UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 1-14316
APRIA HEALTHCARE GROUP INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0488566
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3560 HYLAND AVENUE, COSTA MESA, CA 92626
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 427-2000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
There were 52,042,134 shares of common stock, $.001 par value, outstanding at
November 1, 1999.
<PAGE>
APRIA HEALTHCARE GROUP INC.
FORM 10-Q
For the period ended September 30, 1999
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
- --------------------------
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security
Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
- ----------
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
APRIA HEALTHCARE GROUP INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30, December 31,
1999 1998
------------ ------------
(unaudited)
(dollars in thousands)
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents .............................. $ 36,594 $ 75,475
Accounts receivable, less allowance for doubtful
accounts of $43,667 and $35,564 at September 30,
1999 and December 31, 1998, respectively ............. 144,005 132,028
Inventories ............................................ 17,682 16,617
Prepaid expenses and other current assets .............. 7,716 4,917
--------- ---------
TOTAL CURRENT ASSETS ........................... 205,997 229,037
PATIENT SERVICE EQUIPMENT, less accumulated
depreciation of $277,959 and $249,921 at September 30,
1999 and December 31, 1998, respectively ............... 125,842 130,652
PROPERTY, EQUIPMENT AND IMPROVEMENTS, NET ................ 43,877 51,996
INTANGIBLE ASSETS, NET ................................... 105,108 84,365
OTHER ASSETS ............................................. 466 548
--------- ---------
$ 481,290 $ 496,598
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable ....................................... $ 44,873 $ 42,614
Accrued payroll and related taxes and benefits ......... 27,164 25,455
Accrued insurance ...................................... 10,717 13,092
Other accrued liabilities .............................. 52,578 58,508
Current portion of long-term debt ...................... 23,470 74,439
--------- ---------
TOTAL CURRENT LIABILITIES ...................... 158,802 214,108
LONG-TERM DEBT ........................................... 399,157 414,147
COMMITMENTS AND CONTINGENCIES ............................ - -
STOCKHOLDERS' DEFICIT Preferred stock, $.001 par
value: 10,000,000 shares authorized; none issued ....... - -
Common stock, $.001 par value: 150,000,000 shares
authorized; 52,041,294 and 51,785,263 shares
issued and outstanding at September 30, 1999
and December 31, 1998, respectively .................. 52 52
Additional paid-in capital ............................. 328,630 325,903
Retained deficit ....................................... (405,351) (457,612)
--------- ---------
(76,669) (131,657)
--------- ---------
$ 481,290 $ 496,598
========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
APRIA HEALTHCARE GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Net revenues ..................................... $ 237,367 $ 219,367 $ 697,701 $ 710,532
Costs and expenses:
Cost of net revenues:
Product and supply costs ................... 45,383 74,251 136,265 192,068
Patient service equipment depreciation ..... 18,455 19,126 54,681 59,033
Nursing services ........................... 500 605 1,588 2,238
Other ...................................... 2,268 3,014 6,890 10,312
--------- --------- --------- ---------
66,606 96,996 199,424 263,651
Selling, distribution and administrative ...... 129,970 164,016 381,977 446,366
Provision for doubtful accounts ............... 9,305 36,860 25,376 63,471
Amortization of intangible assets ............. 2,101 3,463 5,958 10,528
Impairment of intangible assets ............... - 76,223 - 76,223
Impairment of long-lived assets and
internally-developed software ............... - 22,187 - 22,187
--------- --------- --------- ---------
207,982 399,745 612,735 882,426
--------- --------- --------- ---------
OPERATING INCOME (LOSS) ................ 29,385 (180,378) 84,966 (171,894)
Interest expense, net ............................ 10,490 12,823 32,305 35,870
--------- --------- --------- ---------
INCOME (LOSS) BEFORE TAXES ............. 18,895 (193,201) 52,661 (207,764)
Income taxes ..................................... - 1,500 400 2,500
--------- --------- --------- ---------
NET INCOME (LOSS) ...................... $ 18,895 $(194,701) $ 52,261 $(210,264)
========= ========= ========= =========
Basic income (loss) per common share ............. $ 0.36 $ (3.76) $ 1.01 $ (4.07)
========= ========= ========= =========
Diluted income (loss) per common share ........... $ 0.35 $ (3.76) $ 0.98 $ (4.07)
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
APRIA HEALTHCARE GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1999 1998
-------- --------
(dollars in thousands)
OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) .................................... $ 52,261 $(210,264)
Items included in net income (loss) not requiring
(providing) cash:
Provision for doubtful accounts ................... 25,376 63,471
Provision for revenue adjustments ................. - 14,642
Provision for inventory and patient service
equipment shortages/obsolescence ................ 3,968 22,563
Depreciation ...................................... 69,133 81,291
Amortization of intangible assets ................. 5,958 10,528
Amortization of deferred debt costs ............... 3,794 1,256
Impairment of intangible assets ................... - 76,223
Impairment of long-lived assets and
internally-developed software ................... - 22,187
(Gain) loss on disposition of assets .............. (1,742) 3,628
Changes in operating assets and liabilities,
net of effects of acquisitions:
(Increase) decrease in accounts receivable ........ (35,152) 23,943
(Increase) decrease in inventories ................ (4,054) 807
(Increase) decrease in prepaids and other assets .. (971) 7,088
Decrease in accounts payable ...................... (1,360) (3,136)
(Decrease) increase in accrued payroll and
other liabilities ............................... (4,965) 12,849
Net purchases of patient service equipment, net
of effects of acquisitions ......................... (48,647) (26,931)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES .. 63,599 100,145
INVESTING ACTIVITIES
Purchases of property, equipment and improvements,
net of effects of acquisitions .................. (6,191) (12,005)
Proceeds from disposition of assets ............... 1,007 200
Acquisitions and payments of contingent
consideration ................................... (28,524) (2,348)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES ...... (33,708) (14,153)
FINANCING ACTIVITIES
Payments on term loan ............................. (64,938) -
Payments on other long-term debt .................. (4,666) (6,803)
Capitalized debt costs, net ....................... (1,811) (1,467)
Issuances of common stock ......................... 2,643 1,647
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES ...... (68,772) (6,623)
--------- ---------
NET (DECREASE) INCREASE IN CASH ...................... (38,881) 79,369
Cash and cash equivalents at beginning of period ..... 75,475 16,317
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........... $ 36,594 $ 95,686
========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
APRIA HEALTHCARE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of Apria
Healthcare Group Inc. and its subsidiaries. All significant intercompany
transactions and accounts have been eliminated.
In the opinion of management, all adjustments, consisting of normal recurring
accruals necessary for a fair presentation of the results of operations for the
interim periods presented, have been reflected herein. The unaudited results of
operations for interim periods are not necessarily indicative of the results to
be expected for the entire year. For further information, refer to the
consolidated financial statements and footnotes thereto for the year ended
December 31, 1998, included in Apria's 1998 Form 10-K.
NOTE B - RECLASSIFICATIONS AND USE OF ACCOUNTING ESTIMATES
Reclassifications: Certain amounts from prior periods have been reclassified to
conform to the current period presentation.
Use of Accounting Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates. Due to
the nature of the industry and the reimbursement environment in which Apria
operates, certain estimates are required in recording net revenues. Inherent in
these estimates is the risk that they will have to be revised or updated, and
the changes recorded in subsequent periods, as additional information becomes
available to management.
NOTE C - REVENUE RECOGNITION AND CONCENTRATION OF CREDIT RISK
Revenues are recognized on the date services and related products are provided
to patients and are recorded at amounts estimated to be received under
reimbursement arrangements with a large number of third-party payors, including
private insurers, managed care organizations, Medicare and Medicaid.
Apria establishes allowances for revenue adjustments that are normally
identified and recorded at the point of cash application or upon account review.
Revenue adjustments result from differences between estimated and actual
reimbursement amounts, failure to obtain authorizations acceptable to the payor
or other specified billing documentation, changes in coverage or payor and other
reasons unrelated to credit risk. The allowance for revenue adjustments is
deducted directly from gross accounts receivable. Management also establishes
allowances for those accounts from which payment is not expected to be received,
although services were provided and revenue was earned.
Management performs various analyses to estimate the revenue adjustment
allowance and the allowance for doubtful accounts. Specifically, management
considers historical realization data, accounts receivable aging trends,
operating statistics and relevant business conditions. Apria periodically
refines its procedures for estimating the allowances for revenue adjustments and
doubtful accounts based on experience with the estimation process and changes in
circumstances. Apria's policy is to reserve 100% of all receivables aged over
360 days. This policy is in addition to reserves provided on receivables aged
less than 360 days and to amounts provided for specific payors. Because of
continuing changes in the healthcare industry and third-party reimbursement, it
is reasonably possible that management's estimates of net collectible revenues
could change in the near term, which could have a favorable or unfavorable
impact on operations and cash flows.
NOTE D - BUSINESS COMBINATIONS
Apria periodically makes acquisitions of complementary businesses in specific
geographic markets. The transactions are accounted for as purchases and the
results of operations of the acquired companies are included in the accompanying
statement of operations from the date of acquisition. Acquisitions that closed
during the nine-month period ended September 30, 1999 resulted in cash payments
of $28,399,000. Of that amount, approximately $26,701,000 was allocated to
intangible assets. Goodwill is being amortized over 20 years and covenants not
to compete are being amortized over the life of the respective agreements.
