UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998
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)
Delaware 33-0488566
(State or 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)
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. [X]
As of April 1, 1999, there were outstanding 51,799,035 shares of the
Registrant's common stock, par value $0.001, which is the only class of common
stock of the Registrant. As of April 1, 1999 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 $12.00 per share as reported by the New York
Stock Exchange, was approximately $468,383,820.
Documents Incorporated by Reference
None.
<PAGE>
PART I
ITEM 1. BUSINESS
General
Apria Healthcare Group Inc. provides comprehensive home healthcare services
through approximately 320 branch locations which serve patients in all 50
states. Apria has three major service lines: home respiratory therapy, home
infusion therapy, and home medical equipment. The following table provides
examples of the services and products in each:
SERVICE LINE EXAMPLES OF SERVICES AND PRODUCTS
------------ ---------------------------------
Home respiratory therapy Provision of oxygen systems, home
ventilators and nebulizers, which are
devices to disperse medication as an aerosol
Home infusion therapy Administration of 24-hour access to
intravenous or enteral nutrition, anti-
infectives, chemotherapy and other medications
Home medical equipment Provision of patient room equipment,
principally hospital beds, wheelchairs and
ambulatory aids, to patients receiving care at
home
Apria was formed through the merger of Homedco Group, Inc. and Abbey
Healthcare Group Incorporated. Apria was incorporated in 1991 in the State of
Delaware.
BUSINESS STRATEGY
The management and Board of Directors of Apria changed substantially in
1998. Philip L. Carter became Chief Executive Officer in May 1998. Under Mr.
Carter's leadership, Apria is implementing a strategy aimed at achieving
profitable operating results through the following principal elements:
REMAIN IN CORE BUSINESSES, WITH INCREASED EMPHASIS ON HOME RESPIRATORY
THERAPY. Apria intends to remain in its core businesses of home respiratory
therapy, home infusion therapy and home medical equipment. However, Apria
expects to increase the percentage of net revenues generated by respiratory
therapy with a corresponding reduction in the percentage of net revenues
generated by infusion therapy and home medical equipment. Apria's home
respiratory therapy business historically has produced higher margins than its
home infusion therapy and home medical equipment businesses.
DIVEST OR CLOSE, ON A SELECTIVE BASIS, UNPROFITABLE BUSINESS OPERATIONS IN
PARTICULAR GEOGRAPHIC AREAS. As of December 31, 1998, Apria had substantially
completed the process of exiting the infusion therapy business in Texas,
California, Louisiana, West Virginia, western Pennsylvania, and downstate New
York. Apria continues to evaluate the profitability of all its contracts,
business lines and locations to determine if further divestitures or closures
are appropriate.
REDUCE COSTS IN CORPORATE AND FIELD OPERATIONS. Apria seeks to reduce costs
both at its corporate headquarters and in the field through:
-identifying improvement opportunities in specific operating procedures in
the areas of purchasing, distribution and inventory management and
implementing uniform operating thresholds in order to increase efficiency
and lower costs
-consolidating and closing smaller branches, billing centers and field
support facilities throughout the United States
-reducing labor costs at its corporate and field locations; approximately
1,500 full-time equivalent positions were eliminated during 1998
-reducing office space at its headquarters
Going forward, Apria intends to continue to focus resources on identifying and
implementing more cost-effective and efficient methods of delivering products
and services.
IMPROVE APRIA'S CAPITAL STRUCTURE. In November 1998, Apria amended its
credit agreement which resulted in a required $50 million prepayment of its
credit facility and revisions to certain provisions permitting Apria to pursue
acquisition opportunities. Pursuant to the amended credit agreement, Apria is
required to pursue a debt or equity offering to raise an additional $50 million
to further repay its term loan. The combination of these two actions is intended
to provide the company with somewhat greater flexibility to implement its
business strategy which includes growth through acquisitions.
EXPAND THROUGH INTERNAL GROWTH AND ACQUISITIONS. Apria intends to expand
through internal growth and acquisitions in its target markets subject to
limitations contained in Apria's bank credit agreement. Apria plans to increase
its acquisition activity in 1999 and intends to focus growth primarily in its
home respiratory therapy business.
Achieving Apria's objectives is subject to competitive and other
factors outside of Apria's control. See "Business - Risk Factors".
LINES OF BUSINESS
Apria derives substantially all of its revenue from the home healthcare
segment of the healthcare market in principally three service lines: home
respiratory therapy, including home-delivered respiratory medications, home
infusion therapy and home medical equipment. In all three lines, Apria provides
patients with a variety of clinical services, related products and supplies,
most of which are prescribed by a physician as part of a care plan. These
services include:
-high-tech infusion nursing, respiratory care and pharmacy services
-educating patients and their caregivers about the illness and instructing
them on self-care and the proper use of products in the home
-monitoring patient compliance with individualized treatment plans
-reporting to the physician and/or managed care organization
-maintaining equipment
-processing claims to third-party payors
Apria provides numerous services directly to its patients, and purchases or
rents the products needed to complement the service.
The following table sets forth a summary of net revenues by service line,
expressed as percentages of total net revenues:
Year Ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
Respiratory therapy.................. 59% 51% 50%
Infusion therapy..................... 23% 24% 25%
Home medical equipment/other......... 18% 25% 25%
---- ---- ----
Total net revenues............. 100% 100% 100%
==== ==== ====
RESPIRATORY THERAPY. Apria provides home respiratory therapy services to
patients with a variety of conditions, including:
-cystic fibrosis
-nervous system-related respiratory conditions
-chronic diseases relating to blocking or clogging of the lungs such as
emphysema, chronic bronchitis and asthma
Apria employs a clinical staff of respiratory care professionals to provide
support to its home respiratory therapy patients, according to
physician-directed treatment plans and a proprietary acuity program.
Approximately 66% of Apria's respiratory therapy revenues are derived from
the provision of oxygen systems, home ventilators and nebulizers, which are
devices to aerosolize medication. The remaining respiratory revenues are
generated from the provision of:
-apnea monitors used to monitor the vital signs of newborns
-continuous positive airway pressure devices used to control adult sleep
apnea
-noninvasive positive pressure ventilation
-other respiratory therapy products
Apria has developed a home respiratory medication service, which is
fulfilled through the Apria Pharmacy Network. Through this network, Apria offers
its patients physician-prescribed medications to accompany the nebulizer through
which they are administered. This comprehensive program offers patients and
payors a broad base of services from one source, including the delivery of
medications in premixed unit dose form, pharmacy services, patient education and
claims processing.
INFUSION THERAPY. Home infusion therapy involves the administration of, and
24-hour access to:
-parenteral and enteral nutrition
-anti-infectives
-chemotherapy
-other intravenous and injectable medications
Depending on the therapy, a broad range of venous access devices and pump
technology may be used to facilitate homecare and patient independence. Apria
employs licensed pharmacists and registered high-tech infusion nurses who have
specialized skills in the delivery of home infusion therapy. Apria currently
operates 28 pharmacy locations to serve its home infusion patients.
A number of factors have impacted the profitability of Apria's infusion
therapy business line. Increased managed care penetration has exposed Apria to
the intense price competition of these markets. The expectations of managed care
customers are becoming cost-prohibitive and nursing costs are very high.
Hospitals, traditionally a major referral source, are expanding their own
infusion services. In response to these factors, Apria performed a comprehensive
review of its infusion therapy business in the second and third quarters of
1998. By the end of 1998, Apria had substantially completed the process of
exiting the infusion business in certain geographic areas where it was not
meeting profitability thresholds. Apria is currently working to improve the
profitability of its infusion business in the remaining markets by implementing
standardization initiatives and optimal operating thresholds.
HOME MEDICAL EQUIPMENT/OTHER. Apria's primary emphasis in the home medical
equipment line of business is on the provision of patient room equipment,
principally hospital beds and wheelchairs. Apria's integrated service approach
allows patients and managed care systems accessing either respiratory or
infusion therapy services to also access needed home medical equipment through a
single source.
As Apria's managed care organization customer base has grown, management
has recognized the need to expand its ability to provide value-added services to
managed care organizations. Rather than directly provide certain non-core
services itself, Apria aligns itself with other segment leaders, such as medical
supply distributors, through formal relationships or ancillary networks. Such
networks must be credentialed and qualified by Apria's Clinical Services
department.
ORGANIZATION AND OPERATIONS
ORGANIZATION. As a result of reorganizations effected in 1998, Apria's
approximately 320 branch locations are organized into four geographic divisions,
which are further divided into 15 geographic regions. Each region is operated as
a separate business unit and consists of a number of branches and a regional
office. The regional office provides each of its branches with key support
services such as billing, purchasing and equipment repair. Each branch delivers
home healthcare products and services to patients in their homes and other care
sites through the branch's fleet and qualified personnel. This structure is
designed to create operating efficiencies associated with centralized services
while promoting responsiveness to local market needs.
Although Apria continues to operate with a large network of regional
operations, the company recently implemented a vertically-integrated management
organization in certain key functional areas, including sales, logistics,
operations and revenue management with direct reporting and accountability to
corporate headquarters. Apria believes that its new structure will provide more
controls and consistency among its regions and branches and help to develop
standard policies and procedures while eliminating many of the problems inherent
with a decentralized network of regions and branches. Its earliest
implementation was in the area of sales and operations. Previously, each
regional manager was responsible for all aspects of sales and operations,
including generating new business, operating branches and reimbursement. Under
the new structure, the sales organization is responsible for generating new
business from both traditional and managed care markets, while the operations
organization is responsible for customer service, reimbursement and asset
management. In addition to the sales and operations functional areas, Apria
established a centralized revenue management functional area. Revenue
management, based at Apria's headquarters, works with the network of branches
and regions to standardize the processes of order intake, billing and
collections. Apria has also established a coordinated purchasing structure to
obtain lower prices, reduce inventory levels and improve the distribution of
inventory items to the company's branch locations.
CORPORATE COMPLIANCE. As a leader in the home healthcare industry, Apria
has made a commitment to providing quality home healthcare services and products
while maintaining high standards of ethical and legal conduct. Apria believes
that operating its business with honesty and integrity is essential. Apria's
Corporate Compliance Program is designed to accomplish these goals through
employee education, a confidential disclosure program, written policy
guidelines, periodic reviews, compliance audits and other programs.
OPERATING SYSTEMS AND CONTROLS. The company's business is dependent, to a
substantial degree, upon the quality of its operating and field information
systems for the establishment of accurate and profitable contract terms,
accurate order entry and pricing, billing and collections, and effective
monitoring and supervision. Difficulties encountered in the conversion to a
common system of the previously separate operations of Abbey and Homedco,
following their 1995 merger, led to a high level of accounts receivable
write-offs. Also contributing to the write-offs were functional inadequacies of
the information systems. Examples of such inadequacies included decentralized
pricing tables which forced reliance on personnel at the numerous branches and
billing centers to enter pricing updates on a timely basis; and the inability to
aggregate data at a regional or company-wide level, thereby inhibiting
management's ability to quickly identify negative trends. During 1997, the
company committed to a two-year plan to implement a large-scale fully-integrated
enterprise resource planning system to address year 2000 issues and facilitate
correction of the functional shortcomings referred to above. Following a
reevaluation of the costs, benefits and risks of the development project, the
plan was canceled in 1998 except for the work required to resolve year 2000
issues, which has been substantially completed. As a part of the decision to
cancel the new system, management performed an evaluation of its current
systems. A significant conclusion of that evaluation was that the platform on
which the respiratory/home medical equipment system currently operates is
adequate but the infusion billing system operates on an obsolete platform which
is no longer supported by the computer industry. To mitigate this particular
risk, address certain other weaknesses of the current systems and to position
itself to meet future needs, Apria embarked on a reengineering of the systems.
The project includes a rewriting of the order entry, billing and accounts
receivable modules and the installation of supply chain management software to
replace the inventory and purchasing modules. The processing of transactions for
all product lines, including infusion therapy, will be addressed by these
changes. Apria believes that the implementation of these changes will
substantially improve its systems. Nonetheless, such implementation could have a
disruptive effect on billing and collection activity. See "Business -
Organization and Operations - Receivables Management".
Management is currently giving a high priority to the implementation of
optimal operating standards throughout Apria. Apria has established performance
indicators which measure operating results against expected thresholds, for the
purpose of allowing all levels of management to monitor, identify and adjust
areas requiring improvement. Operating models with strategic targets have been
developed to move Apria toward more effectively managing labor expenses and the
customer service, accounts receivable, clinical, and distribution areas of its
business. Apria's management team is compensated using performance-based
incentives focused on quality revenue growth, gross profit, timely cash
collections and improvement in operating income.
Failure to resolve the systems and operational problems experienced in
prior periods and to implement optimal operating standards successfully would
have a significant negative impact on results of operations.
PAYORS. Apria derives substantially all its revenues from third-party
payors, including private insurers, managed care organizations, Medicare and
Medicaid. For 1998, approximately 26% of Apria's net revenues were derived from
Medicare and 10% from Medicaid. Generally, each third-party payor has specific
claims requirements. Apria has policies and procedures in place to manage the
claims submission process, including verification procedures to facilitate
complete and accurate documentation.
RECEIVABLES MANAGEMENT. Apria operates in an environment with complex
requirements governing billing and reimbursement for its products and services.
Since the 1995 merger of Abbey and Homedco, Apria has had difficulties in a
number of areas relating to billing and subsequent collection of accounts
receivable. The merger resulted in a restructuring plan which included a very
rapid consolidation of operating locations and the conversion of all locations
to standardized information systems. There were over 100 branch
closures/consolidations and 496 systems conversions. The branch
closures/consolidations were effected soon after the June 1995 merger, but the
system conversions were not completed until September 1996. Together with very
high employee turnover during this period, the consolidations and system
conversions had a major impact on the revenue processes of order taking, product
delivery, billing and collections and ultimately led to a high level of accounts
receivable write-offs.
Apria believes that the primary factors contributing to the unusually
high level of revenue adjustments include:
-subsequent changes to estimated revenue amounts or denials for services
not covered due to changes in patient's coverage
-failure to document initial service authorizations or continued service
authorizations in required timeframes
-differences in contract prices due to complex contract terms or a customer
service representative's lack of familiarity with a contract, payor or
system price
-high turnover of customer service and billing representatives
The high level of bad debt write-offs can be partially attributable to
Apria's high concentration of managed care business. Apria has had difficulties
collecting its receivables from managed care payors.
The effects of all these factors necessitated charges to increase Apria's
allowance for revenue adjustments of $18.3 million, $40 million and $32.3
million in 1998, 1997 and 1996, respectively and charges to increase the
allowance for doubtful accounts of $13.6 million, $61.4 million and $9 million
in 1998, 1997 and 1996, respectively.
Although management addressed these issues with a number of initiatives
during 1996 and 1997, improvement in timely and accurate billings has been slow.
During 1998, Apria took several additional steps to address the most significant
factors contributing to revenue adjustments and write-offs which include:
-software enhancements to simplify the order-intake process and
specifically the process of selecting products/services and payors
-enhanced quality assurance programs designed to improve workflow and
billing accuracy
-aligning responsibility for revenue qualification, billing and receivables
collections within a defined functional group reporting to the corporate
office
MARKETING
Through its field sales force, Apria markets its services primarily to
managed care organizations, physicians, hospitals, medical groups and home
health agencies and case managers. The following sample marketing initiatives
address the requirements of its referring customers:
AUTOMATED CALL ROUTING THROUGH A SINGLE TOLL-FREE NUMBER. This allows
select managed care organizations and other customers to reach any of Apria's
320 locations and to access the full range of Apria services through a single
central telephone number:
1-800-APRIA-88.
JOINT COMMISSION ON ACCREDITATION OF HEALTHCARE ORGANIZATIONS. The Joint
Commission on Accreditation of Healthcare Organizations is a nationally
recognized organization which develops standards for various healthcare industry
segments and monitors compliance with those standards through voluntary surveys
of participating providers. As the home healthcare industry has grown, the need
for objective quality measurements has increased. Accreditation by the Joint
Commission on Accreditation of Healthcare Organizations entails a lengthy review
process which is conducted every three years. Accreditation is increasingly
being considered a prerequisite for entering into contracts with managed care
organizations at every level. Because accreditation is expensive and time
consuming, not all providers choose to undergo the process. Due to its
leadership role in establishing quality standards for home healthcare and its
active and early participation in this process, Apria is viewed favorably by
referring healthcare professionals. Substantially all of Apria's branch
locations are accredited by or in the process of receiving accreditation from
the Joint Commission on Accreditation of Healthcare Organizations.
CLINICAL MANAGEMENT SERVICES. As more alternate site healthcare is managed
and directed by various managed care organizations, new methods and systems are
sought to simultaneously control costs and improve outcomes. Apria has developed
a series of programs designed to proactively manage patients in conjunction with
a managed care partner and the patient's physician in an alternate site setting.
These services may include:
-patient and environmental assessments
-screening/diagnostics
-patient education
-clinical monitoring
-pharmacological management
-utilization and outcome reporting
PHYSICIAN RELATIONS. Apria's physician relations group places phone calls
to physician offices in an effort to increase and enhance awareness of Apria's
services and stimulate interest in Apria. Physician relations representatives
work closely with sales professionals throughout the country to identify,
develop and maintain quality relationships.
SALES
Apria employs approximately 380 sales professionals whose primary
responsibility is to target key customers for all lines of business. Key
customers include but are not limited to hospital-based healthcare
professionals, physicians and their staffs, and managed care organizations.
Sales professionals are afforded the necessary clinical and technical training
to represent Apria's major service offerings of home respiratory therapy, home
infusion therapy and home medical equipment. As larger segments of the
marketplace become involved with managed care, specific portions of the sales
force's working knowledge of pricing, contracting and negotiating, and
specialty-care management programs are being enhanced as well.
An integral component of Apria's overall sales strategy is to increase
volume through managed care organizations and traditional referral channels. As
Apria's various served markets evolve, the ultimate decision makers for
healthcare services vary greatly from closed model managed care organizations to
preferred provider networks which are controlled by more traditional means.
Apria's selling structure and strategies are driven largely by these changing
market factors and will continue to adjust as further consolidation occurs.
Managed care organizations continue to represent a significant portion of
Apria's business in several of its primary metropolitan markets. No single
account, however, represented more than 7% of Apria's total net revenues for
1998. Among its more significant managed care agreements, the company has
contracts with United HealthCare Corporation, Kaiser Permanente, Aetna/U.S.
Healthcare Health Plans, Olsten Network Management, Inc., Health Insurance Plan
of New York, PacifiCare Health Systems, Inc. and Humana Health Plans. Apria also
offers discount agreements and various fee-for-service arrangements to hospitals
or hospital systems whose patients have home healthcare needs.
COMPETITION
The segment of the healthcare market in which Apria operates is highly
competitive. In each of its lines of business there are a limited number of
national providers and numerous regional and local providers. The competitive
factors most important in the regional and local markets are:
-reputation with referral sources, including local physicians and
hospital-based professionals
-price of services
-ease of doing business
-quality of care and service
-range of home healthcare services
The competitive factors most important in the larger, national markets are
the foregoing factors and:
-wide geographic coverage
-ability to develop and maintain contractual relationships with managed
care organizations
-access to capital
It is increasingly important to be able to integrate a broad range of home
healthcare services through a single source. Apria believes that it competes
effectively in each of its business lines with respect to all of the above
factors and that it has an established record as a quality provider of home
respiratory therapy and home infusion therapy as reflected by the Joint
Commission on Accreditation of Healthcare Organizations accreditation of its
branches.
Other types of healthcare providers, including hospitals, home health
agencies and health maintenance organizations, have entered, and may continue to
enter, Apria's various lines of business. Depending on their individual
situation, it is possible that Apria's competitors may have, or may obtain,
significantly greater financial and marketing resources than Apria.
GOVERNMENT REGULATION
Apria is subject to extensive government regulation, including numerous
laws directed at preventing fraud and abuse and laws regulating reimbursement
under various governmental programs, as more fully described below.
MEDICARE AND MEDICAID REIMBURSEMENT. As part of the Social Security
Amendments of 1965, Congress enacted the Medicare program which provides for
hospital, physician and other statutorily-defined health benefits for qualified
individuals such as persons over 65 and the disabled. The Medicaid program, also
established by Congress in 1965, is a joint federal and state program that
provides certain statutorily-defined health benefits to financially needy
individuals who are blind, disabled, aged, or members of families with dependent
children. In addition, Medicaid generally covers financially needy children,
refugees and pregnant women.
A substantial portion of Apria's revenue is attributable to payments
received from third-party payors, including the Medicare and Medicaid programs
and private insurers. In 1998, approximately 26% of Apria's net revenue was
derived from Medicare and 10% from Medicaid. Effective January 1, 1998, the
Medicare reimbursement rates for home oxygen therapy and respiratory drugs were
reduced by 25% and 5%, respectively, pursuant to the provisions of the Balanced
Budget Act of 1997. The estimated decrease in 1998 revenues and operating income
resulting from these reimbursement reductions is approximately $57 million. A
further reimbursement reduction of 5% on home oxygen therapy became effective on
January 1, 1999. For each of the years 1998 through 2002, the Medicare update,
or inflation factor, for Medicare-covered home medical equipment, home
respiratory therapy and home infusion therapy is zero. The levels of revenues
and profitability of Apria, similar to those of other healthcare companies, have
been and will continue to be subject to the effect of changes in coverage or
payment rates by third-party payors.
Medicare carriers are private organizations that contract to serve as the
government's agents for the processing of claims for items and services provided
under Part B of the Medicare program. These carriers and Medicaid agencies also
periodically conduct pre-payment and post-payment reviews and other audits of
claims submitted. Medicare and Medicaid agents are under increasing pressure to
scrutinize healthcare claims more closely. In addition, the home healthcare
industry is generally characterized by long collection cycles for accounts
receivable due to the complex and time-consuming requirements, including
collection of medical necessity documentation, for obtaining reimbursement from
private and governmental third-party payors. Such long collection cycles or
reviews and/or similar audits of Apria's claims and related documentation could
result in significant recoupments or denials.
The Balanced Budget Act of 1997 contained other items that affect
reimbursement for home medical equipment and services under Medicare Part B,
including the provision described above to freeze the Consumer Price Index
adjustments for the years 1998 through 2002. The General Accounting Office was
directed by the Balanced Budget Act of 1997 to report in 18 months on the effect
of the reductions in oxygen reimbursement on accessibility by patients to home
oxygen services. The General Accounting Office's report is expected to be
released around April 1, 1999; home oxygen industry representatives have been
provided an opportunity to preview the draft report. The primary conclusion of
the draft report is that the reduction in Medicare payment rates for home oxygen
has not had a major impact on access to home oxygen equipment and services. The
Secretary of Health and Human Services was directed to arrange for peer review
organizations to evaluate the access to, and quality of, home oxygen equipment.
Other provisions of the Balanced Budget Act of 1997 that are likely to
affect levels of reimbursement to Apria for home medical equipment under the
Medicare program include:
-new authority of the Secretary of Health and Human Services to increase or
reduce the reimbursement for home medical equipment by 15% each year under
an inherent reasonableness procedure
-a reduction of the Medicare reimbursement for drugs and biologicals from
the current level of (a) the lower of the estimated acquisition cost or (b)
the national average wholesale price, to 95% of the national average
wholesale price with a dispensing fee paid to Apria's pharmacy
-a payment freeze between 1998 and 2002 for parenteral and enteral
nutrients, supplies and equipment at 1995 payment amounts
Under the Balanced Budget Act of 1997, some changes to the payment rules
for home health agencies may impact how Medicare payments are made to suppliers.
Currently, Apria submits Medicare bills under Medicare Part B and is paid for
certain items and services furnished to Medicare Part B patients who are being
treated by a home health agency and are under a plan of care. Under the
prospective payment system mandated by the new legislation, home health agencies
may be required to submit and receive payment for all items and services
furnished under a plan of care. Therefore, once a prospective payment system is
implemented for home health agencies, Apria's ability to continue to bill and
receive payments directly from the Medicare program, for at least those patients
who also meet the home health agency coverage requirements, may cease. Apria
will still be able to provide items and services to Medicare patients under
arrangements with the home health agencies, but Apria would be considered a
vendor and payments might be subject to contractual agreements. Although the
prospective payment system for home health agencies is scheduled to be effective
October 1, 1999, the Health Care Financing Administration has indicated that due
to implementation delays relating to the year 2000 issue, there likely will not
be any changes before 2000.
Finally, the Balanced Budget Act of 1997 proposed that suppliers of home
medical equipment be required to post surety bonds equal to 15% of their
previous year's Medicare revenues, in a minimum amount of $50,000 and up to a
maximum of $3 million, as a condition of participation in the Medicare program.
The bonds would be used to secure suppliers' performance and compliance with
Medicare program rules and requirements. The deadline for securing such bonds
has been extended indefinitely, as the Health Care Financing Administration is
reviewing the bonding requirements pursuant to a recommendation by the United
States General Accounting Office.
The Balanced Budget Act of 1997 mandates that the Health Care Financing
Administration conduct competitive bidding demonstrations for Medicare Part B
items and services. Pursuant to this mandate, the Health Care Financing
Administration has issued notice to providers, including Apria, in Polk County,
Florida, of the structure and conditions for submitting bids to provide Medicare
beneficiaries with five categories of home medical equipment, including oxygen,
hospital beds, enteral products, surgical and urological supplies. The
competitive bidding demonstration, the first of its kind by the Health Care
Financing Administration and the first of five authorized by the Medicare Reform
Act of 1997, could provide the Health Care Financing Administration and Congress
with a model for implementing competitive pricing in all Medicare Programs. If
such a competitive bidding system were implemented, it could result in lower
reimbursement rates, exclude certain items and services from coverage or impose
limits on increases in reimbursement rates.
OPERATION RESTORE TRUST. In May 1995, the federal government announced an
initiative, known as Operation Restore Trust, which would increase significantly
the financial and human resources allocated to combating healthcare fraud, waste
and abuse. Private insurers and various state enforcement agencies also have
increased their scrutiny of healthcare claims in an effort to identify and
prosecute fraudulent and abusive practices. Under Operation Restore Trust, the
Office of the Inspector General of the Department of Health and Human Services,
in cooperation with other federal and state agencies, initially focused on the
activities of home health agencies, hospices, durable medical equipment
suppliers and nursing homes in New York, Florida, Illinois, Texas, and
California, states in which Apria has significant operations. In May 1997,
Operation Restore Trust expanded to include 12 more states and, in 1998, to a
total of 24 states and Puerto Rico, with the government indicating that
Operation Restore Trust was being incorporated as a permanent operation
throughout all government healthcare organizations nationwide.
THE ANTI-KICKBACK STATUTE. As a provider of services under the Medicare and
Medicaid programs, Apria is subject to the Medicare and Medicaid fraud and abuse
laws (sometimes referred to as the "anti-kickback statute"). At the federal
level, the anti-kickback statute prohibits any bribe, kickback or rebate in
return for the referral of patients covered by federal healthcare programs.
Federal healthcare programs have been defined to include plans and programs that
provide health benefits funded by the United States Government including
Medicare, Medicaid, and the Civilian Health and Medical Program of the Uniformed
Services, among others. Violations of the anti-kickback statute may result in
civil and criminal penalties and exclusion from participation in the federal
healthcare programs. In addition, a number of states in which Apria operates
have laws that prohibit certain direct or indirect payments (similar to the
anti-kickback statute) or fee-splitting arrangements between healthcare
providers, if such arrangements are designed to induce or encourage the referral
of patients to a particular provider. Possible sanctions for violation of these
restrictions include exclusion from state funded healthcare programs, loss of
licensure and civil and criminal penalties. Such statutes vary from state to
state, are often vague and have seldom been interpreted by the courts or
regulatory agencies.
PHYSICIAN SELF-REFERRALS. Subject to certain exceptions, certain provisions
of the Omnibus Budget Reconciliation Act of 1993, commonly known as "Stark II",
prohibit a physician from referring Medicare and Medicaid patients for
"designated health services" to an entity with which the physician or a member
of such physician's immediate family has a financial relationship. The term
"designated health services" includes several services commonly performed or
supplied by Apria, including durable medical equipment, home health services and
parenteral and enteral nutrition. In addition, "financial relationship" is
broadly defined to include any ownership or investment interest or compensation
arrangement pursuant to which a physician receives remuneration from the
provider at issue. Violations of Stark II may result in loss of Medicare and
Medicaid reimbursement, civil penalties and exclusion from participation in the
Medicare and Medicaid programs. Stark II is broadly written and at this point,
only proposed regulations have been issued to clarify its meaning and
application. Regulations for a predecessor law, Stark I, were published in
August 1995 and remain in effect, but provide little guidance on the application
of Stark II to Apria's business. While the proposed Stark II regulations do not
have the force and effect of law, they provide some guidance as to what may be
included in the final version. Issued on January 9, 1998, the proposed
regulations purport to define previously undefined key terms, clarify prior
definitions and create new exceptions for certain "fair market value"
transactions, de minimis compensation arrangements and discounts, among others.
It is unclear when these regulations will be finalized and until such time, they
cannot be relied upon in structuring transactions. In addition, a number of the
states in which Apria operates have similar prohibitions on physician
self-referrals. Finally, recent enforcement activity and resulting case law
developments have increased the legal risks of physician compensation
arrangements that do not satisfy the terms of an exception to Stark II,
especially in the area of joint venture arrangements with physicians.
FALSE CLAIMS. The False Claims Act imposes civil and criminal liability on
individuals or entities that submit false or fraudulent claims for payment to
the government. Violations of the False Claims Act may result in treble damages,
civil monetary penalties and exclusion from the Medicare and Medicaid programs.
The False Claims Act also allows a private individual to bring a qui tam
suit on behalf of the government against a healthcare provider for violations of
the False Claims Act. A qui tam suit may be brought by, with only a few
exceptions, any private citizen who has material information of a false claim
that has not yet been previously disclosed, and even if disclosed, the original
source of the information leading to the public disclosure may still pursue such
a suit. The typical private plaintiff in such a suit is a corporate insider who
decides to become a whistleblower. However, the law does not prohibit outsiders
from pursuing such suits and there has been an increase in outsiders pursuing
them.
In a qui tam suit, the private plaintiff is responsible for initiating a
lawsuit that may eventually lead to the government recovering money of which it
was defrauded. After the private plaintiff has initiated the lawsuit, the
government must decide whether to intervene in the lawsuit and become the
primary prosecutor. In the event the government declines to join the lawsuit,
the private plaintiff may choose to pursue the case alone, in which case the
private plaintiff's counsel will have primary control over the prosecution
(although the government must be kept apprised of the progress of the lawsuit
and will still receive at least 70% of any recovered amounts). In return for
bringing the suit on the government's behalf, the statute provides that the
private plaintiff is to receive up to 30% of the recovered amount from the
litigation proceeds if the litigation is successful. Recently, the number of qui
tam suits brought against healthcare providers has increased dramatically. In
addition, at least five states - California, Illinois, Florida, Tennessee, and
Texas - have enacted laws modeled after the False Claims Act that allow those
states to recover money which was fraudulently obtained by a healthcare provider
from the state (e.g., Medicaid funds provided by the state). Apria is presently
named as a defendant in at least one qui tam suit, brought by Kirk Corsello in
January 1998, which alleges that the company paid illegal kickbacks to
physicians and physician groups in Florida in exchange for home oxygen
referrals. The government recently announced that it would not join Mr.
Corsello's suit at the present time; however, Mr. Corsello has indicated that he
will continue to pursue the lawsuit. It is Apria's position that the assertions
brought by Mr. Corsello with respect to the company are unwarranted. However, no
assurance can be provided as to the outcome of this litigation.
OTHER FRAUD AND ABUSE LAWS. The Health Insurance Portability and
Accountability Act of 1996 created in part, two new federal crimes: "Health Care
Fraud" and "False Statements Relating to Health Care Matters." The Health Care
Fraud statute prohibits knowingly and willfully executing a scheme or artifice
to defraud any healthcare benefit program. A violation of this statute is a
felony and may result in fines and/or imprisonment. The False Statements statute
prohibits knowingly and willfully falsifying, concealing or covering up a
material fact by any trick, scheme or device or making any materially false,
fictitious or fraudulent statement in connection with the delivery of or payment
for healthcare benefits, items or services. A violation of this statute is a
felony and may result in fines and/or imprisonment.
Recently, the federal government has made a policy decision to
significantly increase the financial resources allocated to enforcing the
general fraud and abuse laws. In addition, private insurers and various state
enforcement agencies have increased their level of scrutiny of healthcare claims
in an effort to identify and prosecute fraudulent and abusive practices in the
healthcare area.
INTERNAL CONTROLS. Apria maintains several programs designed to minimize
the likelihood that Apria would engage in conduct or enter into contracts
violative of the fraud and abuse laws. Contracts of the types subject to these
laws are reviewed and approved at the corporate level. Apria maintains an
extensive contract compliance review program established and monitored by its
legal department. Apria also maintains various educational programs designed to
keep its managers updated and informed on developments with respect to the fraud
and abuse laws and to remind all employees of Apria's policy of strict
compliance in this area. While Apria believes its discount agreements, billing
contracts, and various fee-for-service arrangements with other healthcare
providers comply with applicable laws and regulations, Apria cannot provide any
assurance that further judicial interpretations of existing laws or legislative
enactment of new laws will not have a material adverse effect on Apria's
business. See "Business - Risk Factors".
HEALTHCARE REFORM LEGISLATION. Economic, political and regulatory
influences are subjecting the healthcare industry in the United States to
fundamental change. Healthcare reform proposals have been formulated by members
of Congress and by the current administration. In addition, some of the states
in which Apria operates periodically consider various healthcare reform
proposals. Apria anticipates that Congress and state legislatures will continue
to review and assess alternative healthcare delivery systems and payment
methodologies and public debate of these issues will continue in the future. Due
to uncertainties regarding the ultimate features of reform initiatives and their
enactment and implementation, Apria cannot predict which, if any, of such reform
proposals will be adopted or when they may be adopted or that any such reforms
will not have a material adverse effect on Apria's business and results of
operations.
Healthcare is an area of extensive and dynamic regulatory change. Changes
in the law or new interpretations of existing laws can have a dramatic effect on
permissible activities, the relative costs associated with doing business and
the amount of reimbursement by government and other third-party payors.
Recommendations for changes may result from an ongoing study of patient access
by the General Accounting Office and from the potential findings of the National
Bipartisan Commission on the Future of Medicare.
EMPLOYEES
As of March 1, 1999, Apria had 8,175 employees, of which 6,824 were
full-time and 1,351 were part-time. The company's employees are not currently
represented by a labor union or other labor organization, except for
approximately 20 employees in the State of New York. Apria believes that its
employee relations are good.
The following table presents the number of Apria's full-time equivalent
employees in each of Apria's functional departments for the month of February
1999. Full-time equivalents are computed by dividing the actual number of hours
worked in a given period by the "normal" number of hours for that period based
on a 40-hour week.
Functional Department FTEs
--------------------- ----
Sales 370
Respiratory therapy 651
Nursing 188
Pharmacy 228
Patient Services 1,355
Reimbursement 1,501
Repair 207
Delivery 1,850
Warehouse 297
Administrative 866
-----
Total 7,513
=====
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages, titles with Apria and present and past
positions of the persons serving as executive officers of Apria as of March 31,
1999:
<TABLE>
Name and Age Office and Experience
------------ ---------------------
<S> <C>
Philip L. Carter, 50............ Chief Executive Officer and Director. Mr. Carter has been Chief Executive Officer and a
Director of Apria since May 1998. Prior to joining Apria, Mr. Carter was President and
Chief Executive Officer of Mac Frugal's Bargains o 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 Mac Frugal's from 1991 through 1995.
Lawrence M. Higby, 53........... President and Chief Operating Officer. Mr. Higby joined Apria in November 1997. Prior to
joining Apria, Mr. Higby served as President and Chief Operating Officer of Unocal's 76
Products Company and Group Vice President of Unocal Corporation from 1994 to 1997. From
1986 to 1994, Mr. Higby held various positions with the Times Mirror Company, including
Executive Vice President, Marketing of the Los Angeles Times and Chairman of the Orange
County Edition from 1992 to 1994.
Michael R. Dobbs, 49 ........... Executive Vice President, Logistics. Mr. Dobbs was promoted to Executive Vice President,
Logistics in January 1999. He served as Senior Vice President, Logistics from June 1988
to January 1999. Prior to joining Apria, Mr. Dobbs served as Senior Vice President of
Distribution for Mac Frugal's Bargains o Close-Outs Inc. from 1991 to January 1998.
John C. Maney, 39 .............. Executive Vice President and Chief Financial Officer. Mr. Maney has been Executive Vice
President and Chief Financial Officer since joining Apria in November 1998. Prior to
joining Apria, Mr. Maney was employed by Arthur Andersen LLP since 1992 and was a partner
of such firm from 1995 to 1998.
Lawrence A. Mastrovich, 37 ..... Executive Vice President, Business Operations. Mr. Mastrovich was promoted to Executive
Vice President, Business Operations in October 1998. He served as Division Vice
President, Operations of the Northeast Division from December 1997 to October 1998. Prior
to that time he had served as a Regional Vice President for Apria and Homedco since 1994
and in various other capacities from 1987 to 1994.
Dennis E. Walsh, 49............. Executive Vice President, Sales. Mr. Walsh was promoted to Executive Vice President,
Sales in January 1998. Mr. Walsh served as Senior Vice President, Western Zone from March
1997 to January 1998. From June 1995 to March 1997, he served as Senior Vice President,
Sales and Marketing. He served as Vice President, Sales of Homedco from November 1987 to
June 1995.
Frank Bianchi, 54............... Senior Vice President, Human Resources. Mr. Bianchi joined Apria in May 1998 as its
Senior Vice President, Human Resources. Prior to joining Apria, Mr. Bianchi served as
Senior Vice President, Human Resources for Mac Frugal's Bargains o Close-Outs Inc. from
1989 until January 1998.
Lisa M. Getson, 37.............. Senior Vice President, Business Development and Clinical Services. Ms. Getson was named
Senior Vice President, Business Development and Clinical Services in August 1998. Ms.
Getson was promoted to Senior Vice President, Marketing in August 1997 after serving as
Vice President, Marketing from November 1995 to August 1997. She served as Director of
Marketing, Infusion from June 1995 to November 1995. From May 1994 to June 1995, she
served as Director of Business Development of Abbey. From 1989 to 1994, Ms. Getson held
various positions with Critical Care America, including Director of Marketing and Business
Development from January 1993 to May 1994.
Robert S. Holcombe, 56.......... Senior Vice President, General Counsel and Secretary. Mr. Holcombe was promoted to Senior
Vice President, General Counsel and Secretary in August 1997. He served as Vice
President, General Counsel and Secretary from May 1996 to August 1997. Prior to joining
Apria, Mr. Holcombe served as Senior Vice President and General Counsel for The Cooper
Companies, Inc., a diversified specialty healthcare company, from December 1989 to April
1996.
George J. Suda, 40 ............. Senior Vice President, Information Services. Mr. Suda was promoted to Senior Vice
President, Information Systems in July 1998. He served as Vice President, Information
Services Technology from June 1997 to July 1998 and as Director, Technology from January
1997 to June 1997. From July 1994 to January 1997, Mr. Suda was a self-employed
information services consultant, providing services to Abbey and Apria.
James E. Baker, 47 ............. Vice President, Controller. Mr. Baker has served as Vice President, Controller of Homedco
and, subsequently, Apria, since August 1991. He served as Corporate Controller of Homedco
from November 1987 to August 1991.
</TABLE>
RISK FACTORS
This report contains forward-looking statements, which are subject to
numerous factors (many of which are beyond the company's control) which could
cause actual results to differ materially from those in the forward-looking
statements. Such forward looking statements include, but are not limited to,
statements as to anticipated futute results, developments and occurrences set
forth or implied:
- under the caption "Business - Business Strategy" and elsewhere in this
report as to measures being undertaken to improve profitability, and plans
for the future
- under the caption "Business - Organization and Operations - Operating
Systems and Controls
- under the caption "Business - Government Regulation - Internal Controls
- under the caption "Legal Proceedings" and elsewhere in this report
concerning the outcome of pending legal proceedings
- under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources"
- concerning Year 2000 compliance
- under the caption "Quantitative and Qualitative Disclosures About Market
Risk"
Apria has identified below important factors that could cause actual
results to differ materially from those projected in any forward-looking
statements the company may make from time to time.
HIGH LEVERAGE AND RESTRICTIVE COVENANTS - APRIA'S SUBSTANTIAL INDEBTEDNESS COULD
ADVERSELY AFFECT THE FINANCIAL HEALTH OF APRIA.
Apria has now and will continue to have a significant amount of indebtedness. At
December 31, 1998, Apria had total indebtedness of approximately $489 million
and stockholders' deficit of approximately $132 million.
Covenants contained in Apria's bank credit agreement and the indenture governing
Apria's outstanding 9 1/2% senior subordinated notes due 2002 contain material
restrictions on Apria's operations, including its ability to incur debt, make
certain investments and encumber or dispose of assets. Pursuant to the indenture
governing the outstanding notes, Apria is not currently permitted to incur any
indebtedness (other than certain refinancing indebtedness) and does not
anticipate that it will be entitled to incur additional indebtedness through at
least the third quarter of 1999. In addition, financial covenants contained in
Apria's bank credit agreement could lead to a default in the event results of
operations do not meet Apria's plans.
Apria's substantial indebtedness could have important consequences to Apria. For
example, it could:
-increase Apria's vulnerability to general adverse economic and industry
conditions
-limit Apria's ability to fund future working capital, capital
expenditures, acquisitions and other general corporate requirements
-require Apria to dedicate a substantial portion of its cash flow from
operations to payments on its indebtedness, thereby reducing the
availability of its cash flow to fund working capital, capital
expenditures, acquisitions and other general corporate purposes
-limit Apria's flexibility in planning for, or reacting to, changes in its
business and the industry in which it operates
-place Apria at a competitive disadvantage compared to its competitors that
have less debt
-limit, along with the financial and other restrictive covenants in Apria's
indebtedness, among other things, its ability to borrow additional funds
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources".
ABILITY TO SERVICE DEBT - TO SERVICE ITS INDEBTEDNESS, APRIA WILL REQUIRE A
SIGNIFICANT AMOUNT OF CASH. APRIA'S ABILITY TO GENERATE CASH DEPENDS ON MANY
FACTORS BEYOND APRIA'S CONTROL.
Apria's ability to make payments on and to refinance its indebtedness and to
fund planned capital expenditures will depend on its ability to generate cash in
the future. This, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond Apria's control.
Based on its current level of operations and anticipated cost savings and
operating improvements, Apria believes its cash flow from operations, available
cash and potentially available borrowings under its bank credit agreement will
be adequate to meet its future liquidity needs for at least the next twelve
months. Apria cannot assure prospective investors, however, that its business
will generate sufficient cash flow from operations, that currently anticipated
cost savings and operating improvements will be realized on schedule or at all
or that future borrowings will be available to Apria under its bank credit
agreement in an amount sufficient to enable Apria to pay its indebtedness or to
fund Apria's other liquidity needs. Apria may need to refinance all or a portion
of its indebtedness on or before maturity. Apria cannot assure prospective
investors that it will be able to refinance any of its indebtedness, including
its bank credit agreement on commercially reasonable terms or at all. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
CHANGES IN COMPANY'S BUSINESS STRATEGY - APRIA MAY NOT BE ABLE TO SUCCESSFULLY
IMPLEMENT ITS NEWLY DEVELOPED BUSINESS STRATEGY WHICH COULD HAVE AN ADVERSE
EFFECT ON RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
The management and Board of Directors of Apria changed substantially in 1998.
Apria's new management revised business plans, management structure and
operating procedures and strategies, and plans significant further changes for
the future. These changes involve substantial costs and inevitable disruption of
business operations. Changes in operating procedures and strategies, while
designed to improve efficiency, may not produce the cost reductions and
efficiencies anticipated. In pursuing its acquisition strategy, Apria may have
difficulty identifying appropriate acquisition candidates and consummating
transactions, and the process of integrating newly acquired businesses may be
costly and disruptive. In addition, Apria may not have sufficient available
funds to pursue its acquisition strategy. Apria is currently limited to making
acquisitions not to exceed $25 million per acquisition or $62 million in the
aggregate prior to August 9, 2001, the scheduled maturity date of the company's
bank credit agreement. Results of operations in future periods will be dependent
upon the success of Apria's business strategy. If Apria is not successful in
achieving anticipated cost reductions and revenue increases, results will be
adversely affected. See "Business - Business Strategy".
SIGNIFICANT RECENT LOSSES AND LIQUIDITY LIMITATIONS - APRIA MAY NOT BE
SUCCESSFUL IN ITS EFFORTS TO SUSTAIN THE REVERSAL OF ITS RECENT HISTORICAL NET
LOSSES.
Apria has suffered significant net losses in the last two fiscal years. Although
Apria reported a profit for the fourth quarter of 1998, there can be no
assurance that Apria will be able to continue its turnaround and operate
profitably in the future. Due to restrictions in Apria's bank credit agreement
and the indenture governing the company's 9-1/2% senior subordinated notes,
Apria, at least through September 30, 1999, must successfully utilize its
existing resources in order to finance its operations and implement its business
strategy. While existing cash reserves appear sufficient to meet Apria's
identified needs for the remainder of 1999, Apria cannot assure that such
existing resources will be adequate for such purposes indefinitely. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources".
FEDERAL INVESTIGATIONS - THE OUTCOME OF THE INVESTIGATIONS THAT THE U.S.
DEPARTMENT OF JUSTICE IS CURRENTLY CONDUCTING ON APRIA'S MEDICARE, MEDICAID AND
OTHER BILLING PRACTICES COULD HAVE A NEGATIVE IMPACT ON APRIA'S OPERATIONS AND
FINANCIAL CONDITION.
Since June 1998, Apria has received a total of nine subpoenas from the U.S.
Attorneys' offices in Sacramento and San Diego, California, requesting documents
related to the company's billing practices. The documents requested include
those located at Apria's corporate headquarters in Costa Mesa, California, and
offices in San Diego and Sacramento, California, and Canonsburg, Pennsylvania.
Apria has substantially completed the process of complying with the subpoenas.
Apria has experienced problems as a result of errors and deficiencies in
supporting documentation affecting a portion of its billings, including billings
under the Medicare and Medicaid programs. If the U.S. Department of Justice were
to conclude that such errors and deficiencies constituted criminal violations,
or were to conclude that such errors and deficiencies resulted in the submission
of false claims to federal healthcare programs, Apria could face criminal
charges and/or civil claims, administrative sanctions and penalties for amounts
that would be highly material to its business, results of operations and
financial condition, including exclusion of Apria from participation in federal
healthcare programs. Such amounts could include claims for treble damages and
penalties of up to $10,000 per false claim submitted by Apria to a federal
healthcare program. It is the company's position that the assertion of criminal
charges or the assertion of any such claims would be unwarranted. If such
charges or claims were asserted, Apria believes that it would be in a position
to assert numerous defenses. However, no assurance can be provided as to the
outcome of any such possible proceedings.
Presently, Apria is unaware of what claims or proceedings, if any, the
government may be contemplating with respect to these subpoenas.
COLLECTIBILITY OF ACCOUNTS RECEIVABLE - APRIA'S FAILURE TO IMPROVE ACCOUNTS
RECEIVABLE MANAGEMENT WOULD HAVE A SIGNIFICANT NEGATIVE IMPACT ON RESULTS OF
OPERATIONS AND FINANCIAL CONDITION.
Results of operations have been adversely affected by high levels of accounts
receivable write-offs. Apria wrote off accounts receivable totaling $246
million, $302 million and $269.5 million in 1998, 1997 and 1996, respectively.
Initially caused by the disruptive effects of the 1995 and 1996 system
conversions effected in conjunction with the Abbey/Homedco merger, the high
level of accounts receivable write-offs are largely due to billing problems such
as untimely billing, improper and/or untimely preparation of, and deficiencies
in, reimbursement documentation, problems with the billing systems and the high
concentration of managed care payors from whom it has been difficult to collect.
Apria records receivables upon confirmation of the delivery of medical services
or products which is typically prior to billing and the preparation and
submission of reimbursement documentation, which can create increased collection
risks if invoices and documentation are not prepared correctly and on a timely
basis. Although management has implemented a number of initiatives and invested
significant resources to address the problems, the high level of write-offs
continued into 1998. There can be no assurance that the collectibility of
Apria's recorded accounts receivable will improve in the near future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources".
OPERATING SYSTEMS AND CONTROLS - APRIA'S IMPLEMENTATION OF SIGNIFICANT SYSTEM
MODIFICATIONS TO ADDRESS SYSTEM PROBLEMS EXPERIENCED IN PRIOR PERIODS COULD HAVE
A DISRUPTIVE EFFECT ON BILLING AND COLLECTION ACTIVITY AND COULD ULTIMATELY HAVE
A SIGNIFICANT NEGATIVE IMPACT ON RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
Following the 1995 merger of Apria's two predecessor corporations, the company
has been adversely affected by difficulties in the establishment of a common
field information system for accurate order entry, pricing, billing, collections
and monitoring, as well as by ongoing operational problems such as high turnover
and training issues. To address these issues, management performed an evaluation
of its current systems. A significant determination of the evaluation is that
Apria is at some risk in continuing to run its infusion billing system on its
current platform, which is no longer supported by the computer industry. To
mitigate this risk, Apria is currently converting the infusion system to the
operating platform on which the respiratory/home medical equipment system
currently operates. To address the system problems experienced since the merger,
Apria is rewriting the order entry, billing and accounts receivable modules and
is installing supply chain management software to replace the purchasing and
inventory modules. There can be no assurance that the system modifications will
resolve the problems experienced in prior periods and the implementation of
these system changes could have a disruptive effect on billing and collection
activity. See "Business - Organization and Operations - Operating Systems and
Controls".
PERSONNEL TURNOVER - IF APRIA'S HIGH LEVEL OF PERSONNEL TURNOVER CONTINUES, IT
IS UNLIKELY THAT THE COMPANY WILL BE ABLE TO SUCCESSFULLY IMPLEMENT ITS BUSINESS
STRATEGIES, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON RESULTS OF OPERATIONS
AND FINANCIAL CONDITION.
Apria's annual turnover has been at approximately 30% for most of 1998, 1997 and
1996. Apria's turnover has been highest among senior management, middle
management and the sales force. The turnover has been largely due to uncertainty
about Apria's future, its strategies and the mix of products and services
offered. No assurance can be given that recent changes in senior management and
efforts to establish a comprehensive strategy will reduce this turnover.
GOVERNMENT REGULATION; HEALTHCARE REFORM - NON-COMPLIANCE WITH LAWS AND
REGULATIONS APPLICABLE TO APRIA'S BUSINESS AND FUTURE CHANGES IN THOSE LAWS AND
REGULATIONS COULD HAVE A MATERIAL ADVERSE EFFECT ON APRIA.
Apria is subject to stringent laws and regulations at both the federal and state
levels, requiring compliance with burdensome and complex billing, substantiation
and record-keeping requirements. Financial relationships between Apria and
physicians and other referral sources are subject to strict limitations. In
addition, the provision of services, pharmaceuticals and equipment are subject
to strict licensing and safety requirements. Violations of these laws and
regulations could subject Apria to severe fines, facility shutdowns and possible
exclusion from participation in federal healthcare programs such as Medicare and
Medicaid.
Government officials and the public will continue to debate healthcare reform.
Changes in healthcare law, new interpretations of existing laws, or changes in
payment methodology may have a dramatic effect on Apria's business and results
of operations. See "Business - Government Regulation".
MEDICARE REIMBURSEMENT RATES - CONTINUED REDUCTIONS IN MEDICARE REIMBURSEMENT
RATES COULD HAVE A MATERIAL ADVERSE EFFECT ON RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
Pursuant to the provisions of the Balanced Budget Act of 1997, the Medicare
reimbursement rates for home oxygen therapy and respiratory drugs were reduced
by 25% and 5%, respectively, effective January 1, 1998. An additional
reimbursement reduction of 5% on home oxygen therapy was effective on January 1,
1999. Also included in the Balanced Budget Act of 1997 is a freeze on Consumer
Price Index-based reimbursement rate increases for 1998 through 2002 as well as
other provisions which may impact reimbursement rates in the future. At least
three products Apria provides have been identified as potential 1999
reimbursement reduction candidates. See "Business - Government Regulation -
Medicare and Medicaid Reimbursement".
PRICING PRESSURES - APRIA BELIEVES THAT CONTINUED PRESSURE TO REDUCE HEALTHCARE
COSTS COULD HAVE A MATERIAL ADVERSE EFFECT ON THE COMPANY.
The current market continues to exert pressure on healthcare companies to reduce
healthcare costs, resulting in reduced margins for home healthcare providers
like Apria. Larger buyer and supplier groups exert additional pricing pressure
on home healthcare providers. These include managed care organizations, which
control an increasing portion of the healthcare economy. Apria has a number of
contractual arrangements with managed care organizations and other parties,
although no individual arrangement accounted for more than 7% of Apria's net
revenues in fiscal 1997 or 1998. Certain competitors of Apria have or may obtain
significantly greater financial and marketing resources than Apria. In addition,
relatively few barriers to entry exist in local home healthcare markets. As a
result, Apria could encounter increased competition in the future that may
increase pricing pressure and limit its ability to maintain or increase its
market share. See "Business - Sales" and "Business - Competition".
YEAR 2000 COMPLIANCE - APRIA COULD BE ADVERSELY AFFECTED IF YEAR 2000 PROBLEMS
ARE SIGNIFICANT.
The year 2000 issue is the result of many software applications being written
using two digits rather than four to define the applicable year, which may cause
the application to recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in system failure or malfunction. Apria has
substantially completed the necessary modifications to its field information
systems and is in the process of evaluating its ancillary systems to ensure that
they are year 2000-compliant. Further, Apria is assessing the year 2000
readiness of its external business partners such as payors, banks and suppliers.
If Apria is unable to resolve all its year 2000 issues, including those with
external agents, it may have a material adverse effect on Apria's operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources".
ITEM 2. PROPERTIES
Apria's headquarters are located in Costa Mesa, California and consist of
approximately 112,000 square feet of office space. The lease expires in 2001.
Apria has approximately 320 branch facilities serving patients in all 50 states.
These branch facilities are typically located in light industrial areas and
average approximately 10,000 square feet. Each facility is a combination
warehouse and office, with approximately 50% of the square footage consisting of
warehouse space. Apria leases substantially all of its facilities with lease
terms of generally five years or less.
ITEM 3. LEGAL PROCEEDINGS
Apria and certain of its present and former officers and/or directors are
defendants in a class action lawsuit, In Re Apria Healthcare Group Securities
Litigation, filed in the U.S. District Court for the Central District of
California, Southern Division (Case No. SACV98-217 GLT). This case is a
consolidation of three similar class actions filed in March and April, 1998.
Pursuant to a court order dated May 27, 1998, the plaintiffs in the original
three class actions filed a Consolidated Amended Class Action Complaint on
August 6, 1998. The amended complaint purports to establish a class of plaintiff
shareholders who purchased Apria's common stock between May 22, 1995 and January
20, 1998. No class has been certified at this time. The amended complaint
alleges, among other things, that the defendants made false and/or misleading
public statements regarding Apria and its financial condition in violation of
federal securities laws. The amended complaint seeks compensatory and punitive
damages as well as other relief.
Two similar class actions were filed during July 1998 in Superior Court of
California for the County of Orange: Schall v. Apria Healthcare Group Inc., et
al. (Case No. 797060) and Thompson v. Apria Healthcare Group Inc., et al. (Case
No. 797580). These two actions were consolidated by a court order dated October
22, 1998. The parties have agreed that a new and first amended complaint will be
filed. Apria anticipates that allegations similar to those asserted in the
amended complaint in the federal action will be asserted in the consolidated
state action, although the claims will be founded on state law, as opposed to
federal law.
Apria believes that it has meritorious defenses to the plaintiffs' claims,
and it intends to vigorously defend itself in both the federal and state cases.
In the opinion of Apria's management, the ultimate disposition of these class
actions will not have a material adverse effect on the company's financial
condition or results of operations.
Apria has received nine subpoenas from the U.S. Department of Justice
requesting documents related to the company's billing practices. See "Business -
Risk Factors - Federal Investigation".
Apria is presently named as a defendant in at least one whistleblower suit
brought under the False Claims Act. See "Business - Government Regulation -
Other Fraud and Abuse Laws".
Apria is also engaged in the defense of certain claims and lawsuits arising
out of the ordinary course and conduct of its business, the outcomes of which
are not determinable at this time. Apria has insurance policies covering such
potential losses where such coverage is cost effective. In the opinion of
management, any liability that might be incurred by Apria upon the resolution of
these claims and lawsuits will not, in the aggregate, have a material adverse
effect on the company's consolidated results of operations and financial
condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Apria's stockholders during the
fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Apria's common stock is traded on the New York Stock Exchange under the
symbol AHG. The table below sets forth, for the calendar periods indicated, the
high and low sales prices per share of Apria common stock:
High Low
---- ---
Year ended December 31, 1998
First Quarter $14.1250 $ 8.3125
Second Quarter 10.0000 6.0625
Third Quarter 7.1875 4.0000
Fourth Quarter 9.0625 2.5625
Year ended December 31, 1997
First Quarter $20.6250 $16.5000
Second Quarter 19.3750 15.0000
Third Quarter 18.5000 12.7500
Fourth Quarter 17.0000 13.0625
As of March 31, 1999 there were 848 holders of record of Apria common
stock.
Apria has not paid any dividends since its inception and does not intend to
pay any dividends on its common stock in the foreseeable future. In addition,
Apria has a bank credit agreement which prohibits the payment of dividends.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial data of Apria, giving
effect, in periods prior to June 28, 1995, to the merger between Homedco and
Abbey using the pooling-of-interests method of accounting, for the five years
ended December 31, 1998. The data set forth below have been derived from the
audited Consolidated Financial Statements of Apria and are qualified by
reference to, and should be read in conjunction with, the Consolidated Financial
Statements and related notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included in this report. As
discussed in the Notes to the Consolidated Financial Statements, certain
adjustments have been made to conform the two companies' accounting practices.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------
1998(1,2) 1997(1,3) 1996(1,4) 1995(4,5,6) 1994(4,6,7)
--------- --------- --------- ----------- -----------
(in thousands, except per share amounts)
Statements of Operations Data:
<S> <C> <C> <C> <C> <C>
Net revenues.................................... $ 933,793 $1,180,694 $1,181,143 $1,133,600 $ 962,812
Gross profit.................................... 603,098 729,512 780,468 772,601 675,122
(Loss) income from continuing operations
before extraordinary items................... (207,938) (272,608) 33,300 (71,478) 35,616
Net (loss) income............................... (207,938) (272,608) 33,300 (74,476) 39,031
Per share amounts:
(Loss) income from continuing operations
before extraordinary items............... $ (4.02) $ (5.30) $ 0.66 $ (1.52) $ 0.84
Net (loss) income per common share.......... $ (4.02) $ (5.30) $ 0.66 $ (1.58) $ 0.92
Per share amounts - assuming dilution:
(Loss) income from continuing operations
before extraordinary items............... $ (4.02) $ (5.30) $ 0.64 $ (1.52) $ 0.78
Net (loss) income per common share.......... $ (4.02) $ (5.30) $ 0.64 $ (1.58) $ 0.85
Balance Sheet Data:
Working capital................................. $ 14,929 $ 169,090 $ 311,991 $ 198,630 $ 157,608
Total assets.................................... 496,598 757,170 1,149,110 979,985 856,167
Long-term obligations,
including current maturities.................. 488,586 548,905 634,864 500,307 438,304
Stockholders' equity (deficit).................. (131,657) 74,467 342,935 284,238 261,910
</TABLE>
(1) As described in Item 7, Apria recorded significant charges to provide for
estimated losses related to accounts receivable. In 1998, $18.3 million was
recorded to increase the allowance for revenue adjustments and $22.7
million was charged to increase the allowance for doubtful accounts. These
charges relate primarily to changes in collection policies and in
conjunction with certain portions of the business from which the company
exited. Apria recorded charges of $40 million and $32.3 million in 1997 and
1996, respectively, to increase the allowance for revenue adjustments and
$61.4 million and $9 million in 1997 and 1996, respectively, to increase
the allowance for doubtful accounts. These charges were due primarily
to the residual effects of the 1995 and 1996 facility consolidations and
system conversions effected in conjunction with the Abbey/Homedco merger.
