<PAGE>   1
   
    As filed with the Securities and Exchange Commission on November 12, 1996
    

                                              Registration Statement 333-09407  
--------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

   
                                 AMENDMENT NO. 4
    
                                       TO
                                    FORM S-4
                             REGISTRATION STATEMENT
                        UNDER THE SECURITIES ACT OF 1933

                           APRIA HEALTHCARE GROUP INC.
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                      <C>                                  <C>       
           DELAWARE                                  8090                         33-0488566
(State or other jurisdiction of          (Primary Standard Industrial          (I.R.S. Employer
incorporation or organization)             Classification Code No.)           Identification No.)
</TABLE>
                                                                          
                               3560 HYLAND AVENUE
                          COSTA MESA, CALIFORNIA 92626
                                 (714) 957-2000
    (Address, including zip code, and telephone number, including area code,
                  of registrant's principal executive offices)

                               ROBERT S. HOLCOMBE
                 VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
                           APRIA HEALTHCARE GROUP INC.
                               3560 HYLAND AVENUE
                          COSTA MESA, CALIFORNIA 92626
                                 (714) 957-2000
            (Name, address, including zip code, and telephone number,
                   including area code, of agent for service)

                                   Copies to:

       WILLIAM G. ADAMS, ESQ.                      ROBERT J. WALDMAN, ESQ.
        KEVIN R. BAKER, ESQ.                        HOWARD I. FLACK, ESQ.
        O'MELVENY & MYERS LLP                      HOGAN & HARTSON L.L.P.
      610 NEWPORT CENTER DRIVE                COLUMBIA SQUARE, 555 13TH ST., NW
NEWPORT BEACH, CALIFORNIA 92660-6429             WASHINGTON, D.C. 20004-1109
           (714) 760-9600                              (202) 637-5600

       APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon 
as practicable after the Registration Statement becomes effective.

       If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /

   
                        CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
=================================================================================================
Title of Each Class          Amount      Proposed Maximum      Proposed Maximum       Amount of  
of Securities to be          to be      Offering Price Per    Aggregate Offering     Registration
    Registered             Registered          Share               Price(2)           Fee(2)(3)  
-------------------------------------------------------------------------------------------------
<S>                         <C>           <C>                     <C>                 <C>        

Common Stock, par value     6,591,000         --                 $130,584,180         $39,571  
  $.001 per share(1)

=================================================================================================
</TABLE>
      
(1)   This Registration Statement also applies to Rights under the registrant's
      Rights Agreement which Rights will be attached to and tradeable only with
      the shares of Common Stock registered hereby. No registration fees are
      required for such Rights as they will be issued for no additional
      consideration.

(2)   Estimated solely for the purpose of computing the amount of the
      registration fee pursuant to Rule 457(f) under the Securities Act of 1933,
      as amended. The fee was computed in accordance with Rule 457(f)(1) based
      upon the market value of a share of Common Stock on November 7, 1996.

(3)   The Registrant paid a Registration Fee of $40,139 at the time of the
      initial filing of the Registration Statement and a Registration Fee of
      $3,963 at the time of the filing of Amendment No. 2 to the Registration
      Statement.
    

   
    

                            ------------------------

       The registrant hereby amends this Registration Statement on such date or 
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.

--------------------------------------------------------------------------------
<PAGE>   2
                           APRIA HEALTHCARE GROUP INC.
               CROSS-REFERENCE SHEET BETWEEN ITEMS IN FORM S-4 AND
              PROSPECTUS PURSUANT TO ITEM 501(B) OF REGULATION S-K

<TABLE>
<CAPTION>

Item                                                                      Location of Caption in
No.                      Form S-4 Caption                               Proxy Statement/Prospectus
------   -------------------------------------------------   ------------------------------------------------
<S>      <C>                                                 <C>

  1.     Forepart of the Registration Statement and
         Outside Front Cover Page of Prospectus...........   Facing Page of Registration Statement; Outside
                                                             Front Cover Page

  2.     Inside Front and Outside Back Cover Pages of
         Prospectus.......................................   Inside Front Cover Page; Available Information;
                                                             Table of Contents

  3.     Risk Factors, Ratio of Earnings to Fixed
         Charges and Other Information....................   Summary; Selected Financial Information;
                                                             Investment Considerations; The Special Meeting;
                                                             The Merger; Comparative Per Share Data

  4.     Terms of the Transaction.........................   Summary; The Merger; The Merger Agreement;
                                                             Comparison of Apria and Vitas Stockholder Rights

  5.     Pro Forma Financial Information..................   Selected Financial Information; Unaudited Pro
                                                             Forma Condensed Combined Financial Statements

  6.     Material Contracts with the Company Being
         Acquired.........................................   The Merger

  7.     Additional Information Required for Reoffering
         by Persons and Parties Deemed to Be
         Underwriters.....................................   Not Applicable

  8.     Interests of Named Experts and Counsel...........   Not Applicable

  9.     Disclosure of Commission Position on
         Indemnification for Securities Act Liabilities...   Not Applicable

  10.    Information With Respect to S-3 Registrants......   Not Applicable

  11.    Incorporation of Certain Information by
         Reference........................................   Not Applicable

  12.    Information With Respect to S-2 or S-3
         Registrants......................................   Not Applicable

  13.    Incorporation of Certain Information by
         Reference........................................   Not Applicable

  14.    Information With Respect to Registrants Other
         Than S-2 or S-3 Registrants......................   Not Applicable

  15.    Information With Respect to S-3 Companies........   Not Applicable

  16.    Information With Respect to S-2 or S-3
         Companies........................................   Not Applicable

  17.    Information With Respect to Companies Other
         Than S-2 or S-3 Companies........................   Summary; Selected Financial Information; Selected
                                                             Quarterly Financial Information - Vitas; Vitas
                                                             Management's Discussion and Analysis of Financial
                                                             Condition and Results of Operations

  18.    Information if Proxies, Consents or
         Authorizations Are to be Solicited...............   Notice of Special Meeting of Stockholders; Outside
                                                             Front Cover Page; Summary; The Special Meeting;
                                                             The Merger; Principal Stockholders

  19.    Information if Proxies, Consents, or
         Authorizations Are Not to be Solicited, or in an
         Exchange Offer...................................   Not Applicable

</TABLE>

<PAGE>   3
                          VITAS HEALTHCARE CORPORATION
                          100 SOUTH BISCAYNE BOULEVARD
                              MIAMI, FLORIDA 33131


   
                                NOVEMBER 12, 1996
    

TO THE STOCKHOLDERS OF VITAS HEALTHCARE CORPORATION:

   
         You are cordially invited to attend a Special Meeting of Stockholders
of Vitas Healthcare Corporation ("Vitas") on December 2, 1996, at 8:00 a.m.,
local time, at 100 South Biscayne Boulevard, Miami, Florida 33131 (together with
any adjournment or postponement thereof, the "Special Meeting"). 
    
         
         As described in the enclosed Proxy Statement/Prospectus, at the Special
Meeting, (i) the holders of common stock, par value $.001 per share, of Vitas
("Vitas Common Stock"), voting separately as a class, and the holders of Series
B Convertible Preferred Stock, par value $1.00 per share, of Vitas ("Series B
Preferred"), voting separately as a class, will be asked to approve and adopt an
Agreement and Plan of Merger, dated as of June 28, 1996 and amended by an
Amendment No. 1 dated as of August 26, 1996 and an Amendment No. 2 dated as of
October 4, 1996 to Agreement and Plan of Merger (as amended, the "Merger
Agreement"), among Apria Healthcare Group Inc. ("Apria"), Apria Number Two,
Inc., a Delaware corporation which has not engaged in any material operations
since its incorporation and is a wholly-owned subsidiary of Apria ("Apria Sub"),
and Vitas, and the transactions contemplated thereunder, including a merger
pursuant to which Apria Sub would be merged with and into Vitas, with Vitas
being the surviving corporation (the "Merger"), and Vitas would become a wholly
owned subsidiary of Apria; and (ii) the holders of Vitas Common Stock and Series
B Preferred, voting together as one class, will be asked to approve separately
the payments to be made to me and Collibrook Consultants, Inc., a Florida
corporation ("Collibrook") owned and controlled by me and Esther T. Colliflower,
a Vice Chairperson and a Senior Vice President of Vitas, pursuant to a
Consulting, Severance and Confidentiality Agreement (the "Severance Agreement")
to be entered into among Vitas, me, Ms. Colliflower and Collibrook at or prior
to (but subject to) the closing of the Merger and the payments to be made to me
pursuant to a Noncompetition Agreement (the "Noncompetition Agreement") to be
entered into between Vitas and me at or prior to (but subject to) the closing of
the Merger in order that such payments not be characterized as "parachute
payments" for purposes of Sections 280G and 4999 of the Internal Revenue Code of
1986, as amended (the "Code"). A copy of the Merger Agreement (which includes as
exhibits the Severance Agreement and the Noncompetition Agreement) is attached
as Appendix A to the Proxy Statement/Prospectus.

         In connection with the Merger, (i) each share of Vitas Common Stock
issued and outstanding as of the Effective Time (as defined in the Merger
Agreement) other than shares owned by Vitas, Apria or any of their respective
subsidiaries (including Apria Sub) and other than shares as to which dissenters'
rights have been perfected under the Delaware General Corporation Law would be
converted into the right to receive 0.290 shares of common stock, par value
$.001 per share, of Apria ("Apria Common Stock"), subject to certain adjustments
in the event that (A) the closing price of Apria Common Stock on the New York
Stock Exchange on the trading day next preceding the Closing Date (as defined in
the Merger Agreement) of the Merger (the "Market Price") is lower than $27.125
or greater than $37.125 (the "Collar Adjustment") and/or (B) the Total Debt (as
defined in the Merger Agreement) of Vitas exceeds $39.1 million as reflected on
the Closing Balance Sheet (as defined in the Merger Agreement) of Vitas (the
"Debt Adjustment") (such exchange ratio, after giving effect to such
adjustments, is hereinafter referred to as the "Exchange Ratio"); (ii) each
share of 9.0% Cumulative Nonconvertible Preferred Stock, par value $1.00 per
share, of Vitas ("9% Preferred"), would remain outstanding, and, upon surrender
of the certificate representing the 9% Preferred, in accordance with the terms
of the Merger Agreement and a Significant Securityholders Agreement, dated as of
June 28, 1996 (the "Significant Securityholders Agreement", a copy of which is
attached as Appendix B to the Proxy Statement/Prospectus), executed by certain
securityholders of Vitas in connection with the Merger Agreement, would be
purchased by Apria at a price equal to its "Stated Value" of $100 per share,
together with all accrued and unpaid dividends thereon; (iii) each share of
Series B Preferred issued and outstanding as of the Effective Time, together
with all associated rights, preferences and restrictions set forth in the
Stockholders' Agreement, dated June 4, 1993, among Vitas and the parties named
therein, would, in accordance with the terms of the Merger Agreement and the
Significant Securityholders Agreement, first, be converted into a number of
shares of Vitas Common Stock issuable upon conversion of such share of Series B
Preferred and would then be converted into the right to receive a number of
shares of Apria Common Stock equal to the Exchange Ratio multiplied by the
number of shares of Vitas Common Stock so issued; (iv) each of the stock
purchase warrants issued by Vitas on December 17, 1991 and designated Warrant A
and Warrant B to purchase an aggregate of 3,952,958 shares of Vitas Common Stock
(collectively, the "Warrants"), and all associated rights, preferences and
restrictions set forth in the Investor Agreement, dated
<PAGE>   4
December 17, 1991, among Vitas and the parties named therein, would, in
accordance with the provisions of the Significant Securityholders Agreement, be
exchanged for a number of shares of Apria Common Stock equal to the product of
(x) the quotient obtained by dividing (A) $9.32 less the sum of (I) any Excess
Per Share Debt Amount (as defined in the Merger Agreement) and (II) the exercise
price per share of Vitas Common Stock issuable upon exercise of the Warrant by
(B) $32.125, times (y) the number of shares of Vitas Common Stock covered by
such Warrant, subject to certain adjustments; and (v) any stock option to
purchase shares of Vitas Common Stock outstanding immediately prior to the
Effective Time that has not been exercised in accordance with its terms would be
exchanged for the right to receive shares of Apria Common Stock as provided in
the Merger Agreement upon surrender of the stock option agreement applicable
thereto and provision for all applicable tax withholding, unless the holder
objects in writing to such exchange, in which case such stock option would
terminate in accordance with its terms. Cash would be paid in lieu of fractional
shares of Apria Common Stock. Each share of Apria Common Stock carries with it a
preferred share purchase right which entitles the holder to purchase, on the
occurrence of certain events, preferred stock, par value $.001 per share, of
Apria.

         The Collar Adjustment will be determined as of the Closing Date. The
Debt Adjustment is calculated based upon the Closing Balance Sheet. The Collar
Adjustment and the Debt Adjustment work independently of each other. If the
Market Price of Apria Common Stock were greater than $37.125, the Collar
Adjustment would serve to decrease the number of shares of Apria Common Stock
to be received in connection with the Merger. If the Market Price of Apria
Common Stock were lower than $27.125, the Collar Adjustment would serve to
increase the number of shares of Apria Common Stock to be received in
connection with the Merger. In either case, a Debt Adjustment would serve to
decrease the number of shares of Apria Common Stock to be received in
connection with the Merger.

   
         The closing price of Apria Common Stock on November 7, 1996 was $20.00
per share. If the Market Price of Apria Common Stock were $20.00, and assuming
there were no Debt Adjustment, the Exchange Ratio for each share of Vitas Common
Stock (including shares of Vitas Common Stock issuable upon conversion of the
Series B Preferred as contemplated by the Merger Agreement) would be 0.3417
shares of Apria Common Stock and a total of 5,316,752 shares of Apria Common
Stock would be issued in respect of all shares of Vitas Common Stock (and other
securities of Vitas, including the Series B Preferred, the Warrants and stock
options). Assuming the Exchange Ratio was 0.3417 and the closing price of Apria
Common Stock on the Closing Date was $20.00 per share, the value to be received
by Vitas securityholders on the Closing Date for each share of Vitas Common
Stock (including shares of Vitas Common Stock issuable upon conversion of the
Series B Preferred as contemplated by the Merger Agreement) would be $6.83, and
the total value to be received by Vitas securityholders on the Closing Date in
respect of all shares of Vitas Common Stock (and other securities of Vitas,
including the Series B Preferred, the Warrants and stock options) would be
approximately $106.3 million.
    
         
   
         If, after giving effect to any Collar Adjustment and any Debt
Adjustment, the actual Exchange Ratio is between 0.2909 and 0.4235, a total of
between approximately 4,505,000 shares and 6,591,000 shares of Apria Common
Stock would be issued in respect of all shares of Vitas Common Stock (and other
securities of Vitas, including the Series B Preferred, the Warrants and stock
options). If the actual Exchange Ratio is between 0.2909 and 0.4235 and the
closing price of Apria Common Stock on the Closing Date is between $14.125 per
share and $26.125 per share, the value to be received by Vitas securityholders
on the Closing Date for each share of Vitas Common Stock (including shares of
Vitas Common Stock issuable upon conversion of the Series B Preferred as
contemplated by the Merger Agreement) would be between $5.98 and $7.60, and the
total value to be received by Vitas securityholders on the Closing Date in
respect of all shares of Vitas Common Stock (and other securities of Vitas,
including the Series B Preferred, the Warrants and stock options) would be
between approximately $93.1 million and $117.7 million.
    
         
         THE MARKET VALUE OF APRIA COMMON STOCK THAT THE VITAS SECURITYHOLDERS
ULTIMATELY RECEIVE WILL BE SUBJECT TO FLUCTUATIONS IN THE MARKET PRICE OF APRIA
COMMON STOCK AND COULD BE MORE OR LESS THAN ITS MARKET VALUE ON THE DATE OF THE
PROXY STATEMENT/PROSPECTUS OR ON THE DATE OF THE SPECIAL MEETING. Furthermore,
no assurance can be given as to the market price of Apria Common Stock at any
time before the Closing Date or at any time thereafter. The market price of
Apria Common Stock has ranged from a high of $32.750 to a low of $17.125 since
the time the Merger Agreement was executed. See "THE MERGER
AGREEMENT--Conversion of Securities" in the Proxy Statement/Prospectus for a
detailed discussion of the adjustments to the Exchange Ratio and an illustrative
table that sets forth examples of some, but not all, possible Exchange Ratios
based upon different adjustment scenarios. 

         In unanimously approving the Merger Agreement, your Board of Directors
has determined that the Merger Agreement is in the best interests of Vitas and
all of Vitas' securityholders and recommends that the stockholders of Vitas vote
in favor of the Merger Agreement and the transactions contemplated thereunder,
including the Merger. In voting in favor of the Merger Agreement and such
transactions, Ms. Colliflower and I abstained from deliberations and voting with
respect to the Severance Agreement and the Noncompetition Agreement. In
addition, J.R. Williams, M.D. abstained from deliberations and voting with
respect to the proposed amendment to his severance agreement contemplated by the
Merger Agreement.

         Vitas retained the investment banking firm of Furman Selz LLC ("Furman
Selz") to act as its financial advisor in connection with the proposed Merger.
Furman Selz has delivered its written opinion, dated June 28, 1996, to Vitas
that the consideration to be received by the holders of Vitas Common Stock in
the Merger is fair to such holders from a financial point of view. A copy of
this opinion is attached as Appendix C to the Proxy Statement/Prospectus.

   
         The close of business on October 30, 1996 has been fixed by the Vitas
Board of Directors as the record date (the "Vitas Record Date") for the
determination of stockholders entitled to vote at the Special Meeting. The
affirmative vote of the holders of a majority of the Vitas Common Stock
outstanding on the Vitas Record Date, voting separately as a class, and the
affirmative vote of the holders of a majority of the Series B Preferred
outstanding on the Vitas Record Date, voting separately as a class, is necessary
to approve the Merger Agreement and the transactions contemplated thereunder,
including the Merger. THE SEPARATE AFFIRMATIVE VOTE OF THE HOLDERS OF 75% OF THE
TOTAL VOTES ATTRIBUTABLE TO THE AGGREGATE ISSUED AND OUTSTANDING SHARES OF VITAS
COMMON STOCK AND SERIES B PREFERRED ON THE VITAS RECORD DATE (EXCLUDING ANY
SHARES HELD DIRECTLY OR INDIRECTLY BY ME), VOTING TOGETHER AS ONE CLASS, IS
NECESSARY TO APPROVE THE PAYMENTS TO BE MADE TO ME AND COLLIBROOK UNDER THE
SEVERANCE AGREEMENT AND THE PAYMENTS TO BE MADE TO ME UNDER THE NONCOMPETITION
AGREEMENT IN ORDER THAT SUCH PAYMENTS NOT BE CHARACTERIZED AS "PARACHUTE
PAYMENTS" FOR PURPOSES OF SECTIONS 280G AND 4999 OF THE CODE AND IS A CONDITION
TO APRIA'S OBLIGATION TO EFFECT THE MERGER AND THE TRANSACTIONS CONTEMPLATED
UNDER THE MERGER AGREEMENT. Pursuant to the Significant Securityholders
Agreement, certain securityholders of Vitas, including me, among other things,
have agreed (i) to vote or cause to be voted all shares of capital stock of
Vitas owned of record or beneficially or held in any capacity by or under their
control and entitled to vote in favor of the Merger and the transactions
contemplated by the Merger Agreement and against any inconsistent actions,
proposals or transactions, (ii) to not claim or exercise any dissenter or
appraisal rights with respect to the Merger and (iii) to take other actions
contemplated by the Merger Agreement. Such securityholders own, as of the Vitas
Record Date, 1,948,944 shares of Vitas Common Stock (approximately 44.2% of the
outstanding Vitas Common Stock) and 200,000 shares of Series B Preferred
(approximately 76.2% of the outstanding Series B Preferred), which constitutes
approximately 39.2% of the total votes eligible to be voted by the holders of
Vitas Common Stock and Series B Preferred voting together as one class,
excluding any shares held directly or indirectly by me.
    
         
   
         Vitas anticipates that the Closing Date will occur as soon as
practicable after the Special Meeting. IN THE EVENT THAT THE EXPECTED EXCHANGE
RATIO AS OF THE DATE OF THE SPECIAL MEETING IS LOWER THAN 0.2909 OR GREATER THAN
0.4235, AND UNLESS THE MERGER AGREEMENT IS TERMINATED, (I) APRIA AND VITAS WILL
RECIRCULATE A SUPPLEMENT TO THE PROXY STATEMENT/PROSPECTUS, WHICH SUPPLEMENT
WILL SET FORTH, AMONG OTHER THINGS, THE MOST RECENT CLOSING PRICE OF APRIA
COMMON STOCK, VITAS' MOST RECENT ESTIMATE OF THE LIKELIHOOD OF A DEBT
ADJUSTMENT, AND A REVISED EXPECTED RANGE OF THE EXCHANGE RATIO, AND VITAS WILL
ADJOURN THE SPECIAL MEETING IF NECESSARY TO ENABLE THE VITAS STOCKHOLDERS TO
HAVE A REASONABLE PERIOD OF TIME TO REVIEW SUCH SUPPLEMENTAL MATERIALS, AND (II)
THE HOLDERS OF VITAS COMMON STOCK AND SERIES B PREFERRED WILL BE GIVEN AN
OPPORTUNITY TO CHANGE THEIR VOTES WITH RESPECT TO THE MERGER AND THE PAYMENTS TO
BE MADE TO ME AND COLLIBROOK PURSUANT TO THE SEVERANCE AGREEMENT AND THE
PAYMENTS TO BE MADE TO ME PURSUANT TO THE NONCOMPETITION AGREEMENT. 
    

