<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
[X] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
</TABLE>
APRIA HEALTHCARE GROUP INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] Fee not required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
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<PAGE> 2
[APRIA LOGO]
APRIA HEALTHCARE GROUP INC.
3560 Hyland Avenue
Costa Mesa, California 92626
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
<TABLE>
<S> <C>
Time.................................... 8:00 A.M. on Wednesday, July 19, 2000
Place................................... Apria Healthcare Group Inc.
Building Number 3500 - Grand Canyon Room
3560 Hyland Avenue
Costa Mesa, California 92626
Items of Business....................... (1) To elect seven members of the Board of Directors, with such
persons to hold office until the 2001 Annual Meeting of
Stockholders or until their successors are elected and qualified.
(2) To transact such other business as may properly come before the
Annual Meeting and at any adjournment thereof.
Record Date............................. You can vote if you were a stockholder of record on May 31, 2000.
annual report........................... Our 1999 Annual Report, which is not a part of the proxy soliciting
material, is enclosed.
Proxy Voting............................ Shares represented by properly executed proxies will be voted in
accordance with the specifications therein. Shares represented by
proxies which do not contain directions to the contrary will be voted
FOR the election of the Directors named in the attached Proxy
Statement.
LIST OF STOCKHOLDERS.................... A complete list of stockholders entitled to vote at the Annual
Meeting will be available for examination by any stockholder, for any
purpose germane to the Annual Meeting, at the office of the Secretary
of the company, at 3560 Hyland Avenue, Costa Mesa, California 92626,
during the ten-day period preceding the Annual Meeting.
</TABLE>
Costa Mesa, California Robert S. Holcombe
June 16, 2000 Senior Vice President, General Counsel
and Secretary
<PAGE> 3
TABLE OF CONTENTS
Page
----
SOLICITATION OF PROXIES..................................................... 1
Solicitation by Board............................................ 1
Expense of Solicitation.......................................... 1
Your Vote is Important.......................................... 1
VOTING PROCEDURE AND TABULATION............................................. 1
Stockholders Entitled to Vote.................................... 1
Voting on Agenda Items........................................... 1
Voting on Other Matters.......................................... 1
Tabulation of Votes.............................................. 1
Broker "Non-Votes"............................................... 2
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT................. 2
INFORMATION REGARDING THE BOARD OF DIRECTORS................................ 4
Composition of Board............................................. 4
Directors' Fees.................................................. 4
Committees and Meetings of the Board of Directors................ 4
GOVERNANCE OF THE COMPANY................................................... 5
Our Corporate Governance Guidelines.............................. 5
ELECTION OF DIRECTORS....................................................... 7
Nominees for Election to Board................................... 7
Vote Required for Election of Directors.......................... 7
Nominees and Directors........................................... 7
EXECUTIVE COMPENSATION AND OTHER INFORMATION................................ 9
Summary of Executive Compensation................................ 9
Summary of Option Grants......................................... 10
Summary of Options Exercised..................................... 10
Compensation Committee Interlocks and Insider Participation...... 11
EMPLOYMENT AND SEVERANCE AGREEMENTS......................................... 11
REPORT OF THE COMPENSATION COMMITTEE........................................ 12
Compensation Philosophy and Program for Senior Management........ 12
Factors Affecting the Evaluation of Executive Performance
for 1999....................................................... 13
Total Compensation............................................... 13
1999 Total Compensation for the Chief Executive Officer.......... 13
Salaries for Executive Officers.................................. 13
1999 Executive Officer Bonuses................................... 14
Long Term Incentive Compensation................................. 14
Tax Treatment of Stock Options................................... 14
Stock Option Awards to Executive Officers........................ 14
PERFORMANCE GRAPH........................................................... 15
i
<PAGE> 4
TABLE OF CONTENTS
(continued)
Page
----
EMPLOYEE BENEFITS AND LONG-TERM COMPENSATION PLANS.......................... 16
Incentive Compensation Plans.................................... 16
Two-Year Incentive Plan for Executive Officers.................. 16
401(k) Plan..................................................... 16
1991 Nonqualified Stock Option Plan............................. 16
Amended and Restated 1992 Stock Incentive Plan.................. 16
Apria Healthcare Group Inc./Homedco Group, Inc. Stock
Incentive Plan................................................ 16
1997 Stock Incentive Plan....................................... 17
1998 Nonqualified Stock Incentive Plan.......................... 17
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT BY CERTAIN
COMPANY AFFILIATES........................................................ 17
INFORMATION REGARDING THE INDEPENDENT AUDITORS OF THE COMPANY............... 18
ANNUAL REPORT............................................................... 18
PROPOSALS OF STOCKHOLDERS................................................... 18
OTHER MATTERS............................................................... 18
ii
<PAGE> 5
APRIA HEALTHCARE GROUP INC.
3560 Hyland Avenue
Costa Mesa, California 92626
P R O X Y S T A T E M E N T
SOLICITATION OF PROXIES
SOLICITATION BY BOARD
THE ACCOMPANYING PROXY IS BEING SOLICITED BY THE BOARD OF DIRECTORS OF
APRIA HEALTHCARE GROUP INC. ("APRIA" OR THE "COMPANY") FOR USE AT APRIA'S 2000
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JULY 19, 2000, AT 8:00 A.M. LOCAL
TIME, AT THE COMPANY'S COSTA MESA, CALIFORNIA HEADQUARTERS, 3560 HYLAND AVENUE
(BUILDING NO. 3500 - GRAND CANYON ROOM), COSTA MESA, CALIFORNIA 92626, AND AT
ANY ADJOURNMENT THEREOF.
THIS PROXY STATEMENT AND THE ACCOMPANYING PROXY ARE FIRST BEING MAILED
TO STOCKHOLDERS ON OR ABOUT JUNE 16, 2000.
EXPENSE OF SOLICITATION
The expense of soliciting proxies will be borne by Apria. Proxies will
be solicited principally through the use of the mail, but Directors, officers
and regular employees may solicit proxies personally or by telephone or special
letter without any additional compensation. Apria also will reimburse banks,
brokerage houses and other custodians, nominees and fiduciaries for any
reasonable expenses in forwarding proxy materials to beneficial owners.
YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWNED ON THE RECORD DATE, PLEASE INDICATE
YOUR VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD AND DATE, SIGN AND RETURN IT
IN THE ENVELOPE PROVIDED, WHICH IS ADDRESSED FOR YOUR CONVENIENCE AND NEEDS NO
POSTAGE IF MAILED IN THE UNITED STATES. IN ORDER TO AVOID THE ADDITIONAL EXPENSE
TO THE COMPANY OF FURTHER SOLICITATION, WE ASK YOUR COOPERATION IN PROMPTLY
MAILING IN YOUR PROXY CARD.
VOTING PROCEDURE AND TABULATION
STOCKHOLDERS ENTITLED TO VOTE
Holders of Apria common stock at the close of business on May 31, 2000,
the record date with respect to this solicitation, are entitled to notice of and
to vote at the annual meeting. Each stockholder of record is entitled to one
vote per share. As of the record date 52,364,498 shares of the company's common
stock were outstanding. No shares of any other class of stock were outstanding.
VOTING ON AGENDA ITEMS
All shares represented by each properly executed unrevoked proxy
received in time for the annual meeting will be voted in the manner specified
therein. If you sign your proxy card but do not mark contrary voting
instructions thereon, the shares represented by the proxy will be voted "for"
each of the nominees described herein (See "Election of Directors"). An executed
proxy may be revoked at any time before its exercise by filing with Apria's
Secretary a written notice of revocation or a duly executed proxy bearing a
later date. The execution of the enclosed proxy will not affect your right to
vote in person should you find it convenient to attend the annual meeting and
desire to vote in person.
VOTING ON OTHER MATTERS
If any other matters are properly presented at the annual meeting, the
persons named in the proxy card will be entitled to vote on those matters for
you. As of the date of mailing of this proxy statement, Apria was not aware of
any other matters to be raised at the annual meeting.
TABULATION OF VOTES
Votes cast by proxy or in person at the annual meeting will be counted
by the persons appointed by Apria to act as election inspectors for the meeting.