NOTE E - LONG-TERM DEBT
Apria's credit agreement with Bank of America and a syndicate of banks was
amended and restated in April and October of 1999. The agreement was amended in
April to remove the requirement that Apria issue $50,000,000 in senior
subordinated convertible debentures by April 23, 1999 and the requirement that
the company maintain minimum cash balances of $35,000,000 through the
consummation of the debt offering. In connection with this amendment, Apria made
a required $50,000,000 repayment of the term loan. The October amendment permits
acquisitions with an aggregate purchase price of up to $125,000,000 through the
maturity date of the agreement. This most recent amendment also provides the
company with the ability to repurchase up to $50,000,000 of its common stock
through the credit agreement maturity date, subject to annual limitations and
compliance with Apria's other debt instruments.
Under the indenture governing Apria's $200,000,000 9 1/2% senior subordinated
notes, Apria must satisfy a 3.0 to 1.0 fixed charge coverage ratio test, on a
pro forma basis, in order to incur most types of additional indebtedness.
Effective with the operating results for the period ended September 30, 1999,
Apria's fixed charge coverage ratio exceeds the required minimum for the first
time since March 1997.
At September 30, 1999, total borrowings under the credit agreement were
$223,062,000, outstanding letters of credit totaled $9,806,000 and credit
available under the revolving facility was $20,194,000. On October 6, 1999
outstanding letters of credit were reduced to $3,800,000. Accordingly,
$26,200,000 is currently available for borrowing under the revolving credit
facility.
NOTE F - EQUITY
The change in stockholders' deficit, other than from net income, resulted
primarily from the exercise of stock options. For the nine-month period ended
September 30, 1999, proceeds from the exercise of stock options amounted to
$2,643,000.
NOTE G - INCOME TAXES
Current year income tax expense includes federal and state tax amounts payable
on a basis other than or in addition to taxable income.
At December 31, 1998, Apria's federal net operating loss carryforwards ("NOLs")
approximated $344,000,000, expiring in varying amounts in the years 2003 through
2013. Additionally, Apria has various state operating loss carryforwards which
began to expire in 1997. As a result of an ownership change in 1992 which met
specified criteria of Section 382 of the Internal Revenue Code, future use of a
portion of the federal and state operating loss carryforwards generated prior to
1992 are each limited to approximately $5,000,000 per year. Because of the
annual limitation, approximately $57,000,000 of each of Apria's federal and
state NOLs may expire unused. At December 31, 1998, Apria's net deferred tax
asset had been reduced to zero by a valuation allowance. In 1999, NOLs are being
realized to the extent of Apria's taxable income.
<PAGE>
NOTE H - COMMITMENTS AND CONTINGENCIES
Apria is engaged in the defense of certain claims and lawsuits arising out of
the ordinary course and conduct of its business, the outcome of which is not
determinable at this time. In the opinion of management, any liability that
might be incurred by Apria upon the resolution of these claims and lawsuits will
not, in the aggregate, have a material adverse effect on the company's
consolidated results of operations and financial position. Apria provides for
losses related to matters when such losses are considered probable and capable
of reasonable estimation. No provision for losses is made in respect of claims
which do not meet such requirements.
NOTE I - PER SHARE AMOUNTS
<TABLE>
The following table sets forth the computation of basic and diluted per share
amounts:
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- --------
(in thousands, except per share data)
Numerator:
<S> <C> <C> <C> <C>
Net income (loss) .............................. $ 18,895 $(194,701) $ 52,261 $(210,264)
Numerator for basic per share amounts - income
(loss) available to common stockholders ...... $ 18,895 $(194,701) $ 52,261 $(210,264)
Numerator for diluted per share amounts - income
(loss) available to common stockholders ...... $ 18,895 $(194,701) $ 52,261 $(210,264)
Denominator:
Denominator for basic per share
amounts - weighted average shares ............ 52,024 51,765 51,905 51,717
Effect of dilutive securities:
Employee stock options ....................... 1,866 - 1,583 -
--------- --------- --------- ---------
Dilutive potential common shares ............. 1,866 - 1,583 -
--------- --------- --------- ---------
Denominator for diluted per share amounts -
adjusted weighted average shares ............. 53,890 51,765 53,488 51,717
========= ========= ========= =========
Basic income (loss) per common share ............. $ 0.36 $ (3.76) $ 1.01 $ (4.07)
========= ========= ========= =========
Diluted income (loss) per common share ........... $ 0.35 $ (3.76) $ 0.98 $ (4.07)
========= ========= ========= =========
Employee stock options excluded from the
computation of diluted per share amounts:
Exercise price exceeds average market
price of common stock ...................... 1,573 6,041 1,747 3,523
Other ........................................ - 24 - 78
--------- --------- --------- ---------
1,573 6,065 1,747 3,601
========= ========= ========= =========
Average exercise price per share that exceeds
average market price of common stock ........... $ 19.51 $ 11.20 $ 19.11 $ 14.55
========= ========= ========= =========
</TABLE>
Due to the net loss reported for the three and nine months ended September 30,
1998, the impact of employee stock options in such periods is antidilutive.
There is no difference between basic and diluted per share amounts.
<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995: Apria's business is subject to a
number of risks, some of which are beyond the company's control. Apria has
described certain of those risks in its Form 10-K for the fiscal year ended
December 31, 1998, as filed with the Securities and Exchange Commission on April
5, 1999. This report may be used for purposes of the Private Securities
Litigation Reform Act of 1995 as a readily available document containing
meaningful cautionary statements identifying important risk factors that could
cause actual results to differ materially from those projected in any
forward-looking statements that Apria may make from time to time. These risks
include whether Apria will be able to resolve issues pertaining to management
stability and recruiting, the collectibility of its accounts receivable, the
cost of and the company's ability to implement its reorganization plan, Apria's
ability to service its debt, healthcare reform and the effect of federal and
state healthcare regulations, the ongoing government investigations regarding
patients covered by Medicare and other federal programs, pricing pressures from
large payors and changes in governmental reimbursement levels, the effectiveness
of Apria's information systems and controls, including its ability to resolve
any remaining year 2000 compliance issues, the highly competitive market, recent
losses, and Apria's high leverage and restrictions on its borrowing capacity.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
NET REVENUES: Apria's net revenues increased to $237.4 million for the
third quarter of 1999, up from $219.4 million for the third quarter of 1998. For
the nine months ended September 30, 1999, net revenues were $697.7 million
compared to $710.5 million for the same period last year. Net revenues for both
of the 1998 periods were impacted by a charge of $14.6 million that was recorded
at September 30, 1998 to adjust management's allowance for unidentified revenue
adjustments.
The increase in net revenues in the third quarter of 1999, as compared to
the third quarter of 1998, is the result of overall volume increases in the
company's traditional respiratory therapy referral business, new contracts with
regional and national payors, the acquisition of small complementary businesses
and, to a lesser extent, price increases in certain managed care agreements. The
increases in net revenues were partially offset by the net revenue reductions
described below.
The reduction in net revenues in the nine month period ended September 30,
1999, when compared to the same period last year, is attributable to (1) the
third quarter 1998 exit from the infusion therapy service line in certain
geographic markets, (2) the 5% reduction in Medicare reimbursement rates in 1999
for home oxygen therapy, and (3) the exit from contractual arrangements that
were not meeting minimum profitability standards. The exit from the infusion
business in selected markets reduced revenue for the three month and nine month
periods ended September 30, 1999 by approximately $11.9 million and $37.6
million, respectively, compared to the corresponding periods of 1998. The
provisions of the Balanced Budget Act of 1997 mandated a 5% reduction in
reimbursement rates for home oxygen therapy, effective January 1, 1999, which
decreased third quarter and year-to-date revenues by approximately $2.5 million
and $7.5 million, respectively. Additionally, starting in late 1997 and
continuing into 1998, Apria performed a comprehensive review of its managed care
contracts and renegotiated or terminated those not meeting profitability
standards.
The table below sets forth a summary of net revenues by service line.
Revenues from respiratory therapy increased as a percent of sales, despite
Medicare reimbursement rate reductions, due to a sales focus on the respiratory
business. The year-to-date decrease in infusion therapy revenues is largely
explained by the exit of this business in selected areas as described above. The
infusion line was also impacted by the termination of low-margin contracts. The
decrease in the HME/other line was primarily attributable to the contract review
process and, to a lesser extent, decreases in the medical supply and nursing
lines which Apria began exiting in late 1997.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------------
1999 1998
----------------- ----------------
$ % $ %
-------- ------ -------- ------
(dollars in thousands)
<S> <C> <C> <C> <C>
Respiratory therapy............. $444,121 63.7% $413,607 58.2%
Infusion therapy................ 131,728 18.9% 165,893 23.3%
HME/other....................... 121,852 17.4% 131,032 18.5%
-------- ------ -------- ------
Total net revenues $697,701 100.0% $710,532 100.0%
======== ====== ======== ======
</TABLE>
Due to the nature of the industry and the reimbursement environment in
which Apria operates, certain estimates are required in recording net revenues.
Inherent in these estimates is the risk that they will have to be revised or
updated, and the changes recorded in subsequent periods, as additional
information becomes available to management. Specifically, the complexity of
many third-party billing arrangements and uncertainty of reimbursement amounts
for certain services and/or from certain payors result in adjustments to billed
amounts. Such adjustments are fairly common and are typically identified and
recorded at the point of cash application, claim denial or upon account review.