   
         IF THE SPECIAL MEETING HAS ALREADY OCCURRED AND THE EXCHANGE RATIO AS
OF THE EXPECTED CLOSING DATE WOULD BE LOWER THAN 0.2909 OR GREATER THAN 0.4235,
AND UNLESS THE MERGER AGREEMENT IS TERMINATED, (I) VITAS WILL SET A DATE FOR A
NEW SPECIAL MEETING OF STOCKHOLDERS OF VITAS (THE "SUBSEQUENT MEETING"), (II)
APRIA AND VITAS WILL RECIRCULATE A SUPPLEMENT TO THE PROXY STATEMENT/PROSPECTUS,
WHICH SUPPLEMENT WILL SET FORTH, AMONG OTHER THINGS, THE MOST RECENT CLOSING
PRICE OF APRIA COMMON STOCK, VITAS' MOST RECENT ESTIMATE OF THE LIKELIHOOD OF A
DEBT ADJUSTMENT, AND A REVISED EXPECTED RANGE OF THE EXCHANGE RATIO, AND (III)
VITAS WILL RESOLICIT THE VOTES OF THE HOLDERS OF VITAS COMMON STOCK AND SERIES B
PREFERRED WITH RESPECT TO THE MERGER AND THE PAYMENTS TO BE MADE TO ME AND
COLLIBROOK PURSUANT TO THE SEVERANCE AGREEMENT AND THE PAYMENTS TO BE MADE TO ME
PURSUANT TO THE NONCOMPETITION AGREEMENT.
    

   
         THE ADJOURNMENT OF THE SPECIAL MEETING OR THE NECESSITY OF A SUBSEQUENT
MEETING COULD SUBSTANTIALLY DELAY THE CLOSING OF THE MERGER. ALTHOUGH THE
SPECIAL MEETING HAS BEEN SCHEDULED FOR DECEMBER 2, 1996, THE MERGER AGREEMENT
PROVIDES THAT IT MAY BE TERMINATED BY EITHER PARTY, SUBJECT TO CERTAIN
CONDITIONS, IN THE EVENT THE MERGER SHALL NOT HAVE OCCURRED BY OCTOBER 31, 1996.
THE MERGER AGREEMENT ALSO PROVIDES THAT IT MAY BE TERMINATED BY APRIA OR VITAS
IF THE MARKET PRICE OF APRIA COMMON STOCK IS LESS THAN $22.125. IN ADDITION, THE
MERGER AGREEMENT PROVIDES THAT IT MAY BE TERMINATED BY APRIA IF THERE IS A DEBT
ADJUSTMENT IN EXCESS OF $4 MILLION.
    

   
         DURING SEPTEMBER AND OCTOBER 1996, I HAD NUMEROUS CONVERSATIONS AND
PRIVATE MEETINGS WITH MR. JEREMY M. JONES, THE CHAIRMAN AND CHIEF EXECUTIVE
OFFICER OF APRIA, AS A RESULT OF WHICH I BELIEVED THAT APRIA INTENDED TO PROCEED
WITH THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT.  ON NOVEMBER 1,
1996, MR. JONES INFORMED ME BY TELEPHONE THAT APRIA'S MANAGEMENT WOULD BE
RECOMMENDING TO APRIA'S BOARD OF DIRECTORS THAT APRIA TERMINATE THE MERGER
AGREEMENT.  THIS INFORMATION CAME AS A COMPLETE SURPRISE TO ME.  APRIA LATER
THAT DAY SENT TWO DRAFT PRESS RELEASES TO VITAS, ONE PROPOSING TO REPORT
UNILATERAL TERMINATION OF THE MERGER AGREEMENT, AND THE OTHER PROPOSING TO
REPORT TERMINATION BY MUTUAL CONSENT.  ON NOVEMBER 2, 1996, I NOTIFIED MR. JONES
THAT VITAS WOULD NOT AGREE TO A MUTUAL TERMINATION OF THE MERGER AGREEMENT AND
THAT VITAS BELIEVED THAT APRIA DID NOT HAVE ANY BASIS FOR UNILATERALLY
TERMINATING THE MERGER AGREEMENT.  I ALSO INFORMED MR. JONES THAT IF APRIA
SOUGHT TO TERMINATE THE MERGER AGREEMENT UNILATERALLY, VITAS INTENDED TO
COMMENCE LITIGATION TO HOLD APRIA ACCOUNTABLE FOR THE DAMAGES INCURRED BY VITAS
AND WHICH VITAS WOULD INCUR IN CONNECTION WITH A WRONGFUL TERMINATION OF THE
MERGER AGREEMENT.
    

   
         ON NOVEMBER 3, 1996, APRIA'S COUNSEL NOTIFIED VITAS' COUNSEL THAT IN
ORDER TO AVOID COSTLY AND UNPRODUCTIVE LITIGATION, APRIA HAD ELECTED NOT TO
TERMINATE THE MERGER AGREEMENT AT SUCH TIME, BUT THAT APRIA BELIEVED THAT IT HAS
THE RIGHT TO DO SO AT ANY TIME AND DID NOT INTEND TO WAIVE SUCH RIGHT.  APRIA'S
COUNSEL ALSO ADVISED VITAS' COUNSEL THAT APRIA EXPECTED TO RESOLVE ANY REMAINING
ISSUES WITH THE SECURITIES AND EXCHANGE COMMISSION DURING THE EARLY PART OF THAT
WEEK, BUT THAT IT WAS APRIA'S INTENTION TO DISCUSS WITH VITAS THE BENEFITS OF A
MUTUAL TERMINATION OF THE MERGER AGREEMENT AND THE CONTENTS OF A PRESS RELEASE.
    

   
         ON NOVEMBER 5 AND 6, 1996, REPRESENTATIVES OF APRIA AND VITAS MET IN
WASHINGTON, D.C. TO DISCUSS THEIR RESPECTIVE POSITIONS CONCERNING THE POSSIBLE
TERMINATION OF THE MERGER AGREEMENT AND TO EXPLORE POSSIBLE ALTERNATIVES TO THE
TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT.  ON NOVEMBER 6, 1996, AFTER
CONSULTATION WITH VITAS, APRIA ISSUED A PRESS RELEASE, WHICH STATED IN PERTINENT
PART THAT APRIA HAD ENTERED INTO DISCUSSIONS WITH VITAS CONCERNING POSSIBLE
ALTERNATIVES TO THE MERGER AGREEMENT WHICH WOULD RESULT IN A MUTUAL TERMINATION
OF THE MERGER AGREEMENT.  THE PRESS RELEASE FURTHER STATED THAT APRIA'S DESIRE
TO TERMINATE THE MERGER AGREEMENT WAS BASED ON, AMONG OTHER THINGS, THE RECENT
DECLINE IN APRIA'S SHARE PRICE, THE NEED FOR APRIA TO FOCUS ON IMPROVING ITS
PERFORMANCE, AND THE APPARENT LACK OF ACCRETIVE VALUE OF THE COMBINATION OF THE
PARTIES IN 1997 AS A RESULT OF RECENT OPERATING RESULTS AND OTHER FACTORS.  THE
PRESS RELEASE FURTHER STATED THAT THE MERGER AGREEMENT PROVIDES FOR VARIOUS
TERMINATION RIGHTS, INCLUDING TERMINATION BY EITHER PARTY IF THE CLOSING PRICE
OF APRIA COMMON STOCK ON THE DAY PRIOR TO THE CLOSING OF THE MERGER IS LESS THAN
$22.125.
    

   
         APRIA HAS ADVISED VITAS THAT APRIA'S MANAGEMENT PRESENTLY INTENDS TO
RECOMMEND TO APRIA'S BOARD OF DIRECTORS THAT THE MERGER AGREEMENT BE TERMINATED.
APRIA FURTHER HAS ADVISED VITAS THAT APRIA'S MANAGEMENT CONTINUES TO BELIEVE
THAT THE COMBINATION LACKS ACCRETIVE VALUE FOR THE PARTIES IN 1997, AND THAT
APRIA DOES NOT INTEND TO WAIVE ANY TERMINATION RIGHTS THAT APRIA BELIEVES IT 
HAS UNDER THE MERGER AGREEMENT.  APRIA IS CONTINUING TO TAKE STEPS TOWARD A
POSSIBLE CLOSING OF THE MERGER IN ORDER TO PRESERVE ANY SUCH RIGHTS REGARDING
TERMINATION, WHILE DISCUSSING WITH VITAS ALTERNATIVES TO THE MERGER. 
    

   
         AS OF THE DATE OF THE PROXY STATEMENT/PROSPECTUS, NO AGREEMENT HAS BEEN
REACHED BETWEEN APRIA AND VITAS WITH RESPECT TO ANY ALTERNATIVES TO THE MERGER
AGREEMENT OR THE TERMINATION THEREOF.  VITAS CONTINUES TO BELIEVE THAT APRIA HAS
NO BASIS FOR TERMINATING THE MERGER AGREEMENT.  IF APRIA SEEKS TO TERMINATE THE
MERGER AGREEMENT UNILATERALLY, VITAS CURRENTLY INTENDS TO CHALLENGE SUCH
PURPORTED TERMINATION, ALTHOUGH THERE CAN BE NO ASSURANCE THAT VITAS WOULD BE
SUCCESSFUL.
    

                                        2
<PAGE>   5
         The accompanying Proxy Statement/Prospectus contains a detailed
description of the terms of the Merger Agreement and the transactions
contemplated thereunder, and includes a description of the respective businesses
of Vitas and Apria, summary financial information of Vitas and Apria, a
description of the Apria Common Stock to be received in connection with the
Merger and additional information regarding the proposed Merger. YOU ARE URGED
TO READ THE PROXY STATEMENT/PROSPECTUS CAREFULLY. IT IS VERY IMPORTANT THAT YOUR
SHARES BE REPRESENTED AT THE SPECIAL MEETING. WHETHER OR NOT YOU PLAN TO ATTEND
THE SPECIAL MEETING, YOU ARE REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE
ENCLOSED PROXY CARD PROMPTLY IN THE ENCLOSED PRE-ADDRESSED AND PRE-PAID 
ENVELOPE. If you attend the Special Meeting, you may vote in person if you 
wish, even though you have previously returned your proxy. FAILURE TO RETURN A 
PROPERLY EXECUTED PROXY OR TO VOTE AT THE SPECIAL MEETING WILL HAVE THE SAME 
EFFECT AS A VOTE AGAINST THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED 
THEREUNDER, INCLUDING THE MERGER.

                                            Sincerely,


                                            Hugh A. Westbrook
                                            Chairman and Chief Executive Officer







                                        3
<PAGE>   6
                          VITAS HEALTHCARE CORPORATION
                          100 SOUTH BISCAYNE BOULEVARD
                              MIAMI, FLORIDA 33131

   
                          NOTICE OF SPECIAL MEETING OF
                  STOCKHOLDERS TO BE HELD ON DECEMBER 2, 1996
    

TO THE STOCKHOLDERS OF VITAS HEALTHCARE CORPORATION:

   
         A Special Meeting of Stockholders of Vitas Healthcare Corporation
("Vitas") will be held at 100 South Biscayne Boulevard, Miami, Florida 33131, on
December 2, 1996, at 8:00 a.m., local time (together with any adjournment or
postponement thereof, the "Special Meeting"), for the following purposes: 
    

1.    FOR THE HOLDERS OF COMMON STOCK, PAR VALUE $.001 PER SHARE, OF VITAS
      ("VITAS COMMON STOCK"), VOTING SEPARATELY AS A CLASS, AND THE HOLDERS OF
      SERIES B CONVERTIBLE PREFERRED STOCK, PAR VALUE $1.00 PER SHARE, OF VITAS
      ("SERIES B PREFERRED"), VOTING SEPARATELY AS A CLASS, TO CONSIDER AND VOTE
      UPON A PROPOSAL TO APPROVE AND ADOPT AN AGREEMENT AND PLAN OF MERGER,
      DATED AS OF JUNE 28, 1996 AND AMENDED BY AN AMENDMENT NO. 1 DATED AS OF
      AUGUST 26, 1996 AND AN AMENDMENT NO. 2 DATED AS OF OCTOBER 4, 1996 TO
      AGREEMENT AND PLAN OF MERGER (AS AMENDED, THE "MERGER AGREEMENT"), AMONG
      APRIA HEALTHCARE GROUP INC. ("APRIA"), APRIA NUMBER TWO, INC., A DELAWARE
      CORPORATION WHICH HAS NOT ENGAGED IN ANY MATERIAL OPERATIONS SINCE ITS
      INCORPORATION AND IS A WHOLLY-OWNED SUBSIDIARY OF APRIA ("APRIA SUB"), AND
      VITAS, AND THE TRANSACTIONS CONTEMPLATED THEREUNDER, INCLUDING A MERGER
      PURSUANT TO WHICH APRIA SUB WOULD BE MERGED WITH AND INTO VITAS, WITH
      VITAS BEING THE SURVIVING CORPORATION (THE "MERGER"), AND VITAS WOULD
      BECOME A WHOLLY OWNED SUBSIDIARY OF APRIA. A copy of the Merger Agreement
      is attached as Appendix A to the accompanying Proxy Statement/Prospectus.
      In connection with the Merger, (i) each share of Vitas Common Stock issued
      and outstanding as of the Effective Time (as defined in the Merger
      Agreement) other than shares owned by Vitas, Apria or any of their
      respective subsidiaries (including Apria Sub) and other than shares as to
      which dissenters' rights have been perfected under the Delaware General
      Corporation Law would be converted into the right to receive 0.290 shares
      of common stock, par value $.001 per share, of Apria ("Apria Common
      Stock"), subject to certain adjustments in the event that (A) the closing
      price of Apria Common Stock on the New York Stock Exchange on the trading
      day next preceding the Closing Date (as defined in the Merger Agreement)
      of the Merger (the "Market Price") is lower than $27.125 or greater than
      $37.125 (the "Collar Adjustment") and/or (B) the Total Debt (as defined in
      the Merger Agreement) of Vitas exceeds $39.1 million as reflected on the
      Closing Balance Sheet (as defined in the Merger Agreement) of Vitas (the
      "Debt Adjustment") (such exchange ratio, after giving effect to such
      adjustments, is hereinafter referred to as the "Exchange Ratio"); (ii)
      each share of 9.0% Cumulative Nonconvertible Preferred Stock, par value
      $1.00 per share, of Vitas ("9% Preferred"), would remain outstanding, and,
      upon surrender of the certificate representing the 9% Preferred, in
      accordance with the terms of the Merger Agreement and a Significant
      Securityholders Agreement, dated as of June 28, 1996 (the "Significant
      Securityholders Agreement," a copy of which is attached as Appendix B to
      the Proxy Statement/Prospectus), executed by certain securityholders of
      Vitas in connection with the Merger Agreement, would be purchased by Apria
      at a price equal to its "Stated Value" of $100 per share, together with
      all accrued but unpaid dividends thereon; (iii) each share of Series B
      Preferred issued and outstanding as of the Effective Time, together with
      all associated rights, preferences and restrictions set forth in the
      Stockholders' Agreement, dated June 4, 1993, among Vitas and the parties
      named therein, would, in accordance with the terms of the Merger Agreement
      and the Significant Securityholders Agreement, first be converted into a
      number of shares of Vitas Common Stock issuable upon conversion of such
      share of Series B Preferred and would then be converted into the right to
      receive a number of shares of Apria Common Stock equal to the Exchange
      Ratio multiplied by the number of shares of Vitas Common Stock so issued;
      (iv) each of the stock purchase warrants issued by Vitas on December 17,
      1991 and designated Warrant A and Warrant B to purchase an aggregate of
      3,952,958 shares of Vitas Common Stock (collectively, the "Warrants"), and
      all associated rights, preferences and restrictions set forth in the
      Investor Agreement, dated December 17, 1991, among Vitas and the parties
      named therein, would, in accordance with the provisions of the Significant
      Securityholders Agreement, be exchanged for a number of shares of Apria
      Common Stock equal to the product of (x) the quotient obtained by dividing
      (A) $9.32 less the sum of (I) any Excess Per Share Debt Amount (as defined
      in the Merger Agreement) and (II) the exercise price per share of Vitas
      Common Stock issuable upon exercise of the Warrant by (B) $32.125, times
      (y) the number of shares of Vitas Common Stock covered by such Warrant,
      subject to certain adjustments; and (v) any stock option to purchase
      shares of Vitas Common Stock outstanding immediately prior to the
      Effective Time that has not been exercised in accordance with its terms
      would be exchanged for the right to receive shares of Apria Common Stock
      as provided in the Merger Agreement upon surrender of the stock option
      agreement applicable thereto and provision for all applicable tax
      withholding, unless the holder objects in writing to such
<PAGE>   7
      exchange, in which case such stock option would terminate in accordance
      with its terms. Cash would be paid in lieu of fractional shares of Apria
      Common Stock. Each share of Apria Common Stock carries with it a preferred
      share purchase right which entitles the holder to purchase, on the
      occurrence of certain events, preferred stock, par value $.001 per share,
      of Apria.

2.    FOR THE HOLDERS OF VITAS COMMON STOCK AND SERIES B PREFERRED, VOTING 
      TOGETHER AS ONE CLASS, TO APPROVE SEPARATELY THE PAYMENTS TO BE MADE TO
      HUGH A. WESTBROOK, THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF VITAS, AND
      COLLIBROOK CONSULTANTS, INC., A FLORIDA CORPORATION ("COLLIBROOK") OWNED
      AND CONTROLLED BY MR. WESTBROOK AND ESTHER T. COLLIFLOWER, A VICE
      CHAIRPERSON AND A SENIOR VICE PRESIDENT OF VITAS, PURSUANT TO A
      CONSULTING, SEVERANCE AND CONFIDENTIALITY AGREEMENT (THE "SEVERANCE
      AGREEMENT") TO BE ENTERED INTO AMONG VITAS, MR. WESTBROOK, MS.
      COLLIFLOWER AND COLLIBROOK AT OR PRIOR TO (BUT SUBJECT TO) THE CLOSING OF
      THE MERGER AND THE PAYMENTS TO BE MADE TO MR. WESTBROOK PURSUANT TO A
      NONCOMPETITION AGREEMENT (THE "NONCOMPETITION AGREEMENT") TO BE ENTERED
      INTO BETWEEN VITAS AND MR. WESTBROOK AT OR PRIOR TO (BUT SUBJECT TO) THE
      CLOSING OF THE MERGER IN ORDER THAT SUCH PAYMENTS NOT BE CHARACTERIZED AS
      "PARACHUTE PAYMENTS" FOR PURPOSES OF SECTIONS 280G AND 4999 OF THE
      INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE").  The Severance
      Agreement and the Noncompetition Agreement are included as exhibits to
      the Merger Agreement attached as Appendix A to the Proxy
      Statement/Prospectus.

3.    To transact such other business as may properly come before the meeting or
      any adjournment or postponement thereof.

      The Collar Adjustment will be determined as of the Closing Date. The Debt
Adjustment is calculated based upon the Closing Balance Sheet. The Collar
Adjustment and the Debt Adjustment work independently of each other. If the
Market Price of Apria Common Stock were greater than $37.125, the Collar
Adjustment would serve to decrease the number of shares of Apria Common Stock
to be received in connection with the Merger. If the Market Price of Apria
Common Stock were lower than $27.125, the Collar Adjustment would serve to
increase the number of shares of Apria Common Stock to be received in
connection with the Merger. In either case, a Debt Adjustment would serve to
decrease the number of shares of Apria Common Stock to be received in
connection with the Merger.
      
   
      The closing price of Apria Common Stock on November 7, 1996 was $20.00 per
share. If the Market Price of Apria Common Stock were $20.00, and assuming there
were no Debt Adjustment, the Exchange Ratio for each share of Vitas Common Stock
(including shares of Vitas Common Stock issuable upon conversion of the Series B
Preferred as contemplated by the Merger Agreement) would be 0.3417 shares of
Apria Common Stock and a total of 5,316,752 shares of Apria Common Stock would
be issued in respect of all shares of Vitas Common Stock (and other securities
of Vitas, including the Series B Preferred, the Warrants and stock options).
Assuming the Exchange Ratio was 0.3417 and the closing price of Apria Common
Stock on the Closing Date was $20.00 per share, the value to be received by
Vitas securityholders on the Closing Date for each share of Vitas Common Stock
(including shares of Vitas Common Stock issuable upon conversion of the Series B
Preferred as contemplated by the Merger Agreement) would be $6.83, and the total
value to be received by Vitas securityholders on the Closing Date in respect of
all shares of Vitas Common Stock (and other securities of Vitas, including the
Series B Preferred, the Warrants and stock options) would be approximately
$106.3 million. 
    

   
      If, after giving effect to any Collar Adjustment and any Debt Adjustment,
the actual Exchange Ratio is between 0.2909 and 0.4235, a total of between
approximately 4,505,000 shares and 6,591,000 shares of Apria Common Stock would
be issued in respect of all shares of Vitas Common Stock (and other securities
of Vitas, including the Series B Preferred, the Warrants and stock options). If
the actual Exchange Ratio is between 0.2909 and 0.4235 and the closing price of
Apria Common Stock on the Closing Date is between $14.125 per share and $26.125
per share, the value to be received by Vitas securityholders on the Closing Date
for each share of Vitas Common Stock (including shares of Vitas Common Stock
issuable upon conversion of the Series B Preferred as contemplated by the Merger
Agreement) would be between $5.98 and $7.60, and the total value to be received
by Vitas securityholders on the Closing Date in respect of all shares of Vitas
Common Stock (and other securities of Vitas, including the Series B Preferred,
the Warrants and stock options) would be between approximately $93.1 million and
$117.7 million. 
    
     
      THE MARKET VALUE OF APRIA COMMON STOCK THAT THE VITAS SECURITYHOLDERS
ULTIMATELY RECEIVE WILL BE SUBJECT TO FLUCTUATIONS IN THE MARKET PRICE OF APRIA
COMMON STOCK AND COULD BE MORE OR LESS THAN ITS MARKET VALUE ON THE DATE OF THE
PROXY STATEMENT/PROSPECTUS OR ON THE DATE OF THE SPECIAL MEETING. Furthermore,
no assurance can be given as to the market price of Apria Common Stock at any
time before the Closing Date or at any time thereafter. The market price of
Apria Common Stock has ranged from a high of $32.750 to a low of $17.125 since
the time the Merger Agreement was executed. See "THE MERGER
AGREEMENT--Conversion of Securities" in the Proxy Statement/Prospectus for a
detailed discussion of the adjustments to the Exchange Ratio and an illustrative
table that sets forth examples of some, but not all, possible Exchange Ratios
based upon different adjustment scenarios. 
      