(2) As described in Item 7 and in Notes 3, 4 and 14 to the Consolidated
Financial Statements, the operations data for 1998 includes impairment
charges of $76.2 million to write down the carrying values of intangible
assets and $22.2 million to write-off information systems hardware,
internally-developed software and assets associated with the exit of
portions of the business.
(3) As described in Item 7 and in Notes 3, 4, 8 and 14 to the Consolidated
Financial Statements, the operations data for 1997 includes significant
adjustments and charges to write down the carrying values of intangible
assets and information systems hardware and internally-developed software
of $133.5 million and $26.8 million, respectively, to increase the
valuation allowance on deferred tax assets by $30 million, and to provide
for estimated shortages related to patient service assets inventory of
$33.1 million.
(4) The per share amounts prior to 1997 have been restated as required to
comply with Statement of Financial Accounting Standards No. 128, Earnings
per Share. For further discussion, see Note 9 to the Consolidated Financial
Statements.
(5) In 1995, Apria incurred charges related to merger, restructuring and
integration activities in conjunction with the Abbey/Homedco merger.
(6) The Statements of Operations and Balance Sheet Data reflect the June 28,
1995 Abbey/Homedco merger using the pooling-of-interests method of
accounting. Accordingly, the financial data for all periods prior to June
28, 1995 have been restated as though the two companies had been combined.
(7) In 1994, Apria disposed of its 51% interest in Abbey Pharmaceutical
Services, Inc.
Apria did not pay any cash dividends on its common stock during any of the
periods set forth in the table above.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Apria operates in the home healthcare segment of the healthcare industry
and provides services including home respiratory therapy, home infusion therapy,
home medical equipment and other services. In all three lines, Apria provides
patients with a variety of clinical services and related products and supplies,
most of which are prescribed by a physician as part of a care plan. Apria
provides these services to patients in the home throughout the United States
through its 320 branch locations. Management measures operating results on a
geographic basis and, therefore, views each branch as an operating segment. All
the branches offer the same services, except that infusion services are not
offered in all the geographic markets in which the company operates. For
financial reporting purposes, all the company's operating segments are
aggregated into one reportable segment.
BACKGROUND. In June 1997, Apria announced that it had retained an
investment banking firm as its financial advisor to explore strategic
alternatives to enhance shareholder value, including the possible sale, merger
or recapitalization of Apria. During the first quarter of 1998, Apria entered
into a recapitalization agreement; however, the agreement was terminated by
mutual consent of the parties on April 3, 1998. This process and resulting
uncertainties are believed to have adversely affected Apria's financial results.
By May 1998, Apria's active exploration of strategic alternatives was terminated
as a result of hiring a new Chief Executive Officer and other key management
executives and the reconfiguration of the Board of Directors.
In July 1998, after an evaluation of the business, Apria's new management
team announced its strategic plan, or "reorganization", to improve the company's
performance. The key elements of the reorganization are: (1) no change would be
made to the fundamental nature of the business, (2) Apria would withdraw from
unprofitable components of the business, which would include exiting the
infusion therapy business in certain geographic areas, (3) a comprehensive cost
reduction and capital conservation program would be instituted, (4) Apria would
pursue expansion through internal growth and acquisitions, and (5) the debt and
capital structure would be reexamined. Significant actions taken by Apria's new
management team since it announced the reorganization include: a change in
management's collection policy and a refinement of the accounts receivable
collectibility estimation methodologies as described below, the sale of the
California component of the infusion therapy business ("the infusion sale"), the
exit of the infusion therapy business in Texas, Louisiana, West Virginia,
western Pennsylvania and downstate New York and the consolidation or closure of
certain small branch locations throughout the United States (collectively, "the
exited businesses"). Other significant actions include the termination of plans
to proceed with the capital-intensive implementation of an enterprise resource
planning system, a significant reduction of corporate and regional labor and
general administrative costs and the development of a comprehensive plan to
capture cost savings in the areas of purchasing, distribution and inventory
management.
RESULTS OF OPERATIONS
NET REVENUES. Substantially all of Apria's revenues are reimbursed by third
party payors, including Medicare, Medicaid and managed care organizations,
representing approximately 26%, 10% and 40% of total revenues, respectively.
Due to the nature of the industry and the reimbursement environment in
which Apria operates, certain estimates are required in recording net revenues.
Inherent in these estimates is the risk that they will have to be revised or
updated, and the changes recorded in subsequent periods, as additional
information becomes available to management.
In June of 1997, Apria determined that its strategy to focus on increasing
managed care market share had negatively impacted its financial performance,
particularly for infusion therapy, because of significant managed care price
compression, difficulties in billing and collecting from managed care
organizations and related losses of traditional referral business. In response
to these conditions, management reevaluated its strategies and began efforts to
exit certain managed care contracts not meeting minimum profitability
thresholds, as well as certain lower-margin service lines and began to
reemphasize traditional referral-based business from sources such as physicians,
hospitals, medical groups and home health agencies.
Service lines targeted for exit in 1997 included medical supplies, women's
health and nursing management, which represented annual revenues of
approximately $55.8 million. Some portion of the medical supply and nursing
business is expected to continue due to core service line customer requirements.
Through the end of 1997, Apria had exited contracted business representing
approximately $25 million in annual revenues. The contract review process
continued into 1998 resulting in the termination of contracts totaling
approximately $19 million in annual revenues. A consequence of the initiatives
to exit certain service lines and to exit certain low-margin managed care
contracts was the loss of related business which Apria would have preferred to
retain.
In addition to the specific quantifiable reductions to revenue mentioned
herein, revenues were adversely impacted by various other factors. In mid-1997
Apria began a process to explore the feasibility of entering into a transaction
such as a sale, merger or recapitalization. Apria entered into an agreement for
a recapitalization transaction during the first quarter of 1998 which was
subsequently terminated. The entire process created an environment of
uncertainty, both within Apria and with its customers and other business
partners. During this same period there were a number of changes in senior
management and to the Board of Directors, which added to the distraction and
raised more uncertainty. These issues led Apria to be characterized in a very
negative light in various newspapers and trade journals. Also, during this
period of turmoil, Apria found it very difficult to attract and retain quality
sales personnel which left many geographic sales territories lacking sufficient
coverage to compete effectively. All of these factors have adversely impacted
revenues, but attributing dollar amounts to each would not be feasible.
The following table sets forth a summary of net revenues by service line:
Year Ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
(in millions)
Respiratory therapy................... $ 553 $ 606 $ 594
Infusion therapy...................... 211 281 293
Home medical equipment/other.......... 170 294 294
------ ------ ------
Total net revenues.............. $ 934 $1,181 $1,181
====== ====== ======
Respiratory Therapy. The decrease in respiratory revenues in 1998 compared
to 1997 is almost entirely due to the reduction of Medicare reimbursement rates
pursuant to the provisions of the Balanced Budget Act of 1997. Effective January
1, 1998, the Medicare reimbursement rates for home oxygen therapy and
respiratory drugs were reduced by 25% and 5%, respectively. The estimated
decrease in 1998 revenues and operating income resulting from these
reimbursement reductions is approximately $57 million. A further reimbursement
reduction of 5% on home oxygen therapy became effective on January 1, 1999,
which is estimated to reduce 1999 revenues and operating income by approximately
$11 million. Also effective January 1, 1998, was a freeze on Consumer Price
Index-based increases until 2002.
The increase in respiratory therapy revenues in 1997 over 1996 is due to
Apria's concerted effort in early 1997 to refocus on respiratory therapy and to
increase the number of territories covering this higher-margin traditional
business.
Infusion Therapy. The decrease in infusion therapy revenues in 1998 is
primarily due to the termination of unprofitable contracts and formidable
competition at the local and national levels. Also impacting 1998 infusion
therapy revenues was the decision to sell/exit the infusion business in certain
geographic markets. The decision was made at the end of the third quarter and
the transition out of the business in substantially all of the selected areas
took place in the fourth quarter. The impact on 1998 revenues during the
transition period was a reduction of approximately $9.5 million. The annual
revenues represented by these infusion locations is approximately $52 million.
The decrease in infusion revenues in 1997 as compared to 1996 reflects the
early effects of the contract termination process, the increased competition and
the company's focus on the respiratory business.
Home Medical Equipment/Other. Home medical equipment/other revenues
decreased significantly in 1998 as compared to 1997. The primary causes were due
to discontinuing the medical supply, women's health and nursing management
service lines and terminating unprofitable contracts. Further, the termination
of contracts or loss of business in the respiratory and infusion therapy lines
resulted in the loss of collateral business within the home medical
equipment/other line.
Home medical equipment/other revenues remained flat from 1997 to 1996. This
represents growth in the early part of 1997 due to Apria's emphasis on obtaining
managed care business as offset by the loss of medical supply and nursing
revenues in the latter part of 1997.
The freeze on Consumer Price Index-based Medicare reimbursement increases
discussed above is applicable to certain patient service equipment items within
Apria's home medical equipment line.
Revenue Adjustments. Due to the complexity of many third-party billing
arrangements and uncertainty of reimbursement amounts for certain services
and/or from certain payors, adjustments to billed amounts are fairly common and
are typically identified and recorded at the point of cash application, claim
denial or upon account review. Examples of such revenue adjustments include
subsequent changes to estimated revenue amounts or denials for services not
covered due to changes in the patient's coverage; failure subsequent to service
delivery to obtain written confirmation of authorization or other necessary
documentation; and differences in contract prices due to complex contract terms
or a biller's lack of familiarity with a contract or payor. Further, increases
in Apria's average collection periods have increased the level of unidentified
revenue adjustments accumulating in accounts receivable. These problems
originated during the system conversions and branch consolidations effected in
1995 and 1996. The related disruptions and employee turnover impeded normal
processing and account reviews and resulted in a high rate of billing problems.
Although management has taken a number of steps to address the billing and
collection problems, the high levels of revenue adjustments have persisted. Due
to the existence of unidentified revenue adjustments in accounts receivable,
management estimates and records an allowance for such adjustments. In 1998,
1997 and 1996, management recorded adjustments to reduce revenues and accounts
receivable by $18.3 million, $40.0 million and $32.3 million, respectively. See
"Liquidity and Capital Resources - Accounts Receivable".
GROSS PROFIT. Gross margins were 64.6% in 1998, 61.8% in 1997 and 66.1% in
1996. Despite the decrease in revenues due to the Medicare reimbursement rate
reductions, Apria's gross margin improved in 1998. The improvement in 1998
versus 1997 is attributable to a number of factors, the most significant of
which is the elimination of contracts not meeting profitability standards.
Mitigating the improvement were certain charges recorded during the third
quarter reorganization including $5.4 million to settle certain procurement
contracts, $3.5 million to provide for estimated losses in the company's oxygen
cylinders and $1.6 million to write-off operational assets in conjunction with
exiting certain portions of the infusion business.
As part of the new management team's strategy, a consulting firm was
engaged to help identify opportunities for operational improvement and cost
savings in the functional areas of purchasing and supply management, inventory
management and vehicle fleet and delivery management. A plan was adopted and
implementation began in early 1999. Included in the plan are standardization
initiatives and optimal operating models.
The deterioration in the gross margin in 1997 as compared to 1996 was due,
in part, to the downward pressure of managed care pricing on gross margins. Also
contributing to the decrease were charges of $23.0 million and $10.1 million
recorded in the second and fourth quarters of 1997, respectively. The second
quarter charge of $23.0 million was estimated based on the preliminary results
of asset verification and physical inventory procedures performed in the second
quarter. The adjustment was sufficient to cover actual write-offs resulting from
the third quarter completion of the company's asset verification and physical
inventory procedures. The charge was primarily due to untimely inventory relief
processes that were among the residual effects of the 1995 and 1996 system
conversions and related high employee turnover. The fourth quarter charge of
$10.1 million was an adjustment for additional inventory shortages incurred
since the completion of the second and third quarter asset verifications.
Because of the inventory relief problem, management performed supplemental
physical inventory procedures at a sampling of branches in the fourth quarter.
The procedure indicated continuing inventory and patient service equipment
shortages, therefore management estimated and recorded an increase to the
related reserves. Also contributing to the decrease in gross profit in 1997 was
an increase in patient service equipment depreciation of $17.3 million over 1996
due to higher levels of asset purchases in 1996 and 1995.
PROVISION FOR DOUBTFUL ACCOUNTS. The provision for doubtful accounts as a
percentage of net revenues was 8.1%, 10.3% and 5.7% in 1998, 1997 and 1996,
respectively. In August 1998, management reviewed the historic performance and
collectibility of Apria's accounts receivable portfolio. Management considered
the continued high-level of bad debt write-offs and reviewed its existing
policies and procedures for estimating the collectibility of its accounts
receivable. In response, management decided to change the collection policy and
is formally shifting the focus of the collection function to the more current
balances and is assigning the older accounts to outside collection agencies.
Management believes this concentration on more current balances will limit the
amount of receivables that age. Consequently, the accounts that do age will
undoubtedly be receivables where collection will be difficult. With this change
in collection policy, management developed a new estimate of the allowance for
doubtful accounts by increasing the allowance related to balances over 180 days
outstanding. Accordingly, management recorded an adjustment in the third quarter
of 1998 to increase the allowance for doubtful accounts by $12.1 million. The
1998 provision includes $1.5 million for specific uncollectible accounts and
charges totaling $9.1 million to increase the allowance for accounts associated
with the infusion sale and the exited businesses. See "Liquidity and Capital
Resources - Accounts Receivable".
The 1997 provision for doubtful accounts included adjustments of $55.0
million and $6.4 million recorded in the second and fourth quarters,
respectively, to increase the allowance for doubtful accounts. The second
quarter adjustment was necessary because improvement in the aging of accounts
receivable and in collection timing and rates did not meet expectations.
Management had expected the impact of the 1996 field information system
conversions and high turnover among billing and collection personnel to have
substantially reversed by the middle of 1997. However, the dollar amount and
percentage of accounts aged over 180 days at May 31, 1997 remained comparable to
the December 31, 1996 amount and days sales outstanding had decreased by only
five days. Additionally, Apria had just changed its business strategy to review
its managed care contracts and exit those not meeting profitability standards
and to exit unprofitable service lines such as supplies and nursing that were
attractive to many managed care customers. These strategies put Apria's
relationship with certain of its managed care customers in jeopardy, which when
coupled with the company's poor experience in collecting receivables with
managed care payors, heightened management's concerns. Due to the managed care
issues and the failure to realize the expected increases in collections and
improvement in the aging, management increased its allowance estimate for
accounts aged over 180 days to provide for write-offs of older accounts expected
to be taken in the ensuing months. The adjustment also provided for an increased
allowance estimate for accounts aged less than 180 days, necessitated by billing
and collection difficulties that continued into early 1997. The fourth quarter
adjustment resulted primarily from refinements to Apria's allowance estimation
procedures made in conjunction with management's year-end analysis of accounts
receivable. Specifically, based on tests of subsequent realization and review of
patient billing files at selected billing locations, further increases were made
to the percentages applied to Apria's accounts receivable aging to estimate
allowance amounts. In addition, due to an increasing tendency for certain
managed care payors to accumulate significant amounts of patient balances, a
specific review and allowance estimation was performed for payors with large
aggregate patient balances. See "Liquidity and Capital Resources - Accounts
Receivable".
SELLING, DISTRIBUTION AND ADMINISTRATIVE. Selling, distribution and
administrative expenses as a percentage of net revenues were 61.6%, 52.2% and
49.1% for 1998, 1997, and 1996, respectively. The increase in selling,
distribution and administrative expenses as a percent of revenue from 1997 to
1998 is directly attributable to the lower revenue base in 1998. Actual expenses
for 1998 decreased $40.8 million from the previous year. In response to the
reduction in revenues, management has taken steps to reduce costs, the most
significant of which was a reduction in the company's labor force which
commenced in the fourth quarter of 1997 and continued throughout 1998. From
September 30, 1997 to December 31, 1998, Apria reduced its full-time equivalent
employees by approximately 1,700. The majority of the labor reductions made in
1998 resulted from the third quarter reorganization of Apria's field operations
into 16 geographic regions (previously 23, currently 15) and through the
elimination of positions at the company's corporate headquarters.
Selling, distribution and administrative expenses include the following
reorganization charges in the third quarter of 1998: $3.8 million loss on the
infusion sale, $1.8 million to record certain costs associated with the exited
businesses, $3.9 million in severance, stay bonuses and other employee costs and
$2.0 million in lease liability on vacant facilities due to facility
consolidation activities. Other charges recorded in the third quarter of 1998
include additional amounts for legal fees and settlements.
Selling, distribution and administrative expenses for 1997 increased $35.7
million over 1996. The increase was due, in part, to increased staffing levels
in those functional areas where the company had been experiencing operational
difficulties. Third and fourth quarter terminations of approximately 525
employees resulted in severance and related excise tax charges totaling $7.9
million. Charges of $2.3 million were also recorded in 1997 in connection with
exiting certain business lines and closing facilities.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets was
$12.5 million, $16.8 million and $16.9 million in 1998, 1997 and 1996,
respectively. The decrease in 1998 is due to the write-off of impaired goodwill
of $76.2 million in the third quarter of 1998 and $133.5 million in the fourth
quarter of 1997. The resulting reduction in amortization expense was offset
slightly by a reduction in the amortization period for infusion-related goodwill
from 40 years to 20 years.
IMPAIRMENT OF INTANGIBLE ASSETS. In 1998, the deterioration in the infusion
therapy industry and Apria's decision to withdraw from the infusion business in
certain geographic markets served as indicators of potential intangible asset
impairment. Other indicators of potential impairment identified by management
include, among other issues, the company's depressed common stock price, failure
to meet its already lowered financial expectations, the threat of continued
Medicare reimbursement reductions, government investigations against the
company, slower than expected progress in improving its revenue management
process, and reported financial difficulties within major managed care
organizations with which the company does business, resulting in collection
difficulties. Management conducted an evaluation of the carrying value of the
company's recorded intangible assets. Management considered current and
anticipated industry conditions, recent changes in its business strategies, and
current and anticipated operating results. The evaluation resulted in an
impairment charge of $76.2 milllion which was recorded in the third quarter of
1998. The charge includes a write-off of $4.8 million in intangible assets
associated with the exit of the infusion business in certain areas.
Certain 1997 conditions, including Apria's failure to meet projections and
expectations, declining gross margins, recurring operating losses, significant
downward adjustment to the company's projections for 1998 and a depressed common
stock value, were identified by management as indicators of potential intangible
asset impairment. In the fourth quarter of 1997, management conducted an
evaluation of the carrying value and amortization periods of recorded intangible
assets. Management considered current and anticipated industry conditions,
recent changes in its business strategies and current and anticipated operating
results. The evaluation resulted in an impairment charge of $133.5 million which
was recorded in the fourth quarter of 1997. In conjunction with the impairment
evaluation, management reduced the amortization period for goodwill related to
acquired infusion therapy businesses from 40 years to 20 years. The remaining
infusion-related goodwill is being amortized over the years remaining assuming a
20-year life from date of acquisition.
For purposes of assessing impairment, assets were grouped at the branch
level, which is the lowest level for which there are identifiable cash flows
that are largely independent. A branch location was deemed to be impaired if the
company's estimate of undiscounted cash flows was less than the carrying amount
of the long-lived assets and goodwill at the branch. In estimating future cash
flows, management used its best estimates of anticipated operating results over
the remaining useful life of the assets where, in the case of the 1997
computation, the useful life is the amortization period before giving effect to
the reduction in the infusion business goodwill from 40 to 20 years. For those
branches identified as impaired, the amount of impairment was measured by
comparing the carrying amount of the long-lived assets and goodwill to the
estimated fair value for each branch. Fair value was estimated using a valuation
technique based on the present value of the expected future cash flows.
IMPAIRMENT OF LONG-LIVED ASSETS AND INTERNALLY-DEVELOPED SOFTWARE. One of
the actions taken in 1998 as a result of management's new strategic direction
was the termination of the project to implement an enterprise resource planning
(ERP) system. Accordingly, Apria wrote off related software and other
capitalized costs of $7.5 million in the third quarter of 1998. As part of the
decision to terminate the ERP project, management evaluated its current systems
to determine their long-term viability in the context of Apria's new overall
strategic direction. It was determined that Apria was at some risk in continuing
to run the infusion billing system on its current platform which is no longer
supported by the computer industry. To mitigate the risk, Apria is currently
converting the infusion system to the IBM AS/400 operating platform on which the
respiratory/home medical equipment system currently operates. Also, Apria is now
proceeding with a number of enhancements to the systems which rendered certain
previously-developed modules obsolete. Further, pharmacy and branch
consolidations and closures rendered a variety of computer equipment obsolete.
Due to its age and technological obsolescence, it was deemed to have no future
value. As a result of these actions, Apria recorded an impairment charge of
$11.8 million at September 30, 1998. Apria also recognized additional asset
impairments during 1998 of $1.4 million in conjunction with the exited
businesses and $1.4 million related to other facility closures and
consolidations.
During 1997, management reevaluated its current information systems in
light of year 2000 risks and ongoing operational difficulties and concluded that
significant additional costs would be necessary to adequately correct system
deficiencies and improve functionality. Accordingly, the decision was made to
replace Apria's systems, including internally-developed software, with a large
scale, fully-integrated enterprise resource planning system. A two-year
development and implementation plan was approved by the Board of Directors in
December 1997. The project was subsequently terminated as discussed above.
In light of the evaluation and decisions during 1997, management reviewed
the carrying value of the capitalized software and recorded an impairment charge
of $20.2 million. The charge included (1) a $3.9 million reduction to the
carrying value of Apria's branch information system ("ACIS") program development
costs, (2) an $11.4 million write-off of costs associated with ACIS
implementation and conversion, and (3) a $4.9 million write-off of costs of a
specialized telecommunications software program developed for ApriaDirect, a
clinical program that was discontinued in December 1997.
In connection with management's evaluation of Apria's internally-developed
software, management also conducted a review of the company's computer hardware,
including telecommunications equipment. Equipment with a carrying value of $6.6
million was identified as functionally obsolete or no longer in use and was
written off in 1997.
INTEREST EXPENSE. Interest expense was $46.9 million in 1998, $50.4 million
in 1997 and $49.2 million in 1996. Long-term debt levels, although lower than in
1997, remained constant throughout 1998 until November, when a $50 million
payment was made as a requirement of the amended and restated credit agreement.
However, Apria's effective interest rate increased steadily over 1998, as the
company did not meet the required levels of funded indebtedness to consolidated
EBITDA, the financial ratio governing the applicable interest rate margin
available to the company. Apria's cash balances have increased from $16.3
million at December 31, 1997 to $75.5 million at December 31, 1998. The interest
income from the accumulated cash reserves has helped to mitigate the impact of
higher effective interest rates.
INCOME TAXES. Income tax expense for 1998 was $3 million, which is
primarily state taxes payable on a basis other than, or in addition to, taxable
income. At December 31, 1998, Apria had net operating carryforwards ("NOLs") for
federal income taxes of approximately $380 million, expiring in varying amounts
in the years 2003 through 2013. In evaluating the realizability of the NOLs at
December 31, 1998, various positive and negative factors pertaining to the
existence of sufficient projected taxable income within the carryforward period
were considered. Management believes that its strategies may result in
sufficient taxable income during the carryforward period to utilize Apria's
NOLs. However, the achievement of future taxable income is dependent upon future
events and economic, regulatory and other factors largely out of management's
control. Therefore, such future taxable income is not assured. Additionally, in
evaluating whether a valuation allowance is appropriate, management also
considered the significant negative factors existing at December 31, 1998,
including: Apria's recent historical financial and tax losses make it difficult
to conclude a valuation allowance is not needed; Apria has, in recent years,
been unable to meet its operating plans; and while management has implemented
new strategies to achieve profitability and reported a profit in the fourth
quarter of 1998, there can be no assurances that operating profits will continue
in any future period or that management will be successful in implementing all
its strategies, including its growth plans. In considering the positive and
negative factors at this time, management concluded that it is more likely than
not that Apria will be unable to utilize the NOLs except for future reversals of
existing taxable temporary differences, and consequently, has recorded a
valuation allowance of $159 million at December 31, 1998.
Income tax expense for 1997 amounted to $36.6 million and included $30.0
million to increase the valuation allowance for deferred tax assets due to
recurring tax losses and lower estimates of future taxable income. The remaining
amount of income tax expense includes estimated state taxes payable based on
factors other than income, estimated settlement amounts for in-progress state
tax audits, foreign taxes related to the sale in 1997 of Apria's 15% equity
interest in a United Kingdom-based company and the settlement amount paid on an
examination of Apria's federal tax returns for 1992 through 1995. Certain of
these tax expense items resulted in increases to deferred tax assets for which
no benefit was recorded in 1997 due to offsetting increases to the valuation
allowance.
Income tax expense for 1996 amounted to $18.7 million and represented 36%
of income before taxes. The deductibility in 1996 of certain accruals and
merger-related reserves established in 1995 resulted in a tax loss, an increase
in refundable taxes due to a carryback of a portion of the tax loss, and a
decrease in net deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING CASH FLOW. In 1998 Apria generated $133.9 million in operating
cash flow compared to $104.1 million generated in 1997 and cash used in
operating activities of $59.3 million in 1996. The primary reason for the
improvement in 1998 operating cash flow was the decrease in accounts receivable
as compared to a significant increase in 1997. Also contributing to the increase
in 1998 operating cash flow was a 39% reduction in net purchases of patient
service equipment over 1997 levels and the fact that less cash was used in 1998
due to the timing of payments against accounts payable and payroll and related
costs.
ACCOUNTS RECEIVABLE. Accounts receivable before allowance for doubtful
accounts decreased by $147.7 million during 1998. The decrease is attributable
to the decline in net revenues, a high-level of bad debt write-offs and revenue
adjustments and cash collections in excess of trailing net revenues. During
1998, Apria wrote-off accounts receivable totaling $246 million. Cash posted to
accounts receivable was 104.5% of trailing net revenues for 1998.
Background. Apria's accounts receivable problems originated with the
Abbey/Homedco merger. The 1995 merger resulted in a restructuring plan that
included a very rapid consolidation of operating locations and the conversion of
all locations to standardized information systems. During the last six months of
1995, over 1,100 employees were terminated and over 100 branch locations were
closed or consolidated with other branches. Beginning with the consummation of
the merger, each branch information system was first converted to the
predominant system in place within its region. Conversion of the branches to the
standard, company-wide systems then occurred on a region-by-region basis.
Because of the conversion to interim systems prior to final conversion,
locations representing approximately 80% of Apria's net revenues underwent
conversion. Ultimately, a total of 496 system conversions were completed; 232
were completed during 1995 and 264 during the first three quarters of 1996.
The disruptions caused by the branch consolidations and systems conversions
had a major impact on the functions of order taking, product delivery, billing
and collections. Existing employees challenged with learning new systems and
high turnover during this period created serious training issues. Further,
familiarity with the complex and payor-specific billing requirements is critical
to ensure proper and timely billing and collections. Much of this expertise was
lost due to the high turnover among billing and collection personnel.
Improvement actions. In response to these problems and the resulting high
rates of bad debt write-offs and revenue adjustments, management instituted a
number of measures. In 1996, such measures included the implementation of a
collection incentive program with special emphasis on older accounts, the hiring
of additional management-level billing and collection personnel and systems
reinforcement training. In 1997, Apria instituted a process review of the field
information systems to identify opportunities to improve billing processing,
timeliness and accuracy. Management also validated and corrected system pricing
files and implemented billing center audits to assess compliance with billing
practices and procedures. During the first quarter of 1998, management
reorganized its field operations to create a separate "revenue management"
organization which encompasses the functions of order-taking, patient
qualification, documentation coordination, timely filing and prompt follow-up.
The revenue management organization reports directly to corporate headquarters
and specifically to a newly created Executive Vice President position. The new
organization structure was intended to facilitate improved communications and
accountability. In conjunction with the reorganization, processes and procedures
were reviewed to identify additional opportunities for improvement. As a result,
additional personnel were placed in quality assurance positions to help ensure
that products and services were more accurately and timely billed and
responsibilities were consolidated to allow specifically qualified personnel to
support, direct and train the revenue management staff. Task forces were formed
to visit the billing centers to ensure compliance with policies and standard
procedures. Also, software enhancements to simplify the order-intake process
were introduced.
Allowance evaluation. Accounts receivable is reduced by an allowance for
estimated revenue adjustments and further netted by an allowance for doubtful
accounts to reflect accounts receivable in the financial statements at net
realizable value. Bad debt and revenue adjustment allowances are analyzed on a
combined basis. Management uses actual write-off classifications in conjunction
with historical experience and account reviews to determine the appropriate
categorization of revenue adjustments and bad debts, both reserved and expensed.
Apria's methodology for estimating allowances for uncollectible accounts and
providing for the related revenue adjustments and bad debt expense involves an
extensive, balanced evaluation of operating statistics, historical realization
data and accounts receivable aging trends. Also considered are relevant business
conditions such as system conversions, facility consolidations, business
combinations, Medicare carrier conditions and extent of contracted business.
Finally, specific reviews of certain large and/or problematic payors are
performed. Management periodically refines the analysis and allowance estimation
process to consider any changes in related policies and procedures such as the
recent change in focus to collecting the more current accounts. Accordingly,
management adjusts the combined allowance to reflect its best estimate of the
allowance required at each reporting date. See "Results of Operations - Revenue
Adjustments and Provision for Doubtful Accounts".
Unbilled receivables. Included in accounts receivable are earned but
unbilled receivables of $25.3 million and $31.9 milion at December 31, 1998 and
1997, respectively. There is a delay of approximately a day or two, up to
several weeks or more in some cases, between the date of service and billing due
to delays in obtaining certain required payor-specific documentation from
internal and external sources. Such documentation would include internal records
of proof of service and written authorizations from physicians and other
referral sources. Earned but unbilled receivables are aged from date of service
and are considered in Apria's analysis of historical performance and
collectibility.
LONG-TERM DEBT. Apria's credit agreement with a syndicate of banks was
amended and restated in November of 1998 and further amended in January and
February of 1999. The November amendment required a $50 million permanent
repayment of the loan upon execution. The remaining indebtedness under the
credit agreement was restructured into a $288 million term loan and a $30
million revolving credit facility with a maturity date of August 9, 2001. The
amended and restated agreement currently requires that Apria issue not less than
$50 million of senior subordinated convertible debentures or senior subordinated
notes by April 23, 1999, the net proceeds of which must be applied to the term
loan.
The amended and restated credit agreement allows Apria to make acquisitions
under an acquisition "basket" provision of up to $62 million, subject to certain
restrictions, that may be increased given certain levels of financial
performance by Apria. In 1999, the acquisition limit is subject to dollar for
dollar reduction by the amount of any unusual cash expenses (as defined by the
agreement) incurred and paid in 1999.
Term loan principal payments are payable quarterly, in varying amounts,
commencing on March 31, 1999 and continuing through June 30, 2001. Further,
between the effective date of the November amendment and the earlier of April
23, 1999 or the issuance date of the debentures or notes, Apria is subject to
prepayment requirements on the term loan based on excess cash flow (as defined
by the agreement). The resulting prepayments of $6.9 million reduced the
required amount of the quarterly term loan payment that was due March 31, 1999
to zero, and no additional prepayments based on excess cash flow are required.
The amended and restated credit agreement permits Apria to elect one of two
variable rate interest options at the time an advance is made. The first option
is a rate expressed as 2.5% plus the higher of the Federal Funds Rate plus 0.50%
per annum or the Bank of America "reference" rate. The second option is a rate
based on the London Interbank Offered Rate ("LIBOR") plus an additional
increment of 3.5% per annum. The agreement requires payment of commitment fees
of 0.75% on the unused portion of the revolving credit facility.
Borrowings under the credit agreement are secured by substantially all of
Apria's assets and the agreement also imposes numerous restrictions, including,
but not limited to, covenants requiring the maintenance of certain financial
ratios, limitations on additional borrowings, capital expenditures, mergers,
acquisitions and investments, and restrictions on cash dividends, loans and
other distributions. Further, the agreement requires that Apria maintain at
least $35 million in its depository accounts until the issuance of the senior
subordinated convertible debentures or senior subordinated notes.
At December 31, 1998, total borrowings under the credit agreement totaled
$288 million, none of which were advanced from the revolving credit facility. At
December 31, 1998, outstanding letters of credit totaled $10.3 million and
credit available under the revolving credit facility was $19.7 million (subject
to the restriction under the indenture discussed below).
Under the indenture governing Apria's $200 million 9 1/2% senior
subordinated notes due November 1, 2002, Apria's ability to incur indebtedness
becomes restricted at times when the company's "fixed charge coverage ratio" (as
defined in the indenture) is less than 3.0 to 1.0. Charges taken in the second
and fourth quarters of 1997 and in the third quarter of 1998 resulted in the
fixed charge coverage ratio being less than 3.0 to 1.0. This condition is
expected to continue at least through the third quarter of 1999. Apria has
changed its cash management procedures to avoid the need to incur indebtedness
that would otherwise require a modification of the terms of the indenture and
has accumulated a balance in its money market account of $78 million at March
15, 1999.
OTHER BALANCE SHEET CHANGES. The decrease in "accrued payroll and related
taxes and benefits" at December 31, 1998, compared to December 31, 1997 is due
to a decrease of three days in the accrual of payroll-related costs and the
reduced workforce. At December 31, 1997, "other assets" was primarily comprised
of payments for businesses acquired late in the year. The payments were then
allocated to the various underlying acquired assets in early 1998.
DISPOSITIONS AND BUSINESS COMBINATIONS. As part of Apria's new strategic
direction, management performed an extensive profitability study to identify
service lines and/or geographic markets as potential candidates for exit. Most
significant of the decisions arising from the study was the decision to withdraw
from the infusion business in California, Texas, Louisiana, West Virginia,
western Pennsylvania and downstate New York. Shortly after Apria announced its
plans to exit the infusion line in these geographic markets, a buyer emerged for
the California locations. Crescent Healthcare, Inc. purchased substantially all
the assets and business, excluding accounts receivable, of the California
infusion locations. Apria recorded a $3.8 million loss on the sale in the third
quarter of 1998. In the other locations where Apria decided to exit the infusion
business, management worked with its business partners to modify contracts and
transfer patients to other providers. This transition was substantially complete
by the end of 1998. The operations of these infusion locations had revenues of
$41.5 million, $72.7 million and $86.2 million in 1998, 1997 and 1996,
respectively. Gross profits were $14.9 million, $32.1 million and $46.9 million,
respectively, for the same periods.
Apria periodically makes acquisitions of complementary businesses in
specific geographic markets. Cash paid for acquisitions that closed during 1998
totaled $2.7 million.
PURCHASE COMMITMENTS. On September 1, 1994, Apria entered into a five-year
agreement, which was subsequently amended in June 1996, to purchase medical
supplies totaling $132 million with minimum annual purchases ranging from $7.5
million in the first year to $36.5 million in the third through fifth years.
Failure to purchase at least 90% of the annual commitment would result in a
penalty of 10% of the difference between the annual commitment and the actual
purchases, beginning with the 12-month period ended August 31, 1996. In late
1997, management made the strategic decision to exit the low-margin medical
supply business and has been working with the vendor to restructure the
agreement. In the interim, the company continues to purchase needed medical
supplies from this vendor, subject to the pricing established under the old
agreement. The company failed to meet the minimum purchase commitment for the
12-month period ended August 31, 1998, and, consequently, incurred a liability
for penalties of $1.2 million on the purchase shortfall.
YEAR 2000 COMPLIANCE. As the year 2000 approaches, an issue impacting all
companies has emerged regarding how existing application software programs and
operating systems can accommodate this date value. In brief, many existing
application programs in the marketplace were designed to accommodate a two-digit
date position which represents the year (e.g., "95" is stored on the system and
represents the year 1995). Consequently, the year 1999 could be the maximum date
value that systems would be able to accurately process.
Internal operating systems. Beginning in late 1997, Apria conducted a
comprehensive review of its operating and field information systems, including
an assessment of the nature and potential extent of the impact of the year 2000
issue. As a result, Apria began the modification process of its software in
order for its computer systems to function properly in the year 2000 and
thereafter. Apria utilized internal resources to reprogram and test the software
for the necessary year 2000 modifications. Apria's systems also underwent two
external assessments of the year 2000 issue and received a "low" risk rating.
The modification and testing were completed on schedule and management now
considers its operating and field information systems year 2000-compliant. To
further ensure a smooth transition into the year 2000, management will, among
other measures, suspend software updates between November 1999 and January 2000
and form a special team to address any related problems that may arise.
Apria has not developed a formal contingency plan in the event that the
system modifications prove to be inadequate. Such inadequacies could result in
system failure or miscalculations. This would cause disruptions to normal
business processes including, among other things, the temporary inability to
process transactions and generate billings. If such a disruption continued for
an extended period, it could have a material adverse effect on the results of
operations, cash flow and financial condition of Apria.
Apria is currently in the process of assessing and addressing any potential
issues with its ancillary software packages that perform less-critical functions
and any other electronic mechanisms that could have date-sensitive
microprocessors.
External risks. Apria depends on electronic interfaces with many of its
business partners to conduct many of its day-to-day functions. Such functions
include payments to and from suppliers and payors, transfer of funds between
Apria's banks, and electronic billing and supply ordering. Apria has been in
contact with its more critical business partners to obtain assurance of their
year 2000-readiness and is currently in the process of scheduling live tests
with the regional Medicare carriers responsible for processing approximately
one-fourth of Apria's reimbursements. As a contingency, in the event of failure
on the part of an external agent, the exchange of data and payments can continue
via paper documents and more traditional methods. Further, Apria has revised
contracts with certain of its managed care payors to include remedies should the
payor fail to reimburse the company on a timely basis due to their own year 2000
problems.
Another area of potential risk is with certain patient service equipment
items that have microprocessors with date functionality that could malfunction
in the year 2000. Although Apria has found the majority of such microprocessors
include duration time clocks and not date time clocks, management has initiated
formal communications with its suppliers to obtain assurance that the equipment
they supply is year 2000-compliant. To date, Apria has received year
2000-compliance certification letters from substantially all of its primary
vendors and approximately 40% of the entire set of vendors from which it
requested such assurance.
If Apria is unable to resolve all its year 2000 issues with external
agents, it may have a material adverse effect on the company's business, results
of operations or financial condition.
Costs. Apria does not believe the costs of its year 2000 remediation
efforts are material. To date, such costs have been expensed as incurred.
Management's expectations about year 2000-related costs yet to be incurred are
subject to various uncertainties that could cause the actual costs to differ
materially from those expectations. Such uncertainties include the adequacy of
the modifications made to Apria's operating and field information systems, the
success of the company in identifying and resolving any problems with its
ancillary systems or electronic mechanisms and the year 2000-readiness of
Apria's business partners.
OTHER. Apria's management believes that cash provided by operations
together with cash invested in its money market account will be sufficient to
finance its current operations for at least the next year or until the borrowing
restriction described above is eliminated.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Apria currently utilizes no material derivative financial instruments which
expose the company to significant market risk. However, interest rate changes
may affect the cash flow, earnings, and the fair value of its term debt due to
differences between the market interest rates and the rates at the inception of
these financial instruments. Based on Apria's term debt outstanding at December
31, 1998 and current market perception, a 50 basis point increase in the
interest rates as of December 31, 1998 would result in a net reduction of the
market value of the instruments of $4.6 million. Conversely, a 50 basis point
decrease in the interest rates would result in an $4.7 million net increase in
the market value of Apria's term debt outstanding at December 31, 1998.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Reports of Independent Auditors, Consolidated Financial Statements and
Consolidated Financial Statement Schedule listed in the "Index to Consolidated
Financial Statements and Financial Statement Schedule" are filed as part of this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Effective July 6, 1998, Apria changed its independent auditors. Previous to
that date, the independent auditors were Ernst & Young LLP. The decision to
change independent auditors was not recommended or approved in advance by the
Audit Committee of Apria's Board of Directors. The reports of Ernst & Young LLP
on Apria's Consolidated Financial Statements for the fiscal years ended December
31, 1997 and 1996 contained no adverse opinion or disclaimer of opinion, and no
such report was qualified or modified as to uncertainty, audit scope or
accounting principles. Also, for the fiscal years ended December 31, 1997 and
1996 and during the year-to-date period ended July 6, 1998 there were no
disagreements regarding any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure. Furthermore,
during the same periods, no event requiring disclosure under Item 304(a)(2) of
Regulation S-K occurred between Apria and Ernst & Young LLP.
Effective July 15, 1998, Apria engaged Deloitte & Touche LLP as its
principal accountants to audit its Consolidated Financial Statements for the
fiscal year ended December 31, 1998. During the fiscal years ended December 31,
1997 and 1996 and each subsequent interim period prior to engaging Deloitte &
Touche LLP, Apria did not consult Deloitte & Touche LLP regarding either the
application of accounting principles to a specified transaction, or the type of
opinion that might be rendered on Apria's Consolidated Financial Statements.
The Company has since adopted a policy that any future changes in its
independent auditors will be reviewed and approved in advance by the Audit
Committee of the Board of Directors.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS
Information regarding Apria's executive officers 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 Apria's Directors as of March 31, 1999:
<TABLE>
<CAPTION>
Business Experience During Last Director Term
Name and Age Five Years and Directorships Since Expires
------------ ---------------------------- ----- -------
<S> <C> <C> <C>
David H. Batchelder, 49 Principal and Managing Member of Relational Investors, LLC 1998 2001
since March 1996. He has served as the Chairman and Chief
Executive Officer of Batchelder & Partners, Inc., a
financial advisory and investment banking firm based in La
Jolla, California, since 1988. Mr. Batchelder was
appointed by the Board of Directors in July 1998 to fill a
vacancy. Mr. Batchelder also serves as a director of
Morrison Knudsen Corporation and Nuevo Energy Company.
Philip L. Carter, 50 Chief Executive Officer and a Director of Apria since May 1998 2000
1998. Prior to joining Apria, Mr. Carter was President
and Chief Executive Officer of Mac Frugal's Bargains o
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 Mac Frugal's from
1991 through 1995.
David L. Goldsmith, 51 Managing Director of RS Funds, an investment management 1987** 1999
firm. Prior to joining RS Funds in February 1999 he had
served as Managing Director of Robertson, Stephens
Investment Management, an investment management firm owned
by Bank of America National Trust and Savings
Association. He was affiliated with Robertson, Stephens &
Company LLC and its predecessors from 1981 through 1999.
Mr. Goldsmith is also a director of Balanced Care
Corporation.
Leonard Green, 72 President and Chief Executive Officer of Green Management 1993* 1999
and Investment Co., a private investment management
company, since 1985. Mr. Green also serves as a director
of Lincoln Services Corp.
Richard H. Koppes, 52 Of Counsel to Jones, Day, Reavis & Pogue, a law firm, and 1998 1999
serves as a Consulting Professor of Law and Co-Director of
Education Programs at Stanford University School of Law.
He also served as a principal of American Partners Capital
Group, a venture capital and consulting firm, from August
1996 to December 1998. 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. Mr. Koppes was
appointed by the Board of Directors in May 1998 to fill a
newly created seat on the Board.
Philip R. Lochner, Jr., 56 Senior Vice President - Administration of Time Warner Inc. 1998 2001
from July 1991 to July 1998. From March 1990 to June
1991, Mr. Lochner was a Commissioner of the Securities and
Exchange Commission. He is a member of the Advisory
Council of Republic New York Corporation. He is also a
Trustee of The Canterbury School. Mr. Lochner was
initially appointed by the Board of Directors in June 1998
to fill a newly created seat on the Board and was elected
by the shareholders to a full term in July 1998.
Beverly Benedict Thomas, 56 Principal of BBT Strategies, a consulting firm 1998 2001
specializing in public affairs and strategic planning.
Previously, Ms. Thomas was a principal of UT Strategies,
Inc., a public affairs firm, from 1995 to 1997 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 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. Ms. Thomas was initially appointed by the Board
of Directors in June 1998 to fill a newly created seat on
the Board and was elected by the shareholders to a full
term in July 1998.
H. J. Mark Tompkins, 58 Independent investment and corporate advisor, President 1997 2000
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 1997 to fill
a vacancy and was thereafter elected to a full term by the
shareholders. 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.
He is also a director and Chairman of Partners Holdings
PLC, a publicly owned company whose shares are traded on
an exchange in the United Kingdom. From 1987 through June
1994, Mr. Tompkins served as Chief Executive Officer of a
French investment advisory concern, Cofinex, E.u.r.l..
Ralph V. Whitworth, 43 Chairman of the Board of Directors of Apria since April 1998 2000
28, 1998. Mr. Whitworth is also a 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 was appointed by a
Committee of the Board of Directors in January 1998 to
fill a newly created seat. Mr. Whitworth is also a
director of CD Radio, Inc., Wilshire Technologic, Inc. and
Waste Management, Inc.
</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 Apria's Directors and officers,
and persons who own more than 10% of a registered class of Apria'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
1998 fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY OF EXECUTIVE COMPENSATION
The following table sets forth all compensation for the 1998, 1997 and 1996
fiscal years paid to or earned by each individual who served as Apria's Chief
Executive Officer, as well as the four other most highly compensated executive
officers during the 1998 fiscal year.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term(1)
Compensation
Annual Compensation Options All Other
Salary(2) Bonus Granted Compensation
Name Year ($) ($) (#) ($)
- ------------------------------------ ---- ----------- ---------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Philip L. Carter................... 1998 330,499 300,000 750,000 --
Chief Executive Officer(3) 1997 -- -- -- --
1996 -- -- -- --
Jeremy M. Jones.................... 1998 48,820 -- 1,666 1,937,804(5)
Chairman of the Board 1997 467,013 -- -- 4,750(6)
and Chief Executive Officer(4) 1996 464,320 -- 20,000 4,750(6)
Lawrence M. Higby.................. 1998 424,113 n/a(8) 300,000 --
President and Chief 1997 40,969 -- 150,000 --
Operating Officer (7) 1996 -- -- -- --
Lawrence A. Mastrovich............. 1998 175,075 n/a(8) 75,000 3,940(6)
Executive Vice President, 1997 111,956 41,754 -- 4,238(6)
Business Operations (9) 1996 104,748 4,867 4,000 3,437(6)
Dennis E. Walsh.................... 1998 237,971 n/a(8) 100,000 3,940(6)
Executive Vice President, 1997 188,962 -- -- 10,720(10)
Sales 1996 177,666 4,080 4,000 4,750(6)
Lisa M. Getson..................... 1998 151,172 n/a(8) 40,000 3,940(6)
Senior Vice President, Business 1997 137,801 4,500 -- 4,750(6)
Development and Clinical 1996 127,775 7,978 5,500 4,750(6)
Services
Robert S. Holcombe................. 1998 292,869 n/a(8) 40,000 3,940(6)
Senior Vice President, 1997 263,162 4,410 -- 6,571(13)
General Counsel and 1996 153,455 7,000 35,000(12) 150,324(14)
Secretary (11)
</TABLE>
- ------------------------------------
(1) Apria 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.
(2) These amounts include an automobile allowance which is paid as salary.
Salary is paid on the basis of bi-weekly pay periods, with payment for each
period being made during the week following its termination. Due to the
fact that 1998 contained a payment date for a pay period which ended in
1997, amounts reported as salary paid for 1998 vary slightly from the
actual amounts of the 1998 salaries of the executive officers listed above
who were with Apria as of January 1, 1998.
(3) Mr. Carter became Apria's Chief Executive Officer on May 5, 1998.
(4) Mr. Jones resigned as Chairman of the Board and Chief Executive Officer of
Apria on January 19, 1998. He resigned as a director on May 27, 1998.
(5) This amount includes $1,819,694 in severance payments made or to be made in
1998 and 1999 and a $118,110 payment for earned but unused vacation and
holiday time.
(6) Annual contribution by Apria to the company's 401(k) Savings Plan in the
name of the individual.
(7) Mr. Higby also acted as Apria's Chief Executive Officer from January 19,
1998 until May 5, 1998. Mr. Higby was first employed by the company in
November, 1997.
(8) Individual 1998 bonuses have not been determined as of the filing date.
(9) Mr. Mastrovich was promoted from Vice President - Operations, Northeast
Division on October 1, 1998.
(10) This amount includes a $4,750 contribution to Apria's 401(k) Savings Plan
in the name of the individual and a $5,520 cash award for individual
achievement called the "Chairman's Circle Award".
(11) Mr. Holcombe was first employed by Apria in May 1996.
(12) Mr. Holcombe was awarded 35,000 option shares in May 1996 when he was first
employed by Apria. 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.
(13) This amount includes a $4,750 annual contribution to Apria's 401(k) Savings
Plan in the name of the individual and a reimbursement of $1,821 for tax
liabilities incurred in connection with the reimbursement of relocation
costs.
(14) This amount consists of various relocation expenses reimbursed by Apria.
SUMMARY OF OPTION GRANTS
The following table provides information with respect to grants of options
to all individuals serving as Apria's Chief Executive Officer and the four other
most highly compensated executive officers of the company, during the 1998
fiscal year.
<TABLE>
<CAPTION>
OPTION GRANTS TABLE
Potential Realizable
Number of Value at Accrual Rate
Securities % of Total Expiration of Stock Appreciation
Underlying Options Granted Date of for Option Term ($)
Options to Employees in Exercise Options ------------------------
Name Granted Fiscal Year Price ($) Granted 5% 10%
- ----------------------- ------------ ----------------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Philip L. Carter 750,000 21.40% 9.00 5/5/08 4,245,038 10,757,758
Jeremy M. Jones 1,666 0.05% 13.875 2/24/08 14,537 36,840
Lawrence M. Higby 300,000(1) 8.60% 10.004(2) (3) 1,887,438 4,783,139
Lawrence A. Mastrovich 75,000 2.10% 6.50 7/17/08 306,586 776,950
Dennis E. Walsh 100,000 2.90% 6.50 7/17/08 408,782 1,035,933
Lisa M. Getson 40,000 1.10% 6.50 7/17/08 163,513 414,373
Robert S. Holcombe 40,000 1.10% 6.50 7/17/08 163,513 414,373
</TABLE>
- ----------------------
(1) This amount does not include an option for 50,000 shares issued in January
1998 under the company's Amended and Restated 1992 Stock Incentive Plan to
replace an option on the same terms for an identical number of shares
erroneously issued under the company's 1997 Stock Incentive Plan during
1997. This amount includes an option for 40,000 shares approved in 1998,
which did not become effective until January 4, 1999. The remaining options
for shares included in this amount were approved and became effective in
1998.
(2) The value shown is an average. Options for 150,000 shares are or will
become exercisable at $12.875 per share, options for 110,000 shares are or
will be exercisable at $6.50 per share, and options for 40,000 shares are
or will be exercisable at $8.875 per share.
(3) The options for 150,000 shares expire on January 26, 2008, the options for
110,000 shares expire on July 17, 2008, and the options for 40,000 shares
expire on January 4, 2009.
SUMMARY OF OPTIONS EXERCISED
The following table provides information with respect to the exercise
of stock options by all persons who served as Apria's Chief Executive Officer
during the 1998 fiscal year and the four other most highly compensated executive
officers of the company during the 1998 fiscal year, together with the fiscal
year-end value of unexercised options.
<TABLE>
<CAPTION>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE
Number of Securities
Underlying Unexercised Value of Unexercised In-
Options at the-Money-Options at
Shares Fiscal Year End Fiscal Year End(1)
Acquired on Value(1) ------------------------- -------------------------
Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ----------------------- ----------- -------- ------------------------- -------------------------
Name (#) ($) (#)/(#) ($)/($)
- ----------------------- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Philip L. Carter 0 0 375,000/375,000 0/0
Jeremy M. Jones 0 0 516,322/1,666 0/0
Lawrence M. Higby 0 0 30,000/380,000 0/268,125
Lawrence A. Mastrovich 4,000 41,625 35,200/88,200 40,600/182,813
Dennis E. Walsh 0 0 61,120/138,880 0/243,750
Lisa M. Getson 0 0 8,200/44,500 0/97,500
Robert S. Holcombe 0 0 14,000/61,000 0/97,500
</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. The market value of Apria's
common stock at the close of trading on December 31, 1998 was $8.9375.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee since January 1, 1998 was either an
officer or employee of the company.
DIRECTORS' FEES
All Directors of Apria are reimbursed for their out-of-pocket expenses
incurred in connection with attending Board and Committee meetings. All
non-employee Directors receive: (i) $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 (ii) $500 per Board or Committee meeting attended via
telephone. In addition, each non-employee Director receives an option to
purchase 25,000 shares of the company's common stock, at fair market value on
the date of grant, for each year that he has been a member of the Board of
Directors.
EMPLOYMENT AND SEVERANCE AGREEMENTS
Apria has employment or severance agreements with the following executive
officers listed in the Summary Compensation Table.
PHILIP L. CARTER. Pursuant to an employment agreement which is scheduled to
expire on April 30, 2002, Mr. Carter serves as Apria's Chief Executive Officer.
The agreement provides that Mr. Carter is to receive an annual salary of
$600,000 and is entitled to participate in Apria's annual bonus, incentive,
stock and all other benefit plans generally available to executive officers of
the company. Mr. Carter is entitled to receive performance bonuses of up to 80%
of his annual salary. Mr. Carter is also entitled to receive (i) reasonable
access to the company's accountants for financial planning, (ii) an annual car
allowance, and (iii) reimbursement of certain other expenses. If the company
terminates Mr. Carter's employment without cause, or if he terminates his
employment with good reason (including upon a change in control), Mr. Carter
shall receive a lump sum severance payout equal to three times the sum of (i)
his annual salary, (ii) the average of his two most recent annual bonuses, (iii)
his annual car allowance, and (iv) an additional amount estimated at $5,000. In
addition, the company shall be required to provide an office and secretarial
support at a cost of not more than $50,000 during the year following
termination. Finally, upon any such termination not for cause or with good
reason, all stock options held by Mr. Carter shall vest and remain exercisable
for a period of three years.
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. 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 Apria'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 Apria's accountants for personal financial planning. If the
company terminates Mr. Higby's employment without cause, or if Mr. Higby
terminates his employment with good reason (including upon a change in control),
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 stock options from the 150,000 share grant
issued to Mr. Higby on January 26, 1998, will immediately become exercisable,
and all of his vested options will remain exercisable for a period of three
years following such termination.
JEREMY M. JONES. Apria 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, 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.
ROBERT S. HOLCOMBE, DENNIS WALSH, LARRY MASTROVICH AND LISA GETSON. In June
1997, Messrs. Holcombe, Walsh and Mastrovich and Ms. Getson (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 Apria's discretion. As of December 31, 1998, Mr. Holcombe served as
Senior Vice President, General Counsel and Secretary of the company, Mr. Walsh
served as Executive Vice President, Sales, Mr. Mastrovich served as Executive
Vice President, Business Operations and Ms. Getson served as Senior Vice
President, Business Development and Clinical Services. Each agreement provides
that the Executive's salary shall be at the company's discretion. As of February
28, 1999, Mr. Holcombe's annual salary was $280,000, Mr. Walsh's annual salary
was $220,000, Mr. Mastrovich's annual salary was $180,000 and Ms. Getson's
annual salary was $137,800. Each Executive is entitled to participate in Apria'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 an
Executive's employment without cause, each Executive is entitled to a payment
equal to his or her annual base salary plus an additional amount determined as
set forth in the agreement. However, if such termination occurs during the
two-year period following a change of control of the company, Messrs. Holcombe
and Walsh and Ms. Getson shall each be entitled to a payment equal to two times
his or her base salary plus an additional amount determined as set forth in the
agreement. Such payments shall be 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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of March 31, 1999 with
respect to the beneficial ownership of Apria's common stock by each person who
is known by the company to beneficially own more than 5% of Apria's common
stock, each Director of the company, each person who served as Apria's Chief
Executive Officer during 1998, and the four other most highly compensated
executive officers who were serving in such capacity as of December 31, 1998,
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.
<TABLE>
<CAPTION>
SECURITY OWNERSHIP TABLE
Amount and Nature of Percent of
Name Of Beneficial Owner Beneficial Ownership Class
- ------------------------ -------------------- -----
<S> <C> <C>
Relational Investors, LLC (1) 6,923,766 13.37%
David H. Batchelder (1) 6,897,100 13.32
Ralph V. Whitworth (1) 6,823,766 13.18
Joel L. Reed(1) 6,797,100 13.12
Richard C. Blum & Associates, L.P. (2) 5,425,000 10.48
Richard C. Blum & Associates, Inc. (2) 5,425,000 10.48
Richard C. Blum (2) 5,425,000 10.48
Lazard Freres & Co. LLC(3) 2,911,700 5.62
Peter C. Cooper(4) 2,836,900 5.47
Gilbert E. LeVasseur(4) 2,836,900 5.47
Cooper & LeVasseur(4) 2,836,900 5.47
Cooper Capital, LLC(4) 2,836,900 5.47
George L. Argyros(5) 2,770,434 5.35
Jeremy M. Jones (6) 1,255,980 2.42
Philip L. Carter(7) 400,000 *
David L. Goldsmith(8) 351,902 *
Lawrence M. Higby (9) 70,000 *
Dennis E. Walsh (10) 78,400 *
Leonard Green (11) 51,666 *
H.J. Mark Tompkins(12) 41,766 *
Lawrence A. Mastrovich (13) 39,655 *
Richard H. Koppes(14) 26,500 *
Philip R. Lochner, Jr.(15) 26,000 *
Beverly Benedict Thomas(16) 25,000 *
Robert S. Holcombe(17) 29,200 *
Lisa M. Getson(18) 8,200 *
All current directors and executive officers as a group
(19 persons)(19) 8,399,814 16.60%
</TABLE>
- ------------------
* Less than 1%
(1) According to a Schedule 13D, dated September 29, 1997, amendments thereto
dated January 27, 1998, February 3, 1998 and November 23, 1998,
respectively, and a Form 3, all of which have been filed with the
Securities and Exchange Commission, Relational Investors, LLC ("RILLC"),
its affiliated companies and Messrs. Batchelder, Whitworth and Reed,
individually and as Managing Members of RILLC, have sole voting and
dispositive power as to 6,923,766 shares, which amount includes 51,666
shares subject to options that are currently exercisable. 6,797,100 of the
shares are held by RILLC or by limited partnerships (Relational Coast
Partners, L.P., Relational Investors, L.P., Relational Fund Partners, L.P.,
or Relational Partners, L.P.) of which RILLC is the sole general partner.
