EXHIBIT 10.3
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This
Amended and Restated Employment Agreement (the
“Agreement”) is entered into by and between Apria
Healthcare Group Inc. (the “Company”) and
Lawrence M. Higby (the “Executive”) effective as
of May 5, 2006.
I.
EMPLOYMENT .
The
Company hereby employs the Executive and the Executive hereby
accepts such employment, upon the terms and conditions hereinafter
set forth. The term of the employment will continue until the
termination of the Executive’s employment by reason of his
written resignation, termination by the Company for any reason by
written notice of termination, or death. The Executive’s
employment may be terminated at any time by written notice from the
Executive to the Company or from the Company to the Executive, in
the manner provided in Section XVIII hereof.
II.
DUTIES .
A.
The Executive shall serve during the course of his employment as
the Chief Executive Officer of the Company, reporting to the Board
of Directors. The Executive shall be the senior executive officer
of the Company, with the authority to supervise and direct the
other officers and employees of the Company, and with authority
from time to time to delegate to other officers such executive and
other powers with duties as he shall deem appropriate, subject in
all respects to the authority of the Board.
B.
The Executive agrees to devote substantially all of his time,
energy and ability to the business of the Company. Nothing herein
shall prevent the Executive, upon approval of the Board of
Directors of the Company, from serving as a director or trustee of
other corporations or businesses which are not in competition with
the business of the Company or in competition with any present or
future affiliate of the Company. Nothing herein shall prevent the
Executive from investing in real estate for his own account or from
becoming a partner or a stockholder in any corporation, partnership
or other venture not in competition with the business of the
Company or in competition with any present or future affiliate of
the Company.
III.
COMPENSATION .
A.
Salary . The Company will pay to the Executive a base salary
at the rate of $755,000 per year. Such salary shall be payable in
periodic installments in accordance with the Company’s
customary practices. Amounts payable shall be reduced by standard
withholdings and other authorized deductions. The Executive’s
salary may be increased from time to time at the discretion of the
Company’s Board of Directors or its Compensation Committee.
Annual increases, if granted, will normally be effective as of
January 1 of each year.
B.
Annual Bonus, Incentive, Savings and Retirement Plans . The
Executive shall be entitled to participate in all annual bonus,
incentive, savings and retirement plans, practices, policies and
programs applicable generally to other executives of the Company,
including without limitation the Company’s the Executive
Bonus Plan and the Company’s 401(k) Savings Plan. The parties
to this Agreement recognize that such plans may be amended and/or
terminated by the Company at any time without the consent of the
Executive in accordance with the terms of such plans.
C.
Welfare Benefit Plans . The Executive and/or his family, as
the case may be, shall be eligible for participation in and shall
receive all benefits under welfare benefit plans, practices,
policies and programs provided by the Company (including, without
limitation, medical, prescription, dental, disability, salary
continuance, group life, accidental death and travel accident
insurance plans and programs) to the extent applicable generally to
other executives of the Company. The Company reserves the right to
modify, suspend or discontinue any and all of the above plans,
practices, policies and programs at any time without recourse by
the Executive so long as such action is taken generally with
respect to other similarly situated peer executives and does not
single out the Executive.
D.
Expenses . The Executive shall be entitled to receive prompt
reimbursement for all reasonable employment expenses incurred by
him in accordance with the policies, practices and procedures as in
effect generally with respect to other executives of the
Company.
E.
Fringe Benefits . The Executive shall be entitled to fringe
benefits, including without limitation (i) reasonable travel and
entertainment expenses of the Executive’s spouse, on an
actually incurred basis when necessary in connection with
participation in Company events, and (ii) such other benefits in
accordance with the plans, practices, programs and policies as may
be in effect generally with respect to other executives of the
Company.
F.
Vacation . The Executive shall be entitled to four weeks of
paid vacation annually, to be available and prorated monthly during
the term of this Agreement and otherwise to be consistent with the
vacation policy and practice applicable to other executives of the
Company.
IV.
