<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 ON
FORM 10-K/A
[MARK ONE]
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 1-14316
APRIA HEALTHCARE GROUP INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 33-0488566
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION)
3560 HYLAND AVENUE 92626
COSTA MESA, CA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 427-2000
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK, $0.001 PAR VALUE PER SHARE
(TITLE OF CLASS)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of April 9, 1998, there were outstanding 51,724,059 shares of the
Registrant's Common Stock, par value $0.001 ("Common Stock"), which is the only
class of Common Stock of the Registrant. As of April 9, 1998 the aggregate
market value of the shares of Common Stock held by non-affiliates of the
Registrant, computed based on the closing sale price of $8.00 per share as
reported by the New York Stock Exchange, was approximately $339,870,030.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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<PAGE> 2
Items 10 through 13 of Part III and Item 14 of Part IV of the Annual Report
on Form 10-K for the fiscal year ended December 31, 1997 are amended in their
entirety as follows:
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS
Information regarding executive officers of the Company is set forth under
the caption "Executive Officers of the Registrant" in Item 1 hereof.
DIRECTORS
Set forth below are the names, ages and past and present positions of the
persons serving as Directors of the Company as of April 30, 1998:
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE DURING LAST DIRECTOR
NAME AND AGE FIVE YEARS AND DIRECTORSHIPS SINCE
------------ ------------------------------- --------
<S> <C> <C>
George L. Argyros, 61 Chairman of the Board of Directors of the Company from 1997
January 19, 1998 through April 28, 1998. Mr. Argyros
is also the Chairman and Chief Executive Officer of
Arnel Development Company, a private investment and
development firm. He is also a vice president of two
private charitable foundations and serves on the Boards
of Directors of First American Financial Corporation,
USCS International, Inc., The Newhall Land and Farming
Company and several privately held companies. Mr.
Argyros was appointed by a committee of the Board of
Directors in March of 1997 to fill the vacancy created
by the retirement of his predecessor.
David L. Goldsmith, 50 Managing Director of BancAmerica Robertson, Stephens & 1987**
Company (formerly Robertson, Stephens & Company, LLC),
an investment banking firm, since 1981. Mr. Goldsmith is
also a director of several private corporations.
Leonard Green, 71 President and Chief Executive Officer of Green 1993*
Management and Investment, Co., a private investment
management company, since 1985.
Terry Hartshorn, 53 Chairman of the Board of PacifiCare Health Systems, 1991**
Inc., a managed care organization, since April 1993.
From April 1993 through January of 1997, Mr. Hartshorn
served as President and Chief Executive Officer of
UniHealth. From 1976 through April 1993, he served as
President, Chief Executive Officer and a director of
PacifiCare Health Systems, Inc.
Jeremy M. Jones, 56 Chairman of the Board and Chief Executive Officer of the 1987**
Company from the merger until January 19, 1998. Chairman
of the Board of Homedco from 1991 to the Merger and
Chief Executive Officer of Homedco from 1987 to the
Merger. Mr. Jones was also the President of Homedco from
1987 until 1994. Mr. Jones also serves as a director of
On Assignment, Inc., a national provider of temporary
professionals.
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE DURING LAST DIRECTOR
NAME AND AGE FIVE YEARS AND DIRECTORSHIPS SINCE
------------ ------------------------------- --------
<S> <C> <C>
Frederick S. Moseley, IV, Managing Director of Triumph Corporate Finance Group, 1991*
45 Inc. (formerly The Boston Corporate Finance Group, Inc.)
and of Triumph Capital Group, Inc., investment banking
firms, since March 1990. He also serves as a director of
several privately held companies. From 1985 to March
1990, Mr. Moseley was a Managing Director of Drexel
Burnham Lambert Incorporated.
Vincent M. Prager, 53 Partner in Montreal office of the law firm of Stikeman, 1994*
Elliott since 1977. Mr. Prager serves on the Boards of
Directors of OOCL Canada, Inc. (the Canadian subsidiary
of the OOCL Group of Hong Kong), the Beaverbrook
Canadian Foundation and Tradau Inc. as well as on the
Boards of Directors of several privately held companies.
H.J. Mark Tompkins, 57 Independent investment and corporate advisor. President 1997*
and Chief Executive Officer of Exfinco, S.a.r.l., a
Belgian company engaged in investment advisory
activities, from 1994 until 1997. Mr. Tompkins was
appointed by a committee of the Board of Directors in
March of 1997 to fill the vacancy created by Timothy
Aitken's resignation. Mr. Tompkins was a member of the
Abbey Board of Directors from September 1992 until the
time of the Merger and is currently a director of Kemgas
Limited and of Shoplink, Inc. From 1987 through June
1994, Mr. Tompkins served as a Chief Executive Officer
of a French investment advisory concern, Cofinex,
E.u.r.l. Mr. Tompkins was a senior partner in
international real estate development firms with
operations in the United States from 1981 through 1993.
Ralph V. Whitworth, 42 Chairman of the Board of Directors of the Company 1998
since April 28, 1998. Mr. Whitworth is also the
principal and managing member of Relational Investors
LLC, a private investment company. He is also a partner
in Batchelder & Partners, Inc., a financial advisory and
investment-banking firm based in La Jolla, California.
From 1988 until 1996, Mr. Whitworth was president of
Whitworth and Associates, a corporate advisory firm. Mr.
Whitworth is a director of CD Radio, Inc. and Wilshire
Technologies, Inc. Mr. Whitworth was appointed by a
Committee of the Board of Directors in January of 1998
to fill a newly created seat.
</TABLE>
- ---------------
* Director of Abbey from the date shown until the date of the merger, after
which the Company's name was changed to its current name. Director of the
Company from the date of the merger until the present.
** Director of Homedco from the date shown until the date of the merger.
Director of the Company from the date of the merger until the present.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT BY CERTAIN COMPANY AFFILIATES
Section 16(a) of the Exchange Act requires the Company's Directors and
officers, and persons who own more than 10% of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission and The New York Stock
Exchange, Inc. Directors, officers, and greater than 10% stockholders are
required by the Securities and Exchange Commission to furnish the Company with
copies of the reports they file.
<PAGE> 4
Based solely on its review of the copies of such reports and written
representations from certain reporting persons that certain reports were not
required to be filed by such persons, the Company believes that all of its
Directors, officers and greater than 10% beneficial owners complied with all
filing requirements applicable to them with respect to transactions during the
1997 fiscal year except that H.J. Mark Tompkins, a member of the Board of
Directors, inadvertently failed to report a sale of 5,000 shares of Common Stock
made in June 1997. As a result, he filed one late Form 4 report on July 22, 1997
for the month of June 1997 disclosing the sale of 5,000 shares.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY OF EXECUTIVE COMPENSATION
The following table sets forth all compensation for the 1997, 1996 and 1995
fiscal years paid to or earned by the Chief Executive Officer, the four other
most highly compensated executive officers and the former President of the
Company during the 1997 fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM(1)
COMPENSATION
ANNUAL COMPENSATION OPTIONS ALL OTHER
----------------------- GRANTED COMPENSATION
SALARY(2) BONUS ------------ ------------
NAME YEAR ($) ($) (#) ($)
---- ---- --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Jeremy M. Jones.................... 1997 $467,013 0 0 $ 4,750(4)
Chairman of the Board 1996 464,320 0 20,000 4,750(4)
and Chief Executive Officer(3) 1995 397,100(5) $157,000 200,000 5,940(4)
Steven T. Plochocki................ 1997 219,349 0 0 953,719(7)
President and Chief 1996 264,559 0 10,000 4,750(4)
Operating Officer(6) 1995 197,468(8) 222,500 81,400 0
Thomas M. Robbins.................. 1997 195,830 $ 2,600 0 4,750(4)
Executive Vice President, Field 1996 184,191 9,742 6,000 4,750(4)
Operations(9) 1995 154,871(10) 42,023 98,000(11) 5,850(4)
Merl A. Wallace.................... 1997 209,320 $ 0 50,000 10,649(14)
Executive Vice President, 1996 157,480 15,868 4,000 4,750(4)
Corporate Operations(12) 1995 115,112(13) 24,752 48,000 4,365(4)
Robert S. Holcombe................. 1997 263,162 $ 4,410 0 6,571(16)
Senior Vice President, 1996 153,455 7,000 35,000(17) 150,324(18)
General Counsel and Secretary(15) 1995 0 0 0 0
Lawrence H. Smallen................ 1997 254,357 $ 0 0 4,750(4)
Chief Financial Officer, 1996 236,667 15,435 6,000 4,750(4)
Senior Vice President, 1995 197,844(19) 34,651 48,000 5,281(4)
Finance and Treasurer
</TABLE>
- ---------------
(1) The Company has not issued stock appreciation rights or restricted stock
awards. The Company currently has no "long-term incentive plan" as that
term is defined in the applicable rules. The Compensation Committee has the
ability to create such a plan under the Company's 1997 Stock Incentive
Plan.
(2) These amounts include an automobile allowance which is paid as salary.
(3) Mr. Jones resigned as Chairman of the Board and Chief Executive Officer of
the Company on January 19, 1998.
<PAGE> 5
(4) Annual contribution by the Company to the Company's 401(k) Savings Plan in
the name of the individual.
(5) This amount reflects $198,600 paid by Homedco and $198,500 paid by the
Company.
(6) Mr. Plochocki resigned from the Company on September 26, 1997.
(7) This amount includes $378,030 in severance payments in 1997 and $543,411 in
severance payments to be made in 1998 and 1999. This amount also includes
$4,750 contributed by the Company to the Company's 401(k) Savings Plan and
a $27,528 payment for earned but unused vacation and holiday time.
(8) This amount reflects $89,357 paid by Abbey and $108,111 paid by the
Company.
(9) Mr. Robbins was promoted from Senior Vice President, Eastern Zone to his
present position on December 15, 1997.
(10) This amount reflects $74,905 paid by Homedco and $79,966 paid by the
Company.
(11) Options to purchase 50,000 shares of the Company's Common Stock were
granted pursuant to Part III of the Apria Healthcare Group Inc./Homedco
Group, Inc. Stock Incentive Plan. All of such options were canceled as of
January 30, 1996. Options to purchase 48,000 shares of the Company's Common
Stock were granted during 1995 pursuant to the 1992 Plan contingent upon
the cancellation of the options to purchase the 50,000 shares referred to
above.
(12) Mr. Wallace was promoted from Senior Vice President, Western Zone to his
present position on March 27, 1997.
(13) This amount reflects $62,317 paid by Homedco and $52,795 paid by the
Company.