The election inspectors will treat shares represented by proxies that reflect
abstentions as shares that are present and entitled to vote for purposes of
determining the presence of a quorum
1
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and for purposes of determining the outcome of any matter submitted to the
stockholders for a vote. Abstentions, however, do not constitute a vote "for" or
"against" any matter and thus will be disregarded in the calculation of a
plurality or of "votes cast."
BROKER "NON-VOTES"
The election inspectors will treat shares referred to as "broker
non-votes" (i.e., shares held by brokers or nominees over which the broker or
nominee lacks discretionary power to vote and for which the broker or nominee
has not received specific voting instructions from the beneficial owner) as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum. However, for purposes of determining the outcome of any
matter as to which the broker has indicated on the proxy that it does not have
discretionary authority to vote, those shares will be treated as not present and
not entitled to vote with respect to that matter (even though those shares are
considered entitled to vote for quorum purposes and may be entitled to vote on
other matters).
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth information as of the May 31, 2000,
record date with respect to the beneficial ownership of Apria's common stock by
each person who is known by the company to beneficially own more than 5% of
Apria's common stock, each Director of the company, Apria's Chief Executive
Officer, the four other most highly compensated executive officers who were
serving in such capacity as of December 31, 1999, and all Directors and
executive officers as a group. Except as otherwise indicated, beneficial
ownership includes both voting and investment power with respect to the shares
shown.
SECURITY OWNERSHIP TABLE
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
------------------------ -------------------- ----------
<S> <C> <C>
David H. Batchelder (1) 11,091,900 21.18
Ralph V. Whitworth (1) 11,028,566 21.06
Joel L. Reed (1) 10,981,900 20.97
Relational Investors, LLC (1) 10,981,900 20.97
Barclay's Global Investors, N.A. (2) 3,129,569 5.97
Barclays Global Fund Advisors (2) 28,183 *
Peter C. Cooper (3) 2,836,900 5.41
Gilbert E. LeVasseur (3) 2,836,900 5.41
Cooper & LeVasseur (3) 2,836,900 5.41
Cooper Capital, LLC (3) 2,836,900 5.41
George L. Argyros (4) 2,770,434 5.29
Philip L. Carter (5) 587,500 1.12
David L. Goldsmith (6) 361,902 *
Lawrence M. Higby (7) 229,998 *
John C. Maney (8) 176,750 *
Dennis E. Walsh (9) 107,466 *
Robert S. Holcombe (10) 65,366 *
Richard H. Koppes (11) 37,000 *
Philip R. Lochner, Jr. (11) 36,000 *
Beverly Benedict Thomas (12) 35,000 *
All current directors and executive officers
as a group (17 persons) (13) 13,235,489 25.27
</TABLE>
------------------
* Less than 1%
2
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(1) According to a Schedule 13D Amendment, dated April 19, 1999, and Form 4
filings dated May 14 and December 16, 1999, all of which have been filed
with the Securities and Exchange Commission, Relational Investors, LLC
("RILLC"), its affiliated companies and Messrs. Batchelder, Whitworth and
Reed, individually and as Managing Members of RILLC, have sole voting and
dispositive power as to 11,138,566 shares, which amount includes 81,666
shares subject to options that are currently exercisable. 10,981,900 of
the shares are held by RILLC or by limited partnerships (Relational Coast
Partners, L.P., Relational Investors, L.P., Relational Fund Partners,
L.P., or Relational Partners, L.P.) of which RILLC is the sole general
partner. Mr. Whitworth, who is the non-employee Chairman of the company's
Board of Directors, holds currently exercisable options to acquire 46,666
shares, and Mr. Batchelder, who also serves as a non-employee member of
the company's Board of Directors, holds 75,000 shares in a personal
account and currently exercisable options to acquire 35,000 shares. Mr.
Reed's holdings are all through RILLC. The mailing address of Relational
Investors, LLC and each of Messrs. Whitworth, Batchelder and Reed is 11975
El Camino Real, Suite 300, San Diego, California 92130.
(2) According to a Schedule 13G, dated February 10, 2000, filed with the
Securities and Exchange Commission, Barclays Global Investors, N.A.
("BGI"), a bank as defined in Section 3(a)(6) of the Securities Exchange
Act of 1934, has sole voting power as to 2,975,069 shares and sole
dispositive power as to 3,129,569 shares. A related entity, Barclays
Global Fund Advisors (BGF"), which is also a bank, has sole dispositive
and voting power as to 28,183 shares. The mailing address of BGI and BGF
is 45 Fremont Street, San Francisco, California 94105.
(3) According to a Schedule 13D dated March 17, 1999, filed with the
Securities and Exchange Commission, Peter C. Cooper ("Cooper"), Gilbert E.
LeVasseur ("LeVasseur"), Cooper & LeVasseur, LLC ("C&L") and Cooper
Capital, LLC ("Cooper Capital") reported beneficial ownership of 2,836,900
shares. Cooper and LeVasseur are private investors. Cooper Capital is a
limited liability company of which Cooper is the sole manager, serves as a
general partner or managing member of certain private investment funds and
is the general partner of a private investment fund limited partnership
called Clifton Investments, L.P. ("Clifton"). C&L is a limited liability
company managed by Cooper Capital and LeVasseur and is the sole general
partner of two private investment fund limited partnerships called C&L
Capital Partners, L.P. ("Fund I") and C&L Capital Partners II, L.P. ("Fund
II"). LeVasseur also serves as the Trustee of a revocable trust
("LeVasseur Trust"). Based on the foregoing relationships, Cooper, Cooper
Capital, LeVasseur and C&L report that they share dispositive and voting
power with respect to 1,089,000 shares beneficially owned by Fund I and
Fund II, Cooper and Cooper Capital report that they have sole dispositive
and voting power with respect to 948,940 shares beneficially owned by
Clifton and LeVasseur reports that he holds sole dispositive and voting
power with respect to 789,950 shares owned by the LeVasseur Trust. The
remaining 9,010 shares do not appear to have been accounted for
specifically in the filing. Cooper, LeVasseur, Cooper Capital and C&L list
their mailing address as 2010 Main Street, Suite 1220, Irvine, CA 92614.
(4) According to a Schedule 13D Amendment, dated June 25, 1998, filed with the
Securities and Exchange Commission, Mr. Argyros has sole investment and
dispositive power as to all 2,770,434 shares. This number includes 6,666
shares subject to options that are currently exercisable. This number
includes 2,430,670 shares owned by HBI Financial, Inc., of which Mr.
Argyros is the sole shareholder. This number also includes (1) 280,912
shares held in trust by two private charitable foundations of which Mr.
Argyros is a vice president and director with respect to which he
disclaims beneficial ownership, (2) 500 shares held in a charitable trust
of which Mr. Argyros is a trustee but not a beneficiary with respect to
which he disclaims beneficial ownership, (3) 31,050 shares held in a trust
for the benefit of Mr. Argyros' children, for which Mr. Argyros disclaims
beneficial ownership and (4) 20,636 shares held by Mr. Argyros
individually. The amount listed does not include 3,450 shares held in a
trust of which Mr. Argyros is not a trustee for the benefit of certain of
Mr. Argyros' adult children who do not share his household for which he
disclaims beneficial ownership and 2,400 shares held in a trust of which
Mr. Argyros is not a trustee for the benefit of Mr. Argyros' mother-in-law
for which he disclaims beneficial ownership. Mr. Argyros resigned his
position as Chairman of the Board effective as of May 27, 1998. The
mailing address for Mr. Argyros is c/o Arnel Development Company, 949
South Coast Drive, Suite 600, Costa Mesa, California 92626.
(5) Includes 562,500 shares subject to options that are currently exercisable.
(6) Includes 300,236 held in a shared trust with Mr. Goldsmith's wife and
61,666 shares subject to options that are currently exercisable.
3
<PAGE> 8
(7) Includes 219,998 shares subject to options that are currently exercisable.
(8) Includes 168,750 shares subject to options that are currently exercisable.
(9) Includes 107,466 shares subject to options that are currently exercisable.
(10) Includes 47,666 shares subject to options that are currently exercisable.
Also includes 200 shares held by Mr. Holcombe's wife.
(11) Includes 35,000 shares subject to options that are currently exercisable.
