<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
[ ] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
</TABLE>
APRIA HEALTHCARE GROUP INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] Fee not required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
[LOGO]
APRIA HEALTHCARE GROUP INC.
3560 Hyland Avenue
Costa Mesa, California 92626
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
- --------------------------------------------------------------------------------
TIME............................. 8:00 A.M. on Wednesday, July 21, 1999
PLACE............................ Apria Healthcare Group Inc.
Building Number 3500 - Grand Canyon Room
3560 Hyland Avenue
Costa Mesa, California 92626
ITEMS OF BUSINESS................ (1) To approve an amendment to Apria's
Restated Certificate of Incorporation to
eliminate the classification of the
company's Board of Directors and to
provide for the annual election of all
Directors.
(2) Subject to the approval of the above
proposal, to elect seven members of the
Board of Directors, with such persons to
hold office until the 2000 Annual
Meeting of Stockholders or until their
successors are elected and qualified;
or, in the event such proposal is not
approved, to elect two members of the
Board of Directors to hold office for a
three-year term.
(3) To transact such other business as may
properly come before the Annual Meeting
and at any adjournment thereof.
RECORD DATE...................... You can vote if you were a stockholder
of record on June 1, 1999.
ANNUAL REPORT.................... Our 1998 Annual Report, which is not a part
of the proxy soliciting material, is
enclosed.
PROXY VOTING..................... Shares represented by properly executed
proxies will be voted in accordance with the
specifications therein. Shares represented
by proxies which do not contain directions
to the contrary will be voted FOR approval
of the proposed amendment to Apria's
Restated Articles of Incorporation and FOR
the election of the Directors named in the
attached Proxy Statement.
LIST OF STOCKHOLDERS............. A complete list of stockholders entitled to
vote at the Annual Meeting will be available
for examination by any stockholder, for any
purpose germane to the Annual Meeting, at
the office of the Secretary of the company,
at 3560 Hyland Avenue, Costa Mesa,
California 92626, during the ten-day period
preceding the Annual Meeting.
Robert S. Holcombe
Senior Vice President, General Counsel
and Secretary
Costa Mesa, California
June 21, 1999
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SOLICITATION OF PROXIES..........................................................................1
Solicitation by Board...................................................................1
Expense of Solicitation.................................................................1
Your Vote is Important..................................................................1
VOTING PROCEDURE AND TABULATION..................................................................1
Stockholders Entitled to Vote...........................................................1
Voting on Agenda Items..................................................................1
Voting on Other Matters.................................................................1
Tabulation of Votes.....................................................................1
Broker "Non-Votes"......................................................................2
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT......................................2
INFORMATION REGARDING THE BOARD OF DIRECTORS.....................................................4
Composition of Board....................................................................4
Directors' Fees.........................................................................4
Committees and Meetings of the Board of Directors.......................................5
GOVERNANCE OF THE COMPANY........................................................................6
Our Corporate Governance Guidelines....................................................6
APPROVAL OF AMENDMENT TO APRIA'S RESTATED CERTIFICATE OF INCORPORATION...........................8
Proposed Amendment......................................................................8
Explanation of Amendment................................................................8
Required Vote..........................................................................8
ELECTION OF DIRECTORS............................................................................8
Nominees for Election to Board..........................................................8
Vote Required for Election of Directors.................................................8
Nominees and Directors..................................................................9
EXECUTIVE COMPENSATION AND OTHER INFORMATION....................................................11
Summary of Executive Compensation.....................................................11
Summary of Option Grants..............................................................12
Summary of Options Exercised..........................................................13
Compensation Committee Interlocks and Insider Participation...........................13
EMPLOYMENT AND SEVERANCE AGREEMENTS.............................................................13
REPORT OF THE COMPENSATION COMMITTEE............................................................15
Compensation Philosophy and Program for Senior Management.............................15
Factors Affecting the Evaluation of Executive Performance for 1998....................15
Total Compensation....................................................................16
1998 Total Compensation for the Chief Executive Officer...............................16
Salaries for Executive Officers.......................................................17
1998 Executive Officer Bonuses........................................................17
Long Term Incentive Compensation......................................................17
Tax Treatment of Stock Options........................................................18
Stock Option Awards to Executive Officers.............................................18
PERFORMANCE GRAPH...............................................................................19
</TABLE>
i
<PAGE> 4
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
EMPLOYEE BENEFITS AND LONG-TERM COMPENSATION PLANS..............................................20
1998 Management Incentive Compensation Plan...........................................20
1999 Incentive Compensation Plan......................................................20
1999 Executive Officer Bonus Plan.....................................................20
Two-Year Incentive Plan for Executive Officers........................................20
401(k) Plan...........................................................................20
1991 Nonqualified Stock Option Plan...................................................20
Amended and Restated 1992 Stock Incentive Plan........................................21
Apria Healthcare Group Inc./Homedco Group, Inc. Stock Incentive Plan..................21
1997 Stock Incentive Plan.............................................................21
1998 Nonqualified Stock Incentive Plan................................................21
1999 Turnaround Bonus Plan............................................................22
CERTAIN TRANSACTIONS............................................................................22
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT BY CERTAIN COMPANY AFFILIATES.................22
INFORMATION REGARDING THE INDEPENDENT AUDITORS OF THE COMPANY...................................22
ANNUAL REPORT...................................................................................22
PROPOSALS OF STOCKHOLDERS.......................................................................23
OTHER MATTERS...................................................................................23
</TABLE>
ii
<PAGE> 5
APRIA HEALTHCARE GROUP INC.
3560 Hyland Avenue
Costa Mesa, California 92626
P R O X Y S T A T E M E N T
SOLICITATION OF PROXIES
- --------------------------------------------------------------------------------
SOLICITATION BY BOARD
THE ACCOMPANYING PROXY IS BEING SOLICITED BY THE BOARD OF DIRECTORS OF
APRIA HEALTHCARE GROUP INC. ("APRIA" OR THE "COMPANY") FOR USE AT APRIA'S 1999
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JULY 21, 1999, AT 8:00 A.M. LOCAL
TIME, AT THE COMPANY'S COSTA MESA, CALIFORNIA HEADQUARTERS, 3560 HYLAND AVENUE
(BUILDING NO. 3500 - GRAND CANYON ROOM), COSTA MESA, CALIFORNIA 92626, AND AT
ANY ADJOURNMENT THEREOF.
THIS PROXY STATEMENT AND THE ACCOMPANYING PROXY ARE FIRST BEING MAILED
TO STOCKHOLDERS ON OR ABOUT JUNE 21, 1999.
EXPENSE OF SOLICITATION
The expense of soliciting proxies will be borne by Apria. Proxies will
be solicited principally through the use of the mail, but Directors, officers
and regular employees may solicit proxies personally or by telephone or special
letter without any additional compensation. Apria also will reimburse banks,
brokerage houses and other custodians, nominees and fiduciaries for any
reasonable expenses in forwarding proxy materials to beneficial owners.
YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWNED ON THE RECORD DATE, PLEASE INDICATE
YOUR VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD AND DATE, SIGN AND RETURN IT
IN THE ENVELOPE PROVIDED, WHICH IS ADDRESSED FOR YOUR CONVENIENCE AND NEEDS NO
POSTAGE IF MAILED IN THE UNITED STATES. IN ORDER TO AVOID THE ADDITIONAL EXPENSE
TO THE COMPANY OF FURTHER SOLICITATION, WE ASK YOUR COOPERATION IN PROMPTLY
MAILING IN YOUR PROXY CARD.
VOTING PROCEDURE AND TABULATION
- --------------------------------------------------------------------------------
STOCKHOLDERS ENTITLED TO VOTE
Holders of Apria common stock at the close of business on June 1, 1999,
the record date with respect to this solicitation, are entitled to notice of and
to vote at the annual meeting. Each stockholder of record is entitled to one
vote per share. As of the record date 51,932,636 shares of the company's common
stock were outstanding. No shares of any other class of stock were outstanding.