   
      The close of business on October 30, 1996 has been fixed by the Vitas
Board of Directors as the record date (the "Vitas Record Date") for the
determination of stockholders entitled to vote at the Special Meeting. The
affirmative vote of the holders of a majority of the Vitas Common Stock
outstanding on the Vitas Record Date, voting separately as a class, and the
affirmative vote of the holders of a majority of the Series B Preferred
outstanding on the Vitas Record Date, voting separately as a class, is necessary
to approve the Merger Agreement and the transactions contemplated thereunder,
including the Merger. THE SEPARATE AFFIRMATIVE VOTE OF THE HOLDERS OF 75% OF THE
TOTAL VOTES ATTRIBUTABLE TO THE AGGREGATE ISSUED AND OUTSTANDING SHARES OF VITAS
COMMON STOCK AND SERIES B PREFERRED ON THE VITAS RECORD DATE (EXCLUDING ANY
SHARES HELD DIRECTLY OR INDIRECTLY BY MR. WESTBROOK), VOTING TOGETHER AS ONE
CLASS, IS NECESSARY TO APPROVE THE PAYMENTS TO BE MADE TO MR. WESTBROOK AND
COLLIBROOK UNDER THE SEVERANCE AGREEMENT AND THE PAYMENTS TO BE MADE TO MR.
WESTBROOK UNDER THE NONCOMPETITION AGREEMENT IN ORDER THAT SUCH PAYMENTS NOT BE
CHARACTERIZED AS "PARACHUTE PAYMENTS" FOR PURPOSES OF SECTIONS 280G AND 4999 OF
THE CODE AND IS A CONDITION TO APRIA'S OBLIGATION TO EFFECT THE MERGER AND THE
TRANSACTIONS CONTEMPLATED UNDER THE MERGER AGREEMENT. Pursuant to the
Significant Securityholders Agreement, certain securityholders of Vitas,
including Mr. Westbrook, among other things, have agreed (i) to vote or cause to
be voted all shares of capital stock of Vitas owned of record or beneficially or
held in any capacity by or under their control and entitled to vote in favor of
the Merger and the transactions contemplated by the Merger Agreement and against
any inconsistent actions, proposals or transactions, (ii) to not claim or
exercise any dissenter or appraisal rights with respect to the Merger and (iii)
to take other actions contemplated by the Merger Agreement. Such securityholders
own, as of the Vitas Record Date, 1,948,944 shares of Vitas Common Stock
(approximately 44.2% of the outstanding Vitas Common Stock) and 200,000 shares
of Series B Preferred (approximately 76.2% of the outstanding Series B
Preferred), which constitutes approximately 39.2% of the total votes eligible to
be voted by the holders of Vitas Common Stock and Series B Preferred voting
together as one class, excluding any shares held directly or indirectly by Mr.
Westbrook. A complete list of stockholders entitled to vote at the Special
Meeting will be available for examination by any Vitas stockholder, for any
purpose germane to the Special Meeting, at the office of the Secretary of Vitas,
Vitas Healthcare Corporation, 100 South Biscayne Boulevard, Miami, Florida 33131
during the twenty-day period preceding the Special Meeting.
    
      
   
     Vitas anticipates that the Closing Date will occur as soon as practicable
after the Special Meeting. IN THE EVENT THAT THE EXPECTED EXCHANGE RATIO AS OF
THE DATE OF THE SPECIAL MEETING IS LOWER THAN 0.2909 OR GREATER THAN 0.4235, AND
UNLESS THE MERGER AGREEMENT IS TERMINATED, (I) APRIA AND VITAS WILL RECIRCULATE
A SUPPLEMENT TO THE PROXY STATEMENT/PROSPECTUS, WHICH SUPPLEMENT WILL SET FORTH,
AMONG OTHER THINGS, THE MOST RECENT CLOSING PRICE OF APRIA COMMON STOCK, VITAS'
MOST RECENT ESTIMATE OF THE LIKELIHOOD OF A DEBT ADJUSTMENT, AND A REVISED
EXPECTED RANGE OF THE EXCHANGE RATIO, AND VITAS WILL ADJOURN THE SPECIAL MEETING
IF NECESSARY TO ENABLE THE VITAS STOCKHOLDERS TO HAVE A REASONABLE PERIOD OF
TIME TO REVIEW SUCH SUPPLEMENTAL MATERIALS, AND (II) THE HOLDERS OF VITAS COMMON
STOCK AND SERIES B PREFERRED WILL BE GIVEN AN OPPORTUNITY TO CHANGE THEIR VOTES
WITH RESPECT TO THE MERGER AND THE PAYMENTS TO BE MADE TO MR. WESTBROOK AND
COLLIBROOK PURSUANT TO THE SEVERANCE AGREEMENT AND THE PAYMENTS TO BE MADE TO
MR. WESTBROOK PURSUANT TO THE NONCOMPETITION AGREEMENT.
    

   
     IF THE SPECIAL MEETING HAS ALREADY OCCURRED AND THE EXCHANGE RATIO AS OF
THE EXPECTED CLOSING DATE WOULD BE LOWER THAN 0.2909 OR GREATER THAN 0.4235, AND
UNLESS THE MERGER AGREEMENT IS TERMINATED, (I) VITAS WILL SET A DATE FOR A NEW
SPECIAL MEETING OF STOCKHOLDERS OF VITAS (THE "SUBSEQUENT MEETING"), (II) APRIA
AND VITAS WILL RECIRCULATE A SUPPLEMENT TO THE PROXY STATEMENT/PROSPECTUS, WHICH
SUPPLEMENT WILL SET FORTH, AMONG OTHER THINGS, THE MOST RECENT CLOSING PRICE OF
APRIA COMMON STOCK, VITAS' MOST RECENT ESTIMATE OF THE LIKELIHOOD OF A DEBT
ADJUSTMENT, AND A REVISED EXPECTED RANGE OF THE EXCHANGE RATIO, AND (III) VITAS
WILL RESOLICIT THE VOTES OF THE HOLDERS OF VITAS COMMON STOCK AND SERIES B
PREFERRED WITH RESPECT TO THE MERGER AND THE PAYMENTS TO BE MADE TO MR.
WESTBROOK AND COLLIBROOK PURSUANT TO THE SEVERANCE AGREEMENT AND THE PAYMENTS TO
BE MADE TO MR. WESTBROOK PURSUANT TO THE NONCOMPETITION AGREEMENT.
    

   
     THE ADJOURNMENT OF THE SPECIAL MEETING OR THE NECESSITY OF A SUBSEQUENT
MEETING COULD SUBSTANTIALLY DELAY THE CLOSING OF THE MERGER. ALTHOUGH THE
SPECIAL MEETING HAS BEEN SCHEDULED FOR DECEMBER 2, 1996, THE MERGER AGREEMENT
PROVIDES THAT IT MAY BE TERMINATED BY EITHER PARTY, SUBJECT TO CERTAIN
CONDITIONS, IN THE EVENT THE MERGER SHALL NOT HAVE OCCURRED BY OCTOBER 31, 1996.
THE MERGER AGREEMENT ALSO PROVIDES THAT IT MAY BE TERMINATED BY APRIA OR VITAS
IF THE MARKET PRICE OF APRIA COMMON STOCK IS LESS THAN $22.125. IN ADDITION, THE
MERGER AGREEMENT PROVIDES THAT IT MAY BE TERMINATED BY APRIA IF THERE IS A DEBT
ADJUSTMENT IN EXCESS OF $4 MILLION. 
    

   
     DURING SEPTEMBER AND OCTOBER 1996, MR. WESTBROOK HAD NUMEROUS CONVERSATIONS
AND PRIVATE MEETINGS WITH MR. JEREMY M. JONES, THE CHAIRMAN AND CHIEF EXECUTIVE
OFFICER OF APRIA, AS A RESULT OF WHICH, ACCORDING TO MR. WESTBROOK, MR.
WESTBROOK BELIEVED THAT APRIA INTENDED TO PROCEED WITH THE TRANSACTIONS
CONTEMPLATED BY THE MERGER AGREEMENT.  ON NOVEMBER 1, 1996, MR. JONES INFORMED
MR. WESTBROOK BY TELEPHONE THAT APRIA'S MANAGEMENT WOULD BE RECOMMENDING TO
APRIA'S BOARD OF DIRECTORS THAT APRIA TERMINATE THE MERGER AGREEMENT.  ACCORDING
TO MR. WESTBROOK, THIS INFORMATION CAME AS A COMPLETE SURPRISE TO HIM.  APRIA
LATER THAT DAY SENT TWO DRAFT PRESS RELEASES TO VITAS, ONE PROPOSING TO REPORT
UNILATERAL TERMINATION OF THE MERGER AGREEMENT, AND THE OTHER PROPOSING TO
REPORT TERMINATION BY MUTUAL CONSENT.  ON NOVEMBER 2, 1996, MR. WESTBROOK
NOTIFIED MR. JONES THAT VITAS WOULD NOT AGREE TO A MUTUAL TERMINATION OF THE
MERGER AGREEMENT AND THAT VITAS BELIEVED THAT APRIA DID NOT HAVE ANY BASIS FOR
UNILATERALLY TERMINATING THE MERGER AGREEMENT.  MR. WESTBROOK ALSO INFORMED MR.
JONES THAT IF APRIA SOUGHT TO TERMINATE THE MERGER AGREEMENT UNILATERALLY, VITAS
INTENDED TO COMMENCE LITIGATION TO HOLD APRIA ACCOUNTABLE FOR THE DAMAGES
INCURRED BY VITAS AND WHICH VITAS WOULD INCUR IN CONNECTION WITH A WRONGFUL
TERMINATION OF THE MERGER AGREEMENT.
    

   
     ON NOVEMBER 3, 1996, APRIA'S COUNSEL NOTIFIED VITAS' COUNSEL THAT IN ORDER
TO AVOID COSTLY AND UNPRODUCTIVE LITIGATION, APRIA HAD ELECTED NOT TO TERMINATE
THE MERGER AGREEMENT AT SUCH TIME, BUT THAT APRIA BELIEVED THAT IT HAS THE RIGHT
TO DO SO AT ANY TIME AND DID NOT INTEND TO WAIVE SUCH RIGHT.  APRIA'S COUNSEL
ALSO ADVISED VITAS' COUNSEL THAT APRIA EXPECTED TO RESOLVE ANY REMAINING ISSUES
WITH THE SECURITIES AND EXCHANGE COMMISSION DURING THE EARLY PART OF THAT WEEK,
BUT THAT IT WAS APRIA'S INTENTION TO DISCUSS WITH VITAS THE BENEFITS OF A MUTUAL
TERMINATION OF THE MERGER AGREEMENT AND THE CONTENTS OF A PRESS RELEASE.
    

   
     ON NOVEMBER 5 AND 6, 1996, REPRESENTATIVES OF APRIA AND VITAS MET IN
WASHINGTON, D.C. TO DISCUSS THEIR RESPECTIVE POSITIONS CONCERNING THE POSSIBLE
TERMINATION OF THE MERGER AGREEMENT AND TO EXPLORE POSSIBLE ALTERNATIVES TO THE
TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT.  ON NOVEMBER 6, 1996, AFTER
CONSULTATION WITH VITAS, APRIA ISSUED A PRESS RELEASE, WHICH STATED IN PERTINENT
PART THAT APRIA HAD ENTERED INTO DISCUSSIONS WITH VITAS CONCERNING POSSIBLE
ALTERNATIVES TO THE MERGER AGREEMENT WHICH WOULD RESULT IN A MUTUAL TERMINATION
OF THE MERGER AGREEMENT.  THE PRESS RELEASE FURTHER STATED THAT APRIA'S DESIRE
TO TERMINATE THE MERGER AGREEMENT WAS BASED ON, AMONG OTHER THINGS, THE RECENT
DECLINE IN APRIA'S SHARE PRICE, THE NEED FOR APRIA TO FOCUS ON IMPROVING ITS
PERFORMANCE, AND THE APPARENT LACK OF ACCRETIVE VALUE OF THE COMBINATION OF THE
PARTIES IN 1997 AS A RESULT OF RECENT OPERATING RESULTS AND OTHER FACTORS.  THE
PRESS RELEASE FURTHER STATED THAT THE MERGER AGREEMENT PROVIDES FOR VARIOUS
TERMINATION RIGHTS, INCLUDING TERMINATION BY EITHER PARTY IF THE CLOSING PRICE
OF APRIA COMMON STOCK ON THE DAY PRIOR TO THE CLOSING OF THE MERGER IS LESS THAN
$22.125.
    

   
     APRIA HAS ADVISED VITAS THAT APRIA'S MANAGEMENT PRESENTLY INTENDS TO
RECOMMEND TO APRIA'S BOARD OF DIRECTORS THAT THE MERGER AGREEMENT BE TERMINATED.
APRIA FURTHER HAS ADVISED VITAS THAT APRIA'S MANAGEMENT CONTINUES TO BELIEVE
THAT THE COMBINATION LACKS ACCRETIVE VALUE FOR THE PARTIES IN 1997, AND THAT
APRIA DOES NOT INTEND TO WAIVE ANY TERMINATION RIGHTS THAT APRIA BELIEVES IT HAS
UNDER THE MERGER AGREEMENT.  APRIA IS CONTINUING TO TAKE STEPS TOWARD A POSSIBLE
CLOSING OF THE MERGER IN ORDER TO PRESERVE ANY SUCH RIGHTS REGARDING
TERMINATION, WHILE DISCUSSING WITH VITAS ALTERNATIVES TO THE MERGER. 
    

   
     AS OF THE DATE OF THE PROXY STATEMENT/PROSPECTUS, NO AGREEMENT HAS BEEN
REACHED BETWEEN APRIA AND VITAS WITH RESPECT TO ANY ALTERNATIVES TO THE MERGER
AGREEMENT OR THE TERMINATION THEREOF.  VITAS CONTINUES TO BELIEVE THAT APRIA HAS
NO BASIS FOR TERMINATING THE MERGER AGREEMENT.  IF APRIA SEEKS TO TERMINATE THE
MERGER AGREEMENT UNILATERALLY, VITAS CURRENTLY INTENDS TO CHALLENGE SUCH
PURPORTED TERMINATION, ALTHOUGH THERE CAN BE NO ASSURANCE THAT VITAS WOULD BE
SUCCESSFUL.
    

      All shares represented by properly executed proxies will be voted in
accordance with the specifications on the proxy card. If no such specifications
are made, proxies will be voted FOR approval and adoption of the Merger
Agreement and the transactions contemplated thereunder, including the Merger,
and FOR the payments to be made to Mr. Westbrook and Collibrook under the
Severance Agreement and the payments to be made to Mr. Westbrook under the
Noncompetition Agreement in order that such payments not be characterized as
"parachute payments" for purposes of Sections 280G and 4999 of the Code.
Stockholders of Vitas who do not vote in favor of or otherwise consent to
approval and adoption of the Merger Agreement and the Merger and who otherwise
comply with the provisions of Section 262 of the Delaware General Corporation
Law will have the right, if the Merger is consummated, to dissent and to demand
an appraisal of the fair value of their shares. A copy of Section 262 is


                                        2
<PAGE>   8
attached to the Proxy Statement/Prospectus as Appendix D. See "RIGHTS OF
DISSENTING VITAS STOCKHOLDERS" in the Proxy Statement/Prospectus for a
description of how to properly exercise dissenters' rights.

      The accompanying Proxy Statement/Prospectus contains a detailed
description of the terms of the Merger Agreement and the transactions
contemplated thereunder, and includes a description of the respective businesses
of Vitas and Apria, summary financial information of Vitas and Apria, a
description of the Apria Common Stock to be received in connection with the
Merger and additional information regarding the proposed Merger. YOU ARE URGED
TO READ THE PROXY STATEMENT/PROSPECTUS CAREFULLY. IT IS VERY IMPORTANT THAT YOUR
SHARES BE REPRESENTED AT THE SPECIAL MEETING. WHETHER OR NOT YOU PLAN TO ATTEND
THE SPECIAL MEETING, YOU ARE REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE
ENCLOSED PROXY CARD PROMPTLY IN THE ENCLOSED PRE-ADDRESSED AND PRE-PAID 
ENVELOPE. If you attend the Special Meeting, you may vote in person if you wish,
even though you have previously returned your proxy. FAILURE TO RETURN A 
PROPERLY EXECUTED PROXY OR TO VOTE AT THE SPECIAL MEETING WILL HAVE THE SAME 
EFFECT AS A VOTE AGAINST THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREUNDER, INCLUDING THE MERGER.


                                        By Order of the Vitas Board of Directors



                                        Hugh A. Westbrook
                                        Chairman and Chief Executive Officer

   
Miami, Florida
November 12, 1996
    


                                        3
<PAGE>   9
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.



   
                 SUBJECT TO COMPLETION, dated November 12, 1996
    

                           APRIA HEALTHCARE GROUP INC.
                                   PROSPECTUS

                          VITAS HEALTHCARE CORPORATION
                                 PROXY STATEMENT


   
         Vitas Healthcare Corporation, a Delaware corporation ("Vitas"), is
furnishing this Proxy Statement/Prospectus to the stockholders of Vitas in
connection with the solicitation of proxies by the Board of Directors of Vitas
for use at its Special Meeting of stockholders to be held on December 2, 1996
(together with any adjournment or postponement thereof, the "Special Meeting").
    

          At the Special Meeting, (i) the holders of common stock, par value
$.001 per share, of Vitas ("Vitas Common Stock"), voting separately as a class,
and the holders of Series B Convertible Preferred Stock, par value $1.00 per
share, of Vitas ("Series B Preferred"), voting separately as a class, will be
asked to approve and adopt an Agreement and Plan of Merger, dated as of June 28,
1996 and amended by an Amendment No. 1 dated as of August 26, 1996 and an
Amendment No. 2 dated as of October 4, 1996 to Agreement and Plan of Merger (as
amended, the "Merger Agreement"), among Apria Healthcare Group Inc. ("Apria"),
Apria Number Two, Inc., a Delaware corporation which has not engaged in any
material operations since its incorporation and is a wholly-owned subsidiary of
Apria ("Apria Sub"), and Vitas and the transactions contemplated thereunder,
including a merger pursuant to which Apria Sub would be merged with and into
Vitas, with Vitas being the surviving corporation (the "Merger"), and Vitas
would become a wholly owned subsidiary of Apria; and (ii) the holders of Vitas
Common Stock and Series B Preferred, voting together as one class, will be asked
to approve separately the payments to be made to Hugh A. Westbrook, the Chairman
and Chief Executive Officer of Vitas, and Collibrook Consultants, Inc., a
Florida corporation ("Collibrook") owned and controlled by Mr. Westbrook and
Esther T. Colliflower, a Vice Chairperson and a Senior Vice President of Vitas,
pursuant to a Consulting, Severance and Confidentiality Agreement (the
"Severance Agreement") to be entered into among Vitas, Mr. Westbrook, Ms.
Colliflower and Collibrook at or prior to (but subject to) the closing of the
Merger and the payments to be made to Mr. Westbrook pursuant to a Noncompetition
Agreement (the "Noncompetition Agreement") to be entered into between Vitas and
Mr. Westbrook at or prior to (but subject to) the closing of the Merger in order
that such payments not be characterized as "parachute payments" for purposes of
Sections 280G and 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), which approval is a condition to Apria's obligation to effect the
Merger and the transactions contemplated under the Merger Agreement. A copy of
the Merger Agreement (which includes as exhibits the Severance Agreement and the
Noncompetition Agreement) is attached as Appendix A to this Proxy
Statement/Prospectus.

          In connection with the Merger, (i) each share of Vitas Common Stock
issued and outstanding as of the Effective Time (as defined in the Merger
Agreement) other than shares owned by Vitas, Apria or any of their respective
subsidiaries (including Apria Sub) and other than shares as to which dissenters'
rights have been perfected under the Delaware General Corporation Law ("Delaware
GCL") would be converted into the right to receive 0.290 shares of common stock,
par value $.001 per share, of Apria ("Apria Common Stock"), subject to certain
adjustments in the event that (A) the closing price of Apria Common Stock on the
New York Stock Exchange on the trading day next preceding the Closing Date (as
defined in the Merger Agreement) of the Merger (the "Market Price") is lower
than $27.125 or greater than $37.125 (the "Collar Adjustment") and/or (B) the
Total Debt (as defined in the Merger Agreement) of Vitas exceeds $39.1 million
as reflected on the Closing Balance Sheet (as defined in the Merger Agreement)
of Vitas (the "Debt Adjustment") (such exchange ratio, after giving effect to
such adjustments, is hereinafter referred to as the "Exchange Ratio"); (ii) each
share of 9.0% Cumulative Nonconvertible Preferred Stock, par value $1.00 per
share, of Vitas ("9% Preferred"), would remain outstanding, and, upon surrender
of the certificate representing the 9% Preferred, in accordance with the terms
of the Merger Agreement and a Significant Securityholders Agreement, dated as of
June 28, 1996 (the "Significant Securityholders Agreement", a copy of which is
attached as Appendix B to this Proxy Statement/Prospectus), executed by certain
securityholders of Vitas in connection with the Merger Agreement, would be
purchased by Apria at a price equal to its "Stated Value" of $100 per share,
together with all accrued but unpaid dividends thereon; (iii) each share of
Series B Preferred issued and outstanding as of the Effective Time, together
with all associated rights, preferences and restrictions set forth in the
Stockholders' Agreement, dated June 4, 1993, among Vitas and the parties named
therein would, in accordance with the terms of the Merger Agreement and the
Significant Securityholders Agreement, first be converted into a number of
shares of Vitas Common Stock issuable upon conversion of such share of Series B
Preferred and would then be converted into the right to receive a number of
shares of Apria Common Stock equal to the Exchange Ratio multiplied by the
number of shares of Vitas Common Stock so issued; (iv) each of the stock
purchase warrants issued by Vitas on December 17, 1991 and designated Warrant A
and Warrant B to purchase an aggregate of 3,952,958 shares of Vitas Common Stock
(collectively, the "Warrants"), and all associated rights, preferences and
restrictions set forth in the Investor Agreement, dated December 17, 1991, among
Vitas and the parties named therein, would, in accordance with the
<PAGE>   10
provisions of the Significant Securityholders Agreement, be exchanged for a
number of shares of Apria Common Stock equal to the product of (x) the quotient
obtained by dividing (A) $9.32 less the sum of (I) any Excess Per Share Debt
Amount (as defined below) and (II) the exercise price per share of Vitas Common
Stock issuable upon exercise of the Warrant by (B) $32.125, times (y) the number
of shares of Vitas Common Stock covered by such Warrant, subject to certain
adjustments; and (v) any stock option to purchase shares of Vitas Common Stock
outstanding immediately prior to the Effective Time that has not been exercised
in accordance with its terms would be exchanged for the right to receive shares
of Apria Common Stock as provided in the Merger Agreement upon surrender of the
stock option agreement applicable thereto and provision for tax withholding as
provided in the Merger Agreement, unless the holder objects in writing to such
exchange, in which case such stock option would terminate in accordance with its
terms. Cash would be paid in lieu of fractional shares of Apria Common Stock.
Each share of Apria Common Stock carries with it a preferred share purchase
right which entitles the holder to purchase preferred stock, par value $.001
per share, of Apria, on the occurrence of certain events, such as a public
announcement that a person or group of persons (an "Acquiring Person") has
acquired, or obtained the right to acquire, beneficial ownership of 20% or more
of the Apria Common Stock, or the commencement of a tender offer or exchange
offer which would result in any person or group of persons becoming an Acquiring
Person. See "COMPARISON OF APRIA AND VITAS STOCKHOLDER RIGHTS--Apria Rights
Agreement."