(12) Includes 34,000 shares subject to options that are currently exercisable.
(13) Includes shares owned by certain trusts. Also includes 1,697,604 shares
subject to options that are currently exercisable.
INFORMATION REGARDING THE BOARD OF DIRECTORS
COMPOSITION OF BOARD
Apria's Board of Directors consists of such number of Directors as may
be determined by the Board of Directors from time to time. The Board of
Directors currently consists of seven Directors who are subject to reelection on
an annual basis. All seven current Directors have been nominated for reelection
to a term of one year or until the election and qualification of their
successors.
DIRECTORS' FEES
All Directors of Apria are reimbursed for their out-of-pocket expenses
incurred in the connection with attending Board and related committee meetings.
During 1999, each non-employee Director received (i) $1,000 per Board or
committee meeting attended in person ($1,500 per committee meeting for the
Director who was the committee's chairman), (ii) $500 per Board meeting attended
via telephone, and (iii) an annual option grant for 10,000 shares of the
company's common stock (20,000 shares for the nonexecutive chairman). For 2000
the compensation for attendance at a committee meeting by the committee's
chairman was increased to $2,000 and the annual option grant for each
nonemployee director was increased to 15,000 shares. No decision has yet been
reached with respect to the additional number, if any, of option shares to be
granted to the nonexecutive chairman during 2000. The amounts of all other fees
and compensation for directors are expected to remain the same.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
Standing committees of Apria's Board of Directors include a Corporate
Governance and Nominating Committee, an Audit Committee, a Compliance Committee
and a Compensation Committee. Without giving consideration to two telephonic
Board meetings which took place on November 10 and 17, 1999 from which Messrs.
Whitworth, Carter and Batchelder recused themselves, all current Directors
attended 90% or more of the total meetings of the Board of Directors and
Committees of the Board of Directors on which they served during the 1999 fiscal
year. The Board of Directors held seven meetings during the 1999 fiscal year.
Corporate Governance and Nominating Committee. The Corporate Governance
and Nominating Committee reviews and reports to the Board on a periodic basis
with regard to matters of corporate governance and the nomination and evaluation
of Directors. The Committee also reviews and assesses the effectiveness of the
Board's Guidelines on Corporate Governance and recommends to the Board proposed
revisions thereto. Currently, the Corporate Governance and Nominating Committee
consists of Messrs. Koppes (Chairman) and Whitworth and Ms. Thomas. The
Committee is willing to consider nominees proposed by stockholders but has
established no formal procedures for stockholders to follow in submitting such
nominations. The Corporate Governance and Nominating Committee met on three
occasions during 1999.
Audit Committee. The Audit Committee meets periodically with Apria's
independent accountants and management. The Committee also recommends to the
Board of Directors the annual appointment of independent accountants with whom
the Audit Committee reviews (i) the scope of audit and non-audit assignments and
related fees, (ii) Apria's accounting principles and (iii) the adequacy of
Apria's internal controls. Currently, the Committee consists of Messrs. Lochner
(Chairman), Batchelder and Goldsmith. The Committee met on three occasions
during 1999. During 1999 the Audit Committee (then called the Audit and
Compliance Committee) also performed the functions now allocated to the
Compliance Committee and met with the company's Corporate Compliance Committee
on four occasions.
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<PAGE> 9
Compliance Committee. The Compliance Committee was established as a
separate entity from the Audit Committee in January 2000. The Committee, among
other things, exercises oversight responsibility with respect to the company's
regulatory compliance programs, monitors certain aspects of those programs and
reports to the Board regarding the same. Currently, the Committee consists of
Messrs. Goldsmith (Chairman) and Lochner.
Compensation Committee. The Compensation Committee conducts an annual
performance review of Apria's senior management and establishes their salaries,
bonuses and stock ownership awards. Currently, the Compensation Committee
consists of Messrs. Batchelder (Chairman), Whitworth and Koppes. The Committee
met on four occasions during 1999.
GOVERNANCE OF THE COMPANY
OUR CORPORATE GOVERNANCE GUIDELINES
In April 1999, Apria's Board of Directors adopted the following
Corporate Governance Guidelines:
BOARD MISSION AND RESPONSIBILITIES
Mission Statement. The company's primary objective is to maximize
stockholder value over the long term while adhering to the laws of the
jurisdictions within which it operates and observing the highest ethical
standards.
Corporate Authority and Responsibility. All corporate authority resides
in the Board of Directors as fiduciaries on behalf of the stockholders. The
Board delegates authority to management to pursue the company's mission.
Management, not the Board, is responsible for managing the company. The Board
retains responsibility to recommend candidates to the stockholders for election
to the Board of Directors. The Board retains responsibility for selection and
evaluation of the Chief Executive Officer, oversight of succession plans,
determination of senior management compensation, approval of the annual budget,
and review of systems, procedures and controls. The Board also advises
management with respect to strategic plans.
BOARD OPERATIONS
Board Agenda. The Chairman of the Board in coordination with the Chief
Executive Officer shall set the agenda for each Board meeting, taking into
account input and suggestions from members of the Board.
Strategic Planning. The Board shall hold an annual strategic planning
session. The timing and agenda for this meeting are to be suggested by the Chief
Executive Officer.
Independent Advice. The Board (or with the Board's approval, a
committee) may seek legal or other expert advice from a source independent of
management. Generally, this would be with the knowledge of the Chief Executive
Officer and the Chairman of the Board.
Access to Top Management. Board members are free to contact members of
senior management and are encouraged to coordinate their contacts with the Chief
Executive Officer. Additionally, regular attendance and participation in Board
meetings by senior management is encouraged as appropriate.
Executive Meetings of Independent Directors. An executive meeting of
independent Directors should be held during each Board meeting. The Chairman
shall lead these sessions.
Field Board Meetings. Board meetings should periodically include
operational site visits. The Chief Executive Officer shall determine appropriate
sites and scheduling of such meetings.
Board Evaluation. The Corporate Governance and Nominating Committee
shall be responsible for evaluating Directors as part of its process for
recommending Director nominees to the Board. The Corporate Governance and
Nominating Committee shall be responsible for coordinating an annual evaluation
by the Directors of the Board's performance and procedures.
Written Guidelines and Policies. The Board shall maintain written
corporate governance guidelines and operational policies which will be reviewed
annually by the Corporate Governance and Nominating Committee.
5
<PAGE> 10
BOARD STRUCTURE
Positions of Chairman and Chief Executive Officer. The positions of
Chairman and Chief Executive Officer shall be filled by separate persons and the
Chairman shall be an Independent Director.
Board Composition. Independent Directors shall constitute a substantial
majority of the Board.
Number of Directors. The Board shall assess its size from time to time.
It is the Board's philosophy that smaller Boards are most effective.
Committees. The standing Board committees shall be the Audit and
Compliance Committee, the Compensation Committee, and the Corporate Governance
and Nominating Committee. All standing committees shall be made up of
Independent Directors. Each standing committee shall maintain a written charter
approved by the Board. Committees shall receive authority exclusively through
delegation from the Board. All committee actions must be ratified by the Board
before becoming effective, unless taken pursuant to an express delegation of
authority. A Director may attend any Board committee meeting. The Chairman shall
recommend periodic rotation of Committee assignments.
Independent Directors. "Independent Director" means a person who is
independent of management and free from any relationship with the company or
otherwise (including serving as consultants or service providers to the company
except as approved by the Independent Directors for special projects) that, in
the opinion of the Board of Directors, would interfere in the exercise of
independent judgement as a Director. No officer or employee of the company or
its subsidiaries shall be qualified as an Independent Director. It is also
presumed that no former officer or employee of the company may qualify as an
Independent Director, provided that this presumption is rebuttable upon an
affirmative determination by the Board.
DIRECTORS
Nominees for Election to the Board. The Corporate Governance and
Nominating Committee shall recommend nominees to the full Board for annual
elections of Directors. The Committee shall welcome input from all Directors and
stockholders.
Retirement. Retirement age shall be 72. Directors shall submit their
resignation effective at the Annual Meeting immediately preceding their 72nd
birthday.