VOTING ON AGENDA ITEMS
All shares represented by each properly executed unrevoked proxy
received in time for the annual meeting will be voted in the manner specified
therein. If you sign your proxy card but do not mark contrary voting
instructions thereon, the shares represented by the proxy will be voted "for"
the proposed amendment to Apria's Restated Certificate of Incorporation (See
"Authorization of Amendment to Apria's Restated Certificate of Incorporation")
and "for" each of the nominees described herein (See "Election of Directors").
An executed proxy may be revoked at any time before its exercise by filing with
Apria's Secretary a written notice of revocation or a duly executed proxy
bearing a later date. The execution of the enclosed proxy will not affect your
right to vote in person should you find it convenient to attend the annual
meeting and desire to vote in person.
VOTING ON OTHER MATTERS
If any other matters are properly presented at the annual meeting, the
persons named in the proxy card will be entitled to vote on those matters for
you. As of the date of mailing of this proxy statement, Apria was not aware of
any other matters to be raised at the annual meeting.
TABULATION OF VOTES
Votes cast by proxy or in person at the annual meeting will be counted by the
persons appointed by Apria to act as election inspectors for
1
<PAGE> 6
the meeting. The election inspectors will treat shares represented by proxies
that reflect abstentions as shares that are present and entitled to vote for
purposes of determining the presence of a quorum and for purposes of determining
the outcome of any matter submitted to the stockholders for a vote. Abstentions,
however, do not constitute a vote "for" or "against" any matter and thus will be
disregarded in the calculation of a plurality or of "votes cast."
BROKER "NON-VOTES"
The election inspectors will treat shares referred to as "broker
non-votes" (i.e., shares held by brokers or nominees over which the broker or
nominee lacks discretionary power to vote and for which the broker or nominee
has not received specific voting instructions from the beneficial owner) as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum. However, for purposes of determining the outcome of any
matter as to which the broker has indicated on the proxy that it does not have
discretionary authority to vote, those shares will be treated as not present and
not entitled to vote with respect to that matter (even though those shares are
considered entitled to vote for quorum purposes and may be entitled to vote on
other matters).
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
- --------------------------------------------------------------------------------
The following table sets forth information as of June 1, 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.
SECURITY OWNERSHIP TABLE
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF
NAME OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP CLASS
- ------------------------ ----------------------- -----
<S> <C> <C>
Relational Investors, LLC (1) ............................. 10,863,600 20.91%
David H. Batchelder (1) ................................... 10,963,600 21.11
Ralph V. Whitworth (1) .................................... 10,890,266 20.96
Joel L. Reed (1) .......................................... 10,863,600 20.91
Lazard Freres & Co. LLC (2) ............................... 2,911,700 5.60
Peter C. Cooper (3) ....................................... 2,836,900 5.46
Gilbert E. LeVasseur (3) .................................. 2,836,900 5.46
Cooper & LeVasseur (3) .................................... 2,836,900 5.46
Cooper Capital, LLC (3) ................................... 2,836,900 5.46
George L. Argyros (4) ..................................... 2,770,434 5.33
Jeremy M. Jones (5) ....................................... 1,255,980 2.41
Philip L. Carter (6) ...................................... 587,500 1.13
David L. Goldsmith (7) .................................... 351,902 *
Lawrence M. Higby (8) ..................................... 100,000 *
Dennis E. Walsh (9) ....................................... 30,400 *
Leonard Green (10) ........................................ 51,666 *
H.J. Mark Tompkins (11) ................................... 61,666 *
Lawrence A. Mastrovich (12) ............................... 39,655 *
Richard H. Koppes (13) .................................... 27,000 *
Philip R. Lochner, Jr. (14) ............................... 26,000 *
Beverly Benedict Thomas (15) .............................. 25,000 *
Robert S. Holcombe (16) ................................... 31,700 *
Lisa M. Getson (17) ....................................... 8,200 *
All current Directors and executive officers as a group
(19 persons) (18) ......................................... 12,755,694 24.56
</TABLE>
* Less than 1%
2
<PAGE> 7
(1) According to a Schedule 13D Amendment, dated April 19, 1999 and a Form
4, dated May 14, 1999, each of which has 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 10,915,266 shares, which amount includes 51,666
shares subject to options that are currently exercisable. 10,788,600 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. For certain purposes,
Messrs. Batchelder and Whitworth are also deemed to be the beneficial
owners of shares held by RILLC and its related partnerships. 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 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.
(3) 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. The mailing address of Cooper, LeVasseur, Cooper Capital and
C&L is 2010 Main Street, Suite 1220, Irvine, CA 92614.
(4) 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 of Mr. Argyros is c/o Arnel
Development Company, 949 South Coast Drive, Suite 600, Costa Mesa,
California 92626.
(5) 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
3
<PAGE> 8
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.
(6) Includes 562,500 shares subject to options that are currently
exercisable. Mr. Carter became a Director and the Chief Executive
Officer of Apria on May 5, 1998.
(7) Includes 51,666 shares subject to options that are currently
exercisable.
(8) Includes 90,000 shares subject to options that are currently exercisable
or will become exercisable on or before August 15, 1999.
(9) Includes 30,400 shares subject to options that are currently
exercisable.
(10) Includes 50,666 shares subject to options that are currently
exercisable. Also includes 1,000 shares held by Mr. Green's spouse.
(11) Includes 31,666 shares subject to options that are currently
exercisable. Also includes 30,000 shares held through Carewell, S.a.r.l.
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.
(12) Includes 38,800 shares subject to options that are currently
exercisable.
(13) 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.
(14) 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.
(15) Includes 24,000 shares subject to options that are currently
exercisable. Ms. Thomas became a member of the Board of Directors on
June 30, 1998.
(16) Includes 14,000 shares subject to options that are currently
exercisable. Also includes 200 shares held by Mr. Holcombe's spouse.
(17) All shares listed are shares subject to options that are currently
exercisable.
(18) Includes shares owned by certain trusts. Also includes 1,323,514 shares
subject to options that are currently exercisable or will become
exercisable on or before August 15, 1999.
INFORMATION REGARDING THE BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
COMPOSITION OF BOARD
Apria's Board of Directors consists of such number of Directors as may
be determined by the Board of Directors from time to time. The Board of
Directors currently consists of nine Directors, which will become seven upon the
retirement of Leonard Green and H.J. Mark Tompkins, who have tendered their
resignations effective July 20, 1999. The Board of Directors is currently
divided into three classes, each with three Directors, with staggered three-year
terms. If the proposed amendment to Apria's Restated Certificate of
Incorporation is approved (See - Authorization of Amendment to Apria's Restated
Certificate of Incorporation), then all seven remaining Directors have been
nominated for reelection to a term of one year or until the election and
qualification of their successors. However, if the proposed amendment to Apria's
Restated Certificate of Incorporation is not approved, David Goldsmith and
Richard H. Koppes, the two remaining Directors whose terms expire in 1999, have
been nominated for reelection to a term of three years, or until election and
qualification of their successors.
DIRECTORS' FEES
All Directors of Apria are reimbursed for their out-of-pocket expenses
incurred in the connection with attending Board and related committee meetings.
Prior to June 30, 1998, all non-employee Directors received: (i) a $4,500
quarterly retainer, (ii) $1,000 per Board or committee meeting attended in
person ($1,500 per committee meeting for the Director who is the committee's
chairman) and (iii) $500 per Board or committee meeting attended via telephone.