(14) This amount includes a $4,750 annual contribution by the Company to the
Company's 401(k) Savings Plan in the name of the individual and a
reimbursement for relocation costs in the amount of $5,899.44.
(15) Mr. Holcombe was first employed by the Company in May of 1996.
(16) This amount includes a $4,750 annual contribution to the Company's 401(k)
Savings Plan in the name of the individual and a reimbursement of $1,821
for tax liabilities incurred in connection with the reimbursement of
relocation costs.
(17) Mr. Holcombe was awarded 35,000 option shares at the time he became
employed by the Company. Those options were surrendered by him in exchange
for a subsequent grant of 30,000 option shares. He was also awarded a
further option to purchase an additional 5,000 shares.
(18) This amount consists of various relocation expenses reimbursed by the
Company.
(19) This amount reflects $93,168 paid by Homedco and $104,676 paid by the
Company.
<PAGE> 6
SUMMARY OF OPTION GRANTS
The following table provides information with respect to grants of options
to one of the four most highly compensated executive officers during the 1997
fiscal year. Except as set forth below, there were no grants of options during
the most recently completed fiscal year to the Chief Executive Officer, the
former President and Chief Operating Officer, or to the four other most highly
compensated executive officers of the Company.
OPTION GRANTS TABLE
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
NUMBER OF AT ACCRUAL RATE
SECURITIES % OF TOTAL OF STOCK APPRECIATION FOR
UNDERLYING OPTIONS GRANTED OPTION TERM
OPTIONS TO EMPLOYEES IN ---------------------------
NAME GRANTED FISCAL YEAR EXERCISE PRICE 5% 10%
---- ---------- --------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Merl A. Wallace............... 50,000 19.6% $18.25 $583,865 $1,454,289
</TABLE>
SUMMARY OF OPTIONS EXERCISED
The following table provides information with respect to the exercise of
stock options by the Chief Executive Officer, the former President and Chief
Operating Officer and the four other most highly compensated executive officers
of the Company during the 1997 fiscal year together with the fiscal year-end
value of unexercised options.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN
SHARES OPTIONS AT THE MONEY OPTIONS AT
ACQUIRED ON VALUE(1) FISCAL YEAR END FISCAL YEAR-END(1)
EXERCISE REALIZED ------------------------- -------------------------
# ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Jeremy M. Jones.......... 0 $ 0 326,322/190,000 $590,659/$131,625 (2)
Steven T. Plochocki...... 21,000 118,256 77,600/0 0/0
Thomas M. Robbins........ 0 0 41,400/42,600 24,937/10,687
Merl A. Wallace.......... 0 0 30,000/79,200 0/17,550
Robert S. Holcombe....... 0 0 7,000/28,000 0/0
Lawrence H. Smallen...... 0 0 56,120/52,320 117,067/42,120
</TABLE>
- ---------------
(1) Market value of the securities underlying the options at exercise date or
year-end, as the case may be, minus the exercise or base price of
"in-the-money" options and transaction costs.
(2) Pursuant to his resignation agreement, all of Mr. Jones' options are now
exercisable.
DIRECTORS' FEES
All Directors of the Company are reimbursed for their out-of-pocket
expenses incurred in connection with attending Board and Committee meetings. All
non-employee Directors of the Company receive: (i) a $4,500 quarterly retainer,
(ii) $1,000 per Board or Committee meeting attended in person ($1,500 per
Committee meeting for the Director who is the Committee's chairman) and (iii)
$500 per Board or Committee meeting attended via telephone. In addition, each
non-employee Director has historically received an option to purchase 5,000
shares of the Company's Common Stock for each year that he has been a member of
the Board of Directors. Under the Company's proposed 1997 Stock Incentive Plan,
the annual option grant could be for as many as 15,000 shares per Director.
However, there are no current plans to change the past practice with respect to
option grants to outside Directors.
EMPLOYMENT AND SEVERANCE AGREEMENTS
The Company has employment agreements with the following executive officers
listed in the Summary Compensation Table.
<PAGE> 7
Lawrence M. Higby. Pursuant to an employment agreement which is scheduled
to expire on January 18, 2001, Mr. Higby serves as President and Chief Operating
Officer of the Company. Following the resignation of Mr. Jones on January 19,
1998, Mr. Higby also assumed the duties of the chief executive officer of the
Company at the request of the Board of Directors. The agreement provides that
Mr. Higby is to receive an annual salary of not less than $400,000 (his current
annual salary is $400,004), subject to annual increases at the discretion of the
Compensation Committee, and is entitled to participate in the Company's stock
option plans and all other benefit programs generally available to executive
officers of the Company. Mr. Higby is also entitled to receive (i) such bonuses
as the Compensation Committee may, from time to time, in its sole discretion
award, (ii) an automobile allowance and (iii) reimbursement of certain other
expenses. He is also provided reasonable access to the Company's accountants for
personal financial planning. Mr. Higby will be granted options to acquire
150,000 shares of Common Stock no later than March 31, 1998. These options will
become exercisable in five equal annual installments of 30,000 shares each
beginning January 26, 1999. Mr. Higby's November 1997 stock option agreements,
pursuant to which he was granted options to purchase 150,000 shares of Common
Stock, were also amended to allow options to purchase 30,000 shares to become
exercisable on January 26, 1998 instead of July 1, 1998. If the Company
terminates Mr. Higby's employment without cause, Mr. Higby is entitled to a lump
sum severance payment equal to three times his base salary plus an additional
amount determined as set forth in the employment agreement. In addition, all
unvested options issued under the employment agreement will immediately become
exercisable and all vested options issued under the November 1997 grants and the
employment agreement will remain exercisable for a period of three years
following such termination. If the Company employs a new Chief Executive Officer
and Mr. Higby continues work as President and Chief Operating Officer for a
period of six months, Mr. Higby is entitled to terminate his employment and
receive a lump sum severance payment equal to one and one-half times his base
salary plus an additional amount determined as set forth in the employment
agreement. In addition, one-half of the unvested options issued under the
employment agreement will immediately become exercisable and all vested options
issued under the November 1997 grants and the employment agreement will remain
exercisable for a period of three years following such termination.
Jeremy M. Jones. The Company had an employment agreement with Mr. Jones who
voluntarily resigned from his positions as Chairman of the Board and Chief
Executive Officer of the Company and from his positions with all of its
subsidiaries as of January 19, 1998. Pursuant to Mr. Jones's employment
agreement, which was scheduled to expire on June 28, 1998, he was to serve as
Chairman of the Board and Chief Executive Officer. The agreement provided for an
annual salary of not less than $390,000, subject to annual increases at the
discretion of the Compensation Committee (as of the date of his resignation, Mr.
Jones's annual salary was $460,000). Mr. Jones was also entitled to (i) such
bonuses as the Compensation Committee would, from time to time, in its sole
discretion award, (ii) an automobile allowance, (iii) reimbursement of certain
other expenses, (iv) reasonable access to the Company's accountants and counsel
for personal financial planning and legal services, and (v) participation in the
Company's various benefit plans. In addition, his resignation agreement provided
that the previously unvested 190,000 share portion of Mr. Jones's total
outstanding options to purchase 516,322 shares of Common Stock became fully
vested and each option will remain exercisable for its stated term as though Mr.
Jones had not terminated his employment. The employment agreement also contained
severance provisions which were superseded by an agreement entered into at the
time of his resignation. Pursuant to that agreement, Mr. Jones (i) was paid a
lump sum severance payment of $1,753,900 (subject to withholding for federal and
state taxes) at the time of his resignation and (ii) is being provided with an
office and associated services for a period of two years from the date of his
resignation.
Steven T. Plochocki. In June 1997, the Company entered into an executive
severance agreement with Mr. Plochocki who voluntarily resigned from his
positions as President and Chief Operating Officer of the Company and from his
positions with all of its subsidiaries as of September 26, 1997. Mr. Plochocki
was elected President and Chief Operating Officer on February 26, 1996. He had
previously been employed by the Company in various other capacities. As of the
date of his resignation, Mr. Plochocki's annual salary was $270,000. Mr.
Plochocki was also entitled to (i) such bonuses as the Compensation Committee
would, from time to time, in its sole discretion award, (ii) an automobile
allowance, (ii) reimbursement for certain other expenses, and (iv) participation
in the Company's various benefit plans. The executive severance agreement
<PAGE> 8
also contained severance provisions which were superseded by an agreement
entered into at the time of his resignation. Pursuant to that agreement, Mr.
Plochocki was paid $921,450 (subject to withholding for federal and state
taxes), one-third of which was paid in a lump sum severance payment at the time
of his resignation and two-thirds of which is being paid in 52 substantially
equal installments over the 24 month period immediately following his
resignation.
Merl A. Wallace. Pursuant to an employment agreement which is scheduled to
expire on April 1, 1999, Mr. Wallace serves as Executive Vice President,
Operations of the Company. The agreement provides that Mr. Wallace is to receive
an annual salary of not less than $215,000 from April 1997 to April 1998 and not
less than $250,000 from April 1998 to April 1999, subject to annual increases at
the discretion of the Compensation Committee (as of March 31, 1998, Mr.
Wallace's annual salary was $249,995.00), and is entitled to participate in the
Company's stock option plans and all other benefit programs generally available
to executive officers of the Company. Mr. Wallace is also entitled to receive
(i) such bonuses as the Compensation Committee may, from time to time, in its
sole discretion award, (ii) an automobile allowance, and (iii) reimbursement of
certain other expenses. If the Company terminates Mr. Wallace's employment
without cause, Mr. Wallace is entitled to a lump sum severance payment equal to
two times his annual base salary plus an additional amount determined as set
forth in the employment agreement.
Robert S. Holcombe, Lawrence H. Smallen, and Thomas M. Robbins. In June
1997, Messrs. Holcombe, Smallen and Robbins (each referred to as "Executive"
below) entered into executive severance agreements with the Company. Pursuant to
each agreement, each Executive serves in a position and undertakes duties at the
Company's discretion. As of December 31, 1997, Mr. Holcombe served as Senior
Vice President, General Counsel and Secretary of the Company, Mr. Smallen served
as Chief Financial Officer, Senior Vice President, Finance and Treasurer of the
Company, and Mr. Robbins served as Executive Vice President, Field Operations of
the Company. Mr. Smallen announced his resignation on January 19, 1998 effective
when a search for his replacement has been completed. Each agreement provides
that the Executive's salary shall be at the Company's discretion. As of March
31, 1998, Mr. Holcombe's annual salary was $280,009, Mr. Smallen's annual salary
was $249,995 and Mr. Robbins's annual salary was $220,001. Each Executive is
entitled to participate in the Company's stock option plans and all other
benefit programs generally available to executive officers of the Company at the
Company's discretion. Each Executive is also entitled to receive (i) such
bonuses as the Compensation Committee may, from time to time, in its sole
discretion award, and (ii) reimbursement of certain other expenses at the
Company's discretion. If the Company terminates Executive's employment without
cause, each Executive is entitled to a payment equal to his base salary plus an
additional amount determined as set forth in the agreement; provided, however,
if such termination occurs during the two-year period following a change of
control of the Company, each Executive is entitled to a payment equal to two
times his base salary plus an additional amount determined as set forth in the
agreement. Such payment is payable in periodic installments over one or two
years in exchange for a valid release of claims against the Company. In no event
will any Executive receive a payment which would be deemed to be an "excess
parachute payment" under Section 280G of the Code.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
From January 1, 1997 to February 27, 1997, the Compensation Committee
consisted of Charles D. Martin (Chairman), Leonard Green and Terry Hartshorn.