Mr. Whitworth, who became a Director of Apria of January 27, 1998, holds
currently exercisable options to acquire 26,666 shares, and Mr. Batchelder,
who became a Director of Apria on July 28, 1998, holds 75,000 shares in a
personal account and a currently exercisable option to acquire 25,000
shares. Mr. Reed's holdings are all through RILLC. The mailing address of
Relational Investors, LLC and each of Messrs. Whitworth, Batchelder and
Reed is 4330 La Jolla Village Drive, Suite 220, San Diego, California
92122.
(2) According to a Form 3 filed with the Securities and Exchange Commission on
September 10, 1998, Richard C. Blum & Associates, Inc., the sole general
partner of Richard C. Blum & Associates, L.P. and Richard C. Blum,
President, Chairman and majority stockholder of Richard C. Blum &
Associates, Inc., reported indirect ownership of 5,425,000 shares. These
shares are owned directly by three limited partnerships for which Richard
C. Blum & Associates, L.P. is the sole general partner and five investment
advisory accounts for which Richard C. Blum & Associates, L.P. exercises
voting and investment discretion. According to a Schedule 13D, dated July
17, 1998, and an amendment thereto dated August 10, 1998, filed with the
Securities and Exchange Commission, Richard C. Blum & Associates, L.P. has
sole voting and sole dispositive power over these shares. As the sole
general partner of Richard C. Blum & Associates, L.P., Richard C. Blum &
Associates, Inc. is deemed the beneficial owner of the shares beneficially
owned by Richard C. Blum & Associates, L.P. As President, Chairman and
majority stockholder of Richard C. Blum & Associates, Inc., Richard C. Blum
might be deemed to be the beneficial owner of the shares beneficially owned
by Richard C. Blum & Associates, Inc. Richard C. Blum & Associates, L.P.,
Richard C. Blum & Associates, Inc. and Richard C. Blum disclaim beneficial
ownership of the shares owned directly by Richard C. Blum & Associates,
L.P.'s partnerships and investment advisory clients except to the extent of
any pecuniary interest therein. The mailing address of Richard C. Blum &
Associates, L.P., Richard C. Blum & Associates, Inc. and Richard C. Blum is
909 Montgomery Street, Suite 400, San Francisco, California 94133.
(3) According to a Schedule 13G, dated February 16, 1999, filed with the
Securities and Exchange Commission, Lazard Freres Co. LLC, a registered
investment advisor, has sole voting power as to 2,765,800 shares and sole
dispositive power as to 2,911,700 shares. The mailing address of Lazard
Freres Co. LLC is 30 Rockefeller Plaza, New York, New York 10020.
(4) According to a Schedule 13D dated March 17, 1999, filed with the Securities
and Exchange Commission Peter C. Cooper ("Cooper"), Gilbert E. LeVasseur
("LeVasseur"), Cooper & LeVasseur, LLC ("C&L") and Cooper Capital, LLC
("Cooper Capital") reported beneficial ownership of 2,836,900 shares.
Cooper and LeVasseur are private investors. Cooper Capital is a limited
liability company of which Cooper is the sole manager, serves as a general
partner or managing member of certain private investment funds and is the
general partner of a private investment fund limited partnership called
Clifton Investments, L.P. ("Clifton"). C&L is a limited liability company
managed by Cooper Capital and LeVasseur and is the sole general partner of
two private investment fund limited partnerships called C&L Capital
Partners, L.P. ("Fund I") and C&L Capital Partners II, L.P. ("Fund II").
LeVasseur also serves as the Trustee of a revocable trust ("LeVasseur
Trust"). Based on the foregoing relationships, Cooper, Cooper Capital,
LeVasseur and C&L report that they share dispositive and voting power with
respect to 1,089,000 shares beneficially owned by Fund I and Fund II,
Cooper and Cooper Capital report that they have sole dispositive and voting
power with respect to 948,940 shares beneficially owned by Clifton and
LeVasseur reports that he holds sole dispositive and voting power with
respect to 789,950 shares owned by the LeVasseur Trust. The remaining 9,010
shares do not appear to have been accounted for specifically in the filing.
Cooper, LeVasseur, Cooper Capital and C&L list their mailing address as
2010 Main Street, Suite 1220, Irvine, CA 92614.
(5) According to a Schedule 13D Amendment, dated June 25, 1998, filed with the
Securities and Exchange Commission, Mr. Argyros has sole investment and
dispositive power as to all 2,770,434 shares. This number includes 6,666
shares subject to options that are currently exercisable. This number
includes 2,430,670 shares owned by HBI Financial, Inc., of which Mr.
Argyros is the sole shareholder. This number also includes (1) 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, (2) 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, (3) 31,050 shares held in a trust for the
benefit of Mr. Argyros' children, for which Mr. Argyros disclaims
beneficial ownership and (4) 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.
(6) Includes 517,988 shares subject to options that are currently exercisable.
Also includes (1) 500,262 shares held in a family trust of which Mr. Jones
is a trustee, (2) 18,000 shares held in trusts for the benefit of Mr.
Jones' grandchildren for which Mr. Jones disclaims beneficial ownership,
(3) 29,730 shares held in a trust for the benefit of Mr. Jones' children
for which Mr. Jones disclaims beneficial ownership and (4) 190,000 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 Apria 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 Apria on
May 5, 1998.
(8) Includes 50,666 shares subject to options that are currently exercisable.
(9) Includes 60,000 shares subject to options that are currently exercisable.
(10) Includes 78,400 shares subject to options that are currently exercisable or
will become exercisable on or before May 31, 1999.
(11) Includes 50,666 shares subject to options that are currently exercisable.
Also includes 1,000 shares held by Mr. Green's spouse.
(12) Includes 31,666 shares subject to options that are currently exercisable.
Does not include 300,000 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.
(13) Includes 38,800 shares subject to options that are currently exercisable or
will become exercisable on or before May 31, 1999.
(14) Includes 25,000 shares subject to options that are currently exercisable.
Mr. Koppes became a member of the Board of Directors on May 5, 1998.
(15) Includes 25,000 shares subject to options that are currently exercisable.
Mr. Lochner became a member of the Board of Directors on June 30, 1998.
(16) Includes 25,000 shares subject to options that are currently exercisable.
Ms. Thomas became a member of the Board of Directors on June 30, 1998.
(17) Includes 14,000 shares subject to options that are currently exercisable.
Also includes 200 shares held by Mr. Holcombe's spouse.
(18) All shares listed are shares subject to options that are currently
exercisable.
(19) Includes shares owned by certain trusts. Also includes 1,057,764 shares
subject to options that are currently exercisable or will become
exercisable on or before May 31, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN TRANSACTIONS
As disclosed in a Registration Statement on Form S-3 (Registration No.
333-68031) filed with the Securities and Exchange Commission on November 25,
1998 in connection with a proposed offering of 10% convertible subordinated
debentures, the company entered into a Standby Purchase Agreement with
Relational Investors, LLC. Under the Standby Purchase Agreement, in the event
the proposed debenture offering is consummated, Relational Investors, LLC will
receive from Apria a $1,000,000 standby fee as well as reimbursement for all
costs and expenses (including legal fees) incurred in connection with the
offering.
<PAGE>
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:
On November 27, 1998, Apria filed a Current Report on Form 8-K with
the Securities and Exchange Commission reporting that on November 25, 1998,
Apria had issued a press release related to its filing of a registration
statement on Form S-3 regarding its previously-announced rights offering
and the record date therefor.
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
Page
----
CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Auditors................................... F-1
Consolidated Balance Sheets - December 31,
1998 and 1997................................................... F-3
Consolidated Statements of Operations - Years
ended December 31, 1998, 1997 and 1996.......................... F-4
Consolidated Statements of Stockholders' Equity
(Deficit) - Years ended December 31, 1998, 1997 and 1996........ F-5
Consolidated Statements of Cash Flows - Years
ended December 31, 1998, 1997 and 1996.......................... F-6
Notes to Consolidated Financial Statements........................ F-7
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
Schedule II - Valuation and Qualifying Accounts................... S-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders of
Apria Healthcare Group Inc.
We have audited the accompanying consolidated balance sheet of Apria
Healthcare Group Inc. as of December 31, 1998, and the related consolidated
statements of operations, stockholders' deficit, and cash flows for the year
then ended. Our audit also included the financial statement schedule as of and
for the year ended December 31, 1998 included in the Index at Item 14(a)(2).
These consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in
all material respects, the financial position of Apria Healthcare Group Inc. as
of December 31, 1998, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
Also, in our opinion, such consolidated financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Costa Mesa, California
March 29, 1999
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Apria Healthcare Group Inc.:
We have audited the accompanying consolidated balance sheet of Apria
Healthcare Group Inc. as of December 31, 1997, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
two years in the period ended December 31, 1997. Our audit also includes the
financial statement schedule in the Index at Item 14A insofar as it relates to
the years ended December 31, 1997 and 1996. These financial statements and
schedule are the responsibility of the management of Apria Healthcare Group Inc.
Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Apria Healthcare Group Inc. at December 31, 1997, and the consolidated results
of its operations and cash flows for each of the two years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule insofar as it
relates to the years ended December 31, 1997 and 1996, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Orange County, California
March 11, 1998 (except for the second paragraph of
Note 12, as to which the date is April 9, 1998)
<PAGE>
<TABLE>
APRIA HEALTHCARE GROUP INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
December 31,
------------
1998 1997
---- ----
(in thousands)
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents ................................ $ 75,475 $ 16,317
Accounts receivable, less allowance for doubtful
accounts of $35,564 and $58,413 at December 31,
1998 and 1997, respectively ............................ 132,028 256,845
Inventories, net.......................................... 16,617 26,082
Refundable and prepaid income taxes ...................... - 2,576
Prepaid expenses and other current assets ................ 4,917 9,753
--------- ---------
TOTAL CURRENT ASSETS .............................. 229,037 311,573
PATIENT SERVICE EQUIPMENT, less accumulated
depreciation of $249,921 and $245,772 at
December 31, 1998 and 1997, respectively ................. 130,652 184,704
PROPERTY, EQUIPMENT AND IMPROVEMENTS, NET .................. 51,996 87,583
INTANGIBLE ASSETS, NET ..................................... 84,365 167,620
OTHER ASSETS ............................................... 548 5,690
--------- ---------
$ 496,598 $ 757,170
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable ......................................... $ 51,252 $ 50,691
Accrued payroll and related taxes
and benefits ........................................... 25,455 40,397
Accrued insurance ........................................ 13,092 12,247
Other accrued liabilities ................................ 49,870 30,463
Current portion of long-term debt ........................ 74,439 8,685
--------- ---------
TOTAL CURRENT LIABILITIES ......................... 214,108 142,483
LONG-TERM DEBT ............................................. 414,147 540,220
COMMITMENTS AND CONTINGENCIES .............................. - -
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock, $.001 par value:
10,000,000 shares authorized; none issued ............ - -
Common Stock, $.001 par value:
150,000,000 shares authorized; 51,785,263
and 51,568,525 shares issued and outstanding
at December 31, 1998 and 1997, respectively .......... 52 51
Additional paid-in capital ............................... 325,903 324,090
Retained deficit ......................................... (457,612) (249,674)
--------- ---------
(131,657) 74,467
--------- ---------
$ 496,598 $ 757,170
========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
APRIA HEALTHCARE GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C>
Net revenues .................................... $ 933,793 $ 1,180,694 $1,181,143
Costs and expenses:
Cost of net revenues:
Product and supply costs .................. 238,656 334,766 311,539
Patient service equipment depreciation .... 76,974 84,932 67,658
Nursing services .......................... 2,309 15,973 9,798
Other ..................................... 12,756 15,511 11,680
----------- ----------- ----------
330,695 451,182 400,675
Provision for doubtful accounts .............. 75,319 121,908 67,040
Selling, distribution and administrative ..... 574,895 616,113 580,436
Amortization of intangible assets ............ 12,496 16,833 16,920
Impairment of intangible assets .............. 76,223 133,542 -
Impairment of long-lived assets and
internally-developed software .............. 22,187 26,781 -
Employee contracts, benefit plan and
claim settlements .......................... - - 14,795
----------- ----------- ----------
1,091,815 1,366,359 1,079,866
----------- ----------- ----------
OPERATING (LOSS) INCOME ..................... (158,022) (185,665) 101,277
Interest expense ................................ 46,916 50,393 49,249
----------- ----------- ----------
(LOSS) INCOME BEFORE TAXES .................. (204,938) (236,058) 52,028
Income tax expense .............................. 3,000 36,550 18,728
----------- ----------- ----------
NET (LOSS) INCOME .............................. $ (207,938) $ (272,608) $ 33,300
=========== =========== ==========
Basic (loss) income per common share ............ $ (4.02) $ (5.30) $ 0.66
=========== =========== ==========
Diluted (loss) income per common share .......... $ (4.02) $ (5.30) $ 0.64
=========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
APRIA HEALTHCARE GROUP INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<CAPTION>
Additional Retained Total
Common Stock Paid-in (Deficit) Stockholders'
Shares Par Value Capital Earnings Equity (Deficit)
------ --------- ------- -------- ----------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 ............. 49,692 $ 50 $294,522 $ (10,334) $ 284,238
Issuance of Common Stock ................. 20 242 242
Exercise of stock options ................ 1,491 1 14,717 14,718
Notes receivable payments ................ 198 198
Tax benefits related to stock options .... 10,229 10,229
Other .................................... 42 (32) 10
Net income ............................... 33,300 33,300
-------- ------ -------- --------- ---------
Balance at December 31, 1996 ............. 51,203 51 319,950 22,934 342,935
Exercise of stock options ................ 365 4,013 4,013
Other .................................... 127 127
Net loss ................................. (272,608) (272,608)
-------- ------ -------- --------- ---------
Balance at December 31, 1997 ............. 51,568 51 324,090 (249,674) 74,467
Exercise of stock options ................ 217 1 1,685 1,686
Other .................................... 128 128
Net loss ................................. (207,938) (207,938)
-------- ------ -------- --------- ---------
Balance at December 31, 1998 ............. 51,785 $ 52 $325,903 $(457,612) $(131,657)
======== ====== ======== ========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
APRIA HEALTHCARE GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
(in thousands)
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net (loss) income .......................................... $(207,938) $ (272,608) $ 33,300
Items included in net (loss) income not
requiring (providing) cash:
Provision for doubtful accounts ........................ 75,319 121,908 67,040
Provision for revenue adjustments ...................... 18,302 40,000 32,300
Provision for inventory and patient
service equipment shortages/obsolescence ............. 23,305 35,300 10,513
Depreciation ........................................... 104,031 118,054 93,123
Amortization of intangible assets ...................... 12,496 16,833 16,920
Amortization of deferred debt costs .................... 1,747 1,197 1,703
Impairment of intangible assets ........................ 76,223 133,542 -
Impairment long-lived assets and
internally-developed software ........................ 22,187 26,781 -
Loss (gain) on disposition of assets ................... 2,985 (2,044) 340
Deferred income taxes .................................. - 29,963 15,920
Change in operating assets and liabilities,
net of effects of acquisitions:
Decrease (increase) in accounts receivable ............. 31,733 (80,229) (176,551)
(Increase) decrease in inventories ..................... (612) 2,722 (12,903)
Decrease in prepaids and other current
assets (including prepaid income taxes) .............. 7,262 32,758 2,544
Decrease in other non-current assets ................... 525 508 310
Decrease in accounts payable ........................... (162) (33,153) (17,033)
Increase in accruals and other
non-current liabilities .............................. 5,842 1,378 3,175
Decrease in accrued restructuring costs ................ (968) (5,408) (11,953)
Net purchases of patient service equipment,
net of effects of acquisitions ........................... (38,461) (63,519) (118,372)
Other ...................................................... 128 127 329
--------- --------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES .............................. 133,944 104,110 (59,295)
INVESTING ACTIVITIES
Purchases of property, equipment and
improvements, net of effects of acquisitions ......... (14,607) (21,047) (54,207)
Proceeds from disposition of assets .................... 3,170 8,212 317
Acquisitions and payments of
contingent consideration ............................. (2,727) (11,283) (14,815)
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES ............. (14,164) (24,118) (68,705)
FINANCING ACTIVITIES
Proceeds under revolving credit facility ............... - 129,950 775,125
Payments under revolving credit facility ............... (50,000) (211,950) (641,425)
Payments of senior and other long-term debt ............ (8,773) (11,793) (11,445)
Capitalized debt costs, net ............................ (3,535) (825) (1,312)
Issuances of Common Stock .............................. 1,686 4,013 15,158
--------- --------- ---------
NET CASH (USED IN) PROVIDED
BY FINANCING ACTIVITIES ........................... (60,622) (90,605) 136,101
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ....... 59,158 (10,613) 8,101
Cash and cash equivalents at beginning of year.............. 16,317 26,930 18,829
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR .......... $ 75,475 $ 16,317 $ 26,930
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<PAGE>
APRIA HEALTHCARE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The accompanying consolidated financial statements
include the accounts of Apria Healthcare Group Inc. ("Apria" or "the company")
and its subsidiaries. All significant intercompany transactions and accounts
have been eliminated.
Company Background: Apria operates in the home healthcare segment of the
healthcare industry and provides services including home respiratory therapy,
home infusion therapy, home medical equipment and other services to patients in
the home throughout the United States through its approximately 320 branch
locations. Management measures operating results on a geographic basis and,
therefore, views each branch as an operating segment. All the branches offer the
same services, except that infusion services are not offered in all the
geographic markets in which the company operates. For financial reporting
purposes, all the company's operating segments are aggregated into one
reportable segment. Respiratory therapy, infusion therapy and home medical
equipment/other represented approximately 59%, 23% and 18% of total 1998
revenues, respectively. The gross margins in 1998 for respiratory therapy,
infusion therapy and home medical equipment/other were 74%, 52% and 50%,
respectively.
Operations: Apria reported a net loss of $272,608,000 for the year ended
December 31, 1997 due primarily to (1) recognition of intangible asset
impairment, (2) high levels of bad debt write-offs and revenue adjustments, (3)
impairment of certain of its information systems hardware and
internally-developed software, (4) severance and related costs associated with a
reduction in its labor force, and (5) charges for excess quantities,
obsolescence and shrinkage of patient service equipment and inventory primarily
reflecting the results of expanded asset verification and physical inventory
procedures performed due to the impact of systems conversions and high turnover.
Consequently, Apria reported an accumulated deficit of $249,674,000 at December
31, 1997.
Apria has reported a net loss of $207,938,000 for the year ended December
31, 1998, primarily due to reductions in Medicare reimbursement rates and
charges taken in the third quarter including: (1) recognition of impairment in
its goodwill and other intangible assets, (2) charges taken in conjunction with
exiting certain product lines in specific geographic areas, (3) adjustments to
revenue and the allowance for doubtful accounts due to changes in the credit and
collection policies, and (4) impairment of certain long-lived assets and
internally-developed software. As a result of the losses, Apria's accumulated
retained deficit increased to $457,612,000 at December 31, 1998.
Despite the losses recognized during the year ended December 31, 1998,
Apria generated cash flow from operations of $133,944,000 for the year and
recognized a net profit of $2,326,000 (unaudited) for the fourth quarter of
1998.
In July 1998, after an evaluation of the business, Apria announced its
strategic plan to improve the company's performance. The key elements of the
strategic plan are: (1) no change would be made to the fundamental nature of the
business, (2) Apria would withdraw from unprofitable components of the business,
which would include exiting certain portions of the infusion therapy business,
(3) a comprehensive cost reduction and capital conservation program would be
instituted, (4) the debt and capital structure would be examined, and (5) Apria
would pursue expansion through internal growth and acquisitions. In the opinion
of management, the implementation of these plans contributed significantly to
the profitable results in the fourth quarter of 1998; however, there can be no
assurance that Apria will continue to achieve profitability. Management believes
that Apria has sufficient sources of financing to continue operations and fund
its expansion plans throughout 1999; however, if this is not the case, the
company will need to obtain additional capital and there can be no assurance
that any additional equity or debt financing will be available. Apria's
long-term success is dependent on management's ability to successfully execute
its strategic plan and, ultimately, the company's ability to achieve sustained
profitable operations.
Revenue Recognition and Concentration of Credit Risk: Revenues are
recognized on the date services and related products are provided to patients
and are recorded at amounts estimated to be received under reimbursement
arrangements with a large number of third-party payors, including private
insurers, prepaid health plans, Medicare and Medicaid. Approximately 36% of the
company's 1998 revenues are reimbursed under arrangements with Medicare and
Medicaid. In 1998, no other third-party payor group represented 7% or more of
the company's revenues. The majority of the company's revenues are derived from
fees charged for patient care under fee-for-service arrangements. Revenues
derived from capitation arrangements represented 7%, 6% and 6% of total net
revenues for 1998, 1997 and 1996, respectively.
Apria establishes allowances for revenue adjustments which are normally
identified and recorded at the point of cash application or upon account review.
Revenue adjustments result from differences between estimated and actual
reimbursement amounts, failures to obtain authorizations acceptable to the payor
or other specified billing documentation, changes in coverage or payor and other
reasons unrelated to credit risk. The allowance for revenue adjustments is
deducted directly from gross accounts receivable. Management also establishes
allowances for those accounts from which payment is not expected to be received,
although services were provided and revenue was earned.
Management performs various analyses to estimate the revenue adjustment
allowance and the allowance for doubtful accounts. Specifically, management
considers historical realization data, accounts receivable aging trends,
operating statistics and relevant business conditions. Apria periodically
refines its procedures for estimating the allowances for revenue adjustments and
doubtful accounts based on experience with the estimation process and changes in
circumstances. The estimation process was modified in 1997 to include an
evaluation of the collectibility of amounts owed by third-party payors with
aggregate patient balances exceeding a specified amount and further modified in
1998 to reflect changes in the company's collection policies and procedures.
Because of continuing changes in the healthcare industry and third-party
reimbursement, it is reasonably possible that management's estimates of net
collectible revenues could change in the near term, which could have a favorable
or unfavorable impact on operations and cash flows.
Use of Accounting Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates. Due to
the nature of the industry and the reimbursement environment in which the
company operates, certain estimates are required in recording net revenues.
Inherent in these estimates is the risk that they will have to be revised or
updated, and the changes recorded in subsequent periods, as additional
information becomes available to management.
Cash and Cash Equivalents: Apria maintains cash with various financial
institutions. These financial institutions are located throughout the United
States and the company's cash management practices limit exposure to any one
institution. Outstanding checks in excess of bank balances, which are reported
as a component of accounts payable, were $15,102,000 and $13,309,000 at December
31, 1998 and 1997, respectively. Management considers all highly liquid
instruments purchased with a maturity of less than three months to be cash
equivalents. As further discussed in Note 5, use of $35,000,000 of Apria's cash
balance is temporarily restricted.
Accounts Receivable: Included in accounts receivable are earned but
unbilled receivables of $25,262,000 and $31,919,000 at December 31, 1998 and
1997, respectively.
Inventories: Inventories are stated at the lower of cost (first-in,
first-out method) or market and consist primarily of disposables used in
conjunction with patient service equipment.
Patient Service Equipment: Patient service equipment consists of medical
equipment provided to in-home patients and is stated at cost. Depreciation is
provided using the straight-line method over the estimated useful lives of the
equipment, which range from one to 10 years.
Property, Equipment and Improvements: Property, equipment and improvements
are stated at cost. Depreciation is provided using the straight-line method over
the estimated useful lives of the property. Included in property and equipment
are assets under capitalized leases which consist solely of computer equipment.
Depreciation for equipment under capitalized leases is provided using the
straight-line method over the estimated useful life. Estimated useful lives for
each of the categories presented in Note 3 are as follows: land improvements --
seven years; building and leasehold improvements -- the shorter of the remaining
lease term or seven years; equipment and furnishings -- three to 15 years;
information systems -- two to four years.
Capitalized Software: Included in property, equipment and improvements are
costs related to internally-developed and purchased software that are
capitalized and amortized over periods not exceeding four years. Capitalized
costs include direct costs of materials and services incurred in developing or
obtaining internal-use software and payroll and payroll-related costs for
employees directly involved in the development of internal-use software.
The carrying value of capitalized software is reviewed if the facts and
circumstances suggest that it may be impaired. Indicators of impairment may
include a subsequent change in the extent or manner in which the software is
used or expected to be used, a significant change to the software is made or
expected to be made or the cost to develop or modify internal-use software
exceeds that expected amount. If events and circumstances indicate that the
software is impaired, management applies its policy for measuring and recording
impairment of its intangible and other long-lived assets, as described below.
Intangible and Other Long-lived Assets: Intangible assets consist of
covenants not to compete and goodwill arising from business combinations (see
Note 2). The values assigned to intangible assets are amortized on a
straight-line basis. Covenants are amortized over contractual terms, which range
from 3 to ten years. Goodwill, representing the excess of the purchase price
over the estimated fair value of the net assets of the acquired business, is
amortized over the period of expected benefit. The amortization period for
goodwill is generally 20 years. Prior to December 31, 1997 the amortization
period for goodwill related to acquired infusion therapy businesses was 40
years.
Management reviews for impairment of long-lived assets and intangible
assets to be held and used in the company's operations whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. For purposes of assessing impairment, assets are grouped at the
branch level which is the lowest level for which there are identifiable cash
flows that are largely independent of the cash flows of other groups of assets.
Goodwill is generally separately identified by acquisition and branch location.
However, for multi-location acquisitions, goodwill is allocated to branches on
the basis of annual revenues as of the acquisition date. Management deems the
long-lived and/or intangible assets of a branch to be impaired if estimated
expected undiscounted future cash flows is less than the carrying amount of the
assets. Estimates of expected future cash flows are based on management's best
estimates of anticipated operating results over the remaining useful life of the
assets. For those branches identified as containing impaired assets, the company
measures the impairment as the amount by which the carrying amount of the asset
exceeds the fair value of the asset. In estimating the fair value of the asset,
management utilizes a valuation technique based on the present value of expected
future cash flows.
Fair Value of Financial Instruments: The fair value of long-term debt and
letters of credit is determined by reference to borrowing rates currently
available to Apria for loans with similar terms and average maturities. The
carrying amounts of cash and cash equivalents, accounts receivables, trade
payables and accrued expenses approximate fair value because of their short
maturity.
Advertising: Advertising costs amounting to $3,295,000, $4,088,000 and
$6,095,000 for 1998, 1997 and 1996, respectively, are expensed as incurred and
included in "Selling, distribution and administrative expenses."
Income Taxes: Apria provides for income taxes under the liability method.
Accordingly, deferred income tax assets and liabilities are computed for
differences between the financial statement and tax bases of assets and
liabilities. These differences will result in taxable or deductible amounts in
the future, based on enacted tax laws and rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to
amounts which are more likely than not to be realized. The provision for income
taxes represents the tax payable or refundable for the period plus or minus the
change during the period in deferred tax assets and liabilities.
Per Share Amounts: Basic net income (loss) per share is computed by
dividing income (loss) available to common stockholders by the weighted average
number of common shares outstanding. Diluted net income (loss) per share
includes the effect of the potential shares outstanding, including dilutive
stock options and warrants, using the treasury stock method.
Stock-based Compensation: Apria grants options to employees for a fixed
number of shares with an exercise price equal to the fair value of the shares at
the date of grant. The company accounts for stock option grants in accordance
with APB Opinion No. 25, Accounting for Stock Issued to Employees ("APB No. 25")
and, accordingly, recognizes no compensation expense for the stock option grants
to employees. However, Apria has adopted the disclosure provisions of Statement
of Financial Accounting Standards No. 123, Accounting for Stock-based
Compensation ("SFAS No. 123") (see Note 6).
New Accounting Pronouncements: As of December 31, 1998, Apria adopted
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income", and Statement of Financial Accounting Standards No. 131, "Disclosures
About Segments of an Enterprise and Related Information". Both statements, which
became effective for fiscal years beginning after December 15, 1997 did not have
any effect on the company's consolidated financial statements.
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133") was issued in
June 1998 and establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments imbedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statements of financial
position and measure those instruments at fair value. Apria's management
believes that adoption of SFAS No. 133, which is required in fiscal 2000, will
not have a material impact on its consolidated financial statements.
AICPA Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"), was issued in
March 1998 and will be effective for the company beginning in fiscal 1999. SOP
98-1 broadly defines and provides guidance on accounting for the costs of
computer software developed or obtained for internal use. SOP 98-1 requires that
computer software costs incurred in the preliminary project stage be expensed as
incurred. The provisions of SOP 98-1 apply to internal-use software costs
incurred in those fiscal years for all projects, including those projects in
progress upon initial application of the statement. Costs incurred prior to
initial application of this statement, whether capitalized or not, should not be
adjusted to the amounts that would have been capitalized had this SOP been in
effect when those costs were incurred. Apria has already adopted substantially
all of the provisions of SOP 98-1, therefore formal adoption is not expected to
have an impact on Apria's consolidated financial statements.
Reclassifications: Certain amounts for prior periods have been reclassified
to conform to the current year presentation.
NOTE 2 -- BUSINESS COMBINATIONS AND DISPOSITIONS
During 1998, 1997 and 1996, Apria acquired a number of complementary
businesses in specific geographic markets. The businesses, none of which were
individually significant, were purchased for cash. The transactions were
accounted for as purchases and, accordingly, the operations of the acquired
businesses are included in the consolidated statements of operations from the
dates of acquisition. The purchase prices were allocated to the various
underlying tangible and intangible assets and liabilities on the basis of
estimated fair value.
The following table summarizes the allocation of the purchase prices of
acquisitions made by the company, including non-cash financing activities and
payments of contingent consideration:
Year Ended December 31,
---------- ------------
1998 1997 1996
---- ---- ----
(in thousands)
Fair value of assets acquired............ $ 2,610 $ 11,729 $ 15,356
Liabilities paid (assumed), net.......... 117 (446) (541)
------- -------- --------
Cash paid.......................... $ 2,727 $ 11,283 $ 14,815
======= ======== ========
The fair value of assets acquired during 1998, 1997 and 1996 includes
intangible assets of $1,653,000, $7,368,000 and $5,880,000, respectively.
During the third quarter of 1998, Apria sold its infusion business in
California to Crescent Healthcare, Inc. and decided to exit the infusion
business in Texas, Louisiana, West Virginia, western Pennsylvania and downstate
New York. Charges of $7,263,000 related to the wind-down of unprofitable
infusion operations and a $3,798,000 loss on sale of the California business
were recorded. The operations of these infusion locations had revenues of
$41,480,000, $72,677,000 and $86,242,000 for the years 1998, 1997 and 1996,
respectively.
In January 1997, Apria sold all of its 15% equity interest in Omnicare plc,
a United Kingdom-based public limited company, to a former director of Apria.
Cash proceeds from the sale were $2,791,000 which resulted in a gain of
$1,232,000.
In March 1997, Apria sold its Medicare-certified home health agency, M&B
Ventures, Inc., for cash proceeds of $2,400,000 and recorded a loss on sale of
$784,000. The company also disposed of several branch locations in California
and Arizona in the latter part of 1997. Cash proceeds from these sales were
$1,189,000 which resulted in a net gain of $386,000. The operations of M&B
Ventures and the disposed branches had revenues of approximately $4,648,000 and
$11,082,000 for 1997 and 1996, respectively.
In September 1997, Apria exercised its warrants to purchase 247,500 shares
of common stock of Living Centers of America, Inc. The subsequent sale of the
shares netted cash proceeds and a gain of $1,350,000.
NOTE 3 -- PROPERTY, EQUIPMENT AND IMPROVEMENTS
Property, equipment and improvements consist of the following:
December 31,
------------
1998 1997
---- ----
(in thousands)
Land and improvements....................... $ 53 $ 53
Buildings and leasehold improvements........ 20,561 23,283
Equipment and furnishings................... 47,413 71,815
Information systems......................... 38,091 75,012
-------- --------
106,118 170,163
Less accumulated depreciation............... (54,122) (82,580)
-------- --------
$ 51,996 $ 87,583
======== ========
One of the actions taken in 1998 as a result of management's new strategic
direction was the termination of the project to implement an enterprise resource
planning (ERP) system. Accordingly, Apria wrote off related software and other
capitalized costs of $7,548,000 in the third quarter of 1998. As part of the
decision to terminate the ERP project, management evaluated its current systems
to determine their long-term viability in the context of the company's new
overall strategic direction. It was determined that the company was at some risk
in continuing to run the infusion billing system on its current platform, which
is no longer supported by the computer industry. To mitigate this risk, Apria
began in 1998 to convert the infusion system to the IBM AS/400 operating
platform on which the respiratory/home medical equipment system currently
operates. The company also installed a number of enhancements to the systems,
rendering certain previously-developed modules obsolete. Additionally, pharmacy
and branch consolidations and closures resulted in a variety of computer
equipment that was no longer needed. Due to its age and technological
obsolescence, it was deemed to have no future value. As a result of these
actions, Apria recorded an impairment charge of $11,843,000 in the third quarter
of 1998.
In the fourth quarter of 1997, Apria wrote down the carrying value of
internally-developed software by $20,225,000 and computer equipment by
$6,556,000. The software impairment charge consisted of $15,305,000 of
capitalized development and implementation costs related to the company's branch
information system (ACIS) which management had committed to replace and
$4,920,000 of capitalized development costs related to specialized
telecommunications software for ApriaDirect, a clinical program that was
discontinued in December 1997. The computer equipment impairment charge
consisted of computer and telecommunications equipment identified as
functionally obsolete or no longer in use.
NOTE 4 -- INTANGIBLE ASSETS
Intangible assets consist of the following:
December 31,
------------
1998 1997
---- ----
(in thousands)
Covenants not to compete............. $ 17,780 $ 30,874
Goodwill............................. 101,365 198,930
-------- ---------
119,145 229,804
Less accumulated amortization........ (34,780) (62,184)
-------- --------
$ 84,365 $167,620
======== ========
1998 Impairment of Intangible Assets: The deterioration in the infusion
therapy industry and management's decision to withdraw from the infusion
business in certain geographic markets served as indicators of potential
intangible asset impairment. Other indicators of potential impairment identified
by management include, among other issues, the company's declining common stock
price, failure to meet its already lowered financial expectations, the threat of
continued Medicare reimbursement reductions, government investigations against
the company, slower than expected progress in improving its billing and
collection process, and reported financial difficulties within major managed
care organizations with which Apria does business, resulting in collection
difficulties. In the third quarter of 1998, management conducted an evaluation
of the carrying value of the company's recorded intangible assets. Management
considered current and anticipated industry conditions, recent changes in its
business strategies, and current and anticipated operating results. The
evaluation resulted in an impairment charge of $76,223,000, which includes a
write-off of $4,771,000 in intangible assets associated with the exit of the
infusion business in certain areas.
1997 Impairment of Intangible Assets: Certain 1997 conditions, including
Apria's failure to meet projections and expectations, declining gross margins,
recurring operating losses, significant downward adjustment to the company's
projections for 1998 and a declining common stock value, were identified by
management as indicators of potential intangible asset impairment. In the fourth
quarter of 1997, management conducted an evaluation of the carrying value and
amortization periods of recorded intangible assets. Management considered
current and anticipated industry conditions, recent changes in its business
strategies and current and anticipated operating results. The evaluation
resulted in an impairment charge of $133,542,000 which was recorded in the
fourth quarter of 1997. In conjunction with the impairment evaluation,
management reduced the amortization period for goodwill related to acquired
infusion therapy businesses from 40 years to 20 years. The remaining
infusion-related goodwill is being amortized over the years remaining assuming a
20-year life from date of acquisition.
Measurement of Impairment: For purposes of assessing impairment, assets
were grouped at the branch level, which is the lowest level for which there are
identifiable cash flows that are largely independent. A branch location was
deemed to be impaired if management's estimate of undiscounted cash flows was
less than the carrying amount of the long-lived assets and goodwill at the
branch. In estimating future cash flows, management used its best estimates of
anticipated operating results over the remaining useful life of the assets
where, in the case of the 1997 computation, the useful life is the amortization
period before giving effect to the reduction in the infusion business goodwill
from 40 to 20 years. For those branches identified as impaired, the amount of
impairment was measured by comparing the carrying amount of the long-lived
assets and goodwill to the estimated fair value for each branch. Fair value was
estimated using a valuation technique based on the present value of the expected
future cash flows.
NOTE 5 -- CREDIT FACILITY AND LONG-TERM DEBT
Long-term debt consists of the following:
December 31,
------------
1998 1997
---- ----
(in thousands)
Notes payable relating to revolving
credit facilities.............................. $ - $338,000
Term loans payable............................... 288,000 -
9.5% senior subordinated notes................... 200,000 200,000
Other, interest at rates ranging from
0% to 4.1%, payments due at various
dates through December 1998.................... - 172
Capital lease obligations (see Note 10).......... 8,196 16,555
-------- --------
496,196 554,727
Less: Current maturities......................... (74,439) (8,685)
Unamortized deferred debt costs............ (7,610) (5,822)
-------- --------
$414,147 $540,220
======== ========
Credit Agreement: Apria's credit agreement with Bank of America and a
syndicate of banks was amended and restated in November of 1998 and further
amended in January and February of 1999. In connection with the November 1998
amendment, the company made a required $50,000,000 repayment of the revolving
credit facility. The remaining indebtedness under the credit agreement, which
expires in August 2001, was restructured into a $288,000,000 term loan and a
$30,000,000 revolving credit facility. Term loan principal payments are payable
quarterly commencing on March 31, 1999 and continuing through June 30, 2001 in
the following amounts: $4,000,000 quarterly in 1999, $5,000,000 quarterly in
2000 and $10,000,000 quarterly thereafter until maturity.
The amended credit agreement currently requires that Apria issue not less
than $50,000,000 of senior subordinated notes or senior subordinated convertible
debentures by April 23, 1999, the net proceeds of which must be applied to the
term loan. Additionally, between the effective date of the November amendment
and the earlier of April 23, 1999 or the issuance date of the notes or
debentures, the company is subject to prepayments of the term loan based on
excess cash flow (as defined by the agreement). The resulting prepayments of
$6,938,000 reduced the required amount of the quarterly term loan payment that
was due March 31, 1999 to zero. No additional prepayments based on excess cash
flow will be required.
The amended credit agreement also allows Apria to make acquisitions under
an acquisition "basket" provision of up to $62,000,000, subject to certain
restrictions, that may be increased given certain levels of financial
performance by the company. In 1999, the acquisition limit is subject to dollar
for dollar reduction by the amount of any unusual cash expenses (as defined by
the agreement) incurred and paid in 1999.
The amended agreement permits Apria to elect one of two variable rate
interest options at the time an advance is made. The first option is expressed
as 2.50% plus the higher of (a) the Bank of America "reference rate" and (b) the
Federal Funds Rate plus 0.50% per annum. The second option is a rate based on
the London Interbank Offered Rate plus 3.50% per annum. The effective interest
rate at December 31, 1998 was 9.125% for term loan borrowings of $288,000,000.
The credit agreement requires payment of commitment fees of 0.75% on the unused
portion of the revolving credit facility.
Borrowings under the credit facility are collateralized by substantially
all of the assets of Apria. The agreement contains numerous restrictions,
including but not limited to, covenants requiring the maintenance of certain
financial ratios, limitations on additional borrowings, capital expenditures,
mergers, acquisitions and investments and restrictions on cash dividends, loans
and other distributions. The agreement also requires that the company maintain
minimum cash balances of $35,000,000 through the consummation of the debt or
equity offering. Additionally, the credit agreement allows for certain charges
from the fourth quarter of 1997, the third quarter of 1998 and unusual cash
expenses in 1999, totaling $81,740,000, $181,079,000 and up to $17,500,000,
respectively, to be excluded from the calculation of specific financial ratios
when determining covenant compliance. At December 31, 1998, the company is in
compliance with the financial covenants required by the credit agreement.
The carrying amount of the term loan approximates fair market value because
the underlying instruments are variable notes that reprice frequently.
Apria had no derivative securities as of December 31, 1998. The company is
exposed to changes in interest rates as a result of its bank credit facility
which is based on the variable rate interest options discussed above.
At December 31, 1998, the company's outstanding letters of credit amounted
to $10,276,000 and credit available under the revolving credit facility was
$19,724,000 (subject to the restriction under the Indenture described below).
9 1/2% Senior Subordinated Notes: Apria's $200,000,000 9 1/2% senior
subordinated notes mature November 1, 2002 and are subordinated to all senior
debt of the company and senior in right of payment to subordinated debt of the
company. The fair value of these notes, as determined by reference to quoted
market prices, is $199,260,000 and $211,540,000 at December 31, 1998 and 1997,
respectively.
Under the indenture governing Apria's senior subordinated notes, the
company's ability to incur indebtedness becomes restricted at times that the
company's "Fixed Charge Coverage Ratio" (as defined in the indenture) is less
than 3.0 to 1.0. Charges taken against revenues in the third quarter of 1998
resulted in the Fixed Charge Coverage Ratio being less than 3.0 to 1.0. This
condition is expected to continue at least through the third quarter of 1999.
Apria has changed its cash management procedures so as to avoid the need to
incur indebtedness in violation of the terms of the indenture and has
accumulated a cash balance of $75,184,000 as of February 28, 1999.
Maturities of long-term debt, exclusive of capital lease obligations are as
follows:
(in thousands)
1999.......................................... $ 68,938
2000.......................................... 20,000
2001.......................................... 199,062
2002.......................................... 200,000
--------
$488,000
========
Total interest paid in 1998, 1997 and 1996 amounted to $44,989,000,
$53,222,000 and $44,341,000, respectively.
NOTE 6 -- STOCKHOLDERS' EQUITY
Common Stock: Apria has granted registration rights to certain holders of
common stock under which the company is obligated to pay the expenses associated
with those registration rights.
Preferred Stock Purchase Rights: Under Apria's preferred stock purchase
rights plan, the company's common stockholders hold one right for each share of
common stock outstanding. If the rights become exercisable, each right (unless
held by the person or group causing the rights to become exercisable) will allow
its holder to purchase one one-hundredth of a share of Junior Participating
Stock ("Junior Preferred Shares") at a price of $130 per one one-hundredth of a
Junior Preferred Share, subject to adjustment. The rights will become
exercisable if a person, or group of affiliated persons, acquires beneficial
ownership of 15% or more of the company's common stock, unless the Board of
Directors determines the transaction to be fair and in the best interest of the
company and its stockholders. Each Junior Preferred Share will be entitled to
preferential dividend and liquidation payments, preferential consideration in
the event of any merger, consolidation or other transaction in which stock is
exchanged and 100 votes which vote together with common stock. In addition, upon
exercise of a right, each holder of shares of common stock will receive an
additional amount of common stock having a market value equal to two times the
then current purchase price of the right. However, Apria's Board of Directors
has retained the right to redeem the rights in whole, but not in part, at $0.01
per right within ten (10) days after they become exercisable.
Stock Compensation Plans: Apria has various stock-based compensation plans,
which are described below. Management applies the provisions of APB No. 25 and
related Interpretations in accounting for its plans. No compensation expense has
been recognized upon granting of options under its fixed stock option plans,
performance-based plan or its stock purchase plan. Had compensation expense for
the company's stock-based compensation plans been recognized based on the fair
value of awards at the date of grant, consistent with the method of SFAS No.
123, Apria's net (loss) income and per share amounts would have been adjusted to
the pro forma amounts indicated below. The provisions of SFAS No. 123 have been
applied to awards with grant dates in 1998, 1997, 1996 and 1995, only.
Therefore, until the rules are applied to all outstanding, nonvested awards, the
compensation expense reflected in the pro forma amounts presented below is not
indicative of future amounts.
1998 1997 1996
---- ---- ----
(in thousands, except
per share data)
Net (loss) income:
As reported ..................... $(207,938) $(272,608) $ 33,300
Pro forma ....................... $(212,518) $(276,213) $ 29,649
Basic net (loss) income per share:
As reported ..................... $ (4.02) $ (5.30) $ 0.66
Pro forma ....................... $ (4.11) $ (5.37) $ 0.58
Diluted net (loss) income per share:
As reported ..................... $ (4.02) $ (5.30) $ 0.64
Pro forma ....................... $ (4.11) $ (5.37) $ 0.58
For purposes of pro forma disclosure, the fair value of each option grant
is estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted average assumptions used for grants in 1998, 1997
and 1996: risk-free interest rates ranging from 5.72% to 4.16%, 6.45% to 5.82%
and 6.91% to 6.33%, respectively; dividend yield of 0% for all years; expected
lives ranging from 5.36 years for 1998, 6.50 years for 1997 and 1.25 to 6.58
years for 1996; and volatility of 63% for 1998, 55% for 1997 and 43% for 1996.
Fixed Stock Options: Apria has various fixed stock option plans that
provide for the granting of incentive or non-statutory options to its key
employees and non-employee members of the Board of Directors. In the case of
incentive stock options, the exercise price may not be less than the fair market
value of the company's stock on the date of the grant, and may not be less than
110% of the fair market value of the company's stock on the date of the grant
for any individual possessing 10% or more of the voting power of all classes of
stock of the company. The options become exercisable at any time from and after
the date of grant to five years and expire not later than 10 years from the date
of grant.
A summary of the status of Apria's fixed stock options as of December 31,
1998, 1997 and 1996, and the activity during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ ----------------------- -------------------------
Weighted- Weighted- Weighted-
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
--------- -------------- ---------- --------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning of year........... 2,803,952 $17.46 3,431,472 $17.12 4,111,824 $15.22
Granted:
Exercise price equal to fair value...... 774,994 $ 8.78 201,000 $15.86 710,800 $18.60
Exercise price greater than fair value.. 75,000 $12.56 53,000 $18.25 10,000 $28.25
Exercise price less than fair value..... - - 25,000 $10.00
Exercised................................. (104,638) $ 4.33 (304,635) $ 9.95 (1,073,804) $ 9.67
Forfeited................................. (1,248,339) $17.90 (576,885) $18.94 (352,348) $20.41
---------- --------- ----------
Outstanding - end of year................. 2,300,969 $14.73 2,803,952 $17.46 3,431,472 $17.12
========== ========== ==========
Exercisable at end of year................ 1,701,287 $14.20 1,469,113 $16.19 1,281,402 $13.99
========== ========= ==========
Weighted-average fair value of options
granted during the year................... $ 5.30 $ 9.91 $ 9.92
</TABLE>
The following table summarizes information about fixed stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------- -----------------------------
Weighted
Average
Number Remaining Weighted- Number Weighted-
Outstanding Contractual Average Exercisable Average
Range of Exercise Prices As of 12/31/98 Life (in years) Exercise Price As of 12/31/98 Exercise Price
- ------------------------ -------------- --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$ 1.50 - $ 6.69 353,609 8.48 $ 5.71 353,609 $ 5.71
$ 7.68 - $ 9.00 314,904 9.07 $ 8.95 314,904 $ 8.95
$ 9.06 - $12.23 292,960 7.14 $11.66 134,626 $11.18
$12.25 - $16.63 327,521 6.89 $15.06 191,521 $14.65
$16.87 - $18.50 417,995 7.44 $17.34 236,495 $17.33
$20.00 - $29.00 593,980 6.49 $22.64 470,132 $23.21
--------- ---------
$ 1.50 - $29.00 2,300,969 7.46 $14.73 1,701,287 $14.20
</TABLE>
Performance-Based Stock Options: Included in Apria's stock-based
compensation plans are provisions for the granting of performance-based stock
options. In 1998, Apria granted such stock option awards to its key employees
and to key members of senior management. The options become exercisable over a
period of seven years and expire not later than ten years from the date of
grant. Accelerated vesting will occur upon the occurrence of certain events and
on designated dates on which the average fair market value of Apria's common
stock during any period of 90 consecutive calendar days subsequent to the grant
date shall not have been less than a targeted per share price. No options have
vested under the accelerated provisions.
Also, the company has a Long-Term Senior Management Equity Plan which
provides for the granting of non-statutory stock option awards to key members of
senior management at fair market value on the date of the grant. The plan
provides for vesting at certain time intervals and accelerated vesting upon the
occurrence of certain events and the achievement of certain cumulative and
annual earnings per share targets. Due to the change in control in 1995, which
caused specific criteria in the plan to be met, half of the outstanding options
vested. An additional 32% of the outstanding options vested in 1995 based on the
achievement of the targeted cumulative earnings per share amount. The remaining
18% of the outstanding options became exercisable in March 1999 upon release of
1998 financial results. Since the 1995 change in control, no options were
granted under this plan and no further grants are authorized. Options awarded
under this plan expire 10 years from the date of grant.
A summary of the status of the Apria's performance-based stock options as
of December 31, 1998, 1997 and 1996, and the activity during the years ending on
those dates is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------- ------------------------ -------------------------
Weighted- Weighted- Weighted-
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
--------- --------------- -------- --------------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning of year........... 836,602 $11.24 919,722 $11.24 1,365,400 $11.20
Granted:
Exercise price equal to fair value...... 2,767,000 $ 6.88 - -
Exercise price greater than fair value.. 136,500 $ 6.50 - -
Exercised................................. (112,100) $11.00 (60,440) $11.15 (416,878) $11.13
Forfeited................................. (217,140) $10.85 (22,680) $11.30 (28,800) $11.00
--------- --------- ---------
Outstanding - end of year................. 3,410,862 $ 7.55 836,602 $11.24 919,722 $11.24
========= ========= =========
Exercisable at end of year................ 610,622 $10.53 641,842 $11.25 702,282 $11.24
========= ========= =========
Weighted-average fair value of options
granted during the year................... $4.52 - -
</TABLE>
The following table summarizes information about performance-based stock
options outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------- ----------------------------
Weighted
Average
Number Remaining Weighted- Number Weighted-
Outstanding Contractual Average Exercisable Average
Range of Exercise Prices As of 12/31/98 Life (in years) Exercise Price As of 12/31/98 Exercise Price
- ------------------------ -------------- --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$ 4.69 - $ 6.50 2,300,500 9.57 $ 6.40 12,500 $ 4.69
$ 6.75 - $ 9.00 570,000 9.36 $ 8.74 115,000 $ 8.58
$11.00 - $13.50 540,362 3.36 $11.16 483,122 $11.15
--------- -------
$ 4.69 - $13.50 3,410,862 8.55 $ 7.55 610,622 $10.53
</TABLE>
Approximately 9,664,000 shares of common stock are reserved for future
issuance upon exercise of stock options under these plans.
NOTE 7 -- CERTAIN OPERATING STATEMENT CAPTIONS
Employee Contracts, Benefit Plan and Claim Settlements: In 1996, Apria
recorded $14,795,000 for employee contract, benefit plan and claim settlements.
The accrual included $5,272,000 for legal settlements and related costs in
excess of amounts previously accrued and $6,223,000 to cover the settlement and
associated costs related to the termination of a proposed merger with Vitas
Healthcare Corporation. Also in 1996, a $3,300,000 increase to the settlement
loss on the termination of the Abbey Healthcare Group Incorporated ("Abbey")
defined benefit pension plan was recorded based on updated actuarial estimates.
NOTE 8 -- INCOME TAXES
Significant components of Apria's deferred tax assets and liabilities are
as follows:
December 31,
------------
1998 1997
---- ----
(in thousands)
Deferred tax liabilities:
Tax over book depreciation ................. $ 20,361 $ 20,402
Intangible assets .......................... 1,855 727
Other, net ................................. 364 206
--------- ---------
Total deferred tax liabilities .......... 22,580 21,335
Deferred tax assets:
Allowance for doubtful accounts ............ 24,353 33,150
Accruals ................................... 17,889 15,041
Asset valuation reserves ................... 6,240 4,058
Net operating loss carryforward,
limited byss.382 ......................... 128,285 66,416
AMT and research credit carryovers ......... 4,500 4,500
Other, net ................................. 305 475
--------- ---------
Total deferred tax assets ............... 181,572 123,640
Valuation allowance .......................... (158,992) (102,305)
--------- ---------
Net deferred tax assets ................. 22,580 21,335
========= =========
At December 31, 1998, Apria's federal operating loss carryforwards ("NOLs")
approximated $380,000,000, expiring in varying amounts in the years 2003 through
2013. Additionally, the company has various state operating loss carryforwards
which began to expire in 1997. As a result of an ownership change in 1992, which
met specified criteria of Section 382 of the Internal Revenue Code, future use
of a portion of the federal and state operating loss carryforwards generated
prior to 1992 are each limited to approximately $5,000,000 per year. Because of
the annual limitation, approximately $57,000,000 of each of Apria's federal and
state operating loss carryforwards may expire unused. The net operating loss
carryforward amount included in deferred tax asset excludes such amount.
In evaluating the realizability of the NOLs at December 31, 1998, various
positive and negative factors pertaining to the existence of sufficient
projected taxable income within the carryforward period were considered.
Management believes that its strategies may result in sufficient taxable income
during the carryforward period to utilize Apria's NOLs. However, the achievement
of future taxable income is dependent upon future events and economic,
regulatory and other factors largely out of management's control. Therefore,
such future taxable income is not assured. Additionally, in evaluating whether a
valuation allowance is appropriate, management also considered the significant
negative factors existing at December 31, 1998, including: Apria's recent
historical financial and tax losses make it difficult to conclude a valuation
allowance is not needed; Apria has, in recent years, been unable to meet its
operating plans; and while management has implemented new strategies to achieve
profitability and reported a profit in the fourth quarter of 1998, there can be
no assurances that operating profits will continue in any future period or that
management will be successful in implementing all its strategies, including its
growth plans. In considering the positive and negative factors at this time,
management concluded that it is more likely than not that Apria will be unable
to utilize the NOLs except for future reversals of existing taxable temporary
differences, and consequently has recorded a valuation allowance of
approximately $158,992,000 at December 31, 1998.
In the fourth quarter of 1997, the company increased its valuation
allowance for deferred tax assets due to recurring tax losses and management's
reduced expectations of future taxable income. No assumption of future taxable
income was made due to the company's significant cumulative recent losses.
Income tax (benefit) expense consists of the following:
Year Ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
(in thousands)
Current:
Federal................................... $ - $ 3,623 $ (7,917)
State .................................... 2,000 1,964 177
Foreign .................................. 1,000 1,000 -
-------- -------- --------
3,000 6,587 (7,740)
Deferred:
Federal .................................. - 25,768 14,106
State .................................... - 4,195 1,814
-------- -------- --------
29,963 15,920
Tax benefits credited to paid-in
capital and goodwill ..................... - - 10,548
-------- -------- --------
$ 3,000 $ 36,550 $ 18,728
======== ======== ========
The exercise of stock options granted under Apria's various stock option
plans gives rise to compensation which is includable as taxable income to the
employee and deductible by the company for federal and state tax purposes but is
not recognized as expense for financial reporting purposes. The tax benefit of
stock option exercises in 1998 and 1997 is included in Apria's net operating
loss carryforward and therefore not reflected as a credit to paid-in capital. In
addition, the recognition, for income tax purposes, of certain deferred tax
assets relating to acquired businesses reduces related goodwill for financial
reporting purposes.
Current state income tax expense for all periods presented includes state
tax amounts accrued and paid on a basis other than income and in 1998 and 1997
includes the estimated settlement amounts of state income tax audits in
progress. Current foreign income tax expense in 1998 and 1997 includes the
estimated foreign taxes payable on the sale of Apria's 15% interest in Omnicare
plc as well as estimated settlement amounts on foreign tax audits in progress
(see Note 2).
Current federal income tax expense in 1997 represents the amount settled
and paid in connection with an audit of Apria's federal income tax returns for
tax years ending in 1992 through 1995. The amount paid represents an increase to
certain deferred tax assets for which no benefit was recorded in 1997 because an
offsetting increase to the valuation allowance was recorded.
Differences between Apria's income tax expense (benefit) and an amount
calculated utilizing the federal statutory rate are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Income tax (benefit) expense at statutory rate..... $(71,728) $(82,621) $ 18,210
Non-deductible merger costs and amortization
and impairment loss on goodwill ................. 21,000 48,783 2,150
State and foreign taxes, net of federal
benefit and state loss carryforwards ............ 422 7,159 1,991
Increase in valuation allowance for
deferred items previously recognized ............ - 25,768 -
Tax benefit of net operating loss not
currently recognized ............................ 53,306 33,816 3,734
Expense (benefit) of deferred items
not previously recognized ....................... - - (7,914)
Other ............................................. - 3,645 557
-------- -------- --------
$ 3,000 $ 36,550 $ 18,728
======== ======== ========
</TABLE>
Net income taxes refunded in 1998, 1997 and 1996, amounted to $3,103,000,
$26,426,000 and $963,000, respectively.
NOTE 9 - PER SHARE AMOUNTS
The following table sets forth the computation of basic and diluted per
share amounts:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
(in thousands, except per share data)
Numerator:
<S> <C> <C> <C>
(Loss) income before extraordinary charge ...... $(207,938) $(272,608) $33,300
Numerator for basic per share amounts - (loss)
income attributable to common stockholders .. $(207,938) $(272,608) $33,300
Numerator for diluted per share amounts - (loss)
income attributable to common stockholders .. $(207,938) $(272,608) $33,300
Denominator:
Denominator for basic per share
amounts - weighted average shares ........... 51,732 51,419 50,811
Effect of dilutive securities:
Employee stock options ...................... - - 1,371
--------- --------- -------
Dilutive potential common shares ............ - - 1,371
--------- --------- -------
Denominator for diluted per share amounts -
adjusted weighted average shares ........... 51,732 51,419 52,182
========= ========= =======
Basic (loss) income per share amounts ............. $ (4.02) $ (5.30) $ 0.66
========= ========= =======
Diluted (loss) income per share amounts ........... $ (4.02) $ (5.30) $ 0.64
========= ========= =======
Employee stock options excluded from the
computation of diluted per share amounts:
Exercise price exceeds average market
price of common stock .................... 5,433 1,814 44
Other ....................................... 63 468 -
--------- --------- -------
5,496 2,282 44
========= ========= =======
Average exercise price per share that exceeds
average market price of common stock ........... $ 10.74 $ 20.13 $ 27.18
========= ========= =======
</TABLE>
Because net losses were incurred in 1998 and 1997, the impact of options is
antidilutive in those years and there is no difference between basic and diluted
per share amounts.
For additional disclosure regarding employee stock options, see Note 6.
NOTE 10 -- LEASES
Apria operates principally in leased offices and warehouse facilities. In
addition, delivery vehicles and office equipment are leased. Lease terms range
from one to ten years with renewal options for additional periods. Many leases
provide that the company pay taxes, maintenance, insurance and other expenses.
Rentals are generally increased annually by the Consumer Price Index subject to
certain maximum amounts defined within individual agreements.
Apria occasionally subleases unused facility space when a lease buyout is
not a viable option. Sublease income, in amounts not considered material, is
recognized monthly and is offset against facility lease expense. Net rent
expense in 1998, 1997 and 1996 amounted to $57,670,000, $52,802,000 and
$46,493,000, respectively.
