<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
[X] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
</TABLE>
APRIA HEALTHCARE GROUP INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] Fee not required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
[LOGO]
APRIA HEALTHCARE GROUP INC.
3560 HYLAND AVENUE
COSTA MESA, CALIFORNIA 92626
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 28, 1998
The Annual Meeting of Stockholders of Apria Healthcare Group Inc., a
Delaware corporation (the "Company"), will be held at the Company's Costa Mesa,
California Headquarters, 3560 Hyland Avenue (Building No. 3500 -- Grand Canyon
Room), Costa Mesa, California 92626, beginning at 8:00 A.M., local time, on July
28, 1998, for the following purposes:
(1) to elect three members of the Board of Directors, with such persons to
hold office for a three-year term or until their successors are elected
and qualified; and
(2) to transact such other business as may properly come before the Annual
Meeting and at any adjournment thereof.
For the purpose of electing Directors, each stockholder is entitled to
one vote for each Director to be elected for each share of Common Stock owned.
The candidates receiving the highest number of votes will be elected.
Shares represented by properly executed proxies will be voted in
accordance with the specifications therein. It is the intention of the Board of
Directors that shares represented by proxies, which do not contain directions to
the contrary, will be voted FOR the election of the directors named in the
attached Proxy Statement.
<PAGE> 3
The Board of Directors has fixed the close of business on June 8, 1998
as the record date for determining stockholders entitled to notice of and to
vote at the Annual Meeting and at any adjournment thereof. A complete list of
stockholders entitled to vote at the Annual Meeting will be available for
examination by any stockholder, for any purpose germane to the Annual Meeting,
at the office of the Secretary of the Company, at 3560 Hyland Avenue, Costa
Mesa, California 92626, during the ten-day period preceding the Annual Meeting.
By Order of the Board of Directors,
/s/ Robert S. Holcombe
------------------------------------
Robert S. Holcombe
Senior Vice President, General Counsel
and Secretary
Costa Mesa, California
July 3, 1998
YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWNED ON THE RECORD DATE, PLEASE INDICATE
YOUR VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD AND DATE, SIGN AND RETURN IT
IN THE ENVELOPE PROVIDED, WHICH IS ADDRESSED FOR YOUR CONVENIENCE AND NEEDS NO
POSTAGE IF MAILED IN THE UNITED STATES. IN ORDER TO AVOID THE ADDITIONAL EXPENSE
TO THE COMPANY OF FURTHER SOLICITATION, WE ASK YOUR COOPERATION IN PROMPTLY
MAILING IN YOUR PROXY CARD.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SOLICITATION OF PROXIES......................................................................1
VOTING PROCEDURE AND TABULATION..............................................................1
OUTSTANDING SHARES OF COMMON STOCK...........................................................2
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT..................................2
ELECTION OF DIRECTORS........................................................................5
Composition of Board................................................................5
Nominees for Election to Board......................................................6
Vote Required for Election of Directors.............................................6
Nominees and Directors..............................................................6
INFORMATION REGARDING THE BOARD OF DIRECTORS.................................................8
Directors' Fees.....................................................................8
Committees and Meetings of the Board of Directors...................................9
EXECUTIVE COMPENSATION AND OTHER INFORMATION................................................11
Summary of Executive Compensation..................................................11
Summary of Option Grants...........................................................13
Summary of Options Exercised.......................................................13
Compensation Committee Interlocks and Insider Participation........................14
REPORT OF THE COMPENSATION COMMITTEE........................................................14
Performance Graph..................................................................17
Certain Transactions...............................................................18
Employment and Severance Agreements................................................18
Management Incentive Compensation Plans............................................19
401(k) Plan........................................................................20
1991 Nonqualified Stock Option Plan................................................20
Amended and Restated 1992 Stock Incentive Plan.....................................20
Apria Healthcare Group Inc./Homedco Group, Inc. Stock Incentive Plan...............20
1997 Stock Incentive Plan..........................................................22
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT BY CERTAIN COMPANY AFFILIATES.............22
INFORMATION REGARDING THE INDEPENDENT AUDITORS OF THE COMPANY...............................22
ANNUAL REPORT...............................................................................23
PROPOSALS OF STOCKHOLDERS...................................................................23
OTHER MATTERS...............................................................................23
</TABLE>
<PAGE> 5
APRIA HEALTHCARE GROUP INC.
3560 HYLAND AVENUE
COSTA MESA, CALIFORNIA 92626
PROXY STATEMENT
SOLICITATION OF PROXIES
THE ACCOMPANYING PROXY IS BEING SOLICITED BY THE BOARD OF DIRECTORS OF
APRIA HEALTHCARE GROUP INC. (THE "COMPANY") FOR USE AT THE COMPANY'S 1998 ANNUAL
MEETING OF STOCKHOLDERS TO BE HELD ON JULY 28, 1998, AT 8:00 A.M. LOCAL TIME, AT
THE COMPANY'S COSTA MESA, CALIFORNIA HEADQUARTERS, 3560 HYLAND AVENUE (BUILDING
NO. 3500 -- GRAND CANYON ROOM), COSTA MESA, CALIFORNIA 92626 (THE "ANNUAL
MEETING"), AND AT ANY ADJOURNMENT THEREOF. THIS PROXY STATEMENT AND THE
ACCOMPANYING PROXY ARE FIRST BEING MAILED TO STOCKHOLDERS ON OR ABOUT JULY 3,
1998.
The expense of soliciting proxies will be borne by the Company. Proxies
will be solicited principally through the use of the mail, but Directors,
officers and regular employees of the Company may solicit proxies personally or
by telephone or special letter without any additional compensation. The Company
also will reimburse banks, brokerage houses and other custodians, nominees and
fiduciaries for any reasonable expenses in forwarding proxy materials to
beneficial owners.
VOTING PROCEDURE AND TABULATION
All shares represented by each properly executed unrevoked proxy
received in time for the Annual Meeting will be voted in the manner specified
therein. If no contrary direction is given in the executed proxy, the proxy will
be voted "for" each of the nominees described herein (See "Election of
Directors"). An executed proxy may be revoked at any time before its exercise by
filing with the Secretary of the Company, at 3560 Hyland Avenue, Costa Mesa,
California 92626, the principal executive office of the Company, a written
notice of revocation or a duly executed proxy bearing a later date. The
execution of the enclosed proxy will not affect a stockholder's right to vote in
person should such stockholder find it convenient to attend the Annual Meeting
and desire to vote in person.