Frederick S. Moseley, IV was appointed to the Compensation Committee on February
27, 1997. Mr. Martin retired from the Board of Directors, effective March 31,
1997. George L. Argyros was appointed to the Compensation Committee to fill the
vacancy. At that time, Mr. Hartshorn became the Chairman of the Compensation
Committee. No member of the Compensation Committee since January 1, 1997 was
either an officer or employee of the Company.
<PAGE> 9
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of April 9, 1998 with respect
to the beneficial ownership of the Company's Common Stock by each person who is
known by the Company to beneficially own more than 5% of the Company's Common
Stock, each Director of the Company (including the former Chief Executive
Officer), the President and Chief Operating Officer, the Company's four most
highly compensated executive officers in 1997, the former President of the
Company and all Directors and executive officers as a group. Except as otherwise
indicated, beneficial ownership includes both voting and investment power with
respect to the shares shown.
SECURITY OWNERSHIP TABLE
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OWNERSHIP OF CLASS
------------------------ ----------------- --------
<S> <C> <C>
Relational Investors, LLC(1).............................. 5,141,900 9.94%
Ralph V. Whitworth(1)..................................... 5,141,900 9.94%
David H. Batchelder(1).................................... 5,141,900 9.94%
Joel L. Reed(1)........................................... 5,141,900 9.94%
Capital Guardian Trust Company(2)......................... 4,815,600 9.31%
Franklin Mutual Advisors, Inc.(3)......................... 4,443,008 8.58%
Charles B. Johnson(3)..................................... 4,443,008 8.58%
Rupert H. Johnson, Jr.(3)................................. 4,443,008 8.58%
George L. Argyros(4)...................................... 2,763,768 5.34%
Stephen Feinberg(5)....................................... 2,615,400 5.05%
Jeremy M. Jones(6)........................................ 1,254,314 2.43%
David L. Goldsmith(7)..................................... 320,236 *
Lawrence H. Smallen(8).................................... 159,860 *
Steven T. Plochocki(9).................................... 86,029 *
Frederick S. Moseley, IV(10).............................. 74,557 *
Terry Hartshorn(11)....................................... 61,000 *
Thomas M. Robbins(12)..................................... 41,400 *
Merl A. Wallace(13)....................................... 40,106 *
Lawrence M. Higby(14)..................................... 30,500 *
Vincent M. Prager(15)..................................... 20,330 *
Leonard Green(16)......................................... 20,000 *
Robert S. Holcombe(17).................................... 12,100 *
H.J. Mark Tompkins(18).................................... 10,100 *
All Directors and executive officers as a group (18
persons)(19)............................................ 10,263,607 19.84%
</TABLE>
- ---------------
* Less than 1%
(1) According to a Schedule 13D, dated September 29, 1997, and amendments
thereto dated January 27, 1998 and February 3, 1998, respectively, filed
with the Securities and Exchange Commission, Relational Investors, LLC
("RILLC") has sole voting and sole dispositive power as to 5,141,900
shares. Each of Messrs. Whitworth, Batchelder and Reed, as Managing Members
of RILLC, may be deemed for certain purposes to be beneficial owners of the
shares beneficially owned by RILLC and to have shared voting and shared
dispositive power over these shares. Mr. Whitworth became a Director of the
Company on January 27, 1998 to fill a newly created position. The mailing
address of RILLC and each of Messrs. Whitworth, Batchelder and Reed is 4330
La Jolla Village Drive, Suite 220, San Diego, California 92122.
(2) According to a Schedule 13G Amendment, dated February 10, 1998, filed with
the Securities and Exchange Commission, The Capital Group Companies, Inc.
("Capital Group"), the parent holding company of a group of investment
management companies (including a "bank" as defined in Section 3(a)6 of the
Securities Exchange Act of 1934 and several investment advisors registered
under Section 203 of the Investment Advisors Act of 1940) that hold
investment power and in some cases voting power over the securities
reported, has sole voting power as to 4,574,900 shares and sole dispositive
power as to 4,815,600 shares. Capital Guardian Trust Company, the
investment management company of Capital Group which is a bank as defined
in Section 3(a)(6) of the Securities Exchange Act of 1934 ("Capital") has
sole voting power as to 4,516,900 shares and sole dispositive power as to
4,757,600 shares. The mailing address of Capital Group and Capital is 333
S. Hope Street, 52nd Floor, Los Angeles, California 90071.
<PAGE> 10
(3) According to a Schedule 13D, dated January 20, 1998, filed with the
Securities and Exchange Commission, Franklin Mutual Advisors, Inc.
("Franklin") has sole voting and sole dispositive power as to 4,443,008
shares. Each of Messrs. Charles B. Johnson and Rupert H. Johnson, Jr. own
in excess of 10% of the outstanding common stock of Franklin Resources,
Inc. ("FRI"), and Franklin is a wholly-owned subsidiary of FRI. As the
principal shareholders of FRI, each of Messrs. Charles B. Johnson and
Rupert H. Johnson, Jr. may be deemed for certain purposes to be beneficial
owners of the shares beneficially owned by Franklin. The mailing address of
Franklin is 51 John F. Kennedy Parkway, Short Hills, New Jersey 07078. The
mailing address of Messrs. Charles B. Johnson and Rupert H. Johnson, Jr. is
c/o Franklin Resources, Inc., 777 Mariners Island Blvd., San Mateo,
California 94404.
(4) According to a Schedule 13D Amendment, dated April 27, 1998, filed with the
Securities and Exchange Commission, Mr. Argyros has sole voting and
dispositive power with respect to all 2,763,768 shares. This number
includes 2,430,670 shares owned by HBI Financial, Inc. Mr. Argyros is the
sole shareholder of HBI Financial, Inc. This number also includes (i)
280,912 shares held in trust by two private charitable foundations of which
Mr. Argyros is a vice president and director with respect to which he
disclaims beneficial ownership, (ii) 500 shares held in a charitable trust
of which Mr. Argyros is a trustee but not a beneficiary with respect to
which he disclaims beneficial ownership, (iii) 31,050 shares held in a
trust for the benefit of Mr. Argyros' children, for which Mr. Argyros
disclaims beneficial ownership, and (iv) 20,636 shares held by Mr. Argyros
individually. The amount listed does not include 3,450 shares held in a
trust of which Mr. Argyros is not a trustee for the benefit of certain of
Mr. Argyros' adult children who do not share his household for which he
disclaims beneficial ownership and 2,400 shares held in a trust of which
Mr. Argyros is not a trustee for the benefit of Mr. Argyros' mother-in-law
for which he disclaims beneficial ownership. Mr. Argyros became a Director
of the Company on March 31, 1997. The mailing address for Mr. Argyros is
c/o Arnel Development Company, 949 South Coast Drive, Suite 600, Costa
Mesa, California 92626.
(5) According to a Schedule 13D, dated February 10, 1998, filed with the
Securities and Exchange Commission, Stephen Feinberg, in his capacity as
the managing member of Cerberus Associates, L.L.C., the general partner of
Cerberus Partners, L.P., and as the investment manager for each of Cerberus
International, Ltd., Ultra Cerberus Fund, Ltd. and as a person possessing
investment authority on behalf of certain other persons and entities, has
sole dispositive and voting power as to 1,950,000 shares and has certain
investment authority over an additional 665,400 shares. Mr. Feinberg's
address is 450 Park Avenue, 28th Floor, New York, New York 10022.
(6) Includes 516,322 shares subject to options that are currently exercisable.
Also includes (i) 696,262 shares held in a family trust of which Mr. Jones
is a trustee, (ii) 2,000 shares held in trusts for the benefit of Mr.
Jones' grandchildren for which Mr. Jones disclaims beneficial ownership,
(iii) 19,730 shares held in a trust for the benefit of Mr. Jones' children
for which Mr. Jones disclaims beneficial ownership, and (iv) 20,000 shares
held in an income trust for the benefit of Mr. Jones' children and
grandchildren for which Mr. Jones disclaims beneficial ownership. Mr. Jones
resigned as Chairman of the Board and Chief Executive Officer effective as
of January 19, 1998, but retained his position as Director of the Company.
(7) Includes 20,000 shares subject to options that are currently exercisable or
will become exercisable before June 30, 1998.
(8) Includes 56,120 shares subject to options that are currently exercisable or
will become exercisable before June 30, 1998. Mr. Smallen has announced his
resignation as the Chief Financial Officer, Senior Vice President and
Treasurer to be effective when a search for his replacement has been
completed.
(9) Includes 84,600 shares subject to options that are currently exercisable.
Mr. Plochocki resigned as President and Chief Operating Officer of the
Company effective as of September 26, 1997.
(10) Includes 28,000 shares subject to options that are currently exercisable or
will become exercisable before June 30, 1998.
(11) Includes 58,000 shares subject to options that are currently exercisable or
will become exercisable before June 30, 1998.
(12) Includes 41,400 shares subject to options that are currently exercisable or
will become exercisable before June 30, 1998.
(13) Includes 40,000 shares subject to options that are currently exercisable or
will become exercisable before June 30, 1998.
(14) Includes 30,000 shares subject to options that are currently exercisable or
will become exercisable before June 30, 1998.
<PAGE> 11
(15) Includes 19,000 shares subject to options that are currently exercisable or
will become exercisable before June 30, 1998.
(16) Includes 19,000 shares subject to options that are currently exercisable or
will become exercisable before June 30, 1998. Also includes 1,000 shares
held by Mr. Green's spouse.
(17) Includes 7,000 shares subject to options that are currently exercisable or
will become exercisable before June 30, 1998. Also includes 100 shares held
by Mr. Holcombe's spouse.