In addition, during 1998, 1997 and 1996, Apria acquired patient service
equipment, information systems and equipment and furnishings totaling $263,000,
$7,235,000 and $12,021,000, respectively, under capital lease arrangements with
lease terms ranging from two to five years. Amortization of the leased patient
service equipment, information systems and equipment and furnishings amounted to
$9,562,000, $8,578,000 and $9,314,000 in 1998, 1997 and 1996, respectively.
The following amounts for assets under capital lease obligations are
included in both the patient service equipment and property, equipment and
improvements:
December 31,
------------
1998 1997
---- ----
(in thousands)
Patient service equipment........................ $ - $ 1,930
Information systems ............................. 33,306 33,901
Equipment and furnishings ....................... - 3,648
-------- --------
33,306 39,479
Less accumulated depreciation ................... (26,044) (21,210)
-------- --------
$ 7,262 $ 18,269
======== ========
Future minimum payments, by year and in the aggregate, required under
noncancellable operating leases and capital lease obligations consist of the
following at December 31, 1998:
Capital Operating
Leases Leases
------ ------
(in thousands)
1999......................................... $ 5,814 $ 43,377
2000......................................... 2,760 36,033
2001......................................... 4 28,490
2002......................................... - 19,614
2003......................................... - 11,770
Thereafter................................... - 23,458
-------- ---------
8,578 $162,742
Less interest included in
minimum lease payments..................... (382)
--------
Present value of minimum lease payments...... 8,196
Less current portion......................... (5,501)
--------
$ 2,695
========
NOTE 11 -- EMPLOYEE BENEFIT PLANS
Apria has a 401(k) defined contribution plan, whereby eligible employees
may contribute up to 16% of their annual basic earnings. The company matches 50%
of the first 8% of employee contributions. Total expenses related to the defined
contribution plan were $3,539,000, $3,791,000 and $4,370,000 in 1998, 1997 and
1996, respectively.
Apria had a defined benefit pension plan, covering substantially all former
Abbey employees, which was terminated in 1995. In connection with the
termination, Apria recognized costs of $3,300,000 in 1996. All benefits were
distributed to participants in 1997.
NOTE 12 -- COMMITMENTS AND CONTINGENCIES
Litigation: Apria is engaged in the defense of certain claims and lawsuits
arising out of the ordinary course and conduct of its business, the outcome of
which are not determinable at this time. In the opinion of management, any
liability that might be incurred by the company upon the resolution of these
claims and lawsuits will not, in the aggregate, have a material adverse effect
on Apria's consolidated results of operations and financial position. In 1998,
1997 and 1996, certain claims and lawsuits were settled and the company paid
amounts, including the cost of defense, totaling approximately $2,125,000,
$3,277,000 and $16,619,000, respectively. Charges to income of $6,590,000,
$2,760,000 and $11,533,000 were taken in 1998, 1997 and 1996, respectively, to
provide for probable losses related to matters arising in each period and to
revise estimates for matters arising in previous periods. Management is unable
to estimate the range of possible loss for all other claims and lawsuits.
Apria and certain of its present and former officers and/or directors are
defendants in a class action lawsuit, In Re Apria Healthcare Group Securities
Litigation, filed in the U.S. District Court for the Central District of
California, Southern Division (Case No. SACV98-217 GLT). This case is a
consolidation of three similar class actions filed in March and April, 1998.
Pursuant to a court order dated May 27, 1998, the plaintiffs in the original
three class actions filed a Consolidated Amended Class Action Complaint on
August 6, 1998. The amended complaint purports to establish a class of plaintiff
shareholders who purchased Apria's common stock between May 22, 1995 and January
20, 1998. No class has been certified at this time. The amended complaint
alleges, among other things, that the defendants made false and/or misleading
public statements regarding Apria and its financial condition in violation of
federal securities laws. The amended complaint seeks compensatory and punitive
damages as well as other relief.
Two similar class actions were filed during July 1998 in Superior Court of
California for the County of Orange: Schall v. Apria Healthcare Group Inc., et
al. (Case No. 797060) and Thompson v. Apria Healthcare Group Inc., et al. (Case
No. 797580). These two actions were consolidated by a court order dated October
22, 1998. The parties have agreed that a new and first amended complaint will be
filed. Apria anticipates that allegations similar to those asserted in the
amended complaint in the federal action will be asserted in the consolidated
state action, although the claims will be founded on state law, as opposed to
federal law.
Apria believes that it has meritorious defenses to the plaintiffs' claims,
and it intends to vigorously defend itself in both the federal and state cases.
In the opinion of Apria's management, the ultimate disposition of these class
actions will not have a material adverse effect on the company's financial
condition or results of operations.
Purchase commitments: On September 1, 1994, Apria entered into a five-year
agreement, which was subsequently amended in June 1996, to purchase medical
supplies totaling $132,000,000, with annual purchases ranging from $7,500,000 in
the first year to $36,500,000 in the third through fifth years. Failure to
purchase at least 90% of the annual commitment would result in a penalty of 10%
of the difference between the annual commitment and the actual purchases,
beginning with the 12-month period ended August 31, 1996. In late 1997,
management made the strategic decision to exit the low-margin medical supply
business and has been working with the vendor to restructure the agreement. In
the interim, the company continues to purchase needed medical supplies from this
vendor, subject to the pricing established under the old agreement. The company
failed to meet the minimum purchase commitment for the 12-month period ended
August 31, 1998, and, consequently, incurred a liability for penalties of
$1,180,000 on the purchase shortfall.
Certain Concentrations: Approximately 59% of Apria's revenues are derived
from the provision of respiratory therapy services, a significant portion of
which is reimbursed under the federal Medicare program. Effective January 1,
1998, reimbursement for home oxygen services was reduced by 25% with an
additional 5% reduction in 1999 and subsequent years. Apria's management
estimates the impact of the additional 5% reduction on 1999 revenues to be
approximately $11,000,000. Also effective January 1, 1998, Consumer Price
Index-based reimbursement increases on home medical equipment were frozen until
2002.
Apria currently purchases approximately 40% of its patient service
equipment and supplies from four suppliers. Although there are a limited number
of suppliers, management believes that other suppliers could provide similar
products on comparable terms. However, a change in suppliers could cause delays
in service delivery and possible losses in revenue which could adversely affect
operating results.
Other: Since June 1998, Apria has received a total of nine subpoenas from
the U.S. Attorneys' offices in Sacramento and San Diego, California, requesting
documents related to the company's billing practices. The documents requested
include those located at Apria's corporate headquarters in Costa Mesa,
California, and offices in San Diego and Sacramento, California, and Canonsburg,
Pennsylvania. Apria has substantially completed the process of complying with
the subpoenas.
Apria has experienced problems as a result of errors and deficiencies in
supporting documentation affecting a portion of its billings, including billings
under the Medicare and Medicaid programs. If the U.S. Department of Justice were
to conclude that such errors and deficiencies constituted criminal violations,
or were to conclude that such errors and deficiencies resulted in the submission
of false claims to federal healthcare programs, Apria could face criminal
charges and/or civil claims, administrative sanctions and penalties for amounts
that would be highly material to its business, results of operations and
financial condition, including exclusion of Apria from participation in federal
healthcare programs. Such amounts could include claims for treble damages and
penalties of up to $10,000 per false claim submitted by Apria to a federal
healthcare program. It is the company's position that the assertion of criminal
charges or the assertion of any such claims would be unwarranted. If such
charges or claims were asserted, Apria believes that it would be in a position
to assert numerous defenses. However, no assurance can be provided as to the
outcome of any such possible proceedings.
Presently, Apria is unaware of what claims or proceedings, if any, the
government may be contemplating with respect to these subpoenas.
As disclosed in a Registration Statement on Form S-3 (Registration No.
333-68031) filed with the Securities and Exchange Commission on November 25,
1998 in connection with a proposed offering of 10% convertible subordinated
debentures, the company entered into a Standby Purchase Agreement with
Relational Investors, LLC. Under the Standby Purchase Agreement, in the event
the proposed debenture offering is consummated, Relational Investors, LLC will
receive from Apria a $1,000,000 standby fee as well as reimbursement for all
costs and expenses (including legal fees) incurred in connection with the
proposed offering.
NOTE 13 - SERVICE/PRODUCT LINE DATA
The following table sets forth a summary of net revenues by service line:
Year Ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
(in thousands)
Respiratory ................ $552,725 $ 605,387 $ 594,362
Infusion therapy ........... 211,176 281,178 293,321
HME/Other .................. 169,892 294,129 293,460
-------- ---------- ----------
Total net revenues $933,793 $1,180,694 $1,181,143
======== ========== ==========
NOTE 14 -- SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
QUARTER
-------
First Second Third Fourth
----- ------ ----- ------
(in thousands, except per share data)
1998
Net revenues ................ $250,538 $240,627 $ 219,367 $ 223,261
Gross profit ................ 164,680 159,830 122,371 156,217
Operating income (loss) ..... 5,375 3,109 (180,378) 13,872
Net (loss) income ........... $ (6,607) $ (8,956) $(194,701) $ 2,326
Net (loss) income per share . $ (0.13) $ (0.17) $ (3.76) $ 0.04
Net (loss) income per share -
assuming dilution ....... $ (0.13) $ (0.17) $ (3.76) $ 0.04
1997
Net revenues ................ $313,863 $295,735 $ 304,356 $ 266,740
Gross profit ................ 209,184 167,272 199,706 153,350
Operating income (loss) ..... 41,910 (57,144) 28,474 (198,905)
Net income (loss) ........... $ 19,240 $(69,876) $ 16,186 $(238,158)
Net income (loss) per share . $ 0.38 $ (1.36) $ 0.31 $ (4.62)
Net income (loss) per share -
assuming dilution ....... $ 0.37 $ (1.36) $ 0.31 $ (4.62)
Third Quarter - 1998: The operating results for the third quarter of 1998
include adjustments to reduce revenue and accounts receivable by $14,642,000 and
to increase bad debt expense and the allowance for doubtful accounts by
$12,065,000. During the third quarter of 1998, a new management team reviewed
the effect of certain procedural initiatives and system enhancements introduced
earlier in the year to improve billing procedures and reduce write-offs.
Although cash collections in excess of trailing revenues were strong, write-offs
increased from the second quarter. Also, specific payor reviews indicated that
collectibility of certain receivables was in question, particularly those aged
in excess of 180 days. Based upon these reviews, a definitive change in
collection strategy was implemented which shifted the focus from efforts to
collect aged accounts receivable to the more current outstanding amounts.
Management believes a concerted effort that focuses on current accounts will
better utilize the company's resources to collect the receivables before they
age, when they undoubtedly become more difficult to collect. As a result of this
change in collection procedure and policy, management increased its allowance
for account balances over 180 days. The adjustment to revenue represents the
estimated amount of accounts receivable that will ultimately be written off due
to reasons unrelated to credit risk. Also recorded was a provision for specific
accounts identified as uncollectible totaling $1,529,000 and an increase to the
allowance for doubtful accounts related to the infusion sale and the exited
businesses totaling $9,128,000.
During the third quarter of 1998, Apria sold its infusion business in
California and exited the infusion business in certain geographic markets.
Charges of $7,263,000 related to the wind-down of unprofitable infusion
operations were recorded in addition to a $3,798,000 loss on sale of the
California business.
One of the actions taken as part of management's new strategic direction
was the termination of the project to implement an enterprise resource planning
(ERP) system. Accordingly, Apria wrote-off related software and other
capitalized costs of $7,548,000 in the third quarter of 1998. As part of the
decision to terminate the ERP project, management evaluated its current systems
to determine their long-term viability in the context of the company's new
overall strategic direction. It was determined that the company was at some risk
in continuing to run the infusion billing system on its current platform which
is no longer supported by the computer industry. To mitigate this risk, the
company is currently converting the infusion system to the IBM/AS400 operating
platform on which the respiratory/home medical equipment system currently
operates. Apria is also proceeding with a number of enhancements to the systems
which renders certain previously-developed modules obsolete. Additionally,
pharmacy and branch consolidations and closures rendered a variety of computer
equipment obsolete. Due to its age and technological obsolescence, it was deemed
to have no future value. As a result of these actions, Apria recorded an
impairment charge of $11,843,000 at September 30, 1998.
Based on management's third quarter evaluation of the carrying value of
intangible assets, an impairment charge of $76,223,000 was recorded. The charge
reduced the carrying value of the company's intangible assets to reflect
management's estimate of fair value. Also included in the impairment charge is
the write-off of $4,771,000 in intangible assets primarily associated with the
exit of the infusion business in certain areas (see Note 4).
In the third quarter of 1998, Apria also recorded charges totaling
$3,939,000 for severance and other employee costs, $5,400,000 to settle issues
related to several procurement contracts, $3,476,000 to provide for estimated
oxygen cylinder losses, $2,841,000 to write-off obsolete inventory and patient
service equipment and $2,068,000 for lease liability due to facility
consolidation activities.
Fourth Quarter - 1997: The operating results for the fourth quarter of 1997
included adjustments to reduce revenue and accounts receivable by $20,000,000
and to increase bad debt expense and the allowance for doubtful accounts by
$6,423,000. The adjustment to revenue represented the estimated amount of
year-end accounts receivable that would be written off due to reasons unrelated
to credit risk. Both adjustments resulted primarily from refinements to the
company's estimation procedures which were made as a result of management's
year-end analysis of accounts receivable. Specifically, tests of subsequent
realization and reviews of patient billing files at selected billing locations
indicated the need to increase the percentages reserved for certain categories
of aged accounts receivable. Additionally, payor-specific reviews were performed
and allowances estimated for certain managed care payors that were showing an
increasing tendency to accumulate large patient balances.
An adjustment of $20,225,000 was recorded in the fourth quarter of 1997 to
write down the carrying value of internally-developed software resulting from
management's decision to replace the company's internally-developed field
information system. In connection with management's evaluation of the company's
internally-developed software, a review was conducted of the company's computer
hardware, including telecommunications equipment. Equipment with a carrying
value of $6,556,000 was identified as functionally obsolete or no longer in use
and was written off (see Note 3).
Based on management's year-end evaluation of the carrying value and
amortization periods of intangible assets, an impairment charge of $133,542,000
was recorded in the fourth quarter of 1997 to reduce the carrying value of
recorded goodwill to management's estimate of fair value (see Note 4).
The fourth quarter of 1997 also includes a $10,100,000 adjustment for
additional shortages of patient service equipment and inventory based on
supplemental physical inventory procedures performed at a sampling of branches
in the fourth quarter. The procedure indicated continuing inventory and patient
service equipment shortages, therefore management estimated and recorded an
increase to the related reserves. In addition, management's fourth quarter
decision to terminate approximately 524 employees resulted in a year-end
severance accrual of $6,000,000. Other fourth quarter charges included a
$2,151,000 accrual of incentive compensation, related to fourth quarter
initiatives, a $2,298,000 accrual of costs associated with the closure of
certain facilities and the company's ApriaDirect Clinical program, a $2,000,000
accrual of interest on a tax settlement and certain excise taxes and other
miscellaneous accruals of $1,250,000.
Apria also recorded an adjustment to increase its valuation allowance for
net deferred tax assets due to recurring tax losses and management's reduced
expectations for 1998 (see Note 8).
Second Quarter - 1997: The second quarter of 1997 included adjustments to
reduce revenue and accounts receivable by $20,000,000 and to increase bad debt
expense and the allowance for doubtful accounts by $55,000,000. The adjustments
resulted from the lack of improvement in both the aging of accounts receivable
and the length of collection periods. Management expected the impact of 1996
computer system conversions and the high turnover rate among billing and
collection personnel to be substantially reversed by the middle of 1997.
However, the dollar amount and percentage of accounts aged over 180 days at May
31, 1997 remained comparable to the December 31, 1996 amount and percentage, and
days sales outstanding decreased by only five days. Additionally, Apria had just
changed its business strategy to review its managed care contracts and exit
those not meeting profitability standards and to exit unprofitable service lines
such as supplies and nursing that were attractive to many managed care
customers. These strategies put Apria's relationship with certain of its managed
care customers in jeopardy, which when coupled with the company's poor
experience in collecting receivables with managed care payors, heightened
management's concerns. Due to the managed care issues and the failure to realize
the expected increases in collections and improvement in the aging, management
increased its allowance estimate for accounts aged over 180 days to provide for
write-offs of older accounts expected to be taken in the ensuing months. The bad
debt adjustment also provided for an increased allowance estimate for accounts
aged less than 180 days, necessitated by billing and collection difficulties
that continued into early 1997. The provision for revenue adjustments
represented management's estimate of accounts originated in 1997 that would
ultimately be written off for reasons unrelated to credit. The adjustment was
necessitated by the continuing incidence of billing problems and long collection
periods which caused increased levels of unidentified revenue adjustments to
accumulate in accounts receivable.
The second quarter of 1997 also included a $23,000,000 adjustment to
provide for shortages in patient service equipment and inventory. The amount was
estimated based on the preliminary results of asset verification and physical
inventory procedures performed in the second quarter. The adjustment was
sufficient to cover actual write-offs resulting from the third quarter
completion of the company's asset verification and physical inventory
procedures. The shortages were primarily due to untimely inventory relief
processes that were among the residual effects of the 1995 and 1996 system
conversions and related high employee turnover.
<PAGE>
<TABLE>
APRIA HEALTHCARE GROUP INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<CAPTION>
Additions
------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
of Period Expenses Accounts Deductions Period
--------- -------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998
- ----------------------------
Deducted from asset accounts:
Allowance for revenue adjustments .............. $ 38,058 $ - $ 18,302 (b) $ 17,960 $ 38,400
Allowance for doubtful accounts ................ 58,413 75,319 71 (a) 98,239 35,564
Reserve for inventory shortages ................ 6,373 8,598 (2,000)(c) 5,311 7,660
Reserve for patient service
equipment shortages .......................... 3,900 14,707 2,000 (c) 12,470 8,137
-------- -------- -------- -------- --------
Totals .......................... $106,744 $ 98,624 $ 18,373 $133,980 $ 89,761
======== ======== ======== ======== ========
Year ended December 31, 1997
- ----------------------------
Deducted from asset accounts:
Allowance for revenue adjustments .............. $ 32,300 $ - $ 40,000 (b) $ 34,242 $ 38,058
Allowance for doubtful accounts ................ 73,809 121,908 1,697 (a) 139,001 58,413
Reserve for inventory shortages ................ 1,825 26,716 - 22,168 6,373
Reserve for patient service
equipment shortages .......................... 4,812 8,584 - 9,496 3,900
-------- -------- -------- -------- --------
Totals .......................... $112,746 $157,208 $ 41,697 $204,907 $106,744
======== ======== ======== ======== ========
Year ended December 31, 1996
- ----------------------------
Deducted from asset accounts:
Allowance for revenue adjustments .............. $ - $ - $ 32,300 (b) $ - $ 32,300
Allowance for doubtful accounts ................ 86,567 67,040 608 (a) 80,406 73,809
Reserve for inventory shortages ................ 5,754 3,013 - 6,942 1,825
Reserve for patient service
equipment shortages .......................... 11,860 7,500 - 14,548 4,812
-------- -------- -------- -------- --------
Totals .......................... $104,181 $ 77,553 $ 32,908 $101,896 $112,746
======== ======== ======== ======== ========
</TABLE>
(a) Includes amounts added in conjunction with business acquisitions.
(b) Amount charged against net revenues. See Note 12 to the Consolidated
Financial Statements.
(c) Transfers between reserves.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: April 5, 1999
APRIA HEALTHCARE GROUP INC.
By: /s/ PHILIP L. CARTER
------------------------------
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ PHILIP L. CARTER
- -----------------------
Philip L. Carter Chief Executive Officer April 5, 1999
/s/ JOHN C. MANEY
- -----------------------
John C. Maney Executive Vice President and April 5, 1999
Chief Financial Officer
(Principal Financial Officer)
/s/ JAMES E. BAKER
- -----------------------
James E. Baker Vice President, Controller April 5, 1999
(Principal Accounting Officer)
/s/ RALPH V. WHITWORTH
- -----------------------
Ralph V. Whitworth Director, Chairman of the Board April 5, 1999
/s/ DAVID H. BATCHELDER
- -----------------------
David H. Batchelder Director April 5, 1999
/s/ DAVID L. GOLDSMITH
- -----------------------
David L. Goldsmith Director April 5, 1999
/s/ LEONARD GREEN
- -----------------------
Leonard Green Director April 5, 1999
/s/ RICHARD H. KOPPES
- -----------------------
Richard H. Koppes Director April 5, 1999
/s/ PHILIP R. LOCHNER
- -----------------------
Philip R. Lochner Director April 5, 1999
/s/ BEVERLY B. THOMAS
- -----------------------
Beverly B. Thomas Director April 5, 1999
/s/ H.J. MARK TOMPKINS
- -----------------------
H.J. Mark Tompkins Director April 5, 1999
<PAGE>
<TABLE>
EXHIBIT INDEX
<CAPTION>
Exhibit
Number Description Page/Ref.
- ------ ----------- ---------
<S> <C> <C>
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 May 5, 1998. (u)
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.
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 Registrant, Norwest
Bank Minnesota, N.A. and U.S. Stock Transfer Corporation. (p)
10.1 1991 Stock Option Plan. (a)
10.2 Schedule of Registration Procedures and Related Matters. (c)
10.3 401(k) Savings Plan, restated effective October 1, 1993, amended December 28, 1994. (k)
10.4 Stock Incentive Plan, dated June 28, 1995. (g)
10.5 Amended and Restated 1992 Stock Incentive Plan. (k)
10.6 Amendment Number Two to the 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, (l)
California.
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 (j)
24, 1995.
10.9 First Amendment to Complete Restatement of Lease Amendments and Amendment to Building Lease, dated 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 Registrant. (n)
10.11 Amendment Number Three to the 401(k) Savings Plan, dated January 1, 1996. (l)
10.12 Amendment 1996-1 to the 1991 Stock Option Plan, dated October 28, 1996.
10.13 Amendment 1996-1 to the Amended and Restated 1992 Stock Incentive Plan, dated October 28, 1996.
10.14 Executive Severance Agreement dated June 28, 1997 between Registrant and James E. Baker.
10.15 Executive Severance Agreement dated June 28, 1997, between Registrant and Lisa M. Getson. (o)
10.16 Executive Severance Agreement dated June 28, 1997, between Registrant and Robert S. Holcombe. (o)
10.17 Executive Severance Agreement dated June 28, 1997, between Registrant and Lawrence Mastrovich.
10.18 Executive Severance Agreement dated June 28, 1997, between Registrant and George J. Suda.
10.19 Executive Severance Agreement dated June 28, 1997, between Registrant and Dennis E. Walsh. (o)
10.20 Resignation and General Release Agreement dated January 19, 1998, between Registrant and Jeremy M.
Jones. (s)
10.21 Security Agreement dated March 13, 1998, between Registrant, Apria Healthcare, Inc., and certain of its
subsidiaries and Bank of America National Trust & Savings Association. (s)
10.22 First Amendment to Security Agreement dated April 15, 1998, among Registrant and certain of its
subsidiaries, Bank of America National Trust & Savings Association, NationsBank of Texas, N.A. and
other financial institutions party to the Credit Agreement. (s)
10.23 Employment Agreement dated May 5, 1998, between Registrant and Philip L. Carter. (u)
10.24 Non-qualified Stock Option Agreement dated May 5, 1998, between Registrant and Philip L. Carter.
10.25 Amended and Restated 1997 Stock Incentive Plan, dated February 27, 1997, as amended through June 30, 1998.
10.26 Employment Agreement dated October 19, 1998, between Registrant and John C. Maney.
10.27 Standby Purchase Agreement dated November 3, 1998, between Registrant and Relational Investors, LLC, on
behalf of the entities named therein. (v)
10.28 Registration Rights Agreement dated November 3, 1998, between Registrant and Relational Investors, LLC,
on behalf of the entities named therein. (v)
10.29 Amended and Restated Credit Agreement dated November 13, 1998, between Registrant and certain of its
subsidiaries and Bank of America National Trust and Savings Association, and other financial
institutions party to the Credit Agreement. (v)
10.30 Amended and Restated Guaranty dated November 13, 1998, made by various Guarantors defined therein in
favor of Bank of America National Trust and Savings Association.
10.31 Second Amendment to Security Agreement dated November 13, 1998, among Registrant and certain of its
subsidiaries and Bank of America National Trust and Savings Association and other financial institutions
party to the Credit Agreement.
10.32 1998 Non-qualified Stock Incentive Plan, dated December 15, 1998.
10.33 Amendment to Employment Agreement dated January 1, 1999, between Registrant and Philip L. Carter.
10.34 First Amendment to Amended and Restated Credit Agreement and Consent dated January 15, 1999, among
Registrant and certain of its subsidiaries, Bank of America National Trust and Savings Association and
other financial institutions party to the Credit Agreement.
10.35 Second Amendment to Amended and Restated Credit Agreement dated February 23, 1999, among Registrant and
certain of its subsidiaries, Bank of America National Trust and Savings Association and other financial
institutions party to the Credit Agreement.
10.36 Amended and Restated Executive Severance Agreement dated February 26, 1999, between Registrant and Frank
Bianchi.
10.37 Amended and Restated Executive Severance Agreement dated February 26, 1999, between Registrant and
Michael R. Dobbs.
10.38 Amended and Restated Employment Agreement dated February 26, 1999, between Registrant and Lawrence M.
Higby.
16.1 Letter dated July 8, 1998 from Ernst & Young, LLP addressed to the Securities and Exchange Commission. (t)
21.1 List of Subsidiaries.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Deloitte & Touche LLP, Independent Auditors.
27.1 Financial Data Schedule.
</TABLE>
REFERENCES -- DOCUMENTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
(a) Incorporated by reference to Registration Statement on Form S-1
(Registration No. 33-44690), as filed on December 23, 1991.
(b) Incorporated by reference to Registration Statement on Form S-1
(Registration No. 33-69078), as filed on September 17, 1993.
(c) Incorporated by reference to Registration Statement on Form S-4
(Registration No. 33-69094), as filed on September 17, 1993.
(d) Incorporated by reference to Annual Report on Form 10-K for the year ended
January 1, 1994.
(e) Incorporated by reference to Current Report on Form 8-K, as filed on March
20, 1995.
(f) Incorporated by reference to Registration Statement on Form S-4
(Registration No. 33-90658), and its appendices, as filed on March 27,
1995.
(g) Incorporated by reference to Registration Statement on Form S-8
(Registration No. 33-94026), as filed on June 28, 1995.
(h) Incorporated by reference to final joint proxy statement/prospectus as
filed pursuant to Rule 424(b) on May 26, 1995.
(i) Incorporated by reference to Quarterly Report on Form 10-Q dated June 30,
1995, as filed on August 14, 1995.
(j) Incorporated by reference to Quarterly Report on Form 10-Q dated September
30, 1995, as filed on November 14, 1995.
(k) Incorporated by reference to Registration Statement on Form S-8
(Registration No. 33-80581), as filed on December 19, 1995.
(l) Incorporated by reference to Annual Report on Form 10-K for the year ended
December 31, 1995.
(m) Incorporated by reference to 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 Annual Report on Form 10-K for the year ended
December 31, 1996.
(o) Incorporated by reference to Quarterly Report on Form 10-Q dated June 30,
1997, as filed on August 14, 1997.
(p) Incorporated by reference to Registration Statement on Form 8-A/A as filed
on July 10, 1997.
(q) Incorporated by reference to Quarterly Report on Form 10-Q dated September
30, 1997, as filed on November 14, 1997.
(r) Incorporated by reference to Registration Statement on Form S-8
(Registration No. 333-42775), as filed on December 19, 1997.
(s) Incorporated by reference to Annual Report on Form 10-K for the year ended
December 31, 1997.
(t) Incorporated by reference to Current Report on Form 8-K, as filed on July
6, 1998.
(u) Incorporated by reference to Quarterly Report on Form 10-Q dated June 30,
1998, as filed on August 14, 1998.
(v) Incorporated by reference to Quarterly Report on Form 10-Q dated September
30, 1998, as filed on November 16, 1998.
COPIES OF EXHIBITS
Copies of exhibits will be provided upon written request and payment of a fee of
$.25 per page plus postage. The written request should be directed to the
Financial Reporting Department (Attn: Ms. Donna Draper), at the address of the
company set forth on the first page of this Form 10-K.
EXHIBIT 10.12
AMENDMENT 1996-1
APRIA HEALTHCARE GROUP INC.
1991 NONQUALIFIED STOCK OPTION PLAN
WHEREAS, Apria Healthcare Group Inc. (the "Company") maintains the Apria
Healthcare Group Inc. 1991 Nonqualified Stock Option Plan (the "Plan); and
WHEREAS, the Company has the right to amend the Plan, and the Company
desires to amend the Plan to reflect recent resolutions adopted by the Board of
Directors;
NOW, THEREFORE, the Plan is hereby amended, effective as of October 28,
1996, as follows:
1. The first paragraph of Section 4 of the Plan is amended to read as
follows:
"Section 4. Administration. This Plan shall be administered by the
Board or the Compensation Committee appointed by the Board, which
Compensation Committee shall be comprised only of two or more directors or
such greater number of directors as may be required under applicable law,
each of whom (i) in respect of any decision at a time when the participant
affected by the decision may be subject to Section 162(m) of the Code shall
be an "outside director" within the meaning of Treasury Regulations issued
under Code Section 162(m), and/or (ii) in respect of any decision at a time
when the participant may be subject to Section 16 under the Securities
Exchange Act of 1934 (the "Exchange Act"), shall be a "non-employee
director" within the meaning of Rule 16b-3(b)(3) promulgated under the
Exchange Act. The Board or the Compensation Committee, when acting as
administrator of this Plan, shall hereinafter be referred to as the
'Administrative Committee'."
2. The following Section 25 is hereby added to the Plan:
"Section 25. Plan Construction.
(a) Rule 16b-3. It is the intent of the Company that transactions in
and affecting Options in the case of participants who are or may be subject
to Section 16 of the Exchange Act satisfy any then applicable requirements
of Rule 16b-3 so that such persons will be entitled to the benefits of Rule
16b-3 or other exemptive rules under Section 16 of the Exchange Act in
respect of these transactions and will not be subjected to avoidable
liability thereunder. If any provision of this Plan or of any Option would
otherwise frustrate or conflict with the intent expressed above, that
provision to the extent possible shall be interpreted and deemed amended so
as to avoid such conflict, but to the extent of any remaining
irreconcilable conflict with such intent as to such persons in the
circumstances, such provision shall be deemed void.
(b) Section 162(m). It is the further intent of the Company that
Options with an exercise price not less than Fair Market Value on the date
of grant that are granted to a participant who is subject to Section 16
under the Exchange Act shall qualify as performance-based compensation
under Section 162(m) of the Code, and this Plan shall be interpreted
consistent with such intent."
IN WITNESS WHEREOF, the Company has caused its duly authorized officer to
execute this Amendment to the Plan on this ___ day of ___________, 1996.
APRIA HEALTHCARE GROUP INC.
By: ______________________________
Its: _________________________
EXHIBIT 10.13
AMENDMENT 1996-1
APRIA HEALTHCARE GROUP INC.
AMENDED AND RESTATED
1992 STOCK INCENTIVE PLAN
WHEREAS, Apria Healthcare Group Inc. (the "Company") maintains the Apria
Healthcare Group Inc. Amended and Restated 1992 Stock Incentive Plan (the
"Plan); and
WHEREAS, the Company has the right to amend the Plan, and the Company
desires to amend the Plan to reflect recent resolutions adopted by the Board of
Directors;
NOW, THEREFORE, the Plan is hereby amended, effective as of October 28,
1996, as follows:
1. Subsection IV(a) of the Plan is amended to read as follows:
"(a) Composition of Committee. This Plan shall be administered by the
Board or the Compensation Committee appointed by the Board, which
Compensation Committee shall be comprised only of two or more directors or
such greater number of directors as may be required under applicable law,
each of whom (i) in respect of any decision at a time when the participant
affected by the decision may be subject to Section 162(m) of the Code shall
be an "outside director" within the meaning of Treasury Regulations issued
under Code Section 162(m), and/or (ii) in respect of any decision at a time
when the participant may be subject to Section 16 under the Exchange Act,
shall be a "non-employee director" within the meaning of Rule 16b-3(b)(3)
promulgated under the Exchange Act."
2. Subsection XV(f) of the Plan is amended in its entirety to read as
follows:
"(f) Plan Construction.
(1) Rule 16b-3. It is the intent of the Company that transactions in
and affecting Options in the case of participants who are or may be subject
to Section 16 of the Exchange Act satisfy any then applicable requirements
of Rule 16b-3 so that such persons will be entitled to the benefits of Rule
16b-3 or other exemptive rules under Section 16 of the Exchange Act in
respect of these transactions and will not be subjected to avoidable
liability thereunder. If any provision of this Plan or of any Option would
otherwise frustrate or conflict with the intent expressed above, that
provision to the extent possible shall be interpreted and deemed amended so
as to avoid such conflict, but to the extent of any remaining
irreconcilable conflict with such intent as to such persons in the
circumstances, such provision shall be deemed void.
(2) Section 162(m). It is the further intent of the Company that
Options with an exercise price not less than Fair Market Value on the date
of grant that are granted to a participant who is subject to Section 16
under the Exchange Act shall qualify as performance-based compensation
under Section 162(m) of the Code, and this Plan shall be interpreted
consistent with such intent."
IN WITNESS WHEREOF, the Company has caused its duly authorized officer to
execute this Amendment to the Plan on this ___ day of ___________, 1996.
APRIA HEALTHCARE GROUP INC.
By: _________________________
Its: _________________________
EXHIBIT 10.14
EXECUTIVE SEVERANCE AGREEMENT
This Executive Severance Agreement (this "Agreement") is made as of this
28th day of June, 1997, between Apria Healthcare Group Inc., a Delaware
corporation (the "Company"), and James E. Baker (the "Executive").
RECITALS
A. It is the desire of the Company to retain the services of the Executive
and to recognize the Executive's contribution to the Company.
B. The Company and the Executive wish to set forth certain terms and
conditions of Executive's employment.
C. The Company wishes to provide to the Executive certain benefits in the
event that his employment is terminated by the Company without cause or in the
event that he terminates employment for Good Reason (as defined below), in order
to encourage the Executive's performance and continued commitment to the
Company.
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements set forth below, the parties hereto agree as follows:
1. Positions and Duties. The Executive shall serve in such positions and
undertake such duties and have such authority as the Company, through its Chief
Executive Officer, President or Board of Directors, shall assign to the
Executive from time to time in the Company's sole and absolute discretion. The
Company has the right to change the nature, amount or level of authority and
responsibility assigned to the Executive at any time, with or without cause. The
Company may also change the title or titles assigned to the Executive at any
time, with or without cause. The Executive agrees to devote substantially all of
his working time and efforts to the business and affairs of the Company. The
Executive further agrees that he shall not undertake any outside activities
which create a conflict of interest with his duties to the Company, or which, in
the judgment of the Board of Directors of the Company, interfere with the
performance of the Executive's duties to the Company.
2. Compensation and Benefits.
(a) Salary. The Executive's salary shall be such salary as the
Company assigns to him from time to time in accordance with its
regular practices and policies. The parties to this Agreement
recognize that the Company may, in its sole discretion, increase such
salary at any time.
(b) Bonuses. The Executive's eligibility to receive any bonus
shall be determined in accordance with the Company's Incentive
Compensation Plan or other bonus plans as they shall be in effect from
time to time. The parties to this Agreement recognize that such bonus
plans may be amended and/or terminated by the Company at any time.
(c) Expenses. During the term of the Executive's employment, the
Executive shall be entitled to receive reimbursement for all
reasonable and customary expenses incurred by the Executive in
performing services for the Company in accordance with the Company's
reimbursement policies as they may be in effect from time to time. The
parties to this Agreement recognize that such policies may be amended
and/or terminated by the Company at any time.
(d) Other Benefits. The Executive shall be entitled to
participate in all employee benefit plans, programs and arrangements
of the Company (including, without limitation, stock option plans or
agreements and insurance, retirement and vacation plans, programs and
arrangements), in accordance with the terms of such plans, programs or
arrangements as they shall be in effect from time to time during the
period of the Executive's employment. The parties to this Agreement
recognize that the Company may terminate or modify such plans,
programs or arrangements at any time.
3. Grounds for Termination. The Executive's employment may be terminated on
any of the following grounds:
(a) Without Cause. The Executive or the Company may terminate the
Executive's employment at any time, without cause, by giving the other
party to this Agreement at least 30 days advance written notice of
such termination.
(b) Death. The Executive's employment hereunder shall terminate
upon his death.
(c) Disability. If, as a result of the Executive's incapacity due
to physical or mental illness, the Executive shall have been unable to
perform the essential functions of his position, even with reasonable
accommodation that does not impose an undue hardship on the Company,
on a full-time basis for the entire period of six (6) consecutive
months, and within thirty (30) days after written notice of
termination is given (which may occur before or after the end of such
six-month period), shall not have returned to the performance of his
duties hereunder on a full-time basis (a "disability"), the Company
may terminate the Executive's employment hereunder.
(d) Cause. The Company may terminate the Executive's employment
hereunder for cause. For purposes of this Agreement, "cause" shall
mean that the Company, acting in good faith based upon the information
then known to the Company, determines that the Executive has engaged
in or committed: willful misconduct; theft, fraud or other illegal
conduct; refusal or unwillingness to substantially perform his duties
(other than such failure resulting from the Executive's disability)
after written demand for substantial performance is delivered by the
Company that specifically identifies the manner in which the Company
believes the Executive has not substantially performed his duties;
insubordination; any willful act that is likely to and which does in
fact have the effect of injuring the reputation or business of the
Company; violation of any fiduciary duty; violation of the Executive's
duty of loyalty to the Company; or a breach of any term of this
Agreement. For purposes of this Section 3(d), no act, or failure to
act, on the Executive's part shall be considered willful unless done
or omitted to be done, by him not in good faith and without reasonable
belief that his action or omission was in the best interest of the
Company. Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for cause without delivery to the
Executive of a notice of termination signed by the Company's Chief
Executive Officer or President stating that, in the good faith opinion
of the officer signing such notice, the Executive has engaged in or
committed conduct of the nature described above in the second sentence
of this Section 3(d), and specifying the particulars thereof in
detail.
4. Payments upon Termination.
(a) Without Cause or with Good Reason. In the event that the
Executive's employment is terminated by the Company for any reason
other than death, disability or cause as defined in Section 3 (b), (c)
and (d) of this Agreement, or in the event that the Executive
terminates his employment hereunder with Good Reason, the Executive
shall be entitled to receive severance pay in an aggregate amount
equal to 100% of his Annual Compensation, provided, however, that in
the event such termination occurs during the two-year period following
a Change of Control of the Company, the Executive shall be entitled to
receive an aggregate amount equal to 200% of his Annual Compensation,
which shall be paid in periodic installments in accordance with the
Company's customary practice over a period of one (1) or two (2)
years, as applicable, less any amounts required to be withheld by
applicable law, in exchange for a valid release of all claims the
Executive may have against the Company in a form acceptable to the
Company. The Company will also pay to the Executive any earned but
unused vacation time at the rate of pay in effect on the date of the
notice of termination.
(b) Annual Compensation. For purposes of this Section 4, the term
"Annual Compensation" means an amount equal to the Executive's annual
base salary at the rate in effect on the date on which the Executive
received or gave written notice of his termination, plus the sum of
(i) an amount equal to the average of the Executive's two most recent
annual bonuses, if any, received under the Company's Incentive
Compensation Plan prior to the notice of termination, (ii) the
Executive's annual car allowance, if any, and (iii) an amount
determined by the Company from time to time in its sole discretion to
be equal to the average annual cost for Company employees of obtaining
medical, dental and vision insurance under COBRA, which amount is
hereby initially determined to be $5,000 for 1997. In the event that
the Executive's bonus for one of the two calendar years preceding the
calendar year in which the Executive receives or gives written notice
of termination was a prorated bonus due to Executive having worked a
partial year, solely for purposes of calculating Annual Compensation,
the Executive's prorated bonus will be recalculated to reflect the
bonus the Executive would have received had the Executive worked for
the entire year.
(c) Good Reason. For purposes of this Section 4 the term "Good
Reason" means:
(i) any reduction in the Executive's annual base salary,
except for a general one-time "across-the-board" salary
reduction not exceeding ten percent (10%) which is imposed
simultaneously on all officers of the Company;
or
(ii) the Company requires the Executive to be based at an
office location which will result in an increase of more
than thirty (30) miles in the Executive's one-way commute.
(d) Release of all Claims. The Executive understands and agrees
that the Company's obligation to pay the Executive severance pay under
this Agreement is subject to the Executive's execution of a valid
written waiver and release of all claims which the Executive may have
against the Company and/or its successors in a form acceptable to the
Company in its sole and absolute discretion.
(e) Death, Disability or Cause. In the event that the Executive's
employment is terminated due to death, disability or cause, the
Company shall not be obligated to pay the Executive any amount other
than earned unused vacation, reimbursement for business expenses
incurred prior to his termination and in compliance with the Company's
reimbursement policies, and any unpaid salary for days worked prior to
the termination.
(f) Change of Control. For purposes of this Section 4, a "Change
of Control" shall be deemed to have occurred if :
(i) any "person," as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "1934 Act") is, becomes or enters a contract to become,
the "beneficial owner", as such term is used in Rule 13d-3
promulgated under the 1934 Act, directly or indirectly, of
securities representing twenty-five percent (25%) or more of
the voting common stock of the Company;
(ii) all or substantially all of the business of the Company
is disposed of, or a contract is entered to dispose of all
of the business of the Company pursuant to a merger,
consolidation other transaction in which (a) the Company is
not the surviving company or (b) the stockholders of the
Company prior to the transaction do not continue to own at
least sixty percent (60%) of the surviving corporation;
(iii) the Company is materially or completely liquidated;
(iv) any person (other than the Company) purchases any
common stock of the Company in a tender or exchange offer
with the intent, expressed or implied, of purchasing or
otherwise acquiring control of the Company; or
(v) a majority of the Board of Directors of the Company is
replaced over a two (2) year period unless such replacements
have been approved by at least two-thirds (2/3) of those
remaining directors who were directors at the beginning of
such two (2) year period.
Notwithstanding clause (i) above, a "Change of Control" shall not be deemed
to have occurred solely because a person shall be, become or enter into a
contract to become the beneficial owner of 25% or more, but less than 40%, of
the voting common stock of the Company, if and for so long as such person is
bound by, and in compliance with, a contract with the Company providing that
such person may not nominate, vote for, or select more than a minority of the
directors of the Company. The exception provided by the preceding sentence shall
cease to apply with respect to any person upon expiration, waiver, or
non-compliance with any such contract, by which such person was bound.
5. Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially
all of the business and/or assets of the Company, by agreement in form
and substance satisfactory to the Executive, to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession had taken
place. Failure of the Company to obtain such assumption and agreement prior
to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to compensation from the Company
in the same amount and on the same terms as he would be entitled to here-
under if he terminated his employment for Good Reason, except that for
purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the date of termination.
As used in this Agreement,"Company" shall mean the Company as herein before
defined and any successor to its business and/or assets as aforesaid
which executes and delivers the agreement provided for in this Section 5 or
which otherwise becomes bound by all the terms and provisions of this
Agreement by operation of law.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's personal
or legal representatives, executors, administrator, successors, heirs, dis-
tributees, devisees and legatees. If the Executive should die while any
amounts would still be payable to him hereunder if he had continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee or, if there be no such designee, to the Execu-
tive's estate.
6. Notices. For the purposes of this Agreement, notices, demands and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or (unless otherwise
specified) mailed by United States certified or registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive:
James E. Baker
1492 Oak Grove Circle
Santa Ana, CA 92705
If to the Company:
Apria Healthcare Group Inc.
3560 Hyland Avenue
Costa Mesa, California 92626
Attention: Chief Executive Officer
With a copy to the attention of: Senior Vice President, Human
Resources
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
7. Antisolicitation. The Executive promises and agrees that,during the
period of his employment by the Company and for a period of one year thereafter,
he will not influence or attempt to influence customers of the Company or any of
its present or future subsidiaries or affiliates, either directly or indirectly,
to divert their business to any individual, partnership, firm, corporation or
other entity then in competition with the business of the Company, or any
subsidiary or affiliate of the Company.
8. Noncompetition. The Executive promises and agrees that for a period of
one year following termination of his employment, he will not enter business or
work with or for any business, individual, partnership, firm, corporation or
other entity then in competition with the business of the Company or any
subsidiary or affiliate of the Company.
9. Soliciting Employees. The Executive promises and agrees that for a
period of one year following termination of his employment, he will not,
directly or indirectly solicit any of the Company employees who earned annually
$50,000 or more as a Company employee during the last six months of his or her
own employment to work for any other business, individual, partnership, firm,
corporation, or other entity.
10. Confidential Information.
(a) The Executive, in the performance of his duties on behalf of the
Company, shall have access to, receive and be entrusted with confidential
information, including but not limited to systems technology, field
operations, reimbursement, development, marketing, organizational, finan-
cial, management, administrative, clinical, customer, distribution and
sales information, data, specifications and processes presently owned or at
any time in the future developed, by the Company or its agents or consul-
tants, or used presently or at any time in the future in the course of its
business that is not otherwise part of the public domain (collectively, the
"Confidential Material"). All such Confidential Material is considered
secret and will be available to the Executive in confidence. Except in the
performance of duties on behalf of the Company, the Executive shall not,
directly or indirectly for any reason whatsoever, disclose or use any
such Confidential Material, unless such Confidential Material ceases
(through no fault of the Executive's) to be confidential because it has
become part of the public domain. All records, files, drawings, documents,
notes, disks, diskettes, tapes, magnetic media, photographs, equipment and
other tangible items, wherever located, relating in any way to the
Confidential Material or otherwise to the Company's business, which the
Executive prepares, uses or encounters during the course of his employment,
shall be and remain the Company's sole and exclusive property and shall be
included in the Confidential Material. Upon termination of this Agreement
by any means, or whenever requested by the Company, the Executive shall
promptly deliver to the Company any and all of the Confidential Material,
not previously delivered to the Company, that may be or at any previous
time has been in the Executive's possession or under the Executive's
control.
(b) The Executive hereby acknowledges that the sale or unauthorized
use or disclosure of any of the Company's Confidential Material by any
means whatsoever and at any time before, during or after the Executive's
employment with the Company shall constitute unfair competition. The
Executive agrees he shall not engage in unfair competition either during
the time employed by the Company or any time thereafter.
11. Parachute Limitation. Notwithstanding any other provision of this
Agreement, the Executive shall not have any right to receive any payment or
other benefit under this Agreement, any other agreement, or any benefit plan if
such right, payment or benefit, taking into account all other rights, payments
or benefits to or for the Executive under this Agreement, all other agreements,
and all benefit plans, would cause any right, payment or benefit to the
Executive under this Agreement to be considered a "parachute payment" within the
meaning of Section 280G(b) (2) of the Internal Revenue Code as then in effect (a
"Parachute Payment"). In the event that the receipt of any such right or any
other payment or benefit under this Agreement, any other agreement, or any
benefit plan would cause the Executive to be considered to have received a
Parachute Payment under this Agreement, then the Executive shall have the right,
in the Executive's sole discretion, to designate those rights, payments or
benefits under this Agreement, any other agreements, and/or any benefit plans,
that should be reduced or eliminated so as to avoid having the right, payment or
benefit to the Executive under this Agreement be deemed to be a Parachute
Payment.
12. Modification and Waiver. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and the Chief Executive Officer or
the President of the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of California without regard to its conflicts of law
principles.
13. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
14. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
15. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement or Executive's employment by the Company shall be settled
exclusively by arbitration, conducted before a single neutral arbitrator in
accordance with the American Arbitration Association's National Rules for
Resolution of Employment Disputes as then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction; provided, however, that
the Company shall be entitled to seek a restraining order or injunction in any
court of competent jurisdiction to prevent any continuation of any violation of
the provisions of Sections 7, 8, 9 or 10 of this Agreement and the Executive
hereby consents that such restraining order or injunction may be granted without
the necessity of the Company's posting any bond, and provided, further, that the
Executive shall be entitled to seek specific performance of his right to be paid
until the date of employment termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement. The fees and
expenses of the arbitrator shall be borne by the Company.
16. Entire Agreement. This Agreement sets forth the entire agreement of the
parties hereto in respect of the subject matter contained herein and supersedes
all prior agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer, employee
or representative of any party hereto; and any prior agreement of the parties
hereto in respect of the subject matter contained herein is hereby terminated
and canceled.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
and year first above written.
APRIA HEALTHCARE GROUP INC.
By:
--------------------------------------
Name: Jeremy M. Jones
Title: Chief Executive Officer
EXECUTIVE
--------------------------------------
Name: James E. Baker
EXHIBIT 10.17
EXECUTIVE SEVERANCE AGREEMENT
This Executive Severance Agreement (this "Agreement") is made as of this
28th day of June, 1997, between Apria Healthcare Group Inc., a Delaware
corporation (the "Company"), and Lawrence Mastrovich (the "Executive").
RECITALS
A. It is the desire of the Company to retain the services of the Executive
and to recognize the Executive's contribution to the Company.
B. The Company and the Executive wish to set forth certain terms and
conditions of Executive's employment.
C. The Company wishes to provide to the Executive certain benefits in the
event that his employment is terminated by the Company without cause or in the
event that he terminates employment for Good Reason (as defined below), in order
to encourage the Executive's performance and continued commitment to the
Company.
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements set forth below, the parties hereto agree as follows:
1. Positions and Duties. The Executive shall serve in such positions and
undertake such duties and have such authority as the Company, through its Chief
Executive Officer, President or Board of Directors, shall assign to the
Executive from time to time in the Company's sole and absolute discretion. The
Company has the right to change the nature, amount or level of authority and
responsibility assigned to the Executive at any time, with or without cause. The
Company may also change the title or titles assigned to the Executive at any
time, with or without cause. The Executive agrees to devote substantially all of
his working time and efforts to the business and affairs of the Company. The
Executive further agrees that he shall not undertake any outside activities
which create a conflict of interest with his duties to the Company, or which, in
the judgment of the Board of Directors of the Company, interfere with the
performance of the Executive's duties to the Company.
2. Compensation and Benefits.
(a) Salary. The Executive's salary shall be such salary as the Company
assigns to him from time to time in accordance with its regular practices
and policies. The parties to this Agreement recognize that the Company may,
in its sole discretion, increase such salary at any time.
(b) Bonuses. The Executive's eligibility to receive any bonus shall be
determined in accordance with the Company's Incentive Compensation Plan or
other bonus plans as they shall be in effect from time to time. The parties
to this Agreement recognize that such bonus plans may be amended and/or
terminated by the Company at any time.
(c) Expenses. During the term of the Executive's employment, the
Executive shall be entitled to receive reimbursement for all reasonable and
customary expenses incurred by the Executive in performing services for the
Company in accordance with the Company's reimbursement policies as they may
be in effect from time to time. The parties to this Agreement recognize
that such policies may be amended and/or terminated by the Company at any
time.
(d) Other Benefits. The Executive shall be entitled to participate in
all employee benefit plans, programs and arrangements of the Company
(including, without limitation, stock option plans or agreements and
insurance, retirement and vacation plans, programs and arrangements), in
accordance with the terms of such plans, programs or arrangements as they
shall be in effect from time to time during the period of the Executive's
employment. The parties to this Agreement recognize that the Company may
terminate or modify such plans, programs or arrangements at any time.
3. Grounds for Termination. The Executive's employment may be terminated on
any of the following grounds:
(a) Without Cause. The Executive or the Company may terminate the
Executive's employment at any time, without cause, by giving the other
party to this Agreement at least 30 days advance written notice of such
termination.
(b) Death. The Executive's employment hereunder shall terminate upon
his death.
(c) Disability. If, as a result of the Executive's incapacity due to
physical or mental illness, the Executive shall have been unable to perform
the essential functions of his position, even with reasonable accommodation
that does not impose an undue hardship on the Company, on a full-time basis
for the entire period of six (6) consecutive months, and within thirty (30)
days after written notice of termination is given (which may occur before
or after the end of such six-month period), shall not have returned to the
performance of his duties hereunder on a full-time basis (a "disability"),
the Company may terminate the Executive's employment hereunder.
(d) Cause. The Company may terminate the Executive's employment
hereunder for cause. For purposes of this Agreement, "cause" shall mean
that the Company, acting in good faith based upon the information then
known to the Company, determines that the Executive has engaged in or
committed: willful misconduct; theft, fraud or other illegal conduct;
refusal or unwillingness to substantially perform his duties (other than
such failure resulting from the Executive's disability) after written
demand for substantial performance is delivered by the Company that
specifically identifies the manner in which the Company believes the
Executive has not substantially performed his duties; insubordination; any
willful act that is likely to and which does in fact have the effect of
injuring the reputation or business of the Company; violation of any
fiduciary duty; violation of the Executive's duty of loyalty to the
Company; or a breach of any term of this Agreement. For purposes of this
Section 3(d), no act, or failure to act, on the Executive's part shall be
considered willful unless done or omitted to be done, by him not in good
faith and without reasonable belief that his action or omission was in the
best interest of the Company. Notwithstanding the foregoing, the Executive
shall not be deemed to have been terminated for cause without delivery to
the Executive of a notice of termination signed by the Company's Chief
Executive Officer or President stating that, in the good faith opinion of
the officer signing such notice, the Executive has engaged in or committed
conduct of the nature described above in the second sentence of this
Section 3(d), and specifying the particulars thereof in detail.
4. Payments upon Termination.
(a) Without Cause or with Good Reason. In the event that the
Executive's employment is terminated by the Company for any reason other
than death, disability or cause as defined in Section 3 (b), (c) and (d) of
this Agreement, or in the event that the Executive terminates his
employment hereunder with Good Reason, the Executive shall be entitled to
receive severance pay in an aggregate amount equal to 100% of his Annual
Compensation, which shall be paid in periodic installments in accordance
with the Company's customary practice over a period of one (1) year, less
any amounts required to be withheld by applicable law, in exchange for a
valid release of all claims the Executive may have against the Company in a
form acceptable to the Company. The Company will also pay to the Executive
any earned but unused vacation time at the rate of pay in effect on the
date of the notice of termination.
(b) Annual Compensation. For purposes of this Section 4, the term
"Annual Compensation" means an amount equal to the Executive's annual base
salary at the rate in effect on the date on which the Executive received or
gave written notice of his termination, plus the sum of (i) an amount equal
to the average of the Executive's two most recent annual bonuses, if any,
received under the Company's Incentive Compensation Plan prior to the
notice of termination, (ii) the Executive's annual car allowance, if any,
and (iii) an amount determined by the Company from time to time in its sole
discretion to be equal to the average annual cost for Company employees of
obtaining medical, dental and vision insurance under COBRA, which amount is
hereby initially determined to be $5,000 for 1997. In the event that the
Executive's bonus for one of the two calendar years preceding the calendar
year in which the Executive receives or gives written notice of termination
was a prorated bonus due to Executive having worked a partial year, solely
for purposes of calculating Annual Compensation, the Executive's prorated
bonus will be recalculated to reflect the bonus the Executive would have
received had the Executive worked for the entire year.
(c) Good Reason. For purposes of this Section 4 the term "Good Reason"
means:
(i) any reduction in the Executive's annual base salary, except
for a general one-time "across-the-board" salary reduction not
exceeding ten percent (10%) which is imposed simultaneously on all
officers of the Company;
or
(ii) the Company requires the Executive to be based at an office
location which will result in an increase of more than thirty (30)
miles in the Executive's one-way commute.
(d) Release of all Claims. The Executive understands and agrees that
the Company's obligation to pay the Executive severance pay under this
Agreement is subject to the Executive's execution of a valid written waiver
and release of all claims which the Executive may have against the Company
and/or its successors in a form acceptable to the Company in its sole and
absolute discretion.
(e) Death, Disability or Cause. In the event that the Executive's
employment is terminated due to death, disability or cause, the Company
shall not be obligated to pay the Executive any amount other than earned
unused vacation, reimbursement for business expenses incurred prior to his
termination and in compliance with the Company's reimbursement policies,
and any unpaid salary for days worked prior to the termination.
5. Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by
agreement in form and substance satisfactory to the Executive, to expressly
assume and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession
shall be a breach of this Agreement and shall entitle the Executive to
compensation from the Company in the same amount and on the same terms as
he would be entitled to hereunder if he terminated his employment for Good
Reason, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the date of
termination. As used in this Agreement, "Company" shall mean the Company as
herein before defined and any successor to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in this
Section 5 or which otherwise becomes bound by all the terms and provisions
of this Agreement by operation of law.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's personal or
legal representatives, executors, administrator, successors, heirs,
distributees, devisees and legatees. If the Executive should die while any
amounts would still be payable to him hereunder if he had continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee or, if there be no such designee, to the
Executive's estate.
6. Notices. For the purposes of this Agreement, notices, demands and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or (unless otherwise
specified) mailed by United States certified or registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive:
Lawrence Mastrovich
119 Surrey Drive
Canonsburg, PA 15317
If to the Company:
Apria Healthcare Group Inc.
3560 Hyland Avenue
Costa Mesa, California 92626
Attention: Chief Executive Officer
With a copy to the attention of: Senior Vice President, Human Resources
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
7. Antisolicitation. The Executive promises and agrees that, during the
period of his employment by the Company and for a period of one year thereafter,
he will not influence or attempt to influence customers of the Company or any of
its present or future subsidiaries or affiliates, either directly or indirectly,
to divert their business to any individual, partnership, firm, corporation or
other entity then in competition with the business of the Company, or any
subsidiary or affiliate of the Company.
8. Noncompetition. The Executive promises and agrees that for a period of
one year following termination of his employment, he will not enter business or
work with or for any business, individual, partnership, firm, corporation or
other entity then in competition with the business of the Company or any
subsidiary or affiliate of the Company.
9. Soliciting Employees. The Executive promises and agrees that for a
period of one year following termination of his employment, he will not,
directly or indirectly solicit any of the Company employees who earned annually
$50,000 or more as a Company employee during the last six months of his or her
own employment to work for any other business, individual, partnership, firm,
corporation, or other entity.
10. Confidential Information.
(a) The Executive, in the performance of his duties on behalf of the
Company, shall have access to, receive and be entrusted with confidential
information, including but not limited to systems technology, field
operations, reimbursement, development, marketing, organizational,
financial, management, administrative, clinical, customer, distribution and
sales information, data, specifications and processes presently owned or at
any time in the future developed, by the Company or its agents or
consultants, or used presently or at any time in the future in the course
of its business that is not otherwise part of the public domain
(collectively, the "Confidential Material"). All such Confidential Material
is considered secret and will be available to the Executive in confidence.
Except in the performance of duties on behalf of the Company, the Executive
shall not, directly or indirectly for any reason whatsoever, disclose or
use any such Confidential Material, unless such Confidential Material
ceases (through no fault of the Executive's) to be confidential because it
has become part of the public domain. All records, files, drawings,
documents, notes, disks, diskettes, tapes, magnetic media, photographs,
equipment and other tangible items, wherever located, relating in any way
to the Confidential Material or otherwise to the Company's business, which
the Executive prepares, uses or encounters during the course of his
employment, shall be and remain the Company's sole and exclusive property
and shall be included in the Confidential Material. Upon termination of
this Agreement by any means, or whenever requested by the Company, the
Executive shall promptly deliver to the Company any and all of the
Confidential Material, not previously delivered to the Company, that may be
or at any previous time has been in the Executive's possession or under the
Executive's control.