Examples of revenue adjustments include subsequent changes to estimated revenue
amounts or denials for services not covered due to changes in the patient's
coverage; failure to obtain written confirmation of authorization or other
necessary documentation subsequent to service delivery; and differences in
contract prices due to complex contract terms or a biller's lack of familiarity
with a contract or payor.
GROSS PROFIT: Gross margins for the third quarter and the nine months ended
September 30, 1999 were 71.9% and 71.4%, respectively, compared to 55.8% and
62.9% for the same periods last year. The gross margins for the 1998 periods
were impacted by the $14.6 million charge for revenue adjustments discussed
above (see Net Revenues) and the following charges to cost of net revenues that
were recorded at September 30, 1998: $5.4 million to settle certain procurement
contracts, $3.5 million to provide for oxygen cylinder losses, $2.8 million to
provide for losses and obsolescence in inventory and patient service equipment
and $3.5 million related to the exit of the infusion business in selected
markets. If the 1998 margins were adjusted to factor out these charges, the 1999
margins, by comparison, still show improvement. This improvement is largely
attributable to the exit from low-profit service lines and contracts and better
pricing negotiated for inventory, patient service equipment and related goods.
SELLING, DISTRIBUTION AND ADMINISTRATIVE: Selling, distribution and
administrative expenses as a percentage of net revenues were 54.8% for the third
quarter and the nine months ended September 30, 1999, compared with 74.8% and
62.8% for the same periods last year. On a dollar basis, selling, distribution
and administrative expenses decreased by $34.0 million and $64.4 million between
the comparable three- and nine-month periods, respectively. Labor expense
reductions are the primary component of the decrease. Early in 1998, Apria began
reducing its workforce in response to the 25% Medicare reimbursement reductions
and has since continued to reduce staffing levels within the operating units.
During the second half of 1998, Apria also effected significant labor reductions
at its corporate headquarters and reduced staff in conjunction with the exit of
selected infusion therapy businesses. The 1999 periods reflect the full effect
of these labor reductions. Also contributing to the reduction in selling,
distribution and administrative expenses are depreciation expense savings of
$2.7 million and $7.8 million for the third quarter and nine months ended
September 30, 1999, respectively, as compared to the same periods last year. The
decrease is attributable to the impairment of computer hardware and software
recognized in the third quarter of 1998 and reductions in capital expenditures
that began in the latter half of 1998 and continued in 1999.
Included in the 1998 periods were $11.5 million in charges associated with
exiting the infusion business, branch closures and facility consolidations.
PROVISION FOR DOUBTFUL ACCOUNTS: The provision for doubtful accounts, as a
percentage of net revenues, was 3.9% and 3.6% for the quarter and nine-month
periods ended September 30, 1999, respectively, as compared to 16.8% and 8.9%
for the same periods in the prior year. The 1998 periods reflect charges of
$12.1 million to increase the allowance for doubtful accounts due to a change in
management's collection policy and $9.1 to increase the allowance for doubtful
accounts on accounts receivable associated with the infusion sale and other
business closures. In the absence of these 1998 charges, the 1999 provision
rates, as percentages of net revenues, show decreases when compared to the same
periods in 1998. These decreases are largely due to an improvement in the aging
of accounts receivable as demonstrated by a decrease in accounts aged in excess
of 180 days from 27.4% of total accounts receivable at September 30, 1998 to
22.9% at September 30, 1999. Additionally, days sales outstanding (calculated as
of each period-end by dividing accounts receivable, less allowance for doubtful
accounts, by the 90-day rolling average of net revenues) decreased to 55 days at
September 30, 1999, from 65 days at September 30, 1998.
During the second half of 1998, management reviewed the historic
performance and collectibility of Apria's accounts receivable portfolio.
Management considered the continued high level of bad debt write-offs and
reviewed its existing policies and procedures for estimating the collectibility
of its accounts receivable. As a result of this review, management decided to
change the collection policy and formally shift the focus of the collection
function to the more current balances and assign the older accounts to outside
collection agencies. Management believes this concentration on more current
balances will limit the amount of receivables that age beyond 180 days.
Consequently, the accounts that do age beyond 180 days are likely to be more
difficult to collect. Apria's policy is to reserve 100% of all receivables aged
over 360 days. This policy is in addition to reserves provided on receivables
aged less than 360 days and to amounts provided for specific payors.
AMORTIZATION OF INTANGIBLE ASSETS: Amortization of intangible assets was
$2.1 million and $6.0 million for the third quarter and first nine months of
1999, respectively, as compared to $3.5 million and $10.5 million for the same
periods in the prior year. The decrease is the result of the impairment and
write-off of $76.2 million of intangible assets in the third quarter of 1998
and, to a lesser extent, the expiration of certain non-compete covenants. The
decrease was slightly offset by amortization expense recorded in conjunction
with a number of business acquisitions consummated during the first nine months
of 1999.
1998 IMPAIRMENT OF INTANGIBLE ASSETS: In the third quarter of 1998,
management conducted an evaluation of the carrying value of the company's
recorded intangible assets. Management considered current and anticipated
industry conditions, recent changes in its business strategies, and current and
anticipated operating results. The evaluation resulted in an impairment charge
of $76.2 million that was recorded in the third quarter of 1998. The charge
included a write-off of $4.8 million in intangible assets associated with the
exit of the infusion business in certain areas.
1998 IMPAIRMENT OF LONG-LIVED ASSETS AND INTERNALLY-DEVELOPED SOFTWARE:
During the third quarter of 1998, management decided to terminate the
implementation of an enterprise resource planning (ERP) system. Accordingly,
Apria wrote off related software and other capitalized costs of $7.5 million at
September 30, 1998. As part of the decision to terminate the ERP project,
management evaluated its current systems to determine their long-term viability.
Management decided on a number of enhancements to the systems that rendered
certain previously-developed modules obsolete. Further, pharmacy and branch
consolidations and closures effected in the third quarter of 1998 rendered a
variety of computer equipment obsolete. Due to its age and technological
obsolescence, it was deemed to have no future value. As a result of these
actions, Apria recorded an impairment charge of $11.8 million at September 30,
1998. Apria also recognized additional asset impairments of $1.4 million in
conjunction with the exited businesses and $1.4 million related to other
facility closures and consolidations.
INTEREST EXPENSE: Interest expense was $10.5 million and $32.3 million for
the three- and nine-month periods ended September 30, 1999, respectively,
compared to $12.8 million and $35.9 million for the same periods in 1998.
Although there was a 16.5% reduction in the average long-term debt balance
between the two periods, Apria is now incurring interest on its bank loans at
higher rates as a result of its November 1998 amended and restated credit
agreement
INCOME TAXES: Income taxes were $400,000 for the first nine months of 1999
versus $2.5 million for the same period last year. The recorded amounts for both
periods include federal and state taxes payable on a basis other than or in
addition to taxable income. At December 31, 1998, Apria's federal net operating
loss carryforwards ("NOLs") approximated $344 million, expiring in varying
amounts in the years 2003 through 2013. Additionally, Apria has various state
operating loss carryforwards which began to expire in 1997. As a result of an
ownership change in 1992 which met specified criteria of Section 382 of the
Internal Revenue Code, future use of a portion of the federal and state
operating loss carryforwards generated prior to 1992 are each limited to
approximately $5 million per year. Because of the annual limitation,
approximately $57 million of each of Apria's federal and state NOLs may expire
unused. At December 31, 1998, Apria's net deferred tax asset had been reduced to
zero by a valuation allowance. In 1999, NOLs are being realized to the extent of
Apria's taxable income.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
OPERATING CASH FLOW: Cash provided by operating activities was $63.6
million for the nine-month period ended September 30, 1999, compared to $100.1
million for the same period in 1998. The higher net income in the 1999 period
was offset by an increase in accounts receivable, as compared to a decrease last
year, an increase in patient service equipment purchases and an increase in the
amount of accrued payroll compared to the same period last year. Patient service
equipment purchases increased during the first half of 1999, primarily to
support the growing respiratory therapy patient base.
ACCOUNTS RECEIVABLE: Accounts receivable, before allowance for doubtful
accounts, increased to $187.7 million at September 30, 1999 from $167.6 million
at December 31, 1998. The increase is largely attributable to a trend of
quarter-over-quarter increases in net revenues that began in the fourth quarter
of 1998. Days sales outstanding at September 30, 1999 increased slightly to 55
days from 53 days at December 31, 1998.
During the last three fiscal years, results of operations have been
adversely impacted by high levels of accounts receivable write-offs. Initially
caused by the disruptive effects of system conversions and branch
consolidations, the high level of accounts receivable write-offs were largely
due to billing problems such as untimely billing, improper and/or untimely
preparation of, and deficiencies in, reimbursement documentation, problems with
the billing systems and the high concentration of managed care payors from whom
it has been difficult to collect.
Also during the last three years, management has instituted a number of
measures in response to these problems. During 1998, management reorganized its
field operations to create a separate "revenue management" organization which
encompasses the functions of order-taking, patient qualification, documentation
coordination, timely filing and prompt follow-up. The revenue management
organization reports directly to corporate headquarters and specifically to an
Executive Vice President. The new organization structure was intended to
facilitate improved communications and accountability. In conjunction with the
reorganization, processes and procedures were reviewed to identify additional
opportunities for improvement. As a result, personnel were placed in quality
assurance positions to help ensure that products and services were more
accurately and timely billed and responsibilities were consolidated to allow
specifically qualified personnel to support, direct and train the revenue
management staff. Task forces were formed to visit the billing centers to ensure
compliance with policies and standard procedures. Software enhancements to
simplify the order-intake process were introduced and the billing and accounts
receivable modules are being modified to improve their functionality. Although
management has been proactive in addressing the issues leading to the high level
of accounts receivable write-offs recognized in recent periods, there can be no
assurance that the collectibility of Apria's recorded accounts receivable will
continue to improve in the near future.
