Fractional Shares.................................................... 6
2.2.6 Termination of Exchange Fund and Trust ................................. 7
2.2.7 No Liability............................................................ 7
2.2.8 Withholding Rights...................................................... 7
2.2.9 Investment of Exchange Fund and Trust................................... 7
2.2.10 Lost Certificates....................................................... 7
2.3 Dissenters' Rights............................................................... 8
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Vitas.......................................... 8
3.1.1 Organization, Standing and Corporate Power.............................. 8
3.1.2 Subsidiaries............................................................ 8
3.1.3 Capital Structure....................................................... 8
3.1.4 Authority; Noncontravention............................................. 9
3.1.5 Financial Statements; Changes; Contingencies............................ 10
3.1.6 Information Supplied.................................................... 11
3.1.7 Litigation; Administrative Proceedings ................................. 11
3.1.8 Taxes................................................................... 12
3.1.9 Employee Benefits....................................................... 12
3.1.10 Qualified Plans......................................................... 13
3.1.11 Title IV Plans.......................................................... 14
3.1.12 Multiemployer Plans..................................................... 14
3.1.13 No Excess Parachute Payments............................................ 14
3.1.14 Compliance with Applicable Laws......................................... 14
3.1.15 State Takeover Statutes................................................. 16
3.1.16 Brokers................................................................. 16
3.1.17 Opinion of Financial Advisor............................................ 16
3.1.18 Contracts............................................................... 16
3.1.19 Title to Properties..................................................... 18
3.1.20 Accounting Matters...................................................... 18
3.1.21 Voting Requirements..................................................... 18
3.1.22 Noncompetition.......................................................... 18
3.1.23 Intellectual Property................................................... 18
3.1.24 CHAMPUS, Medicare and Medicaid.......................................... 19
3.1.25 Minute Books............................................................ 19
3.1.26 Accounting Records; Internal Controls................................... 19
3.1.27 Insurance............................................................... 19
3.1.28 Dividends and Other Distributions....................................... 20
3.1.29 Certain Interests....................................................... 20
3.1.30 Bank Accounts, Powers, etc.............................................. 20
3.1.31 Supplies................................................................ 20
3.1.32 Suppliers............................................................... 20
3.1.33 Disclosure.............................................................. 20
3.2 Representations and Warranties of Apria and Sub ................................. 20
3.2.1 Organization, Standing and Corporate Power.............................. 20
3.2.2 Capital Structure....................................................... 21
3.2.3 Authority; Noncontravention............................................. 21
3.2.4 SEC Documents; Financial Statements..................................... 22
3.2.5 Information Supplied.................................................... 22
3.2.6 Absence of Certain Changes or Events.................................... 23
3.2.7 Litigation; Administrative Proceedings ................................. 23
3.2.8 Compliance with Applicable Laws......................................... 23
3.2.9 Brokers................................................................. 23
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3.2.10 Opinion of Financial Advisor............................................ 24
3.2.11 Contracts; Debt Instruments............................................. 24
3.2.12 Accounting Matters...................................................... 24
3.2.13 Interim Operations of Sub............................................... 24
3.2.14 Disclosure.............................................................. 24
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 Conduct of Business; Actions..................................................... 24
4.1.1 Conduct of Business by Vitas............................................ 24
4.1.2 Actions by Apria........................................................ 26
4.1.3 Other Actions........................................................... 27
4.2 No Solicitation.................................................................. 27
4.2.1 Competing Proposal...................................................... 27
4.2.2 Acceptance of Competing Proposal........................................ 28
4.2.3 Notice of Inquiry....................................................... 28
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Preparation of Form S-4 and Proxy Statement; Vitas Stockholders' Meeting......... 28
5.1.1 Proxy Statement......................................................... 28
5.1.2 Vitas Stockholders' Meeting............................................. 29
5.2 Access to Information; Confidentiality........................................... 29
5.3 Reasonable Efforts; Notification; Cooperation.................................... 29
5.3.1 Actions to be Taken..................................................... 29
5.3.2 Notice of Change........................................................ 29
5.3.3 Cooperation; Best Efforts............................................... 30
5.4 Stock Option Plans............................................................... 30
5.4.1 Exchange of Stock Options............................................... 30
5.4.2 Additional Limitations.................................................. 30
5.4.3 Termination of Plans.................................................... 30
5.4.4 Withholding Arrangements................................................ 31
5.4.5 Necessary Actions....................................................... 31
5.5 Voting Directions By ESOP Participants........................................... 31
5.6 Indemnification and Insurance.................................................... 31
5.6.1 Certificate of Incorporation............................................ 31
5.6.2 Liability Insurance..................................................... 31
5.6.3 Assumption of Obligations............................................... 31
5.6.4 Survival................................................................ 31
5.7 Letters of Accountants........................................................... 32
5.7.1 Apria Comfort Letter.................................................... 32
5.7.2 Vitas Comfort Letter.................................................... 32
5.8 Fees and Expenses................................................................ 32
5.9 Public Announcements............................................................. 32
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5.10 Affiliates; Accounting and Tax Treatment......................................... 32
5.10.1 Vitas Affiliates........................................................ 32
5.10.2 Pooling of Interests.................................................... 32
5.10.3 Combined Results........................................................ 33
5.11 Conveyance Taxes................................................................. 33
5.12 Vitas Notes; ESOP Loan Waiver.................................................... 33
5.13 Vitas' Board Composition......................................................... 33
5.14 Consulting, Severance and Noncompete Agreements.................................. 33
5.15 Repayment of Affiliate Receivables............................................... 33
5.16 Purchase of 9% Preferred......................................................... 33
5.17 Employee Benefits, Employment.................................................... 34
5.17.1 Benefit Plans........................................................... 34
5.17.2 Vacation Pay............................................................ 34
5.17.3 Further Actions......................................................... 34
5.17.4 No Third Party Rights................................................... 34
5.18 Review of Vitas Disclosure Schedule.............................................. 34
5.19 Employment Severance Agreements.................................................. 34
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligations to Effect the Merger...................... 35
6.1.1 Stockholder Approval.................................................... 35
6.1.2 NYSE Listing............................................................ 35
6.1.3 No Injunctions or Restraints............................................ 35
6.1.4 Form S-4................................................................ 35
6.1.5 HSR Act................................................................. 35
6.1.6 Approvals............................................................... 35
6.2 Additional Conditions to Obligations of Apria and Sub............................ 35
6.2.1 Representations and Warranties.......................................... 35
6.2.2 Agreements and Covenants................................................ 36
6.2.3 Consents Under Agreements............................................... 36
6.2.4 Resignation of Directors................................................ 36
6.2.5 Pooling Letter.......................................................... 36
6.2.6 Affiliate Agreements.................................................... 36
6.2.7 Sale of 9% Preferred; Exchange of Warrants.............................. 36
6.2.8 Conversion of Series B Preferred........................................ 36
6.2.9 Significant Securityholders Agreement................................... 36
6.2.10 Appraisal Rights........................................................ 37
6.2.11 Termination of Agreements............................................... 37
6.2.12 Approval of Severance Agreement......................................... 37
6.2.13 Exercise of Stock Options and Warrants.................................. 37
6.2.14 Opinions of Counsel to Vitas............................................ 37
6.3 Additional Conditions to Obligations of Vitas.................................... 37
6.3.1 Representations and Warranties.......................................... 37
6.3.2 Agreements and Covenants................................................ 37
6.3.3 Pooling Letter.......................................................... 37
6.3.4 Opinion of Counsel to Apria............................................. 37
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ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination by Mutual Consent.................................................... 38
7.2 Termination by Either Apria or Vitas............................................. 38
7.3 Termination by Apria............................................................. 38
7.4 Termination by Vitas............................................................. 38
7.5 Effect of Termination............................................................ 38
7.6 Amendment........................................................................ 39
7.7 Extension; Waiver................................................................ 39
7.8 Termination Fees and Expenses.................................................... 39
7.8.1 Payments by Vitas....................................................... 39
7.8.2 Payments by Apria....................................................... 39
ARTICLE VIII
GENERAL PROVISIONS
8.1 Survival of Representations and Warranties....................................... 39
8.2 Notices.......................................................................... 40
8.3 Definitions...................................................................... 40
8.4 Interpretation................................................................... 41
8.5 Counterparts..................................................................... 41
8.6 Entire Agreement; No Third-Party Beneficiaries................................... 41
8.7 Governing Law.................................................................... 41
8.8 Assignment....................................................................... 41
8.9 Enforcement...................................................................... 41
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") is dated as of June
28, 1996 by and among APRIA HEALTHCARE GROUP INC., a Delaware corporation
("APRIA"), APRIA NUMBER TWO, INC., a Delaware corporation and a direct
wholly-owned subsidiary of Apria ("SUB"), and VITAS HEALTHCARE CORPORATION, a
Delaware corporation ("VITAS").
BACKGROUND
A. The respective Boards of Directors of Apria, Sub and Vitas have
approved the merger of Sub with and into Vitas (the "MERGER"), upon the terms
and subject to the conditions set forth in this Agreement and in accordance with
the General Corporation Law of the State of Delaware (the "DGCL").
B. The Merger requires the Vitas Stockholder Approval as defined in
Subsection 3.1.21.
C. Apria, Sub and Vitas desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger.
D. For accounting purposes, the parties hereto intend that the Merger will
be accounted for as a "pooling-of-interests."
E. Concurrently with the execution and delivery of this Agreement and as
an inducement to Apria to enter into this Agreement, certain securityholders of
Vitas (the "SIGNIFICANT SECURITYHOLDERS"), have entered into an agreement with
Apria (the "SIGNIFICANT SECURITYHOLDERS AGREEMENT") pursuant to which the
Significant Securityholders have, among other things, agreed (i) to vote their
shares of Vitas Common Stock (as hereinafter defined) and other securities in
favor of the Merger, (ii) to sign and deliver to Apria affiliate letters
substantially in the form contemplated by this Agreement and (iii) to take
certain other actions as provided therein.
AGREEMENT
In consideration of the representations, warranties, covenants and
agreements contained in this Agreement, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the DGCL, Sub will be merged with and
into Vitas at the Effective Time (as hereinafter defined). Following the Merger,
the separate corporate existence of Sub will cease and Vitas will continue as
the surviving corporation (the "SURVIVING CORPORATION") and will succeed to and
assume all the rights and obligations of Vitas and of Sub in accordance with the
DGCL.
1.2 CLOSING. The closing under this Agreement will take place at 10:00
a.m. on a date to be specified by the parties, which shall be no later than the
second business day after satisfaction or waiver of the conditions set forth in
Article VI (the "CLOSING DATE"), at the offices of O'Melveny & Myers LLP, 555
13th Street, N.W., Washington, DC 20004-1109 unless another time, date or place
is agreed to in writing by the parties hereto or unless this Agreement has been
terminated in accordance with its terms.
1.3 EFFECTIVE TIME. Subject to the provisions of this Agreement, as soon
as practicable on or after the Closing Date, the parties will file a certificate
of merger or other appropriate documents (in any such case, the "CERTIFICATE OF
MERGER") executed in accordance with the relevant provisions of the DGCL and
will make all other filings or recordings required under the DGCL. The Merger
will become effective at such time as the Certificate of Merger is duly filed
with the Delaware Secretary of State, or at such later time as Sub and Vitas
specify in the Certificate of Merger (the close of business on such date of
filing, or such later date as may be set forth therein, being the "EFFECTIVE
TIME").
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1.4 EFFECTS OF THE MERGER. The Merger will have the effects set forth in
Section 259 of the DGCL.
1.5 CERTIFICATE OF INCORPORATION AND BYLAWS.
1.5.1 CERTIFICATE OF INCORPORATION. The certificate of incorporation
of Sub as in effect at the Effective Time (the "CERTIFICATE OF
INCORPORATION"), together with a Certificate of Designation, Preferences
and Other Rights of a 9% Cumulative Nonconvertible Preferred Stock and of a
Series B Convertible Preferred Stock (in each case, having the same powers,
preferences and relative participating, optional or other special rights
and the qualifications, limitations or restrictions thereon, that the 9%
Preferred (as defined below) and the Series B Preferred (as defined below)
have as of the date of this Agreement), will be the Certificate of
Incorporation of the Surviving Corporation (except that such Certificate of
Incorporation will be amended at the Effective Time to provide that the
name of the Surviving Corporation will be "Vitas Healthcare Corporation"),
until thereafter amended as provided therein or by applicable law.
1.5.2 BYLAWS. The bylaws of Sub as in effect at the Effective Time
(the "BYLAWS") will be the Bylaws of the Surviving Corporation, until
thereafter amended as provided therein or by applicable law.
1.6 DIRECTORS. The sole director of Sub at the Effective Time will be the
sole director of the Surviving Corporation, until the earlier of his resignation
or removal or until his successor is duly elected and qualified, as the case may
be.
1.7 OFFICERS. The officers of Vitas immediately prior to the Effective
Time will become the officers of the Surviving Corporation, until the earlier of
their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be.
1.8 ADDITIONAL ACTIONS. If, at any time after the Effective Time, the
Surviving Corporation determines or is advised that any deeds, bills of sale,
assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of Sub or Vitas or otherwise to carry out this Agreement,
the officers and directors of the Surviving Corporation will have the power and
authority to execute and deliver, in the name and on behalf of Sub or Vitas, all
such deeds, bills of sale, assignments and assurances and to take and do, in the
name and on behalf of Sub or Vitas, all such other actions and things as may be
necessary or desirable to vest, perfect or confirm any and all right, title and
interest in, to and under such rights, properties or assets in the Surviving
Corporation or otherwise to carry out this Agreement so long as such actions and
things are consistent with the terms of this Agreement and the Certificate of
Merger.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES;
PURCHASE OF 9% PREFERRED
2.1 EFFECT ON CAPITAL STOCK. At the Effective Time, the equity securities
of Sub and Vitas will be converted as follows:
2.1.1 CAPITAL STOCK OF SUB. Each share of the capital stock of Sub
issued and outstanding immediately prior to the Effective Time will be
converted into and exchanged for one fully paid and nonassessable share of
common stock of the Surviving Corporation.
2.1.2 CANCELLATION OF TREASURY STOCK AND APRIA OWNED STOCK. Each
share of Vitas Common Stock (as defined in Subsection 3.1.3) that is owned
by Vitas or by any subsidiary of Vitas and each share of Vitas Common Stock
that is owned by Apria, Sub or any other subsidiary of Apria immediately
prior to the Effective Time will automatically be cancelled and retired
without any conversion thereof and no consideration will be delivered with
respect thereto.
2.1.3 CONVERSION OF VITAS COMMON STOCK. Each share of Vitas Common
Stock issued and outstanding as of the Effective Time other than shares to
be cancelled in accordance with Subsection
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2.1.2 and shares held by stockholders ("DISSENTING STOCKHOLDERS") who have
delivered a written demand and who have otherwise duly exercised appraisal
rights under, and duly satisfied the other requirements of, Section 262 of
the DGCL ("DISSENTERS SHARES"), will be converted into the right to receive
a number of shares of Apria Common Stock equal to the Exchange Ratio (as
defined below).
2.1.4 9% PREFERRED. Each share of 9.0% Cumulative Nonconvertible
Preferred Stock of Vitas (the "9% PREFERRED") whose rights, preferences and
privileges are designated under the Certificate of Designation, Preferences
and Other Rights of the 9.0% Preferred, as amended (the "9% PREFERRED
CERTIFICATE" and collectively with the Series B Preferred Certificate (as
defined below), the "PREFERRED STOCK CERTIFICATES"), will remain
outstanding, and, upon surrender of the certificate representing the 9%
Preferred, will be purchased by Apria as provided in Section 5.16 and in
the Significant Securityholders Agreement.
2.1.5 SERIES B PREFERRED. Each share of Series B Convertible
Preferred Stock of Vitas (the "SERIES B PREFERRED") whose rights,
preferences and privileges are designated under the Certificate of
Designation, Preferences and Other Rights of the Series B Preferred, as
amended (the "SERIES B PREFERRED CERTIFICATE"), issued and outstanding as
of the Effective Time, together with all associated rights, preferences and
restrictions set forth in the Stockholders' Agreement dated June 4, 1993
among Vitas and the parties named therein (the "STOCKHOLDERS' AGREEMENT"),
will, in accordance with the provisions of Subsection 6.2.8 and the
Significant Securityholders Agreement, first be converted into a number of
shares of Vitas Common Stock issuable upon conversion of such share of
Series B Preferred and will then be converted into the right to receive a
number of shares of Apria Common Stock equal to the Exchange Ratio
multiplied by the number of shares of Vitas Common Stock so issued.
2.1.6 WARRANTS. Each of the stock purchase warrants issued by Vitas
on December 17, 1991 and designated Warrant A and Warrant B to purchase an
aggregate of 3,952,958 shares of Vitas Common Stock (collectively, the
"WARRANTS"), and all associated rights, preferences and restrictions set
forth in the Investors Agreement dated December 17, 1991 among Vitas and
the parties named therein (the "INVESTOR AGREEMENT"), will, in accordance
with the provisions of the Significant Securityholders Agreement, be
exchanged for a number of shares of Apria Common Stock equal to the
quotient obtained by dividing (i) $9.32 less the sum of (A) any Excess Per
Share Debt Amount (as defined below) and (B) the exercise price per share
of Vitas Common Stock issuable upon exercise of the Warrant by (ii) $32.125
(such quotient referred to herein as "WARRANT SPREAD VALUE EXCHANGE RATIO")
times the number of shares of Vitas Common Stock covered by such Warrant,
subject to any adjustments which may be called for by the next two
sentences. If the Market Price (as defined below) is less than $27.125, the
Warrant Spread Value Exchange Ratio will be multiplied by a fraction of
which the numerator will be the Market Price Decline Numerator (as defined
below) and the denominator will be the Market Price (as defined below). If
the Market Price is more than $37.125, the Warrant Spread Value Exchange
Ratio will be multiplied by a fraction of which the numerator will be the
Market Price Increase Numerator (as defined below) and the denominator will
be the Market Price.
2.1.7 STOCK OPTIONS. If any Stock Option (as defined below)
outstanding immediately prior to the Effective Time has not been exercised
in accordance with its terms, it will be exchanged for the right to receive
shares of Apria Common Stock as provided in Subsection 5.4.1 upon surrender
of the stock option agreement applicable thereto (the "STOCK OPTION
AGREEMENT"), unless the holder objects in writing to such exchange, in
which case the Stock Option will terminate in accordance with its terms.
2.1.8 EXCHANGE RATIO. The Exchange Ratio shall be (i) initially
0.290, subject to the adjustments (if any) contemplated by Subsection
2.1.11 (as so adjusted, the "INITIAL EXCHANGE RATIO"), and further subject
to any Collar Adjustment as set forth in Subsection 2.1.9 if no Debt
Adjustment as set forth in Subsection 2.1.10 is deemed to occur or (ii) the
Recalculated Exchange Ratio (as defined in Subsection 2.1.10), subject to
the adjustments (if any) contemplated by Subsection 2.1.11, and further
subject to any Collar Adjustment as set forth in Subsection 2.1.9 if a Debt
Adjustment as set forth in Subsection 2.1.10 is deemed to occur, as the
case may be. The term "EXCHANGE RATIO" means the Initial Exchange Ratio or
the Recalculated Exchange Ratio as so adjusted, whichever is applicable.
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2.1.9 COLLAR ADJUSTMENT. If the closing price of Apria Common Stock
on the New York Stock Exchange, Inc. (the "NYSE") on the trading day next
preceding the Closing Date (the "MARKET PRICE") is between $27.125 and
$37.125 (inclusive) there will be no Collar Adjustment (as defined below).
If the Market Price is less than $27.125 and there is no Recalculated
Exchange Ratio, the Initial Exchange Ratio will be multiplied by a fraction
of which the numerator will be $27.125 less 50% of the difference between
$27.125 and the Market Price (the "MARKET PRICE DECLINE NUMERATOR") and the
denominator will be the Market Price. If the Market Price is more than
$37.125 and there is no Recalculated Exchange Ratio, the Initial Exchange
Ratio will be multiplied by a fraction of which the numerator will be
$37.125 plus 50% of the difference between the Market Price and $37.125
(the "MARKET PRICE INCREASE NUMERATOR") and the denominator will be the
Market Price. If the Market Price is less than $27.125 and there is a
Recalculated Exchange Ratio, the Recalculated Exchange Ratio will be
multiplied by a fraction of which the numerator will be the Market Price
Decline Numerator and the denominator will be the Market Price, and the
result will be the Exchange Ratio as referred to in the last sentence of
Subsection 2.1.8. If the Market Price is more than $37.125 and there is a
Recalculated Exchange Ratio, the Recalculated Exchange Ratio will be
multiplied by a fraction of which the numerator will be the Market Price
Increase Numerator and the denominator will be the Market Price, and the
result will be the Exchange Ratio as referred to in the last sentence of
Subsection 2.1.8. If the Market Price is greater than $42.125 or less than
$22.125, either party may terminate this Agreement, but if neither party
elects to terminate this Agreement the foregoing formulae ("COLLAR
ADJUSTMENT") shall continue to be applicable.
2.1.10 DEBT ADJUSTMENT. Vitas shall prepare a balance sheet as of the
last day of the month ending immediately prior to the Closing Date unless
the Closing Date is within 20 business days after the end of a month, in
which event such balance sheet shall be as of the last day of the month
ending immediately prior to the month ending immediately prior to the
Closing Date (the "CLOSING BALANCE SHEET"). If the Total Debt of Vitas (as
defined below) exceeds $39.1 million as reflected on the Closing Balance
Sheet, a Debt Adjustment will be deemed to occur. If a Debt Adjustment is
deemed to occur, the Initial Exchange Ratio will be replaced by the
"RECALCULATED EXCHANGE RATIO" which will be determined by dividing (i)
$9.32 less the Excess Per Share Debt Amount (as defined below) by (ii)
$32.125. The "EXCESS PER SHARE DEBT AMOUNT" means the Total Debt of Vitas
in excess of $39.1 million divided by 19,738,635 (rounded to the nearest
whole cent). "TOTAL DEBT" means, for purposes of this Subsection 2.1.10,
all bank debt, notes payable, other indebtedness for borrowed money,
including any indebtedness incurred in the acquisition by Vitas or its
subsidiary of the assets of Hospice of Central Florida, Inc., a Florida
nonprofit corporation ("HCF"), and the current portions of all of the
foregoing, but excluding capitalized leases and the amount due under the
ESOP (as defined in Subsection 3.1.10) loan documents (the "ESOP NOTE"),
and all reduced by (A) Vitas' then cash equivalents and cash on hand as
reflected on the Closing Balance Sheet, (B) the positive difference, if
any, between (1) $1.554 million and (2) the book value of the ESOP Note as
reflected on the Closing Balance Sheet and (C) the sum of (x) the amount,
if any, by which Vitas' then net non-cash non-debt working capital (defined
as current assets excluding cash, cash equivalents and current deferred tax
assets, minus current liabilities, excluding current capital lease
obligations, current portion of long-term debt and current deferred tax
liabilities) exceeds $(200,000) and (y) the amount of any capital
expenditures in excess of $500,000 per month which have previously been
approved in writing by Apria, and (z) the amount of any indebtedness
incurred in the acquisition by Vitas or its subsidiary of the assets of HCF
up to a maximum of $4.75 million. If a Debt Adjustment is deemed to occur
and is in excess of $4 million, Apria will have the right to terminate this
Agreement.
2.1.11 CERTAIN APRIA ADJUSTMENTS. If, prior to the Effective Time,
Apria should split, recapitalize, reclassify, subdivide, exchange or
combine the Apria Common Stock, or pay a stock dividend or other stock
distribution in Apria Common Stock, then the Initial Exchange Ratio or the
Recalculated Exchange Ratio, as the case may be (as well as all references
to prices of Apria Common Stock used for purposes of any Collar Adjustment
or related termination right set forth in Subsection 2.1.9), will be
appropriately adjusted to reflect such split, recapitalization,
reclassification, subdivision, exchange, combination, dividend or other
distribution. Each share of Apria Common Stock issued pursuant to this
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Agreement will be accompanied by one Right (as defined in Subsection 3.2.2)
unless the Rights are not outstanding as of the Effective Time.
2.1.12 CANCELLATION OF STOCK, WARRANTS AND STOCK OPTIONS. As of the
Effective Time, all shares of Vitas Common Stock and the Warrants will no
longer be outstanding and will automatically be cancelled and retired and
will cease to exist, and the holders of certificates previously evidencing
such shares of Vitas Common Stock or the Warrants or the Stock Options will
cease to have any rights with respect thereto, except as otherwise provided
herein or by law including any rights of Dissenting Stockholders to require
the Surviving Corporation to purchase their shares in accordance with
applicable law. Each certificate previously representing the Vitas Common
Stock (other than Dissenters Shares) will thereafter represent the right to
receive a certificate representing the shares of Apria Common Stock into
which the Vitas Common Stock was converted in the Merger. Certificates
previously representing such shares of Vitas Common Stock will be exchanged
for certificates representing whole shares of Apria Common Stock issued in
consideration therefor upon the surrender of such Vitas certificates in
accordance with the provisions of Section 2.2, without interest. No
fractional share of Apria Common Stock will be issued, and, in lieu
thereof, a cash payment will be made pursuant to Subsection 2.2.5.
2.2 EXCHANGE OF CERTIFICATES.
2.2.1 EXCHANGE AGENT. Apria will deposit, or will cause to be
deposited, with Norwest Bank Minnesota, N.A., as exchange agent for the
Apria Common Stock (the "EXCHANGE AGENT") as of the Effective Time (or
otherwise when requested by the Exchange Agent from time to time in order
to effect any exchange pursuant to Section 2.2), for the benefit of the
holders of shares of Vitas Common Stock and of holders of the Warrants,
Stock Options and converted Series B Preferred, for exchange in accordance
with this Article II through the Exchange Agent, certificates representing
the shares of Apria Common Stock issuable pursuant to (i) Section 2.1 in
exchange for the outstanding shares of Vitas Common Stock, (ii) Subsection
5.4.1 upon surrender of the Stock Option Agreements, and (iii) Subsection
2.1.6 upon surrender of the certificates evidencing the Warrants (such
certificates representing shares of Apria Common Stock, together with any
dividends or distributions with respect thereto, being collectively
referred to as the "EXCHANGE FUND"). The Exchange Agent will, pursuant to
irrevocable instructions, deliver the Apria Common Stock contemplated to be
issued pursuant to Section 2.1 and Subsection 5.4.1 out of the Exchange
Fund. Except as contemplated by Subsection 2.2.5, the Exchange Fund shall
not be used for any other purpose.
2.2.2 EXCHANGE PROCEDURE. As soon as reasonably practicable after the
Effective Time, Apria will instruct the Exchange Agent to mail to each
holder of record of a Warrant, to each holder of a Stock Option and to each
holder of a certificate or certificates which immediately prior to the
Effective Time represented outstanding shares of Vitas Common Stock
(including holders of certificates previously representing Series B
Preferred) other than Dissenters Shares (for convenience of reference, the
certificates, Warrants, converted Series B Preferred and Stock Option
Agreements are referred to as the "CERTIFICATES"), (i) a letter of
transmittal (which shall specify that delivery will be effected, and risk
of loss and title to the Certificates will pass, only upon proper delivery
of the Certificates to the Exchange Agent and which shall be in a customary
form) and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for certificates representing shares of Apria
Common Stock. Upon surrender of Certificates for cancellation to the
Exchange Agent, together with such letter of transmittal, duly executed,
and such other documents as may reasonably be required by the Exchange
Agent, and, in the case of holders of Stock Options, evidence of
satisfaction of all applicable withholdings as provided in Subsection
2.2.8, the holder of the Certificate or Certificates will be entitled to
receive in exchange therefor a certificate evidencing that number of whole
shares of Apria Common Stock which such holder has the right to receive in
respect of the rights formerly evidenced by such Certificate or
Certificates (after taking into account the provisions of this Agreement
and all shares of Vitas Common Stock then held of record by such holder and
all Warrants and all Stock Options held by such holder), cash in lieu of
fractional shares of Apria Common Stock to which any holder is entitled
pursuant to Subsection 2.2.5 and any dividends or other distributions to
which such holder is entitled pursuant to Subsection 2.2.3, and the
Certificate so surrendered will forthwith be cancelled. In the event of a
transfer of ownership of Vitas
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Common Stock which is not registered in the transfer records of Vitas, a
certificate representing the proper number of shares of Apria Common Stock
may be issued to a Person (as defined in Section 8.3) other than the Person
in whose name the Certificate so surrendered is registered, if such
Certificate, accompanied by all documents required to evidence and effect
such transfer, is properly endorsed or otherwise in proper form for
transfer and the Person requesting such payment pays any transfer or other
taxes required by reason of the issuance of shares of Apria Common Stock to
a Person other than the registered holder of such Certificate or
establishes to the reasonable satisfaction of Apria that such tax has been
paid or is not applicable. Until surrendered as contemplated by Section
2.2, each Certificate (other than in respect of Dissenters Shares) will be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the certificate evidencing whole shares of
Apria Common Stock, cash in lieu of any fractional shares of Apria Common
Stock to which such holder is entitled pursuant to Subsection 2.2.5 and any
dividends or other distributions to which such holder is entitled pursuant
to Subsection 2.2.3. No interest will be paid or will accrue on any cash
payable pursuant to Subsections 2.2.3 or 2.2.5.
2.2.3 DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED COMMON SHARES. No
dividends or other distributions declared or made after the Effective Time
with respect to Apria Common Stock with a record date after the Effective
Time will be paid to the holder of any unsurrendered Certificate, and no
cash payment in lieu of fractional shares will be paid to any such holder
pursuant to Subsection 2.2.5, in each case until the surrender of such
Certificate in accordance with this Article II. Subject to the effect of
applicable escheat laws, following surrender of such Certificate, there
will be paid to the holder of the certificate representing whole shares of
Apria Common Stock issued in exchange therefor, without interest, (i) at
the time of such surrender, the amount of any such cash payable in lieu of
a fractional share of Apria Common Stock to which such holder is entitled
pursuant to Subsection 2.2.5 and the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid
with respect to such whole shares of Apria Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions
with a record date after the Effective Time but prior to such surrender and
with a payment date subsequent to such surrender payable with respect to
such whole shares of Apria Common Stock.
2.2.4 NO FURTHER OWNERSHIP RIGHTS IN VITAS STOCK. All shares of Apria
Common Stock issued upon the surrender for exchange of Certificates in
accordance with the terms of this Article II (including any cash paid
pursuant to Subsections 2.2.3 or 2.2.5) will be deemed to have been issued
(and paid) in full satisfaction of all rights pertaining to the shares of
Vitas Common Stock or to the Stock Options or Warrants, as the case may be,
theretofore represented by such Certificates. At the Effective Time, the
stock transfer books of Vitas will be closed, and there will be no further
registrations of transfers of shares of Vitas Common Stock, Series B
Preferred, conversion of the Series B Preferred, exercise of the Warrants
or exercise or conversion of the Stock Options thereafter on the records of
Vitas. If, after the Effective Time, Certificates are presented to the
Surviving Corporation, Apria or the Exchange Agent for any reason, they
will be cancelled and exchanged as provided in Article II.
2.2.5 NO FRACTIONAL SHARES.
(a) No Certificates or scrip representing fractional shares of
Apria Common Stock will be issued upon the surrender for exchange of
Certificates, and such fractional share interests will not entitle the
owner thereof to vote or to any rights of a stockholder of Apria.
(b) As promptly as practicable following the Effective Time, Apria
will instruct the Exchange Agent to determine the excess of (i) the
number of full shares of Apria Common Stock delivered to the Exchange
Agent by Apria pursuant to Subsection 2.2.1 over (ii) the aggregate
number of full shares of Apria Common Stock to be distributed to holders
of Certificates pursuant to Subsection 2.2.2 (such excess being herein
called the "EXCESS SHARES"). As soon after the Effective Time as
practicable, the Exchange Agent, as agent for such holders of
Certificates, will sell the Excess Shares at the then prevailing prices
on the NYSE, all in the manner provided in paragraph (c) of this
Subsection 2.2.5.
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(c) The sale of the Excess Shares by the Exchange Agent will be
executed on the NYSE and will be executed in round lots to the extent
practicable. Until the net proceeds of such sale or sales have been
distributed to such holders of Certificates, the Exchange Agent will
hold such proceeds in trust for such holders of Certificates (the
"TRUST"). Apria will pay all commissions, transfer taxes and other
out-of-pocket transaction costs of the Exchange Agent incurred in
connection with such sale or sales of Excess Shares. In addition, Apria
will pay the Exchange Agent's compensation and expenses in connection
with such sales. The Exchange Agent will determine the portion of the
Trust to which each holder of one or more Certificates is entitled, if
any, by multiplying the amount of the aggregate proceeds comprising the
Trust by a fraction the numerator of which is the amount of the
fractional share interest to which such holder of Certificates is
entitled (after taking into account all Warrants, Stock Options, and
shares of Vitas Common Stock (including converted Series B Preferred)
held of record immediately prior to the Effective Time by such holder)
and the denominator of which is the aggregate amount of fractional share
interests to which all holders of Certificates are entitled.
(d) As soon as practicable after the determination of the amount of
cash, if any, to be paid to holders of Certificates with respect to any
fractional share interests, the Exchange Agent will promptly pay such
amounts to such holders of Certificates subject to and in accordance
with the terms of Subsection 2.2.3.
2.2.6 TERMINATION OF EXCHANGE FUND AND TRUST. Any portion of the
Exchange Fund and Trust that remains undistributed to the holders of
Certificates for six months after the Effective Time will be delivered to
Apria, upon demand, and any holders of Certificates who have not
theretofore complied with this Article II shall thereafter look only to
Apria for the shares of Apria Common Stock, any cash in lieu of fractional
shares of Apria Common Stock and any dividends or distributions with
respect to Apria Common Stock to which they are entitled.
2.2.7 NO LIABILITY. None of Apria, Sub, Vitas or the Exchange Agent
will be liable to any holder of shares of Vitas Common Stock, Vitas
Preferred Stock, Warrants or Stock Options for any shares of Apria Common
Stock (or dividends or distributions with respect thereto) or cash from the
Exchange Fund or the Trust that has been delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
2.2.8 WITHHOLDING RIGHTS. Apria or the Exchange Agent will be
entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of Certificates such amounts as
Apria or the Exchange Agent, as the case may be, is required under the
Internal Revenue Code of 1986, as amended (the "CODE"), or any provision of
state, local or foreign tax law to deduct and withhold with respect to the
making of payments hereunder. To the extent that amounts are so withheld by
Apria or the Exchange Agent, such withheld amounts will be treated for all
purposes of this Agreement as having been paid to the holder of the
Certificates in respect of which such deduction and withholding have been
made by Apria or the Exchange Agent. Subject to the provisions of
Subsection 5.4.4, withholding obligations in respect of Stock Options must
be paid by the holders of the Stock Options in cash to Apria and must be
evidenced by a certificate of satisfaction of withholding signed by Apria
and delivered to the Exchange Agent. Apria agrees to promptly provide such
certificate after receipt of such funds.
2.2.9 INVESTMENT OF EXCHANGE FUND AND TRUST. The Exchange Agent will
invest any cash included in the Exchange Fund and the Trust, as reasonably
directed by Apria, on a daily basis. Any interest and other income
resulting from such investments shall be paid to Apria.
2.2.10 LOST CERTIFICATES. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen or destroyed and, if
required by the Surviving Corporation, an indemnity (if relating to no more
than 10,000 shares of Vitas Common Stock or equivalent) or the posting by
such person of a bond in such reasonable amount as the Surviving
Corporation may direct as indemnity against any claim that may be made
against it with respect to such Certificate, the Exchange Agent will issue
in exchange for such lost, stolen or destroyed
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Certificate the shares of Apria Common Stock and any cash in lieu of
fractional shares, and unpaid dividends and distributions on shares of
Apria Common Stock deliverable in respect thereof, pursuant to this
Agreement.
2.3 DISSENTERS' RIGHTS. If any Dissenting Stockholder is entitled to (or
demands or asserts entitlement to) require Vitas to purchase the stockholder's
shares pursuant to Section 262 of the DGCL or otherwise, Vitas shall give Apria
notice thereof and Apria will have the right to participate in all negotiations
and proceedings with respect to any such claims or demand. Vitas shall not,
except with the prior written consent of Apria, voluntarily make any payment,
evaluation or appraisal with respect to, or settle or offer to settle, any claim
or demand for payment. If any Dissenting Stockholder fails to perfect or shall
have effectively withdrawn or lost the right to dissent or have an appraisal,
the shares held by the stockholder will thereupon be entitled to be surrendered
in exchange for the Apria Common Stock at the Exchange Ratio and otherwise in
accordance with Article II.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF VITAS. Vitas represents and warrants
to Apria and Sub as follows:
3.1.1 ORGANIZATION, STANDING AND CORPORATE POWER. Vitas and each of
its subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction in which it is organized
and has the requisite corporate power and authority to carry on its
business as now being conducted. Vitas and each of its subsidiaries is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or licensing necessary,
other than in such jurisdictions where the failure to be so qualified or
licensed (individually or in the aggregate) would not have a "material
adverse effect" (as defined in Section 8.3). Vitas has delivered to Apria
complete and correct copies of its and each of its subsidiary's certificate
of incorporation and by-laws, in each case as amended to the date of this
Agreement. Neither Vitas nor any subsidiary of Vitas is a registered or
reporting company under the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT").
3.1.2 SUBSIDIARIES. The disclosure schedule delivered by Vitas to
Apria prior to the execution of this Agreement (the " VITAS DISCLOSURE
SCHEDULE") lists each subsidiary of Vitas and its jurisdiction of
incorporation or organization. Except as set forth in the Vitas Disclosure
Schedule, all the outstanding shares of capital stock of each such
subsidiary have been validly issued and are fully paid and nonassessable
and are directly or indirectly owned by Vitas, free and clear of all
pledges, claims, liens, charges, encumbrances and security interests of any
kind or nature whatsoever (collectively, "LIENS"). Except for the capital
stock of its subsidiaries, and as disclosed in the Vitas Disclosure
Schedule, Vitas does not own, directly or indirectly, any capital stock or
other ownership interest in any corporation, partnership, joint venture or
other entity or serve as a general partner of any other entity.
3.1.3 CAPITAL STRUCTURE. The authorized capital stock of Vitas
consists of 40,000,000 shares of Common Stock, $.001 par value (the "VITAS
COMMON STOCK"), and 4,500,000 shares of preferred stock, $1.00 par value
(the " VITAS PREFERRED STOCK"). At the date of this Agreement (i) 4,408,842
shares of Common Stock are issued and outstanding, (ii) 270,000 shares of
9% Preferred are issued and outstanding, (iii) 262,500 shares of Series B
Preferred are issued and outstanding, (iv) at June 14, 1996, 5,849,289
shares of Vitas Common Stock were reserved for issuance upon exercise of
outstanding stock options to purchase shares of Vitas Common Stock (" STOCK
OPTIONS") granted under stock option plans or pursuant to stock option
agreements identified on the Vitas Disclosure Schedule (collectively, the
"STOCK OPTION PLANS") and no additional Stock Options have been granted
since June 14, 1996, (v) 5,526,308 shares of Vitas Common Stock are
reserved for issuance upon conversion of the Series B Preferred, and (vi)
3,952,958 shares of Vitas Common Stock are reserved for issuance upon
exercise of the Warrants. Except as set forth in this Subsection 3.1.3, at
the date of this Agreement no shares of
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capital stock or other equity or voting securities of Vitas were issued,
reserved for issuance or outstanding. Except as set forth in the Vitas
Disclosure Schedule, there are no outstanding stock appreciation rights of
Vitas and no outstanding limited stock appreciation or similar rights or
other rights to receive or redeem for cash options, warrants or derivative
securities of Vitas. Except as set forth in the Vitas Disclosure Schedule,
all outstanding shares of capital stock of Vitas are, and all shares which
may be issued upon the exercise of Stock Options or the Warrants or upon
conversion of the Series B Preferred will be, when issued, duly authorized,
validly issued, fully paid and nonassessable and not subject to preemptive
rights. There are no bonds, debentures, notes or other indebtedness of
Vitas having the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which stockholders
of Vitas may vote. Except as set forth in this Subsection 3.1.3 or in the
Vitas Disclosure Schedule, and except for provisions calling for
antidilution adjustments or pre-emptive rights in the Series B Preferred
and the Warrants, none of which adjustments or rights has been or will by
virtue of this Agreement or the transactions contemplated hereby be
triggered, there are no outstanding securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of any kind
to which Vitas or any of its subsidiaries is a party or by which any of
them is bound obligating Vitas or any of its subsidiaries to issue, deliver
or sell, or cause to be issued, delivered or sold, additional equity or
voting securities of Vitas or of any of its subsidiaries or obligating
Vitas or any of its subsidiaries to issue, grant, extend or enter into any
such security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking. Except as set forth in the Vitas Disclosure
Schedule, there are no outstanding contractual or other obligations of
Vitas or any of its subsidiaries to repurchase, redeem or otherwise acquire
any shares of capital stock (or options or warrants or other rights to
acquire any such shares) of Vitas or any of its subsidiaries, except for
the redemption obligations in the Preferred Stock Certificates. Except as
set forth in the Vitas Disclosure Schedule, there are no agreements,
arrangements or commitments of any character (contingent or otherwise)
pursuant to which any Person is or may be entitled to receive any payment
based on the revenues, earnings or financial performance of Vitas or any of
its subsidiaries or assets or calculated in accordance therewith (other
than ordinary course payments to employees of Vitas in the nature of
incentive compensation as specified in the Vitas Disclosure Schedule) or
except for the Registration Rights Agreement dated June 4, 1993 among Vitas
and certain Vitas stockholders, to cause Vitas or any of its subsidiaries
to file with the Securities and Exchange Commission (the "SEC") a
registration statement under the Securities Act of 1933, as amended (the
"SECURITIES ACT") or which otherwise relate to the registration of any
securities of Vitas.
3.1.4 AUTHORITY; NONCONTRAVENTION. Vitas has the requisite corporate
power and authority to execute and deliver this Agreement and, subject to
Vitas Stockholder Approval and to the receipt of the consents and approvals
by the Vitas securityholders set forth in the Vitas Disclosure Schedule, to
consummate the transactions by Vitas contemplated by this Agreement. Except
as set forth in the Vitas Disclosure Schedule, the execution and delivery
of this Agreement by Vitas and the consummation by Vitas of the
transactions contemplated by this Agreement have been duly authorized by
all necessary corporate action on the part of Vitas, subject to Vitas
Stockholder Approval. This Agreement has been duly executed and delivered
by Vitas and constitutes a valid and binding obligation of Vitas,
enforceable against Vitas in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar laws
relating to creditors' rights and general principles of equity. Except as
set forth in the Vitas Disclosure Schedule, the execution and delivery of
this Agreement by Vitas does not, and the consummation by Vitas of the
transactions contemplated by this Agreement and compliance with the
provisions of this Agreement will not, conflict with, or result in any
violation of or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation, acceleration
or augmentation of any obligation or to loss of a material benefit under,
or result in the creation of any Lien upon any of the properties or assets
of Vitas or any of its subsidiaries under, (i) the certificate of
incorporation or bylaws of Vitas or the comparable charter or
organizational documents of any of its subsidiaries, (ii) subject to the
governmental filings and other matters referred to in the following
sentence, any loan or credit agreement, note, bond, mortgage, indenture,
lease or other agreement, instrument, permit, concession, franchise or
license applicable to Vitas or any of its subsidiaries or their respective
properties or assets or (iii) subject to the governmental filings and other
matters referred to in
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the following sentence, any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Vitas or any of its
subsidiaries or their respective properties or assets, other than, in the
case of clauses (ii) or (iii), any such conflicts, violations, defaults,
rights or Liens that individually or in the aggregate would not (x) have a
material adverse effect, (y) impair in any material respect the ability of
Vitas to perform its obligations under this Agreement or (z) prevent or
materially delay the consummation by Vitas of any of the transactions
contemplated by this Agreement. No consent, approval, order or
authorization of, or registration, declaration or filing with, any federal,
state or local government or any court, administrative or regulatory agency
or commission or other governmental authority or agency, domestic or
foreign (a "GOVERNMENTAL ENTITY"), is required by Vitas or any of its
subsidiaries for the execution and delivery of this Agreement by Vitas or
the consummation by Vitas of the transactions contemplated by this
Agreement, except for (1) the filing with the Federal Trade Commission and
the Antitrust Division of the Department of Justice (the "SPECIFIED
AGENCIES") of a premerger notification and report form by Vitas under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR ACT"), (2)
the filing of the Certificate of Merger with the Delaware Secretary of
State and appropriate documents with the relevant authorities of other
states in which Vitas is qualified to do business, (3) the regulatory
filings set forth on the Vitas Disclosure Schedule and (4) such other
consents, approvals, orders, authorizations, registrations, declarations
and filings the failure of which to be obtained or made would not,
individually or in the aggregate, have a material adverse effect or prevent
or materially delay the consummation by Vitas of any of the transactions
contemplated by this Agreement.
3.1.5 FINANCIAL STATEMENTS; CHANGES; CONTINGENCIES.
(a) Vitas has delivered to Apria consolidated and consolidating
balance sheets for Vitas and its subsidiaries at September 30, 1995,
1994, 1993, 1992 and 1991 and the related consolidated and consolidating
statements of operations, changes in stockholders' equity and changes in
financial position or cash flow for the periods then ended. All such
financial statements have been examined by Ernst & Young LLP whose
reports thereon are included with such financial statements. All such
financial statements have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis ("GAAP")
(except for changes, if any, required by GAAP and disclosed therein).
Such statements of operations and cash flow present fairly in all
material respects the results of operations, changes in stockholders'
equity and cash flows of Vitas and its subsidiaries for the respective
periods covered, and the balance sheets present fairly in all material
respects the financial condition of Vitas and its subsidiaries as of
their respective dates. Vitas has made available to Apria copies of each
management letter delivered to Vitas by its auditors in connection with
such financial statements or other letter delivered to Vitas by its
auditors relating to any review by its auditors of the internal controls
of Vitas during the five-year period ended September 30, 1995 or
thereafter, and has made available for inspection all reports and
working papers produced or developed by its auditors or management in
connection with their examination of such financial statements, as well
as all such reports and working papers for prior periods for which any
tax liability of Vitas has not been finally determined or barred by
applicable statutes of limitation. Since September 30, 1995, there has
been no change in any of the significant accounting policies, practices
or procedures of Vitas or its subsidiaries.
(b) Vitas has delivered to Apria consolidated balance sheets for
Vitas and its subsidiaries at December 31, 1995 and March 31, 1996, and
the related consolidated statements of operations and cash flows and
changes in stockholder's equity for the periods then ended and the prior
year's period and prior comparable period. All such interim financial
statements have been prepared in conformity with GAAP applied on a
consistent basis except for changes, if any, required by GAAP and
disclosed therein and except for the absence of footnotes and other
information required by GAAP for complete financial statements and
subject to year-end adjustments. The statements of operations and cash
flows present fairly the results of operations and cash flows of Vitas
and its subsidiaries for the respective periods covered, and the balance
sheets present fairly the financial condition of Vitas and its
subsidiaries as of their respective dates. All such interim financial
statements reflect all adjustments (which consist only of normal
recurring adjustments not material in amount and include
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but are not limited to estimated provisions for year-end adjustments)
necessary for a fair presentation. At the dates of such balance sheets,
neither Vitas nor any of its subsidiaries had any material liability
(actual, contingent or accrued) that, in accordance with GAAP, should
have been shown or reflected therein but were not.
(c) Since September 30, 1995, whether or not in the ordinary course
of business, there has not been, occurred or arisen: (i) except as set
forth in the Vitas Disclosure Schedule, any change in or event affecting
Vitas or any of its subsidiaries, the business or the capital stock of
Vitas or any of its subsidiaries, that has had or may reasonably be
expected to have a material adverse effect, (ii) any strike or other
labor dispute, or (iii) any casualty, loss, damage or destruction
(whether or not covered by insurance) of any material property of Vitas
or its subsidiaries with a book value in excess of $100,000 or that has
involved or may involve a loss to Vitas or any subsidiary of more than
$100,000.
(d) Neither Vitas nor any subsidiary has any liabilities of any
nature, whether known, unknown, accrued, absolute, contingent or
otherwise, and whether due or to become due, probable of assertion or
not, except liabilities that (i) are reflected or disclosed in the most
recent of the financial statements referred to in paragraphs (a) or (b)
of this Subsection 3.1.5, (ii) were incurred after September 30, 1995 in
the ordinary course of business consistent with past practice and in the
aggregate do not exceed $100,000 or (iii) are set forth in the Vitas
Disclosure Schedule.
(e) All receivables of Vitas and its subsidiaries, whether
reflected on the balance sheet or otherwise, represent services actually
provided in the ordinary course of business. The reserves shown on the
balance sheet at March 31, 1996 are adequate and were calculated on a
basis consistent with GAAP and past practices. Vitas has delivered to
Apria an aging list of all receivables of Vitas and each subsidiary that
in all material respects is accurate and complete. The receivables of
Vitas and its subsidiaries have been appropriately adjusted to reflect
current reimbursement policies of third party payors, including, without
limitation, CHAMPUS, Medicare, Medicaid, Blue Cross/Blue Shield, private
insurers, health maintenance organizations, preferred provider
organizations, alternative delivery systems and managed care systems.
Such receivables, adjusted as set forth above, relating to such third
party payors do not exceed amounts Vitas reasonably believes it is
entitled to receive under any capitation arrangement, fee schedule,
discount formula, cost based reimbursement or other adjustment or
limitation to the usual charges of Vitas and its subsidiaries.
3.1.6 INFORMATION SUPPLIED. None of the information supplied or to be
supplied by or on behalf of Vitas or any subsidiary (i) to any Person for
inclusion in any document or application filed with any Governmental Entity
having jurisdiction over or in connection with the transactions
contemplated by this Agreement or (ii) to Apria or Sub, its agents or
representatives in connection with or for use or inclusion in the Form S-4
or Proxy Statement (as defined in Subsection 5.1.1) did contain, or at the
respective times such information is or was delivered, will contain any
untrue statement of a material fact, or omitted or will omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading or to correct a prior statement. If any of such
information at any time subsequent to delivery and prior to the Closing
Date becomes untrue or misleading in any material respect, Vitas will
promptly notify Apria in writing of such fact and the reason for such
change. All documents required to be filed by Vitas or any subsidiary with
any Governmental Entity in connection with this Agreement or the
transactions contemplated by this Agreement will comply in all material
respects with the provisions of applicable law. Without limiting the
generality of the foregoing, Vitas agrees to use its best efforts to
provide all information required to be included in the Form S-4 and the
Proxy Statement in respect of Vitas and its subsidiaries in accordance with
applicable standards imposed on public companies.
3.1.7 LITIGATION; ADMINISTRATIVE PROCEEDINGS. Except as disclosed in
the Vitas Disclosure Schedule, there is no suit, action, investigation,
charge with local, state or federal administrative agencies, claim
involving workers compensation relating to classes of employees, audit or
proceeding pending or, to the knowledge of Vitas, threatened against Vitas
or any of its subsidiaries that, individually or in the
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aggregate, could reasonably be expected to (i) have a material adverse
effect, (ii) impair in any material respect the ability of Vitas to perform
its obligations under this Agreement or (iii) prevent the consummation by
Vitas of any of the transactions contemplated by this Agreement, nor is
there any judgment, decree, injunction, rule or order of any Governmental
Entity or arbitrator outstanding against Vitas or any of its subsidiaries
having, or which is reasonably likely to have, any effect referred to in
the foregoing clauses (i) through (iii).
3.1.8 TAXES.
(a) Except as set forth in the Vitas Disclosure Schedule, each of
Vitas and its subsidiaries has timely filed all federal, state, local
and foreign tax returns and reports required to be filed by it through
the date hereof and shall timely file all such returns and reports
required to be filed on or before the Effective Time. All such returns
and reports are and will be true, complete and correct in all material
respects. Vitas and each of its subsidiaries has paid and discharged (or
Vitas has paid and discharged on such subsidiary's behalf) all taxes due
from them, other than such taxes as are being contested in good faith by
appropriate proceedings and are adequately reserved for on the most
recent financial statements. The most recent financial statements
properly reflect in accordance with GAAP all taxes payable by Vitas and
its subsidiaries for all taxable periods and portions thereof through
the date of such financial statements. Adequate provision has been made
in the books and records of Vitas and each subsidiary, and to the extent
required by GAAP in the financial statements referred to in Subsection
3.1.5 above or delivered to Apria, for all taxes whether or not due and
payable and whether or not disputed. Neither Vitas nor any subsidiary
has elected to be treated as a consenting corporation under Section
341(f) of the Code.
(b) No claim or deficiency for any taxes has been proposed,
threatened, asserted or assessed by the Internal Revenue Service (the
"IRS") or any other taxing authority or agency against Vitas or any of
its subsidiaries which, if resolved against Vitas or any of its
subsidiaries, would, individually or in the aggregate, have a material
adverse effect. No requests for waivers of the time to assess any taxes
are pending. Except as set forth in the Vitas Disclosure Schedule, none
of the federal income tax returns of Vitas and each of its subsidiaries
consolidated in such returns has been examined by and settled with the
IRS for any year.
(c) As used in this Agreement, "TAXES" means all federal, state,
local and foreign income, property, sales, excise and other taxes, of
any nature whatsoever (whether payable directly or by withholding),
together with any interest and penalties, additions to tax or additional
amounts imposed with respect thereto. For the purposes of this
Subsection 3.1.8, references to Vitas and each of its subsidiaries
includes former subsidiaries of Vitas for the periods during which any
such corporations were included in the consolidated federal income tax
return of Vitas.
3.1.9 EMPLOYEE BENEFITS. Except as set forth in the Vitas Disclosure
Schedule:
(a) The Vitas Disclosure Schedule lists all director, independent
contractor and employee benefit plans and collective bargaining,
employment or severance agreements or other similar arrangements to
which Vitas or any subsidiary is a party or by which any of them is
bound, including, without limitation, (i) any profit-sharing, deferred
compensation, bonus, stock option, stock purchase, pension, retainer,
consulting, retirement, severance, welfare, performance or incentive
plan, agreement or arrangement that by its terms obligates Vitas or any
of its subsidiaries to pay an amount determinable at the time of signing
any thereof in excess of $20,000, (ii) any plan, agreement or
arrangement providing for "fringe benefits" or perquisites to employees,
officers, directors or agents, including but not limited to benefits
relating to any Vitas automobiles, other modes of transport, clubs,
vacation, child care, parenting, sabbatical, sick leave, medical,
dental, hospitalization, life insurance and other types of insurance,
(iii) any employment agreement other than for an employment at will,
(iv) any other "employee benefit plan" within the meaning of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
or (v) any other employee benefit plan or arrangement to which Vitas or
any of its subsidiaries is or has been a party under which there is any
liability to any Person.
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(b) Vitas has delivered to Apria true and complete copies of all
documents and summary plan descriptions with respect to such plans,
agreements and arrangements, or summary descriptions of any such plans,
agreements or arrangements not otherwise in writing.
(c) Except as contemplated by this Agreement, there are no
negotiations, demands or proposals that are pending or have been made
which concern matters now covered, or that would be covered, by plans,
agreements or arrangements of the type described in this Subsection
3.1.9.
(d) Vitas and its subsidiaries are in compliance in all material
respects with the applicable provisions of ERISA (as amended through the
date of this Agreement), the regulations and published authorities
thereunder, and all other laws applicable with respect to all such
employee benefit plans, agreements and arrangements. Vitas and its
subsidiaries have performed all of their obligations under all such
plans, agreements and arrangements. To the best knowledge of Vitas,
there are no actions (other than routine claims for benefits) pending or
threatened against such plans or their assets, or arising out of such
plans, agreements or arrangements, and, to the best knowledge of Vitas,
no facts exist which may reasonably be expected to give rise to any such
actions.
(e) Each of the plans, agreements or arrangements can be terminated
by Vitas or by one of the subsidiaries within a period of 30 days
following the Effective Time, without payment of any additional
compensation or amount or the additional vesting or acceleration of any
such benefits.
(f) Except as required by applicable law, since September 30, 1995,
there has not been any adoption or amendment in any material respect by
Vitas or any of its subsidiaries of any compensatory plans, agreements
or arrangements (collectively, "BENEFIT PLANS") providing benefits to
any current or former employee, officer or director of Vitas or any of
its subsidiaries. Since September 30, 1995, neither Vitas nor any of its
subsidiaries has taken any action to accelerate any rights or benefits
under any Benefit Plan, either generally or specifically, for the
benefit of any director, officer, or employee or class thereof.
3.1.10 QUALIFIED PLANS.
(a) The Vitas Disclosure Schedule lists all "employee pension
benefit plans" (within the meaning of Section 3(2) of ERISA) which are
also stock bonus, pension or profit-sharing plans within the meaning of
Section 401(a) of the Code.
(b) Each such plan has been duly authorized and approved by the
appropriate board of directors of Vitas and each participating
subsidiary. Each such plan is qualified in form and operation under
Section 401(a) of the Code and each trust under each such plan is exempt
from tax under Section 501(a) of the Code. No event has occurred that
will or could give rise to disqualification or loss of tax-exempt status
of any such plan or trust under such sections. No event has occurred
that will or could subject any such plans to tax under Section 511 of
the Code. No prohibited transaction (within the meaning of Section 4975
of the Code) or party-in-interest transaction (within the meaning of
Section 406 of ERISA) has occurred with respect to any of such plans.
(c) Except as set forth in the Vitas Disclosure Schedule, Vitas has
delivered to Apria for each such plan copies of the following documents:
(i) the Form 5500 filed in each of the most recent three plan years
including but not limited to all schedules thereto and financial
statements with attached opinions of independent accountants, (ii) the
most recent determination letter from the IRS, (iii) the consolidated
statement of assets and liabilities of such plan as of its most recent
valuation date, and (iv) the statement of changes in fund balance and in
financial position or the statement of changes in net assets available
for benefits under such plan for the most recently ended plan year. The
financial statements so delivered fairly present the financial condition
and the results of operations of each of such plans as of such dates, in
accordance with GAAP.
(d) Except as set forth in the Vitas Disclosure Schedule, the Vitas
Employee Stock Ownership Plan ("ESOP"), is not, as of the date of this
Agreement, indebted to any party (including Vitas) on account of a loan
or loans made in connection with any acquisition by the ESOP of any
"employer
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security," as defined in Section 407(d)(1) of ERISA, and Vitas is not
obligated to make any contributions to the ESOP. Any transactions with
or by the ESOP involving employer securities satisfy all applicable
requirements for exemptions from the prohibited transaction provisions
of Section 4975 of the Code and Section 406 of ERISA. No employee
contributions have ever been made or permitted under the ESOP. The Vitas
401(k) Plan has never invested in employer securities.
3.1.11 TITLE IV PLANS. No plan listed in the Vitas Disclosure
Schedule is subject to Title IV of ERISA.
3.1.12 MULTIEMPLOYER PLANS. No plan listed in the Vitas Disclosure
Schedule is a "multiemployer plan" (within the meaning of Section 3(37) of
ERISA). Neither Vitas nor any subsidiary has ever contributed to or had an
obligation to contribute to any multiemployer plan.
3.1.13 NO EXCESS PARACHUTE PAYMENTS. Subject to the receipt of the
approval contemplated by Section 5.14, any amount that could be received
(whether in cash or property or the vesting of property) as a result of any
of the transactions contemplated by this Agreement by any employee, officer
or director of Vitas or any of its affiliates (as defined in Section 8.3)
who is a "disqualified individual" (as such term is defined in proposed
Treasury Regulation Section 1.280G-1) under any employment, severance or
termination agreement, other compensation arrangement or Benefit Plan
currently in effect would not be characterized as an "excess parachute
payment" (as such term is defined in Section 280G(b)(1) of the Code).
3.1.14 COMPLIANCE WITH APPLICABLE LAWS. Except as set forth in the
Vitas Disclosure Schedule:
(a) Each of Vitas and its subsidiaries owns, holds or possesses all
licenses, franchises, permits, privileges, immunities, approvals and
other authorizations from Governmental Entities which are necessary to
entitle it to own or lease, operate and use its assets, to participate
in the Medicare, Medicaid, CHAMPUS and all other reimbursement programs
as currently participated in and to carry on and conduct its business
substantially as currently conducted except for any licenses,
franchises, permits, privileges, immunities, approvals or other
authorizations the lack of which individually or in the aggregate would
not have a material adverse effect (herein collectively called
"PERMITS"). The Vitas Disclosure Schedule sets forth a list and brief
identification of each Permit, except for such incidental licenses,
franchises, permits, privileges, immunities, approvals and other
authorizations which would be readily obtainable by any qualified
applicant without undue burden in the event of any lapse, termination,
cancellation or forfeiture thereof, or the lapse, termination,
cancellation or forfeiture of which would not have a material adverse
effect. Complete and correct copies of all the Permits or evidence
thereof have heretofore been delivered by Vitas to Apria. Vitas and each
of its subsidiaries has fulfilled and performed in all material respects
its obligations under each of the respective Permits, and no event has
occurred or condition or state of facts exists which constitutes or,
after notice or lapse of time or both, would constitute a material
breach or default under any Permit either (i) which permits or, after
notice or lapse of time or both, would permit revocation or termination
of any Permit, or (ii) which may reasonably be expected to adversely
affect in any material respect the rights of Vitas or any subsidiary of
Vitas under any Permit; no notice of cancellation, suspension,
revocation, or material default or of any material dispute concerning
any Permit, or of any event, condition or state of facts described in
the preceding clause, has been received by, or is known to, Vitas or its
subsidiaries, or, to the knowledge of Vitas, is proposed or threatened
except where such circumstances would not have a material adverse
effect; and each of the Permits is valid, subsisting and in full force
and effect and may reasonably be expected to continue in full force and
effect after the Effective Time in each case without (x) the occurrence
of any breach, default or forfeiture of rights thereunder, or (y) the
consent, approval, or act of, or the making of any filing with, any
Governmental Entity. Neither Vitas nor any subsidiary has made any
fraudulent misrepresentations in connection with any judicial or
regulatory proceedings or actions before any Governmental Entity.
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(b) Neither Vitas nor any subsidiary has submitted any claims in
connection with any referrals to any of its programs which violated any
applicable self-referral law, including the Stark Bill (42 U.S.C. sec.
1395nn) or any applicable state self-referral law as those laws are
currently interpreted.
(c) Except where the failure to do so would not have a material
adverse effect, each program operated by Vitas and its subsidiaries has
(i) where required by applicable law, obtained all Certificates of Need
("CONS"), (ii) obtained and maintains in good standing all required
healthcare licenses, (iii) where required by applicable law, obtained
and maintains accreditation for such programs, (iv) obtained and
maintains all certifications required from any Governmental Entity
including, without limitation, where required by applicable law, CHAMPUS
Certification (if applicable), Medicaid Certification and Medicare
Certification and (v) obtained and maintains eligibility and good
standing for reimbursement from Medicare and Medicaid. Those programs
that have obtained and maintained eligibility and good standing for
reimbursement from CHAMPUS are identified on the Vitas Disclosure
Schedule.
(d) There are no situations which involved or involve Vitas or any
subsidiary in (i) the use of any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related
to political activity, (ii) the making of any direct or indirect
unlawful payments to government officials from corporate funds or the
establishment or maintenance of any unlawful or unrecorded funds, (iii)
the violation of any of the provisions of The Foreign Corrupt Practices
Act of 1977, or any rules or regulations promulgated thereunder, (iv)
the payment of or offering to pay any illegal remuneration for any
referral to any of its programs in violation of any applicable anti-
kickback law, including the "Medicare Anti-kickback Statute" (42 U.S.C.
sec. 1320a-7b(b)) or any applicable state anti-kickback law, except
where such circumstances would not have a material adverse effect (v)
the violation of any material Medicare or Medicaid requirements,
including the fraud and abuse provisions, except where such
circumstances would not have a material adverse effect (vi) the receipt
of any illegal discounts or rebates or any other violation of the
anti-trust laws, (vii) any investigation by the SEC or (viii) any
investigation of Vitas or any of its subsidiaries by a Medicare
intermediary or carrier, the Health Care Finance Administration, the
Office of the Inspector General of the Department of Heath and Human
Services or any other federal, foreign, state or local government agency
or authority, except where such circumstances would not have a material
adverse effect. The Vitas Disclosure Schedule lists all pledges,
payments and contributions made by Vitas and its subsidiaries (including
any employee reimbursements of same) from October 1, 1994 to May 31,
1996 to any political, non-profit or charitable fund, foundation or
institution.
(e) Vitas and each of its subsidiaries is, and has been, and each
of Vitas' former subsidiaries, while subsidiaries of Vitas, was, in
compliance in all material respects with all applicable Environmental
Laws, except for noncompliance which individually or in the aggregate
would not have a material adverse effect. The term "ENVIRONMENTAL LAWS"
means any federal, state, local or foreign statute, code, ordinance,
rule, regulation, policy, guideline, permit, consent, approval, license,
judgment, order, writ, decree, injunction or other authorization,
including the requirement to register underground storage tanks,
relating to (i) emissions, discharges, releases or threatened releases
of Hazardous Material (as defined below) into the environment,
including, without limitation, into ambient air, soil, sediments, land
surface or subsurface, buildings or facilities, surface water,
groundwater, publicly owned treatment works, septic systems or land or
(ii) the generation, treatment, storage, disposal, use, handling,
manufacturing, transportation or shipment of Hazardous Material.
(f) During the period of ownership or operation by Vitas and its
subsidiaries of any of their operations or their respective current or
previously owned or leased properties, there have been no releases of
Hazardous Material in, on, under or affecting such properties or, to the
knowledge of Vitas, any surrounding site, except in each case for those
which individually or in the aggregate are not reasonably likely to have
a material adverse effect. Prior to the period of ownership or operation
by Vitas and its subsidiaries of any of their respective current or
previously owned or leased
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properties, to the knowledge of Vitas, no Hazardous Material was
generated, treated, stored, disposed of, used, handled or manufactured
at, or transported, shipped or disposed of from, such current or
previously owned or leased properties, and there were no releases of
Hazardous Material in, on, under or affecting any such property or any
surrounding site, except in each case for those which individually or in
the aggregate are not reasonably likely to have a material adverse
effect. The term "HAZARDOUS MATERIAL" means (i) hazardous or toxic
materials, contaminants, constituents, regulated medical wastes,
hazardous wastes or infectious and hazardous substances as those terms
are defined in the following statutes and their implementing
regulations: the Hazardous Materials Transportation Act, as amended by
the Hazardous Materials Transportation Authorization Act of 1994, 49
U.S.C. sec. 1801 et seq., 49 U.S.C. sec. 5101 et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. sec. 6901 et seq., the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended by the Superfund Amendments and Reauthorization Act, 42 U.S.C.
sec. 9601 et seq., the Clean Water Act, 33 U.S.C. sec. 1251 et seq. and
the Clean Air Act, 42 U.S.C. sec. 7401 et seq., (ii) substances that are
defined or listed in, or otherwise classified pursuant to, any
applicable laws as "hazardous" or "toxic", or by any other formulation
intended to define, list or classify substances by reason of deleterious
properties such as ignitibility, corrosivity, reactivity, radioactivity,
carcinogenicity, reproductive toxicity or "EP toxicity," (iii)
petroleum, including drilling fluids, crude oil and any fractions
thereof, (iv) natural gas, synthetic gas and any mixtures thereof,
produced waters and other wastes associated with the exploration,
development, or production of crude oil, natural gas or geothermal
energy, (v) asbestos and/or asbestos-containing material and (vi)
polychlorinated biphenyls ("PCBS") or materials or fluids containing
PCBs in excess of 50 ppm.
(g) Neither Vitas nor any of its subsidiaries has submitted any
claim for payment to any payor source, either governmental or
nongovernmental, in material violation of any false claim or fraud law,
including the "False Claim Act" (31 U.S.C. sec. 3729) or any applicable
state false claim or fraud law, except for violations which individually
or in the aggregate would not have a material adverse effect.
(h) Vitas and each of its subsidiaries is, and has been, and each
of Vitas' former subsidiaries, while subsidiaries of Vitas, was, in
compliance in all material respects with all other applicable laws and
regulations, except for noncompliance which individually or in the
aggregate would not have a material adverse effect.
3.1.15 STATE TAKEOVER STATUTES. Vitas has taken all requisite action
to render inapplicable to this Agreement and the Significant
Securityholders Agreement and the transactions contemplated hereby and
thereby, the provisions of Section 203 of the DGCL and such action was
effective at (or prior to and as of) the date of this Agreement.
3.1.16 BROKERS. No broker, investment banker, financial advisor or
other Person, other than Furman Selz LLC, is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Vitas. Except as set forth in the
Vitas Disclosure Schedule, the fees and expenses required to be paid to
Furman Selz LLC will not exceed the amounts reflected in the engagement
letter dated March 25, 1996, a copy of which has been delivered to Apria.
3.1.17 OPINION OF FINANCIAL ADVISOR. Vitas has received the opinion
of Furman Selz LLC, dated the date of this Agreement, to the effect that,
as of such date, the consideration to be received in the Merger by the
holders of the Vitas Common Stock is fair to such stockholders from a
financial point of view, and a copy of such executed opinion has been
delivered to Apria for use in the Form S-4 (as hereinafter defined).
3.1.18 CONTRACTS.
(a) The Vitas Disclosure Schedule lists each contract (by date,
parties signatory thereto and subject matter to which Vitas or any of
its subsidiaries or any of their respective assets is subject or
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by which any thereof is bound) that is material to the business of Vitas
or its subsidiary, as the case may be, as defined below ("MATERIAL
CONTRACTS"). The Material Contracts include all contracts of Vitas and
its subsidiaries which fit within the following illustrative categories:
any contract that (i) after May 1, 1996 obligates Vitas or any of its
subsidiaries to pay an amount determinable at the time of its signing in
excess of $500,000, (ii) represents a contract upon which Vitas or any
of its subsidiaries is substantially dependent, (iii) provides for an
extension of credit other than consistent with normal credit terms, (iv)
limits or restricts the ability of Vitas or any of its subsidiaries to
compete or otherwise to conduct its business in any manner or place, (v)
provides for a guaranty or indemnity by Vitas or any of its subsidiaries
(other than customary indemnities in contracts relating to acts or
omissions or the breach of representations or covenants contained
therein) of an amount in excess of $50,000, (vi) grants a power of
attorney, agency or similar authority to another Person or entity, (vii)
requires Vitas or any of its subsidiaries to buy or sell goods or
services with respect to which there will be material losses or will be
costs and expenses materially in excess of expected receipts (other than
as provided for or otherwise reserved against on the most recent balance
sheet of Vitas referred to in Subsection 3.1.5), (viii) was not made in
the ordinary course of business, or (ix) is required by any other
provision of this Agreement to be identified in the Vitas Disclosure
Schedule. Except as set forth in the Vitas Disclosure Schedule, true,
correct and complete copies of the Material Contracts, including all
amendments and supplements, have been delivered to Apria. Each Material
Contract is valid and subsisting. Except as set forth in the Vitas
Disclosure Schedule, there is no litigation pending or, to Vitas'
knowledge, threatened by any party with respect to any Material
Contract. Except as set forth in the Vitas Disclosure Schedule, Vitas
and each of its subsidiaries has duly performed all of its obligations
under each Material Contract to which it is a party to the extent that
such obligations to perform have accrued, and no breach or default,
alleged breach or default, or event which would (with the passage of
time, notice or both) constitute a breach or default thereunder by Vitas
or any of its subsidiaries (or, to Vitas' knowledge, any other party or
obligor with respect thereto), has occurred or as a result of this
Agreement or its performance will occur (assuming receipt of all
required approvals), except for violations or defaults that could not,
individually or in the aggregate, reasonably be expected to result in a
material adverse effect. Except as set forth on the Vitas Disclosure
Schedule, consummation by Vitas of the transactions contemplated by this
Agreement will not (and will not give any Person a right to) terminate
or modify any rights of, or accelerate or augment any obligation of,
Vitas or any of its subsidiaries under any of the Material Contracts
except where such results would not have a material adverse effect.