Mr. David L. Goldsmith, who sits on Apria's Compliance Committee, is compensated
for his attendance at meetings of such committee as if it were a committee of
the Board. In addition, each
4
<PAGE> 9
non-employee Director has historically received an option to purchase 5,000
shares of Apria common stock for each year that he has been a member of the
Board of Directors. No options were awarded to Directors during 1997. However,
non-employee Directors who served during 1997 each received in 1998 a grant of
an option to purchase 5,000 shares for services rendered during the preceding
fiscal year, and non-employee Directors who served during 1998 prior to April
received an option grant of 1,666 shares for services rendered through April
1998. On June 30, 1998, the Board of Directors approved the elimination of the
$4,500 quarterly retainer. In lieu thereof, each non-employee Director received
an option to purchase 25,000 shares of common stock. The Board also modified the
policy for annual option grants to non-employee Directors to increase the grants
from 5,000 shares to 10,000 shares beginning in 1999.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
Standing committees of Apria's Board of Directors include a Corporate
Governance and Nominating Committee, an Audit and Compliance Committee and a
Compensation Committee. During the 1998 fiscal year, all Directors attended 90%
or more of the total meetings of the Board of Directors and Committees of the
Board of Directors on which they served. The Board of Directors held fifteen
meetings during the 1998 fiscal year.
Corporate Governance and Nominating Committee. The Corporate Governance
and Nominating Committee reviews and reports to the Board on a periodic basis
with regard to matters of corporate governance and the nomination and evaluation
of Directors. The Committee also reviews and assesses the effectiveness of the
Board's Guidelines on Corporate Governance and recommends to the Board proposed
revisions thereto. Currently, the Corporate Governance and Nominating Committee
consists of Ms. Thomas and Messrs. Koppes (Chairman), Whitworth and Tompkins.
The Committee is willing to consider nominees proposed by stockholders but has
established no formal procedures for stockholders to follow in submitting such
nominations. The Corporate Governance and Nominating Committee met on three
occasions during 1998.
Audit and Compliance Committee. The Audit and Compliance Committee meets
periodically with Apria's independent accountants and management. The Committee
also recommends to the Board of Directors the annual appointment of independent
accountants with whom the Audit Committee reviews (i) the scope of audit and
non-audit assignments and related fees, (ii) Apria's accounting principles and
(iii) the adequacy of Apria's internal controls. The Committee, among other
things, also monitors certain aspects of the company's regulatory compliance
programs and reports to the Board regarding the same. Currently, the Committee
consists of Messrs. Lochner (Chairman), Batchelder, Goldsmith and Tompkins. The
Committee met on five occasions during 1998.
Compensation Committee. The Compensation Committee conducts an annual
performance review of Apria's senior management and establishes their salaries,
bonuses and stock ownership awards. Currently, the Compensation Committee
consists of Messrs. Whitworth (Chairman), Green and Koppes. The Committee met on
five occasions during 1998.
5
<PAGE> 10
GOVERNANCE OF THE COMPANY
OUR CORPORATE GOVERNANCE GUIDELINES
In April 1999, Apria's Board of Directors adopted the following
Corporate Governance Guidelines:
BOARD MISSION AND RESPONSIBILITIES
Mission Statement. The company's primary objective is to maximize
stockholder value over the long term while adhering to the laws of the
jurisdictions within which it operates and observing the highest ethical
standards.
Corporate Authority and Responsibility. All corporate authority resides
in the Board of Directors as fiduciaries on behalf of the stockholders. The
Board delegates authority to management to pursue the company's mission.
Management, not the Board, is responsible for managing the company. The Board
retains responsibility to recommend candidates to the stockholders for election
to the Board of Directors. The Board retains responsibility for selection and
evaluation of the Chief Executive Officer, oversight of succession plans,
determination of senior management compensation, approval of the annual budget,
and review of systems, procedures and controls. The Board also advises
management with respect to strategic plans.
BOARD OPERATIONS
Board Agenda. The Chairman of the Board in coordination with the Chief
Executive Officer shall set the agenda for each Board meeting, taking into
account input and suggestions from members of the Board.
Strategic Planning. The Board shall hold an annual strategic planning
session. The timing and agenda for this meeting are to be suggested by the Chief
Executive Officer.
Independent Advice. The Board (or with the Board's approval, a
committee) may seek legal or other expert advice from a source independent of
management. Generally, this would be with the knowledge of the Chief Executive
Officer and the Chairman of the Board.
Access to Top Management. Board members are free to contact members of
senior management and are encouraged to coordinate their contacts with the Chief
Executive Officer. Additionally, regular attendance and participation in Board
meetings by senior management is encouraged as appropriate.
Executive Meetings of Independent Directors. An executive meeting of
independent Directors should be held during each Board meeting. The Chairman
shall lead these sessions.
Field Board Meetings. Board meetings should periodically include
operational site visits. The Chief Executive Officer shall determine appropriate
sites and scheduling of such meetings.
Board Evaluation. The Corporate Governance and Nominating Committee
shall be responsible for evaluating Directors as part of its process for
recommending Director nominees to the Board. The Corporate Governance and
Nominating Committee shall be responsible for coordinating an annual evaluation
by the Directors of the Board's performance and procedures.
Written Guidelines and Policies. The Board shall maintain written
corporate governance guidelines and operational policies which will be reviewed
annually by the Corporate Governance and Nominating Committee.
BOARD STRUCTURE
Positions of Chairman and Chief Executive Officer. The positions of
Chairman and Chief Executive Officer shall be filled by separate persons and the
Chairman shall be an Independent Director.
Board Composition. Independent Directors shall constitute a substantial
majority of the Board.
6
<PAGE> 11
Number of Directors. The Board shall assess its size from time to time.
It is the Board's philosophy that smaller Boards are most effective.
Committees. The standing Board committees shall be the Audit and
Compliance Committee, the Compensation Committee, and the Corporate Governance
and Nominating Committee. All standing committees shall be made up of
Independent Directors. Each standing committee shall maintain a written charter
approved by the Board. Committees shall receive authority exclusively through
delegation from the Board. All committee actions must be ratified by the Board
before becoming effective, unless taken pursuant to an express delegation of
authority. A Director may attend any Board committee meeting. The Chairman shall
recommend periodic rotation of Committee assignments.
Independent Directors. "Independent Director" means a person who is
independent of management and free from any relationship with the company or
otherwise (including serving as consultants or service providers to the company
except as approved by the Independent Directors for special projects) that, in
the opinion of the Board of Directors, would interfere in the exercise of
independent judgement as a Director. No officer or employee of the company or
its subsidiaries shall be qualified as an Independent Director. It is also
presumed that no former officer or employee of the company may qualify as an
Independent Director, provided that this presumption is rebuttable upon an
affirmative determination by the Board.
DIRECTORS
Nominees for Election to the Board. The Corporate Governance and
Nominating Committee shall recommend nominees to the full Board for annual
elections of Directors. The Committee shall welcome input from all Directors and
stockholders.
Retirement. Retirement age shall be 72. Directors shall submit their
resignation effective at the Annual Meeting immediately preceding their 72nd
birthday.
Changes in Professional Responsibility. The Board should consider
whether a change in an individual's professional responsibilities directly or
indirectly impacts that person's ability to fulfill Directorship obligations. To
facilitate the Board's consideration, the Chief Executive Officer and other
employee Directors shall submit a resignation as a matter of course upon
retirement, resignation or other significant change in professional roles.
Director Compensation and Stock Ownership. From time to time, the
compensation of Directors shall be reviewed by the Compensation Committee, which
shall make recommendations to the full Board. The Board's philosophy is that a
substantial portion (up to 100%) of Director compensation shall be equity-based.
The Board shall also maintain minimum stock ownership guidelines for Directors.