Included in accounts receivable are earned but unbilled receivables of
$22.1 million and $25.3 million at September 30, 1999 and December 31, 1998,
respectively. Delays in billings can occur, from a few days to several weeks or
more, from the date of service due to delays in obtaining certain required
payor-specific documentation from internal and external sources. Such
documentation would include internal records of proof-of-service and written
authorizations from physicians and other referral sources. Earned but unbilled
receivables are aged from date of service and are considered in Apria's analysis
of historical performance and collectibility.
LONG-TERM DEBT: Apria's credit agreement with Bank of America and a
syndicate of banks was amended and restated in April and October of 1999. The
April amendment removed the requirement that the company issue $50 million in
senior subordinated notes or senior subordinated convertible debentures by April
23, 1999. In connection with this amendment, Apria made a required $50 million
repayment of the term loan. The April amendment also eliminated the requirement
that Apria maintain minimum cash balances of $35 million through the
consummation of the debt offering. The October amendment permits acquisitions
with an aggregate purchase price of up to $125 million through the maturity date
of the agreement. This amendment also provides Apria with the ability to
repurchase up to $50 million of its common stock through the credit agreement
maturity date, subject to annual limitations and compliance with Apria's other
debt instruments.
Under the indenture governing Apria's $200 million 9 1/2% senior
subordinated notes, Apria must satisfy a 3.0 to 1.0 fixed charge coverage ratio
test, on a pro forma basis, in order to incur most types of additional
indebtedness. Effective with the operating results for the period ended
September 30, 1999, Apria's fixed charge coverage ratio exceeds the required
minimum for the first time since March 1997.
At September 30, 1999, total borrowings under the credit agreement were
$223.1 million, outstanding letters of credit totaled $9.8 million and credit
available under the revolving facility was $20.1 million. On October 6, 1999
outstanding letters of credit were reduced to $3.8 million. Accordingly, $26.2
million is currently available for borrowing under the revolving credit
facility.
BUSINESS COMBINATIONS: Apria periodically makes acquisitions of
complementary businesses in specific geographic markets. The transactions are
accounted for as purchases and the results of operations of the acquired
companies are included in the accompanying statement of operations from the date
of acquisition. Acquisitions that closed during the nine-month period ended
September 30, 1999 resulted in cash payments of approximately $28.4 million. Of
that amount, approximately $26.7 million was allocated to intangible assets.
Goodwill is being amortized over 20 years and covenants not to compete are being
amortized over the life of the respective agreements.
YEAR 2000 COMPLIANCE: As the year 2000 approaches, an issue impacting all
companies has emerged regarding how existing application software programs and
operating systems can accommodate this date value. In brief, many existing
application programs in the marketplace were designed to accommodate a two-digit
date position which represents the year (e.g., "95" is stored on the system and
represents the year 1995). Consequently, the year 1999 could be the maximum date
value that systems would be able to accurately process.
Internal operating systems. Beginning in late 1997, Apria conducted a
comprehensive review of its operating and field information systems, including
an assessment of the nature and potential extent of the impact of the year 2000
issue. As a result, Apria began the modification process of its software in
order for its computer systems to function properly in the year 2000 and
thereafter. Apria utilized internal resources to reprogram and test the software
for the necessary year 2000 modifications. Apria's systems also underwent two
external assessments of the year 2000 issue and received a "low" risk rating.
The modification and testing were completed on schedule and management now
considers its operating and field information systems year 2000-compliant. To
further ensure a smooth transition into the year 2000, management has formed a
special team to address any related problems that may arise and will, among
other measures, suspend software updates between November 1999 and January 2000.
Apria has not developed a formal contingency plan in the event that the
modifications to its internal operating systems prove to be inadequate. Such
inadequacies could result in system failure or miscalculations. This would cause
disruptions to normal business processes including, among other things, the
temporary inability to process transactions and generate billings. If such a
disruption continued for an extended period, it could have a material adverse
effect on the results of operations, cash flow and financial condition of Apria.
Apria is currently in the process of assessing and addressing any potential
issues with its ancillary software packages that perform less-critical functions
and any other electronic mechanisms that could have date-sensitive
microprocessors.
External risks. Apria depends on electronic interfaces with numerous
business partners to conduct many of its day-to-day functions. Such functions
include payments to and from suppliers and payors, the transfer of funds between
Apria's banks, and electronic billing and supply ordering. Apria has been
working closely with its more critical business partners to obtain assurance of
their year 2000-readiness. The Company has successfully completed live tests
with the four Medicare carriers responsible for processing approximately
one-fourth of Apria's total reimbursements. As a contingency, in the event of
failure on the part of an external agent, the exchange of data and payments can
continue via paper documents and more traditional methods. Further, Apria has
revised contracts with certain of its managed care payors to include remedies
should the payors fail to reimburse the company on a timely basis due to their
own year 2000 problems.
Another area of potential risk is with certain patient service equipment
items that have microprocessors with date functionality that could malfunction
in the year 2000. Although Apria has found that the majority of such
microprocessors include duration time clocks and not date time clocks,
management has initiated formal communications with its suppliers to obtain
assurance that the equipment they supply is year 2000-compliant. To date, Apria
has received year 2000-compliance certification letters from substantially all
of its primary vendors and approximately 85% of the entire set of vendors from
which it requested such assurance.
If Apria is unable to resolve all its year 2000 issues with external
agents, it may have a material adverse effect on the company's business, results
of operations or financial condition.
Costs. Apria does not believe the costs of its year 2000 remediation
efforts are material. To date, such costs have been expensed as incurred.
Management's expectations about year 2000-related costs yet to be incurred are
subject to various uncertainties that could cause the actual costs to differ
materially from those expectations. Such uncertainties include the adequacy of
the modifications made to Apria's operating and field information systems, the
success of the company in identifying and resolving any problems with its
ancillary systems or electronic mechanisms and the year 2000-readiness of
Apria's business partners.
OTHER: Apria's management believes that cash provided by operations
together with cash invested in its money market account and amounts available
under its existing credit facility will be sufficient to finance its current
operations for at least the next year.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Apria currently utilizes no material derivative financial instruments that
expose the company to significant market risk. However, Apria is subject to
interest rate changes on its variable rate term loan under the company's bank
credit agreement that may affect the fair value of that debt and cash flow and
earnings. Based on the term debt outstanding at September 30, 1999 and the
current market perception, a 50 basis point increase in the applicable interest
rates would decrease Apria's annual cash flow and earnings by approximately $1.2
million. Conversely, a 50 basis point decrease in the applicable interest rates
would increase annual cash flow and earnings by $1.2 million.
PART II - OTHER INFORMATION
ITEMS 1-3. NOT APPLICABLE
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) Annual Meeting of Stockholders of the company on July 21, 1999.
(b) Directors re-elected at the Annnual Meeting for a term of one
year:
David H. Batchelder
Philip L. Carter
David L. Goldsmith
Richard H. Koppes
Philip R. Lochner, Jr.
Beverly Benedict Thomas
Ralph V. Whitworth
(c) Matters Voted Upon at Annual Meeting:
Approval of an Amendment to the Restated Certificate of
Incorporation
----------------------------------------------------------------
The Board of Director's adopted, subject to approval by the
stockholders, an amendment to Apria's Restated Certificate
of Incorporation to eliminate the classified structure of the
company's Board and to provide for the annual election of all
Directors. The results of Stockholder voting were as follows:
For 35,678,792
Against 299,782
Abstain 20,977
Broker Non-Votes 11,041,346
Election of Directors
---------------------
Subsequent to the approval of the proposed amendment to the
Restated Certificate of Incorporation, the company's Board
consists of seven members who will serve for one year or until
the election and qualification of their successors. The results
of Stockholder voting were as follows:
FOR WITHHOLD
---------- --------
David H. Batchelder 46,496,658 544,239
Philip L. Carter 46,498,645 542,252
David L. Goldsmith 46,585,904 454,993
Richard H. Koppes 46,516,520 524,377
Philip R. Lochner, Jr. 46,515,942 524,955
Beverly Benedict Thomas 46,514,242 526,655
Ralph V. Whitworth 46,496,149 544,748
ITEM 5. NOT APPLICABLE
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit
Number Reference
------- ---------
3.1 Amended and Restated Bylaws of Registrant, as
amended on October 29, 1999.
4.1 Fourth Amendment to Amended and Restated Credit
Agreement dated October 22, 1999, among Registrant
and certain of its subsidiaries, Bank of America
National Association and other financial institu-
tions party to the Credit Agreement.
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter for which
this report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
APRIA HEALTHCARE GROUP INC.