Changes in Professional Responsibility. The Board should consider
whether a change in an individual's professional responsibilities directly or
indirectly impacts that person's ability to fulfill Directorship obligations. To
facilitate the Board's consideration, the Chief Executive Officer and other
employee Directors shall submit a resignation as a matter of course upon
retirement, resignation or other significant change in professional roles.
Director Compensation and Stock Ownership. From time to time, the
compensation of Directors shall be reviewed by the Compensation Committee, which
shall make recommendations to the full Board. The Board's philosophy is that a
substantial portion (up to 100%) of Director compensation shall be equity-based.
The Board shall also maintain minimum stock ownership guidelines for Directors.
Chief Executive Officer Evaluation. The Compensation Committee shall be
responsible for coordinating an annual evaluation of the Chief Executive Officer
by the Independent Directors. The Independent Directors will also determine
guidance for the Compensation Committee with respect to Chief Executive
Officer's compensation. The Chairman of the Compensation Committee shall be the
liaison with the Chief Executive Officer.
Management Succession. The Board shall coordinate with the Chief
Executive Officer to ensure that a successor for emergencies is designated at
all times and that a formalized process governs long-term management development
and succession. The Chief Executive Officer shall report to the Board annually
about development of senior management personnel and succession plans, which
shall be approved by the Board.
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<PAGE> 11
Outside Board Memberships. The Chief Executive Officer and other
members of senior management shall seek the approval of the Board before
accepting outside board memberships, and the Board generally discourages more
than one corporate board and one charitable board membership.
ELECTION OF DIRECTORS
NOMINEES FOR ELECTION TO BOARD
The nominees for election are David H. Batchelder, Philip L. Carter,
David L. Goldsmith, Richard H. Koppes, Philip R. Lochner, Jr., Beverly Benedict
Thomas and Ralph V. Whitworth, each of whom currently serves on the Board. If
elected, they will serve for one year or until the election and qualification of
successors.
If any of the nominees should become unavailable for election to the
Board of Directors, the persons named in the proxy or their substitutes shall be
entitled to vote for a substitute to be designated by the Board of Directors.
Alternatively, the Board of Directors may further reduce the number of
Directors. The Board of Directors has no reason to believe that it will be
necessary to designate a substitute nominee or further reduce the number of
Directors.
VOTE REQUIRED FOR ELECTION OF DIRECTORS
For the purpose of electing Directors, each stockholder is entitled to
one vote for each Director to be elected for each share of common stock owned.
The candidates receiving the highest number of votes will be elected.
The accompanying proxies solicited by the Board of Directors will be
voted "for" the election of the nominees unless the proxy card is marked to
withhold authority to vote for any nominee.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" EACH
OF THE NOMINEES LISTED ABOVE.
NOMINEES AND DIRECTORS
Set forth below are the names, ages and past and present positions of
the persons serving as Apria's Directors who have been nominated to continue
serving after the annual meeting:
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE DURING LAST DIRECTOR
NAME AND AGE: FIVE YEARS AND DIRECTORSHIPS: SINCE:
--------------------------------- ---------------------------------------------------------------- --------
<S> <C> <C>
David L. Goldsmith (52) Managing Director of RS Investment Management, an investment 1987*
management firm. Prior to joining RS Investment Management in
February 1999, he served as Managing Director of Robertson,
Stephens Investment Management, an investment management firm
owned by Bank of America National Trust and Savings
Association. He was affiliated with Robertson, Stephens &
Company LLC and its predecessors from 1981 through 1999. Mr.
Goldsmith is also a director of Balanced Care Corporation.
Richard H. Koppes (53) Of Counsel to Jones, Day, Reavis & Pogue, a law firm, and a 1998
Consulting Professor of Law and Co-Director of Education
Programs at Stanford University School of Law. He served as a
principal of American Partners Capital Group, a venture capital
and consulting firm, from August 1996 to December 1998. From
May 1986 through July 1996, Mr. Koppes held several positions
with the California Public Employees' Retirement System,
including General Counsel, Interim Chief Executive Officer and
Deputy Executive Officer. Mr. Koppes is also a director of
Mercy Healthcare, a non-profit hospital system.
</TABLE>
7
<PAGE> 12
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE DURING LAST DIRECTOR
NAME AND AGE: FIVE YEARS AND DIRECTORSHIPS: SINCE:
--------------------------------- ---------------------------------------------------------------- --------
<S> <C> <C>
Philip L. Carter (52) Chief Executive Officer and a Director of Apria since May 1998. 1998
Prior to joining Apria, Mr. Carter was President and Chief
Executive Officer of Mac Frugal's Bargains o Close-Outs Inc., a
chain of retail discount stores, since 1995 and had held the
positions of Executive Vice President and Chief Financial
Officer of Mac Frugal's from 1991 through 1995.
Ralph V. Whitworth (44) Chairman of the Board of Directors of Apria since April 28, 1998
1998. Mr. Whitworth is also a principal and Managing Member of
Relational Investors, LLC, a private investment company. He is
also a partner in Batchelder & Partners, Inc., a financial
advisory and investment-banking firm based in San Diego,
California which is registered as a broker-dealer under Section
15(b) of the Securities Exchange Act of 1934 and a member of
the National Association of Securities Dealers, Inc. From 1988
until 1996, Mr. Whitworth was president of Whitworth and
Associates, a corporate advisory firm. Mr. Whitworth is also a
director of Sirius Radio, Inc., Tektronix, Inc., Mattel, Inc.
and Waste Management, Inc.
David H. Batchelder (51) Principal and Managing Member of Relational Investors, LLC 1998
since March 1996. Since 1998 he has served as the Chairman and
Chief Executive Officer of Batchelder & Partners, Inc., a
financial advisory and investment banking firm based in San
Diego, California, which is a registered broker-dealer under
Section 15(b) of the Securities Exchange Act of 1934 and a
member of the National Association of Securities Dealers, Inc..
Mr. Batchelder also serves as a director of Morrison Knudsen
Corporation, Nuevo Energy Company and ICN Pharmaceuticals, Inc.
Philip R. Lochner, Jr. (57) Senior Vice President - Administration of Time Warner Inc. from 1998
July 1991 to July 1998. From March 1990 to June 1991, Mr.
Lochner was a Commissioner of the Securities and Exchange
Commission. He is a member of the Advisory Council of Republic
New York Corporation and of the Board of Directors of Clarcor,
Inc. He is also a Trustee of The Canterbury School.
Beverly Benedict Thomas (57) Principal of BBT Strategies, a consulting firm specializing in 1998
public affairs and strategic planning. Previously, Ms. Thomas
was a principal of UT Strategies, Inc., a public affairs firm,
from 1995 to 1997 and Assistant Treasurer of the State of
California from 1991 to 1995. In addition to serving as a
director of Catellus Real Estate Development Corporation, a
diversified real estate operating company, Ms. Thomas also
serves as a Commissioner of the Los Angeles City Employees'
Retirement System. From 1993 to 1995, Ms. Thomas served on the
Boards of the California Public Employees' Retirement System
and the California State Teachers Retirement System.
</TABLE>
* Director of Homedco Group, Inc. ("Homedco"), from the date shown until June
28, 1995, when Homedco was merged into Abbey Healthcare Group Incorporated
("Abbey") and Abbey's name was changed to Apria Healthcare Group Inc.
Director of Apria from the date of the merger until the present.
8
<PAGE> 13
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF EXECUTIVE COMPENSATION
The following table sets forth all compensation for the 1999, 1998 and
1997 fiscal years paid to or earned by Apria's Chief Executive Officer, as well
as the four other most highly compensated executive officers during the 1999
fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM(1)
ANNUAL COMPENSATION COMPENSATION
----------------------- OPTIONS ALL OTHER
SALARY(2) BONUS GRANTED(3) COMPENSATION
NAME YEAR ($) ($) (#) ($)
---- ---- --------- ------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Philip L. Carter................... 1999 613,694 480,000 75,000 3,430(5)
Chief Executive Officer (4) 1998 330,499 300,000 750,000 --
1997 -- -- -- --
Lawrence M. Higby.................. 1999 418,386 329,600 40,000 3,295(5)
President and Chief 1998 424,113 20,000 300,000 --
Operating Officer (6) 1997 40,969 -- 150,000 --
John C. Maney....................... 1999 358,522 280,000 30,000 1,615(5)
Executive Vice President 1998 37,347 100,000 225,000 --
and Chief Financial Officer (7) 1997 -- -- -- --
Dennis E. Walsh..................... 1999 234,702 182,160 30,000 2,890(5)
Executive Vice President, Sales 1998 237,971 18,750 100,000 3,940(5)
1997 188,962 -- -- 0,720(8)
Robert S. Holcombe................. 1999 292,439 228,800 20,000 3,160(5)
Senior Vice President, 1998 292,869 19,500 40,000 3,940(5)
General Counsel and Secretary 1997 263,162 4,410 -- 6,571(9)
</TABLE>
------------------
(1) Apria has not issued stock appreciation rights or restricted stock awards.