Votes cast by proxy or in person at the Annual Meeting will be counted
by the persons appointed by the Company to act as election inspectors for the
meeting. The election inspectors will treat shares represented by proxies that
reflect abstentions as shares that are present and entitled to vote for purposes
of determining the presence of a quorum and for purposes of determining the
outcome of any matter submitted to the stockholders for a vote. Abstentions,
however, do not constitute a vote "for" or "against" any matter and thus will be
disregarded in the calculation of a plurality or of "votes cast."
The election inspectors will treat shares referred to as "broker
non-votes" (i.e., shares held by brokers or nominees over which the broker or
nominee lacks discretionary power to vote and for which the broker or nominee
has not received specific voting instructions from the beneficial owner) as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum. However, for purposes of determining the outcome of any
1
<PAGE> 6
matter as to which the broker has indicated on the proxy that it does not have
discretionary authority to vote, those shares will be treated as not present and
not entitled to vote with respect to that matter (even though those shares are
considered entitled to vote for quorum purposes and may be entitled to vote on
other matters).
OUTSTANDING SHARES OF COMMON STOCK
On June 8, 1998, the record date with respect to this solicitation for
determining stockholders entitled to notice of and to vote at the Annual
Meeting, 51,732,359 shares of the Company's Common Stock were outstanding. No
shares of any other class of stock were outstanding. Only stockholders of record
on such date are entitled to notice of and to vote at the Annual Meeting and at
any adjournment thereof. Each stockholder of record is entitled to one vote for
each share held on all matters to come before the Annual Meeting and at any
adjournment thereof.
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth information as of June 8, 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, the Company's current Chief
Executive Officer, the Company's four most highly compensated executive officers
in 1997, the Company's former Chief Executive Officer, the Company's former
President and Chief Operating Officer 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 PERCENT
NAME OF BENEFICIAL OWNER BENEFICIAL 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 8.59
Charles B. Johnson(3) 4,443,008 8.59
Rupert H. Johnson, Jr.(3) 4,443,008 8.59
George L. Argyros(4) 2,763,768 5.34
Stephen Feinberg(5) 2,615,400 5.06
Jeremy M. Jones(6) 1,254,314 2.40
Philip L. Carter(7) 390,000 *
David L. Goldsmith(8) 320,236 *
Lawrence H. Smallen(9) 159,860 *
Steven T. Plochocki(10) 86,029 *
Thomas M. Robbins(11) 41,400 *
Merl A. Wallace(12) 40,106 *
Leonard Green(13) 20,000 *
</TABLE>
2
<PAGE> 7
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ------------------------ -------------------- --------
<S> <C> <C>
Robert S. Holcombe(14) 12,100 *
H.J. Mark Tompkins(15) 10,100 *
Richard H. Koppes(16) 0 --
Philip R. Lochner, Jr.(17) 0 --
Beverly Benedict Thomas(18) 0 --
Stephen J. Trafton(19) 0 --
All Directors and executive officers as a group
(18 persons)(20) 6,204,079 11.99%
</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 Capital Guardian Trust
Company, a bank as defined in Section 3(a)(6) of the Securities Exchange
Act of 1934 ("Capital"), 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 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 is 333 S. Hope Street, 52nd
Floor, Los Angeles, California 90071.
(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.
3
<PAGE> 8
(4) According to a Schedule 13D Amendment, dated April 27, 1998, filed with
the Securities and Exchange Commission, Mr. Argyros has sole investment
and dispositive power as to all 2,763,768 shares. This number includes
2,430,670 shares owned by HBI Financial, Inc., of which Mr. Argyros is
the sole shareholder. 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 resigned his position as Chairman of the Board effective as of
May 27, 1998. 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 17, 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. He resigned
his position as Director of the Company on May 27, 1998.
(7) Includes 375,000 shares subject to options that are currently
exercisable. Mr. Carter became a Director and the Chief Executive
Officer of the Company on May 5, 1998.
(8) Includes 20,000 shares subject to options that are currently exercisable
or will become exercisable before August 7, 1998.
(9) Includes 56,120 shares subject to options that are currently exercisable
or will become exercisable before August 7, 1998. Mr. Smallen resigned
as the Chief Financial Officer, Senior Vice President and Treasurer
effective June 16, 1998.
(10) 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.
4
<PAGE> 9
(11) Includes 41,400 shares subject to options that are currently exercisable
or will become exercisable before August 7, 1998. Mr. Robbins and the
Company have agreed that his employment will terminate as of August 7,
1998.
(12) Includes 40,000 shares subject to options that are currently exercisable
or will become exercisable before August 7, 1998. Mr. Wallace and the
Company have agreed that his employment will terminate as of July 17,
1998.
(13) Includes 19,000 shares subject to options that are currently exercisable
or will become exercisable before August 7, 1998. Also includes 1,000
shares held by Mr.
Green's spouse.
(14) Includes 7,000 shares subject to options that are currently exercisable
or will become exercisable before August 7, 1998. Also includes 100
shares held by Mr.
Holcombe's spouse.
(15) 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 company owned by them. Mr. Tompkins became a Director of the
Company on March 4, 1997.
(16) Mr. Koppes became a member of the Board of Directors on May 5, 1998.
(17) Mr. Lochner became a member of the Board of Directors on June 30, 1998.
(18) Ms. Thomas became a member of the Board of Directors on June 30, 1998.
(19) Mr. Trafton became a member of the Board of Directors on June 30, 1998.
Mr. Trafton has reported the purchase of 10,000 shares of the Company's
Common stock on June 24, 1998.
(20) Includes shares owned by certain trusts. Also includes 663,040 shares
subject to options that are currently exercisable or will become
exercisable before August 7, 1998. Does not include shares beneficially
owned by Messrs. Argyros, Jones or Plochocki. See Notes 4, 6, and 10.
ELECTION OF DIRECTORS
COMPOSITION OF BOARD
The Company's Board of Directors consists of such number of Directors as
may be determined by the Board of Directors from time to time. The full Board of
Directors currently consists of nine Directors. The Board of Directors is
divided into three classes, each with three Directors, with staggered three-year
terms. At the Annual Meeting, three Directors are to be elected for a term of
three years, or until election and qualification of their successors.