         The Collar Adjustment will be determined as of the Closing Date. The
Debt Adjustment is calculated based upon the Closing Balance Sheet. The Collar
Adjustment and the Debt Adjustment work independently of each other. If the
Market Price of Apria Common Stock were greater than $37.125, the Collar
Adjustment would serve to decrease the number of shares of Apria Common Stock
to be received in connection with the Merger. If the Market Price of Apria
Common Stock were lower than $27.125, the Collar Adjustment would serve to
increase the number of shares of Apria Common Stock to be received in
connection with the Merger. In either case, a Debt Adjustment would serve to
decrease the number of shares of Apria Common Stock to be received in
connection with the Merger.

   
         The closing price of Apria Common Stock on November 7, 1996 was $20.00
per share. If the Market Price of Apria Common Stock were $20.00, and assuming
there were no Debt Adjustment, the Exchange Ratio for each share of Vitas Common
Stock (including shares of Vitas Common Stock issuable upon conversion of the
Series B Preferred as contemplated by the Merger Agreement) would be 0.3417
shares of Apria Common Stock and a total of 5,316,752 shares of Apria Common
Stock would be issued in respect of all shares of Vitas Common Stock (and other
securities of Vitas, including the Series B Preferred, the Warrants and stock
options). Assuming the Exchange Ratio was 0.3417 and the closing price of Apria
Common Stock on the Closing Date was $20.00 per share, the value to be received
by Vitas securityholders on the Closing Date for each share of Vitas Common
Stock (including shares of Vitas Common Stock issuable upon conversion of the
Series B Preferred as contemplated by the Merger Agreement) would be $6.83, and
the total value to be received by Vitas securityholders on the Closing Date in
respect of all shares of Vitas Common Stock (and other securities of Vitas,
including the Series B Preferred, the Warrants and stock options) would be
approximately $106.3 million.
    

   
         If, after giving effect to any Collar Adjustment and any Debt
Adjustment, the actual Exchange Ratio is between 0.2909 and 0.4235, a total of 
between approximately 4,505,000 shares and 6,591,000 shares of Apria Common
Stock would be issued in respect of all shares of Vitas Common Stock (and other
securities of Vitas, including the Series B Preferred, the Warrants and stock
options). If the actual Exchange Ratio is between 0.2909 and 0.4235 and the
closing price of Apria Common Stock on the Closing Date is between $14.125 per
share and $26.125 per share, the value to be received by Vitas securityholders
on the Closing Date for each share of Vitas Common Stock (including shares of
Vitas Common Stock issuable upon conversion of the Series B Preferred as
contemplated by the Merger Agreement) would be between $5.98 and $7.60, and the
total value to be received by Vitas securityholders on the Closing Date in
respect of all shares of Vitas Common Stock (and other securities of Vitas,
including the Series B Preferred, the Warrants and stock options) would be
between approximately $93.1 million and $117.7 million.
    

     THE MARKET VALUE OF APRIA COMMON STOCK THAT THE VITAS SECURITYHOLDERS
ULTIMATELY RECEIVE WILL BE SUBJECT TO FLUCTUATIONS IN THE MARKET PRICE OF APRIA
COMMON STOCK AND COULD BE MORE OR LESS THAN ITS MARKET VALUE ON THE DATE OF THIS
PROXY STATEMENT/PROSPECTUS OR ON THE DATE OF THE SPECIAL MEETING. Furthermore,
no assurance can be given as to the market price of Apria Common Stock at any
time before the Closing Date or at any time thereafter. The market price of
Apria Common Stock has ranged from a high of $32.750 to a low of $17.125 since
the time the Merger Agreement was executed. See "THE MERGER
AGREEMENT--Conversion of Securities" for a detailed discussion of the
adjustments to the Exchange Ratio and an illustrative table that sets forth
examples of some, but not all, possible Exchange Ratios based upon different
adjustment scenarios.

   
         Vitas anticipates that the Closing Date will occur as soon as
practicable after the Special Meeting. IN THE EVENT THAT THE EXPECTED EXCHANGE
RATIO AS OF THE DATE OF THE SPECIAL MEETING IS LOWER THAN 0.2909 OR GREATER THAN
0.4235, UNLESS THE MERGER AGREEMENT IS TERMINATED, (I) APRIA AND VITAS WILL
RECIRCULATE A SUPPLEMENT TO THIS PROXY STATEMENT/PROSPECTUS, WHICH SUPPLEMENT
WILL SET FORTH, AMONG OTHER THINGS, THE MOST RECENT CLOSING PRICE OF APRIA
COMMON STOCK, VITAS' MOST RECENT ESTIMATE OF THE LIKELIHOOD OF A DEBT
ADJUSTMENT, AND A REVISED EXPECTED RANGE OF THE EXCHANGE RATIO, AND VITAS WILL
ADJOURN THE SPECIAL MEETING IF NECESSARY TO ENABLE THE VITAS STOCKHOLDERS TO
HAVE A REASONABLE PERIOD OF TIME TO REVIEW SUCH SUPPLEMENTAL MATERIALS, AND (II)
THE HOLDERS OF VITAS COMMON STOCK AND SERIES B PREFERRED WILL BE GIVEN AN
OPPORTUNITY TO CHANGE THEIR VOTES WITH RESPECT TO THE MERGER AND THE PAYMENTS TO
BE MADE TO MR. WESTBROOK AND COLLIBROOK PURSUANT TO THE SEVERANCE AGREEMENT AND
THE PAYMENTS TO BE MADE TO MR. WESTBROOK PURSUANT TO THE NONCOMPETITION
AGREEMENT.
    

   
         IF THE SPECIAL MEETING HAS ALREADY OCCURRED AND THE EXCHANGE RATIO AS
OF THE EXPECTED CLOSING DATE WOULD BE LOWER THAN 0.2909 OR GREATER THAN 0.4235,
AND UNLESS THE MERGER AGREEMENT IS TERMINATED, (I) VITAS WILL SET A DATE FOR A
NEW SPECIAL MEETING OF STOCKHOLDERS OF VITAS (THE "SUBSEQUENT MEETING"), (II)
APRIA AND VITAS WILL RECIRCULATE A SUPPLEMENT TO THIS PROXY STATEMENT/
PROSPECTUS, WHICH SUPPLEMENT WILL SET FORTH, AMONG OTHER THINGS, THE MOST RECENT
CLOSING PRICE OF APRIA COMMON STOCK, VITAS' MOST RECENT ESTIMATE OF THE
LIKELIHOOD OF A DEBT ADJUSTMENT, AND A REVISED EXPECTED RANGE OF THE EXCHANGE
RATIO, AND (III) VITAS WILL RESOLICIT THE VOTES OF THE HOLDERS OF VITAS COMMON
STOCK AND SERIES B PREFERRED WITH RESPECT TO THE MERGER AND THE PAYMENTS TO BE
MADE TO MR. WESTBROOK AND COLLIBROOK PURSUANT TO THE SEVERANCE AGREEMENT AND THE
PAYMENTS TO BE MADE TO MR. WESTBROOK PURSUANT TO THE NONCOMPETITION AGREEMENT.
    

   
         THE ADJOURNMENT OF THE SPECIAL MEETING OR THE NECESSITY OF A SUBSEQUENT
MEETING COULD SUBSTANTIALLY DELAY THE CLOSING OF THE MERGER. ALTHOUGH THE
SPECIAL MEETING HAS BEEN SCHEDULED FOR DECEMBER 2, 1996, THE MERGER AGREEMENT
PROVIDES THAT IT MAY BE TERMINATED BY EITHER PARTY, SUBJECT TO CERTAIN
CONDITIONS, IN THE EVENT THE MERGER SHALL NOT HAVE OCCURRED BY OCTOBER 31, 1996.
THE MERGER AGREEMENT ALSO PROVIDES THAT IT MAY BE TERMINATED BY APRIA OR VITAS
IF THE MARKET PRICE OF APRIA COMMON STOCK IS LESS THAN $22.125. IN ADDITION, THE
MERGER AGREEMENT PROVIDES THAT IT MAY BE TERMINATED BY APRIA IF THERE IS A DEBT
ADJUSTMENT IN EXCESS OF $4 MILLION.
    

   
         DURING SEPTEMBER AND OCTOBER 1996, MR. WESTBROOK HAD NUMEROUS
CONVERSATIONS AND PRIVATE MEETINGS WITH MR. JEREMY M. JONES, THE CHAIRMAN AND
CHIEF EXECUTIVE OFFICER OF APRIA, AS A RESULT OF WHICH, ACCORDING TO MR.
WESTBROOK, MR. WESTBROOK BELIEVED THAT APRIA INTENDED TO PROCEED WITH THE
TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT.  ON NOVEMBER 1, 1996, MR.
JONES INFORMED MR. WESTBROOK BY TELEPHONE THAT APRIA'S MANAGEMENT WOULD BE
RECOMMENDING TO APRIA'S BOARD OF DIRECTORS THAT APRIA TERMINATE THE MERGER
AGREEMENT.  ACCORDING TO MR. WESTBROOK, THIS INFORMATION CAME AS A COMPLETE
SURPRISE TO HIM.  APRIA LATER THAT DAY SENT TWO DRAFT PRESS RELEASES TO VITAS,
ONE PROPOSING TO REPORT UNILATERAL TERMINATION OF THE MERGER AGREEMENT, AND THE
OTHER PROPOSING TO REPORT TERMINATION BY MUTUAL CONSENT.  ON NOVEMBER 2, 1996,
MR. WESTBROOK NOTIFIED MR. JONES THAT VITAS WOULD NOT AGREE TO A MUTUAL
TERMINATION OF THE MERGER AGREEMENT AND THAT VITAS BELIEVED THAT APRIA DID NOT
HAVE ANY BASIS FOR UNILATERALLY TERMINATING THE MERGER AGREEMENT.  MR. WESTBROOK
ALSO INFORMED MR. JONES THAT IF APRIA SOUGHT TO TERMINATE THE MERGER AGREEMENT
UNILATERALLY, VITAS INTENDED TO COMMENCE LITIGATION TO HOLD APRIA ACCOUNTABLE
FOR THE DAMAGES INCURRED BY VITAS AND WHICH VITAS WOULD INCUR IN CONNECTION WITH
A WRONGFUL TERMINATION OF THE MERGER AGREEMENT.
    

   
         ON NOVEMBER 3, 1996, APRIA'S COUNSEL NOTIFIED VITAS' COUNSEL THAT IN
ORDER TO AVOID COSTLY AND UNPRODUCTIVE LITIGATION, APRIA HAD ELECTED NOT TO
TERMINATE THE MERGER AGREEMENT AT SUCH TIME, BUT THAT APRIA BELIEVED THAT IT HAS
THE RIGHT TO DO SO AT ANY TIME AND DID NOT INTEND TO WAIVE SUCH RIGHT.  APRIA'S
COUNSEL ALSO ADVISED VITAS' COUNSEL THAT APRIA EXPECTED TO RESOLVE ANY REMAINING
ISSUES WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") DURING THE
EARLY PART OF THAT WEEK, BUT THAT IT WAS APRIA'S INTENTION TO DISCUSS WITH VITAS
THE BENEFITS OF A MUTUAL TERMINATION OF THE MERGER AGREEMENT AND THE CONTENTS OF
A PRESS RELEASE.
    

   
         ON NOVEMBER 5 AND 6, 1996, REPRESENTATIVES OF APRIA AND VITAS MET IN
WASHINGTON, D.C. TO DISCUSS THEIR RESPECTIVE POSITIONS CONCERNING THE POSSIBLE
TERMINATION OF THE MERGER AGREEMENT AND TO EXPLORE POSSIBLE ALTERNATIVES TO THE
TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT.  ON NOVEMBER 6, 1996, AFTER
CONSULTATION WITH VITAS, APRIA ISSUED A PRESS RELEASE, WHICH STATED IN PERTINENT
PART THAT APRIA HAD ENTERED INTO DISCUSSIONS WITH VITAS CONCERNING POSSIBLE
ALTERNATIVES TO THE MERGER AGREEMENT WHICH WOULD RESULT IN A MUTUAL TERMINATION
OF THE MERGER AGREEMENT.  THE PRESS RELEASE FURTHER STATED THAT APRIA'S DESIRE
TO TERMINATE THE MERGER AGREEMENT WAS BASED ON, AMONG OTHER THINGS, THE RECENT
DECLINE IN APRIA'S SHARE PRICE, THE NEED FOR APRIA TO FOCUS ON IMPROVING ITS
PERFORMANCE, AND THE APPARENT LACK OF ACCRETIVE VALUE OF THE COMBINATION OF THE
PARTIES IN 1997 AS A RESULT OF RECENT OPERATING RESULTS AND OTHER FACTORS.  THE
PRESS RELEASE FURTHER STATED THAT THE MERGER AGREEMENT PROVIDES FOR VARIOUS
TERMINATION RIGHTS, INCLUDING TERMINATION BY EITHER PARTY IF THE CLOSING PRICE
OF APRIA COMMON STOCK ON THE DAY PRIOR TO THE CLOSING OF THE MERGER IS LESS THAN
$22.125.
    

   
         APRIA HAS ADVISED VITAS THAT APRIA'S MANAGEMENT PRESENTLY INTENDS TO
RECOMMEND TO APRIA'S BOARD OF DIRECTORS THAT THE MERGER AGREEMENT BE 
TERMINATED.  APRIA FURTHER HAS ADVISED VITAS THAT APRIA'S MANAGEMENT CONTINUES 
TO BELIEVE THAT THE COMBINATION LACKS ACCRETIVE VALUE FOR THE PARTIES IN 1997, 
AND THAT APRIA DOES NOT INTEND TO WAIVE ANY TERMINATION RIGHTS THAT APRIA
BELIEVES IT HAS UNDER THE MERGER AGREEMENT.  APRIA IS CONTINUING TO TAKE STEPS
TOWARD A POSSIBLE CLOSING OF THE MERGER IN ORDER TO PRESERVE ANY SUCH RIGHTS
REGARDING TERMINATION, WHILE DISCUSSING WITH VITAS ALTERNATIVES TO THE MERGER.
    

   
         AS OF THE DATE OF THIS PROXY STATEMENT/PROSPECTUS, NO AGREEMENT HAS
BEEN REACHED BETWEEN APRIA AND VITAS WITH RESPECT TO ANY ALTERNATIVES TO THE
MERGER AGREEMENT OR THE TERMINATION THEREOF.  VITAS CONTINUES TO BELIEVE THAT
APRIA HAS NO BASIS FOR TERMINATING THE MERGER AGREEMENT.  IF APRIA SEEKS TO
TERMINATE THE MERGER AGREEMENT UNILATERALLY, VITAS CURRENTLY INTENDS TO
CHALLENGE SUCH PURPORTED TERMINATION, ALTHOUGH THERE CAN BE NO ASSURANCE THAT
VITAS WOULD BE SUCCESSFUL. 
    

         Stockholders of Vitas who do not vote in favor of or otherwise consent
to approval and adoption of the Merger Agreement and the Merger and who
otherwise comply with the provisions of Section 262 of the Delaware GCL will
have the right, if the Merger is consummated, to dissent and to demand an
appraisal of the fair value of their shares. A copy of Section 262 is attached
to this Proxy Statement/Prospectus as Appendix D. See "RIGHTS OF DISSENTING
VITAS STOCKHOLDERS."

   
         This Proxy Statement/Prospectus is first being mailed to stockholders
of Vitas on or about November 12, 1996.
    

   
         This Proxy Statement/Prospectus also constitutes the Prospectus of
Apria under the Securities Act of 1933, as amended (the "1933 Act"), for the
public offering of up to 6,591,000 shares of Apria Common Stock issuable in
connection with the Merger. This Proxy Statement/Prospectus does not cover
resales of such stock, and no person is authorized to use this Proxy
Statement/Prospectus in connection with any such resale. All information
concerning Apria contained in this Proxy Statement/Prospectus has been furnished
by Apria and all information concerning Vitas has been furnished by Vitas. All
information concerning the Significant Securityholders (as defined in the
Significant Securityholders Agreement) contained in this Proxy
Statement/Prospectus has been furnished by such Significant Securityholders.
    

         SEE "RISK FACTORS" AT PAGE 21 OF THIS PROXY STATEMENT/PROSPECTUS FOR 
A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED IN EVALUATING THE 
SECURITIES OFFERED HEREBY.

THE SHARES OF APRIA COMMON STOCK TO BE ISSUED IN THE MERGER HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

   
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS NOVEMBER 12, 1996.
    


                                        2
<PAGE>   11
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
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AVAILABLE INFORMATION...........................................................     6
                                                                                                                            
SUMMARY.........................................................................     7
         Introduction...........................................................     7
         Parties................................................................     7
         The Special Meeting....................................................     8
         The Merger.............................................................     9
         Payments to Mr. Westbrook and Collibrook...............................    16                              

SELECTED FINANCIAL INFORMATION..................................................    17
                                                                                   
SELECTED QUARTERLY FINANCIAL INFORMATION - VITAS................................    19
                                                                                   
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA...................    20
                                                                                   
RISK FACTORS....................................................................    21
     Integration of the Businesses..............................................    21
     Healthcare Reform..........................................................    21
     Pricing Pressures..........................................................    21
     Regulatory Environment.....................................................    21
     Recent Losses..............................................................    23
     Collectibility of Accounts Receivable......................................    23
     Competition................................................................    23
     Dependence on Relationships with Third Parties.............................    23
     Concentration of Large Payors..............................................    23
     Potential Liability........................................................    24
     Certain Anti-takeover Provisions...........................................    24
     Dependence on Key Personnel................................................    24
     Possible Volatility of Stock Price.........................................    24
     Dividend Policy............................................................    24
     Significant Potential Consequences if the Merger is Not Consummated........    24
     Apria Indebtedness.........................................................    24
     Potential Conflicts of Interest............................................    24
     Adjustments to Exchange Ratio..............................................    24
     Dilution of Voting Power...................................................    24

MARKET PRICE AND DIVIDENDS......................................................    25

COMPARATIVE PER SHARE DATA......................................................    26
                                                                                   
THE SPECIAL MEETING.............................................................    27
         Voting Information for Vitas Stockholders..............................    27
         Solicitation of Proxies................................................    28
                                                                                   
THE MERGER......................................................................    30
         General................................................................    30
         Background of the Merger...............................................    30
         Reasons for the Merger and Recommendation of the Board of Directors....    32
         Fairness Opinion of Vitas' Financial Advisor...........................    33
         Interests of Certain Persons in the Merger.............................    35
         Certain Federal Income Tax Consequences................................    37
         Regulatory Approvals...................................................    39
         Accounting Treatment...................................................    39
         Restrictions on Sales by Affiliates; Pooling Considerations............    39
                                                                                   
THE MERGER AGREEMENT............................................................    41
         The Merger.............................................................    41
         Effective Time of the Merger...........................................    41
         Conversion of Securities...............................................    41
         Treatment of Stock Options.............................................    43
         Exchange of Stock Certificates and Warrants............................    45
</TABLE>
                                      
                                        3
<PAGE>   12
<TABLE>
<CAPTION>
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         Fractional Shares.......................................................   46
         Vitas Indebtedness......................................................   46
         Representations and Warranties..........................................   46
         Covenants; Conduct of Business Prior to Effective Time..................   46
         Negotiations with Others................................................   48
         Management After the Merger.............................................   49
         Indemnification and Insurance...........................................   49
         Conditions to the Merger................................................   49
         Amendment...............................................................   51
         Termination.............................................................   51
         Effect of Termination...................................................   52
         Listing on Stock Exchange...............................................   53
                                                                                   
APRIA HEALTHCARE GROUP INC.......................................................   53
                                                                                   
VITAS HEALTHCARE CORPORATION.....................................................   53

COMPARISON OF APRIA AND VITAS STOCKHOLDER RIGHTS.................................   54
         Authorized Stock........................................................   54
         Preemptive Rights.......................................................   55
         Business Combinations...................................................   55
         Apria Rights Agreement..................................................   57
         Amendment of Certificate of Incorporation...............................   59
         Amendment of Bylaws.....................................................   59
         Stockholder Voting Rights Generally.....................................   60
         Stockholder Action by Written Consent...................................   61
         Special Stockholder Meetings............................................   61
         Number and Election of Directors........................................   62
         Removal of Directors....................................................   63
         Vacancies on the Board of Directors.....................................   63
         Transactions Involving Officers or Directors............................   64
         Indemnification of Directors............................................   64
         Limitation of Personal Liability of Directors...........................   65
         Declaration of Dividends................................................   65
         Stock Ownership and Transfer Restrictions...............................   66
         Appraisal Rights........................................................   67
         Inspection of Stockholder List..........................................   67
         Liquidation Rights Upon Dissolution.....................................   68
         Redemption of Securities................................................   68
                                                                                   