The company has made no payments under any "long-term incentive plan" (as
that term is defined in the applicable rules) during the fiscal years in
question.
(2) These amounts include an automobile allowance which is paid as salary.
Salary is paid on the basis of bi-weekly pay periods, with payment for each
period being made during the week following its termination. Due to the fact
that 1998 contained a payment date for a pay period which ended in 1997,
amounts reported as salary paid for 1998 vary slightly from the actual
amounts of the 1998 salaries of the executive officers listed above.
(3) The option grants for 1999 were awarded by the company's Board of Directors
in October 1999 but did not become effective and were not fixed as to price
until January 3, 2000.
(4) Mr. Carter was first employed by the company in May 1998.
(5) Annual contribution by Apria to the company's 401(k) Savings Plan in the
name of the individual.
(6) Mr. Higby was first employed by the company in November 1997.
(7) Mr. Maney was first employed by the company in November 1998.
(8) This amount includes a $4,750 contribution to Apria's 401(k) Savings Plan in
the name of the individual and a $5,520 cash award for individual
achievement called the "Chairman's Circle Award".
(9) This amount includes a $4,750 annual contribution to Apria's 401(k) Savings
Plan in the name of the individual and a reimbursement of $1,821 for tax
liabilities incurred in connection with the reimbursement of relocation
costs.
9
<PAGE> 14
SUMMARY OF OPTION GRANTS
The following table provides information with respect to grants of
options to Apria's Chief Executive Officer and the four other most highly
compensated executive officers of the company, during the 1999 fiscal year. The
options granted in 1999 were awarded by the company's Board of Directors in
October 1999, but the grants did not become effective and the option price was
not fixed until January 3, 2000.
OPTION GRANTS TABLE
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
NUMBER OF VALUE AT ACCRUAL RATE
SECURITIES % OF TOTAL EXPIRATION OF STOCK APPRECIATION
UNDERLYING OPTIONS GRANTED DATE OF FOR OPTION TERM($)
OPTIONS TO EMPLOYEES IN EXERCISE OPTIONS ---------------------
NAME GRANTED FISCAL YEAR (1) PRICE($) GRANTED 5% 10%
-------------------------- ---------- --------------- -------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Philip L. Carter 75,000 5.0% 16.9375 1/03/10 798,891 2,024,550
Lawrence M. Higby 40,000(1) 2.6% 16.9375 1/03/10 426,076 1,079,753
John C. Maney 30,000 2.0% 16.9375 1/03/10 319,557 809,814
Dennis E. Walsh 30,000 2.0% 16.9375 1/03/10 319,557 809,814
Robert S. Holcombe 20,000 1.3% 16.9375 1/03/10 213,038 539,822
</TABLE>
--------------------------
(1) This amount or calculation does not include an option for 40,000 shares
approved in 1998, which did not become effective until January 4, 1999.
SUMMARY OF OPTIONS EXERCISED
The following table provides information with respect to the exercise
of stock options by Apria's Chief Executive Officer and the four other most
highly compensated executive officers of the company during the 1999 fiscal
year, together with the fiscal year-end value of unexercised options.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR-END FISCAL YEAR-END(1)
ACQUIRED ON VALUE(1) -------------------------- -------------------------
EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
-------------- ----------- -------------------------- -------------------------
NAME (#) ($) (#)/(#) ($)/($)
--------------------------- -------------- ----------- -------------------------- -------------------------
<S> <C> <C> <C> <C>
Philip L. Carter -- -- 562,500 / 187,500 $5,027,344 / $1,675,781
Lawrence M. Higby -- -- 90,000 / 360,000 $318,750 / $2,530,000
John C. Maney -- -- 168,750 / 56,250 $2,235,937 / $745,312
Dennis E. Walsh 48,000 366,000 40,800 / 111,200 $1,350 / $1,144,650
Robert S. Holcombe -- -- 21,000 / 54,000 $11,812 / $465,375
</TABLE>
---------------------------
(1) Market value of the securities underlying the options at exercise date or
year-end, as the case may be, minus the exercise or base price of
"in-the-money" options. The market value of a share of Apria's common stock
at the close of trading on December 31, 1999 was $17.9375.
10
<PAGE> 15
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee since January 1, 1999 was
either an officer or employee of the company.
EMPLOYMENT AND SEVERANCE AGREEMENTS
Apria has employment or severance agreements with the following
executive officers listed in the Summary Compensation Table.
Philip L. Carter. Pursuant to an employment agreement dated May 5,
1998, Mr. Carter serves as Apria's Chief Executive Officer. The agreement, as
amended, provides that Mr. Carter is to receive an annual salary of $650,000 and
is entitled to participate in Apria's annual bonus, incentive, stock and other
benefit plans generally available to executive officers of the company. Mr.
Carter is entitled to receive performance bonuses of up to 80% of his annual
salary. Mr. Carter is also entitled to receive (i) reasonable access to the
company's accountants for financial planning, (ii) an annual car allowance, and
(iii) reimbursement of certain other expenses. If the company terminates Mr.
Carter's employment without cause, or if he terminates his employment with good
reason (including upon a change in control), Mr. Carter shall receive a lump sum
severance payout equal to three times the sum of (i) his annual salary, (ii) the
average of his two most recent annual bonuses, (iii) his annual car allowance,
and (iv) an additional amount estimated at $5,000. In addition, the company
shall be required to provide an office and secretarial support at a cost of not
more than $50,000 during the year following termination. Finally, upon any such
termination not for cause or with good reason, all stock options held by Mr.
Carter shall vest and remain exercisable for a period of three years.
Lawrence M. Higby. Pursuant to an employment agreement which is
scheduled to expire on January 18, 2001, Mr. Higby serves as Apria's President
and Chief Operating Officer. The agreement provides that Mr. Higby is to receive
an annual salary of not less than $400,000 (his current annual salary is
$440,000), subject to annual increases at the discretion of the Compensation
Committee, and is entitled to participate in Apria's stock option plans and all
other benefit programs generally available to executive officers of the company.
Mr. Higby is also entitled to receive (i) such bonuses as the Compensation
Committee may, from time to time, in its sole discretion award, (ii) an
automobile allowance and (iii) reimbursement of certain other expenses. He is
also provided reasonable access to Apria's accountants for personal financial
planning. If the company terminates Mr. Higby's employment without cause, or if
Mr. Higby terminates his employment with good reason (including upon a change in
control), Mr. Higby is entitled to a lump sum severance payment equal to three
times the sum of (i) his annual salary, (ii) the average of his two most recent
annual bonuses, (iii) his annual car allowance, and (iv) an additional amount
estimated at $5,000. In addition, all unvested stock options from the 150,000
share grant issued to Mr. Higby on January 26, 1998, will immediately become
exercisable, and all of his vested options will remain exercisable for a period
of three years following such termination.
John C. Maney. Pursuant to an employment agreement which is scheduled
to expire on April 30, 2002, Mr. Maney serves as Apria's Executive Vice
President and Chief Financial Officer. The agreement provides for an annual
salary of not less than $350,000, subject to annual increases at the discretion
of the company, except that the increases for 2000, 2001 and 2002 shall not be
less than 5% for each year. Mr. Maney's current annual salary is $375,000. Mr.
Maney is entitled to participate in Apria's annual bonus, incentive, stock and
other benefit programs generally available to the Chief Executive Officer of the
company, including an incentive bonus of up to 80% of his annual salary. Mr.