TERMINATION .
A.
Death or Disability . The Executive’s employment shall
terminate automatically upon the Executive’s death. If the
Company determines in good faith that the Disability of the
Executive has occurred (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in
accordance with Section XVIII of its intention to terminate the
Executive’s employment. In such event, the Executive’s
employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive, provided that,
within the 30 days after such receipt, the Executive shall not have
returned to full-time performance of his duties. For purposes of
this Agreement, “Disability” shall mean a physical or
mental impairment which substantially limits a major life activity
of the Executive and which renders the Executive unable to perform
the essential functions of his position, even with reasonable
accommodation which does not impose an undue hardship on the
Company. The Company reserves the right, in good faith, to make the
determination of Disability under this Agreement based upon
information supplied by the Executive and/or his medical personnel,
as well as information from medical personnel (or others) selected
by the Company or its insurers.
B.
Cause . The Company may terminate the Executive’s
employment for Cause. For purposes of this Agreement (except as set
forth below), “Cause” shall mean that the Company,
acting in good faith based upon the information then known to the
Company, determines that the Executive has (i) engaged in or
committed willful misconduct; (ii) engaged in or committed theft,
fraud or other illegal conduct; (iii) refused or demonstrated an
unwillingness to substantially perform his duties for a 30-day
period after written demand for substantial performance that refers
to this paragraph and is delivered by the Company that specifically
identifies the manner in which the Company believes the Executive
has not substantially performed his duties; (iv) refused or
demonstrated an unwillingness to reasonably cooperate in good faith
with any Company or government investigation or provide testimony
therein (other than such failure resulting from the
Executive’s disability); (v) engaged in or committed
insubordination; (vi) engaged in or committed any willful act that
is likely to and which does in fact have the effect of injuring the
reputation or business of the Company; (vii) willfully violated his
fiduciary duty or his duty of loyalty to the Company or the
Company’s Code of Ethical Business Conduct in any material
respect; (viii) used alcohol or drugs (other than drugs
prescribed to the Executive by a physician and used by the
Executive for their intended purpose for which they had been
prescribed) in a manner which materially and repeatedly interferes
with the performance of his duties hereunder or which has the
effect of materially injuring the reputation or business of the
Company; or (ix) engaged in or committed a material breach of
this Agreement for a 30-day period after written notification is
delivered by the Company that specifically refers to this paragraph
and identifies the manner in which the Company believes the
Executive has materially breached this Agreement. For purposes of
this paragraph, no act, or failure to act, on the Executive’s
part shall be considered willful unless done or omitted to be done,
by him not in good faith or without reasonable belief that his
action or omission was in the best interest of the Company.
Notwithstanding anything herein to the contrary, for purposes of
any termination of employment that occurs within the period that
(i) begins with the first to occur of (1) the initial
public announcement of a Specified Change of Control (as defined
below), or (2) the 90th day preceding a Specified Change of
Control and (ii) ends two years following such Specified
Change of Control, “Cause” shall instead mean only the
occurrence of either or both of the following: (A) the
Executive’s conviction for committing an act of fraud,
embezzlement, theft, or other act constituting a felony (other than
traffic related offenses or as a result of vicarious liability); or
(B) the willful engaging by the Executive in misconduct that is
significantly injurious to the Company. Notwithstanding the
foregoing, the Executive shall not be deemed to have been
terminated for Cause without delivery to the Executive of a notice
of termination signed by the Company’s Chairman of the Board
stating that the Board of Directors of the Company has determined
that the Executive has engaged in or committed conduct of the
nature described in this paragraph, and specifying the particulars
thereof in detail.
C.
Other than Cause or Death or Disability . The Executive or
the Company may terminate the Executive’s employment at any
time, without Cause, by giving the other party to this Agreement at
least 30 days advance written notice of such termination, subject
to the provisions of this Agreement.
D.
Obligations of the Company Upon Termination .
1.