APRIA HEALTHCARE GROUP INC. CAPITAL STOCK........................................   69
                                                                                   
RIGHTS OF DISSENTING VITAS STOCKHOLDERS..........................................   70
                                                                                   
PROPOSAL TO APPROVE SEPARATELY THE PAYMENTS TO HUGH A. WESTBROOK AND
COLLIBROOK PURSUANT TO THE SEVERANCE AND NONCOMPETITION AGREEMENTS TO BE                                                
ENTERED INTO IN CONNECTION WITH THE MERGER IN ORDER THAT SUCH PAYMENTS
NOT BE CHARACTERIZED AS "PARACHUTE PAYMENTS" FOR PURPOSES OF SECTIONS
280G AND 4999 OF THE CODE........................................................   71
         Background of the Severance Agreement and the Noncompetition Agreement..   71
         The Severance Agreement and the Noncompetition Agreement................   71
         Recommendation of the Board of Directors................................   72

PRINCIPAL STOCKHOLDERS...........................................................   73
         Apria Security Ownership................................................   73
         Vitas Security Ownership................................................   76
</TABLE>

                              

                                        4
<PAGE>   13
   
<TABLE>
<CAPTION>
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LEGAL OPINION...................................................................    80
                                                                                   
EXPERTS.........................................................................    80
         Apria Healthcare Group Inc.............................................    80
         Vitas Healthcare Corporation...........................................    80

VITAS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND                               
         RESULTS OF OPERATIONS..................................................    80
         Introduction    .......................................................    80
         Results of Operations..................................................    81
         Nine Months Ended June 30, 1996 Compared to Nine Months Ended
           June 30, 1995........................................................    81
         Fiscal Year Ended September 30, 1995 Compared to Fiscal Year Ended
           September 30, 1994...................................................    82
         Fiscal Year Ended September 30, 1994 Compared to Fiscal Year Ended
           September 30, 1993...................................................    83
         Liquidity and Capital Resources........................................    83
         Matters Concerning Third-Party Reimbursement...........................    84
         Effect of Inflation....................................................    84
                                                                                                    
REGULATORY ENVIRONMENT..........................................................    84
        Reimbursement...........................................................    84
        Fraud and Abuse Laws....................................................    84
        Qui Tam Lawsuit.........................................................    84
        Operation Restore Trust.................................................    84
        Other Federal and State Regulations.....................................    84

FORWARD LOOKING STATEMENTS......................................................    84
                                                                                                    
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS.....................    86
                                                                                                    
INDEX TO FINANCIAL STATEMENTS OF VITAS HEALTHCARE CORPORATION...................   F-1
                                                                                                    
Appendix A -- Agreement and Plan of Merger, as amended..........................   A-1
                                                                                                    
Appendix B -- Significant Securityholders Agreement.............................   B-1
                                                                                                    
Appendix C -- Fairness Opinion of Vitas' Financial Advisor......................   C-1
                                                                                                    
Appendix D -- Section 262 of the General Corporation Law of the
              State of Delaware.................................................   D-1

Appendix E -- Apria's Annual Report on Form 10-K for the fiscal year ended
              December 31, 1995, as amended.....................................   E-1 

Appendix F -- Apria's Quarterly Report on Form 10-Q for the fiscal quarter 
              ended March 31, 1996..............................................   F-1

Appendix G -- Apria's Quarterly Report on Form 10-Q for the fiscal quarter
              ended June 30, 1996, as amended...................................   G-1

Appendix H -- Apria's definitive Proxy Statement, dated May 8, 1996, used in
              connection with Apria's Annual Meeting of Stockholders held on 
              June 12, 1996.....................................................   H-1

Appendix I -- Registration Statement on Form 8-A filed on February 11, 1992,
              under Apria's prior name, Abbey Healthcare Group Incorporated.....   I-1

Appendix J -- Registration Statement on Form 8-A filed on June 26, 1995, 
              under Apria's prior name, Abbey Healthcare Group Incorporated.....   J-1  

</TABLE>
    

                                          

                                        5
<PAGE>   14
                              AVAILABLE INFORMATION
   
         Apria is subject to the information reporting requirements of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and in accordance
therewith files reports, proxy statements, information statements and other
information with the Commission. Such reports, proxy statements, information
statements and other information can be inspected and copied at the Commission's
public reference room located at Judiciary Plaza, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549 and at the public reference facilities maintained
by the Commission at its regional offices located at Suite 1400, Northwestern
Atrium Center, 500 West Madison Street, Chicago, Illinois 60661, and 7 World
Trade Center, Suite 1300, New York, New York 10048. Copies of such materials can
be obtained from the Commission at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding Apria and other registrants that file
electronically with the Commission at http://www.sec.gov. Apria Common Stock is
listed on the New York Stock Exchange, and reports, proxy statements,
information statements and other information concerning Apria also may be
inspected at the offices of such exchange.
    

         Apria has filed with the Commission a Registration Statement (No.
333-09407) under the 1933 Act relating to the shares of Apria Common Stock
issuable in connection with the Merger. This Proxy Statement/Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits thereto, certain parts of which are omitted in accordance with the
rules and regulations of the Commission. The Registration Statement and any
amendments thereto, including exhibits filed as a part thereof, are available
for inspection and copying as set forth above.

         No person is authorized to give any information or to make any
representations with respect to the matters described in this Proxy
Statement/Prospectus other than those contained herein. Any information or
representations with respect to such matters not contained herein or therein
must not be relied upon as having been authorized by Apria or Vitas. This Proxy
Statement/Prospectus does not constitute an offer to sell or a solicitation of
an offer to buy securities in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction. Neither the
delivery of this Proxy Statement/Prospectus nor any sale made hereunder shall,
under any circumstances, create any implication that there has been no change in
the affairs of Apria or Vitas since the date hereof or that the information in
this Proxy Statement/Prospectus is correct as of any time subsequent to the
dates hereof or thereof.


                                        6
<PAGE>   15
                                     SUMMARY

         The following is a brief summary of certain information contained
elsewhere in this Proxy Statement/Prospectus. This summary is qualified in its
entirety by reference to the full text of this Proxy Statement/Prospectus and
the Appendices hereto. Stockholders are urged to read this Proxy
Statement/Prospectus before voting on the matters discussed herein.
         
         Information contained in this Proxy Statement/Prospectus contains
"forward- looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, which can be identified by the use of
forward-looking terminology, such as "may," "will," "expect," "anticipate,"
"estimate" or "continue" or the negative thereof or other variations thereon or
comparable terminology. See "FORWARD LOOKING STATEMENTS." The matters set forth
under the caption "RISK FACTORS" in this Proxy Statement/Prospectus constitute
cautionary statements identifying important factors with respect to such
forward-looking statements, including certain risks and uncertainties, that
could cause actual results to differ materially from those in such
forward-looking statements.

INTRODUCTION

   
         A Special Meeting of Stockholders of Vitas Healthcare Corporation
("Vitas") will be held on December 2, 1996, at 8:00 a.m., local time, at 100
South Biscayne Boulevard, Miami, Florida 33131, (together with any adjournment
or postponement thereof, the "Special Meeting"). At the Special Meeting, (i) the
holders of common stock, par value $.001 per share, of Vitas ("Vitas Common
Stock"), voting separately as a class, and the holders of Series B Convertible
Preferred Stock, par value $1.00 per share, of Vitas ("Series B Preferred"),
voting separately as a class, will be asked to approve and adopt an Agreement
and Plan of Merger, dated as of June 28, 1996 and amended by an Amendment No. 1
dated as of August 26, 1996 and an Amendment No. 2 dated as of October 4, 1996
to Agreement and Plan of Merger (as amended, the "Merger Agreement"), among
Apria Healthcare Group Inc. ("Apria"), Apria Number Two, Inc., a Delaware
corporation which has not engaged in any material operations since its
incorporation and is a wholly-owned subsidiary of Apria ("Apria Sub"), and
Vitas, and the transactions contemplated thereunder, including a merger pursuant
to which Apria Sub would be merged with and into Vitas (the "Merger"), with
Vitas being the surviving corporation (the "Surviving Corporation"), and Vitas
would become a wholly owned subsidiary of Apria; and (ii) the holders of Vitas
Common Stock and Series B Preferred, voting together as one class, will be asked
to approve separately the payments to be made to Hugh A. Westbrook, the Chairman
and Chief Executive Officer of Vitas, and Collibrook Consultants, Inc., a
Florida corporation ("Collibrook") owned and controlled by Mr. Westbrook and
Esther T. Colliflower, a Vice Chairperson and a Senior Vice President of Vitas,
pursuant to a Consulting, Severance and Confidentiality Agreement (the
"Severance Agreement") to be entered into among Vitas, Mr. Westbrook, Ms.
Colliflower and Collibrook at or prior to (but subject to) the closing of the
Merger and the payments to be made to Mr. Westbrook pursuant to a Noncompetition
Agreement (the "Noncompetition Agreement") to be entered into between Vitas and
Mr. Westbrook at or prior to (but subject to) the closing of the Merger in order
that such payments not be characterized as "parachute payments" for purposes of
Sections 280G and 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"). A copy of the Merger Agreement (which includes as exhibits the
Severance Agreement and the Noncompetition Agreement) is attached hereto as
Appendix A. See "THE MERGER," "THE MERGER AGREEMENT" and "PROPOSAL TO APPROVE
SEPARATELY THE PAYMENTS TO HUGH A. WESTBROOK AND COLLIBROOK PURSUANT TO THE
SEVERANCE AND NONCOMPETITION AGREEMENTS TO BE ENTERED INTO IN CONNECTION WITH
THE MERGER IN ORDER THAT SUCH PAYMENTS NOT BE CHARACTERIZED AS "PARACHUTE
PAYMENTS" FOR PURPOSES OF SECTIONS 280G AND 4999 OF THE CODE."
    

PARTIES

         Apria Healthcare Group Inc. Apria provides and/or manages comprehensive
integrated homecare services including home infusion therapy, home respiratory
therapy, home medical equipment, women's healthcare and nursing. Apria also
coordinates the care of patients who may require any of the aforementioned
services or a combination thereof. Apria provides its services through 350
branch locations which serve patients in 49 states. Apria was formed on June 28,
1995, by the merger of Homedco Group, Inc. ("Homedco") with and into Abbey
Healthcare Group Incorporated ("Abbey"). In connection with the merger
transaction (the "Abbey/Homedco Merger"), Apria issued 21,547,529 shares of
common stock, par value $.001 per share ("Apria Common Stock"), for 15,391,092
issued and outstanding shares of common stock, par value $.001 per share, of
Abbey and 26,034,612 shares of Apria Common Stock for 13,017,306 issued and
outstanding shares of common stock, par value $.01


                                       7
<PAGE>   16
   
per share, of Homedco. The mailing address of Apria's principal executive
offices is 3560 Hyland Avenue, Costa Mesa, California 92626, and Apria's
telephone number is (714) 427-2000. Directors and executive officers of Apria
and affiliates of such directors and officers beneficially owned on 
October 30, 1996, 2,174,121 shares of Apria Common Stock (approximately 4.2% 
of the shares of Apria Common Stock then outstanding). See "APRIA HEALTHCARE 
GROUP INC." and "PRINCIPAL STOCKHOLDERS--Apria Security Ownership."
    
   
         Vitas Healthcare Corporation. Vitas is the largest provider of hospice
services in the United States, caring for the palliative medical and
psychosocial needs of more than 29,000 terminally ill patients in fiscal 1995.
Vitas provides an integrated and comprehensive range of services to its patients
and their families in the home (including long-term care facilities) and
inpatient facilities. The mailing address of Vitas' principal executive offices
is 100 South Biscayne Boulevard, Miami, Florida 33131, and Vitas' telephone
number is (305) 374-4143. Directors and executive officers of Vitas and their
affiliates beneficially owned as of October 30, 1996, 10,880,376 shares of
Vitas Common Stock (approximately 55.1% of the shares of Vitas Common Stock then
outstanding on a fully diluted basis). See "VITAS HEALTHCARE CORPORATION" and
"PRINCIPAL STOCKHOLDERS--Vitas Security Ownership."
    

         Apria Number Two, Inc.  Apria Sub is a Delaware corporation and a 
wholly owned subsidiary of Apria. Apria Sub has not engaged in any material
operations since its incorporation.

         Significant Securityholders. Pursuant to a Significant Securityholders
Agreement (the "Significant Securityholders Agreement," a copy of which is
attached hereto as Appendix B), dated as of June 28, 1996, among Hugh A.
Westbrook, Carole S. Westbrook, Westbrook Family Partnership, Ltd., Esther
Colliflower, Colliflower Family Partnership, Ltd., Chemed Corporation
("Chemed"), OCR Holding Company ("OCR"), Galen Partners II, L.P., Galen Partners
International II, L.P., Galen Employee Fund, L.P. and Warburg, Pincus Investors,
L.P. (collectively, the "Significant Securityholders"), the Significant
Securityholders, among other things, have agreed (i) to vote or cause to be
voted all shares of capital stock of Vitas owned of record or beneficially or
held in any capacity by or under their control and entitled to vote in favor of
the Merger and the transactions contemplated by the Merger Agreement and against
any inconsistent actions, proposals or transactions, (ii) to not claim or
exercise any dissenter or appraisal rights with respect to the Merger and (iii)
to take other actions contemplated by the Merger Agreement. See Appendix B. Such
securityholders own, as of the Vitas Record Date, 1,948,944 shares of Vitas
Common Stock (approximately 44.2% of the outstanding Vitas Common Stock) and
200,000 shares of Series B Preferred (approximately 76.2% of the outstanding
Series B Preferred), which constitutes approximately 39.2% of the total votes
eligible to be voted by the holders of Vitas Common Stock and Series B Preferred
voting together as one class, excluding any shares held directly or indirectly
by Mr. Westbrook. See "THE SPECIAL MEETING."

THE SPECIAL MEETING

   
         The close of business on October 30, 1996 has been fixed by the
Vitas Board of Directors as the record date (the "Vitas Record Date") for the
determination of stockholders entitled to vote at the Special Meeting. As of the
Vitas Record Date, there were issued and outstanding 4,408,842 shares of Vitas
Common Stock and 262,500 shares of Series B Preferred. The affirmative vote of
the holders of a majority of the Vitas Common Stock outstanding on the Vitas
Record Date, voting separately as a class, and the affirmative vote of the
holders of a majority of the Series B Preferred outstanding on the Vitas Record
Date, voting separately as a class, is necessary to approve the Merger Agreement
and the transactions contemplated thereunder, including the Merger. THE SEPARATE
AFFIRMATIVE VOTE OF THE HOLDERS OF 75% OF THE TOTAL VOTES ATTRIBUTABLE TO THE
AGGREGATE ISSUED AND OUTSTANDING SHARES OF VITAS COMMON STOCK AND SERIES B
PREFERRED ON THE VITAS RECORD DATE (EXCLUDING ANY SHARES HELD DIRECTLY OR
INDIRECTLY BY MR. WESTBROOK), VOTING TOGETHER AS ONE CLASS, IS NECESSARY TO
APPROVE THE PAYMENTS TO BE MADE TO MR. WESTBROOK AND COLLIBROOK UNDER THE
SEVERANCE AGREEMENT AND THE PAYMENTS TO BE MADE TO MR. WESTBROOK UNDER THE
NONCOMPETITION AGREEMENT IN ORDER THAT SUCH PAYMENTS NOT BE CHARACTERIZED AS
"PARACHUTE PAYMENTS" FOR PURPOSES OF SECTIONS 280G AND 4999 OF THE CODE AND IS A
CONDITION TO APRIA'S OBLIGATION TO EFFECT THE MERGER AND THE TRANSACTIONS
CONTEMPLATED UNDER THE MERGER AGREEMENT.
    

                                        8
<PAGE>   17
   
         Vitas anticipates that the Closing Date (as defined in the Merger
Agreement) will occur as soon as practicable after the Special Meeting. IN THE
EVENT THAT THE EXPECTED EXCHANGE RATIO (AS DEFINED BELOW) AS OF THE DATE OF THE
SPECIAL MEETING IS LOWER THAN 0.2909 OR GREATER THAN 0.4235, AND UNLESS THE
MERGER AGREEMENT IS TERMINATED, (I) APRIA AND VITAS WILL RECIRCULATE A 
SUPPLEMENT TO THIS PROXY STATEMENT/PROSPECTUS, WHICH SUPPLEMENT WILL SET FORTH,
AMONG OTHER THINGS, THE MOST RECENT CLOSING PRICE OF APRIA COMMON STOCK, VITAS'
MOST RECENT ESTIMATE OF THE LIKELIHOOD OF A DEBT ADJUSTMENT (AS DEFINED BELOW),
AND A REVISED EXPECTED RANGE OF THE EXCHANGE RATIO, AND VITAS WILL ADJOURN THE
SPECIAL MEETING IF NECESSARY TO ENABLE THE VITAS STOCKHOLDERS TO HAVE A
REASONABLE PERIOD OF TIME TO REVIEW SUCH SUPPLEMENTAL MATERIALS, AND (II) THE
HOLDERS OF VITAS COMMON STOCK AND SERIES B PREFERRED WILL BE GIVEN AN
OPPORTUNITY TO CHANGE THEIR VOTES WITH RESPECT TO THE MERGER AND THE PAYMENTS TO
BE MADE TO MR. WESTBROOK AND COLLIBROOK PURSUANT TO THE SEVERANCE AGREEMENT AND
THE PAYMENTS TO BE MADE TO MR. WESTBROOK PURSUANT TO THE NONCOMPETITION
AGREEMENT.
    

   
         IF THE SPECIAL MEETING HAS ALREADY OCCURRED AND THE EXCHANGE RATIO AS
OF THE EXPECTED CLOSING DATE WOULD BE LOWER THAN 0.2909 OR GREATER THAN 0.4235,
AND UNLESS THE MERGER AGREEMENT IS TERMINATED, (I) VITAS WILL SET A DATE FOR A
NEW SPECIAL MEETING OF STOCKHOLDERS OF VITAS (THE "SUBSEQUENT MEETING"), (II)
APRIA AND VITAS WILL RECIRCULATE A SUPPLEMENT TO THIS PROXY STATEMENT/
PROSPECTUS, WHICH SUPPLEMENT WILL SET FORTH, AMONG OTHER THINGS, THE MOST RECENT
CLOSING PRICE OF APRIA COMMON STOCK, VITAS' MOST RECENT ESTIMATE OF THE
LIKELIHOOD OF A DEBT ADJUSTMENT, AND A REVISED EXPECTED RANGE OF THE EXCHANGE
RATIO, AND (III) VITAS WILL RESOLICIT THE VOTES OF THE HOLDERS OF VITAS COMMON
STOCK AND SERIES B PREFERRED WITH RESPECT TO THE MERGER AND THE PAYMENTS TO BE
MADE TO MR. WESTBROOK AND COLLIBROOK PURSUANT TO THE SEVERANCE AGREEMENT AND THE
PAYMENTS TO BE MADE TO MR. WESTBROOK PURSUANT TO THE NONCOMPETITION AGREEMENT.
    

   
         THE ADJOURNMENT OF THE SPECIAL MEETING OR THE NECESSITY OF A SUBSEQUENT
MEETING COULD SUBSTANTIALLY DELAY THE CLOSING OF THE MERGER. ALTHOUGH THE
SPECIAL MEETING HAS BEEN SCHEDULED FOR DECEMBER 2, 1996, THE MERGER AGREEMENT
PROVIDES THAT IT MAY BE TERMINATED BY EITHER PARTY, SUBJECT TO CERTAIN
CONDITIONS, IN THE EVENT THE MERGER SHALL NOT HAVE OCCURRED BY OCTOBER 31, 1996.
SEE "THE SPECIAL MEETING" AND "THE MERGER AGREEMENT." THE MERGER AGREEMENT ALSO
PROVIDES THAT IT MAY BE TERMINATED BY APRIA OR VITAS IF THE MARKET PRICE OF
APRIA COMMON STOCK IS LESS THAN $22.125. IN ADDITION, THE MERGER AGREEMENT
PROVIDES THAT IT MAY BE TERMINATED BY APRIA IF THERE IS A DEBT ADJUSTMENT IN
EXCESS OF $4 MILLION. 
    

   
         FOR A DISCUSSION OF RECENT DEVELOPMENTS CONCERNING THE POSSIBLE
TERMINATION OF THE MERGER AGREEMENT, SEE "THE MERGER--BACKGROUND OF THE
MERGER--RECENT DEVELOPMENTS."
    

         Each holder of Vitas Common Stock is entitled to one vote for each
share on all matters submitted to a vote of stockholders. Except as otherwise
required by law or when a class vote is required pursuant to the Certificate of
Designation, Preferences and Other Rights of the Series B Preferred, as amended
(the "Series B Preferred Certificate") (as in the case of the vote on the 
Merger Agreement and the transactions contemplated thereunder, including the
Merger), the holders of Series B Preferred are entitled to vote on all matters
together with the holders of shares of Vitas Common Stock, subject to certain
limitations set forth in the Series B Preferred Certificate and the
Stockholders' Agreement, dated June 4, 1993, among Vitas, Hugh A. Westbrook,
Carole S. Westbrook, Galen Partners II, L.P., Galen Partners International II,
L.P., Galen Associates, Warburg, Pincus Investors, L.P., and the other parties
named therein (the "Stockholders' Agreement"). As a result of these voting
rights and the limitations imposed in the Series B Preferred Certificate and in
the Stockholders' Agreement, the holders of the Series B Preferred, when voting
together with the holders of Vitas Common Stock (as in the case of the separate
vote on the payments to be made to Mr. Westbrook and Collibrook pursuant to the
Severance Agreement and the payments to be made to Mr. Westbrook pursuant to the
Noncompetition Agreement) are currently entitled to cast that number of votes
equal to approximately 28% of the total votes eligible to be voted at a meeting
of stockholders. The presence at the Special Meeting, in person or by proxy, of
the holders of a majority of the outstanding shares of Vitas Common Stock and
Series B Preferred entitled to vote at such meeting will constitute a quorum for
the transaction of business. Abstentions will be treated as shares that are
present and entitled to vote for purposes of determining the presence of a
quorum. Because both of the proposals to be voted on at the Special Meeting
require a percentage of the outstanding shares, abstentions (other than the
exclusion of shares held directly or indirectly by Mr. Westbrook with respect to
the payments to be made to Mr. Westbrook and Collibrook pursuant to the
Severance Agreement and the payments to be made to Mr. Westbrook pursuant to the
Noncompetition Agreement) will be equivalent to votes cast against the Merger
Agreement and the transactions contemplated thereunder, including the Merger,
and separate votes cast against the payments to be made to Mr. Westbrook and
Collibrook pursuant to the Severance Agreement and the payments to be made to
Mr. Westbrook pursuant to the Noncompetition Agreement.