(b) The Executive hereby acknowledges that the sale or unauthorized
use or disclosure of any of the Company's Confidential Material by any
means whatsoever and at any time before, during or after the Executive's
employment with the Company shall constitute unfair competition. The
Executive agrees he shall not engage in unfair competition either during
the time employed by the Company or any time thereafter.
11. Modification and Waiver. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and the Chief Executive Officer or
the President of the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of California without regard to its conflicts of law
principles.
12. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement or Executive's employment by the Company shall be settled
exclusively by arbitration, conducted before a single neutral arbitrator in
accordance with the American Arbitration Association's National Rules for
Resolution of Employment Disputes as then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction; provided, however, that
the Company shall be entitled to seek a restraining order or injunction in any
court of competent jurisdiction to prevent any continuation of any violation of
the provisions of Sections 7, 8, 9 or 10 of this Agreement and the Executive
hereby consents that such restraining order or injunction may be granted without
the necessity of the Company's posting any bond, and provided, further, that the
Executive shall be entitled to seek specific performance of his right to be paid
until the date of employment termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement. The fees and
expenses of the arbitrator shall be borne by the Company.
15. Entire Agreement. This Agreement sets forth the entire agreement of the
parties hereto in respect of the subject matter contained herein and supersedes
all prior agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer, employee
or representative of any party hereto; and any prior agreement of the parties
hereto in respect of the subject matter contained herein is hereby terminated
and canceled.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
and year first above written.
APRIA HEALTHCARE GROUP INC.
By:
------------------------------------------
Name: Steven T. Plochocki
Title: President & Chief Operating Officer
EXECUTIVE
-------------------------------------------
Name: Lawrence Mastrovich
EXHIBIT 10.18
EXECUTIVE SEVERANCE AGREEMENT
This Executive Severance Agreement (this "Agreement") is made as of this
24th day of July, 1997, between Apria Healthcare Group Inc., a Delaware
corporation (the "Company"), and George J. Suda (the "Executive").
RECITALS
A. It is the desire of the Company to retain the services of the Executive
and to recognize the Executive's contribution to the Company.
B. The Company and the Executive wish to set forth certain terms and
conditions of Executive's employment.
C. The Company wishes to provide to the Executive certain benefits in the
event that his employment is terminated by the Company without cause or in the
event that he terminates employment for Good Reason (as defined below), in order
to encourage the Executive's performance and continued commitment to the
Company.
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements set forth below, the parties hereto agree as follows:
1. Positions and Duties. The Executive shall serve in such positions and
undertake such duties and have such authority as the Company, through its Chief
Executive Officer, President or Board of Directors, shall assign to the
Executive from time to time in the Company's sole and absolute discretion. The
Company has the right to change the nature, amount or level of authority and
responsibility assigned to the Executive at any time, with or without cause. The
Company may also change the title or titles assigned to the Executive at any
time, with or without cause. The Executive agrees to devote substantially all of
his working time and efforts to the business and affairs of the Company. The
Executive further agrees that he shall not undertake any outside activities
which create a conflict of interest with his duties to the Company, or which, in
the judgment of the Board of Directors of the Company, interfere with the
performance of the Executive's duties to the Company.
2. Compensation and Benefits.
(a) Salary. The Executive's salary shall be such salary as the Company
assigns to him from time to time in accordance with its regular
practices and policies. The parties to this Agreement recognize that
the Company may, in its sole discretion, increase such salary at any
time.
(b) Bonuses. The Executive's eligibility to receive any bonus shall be
determined in accordance with the Company's Incentive Compensation
Plan or other bonus plans as they shall be in effect from time to
time. The parties to this Agreement recognize that such bonus plans
may be amended and/or terminated by the Company at any time.
(c) Expenses. During the term of the Executive's employment, the
Executive shall be entitled to receive reimbursement for all
reasonable and customary expenses incurred by the Executive in
performing services for the Company in accordance with the Company's
reimbursement policies as they may be in effect from time to time. The
parties to this Agreement recognize that such policies may be amended
and/or terminated by the Company at any time.
(d) Other Benefits. The Executive shall be entitled to participate in
all employee benefit plans, programs and arrangements of the Company
(including, without limitation, stock option plans or agreements and
insurance, retirement and vacation plans, programs and arrangements),
in accordance with the terms of such plans, programs or arrangements
as they shall be in effect from time to time during the period of the
Executive's employment. The parties to this Agreement recognize that
the Company may terminate or modify such plans, programs or
arrangements at any time.
3. Grounds for Termination. The Executive's employment may be terminated on
any of the following grounds:
(a) Without Cause. The Executive or the Company may terminate the
Executive's employment at any time, without cause, by giving the other
party to this Agreement at least 30 days advance written notice of
such termination.
(b) Death. The Executive's employment hereunder shall terminate upon
his death.
(c) Disability. If, as a result of the Executive's incapacity due to
physical or mental illness, the Executive shall have been unable to
perform the essential functions of his position, even with reasonable
accommodation that does not impose an undue hardship on the Company,
on a full-time basis for the entire period of six (6) consecutive
months, and within thirty (30) days after written notice of
termination is given (which may occur before or after the end of such
six-month period), shall not have returned to the performance of his
duties hereunder on a full-time basis (a "disability"), the Company
may terminate the Executive's employment hereunder.
(d) Cause. The Company may terminate the Executive's employment
hereunder for cause. For purposes of this Agreement, "cause" shall
mean that the Company, acting in good faith based upon the information
then known to the Company, determines that the Executive has engaged
in or committed: willful misconduct; theft, fraud or other illegal
conduct; refusal or unwillingness to substantially perform his duties
(other than such failure resulting from the Executive's disability)
after written demand for substantial performance is delivered by the
Company that specifically identifies the manner in which the Company
believes the Executive has not substantially performed his duties;
insubordination; any willful act that is likely to and which does in
fact have the effect of injuring the reputation or business of the
Company; violation of any fiduciary duty; violation of the Executive's
duty of loyalty to the Company; or a breach of any term of this
Agreement. For purposes of this Section 3(d), no act, or failure to
act, on the Executive's part shall be considered willful unless done
or omitted to be done, by him not in good faith and without reasonable
belief that his action or omission was in the best interest of the
Company. Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for cause without delivery to the
Executive of a notice of termination signed by the Company's Chief
Executive Officer or President stating that, in the good faith opinion
of the officer signing such notice, the Executive has engaged in or
committed conduct of the nature described above in the second sentence
of this Section 3(d), and specifying the particulars thereof in
detail.
4. Payments upon Termination.
(a) Without Cause or with Good Reason. In the event that the
Executive's employment is terminated by the Company for any reason
other than death, disability or cause as defined in Section 3 (b), (c)
and (d) of this Agreement, or in the event that the Executive
terminates his employment hereunder with Good Reason, the Executive
shall be entitled to receive severance pay in an aggregate amount
equal to 100% of his Annual Compensation, which shall be paid in
periodic installments in accordance with the Company's customary
practice over a period of one (1) year, less any amounts required to
be withheld by applicable law, in exchange for a valid release of all
claims the Executive may have against the Company in a form acceptable
to the Company. The Company will also pay to the Executive any earned
but unused vacation time at the rate of pay in effect on the date of
the notice of termination.
(b) Annual Compensation. For purposes of this Section 4, the term
"Annual Compensation" means an amount equal to the Executive's annual
base salary at the rate in effect on the date on which the Executive
received or gave written notice of his termination, plus the sum of
(i) an amount equal to the average of the Executive's two most recent
annual bonuses, if any, received under the Company's Incentive
Compensation Plan prior to the notice of termination, (ii) the
Executive's annual car allowance, if any, and (iii) an amount
determined by the Company from time to time in its sole discretion to
be equal to the average annual cost for Company employees of obtaining
medical, dental and vision insurance under COBRA, which amount is
hereby initially determined to be $5,000 for 1997. In the event that
the Executive's bonus for one of the two calendar years preceding the
calendar year in which the Executive receives or gives written notice
of termination was a prorated bonus due to Executive having worked a
partial year, solely for purposes of calculating Annual Compensation,
the Executive's prorated bonus will be recalculated to reflect the
bonus the Executive would have received had the Executive worked for
the entire year.
(c) Good Reason. For purposes of this Section 4 the term "Good Reason"
means:
(i) any reduction in the Executive's annual base salary,
except for a general one-time "across-the-board" salary reduction
not exceeding ten percent (10%) which is imposed simultaneously
on all officers of the Company;
or
(ii) the Company requires the Executive to be based at an
office location which will result in an increase of more than
thirty (30) miles in the Executive's one-way commute.
(d) Release of all Claims. The Executive understands and agrees that
the Company's obligation to pay the Executive severance pay under this
Agreement is subject to the Executive's execution of a valid written
waiver and release of all claims which the Executive may have against
the Company and/or its successors in a form acceptable to the Company
in its sole and absolute discretion.
(e) Death, Disability or Cause. In the event that the Executive's
employment is terminated due to death, disability or cause, the
Company shall not be obligated to pay the Executive any amount other
than earned unused vacation, reimbursement for business expenses
incurred prior to his termination and in compliance with the Company's
reimbursement policies, and any unpaid salary for days worked prior to
the termination.
5. Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by
agreement in form and substance satisfactory to the Executive, to
expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. Failure of the
Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to compensation from the
Company in the same amount and on the same terms as he would be
entitled to hereunder if he terminated his employment for Good Reason,
except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the date
of termination. As used in this Agreement, "Company" shall mean the
Company as herein before defined and any successor to its business
and/or assets as aforesaid which executes and delivers the agreement
provided for in this Section 5 or which otherwise becomes bound by all
the terms and provisions of this Agreement by operation of law.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's personal
or legal representatives, executors, administrator, successors, heirs,
distributees, devisees and legatees. If the Executive should die while
any amounts would still be payable to him hereunder if he had
continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to the
Executive's devisee, legatee, or other designee or, if there be no
such designee, to the Executive's estate.
6. Notices. For the purposes of this Agreement, notices, demands and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or (unless otherwise
specified) mailed by United States certified or registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive:
George J. Suda
1236 Puerto Natales
Placentia, CA 92870
If to the Company:
Apria Healthcare Group Inc.
3560 Hyland Avenue
Costa Mesa, California 92626
Attention: Chief Executive Officer
With a copy to the attention of: Senior Vice President, Human
Resources
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
7. Antisolicitation. The Executive promises and agrees that, during the
period of his employment by the Company and for a period of one year thereafter,
he will not influence or attempt to influence customers of the Company or any of
its present or future subsidiaries or affiliates, either directly or indirectly,
to divert their business to any individual, partnership, firm, corporation or
other entity then in competition with the business of the Company, or any
subsidiary or affiliate of the Company.
8. Noncompetition. The Executive promises and agrees that for a period of
one year following termination of his employment, he will not enter business or
work with or for any business, individual, partnership, firm, corporation or
other entity then in competition with the business of the Company or any
subsidiary or affiliate of the Company.
9. Soliciting Employees. The Executive promises and agrees that for a
period of one year following termination of his employment, he will not,
directly or indirectly solicit any of the Company employees who earned annually
$50,000 or more as a Company employee during the last six months of his or her
own employment to work for any other business, individual, partnership, firm,
corporation, or other entity.
10. Confidential Information.
(a) The Executive, in the performance of his duties on behalf of the
Company, shall have access to, receive and be entrusted with
confidential information, including but not limited to systems
technology, field operations, reimbursement, development, marketing,
organizational, financial, management, administrative, clinical,
customer, distribution and sales information, data, specifications and
processes presently owned or at any time in the future developed, by
the Company or its agents or consultants, or used presently or at any
time in the future in the course of its business that is not otherwise
part of the public domain (collectively, the "Confidential Material").
All such Confidential Material is considered secret and will be
available to the Executive in confidence. Except in the performance of
duties on behalf of the Company, the Executive shall not, directly or
indirectly for any reason whatsoever, disclose or use any such
Confidential Material, unless such Confidential Material ceases
(through no fault of the Executive's) to be confidential because it
has become part of the public domain. All records, files, drawings,
documents, notes, disks, diskettes, tapes, magnetic media,
photographs, equipment and other tangible items, wherever located,
relating in any way to the Confidential Material or otherwise to the
Company's business, which the Executive prepares, uses or encounters
during the course of his employment, shall be and remain the Company's
sole and exclusive property and shall be included in the Confidential
Material. Upon termination of this Agreement by any means, or whenever
requested by the Company, the Executive shall promptly deliver to the
Company any and all of the Confidential Material, not previously
delivered to the Company, that may be or at any previous time has been
in the Executive's possession or under the Executive's control.
(b) The Executive hereby acknowledges that the sale or unauthorized
use or disclosure of any of the Company's Confidential Material by any
means whatsoever and at any time before, during or after the
Executive's employment with the Company shall constitute unfair
competition. The Executive agrees he shall not engage in unfair
competition either during the time employed by the Company or any time
thereafter.
11. Modification and Waiver. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and the Chief Executive Officer or
the President of the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of California without regard to its conflicts of law
principles.
12. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement or Executive's employment by the Company shall be settled
exclusively by arbitration, conducted before a single neutral arbitrator in
accordance with the American Arbitration Association's National Rules for
Resolution of Employment Disputes as then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction; provided, however, that
the Company shall be entitled to seek a restraining order or injunction in any
court of competent jurisdiction to prevent any continuation of any violation of
the provisions of Sections 7, 8, 9 or 10 of this Agreement and the Executive
hereby consents that such restraining order or injunction may be granted without
the necessity of the Company's posting any bond, and provided, further, that the
Executive shall be entitled to seek specific performance of his right to be paid
until the date of employment termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement. The fees and
expenses of the arbitrator shall be borne by the Company.
15. Entire Agreement. This Agreement sets forth the entire agreement of the
parties hereto in respect of the subject matter contained herein and supersedes
all prior agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer, employee
or representative of any party hereto; and any prior agreement of the parties
hereto in respect of the subject matter contained herein is hereby terminated
and canceled.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
and year first above written.
APRIA HEALTHCARE GROUP INC.
By:
--------------------------------------
Name: Steven T. Plochocki
Title: President & Chief Operating Officer
EXECUTIVE
---------------------------------------
Name: George J. Suda
EXHIBIT 10.24
APRIA HEALTHCARE GROUP INC.
NON-QUALIFIED
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement") is made by and between APRIA
HEALTHCARE GROUP INC., a Delaware corporation (the "Corporation"), and PHILIP L.
CARTER, an individual (the "Employee").
W I T N E S S E T H
WHEREAS, pursuant to an Employment Agreement (herein so called) dated May
5, 1998, between Employee and the Corporation, the Corporation has agreed to
grant the Employee the right and option to purchase 750,000 shares of the
Corporation's Common Stock, par value $0.001 per share (the "Common Stock") on
the terms and conditions described in the Employment Agreement;
WHEREAS, the Corporation has satisfied a portion of its
obligation to grant stock options to the Employee under the Employment Agreement
by granting the Employee a stock option (the "1997 Plan Option") to purchase all
or any part of 100,000 Shares of Common Stock pursuant to the Apria Healthcare
Group Inc. 1997 Stock Incentive Plan (the "1997 Plan"), effective as of the 5th
day of May, 1998 (the "Award Date");
WHEREAS, the Corporation has satisfied a further portion of its obligation
to grant stock options to the Employee under the Employment Agreement by
granting the Employee a stock option (the "1992 Plan Option") to purchase all or
any part of 200,000 shares of Common Stock pursuant to the Apria Healthcare
Group Inc. Amended and Restated 1992 Stock Incentive Plan (the "1992 Plan")
effective as of the Award Date;
WHEREAS, the Corporation has determined to satisfy the remainder of its
obligation to grant stock options to the Employee pursuant to the Employment
Agreement by granting the Employee an option under this Agreement to purchase
450,000 shares of Common Stock which are not to be issued under any stock
incentive plan; and
WHEREAS, the option evidenced hereby is not intended to constitute an
incentive stock option within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the mutual promises and covenants made
herein and the mutual benefits to be derived herefrom, the parties agree as
follows:
1. Defined Terms. Capitalized terms used and not otherwise defined
herein shall have the meanings assigned to such terms in the 1997 Plan.
2. Grant of Option. This Agreement evidences the Corporation's grant
to the Employee of the right and option to purchase, on and subject to the
terms and conditions set forth in this Agreement and in the 1997 Plan, all
or any part of 450,000 shares of Common Stock (the "Shares") at the price
of $9.00 per Share (the "Option"), exercisable from time to time, subject
to the provisions of this Agreement and the 1997 Plan, prior to the close
of business on May 5, 2008 (the "Expiration Date"). It is the intent of the
Corporation that (i) the Option shall be a nonqualified stock option within
the meaning of Section 422 of the Code, and (ii) as more fully described in
Section 10 below, although the Option is not being issued under or pursuant
to any qualified stock incentive plan of the Corporation, for purposes of
administrative convenience it shall, to the extent applicable, be
administered and processed by the Corporation and the Employee as if it had
been issued under the 1997 Plan.
3. Exercisability of Option. The Option shall vest and be exercisable
(i) as to 75,000 Shares at any time from and after the Award Date; (ii) as
to 187,500 Shares on the first date subsequent to May 5, 1999 on which the
average Fair Market Value of the Common Stock during any period of 90
consecutive calendar days subsequent to the Award Date shall have been
greater than $14.00 per share; and (iii) as to 187,500 Shares on the first
date subsequent to November 5, 2000 on which the average Fair Market Value
of the Common Stock during any period of 90 consecutive calendar days
subsequent to the Award Date shall have been greater than $18.00 per share.
Notwithstanding the foregoing, any unvested portion of the Option shall
immediately vest and become exercisable (i) in the event a "Change of
Control" (as such term is defined in the Employment Agreement (herein so
called) between the Employee and the Corporation dated May 5, 1998) occurs
subsequent to January 1, 1999; (ii) in the event that the Employee's
employment is terminated prior to November 5, 2000 (a) by the Corporation
for any reason other than for "Cause" (as defined in the Employment
Agreement), or (b) by the Employee with "Good Reason" (as defined in the
Employment Agreement, but not including a termination for "Good Reason" as
defined in Section IV-D-3(b)-(iv) thereof if the Employee gives notice
terminating his employment prior to January 1, 1999); and (iii) on May 5,
2005, regardless of whether a "Change of Control" has occurred prior to
that date.
Except as provided in Section 6 below, once the Option becomes exercisable
with respect to a portion of the Shares, the Employee shall have the right
thereafter to purchase any of such exercisable Shares, in whole or in part,
from time to time; and such right shall continue until the Option
terminates or expires. The Option shall only be exercisable in respect
of whole Shares and fractional share interests shall be disregarded. The
Option may only be exercised as to at least 100 Shares, unless the number
purchased is the total number at the time available for purchase under the
Option.
4. Method of Exercise of Option. The Option shall be exercisable by
the delivery to the Secretary of the Corporation of a written notice
stating the number of Shares to be purchased pursuant to the Option and
accompanied by payment made in accordance with and in a form permitted by
Section 2.2 of the 1997 Plan for the full purchase price of the Shares to
be purchased, subject to such further limitations and rules or procedures
as the Committee may from time to time establish as to any non-cash
payment. Subject to the express approval of the Committee at the time of
exercise and applicable law, the purchase price may be paid in full or in
part by a note meeting the requirements of Section 1.9 of the 1997 Plan or
by shares of Common Stock already owned by the Employee; provided, however,
that any shares delivered which were initially acquired upon exercise of a
stock option or otherwise acquired from the Corporation must have been
owned by the Employee for at least six months before the date of exercise.
Shares used to satisfy the exercise price of the Option shall be valued at
their Fair Market Value on the date of exercise. In addition, the Employee
(or the Employee's Beneficiary or Personal Representative) shall furnish
any assurances and representations required pursuant to Section 6.4 of the
1997 Plan.
5. Continuance of Employment. Nothing contained herein or in the 1997
Plan shall confer upon the Employee any right with respect to the
continuation of employment by the Corporation or any Subsidiary or
interfere in any way with the right of the Corporation or of any Subsidiary
at any time to terminate such employment or to increase or decrease the
compensation of the Employee from the rate in existence at any time.
6. Effect of Termination of Employment or Death; Change in Subsidiary
Status. The Option and all other rights hereunder, to the extent not
exercised, shall terminate and become null and void at such time as the
Employee ceases to be employed by either the Corporation or any Subsidiary,
provided, however, that -------- (i) all vested portions of the Option
shall remain exercisable for a period of three years following any
termination of the Employee's employment other than for "Cause" (as defined
in the Employment Agreement), and (ii) if the Employee should die or become
permanently disabled (within the meaning of Code Section 22 (e)(3) or as
otherwise defined by the Committee) while employed by the Corporation or
any Subsidiary or during the three-year period described in clause (i)
above, then the Option may be exercised within a period of one year after
the date of such death or disability or, if later, at any time before the
end of such three-year period. Notwithstanding the foregoing, the Option
shall not be exercisable under any circumstances by anyone under this
Section 6, or otherwise, after the Expiration Date.
If the Employee is employed by an entity which ceases to be a Subsidiary,
such event shall be deemed for purposes of this Section 6 to be a
termination of the Employee's employment by the Corporation other than for
"Cause." Absence from work caused by military service or authorized sick
leave shall not be considered as a termination of employment for purposes
of this Section 6.
7. Adjustment; Termination of Option Upon Certain Events. The Option
is subject to adjustment pursuant to Section 6.2 of the 1997 Plan and, to
the extent permitted by Section 6.2(c) of the 1997 Plan, the Committee
retains the right to terminate (prior to the Expiration Date) the Option to
the extent not previously exercised.
8. Non-Transferability of Option. The Option and any other rights of
the Employee under this Agreement or the Plan are nontransferable as
provided in Section 1.8 of the 1997 Plan (subject to the limited exceptions
set forth therein).
9. Notices. Any notice to be given under the terms of this Agreement
shall be in writing and addressed to the Corporation at its principal
executive offices, to the attention of the Secretary and to the Employee at
the address given beneath the Employee's signature hereto, or at such other
address as either party may hereafter designate in writing to the other.
Any such notice shall be deemed to have been duly given when personally
delivered or enclosed in a properly sealed envelope addressed as aforesaid,
registered or certified, and deposited (postage and registry or
certification fee prepaid) in a post office or branch post office regularly
maintained by the United States Government.
10. Plan. The Option is not being issued under the 1997 Plan. However,
the Option and all rights of Employee under this Agreement are subject to,
shall be administered under, and the Employee agrees to be bound by, all of
the terms and conditions of the provisions of the 1997 Plan (other than
those restricting the maximum number of shares which may be the subject of
the award of stock options to an individual in any one calendar year),
which 1997 Plan is incorporated herein by this reference, as if it had been
issued thereunder. In the event of a conflict or inconsistency between the
terms and conditions of this Agreement and the 1997 Plan, the terms and
conditions of the 1997 Plan shall govern. The Employee acknowledges receipt
of a copy of the 1997 Plan, and agrees to be bound by the terms thereof.
Unless otherwise expressly provided in other sections of this Agreement,
provisions of the 1997 Plan that confer discretionary authority on the
Committee (or the Board) do not (and shall not be deemed to) create any
rights in the Employee unless such rights are expressly set forth herein or
are otherwise in the sole discretion of the Committee (or the Board) so
conferred by appropriate action of the Committee (or the Board) under the
1997 Plan after the date hereof and evidenced in a writing authorized by
the Committee.
11. Compliance With Law. The Corporation shall use its best efforts to
register the Shares under the Securities Act of 1933 as soon as reasonably
possible following the date of the full and final execution hereof. The
Option and the issuance and delivery of Shares of Common Stock under the
Option are subject to compliance with all applicable federal and state
laws, rules and regulations (including but not limited to state and federal
securities law and federal margin requirements) and to such approvals by
any listing, regulatory or governmental authority as may, in the opinion of
counsel for the Corporation, be necessary or advisable in connection
therewith. Any Shares of Common Stock delivered under the Option shall be
subject to such restrictions, and the Employee shall, if requested by the
Corporation, provide such assurances and representations to the Corporation
as the Corporation may deem necessary or desirable to assure compliance
with all applicable legal requirements.
12. Entire Agreement. This Agreement, the 1997 Plan, the 1997 Plan
Option and the 1992 Plan Option together constitute the entire agreement
and supersede all prior understandings and agreements, written or oral, of
the parties hereto with respect to the grant of options to acquire 750,000
shares of Common Stock contemplated by the Employment Agreement. The 1997
Plan and this Agreement may be amended pursuant to Section 6.6 of the 1997
Plan. Such amendment must be in writing and signed by the Corporation. The
Corporation may, however, unilaterally waive any provision hereof in
writing to the extent such waiver does not adversely affect the interests
of the Employee hereunder, but no such waiver shall operate or be construed
to be a subsequent waiver of the same provision or a waiver of any other
provision hereof.
13. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware without
regard to conflict of law principles thereunder.
14. Satisfaction of Requirements. The issuance by the Corporation of
this Agreement, together with the 1997 Plan Option and the 1992 Plan
Option, constitutes complete satisfaction of the obligations of the
Corporation under Section III (G) of the Employment Agreement.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed on its behalf by a duly authorized officer and the Employee has
hereunto set his or her hand.
EMPLOYEE APRIA HEALTHCARE GROUP INC.
(a Delaware corporation)
- -------------------------------
Signature
By:
Philip L. Carter ------------------------------
10520 Wilshire Blvd., #702
Los Angeles, California 90024 Title:
------------------------------
Date: Date:
--------------------------- ------------------------------
<PAGE>
CONSENT OF SPOUSE
In consideration of the execution of the foregoing Stock Option Agreement
by Apria Healthcare Group Inc., I,____________________________, the spouse of
the Employee therein named, do hereby join with my spouse in executing the
foregoing Stock Option Agreement and do hereby agree to be bound by all of the
terms and provisions thereof and of the 1997 Plan.
DATED:
-------------------------------------
Signature of Spouse
EXHIBIT 10.25
AMENDED AND RESTATED
APRIA HEALTHCARE GROUP INC.
1997 STOCK INCENTIVE PLAN
Includes Amendment 1998-1 Made by the Board of Directors
As of June 30, 1998
<PAGE>
APRIA HEALTHCARE GROUP INC.
1997 STOCK INCENTIVE PLAN
ARTICLE I. THE PLAN.
Section 1.1. Purpose.
The purpose of this Plan is to promote the success of the Company by
providing an additional means through the grant of Awards to attract, motivate,
retain and reward key employees, including officers, whether or not directors,
of the Company with awards and incentives for high levels of individual
performance and improved financial performance of the Company and to attract,
motivate and retain experienced and knowledgeable independent directors.
"Corporation" means Apria Healthcare Group Inc., a Delaware corporation, and
"Company" means the Corporation and its Subsidiaries, collectively. These terms
and other capitalized terms are defined in Article VII.
Section 1.2. Administration and Authorization; Power and Procedure.
(a) Committee. This Plan shall be administered by and all Awards to
Eligible Persons shall be authorized by the Committee. Subject to the bylaws of
this Corporation, action of the Committee with respect to the administration of
this Plan shall be taken pursuant to a majority vote or by unanimous written
consent of its members.
(b) Plan Awards; Interpretation; Powers of Committee. Subject to the
express provisions of this Plan, the Committee shall have the authority:
(i) to determine from among those persons eligible the particular
Eligible Persons who will receive any Awards;
(ii) to grant Awards to Eligible Persons, determine the price at which
securities will be offered or awarded and the amount of securities to be
offered or awarded to any of such persons, determine the other specific
terms and conditions of such Awards consistent with the express limits of
this Plan, establish the installments (if any) in which such Awards shall
become exercisable or shall vest, or determine that no delayed
exercisability or vesting is required, and establish the events of
termination or reversion of such Awards;
(iii) to approve the forms of Award Agreements (which need not be
identical either as to type of award or among Participants);
(iv) to construe and interpret this Plan and any agreements defining
the rights and obligations of the Company and Participants, further define
the terms used in this Plan, and prescribe, amend and rescind rules and
regulations relating to the administration of this Plan;
(v) to cancel, modify, or waive the Corporation's rights with respect
to, or modify, discontinue, suspend, or terminate any or all outstanding
Awards held by Eligible Persons, subject to any required consent under
Section 6.6;
(vi) to accelerate or extend the exercisability or extend the term of
any or all such outstanding Awards within the maximum ten-year term of
Awards under Section 1.6; and
(vii) to make all other determinations and take such other action as
contemplated by this Plan or as may be necessary or advisable for the
administration of this Plan and the effectuation of its purposes.
(c) Binding Determinations. Any action taken by, or inaction of, the
Corporation, any Subsidiary, the Board or the Committee relating or pursuant to
this Plan shall be within the absolute discretion of that entity or body and
shall be conclusive and binding upon all persons. No member of the Board or
Committee, or officer of the Corporation or any Subsidiary, shall be liable for
any such action or inaction of the entity or body, of another person or, except
in circumstances involving bad faith, of himself or herself. Subject only to
compliance with the express provisions hereof, the Board and Committee may act
in their absolute discretion in matters within their authority related to this
Plan.
(d) Reliance on Experts. In making any determination or in taking or not
taking any action under this Plan, the Committee or the Board, as the case may
be, may obtain and may rely upon the advice of experts, including professional
advisors to the Corporation. No director, officer or agent of the Company shall
be liable for any such action or determination taken or made or omitted in good
faith.
(e) Delegation. The Committee may delegate ministerial, non-discretionary
functions to a third-party administrator or to individuals who are officers or
employees of the Company.
Section 1.3. Participation.
Awards may be granted by the Committee only to those persons that the
Committee determines to be Eligible Persons. An Eligible Person who has been
granted an Award may, if otherwise eligible, be granted additional Awards if the
Committee shall so determine.
Section 1.4. Shares Available for Awards; Share Limits.
(a) Shares Available. Subject to the provisions of Section 6.2, the capital
stock that may be delivered under this Plan shall be shares of the Corporation's
authorized but unissued Common Stock and any shares of its Common Stock held as
treasury shares. The shares may be delivered for any lawful consideration.
(b) Share Limits. The aggregate maximum number of shares of Common Stock
that may be delivered pursuant to Awards (including Incentive Stock Options)
granted under this Plan and which are required to be charged or reserved by
provisions of Section 1.4(c) (the "Maximum Aggregate Limit") shall be 2,500,000
shares, plus in each calendar year, commencing in 1998, occurring during the
term of this Plan, 1% of the issued and outstanding shares of the Corporation's
Common Stock as of December 31 of the preceding calendar year. The maximum
number of shares of Common Stock that may be delivered pursuant to Options
qualified as Incentive Stock Options granted under Article II of this Plan is
7,500,000 shares. The maximum number of shares subject to Options and Stock
Appreciation Rights that are granted during any calendar year to any individual
shall be limited to 100,000 shares. Each of the three foregoing numerical limits
shall be subject to adjustment as contemplated by this Section 1.4 and Section
6.2.
(c) Share Reservation; Replenishment and Reissue of Unvested Awards. No
Award may be granted under this Plan unless, on the date of grant, the sum of
(i) the maximum number of shares issuable at any time pursuant to such Award,
plus (ii) the number of shares that have previously been issued pursuant to
Awards granted under this Plan, other than reacquired shares available for
reissue consistent with any applicable legal limitations, plus (iii) the maximum
number of shares that may be issued at any time after such date of grant
pursuant to Awards that are outstanding on such date, does not exceed the
Maximum Aggregate Limit. Shares that are subject to or underlie Awards which
expire or for any reason are cancelled or terminated, are forfeited, fail to
vest, or for any other reason are not paid or delivered under this Plan, as well
as reacquired shares, shall again, except to the extent prohibited by law, be
available for subsequent Awards under the Plan. Except as limited by law, if an
Award is or may be settled only in cash, such Award need not be counted against
any of the limits under this Section 1.4.
Section 1.5. Grant of Awards.
Subject to the express provisions of this Plan, the Committee shall
determine the number of shares of Common Stock subject to each Award, the price
(if any) to be paid for the shares or the Award and, in the case of Performance
Share Awards, in addition to matters addressed in Section 1.2(b), the specific
objectives, goals and performance criteria (such as an increase in sales, market
value, earnings or book value over a base period, the years of service before
vesting, the relevant job classification or level of responsibility or other
factors) that further define the terms of the Performance Share Award. Each
Award shall be evidenced by an Award Agreement signed on behalf of the
Corporation and, if required by the Committee, by the Participant. The Award
Agreement shall set forth the material terms and conditions of the Award
established by the Committee consistent with the specific provisions of this
Plan. The Award Agreement may be executed on behalf of the Corporation by a duly
authorized officer by manual or facsimile signature.
Section 1.6. Award Period.
Each Award and all executory rights or obligations under the related Award
Agreement shall expire on such date (if any) as shall be determined by the
Committee, but in the case of Options or other rights to acquire Common Stock
not later than ten (10) years after the Award Date.
Section 1.7. Limitations on Exercise and Vesting of Awards.
(a) Provisions for Exercise. Unless the Committee otherwise expressly
provides, no Award shall be exercisable or shall vest until at least six months
after the initial Award Date, and once exercisable an Award shall remain
exercisable until the expiration or earlier termination of the Award.
(b) Procedure. Any exercisable Award shall be deemed to be exercised when
the Secretary of the Corporation or his designee receives written notice of such
exercise from the Participant, together with any required payment made in
accordance with Section 2.2(a).
(c) Fractional Shares/Minimum Issue. Fractional share interests shall be
disregarded, but may be accumulated. The Committee, however, may determine in
the case of Eligible Persons that cash, other securities, or other property will
be paid or transferred in lieu of any fractional share interests. No fewer than
100 shares may be purchased on exercise of any Award at one time unless the
number purchased is the total number at the time available for purchase under
the Award.
Section 1.8. No Transferability;Limited Exception to Transfer Restrictions.
(a) Limit on Exercise and Transfer. Unless otherwise expressly provided in
(or pursuant to) this Section 1.8, by applicable law and by the Award Agreement,
as the same may be amended, (i) all Awards are non-transferable and shall not be
subject in any manner to sale, transfer, anticipation, alienation, assignment,
pledge, encumbrance or charge; (ii) Awards shall be exercised only by the
Participant; and (iii) amounts payable or shares issuable pursuant to an Award
shall be delivered only to (or for the account of) the Participant.
(b) Exceptions. The Committee may permit Awards to be exercised by and paid
to certain persons or entities related to the Participant pursuant to such
conditions and procedures as the Committee may establish. Any permitted transfer
shall be subject to the condition that the Committee receive evidence
satisfactory to it that the transfer is being made for estate and/or tax
planning purposes or a gratuitous or donative basis and without consideration
(other than nominal consideration). Notwithstanding the foregoing, Incentive
Stock Options and Restricted Stock Awards shall be subject to any and all
applicable transfer restrictions under the Code.
(c) Further Exceptions to Limits On Transfer. The exercise and transfer
restrictions in Section 1.8(a) shall not apply to:
(i) transfers to the Corporation,
(ii) the designation of a beneficiary to receive benefits in the event
of the Participant's death or, if the Participant has died, transfers to or
exercise by the Participant's beneficiary, or, in the absence of a validly
designated beneficiary, transfers by will or the laws of descent and
distribution,
(iii) transfers pursuant to a QDRO order,
(iv) if the Participant has suffered a disability, permitted transfers
or exercises on behalf of the Participant by his or her legal
representative, or
(v) the authorization by the Committee of "cashless exercise"
procedures with third parties who provide financing for the purpose of (or
who otherwise facilitate) the exercise of Awards consistent with applicable
laws and the express authorization of the Committee.
Notwithstanding the foregoing, Incentive Stock Options and Restricted Stock
Awards shall be subject to all applicable transfer restrictions under the Code.
Section 1.9. Acceptance of Notes to Finance Exercise.
The Corporation may, with the Committee's approval, accept one or more
notes from any Eligible Person in connection with the exercise or receipt of any
outstanding Award; provided that any such note shall be subject to the following
terms and conditions:
(a) The principal of the note shall not exceed the amount required to be
paid to the Corporation upon the exercise or receipt of one or more Awards under
the Plan and the note shall be delivered directly to the Corporation in
consideration of such exercise or receipt.
(b) The initial term of the note shall be determined by the Committee;
provided that the term of the note, including extensions, shall not exceed a
period of five years.
(c) The note shall provide for full recourse to the Participant and shall
bear interest at a rate determined by the Committee but not less than the
interest rate necessary to avoid the imputation of interest under the Code.
(d) If the employment of the Participant terminates, the unpaid principal
balance of the note shall become due and payable on the 10th business day after
such termination; provided, however, that if a sale of such shares would cause
such Participant to incur liability under Section 16(b) of the Exchange Act, the
unpaid balance shall become due and payable on the 10th business day after the
first day on which a sale of such shares could have been made without incurring
such liability assuming for these purposes that there are no other transactions
(or deemed transactions in securities of this Corporation) by the Participant
subsequent to such termination.
(e) If required by the Committee or by applicable law, the note shall be
secured by a pledge of any shares or rights financed thereby in compliance with
applicable law.
(f) The terms, repayment provisions, and collateral release provisions of
the note and the pledge securing the note shall conform with applicable rules
and regulations of the Federal Reserve Board as then in effect.
Section 1.10. Limitations on Grants of Awards to Non-Employee Directors.
Notwithstanding anything else contained herein to the contrary, the maximum
number of shares subject to Nonqualified Stock Options granted to a Non-Employee
Director in any calendar year shall not exceed 30,000 shares.
ARTICLE II. OPTIONS.
Section 2.1. Grants.
One or more Options may be granted under this Article to any Eligible
Person. Each Option granted shall be designated in the applicable Award
Agreement by the Committee as either an Incentive Stock Option subject to
Section 2.3, or a Non-Qualified Stock Option.
Section 2.2. Option Price.
(a) Pricing Limits. The purchase price per share of the Common Stock
covered by each Option shall be determined by the Committee at the time of the
Award, but in the case of Incentive Stock Options shall not be less than 100%
(110% in the case of a Participant described in Section 2.4) of the Fair Market
Value of the Common Stock on the date of grant.
(b) Payment Provisions. The purchase price of any shares purchased on
exercise of an Option granted under this Article shall be paid in full at the
time of each purchase in one or a combination of the following methods: (i) in
cash or by electronic funds transfer; (ii) by check payable to the order of the
Corporation; (iii) if authorized by the Committee or specified in the applicable
Award Agreement, by a promissory note of the Participant consistent with the
requirements of Section 1.9; (iv) by notice and third party payment in such
manner as may be authorized by the Committee; or (iv) by the delivery of shares
of Common Stock of the Corporation already owned by the Participant, provided,
however, that the Committee may in its absolute discretion limit the
Participant's ability to exercise an Award by delivering such shares, and
provided further that any shares delivered which were initially acquired upon
exercise of an Option must have been owned by the Participant for at least six
months as of the date of delivery. Shares of Common Stock used to satisfy the
exercise price of an Option shall be valued at their Fair Market Value on the
date of exercise.
Section 2.3. Limitations on Grant and Terms of Incentive Stock Options.
(a) $100,000 Limit. To the extent that the aggregate Fair Market Value of
stock with respect to which incentive stock options first become exercisable by
a Participant in any calendar year exceeds $100,000, taking into account both
Common Stock subject to Incentive Stock Options under this Plan and stock
subject to incentive stock options under all other plans of the Company or any
parent corporation, such options shall be treated as Nonqualified Stock Options.
For this purpose, the Fair Market Value of the stock subject to options shall be
determined as of the date the options were awarded. In reducing the number of
options treated as incentive stock options to meet the $100,000 limit, the most
recently granted options shall be reduced first. To the extent a reduction of
simultaneously granted options is necessary to meet the $100,000 limit, the
Committee may, in the manner and to the extent permitted by law, designate which
shares of Common Stock are to be treated as shares acquired pursuant to the
exercise of an Incentive Stock Option.
(b) Option Period. Each Option and all rights thereunder shall expire no
later than ten years after the Award Date.
(c) Other Code Limits. Incentive Stock Options may only be granted to
Eligible Employees who are actually employed by the Corporation or a Subsidiary
and that satisfy the other eligibility requirements of the Code. There shall be
imposed in any Award Agreement relating to Incentive Stock Options such other
terms and conditions as from time to time are required in order that the Option
be an "incentive stock option" as that term is defined in Section 422 of the
Code.
Section 2.4. Limits on 10% Holders.
No Incentive Stock Option may be granted to any person who, at the time the
Option is granted, owns (or is deemed to own under Section 424(d) of the Code)
shares of outstanding Common Stock possessing more than 10% of the total
combined voting power of all classes of stock of the Corporation, unless the
exercise price of such Option is at least 110% of the Fair Market Value of the
stock subject to the Option and such Option by its terms is not exercisable
after the expiration of five years from the date such Option is granted.
Section 2.5. Cancellation and Regrant/Waiver of Restrictions.
Subject to Section 1.4 and the specific limitations on Awards contained in
this Plan, the Committee from time to time may authorize, generally or in
specific cases only, for the benefit of any Eligible Person any adjustment in
the exercise or purchase price, the vesting schedule, the number of shares
subject to, the restrictions upon or the term of, an Award granted under this
Article by cancellation of an outstanding Award and a subsequent regranting of
an Award, by amendment, by substitution of an outstanding Award, by waiver or by
other legally valid means. Such amendment or other action may result among other
changes in an exercise or purchase price which is higher or lower than the
exercise or purchase price of the original Award or prior Award, provide for a
greater or lesser number of shares subject to the Award, or provide for a longer
or shorter vesting or exercise period.
Section 2.6. Options and Rights in Substitution for Stock Options Granted
by Other Corporations.
Options and Stock Appreciation Rights may be granted to Eligible Persons
under this Plan in substitution for employee stock options granted by other
entities to persons who are or who will become Eligible Persons in respect of
the Company, in connection with a distribution, merger or reorganization by or
with the granting entity or an affiliated entity, or the acquisition by the
Company, directly or indirectly, of all or a substantial part of the stock or
assets of the other entity.
ARTICLE III. STOCK APPRECIATION RIGHTS.
Section 3.1. Grants.
In its discretion, the Committee may grant a Stock Appreciation Right to
any Eligible Person either concurrently with the grant of another Award or in
respect of an outstanding Award, in whole or in part, or independently of any
other Award. Any Stock Appreciation Right granted in connection with an
Incentive Stock Option shall contain such terms as may be required to comply
with the provisions of Section 422 of the Code and the regulations promulgated
thereunder, unless the holder otherwise agrees.
Section 3.2. Exercise of Stock Appreciation Rights.
(a) Exercisability. Unless the Award Agreement or the Committee otherwise
provides, a Stock Appreciation Right related to another Award shall be
exercisable at such time or times, and to the extent, that the related Award
shall be exercisable.
(b) Effect on Available Shares. To the extent that a Stock Appreciation
Right is exercised, the number of underlying shares of Common Stock theretofore
subject to a related Award shall be charged against the maximum amount of Common
Stock that may be delivered pursuant to Awards under this Plan. The number of
shares subject to the Stock Appreciation Right and the related Option of the
Participant shall be reduced by the number of underlying shares as to which the
exercise related, unless the Award Agreement otherwise provides.
(c) Stand-Alone SARs. A Stock Appreciation Right granted independently of
any other Award shall be exercisable pursuant to the terms of the Award
Agreement but in no event earlier than six months after the Award Date, except
in the case of death or Total Disability.
Section 3.3. Payment.
(a) Amount. Unless the Committee otherwise provides, upon exercise of a
Stock Appreciation Right and the attendant surrender of an exercisable portion
of any related Award, the Participant shall be entitled to receive payment of an
amount determined by multiplying
(i) the difference obtained by subtracting the exercise price per
share of Common Stock under the related Award (if applicable) or the
initial share value specified in the Award from the Fair Market Value of a
share of Common Stock on the date of exercise of the Stock Appreciation
Right, by
(ii) the number of shares with respect to which the Stock Appreciation
Right shall have been exercised.
(b) Form of Payment. The Committee, in its sole discretion, shall determine
the form in which payment shall be made of the amount determined under Section
3.3(a) above, either solely in cash, solely in shares of Common Stock (valued at
Fair Market Value on the date of exercise of the Stock Appreciation Right), or
partly in such shares and partly in cash, provided that the Committee shall have
determined that such exercise and payment are consistent with applicable law. If
the Committee permits the Participant to elect to receive cash or shares (or a
combination thereof) on such exercise, any such election shall be subject to
such conditions as the Committee may impose.
ARTICLE IV. RESTRICTED STOCK AWARDS.
Section 4.1. Grants.
The Committee may, in its discretion, grant one or more Restricted Stock
Awards to any Eligible Person. Each Restricted Stock Award Agreement shall
specify the number of shares of Common Stock to be issued to the Participant,
the date of such issuance, the consideration for such shares (but not less than
the minimum lawful consideration under applicable state law) by the Participant,
the extent to which the Participant shall be entitled to dividends, voting and
other rights in respect of the shares prior to vesting and the restrictions
imposed on such shares and the conditions of release or lapse of such
restrictions. Such restrictions shall not lapse earlier than six months after
the Award Date, except to the extent the Committee may otherwise provide. Stock
certificates evidencing shares of Restricted Stock pending the lapse of the
restrictions ("restricted shares") shall bear a legend making appropriate
reference to the restrictions imposed hereunder and shall be held by the
Corporation or by a third party designated by the Committee until the
restrictions on such shares shall have lapsed and the shares shall have vested
in accordance with the provisions of the Award and Section 1.7. Upon issuance of
the Restricted Stock Award, the Participant may be required to provide such
further assurance and documents as the Committee may require to enforce the
restrictions.
Section 4.2. Restrictions.
(a) Pre-Vesting Restraints. Except as provided in Section 4.1 and 1.8,
restricted shares comprising any Restricted Stock Award may not be sold,
assigned, transferred, pledged or otherwise disposed of or encumbered, either
voluntarily or involuntarily, until the restrictions on such shares have lapsed
and the shares have become vested.
(b) Dividend and Voting Rights. Unless otherwise provided in the applicable
Award Agreement, a Participant receiving a Restricted Stock Award shall be
entitled to cash dividend and voting rights for all shares issued even though
they are not vested, provided that such rights shall terminate immediately as to
any restricted shares which cease to be eligible for vesting.
(c) Cash Payments. If the Participant shall have paid or received cash
(including any dividends) in connection with the Restricted Stock Award, the
Award Agreement shall specify whether and to what extent such cash shall be
returned (with or without an earnings factor) as to any restricted shares which
cease to be eligible for vesting.
Section 4.3. Return to the Corporation.
Unless the Committee otherwise expressly provides, restricted shares that
remain subject to restrictions at the time of termination of employment or are
subject to other conditions to vesting that have not been satisfied by the time
specified in the applicable Award Agreement shall not vest and shall be returned
to the Corporation in such manner and on such terms as the Committee shall
therein provide.
ARTICLE V. PERFORMANCE SHARE AWARDS AND STOCK BONUSES.
Section 5.1. Grants of Performance Share Awards.
The Committee may, in its discretion, grant Performance Share Awards to
Eligible Persons based upon such factors as the Committee shall deem relevant in
light of the specific type and terms of the award. An Award Agreement shall
specify the maximum number of shares of Common Stock (if any) subject to the
Performance Share Award, the consideration (but not less than the minimum lawful
consideration) to be paid for any such shares as may be issuable to the
Participant, the duration of the Award and the conditions upon which delivery of
any shares or cash to the Participant shall be based. The amount of cash or
shares or other property that may be deliverable pursuant to such Award shall be
based upon the degree of attainment over a specified period (a "performance
cycle") as may be established by the Committee of such measure(s) of the
performance of the Company (or any part thereof) or the Participant as may be
established by the Committee. The Committee may provide for full or partial
credit, prior to completion of such performance cycle or the attainment of the
performance achievement specified in the Award, in the event of the
Participant's death, or Total Disability, a Change in Control Event or in such
other circumstances as the Committee consistent with Section 6.10(c)(2), if
applicable, may determine.
Section 5.2. Special Performance-Based Share Awards.
Without limiting the generality of the foregoing, and in addition to
Options and Stock Appreciation Rights granted under other provisions of this
Plan which are intended to satisfy the exception for "performance-based
compensation" under Section 162(m) of the Code (with such Awards hereinafter
referred to as a "Qualifying Option" or a "Qualifying Stock Appreciation Right,"
respectively), other performance-based awards within the meaning of Section
162(m) of the Code ("Performance-Based Awards"), whether in the form of
restricted stock, performance stock, phantom stock, or other rights, the vesting
or exercisability of which depends on the degree of achievement of the
Performance Goals relative to preestablished targeted levels for the Corporation
or the Corporation and one or more of its Subsidiaries or divisions, may be
granted under this Plan. Any Qualifying Option or Qualifying Stock Appreciation
Right shall be subject only to the requirements of subsections (a) and (c) below
in order for such Awards to satisfy the requirements for Performance-Based
Awards under this Section 5.2. With the exception of any Qualifying Option or
Qualifying Stock Appreciation Right, an Award that is intended to satisfy the
requirements of this Section 5.2 shall be designated as a Performance-Based
Award at the time of grant.
(a) Eligible Class. The eligible class of persons for Performance-Based
Awards under this Section shall be the executive officers of the Corporation.
(b) Performance Goal Alternatives. The specific performance goals for
Performance-Based Awards granted under this Section (other than Qualifying
Options and Qualifying Stock Appreciation Rights) shall be, on an absolute or
relative basis, one or more of the Performance Goals, as selected by the
Committee in its sole discretion. The Committee shall establish in the
applicable Award Agreement the specific performance target(s) relative to the
Performance Goal(s) which must be attained before the compensation under the
Performance-Based Award becomes payable. The specific targets shall be
determined within the time period permitted under Section 162(m) of the Code
(and any regulations issued thereunder) so that such targets are considered to
be preestablished and so that the attainment of such targets is substantially
uncertain at the time of their establishment. The applicable performance
measurement period may not be less than one nor more than 10 years.
(c) Maximum Performance-Based Award. Notwithstanding any other provision of
the Plan to the contrary, in no event shall grants in any calendar year to a
Participant under this Section 5.2 relate to more than 100,000 shares of Common
Stock (subject to adjustment under Section 6.2) or a cash amount of more than
$1,000,000. Awards that are cancelled during the year shall be counted against
this limit to the extent required by Section 162(m) of the Code.
(d) Committee Certification. Before any Performance-Based Award under this
Section 5.2 (other than Qualifying Options or Qualifying Stock Appreciation
Rights) is paid, the Committee must certify in writing that the Performance
Goal(s) and any other material terms of the Performance-Based Award were
satisfied; provided, however, that a Performance-Based Award may be paid without
regard to the satisfaction of the applicable Performance Goal in the event of a
Change in Control Event in accordance with Section 6.2(d).
(e) Terms and Conditions of Awards. The Committee will have the discretion
to determine the restrictions or other limitations of the individual Awards
granted under this Section 5.2 including the authority to reduce Awards, payouts
or vesting or to pay no Awards, in its sole discretion, if the Committee
preserves such authority at the time of grant by language to this effect in its
authorizing resolutions or otherwise.
(f) Adjustments for Changes in Capitalization and other Material Changes.
In the event of a change in corporate capitalization, such as a stock split or
stock dividend, or a corporate transaction, such as a merger, consolidation,
spinoff, reorganization or similar event, or any partial or complete liquidation
of the Corporation, or any similar event consistent with regulations issued
under Section 162(m) of the Code including, without limitation, any material
change in accounting policies or practices affecting the Corporation and/or the
Performance Goals or targets, then the Committee may make adjustments to the
Performance Goals and targets relating to outstanding Performance-Based Awards
to the extent such adjustments are made to reflect the occurrence of such an
event; provided, however, that adjustments described in this subsection may be
made only to the extent that the occurrence of an event described herein was
unforeseen at the time the targets for a Performance-Based Award were
established by the Committee.
(g) Stock Payout Features. In lieu of cash payment of an Award, the
Committee may require or allow a portion of the Award to be part in the form of
shares of Common Stock, restricted shares or an Option.
Section 5.3. Grants of Stock Bonuses.
The Committee may grant a Stock Bonus to any Eligible Person to reward
exceptional or special services, contributions or achievements in the manner and
on such terms and conditions (including any restrictions on such shares) as
determined from time to time by the Committee. The number of shares so awarded
shall be determined by the Committee. The Award may be granted independently or
in lieu of a cash bonus.
Section 5.4. Deferred Payments.
The Committee may authorize for the benefit of any Eligible Person the
deferral of any payment of cash or shares that may become due or of cash
otherwise payable under this Plan, and provide for accredited benefits thereon
based upon such deferment, at the election or at the request of such
Participant, subject to the other terms of this Plan. Such deferral shall be
subject to such further conditions, restrictions or requirements as the
Committee may impose, subject to any then vested rights of Participants.
ARTICLE VI. OTHER PROVISIONS.
Section 6.1. Rights of Eligible Persons, Participants and Beneficiaries.
(a) Employment Status. Status as an Eligible Person shall not be construed
as a commitment that any Award will be made under this Plan to an Eligible
Person or to Eligible Persons generally.
(b) No Employment Contract. Nothing contained in this Plan (or in any other
documents related to this Plan or to any Award) shall confer upon any Eligible
Person or other Participant any right to continue in the employ or other service
of the Company or constitute any contract or agreement of employment or other
service, nor shall interfere in any way with the right of the Company to change
such person's compensation or other benefits or to terminate the employment of
such person, with or without cause, but nothing contained in this Plan or any
document related hereto shall adversely affect any independent contractual right
of such person without his or her consent thereto.
(c) Plan Not Funded. Awards payable under this Plan shall be payable in
shares or from the general assets of the Corporation, and no special or separate
reserve, fund or deposit shall be made to assure payment of such Awards. No
Participant, Beneficiary or other person shall have any right, title or interest
in any fund or in any specific asset (including shares of Common Stock, except
as expressly otherwise provided) of the Company by reason of any Award
hereunder. Neither the provisions of this Plan (or of any related documents),
nor the creation or adoption of this Plan, nor any action taken pursuant to the
provisions of this Plan shall create, or be construed to create, a trust of any
kind or a fiduciary relationship between the Company and any Participant,
Beneficiary or other person. To the extent that a Participant, Beneficiary or
other person acquires a right to receive payment pursuant to any Award
hereunder, such right shall be no greater than the right of any unsecured
general creditor of the Company.
Section 6.2. Adjustments; Acceleration.
(a) Adjustments. If there shall occur any extraordinary dividend or other
extraordinary distribution in respect of the Common Stock (whether in the form
of cash, Common Stock, other securities, or other property), or any
reclassification, recapitalization, stock split (including a stock split in the
form of a stock dividend), reverse stock split, reorganization, merger,
combination, consolidation, split-up, spin-off, combination, or exchange of
Common Stock or other securities of the Corporation, or there shall occur any
other like corporate transaction or event in respect of the Common Stock or a
sale of substantially all the assets of the Corporation as an entirety, then the
Committee shall, in such manner and to such extent (if any) as it deems
appropriate and equitable (1) proportionately adjust any or all of (i) the
number and type of shares of Common Stock (or other securities) which thereafter
may be made the subject of Awards (including the specific numbers of shares set
forth elsewhere in this Plan), (ii) the number, amount and type of shares of
Common Stock (or other securities or property) subject to any or all outstanding
Awards, (iii) the grant, purchase, or exercise price of any or all outstanding
Awards, (iv) the securities, cash or other property deliverable upon exercise of
any outstanding Awards, or (v) the performance standards appropriate to any
outstanding Awards, or (2) in the case of an extraordinary dividend or other
distribution, recapitalization, reclassification, merger, reorganization,
consolidation, combination, sale of assets, split up, exchange, or spin off,
make provision for a cash payment or for the substitution or exchange of any or
all outstanding Awards or the cash, securities or property deliverable to the
holder of any or all outstanding Awards based upon the distribution or
consideration payable to holders of the Common Stock of the Corporation upon or
in respect of such event; provided, however, in each case, that with respect to
Awards of Incentive Stock Options, no such adjustment shall be made which would
cause the Plan to violate Section 424(a) of the Code or any successor provisions
thereto without the written consent of holders materially adversely affected
thereby. In any of such events, the Committee may take such action sufficiently
prior to such event if necessary to permit the Participant to realize the
benefits intended to be conveyed with respect to the underlying shares in the
same manner as is available to stockholders generally.
(b) Acceleration of Awards Upon Change in Control. As to any Participant,
unless prior to a Change in Control Event the Committee determines that, upon
its occurrence, there shall be no acceleration of benefits under Awards or
determines that only certain or limited benefits under Awards shall be
accelerated and the extent to which they shall be accelerated, and/or
establishes a different time in respect of such Change in Control Event for such
acceleration, then upon the occurrence of a Change in Control Event (i) each
Option and Stock Appreciation Right shall become immediately exercisable, (ii)
Restricted Stock shall immediately vest free of restrictions, and (iii) each
Performance Share Award shall become payable to the Participant; provided,
however, that in no event shall any Award be accelerated as to any Section 16
Person to a date less than six months after the Award Date of such Award. The
Committee may override the limitations on acceleration in this Section 6.2(b) by
express provision in the Award Agreement and may accord any Eligible Person a
right to refuse any acceleration, whether pursuant to the Award Agreement or
otherwise, in such circumstances as the Committee may approve. Any acceleration
of Awards shall comply with applicable regulatory requirements, including
without limitation Section 422 of the Code.
(c) Possible Early Termination of Accelerated Awards. If any Option or
other right to acquire Common Stock under this Plan has been fully accelerated
as permitted by Section 6.2(b) but is not exercised prior to (i) a dissolution
of the Corporation, or (ii) an event described in Section 6.2(a) that the
Corporation does not survive, or (iii) the consummation of an event described in
Section 6.2(a) that results in a Change in Control Event approved by the Board,
such Option or right shall thereupon terminate, subject to any provision that
has been expressly made by the Committee for the survival, substitution,
exchange or other settlement of such Option or right.
Section 6.3. Effect of Termination of Employment.
The Committee shall establish in respect of each Award granted to an
Eligible Person the effect of a termination of employment on the rights and
benefits thereunder and in so doing may make distinctions based upon the cause
of termination. In addition, in the event of, or in anticipation of, a
termination of employment with the Company for any reason, other than discharge
for cause, the Committee may, in its discretion, increase the portion of the
Participant's Award available to the Participant, or Participant's Beneficiary
or Personal Representative, as the case may be, or, subject to the provisions of
Section 1.6, extend the exercisability period upon such terms as the Committee
shall determine and expressly set forth in or by amendment to the Award
Agreement.
Section 6.4. Compliance with Laws.
This Plan, the granting and vesting of Awards under this Plan and the
offer, issuance and delivery of shares of Common Stock and/or the payment of
money under this Plan or under Awards granted hereunder are subject to
compliance with all applicable federal and state laws, rules and regulations
(including but not limited to state and federal securities law and federal
margin requirements) and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Corporation, be
necessary or advisable in connection therewith. Any securities delivered under
this Plan shall be subject to such restrictions, and the person acquiring such
securities shall, if requested by the Corporation, provide such assurances and
representations to the Corporation as the Corporation may deem necessary or
desirable to assure compliance with all applicable legal requirements.
Section 6.5. Tax Withholding.