(b) The Vitas Disclosure Schedule contains a list of each existing
Medicare and Medicaid contract (the "PROGRAM AGREEMENTS") or evidence
thereof relating to the participation by Vitas and its subsidiaries in
the Medicare and Medicaid Programs (the "GOVERNMENTAL PROGRAMS"). The
businesses of Vitas and its subsidiaries are in compliance with all
material terms, conditions and provisions of the Program Agreements
except where the failure to comply would not have a material adverse
effect. Except as set forth in the Vitas Disclosure Schedule, (i) no
notice of any offsets against future reimbursement has been received by
Vitas or any subsidiary, nor to the knowledge of Vitas, is there any
reasonable basis therefor with respect to the Governmental Programs
except with respect to offsets in the ordinary course of business which
could not, individually or in the aggregate, reasonably be expected to
result in a material adverse effect, (ii) there are no pending appeals,
adjustments, challenges, audits, litigation, notices of intent to reopen
or open completed payments with respect to the Governmental Programs
except such adjustments made in the ordinary course of business which
could not, individually or in the aggregate, reasonably be expected to
result in a material adverse effect, and (iii) neither Vitas nor any
subsidiary of Vitas has received notice of pending, threatened or
possible decertification or other loss of participation in any of the
Governmental Programs which remains in effect as of the date hereof.
Vitas and each of its subsidiaries currently have contractual
arrangements with third party payors, the Material Contracts of which
are listed on the Vitas Disclosure Schedule, and copies of which have
been made available to Apria. Vitas and each of its subsidiaries, as
applicable, are in compliance in all material respects with all of
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the terms, conditions and provisions of the contracts referenced in the
immediately preceding sentence.
3.1.19 TITLE TO PROPERTIES.
(a) Neither Vitas nor any of its subsidiaries owns any real
property. Except as set forth in the Vitas Disclosure Schedule, the
Vitas Disclosure Schedule identifies each leasehold interest in real
property of Vitas and each of its subsidiaries. Vitas and its
subsidiaries have valid leasehold interests in, each of the properties
and assets listed on the Vitas Disclosure Schedule, subject only to the
terms of the governing leases with respect to the leasehold interests,
all of which, individually or in the aggregate, would not have a
material adverse effect or affect the ability of Vitas or a subsidiary,
as the case may be, to use, operate or occupy any of such properties
following the Effective Time.
(b) Each of Vitas and its subsidiaries has complied in all material
respects with the terms of all leases to which it is a party and under
which it is in occupancy, and all such leases are to the knowledge of
Vitas in full force and effect and no material defaults (by landlord or
tenant) exist thereunder, except for such defaults, failures to comply
or to be in full force and effect which would not, individually or in
the aggregate, have a material adverse effect or affect the ability of
Vitas or its subsidiaries to operate, use or occupy such leased
properties following the Effective Time. Each of Vitas and its
subsidiaries enjoys peaceful and undisturbed possession under all such
leases.
(c) Except as set forth in the Vitas Disclosure Schedule, true and
complete copies of each of the leases in effect with respect to the
leased properties of Vitas and its subsidiaries have been delivered to
Apria prior to the date hereof and, other than as set forth in such
documents, no consents or approvals with respect thereto are required to
be obtained with respect to the Merger or the use, occupancy or
operation of the leased properties following the Effective Time.
(d) Except as set forth in the Vitas Disclosure Schedule, neither
Vitas nor any of its subsidiaries has received any notices of violation
or is aware of any failure of any of the properties to comply with any
applicable laws, rules or regulations with respect to the use, occupancy
or operation of such properties.
3.1.20 ACCOUNTING MATTERS. Neither Vitas nor, to its knowledge, any
of its affiliates has taken or agreed to take any action or is aware of any
condition that would prevent Apria from accounting for the business
combination to be effected by the Merger as a pooling-of-interests.
3.1.21 VOTING REQUIREMENTS. The approval by the affirmative vote or
consent of a majority of the outstanding shares of Vitas Common Stock
voting as a separate class, as well as by the affirmative vote or consent
of a majority of the shares of the Series B Preferred voting as a separate
class, are the only votes required by the Vitas security holders to approve
this Agreement and the Merger in accordance with the DGCL and the
Certificate of Incorporation (as amended) of Vitas and the Preferred Stock
Certificates (the " VITAS STOCKHOLDER APPROVAL"). Except for the Vitas
Stockholder Approval and as set forth in the Vitas Disclosure Schedule,
there are no consents or approvals required by the Vitas securityholders to
approve this Agreement and the transactions to be consummated by Vitas or
the Vitas securityholders as contemplated hereunder, subject to the
approval contemplated by Section 5.14 of this Agreement.
3.1.22 NONCOMPETITION. Except as set forth in the Vitas Disclosure
Schedule, Vitas and its subsidiaries are not, and after the Effective Time
the Surviving Corporation will not be (by reason of any agreement to which
Vitas or any subsidiary of Vitas is a party), subject to any
non-competition or similar restriction on their respective businesses.
3.1.23 INTELLECTUAL PROPERTY. Vitas and each of its subsidiaries owns
or possesses adequate and enforceable licenses or other rights to use all
patents, trade secrets, trade names, trademarks, inventions and processes
used in the business of Vitas or such subsidiary as currently conducted
(including products and services under development) and has not received
any notice of conflict of infringement which asserts the rights of others
with respect thereto. Vitas owns or rightfully possesses (i) the source
code, recorded on computer magnetic media and not in written form, for its
information systems programs commonly
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known as Vitas Exchange or Vx (the "SOFTWARE"), and (ii) all commentary,
explanations, specifications, documentation, proprietary information, test
programs and program specifications, and descriptions of system/program
generation and programs not owned by Vitas but required for use or support,
relating to the Software that are reasonably necessary for Apria to
maintain and enhance the Software, and to provide a commercially standard
level of service and support to users (as of the date of this Agreement) of
the Software without the aid of any other party other than outside
programmers currently under contract with Vitas and without use of any
other material.
3.1.24 CHAMPUS, MEDICARE AND MEDICAID. Neither Vitas nor any of its
subsidiaries is engaged in termination proceedings as to its participation
in CHAMPUS, Medicare or Medicaid or has received notice that its current
participation, if any, in CHAMPUS, Medicare or Medicaid is subject to any
contest, termination or suspension as a result of alleged violations or any
non-compliance with participation requirements. Except as set forth in the
Vitas Disclosure Schedule, there is no pending or, to the knowledge of
Vitas, threatened proceeding or investigation involving participation by
Vitas or its subsidiaries in the CHAMPUS, Medicare or Medicaid programs.
Except as set forth in the Vitas Disclosure Schedule, to the knowledge of
Vitas, neither Vitas nor any of its subsidiaries has received reimbursement
in excess of the amount provided by law. All material liabilities and
contractual adjustments of the business under any third party payor or
reimbursement programs have been properly reflected and adequately reserved
for in the financial statements as of the dates thereof (with the reserves
being established consistently with past practices). Except as disclosed in
the Vitas Disclosure Schedule, Vitas and each of its subsidiaries have
always been and are currently in compliance in all material respects with
applicable rules and regulations governing reimbursement under the CHAMPUS,
Medicare and Medicaid programs except for noncompliance which individually
or in the aggregate would not have a material adverse effect.
3.1.25 MINUTE BOOKS. Except as disclosed in the Vitas Disclosure
Schedule, the minute books of Vitas and its subsidiaries accurately reflect
all actions and proceedings taken to date by the respective stockholders,
boards of directors and committees of Vitas and its subsidiaries, and such
minute books contain true and complete copies of the charter documents of
Vitas and its subsidiaries and all related amendments. The stock record
books of Vitas and each subsidiary of Vitas reflect accurately all
transactions in their respective capital stock of all classes.
3.1.26 ACCOUNTING RECORDS; INTERNAL CONTROLS.
(a) Vitas and its subsidiaries have records that accurately and
validly reflect in all material respects their respective transactions,
and accounting controls sufficient to insure that such transactions are
(i) executed substantially in accordance with management's general or
specific authorization and (ii) recorded as necessary to permit
presentation of financial statements in conformity with GAAP except, in
each case, as set forth in the Vitas Disclosure Schedule.
(b) The Vitas Disclosure Schedule describes (i) Vitas' policies and
procedures regarding storage of records and (ii) Vitas' disaster
recovery policies and procedures regarding data processing equipment and
software.
3.1.27 INSURANCE. Vitas and its subsidiaries are, and at all times
during the past five years have been, insured with reputable insurers
against all risks normally insured against by companies in similar lines of
business, and all of the insurance policies and bonds maintained by Vitas
and its subsidiaries are to the knowledge of Vitas in full force and
effect. The Vitas Disclosure Schedule lists all insurance policies and
bonds maintained by Vitas and its subsidiaries. Neither Vitas nor any
subsidiary is in default under any such policy or bond. Vitas and its
subsidiaries have timely filed claims with their respective insurers with
respect to all material matters and occurrences for which they believe they
have coverage. Vitas has received no notice or other indication from any
insurer or agent of any intent to cancel or not so renew any of such
insurance policies. Vitas and its subsidiaries have complied in all
material respects with and implemented all outstanding (i) requirements of
and recommendations of any insurance company that has issued a policy with
respect to any of the material properties and assets of Vitas or any
subsidiary
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and (ii) the requirements and recommendations of any Governmental Entity
with respect to any such insurance policy.
3.1.28 DIVIDENDS AND OTHER DISTRIBUTIONS. Except for semi-annual
dividends on the 9% Preferred, there has been no dividend or other
distribution of assets, whether consisting of money, property or any other
thing of value, or securities declared, issued or paid subsequent to the
date of the most recent financial statements described in Subsection 3.1.5
by Vitas or (other than to Vitas) any subsidiary.
3.1.29 CERTAIN INTERESTS. Except as set forth in the Vitas Disclosure
Schedule, no affiliate of Vitas or any subsidiary of Vitas nor any officer
or director of any thereof, has any material interest in any asset used in
or pertaining to the respective businesses of Vitas or its subsidiaries; no
such Person is indebted to Vitas or any of its subsidiaries; and neither
Vitas nor any of its subsidiaries is indebted or otherwise obligated to any
such Person, except for amounts due under normal arrangements applicable to
all employees generally as to salary or reimbursement of ordinary business
expenses not unusual in amount or significance. Except as set forth in the
Vitas Disclosure Schedule and as contemplated by Section 5.14 of this
Agreement, the consummation by Vitas of the transactions contemplated by
this Agreement will not (either alone, or upon the occurrence of any act or
event, or with the lapse of time, or both) result in any benefit or payment
(severance or other) arising or becoming due from Vitas or any of its
subsidiaries or the successors or assigns of any thereof to any Person.
3.1.30 BANK ACCOUNTS, POWERS, ETC. The Vitas Disclosure Schedule
lists each bank, trust company, savings institution, brokerage firm, mutual
fund or other financial institution with which Vitas or any subsidiary of
Vitas has an account or safe deposit box and the names and identification
of all Persons authorized to draw thereon or to have access thereto, and
lists the names of each Person holding powers of attorney or agency
authority from Vitas or any subsidiary of Vitas and a summary of the terms
thereof.
3.1.31 SUPPLIES. All supplies of Vitas and each of its subsidiaries
are of good merchantable quality, reasonably in balance and currently
usable in the ordinary course of business.
3.1.32 SUPPLIERS. The Vitas Disclosure Schedule lists the names of
and describes all contracts (i) between Vitas or its subsidiaries and
suppliers of home medical equipment, respiratory and infusion products,
pharmacy products and medical supplies to the extent that such suppliers
provide at least $100,000 per annum in supplies to Vitas and its
subsidiaries, (ii) to the extent not already included in clause (i), with
the thirty most significant suppliers of the respective businesses of Vitas
and its subsidiaries at the date of this Agreement, and (iii) any
sole-source suppliers of significant goods or services (other than
electricity, gas, telephone or water) to Vitas or any of its subsidiaries
with respect to which alternative sources of supply are not readily
available on comparable terms and conditions.
3.1.33 DISCLOSURE. Except as set forth in the Vitas Disclosure
Schedule, no representation or warranty by Vitas contained in this
Agreement, and no statement contained in the Vitas Disclosure Schedule or
any other document, certificate or other instrument delivered to or to be
delivered by or on behalf of Vitas pursuant to this Agreement, contains or
will contain any untrue statement of a material fact or omit or will omit
to state any material fact necessary, in light of the circumstances under
which it was or will be made, in order to make the statements herein or
therein not misleading.
3.2 REPRESENTATIONS AND WARRANTIES OF APRIA AND SUB. Apria and Sub
represent and warrant to Vitas as follows:
3.2.1 ORGANIZATION, STANDING AND CORPORATE POWER. Each of Apria
and Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has the requisite
corporate power and authority to carry on its business as now being
conducted. Each of Apria and Sub is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the
nature of its business or the ownership or leasing of its properties
makes such qualification or licensing necessary, other than in such
jurisdictions where the failure to be so qualified or licensed
(individually or in the aggregate) would not have a material adverse
effect. Apria has delivered to Vitas complete and correct copies of its
certificate of incorporation and bylaws
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and the certificate of incorporation and bylaws of Sub, in each case as
amended to the date of this Agreement.
3.2.2 CAPITAL STRUCTURE. The authorized capital stock of Apria
consists of 150,000,000 shares of Common Stock, $.001 par value (the
"APRIA COMMON STOCK"), and 10,000,000 shares of Preferred Stock, par
value $.001 per share. At the close of business on June 13, 1996, (i)
50,938,126 shares of Apria Common Stock and no shares of Preferred Stock
were issued and outstanding, and (ii) 5,571,911 shares of Apria Common
Stock were reserved for issuance upon exercise of outstanding employee
stock options to purchase shares of Apria Common Stock. Each share of
Apria Common Stock carries with it a preferred share purchase right (a
"RIGHT") which entitles the holder thereof to purchase, on the
occurrence of certain events, Apria Preferred Stock. Except as set forth
above, at the close of business on June 13, 1996 no shares of capital
stock or other voting securities of Apria were issued, reserved for
issuance or outstanding. All outstanding shares of capital stock of
Apria are, and all shares which may be issued pursuant to this Agreement
will be, when issued, duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights. As of the date of
this Agreement there are no bonds, debentures, notes or other
indebtedness of Apria having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on
which stockholders of Apria may vote. Except as set forth above, as of
the date of this Agreement, there are no outstanding securities,
options, warrants, calls, rights, commitments, agreements, arrangements
or undertakings of any kind to which Apria or any of its subsidiaries is
a party or by which any of them is bound obligating Apria or any of its
subsidiaries to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of capital stock or other voting securities
of Apria or of any of its subsidiaries or obligating Apria or any of its
subsidiaries to issue, grant, extend or enter into any such security,
option, warrant, call, right, commitment, agreement, arrangement or
undertaking. As of the date of this Agreement, there are no outstanding
contractual obligations of Apria or any of its subsidiaries to
repurchase, redeem or otherwise acquire any shares of capital stock of
Apria or its subsidiaries. The authorized capital stock of Sub consists
of 1,000 shares of common stock, par value $.01 per share, of which 100
shares have been validly issued, are fully paid and nonassessable and
are owned by Apria free and clear of any Liens.
3.2.3 AUTHORITY; NONCONTRAVENTION. Apria and Sub have the
requisite corporate power and authority to execute and deliver this
Agreement and to consummate the transactions by Apria contemplated by
this Agreement. The execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement in
accordance with the terms hereof have been duly authorized by all
necessary corporate action on the part of Apria and Sub and no approval
is required by any class or series of capital stock or other securities
of Apria. This Agreement has been duly executed and delivered by Apria
and Sub and constitutes a valid and binding obligation of each such
party, enforceable against each such party in accordance with its terms,
subject to applicable bankruptcy, insolvency, moratorium or other
similar laws relating to creditors' rights and general principles of
equity. The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated by this Agreement and
compliance with the provisions of this Agreement will not, conflict
with, or result in any violation of, or default (with or without notice
or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to loss
of a material benefit under, or result in the creation of any Lien upon
any of the properties or assets of Apria or any of its subsidiaries
under, (i) the certificate of incorporation or bylaws of Apria or Sub,
(ii) any loan or credit agreement, note, bond, mortgage, indenture,
lease or other agreement, instrument, permit, concession, franchise or
license applicable to Apria or any of its subsidiaries or their
respective properties or assets or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Apria or any of its subsidiaries or their respective
properties or assets, other than, in the case of clauses (ii) or (iii),
any such conflicts, violations, defaults, rights, Liens or losses that
individually or in the aggregate would not (x) have a material adverse
effect, (y) impair in any material respect the ability of Apria and Sub
to perform
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their respective obligations under this Agreement or (z) prevent or
materially delay the consummation of any of the transactions
contemplated by this Agreement. No consent, approval, order or
authorization of, or registration, declaration or filing with any
Governmental Entity is required by Apria or any of its subsidiaries in
connection with the execution and delivery of this Agreement or the
consummation by Apria or Sub, as the case may be, of any of the
transactions contemplated by this Agreement, except for (1) the filing
with the Specified Agencies of a premerger notification and report form
under the HSR Act, (2) the filing with the SEC of (A) the Form S-4 and
(B) such reports under Sections 13(a), 13(d) and 16(a) of the Exchange
Act as may be required in connection with this Agreement and the
transactions contemplated by this Agreement, (3) the filing of the
Certificate of Merger with the Delaware Secretary of State and
appropriate documents with the relevant authorities of other states in
which Vitas is qualified to do business and (4) such other consents,
approvals, orders, authorizations, registrations, declarations and
filings, including under the "takeover" or "blue sky" laws of various
states, the failure of which to be obtained or made would not,
individually, or in the aggregate, have a material adverse effect or
prevent or materially delay the consummation of any of the transactions
contemplated by this Agreement.
3.2.4 SEC DOCUMENTS; FINANCIAL STATEMENTS. Since June 30, 1995,
Apria has filed with the SEC all required reports and forms and other
documents (the "APRIA SEC DOCUMENTS"). As of their respective dates, the
Apria SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may
be, and the rules and regulations of the SEC promulgated thereunder
applicable to the Apria SEC Documents, and none of the Apria SEC
Documents contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances
under which they were made, not misleading. Except to the extent that
information contained in any Apria SEC Document has been revised or
superseded by a later Apria SEC Document filed and publicly available
prior to the date of this Agreement, none of the Apria SEC Documents
contains any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of Apria
included in the Apria SEC Documents comply as to form in all material
respects with applicable accounting requirements and the published rules
and regulations of the SEC with respect thereto, have been prepared in
accordance with GAAP (except, in the case of unaudited statements, as
permitted by Form 10-Q of the SEC) applied on a consistent basis during
the periods involved (except as may be indicated in the notes thereto)
and fairly present the consolidated financial position of Apria and its
consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end
adjustments). Except as set forth in the Apria SEC Documents (including
any thereof filed after the date hereof), and except for liabilities and
obligations incurred in the ordinary course of business consistent with
past practice, since the date of the most recent consolidated balance
sheet included in the Apria SEC Documents, neither Apria nor any of its
subsidiaries has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) required by GAAP to be
recognized or disclosed on a consolidated balance sheet of Apria and its
consolidated subsidiaries or in the notes thereto which could reasonably
be expected to have a material adverse effect.
3.2.5 INFORMATION SUPPLIED. None of the information supplied or to
be supplied by Apria or Sub for inclusion or incorporation by reference
in (i) the Form S-4 will, at the time the Form S-4 is filed with the
SEC, at any time it is amended or supplemented or at the time it becomes
effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, or
(ii) the Proxy Statement will, at the date the Proxy Statement is first
mailed to Vitas' stockholders or at the time of the Vitas Stockholders'
Meeting (as defined in Subsection 5.1.2), contain any untrue statement
of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in
light of the circumstances
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under which they are made, not misleading, provided (as to changes that
occur after such mailing) that Vitas supplements the Proxy Statement as
reasonably requested by Apria. If any of such information at any time
subsequent to delivery and prior to the Closing Date becomes untrue or
misleading in any material respect, Apria will promptly notify Vitas in
writing of such fact and the reason of such change. All documents
required to be filed by Apria or any subsidiary with any Governmental
Entity in connection with this Agreement or the transactions
contemplated by this Agreement will comply in all material respects with
the provisions of applicable law. The Form S-4 will comply as to form in
all material respects with the requirements of the Securities Act and
the rules and regulations promulgated thereunder, except that no
representation or warranty is made by Apria or Sub with respect to
statements made or incorporated by reference in either the Form S-4 or
the Proxy Statement based on information supplied by Vitas specifically
for inclusion or incorporation by reference therein. None of the
information supplied or to be supplied by or on behalf of Apria or any
subsidiary to any Person for inclusion in any document or application
filed or to be filed with any Governmental Entity having jurisdiction
over or in connection with the transactions contemplated by this
Agreement did contain, or at the respective times such information is or
was delivered, will contain any untrue statement of a material fact, or
omitted or will omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading or to
correct a prior statement.
3.2.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Apria SEC Documents filed prior to the date of this Agreement, since
the end of the period covered by its most recent Form 10-K, Apria has
conducted its business only in the ordinary course consistent with prior
practice and there has not been (i) any material adverse change in
Apria, (ii) any declaration, setting aside or payment of any dividend or
distribution (whether in cash, stock or property) with respect to any of
Apria's capital stock or any issuance or the authorization of any
issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock, (iii) any damage,
destruction or loss, whether or not covered by insurance, that has or
could have a material adverse effect or (iv) any change in accounting
methods, principles or practices by Apria materially affecting its
assets, liabilities or business, except insofar as may have been
required by a change in GAAP.
3.2.7 LITIGATION; ADMINISTRATIVE PROCEEDINGS. Except as disclosed
in the Apria SEC Documents filed prior to the date of this Agreement,
there is no suit, action, investigation, charge with local, state or
federal administrative agencies, claim involving workers compensation
relating to classes of employees, audit or proceeding pending, or, to
the knowledge of Apria, threatened against Apria or any of its
subsidiaries that, individually or in the aggregate, could reasonably be
expected to (i) have a material adverse effect, (ii) impair in any
material respect the ability of Apria to perform its obligations under
this Agreement or (iii) prevent the consummation by Apria of any of the
transactions contemplated by this Agreement, nor is there any judgment,
decree, injunction, rule of order of any Governmental Entity or
arbitrator outstanding against Apria or any of its subsidiaries having,
or which is reasonably likely to have any effect referred to in the
foregoing clauses (i) through (iii).
3.2.8 COMPLIANCE WITH APPLICABLE LAWS. Each of Apria and its
subsidiaries has in effect all Permits necessary for it to own, lease or
operate its properties and assets and to carry on its business as now
conducted, and there has occurred no default under any such Permit,
except for the lack of Permits and for defaults under Permits which lack
or default individually or in the aggregate would not have a material
adverse effect. Except as disclosed in the Apria SEC Documents filed
prior to the date of this Agreement, Apria and its subsidiaries are in
compliance with all applicable statutes, laws, ordinances, rules, orders
and regulations of any Governmental Entity, except for possible
noncompliance which individually or in the aggregate would not have a
material adverse effect.
3.2.9 BROKERS. No broker, investment banker, financial advisor or
other Person, other than Robertson, Stephens & Company LLC, the fees and
expenses of which will be paid by Apria, is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in
connection
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with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Apria or Sub.
3.2.10 OPINION OF FINANCIAL ADVISOR. Apria has received the
opinion of Robertson, Stephens & Company LLC, dated the date of this
Agreement, to the effect that, as of such date, the consideration to be
paid by Apria in the Merger is fair to Apria and the stockholders of
Apria from a financial point of view, and a signed copy of such opinion
has been delivered to Vitas.
3.2.11 CONTRACTS; DEBT INSTRUMENTS. Except as disclosed in the
Apria SEC Documents filed prior to the date of this Agreement, as of the
date of this Agreement there are no contracts or agreements that are
material to the business, financial condition or results of operations
of Apria. Neither Apria nor any of its subsidiaries is in violation of
or in default under (nor does there exist any condition which upon the
passage of time or the giving of notice, or both, would cause such a
violation of or default under) any loan or credit agreement, note, bond,
mortgage, indenture or lease or other contract agreement, arrangement or
understanding, to which it is a party or by which it or any of its
properties or assets is bound, except for violations or defaults that
could not, individually or in the aggregate, reasonably be expected to
result in a material adverse effect. There has been no material change
as of the date of this Agreement to the amount and terms of the
indebtedness of Apria and its subsidiaries as described in Apria's Form
10-K for the year ended December 31, 1995.
3.2.12 ACCOUNTING MATTERS. Neither Apria nor, to its best
knowledge, any of its affiliates has taken or agreed to take any action
that would prevent Apria from accounting for the business combination to
be effected by the Merger as a pooling-of-interests.
3.2.13 INTERIM OPERATIONS OF SUB.
(a) Sub has engaged in no business activities and has conducted
its operations only as contemplated hereby.
(b) As of the date hereof and the Effective Time, except for
obligations or liabilities incurred in connection with its
incorporation or organization and the transactions contemplated by
this Agreement, Sub has not and will not have incurred, directly or
indirectly, through any subsidiary, any obligations or liabilities or
engaged in any business activities of any type or kind whatsoever.
3.2.14 DISCLOSURE. No representation or warranty by Apria
contained in this Agreement, and no statement contained in any other
document, certificate or other instrument delivered to or to be
delivered by or on behalf of Apria pursuant to this Agreement, contains
or will contain any untrue statement of a material fact or omit or will
omit to state any material fact necessary, in light of the circumstances
under which it was or will be made, in order to make the statements
herein or therein not misleading.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 CONDUCT OF BUSINESS; ACTIONS.
4.1.1 CONDUCT OF BUSINESS BY VITAS. Between the date of this
Agreement and the Effective Time, Vitas shall, and will cause its
subsidiaries to, carry on their respective businesses in the ordinary
course and use all reasonable efforts to preserve intact their current
business organizations, keep available the services of their current
officers and employees and preserve their relationships with suppliers,
providers and others having business dealings with them. Without limiting
the generality of the foregoing, between the date of this Agreement and the
Effective Time, except (i) as contemplated by this Agreement, (ii) as
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set forth in the Vitas Disclosure Schedule, or (iii) as consented to in
writing by Apria, Vitas shall not, and will not permit any of its
subsidiaries to:
(a) (i) declare, set aside or pay (whether in cash, stock,
property, or otherwise) any dividends on, or make any other
distributions in respect of, any of its capital stock, other than
dividends and distributions by any direct or indirect wholly owned
subsidiary of Vitas to its parent and other than the semi-annual
dividend due on the 9% Preferred for the period from January 1, 1996
through June 30, 1996 or thereafter, (ii) split, combine or reclassify
any of its capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of
its capital stock, or (iii) purchase, redeem or otherwise acquire any
shares of capital stock of Vitas or any of its subsidiaries or any other
securities thereof or any rights, warrants or options to acquire any
such shares or other securities;
(b) other than the issuance of Vitas Common Stock upon the exercise
of the Warrants or Stock Options and upon the conversion of the Series B
Preferred outstanding on the date of this Agreement in accordance with
their present terms, (i) issue, deliver, sell, award, pledge, dispose of
or otherwise encumber or authorize or propose the issuance, delivery,
grant, sale, award, pledge or other encumbrance (including limitations
in voting rights) or authorization of, any shares of its capital stock,
any other equity or voting securities or any securities convertible
into, or any rights, warrants or options to acquire, any such shares,
equity or voting securities or convertible securities, (ii) amend or
otherwise modify the terms of any such rights, warrants or options other
than as contemplated by this Agreement, (iii) accelerate the vesting or
exercisability of the Warrants or any of the Stock Options other than as
contemplated by this Agreement, or (iv) contribute to the ESOP any of
its capital stock or other employer security, or cause or allow the ESOP
to acquire or become obligated to acquire any of its capital stock or
other employer security;
(c) amend its certificate of incorporation, bylaws or other
comparable charter or organizational documents other than as
contemplated by this Agreement;
(d) acquire or agree to acquire (for cash or shares of stock or
otherwise) (i) by merging or consolidating with, or by purchasing a
substantial portion of the assets of, or by any other manner, any
business or any corporation, partnership, joint venture, association or
other business organization or division thereof or (ii) any assets
except purchases of equipment and supplies in the ordinary course of
business consistent with past practice;
(e) mortgage or otherwise encumber or subject to any Lien other
than pursuant to agreements or covenants existing on the date of this
Agreement and identified on the Vitas Disclosure Schedule, or sell,
lease, exchange or otherwise dispose of any of, its properties or
assets, except for sales of its properties or assets (or leases entered
into) in the ordinary course of business consistent with past practice;
(f) (i) incur any indebtedness for borrowed money (except for
advances in the ordinary course under existing credit agreements) or
guarantee any such indebtedness of another Person, issue or sell any
debt securities or warrants or other rights to acquire any debt
securities of Vitas or any of its subsidiaries, guarantee any debt
securities of another Person, enter into any "keep well" or other
agreement to maintain any financial statement condition of another
Person or enter into any arrangement to extend its credit or having the
economic effect of any of the foregoing, except in each case in the
ordinary course of business or (ii) make any loans, advances or capital
contributions to, or investments in, any other Person, other than to
Vitas or any direct or indirect wholly owned subsidiary of Vitas;
(g) incur or commit to incur capital expenditures in excess of a
total of $500,000 per calendar month;
(h) make or rescind any express or deemed election relating to
taxes, settle or compromise any claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy relating to
taxes, or change any of its methods of reporting income or deductions
for Federal income tax
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purposes from those employed in the preparation of its Federal income
tax return for the taxable year ending September 30, 1994, except (in
all such cases, relating to taxes), as may be required by applicable
law;
(i) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice, of
liabilities reflected or reserved against in, or contemplated by, the
consolidated financial statements (or the notes thereto) of Vitas for
the fiscal year ended September 30, 1995 or incurred in the ordinary
course of business consistent with past practice;
(j) (i) increase the rate or terms of compensation payable or to
become payable generally to any of Vitas' directors, officers, employees
or independent contractors other than in the ordinary course of business
consistent with past practice, (ii) pay or agree to pay any pension,
retirement allowance or other benefit not provided for by (or in a
manner or at a time not provided in) any existing pension plan, Benefit
Plan or employment agreement described in the Vitas Disclosure Schedule,
(iii) commit itself to any additional pension, profit sharing, bonus,
incentive, deferred compensation, stock purchase, stock option, stock
appreciation right, performance or incentive program, group insurance,
severance pay, continuation pay, termination pay, retirement or other
employee benefit plan, agreement or arrangement, or increase the rate or
terms of any plan or benefit arrangement other than as contemplated by
Sections 5.14, 5.17 and 5.19, (iv) enter into any employment agreement
with or for the benefit of any Person other than employment at will or
(v) increase the rate of compensation under or otherwise change the
terms of any existing employment agreement other than in the ordinary
course of business consistent with past practice; provided, however,
that nothing in this clause (j) shall preclude payments (x) under the
terms of the existing incentive compensation plans of Vitas in
accordance with past practice or (y) pursuant to normal salary
adjustments on the anniversary of hire dates or other benchmark dates in
accordance with past practice;
(k) except in the ordinary course of business, modify, amend,
renew, fail to renew or terminate any Material Contract to which Vitas
or any subsidiary is a party or waive, release or assign any material
rights or claims;
(l) enter into any group enrollment contract, insurance policy or
any other agreement pursuant to the terms of which Vitas or any
subsidiary agrees or is required to underwrite, administer, insure,
reinsure or arrange for the provision of health care services arising
from any group or individual health insurance plan or program;
(m) terminate the participation of any program of Vitas or its
subsidiaries in Medicare, Medicaid or CHAMPUS, or, except in the
ordinary course of business consistent with past practice, other third
party payor program;
(n) take any action which would have the effect of interfering with
or delaying the transactions contemplated by this Agreement; or
(o) authorize any of, or commit or agree to take any of, the
foregoing actions.
4.1.2 ACTIONS BY APRIA. During the period from the date of this
Agreement to the Effective Time, except as (i) contemplated by this
Agreement or (ii) as consented to in writing by Vitas, Apria shall not, and
will not permit any, of its subsidiaries to:
(a) (i) declare, set aside or pay (whether in cash or property, but
excluding stock dividends) any dividends on, or make any other
distributions in respect of, any capital stock other than dividends and
distributions by any direct or indirect wholly owned subsidiary of Apria
to its parent, (ii) combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of Apria's capital stock,
except for a
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stock dividend or stock split or (iii) purchase, redeem or otherwise
acquire any shares of Apria Common Stock;
(b) amend its certificate of incorporation, bylaws or other
comparable charter or organizational documents in a manner which would
reasonably be expected to be materially adverse to the stockholders of
Vitas;
(c) amend the Rights or the agreements under which the Rights are
issued in any manner adverse to the stockholders of Vitas;
(d) change its fiscal year;
(e) take any action which would have the effect of interfering with
or delaying the transactions contemplated by this Agreement; or
(f) authorize, or commit or agree to take any of, the foregoing
actions.
4.1.3 OTHER ACTIONS. Vitas and Apria will not, and shall not permit
any of their respective subsidiaries to, take any action that would result
in (i) any of the representations and warranties of such party set forth in
this Agreement that are qualified as to materiality, becoming untrue, (ii)
any of such representations and warranties that are not so qualified
becoming untrue in any material respect, or (iii) Apria being prevented
from accounting for the business combination to be effected by the Merger
as a pooling-of-interests.
4.2 NO SOLICITATION.
4.2.1 COMPETING PROPOSAL. In light of the consideration given by the
Board of Directors of Vitas prior to the execution of this Agreement to,
among other things, the transactions contemplated hereby and to various
alternatives to the transactions contemplated by this Agreement, in light
of Vitas' representations contained in Subsection 3.1.17 and in light of
the Significant Securityholders Agreement, Vitas agrees that it will not,
nor will it permit any of its subsidiaries to, nor will it authorize or
permit any stockholder, officer, director or employee of, or any investment
banker, attorney or other advisor or representative of, Vitas or any of its
subsidiaries to, solicit or initiate, or encourage the submission of, any
proposal, or participate in any discussions or negotiations regarding, or
furnish to any Person any information with respect to, or take any other
action to facilitate any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Acquisition
Transaction (as defined below); provided, however, that if at any time
prior to the Effective Time or the earlier termination of this Agreement
the Board of Directors of Vitas reasonably determines in good faith, (i)
after consultation with one or more of Vitas' independent financial
advisors, that providing confidential or non-public information to a
financially capable Person (a "POTENTIAL ACQUIROR") could lead to an
Acquisition Transaction more favorable to the holders of Vitas Common Stock
than the Merger and (ii) after consultation with Vitas' outside legal
counsel, that there is a significant risk that the failure to provide such
confidential or non-public information to such Potential Acquiror would
constitute a breach of its fiduciary duty to the stockholders of Vitas,
Vitas may, in response to a Competing Proposal (as defined below)
received by Vitas after the date hereof and subject to compliance with
Subsection 4.2.3, (x) furnish confidential or non-public information with
respect to Vitas to such Potential Acquiror pursuant to a customary
confidentiality agreement and (y) participate in negotiations with such
Potential Acquiror regarding such Competing Proposal. For purposes of
this Agreement "ACQUISITION TRANSACTION" means the direct or indirect
acquisition or purchase of all or any substantial amount of the business
or assets of Vitas or any of its subsidiaries or any substantial amount
of capital stock or other equity interests of Vitas or any of its
subsidiaries, whether by merger, consolidation, business combination,
sale of assets, sale of securities, tender offer, exchange offer,
recapitalization, liquidation, dissolution or otherwise, and whether for
cash, securities or any other consideration or combination thereof.
"COMPETING PROPOSAL" means any proposal or offer (whether or not in
writing and whether or not delivered to Vitas' stockholders generally)
from a Potential Acquiror relating to an Acquisition Transaction.
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4.2.2 ACCEPTANCE OF COMPETING PROPOSAL. Except as set forth in this
Subsection 4.2.2., neither the Board of Directors of Vitas nor any
committee thereof shall (i) withdraw or modify, or propose to withdraw or
modify, in a manner adverse to Apria, the approval or recommendation of
such Board of Directors or such committee of this Agreement or the Merger,
(ii) approve or recommend to the stockholders of Vitas, or propose to
approve or recommend to the stockholders of Vitas, any Competing Proposal
or (iii) cause Vitas to accept or enter into any agreement with respect to
any Competing Proposal; provided, however, that nothing contained in this
Subsection 4.2.2 will prohibit Vitas from entering into any confidentiality
agreement or taking any other action incidental to the actions permitted
pursuant to the proviso to Subsection 4.2.1 so long as Vitas does not
accept a Competing Proposal. Notwithstanding the foregoing, in the event
that, prior to the Effective Time or the earlier termination of this
Agreement, the Board of Directors of Vitas reasonably determines in good
faith (x) after consultation with its financial advisor, that a Competing
Proposal made to Vitas after the date hereof is more favorable to the
stockholders of Vitas than the Merger and that acceptance of such Competing
Proposal is in the best interests of the stockholders of Vitas and (y)
after consultation with its outside legal counsel, that there is a
significant risk that the failure to take any such action would constitute
a breach of its fiduciary duties to Vitas' stockholders, the Board of
Directors of Vitas may withdraw or modify its approval or recommendation of
this Agreement and the Merger, approve or recommend such Competing Proposal
or cause Vitas to accept the Competing Proposal and enter into an agreement
with respect to such Competing Proposal; provided, however, that the Board
of Directors of Vitas may only take any such action if: (A) at least seven
days prior to the withdrawal or modification by the Vitas Board of
Directors of its approval or recommendation of this Agreement or the
acceptance by Vitas of such Competing Proposal, Vitas shall have furnished
Apria with a written notice advising Apria that the Board of Directors of
Vitas has received such Competing Proposal and enclosing a copy of such
Competing Proposal and identifying the Potential Acquiror making such
Competing Proposal, (B) any agreement entered into with respect to the
Competing Proposal shall be made expressly subject to a right of first
refusal hereby granted to Apria (exercisable by Apria at any time within 30
days after Apria's receipt of the agreement with the Potential Acquiror) to
enter into an agreement with Vitas to complete the Acquisition Transaction
contemplated by the Competing Proposal in accordance with the terms
thereof, and (C) in the event Apria advises Vitas in writing that Apria
does not elect to exercise such right of first refusal, Vitas shall
promptly pay to Apria or its designee, on demand, the Termination Fee in
accordance with Section 7.8.
4.2.3 NOTICE OF INQUIRY. Vitas will promptly advise Apria orally and
in writing of any request for information or of any Competing Proposal, or
any inquiry with respect to or which could reasonably be expected to lead
to any Competing Proposal, the material terms and conditions of such
request, Competing Proposal or inquiry, and the identity of the Person
making any such Competing Proposal or inquiry. Vitas will keep Apria
reasonably informed of the status and details of any such request,
Competing Proposal or inquiry.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 PREPARATION OF FORM S-4 AND PROXY STATEMENT; VITAS STOCKHOLDERS'
MEETING.
5.1.1 PROXY STATEMENT. As promptly as practicable after the execution
of this Agreement, (i) Vitas will cooperate with Apria in preparing, filing
and mailing a prospectus and a proxy or information statement including
information relating to Vitas and the vote of Vitas' stockholders to be
held to obtain Vitas Stockholder Approval (together with any amendments and
supplements thereof or supplements thereto, the "PROXY STATEMENT"), and
(ii) Apria will prepare and file with the SEC a registration statement on
Form S-4 (together with all amendments thereto, the "FORM S-4") in which
the Proxy Statement will be included as a prospectus, in connection with
the registration under the Securities Act of the shares of Apria Common
Stock to be issued to the stockholders of Vitas pursuant to the Merger.
Each of Apria and Vitas will use all reasonable efforts to cause the Form
S-4 to become
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effective as promptly as practicable, and Apria will take all or any action
required under any applicable Federal or state securities laws in
connection with the issuance of shares of Apria Common Stock pursuant to
the Merger. Each of Apria and Vitas will use its reasonable efforts to
furnish all information concerning itself to the other as the other may
reasonably request in connection with such actions and the preparation of
the Form S-4 and the Proxy Statement. Apria promptly will advise Vitas when
the Form S-4 has become effective and of any supplements or amendments
thereto, and Vitas will not distribute any written or other materials that
would constitute, as advised by either counsel to Vitas or counsel to
Apria, a "prospectus" relating to the Merger or Apria Common Stock within
the meaning of the Securities Act or any applicable state securities law,
without the prior written consent of Apria. As promptly as practicable
after the Form S-4 has become effective, Vitas and Apria will mail the
Proxy Statement to all of the Vitas stockholders. Apria agrees promptly to
advise Vitas if at any time prior to the Vitas Stockholders' Meeting any
information provided by it in the Proxy Statement is or becomes incorrect
or incomplete in any material respect and to provide Vitas with the
information needed to correct such inaccuracy or omission. Apria will
furnish Vitas with such supplemental information as may be necessary in
order to cause the Proxy Statement, insofar as it relates to Apria and its
subsidiaries, to comply with applicable law after the mailing thereof to
the stockholders of Vitas.
5.1.2 VITAS STOCKHOLDERS' MEETING. As soon as practicable following
the date, and subject to the provisions, of this Agreement, Vitas will call
and hold a meeting of its stockholders (the "VITAS STOCKHOLDERS' MEETING"),
for the purpose of obtaining the required Vitas Stockholder Approval. Vitas
will use its reasonable efforts to solicit from its stockholders proxies,
and will take all other action necessary or advisable to secure the vote or
consent of stockholders required by applicable law to obtain Vitas
Stockholder Approval and, through its Board of Directors, will (subject to
their exercise of fiduciary duties as specified in Section 4.2) recommend
to its stockholders their approval of this Agreement and the Merger. Vitas
agrees promptly to advise Apria if at any time prior to the Vitas
Stockholders' Meeting or the Closing Date any information provided by Vitas
in the Proxy Statement is or becomes incorrect or incomplete in any
material respect and to provide Apria with the information needed to
correct such inaccuracy or omission. Vitas will furnish Apria with such
supplemental information as may be necessary in order to cause the Proxy
Statement, insofar as it relates to Vitas and its subsidiaries, to comply
with applicable law after the mailing thereof to the stockholders of Vitas.
5.2 ACCESS TO INFORMATION; CONFIDENTIALITY. Vitas shall, and will cause
each of its subsidiaries to, afford to Apria, and to the officers, employees,
accountants, counsel, financial advisers and other representatives of Apria,
reasonable access during normal business hours during the period prior to the
Effective Time to all its properties, books, contracts, commitments, personnel
and records and, during such period, Vitas shall, and will cause each of its
subsidiaries to, furnish promptly to Apria, all information concerning its
business, properties and personnel as Apria may reasonably request. Except as
required by law, Apria will hold, and will cause its respective officers,
employees, accountants, counsel, financial advisers and other representatives
and affiliates to hold, any confidential information in accordance with the
terms of that certain Confidentiality Agreement dated March 11, 1996, between
Apria and Vitas (the "CONFIDENTIALITY AGREEMENT").
5.3 REASONABLE EFFORTS; NOTIFICATION; COOPERATION.
5.3.1 ACTIONS TO BE TAKEN. Upon the terms and subject to the
conditions set forth in this Agreement, each of the parties agrees to use
reasonable efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, and to assist and cooperate with the other parties in
doing, all things necessary, proper or advisable to consummate and make
effective, as promptly as practicable, the Merger and the other
transactions contemplated by this Agreement, including (i) the making of
all necessary registrations and filings (including filings with
Governmental Entities), (ii) the obtaining of all necessary consents,
approvals or waivers from third parties, and (iii) the execution and
delivery of any additional instruments or documents as may be necessary or
reasonably requested by the other party to consummate the transactions
contemplated by, and to fully carry out the purposes of, this Agreement.
5.3.2 NOTICE OF CHANGE. Vitas will give notice to Apria, and Apria
will give notice to Vitas, in each case promptly after obtaining knowledge
thereof, of (i) any representation or warranty made by it
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contained in this Agreement that is qualified as to materiality becoming
untrue or inaccurate in any respect or any such representation or warranty
that is not so qualified becoming untrue or inaccurate in any material
respect or (ii) the failure by it to comply with or satisfy in any material
respect any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement, provided, however, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the
parties under this Agreement.
5.3.3 COOPERATION; BEST EFFORTS. Apria and Vitas will use their
respective best efforts to consummate the Merger and other transactions
contemplated by this Agreement and any ancillary agreements in accordance
with the terms hereof.
5.4 STOCK OPTION PLANS.
5.4.1 EXCHANGE OF STOCK OPTIONS. As soon as practicable following the
date of this Agreement, the Board of Directors of Vitas (or, if
appropriate, the committee administering the Stock Options Plans) will
adopt such resolutions or take such other actions as are required to
provide notice (accompanied by a copy of the Proxy Statement included as a
prospectus in the Form S-4) to all holders of Stock Options at the same
time the Proxy Statement is mailed to holders of Vitas Common Stock in
accordance with Subsection 5.1.1, and to confirm that no Stock Option is
exercisable before the moment in time immediately prior to the Effective
Time, whether or not then vested. To the extent not then exercised for
cash, each Stock Option will be exchanged as of the Effective Time into the
right to receive from Apria, upon surrender of the applicable Stock Option
Agreement as provided in Subsection 2.2.2 and (subject to the provisions of
Subsection 5.4.4) confirmation of payment in cash by the holder to Apria
(or other cash withholding from the holder by Apria) of all applicable
withholding taxes associated with the exchange, a number of shares of Apria
Common Stock equal to the quotient obtained by dividing (i) $9.32 less the
sum of (A) any Excess Per Share Debt Amount (as defined in Subsection
2.1.10), (B) the exercise price per share of Vitas Common Stock issuable
upon exercise of the Stock Option and (C) any applicable Vesting Discount
Amount (as defined in EXHIBIT 5.4.1) by (ii) $32.125 (such quotient
referred to herein as "OPTION SPREAD VALUE EXCHANGE RATIO") times the
number of shares of Vitas Common Stock covered by such Stock Option,
subject to any adjustments which may be called for by the next two
sentences. If the Market Price is less than $27.125, the Option Spread
Value Exchange Ratio will be multiplied by a fraction of which the
numerator will be the Market Price Decline Numerator and the denominator
will be the Market Price. If the Market Price is more than $37.125, the
Option Spread Value Exchange Ratio will be multiplied by a fraction of
which the numerator will be the Market Price Increase Numerator and the
denominator will be the Market Price. Vitas will provide to all holders of
Stock Options an appropriate notice regarding the procedures for exchange
and other matters required to implement the arrangements contemplated by
this Subsection 5.4.1.
5.4.2 ADDITIONAL LIMITATIONS. Notwithstanding the foregoing, the
number of shares of Apria Common Stock deliverable to any optionee will not
be reduced to avoid the characterization of any payment or benefit
hereunder or under the Stock Option held by the optionee to be considered a
"parachute payment" within the meaning of Section 280G(b)(2) of the Code.
Rather, Vitas will use its best efforts to require such optionee to
designate other rights, payments or benefits received or to be received
that should be reduced or eliminated so as to avoid the characterization as
a "parachute payment."
5.4.3 TERMINATION OF PLANS. All Stock Options including Stock Options
under Stock Option Agreements not surrendered will terminate as of the
Effective Time and the provisions in any Benefit Plan (other than the ESOP)
providing for the issuance, transfer or grant of any capital stock of Vitas
or any right or interest in respect of any capital stock of Vitas will be
deleted or will terminate as of the Effective Time, and Vitas shall take
reasonable steps to ensure that following the Effective Time no holder of a
Stock Option or any participant in any Stock Option Plan or other Benefit
Plan (other than the ESOP) will have any right thereunder to acquire any
capital stock of Vitas or the Surviving Corporation, or (except as provided
in Subsections 2.1.7 and 5.4.1) any shares of Apria Common Stock.
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5.4.4 WITHHOLDING ARRANGEMENTS. Each holder of a Stock Option (other
than a holder who also is an affiliate of Vitas as determined in accordance
with Subsection 5.10.1) may, in lieu of paying cash to Apria to cover all
applicable withholding taxes, instruct the Exchange Agent to deliver to a
broker designated by Apria (the "DESIGNATED BROKER") a sufficient number of
shares of Apria Common Stock received upon the exchange of such holder's
Stock Options to satisfy the holder's withholding tax liability, with
instructions to the Designated Broker to pay all sale proceeds directly to
Apria to cover all applicable withholding taxes. Each holder of a Stock
Option who is determined to be an affiliate of Vitas may, in lieu of paying
cash to Apria to cover all applicable withholding taxes, deliver to Apria a
full recourse promissory note (the "DEMAND NOTE") in substantially the form
attached as EXHIBIT 5.4.4A in a principal amount equal to all applicable
withholding taxes, bearing interest at the rate of 7% per annum and secured
by a pledge of 50% of the shares of Apria Common Stock received upon
conversion of the holder's Stock Options pursuant to the terms of a pledge
agreement in substantially the form attached as EXHIBIT 5.4.4B. The Demand
Note will be payable on the fifth business day after such holder receives
written notice from Apria that all resale restrictions applicable to such
shares of Apria Common Stock have been lifted, and may be prepaid by the
maker thereof at any time without penalty.
5.4.5 NECESSARY ACTIONS. Apria agrees to take such actions as are
necessary for the issuance, listing on the NYSE and registration under the
Securities Act of the Apria Common Stock to be issued under this Agreement.
5.5 VOTING DIRECTIONS BY ESOP PARTICIPANTS. The appropriate fiduciaries of
the ESOP shall cause the ESOP to obtain and follow the directions of ESOP
participants (in a manner which satisfies the requirements of Section 409(e) of
the Code and any requirements contained in the ESOP), as to the voting of the
shares held by the ESOP with respect to the Vitas Stockholder Approval referred
to in Subsection 3.1.21.
5.6 INDEMNIFICATION AND INSURANCE.
5.6.1 CERTIFICATE OF INCORPORATION. The Surviving Corporation will
keep in effect the provisions in its Certificate of Incorporation and
Bylaws providing for exculpation of director and officer liability and
indemnification to the fullest extent permitted under the DGCL, which
provisions will not be amended, repealed or otherwise modified except as
required by applicable law, or except for changes permitted by law that
would enlarge the right of indemnification or would not adversely affect
the rights thereunder of individuals who on or prior to the Effective Time
were directors, officers, employees or agents of Vitas and its subsidiaries
or fiduciaries of its employee benefit plans.
5.6.2 LIABILITY INSURANCE. For six years from the Effective Time, the
Surviving Corporation will maintain in effect directors' and officers'
liability insurance against claims asserted based on acts or omissions
occurring at or prior to the Effective Time covering those Persons who are
currently covered by Vitas' directors' and officers' liability insurance
policy, a copy of which has been heretofore delivered to Apria, on terms
substantially as favorable as the terms of such insurance coverage;
provided, however, that in no event will the Surviving Corporation be
required to expend in any one year an amount in excess of 200% of the
annual premiums currently paid by Vitas for such insurance; and provided
further that if the annual premiums of such insurance coverage exceed such
amount, the Surviving Corporation will be obligated to obtain a policy with
the best coverage available in its reasonable judgment, after reasonable
inquiry of at least three carriers, for a cost not exceeding such amount.
5.6.3 ASSUMPTION OF OBLIGATIONS. In the event the Surviving
Corporation or any of its successors or assigns (i) consolidates with or
merges into any other Person and is not the continuing or surviving
corporation or entity of such consolidation or merger or (ii) transfers all
or substantially all of its properties and assets to any Person, then and
in each such case, proper provisions will be made so that the successors
and assigns of the Surviving Corporation will assume the obligations set
forth in Section 5.6 if they are not otherwise assumed by operation of law.
5.6.4 SURVIVAL. This Section 5.6 (i) will survive the consummation of
the Merger, (ii) is intended to benefit Vitas and its subsidiaries, the
Surviving Corporation and the individuals who at or before the Effective
Time were directors, officers, fiduciaries, employees and agents of Vitas
and its subsidiaries and
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employee benefit plans and their respective heirs, executors,
administrators, representatives and successors and (iii) is in addition to,
and not in substitution for, any other rights to indemnification,
contribution or insurance that any such person may have by contract or
otherwise.
5.7 LETTERS OF ACCOUNTANTS.
5.7.1 APRIA COMFORT LETTER. Vitas will use its reasonable efforts to
cause to be delivered to Apria "comfort" letters of Ernst & Young LLP,
Vitas' independent public accountants, dated and delivered a date within
two business days before the date on which the Form S-4 becomes effective
and within two business days before the Closing Date, each addressed to
Apria, in form and substance reasonably satisfactory to Apria and
reasonably customary in scope and substance for letters delivered by
independent public accountants in connection with transactions such as
those contemplated by this Agreement.
5.7.2 VITAS COMFORT LETTER. Apria will use its reasonable efforts to
cause to be delivered to Vitas "comfort" letters of Ernst & Young LLP,
Apria's independent public accountants, dated a date within two business
days before the date on which the Form S-4 becomes effective and within two
business days before the Closing Date, each addressed to Vitas, in form and
substance reasonably satisfactory to Vitas and reasonably customary in
scope and substance for letters delivered by independent public accountants
in connection with transactions such as those contemplated by this
Agreement.
5.8 FEES AND EXPENSES. All fees and expenses incurred in connection with
the Merger, this Agreement and the transactions contemplated hereby will be paid
by the party incurring such fees or expenses, whether or not the Merger is
consummated, except as otherwise provided in Subsections 7.8.1 or 7.8.2.
5.9 PUBLIC ANNOUNCEMENTS. Apria and Sub, on the one hand, and Vitas, on
the other hand, will consult with each other before issuing, and provide each
other a reasonable opportunity to review and comment upon, any press release or
other public statements with respect to the transactions contemplated by this
Agreement, including the Merger, and will not issue any such press release or
make any such public statement prior to such consultation, except to the extent
required by applicable law, court process or by obligations pursuant to any
listing agreement with any national securities exchange. The parties agree that
the initial press release to be issued with respect to the transactions
contemplated by this Agreement will be in the form heretofore agreed to by the
parties.
5.10 AFFILIATES; ACCOUNTING AND TAX TREATMENT.
5.10.1 VITAS AFFILIATES. Vitas, in consultation with its legal
counsel, has set forth in the Vitas Disclosure Schedule a list of all
Persons who may be deemed affiliates of Vitas under Rule 145 of the
Securities Act or otherwise under applicable SEC accounting releases with
respect to pooling-of-interests accounting treatment. Vitas will use its
reasonable efforts to obtain at least 30 days prior to the Effective Time a
written agreement in substantially the form of EXHIBIT 5.10.1 from each
such Person who has not signed such a written agreement pursuant to the
terms of the Significant Securityholders Agreement. Vitas also will use its
reasonable efforts to obtain such a written agreement as soon as
practicable from any Person who may be deemed to have become an affiliate
of Vitas after the date of this Agreement and prior to the Effective Time.
5.10.2 POOLING OF INTERESTS. Each party hereto will use its
reasonable efforts to (i) cause the Merger to qualify, and will not take
any actions which could prevent the Merger from qualifying, for
pooling-of-interests accounting treatment and (ii) obtain the letters from
the accountants referred to in Subsections 6.2.5 and 6.3.3 and the opinions
of counsel referred to in Subsections 6.2.4 and 6.3.4 of this Agreement.
Subject to the prior consent of Apria, which shall not be unreasonably
withheld, Vitas will use its best efforts to take such other actions as are
necessary to cure any facts or circumstances that could prevent the Merger
from qualifying for pooling-of-interests accounting treatment. Apria will
use its best efforts to take such other actions as are necessary to cure
any facts or circumstances that could prevent the Merger from qualifying
for pooling-of-interests accounting treatment. For so long as resales of
shares of Apria Common Stock issued pursuant to the Merger are subject to
resale restrictions set forth in
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Rule 145 under the Securities Act, Apria will use its reasonable efforts to
comply with Rule 144(c)(1) under the Securities Act.
5.10.3 COMBINED RESULTS. If the Effective Time occurs on or before
August 31, 1996, Apria will publish results covering at least 30 days of
combined operations of Vitas and Apria in or with its Quarterly Report on
Form 10-Q for the third quarter of 1996, and such publication of results of
combined operations will conform to the requirements of Accounting Series
Release 130, as amended, of the SEC. If the Effective Time occurs
subsequent to August 31, 1996, Apria will publish results covering the
first calendar month of combined operations of Vitas and Apria within 45
days of such calendar month end, and such publication of results of
combined operations will conform to the requirements of Accounting Series
Release 130, as amended, of the SEC.
5.11 CONVEYANCE TAXES. Apria and Vitas will cooperate in the preparation,
execution and filing of all notifications, returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp taxes, any transfer, recording,
registration and other fees, and any similar taxes which become payable by Apria
or Vitas in connection with the transactions contemplated hereby that are
required or permitted to be filed on or before the Effective Time. All such
taxes and expenses shall be borne equally by Apria and Vitas.
5.12 VITAS NOTES; ESOP LOAN WAIVER. The Vitas Disclosure Schedule sets
forth the categories of Vitas indebtedness (the "VITAS NOTES"), including the
ESOP Note, and the amounts outstanding at May 31, 1996. At or immediately
following the Effective Time, Apria will repay, or cause to be repaid, in full
(or assume, if permitted under the existing terms thereof) the then outstanding
principal of the Vitas Notes, and repay or cause to be repaid in full the ESOP
Note, in each case together with interest accrued but unpaid thereon, and any
premium, charge or prepayment penalty (including the LIBOR breakage fee under
Section 4.04 of Vitas' Amended and Restated Revolving Credit Term Loan and
Reimbursement Agreement dated as of February 7, 1995 (the "VITAS CREDIT
AGREEMENT")), to the holders of the Vitas Notes. Prior to the Closing Date,
Vitas shall use its best efforts to secure from Nations Bank all requisite
waivers of defaults under the ESOP loan documents.
5.13 VITAS' BOARD COMPOSITION. Apria and Vitas will take such action as
may be necessary such that the Chairman of the Board of Directors of Apria will,
immediately following the Effective Time, be the sole director of Vitas.
5.14 CONSULTING, SEVERANCE AND NONCOMPETE AGREEMENTS. At or prior to the
Closing Date, Vitas will enter into (i) a Consulting, Severance and
Confidentiality Agreement (the "SEVERANCE AGREEMENT"), and (ii) a Noncompetition
Agreement (the "NONCOMPETITION AGREEMENT") with the Chief Executive Officer of
Vitas (the "VITAS CEO") and, in the case of the Severance Agreement, with the
other parties identified therein, substantially in the forms of EXHIBITS 5.14(A)
and 5.14(B), respectively. The Severance Agreement and the Noncompetition
Agreement will, by their terms, be effective only if the Merger occurs. Vitas
will use its reasonable efforts to solicit from its stockholders proxies, and
will take all other actions necessary or advisable to secure the vote or consent
of 75% of the outstanding shares of Vitas Common Stock and Series B Preferred
(excluding any shares held by the Vitas CEO), voting together as one class, to
each of the payments to be made to the Vitas CEO under the Severance Agreement
and the Noncompetition Agreement.
5.15 REPAYMENT OF AFFILIATE RECEIVABLES. At or prior to the Closing Date,
Vitas agrees that it will use its best efforts to cause to be paid in full (with
accrued and unpaid interest) all amounts owing to Vitas and its subsidiaries by
any stockholder, officer or director or affiliate of Vitas or any of its
subsidiaries.
5.16 PURCHASE OF 9% PREFERRED. At or immediately prior to the Closing
Date, subject to consummation of the Merger, Apria will purchase (and hereby
consents to and approves the purchase and the Merger and waives any notice that
may be required under the 9% Preferred Certificate, the bylaws of Vitas or the
DGCL to effect the Merger) from the holder of the 9% Preferred all outstanding
shares of the 9% Preferred at a price equal to its Stated Value of $100 per
share, together with all accrued and unpaid dividends thereon.
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5.17 EMPLOYEE BENEFITS, EMPLOYMENT.
5.17.1 BENEFIT PLANS. Apria will endeavor to cause the Surviving
Corporation to continue to provide through December 31, 1996 compensation
and benefits to Vitas employees on substantially the same terms and
conditions as exist on the date of this Agreement; provided, however, that
Apria reserves the right at any time following the Effective Time to cause
the Surviving Corporation to amend or terminate the ESOP in any manner
permitted by law. For any Vitas employee who becomes a member of an
employee benefit plan of Apria (an "APRIA BENEFIT PLAN"), Apria will cause
such Apria Benefit Plan to recognize prior service with Vitas and its
affiliates to the extent recognized under the corresponding Vitas benefit
plan prior to the Closing Date as service with Apria and its affiliates.
The foregoing service applies to (i) any Apria Benefit Plan that is not an
employee pension benefit plan for purposes of any waiting period and
eligibility requirements and (ii) any Apria Benefit Plan that is an
employee pension benefit plan, for purposes of eligibility (including
eligibility for early retirement benefits) and vesting (but not benefit
accrual) thereunder. Commencing January 1, 1997, (i) Vitas employees who,
on December 31, 1996, were participating in the Vitas 401(k) Plan, will be
eligible to participate in an Apria 401(k) plan, and (ii) Vitas employees
who on December 31, 1996 were participating in a Vitas health and major
medical plan will be eligible to participate in an Apria health and major
medical plan, subject to the terms and conditions of such plans but not
subject to any waiting periods or (in the case of the health and major
medical plan) preexisting condition exclusions.
5.17.2 VACATION PAY. On and after the Closing Date, Apria will make
paid time off payments (when such paid time off is taken or employment is
terminated) to or with respect to the Vitas employees without regard to
when the liability for such vacation pay arose (including any vacation pay
earned but unpaid as of the Closing Date and any "carryover" or "banked"
vacation pay that had not been paid as of the Closing Date).
5.17.3 FURTHER ACTIONS. Vitas and Apria will take such further action
(before, at or after the Closing Date), if any, as reasonably may be
necessary or convenient to implement the intent of Apria's and Vitas'
agreements contained in this Section 5.17. Vitas will make available to
Apria such information as Apria may reasonably request to enable Apria to
determine such matters relating to employment and salary histories for
purposes of the Apria Benefit Plans.
5.17.4 NO THIRD PARTY RIGHTS. No provision of this Section 5.17 will
create any third party beneficiary rights in any employee or former
employee of Vitas in respect of continued employment (or resumed
employment) or any other matters and no provision of this Section 5.17
shall create any such rights in any such Person in respect of any benefit
plan or arrangement, including any Apria Benefit Plan.
5.18 REVIEW OF VITAS DISCLOSURE SCHEDULE. The parties hereto acknowledge
and agree that Apria has not had sufficient time to review and understand the
information contained or referred to in the Vitas Disclosure Schedule and the
underlying documents referenced therein, and Vitas hereby agrees that, by
executing and delivering this Agreement, Apria will not be deemed to have
accepted, or to have actual or constructive knowledge of, or to have consented
to, any information or disclosures contained or referred to in the Vitas
Disclosure Schedule or such underlying documents until 6:01 p.m., Miami time on
July 17, 1996, unless prior to such time and date this Agreement has been
terminated in accordance with its terms or Apria has notified Vitas in writing
that Apria is waiving its right to terminate this Agreement pursuant to clause
(viii) of Section 7.3. In the event Apria waives such right to terminate or
fails to exercise such right, the Vitas Disclosure Schedules shall be deemed to
have been accepted by Apria as of the date of this Agreement.
5.19 EMPLOYMENT SEVERANCE AGREEMENTS. At or prior to the Closing Date,
Vitas will offer to amend each of the Special Severance Agreements (the "SSAS")
currently in effect with the individuals identified in Section 5.19 of the Vitas
Disclosure Schedule to provide, effective as of the Effective Time, that (i)
Current Compensation (as such term is defined in the SSAs) shall be equal to the
greater of (A) the amount specified as severance per agreement in Section 5.19
of the Vitas Disclosure Schedule and (B) the amount otherwise defined as Current
Compensation, (ii) for certain of the individuals identified in Section 5.19 of
the Vitas Disclosure Schedule Current Compensation, as determined under clause
(i) above, shall be multiplied by one and one-half or two as specified in
Section 5.19 of the Vitas Disclosure Schedule, (iii) for Esther Colliflower
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and J.R. Williams, each of the relevant SSAs and any other relevant documents
shall be modified to provide that the total severance benefit which would
otherwise have been payable under an SSA or any other agreement with such
individual shall be the amount shown for such individual in Section 5.19 of the
Vitas Disclosure Schedule and shall be paid on the Closing Date (it being
understood that such modification shall not impair the agreements of such
individuals to refrain from competition with Vitas) and (iv) for all individuals
identified in Section 5.19 of the Vitas Disclosure Schedule, as a condition to
the other modifications described in this Section 5.19 to provide a waiver of
all claims against Apria. To the extent any individual identified in Section
5.19 of the Vitas Disclosure Schedule has not already entered into an SSA, Vitas
shall enter into its standard SSA with such person as modified above.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
6.1.1 STOCKHOLDER APPROVAL. Vitas Stockholder Approval as referred to
in Subsection 3.1.21 shall have been obtained.
6.1.2 NYSE LISTING. The shares of Apria Common Stock issuable to
Vitas' securityholders (including holders of the Stock Options, Warrants
and Series B Preferred) pursuant to this Agreement shall have been approved
for listing on the NYSE, subject to official notice of issuance.
6.1.3 NO INJUNCTIONS OR RESTRAINTS. No litigation brought by a
Governmental Entity shall be pending, and no litigation shall be threatened
by any Governmental Entity, which seeks to enjoin or prohibit the
consummation of the Merger, and no temporary restraining order, preliminary
or permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect.
6.1.4 FORM S-4. The Form S-4 shall have been declared effective by
the SEC under the Securities Act. No stop order suspending the
effectiveness of the Form S-4 shall have been issued by the SEC, and no
proceedings for that purpose shall have been initiated or, to the knowledge
of Apria or Vitas, threatened by the SEC.
6.1.5 HSR ACT. Any applicable waiting period (and any extension
thereof) under the HSR Act shall have expired or been terminated.
6.1.6 APPROVALS. Other than the filing of merger documents in
accordance with the DGCL, all authorizations, consents, waivers, orders or
approvals required to be obtained, and all filings, notices or declarations
required to be made, by Apria, Sub and Vitas prior to the consummation of
the Merger and the transactions contemplated hereunder shall have been
obtained from, and made with, all required Governmental Entities except for
such authorizations, consents, waivers, orders, approvals, filings, notices
or declarations the failure to obtain or make which would not have a
material adverse effect, at or after the Effective Time, on Vitas or Apria
or on the effectiveness of the Merger.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF APRIA AND SUB. The obligations
of Apria and Sub to effect the Merger also are subject to the following
conditions:
6.2.1 REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of Vitas contained in this Agreement shall be true and correct
in all material respects (except that where any statement in a
representation or warranty expressly includes a standard of materiality,
such statement shall be true and correct in all respects giving effect to
such standard) as of the Closing Date as though made on and as of the
Closing Date, provided that those representations and warranties that
address matters only as of a particular date (including the date of this
Agreement) shall remain true and correct in all respects (except that where
any statement in a representation or warranty expressly includes a
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standard of materiality, such statement shall be true and correct in all
respects giving effect to such standard) as of such date. Apria shall have
received a certificate of the Chief Executive Officer and Chief Financial
Officer of Vitas certifying to the best of their knowledge, to such effect
and to the effect that there has been no antidilution adjustment of the
Series B Preferred, the Warrants or the Stock Options and no event or
transaction has occurred that has required or will, as of the Effective
Time, require an antidilution adjustment of any thereof.
6.2.2 AGREEMENTS AND COVENANTS. Vitas shall have performed or
complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it on or
prior to the Closing Date. Apria shall have received a certificate of the
Chief Executive Officer and Chief Financial Officer of Vitas certifying to
the best of their knowledge, to that effect.
6.2.3 CONSENTS UNDER AGREEMENTS. Vitas shall have obtained the
consent or approval of each Person whose consent or approval shall be
required in connection with the Merger under all loan or credit agreements,
notes, mortgages, indentures, leases or other agreements or instruments to
which it or any of its subsidiaries is a party, except those for which
failure to obtain such consents and approvals would not have a material
adverse effect on the Surviving Corporation after the Effective Time.
6.2.4 RESIGNATION OF DIRECTORS. Each member of the Board of Directors
of Vitas shall have submitted to Vitas a written resignation as a director,
effective upon consummation of the Merger.
6.2.5 POOLING LETTER. Apria shall have received from Ernst & Young
LLP, as independent auditors of Apria, on the date of the Proxy Statement
and on the Closing Date, letters, in each case dated as of such respective
dates, addressed to Apria, in form and substance reasonably acceptable to
Apria regarding its concurrence with the conclusion of the management of
Apria as to the appropriateness of pooling-of-interests accounting for the
Merger under Accounting Principles Board Opinion No. 16 if the Merger is
consummated in accordance with the terms of this Agreement. No action shall
have been taken by any Governmental Entity or any statute, rule, regulation
or order enacted, promulgated or issued by any Governmental Entity, or any
proposal made for any such action by any Governmental Entity which is
reasonably likely to be put into effect, that would prevent Apria from
accounting for the business combination to be effected by the Merger as a
pooling-of-interests.
6.2.6 AFFILIATE AGREEMENTS. Apria shall have received from each
Person who may be deemed to be an affiliate of Vitas (under Rule 145 of the
Securities Act or otherwise under applicable SEC accounting releases with
respect to pooling-of-interests accounting treatment) on or prior to the
Closing Date a signed agreement substantially in the form of EXHIBIT
5.10.1.
6.2.7 SALE OF 9% PREFERRED; EXCHANGE OF WARRANTS. At or immediately
prior to the Closing Date, the holder of the 9% Preferred, subject to
consummation of the Merger, shall have sold or made a binding and
enforceable commitment to sell the 9% Preferred to Apria as contemplated by
Section 5.16 and the holders of the Warrants shall have surrendered the
Warrants for exchange as contemplated by Subsection 2.1.6 and, in each
case, Apria shall have received all instruments reasonably required to be
delivered by the holders of the 9% Preferred and the Warrants to ensure
compliance with such commitments to sell and exchange.
6.2.8 CONVERSION OF SERIES B PREFERRED. At or immediately prior to
the Closing Date, the holders of all the Series B Preferred, subject to
consummation of the Merger, shall have converted or made binding and
enforceable commitments to convert the Series B Preferred into shares of
Vitas Common Stock in accordance with the terms of the Series B Preferred
Certificate, and Apria shall have received all instruments reasonably
required to be delivered by the holders of the Series B Preferred to ensure
compliance with such commitment to convert.