THE MERGER

         Conversion of Securities.  In connection with the Merger:

         Vitas Common Stock. Each share of Vitas Common Stock issued and
outstanding as of the Effective Time (as defined below) other than shares owned
by Vitas, Apria or any of their respective subsidiaries (including Apria Sub)
and other than shares as to which dissenters' rights have been perfected

                                       9
<PAGE>   18
under the Delaware General Corporation Law ("Delaware GCL") would be converted
into the right to receive 0.290 shares of Apria Common Stock, subject to certain
adjustments. An adjustment will occur if the closing price of Apria Common Stock
on the New York Stock Exchange (the "NYSE") on the trading day next preceding
the Closing Date (the "Market Price") is lower than $27.125 or higher than
$37.125 (a "Collar Adjustment"). In addition, an adjustment will occur if the
Total Debt (as defined below) of Vitas reflected on the Closing Balance Sheet
(as defined below) exceeds $39.1 million (a "Debt Adjustment"). Such exchange
ratio, after giving effect to such adjustments, is hereinafter referred to as
the "Exchange Ratio."

         The Collar Adjustment will be determined as of the Closing Date. The
Debt Adjustment is calculated based upon the Closing Balance Sheet. The Collar
Adjustment and Debt Adjustment work independently of each other. If the Market
Price of Apria Common Stock were greater than $37.125, the Collar Adjustment
would serve to decrease the number of shares of Apria Common Stock to be
received in connection with the Merger. If the Market Price of Apria Common
Stock were lower than $27.125, the Collar Adjustment would serve to increase the
number of shares of Apria Common Stock to be received in connection with the
Merger. In either case, a Debt Adjustment would serve to decrease the number of
shares of Apria Common Stock to be received in connection with the Merger. The
initial exchange ratio of 0.290 was determined assuming a Market Price of
$32.125 and no Debt Adjustment. For a description of how the Closing Balance
Sheet is prepared, see "THE MERGER AGREEMENT-Conversion of Securities." 
         
   
         The closing price of Apria Common Stock on November 7, 1996 was $20.00
per share. If the Market Price of Apria Common Stock were $20.00, and assuming
there were no Debt Adjustment, the Exchange Ratio for each share of Vitas Common
Stock (including shares of Vitas Common Stock issuable upon conversion of the
Series B Preferred as contemplated by the Merger Agreement) would be 0.3417
shares of Apria Common Stock and a total of 5,316,752 shares of Apria Common
Stock would be issued in respect of all shares of Vitas Common Stock (and other
securities of Vitas, including the Series B Preferred, the Warrants and stock
options). Assuming the Exchange Ratio was 0.3417 and the closing price of Apria
Common Stock on the Closing Date was $20.00 per share, the value to be received
by Vitas securityholders on the Closing Date for each share of Vitas Common
Stock (including shares of Vitas Common Stock issuable upon conversion of the
Series B Preferred as contemplated by the Merger Agreement) would be $6.83, and
the total value to be received by Vitas securityholders on the Closing Date in
respect of all shares of Vitas Common Stock (and other securities of Vitas,
including the Series B Preferred, the Warrants and stock options) would be
approximately $106.3 million.
    

   
         If, after giving effect to any Collar Adjustment and any Debt
Adjustment, the actual Exchange Ratio is between 0.2909 and 0.4235, a total of
between approximately 4,505,000 shares and 6,591,000 shares of Apria Common
Stock would be issued in respect of all shares of Vitas Common Stock (and other
securities of Vitas, including the Series B Preferred, the Warrants and stock
options). If the actual Exchange Ratio is between 0.2909 and 0.4235 and the
closing price of Apria Common Stock on the Closing Date is between $14.125 per
share and $26.125 per share, the value to be received by Vitas securityholders
on the Closing Date for each share of Vitas Common Stock (including shares of
Vitas Common Stock issuable upon conversion of the Series B Preferred as
contemplated by the Merger Agreement) would be between $5.98 and $7.60, and the
total value to be received by Vitas securityholders on the Closing Date in
respect of all shares of Vitas Common Stock (and other securities of Vitas,
including the Series B Preferred, the Warrants and stock options) would be
between approximately $93.1 million and $117.7 million.
    

         THE MARKET VALUE OF APRIA COMMON STOCK THAT THE VITAS SECURITYHOLDERS
ULTIMATELY RECEIVE WILL BE SUBJECT TO FLUCTUATIONS IN THE MARKET PRICE OF APRIA
COMMON STOCK AND COULD BE MORE OR LESS THAN ITS MARKET VALUE ON THE DATE OF THIS
PROXY STATEMENT/PROSPECTUS OR ON THE DATE OF THE SPECIAL MEETING. Furthermore,
no assurance can be given as to the market price of Apria Common Stock at any
time before the Closing Date or at any time thereafter. The market price of
Apria Common Stock has ranged from a high of $32.750 to a low of $17.125 since
the time the Merger Agreement was executed. See "THE MERGER
AGREEMENT--Conversion of Securities" for a detailed discussion of the
adjustments to the Exchange Ratio and an illustrative table that sets forth
examples of some, but not all, possible Exchange Ratios based upon different
adjustment scenarios.

   
         Vitas anticipates that the Closing Date will occur as soon as
practicable after the Special Meeting. AS NOTED ABOVE IN "--THE SPECIAL
MEETING," IN THE EVENT THAT THE EXPECTED EXCHANGE RATIO AS OF THE DATE OF THE
SPECIAL MEETING IS LOWER THAN 0.2909 OR GREATER THAN 0.4235, AND UNLESS THE
MERGER AGREEMENT IS TERMINATED, THE SPECIAL MEETING MAY BE ADJOURNED.
FURTHERMORE, IN THE EVENT THAT THE SPECIAL MEETING HAS ALREADY OCCURRED AND THE
EXCHANGE RATIO AS OF THE EXPECTED CLOSING DATE WOULD BE LOWER THAN 0.2909 OR
GREATER THAN 0.4235, AND UNLESS THE MERGER AGREEMENT IS TERMINATED, A SUBSEQUENT
MEETING WILL BE NECESSARY. THE ADJOURNMENT OF THE SPECIAL MEETING OR THE
NECESSITY OF A SUBSEQUENT MEETING COULD SUBSTANTIALLY DELAY THE CLOSING OF THE
MERGER. ALTHOUGH THE SPECIAL MEETING HAS BEEN SCHEDULED FOR DECEMBER 2, 1996,
THE MERGER AGREEMENT PROVIDES THAT IT MAY BE TERMINATED BY EITHER PARTY, SUBJECT
TO CERTAIN CONDITIONS, IF THE MERGER SHALL NOT HAVE OCCURRED BY OCTOBER 31,
1996. SEE "THE SPECIAL MEETING" AND "THE MERGER AGREEMENT." THE MERGER AGREEMENT
ALSO PROVIDES THAT IT MAY BE TERMINATED BY APRIA OR VITAS IF THE MARKET PRICE OF
APRIA COMMON STOCK IS LESS THAN $22.125. IN ADDITION, THE MERGER AGREEMENT
PROVIDES THAT IT MAY BE TERMINATED BY APRIA IF THERE IS A DEBT ADJUSTMENT IN
EXCESS OF $4 MILLION. 
    

   
         FOR A DISCUSSION OF RECENT DEVELOPMENTS CONCERNING THE POSSIBLE
TERMINATION OF THE MERGER AGREEMENT, SEE "THE MERGER--BACKGROUND OF THE
MERGER--RECENT DEVELOPMENTS."
    

                                       10
<PAGE>   19
                  9% Preferred. Each of the 270,000 shares of the 9.0%
Cumulative Nonconvertible Preferred Stock, par value $1.00 per share, of Vitas
(the "9% Preferred") would remain outstanding, and, upon surrender of the
certificate representing the 9% Preferred, in accordance with the terms of the
Merger Agreement and the Significant Securityholders Agreement, would be
purchased by Apria at a price equal to its "Stated Value" of $100 per share,
together with all accrued and unpaid dividends thereon. As of September 30,
1996, the accrued and unpaid dividends were $607,500 on the aggregate "Stated
Value" of $27 million. All of the 9% Preferred is held by OCR, which has agreed
to the sale on these terms. See "THE MERGER AGREEMENT--Conversion of
Securities--9% Preferred."

                  Series B Preferred. The Merger Agreement contemplates that
each share of Series B Preferred issued and outstanding prior to the Effective
Time, together with all associated rights, preferences and restrictions set
forth in the Stockholders' Agreement, will be converted by the holder into a
number of shares of Vitas Common Stock issuable upon conversion of such share of
Series B Preferred and that such Vitas Common Stock would then be converted into
the right to receive a number of shares of Apria Common Stock equal to the
Exchange Ratio multiplied by the number of shares of Vitas Common Stock so
issued. See "THE MERGER AGREEMENT--Conversion of Securities--Series B
Preferred." The obligations of Apria under the Merger Agreement are conditioned
upon all Series B Preferred holders voluntarily converting their shares. If a
holder of Series B Preferred does not timely convert or agree to convert its
shares of Series B Preferred, Apria could waive such condition, in which case
the Series B Preferred would remain outstanding, but would cease to be
convertible, in accordance with its terms. Apria would not waive the condition
in any event if the non-conversion of Series B Preferred, when considered
together with other dissenting shares and similar matters, would preclude the
use of pooling-of-interests accounting treatment. Pursuant to the Significant 
Securityholders Agreement, the holders of approximately 76.2% of the Series B 
Preferred have agreed to effect the conversion contemplated by these provisions.

                  Warrants. Each of the stock purchase warrants issued by Vitas
on December 17, 1991 and designated Warrant A and Warrant B to purchase an
aggregate of 3,952,958 shares of Vitas Common Stock (collectively, the
"Warrants"), and all associated rights, preferences and restrictions set forth
in the Investor Agreement, dated December 17, 1991 (the "Investor Agreement"),
among Vitas, Chemed and OCR would, in accordance with the provisions of the
Significant Securityholders Agreement, be exchanged for a number of shares of
Apria Common Stock equal to the product of (x) the quotient obtained by dividing
(I) $9.32 less the sum of (A) any Excess Per Share Debt Amount (as defined
below) and (B) the exercise price per share of Vitas Common Stock issuable upon
exercise of the Warrant by (II) $32.125, times (y) the number of shares of Vitas
Common Stock covered by such Warrant, subject to certain adjustments. OCR, the
holder of the 9% Preferred and the Warrants, and its parent, Chemed, have agreed
to the purchase of the 9% Preferred and the exchange of the Warrants described
above pursuant to the Significant Securityholders Agreement. See "THE MERGER
AGREEMENT-- Conversion of Securities--Warrants."

                  Stock Options. In accordance with the terms of certain stock
option agreements to purchase shares of Vitas Common Stock ("Stock Option"), the
exercisability of vested options will be accelerated as a result of the Merger.
Any Stock Option outstanding immediately prior to the Effective Time that has
not been exercised in accordance with its terms would be exchanged into the
right to receive from Apria, upon surrender of the applicable stock option
agreement to which such Stock Option relates ("Stock Option Agreement") and,
subject to the terms of the Merger Agreement, confirmation of payment in cash by
the holder to Apria (or other provision for cash withholding from the holder by
Apria) of all applicable withholding taxes associated with the exchange, a
number of shares of Apria Common Stock equal to the product of (x) the quotient
obtained by dividing (I) $9.32 less the sum of (A) any Excess Per Share Debt
Amount, (B) the exercise price per share of Vitas Common Stock issuable upon
exercise of the Stock Option and (C) any applicable Vesting Discount Amount (as
defined in "THE MERGER AGREEMENT--Treatment of Stock Options") by (II) $32.125,
times (y) the number of shares of Vitas Common Stock covered by such Stock
Option, subject to certain adjustments. See "THE MERGER AGREEMENT--Treatment of
Stock Options" for a further discussion of these adjustments and applicable
provisions for payment of withholding taxes.

                  ANY HOLDER OF A STOCK OPTION MAY OBJECT TO THE EXCHANGE
DESCRIBED ABOVE. IF THE HOLDER OBJECTS IN WRITING TO THE EXCHANGE, THE STOCK
OPTION WILL TERMINATE AT THE EFFECTIVE TIME IN ACCORDANCE WITH ITS TERMS AND
THE HOLDER WILL RECEIVE NOTHING FOR HIS OR HER STOCK OPTION. IF THE HOLDER DOES
NOTHING, THE EXCHANGE OF OPTIONS FOR APRIA SHARES, AS DESCRIBED ABOVE, WILL
OCCUR PROVIDED THE APPLICABLE TAXES ARE PAID AND THE STOCK OPTION AGREEMENT IS
SURRENDERED. THE HOLDER DOES NOT NEED TO "EXERCISE" THE STOCK OPTION TO RECEIVE
THE APRIA SHARES. HOWEVER, IF PAYMENT OF WITHHOLDING TAXES IS NOT MADE OR DULY
PROVIDED FOR BY THE OPTIONEE IN CASH AT THE EFFECTIVE TIME OF THE MERGER,
ONE-HALF OF THE APRIA SHARES WILL BE HELD AS SECURITY FOR THE PAYMENT OF SUCH
WITHHOLDING TAXES IN ACCORDANCE WITH THE PROCEDURES DESCRIBED UNDER "THE MERGER
AGREEMENT--TREATMENT OF STOCK OPTIONS."

   
                  Issuance of Apria Shares. Assuming that the Market Price of
Apria Common Stock was $14.125 and that there was no Debt Adjustment, Apria
would issue approximately 6,591,000 shares of Apria Common Stock in connection
with the closing of the Merger. The Merger Agreement provides that it may be
terminated by Apria or Vitas if the Market Price is less than $22.125. See "THE
MERGER AGREEMENT--Termination." If the Market Price were $22.125 and there were
no Debt Adjustment, Apria would issue approximately 5,020,000 shares of Apria
Common Stock in connection with the closing of the Merger.
    

                  Fractional Shares; Rights. Cash would be paid in lieu of
fractional shares of Apria Common Stock. Each share of Apria Common Stock
carries with it a preferred share purchase right (a "Right") which entitles the
holder to purchase, on the occurrence of certain events, preferred stock, par
value $.001 per share, of Apria. See "THE MERGER AGREEMENT--Fractional Shares" 
and "COMPARISON OF APRIA AND VITAS STOCKHOLDER RIGHTS--Apria Rights Agreement."

                  Cancellation of Vitas Common Stock, Warrants and Stock
Options. As of the Effective Time, all shares of Vitas Common Stock and the
Warrants will no longer be outstanding and will automatically be canceled and


                                       11
<PAGE>   20
retired and will cease to exist, and the holders of certificates previously
evidencing the shares of Vitas Common Stock or the Warrants or the Stock Options
will cease to have any rights with respect thereto, except as otherwise provided
in the Merger Agreement or by law (including any rights of dissenting
stockholders).

         Reasons for the Merger and Recommendation of the Board of Directors.
In unanimously approving the Merger Agreement, the Vitas Board of Directors has
determined that the Merger Agreement is in the best interests of Vitas and all
of Vitas' securityholders and recommends that the stockholders of Vitas vote in
favor of the Merger Agreement and the transactions contemplated thereunder,
including the Merger. In voting in favor of the Merger Agreement and such
transactions, Mr. Westbrook and Ms. Colliflower abstained from deliberations and
voting with respect to the Severance Agreement and the Noncompetition 
Agreement. In addition, J.R. Williams, M.D. abstained from deliberations and 
voting with respect to the proposed amendment to his severance agreement 
contemplated by the Merger Agreement.

         In approving the Merger Agreement and the transactions contemplated
thereby, and in recommending that Vitas' stockholders approve the same, Vitas'
Board of Directors consulted with Vitas management, as well as its financial and
legal advisors, and considered the following positive, negative and neutral 
factors:

         (i)   The structure, form and amount of consideration to be paid in the
Merger and the terms of the Merger Agreement were significantly favorable
reasons for the Board's determination to proceed with the Merger,
notwithstanding that the market price for the Apria Common Stock to be received
in the Merger will be subject to significant fluctuations in response to Apria's
quarterly operating results, general trends in the market for home healthcare
and hospice products and services and other factors. The Board considered as an
unfavorable factor that the Merger Agreement provides for the payment of a $10
million termination fee by Vitas to Apria under certain circumstances. However,
the Board was advised by its financial advisor that similar provisions were
customary in transactions such as the Merger and that the likelihood of the
payment of such fee was remote.
         
   
         The Board gave significant consideration to the opinion of Furman Selz
that the consideration to be received in the Merger by the holders of Vitas
Common Stock is fair to such stockholders from a financial point of view.
Notwithstanding the recent decline in the market price of Apria Common Stock,
the Vitas Board of Directors has not requested that Furman Selz update its
opinion. In reaching such conclusion, the Vitas Board considered (A) that the
Exchange Ratio is designed in part to take into account these market
fluctuations, (B) the available financial information regarding Apria and the
Board's view concerning Apria's prospects, (C) the recent operating results of
Vitas and Apria, (D) the alternatives to the Merger in the event the Merger is
not consummated, and (E) Vitas' discussions with its financial advisor. The
Board continues to believe that the Merger is in the best interests of Vitas and
all of Vitas' securityholders. Furthermore, the Merger Agreement provides that
it may be terminated by Vitas in the event the Market Price of Apria Common
Stock is less than $22.125;
    

         (ii)  The Board also considered favorably the opportunity presented by
the Merger for Vitas to raise needed capital to meet near term capital
maturities and to finance the growth of Vitas;

         (iii) The Board was favorably impressed with the scope of integrated
homecare services provided by Apria and the market presence and competitive
position in the healthcare industry afforded by Apria's 350 branch locations
which serve patients in 49 states;

         (iv)  The Board considered the opportunities for joint business
development between Vitas and Apria in both Vitas' existing geographic markets
and in potential new markets as a significantly positive reason for the Merger;

         (v)   The Board recognized that as a result of the Merger the
stockholders of Vitas would have substantially less ability to influence the 
affairs of Apria and Vitas, and that certain Vitas securityholders might view
such a reduction in influence as a negative factor. However, the Board was 
favorably impressed with the market capitalization of Apria (and continues to 
be so notwithstanding the recent decline in the market price of Apria Common 
Stock) and the opportunity, through the Merger, for Vitas' stockholders to have 
increased liquidity in their investment as holders of publicly traded stock;

         (vi)  The Board also favorably considered Vitas' management's
determination that the Merger presented significant opportunities to achieve
cost savings and efficiencies through the combination of certain Vitas and Apria
business processes; and

         (vii)  The Board was aware that certain members of Vitas' management
and Board of Directors have interests in the Merger that are in addition to and
may conflict with the interests of Vitas securityholders generally. (For a
description of such interests, see "THE MERGER -- Interests of Certain Persons
in the Merger" and "PROPOSAL TO APPROVE SEPARATELY THE PAYMENTS TO HUGH A
WESTBROOK AND COLLIBROOK PURSUANT TO THE SEVERANCE AND NONCOMPETITION
AGREEMENTS TO BE ENTERED INTO IN CONNECTION WITH THE MERGER IN ORDER THAT SUCH
PAYMENTS NOT BE CHARACTERIZED AS "PARACHUTE PAYMENTS" FOR PURPOSES OF SECTIONS
280G AND 4999 OF THE CODE.") However, the Board considered such interests to be
a neutral factor in its determination. Certain members of the Board of Directors
abstained from deliberations and voting with respect to certain aspects of the
Merger and the transactions contemplated in connection therewith; and

         (viii)  Other positive factors considered by the Board in recommending
the Merger included the receptivity of Apria management to the unique mission
and values of Vitas and its employees and the continued ability to satisfy the
distinctive needs of the patient population and communities which Vitas serves;
the financial resources which would be made available to Vitas after the Merger
to deal with uncertainties and changes which may result from the ongoing
consolidation and change in the healthcare industry; and the ability, through
the Merger, to recognize value from the strategic assets which Vitas has
developed, including its methods of operations, leading market presence and
systems capabilities.

         See "THE MERGER--Reasons for the Merger and Recommendation of the Board
of Directors" for a more detailed discussion of the Board's consideration of
these factors in recommending the Merger. See also "RISK FACTORS" for a
detailed description of certain risk factors which should be considered
carefully by the stockholders of Vitas in connection with voting upon the
Merger Agreement and the transactions contemplated thereby.
          
   
         In connection with its review of the factors described in paragraph
(ii) above, the Board gave significant consideration to the fact that pursuant
to the terms of the Merger Agreement, at or immediately following the Effective
Time, Apria will repay, or cause to be repaid, in full (or assume, if permitted
under the existing terms thereof) the then outstanding principal of the Vitas
Notes (as defined in the Merger Agreement), which are estimated to aggregate $46
million as of the Effective Time, and to repay or cause to be repaid in full the
amount due under the Vitas Employee Stock Ownership loan documents (the "ESOP
Note"), which is estimated to aggregate $1.3 million as of the Effective Time,
together with interest accrued but unpaid thereon, and any premium, charge or
prepayment penalty, to the holders of the Vitas Notes and to the holder of the
ESOP Note. If the Merger Agreement is not approved and adopted by Vitas'
stockholders or if the Merger is not otherwise consummated, there are
significant potential consequences to Vitas and its stockholders. Pursuant to
the terms of Vitas' bank credit facilities, all borrowings outstanding under
such facilities were scheduled to mature on October 1, 1996. Pursuant to an
agreement dated as of September 29, 1996, Vitas, among other things, obtained an
extension of the maturity of all borrowings outstanding under its bank credit
facilities through the earlier of November 15, 1996 or the consummation,
cancellation or other termination of the Merger Agreement. Although Vitas is
currently seeking an extension of such maturity to permit consummation of the
transactions contemplated by the Merger Agreement, there can be no assurance
that such extension can be obtained. As of September 30, 1996, amounts
outstanding under such bank credit facilities totaled $36.25 million. See Note 6
to Notes to Consolidated Financial Statements for the year ended September 30,
1995 for certain additional information regarding Vitas' outstanding debt. In
addition, Vitas is required to redeem (to the extent funds are legally available
therefor) approximately $8.3 million of the 9% Preferred on December 31, 1996
and to make additional redemptions on each of June 30 and December 31 of 1997
and 1998 thereafter. See Note 3 to Notes to Consolidated Financial Statements
for the year ended September 30, 1995 for certain additional information
regarding Vitas' redeemable preferred stock. In the event that the Merger is not
consummated, there can be no assurance that Vitas could successfully obtain
replacement debt or equity capital or that, if obtainable, such debt or equity
capital could be obtained in sufficient time to avoid material disruption in its
business. There also can be no assurance that, could such replacement debt or
equity capital be obtained, it would be obtained on as favorable terms as those
which exist under Vitas' current bank facilities and the 9% Preferred.
    