(18) Does not include 262,400 shares held through a company which is owned by
trusts of which Mr. Tompkins is a contingent beneficiary. Said trusts are
irrevocable, and neither Mr. Tompkins nor any member of his immediate
family has any investment control with respect to the trusts or the
companies owned by them. Mr. Tompkins became a Director of the Company on
March 4, 1997.
(19) Includes shares owned by certain trusts. Also includes 1,023,302 shares
subject to options that are currently exercisable or will become
exercisable before June 30, 1998. Does not include shares beneficially
owned by Mr. Plochocki. See Note 8.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN TRANSACTIONS
During 1997, the Company was a party to a lease with Resource Investors, a
partnership in which Jeremy M. Jones, the Company's former Chairman of the Board
and Chief Executive Officer and a current member of the Board of Directors,
held a one-third interest. Resource Investors sold its interest in the subject
property during January 1998, and Mr. Jones no longer has any interest therein.
During 1997, the total amount of rental (including tax reimbursements) paid
under the lease was $193,336. The rental (including tax reimbursements) paid for
January 1998 was $16,132. The Company believes the payments required under the
lease were comparable to what the Company would have been required to pay to
unrelated third parties for similar premises.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a) 1. The documents described in the "Index to Consolidated Financial
Statements and Financial Statement Schedule" are included in this
report starting at page F-1.
2. The financial statement schedule described in the "Index to
Consolidated Financial Statements and Financial Statement Schedule"
is included in this report starting on page S-1.
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable, and
therefore have been omitted.
3. Exhibits included or incorporated herein:
See Exhibit Index
(b) Reports on Form 8-K:
None filed during the fourth quarter of 1997.
<PAGE> 12
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE/REF.
------- ----------- ---------
<C> <S> <C>
2.1 Agreement and Plan of Merger dated March 1, 1995 between
Abbey and Homedco. (e)
2.2 Agreement and Plan of Merger dated March 1, 1995, as amended
on May 18, 1995, by and between Abbey and Homedco. (h)
2.3 Agreement for the Sale and Purchase of the Whole of the
Issued Share Capital of The Omnicare Group Limited and
Assumption of Certain Liabilities, dated June 20, 1995,
between Abbey Health Services Limited and Stanton Industries
Limited. (i)
3.1 Restated Certificate of Incorporation of Registrant. (f)
3.2 Certificate of Ownership and Merger merging Apria Healthcare
Group Inc. into Abbey and amending Abbey's Restated
Certificate of Incorporation to change Abbey's name to
"Apria Healthcare Group Inc." (i)
3.3 Amended and Restated Bylaws of Registrant, as amended on
January 27, 1997. (n)
3.4 Amended and Restated Bylaws of Registrant, as amended on
January 27, 1998.
4.1 Form of 9 1/2% Senior Subordinated Note due 2002. (b)
4.2 Indenture dated November 1, 1993, by and among Abbey,
certain Subsidiary Guarantors defined therein and U.S. Trust
Company of California, N.A. (d)
4.3 Shareholder Rights Agreement dated February 8, 1995, between
Abbey and U. S. Stock Transfer Corporation, as Rights Agent. (e)
4.4 Specimen Stock Certificate of the Registrant. (t)
4.5 Certificate of Designation of the Registrant. (f)
4.6 Amendment No. 1 to the Rights Agreement dated as of June 30,
1997, by and among Apria Healthcare Group Inc., Norwest Bank
Minnesota, N.A. and U.S. Stock Transfer Corporation. (p)
10.1 Abbey 1991 Stock Option Plan. (a)
10.2 Abbey Schedule of Registration Procedures and Related
Matters. (c)
10.3 Homedco 401(k) Savings Plan, restated effective October 1,
1993, amended December 28, 1994. (k)
10.4 Apria/Homedco Stock Incentive Plan, dated June 28, 1995. (g)
10.5 Abbey Amended and Restated 1992 Stock Incentive Plan. (k)
10.6 Amendment Number Two to the Homedco 401(k) Savings Plan,
dated June 28, 1995. (l)
10.7 Building Lease, dated July 21, 1995, between C.J. Segerstrom
& Sons, a California general partnership, and Apria
Healthcare, Inc. for 10 locations within Harbor Gateway
Business Center, Costa Mesa, California. (l)
10.8 Assignment, Assumption and Consent Re: Lease (dated December
1, 1988, between C.J. Segerstrom & Sons, a California
general partnership, and Abbey Medical, Inc. for premises
located within Harbor Gateway Business Center, Costa Mesa,
California), executed by Abbey Medical, Inc. and Apria
Healthcare, Inc. as of July 21, 1995 and executed by C.J.
Segerstrom & Sons, a California general partnership, as of
July 24, 1995. (j)
</TABLE>
<PAGE> 13
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE/REF.
------- ----------- ---------
<C> <S> <C>
10.9 First Amendment to Complete Restatement of Lease Amendments
and Amendment to Building Lease, dated as of July 24, 1996,
between C.J. Segerstrom & Sons, a California general
partnership, and Apria Healthcare, Inc., amending the
Building Lease, dated July 21, 1995, between the parties. (n)
10.10 Assignment and Assumption of Lease (Building Lease, dated
July 21, 1995, between C.J. Segerstrom & Sons, a California
general partnership, and Apria Healthcare, Inc.), dated as
of January 1, 1996, between Apria Healthcare, Inc. and Apria
Healthcare Group Inc. (n)
10.11 Amendment Number Three to the Homedco 401(k) Savings Plan,
dated January 1, 1996. (l)
10.12 Credit Agreement, dated August 9, 1996, between Apria
Healthcare Group Inc. and certain of its subsidiaries, Bank
of America National Trust and Savings Association,
Nationsbank of Texas, N.A. and other financial institutions
from time to time party thereto. (m)
10.13 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. (m)
10.14 Employment Agreement dated April 1, 1997, between Apria
Healthcare Group Inc. and Merl A. Wallace. (o)
10.15 First Amendment to Credit Agreement, dated April 22, 1997,
among Apria Healthcare Group Inc. and certain of its
subsidiaries, Bank of America National Trust and Savings
Association, Nationsbank of Texas, N.A. and other financial
institutions party to the Credit Agreement. (o)
10.16 Executive Severance Agreement dated June 28, 1997, between
Apria Healthcare Group Inc. and Lisa M. Getson. (o)
10.17 Executive Severance Agreement dated June 28, 1997, between
Apria Healthcare Group Inc. and Robert S. Holcombe. (o)
10.18 Executive Severance Agreement dated June 28, 1997, between
Apria Healthcare Group Inc. and Jerome J. Lyden. (o)
10.19 Executive Severance Agreement dated June 28, 1997, between
Apria Healthcare Group Inc. and Gary L. Mangiofico. (o)
10.20 Executive Severance Agreement dated June 28, 1997, between
Apria Healthcare Group Inc. and Steven T. Plochocki. (o)
10.21 Executive Severance Agreement dated June 28, 1997, between
Apria Healthcare Group Inc. and Thomas M. Robbins. (o)
10.22 Executive Severance Agreement dated June 28, 1997, between
Apria Healthcare Group Inc. and Susan K. Skara. (o)
10.23 Executive Severance Agreement dated June 28, 1997, between
Apria Healthcare Group Inc. and Lawrence H. Smallen. (o)
10.24 Executive Severance Agreement dated June 28, 1997, between
Apria Healthcare Group Inc. and Dennis E. Walsh. (o)
10.25 Second Amendment to Credit Agreement, dated July 31, 1997,
among Apria Healthcare Group Inc. and certain of its
subsidiaries, Bank of America National Trust and Savings
Association, Nationsbank of Texas, N.A. and other financial
institutions party to the Credit Agreement. (o)
</TABLE>
<PAGE> 14
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE/REF.
------- ----------- ---------
<C> <S> <C>
10.26 Resignation and General Release Agreement dated September
26, 1997, between Apria Healthcare Group Inc. and Steven T.
Plochocki. (q)
10.27 Resignation and General Release Agreement dated November 7,
1997, between Apria Healthcare Group Inc. and Gary L.
Mangiofico. (t)
10.28 Apria Healthcare Group Inc. 1997 Stock Incentive Plan, dated
December 16, 1997. (r)
10.29 Resignation and General Release Agreement dated January 19,
1998, between Apria Healthcare Group Inc. and Jeremy M.
Jones. (t)
10.30 Executive Employment Agreement dated January 26, 1998,
between Apria Healthcare Group Inc. and Lawrence M. Higby. (t)
10.31 Third Amendment to Credit Agreement and Waiver, dated
January 30, 1998, among Apria Healthcare Group Inc. and
certain of its subsidiaries, Bank of America National Trust
and Savings Association, Nationsbank of Texas, N.A. and
other financial institutions party to the Credit Agreement. (t)
10.32 Stock Purchase Agreement dated February 3, 1998, by and
among, JLL Argosy Apria, LLC, CIBC WG Argosy Merchant Fund
2, LLC, Joseph Littlejohn and Levy Fund III, LP and Apria
Healthcare Group Inc. (s)
10.33 Stockholder Agreement dated February 3, 1998, by and among,
JLL Argosy Apria, LLC, CIBC WG Argosy Merchant Fund 2, LLC,
Joseph Littlejohn and Levy Fund III, LP, Relational
Investors, LLC, HBI Financial, Inc. and Apria Healthcare
Group Inc. (s)
10.34 Resignation and General Release Agreement dated February 4,
1998, between Apria Healthcare Group Inc. and Jerome J.
Lyden. (t)
10.35 Fourth Amendment to Credit Agreement and Waiver, dated March
13, 1998, among Apria Healthcare Group Inc. and certain of
its subsidiaries, Bank of America National Trust and Savings
Association, Nationsbank of Texas, N.A. and other financial
institutions party to the Credit Agreement. (t)
10.36 Security Agreement, dated March 13, 1998, between Apria
Healthcare Group Inc., Apria Healthcare, Inc., and certain
of its subsidiaries and Bank of America National Trust and
Savings Association. (t)
10.37 Fifth Amendment to Credit Agreement and Waiver, dated April
15, 1998 among Apria Healthcare Group Inc. and certain of
its subsidiaries, Bank of America National Trust and Savings
Association, NationsBank of Texas, N.A. and other financial
institutions party to the Credit Agreement.
10.38 First Amendment to Security Agreement dated April 15, 1998
among Apria Healthcare Group Inc. and certain of its
subsidiaries, Bank of America National Trust and Savings
Association, NationsBank of Texas, N.A. and other financial
institutions party to the Credit Agreement.