Death or Disability . If the Executive’s employment is
terminated by reason of the Executive’s death or Disability,
this Agreement shall terminate without further obligations to the
Executive or his legal representatives under this Agreement, other
than for (a) payment of the sum of (i) the Executive’s base
salary through the date of termination of employment to the extent
not theretofore paid, plus (ii) any earned vacation pay, to the
extent not theretofore paid (the sum of the amounts described in
clauses (i) and (ii) shall be hereinafter referred to as the
“Accrued Obligations”), which shall be paid to the
Executive or his estate or beneficiary, as applicable, in a lump
sum in cash within 30 days of the date of termination of
employment; and (b) payment to the Executive or his estate or
beneficiary, as applicable, any amounts due pursuant to the terms
of any applicable welfare benefit plans.
2.
Cause . If the Executive’s employment is terminated by
the Company for Cause, this Agreement shall terminate without
further obligations to the Executive other than for the timely
payment of the Accrued Obligations. If it is subsequently
determined that the Company did not have Cause for termination
under this Section IV-D-2, then the Company’s decision to
terminate shall be deemed to have been made under Section IV-D-3
and the amounts payable thereunder shall be the only amounts the
Executive may receive for his termination.
3.
Other than Cause or Death or Disability .
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(a)
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If, during the term of this
Agreement, (i) the Company terminates the Executive’s
employment for other than Cause or death or Disability, or (ii) the
Executive terminates his employment hereunder with Good Reason (as
defined below), the Executive’s employment shall terminate
and the Executive shall be entitled to receive the
following:
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(i)
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the Accrued Obligations (as
defined in Section IV-D-1) as of the date of termination of
employment; and
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(ii)
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in exchange for the
post-termination covenants provided in the Nondisclosure and
Noncompetition Agreement attached hereto as Exhibit A (the
“Nondisclosure Agreement”), the payments described in
Section 3(b) of the Nondisclosure Agreement. Nothing in this
Section IV-D-3(a) shall be deemed to create a presumption
concerning the reason for the termination of the Executive’s
employment.
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Any payment
made pursuant to this Section IV-D-3(a) shall be reduced by all
amounts required to be withheld by applicable law, and shall only
be made in exchange for a valid release of all claims the Executive
may have against the Company in the form attached hereto as
Exhibit B (which may be modified only to the extent necessary
to reflect developments in applicable law that would jeopardize
enforceability of such release unless the modifications are not
made). Such payment shall constitute the sole and entire obligation
of the Company to provide any compensation or benefits to the
Executive upon termination, except for obligations under the
Company’s 401(k) Savings Plan, obligations pursuant to the
terms of any outstanding stock option agreements, the
Company’s obligation to provide the benefits required by
Section IV-D-3(c) below, and the Company’s obligations to
make payments required to be made under any other incentive
compensation plan.
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(b)
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The term “Good
Reason” means (except as set forth below):
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(i)
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the Executive’s annual base
salary is reduced, except for a general one-time “across-the
board” salary reduction not exceeding ten percent (10%) which
is imposed simultaneously on all executive officers of the Company;
or
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(ii)
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the Company requires the
Executive to be based at an office location which will result in an
increase of more than thirty (30) miles in the Executive’s
one-way commute; or
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(iii)
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if the Company’s Board of
Directors does not permit the Executive to continue to serve as the
Chief Executive Officer with the responsibilities as described in
Section II-A or another mutually acceptable senior executive
position; or
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(iv)
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there shall occur a “Change
of Control” of the Company and, at any time concurrent with
or during the six-month period following such Change of Control,
the Executive shall have sent to the Chairman of the
Company’s Board of Directors a written notice terminating his
employment on a date specified in said notice. For purposes of this
Agreement, the term “Change of Control” shall mean the
occurrence of one of the following:
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(1)
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any “person,” as such
term is used in Sections 13(d)and 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the “1934 Act”) is,
becomes or enters a contract to become, the “beneficial
owner,” as such term is used in Rule 13d-3 promulgated under
the 1934 Act, directly or indirectly, of securities representing
twenty-five percent (25%) or more of the voting common stock of the
Company;
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(2)
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all or substantially all of the
business or assets of the Company are disposed of, or a contract is
entered to dispose of all of the business of the Company pursuant
to a merger, consolidation other transaction in which (a) the
Company is not the surviving parent company or (b) the stockholders
of the Company prior to the transaction do not continue to own at
least sixty percent (60%) of the surviving parent company in
substantially the same proportions as their ownership immediately
prior to such transaction; or
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(3)
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the Company is materially or
completely liquidated; or
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(4)
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any person (other than the
Company) purchases any common stock of the Company in a tender or
exchange offer with the intent, expressed or implied, of purchasing
or otherwise acquiring control of the Company;
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provided , however , that “Good
Reason” under the above clauses (i), (ii) and (iii) shall
cease to exist for an event on the 60th day following the earlier
of the Company’s written notice of the change to the
Executive or the Executive’s becoming aware thereof, unless
the Executive has given the Company written notice of his/her
objection thereto prior to such date.