         Risk Factors. There are several risk factors which should be considered
carefully by the stockholders of Vitas in connection with voting upon the Merger
Agreement and the transactions contemplated thereby. See "RISK FACTORS." Such
risks include:

         -     Because the Merger involves the partial integration of two
               companies that have previously operated independently,
               difficulties may be encountered by Apria in operating Vitas or in
               integrating portions of the administrative and support functions 
               of Apria and Vitas.

         -     Reforms in federal and state healthcare laws may have a dramatic
               effect on the relative costs associated with doing business as a
               provider of home healthcare and hospice services.

         -     Possible reductions in coverage or payment rates by third-party
               payors as a result of regulatory changes may decrease the levels
               of revenues and profitability of Apria and/or Vitas.

         -     Medicare and Medicaid carriers and fiscal intermediaries are
               under increasing pressure to scrutinize more closely healthcare
               claims. There can be no assurance that such reviews or similar
               audits will not result in material recoupments or denials which
               could have a material adverse effect on Apria or Vitas.

         -     Apria and Vitas are subject to Medicare and state healthcare
               program fraud and abuse laws. Federal and state regulatory
               agencies have increased significantly resources allocated to
               enforcing these laws. There can be no assurance that the 
               practices of Apria or Vitas, if reviewed, would be found to be
               in compliance with applicable health regulatory laws, as such
               laws ultimately may be interpreted, or that any non-compliance
               with such laws would not have a material adverse effect on Apria
               and/or Vitas.

         -     Both Apria and Vitas reported net losses in their most recent
               fiscal years. Vitas reported net income for the nine months ended
               June 30, 1996 and Apria reported net income for the six months
               ended June 30, 1996. While Apria and Vitas have been profitable
               through such interim periods and the Unaudited Pro Forma
               Condensed Combined Statement of Operations of Apria and Vitas
               contained in this Proxy Statement/Prospectus reflects net income
               for the six months ended June 30, 1996, no assurances can be 
               given that this performance will be sustained in the future.

         -     No assurances can be given that additional charges for
               uncollectible accounts receivable will not have to be taken
               by Apria as a result of difficulties associated with the 
               continuing information system conversions following the 
               Abbey/Homedco Merger or that other difficulties or delays will 
               not occur with respect to meeting payor documentation 
               requirements and claim submission deadlines.

         -     The home healthcare and hospice markets are highly competitive
               and some of the current and potential competitors of Apria and
               Vitas have or may obtain significantly greater financial and
               marketing resources than Apria or Vitas.

         -     Apria and Vitas each depends on existing relationships with third
               parties such as managed care organizations, hospitals, long term
               care facilities and physicians. There can be no assurance that 
               these relationships will be successfully maintained or that 
               additional relationships will be successfully developed and 
               maintained in existing or future markets.

         -     Managed care organizations have grown substantially and exert
               control over an increasing portion of the healthcare economy.
               There can be no assurance that managed care organizations and
               other large third party payors will not use their power in a 
               manner that could adversely affect Apria and/or Vitas.

         -     Although Apria and Vitas currently maintain liability insurance
               to cover claims arising as a result of the nature of their
               businesses from time to time, there can be no assurance that the
               coverage limits of such insurance policies will be adequate to
               cover such claims or that such insurance policies will continue
               to be available in the future on terms acceptable to Apria 
               and/or Vitas.

         -     Certain provisions of Apria's charter documents and stockholders
               rights plan may make an unsolicited acquisition of control of
               Apria more difficult or expensive.

         -     Certain officers of Vitas are expected to terminate their 
               employment with Vitas as of the Effective Time 
               or within 90 days thereafter. Such terminations could have a
               material adverse effect on Vitas' business.

         -     The market price of the Apria Common Stock may be subject to
               significant fluctuations in response to variations in Apria's
               quarterly operating results, general trends in the home
               healthcare and hospice markets and other factors.

         -     Apria does not intend to pay any dividends on the Apria Common
               Stock in the foreseeable future.

         -     In the event that the Merger is not consummated, there can be no
               assurance that Vitas could successfully obtain replacement debt
               or equity capital or that, if obtainable, such debt or equity
               capital could be obtained in sufficient time to avoid material
               disruption in its business or on as favorable terms as those
               which exist under the current bank facilities and the 9% 
               Preferred.

         -     Certain members of Vitas' management and Board of Directors have
               interests in the Merger that are in addition to and may conflict
               with the interests of Vitas securityholders generally.

         -     Apria and Vitas are unable to determine at this time whether a
               Collar Adjustment and/or a Debt Adjustment will be made. The
               market value of Apria Common Stock that the Vitas securityholders
               ultimately receive will be subject to fluctuations in the market
               price of Apria Common Stock and could be more or less than its
               market value on the date of this Proxy Statement/Prospectus or on
               the date of the Special Meeting.

         -     Consummation of the Merger and the transactions contemplated by
               the Merger Agreement will result in a substantial reduction in
               the relative voting power of the holders of Vitas Common Stock
               and Series B Preferred because their percentage of stock
               ownership in Apria will be substantially less than their current
               percentage of stock ownership in Vitas; furthermore, the relative
               interests of the holders of the Warrants and the Stock Options in
               Apria will be substantially lower than their relative interests
               would have been in Vitas absent the Merger.

         Comparison of Apria and Vitas Stockholder Rights. Certain significant
differences exist between the rights of stockholders of Vitas and the rights of
stockholders of Apria, including differences with respect to: preemptive rights;
business combinations; preferred stock purchase rights held by the stockholders
of Apria; amendments to the certificate of incorporation and by-laws; voting
rights and privileges; stockholder action by written consent; number and
election of directors; removal of directors; vacancies on the board of
directors; indemnification of directors; declaration of dividends; stock
ownership and transfer restrictions; liquidation rights upon dissolution; and
redemption of securities. See "COMPARISON OF APRIA AND VITAS STOCKHOLDER
RIGHTS."

         Fairness Opinion of Vitas' Financial Advisor. Furman Selz has acted as
financial advisor to Vitas in connection with the Merger. Furman Selz has
delivered to the Board of Directors of Vitas Furman Selz's written 

                                       12
<PAGE>   21
   
opinion dated June 28, 1996, to the effect that, as of the date of such opinion
and based upon and subject to certain matters as stated therein, the
consideration to be received in the Merger by the holders of the Vitas Common
Stock is fair, from a financial point of view, to the holders of Vitas Common
Stock. The opinion only addresses consideration to be received by the holders of
Vitas Common Stock pursuant to Article II and other applicable provisions of the
Merger Agreement. The full text of the written opinion of Furman Selz, which
sets forth the assumptions made, matters considered and limitations on the
review undertaken by Furman Selz, is attached as Appendix C hereto. Vitas
stockholders are urged to read the opinion carefully in its entirety. See "THE
MERGER--Fairness Opinion of Vitas' Financial Advisor." Notwithstanding the
recent decline in the market price of Apria Common Stock, the Vitas Board of
Directors has not requested that Furman Selz update its opinion. In reaching
such conclusion, the Vitas Board considered (i) that the Exchange Ratio is
designed in part to take into account these market fluctuations, (ii) the
available financial information regarding Apria and the Board's view concerning
Apria's prospects, (iii) the recent operating results of Vitas and Apria, (iv)
the alternatives to the Merger in the event the Merger is not consummated, and
(v) Vitas' discussions with its financial advisor. The Board continues to
believe that the Merger is in the best interests of Vitas and all of Vitas'
securityholders. Furthermore, the Merger Agreement provides that it may be
terminated by Vitas in the event the Market Price of Apria Common Stock is less
than $22.125.
    

         Effective Time of the Merger. The Merger will become effective upon the
filing of a Certificate of Merger or other appropriate documents (in any such
case, the "Certificate of Merger") with the Delaware Secretary of State, or at
such later time as Apria Sub and Vitas specify in the Certificate of Merger (the
close of business on such date of filing, or such later date as set forth
therein, is hereinafter referred to as the "Effective Time"). The Effective Time
is currently expected to occur as promptly as practicable after the Special
Meeting, subject to approval by the stockholders of Vitas of the matters
described herein and satisfaction or waiver of the conditions precedent to the
Merger set forth in the Merger Agreement. See "THE MERGER AGREEMENT--Effective
Time of the Merger" and "--Conditions to the Merger."
         
   
         Recent Market Price of Apria Common Stock.  On November 7, 1996, the
closing price of Apria Common Stock on the NYSE composite tape was $20.00. See
"MARKET PRICE AND DIVIDENDS." 
    

         Conditions to Merger. The respective obligations of Vitas and Apria to
effect the Merger are subject to the satisfaction or waiver on or prior to the
Closing Date of the following conditions: (i) the requisite approvals of the
Vitas stockholders shall have been obtained; (ii) the shares of Apria Common
Stock issuable to Vitas' securityholders (including holders of the Stock
Options, Warrants and Series B Preferred) pursuant to the Merger Agreement shall
have been approved for listing on the NYSE, subject to official notice of
issuance; (iii) no litigation brought by a Governmental Entity (as defined in
the Merger Agreement) shall be pending, and no litigation shall be threatened by
any Governmental Entity, which seeks to enjoin or prohibit the consummation of
the Merger, and no temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or other
legal restraint or prohibition preventing the consummation of the Merger shall
be in effect; (iv) the Registration Statement on Form S-4 of Apria with respect
to the shares of Apria Common Stock to be issued in connection with the Merger
(the "Registration Statement") shall have been declared effective by the
Commission under the 1933 Act and no stop order suspending the effectiveness of
the Registration Statement shall have been issued by the Commission, and no
proceedings for that purpose shall have been initiated or, to the knowledge of
Apria or Vitas, threatened by the Commission; (v) any applicable waiting period
(and any extension thereof) under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "Hart-Scott Act"), shall have expired or been
terminated; and (vi) other than the filing of merger documents in accordance
with the Delaware GCL, all authorizations, consents, waivers, orders or
approvals required to be obtained, and all filings, notices or declarations
required to be made, by Apria, Apria Sub and Vitas prior to the consummation of
the Merger and the transactions contemplated under the Merger Agreement shall
have been obtained from, and made with, all required Governmental Entities
except for such authorizations, consents, waivers, orders, approvals, filings,
notices or declarations the failure to obtain or make which would not have a
material adverse effect, at or after the Effective Time, on Vitas or Apria or on
the effectiveness of the Merger. See "THE MERGER AGREEMENT -- Conditions to the
Merger."

         The obligations of Apria and Apria Sub to effect the Merger also are
subject to certain additional conditions, including without limitation the
following: (i) Apria shall have received from Ernst & Young LLP, as independent
auditors of Apria, a letter regarding its concurrence with the conclusion of the
management of Apria as to the appropriateness of pooling-of-interests accounting
for the Merger under Accounting Principles Board Opinion No. 16 if the Merger is
consummated in accordance with the terms of the Merger Agreement; (ii) at or
immediately prior to the Closing Date, the holder of the 9% Preferred, subject
to consummation of the Merger, shall have sold or made a binding and enforceable
commitment to sell the 9% Preferred to Apria as contemplated by the Merger
Agreement and the holders of the Warrants shall have surrendered the Warrants
for exchange as contemplated by the Merger Agreement and, in each case, Apria
shall have received all instruments reasonably required to be delivered by the
holders of the 9% Preferred and the Warrants to ensure compliance with such
commitments to sell and exchange; (iii) at or immediately prior to the Closing
Date, the holders of all the Series B Preferred, subject to consummation


                                       13
<PAGE>   22
of the Merger, shall have converted or made binding and enforceable commitments
to convert the Series B Preferred into shares of Vitas Common Stock in
accordance with the terms of the Series B Preferred Certificate, and Apria shall
have received all instruments reasonably required to be delivered by the holders
of the Series B Preferred to ensure compliance with such commitment to convert;
(iv) Apria shall have received from each Person (as such term is defined in the
Merger Agreement) who may be deemed to be an affiliate of Vitas (under Rule 145
of the 1933 Act or otherwise under applicable Commission accounting releases
with respect to pooling-of-interests accounting treatment) on or prior to the
Closing Date a signed agreement substantially in the form of an exhibit to the
Merger Agreement (an "Affiliate Letter"); (v) each signatory to the Significant
Securityholders Agreement shall have complied in all material respects with all
agreements or covenants required by the Significant Securityholders Agreement to
be performed or complied with by such Person to the extent such compliance was
called for at or prior to the Closing Date; (vi) the aggregate number of shares
as to which appraisal rights shall have been perfected shall not exceed 9% of
the outstanding shares of Vitas Common Stock nor include any outstanding shares
of the Series B Preferred; (vii) the named investors (or any successors or
assigns of their rights) under the Investor Agreement and the Stockholders'
Agreement shall have acknowledged their waiver of any preemptive rights to any
new common stock of the Surviving Corporation and any other ongoing obligations
of the Surviving Corporation under either such agreement and such agreements
shall be terminated as of the Closing Date, subject to consummation of the
Merger; (viii) the holders of Vitas Common Stock and Series B Preferred shall
have approved separately the payments to be made to Mr. Westbrook and Collibrook
under the Severance Agreement and the payments to be made to Mr. Westbrook under
the Noncompetition Agreement; (ix) on or prior to the Closing Date, the
aggregate number of shares of Vitas Common Stock issued upon exercise of Stock
Options and the Warrants shall not exceed 10% of the aggregate number of shares
of Vitas Common Stock issuable upon exercise thereof and Vitas shall not have
received any notice of exercise that would result in the issuance of more than
said number of shares of Vitas Common Stock; and (x) Apria shall have received
the opinions of counsel to Vitas concerning certain legal matters. See "THE
MERGER AGREEMENT -- Conditions to the Merger."

         The obligation of Vitas to effect the Merger also is subject to certain
additional conditions, including without limitation the following: (i) Vitas
shall have received from Ernst & Young LLP, as independent auditors of Vitas, 
a letter regarding its concurrence with the conclusion of the management of 
Vitas as to the appropriateness of pooling-of-interests accounting for the 
Merger under Accounting Principles Board Opinion No. 16 if the Merger is 
consummated in accordance with the terms of the Merger Agreement; and (ii) 
Vitas shall have received the opinion of counsel to Apria concerning certain 
legal matters. See "THE MERGER AGREEMENT -- Conditions to the Merger."

         Exchange of Stock Certificates and Warrants. After the Effective Time,
holders of Vitas Common Stock will be furnished with a letter of transmittal to
be used to exchange their certificates and securities for certificates
representing shares of Apria Common Stock to which they respectively are
entitled. Securityholders should not return any stock certificates with the form
of proxy accompanying this Proxy Statement/Prospectus. See "THE MERGER
AGREEMENT--Exchange of Stock Certificates and Warrants."

         Management after the Merger.  Each member of the Board of Directors of
Vitas will resign as a director, effective upon consummation of the Merger. The
Chairman of the Board of Directors of Apria, Jeremy M. Jones, will, immediately
following the Effective Time, be the sole director of Vitas. The officers of
Vitas immediately prior to the Effective Time (other than Mr. Westbrook, Ms.
Colliflower and Dr. Williams, each of whom is expected to resign or otherwise
terminate employment with Vitas as of the Effective Time, as well as
approximately six other officers of Vitas that are expected to resign or
otherwise terminate their employment with Vitas within 90 days after the
Effective Time) will continue as the officers of Vitas and will serve at the
pleasure of the Vitas Board. Raymond H. Noeker, Jr. will become the Chief
Executive Officer of Vitas at the Effective Time. Mr. Noeker has been employed
by Apria for over 15 years in various executive level positions both at the
corporate and operating levels. See "THE MERGER AGREEMENT--Management After the
Merger" and "--Conditions to the Merger."

         Interests of Certain Persons in the Merger. In considering the
recommendation of the Vitas Board of Directors with respect to the Merger
Agreement and the transactions contemplated thereby, Vitas securityholders
should be aware that certain members of Vitas' management and Board of Directors
have interests in the Merger that are in addition to and may conflict with the
interests of Vitas securityholders generally. The Vitas Board of Directors was
aware of these interests and considered them, among other factors, in approving
the Merger Agreement and the transactions contemplated thereby. 

         At or prior to the Closing Date, Vitas and Apria will enter into the
Noncompetition Agreement with Mr. Westbrook and the Severance Agreement with Mr.
Westbrook, Ms. Colliflower and Collibrook. Pursuant to the Severance Agreement,
Mr. Westbrook will be entitled to receive, at the Effective Time, a cash
severance payment of $1.25 million less certain offsets based on other benefits
payable to him and the value of life insurance policies to be assigned to him.
The Severance Agreement will also entitle 


                                       14
<PAGE>   23
Collibrook to receive $250,000 payable at the Effective Time for providing
consulting services to Vitas for a period of one year. Pursuant to the
Noncompetition Agreement, Mr. Westbrook will be entitled to receive an aggregate
payment of $7.0 million, payable $5.0 million at the Effective Time and $1.0
million on each of the first two anniversaries of the Effective Time. The
payments to be made to Mr. Westbrook and Collibrook under the Severance
Agreement and the payments to be made to Mr. Westbrook under the Noncompetition
Agreement are subject to the consummation of the Merger. See "THE MERGER --
Interests of Certain Persons in the Merger -- Payments to Mr. Westbrook;
Sublease" and "PROPOSAL TO APPROVE SEPARATELY THE PAYMENTS TO HUGH A. WESTBROOK 
AND COLLIBROOK PURSUANT TO THE SEVERANCE AND NONCOMPETITION AGREEMENTS TO BE 
ENTERED INTO IN CONNECTION WITH THE MERGER IN ORDER THAT SUCH PAYMENTS NOT BE 
CHARACTERIZED AS "PARACHUTE PAYMENTS" FOR PURPOSES OF SECTIONS 280G AND 4999 OF
THE CODE." In addition, in September, 1996, Mr. Westbrook and Apria entered
into negotiations regarding a sublease pursuant to which Mr. Westbrook would
sublease from Vitas, as the surviving corporation in the Merger, approximately
12,000 square feet of space at Vitas' principal executive offices located at
100 South Biscayne Boulevard, Miami, Florida 33131. The proposed sublease
provides for an approximate three-year term and rent of approximately $100,000,
$110,000 and $115,000 for the first, second and third years of the lease,
respectively. Apria believes that the terms of the proposed sublease are
equivalent to the terms that Apria would have offered to an unaffiliated third
party.

         Vitas also has entered into Special Severance Agreements ("SSAs") with,
among others persons, the following five executive officers of Vitas: Esther T.
Colliflower, a co-founder of Vitas, a Vice Chairperson and a Senior Vice
President; J.R. Williams, M.D., Executive Vice President and Chief Patient Care
Officer; Richard I. Nevin, Jr., Executive Vice President -- Operations; Mark
Ohlendorf, Vice President, Chief Financial Officer, Treasurer and Assistant
Secretary; and Mark A. Sterling, Vice President -- Legal and Regulatory Affairs
and Secretary. Pursuant to the respective SSAs, the executive officers are
entitled to certain severance benefits if their employment is terminated within
certain time periods after a change in control other than for "cause" or if they
end their employment for "good reason." Pursuant to the terms of the Merger
Agreement, Vitas has agreed to offer to amend such SSAs and, to the extent
applicable, any other relevant agreements, to provide, effective as of the
Effective Time, (a) that the total severance benefit payable to such persons
shall be a minimum of $650,000, $600,000, $272,250, $355,925 and $412,400,
respectively (it being understood that such modifications will not impair the
existing agreements of Ms. Colliflower or Dr. Williams to refrain from competing
with Vitas), and (b) that as a condition of such amendments, such persons shall
waive any and all claims against Vitas, Apria and their respective affiliates.
If such SSAs and other agreements are not amended, the total severance benefits
payable to such persons would be $390,550, $315,000, $272,250, $177,963 and
$206,200, respectively. The Merger Agreement contemplates that the payments to
Ms. Colliflower and Dr. Williams are to be paid on the Closing Date because
their employment with Vitas is expected to be terminated immediately prior to
the Effective Time. See "THE MERGER--Interests of Certain Persons in the
Merger--Special Severance Agreements."

         The Merger Agreement provides that for six years from the Effective
Time, the Surviving Corporation will maintain in effect directors' and officers'
liability insurance against claims asserted based on acts or omissions occurring
at or prior to the Effective Time covering those Persons who are currently
covered by Vitas' directors' and officers' liability insurance policy, on terms
substantially as favorable as the terms of such insurance coverage, subject to
certain limitations. The Merger Agreement also provides that the Surviving
Corporation will keep in effect the provisions in its Certificate of
Incorporation and Bylaws providing for exculpation of director and officer
liability and indemnification to the fullest extent permitted under the Delaware
GCL, subject to certain limitations. See "THE MERGER--Interests of Certain
Persons in the Merger--Indemnification."

         William P. Ferretti and Timothy S. O'Toole, directors of Vitas,
currently hold vested Stock Options that will become exercisable as a result of
the Merger and that are expected to be exchanged for Apria Common Stock. In
addition, certain Stock Options held by Messrs. Nevin, Ohlendorf and Sterling
will vest and become exercisable or will otherwise be exchangeable for Apria
Common Stock as a result of the Merger and are expected to be exchanged for
Apria Common Stock. See "THE MERGER--Interests of Certain Persons in the
Merger--Stock Options."