6.2.9 SIGNIFICANT SECURITYHOLDERS AGREEMENT. Each signatory to the
Significant Securityholders Agreement shall have complied in all material
respects with all agreements or covenants required by the Significant
Securityholders Agreement to be performed or complied with by such Person
to the extent such compliance was called for at or prior to the Closing
Date.
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6.2.10 APPRAISAL RIGHTS. The aggregate number of Dissenters Shares
shall not exceed 9% of the outstanding shares of Vitas Common Stock nor
include any outstanding shares of the Series B Preferred.
6.2.11 TERMINATION OF AGREEMENTS. The named investors (or any
successors or assigns of their rights) under the Investor Agreement and the
Stockholders' Agreement shall have acknowledged their waiver of any
preemptive rights to any new common stock of the Surviving Corporation and
any other ongoing obligations of the Surviving Corporation under either
such agreement and such agreements shall be terminated as of the Closing
Date, subject to consummation of the Merger.
6.2.12 APPROVAL OF SEVERANCE AGREEMENT AND NONCOMPETITION AGREEMENT.
The holders of Vitas Common Stock and Series B Preferred shall have
approved the payments to be made under the Severance Agreement and the
Noncompetition Agreement as contemplated by Section 5.14.
6.2.13 EXERCISE OF STOCK OPTIONS AND WARRANTS. On or prior to the
Closing Date, the aggregate number of shares of Vitas Common Stock issued
upon exercise of Stock Options and the Warrants shall not exceed 10% of the
aggregate number of shares of Vitas Common Stock issuable upon exercise
thereof and Vitas shall not have received any notice of exercise that would
result in the issuance of more than said number of shares of Vitas Common
Stock.
6.2.14 OPINIONS OF COUNSEL TO VITAS. Apria shall have received the
opinions of Hogan & Hartson L.L.P., special corporate counsel to Vitas, and
Reed Smith Shaw & McClay, special regulatory counsel to Vitas, both dated
the Closing Date, in substantially the forms attached as EXHIBIT 6.2.14(A)
and EXHIBIT 6.2.14(B), respectively.
6.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF VITAS. The obligations of
Vitas to effect the Merger also are subject to the following conditions:
6.3.1 REPRESENTATIONS AND WARRANTIES. Each of the representations of
Apria contained in this Agreement shall be true and correct in all material
respects (except that where any statement in a representation or warranty
expressly includes a standard of materiality, such statement shall be true
and correct in all respects giving effect to such standard) as of the
Closing Date as though made on and as of the Closing Date, provided that
those representations and warranties that address matters only as of a
particular date (including the date of this Agreement) shall remain true
and correct in all material respects (except that where any statement in a
representation or warranty expressly includes a standard of materiality,
such statement shall be true and correct in all respects giving effect to
such standard) as of such date. Vitas shall have received a certificate of
the Chief Executive Officer and the Chief Financial Officer of Apria
certifying to the best of their knowledge, to such effect.
6.3.2 AGREEMENTS AND COVENANTS. Apria shall have performed or
complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it on or
prior to the Closing Date. Vitas shall have received a certificate of the
Chief Executive Officer and the Chief Financial Officer of Apria certifying
to the best of their knowledge, to such effect.
6.3.3 POOLING LETTER. Vitas shall have received from Ernst & Young
LLP, as independent auditors of Vitas, on the date of the Proxy Statement
and on the Closing Date letters, in each case dated as of such respective
dates, addressed to Vitas, in form and substance reasonably acceptable to
Vitas regarding its concurrence with the conclusion of the management of
Vitas as to the appropriateness of pooling-of-interests accounting for the
Merger under Accounting Principles Board Opinion No. 16 if the Merger is
consummated in accordance with the terms of this Agreement. No action shall
have been taken by any Governmental Entity or any statute, rule, regulation
or order enacted, promulgated or issued by any Governmental Entity, or any
proposal made for any such action by any Governmental Entity which is
reasonably likely to be put into effect, that would prevent Apria from
accounting for the business combination to be effected by the Merger as a
pooling-of-interests.
6.3.4 OPINION OF COUNSEL TO APRIA. Vitas shall have received the
opinion of O'Melveny & Myers LLP, special counsel to Apria, dated the
Closing Date, in substantially the form attached as EXHIBIT 6.3.4.
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ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated by
mutual written consent of Apria and Vitas at any time prior to the Effective
Time, whether before or after Vitas Stockholder Approval.
7.2 TERMINATION BY EITHER APRIA OR VITAS. This Agreement may be terminated
and the Merger may be abandoned by action of the Board of Directors of either
Apria or Vitas, and notice thereof given in writing to the other party (i) if
any Governmental Entity shall have issued an order, decree or ruling or taken
any other action permanently enjoining, restraining or otherwise prohibiting the
consummation of the Merger and such order, decree or ruling or other action
shall have become final and nonappealable, (ii) if the Merger shall not have
occurred by August 31, 1996, unless the failure to consummate the Merger is the
result of a breach of a covenant set forth in this Agreement or a
misrepresentation or breach of any warranty set forth in this Agreement by the
party seeking to terminate this Agreement provided however, such date shall be
extended to September 30, 1996 if the Form S-4 is not declared effective by the
SEC on or before August 1, 1996 (the applicable termination date is referred to
herein as the "EXPIRATION DATE") or (iii) in accordance with Subsection 2.1.9.
7.3 TERMINATION BY APRIA. This Agreement may be terminated by Apria and
the Merger may be abandoned at any time prior to the Effective Time, either
before or after Vitas Stockholder Approval, by action of the Board of Directors
of Apria and notice thereof given in writing to Vitas if (i) there has been a
breach in any material respect (except that where any statement in a
representation or warranty includes a standard of materiality, such statement
shall be true and correct in all respects giving effect to such standard) of any
representation, warranty, covenant or agreement on the part of Vitas set forth
in this Agreement which breach is not curable or, if curable is not cured within
15 days after written notice of such breach is given by Apria to Vitas promptly
after Apria's becoming aware of such breach, (ii) any representation or warranty
of Vitas has become untrue in any material respect, such that the condition set
forth in Subsection 6.2.1 in Apria's reasonable view would be incapable of being
cured or satisfied by the Expiration Date after written notice of such untruth
is given by Apria to Vitas promptly after Apria's becoming aware of such
untruth, (iii) Vitas Stockholder Approval is not obtained at the Vitas
Stockholders' Meeting (or any adjournment thereof) by the Expiration Date unless
due to delay or default on the part of Apria, (iv) approval by the stockholders
of Vitas referred to in Section 5.14 has not been obtained by the Expiration
Date, (v) Vitas accepts a Competing Proposal in accordance with Subsection
4.2.2, (vi) more than 9% of the issued and outstanding shares of Vitas Common
Stock entitled to vote to approve the Merger shall have properly demanded (and
not withdrawn) appraisal of such shares in accordance with Section 262 of the
DGCL with respect to the Merger, (vii) the Debt Adjustment is deemed to occur
and is in excess of $4 million as provided in Subsection 2.1.10 or (viii) at any
time during the period from the date of this Agreement up to 6:00 p.m., Miami
time on July 17, 1996, Apria determines based on its due diligence review of
Vitas that it is inadvisable for Apria to proceed with the Merger.
7.4 TERMINATION BY VITAS. This Agreement may be terminated by Vitas and
the Merger may be abandoned at any time prior to the Effective Time, either
before or after Vitas Stockholder Approval, by action of the Board of Directors
of Vitas and notice thereof given in writing to Apria if (i) there is a breach
in any material respect (except that where any statement in a representation or
warranty includes a standard of materiality, such statement shall be true and
correct in all respects giving effect to such standard) of any representation,
warranty, covenant or agreement on the part of Apria set forth in this Agreement
which breach is not curable or, if curable is not cured within 15 days after
written notice of such breach is given by Vitas to Apria promptly after Vita's
becoming aware of such breach, (ii) any representation or warranty of Apria has
become untrue in any material respect, such that the condition set forth in
Subsection 6.3.1 in Vitas' reasonable view would be incapable of being cured or
satisfied by the Expiration Date after written notice of such untruth is given
by Vitas to Apria promptly after Vitas' becoming aware of such untruth or (iii)
Vitas accepts a Competing Proposal in accordance with the provisions of
Subsection 4.2.2.
7.5 EFFECT OF TERMINATION. In the event of termination of this Agreement
by either Vitas or Apria (or by the mutual written consent of Vitas and Apria)
as provided in this Article VII, this Agreement will
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forthwith become void and have no effect, without any liability or obligation on
the part of Apria, Sub or Vitas, other than the provisions of the last sentence
of Section 5.2, Sections 5.8 and 7.8 which will survive termination and except
to the extent that such termination results from the willful and material breach
by a party of any of its representations, warranties, covenants or agreements
set forth in this Agreement.
7.6 AMENDMENT. This Agreement may be amended by the parties at any time
before or after Vitas Stockholder Approval; provided, however, that after Vitas
Stockholder Approval there shall not be made any amendment that by law requires
further approval by the stockholders of Vitas, such as an amendment that would
(i) alter or change the amount or kind of shares, securities, cash, property or
rights to be received in exchange for or on conversion of all or any of the
shares of any class or series thereof of Vitas, (ii) alter or change any term of
the Certificate of Incorporation of the Surviving Corporation to be effected by
the Merger or (iii) alter or change any of the terms and conditions of this
Agreement if such alteration or change would adversely affect the holders of any
class or series thereof of Vitas, without the further approval of such
stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties.
7.7 EXTENSION; WAIVER. At any time prior to the Effective Time, the
parties may (i) extend the time for the performance of any of the obligations or
other acts of the other parties, (ii) waive any inaccuracies in the
representations and warranties contained in this Agreement or in any document
delivered pursuant to this Agreement or (iii) subject to the proviso of Section
7.6, waive compliance with any of the agreements or conditions contained in this
Agreement. Except as otherwise required by law, (A) any agreement on the part of
a party to any such extension or waiver shall be valid only if set forth in an
instrument in writing, signed on behalf of such party and (B) the failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of those rights.
7.8 TERMINATION FEES AND EXPENSES.
7.8.1 PAYMENTS BY VITAS. If this Agreement is terminated by Vitas
pursuant to clause (iii) of Section 7.4 and Apria does not elect to
exercise its right of first refusal as provided in clause (C) of Subsection
4.2.2, or if Vitas enters into any Acquisition Transaction with a third
party without complying with Subsection 4.2.2, and Apria is not otherwise
in material breach of its obligations under this Agreement, Vitas shall
immediately pay to Apria the sum of $10 million in cash (the "TERMINATION
FEE"). In addition, upon any such termination, Vitas also shall reimburse
Apria (not later than one business day after submission of statements
therefor) for all reasonable fees and expenses incurred by Apria in
connection with the transactions contemplated by this Agreement (including,
without limitation, consulting, accounting, legal and investment banking
fees and expenses incurred by Apria in connection with the transactions
contemplated by this Agreement and in the evaluation of the Competing
Proposal).
7.8.2 PAYMENTS BY APRIA. If this Agreement is terminated by Apria
pursuant to clause (viii) of Section 7.3, and Vitas is not otherwise in
material breach of its obligations under this Agreement, Apria shall
immediately pay to Vitas a sum equal to the lesser of (i) $750,000 or (ii)
all reasonable fees and expenses incurred by Vitas in connection with the
transactions contemplated by this Agreement (including without limitation,
consulting, accounting, legal and investment banking fees and expenses
incurred by Vitas in connection with the transactions contemplated by this
Agreement).
7.9 PROCEDURE FOR TERMINATION, AMENDMENT, EXTENSION OR WAIVER. A
termination of this Agreement pursuant to Sections 7.1, 7.2, 7.3 or 7.4, an
amendment of this Agreement pursuant to Section 7.6 or an extension or waiver
pursuant to Section 7.7 shall, in order to be effective, require in the case of
Apria, Sub or Vitas, action by its Board of Directors or the duly authorized
designee of its Board of Directors.
ARTICLE VIII
GENERAL PROVISIONS
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties in this Agreement shall not survive the Effective Time. This Section
8.1 shall not limit any covenant or agreement of the parties
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herein, in the Significant Securityholders Agreements or in the letters of
affiliates referred to in Subsection 5.10.1 which by their terms contemplate
performance after the Effective Time of the Merger.
8.2 NOTICES. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and will be deemed given
if delivered personally or sent by overnight courier (providing proof of
delivery) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) IF TO APRIA OR SUB:
Apria Healthcare Group Inc.
3560 Hyland Avenue
Costa Mesa, California 92626
Facsimile: (714) 957-0910
Attention: Jeremy M. Jones
with a copy (which shall not constitute notice) to:
O'Melveny & Myers LLP
610 Newport Center Drive, Suite 1700
Newport Beach, California 92660
Facsimile: (714) 669-6994
Attention: William G. Adams, Esq.
(b) IF TO VITAS:
Vitas Healthcare Corporation
100 South Biscayne Boulevard
Suite 1500
Miami, Florida 33131
Facsimile: (305) 577-1089
Attention: Hugh A. Westbrook
with a copy (which shall not constitute notice) to:
Hogan & Hartson L.L.P.
Columbia Square
555 13th Street NW
Washington, DC 20004
Facsimile: (202) 637-5910
Attention: Robert J. Waldman, Esq.
8.3 DEFINITIONS. For purposes of this Agreement:
(a) "AFFILIATE" of any Person means another Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or its under common control with, such first Person;
(b) "BUSINESS" means, when used in connection with Apria, Vitas, a
subsidiary of Vitas or the Surviving Corporation, the business and
operations of the party and is deemed to include all of the following
incidents of such business: income, cash flow, operations, financial
condition, assets, properties, goodwill, intangibles and prospects.
(c) "SUBSIDIARY" of any Person means another Person, an amount of the
voting securities, other voting ownership or voting partnership interests
of which is sufficient to elect at least a majority of its Board of
Directors or other governing body (or, if there are no such voting
interests, 50% or more of the equity interests of which) is owned directly
or indirectly by such first Person;
(d) "MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" means, when
used in connection with Apria, Vitas, or the Surviving Corporation, any
change or effect (or development that insofar as can
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reasonably be foreseen, is likely to result in any change or effect) that
is materially adverse to the business of such party and its subsidiaries
taken as a whole.
(e) "PERSON" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity.
8.4 INTERPRETATION. When a reference is made in this Agreement to a
Subsection, Section, Exhibit or Schedule, such reference is to a Subsection or
Section of, or an Exhibit or Schedule to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" and
"including" are used in this Agreement, they are deemed to be followed by the
words "without limitation". For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires, (i) the
terms defined include the plural as well as the singular, (ii) all accounting
terms not otherwise defined herein have the meanings assigned under GAAP, and
(iii) the words "herein," "hereof" and "hereunder" and other words of similar
import refer to this Agreement as a whole and not to any particular Article,
Section, Subsection or other subdivision.
8.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which are considered one and the same agreement and will
become effective when one or more counterparts have been signed by each of the
parties and delivered to the other parties.
8.6 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement, the
Significant Securityholders Agreement and the Confidentiality Agreement
constitute the entire agreement, and supersede all prior agreements and
understandings (including the letter agreement dated June 6, 1996 among Apria,
Vitas and certain securityholders of Vitas, and the accompanying Term Sheet),
both written and oral, among the parties with respect to the subject matter of
this Agreement. Except (after the Effective Time) for the provisions of Article
II and Sections 5.4 and 5.6, Subsection 5.10.3 and Section 5.14, the provisions
of this Agreement shall not confer upon any Person other than the parties hereto
any rights or remedies.
8.7 GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflict of laws.
8.8 ASSIGNMENT. Neither this Agreement nor any of the rights, interests or
obligations under this Agreement shall be assigned, in whole or in part, by
operation of law or otherwise by any of the parties without the prior written
consent of the other parties. Subject to the preceding sentence and the last
sentence of Section 8.6, this Agreement will be binding upon, inure to the
benefit of, and be enforceable by, the parties and their respective successors
and assigns.
8.9 ENFORCEMENT. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with its specific terms or were otherwise breached. The parties
accordingly agree that the parties will be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Delaware or in Delaware state court, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (i) consents to submit itself to the
personal jurisdiction of any Federal court located in the State of Delaware or
any Delaware state court if any dispute arises out of the Agreement or any of
the transactions contemplated by this Agreement, (ii) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or other request
for leave from any such court and (iii) agrees that it will not bring any action
relating to this Agreement in any court other than a Federal or state court
sitting in the State of Delaware.
41
<PAGE> 186
IN WITNESS WHEREOF, Apria, Sub and Vitas have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
Attest: APRIA HEALTHCARE GROUP INC.
By: /s/ ROBERT S. HOLCOMBE By: /s/ JEREMY M. JONES
----------------------------- ---------------------------
Robert S. Holcombe Jeremy M. Jones
Secretary Chairman of the Board and
Chief Executive Officer
Attest: APRIA NUMBER TWO, INC.
By: /s/ ROBERT S. HOLCOMBE By: /s/ JEREMY M. JONES
----------------------------- ---------------------------
Robert S. Holcombe Jeremy M. Jones
Secretary President
Attest: VITAS HEALTHCARE CORPORATION
By: /s/ MARK A. STERLING By: /s/ HUGH A. WESTBROOK
----------------------------- ---------------------------
Mark A. Sterling Hugh A. Westbrook
Secretary Chairman of the Board and
Chief Executive Officer
42
<PAGE> 187
AMENDMENT NO. 1 TO
AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER ("Amendment") is
made as of August 26, 1996 among APRIA HEALTHCARE GROUP INC., a Delaware
corporation ("Apria"), APRIA NUMBER TWO, INC., a Delaware corporation ("Sub"),
and VITAS HEALTHCARE CORPORATION, a Delaware corporation ("Vitas").
WHEREAS, Apria, Sub and Vitas are parties to an Agreement and Plan of
Merger dated as of June 28, 1996 (the "Agreement"); and
WHEREAS, Apria, Sub and Vitas wish to amend certain of the terms and
conditions of the Agreement as more fully set forth below.
NOW, THEREFORE, in consideration of the foregoing, the parties hereto
agree as follows:
1. Subsection 2.1.6. Subsection 2.1.6 of the Agreement is hereby
amended by deleting the first sentence of Subsection 2.1.6 in its entirety and
replacing it with the following:
"2.1.6 WARRANTS. Each of the stock purchase warrants issued by Vitas
on December 17, 1991 and designated Warrant A and Warrant B to purchase
an aggregate of 3,952,958 shares of Vitas Common Stock (collectively,
the "WARRANTS"), and all associated rights, preferences and
restrictions set forth in the Investor Agreement dated December 17,
1991 among Vitas and the parties named therein (the "INVESTOR
AGREEMENT"), will, in accordance with the provisions of the Significant
Securityholders Agreement, be exchanged for a number of shares of Apria
Common Stock equal to the product of (x) the quotient obtained by
dividing (i) $9.32 less the sum of (A) any Excess Per Share Debt Amount
(as defined below) and (B) the exercise price per share of Vitas Common
Stock issuable upon exercise of the Warrant by (ii) $32.125 (such
quotient referred to herein as the "WARRANT SPREAD VALUE EXCHANGE
RATIO"), times (y) the number of shares of Vitas Common Stock covered
by such Warrant, subject to any adjustments which may be called for by
the next two sentences."
<PAGE> 188
2. Subsection 2.1.7. Subsection 2.1.7 of the Agreement is hereby
amended by inserting the phrase "and provision for tax withholding as provided
in Subsection 5.4.4" immediately after the parenthetical "(the "STOCK OPTION
AGREEMENT")".
3. Subsection 2.2.2. Subsection 2.2.2 of the Agreement is hereby
amended by inserting the parenthetical "(subject in the case of Stock Options to
the provisions of Subsection 5.4.4)" immediately after the phrase "whole shares
of Apria Common Stock" set forth in the penultimate sentence of Subsection
2.2.2.
4. Subsection 5.4.1. Subsection 5.4.1 of the Agreement is hereby
amended by deleting the second sentence of Subsection 5.4.1 in its entirety and
replacing it with the following:
"To the extent not then exercised in accordance with its terms, each
Stock Option will be exchanged as of the Effective Time into the right
to receive from Apria, upon surrender of the applicable Stock Option
Agreement as provided in Subsection 2.2.2 and (subject to the
provisions of Subsection 5.4.4) confirmation of payment in cash by the
holder to Apria (or other cash withholding from the holder by Apria) of
all applicable withholding taxes associated with the exchange, a number
of shares of Apria Common Stock equal to the product of (x) the
quotient obtained by dividing (i) $9.32 less the sum of (A) any Excess
Per Share Debt Amount (as defined in Subsection 2.1.10), (B) the
exercise price per share of Vitas Common Stock issuable upon exercise
of the Stock Option and (C) any applicable Vesting Discount Amount (as
defined in EXHIBIT 5.4.1) by (ii) $32.125 (such quotient referred to
herein as the "OPTION SPREAD VALUE EXCHANGE RATIO"), times (y) the
number of shares of Vitas Common Stock covered by such Stock Option,
subject to any adjustments which may be called for by the next two
sentences."
Subsection 5.4.1 of the Agreement is hereby further amended by
inserting the
2
<PAGE> 189
phrase "and Subsection 5.4.4." to the end of the last sentence of Subsection
5.4.1.
5. Subsection 5.4.4. Subsection 5.4.4 of the Agreement is hereby
amended by deleting such Subsection in its entirety and replacing it with the
following:
"5.4.4 WITHHOLDING ARRANGEMENTS. Each holder of a Stock Option
(other than a holder who also is an affiliate of Vitas as determined in
accordance with Subsection 5.10.1) may, in lieu of paying cash to Apria
to cover all applicable withholding taxes, instruct the Exchange Agent
to deliver to a broker approved by Apria (the "DESIGNATED BROKER") a
sufficient number of shares of Apria Common Stock received upon the
exchange of such holder's Stock Options to satisfy the holder's
withholding tax liability, with instructions to the Designated Broker
to pay all sale proceeds directly to Apria to cover all applicable
withholding taxes. Each holder of a Stock Option who is determined to
be an affiliate of Vitas who has not paid such withholding taxes or
provided to Apria's satisfaction for payment in cash of such
withholding taxes on or before the applicable tax date shall be
obligated to pay the amount thereof and deliver to Apria a full
recourse promissory note (the "DEMAND NOTE") evidencing such obligation
in substantially the form attached as EXHIBIT 5.4.4A in a principal
amount equal to all applicable withholding taxes, with interest from
the applicable tax date at the rate of 7% per annum until paid. This
obligation shall be secured by a pledge as of the Effective Time, for
the benefit of Apria, of 50% of the shares of Apria Common Stock
received upon conversion of the holder's Stock Options, pursuant to the
terms of a pledge agreement in substantially the form attached as
EXHIBIT 5.4.4B. The Exchange Agent shall withhold such number of shares
from delivery to the holder. The obligation and Demand Note will be
payable on the fifth business day after such holder receives written
notice from Apria that all resale restrictions applicable to such
shares of Apria Common Stock have been lifted, and may be prepaid by
the maker thereof at any time without penalty."
6. Section 5.12. Section 5.12 of the Agreement is hereby amended by
deleting the last sentence of such Section in its entirety.
7. Section 5.19. Section 5.19 of the Agreement is hereby amended by
inserting a comma between the words "Schedule" and "Current" in clause (ii)
thereof. Section 5.19 of the Agreement is hereby further amended by deleting
clause (iv) thereof in its entirety and replacing it with the following:
"(iv) for all individuals identified in Section 5.19 of the Vitas
Disclosure Schedule, as a condition to the other modifications
described in this Section 5.19, to provide for a waiver of all claims
against Vitas or Apria or any of their respective affiliates or
agents."
8. Section 7.2. Section 7.2 of the Agreement is hereby amended by
deleting the date "September 30, 1996" from clause (ii) thereof and replacing it
with "October 31,
3
<PAGE> 190
1996."
9. Exhibit 5.4.1. Exhibit 5.4.1 to the Agreement is hereby superseded
in its entirety by Exhibit 5.4.1 attached hereto.
10. Exhibit 5.4.4A. Exhibit 5.4.4A to the Agreement is hereby
superseded in its entirety by Exhibit 5.4.4A attached hereto.
11. Exhibit 5.4.4B. Exhibit 5.4.4B to the Agreement is hereby
superseded in its entirety by Exhibit 5.4.4B attached hereto.
12. Exhibit 5.10.1. Exhibit 5.10.1 to the Agreement is hereby
superseded in its entirety by Exhibit 5.10.1 attached hereto.
13. Exhibit 5.14A. Exhibit 5.14A to the Agreement is hereby superseded
in its entirety by Exhibit 5.14A attached hereto.
14. Exhibit 5.14B. Exhibit 5.14B to the Agreement is hereby superseded
in its entirety by Exhibit 5.14B attached hereto.
15. Other Provisions. All other provisions of the Agreement shall
remain in full force and effect.
16. Defined Terms. Capitalized terms used in this Amendment and not
otherwise defined shall have the meanings set forth in the Agreement.
17. Counterparts. This Amendment may be executed in two or more
counterparts, each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute one and the same instrument.
18. Governing Law. This Amendment shall be governed by, and construed
in accordance with, the laws of the State of Delaware, regardless of the laws
that might otherwise govern under applicable principles of conflict of laws.
4
<PAGE> 191
IN WITNESS WHEREOF, Apria, Sub and Vitas have caused this Amendment to
be signed by their respective officers thereunto duly authorized, all as of the
date first written above.
APRIA HEALTHCARE GROUP INC.
Attest:
By: /s/ Robert S. Holcombe By: /s/ Lawrence H. Smallen
---------------------------- ------------------------------
Robert S. Holcombe Lawrence H. Smallen
Secretary Chief Financial Officer
APRIA NUMBER TWO, INC.
Attest:
By: /s/ Robert S. Holcombe By: /s/ Lawrence H. Smallen
--------------------------- ------------------------------
Robert S. Holcombe Lawrence H. Smallen
Secretary Chief Financial Officer
VITAS HEALTHCARE CORPORATION
Attest:
By: /s/ Mark A. Sterling By: /s/ Hugh A. Westbrook
--------------------------- -----------------------------
Mark A. Sterling Hugh A. Westbrook
Secretary Chairman of the Board and
Chief Executive Officer
5
<PAGE> 192
EXHIBIT 5.4.1
Vesting Discount Amount
For purposes of Subsection 5.4.1 of the Agreement and Plan of
Merger dated as of June 28, 1996, as amended, by and among Apria Healthcare
Group Inc., a Delaware corporation, Apria Number Two, Inc., a Delaware
corporation and a direct wholly-owned subsidiary of Apria Healthcare Group Inc.,
and Vitas Healthcare Corporation, a Delaware corporation (the "MERGER
AGREEMENT"), the Vesting Discount Amount (V) will be calculated for each option
as follows:
V = OS - PV(OS)
-----------
S
where
OS = S * [$9.32 - (D + E)]
PV(OS) = the present value of OS assuming a
7.9% interest rate and equal annual
installments consistent with the
options vesting schedule
S = the number of Vitas shares under option which
are not vested pursuant to the terms of the
related option agreement
D = Excess purchase debt amount, as defined in the
Agreement
E = Exercise price per share
which shall, assuming a Closing Date of August 31, 1996 and no
requirement for a Debt Adjustment, result in a Vesting
Discount Amount to be applied to options which are not vested
pursuant to the terms of the related option agreement as
follows:
<TABLE>
<CAPTION>
Option Vesting
Grant Date Discount Amount
---------- ---------------
<S> <C>
October 27, 1992 $0.014
May 11, 1993 $0.059
September 28, 1993 $0.096
January 25, 1994 $0.116
May 3, 1994 $0.138
June 27, 1994 $0.155
October 24, 1994 $0.198
</TABLE>
<PAGE> 193
EXHIBIT 5.4.4A
DEMAND PROMISSORY NOTE
$________* ________, 1996**
FOR VALUE RECEIVED, ________("MAKER") unconditionally promises to pay to
the order of APRIA HEALTHCARE GROUP INC., a Delaware corporation ("LENDER"), on
demand and in accordance with the provisions set forth below, the principal
amount of ________________Dollars ($________)* with interest on the unpaid
principal balance of this Note, from the date of this Note until the Note is
paid in full, at the rate of seven percent per year. Accrued interest shall be
computed on the basis of a 360-day year, based on the actual number of days
elapsed.
This Note is being delivered in accordance with the terms of that certain
Agreement and Plan of Merger dated June __, 1996, as amended, by and among
Lender, Apria Number Two, Inc., a Delaware corporation and wholly-owned
subsidiary of Lender, and Vitas Healthcare Corporation, a Delaware corporation
(the "AGREEMENT"), including the terms contained in Subsection 5.4.4 of the
Agreement. Each capitalized term used herein without definition shall have the
meaning ascribed to it in the Agreement.
The proceeds from this Note are being used by Maker to pay all withholding
taxes applicable to the exchange of Maker's Stock Options for shares of Lender's
Common Stock in accordance with Subsection 2.1.7 and Section 5.4 of the
Agreement, the aggregate amount of which represents the principal amount [as
completed above]. This Note is secured by that certain Pledge and Security
Agreement of even date herewith. This Note is with full recourse against the
Maker to the extent any recovery on the collateral so pledged is insufficient
to discharge all obligations under this Note.
This Note shall be payable five business days after Lender's delivery to
Maker of written notice that all resale restrictions applicable to the shares of
Apria Common Stock received by Maker in the Merger have been lifted. For
purposes of this Note, notices to Maker shall be deemed given if delivered
personally or sent by overnight courier (providing proof of delivery) to Maker
at the address set forth below the signature of Maker (or such other address for
Maker as shall be specified by like notice to Lender).
If demand for payment hereunder shall be made on a legal holiday under the
laws of the State of California or any other day on which commercial banks in
the City of Los Angeles, California are obligated or authorized by law to close,
such payment shall be made on the next succeeding business day, and such
additional time shall be included in computing interest in connection with such
payment.
All payments hereunder are payable in lawful money of the United States of
America to Lender in immediately available funds at 3560 Hyland Avenue, Costa
Mesa, California 92626, or such other place as Lender shall have designated in
writing to Maker for such purpose at least three days in advance. This Note
shall be governed by and construed and enforced in accordance with the laws of
the State of California. No provision of this Note shall alter or impair the
obligation of Maker, which is absolute and unconditional, to pay the principal
of and interest on this Note in the manner herein prescribed. Maker and any
endorsers of this Note hereby consent to renewals and extensions of time at or
after the maturity hereof, without notice, and hereby waive diligence,
presentment for payment, demand, notice of dishonor and protest of this Note and
further agree that none of the terms or provisions of this Note may be waived,
altered, modified or amended except as Lender may consent thereto in a writing
duly signed for and on its behalf. If this Note is not paid when due, Maker
promises to pay all costs of enforcement and collection, including but not
limited to, reasonable attorney's fees and costs, whether or not any action or
proceeding is brought to enforce the provisions hereof.
The obligations of Maker under this Note constitute absolute,
unconditional, irrevocable, present and continuing obligations, regardless of
any regulation, writ, judgment, injunction, order, decree or award now or
hereafter in effect which might in any way affect any of these terms hereof or
the rights of Lender or any other person against Maker, or which might cause or
permit to be invoked any alteration of the time, amount or manner of payment by
Maker under this Note.
This Note may be prepaid at any time without penalty or premium.
- --------------
* Amount to be inserted is the aggregate amount of withholding taxes
attributable to the option exchange.
** Date to be inserted is the applicable tax date.
1
<PAGE> 194
To the full extent permitted by law, the obligations of Maker under this
Note shall not be subject to any counterclaim, set-off, deduction, diminution,
abatement, recoupment, suspension, deferment, reduction or defense (other than
the full and strict compliance by Maker, as the case may be, with those
obligations) based on any claim that Maker may have against Lender or any other
person.
IN WITNESS WHEREOF, Maker has executed and delivered this Note as of the
date and place first written above.
"MAKER"
--------------------------------------
By:
Address:
2
<PAGE> 195
EXHIBIT 5.4.4B
PLEDGE AND SECURITY AGREEMENT
THIS PLEDGE AND SECURITY AGREEMENT (this "AGREEMENT"), dated as of
_________, 1996, is made by ____________________, an individual ("DEBTOR"), in
favor of Apria Healthcare Group Inc., a Delaware corporation ("SECURED PARTY"),
with reference to the following recitals of fact:
RECITALS
A. Each capitalized term used herein without definition shall
have the meaning ascribed to it in that certain Agreement and Plan of Merger
dated June 28, 1996, as amended, by and among Secured Party, Apria Number Two,
Inc., a Delaware corporation and wholly-owned subsidiary of Debtor, and Vitas
Healthcare Corporation, a Delaware corporation, (the "MERGER AGREEMENT").
Concurrently with the execution of this Agreement, Debtor has executed and
delivered to Secured Party a Demand Promissory Note (the "NOTE") whose proceeds
are or will be used by Debtor to pay all withholding taxes applicable to the
exchange of Debtor's Stock Options for shares of Secured Party's Common Stock in
accordance with Subsection 2.1.7 and Section 5.4 of the Merger Agreement.
B. Pursuant to the terms of the Merger Agreement and the Note,
Debtor has agreed that [____________________] [insert number = 50% of the shares
received by Debtor] of the shares of Common Stock of Secured Party (the
"SHARES") received by Debtor in exchange for Debtor's Stock Options shall serve
as security for the full payment of all amounts due and owing under the Note,
with full recourse against Debtor for any deficiency thereunder.
C. In connection with Secured Party's extension of the loan
evidenced by the Note, and in order to secure the performance of Debtor's
obligations under the Note, Debtor has agreed, among other things, to make the
pledge and grant the security interest to Secured Party as contemplated by this
Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, Debtor and Secured Party agree as
follows:
1. PLEDGE; GRANT OF SECURITY.
(A) SECURITY INTEREST. Debtor hereby pledges,
hypothecates, assigns, grants, transfers, sets over and
<PAGE> 196
delivers to Secured Party and hereby grants and assigns to Secured
Party with power of sale, a continuing security interest in all of
Debtor's right, title and interest in and to the Shares, together with
the certificates representing the Shares, all securities hereafter
delivered to Debtor in substitution for or in addition to the Shares,
all certificates and instruments representing or evidencing such
securities, all securities or other non-cash property at any time and
from time to time received, receivable or otherwise distributed in
respect of any or all of the foregoing, and all securities, cash or
other property at any time and from time to time received, receivable
or otherwise distributed in exchange for any or all of the foregoing,
all of which Debtor shall deliver to Secured Party promptly upon
receipt for retention by Secured Party hereunder. The Shares,
certificates, instruments, securities, cash and other property which
are subject to the pledge and security interest created hereby, are
herein collectively referred to as the "COLLATERAL".
(B) DELIVERY OF CERTIFICATES. Concurrently with the
execution of this Agreement, Debtor shall deliver the certificate or
certificates representing the Shares to the Exchange Agent under the
Merger Agreement, acting for purposes hereof as Secured Party's agent,
together with a stock power endorsed for transfer in blank by Debtor,
to be held by the Exchange Agent for the benefit of the Secured Party
pursuant to this Agreement. The Exchange Agent hereby acknowledges
receipt of such certificate or certificates, together with such stock
power and accepts the agency contemplated hereby. Secured Party shall
at all times have the right to exchange certificates or instruments
representing or evidencing the Collateral for certificates or
instruments of smaller or larger denominations for any purpose
consistent with the terms of this Agreement.
2. SECURITY FOR OBLIGATIONS. This Agreement secures, and the
Collateral is collateral security for, the prompt payment or performance in full
when due, whether at stated maturity, by required prepayment, declaration,
acceleration, demand or otherwise (including the payment of amounts that would
become due but for the operation of the automatic stay under Section 362(a) of
the Bankruptcy Code, 11 U.S.C. Section362(a)), of all obligations and
liabilities of every nature of Debtor now or hereafter existing under or arising
out of the Note and all extensions or renewals thereof, whether for principal,
interest (including without limitation interest that, but for the filing of a
petition in bankruptcy with respect to Debtor, would accrue on such
obligations), fees, expenses, indemnities or otherwise, whether voluntary or
involuntary, direct or indirect, absolute or contingent, liquidated or
unliquidated, whether or not jointly owed with others, and whether or not from
time to time decreased or extinguished and later increased, created or incurred,
and all or any portion of such obligations or liabilities that are paid, to the
extent all or any part of such payment is avoided or recovered directly or
indirectly from Secured Party as a
2
<PAGE> 197
preference, fraudulent transfer or otherwise (all such obligations and
liabilities being the "UNDERLYING DEBT"), and all obligations of every nature of
Debtor now or hereafter existing under this Agreement (all such obligations of
Debtor, together with the Underlying Debt, being the "SECURED OBLIGATIONS").
3. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants
as follows:
(a) AUTHORIZATION. Debtor has full power and authority to
grant security interests in the Collateral, and to execute, deliver,
and perform this Agreement, without the consent or approval of any
other person.
(b) BINDING OBLIGATION. This Agreement constitutes the
legally valid and binding obligation of Debtor, enforceable against
Debtor in accordance with its terms, except as enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws or equitable principles relating to or limiting creditors'
rights generally.
(c) OWNERSHIP OF COLLATERAL. Except for the security
interest created by this Agreement, Debtor owns, or at the time the
Collateral comes into existence will own, the Collateral free and clear
of any lien, mortgage, pledge, assignment, security interest, charge or
encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof, and any agreement
to give any security interest) and any option, trust or other
preferential arrangement having the practical effect of any of the
foregoing (any of the foregoing, a "LIEN"). Except as may have been
filed in favor of Secured Party relating to this Agreement, no
effective financing statement or other instrument similar in effect
covering all or any part of the Collateral is on file in any filing or
recording office.
(d) NO CONFLICT. The execution, delivery and performance
by Debtor of this Agreement will not (i) violate any provision of law
applicable to Debtor, or any order, judgment or decree of any court or
other agency of government binding on Debtor, (ii) be in conflict with,
result in a breach of, or constitute (with due notice or lapse of time
or both) a default under any contractual obligation of Debtor or (iii)
result in or require the creation or imposition of any Lien upon any of
his properties or assets.
(e) OTHER INFORMATION. All information heretofore, herein
or hereafter supplied to Secured Party by or on behalf of Debtor with
respect to the Collateral is accurate and complete in all respects.
3
<PAGE> 198
4. FURTHER ASSURANCES. Debtor agrees that from time to time, at
the expense of Debtor, Debtor will promptly execute and deliver all further
instruments and documents, and take all further action, that may be necessary or
desirable, or that Secured Party may request, in order to perfect and protect
any security interest granted or purported to be granted hereby or to enable
Secured Party to exercise and enforce its rights and remedies hereunder with
respect to any Collateral. Without limiting the generality of the foregoing,
Debtor will (i) execute and file such financing or continuation statements, or
amendments thereto, and such other instruments or notices, as may be necessary
or desirable, or as Secured Party may request, in order to perfect and preserve
the security interests granted or purported to be granted hereby and (ii) at
Secured Party's request, appear in and defend any action or proceeding that may
affect Debtor's title to or Secured Party's security interest in all or any part
of the Collateral.
5. TRANSFERS AND OTHER LIENS. Debtor shall not (i) sell, assign
(by operation of law or otherwise) or otherwise dispose of any of the
Collateral; or (ii) except for the security interest created by this Agreement,
create or suffer to exist any Lien upon or with respect to any of the Collateral
to secure the indebtedness or other obligations of any person or entity; or
(iii) do, or permit or suffer to be done, anything that may impair the value of
the Collateral or the security intended to be effected hereby and shall use its
best efforts to preserve, protect and enhance the value of the Collateral.
6. EVENTS OF DEFAULT. The occurrence of any of the following
events shall constitute an "EVENT OF DEFAULT":
(a) FAILURE TO MAKE PAYMENTS WHEN DUE. Failure of Debtor
to pay any principal, interest or other amount due under the Note when
due, whether by required prepayment, declaration, acceleration,
demand or otherwise; or
(b) BREACH OF COVENANTS. Failure of Debtor to perform or
observe any other term, covenant or agreement on his part to be
performed or observed pursuant to this Agreement or the Note within
five (5) days after written notice of such failure is given to Debtor
by Secured Party; or
(c) BREACH OF REPRESENTATION OR WARRANTY. Any
representation or warranty made by Debtor to Secured Party in
connection with this Agreement or the Note shall prove to have been
false in any material respect when made; or
(d) INVOLUNTARY BANKRUPTCY, ETC. (i) A court having
jurisdiction in the premises shall enter a decree or order for relief
in respect of Debtor in an involuntary case
4
<PAGE> 199
under Title 11 of the United States Code entitled "Bankruptcy" (as now
and hereinafter in effect, or any successor thereto, the "BANKRUPTCY
CODE") or any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, which decree or order is not stayed; or any
other similar relief shall be granted under any applicable federal or
state law or (ii) an involuntary case shall be commenced against Debtor
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect; or a decree or order of a court having
jurisdiction in the premises for the appointment of a receiver,
liquidator, sequestrator, trustee, custodian or other officer having
similar powers over Debtor or over all or a substantial part of
Debtor's property shall have been entered; or the involuntary
appointment of an interim receiver, trustee or other custodian of
Debtor for all or a substantial part of Debtor's property shall have
occurred; or a warrant of attachment, execution or similar process
shall have been issued against any substantial part of the property of
Debtor, and, in the case of any event described in this clause (ii),
such event shall have continued for 60 days unless dismissed, bonded or
discharged; or
(e) VOLUNTARY BANKRUPTCY, ETC. An order for relief shall
be entered with respect to Debtor, or Debtor shall commence a voluntary
case under the Bankruptcy Code or any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, or shall consent to
the entry of an order for relief in an involuntary case, or to the
conversion of an involuntary case to a voluntary case, under any such
law, or shall consent to the appointment of or taking possession by a
receiver, trustee or other custodian for all or a substantial part of
Debtor's property.
7. REMEDIES. If any Event of Default shall have occurred and be
continuing, Secured Party may exercise in respect of the Collateral, in addition
to all other rights and remedies provided for herein or otherwise available to
it, all the rights and remedies of a secured party on default under the Uniform
Commercial Code as in effect in any relevant jurisdiction (the "CODE") (whether
or not the Code applies to the affected Collateral).
8. CONTINUING SECURITY INTEREST; TRANSFER OF NOTE. This Agreement
shall create a continuing security interest in the Collateral and shall (i)
remain in full force and effect until the payment in full of the Secured
Obligations, (ii) be binding upon Debtor, his successors and assigns and (iii)
inure, together with the rights and remedies of Secured Party hereunder, to the
benefit of Secured Party and its successors, transferees and assigns. Without
limiting the generality of the foregoing clause (iii), Secured Party may assign
or otherwise transfer the Note only to any affiliate of Secured Party, and such
affiliate shall
5
<PAGE> 200
thereupon become vested with all the benefits in respect thereof granted to
Secured Party herein or otherwise. Upon the payment in full of all Secured
Obligations, the security interest granted hereby shall terminate and all rights
to the Collateral shall revert to Debtor. Upon any such termination Secured
Party will, at Debtor's expense, execute and deliver to Debtor such documents as
Debtor shall reasonably request to evidence such termination.
9. AMENDMENTS; ETC. No amendment, modification, termination or
waiver of any provision of this Agreement, and no consent to any departure by
Debtor therefrom, shall in any event be effective unless the same shall be in
writing and signed by Secured Party and, in the case of any such amendment or
modification, by Debtor.
10. NOTICES. Any communications between Secured Party and Debtor
and any notices or requests provided herein to be given shall be given in
accordance with the provisions set forth in the Note.
11. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
failure or delay on the part of Secured Party in the exercise of any power,
right or privilege hereunder shall impair such power, right or privilege or be
construed to be a waiver of any default or acquiescence therein, nor shall any
single or partial exercise of any such power, right or privilege preclude any
other or further exercise thereof or of any other power, right or privilege. All
rights and remedies existing under this Agreement are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
12. INDEMNITY AND EXPENSES. Debtor agrees to indemnify Secured
Party from and against any and all claims, losses and liabilities arising out of
or resulting from this Agreement (including, without limitation, enforcement of
this Agreement), except claims, losses or liabilities resulting from Secured
Party's negligence or willful misconduct. Debtor will upon demand pay to Secured
Party the amount of any and all reasonable expenses, including the reasonable
fees and disbursements of counsel and of any experts and agents, which Secured
Party may incur in connection with (i) the administration of this Agreement,
(ii) the custody, preservation, use or operation of, or the sale of, collection
from or other realization upon any of the Collateral, (iii) the exercise or
enforcement of any of its rights hereunder or (iv) the failure by Debtor to
perform or observe any of the provisions hereof.
13. SEVERABILITY. In case any provision in or obligation under
this Agreement shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
6
<PAGE> 201
14. HEADINGS. Section and subsection headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive effect.
15. GOVERNING LAW; TERMS. This Agreement and the rights and
obligations of the parties hereunder shall be governed by, and shall be
construed and enforced in accordance with, the internal laws of the State of
California without regard to conflicts of laws principles, except to the extent
that the Code provides that the validity or perfection of the security interest
hereunder, or remedies hereunder, in respect of any particular collateral are
governed by the laws of a jurisdiction other than the State of California.
Unless otherwise defined herein or in the Note, terms used in Articles 8 and 9
of the Uniform Commercial Code in the State of California are used herein as
therein defined.
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
IN WITNESS WHEREOF, Debtor and Secured Party have caused this Agreement
to be duly executed and delivered as of the date first written above.
"DEBTOR"
By:
--------------------------------
Name:
"SECURED PARTY"
APRIA HEALTHCARE GROUP INC.,
a Delaware corporation
By:
--------------------------------
Name:
7
<PAGE> 202
EXHIBIT 5.10.1
REVISED FORM OF COMPANY AFFILIATE LETTER AGREEMENT
_______, 1996
Apria Healthcare Group Inc.
3560 Hyland Avenue
Costa Mesa, California 92626
Ladies and Gentlemen:
The undersigned has been advised that as of the date of this letter the
undersigned may be deemed to be an "affiliate" of Vitas Healthcare Corporation,
a Delaware corporation ("VITAS"), as the term "affiliate" is (i) defined within
the meaning of Rule 145 of the rules and regulations (the "RULES AND
REGULATIONS") of the Securities and Exchange Commission (the "COMMISSION") under
the Securities Act of 1933, as amended (the "ACT"), and/or (ii) used in and for
purposes of Accounting Series Releases 130 and 135, as amended, of the
Commission. Pursuant to the terms of the Agreement and Plan of Merger dated as
of June 28, 1996, as amended, among Apria Healthcare Group Inc., a Delaware
corporation ("APRIA"), Apria Number Two, Inc., a Delaware corporation ("SUB"),
and Vitas (the "AGREEMENT"), Sub will be merged with and into Vitas (the
"MERGER").
In connection with the Merger, the undersigned will be entitled to receive
shares of Common Stock, par value $.001 per share, of Apria (the "APRIA SHARES")
in exchange, to the extent applicable to the undersigned securityholder, (i) for
shares (or options for shares) of Common Stock of Vitas, $.001 par value per
share (the "VITAS COMMON STOCK"), owned by the undersigned, (ii) for shares of
Vitas Common Stock acquired on conversion of the Series B Convertible Preferred
Stock of Vitas (the "SERIES B PREFERRED") and (iii) for the stock purchase
warrants of Vitas dated December 17, 1991 (the "WARRANTS"). The undersigned has
been advised that you require from the undersigned certain assurances and
representations in connection with your determination of certain accounting
matters relating to the Agreement. The undersigned has also been advised that
the sale or other disposition of Apria Shares to be issued in connection with
the Merger by "affiliates" of Vitas or Apria will be subject to restrictions
under Rule 145 of the Rules and Regulations.
1. PRE-MERGER RESTRICTIONS ON VITAS SECURITIES AND APRIA SHARES;
POST-MERGER POOLING RESTRICTIONS ON APRIA SHARES. The undersigned agrees that
the undersigned will not offer to sell or, sell, transfer or otherwise dispose
of (a) any shares of Vitas Common Stock or other securities of Vitas other than
through (i) (if the undersigned owns Series B Preferred) the undersigned's
exercise of conversion rights to acquire shares of Vitas Common Stock and the
conversion of such shares of Vitas Common Stock into the right to receive Apria
Shares in the Merger, (ii) (if the undersigned holds options to purchase Vitas
Common Stock) the undersigned's exercise of the options to acquire shares of
Vitas Common Stock and the conversion of such shares of Vitas Common Stock into
the right to receive Apria Shares in the Merger, or the conversion of such
options into the right to receive Apria Shares in the Merger, (iii) (if the
undersigned holds Warrants) the exercise of the Warrants for shares of Vitas
Common Stock and the conversion of such shares of Vitas Common Stock into the
right to receive Apria Shares in the Merger or the undersigned's exchange of the
Warrants for Apria Shares in the Merger, or (b) any of the Apria Shares that the
undersigned may now hold or that the undersigned will receive in the Merger
until such time (the "PUBLISHING TIME") as financial results covering at least
30 days of post-merger combined operations of Vitas and Apria have been
published, whether by issuance of a quarterly earnings report on Form 10-Q or
other public issuance (such as a press release) which includes such information.
Further, the undersigned will not engage in any transactions in or with respect
to the shares of Vitas Common Stock or other securities of Vitas or Apria
Shares, including put or call options, from July 1, 1996 until the Publishing
Time other than transactions contemplated by the Agreement.
2. ADDITIONAL RESTRICTIONS ON APRIA SHARES. The undersigned represents,
warrants and covenants to Apria that in the event the undersigned receives any
Apria Shares as a result of the Merger:
(a) The undersigned will not make any sale, transfer or other
disposition of the Apria Shares in violation of the Act or the Rules and
Regulations;
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(b) The undersigned has been advised that the issuance of Apria Shares
to the undersigned pursuant to the Merger will be registered with the
Commission under the Act on a Registration Statement on Form S-4. However,
because the undersigned has been advised that, at the time the Merger is
submitted for a vote of the stockholders of Vitas, (i) the undersigned may
be deemed to be an affiliate of Vitas, and (ii) other than as set forth in
the Agreement, the distribution by the undersigned of the Apria Shares has
not been registered under the Act, the undersigned will not be able to
sell, transfer or otherwise dispose of Apria Shares issued to the
undersigned in the Merger unless (A) such sale, transfer or other
disposition is made in conformity with the volume and other applicable
limitations of Rule 145 promulgated by the Commission under the Act, (B)
such sale, transfer or other disposition has been made pursuant to a
separate effective registration statement under the Act, or (C) in the
opinion of counsel reasonably acceptable to Apria or as described in a
"no-action" or interpretive letter from the staff of the Commission, such
sale, transfer or other disposition is otherwise exempt from registration
under the Act.
(c) The undersigned understands that Apria is under no obligation to
register the sale, transfer or other disposition of the Apria Shares by the
undersigned or on the undersigned's behalf under the Act or to take any
other action necessary in order to make compliance with an exemption from
such registration available solely as a result of the Merger. The
undersigned consents to each company's issuance of stop transfer
instructions with respect to the undersigned's securities of Vitas and the
undersigned's Apria Shares to enforce the restrictions evidenced by this
letter agreement.
(d) The undersigned understands that there will be placed on the
certificates for the Apria Shares issued to the undersigned, or any
substitutions therefor, a legend stating in substance:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE
ISSUED IN A TRANSACTION TO WHICH RULE 145
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, APPLIES. THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY ONLY BE TRANSFERRED IN ACCORDANCE
WITH THE TERMS OF AN AGREEMENT DATED _________, 1996
BETWEEN THE REGISTERED HOLDER HEREOF AND THE
COMPANY, A COPY OF WHICH AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICES OF THE COMPANY.
(e) The undersigned further understands and you agree that the legend
set forth in paragraph (d) above shall be removed by delivery of substitute
certificates without such legend upon the undersigned's request if one or
more of the alternative conditions set forth in clauses (A), (B) and (C) of
paragraph (b) above shall have occurred.
2A. ADDITIONAL COMMITMENTS RE OPTION SHARES. The undersigned, to the extent
of his or her holdings of Stock Options of Vitas to be exchanged for Apria
Common Stock in the Merger, agrees to the provisions and procedures for tax
withholding, to the pledges of the Apria Common Stock and to the deemed loan, as
set forth at pages 44-46 of the Proxy Statement/Prospectus dated July ____, 1996
(the "Disclosure") to the same extent as if such provisions and procedures were
fully set forth herein. If the undersigned fails to deliver the Demand Note as
contemplated, he or she nevertheless hereby agrees to pay to Apria according to
the terms of the form of the Demand Note (Exhibit 5.4.4A) and agrees to the
terms of the pledge and security agreement (Exhibit 5.4.4B), each completed in
accordance with the terms of the Disclosure, to the same extent as if such
obligations were fully set forth herein. The undersigned acknowledges that he or
she has received such Proxy Statement/Prospectus and reviewed the Disclosure.
3. REPORTS. From and after the Effective Time (as defined in the
Agreement) and for so long as necessary in order to permit the undersigned to
sell the Apria Shares pursuant to Rule 145 and, to the extent applicable, Rule
144 of the Rules and Regulations, you agree that Apria will use its best efforts
to file on a timely basis all reports required to be filed by it pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, referred
to in paragraph (c)(1) of Rule 144 (or, if applicable, Apria will use its best
efforts to make publicly available the information regarding itself referred to
in paragraph (c)(2) of Rule 144), in order to permit the undersigned to sell,
pursuant to the terms and conditions of Rule 145 and the applicable provisions
of Rule 144, the Apria Shares.
4. ACKNOWLEDGMENT. The undersigned understands the restrictions and
prohibitions on sales and dispositions also applies to shares held or acquired
under the Vitas Employee Stock Ownership Plan and other benefit plans. The
undersigned understands that if the undersigned receives a distribution of
shares held in the undersigned's account, the undersigned must hold the shares
until the Publishing Time.
5. DISCLAIMER. To the extent the undersigned felt necessary, the
undersigned has discussed this letter and any applicable limitations upon the
sale or other disposition of the undersigned's securities with the undersigned's
counsel.
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Execution of this letter should not be considered an admission on the
undersigned's part that the undersigned is an "affiliate" of Vitas as described
in the first paragraph of this letter, or as a waiver of any rights the
undersigned may have to object to any claim that the undersigned is such an
affiliate on or after the date of this letter.
Very truly yours,
--------------------------------------
ACCEPTED AS OF THIS ____ DAY OF
_______, 1996:
APRIA HEALTHCARE GROUP INC.
BY:
- ----------------------------------------------------
VITAS HEALTHCARE CORPORATION
BY:
- ----------------------------------------------------
3
<PAGE> 205
EXHIBIT 5.14(A)
TO
AGREEMENT AND PLAN OF MERGER
(APPENDIX A)
CONSULTING, SEVERANCE
AND CONFIDENTIALITY AGREEMENT
MADE BY AND BETWEEN
HUGH A. WESTBROOK
COLLIBROOK CONSULTANTS, INC.
ESTHER COLLIFLOWER
AND
VITAS HEALTHCARE CORPORATION
AS OF __________, 1996
<PAGE> 206
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Termination of Employment . . . . . . . . . . . . . . . 2
(a) Termination . . . . . . . . . . . . . . . . . . . . 2
(b) Return of Company Property . . . . . . . . . . . . 2
2. Severance Payment and Benefits . . . . . . . . . . . . . 2
(a) Severance Payment . . . . . . . . . . . . . . . . . 2
(b) Stock Options . . . . . . . . . . . . . . . . . . . 3
(c) Qualified Plan Payments . . . . . . . . . . . . . . 3
(d) COBRA Benefits . . . . . . . . . . . . . . . . . . 3
(e) Taxes . . . . . . . . . . . . . . . . . . . . . . . 4
3. Consulting Services . . . . . . . . . . . . . . . . . . 4
(a) Amount and Nature of Service . . . . . . . . . . . 4
(b) Consulting Fee . . . . . . . . . . . . . . . . . . 4
(c) Taxes . . . . . . . . . . . . . . . . . . . . . . . 4
(d) Independent Contractor Relationship . . . . . . . . 5
(e) Business Expenses . . . . . . . . . . . . . . . . . 5
(f) Compliance; Conflicts . . . . . . . . . . . . . . . 5
(g) Work-Product Owned by Company . . . . . . . . . . . 5
(h) Events of Termination . . . . . . . . . . . . . . . 6
4. General Release . . . . . . . . . . . . . . . . . . . . 6
(a) Release of All Claims . . . . . . . . . . . . . . . 6
(b) ADEA Waiver . . . . . . . . . . . . . . . . . . . . 7
(c) Waiver of Known and Unknown Claims . . . . . . . . 8
(d) Indemnification . . . . . . . . . . . . . . . . . . 8
5. Confidentiality; Cooperation with Legal Process;
Non-Solicitation . . . . . . . . . . . . . . . . . . . . 8
(a) Confidentiality . . . . . . . . . . . . . . . . . . 8
(b) Cooperation With Legal Process . . . . . . . . . . 9
(c) Non-Solicitation . . . . . . . . . . . . . . . . . 9
(d) Nondisclosure of this Agreement . . . . . . . . . . 9
6. Miscellaneous Provisions . . . . . . . . . . . . . . . . 10
(a) Parachute Limitations . . . . . . . . . . . . . . . 10
(b) Construction . . . . . . . . . . . . . . . . . . . 10
(c) Counterparts . . . . . . . . . . . . . . . . . . . 10
(d) Consent to Jurisdiction . . . . . . . . . . . . . . 11
(e) Enforceability Representation . . . . . . . . . . . 11
(f) Consents . . . . . . . . . . . . . . . . . . . . . 11
(g) Waivers . . . . . . . . . . . . . . . . . . . . . . 11
(h) Cooperation . . . . . . . . . . . . . . . . . . . . 11
(i) Opportunity to Review . . . . . . . . . . . . . . . 11
(j) Attorney's Fees . . . . . . . . . . . . . . . . . . 12
(k) Choice of Law . . . . . . . . . . . . . . . . . . . 12
(l) No Reliance . . . . . . . . . . . . . . . . . . . . 12
(m) Severability . . . . . . . . . . . . . . . . . . . 12
(n) Entire Agreement . . . . . . . . . . . . . . . . . 12
(o) Succession . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
i
<PAGE> 207
<TABLE>
<S> <C> <C>
(p) Injunctive Relief . . . . . . . . . . . . . . . . . 13
(q) Independent Agreements and Remedies . . . . . . . . 13
(r) Representation of Westbrook . . . . . . . . . . . . 13
(s) Notice . . . . . . . . . . . . . . . . . . . . . . 13
(t) Revocation . . . . . . . . . . . . . . . . . . . . 14
(u) Third Party Beneficiary . . . . . . . . . . . . . . 15
</TABLE>
ii
<PAGE> 208
CONSULTING, SEVERANCE
AND CONFIDENTIALITY AGREEMENT
This Consulting, Severance and Confidentiality Agreement (this
"Agreement") is entered into by and between HUGH A. WESTBROOK ("Westbrook"),
COLLIBROOK CONSULTANTS, INC. (the "Consultant"), ESTHER COLLIFLOWER
("Colliflower") and VITAS HEALTHCARE CORPORATION (the "Company") on
_____________, 1996 [not less than eight days before the Effective Time of the
Merger].
RECITALS
A. Westbrook is a founder of the Company, has been
instrumental in developing and expanding the business and operations of the
Company and obtaining its financing, possesses valuable knowledge and skills
with respect to such business, including trade secrets, and maintains strong
ties with the business community significant to the business and growth of the
Company.
B. Westbrook has served as Chairman of the Board of
Directors and Chief Executive Officer of the Company, pursuant to an employment
agreement which was made effective March 7, 1992, executed on December 18,
1992, as amended by the First Amendment to Employment Agreement dated as of
June 4, 1993, between the Company and Westbrook and amended and restated by the
Amended and Restated Employment Agreement dated September 12, 1994 (the
"Employment Agreement"), which provides for his services in accordance with the
terms thereof.
C. The parties anticipate that Apria Healthcare Group
Inc. ("Apria") will acquire control of the Company under the terms of an
Agreement and Plan of Merger, dated as of June 28, 1996, as amended, among
Apria, its wholly-owned subsidiary, and the Company (the "Merger Agreement"),
and that Westbrook, Apria and the Company will enter into a Noncompetition
Agreement as of the effective time of the Merger (the "Noncompetition
Agreement").
D. The Merger Agreement contemplates a termination of
Westbrook's services as an employee, officer and director of Company and its
subsidiaries and affiliates as of the Effective Date, the settlement of all
employment related obligations of the Company to Westbrook (except as expressly
provided herein) and the continuation of services through the Consultant under
this Agreement.
E. Subject to the conditions of this Agreement, the
Consultant will provide general and specialized consulting services to Company
during the year following the Merger, and the Consultant, Westbrook and
Colliflower will make additional
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<PAGE> 209
commitments to preserve the Company's goodwill and enhance its other assets and
relationships.
NOW THEREFORE, in consideration of the mutual promises and
covenants herein contained, the parties hereby agree as follows:
1. Termination of Employment.
(a) Termination. Westbrook and the Company hereby agree
that, from and after the effective time of the Merger (the "Effective Date"),
the Employment Agreement will be cancelled and Westbrook will no longer be an
employee, officer or director of the Company or any of its subsidiaries or
affiliates and will be deemed to be retired from the Company. Westbrook
acknowledges that, subject to the payments to be made under this Agreement, as
of the Effective Date, he will have been paid all amounts to which he is
entitled as a result of his active employment with or service to the Company or
such subsidiaries or affiliates at or prior to the Effective Time, including
all salary, incentives and perquisites, including but not limited to any and
all accrued but unused vacation benefits.
(b) Return of Company Property. Except as contemplated
by Section 2(a)(iv), Westbrook agrees to return to the Company promptly upon
request all Company property, including, but not limited to, any Company car,
memberships, keys, credit cards, documents, files and records of any kind
whatsoever that he has in his possession or control (except for any Company
property that Westbrook and the Company agree in writing is necessary to his
provision of the Consulting Services as hereafter defined). The Company agrees
to permit Westbrook to retain copies of certain documents contained in his
office files that are personal in nature.
2. Severance Payment and Benefits. Westbrook agrees with the
Company that, notwithstanding anything in the Employment Agreement or any other
agreement, oral or written, express or implied to the contrary, the following,
together with amounts payable pursuant to Section 3 hereof, accurately reflect
all of the compensation, benefits and perquisites payable or otherwise to be
provided to or for services of Westbrook by the Company at or after the
Effective Date and that neither Westbrook nor Consultant is entitled to any
compensation, benefits, payments or perquisites except as set forth in the
Noncompetition Agreement and this Agreement:
(a) Severance Payment. Westbrook will be entitled to
receive a cash severance payment of $1,250,000 less the sum of (i) all required
withholdings and deductions as contemplated by Section 2(e), (ii) any costs
incurred by the Company in respect of benefits described in Sections 2(d),
(iii) the aggregate amount of all debts or obligations of Westbrook to the
Company or any of its subsidiaries, (iv) the amount or the value of other
2
<PAGE> 210
benefits, including any benefits under the SERP, and perquisites, including the
assigned value of any retained memberships and other property listed on
Schedule 2(a)(iv) hereto, (v) the amount of the Company's Interest (including
any bonus payments) in the Split Dollar Policy or the cash surrender value of
the Split Dollar Policy, whichever is greater, [which interest/policy will be
assigned to ________________ as of the Effective Date], and (vi) the amount of
any required post-closing payments for services by the Company prior to the
Effective Date, (collectively, the "Offsets"). The gross severance payment
less the Offsets (the "Settlement Amount") shall become due and payable in lump
sum on the Effective Date. (Any negative balance of the Settlement Amount may
be offset against payments due under the Noncompetition Agreement.) This
severance payment is for and in lieu of all accrued but unpaid wages and other
compensation of any kind or nature, whether accrued or contingent, known or
unknown, including vacation pay and any bonus, pension, retirement, severance,
incentive, personal or other payments or benefits and (except as required by
law) none thereof shall accrue or be owing on or after the Effective Date;
provided, however, that Westbrook shall be entitled to receive any additional
benefits (without reference to the Settlement Amount) under the 401(k) Savings
Plan and Employee Stock Ownership Plan.
(b) Stock Options. Westbrook acknowledges that any and
all of his rights under any and all of the stock options or other rights
previously granted to Westbrook under any stock related benefit, arrangement or
plan of the Company or otherwise have been settled, to his satisfaction, as of
the Merger Date, in accordance with Section 5.4 of the Merger Agreement.
(c) Qualified Plan Payments. Commencing on the Effective
Date, no further benefits shall accrue under any Company plan qualified under
Section 401(a) of the Internal Revenue Code or under any supplemental executive
retirement plan (the "SERP") or under other plans covering active (as
distinguished from retired) executive officers and/or employees including
without limitation the Employee Stock Ownership Plan, the Performance Bonus
Plan and the 401(k) Savings Plan. No benefits shall commence under the 401(k)
Savings Plan (the "Retirement Plan") until Westbrook ceases to perform
Consulting Services for Company (as provided under Section 3 hereof) or such
earlier date as Company in its sole discretion (consistent with applicable
qualification and other requirements) may permit. No benefits shall accrue
under any employee benefit plan as a result of or in respect of the severance
or any other payment made to Westbrook under this Agreement or the
Noncompetition Agreement.
(d) COBRA Benefits. Westbrook shall have the option to
convert and continue his health insurance on or after the Effective Date as may
be required or authorized by law under the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA"). Westbrook acknowledges and agrees that,
except as set forth in this Agreement, no other life, health, accident,
disability or
3
<PAGE> 211
other insurance policies will be provided for him by the Company after the
Effective Date.
(e) Taxes. All compensation, benefits and perquisites
payable under this Section 2 shall be paid after any withholding for taxes or
other charges and authorized deductions required (or permitted hereunder) to be
withheld by the Company, including but not limited to any federal income taxes,
any applicable state taxes, FICA, Medicare, and any similar state taxes or
required state withholdings.
3. Consulting Services.
(a) Amount and Nature of Service. The Company hereby
engages the Consultant to provide the services of Westbrook and Westbrook
hereby agrees to serve on behalf of the Consultant until the 1st anniversary of
the Effective Date (the "Consulting Term") at reasonable times and upon
reasonable notice, as an advisor and consultant to the Company in all matters
affecting its business, taking into account Westbrook's business, personal,
philanthropic, governmental and political commitments and activities. The
Consultant agrees to provide the services of Westbrook to perform its duties
hereunder; provided, however, that in the event of the death or disability of
Westbrook such services will be performed by Colliflower on behalf of the
Consultant and further provided that in the event of death or disability of
both Westbrook and Colliflower such services will be provided by an employee of
the Consultant of comparable stature in the industry, reasonably satisfactory
to the Company. Without limiting the foregoing, the Consultant agrees that the
consulting services provided by Westbrook will include consultation with and
assistance to the Company, whenever reasonably requested by either of the top
two senior executive officers of Apria or the Company, in connection with
issues involving acquisitions, operations, finance, industry conditions,
legislation, litigation, any governmental or other regulations, or other
developments involving or affecting the Company or any of its affiliated or
associated entities. The Consultant agrees to cause Westbrook to provide such
advice and consulting services and Westbrook agrees to provide them
(collectively, the "Consulting Services") upon a request therefor communicated
to him by either of the top two senior executive officers of the Company or
Apria. During the Consulting Term, the Consultant shall cause Westbrook to use
and he shall use his reasonable efforts and abilities to promote the Company's
interests.
(b) Consulting Fee. In consideration of the Consulting
Services to be performed during the term and provided those services are
performed in accordance with the terms hereof, the Consultant shall be entitled
to receive a consulting fee of $250,000, which shall be advanced on the
Effective Date.
(c) Taxes. The Consultant agrees to accept exclusive
liability for the payment of all federal and state taxes or
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contributions for unemployment insurance or old age pensions or annuities or
social security payments which are measured by payments to the Consultant or
the employees of the Consultant for the performance of the Consulting Services.
Consultant agrees fully to defend, indemnify and hold harmless the Company from
the payment of taxes, interest, penalties or contributions which are required
of the Company by any government agency at any time as the result of payment of
the amounts set forth in this Section 3 or which the Company may otherwise be
compelled to pay (except to the extent required by law to be withheld and in
fact withheld) by the Company. The Consultant further agrees to comply with
all valid administrative regulations respecting the assumption of liability for
such taxes and contributions. Westbrook guarantees the Consultant's payment
obligations under this Section 3(c).
(d) Independent Contractor Relationship. This Agreement
establishes between the Consultant and the Company an independent contractor
relationship and all the terms and conditions of this Agreement shall be
interpreted in light of that relationship. There is no intention to create, by
way of this Agreement, an employer-employee relationship with Westbrook or
Colliflower and neither Westbrook nor Colliflower shall serve as an officer or
director of the Company. Except where expressly agreed upon in writing by an
executive officer of Apria (an "Authorized Officer") or authorized by the
Board, none of the Consultant, Westbrook or Colliflower shall have or represent
that it, he or she has general authority to enter into, and nor shall enter
into, any agreement or obligation on behalf of or in the name of the Company or
any affiliate or otherwise purport to bind the Company or any affiliate.
(e) Business Expenses. The Consultant will be eligible
to be reimbursed for reasonable business expenses (other than overhead)
incurred in providing the Consulting Services to the Company in accordance with
the Company's policy for independent contractors as in effect from time to
time.
(f) Compliance; Conflicts. In rendering services
hereunder, the Consultant and its employees and agents, including Westbrook and
Colliflower, shall obtain and maintain all necessary or appropriate licenses,
permits and registrations and shall comply with all applicable laws and
regulations and policies of the Company. The Consultant shall ensure that
Westbrook and Colliflower will not pursue any business opportunities which
constitute or may constitute or appear to constitute a conflict of interest or
which materially interfere with, delay, jeopardize or otherwise conflict with
the Consultant's or their duties under this Agreement, without the prior
written consent of an Authorized Officer, which (in the case of possible or
apparent conflicts (as distinguished from actual conflicts)) shall not be
unreasonably withheld.
(g) Work-Product Owned by Company. All information
developed under this Agreement, of whatever type relating to the
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work performed under this Agreement, shall be the exclusive property of the
Company. All writings, instruments or other items produced or assembled by
Westbrook or Colliflower pursuant to this Agreement, shall be the exclusive
property of Company.
(h) Events of Termination. The Consultant's services
hereunder shall be terminated and all of its rights to retain consulting fees
hereunder in respect of the remaining term shall terminate in the event that
(a) the Consultant or Westbrook (or, during any service by her, Colliflower) is
found guilty by a court or regulatory body of having committed fraud or theft
against the Company or any governmental entity or having committed a felony
involving moral turpitude; (b) the Consultant, Westbrook or (during the period
of her service to the Consultant) Colliflower, in the reasonable judgment of
the Board, has compromised trade secrets or other proprietary information of
the Company and such breach or compromise has a significant adverse effect on
the Company; (c) Westbrook has breached in any material respect the terms of
this Agreement and has failed to cure such breach within 30 days after written
notice from the Company; (d) in the reasonable judgment of the Board, Westbrook
or the Consultant has neglected or willfully failed or refused to perform
material assigned duties and such failure or refusal continues for 30 days
after written notice from the Company specifying the manner in which he has
neglected, or willfully failed or refused to perform such duties; or (e) in the
reasonable judgment of the Board, the Consultant or Westbrook engaged in gross
or willful misconduct that causes substantial and material harm to the
business, operations or reputation of the Company or a subsidiary or any
affiliate.