Upon any exercise, vesting, or payment of any Award or upon the disposition
of shares of Common Stock acquired pursuant to the exercise of an Incentive
Stock Option prior to satisfaction of the holding period requirements of Section
422 of the Code, the Company shall have the right at its option to (i) require
the Participant (or Personal Representative or Beneficiary, as the case may be)
to pay or provide for payment of the amount of any taxes which the Company may
be required to withhold with respect to such Award event or payment or (ii)
deduct from any amount payable in cash the amount of any taxes which the Company
may be required to withhold with respect to such cash payment. In any case where
a tax is required to be withheld in connection with the delivery of shares of
Common Stock under this Plan, the Committee may in its sole discretion grant
(either at the time of the Award or thereafter) to the Participant the right to
elect, pursuant to such rules and subject to such conditions as the Committee
may establish, to have the Corporation reduce the number of shares to be
delivered by (or otherwise reacquire) the appropriate number of shares valued at
their then Fair Market Value, to satisfy such withholding obligation.
Section 6.6. Plan Amendment, Termination and Suspension.
(a) Board Authorization. The Board may, at any time, terminate or, from
time to time, amend, modify or suspend this Plan, in whole or in part. No Awards
may be granted during any suspension of this Plan or after termination of this
Plan, but the Committee shall retain jurisdiction as to Awards then outstanding
in accordance with the terms of this Plan.
(b) Stockholder Approval. Any amendment that would (i) materially increase
the benefits accruing to Participants under this Plan, (ii) materially increase
the aggregate number of securities that may be issued under this Plan, or (iii)
materially modify the requirements as to eligibility for participation in this
Plan, shall be subject to stockholder approval only to the extent then required
by Section 422 of the Code or applicable law, or deemed necessary or advisable
by the Board.
(c) Amendments to Awards. Without limiting any other express authority of
the Committee under but subject to the express limits of this Plan, the
Committee by agreement or resolution may waive conditions of or limitations on
Awards to Eligible Persons that the Committee in the prior exercise of its
discretion has imposed, without the consent of a Participant, and may make other
changes to the terms and conditions of Awards that do not affect in any manner
materially adverse to the Participant, his or her rights and benefits under an
Award.
(d) Limitations on Amendments to Plan and Awards. No amendment, suspension
or termination of the Plan or change of or affecting any outstanding Award
shall, without written consent of the Participant, affect in any manner
materially adverse to the Participant any rights or benefits of the Participant
or obligations of the Corporation under any Award granted under this Plan prior
to the effective date of such change. Changes contemplated by Section 6.2 shall
not be deemed to constitute changes or amendments for purposes of this Section
6.6.
Section 6.7. Privileges of Stock Ownership.
Except as otherwise expressly authorized by the Committee or this Plan, a
Participant shall not be entitled to any privilege of stock ownership as to any
shares of Common Stock not actually delivered to and held of record by him or
her. No adjustment will be made for dividends or other rights as a stockholders
for which a record date is prior to such date of delivery.
Section 6.8. Effective Date of the Plan.
This Plan shall be effective as of February 28, 1997, the date of Board
approval, subject to stockholder approval within 12 months thereafter.
Section 6.9. Term of the Plan.
No Award shall be granted more than ten years after the effective date of
this Plan (the "termination date"). Unless otherwise expressly provided in this
Plan or in an applicable Award Agreement, any Award granted prior to the
termination date may extend beyond such date, and all authority of the Committee
with respect to Awards hereunder, including the authority to amend an Award,
shall continue during any suspension of this Plan and in respect of outstanding
Awards on the termination date.
Section 6.10. Governing Law/Construction/Severability.
(a) Choice of Law. This Plan, the Awards, all documents evidencing Awards
and all other related documents shall be governed by, and construed in
accordance with the laws of the state of incorporation of the Corporation.
(b) Severability. If any provision shall be held by a court of competent
jurisdiction to be invalid and unenforceable, the remaining provisions of this
Plan shall continue in effect.
(c) Plan Construction.
(1) Rule 16b-3. It is the intent of the Corporation that transactions
in and affecting Awards in the case of Participants who are or may be
subject to Section 16 of the Exchange Act satisfy any then applicable
requirements of Rule 16b-3 so that such persons (unless they otherwise
agree) will be entitled to the benefits of Rule 16b-3 or other exemptive
rules under Section 16 of the Exchange Act in respect of these transactions
and will not be subjected to avoidable liability thereunder. If any
provision of this Plan or of any Award would otherwise frustrate or
conflict with the intent expressed above, that provision to the extent
possible shall be interpreted so as to avoid such conflict. If the conflict
remains irreconcilable, the Committee may disregard the provision if it
concludes that to do so furthers the interest of the Corporation and is
consistent with the purposes of this Plan as to such persons in the
circumstances.
(2) Section 162(m). It is the further intent of the Company that
Options or Stock Appreciation Rights with an exercise or base price not
less than Fair Market Value on the date of grant and Performance Share
Awards under Section 5.2 of this Plan that are granted to or held by a
Section 16 Person shall qualify as performance-based compensation under
Section 162(m) of the Code, and this Plan shall be interpreted consistent
with such intent.
Section 6.11. Captions.
Captions and headings are given to the sections and subsections of this
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
Section 6.12. Effect of Change of Subsidiary Status.
For purposes of this Plan and any Award hereunder, if an entity ceases to
be a Subsidiary a termination of employment and service shall be deemed to have
occurred with respect to each Eligible Person in respect of such Subsidiary who
does not continue as an Eligible Person in respect of another entity within the
Company.
Section 6.13. Non-Exclusivity of Plan.
Nothing in this Plan shall limit or be deemed to limit the authority of the
Board or the Committee to grant awards or authorize any other compensation, with
or without reference to the Common Stock, under any other plan or authority.
ARTICLE VII. DEFINITIONS.
Section 7.1. Definitions.
"Award" shall mean an award of any Option, Stock Appreciation Right,
Restricted Stock, Stock Bonus, Performance Share Award, Performance-Based Award,
dividend equivalent or deferred payment right or other right or security that
would constitute a "derivative security" under Rule 16a-1(c) of the Exchange
Act, or any combination thereof, whether alternative or cumulative, authorized
by and granted under this Plan.
"Award Agreement" shall mean any writing setting forth the terms of an
Award that has been authorized by the Committee.
"Award Date" shall mean the date upon which the Committee took the action
granting an Award or such later date as the Committee designates as the Award
Date at the time of the Award.
"Award Period" shall mean the period beginning on an Award
Date and ending on the expiration date of such Award.
"Beneficiary" shall mean the person, persons, trust or trusts
designated by a Participant or, in the absence of a designation, entitled by
will or the laws of descent and distribution, to receive the benefits specified
in the Award Agreement and under this Plan in the event of a Participant's
death, and shall mean the Participant's executor or administrator if no other
Beneficiary is designated and able to act under the circumstances.
"Board" shall mean the Board of Directors of the Corporation.
"Cash Flow" shall mean cash and cash equivalents derived from either (i)
net cash flow from operations or (ii) net cash flow from operations, financings
and investing activities, as determined by the Committee at the time an Award is
granted.
"Change in Control Event" shall mean any of the following:
(1) Approval by the stockholders of the Corporation of the dissolution
or liquidation of the Corporation;
(2) Approval by the stockholders of the Corporation of an agreement to
merge or consolidate, or otherwise reorganize, with or into one or more
entities that are not Subsidiaries, as a result of which less than 50% of
the outstanding voting securities of the surviving or resulting entity
immediately after the reorganization are, or will be, owned, directly or
indirectly, by stockholders of the Corporation immediately before such
reorganization (assuming for purposes of such determination that there is
no change in the record ownership of the Corporation's securities from the
record date for such approval until such reorganization and that such
record owners hold no securities of the other parties to such
reorganization); provided that an event described in this clause (2) shall
not constitute a Change in Control Event if the majority of members of the
Board of the surviving entity is comprised of individuals who were members
of the Board immediately prior to such event;
(3) Approval by the stockholders of the Corporation of the sale of
substantially all of the Corporation's business and/or assets to a person
or entity which is not a Subsidiary;
(4) Any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act but excluding any person described in and satisfying the
conditions of Rule 13d-1(b)(1) thereunder), becomes the beneficial owner
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Corporation representing more than 50% of the combined
voting power of the Corporation's then outstanding securities entitled to
then vote generally in the election of directors of the Corporation; or
(5) At any time during the term of this Plan, 51% or more of the
individuals elected to serve, and who are then serving, on the Board are
individuals who were not (i) members of the Board at the time of the
adoption of this Plan by the Board, or (ii) nominated or elected to their
current term of office as a director by a committee of the Board which is
authorized to fill vacancies on the Board (or if there is no such
committee, by a majority of the Board in office at the time of such
individual's nomination or election by the Board to fill a vacancy), or
(iii) approved by a majority of members of the Board who were either
members of the Board at the time this Plan was adopted by the Board, or
nominated or elected as described in clause (5) (ii) above.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"Commission" shall mean the Securities and Exchange Commission.
"Committee" shall mean the Board or a committee appointed by the Board to
administer this Plan, which committee shall be comprised only of two or more
directors or such greater number of directors as may be required under
applicable law, each of whom, (i) in respect of any decision at a time when the
Participant affected by the decision may be subject to Section 162(m) of the
Code, shall be an "outside" director within the meaning of Section 162(m) of the
Code, and (ii) in respect of any decision affecting a transaction at a time when
the Participant involved in the transaction may be subject to Section 16 of the
Exchange Act, shall be a "non-employee director" within the meaning of Rule
16b-3(b)(3) promulgated under the Exchange Act.
"Common Stock" shall mean the Common Stock of the Corporation and such
other securities or property as may become the subject of Awards, or become
subject to Awards, pursuant to an adjustment made under Section 6.2 of this
Plan.
"Company" shall mean, collectively, the Corporation and its Subsidiaries.
"Corporation" shall mean Apria Healthcare Group Inc., a Delaware
corporation, and its successors.
"Disinterested" shall mean disinterested within the meaning of any
applicable regulatory requirements, including Rule 16b-3.
"EBITDA" shall mean earnings before interest, taxes, depreciation and
amortization.
"Eligible Employee" shall mean an officer (whether or not a director) or
key employee of the Company.
"Eligible Person" means an Eligible Employee, or any Other Eligible Person,
as determined by the Committee in its discretion.
"EPS" shall mean earnings per common share on a fully diluted basis
determined by dividing (i) net earnings, less dividends on preferred stock of
the Corporation by (ii) the weighted average number of common shares and common
shares equivalents outstanding.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time.
"Fair Market Value" on any date shall mean (i) if the stock is listed or
admitted to trade on a national securities exchange, the closing price of the
stock on the principal national securities exchange on which the stock is so
listed or admitted to trade, on such date, or, if there is no trading of the
stock on such date, then the closing price of the stock on the next preceding
date on which there was trading in such shares; (ii) if the stock is not listed
or admitted to trade on a national securities exchange, the last price for the
stock on such date, as furnished by the National Association of Securities
Dealers, Inc. ("NASD") through the NASDAQ National Market Reporting System or a
similar organization if the NASD is no longer reporting such information; (iii)
if the stock is not listed or admitted to trade on a national securities
exchange and is not reported on the National Market Reporting System, the mean
between the bid and asked price for the stock on such date, as furnished by the
NASD or a similar organization; or (iv) if the stock is not listed or admitted
to trade on a national securities exchange, is not reported on the National
Market Reporting System and if bid and asked prices for the stock are not
furnished by the NASD or a similar organization, the value as established by the
Committee at such time for purposes of this Plan.
"Free Cash Flow" shall mean cash postings less cost of sales, operating
expenses (net of bad debt) and capital expenditures.
"Incentive Stock Option" shall mean an Option which is intended, as
evidenced by its designation, as an incentive stock option within the meaning of
Section 422 of the Code, the award of which contains such provisions (including
but not limited to the receipt of stockholder approval of this Plan, if the
Award is made prior to such approval) and is made under such circumstances and
to such persons as may be necessary to comply with that section.
"Nonqualified Stock Option" shall mean an Option that is designated as a
Nonqualified Stock Option and shall include any Option intended as an Incentive
Stock Option that fails to meet the applicable legal requirements thereof. Any
Option granted hereunder that is not designated as an incentive stock option
shall be deemed to be designated a nonqualified stock option under this Plan and
not an incentive stock option under the Code.
"Non-Employee Director" shall mean a member of the Board of
Directors of the Corporation who is not an officer or employee of the Company.
"Option" shall mean an option to purchase Common Stock granted
under this Plan. The Committee shall designate any Option granted to an Eligible
Person as a Nonqualified Stock Option or an Incentive Stock Option.
"Other Eligible Person" shall mean any Non-Employee Director or any
individual consultant or advisor who renders or has rendered bona fide services
(other than services in connection with the offering or sale of securities of
the Company in a capital raising transaction) to the Company, and who is
selected to participate in this Plan by the Committee. A non-employee agent
providing bona fide services to the Company (other than as an eligible advisor
or consultant) may also be selected as an Other Eligible Person if such agent's
participation in this Plan would not adversely affect (i) the Corporation's
eligibility to use Form S-8 to register under the Securities Act of 1933, as
amended, the offering of shares issuable under this Plan by the Company or (ii)
the Corporation's compliance with any other applicable laws.
"Participant" shall mean an Eligible Person who has been granted an Award
under this Plan.
"Performance-Based Award" shall mean an Award of a right to receive shares
of Common Stock or other compensation (including cash) under Section 5.2, the
issuance or payment of which is contingent upon, among other conditions, the
attainment of performance objectives specified by the Committee.
"Performance Goal" shall mean EBITDA or EPS or ROE or Cash Flow or Free
Cash Flow, or sales growth, or cost containment or reduction, or Total
Stockholder Return, and "Performance Goals" means any one or more thereof.
"Performance Share Award" shall mean an Award of a right to receive shares
of Common Stock made in accordance with Section 5.1, the issuance or payment of
which is contingent upon, among other conditions, the attainment of performance
objectives specified by the Committee.
"Personal Representative" shall mean the person or persons who, upon the
disability or incompetence of a Participant, shall have acquired on behalf of
the Participant, by legal proceeding or otherwise, the power to exercise the
rights or receive benefits under this Plan and who shall have become the legal
representative of the Participant.
"Plan" shall mean this 1997 Stock Incentive Plan.
"QDRO" shall mean a qualified domestic relations order as defined in
Section 414(p) of the Code or Title I, Section 206(d)(3) of ERISA (to the same
extent as if this Plan were subject thereto), or the applicable rules
thereunder.
"Restricted Stock Award" shall mean an award of a fixed number of shares of
Common Stock to the Participant subject, however, to payment of such
consideration, if any, and such forfeiture provisions, as are set forth in the
Award Agreement.
"Restricted Stock" shall mean shares of Common Stock awarded to a
Participant under this Plan, subject to payment of such consideration, if any,
and such conditions on vesting and such transfer and other restrictions as are
established in or pursuant to this Plan, for so long as such shares remain
unvested under the terms of the applicable Award Agreement.
"ROE" shall mean consolidated net income of the Corporation (less preferred
dividends), divided by the average consolidated common stockholders equity.
"Rule 16b-3" shall mean Rule 16b-3 as promulgated by the Commission
pursuant to the Exchange Act, as amended from time to time.
"Section 16 Person" shall mean a person subject to Section 16(a) of the
Exchange Act.
"Securities Act" shall mean the Securities Act of 1933, as amended from
time to time.
"Stock Appreciation Right" shall mean a right to receive a number of shares
of Common Stock or an amount of cash, or a combination of shares and cash, the
aggregate amount or value of which is determined by reference to a change in the
Fair Market Value of the Common Stock that is authorized under this Plan.
"Stock Bonus" shall mean an Award of shares of Common Stock granted under
this Plan for no consideration other than past services and without restriction
other than such transfer or other restrictions as the Committee may deem
advisable to assure compliance with law.
"Subsidiary" shall mean any corporation or other entity a majority of whose
outstanding voting stock or voting power is beneficially owned directly or
indirectly by the Corporation.
"Total Disability" shall mean a "permanent and total disability" within the
meaning of Section 22(e)(3) of the Code and (except in the case of a
Non-Employee Director) such other disabilities, infirmities, afflictions or
conditions as the Committee by rule may include.
"Total Stockholder Return" shall mean with respect to the Corporation or
other entities (if measures on a relative basis), the (i) change in the market
price of its common stock (as quoted in the principal market on which it is
traded as of the beginning and ending of the period) plus dividends and other
distributions paid, divided by (ii) the beginning quoted market price, all of
which is adjusted for any changes in equity structure, including but not limited
to stock splits and stock dividends.
Section 7.2. Changes in Applicable Law.
To the extent any terms defined or utilized in this Plan are defined by
identification to a particular statute or regulation, and if there shall occur a
change in such statutory or regulatory definition, then the definition of such
term shall be deemed to have been amended to conform to the change in the
statutory or regulatory definition, unless the Committee shall determine that
such change would create a result which is contrary to the intents and purposes
of this Plan or work to create a hardship for either any Eligible Person or the
Company, in which event the Committee, at its option, shall have authority to
amend this Plan in a manner so as to achieve the original intents and purposes
of this Plan or to diminish or eliminate the hardship caused by such change in a
statutory definition. Any such amendment may be made retroactively to the date
of the change in the statutory or regulatory definition.
EXHIBIT 10.26
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into by and
between Apria Healthcare Group Inc. (the "Company") and John C. Maney (the
"Executive"), as of the 19th day of October 1998.
I. EMPLOYMENT
The Company hereby employs the Executive and the Executive hereby
accepts such employment, upon the terms and conditions hereinafter set forth,
from the earlier of (i) a date mutually acceptable to the Executive and the
Company or (ii) November 30, 1998, (the "Commencement Date"), to and including
April 30, 2002. The period of employment covered by this Agreement shall be
automatically extended for an additional year until April 30, 2003, unless
either party shall send the other notice prior to November 1, 2002, declining to
accept such extension.
II. DUTIES
The Executive shall serve during the course of his employment as an
Executive Vice President and the Chief Financial Officer of the Company,
reporting to the Chief Executive Officer. The Executive shall undertake such
duties and have such authority as the Company, through its Chief Executive
Officer, shall assign to the Executive from time to time in the Company's sole
and absolute discretion provided such duties and responsibilities are the types
of duties that would ordinarily be assigned to a person with employment
experience and a position comparable to that of the Executive. The Executive
agrees to devote substantially all of his working time and efforts to the
business and affairs of the Company. The Executive further agrees that he shall
not undertake any outside activities which create a conflict in interest with
his duties to the Company, or which, in the judgment of the Board of Directors
of the Company, interfere with the performance of the Executive's duties to the
Company.
III. COMPENSATION
A. The Company will pay to the Executive a base salary at the rate of $350,000
per year. Such salary shall be payable in periodic installments in accordance
with the Company's customary practices. Amounts payable shall be reduced by
standard withholdings and other authorized deductions. The Executive's salary
may be increased from time to time at the discretion of the Company, provided,
however, that such increase shall not be less than 5% for the calendar years
2000, 2001 and 2002.
B. Annual Bonus, Incentive, Savings and Retirement Plans. The Executive shall be
entitled to participate in all annual bonus, incentive, savings and retirement
plans, practices, policies and programs applicable generally to the Chief
Executive Officer of the Company, including without limitation (i) the Company's
Incentive Compensation Plan at the 40% target level, with eligibility for
over-achievement up to 80% of base salary, and (ii) the Company's target
incentive plan for the two years ended December 31, 2000. For the 1999 fiscal
year, the Executive's bonus under the Incentive Compensation Plan shall be not
less than 140,000, payable on January 4, 2000.
C. Welfare Benefits Plans. The Executive and/or his family, as the case may be,
shall be eligible for participation in and shall receive all benefits under
welfare benefit plans, practices, policies and programs provided by the Company
(including, without limitation, medical, prescription, dental, disability,
salary continuance, group life, accidental death and travel accident insurance
plans and programs) to the extent applicable generally to other executives of
the Company. The Company reserves the right to modify, suspend or discontinue
any and all of the above plans, practices, policies and programs at any time
without recourse by the Executive so long as such action is taken generally with
respect to other similarly situated peer executives and does not single out the
Executive.
D. Expenses. The Executive shall be entitled to receive prompt reimbursement for
all reasonable employment expenses incurred by him in accordance with the
policies, practices and procedures as in effect generally with respect to other
executives of the Company. Such employment expenses will include, but are not
limited to, reasonable costs to maintain the Executive's California CPA license
and the related continuing education requirements.
E. Fringe Benefits. The Executive shall b entitled to fringe benefits, including
without limitation (i) a car allowance of $8,400 per year, payable in periodic
installments in accordance with the Company's customary practices, (ii)
reasonable access to the Company's independent auditors for personal financial
planning, (iii) reasonable travel and entertainment expenses of the Executive's
spouse, on an actually incurred basis when necessary in conjunction with
participation in Company events, and (iv) such other benefits in accordance with
the plans, practices, programs and policies as may be in effect generally with
respect to the Chief Executive Officer of the Company.
F. Vacation. The Executive shall be entitled to four weeks of paid vacation
annually, to be available and prorated monthly during the term of this Agreement
and otherwise to be consistent with the vacation policy and practice applicable
to other executives of the Company.
G. Stock Options. Within ten days following the Commencement Date, the Company
shall deliver to the Executive one or more signed stock option agreements dated
the Commencement Date evidencing the Executive's right to purchase a total of
225,000 shares of the Company's common stock at a price per share equal to the
closing market price for the Company's common stock on the New York Stock
Exchange on the business day immediately preceding the Commencement Date. Such
stock options shall have a ten-year term and shall be consistent with the form
of stock options generally provided to the Company's executives, except that the
vesting shall be as follows:
(i) 112,500 shares shall vest and become exercisable immediately as of the
Commencement Date, and
(ii) 56,250 shares shall vest and become exercisable on the first date
subsequent to May 5, 1999 on which the average closing price of the Company's
common stock traded on the New York Stock Exchange during any period of 90
consecutive calendar days subsequent to the Commencement Date shall have been
greater than $14.00 per share, and
(iii) 56,250 shares shall vest and become exercisable on the first date
subsequent to November 5, 2000 on which the average closing price of the
Company's common stock traded on the New York Stock Exchange during any period
of 90 consecutive calendar days subsequent to the Commencement Date shall have
been greater than $18.00 per share.
All vested portions of such options shall remain exercisable for a
period of three years following any termination of the Executive's employment
other than for Cause.
H. Sign-on Bonus. Within ten days following commencement of employment, the
Company will pay Executive $100,000 as a sign-on bonus.
IV. TERMINATION.
A. Death or Disability. The Executive's employment shall terminate automatically
upon the Executive's death. If the Company determines in good faith that the
Disability of the Executive has occurred (pursuant to the definition of
Disability set forth below), it may give to the Executive written notice in
accordance with Section XVII if its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive, provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of his duties. For purposes of
this agreement, "Disability" shall mean a physical or mental impairment which
substantially limits a major life activity of the Executive and which renders
the Executive unable to perform the essential functions of his position, even
with reasonable accommodation which does not impose an undue hardship on the
Company. The Company reserves the right, in good faith, to make the
determination of Disability under this Agreement based upon information supplied
by the Executive and/or his medical personnel, as well as information from
medical personnel (or others) selected by the Company or its insurers.
B. Cause. The Company may terminate the Executive's employment for Cause. For
purposes of this Agreement, "Cause" shall mean that the Company, acting in good
faith based upon the information then known to the Company, determines that the
Executive has engaged in or committed: willful misconduct; theft, fraud or other
illegal conduct; failure to substantially perform his duties (other than such
failure resulting from the Executive's Disability) for a 30-day period after
written demand for substantial performance is delivered by the Company that
specifically refers to this paragraph and identifies the manner in which the
Company believes the Executive has not substantially performed his duties;
insubordination; any willful act that is likely to and which does in fact have
the effect of injuring the reputation or business of the Company; violation of
any fiduciary duty; violation of the Executive's duty of loyalty to the Company;
or a breach of any material term of this Agreement for a 30-day period after
written notification is delivered by the Company that specifically refers to
this paragraph and identifies the manner in which the Company believes the
Executive had breached a material term of this Agreement. For purposes of this
paragraph, no act, or failure to act, on the Executive's part shall be
considered willful unless done or omitted to be done, by him not in good faith
and without reasonable belief that his action or omission was in the best
interest of the Company. Notwithstanding the foregoing, the Executive shall not
be deemed to have been terminated for Cause without delivery to the Executive of
a notice of termination signed by the Company's Chief Executive Officer or
Chairman of the Board stating that in the good faith opinion of the officer
signing such notice, the Executive has engaged in or committed conduct of the
nature described in the second sentence of this paragraph, and specifying the
particulars thereof in detail.
C. Other than Cause or Death or Disability. The Executive or the Company may
terminate the Executive's employment at any time, without Cause, by giving the
other party to this Agreement at least 30 days advance written notice of such
termination, subject to the provisions of this Agreement.
D. Obligations of the Company Upon Termination.
1. Death or Disability. If the Executive's employment is terminated by reason
of the Executive's death or Disability, this Agreement shall terminate
without further obligations to the Executive or his legal representatives
under this Agreement, other than for (a) payment of the sum of (i) the
Executive's base salary through the date of termination to the extent not
theretofore paid, plus (ii) any earned vacation pay, to the extent not
theretofore paid (the sum of the amounts described in clauses (i) and (ii)
shall be hereinafter referred to as the "Accrued Obligations"), which shall
be paid to the Executive or his estate or beneficiary, as applicable, in a
lump sum in cash within 30 days of the date of termination; and (b) payment
to the Executive or his estate or beneficiary, as applicable, (i) any
amounts due pursuant to the terms of any applicable welfare benefit plans;
(ii) obligations pursuant to the terms of any outstanding stock option
agreements; and (iii) obligations under the Company's 401(k) Savings Plan.
2. Cause. If the Executive's employment is terminated by the Company for
Cause, this Agreement shall terminate without further obligations to the
Executive other than for the timely payment of the Accrued Obligations. If
it is subsequently determined that the Company did not have Cause for
termination under this Section IV-D-2, then the Company's decision to
terminate shall be deemed to have been made under Section IV-D-3 and the
amounts payable thereunder shall be the only amounts the Executive may
receive for his termination.
3. Other than Cause or Death or Disability.
(a) If, during the term of this Agreement, (i) the Company terminates the
Executive's employment for other than Cause or death or Disability, or
(ii) the Executive terminates his employment hereunder with Good
Reason (as defined below), this Agreement shall terminate and the
Executive shall be entitled to receive a severance payment payable in
one lump sum upon the termination of his employment in an amount equal
to 200% of his Annual Compensation (as defined below).
Any payment made pursuant to this Section IV-D-3(a) shall be reduced by
all amounts required to be withheld by applicable law, and shall only
be made in exchange for a valid release of all claims the Executive may
have against the Company in a form acceptable to the Company. Such
payment shall constitute the sole and entire obligation of the Company
to provide any compensation or benefits to the Executive upon
termination, except for obligations under the Company's 401(k) Savings
Plan, obligations pursuant to the terms of any outstanding stock option
agreements, and except that the Company will also pay to the Executive
any Accrued Obligation (as defined in Section IV-D-1).
(b) The term "Good Reason" means:
(i) if the Executive's annual base salary is reduced, except for a
general one-time "across-the-board" salary reduction not
exceeding ten percent (10%) which is imposed simultaneously on
all officers of the Company provided, however, that the minimum
salary increases described in Section III.A. shall continue to
apply to any such reduced base salary; or
(ii) if the Company requires the Executive to be based at an office
location which will result in an increase of more than thirty
(30) miles in the Executive's one-way commute; or
(iii)if the Company does not permit the Executive to continue to
serve as the Chief Financial Officer or another mutually
acceptable senior executive position; or
(iv) if a Change of Control of the Company occurs and, at any time
concurrent with or during the six-month period following said
Change of Control, the Executive shall have sent to the Chief
Executive Officer of the Company a written notice terminating his
employment on a date specified in said notice.
(c) The term "Annual Compensation" means an amount equal to the
Executive's annual base salary at the rate in effect on the date on
which the Executive received or gave written notice of his
termination, plus the sum of (i) an amount equal to the average of the
Executive's two most recent annual bonuses, if any, received under the
Company's Incentive Compensation Plan prior to the notice of
termination, provided, however, that the amount to be included in the
Executive's Annual Compensation pursuant to this clause (i) shall not
be less than the $140,000 guaranteed amount of his bonus for 1999,
(ii) the amount of the Executive's annual car allowance, and (iii) an
amount determined by the Company from time to time in its sole
discretion to be equal to the average annual cost for Company
employees of obtaining medical, dental and vision insurance under
COBRA, which amount is hereby initially determined to be $5,000.
(d) A "Change of Control" shall be deemed to have occurred if:
(i) any "person," as such term is used in Sections 13(d) and 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the "1934
Act") is, becomes or enters a contract to become, the "beneficial
owner," as such term is used in Rule 13d-3 promulgated under the
1934 Act, directly or indirectly, of securities representing
twenty-five percent (25%) or more of the voting common stock of
the Company;
(ii) all or substantially all of the business of the Company is
disposed of, or a contract is entered to dispose of all of the
business of the Company pursuant to a merger, consolidation other
transaction in which (a) the Company is not the surviving company
or (b) the stockholders of the Company prior to the transaction
do not continue to own at least sixty percent (60%) of the
surviving corporation; or
(iii) the Company is materially or completely liquidated.
Notwithstanding clause (i) above, a "Change of Control"
shall not be deemed to have occurred solely because a person
shall be, become or enter into a contract to become the
beneficial owner of 25% or more, but less than 40%, of voting
common stock of the Company, if and for so long as such person is
bound by, and in compliance with, a contract with the Company
providing that such person may not nominate, vote for, or select
more than a minority of the directors of the Company. The
exception provided by the preceding sentence shall cease to apply
with respect to any person upon expiration, waiver, or
non-compliance with any such contract, by which such person was
bound. 4. Exclusive Remedy. The Executive agrees that the
payments contemplated by this Agreement shall constitute the
exclusive and sole remedy for any termination of his employment
and the Executive covenants not to assert or pursue any other
remedies, at law or in equity, with respect to any termination of
employment.
V. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement or Executive's employment by the Company shall be settled exclusively
by arbitration, conducted before a single neutral arbitrator in accordance with
the American Arbitration Association's National Rules for Resolution of
Employment Disputes as then if effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that the
Company shall be entitled to seek a restraining order or injunction in any court
of competent jurisdiction to prevent any continuation of any violation of the
provisions of Sections VI, VII, or VIII of this Agreement and the Executive
hereby consents that such restraining order or injunction may be granted without
the necessity of the Company's posting any bond, and provided, further, that the
Executive shall be entitled to seek specific performance of his right to be paid
until the date of employment termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement. The fees and
expenses of the arbitrator shall be borne by the Company.
VI. ANTISOLICITATION.
The Executive promises and agrees that during the term of this
Agreement (including any renewal) and for a period of one year thereafter, he
will not influence or attempt to influence customers of the Company or any of
its present or future subsidiaries or affiliates, either directly or indirectly,
to divert their business to any individual, partnership, firm, corporation or
other entity then in competition with the business of the Company or any
subsidiary or affiliate of the Company.
VII. SOLICITING EMPLOYEES.
The Executive promises and agrees that, for a period of one year
following termination of his employment, he will not directly or indirectly
solicit any of the Company employees who earned annually $50,000 or more as a
Company employee during the last six months of his or her own employment to work
for any other business, individual, partnership, firm, corporation, or other
entity.
VIII. CONFIDENTIAL INFORMATION
A. The Executive, in the performance of his duties on behalf of the Company,
shall have access to, receive and be entrusted with confidential information,
including but not limited to systems technology, field operations,
reimbursements, development, marketing, organizational, financial, management,
administrative, clinical, customer, distribution and sales information, data,
specifications and processes presently owned or at any time in the future
developed, by the Company or its agents or consultants, or used presently or at
any time in the future in the course of its business that is not otherwise part
of the public domain (collectively, the "Confidential Material"). All such
Confidential Material is considered secret and will be available to the
Executive in confidence. Except in the performance of duties on behalf of the
Company, the Executive shall not, directly or indirectly for any reason
whatsoever, disclose or use any such Confidential Material, unless such
Confidential Material ceases (through no fault of the Executive's) to be
confidential because it has become part of the public domain. All records,
files, drawings, documents, notes, disks, diskettes, tapes, magnetic media,
photographs, equipment and other tangible items, wherever located, relating in
any way to the Confidential Material or otherwise to the Company's business,
which the Executive prepares, uses or encounters during the course of his
employment, shall be and remain the Company's sole and exclusive property and
shall be included in the Confidential Material. Upon termination of this
Agreement by any means, or whenever requested by the Company, the Executive
shall promptly deliver to the Company any and all of the Confidential Material,
not previously delivered to the Company, that may be or at any time has been in
the Executive's possession or under the Executive's control.
B. The Executive hereby acknowledges that the sale or unauthorized use or
disclosure of any of the Company's Confidential Material by any means whatsoever
and at any time before, during or after the Executive's employment with the
Company shall constitute unfair competition. The Executive agrees that he shall
not engage in unfair competition either during the time employed by the Company
or any time thereafter.
IX. PARACHUTE LIMITATION.
Notwithstanding any other provision of this Agreement, the Executive
shall not have any right to receive any payment or other benefit under this
Agreement, any other agreement, or any benefit plan if such right, payment or
benefit, taking into account all other rights, payments or benefits to or for
the Executive under this Agreement, all other agreements, and all benefit plans,
would cause any right, payment or benefit to the Executive under this Agreement
to be considered a "parachute payment" within the meaning of Section 280G(b)(2)
of the Internal Revenue Code as then in effect (a "Parachute Payment"). In the
event that the receipt of any such right or any other payment or benefit under
this Agreement, any other agreement, or any benefit plan would cause the
Executive to be considered to have received a Parachute Payment under this
Agreement, then the Executive shall have the right, in the Executive's sole
discretion, to designate those rights, payments or benefits under this
Agreement, any other agreements, and/or any benefit plans, that should be
reduced or eliminated so as to avoid having the right, payment or benefit to the
Executive under this Agreement be deemed to be a Parachute Payment.
X. SUCCESSORS.
A. This Agreement is personal to the Executive and shall not, without prior
written consent of the Company, be assignable by the Executive.
B. This Agreement shall inure to the benefit of and be binding upon the Company,
its subsidiaries and its successors and assigns and any such subsidiary,
successor or assignee shall be deemed substituted for the Company under the
terms of this Agreement for all purposes. As used herein, "successor" and
"assignee" shall include any person, firm, corporation or other business entity
which at any time, whether by purchase, merger or otherwise, directly or
indirectly acquires the stock of the Company or to which the Company assigns
this Agreement by operation of law or otherwise.
XI. WAIVER.
No waiver of any breach of any term or provision of this Agreement
shall be construed to be, nor shall be, a waiver of any other breach of this
Agreement. No waiver shall be binding unless in writing and signed by the party
waiving the breach.
XII. MODIFICATION.
This Agreement may not be amended or modified other than by a written
agreement executed by the Executive and the Company's Chairman.
XIII. SAVINGS CLAUSE.
If any provision of this Agreement or the application thereof is held
invalid, such invalidity shall not affect any other provisions or application of
the Agreement which can be given effect without the valid provisions or
applications and, to this end, the provisions of this Agreement are declared to
be severable.
XIV. COMPLETE AGREEMENT.
This Agreement constitutes and contains the entire agreement and final
understanding concerning the Executive's employment with the Company and the
other subject matters addressed herein between the parties. It is intended by
the parties as a complete and exclusive statement of the terms of their
agreement. It supersedes and replaces all prior negotiations and all agreements
proposed or otherwise, whether written or oral, concerning the subject matter
hereof. Any representation, promise or agreement not specifically included in
this Agreement shall not be binding upon or enforceable against either party.
This is fully integrated agreement.
XV. GOVERNING LAW.
This Agreement shall be deemed to have been executed and delivered
within the State of California and the rights and obligations of the parties
hereunder shall be construed and enforced in accordance with, and governed by,
the laws of the State of California without regard to principles of conflicts of
laws.
XVI. CONSTRUCTION.
In any construction to be made of this Agreement, the same shall not be
construed against any party on the basis that the party was the drafter. The
captions of this Agreement are not part of the provisions hereof and shall have
no force or effect.
XVII. COMMUNICATIONS.
All notices, requests, demands and other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered by hand
or by courier, or if mailed by registered or certified mail, postage prepaid,
addressed to the Executive c/o Law Offices of Michael J. Genovese at 2123 San
Joaquin Hills Road, Newport Beach, California, 92660 or addressed to the Company
at 3570 Hyland Avenue, Costa Mesa, California, 92626, Attention: Senior Vice
President and General Counsel, with a copy to the attention of the Senior Vice
President, Human Resources. Either party may change the address at which notices
shall be given by written notice given in the above manner.
XVIII. EXECUTION.
This agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument. Xerographic copies of such signed counterparts may
be used in lieu of the originals for any purpose.
IX. LEGAL COUNSEL.
The Executive and the Company recognize that this is a legally binding
contract and acknowledge and agree that they have each had the opportunity to
consult with legal counsel of their choice.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written.
APRIA HEALTHCARE GROUP INC. THE EXECUTIVE
By:
------------------------------- --------------------------------
Philip L. Carter John C. Maney
Chief Executive Officer
EXHIBIT 10.30
AMENDED AND RESTATED GUARANTY
This AMENDED AND RESTATED GUARANTY ("Guaranty"), dated as of November
13, 1998, is made by each of the undersigned (each a "Guarantor" and
collectively, the "Guarantors") in favor of the Administrative and Collateral
Agent under the Credit Agreement.
W I T N E S S E T H:
WHEREAS, the Guarantors are a party to the Credit Agreement
dated as of August 9, 1996 ("Credit Agreement") between the Guarantors, each of
the financial institutions listed on Schedule I to the Credit Agreement or that,
pursuant to Section 13.4 of the Credit Agreement, shall become a "Bank" under
the Credit Agreement (individually, a "Bank" and collectively the "Banks"),
NationsBank, N.A., as the Syndication Agent, and Bank of America National Trust
and Savings Association, as the Administrative and Collateral Agent (the
"Administrative and Collateral Agent" and, collectively with the Banks, the
"Creditors"), as amended by the First Amendment to Credit Agreement, dated as of
April 22, 1997 (the "First Amendment"), the Second Amendment to Credit
Agreement, dated as of August 8, 1997 (the "Second Amendment"), the Third
Amendment to Credit Agreement and Waiver, dated as of January 30, 1998 (the
"Third Amendment"), the Fourth Amendment to Credit Agreement and Waiver, dated
as of March 13, 1998 (the "Fourth Amendment"), and the Fifth Amendment to Credit
Agreement and Waiver, dated as of April 15, 1998 (the "Fifth Amendment",
collectively with the First Amendment, the Second Amendment, the Third Amendment
and the Fourth Amendment, the "Amendments") (as amended, the "Existing Credit
Agreement");
WHEREAS, the Guarantors and the Administrative and Collateral
Agent are parties to the Guaranty, dated as of August 9, 1996 (the "Existing
Guaranty");
WHEREAS, the Borrowers previously provided notice to the
Administrative and Collateral Agent that certain Events of Default under
Sections 10.9, 10.10 and 10.11 of the Existing Credit Facility will occur on
September 30, 1998 due to the 1998 Third Quarter Charges and Reserves
("Financial Covenant Defaults");
WHEREAS, the Borrowers desire to issue at least $50,000,000 of
Senior Subordinated Convertible Debentures, the Net Available Proceeds of which
will be used to repay a portion of the Loans;
WHEREAS, the Borrowers have requested that the Banks amend and
restate the Existing Credit Facility to avoid the occurrence of such Event of
Default and to consent to the Borrowers issuance of the Senior Subordinated
Convertible Debentures;
WHEREAS, the Borrowers, the Banks and the Administrative and
Collateral Agent are parties to that certain Amended and Restated Credit
Agreement dated as of November 13, 1998 (the "Credit Agreement");
WHEREAS, each Guarantor will obtain benefits from the Credit
Agreement and, accordingly, desires to execute this Guaranty in order to satisfy
the conditions described in the preceding paragraph.
NOW, THEREFORE, in consideration of the foregoing and other
benefits accruing to each Guarantor, the receipt and sufficiency of which are
hereby acknowledged, each Guarantor hereby makes the following representations
and warranties to the Creditors and hereby covenants and agrees with each
Creditor as follows:
Capitalized terms used but not defined in this Guaranty shall have the
meanings assigned to them in the Credit Agreement and the rules of
interpretation set forth in Section 1.3 of the Credit Agreement shall apply to
this Guaranty. In addition, the following terms shall have the following
meanings:
"Guaranteed Obligations" shall have the meaning assigned to
such term in Section 2.
"Immaterial Subsidiaries" shall mean the Subsidiaries of Apria
set forth on Schedule XI to the Credit Agreement.
"Other Parties" shall have the meaning assigned to such term
in Section 11(c).
1. Each Guarantor irrevocably and unconditionally, and jointly and
severally, guarantees the full and prompt payment when due (whether at the
stated maturity, by acceleration or otherwise) of (x) the principal of and
interest on the Notes issued by, and Loans made to, the Borrowers under the
Credit Agreement and all reimbursement obligations and Unpaid Drawings with
respect to Letters of Credit issued under the Credit Agreement and (y) all other
obligations and indebtedness (including, without limitation, indemnities, Fees
and interest on such obligations and indebtedness) of the Borrowers now existing
or hereafter incurred under, arising out of or in connection with the Credit
Agreement and the other Credit Documents and the due performance and compliance
by the Borrowers with the terms, conditions and agreements contained in the
Credit Documents (all such principal, interest, obligations and liabilities
being collectively referred to in this Guaranty as the "Guaranteed
Obligations"); provided, that notwithstanding any provision to the contrary
contained in this Guaranty or in any other Credit Document, the obligations of
each Guarantor under this Guaranty shall be limited to an aggregate amount equal
to the largest amount that would not render the Guaranteed Obligations of such
Guarantor under this Guaranty subject to avoidance under Section 548 of the
Bankruptcy Code or any comparable provisions of any applicable state law.
Subject to the proviso in the preceding sentence, each Guarantor understands,
agrees and confirms that the Creditors may enforce this Guaranty up to the full
amount of the Guaranteed Obligations against any such Guarantor without
proceeding against any Borrower, against any security for the Guaranteed
Obligations, against any other Guarantor, or against any other guarantor under
any other guaranty covering the Guaranteed Obligations. All payments by each
Guarantor under this Guaranty shall be made on the same basis as payments by the
Borrowers under Sections 5.3 and 5.4 of the Credit Agreement.
2. Additionally, each Guarantor, jointly and severally, unconditionally and
irrevocably, guarantees the payment of any and all Guaranteed Obligations of the
Borrowers to the Creditors whether or not due or payable by the Borrowers upon
the occurrence of the events specified in Section 11.5 of the Credit Agreement,
and unconditionally and irrevocably, jointly and severally, promises to pay such
Guaranteed Obligations to the Creditors, or order, on demand, in lawful money of
the United States.
3. The liability of each Guarantor under this Guaranty is exclusive and
independent of any security for or other guaranty of the indebtedness of the
Borrowers whether executed by such Guarantor, any other Guarantor, any other
guarantor or by any other party, and the liability of such Guarantor under this
Guaranty shall not be affected or impaired by (a) any direction as to
application of payment by the Borrowers, (b) any other continuing or other
guaranty, undertaking or maximum liability of a guarantor or of any other party
as to the indebtedness of the Borrowers, (c) any payment on or in reduction of
any such other guaranty or undertaking, (d) any dissolution, termination or
increase, decrease or change in personnel by the Borrowers or (e) any payment
made to any Creditor on the indebtedness which any Creditor repays the Borrowers
pursuant to court order in any bankruptcy, reorganization, arrangement,
moratorium or other debtor relief proceeding, and each Guarantor waives any
right to the deferral or modification of its obligations under this Guaranty by
reason of any such proceeding.
4. The obligations of each Guarantor under this Guaranty are independent of
the obligations of any other Guarantor, any other guarantor or the Borrowers,
and a separate action or actions may be brought and prosecuted against each
Guarantor whether or not action is brought against any other Guarantor, any
other guarantor or the Borrowers, and whether or not any other Guarantor, any
other guarantor or the Borrowers be joined in any such action or actions. Each
Guarantor waives, to the fullest extent permitted by law, the benefit of any
statute of limitations affecting its liability under this Guaranty or the
enforcement thereof. Any payment by the Borrowers or other circumstance which
operates to toll any statute of limitations as to the Borrowers shall operate to
toll the statute of limitations as to each Guarantor.
5. Each Guarantor hereby waives notice of acceptance of this Guaranty and
notice of any liability to which it may apply, and waives promptness, diligence,
presentment, demand of payment, protest, notice of dishonor or nonpayment of any
such liabilities, suit or taking of other action taken by the Administrative and
Collateral Agent or any other Creditors against, and any other notice to, any
party liable thereon (including such Guarantor or any other Guarantor or
guarantor).
6. Any Creditor may at any time and from time to time without the consent
of, or notice to, any Guarantor, without incurring responsibility to any
Guarantor, without impairing or releasing the obligations of any Guarantor under
this Guaranty, upon or without any terms or conditions and in whole or in part:
(a) change the manner, place or terms of payment of, or change or
extend the time of payment of, renew or alter, any of the Guaranteed
Obligations, any security for such Guaranteed Obligations, or any liability
incurred directly or indirectly in respect of such Guaranteed Obligations,
and the guaranty made in this Guaranty shall apply to the Guaranteed
Obligations as so changed, extended, renewed or altered;
(b) sell, exchange, release, surrender, realize upon or otherwise deal
with in any manner and in any order any property by whomsoever at any time
pledged or mortgaged to secure, or howsoever securing, the Guaranteed
Obligations or any liabilities (including any of those under this Guaranty)
incurred directly or indirectly in respect thereof or in respect of this
Guaranty, or any offset there-against;
(c) exercise or refrain from exercising any rights against the
Borrowers, any Guarantor or others or otherwise act or refrain from acting;
(d) settle or compromise any of the Guaranteed Obligations, any
security for
such Guaranteed Obligations or any liability (including any of those under
this Guaranty) incurred directly or indirectly in respect thereof or
hereof, and may subordinate the payment of all or any part thereof to the
payment of any liability (whether due or not) of the Borrowers to creditors
of the Borrowers;
(e) apply any sums by whomsoever paid or howsoever realized to any
liability or liabilities of the Borrowers to the Creditors regardless of
what liabilities of the Borrowers remain unpaid;
(f) consent to or waive any breach of, or any act, omission or default
under, any of the Credit Documents or any of the instruments or agreements
referred to in such Credit Documents, or otherwise amend, modify or
supplement any Credit Document or any of such other instruments or
agreements; and
(g) act or fail to act in any manner referred to in this Guaranty
which may deprive any Guarantor of its right to subrogation against the
Borrowers to recover full indemnity for any payments made pursuant to this
Guaranty.
7. No invalidity, irregularity or unenforceability of all or any part of
the Guaranteed Obligations or of any security for such Guaranteed Obligations
shall affect, impair or be a defense to this Guaranty, and this Guaranty shall
be primary, absolute and unconditional notwithstanding the occurrence of any
event or the existence of any other circumstances which might constitute a legal
or equitable discharge of a surety or guarantor except payment in full of the
Guaranteed Obligations.
8. This Guaranty is a continuing one and all liabilities to which it
applies or may apply under the terms of this Guaranty shall be conclusively
presumed to have been created in reliance on this Guaranty. No failure or delay
on the part of any Creditor in exercising any right, power or privilege under
this Guaranty and no course of dealing between any Guarantor and any Creditor
shall operate as a waiver such right, power or privilege; nor shall any single
or partial exercise of any right, power or privilege under this Guaranty
preclude any other or further exercise of such right, power or privilege or the
exercise of any other right, power or privilege. The rights and remedies
expressly specified in this Guaranty are cumulative and not exclusive of any
rights or remedies which any Creditor would otherwise have. No notice to or
demand on any Guarantor in any case shall entitle such Guarantor to any other
further notice or demand in similar or other circumstances or constitute a
waiver of the rights of any Creditor to any other or further action in any
circumstances without notice or demand.
9. Any indebtedness of the Borrowers now or hereafter held by any Guarantor
is hereby subordinated to the indebtedness of the Borrowers to the Creditors;
and such indebtedness of the Borrowers to any Guarantor, if the Administrative
and Collateral Agent, after an Event of Default has occurred, so requests, shall
be collected, enforced and received by such Guarantor as trustee for the
Creditors and be paid over to the Creditors on account of the indebtedness of
the Borrowers to the Creditors, but without affecting or impairing in any manner
the liability of such Guarantor under the other provisions of this Guaranty.
Prior to the transfer by such Guarantor of any note or negotiable instrument
evidencing any indebtedness of the Borrowers to such Guarantor, such Guarantor
shall mark such note or negotiable instrument with a legend that the same is
subject to this subordination.
10.(a)Each Guarantor waives any right (except as shall be required by
applicable statute and cannot be waived) to require the Creditors to (i) proceed
against the Borrowers, any other Guarantor, any other guarantor or any other
party, (ii) proceed against or exhaust any security held from the Borrowers, any
other Guarantor, any other guarantor or any other party or (iii) pursue any
other remedy in the Creditors' power whatsoever. Each Guarantor waives any
defense based on or arising out of any defense of the Borrowers, any other
Guarantor, any other guarantor or any other party other than payment in full of
the Guaranteed Obligations, including without limitation any defense based on or
arising out of the disability of the Borrowers, any other Guarantor, any other
guarantor or any other party, or the unenforceability of the Guaranteed
Obligations or any part of the Guaranteed Obligations from any cause, or the
cessation from any cause of the liability of the Borrowers other than payment in
full of the Guaranteed Obligations. The Creditors may, at their election,
foreclose on any security held by the Administrative and Collateral Agent or the
other Creditors by one or more judicial or nonjudicial sales, whether or not
every aspect of any such sale is commercially reasonable (to the extent such
sale is permitted by applicable law), or exercise any other right or remedy the
Creditors may have against the Borrowers or any other party, or any security,
without affecting or impairing in any way the liability of any Guarantor under
this Guaranty except to the extent the Guaranteed Obligations have been paid in
full. Each Guarantor waives any defense arising out of any such election by the
Creditors, even though such election operates to impair or extinguish any right
of reimbursement or subrogation or other right or remedy of such Guarantor
against the Borrowers or any other party or any security.
(b) Each Guarantor waives all presentments, demands for performance,
protests and notices, including without limitation notices of nonperformance,
notices of protest, notices of dishonor, notices of acceptance of this Guaranty,
and notices of the existence, creation or incurring of new or additional
indebtedness. Each Guarantor assumes all responsibility for being and keeping
itself informed of the Borrowers' financial condition and assets, and of all
other circumstances bearing upon the risk of nonpayment of the Guaranteed
Obligations and the nature, scope and extent of the risks which such Guarantor
assumes and incurs under this Guaranty, and agrees that the Creditors shall have
no duty to advise any Guarantor of information known to them regarding such
circumstances or risks.
(c) Until the Guaranteed Obligations have been indefeasibly paid and
performed in full, (i) each Guarantor hereby waives all rights of subrogation
which it may at any time otherwise have as a result of this Guaranty (whether
contractual, under Section 509 of the Bankruptcy Code, or otherwise) to the
claims of the Creditors against the Borrowers or any other guarantor of the
Guaranteed Obligations (collectively, the "Other Parties") and all contractual,
statutory or common law rights of reimbursement, contribution or indemnity from
any Other Party which it may at any time otherwise have as a result of this
Guaranty; (ii) each Guarantor hereby further waives any right to enforce any
other remedy which the Creditors now have or may hereafter have against any
Other Party, any endorser or any other guarantor of all or any part of the
indebtedness of the Borrowers and any benefit of, and any right to participate
in, any security or collateral given to or for the benefit of the Creditors to
secure payment of the indebtedness of the Borrowers; and (iii) each Guarantor
also waives all claims (as such term is defined in the Bankruptcy Code) it may
at any time otherwise have against any Other Party arising from any transaction
whatsoever, including without limitation its right to assert or enforce any such
claims.
11. The Creditors agree that this Guaranty may be enforced only by the
action of the Administrative and Collateral Agent in each case acting upon the
instructions of the Required Banks, and that no Creditor shall have any right
individually to seek to enforce or to enforce this Guaranty, it being understood
and agreed that such rights and remedies may be exercised by the Administrative
and Collateral Agent for the benefit of the Creditors upon the terms of this
Guaranty.
12. In order to induce the Banks to make Loans to the Borrowers, and to
issue, and participate in, Letters of Credit for the account of the Borrowers
pursuant to the Credit Agreement, each Guarantor hereby represents, warrants and
covenants that:
(a) Such Guarantor and each of its Subsidiaries (other than Immaterial
Subsidiaries) (i) is a duly organized and validly existing corporation in
good standing under the laws of the jurisdiction of its incorporation, (ii)
has the corporate power and authority to own its property and assets and to
transact the business in which it is engaged and presently proposes to
engage and (iii) is duly qualified and is authorized to do business and is
in good standing in each jurisdiction where the ownership, leasing or
operation of property or the conduct of its business requires such
qualification except for failures to be so qualified which, in the
aggregate, would not have a Material Adverse Effect.
(b) Such Guarantor has the corporate power to execute, deliver and
perform the terms and provisions of this Guaranty and has taken all
necessary corporate action to authorize the execution, delivery and
performance by it of this Guaranty. Such Guarantor has duly executed and
delivered this Guaranty, and this Guaranty constitutes its legal, valid and
binding obligation enforceable in accordance with its terms, except as the
enforceability of this Guaranty may be limited by bankruptcy,
reorganization, moratorium or similar laws relating to or limiting
creditors' rights generally or by equitable principles relating to
enforceability.
(c) Neither the execution, delivery or performance by such Guarantor
of this Guaranty, nor compliance by it with the terms and provisions of
this Guaranty, (i) will contravene any provision of any material applicable
Governmental Rule or any order, writ, injunction or decree of any court or
Governmental Authority (ii) will conflict with or result in any breach of
any of the terms, covenants, conditions or provisions of, or constitute a
default under, or result in the creation or imposition of (or the
obligation to create or impose) any Lien upon any of the property or assets
of such Guarantor pursuant to the terms of any indenture, instrument,
mortgage, deed of trust, credit agreement or loan agreement, or any other
Material Contract, to which such Guarantor is a party or by which it or any
of its property or assets is bound or to which it may be subject or (iii)
will violate any provision of the Certificate of Incorporation or By-Laws
of such Guarantor or any of its Subsidiaries (other than Immaterial
Subsidiaries).
(d) No material order, consent, approval, license, authorization or
validation of, or filing, recording or registration with (except as have
been obtained or made prior to the Initial Borrowing Date), or exemption
by, any Governmental Authority is required (i) to authorize the execution,
delivery and performance of this Guaranty or (ii) to establish the
legality, validity, binding effect or enforceability of this Guaranty.
(e) There are no actions, suits or proceedings pending or, to the best
knowledge of the Guarantor, threatened (i) with respect to this Guaranty,
(ii) with respect to any Indebtedness of the Guarantor or any of its
Subsidiaries (other than Immaterial Subsidiaries) or (iii) that are
reasonably likely to have a Material Adverse Effect.
(f) On the date of this Guaranty and after giving effect to the
incurrence by such Guarantor of the Contingent Obligations evidenced by
this Guaranty (as limited by Section 2 of this Guaranty), (i) the assets of
such Guarantor, at a fair valuation, will exceed its debts, (ii) the
Guarantor will have sufficient capital to conduct its business and (iii)
such Guarantor will not have incurred debts, and does not intend to incur
debts, beyond its ability to pay such debts as they mature. For purposes of
this clause (f), "debt" means any liability on a claim, and "claim" means
(i) right to payment, whether or not such right is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured, or unsecured; or (ii) right to an
equitable remedy for breach of performance if such breach gives rise to a
payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed,
secured, or unsecured.
13. Each Guarantor covenants and agrees that on and after the date of this
Guaranty and until the Total Commitments and all Letters of Credit have
terminated and all Guaranteed Obligations have been paid in full, such Guarantor
shall take, or will refrain from taking, as the case may be, all actions that
are necessary to be taken or not taken so that no violation of any provision,
covenant or agreement contained in Section 9 or 10 of the Credit Agreement, and
so that no Default or Event of Default, is caused by the actions of such
Guarantor or any of its Subsidiaries.
14. Each Guarantor hereby jointly and severally agrees to pay all
reasonable out-of-pocket costs and expenses of (x) each Creditor in connection
with the enforcement of this Guaranty and, after an Event of Default shall have
occurred and be continuing, the protection of such Creditor's rights under this
Guaranty, and (y) of the Administrative and Collateral Agent in connection with
any amendment, waiver or consent relating to this Guaranty (including, without
limitation, the reasonable fees and disbursements of counsel (including in-house
counsel) employed by the Administrative and Collateral Agent).
15. This Guaranty shall be binding upon each Guarantor and its successors
and assigns and shall inure to the benefit of the Creditors and their successors
and assigns.
16. Neither this Guaranty nor any provision of this Guaranty may be
changed, waived, discharged or terminated in any manner whatsoever unless in
writing duly signed by the Administrative and Collateral Agent (with the consent
of the Required Banks) and each Guarantor directly affected by such change,
waiver, discharge or termination (it being understood that the release or
addition of any Guarantor under this Guaranty shall not constitute a change or
waiver affecting any Guarantor other than the Guarantor so released or added).
17. Each Guarantor acknowledges that an executed (or conformed) copy of the
Credit Agreement has been made available to its principal executive officers and
such officers are familiar with its contents.
18.(a) In addition to any rights now or hereafter granted under applicable
law and not by way of limitation of any such rights, upon the occurrence and
during the continuance of an Event of Default, each Creditor is hereby
authorized at any time or from time to time, without presentment, demand,
protest or other notice of any kind to any Guarantor or to any other Person, any
such notice being hereby expressly waived, to set off and to appropriate and
apply any and all deposits (general or special) and any other indebtedness at
any time held or owing by such Creditor (including, without limitation, by
branches and agencies of such Creditor wherever located) to or for the credit or
the account of such Guarantor, against and on account of the obligations and
liabilities of such Guarantor to such Creditor under this Guaranty, irrespective
of whether or not such Creditor shall have made any demand under this Guaranty
and although said obligations, liabilities, deposits or claims, or any of them,
shall be contingent or unmatured.