5
<PAGE> 10
NOMINEES FOR ELECTION TO BOARD
The nominees for election are Philip R. Lochner, Jr., Beverly Benedict
Thomas and Stephen J. Trafton, each of whom was selected by the Board to fill a
vacancy on the Board as of June 30, 1998.
If any of the nominees should become unavailable for election to the
Board of Directors, the persons named in the proxy or their substitutes shall be
entitled to vote for a substitute to be designated by the Board of Directors.
Alternatively, the Board of Directors may reduce the number of Directors. The
Board of Directors has no reason to believe that it will be necessary to
designate a substitute nominee or reduce the number of Directors.
VOTE REQUIRED FOR ELECTION OF DIRECTORS
For the purpose of electing Directors, each stockholder is entitled to
one vote for each Director to be elected for each share of Common Stock owned.
The candidates receiving the highest number of votes will be elected.
The accompanying proxies solicited by the Board of Directors will be
voted "for" the election of the nominees unless the proxy card is marked to
withhold authority to vote for any nominee.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" EACH
OF THE NOMINEES LISTED ABOVE.
NOMINEES AND DIRECTORS
The following table provides information regarding the nominees and
other members of the Board of Directors. The ages shown are as of June 8, 1998.
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE DURING LAST DIRECTOR
NAME AND AGE: FIVE YEARS AND DIRECTORSHIPS: SINCE:
- ------------- ----------------------------------------------- --------
MEMBERS OF THE BOARD WHOSE TERMS EXPIRE IN 1998
(NOMINEES)
<C> <S> <C>
Philip R. Lochner, Jr. (55) Senior Vice President of Time Warner Inc. since 6/30/98
July 1991. From March 1990 to June 1991 Mr.
Lochner was a Commissioner of the Securities and
Exchange Commission. He is on the Board of
Governors of the National Association of
Securities Dealers, a director of the Henry Street
Settlement, and a member of the Advisory Council
of Republic New York Corporation. He is also a
Trustee of The Canterbury School and a fellow of
the American Bar Foundation.
Beverly Benedict Thomas (55) Principal of BBT Strategies, a consulting firm 6/30/98
specializing in public affairs and strategic
planning. Previously, Ms. Thomas was a principal
of UT Strategies, Inc., a public affairs firm,
from 1995 to 1998 and Assistant Treasurer of the
State of California from 1991 to 1995. In addition
to serving as a director of Catellus Real Estate
Development Corporation, a
</TABLE>
6
<PAGE> 11
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE DURING LAST DIRECTOR
NAME AND AGE: FIVE YEARS AND DIRECTORSHIPS: SINCE:
- ------------- ----------------------------------------------- --------
<C> <S> <C>
diversified real estate operating company, Ms.
Thomas also serves as a Commissioner of the Los
Angeles City Employees' Retirement System. From
1993 to 1995, Ms. Thomas served on the Boards of
the California Public Employees' Retirement System
and the California State Teachers Retirement
System.
Stephen J. Trafton (51) Chairman of the Board, President and Chief 6/30/98
Executive Officer of Glendale Federal Bank and
Vice Chairman of the Board, President and Chief
Executive Officer of GLENFED, Inc. since March
1992. From 1980 to 1992, Mr. Trafton served as a
senior officer at several thrift and commercial
banks, specializing in balance sheet and expense
restructuring.
MEMBERS OF THE BOARD WHOSE TERMS EXPIRE IN 1999
David L. Goldsmith (50) Managing Director of BancAmerica Robertson, 1987*
Stephens & Company (formerly Robertson, Stephens &
Company LLC), an investment banking firm, since
1981. Mr. Goldsmith is also a director of Balanced
Care Corporation.
Leonard Green (71) President and Chief Executive Officer of Green 1993**
Management and Investment Co., a private
investment management company, since 1985. Mr.
Green also serves as a director of Lincoln
Services Corp.
Richard H. Koppes (51) Of Counsel at Jones, Day, Reavis & Pogue, a law 1998
firm, Consulting Professor of Law and Co-Director
of Education Programs at Stanford University
School of Law and Principal of American Partners
Capital Group, a venture capital and consulting
firm, since August 1996. From May 1986 through
July 1996, Mr. Koppes held several positions with
the California Public Employees' Retirement
System, including General Counsel, Interim Chief
Executive Officer and Deputy Executive Officer.
Mr. Koppes is also a director of Mercy Healthcare,
a non-profit hospital system.
MEMBERS OF THE BOARD WHOSE TERMS EXPIRE IN 2000
Philip L. Carter (50) Chief Executive Officer and Director of the 1998
Company since May 1998. Prior to joining the
Company, Mr. Carter was President and Chief
Executive Officer of MacFrugal's
Bargains-Close-outs, Inc., a chain of retail
discount stores since 1995 and had held the
positions of Executive Vice President and Chief
Financial Officer of MacFrugal's from 1991 through
1995.
H.J. Mark Tompkins (57) Independent investment and corporate advisor, 1997
President and Chief Executive Officer of Exfinco,
S.a.r.l., a Belgian company
</TABLE>
7
<PAGE> 12
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE DURING LAST DIRECTOR
NAME AND AGE: FIVE YEARS AND DIRECTORSHIPS: SINCE:
- ------------- ----------------------------------------------- --------
<C> <S> <C>
engaged in investment advisory activities, from
1994 until 1997. Mr. Tompkins was appointed by a
committee of the Board of Directors in March 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) Principal and Managing Member of Relational 1998
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 was appointed by a Committee of the
Board of Directors in January 1998 to fill a newly
created seat.
</TABLE>
- ----------
* Director of Homedco Group, Inc., a Delaware corporation ("Homedco"),
from the date shown until June 28, 1995, the date of consummation of the
merger (the "Merger") of Homedco with and into Abbey Healthcare Group
Incorporated, a Delaware corporation ("Abbey"). Director of the Company
from the date of the Merger until the present.
** Director of Abbey from the date 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.
INFORMATION REGARDING THE BOARD OF DIRECTORS
DIRECTORS' FEES
All Directors of the Company are reimbursed for their out-of-pocket
expenses incurred in connection with attending Board and Committee meetings.
Prior to June 30, 1998, all non-employee Directors of the Company received: (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.
