This TRANSACTION AND MANAGEMENT FEE AGREEMENT (this “ Agreement ”) is dated as of October 28, 2008 and is between Sky Merger Sub Corporation, a Delaware corporation (together with its successors, the “ Company ”), and Blackstone Management Partners V L.L.C., a Delaware limited liability company (“ BMP ”).
1. The Company has entered into an Agreement and Plan of Merger, dated as of June 18, 2008, as it may be amended, supplemented or modified (the “ Merger Agreement ”), by among Sky Acquisition LLC, a Delaware limited liability company (“ Parent ”), the Company, and Apria Healthcare Group Inc., a Delaware corporation (“ Apria ”).
2. In accordance with the Merger Agreement, the Company is merging with and into Apria (the “ Merger ”), with Apria surviving the Merger. As a result, Apria shall succeed to and assume all the rights and obligations of the Company in accordance with the Merger, including the obligations set forth in this Agreement. References in this Agreement to the Company encompass Apria after the Merger.
3. BMP has expertise in the areas of finance, strategy, investment, acquisitions and other matters relating to the Company, Apria and their business and has facilitated the Merger and certain other related transactions (collectively, the “ Transactions ”) through its provision of financial and structural analysis, due diligence investigations, other advice and negotiation assistance with all relevant parties to the Transactions. BMP has also provided advice and negotiation assistance with relevant parties in connection with the financing of the Transactions as contemplated by the Merger Agreement.
4. The Company desires to avail itself, for the term of this Agreement, of BMP’s expertise in providing financial and structural analysis, due diligence investigations, corporate strategy, other advice and negotiation assistance, which the Company believes will be beneficial to it, and BMP desires to provide the services to the Company as set forth in this Agreement in consideration of the payment of the fees described below.
5. The rendering by BMP of the services described in this Agreement has been made and will be made on the basis that the Company will pay, or cause to be paid, the fees described below.
In consideration of the premises and agreements contained herein and of other good and valuable consideration, the sufficiency of which are hereby acknowledged, the parties agree as follows:
SECTION 1. Transaction and M&A Management Fees . In consideration of BMP undertaking financial and structural analysis, due diligence investigations, corporate strategy and other advice and negotiation assistance necessary in order to enable the Transactions to be consummated, the Company will pay BMP at the closing of the Merger (the “ Closing ” and the date of such Closing, the “ Closing Date ”) a non-refundable and irrevocable transaction fee of $18,733,969.22.
SECTION 2. Appointment . The Company hereby engages BMP to render the Services (as defined in Section 3(a), below) on the terms and subject to the conditions of this Agreement.
SECTION 3. Services .
(a) BMP agrees that until the Termination Date (as defined below) or the earlier termination of its obligations under this Section 3(a) pursuant to Section 4(f) hereof, it will render to the Company, by and through itself and its affiliates and such of their respective officers, employees, representatives, agents and third parties as BMP in its sole discretion may designate from time to time (“ Representatives ”), monitoring, advisory and consulting services in relation to the affairs of the Company and its subsidiaries, including, without limitation, (i) advice regarding the structure, distribution and timing of private or public debt or equity offerings and advice regarding relationships with the Company’s and its subsidiaries’ lenders and bankers, including in relation to the selection, retention and supervision of independent auditors, outside legal counsel, investment bankers or other financial advisors or consultants, (ii) advice regarding the strategy of the Company and its subsidiaries, (iii) advice regarding the structuring and implementation of equity participation plans, employee benefit plans and other incentive arrangements for certain key executives of the Company, (iv) general advice regarding dispositions and/or acquisitions, (v) advice regarding the business of the Company and its subsidiaries and (vi) such other advice directly related or ancillary to the above financial advisory services as may be reasonably requested by the Company (collectively, the “ Services ”). BMP will have no obligation to provide any other services to the Company absent an agreement between BMP and the Company over the scope of such other services and the payment therefor.