If the Consultant or Westbrook fails or refuses to perform Consulting Services
in the manner specified in this Section 3 and has failed to cure such breach
within 30 days after written notice from the Company or the Company terminates
the Consultant or Westbrook pursuant to any of the provisions of this Section
3(h), the Company shall so notify the Consultant and in addition to the other
rights and remedies of the Company for breach of this Agreement, the Company
may offset against the amount that is due and payable to Westbrook or the
Consultant under any other agreement (including the Noncompetition Agreement)
an amount equal to:
$250,000 X (365 DAYS - NUMBER OF DAYS BEFORE TERMINATION)
----------------------------------------------
365 DAYS
4. General Release.
(a) Release of All Claims. In further consideration of
the foregoing, except as provided in the last paragraph of this Section 4 and
the obligations undertaken by the Company pursuant to this Agreement [and the
Noncompetition Agreement], Westbrook, on his own behalf and on behalf of his
descendants, dependents, heirs, executors, successors, assigns and
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administrators hereby (1) covenants not to sue, (2) fully releases and
discharges, and (3) agrees to indemnify and hold harmless the Company and each
of its parent, subsidiary and/or related companies or entities, and each of its
and/or their executors, administrators, partners, predecessors, successors,
assigns, officers, directors, shareholders, representatives, attorneys,
employees and agents, past and present, with respect to and from and against
any and all claims, demands, obligations, causes of action, debts, expenses,
damages, judgments, orders and liabilities of whatever kind or nature, in law,
equity or otherwise, whether now known or unknown, suspected or unsuspected,
matured or unmatured, and whether or not concealed or hidden (collectively, the
"Claims"), which Westbrook now owns or holds or has at any time heretofore
owned or held or had, or may at any time own or hold or have, against the
Company, including without limiting the generality of the foregoing, any Claims
arising out of or in any way connected with (i) any transactions, occurrences,
acts or omissions regarding or relating to his employment with the Company, or
the termination of his employment, including without limitation any claims
arising from any alleged violation by the Company of any federal, state or
local statutes, ordinances or common laws, including, but not limited to, the
Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964
and/or the Civil Rights Act of 1991, the Americans with Disabilities Act, and
the Family and Medical Leave Act of 1993, or any claim for severance pay,
bonus, sick leave, holiday pay, vacation pay, life insurance, health or medical
insurance or any other fringe benefit, workers' compensation or disability.
(b) ADEA Waiver. Westbrook expressly acknowledges and
agrees that, by entering into this Agreement, he is waiving any and all rights
or claims that he may have arising under the Age Discrimination in Employment
Act of 1967, as amended, which have arisen on or before the date of execution
of this Agreement. Westbrook further expressly acknowledges and agrees that:
(1) In return for this Agreement, he will receive
consideration beyond that which he was already entitled to receive
before entering into this Agreement;
(2) He was orally advised by Company and is hereby
advised in writing by this Agreement to consult with an attorney
before signing this Agreement;
(3) He was given a copy of this Agreement on September __,
1996, and informed that he had at least 21 days within which to
consider the Agreement; and
(4) He was informed that he has seven (7) days following
the date of execution of the Agreement in which to revoke the
Agreement.
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(c) Waiver of Known and Unknown Claims. It is the
intention of Westbrook in executing this Agreement that the same shall be
effective as a bar to each and every claim, demand and cause of action
hereinabove specified; in furtherance of this intention Westbrook hereby
expressly waives any and all rights and benefits conferred upon Westbrook by
any statutory provision and expressly agrees that this Agreement shall be given
full force and effect according to each and all of its express terms and
provisions. This release extends to unknown and unsuspected claims, demands
and causes of action, if any, as well as to those relating to any other claims,
demands and causes of action hereinabove specified. Westbrook makes this
waiver with full knowledge of his rights, after adequate opportunity to consult
with legal counsel.
Westbrook acknowledges that he may hereafter discover claims
or facts in addition to or different from those which he now knows or believes
to exist with respect to the subject matter of this Agreement and which, if
known or suspected at the time of executing this Agreement, may have materially
affected this settlement. Nevertheless, Westbrook hereby waives any right,
claim or cause of action that might arise as a result of such different or
additional claims or facts. Westbrook hereby understands and acknowledges the
significance and consequence of such release and waiver.
(d) Indemnification. Westbrook warrants and represents
that Westbrook has not heretofore assigned or transferred to any person not a
party to this Agreement any released matter or any part or portion thereof and
Westbrook shall defend, indemnify and hold harmless Company from and against
any claim (including the payment of attorneys' fees and costs actually incurred
whether or not litigation is commenced) based on or in connection with or
arising out of any such assignment or transfer made, purported or claimed.
5. Confidentiality; Cooperation with Legal Process;
Non-Solicitation.
(a) Confidentiality. Westbrook and Colliflower each
acknowledges that he and she has held a sensitive management position with the
Company and will continue to perform services through Consultant for the
Company as provided herein and that, by virtue of having held such position,
they have had access to and have learned (and will continue to have access to
and to learn) the Company's and its subsidiaries' and affiliates' confidential
and proprietary information and trade secrets pertaining to its business and
operations. Examples of such proprietary information and trade secrets
include, but are not limited to, information as to Company's products,
services, systems, software, finances (including prices, costs and revenues),
marketing plans, programs, methods of operation, prospective and existing
contracts, other business arrangements or business plans, procedures,
strategies (including acquisition
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<PAGE> 216
strategies), customer lists, referral sources, lists of doctors, and other
information concerning the Company's practices and procedures. The Consultant,
Westbrook and Colliflower represent that they have held all such information
confidential and will continue to do so and that none of them will disclose any
such information to any other person, except as may be required by law or as
may (with the consent of the Company) be necessary in furtherance of the
performance of the Consulting Services hereunder. Without limiting the
generality of the foregoing, each of them agrees that it will not respond to or
in any way participate in or contribute to any public discussion, notice or
other publicity concerning or in any way related to proprietary or confidential
information concerning the Company, its subsidiaries, affiliates, operations,
officers or directors, or any matters concerning their employment with or
consulting for the Company. The Consultant, Westbrook and Colliflower each
further agrees that any disclosure of any of the information referred to herein
or any solicitation in violation of Section 5(c) hereof shall constitute a
material breach of this Agreement and, in addition to other remedies available
to the Company, shall entitle it to reimbursement any payments hereunder
consistent with the formula in Section 3(h).
(b) Cooperation With Legal Process. The parties agree
that no provision of this Section 5 or any other provision of this Agreement
shall be construed or interpreted in any way to limit, restrict or preclude
either party hereto from cooperating with any governmental agency in the
performance of its investigatory or other lawful duties or producing materials
or giving testimony pursuant to a court proceeding, or restrict the Consultant
in the performance of Consulting Services. The Consultant, Westbrook and
Colliflower agree that if any of them receive a subpoena or is otherwise
required by law to provide information to a governmental entity or other person
concerning the activities of the Company or their activities in connection with
the Company's business, they will immediately notify the Company of such
subpoena or requirement and deliver to the Company a copy of such subpoena or
other notice, unless such disclosure would in the opinion of a recognized legal
expert on such matters, be prohibited by law.
(c) Non-Solicitation. The Consultant, Westbrook and
Colliflower each agrees that it will not solicit any employee of the Company
for employment or other services for itself, himself or any other entity.
(d) Nondisclosure of this Agreement. Each of the
Consultant, Westbrook and Colliflower agrees that except for disclosures in the
Proxy Statement/Prospectus for the Merger, they will keep the terms, amounts
and facts of this Agreement completely confidential, and will not hereafter
disclose any information concerning this Agreement or the services to anyone
except their respective attorneys or accountants, including, but not limited
to, any past, present, or prospective employees of
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the Company or any of its parent, subsidiary or related companies or entities,
except, in each case, as may be required by law or as permitted in writing by
the Company or as may be necessary in furtherance of the performance of the
Consulting Services hereunder.
6. Miscellaneous Provisions.
(a) Parachute Limitations. Notwithstanding any other
provision of this Agreement or of any other agreement, contract, or
understanding heretofore, concurrently or hereafter entered into by Westbrook
with the Company or any subsidiary or affiliate, except an agreement, contract,
or understanding hereafter entered into that expressly modifies or excludes
application of this Section 6(a) (the "Other Agreements"), and notwithstanding
any formal or informal plan or other arrangement heretofore or hereafter
adopted by the Company or any subsidiary or affiliate for the direct or
indirect compensation of Westbrook (including groups or classes of participants
or beneficiaries of which Westbrook is a member), whether or not such
compensation is deferred, is in cash, or is in the form of an option or other
benefit to or for Westbrook (a "Benefit Plan"), neither Westbrook nor the
Consultant shall have any right to receive any payment or other benefit under
this Agreement, any Other Agreement, or any Benefit Plan if such right to
exercise, payment, or benefit, taking into account all other rights, payments,
or benefits to or for Westbrook or the Consultant under this Agreement, all
Other Agreements, and all Benefit Plans, would cause any right, payment, or
benefit to Westbrook or the Consultant under this Agreement to be considered a
"parachute payment" within the meaning of Section 280G(b)(2) of the Internal
Revenue Code as then in effect (a "Parachute Payment"). In the event that the
receipt of any such right to exercise or any other payment or benefit under
this Agreement, any Other Agreement, or any Benefit Plan would cause Westbrook
to be considered to have received a Parachute Payment under this Agreement,
then Westbrook shall have the right, in Westbrook's sole discretion, to
designate those rights, payments, or benefits under this Agreement, any Other
Agreements, and/or any Benefit Plans, that should be reduced or eliminated so
as to avoid having the right, payment, or benefit to Westbrook or the
Consultant under this Agreement be deemed to be a Parachute Payment.
(b) Construction. Each party has cooperated in the
drafting and preparation of this Agreement. Accordingly, this Agreement shall
not be construed against any party on the basis that the party was the drafter.
(c) Counterparts. This Agreement may be executed in
counterparts, and each counterpart, when executed, shall have the efficacy of a
signed original. Photostatic copies of such signed counterparts may be used in
lieu of the originals for any purpose.
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(d) Consent to Jurisdiction. All judicial proceedings
brought against the Company arising out of or relating to this Agreement must
be brought in a state or federal court of competent jurisdiction in the State
of California. All judicial proceedings brought against the Consultant,
Westbrook or Colliflower, arising out of or relating to this Agreement must be
brought in a state or federal court of competent jurisdiction in the State of
Florida. By execution and delivery of this Agreement the parties accept for
themselves, respectively, and in connection with their properties, generally
and unconditionally, the exclusive jurisdiction of the aforesaid courts and
waive any defense of forum non conveniens and irrevocably agree to be bound by
any judgment rendered thereby in connection with this Agreement, in each
respect to the maximum extent permitted by law.
(e) Enforceability Representation. Each party to this
Agreement represents that this Agreement constitutes the legally valid and
binding obligation of such party, enforceable against such party in accordance
with its terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting creditors'
rights generally (including, without limitation, fraudulent conveyance laws)
and by general principles of equity, including without limitation, concepts of
materiality, reasonableness, good faith and fair dealing and the possible
unavailability of specific performance or injunctive relief, regardless of
whether considered in a proceeding in equity or at law.
(f) Consents. Each of the parties further represents
that it is not required to submit any notice, report or other filing to or
obtain any consent or approval from any governmental authority or third party
under any agreement to which the party is a party or under any law to which it
is subject in order to execute, deliver and perform this Agreement as
contemplated hereby.
(g) Waivers. No waiver of any breach of any term or
provision of this Agreement shall be construed to be, or shall be, a waiver of
any other breach of this Agreement. No waiver shall be binding unless in
writing and signed by the party waiving the breach.
(h) Cooperation. All parties agree to cooperate fully
and to execute any and all supplementary documents and to take all additional
actions that may be necessary or appropriate to give full force to the basic
terms and intent of this Agreement and which are not inconsistent with its
terms.
(i) Opportunity to Review. Westbrook and Colliflower
each represent and agrees that he or she has discussed all aspects of this
Agreement with an attorney of his or her choice, that he or she has carefully
read and fully understands all of
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the provisions of this Agreement and that he, she and the Consultant are
voluntarily entering into this Agreement.
(j) Attorney's Fees. In the event of any action by any
party arising under or out of, in connection with or in respect of this
Agreement, including any participation in bankruptcy proceedings to enforce
against a party a right or claim in such proceedings, the prevailing party
shall be entitled to reasonable costs, expenses and attorneys' fees incurred in
such action. Attorney's fees incurred in enforcing any judgment in respect of
this Agreement are recoverable as a separate item. The parties intend that the
preceding sentence be severable from the other provisions of this Agreement,
survive any judgment and, to the maximum extent permitted by law, not be deemed
merged into such judgment.
(k) Choice of Law. This Agreement shall in all respects
be interpreted, enforced and governed under the laws of the State of [Florida],
without regard to conflicts of laws principles.
(l) No Reliance. The Consultant, Westbrook and
Colliflower each represents and acknowledges that in executing this Agreement,
none of them has relied and has not relied on any representations or statements
made by Apria, the Company, or any of the Company's agents, representatives or
attorneys with regard to the subject matter, basis or effect of this Agreement,
or otherwise.
(m) Severability. Without limiting the provisions of
Section 4 hereof, should any provision of this Agreement be declared and/or be
determined by any court to be illegal or invalid, the validity of the remaining
parts, terms or provisions shall not be affected thereby.
(n) Entire Agreement. This Agreement constitutes and
contains the entire agreement and final understanding concerning Westbrook's
employment with and services to the Company, the termination of the employment
relationship, Westbrook's voluntary resignation, the Consultant's relationship
(and Westbrook's new role through the Consultant), and the other subject matter
addressed herein between the parties (except for the Noncompetition Agreement
between them dated as of the Effective Date, to the extent (if any) any such
other subject matter may be deemed to overlap with certain provisions thereof).
This Agreement is intended by the parties as a complete and exclusive statement
of the terms of their agreement. It supersedes and replaces all prior
negotiations and all agreements proposed or otherwise, whether written or oral,
concerning the subject matters hereof, including but not limited to any and all
obligations of the Company under (i) the Employment Agreement; (ii) the
Split-Dollar Agreement dated as of December 10, 1992 by and among the Company,
Westbrook, and Martin Kalb, as Owner; (iii) the Indemnification Agreement dated
as of June 28, 1994 by
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and between Company and Westbrook; (iv) the Stock Purchase Agreement dated as
of December 17, 1991 among the Company, Westbrook and Esther T. Colliflower
(except for the indemnity provisions in favor of the Company provided therein);
(v) the Stock Purchase Agreement dated as of June 4, 1993 by and between the
Company and Westbrook; (vi) any SERP; and (vii) any other significant
compensatory benefits. All of the Company's obligations under the Agreements
referenced under (i) to (vii) above shall terminate as of the Effective Date.
Any representation, promise or agreement not specifically included in the
Agreements shall not be binding upon or enforceable against either party. This
is a fully integrated agreement. No modification of this Agreement shall be
valid unless made in writing and signed by the parties hereto.
(o) Succession. This Agreement shall inure to the
benefit of and shall be binding upon Company, its successors and assigns, but
without the prior written consent of the Consultant this Agreement may not be
assigned other than to a transferee of all or a substantial part of the
business and/or its associated goodwill or to a purchaser of more than 10% of
the stock of Company or to Apria or any of its affiliates or subsidiaries. The
obligations and duties of the Consultant, Westbrook and Colliflower hereunder
shall be personal and not assignable.
(p) Injunctive Relief. The Consultant, Westbrook and
Colliflower hereby acknowledge and agree that because of the unique services
and relationships contemplated by Section 3 hereof and for other reasons, any
breach of or default under this Agreement will cause damage to the Company in
an amount difficult to ascertain. Accordingly, in addition to any other relief
to which the Company may be entitled, the Company shall be entitled, without
proof of actual damages, to such injunctive relief as may be ordered by any
court of competent jurisdiction including, but not limited to, an injunction
restraining any violation of Section 5 hereof.
(q) Independent Agreements and Remedies. This Agreement
is in addition to the Merger Agreement and the Noncompetition Agreement, and
Company's rights and remedies under this Agreement, and the Noncompetition
Agreement and under the Merger Agreement shall (except as otherwise expressly
provided) be independent, separate and distinct but shall be cumulative.
(r) Representation of Westbrook. Westbrook represents
that he shall render all services and perform all other obligations to be
performed by the Consultant as provided in this Agreement, and that the Company
shall have all rights, privileges and remedies granted to the Company in
respect of the Consultant and may pursue the same against Westbrook, if the
Consultant shall fail to perform.
(s) Notice. For purposes of this Agreement, notices and
all other communications provided for in this Agreement shall
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be in writing and shall be deemed to have been duly given when hand delivered,
sent by overnight courier, or mailed by first-class, registered or certified
mail, return receipt requested, postage prepaid, or transmitted by telegram,
telecopy, or telex, addressed as follows:
If to the Company:
Vitas Healthcare Corporations
100 South Biscayne Boulevard
Suite 1500
Miami, Florida 33132
Attention: Mark A. Sterling, Vice President
Telecopy No.: 305/374-4765
with a copy (which shall not constitute notice but shall be
essential to a valid notice to Company) to:
Apria Healthcare Group Inc.
3560 Hyland Avenue
Costa Mesa, CA 92626
Attention: Robert S. Holcombe, Esq.
Telecopy No.: 714/427-4332
If to the Consultant or Westbrook:
Reverend Hugh A. Westbrook
Collibrook Consulting Services Inc.
158 South Prospect Drive
Coral Gables, Florida 33133
with a copy (which shall not constitute notice) to:
Greenberg, Traurig, Hoffman, Lipoff,
Rosen & Quentel, P.A.
1221 Brickell Avenue
Miami, Florida 33131
Attention: Martin Kalb, Esq.
Telecopy No.: (305) 579-0717
If to Colliflower:
Esther T. Colliflower
---------------------
---------------------
---------------------
(t) Revocation. This Agreement may be revoked by
Westbrook at any time prior to the Effective Date; provided that a written
notice of such revocation be signed by Westbrook and hand-delivered to and
received by the Company prior to the
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Effective Date at the address noted above. A copy of such notice shall be
delivered also to Apria Healthcare Group, Inc. at the address noted above.
(u) Third Party Beneficiary. The parties agree that
Apria and its subsidiaries shall be express third party beneficiaries of the
Consultant's, Westbrook's and Colliflower's obligations under this Agreement.
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IN WITNESS WHEREOF, the parties hereto, having first read the same,
have set their names as of the date first written above.
PLEASE READ CAREFULLY. THIS AGREEMENT INCLUDES A RELEASE OF ALL KNOWN
AND UNKNOWN CLAIMS.
__________________________________
HUGH A. WESTBROOK
Date of Execution: __________, 1996
VITAS HEALTHCARE CORPORATION
By: _______________________________
Title: ____________________________
Date of Execution: ___________, 1996
COLLIBROOK CONSULTANTS, INC.
By: _______________________________
Title: ____________________________
Date of Execution: ___________, 1996
__________________________________
ESTHER COLLIFLOWER
Date of Execution: __________, 1996
ACKNOWLEDGED:
APRIA HEALTH CARE GROUP, INC.
By: __________________________
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<PAGE> 224
EXHIBIT 5.14(B)
TO
AGREEMENT AND PLAN OF MERGER
(APPENDIX A)
NONCOMPETITION AGREEMENT
MADE BY AND BETWEEN
HUGH A. WESTBROOK
AND
VITAS HEALTHCARE CORPORATION
AS OF __________, 1996
<PAGE> 225
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. Substance and Scope . . . . . . . . . . . . . . . . . . 2
2. Trade Secrets . . . . . . . . . . . . . . . . . . . . . 2
3. Payments . . . . . . . . . . . . . . . . . . . . . . . . 3
4. Reasonableness of Restrictions and Enforceability . . . 3
5. Miscellaneous Provisions . . . . . . . . . . . . . . . . 4
(a) Third Party Beneficiaries . . . . . . . . . . . . . 4
(b) Parachute Limitations . . . . . . . . . . . . . . . 4
(c) Construction . . . . . . . . . . . . . . . . . . . 4
(d) Counterparts . . . . . . . . . . . . . . . . . . . 4
(e) Consent to Jurisdiction . . . . . . . . . . . . . . 5
(h) Waivers . . . . . . . . . . . . . . . . . . . . . . 5
(i) Cooperation . . . . . . . . . . . . . . . . . . . . 5
(j) Opportunity to Review . . . . . . . . . . . . . . . 5
(k) Attorney's Fees . . . . . . . . . . . . . . . . . . 6
(l) Choice of Law . . . . . . . . . . . . . . . . . . . 6
(m) No Reliance . . . . . . . . . . . . . . . . . . . . 6
(n) Severable Covenants . . . . . . . . . . . . . . . . 6
(o) Entire Agreement; Changes . . . . . . . . . . . . . 6
(p) Succession . . . . . . . . . . . . . . . . . . . . 6
(q) Injunctive Relief . . . . . . . . . . . . . . . . . 7
(r) Independent Agreements and Remedies . . . . . . . . 7
(s) Notice . . . . . . . . . . . . . . . . . . . . . . 7
SCHEDULE 1 -LIST OF COUNTIES, CITIES AND OTHER TERRITORIES
IN WHICH COMPETITION IS PROHIBITED . . . . . . A-1
</TABLE>
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NONCOMPETITION AGREEMENT
This Noncompetition Agreement (this "Agreement") is made by
and between HUGH A. WESTBROOK ("Westbrook") and VITAS HEALTHCARE CORPORATION
(the "Company") and APRIA HEALTHCARE GROUP INC. ("Apria") as of __________,
1996.
RECITALS
A. Westbrook is a founder and (until the date hereof)
principal shareholder of the Company, has been instrumental in developing and
expanding the business and operations of the Company and obtaining its
financing, possesses valuable knowledge and skills with respect to such
business, has had and will continue to have access to proprietary and
confidential business and technical information of the Company, including its
trade secrets, and maintains strong ties with the business community
significant to the business and growth of the Company.
B. On the date hereof, Apria Healthcare Group Inc.
("Apria") is acquiring control of the Company under the terms of an Agreement
and Plan of Merger, dated as of June 28, 1996, as amended, among Apria, its
wholly-owned subsidiary, and the Company (the "Merger Agreement") pursuant to
which Westbrook's shares and options in the Company are being converted into
shares of Apria in the merger of Apria's wholly-owned subsidiary with and into
the Company (the "Merger").
C. Apria has conditioned the Merger on the execution and
delivery of this Agreement.
D. To induce Apria to enter into the Merger Agreement
and to consummate the Merger, and to enable Apria to protect and preserve the
value of the Company and of the business assets, capital stock and goodwill of
the Company over which Apria gains control upon the consummation of the Merger,
Westbrook has agreed to enter into this Noncompetition Agreement and provides
certain covenants to the Company for the benefit of the Company and Apria.
E. Westbrook has entered into a Consulting, Severance
and Confidentiality Agreement by and between Westbrook, Collibrook Consultants,
Inc. ("Collibrook"), Esther Colliflower and the Company that becomes effective
concurrently herewith (the "Consulting Agreement").
1
<PAGE> 227
NOW THEREFORE, in consideration of the mutual promises and
covenants herein contained, the Company and Westbrook and Apria hereby agree as
follows:
1. Substance and Scope. Westbrook agrees that until the day
before the seventh anniversary or, with respect to trade secrets, the tenth
anniversary of this Agreement, he will not, directly or indirectly, for his own
benefit or as agent for another, carry on or participate in the ownership,
management or control of, or be employed by, or serve as director of, or
consult for, or license or provide know how to, or otherwise render services
to, as a consultant, independent contractor or otherwise, or allow his name or
reputation to be used in or by, any other present or future business enterprise
providing or arranging for hospice, hospice care, home health care or similar
services or otherwise directly or indirectly competing with the Company or its
subsidiaries or affiliates in any of the lines of business in which the Company
or such subsidiaries or affiliates are now or then engaged, within any of the
specified counties, cities or parts thereof and other areas designated in
Schedule 1 attached hereto and incorporated herein by this reference (the
"Locations"); provided that nothing contained herein shall limit the right of
Westbrook, as an investor, to hold and make investments in securities of any
corporation or other entity that competes in the lines of business in which the
Company, its subsidiaries or its affiliates are engaged that (1) is owned
indirectly by Westbrook through a venture capital or other similar type of fund
and Westbrook's aggregate direct and indirect interests do not exceed 5% of the
outstanding equity interests in such corporation or other entity or (2) is
registered on a national securities exchange or admitted to trading privileges
thereon or actively traded in a generally recognized over-the-counter market,
provided that the aggregate of all Westbrook's direct and indirect equity
interests therein does not exceed 2% of the outstanding equity interests in
such corporation or other entity.
2. Trade Secrets. Westbrook acknowledges that he has held a
sensitive management position with the Company and will continue to perform
services for the Company as provided in the Consulting Agreement and that, by
virtue of having held such position, he has had access to and has learned (and
will continue to have access to and to learn) the Company's and its
subsidiaries' and affiliates' confidential and proprietary information and
trade secrets pertaining to its business and operations. Examples of such
proprietary information and trade secrets include, but are not limited to,
information as to Company's products, services, systems, software, finances
(including prices, costs and revenues), marketing plans, programs, methods of
operation, prospective and existing contracts, other business arrangements or
business plans, procedures, strategies (including acquisition strategies),
customer lists, referral sources, lists of doctors, and other
2
<PAGE> 228
information concerning the Company's practices and procedures. Westbrook
represents that he has held all such information confidential and will continue
to do so and that he shall not disclose any such information to any other
person, except as may be required by law or as may (with the consent of the
Company) be necessary in furtherance of his performance of the Consulting
Services under the Consulting Agreement. Without limiting the generality of
the foregoing, Westbrook agrees that he will not respond to or in any way
participate in or contribute to any public discussion, notice or other
publicity concerning or in any way related to proprietary or confidential
information concerning the Company, its subsidiaries, affiliates, operations,
officers or directors. Westbrook further agrees that any disclosure by him of
any of the information referred to herein shall constitute a material breach of
this Agreement and, in addition to other remedies available to the Company,
shall entitle it to cease any further payments hereunder.
3. Payments. For the covenants in Sections 1 and 2, the Company
agrees to pay Westbrook an aggregate amount of $7,000,000 payable in three
installments as follows: $5,000,000 on the Effective Date, and $1,000,000 on
each of the first two anniversaries of the Effective Date.
4. Reasonableness of Restrictions and Enforceability. By virtue
of the conversion of Westbrook's shares of the Company's Common Stock and
options pursuant to the Merger Agreement, Westbrook shall be deemed a "seller"
of the shares of a corporation. Given Westbrook's position as a seller, a
founder, a former major shareholder, the former Chief Executive Officer and
Chairman of the Board of the Company and his strong business and community ties
significant to the business and growth of the Company, Westbrook acknowledges
that the restrictions set forth in this section are reasonable both
individually and in the aggregate and that the duration, geographic scope,
extent and application of each of such restrictions is no greater than is
necessary for the protection of the legitimate business interests of the
Company, which include but are not limited to the Company's trade secrets and
other valuable confidential business information, the Company's substantial
relationships with prospective or existing customers, patients or clients, and
goodwill associated with the Company's business. It is the desire and intent
of the parties hereto that the provisions of this Agreement shall be enforced
to the fullest extent permissible under the laws and public policies applied in
each jurisdiction in which enforcement is sought. If any particular provision
or portion of this Section shall be adjudicated to be invalid or unenforceable,
such adjudication shall apply only with respect to the operation of such
provision to that extent and in the particular jurisdiction in which such
adjudication is made. Further, in the event that any restriction herein shall
be found to be void or unenforceable for its term or scope but would be valid
or enforceable if some part or parts thereof were deleted
3
<PAGE> 229
or the period or area of application reduced, each of the parties hereby agrees
that the applicable restriction shall apply with such modifications as may be
necessary to make it valid and enforceable.
5. Miscellaneous Provisions.
(a) Third Party Beneficiaries. The parties agree and
intend that Apria and its subsidiaries and other affiliates are and will be
express third party beneficiaries of the covenants set forth in this Agreement.
(b) Parachute Limitations. Notwithstanding any other
provision of this Agreement or of any other agreement, contract, or
understanding heretofore, concurrently or hereafter entered into by Westbrook
with the Company or any subsidiary or affiliate, except an agreement, contract,
or understanding hereafter entered into that expressly modifies or excludes
application of this Section 5(b) (the "Other Agreements"), and notwithstanding
any formal or informal plan or other arrangement heretofore or hereafter
adopted by the Company or any subsidiary or affiliate for the direct or
indirect compensation of Westbrook (including groups or classes of participants
or beneficiaries of which Westbrook is a member), whether or not such
compensation is deferred, is in cash, or is in the form of an option or other
benefit to or for Westbrook (a "Benefit Plan"), Westbrook shall not have any
right to receive any payment or other benefit under this Agreement, any Other
Agreement, or any Benefit Plan if such right to exercise, payment, or benefit,
taking into account all other rights, payments, or benefits to or for Westbrook
under this Agreement, and Westbrook and/or the Consultant under the Consulting
Agreement, all Other Agreements, and all Benefit Plans, would cause any right,
payment, or benefit to Westbrook under this Agreement to be considered a
"parachute payment" within the meaning of Section 280G(b)(2) of the Internal
Revenue Code as then in effect (a "Parachute Payment"). In the event that the
receipt of any such right to exercise or any other payment or benefit under
this Agreement, any Other Agreement, or any Benefit Plan would cause Westbrook
to be considered to have received a Parachute Payment under this Agreement,
then Westbrook shall have the right, in Westbrook's sole discretion, to
designate those rights, payments, or benefits under this Agreement, any Other
Agreements, and/or any Benefit Plans, that should be reduced or eliminated so
as to avoid having the right, payment, or benefit to Westbrook under this
Agreement be deemed to be a Parachute Payment.
(c) Construction. Each party has cooperated in the
drafting and preparation of this Agreement. Accordingly, this Agreement shall
not be construed against any party on the basis that the party was the drafter.
4
<PAGE> 230
(d) Counterparts. This Agreement may be executed in
counterparts, and each counterpart, when executed, shall have the efficacy of a
signed original. Photostatic copies of such signed counterparts may be used in
lieu of the originals for any purpose.
(e) Consent to Jurisdiction. All judicial proceedings
brought against the Company arising out of or relating to this Agreement must
be brought in a state or federal court of competent jurisdiction in the State
of California. All judicial proceedings brought against Westbrook arising out
of or relating to this Agreement must be brought in a state or federal court of
competent jurisdiction in the State of Florida. By execution and delivery of
this Agreement, the Company, Apria and Westbrook accept for themselves,
respectively, and in connection with their properties, generally and
unconditionally, to the extent permitted by law, the exclusive jurisdiction of
the aforesaid courts and waive any defense of forum non conveniens and
irrevocably agree to be bound by any judgment rendered thereby in connection
with this Agreement.
(f) Enforceability Representation. Each party to this
Agreement represents that this Agreement constitutes the legally valid and
binding obligation of such party, enforceable against such party in accordance
with its terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting creditors'
rights generally (including, without limitation, fraudulent conveyance laws)
and by general principles of equity, including without limitation, concepts of
materiality, reasonableness, good faith and fair dealing and the possible
unavailability of specific performance or injunctive relief, regardless of
whether considered in a proceeding in equity or at law.
(g) Consents. Neither Westbrook nor the Company is
required to submit any notice, report or other filing to or obtain any consent
or approval from any governmental authority or third party under any agreement
to which either the Company or Westbrook is a party in order to execute,
deliver and perform this Agreement as contemplated hereby.
(h) Waivers. No waiver of any breach of any term or
provision of this Agreement shall be construed to be, or shall be, a waiver of
any other breach of this Agreement. No waiver shall be binding unless in
writing and signed by the party waiving the breach.
(i) Cooperation. All parties agree to cooperate fully
and to execute any and all supplementary documents and to take all additional
actions that may be necessary or appropriate to give full force to the basic
terms and intent of this Agreement and which are not inconsistent with its
terms.
5
<PAGE> 231
(j) Opportunity to Review. Westbrook represents and
agrees that he has discussed all aspects of this Agreement with an attorney of
his choice, that he has carefully read and fully understands all of the
provisions of this Agreement and that he is voluntarily entering into this
Agreement.
(k) Attorney's Fees. In the event of any action by any
party arising under or out of, in connection with or in respect of this
Agreement, the prevailing party shall be entitled to reasonable costs, expenses
and attorneys' fees incurred in such action. Attorney's fees incurred in
enforcing any judgment in respect of this Agreement are recoverable as a
separate item. The parties intend that the preceding sentence be severable
from the other provisions of this Agreement, survive any judgment and, to the
maximum extent permitted by law, not be deemed merged into such judgment.
(l) Choice of Law. This Agreement shall in all respects
be interpreted, enforced and governed under the laws of the State of [Florida],
without regard to conflicts of laws principles.
(m) No Reliance. Westbrook represents and acknowledges
that in executing this Agreement, he does not rely and has not relied on any
representations or statements made by the Company, or any of the Company's
agents, representatives or attorneys with regard to the subject matter, basis
or effect of this Agreement, or otherwise.
(n) Severable Covenants. The parties hereto intend that
the covenants set forth in Sections 1 and 2 hereof shall be construed as a
series of separate covenants, each consisting of the covenants set forth in
Sections 1 and 2 for each of the Locations. Except for such Locations, all
such separate covenants shall be deemed identical. It is the desire and intent
of the parties hereto that the provisions of this Agreement shall be enforced
to the fullest extent permissible under the laws and public policies applied in
each jurisdiction in which enforcement is sought. Without limiting the
generality of Section 4 hereof, if any particular provision or portion of this
Agreement shall be adjudicated to be invalid or unenforceable, such
adjudication shall apply only with respect to the operation of this Agreement
in the particular jurisdiction in which such adjudication is made.
(o) Entire Agreement; Changes. This Agreement
constitutes the entire agreement and final understanding between Westbrook and
the Company and Apria concerning the subject hereof and supersedes any prior
negotiations and all agreements whether existing, proposed or otherwise,
whether written or oral, concerning the subject hereof, subject to provisions
of other agreements that may expressly authorize an offset to any payments by
the Company hereunder. No modification of this Agreement
6
<PAGE> 232
shall be valid unless made in writing and signed by the parties hereto.
(p) Succession. This Agreement shall inure to the
benefit of and shall be binding upon the parties and, as to the corporate
parties, their respective successors and assigns, but without the prior written
consent of Westbrook this Agreement may not be assigned other than to a
transferee of all or a substantial part of the business and/or its associated
goodwill or to a purchaser of more than 10% of the stock of Company or to Apria
or any of its affiliates or subsidiaries. The obligations and duties of
Westbrook hereunder shall be personal and not assignable.
(q) Injunctive Relief. Westbrook hereby acknowledges and
agrees that any breach of or default under this Agreement will cause damage to
the Company and Apria in an amount difficult to ascertain. Accordingly, in
addition to any other relief to which Company may be entitled, Company and
Apria shall be entitled, without proof of actual damages, to such injunctive
relief as may be ordered by any court of competent jurisdiction including, but
not limited to, an injunction restraining any violation of Section 1 or 2
hereof.
(r) Independent Agreements and Remedies. This Agreement
is in addition to the Merger Agreement and the parties' rights and remedies
under this Agreement and under the Merger Agreement shall be independent,
separate and distinct, but also shall be cumulative.
(s) Notice. For purposes of this Agreement, notices and
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when hand delivered, sent by overnight
courier, or mailed by first-class, registered or certified mail, return receipt
requested, postage prepaid, or transmitted by telegram, telecopy, or telex,
addressed as follows:
If to the Company:
Vitas Healthcare Corporations
100 South Biscayne Boulevard
Suite 1500
Miami, Florida 33132
Attention: Mark A. Sterling, Vice President
Telecopy No.: 305/374-4765
with a copy (which shall not constitute notice but shall be
essential to a valid notice to the Company) to:
7
<PAGE> 233
Apria Healthcare Group Inc.
3560 Hyland Avenue
Costa Mesa, CA 92626
Attention: Robert S. Holcombe, Esq.
Telecopy No.: 714/427-4332
If to Apria: as set forth above
If to Westbrook:
Reverend Hugh A. Westbrook
158 South Prospect Drive
Coral Gables, Florida 33133
with a copy (which shall not constitute notice) to:
Greenberg, Traurig, Hoffman, Lipoff,
Rosen & Quentel, P.A.
1221 Brickell Avenue
Miami, Florida 33131
Attention: Martin Kalb, Esq.
Telecopy No.: (305) 579-0717
IN WITNESS WHEREOF, the parties hereto, having first read the same,
have set their names as of the date first written above.
__________________________________
HUGH A. WESTBROOK
Date of Execution __________, 1996
VITAS HEALTHCARE CORPORATION
By:_______________________________
Title: ___________________________
Date of Execution __________, 1996
APRIA HEALTHCARE GROUP INC.
By: ______________________
Its: _____________________
8
<PAGE> 234
ACKNOWLEDGEMENT AND AGREEMENT
Collibrook Consulting, Inc. agrees to be bound by the
commitments of Hugh A. Westbrook in the foregoing NonCompetition Agreement to
the same extent as Hugh A. Westbrook, to and for the benefit of the Company and
Apria and their respective affiliates.
COLLIBROOK CONSULTING, INC.
By: _______________________
9
<PAGE> 235
SCHEDULE 1
LIST OF COUNTIES AND OTHER AREAS
IN WHICH COMPETITION IS PROHIBITED
[TO BE COMPLETED AND INCLUDED IN THE
FINAL PROXY STATEMENT/PROSPECTUS]
A-1
<PAGE> 236
APPENDIX B
[SIGNIFICANT SECURITYHOLDERS AGREEMENT]
B-1
<PAGE> 237
APPENDIX B
SIGNIFICANT SECURITYHOLDERS AGREEMENT
June 28, 1996
Apria Healthcare Group Inc.
3560 Hyland Avenue
Costa Mesa, California 92626
Attn: Jeremy M. Jones
Re: Agreement of Principal Securityholders Concerning Transfer and Voting of
Securities of Vitas Healthcare Corporation (the "COMPANY")
Each of the undersigned understands that you and the Company, of which the
undersigned are securityholders, are prepared to enter into an Agreement and
Plan of Merger dated as of June 28, 1996 (the "AGREEMENT") calling for the
Merger of your wholly-owned subsidiary ("SUB") into the Company, but that you
have conditioned your willingness to proceed with the Agreement upon your
receipt from each of the undersigned of assurances satisfactory to you of each
of the undersigned's support of and commitment to the Merger on the terms set
forth in the Agreement.
For valid consideration, the receipt of which is hereby acknowledged, and
to evidence such commitment and induce you to enter into the Agreement, each of
the undersigned hereby, in our capacity solely as a securityholder of Vitas,
severally but not jointly, represents and warrants to you and agrees with you as
follows:
1. DEFINED TERMS. Capitalized terms not defined herein are used as defined
in the Agreement.
2. VOTING. Until August 31, 1996 or, if the Agreement is extended in
accordance with its terms or by mutual written agreement of the parties thereto,
such extended date, or, if the Agreement is terminated earlier than August 31,
1996 or such extended date by the Company under clause (iii) of Section 7.4 of
the Agreement (i.e., the Company accepts a Competing Proposal in accordance with
the provisions of Subsection 4.2.2) such earlier date, each of the undersigned
(a) will vote or cause to be voted all shares of capital stock of the Company
owned of record or beneficially or held in any capacity by or under the control
of any of the undersigned and entitled to vote in favor of the Merger and
transactions contemplated by the Agreement and against any inconsistent actions,
proposals or transactions and (b) will not claim or exercise any dissenter or
appraisal rights with respect to the Merger.
3. OWNERSHIP. As of the date of this letter agreement, each of the
undersigned's only ownership of, or interest in, equity securities, including
convertible securities, of the Company consists solely of the interests
described in Schedule 1 hereto (collectively, the "Securities") (including if
appropriate, a notation of any pledges of the Securities).
4. EXCLUSIVE DEALING; RESTRICTION ON TRANSFER. Until August 31, 1996 or,
if the Agreement is extended in accordance with its terms or by mutual written
agreement of the parties thereto, such extended date, or, if the Agreement is
terminated earlier than August 31, 1996 or such extended date by the Company
under clause (iii) of Section 7.4 of the Agreement (i.e., the Company accepts a
Competing Proposal in accordance with the provisions of Subsection 4.2.2) such
earlier date, each of the undersigned, except as required by the Merger or as
otherwise contemplated by the Agreement, will not sell, transfer, pledge or
otherwise dispose of any of the Securities or any interest therein or agree to
sell, transfer, pledge or otherwise dispose of any of the Securities or any
interest therein or solicit offers to do or entertain discussions or negotiate
to do any of the foregoing, without your express written consent.
<PAGE> 238
5. LEGENDS. Each of the undersigned securityholders agrees as promptly as
possible to take reasonable steps to cause the certificates evidencing the
Securities of such securityholder to be legended to refer to this letter
agreement and the foregoing restrictions on transfer. By its acknowledgement,
the Company agrees not to remove any legend without your advance written
consent.
6. AGREEMENTS TO SELL, EXCHANGE AND CONVERT. The undersigned holder or
holders of the 9% Preferred hereby agree to sell the 9% Preferred to you for a
cash price on the terms and conditions set forth in Subsection 2.1.4 and Section
5.16 and Subsection 6.2.7 of the Agreement. The undersigned holder or holders of
the Warrants hereby agree to exchange the Warrants and all associated rights,
preferences and restrictions set forth in the Investors Agreement dated December
17, 1991, for shares of your Common Stock on the terms and conditions set forth
in Subsection 2.1.6 and Subsection 6.2.7 of the Agreement. The undesigned
holders of the Series B Preferred hereby agree to convert such shares and all
associated rights, preferences and restrictions set forth in the Stockholders'
Agreement dated June 4, 1993, into shares of your Common Stock in accordance
with the terms and conditions set forth in Subsections 2.1.5 and 6.2.8 of the
Agreement.
7. PRE- AND POST-MERGER SALE RESTRICTIONS; OTHER CONDITIONS. To the extent
applicable to any securities of the Company held of record or beneficially by
the undersigned securityholder, each such undersigned securityholder agrees to
the terms and conditions contemplated by Sections and Subsections 2.1.7, 2.1.8,
2.1.9, 2.1.10, 2.1.11, 2.1.12, 2.2.8, 4.2, 5.1, 5.4, 5.10, 5.16, 6.2.7, 6.2.8,
6.2.9, and 6.2.11 of the Agreement, and each of the undersigned securityholders
will execute such further agreements, documents and instruments and take such
further actions including those contemplated by the foregoing Sections and
Subsections as you may reasonably request to implement this letter agreement.
8. WAIVER OF RIGHTS; TERMINATION OF AGREEMENTS. To the extent applicable
to any securities of the Company held of record or beneficially by the
undersigned securityholders each such undersigned securityholder hereby
irrevocably waives any and all rights of first refusal and other similar rights,
advance notice rights, election rights and other similar rights, and contractual
and other pre-emptive rights and other similar rights, which would be in
conflict with or variance from or which would otherwise be required or called
for in order to effect the treatment of the Series B Preferred, 9% Preferred,
Warrants and Stock Options as contemplated by the Merger and other transactions
contemplated under the Agreement and which are contained in the Preferred Stock
Certificates, the Warrants, the Investor Agreement, the Stockholders' Agreement
and any stock option or other agreements entered into with the Company. Without
limiting the foregoing, (a) the undersigned holder or holders of the 9%
Preferred acknowledge that such waivers shall include without limitation a
waiver of all rights under Section 8(b) of the 9% Preferred Certificate, (b) the
undersigned holder or holders of the Warrants acknowledge that such waivers
shall include without limitation a waiver of all rights under Section 6 of each
of the Warrants, (c) the undersigned holder or holders of the Series B Preferred
acknowledge that such waivers shall include without limitation a waiver of all
rights under Section 4(g) of the Series B Preferred Certificate and (d) the
undersigned who are "Investors" as such term is defined in the Stockholders'
Agreement acknowledge that such waivers shall include without limitation a
waiver of all rights under Section 3.9 et seq. of the Stockholders' Agreement.
The Company, Apria, Sub and their respective outside accountants, counsel and
financial advisors shall be entitled to rely upon the waivers set forth in this
Paragraph 8 for the purposes of consummating the Merger and other transactions
contemplated by the Agreement. Furthermore, the undersigned who are parties to
the aforementioned Investors Agreement and Stockholders' Agreement agree to
cause such agreements to be terminated as of the Closing Date, subject to
consummation of the Merger.
9. AFFILIATE LETTERS. Concurrently herewith, each of the undersigned is
executing and delivering to you an affiliate letter in the form attached to the
Agreement as Exhibit 5.10.1.
10. INDEMNIFICATION. Each of the undersigned securityholders severally but
not jointly agrees to indemnify you and Sub and hold you and Sub harmless from
and against any Loss (as defined below) that you or Sub may incur, directly or
indirectly, as a result of any breach of this letter agreement or any material
misrepresentation or omission in the Proxy Statement in respect of information
with respect to such securityholder provided you furnish to the affected
securityholder an opportunity to review and comment on any such information
prior to any use thereof.
2
<PAGE> 239
As used herein, "LOSS" means any cost, damage, disbursement, expense,
liability, loss, deficiency, diminution in value, obligation, penalty or
settlement of any kind or nature, whether foreseeable or unforeseeable,
including but not limited to, interest or other carrying costs, penalties,
legal, accounting and other professional fees and expenses reasonably incurred
in the investigation, collection, prosecution and defense of claims and amounts
paid in settlement, that may be imposed on or otherwise incurred or suffered by
the specified person; provided, however, that no undersigned securityholder
shall have any obligation under this Section 10 for any amounts paid in
settlement unless such undersigned securityholder shall have consented to such
settlement (such consent not to be unreasonably withheld).
This indemnity will survive the Merger for a period of one year.
11. SUCCESSION; REMEDIES. Upon your acceptance and execution of the
Agreement, this letter agreement will mutually bind and benefit you and each of
the undersigned, any of the undersigned's heirs, successors and assigns and any
of your successors. You will not assign any of your rights or obligations under
this letter agreement other than to one of your wholly-owned subsidiaries. Each
of the undersigned agrees that in light of the inadequacy of damages as a
remedy, specific performance will be available to you, in addition to any other
remedies you may have for the violation of this letter agreement.
12. NATURE OF HOLDINGS; SECURITIES. All references herein to each of the
undersigned's holdings of the Securities are deemed to include Securities held
or controlled by any of the undersigned individually, jointly (as community
property or otherwise), in trust (excluding the ESOP), by or through
partnerships or other entities or in any other capacity, and will extend to any
securities, cash or other property issued to any of the undersigned by the
Company in respect of the Securities prior to the Effective Time.
13. TERMINATION. If the Agreement terminates in accordance with its terms
other than because of any securityholder's default, misrepresentation or breach
under this letter agreement, this letter agreement will also terminate. Nothing
in this Paragraph 13 shall affect the period of time in which by their terms
Paragraphs 2 and 4 remain in effect.
3
<PAGE> 240
14. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original, but all of which
together shall constitute one and the same instrument.
Very truly yours,
/s/ Esther Colliflower /s/ Hugh A. Westbrook
- ------------------------------------- -------------------------------------
Esther Colliflower Hugh A. Westbrook
/s/ Carole S. Westbrook
-------------------------------------
Carole S. Westbrook
COLLIFLOWER FAMILY WESTBROOK FAMILY PARTNERSHIP, LTD.
PARTNERSHIP, LTD. By: Westbrook Family Corporation
(its General Partner)
By: The Colliflower Family Corporation
(its General Partner) By: /s/ Hugh A. Westbrook
-------------------------------
By: /s/ Esther T. Colliflower Hugh A. Westbrook
------------------------------- President
Esther T. Colliflower
President
GALEN PARTNERS II, L.P.
OCR HOLDING COMPANY By: GWW Partners, L.P.
(its General Partner)
By: /s/ Naomi C. Dallob
------------------------------- By: /s/ William R. Grant
Naomi C. Dallob -------------------------------
Secretary William R. Grant
General Partner
CHEMED CORPORATION GALEN PARTNERS INTERNATIONAL II, L.P.
By: /s/ Timothy S. O'Toole By: GWW Partners, L.P.
------------------------------- (its General Partner)
Timothy S. O'Toole
Executive Vice President
By: /s/ William R. Grant
WARBURG, PINCUS INVESTOR -------------------------------
William R. Grant
General Partner
By: Warburg Pincus & Co.
(its General Partner) GALEN EMPLOYEE FUND, L.P.
By: /s/ Patrick T. Hackett By: /s/ Bruce F. Wesson
------------------------------- -------------------------------
Patrick T. Hackett Bruce F. Wesson
Partner General Partner
ACCEPTED: AGREED TO THE EXTENT APPLICABLE:
APRIA HEALTHCARE GROUP INC. VITAS HEALTHCARE CORPORATION
By: /s/ Jerry M. Jones By: /s/ Hugh A. Westbrook
------------------------------- -------------------------------
4
<PAGE> 241
APPENDIX C
[FAIRNESS OPINION OF VITAS' FINANCIAL ADVISOR]
C-1
<PAGE> 242
APPENDIX C
June 28, 1996
Board of Directors
Vitas Healthcare Corporation
100 South Biscayne Boulevard
Miami, Florida 33131
Ladies and Gentlemen:
We understand that Apria Healthcare Group, Inc. ("APRIA"), Vitas Healthcare
Corporation (the "COMPANY"), and Apria Number Two, Inc., a wholly owned
subsidiary of Apria ("MERGER SUB"), have entered into an Agreement and Plan of
Merger, dated as of June 28, 1996 (the "MERGER AGREEMENT"), which provides for,
among other things, the merger of Merger Sub into the Company (the "MERGER").
Pursuant to the Merger, the Company will become a wholly owned subsidiary of
Apria and each issued and outstanding share of common stock, par value $.001 per
share ("COMMON STOCK") of the Company, other than any shares of Common Stock of
the Company owned by Apria or any subsidiary of Apria or by the Company or any
subsidiary of the Company, will be converted into the right to receive a number
of shares of common stock, par value $.001 per share of Apria ("APRIA COMMON
STOCK"), equal to the Exchange Ratio (as defined in the Merger Agreement). The
Merger is intended to be accounted for as a "pooling of interests," and with
your consent, we have assumed the same to be true. The terms and conditions of
the Merger are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the consideration to be
received by the holders of Common Stock of the Company other than Apria and its
affiliates pursuant to the Merger Agreement is fair from a financial point of
view to such holders. Our opinion only addresses consideration to be received by
the holders of Common Stock of the Company pursuant to Article II and other
applicable provisions of the Merger Agreement.
In conducting our analysis and arriving at our opinion as expressed herein,
we have reviewed and analyzed, among other things, the following:
(i) The Merger Agreement and the Significant Securityholders Agreement
dated as of June 28, 1996, as referred to in the Merger Agreement;
(ii) Apria and its predecessors' Annual Reports on Form 10-K for the
fiscal years ended December 31, 1993, December 31, 1994 and
December 31, 1995 and Form 10-Q for the quarter ended March 31,
1996;
(iii) publicly available information concerning the industry which
Furman Selz believed to be relevant to its inquiry;
(iv) financial and operating information with respect to the business,
operations and prospects of the Company furnished to Furman Selz
by the Company and of Apria supplied to Furman Selz by Apria;
(v) a comparison of the financial positions and operating results of
the Company and Apria with those of publicly traded companies
Furman Selz deemed relevant;
(vi) certain publicly available information concerning the trading of
and the market for Apria Common Stock; and
(vii) a comparison of certain financial terms of the Merger to certain
financial terms of selected business combinations Furman Selz
deemed relevant.
We have also met with certain officers and employees of the Company and
Apria concerning their respective businesses, operations, assets, present
condition and future prospects and undertook such other studies, analyses and
investigations as we deemed appropriate.
<PAGE> 243
In arriving at our opinion, we have not visited or conducted a physical
inspection of the properties and facilities of the Company or Apria (although we
have visited each company's headquarters), nor have we assumed any
responsibility for any independent evaluation or appraisal of any such
properties and facilities or of the assets and liabilities of the Company or
Apria. We have assumed and relied upon the accuracy and completeness of the
financial and other information supplied to or otherwise used by us in arriving
at our opinion and have not assumed any responsibility for independent
verification of such information. In addition, we have assumed that the
Company's and Apria's forecasts and projections supplied to us represent the
best currently available estimates and judgments of the Company's and Apria's
management as to the expected future financial condition and results of
operations of the Company and Apria, and have assumed that such forecasts and
projections have been reasonably prepared based on such currently available
estimates and judgments. We assume no responsibility for and express no view as
to such forecasts and projections or the assumptions on which they are based.
We have also taken into account our assessment of general economic, market
and financial conditions and our experience in similar transactions, as well as
our experience in securities valuation in general. Our opinion necessarily is
based upon conditions as they exist and can be evaluated on the date hereof.
We do not express any view as to any terms of the Merger other than the
fairness from a financial point of view of the consideration to be received by
the holders of Common Stock of the Company. Our opinion is necessarily based on
economic market, financial and other conditions as they exist on, and
information made available to us as of, the date of this letter. It should be
understood that, although subsequent developments may affect this opinion, we do
not have any obligation to update, revise or reaffirm this opinion, but if
requested we will do so. We are making no projection or providing any assurance
herein, as to the prices at which Apria Common Stock will actually trade at any
time.
It is understood that this letter is solely for the benefit and use of the
Company in its consideration of the Merger and is not for the benefit of, and
does not convey any rights or remedies to any other person. This opinion does
not address the relative merits of the Merger and any other transactions or
business strategies discussed by the Board of Directors of the Company as
alternatives to the Merger or the underlying business decision of the Board of
Directors of the Company to proceed with or effect the Merger.
We hereby consent to the Company's delivery to Apria, as contemplated in
the Merger Agreement, of a copy of this opinion for use in the Form S-4 (as
defined in the Merger Agreement).
As you are aware:
(i) Furman Selz has previously rendered certain investment banking and
financial advisory services to the Company and provided a fairness opinion
dated December 17, 1991 to the Board of Directors of the Company with
regard to the issuance and sale to a corporate purchaser of 9% Cumulative
Nonconvertible Preferred Stock, the purchase of all of the outstanding
shares of common stock of Hospice, Inc. (now a subsidiary of the Company)
from Hugh Westbrook and Esther Colliflower, and the repurchase of certain
shares of Common Stock of the Company from a director who was also then an
officer and principal stockholder. Furman Selz was paid investment banking
fees for providing such services and rendering such opinion.
(ii) Furman Selz acted as financial advisor to the Company in
connection with its latest equity financing and the related stock
repurchases in June 1993, and participated on behalf of the Company in the
negotiations relating thereto. Furman Selz was paid investment banking fees
for providing such services.
(iii) Furman Selz rendered a fairness opinion dated February 14, 1995
to the Company regarding the acquisition of Community Hospice Care, Inc., a
California corporation, and its affiliated partnerships. Furman Selz was
paid investment banking fees for providing such services.
(iv) An affiliate of Furman Selz, Furman Selz Ventures, L.P.,
currently owns 145,000 shares of Common Stock of the Company purchased in
1992 at $3.58 per share.
2
<PAGE> 244
(v) In the ordinary course of our business, we may actively trade in
the equity securities of Apria for our own account and for the accounts of
our customers and, accordingly, may at any time hold a long or short
position in such securities.
We do not believe the facts described in clauses (i)-(v) above affect our
qualifications to render this opinion.
Furman Selz will receive a fee for its services to the Company in
connection with rendering this opinion. In addition, Furman Selz will receive a
fee in connection with the Merger and the Company has agreed to reimburse Furman
Selz for certain out-of-pocket expenses, and to indemnify Furman Selz for
certain liabilities arising from the delivery of this opinion.
Based upon and subject to the foregoing, it is our opinion as investment
bankers that the consideration to be received by the holders of the Common Stock
of the Company in the Merger is fair to such stockholders from a financial point
of view.
Very truly yours,
FURMAN SELZ LLC
3
<PAGE> 245
APPENDIX D
SECTION 262 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
262 APPRAISAL RIGHTS.--(a) Any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a demand pursuant
to subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to Section 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
subsection (g) of Section 251), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to Sections 251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this paragraph;
or
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
D-1
<PAGE> 246
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of his
shares shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of his shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to take such action
must do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or 253 of this title, the surviving or resulting corporation, either before the
effective date of the merger or consolidation or within 10 days thereafter,
shall notify each of the stockholders entitled to appraisal rights of the
effective date of the merger or consolidation and that appraisal rights are
available for any or all of the shares of the constituent corporation, and shall
include in such notice a copy of this section. The notice shall be sent by
certified or registered mail, return receipt requested, addressed to the
stockholder at his address as it appears on the records of the corporation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of the notice, demand in writing from the surviving or resulting
corporation the appraisal of his shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
D-2
<PAGE> 247
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the
D-3
<PAGE> 248
merger or consolidation as provided in subsection (e) of this section or
thereafter with the written approval of the corporation, then the right of such
stockholder to an appraisal shall cease. Notwithstanding the foregoing, no
appraisal proceeding in the Court of Chancery shall be dismissed as to any
stockholder without the approval of the Court, and such approval may be
conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
D-4
<PAGE> 249
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Apria is a Delaware corporation. Apria's Restated Certificate of
Incorporation and Bylaws provide for indemnification of the officers and
directors of Apria to the fullest extent permitted by law. Section 102(b)(7) of
the Delaware General Corporation Law (the "DGCL") provides that a Delaware
corporation has the power to eliminate or limit the personal liability of a
director for violations of the director's fiduciary duty, except (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the
DGCL (providing for liability of directors for unlawful payment of dividends or
unlawful stock purchases or redemptions) or (iv) for any transaction from which
a director derived an improper personal benefit. In addition, Apria has entered
into separate indemnification agreements with each of its directors and officers
and maintains insurance on behalf of any person who is or was a director or
officer of Apria for up to $30 million of covered losses.
Section 145 of the DGCL provides that a corporation may indemnify any
persons, including officers and directors, who are, or are threatened to be
made, parties to any threatened, pending or completed legal action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of such corporation), by reason of the fact that
such person was a director, officer, employee or agent of such corporation, or
is or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation or enterprise. The indemnity may
include expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding, provided such officer, director, employee or
agent acted in good faith and in a manner he reasonably believed to be in or not
opposed to the corporation's best interests and, for criminal proceedings, had
no reasonable cause to believe that his conduct was unlawful. A Delaware
corporation may indemnify officers and directors in an action by or in the right
of the corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation. Where an officer is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses which such officer or director actually and
reasonably incurred.
ITEM 21. EXHIBITS.
(a) Exhibits included or incorporated herein:
See Exhibit Index.
(b) The opinion of Furman Selz LLC is included in the Proxy
Statement/Prospectus starting on page C-1.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) to file during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or event
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement.
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<PAGE> 250
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement.
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement related to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c)(1) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to the paragraph immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(e) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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<PAGE> 251
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Amendment No. 1 to the Registration
Statement (No. 333-09407) to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Costa Mesa, State of California on the
23rd day of August, 1996.
APRIA HEALTHCARE GROUP INC.
By: /s/ ROBERT S. HOLCOMBE
-------------------------------------
Robert S. Holcombe
Vice President, Secretary
and General Counsel
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to the Registration Statement (No. 333-09407) has been
signed below by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ JEREMY M. JONES* Chairman and August 23, 1996
- ------------------------------------------ Chief Executive Officer
Jeremy M. Jones
/s/ LAWRENCE H. SMALLEN* Chief Financial Officer, Senior August 23, 1996
- ------------------------------------------ Vice President, Finance and
Lawrence H. Smallen Treasurer
/s/ DAVID L. GOLDSMITH* Director August 23, 1996
- ------------------------------------------
David L. Goldsmith
/s/ LEONARD GREEN* Director August 23, 1996
- ------------------------------------------
Leonard Green
/s/ TERRY HARTSHORN* Director August 23, 1996
- ------------------------------------------
Terry Hartshorn
/s/ CHARLES D. MARTIN* Director August 23, 1996
- ------------------------------------------
Charles D. Martin
/s/ FREDERICK S. MOSELEY, IV* Director August 23, 1996
- ------------------------------------------
Frederick S. Moseley, IV
/s/ VINCENT M. PRAGER* Director August 23, 1996
- ------------------------------------------
Vincent M. Prager
*By: /s/ ROBERT S. HOLCOMBE
- ------------------------------------------
Robert S. Holcombe
Attorney-in-Fact
</TABLE>
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<PAGE> 252
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Page/Ref
- --------- ----------- --------
<S> <C> <C>
2 Agreement and Plan of Merger, dated as of June 28, 1996 and amended by an Amendment
No. 1 dated as of August 26, 1996 to Agreement and Plan of Merger, among Apria
Healthcare Group Inc., Apria Number Two, Inc. and Vitas Healthcare Corporation (included
as Appendix A to the Proxy Statement/Prospectus).
3.1 Restated Certificate of Incorporation of Registrant. (m)
3.2 Restated Bylaws of Registrant, as amended. (t)
4 Rights Agreement, dated as of February 8, 1995, between Abbey Healthcare Group (l)
Incorporated and U.S. Stock Transfer Corporation, as Rights Agent.
5 Opinion of O'Melveny & Myers LLP.
10.4 Office/Warehouse Lease, dated September 3, 1990, between NCI Building II (a)
Partnership, Ltd. and Homedco, Inc. for the premises located at 300 E. Mineral
Avenue, Littleton, Colorado.
10.5 Lease Agreement, dated November 12, 1990, between Abbey Infusion Services (s)
("AIS") and Surf Management Associated.
10.6 1991 Management Stock Purchase Plan. (c)
10.7 Form of Subscription Agreement between Abbey and the Purchasers under the 1991 (c)
Management Stock Purchase Plan, together with the Form of Secured Nonrecourse
Promissory Note and Form of Stock Pledge.
10.8 1991 Stock Option Plan. (c)
10.9 Lease Agreement, dated May 1, 1991, between Abbey Pharmaceutical Services, Inc. (c)
("APS") and State of California Public Employees' Retirement System.
10.10 Letter Agreement, dated November 4, 1991, between Abbey and the Boston (c)
Corporate Finance Group, Inc.
10.11 1992 Stock Option Plan. (b)
10.12 1992 Employee Stock Purchase Plan. (d)
10.13 Business Center Lease, dated February 24, 1992, between CK Airpark Associates, a (s)
California Limited Partnership, and Homedco, Inc. for the premises located at
2202 East University, Phoenix, Arizona.
10.14 Industrial Real Estate Lease (Multi-Tenant Facility), dated December 17, 1992, (s)
between JB Company and Homedco, Inc. for the premises located at 4244 South
Market Court, Sacramento, California.
10.15 Loan Agreement, dated December 28, 1992, between Timothy M. Aitken and (d)
Abbey.
10.16 1993 Management Incentive Plans for officers of Abbey, officers of Abbey Home (h)
Healthcare ("AHH") and for Area Vice Presidents of AHH.
10.17 Lease Agreement, notarized June 15, 1993, between 1111 19th Street Associates (s)
Limited Partnership and Homedco, Inc. for the premises at Konterra Business
Campus, 12400 Kiln Court, Beltsville, Maryland.
10.18 Net Lease Agreement, dated July 7, 1993, between Scannel Properties and Homedco, (g)
Inc. for the premises located in Indianapolis, Indiana.
</TABLE>
II-4
<PAGE> 253
<TABLE>
<CAPTION>
Exhibit
Number Description Page/Ref
- ------ ----------- --------
<S> <C> <C>
10.19 Agreement and Plan of Reorganization, dated September 1, 1993, among AHH, (h)
Abbey, Life Air, Inc., Louis McNabb, M.D., Jagminder Bhalla, M.D., Clyde Dos
Santos, M.D., Hormohinder Gogia, M.D., William E. Matteson, James Pearle,
M.D., Narindar Singh, M.D., Bruce Tammelin, M.D., Dennis Wolin, and Brea
Medical Group.
10.20 Schedule of Registration Procedures and Related Matters. (f)
10.21 Asset Purchase Agreement, dated October 1, 1993, among AHH, Abbey, Preferred (h)
Home Care of Tampa, Ltd., and Preferred Management and Marketing of Tampa,
Inc.
10.22 Asset Purchase Agreement, dated October 12, 1993, among AHH, Abbey, (h)
Mississippi Medical Products, Inc., Homecare Affiliates, Inc. and Roy L. Hathcock.
10.23 Asset Purchase Agreement, dated October 18, 1993, among AHH, Abbey, Infusion (h)
Care Systems, Inc., Respiratory Support Systems, Inc., and the shareholders of
Infusion Care Systems, Inc. and Respiratory Support Systems, Inc.
10.24 Asset Purchase Agreement, dated December 6, 1993, among AIS, Firstcare, Inc., (h)
and the shareholders of Firstcare, Inc.
10.25 Asset Purchase Agreement, dated December 9, 1993, among AHH, Abbey, (h)
Homecare Oxygen & Medical Equipment Co., Michael L. Cohen., M.D., and Harry
J. MacDannald.
10.26 Industrial Building Lease, dated April 21, 1994, between Lasalle National Trust, (s)
N.A. and Abbey Medical, Inc. for the premises at 565 Lamont Road, Elmhurst,
Illinois.
10.27 Standard Industrial/Commercial Single-Tenant Lease, dated June 10, 1994, between (s)
Gustine HMD Associates, Ltd., a Pennsylvania limited partnership, and Homedco,
Inc. for the premises at Lots 21B and 22 of the Southpointe Development in Cecil
Township, Technology Drive-Southpoint, Canonsburg, Pennsylvania.
10.28 Net Lease Agreement, dated June 10, 1994, between Gustine HMD Associates, Ltd. (k)
and Homedco, Inc. for the premises located in Cecil, Pennsylvania.
10.29 Loan Agreement, without exhibits, dated September 30, 1994, between Abbey and (i)
General Electric Capital Corporation ("GE Capital").
10.30 U.S. $100,000,000 Loan Agreement, without exhibits, dated September 30, 1994, (j)
between Abbey and General Electric Capital Corporation.
10.31 Employees' Retirement Plan, dated December 19, 1994. (s)
10.32 Homedco 401(k) Savings Plan, restated effective October 1, 1993, amended (s)
December 28, 1994.
10.33 1995 Management Incentive Compensation Plan for Key Employees. (s)
10.34 Apria/Homedco Stock Incentive Plan, dated March 1, 1995. (r)
10.35 Stock Option Agreement, dated March 23,1995, between Homedco and (e)
Jeremy M. Jones.
10.36 Amended and Restated 1992 Stock Incentive Plan. (q)
10.37 Executive Employment Agreement, dated June 16, 1995, between Abbey and (p)
James F. Philipp.
</TABLE>
II-5
<PAGE> 254
<TABLE>
<CAPTION>
Exhibit
Number Description Page/Ref
- ------ ----------- --------
<S> <C> <C>
10.38 Executive Employment Agreement, dated June 23, 1995, between Abbey and (p)
Manny A. Brown.
10.39 Executive Employment Agreement, dated June 26, 1995, between Homedco and (p)
Jeremy M. Jones.
10.40 Executive Employment Agreement, dated June 26, 1995, between Abbey and (p)
Steven T. Plochocki.
10.41 Agreement, dated June 26, 1995, between Abbey and James F. Philipp. (p)
10.42 First 1995 Amendment to the Abbey Employees' Retirement Plan, dated June 26, (s)
1995.
10.43 Executive Employment Agreement, dated June 26, 1995, between Abbey and (s)
Sarah L. Eames.
10.44 Amendment Number Two to the Homedco 401 (k) Savings Plan, executed June 27, (s)
1995.
10.45 Credit Agreement, dated June 28, 1995, among Apria Healthcare and certain of its (n)
subsidiaries, Banque Paribas, Bank of America National Trust and Savings
Association, Nationsbank of Texas, N.A., Nationsbanc Capital markets, Inc. and
certain other financial institutions from time to time party thereto.
10.46 Employment Agreement, dated June 29, 1995, between Apria Healthcare and (p)
Timothy M. Aitken.
10.47 Employment Agreement, dated July 1, 1995, between Apria Healthcare and (s)
Richard J. Rapp.
10.48 Standard Industrial/Commercial Multi-Tenant Lease, dated July 14, 1995, between (o)
Building 7 Partnership and Apria Healthcare, Inc. for the premises located at 9115
Activity Road, San Diego, California.
10.49 Assignment, Assumption and Consent Re: Lease, dated July 21, 1995, between (o)
C.J. Segerstrom & Sons, a California general partnership and Apria Healthcare, Inc.
for the premises located in the Harbor Gateway Business Center, Costa Mesa,
California.
10.50 Building Lease, dated July 21, 1995, between C. J. Segerstrom & Sons, a California (s)
general partnership, and Apria Healthcare Inc. for 10 locations within Harbor
Gateway Business Center, Hyland Avenue, Costa Mesa, California.
10.51 Assignment, Assumption and Consent Re: Lease, executed July 21, 1995, from (s)
Abbey Medical, Inc. (Assignor) to Apria Healthcare Inc. (Assignee) the Building
Lease, dated December 1, 1988, between C. J. Segerstrom & Sons, a California
general partnership, and Assignor, as tenant, certain premises located in Harbor
Gateway Business Center, Costa Mesa, California.
10.52 Standard Industrial/Commercial Multi-Tenant Lease, dated July 31, 1995, between (o)
Carlson Real Estate Company and Apria Healthcare, Inc. for the premises at
Building III, Carlson Business Center South, Cheshire Lane, Minnetonka, Minnesota.
10.53 Standard Commercial Multi-Tenant Lease, dated October 15, 1995, between (s)
Cole-Haan and Apria Healthcare Inc. for the premises located at 44 North Elm
Street, Yarmouth, Maine.
</TABLE>
II-6
<PAGE> 255
<TABLE>
<CAPTION>
Exhibit
Number Description Page/Ref
- ------ ----------- --------
<S> <C> <C>
10.54 Standard Industrial/Commercial Single-Tenant Lease, dated October 31, 1995, (s)
between Scannel Properties #3, L.P., an Indiana limited partnership, and Apria
Healthcare, Inc. for the premises located at Lot #1, Lenexa, Kansas.
10.55 Amendment Number Three to the Homedco 401(k) Savings Plan, executed (s)
December 29, 1995.
10.56 Form of Consulting, Severance and Confidentiality Agreement, dated
as of _________, 1996, by and between Hugh A. Westbrook and Vitas
Healthcare Corporation (included as Exhibit 5.14(A) to Appendix A to
the Proxy Statement/Prospectus).
10.57 Form of Noncompetition Agreement, dated as of _________, 1996, by
and between Hugh A. Westbrook and Vitas Healthcare Corporation
(included as Exhibit 5.14(B) to Appendix A to the Proxy
Statement/Prospectus).
10.58 Credit Agreement, dated as of August 9, 1996, by and between Apria Healthcare
Group Inc. and certain of its subsidiaries, Bank of America National Trust and
Savings Association, Nationsbank of Texas, N.A. and the other financial
institutions party to the Credit Agreement.
10.59 Guaranty, dated as of August 9, 1996, made by Apria Healthcare Group Inc.,
Apria Healthcare, Inc., Apria Number One, Inc., Apria Number Two, Inc., Protocare
of Metropolitan New York, Inc. and Homedco of New York State, Inc. in favor of
Bank of America National Trust and Savings Association.
10.60 Standard Commercial Single Tenant Lease, dated May 1, 1996, by and between 555 (u)
First Street, Inc. and Apria Healthcare, Inc. for the premises at 555 First Street,
San Fernando, California.