(b) Each Guarantor understands that if all or any part of the Obligations
is secured by real property, such Guarantor shall be liable for the full amount
of its liability under this Guaranty notwithstanding foreclosure on such real
property by trustee sale or any other reason impairing such Guarantor's or any
Creditor's right to proceed against any Guarantor or any Subsidiary of such
Guarantor. Each Guarantor hereby waives, to the fullest extent permitted by law,
all rights and benefits under Section 2809 of the California Civil Code (or any
similar law in any other jurisdiction) purporting to reduce a guarantor's
obligation in proportion to the principal obligation. Each Guarantor hereby
waives all rights and benefits under Section 580a of the California Code of
Civil Procedure (or any similar law in any other jurisdiction) purporting to
limit the amount of any deficiency judgment which might be recoverable following
the occurrence of a trustee's sale under a deed of trust, all rights and
benefits under Section 580b of the California Code of Civil Procedure (or any
similar law in any other jurisdiction) stating that no deficiency may be
recovered on a real property purchase money obligation and all rights and
benefits under Section 580d of the California Code of Civil Procedure (or any
similar law in any other jurisdiction) stating that no deficiency may be
recovered on a note secured by a deed of trust on real property in case such
real property is sold under the power of sale contained in such deed of trust,
if such sections, or any of them, have any application to this Guaranty or any
application to such Guarantor. In addition, each Guarantor hereby waives, to the
fullest extent permitted by law, without limiting the generality of the
foregoing or any other provision of this Guaranty, all rights, defenses and
benefits which might otherwise be available to such Guarantor under California
Civil Code Sections 2809, 2810, 2819, 2821, 2839, 2845, 2846, 2847, 2848, 2849,
2850, 2855, 2899, 3275 and 3433 (or any similar law in any other jurisdiction).
19. All notices, requests, demands or other communications pursuant to this
Guaranty shall be deemed to have been duly given or made when delivered to the
Person to which such notice, request, demand or other communication is required
or permitted to be given or made under this Guaranty, addressed to such party at
(i) in the case of any Creditor, as provided in the Credit Agreement and (ii) in
the case of any Guarantor, at its address set forth opposite its signature
below; or in any case at such other address as any of the Persons listed above
may hereafter notify the others in writing.
20. If claim is ever made upon any Creditor for repayment or recovery of
any amount or amounts received in payment or on account of any of the Guaranteed
Obligations and any of the aforesaid payees repays all or part of said amount by
reason of (a) any judgment, decree or order of any court or administrative body
having jurisdiction over such payee or any of its property or (b) any settlement
or compromise of any such claim effected by such payee with any such claimant
(including the Borrowers), then and in such event each Guarantor agrees that any
such judgment, decree, order, settlement or compromise shall be binding upon it,
notwithstanding any revocation of this Guaranty or the cancellation of any Note
or other instrument evidencing any liability of the Borrower, and such Guarantor
shall be and remain liable to the aforesaid payees under this Guaranty for the
amount so repaid or recovered to the same extent as if such amount had never
originally been received by any such payee.
21. Any acknowledgment or new promise, whether by payment of principal or
interest or otherwise and whether by the Borrower or other Persons liable in
respect of the Guaranteed Obligations (including any Guarantor), with respect to
any of the Guaranteed Obligations shall, if the statute of limitations in favor
of any Guarantor against any Creditor shall have commenced to run, toll the
running of such statute of limitations, and if the period of such statute of
limitations shall have expired, prevent the operation of such statute of
limitations.
22. (a) THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER
THIS GUARANTY SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW
OF THE STATE OF CALIFORNIA. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
GUARANTY MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR OF THE
UNITED STATES FOR THE CENTRAL DISTRICT OF CALIFORNIA AND, BY EXECUTION AND
DELIVERY OF THIS GUARANTY, EACH GUARANTOR HEREBY IRREVOCABLY ACCEPTS FOR ITSELF
AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION
OF THE AFORESAID COURTS. EACH GUARANTOR HEREBY IRREVOCABLY DESIGNATES, APPOINTS
AND EMPOWERS APRIA AS ITS DESIGNEE, APPOINTEE AND AGENT TO RECEIVE, ACCEPT AND
ACKNOWLEDGE FOR AND ON ITS BEHALF, AND IN RESPECT OF ITS PROPERTY, SERVICE OF
ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN
ANY SUCH ACTION OR PROCEEDING. IF FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND
AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, EACH GUARANTOR AGREES TO
DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT FOR THE PURPOSES OF THIS PROVISION
ON TERMS SATISFACTORY TO THE ADMINISTRATIVE AND COLLATERAL AGENT. EACH GUARANTOR
FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE
AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES
THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH GUARANTOR AT
ITS ADDRESS SET FORTH OPPOSITE ITS SIGNATURE BELOW, SUCH SERVICE TO BECOME
EFFECTIVE 30 DAYS AFTER SUCH MAILING. NOTHING IN THIS GUARANTY SHALL AFFECT THE
RIGHT OF ANY OF THE CREDITORS TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY GUARANTOR
IN ANY OTHER JURISDICTION.
(b) EACH GUARANTOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR
PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS GUARANTY BROUGHT IN THE
COURTS REFERRED TO IN CLAUSE (a) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND
AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(c) TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH GUARANTOR
WAIVES, AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT
OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE,
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS
GUARANTY OR THE SUBJECT MATTER OF THIS GUARANTY, IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING OR WHETHER IN CONTRACT, IN TORT OR OTHERWISE. THE
GUARANTORS ACKNOWLEDGE THAT THEY HAVE BEEN INFORMED BY THE AGENTS AND THE BANKS
THAT THE PROVISIONS OF THIS SECTION 23(c) CONSTITUTE A MATERIAL INDUCEMENT UPON
WHICH THE AGENTS AND THE BANKS ARE RELYING IN ENTERING INTO THE CREDIT AGREEMENT
AND EACH OTHER CREDIT DOCUMENT. ANY GUARANTOR, THE ADMINISTRATIVE AND COLLATERAL
AGENT OR ANY BANK MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION
23(c) WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF EACH GUARANTOR, EACH
AGENT AND EACH BANK TO THE WAIVER OF ITS RIGHTS TO TRIAL BY JURY.
23. (a) It is the desire and intent of each Guarantor and the Creditors
that this Guaranty shall be enforced against each Guarantor to the fullest
extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. In furtherance of the foregoing, it
is noted that the obligations of each Guarantor has been limited as provided in
Section 2 of this Guaranty.
(b) If, however, and to the extent, that the obligations of any Guarantor
under this Guaranty shall be adjudicated to be invalid or unenforceable for any
reason (including, without limitation, because of any applicable state or
federal law relating to fraudulent conveyances or transfers), then the amount of
the Guaranteed Obligations of such Guarantor (but not the Guaranteed Obligations
of any other Guarantor unless such other Guarantor or Guarantors are
individually subject to the circumstances covered by this Section 24) shall be
deemed to be reduced and the affected Guarantor shall pay the maximum amount of
the Guaranteed Obligations which would be permissible under applicable law.
24. This Guaranty may be executed in any number of counterparts and by the
different parties to this Guaranty on separate counterparts, each of which when
so executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument. A set of counterparts executed by all
the parties to this Guaranty shall be lodged with Apria and the Administrative
and Collateral Agent.
25. In the event that all of the capital stock of one or more Guarantors is
sold in connection with a sale permitted by Section 10.2 of the Credit Agreement
and the proceeds of such sale or sales are applied in accordance with the
provisions of Section 5.2 of the Credit Agreement, to the extent applicable,
each Guarantor (x) all of the capital stock of which is so sold or (y) which is
a Subsidiary of a Guarantor all of the capital stock of which is so sold, shall
be released from this Guaranty and this Guaranty shall, as to each Guarantor or
Guarantors, terminate, and have no further force or effect.
26. All payments made by any Guarantor under this Guaranty will be made
without set-off, counterclaim or other defense.
27. Any provision of this Guaranty that is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions of this Guaranty, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to
be executed and delivered as of the date first above written.
Address for all Guarantors: APRIA HEALTHCARE GROUP INC.
APRIA HEALTHCARE, INC.
3560 Hyland Avenue APRIA NUMBER TWO, INC.
Costa Mesa, California 92626 APRIACARE MANAGEMENT SYSTEMS, INC.
Attn: Philip Carter APRIA HEALTHCARE OF NEW YORK
Telephone: (714) 755-5600 STATE, INC.
Facsimile: (714) 755-5617
By:
------------------------------
Name:
Title:
<PAGE>
Accepted and Agreed to:
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION,
as Administrative and Collateral Agent for the Banks
By:----------------------------------
Name:
Title:
EXHIBIT 10.31
SECOND AMENDMENT TO SECURITY AGREEMENT
THIS SECOND AMENDMENT TO SECURITY AGREEMENT (this "Amendment") dated as of
November 13, 1998 is made between Apria Healthcare Group Inc., Apria Healthcare,
Inc., ApriaCare Management Systems, Inc., Apria Number Two, Inc., Apria
Healthcare 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 (as defined below) (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, dated as of April 15, 1998
(as so amended, the "Existing 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")
pursuant to which the Obligors granted the Administrative and Collateral Agent a
security interest in certain assets of the Obligors to secure the Obligors'
obligations under the Existing Credit Agreement.
III. At the request of the Obligors, the Administrative and Collateral
Agent, the Banks and the Obligors have entered into an Amended and Restated
Credit Agreement, dated of even date herewith (the "Credit Agreement") pursuant
to which the parties have restructured the terms of the Existing Credit
Agreement.
IV. The Security Agreement currently grants the Administrative and
Collateral Agent a security interest in the Obligor's receivables.
V. As a condition precedent to the Banks entering into the Credit
Agreement, the Obligors have agreed to amend the Security Agreement to grant the
Administrative and Collateral Agent a security interest in the Obligors'
operating accounts, deposit accounts and investment accounts into which the
Obligors' receivables are deposited.
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. Section 1.01 of the Security Agreement is
hereby amended to include the following new definition in its correct
alphabetical order:
"Securities Account Control Agreement" shall mean the Securities Account
Control Agreement, dated as of November 13, 1998 between the Obligors, the
Administrative and Collateral Agent and Bank of America NT & SA as the
securities intermediary..
2. Amendment to Section 2.01. Section 2.01 of the Security Agreement is
hereby amended by (a) deleting the "and" at the end of paragraph "(i)", (b)
relettering the current paragraph "(j)" to paragraph "(k)" and (c), adding the
following new paragraph "(j)":
(j) all investment property, security entitlements, cash, deposit accounts
and investment accounts of such Obligor, including but not limited to the
Securities Accounts (as defined in the Securities Account Control
Agreement) and the investment accounts described on Annex 6; and
3. 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 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.
4. Conditions Precedent. The effectiveness of this Amendment is subject to
the following:
(a) the effectiveness of the Credit Agreement; and
(b) the receipt by the Administrative and Collateral Agent of this
Amendment, duly executed and delivered by each of the Obligors.
5. 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.
6. 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.
7. 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.
8. Successors and Assigns. This Amendment shall be binding upon and inure
to the benefit of its parties and their respective successors and permitted
assigns.
9. 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.
10. 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.
11. 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.
12. 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: Phillip Carter
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>
ANNEX 6
1. Bank of America National Trust and Savings Association Account Number
781-1002625 in the name of Apria Healthcare Group, Inc.
2. Bank of America National Trust and Savings Association Account Number
201982001 in the name of Apria Healthcare, Inc.
3. Provident Fund Processing Company Account Number 480-895871 in the name of
Apria Healthcare, Inc.
EXHIBIT 10.32
APRIA HEALTHCARE GROUP INC.
1998 NONQUALIFIED STOCK INCENTIVE PLAN
<PAGE>
APRIA HEALTHCARE GROUP INC.
1998 NONQUALIFIED STOCK INCENTIVE PLAN
ARTICLE I. THE PLAN.
Section 1.1. Purpose.
The purpose of this Plan is to promote the success of the Company by
providing an additional means through the grant of Awards to attract, motivate,
retain and reward key employees, including officers, whether or not directors,
of the Company with awards and incentives for high levels of individual
performance and improved financial performance of the Company and to attract,
motivate and retain experienced and knowledgeable independent directors.
"Corporation" means Apria Healthcare Group Inc., a Delaware corporation, and
"Company" means the Corporation and its Subsidiaries, collectively. These terms
and other capitalized terms are defined in Article VII.
Section 1.2. Administration and Authorization; Power and Procedure.
(a) Committee. This Plan shall be administered by and all Awards to
Eligible Persons shall be authorized by the Committee. Subject to the bylaws of
this Corporation, action of the Committee with respect to the administration of
this Plan shall be taken pursuant to a majority vote or by unanimous written
consent of its members.
(b) Plan Awards; Interpretation; Powers of Committee. Subject to the
express provisions of this Plan, the Committee shall have the authority:
(i) to determine from among those persons eligible the particular
Eligible Persons who will receive any Awards;
(ii) to grant Awards to Eligible Persons, determine the price at which
securities will be offered or awarded and the amount of securities to be
offered or awarded to any of such persons, determine the other specific
terms and conditions of such Awards consistent with the express limits of
this Plan, establish the installments (if any) in which such Awards shall
become exercisable or shall vest, or determine that no delayed
exercisability or vesting is required, and establish the events of
termination or reversion of such Awards;
(iii) to approve the forms of Award Agreements (which need not be
identical either as to type of award or among Participants);
(iv) to construe and interpret this Plan and any agreements defining
the rights and obligations of the Company and Participants, further define
the terms used in this Plan, and prescribe, amend and rescind rules and
regulations relating to the administration of this Plan;
(v) to cancel, modify, or waive the Corporation's rights with respect
to, or modify, discontinue, suspend, or terminate any or all outstanding
Awards held by Eligible Persons, subject to any required consent under
Section 6.6;
(vi) to accelerate or extend the exercisability or extend the term of
any or all such outstanding Awards within the maximum ten-year term of
Awards under Section 1.6; and
(vii) to make all other determinations and take such other action as
contemplated by this Plan or as may be necessary or advisable for the
administration of this Plan and the effectuation of its purposes.
(c) Binding Determinations. Any action taken by, or inaction of, the
Corporation, any Subsidiary, the Board or the Committee relating or pursuant to
this Plan shall be within the absolute discretion of that entity or body and
shall be conclusive and binding upon all persons. No member of the Board or
Committee, or officer of the Corporation or any Subsidiary, shall be liable for
any such action or inaction of the entity or body, of another person or, except
in circumstances involving bad faith, of himself or herself. Subject only to
compliance with the express provisions hereof, the Board and Committee may act
in their absolute discretion in matters within their authority related to this
Plan.
(d) Reliance on Experts. In making any determination or in taking or not
taking any action under this Plan, the Committee or the Board, as the case may
be, may obtain and may rely upon the advice of experts, including professional
advisors to the Corporation. No director, officer or agent of the Company shall
be liable for any such action or determination taken or made or omitted in good
faith.
(e) Delegation. The Committee may delegate ministerial, non-discretionary
functions to a third-party administrator or to individuals who are officers or
employees of the Company.
Section 1.3. Participation.
Awards may be granted by the Committee only to those persons that the
Committee determines to be Eligible Persons. An Eligible Person who has been
granted an Award may, if otherwise eligible, be granted additional Awards if the
Committee shall so determine.
Section 1.4. Shares Available for Awards; Share Limits.
(a) Shares Available. Subject to the provisions of Section 6.2, the capital
stock that may be delivered under this Plan shall be shares of the Corporation's
authorized but unissued Common Stock and any shares of its Common Stock held as
treasury shares. The shares may be delivered for any lawful consideration.
(b) Share Limits. The aggregate maximum number of shares of Common Stock
that may be delivered pursuant to Awards granted under this Plan and which are
required to be charged or reserved by provisions of Section 1.4(c) (the "Maximum
Aggregate Limit") shall be 1,000,000 shares, plus in each calendar year,
commencing in 2000, occurring during the term of this Plan, 1% of the issued and
outstanding shares of the Corporation's Common Stock as of December 31 of the
preceding calendar year. The maximum number of shares subject to Options and
Stock Appreciation Rights that are granted during any calendar year to any
individual shall be limited to 100,000 shares. Each of the foregoing numerical
limits shall be subject to adjustment as contemplated by this Section 1.4 and
Section 6.2.
(c) Share Reservation; Replenishment and Reissue of Unvested Awards. No
Award may be granted under this Plan unless, on the date of grant, the sum of
(i) the maximum number of shares issuable at any time pursuant to such Award,
plus (ii) the number of shares that have previously been issued pursuant to
Awards granted under this Plan, other than reacquired shares available for
reissue consistent with any applicable legal limitations, plus (iii) the maximum
number of shares that may be issued at any time after such date of grant
pursuant to Awards that are outstanding on such date, does not exceed the
Maximum Aggregate Limit. Shares that are subject to or underlie Awards which
expire or for any reason are cancelled or terminated, are forfeited, fail to
vest, or for any other reason are not paid or delivered under this Plan, as well
as reacquired shares, shall again, except to the extent prohibited by law, be
available for subsequent Awards under the Plan. Except as limited by law, if an
Award is or may be settled only in cash, such Award need not be counted against
any of the limits under this Section 1.4.
Section 1.5. Grant of Awards.
(a) General. Subject to the express provisions of this Plan, the Committee
shall determine the number of shares of Common Stock subject to each Award, the
price (if any) to be paid for the shares or the Award and, in the case of
Performance Share Awards, in addition to matters addressed in Section 1.2(b),
the specific objectives, goals and performance criteria (such as an increase in
sales, market value, earnings or book value over a base period, the years of
service before vesting, the relevant job classification or level of
responsibility or other factors) that further define the terms of the
Performance Share Award. Each Award shall be evidenced by an Award Agreement
signed on behalf of the Corporation and, if required by the Committee, by the
Participant. The Award Agreement shall set forth the material terms and
conditions of the Award established by the Committee consistent with the
specific provisions of this Plan. The Award Agreement may be executed on behalf
of the Corporation by a duly authorized officer by manual or facsimile
signature.
(b) Limitation on Grant Authority. The Committee shall structure all Awards
and the selection of Participants so as to qualify this Plan as a "broadly-based
plan" within the meaning of Section 312.03(a)(2) of the New York Stock Exchange
Listed Company Manual.
Section 1.6. Award Period.
Each Award and all executory rights or obligations under the related Award
Agreement shall expire on such date (if any) as shall be determined by the
Committee, but in the case of Options or other rights to acquire Common Stock
not later than ten (10) years after the Award Date.
Section 1.7. Limitations on Exercise and Vesting of Awards.
(a) Provisions for Exercise. Unless the Committee otherwise expressly
provides, no Award shall be exercisable or shall vest until at least six months
after the initial Award Date, and once exercisable an Award shall remain
exercisable until the expiration or earlier termination of the Award.
(b) Procedure. Any exercisable Award shall be deemed to be exercised when
the Secretary of the Corporation or his designee receives written notice of such
exercise from the Participant, together with any required payment made in
accordance with Section 2.2(a).
(c) Fractional Shares/Minimum Issue. Fractional share interests shall be
disregarded, but may be accumulated. The Committee, however, may determine in
the case of Eligible Persons that cash, other securities, or other property will
be paid or transferred in lieu of any fractional share interests. No fewer than
100 shares may be purchased on exercise of any Award at one time unless the
number purchased is the total number at the time available for purchase under
the Award.
Section 1.8. No Transferability;Limited Exception to Transfer Restrictions.
(a) Limit on Exercise and Transfer. Unless otherwise expressly provided in
(or pursuant to) this Section 1.8, by applicable law and by the Award Agreement,
as the same may be amended, (i) all Awards are non-transferable and shall not be
subject in any manner to sale, transfer, anticipation, alienation, assignment,
pledge, encumbrance or charge; (ii) Awards shall be exercised only by the
Participant; and (iii) amounts payable or shares issuable pursuant to an Award
shall be delivered only to (or for the account of) the Participant.
(b) Exceptions. The Committee may permit Awards to be exercised by and paid
to certain persons or entities related to the Participant pursuant to such
conditions and procedures as the Committee may establish. Any permitted transfer
shall be subject to the condition that the Committee receive evidence
satisfactory to it that the transfer is being made for estate and/or tax
planning purposes or a gratuitous or donative basis and without consideration
(other than nominal consideration).
(c) Further Exceptions to Limits On Transfer. The exercise and transfer
restrictions in Section 1.8(a) shall not apply to:
(i) transfers to the Corporation,
(ii) the designation of a beneficiary to receive benefits in the event
of the Participant's death or, if the Participant has died, transfers to or
exercise by the Participant's beneficiary, or, in the absence of a validly
designated beneficiary, transfers by will or the laws of descent and
distribution,
(iii) transfers pursuant to a QDRO order,
(iv) if the Participant has suffered a disability, permitted transfers
or exercises on behalf of the Participant by his or her legal
representative, or
(v) the authorization by the Committee of "cashless exercise"
procedures with third parties who provide financing for the purpose of (or
who otherwise facilitate) the exercise of Awards consistent with applicable
laws and the express authorization of the Committee.
Notwithstanding the foregoing, Restricted Stock Awards shall be subject to all
applicable transfer restrictions under the Code.
Section 1.9. Acceptance of Notes to Finance Exercise.
The Corporation may, with the Committee's approval, accept one or more
notes from any Eligible Person in connection with the exercise or receipt of any
outstanding Award; provided that any such note shall be subject to the following
terms and conditions:
(a) The principal of the note shall not exceed the amount required to be
paid to the Corporation upon the exercise or receipt of one or more Awards under
the Plan and the note shall be delivered directly to the Corporation in
consideration of such exercise or receipt.
(b) The initial term of the note shall be determined by the Committee;
provided that the term of the note, including extensions, shall not exceed a
period of five years.
(c) The note shall provide for full recourse to the Participant and shall
bear interest at a rate determined by the Committee but not less than the
interest rate necessary to avoid the imputation of interest under the Code.
(d) If the employment of the Participant terminates, the unpaid principal
balance of the note shall become due and payable on the 10th business day after
such termination; provided, however, that if a sale of such shares would cause
such Participant to incur liability under Section 16(b) of the Exchange Act, the
unpaid balance shall become due and payable on the 10th business day after the
first day on which a sale of such shares could have been made without incurring
such liability assuming for these purposes that there are no other transactions
(or deemed transactions in securities of this Corporation) by the Participant
subsequent to such termination.
(e) If required by the Committee or by applicable law, the note shall be
secured by a pledge of any shares or rights financed thereby in compliance with
applicable law.
(f) The terms, repayment provisions, and collateral release provisions of
the note and the pledge securing the note shall conform with applicable rules
and regulations of the Federal Reserve Board as then in effect.
Section 1.10. Limitations on Grants of Awards to Non-Employee Directors.
Notwithstanding anything else contained herein to the contrary, the maximum
number of shares subject to Nonqualified Stock Options granted to a Non-Employee
Director in any calendar year shall not exceed 30,000 shares.
ARTICLE II. OPTIONS.
Section 2.1. Grants.
One or more Options may be granted under this Article to any Eligible
Person. Each Option granted shall be designated in the applicable Award
Agreement by the Committee as a Non-Qualified Stock Option. No Option granted
under this Plan shall be an Incentive Stock Option.
Section 2.2. Option Price.
(a) Pricing Limits. The purchase price per share of the Common Stock
covered by each Option shall be determined by the Committee at the time of the
Award.
(b) Payment Provisions. The purchase price of any shares purchased on
exercise of an Option granted under this Article shall be paid in full at the
time of each purchase in one or a combination of the following methods: (i) in
cash or by electronic funds transfer; (ii) by check payable to the order of the
Corporation; (iii) if authorized by the Committee or specified in the applicable
Award Agreement, by a promissory note of the Participant consistent with the
requirements of Section 1.9; (iv) by notice and third party payment in such
manner as may be authorized by the Committee; or (iv) by the delivery of shares
of Common Stock of the Corporation already owned by the Participant, provided,
however, that the Committee may in its absolute discretion limit the
Participant's ability to exercise an Award by delivering such shares, and
provided further that any shares delivered which were initially acquired upon
exercise of an Option must have been owned by the Participant for at least six
months as of the date of delivery. Shares of Common Stock used to satisfy the
exercise price of an Option shall be valued at their Fair Market Value on the
date of exercise.
Section 2.3. Intentionally Deleted.
Section 2.4. Intentionally Deleted.
Section 2.5. Cancellation and Regrant/Waiver of Restrictions.
Subject to Section 1.4 and the specific limitations on Awards contained in
this Plan, the Committee from time to time may authorize, generally or in
specific cases only, for the benefit of any Eligible Person any adjustment in
the exercise or purchase price, the vesting schedule, the number of shares
subject to, the restrictions upon or the term of, an Award granted under this
Article by cancellation of an outstanding Award and a subsequent regranting of
an Award, by amendment, by substitution of an outstanding Award, by waiver or by
other legally valid means. Such amendment or other action may result among other
changes in an exercise or purchase price which is higher or lower than the
exercise or purchase price of the original Award or prior Award, provide for a
greater or lesser number of shares subject to the Award, or provide for a longer
or shorter vesting or exercise period.
Section 2.6 Options and Rights in Substitution for Stock Options Granted by
Other Corporations.
Options and Stock Appreciation Rights may be granted to Eligible Persons
under this Plan in substitution for employee stock options granted by other
entities to persons who are or who will become Eligible Persons in respect of
the Company, in connection with a distribution, merger or reorganization by or
with the granting entity or an affiliated entity, or the acquisition by the
Company, directly or indirectly, of all or a substantial part of the stock or
assets of the other entity.
ARTICLE III. STOCK APPRECIATION RIGHTS.
Section 3.1. Grants.
In its discretion, the Committee may grant a Stock Appreciation Right to
any Eligible Person either concurrently with the grant of another Award or in
respect of an outstanding Award, in whole or in part, or independently of any
other Award.
Section 3.2. Exercise of Stock Appreciation Rights.
(a) Exercisability. Unless the Award Agreement or the Committee otherwise
provides, a Stock Appreciation Right related to another Award shall be
exercisable at such time or times, and to the extent, that the related Award
shall be exercisable.
(b) Effect on Available Shares. To the extent that a Stock Appreciation
Right is exercised, the number of underlying shares of Common Stock theretofore
subject to a related Award shall be charged against the maximum amount of Common
Stock that may be delivered pursuant to Awards under this Plan. The number of
shares subject to the Stock Appreciation Right and the related Option of the
Participant shall be reduced by the number of underlying shares as to which the
exercise related, unless the Award Agreement otherwise provides.
(c) Stand-Alone SARs. A Stock Appreciation Right granted independently of
any other Award shall be exercisable pursuant to the terms of the Award
Agreement but in no event earlier than six months after the Award Date, except
in the case of death or Total Disability.
Section 3.3. Payment.
(a) Amount. Unless the Committee otherwise provides, upon exercise of a
Stock Appreciation Right and the attendant surrender of an exercisable portion
of any related Award, the Participant shall be entitled to receive payment of an
amount determined by multiplying
(i) the difference obtained by subtracting the exercise price per
share of Common Stock under the related Award (if applicable) or the
initial share value specified in the Award from the Fair Market Value of a
share of Common Stock on the date of exercise of the Stock Appreciation
Right, by
(ii) the number of shares with respect to which the Stock Appreciation
Right shall have been exercised.
(b) Form of Payment. The Committee, in its sole discretion, shall determine
the form in which payment shall be made of the amount determined under Section
3.3(a) above, either solely in cash, solely in shares of Common Stock (valued at
Fair Market Value on the date of exercise of the Stock Appreciation Right), or
partly in such shares and partly in cash, provided that the Committee shall have
determined that such exercise and payment are consistent with applicable law. If
the Committee permits the Participant to elect to receive cash or shares (or a
combination thereof) on such exercise, any such election shall be subject to
such conditions as the Committee may impose.
ARTICLE IV. RESTRICTED STOCK AWARDS.
Section 4.1. Grants.
The Committee may, in its discretion, grant one or more Restricted Stock
Awards to any Eligible Person. Each Restricted Stock Award Agreement shall
specify the number of shares of Common Stock to be issued to the Participant,
the date of such issuance, the consideration for such shares (but not less than
the minimum lawful consideration under applicable state law) by the Participant,
the extent to which the Participant shall be entitled to dividends, voting and
other rights in respect of the shares prior to vesting and the restrictions
imposed on such shares and the conditions of release or lapse of such
restrictions. Such restrictions shall not lapse earlier than six months after
the Award Date, except to the extent the Committee may otherwise provide. Stock
certificates evidencing shares of Restricted Stock pending the lapse of the
restrictions ("restricted shares") shall bear a legend making appropriate
reference to the restrictions imposed hereunder and shall be held by the
Corporation or by a third party designated by the Committee until the
restrictions on such shares shall have lapsed and the shares shall have vested
in accordance with the provisions of the Award and Section 1.7. Upon issuance of
the Restricted Stock Award, the Participant may be required to provide such
further assurance and documents as the Committee may require to enforce the
restrictions.
Section 4.2. Restrictions.
(a) Pre-Vesting Restraints. Except as provided in Section 4.1 and 1.8,
restricted shares comprising any Restricted Stock Award may not be sold,
assigned, transferred, pledged or otherwise disposed of or encumbered, either
voluntarily or involuntarily, until the restrictions on such shares have lapsed
and the shares have become vested.
(b) Dividend and Voting Rights. Unless otherwise provided in the applicable
Award Agreement, a Participant receiving a Restricted Stock Award shall be
entitled to cash dividend and voting rights for all shares issued even though
they are not vested, provided that such rights shall terminate immediately as to
any restricted shares which cease to be eligible for vesting.
(c) Cash Payments. If the Participant shall have paid or received cash
(including any dividends) in connection with the Restricted Stock Award, the
Award Agreement shall specify whether and to what extent such cash shall be
returned (with or without an earnings factor) as to any restricted shares which
cease to be eligible for vesting.
Section 4.3. Return to the Corporation.
Unless the Committee otherwise expressly provides, restricted shares that
remain subject to restrictions at the time of termination of employment or are
subject to other conditions to vesting that have not been satisfied by the time
specified in the applicable Award Agreement shall not vest and shall be returned
to the Corporation in such manner and on such terms as the Committee shall
therein provide.
ARTICLE V. PERFORMANCE SHARE AWARDS AND STOCK BONUSES.
Section 5.1. Grants of Performance Share Awards.
The Committee may, in its discretion, grant Performance Share Awards to
Eligible Persons based upon such factors as the Committee shall deem relevant in
light of the specific type and terms of the award. An Award Agreement shall
specify the maximum number of shares of Common Stock (if any) subject to the
Performance Share Award, the consideration (but not less than the minimum lawful
consideration) to be paid for any such shares as may be issuable to the
Participant, the duration of the Award and the conditions upon which delivery of
any shares or cash to the Participant shall be based. The amount of cash or
shares or other property that may be deliverable pursuant to such Award shall be
based upon the degree of attainment over a specified period (a "performance
cycle") as may be established by the Committee of such measure(s) of the
performance of the Company (or any part thereof) or the Participant as may be
established by the Committee. The Committee may provide for full or partial
credit, prior to completion of such performance cycle or the attainment of the
performance achievement specified in the Award, in the event of the
Participant's death, or Total Disability, a Change in Control Event or in such
other circumstances as the Committee consistent with Section 6.10(c)(2), if
applicable, may determine.
Section 5.2. Intentionally Deleted.
Section 5.3. Grants of Stock Bonuses.
The Committee may grant a Stock Bonus to any Eligible Person to reward
exceptional or special services, contributions or achievements in the manner and
on such terms and conditions (including any restrictions on such shares) as
determined from time to time by the Committee. The number of shares so awarded
shall be determined by the Committee. The Award may be granted independently or
in lieu of a cash bonus.
Section 5.4. Deferred Payments.
The Committee may authorize for the benefit of any Eligible Person the
deferral of any payment of cash or shares that may become due or of cash
otherwise payable under this Plan, and provide for accredited benefits thereon
based upon such deferment, at the election or at the request of such
Participant, subject to the other terms of this Plan. Such deferral shall be
subject to such further conditions, restrictions or requirements as the
Committee may impose, subject to any then vested rights of Participants.
ARTICLE VI. OTHER PROVISIONS.
Section 6.1. Rights of Eligible Persons, Participants and Beneficiaries.
(a) Employment Status. Status as an Eligible Person shall not be construed
as a commitment that any Award will be made under this Plan to an Eligible
Person or to Eligible Persons generally.
(b) No Employment Contract. Nothing contained in this Plan (or in any other
documents related to this Plan or to any Award) shall confer upon any Eligible
Person or other Participant any right to continue in the employ or other service
of the Company or constitute any contract or agreement of employment or other
service, nor shall interfere in any way with the right of the Company to change
such person's compensation or other benefits or to terminate the employment of
such person, with or without cause, but nothing contained in this Plan or any
document related hereto shall adversely affect any independent contractual right
of such person without his or her consent thereto.
(c) Plan Not Funded. Awards payable under this Plan shall be payable in
shares or from the general assets of the Corporation, and no special or separate
reserve, fund or deposit shall be made to assure payment of such Awards. No
Participant, Beneficiary or other person shall have any right, title or interest
in any fund or in any specific asset (including shares of Common Stock, except
as expressly otherwise provided) of the Company by reason of any Award
hereunder. Neither the provisions of this Plan (or of any related documents),
nor the creation or adoption of this Plan, nor any action taken pursuant to the
provisions of this Plan shall create, or be construed to create, a trust of any
kind or a fiduciary relationship between the Company and any Participant,
Beneficiary or other person. To the extent that a Participant, Beneficiary or
other person acquires a right to receive payment pursuant to any Award
hereunder, such right shall be no greater than the right of any unsecured
general creditor of the Company.
Section 6.2. Adjustments; Acceleration.
(a) Adjustments. If there shall occur any extraordinary dividend or other
extraordinary distribution in respect of the Common Stock (whether in the form
of cash, Common Stock, other securities, or other property), or any
reclassification, recapitalization, stock split (including a stock split in the
form of a stock dividend), reverse stock split, reorganization, merger,
combination, consolidation, split-up, spin-off, combination, or exchange of
Common Stock or other securities of the Corporation, or there shall occur any
other like corporate transaction or event in respect of the Common Stock or a
sale of substantially all the assets of the Corporation as an entirety, then the
Committee shall, in such manner and to such extent (if any) as it deems
appropriate and equitable (1) proportionately adjust any or all of (i) the
number and type of shares of Common Stock (or other securities) which thereafter
may be made the subject of Awards (including the specific numbers of shares set
forth elsewhere in this Plan), (ii) the number, amount and type of shares of
Common Stock (or other securities or property) subject to any or all outstanding
Awards, (iii) the grant, purchase, or exercise price of any or all outstanding
Awards, (iv) the securities, cash or other property deliverable upon exercise of
any outstanding Awards, or (v) the performance standards appropriate to any
outstanding Awards, or (2) in the case of an extraordinary dividend or other
distribution, recapitalization, reclassification, merger, reorganization,
consolidation, combination, sale of assets, split up, exchange, or spin off,
make provision for a cash payment or for the substitution or exchange of any or
all outstanding Awards or the cash, securities or property deliverable to the
holder of any or all outstanding Awards based upon the distribution or
consideration payable to holders of the Common Stock of the Corporation upon or
in respect of such event. In any of such events, the Committee may take such
action sufficiently prior to such event if necessary to permit the Participant
to realize the benefits intended to be conveyed with respect to the underlying
shares in the same manner as is available to stockholders generally.
(b) Acceleration of Awards Upon Change in Control. As to any Participant,
unless prior to a Change in Control Event the Committee determines that, upon
its occurrence, there shall be no acceleration of benefits under Awards or
determines that only certain or limited benefits under Awards shall be
accelerated and the extent to which they shall be accelerated, and/or
establishes a different time in respect of such Change in Control Event for such
acceleration, then upon the occurrence of a Change in Control Event (i) each
Option and Stock Appreciation Right shall become immediately exercisable, (ii)
Restricted Stock shall immediately vest free of restrictions, and (iii) each
Performance Share Award shall become payable to the Participant; provided,
however, that in no event shall any Award be accelerated as to any Section 16
Person to a date less than six months after the Award Date of such Award. The
Committee may override the limitations on acceleration in this Section 6.2(b) by
express provision in the Award Agreement and may accord any Eligible Person a
right to refuse any acceleration, whether pursuant to the Award Agreement or
otherwise, in such circumstances as the Committee may approve. Any acceleration
of Awards shall comply with applicable regulatory requirements, including
without limitation Section 422 of the Code.
(c) Possible Early Termination of Accelerated Awards. If any Option or
other right to acquire Common Stock under this Plan has been fully accelerated
as permitted by Section 6.2(b) but is not exercised prior to (i) a dissolution
of the Corporation, or (ii) an event described in Section 6.2(a) that the
Corporation does not survive, or (iii) the consummation of an event described in
Section 6.2(a) that results in a Change in Control Event approved by the Board,
such Option or right shall thereupon terminate, subject to any provision that
has been expressly made by the Committee for the survival, substitution,
exchange or other settlement of such Option or right.
Section 6.3. Effect of Termination of Employment.
The Committee shall establish in respect of each Award granted to an
Eligible Person the effect of a termination of employment on the rights and
benefits thereunder and in so doing may make distinctions based upon the cause
of termination. In addition, in the event of, or in anticipation of, a
termination of employment with the Company for any reason, other than discharge
for cause, the Committee may, in its discretion, increase the portion of the
Participant's Award available to the Participant, or Participant's Beneficiary
or Personal Representative, as the case may be, or, subject to the provisions of
Section 1.6, extend the exercisability period upon such terms as the Committee
shall determine and expressly set forth in or by amendment to the Award
Agreement.
Section 6.4. Compliance with Laws.
This Plan, the granting and vesting of Awards under this Plan and the
offer, issuance and delivery of shares of Common Stock and/or the payment of
money under this Plan or under Awards granted hereunder are subject to
compliance with all applicable federal and state laws, rules and regulations
(including but not limited to state and federal securities law and federal
margin requirements) and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Corporation, be
necessary or advisable in connection therewith. Any securities delivered under
this Plan shall be subject to such restrictions, and the person acquiring such
securities shall, if requested by the Corporation, provide such assurances and
representations to the Corporation as the Corporation may deem necessary or
desirable to assure compliance with all applicable legal requirements.
Section 6.5. Tax Withholding.
Upon any exercise, vesting, or payment of any Award, the Company shall have
the right at its option to (i) require the Participant (or Personal
Representative or Beneficiary, as the case may be) to pay or provide for payment
of the amount of any taxes which the Company may be required to withhold with
respect to such Award event or payment or (ii) deduct from any amount payable in
cash the amount of any taxes which the Company may be required to withhold with
respect to such cash payment. In any case where a tax is required to be withheld
in connection with the delivery of shares of Common Stock under this Plan, the
Committee may in its sole discretion grant (either at the time of the Award or
thereafter) to the Participant the right to elect, pursuant to such rules and
subject to such conditions as the Committee may establish, to have the
Corporation reduce the number of shares to be delivered by (or otherwise
reacquire) the appropriate number of shares valued at their then Fair Market
Value, to satisfy such withholding obligation.
Section 6.6. Plan Amendment, Termination and Suspension.
(a) Board Authorization. The Board may, at any time, terminate or, from
time to time, amend, modify or suspend this Plan, in whole or in part. No Awards
may be granted during any suspension of this Plan or after termination of this
Plan, but the Committee shall retain jurisdiction as to Awards then outstanding
in accordance with the terms of this Plan.
(b) Stockholder Approval. Any amendment shall be subject to stockholder
approval only to the extent then required by applicable law, or deemed necessary
or advisable by the Board.
(c) Amendments to Awards. Without limiting any other express authority of
the Committee under but subject to the express limits of this Plan, the
Committee by agreement or resolution may waive conditions of or limitations on
Awards to Eligible Persons that the Committee in the prior exercise of its
discretion has imposed, without the consent of a Participant, and may make other
changes to the terms and conditions of Awards that do not affect in any manner
materially adverse to the Participant, his or her rights and benefits under an
Award.
(d) Limitations on Amendments to Plan and Awards. No amendment, suspension
or termination of the Plan or change of or affecting any outstanding Award
shall, without written consent of the Participant, affect in any manner
materially adverse to the Participant any rights or benefits of the Participant
or obligations of the Corporation under any Award granted under this Plan prior
to the effective date of such change. Changes contemplated by Section 6.2 shall
not be deemed to constitute changes or amendments for purposes of this Section
6.6.
Section 6.7. Privileges of Stock Ownership.
Except as otherwise expressly authorized by the Committee or this Plan, a
Participant shall not be entitled to any privilege of stock ownership as to any
shares of Common Stock not actually delivered to and held of record by him or
her. No adjustment will be made for dividends or other rights as a stockholders
for which a record date is prior to such date of delivery.
Section 6.8. Effective Date of the Plan.
This Plan shall be effective as of December 15, 1998, that being the date
of approval by the Board.
Section 6.9. Term of the Plan.
No Award shall be granted after December 14, 2008 (the "termination date").
Unless otherwise expressly provided in this Plan or in an applicable Award
Agreement, any Award granted prior to the termination date may extend beyond
such date, and all authority of the Committee with respect to Awards hereunder,
including the authority to amend an Award, shall continue during any suspension
of this Plan and in respect of outstanding Awards on the termination date.
Section 6.10. Governing Law/Construction/Severability.
(a) Choice of Law. This Plan, the Awards, all documents evidencing Awards
and all other related documents shall be governed by, and construed in
accordance with the laws of the state of incorporation of the Corporation.
(b) Severability. If any provision shall be held by a court of competent
jurisdiction to be invalid and unenforceable, the remaining provisions of this
Plan shall continue in effect.
(c) Plan Construction. It is the intent of the Corporation that
transactions in and affecting Awards in the case of Participants who are or may
be subject to Section 16 of the Exchange Act satisfy any then applicable
requirements of Rule 16b-3 so that such persons (unless they otherwise agree)
will be entitled to the benefits of Rule 16b-3 or other exemptive rules under
Section 16 of the Exchange Act in respect of these transactions and will not be
subjected to avoidable liability thereunder. If any provision of this Plan or of
any Award would otherwise frustrate or conflict with the intent expressed above,
that provision to the extent possible shall be interpreted so as to avoid such
conflict. If the conflict remains irreconcilable, the Committee may disregard
the provision if it concludes that to do so furthers the interest of the
Corporation and is consistent with the purposes of this Plan as to such persons
in the circumstances.
Section 6.11. Captions.
Captions and headings are given to the sections and subsections of this
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
Section 6.12. Effect of Change of Subsidiary Status.
For purposes of this Plan and any Award hereunder, if an entity ceases to
be a Subsidiary a termination of employment and service shall be deemed to have
occurred with respect to each Eligible Person in respect of such Subsidiary who
does not continue as an Eligible Person in respect of another entity within the
Company.
Section 6.13. Non-Exclusivity of Plan.
Nothing in this Plan shall limit or be deemed to limit the authority of the
Board or the Committee to grant awards or authorize any other
compensation, with or without reference to the Common Stock, under any other
plan or authority.
ARTICLE VII. DEFINITIONS.
Section 7.1. Definitions.
"Award" shall mean an award of any Option, Stock Appreciation Right,
Restricted Stock, Stock Bonus, Performance Share Award, dividend equivalent or
deferred payment right or other right or security that would constitute a
"derivative security" under Rule 16a-1(c) of the Exchange Act, or any
combination thereof, whether alternative or cumulative, authorized by and
granted under this Plan.
"Award Agreement" shall mean any writing setting forth the terms of an
Award that has been authorized by the Committee.
"Award Date" shall mean the date upon which the Committee took the action
granting an Award or such later date as the Committee designates as the Award
Date at the time of the Award.
"Award Period" shall mean the period beginning on an Award Date and ending
on the expiration date of such Award.
"Beneficiary" shall mean the person, persons, trust or trusts designated by
a Participant or, in the absence of a designation, entitled by will or the laws
of descent and distribution, to receive the benefits specified in the Award
Agreement and under this Plan in the event of a Participant's death, and shall
mean the Participant's executor or administrator if no other Beneficiary is
designated and able to act under the circumstances.
"Board" shall mean the Board of Directors of the Corporation.
"Change in Control Event" shall mean any of the following:
(1) Approval by the stockholders of the Corporation of the dissolution
or liquidation of the Corporation;
(2) Approval by the stockholders of the Corporation of an agreement to
merge or consolidate, or otherwise reorganize, with or into one or more
entities that are not Subsidiaries, as a result of which less than 50% of
the outstanding voting securities of the surviving or resulting entity
immediately after the reorganization are, or will be, owned, directly or
indirectly, by stockholders of the Corporation immediately before such
reorganization (assuming for purposes of such determination that there is
no change in the record ownership of the Corporation's securities from the
record date for such approval until such reorganization and that such
record owners hold no securities of the other parties to such
reorganization); provided that an event described in this clause (2) shall
not constitute a Change in Control Event if the majority of members of the
Board of the surviving entity is comprised of individuals who were members
of the Board immediately prior to such event;
(3) Approval by the stockholders of the Corporation of the sale of
substantially all of the Corporation's business and/or assets to a person
or entity which is not a Subsidiary;
(4) Any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act but excluding any person described in and satisfying the
conditions of Rule 13d-1(b)(1) thereunder), becomes the beneficial owner
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Corporation representing more than 50% of the combined
voting power of the Corporation's then outstanding securities entitled to
then vote generally in the election of directors of the Corporation; or
(5) At any time during the term of this Plan, 51% or more of the
individuals elected to serve, and who are then serving, on the Board are
individuals who were not (i) members of the Board at the time of the
adoption of this Plan by the Board, or (ii) nominated or elected to their
current term of office as a director by a committee of the Board which is
authorized to fill vacancies on the Board (or if there is no such
committee, by a majority of the Board in office at the time of such
individual's nomination or election by the Board to fill a vacancy), or
(iii) approved by a majority of members of the Board who were either
members of the Board at the time this Plan was adopted by the Board, or
nominated or elected as described in clause (5) (ii) above.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"Commission" shall mean the Securities and Exchange Commission.
"Committee" shall mean the Board or a committee appointed by the Board to
administer this Plan, which committee shall be comprised only of two or more
directors or such greater number of directors as may be required under
applicable law, each of whom, in respect of any decision affecting a transaction
at a time when the Participant involved in the transaction may be subject to
Section 16 of the Exchange Act, shall be a "non-employee director" within the
meaning of Rule 16b-3(b)(3) promulgated under the Exchange Act.
"Common Stock" shall mean the Common Stock of the Corporation and such
other securities or property as may become the subject of Awards, or become
subject to Awards, pursuant to an adjustment made under Section 6.2 of this
Plan.
"Company" shall mean, collectively, the Corporation and its Subsidiaries.
"Corporation" shall mean Apria Healthcare Group Inc., a Delaware
corporation, and its successors.
"Eligible Employee" shall mean an officer (whether or not a director) or
key employee of the Company.
"Eligible Person" means an Eligible Employee, or any Other Eligible Person,
as determined by the Committee in its discretion.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time.
"Fair Market Value" on any date shall mean (i) if the stock is listed or
admitted to trade on a national securities exchange, the closing price of the
stock on the principal national securities exchange on which the stock is so
listed or admitted to trade, on such date, or, if there is no trading of the
stock on such date, then the closing price of the stock on the next preceding
date on which there was trading in such shares; (ii) if the stock is not listed
or admitted to trade on a national securities exchange, the last price for the
stock on such date, as furnished by the National Association of Securities
Dealers, Inc. ("NASD") through the NASDAQ National Market Reporting System or a
similar organization if the NASD is no longer reporting such information; (iii)
if the stock is not listed or admitted to trade on a national securities
exchange and is not reported on the National Market Reporting System, the mean
between the bid and asked price for the stock on such date, as furnished by the
NASD or a similar organization; or (iv) if the stock is not listed or admitted
to trade on a national securities exchange, is not reported on the National
Market Reporting System and if bid and asked prices for the stock are not
furnished by the NASD or a similar organization, the value as established by the
Committee at such time for purposes of this Plan.
"Free Cash Flow" shall mean cash postings less cost of sales, operating
expenses (net of bad debt) and capital expenditures.
"Incentive Stock Option" shall mean an Option which is intended, as
evidenced by its designation, as an incentive stock option within the meaning of
Section 422 of the Code, the award of which is made under such circumstances and
to such persons as may be necessary to comply with that section.
"Nonqualified Stock Option" shall mean an Option that is
designated as a Nonqualified Stock Option and shall include any Option intended
as an Incentive Stock Option that fails to meet the applicable legal
requirements thereof. Any Option granted hereunder that is not designated as an
incentive stock option shall be deemed to be designated a nonqualified stock
option under this Plan and not an incentive stock option under the Code.
"Option" shall mean an option to purchase Common Stock granted under this
Plan.
"Other Eligible Person" shall mean any Non-Employee Director or any
individual consultant or advisor who renders or has rendered bona fide services
(other than services in connection with the offering or sale of securities of
the Company in a capital raising transaction) to the Company, and who is
selected to participate in this Plan by the Committee. A non-employee agent
providing bona fide services to the Company (other than as an eligible advisor
or consultant) may also be selected as an Other Eligible Person if such agent's
participation in this Plan would not adversely affect (i) the Corporation's
eligibility to use Form S-8 to register under the Securities Act of 1933, as
amended, the offering of shares issuable under this Plan by the Company or (ii)
the Corporation's compliance with any other applicable laws.
"Participant" shall mean an Eligible Person who has been granted an Award
under this Plan.
"Performance Share Award" shall mean an Award of a right to receive shares
of Common Stock made in accordance with Section 5.1, the issuance or payment of
which is contingent upon, among other conditions, the attainment of performance
objectives specified by the Committee.
"Personal Representative" shall mean the person or persons who, upon the
disability or incompetence of a Participant, shall have acquired on behalf of
the Participant, by legal proceeding or otherwise, the power to exercise the
rights or receive benefits under this Plan and who shall have become the legal
representative of the Participant.
"Plan" shall mean this 1998 Nonqualified Stock Incentive Plan.
"QDRO" shall mean a qualified domestic relations order as defined in
Section 414(p) of the Code or Title I, Section 206(d)(3) of ERISA (to the same
extent as if this Plan were subject thereto), or the applicable rules
thereunder.
"Restricted Stock Award" shall mean an award of a fixed number of shares of
Common Stock to the Participant subject, however, to payment of such
consideration, if any, and such forfeiture provisions, as are set forth in the
Award Agreement.
"Restricted Stock" shall mean shares of Common Stock awarded to a
Participant under this Plan, subject to payment of such consideration, if any,
and such conditions on vesting and such transfer and other restrictions as are
established in or pursuant to this Plan, for so long as such shares remain
unvested under the terms of the applicable Award Agreement.
"Rule 16b-3" shall mean Rule 16b-3 as promulgated by the Commission
pursuant to the Exchange Act, as amended from time to time.
"Section 16 Person" shall mean a person subject to Section 16(a) of the
Exchange Act.
"Securities Act" shall mean the Securities Act of 1933, as amended from
time to time.
"Stock Appreciation Right" shall mean a right to receive a number of shares
of Common Stock or an amount of cash, or a combination of shares and cash, the
aggregate amount or value of which is determined by reference to a change in the
Fair Market Value of the Common Stock that is authorized under this Plan.
"Stock Bonus" shall mean an Award of shares of Common Stock granted under
this Plan for no consideration other than past services and without restriction
other than such transfer or other restrictions as the Committee may deem
advisable to assure compliance with law.
"Subsidiary" shall mean any corporation or other entity a majority of whose
outstanding voting stock or voting power is beneficially owned directly or
indirectly by the Corporation.
"Total Disability" shall mean a "permanent and total disability" within the
meaning of Section 22(e)(3) of the Code and such other disabilities,
infirmities, afflictions or conditions as the Committee by rule may include.
Section 7.2. Changes in Applicable Law.
To the extent any terms defined or utilized in this Plan are defined by
identification to a particular statute or regulation, and if there shall occur a
change in such statutory or regulatory definition, then the definition of such
term shall be deemed to have been amended to conform to the change in the
statutory or regulatory definition, unless the Committee shall determine that
such change would create a result which is contrary to the intents and purposes
of this Plan or work to create a hardship for either any Eligible Person or the
Company, in which event the Committee, at its option, shall have authority to
amend this Plan in a manner so as to achieve the original intents and purposes
of this Plan or to diminish or eliminate the hardship caused by such change in a
statutory definition. Any such amendment may be made retroactively to the date
of the change in the statutory or regulatory definition.
EXHIBIT 10.33
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (this "Amendment"), dated and
effective as of January 1, 1999, is entered into by and between Apria Healthcare
Group Inc. (the "Company") and Philip L. Carter (the "Executive").
WHEREAS, the Company and the Executive have entered into an Employment
Agreement dated as of May 5, 1998 (the "Employment Agreement"); and
WHEREAS, the Company, with the approval of its Board of Directors, now
desires to increase the Executive's compensation payable under the Employment
Agreement, and both parties wish to evidence and confirm such increase by
amending the terms of the Employment Agreement as set forth below in this
Amendment;
NOW, THEREFORE, THIS AMENDMENT WITNESSETH:
1. The first sentence of Section III A of the Employment Agreement is
hereby amended to read as follows:
"The Company will pay to the Executive a base salary at the rate of
$600,000 per year."
2. Clause (i) of Section III E of the Employment Agreement is hereby
amended to read as follows:
"car allowance of $12,500 per year, payable in periodic installments
in accordance with the Company's customary practices,"
3. Except as amended above, the Employment Agreement shall remain in
full force and effect and, as so amended, is hereby ratified and confirmed in
all respects.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
APRIA HEALTHCARE GROUP INC. THE EXECUTIVE
By:
------------------------------- ------------------------------
Ralph V. Whitworth, Philip L. Carter
Chairman
EXHIBIT 10.34
APRIA HEALTHCARE GROUP INC.
FIRST AMENDMENT
TO AMENDED AND RESTATED CREDIT AGREEMENT
AND CONSENT
This FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT AND CONSENT
(this "Amendment") is dated as of January 15, 1999 and entered into by and among
Apria Healthcare Group Inc. ("Apria"), certain of its subsidiaries listed on the
signature pages of this Amendment (collectively with Apria, "Borrowers"), the
financial institutions listed on the signature pages of this Amendment
("Lenders"), Bank of America National Trust and Savings Association, as the
Administrative and Collateral Agent ("Agent"), and NationsBank, N.A., as the
Syndication Agent ("Syndication Agent"), and is made with reference to that
certain Amended and Restated Credit Agreement, dated as of November 13, 1998
(the "Credit Agreement"), by and among Borrowers, Lenders, Agent, and
Syndication Agent. Capitalized terms used herein without definition shall have
the same meanings herein as set forth in the Credit Agreement.
RECITALS
WHEREAS, Apria has informed Agent and Lenders that (i) Apria is currently
considering issuing non-convertible 9 1/2% Senior Subordinated Notes due 2002
(the "1999 Senior Subordinated Notes") which contain terms substantially the
same as those of the Senior Subordinated Notes, and (ii) Apria currently
contemplates amending the Indenture (the "Original Indenture") relating to the
Senior Subordinated Notes, by means of a Supplemental Indenture (the
"Supplemental Indenture"), to add the "anti-layering" covenant described in the
disclosure document relating to the issue and sale of the Senior Subordinated
Notes, and Agent and Lenders are willing to consent to these actions as set
forth below; and
WHEREAS, Borrowers, Agent, and Lenders desire to amend the Credit
Agreement: (i) to permit the impending issuance by Apria of either the 1999
Senior Subordinated Notes or the 10% Convertible Subordinated Debentures due
2004 (the "1999 Senior Subordinated Convertible Debentures," along with the 1999
Senior Subordinated Notes, the "Senior Subordinated Debentures") under the
Credit Agreement; (ii) to allow Apria to issue the Senior Subordinated
Debentures at a discount and with original issue discount thereon, (iii) to
allow Apria to refinance the Senior Subordinated Debentures on the same terms
and conditions as the Senior Subordinated Notes may be refinanced under the
Credit Agreement; and (iv) to make certain other amendments as set forth below;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
Section 1. AMENDMENTS TO THE CREDIT AGREEMENT
1.1 Amendments to Certain Terms
The Credit Agreement is hereby amended by deleting the term "Senior
Subordinated Convertible Debentures" in each instance it appears in the Credit
Agreement and substituting in lieu thereof in each such instance the term
"Senior Subordinated Debentures."
1.2 Amendment to Section 1.1 of the Credit Agreement: Definitions
Section 1.1 of the Credit Agreement is hereby amended by deleting the
definition of "Senior Subordinated Convertible Debentures" therefrom in its
entirety and substituting the following therefor:
"Senior Subordinated Debentures" shall mean the senior subordinated notes
or the senior subordinated convertible debentures to be issued in 1999 in
accordance with the provisions of Section 9.15 by Apria on terms and conditions
reasonably satisfactory to the Administrative and Collateral Agent and the
Required Banks."
1.3 Amendment to Section 5.2(a)(C): Provisions Relating to Mandatory Repayments
Section 5.2(a)(C) is hereby amended by deleting the phrase "Senior
Subordinated Notes" in each instance it appears in Section 5.2(a)(C), and
substituting in lieu thereof in each such instance the phrase "Senior
Subordinated Notes or Senior Subordinated Debentures".
1.4 Amendment to Section 9.13: Provisions Relating to Permitted Transactions
Section 9.13(a)(v) is hereby amended by deleting the phrases
"such Permitted Transactions" and "all such Permitted Transactions" in each
instance either such phrase appears in Section 9.13(a)(v), and substituting in
lieu thereof in each such instance the term "such Permitted Transaction".
1.5 Amendment to Section 9.15: Provisions Relating to the Original Issue
Discount
Section 9.15 of the Credit Agreement is hereby amended and restated to read
in its entirety as follows:
"9.15 Senior Subordinated Debentures. The Borrowers shall diligently pursue
the issuance of the Senior Subordinated Debentures and on or prior to February
28, 1999, the Borrowers shall issue the Senior Subordinated Debentures in an
aggregate principal amount of at least $50,000,000, on terms and conditions,
including subordination provisions, satisfactory to the Required Banks and the
Administrative and Collateral Agent, and 100% of the Net Indebtedness Proceeds
of such issuance shall be used contemporaneously to permanently repay the Term
Loans pursuant to Section 5.2(a); provided that if the gross cash consideration
(prior to payments of underwriters' compensation, commissions, and other
expenses of issuance) received by Apria is less than $50,000,000, the amount of
the repayment under Section 5.2(a) will be supplemented by a voluntary
prepayment by Apria under Section 5.1 of a sum in an amount calculated by
subtracting such gross cash consideration from $50,000,000, to be applied in the
same manner as the Net Indebtedness Proceeds of such issuance; and provided,
further that any original issue discount on such issuance of Senior Subordinated
Debentures may not, in any case, exceed $10,000,000."
1.6 Amendment to Section 10.5(i): Provisions Relating to Indebtedness
Section 10.5(i) of the Credit Agreement is hereby amended and restated to
read in its entirety as follows:
"(i) the Senior Subordinated Notes, the Senior Subordinated
Debentures, and any refinancing of the Senior Subordinated Notes or the
Senior Subordinated Debentures having a maturity of not less than five
years and no scheduled amortization and containing other terms, including
subordination provisions, acceptable to the Agents."
1.7 Amendment to Section 10.11(i): Provisions Relating to Indebtedness Limits
Clause (i) of Section 10.11(i) of the Credit Agreement is hereby amended
and restated to read in its entirety as follows:
"(i) any Additional Permitted Subordinated Indebtedness; 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 Debentures in their entirety pursuant to Section 10.5(i),"
Section 2. CONSENT
2.1 Supplemental Indenture
At the request of Borrowers, the undersigned Lenders, constituting Required
Banks, and the Agent hereby consent to the amendment of the Original Indenture
by means of the Supplemental Indenture.