(b) It is expressly agreed that the Services to be rendered hereunder will not include investment banking or other financial advisory services which may be provided by BMP or any of its affiliates to the Company, or any of its affiliates, in connection with any specific acquisition, divestiture, disposition, merger, consolidation, restructuring, refinancing, recapitalization, issuance of private or public debt or equity securities (including, without limitation, an initial public offering of equity securities), financing or similar transaction by the Company or any of its subsidiaries. BMP may be entitled to receive additional compensation for providing services of the type specified in the preceding sentence by mutual agreement of the Company or such subsidiary, on the one hand, and BMP or its relevant affiliate, on the other hand. In the absence of an express agreement regarding the provision by BMP or its affiliate of such services and the compensation therefor in connection with any such transaction specified in this Section 3(b), in lieu of being engaged to provide such services on mutually agreeable terms and without regard to whether any such services were performed, BMP shall be entitled to receive upon consummation of:
(i) any such acquisition, divestiture, disposition, merger, consolidation, restructuring or recapitalization, a non-refundable and irrevocable fee equal to (x) 1% of the aggregate enterprise value of the acquired, divested, disposed of, merged, consolidated, restructured or recapitalized entity (calculated, on a consolidated basis for such entity, as the sum of (1) the market value of its common equity (or the fair market value thereof if not publicly traded), (2) the value of its preferred stock (at liquidation value), (3) the book value of its minority interests and (4) its aggregate long- and short-term debt, less its cash and cash equivalents), or (y) if such transaction is structured as an asset purchase or sale, 1% of the consideration paid for or received in respect of the assets acquired or disposed of;
(ii) any such refinancing, a non-refundable and irrevocable fee equal to 1% of the aggregate value of the securities subject to such refinancing; and
(iii) any such issuance, a non-refundable and irrevocable fee equal to 1% of the aggregate value of the securities subject to such issuance.
(c) Without affecting the rights of BMP under Section 3(b) hereof, if the Company or any of its subsidiaries determines that it is advisable for the Company or such subsidiary to hire a financial advisor, consultant, investment banker or any similar advisor in connection with any acquisition, divestiture, disposition, merger, consolidation, restructuring, refinancing, recapitalization, issuance of private or public debt or equity securities (including, without limitation, an initial public offering of equity securities), financing or similar transaction, it will notify BMP of such determination in writing. Promptly thereafter, upon the request of BMP, the parties will negotiate in good faith to agree upon appropriate services, compensation and indemnification for the Company or such subsidiary to hire BMP or one of its affiliates for such services. The Company and its subsidiaries may not hire any person, other than BMP or one of its affiliates to perform any such services unless all of the following conditions have been satisfied: (i) the parties are unable to agree upon the terms of the engagement of BMP or its affiliate to render such services after 30 days following receipt by BMP of such written notice; (ii) such other person has a reputation that is at least equal to the reputation of BMP or its affiliate in respect of such services; (iii) ten business days have elapsed after the Company or such subsidiary provides a written notice to BMP of its intention to hire such other person, which notice shall identify such other person and shall describe in reasonable detail the nature of the services to be provided, the compensation to be paid and the indemnification to be provided; (iv) the compensation to be paid is not more than BMP or its affiliate was willing to accept in the negotiations described above; and (v) the indemnification to be provided is not more favorable to the Company or the applicable subsidiary than the indemnification that BMP or its affiliate was willing to accept in the negotiations described above.
SECTION 4. Management Fee .
(a) In consideration of the Services being rendered by BMP, the Company will pay, or will cause to be paid, to BMP an annual non-refundable and irrevocable management fee (the “ Management Fee ”; the term “Management Fee” as used in this Agreement with respect to any annual period means all amounts payable with respect to such annual period pursuant to Sections 4(b) or (c) hereof, as applicable; provided that notwithstanding anything to the contrary contained in this Agreement, except as set forth in Section 4(b) below, the minimum annual Management Fee payable to BMP shall be $7,000,000).