21.1 List of Subsidiaries. (t)
23.1 Consent of Ernst & Young LLP, Independent Auditors.
27.1 Financial Data Schedule. (t)
27.2 Restated Quarterly Financial Data Schedule. (t)
</TABLE>
- ---------------
(a) Incorporated by reference to Abbey's Registration Statement on Form S-1
(Registration No. 33-44690), as filed on December 23, 1991.
(b) Incorporated by reference to Abbey's Registration Statement on Form S-1
(Registration No. 33-69078), as filed on September 17, 1993.
<PAGE> 15
(c) Incorporated by reference to Abbey's Registration Statement on Form S-4
(Registration No. 33-69094), as filed on September 17, 1993.
(d) Incorporated by reference to Abbey's Annual Report on Form 10-K for the
year ended January 1, 1994.
(e) Incorporated by reference to Abbey's Current Report on Form 8-K, as filed
on March 20, 1995.
(f) 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.
(g) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 (Registration No. 33-94026), as filed on June 28, 1995.
(h) Incorporated by reference to Abbey's final joint proxy statement/prospectus
as filed pursuant to Rule 424(b) on May 26, 1995.
(i) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
dated June 30, 1995, as filed on August 14, 1995.
(j) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
dated September 30, 1995, as filed on November 14, 1995.
(k) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 (Registration No. 33-80581), as filed on December 19, 1995.
(l) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995.
(m) Incorporated by reference to the Registrant's Registration Statement on
Amendment No. 1 to Form S-4 (Registration No. 333-09407), as filed on
August 27, 1996.
(n) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1996.
(o) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
dated June 30, 1997, as filed on August 14, 1997.
(p) Incorporated by reference to the Registrant's Registration Statement on
Form 8-A/A as filed on July 10, 1997.
(q) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
dated September 30, 1997, as filed on November 14, 1997.
(r) Incorporated by reference to Registrant's Registration Statement on Form
S-8 (Registration No. 333-42775), as filed on December 19, 1997.
(s) Incorporated by reference to Registrant's Current Report on Form 8-K, as
filed on February 6, 1998.
(t) Incorporated by reference to the Registrants' Annual Report on Form 10-K
for the year ended December 31, 1997.
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
APRIA HEALTHCARE GROUP INC.
---------------------------
Registrant
April 30, 1998 /s/ LAWRENCE H. SMALLEN
----------------------------------------
Lawrence H. Smallen
Chief Financial Officer, Senior Vice
President, Finance and Treasurer
(Principal Financial Officer)
<PAGE> 1
EXHIBIT 10.37
FIFTH AMENDMENT TO CREDIT AGREEMENT AND WAIVER
THIS FIFTH AMENDMENT TO CREDIT AGREEMENT AND WAIVER (this
"Amendment") dated as of April 15, 1998 is made among 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 Amendment and any Subsidiary of Apria that, subject to Section
9.13 of the Credit Agreement, 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 the Credit Agreement or that, pursuant to Section 13.4 of the
Credit Agreement, shall become a "Bank" thereunder (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 and Collateral Agent.
RECITALS
I. The Borrowers, the Banks, the Syndication Agent and the
Administrative and Collateral Agent are parties to the Credit Agreement dated as
of August 9, 1996, as amended by the First Amendment to Credit Agreement dated
as of April 22, 1997 (the "First Amendment"), the Second Amendment to Credit
Amendment dated as of August 8, 1997 (the "Second Amendment"), the Third
Amendment to Credit Agreement and Waiver (the "Third Amendment"), dated as of
January 30, 1998, and the Fourth Amendment to Credit Agreement and Waiver (the
"Fourth Amendment"), dated as of March 13, 1998 (as so amended, the "Credit
Agreement"), pursuant to which the Banks extended certain credit to the
Borrowers.
II. The Borrowers previously provided notice to the
Administrative and Collateral Agent and the Banks pursuant to Section 9.1(e) of
the Credit Agreement that (a) a Default has occurred and is continuing under the
Credit Agreement as a result of the termination of the JLL/CIBC Investment and
(b) certain Events of Default have occurred and are continuing under the Credit
Agreement as a result of the Borrowers' breach of the provisions of Sections
10.9, 10.10 and 10.11 of the Credit Agreement due to the 1997 Fourth Quarter
Charges and Reserves (collectively, the "Existing Defaults").
III. The Borrowers and the Banks, at the Borrower's request,
entered into the Third Amendment pursuant to which the Banks agreed during the
Waiver Period (as defined in Section 6.1 of the Third Amendment) to (a)
temporarily waive, for limited
<PAGE> 2
purposes, the Events of Default existing as a result of the breach of Sections
10.9 and 10.10 of the Credit Agreement and (b) continue to permit limited
Borrowings under the Credit Agreement and allow the Borrowers to maintain Loans
as Eurodollar Loans during the Waiver Period.
IV. The Borrowers and the Banks, at the Borrower's request,
entered into the Fourth Amendment pursuant to which (a) the Banks agreed to
extend the Waiver Period until June 30, 1998 (and expand it to cover the Default
existing as a result of the breach of Section 10.11) and to continue to permit
limited Borrowings under the Credit Agreement and allow the Borrowers to
maintain Loans as Eurodollar Loans during the Waiver Period and (b) the
Borrowers agreed to grant to the Administrative and Collateral Agent, for the
benefit of the Banks, a security interest in all of their personal property
assets to secure the Obligations.
V. The Borrowers have requested that the Banks agree to
permanently waive the Existing Defaults (the "Permanent Waiver").
VI. The Borrowers have agreed in consideration of the Permanent
Waiver to restructure certain provisions of the Credit Agreement.
VII. The Banks are willing to accommodate the requests of the
Borrowers on the terms and conditions specified in this Amendment.
AGREEMENT
In consideration of the foregoing premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties to this Amendment agree as follows:
1. Amendment to Recitals. The Recitals to the Credit Agreement
are hereby amended by deleting the amount "$450,000,000" on the third line of
the first Recital and replacing it with the amount "$400,000,000".
2. Amendment to Section 1.1.
(a) The definitions of "Abbey Merger", "CIBC", "JLL", "JLL/CIBC
Investment", "Merger Costs", "Stock Purchase Agreement", "Stockholder
Agreement", "Vitas Merger" and "1996 Charges and Reserves" are hereby deleted in
their entirety from
-2-
<PAGE> 3
Section 1.1 of the Credit Agreement.
(b) The definition of "Applicable Margin" in Section 1.1 of the
Credit Agreement is hereby amended in its entirety to read as follows:
"Applicable Margin" shall mean, 2.25% with respect
to all Eurodollar Loans, .75 % with respect to all Base Rate
Loans and .50% with respect to the Revolving Loan Commitment Fee.
(c) The term "Authorized Company Employees" is hereby amended by
deleting the word "Company" in such term.
(d) The definition of "Calculation Period" is hereby amended in
its entirety to read as follows:
"Calculation Period" shall have the meaning
provided in Section 9.13(a)(iii).
(e) The definition of "Consolidated EBITDA" in Section 1.1 of the
Credit Agreement is hereby amended in its entirety to read as follows:
"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) the 1997 Charges and Reserves and the 1997
Fourth Quarter Charges and Reserves, 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;
-3-
<PAGE> 4
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.
(f) The definition of "Final Maturity Date" is hereby amended in
its entirety to read as follows:
"Final Maturity Date" shall mean August 9, 2001.
(g) The definition of "Management Agreements" is hereby amended
by replacing the reference to "Section 6.5" contained in such definition with
"Section 6.6".
(h) The definition of "Maximum Swingline Amount" is hereby
amended by replacing the amount "$15,000,000" contained in such section with the
amount "$5,000,000".
(i) The definition of "Permitted Acquisition" in Section 1.1 of
the Credit Agreement is hereby amended by deleting the proviso at the end of
such definition.
(j) The definition of "Total Revolving Loan Commitment" in
Section 1.1 of the Credit Agreement is hereby amended in its entirety to read as
follows:
"Total Revolving Loan Commitment" shall mean, at
any time, the sum of the Revolving Loan Commitments of each of
the Banks. The principal amount of the Total Revolving Loan
Commitment as of April 15, 1998 shall be $400,000,000.
(k) The following new definitions are added to Section 1.1 in
their respective correct alphabetical order:
"Additional Permitted Subordinated Indebtedness"
shall mean up to $150,000,000 of other Indebtedness having a
maturity of not less than five years and no scheduled
amortization and containing other terms, including subordination
provisions, acceptable to the Agents.
"Equity Issuance" shall mean (a) any issuance or
sale by Apria or by any of its Subsidiaries after April 15, 1998
of (i) any capital stock, (ii) any warrants or options
exercisable in respect of capital stock
-4-
<PAGE> 5
(other than any warrants or options issued to directors,
officers, employees of Apria or to consultants and other parties
providing services to Apria or of any of its Subsidiaries and any
capital stock of Apria issued upon the exercise of such warrants)
or (iii) any other security or instrument representing an equity
interest (or the right to obtain any equity interest) in the
issuing or selling Person or (b), without duplication of clause
(a) above, the receipt by Apria or by any of its Subsidiaries
after April 15, 1998 of any capital contribution (whether or not
evidenced by any equity security issued by the recipient of such
contribution); provided that the term "Equity Issuance" shall not
include (x) any such issuance or sale of capital stock by any
Subsidiary of Apria to Apria or to any Wholly Owned Subsidiary of
Apria, (y) any capital contribution by Apria or by any Wholly
Owned Subsidiary of Apria to any Wholly Owned Subsidiary of Apria
or (z) an issuance or sale of capital stock which issuance or
sale constitutes the consideration paid by Apria or any of its
Subsidiaries for any entity or assets acquired in a Permitted
Transaction.
"Net Available Proceeds" shall mean (a) Net Sale
Proceeds (exclusive of the sales of assets in the Ordinary Course
of Business or sales of assets, the aggregate fair market value
of which is not in excess of $100,000) and (b) in the case of any
Equity Issuance or issuance of Additional Permitted Subordinated
Indebtedness, the aggregate amount of all cash received by Apria
and its Subsidiaries in respect of such Equity Issuance or
issuance of Additional Permitted Subordinated Indebtedness, as
applicable, net of reasonable expenses incurred by Apria and its
Subsidiaries in connection with such Equity Issuance or issuance
of Additional Permitted Subordinated Indebtedness, as applicable.
"1997 Fourth Quarter Charges and Reserves" shall
mean the reserves, charges and adjustments made or taken by Apria
in the fourth quarter of its 1997 fiscal year in the
-5-
<PAGE> 6
aggregate amount of approximately $216,000,000, of which
approximately $134,000,000 is associated with goodwill.