2.2 Convertibility of Subordinated Debentures
A. At the request of Borrowers, and as required pursuant to the definition
of "Senior Subordinated Debentures" in, and Section 9.15 of, the Credit
Agreement (as amended hereby), the undersigned Lenders, constituting Required
Banks, and the Agent hereby confirm that:
(i) the terms and conditions of the 1999 Senior Subordinated
Convertible Debentures, as described in the Registration Statement on Form
S-3 previously delivered to Agent and counsel for Agent are satisfactory;
and
(ii) the terms and conditions of the 1999 Senior Subordinated Notes,
as described in the Offering Memorandum delivered to Agent and counsel for
Agent on January 7, 1999, are satisfactory.
B. The confirmation set forth in this Section 2.2 also effects the consent
of Lenders constituting Required Banks and Agent to Apria's issuance of either
the 1999 Senior Subordinated Convertible Debentures or the 1999 Senior
Subordinated Notes in accordance with the provisions of the Credit Agreement.
2.3 Effect of Consent
Without limiting the generality of the provisions of subsection 13.13 of
the Credit Agreement, the consent set forth herein shall be limited precisely as
written and is provided solely for the purpose of permitting Apria to amend the
Indenture relating to the Senior Subordinated Notes and to issue the Senior
Subordinated Debentures (as defined in Section 1.1 of the Credit Agreement, as
amended hereby), and this Consent does not constitute, nor should it be
construed as, a waiver of compliance by Company with respect to any other term,
provision or condition of the Credit Agreement or any other instrument or
agreement referred to therein (whether in connection with the actions discussed
herein or otherwise).
Section 3. CONDITIONS TO EFFECTIVENESS
Sections 1 and 2 of this Amendment shall become effective only upon the
satisfaction of all of the following conditions precedent (the date of
satisfaction of such conditions being referred to herein as the "First Amendment
Effective Date"):
(i) on or before the First Amendment Effective Date, Borrowers shall
deliver to Agent executed copies of this Amendment, dated the First
Amendment Effective Date; and
(ii) on or before the First Amendment Effective Date, all corporate
and other proceedings taken or to be taken in connection with the
transactions contemplated hereby shall be satisfactory in form and
substance to Agent.
Section 4. BORROWERS' REPRESENTATIONS AND WARRANTIES
In order to induce Lenders and Agent to enter into this Amendment and to
amend the Credit Agreement in the manner provided herein, Borrowers represent
and warrant to each Lender and to Agent that the following statements are true,
correct and complete:
(i) Corporate Power and Authority. Each Borrower has all requisite
corporate power and authority to enter into this Amendment and to carry out
the transactions contemplated by, and perform its obligations under, the
Credit Agreement as amended by this Amendment (the "Amended Agreement").
(ii) Authorization of Agreements. The execution and delivery of this
Amendment and the performance of the Amended Agreement have been duly
authorized by all necessary corporate action on the part of Borrowers.
(iii) Governmental Consents. The execution and delivery by Borrowers
of this Amendment and the performance by Borrowers of the Amended Agreement
do not and will not require any registration with, consent or approval of,
or notice to, or other action to, with or by, any federal, state or other
governmental authority or regulatory body.
(iv) Binding Obligation. This Amendment and the Amended Agreement have
been duly executed and delivered by Borrowers and are the legally valid and
binding obligations of Borrowers, enforceable against each Borrower in
accordance with their respective terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating
to or limiting creditors' rights generally or by equitable principles
relating to enforceability.
(v) Incorporation of Representations and Warranties from Credit
Agreement. The representations and warranties contained in Section 8 of the
Credit Agreement are and will be true, correct and complete in all material
respects on and as of the First Amendment Effective Date to the same extent
as though made on and as of that date, except to the extent such
representations and warranties specifically relate to an earlier date, in
which case they were true, correct and complete in all material respects on
and as of such earlier date.
(vi) Absence of Default. No event has occurred and is continuing or
will result from the consummation of the transactions contemplated by this
Amendment that would constitute a Default or an Event of Default.
Section 5. MISCELLANEOUS
5.1 Reference to and Effect on the Credit Agreement and the Other Loan
Documents.
A. Except as specifically amended by this Amendment, the Credit Agreement
and the Security Documents shall remain in full force and effect and are hereby
ratified and confirmed.
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. On and after the First Amendment Effective Date, each reference in the
Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words
of like import referring to the Credit Agreement, and each reference in the
Security Documents to the "Credit Agreement", "thereunder", "thereof" or words
of like import referring to the Credit Agreement shall mean and be a reference
to the Amended Agreement.
D. The execution, delivery and performance of this Amendment shall not,
except as expressly provided herein, constitute a waiver of any provision of, or
operate as a waiver of any right, power or remedy of Agent or any Lender under,
the Credit Agreement or any of the Security Documents.
5.2 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.
5.3 Fees and Expenses.
The Borrowers shall reimburse the Agent on demand for all reasonable costs,
expenses and charges (including, without limitation, reasonable fees and
expenses and charges of legal counsel and other consultants for the Agent)
incurred by the Agent in connection with the preparation, performance or
enforcement of this Amendment.
5.4 Successors and Assigns.
This Amendment shall be binding upon and inure to the benefit of its
parties and their respective successors and permitted assigns.
5.5 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.
5.6 Captions.
The caption, section and subsection headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose or be given any substantive effect.
5.7 Counterparts; Effectiveness.
This Amendment may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument; signature pages may
be detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document. This Amendment (other than the provisions of Sections 1 and 2 hereof,
the effectiveness of which is governed by Section 3 hereof) shall become
effective upon the execution of a counterpart hereof by Borrowers, Agent,
Syndication Agent, and Required Banks and receipt by Borrowers and Agent of
written or telephonic notification of such execution and authorization of
delivery thereof.
5.8 Applicable Law.
THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.
[Remainder of page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
Address for all Borrowers:
3560 Hyland Avenue APRIA HEALTHCARE GROUP INC.
Costa Mesa California 92626 APRIA HEALTHCARE, INC.
Attn: Chief Financial Officer APRIA NUMBER TWO, INC.
APRIACARE MANAGEMENT SYSTEMS, INC.
Telephone: (714) 427-2000 APRIA HEALTHCARE OF NEW YORK STATE,
Facsimile: (714) 427-4332 INC.
By:
--------------------------------
Name:
Title:
EXHIBIT 10.35
SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment") dated as of February __, 1999 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 Amended and Restated Credit Agreement
dated as of November 13, 1998, as amended by the First Amendment to Amended and
Restated Credit Agreement dated as of January 13, 1999 (the "Credit Agreement"),
pursuant to which the Banks extended certain credit to the Borrowers.
II. Pursuant to certain sections of the Credit Agreement, Apria is required
to issue the Senior Subordinated Debentures on or prior to February 28, 1999.
III. The Borrowers have requested that the February 28, 1999 deadline be
extended to April 23, 1999.
IV. The Banks are willing to accommodate the request 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 Section 5.2(a)(E). Section 5.2(a)(E) of the Credit
Agreement is hereby amended by replacing the date "February 28, 1999" set forth
in such section with the date "April 23, 1999".
2. Amendment to Section 9.15. Section 9.15 of the Credit Agreement is
hereby amended by replacing the date "February 28, 1999" set forth in such
section with the date "April 23, 1999".
3. Amendment to Section 11.11. Section 11.11 of the Credit Agreement is
hereby amended by replacing the date "February 28, 1999" set forth in such
section with the date "April 23, 1999".
4. 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.
5. Conditions Precedent. The effectiveness of 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 an
opinion of Borrower's counsel in a form satisfactory to the Agents;
(iii) the receipt by the Administrative and Collateral Agent of this
Amendment, duly executed and delivered by each of the Borrowers; and
(vii) an officer's certificate of Apria to the effect that 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.
6. 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.
(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.
7. 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.
8. 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.
9. Successors and Assigns. This Amendment shall be binding upon and inure
to the benefit of its parties and their respective successors and permitted
assigns.
10. 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.
11. 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.
12. 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.
13. 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:
Title:
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
as Administrative and Collateral Agent
By:
------------------------------------
Name: Christine Cordi
Title: Vice President
EXHIBIT 10.36
AMENDED AND RESTATED
EXECUTIVE SEVERANCE AGREEMENT
This Amended and Restated Executive Severance Agreement (this "Agreement")
is made as of this 26th day of February, 1999, between Apria Healthcare Group
Inc., a Delaware corporation (the "Company"), and Frank Bianchi (the
"Executive").
RECITALS
A. It is the desire of the Company to retain the services of the Executive
and to recognize the Executive's contribution to the Company.
B. The Company and the Executive wish to set forth certain
terms and conditions of Executive's employment.
C. The Company wishes to provide to the Executive certain benefits in the
event that his employment is terminated by the Company without cause or in the
event that he terminates employment for Good Reason (as defined below), in order
to encourage the Executive's performance and continued commitment to the
Company.
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements set forth below, the parties hereto agree as
follows:
1. Positions and Duties. The Executive shall serve as the Company's Senior
Vice President, Human Resources, or in such other position and shall undertake
such duties and have such authority as the Company, through its Chief Executive
Officer, shall assign to the Executive from time to time in the Company's sole
and absolute discretion. The Company has the right to change the nature, amount
or level of authority and responsibility assigned to the Executive at any time,
with or without cause. The Company may also change the title or titles assigned
to the Executive at any time, with or without cause. The Executive agrees to
devote substantially all of his working time and efforts to the business and
affairs of the Company. The Executive further agrees that he shall not undertake
any outside activities which create a conflict of interest with his duties to
the Company, or which, in the judgment of the Board of Directors of the Company,
interfere with the performance of the Executive's duties to the Company.
2. Compensation and Benefits.
(a) Salary. The Executive's salary shall be such salary as the Company
assigns to him from time to time in accordance with its regular practices and
policies. The parties to this Agreement recognize that the Company may, in its
sole discretion, increase such salary at any time.
(b) Bonuses. The Executive's eligibility to receive any bonus shall be
determined in accordance with the Company's Incentive Compensation Plan or other
bonus plans as they shall be in effect from time to time. The parties to this
Agreement recognize that such bonus plans may be amended and/or terminated by
the Company at any time.
(c) Expenses. During the term of the Executive's employment, the Executive
shall be entitled to receive reimbursement for all reasonable and customary
expenses incurred by the Executive in performing services for the Company in
accordance with the Company's reimbursement policies as they may be in effect
from time to time. The parties to this Agreement recognize that such policies
may be amended and/or terminated by the Company at any time.
(d) Other Benefits. The Executive shall be entitled to participate in all
employee benefit plans, programs and arrangements of the Company (including,
without limitation, stock option plans or agreements and insurance, retirement
and vacation plans, programs and arrangements), in accordance with the terms of
such plans, programs or arrangements as they shall be in effect from time to
time during the period of the Executive's employment. The parties to this
Agreement recognize that the Company may terminate or modify such plans,
programs or arrangements at any time.
3. Grounds for Termination. The Executive's employment may be terminated on
any of the following grounds:
(a) Without Cause. The Executive or the Company may terminate the
Executive's employment at any time, without cause, by giving the other party to
this Agreement at least 30 days advance written notice of such termination.
(b) Death. The Executive's employment hereunder shall terminate upon his
death.
(c) Disability. If, as a result of the Executive's incapacity due to
physical or mental illness, the Executive shall have been unable to perform the
essential functions of his position, even with reasonable accommodation that
does not impose an undue hardship on the Company, on a full-time basis for the
entire period of six (6) consecutive months, and within thirty (30) days after
written notice of termination is given (which may occur before or after the end
of such six-month period), shall not have returned to the performance of his
duties hereunder on a full-time basis (a "disability"), the Company may
terminate the Executive's employment hereunder.
(d) Cause. The Company may terminate the Executive's employment hereunder
for cause. For purposes of this Agreement, "cause" shall mean that the Company,
acting in good faith based upon the information then known to the Company,
determines that the Executive has engaged in or committed: willful misconduct;
theft, fraud or other illegal conduct; refusal or unwillingness to substantially
perform his duties (other than such failure resulting from the Executive's
disability) after written demand for substantial performance is delivered by the
Company that specifically identifies the manner in which the Company believes
the Executive has not substantially performed his duties; insubordination; any
willful act that is likely to and which does in fact have the effect of injuring
the reputation or business of the Company; violation of any fiduciary duty;
violation of the Executive's duty of loyalty to the Company; or a breach of any
term of this Agreement. For purposes of this Section 3(d), no act, or failure to
act, on the Executive's part shall be considered willful unless done or omitted
to be done, by him not in good faith and without reasonable belief that his
action or omission was in the best interest of the Company. Notwithstanding the
foregoing, the Executive shall not be deemed to have been terminated for cause
without delivery to the Executive of a notice of termination signed by the
Company's Chairman or Chief Executive Officer stating that, in the good faith
opinion of the officer signing such notice, the Executive has engaged in or
committed conduct of the nature described above in the second sentence of this
Section 3(d), and specifying the particulars thereof in detail.
4. Payments upon Termination.
(a) Without Cause or with Good Reason. In the event that the Executive's
employment is terminated by the Company for any reason other than death,
disability or cause as defined in Section 3 (b), (c) and (d) of this Agreement,
or in the event that the Executive terminates his employment hereunder with Good
Reason, the Executive shall be entitled to receive severance pay in an aggregate
amount equal to 100% of his Annual Compensation, which shall be payable in one
lump sum, less any amounts required to be withheld by applicable law, in
exchange for a valid release of all claims the Executive may have against the
Company in a form acceptable to the Company. The Company will also pay to the
Executive any earned but unused vacation time at the rate of pay in effect on
the date of the notice of termination.
(b) Annual Compensation. For purposes of this Section 4, the term "Annual
Compensation" means an amount equal to the Executive's annual base salary at the
rate in effect on the date on which the Executive received or gave written
notice of his termination, plus the sum of (i) an amount equal to the average of
the Executive's two most recent annual bonuses, if any, received under the
Company's Incentive Compensation Plan prior to the notice of termination,
provided, however, that if the date of such notice of termination shall precede
the date on which bonuses are paid to the Company's executives for the 1999
fiscal year, then the amount to be included in the Executive's Annual
Compensation pursuant to this clause (i) shall be the amount of his bonus for
1998, (ii) the Executive's annual car allowance, if any, and (iii) an amount
determined by the Company from time to time in its sole discretion to be equal
to the average annual cost for Company employees of obtaining medical, dental
and vision insurance under COBRA, which amount is hereby initially determined to
be $5,000.
(c) Good Reason. For purposes of this Section 4 the term "Good Reason"
means:
(i) any reduction in the Executive's annual base salary, except for a
general one-time "across-the-board" salary reduction not
exceeding ten percent (10%) which is imposed simultaneously on
all officers of the Company; or
(ii) the Company requires the Executive to be based at an office
location which will result in an increase of more than thirty
(30) miles in the Executive's one-way commute; or
(iii)there shall occur a "change of control" of the Company and, at
any time concurrent with or during the six-month period following
such change of control, the Executive shall have sent to the
Chief Executive Officer of the Company or the party acting in
such capacity a written notice terminating his employment on a
date specified in said notice. For purposes of this Agreement,
the term "change of control" shall mean the occurrence of one of
the following:
(1) any "person," as such term is used in Sections 13(d)and
14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "1934 Act") is, becomes or enters a contract to become,
the "beneficial owner," as such term is used in Rule 13d-3
promulgated under the 1934 Act, directly or indirectly, of
securities representing twenty-five percent (25%) or more of
the voting common stock of the Company;
(2) all or substantially all of the business of the Company is
disposed of, or a contract is entered to dispose of all of
the business of the Company pursuant to a merger,
consolidation other transaction in which (a) the Company is
not the surviving company or (b) the stockholders of the
Company prior to the transaction do not continue to own at
least sixty percent (60%) of the surviving corporation;
(3) the Company is materially or completely liquidated; or
(4) any person (other than the Company) purchases any common
stock of the Company in a tender or exchange offer with the
intent, expressed or implied, of purchasing or otherwise
acquiring control of the Company.
Notwithstanding clause (1) above, a "change of control" shall not be deemed
to have occurred solely because a person shall be, become or enter into a
contract to become the beneficial owner of 25% or more, but less than 40%, of
the voting common stock of the Company, if and for so long as such person is
bound by, and in compliance with, a contract with the Company providing that
such person may not nominate, vote for, or select more than a minority of the
directors of the Company. The exception provided by the preceding sentence shall
cease to apply with respect to any person upon expiration, waiver, or
non-compliance with any such contract, by which such person was bound.
(d) Release of all Claims. The Executive understands and agrees that the
Company's obligation to pay the Executive severance pay under this Agreement is
subject to the Executive's execution of a valid written waiver and release of
all claims which the Executive may have against the Company and/or its
successors in a form acceptable to the Company in its sole and absolute
discretion.
(e) Death, Disability or Cause. In the event that the Executive's
employment is terminated due to
death, disability or cause, the Company shall not be obligated to pay the
Executive any amount other than earned unused vacation, reimbursement for
business expenses incurred prior to his termination and in compliance with the
Company's reimbursement policies, and any unpaid salary for days worked prior to
the termination.
5. Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company, by agreement in form and substance
satisfactory to the Executive, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain such assumption and agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall entitle the
Executive to compensation from the Company in the same amount and on the same
terms as he would be entitled to hereunder if he terminated his employment for
Good Reason, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the date of
termination. As used in this Agreement, "Company" shall mean the Company as
herein before defined and any successor to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in this Section
5 or which otherwise becomes bound by all the terms and provisions of this
Agreement by operation of law.
(b) This Agreement and all rights of the Executive hereunder shall inure to
the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrator, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amounts would still
be payable to him hereunder if he had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the Executive's devisee, legatee, or other designee or, if
there be no such designee, to the Executive's estate.
6. Notices. For the purposes of this Agreement, notices, demands and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or (unless otherwise
specified) mailed by United States certified or registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive:
Frank Bianchi
11 Starlight
Irvine, CA 92612
If to the Company:
Apria Healthcare Group Inc.
3560 Hyland Avenue
Costa Mesa, California 92626
Attention: Chief Executive Officer
With a copy to the attention of the Company's
Senior Vice President and General Counsel
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
7. Antisolicitation. The Executive promises and agrees that, during the
period of his employment by the Company and for a period of one year thereafter,
he will not influence or attempt to influence customers of the Company or any of
its present or future subsidiaries or affiliates, either directly or indirectly,
to divert their business to any individual, partnership, firm, corporation or
other entity then in competition with the business of the Company, or any
subsidiary or affiliate of the Company.
8. Soliciting Employees. The Executive promises and agrees that for a
period of one year following termination of his employment, he will not,
directly or indirectly solicit any of the Company employees who earned annually
$50,000 or more as a Company employee during the last six months of his or her
own employment to work for any other business, individual, partnership, firm,
corporation, or other entity.
9. Confidential Information.
(a) The Executive, in the performance of his duties on behalf of the
Company, shall have access to, receive and be entrusted with confidential
information, including but not limited to systems technology, field operations,
reimbursement, development, marketing, organizational, financial, management,
administrative, clinical, customer, distribution and sales information, data,
specifications and processes presently owned or at any time in the future
developed, by the Company or its agents or consultants, or used presently or at
any time in the future in the course of its business that is not otherwise part
of the public domain (collectively, the "Confidential Material"). All such
Confidential Material is considered secret and will be available to the
Executive in confidence. Except in the performance of duties on behalf of the
Company, the Executive shall not, directly or indirectly for any reason
whatsoever, disclose or use any such Confidential Material, unless such
Confidential Material ceases (through no fault of the Executive's) to be
confidential because it has become part of the public domain. All records,
files, drawings, documents, notes, disks, diskettes, tapes, magnetic media,
photographs, equipment and other tangible items, wherever located, relating in
any way to the Confidential Material or otherwise to the Company's business,
which the Executive prepares, uses or encounters during the course of his
employment, shall be and remain the Company's sole and exclusive property and
shall be included in the Confidential Material. Upon termination of this
Agreement by any means, or whenever requested by the Company, the Executive
shall promptly deliver to the Company any and all of the Confidential Material,
not previously delivered to the Company, that may be or at any previous time has
been in the Executive's possession or under the Executive's control.
(b) The Executive hereby acknowledges that the sale or unauthorized use or
disclosure of any of the Company's Confidential Material by any means whatsoever
and at any time before, during or after the Executive's employment with the
Company shall constitute unfair competition. The Executive agrees he shall not
engage in unfair competition either during the time employed by the Company or
any time thereafter.
10. Parachute Limitation. Notwithstanding any other provision of this
Agreement, the Executive shall not have any right to receive any payment or
other benefit under this Agreement, any other agreement, or any benefit plan if
such right, payment or benefit, taking into account all other rights, payments
or benefits to or for the Executive under this Agreement, all other agreements,
and all benefit plans, would cause any right, payment or benefit to the
Executive under this Agreement to be considered a "parachute payment" within the
meaning of Section 280G(b) (2) of the Internal Revenue Code as then in effect (a
"Parachute Payment"). In the event that the receipt of any such right or any
other payment or benefit under this Agreement, any other agreement, or any
benefit plan would cause the Executive to be considered to have received a
Parachute Payment under this Agreement, then the Executive shall have the right,
in the Executive's sole discretion, to designate those rights, payments or
benefits under this Agreement, any other agreements, and/or any benefit plans,
that should be reduced or eliminated so as to avoid having the right, payment or
benefit to the Executive under this Agreement be deemed to be a Parachute
Payment.
11. Modification and Waiver. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and the Chief Executive Officer or
the President of the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of California without regard to its conflicts of law
principles.
12. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original
but all of which together will constitute one and the same instrument.
14. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement or Executive's employment by the Company shall be settled
exclusively by Arbitration, conducted before a single neutral arbitrator in
accordance with the American Arbitration Association's National Rules for
Resolution of Employment Disputes as then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction; provided, however, that
the Company shall be entitled to seek a restraining order or injunction in any
court of competent jurisdiction to prevent any continuation of any violation of
the provisions of Sections 7, 8 or 9 of this Agreement and the Executive hereby
consents that such restraining order or injunction may be granted without the
necessity of the Company's posting any bond, and provided, further, that the
Executive shall be entitled to seek specific performance of his right to be paid
until the date of employment termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement. The fees and
expenses of the arbitrator shall be borne by the Company.
15. Entire Agreement. This Agreement sets forth the entire agreement of the
parties hereto in respect of the subject matter contained herein and supersedes
all prior agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer, employee
or representative of any party hereto; and any prior agreement of the parties
hereto in respect of the subject matter contained herein, including but not
limited to the Executive's Executive Severance Agreement dated May 22, 1998, is
hereby terminated and canceled.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first above written.
APRIA HEALTHCARE GROUP INC.
By:
---------------------------------
Philip L. Carter
Chief Executive Officer
EXECUTIVE
------------------------------
Frank Bianchi
EXHIBIT 10.37
AMENDED AND RESTATED
EXECUTIVE SEVERANCE AGREEMENT
This Amended and Restated Executive Severance Agreement (this "Agreement")
is made as of this 26th day of February, 1999, between Apria Healthcare Group
Inc., a Delaware corporation (the "Company"), and Michael R. Dobbs (the
"Executive").
RECITALS
A. It is the desire of the Company to retain the services of the Executive
and to recognize the Executive's contribution to the Company.
B. The Company and the Executive wish to set forth certain
terms and conditions of Executive's employment.
C. The Company wishes to provide to the Executive certain benefits in the
event that his employment is terminated by the Company without cause or in the
event that he terminates employment for Good Reason (as defined below), in order
to encourage the Executive's performance and continued commitment to the
Company.
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements set forth below, the parties hereto agree as
follows:
1. Positions and Duties. The Executive shall serve as the Company's
Executive Vice President, Logistics, or in such other position and shall
undertake such duties and have such authority as the Company, through its Chief
Executive Officer, shall assign to the Executive from time to time in the
Company's sole and absolute discretion. The Company has the right to change the
nature, amount or level of authority and responsibility assigned to the
Executive at any time, with or without cause. The Company may also change the
title or titles assigned to the Executive at any time, with or without cause.
The Executive agrees to devote substantially all of his working time and efforts
to the business and affairs of the Company. The Executive further agrees that he
shall not undertake any outside activities which create a conflict of interest
with his duties to the Company, or which, in the judgment of the Board of
Directors of the Company, interfere with the performance of the Executive's
duties to the Company.
2. Compensation and Benefits.
(a) Salary. The Executive's salary shall be such salary as the Company
assigns to him from time to time in accordance with its regular practices and
policies. The parties to this Agreement recognize that the Company may, in its
sole discretion, increase such salary at any time.
(b) Bonuses. The Executive's eligibility to receive any bonus shall be
determined in accordance with the Company's Incentive Compensation Plan or other
bonus plans as they shall be in effect from time to time. The parties to this
Agreement recognize that such bonus plans may be amended and/or terminated by
the Company at any time.
(c) Expenses. During the term of the Executive's employment, the Executive
shall be entitled to receive reimbursement for all reasonable and customary
expenses incurred by the Executive in performing services for the Company in
accordance with the Company's reimbursement policies as they may be in effect
from time to time. The parties to this Agreement recognize that such policies
may be amended and/or terminated by the Company at any time.
(d) Other Benefits. The Executive shall be entitled to participate in all
employee benefit plans, programs and arrangements of the Company (including,
without limitation, stock option plans or agreements and insurance, retirement
and vacation plans, programs and arrangements), in accordance with the terms of
such plans, programs or arrangements as they shall be in effect from time to
time during the period of the Executive's employment. The parties to this
Agreement recognize that the Company may terminate or modify such plans,
programs or arrangements at any time.
3. Grounds for Termination. The Executive's employment may be terminated on
any of the following grounds:
(a) Without Cause. The Executive or the Company may terminate the
Executive's employment at any time, without cause, by giving the other party to
this Agreement at least 30 days advance written notice of such termination.
(b) Death. The Executive's employment hereunder shall terminate upon his
death.
(c) Disability. If, as a result of the Executive's incapacity due to
physical or mental illness, the Executive shall have been unable to perform the
essential functions of his position, even with reasonable accommodation that
does not impose an undue hardship on the Company, on a full-time basis for the
entire period of six (6) consecutive months, and within thirty (30) days after
written notice of termination is given (which may occur before or after the end
of such six-month period), shall not have returned to the performance of his
duties hereunder on a full-time basis (a "disability"), the Company may
terminate the Executive's employment hereunder.
(d) Cause. The Company may terminate the Executive's employment hereunder
for cause. For purposes of this Agreement, "cause" shall mean that the Company,
acting in good faith based upon the information then known to the Company,
determines that the Executive has engaged in or committed: willful misconduct;
theft, fraud or other illegal conduct; refusal or unwillingness to substantially
perform his duties (other than such failure resulting from the Executive's
disability) after written demand for substantial performance is delivered by the
Company that specifically identifies the manner in which the Company believes
the Executive has not substantially performed his duties; insubordination; any
willful act that is likely to and which does in fact have the effect of injuring
the reputation or business of the Company; violation of any fiduciary duty;
violation of the Executive's duty of loyalty to the Company; or a breach of any
term of this Agreement. For purposes of this Section 3(d), no act, or failure to
act, on the Executive's part shall be considered willful unless done or omitted
to be done, by him not in good faith and without reasonable belief that his
action or omission was in the best interest of the Company. Notwithstanding the
foregoing, the Executive shall not be deemed to have been terminated for cause
without delivery to the Executive of a notice of termination signed by the
Company's Chairman or Chief Executive Officer stating that, in the good faith
opinion of the officer signing such notice, the Executive has engaged in or
committed conduct of the nature described above in the second sentence of this
Section 3(d), and specifying the particulars thereof in detail.
4. Payments upon Termination.
(a) Without Cause or with Good Reason. In the event that the Executive's
employment is terminated by the Company for any reason other than death,
disability or cause as defined in Section 3 (b), (c) and (d) of this Agreement,
or in the event that the Executive terminates his employment hereunder with Good
Reason, the Executive shall be entitled to receive severance pay in an aggregate
amount equal to 200% of his Annual Compensation, which shall be payable in one
lump sum, less any amounts required to be withheld by applicable law, in
exchange for a valid release of all claims the Executive may have against the
Company in a form acceptable to the Company. The Company will also pay to the
Executive any earned but unused vacation time at the rate of pay in effect on
the date of the notice of termination.
(b) Annual Compensation. For purposes of this Section 4, the term "Annual
Compensation" means an amount equal to the Executive's annual base salary at the
rate in effect on the date on which the Executive received or gave written
notice of his termination, plus the sum of (i) an amount equal to the average of
the Executive's two most recent annual bonuses, if any, received under the
Company's Incentive Compensation Plan prior to the notice of termination,
provided, however, that if the date of such notice of termination shall precede
the date on which bonuses are paid to the Company's executives for the 1999
fiscal year, then the amount to be included in the Executive's Annual
Compensation pursuant to this clause (i) shall be the amount of his bonus for
1998, (ii) the Executive's annual car allowance, if any, and (iii) an amount
determined by the Company from time to time in its sole discretion to be equal
to the average annual cost for Company employees of obtaining medical, dental
and vision insurance under COBRA, which amount is hereby initially determined to
be $5,000.
(c) Good Reason. For purposes of this Section 4 the term "Good Reason"
means:
(i) any reduction in the Executive's annual base salary, except for a
general one-time "across-the-board" salary reduction not exceeding ten percent
(10%) which is imposed simultaneously on all officers of the Company; or
(ii) the Company requires the Executive to be based at an office
location which will result in an increase of more than thirty (30) miles in the
Executive's one-way commute; or
(iii) there shall occur a "change of control" of the Company and, at
any time concurrent with or during the six-month period following such change of
control, the Executive shall have sent to the Chief Executive Officer of the
Company or the party acting in such capacity a written notice terminating his
employment on a date specified in said notice. For purposes of this Agreement,
the term "change of control" shall mean the occurrence of one of the following:
(1) any "person," as such term is used in Sections 13(d)and
14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "1934 Act") is, becomes or enters a contract to become,
the "beneficial owner," as such term is used in Rule 13d-3
promulgated under the 1934 Act, directly or indirectly, of
securities representing twenty-five percent (25%) or more of
the voting common stock of the Company;
(2) all or substantially all of the business of the Company is
disposed of, or a contract is entered to dispose of all of
the business of the Company pursuant to a merger,
consolidation other transaction in which (a) the Company is
not the surviving company or (b) the stockholders of the
Company prior to the transaction do not continue to own at
least sixty percent (60%) of the surviving corporation;
(3) the Company is materially or completely liquidated; or
(4) any person (other than the Company) purchases any common
stock of the Company in a tender or exchange offer with the
intent, expressed or implied, of purchasing or otherwise
acquiring control of the Company.
Notwithstanding clause (1) above, a "change of control" shall not be deemed
to have occurred solely because a person shall be, become or enter into a
contract to become the beneficial owner of 25% or more, but less than 40%, of
the voting common stock of the Company, if and for so long as such person is
bound by, and in compliance with, a contract with the Company providing that
such person may not nominate, vote for, or select more than a minority of the
directors of the Company. The exception provided by the preceding sentence shall
cease to apply with respect to any person upon expiration, waiver, or
non-compliance with any such contract, by which such person was bound.
(d) Release of all Claims. The Executive understands and agrees that the
Company's obligation to pay the Executive severance pay under this Agreement is
subject to the Executive's execution of a valid written waiver and release of
all claims which the Executive may have against the Company and/or its
successors in a form acceptable to the Company in its sole and absolute
discretion.
(e) Death, Disability or Cause. In the event that the Executive's
employment is terminated due to death, disability or cause, the Company shall
not be obligated to pay the Executive any amount other than earned unused
vacation, reimbursement for business expenses incurred prior to his termination
and in compliance with the Company's reimbursement policies, and any unpaid
salary for days worked prior to the termination.
5. Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company, by agreement in form and substance
satisfactory to the Executive, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain such assumption and agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall entitle the
Executive to compensation from the Company in the same amount and on the same
terms as he would be entitled to hereunder if he terminated his employment for
Good Reason, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the date of
termination. As used in this Agreement, "Company" shall mean the Company as
herein before defined and any successor to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in this Section
5 or which otherwise becomes bound by all the terms and provisions of this
Agreement by operation of law.
(b) This Agreement and all rights of the Executive hereunder shall inure to
the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrator, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amounts would still
be payable to him hereunder if he had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the Executive's devisee, legatee, or other designee or, if
there be no such designee, to the Executive's estate.
6. Notices. For the purposes of this Agreement, notices, demands and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or (unless otherwise
specified) mailed by United States certified or registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive:
Michael R. Dobbs
5 Seacliff
Coto de Caza 92679
If to the Company:
Apria Healthcare Group Inc.
3560 Hyland Avenue
Costa Mesa, California 92626
Attention: Chief Executive Officer
With a copy to the attention of the Company's
Senior Vice President and General Counsel
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
7. Antisolicitation. The Executive promises and agrees that, during the
period of his employment by the Company and for a period of one year thereafter,
he will not influence or attempt to influence customers of the Company or any of
its present or future subsidiaries or affiliates, either directly or indirectly,
to divert their business to any individual, partnership, firm, corporation or
other entity then in competition with the business of the Company, or any
subsidiary or affiliate of the Company.
8. Soliciting Employees. The Executive promises and agrees that for a
period of one year following termination of his employment, he will not,
directly or indirectly solicit any of the Company employees who earned annually
$50,000 or more as a Company employee during the last six months of his or her
own employment to work for any other business, individual, partnership, firm,
corporation, or other entity.
9. Confidential Information.
(a) The Executive, in the performance of his duties on behalf of the
Company, shall have access to, receive and be entrusted with confidential
information, including but not limited to systems technology, field operations,
reimbursement, development, marketing, organizational, financial, management,
administrative, clinical, customer, distribution and sales information, data,
specifications and processes presently owned or at any time in the future
developed, by the Company or its agents or consultants, or used presently or at
any time in the future in the course of its business that is not otherwise part
of the public domain (collectively, the "Confidential Material"). All such
Confidential Material is considered secret and will be available to the
Executive in confidence. Except in the performance of duties on behalf of the
Company, the Executive shall not, directly or indirectly for any reason
whatsoever, disclose or use any such Confidential Material, unless such
Confidential Material ceases (through no fault of the Executive's) to be
confidential because it has become part of the public domain. All records,
files, drawings, documents, notes, disks, diskettes, tapes, magnetic media,
photographs, equipment and other tangible items, wherever located, relating in
any way to the Confidential Material or otherwise to the Company's business,
which the Executive prepares, uses or encounters during the course of his
employment, shall be and remain the Company's sole and exclusive property and
shall be included in the Confidential Material. Upon termination of this
Agreement by any means, or whenever requested by the Company, the Executive
shall promptly deliver to the Company any and all of the Confidential Material,
not previously delivered to the Company, that may be or at any previous time has
been in the Executive's possession or under the Executive's control.
(b) The Executive hereby acknowledges that the sale or unauthorized use or
disclosure of any of the Company's Confidential Material by any means whatsoever
and at any time before, during or after the Executive's employment with the
Company shall constitute unfair competition. The Executive agrees he shall not
engage in unfair competition either during the time employed by the Company or
any time thereafter.
10. Parachute Limitation. Notwithstanding any other provision of this
Agreement, the Executive shall not have any right to receive any payment or
other benefit under this Agreement, any other agreement, or any benefit plan if
such right, payment or benefit, taking into account all other rights, payments
or benefits to or for the Executive under this Agreement, all other agreements,
and all benefit plans, would cause any right, payment or benefit to the
Executive under this Agreement to be considered a "parachute payment" within the
meaning of Section 280G(b) (2) of the Internal Revenue Code as then in effect (a
"Parachute Payment"). In the event that the receipt of any such right or any
other payment or benefit under this Agreement, any other agreement, or any
benefit plan would cause the Executive to be considered to have received a
Parachute Payment under this Agreement, then the Executive shall have the right,
in the Executive's sole discretion, to designate those rights, payments or
benefits under this Agreement, any other agreements, and/or any benefit plans,
that should be reduced or eliminated so as to avoid having the right, payment or
benefit to the Executive under this Agreement be deemed to be a Parachute
Payment.
11. Modification and Waiver. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and the Chief Executive Officer or
the President of the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of California without regard to its conflicts of law
principles.
12. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement or Executive's employment by the Company shall be settled
exclusively by arbitration, conducted before a single neutral arbitrator in
accordance with the American Arbitration Association's National Rules for
Resolution of Employment Disputes as then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction; provided, however, that
the Company shall be entitled to seek a restraining order or injunction in any
court of competent jurisdiction to prevent any continuation of any violation of
the provisions of Sections 7, 8 or 9 of this Agreement and the Executive hereby
consents that such restraining order or injunction may be granted without the
necessity of the Company's posting any bond, and provided, further, that the
Executive shall be entitled to seek specific performance of his right to be paid
until the date of employment termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement. The fees and
expenses of the arbitrator shall be borne by the Company.
15. Entire Agreement. This Agreement sets forth the entire agreement of the
parties hereto in respect of the subject matter contained herein and supersedes
all prior agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer, employee
or representative of any party hereto; and any prior agreement of the parties
hereto in respect of the subject matter contained herein, including but not
limited to the Executive's Executive Severance Agreement dated June 29, 1998, is
hereby terminated and canceled.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first above written.
APRIA HEALTHCARE GROUP INC.
By:
------------------------------------
Philip L. Carter
Chief Executive Officer
EXECUTIVE
------------------------------
Michael R. Dobbs
EXHIBIT 10.38
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (the "Agreement") is
entered into by and between Apria Healthcare Group Inc. (the "Company") and
Lawrence M. Higby (the "Executive"), as of the 26th day of February, 1999.
I. EMPLOYMENT.
The Company hereby employs the Executive and the Executive hereby
accepts such employment, upon the terms and conditions hereinafter set forth,
from February 26, 1999, to and including January 18, 2001. The period of
employment covered by this Agreement shall be automatically extended for an
additional year until January 18, 2002, unless either party shall send the other
a notice prior to October 1, 2000, declining to accept such extension.
II. DUTIES.
A. The Executive shall serve during the course of his employment as the
President and Chief Operating Officer of the Company, reporting to the Chief
Executive Officer. He shall have responsibility for all operating field
management, the corporate-wide sales, marketing and revenue management functions
and such other duties and responsibilities as shall be determined from time to
time by the Chief Executive Officer or the Board of Directors of the Company.
B. The Executive agrees to devote substantially all of his time, energy
and ability to the business of the Company. Nothing herein shall prevent the
Executive, upon approval of the Board of Directors of the Company, from serving
as a director or trustee of other corpo0rations or businesses which are not in
competition with the business of the Company or in competition with any present
or future affiliate of the Company. Nothing herein shall prevent the Executive
from investing in real estate for his own account or from becoming a partner or
a stockholder in any corporation, partnership or other venture not in
competition with the business of the Company or in competition with any present
or future affiliate of the Company.
III. COMPENSATION.
A. Salary. The Company will pay to the Executive a base salary at the
rate of $400,000 per year. Such salary shall be payable in periodic installments
in accordance with the Company's customary practices. Amounts payable shall be
reduced by standard withholdings and other authorized deductions. The
Executive's salary may be increased from time to time at the discretion of the
Company's Board of Directors or its Compensation Committee.
B. Annual Bonus, Incentive, Savings and Retirement Plans. The Executive
shall be entitled to participate in all annual bonus, incentive, savings and
retirement plans, practices, policies and programs applicable generally to other
executives of the Company, including without limitation the Company's Incentive
Compensation Plan at the 40% target level, with eligibility for over-achievement
up to 80% of base salary.
C. Welfare Benefit Plans. The Executive and/or his family, as the case
may be, shall be eligible for participation in and shall receive all benefits
under welfare benefit plans, practices, policies and programs provided by the
Company (including, without limitation, medical, prescription, dental,
disability, salary continuance, group life, accidental death and travel accident
insurance plans and programs) to the extent applicable generally to other
executives of the Company. The Company reserves the right to modify, suspend or
discontinue any and all of the above plans, practices, policies and programs at
any time without recourse by the Executive so long as such action is taken
generally with respect to other similarly situated peer executives and does not
single out the Executive.
D. Expenses. The Executive shall be entitled to receive prompt
reimbursement for all reasonable employment expenses incurred by him in
accordance with the policies, practices and procedures as in effect generally
with respect to other executives of the Company.
E. Fringe Benefits. The Executive shall be entitled to fringe benefits,
including without limitation (i) a car allowance of $8,400 per year, payable in
periodic installments in accordance with the Company's customary practices, (ii)
reasonable access to the Company's independent auditors for personal financial
planning, (iii) reasonable travel and entertainment expenses of the Executive's
spouse, on an actually incurred basis when necessary in connection with
participation in Company events, and (iv) such other benefits in accordance with
the plans, practices, programs and policies as may be in effect generally with
respect to other executives of the Company.
F. Vacation. The Executive shall be entitled to four weeks of paid
vacation annually, to be available and prorated monthly during the term of this
Agreement and otherwise to be consistent with the vacation policy and practice
applicable to other executives of the Company.
IV. TERMINATION.
A. Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death. If the Company determines in good
faith that the Disability of the Executive has occurred (pursuant to the
definition of Disability set forth below), it may give to the Executive written
notice in accordance with Section XVIII of its intention to terminate the
Executive's employment. In such event, the Executive's employment with the
Company shall terminate effective on the 30th day after receipt of such notice
by the Executive, provided that, within the 30 days after such receipt, the
Executive shall not have returned to full-time performance of his duties. For
purposes of this Agreement, "Disability" shall mean a physical or mental
impairment which substantially limits a major life activity of the Executive and
which renders the Executive unable to perform the essential functions of his
position, even with reasonable accommodation which does not impose an undue
hardship on the Company. The Company reserves the right, in good faith, to make
the determination of Disability under this Agreement based upon information
supplied by the Executive and/or his medical personnel, as well as information
from medical personnel (or others) selected by the Company or its insurers.
B. Cause. The Company may terminate the Executive's employment for
Cause. For purposes of this Agreement, "Cause" shall mean that the Company,
acting in good faith based upon the information then known to the Company,
determines that the Executive has engaged in or committed: willful misconduct;
theft, fraud or other illegal conduct; refusal or unwillingness to substantially
perform his duties (other than such failure resulting from the Executive's
Disability) for a 30-day period after written demand for substantial performance
is delivered by the Company that specifically refers to this paragraph and
identifies the manner in which the Company believes the Executive has not
substantially performed his duties; insubordination; any willful act that is
likely to and which does in fact have the effect of injuring the reputation or
business of the Company; violation of any fiduciary duty; violation of the
Executive's duty of loyalty to the Company; or a breach of any term of this
Agreement. For purposes of this paragraph, no act, or failure to act, on the
Executive's part shall be considered willful unless done or omitted to be done,
by him not in good faith and without reasonable belief that his action or
omission was in the best interest of the Company. Notwithstanding the foregoing,
the Executive shall not be deemed to have been terminated for Cause without
delivery to the Executive of a notice of termination signed by the Company's
Chairman of the Board or Chief Executive Officer stating that the Board of
Directors of the Company has determined that the Executive has engaged in or
committed conduct of the nature described in the second sentence of this
paragraph, and specifying the particulars thereof in detail.
C. Other than Cause or Death or Disability. The Executive or the
Company may terminate the Executive's employment at any time, without Cause, by
giving the other party to this Agreement at least 30 days advance written notice
of such termination, subject to the provisions of this Agreement.
D. Obligations of the Company Upon Termination.
1. Death or Disability. If the Executive's employment is terminated by
reason of the Executive's death or Disability, this Agreement shall terminate
without further obligations to the Executive or his legal representatives under
this Agreement, other than for (a) payment of the sum of (i) the Executive's
base salary through the date of termination to the extent not theretofore paid,
plus (ii) any earned vacation pay, to the extent not theretofore paid (the sum
of the amounts described in clauses (i) and (ii) shall be hereinafter referred
to as the "Accrued Obligations"), which shall be paid to the Executive or his
estate or beneficiary, as applicable, in a lump sum in cash within 30 days of
the date of termination; and (b) payment to the Executive or his estate or
beneficiary, as applicable, any amounts due pursuant to the terms of any
applicable welfare benefit plans.
2. Cause. If the Executive's employment is terminated by the Company
for Cause, this Agreement shall terminate without further obligations to the
Executive other than for the timely payment of the Accrued Obligations. If it is
subsequently determined that the Company did not have Cause for termination
under this Section IV-D-2, then the Company's decision to terminate shall be
deemed to have been made under Section IV-D-3 and the amounts payable thereunder
shall be the only amounts the Executive may receive for his termination.
3. Other than Cause or Death or Disability.
(a) If, during the term of this Agreement, (i) the Company
terminates the Executive's employment for other than Cause or
death or Disability, or (ii) the Executive terminates his
employment hereunder with Good Reason (as defined below), this
Agreement shall terminate and the Executive shall be entitled
to receive a severance payment payable in one lump sum upon
the termination of his employment in an amount equal to 300%
of his Annual Compensation (as defined below).
Any payment made pursuant to this Section IV-D-3(a) shall be
reduced by all amounts required to be withheld by applicable
law, and shall only be made in exchange for a valid release of
all claims the Executive may have against the Company in a
form acceptable to the Company. Such payment shall constitute
the sole and entire obligation of the Company to provide any
compensation or benefits to the Executive upon termination,
except for obligations under the Company's 401(k) Savings
Plan, obligations pursuant to the terms of any outstanding
stock option agreements and the Company's obligation to
provide the benefits required by Section IV-D-3(d) below, and
except that the Company will also pay to the Executive any
Accrued Obligations (as defined in Section IV-D-1).
(b) The term "Good Reason" means:
(i) the Executive's annual base salary is reduced, except
for a general one-time "across-the board" salary
reduction not exceeding ten percent (10%) which is
imposed simultaneously on all officers of the Company;
or
(ii) the Company requires the Executive to be based at an
office location which will result in an increase of
more than thirty (30) miles in the Executive's one-way
commute; or
(iii) if the Company's Board of Directors or Chief Executive
Officer does not permit the Executive to continue to
serve as the President and Chief Operating Officer with
the responsibilities as described in Section II-A or
another mutually acceptable senior executive position;
or
(iv) there shall occur a "change of control" of the Company
and, at any time concurrent with or during the
six-month period following such change of control, the
Executive shall have sent to the Chief Executive
Officer of the Company (or the party acting in such
capacity) a written notice terminating his employment
on a date specified in said notice. For purposes of
this Agreement, the term "change of control" shall mean
the occurrence of one of the following:
(1) any "person," as such term is used in Sections
13(d)and 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "1934 Act") is, becomes
or enters a contract to become, the "beneficial
owner," as such term is used in Rule 13d-3
promulgated under the 1934 Act, directly or
indirectly, of securities representing
twenty-five percent (25%) or more of the voting
common stock of the Company;
(2) all or substantially all of the business of the
Company is disposed of, or a contract is entered
to dispose of all of the business of the Company
pursuant to a merger, consolidation other
transaction in which (a) the Company is not the
surviving company or (b) the stockholders of the
Company prior to the transaction do not continue
to own at least sixty percent (60%) of the
surviving corporation;
(3) the Company is materially or completely liquida-
ted; or
(4) any person (other than the Company) purchases any
common stock of the Company in a tender or
exchange offer with the intent, expressed or
implied, of purchasing or otherwise acquiring
control of the Company.
Notwithstanding clause (1) above, a "change of control" shall not be deemed
to have occurred solely because a person shall be, become or enter into a
contract to become the beneficial owner of 25% or more, but less than 40%, of
the voting common stock of the Company, if and for so long as such person is
bound by, and in compliance with, a contract with the Company providing that
such person may not nominate, vote for, or select more than a minority of the
directors of the Company. The exception provided by the preceding sentence shall
cease to apply with respect to any person upon expiration, waiver, or
non-compliance with any such contract, by which such person was bound.
(c) The term "Annual Compensation" means an amount equal to the
Executive's annual base salary at the rate in effect on the date on
which the Executive received or gave written notice of his
termination, plus the sum of (i) an amount equal to the average of the
Executive's two most recent annual bonuses, if any, received under the
Company's Incentive Compensation Plan prior to the notice of
termination, (ii) the Executive's annual car allowance, if any, and
(iii) an amount determined by the Company from time to time in its
sole discretion to be equal to the average annual cost for Company
employees of obtaining medical, dental and vision insurance under
COBRA, which amount is hereby initially determined to be $5,000. In
the event that the Executive's bonus for one of the two calendar years
preceding the calendar year in which the Executive receives or gives
written notice of termination was a prorated bonus due to Executive
having worked a partial year, then solely for purposes of calculating
Annual Compensation, the Executive's prorated bonus will be
recalculated to reflect the bonus the Executive would have received
had the Executive worked for the entire year. In the event that such
notice of termination is received or given by the Executive prior to
the first date subsequent to the commencement of the Executive's
employment by the Company on which annual bonuses are generally paid
to other executives of the Company, then solely for purposes of
calculating Annual Compensation, the Executive's average of his two
most recent annual bonuses shall be deemed to be his applicable target
bonus pursuant to Section III-B, with no over-achievement.
(d) In the event of any termination of the Executive's employment pursuant
to Section IV-D-3(a), the Company shall, for a period of one year
following the termination date, provide the Executive with appropriate
office space in a furnished office suite, including reasonable
secretarial, telephone, copying and delivery services. The Company
shall not be required to spend more than a total of $50,000 to provide
this benefit to the Executive.
4. Exclusive Remedy. The Executive agrees that the payments
contemplated by this Agreement shall constitute the exclusive and sole remedy
for any termination of his employment and the Executive covenants not to assert
or pursue any other remedies, at law or in equity, with respect to any
termination of employment.
V. INTENTIONALLY DELETED
VI. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement or Executive's employment by the Company shall be settled exclusively
by arbitration, conducted before a single neutral arbitrator in accordance with
the American Arbitration Association's National Rules for Resolution of
Employment Disputes as then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that the
Company shall be entitled to seek a restraining order or injunction in any court
of competent jurisdiction to prevent any continuation of any violation of the
provisions of Sections VII, VIII, or IX of this Agreement and the Executive
hereby consents that such restraining order or injunction may be granted without
the necessity of the Company's posting any bond, and provided, further, that the
Executive shall be entitled to seek specific performance of his right to be paid
until the date of employment termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement. The fees and
expenses of the arbitrator shall be borne by the Company.
VII. ANTISOLICITATION.
The Executive promises and agrees that during the term of this
Agreement (including any renewal) and for a period of one year thereafter, he
will not influence or attempt to influence customers of the Company or any of
its present or future subsidiaries or affiliates, either directly or indirectly,
to divert their business to any individual, partnership, firm, corporation or
other entity then in competition with the business of the Company or any
subsidiary or affiliate of the Company.
VIII. SOLICITING EMPLOYEES.
The Executive promises and agrees that, for a period of one year
following termination of his employment, he will not directly or indirectly
solicit any of the Company employees who earned annually $50,000 or more as a
Company employee during the last six months of his or her own employment to work
for any other business, individual, partnership, firm, corporation, or other
entity.
IX. CONFIDENTIAL INFORMATION.
A. The Executive, in the performance of his duties on behalf of the
Company, shall have access to, receive and be entrusted with confidential
information, including but not limited to systems technology, field operations,
reimbursement, development, marketing, organizational, financial, management,
administrative, clinical, customer, distribution and sales information, data,
specifications and processes presently owned or at any time in the future
developed, by the Company or its agents or consultants, or used presently or at
any time in the future in the course of its business that is not otherwise part
of the public domain (collectively, the "Confidential Material"). All such
Confidential Material is considered secret and will be available to the
Executive in confidence. Except in the performance of duties on behalf of the
Company, the Executive shall not, directly or indirectly for any reason
whatsoever, disclose or use any such Confidential Material, unless such
Confidential Material ceases (through no fault of the Executive's) to be
confidential because it has become part of the public domain. All records,
files, drawings, documents, notes, disks, diskettes, tapes, magnetic media,
photographs, equipment and other tangible items, wherever located, relating in
any way to the Confidential Material or otherwise to the Company's business,
which the Executive prepares, uses or encounters during the course of his
employment, shall be and remain the Company's sole and exclusive property and
shall be included in the Confidential Material. Upon termination of this
Agreement by any means, or whenever requested by the Company, the Executive
shall promptly deliver to the Company any and all of the Confidential Material,
not previously delivered to the Company, that may be or at any previous time has
been in the Executive's possession or under the Executive's control.
B. The Executive hereby acknowledges that the sale or unauthorized use
or disclosure of any of the Company's Confidential Material by any means
whatsoever and at any time before, during or after the Executive's employment
with the Company shall constitute unfair competition. The Executive agrees that
he shall not engage in unfair competition either during the time employed by the
Company or any time thereafter.
X. PARACHUTE LIMITATION.
Notwithstanding any other provision of this Agreement, the Executive
shall not have any right to receive any payment or other benefit under this
Agreement, any other agreement, or any benefit plan if such right, payment or
benefit, taking into account all other rights, payments or benefits to or for
the Executive under this Agreement, all other agreements, and all benefit plans,
would cause any right, payment or benefit to the Executive under this Agreement
to be considered a "parachute payment" within the meaning of Section 280G(b) (2)
of the Internal Revenue Code as then in effect (a "Parachute Payment"). In the
event that the receipt of any such right or any other payment or benefit under
this Agreement, any other agreement, or any benefit plan would cause the
Executive to be considered to have received a Parachute Payment under this
Agreement, then the Executive shall have the right, in the Executive's sole
discretion, to designate those rights, payments or benefits under this
Agreement, any other agreements, and/or any benefit plans, that should be
reduced or eliminated so as to avoid having the right, payment or benefit to the
Executive under this Agreement be deemed to be a Parachute Payment.
XI. SUCCESSORS.
A. This Agreement is personal to the Executive and shall not, without
the prior written consent of the Company, be assignable by the Executive.
B. This Agreement shall inure to the benefit of and be binding upon the
Company, its subsidiaries and its successors and assigns and any such
subsidiary, successor or assignee shall be deemed substituted for the Company
under the terms of this Agreement for all purposes. As used herein, "successor"
and "assignee" shall include any person, firm, corporation or other business
entity which at any time, whether by purchase, merger or otherwise, directly or
indirectly acquires the stock of the Company or to which the Company assigns
this Agreement by operation of law or otherwise.
XII. WAIVER.
No waiver of any breach of any term or provision of this Agreement
shall be construed to be, nor shall be, a waiver of any other breach of this
Agreement. No waiver shall be binding unless in writing and signed by the party
waiving the breach.
XIII. MODIFICATION.
This Agreement may not be amended or modified other than by a written
agreement executed by the Executive and the Company's Chairman or Chief
Executive Officer.
XIV. SAVINGS CLAUSE.
If any provision of this Agreement or the application thereof is held
invalid, such invalidity shall not affect any other provisions or applications
of the Agreement which can be given effect without the invalid provisions or
applications and, to this end, the provisions of this Agreement are declared to
be severable.
XV. COMPLETE AGREEMENT.
This Agreement constitutes and contains the entire agreement and final
understanding concerning the Executive's employment with the Company and the
other subject matters addressed herein between the parties. It is intended by
the parties as a complete and exclusive statement of the terms of their
agreement from and after the date hereof. It supersedes and replaces all prior
negotiations and all agreements proposed or otherwise, whether written or oral,
concerning the subject matter hereof, including without limitation the
Executive's Employment Agreements dated November 7, 1997 and January 26, 1998,
except that (i) such prior agreements shall remain in effect with respect to the
time periods prior to the date hereof during which such agreements were in
effect, and (ii) any reference in the Executive's stock option agreements with
the Company to the term "Good Reason" as defined in such agreements shall be
deemed to refer to "Good Reason" as defined in this Agreement. Any
representation, promise or agreement not specifically included in this Agreement
shall not be binding upon or enforceable against either party. This is a fully
integrated agreement.
XVI. GOVERNING LAW.
This Agreement shall be deemed to have been executed and delivered
within the State of California and the rights and obligations of the parties
hereunder shall be construed and enforced in accordance with, and governed by,
by the laws of the State of California without regard to principles of conflict
of laws.
XVII. CONSTRUCTION.
In any construction to be made of this Agreement, the same shall not be
construed against any party on the basis that the party was the drafter. The
captions of this Agreement are not part of the provisions hereof and shall have
no force or effect.
XVIII. COMMUNICATIONS.
All notices, requests, demands and other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered by hand
or by courier, or if mailed by registered or certified mail, postage prepaid,
addressed to the Executive at 218 Via Lido Nord, Newport Beach, California 92663
or addressed to the Company at 3560 Hyland Avenue, Costa Mesa, California 92626,
Attention: Chief Executive Officer, with a copy to the attention of the Senior
Vice President, Human Resources. Either party may change the address at which
notice shall be given by written notice given in the above manner.
XIX. EXECUTION.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument. Xerographic copies of such signed counterparts may
be used in lieu of the originals for any purpose.
XX. LEGAL COUNSEL.
The Executive and the Company recognize that this is a legally binding
contract and acknowledge and agree that they have had the opportunity to consult
with legal counsel of their choice.
In witness whereof, the parties hereto have executed this Agreement as
of the date first above written.
APRIA HEALTHCARE GROUP INC. THE EXECUTIVE
By:
-------------------------------- -------------------------------
Philip L. Carter Lawrence M. Higby
Chief Executive Officer
Exhibit 21.1
APRIA HEALTHCARE GROUP INC.
LIST OF SUBSIDIARIES
Apria Healthcare, Inc.
Apria Number Two, Inc.
ApriaCare Management Systems, Inc.
Apria Healthcare of New York State, Inc.
As of March 25, 1999
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, 33-80583, and 333-42775) pertaining to the Apria Healthcare Group
Inc./Homedco Group, Inc. Stock Incentive Plan, 1992 Stock Option Plan, 1992
Stock Incentive Plan, 1994 Employee Stock Purchase Plan, 1991 Management Stock
Purchase Plan, Apria Healthcare Group Inc. Amended and Restated 1992 Stock
Incentive Plan, Apria Healthcare Group Inc. 1991 Nonqualified Stock Option Plan,
and 1997 Stock Incentive Plan of our report dated March 11, 1998 (except for the
second paragraph of Note 12, as to which the date is April 9, 1998), with
respect to the consolidated financial statements and schedule of Apria
Healthcare Group Inc. as of December 31, 1997 and for the years ended December
31, 1997 and 1996 included in the Annual Report on Form 10-K for the year ended
December 31, 1998.
/s/ ERNST & YOUNG LLP
Orange County, California
March 29, 1999
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
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,
33-80583, and 333-42775) pertaining to the Apria Healthcare Group Inc./Homedco
Group, Inc. Stock Incentive Plan, 1992 Stock Option Plan, 1992 Stock Incentive
Plan, 1994 Employee Stock Purchase Plan, 1991 Management Stock Purchase Plan,
Apria Healthcare Group Inc. Amended and Restated 1992 Stock Incentive Plan,
Apria Healthcare Group Inc. 1991 Nonqualified Stock Option Plan, and 1997 Stock
Incentive Plan of our report dated March 29, 1999, appearing in the Annual
Report on Form 10-K of Apria Healthcare Group Inc. for the year ended December
31, 1998.
DELOITTE & TOUCHE LLP
Costa Mesa, California
March 29, 1999
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