Mr. David L. Goldsmith, who sits on the Company's Compliance Committee, is
compensated for his attendance at meetings of such Committee as if it were a
Committee of the Board. 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. No options were
awarded to
8
<PAGE> 13
Directors during 1997. However, non-employee Directors who served during 1997
each received in 1998 a grant of an option to purchase 5,000 shares for their
services during the past fiscal year, and non-employee Directors who served
during 1998 prior to April received an option grant of 1,666 shares for their
services through April 1998. On June 30, 1998, the Board of Directors approved
(i) the elimination of the $4,500 quarterly retainer and (ii) in lieu thereof,
granted to each non-employee Director an option to purchase 25,000 shares of
Common Stock and modified the policy for annual option grants to non-employee
Directors to increase the grants from 5,000 shares to 10,000 shares beginning in
1999.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Committees of the Board of Directors consist of an Executive
Committee, a Corporate Governance and Nominating Committee, an Audit Committee
and a Compensation Committee. During the 1997 fiscal year, all Directors
attended 75% or more of the total meetings of the Board of Directors and
Committees of the Board of Directors on which they served. The Board of
Directors held nine meetings during the 1997 fiscal year.
Executive Committee. The Executive Committee may act with such authority
as the Board of Directors may from time to time delegate in accordance with
Delaware law. During fiscal year 1997, the Executive Committee was comprised of
George L. Argyros, Terry Hartshorn, Jeremy M. Jones and Frederick S. Moseley IV
and held one meeting. On May 27, 1998, all then current members of the Executive
Committee resigned from the Board of Directors. From and after that date, the
Executive Committee has been comprised of Messrs. Whitworth (Chairman), Carter,
Goldsmith and Tompkins.
Corporate Governance and Nominating Committee. On February 27, 1997, the
Board of Directors formed two committees, each of which was granted the
authority, until the date of the Annual Meeting, to fill vacancies on the Board
of Directors. The Abbey Nominating Committee (herein so called) was comprised of
Messrs. Green and Moseley, as well as Vincent M. Prager and was granted
authority to fill vacancies on the Board of Directors arising among Messrs.
Tompkins, Moseley, Green or Prager, or any individual elected or appointed to
succeed any of them as a Director or their successors (the "Abbey Directors")
and to nominate persons for election as Directors at a meeting of stockholders
to replace or succeed any of the Abbey Directors. The Homedco Nominating
Committee (herein so called) was comprised of Messrs. Jones, Hartshorn and
Goldsmith and was granted authority to fill vacancies on the Board of Directors
arising among Messrs. Jones, Goldsmith, Hartshorn or Argyros, or any individual
elected or appointed to succeed any of the foregoing individuals as a Director
or their successors (the "Homedco Directors") and to nominate persons for
election as Directors at a meeting of stockholders to replace or succeed any of
the Homedco Directors. The Homedco Nominating Committee and the Abbey Nominating
Committee each held one meeting during the 1997 fiscal year. The Board of
Directors eliminated the Abbey Nominating Committee and the Homedco Nominating
Committee and replaced them with a single Nominating Committee formed on January
14, 1998 comprised of Messrs. Argyros (Chairman), Goldsmith, Moseley and
Tompkins. On May 5, 1998, Messrs. Koppes and Whitworth were appointed to the
Committee, and Mr. Koppes replaced Mr. Argyros as Chairman. At that time, the
name of the Committee was changed to the Corporate Governance and Nominating
Committee. As a result, as of May 27, 1998, the Corporate Governance and
Nominating Committee consists of Messrs.
Koppes (Chairman), Whitworth, Goldsmith and Tompkins.
Audit Committee. The Audit Committee meets periodically with the
Company's independent accountants and management to make inquiries regarding the
manner in which the responsibilities of each are being discharged. The Audit
Committee also recommends to the Board of Directors the annual appointment of
independent
9
<PAGE> 14
accountants with whom the Audit Committee reviews (i) the scope of audit and
non-audit assignments and related fees, (ii) the Company's accounting principles
and (iii) the adequacy of the Company's internal controls. During the 1997
fiscal year, the Audit Committee was comprised of Messrs. Green (Chairman),
Goldsmith, Hartshorn, Tompkins and Prager and held two meetings. On May 27,
1998, Messrs. Hartshorn and Prager resigned from the Board of Directors. As a
result, as of May 27, 1998, the Audit Committee consists of Messrs. Green
(Chairman), Goldsmith and Tompkins.
Compensation Committee. The Compensation Committee conducts an annual
performance review of the Company's senior management and establishes their
salaries, bonuses and stock ownership awards. From January 1, 1997 to February
27, 1997, the Compensation Committee consisted of Charles D. Martin (Chairman),
as well as Messrs. Green and Hartshorn. Mr. Moseley was appointed to the
Compensation Committee on February 27, 1997. Mr. Martin retired from the Board
of Directors, effective March 31, 1997, and Mr. Argyros was appointed to the
Compensation Committee to fill the vacancy. At that time, Mr. Hartshorn became
the Chairman of the Compensation Committee. The Compensation Committee held
eight meetings during the 1997 fiscal year. See "Report of the Compensation
Committee" regarding 1997 fiscal year compensation and stock ownership programs.
On May 27, 1998, Messrs. Hartshorn, Argyros and Moseley resigned from the Board
of Directors and were replaced on the Compensation Committee by Messrs.
Whitworth and Koppes. As a result, as of May 27, 1998, the Compensation
Committee consists of Messrs. Whitworth (Chairman), Green and Koppes.
10
<PAGE> 15
EXECUTIVE COMPENSATION AND OTHER INFORMATION
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 former
President and Chief Operating Officer of the Company and the four other most
highly compensated executive officers during the 1997 fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM(1)
COMPENSATION
ANNUAL COMPENSATION OPTIONS ALL OTHER
SALARY(2) BONUS GRANTED COMPENSATION
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 1995 397,100(5) $157,000 $200,000 5,940(4)
Officer(3)
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, 1996 184,191 9,742 6,000 4,750(4)
Field 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 1995 0 0 0 0
Secretary(15)
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(20) 34,651 48,000 5,281(4)
Finance and Treasurer(19)
</TABLE>
- ----------------------------
11
<PAGE> 16
(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.
(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 as President and Chief Operating Officer of 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
Executive Vice President position on December 15, 1997. Mr. Robbins and
the Company have agreed that his employment will terminate as of August
7, 1998.