Maney is also entitled to (i) such bonuses as the Compensation Committee may,
from time to time, in its sole discretion award, (ii) an automobile allowance,
and (iii) reimbursement of certain other expenses. If the company terminates Mr.
Maney's employment without cause, or if he terminates his employment with good
reason (including upon a change in control), Mr. Maney shall receive a lump sum
severance payout equal to two times the sum of (i) his annual salary, (ii) the
average of his two most recent annual bonuses, (iii) his annual car allowance,
and (iv) an additional amount estimated at $5,000. In addition, the vested
portion of the 225,000 share stock option grant issued to Mr. Maney in 1998 will
remain exercisable for a period of three years following such termination.
11
<PAGE> 16
Robert S. Holcombe and Dennis E. Walsh. In June 1997, Messrs. Holcombe
and Walsh (each referred to as "Executive" below) entered into executive
severance agreements with the company. Pursuant to each agreement, each
Executive serves in a position and undertakes duties at Apria's discretion. As
of December 31, 1999, Mr. Holcombe served as Senior Vice President, General
Counsel and Secretary of the company and Mr. Walsh served as Executive Vice
President, Sales. Each agreement provides that the Executive's salary shall be
at the company's discretion. Currently, Mr. Holcombe's annual salary is $300,000
and Mr. Walsh's annual salary is $240,000. Each Executive is entitled to
participate in Apria's stock option plans and all other benefit programs
generally available to executive officers of the company at the company's
discretion. Each Executive is also entitled to receive (i) such bonuses as the
Compensation Committee may, from time to time, in its sole discretion award, and
(ii) reimbursement of certain other expenses at the company's discretion. If the
company terminates an Executive's employment without cause, each Executive is
entitled to a payment equal to the sum of (i) his annual salary, (ii) the
average of his two most recent annual bonuses, (iii) his annual car allowance,
and (iv) an additional amount estimated at $5,000. However, if such termination
occurs during the two-year period following a change of control of the company,
Messrs. Holcombe and Walsh shall each be entitled to a payment equal to twice
such sum. Such payments shall be payable in periodic installments over one or
two years.
REPORT OF THE COMPENSATION COMMITTEE
To: The Board of Directors
As members of the Compensation Committee, it is our duty to administer
Apria's overall compensation program for its senior and mid-level management. In
addition, the Compensation Committee evaluates the performance and specifically
establishes the compensation of the Chief Executive Officer. The Compensation
Committee is comprised entirely of independent Directors who are not officers or
employees of Apria.
COMPENSATION PHILOSOPHY AND PROGRAM FOR SENIOR MANAGEMENT
During 1999 Apria's compensation program for executive officers was
designed to:
o reward each member of senior management commensurately with the company's
overall growth and financial performance;
o attract and retain individuals who are capable of leading the company in
achieving its business objectives in an industry characterized by
competitiveness, growth and change; and
o encourage ownership of Apria's stock by executive officers.
The company believes a substantial portion of the annual compensation
of each member of senior management should relate to, and should be contingent
upon, the financial success of the company. As discussed below, the program
consists of, and is intended to strike a balance among, three elements:
o Salaries. Salaries for the Chief Executive Officer and President are based
on the Committee's evaluation of individual job performance and an
assessment of the salaries and total compensation mix paid by other similar
companies to executive officers holding equivalent positions. The salaries
for all other executive officers are approved by the Compensation Committee
pursuant to recommendations made by the Chief Executive Officer on the basis
of similar criteria.
o Executive Bonuses. Executive bonuses were based on an evaluation of company
performance against qualitative and quantitative measures.
o Long-term incentive compensation. Long-term incentive awards, which consist
of stock options, as well as a two-year bonus program tied to the
achievement by the company of certain financial objectives, are designed to
insure that incentive compensation is linked to the long-term performance of
the company and, in the case of stock options, its common stock. Stock
option awards provide an incentive that focuses attention on managing the
company from the prospective of an owner, and continue to constitute a key
component of Apria's compensation plan for executive officers.
12
<PAGE> 17
FACTORS AFFECTING THE EVALUATION OF EXECUTIVE PERFORMANCE FOR 1999
Soon after the commencement of his term as Chief Executive Officer in
May 1998, Mr. Carter, with the Board's concurrence, implemented a plan for
achieving profitable operating results through the following principal elements:
o Remaining in core businesses with renewed emphasis on home respiratory
therapy.
o Divesting or closing, on a selective basis, unprofitable business operations
in particular geographic locations.
o Reducing costs in corporate and field operations.
o Improving the company's capital structure.
o Expanding through internal growth and acquisitions.
As those objectives have been and continue to be achieved and the
company has been returned to profitability, management has placed increased
emphasis on sales, operations and has continued its overreaching emphasis on
compliance issues.
Members of senior management have been asked to adapt their activities
so as to achieve the benefits sought by the foregoing strategies. Accordingly,
members of senior management were and continue to be evaluated in light of their
contributions toward achievement of the objectives so established by the Chief
Executive Officer and the management team. Future compensation for senior
management will continue to be based in large part on the company's ability to
effectively develop and implement strategies that enable Apria to achieve those
objectives.
TOTAL COMPENSATION
Target total compensation levels of Apria executives are established
with consideration given to an analysis of competitive market total
compensation. The total compensation package for each executive is broken down
into the three basic components indicated above and discussed in more detail
below. During 1999 and the current year, the Committee has been shifting its mix
of executive compensation towards an increase in incentive compensation, with
proportionately lesser emphasis on salaries. This strategy is intended to
increase the "performance based" component of the company's executive
compensation, and the Committee intends to continue this emphasis in 2000.
1999 TOTAL COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
During 1999, Philip L. Carter served as Apria's Chief Executive
Officer. The Committee does not usually rely on predetermined formulas or a
limited set of criteria when it evaluates the performance of the company's Chief
Executive Officer. Instead, the Committee considers:
o management's overall accomplishments;
o the accomplishments of the individual executives;
o the company's financial performance; and
o other criteria discussed below.
The Board sought out Mr. Carter to serve as the Company's Chief
Executive Officer because of his recognized expertise. In order to induce an
individual of Mr. Carter's qualifications and experience to accept the
assignment, the Committee has designed a compensation package which provided a
competitive salary, with the potential of significant bonus compensation in the
event the company performed well under his leadership.
The Committee believed that the most significant portion of the package
consists of options to purchase up to 750,000 shares of Apria's common stock at
an exercise price of $9.00 per share granted to Mr. Carter when he was first
employed by Apria. One-half of the shares from Mr. Carter's initial grant were
immediately vested, and the vesting of the balance has been or will be
accelerated because certain target prices for the company's common stock have
been met, with the result that three quarters of Mr. Carter's initial options
are now fully vested and the balance will vest on November 5, 2000. Mr. Carter
was granted options for an additional 75,000 shares during 1999 at a per share
exercise price of $16.9375. The additional option grant shares will vest in
equal annual increments over a period of three years beginning in 2001. The
Committee believes Mr. Carter's compensation package is designed to couple his
interests with those of Apria's stockholders.
13
<PAGE> 18
SALARIES FOR EXECUTIVE OFFICERS
In setting salaries, the first element of the executive compensation
program, the Committee did not use a predetermined formula. Instead, the 1999
salaries of the Chief Executive Officer, the President and the other executive
officers were based on:
o the Committee's evaluation of individual job performance;
o an assessment of the company's performance; and
o a consideration of salaries paid by similar companies to executive officers
holding equivalent positions.
Philip L. Carter. Mr. Carter's annual salary for 1999 was $600,000. For
2000, it has been set at $650,000. The Committee feels the increase was
justified due to the facts that Mr. Carter was not only able to return Apria to
profitability six months earlier than expected but also that his activities had
resulted in a dramatic increase in the value of the company's common stock.
Other Executive Officers. The 1999 salaries of the four other most
highly compensated executive officers are shown in the "Salary" column of the
Summary Compensation Table. In keeping with the company's general reduced
emphasis on salary increases as a compensation tool, 1999 annual performance
increases for these executive officers in question were limited to no more than
3.5%.