---------------------------
Registrant
November 12, 1999 /s/ JOHN C. MANEY
-----------------------------------------------------
John C. Maney
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
EXHIBIT 3.1
AMENDED AND RESTATED BYLAWS
OF
APRIA HEALTHCARE GROUP INC.,
A DELAWARE CORPORATION
(As Amended through October 29, 1999)
ARTICLE I
OFFICES
SECTION 1.1 REGISTERED OFFICE. The registered office of this
Corporation shall be in the City of Wilmington, County of New Castle, Delaware
and the name of the resident agent in charge thereof is the agent named in the
Certificate of Incorporation until changed by the Board of Directors (the
"Board").
SECTION 1.2 PRINCIPAL OFFICE. The principal office for the transaction
of the business of the Corporation shall be at such place as may be established
by the Board. The Board is granted full power and authority to change said
principal office from one location to another.
SECTION 1.3 OTHER OFFICES. The Corporation may also have an office or
offices at such other places, either within or without the State of Delaware, as
the Board may from time to time designate or the business of the Corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.1 TIME AND PLACE OF MEETINGS. Meetings of stockholders shall
be held at such time and place, within or without the State of Delaware, as
shall be stated in the notice of the meeting or in a duly executed waiver of
notice thereof.
SECTION 2.2 ANNUAL MEETINGS OF STOCKHOLDERS. The annual meeting of
stockholders shall be held on such date and at such time and place as may be
fixed by the Board of Directors and stated in the notice of the meeting, for the
purpose of electing directors and for the transaction of such other business as
is properly brought before the meeting in accordance with these Bylaws. To be
properly brought before the annual meeting, business must be either (i)
specified in the notice of annual meeting (or any supplement or amendment
thereto) given by or at the direction of the Board of Directors, (ii) otherwise
brought before the annual meeting by or at the direction of the Board of
Directors, (iii) brought before the meeting in accordance with Rule 14a-8 under
the Securities Exchange Act of 1934, or (iv) otherwise properly brought before
the annual meeting by a stockholder. In addition to any other applicable
requirements, for business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than sixty (60) days nor more than ninety (90) days prior
to the meeting; provided, however, that in the event that less than forty (40)
days' notice or prior public disclosure of the date of the annual meeting is
given or made to stockholders, notice by a stockholder, to be timely, must be
received no later than the close of business on the tenth (10th) day following
the day on which such notice of the date of the annual meeting was mailed or
such public disclosure was made, whichever first occurs. A stockholder's notice
to the Secretary shall set forth as to each matter the stockholder proposes to
bring before the annual meeting (i) a brief description of the business desired
to be brought before the annual meeting, (ii) the name and record address of the
stockholder proposing such business, (iii) the class, series and number of
shares of the Corporation which are beneficially owned by the stockholder, and
(iv) any material interest of the stockholder in such business. No business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Article II, Section 2.2. The officer of the
Corporation presiding at an annual meeting shall, if the facts warrant,
determine and declare to the annual meeting that business was not properly
brought before the annual meeting in accordance with the provisions of this
Article II, Section 2.2, and if he should so determine, he shall so declare to
the annual meeting and any such business not properly brought before the meeting
shall not be transacted.
SECTION 2.3 SPECIAL MEETINGS. Special meetings of the stockholders of
the Corporation for any purpose or purposes may be called at any time by the
Board, or by a committee of the Board that has been duly designated by the Board
and whose powers and authority, as provided in a resolution of the Board or in
the Bylaws of the Corporation, include the power to call such meetings, and
shall be called by the Chairman or Secretary at the request in writing of a
majority of the Board, or at the request in writing of stockholders owning a
majority in amount of the entire capital stock of the Corporation issued and
outstanding and entitled to vote but such special meetings may not be called by
any other person or persons; provided, however, that if and to the extent that
any special meeting of stockholders may be called by any other person or persons
specified in any provisions of the Certificate of Incorporation or any amendment
thereto, or any certificate filed under Section 151(g) of the Delaware General
Corporation Law (or its successor statute as in effect from time to time
hereafter), then such special meeting may also be called by the person or
persons in the manner, at the times and for the purposes so specified. Business
transacted at any special meeting of stockholders shall be limited to the
purposes stated in the notice.
SECTION 2.4 STOCKHOLDER LISTS. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten (10) days before
every meeting of stockholders, a complete list of stockholders entitled to vote
at the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting or at the place of the meeting, and the list shall also be available at
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 2.5 NOTICE OF MEETINGS. Notice of each meeting of stockholders,
whether annual or special, stating the place, date and hour of the meeting and,
in the case of a special meeting, the purpose or purposes for which such meeting
has been called, shall be given to each stockholder of record entitled to vote
at such meeting not less than ten (10) nor more than sixty (60) days before the
date of the meeting. Except as otherwise expressly required by law, notice of
any adjourned meeting of the stockholders need not be given if the time and
place thereof are announced at the meeting at which the adjournment is taken.
Whenever any notice is required to be given under the provisions of the
statutes or of the Certificate of Incorporation or of these Bylaws, a waiver
thereof in writing, signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be deemed equivalent
thereto. Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, except a
stockholder who shall attend such meeting for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
SECTION 2.6 QUORUM AND ADJOURNMENT. The holders of a majority of the
stock issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum for holding all meetings of
stockholders, except as otherwise provided by applicable law or by the
Certificate of Incorporation; provided, however, that the stockholders present
at a duly called or held meeting at which a quorum is present may continue to
transact business until adjournment notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum. If it shall appear that such quorum is not present or
represented at any meeting of stockholders, the Chairman of the meeting shall
have power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. If the adjournment is for more than thirty (30) days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting. The Chairman of the meeting may determine that
a quorum is present based upon any reasonable evidence of the presence in person
or by proxy of stockholders holding a majority of the outstanding votes,
including without limitation, evidence from any record of stockholders who have
signed a register indicating their presence at the meeting.
SECTION 2.7 VOTING. In all matters, when a quorum is present at any
meeting, the vote of the holders of a majority of the capital stock having
voting power present in person or represented by proxy shall decide any question
brought before such meeting, unless the question is one upon which by express
provision of applicable law or of the Certificate of Incorporation, a different
vote is required in which case such express provision shall govern and control
the decision of such question. Such vote may be by voice or by written ballot;
provided, however, that the Board may, in its discretion, require a written
ballot for any vote, and further provided that all elections for directors must
be by written ballot upon demand made by a stockholder at any election and
before the voting begins.
Unless otherwise provided in the Certificate of Incorporation each
stockholder shall at every meeting of the stockholders be entitled to one vote
in person or by proxy for each share of the capital stock having voting power
held by such stockholder.
SECTION 2.8 PROXIES. Each stockholder entitled to vote at a meeting of
stockholders may authorize in writing another person or persons to act for such
holder by proxy, but no proxy shall be voted or acted upon after three years
from its date, unless the person executing the proxy specifies therein the
period of time for which it is to continue in force.
SECTION 2.9 INSPECTORS OF ELECTION. The Corporation shall, in advance
of any meeting of stockholders, appoint one or more inspectors to act at the
meeting and make a written report thereof. The Corporation or the Chairman of
the meeting shall appoint one or more alternate inspectors to replace any
inspector who fails to act. Each inspector, before undertaking his or her
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspectors shall ascertain the number of shares outstanding and the
voting power of each, determine the shares represented at the meeting and the
validity of the proxies and ballots, count all votes and ballots, determine and
retain for a reasonable period a record of the disposition of any challenges
made to any determination by the inspectors and certify their determination of
the number of shares represented at the meeting and their count of all votes and
ballots. Each inspector shall perform his or her duties and shall make all
determinations in accordance with the Delaware General Corporation Law
including, without limitation, Section 231 of the Delaware General Corporation
Law.
The date and time of the opening and closing of the polls for each
matter upon which the stockholders will vote at a meeting shall be announced at
the meeting. No ballot, proxies or votes, nor revocations thereof or changes
thereto, shall be accepted by the inspectors after the closing of the polls
unless the Court of Chancery upon application by a stockholder shall determine
otherwise.
The appointment of inspectors of election shall be in the discretion of
the Board except that so long as the Corporation has a class of voting stock
that is (i) listed on a national securities exchange, (ii) authorized for
quotation on an interdealer quotation system of a registered national securities
association, or (iii) held of record by more than 2,000 stockholders,
appointment of inspectors shall be obligatory.
ARTICLE III
DIRECTORS
SECTION 3.1 POWERS. The Board shall have the power to manage or direct
the management of the property, business and affairs of the Corporation, and
except as expressly limited by law, to exercise all of its corporate powers. The
Board may establish procedures and rules, or may authorize the Chairman of any
meeting of stockholders to establish procedures and rules, for the fair and
orderly conduct of any meeting of stockholders including, without limitation,
registration of the stockholders attending the meeting, adoption of an agenda,
establishing the order of business at the meeting, recessing and adjourning the
meeting for the purposes of tabulating any votes and receiving the results
thereof, the timing of the opening and closing of the polls, and the physical
layout of the facilities for the meeting.
SECTION 3.2 NUMBER, ELECTION AND TENURE. The number of directors shall
be seven until changed by resolution adopted by the Board. At each annual
meeting of stockholders, all directors shall be elected to hold office until the
next annual meeting of stockholders. Each director shall hold office until his
successor is elected and qualified or until his earlier resignation. No decrease
in the number of directors shall shorten the term of any incumbent director.
SECTION 3.3 INTENTIONALLY OMITTED.
SECTION 3.4 MEETINGS. The Board may hold meetings, both regular and
special, either within or outside the State of Delaware.
SECTION 3.5 ANNUAL MEETING. The Board shall meet as soon as practicable
after each annual election of directors.
