Exhibit 10.1
EMPLOYMENT
AGREEMENT
This
Employment Agreement (the “Agreement”) is entered into
on November 1, 2006, by and between Apria Healthcare Group
Inc. (the “Company”) and Chris A. Karkenny
(the “Executive”), to be effective as of the
Commencement Date referred to below.
I.
EMPLOYMENT .
The
Company hereby agrees to employ the Executive and the Executive
hereby agrees to accept such employment, upon the terms and
conditions hereinafter set forth. The term of the employment shall
commence on November 13, 2006 (the “Commencement Date”)
and 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,
provided that for purposes of Section IV-D-3, the “Expiration
Date” shall initially be November 12, 2008, and shall be
extended one (1) day for each day of the Executive’s
employment during the term of this Agreement until the
Executive’s employment is terminated for any reason. 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 XX
hereof.
II.
DUTIES .
The
Executive shall serve during the course of his employment as the
Executive Vice President and Chief Financial Officer of the
Company, reporting to the Chief Executive Officer. The Executive
shall undertake such duties and have such authority as the Company,
through its Chief Executive Officer, shall assign to the Executive
from time to time in the Company’s sole and absolute
discretion, provided such duties and responsibilities are the types
of duties that would ordinarily be assigned to a person with
employment experience and a position comparable to that of the
Executive. The Executive agrees to devote substantially all of his
working time and efforts to the business and affairs of the
Company. The Executive further agrees that he shall not undertake
any outside activities which create a conflict in interest with his
duties to the Company, or which, in the judgment of the Board of
Directors of the Company, interfere with the performance of the
Executive’s duties to the Company.
III.
COMPENSATION .
A.
Base Salary . The Company will pay to the Executive a base
salary at the rate of $400,000 per year. Such salary shall be
payable in periodic installments in accordance with the
Company’s customary practices. Amounts payable shall be
reduced by standard applicable withholdings and other authorized
deductions. The Executive’s salary may be increased from time
to time at the discretion of the Company.
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 senior executives of the Company,
including without limitation (i) the Company’s Executive
Bonus Plan or such other bonus plans applicable to his position as
may be in effect from time to time and (ii) 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.
Equity Awards .
1.
Initial Stock Options . Effective as of the Commencement
Date, the Executive will be granted a ten-year nonqualified option
(the “Initial Option”) to acquire 300,000 shares of the
common stock of the Company at a per-share exercise price that will
be equal to the fair market value of a share of common stock of the
Company on the Commencement Date. The Initial Option shall become
vested and exercisable in three equal annual installments of
100,000 shares on each of the first three anniversaries of the
Commencement Date, subject to the Executive’s continued
employment with the Company through each such date. The Initial
Option shall be evidenced by a Stock Option Agreement to be entered
into between the Company and the Executive, which agreement shall
reflect the terms of the Initial Option as set forth in this
Agreement and such additional terms established by the Company
consistent with the terms of similar awards made to other senior
executives of the Company and not inconsistent with the terms of
this Agreement.
2.
Initial Restricted Stock . Effective as of the Commencement
Date, the Executive will also be granted an award of restricted
stock units equivalent in value to 30,000 shares of common stock of
the Company (the “Initial Restricted Stock Units”). The
Initial Restricted Stock Units shall not be vested as of the
Commencement Date and shall be subject to forfeiture in the event
of termination of the Executive’s employment with the Company
until it becomes vested in accordance with this
Section III-C-2. The Initial Restricted Stock Units shall
become vested in three equal annual installments of 10,000 shares
on each of the first three anniversaries of the Commencement Date,
subject to the Executive’s continued employment with the
Company through each such date. The Initial Restricted Stock Units
shall be evidenced by a Restricted Stock Unit Award Agreement to be
entered into between the Company and the Executive, which agreement
shall reflect the terms of the Initial Restricted Stock Units as
set forth in this Agreement and such additional terms established
by the Company consistent with the terms of similar awards made to
other senior executives of the Company and not inconsistent with
the terms of this Agreement.
3.
Next Regularly Scheduled Equity Awards . At the regularly
scheduled meeting of the Compensation Committee of the Board of
Directors to be held in February, 2007, the Executive will be
eligible for grants of additional nonqualified options (time-based
vesting) and restricted stock units (time and performance-based
vesting) in amounts and on terms consistent with grants made at
that time to similarly situated senior executives of the
Company.
4.
Definition of “Good Reason” in Equity Awards.
The Company agrees that the agreements evidencing the equity awards
described in Sections III-C-1, 2 and 3 above shall provide that the
term “Good Reason” as used therein shall have the
meaning set forth in Section IV-D-3(b) hereof.
D.
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, supplemental executive
medical and dental plan, flexible benefits plan, disability, salary
continuance, group life, accidental death and travel accident
insurance plans and programs) to the extent applicable generally to
other senior 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.
E.
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.
The parties to this Agreement recognize that such policies may be
amended and/or terminated by the Company at any time without the
consent of the Executive.
F.
Fringe Benefits . The Executive shall be entitled to such
fringe benefits in accordance with the plans, practices, programs
and policies as may be in effect generally with respect to senior
executives of the Company.
G.