(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
Executive Vice President position on March 27, 1997. Mr. Wallace and the
Company have agreed that his employment will terminate as of July 17,
1998.
(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 1996.
12
<PAGE> 17
(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) Mr. Smallen resigned as Chief Financial Officer, Senior Vice President,
Finance and Treasurer of the Company on June 16, 1998.
(20) This amount reflects $93,168 paid by Homedco and $104,676 paid by the
Company.
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
NUMBER OF VALUE AT ACCRUAL RATE
SECURITIES % OF TOTAL EXPIRATION OF STOCK APPRECIATION
UNDERLYING OPTIONS GRANTED DATE OF FOR OPTION TERM
OPTIONS TO EMPLOYEES IN EXERCISE OPTIONS ----------------------
NAME GRANTED FISCAL YEAR PRICE GRANTED 5% 10%
- ---------------- ----------- --------------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Merl A. Wallace.. 50,000 19.6% $18.25 4/2007(1) $583,865 $1,454,289
</TABLE>
- ----------------
(1) Due to the termination of Mr. Wallace's employment as of July 17, 1998,
these options will expire on October 16, 1998.
SUMMARY OF OPTIONS EXERCISED
The following table provides information with respect to the exercise of
stock options by the Chief Executive Officer, the former President and Chief
Operating Officer and the four other most highly compensated executive officers
of the Company during the 1997 fiscal year together with the fiscal year-end
value of unexercised options.
13
<PAGE> 18
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN
ACQUIRED ON VALUE(1) OPTIONS AT THE MONEY OPTIONS AT
EXERCISE REALIZED FISCAL YEAR END FISCAL YEAR-END(1)
----------- -------- ------------------------- -------------------------
NAME (#) ($) 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee since January 1, 1997 was either
an officer or employee of the Company.
REPORT OF THE COMPENSATION COMMITTEE
To: The Board of Directors
As members of the Compensation Committee, it is our duty to administer
the Company's overall compensation program for its senior management. The
Compensation Committee oversees the administration of the Management Incentive
Compensation Plans (the "Management Incentive Plans"), the 1991 Nonqualified
Stock Option Plan (the "1991 Plan"), the Amended and Restated 1992 Stock
Incentive Plan (the "1992 Plan"), the Apria Healthcare Group Inc./Homedco Group,
Inc. Stock Incentive Plan (the "1995 Plan") and the Apria Healthcare Group Inc.
1997 Stock Incentive Plan (the "1997 Stock Incentive Plan"). In addition, the
Compensation Committee establishes the compensation of the Chief Executive
Officer and the President, evaluates the performance of such individuals and
performs other related matters. The Compensation Committee is comprised entirely
of non-employee Directors.
The primary philosophy of the Company regarding compensation is to offer
a program which rewards each of the members of senior management commensurately
with the Company's overall growth and financial performance, including each
person's individual performance during the previous fiscal year. The Company's
compensation program for senior management is designed to attract and retain
individuals who are capable of
14
<PAGE> 19
leading the Company in achieving its business objectives in an industry
characterized by competitiveness, growth and change.
The Company believes a substantial portion of the annual compensation of
each member of senior management should relate to, and should be contingent
upon, the financial success of the Company, as well as the individual
contribution of each particular person to that success. As a result, a
significant portion of the total compensation package consists of variable,
performance-based components, such as bonuses and stock awards, which can
increase or decrease to reflect changes in corporate and individual performance.
In its evaluation of the total compensation for the Company's former
Chief Executive Officer, Mr. Jeremy M. Jones, and certain other members of
senior management, with respect to the 1997 fiscal year, the Compensation
Committee considered various indicators of qualitative and quantitative success
on both a corporate and an individual level. The Compensation Committee
considered such corporate performance measures as increases in earnings per
share, profitable revenue growth and collection of accounts receivable, together
with various individual performance indicators and goals. While the Compensation
Committee applied certain specific quantitative analyses with respect to
financial performance, the Compensation Committee also evaluated numerous other
non-financial and qualitative factors, among them, such factors as
organizational strength and development, investor relations and competitive
positioning.
The Company's annual compensation package for Mr. Jones and the other
members of senior management has typically consisted of the following
components: (a) salary, (b) annual cash incentive or bonus, (c) automobile
allowance and (d) long-term incentive or non-cash awards, primarily stock
options.
Mr. Jones' base salary for the 1997 fiscal year was based principally on
his employment agreement with the Company, which was to have expired in June
1998 (the "Employment Agreement"). Pursuant to the Employment Agreement he
served as Chief Executive Officer. The Employment Agreement established Mr.
Jones' minimum annual base salary at not less than $390,000 per year, subject to
annual increases at the discretion of the Board of Directors. During 1997, Mr.
Jones' annual base salary was $460,000. The Compensation Committee believes that
his salary was in the range being paid to the Chief Executive Officers of
comparable companies. Mr. Jones resigned as Chairman of the Board and Chief
Executive Officer in January 1998.
Under the Management Incentive Plans, entitlement to bonuses for the
Company's senior managers is based upon the Company achieving certain objectives
such as increases in earnings per share, with great emphasis on improved profit
margins, increases in pre-tax income and the generation of "free cash flow" (a
measure of profitability based on collections less operating and capital
expenditures). Objectives for other management personnel include increases in
gross profit and cash flow. In addition, bonuses are based on whether the
performance of each participant in the Management Incentive Plans satisfies
certain specific or key objectives. Mr. Jones' entitlement to a bonus was based
on targeted increases in earnings per share and free cash flow together with
certain qualitative key management objectives. He received no bonus for 1997.
The Compensation Committee determined the incentive compensation package
paid to other members of senior management in a similar manner as that of the
Chief Executive Officer. Each officer has certain individual quantitative
factors which are specifically weighted; however, in determining the overall
incentive compensation package, the Compensation Committee considers various
other non-financial factors that it believes to be pertinent to each officer's
personal performance. In the aggregate, bonus awards to officers for 1997 were
substantially less
15
<PAGE> 20
than the amounts awarded for 1996. In virtually all instances, only nominal
bonuses were awarded. Because the Company did not meet the targeted earnings per
share objectives, no bonuses were awarded to the Chief Executive Officer or to
the President of the Company for 1997.