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Notwithstanding
anything herein to the contrary, for purposes of any termination of
employment that occurs within the period that (i) begins with
the first to occur of (1) the initial public announcement of a
Specified Change of Control (as defined below), or (2) the
90th day preceding a Specified Change of Control and (ii) ends
two years following such Specified Change of Control, “Good
Reason” shall instead mean, without the Executive’s
express written consent, the occurrence of any one or more of the
following:
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(i)
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a material reduction in the
nature, status or scope of the Executive’s authorities,
duties, and/or responsibilities, (when such authorities, duties,
and/or responsibilities are viewed in the aggregate) from their
level in effect on the day immediately prior to the Specified
Change of Control (provided, however, that neither of (A) a change
in the Executive’s reporting relationships, nor (B) an
adjustment in the nature of the Executive’s duties and
responsibilities that in either case does not remove from him the
authority with respect to the Company’s functional area,
employees or products and services that the Executive had
immediately prior to such change or adjustment shall constitute
“Good Reason”);
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(ii)
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a reduction in the
Executive’s base salary from its highest level in effect at
any point in the three months preceding the Specified Change of
Control or a significant reduction in the Executive’s
aggregate incentive opportunities under the Company’s short
and/or long-term incentive programs, as such opportunities exist
immediately prior to the Specified Change of Control;
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(iii)
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the failure of the Company to
maintain the Executive’s relative level of coverage and
accruals (as compared to other Company executives) under the
Company’s employee benefit and/or retirement plans, policies,
practices, or arrangements in which the Executive participates
immediately prior the Specified Change of Control (both in terms of
the amount of benefits provided, and amounts accrued) (for this
purpose, the Company may eliminate and/or modify existing programs
and coverage levels without the Executive’s consent;
provided, however, that the Executive’s level of coverage
under all such programs must be at least as great as is provided to
executives who have the same or lesser levels of reporting
responsibilities within the Company’s
organization);
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(iv)
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the Executive is informed by the
Company that his or her principal place of employment for the
Company will be relocated to a location that will result in an
increase of more than thirty (30) miles in the Executive’s
one-way commute (as compared to the Executive’s one-way
commute prior to the Change in Control);
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(v)
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the Company’s Board of
Directors not permitting the Executive to continue to serve as the
Chief Executive Officer with the responsibilities as described in
Section II-A or another mutually acceptable senior executive
position; or
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(vi)
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at any time concurrent with or
during the six-month period following the Specified Change of
Control, the Executive sending to the Chairman of the
Company’s Board of Directors a written notice terminating his
employment on a date specified in said notice.
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For purposes of
this Agreement, the term a “Specified Change of
Control” shall be any Change of Control that is specifically
designated, in writing, by the Board of Directors of the Company or
Compensation Committee thereof prior to the consummation of the
Change of Control to be a Specified Change of Control.