SECTION 3.6 REGULAR MEETINGS. Regular meetings of the Board shall be
held without call or notice at such time and place as shall from time to time be
determined by resolution of the Board.
SECTION 3.7 SPECIAL MEETINGS. Special meetings of the Board may be
called at any time, and for any purpose permitted by law, by the Chairman of the
Board, or by the Secretary on the written request of any two members of the
Board unless the Board consists of only one director in which case the special
meeting shall be called on the written request of the sole director, which
meetings shall be held at the time and place designated by the person or persons
calling the meeting. Notice of the time, place and purpose of any such meeting
shall be given to the directors by the Secretary, or in case of the Secretary's
absence, refusal or inability to act, by any other officer. Any such notice may
be given by mail, by facsimile, by telephone, by personal service, or by any
combination thereof as to different directors. If the notice is by mail, then it
shall be deposited in a United States Post Office at least seventy-two (72)
hours before the time of the meeting; if by facsimile, by telephone or by
personal service, communicated or delivered at least twenty-four (24) hours
before the time of the meeting.
SECTION 3.8 QUORUM. At all meetings of the Board, a majority of the
total number of directors shall be necessary and sufficient to constitute a
quorum for the transaction of business, and the affirmative vote of a majority
of the directors present at a meeting at which a quorum is present shall be
necessary to constitute the act of the Board. Any meeting of the Board may be
adjourned to meet again at a stated day and hour. Even though a quorum is not
present, as required in this Article III, Section 3.8, a majority of the
directors present at any meeting of the Board, either regular or special, may
adjourn from time to time until a quorum is present. Notice of any adjourned
meeting need not be given.
SECTION 3.9 FEES AND COMPENSATION. Each director and each member of a
committee of the Board shall receive such fees and reimbursement of expenses
incurred on behalf of the Corporation or in attending meetings as the Board may
from time to time determine. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor.
SECTION 3.10 MEETINGS BY TELEPHONIC COMMUNICATION. Members of the Board
or any committee thereof may participate in a regular or special meeting of such
Board or committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other. Participation in a meeting pursuant to this Article III, Section
3.10 shall constitute presence in person at such meeting.
SECTION 3.11 COMMITTEES. The Board may designate committees, each
committee to consist of one or more of the directors of the Corporation. Any
such committee, to the extent provided in the resolution of the Board, shall
have and may exercise all the powers and authority of the Board in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers that may require it.
Notwithstanding the foregoing, no committee of the Board shall have the power or
authority in reference to: (i) approving or adopting, or recommending to the
stockholders, any action or matter expressly required by the Delaware General
Corporation Law to be submitted to stockholders for approval or (ii) adopting,
amending or repealing any bylaw of the Corporation. Unless the resolution
appointing such committee or the Certificate of Incorporation expressly so
provides, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock or to adopt a certificate of
ownership and merger pursuant to Section 253 of the Delaware General Corporation
Law. Each committee shall have such name as may be determined from time to time
by resolution adopted by the Board. Each committee shall keep minutes of its
meetings and report to the Board when required.
SECTION 3.12 ACTION WITHOUT MEETINGS. Unless otherwise restricted by
applicable law or by the Certificate of Incorporation or by these Bylaws, any
action required or permitted to be taken at any meeting of the Board or of any
committee thereof may be taken without a meeting if all members of the Board or
of such committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of the proceedings of the Board
or committee.
SECTION 3.13 FILLING OF VACANCIES. Any vacancy on the Board, including
any newly created directorship resulting from an increase in the number of
directors, or any nominee for election as a director at a meeting of the
stockholders, may be filled or nominated by the stockholders of this
Corporation, by a majority of the whole Board or by a duly constituted committee
of the Board so authorized. The member or members of any committee of the Board
authorized to fill vacancies on the Board, or to nominate persons for election
as directors at a meeting of the stockholders, as set forth in the immediately
preceding sentence that are present at any meeting and not disqualified from
voting, whether or not he/she or they constitute a quorum, may unanimously
appoint another member of the Board to act at the meeting in the place of any
absent or disqualified member of such committee.
ARTICLE IV
OFFICERS
SECTION 4.1 APPOINTMENT AND SALARIES. The senior officers of the
Corporation shall be appointed by the Board and shall be a Chairman of the
Board, a Chief Executive Officer, a President, a Chief Operating Officer, a
Treasurer and a Chief Financial Officer. The Board or the Chief Executive
Officer may appoint one or more Vice Presidents, a Secretary and such other
officers (including assistant secretaries and financial officers) as the Board
or the Chief Executive Officer may deem necessary or desirable. The senior
officers, and any other officers appointed by the Board, shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board. Each other officer appointed
by the Chief Executive Officer shall hold office for such term and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Chief Executive Officer or the Board. The Board shall fix the
salaries of all officers appointed by it. Unless prohibited by applicable law or
by the Certificate of Incorporation or by these Bylaws, one person may be
elected or appointed to serve in more than one official capacity. Any vacancy
occurring in any senior office of the Corporation may be filled only by the
Board.
SECTION 4.2 REMOVAL AND RESIGNATION. Any officer may be removed, either
with or without cause, by the Board or, in the case of an officer other than a
senior officer, by the Board or the Chief Executive Officer. Any officer may
resign at any time by giving notice to the Board, the Chief Executive Officer or
the Secretary. Any such resignation shall take effect at the date of receipt of
such notice or at any later time specified therein and, unless otherwise
specified in such notice, the acceptance of the resignation shall not be
necessary to make it effective.
SECTION 4.3 CHAIRMAN OF THE BOARD. The Chairman of the Board shall,
unless otherwise determined by the Board, preside at all meetings of the
stockholders and the Board; and shall have such other powers and duties as may
from time to time be assigned by the Board.
SECTION 4.4 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall
be the senior executive officer of the Corporation, with the authority to
supervise and direct the other officers and employees of the Corporation, and
with authority from time to time to delegate to other officers such executive
and other powers and duties as he or she shall deem appropriate, subject in all
respects to the authority of the Board.
SECTION 4.5 PRESIDENT. If the Chairman of the Board is not the Chief
Executive Officer, or if the position of Chief Executive Officer is vacant, the
President shall have all of the authority of the Chief Executive Officer of the
Corporation. The President shall have such other powers and duties as the Board
or Chief Executive Officer may from time to time prescribe.
SECTION 4.6 CHIEF OPERATING OFFICER. Subject to the powers of the Chief
Executive Officer, the Chief Operating Officer shall be the principal officer in
charge of the operations of the Corporation other than those areas of
responsibility as the Board or Chief Executive Officer may from time to time
assign to the President.
SECTION 4.7 VICE PRESIDENT. In the absence of the President, or in the
event of the President's inability or refusal to act, the Vice President, if any
(or if there be more than one Vice President, the Vice Presidents in the order
of their rank or, if of equal rank, then in the order designated by the Board
or, in the absence of any designation, then in the order of their appointment),
shall perform the duties of the President and, when so acting, shall have all
the powers of and be subject to all the restrictions upon the President. The
rank of Vice Presidents in descending order shall be Executive Vice President,
Senior Vice President and Vice President. The Vice Presidents shall perform such
other duties and have such other powers as the Board or the Chief Executive
Officer may from time to time prescribe.
SECTION 4.8 SECRETARY AND ASSISTANT SECRETARY. The Secretary shall
attend all meetings of the Board (unless the Board shall otherwise determine)
and all meetings of the stockholders and record all the proceedings of the
meetings of the Corporation and of the Board in a book to be kept for that
purpose and shall perform like duties for the committees when required. The
Secretary shall give, or cause to be given, notice of all meetings of
stockholders and special meetings of the Board. The Secretary shall have custody
of the corporate seal of the Corporation and shall (as well as any Assistant
Secretary) have authority to affix the same to any instrument requiring it and
to attest it. The Secretary shall perform such other duties and have such other
powers as the Board or the Chief Executive Officer may from time to time
prescribe.
SECTION 4.9 CHIEF FINANCIAL OFFICER. Subject to the powers of the Chief
Executive Officer, the Chief Financial Officer shall be the principal officer in
charge of the financial affairs of the Corporation and shall perform such other
duties and have such other powers as the Board or the Chief Executive Officer
from time to time prescribe.
SECTION 4.10 TREASURER. Subject to the powers of the Chief Financial
Officer, the Treasurer shall have custody of the corporate funds and securities
and shall keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation and shall deposit all monies and other valuable
effects in the name and to the credit of the Corporation in such depositories as
may be designated by the Board. Subject to the powers of the Chief Financial
Officer, the Treasurer may disburse the funds of the Corporation as may be
ordered by the Board, taking proper vouchers for such disbursements, and shall
render to the Board at its regular meetings, or when the Board so requires, an
account of transactions and of the financial condition of the Corporation. The
Treasurer shall perform such other duties and have such other powers as the
Board or the Chief Executive Officer may from time to time prescribe.
SECTION 4.11 BONDS. If required by the Board and at the expense of the
Corporation, the Chief Financial Officer, the Treasurer, and the Assistant
Treasurer, if any, shall give the Corporation a bond (which shall be renewed at
such times as specified by the Board) in such sum and with such surety or
sureties as shall be satisfactory to the Board for the faithful performance of
the duties of such person's office and for the restoration to the Corporation,
in case of such person's death, resignation, retirement or removal from office,
of all books, papers, vouchers, money and other property of whatever kind in
such person's possession or under such person's control belonging to the
Corporation.