10.61 Standard Commercial Multi-Tenant Lease, dated March 15, 1996, by and between Watson (u)
Land Company and Apria Healthcare, Inc. for the premises at Watson Industrial
Center South, Building #173, 909 E. 236th Street, Carson, California.
11.1 Apria Statement of Computation of Earnings per Share. (s)(t)
11.2 Vitas Statement of Computation of Earnings per Share.
13.1 Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, (t)
1996.
13.2 Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, (u)
1996.
21 List of Subsidiaries. (s)
23.1 Consent of Ernst & Young LLP, Orange County, California.
23.2 Consent of Ernst & Young LLP, Miami, Florida.
23.3 Consent of KPMG Peat Marwick LLP.
23.4 Consent of O'Melveny & Myers LLP (included in Exhibit 5).
24.1 Power of Attorney (included at page II-4).
27 Financial Data Schedule.
99.1 Vitas Healthcare Corporation Form of Proxy.
</TABLE>
REFERENCES--DOCUMENTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
(a) Incorporated by reference to Homedco's Form S-1 (No. 33-39488), as
filed on March 18, 1991.
(b) Incorporated by reference to Abbey's definitive proxy statement for the
1992 Annual Meeting of Shareholders (File No. 000-19854), as filed on
June 5, 1991.
(c) Incorporated by reference to Abbey's Registration Statement on Form S-1
(Registration No. 33-44690), as filed on December 23, 1991.
(d) Incorporated by reference to Abbey's Annual Report on Form 10-K for the
year ended January 2, 1993.
(e) Incorporated by reference to Homedco's Form 10-Q for the period ended
March 31, 1995, as filed on May 11, 1995.
II-7
<PAGE> 256
(f) Incorporated by reference to Abbey's Registration Statement on Form S-4
(Registration No. 33-69094), as filed on September 17, 1993.
(g) Incorporated by reference to Homedco's Annual Report on Form 10-K for
the year ended September 30, 1993, as filed on December 9, 1993.
(h) Incorporated by reference to Abbey's Annual Report on Form 10-K for the
year ended January 1, 1994.
(i) Incorporated by reference to Abbey's Quarterly Report on Form 10-Q for
the quarter ended October 1, 1994.
(j) Incorporated by reference to Amendment No.1 to Abbey's Quarterly Report
on Form 10-Q/A for the quarter ended October 1, 1994.
(k) Incorporated by reference to Homedco's Annual Report on Form 10-K for
the year ended September 30, 1994, as filed on December 20, 1994.
(l) Incorporated by reference to Abbey's Current Report on Form 8-K, as
filed on March 20, 1995.
(m) Incorporated by reference to Abbey's Registration Statement on Form S-4
(Registration No. 33-90658), and its appendices, as filed on March 27,
1995.
(n) Incorporated by reference to the Registrant's form 10-Q dated June 30,
1995, as filed on August 14, 1995.
(o) Incorporated by reference to the Registrant's Form 10-Q dated September
30, 1995, as filed on November 14, 1995.
(p) Incorporated by reference to the Registrant's Form 10-Q/A dated June
30, 1995, as filed on November 15, 1995.
(q) Incorporated by reference to the Registrant's Registration Statement on
Form S-8, as filed on December 31, 1995.
(r) Incorporated by reference to the Registrant's Registration Statement on
Form S-8, as filed on June 28, 1995.
(s) Incorporated by reference to the Registrant's Annual Report on Form
10-K, as filed on April 1, 1996.
(t) Incorporated by reference to the Registrant's Form 10-Q dated March 31,
1996, as filed on May 14, 1996.
(u) Incorporated by reference to the Registrant's Form 10-Q dated June 30,
1996, as filed on August 14, 1996.
II-8
<PAGE> 1
Exhibit 5
August
1st
1 9 9 6
27,955-27
Apria Healthcare Group Inc.
3560 Hyland Avenue
Costa Mesa, California 92626
Re: Apria Healthcare Group Inc.
Form S-4 Registration Statement
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on Form
S-4 to be filed by you with the Securities and Exchange Commission in connection
with the registration under the Securities Act of 1933, as amended, of 5,020,000
shares of Common Stock, $0.001 par value (the "Shares"), of Apria Healthcare
Group Inc., a Delaware corporation (the "Corporation"). We are familiar with
the proceedings taken and proposed to be taken by you in connection with the
authorization and proposed issuance and sale of the Shares pursuant to the
Agreement and Plan of Merger, dated as of June 28, 1996, which is included as
Appendix A to the Proxy Statement/Prospectus contained in the Registration
Statement.
It is our opinion that, subject to said proceedings being duly taken
and completed by you as now contemplated prior to the issuance of the Shares,
the Shares will, upon issuance and sale thereof in the manner referred to in the
Registration Statement, be legally and validly issued, fully paid and
nonassessable shares of Common Stock of the Corporation.
The law covered by this opinion is limited to the present General
Corporation Law of the State of Delaware. We express no opinion as to the laws
of any other jurisdiction and no opinion regarding the statutes, administrative
decisions, rules, regulations or requirements of any county, municipality,
subdivision or local authority of any jurisdiction.
<PAGE> 2
Page 2 - Apria Healthcare Group Inc. - August 1, 1996
We consent to your filing this opinion as an exhibit to the
Registration Statement and to the reference to us in the Registration Statement
under the heading "Legal Opinion."
Respectfully submitted,
O'MELVENY & MYERS LLP
<PAGE> 1
EXHIBIT 10.58
$800,000,000
CREDIT AGREEMENT
Dated as of August 9, 1996
between
APRIA HEALTHCARE GROUP INC.
AND CERTAIN OF ITS SUBSIDIARIES,
as Borrowers,
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as the Administrative Agent,
NATIONSBANK OF TEXAS, N.A.,
as the Syndication Agent,
and
THE OTHER FINANCIAL INSTITUTIONS
PARTY TO THE CREDIT AGREEMENT
Arranged By
NATIONSBANC CAPITAL MARKETS, INC.
BA SECURITIES, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
Section 1. Definitions, Interpretation And Accounting Terms.................... 1
1.1 Defined Terms...................................... 1
1.2 Accounting Terms and Determinations................ 15
1.3 Interpretation..................................... 16
Section 2. Amount and Terms of Credit.......................................... 16
2.1 The Commitments.................................... 16
2.2 Minimum Amount of Each Borrowing................... 17
2.3 Notice of Borrowing................................ 18
2.4 Disbursement of Funds.............................. 18
2.5 Notes.............................................. 19
2.6 Conversions........................................ 20
2.7 Pro Rata Borrowings................................ 20
2.8 Interest........................................... 20
2.9 Interest Periods................................... 21
2.10 Increased Costs, Illegality, etc................... 21
2.11 Compensation....................................... 23
2.12 Extension of Final Maturity Date .................. 23
2.13 Replacement of Banks............................... 24
2.14 Certain Limitation................................. 24
Section 3. Letters of Credit................................................... 25
3.1 Letters of Credit.................................. 25
3.2 Minimum Stated Amount.............................. 25
3.3 Letter of Credit Requests.......................... 26
3.4 Letter of Credit Participations.................... 26
3.5 Agreement to Repay Letter of Credit Drawings....... 27
3.6 Increased Costs.................................... 28
Section 4. Revolving Loan Commitment Fee; Fees; Reductions of Commitment....... 29
4.1 Fees............................................... 29
4.2 Voluntary Termination of Unutilized Commitments.... 30
4.3 Mandatory Reduction of Commitments................. 30
Section 5. Prepayments; Payments; Taxes........................................ 30
5.1 Voluntary Prepayments.............................. 30
5.2 Mandatory Repayments............................... 31
5.3 Method and Place of Payment........................ 33
5.4 Net Payments....................................... 33
Section 6. Conditions Precedent to Initial Credit Event........................ 34
6.1 Execution of Agreement; Notes...................... 34
6.2 Officer's Certificate.............................. 34
6.3 Compliance Certificate............................. 34
6.4 Opinions of Counsel................................ 34
6.5 Corporate Documents; Proceedings................... 34
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
6.6 Employee Benefit Plans: Shareholders' Agreements; Management Agreements;
Employment Agreements; Debt Agreements; Tax Sharing Agreements....................................... 35
6.7 Guaranty............................................................................................. 35
6.8 Adverse Change, etc.................................................................................. 35
6.9 Litigation........................................................................................... 35
6.10 Fees, etc............................................................................................ 36
6.11 Material Contracts................................................................................... 36
6.12 Existing Indebtedness................................................................................ 36
6.13 Other Information.................................................................................... 36
Section 7. Conditions Precedent to All Credit Events........................................................................ 36
7.1 No Default; Representations and Warranties........................................................... 36
7.2 Adverse Change, etc.................................................................................. 36
7.3 Litigation........................................................................................... 36
7.4 Notice of Borrowing; Letter of Credit Request........................................................ 37
Section 8. Representations, Warranties and Agreements....................................................................... 37
8.1 Corporate Status..................................................................................... 37
8.2 Corporate Power and Authority........................................................................ 37
8.3 No Violation......................................................................................... 37
8.4 Governmental Approvals............................................................................... 38
8.5 Financial Statements; Financial Condition; Undisclosed Liabilities; Projections; etc................. 38
8.6 Litigation........................................................................................... 39
8.7 True and Complete Disclosure......................................................................... 39
8.8 Use of Proceeds; Margin Regulations.................................................................. 39
8.9 Tax Returns and Payments............................................................................. 39
8.10 Compliance with ERISA................................................................................ 40
8.11 Properties........................................................................................... 40
8.12 Capitalization....................................................................................... 40
8.13 Subsidiaries......................................................................................... 40
8.14 Compliance with Statutes, etc........................................................................ 40
8.15 Investment Company Act............................................................................... 41
8.16 Public Utility Holding Company Act................................................................... 41
8.17 Environmental Matters................................................................................ 41
8.18 Labor Relations...................................................................................... 41
8.19 Patents, Licenses, Franchises and Formulas........................................................... 42
8.20 Indebtedness......................................................................................... 42
8.21 Restrictions on or Relating to Subsidiaries.......................................................... 42
8.22 JCAHO Accreditation.................................................................................. 42
8.23 Material Contracts................................................................................... 42
8.24 Indenture Treatment.................................................................................. 43
Section 9. Affirmative Covenants............................................................................................ 43
9.1 Information Covenants................................................................................ 43
9.2 Books, Records and Inspections....................................................................... 44
9.3 Maintenance of Property Insurance.................................................................... 44
9.4 Corporate Franchises................................................................................. 44
</TABLE>
-ii-
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
9.5 Compliance with Statutes, etc................................................................. 45
9.6 Compliance with Environmental Laws............................................................ 45
9.7 ERISA......................................................................................... 45
9.8 End of Fiscal Years; Fiscal Quarters.......................................................... 46
9.9 Performance of Obligations.................................................................... 46
9.10 Payment of Taxes.............................................................................. 46
9.11 Use of Proceeds............................................................................... 46
9.12 Intellectual Property Rights.................................................................. 46
9.13 Permitted Transactions........................................................................ 46
9.14 Agent for Service of Process.................................................................. 48
Section 10. Negative Covenants....................................................................................... 48
10.1 Liens......................................................................................... 48
10.2 Consolidation, Merger, Purchase or Sale of Assets, etc........................................ 50
10.3 Dividends..................................................................................... 51
10.4 Limitation on Creation of Subsidiaries........................................................ 51
10.5 Indebtedness.................................................................................. 51
10.6 Advances, Investments and Loans............................................................... 52
10.7 Transactions with Affiliates.................................................................. 53
10.8 Capital Expenditures.......................................................................... 53
10.9 Fixed Charge Coverage Ratio................................................................... 53
10.10 Minimum Consolidated Net Worth............................................................... 53
10.11 Consolidated Funded Indebtedness to Consolidated EBITDA...................................... 54
10.12 Limitation on Voluntary Payments and Modifications of Indebtedness; Modifications
of Certificate of Incorporation, By-Laws and Certain Other Agreements; etc............... 54
10.13 Limitation on Certain Restrictions on Subsidiaries........................................... 55
10.14 Business..................................................................................... 55
Section 11. Events of Default........................................................................................ 55
11.1 Payments...................................................................................... 55
11.2 Representations, etc.......................................................................... 55
11.3 Covenants..................................................................................... 55
11.4 Default Under Other Agreements................................................................ 55
11.5 Bankruptcy, etc............................................................................... 56
11.6 ERISA......................................................................................... 56
11.7 Guaranty...................................................................................... 56
11.8 Judgments..................................................................................... 56
11.9 Ownership..................................................................................... 56
Section 12. The Agents............................................................................................... 57
12.1 Appointment and Authorization................................................................. 57
12.2 Delegation of Duties.......................................................................... 57
12.3 Liabilities of Agents......................................................................... 57
12.4 Reliance by Agents............................................................................ 58
12.5 Notice of Default............................................................................. 58
12.6 Credit Decision............................................................................... 58
12.7 Indemnification............................................................................... 58
</TABLE>
-iii-
<PAGE> 5
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
12.8 Agents in Individual Capacity...................................................... 59
12.9 Successor Agents................................................................... 59
12.10 The Co-Arrangers.................................................................. 59
12.11 The Co-Agents..................................................................... 59
Section 13. Miscellaneous................................................................................. 60
13.1 Payment of Expenses, etc........................................................... 60
13.2 Right of Setoff.................................................................... 60
13.3 Notices............................................................................ 61
13.4 Benefit of Agreement............................................................... 61
13.5 No Waiver; Remedies Cumulative..................................................... 62
13.6 Payments Pro Rata.................................................................. 63
13.7 Calculations; Computations......................................................... 64
13.8 Joint and Several.................................................................. 64
13.9 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE................................... 64
13.10 Counterparts...................................................................... 65
13.11 Effectiveness..................................................................... 65
13.12 Headings Descriptive.............................................................. 65
13.13 Amendment or Waiver............................................................... 65
13.14 Survival.......................................................................... 66
13.15 Domicile of Loans................................................................. 66
13.16 WAIVER OF JURY TRIAL.............................................................. 66
13.17 Entire Agreement.................................................................. 66
13.18 Severability...................................................................... 67
</TABLE>
ANNEX I Applicable Margin
-iv-
<PAGE> 6
CREDIT AGREEMENT
This CREDIT AGREEMENT (this "Agreement"), dated as of August 9,
1996, is made between APRIA HEALTHCARE GROUP INC., a corporation organized and
existing under the laws of the State of Delaware ("Apria") and the Subsidiaries
of Apria identified on the signature pages of this Agreement and any Subsidiary
of Apria that, subject to Section 9.13(c), shall have executed a Joinder
Agreement (Apria and such Subsidiaries are referred to individually as a
"Borrower" and collectively as the "Borrowers"), each of the financial
institutions listed on Schedule I to this Agreement or that, pursuant to Section
13.4, shall become a "Bank" under this Agreement (individually, a "Bank" and
collectively the "Banks"), NATIONSBANK OF TEXAS, N.A., as the Syndication Agent,
and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as the
Administrative Agent.
WITNESSETH:
The Borrowers have requested the Banks to make available to the
Borrowers a revolving credit facility in the amount of $800,000,000 to enable
the Borrowers to repay certain Indebtedness, to fund Permitted Acquisitions and
for general corporate and working capital purposes, and the Banks have agreed,
upon the terms and conditions set forth in this Agreement, to make such credit
facility available to the Borrowers.
NOW, THEREFORE, in consideration of the mutual agreements,
provisions and covenants contained in this Agreement, the parties to this
Agreement agree as follows:
Section 1. Definitions, Interpretation And Accounting Terms.
1.1 Defined Terms. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"Abbey Merger" shall mean the merger between Abbey Healthcare
Group Incorporated (the predecessor to Apria) and Homedco Group, Inc. pursuant
to the Agreement and Plan of Merger dated March 1, 1995, as amended on May 18,
1995.
"Administrative Agent" shall mean BofA in its capacity as
Administrative Agent for the Banks under this Agreement, and shall include any
successor to the Administrative Agent appointed pursuant to Section 12.9.
"Affected Eurodollar Loans" shall have the meaning provided in
Section 5.2(b)(B)(ii).
"Affiliate" shall mean, with respect to any Person, any other
Person directly or indirectly controlling (including but not limited to all
directors and officers of such Person), controlled by, or under direct or
indirect common control with, such Person; provided, however, that for purposes
of Section 10.7, an Affiliate of Apria shall include any Person that directly or
indirectly owns more than 5% of any class of the capital stock of Apria and for
all purposes of this Agreement and provided further, however, that none of the
Administrative Agent, the Syndication Agent, any Agent-Related Person, any Bank
or any of their respective Affiliates shall be considered an Affiliate of Apria
or any of its Subsidiaries. A Person shall be deemed to control another Person
if such Person possesses, directly or indirectly, the power to direct or cause
the direction of the management and policies of such other Person, whether
through the ownership of voting securities, by contract or otherwise.
"Agent-Related Persons" shall mean (i) BofA and any successor
Administrative Agent appointed under Section 12.9, together with their
respective Affiliates (including, in the case of BofA, BA Securities, Inc.),
(ii) NationsBank and any successor Syndication Agent appointed under Section
12.9, together with their
<PAGE> 7
respective Affiliates (including, in the case of NationsBank, NationsBanc
Capital Markets, Inc.) and (iii) the respective officers, directors, employees,
agents and attorneys-in-fact of such Persons and Affiliates.
"Agents" shall mean, collectively, the Administrative Agent and
the Syndication Agent.
"Agreement" shall have the meaning provided in the first
paragraph of this Agreement.
"Applicable Lending Office" shall mean, for each Bank, the office
of such Bank (or an affiliate of such Bank) designated on the signature page of
each Bank or such other office of such Bank (or of an affiliate of such Bank) as
such Bank may from time to time specify to the Administrative Agent and to the
Borrowers as the lending office for its Loans.
"Applicable Margin" shall mean, with respect to all Eurodollar
Loans and the Revolving Loan Commitment Fee, the amount specified in the chart
set forth on Annex I in accordance with, and subject to, the provisions set
forth on Annex I.
"Apria" shall have the meaning provided in the first paragraph of
this Agreement.
"Apria Common Stock" shall have the meaning provided in Section
8.12.
"Assignment and Assumption Agreement" shall mean an Assignment
and Assumption Agreement substantially in the form of Exhibit H.
"Bank" shall have the meaning provided in the first paragraph of
this Agreement.
"Bankruptcy Code" shall have the meaning provided in Section
11.5.
"Base Rate" shall mean, for any day, the higher of: (a) the rate
of interest in effect for such day as publicly announced from time to time by
BofA in San Francisco, California, as its "reference rate" and (b) 0.50% per
annum above the Federal Funds Rate for such day. BofA's reference rate is a rate
set by BofA based upon various factors, including BofA's costs and desired
return, general economic conditions and other factors, and is used as a
reference point for pricing some loans, which may be priced at, above, or below
such announced rate. Any change in the reference rate announced by BofA shall
take effect at the opening of business on the day specified in the public
announcement of such change.
"Base Rate Loan" shall mean (i) each Swingline Loan and (ii) any
Loan designated or deemed designated as such by any Borrower at the time of the
incurrence of such Loan or conversion to such Loan.
"BofA" means Bank of America National Trust and Savings
Association, a national banking association.
"Borrower" shall have the meaning provided in the first paragraph
of this Agreement.
"Borrower Bankruptcy Default" shall mean any Default or Event of
Default existing with respect to any Borrower pursuant to Section 11.5.
"Borrowing" shall mean the borrowing, on any given day, of one
Type of Loan (having, in the case of Eurodollar Loans, the same Interest Period)
from the Banks pro rata (or of a Swingline Loan from the Swingline Lender) or
the conversion, on any given day, of all or any portion of one or more Loans
into one Type of Loan (having, in the case of Eurodollar Loans, the same
Interest Period) on a pro rata basis among the
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Banks; provided that Base Rate Loans incurred pursuant to Section 2.10(b) shall
be considered part of the related Borrowing of Eurodollar Loans.
"Business Day" shall mean any day except Saturday, Sunday and any
day which shall be in Dallas, Texas, San Francisco, California or New York, New
York, a legal holiday or a day on which banking institutions are authorized or
required by law or other government action to close, and with respect to all
notices and determinations in connection with, and payments of principal of and
interest on, Eurodollar Loans, any day which is a day for trading by and between
banks in the London interbank Eurodollar market.
"Calculation Period" shall have the meaning provided in Section
9.13(a)(vi).
"Capital Expenditures" shall mean, for any period of four
consecutive fiscal quarters, the sum of (without duplication) (i) all
expenditures of Apria and its Subsidiaries during such period (a) for the
acquisition, maintenance or repair of fixed or capital assets (which should be
capitalized in accordance with GAAP) and (b) for Rental Equipment or for the
maintenance or repair of Rental Equipment (which should be capitalized in
accordance with GAAP) and (ii) all Capitalized Lease Obligations of Apria and
its Subsidiaries incurred during such period; provided that Capital Expenditures
shall not include expenditures made in connection with Permitted Transactions
made in compliance with Section 9.13.
"Capitalized Lease Obligations" of any Person shall mean all
rental obligations which, under GAAP, are or will be required to be capitalized
on the books of such Person, in each case taken at the amount accounted for as
indebtedness on a balance sheet of such Person in accordance with GAAP.
"Cash Equivalents" shall mean, as to any Person, (i) securities
issued or directly and fully guaranteed or insured by the United States or any
of its agencies or instrumentalities (with the full faith and credit of the
United States) having maturities of not more than six months from the date of
acquisition by such Person, (ii) time deposits and certificates of deposit of
any commercial bank having, or which is the principal banking subsidiary of a
bank holding company having, a long-term unsecured debt rating of at least "A"
or the equivalent from Standard & Poor's Corporation or "A2" or the equivalent
from Moody's Investors Service, Inc. with maturities of not more than six months
from the date of acquisition by such Person, (iii) repurchase obligations with a
term of not more than seven days for underlying securities of the types
described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (ii) above, (iv) commercial paper issued by
any Person incorporated in the United States rated at least A-1 or the
equivalent by Standard & Poor's Ratings Group or at least P-1 or the equivalent
by Moody's Investors Service, Inc. and in each case maturing not more than six
months after the date of acquisition by such Person and (v) investments in money
market funds substantially all of whose assets are comprised of securities of
the types described in clauses (i) through (iv) above.
"Change of Control" means the occurrence of one or all of the
following: (x) any Person, entity, or "group" (within the meaning of Section
13(d) or 14(d) of the Securities Exchange Act) (A) shall have acquired
beneficial ownership of 15% or more of any outstanding class of capital stock of
Apria having ordinary voting power in the election of directors of Apria, or (B)
shall obtain the power (whether or not exercised) to elect a majority of Apria's
directors, (y) the Board of Directors of Apria shall cease to consist of a
majority of Continuing Directors, or (z) a "change of control" as defined in the
Indenture shall have occurred.
"Claims" shall have the meaning provided in the definition of
"Environmental Claims."
"Code" shall mean the Internal Revenue Code of 1986 and the
regulations promulgated and the rulings issued under that code.
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"Confidentiality Agreement" shall mean a Confidentiality
Agreement substantially in the form of Exhibit J.
"Consolidated EBITDA" shall mean, for the four-quarter period
preceding any date of determination, the sum of Consolidated Net Income (before
consolidated interest income, Consolidated Interest Expense and provisions for
taxes, and extraordinary gains or losses or gains or losses from sales of assets
other than inventory or Rental Equipment sold in the Ordinary Course of
Business) for such period, plus (a) (to the extent deducted in arriving at
Consolidated Net Income for such period) (i) the amount of amortization of
intangibles, (ii) depreciation, (iii) all Merger Costs incurred in connection
with the Abbey Merger (determined on an pre-tax basis) and (iv) in the four
fiscal quarters following the consummation of the Vitas Merger, up to
$65,000,000 of Merger Costs incurred in connection with the Vitas Merger
(determined on an pre-tax basis), plus (b) the EBITDA allocable to any Permitted
Acquired Business acquired in such period for such period, minus (c) the EBITDA
allocable to any assets, capital stock, division or business group divested by
Apria or any of its Consolidated Subsidiaries in such period; provided that with
respect to clauses (b) and (c), such EBITDA shall only be added or subtracted,
as applicable, for the period commencing at the beginning of such four-quarter
period through the date of such acquisition or divestiture.
"Consolidated Funded Indebtedness" shall mean Indebtedness of
Apria and its Subsidiaries excluding Indebtedness of the type and nature
described in clauses (ii), (v), (vi) and (vii) of the definition of
Indebtedness.
"Consolidated Funded Indebtedness to Consolidated EBITDA Ratio"
shall mean, at any date of determination, the ratio of Consolidated Funded
Indebtedness of Apria as at such date to the Consolidated EBITDA of Apria for
the four consecutive fiscal quarters preceding such date.
"Consolidated Interest Expense" shall mean, for any period, the
Interest Expense of Apria and its consolidated Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP.
"Consolidated Liabilities" shall mean, at any time, all
liabilities and obligations of Apria and its Subsidiaries which would be
included in determining total liabilities as shown on the liabilities portion of
a balance sheet (including, without limitation, the principal component of
Capitalized Lease Obligations).
"Consolidated Net Income" shall mean, for any period, the net
income of Apria and its consolidated Subsidiaries for such period after
provision for taxes during such period; provided, however, that the net income
of any Subsidiary of Apria, which is not a Wholly-Owned Subsidiary and for which
the investment of Apria therein is accounted for by the equity method of
accounting, shall have its net income included in the Consolidated Net Income of
Apria and its Subsidiaries only to the extent of the amount of cash dividends or
distributions paid by such Subsidiary to Apria.
"Consolidated Net Worth" shall mean the net worth of Apria and
its Subsidiaries determined on a consolidated basis.
"Consolidated Rent Expense" shall mean, for any period, all
payments (including, without limitation, any property taxes paid as additional
rent or lease payments) made by Apria and its Subsidiaries on a consolidated
basis under any agreement to rent or lease any Real Property or personal
property.
"Contingent Obligation" shall mean, as to any Person, any
obligation of such Person guaranteeing or intending to guarantee any
Indebtedness, leases, dividends or other obligations ("primary obligations") of
any other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (i) to purchase any such primary obligation or any
property constituting direct or indirect security for such primary obligation,
(ii) to advance or supply funds (x) for the purchase or payment of any such
primary obligation or (y) to maintain working capital or
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equity capital of the primary obligor or otherwise to maintain the net worth or
solvency of the primary obligor, (iii) to purchase property, securities or
services primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such primary
obligation or (iv) otherwise to assure or hold harmless the holder of such
primary obligation against loss in respect of such primary obligation; provided,
however, that the term Contingent Obligation shall not include endorsements of
instruments for deposit or collection in the Ordinary Course of Business. The
amount of any Contingent Obligation shall be deemed to be an amount equal to the
stated or determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect of such primary obligation (assuming
such Person is required to perform under such primary obligation) as determined
by such Person in good faith.
"Continuing Director" at any date, shall mean an individual who
was a member of the Board of Directors of Apria on the Effective Date or who
shall have become a member of such Board of Directors subsequent to such date
after having been nominated or otherwise approved in writing by at least a
majority of the Continuing Directors then members of the Board of Directors of
Apria.
"Credit Documents" shall mean this Agreement, each Note, each
Notice of Borrowing, each Notice of Conversion, each Letter of Credit, each
Letter of Credit Request, the Guaranty, the Fee Letters and any documents
executed in connection with the foregoing.
"Credit Event" shall mean the making of any Loan or the issuance
of any Letter of Credit.
"Credit Party" shall mean each Borrower and each Material
Subsidiary of any Borrower party to any Credit Document.
"Debt Agreements" shall have the meaning provided in Section 6.5.
"Default" shall mean any event, act or condition which with the
giving of notice or lapse of time, or both, specified in Section 11, would
constitute an Event of Default.
"Dividend" shall mean with respect to any Person that such Person
has declared or paid a dividend or returned any equity capital to its
stockholders or authorized or made any other distribution, payment or delivery
of property (in each case other than common stock of such Person) or cash to its
stockholders in their capacity as stockholders, or redeemed, retired, purchased
or otherwise acquired, directly or indirectly, for a consideration any shares of
any class of its capital stock outstanding on or after the Effective Date (or
any options or warrants issued by such Person with respect to its capital
stock), or set aside any funds for any of the foregoing purposes, or shall have
permitted any of its Subsidiaries to purchase or otherwise acquire for a
consideration any shares of any class of the capital stock of such Person
outstanding on or after the Effective Date (or any options or warrants issued by
such Person with respect to its capital stock). Without limiting the foregoing,
"Dividends" with respect to any Person shall also include all cash payments made
or required to be made by such Person with respect to any stock appreciation
rights, plans, equity incentive or achievement plans or any similar plans or
setting aside of any funds for the foregoing purposes.
"Dollars" and the sign "$" shall each mean freely transferable
lawful money of the United States.
"Drawing" shall have the meaning provided in Section 3.5(b).
"EBITDA" shall mean, for any period for any Person, the net
income of such Person (before interest income, Interest Expense and provisions
for taxes and extraordinary gains or losses or gains or losses from sales of
assets other than inventory or Rental Equipment sold in the Ordinary Course of
Business) for such period
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<PAGE> 11
plus (to the extent deducted in arriving at net income for such period) (i) the
amount of amortization of intangibles and (ii) depreciation.
"Effective Date" shall have the meaning provided in Section
13.11.
"Eligible Transferee" shall mean a commercial bank, financial
institution, other "accredited investor" (as defined in Regulation D of the
Securities Act) or a "qualified institutional buyer" as defined in Rule 144A of
the Securities Act.
"Employment Agreements" shall have the meaning provided in
Section 6.5.
"Environmental Claims" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, claims, liens,
notices of noncompliance or violation, investigations (other than internal
reports prepared by Apria or any of its Subsidiaries solely in the ordinary
course of such Person's business and not in response to any third party action
or request of any kind) or proceedings relating in any way to any Environmental
Law or any permit issued, or any approval given, under any such Environmental
Law ("Claims"), including, without limitation, (a) any and all Claims by
Governmental Authorities for enforcement, cleanup, removal, response, remedial
or other actions or damages pursuant to any applicable Environmental Law, and
(b) any and all Claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief resulting from
Hazardous Materials arising from alleged injury or threat of injury to health,
safety or the environment.
"Environmental Law" shall mean any applicable Governmental Rule
now or hereafter in effect relating to the environment, health, safety or
Hazardous Materials, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601
et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et
seq.; the Federal Water Pollution Control Act, 33 U.S.C. Section 1251 et seq.;
the Toxic Substances Control Act, 15 U.S.C. Section 7401 et seq.; the Clean Air
Act, 42 U.S.C. Section 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C.
Section 3803 et seq.; the Oil Pollution Act of 1990, 33 U.S.C. Section 2701 et
seq. and any applicable state and local or foreign counterparts or equivalents.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974 and the regulations promulgated and rulings issued under that act.
"ERISA Affiliate" shall mean each person (as defined in Section
3(9) of ERISA) which together with Apria or any Subsidiary of Apria would be
deemed to be a "single employer" within the meaning of Section 414(b), (c), (m)
or (o) of the Code.
"Eurodollar Base Rate" shall mean, for any Eurodollar Loan for
any Interest Period for such Loan, the arithmetic mean (rounded upwards, if
necessary, to the nearest 1/16 of 1%), as determined by the Administrative Agent
of the respective rates per annum quoted by each Reference Bank at approximately
11:00 a.m. London time (or as soon thereafter as practicable) on the date two
Business Days prior to the first day of such Interest Period for the offering by
such Reference Bank to leading banks in the London interbank market of Dollar
deposits having a term comparable to such Interest Period and in an amount
comparable to the principal amount of the Eurodollar Loan to be made by such
Reference Bank for such Interest Period.
If any Reference Bank is not participating in any Eurodollar Loan during any
Interest Period for such Loan, the Eurodollar Base Rate for such Loan for such
Interest Period shall be determined by reference to the amount of the Loan that
such Reference Bank would have made or had outstanding had it been participating
in such Loan during such Interest Period. If any Reference Bank does not timely
furnish such information for determination of any Eurodollar Base Rate, the
Administrative Agent shall determine such Eurodollar Base Rate on the basis of
the information timely furnished by the remaining Reference Banks.
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"Eurodollar Loan" shall mean each Loan designated by any Borrower
at the time of the incurrence, continuation or conversion of such Loan to bear
interest at a rate determined on the basis of the definition of Eurodollar Base
Rate in this Section 1.1.
"Eurodollar Rate" shall mean, for any Eurodollar Loan for any
Interest Period for such Eurodollar Loan, a rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) determined by the Administrative Agent to
be equal to the Eurodollar Base Rate for such Loan for such Interest Period
divided by one minus the Eurodollar Reserve Requirement for such Loan for such
Interest Period.
"Eurodollar Reserve Requirement" shall mean, for any Interest
Period for any Eurodollar Loan, the average maximum rate at which reserves
(including any marginal, supplemental or emergency reserves) are required to be
maintained during such Interest Period under Regulation D by member banks of the
Federal Reserve System in New York City with deposits exceeding one billion
Dollars against "Eurocurrency liabilities" (as such term is used in Regulation
D). Without limiting the effect of the foregoing, the Eurodollar Reserve
Requirement shall include any other reserves required to be maintained by such
member banks by reason of any Regulatory Change with respect to (i) any category
of liabilities that includes deposits by reference to which the Eurodollar Rate
for Eurodollar Loans is to be determined as provided in the definition of
"Eurodollar Base Rate" in this Section 1.1 or (ii) any category of extensions of
credit or other assets that includes Eurodollar Loans.
"Event of Default" shall have the meaning provided in Section 11.
"Existing Indebtedness" shall have the meaning provided in
Section 8.20.
"Existing Credit Agreement" shall mean the $500,000,000 Credit
Agreement dated as of June 28, 1995 among Apria Healthcare Group Inc., certain
of its Subsidiaries, the Banks party to such agreement and Banque Paribas, as
administrative agent, BofA, as documentation agent and NationsBanc Capital
Markets, Inc., as syndication agent.
"Federal Funds Rate" means, for any period, the rate set forth in
the weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Board (including any such
successor, "H.15(519)") for such day opposite the caption "Federal Funds
(Effective)." If on any relevant day such rate is not yet published in
H.15(519), the rate for such day will be the rate set forth in the daily
statistical release designated as the Composite 3:30 p.m. Quotations for U.S.
Government Securities, or any successor publication, published by the Federal
Reserve Bank of New York (including any such successor, the "Composite 3:30 p.m.
Quotation") for such day under the caption "Federal Funds Effective Rate." If on
any relevant day the appropriate rate for such previous day is not yet published
in either H.15(519) or the Composite 3:30 p.m. Quotations, the rate for such day
will be the arithmetic mean as determined by the Administrative Agent of the
rates for the last transaction in overnight Federal funds arranged prior to 9:00
a.m. (New York time) on that day by each of three leading brokers of Federal
funds transactions in New York City selected by the Administrative Agent.
"Fee Letters" shall mean (i) the letter between Apria and
NationsBank dated May 30, 1996 and (ii) the letters between the Borrowers and
BofA dated May 30, 1996 and June 3, 1996 respectively.
"Fees" shall mean all amounts payable pursuant to or referred to
in Section 4.1.
"Final Maturity Date" shall mean the fifth anniversary of the
Effective Date, as such date may be extended pursuant to Section 2.12.
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"Fixed Charge Coverage Ratio" for any period of four consecutive
fiscal quarters shall mean the ratio of (x) Consolidated EBITDA plus
Consolidated Rent Expense less taxes paid in cash during such period to (y)
Fixed Charges for such period.
"Fixed Charges" for any period of four consecutive fiscal
quarters shall mean the sum (without duplication) of (i) Consolidated Interest
Expense and amortization of debt discounts in respect of all Indebtedness for
such period, (ii) the aggregate principal amount of all scheduled payments of
Indebtedness (including the principal portion of rentals under Capitalized Lease
Obligations) required to be made during such period and (iii) Consolidated Rent
Expense during such period.
"GAAP" shall mean generally accepted accounting principles set
forth from time to time in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board (or
agencies with similar functions of comparable stature and authority within the
accounting profession), or in such other statements by such other entity as may
be in general use by significant segments of the U.S. accounting profession,
which are applicable to the circumstances as of the date of determination.
"Governmental Authority" shall mean any national (Federal or
foreign), state or local government, any political subdivision or any
governmental, quasi-governmental, judicial, public or statutory instrumentality,
authority, agency, body or entity, including any HMO regulator or insurance
regulator, the PBGC, the Federal Deposit Insurance Corporation, the Comptroller
of the Currency, the Board of Governors of the Federal Reserve System, any
central bank or any comparable authority.
"Governmental Rules" shall mean any law, rule, regulation,
ordinance, order, code, judgment, decree, directive, guideline, policy, or any
similar form of decision of, or any interpretation or administration of any of
the foregoing by, any Governmental Authority.
"Guaranty" shall mean the guaranty substantially in the form of
Exhibit F to be executed by each of the Guarantors.
"Guarantors" shall mean (x) Apria and (y) each Material
Subsidiary of Apria.
"Hazardous Materials" shall mean (a) ethylene oxide, any
petroleum or petroleum products, radioactive materials, asbestos in any form
that is or could become friable, urea formaldehyde foam insulation, transformers
or other equipment that contain, dielectric fluid containing levels of
polychlorinated biphenyls, and radon gas; (b) any chemicals, materials or
substances defined as or included in the definition of "hazardous substances,"
"hazardous waste," "hazardous materials," "extremely hazardous waste,"
"restricted hazardous waste," "toxic substances," "toxic pollutants,"
"contaminants," or "pollutants," or words of similar import, under any
applicable Environmental Law; and (c) any other chemical, material or substance,
exposure to which is prohibited, limited or regulated by any Governmental
Authority.
"Indebtedness" shall mean, as to any Person, without duplication,
(i) all indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services, which purchase price is due more than 90
days from the date of incurrence of the obligations in respect thereof, but
excluding in any event accrued expenses and current trade accounts payable
incurred in the Ordinary Course of Business, (ii) the maximum amount available
to be drawn under all letters of credit issued for the account of such Person
and all unpaid drawings in respect of such letters of credit, (iii) all
Indebtedness of the types described in clause (i), (ii), (iv), (v), (vi) or
(vii) secured by any Lien on any property owned by such Person, whether or not
such Indebtedness has been assumed by such Person, (iv) all Capitalized Lease
Obligations, (v) all obligations of such Person to pay a specified purchase
price for goods or services, whether or not delivered or accepted, i.e.,
take-or-pay and similar obligations, (vi) all Contingent Obligations of such
Person, and (vii) all obligations under any
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Interest Rate Protection Agreement or under any similar type of agreement
entered into with a Person not a Bank.
"Indemnified Matters" shall have the meaning provided in Section
13.1.
"Indenture" shall mean the Indenture dated as of November 1,
1993, among, inter alia, Apria and U.S. Trust Company of California, N.A., as
trustee, pursuant to which the Senior Subordinated Notes were issued, as amended
as of the date of this Agreement and as amended, modified or supplemented in
accordance with Section 10.12.
"Initial Borrowing Date" shall mean the date on which the initial
Credit Event occurs.
"Intellectual Property" shall have the meaning provided in
Section 8.19(a).
"Interest Determination Date" shall mean, for any Eurodollar Loan
and for any Interest Period for such Eurodollar Loan, the second Business Day
prior to the commencement of such Interest Period.
"Interest Expense" shall mean, for any period for any Person, the
total interest expense of such Person for such period (calculated without regard
to any limitations on the payment of such interest expense) payable during such
period in respect of all Indebtedness of such Person for such period plus,
without duplication, that portion of Capitalized Lease Obligations of such
Person representing the interest factor for such period.
"Interest Period" shall have the meaning provided in Section 2.9.
"Interest Rate Protection Agreements" shall mean (i) interest
rate protection agreements (including, without limitation, interest rate swaps,
caps, floors, collars and similar agreements), (ii) foreign exchange contracts,
currency swap agreements or other similar agreements or arrangements designed to
protect against fluctuations in currency values, and (iii) other types of
hedging agreements from time to time.
"Issuing Bank" shall mean BofA and, with the consent of any
Borrower, any other Bank, to the extent such Bank agrees, in its sole
discretion, to become an Issuing Bank for the purposes of issuing Letters of
Credit pursuant to Section 3.
"Joinder Agreement" shall mean a Joinder Agreement substantially
in the form of Exhibit I.
"L/C Supportable Indebtedness" shall mean (i) obligations of any
Borrower incurred in the Ordinary Course of Business with respect to vehicle
insurance and workers compensation, surety bonds and other similar statutory
obligations, and (ii) such other obligations of any Borrower as are reasonably
acceptable to the Administrative Agent and otherwise permitted to exist pursuant
to the terms of this Agreement.
"Leaseholds" of any Person means all the right, title and
interest of such Person as lessee or licensee in, to and under leases or
licenses of land, improvements or fixtures.
"Letter of Credit" shall have the meaning provided in Section
3.1(a).
"Letter of Credit Fee" shall have the meaning provided in
Section 4.1(c).
"Letter of Credit Outstandings" shall mean, at any time, (x) the
sum of (i) the aggregate Stated Amount of all outstanding Letters of Credit and
(ii) the amount of all Unpaid Drawings, (y) less the amount of cash or Cash
Equivalents collateralizing outstanding Letters of Credit pursuant to Section
5.2(a)(A).
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"Letter of Credit Request" shall have the meaning provided in
Section 3.3(a).
"Lien" shall mean any mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or other),
preference, priority or other security agreement of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement, any financing or similar statement or notice filed under
the UCC or any other similar recording or notice statute, and any lease having
substantially the same effect as any of the foregoing).
"Loan" shall mean each Revolving Loan and each Swingline Loan.
"Loan Percentage" of any Bank at any time shall mean a fraction
(expressed as a percentage) the numerator of which is the Revolving Loan
Commitment of such Bank at such time and the denominator of which is the Total
Revolving Loan Commitment at such time; provided that if the Loan Percentage of
any Bank is to be determined after the Total Revolving Loan Commitment has been
terminated, then the Loan Percentages of the Banks shall be determined
immediately prior (and without giving effect) to such termination.
"Management Agreements" shall have the meaning provided in
Section 6.5.
"Mandatory Borrowings" shall have the meaning provided in
Section 2.1(c).
"Margin Stock" shall have the meaning provided in Regulation U.
"Material Adverse Effect" shall mean any circumstance or event
that constitutes (a) a material adverse change in, or a material adverse effect
upon, any of the operations, business, properties or condition (financial or
otherwise) of Apria or Apria and its Subsidiaries taken as a whole; (b) a
material impairment of the ability of Apria to perform under any Credit
Document; or (c) a material adverse effect upon the legality, validity, binding
effect or enforceability of any Credit Document.
"Material Contract" shall mean any contract of any Borrower that
either (i) evidences Indebtedness for borrowed money or evidences a Capitalized
Lease Obligation of such Borrower in excess of $1,000,000, (ii) evidences
Indebtedness, other than Indebtedness covered by clause (i), of such Borrower in
excess of $10,000,000 or (iii) requires a payment by or to a Borrower of more
than $10,000,000 in any year.
"Material Subsidiary" shall mean, at any time, each of the
Subsidiaries of Apria other than (i) the Subsidiaries set forth on Schedule XI,
and (ii) any Subsidiary of Apria whose net income or net assets, as applicable,
at such time constitutes less than 5% of the Consolidated Net Income of Apria
and its Subsidiaries for the most recently ended fiscal year or the consolidated
assets of Apria and its consolidated Subsidiaries as of the most recently ended
fiscal quarter.
"Maximum Swingline Amount" shall mean $15,000,000.
"Merger Costs" shall mean, as applicable, all costs related to
the Abbey Merger or the Vitas Merger, including restructuring charges,
transaction costs, professional fees, integration costs or any other one-time
costs required as a result of either of such mergers.
"Minimum Borrowing Amount" shall mean (i) for Base Rate Loans,
$2,000,000, (ii) for Eurodollar Loans, $3,000,000, and (iii) for Swingline
Loans, $100,000.
"NationsBank" shall mean NationsBank of Texas, N.A.
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"Net Sale Proceeds" shall mean for any sale of assets or stock of
any of Apria's Subsidiaries, the gross cash proceeds (including any cash
received by way of deferred payment pursuant to a promissory note, receivable or
otherwise, but only as and when received) received from any sale of assets or
stock of Subsidiaries, net of reasonable transaction costs, the amount of such
gross cash proceeds required to be used to repay any Indebtedness which is
secured by the respective assets which were sold, and the estimated marginal
increase in income taxes which will be payable by the Borrowers' consolidated
group as a result of such sale.
"Non-Consenting Bank" shall have the meaning provided in Section
2.13.
"Note" shall mean each Revolving Note and each Swingline Note.
"Notice of Borrowing" shall have the meaning provided in Section
2.3(a).
"Notice of Conversion" shall have the meaning provided in
Section 2.6.
"Notice Office" shall mean the office of the Administrative Agent
located at 555 South Flower Street, 11th Floor, Los Angeles, California 90071,
Attention: Mr. Wyatt Ritchie, or such other office as the Administrative Agent
may hereafter designate in writing as such to the other parties to this
Agreement.
"Obligations" shall mean all amounts owing to the Administrative
Agent or any Bank pursuant to the terms of this Agreement or any other Credit
Document.
"Ordinary Course of Business" shall mean any commercial
transaction that is normal and incidental for Apria or its Subsidiaries in
connection with the transaction of business in the home health care industry,
substantially all of which business shall be carried on in the United States;
provided, that sales of Rental Equipment in bulk or other than to patients shall
not be considered in the Ordinary Course of Business; and provided, further,
that the current operations of Abbey Health Services Limited shall be considered
to be in the Ordinary Course of Business.
"Participant" shall have the meaning provided in Section 3.4(a).
"Payment Office" shall mean the office of the Administrative
Agent located at 1455 Market Street, 12th Floor, San Francisco, California
94103, Attention: Mr. Steven Low or such other office as the Administrative
Agent may hereafter designate in writing as such to the other parties to this
Agreement.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Section 4002 of ERISA, or any successor to the PBGC.
"Permitted Acquired Business" shall mean the business, division
or product line of any Person acquired in connection with a Permitted
Acquisition.
"Permitted Acquisition" shall mean the acquisition by any Credit
Party of assets constituting an entire business, division or product line of any
Person not already a Subsidiary of such Borrower or 100% of the capital stock of
any such Person, although any such acquisition shall only be a Permitted
Acquisition so long as (a) the consideration consists solely of cash, Permitted
Debt or Apria Common Stock, (b) the assets acquired or the business of the
Person whose stock is acquired, shall be within the Ordinary Course of Business,
(c) such acquisition is approved by the Board of Directors of such Person, and
(d) those acquisitions that are structured as asset acquisitions shall be for
all or substantially all of an entire business, division or product line of such
Person. Notwithstanding anything to the contrary contained in the immediately
preceding sentence, an acquisition shall be a Permitted Acquisition only if all
requirements of Section 9.13 with respect to Permitted Acquisitions are met with
respect to such acquisition; provided, however that with respect to the Vitas
Merger,
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<PAGE> 17
the provisions of Sections 9.13(a) and (d) shall not apply so long as such
merger is consummated on or before January 15, 1997.
"Permitted Debt" shall mean Indebtedness assumed, acquired or
incurred in connection with a Permitted Acquisition and in accordance with
Section 9.13, all of the terms of which Permitted Debt shall be in form and
substance reasonably satisfactory to the Administrative Agent.
"Permitted Investment" shall mean the acquisition by any Credit
Party of common equity interests (or similar equity interests), constituting
less than 100% of the outstanding common equity interests (or similar equity
interests), of any Person not already a Subsidiary of such Borrower, although
such acquisition shall only be a Permitted Investment so long as (A) the
consideration for such acquisition consists solely of cash, Permitted Debt or
Apria Common Stock and (B) such investments shall be for less than 100% of the
common equity interests (or similar equity interests) of such Person, with all
equity interests so acquired to be directly acquired and owned by such Borrower.
Notwithstanding anything to the contrary contained in the immediately preceding
sentence, an investment shall be a Permitted Investment only if all requirements
of Section 9.13 applicable to Permitted Investments are met with respect to such
investment.
"Permitted Liens" shall have the meaning provided in Section
10.1.
"Permitted Senior Subordinated Notes" shall mean (i) the Senior
Subordinated Notes and (ii) other subordinated indebtedness (including any
refinancing of the Senior Subordinated Notes) with a maturity of not less than
seven years and no scheduled amortization, and containing other terms acceptable
to the Agents.
"Permitted Transaction" shall mean each Permitted Acquisition,
each Permitted Investment and any Subsidiary Reorganization.
"Person" shall mean any individual, partnership, limited
liability company, joint venture, firm, corporation, association, trust or other
enterprise or any Governmental Authority.
"Plan" shall mean any multiemployer or single-employer plan, as
defined in Section 4001 of ERISA, which is maintained or contributed to by (or
to which there is an obligation to contribute of), or at any time during the
five calendar years preceding the date of any Credit Event was maintained or
contributed to by (or to which there was an obligation to contribute of) Apria,
any Subsidiary of Apria or an ERISA Affiliate.
"Projections" shall have the meaning provided in Section 8.5.
"Quarterly Payment Date" shall mean the last Business Day of each
of March, June, September and December.
"Real Property" shall mean as to any Person all the right, title
and interest of such Person in and to land, improvements and fixtures, including
Leaseholds.
"Reference Banks" shall mean BofA and NationsBank.
"Regulations A, D, G, T, U and X" shall mean, respectively,
Regulations A, D, G, T, U and X of the Board of Governors of the Federal Reserve
System.
"Regulatory Change" shall mean, with respect to any Bank (or its
Applicable Lending Office), the occurrence after the Effective Date of any of
the following events: (a) the adoption of any applicable Governmental Rule, (b)
any change in any applicable Governmental Rule (including Regulation D) or in
the interpretation or administration of any Governmental Rule (including
Regulation D) by any Governmental
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<PAGE> 18
Authority charged with its interpretation or administration or (c) the adoption
or making of any interpretation, directive, guideline, policy or request
applying to a class of banks, including such Bank, of or under any Governmental
Rule or in the interpretation or administration of any Governmental Rule
(including Regulation D) (whether or not having the force of law and whether or
not failure to comply would be unlawful) by any Governmental Authority charged
with its interpretation or administration.
"Release" means disposing, discharging, injecting, spilling,
pumping, leaking, leaching, dumping, emitting, escaping, emptying, seeping,
placing, pouring and the like, into or upon any land or water or air, or
otherwise entering into the environment.
"Rental Equipment" shall mean all medical equipment rented to
patients for use in their homes or held by Apria and its Subsidiaries for such
use and any other rental equipment required in accordance with GAAP to be stated
as such on the consolidated balance sheet of Apria.
"Replaced Bank" shall have the meaning provided in Section 2.13.
"Replacement Bank" shall have the meaning provided in Section
2.13.
"Required Banks" shall mean, subject to Section 13.13(b), Banks
having in excess of 50% of the aggregate amount of the Revolving Loan
Commitments or, if the Revolving Loan Commitment shall have terminated, Banks
holding in excess of 50% of the sum of (a) the aggregate unpaid principal amount
of the Loans plus (b) the aggregate amount of all Letter of Credit Outstandings.
"Returns" shall have the meaning provided in Section 8.9.
"Revolving Loan Commitment" shall mean, for each Bank, the amount
set forth opposite such Bank's name in Schedule I directly below the column
entitled "Revolving Loan Commitment," as the same may be (x) reduced from time
to time pursuant to Sections 4.2, 4.3, 5.2 or 11 or (y) adjusted from time to
time as a result of assignments to or from such Bank pursuant to Section 2.13 or
13.4.
"Revolving Loan Commitment Fee" shall have the meaning provided
in Section 4.1(a).
"Revolving Note" shall have the meaning provided in Section
2.5(a).
"Revolving Loan" shall mean each Loan that is to be made on or
after the Effective Date pursuant to Section 2.1(a).
"SEC" shall have the meaning provided in Section 9.1(f).
"Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations promulgated under the Securities Act.
"Securities Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated under the
Securities Exchange Act.
"Senior Subordinated Notes" shall mean the $200,000,000 9-1/2%
Senior Subordinated Notes of Apria, due November 1, 2002, as amended, modified
or supplemented in accordance with Section 10.12.
"Shareholders' Agreements" shall have the meaning provided in
Section 6.5.
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<PAGE> 19
"Stated Amount" of each Letter of Credit shall mean, at any time,
the maximum amount available to be drawn under such Letter of Credit at such
time (in each case determined without regard to whether any conditions to
drawing could then be met).
"Subsidiary" shall mean, as to any Person, (i) any corporation
more than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person or one or more
Subsidiaries of such Person and (ii) any partnership, association, joint venture
or other entity in which such Person or one or more Subsidiaries of such Person
has more than a 50% equity interest at the time.
"Subsidiary Reorganization" shall mean (i) the transfer to any
Borrower of assets constituting substantially all the assets of any other
Borrower, (ii) the transfer to any Borrower of 100% of the capital stock of any
other Borrower, (iii) the merger of any Borrower with and into any other
Borrower, (iv) the merger of any Subsidiary of Apria with and into any Borrower
or (v) the merger of any Subsidiary of Apria with and into any other Subsidiary
of Apria; provided that the surviving Subsidiary shall have assumed all of the
obligations of the non-surviving Subsidiary under any Credit Document and
provided further that if the surviving Subsidiary is not a Material Subsidiary,
it shall be deemed a Material Subsidiary as of the date of any such merger if
such non-surviving Subsidiary was a Material Subsidiary.
"Swingline Expiry Date" shall mean the date which is two Business
Days prior to the Final Maturity Date.
"Swingline Lender" shall mean BofA, or any successor to BofA.
"Swingline Loan" shall mean each Loan that is to be made on or
after the Effective Date pursuant to Section 2.1(b).
"Swingline Note" shall have the meaning provided in Section
2.5(a).
"Syndication Agent" shall mean NationsBank, as syndication agent
for the Banks under this Agreement, and each successor syndication agent. Except
as otherwise set forth in this Agreement, the Syndication Agent, having arranged
for the syndication of this Agreement through and including the Effective Date,
shall have no other duties or responsibilities beyond those of a Bank under this
Agreement.
"Taxes" shall have the meaning provided in Section 5.4(a).
"Tax Sharing Agreements" shall have the meaning provided in
Section 6.5.
"Total Revolving Loan Commitment" shall mean, at any time, the
sum of the Revolving Loan Commitments of each of the Banks. The original
principal amount of the Total Revolving Loan Commitment is $800,000,000.
"Total Unutilized Revolving Loan Commitment" shall mean, at any
time, an amount equal to the remainder of (x) the then Total Revolving Loan
Commitment, less (y) the sum of the aggregate principal amount of Revolving
Loans and Swingline Loans then outstanding plus the then aggregate amount of
Letter of Credit Outstandings.
"Tranche" shall mean the respective facility and commitments
utilized in making Loans under this Agreement, with there being two separate
Tranches, i.e., whether Revolving Loans or Swingline Loans.
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<PAGE> 20
"Type" shall mean the designation of a Loan as a Base Rate Loan
or a Eurodollar Loan.
"UCC" shall mean the Uniform Commercial Code as from time to time
in effect in any relevant jurisdiction.
"United States" and "U.S." shall each mean the United States of
America.
"Unpaid Drawing" shall have the meaning provided in Section
3.5(a).
"Unutilized Revolving Loan Commitment" shall mean, for any Bank,
at any time, the Revolving Loan Commitment of such Bank at such time less the
sum of the aggregate principal amount of Revolving Loans made by such Bank then
outstanding and such Bank's Loan Percentage of the Letter of Credit
Outstandings.
"Vitas Merger" shall mean the merger of Apria Number Two, Inc.
with and into Vitas Healthcare Corporation pursuant to and in accordance with
the terms and conditions of the Agreement and Plan of Merger dated as of June
28, 1996 among Apria, Apria Number Two, Inc. and Vitas Healthcare Corporation.
Upon the consummation of the Vitas Merger (provided such merger occurs on or
before January 15, 1997), the disclosures set forth on Schedule XII shall be
effective as of such date.
"Wholly-Owned Subsidiary" shall mean, as to any Person, (i) any
corporation 100% of whose capital stock is at the time owned by such Person or
one or more Wholly-Owned Subsidiaries of such Person and (ii) any partnership,
association, joint venture or other entity in which such Person or one or more
Wholly- Owned Subsidiaries of such Person has a 100% equity interest at such
time.
1.2 Accounting Terms and Determinations.
(a) Except as otherwise expressly provided in this Agreement, all
accounting terms used in this Agreement shall be interpreted, and all financial
statements and certificates and reports as to financial matters required to be
delivered to the Banks under this Agreement shall (unless otherwise disclosed to
the Banks in writing at the time of delivery in the manner described in
subsection (b) below) be prepared, in accordance with GAAP applied on a basis
consistent with those used in the preparation of the latest financial statements
furnished to the Banks under this Agreement (which, prior to the delivery of the
first financial statements under Section 9.1, shall mean the audited financial
statements as at December 31, 1995 referred to in Section 8.5). All calculations
made for the purposes of determining compliance with this Agreement shall
(except as otherwise expressly provided in this Agreement) be made by
application of GAAP applied on a basis consistent with those used in the
preparation of the latest annual or quarterly financial statements furnished to
the Banks pursuant to Section 9.1 (or, prior to the delivery of the first
financial statements under Section 9.1, used in the preparation of the audited
financial statements as at December 31, 1995 referred to in Section 8.5) unless
(i) Apria shall have objected to determining such compliance on such basis at
the time of delivery of such financial statements or (ii) the Required Banks
shall so object in writing within 30 days after delivery of such financial
statements, in either of which events such calculations shall be made on a basis
consistent with those used in the preparation of the latest financial statements
as to which such objection shall not have been made (which, if objection is made
in respect of the first financial statements delivered under Section 9.1, shall
mean the financial statements referred to in Section 8.5); provided that if such
resolution results in burdensome duplication in Apria's preparation of the
financial reports necessary to make such calculations, Apria and the
Administrative Agent, with the consent of the Required Banks, shall use
reasonable efforts to reach a method for determining such compliance that would
eliminate or reduce such burdensome duplication.
(b) Apria shall deliver to the Banks at the same time as the
delivery of any annual or quarterly financial statement under Section 9.1 (i) a
description in reasonable detail of any material variation between the
application of accounting principles employed in the preparation of such
statement and the application of
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accounting principles employed in the preparation of the next preceding annual
or quarterly financial statements as to which no objection has been made in
accordance with the last sentence of subsection (a) above and (ii) reasonable
estimates of the difference between such statements arising as a consequence of
any such difference.
(c) To enable the ready and consistent determination of
compliance with the covenants set forth in Sections 9 and 10, Apria will not
change the last day of its fiscal year from December 31 of each year, or the
last days of the first three fiscal quarters in each of its fiscal years from
March 31, June 30 and September 30 of each year, respectively.
1.3 Interpretation. In this Agreement, unless otherwise
indicated, the singular includes the plural and plural the singular; words
importing any gender include the other gender; references to statutes or
regulations are to be construed as including all statutory or regulatory
provisions consolidating, amending or replacing the statute or regulation
referred to; references to "writing" include printing, typing, lithography and
other means of reproducing words in a tangible visible form; the words
"including," "includes" and "include" shall be deemed to be followed by the
words "without limitation"; references to articles, sections (or subdivisions of
sections), exhibits, annexes or schedules are to this Agreement; references to
agreements and other contractual instruments shall be deemed to include all
subsequent amendments, extensions and other modifications to such instruments
(without, however, limiting any prohibition on any such amendments, extensions
and other modifications by the terms of this Agreement); and references to
Persons include their respective permitted successors and assigns and, in the
case of Governmental Authorities, Persons succeeding to their respective
functions and capacities.
Section 2. Amount and Terms of Credit.
2.1 The Commitments.
(a) Subject to and upon the terms and conditions set forth in
this Agreement, each Bank severally agrees at any time and from time to time on
and after the Effective Date but prior to the Final Maturity Date, to make a
loan or loans (each, a "Revolving Loan," and collectively, the "Revolving
Loans") to the Borrowers, which Revolving Loans:
(i) shall, at the option of a
Borrower, be Base Rate Loans or Eurodollar Loans;
provided that except as otherwise specifically
provided in Section 2.10(b), all Revolving Loans
composing the same Borrowing shall at all times be
of the same Type;
(ii) may be repaid and
reborrowed in accordance with the provisions of this
Agreement; and
(iii) when added to the product
of (x) such Bank's Loan Percentage and (y) the sum
of (I) the aggregate amount of all Letter of Credit
Outstandings (exclusive of Unpaid Drawings which are
repaid with the proceeds of, and simultaneously with
the incurrence of, the respective incurrence of
Revolving Loans) at such time and (II) the aggregate
principal amount of all Swingline Loans then
outstanding (exclusive of Swingline Loans which are
repaid with the proceeds of, and simultaneously with
the incurrence of, Revolving Loans), shall not
exceed for any Bank at any time the Revolving Loan
Commitment of such Bank at such time;
(b) Subject to and upon the terms and conditions set forth in
this Agreement, the Swingline Lender, in its individual capacity, agrees at any
time and from time to time on and after the Effective Date and prior to the
Swingline Expiry Date, to make a loan or loans to the Borrowers (each, a
"Swingline Loan," and collectively, the "Swingline Loans"), which Swingline
Loans:
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<PAGE> 22
(i) shall be made and maintained as Base Rate
Loans;
(ii) may be repaid and reborrowed in
accordance with the provisions of this Agreement;
(iii) when combined with the aggregate
principal amount of all Revolving Loans then outstanding and
Letter of Credit Outstandings at such time shall not exceed in
aggregate principal amount at any time outstanding, an amount
equal to the Total Revolving Loan Commitment at such time; and
(iv) shall not exceed the Maximum Swingline
Amount.
(c) On any Business Day, the Swingline Lender may, in its sole
discretion, give notice to the Banks that its outstanding Swingline Loans shall
be funded with a Borrowing of Revolving Loans (provided that such notice shall
be deemed to have been automatically given upon the occurrence of an Event of
Default under Section 11.5 or upon the exercise of any of the remedies provided
in the last paragraph of Section 11), in which case a Borrowing of Revolving
Loans constituting Base Rate Loans (each such Borrowing, a "Mandatory
Borrowing") shall be made on the immediately succeeding Business Day from all
Banks (without giving effect to any reductions in the Revolving Loan Commitments
pursuant to the last paragraph of Section 11) pro rata on the basis of their
respective Loan Percentages (determined before giving effect to any termination
of the Revolving Loan Commitments pursuant to the last paragraph of Section 11)
and the proceeds of such Mandatory Borrowing shall be applied directly to the
Swingline Lender to repay the Swingline Lender for such outstanding Swingline
Loans. Subject to Section 2.14, each such Bank hereby irrevocably agrees to make
Revolving Loans upon one Business Day's notice pursuant to each Mandatory
Borrowing in the amount and in the manner specified in the preceding sentence
and on the date specified in writing by the Swingline Lender notwithstanding (i)
the amount of the Mandatory Borrowing may not comply with the minimum amount for
Borrowings otherwise required under this Agreement, (ii) whether any conditions
specified in Section 6 or Section 7 are then satisfied, (iii) whether a Default
or an Event of Default then exists, (iv) the date of such Mandatory Borrowing,
and (v) any reduction in the Total Revolving Loan Commitment after any such
Swingline Loans were made. In the event that any Mandatory Borrowing cannot for
any reason be made on the date otherwise required above (including, without
limitation, as a result of the commencement of a proceeding under the Bankruptcy
Code with respect to any Borrower), then each such Bank hereby agrees that it
shall forthwith purchase (as of the date the Mandatory Borrowing would otherwise
have occurred, but adjusted for any payments received from any Borrower on or
after such date and prior to such purchase) from the Swingline Lender such
participations in the outstanding Swingline Loans as shall be necessary to cause
such Banks to share in such Swingline Loans ratably based upon their respective
Loan Percentages (determined before giving effect to any termination of the
Revolving Loan Commitments pursuant to the last paragraph of Section 11);
provided that (x) all interest payable on the Swingline Loans shall be for the
account of the Swingline Lender until the date as of which the respective
participation is required to be purchased and, to the extent attributable to the
purchased participation, shall be payable to the participant from and after such
date and (y) at the time any purchase of participations pursuant to this
sentence is actually made, the purchasing Bank shall be required to pay the
Swingline Lender interest on the principal amount of the participation purchased
for each day from and including the day upon which such mandatory purchase was
required to be made to but excluding the date of payment for such participation,
at the rate otherwise applicable to Revolving Loans maintained as Base Rate
Loans under this Agreement.
2.2 Minimum Amount of Each Borrowing. The aggregate principal
amount of each Borrowing under this Agreement shall not be less than the Minimum
Borrowing Amount and, if greater, shall be in a multiple of $500,000 ($50,000 in
the case of Swingline Loans). More than one Borrowing may occur on the same
date, but at no time shall there be outstanding more than ten Borrowings of
Eurodollar Loans.
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<PAGE> 23
2.3 Notice of Borrowing.
(a) Whenever any Borrower desires to make a Borrowing under this
Agreement (excluding Borrowings of Swingline Loans and Mandatory Borrowings), it
shall give the Administrative Agent at its Notice Office, prior to 11:00 a.m.
(San Francisco time) at least one Business Day's prior written notice (or
telephonic notice promptly confirmed in writing) of each Borrowing of Base Rate
Loans and at least three Business Days' prior written notice (or telephonic
notice promptly confirmed in writing) of each Borrowing of Eurodollar Loans to
be made under this Agreement. Each such notice (each a "Notice of Borrowing"),
except as otherwise expressly provided in Section 2.10, shall be irrevocable and
shall be given by a Borrower in the form of Exhibit A-1, appropriately completed
to specify: (i) the aggregate principal amount of the Loans to be made pursuant
to such Borrowing; (ii) the date of such Borrowing (which shall be a Business
Day); (iii) whether the Loans being made pursuant to such Borrowing are to be
initially maintained as Base Rate Loans or Eurodollar Loans and, if Eurodollar
Loans, the initial Interest Period to be applicable thereto; and (iv) the amount
of each Borrowing attributable to each Borrower. The Administrative Agent shall
promptly give each Bank which is required to make Loans of the Tranche specified
in the respective Notice of Borrowing notice of such proposed Borrowing, of such
Bank's proportionate share thereof and of the other matters specified in the
Notice of Borrowing. Unless the Required Banks shall otherwise agree, during the
existence of a Default or an Event of Default, the Borrowers may not elect to
have a Loan be made as, or converted into or continued as, a Eurodollar Loan.
(b) (i) Whenever any Borrower desires to make a
Borrowing of Swingline Loans under this Agreement, it shall give the Swingline
Lender not later than 12:00 Noon (San Francisco time) on the date that the
Swingline Loan is to be made, written notice (or telephonic notice confirmed in
writing) of each Swingline Loan to be made under this Agreement. Each such
notice shall be irrevocable and specify in each case (A) the date of Borrowing
(which shall be a Business Day); (B) the aggregate principal amount of Swingline
Loans to be made pursuant to such Borrowing; and (C) the amount of each
Borrowing attributable to each Borrower.
(ii) Without in any way limiting the
obligation of each Borrower to confirm in writing any telephonic
notice of such Borrowing of Swingline Loans, the Swingline Lender
may act without liability upon the basis of telephonic notice of
such Borrowing, believed by the Swingline Lender in good faith to
be from one of the individuals identified on Schedule II prior to
receipt of written confirmation. In the event any Borrower wishes
to modify Schedule II, it shall so notify the Swingline Lender in
writing, and following the actual receipt by the Swingline Lender
of such modification, the Swingline Lender shall be fully
protected in acting on such modified Schedule. In each such case,
each Borrower hereby waives the right to dispute the Swingline
Lender's record of the terms of such telephonic notice of such
Borrowing of Swingline Loans.
(iii) Mandatory Borrowings shall be made upon
the notice specified in Section 2.1(c), with each Borrower
irrevocably agreeing, by its incurrence of any Swingline Loan, to
the making of the Mandatory Borrowings as set forth in Section
2.1(c).
2.4 Disbursement of Funds. No later than 12:00 Noon (San
Francisco time) on the date specified in each Notice of Borrowing (or (x) in the
case of Swingline Loans, no later than the close of business on the date
specified pursuant to Section 2.3(b)(i) or (y) in the case of Mandatory
Borrowings, not later than 11:00 a.m. (San Francisco time) on the date specified
in Section 2.1(c)), each Bank with a Revolving Loan Commitment will make
available its pro rata portion (determined in accordance with Section 2.7) of
each such Borrowing requested to be made on such date (or in the case of
Swingline Loans, the Swingline Lender shall make available the full amount
thereof). All such amounts shall be made available in Dollars and in immediately
available funds at the Payment Office of the Administrative Agent, and the
Administrative Agent will make available to the applicable Borrower at the
Payment Office the aggregate of the amounts so made available by the Banks.
Unless the Administrative Agent shall have been notified by any Bank prior to
the date
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<PAGE> 24
of Borrowing that such Bank does not intend to make available to the
Administrative Agent such Bank's portion of any Borrowing to be made on such
date, the Administrative Agent may assume that such Bank has made such amount
available to the Administrative Agent on such date of Borrowing and the
Administrative Agent may, in reliance upon such assumption, make available to
the applicable Borrower a corresponding amount. If such corresponding amount is
not in fact made available to the Administrative Agent by such Bank, the
Administrative Agent shall be entitled to recover such corresponding amount on
demand from such Bank. If such Bank does not pay such corresponding amount
forthwith upon the Administrative Agent's demand therefor, the Administrative
Agent shall promptly notify the applicable Borrower and the applicable Borrower
shall immediately pay such corresponding amount to the Administrative Agent. The
Administrative Agent shall also be entitled to recover on demand from such Bank
or the applicable Borrower, as the case may be, interest on such corresponding
amount in respect of each day from the date such corresponding amount was made
available by the Administrative Agent to the applicable Borrower until and
excluding the date such corresponding amount is recovered by the Administrative
Agent, at a rate per annum equal to (i) if recovered from such Bank, the cost to
the Administrative Agent of acquiring overnight federal funds and (ii) if
recovered from the applicable Borrower, the rate of interest applicable to the
respective Borrowing, as determined pursuant to Section 2.8. Nothing in this
Section 2.4 shall be deemed to relieve any Bank from its obligation to make
Loans under this Agreement or to prejudice any rights which the applicable
Borrower may have against any Bank as a result of any failure by such Bank to
make Loans under this Agreement. No Bank shall be responsible for the failure of
any other Bank to make available such other Bank's portion of any Borrowing to
be made pursuant to this Section 2.4.
2.5 Notes.
(a) Each Borrower's obligation to pay the principal of, and
interest on, the Loans made by each Bank shall be evidenced: (i) if Revolving
Loans, by a promissory note duly executed and delivered by each Borrower
substantially in the form of Exhibit B-1, with blanks appropriately completed in
conformity with this Agreement, as amended from time to time in accordance with
the provisions of this Agreement (each, a "Revolving Note," and collectively,
the "Revolving Notes"); and (ii) if Swingline Loans, by a promissory note duly
executed and delivered by each Borrower substantially in the form of Exhibit
B-2, with blanks appropriately completed in conformity with this Agreement (the
"Swingline Note").