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(c) In
the event of any termination of the Executive’s employment
pursuant to Section IV-D-3(a), the Company shall, for a period of
one year following the termination date, provide the Executive with
appropriate office space in a furnished office suite, including
reasonable secretarial, telephone, copying and delivery services.
The Company shall not be required to spend more than a total of
$50,000 to provide this benefit to the Executive.
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(d) In
the event the Executive initiates arbitration pursuant to Section
VI to enforce his rights to any payments under this Section IV-D-3
(including but not limited to payments under the Nondisclosure
Agreement), or the Company seeks to withhold or reduce any such
payments for any reason, then:
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(i)
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the burden of proving that the
Executive is not entitled to such payments shall be on the
Company;
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(ii)
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the Company shall pay all
expenses incurred by the Executive in prosecuting or defending any
such proceeding as they are incurred by the Executive in advance of
the final disposition of such dispute, together with any tax
liability incurred by the Executive in connection with the receipt
of such amounts; provided , however , that the
payment of such expenses incurred in advance of the final
disposition of such proceeding shall be made only upon delivery to
the Company of an undertaking, by or on behalf of the Executive, to
repay all amounts so advanced to the extent the arbitrator in such
proceeding so determines as provided in Section VI; and
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(iii)
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all such payments required under
this Agreement (including but not limited to payments under the
Nondisclosure Agreement) shall continue to be made on the dates
provided herein without any offsets, claims or charges of any kind
whatsoever being asserted by the Company, except in the event a
final determination pursuant to the arbitration provisions of
Section VI has been rendered and such determination provides that
the Company is entitled to assert any such offset, claim or charge
against the Executive.
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(e)
No Mitigation or Offset . Notwithstanding anything herein to
the contrary, the amount of any payment or benefit provided for in
this Section IV-D-3 shall not be reduced, offset or subject to
recovery by the Company or any of its subsidiaries or affiliates by
reason of any compensation earned by the Executive as the result of
employment by another employer after the Executive’s
employment with the Company terminates for any reason. In addition,
the Executive shall be under no obligation to seek other employment
or to take any other actions to mitigate the amounts payable under
this Section IV-D-3.
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4.
Exclusive Remedy . The Executive agrees that the payments
contemplated by this Agreement shall constitute the exclusive and
sole remedy for any termination of his employment and the Executive
covenants not to assert or pursue any other remedies, at law or in
equity, with respect to any termination of employment.
V.
CERTAIN MODIFICATIONS TO NONDISCLOSURE AGREEMENT
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The
Nondisclosure Agreement provides for certain payments to the
Executive if the Executive agrees to refrain from taking certain
actions within a specified period following a termination of
employment, including accepting an employment or consulting
relationship with a principal competitor of the Company. The
Company and the Executive may, from time to time (but no more often
than once during any six (6)-month period and no later than the
occurrence of a Change of Control), propose to add or delete one or
more names of principal competitors to or from, as applicable,
those identified in the Nondisclosure Agreement by giving notice to
the other party as specified in Section XVIII. Such addition or
deletion shall be made if such entity becomes or ceases to be, as
applicable, a principal competitor of the Company, provided that
there shall be no more than three (3) principal competitors of the
Company identified on the Nondisclosure Agreement at any given
time. If no objection to such proposal is made within ten (10)
business days following the giving of notice thereof, such proposal
shall be deemed accepted and the Nondisclosure Agreement shall be
modified accordingly. Any dispute concerning the operation of this
Section V shall be resolved in the manner specified in
Section VI hereof.
VI.
ARBITRATION.