Chief Executive Officer Evaluation. The Compensation Committee shall be
responsible for coordinating an annual evaluation of the Chief Executive Officer
by the Independent Directors. The Independent Directors will also determine
guidance for the Compensation Committee with respect to Chief Executive
Officer's compensation. The Chairman of the Compensation Committee shall be the
liaison with the Chief Executive Officer.
Management Succession. The Board shall coordinate with the Chief
Executive Officer to ensure that a successor for emergencies is designated at
all times and that a formalized process governs long-term management development
and succession. The Chief Executive Officer shall report to the Board annually
about development of senior management personnel and succession plans, which
shall be approved by the Board.
Outside Board Memberships. The Chief Executive Officer and other members
of senior management shall seek the approval of the Board before accepting
outside board memberships, and the Board generally discourages more than one
corporate board and one charitable board membership.
7
<PAGE> 12
APPROVAL OF AMENDMENT TO APRIA'S
RESTATED CERTIFICATE OF INCORPORATION
- --------------------------------------------------------------------------------
PROPOSED AMENDMENT
On April 26, 1999, the Board of Directors adopted, subject to approval
by the stockholders, an amendment to Article VI of the Apria's Restated
Certificate of Incorporation to eliminate the classified structure of the Board
of Directors and to provide for the annual election of all Directors.
Specifically, it is proposed that the third, fourth and fifth sentences
of Article VI of the company's Restated Certificate of Incorporation shall be
deleted and replaced with the following:
"At each annual meeting of stockholders, all Directors shall be elected
to hold office until the next annual meeting of stockholders."
EXPLANATION OF AMENDMENT
Apria's Restated Certificate of Incorporation currently provides that
the members of the Board of Directors shall be divided into three (3) classes to
be determined by the Board of Directors. All classes shall be as nearly equal in
number as possible. The terms of office of the respective classes of Directors
are to be from the time of election and qualification until the third annual
meeting following election or until successors are duly elected and qualified.
The proposed amendment to Apria's Restated Certificate of Incorporation
eliminates the different classes of Directors and provides that all Directors
shall be elected at each annual meeting of stockholders to hold office until the
next annual meeting of stockholders, or the appointment of successors. This
amendment is being submitted to the stockholders because the Board believes in
giving the stockholders the right to elect the full Board annually.
REQUIRED VOTE
The affirmative vote of a majority of the total votes of the outstanding
shares of common stock is required to authorize the proposed amendment to
Apria's Restated Certificate of Incorporation.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE
PROPOSED AMENDMENT.
ELECTION OF DIRECTORS
- --------------------------------------------------------------------------------
NOMINEES FOR ELECTION TO BOARD
Assuming stockholder approval of the proposed amendment to the Restated
Certificate of Incorporation), the nominees for election are David H.
Batchelder, Philip L. Carter, David L. Goldsmith, Richard H. Koppes, Philip R.
Lochner, Jr., Beverly Benedict Thomas and Ralph V. Whitworth, each of whom
currently serves on the Board. If elected, they will serve for one year or until
the election and qualification of successors. If the amendment is not approved,
then Messrs. Koppes and Goldsmith have been nominated for re-election to their
seats on the Board for a term of three years or until the election and
qualification of successors.
If any of the nominees should become unavailable for election to the
Board of Directors, the persons named in the proxy or their substitutes shall be
entitled to vote for a substitute to be designated by the Board of Directors.
Alternatively, the Board of Directors may further reduce the number of
Directors. The Board of Directors has no reason to believe that it will be
necessary to designate a substitute nominee or further reduce the number of
Directors.
VOTE REQUIRED FOR ELECTION OF DIRECTORS
For the purpose of electing Directors, each stockholder is entitled to
one vote for each Director to be elected for each share of common stock owned.
The candidates receiving the highest number of votes will be elected.
The accompanying proxies solicited by the Board of Directors will be
voted "for" the election of the nominees unless the proxy card is marked to
withhold authority to vote for any nominee.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" EACH
OF THE NOMINEES LISTED ABOVE.
8
<PAGE> 13
NOMINEES AND DIRECTORS
Set forth below are the names, ages and past and present positions of
the persons serving as Apria's Directors who have been nominated to continue
serving after the annual meeting:
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE DURING LAST DIRECTOR
NAME AND AGE: FIVE YEARS AND DIRECTORSHIPS: SINCE:
- ------------------------------------------------------------------------------------------------
MEMBERS OF THE BOARD WHOSE TERMS EXPIRE IN 1999
(NOMINEES EVEN IF PROPOSED AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION IS NOT APPROVED)
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
David L. Goldsmith (51) Managing Director of RS Funds, an investment 1987*
management 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.
Richard H. Koppes (52) Of Counsel to Jones, Day, Reavis & Pogue, a law 1998
firm, and serves as a Consulting Professor of Law
and Co-Director of Executive 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, Sacramento, 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.
MEMBERS OF THE BOARD WHOSE TERMS EXPIRE IN 2000
(NOMINEES ONLY IF PROPOSED AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION IS APPROVED)
Philip L. Carter (50) Chief Executive Officer and a Director of Apria 1998
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.
Ralph V. Whitworth (43) Chairman of the Board of Directors of Apria since 1998
April 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>
9
<PAGE> 14
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE DURING LAST DIRECTOR
NAME AND AGE: FIVE YEARS AND DIRECTORSHIPS: SINCE:
- ------------------------------------------------------------------------------------------------
MEMBERS OF THE BOARD WHOSE TERMS EXPIRE IN 2001
(NOMINEES ONLY IF PROPOSED AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION IS APPROVED)
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
David H. Batchelder (49) Principal and Managing Member of Relational 1998
Investors, LLC 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 R. Lochner, Jr. (56) Senior Vice President - Administration of Time 1998
Warner Inc. 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 Board of
Directors of CLARCOR, Inc., a business packaging
and filtration company, and serves on 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 stockholders to a full term in
July 1998.
Beverly Benedict Thomas (56) Principal of BBT Strategies, a consulting firm 1998
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 stockholders to a full term in
July 1998.
* Director of Homedco Group, Inc. from the date shown until its merger
with and into the company, 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.
</TABLE>
10
<PAGE> 15
EXECUTIVE COMPENSATION AND OTHER INFORMATION
- --------------------------------------------------------------------------------
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.
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION(1)
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 20,000 300,000 --
President and Chief 1997 40,969 -- 150,000 --
Operating Officer(7) 1996 -- -- -- --
Lawrence A. Mastrovich .......... 1998 175,075 65,000 75,000 3,940(6)
Executive Vice President, 1997 111,956 41,754 -- 4,238(6)
Business Operations(8) 1996 104,748 4,867 4,000 3,437(6)
Dennis E. Walsh ................. 1998 237,971 18,750 100,000 3,940(6)
Executive Vice President, 1997 188,962 -- -- 10,720(9)
Sales 1996 177,666 4,080 4,000 4,750(6)
Lisa M. Getson .................. 1998 151,172 10,335 40,000 3,940(6)
Senior Vice President, 1997 137,801 4,500 -- 4,750(6)
Business Development and 1996 127,775 7,978 5,500 4,750(6)
Clinical Services
Robert S. Holcombe .............. 1998 292,869 19,500 40,000 3,940(6)
Senior Vice President, 1997 263,162 4,410 -- 6,571(12)
General Counsel and 1996 153,455 7,000 35,000(11) 150,324(13)
Secretary(10)
</TABLE>
(1) Apria has not issued stock appreciation rights or restricted stock
awards. The company had no "long-term incentive plan" (as that term is
defined in the applicable rules) for 1998.
(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.
11
<PAGE> 16
(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) Mr. Mastrovich was promoted from Vice President - Operations, Northeast
Division on October 1, 1998.
(9) 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".
(10) Mr. Holcombe was first employed by Apria in May 1996.