1999 EXECUTIVE OFFICER BONUSES
Bonuses for all executive officers were awarded under the 1999
Executive Officer Incentive Compensation Plan, a plan adopted to provide members
of senior management with significant bonus compensation upon the achievement of
certain improved performance levels for the 1999 fiscal year.
The target levels of performance established for the company in the
1999 Executive Officer Incentive Compensation Plan were exceeded, and the
resulting 1999 bonus payments to Mr. Carter and the four other most highly
compensated executive officers of the company are listed in the "Bonus" column
of the Summary Compensation Table.
LONG TERM INCENTIVE COMPENSATION
As noted above, the company provides long-term compensation to certain
members of senior and mid-level management under various stock incentive plans.
Those plans provide the company with the ability to periodically reward key
employees, including executive officers, with options to purchase shares of the
company's common stock.
The value of stock options is tied to the future performance of the
company's common stock and provides value to the recipient only when the price
of the company's common stock increases above the option grant price.
TAX TREATMENT OF STOCK OPTIONS
The Compensation Committee has considered the anticipated tax treatment
to the company regarding the compensation and benefits paid to the executive
officers of the company in light of the enactment of Section 162(m) of the
United States Internal Revenue Code. The basic philosophy of the Compensation
Committee is to strive to provide the executive officers of the company with a
compensation package which will preserve the deductibility of such payments for
the company to the greatest extent possible. However, certain types of
compensation payments and their deductibility (e.g., the spread on exercise of
non-qualified options) depend upon the timing of an executive officer's vesting
or exercise of previously granted rights. Moreover, interpretations of and
changes in the tax laws and other factors beyond the Compensation Committee's
control may affect the deductibility of certain compensation payments. In
addition, in order to attract qualified management personnel, it has proven
necessary to grant certain long-term incentives that may not be deductible under
Section 162(m) of the Code. The Compensation Committee will consider various
alternatives to preserving the deductibility of compensation payments and
benefits to the extent reasonably practicable and to the extent consistent with
its other compensation objectives.
STOCK OPTION AWARDS TO EXECUTIVE OFFICERS
The stock option grants to the company's Chief Executive Officer during
1999 as well as those for the other four most highly compensated executive
officers are shown in the "Options Granted" column of the Summary Compensation
Table.
Date: June 16, 2000
THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
David H. Batchelder (Chairman)
Ralph V. Whitworth
Richard H. Koppes
14
<PAGE> 19
PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total returns (1)
for (i) Apria for the period from January 1, 1995 until the date of the merger
with Homedco Group, Inc., and from the date of the merger until the end of the
1999 fiscal year, (ii) the S&P 500 Stock Index, and (iii) the Peer Group Index
(2).
<TABLE>
<CAPTION>
12/94(3) 12/95 12/96 12/97 12/98 12/99
-------- ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Apria Healthcare Group Inc. 100 121.51 80.65 57.80 38.44 77.15
S & P 500 100 65.92 99.78 115.77 131.24 110.82
Peer Group 100 137.58 169.17 225.61 290.09 351.13
</TABLE>
----------------------
(1) Total returns assumes reinvestment of dividends.
(2) The Peer Group Index is based on the cumulative total returns of the
following companies: Coram Healthcare Corporation, Lincare Holdings, Inc.,
Optioncare, Inc., and American Homepatient, Inc. In years prior to 1998,
Rotech Medical Corporation (no longer publicly owned) was included in the
Peer Group Index.
(3) Listed values represent dollars. Assumes $100 invested on December 31,
1994.
IT SHOULD BE NOTED THAT THIS GRAPH REPRESENTS HISTORICAL STOCK PRICE
PERFORMANCE AND IS NOT NECESSARILY INDICATIVE OF ANY FUTURE STOCK PRICE
PERFORMANCE.
THE FOREGOING REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF
DIRECTORS REGARDING COMPENSATION AND THE PERFORMANCE GRAPH THAT APPEARS
IMMEDIATELY AFTER SUCH REPORT SHALL NOT BE DEEMED TO BE SOLICITING MATERIAL OR
TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR THE EXCHANGE ACT, OR INCORPORATED BY REFERENCE IN ANY
DOCUMENT SO FILED.
15
<PAGE> 20
EMPLOYEE BENEFITS AND LONG-TERM COMPENSATION PLANS
INCENTIVE COMPENSATION PLANS
For 1999 and 2000, the company adopted Incentive Compensation Plans to
reward members of senior and mid-level management as well as other key employees
whose performance and responsibilities directly affect company profits by
explicitly linking awards to the achievement of company performance factors.
Different performance factors have been established by the Compensation
Committee of the Board for different units within the company. Payment of
bonuses for 1999 occurred during the first quarter of 2000 (except that bonuses
to executive officer plan participants were paid in December 1999), and bonuses
for 2000 are expected to be paid during the first quarter of 2001. In order to
be eligible for a bonus, participants must have been actively employed by the
company for at least three months of the fiscal year to which the bonus applies
and remain employed until the date the bonus is paid. The Board may amend,
suspend or terminate the plan at any time.
TWO-YEAR INCENTIVE PLAN FOR EXECUTIVE OFFICERS
In December 1998, the Board approved a two-year incentive plan for
certain members of senior management, which provides, subject to certain
adjustments, for a bonus payment in February 2001 equal to each participant's
annual salary in the event Apria achieves certain targets with respect to total
earnings before interest, taxes, debt service and amortization for 1999 and
2000. Payment of the bonus will be accelerated on a pro rata basis in the event
of certain change of control transactions.
401(K) PLAN
The company maintains a 401(k) Savings Plan (the "company's 401(k)
Plan") for the benefit of all employees who have completed at least one year of
service with at least 1,000 hours of service during the year. Under the
company's 401(k) Plan, employees may contribute up to 16% of their eligible
earnings, and the company will match 50% of the first 8% of such contributions
up to a limit (currently $9,500) established by applicable tax regulations. As
of the end of the 1999 fiscal year, the collective matching contributions for
all executive officers as a group who received matching contributions (11
persons) was $32,348.54.
1991 NONQUALIFIED STOCK OPTION PLAN
The company's 1991 Nonqualified Stock Option Plan (the "1991 Plan")
authorized the issuance of 373,334 shares of common stock of the company, upon
the exercise of options granted under the 1991 Plan. Persons eligible to receive
options under the 1991 Plan are officers and other key employees of the company
or any directly or indirectly majority-owned subsidiaries of the company.
Options granted under the 1991 Plan do not qualify for treatment as incentive
stock options as defined in the United States Internal Revenue Code. The
Compensation Committee determines the dates upon which options will be granted
and fixes the option price. Unless previously terminated by the Board of
Directors, the 1991 Plan will terminate in December 2001. As of May 31, 2000,
423 shares of common stock not subject to outstanding options remained available
for issuance under the 1991 Plan.
AMENDED AND RESTATED 1992 STOCK INCENTIVE PLAN
The company's Amended and Restated 1992 Stock Incentive Plan (the "1992
Plan") authorized the issuance of 3,150,000 shares of common stock, plus, until
1997, 2% of the number of shares of common stock of the company outstanding as
of the first day of each fiscal year, upon the exercise of options or in
satisfaction of stock appreciation rights, restricted stock awards, and
performance share awards. The 1992 Plan also provides for stock value equivalent
awards. Persons eligible to receive awards under the 1992 Plan are persons who
are employees of, or who provide services to, the company or its subsidiaries.
An option granted under the 1992 Plan may be either an incentive stock option as
defined in the Code, or a non-statutory stock option. Incentive stock options
may be granted to employees only. The Compensation Committee administers the
1992 Plan and fixes the option exercise price with respect to the option. Unless
previously terminated by the Board of Directors, the 1992 Plan will terminate in
July 2003. As of May 31, 2000, 2,839,858 shares of common stock not subject to
outstanding options remained available for issuance under the 1992 Plan.