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 XX 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 Board of
Directors of 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 the foregoing sentence 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. For purposes of the above clause (B) of
this Section IV-B, 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 the foregoing, the Executive shall not be
deemed to have been terminated for Cause without delivery to the
Executive of a notice of termination signed by the Company’s
Chief Executive Officer or Chairman of the Board stating that in
the good faith opinion of the officer signing such notice, the
Executive has engaged in or committed conduct of the nature
described in 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, such sum to 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, (i) any amounts or benefits due pursuant to the terms
of any applicable welfare, retirement, 401(k) or similar benefit
plan of the Company; and (ii) obligations pursuant to the terms of
any outstanding stock option or other equity-based compensation
agreements (the items referred to in clauses (a) and (b) above
shall be hereinafter referred to as the “Accrued
Obligations”).
2.
Cause/Voluntary Resignation Without Good Reason . If the
Executive’s employment is terminated by the Company for Cause
or by the Executive without Good Reason (as defined below), this
Agreement shall terminate without further obligations to the
Executive other than for the timely payment of the Accrued
Obligations. In the case of a termination of the Executive’s
employment by the Company for Cause, 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, the
Executive’s employment shall terminate and the Executive
shall be entitled to receive the following:
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(1)
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an amount equal to the Contract
Balance (as defined below) in one lump sum upon such termination of
his employment; and
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(2)
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the Accrued Obligations as of the
date of termination of 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 the amounts
referred to in paragraph (a)(1) above 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 A
(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 payment in respect of the Accrued
Obligations.
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(b)
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The term “Good
Reason” means (except as set forth below), 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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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, except in connection with a relocation of the
Company’s principal executive offices; or
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(iii)
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the Company does not permit the
Executive to continue to serve as the Executive Vice President and
Chief Financial Officer or another mutually acceptable senior
executive position; or
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(iv)
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as a result of a Change of
Control or other corporate transaction, the Executive ceases to
serve as the chief financial officer of a corporation with
publicly-traded securities.
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provided , however , that “Good
Reason” 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 except as provided in
(vi) below, 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 of Control);
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(v)
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the Company’s not
permitting the Executive to continue to serve as the Executive Vice
President and Chief Financial Officer or another mutually
acceptable senior executive position; or
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(vi)
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the Executive ceases to serve as
the chief financial officer of a corporation with publicly-traded
securities.
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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)
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The term “Contract
Balance” means an amount equal to the annual base salary that
the Executive would have earned from the Company had the Executive
continued his employment from the date the Executive’s
employment terminated through the Expiration Date (i.e., base
salary for two (2) years), using the rate of base salary in effect
on the date on which the Executive received or gave written notice
of his termination (but without regard to any reduction in base
salary constituting Good Reason), plus an amount equal to two (2)
times the sum of (i) an amount equal to the average of the annual
bonuses with respect to the Company’s two (2) most recently
completed fiscal years, if any, determined to be payable and/or
paid to the Executive under the Company’s Executive Bonus
Plan (or comparable bonus plan) prior to such notice of
termination, and (ii) an amount determined by the Company from time
to time in its sole discretion to be equal to the annual cost for
the Executive of obtaining medical, dental and vision insurance
under COBRA, which annual amount is hereby initially estimated to
be $20,000. For purposes of calculating Contract Balance under this
Agreement in the event the Executive has been employed by the
Company for a period which does not include two full annual bonus
cycles, the average of the annual bonuses described in clause (i)
above shall be deemed to be equal to (x) if clause (y) below does
not apply, the Executive’s target bonus for the year of
termination or (y) in the event that the Executive has been
employed for a period which includes one (but not two) full annual
bonus cycles prior to the termination of employment, the average of
the earned annual bonus for the full bonus cycle during the
Executive’s employment plus the Executive’s target
bonus for the year of termination.
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(d)
A “Change of Control” shall be deemed to have occurred
if:
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(i)
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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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(ii)
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all or substantially all of the
business or assets of the Company are disposed of, or a contract is
entered into to dispose of all or substantially all of the business
or assets of the Company pursuant to a merger, consolidation or
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;
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(iii)
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the following individuals cease
for any reason to constitute a majority of the number of directors
then serving: individuals who, on the Commencement Date, constitute
the Board of Directors and any new director (other than a director
whose initial assumption of office is in connection with an actual
or threatened election contest, including but not limited to a
consent solicitation, relating to the election of directors of the
Company) whose appointment or election by the Board of Directors or
nomination for election by the Company’s stockholders was
approved or recommended by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors on the
Commencement Date or whose appointment, election or nomination for
election was previously so approved or recommended; or
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(iv)
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the Company is materially or
completely liquidated.
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Notwithstanding
clause (i) above, a “Change of Control” shall not be
deemed to have occurred solely because a person shall be, become or
enter into a contract to become the beneficial owner of 25% or
more, but less than 40%, of the voting common stock of the Company,
if and for so long as such person is bound by, and in compliance
with, a contract with the Company providing that such person may
not nominate, vote for, or select more than a minority of the
directors of the Company. The exception provided by the preceding
sentence shall cease to apply with respect to any person upon
expiration, waiver, or non-compliance with any such contract, by
which such person was bound.
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(e)
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In
the event the Executive initiates arbitration pursuant to Section
VI to enforce his rights to any payments under this Section IV-D-3,
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 V; and
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(iii)
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all such payments required under
this 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 V 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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(f)
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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 exc