(11) 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 grant of 30,000 option shares in October 1996. He was
also awarded a further option to purchase an additional 5,000 shares at
that time.
(12) 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 $1,821
for tax liabilities incurred in connection with the reimbursement of
relocation costs.
(13) This amount consists of various relocation expenses reimbursed by Apria.
SUMMARY OF OPTION GRANTS
The following table provides information with respect to grants of
options to all individuals serving as Apria's Chief Executive Officer and the
four other most highly compensated executive officers of the company, during the
1998 fiscal year.
OPTION GRANTS TABLE
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
NUMBER OF VALUE AT ACCRUAL RATE
SECURITIES % OF TOTAL EXPIRATION OF STOCK APPRECIATION
UNDERLYING OPTIONS GRANTED DATE OF FOR OPTION TERM ($)
OPTIONS TO EMPLOYEES IN EXERCISE OPTIONS ---------------------------
NAME GRANTED FISCAL YEAR PRICE ($) GRANTED 5% 10%
- ------------- ----------- --------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
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 does include 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 $8.875 per share.
(3) The options for 150,000 shares expire on January 26, 2008, the options
for 110,000 shares expire on July 17, 2008, and the options for 40,000
shares expire on January 4, 2009.
12
<PAGE> 17
SUMMARY OF OPTIONS EXERCISED
The following table provides information with respect to the exercise of
stock options by all persons who served as Apria's Chief Executive Officer
during the 1998 fiscal year and the four other most highly compensated executive
officers of the company during the 1998 fiscal year, together with the fiscal
year-end value of unexercised options.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS AT THE-MONEY OPTION AT
SHARES FISCAL YEAR END FISCAL YEAR-END(1)
ACQUIRED ON VALUE(1) ------------------------- -------------------------
EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------- ----------- -------- ------------------------- -------------------------
NAME (#) ($) (#)/(#) ($)/($)
- ------------------- ----------- -------- ------------------------- -------------------------
<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 Apria.
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 Apria's executive
officers. 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 Apria. The agreement provides that Mr. Higby is to receive
an annual salary of not less than $400,000 (his current annual salary is
$411,985), 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
13
<PAGE> 18
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 Apria 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 E. Walsh, Lawrence A. Mastrovich and Lisa M.
Getson. In June 1997, Messrs. Holcombe, Walsh and Mastrovich and Ms. Getson
(each referred to as "Executive" below) entered into executive severance
agreements with Apria. 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 Apria's Senior Vice President, General Counsel and
Secretary, 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 June 1, 1999, Mr. Holcombe's annual salary was $286,000, 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
Apria 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.
14
<PAGE> 19
REPORT OF THE COMPENSATION COMMITTEE
- --------------------------------------------------------------------------------
To: The Board of Directors
As members of the Compensation Committee, it is our duty to administer
Apria's overall compensation program for its senior and mid-level management. In
addition, the Compensation Committee evaluates the performance and specifically
establishes the compensation of the Chief Executive Officer. The Compensation
Committee is comprised entirely of independent Directors who are not officers or
employees of Apria.
COMPENSATION PHILOSOPHY AND PROGRAM FOR SENIOR MANAGEMENT
During 1998 Apria's compensation program for executive officers was
designed to:
o reward each member of senior management commensurately with the company's
overall growth and financial performance as well as individual achievement;
o attract and retain individuals who are capable of leading the company in
achieving its business objectives in an industry characterized by
competitiveness, growth and change; and
o encourage ownership of Apria's stock by executive officers.
The company believes a substantial portion of the annual compensation of
each member of senior management should relate to, and should be contingent
upon, the financial success of the company, as well as the individual
contribution of each particular person to that success. As discussed below, the
program consists of, and is intended to strike a balance among, three elements:
o Salaries. Salaries for the Chief Executive Officer and President are based
on the Committee's evaluation of individual job performance and an
assessment of the salaries and total compensation mix paid by other similar
companies to executive officers holding equivalent positions. The salaries
for all other executive officers are approved by the Compensation Committee
pursuant to recommendations made by the Chief Executive Officer on the
basis of similar criteria.
o Executive Bonuses. Executive bonuses were based on an evaluation of both
individual and company performance against qualitative and quantitative
measures.
o Long-term incentive compensation. Long-term incentive awards, which consist
of stock options are designed to insure that incentive compensation is
linked to the long-term performance of the company and its common stock.
Such awards provide an incentive that focuses attention on managing the
company from the prospective of an owner, and continue to constitute a key
component of Apria's compensation plan for executive officers.
During 1998 and continuing into 1999 the Compensation Committee has
shifted the focus of compensation for senior management so as to place an
increased emphasis on company performance as opposed to individual achievement.
FACTORS AFFECTING THE EVALUATION OF EXECUTIVE PERFORMANCE FOR 1998
1998 was a transitional year for Apria. In late 1997 and early 1998 the
company's Board of Directors determined that a change in the company's
leadership would be required in order to reverse the company's deteriorating
operating results. As a result, the company's senior management was changed and
restructured during the first two calendar quarters of 1998.
As a part of this process Jeremy M. Jones resigned as the company's
Chief Executive Officer on January 18, and, after a four-month search, Philip L.
Carter was hired to replace him on May 5, 1998. Lawrence M. Higby, who had been
hired as the company's President and Chief Operating Officer in late 1997,
performed the duties of the Chief Executive Officer in the interim period from
Jones' resignation until Carter was hired. Thereafter, Mr. Higby has continued
to serve in his prior capacity.
Soon after the commencement of his term as Chief Executive Officer, Mr.
Carter, with the Board's concurrence, implemented a plan for achieving
profitable operating results through the following principal elements:
o Remaining in core businesses with renewed emphasis on home respiratory
therapy.
15
<PAGE> 20
o Divesting or closing, on a selective basis, unprofitable business
operations in particular geographic locations.
o Reducing costs in corporate and field operations.
o Improving the company's capital structure.
o Expanding through internal growth and acquisitions.
Members of senior management were asked to adapt their prior activities
so as to achieve the benefits sought by the foregoing strategy. Accordingly,
members of senior management were evaluated in light of their contributions
toward achievement of the objectives so established by the Chief Executive
Officer. Future compensation for senior management will continue to be based in
large part on the company's ability to effectively develop and implement
strategies that enable Apria to achieve those objectives.
TOTAL COMPENSATION
Target total compensation levels of Apria executives are established
with consideration given to an analysis of competitive market total
compensation. The total compensation package for each executive is broken down
into the three basic components indicated above and discussed in more detail
below. During the current year, the Committee has been shifting its mix of
executive compensation towards an increase in incentive compensation, with
proportionately lesser emphasis on salaries. This strategy is intended to
increase the "performance based" component of the company's executive
compensation, and the Committee intends to continue this emphasis in 1999.
1998 TOTAL COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
During 1998, three individuals served or functioned as Apria's Chief
Executive Officer.
The Committee does not usually rely on predetermined formulas or a
limited set of criteria when it evaluates the performance of the company's Chief
Executive Officer. Instead, the Committee considers:
o management's overall accomplishments;
o the accomplishments of the individual executives;
o the company's financial performance; and
o other criteria discussed below.
Philip L. Carter. The Board sought out Mr. Carter to serve as the
Company's Chief Executive Officer because of his recognized expertise. In order
to induce an individual of Mr. Carter's qualifications and experience to accept
the assignment, the Committee designed a compensation package which provided a
competitive salary, with the potential of significant bonus compensation in the
event the company performed well under his leadership.
The Committee believes that the most significant portion of the package
consists of options to purchase up to 750,000 shares of Apria's Commons Stock at
an exercise price of $9.00 per share. While one-half of the shares in question
were immediately vested, the vesting of the balance will be accelerated if
certain target prices for the company's common stock are met. The Committee felt
that this feature of his compensation would cause him to receive the primary
benefits of his compensation package only if he was successful in substantially
improving Apria's long-term performance and the value of its common stock.