APRIA HEALTHCARE GROUP INC./HOMEDCO GROUP, INC. STOCK INCENTIVE PLAN
In 1995, the company adopted the Apria Healthcare Group Inc./Homedco
Group, Inc. Stock Incentive Plan (the "1995 Plan"). The 1995 Plan consists of
three parts: Part I is the portion of the 1995 Plan which was formerly the
Homedco Group, Inc. 1988 Stock Option Plan, Part II is the portion of the 1995
Plan which was formerly the Homedco Group, Inc. Long-Term Senior Management
Equity Plan and Part III is the portion of the 1995 Plan
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<PAGE> 21
which was formerly the Homedco Group, Inc. 1994 Stock Incentive Plan. The
purpose of the 1995 Plan was to convert options outstanding under the existing
Homedco Group, Inc. plans so that they could be exercised for Apria common
stock. The 1995 Plan is administered by the Compensation Committee. However, no
new options can be issued thereunder. As of May 31, 2000, 817,252 shares of
common stock were subject to outstanding options under the 1995 Plan.
1997 STOCK INCENTIVE PLAN
In May 1997 the company's stockholders approved the Apria Healthcare
Group 1997 Stock Incentive Plan (the "1997 Stock Incentive Plan"). The 1997
Stock Incentive Plan authorizes the issuance of 2,500,000 shares of common stock
plus 1% of the number of shares of common stock of the company outstanding as of
the first day of each fiscal year during the term thereof, upon the exercise of
stock options or in satisfaction of stock appreciation rights. The 1997 Stock
Incentive Plan also provides for the grant of restricted stock awards,
performance share awards and other performance based awards. Persons eligible to
receive awards under the 1997 Stock Incentive Plan include Directors, employees
and others who provide valuable services to the company or its subsidiaries. An
option granted under the 1997 Stock Incentive Plan may either be an incentive
stock option as defined in the Code, or a non-statutory stock option. Incentive
stock options may be granted to employees only. The Compensation Committee
administers the 1997 Stock Incentive Plan and establishes the option exercise
price with respect to the options. Unless previously terminated by the Board of
Directors, the 1997 Stock Incentive Plan will terminate on February 28, 2007. As
of May 31, 2000, 526,077 shares of common stock not subject to outstanding
options were available for issuance under the 1997 Stock Incentive Plan.
1998 NONQUALIFIED STOCK INCENTIVE PLAN
In December 1998 the Board of Directors approved the Apria Healthcare
Group 1998 Nonqualified Stock Incentive Plan (the "1998 Nonqualified Plan"). The
1998 Nonqualified Plan is a "broad based" plan which authorizes the issuance of
1,000,000 shares of common stock plus 1% of the number of shares of common stock
of the company outstanding as of the first day of each fiscal year during the
term thereof after 1999, upon the exercise of stock options or in satisfaction
of stock appreciation rights. The 1998 Nonqualified Plan also provides for the
grant of restricted stock awards, performance share awards and other performance
based awards. Persons eligible to receive awards under the 1998 Nonqualified
Plan include Directors, employees and others who provide valuable services to
the company or its subsidiaries. Any option granted under the 1998 Nonqualified
Plan will be a non-statutory stock option. The Compensation Committee
administers the 1998 Nonqualified Plan and establishes the option exercise price
with respect to the options. Unless previously terminated by the Board of
Directors, the 1998 Nonqualified Plan will terminate on December 15, 2008. As of
May 31, 2000, 490,698 shares of common stock not subject to outstanding options
were available for issuance under the 1998 Nonqualified Stock Incentive Plan.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
BY CERTAIN COMPANY AFFILIATES
Section 16(a) of the Exchange Act requires the company's Directors and
officers, and persons who own more than 10% of a registered class of the
company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission and The New York Stock
Exchange, Inc. Directors, officers, and greater than 10% stockholders are
required by the Securities and Exchange Commission to furnish the company with
copies of the reports they file.
Based solely on its review of the copies of such reports and written
representations from certain reporting persons that certain reports were not
required to be filed by such persons, the company believes that, except as
provided below, all of its Directors, officers and greater than 10% beneficial
owners complied with all filing requirements applicable to them with respect to
transactions during the 1999 fiscal year. The one exception to complete
compliance with such filing requirements is that a Form 4 filing for Relational
Investors, LLC and its affiliated entities reflecting the acquisition of
4,066,500 shares of the company's common stock on various dates in April 1999
was not filed until May 17, 1999.
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INFORMATION REGARDING THE INDEPENDENT AUDITORS OF THE COMPANY
Deloitte & Touche LLP have been retained as the company's independent
auditors for the 2000 fiscal year. A representative of Deloitte & Touche LLP
will be present at the Annual Meeting, may make a statement and will be
available to answer appropriate questions.
ANNUAL REPORT
THE COMPANY'S 1999 ANNUAL REPORT CONTAINING AUDITED FINANCIAL
STATEMENTS FOR THE FISCAL YEARS ENDED DECEMBER 31, 1999 AND 1998 ACCOMPANIES
THIS PROXY STATEMENT. UPON WRITTEN REQUEST, APRIA WILL SEND YOU, WITHOUT CHARGE,
A COPY OF ITS ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31,
1999, WHICH THE COMPANY HAS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
COPIES OF EXHIBITS WILL ALSO BE PROVIDED UPON WRITTEN REQUEST AND PAYMENT OF A
FEE OF $.25 PER PAGE PLUS POSTAGE. THE WRITTEN REQUEST SHOULD BE DIRECTED TO THE
INVESTOR RELATIONS DEPARTMENT (ATTENTION: MS. MAXINE ROCK), AT THE ADDRESS OF
THE COMPANY SET FORTH ON THE FIRST PAGE OF THIS PROXY STATEMENT.
PROPOSALS OF STOCKHOLDERS
For stockholder proposals to be considered for inclusion in the proxy
materials for Apria's 2000 Annual Meeting of Stockholders under Securities and
Exchange Commission Rule 14a-8, they must be received by the Secretary of the
company no later than March 23, 2001. All other proposals will be deemed
untimely unless submitted on or before May 1, 2001.
OTHER MATTERS
At the time of the preparation of this Proxy Statement, the Board of
Directors knows of no other matters which will be acted upon at the Annual
Meeting. If any other matters are presented for action at the Annual Meeting or
at any adjournment thereof, it is intended that the proxies will be voted with
respect thereto in accordance with the best judgment and in the discretion of
the proxy holders.
By Order of the Board of Directors,
Robert S. Holcombe
Senior Vice President, General Counsel
and Secretary
Costa Mesa, California
June 16, 2000
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. STOCKHOLDERS ARE URGED TO
COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE.
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<PAGE> 23
APRIA HEALTHCARE GROUP INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints Lawrence M. Higby, John C. Maney and Robert S.
Holcombe, and each of them, proxies with full power of substitution, to vote all
shares of Common Stock of Apria Healthcare Group Inc. (the "Company") held of
record by the undersigned on May 31, 2000, the record date with respect to this
solicitation, at the Annual Meeting of Stockholders of the Company to be held at
the Company's Costa Mesa, California Headquarters, 3560 Hyland Avenue (Building
No. 3500 - Grand Canyon Room), Costa Mesa, California 92626, beginning at 8:00
A.M., local time on Wednesday, July 19, 2000, and at any adjournment thereof,
upon the following matters:
ELECTION OF DIRECTORS
<TABLE>
<S> <C>
[ ] FOR the nominees listed below [ ] WITHHOLD AUTHORITY
(except as noted to the contrary below) to vote for all nominees listed below
</TABLE>
David H. Batchelder, Philip L. Carter, David L. Goldsmith, Richard H. Koppes,
Philip R. Lochner, Jr., Beverly Benedict Thomas, Ralph V. Whitworth
(Instructions: To withhold authority to vote for any individual nominee, circle
that nominee's name above.)
OTHER MATTERS
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE MEETING AND AT ANY ADJOURNMENT THEREOF.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR
THE PROPOSAL ABOVE. IF ANY NOMINEE DECLINES OR IS UNABLE TO SERVE AS A DIRECTOR,
THEN THE PERSONS NAMED AS PROXIES SHALL HAVE FULL DISCRETION TO VOTE FOR ANY
OTHER PERSON DESIGNATED BY THE BOARD OF DIRECTORS.
Dated: , 2000
-------------------------
--------------------------------------
Signature or signatures of stockholder
--------------------------------------
(Your signature(s) should conform to
your name(s) as printed hereon.
Co-owners should all sign.)