SECTION 4.12 ASSISTANT OFFICERS. An assistant officer shall, in the
absence of the officer to whom such person is an assistant or in the event of
such officer's inability or refusal to act (or, if there be more than one such
assistant officer, the assistant officers in the order designated by the Board,
in the absence of any designation, then in the order of their appointment),
perform the duties and exercise the powers of such officer. An assistant officer
shall perform such other duties and have such other powers as the Board or the
officer appointing any such assistant officer may from time to time prescribe.
ARTICLE V
SEAL
It shall not be necessary to the validity of any instrument executed by
any authorized officer or officers of the Corporation that the execution of such
instrument be evidenced by the corporate seal, and all documents, instruments,
contracts and writings of all kinds signed on behalf of the Corporation by any
authorized officer or officers shall be as effectual and binding on the
Corporation without the corporate seal, as if the execution of the same had been
evidenced by affixing the corporate seal thereto. The Board may give general
authority to any officer to affix the seal of the Corporation and to attest the
affixing by signature.
ARTICLE VI
FORM OF STOCK CERTIFICATE
Every holder of stock in the Corporation shall be entitled to have a
certificate signed by, or in the name of, the Corporation by the Chairman of the
Board or Vice-Chairman of the Board, if any, or by the President or a
Vice-President, and by the Treasurer or an Assistant Treasurer or the Chief
Financial Officer, or the Secretary or an Assistant Secretary certifying the
number of shares owned of the Corporation. Any or all of the signatures on the
certificate may be a facsimile signature. If any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if such person were such officer, transfer agent or registrar at
the date of the issuance.
If the Corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences or rights shall be set forth in full or
summarized on the face or back of the certificate that the Corporation shall
issue to represent such class or series of stock. Except as otherwise provided
in Section 202 of the General Corporation Law of Delaware, in lieu of the
foregoing requirements, there may be set forth on the face or back of the
certificate a statement that the Corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
or rights.
ARTICLE VII
REPRESENTATION OF SHARES OF OTHER CORPORATIONS
Any and all shares of any other corporation or corporations standing in
the name of the Corporation shall be voted, and all rights incident thereto
shall be represented and exercised on behalf of the Corporation, as follows: (i)
as the Board of the Corporation may determine from time to time, or (ii) in the
absence of such determination, by the Chief Executive Officer or such other
officer as may be designated from time to time by the Chief Executive Officer.
The foregoing authority may be exercised either by any such officer in person or
by any other person authorized so to do by proxy or power of attorney duly
executed by said officer.
ARTICLE VIII
TRANSFERS OF STOCK
Upon surrender of a certificate for shares duly endorsed or accompanied
by proper evidence of succession, assignment or authority to transfer, it shall
be the duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
ARTICLE IX
LOST, STOLEN OR DESTROYED CERTIFICATES
The Board may direct a new certificate or certificates be issued in
place of any certificate theretofore issued alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of the fact by the person claiming
the certificate to be lost, stolen or destroyed. When authorizing such issue of
a new certificate, the Board may, in its discretion and as a condition precedent
to the issuance, require the owner of such certificate or certificates, or such
person's legal representative, to give the Corporation a bond in such sum as it
may direct as indemnity against any claim that may be made against the
Corporation with respect to the lost, stolen or destroyed certificate.
ARTICLE X
RECORD DATE
The Board may fix in advance a date, which shall not be more than sixty
(60) days nor less than ten (10) days preceding the date of any meeting of
stockholders, nor more than sixty (60) days prior to any other action, as a
record date for the determination of stockholders entitled to notice of or to
vote at any such meeting and any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise the rights in respect of any change, conversion or exchange of stock,
and in such case such stockholders, and only such stockholders as shall be
stockholders of record on the date so fixed shall be entitled to such notice of,
and to vote at, such meeting and any adjournment thereof, or to receive payment
of such dividend, or to receive such allotment of rights, or to exercise such
rights, or to give such consent, as the case may be, notwithstanding any
transfer of any stock on the books of the Corporation after any such record date
fixed as aforesaid.
ARTICLE XI
REGISTERED STOCKHOLDERS
The Corporation shall be entitled to treat the holder of record of any
share or shares of stock of the Corporation as the holder in fact thereof and
shall not be bound to recognize any equitable or other claim to or interest in
such share on the part of any other person, whether or not it shall have express
or other notice thereof, except as expressly provided by applicable law.
ARTICLE XII
FISCAL YEAR
The fiscal year of the Corporation shall be fixed by resolution of the
Board.
ARTICLE XIII
AMENDMENTS
Subject to any contrary or limiting provisions contained in the
Certificate of Incorporation, these Bylaws may be amended or repealed, or new
Bylaws may be adopted (i) by the affirmative vote of the holders of at least a
majority of the Common Stock of the Corporation, or (ii) by the affirmative vote
of the majority of the whole Board at any regular or special meeting. Any Bylaws
adopted or amended by the stockholders may be amended or repealed by the Board
or the stockholders.
ARTICLE XIV
DIVIDENDS
SECTION 14.1 DECLARATION. Dividends on the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board at any regular or special meeting, pursuant to
law, and may be paid in cash, in property or in shares of capital stock.
SECTION 14.2 SET ASIDE FUNDS. Before payment of any dividend, there may
be set aside out of any funds of the Corporation available for dividends such
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the directors shall determine to be in the best
interest of the Corporation, and the directors may modify or abolish any such
reserve in the manner in which it was created.
ARTICLE XV
INDEMNIFICATION AND INSURANCE
SECTION 15.1 RIGHT TO INDEMNIFICATION. Each person who was or is a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
or inaction in an official capacity or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent permitted by the laws of the State of
Delaware, as the same exist or may hereafter be amended, against all costs,
charges, expenses, liabilities and losses (including attorneys' fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such person in connection
therewith, and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
his or her heirs, executors and administrators; provided, however, that the
Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only if
such proceeding (or part thereof) was authorized by the Board. The right to
indemnification conferred in this Article shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, if the Delaware General Corporation Law requires, the payment of
such expenses incurred by a director or officer in his or her capacity as a
director of officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the Corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under this Article XV, Section 15.1 or
otherwise. The Corporation may, by action of the Board, provide indemnification
to employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
SECTION 15.2 RIGHT OF CLAIMANT TO BRING SUIT. If a claim under Article
XV, Section 15.1 is not paid in full by the Corporation within thirty (30) days
after a written claim has been received by the Corporation, the claimant may at
any time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim and, if successful in whole or in part, the claimant shall
be entitled to be paid also the expense of prosecuting such claim. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation ) that the claimant has failed to meet a standard of
conduct which makes it permissible under Delaware law for the Corporation to
indemnify the claimant for the amount claimed. Neither the failure of the
Corporation (including its Board, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is permissible in the circumstances
because he or she has met such standard of conduct, nor an actual determination
by the Corporation (including its Board, independent legal counsel, or its
stockholders) that the claimant has not met such standard of conduct, shall be a
defense to the action or create a presumption that the claimant has failed to
meet such standard of conduct.
SECTION 15.3 NON-EXCLUSIVITY OF RIGHTS. The right to indemnification
and the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Article shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.
SECTION 15.4 INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under Delaware law.
SECTION 15.5 EXPENSES AS A WITNESS. To the extent that any director,
officer, employee or agent of the Corporation, is by reason of such position, or
a position with another entity at the request of the Corporation, a witness in
any action, suit or proceeding, he or she shall be indemnified against all costs
and expenses actually and reasonably incurred by him or her or on his or her
behalf in connection therewith.
SECTION 15.6 INDEMNITY AGREEMENTS. The Corporation may enter into
agreements with any director, officer, employee or agent of the Corporation
providing for indemnification to the full extent permitted by Delaware law.
EXHIBIT 4.1
FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment") dated as of October 22, 1999 is made among APRIA HEALTHCARE GROUP
INC., a corporation organized and existing under the laws of the State of
Delaware ("Apria") and the Subsidiaries of Apria identified on the signature
pages of this Amendment and any Subsidiary of Apria that, subject to Section
9.13 of the Credit Agreement, shall have executed a Joinder Agreement (Apria and
such Subsidiaries are referred to individually as a "Borrower" and,
collectively, as the "Borrowers"), each of the financial institutions listed on
Schedule I to the Credit Agreement or that, pursuant to Section 13.4 of the
Credit Agreement, shall become a "Bank" thereunder (individually, a "Bank" and,
collectively, the "Banks"), and BANK OF AMERICA, NATIONAL ASSOCIATION (as
successor to Bank of America National Trust and Savings Association and
NationsBank of Texas, N.A.), as the Syndication, Administrative and Collateral
Agent (the "Administrative and Collateral Agent"). Capitalized terms used but
not otherwise defined shall have the meanings assigned to such terms in the
Credit Agreement.
RECITALS
I. The Borrowers, the Banks and the Administrative and Collateral Agent are
parties to the Amended and Restated Credit Agreement dated as of November 13,
1998, as amended by the First Amendment to Amended and Restated Credit
Agreement, dated as of January 15, 1999, as amended by the Second Amendment to
Amended and Restated Credit Agreement, dated as of February 23, 1999, and as
amended by the Third Amendment to Amended and Restated Credit Agreement, dated
as of April 22, 1999, (the "Credit Agreement"), pursuant to which the Banks
extended certain credit to the Borrowers.