3. Amendment to Section 2.8(a). Section 2.8(a) of the Credit
Agreement is hereby amended in its entirety to read as follows:
2.8 (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 plus the Applicable Margin.
4. Amendment to Section 2.12. Section 2.12 of the Credit
Agreement is hereby deleted in its entirety and shall be replaced with the word
"Reserved."
5. Amendment to Section 2.13. Section 2.13 of the Credit
Agreement is hereby amended by deleting the phrase "(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)" set forth on lines eight through eleven of such section.
6. Amendment to Section 3.1(c). Section 3.1(c) of the Credit
Agreement is hereby amended by replacing the amount "$50,000,000" contained in
the sixth line of such section with the amount "$15,000,000".
7. Amendment to Section 4.3. Section 4.3 of the Credit Agreement
is hereby amended by (i) deleting the parenthetical phrase in the third line of
paragraph (b) and (ii) adding the following new paragraphs (c), (d) and (e):
(c) In addition to any other mandatory commitment
reductions pursuant to this Section 4.3, the Total Revolving Loan
Commitment shall be reduced to the following amounts on the
following dates:
-6-
<PAGE> 7
<TABLE>
<CAPTION>
Date Commitment
---- ----------
<S> <C>
December 31, 1998 $385,000,000
December 31, 1999 $350,000,000
December 31, 2000 $300,000,000
</TABLE>
In the event that the sum of the aggregate outstanding principal
amount of the Revolving Loans, Swingline Loans and Letter of
Credit Outstandings exceeds the reduced Total Revolving Loan
Commitment, the Borrowers shall prepay the principal of the Loans
in accordance with Section 5.2(a)(A) hereof.
(d) In addition to any other mandatory commitment
reductions pursuant to this Section 4.3, the Total Revolving Loan
Commitment shall be reduced by an amount equal to 100% of any Net
Available Proceeds contemporaneously with the required repayment
of the Loans with such Net Available Proceeds in accordance with
Section 5.2(a)(A) hereof.
(e) Upon any reduction in the Total Revolving Loan
Commitment, the Revolving Loan Commitment of each Bank shall be
reduced on a pro rata basis.
8. Amendment to Section 7. Section 7 of the Credit Agreement is
hereby amended by adding the following new section to the end of such section:
7.5 Certificate of Chief Financial Officer;
Opinion of Counsel. Prior to the making of each Loan or the
issuance of any Letter of Credit, the Administrative and
Collateral Agent shall have received either (i) a certificate
from the Chief Financial Officer of Apria that Apria is entitled
under Section 4.12(b) of the Indenture to incur Indebtedness in
the amount to be borrowed or (ii) an opinion of outside counsel
to the Borrower addressed to the Administrative and Collateral
Agent and each of the Banks and acceptable in form and substance
to the Agents, that the incurrence of such additional
Indebtedness is otherwise
-7-
<PAGE> 8
permitted under the Indenture.
9. Amendment to Section 8.10. Section 8.10 of the Credit
Agreement is hereby amended by deleting the phrase "other than, upon the
consummation of the Vitas Merger, the stock ownership plan of Vitas Healthcare
Corporation" beginning on the fifth line of such section and ending on the sixth
line of such section.
10. Amendment to Section 9.1. Section 9.1 of the Credit Agreement
is hereby amended by renumbering the final paragraph of such section (which
paragraph was added pursuant to the Fourth Amendment) as paragraph "(i)", rather
than paragraph "(e)", as referenced in the Fourth Amendment.
11. Amendment to Section 9.4. Section 9.4 of the Credit Agreement
is hereby amended by deleting the proviso at the end of such section.
12. Amendment to Section 9.13(a). Section 9.13(a) of the Credit
Agreement is hereby amended in its entirety to read as follows:
(a) So long as no Default or Event of Default has
occurred and is continuing or would result therefrom and Apria
has given the Agents and the Banks at least ten days' prior
notice thereof, Apria may from time to time after January 1, 1998
(x) effect Subsidiary Reorganizations and (y), 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
January 1, 1998, effect Permitted Transactions; provided that:
(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
-8-
<PAGE> 9
Permitted Debt incurred, assumed or acquired in
all such Permitted Transactions, shall not exceed
$15,000,000 in such fiscal year;
(ii) with respect to all Permitted
Transactions (other than Subsidiary
Reorganizations), 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 Transactions shall
not exceed $30,000,000;
(iii) 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 shall be greater
than zero; and
(iv) 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 and Collateral Agent and
the Banks at least ten days' prior notice of such
Permitted Transaction; provided, however, that in
the event the aggregate consideration of such
Permitted Transaction (calculated pursuant to
Section 9.13(a)(i)) (i) is less than $5,000,000,
Apria shall only be required to provide the notice
referred to above promptly upon completion of such
Permitted Transaction, rather than in advance
thereof, and (ii) is less than $250,000, Apria
shall not be required to provide the notice
referred to above.
-9-
<PAGE> 10
13. Amendment to Section 9.13(c). Section 9.13(c) of the Credit
Agreement is hereby amended in its entirety to read as follows:
(c) Within five (5) Business Days following each
such respective Permitted Acquisition, Apria shall cause each
Material Subsidiary which is formed to effect such Permitted
Acquisition, or is acquired pursuant to a Permitted Acquisition,
to execute and deliver 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 and Collateral Agent; provided that in the
case of foreign Subsidiaries, such joinder shall require the
consent of the Administrative and Collateral Agent.
14. Amendment to Section 9.13(d). Section 9.13(d) of the Credit
Agreement is hereby amended by replacing clauses (w) and (z) of such section
with the following:
(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 had 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 such Permitted Transaction
(calculated pursuant to Section 9.13(a)(i)) is in excess of
$5,000,000, such recalculations shall be subject to the
reasonable satisfaction of the Administrative and Collateral
Agent prior to the consummation of such Permitted Acquisition;
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<PAGE> 11
(z) prior to the consummation of the respective
Permitted Transaction, Apria shall furnish the Administrative and
Collateral 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
$5,000,000.
15. Amendment to Section 10.3. Section 10.3 of the Credit
Agreement is hereby amended in its entirety to read as follows:
Apria will not, nor permit any of its Subsidiaries to, declare or
pay any Dividends except that any Subsidiary of Apria may pay
Dividends to Apria or any Wholly-Owned Subsidiary of Apria.
16. Amendment to Section 10.5(h). Section 10.5(h) of the Credit
Agreement is hereby amended in its entirety to read as follows:
(h) (i) Indebtedness of Apria in respect of
Additional Permitted Subordinated Indebtedness; provided that
notwithstanding anything to the contrary contained in Section 5.2
of the Credit Agreement, 100% of the Net Available Proceeds from
any incurrence of Additional Permitted Subordinated Indebtedness
shall be applied as a mandatory repayment of principal of the
then outstanding Loans pursuant to Section 5.2(a)(B) and shall
reduce the Total Revolving Loan Commitment in accordance with the
provisions of Section 4.3(d) and (ii) the Senior Subordinated
Notes and any refinancing of the Senior Subordinated Notes having
a maturity of not less than five years and no scheduled
amortization and containing other terms, including subordination
provisions, acceptable to the Agents;
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<PAGE> 12
17. Amendment to Section 10.7. Section 10.7 of the Credit
Agreement is hereby amended by adding the word "and" immediately prior to clause
(ii) of the first sentence of such section and deleting the following clause
three of the first sentence of such section: "and (iii) severance payments
required to be made by Apria in connection with the Abbey Merger or the Vitas
Merger shall be permitted".
18. Amendment to Section 10.9. Section 10.9 of the Credit
Agreement is hereby amended in its entirety to read as follows:
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>
March 31, 1998 2.10 to 1
June 30, 1998 1.75 to 1
September 30, 1998 1.60 to 1
December 31, 1998 1.50 to 1
March 31, 1999 1.50 to 1
Thereafter 1.75 to 1
</TABLE>
; provided that, solely for the purpose of determining compliance
with this Section 10.9, the calculation of the Fixed Charge Ratio
shall be made without giving effect to the 1997 Charges and
Reserves and the 1997 Fourth Quarter Charges and Reserves.
19. Amendment to Section 10.10. Section 10.10 of the Credit
Agreement is hereby amended in its entirety to read as follows:
Apria will not permit its Consolidated Net Worth at the end of
any fiscal quarter (commencing with the fiscal quarter ending on
March 31, 1998) to be less than (a) an amount equal to 60% of its
Consolidated Net Worth as of December 31, 1997, plus (b) an
amount equal to 50% of Consolidated
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<PAGE> 13
Net Income (in excess of zero) for each fiscal quarter commencing
with the fiscal quarter ending March 31, 1998, which amount shall
be added to Consolidated Net Worth as of the last day of each
such fiscal quarter, plus (c) 100% of the Net Available Proceeds
of any Equity Issuances.
20. Amendment to Section 10.11. Section 10.11 of the Credit
Agreement is hereby amended in its entirety to read as follows:
Apria will not permit the Consolidated Funded Indebtedness to
Consolidated EBITDA Ratio at the end of any fiscal quarter set
forth below to be greater than the corresponding ratio set forth
below, opposite such date:
<TABLE>
<CAPTION>
Fiscal Quarter End Ratio
------------------ -----
<S> <C>
March 31, 1998 3.00 to 1
June 30, 1998 3.25 to 1
September 30, 1998 3.75 to 1
December 31, 1998 3.75 to 1
March 31, 1999 3.50 to 1
June 30, 1999 3.50 to 1
Thereafter 3.25 to 1
</TABLE>
; provided that, solely for the purpose of determining compliance
with this Section 10.11 the calculation of the Consolidated
Funded Indebtedness to Consolidated EBITDA Ratio shall be made
without giving effect to the 1997 Charges and Reserves and the
1997 Fourth Quarter Charges and Reserves.
21. Amendment to Section 10.12(i). Section 10.12(i) of the Credit
Agreement is hereby amended in its entirety to read as follows:
(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)
-13-
<PAGE> 14
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) (i) any
Additional Permitted Subordinated Indebtedness, (ii) any Existing
Indebtedness the aggregate amount outstanding of which exceeded
$100,000 on the Effective Date (including, without limitation,
the Senior Subordinated Notes; provided, however, that so long as
no Default or Event of Default shall have occurred and be
continuing or would result therefrom, Apria may refinance the
Senior Subordinated Notes in their entirety pursuant to Section
10.5(h)) and (iii) any Indebtedness incurred to refinance the
Senior Subordinated Notes;
22. Amendment to Section 11.11. Section 11.11 of the Credit
Agreement is hereby amended by deleting such section in its entirety.