Accordingly, the Committee believes Mr. Carter's compensation package is
designed to couple his interests with those of Apria's stockholders.
Lawrence M. Higby. Mr. Higby's existing employment agreement was
renegotiated on January 18, 1998 when Mr. Jones resigned and Mr. Higby was asked
to begin functioning as Apria's Chief Executive Officer. At that time he was
granted an additional stock option for 150,000 shares of Apria common stock
which vests and becomes exercisable at a price of $12.875 over a period of five
years.
Jeremy M. Jones. Mr. Jones' compensation as Chief Executive Officer
during the first 18 days of the 1998 fiscal year was based solely on his
employment agreement. Pursuant to that agreement he received a prorated salary
(including car allowance) of $48,820, a $118,110 payment for earned but unused
vacation and holiday time and contractual severance of $1,819,694 payable over
time in 1998 and 1999. Mr. Jones received no bonus or other compensation for his
service as Chief Executive Officer but did receive a stock option for 1,666
shares of Apria's common stock for his services as a Director from the date of
his resignation as Chief Executive Officer, to the date of his resignation from
the Board on May 27, 1998.
16
<PAGE> 21
SALARIES FOR EXECUTIVE OFFICERS
In setting salaries, the first element of the executive compensation
program, the Committee did not use a predetermined formula. Instead, the 1998
salaries of the Chief Executive Officer, the President and the other executive
officers were based on:
o the Committee's evaluation of individual job performance;
o an assessment of the company's performance; and
o a consideration of salaries paid by similar companies to executive officers
holding equivalent positions.
Philip L. Carter. Mr. Carter's salary in 1998 totaled $330,449 ($500,000
on an annualized basis). For 1999, it has been set at $600,000. The Committee
feels the increase was justified due to the facts that Mr. Carter was not only
able to return Apria to profitability six months earlier than expected but also
that his activities had resulted in a dramatic increase in the value of the
company's common stock.
Lawrence M. Higby. Mr. Higby's 1998 salary of $404,000 was based on his
employment agreement which was modified on January 18, 1998 when he began
performing the duties of Chief Executive Officer. His salary was not decreased
when Mr. Carter was selected to serve as Chief Executive Officer, and his 1999
salary has been set at $411,985.
Jeremy M. Jones. As noted above, Mr. Jones' prorated salary for his
short tenure in 1998 was based on his 1997 salary.
Other Executive Officers. The 1998 salaries of the four other most
highly compensated executive officers are shown in the "Salary" column of the
Summary Compensation Table. In keeping with the company's general reduced
emphasis on salary increases as a compensation tool, 1999 annual performance
increases for the executive officers in question were limited to no more than
3.5%.
1998 EXECUTIVE OFFICER BONUSES
Philip L. Carter's 1998 bonus was determined by the Compensation
Committee while all other senior executives received bonuses pursuant to Apria's
1998 Management Incentive Compensation Plan.
Philip L. Carter. Under his employment agreement, Mr. Carter is eligible
to receive an annual bonus of up to 80% of his annual salary. Mr. Carter's
annual bonus for 1998 was $300,000. The Compensation Committee felt the bonus
was justified in light of the fact that Mr. Carter was successful in returning
Apria to profitability during the fourth quarter of 1998 (six months ahead of
schedule) and had made substantial progress toward achievement of many of the
goals established by the Board at the time of his employment.
Jeremy M. Jones. As noted above, Mr. Jones received no bonuses for 1998.
Other Executive Officers. Bonuses for all senior executives other than
Mr. Carter were awarded under the 1998 Management Incentive Compensation Plan, a
plan adopted to provide members of senior and mid-level management with bonus
compensation upon the achievement of certain performance levels for the 1998
fiscal year. Awards under the plan were to have been based on a combination of
achievement by participants of individual performance objectives and achievement
by Apria of objectives relating to earnings per share levels, profit margin
increases, revenue goals and other similar factors.
None of the target levels of performance established for the company in
the 1998 Management Incentive Compensation Plan were met. In addition, due to
the shift in management objectives instituted by Mr. Carter, many of the
individual objectives originally established were no longer appropriate during
the second half of the year.
The 1998 bonus payments to Mr. Higby and the four other most highly
compensated executive officers of the company are listed in the "Bonus" column
of the Summary Compensation Table.
LONG TERM INCENTIVE COMPENSATION
As noted above, the company provides long-term compensation to certain
members of senior and mid-level management under various stock incentive plans.
Those plans provide the company with the ability to periodically reward key
employees, including executive officers, with options to purchase shares of the
company's Common Stock.
The value of stock options is tied to the future performance of the
company's common stock
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<PAGE> 22
and provides value to the recipient only when the price of the company's common
stock increases above the option grant price. The vesting of all employee stock
option grants in 1998 was also tied, in part, to targeted levels of improvement
in the stock price.
TAX TREATMENT OF STOCK OPTIONS
The Compensation Committee has considered the anticipated tax treatment
to the company regarding the compensation and benefits paid to the executive
officers of the company in light of the enactment of Section 162(m) of the
United States Internal Revenue Code. The basic philosophy of the Compensation
Committee is to strive to provide the executive officers of the company with a
compensation package which will preserve the deductibility of such payments for
the company to the greatest extent possible. However, certain types of
compensation payments and their deductibility (e.g., the spread on exercise of
non-qualified options) depend upon the timing of an executive officer's vesting
or exercise of previously granted rights. Moreover, interpretations of and
changes in the tax laws and other factors beyond the Compensation Committee's
control may affect the deductibility of certain compensation payments. In
addition, in order to attract qualified management personnel, it has proven
necessary to grant certain long-term incentives that may not be deductible under
Section 162(m) of the Code. The Compensation Committee will consider various
alternatives to preserving the deductibility of compensation payments and
benefits to the extent reasonably practicable and to the extent consistent with
its other compensation objectives.
STOCK OPTION AWARDS TO EXECUTIVE OFFICERS
The stock option grants to the parties serving or functioning as the
company's Chief Executive Officer during 1998 as well as those for the other
four most highly compensated executive officers are shown in the "Options
Granted" column of the Summary Compensation Table.
Date: June 21, 1999
THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
Ralph V. Whitworth (Chairman)
Leonard Green
Richard H. Koppes
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<PAGE> 23
PERFORMANCE GRAPH
- --------------------------------------------------------------------------------
The following graph shows a comparison of cumulative total returns (1)
for (i) Apria for the period from January 1, 1994 until the date of the merger
with Homedco Group, Inc., and from the date of the merger until the end of the
1998 fiscal year, (ii) the S&P 500 Stock Index, and (iii) the Peer Group Index
(2).
<TABLE>
<CAPTION>
12/93(3) 12/94 12/95 12/96 12/97 12/98
-------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Apria Healthcare Group Inc. 100 84 102 68 48 32
S & P 500 100 101 139 171 229 294
Peer Group 100 119 79 120 139 157
</TABLE>
- ----------------------
(1) Total returns assumes reinvestment of dividends.
(2) The Peer Group Index is based on the cumulative total returns of the
following companies: Coram Healthcare Corporation (since July 1994),
Lincare Holdings, Inc., Optioncare, Inc., and American Homepatient, Inc.
In prior years Rotech Medical Corporation (no longer publicly owned) was
included in the Peer Group Index.
(3) Listed values represent dollars. Assumes $100 invested on December 31,
1993.
IT SHOULD BE NOTED THAT THIS GRAPH REPRESENTS HISTORICAL STOCK PRICE
PERFORMANCE AND IS NOT NECESSARILY INDICATIVE OF ANY FUTURE STOCK PRICE
PERFORMANCE.