(b) The Revolving Note issued to each Bank shall: (i) be executed
by each Borrower, (ii) be payable to the order of such Bank and be dated the
Effective Date; (iii) be in a stated principal amount equal to the Revolving
Loan Commitment of such Bank and be payable in the principal amount of the
Revolving Loans evidenced by such Revolving Note from time to time; (iv) mature
on the Final Maturity Date; (v) bear interest as provided in the appropriate
clause of Section 2.8 in respect of the Base Rate Loans and Eurodollar Loans, as
the case may be, evidenced thereby; (vi) be subject to mandatory repayment as
provided in Section 5.2; and (vii) be entitled to the benefits of this Agreement
and the Guaranty.
(c) The Swingline Note issued to the Swingline Lender shall: (i)
be executed by each Borrower; (ii) be payable to the order of the Swingline
Lender and be dated the Effective Date; (iii) be in a stated principal amount
equal to the Maximum Swingline Amount and be payable in the principal amount of
the outstanding Swingline Loans evidenced thereby from time to time; (iv) mature
on the Swingline Expiry Date; (v) bear interest as provided in the appropriate
clause of Section 2.8 in respect of the Base Rate Loans evidenced thereby; and
(vi) be entitled to the benefits of this Agreement and the Guaranty.
(d) Each Bank will note on its internal records the amount of
each Loan made by it and each payment in respect thereof and will prior to any
transfer of any of its Notes endorse on the reverse side thereof the outstanding
principal amount of Loans evidenced thereby. Failure to make any such notation
shall not affect each Borrower's obligations in respect of such Loans.
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2.6 Conversions. The Borrowers shall have the option to convert
on any Business Day all or a portion at least equal to the Minimum Borrowing
Amount of the outstanding principal amount of the Loans (other than Swingline
Loans, which may not be converted pursuant to this Section 2.6) made pursuant to
one or more Borrowings of one Type of Loan into a Borrowing or Borrowings of the
other Type of Loan; provided that: (i) except as otherwise provided in Section
2.10(b), Eurodollar Loans may be converted into Base Rate Loans only on the last
day of an Interest Period applicable to the Loans being converted and no such
partial conversion of Eurodollar Loans shall reduce the outstanding principal
amount of such Eurodollar Loans made pursuant to a single Borrowing to less than
the Minimum Borrowing Amount applicable thereto; (ii) unless the Required Banks
shall otherwise agree, Base Rate Loans may only be converted into Eurodollar
Loans if no Default or Event of Default is in existence on the date of the
conversion; and (iii) no conversion pursuant to this Section 2.6 shall result in
a greater number of Borrowings than is permitted under Section 2.2. Each such
conversion shall be effected by any Borrower by giving the Administrative Agent
at its Notice Office prior to 11:00 a.m. (San Francisco time) at least three
Business Days' prior written notice (or telephonic notice promptly confirmed in
writing) (each, a "Notice of Conversion") which notice shall be in the form of
Exhibit A-2, appropriately completed to specify the Loans to be so converted,
the Borrowing or Borrowings pursuant to which such Loans were made and, if to be
converted into Eurodollar Loans, the Interest Period to be initially applicable
thereto. The Administrative Agent shall give each Bank prompt notice of any such
proposed conversion affecting any of its Loans. Upon any such conversion the
proceeds thereof will be deemed to be applied directly on the day of such
conversion to prepay the outstanding principal amount of the Loans being
converted; provided, however, that no such conversion shall be deemed to be a
Credit Event for the purposes of Section 7.
2.7 Pro Rata Borrowings. All Borrowings of Revolving Loans under
this Agreement shall be incurred from the Banks pro rata on the basis of their
respective Revolving Loan Commitments. It is understood that no Bank shall be
responsible for any default by any other Bank of its obligation to make Loans
under this Agreement and that each Bank shall be obligated to make the Loans
provided to be made by it under this Agreement regardless of the failure of any
other Bank to make its Loans under this Agreement.
2.8 Interest.
(a) The Borrowers agree to pay interest in respect of the unpaid
principal amount of each Base Rate Loan from the date of the Borrowing thereof
until the maturity thereof (whether by acceleration or otherwise) at a rate per
annum which shall at all times be equal to the Base Rate in effect from time to
time.
(b) The Borrowers agree to pay interest in respect of the unpaid
principal amount of each Eurodollar Loan from the date of the Borrowing of such
Eurodollar Loan until the maturity of such Eurodollar Loan (whether by
acceleration or otherwise) at a rate per annum which shall, during each Interest
Period applicable to such Eurodollar Loan, be equal to the sum of the Applicable
Margin plus the Eurodollar Rate for such Interest Period, it being understood
that the Applicable Margin is subject to change within such Interest Period.
(c) Overdue principal and, to the extent permitted by law,
overdue interest in respect of each Loan and any other overdue amount payable
under this Agreement shall, in each case, bear interest at a rate per annum
equal to the greater of (x) the sum of (i) 2% and (ii) the Base Rate, and (y)
the rate which is 2% in excess of the rate of interest then applicable to such
Loan, in each case with such interest to be payable on demand.
(d) Accrued (and theretofore unpaid) interest shall be payable
(i) in respect of each Base Rate Loan, monthly in arrears on the last Business
Day of each calendar month; (ii) in respect of each Eurodollar Loan, on the last
day of each Interest Period applicable thereto and, in the case of an Interest
Period in excess of three months, on each date occurring at three month
intervals after the first day of such Interest Period; and
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(iii) in respect of each Loan, on any repayment or prepayment (on the amount
repaid or prepaid), at or before maturity (whether by acceleration or otherwise)
and, after such maturity, on demand.
(e) Upon each Interest Determination Date, the Administrative
Agent shall determine the Eurodollar Rate for the Interest Period applicable to
Eurodollar Loans and shall promptly notify the Borrowers and the Banks thereof.
Each such determination shall, absent manifest error, be final and conclusive
and binding on all parties to this Agreement.
2.9 Interest Periods. At the time it gives any Notice of
Borrowing or Notice of Conversion in respect of the making of, or conversion
into, a Eurodollar Loan (in the case of the initial Interest Period applicable
thereto) or prior to 11:00 a.m. (San Francisco time) on the third Business Day
prior to the expiration of an Interest Period applicable to such Eurodollar Loan
(in the case of any subsequent Interest Period), the Borrowers shall have the
right to elect, by giving the Administrative Agent notice thereof, the interest
period (each an "Interest Period") applicable to such Eurodollar Loan, which
Interest Period shall, at the option of the Borrowers, be a one, three, six or,
with the approval of all of the Banks, nine or twelve-month period; provided,
that:
(i) all Eurodollar Loans composing a single
Borrowing shall at all times have the same Interest Period;
(ii) the initial Interest Period for any
Eurodollar Loan shall commence on the date of Borrowing of such
Loan (including the date of any conversion thereto from a
Borrowing of Base Rate Loans) and each Interest Period occurring
thereafter in respect of such Loan shall commence on the day on
which the next preceding Interest Period applicable thereto
expires;
(iii) if any Interest Period relating to a
Eurodollar Loan begins on a day for which there is no numerically
corresponding day in the calendar month at the end of such
Interest Period, such Interest Period shall end on the last
Business Day of such calendar month;
(iv) if any Interest Period would otherwise
expire on a day which is not a Business Day, such Interest Period
shall expire on the next succeeding Business Day; provided,
however, that if any Interest Period for a Eurodollar Loan would
otherwise expire on a day which is not a Business Day but is a
day of the month after which no further Business Day occurs in
such month, such Interest Period shall expire on the next
preceding Business Day; and
(v) no Interest Period shall be selected
which extends beyond the Final Maturity Date.
If upon the expiration of any Interest Period applicable to a
Borrowing of Eurodollar Loans, the Borrowers have failed to elect a new Interest
Period to be applicable to such Eurodollar Loans as provided above, the
Borrowers shall be deemed to have elected to convert such Eurodollar Loans into
Base Rate Loans effective as of the expiration date of such current Interest
Period.
2.10 Increased Costs, Illegality, etc.
(a) In the event that any Bank shall have determined (which
determination shall, absent manifest error, be final and conclusive and binding
upon all parties to this Agreement but, with respect to clause (i) below, may be
made only by the Administrative Agent):
(i) on any Interest Determination Date that,
by reason of any changes arising after the Effective Date
affecting the interbank Eurodollar market, adequate and fair
means do not exist for ascertaining the applicable interest rate
on the basis provided for in the definition of Eurodollar Rate;
or
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(ii) at any time, that such Bank shall incur
increased costs or reductions in the amounts received or
receivable under this Agreement with respect to any Eurodollar
Loan because of (x) any Regulatory Change since the Effective
Date such as, for example, but not limited to: (A) a change in
the basis of taxation of payments to any Bank of the principal of
or interest on the Notes or any other amounts payable under this
Agreement (except for changes in the rate of tax on, or
determined by reference to, the net income or profits of such
Bank imposed by the jurisdiction in which its principal office or
Applicable Lending Office is located) or (B) a change in official
reserve requirements (but, in all events, excluding reserves
required under Regulation D to the extent included in the
computation of the Eurodollar Rate) or (y) other circumstances
since the Effective Date affecting such Bank or the interbank
Eurodollar market or the position of such Bank in such market; or
(iii) at any time, that the making or
continuance of any Eurodollar Loan has been made (x) unlawful by
any Governmental Rule, (y) impossible by compliance by any Bank
in good faith with any request by any Governmental Authority
(whether or not having the force of law) or (z) impracticable as
a result of a contingency occurring after the Effective Date
which materially and adversely affects the interbank Eurodollar
market;
then, and in any such event, such Bank (or the Administrative Agent, in the case
of clause (i) above) shall promptly give notice (by telephone confirmed in
writing) to the Borrowers and, except in the case of clause (i) above, to the
Administrative Agent of such determination (which notice the Administrative
Agent shall promptly transmit to each of the other Banks). Thereafter (x) in the
case of clause (i) above, Eurodollar Loans shall no longer be available until
such time as the Administrative Agent notifies the Borrowers and the Banks that
the circumstances giving rise to such notice by the Administrative Agent no
longer exist, and any Notice of Borrowing or Notice of Conversion given by the
Borrowers with respect to Eurodollar Loans which have not yet been incurred
(including by way of conversion) shall be deemed rescinded by the Borrowers, (y)
in the case of clause (ii) above, the Borrowers shall pay to such Bank, within
two Business Days following written demand therefor, such additional amounts (in
the form of an increased rate of, or a different method of calculating, interest
or otherwise as such Bank in its sole discretion shall determine) as shall be
required to compensate such Bank for such increased costs or reductions in
amounts received or receivable under this Agreement (a written notice as to the
additional amounts owed to such Bank, showing in reasonable detail the basis for
the calculation thereof, submitted to the Borrowers by such Bank shall, absent
manifest error, be final and conclusive and binding on all the parties to this
Agreement) and (z) in the case of clause (iii) above, the Borrowers shall take
one of the actions specified in Section 2.10(b) as promptly as possible and, in
any event, within the time period required by law.
(b) At any time that any Eurodollar Loan is affected by the
circumstances described in Section 2.10(a)(ii) or (iii), the Borrowers may (and
in the case of a Eurodollar Loan affected by the circumstances described in
Section 2.10(a)(iii) shall) either (i) if the affected Eurodollar Loan is then
being made initially or pursuant to a conversion, by giving the Administrative
Agent telephonic notice (confirmed in writing) on the same date that the
Borrowers were notified by the affected Bank or the Administrative Agent
pursuant to Section 2.10(a)(ii) or (iii), cancel the respective Borrowing, or
(ii) if the affected Eurodollar Loan is then outstanding, upon at least three
Business Days' written notice to the Administrative Agent, require the affected
Bank to convert such Eurodollar Loan into a Base Rate Loan; provided that if
more than one Bank is affected at any time, then all affected Banks must be
treated the same pursuant to this Section 2.10(b).
(c) If at any time after the Effective Date, any Bank determines
that the introduction of or any change in applicable law or Governmental Rule
(whether or not having the force of law and including any phasing in of those
announced or published prior to the Effective Date) concerning capital adequacy,
or any change in interpretation or administration thereof by any Governmental
Authority, central bank or comparable agency, will have the effect of increasing
the amount of capital required or expected to be maintained by such Bank or any
corporation controlling such Bank based on the existence of such Bank's
Revolving Loan
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<PAGE> 28
Commitment under this Agreement or its obligations under this Agreement, then
the Borrowers shall pay to such Bank, within five Business Days following such
Bank's written demand therefor, such additional amounts as shall be required to
compensate such Bank or any corporation controlling such Bank for the increased
cost to such Bank or such corporation or the reduction in the rate of return to
such Bank or such corporation as a result of such increase of capital. In
determining such additional amounts, each Bank will act reasonably and in good
faith and will use averaging and attribution methods which are reasonable;
provided that such Bank's determination of compensation owing under this Section
2.10(c) shall, absent manifest error, be final and conclusive and binding on all
the parties to this Agreement. Each Bank, upon determining that any additional
amounts will be payable pursuant to this Section 2.10(c), will give prompt
written notice thereof to the Borrowers, which notice shall show in reasonable
detail the basis for calculation of such additional amounts, although the
failure to give any such notice shall not release or diminish any of the
Borrowers' obligations to pay additional amounts pursuant to this Section
2.10(c).
(d) Each Bank agrees that upon the occurrence of any event giving
rise to the operation of Section 2.10 with respect to such Bank, it will, if
requested by the Borrowers, use reasonable efforts (subject to overall policy
considerations of such Bank) to designate another lending office for any Loans
affected by such event; provided that such designation is made on such terms
that such Bank and its lending office suffer no economic, legal or regulatory
disadvantage, with the object of avoiding or minimizing the consequence of the
event giving rise to the operation of any provisions of such Section . The
Borrowers agree to pay all costs and expenses determined by such Bank to have
been incurred in utilizing such other lending office. In determining such
additional amounts, each Bank will act reasonably and in good faith and will use
averaging and attribution methods which are reasonable; provided that each
determination by a Bank pursuant to this Section 2.10(d) shall, absent manifest
error, be final and conclusive and binding on all the parties to this Agreement.
Nothing in this Section 2.10(d) shall affect or postpone any of the obligations
of the Borrowers or the right of any Bank provided in Section 2.10.
2.11 Compensation. The Borrowers shall compensate each Bank, upon
its written request (which request shall set forth in reasonable detail the
basis for requesting such compensation), for all losses, expenses and
liabilities (including, without limitation, any loss, expense or liability
incurred by reason of the liquidation or reemployment of deposits or other funds
required by such Bank to fund its Eurodollar Loans) which such Bank may sustain:
(i) if for any reason (other than a default by such Bank or the Administrative
Agent) a Borrowing of, or conversion from or into, Eurodollar Loans does not
occur on a date specified therefor in a Notice of Borrowing or Notice of
Conversion (whether or not withdrawn by the Borrowers or deemed withdrawn
pursuant to Section 2.10(b)); (ii) if any repayment (including any repayment
made pursuant to Section 5.2) or conversion of any of its Eurodollar Loans
occurs on a date which is not the last day of an Interest Period with respect
thereto; (iii) if any prepayment of any of its Eurodollar Loans is not made on
any date specified in a notice of prepayment given by the Borrowers; or (iv) as
a consequence of (w) any other default by the Borrowers to repay their Loans
when required by the terms of this Agreement or any Note held by such Bank, or
(x) any election made pursuant to Section 2.10(b). A Bank's basis for requesting
compensation pursuant to this Section , and a Bank's calculations of the amount
thereof, shall, absent manifest error, be final and conclusive and binding on
all the parties to this Agreement.
2.12 Extension of Final Maturity Date.
(a) Request for Extension. The Borrowers may
request the Banks to extend the Final Maturity Date for a period of one year by
delivering a written request for such extension to the Administrative Agent no
more than 45 days prior to the first anniversary of the Effective Date and, if
such extension has been effected, the Borrowers may again request that the Banks
extend the Final Maturity Date for one additional period of one year by
delivering a written request for such additional extension to the Administrative
Agent no more than 45 days prior to the second anniversary of the Effective
Date. Subject to Section 2.13(b)(i), such extension or extensions shall be
conditioned upon the unanimous consent of the Banks. Each Bank may
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<PAGE> 29
withhold its consent to any such extension in its sole discretion. Any Bank that
shall not have indicated its determination under this Section 2.12 to the
Administrative Agent prior to the first or second anniversary of the Effective
Date, as applicable, shall be deemed not to have consented to any such
extension.
2.13 Replacement of Banks. Upon (a) (i) the receipt of notice
from a Bank pursuant to Section 2.10 or (ii) any Bank failing to fulfill its
obligations to make a Loan at a time when the conditions precedent set forth in
Sections 6 and 7 shall have been satisfied in the opinion of the Required Banks,
as set forth in Section 13.13(b) (in each case, an "Affected Bank") or (b) any
Bank or Banks (other than the Administrative Agent or any Issuing Bank) failing
to consent to (i) an extension of the Final Maturity Date requested in
accordance with Section 2.12, but Banks holding at least 75% of the Total
Revolving Loan Commitments having consented to such an extension or (ii) any
proposed amendment, modification or waiver as contemplated by Section 13.13(a),
but Banks holding at least 85% of the Total Revolving Loan Commitments having
consented to such an amendment, modification or waiver (in each case, a
"Non-Consenting Bank"), the Borrowers shall have the right, if no Event of
Default then exists, to replace any such Affected Bank or Non-Consenting Bank
(the "Replaced Bank") with one or more Eligible Transferee or Transferees,
(collectively, the "Replacement Bank") reasonably acceptable to the Agents and
the Issuing Banks; provided that:
(i) at the time of any replacement pursuant
to this Section 2.13, the Replacement Bank shall enter into one
or more Assignment and Assumption Agreements, pursuant to which
the Replacement Bank shall acquire all of the Revolving Loan
Commitments and outstanding Loans of, and participations in
Letters of Credit by, the Replaced Bank and, in connection with
such acquisition, shall pay to (x) the Replaced Bank in respect
of such acquisition an amount equal to the sum of (A) an amount
equal to the principal of, and all accrued interest on, all
outstanding Loans of the Replaced Bank, (B) an amount equal to
such Replaced Bank's Loan Percentage of all Unpaid Drawings that
have been funded by (and not reimbursed to) such Replaced Bank,
together with all then unpaid interest with respect to such
Unpaid Drawings at such time and (C) an amount equal to all
accrued, but theretofore unpaid, Fees owing to the Replaced Bank
pursuant to Section 4.1 and (y) the appropriate Issuing Bank an
amount equal to such Replaced Bank's Loan Percentage of any
Unpaid Drawing (which at such time remains an Unpaid Drawing) to
the extent such amount was not theretofore funded by such
Replaced Bank; and
(ii) all Obligations of the Borrowers owing to
the Replaced Bank (other than those specifically described in
clause (i) above in respect of which the assignment purchase
price has been, or is concurrently being, paid) shall be paid in
full to such Replaced Bank concurrently with such replacement,
including, without limitation, in the case of an Affected Bank or
a Non-Consenting Bank, the costs associated with any such
replacement of such Bank.
Upon the execution of the respective Assignment and Assumption Agreement, the
payment of amounts referred to in clauses (i) and (ii) above, the payment of the
$3,000 assignment fee payable to the Administrative Agent pursuant to Section
13.5(b); provided that, in the case of the replacement of a Non-Consenting Bank,
such fee shall be paid by the Borrowers rather than by the assigning Bank and,
if so requested by the Replacement Bank, delivery to the Replacement Bank of the
appropriate Notes and, if applicable, replacement Notes to any Replacement Bank
that is already a Bank to reflect the increased Commitment of such Bank,
executed by the Borrowers, the Replacement Bank shall become a Bank under this
Agreement and the Replaced Bank shall cease to constitute a Bank under this
Agreement, except with respect to indemnification provisions under this
Agreement, which shall survive as to such Replaced Bank.
2.14 Certain Limitation. No Bank shall at any time be obligated
to make any Loan or to participate in any Swingline Loan or Letter of Credit in
a principal amount which exceeds such Bank's Revolving Loan Commitment.
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Section 3. Letters of Credit.
3.1 Letters of Credit.
(a) Subject to and upon the terms and conditions set forth in
this Agreement, any Borrower may request the Issuing Bank at any time and from
time to time after the Effective Date and prior to the Final Maturity Date to
issue, for account of such Borrower and for the benefit of any holder (or any
trustee, agent or other similar representative for any such holders) of L/C
Supportable Indebtedness of such Borrower, an irrevocable standby letter of
credit in a form customarily used by the Issuing Bank or in such other form as
has been approved by the Administrative Agent in support of such L/C Supportable
Indebtedness (each such letter of credit, a "Letter of Credit," and
collectively, the "Letters of Credit"). All Letters of Credit shall be
denominated in Dollars. It is hereby acknowledged and agreed that each of the
Letters of Credit described on Schedule III (the "Existing Letters of Credit"),
the aggregate Stated Amount of which shall not exceed $960,000, which were
issued under the Existing Credit Agreement, shall be permitted to remain
outstanding on the Effective Date and shall constitute a Letter of Credit for
all purposes of this Agreement.
(b) The Issuing Bank hereby agrees that it will (subject to the
terms and conditions contained in this Agreement), at any time and from time to
time after the Effective Date and prior to the Final Maturity Date, following
its receipt of the respective Letter of Credit Request, issue for the account of
the Borrowers one or more Letters of Credit in support of such L/C Supportable
Indebtedness of the Borrowers as is permitted to remain outstanding without
giving rise to a Default or Event of Default under this Agreement; provided that
the Issuing Bank shall be under no obligation to issue any Letter of Credit of
the types described above if at the time of such issuance:
(i) any order, judgment or decree of any
Governmental Authority or arbitrator shall purport by its terms
to enjoin or restrain the Issuing Bank from issuing such Letter
of Credit or any requirement of law applicable to such Issuing
Bank or any request or directive (whether or not having the force
of law) from any Governmental Authority with jurisdiction over
the Issuing Bank shall prohibit, or request that such Issuing
Bank refrain from, the issuance of letters of credit generally or
such Letter of Credit in particular or shall impose upon the
Issuing Bank with respect to such Letter of Credit any
restriction or reserve or capital requirement (for which the
Issuing Bank is not otherwise compensated) not in effect on the
date of this Agreement, or any unreimbursed loss, cost or expense
which was not applicable, in effect or known to the Issuing Bank
as of the date of this Agreement and which the Issuing Bank in
good faith deems material to it; or
(ii) the Issuing Bank shall have received
notice from the Administrative Agent prior to the issuance of
such Letter of Credit of the type described in the penultimate
sentence of Section 3.3(b).
(c) Notwithstanding the foregoing, (i) no Letter of Credit shall
be issued on or after the Effective Date, the Stated Amount of which, when added
to the Letter of Credit Outstandings (exclusive of Unpaid Drawings which are
repaid on the date of, or prior to the issuance of, the respective Letter of
Credit) at such time, would exceed (x) $50,000,000, or (y) when added to the
aggregate principal amount of all Revolving Loans then outstanding and all
Swingline Loans then outstanding, an amount equal to the Total Revolving Loan
Commitment then in effect and (ii) each Letter of Credit shall by its terms
terminate on or before the earlier of (x) the date which occurs 12 months after
the date of the issuance thereof (which in the case of the Existing Letters of
Credit shall be the date of actual issuance thereof and not the Effective Date
and although any such Letter of Credit may be renewable for successive periods
of up to 12 months, but not beyond the Final Maturity Date, on terms acceptable
to the Issuing Bank) and (y) the Final Maturity Date.
3.2 Minimum Stated Amount. The Stated Amount of each Letter of
Credit shall be not less than $500,000 or such lesser amount as is acceptable to
the Issuing Bank.
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<PAGE> 31
3.3 Letter of Credit Requests.
(a) Whenever any Borrower desires that a Letter of Credit be
issued for its account, such Borrower shall give the Administrative Agent and
the Issuing Bank at least ten days' (or such shorter period as is acceptable to
the Issuing Bank in any given case) written notice prior to the proposed date of
issuance (which shall be a Business Day). Each notice shall be in the form of
Exhibit C (each, a "Letter of Credit Request"). The Administrative Agent shall
promptly transmit copies of each Letter of Credit Request to each Bank.
(b) The making of each Letter of Credit Request (and in the case
of Existing Letters of Credit, the occurrence of the Effective Date) shall be
deemed to be a representation and warranty by the Borrowers that such Letter of
Credit may be issued in accordance with, and will not violate the requirements
of, Section 3.1(c). Unless the Issuing Bank has received notice from the
Administrative Agent before it issues a Letter of Credit that one or more of the
conditions specified in Section 7 are not then satisfied, or that the issuance
of such Letter of Credit would violate Section 3.1(c), then the Issuing Bank may
issue the requested Letter of Credit for account of any Borrower in accordance
with the Issuing Bank's usual and customary practices. Upon its issuance of any
Letter of Credit, the Issuing Bank shall promptly notify each Bank and the
Administrative Agent of such issuance, which notice shall be accompanied by a
copy of the Letter of Credit actually issued.
3.4 Letter of Credit Participations.
(a) Immediately upon the issuance by the Issuing Bank of any
Letter of Credit (and on the Effective Date with respect to the Existing Letters
of Credit), the Issuing Bank shall be deemed to have sold and transferred to
each Bank other than the Issuing Bank (each such Bank, in its capacity under
this Section 3.4, a "Participant"), and each such Participant shall be deemed
irrevocably and unconditionally to have purchased and received from the Issuing
Bank, without recourse or warranty, an undivided interest and participation, to
the extent of such Participant's Loan Percentage in such Letter of Credit, each
substitute letter of credit, each drawing made under such Letter of Credit and
the obligations of the Borrowers under this Agreement with respect to such
Letter of Credit, and any guaranty pertaining to such Letter of Credit.
(b) In determining whether to pay under any Letter of Credit, the
Issuing Bank shall not have any obligation relative to the other Banks other
than to confirm that any documents required to be delivered under such Letter of
Credit appear to have been delivered and that they appear to comply on their
face with the requirements of such Letter of Credit. Any action taken or omitted
to be taken by the Issuing Bank under or in connection with any Letter of Credit
if taken or omitted in the absence of gross negligence or willful misconduct,
shall not create for such Issuing Bank any resulting liability to the Borrowers
or any Bank.
(c) In the event that the Issuing Bank makes any payment under
any Letter of Credit and the Borrowers shall not have reimbursed such amount in
full to the Issuing Bank pursuant to Section 3.5(a), the Issuing Bank shall
promptly notify the Administrative Agent, which shall promptly notify each
Participant of such failure, and each Participant shall promptly and
unconditionally pay to the Administrative Agent for account of the Issuing Bank
the amount of such Participant's Loan Percentage of such unreimbursed payment in
Dollars and in same day funds. If the Administrative Agent so notifies, prior to
11:00 A.M. (San Francisco time) on any Business Day, any Participant required to
fund a payment under a Letter of Credit, such Participant shall make available
to the Administrative Agent at the Payment Office of the Administrative Agent
for account of the Issuing Bank in Dollars such Participant's Loan Percentage of
the amount of such payment on such Business Day in same day funds. If and to the
extent such Participant shall not have so made its Loan Percentage of the amount
of such payment available to the Administrative Agent for account of the Issuing
Bank, such Participant agrees to pay to the Administrative Agent for account of
the Issuing Bank, forthwith on demand such amount, together with interest
thereon, for each day from such date until the date such amount is paid to the
Administrative Agent for account of such Issuing Bank at the overnight Federal
Funds Rate. The failure of any Participant to make available to the
Administrative Agent for account of the Issuing Bank its Loan
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<PAGE> 32
Percentage of any payment under any Letter of Credit shall not relieve any other
Participant of its obligation under this Agreement to make available to the
Administrative Agent for account of the Issuing Bank its Loan Percentage of any
Letter of Credit on the date required, as specified above, but no Participant
shall be responsible for the failure of any other Participant to make available
to the Administrative Agent for account of the Issuing Bank such other
Participant's Loan Percentage of any such payment.
(d) Whenever the Issuing Bank receives a payment of a
reimbursement obligation as to which the Administrative Agent has received for
account of the Issuing Bank any payments from the Participants pursuant to
clause (c) above, the Issuing Bank shall pay to the Administrative Agent and the
Administrative Agent shall promptly pay each Participant which has paid its Loan
Percentage thereof, in Dollars and in same day funds, an amount equal to such
Participant's share (based on the proportionate aggregate amount funded by such
Participant to the aggregate amount funded by all Participants) of the principal
amount of such reimbursement obligation and interest thereon accruing after the
purchase of the respective participations.
(e) Upon the request of any Participant, the Issuing Bank shall
furnish to such Participant copies of any Letter of Credit issued by the Issuing
Bank and such other documentation as may reasonably be requested by such
Participant.
(f) Subject to Section 2.14, the obligations of the Participants
to make payments to the Administrative Agent for account of the Issuing Bank
with respect to Letters of Credit issued shall be irrevocable and not subject to
any qualification or exception whatsoever and shall be made in accordance with
the terms and conditions of this Agreement under all circumstances, including,
without limitation, any of the following circumstances:
(i) any lack of validity or enforceability of
this Agreement or any of the other Credit Documents or any of the
Credit Documents referred to in the Existing Credit Agreement;
(ii) the existence of any claim, setoff,
defense or other right which any Borrower may have at any time
against a beneficiary named in a Letter of Credit, any transferee
of any Letter of Credit (or any Person for whom any such
transferee may be acting), the Administrative Agent, any
Participant, or any other Person, whether in connection with this
Agreement, any Letter of Credit, the transactions contemplated in
this Agreement or any unrelated transactions (including any
underlying transaction between any Borrower and the beneficiary
named in any such Letter of Credit);
(iii) any draft, certificate or other
document presented under any Letter of Credit proving to be
forged, fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect;
(iv) the surrender or impairment of any
security for the performance or observance of any of the terms of
any of the Credit Documents; or
(v) the occurrence of any Default or Event of
Default; provided, however, that no Bank shall be obligated to
reimburse the Issuing Bank for any wrongful payment made by the
Issuing Bank under a Letter of Credit as a result of acts or
omissions constituting willful misconduct or gross negligence on
the part of the Issuing Bank.
3.5 Agreement to Repay Letter of Credit Drawings.
(a) The Borrowers hereby agree to reimburse the Issuing Bank, by
making payment to the Administrative Agent in immediately available funds at the
Payment Office (or by making the payment directly to the Issuing Bank at such
location as may otherwise have been agreed upon by the Borrowers and the Issuing
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Bank), for any payment or disbursement made by the Issuing Bank under any Letter
of Credit (each such amount so paid until reimbursed, an "Unpaid Drawing"),
immediately after, and in any event on the date of, such payment or
disbursement, with interest on the amount so paid or disbursed by the Issuing
Bank, to the extent not reimbursed prior to 11:00 a.m. (San Francisco time) on
the date of such payment or disbursement, from and including the date paid or
disbursed to but excluding the date the Issuing Bank is reimbursed by the
Borrowers therefor at a rate per annum which shall be (x) unless a Borrower
Bankruptcy Default exists on the date of the respective payment or disbursement,
for the period from and including the date of the respective payment or
disbursement until the earlier to occur of a Borrower Bankruptcy Default or the
date of receipt by the Borrowers from the Issuing Bank or the Administrative
Agent of written or telephonic notice of such payment or disbursement, the Base
Rate in effect from time to time, and (y) from and including the date of the
respective payment or disbursement if a Borrower Bankruptcy Default then exists
or, if a Borrower Bankruptcy Default does not exist on the date of the
respective payment or disbursement, from and including the earlier to occur of
the date upon which a Borrower Bankruptcy Default subsequently occurs or the
date of receipt by the Borrowers from the Issuing Bank or the Administrative
Agent of written or telephonic notice of such payment or disbursement to but
excluding the date the Issuing Bank was reimbursed by the Borrowers therefor,
the Base Rate in effect from time to time plus 3-1/4%, in each case with such
interest to be payable on demand. The Issuing Bank shall provide the Borrowers
and the Administrative Agent prompt notice of any payment or disbursement made
under the Letter of Credit, although the failure of, or the delay in, giving any
such notice shall not release or diminish the obligations of the Borrowers under
this Section 3.5(a) or under any other Section of this Agreement.
(b) The obligations of the Borrowers under this Section 3.5 to
reimburse the Issuing Bank with respect to Unpaid Drawings (including, in each
case, interest thereon) shall be absolute and unconditional under any and all
circumstances, including the circumstances set forth in Section 3.4(f), and
irrespective of any setoff, counterclaim or defense to payment which the
Borrowers may have or have had against any Bank (including in its capacity as
Issuing Bank or as Participant), including, without limitation, any defense
based upon the failure of any drawing under a Letter of Credit (each, a
"Drawing") to conform to the terms of the Letter of Credit or any nonapplication
or misapplication by the beneficiary of the proceeds of such Drawing; provided,
however, that the Borrowers shall not be obligated to reimburse the Issuing Bank
for any wrongful payment made by the Issuing Bank under a Letter of Credit as a
result of acts or omissions constituting willful misconduct or gross negligence
on the part of the Issuing Bank.
3.6 Increased Costs. If at any time after the Effective Date the
Issuing Bank or any Participant determines that the introduction of or any
change in any applicable Governmental Rule (including, without limitation, any
phasing in of those announced or published prior to the Effective Date) or in
the interpretation or administration thereof by any Governmental Authority
charged with the interpretation or administration thereof, or compliance by the
Issuing Bank or any Participant with any request or directive by any such
authority (whether or not having the force of law), shall either (i) impose,
modify or make applicable any reserve, deposit, capital adequacy or similar
requirement against letters of credit issued by the Issuing Bank or participated
in by any Participant, or (ii) impose on the Issuing Bank or any Participant, or
any corporation controlling the Issuing Bank or any Participant, any other
conditions relating, directly or indirectly, to this Agreement or any Letter of
Credit; and the result of any of the foregoing is to increase the cost to the
Issuing Bank or any Participant of issuing, maintaining or participating in any
Letter of Credit, or reduce the amount of any sum received or receivable by the
Issuing Bank or any Participant under this Agreement or reduce the rate of
return on its capital with respect to Letters of Credit, then, within two
Business Days following demand to the Borrowers by the Issuing Bank or any
Participant (a copy of which demand shall be sent by the Issuing Bank or such
Participant to the Administrative Agent), the Borrowers shall pay to the Issuing
Bank or such Participant such additional amount or amounts as will compensate
such Bank for such increased cost or reduction in the amount receivable or
reduction in the rate of return on its capital. The Issuing Bank or any
Participant, upon determining that any additional amounts will be payable
pursuant to this Section 3.6, will give prompt written notice thereof to the
Borrowers, which notice shall include a certificate submitted to the
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Borrowers by the Issuing Bank or such Participant (a copy of which certificate
shall be sent by the Issuing Bank or such Participant to the Administrative
Agent), setting forth in reasonable detail the basis for the calculation of such
additional amount or amounts necessary to compensate the Issuing Bank or such
Participant, although failure to give any such notice shall not release or
diminish the Borrowers' obligations to pay additional amounts pursuant to this
Section 3.6. The certificate required to be delivered pursuant to this Section
3.6 shall, absent manifest error, be final, conclusive and binding on the
Borrowers. For the purposes of this Section 3.6, each reference to a Participant
shall additionally be deemed to be a reference to any corporation controlling
such Participant.
Section 4. Revolving Loan Commitment Fee; Fees; Reductions of
Commitment.
4.1 Fees.
(a) The Borrowers agree to pay to the Administrative Agent for
distribution to each Bank a commitment commission (the "Revolving Loan
Commitment Fee") for the period from and including the Effective Date to and
excluding the Final Maturity Date (or such earlier date as the Total Revolving
Loan Commitment shall have been terminated) computed at a rate for each day
equal to (i) the Applicable Margin for Revolving Loan Commitment Fees multiplied
by (ii) the daily average Unutilized Revolving Loan Commitment of such Bank.
Accrued and unpaid Revolving Loan Commitment Fees shall be due and payable
quarterly in arrears on each Quarterly Payment Date and on the Final Maturity
Date or such earlier date upon which the Total Revolving Loan Commitment is
terminated.
(b) The Borrowers agree to pay to the Issuing Bank, for its own
account, an issuing fee in respect of each Letter of Credit issued under this
Agreement, for the period from and including the date of issuance of such Letter
of Credit (which date of issuance with respect to Existing Letters of Credit
shall be deemed to be the Effective Date) to and including the termination of
such Letter of Credit, equal to the greater of $500 and an amount equal to 1/8
of 1% per annum of the daily average Stated Amount of such Letter of Credit.
Accrued and unpaid issuing fees shall be due and payable quarterly in arrears to
the Issuing Bank in respect of the Letters of Credit issued by it on each
Quarterly Payment Date (and in the case of Existing Letters of Credit, on the
Effective Date) and the first day after the termination of the Total Revolving
Loan Commitment on which no Letters of Credit remain outstanding. The Borrowers
shall also pay each Issuing Bank's customary opening, amendment, presentation
and wire charges.
(c) The Borrowers agree to pay to the Administrative Agent for
distribution to each Bank a fee in respect of each Letter of Credit issued under
this Agreement (the "Letter of Credit Fee"), for the period from and including
the date of issuance of such Letter of Credit (which date of issuance with
respect to Existing Letters of Credit shall be deemed to be the Effective Date)
to and excluding the termination of such Letter of Credit, computed at a rate
per annum (but calculated on each date on which the Applicable Margin for
Eurodollar Loans changes) equal to the product of (x) the Applicable Margin for
Eurodollar Loans on each date on which such Letter of Credit is outstanding and
(y) the daily average Stated Amount of such Letter of Credit (with each renewal
of such Letter of Credit, for purposes of this Section 4.1(c), being deemed to
be the issuance of a new Letter of Credit). Letter of Credit Fees shall be
distributed by the Administrative Agent to the Banks on the basis of their
respective Loan Percentages as in effect from time to time. Accrued and unpaid
Letter of Credit Fees shall be due and payable quarterly in arrears on each
Quarterly Payment Date (and in the case of Existing Letters of Credit, on the
Effective Date) and on the first day after the termination of the Total
Revolving Loan Commitment on which no Letters of Credit remain outstanding.
(d) The Borrowers shall pay to the Agents and the Issuing Bank
for their respective accounts such other fees as have been agreed to in writing
by such parties, including pursuant to the Fee Letters.
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4.2 Voluntary Termination of Unutilized Commitments. Upon at
least three Business Days' prior written notice (or telephonic notice confirmed
in writing) to the Administrative Agent at its Notice Office (which notice the
Administrative Agent shall promptly transmit to each of the Banks), the
Borrowers shall have the right, without premium or penalty, to terminate the
Total Unutilized Revolving Loan Commitment in whole or in part; provided that
(a) each such reduction shall apply proportionately to reduce the Revolving Loan
Commitment of each Bank and (b) any partial reduction pursuant to this Section
4.2 shall be in multiples of at least $1,000,000, and (c) the reduction to the
Total Unutilized Revolving Loan Commitment shall in no case be in an amount
which would cause the Revolving Loan Commitment of any Bank to be reduced (as
required by preceding subsection (b)) by an amount which exceeds the remainder
of (x) the Unutilized Revolving Loan Commitment of such Bank as in effect
immediately before giving effect to such reduction, minus (y) such Bank's Loan
Percentage of the aggregate principal amount of Swingline Loans then
outstanding.
4.3 Mandatory Reduction of Commitments.
(a) In addition to any other mandatory commitment reductions
pursuant to this Section 4.3, the Total Revolving Loan Commitment (and the
Revolving Loan Commitment of each Bank) shall terminate on the date immediately
preceding the Final Maturity Date.
(b) In addition to any other mandatory commitment reductions
pursuant to this Section 4.3, the Total Revolving Loan Commitment (and the
Revolving Loan Commitment of each Bank) shall be reduced at the time any payment
is required to be made on the principal amount of any Loans (or would be
required to be made if any Loans were then outstanding) pursuant to Section
5.2(a), by an amount equal to the maximum amount of Loans that would be required
to be repaid pursuant to Section 5.2(a) assuming that Loans were outstanding in
an aggregate principal amount equal to the Total Revolving Loan Commitment.
Section 5. Prepayments; Payments; Taxes.
5.1 Voluntary Prepayments. The Borrowers shall have the right to
prepay Loans, without premium or penalty, in whole or in part from time to time
on the following terms and conditions: (i) the Borrowers shall give the
Administrative Agent prior to 11:00 a.m. (San Francisco time) at its Notice
Office at least three Business Days' prior written notice in the case of
Eurodollar Loans and one Business Day's prior written notice in the case of Base
Rate Loans of its intent to prepay the Loans, whether Revolving Loans or
Swingline Loans shall be prepaid, the amount of such prepayment and the Types of
Loans to be prepaid and, in the case of Eurodollar Loans, the specific Borrowing
or Borrowings pursuant to which made, which notice the Administrative Agent
shall promptly transmit to each of the Banks; (ii) each prepayment shall be in
an aggregate principal amount of at least the Minimum Borrowing Amount and, if
greater, in multiples of $500,000 ($50,000 in the case of Swingline Loans);
provided that no partial prepayment of Eurodollar Loans made pursuant to any
Borrowing shall reduce the outstanding Loans made pursuant to such Borrowing to
an amount less than the Minimum Borrowing Amount; (iii) prepayments of
Eurodollar Loans made pursuant to this Section 5.1 may only be made so long as
at the time of such prepayment there shall be no outstanding Base Rate Loans and
any compensation required to be paid to each Bank pursuant to Section 2.11 for
all losses, expenses and liabilities (including, without limitation, any loss,
expense or liability incurred by reason of the liquidation or reemployment of
deposits or other funds required by such Bank to fund its Eurodollar Loans)
which such Bank may sustain as a result of such prepayment is made at the time
of any such prepayment of Eurodollar Loans; and (iv) each prepayment in respect
of any Loans made pursuant to a Borrowing shall be applied pro rata among such
Loans.
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5.2 Mandatory Repayments.
(a) Requirements:
(A) On any day on which the sum of the aggregate
outstanding principal amount of the Revolving Loans, Swingline Loans and Letter
of Credit Outstandings exceeds the Total Revolving Loan Commitment as then in
effect, the Borrowers shall prepay the principal of Swingline Loans and, after
the Swingline Loans have been repaid in full, the principal of Revolving Loans
in an amount equal to such excess. If, after giving effect to the prepayment of
all outstanding Swingline Loans and Revolving Loans, the Letter of Credit
Outstandings exceed the Total Revolving Loan Commitment as then in effect, the
Borrowers shall provide to the Administrative Agent at its Payment Office on
such date an amount of cash or Cash Equivalents equal to the amount of such
excess, such cash or Cash Equivalents to be held as security for all Obligations
of the Borrowers to the Agents and the Banks and the Issuing Bank under the
Credit Documents in a cash collateral account to be established by the
Administrative Agent, and each of the Borrowers hereby grants to the
Administrative Agent a security interest in such cash collateral and such cash
collateral account. Promptly upon the reduction of such excess to zero, if no
Event of Default then exists, the Administrative Agent shall return to the
Borrowers all amounts in such cash collateral account.
(B) Subject to and in accordance with Section
5.2(b), on the date of the receipt thereof by Apria or any of its Subsidiaries,
an amount equal to 100% of the proceeds (net of underwriting discounts and
commissions and other reasonable costs associated therewith) from any incurrence
of any Indebtedness by Apria or any of its Subsidiaries (other than Indebtedness
permitted by Section 10.5) shall be applied as a mandatory repayment of
principal of the then outstanding Loans.
(C) Subject to and in accordance with Section
5.2(b), on each date after the Effective Date on which Apria or any of its
Subsidiaries receives proceeds from any sale of assets or stock of Subsidiaries
(excluding (i) sales of inventory and Rental Equipment in the Ordinary Course of
Business, (ii) sales of equipment which, in the reasonable judgment of Apria
have become obsolete, worn out or uneconomic, in the Ordinary Course of
Business, the proceeds of which are used, or irrevocably committed, to purchase
replacement equipment within 60 days from the date of sale so long as (w) the
aggregate amount of Net Sale Proceeds excluded pursuant to this clause (ii) does
not exceed $20,000,000 in the aggregate in any fiscal year of Apria and (x) any
Net Sales Proceeds less than the amount specified in the immediately preceding
clause (w) are not applied to the prepayment of the Senior Subordinated Notes,
(iii) sales of assets outside the Ordinary Course of Business, so long as (y)
the amount of Net Sales Proceeds excluded pursuant to this clause (iii) does not
exceed $15,000,000 in the aggregate in any fiscal year of Apria and (z) any Net
Sales Proceeds less than the amount specified in the immediately preceding
clause (y) are not applied to the prepayment of the Senior Subordinated Notes,
and (iv) Apria Common Stock) an amount equal to 100% of the Net Sale Proceeds
thereof shall be applied as a mandatory repayment of principal of the then
outstanding Loans.
(b) Application:
(A) Each mandatory repayment of Loans pursuant to
Section 5.2(a)(B) and (C) shall be applied:
(i) first, to prepay the principal
of outstanding Swingline Loans (with a corresponding reduction
being made to the Total Revolving Loan Commitment);
(ii) second, to permanently prepay
the principal of outstanding Revolving Loans (with a
corresponding reduction to the Total Revolving Loan Commitment);
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(iii) third, to repay Unpaid
Drawings (with a corresponding reduction being made to the Total
Revolving Loan Commitment);
(iv) fourth, to provide cash
collateral for the Stated Amount of outstanding Letters of Credit
by delivering cash and Cash Equivalents to the Administrative
Agent in an amount equal to such Stated Amount (with a
corresponding reduction being made to the Total Revolving Loan
Commitment upon such deposit, it being agreed that, unless any
Default or Event of Default shall have occurred and be
continuing, upon the expiration of each such Letter of Credit and
upon such Default or Event of Default being cured, collateral
equal to the Stated Amount of such expired Letter of Credit shall
be released to the Borrowers and if not released shall secure the
remaining Obligations, and it being agreed further that if the
Stated Amount of such outstanding Letter of Credit is reduced,
such cash collateral shall be reduced correspondingly and be
released to the Borrowers or as required pursuant to applicable
law); and
(v) fifth, to permanently reduce the
remaining Total Revolving Loan Commitment (it being agreed that
the amount of such reduction shall be deemed to be an application
of proceeds for purposes of this clause (v) even though cash is
not actually applied).
(B) (i) With respect to each repayment
of Loans required by this Section 5.2, the Borrowers may designate the Types of
Loans which are to be repaid and, in the case of Eurodollar Loans, the specific
Borrowing or Borrowings of the respective Tranche pursuant to which made;
provided that:
(w) repayments of Eurodollar Loans
pursuant to this Section 5.2 may only be made on
the last day of an Interest Period applicable to
such Loans unless all Eurodollar Loans of the
respective Tranche with Interest Periods ending on
such date of required repayment and all Base Rate
Loans of the respective Tranche have been paid in
full;
(x) if any repayment of Eurodollar
Loans made pursuant to a single Borrowing shall
reduce the outstanding Eurodollar Loans made
pursuant to such Borrowing to an amount less than
the applicable Minimum Borrowing Amount, such
Borrowing shall immediately be converted into Base
Rate Loans; and
(y) each repayment of any Loans made
pursuant to a single Borrowing shall be applied pro
rata among such Loans.
In the absence of a designation by the Borrowers as described in the preceding
sentence, the Administrative Agent shall, subject to the above, make such
designation in its sole discretion.
(ii) Notwithstanding the foregoing provisions of
this Section 5.2, if at any time the mandatory prepayment of Revolving Loans
pursuant to Section 5.2(a)(B) or (C) would result, after giving effect to the
first sentence of the preceding clause (B)(i), in the Borrowers incurring
breakage costs under Section 2.11 as a result of having Eurodollar Loans being
repaid other than on the last day of an Interest Period applicable thereto (the
"Affected Eurodollar Loans"), then the Borrowers may initially deposit (but not
for more than 60 days) a portion (up to 100%) of the amounts that otherwise
would have been paid in respect of the Affected Eurodollar Loans with the
Administrative Agent to be held in a cash collateral account as security for the
obligations of the Borrowers under this Agreement with such cash collateral to
be released from such cash collateral account upon the earlier of (x) the first
occurrence (or occurrences) thereafter of the last day of an Interest Period
applicable to Revolving Loans that are Eurodollar Loans, to repay an aggregate
principal amount of such Revolving Loans equal to the Affected Eurodollar Loans
not initially repaid pursuant to this sentence and (y) the 60th day following
the date of such deposit, to repay an aggregate principal amount of Revolving
Loans equal to the Affected Eurodollar Loans not initially repaid pursuant to
this sentence.
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(C) Notwithstanding anything to the contrary
contained elsewhere in this Agreement, (i) all then outstanding Revolving Loans
of each Bank shall be repaid on the Final Maturity Date, and (ii) all then
outstanding Swingline Loans shall be repaid on the Swingline Expiry Date.
5.3 Method and Place of Payment. Except as otherwise specifically
provided in this Agreement, all payments under this Agreement or any Note shall
be made to the Administrative Agent for account of the Banks not later than
11:00 a.m. (San Francisco time) on the date when due and shall be made in
Dollars in immediately available funds at the Payment Office of the
Administrative Agent. Subject to the provisions of subsection 2.9(iv), whenever
any payment to be made under this Agreement or under any Note shall be stated to
be due on a day which is not a Business Day, the due date thereof shall be
extended to the next succeeding Business Day and, with respect to payments of
principal, interest shall be payable at the applicable rate during such
extension.
5.4 Net Payments.
(a) All payments made by the Borrowers under this Agreement, or
by the Borrowers under any Note, will be made without setoff, counterclaim or
other defense. Except as provided in Section 5.4(b), all such payments will be
made free and clear of, and without deduction or withholding for, any present or
future taxes, levies, imposts, duties, fees, assessments or other charges of
whatever nature now or hereafter imposed by any jurisdiction or by any political
subdivision or taxing authority thereof or therein (but excluding, except as
provided in the immediately succeeding sentence, any tax imposed on or measured
by the net income of a Bank pursuant to the laws of the jurisdiction or any
political subdivision or taxing authority thereof or therein in which the
principal office or Applicable Lending Office of such Bank is located) and all
interest, penalties or similar liabilities with respect thereto (collectively,
"Taxes"). The Borrowers shall reimburse each Bank, upon the written request of
such Bank, for taxes imposed on or measured by the net income of such Bank
pursuant to the laws of the jurisdiction or any political subdivision or taxing
authority thereof or therein in which the principal office or Applicable Lending
Office of such Bank is located as such Bank shall determine are payable by such
Bank in respect of such amounts so paid to or on behalf of such Bank pursuant to
the preceding sentence. If any Taxes are so levied or imposed, the Borrowers
agree to pay the full amount of such Taxes and such additional amounts as may be
necessary so that every payment of all amounts due under this Agreement or under
any Note, after withholding or deduction for or on account of any Taxes, will
not be less than the amount provided for in this Agreement or in such Note. The
Borrowers will furnish to the Administrative Agent within 45 days after the date
the payment of any Taxes due pursuant to applicable law certified copies of tax
receipts evidencing such payment by the Borrowers. The Borrowers agree to
indemnify and hold harmless each Bank, and reimburse such Bank upon its written
request, for the amount of any Taxes so levied or imposed and paid by such Bank.
(b) Each Bank which is not a United States person (as such term
is defined in Section 7701(a)(30) of the Code) for Federal income tax purposes
agrees (i) to provide to the Borrowers on or prior to the Effective Date with
two original signed copies of Internal Revenue Service Form 4224 or Form 1001
certifying to such Bank's entitlement to an exemption from United States
withholding tax with respect to payments to be made under this Agreement and
under any Note and (ii) that, to the extent legally entitled to do so, upon
written request by the Borrowers it will provide to the Borrowers two original
signed copies of Internal Revenue Service Form 4224 or Form 1001 (or any
successor forms) certifying to such Bank's entitlement to an exemption from, or
reduction in, United States withholding tax with respect to payments to be made
under this Agreement and under any Note. In the event that a Bank which is not a
United States person (as such term is defined in Section 7701(a)(30) of the
Code) for Federal income tax purposes has previously provided the Borrowers with
Internal Revenue Service Form 4224 or Form 1001 certifying as to such Bank's
entitlement to an exemption and, as a result of any changes after the Effective
Date in any applicable Governmental Rule or in the interpretation of such
Governmental Rule, relating to the deducting or withholding of income or similar
Taxes, such Bank is no longer legally entitled to an exemption from, or
reduction in, United States withholding
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tax with respect to payments to be made under this Agreement and under any Note,
such Bank shall notify the Borrowers of such change; provided, however, in no
event shall the failure to provide any such notice release or diminish any of
the obligations of the Borrowers pursuant to this Section 5.4. Notwithstanding
anything to the contrary contained in Section 5.4(a), but subject to the
immediately succeeding sentence, the Borrowers shall be entitled, to the extent
they are required to do so by law, to deduct or withhold income or other similar
taxes imposed by the United States (or any political subdivision or taxing
authority thereof or therein) from interest, fees or other amounts payable under
this Agreement (without any obligation to pay the respective Bank additional
amounts with respect thereto) for the account of any Bank which has not provided
to the Borrowers such forms required to be provided to the Borrowers by a Bank
pursuant to the first sentence of this Section 5.4(b). Notwithstanding anything
to the contrary contained in the preceding sentence, the Borrowers agree to
indemnify each Bank referred to in the previous sentence in the manner set forth
in Section 5.4(a) in respect of any amounts deducted or withheld by it as
described in the previous sentence as a result of any changes after the
Effective Date in any applicable Governmental Rule, or in the interpretation of
such Governmental Rule, relating to the deducting or withholding of income or
similar Taxes.
Section 6. Conditions Precedent to Initial Credit Event. The
obligation of each Bank to make Loans, and the obligation of the Issuing Bank to
issue any Letter of Credit, on the Initial Borrowing Date is subject at the time
of such Credit Event to the satisfaction of the following conditions:
6.1 Execution of Agreement; Notes. On the Effective Date the
Borrowers shall have delivered to the Administrative Agent (a) this Agreement,
executed by the Borrowers, the Banks and the Agents and (b) for the account of
each Bank, a Revolving Note, and for the account of the Swingline Lender, the
Swingline Note, in each case duly executed and completed by the Borrowers.
6.2 Officer's Certificate. On the Effective Date the
Administrative Agent shall have received a certificate dated the Effective Date,
signed on behalf of Apria by the President, any Executive Vice President or any
Vice President of Apria stating that all of the conditions in Sections 6.8, 6.9,
7.1, 7.2 and 7.3 have been satisfied on such date.
6.3 Compliance Certificate. On the Effective Date the
Administrative Agent shall have received a certificate dated the Effective Date
relating to the financial condition of Apria and its Subsidiaries as of the
fiscal quarter ended June 30, 1996, signed on behalf of Apria by the chief
financial officer of Apria substantially in the form of Exhibit G.
6.4 Opinions of Counsel. On the Effective Date, the
Administrative Agent shall have received from (i) O'Melveny & Myers, counsel to
Apria and its Subsidiaries, an opinion addressed to the Administrative Agent and
each of the Banks and dated the Effective Date, covering the matters set forth
in Exhibit D-1 and (ii) in-house counsel to Apria and its Subsidiaries, opinions
addressed to the Administrative Agent and each of the Banks and dated the
Effective Date, covering the matters set forth in Exhibit D-2, with each of the
foregoing opinions to cover such other matters incident to the transaction
contemplated by this Agreement as the Agents or the Required Banks may
reasonably request.
6.5 Corporate Documents; Proceedings.
(a) On the Effective Date, the Administrative Agent shall have
received a certificate, dated the Effective Date, signed by the President, any
Executive Vice President or any Vice President of each Credit Party, and
attested to by the Secretary or any Assistant Secretary of such Credit Party, in
the form of Exhibit E with appropriate insertions, together with copies of the
Certificate of Incorporation and By-Laws of such Credit Party and the
resolutions of such Credit Party referred to in such certificate, and the
foregoing shall be acceptable to the Administrative Agent and the Required Banks
in their sole discretion.
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(b) All corporate and legal proceedings and all instruments and
agreements relating to the transactions contemplated by this Agreement and the
Credit Documents shall be satisfactory in form and substance to the
Administrative Agent and the Required Banks, and the Administrative Agent shall
have received all information and copies of all documents and papers, including
records of corporate proceedings, approvals by any Governmental Authorities,
good standing certificates and bring-down telegrams, if any, which the
Administrative Agent or the Required Banks reasonably may have requested in
connection therewith, such documents and papers where appropriate to be
certified by proper corporate or Governmental Authorities.
6.6 Employee Benefit Plans: Shareholders' Agreements; Management
Agreements; Employment Agreements; Debt Agreements; Tax Sharing Agreements. On
or prior to the Effective Date, there shall have been delivered to the
Administrative Agent true and correct copies, certified as true and complete by
an appropriate officer of Apria, of:
(i) all Plans;
(ii) summaries of all material agreements
entered into by Apria or any Subsidiary of Apria governing the
terms and relative rights of its capital stock and any material
agreements entered into by shareholders relating to any such
Person with respect to their capital stock (collectively, the
"Shareholders' Agreements");
(iii) all material agreements with members
of, or with respect to the, corporate officers of Apria or any
Subsidiary of Apria other than Employment Agreements
(collectively, the "Management Agreements");
(iv) any material employment agreements
entered into by Apria or any Subsidiary of Apria with any of its
corporate officers (collectively, the "Employment Agreements");
and
(v) All material tax sharing, tax allocation
and other similar agreements entered into by Apria or any
Subsidiary of Apria (collectively, the "Tax Sharing Agreements");
all of which Plans, Shareholders' Agreements, Management Agreements, Employment
Agreements, Debt Agreements and Tax Sharing Agreements shall be in form and
substance satisfactory to the Agents and shall be in full force and effect on
the Effective Date.
6.7 Guaranty. On the Effective Date, each Guarantor shall have
duly authorized, executed and delivered the Guaranty.
6.8 Adverse Change, etc. On the Effective Date, nothing shall
have occurred (and the Banks shall have become aware of no facts or conditions
not previously known) which the Administrative Agent or the Required Banks shall
determine (a) could reasonably be expected to have a material adverse effect on
the rights or remedies of the Banks or the Administrative Agent, or on the
ability of Apria or any of its Subsidiaries, taken as a whole, to perform their
obligations to the Administrative Agent and the Banks under this Agreement or
any other Credit Document, (b) could reasonably be expected to have a Material
Adverse Effect or (c) indicates the inaccuracy in any material respect of the
information (taken as a whole) previously provided in writing to the
Administrative Agent or the Banks or indicates that the information previously
provided in writing (taken as a whole) omitted to disclose any material
information.
6.9 Litigation. On the Effective Date, no litigation by any
Person or Governmental Authority shall be pending or threatened with respect to
this Agreement, any Credit Document or any documentation executed in connection
with this Agreement or with respect to the transactions contemplated hereby or,
except as set forth
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on Schedule XIII, which the Administrative Agent or Required Banks shall
determine could reasonably be expected to have a Material Adverse Effect.
6.10 Fees, etc. On the Effective Date, the Borrowers shall have
paid in full to the Agents and the Banks all costs, fees and expenses
(including, without limitation, all legal fees and expenses) payable to the
Agents and the Banks to the extent then due pursuant to the Fee Letters.
6.11 Material Contracts. On the Effective Date, there shall have
been delivered to the Administrative Agent copies, certified as true and correct
by an appropriate officer of Apria, of all Material Contracts of Apria and its
Subsidiaries, except Material Contracts containing confidentiality provisions
prohibiting their release.
6.12 Existing Indebtedness. On the Initial Borrowing Date, after
giving effect to the Loans incurred on the Initial Borrowing Date, neither Apria
nor any of its Subsidiaries shall have any Indebtedness outstanding except for
the Loans and the Existing Indebtedness. The Required Banks shall be satisfied
with the terms and conditions of the repayment of all Indebtedness repaid in
connection with the transactions contemplated by this Agreement (including
without limitation the prepayment of all amounts owing under the Existing Credit
Agreement and the termination of the Existing Credit Agreement and of all
related documents) and all Liens in connection with such repaid Indebtedness
shall have been terminated (and all appropriate releases, termination statements
or other instruments of assignment with respect thereto shall have been
obtained) to the satisfaction of the Required Banks.
6.13 Other Information. The Administrative Agent shall have
received such other information and documents as the Administrative Agent shall
reasonably have requested.
All of the Notes, certificates, legal opinions and other documents and papers
referred to in this Section 6, unless otherwise specified, shall be delivered to
the Administrative Agent at the Notice Office for the account of each of the
Banks and, except for the Notes, the Material Contracts and the other agreements
delivered pursuant to Section 6.6, in sufficient counterparts for each of the
Banks and, unless otherwise specified, shall be in form and substance
satisfactory to the Required Banks. By its execution of this Agreement, each
Bank is deemed to have consented to the satisfaction of the foregoing
conditions.
Section 7. Conditions Precedent to All Credit Events. The
obligation of each Bank to make Loans and the obligation of the Issuing Bank to
issue any Letter of Credit is subject, at the time of each such Credit Event
(except as hereinafter indicated), to the satisfaction of the following
conditions:
7.1 No Default; Representations and Warranties. At the time of
each such Credit Event and also after giving effect thereto (i) there shall
exist no Default or Event of Default and (ii) all representations and warranties
contained in this Agreement and in the other Credit Documents shall be true and
correct in all material respects with the same effect as though such
representations and warranties had been made on the date of the making of such
Credit Event.
7.2 Adverse Change, etc. Nothing shall have occurred (and the
Banks shall have become aware of no facts or conditions not previously known)
which the Administrative Agent or the Required Banks shall determine could
reasonably be expected to have a material adverse effect on the rights or
remedies of the Banks or the Administrative Agent, or on the ability of Apria or
any of its Subsidiaries, taken as a whole, to perform their obligations to the
Banks or which could reasonably be expected to have a Material Adverse Effect.
7.3 Litigation. At the time of each such Credit Event and also
after giving effect thereto, no litigation by any Person or Governmental
Authority shall be pending or threatened with respect to this Agreement or any
other Credit Document executed in connection with this Agreement or the
transactions
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contemplated hereby or, except as set forth on Schedule XIII, which the Required
Banks shall determine could reasonably be expected to have a Material Adverse
Effect.
7.4 Notice of Borrowing; Letter of Credit Request.
(a) Prior to the making of each Loan (other than Swingline
Loans), the Administrative Agent shall have received a Notice of Borrowing
meeting the requirements of Section 2.3(a). Prior to the making of any Swingline
Loan, the Swingline Lender shall have received the notice required by Section
2.3(b)(i).
(b) Prior to the issuance of each Letter of Credit (other than
Existing Letters of Credit), the Issuing Bank shall have received a Letter of
Credit Request meeting the requirements of Section 3.3.
The acceptance of the benefits of each Credit Event shall
constitute a representation and warranty by the Borrowers to each of the Banks
that all the conditions specified in Section 6 and in this Section 7 and
applicable to such Credit Event have been satisfied as of that time. All of the
Notices of Borrowing and Letter of Credit Requests referred to in this Section
7, unless otherwise specified, shall be delivered to the Administrative Agent at
the Notice Office for the account of each of the Banks and in sufficient
counterparts for each of the Banks and, unless otherwise specified, shall be in
form and substance satisfactory to the Required Banks.
Section 8. Representations, Warranties and Agreements. In order
to induce the Banks to enter into this Agreement and to make the Loans, and
issue (or participate in) the Letters of Credit as provided in this Agreement,
the Borrowers make the following representations, warranties and agreements, all
of which shall survive the execution and delivery of this Agreement and the
Notes and the making of the Loans and the issuance of the Letters of Credit,
with the occurrence of each Credit Event being deemed to constitute a
representation and warranty that the matters specified in this Section 8 are
true and correct, except for changes resulting from Permitted Transactions or
other events permitted under this Agreement, on and as of the date of each such
Credit Event:
8.1 Corporate Status. Each of Apria and its Material Subsidiaries
(i) is a duly organized and validly existing corporation or partnership in good
standing under the laws of the jurisdiction of its organization, (ii) has the
power and authority to own its property and assets and to transact the business
in which it is engaged and presently proposes to engage and (iii) is duly
qualified and is authorized to do business and is in good standing in each
jurisdiction where the ownership, leasing or operation of property or the
conduct of its business requires such qualification except for failures to be so
qualified which, in the aggregate, would not have a Material Adverse Effect.
8.2 Corporate Power and Authority. Each of Apria and its Material
Subsidiaries has the corporate or partnership power to execute, deliver and
perform the terms and provisions of each of the Credit Documents to which it is
party and has taken all necessary corporate or partnership action to authorize
the execution, delivery and performance by it of each of such Credit Documents.
Each of Apria and its Material Subsidiaries has duly executed and delivered each
of the Credit Documents to which it is party, and each of such Credit Documents
constitutes its legal, valid and binding obligation enforceable in accordance
with its terms, except as the enforceability thereof may be limited by
bankruptcy, reorganization, moratorium or similar laws relating to or limiting
creditors' rights generally or by equitable principles relating to
enforceability.
8.3 No Violation. Neither the execution, delivery or performance
by Apria or any of its Material Subsidiaries of the Credit Documents to which it
is a party, nor compliance by it with the terms and provisions thereof, (i) will
contravene any provision of any material applicable Governmental Rule or any
order, writ, injunction or decree of any court or Governmental Authority, (ii)
will conflict with or result in any breach of any of the terms, covenants,
conditions or provisions of, or constitute a default under, or result in the
creation
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or imposition of (or the obligation to create or impose) any Lien upon any of
the property or assets of Apria or any of its Material Subsidiaries pursuant to
the terms of any indenture, mortgage, deed of trust, credit agreement or loan
agreement, or any other Material Contract to which Apria or its Material
Subsidiaries is a party or by which it or any of its property or assets is bound
or to which it may be subject or (iii) will violate any provision of the
Certificate of Incorporation, By-Laws or partnership agreements (or similar
organizational documents) of Apria or any of its Material Subsidiaries.
8.4 Governmental Approvals. No material order, consent, approval,
license, authorization or validation of, or filing, recording or registration
with (except as have been obtained or made prior to the Initial Borrowing Date),
or exemption by, any Governmental Authority is required (i) to authorize the
execution, delivery and performance of any Credit Document by any Credit Party
or (ii) to establish the legality, validity, binding effect or enforceability of
any such Credit Document against such Credit Party.
8.5 Financial Statements; Financial Condition; Undisclosed
Liabilities; Projections; etc.
(a) Apria has previously furnished to each of the Banks
consolidated and consolidating balance sheets of Apria and its consolidated
Subsidiaries as at December 31, 1995 and the related consolidated and
consolidating statements of income, retained earnings and cash flow of Apria and
its consolidated Subsidiaries for the fiscal year ended on that date, with the
opinion (in the case of the consolidated balance sheet and statements) of Ernst
& Young, and the unaudited consolidated and consolidating balance sheets of
Apria and its consolidated Subsidiaries as at March 31, 1996 and the related
consolidated and consolidating statements of income, retained earnings and cash
flow of the Apria and its consolidated Subsidiaries for the three-month period
ended on such date.
All such financial statements fairly present in all material respects the
consolidated financial condition of Apria and its consolidated Subsidiaries, and
(in the case of the consolidating financial statements) the respective
unconsolidated financial condition of the Borrowers and of each of their
consolidated Subsidiaries, as at those dates and the consolidated and
unconsolidated results of their operations for the fiscal year and three-month
period ended on those dates (subject, in the case of such financial statements
as at March 31, 1996, to normal year-end audit adjustments), all in accordance
with GAAP. Neither Apria nor any of its Material Subsidiaries has on the
Effective Date any material contingent liabilities, liabilities for taxes,
unusual forward or long-term commitments or unrealized or anticipated losses
from any unfavorable commitments, except (i) as referred to or reflected or
provided for in the most recent balance sheet referred to above, and (ii) those
that are permitted by this Agreement. Since March 31, 1996, there has been no
material adverse change in the consolidated financial condition, operations,
business or prospects taken as a whole of Apria and its consolidated
Subsidiaries from that set forth in the financial statements as at March 31,
1996 for the period ending on that date.
(b) On and as of the Initial Borrowing Date, on a pro forma basis
after giving effect to the incurrence of the Indebtedness under this Agreement:
(i) the sum of the assets, at a fair valuation, of each Credit Party will exceed
its debts; (ii) no Credit Party has incurred or intends to, or believes that it
will, incur debts beyond its ability to pay such debts as such debts mature; and
(iii) each Credit Party will have sufficient capital with which to conduct its
business. For purposes of this Section 8.5(b) "debt" means any liability on a
claim, and "claim" means (i) right to payment, whether or not such a right is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured, or unsecured or (ii)
right to an equitable remedy for breach of performance if such breach gives rise
to a payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured
or unsecured.
(c) Except as fully reflected in the financial statements and the
notes related thereto described in Section 8.5(a) and as otherwise noted in the
Projections, there were as of the Initial Borrowing Date no liabilities or
obligations with respect to Apria or any of its Material Subsidiaries of any
nature whatsoever
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(whether absolute, accrued, contingent or otherwise and whether or not due)
which, either individually or in aggregate, reasonably could be expected to have
a Material Adverse Effect. As of the Initial Borrowing Date, none of Apria or
any of its Material Subsidiaries will have any outstanding Indebtedness other
than (i) the Loans and (ii) the Existing Indebtedness.
(d) On and as of the Initial Borrowing Date, the financial
projections (the "Projections") previously delivered to the Banks in the
syndication materials dated July 1996 have been prepared on a basis consistent
with the financial statements referred to in Section 8.5(a), and there are no
statements or conclusions in any of the Projections which are based upon or
include information known to any Borrower to be misleading in any material
respect or which fail to take into account material information regarding the
matters reported therein. On the Initial Borrowing Date, each of the Borrowers
believes that the Projections were reasonable and attainable.
8.6 Litigation. Except as set forth on Schedule XIII, there are
no actions, suits or proceedings pending or, to the best knowledge of any
Borrower, threatened (i) with respect to any Credit Document, (ii) with respect
to any Indebtedness of Apria or any of its Material Subsidiaries, or (iii) that
are reasonably likely to have a Material Adverse Effect.
8.7 True and Complete Disclosure. All factual information (taken
as a whole) heretofore or contemporaneously furnished by or on behalf of Apria
or any of its Material Subsidiaries in writing to any Bank (including all
information contained in the Credit Documents) for purposes of or in connection
with this Agreement or any transaction contemplated in this Agreement is, and
all other such factual information (taken as a whole) hereafter furnished by or
on behalf of Apria or any of its Material Subsidiaries in writing to any Bank
will be, true and accurate in all material respects on the date as of which such
information is dated or certified and not incomplete by omitting to state any
fact necessary to make such information (taken as a whole) not misleading at
such time in light of the circumstances under which such information was
provided.
8.8 Use of Proceeds; Margin Regulations.
(a) The proceeds of all Revolving Loans incurred on or after the
Effective Date shall be used by the Borrowers to repay certain Indebtedness and
to fund Permitted Acquisitions and for general corporate and working capital
purposes.
(b) No part of the proceeds of any Loan will be used to purchase
or carry any Margin Stock or to extend credit for the purpose of purchasing or
carrying any Margin Stock. Neither the making of any Loan nor the use of the
proceeds thereof nor the occurrence of any other Credit Event will violate or be
inconsistent with the provisions of Regulation G, T, U or X of the Board of
Governors of the Federal Reserve System.
(c) Margin Stock constitutes less than 25% of the assets of each
Borrower.