23. Amendment to Section 12.9. Section 12.9 of the Credit
Agreement is hereby amended by deleting the following parenthetical beginning on
the fifth line of such section and ending on the eighth line of such section:
(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)
24. Amendment to Section 13.4(b). Section 13.4(b) of the Credit
Agreement is hereby amended by (a) substituting the amount "$5,000,000" for the
amount "$15,000,000" on the seventh line of such section and (b) replacing
clause (iii) of such section with the following:
(iii) the consent of the Administrative and Collateral Agent and
the Issuing Bank shall be required in connection with any
assignment (such consent not to be unreasonably withheld);
25. Amendment to Schedule I. Schedule I to the Credit Agreement
is hereby deleted in its entirety and replaced with Attachment A to this
Amendment.
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<PAGE> 15
26. Amendment to Schedule XII. Schedule XII to the Credit
Agreement is hereby deleted in its entirety and shall be replaced with the
phrase "Intentionally Left Blank".
27. Amendment to Exhibit G. Exhibit G to the Credit Agreement is
hereby amended by replacing "Attachment No. 1 to Compliance Certificate" with
Attachment B to this Amendment.
28. Permanent Waiver Relating to Existing Defaults. Upon the
satisfaction of the conditions set forth in Section 31 of this Amendment, the
Administrative and Collateral Agent and the Banks agree that they shall have
permanently waived the Existing Defaults, upon which waiver the Existing
Defaults shall not constitute Defaults or Events of Default under the Credit
Agreement. The foregoing waiver shall not limit or otherwise affect any rights
that the Banks may have with respect to any other existing or future Default or
Event of Default by the Borrowers and the Borrowers shall be bound to perform
all their Obligations under the Credit Agreement, as amended by this Amendment.
29. Amendment Fees. If the Required Banks consent to this
Amendment, the Borrowers shall pay to the Administrative and Collateral Agent
for distribution to each Bank that consents to (i) this Amendment on or prior to
5:00 p.m. Pacific time on April 13, 1998 and (ii) the form of documentation of
this Amendment and the First Amendment to the Security Agreement on or prior to
twelve noon Pacific time on April 16, 1998, an amendment fee equal to .10% of
such Bank's Revolving Loan Commitment amount as in effect subsequent to the
reductions set forth in this Amendment. The amendment fee shall be deemed earned
when paid.
30. Representations. Each of the Borrowers represents and
warrants to the Banks that (a) it has the corporate or partnership power to
execute, deliver and perform the terms and provisions of this Amendment and has
taken all necessary corporate or partnership action to authorize the execution,
delivery and performance by it of this Amendment and (b) upon the effectiveness
of this Amendment, no Default or Event of Default shall have occurred and be
continuing under the Credit Agreement. Each of Apria and its Material
Subsidiaries has duly executed and delivered this Amendment and this Amendment
constitutes its legal, valid and binding obligation enforceable in accordance
with its terms, except as enforceability may be limited by bankruptcy,
reorganization, moratorium or similar laws relating to or limiting creditors'
rights generally or by equitable principles relating to enforceability.
31. (a) Conditions Precedent. The effectiveness of
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<PAGE> 16
this Amendment is subject to the following:
(i) the receipt by the Administrative and Collateral Agent of the
consent of the Required Banks;
(ii) the receipt by the Administrative and Collateral Agent of
the duly executed First Amendment to Security Agreement;
(iii) the receipt by the Administrative and Collateral Agent of
an opinion of Borrower's counsel in a form satisfactory to the Agents;
(iv) the receipt by the Administrative and Collateral Agent of
duly executed UCC-1 financing statements and any relevant recording taxes, as
reasonably estimated by Apria, with respect to each jurisdiction in which
Collateral (as defined in the Security Agreement) is located;
(v) the receipt by the Administrative and Collateral Agent of
this Amendment, duly executed and delivered by each of the Borrowers; and
(vi) the payment of the fees set forth in Section 29 of this
Amendment; and
(vii) an officer's certificate of Apria to the effect that except
with respect to the occurrence of the Existing Defaults, no Default or Event of
Default has occurred or is continuing under the Credit Agreement and that each
of the representations and warranties contained in Section 8 of the Credit
Agreement are true and correct in all material respects as of the date of this
Amendment with references to the Agreement being references to the Agreement as
amended by this Amendment.
(b) Conditions Subsequent. As promptly as practicable, but
in no event later than thirty (30) days from the date of this Amendment the
Borrowers shall deliver to the Administrative and Collateral Agent an opinion of
outside counsel with respect to the perfection of the Administrative and
Collateral Agent's security interest (for the benefit of the Banks) in the
Collateral.
32. Reference to and Effect on the Credit Agreement, Notes and
Guaranty.
(a) Except as specifically amended by this Amendment, the
Credit Agreement shall remain in full force and effect and is hereby ratified
and confirmed.
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<PAGE> 17
(b) This Amendment shall be construed as one with the
Credit Agreement and the Credit Agreement shall, where the context requires, be
read and construed throughout so as to incorporate this Amendment.
(c) All documents executed in connection with the Credit
Agreement, including, but not limited to, the Notes and the Guaranty shall
remain in full force and effect and are hereby ratified and confirmed with
respect to the Credit Agreement, as amended hereby.
33. Entire Agreement. This Amendment, together with the Credit
Agreement and the other documents referred to in, or executed in connection
with, the Credit Agreement supersedes all prior agreements and understandings,
written or oral, among the parties with respect to the subject matter of this
Amendment.
34. Expenses. The Borrowers shall reimburse the Agents on demand
for all reasonable costs, expenses and charges (including, without limitation,
reasonable fees and charges of legal counsel and other consultants for the
Agents) incurred by the Agents in connection with the preparation, performance
or enforcement of this Amendment.
35. Successors and Assigns. This Amendment shall be binding upon
and inure to the benefit of its parties and their respective successors and
permitted assigns.
36. Severability. Any provision of this Amendment 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 Amendment and any such prohibition
or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
37. Captions. The captions and section headings appearing in this
Amendment are included solely for convenience of reference and are not intended
to affect the interpretation of any provision of this Amendment.
38. Counterparts. This Amendment may be executed in any number of
counterparts all of which when taken together shall constitute one and the same
instrument and any of the parties to this Amendment may execute this Amendment
by signing any such counterpart; signature pages may be detached from multiple
separate counterparts and attached to a single counterpart so that all
signatures are physically attached to the same document.
-17-
<PAGE> 18
39. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
INTERPRETED AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
CALIFORNIA.
-18-
<PAGE> 19
IN WITNESS WHEREOF, the parties to this Amendment have caused their duly
authorized officers to execute and deliver this Amendment as of the date first
above written.
APRIA HEALTHCARE GROUP INC.
APRIA HEALTHCARE, INC.
APRIACARE MANAGEMENT SYSTEMS, INC.
APRIA NUMBER TWO, INC.
APRIA HEALTHCARE OF NEW YORK STATE, INC.
By:
-----------------------------------------
Name: Larry Smallen
Title: Chief Financial Officer
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
as Administrative and Collateral Agent
By:
-----------------------------------------
Name: Christine Cordi
Title: Vice President
<PAGE> 20
ATTACHMENT A
COMMITMENTS
<TABLE>
<CAPTION>
Pro Rata
Bank Commitment Share
---- ----------------- ----------
<S> <C> <C>
Bank of America
National Trust and
Savings Association $ 45,000,000.00 11.250%
---------------
NationsBank of Texas, N.A. $ 37,500,000.00 9.375%
---------------
ABN AMRO Bank N.V.,
Los Angeles International
Branch $ 12,500,000.00 3.125%
---------------
The Bank of New York $ 17,500,000.00 4.375%
---------------
The Bank of Nova Scotia $ 30,000,000.00 7.500%
---------------
Banque Nationale de Paris $ 25,000,000.00 6.250%
---------------
Banque Paribas $ 22,500,000.00 5.625%
---------------
Credit Lyonnais,
New York Branch $ 17,500,000.00 4.375%
---------------
Deutsche Bank AG,
New York Branch and/or
Cayman Islands Branch $ 10,000,000.00 2.500%
---------------
The First National Bank
of Chicago $ 12,500,000.00 3.125%
---------------
First Union National
Bank $ 12,500,000.00 3.125%
---------------
The Fuji Bank Limited,
Los Angeles Agency $ 7,500,000.00 1.875%
---------------
The Industrial Bank of
Japan, Ltd.,
Los Angeles Agency $ 17,500,000.00 4.375%
---------------
The Long-Term Credit $ 27,500,000.00 6.875%
---------------
Bank of Japan, Ltd.
Mellon Bank, N.A. $ 12,500,000.00 3.125%
---------------
The Mitsubishi Trust $ 7,500,000.00 1.875%
---------------
</TABLE>
<PAGE> 21
<TABLE>
<CAPTION>
Pro Rata
Bank Commitment Share
---- ----------------- ----------
<S> <C> <C>
and Banking Corporation
The Sakura Bank Limited $ 7,500,000.00 1.875%
---------------
The Sanwa Bank Limited $ 7,500,000.00 1.875%
---------------
The Sumitomo Bank Limited $ 7,500,000.00 1.875%
---------------
Toronto Dominion (Texas), $ 22,500,000.00 5.625%
---------------
Inc.
Union Bank of California, $ 22,500,000.00 5.625%
---------------
N.A.
Wells Fargo Bank, N.A. $ 17,500,000.00 4.375%
=============== ========
TOTAL $ 400,000,000.00 100.000%
</TABLE>
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<PAGE> 22
ATTACHMENT B
ATTACHMENT NO. 1
TO COMPLIANCE CERTIFICATE
APRIA HEALTHCARE GROUP INC.