The Company also provides compensation to certain members of its
management under the 1997 Stock Incentive Plan. The 1997 Stock Incentive Plan
provides the Company with the ability to periodically reward key employees with
options to purchase shares of the Company's Common Stock. These long-term
incentives are designed to couple the interests of key employees with those of
the stockholders of the Company. Stock option grants provide an incentive that
focuses the individual's attention on managing the Company from the perspective
of an owner, with an equity stake in the business. The value of stock options is
tied to the future performance of the Company's Common Stock and provides value
to the recipient only when the price of the Company's Common Stock increases
above the option grant price. The vesting of stock options will also be tied, in
part, to targeted levels of improvement in the stock price. Stock options reward
management for long-term strategic planning through the resulting enhancement of
share price. The Company believes that a compensation structure which includes
the periodic granting of long-term incentives such as stock options helps to
attract and retain senior managers with long-term management perspectives.
The Compensation Committee has considered the anticipated tax treatment
to the Company regarding the compensation and benefits paid to the executive
officers of the Company in light of the enactment of Section 162(m) of the Code.
The basic philosophy of the Compensation Committee is to strive to provide the
executive officers of the Company with a compensation package which will
preserve the deductibility of such payments for the Company. However, certain
types of compensation payments and their deductibility (e.g., the spread on
exercise of non-qualified options) depend upon the timing of an executive
officer's vesting or exercise of previously granted rights. Moreover,
interpretations of and changes in the tax laws and other factors beyond the
Compensation Committee's control may affect the deductibility of certain
compensation payments. In addition, in order to attract qualified management
personnel, it has proven necessary to grant certain long-term incentives that
may not be deductible under Section 162(m) of the Code. The Compensation
Committee will consider various alternatives to preserving the deductibility of
compensation payments and benefits to the extent reasonably practicable and to
the extent consistent with its other compensation objectives.
Date: June 30, 1998 THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
Ralph V. Whitworth (Chairman)
Leonard Green
Richard H. Koppes
16
<PAGE> 21
PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total returns(1)
for (i) Abbey for the period from January 1, 1993 until the date of the Merger,
and for the Company from the date of the Merger until the end of the 1997 fiscal
year, (ii) the S&P 500 Stock Index, and (iii) the Peer Group Index(2).
[GRAPH]
<TABLE>
<CAPTION>
12/92(3) 12/93 12/94 12/95 12/96 12/97
- ---------------------------- -------- -------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Apria Healthcare Group Inc. 100 116 97 118 78 56
S & P 500 100 110 112 153 189 252
Peer Group 100 136 167 112 171 187
</TABLE>
- ----------
(1) Total returns assumes reinvestment of dividends.
(2) The Peer Group Index is based on the cumulative total returns of the
following companies: Coram Healthcare (since July 1994), Lincare
Holdings, Optioncare, Inc., American Homepatient, Inc. and Rotech
Medical Corporation.
(3) Assumes $100 invested on December 31, 1992.
IT SHOULD BE NOTED THAT THIS GRAPH REPRESENTS HISTORICAL STOCK PRICE
PERFORMANCE AND IS NOT NECESSARILY INDICATIVE OF ANY FUTURE STOCK PRICE
PERFORMANCE.
THE FOREGOING REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF
DIRECTORS REGARDING COMPENSATION AND THE PERFORMANCE GRAPH THAT APPEARS
IMMEDIATELY AFTER SUCH REPORT SHALL NOT BE DEEMED TO BE SOLICITING MATERIAL OR
TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR THE EXCHANGE ACT, OR INCORPORATED BY REFERENCE IN ANY
DOCUMENT SO FILED.
17
<PAGE> 22
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, holds 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.
EMPLOYMENT AND SEVERANCE AGREEMENTS
During 1997, the Company had employment agreements with the following
executive officers listed in the Summary Compensation Table.
Jeremy M. Jones. The Company had an employment agreement with Jeremy M.
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. He resigned from the Board of Directors on
May 27, 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 Steven T. 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, (iii) reimbursement for certain other expenses, and (iv)
participation in the Company's various benefit plans. The executive severance
agreement 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.
18
<PAGE> 23
Merl A. Wallace. Mr. Wallace had an employment agreement with the
Company which was scheduled to expire on April 1, 1999. Mr. Wallace served as
Executive Vice President, Operations of the Company. The agreement provided that
Mr. Wallace was 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 April 1, 1998, Mr. Wallace's net annual salary was $249,995). He was also
entitled to participate in the Company's stock option plans and all other
benefit programs generally available to executive officers of the Company and to
receive (i) such bonuses as the Compensation Committee would, from time to time,
in its sole discretion award, (ii) an automobile allowance, and (iii)
reimbursement of certain other expenses. Mr. Wallace and the Company have agreed
that his employment will terminate as of July 17, 1998. Under the terms of that
agreement, Mr. Wallace will receive 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.
In June 1997, Robert S. Holcombe, Lawrence H. Smallen, and Thomas M.
Robbins (each referred to as "Executive" below) entered into executive severance
agreements with the Company. Pursuant to each agreement, each Executive has
served in a position and has undertaken 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.
Each agreement provides that the Executive's salary shall be at the Company's
discretion. As of April 1, 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. The agreements provide that 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 and
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 the 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. Mr. Smallen
resigned effective as of June 16, 1998. The Company and Mr. Robbins have agreed
that his employment will terminate as of August 7, 1998. Messrs. Smallen and
Robbins will each receive the severance pay consistent with the terms of their
severance agreement. Mr. Smallen has also been retained as a consultant to the
Company through December 16, 1999 for $6,944 per month.
MANAGEMENT INCENTIVE COMPENSATION PLANS
In 1997 and 1998, the Company adopted Management Incentive Compensation
Plans (the "Management Incentive Plans") to provide key employees with bonus
compensation upon the achievement of certain performance levels. Each Management
Incentive Plan covers the period from January 1 to December 31 of the year in
which it was adopted. Persons eligible to receive awards under the Management
Incentive Plans include various executive officers, regional, sales and branch
managers, vice presidents and other key employees. Awards are made under the
Management Incentive Plans upon the achievement of certain objectives, earnings
per share levels, profit margin, revenue goals, increases in gross profit and
cash flow, the generation of "free cash flow" (a measure of profitability based
on collections less operating and capital expenditures) and increased cash
postings during the year to which
19
<PAGE> 24
the Management Incentive Plan in question is applicable. Awards may be paid in
cash, Company stock, Company stock options or other forms determined by the
Board of Directors. Certain payments may be made quarterly on the basis of a
formula calculation. However, the aggregate amount of all payments to be made
during the applicable year is subject to approval by the Company's senior
management and the Board of Directors.