Any
dispute or controversy arising under or in connection with this
Agreement or the Executive’s employment by the Company shall
be settled exclusively by arbitration, conducted before a single
neutral arbitrator in accordance with the American Arbitration
Association’s National Rules for Resolution of Employment
Disputes as then in effect. Such arbitration shall be conducted in
Orange County, California, and the arbitrator shall be a resident
of Orange County, California or of a county contiguous to Orange
County, California. Judgment may be entered on the
arbitrator’s award in any court having jurisdiction;
provided, however, that the Company shall be entitled to seek a
restraining order or injunction in any court of competent
jurisdiction to prevent any continuation of any violation of the
provisions of the Nondisclosure Agreement and the Executive hereby
consents that such restraining order or injunction may be granted
without the necessity of the Company’s posting any bond, and
provided, further, that the Executive shall be entitled to seek
specific performance of his right to be paid until the date of
employment termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement. Any
arbitration proceeding pertaining to this Agreement shall be
consolidated with any arbitration proceeding pertaining to the
Nondisclosure Agreement. The arbitrator’s order shall
specify, based on the outcome of the arbitration, whether the
Executive shall repay any of the Executive’s expenses
theretofore paid by the Company pursuant to Section IV-D-3(d)(ii).
The fees and expenses of the arbitrator shall be borne by the
Company.
VII.
REFRAINING FROM UNFAIR COMPETITION.
A.
Concurrently herewith, the Executive is entering into the
Nondisclosure Agreement.
B.
The Company and the Executive hereby agree that the terms of the
Nondisclosure Agreement are incorporated into this Agreement by
this reference, and shall be a part hereof.
VIII.
EXCISE TAX .
A.
In the event that any amount or benefit that may be paid or
otherwise provided to or in respect of the Executive by or on
behalf of the Company or any affiliate, whether pursuant to this
Agreement or otherwise (collectively, “Covered
Payments”), is or may become subject to the tax imposed under
Section 4999 of the Internal Revenue Code of 1986, as amended (the
“Code”) (or any successor provision or any comparable
provision of state, local or foreign law) (“Excise
Tax”), the Company will pay to the Executive a
“Reimbursement Amount” equal to the total of: (A) any
Excise Tax on the Covered Payments, plus (B) any Federal, state,
and local income taxes, employment and excise taxes (including the
Excise Tax) on the Reimbursement Amount, plus (C) the product of
any deductions disallowed for Federal, state or local income tax
purposes because of the inclusion of the Reimbursement Amount in
the Executive’s income multiplied by the Executive’s
combined Federal, state, and local income tax rate for the calendar
year in which the Reimbursement Amount is includible in the
Executive’s taxable income, plus (D) any interest, penalties
or additions to tax imposed under applicable law in connection with
the Excise Tax or the Reimbursement Amount, plus (E) any reasonable
out-of-pocket costs incurred by the Executive in connection with
any of the foregoing. For purposes of this Section VIII-A, the
Executive will be deemed to pay (1) Federal income taxes at
the highest applicable marginal rate of Federal income taxation
applicable to individuals for the calendar year in which the
Reimbursement Amount is includible in the Executive’s taxable
income and (2) any applicable state and local income taxes at
the highest applicable marginal rate of taxation applicable to
individuals for the calendar year in which such Reimbursement
Amount is includible in the Executive’s taxable income, net
of the maximum reduction in Federal income taxes which could be
obtained from the deduction of such state or local taxes if paid in
such year (determined without regard to limitations on deductions
based upon the amount of the Executive’s adjusted gross
income). Except to the extent provided in Section VIII-C below,
this provision is intended to put Employee in the same position as
Employee would have been had no Excise Tax been imposed upon or
incurred as a result of any Payment.
B.
The payment of a Reimbursement Amount under this Section VIII shall
not be conditioned upon the Executive’s termination of
employment.
C.
Notwithstanding the foregoing provisions of this Section VIII-A, if
the Company determines that, absent this sentence, the Executive is
entitled to a Reimbursement Amount, but that the portion of the
Covered Payments that would be treated as “parachute
payments” under Code Section 280G (“Covered Parachute
Payments”) does not exceed 103% of the greatest amount of
Covered Parachute Payments that could be paid to the Executive such
that the receipt of such Covered Parachute Payments would not give
rise to any Excise Tax (the “Safe Harbor Amount”), then
no Reimbursement Amount shall be paid to the Executive (unless for
any reason the Executive is determined to be subject to