COVENANT COMPUTATIONS
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION REPORTING FORMAT
________ __, 19__
SECTION 10.8 CAPITAL EXPENDITURES
(trailing four quarters calculation)
CAPITAL EXPENDITURES:
Expenditures for Fixed or Capital Assets
and Rental Equipment
----------
PLUS: Capital Lease Obligations
----------
PLUS: Investments permitted pursuant
to Section 10.6(viii)
----------
MINUS: Expenditures made in connection
with Permitted Transactions made
in compliance with Section 9.13
----------
TOTAL CAPITAL EXPENDITURES: (a)
----------
CONSOLIDATED NET REVENUE: (b)
----------
CAPITAL EXPENDITURES AS % REVENUE (a)/(b) %
----------
CAPITAL EXPENDITURES CANNOT EXCEED: %
----------
VARIANCE - Favorable (Unfavorable) %
----------
<PAGE> 23
SECTION 10.9 FIXED CHARGE COVERAGE RATIO
(trailing four quarters calculation)
CONSOLIDATED EBITDA:
Consolidated Net Income (before consolidated interest income, Consolidated
Interest Expense, provisions for taxes, and exclusive of extraordinary gains or
losses or gains and losses from sales of assets other than inventory or Rental
Equipment sold in the Ordinary Course of Business)
PLUS: Amortization
----------
PLUS: Depreciation
----------
PLUS: 1997 Charges and Reserves
----------
PLUS: 1997 Fourth Quarter Charges and Reserves
----------
PLUS: EBITDA allocable to Permitted
Acquired Businesses (added only
for the period commencing at the
beginning of the four-quarter period
through the date of the acquisition)
----------
MINUS: EBITDA allocable to divestitures
(subtracted only for the period
commencing at the beginning of
the four-quarter period through
the date of the divestiture)
----------
TOTAL CONSOLIDATED EBITDA:
----------
PLUS: CONSOLIDATED RENT EXPENSE
----------
MINUS: TAXES PAID IN CASH
----------
TOTAL: Consolidated EBITDA +
Consolidated Rent Expense
- Taxes paid in cash (a)
----------
-2-
<PAGE> 24
FIXED CHARGES:
Consolidated Interest Expense and
amortization of debt discounts in
respect of all Indebtedness
----------
PLUS: Aggregate principal amount of all
scheduled payments of Indebtedness
(including principal portion of rentals
under Capitalized Lease Obligations)
----------
PLUS: Consolidated Rent Expense
----------
TOTAL FIXED CHARGES: (b)
----------
FIXED CHARGE COVERAGE RATIO (a)/(b)
----------
FIXED CHARGE COVERAGE RATIO
CANNOT BE LESS THAN:
VARIANCE - Favorable (Unfavorable)
----------
SECTION 10.10 MINIMUM CONSOLIDATED NET WORTH
Consolidated Net Worth as of
December 31, 1997
----------
Aggregate Consolidated Net Income (in excess of zero in each quarter) for all
the quarters since December 31, 1997 to the quarter ended ____ _, 19_
----------
60% of Consolidated Net Worth for
as of December 31, 1997
----------
PLUS: 50% of aggregate Consolidated Net Income (in excess
of zero) for all quarters since December 31, 1997 to the
quarter ended ________ __, 19__
----------
PLUS: 100% of aggregate Net Available Proceeds
received during all quarters since
December 31, 1997 to the quarter
ended ________ __, 19__
----------
MINIMUM CONSOLIDATED NET WORTH
----------
CONSOLIDATED NET WORTH
----------
VARIANCE - Favorable (Unfavorable)
----------
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<PAGE> 25
SECTION 10.11 CONSOLIDATED FUNDED INDEBTEDNESS TO CONSOLIDATED EBITDA
(trailing four quarters calculation)
Consolidated Funded Indebtedness (a)
----------
Consolidated EBITDA (b)
----------
CONSOLIDATED FUNDED INDEBTEDNESS
TO CONSOLIDATED EBITDA (a)/(b)
----------
RATIO CANNOT EXCEED:
----------
VARIANCE - Favorable (Unfavorable)
----------
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<PAGE> 1
EXHIBIT 10.38
FIRST AMENDMENT TO SECURITY AGREEMENT
THIS FIRST AMENDMENT TO SECURITY AGREEMENT (this "Amendment")
dated as of April 15, 1998 is made between Apria Healthcare Group Inc., Apria
Healthcare, Inc., ApriaCare Management Systems, Inc. (formerly known as Apria
Number One, Inc.), Apria Number Two, Inc., Apria Healthcare of New York State,
Inc. (formerly known as Homedco of New York State, Inc.) (collectively, the
"Obligors") and Bank of America National Trust and Savings Association, as
Administrative and Collateral Agent for the Banks (the "Agent").
RECITALS
I. The Obligors, the Banks, the Syndication Agent and the
Administrative Agent are parties to the Credit Agreement dated as of August 9,
1996, as amended by the First Amendment to Credit Agreement, dated as of April
22, 1997, the Second Amendment to Credit Amendment, dated as of August 8, 1997,
the Third Amendment to Credit Agreement and Waiver, dated as of January 30,
1998, the Fourth Amendment to Credit Agreement and Waiver, dated as of March 13,
1998, and the Fifth Amendment to Credit Agreement and Waiver (the "Fifth
Amendment"), dated as of April 15, 1998 (as so amended, the "Credit Agreement")
pursuant to which the Banks extended certain credit to the Obligors.
II. The Obligors and the Administrative and Collateral Agent are
parties to the Security Agreement, dated as of March 13, 1998 (the "Security
Agreement").
III. The Obligors have requested that the Banks and the Agent
enter into the Fifth Amendment.
IV. It is a condition to the Banks entering into the Fifth
Amendment that the Security Agreement be amended as follows:
AGREEMENT
In consideration of the foregoing premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties to this Amendment agree as follows:
1. Amendment to Section 1.01.
(a) The definition of "Filing States" is hereby deleted in its
entirety from Section 1.01 of the Security Agreement.
<PAGE> 2
2. Amendment to Section 2.03. Section 2.03 of the Security
Agreement is hereby amended by deleting the phrase "including, if required by
the Agent, the filing of additional financing statements subsequent to the date
of this Agreement in states other than the Filing States", beginning on the
sixteenth line of such section and ending on the eighteenth line thereof.
3. Amendment to Section 3.01. Section 3.01 of the Security
Agreement is hereby amended by deleting the phrase "in the Filing States" in the
thirteenth line of such section.
4. Amendment to Section 4.02. Section 4.02 of the Security
Agreement is hereby amended in its entirety to read as follows:
Without at least 30 days' prior written notice to the Agent, no
Obligor shall (i) maintain any of its books and records with
respect to the Collateral at any office or maintain its principal
place of business at any place, other than at the address
initially indicated for notices to it under Section 6 or at one
of the locations identified in Annex 5 under its name, or (ii)
change its corporate name, or the name under which it does
business, from the name shown on the signature pages to this
Agreement.
5. Amendment to Section 4.06. Section 4.06 of the Security
Agreement is hereby amended in its entirety to read as follows:
Each Obligor agrees that it shall keep the Collateral
continuously insured against such risks as are customarily
insured against by businesses of like size and type engaged in
the same or similar operations. In addition, each Obligor shall
cause the Agent to be named as loss payee with respect to any
such insurance policies covering all or any part of the
Collateral and shall be named as additional insured with respect
to the general liability insurance policies of the Obligors for
the Collateral.
6. Representations. Each of the Obligors represents and warrants
to the Administrative and Collateral Agent that it has the corporate or
partnership power to execute, deliver and perform the terms and provisions of
this Amendment and has taken
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<PAGE> 3
all necessary corporate or partnership action to authorize the execution,
delivery and performance by it of this Amendment. Each of Apria and its Material
Subsidiaries has duly executed and delivered this Amendment and this Amendment
constitutes its legal, valid and binding obligation enforceable in accordance
with its terms, except as enforceability may be limited by bankruptcy,
reorganization, moratorium or similar laws relating to or limiting creditors'
rights generally or by equitable principles relating to enforceability.
7. Conditions Precedent. The effectiveness of this Amendment is
subject to the following:
(a) the effectiveness of the Fifth Amendment to Credit Agreement
and Waiver; and
(b) the receipt by the Administrative and Collateral Agent of
this Amendment, duly executed and delivered by each of the Obligors.
8. Reference to and Effect on the Security Agreement.
(a) Except as specifically amended by this Amendment, the
Security Agreement shall remain in full force and effect and is hereby ratified
and confirmed.
(b) This Amendment shall be construed as one with the
Security Agreement and the Security Agreement shall, where the context requires,
be read and construed throughout so as to incorporate this Amendment.
9. Entire Agreement. This Amendment, together with the Security
Agreement and the other documents referred to herein, or executed in connection
with, the Security Agreement supersedes all prior agreements and understandings,
written or oral, among the parties with respect to the subject matter of this
Amendment.
10. Expenses. The Obligors shall reimburse the Administrative and
Collateral Agent on demand for all reasonable costs, expenses and charges
(including, without limitation, reasonable fees and charges of legal counsel and
other consultants for the Administrative and Collateral Agent) incurred by the
Administrative and Collateral Agent in connection with the preparation,
performance or enforcement of this Amendment.
11. Successors and Assigns. This Amendment shall be binding upon
and inure to the benefit of its parties and their respective successors and
permitted assigns.
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<PAGE> 4
12. Severability. Any provision of this Amendment 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 Amendment and any such prohibition
or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13. Captions. The captions and section headings appearing in this
Amendment are included solely for convenience of reference and are not intended
to affect the interpretation of any provision of this Amendment.
14. Counterparts. This Amendment may be executed in any number of
counterparts all of which when taken together shall constitute one and the same
instrument and any of the parties to this Amendment may execute this Amendment
by signing any such counterpart; signature pages may be detached from multiple
separate counterparts and attached to a single counterpart so that all
signatures are physically attached to the same document.
15. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
INTERPRETED AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
CALIFORNIA.
IN WITNESS WHEREOF, the parties to this Amendment have caused their duly
authorized officers to execute and deliver this Amendment as of the date first
above written.
APRIA HEALTHCARE GROUP INC.
APRIA HEALTHCARE, INC.
APRIACARE MANAGEMENT SYSTEMS, INC.
APRIA NUMBER TWO, INC.
APRIA HEALTHCARE OF NEW YORK STATE, INC.
By:
----------------------------------------
Name: Larry Smallen
Title: Chief Financial Officer
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
as Administrative and Collateral Agent
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<PAGE> 5
By:
----------------------------------------
Name: Christine Cordi
Title: Vice President
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<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements (Form S-8 Nos. 33-94026, 33-51234, 33- 75028, 33-77684, 33-57628,
33-80581 and 33-80583) pertaining to the Apria Healthcare Group Inc./Homedco
Group, Inc.'s Stock Incentive Plan, Apria Healthcare Group Inc. Amended and
Restated 1992 Stock Option Plan, 1992 Stock Incentive Plan, 1994 Employee Stock
Purchase Plan, 1991 Nonqualified Stock Option Plan and 1991 Management Stock
Purchase Plan of our report dated March 11, 1998, except for Notes 5, 12 and 14,
as to which the dates are April 2, 1998, April 9, 1998 and April 3, 1998,
respectively, with respect to the consolidated financial statements and schedule
of Apria Healthcare Group Inc. included in the Annual Report (Form 10-K) for the
year ended December 31, 1997.
ERNST & YOUNG LLP
Orange County, California
April 30, 1998