401(k) PLAN
The Company maintains a 401(k) Savings Plan (the "Company's 401(k)
Plan") for the benefit of all employees who have completed at least one year of
service with at least 1,000 hours of service during the year. Under the
Company's 401(k) Plan, employees may contribute up to 16% of their eligible
earnings, and the Company will match 50% of the first 8% of such contributions
up to a limit (currently $9,500) established by applicable tax regulations. As
of the end of the 1997 fiscal year, the collective matching contributions for
all executive officers as a group who received matching contributions (13
persons) was $58,848.
1991 NONQUALIFIED STOCK OPTION PLAN
The Company's 1991 Nonqualified Stock Option Plan (the "1991 Plan")
authorized the issuance of 373,334 shares of Common Stock of the Company, upon
the exercise of options granted under the 1991 Plan. Persons eligible to receive
options under the 1991 Plan are officers and other key employees of the Company
or any directly or indirectly majority-owned subsidiaries of the Company.
Options granted under the 1991 Plan do not qualify for treatment as incentive
stock options as defined in the Code. The Compensation Committee determines the
dates upon which options will be granted and fixes the option price. Unless
previously terminated by the Board of Directors, the 1991 Plan will terminate in
December 2001. As of December 31, 1997, only 58,000 shares of Common Stock not
subject to outstanding options remained available for issuance under the 1991
Plan.
AMENDED AND RESTATED 1992 STOCK INCENTIVE PLAN
The Company's Amended and Restated 1992 Stock Incentive Plan (the "1992
Plan") authorizes the issuance of 3,150,000 shares of Common Stock of the
Company, plus 2% of the number of shares of Common Stock of the Company
outstanding as of the first day of each fiscal year, upon the exercise of
options or in satisfaction of stock appreciation rights, restricted stock
awards, and performance share awards. The 1992 Plan also provides for stock
value equivalent awards. Persons eligible to receive awards under the 1992 Plan
are persons who are Directors and employees of, or who provide services to, the
Company or its subsidiaries. An option granted under the 1992 Plan may be either
an incentive stock option as defined in the Code, or a non-statutory stock
option. Incentive stock options may be granted to employees only. A Committee
appointed by the Board of Directors administers the 1992 Plan and fixes the
option exercise price with respect to the options, except that the exercise
price of options granted to non-employee Directors will be the fair market value
of the shares of Common Stock on the date of the grant. Unless previously
terminated by the Board of Directors, the 1992 Plan will terminate in July 2003.
As of December 31, 1997, 1,793,616 shares of Common Stock not subject to
outstanding options remained available for issuance under the 1992 Plan.
APRIA HEALTHCARE GROUP INC./HOMEDCO GROUP, INC. STOCK INCENTIVE PLAN
In 1995, the Company adopted the Apria Healthcare Group Inc./Homedco
Group, Inc. Stock Incentive Plan (the "1995 Plan"). The 1995 Plan consists of
three parts: Part I is the portion of the 1995 Plan which was formerly
20
<PAGE> 25
the Homedco Group, Inc. 1988 Stock Option Plan, Part II is the portion of the
1995 Plan which was formerly the Homedco Group, Inc. Long-Term Senior Management
Equity Plan and Part III is the portion of the 1995 Plan which was formerly the
Homedco Group, Inc. 1994 Stock Incentive Plan. The 1995 Plan as a whole
authorizes the issuance of an aggregate of up to 5,327,051 shares of Common
Stock of the Company upon the exercise of options or in satisfaction of awards
under the 1995 Plan. The 1995 Plan is administered by a Committee appointed by
the Board of Directors. Unless previously terminated by the Board of Directors,
the 1995 Plan will terminate on the respective dates set forth in Parts I, II
and III of the 1995 Plan. As of December 31,1997, 1,409,959 shares of Common
Stock not subject to outstanding options remained available for issuance under
the 1995 Plan. The Board of Directors has suspended the issuance of additional
options under the 1995 Plan and no options were granted thereunder in 1997.
Under Part I of the 1995 Plan, the Company may issue shares of Common
Stock of the Company upon the exercise of options or in satisfaction of stock
appreciation rights granted. Persons eligible to receive options and stock
appreciation rights are certain key employees (including officers and Directors)
of the Company, non-employee members of the Board and certain consultants or
independent contractors who provide valuable services to the Company. An option
granted under Part I of the 1995 Plan may be either an incentive stock option as
defined in the Code, or a non-statutory stock option. Incentive stock options
may be granted to key employees only. The Compensation Committee fixes the
option exercise price with respect to each option, provided that, the exercise
price of an incentive stock option may not be less than the fair market value of
a share of Common Stock on the date of grant. Unless previously terminated by
the Board of Directors, Part I of the 1995 Plan will terminate in July 1998.
Under Part II of the 1995 Plan, the Company may issue shares of Common
Stock of the Company upon the exercise of options granted. Persons eligible to
receive options are certain key senior management employees (including officers
and Directors) of the Company. An option granted under Part II of the 1995 Plan
must be designated as a non-qualified stock option. The purchase price for each
share of Common Stock issued in connection with the options granted will not be
less than 100% of the fair market value of a share of Common Stock on the date
the option is granted. Options granted under Part II of the 1995 Plan become
exercisable under either a specified earnings based vesting schedule commencing
with the announcement of financial results for the fiscal year of the Company
ending in 1995, or a time vesting schedule commencing with such announcement.
Under the time vesting schedule, 25% of the shares covered become exercisable at
the time of such announcement and an additional 25% of the option shares become
exercisable on each successive anniversary date, with full time vesting
occurring with the announcement of financial results for the fiscal year of the
Company ending in 1998. The achievement of specified earnings for each fiscal
year will result in accelerated vesting. Unless previously terminated by the
Board of Directors, Part II of the 1995 Plan will terminate in March 2002.