8.9 Tax Returns and Payments. Except as set forth on Schedule IV
or as described below, (i) each of Apria and its Material Subsidiaries has
timely filed or caused to be timely filed with the appropriate taxing authority
all returns, statements, forms and reports for taxes (the "Returns") required to
be filed by or with respect to the income, properties or operations of Apria or
any of its Material Subsidiaries, (ii) the Returns accurately reflect all
liability for taxes of Apria and its Material Subsidiaries for the periods
covered thereby, (iii) each of Apria and each of its Material Subsidiaries has
paid all taxes payable by it which have become due other than those contested in
good faith and for which adequate reserves have been established, (iv) there is
no action, suit, proceeding, investigation, audit, or claim now pending or, to
the knowledge of Apria or any of its Material Subsidiaries, threatened by any
authority regarding any taxes relating to Apria or any of its Material
Subsidiaries, (v) neither Apria nor any of its Material Subsidiaries has entered
into an agreement or waiver or been requested to enter into an agreement or
waiver extending any statute of limitations relating to the payment
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or collection of taxes of Apria or any of its Material Subsidiaries, or is aware
of any circumstances that would cause the taxable years or other taxable periods
of Apria or any of its Material Subsidiaries not to be subject to the normally
applicable statute of limitations, and (vi) neither Apria nor any of its
Material Subsidiaries has provided with respect to themselves or property held
by them, any consent under Section 341 of the Code.
8.10 Compliance with ERISA. Each Plan is in substantial
compliance with ERISA and the Code; neither Apria nor any of its Subsidiaries
nor any ERISA Affiliate has any Employee Stock Ownership Plan (as defined in
Section 4975(e)(7) of the Code) other than, upon the consummation of the Vitas
Merger, the stock ownership plan of Vitas Healthcare Corporation, nor have any
of them incurred nor do they expect to incur any material liability to or on
account of any Plan pursuant to Section 409, 502(i), 502(1), 4201 or 4204 of
ERISA or Section 4971 or 4975 of the Code; and no condition exists which
presents a material risk to Apria or any of its Subsidiaries or any ERISA
Affiliate of incurring any material liability to or on account of any Plan,
other than for the benefits or contributions contemplated under the Plans.
Neither Apria nor any of its Subsidiaries sponsors any Plan which has an "amount
of unfunded benefit liabilities" (as defined in Section 4001(a)(18) of ERISA)
that exceeds $5,000,000. There has not occurred with respect to any Plan a
"reportable event" (as defined in Section 4043 of ERISA) for which the
requirement of 30 days notice has not been waived.
8.11 Properties. Each of Apria and its Material Subsidiaries has
good and marketable title to all material properties owned by it, including all
property reflected in the consolidated balance sheet dated March 31, 1996
referred to in Section 8.5(a) (except as sold or otherwise disposed of since the
date of such balance sheet in the Ordinary Course of Business or as permitted by
Section 10.2), free and clear of all Liens, other than (i) as referred to in the
consolidated balance sheet or in the notes thereto or in the pro forma balance
sheet or (ii) otherwise permitted by Section 10.1.
8.12 Capitalization. (a) On the Effective Date, the authorized
capital stock of Apria consists of 150,000,000 shares of Common Stock, $.001 par
value per share ("Apria Common Stock"), of which approximately 51,064,589 shares
were outstanding. As of the Initial Borrowing Date there were approximately
4,364,425 shares of Apria Common Stock subject to stock option plans. All of the
outstanding shares have been duly and validly issued, are fully paid and
nonassessable and are free of preemptive rights. Except under the Plans and as
disclosed on Schedule V, as of the Effective Date, Apria does not have
outstanding any securities convertible into or exchangeable for its capital
stock or outstanding any rights to subscribe for or to purchase, or any options
for the purchase of, or any agreements providing for the issuance (contingent or
otherwise) of, or any calls, commitments or claims of any charter relating to,
its capital stock.
(b) On the Initial Borrowing Date Apria is the direct or indirect
owner of all of the issued and outstanding shares of capital stock of each other
Borrower. All such outstanding shares have been duly and validly issued, are
fully paid and nonassessable and are free of preemptive rights. None of such
Borrowers has outstanding any securities convertible into or exchangeable for
its capital stock or outstanding any rights to subscribe for or to purchase, or
any options for the purchase of, or any agreements providing for the issuance
(contingent or otherwise) of, or any calls, commitments or claims of any
character relating to, its capital stock.
8.13 Subsidiaries. On the Effective Date, the corporations listed
on Schedule VI are the only Material Subsidiaries of Apria. Schedule VI
correctly sets forth, as of the Effective Date, the percentage ownership (direct
and indirect) of Apria in each class of capital stock of each of its Material
Subsidiaries and also identifies the direct owner thereof.
8.14 Compliance with Statutes, etc. Each of Apria and its
Material Subsidiaries is in compliance with all applicable Governmental Rules
and orders of, and all applicable restrictions imposed by, all Governmental
Authorities, domestic or foreign, in respect of (a) the conduct of its business,
including, without limitation, (i) the Social Security Act and the amendments
thereto, including the so-called "Medicare/Medicaid Anti- Kickback Statute," and
the provisions of 42 U.S.C. Section 1320(a)(7b) and 42 U.S.C. Section 1395nn and
related
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regulations, (ii) applicable Medicare program regulations, including the Health
Care Financing Administration's carrier directives prohibiting home health care
providers from completing Certificates of Medical Necessity on behalf of
physicians, (iii) the federal Food, Drug and Cosmetic Act and the so-called
"pharmacy exemption" contained therein and the U.S. Food and Drug
Administration's Compliance Policy Guide Number 7132.16 entitled "Manufacture,
Distribution, and Promotion of Adulterated, Misbranded, or Unapproved New Drugs
for Human Use by State-Licensed Pharmacies" and (iv) the Food and Drug
Administration guidelines and all OSHA regulations including those in connection
with any oxygen filling stations maintained or operated by Apria or any of its
Material Subsidiaries and 29 C.F.R. 1910, 1030 Occupational Exposure to
Bloodborne Pathogens and (b) the ownership of its property (including applicable
statutes, regulations, orders and restrictions relating to environmental
standards and controls), except with respect to each of the foregoing such
noncompliance as would not, in the aggregate, have a Material Adverse Effect.
8.15 Investment Company Act. None of Apria or any of its
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
8.16 Public Utility Holding Company Act. None of Apria or any of
its Subsidiaries is a "holding company," or a "subsidiary company" of a "holding
company," or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company" within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
8.17 Environmental Matters.
(a) Apria and each of its Material Subsidiaries have complied in
all material respects with, and on the Effective Date and on the date of such
Credit Event are in compliance in all material respects with, all applicable
Environmental Laws and the requirements of any permits issued under such
Environmental Laws. There are no past, pending or, to the best knowledge of
Apria or the Borrowers, threatened Environmental Claims against Apria or any of
its Material Subsidiaries or any Real Property owned or at any time operated by
Apria or any of its Material Subsidiaries which would, in the aggregate, have a
Material Adverse Effect. There are no facts, circumstances, conditions or
occurrences on any Real Property owned or at any time operated by Apria or any
of its Material Subsidiaries or, to the knowledge of any Borrower, on any
property adjoining or in the vicinity of any such Real Property that could
reasonably be expected (i) to form the basis of an Environmental Claim against
Apria or any of its Material Subsidiaries or any such Real Property, or (ii) to
cause such Real Property to be subject to any restrictions on the ownership,
occupancy, use or transferability of such Real Property under any Environmental
Law, which Environmental Claim or restriction, as the case may be, individually
or in the aggregate, could reasonably be expected to have a Material Adverse
Effect.
(b) Hazardous Materials have not at any time been generated,
used, treated or stored on, or transported to or from, any Real Property owned
or at any time operated by Apria or any of its Material Subsidiaries where such
generation, use, treatment or storage has violated or could reasonably be
expected to violate any Environmental Law except for such violations which,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect. Hazardous Materials have not at any time been Released
on or from any Real Property owned or at any time operated by Apria or any of
its Material Subsidiaries where such Release has violated or could reasonably be
expected to violate any Environmental Law, except for such violations, which
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
8.18 Labor Relations. None of Apria nor any of its Material
Subsidiaries is engaged in any unfair labor practice that could reasonably be
expected to have a Material Adverse Effect. There is (i) no significant unfair
labor practice complaint pending against Apria or any of its Material
Subsidiaries or, to the best knowledge of any Borrower, threatened against Apria
or any of its Material Subsidiaries, the National Labor
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Relations Board, and no significant grievance or significant arbitration
proceeding arising out of or under any collective bargaining agreement is so
pending against Apria or any of its Material Subsidiaries or, to the best
knowledge of any Borrower, threatened against any of them, (ii) no significant
strike, labor dispute, slowdown or stoppage pending against Apria or any of its
Material Subsidiaries or, to the best knowledge of any Borrower, threatened
against Apria or any of its Material Subsidiaries and (iii) to the best
knowledge of any Borrower, no union representation question existing with
respect to the employees of Apria or any of its Material Subsidiaries, except
(with respect to any matter specified in clause (i), (ii) or (iii) above, either
individually or in the aggregate) such as could not reasonably be expected to
have a Material Adverse Effect.
8.19 Patents, Licenses, Franchises and Formulas.
(a) Apria, together with its Material Subsidiaries owns, has a
license to use or otherwise has the right to use, free and clear of pending or
threatened Liens, all the patents, patent applications, trademarks, service
marks, trade names, trade secrets, copyrights, proprietary information, computer
programs, data bases, licenses, franchises and formulas, or rights with respect
to the foregoing (collectively, "Intellectual Property"), and has obtained all
licenses and other rights of whatever nature, necessary for the present conduct
of its business, without any known conflict with the rights of others which, or
the failure to obtain which, as the case may be, would result in a Material
Adverse Effect.
(b) Except as set forth on Schedule VII, as of the Effective
Date, neither Apria nor any of its Material Subsidiaries has knowledge of any
claim by any third party contesting the validity, enforceability, use or
ownership of any material, necessary Intellectual Property, or of any existing
state of facts that would support a claim that use by Apria or any of its
Material Subsidiaries of any such Intellectual Property has infringed or
otherwise violated any Intellectual Property right of any other Person and to
the knowledge of Apria and its Material Subsidiaries no claim is threatened,
other than claims (or potential claims if based on any such state of facts),
which could not reasonably be expected to result in a Material Adverse Effect.
8.20 Indebtedness. Schedule VIII sets forth, as of the Effective
Date, a true and complete list showing the aggregate amount of and the name of
the obligor and any other Person which directly or indirectly provides a
guaranty of any Indebtedness, the aggregate amount outstanding of which is in
excess of $1,000,000 and is of the type described in clauses (i) or (iv) of the
definition of Indebtedness (other than the Loans under this Agreement), and the
aggregate amount of all other Indebtedness of such type of Apria and each of its
Material Subsidiaries as of the Effective Date does not exceed $10,000,000
(collectively, the "Existing Indebtedness").
8.21 Restrictions on or Relating to Subsidiaries. There does not
exist any encumbrance or restriction on the ability of (a) any Subsidiary of
Apria to pay dividends or make any other distributions on its capital stock or
any other interest or participation in its profits owned by Apria or any
Subsidiary of Apria, or to pay any Indebtedness owed to Apria or a Subsidiary of
Apria, (b) any Subsidiary of Apria to make loans or advances to Apria or any of
Apria's Subsidiaries or (c) Apria or any Subsidiary of Apria to transfer any of
its properties or assets to Apria or any Subsidiary of Apria, except for such
encumbrances or restrictions existing under or by reason of (i) applicable law,
(ii) this Agreement and the other Credit Documents, (iii) customary provisions
restricting subletting or assignment of any lease governing a leasehold interest
of Apria or a Subsidiary of Apria or (iv) customary provisions of documents
evidencing Indebtedness secured by Liens permitted pursuant to Section
10.1(a)(vii).
8.22 JCAHO Accreditation. Immediately prior to the Effective
Date, the Joint Commission on Accreditation of Healthcare Organizations
("JCAHO") has accredited not less than 75% of the branches collectively operated
by the Borrowers and such accreditation is in full force and effect on the
Effective Date.
8.23 Material Contracts. All Material Contracts and material
licenses of Apria and each of its Material Subsidiaries as of the Effective Date
are listed on Schedule IX, and no violations as to such material
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licenses, or default under such Material Contracts, exist which could reasonably
be expected to result in a Material Adverse Effect.
8.24 Indenture Treatment. For purposes of the Indenture, (i) all
Obligations under this Agreement are "Senior Debt" or "Guarantor Senior Debt" as
such terms are defined in the Indenture and (ii) this Agreement is a "Senior
Credit Facility" as such term is defined in the Indenture.
Section 9. Affirmative Covenants. The Borrowers covenant and
agree that on and after the Effective Date and until the Total Revolving Loan
Commitment and all Letters of Credit have terminated and the Loans, Notes and
Unpaid Drawings, together with interest, Fees and all other Obligations are paid
in full:
9.1 Information Covenants. The Borrowers will furnish to each
Bank:
(a) Quarterly Financial Statements. Within 45 days after the
close of the first three quarterly accounting periods in each fiscal year of
Apria, the consolidated balance sheet of Apria and its Subsidiaries as at the
end of such quarterly period and the related consolidated statements of income,
retained earnings and cash flow, in each case for such quarterly period and for
the elapsed portion of the fiscal year ended with the last day of such quarterly
period, in each case setting forth comparative figures for the related periods
in the prior fiscal year and comparable budgeted figures for such period, all of
which shall be certified by the chief financial officer of Apria, subject to
normal year-end audit adjustments.
(b) Annual Financial Statements. Within 120 days after the close
of each fiscal year of Apria, the consolidated balance sheet of Apria and its
Subsidiaries as at the end of such fiscal year and the related consolidated
statements of income, retained earnings and cash flow for such fiscal year and
setting forth comparative figures for the preceding fiscal year and comparable
budgeted figures for such period and certified, by Ernst & Young or other
independent certified public accountants of recognized national standing
reasonably acceptable to the Required Banks, together with a signed opinion of
such accounting firm (which opinion shall not be qualified in any respect)
stating that in the course of its regular audit of the financial statements of
Apria which audit was conducted in accordance with generally accepted auditing
standards, such accounting firm obtained no knowledge of any Default or Event of
Default which has occurred or, if in the opinion of such accounting firm such a
Default or Event of Default has occurred and is continuing, a statement as to
the nature thereof.
(c) Budgets. No later than 90 days following the first day of
each fiscal year, a budget for Apria and its Subsidiaries in form satisfactory
to the Administrative Agent and the Required Banks (including budgeted
statements of income and cash flow and balance sheets) prepared by Apria for (x)
such fiscal year and (y) the fiscal year immediately following such fiscal year,
in each case prepared in reasonable detail with appropriate presentation and
discussion of the principal assumptions upon which such budgets are based,
accompanied by the statement of the chief financial officer of Apria to the
effect that, to the best of his knowledge, the budget is a reasonable estimate
for the period covered thereby.
(d) Officer's Certificates. At the time of the delivery of the
financial statements provided for in Section 9.1(a) and (b), a compliance
certificate signed by the chief financial officer of Apria on behalf of Apria
substantially in the form of Exhibit G.
(e) Notice of Default or Litigation. Promptly, and in any event
within five Business Days after an officer of Apria or any of its Material
Subsidiaries obtains knowledge thereof, notice of (i) the occurrence of any
event which constitutes a Default or Event of Default, (ii) any litigation or
governmental investigation or proceeding pending (x) against Apria or any of its
Material Subsidiaries which could reasonably be expected to have a Material
Adverse Effect or (y) with respect to any Credit Document and (iii) any other
event which is likely to have a Material Adverse Effect.
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(f) Other Reports and Filings. Promptly upon transmission
thereof, copies of any financial information, proxy materials and other
information and reports, if any, which Apria or any of its Material Subsidiaries
(x) has filed with the Securities and Exchange Commission or any successor
thereto (the "SEC") or (y) has delivered to holders of, or any agent or trustee
with respect to, Indebtedness of Apria or any of its Material Subsidiaries in
its capacity as such a holder, agent, or trustee.
(g) Environmental Matters. Promptly upon, and in any event within
five Business Days after an officer of Apria or of any of its Material
Subsidiaries obtains knowledge thereof, notice of any of the following
environmental matters: (i) any pending or threatened Environmental Claim against
Apria or any of its Material Subsidiaries that could reasonably be expected to
result in material liability to Apria and its Material Subsidiaries, taken as a
whole; (ii) any condition, occurrence or circumstance that could reasonably be
anticipated to form the basis of an Environmental Claim against Apria or any of
its Material Subsidiaries that could reasonably be expected to result in
material liability to Apria and its Material Subsidiaries, taken as a whole; or
(iii) the performance of any remedial action in response to the actual or
alleged Release of a Hazardous Material on any Real Property owned or operated
by Apria or any of its Material Subsidiaries as required by any Environmental
Law or any Governmental Authority that could reasonably be expected to result in
material liability to Apria and its Material Subsidiaries, taken as a whole. All
such notices shall describe in reasonable detail the nature of the Claim,
investigation, condition, occurrence, circumstance, or remedial action and
Apria's or such Material Subsidiary's response thereto. In addition, Apria will
provide the Banks with copies of all communications with any Governmental
Authority relating to Environmental Claims, all communications with any Person
relating to Environmental Claims, and such detailed reports of any Environmental
Claim as may be reasonably requested by the Required Banks.
(h) Other Information. From time to time, such other information
or documents (financial or otherwise) with respect to any Credit Party or any of
its Subsidiaries as the Administrative Agent or the Required Banks may
reasonably request.
9.2 Books, Records and Inspections. Apria will, and will cause
each of its Material Subsidiaries to, keep proper books of record and account in
which full, true and correct entries in conformity with GAAP and all
requirements of law shall be made of all dealings and transactions in relation
to its business and activities. Apria will, and will cause each of its
Subsidiaries to, permit officers and designated representatives of the
Administrative Agent or any Bank to visit and inspect, under guidance of
officers of Apria or of such Subsidiary, any of the properties of Apria or such
Subsidiary, and to examine the books of account of Apria or such Subsidiary and
discuss the affairs, finances and accounts of Apria or such Subsidiary with, and
be advised as to the same by, its and their officers, all at such reasonable
times and intervals and to such reasonable extent as the Administrative Agent or
such Bank may request.
9.3 Maintenance of Property Insurance. Apria will, and will cause
each of its Material Subsidiaries to, (i) keep all material property useful and
necessary in its business in good working order and condition (ordinary wear and
tear excepted), (ii) maintain with financially sound and reputable insurance
companies insurance on all its property in at least such amounts and against at
least such risks as are consistent with industry practice, and (iii) furnish to
each Bank, upon written request, full information as to the insurance carried.
9.4 Corporate Franchises. Apria will do, and will cause each of
its Material Subsidiaries to do or cause to be done, all things necessary to
preserve and keep in full force and effect its corporate existence and its
material rights, franchises, licenses and patents, including, but not limited
to, maintaining or obtaining, as the case may be, the certification and
accreditation by JCAHO of at least 75% of Apria's branches; provided that for
the first 18 months following the consummation of the Vitas Merger, branches of
Vitas Healthcare Corporation shall not be included for the purpose of
calculating the percentage of Apria's branches accredited by JCAHO.
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9.5 Compliance with Statutes, etc. Apria will, and will cause
each of its Material Subsidiaries to, comply with all applicable Governmental
Rules of, and all applicable restrictions imposed by, all Governmental
Authorities, domestic or foreign, in respect of the conduct of its business and
the ownership of its property, including without limitation the Governmental
Rules referred to in Section 8.14, except such noncompliances as could not, in
the aggregate, reasonably be expected to have a Material Adverse Effect.
9.6 Compliance with Environmental Laws.
(a) Apria shall, and shall cause each of its Material
Subsidiaries to, conduct their respective business operations (i) in compliance
in all material respects with all Environmental Laws and all permits issued
thereunder, except that nothing contained in this Agreement shall prevent Apria
or any of its Material Subsidiaries from contesting any Environmental Law in
good faith by appropriate legal proceedings; (ii) so as to comply in all
material respects with the orders of any court or other Governmental Authority
relating to any Environmental Law, unless Apria or any of its Material
Subsidiaries is currently appealing the same and has secured a stay of
enforcement or other arrangement postponing enforcement pending that appeal;
(iii) so as not to generate, use, treat, store, transport or Release Hazardous
Materials in violation of any Environmental Law that could reasonably be
expected to result in a material liability to Apria and its Material
Subsidiaries, taken as a whole; and (iv) so as not to become subject to any
Environmental Claim which it is not contesting in good faith and by appropriate
legal proceedings.
(b) From time to time at the reasonable request of the Required
Banks, following the discovery of a fact or occurrence of an event relating to
the operation of a Borrower's business, which fact or event reasonably causes
the Banks to be concerned about the operation of such business, Apria will
provide, at its sole cost and expense (or will cause another Borrower to provide
at its sole cost and expense), a compliance report assessing the operations
compliance with Environmental Laws of Apria or its Material Subsidiaries. Such
compliance report is to be prepared by an environmental consulting firm
reasonably acceptable to the Administrative Agent. If any such report is not
provided within 60 days of its request, the Administrative Agent may order the
same, and Apria hereby grants to the Administrative Agent and the Banks and
their agents such access to such Real Property as necessary, and specifically
grants the Administrative Agent and the Banks an irrevocable, non-exclusive
license, to undertake such an assessment all at the Borrowers' expense.
9.7 ERISA. As soon as possible and, in any event, within ten
Business Days after Apria or any of its Subsidiaries or any ERISA Affiliate
knows or has reason to know of the occurrence of any of the following, Apria
will deliver to each of the Banks a certificate of the chief financial officer
of Apria setting forth details as to such occurrence and the action, if any,
which Apria, such Subsidiary or such ERISA Affiliate is required or proposes to
take, together with any notices required or proposed to be given to or filed
with or by Apria, the Subsidiary, the ERISA Affiliate, the PBGC or the Plan
administrator with respect thereto: that Apria, any of its Subsidiaries or any
ERISA Affiliate will or may incur any liability (including any contingent or
secondary liability) to or on account of the termination of or withdrawal from a
Plan under Section 4062, 4063, 4064, 4069, 4201 or 4204 of ERISA or with respect
to a Plan under Section 412(n), 4971 or 4975 of the Code or Section 409 or
502(i) or 502(1) of ERISA. Notwithstanding the foregoing, Apria will give the
Banks at least ten days' prior written notice of any contribution failure with
respect to any Plan that is sufficient to give rise to a Lien under Section
412(n) of the Code. Apria will deliver to each of the Banks a complete copy of
the annual report (Form 5500) of each Plan required to be filed with the
Internal Revenue Service. In addition to any certificates or notices delivered
to the Banks pursuant to the first sentence of this Section 9.7, copies of
annual reports and any notices received by Apria or any of its Subsidiaries or
any ERISA Affiliate from any Governmental Authority with respect to any Plan
shall be delivered to the Banks no later than ten Business Days after the later
of the date such report or notice has been filed with the Internal Revenue
Service or received by Apria or the Subsidiary or the ERISA Affiliate. Apria
shall not nor shall any of its Subsidiaries sponsor any defined benefit plan (as
defined in Section 3(35) of ERISA) which has an "amount of unfunded benefit
liabilities" (as defined in Section 4001(a)(18) of ERISA) that exceeds
$5,000,000.
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9.8 End of Fiscal Years; Fiscal Quarters. Apria will cause its,
and each of its Subsidiaries', fiscal years to end on December 31, and each of
its, and each of its Subsidiaries', first three fiscal quarters to end on March
31, June 30 and September 30.
9.9 Performance of Obligations. Apria will, and will cause each
of its Material Subsidiaries to, perform all of its obligations under the terms
of each mortgage, indenture, security agreement and other debt instrument by
which it is bound, except such non-performances as could not reasonably be
expected to in the aggregate have a Material Adverse Effect.
9.10 Payment of Taxes. Apria will pay and discharge, and will
cause each of its Material Subsidiaries to pay and discharge, all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits, or upon any properties belonging to it, prior to the date on
which penalties attach thereto, and all lawful claims which, if unpaid, might
become a lien or charge upon any properties of Apria or any of its Material
Subsidiaries; provided that neither Apria nor any of its Material Subsidiaries
shall be required to pay any such tax, assessment, charge, levy or claim which
is being contested in good faith and by proper proceedings if it has maintained
adequate reserves with respect thereto in accordance with GAAP.
9.11 Use of Proceeds. All proceeds of the Loans shall be used as
provided in Section 8.8.
9.12 Intellectual Property Rights. Apria will, and will cause
each of its Material Subsidiaries to, maintain in full force and effect all
Intellectual Property rights necessary or appropriate to the business of Apria
or any Material Subsidiary of Apria and take no action (including, without
limitation, the licensing of Intellectual Property), or fail to take an action
as the case may be, in connection with such Intellectual Property rights which
would result in a Material Adverse Effect. Apria will, and will cause each of
its Material Subsidiaries to, diligently prosecute all material pending
applications filed in connection with seeking or seeking to perfect the
Intellectual Property rights and take all other reasonable actions necessary for
the protection and maintenance of the Intellectual Property rights necessary or
appropriate to the business of Apria or any Material Subsidiary of Apria at all
times from and after the Effective Date.
9.13 Permitted Transactions.
(a) Apria may from time to time after the Effective Date effect
Subsidiary Reorganizations and, subject to the remaining provisions of this
Section 9.13 and the requirements contained in the definition of Permitted
Acquisition or Permitted Investment, as the case may be, Apria may from time to
time after the Effective Date effect Permitted Transactions:
(i) with respect to all Permitted
Transactions (other than Subsidiary Reorganizations) in any one
fiscal year, the sum (without duplication) of (I) cash paid by
Apria in connection with such Permitted Transactions, (II) the
Fair Market Value of Apria Common Stock issued in connection with
such Permitted Transactions and (III) the amount (determined by
using the face amount of the debt or the amount payable at
maturity, whichever is greater) of all Permitted Debt incurred,
assumed or acquired in all such Permitted Transactions, shall not
exceed $100,000,000 in such fiscal year;
(ii) with respect to all Permitted
Transactions (other than Subsidiary Reorganizations), the sum
(without duplication) of (I) cash paid by Apria in connection
with all Permitted Transactions, (II) the Fair Market Value of
Apria Common Stock issued in connection with all Permitted
Transactions and (III) the amount (determined by using the face
amount of the debt or the amount payable at maturity, whichever
is greater) of all Permitted Debt incurred, assumed or acquired
in all Permitted Transactions, shall not exceed $400,000,000;
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(iii) with respect to Permitted Investments in
any one fiscal year, the sum (without duplication) of (I) cash
paid by Apria in connection with such Permitted Investments and
(II) the Fair Market Value of Apria Common Stock issued in
connection with such Permitted Investments and (III) the
aggregate amount (determined by using the face amount of the debt
or amount payable at maturity, whichever is greater) of Permitted
Debt incurred, assumed or acquired in connection with such
Permitted Investment, shall not exceed $20,000,000 in such fiscal
year;
(iv) with respect to all Permitted
Acquisitions, the aggregate amount (determined by using the face
amount of the debt or the amount payable at maturity, whichever
is greater) of Permitted Debt incurred, assumed or acquired in
connection with all Permitted Acquisitions shall not exceed
$30,000,000;
(v) with respect to each Permitted
Transaction (other than Subsidiary Reorganizations), the sum
(without duplication) of (I) the aggregate amount of cash paid by
Apria in connection with such Permitted Transaction, (II) the
aggregate amount (determined by using the face amount of the debt
or amount payable at maturity, whichever is greater) of Permitted
Debt incurred, assumed or acquired in connection with such
Permitted Transaction and (III) the Fair Market Value of Apria
Common Stock issued in connection with such Permitted
Transaction, shall not exceed $25,000,000;
(vi) with respect to each Permitted
Acquisition, the EBITDA of the Permitted Acquired Business for
the period of four consecutive fiscal quarters (taken as one
accounting period) last ended prior to the date of such Permitted
Acquisition (the "Calculation Period") on a pro forma basis (the
EBITDA of the Permitted Acquired Business and the pro forma
adjustments made by Apria in calculating EBITDA for the purposes
of this clause (vi) shall be subject to the reasonable
satisfaction of Administrative Agent) shall be greater than zero;
and
(vii) with respect to each Permitted
Transaction (other than Subsidiary Reorganizations), (I) no Event
of Default is in existence at the proposed time of the
consummation of such Permitted Transaction or would exist after
giving effect thereto and (II) Apria shall have given the
Administrative Agent and the Banks at least ten days' prior
notice of such Permitted Transaction; provided, however, that
Apria shall not be required to provide the notice referred to
above where the aggregate consideration of such Permitted
Transaction (calculated pursuant to Section 9.13(a)(v)) is less
than $25,000,000, in which case Apria shall provide to the Banks
notice of such Permitted Transaction promptly upon completion of
such Permitted Transaction.
(b) At the time of each Permitted Transaction (other than a
Subsidiary Reorganization) involving the creation or acquisition of a
Subsidiary, or the acquisition of capital stock or other equity interest of any
Person, all capital stock or other interest thereof created or acquired in
connection with such Permitted Transaction shall be directly or indirectly owned
by Apria.
(c) Apria shall cause each Material Subsidiary which is formed to
effect, or is acquired pursuant to a Permitted Acquisition to execute and
deliver, (x) in the case of any such Permitted Acquisition the aggregate
consideration of which (calculated pursuant to Section 9.13(a)(v)) is less than
$25,000,000, within ten Business Days after such Permitted Acquisition and (y)
in the case of all other Permitted Acquisitions, on the date of such respective
Permitted Acquisition, a Joinder Agreement and the Guaranty (by an amendment
thereto pursuant to which it becomes a party thereto) or a substantially similar
guaranty, in either case with the documentation to be in form and substance
satisfactory to, the Administrative Agent; provided that in the case of foreign
Subsidiaries, such joinder shall require the consent of the Administrative
Agent.
(d) Notwithstanding anything to the contrary contained above, no
Permitted Transaction (other than Subsidiary Reorganizations) may be effected
unless:
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(w) recalculations are made by Apria of compliance
with the covenants contained in Sections 10.9 through 10.11,
inclusive, for the period of four consecutive fiscal quarters
most recently ended prior to the date of such Permitted
Transaction, on a pro forma basis as if the respective Permitted
Transaction has occurred on the first day of such period, and
shall show that all such covenants would have been complied with
if the Permitted Transaction had occurred on the first day of
such period and in the case of a Permitted Transaction where the
aggregate consideration of such Permitted Transaction (calculated
pursuant to Section 9.13(a)(v)) is in excess of $25,000,000, such
recalculations shall be reasonably satisfactory to the
Administrative Agent;
(x) Apria in good faith believes that the financial
covenants contained in such Sections 10.9 through 10.11,
inclusive, will continue to be met for the one year period
following the date of the consummation of the respective
Permitted Transaction;
(y) all amounts reasonably expected by Apria to
come due within ten years after the date of the respective
Permitted Transaction in respect of all contingent liabilities
being assumed or acquired as a result of the respective Permitted
Transaction shall not exceed the amount of cash and, in the case
of a Permitted Acquisition, the face amount of all Permitted Debt
assumed, incurred or acquired, in connection with the respective
Permitted Transaction; and
(z) prior to the consummation of the respective
Permitted Transaction, Apria shall furnish the Administrative
Agent and the Banks with an officer's certificate executed by the
chief financial officer of Apria, certifying to the best of his
or her knowledge as to compliance with the requirements of
preceding clauses (w), (x) and (y) and Section 9.13(a), and
containing the pro forma calculations required by preceding
clause (w) in the case of a Permitted Transaction where the
aggregate consideration of such Permitted Transaction (calculated
pursuant to Section 9.13(a)(i)) is in excess of $25,000,000.
(e) The consummation of each Permitted Transaction shall be
deemed to be a representation and warranty by Apria that all conditions thereto
have been satisfied and that same is permitted in accordance with the terms of
this Agreement, which representation and warranty shall be deemed to be a
representation and warranty for all purposes under this Agreement, including,
without limitation, Sections 7 and 11.
9.14 Agent for Service of Process. Apria hereby irrevocably
accepts its appointment as agent for all of the Credit Parties and agrees that
it (i) shall inform the Administrative Agent promptly in writing of any change
of its address in the State of California; (ii) shall notify the Administrative
Agent of any termination of any of the agency relationships created by Section
13.9 and (iii) shall perform its obligations as such agent in accordance with
the provisions of Section 13.9. Apria, as process agent, and its successor or
successors agrees to discharge the above-mentioned obligations and will not
refuse fulfillment of such obligations under Section 13.9. Apria agrees that it
will maintain an office in the State of California.
Section 10. Negative Covenants. The Borrowers hereby covenant
that on and after the Effective Date and until the Total Revolving Loan
Commitment and all Letters of Credit have terminated and the Loans, Notes and
Unpaid Drawings, together with interest, Fees and all other Obligations incurred
under this Agreement and thereunder, are paid in full:
10.1 Liens.
(a) Apria will not, and will not permit any of its Material
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets (real or personal, tangible or intangible,
including the stock of any Material Subsidiaries) of Apria or any of its
Material Subsidiaries, whether now owned or hereafter acquired, or sell, assign,
transfer or otherwise dispose of any such property or assets subject
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to an understanding or agreement, contingent or otherwise, to repurchase such
property or assets (including sales of accounts receivable with recourse to
Apria or any of its Material Subsidiaries), or assign any right to receive
income or permit the filing of any financing statement under the UCC or any
other similar notice of Lien under any similar recording or notice statute;
provided that the provisions of this Section 10.1 shall not prevent Apria or any
of its Material Subsidiaries from creating, incurring, assuming or permitting
the existence of the following (liens described below are in this Agreement
referred to as "Permitted Liens"):
(i) inchoate Liens with respect to Apria or
any of its Material Subsidiaries for taxes not yet due or Liens
for taxes being contested in good faith and by appropriate
proceedings for which adequate reserves have been established in
accordance with GAAP;
(ii) Liens in respect of property or assets of
Apria or any of its Material Subsidiaries imposed by law, which
were incurred in the Ordinary Course of Business and do not
secure Indebtedness for borrowed money, such as carriers',
warehousemen's, materialmen's, mechanics' and landlords' liens
and other similar liens arising in the Ordinary Course of
Business, and (x) which do not in the aggregate materially
detract from the value of Apria's or any of its Material
Subsidiaries' property or assets or materially impair the use
thereof in the operation of the business of Apria or its Material
Subsidiaries taken as a whole or (y) which are being contested in
good faith by appropriate proceedings, which proceedings have the
effect of preventing the forfeiture or sale of the property or
assets subject to any such Lien;
(iii) Liens of Apria or its Material
Subsidiaries in existence on the Effective Date which are listed,
and the property subject thereto described, in Schedule X, but
only to the respective date, if any, set forth in such Schedule X
for the removal and termination of any such Liens;
(iv) easements, rights-of-way, restrictions,
encroachments and other similar charges or encumbrances on the
property of Apria or any of its Material Subsidiaries arising in
the Ordinary Course of Business and not materially interfering
with the conduct of the business of Apria or any of its Material
Subsidiaries taken as a whole;
(v) Liens on property of Apria and its
Material Subsidiaries subject to Capitalized Lease Obligations to
the extent such Capitalized Lease Obligations are permitted by
Section 10.5(d); provided that such Liens only serve to secure
the payment of Indebtedness arising under such Capitalized Lease
Obligation and the Lien encumbering the asset giving rise to the
Capitalized Lease Obligation does not encumber any other asset of
Apria or any of its Material Subsidiaries;
(vi) Liens (other than any Lien imposed by
ERISA) on property of Apria or any of its Material Subsidiaries
incurred or deposits made in the Ordinary Course of Business in
connection with (x) workers' compensation, unemployment insurance
and other types of social security or (y) to secure the
performance of tenders, statutory obligations, surety and appeal
bonds, bids, leases, government contracts, trade contracts,
performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed
money); provided that the aggregate amount of cash and the fair
market value of the property encumbered by Liens described in
this clause (vi) shall not exceed $3,000,000;
(vii) Liens placed upon equipment, machinery or
Real Property used in the Ordinary Course of Business of Apria or
any of its Material Subsidiaries at the time of purchase thereof
by Apria or any of its Material Subsidiaries to secure
Indebtedness incurred to pay all or a portion of the purchase
price thereof, provided that (x) the aggregate principal amount
of all Indebtedness secured by Liens permitted by this clause
(vii) does not exceed at any one time outstanding $30,000,000 and
(y) in
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all events, the Lien encumbering the equipment, machinery or Real
Property so acquired does not encumber any other asset of Apria
or any of its Material Subsidiaries;
(viii) any interest or title of a lessor or
sublessor under any lease of Apria or its Material Subsidiaries
permitted by this Agreement;
(ix) any attachment or judgment Lien not
constituting an Event of Default under Section 11.8;
(x) Liens arising from precautionary UCC-1
financing statement filings regarding operating leases; and
(xi) Liens encumbering property or assets of
any Subsidiary (but not on the capital stock of such Subsidiary)
acquired pursuant to, or newly formed by Apria in order to make,
a Permitted Acquisition and securing Permitted Debt related
thereto; provided that such Lien does not encumber any assets or
properties of Apria or any Material Subsidiary other than the
assets or properties of such Material Subsidiary acquired
pursuant to the Permitted Acquisition.
10.2 Consolidation, Merger, Purchase or Sale of Assets, etc.
Apria will not, and will not permit any of its Material Subsidiaries to, wind
up, liquidate or dissolve its affairs or merge or consolidate, or convey, sell,
lease or otherwise dispose of all or any part of its property or assets, or
enter into any partnerships, joint ventures or sale-leaseback transactions, or
purchase or otherwise acquire (in one or a series of related transactions) any
part of the property or assets (other than purchases or other acquisitions by
Apria or any of its Material Subsidiaries of inventory, materials and equipment
in the Ordinary Course of Business) of any Person, except that:
(i) Capital Expenditures by Apria and its
Subsidiaries shall be permitted to the extent not in violation of
Section 10.8;
(ii) each of Apria and its Subsidiaries may (A)
in the Ordinary Course of Business, sell assets which, in the
reasonable judgment of Apria have become obsolete, worn out or
uneconomic, the proceeds of which are applied in accordance with
Section 5.2(a)(C), or are used, or irrevocably committed, to
purchase replacement equipment within 60 days from the date of
such sale so long as the aggregate amount of Net Sale Proceeds
from all such sales in the Ordinary Course of Business in any one
fiscal year do not exceed $20,000,000, and (B) outside the
Ordinary Course of Business sell assets, so long as the aggregate
amount of Net Sales Proceeds from all such sales outside the
Ordinary Course of Business in any one fiscal year do not exceed
$15,000,000;
(iii) each of Apria and its Subsidiaries may
lease (as lessee) real or personal property to the extent
permitted by Section 10.8;
(iv) each of Apria and its Subsidiaries may make
sales of inventory and Rental Equipment in the Ordinary Course of
Business;
(v) any Subsidiary of Apria may transfer
inventory and Rental Equipment to Apria or to another Material
Subsidiary of Apria;
(vi) investments may be made to the extent
permitted by Section 10.6;
(vii) Apria may effect Permitted Transactions in
accordance with the requirements of Section 9.13; and
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(viii) the Borrowers may transfer assets to each
other.
10.3 Dividends. Apria will not, nor permit any of its
Subsidiaries to, declare or pay any Dividends except that: (i)any Subsidiary of
Apria may pay Dividends to Apria or any Wholly-Owned Subsidiary of Apria; (ii)
provided that no Default or Event of Default has occurred and is continuing or
would result therefrom, Apria may declare and pay Dividends in an amount not to
exceed $2,500,000 in any fiscal year; and (iii) provided that no Default or
Event of Default has occurred and is continuing or would result therefrom, Apria
may make repurchases of its capital stock in an amount not to exceed $50,000,000
in the aggregate from the Effective Date through the Final Maturity Date.
10.4 Limitation on Creation of Subsidiaries. Apria will not, and
will not permit any of its Subsidiaries to, establish, create or acquire any new
Subsidiary, except Apria and its Subsidiaries may acquire or form Subsidiaries
in connection with Permitted Acquisitions or a Subsidiary Reorganization to the
extent otherwise permitted by this Agreement.
10.5 Indebtedness. Apria will not, and will not permit any of its
Subsidiaries to, contract, create, incur, assume or suffer to exist any
Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement and the
other Credit Documents;
(b) Indebtedness of Apria under any Interest Rate Protection
Agreement, in a notional amount for all such agreements not to exceed the Total
Revolving Loan Commitments;
(c) Indebtedness of Apria and its Subsidiaries evidenced by
Capitalized Lease Obligations to the extent permitted pursuant to Section 10.8;
provided that the aggregate amount of Indebtedness evidenced by Capitalized
Lease Obligations under all Capital Leases outstanding under this clause (d)
shall not at any time exceed $40,000,000;
(d) Existing Indebtedness of Apria listed on Schedule VIII,
provided that no refinancings or renewals of such Indebtedness (other than with
respect to the Permitted Senior Subordinated Notes, to the extent permitted
pursuant to the definition thereof) shall be permitted;
(e) Indebtedness of Apria which constitutes Permitted Debt in
accordance with the requirements of Section 9.13;
(f) Indebtedness in amounts, and subject to Liens, permitted
under Section 10.1(a)(vii);
(g) purchase price adjustments and customary indemnification by
Apria and its Subsidiaries incurred in connection with Permitted Transactions in
accordance with the requirements of Section 9.13;
(h) Indebtedness of Apria in respect of Permitted Senior
Subordinated Notes;
(i) any Borrower may incur Indebtedness to any other Borrower,
provided that any such Indebtedness is subordinated in right of payment to the
Obligations pursuant to terms and documentation reasonably acceptable to the
Agents; and
(j) Apria and its Subsidiaries may incur Indebtedness consisting
of guaranties of Indebtedness permitted under this Agreement.
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<PAGE> 57
In addition, Apria will not, and will not permit any of its Subsidiaries to,
enter into any agreement evidencing Indebtedness, the terms of which are more
restrictive, in any material respect, as determined by the Administrative Agent,
than the terms and conditions of the Credit Documents.
10.6 Advances, Investments and Loans. Apria will not, and will
not permit any of its Subsidiaries to, directly or indirectly lend money or
credit or make advances to any Person, or purchase or acquire any stock,
obligations or securities of, or any other interest in, or make any capital
contribution to, any other Person, except that the following shall be permitted:
(i) Apria and its Material Subsidiaries may
acquire and hold receivables owing to any of them, if created or
acquired in the Ordinary Course of Business and payable or
dischargeable in accordance with customary terms;
(ii) Apria and its Subsidiaries may hold cash
and Cash Equivalents in any amount for any purpose;
(iii) Apria or any of its Subsidiaries may make
or maintain travel, relocation and other expense advances to
employees for business related activities of Apria or any of its
Subsidiaries in the Ordinary Course of Business and consistent
with past practice and not exceeding $3,000,000 in aggregate
principal amount at any one time outstanding;
(iv) Apria and its Subsidiaries may effect
Permitted Transactions in accordance with the requirements of
Section 9.13;
(v) Apria and its Subsidiaries may enter into
Interest Rate Protection Agreements, in a notional amount for all
such agreements not to exceed the Total Revolving Loan
Commitments;
(vi) Apria and its Subsidiaries may make
Capital Expenditures to the extent permitted by Section 10.8;
(vii) Apria and its Subsidiaries may extend
credit to management of Apria or its Material Subsidiaries to
permit such management to exercise options issued or granted
pursuant to stock option plans relating to Apria's common stock;
provided that no cash or other asset may be disbursed, except for
cash disbursed for the purpose of paying taxes of such Persons
incurred in connection with the exercise of such stock options;
(viii) Apria and its Subsidiaries may (x) make
cash investments in Persons (other than individuals and
Governmental Authorities) which cash investments shall not exceed
in the aggregate in any period of four consecutive fiscal
quarters, when added to any other Capital Expenditures made
during such period and any advances or loans made pursuant to
Section 10.6(viii)(y), the aggregate amount of Capital
Expenditures permitted for such period pursuant to Section 10.8,
so long as Apria or one of its Material Subsidiaries shall have
entered into management agreements or similar agreements with
such Person providing for the management of such Person by Apria
or such Material Subsidiary and so long as Apria or such Material
Subsidiary shall always have at least a 50% interest in such
Person, and (y) make advances or loans to individuals to finance
the development of new technology which advances and loans shall
not exceed $20,000,000 in the aggregate at any one time
outstanding and shall not exceed in the aggregate, in any period
of four consecutive fiscal quarters, when added to any other
Capital Expenditures made during such period and any cash
investments made pursuant to Section 10.6(viii)(x), the aggregate
amount of Capital Expenditures permitted for such period pursuant
to Section 10.8;
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(ix) the Borrowers may effect Subsidiary
Reorganizations; and
(x) any Borrower may invest in Indebtedness of any
other Borrower, provided that any such Indebtedness is
subordinated in right of payment to the Obligations pursuant to
terms and documentation reasonably acceptable to the Agents.
10.7 Transactions with Affiliates. Apria will not, and will not
permit any of its Subsidiaries to, enter into any transaction or series of
related transactions, whether or not in the Ordinary Course of Business, with
any Affiliate, other than a Subsidiary Reorganization, transactions among Apria
and the Guarantors, and transactions by Apria or any of its Subsidiaries in the
Ordinary Course of Business and on terms and conditions substantially as
favorable to Apria or such Subsidiary, as the case may be, as would be
obtainable by Apria or such Subsidiary, as the case may be, at that time in a
comparable arm's-length transaction with a Person other than an Affiliate,
except that (i) Apria may pay customary fees to its directors, (ii) the
transfers of Rental Equipment and inventory by Subsidiaries of Apria to Apria
and other Subsidiaries of Apria shall be permitted in accordance with Section
10.2(v) and (iii) severance payments required to be made by Apria in connection
with the Abbey Merger or the Vitas Merger shall be permitted. Without limiting
the foregoing, in no event shall any management or similar fees (other than
investment banking fees) be paid by Apria or any of its Subsidiaries to any
Person other than Apria.
10.8 Capital Expenditures. Apria will not, for any period of four
consecutive fiscal quarters, make or permit its Subsidiaries to make any Capital
Expenditures in an amount such that the fraction (expressed as a percentage),
the numerator of which is the amount of such Capital Expenditures for such
period plus any investments permitted under Section 10.6(viii) during such
period, but excluding expenditures made in connection with Permitted
Transactions made in compliance with Section 9.13 during such period, and the
denominator of which is the amount of consolidated net revenues for Apria and
its Subsidiaries for such period, would be greater than the applicable
percentage set forth below:
<TABLE>
<CAPTION>
Period Percentage
------ ----------
<S> <C>
Periods ending in 1996 17.0%
Periods ending in 1997 13.5%
Periods ending thereafter 12.5%
</TABLE>
10.9 Fixed Charge Coverage Ratio. Apria will not permit the Fixed
Charge Coverage Ratio as of the end of any fiscal quarter set forth below to be
less than the corresponding ratio set forth below opposite such date:
<TABLE>
<CAPTION>
Fiscal Quarter End Ratio
------------------ -----
<S> <C>
Fiscal quarters ended 9/31/96
through 12/31/96 2.00
Fiscal quarters ended 3/31/97
through 12/31/97 2.25
Fiscal quarters ended 3/31/98
and thereafter 2.50
</TABLE>
10.10 Minimum Consolidated Net Worth. Apria will not permit its
Consolidated Net Worth at the end of any fiscal quarter (commencing with the
fiscal quarter ending on September 30, 1996) to be less than (a) an amount equal
to 90% of its Consolidated Net Worth as of June 30, 1996, plus (b) upon the
consummation of the Vitas Merger, an amount equal to 90% of the net worth of
Vitas (in excess of zero) at such time, plus (c) an amount equal to 75% of
Consolidated Net Income (in excess of zero) for each fiscal quarter commencing
with
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<PAGE> 59
the fiscal quarter ending September 30, 1996, which amount shall be added to
Consolidated Net Worth as of the last day of each such fiscal quarter, plus (d)
100% of the net proceeds of issuances of Apria Common Stock, excluding stock
issued in connection with the Vitas Merger, minus (e) in the four fiscal
quarters following the consummation of the Vitas Merger, up to $42,000,000 of
Merger Costs incurred in connection with the Vitas Merger (determined on an
after-tax basis), so long as the Vitas Merger is consummated on or before
January 15, 1997.
10.11 Consolidated Funded Indebtedness to Consolidated EBITDA.
Apria will not permit the Consolidated Funded Indebtedness to Consolidated
EBITDA Ratio at the end of any fiscal quarter to be greater than 3.00 to 1.
10.12 Limitation on Voluntary Payments and Modifications of
Indebtedness; Modifications of Certificate of Incorporation, By-Laws and Certain
Other Agreements; etc. Apria will not, and will not permit any of its
Subsidiaries to:
(i) make (or give any notice in respect of)
any voluntary or optional payment or prepayment of or redemption
(including pursuant to any change of control provision) or
acquisition for value of (including, without limitation, by way
of depositing with the trustee with respect thereto money or
securities before due for the purpose of paying when due), any
Existing Indebtedness (including, without limitation, the Senior
Subordinated Notes) the aggregate amount outstanding of which
exceeded $100,000 on the Effective Date; provided, however, that
so long as no Default or Event of Default shall have occurred and
be continuing or would result therefrom, Apria may prepay (a) the
Senior Subordinated Notes, (b) Indebtedness of Vitas existing as
of the date of the consummation of the Vitas Merger and (c)
Indebtedness owing in respect of Capital Leases in an amount up
to $10,000,000 in the aggregate;
(ii) amend or modify, or permit the amendment
or modification of, any provision of Existing Indebtedness
(including, without limitation, the Senior Subordinated Notes)
the aggregate amount outstanding of which exceeded $100,000 on
the Effective Date; provided, however, that Apria may, and may
permit its Subsidiaries to, agree to immaterial amendments or
modifications to Existing Indebtedness which do not (x) increase
the amount of, or change (other than defer) the date for payment
of, or increase any rate with respect to, any payment or sinking
fund provisions, (y) change (other than defer or reduce) any
redemption, interest rate or amortization thereunder or (z)
change any remedial, default or subordination provisions thereof;
(iii) amend, modify or change its Certificate
of Incorporation, Bylaws or any other agreement entered into by
it with respect to its capital stock in any manner that would
materially adversely affect any Bank;
(iv) enter into any new agreement with respect
to its capital stock (other than as part of a Subsidiary
Reorganization and other than a new Employee Benefit Plan or
Employment Agreement to the extent permitted pursuant to clause
(vi) below);
(v) amend, modify or change in any material
respect, or enter into any new, Shareholders' Agreement,
Management Agreement or Tax Sharing Agreement;
(vi) amend, modify or change, or enter into
any new Employee Benefit Plan or Employment Agreement except in
the case of this clause (vi) if the aggregate cost to Apria and
its Subsidiaries as a result of such amendments, modifications,
changes and new agreements are not reasonably likely to have a
Material Adverse Effect; or
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<PAGE> 60
(vii) after the Effective Date, enter into any
agreement, other than this Agreement, which prohibits Apria or
any of its Subsidiaries from encumbering any of their respective
assets.
10.13 Limitation on Certain Restrictions on Subsidiaries. Apria
will not, and will not permit any of its Subsidiaries to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective any
encumbrance or restriction on the ability of any Subsidiary of Apria to (a) pay
dividends or make any other distributions on its capital stock or any other
interest or participation in its profits owned by Apria or any Material
Subsidiary of Apria, or pay any Indebtedness owed to Apria or a Material
Subsidiary of Apria, (b) make loans or advances to Apria or any of Apria's
Subsidiaries or (c) transfer any of its properties or assets to Apria, except
for such encumbrances or restrictions existing under or by reason of (i)
applicable law, (ii) this Agreement and the other Credit Documents and (iii)
customary provisions restricting subletting or assignments of any lease
governing a leasehold interest of Apria or a Subsidiary of Apria.
10.14 Business. Apria will not, and will not permit any of its
Material Subsidiaries, to engage (directly or indirectly) in any business other
than in the Ordinary Course of Business.
Section 11. Events of Default. Upon the occurrence of any of the
following specified events (each, an "Event of Default"):
11.1 Payments. Any Borrower shall (i) default in the payment when
due of any principal of any Loan or any Note or any Unpaid Drawing or (ii)
default, and such default shall continue unremedied for two or more Business
Days, in the payment when due of any interest on any Loan or Note or Unpaid
Drawing, or any Fees or any other amounts owing by it under this Agreement or
under such Loan or Note or in connection with any Unpaid Drawing; or
11.2 Representations, etc. Any representation, warranty or
statement made by Apria or any of its Material Subsidiaries in this Agreement or
in any other Credit Document or in any certificate delivered pursuant to this
Agreement or to any other Credit Document shall prove to be untrue in any
material respect on the date as of which made or deemed made; or
11.3 Covenants. Any Credit Party shall (i) default in the due
performance or observance of any term, covenant or agreement contained in
Section 9.1(e)(i), 9.8, 9.11, 9.13, 9.14, 10 or 13.8 or (ii) default in the due
performance or observance of any other term, covenant or agreement contained in
this Agreement or any other Credit Document and such default shall continue
unremedied for a period of 30 days after written notice to the Borrowers by the
Administrative Agent or any Bank; or
11.4 Default Under Other Agreements. Apria or any of its Material
Subsidiaries shall (i) default in any payment of any Indebtedness (other than
the Indebtedness referred to in Section 11.1) beyond the period of grace (not to
exceed ten days), if any, provided in the instrument or agreement under which
such Indebtedness was created, (ii) default in the observance or performance of
any agreement or condition relating to any Indebtedness (other than the
Indebtedness referred to in Section 11.1) or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event shall
occur or condition exist, the effect of which default or other event or
condition is to cause, or to permit the holder or holders of such Indebtedness
(or a trustee or agent on behalf of such holder or holders) to cause (determined
without regard to whether any notice is required), any Indebtedness to become
due prior to its stated maturity, or (iii) any Indebtedness (other than the
Indebtedness referred to in Section 11.1) of Apria or any of its Material
Subsidiaries shall be declared to be due and payable, or required to be prepaid
other than by a regularly scheduled required prepayment, prior to the stated
maturity thereof, provided that it shall not be a Default or Event of Default
under this Section 11.4 unless the aggregate principal amount of all
Indebtedness as to which a default described in the preceding clauses (i)
through (iii) inclusive exists is at least $2,500,000; or
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11.5 Bankruptcy, etc. Apria or any of its Material Subsidiaries
shall commence a voluntary case concerning itself under Title 11 of the United
States Code entitled "Bankruptcy," as now or hereafter in effect, or any
successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced
against Apria or any of its Material Subsidiaries and the petition is not
controverted within ten days, or is not dismissed or discharged, within 60 days,
after commencement of the case; or a custodian (as defined in the Bankruptcy
Code) is appointed for, or takes charge of, all or substantially all of the
property of Apria or any of its Material Subsidiaries, or Apria or any of its
Material Subsidiaries commences any other proceeding under any reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction, whether now or hereafter in
effect relating to Apria or any of its Material Subsidiaries, or there is
commenced against Apria or any of its Material Subsidiaries any such proceeding
which remains undismissed or undischarged for a period of 60 days, or Apria or
any of its Material Subsidiaries is adjudicated insolvent or bankrupt; or any
order of relief or other order approving any such case or proceeding is entered;
or Apria or any of its Material Subsidiaries suffers any appointment of any
custodian or the like for it or any substantial part of its property to continue
undischarged or unstayed for a period of 60 days; or Apria or any of its
Material Subsidiaries makes a general assignment for the benefit of creditors,
or any corporate action is taken by Apria or any of its Material Subsidiaries
for the purpose of effecting any of the foregoing; or
11.6 ERISA. The following conditions described in (a), (b) and
(c) shall all occur: (a) Apria or any Subsidiary of Apria has incurred or is
likely to incur liabilities pursuant to one or more employee welfare benefit
plans (as defined in Section 3(1) of ERISA) which provide benefits to retired
employees (other than as required by Section 601 of ERISA) or employee pension
benefit plans (as defined in Section 3(2) of ERISA); and (b) there shall result
from any such event or events the imposition of a Lien, the granting of a
security interest, or a liability or a material risk of incurring a liability;
and (c) which Lien, security interest or liability, in the opinion of the
Required Banks, could reasonably be expected to have a Material Adverse Effect;
or
11.7 Guaranty. At any time after the execution and delivery of
the Guaranty, the Guaranty or any provision thereof shall cease to be in full
force or effect as to any Guarantor, or any Guarantor or any Person acting by or
on behalf of any Guarantor shall attempt to deny or disaffirm such Guarantor's
obligations under the Guaranty, or any Guarantor shall default in the due
performance or observance of any term, covenant or agreement on its part to be
performed or observed pursuant to the Guaranty; or
11.8 Judgments. One or more judgments or decrees shall be entered
against Apria or any of its Material Subsidiaries involving in the aggregate for
Apria and its Subsidiaries a liability (not paid or fully covered by a reputable
insurance company which has accepted full liability in writing) of $2,500,000 or
more and all such judgments or decrees shall not be vacated, discharged or
stayed or bonded pending appeal for any period of 30 consecutive days; or
11.9 Ownership. There shall be a Change in Control or Apria shall
cease, directly or indirectly, to own free and clear of all Liens 100% of the
outstanding capital stock of each other Borrower, unless any such Person ceases
to exist in accordance with clause (iii) of the definition of Subsidiary
Reorganization;
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Administrative Agent, upon the written request of
the Required Banks, shall by written notice to the Borrowers, take any or all of
the following actions, without prejudice to the rights of the Administrative
Agent, any Bank or the holder of any Note to enforce its claims against any
Credit Party (provided that, if an Event of Default specified in Section 11.5
shall occur with respect to any Borrower, the result which would occur upon the
giving of written notice by the Administrative Agent to the Borrowers as
specified in clauses (i) and (ii) below shall occur, automatically without the
giving of any such notice): (i) declare the Total Revolving Loan Commitment
terminated, whereupon all Revolving Loan Commitments of each Bank shall
forthwith terminate immediately and any Revolving Loan Commitment Fee and other
Fees shall forthwith become due and payable without any other notice of any
kind; (ii) declare the principal of and any accrued interest in respect of all
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Loans and the Notes and all Obligations owing under this Agreement and
thereunder to be, whereupon the same shall become, forthwith due and payable
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by each Credit Party; (iii) terminate any Letter of Credit
which may be terminated in accordance with its terms; (iv) direct the Borrowers
to pay (and the Borrowers agree that upon receipt of such notice, or upon the
occurrence of an Event of Default specified in Section 11.5 with respect to the
Borrowers they will pay) to the Administrative Agent, as collateral agent, at
the Payment Office, such additional amount of cash, to be held as security by
the Administrative Agent in a cash collateral account, as is equal to the
aggregate Stated Amount of all Letters of Credit issued for account of the
Borrowers and then outstanding; and (v) enforce, as collateral agent, any Liens
and security interests related to any cash collateral account.
Section 12. The Agents.
12.1 Appointment and Authorization. Each Bank hereby irrevocably
appoints, designates and authorizes each Agent to take such action on its behalf
under the provisions of this Agreement and each other Credit Document and to
exercise such powers and perform such duties as are expressly delegated to it by
the terms of this Agreement or any other Credit Document, together with such
powers as are reasonably incidental thereto. Notwithstanding any provision to
the contrary contained elsewhere in this Agreement or in any other Credit
Document, the Agents shall not have any duties or responsibilities, except those
expressly set forth in this Agreement, nor shall the Agents have or be deemed to
have any fiduciary relationship with any Bank, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement or any other Credit Document or otherwise exist against the
Agents. Without limiting the generality of the foregoing sentence, the use of
the term "agent" in this Agreement with reference to an Agent is not intended to
connote any fiduciary or other implied (or express) obligations arising under
agency doctrine of any applicable law. Instead, such term is used merely as a
matter of market custom, and is intended to create or reflect only an
administrative relationship between independent contracting parties.
12.2 Delegation of Duties. Any Agent may execute any of its
duties under this Agreement or any other Credit Document by or through agents,
employees or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. No Agent shall be responsible
for the negligence or misconduct of any agent or attorney-in-fact that it
selects in good faith.
12.3 Liabilities of Agents. None of the Agent-Related Persons
shall (a) be liable for any action taken or omitted to be taken by any of them
under or in connection with this Agreement or any other Credit Document or the
transactions contemplated hereby (except for its own gross negligence or willful
misconduct), (b) be responsible in any manner to any of the Banks for any
recital, statement, representation or warranty made by the Borrowers or any
Subsidiaries or Affiliates of the Borrowers or any officer thereof, contained in
this Agreement or in any other Credit Document, or in any certificate, report,
statement or other document referred to or provided for in, or received by any
Agent under or in connection with, this Agreement or any other Credit Document,
or the validity, effectiveness, genuineness, enforceability or sufficiency of
this Agreement or any other Credit Document, or for any failure of the Borrowers
or any other party to any Credit Document to perform its obligations under this
Agreement or under such Credit Document, (c) be required to initiate or conduct
any litigation or collection proceedings under any Credit Document (except to
the extent directed to do so by the Required Banks in accordance with Section
12.5), or (d) be responsible for any action taken or omitted to be taken by it
under any Credit Document or under any other document or instrument referred to
or provided for in any Credit Document or in connection with any Credit
Document, except for its own gross negligence or willful misconduct. No
Agent-Related Person shall be under any obligation to any Bank to ascertain or
to inquire as to the observance or performance of any of the agreements
contained in, or conditions of, this Agreement or any other Credit Document, or
to inspect the properties, books or records of the Borrowers or any of the
Borrowers' Subsidiaries or Affiliates.
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12.4 Reliance by Agents. Any Agent shall be entitled to rely, and
shall be fully protected in relying, upon any writing, resolution, notice,
consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone
message, statement or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons, and upon advice and statements of legal counsel (including counsel
to the Borrowers), independent accountants and other experts selected by such
Agent. Except for action expressly required of such Agent under the Credit
Documents, each Agent shall be fully justified in failing or refusing to take
any action under this Agreement or any other Credit Document unless it shall
first receive such advice or concurrence of the Required Banks as it deems
appropriate and, if it so requests, it shall first be indemnified to its
satisfaction by the Banks against any and all liability and expense which may be
incurred by it by reason of taking or continuing to take any such action. The
Agents shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement or any other Credit Document in accordance with a
request or consent of the Required Banks and such request and any action taken
or failure to act pursuant thereto shall be binding upon all of the Banks.
12.5 Notice of Default. The Administrative Agent shall not be
deemed to have knowledge or notice of the occurrence of any Default or Event of
Default, except with respect to defaults in the payment of principal, interest
and fees required to be paid to the Administrative Agent for the account of the
Banks, unless the Administrative Agent shall have received written notice from a
Bank or the Borrowers referring to this Agreement, describing such Default or
Event of Default and stating that such notice is a "notice of default." The
Syndication Agent shall not be deemed to have knowledge or notice of the
occurrence of any Default or Event of Default unless it shall have received
written notice from a Bank or the Borrowers referring to this Agreement,
describing such Default or Event of Default and stating that such notice is a
"notice of default." Each such Agent will notify the Banks of its receipt of any
such notice. The Administrative Agent shall take such action with respect to
such Default or Event of Default as may be requested by the Required Banks in
accordance with Section 10; provided, however, that unless and until such Agent
has received any such request, such Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable or in the best interest
of the Banks.
12.6 Credit Decision. Each Bank acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it, and that no
act by any Agent, including any review of the affairs of the Borrowers and their
Subsidiaries, shall be deemed to constitute any representation or warranty by
any Agent- Related Person to any Bank. Each Bank represents to the Agents that
it has, independently and without reliance upon any Agent-Related Person and
based on such documents and information as it has deemed appropriate, made its
own appraisal of and investigation into the business, prospects, operations,
property, financial and other condition and creditworthiness of the Borrowers
and their Subsidiaries, and all applicable bank regulatory laws relating to the
transactions contemplated hereby, and made its own decision to enter into this
Agreement and to extend credit to the Borrowers under this Agreement. Each Bank
also represents that it will, independently and without reliance upon any
Agent-Related Person and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Credit Documents, and to make such investigations as it deems
necessary to inform itself as to the business, prospects, operations, property,
financial and other condition and creditworthiness of the Borrowers. Except for
notices, reports and other documents expressly required in this Agreement to be
furnished to the Banks by the Agents, the Agents shall not have any duty or
responsibility to provide any Bank with any credit or other information
concerning the business, prospects, operations, property, financial and other
condition or creditworthiness of the Borrowers which may come into the
possession of any of the Agent-Related Persons.
12.7 Indemnification. Whether or not the transactions
contemplated hereby are consummated, the Banks shall indemnify upon demand the
Agent-Related Persons (to the extent not reimbursed by or on behalf of the
Borrowers and without limiting the obligation of the Borrowers to do so), pro
rata, from and against any and all Indemnified Matters; provided, however, that
no Bank shall be liable for the payment to the
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Agent-Related Persons of any portion of such Indemnified Matters resulting from
such Person's gross negligence or willful misconduct. Without limitation of the
foregoing, each Bank shall reimburse each Agent upon demand for its ratable
share of any costs or out-of-pocket expenses (including reasonable attorney's
fees and disbursements) incurred by such Agent in connection with the
preparation, execution, delivery, administration, modification, amendment or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, this Agreement,
any other Credit Document, or any document contemplated by or referred to in
this Agreement, to the extent that such Agent is not reimbursed for such
expenses by or on behalf of the Borrowers. The undertaking in this Section 12.7
shall survive the payment of all Obligations under this Agreement and the
resignation or replacement of such Agent.
12.8 Agents in Individual Capacity. BofA and its Affiliates (and
any successor acting as Administrative Agent) and NationsBank and its Affiliates
(and any successor acting as Syndication Agent) may, without notice to or
consent from the Banks, make loans to, issue letters of credit for the account
of, accept deposits from, acquire equity interests in and generally engage in
any kind of banking, trust, financial advisory, underwriting or other business
with the Borrowers and their Subsidiaries and Affiliates as though BofA or
NationsBank, as applicable, were not an Agent under this Agreement and may
accept fees and other consideration from the Borrowers for services in
connection with this Agreement or otherwise without notice to or consent of the
Banks. The Banks acknowledge that, pursuant to such activities, BofA or its
Affiliates or NationsBank or its Affiliates may receive information regarding
the Borrowers or their Affiliates (including information that may be subject to
confidentiality obligations in favor of the Borrowers or such Affiliates) and
acknowledge that the Agents shall be under no obligation to provide such
information to them. With respect to its Commitments and Loans, BofA and
NationsBank shall have the same rights, privileges and powers under this
Agreement as any other Bank and may exercise the same as though each were not an
Agent, and the terms "Bank" and "Banks" include BofA and NationsBank in their
respective individual capacities.
12.9 Successor Agents. Each Agent may, and at the request of the
Required Banks shall, resign as such Agent upon 30 days' notice to the Banks. If
any Agent resigns under this Agreement, the Required Banks shall appoint from
among the Banks a successor agent for the Banks (which successor agent shall be
subject to the consent of the Borrowers, which consent shall not unreasonably be
withheld; provided that during the existence of an Event of Default, such
consent shall not be required). If no successor agent is appointed prior to the
effective date of the resignation of such Agent, such Agent may appoint, on
behalf of the Banks and after consulting with the Banks and the Borrowers, a
successor agent from among the Banks. Upon the acceptance of its appointment as
successor agent, such successor agent shall succeed to and become vested with
all the rights, powers, privileges, duties and obligations of the retiring Agent
(and the term "Administrative Agent" or "Syndication Agent," as applicable,
shall mean such successor agent) and the retiring Agent's appointment, powers,
privileges, duties and obligations as such Agent shall be terminated. After any
retiring Agent's resignation under this Agreement as such Agent, the provisions
of this Section 12, including Sections 12.6 and 12.7 shall inure to its benefit
as to any actions taken or omitted to be taken by it while it was such Agent
under this Agreement. If no successor agent has accepted appointment as such
Agent by the date which is 30 days following a retiring Agent's notice of
resignation, the retiring Agent's resignation shall nevertheless thereupon
become effective and the Banks shall perform all of the duties of such Agent
until such time, if any, as the Required Banks appoint a successor agent as
provided for above.
12.10 The Co-Arrangers. The Co-Arrangers are so named for
recognition purposes only, and, except for their rights, duties and obligations
as Banks, shall, as a result of such recognition, incur no other rights, duties
or obligations with this Agreement.
12.11 The Co-Agents. Any Bank identified on the signature pages
of this Agreement as "co-agent" shall not have any right, power, obligation,
liability, responsibility or duty under this Agreement other than those
applicable to all Banks as such. Without limiting the foregoing, such Bank shall
not have or be deemed to have any fiduciary relationship with any Bank. Each
Bank acknowledges that it has not relied, and will not
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rely, on such Bank so identified in deciding to enter into this Agreement or in
taking or not taking action under this Agreement.
Section 13. Miscellaneous.
13.1 Payment of Expenses, etc. The Borrowers jointly and
severally agree to: (i) whether or not the transactions contemplated in this
Agreement are consummated but subject to the terms of the Fee Letters, pay all
reasonable out-of-pocket costs and expenses of the Agents (including, without
limitation, the reasonable fees and disbursements of counsel to the Agents), in
connection with the preparation, execution and delivery of this Agreement and
the other Credit Documents and the documents and instruments referred to in this
Agreement and in such Credit Documents and any amendment, waiver or consent
relating to this Agreement or to such Credit Document, of the Agents in
connection with their syndication efforts with respect to this Agreement and of
the Agents and each of the Banks in connection with the enforcement (including,
without limitation, any fees incurred in connection with a workout or bankruptcy
proceeding), of this Agreement and the other Credit Documents and the documents
and instruments referred to in this Agreement and in such Credit Documents
(including the reasonable fees and disbursements of counsel, including the
reasonable allocated cost of internal counsel for the Administrative Agent);
(ii) pay and hold each of the Banks harmless from and against any and all
present and future recording, stamp, excise and other similar taxes with respect
to the foregoing matters and save each of the Banks harmless from and against
any and all liabilities with respect to or resulting from any delay or omission
(other than to the extent attributable to such Bank) to pay such taxes; and
(iii) defend, protect, indemnify and hold harmless the Agents and each Bank, and
each of their respective officers, directors, employees, representatives and
agents (collectively called the "Indemnitees") from and against any and all
liabilities, obligations (including removal or remedial actions), losses,
damages (including foreseeable and unforeseeable consequential damages and
punitive damages), penalties, claims, actions, judgments, suits, costs, expenses
and disbursements (including reasonable attorneys' and consultants fees and
disbursements) of any kind or nature whatsoever that may at any time be incurred
by, imposed on or assessed against the Indemnitees directly or indirectly based
on, or arising or resulting from, (a) any investigation, litigation or other
proceeding (whether or not any Agent or any Bank is a party thereto) related to
the entering into or performance of this Agreement or any other Credit Document
or the use of any Letter of Credit or the proceeds of any Loans under this
Agreement or the consummation of any transactions contemplated in this Agreement
or in any other Credit Document; (b) the generation, use, treatment, storage,
transport or Release of any Hazardous Materials in violation of any
Environmental Law relating to Apria or any of its Subsidiaries; (c) any
Environmental Claim relating to Apria or any of its Subsidiaries; (d) the
exercise of the rights of the Administrative Agent and of any Bank under any of
the provisions of this Agreement or any other Credit Document or any Letter of
Credit or any Loans under this Agreement; or (e) the consummation of any
transaction contemplated in this Agreement or in any other Credit Document (the
"Indemnified Matters") regardless of when such Indemnified Matter arises, but
excluding any such Indemnified Matter based solely on the gross negligence or
willful misconduct of any Indemnitee.