II. The Borrowers have requested that the Banks amend the Credit Agreement
to allow certain acquisitions by the Borrowers and certain stock repurchases by
the Borrowers.
III. The Banks are willing to accommodate the request of the Borrowers on
the terms and conditions specified in this Amendment.
AGREEMENT
In consideration of the foregoing premises and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties to this Amendment agree as follows:
1. Amendment to Section 1.1 of the Credit Agreement. Section 1.1 of the
Credit Agreement is hereby amended as follows:
a. the definition of "BofA" is restated in its entirety as follows:
"BofA" shall mean Bank of America, National Association (successor to Bank
of America National Trust and Savings Association and NationsBank of Texas,
N.A.) or any successor thereto.
b. the definitions of "Acquisition Cap", "Agents", "Bonus Period", "Bonus
Acquisition Basket", "Initial Acquisition Cap", "NationsBank" and "Syndication
Agent" are deleted in their entirety.
c. each reference to the term "Agents" in the Credit Agreement is replaced
with the term "Administrative and Collateral Agent".
2. Amendment to Section 9.13(a). Section 9.13(a) of the Credit Agreement is
amended as follows:
a. by restating paragraph (ii) in its entirety to read as follows:
"with respect to all Permitted Transactions (other than Subsidiary
Reorganizations) the sum (without duplication) of (I) cash paid by Apria in
connection with such Permitted Transactions, (II) the Fair Market Value of
Apria Common Stock issued in connection with such Permitted Transactions
and (III) the amount (determined by using the face amount of the debt or
the amount payable at maturity, whichever is greater) of all Permitted Debt
incurred, assumed or acquired in all such Permitted Transactions, shall not
exceed $125,000,000 in the aggregate for the period commencing October 22,
1999 and ending on the Final Maturity Date; provided that such $125,000,000
shall be reduced on a dollar for dollar basis by the amount of any Unusual
Cash Expenses incurred by the Borrowers and paid in the period commencing
January 1, 1999 and ending on the Final Maturity Date";
b. by restating paragraph (iii) in its entirety to read "Reserved";
c. by replacing the amount "$30,000,000" set forth in paragraph (iv) with
the amount "$40,000,000"; and
d. by replacing the amount "$25,000,000" set forth in paragraph (v) with
the amount "$35,000,000".
3. Amendment to Section 10.3. Section 10.3 of the Credit Agreement is
amended by adding the following proviso at the end of such Section:
; provided that so long as no Default or Event of Default has occurred and
is continuing or would result therefrom, Apria may make repurchases of its
capital stock in an amount not to exceed (i) $30,000,000 for the period
commencing October 22, 1999 and ending December 31, 2000 and (ii)
$20,000,000 (plus fifty percent of any unused portion of the $30,000,000
referenced in clause (i) above) for the period commencing January 1, 2001
and ending on the Final Maturity Date.
4. Amendment to Section 10.10. Section 10.10 of the Credit Agreement is
amended in its entirety as follows:
Consolidated Funded Indebtedness to Consolidated EBITDA. Apria will not
permit the Consolidated Funded Indebtedness to Consolidated EBITDA Ratio at
the end of any fiscal quarter set forth below to be greater than the
corresponding ratio set forth below, opposite such date:
Fiscal Quarter End Ratio
------------------ ---------
September 30, 1999 3.75 to 1
December 31, 1999 3.75 to 1
March 31, 2000 3.50 to 1
June 30, 2000 and thereafter 3.25 to 1
; provided that, solely for the purpose of determining compliance with this
Section 10.10 the calculation of the Consolidated Funded Indebtedness to
Consolidated EBITDA Ratio for the fiscal quarters ending on September 30,
1999 and December 31, 1999 shall be made without giving effect to up to
$17,500,000 in the aggregate of the Borrowers' Unusual Cash Expenses, if
applicable.
5. Representations. Each of the Borrowers represents and warrants to the
Banks that (a) it has the corporate or partnership power to execute, deliver and
perform the terms and provisions of this Amendment and has taken all necessary
corporate or partnership action to authorize the execution, delivery and
performance by it of this Amendment and (b) upon the effectiveness of this
Amendment, no Default or Event of Default shall have occurred and be continuing
under the Credit Agreement. Each of Apria and its Material Subsidiaries has duly
executed and delivered this Amendment and this Amendment constitutes its legal,
valid and binding obligation enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, reorganization, moratorium or
similar laws relating to or limiting creditors' rights generally or by equitable
principles relating to enforceability.
6. Conditions Precedent. This Amendment shall become effective upon
satisfaction of the following conditions:
(i) the receipt by the Administrative and Collateral Agent of the
consent of the Required Banks;
(ii) the receipt by the Administrative and Collateral Agent of this
Amendment, duly executed and delivered by each of the Borrowers and the
Administrative and Collateral Agent;
(iii) the receipt by the Administrative and Collateral Agent of an
opinion of Borrower's counsel in a form and substance satisfactory to the
Administrative and Collateral Agent;
(iv) the Borrowers shall have paid to the Administrative and
Collateral Agent for distribution to (a) each Bank that approves this
Amendment on or prior to 5:00 p.m. (Pacific Time) on October 8, 1999 an
amendment fee equal to .075% of such Bank's Commitment Amount and (b) each
Bank that composes the initial 51% of Banks consenting to this Amendment an
additional fee equal to .075% of such Bank's Commitment Amount;
(v) the Borrowers shall have paid all fees owed to the Administrative
and Collateral Agent in connection with this Amendment (including, but not
limited to, reasonable fees and expenses of counsel) to the Administrative
and Collateral Agent; and
(vi) an officer's certificate of Apria to the effect that no Default
or Event of Default has occurred or is continuing under the Credit
Agreement and that each of the representations and warranties contained in
Section 8 of the Credit Agreement are true and correct in all material
respects as of the date of this Amendment with references to the Agreement
being references to the Agreement as amended by this Amendment.
7. Reference to and Effect on the Credit Agreement, Notes and Guaranty.
a. Except as specifically amended by this Amendment, the Credit Agreement
shall remain in full force and effect and is hereby ratified and confirmed.
b. This Amendment shall be construed as one with the Credit Agreement and
the Credit Agreement shall, where the context requires, be read and construed
throughout so as to incorporate this Amendment.
c. All documents executed in connection with the Credit Agreement,
including, but not limited to, the Notes and the Guaranty shall remain in full
force and effect and are hereby ratified and confirmed with respect to the
Credit Agreement, as amended hereby.
8. Entire Agreement. This Amendment, together with the Credit Agreement and
the other documents referred to in, or executed in connection with, the Credit
Agreement supersedes all prior agreements and understandings, written or oral,
among the parties with respect to the subject matter of this Amendment.
9. Expenses. The Borrowers shall reimburse the Administrative and
Collateral Agent on demand for all reasonable costs, expenses and charges
(including, without limitation, reasonable fees and charges of legal counsel and
other consultants for the Administrative & Collateral Agent) incurred by the
Administrative & Collateral Agent in connection with the preparation,
performance or enforcement of this Amendment.
10. Successors and Assigns. This Amendment shall be binding upon and inure
to the benefit of its parties and their respective successors and permitted
assigns.
11. Severability. Any provision of this Amendment that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions of this Amendment and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
12. Captions. The captions and section headings appearing in this Amendment
are included solely for convenience of reference and are not intended to affect
the interpretation of any provision of this Amendment.
13. Counterparts. This Amendment may be executed in any number of
counterparts all of which when taken together shall constitute one and the same
instrument and any of the parties to this Amendment may execute this Amendment
by signing any such counterpart; signature pages may be detached from multiple
separate counterparts and attached to a single counterpart so that all
signatures are physically attached to the same document.
14. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND INTERPRETED AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA.
<PAGE>
IN WITNESS WHEREOF, the parties to this Amendment have caused their duly
authorized officers to execute and deliver this Amendment as of the date first
above written.
APRIA HEALTHCARE GROUP INC.
APRIA HEALTHCARE, INC.
APRIACARE MANAGEMENT SYSTEMS, INC.
APRIA NUMBER TWO, INC.
APRIA HEALTHCARE OF NEW YORK STATE, INC.
By:
----------------------------------------
Name:
Title:
BANK OF AMERICA, NATIONAL ASSOCIATION,
as Administrative and Collateral Agent
By:
---------------------------------------
Name: Christine Cordi
Title: Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1999 (UNAUDITED) AND THE
CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 36,594
<SECURITIES> 0
<RECEIVABLES> 187,672
<ALLOWANCES> 43,667
<INVENTORY> 17,682
<CURRENT-ASSETS> 205,997
<PP&E> 510,654
<DEPRECIATION> 340,935
<TOTAL-ASSETS> 481,290
<CURRENT-LIABILITIES> 158,802
<BONDS> 399,157
0
0
<COMMON> 52
<OTHER-SE> (76,721)
<TOTAL-LIABILITY-AND-EQUITY> 481,290
<SALES> 697,701
<TOTAL-REVENUES> 697,701
<CGS> 199,424
<TOTAL-COSTS> 199,424
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 25,376
<INTEREST-EXPENSE> 32,305
<INCOME-PRETAX> 52,661
<INCOME-TAX> 400
<INCOME-CONTINUING> 52,261
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,261
<EPS-BASIC> 1.01
<EPS-DILUTED> 0.98
</TABLE>