(b) The Management Fee for the year ending December 31, 2008 shall be equal to $1,227,397.26, which shall be paid, or caused to be paid, by the Company at the Closing in respect of Services to be rendered from the Closing Date to December 31, 2008. On the first business day of January in each year, beginning in January 2009, the Company shall pay to BMP the Management Fee in respect of the fiscal year then beginning.
(c) The Management Fee for fiscal year 2009 and each subsequent year shall be equal to the greater of (x) $7,000,000 (adjusted as provided below) or (y) 2.0% of Consolidated EBITDA (as defined in the Credit Agreement dated as of the Closing Date by and among Parent, the Company, the other borrowers from time to time party thereto, Bank of America, N.A., as Administrative Agent and Collateral Agent, the other agents listed therein and the lenders from time to time party thereto) for the immediately preceding fiscal year (the “ EBITDA Amount ”). The EBITDA Amount for purposes of determining the initial payment of the Management Fee will be based on management’s then most recent estimate. Following the availability of audited financial statements for the fiscal year ending December 31, 2008 and each subsequent fiscal year, the Company shall recalculate the EBITDA Amount and the Management Fee, and based on such recalculation, (A) if the applicable recalculated Management Fee is more than the Management Fee previously paid by the Company to BMP in respect of the then-current fiscal year, the Company shall pay to BMP the difference between such amounts and (B) if the applicable recalculated Management Fee is less than the Management Fee previously paid by the Company to BMP in respect of the then-current fiscal
year, then BMP shall pay to the Company the difference between such recalculated Management Fee and the Management Fee received from the Company in respect of such fiscal year. Any payment required by the preceding sentence shall be paid by the Company or BMP, as applicable, promptly following the determination of the amount of such payment.
(d) In the event the Company or any of its subsidiaries enters into a business combination transaction with another entity that is large enough to constitute a “significant subsidiary” of the Company under any of the relevant tests contained in Regulation S-X as promulgated by the Securities and Exchange Commission, the Company and BMP will mutually agree, following good faith negotiations, on an appropriate increase in the minimum annual Management Fee as warranted by the increase in the Company’s size. Such increase will be based on the percentage increase in the Company’s Consolidated EBITDA determined on a pro forma basis giving effect to such business combination transaction.
(e) To the extent the Company cannot pay, or cause to be paid, the Management Fee for any reason, including by reason of any prohibition on such payment pursuant to any applicable law or the terms of any debt financing of the Company or its subsidiaries, the payment by the Company or any of its subsidiaries to BMP of the accrued and payable Management Fee will be deferred and will be payable immediately on the earlier of (i) the first date on which the payment of such deferred Management Fee is no longer prohibited under any contract applicable to the Company and the Company or its subsidiaries, as applicable, is otherwise able to make such payment, or cause such payment to be made and (ii) total or partial liquidation, dissolution or winding up of the Company. Notwithstanding anything to the contrary herein, under any applicable law or under any contract applicable to the Company or its subsidiaries, any forbearance of collection of the Management Fee by BMP shall not be deemed to be a subordination of such payments to any other person, entity or creditor of the Company or its subsidiaries. Any such forbearance shall be at BMP’s sole option and discretion and shall in no way impair BMP’s right to collect such payments. Any installment of the Management Fee not paid on the scheduled due date will bear interest, payable in cash on each scheduled due date, at an annual rate of 10%, compounded quarterly, from the date due until paid.
(f) Notwithstanding anything to the contrary contained in this Agreement, BMP may elect, in its sole discretion by the delivery of written notice to the Company, at any time in connection with or in anticipation of a change of control of the Company, a sale of all or substantially all of the Company’s assets or an initial public offering of the equity of the Company or its successor or any controlling person thereof (or at any time thereafter) to receive, in consideration of BMP’s role in facilitating the same and in settlement of the termination of the Services, (i) any remaining accrued and unpaid Management Fees payable by the Company under this Agreement and (ii) in addition to any fees owing to BMP in connection with such transaction pursuant to Section 3(b) hereof, a single lump sum non-refundable and irrevocable cash payment (the “ Lump Sum Fee ”) equal to the then present value (using a discount rat