13.2 Right of Setoff. In addition to any rights now or hereafter
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence and during the continuance of an Event of
Default, each Bank is hereby authorized at any time or from time to time,
without presentment, demand, protest or other notice of any kind to any Credit
Party or to any other Person, any such notice being hereby expressly waived, to
set off and to appropriate and apply any and all deposits (general or special)
and any other Indebtedness at any time held or owing by such Bank (including,
without limitation, by branches and agencies of such Bank wherever located) or
any Affiliate thereof to or for the credit or the account of each Credit Party
against and on account of the Obligations and liabilities of such Credit Party
to such Bank under this Agreement or under any of the other Credit Documents,
including, without limitation, all interests in Obligations purchased by such
Bank pursuant to Section 13.6(b), and all other claims of any nature or
description arising out of or connected with this Agreement or any other Credit
Document, irrespective of whether or not such Bank shall have made any demand
under this Agreement and although said Obligations,
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liabilities or claims, or any of them, shall be contingent or unmatured, and any
such Affiliate is hereby irrevocably authorized to permit such application or
appropriation.
13.3 Notices. Except as otherwise expressly provided in this
Agreement, all notices and other communications provided for under this
Agreement shall be in writing (including telegraphic, telex, facsimile or cable
communication) and mailed, telegraphed, telexed, telecopied, cabled or
delivered: if to any Borrower, at its address specified opposite its signature
below; if to any Bank, at its address specified opposite its name below; and if
to the Administrative Agent, at its Notice Office; or, as to any Borrower or the
Administrative Agent, at such other address as shall be designated by such party
in a written notice to the other parties to this Agreement and, as to each Bank,
at such other address as shall be designated by such Bank in a written notice to
Apria and the Administrative Agent. All such notices and communications shall,
when mailed, telegraphed, telexed, facsimilied, or cabled or sent by overnight
courier, be effective when deposited in the mails, delivered to the telegraph
company, cable company or overnight courier, as the case may be, or sent by
telex or facsimile device, except that notices and communications to the
Administrative Agent shall not be effective until received by the Administrative
Agent.
13.4 Benefit of Agreement.
(a) This Agreement shall be binding upon and inure to the benefit
of and be enforceable by the respective successors and assigns of the parties to
this Agreement; provided, however, no Borrower may assign or transfer any of its
rights, obligations or interest under this Agreement or under any other Credit
Document without the prior written consent of the Banks; and provided, further,
that although any Bank may transfer, assign or grant participations in its
rights under this Agreement, such Bank shall remain a "Bank" for all purposes
under this Agreement (and may not transfer or assign all or any portion of its
Revolving Loan Commitments under this Agreement except as provided in Section
13.4(b)) and the transferee, assignee or participant, as the case may be, shall
not constitute a "Bank" under this Agreement; and provided, further, that no
Bank shall transfer or grant any participation under which the participant shall
have rights to approve any amendment to or waiver of this Agreement or any other
Credit Document except to the extent such amendment or waiver would (i) extend
the final scheduled maturity of any Loan, Note or Letter of Credit (unless such
Letter of Credit is not extended beyond the Final Maturity Date) in which such
participant is participating, or reduce the rate or extend the time of payment
of interest or Fees thereon (except in connection with a waiver of applicability
of any post-default increase in interest rates) or reduce the principal amount
thereof, or increase the Revolving Loan Commitments in which such participant is
participating over the amount thereof then in effect (it being understood that a
waiver of any Default or Event of Default or of a mandatory reduction in the
Total Revolving Loan Commitment shall not constitute a change in the terms of
any Revolving Loan Commitment, and that an increase in any Revolving Loan
Commitment shall be permitted without the consent of any participant if the
participant's participation is not increased as a result thereof) or (ii)
consent to the assignment or transfer by any Borrower of any of its rights and
obligations under this Agreement. In the case of any such participation, the
participant shall not have any rights under this Agreement or any of the other
Credit Documents (the participant's rights against such Bank in respect of such
participation to be those set forth in the agreement executed by such Bank in
favor of the participant relating thereto) and all amounts payable by any
Borrower under this Agreement shall be determined as if such Bank had not sold
such participation.
(b) Notwithstanding the foregoing, any Bank may (x) assign all or
a portion of its Loans and Revolving Loan Commitments and related outstanding
Obligations under this Agreement to one or more Banks or Affiliates of such
Banks or (y) assign a portion equal to at least the lesser of (I) the remaining
portion of its Loans and Revolving Loan Commitments and related outstanding
Obligations under this Agreement and (II) $15,000,000 of such Loans and
Revolving Loan Commitments and related outstanding Obligations under this
Agreement to one or more Eligible Transferees, each of which assignees shall
become a party to this Agreement as a Bank by execution of an Assignment and
Assumption Agreement (appropriately completed); provided that: (i) at such time
Schedule I shall be deemed modified to reflect the Revolving Loan Commitments of
such new
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Bank and of the existing Banks; (ii) new Notes will be issued to such new Bank
and to the assigning Bank upon the request of such new Bank or assigning Bank,
such new Notes to be in conformity with the requirements of Section 2.5 to the
extent needed to reflect the revised Revolving Loan Commitments; (iii) the
consent of the Administrative Agent, the Issuing Bank and Apria (such consent
not to be unreasonably withheld and which consent of Apria shall not be required
subsequent to the occurrence of an Event of Default) shall be required in
connection with any assignment; and (iv) the Administrative Agent shall receive
at the time of each such assignment, from the assigning Bank, the payment of a
non-refundable assignment fee of $3,000; provided that such fee shall not be
required in the case of an assignment from any Bank to any of its Affiliates. To
the extent of any assignment pursuant to this Section 13.4(b), the assigning
Bank shall be relieved of its obligations under this Agreement with respect to
its assigned Revolving Loan Commitments but shall retain the benefit of all
indemnities of the Borrowers with respect to matters arising prior to the date
of such assignment which shall survive and inure to the benefit of the assigning
Bank.
(c) Notwithstanding any other provisions of this Agreement, any
Bank may assign any of its rights under this Agreement and under the Notes
(including the right to payment of principal and interest under this Agreement
or under such Notes) to any Federal Reserve Bank.
(d) Each Bank and each Agent agrees to take normal and reasonable
precautions and exercise due care (in the same manner as it exercises for its
own affairs) to maintain the confidentiality of all information identified as
"confidential" by Apria or any of its Subsidiaries and provided to it by Apria
or any of its Subsidiaries, or by the Agents on Apria's or such Subsidiary's
behalf, in connection with this Agreement or any other Credit Document; except
to the extent such information (i) was or becomes generally available to the
public other than as a result of a disclosure in violation of this Section
13.4(d) by such Bank or Agent, or (ii) was or becomes available on a
non-confidential basis from a source other than Apria, provided that such source
is not bound by a confidentiality agreement with Apria known to such Bank or
Agent as the case may be; provided, however, that any Bank or Agent may disclose
such information: (A) at the request or pursuant to any requirement of any
Governmental Authority to which such Bank or Agent is subject or in connection
with an examination of such Bank or Agent by any such authority; (B) pursuant to
subpoena or other court process; (C) when required to do so in accordance with
the provisions of any applicable Governmental Rule; (D) in connection with any
litigation or proceeding to which any Agent, any Bank or their respective
Affiliates may be party; provided that in the case of clause (B), clause (C), in
cases other than in connection with an examination of the financial condition of
such Bank or Agent, and clause (D), unless such litigation or proceeding is
between any Bank or Agent and any Borrower or Guarantor, unless specifically
prohibited by applicable law or order, such Bank shall use reasonable efforts to
notify Apria or such Subsidiary of any requirement for disclosure; (E) in
connection with the exercise of any remedy under this Agreement or under any
other Credit Document; and (F) to such Bank's, Agent's or Affiliate's
independent auditors, counsel and other professional advisors; provided that
such Person shall acknowledge and agree to be bound by the provisions of this
Section 13.4(d). Notwithstanding the foregoing, Apria authorizes each Bank to
disclose information to (a) any Affiliate of such Bank or (b) any participant or
assignee and to any prospective participant or assignee, such financial and
other information in such Bank's possession concerning Apria or its Subsidiaries
which has been delivered to the Agents or the Banks pursuant to this Agreement
or which has been delivered to the Agents or the Banks by Apria in connection
with the Banks' credit evaluation of Apria prior to entering into this
Agreement; provided that such participant or assignee or prospective participant
or assignee shall acknowledge and agree in writing to be bound by the provisions
of this Section 13.4(d) by executing and delivering to such Bank a
Confidentiality Agreement substantially in the form of Exhibit J.
13.5 No Waiver; Remedies Cumulative. No failure or delay on the
part of the Administrative Agent or any Bank or any holder of any Note in
exercising any right, power or privilege under this Agreement or under any other
Credit Document and no course of dealing between any Borrower and the
Administrative Agent or any Bank or the holder of any Note shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, power or
privilege under this Agreement or under any other Credit Document preclude any
other
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or further exercise thereof or the exercise of any other right, power or
privilege under this Agreement or under such Credit Document. The rights, powers
and remedies in this Agreement or in any other Credit Document expressly
provided are cumulative and not exclusive of any rights, powers or remedies
which the Administrative Agent or any Bank or the holder of any Note would
otherwise have. No notice to or demand on any Borrower in any case shall entitle
any Borrower to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the Administrative Agent
or any Bank or the holder of any Note to any other or further action in any
circumstances without notice or demand.
13.6 Payments Pro Rata.
(a) The Administrative Agent agrees that promptly after its
receipt of each payment from or on behalf of any Borrower in respect of any
Obligations under this Agreement, it shall distribute such payment to the Banks
pro rata based upon their respective shares, if any, of the Obligations with
respect to which such payment was received.
(b) Each of the Banks agrees that, if it should receive any
amount under this Agreement (whether by voluntary payment, by realization upon
security, by the exercise of the right of setoff or banker's lien, by
counterclaim or cross action, by the enforcement of any right under the Credit
Documents, or otherwise), which is applicable to the payment of the principal
of, or interest on, the Loans, Unpaid Drawings, Revolving Loan Commitment or
Fees, of a sum which with respect to the related sum or sums received by other
Banks is in a greater proportion than the total of such Obligation then owed and
due to such Bank bears to the total of such Obligation then owed and due to all
of the Banks immediately prior to such receipt, then such Bank receiving such
excess payment shall purchase for cash without recourse or warranty from the
other Banks an interest in the Obligations of the respective Credit Party to
such Banks in such amount as shall result in a proportional participation by all
the Banks in such amount; provided that if all or any portion of such excess
amount is thereafter recovered from such Bank, such purchase shall be rescinded
and the purchase price restored to the extent of such recovery, but without
interest.
(c) Except to the extent otherwise provided in this Agreement:
(i) the making, conversion and continuation of Loans of a particular Type shall
be made pro rata among the relevant Banks according to the amounts of their
respective Loan Percentage (in the case of making of Loans) or their respective
Loans (in the case of conversions and continuations of Loans) and the then
current Interest Period for each Loan of such Type shall be coterminous; and
(ii) each payment on account of any Obligations to or for the account of one or
more of the Banks in respect of any Obligations due on a particular day (or, if
such day is not a Business Day, the next succeeding Business Day) shall be
entitled to priority over payments in respect of Obligations not then due and
shall be allocated among the Banks entitled to such payments pro rata in
accordance with the respective amounts due and payable to such Banks on such day
(or next succeeding Business Day) and shall be distributed accordingly; provided
that if immediately prior to giving effect to any such payment in respect of any
Loan the outstanding principal amount of the Loans shall not be held by the
Banks pro rata in accordance with their respective Loan Percentages in effect at
the time such Loans were made (by reason of a failure of a Bank to make a Loan
under this Agreement or to fund its portion of any unreimbursed payment under
Section 3.4(c) in the circumstances described in the last paragraph of Section
13.13(b)), then such payment shall be applied to the Loans in such manner as
shall result, as nearly as is practicable, in the outstanding principal amount
of the Loans being held by the Banks pro rata in accordance with their
respective Loan Percentages. Nothing in this Section 13.6(c) shall be deemed to
prevent, except in the case of shortfall, the differential payments of indemnity
and other amounts owing to or for the account of a particular Bank or Banks
pursuant to any provisions of any Credit Document which, by their terms, require
differential payments.
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13.7 Calculations; Computations.
(a) The financial statements to be furnished to the Banks
pursuant to this Agreement (other than the Projections and pro forma financial
statements) shall be made and prepared in accordance with GAAP consistently
applied throughout the periods involved (except as set forth in the notes
thereto or as otherwise disclosed in writing by Apria to the Banks); provided
that, except as otherwise specifically provided in this Agreement, all
computations determining compliance with Sections 10.8 through 10.12, inclusive,
shall utilize accounting principles and policies in conformity with those used
to prepare the historical financial statements delivered to the Banks pursuant
to Section 8.5.
(b) All computations of interest and Fees under this Agreement
shall be made on the basis of a year of 360 days (except for Revolving Loan
Commitment Fees, the computations for which shall be made on the basis of a year
of 365 days) for the actual number of days (including the first day but
excluding the last day) occurring in the period for which such interest or Fees
are payable.
13.8 Joint and Several. Each Borrower shall be obligated for all
of the Obligations on a joint and several basis, notwithstanding which Borrower
may have directly received the proceeds of any particular Loan or the benefit of
a particular Letter of Credit. Each Borrower acknowledges and agrees that, for
purposes of the Credit Documents, Borrowers constitute a single integrated
financial enterprise and that each receives a benefit from the availability of
credit under this Agreement to all Borrowers. Each Borrower waives all defenses
arising under the laws of suretyship, to the extent such laws are applicable, in
connection with its joint and several obligations under this Agreement. If all
of the stock of any Borrower (other than Apria) shall be sold or otherwise
disposed of (including by merger or consolidation) in a transaction not
prohibited by this Agreement, such Borrower shall automatically be discharged
and released without any further action by any Agent, any Bank or any other
Person effective as of the date the Administrative Agent receives evidence
reasonably satisfactory to it that such transaction is permitted under this
Agreement. Apria will give notice to the Administrative Agent of any such
proposed sale or disposition not less than ten days prior to the consummation
thereof.
13.9 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE.
(a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THEREUNDER SHALL BE
CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF
CALIFORNIA. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY
OTHER CREDIT DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR
OF THE UNITED STATES FOR THE CENTRAL DISTRICT OF CALIFORNIA AND, BY EXECUTION
AND DELIVERY OF THIS AGREEMENT, EACH BORROWER HEREBY IRREVOCABLY ACCEPTS FOR
ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
JURISDICTION OF THE AFORESAID COURTS. EACH BORROWER HEREBY IRREVOCABLY
DESIGNATES, APPOINTS AND EMPOWERS APRIA AS ITS DESIGNEE, APPOINTEE AND AGENT TO
RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS BEHALF, AND IN RESPECT OF ITS
PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS
WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. IF FOR ANY REASON SUCH
DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, EACH
BORROWER AGREES TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT FOR THE
PURPOSES OF THIS PROVISION ON TERMS SATISFACTORY TO THE ADMINISTRATIVE AGENT
UNDER THIS AGREEMENT. EACH BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE
OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR
PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,
POSTAGE PREPAID, TO SUCH
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BORROWER AT ITS ADDRESS SET FORTH OPPOSITE ITS SIGNATURE BELOW, SUCH SERVICE TO
BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. NOTHING IN THIS AGREEMENT SHALL
AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT UNDER THIS AGREEMENT, ANY BANK OR
THE HOLDER OF ANY NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY BORROWER IN ANY
OTHER JURISDICTION.
(b) EACH BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID
ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR
ANY OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (a) ABOVE
AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY
SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM.
13.10 Counterparts. This Agreement may be executed in any number
of counterparts and by the different parties to this Agreement on separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument. A set of
counterparts executed by all the parties to this Agreement shall be lodged with
Apria and the Administrative Agent.
13.11 Effectiveness. This Agreement shall become effective on the
date (the "Effective Date") on which each Borrower, the Administrative Agent,
the Syndication Agent and each of the Banks shall have signed a copy of this
Agreement (whether the same or different copies) and shall have delivered the
same to the Administrative Agent at its Notice Office or, in the case of the
Banks, shall have given to the Administrative Agent telephonic (confirmed in
writing), written or telex notice (actually received) at such office that the
same has been signed and mailed to it.
13.12 Headings Descriptive. The headings of the several sections
and subsections of this Agreement are inserted for convenience only and shall
not in any way affect the meaning or construction of any provision of this
Agreement.
13.13 Amendment or Waiver.
(a) Neither this Agreement nor any other Credit Document nor any
terms of this Agreement or of such other Credit Document may be changed, waived,
discharged or terminated unless such change, waiver, discharge or termination is
in writing signed by the respective Credit Parties party to such Credit Document
and the Required Banks, or by such Credit Party and the Administrative Agent
acting with the consent of the Required Banks; provided that no such change,
waiver, discharge or termination shall, without the consent of each Bank: (i)
extend the Final Maturity Date, extend the stated maturity of any Letter of
Credit beyond the Final Maturity Date, extend the date of payment for any
reimbursement following any draw upon any Letter of Credit or reduce the rate or
extend the time of payment of interest or Fees, payments, or Letter of Credit
reimbursement thereon (except in connection with a waiver of applicability of
any post-default increase in interest rates), or reduce the principal amount
thereof, or increase the Revolving Loan Commitments of any Bank over the amount
thereof then in effect (it being understood that a waiver of any Default or
Event of Default or of a mandatory reduction in the Total Revolving Loan
Commitment shall not constitute an increase of the Revolving Loan Commitment of
any Bank, and that an increase in the available portion of any Revolving Loan
Commitment of any Bank shall not constitute an increase in the Revolving Loan
Commitment of such Bank); (ii) amend, modify or waive any provision of this
Section 13.13; (iii) reduce the percentage specified in, or otherwise modify,
the definition of Required Banks; or (iv) consent to the assignment, release or
transfer by any Borrower or Guarantor of any of its rights and obligations under
any Credit Document other than in accordance with the terms thereof; provided,
further, that no such change, waiver, discharge or termination
-65-
<PAGE> 71
shall: (x) without the consent of the Swingline Lender, amend, modify or waive
any provision of Section 2.1(b) or (c) or alter its rights or obligations with
respect to Swingline Loans; (y) without the consent of the applicable Issuing
Bank, amend, modify or waive any provision of Section 3 or alter its rights or
obligations with respect to any Letters of Credit; or (z) without the consent of
any Agent, amend, modify or waive any provision of Section 12 or any other
provision relating to the rights or obligations of such Agent.
(b) Notwithstanding any other provision of this Agreement, if (i)
at a time when the conditions precedent set forth in Section 6 and Section 7 to
any Loan are, in the opinion of the Required Banks, satisfied, any Bank shall
fail to fulfill its obligations to make such Loan or (ii) any Bank shall fail to
fund its portion of any unreimbursed payment under Section 3.4(c), then, for so
long as such failure shall continue, such Bank shall (unless the Required Banks,
determined as if such Bank were not a "Bank" under the Credit Documents, shall
otherwise consent in writing) be deemed for all purposes relating to amendments,
modifications, waivers or consents under any of the Credit Documents (including
under this Section 13.13) to have no Loans or Commitments, shall not be treated
as a "Bank" under the Credit Documents when performing the computation of
Required Banks, and shall have no rights under the preceding paragraph of this
Section 13.13; provided that any action taken by the other Banks with respect to
the matters referred to in clauses (i) through (iv) of the preceding paragraph
shall not be effective as against such Bank.
(c) Notwithstanding anything to the contrary contained above in
this Section 13.13, the Administrative Agent may enter into amendments to the
Guaranty for the purpose of adding additional Subsidiaries of any Borrower (or
other Credit Parties) as parties thereto.
13.14 Survival. All indemnities set forth in this Agreement,
including, without limitation, in Sections 2.10, 2.11, 3.6, 5.4, 12.7 and 13.1
shall survive the execution and delivery of this Agreement and the Notes and the
making and repayment of the Loans.
13.15 Domicile of Loans. Each Bank may transfer and carry its
Loans at, to or for the account of any office, Subsidiary or Affiliate of such
Bank.
13.16 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, EACH OF THE AGENTS, THE BANKS AND THE BORROWERS HEREBY WAIVES,
AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR
OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE,
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS
AGREEMENT, THE NOTES OR ANY OTHER CREDIT DOCUMENT OR THE SUBJECT MATTER OF THIS
AGREEMENT OR OF SUCH OTHER CREDIT DOCUMENT, IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING OR WHETHER IN CONTRACT, IN TORT OR OTHERWISE. THE BORROWERS
ACKNOWLEDGE THAT THEY HAVE BEEN INFORMED BY THE AGENTS AND THE BANKS THAT THE
PROVISIONS OF THIS SECTION 13.16 CONSTITUTE A MATERIAL INDUCEMENT UPON WHICH THE
AGENTS AND THE BANKS ARE RELYING IN ENTERING INTO THIS AGREEMENT AND EACH OTHER
CREDIT DOCUMENT. ANY BORROWER, THE ADMINISTRATIVE AGENT OR ANY BANK MAY FILE AN
ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 13.16 WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF EACH BORROWER, EACH AGENT AND EACH BANK TO THE WAIVER
OF ITS RIGHTS TO TRIAL BY JURY.
13.17 Entire Agreement. This Agreement, together with the other
Credit Documents and the Fee Letters, embodies the entire agreement and
understanding among the Borrowers, the Banks and the Agents and supersedes all
prior or contemporaneous agreements and understandings of such Persons, verbal
or written, relating to the subject matter of this Agreement and of such
agreements.
-66-
<PAGE> 72
13.18 Severability. Any provision of this Agreement, the Note or
any other Credit Document that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement, the Note or such other Credit Document, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
-67-
<PAGE> 73
IN WITNESS WHEREOF, the parties to this Agreement have caused
their duly authorized officers to execute and deliver this Agreement as of the
date first above written.
Address for all Borrowers:
3560 Hyland Avenue APRIA HEALTHCARE GROUP INC.
Costa Mesa, California 92626 APRIA HEALTHCARE, INC.
Attn: Lawrence H. Smallen APRIA NUMBER ONE, INC.
Tel: (714) 755-5600 APRIA NUMBER TWO, INC.
Fax: (714) 755-5617 PROTOCARE OF METROPOLITAN NEW YORK,
INC.
HOMEDCO OF NEW YORK STATE, INC.
By:
--------------------------------
Name:
Title:
<PAGE> 74
444 South Flower Street NATIONSBANK OF TEXAS, N.A.,
Suite 4100 as a Bank and as Syndication
Los Angeles, California 90071 Agent
Attn: Brad W. DeSpain
Telephone: (213) 236-4912
Facsimile: (213) 624-5815 By:
---------------------------
Name:
Title:
<PAGE> 75
555 South Flower Street BANK OF AMERICA NATIONAL TRUST AND
Los Angeles, California 90071 SAVINGS ASSOCIATION, as a Bank
Attn: Wyatt Ritchie
Telephone: (213) 228-9734
Facsimile: (213) 228-2756 By:
------------------------------------------
Name:
Title:
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Administrative Agent
By:
------------------------------------------
Name:
Title:
<PAGE> 76
300 South Grand Avenue ABN AMRO BANK N.V.,
Suite 1115 Los Angeles International Branch
Los Angeles, California 90071
Attn: David Stassel By: ABN AMRO NORTH AMERICA, INC.,
Telephone: (213) 687-2056 as agent
Facsimile: (213) 687-2061
By:
-----------------------------------------
Name:
Title:
By:
-----------------------------------------
Name:
Title:
<PAGE> 77
640 Fifth Avenue BANK OF IRELAND/GRAND CAYMAN BRANCH
New York, New York 10019
Attn: Randolph M. Ross
Telephone: (212) 397-1733 By:
Facsimile: (212) 586-7752 -------------------------------
Name:
Title:
By:
--------------------------------
Name:
Title:
<PAGE> 78
10990 Wilshire Boulevard THE BANK OF NEW YORK
Suite 1125
Los Angeles, California 90024
Attn: Rebecca Levine By:
Telephone: (310) 996-8650 ---------------------------
Facsimile: (310) 996-8667 Name:
Title:
<PAGE> 79
580 California Street THE BANK OF NOVA SCOTIA,
21st Floor as a Bank and as a Co-Agent
San Francisco, California 94104
Attn: Alan Pendergast
Telephone: (415) 986-1100 By:
Facsimile: (415) 397-0791 ---------------------------
Name:
Title:
<PAGE> 80
725 South Figueroa Street Suite 2090 BANQUE NATIONALE DE PARIS,
Los Angeles, California 90017 as a Bank and as a Co-Agent
Attn: Tjalling Terpstra
Telephone: (213) 688-6425
Facsimile: (213) 488-9602 By:
-----------------------------
Name:
Title:
By:
-----------------------------
Name:
Title:
<PAGE> 81
787 Seventh Avenue BANQUE PARIBAS,
32nd Floor as a Bank and as a Co-Agent
New York, New York 10019
Attn: David Canavan
Telephone: (212) 841-2128 By:
Facsimile: (212) 841-2292 ---------------------------
Name:
Title:
By:
---------------------------
Name:
Title:
<PAGE> 82
1301 Avenue of the Americas CREDIT LYONNAIS
New York, New York 10019 New York Branch
Attn: Evan Wasser
Telephone: (212) 261-7685
Facsimile: (212) 261-3440 By:
---------------------------
Name:
Title:
<PAGE> 83
550 South Hope Street DEUTSCHE BANK AG, acting through its Los
Suite 1850 Angeles Branch and/or its Cayman Islands
Los Angeles, California 90071 Branch
Attn: Scott Jessup
Anne Norwood
Telephone: (213) 630-7670 By:
Facsimile: (213) 630-3436 --------------------------------------
Name:
Title:
By:
--------------------------------------
Name:
Title:
<PAGE> 84
777 South Figueroa Street THE FIRST NATIONAL BANK OF CHICAGO
4th Floor
Los Angeles, California 90017-5800
Attn: Anthony B. Mathews By:
Telephone: (213) 683-4957 -------------------------------
Facsimile: (213) 683-4999 Name:
Title:
<PAGE> 85
301 South College Street FIRST UNION NATIONAL BANK OF NORTH
Charlotte, North Carolina 28288-0735 CAROLINA
Attn: Sam English
Telephone: (704) 383-7203
Facsimile: (704) 383-9144 By:
------------------------------
Name:
Title:
<PAGE> 86
350 South Grand Avenue THE INDUSTRIAL BANK OF JAPAN, LTD., Los
Suite 1500 Angeles Agency
Los Angeles, California 90071
Attn: Charles Lilygren
Telephone: (213) 628-7241 By:
Facsimile: (213) 488-9840 ------------------------------------
Name:
Title:
<PAGE> 87
Los Angeles Agency THE LONG-TERM CREDIT BANK OF JAPAN, LTD., as
350 South Grand Avenue a Bank and as a Co-Agent
Suite 3000
Los Angeles, California 90071
Attn: Takaomi Tomioka By:
Telephone: (213) 689-6355 ------------------------------------------
Facsimile: (213) 622-6908 Name:
Title:
<PAGE> 88
Health Care Group MELLON BANK, N.A.
300 South Grand Avenue
Suite 3800
Los Angeles, California 90071 By:
Attn: Richard Lopatt -------------------------------
Telephone:(213) 680-7379 Name:
Facsimile:(213) 617-9691 Title:
<PAGE> 89
Houston Agency TORONTO DOMINION (TEXAS), INC.
909 Fannin
17th Floor
Houston, Texas 77017 By:
Attn: Fred Hawley -----------------------------
Telephone: (713) 653-8281 Name:
Facsimile: (713) 951-9921 Title:
<PAGE> 90
550 South Hope Street UNION BANK OF CALIFORNIA, N.A.,
3d Floor as a Bank and as a Co-Agent
Los Angeles, California 90071
Attn: Jennifer L. Banks
Telephone: (213) 243-3517
Facsimile: (213) 243-3552 By:
-----------------------------
Name:
Title:
<PAGE> 91
707 Wilshire Boulevard WELLS FARGO BANK, N.A.
MAC # 2818-163
Los Angeles, California 90017
Attn: Bill Baird By:
Telephone: (213) 614-5540 --------------------------
Facsimile: (213) 614-2569 Name:
Title:
<PAGE> 92
<TABLE>
<CAPTION>
ANNEX I
APPLICABLE MARGIN
===================================================================================================================
<S> <C> <C> <C>
Applicable Margin
(basis points per annum)
Level Consolidated Funded Indebtedness
to Consolidated EBITDA Ratio
------------------------------------------
for interest on for Revolving
Eurodollar Loans Loan Commitment
Fee
- -------------------------------------------------------------------------------------------------------------------
Level I Greater than 2.5 to 1 100 25
- -------------------------------------------------------------------------------------------------------------------
Level II Less than or equal to 2.5 to 1 and 75 22.5
greater than 2.0 to 1
- -------------------------------------------------------------------------------------------------------------------
Level III Less than or equal to 2.0 to 1 and 50 17.5
greater than 1.5 to 1
- -------------------------------------------------------------------------------------------------------------------
Level IV Less than or equal to 1.5 to 1 and 40 15
greater than 1.0 to 1
- -------------------------------------------------------------------------------------------------------------------
Level V Less than or equal to 1.0 to 1 35 12.5
===================================================================================================================
</TABLE>
The Applicable Margin shall be determined in accordance with the foregoing chart
and the following provisions:
(a) Apria shall, within 45 days after the last day of each
fiscal quarter, deliver to the Administrative Agent a certificate of its chief
financial officer setting forth all calculations necessary to determine the
Consolidated Funded Indebtedness to Consolidated EBITDA Ratio of Apria for the
four consecutive fiscal quarters of Apria ending on the last day of each fiscal
quarter.
(b) The Applicable Margin shall be based on the level set
forth in the foregoing chart for the corresponding Consolidated Funded
Indebtedness to Consolidated EBITDA Ratio as set forth in the certificate
referred to in clause (a) above. Such Applicable Margin shall apply commencing
on the first day of the month immediately following the receipt by the
Administrative Agent of such certificate; provided, however, that if the
Administrative Agent does not receive such certificate within the period
provided in clause (a) above, then the Applicable Margin commencing on such day
shall be based on Level I until the Business Day on which the Administrative
Agent receives such certificate, and on such Business Day the Applicable Margin
determined on the basis of the Consolidated Funded Indebtedness to Consolidated
EBITDA Ratio set forth in such certificate shall become applicable.
(c) Notwithstanding the foregoing, and irrespective of the
then applicable Consolidated Funded Indebtedness to Consolidated EBITDA Ratio,
if at any time Apria's senior unsecured non-credit enhanced Indebtedness shall
have an actual or implied rating of at least (i) BBB (or its equivalent) by
Standard & Poor's Rating Group ("S&P") and not less than Baa3 (or its
equivalent) by Moody's Investors Service, Inc. ("Moody's") or (ii) Baa2 (or its
equivalent) by Moody's and not less than BBB- (or its equivalent) by S&P, then
the Applicable Margin shall be based on Level V, commencing on the date which is
five Business Days after the
<PAGE> 93
earlier of (1) any public announcement of Apria's debt rating that would cause
this clause (c) to apply and (2) the Administrative Agent's receipt of written
evidence of such debt rating; provided, however, that no debt rating may
continue to be based upon an "implied" rating at a particular rating level
unless such rating at such level is reconfirmed or renewed by the applicable
rating agency in a public announcement or in a writing received by the
Administrative Agent within one year of the issuance of such rating or of the
most recent reconfirmation or renewal of such rating. In the event of any change
in the debt ratings resulting in this clause (c) being inapplicable or the
failure of any such debt rating to be confirmed as required in this clause (c),
the Applicable Margin shall be based, commencing on the next Business Day, on
the then applicable Consolidated Funded Indebtedness to Consolidated EBITDA
Ratio.
(d) Notwithstanding anything in this Annex I to the
contrary, and irrespective of the then applicable Consolidated Funded
Indebtedness to Consolidated EBITDA Ratio or any debt rating of Apria, if at any
time a Default or an Event of Default shall exist, the Applicable Margin shall
be based on Level I commencing on the date of the occurrence of such Default or
Event of Default until such Default or Event of Default shall no longer be
continuing.
(e) The Applicable Margin for the period commencing on the
Effective Date to and excluding the date of effectiveness of the next Applicable
Margin in accordance with clause (b) above shall be based on Level II.
-2-
<PAGE> 1
EXHIBIT 10.59
GUARANTY
This GUARANTY ("Guaranty"), dated as of August 9, 1996, is made
by each of the undersigned (each a "Guarantor" and collectively, the
"Guarantors") in favor of the Administrative Agent under the Credit Agreement.
W I T N E S S E T H:
WHEREAS, the Guarantors are a party to the Credit Agreement dated
as of August 9, 1996 ("Credit Agreement") between the Guarantors, each of the
financial institutions listed on Schedule I to the Credit Agreement or that,
pursuant to Section 13.4 of the Credit Agreement, shall become a "Bank" under
the Credit Agreement (individually, a "Bank" and collectively the "Banks"),
NationsBank of Texas, N.A., as the Syndication Agent, and Bank of America
National Trust and Savings Association, as the Administrative Agent (the
"Administrative Agent" and, collectively with the Banks, the "Creditors")
providing for the making of Loans to the Borrowers and the issuance of, and
participation in, Letters of Credit issued for the account of the Borrowers as
contemplated in the Credit Agreement;
WHEREAS, each Guarantor (other than Apria Healthcare Group Inc.,
a Delaware corporation ("Apria")), is a direct or indirect Subsidiary of Apria;
WHEREAS, it is a condition to the making of Loans and the
issuance of, and participation in, Letters of Credit under the Credit Agreement
that each Guarantor shall have executed and delivered this Guaranty; and
WHEREAS, each Guarantor will obtain benefits from the incurrence
of Loans by the Borrowers and the issuance of Letters of Credit for the account
of the Borrowers under the Credit Agreement and, accordingly, desires to execute
this Guaranty in order to satisfy the conditions described in the preceding
paragraph.
NOW, THEREFORE, in consideration of the foregoing and other
benefits accruing to each Guarantor, the receipt and sufficiency of which are
hereby acknowledged, each Guarantor hereby makes the following representations
and warranties to the Creditors and hereby covenants and agrees with each
Creditor as follows:
1. Capitalized terms used but not defined in this Guaranty shall
have the meanings assigned to them in the Credit Agreement and the rules of
interpretation set forth in Section 1.3 of the Credit Agreement shall apply to
this Guaranty. In addition, the following terms shall have the following
meanings:
"Guaranteed Obligations" shall have the meaning assigned to such
term in Section 2.
"Immaterial Subsidiaries" shall mean the Subsidiaries of Apria
set forth on Schedule XI to the Credit Agreement.
"Other Parties" shall have the meaning assigned to such term in
Section 11(c).
2. Each Guarantor irrevocably and unconditionally, and jointly
and severally, guarantees the full and prompt payment when due (whether at the
stated maturity, by acceleration or otherwise) of (x) the principal of and
interest on the Notes issued by, and Loans made to, the Borrowers under the
Credit Agreement and all reimbursement obligations and Unpaid Drawings with
respect to Letters of Credit issued under the Credit Agreement and (y) all other
obligations and indebtedness (including, without limitation, indemnities, Fees
and interest on such obligations and indebtedness) of the Borrowers now existing
or hereafter incurred under, arising out of or in connection with the Credit
Agreement and the other Credit Documents and the due performance and
<PAGE> 2
compliance by the Borrowers with the terms, conditions and agreements contained
in the Credit Documents (all such principal, interest, obligations and
liabilities being collectively referred to in this Guaranty as the "Guaranteed
Obligations"); provided, that notwithstanding any provision to the contrary
contained in this Guaranty or in any other Credit Document, the obligations of
each Guarantor under this Guaranty shall be limited to an aggregate amount equal
to the largest amount that would not render the Guaranteed Obligations of such
Guarantor under this Guaranty subject to avoidance under Section 548 of the
Bankruptcy Code or any comparable provisions of any applicable state law.
Subject to the proviso in the preceding sentence, each Guarantor understands,
agrees and confirms that the Creditors may enforce this Guaranty up to the full
amount of the Guaranteed Obligations against any such Guarantor without
proceeding against any Borrower, against any security for the Guaranteed
Obligations, against any other Guarantor, or against any other guarantor under
any other guaranty covering the Guaranteed Obligations. All payments by each
Guarantor under this Guaranty shall be made on the same basis as payments by the
Borrowers under Sections 5.3 and 5.4 of the Credit Agreement.
3. Additionally, each Guarantor, jointly and severally,
unconditionally and irrevocably, guarantees the payment of any and all
Guaranteed Obligations of the Borrowers to the Creditors whether or not due or
payable by the Borrowers upon the occurrence of the events specified in Section
11.5 of the Credit Agreement, and unconditionally and irrevocably, jointly and
severally, promises to pay such Guaranteed Obligations to the Creditors, or
order, on demand, in lawful money of the United States.
4. The liability of each Guarantor under this Guaranty is
exclusive and independent of any security for or other guaranty of the
indebtedness of the Borrowers whether executed by such Guarantor, any other
Guarantor, any other guarantor or by any other party, and the liability of such
Guarantor under this Guaranty shall not be affected or impaired by (a) any
direction as to application of payment by the Borrowers, (b) any other
continuing or other guaranty, undertaking or maximum liability of a guarantor or
of any other party as to the indebtedness of the Borrowers, (c) any payment on
or in reduction of any such other guaranty or undertaking, (d) any dissolution,
termination or increase, decrease or change in personnel by the Borrowers or (e)
any payment made to any Creditor on the indebtedness which any Creditor repays
the Borrowers pursuant to court order in any bankruptcy, reorganization,
arrangement, moratorium or other debtor relief proceeding, and each Guarantor
waives any right to the deferral or modification of its obligations under this
Guaranty by reason of any such proceeding.
5. The obligations of each Guarantor under this Guaranty are
independent of the obligations of any other Guarantor, any other guarantor or
the Borrowers, and a separate action or actions may be brought and prosecuted
against each Guarantor whether or not action is brought against any other
Guarantor, any other guarantor or the Borrowers, and whether or not any other
Guarantor, any other guarantor or the Borrowers be joined in any such action or
actions. Each Guarantor waives, to the fullest extent permitted by law, the
benefit of any statute of limitations affecting its liability under this
Guaranty or the enforcement thereof. Any payment by the Borrowers or other
circumstance which operates to toll any statute of limitations as to the
Borrowers shall operate to toll the statute of limitations as to each Guarantor.
6. Each Guarantor hereby waives notice of acceptance of this
Guaranty and notice of any liability to which it may apply, and waives
promptness, diligence, presentment, demand of payment, protest, notice of
dishonor or nonpayment of any such liabilities, suit or taking of other action
taken by the Administrative Agent or any other Creditors against, and any other
notice to, any party liable thereon (including such Guarantor or any other
Guarantor or guarantor).
7. Any Creditor may at any time and from time to time without the
consent of, or notice to, any Guarantor, without incurring responsibility to any
Guarantor, without impairing or releasing the obligations of any Guarantor under
this Guaranty, upon or without any terms or conditions and in whole or in part:
- 2 -
<PAGE> 3
(a) change the manner, place or terms of payment
of, or change or extend the time of payment of, renew or alter,
any of the Guaranteed Obligations, any security for such
Guaranteed Obligations, or any liability incurred directly or
indirectly in respect of such Guaranteed Obligations, and the
guaranty made in this Guaranty shall apply to the Guaranteed
Obligations as so changed, extended, renewed or altered;
(b) sell, exchange, release, surrender, realize
upon or otherwise deal with in any manner and in any order any
property by whomsoever at any time pledged or mortgaged to
secure, or howsoever securing, the Guaranteed Obligations or any
liabilities (including any of those under this Guaranty) incurred
directly or indirectly in respect thereof or in respect of this
Guaranty, or any offset there-against;
(c) exercise or refrain from exercising any rights
against the Borrowers, any Guarantor or others or otherwise act or
refrain from acting;
(d) settle or compromise any of the Guaranteed
Obligations, any security for such Guaranteed Obligations or any
liability (including any of those under this Guaranty) incurred
directly or indirectly in respect thereof or hereof, and may
subordinate the payment of all or any part thereof to the payment
of any liability (whether due or not) of the Borrowers to
creditors of the Borrowers;
(e) apply any sums by whomsoever paid or howsoever
realized to any liability or liabilities of the Borrowers to the
Creditors regardless of what liabilities of the Borrowers remain
unpaid;
(f) consent to or waive any breach of, or any act,
omission or default under, any of the Credit Documents or any of
the instruments or agreements referred to in such Credit
Documents, or otherwise amend, modify or supplement any Credit
Document or any of such other instruments or agreements; and
(g) act or fail to act in any manner referred to in
this Guaranty which may deprive any Guarantor of its right to
subrogation against the Borrowers to recover full indemnity for
any payments made pursuant to this Guaranty.
8. No invalidity, irregularity or unenforceability of all or any
part of the Guaranteed Obligations or of any security for such Guaranteed
Obligations shall affect, impair or be a defense to this Guaranty, and this
Guaranty shall be primary, absolute and unconditional notwithstanding the
occurrence of any event or the existence of any other circumstances which might
constitute a legal or equitable discharge of a surety or guarantor except
payment in full of the Guaranteed Obligations.
9. This Guaranty is a continuing one and all liabilities to which
it applies or may apply under the terms of this Guaranty shall be conclusively
presumed to have been created in reliance on this Guaranty. No failure or delay
on the part of any Creditor in exercising any right, power or privilege under
this Guaranty and no course of dealing between any Guarantor and any Creditor
shall operate as a waiver such right, power or privilege; nor shall any single
or partial exercise of any right, power or privilege under this Guaranty
preclude any other or further exercise of such right, power or privilege or the
exercise of any other right, power or privilege. The rights and remedies
expressly specified in this Guaranty are cumulative and not exclusive of any
rights or remedies which any Creditor would otherwise have. No notice to or
demand on any Guarantor in any case shall entitle such Guarantor to any other
further notice or demand in similar or other circumstances or constitute a
waiver of the rights of any Creditor to any other or further action in any
circumstances without notice or demand.
- 3 -
<PAGE> 4
10. Any indebtedness of the Borrowers now or hereafter held by
any Guarantor is hereby subordinated to the indebtedness of the Borrowers to the
Creditors; and such indebtedness of the Borrowers to any Guarantor, if the
Administrative Agent, after an Event of Default has occurred, so requests, shall
be collected, enforced and received by such Guarantor as trustee for the
Creditors and be paid over to the Creditors on account of the indebtedness of
the Borrowers to the Creditors, but without affecting or impairing in any manner
the liability of such Guarantor under the other provisions of this Guaranty.
Prior to the transfer by such Guarantor of any note or negotiable instrument
evidencing any indebtedness of the Borrowers to such Guarantor, such Guarantor
shall mark such note or negotiable instrument with a legend that the same is
subject to this subordination.
11. (a) Each Guarantor waives any right (except as shall be
required by applicable statute and cannot be waived) to require the Creditors to
(i) proceed against the Borrowers, any other Guarantor, any other guarantor or
any other party, (ii) proceed against or exhaust any security held from the
Borrowers, any other Guarantor, any other guarantor or any other party or (iii)
pursue any other remedy in the Creditors' power whatsoever. Each Guarantor
waives any defense based on or arising out of any defense of the Borrowers, any
other Guarantor, any other guarantor or any other party other than payment in
full of the Guaranteed Obligations, including without limitation any defense
based on or arising out of the disability of the Borrowers, any other Guarantor,
any other guarantor or any other party, or the unenforceability of the
Guaranteed Obligations or any part of the Guaranteed Obligations from any cause,
or the cessation from any cause of the liability of the Borrowers other than
payment in full of the Guaranteed Obligations. The Creditors may, at their
election, foreclose on any security held by the Administrative Agent or the
other Creditors by one or more judicial or nonjudicial sales, whether or not
every aspect of any such sale is commercially reasonable (to the extent such
sale is permitted by applicable law), or exercise any other right or remedy the
Creditors may have against the Borrowers or any other party, or any security,
without affecting or impairing in any way the liability of any Guarantor under
this Guaranty except to the extent the Guaranteed Obligations have been paid in
full. Each Guarantor waives any defense arising out of any such election by the
Creditors, even though such election operates to impair or extinguish any right
of reimbursement or subrogation or other right or remedy of such Guarantor
against the Borrowers or any other party or any security.
(b) Each Guarantor waives all presentments, demands for
performance, protests and notices, including without limitation notices of
nonperformance, notices of protest, notices of dishonor, notices of acceptance
of this Guaranty, and notices of the existence, creation or incurring of new or
additional indebtedness. Each Guarantor assumes all responsibility for being and
keeping itself informed of the Borrowers' financial condition and assets, and of
all other circumstances bearing upon the risk of nonpayment of the Guaranteed
Obligations and the nature, scope and extent of the risks which such Guarantor
assumes and incurs under this Guaranty, and agrees that the Creditors shall have
no duty to advise any Guarantor of information known to them regarding such
circumstances or risks.
(c) Until the Guaranteed Obligations have been indefeasibly
paid and performed in full, (i) each Guarantor hereby waives all rights of
subrogation which it may at any time otherwise have as a result of this Guaranty
(whether contractual, under Section 509 of the Bankruptcy Code, or otherwise) to
the claims of the Creditors against the Borrowers or any other guarantor of the
Guaranteed Obligations (collectively, the "Other Parties") and all contractual,
statutory or common law rights of reimbursement, contribution or indemnity from
any Other Party which it may at any time otherwise have as a result of this
Guaranty; (ii) each Guarantor hereby further waives any right to enforce any
other remedy which the Creditors now have or may hereafter have against any
Other Party, any endorser or any other guarantor of all or any part of the
indebtedness of the Borrowers and any benefit of, and any right to participate
in, any security or collateral given to or for the benefit of the Creditors to
secure payment of the indebtedness of the Borrowers; and (iii) each Guarantor
also waives all claims (as such term is defined in the Bankruptcy Code) it may
at any time otherwise have against any Other Party arising from any transaction
whatsoever, including without limitation its right to assert or enforce any such
claims.
- 4 -
<PAGE> 5
12. The Creditors agree that this Guaranty may be enforced only
by the action of the Administrative Agent in each case acting upon the
instructions of the Required Banks, and that no Creditor shall have any right
individually to seek to enforce or to enforce this Guaranty, it being understood
and agreed that such rights and remedies may be exercised by the Administrative
Agent for the benefit of the Creditors upon the terms of this Guaranty.
13. In order to induce the Banks to make Loans to the Borrowers,
and to issue, and participate in, Letters of Credit for the account of the
Borrowers pursuant to the Credit Agreement, each Guarantor hereby represents,
warrants and covenants that:
(a) Such Guarantor and each of its Subsidiaries
(other than Immaterial Subsidiaries) (i) is a duly organized and
validly existing corporation in good standing under the laws of
the jurisdiction of its incorporation, (ii) has the corporate
power and authority to own its property and assets and to
transact the business in which it is engaged and presently
proposes to engage and (iii) is duly qualified and is authorized
to do business and is in good standing in each jurisdiction where
the ownership, leasing or operation of property or the conduct of
its business requires such qualification except for failures to
be so qualified which, in the aggregate, would not have a
Material Adverse Effect.
(b) Such Guarantor has the corporate power to
execute, deliver and perform the terms and provisions of this
Guaranty and has taken all necessary corporate action to
authorize the execution, delivery and performance by it of this
Guaranty. Such Guarantor has duly executed and delivered this
Guaranty, and this Guaranty constitutes its legal, valid and
binding obligation enforceable in accordance with its terms,
except as the enforceability of this Guaranty may be limited by
bankruptcy, reorganization, moratorium or similar laws relating
to or limiting creditors' rights generally or by equitable
principles relating to enforceability.
(c) Neither the execution, delivery or performance
by such Guarantor of this Guaranty, nor compliance by it with the
terms and provisions of this Guaranty, (i) will contravene any
provision of any material applicable Governmental Rule or any
order, writ, injunction or decree of any court or Governmental
Authority (ii) will conflict with or result in any breach of any
of the terms, covenants, conditions or provisions of, or
constitute a default under, or result in the creation or
imposition of (or the obligation to create or impose) any Lien
upon any of the property or assets of such Guarantor pursuant to
the terms of any indenture, instrument, mortgage, deed of trust,
credit agreement or loan agreement, or any other Material
Contract, to which such Guarantor is a party or by which it or
any of its property or assets is bound or to which it may be
subject or (iii) will violate any provision of the Certificate of
Incorporation or By-Laws of such Guarantor or any of its
Subsidiaries (other than Immaterial Subsidiaries).
(d) No material order, consent, approval, license,
authorization or validation of, or filing, recording or
registration with (except as have been obtained or made prior to
the Initial Borrowing Date), or exemption by, any Governmental
Authority is required (i) to authorize the execution, delivery
and performance of this Guaranty or (ii) to establish the
legality, validity, binding effect or enforceability of this
Guaranty.
(e) There are no actions, suits or proceedings
pending or, to the best knowledge of the Guarantor, threatened
(i) with respect to this Guaranty, (ii) with respect to any
Indebtedness of the Guarantor or any of its Subsidiaries (other
than Immaterial Subsidiaries) or (iii) that are reasonably likely
to have a Material Adverse Effect.
(f) On the date of this Guaranty and after giving
effect to the incurrence by such Guarantor of the Contingent
Obligations evidenced by this Guaranty (as limited by Section 2
of this
- 5 -
<PAGE> 6
Guaranty), (i) the assets of such Guarantor, at a fair valuation,
will exceed its debts, (ii) the Guarantor will have sufficient
capital to conduct its business and (iii) such Guarantor will not
have incurred debts, and does not intend to incur debts, beyond
its ability to pay such debts as they mature. For purposes of
this clause (f), "debt" means any liability on a claim, and
"claim" means (i) right to payment, whether or not such right is
reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, legal, equitable,
secured, or unsecured; or (ii) right to an equitable remedy for
breach of performance if such breach gives rise to a payment,
whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed,
undisputed, secured, or unsecured.
14. Each Guarantor covenants and agrees that on and after the
date of this Guaranty and until the Total Revolving Loan Commitment and all
Letters of Credit have terminated and all Guaranteed Obligations have been paid
in full, such Guarantor shall take, or will refrain from taking, as the case may
be, all actions that are necessary to be taken or not taken so that no violation
of any provision, covenant or agreement contained in Section 9 or 10 of the
Credit Agreement, and so that no Default or Event of Default, is caused by the
actions of such Guarantor or any of its Subsidiaries.
15. Each Guarantor hereby jointly and severally agrees to pay all
reasonable out-of-pocket costs and expenses of (x) each Creditor in connection
with the enforcement of this Guaranty and, after an Event of Default shall have
occurred and be continuing, the protection of such Creditor's rights under this
Guaranty, and (y) of the Administrative Agent in connection with any amendment,
waiver or consent relating to this Guaranty (including, without limitation, the
reasonable fees and disbursements of counsel (including in-house counsel)
employed by the Administrative Agent).
16. This Guaranty shall be binding upon each Guarantor and its
successors and assigns and shall inure to the benefit of the Creditors and their
successors and assigns.
17. Neither this Guaranty nor any provision of this Guaranty may
be changed, waived, discharged or terminated in any manner whatsoever unless in
writing duly signed by the Administrative Agent (with the consent of the
Required Banks) and each Guarantor directly affected by such change, waiver,
discharge or termination (it being understood that the release or addition of
any Guarantor under this Guaranty shall not constitute a change or waiver
affecting any Guarantor other than the Guarantor so released or added).
18. Each Guarantor acknowledges that an executed (or conformed)
copy of the Credit Agreement has been made available to its principal executive
officers and such officers are familiar with its contents.
19. (a) In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any such rights, upon the
occurrence and during the continuance of an Event of Default, each Creditor is
hereby authorized at any time or from time to time, without presentment, demand,
protest or other notice of any kind to any Guarantor or to any other Person, any
such notice being hereby expressly waived, to set off and to appropriate and
apply any and all deposits (general or special) and any other indebtedness at
any time held or owing by such Creditor (including, without limitation, by
branches and agencies of such Creditor wherever located) to or for the credit or
the account of such Guarantor, against and on account of the obligations and
liabilities of such Guarantor to such Creditor under this Guaranty, irrespective
of whether or not such Creditor shall have made any demand under this Guaranty
and although said obligations, liabilities, deposits or claims, or any of them,
shall be contingent or unmatured.
(b) Each Guarantor understands that if all or any
part of the Obligations is secured by real property, such Guarantor shall be
liable for the full amount of its liability under this Guaranty notwithstanding
foreclosure on such real property by trustee sale or any other reason impairing
such Guarantor's or any Creditor's right to proceed against any Guarantor or any
Subsidiary of such Guarantor. Each Guarantor hereby
- 6 -
<PAGE> 7
waives, to the fullest extent permitted by law, all rights and benefits under
Section 2809 of the California Civil Code (or any similar law in any other
jurisdiction) purporting to reduce a guarantor's obligation in proportion to the
principal obligation. Each Guarantor hereby waives all rights and benefits under
Section 580a of the California Code of Civil Procedure (or any similar law in
any other jurisdiction) purporting to limit the amount of any deficiency
judgment which might be recoverable following the occurrence of a trustee's sale
under a deed of trust, all rights and benefits under Section 580b of the
California Code of Civil Procedure (or any similar law in any other
jurisdiction) stating that no deficiency may be recovered on a real property
purchase money obligation and all rights and benefits under Section 580d of the
California Code of Civil Procedure (or any similar law in any other
jurisdiction) stating that no deficiency may be recovered on a note secured by a
deed of trust on real property in case such real property is sold under the
power of sale contained in such deed of trust, if such sections, or any of them,
have any application to this Guaranty or any application to such Guarantor. In
addition, each Guarantor hereby waives, to the fullest extent permitted by law,
without limiting the generality of the foregoing or any other provision of this
Guaranty, all rights, defenses and benefits which might otherwise be available
to such Guarantor under California Civil Code Sections 2809, 2810, 2819, 2821,
2839, 2845, 2846, 2847, 2848, 2849, 2850, 2855, 2899, 3275 and 3433 (or any
similar law in any other jurisdiction).
20. All notices, requests, demands or other communications
pursuant to this Guaranty shall be deemed to have been duly given or made when
delivered to the Person to which such notice, request, demand or other
communication is required or permitted to be given or made under this Guaranty,
addressed to such party at (i) in the case of any Creditor, as provided in the
Credit Agreement and (ii) in the case of any Guarantor, at its address set forth
opposite its signature below; or in any case at such other address as any of the
Persons listed above may hereafter notify the others in writing.
21. If claim is ever made upon any Creditor for repayment or
recovery of any amount or amounts received in payment or on account of any of
the Guaranteed Obligations and any of the aforesaid payees repays all or part of
said amount by reason of (a) any judgment, decree or order of any court or
administrative body having jurisdiction over such payee or any of its property
or (b) any settlement or compromise of any such claim effected by such payee
with any such claimant (including the Borrowers), then and in such event each
Guarantor agrees that any such judgment, decree, order, settlement or compromise
shall be binding upon it, notwithstanding any revocation of this Guaranty or the
cancellation of any Note or other instrument evidencing any liability of the
Borrower, and such Guarantor shall be and remain liable to the aforesaid payees
under this Guaranty for the amount so repaid or recovered to the same extent as
if such amount had never originally been received by any such payee.
22. Any acknowledgment or new promise, whether by payment of
principal or interest or otherwise and whether by the Borrower or other Persons
liable in respect of the Guaranteed Obligations (including any Guarantor), with
respect to any of the Guaranteed Obligations shall, if the statute of
limitations in favor of any Guarantor against any Creditor shall have commenced
to run, toll the running of such statute of limitations, and if the period of
such statute of limitations shall have expired, prevent the operation of such
statute of limitations.
23. (a) THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES UNDER THIS GUARANTY SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE
GOVERNED BY THE LAW OF THE STATE OF CALIFORNIA. ANY LEGAL ACTION OR PROCEEDING
WITH RESPECT TO THIS GUARANTY MAY BE BROUGHT IN THE COURTS OF THE STATE OF
CALIFORNIA OR OF THE UNITED STATES FOR THE CENTRAL DISTRICT OF CALIFORNIA AND,
BY EXECUTION AND DELIVERY OF THIS GUARANTY, EACH GUARANTOR HEREBY IRREVOCABLY
ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH GUARANTOR HEREBY
IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS APRIA AS ITS DESIGNEE, APPOINTEE
AND AGENT TO RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS BEHALF,
- 7 -
<PAGE> 8
AND IN RESPECT OF ITS PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS,
NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. IF
FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO BE AVAILABLE TO
ACT AS SUCH, EACH GUARANTOR AGREES TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND
AGENT FOR THE PURPOSES OF THIS PROVISION ON TERMS SATISFACTORY TO THE
ADMINISTRATIVE AGENT. EACH GUARANTOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE
OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR
PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,
POSTAGE PREPAID, TO SUCH GUARANTOR AT ITS ADDRESS SET FORTH OPPOSITE ITS
SIGNATURE BELOW, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING.
NOTHING IN THIS GUARANTY SHALL AFFECT THE RIGHT OF ANY OF THE CREDITORS TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR
OTHERWISE PROCEED AGAINST ANY GUARANTOR IN ANY OTHER JURISDICTION.
(b) EACH GUARANTOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID
ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS GUARANTY
BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (a) ABOVE AND HEREBY FURTHER
IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY
SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
(c) TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH
GUARANTOR WAIVES, AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF,
DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF
ANY ISSUE, CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON
THIS GUARANTY OR THE SUBJECT MATTER OF THIS GUARANTY, IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING OR WHETHER IN CONTRACT, IN TORT OR OTHERWISE. THE
GUARANTORS ACKNOWLEDGE THAT THEY HAVE BEEN INFORMED BY THE AGENTS AND THE BANKS
THAT THE PROVISIONS OF THIS SECTION 23(c) CONSTITUTE A MATERIAL INDUCEMENT UPON
WHICH THE AGENTS AND THE BANKS ARE RELYING IN ENTERING INTO THE CREDIT AGREEMENT
AND EACH OTHER CREDIT DOCUMENT. ANY GUARANTOR, THE ADMINISTRATIVE AGENT OR ANY
BANK MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 23(c) WITH ANY
COURT AS WRITTEN EVIDENCE OF THE CONSENT OF EACH GUARANTOR, EACH AGENT AND EACH
BANK TO THE WAIVER OF ITS RIGHTS TO TRIAL BY JURY.
24. (a) It is the desire and intent of each Guarantor and the
Creditors that this Guaranty shall be enforced against each Guarantor to the
fullest extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. In furtherance of the foregoing, it
is noted that the obligations of each Guarantor has been limited as provided in
Section 2 of this Guaranty.
(b) If, however, and to the extent, that the obligations of
any Guarantor under this Guaranty shall be adjudicated to be invalid or
unenforceable for any reason (including, without limitation, because of any
applicable state or federal law relating to fraudulent conveyances or
transfers), then the amount of the Guaranteed Obligations of such Guarantor (but
not the Guaranteed Obligations of any other Guarantor unless such other
Guarantor or Guarantors are individually subject to the circumstances covered by
this Section 24) shall be deemed to be reduced and the affected Guarantor shall
pay the maximum amount of the Guaranteed Obligations which would be permissible
under applicable law.
- 8 -
<PAGE> 9
25. This Guaranty may be executed in any number of counterparts
and by the different parties to this Guaranty on separate counterparts, each of
which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties to this Guaranty shall be lodged with Apria and the
Administrative Agent.
26. In the event that all of the capital stock of one or more
Guarantors is sold in connection with a sale permitted by Section 10.2 of the
Credit Agreement and the proceeds of such sale or sales are applied in
accordance with the provisions of Section 5.2 of the Credit Agreement, to the
extent applicable, each Guarantor (x) all of the capital stock of which is so
sold or (y) which is a Subsidiary of a Guarantor all of the capital stock of
which is so sold, shall be released from this Guaranty and this Guaranty shall,
as to each Guarantor or Guarantors, terminate, and have no further force or
effect.
27. All payments made by any Guarantor under this Guaranty will
be made without setoff, counterclaim or other defense.
28. Any provision of this Guaranty that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions of this Guaranty, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
- 9 -
<PAGE> 10
IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be
executed and delivered as of the date first above written.
Address for all Guarantors:
3560 Hyland Avenue APRIA HEALTHCARE GROUP INC.
Costa Mesa, California 92626 APRIA HEALTHCARE, INC.
Attn: Lawrence H. Smallen APRIA NUMBER ONE, INC.
Tel: (714) 755-5600 APRIA NUMBER TWO, INC.
Fax: (714) 755-5617 PROTOCARE OF METROPOLITAN NEW YORK,
INC.
HOMEDCO OF NEW YORK STATE, INC.
By:
---------------------------
Name:
Title:
Accepted and Agreed to:
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION,
as Administrative Agent for the Banks
By:
------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 11.2
VITAS - COMPUTATION OF EARNINGS PER SHARE*
<TABLE>
<CAPTION>
Year Ended September 30 Quarter Ended Nine Months Ended
-------------------------------------- ----------------------- ----------------------
1993 1994 1995 6/30/95 6/30/96 6/30/95 6/30/96
--------- ---------- --------- --------- ---------- --------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Net income $ 76 $ 5,141 $ (2,845) $ (2,817) $ (170) $ (2,515) $ 598
Adjustments to net income
-------------------------
9% Preferred Stock dividends (2,498) (2,498) (2,498) (625) (625) (1,875) (1,875)
Series B Preferred Stock dividends (616) (2,100) (2,100) (525) (525) (1,575) (1,575)
Income from US Government securities 0 1,287 0
--------- ---------- --------- --------- --------- --------- ---------
Net income per common share (3,038) 1,830 (7,443) (3,967) (1,320) (5,965) (2,852)
Income from additional investments
in US Government securities 0 132 0 0 0 0 0
--------- ---------- --------- --------- --------- --------- ---------
Net income per fully diluted share $ (3,038) $ 1,962 $ (7,443) $ (3,967) $ (1,320) $ (5,965) $ (2,852)
========= ========== ========= ========= ========= ========= =========
Components of weighted average shares
-------------------------------------
Weighted average common stock
outstanding 5,526,686 4,368,895 4,401,842 4,401,842 4,408,842 4,401,842 4,406,397
Common stock equivalents 0 8,141,733 0 0 0 0 0
--------- ---------- --------- --------- --------- --------- ---------
Primary weighted average number
of common and common stock
equivalents 5,526,686 12,510,628 4,401,842 4,401,842 4,408,842 4,401,842 4,406,397
Additional common stock equivalents 0 332,592 0 0 0 0 0
--------- ---------- --------- --------- --------- --------- ---------
Fully diluted weighted average
number of common and common
stock equivalents 5,526,686 12,843,220 4,401,842 4,401,842 4,408,842 4,401,842 4,406,397
========= ========== ========= ========= ========= ========= =========
Primary earnings per share $ (0.55) $ 0.15 $ (1.69) $ (.90) $ (.30) $ (1.36) $ (.65)
========= ========== ========= ========= ========= ========= =========
Fully diluted earnings per share $ (0.55) $ 0.15 $ (1.69) $ (.90) $ (.30) $ (1.36) $ (.65)
========= ========== ========= ========= ========= ========= =========
</TABLE>
- --------------------------
* Conversion of the Series B Preferred Stock is not assumed in the
calculation because its effect is antidilutive. Common Stock equivalents
are antidilutive in loss periods.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the Proxy
Statement of Vitas Healthcare Corporation which is made part of Amendment No. 1
to the Registration Statement (Form S-4, No. 333-09407) and Prospectus of Apria
Healthcare Group Inc. for the registration of 5,020,000 shares of its common
stock and to the incorporation by reference therein of our report dated March 6,
1996, with respect to the consolidated financial statements and schedule of
Apria Healthcare Group Inc. included in its Annual Report (Form 10-K) for the
year ended December 31, 1995, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Orange County, California
August 21, 1996
<PAGE> 1
EXHIBIT 23.2
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated December 14, 1995, included in the Proxy Statement of
Vitas Healthcare Corporation that is made a part of Amendment No. 1 to the
Registration Statement (Form S-4 No. 333-09407) and Prospectus of Apria
Healthcare Group, Inc. for the registration of 5,020,000 shares of its common
stock.
ERNST & YOUNG LLP
Miami, Florida
August 21, 1996
<PAGE> 1
EXHIBIT 23.3
[KPMG PEAT MARWICK LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Apria Healthcare Group Inc.:
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Orange County, California
August 21, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
12/31/95: THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
VITAS HEALTHCARE CORPORATION AUDITED FINANCIAL STATEMENTS FOR THE YEARS ENDED
SEPTEMBER 30, 1993, 1994 AND 1995.
6/30/96: THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
VITAS HEALTHCARE CORPORATION UNAUDITED FINANCIAL STATEMENTS FOR THE THREE AND
NINE MONTH PERIODS ENDED JUNE 30, 1995 AND 1996.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> SEP-30-1995 SEP-30-1996
<PERIOD-START> OCT-01-1994 OCT-01-1995
<PERIOD-END> SEP-30-1995 JUN-30-1996
<EXCHANGE-RATE> 1 1
<CASH> 4,545 2,396
<SECURITIES> 0 0
<RECEIVABLES> 30,576 26,683
<ALLOWANCES> 5,300 3,775
<INVENTORY> 0 0
<CURRENT-ASSETS> 40,735 34,238
<PP&E> 15,104 15,470
<DEPRECIATION> 10,287 14,260
<TOTAL-ASSETS> 98,007 94,428
<CURRENT-LIABILITIES> 33,321 61,570
<BONDS> 43,276 11,710
58,323 59,949
0 0
<COMMON> 4 4
<OTHER-SE> (37,271) (39,150)
<TOTAL-LIABILITY-AND-EQUITY> 98,007 94,428
<SALES> 230,854 191,514
<TOTAL-REVENUES> 230,854 191,514
<CGS> 148,562 125,600
<TOTAL-COSTS> 148,562 125,600
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 6,828 4,035
<INTEREST-EXPENSE> 2,763 3,094
<INCOME-PRETAX> (4,433) 1,087
<INCOME-TAX> (1,588) 489
<INCOME-CONTINUING> (2,845) 598
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,845) 598
<EPS-PRIMARY> (1.69) (0.65)
<EPS-DILUTED> (1.69) (0.65)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
REVOCABLE PROXY
VITAS HEALTHCARE CORPORATION
THIS PROXY IS SOLICITED BY THE BOARD
The undersigned stockholder of Vitas Healthcare Corporation ("Vitas")
hereby appoints William Ferretti, J.R. Williams, Mark Ohlendorf and Mark A.
Sterling, and each of them, with full power of substitution, to vote and
otherwise represent all the shares of common stock, par value $.001 per share,
of Vitas ("Vitas Common Stock"), and Series B Convertible Preferred Stock, par
value $1.00 per share, of Vitas ("Series B Preferred") held of record by the
undersigned at the Special Meeting of Stockholders (the "Special Meeting") to
be held at 100 South Biscayne Boulevard, Miami, Florida 33131 on October __,
1996 at 10:00 a.m., local time, or at any adjournment or postponement thereof.
This proxy, when properly completed, will be voted in the manner
directed herein by the undersigned stockholder. UNLESS CONTRARY DIRECTION IS
GIVEN THIS PROXY WILL BE VOTED (i) FOR PROPOSAL 1 TO APPROVE AND ADOPT THE
AGREEMENT AND PLAN OF MERGER, DATED AS OF JUNE 28, 1996 AND AMENDED BY AN
AMENDMENT NO. 1 DATED AS OF AUGUST 26, 1996 TO THE AGREEMENT AND PLAN OF MERGER
(AS AMENDED, THE "MERGER AGREEMENT"), AMONG APRIA HEALTHCARE GROUP INC.
("APRIA"), APRIA NUMBER TWO, INC. ("APRIA SUB"), AND VITAS AND THE TRANSACTIONS
CONTEMPLATED THEREUNDER, INCLUDING A MERGER PURSUANT TO WHICH APRIA SUB WOULD BE
MERGED WITH AND INTO VITAS, WITH VITAS BEING THE SURVIVING CORPORATION (THE
"MERGER"), AND VITAS WOULD BECOME A WHOLLY OWNED SUBSIDIARY OF APRIA, (ii) FOR
PROPOSAL 2 TO SEPARATELY APPROVE THE PAYMENTS TO BE MADE TO HUGH A. WESTBROOK,
THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF VITAS, AND COLLIBROOK CONSULTANTS,
INC., A FLORIDA CORPORATION ("COLLIBROOK") OWNED AND CONTROLLED BY MR. WESTBROOK
AND ESTHER T. COLLIFLOWER, THE VICE CHAIRPERSON OF VITAS, PURSUANT TO A
CONSULTING, SEVERANCE AND CONFIDENTIALITY AGREEMENT (THE "SEVERANCE AGREEMENT")
TO BE ENTERED INTO AMONG VITAS, MR. WESTBROOK, MS. COLLIFLOWER AND COLLIBROOK AT
OR PRIOR TO (BUT SUBJECT TO) THE CLOSING OF THE MERGER AND THE PAYMENTS TO BE
MADE TO MR. WESTBROOK PURSUANT TO A NONCOMPETITION AGREEMENT (THE
"NONCOMPETITION AGREEMENT") TO BE ENTERED INTO BETWEEN VITAS AND MR. WESTBROOK
AT OR PRIOR TO (BUT SUBJECT TO) THE CLOSING OF THE MERGER IN ORDER THAT SUCH
PAYMENTS NOT BE CHARACTERIZED AS "PARACHUTE PAYMENTS" FOR PURPOSES OF SECTIONS
280G AND 4999 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), AND
(iii) IN ACCORDANCE WITH THE DETERMINATION OF A MAJORITY OF THE BOARD AS TO
OTHER MATTERS.
1. To approve and adopt the Merger Agreement and the transactions contemplated
thereunder, including the Merger.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. To separately approve the payments to be made to Mr. Westbrook and
Collibrook pursuant to the Severance Agreement and the payments to be made
to Mr. Westbrook pursuant to the Noncompetition Agreement in order that such
payments not be characterized as "parachute payments" for purposes of
Sections 280G and 4999 of the Code.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Upon such other business as may properly come before the Special Meeting or
any adjournment or postponement thereof, as determined by a majority of
Vitas' Board of Directors.
<PAGE> 2
The undersigned stockholder may revoke this Proxy at any time before it
is voted by filing with the Secretary of Vitas either an instrument revoking
the proxy or a duly executed proxy bearing a later date, or by attending the
Special Meeting and voting in person. The undersigned stockholder hereby
acknowledges receipt of Notice of Special Meeting of Stockholders and the
accompanying Proxy Statement/Prospectus and hereby revokes any proxy or proxies
heretofore given.
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Signature(s) of Stockholder or
Authorized Representative
Date:
----------------------------------
Please date and sign exactly as name
appears hereon. Each executor,
administrator, trustee, guardian,
attorney-in-fact and other fiduciary
should sign and indicate his or her
full title. When stock has been issued
in the name of two or more persons, all
should sign.