THE FOREGOING REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF
DIRECTORS REGARDING COMPENSATION AND THE PERFORMANCE GRAPH THAT APPEARS
IMMEDIATELY AFTER SUCH REPORT SHALL NOT BE DEEMED TO BE SOLICITING MATERIAL OR
TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR THE EXCHANGE ACT, OR INCORPORATED BY REFERENCE IN ANY
DOCUMENT SO FILED.
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<PAGE> 24
EMPLOYEE BENEFITS AND LONG-TERM COMPENSATION PLANS
- --------------------------------------------------------------------------------
1998 MANAGEMENT INCENTIVE COMPENSATION PLAN
In 1998, the company adopted a Management Incentive Compensation Plan
(the "Management Incentive Plan") to provide key employees with bonus
compensation upon the achievement of certain performance levels. The Management
Incentive Plan covers the entire 1998 fiscal year. Persons eligible to receive
awards under the Management Incentive Plan included various executive officers,
regional, sales and branch managers, vice presidents and other key employees.
Awards were to have been made under the Management Incentive Plan upon the
achievement of certain objectives, earnings per share levels, profit margin,
revenue goals, increases in gross profit and cash flow, the generation of "free
cash flow" (a measure of profitability bases on collections less operating and
capital expenditures) and increased cash posting during the fiscal year. Awards
were paid in cash.
1999 INCENTIVE COMPENSATION PLAN
For 1999 and subsequent years, the company has adopted an Incentive
Compensation Plan to reward members of senior and mid-level management as well
as other key employees whose performance and responsibilities directly affect
company profits by explicitly linking awards to the achievement of company
performance factors. While no individual achievement objectives have been
established under the plan for 1999, different performance factors have been
established by the Compensation Committee of the Board for different units
within the company. Payment of bonuses for 1999 is expected to occur during the
first quarter of 2000. In order to be eligible for a bonus, participants must
have been actively employed by the company for at least three months of the 1999
fiscal year and remain employed until the date the bonus is paid. The Board may
amend, suspend or terminate the plan at any time.
1999 EXECUTIVE OFFICER BONUS PLAN
In December 1998 the Board adopted an executive officer bonus plan
which, subject to certain adjustments, provides for the payment of a bonus to
certain senior executives of the company, including the Chief Executive Officer,
of a bonus ranging from 40% to 80% of each executive's base salary if Apria
achieves certain targets for revenues and earnings before interest, taxes, debt
service and amortization.
TWO-YEAR INCENTIVE PLAN FOR EXECUTIVE OFFICERS
In December 1998, the Board also approved a two-year one-time incentive
plan for members of senior management, including the Chief Executive Officer,
which provides, subject to certain adjustments, for a bonus payment in February
2001 equal to each participant's annual salary in the event Apria achieves
certain targets with respect to total earnings before interest, taxes, debt
service and amortization for 1999 and 2000. Payment of the bonus will be
accelerated on a pro rata basis in the event of certain change of control
transactions.
401(K) PLAN
The company maintains a 401(k) Savings Plan (the "Company's 401(k)
Plan") for the benefit of all employees who have completed at least one year of
service with at least 1,000 hours of service during the year. Under the
company's 401(k) Plan, employees may contribute up to 16% of their eligible
earnings, and the company will match 50% of the first 8% of such contributions
up to a limit (currently $9,500) established by applicable tax regulations. As
of the end of the 1998 fiscal year, the collective matching contributions for
all executive officers as a group who received matching contributions (six
persons) was $23,345.42.
1991 NONQUALIFIED STOCK OPTION PLAN
The company's 1991 Nonqualified Stock Option Plan (the "1991 Plan")
authorized the issuance of 373,334 shares of Common Stock of the company, upon
the exercise of options granted under the 1991 Plan. Persons eligible to receive
options under the 1991 Plan are officers and other key employees of the company
or any directly or indirectly majority-owned subsidiaries of the company.
Options granted under the 1991 Plan do not qualify for treatment as incentive
stock options as defined in the Code. The Compensation Committee determines the
dates upon which options will be granted and fixes the option price. Unless
previously terminated by the Board of Directors, the 1991 Plan will terminate in
December 2001. As of June 1, 1999, 423 shares of Common Stock not subject to
outstanding options remained available for issuance under the 1991 Plan.
20
<PAGE> 25
AMENDED AND RESTATED 1992 STOCK INCENTIVE PLAN
The company's Amended and Restated 1992 Stock Incentive Plan (the "1992
Plan") authorized the issuance of 3,150,000 shares of common stock, plus, until
1997, 2% of the number of shares of common stock of the company outstanding as
of the first day of each fiscal year, upon the exercise of options or in
satisfaction of stock appreciation rights, restricted stock awards, and
performance share awards. The 1992 Plan also provides for stock value equivalent
awards. Persons eligible to receive awards under the 1992 Plan are persons who
are employees of, or who provide services to, the company or its subsidiaries.
An option granted under the 1992 Plan may be either an incentive stock option as
defined in the Code, or a non-statutory stock option. Incentive stock options
may be granted to employees only. The Compensation Committee administers the
1992 Plan and fixes the option exercise price with respect to the option. Unless
previously terminated by the Board of Directors, the 1992 Plan will terminate in
July 2003. As of June 1, 1999, 2,777,680 shares of Common Stock not subject to
outstanding options remained available for issuance under the 1992 Plan.
APRIA HEALTHCARE GROUP INC./HOMEDCO GROUP, INC. STOCK INCENTIVE PLAN
In 1995, the company adopted the Apria Healthcare Group Inc./Homedco
Group, Inc. Stock Incentive Plan (the "1995 Plan"). The 1995 Plan consists of
three parts: Part I is the portion of the 1995 Plan which was formerly the
Homedco Group, Inc. 1988 Stock Option Plan, Part II is the portion of the 1995
Plan which was formerly the Homedco Group, Inc. Long-Term Senior Management
Equity Plan and Part III is the portion of the 1995 Plan which was formerly the
Homedco Group, Inc. 1994 Stock Incentive Plan. The purpose of the 1995 Plan was
to convert options outstanding under the existing Homedco Group, Inc. plans so
that they could be exercised for Apria common stock. The 1995 Plan is
administered by the Compensation Committee. However, no new options can be
issued thereunder. As of June 1, 1999, 925,212 shares of common stock were
subject to outstanding options under the 1995 Plan.
1997 STOCK INCENTIVE PLAN
In May 1997 the company's stockholders approved the Apria Healthcare
Group 1997 Stock Incentive Plan (the "1997 Stock Incentive Plan"). The 1997
Stock Incentive Plan authorizes the issuance of 2,500,000 shares of common stock
plus 1% of the number of shares of common stock of the company outstanding as of
the first day of each fiscal year during the term thereof, upon the exercise of
stock options or in satisfaction of stock appreciation rights. The 1997 Stock
Incentive Plan also provides for the grant of restricted stock awards,
performance share awards and other performance based awards. Persons eligible to
receive awards under the 1997 Stock Incentive Plan include Directors, employees
and others who provide valuable services to the company or its subsidiaries. An
option granted under the 1997 Stock Incentive Plan may either be an incentive
stock option as defined in the Code, or a non-statutory stock option. Incentive
stock options may be granted to employees only. The Compensation Committee
administers the 1997 Stock Incentive Plan and establishes the option exercise
price with respect to the options. Unless previously terminated by the Board of
Directors, the 1997 Stock Incentive Plan will terminate on February 28, 2007. As
of June 1, 1999, 782,544 shares of common stock not subject to outstanding
options were available for issuance under the 1997 Stock Incentive Plan.