Under Part III of the 1995 Plan, the Company may issue shares of Common
Stock of the Company upon the exercise of options or in satisfaction of stock
appreciation rights, restricted stock awards, performance share awards and stock
bonuses. Persons eligible to receive awards are certain key employees (including
officers and Directors) of the Company, outside Directors of the Company and
significant agents and consultants who perform substantial services for the
Company of a nature similar to those performed by key employees. An option
granted under Part III of the 1995 Plan may either be an incentive stock option
or a nonqualified stock option. Incentive stock options may be granted to
employees only. Except as provided in an applicable award agreement, no award
made under Part III of the 1995 Plan may be exercisable or may vest until at
least six months after the initial award date. Unless previously terminated by
the Board of Directors, Part III of the 1995 Plan will terminate in April 2004.
21
<PAGE> 26
1997 STOCK INCENTIVE PLAN
In May 1997 the Company's stockholders approved the Apria Healthcare
Group 1997 Stock Incentive Plan (the "1997 Stock Incentive Plan"). The 1997
Stock Incentive Plan authorizes the issuance of 2,500,000 shares of Common Stock
plus 1% of the number of shares of Common Stock of the Company outstanding as of
the first day of each fiscal year during the term thereof, upon the exercise of
stock options or in satisfaction of stock appreciation rights. The 1997 Stock
Incentive Plan also provides for the grant of restricted stock awards,
performance share awards and other performance based awards. Persons eligible to
receive awards under the 1997 Stock Incentive Plan include directors, employees
and others who provide valuable services to the Company or its subsidiaries. An
option granted under the 1997 Stock Incentive Plan may either be an incentive
stock option as defined in the Code, or a non-statutory stock option. Incentive
stock options may be granted to employees only. The Compensation Committee
administers the 1997 Stock Incentive Plan and establishes the option exercise
price with respect to the options. Unless previously terminated by the Board of
Directors, the 1997 Stock Incentive Plan will terminate on February 28, 2007. As
of June 8, 1998, 3,015,685 shares of Common Stock are available for issuance
under the 1997 Stock Incentive Plan.
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.
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 as provided below.
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.
INFORMATION REGARDING THE INDEPENDENT AUDITORS OF THE COMPANY
Ernst & Young LLP served as the Company's independent auditors during
the 1997 fiscal year. A representative of Ernst & Young LLP will be present at
the Annual Meeting, may make a statement and will be available to answer
appropriate questions. No recommendation to stockholders is being made with
respect to the selection of independent auditors for the Company during the 1998
fiscal year because a change in independent auditors is under consideration.
22
<PAGE> 27
ANNUAL REPORT
THE COMPANY'S 1997 ANNUAL REPORT, CONTAINING AUDITED FINANCIAL
STATEMENTS AND SCHEDULES FOR THE FISCAL YEARS ENDED DECEMBER 31, 1997 AND 1996,
ACCOMPANIES THIS PROXY STATEMENT. UPON WRITTEN REQUEST, THE COMPANY WILL SEND
YOU, WITHOUT CHARGE, A COPY OF ITS ANNUAL REPORT ON FORM 10-K (WITHOUT EXHIBITS)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997, WHICH THE COMPANY HAS FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. COPIES OF EXHIBITS WILL ALSO BE PROVIDED
UPON WRITTEN REQUEST AND PAYMENT OF A FEE OF $.25 PER PAGE PLUS POSTAGE. THE
WRITTEN REQUEST SHOULD BE DIRECTED TO THE INVESTOR RELATIONS DEPARTMENT
(ATTENTION: MS. SHEREE ARONSON), AT THE ADDRESS OF THE COMPANY SET FORTH ON THE
FIRST PAGE OF THIS PROXY STATEMENT.
PROPOSALS OF STOCKHOLDERS
The Company has determined not to accept any further nominees from its
stockholders for election as Directors at the Annual Meeting. For stockholder
proposals to be considered for inclusion in the proxy materials for the
Company's 1999 Annual Meeting of Stockholders, they must be received by the
Secretary of the Company no later than December 15, 1998.
OTHER MATTERS
At the time of the preparation of this Proxy Statement, the Board of
Directors knows of no other matters which will be acted upon at the Annual
Meeting. If any other matters are presented for action at the Annual Meeting or
at any adjournment thereof, it is intended that the proxies will be voted with
respect thereto in accordance with the best judgment and in the discretion of
the proxy holders.
By Order of the Board of Directors,
/s/ Robert S. Holcombe
--------------------------------------
Robert S. Holcombe
Senior Vice President, General Counsel
and Secretary
Costa Mesa, California
July 3, 1998
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. STOCKHOLDERS ARE
URGED TO COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED
ENVELOPE.
23
<PAGE> 28
APRIA HEALTHCARE GROUP INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints Frank Bianchi, Lawrence M. Higby and Robert S.
Holcombe, and each of them, proxies with full power of substitution, to vote all
shares of Common Stock of Apria Healthcare Group Inc. (the "Company") held of
record by the undersigned on June 8, 1998, the record date with respect to this
solicitation, at the Annual Meeting of Stockholders of the Company to be held at
the Company's Costa Mesa, California Headquarters, 3560 Hyland Avenue (Building
No. 3500 -- Grand Canyon Room), Costa Mesa, California 92626, beginning at 8:00
A.M., local time on July 28, 1998, and at any adjournment thereof, upon the
following matters:
ELECTION OF DIRECTORS
<TABLE>
<C> <S> <C> <C>
[ ] FOR the nominees listed below [ ] WITHHOLD AUTHORITY
(except as noted to the contrary below) to vote for all nominees listed below
</TABLE>
Philip R. Lochner, Jr. Beverly Benedict Thomas Stephen J. Trafton
(Instructions: To withhold authority to vote for any individual nominee, circle
that nominee's name above.)
(Continued and to be signed on the reverse side)
<PAGE> 29
(continued from other side)
OTHER MATTERS
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE MEETING AND AT ANY ADJOURNMENT THEREOF.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR
THE PROPOSAL ABOVE. IF ANY NOMINEE DECLINES OR IS UNABLE TO SERVE AS A DIRECTOR,
THEN THE PERSONS NAMED AS PROXIES SHALL HAVE FULL DISCRETION TO VOTE FOR ANY
OTHER PERSON DESIGNATED BY THE BOARD OF DIRECTORS.
Dated: , 1998
------------------------
------------------------------------
Signature or signatures of
stockholder
------------------------------------
(Your signature(s) should conform to
your name(s) as printed hereon.
Co-owners should all sign.)