1998 NONQUALIFIED STOCK INCENTIVE PLAN
In December 1998 the Board of Directors approved the Apria Healthcare
Group 1998 Nonqualified Stock Incentive Plan (the "1998 Nonqualified Plan"). The
1998 Nonqualified Plan is a "broad based" plan which authorizes the issuance of
1,000,000 shares of common stock plus 1% of the number of shares of common stock
of the company outstanding as of the first day of each fiscal year during the
term thereof after 1999, upon the exercise of stock options or in satisfaction
of stock appreciation rights. The 1998 Nonqualified Plan also provides for the
grant of restricted stock awards, performance share awards and other performance
based awards. Persons eligible to receive awards under the 1998 Nonqualified
Plan include Directors, employees and others who provide valuable services to
the company or its subsidiaries. Any option granted under the 1998 Nonqualified
Plan will be a non-statutory stock option. The Compensation Committee
administers the 1998 Nonqualified Plan and establishes the option exercise price
with respect to the options. Unless previously terminated by the Board of
Directors, the 1998 Nonqualified Plan will terminate on December 15, 2008. As of
June 1, 1999, no options had yet been issued and 1,000,000 shares of common
stock were available for issuance under the 1998 Nonqualified Stock Incentive
Plan.
21
<PAGE> 26
1999 TURNAROUND BONUS PLAN
The 1999 Turnaround Bonus Plan has been adopted to provide
performance-based compensation to virtually all full-time permanent employees
who are not eligible to proceed in other bonus or "performance based" plans.
Pursuant to the Turnaround Bonus Plan, eligible employees who are employed
during all of 1999 will receive a bonus payment in an amount up to the greater
of $500 and 2% of their regular annual base pay if the company or the company
location where the eligible employee works achieves certain performance
objectives. Individuals who became employed after commencement of the 1999
calendar year may participate on a pro rata basis so long as they became
employed prior to October 1. The company may terminate, amend or suspend the
plan at any time.
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, Apria entered into a Standby Purchase Agreement with its largest
stockholder, Relational Investors, LLC. Under the Standby Purchase Agreement,
Relational Investors, LLC received reimbursement from Apria for all costs and
expenses (including legal fees) incurred in connection with the offering. In the
event the proposed debenture offering was consummated, Relational Investors, LLC
would have received from Apria a $1,000,000 standby fee as well. The
Registration Statement and proposed offering were withdrawn on April 29, 1999.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
BY CERTAIN COMPANY AFFILIATES
- --------------------------------------------------------------------------------
Section 16(a) of the Exchange Act requires the company's Directors and
officers, and persons who own more than 10% of a registered class of the
company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission and The New York Stock
Exchange, Inc. Directors, officers, and greater than 10% stockholders are
required by the Securities and Exchange Commission to furnish the company with
copies of the reports they file.
Based solely on its review of the copies of such reports and written
representations from certain reporting persons that certain reports were not
required to be filed by such persons, the company believes that all of its
Directors, officers and greater than 10% beneficial owners complied with all
filing requirements applicable to them with respect to transactions during the
1998 fiscal year.
INFORMATION REGARDING THE INDEPENDENT AUDITORS OF THE COMPANY
- --------------------------------------------------------------------------------
Deloitte & Touche LLP replaced Ernst & Young LLP as Apria's independent
auditors in July 1998. Deloitte & Touche LLP have been retained as the company's
independent auditors for the entire 1999 fiscal year. A representative of
Deloitte & Touche LLP will be present at the Annual Meeting, may make a
statement and will be available to answer appropriate questions.
ANNUAL REPORT
- --------------------------------------------------------------------------------
THE COMPANY'S 1998 ANNUAL REPORT CONTAINING AUDITED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED DECEMBER 31, 1998 AND 1997, ACCOMPANIES THIS PROXY
STATEMENT. UPON WRITTEN REQUEST, APRIA WILL SEND YOU, WITHOUT CHARGE, A COPY OF
ITS ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998,
WHICH THE COMPANY HAS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. COPIES
OF EXHIBITS WILL ALSO BE PROVIDED UPON WRITTEN REQUEST AND PAYMENT OF A FEE OF
$.25 PER PAGE PLUS POSTAGE. THE WRITTEN REQUEST SHOULD BE DIRECTED TO THE
INVESTOR RELATIONS DEPARTMENT (ATTENTION: MS. MAXINE ROCK), AT THE ADDRESS OF
THE COMPANY SET FORTH ON THE FIRST PAGE OF THIS PROXY STATEMENT.
22
<PAGE> 27
PROPOSALS OF STOCKHOLDERS
- --------------------------------------------------------------------------------
For stockholder proposals to be considered for inclusion in the proxy
materials for Apria's 2000 Annual Meeting of Stockholders under Securities and
Exchange Commission Rule 14a-8, they must be received by the Secretary of the
company no later than February 20, 2000. All other proposals will be deemed
untimely unless submitted on or before May 6, 2000.
OTHER MATTERS
- --------------------------------------------------------------------------------
At the time of the preparation of this Proxy Statement, the Board of
Directors knows of no other matters which will be acted upon at the Annual
Meeting. If any other matters are presented for action at the Annual Meeting or
at any adjournment thereof, it is intended that the proxies will be voted with
respect thereto in accordance with the best judgment and in the discretion of
the proxy holders.
By Order of the Board of Directors,
Robert S. Holcombe
Senior Vice President, General Counsel
and Secretary
Costa Mesa, California
June 21, 1999
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. STOCKHOLDERS ARE URGED TO
COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE.
23
<PAGE> 28
APRIA HEALTHCARE GROUP INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints Frank Bianchi, Lawrence M. Higby and Robert S.
Holcombe, and each of them, proxies with full power of substitution, to vote all
shares of Common Stock of Apria Healthcare Group Inc. (the "Company") held of
record by the undersigned on June 1, 1999, the record date with respect to this
solicitation, at the Annual Meeting of Stockholders of the Company to be held at
the Company's Costa Mesa, California Headquarters, 3560 Hyland Avenue (Building
No. 3500 -- Grand Canyon Room), Costa Mesa, California 92626, beginning at 8:00
A.M., local time on Wednesday, July 21, 1999, and at any adjournment thereof,
upon the following matters:
AMENDMENT TO APRIA'S RESTATED CERTIFICATE OF INCORPORATION
[ ] FOR the proposed amendment below [ ] AGAINST the proposed amendment below
To amend Apria's Restated Certificate of Incorporation
to eliminate the classification of the Company's Board
of Directors and to provide for the annual election of
all Directors.
ELECTION OF DIRECTORS
[ ] FOR the nominees listed below [ ] WITHHOLD AUTHORITY
(except as noted to the to vote for all nominees
contrary below) listed below
David H. Batchelder, Philip L. Carter, David L.
Goldsmith, Richard H. Koppes, Philip R. Lochner, Jr.,
Beverly Benedict Thomas, Ralph V. Whitworth
(Instructions: To withhold authority to vote for any individual nominee, circle
that nominee's name above.)
(Note: If the proposed Amendment to Apria's Restated Certificate of
Incorporation is not approved, the only nominees will be David L. Goldsmith and
Richard H. Koppes.)
OTHER MATTERS
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE MEETING AND AT ANY ADJOURNMENT THEREOF.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR
THE PROPOSALS ABOVE. IF ANY NOMINEE DECLINES OR IS UNABLE TO SERVE AS A
DIRECTOR, THEN THE PERSONS NAMED AS PROXIES SHALL HAVE FULL DISCRETION TO VOTE
FOR ANY OTHER PERSON DESIGNATED BY THE BOARD OF DIRECTORS.
Dated: _____________________________, 1999
__________________________________________
Signature or signatures of stockholder
__________________________________________
(Your signature(s) should conform to your
name(s) as printed hereon. Co-owners
should all sign.)