         The Stockholders' Agreement provides that, so long as the Stockholders'
Agreement remains in effect and provided either of the Principal Investors
(defined therein to mean Galen Partners II, L.P. and Galen Partners
International II, L.P. (collectively, the "Principal Galen Entities") and
Warburg, Pincus Investors, L.P.) has voting power through its ownership of
voting securities of Vitas equal to at least five percent of the total votes
entitled to be cast at meetings of Vitas' stockholders when all classes are
voting together and not as individual classes ("Voting Power"), the holders of a
majority of the outstanding shares of Series B Preferred shall be entitled to
vote for and elect as directors either one or both of the Principal Investors'
designees to the Vitas Board of Directors, depending on whether one or both of
the Principal Investors have Voting Power. Bruce F. Wesson and Patrick T.
Hackett, the designees of the Principal Galen Entities and Warburg, Pincus
Investors, L.P., respectively, are serving as directors 


                                       15
<PAGE>   24
of Vitas in accordance with this provision. The Investor Agreement provides
that, as long as OCR beneficially owns at least ten percent of the outstanding
shares of Vitas Common Stock, Vitas is obligated to nominate one person
designated by OCR for election as a director of Vitas. Mr. O'Toole, an officer
and director of Chemed, was nominated to serve as a director of Vitas in
accordance with this provision. The Investor Agreement provides, among other
things, that, as long as the Vitas Board of Directors is composed of ten or
fewer directors, OCR shall be entitled to only one designee. See "THE MERGER --
Interests of Certain Persons in the Merger." 

         Regulatory Matters. Apria and Vitas each filed pre-merger notification
forms with the Federal Trade Commission and the Department of Justice under the
Hart-Scott Act. Early termination of the required waiting period under the
Hart-Scott Act was effective on June 24, 1996 without Apria or Vitas receiving a
request for additional information. Apria and Vitas also reviewed other
applicable government regulations to determine whether consummation of the
Merger, as structured, would require notice, consent or re-licensure of the
hospice and other healthcare programs operated by Vitas and its subsidiaries. In
one or more states, notice of the Merger was, and certain further actions may
be, required. It is a condition precedent to the Merger that all such notices
have been filed, such actions have been taken and any consents have been
obtained, except for those notices, actions and consents the failure of which 
to file, take or obtain, as the case may be, would not have a material adverse 
effect on Apria or Vitas. No other material federal or state regulatory 
approvals must be obtained in order to consummate the Merger. See "THE
MERGER--Regulatory Approvals."

         Accounting Treatment.  The Merger is intended to qualify as a
pooling-of-interests for accounting and financial reporting purposes.
Consummation of the Merger is conditioned upon the receipt by each of Apria and
Vitas of a letter dated the Closing Date, from Ernst & Young LLP, regarding its 
concurrence with the conclusions of Apria and Vitas management as to the 
appropriateness of pooling-of-interests accounting for the Merger under 
Accounting Principles Board Opinion No. 16 if it is closed and consummated in 
accordance with the Merger Agreement. Each of Apria and Vitas could elect to 
waive the conditions to its obligations under the Merger Agreement but do not 
anticipate doing so. If for some reason Ernst & Young LLP cannot deliver the
pooling letters, the Merger does not qualify for pooling-of-interests
accounting treatment and Apria and Vitas elect to proceed with the Merger, this
Proxy Statement/Prospectus will be revised to reflect the purchase method of
accounting (including the pro forma information contained in this Proxy
Statement/Prospectus) and the Vitas stockholders will be resolicited. See "THE 
MERGER--Accounting Treatment."

         Certain Federal Income Tax Consequences.  For federal income tax 
purposes, the Merger will constitute a taxable sale of Vitas Common Stock and 
other Vitas securities and that gain or loss will be recognized by Vitas 
securityholders on the exchange of Vitas Common Stock and other Vitas 
securities for Apria Common Stock. See "THE MERGER--Certain Federal Income Tax
Consequences."

   
         Termination.  The Merger Agreement provides that it may be terminated
and the Merger may be abandoned by action of the Board of Directors of either
Apria or Vitas, and notice thereof given in writing to the other party (i) if
any Governmental Entity shall have issued an order, decree or ruling or taken
any other action permanently enjoining, restraining or otherwise prohibiting the
consummation of the Merger and such order, decree or ruling or other action
shall have become final and nonappealable, (ii) if the Merger shall not have
occurred by October 31, 1996, unless the failure to consummate the Merger is the
result of a breach of a covenant set forth in the Merger Agreement or a
misrepresentation or breach of any warranty set forth in the Merger Agreement by
the party seeking to terminate the Merger Agreement (the "Expiration Date") or
(iii) if the Market Price is greater than $42.125 or less than $22.125. In
addition, the Merger Agreement provides that it may be terminated by Apria if
there is a Debt Adjustment in excess of $4 million. The Merger Agreement also
may be terminated by Apria and Vitas as more specifically set forth in the
Merger Agreement. See "THE MERGER AGREEMENT--Termination." If the Merger
Agreement is terminated by Vitas because Vitas has accepted a Competing Proposal
(as defined below) and Apria does not elect to exercise its right of first
refusal, or if Vitas enters into any Acquisition Transaction (as defined below)
with a third party without complying with the terms of the Merger Agreement, and
Apria is not otherwise in material breach of its obligations under the Merger
Agreement, Vitas has agreed to immediately pay to Apria the sum of $10 million
in cash. In addition, upon any such termination, Vitas also has agreed to
reimburse Apria (not later than one business day after submission of statements
therefor) for all reasonable fees and expenses incurred by Apria in connection
with the transactions contemplated by the Merger Agreement (including, without
limitation, consulting, accounting, legal and investment banking fees and
expenses incurred by Apria in connection with the transactions contemplated by
the Merger Agreement and the evaluation of the Competing Proposal). See "THE
MERGER AGREEMENT--Negotiations With Others" and "THE MERGER AGREEMENT--Effect of
Termination."
    

   
         FOR A DISCUSSION OF RECENT DEVELOPMENTS CONCERNING THE POSSIBLE
TERMINATION OF THE MERGER AGREEMENT, SEE "THE MERGER--BACKGROUND OF THE
MERGER--RECENT DEVELOPMENTS."
    


         Apria Credit Facility.  In order to effect the Merger and to meet the
working capital needs of the combined company, Apria has obtained additional
financing. Effective August 9, 1996, Apria entered into an agreement with a
syndicate of banks which provides for borrowings of up to $800 million. The
agreement is structured as an unsecured five-year revolving line of credit which
provides for variable rate interest options. See Note 8 to Unaudited Pro Forma 
Condensed Combined Financial Statements.

         Dissenters' Rights. Vitas stockholders have the right to dissent from
the Merger and perfect appraisal rights as to the fair value of the Vitas stock
held by them as of the Effective Time. To exercise the appraisal rights, a
stockholder must file with Vitas a written demand for appraisal prior to the
vote on the Merger at the Special Meeting. Failure to comply with the foregoing
condition will result in the loss of those appraisal rights. Since the
preservation and exercise of appraisal rights are conditioned upon strict
observance of the applicable section of the Delaware GCL, each Vitas stockholder
who might exercise appraisal rights should consult and strictly observe the
statute. A copy of the statute is attached to this Proxy Statement/Prospectus as
Appendix D. See "THE SPECIAL MEETING"; "THE MERGER"; "RIGHTS OF DISSENTING VITAS
STOCKHOLDERS" and "PRINCIPAL STOCKHOLDERS -- Vitas Security Ownership."

         Resales of Apria Common Stock. The shares of Apria Common Stock to be
issued pursuant to the Merger Agreement have been registered under the 1933 Act,
and therefore may be resold without restriction by persons who are not deemed to
be "affiliates" (as such term is defined under the 1933 Act) of either Apria or
Vitas. See "THE MERGER--Restrictions on Sales by Affiliates; Pooling
Considerations."

PAYMENTS TO MR. WESTBROOK AND COLLIBROOK

         The stockholders of Vitas are being asked to approve separately
certain payments to be made to Mr. Westbrook pursuant to the Noncompetition
Agreement and certain payments to be made to Mr. Westbrook and Collibrook
pursuant to the Severance Agreement. The separate approval by the stockholders
of Vitas of such payments is being solicited because such payments may
otherwise be deemed "parachute payments" under Sections 280G and 4999 of the
Code. Approval of such payments is a condition to Apria's obligation to effect
the Merger and the transactions contemplated under the Merger Agreement.

         At or prior to the Closing Date, Vitas and Apria will enter into the
Noncompetition Agreement with Mr. Westbrook and the Severance Agreement with
Mr. Westbrook, Ms. Colliflower and Collibrook. Pursuant to the Severance
Agreement, Mr. Westbrook will be entitled to receive, at the Effective Time, a
cash severance payment of $1.25 million less certain offsets based on other
benefits payable to him and the value of life insurance policies to be assigned
to him. The Severance Agreement will also entitle Collibrook to receive
$250,000 payable at the Effective Time for providing consulting services to
Vitas for a period of one year. Pursuant to the Noncompetition Agreement, Mr.
Westbrook will agree, among other things, that for a period of seven years he
would not compete with the business of Vitas in the areas of home health care,
hospice care, hospice or other related business segments in specified geographic
areas. Mr. Westbrook will be entitled to receive an aggregate payment of $7.0
million under the Noncompetition Agreement, payable $5.0 million at the
Effective Time and $1.0 million on each of the first two anniversaries of the
Effective Time. The payments to be made to Mr. Westbrook and Collibrook under
the Severance Agreement and the payments to be made to Mr. Westbrook under the
Noncompetition Agreement are subject to the consummation of the Merger. For the
background of the Severance Agreement and the Noncompetition Agreement and a
summary of the terms of such agreements, see "PROPOSAL TO APPROVE SEPARATELY
THE PAYMENTS TO HUGH A. WESTBROOK AND COLLIBROOK PURSUANT TO THE SEVERANCE AND
NONCOMPETITION AGREEMENTS TO BE ENTERED INTO IN CONNECTION WITH THE MERGER IN
ORDER THAT SUCH PAYMENTS NOT BE CHARACTERIZED AS "PARACHUTE PAYMENTS" FOR
PURPOSES OF SECTIONS 280G AND 4999 OF THE CODE."

        The Vitas Board of Directors recommends that stockholders approve the
payments to be made to Mr. Westbrook and Collibrook pursuant to the Severance
Agreement and the payments to be made to Mr. Westbrook pursuant to the
Noncompetition Agreement. The Vitas Board of Directors approved the Severance
Agreement and the Noncompetition Agreement concurrently with its approval of the
Merger Agreement. In recommending approval of such payments, the Board of
Directors of Vitas gave favorable consideration to the amounts to be paid to
Mr. Westbrook under such agreements in light of his current compensation, his
contributions to Vitas and his role as a founder of Vitas and the amounts that
Mr. Westbrook could have earned over the seven-year post-Merger period of
restriction. In connection with the Board's review of the proposed
arrangements, Vitas also retained the services of The Hay Group, an
international compensation and benefits consulting firm ("Hay"), during the
negotiations of the Severance Agreement and the Noncompetition Agreement to
assist the Board in its review of the reasonableness of the payments proposed to
be made to Mr. Westbrook. For a more detailed discussion of the factors
considered by the Board and the Hay report, see "PROPOSAL TO APPROVE SEPARATELY
THE PAYMENTS TO HUGH A. WESTBROOK AND COLLIBROOK PURSUANT TO THE SEVERANCE AND
NONCOMPETITION AGREEMENTS TO BE ENTERED INTO IN CONNECTION WITH THE MERGER IN
ORDER THAT SUCH PAYMENTS NOT BE CHARACTERIZED AS "PARACHUTE PAYMENTS" FOR
PURPOSES OF SECTIONS 280G AND 4999 OF THE CODE -- Recommendation of the Board of
Directors."

IN CONSIDERING THE RECOMMENDATION OF THE VITAS BOARD OF DIRECTORS WITH RESPECT
TO THE PAYMENTS TO BE MADE TO MR. WESTBROOK AND COLLIBROOK PURSUANT TO THE
SEVERANCE AGREEMENT AND THE PAYMENTS TO BE MADE TO MR. WESTBROOK PURSUANT TO
THE NONCOMPETITION AGREEMENT, VITAS SECURITYHOLDERS SHOULD BE AWARE THAT
CERTAIN MEMBERS OF VITAS' MANAGEMENT AND BOARD OF DIRECTORS HAVE INTERESTS IN
THE MERGER THAT ARE IN ADDITION TO AND MAY CONFLICT WITH THE INTEREST OF VITAS
SECURITYHOLDERS GENERALLY. THE VITAS BOARD OF DIRECTORS WAS AWARE OF THESE
INTERESTS AND CONSIDERED THEM, AMONG OTHER FACTORS, IN APPROVING SUCH PAYMENTS.
SEE "THE MERGER -- REASONS FOR THE MERGER AND RECOMMENDATION OF THE BOARD OF
DIRECTORS."

                                       16
<PAGE>   25
                         SELECTED FINANCIAL INFORMATION

         Apria and Subsidiaries.  The following selected financial data for the
five years ended December 31, 1995 are derived from the audited consolidated
financial statements of Apria. The financial data for the six month periods
ended June 30, 1995 and 1996 are derived from unaudited financial statements.
The unaudited financial statements include all adjustments, consisting of normal
recurring accruals, that Apria considers necessary for a fair presentation of
the financial position and the results of operations for these periods.
Operating results for the six months ended June 30, 1996 are not necessarily
indicative of the results that may be expected for the entire year ending
December 31, 1996. The data should be read in conjunction with Apria's
consolidated financial statements, related notes and other financial information
included herein. 

   
<TABLE>
<CAPTION>

                                                                                                               SIX MONTHS ENDED
                                                                 YEAR ENDED DECEMBER 31,                           JUNE 30,
                                            -------------------------------------------------------------  ----------------------
                                            1991(1)(2)  1992(1)(3)  1993(1)(4)  1994(1)(5)    1995(1)(6)     1995(1)      1996      
                                            ----------  ---------   ---------   ---------   -------------  ----------   ---------   
                                                                                                                                    
                                                                 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)                           
                                                                                                                                    
<S>                                         <C>         <C>         <C>         <C>          <C>           <C>          <C>         
STATEMENT OF OPERATIONS DATA:                                                                                                       
Net revenues ............................    $420,338    $513,269    $748,901   $962,812     $1,133,600    $  571,895   $  601,882
Gross profit ............................     291,582     359,237     522,777    675,122        772,601       398,089      410,848
Income (loss) from continuing                                                                                                       
  operations before extraordinary items                                                                                             
  and cumulative effect of change in                                                                                                
  accounting method .....................       2,747      22,752      35,845     35,616        (71,478)       23,289       42,234
                                                                                                                                    
Net income (loss) .......................      30,343      27,256      37,311     39,031        (74,476)       20,291       42,234
                                                                                                                                    
Per common and common equivalent                                                                                                    
  share:                                                                                                                            
  (Loss) income from continuing                                                                                                     
   operations before extraordinary                                                                                                  
   items and cumulative effect of                                                                                                   
   change in accounting method ..........    $  (0.26)   $   0.61    $   0.94   $   0.81     $    (1.52)   $     0.49   $     0.81
  Net income (loss) per common share ....    $   0.68    $   0.73    $   0.98   $   0.89     $    (1.58)   $     0.43   $     0.81
                                                                                                                                    
Per common and common equivalent                                                                                                    
  share assuming full dilution:                                                                                                     
  (Loss) income from continuing                                                                                                     
   operations before extraordinary                                                                                                  
   items and cumulative effect of                                                                                                   
   change in accounting method ..........    $  (0.26)   $   0.61    $   0.89   $   0.78     $    (1.52)   $     0.47   $     0.81
  Net income (loss) per common share ....    $   0.68    $   0.73    $   0.93   $   0.85     $    (1.58)   $     0.41   $     0.81
                                                                                                                                    
BALANCE SHEET DATA:                                                                                                                 
  Working capital .......................    $ 42,172    $109,122    $187,370   $157,608     $  198,630    $  260,123   $  336,185
  Total assets ..........................     224,929     402,216     710,122    856,167        979,985     1,009,706    1,111,478
  Long-term obligations, including                                                                                                  
   current maturities ...................     106,745     202,071     391,822    438,304        500,307       512,816      621,066
  Stockholders' equity ..................      33,647      80,401     176,632    261,910        284,238       349,798      348,703
</TABLE>
    
----------------------

(1)  The Statement of Operations and Balance Sheet Data reflect the June 28,
     1995 Abbey/Homedco Merger using the pooling-of-interests method of
     accounting. Accordingly, the financial data for all periods prior to June
     28, 1995 have been restated as though the two companies had been combined.

(2)  Net income (loss) applicable to common stockholders and net income (loss)
     per common share prior to May 1991 include the impact of (a) the accretion
     to fair market value of a warrant with put option of $5,702 and (b) the
     accretion of preferred stock dividends of $591 in accordance with generally
     accepted accounting principles. The warrant was exercised upon consummation
     of Homedco's initial public offering in 1991 and the put feature which
     necessitated the accretion of fair market value terminated. In addition,
     Apria redeemed a portion of the outstanding preferred stock thereby
     eliminating the dividend accretion thereon.

(3)  The Statement of Operations and Balance Sheet Data reflect the acquisition
     on August 7, 1992 of substantially all of the business and assets of
     Glasrock Home Healthcare, Inc. and a related restructuring charge of
     approximately $4,300.

(4)  The Statement of Operations and Balance Sheet Data reflect the acquisition
     on November 10, 1993 of the outstanding stock of Total Pharmaceutical Care,
     Inc.

(5)  In 1994, Apria disposed of a subsidiary as described in the notes to the
     consolidated financial statements included in the appendices attached 
     hereto.

(6)  In 1995, Apria incurred charges related to the Abbey/Homedco Merger, which
     consisted of merger costs of $12,193 and restructuring charges of $68,304
     as discussed in the notes to the consolidated financial statements
     included in the appendices attached hereto.

   
         


                                       17
<PAGE>   26
   
         Recent Developments. Apria recently announced operating results for
the quarter ended September 30, 1996. For this period, net revenues and net
income were $306 million and $20.7 million, respectively, compared to revenues
of $277.7 million and a net loss of $112.2 million for the same period in 1995.
Earnings per share on a primary and fully diluted basis were $.40 for the
quarter ended September 30, 1996, compared to a loss per share of $2.32 for the
same quarter in 1995.
    

         Vitas. The following table sets forth certain selected financial data
for the fiscal years ended September 30, 1991 through 1995 and for the
nine-month periods ended June 30, 1995 and 1996. The financial data for the five
years ended September 30, 1995 have been derived from the audited consolidated
financial statements and notes thereto, certain of which are contained elsewhere
in this Proxy Statement/Prospectus. The financial data for the nine-month
periods ended June 30, 1995 and 1996 are derived from unaudited consolidated
financial statements of Vitas. The unaudited Vitas consolidated financial
statements include all adjustments, consisting of normal recurring accruals,
that Vitas considers necessary for a fair presentation of the financial position
and the results of operations for these periods. Operating results for the nine
months ended June 30, 1996 are not necessarily indicative of the results that
may be expected for the entire year ending September 30, 1996. The following
selected financial data should be read in conjunction with the Vitas
consolidated financial statements and notes thereto included in this Proxy
Statement/Prospectus.

<TABLE>
<CAPTION>
                                                                                                          NINE MONTHS ENDED
                                                                YEAR ENDED SEPTEMBER 30,                        JUNE 30,
                                                -----------------------------------------------------    --------------------
                                                 1991       1992        1993        1994      1995(1)     1995(1)      1996
                                                -------   --------    --------    --------   --------    --------    --------
                                                                 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                             <C>       <C>         <C>         <C>        <C>         <C>         <C>     
STATEMENTS OF OPERATIONS DATA:
Net patient service revenue...................  $90,104   $116,787    $150,964    $175,832   $230,854    $165,815    $191,514
Gross profit .................................   33,585     40,300      56,739      66,990     82,292      60,523      65,914
Income (loss) before cumulative effect of
   change in accounting method ...............    1,386      1,986        (183)      5,141     (2,845)     (2,515)        598

Net income (loss) ............................    1,386      1,986          76       5,141     (2,845)     (2,515)        598
Net income (loss) applicable to common
   stockholders ..............................    1,386        265      (3,038)        543     (7,443)     (5,965)     (2,852)


Per common and common equivalent share (2):
   Income (loss) before cumulative effect of
     change in accounting method .............  $   .21   $    .03    $   (.60)   $    .15   $  (1.69)   $  (1.36)   $   (.65)
   Net income (loss) per common share ........  $   .21   $    .03    $   (.55)   $    .15   $  (1.69)   $  (1.36)   $   (.65)

BALANCE SHEET DATA:
   Working capital (deficiency)...............  $(1,503)  $  1,282    $ 12,663    $ 14,813   $  7,414    $ 11,450    $(27,332)
   Total assets ..............................   23,279     39,363      56,276      53,936     98,007     103,315      94,428
   Long-term obligations, including
     current maturities ......................    5,547      6,001       2,891       5,912     45,812      48,728      45,668
   Redeemable preferred stock ................        -     27,053      53,987      56,155     58,323      57,781      59,949
   Stockholders' deficit .....................     (146)   (19,227)    (31,204)    (30,283)   (37,267)    (35,304)    (39,146)
</TABLE>

---------------------

(1)  Please see "VITAS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
     CONDITION AND RESULTS OF OPERATIONS" for a discussion of various charges
     and expenses which contributed to the losses in those periods.

(2)  Per share net income (loss) applicable to common stockholders includes the
     accretion of preferred stock dividends in accordance with generally
     accepted accounting principles. Fully diluted earnings per share are
     antidilutive for the periods and are not presented.


                                       18
<PAGE>   27
                SELECTED QUARTERLY FINANCIAL INFORMATION - VITAS

         The following table presents the consolidated operating results of
Vitas for each of the eleven quarters in the period ended June 30, 1996. The
information for each of these quarters is unaudited and has been prepared on the
same basis as the audited consolidated financial statements appearing elsewhere
in this Proxy Statement/Prospectus. In the opinion of Vitas management, all
adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the results of operations for the interim periods presented have
been reflected herein. For further information, refer to the Vitas consolidated
financial statements and notes thereto included in this Proxy
Statement/Prospectus.

<TABLE>
<CAPTION>

                                                    THREE MONTHS ENDED                            
                               -------------------------------------------------------------      
                               Dec. 31,    Mar. 31,  June 30,  Sept. 30,  Dec. 31,  Mar. 31,             
                                 1993       1994      1994      1994       1994      1995                                          
                               -------     -------   -------   --------   -------   --------              
                                        (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)                   
<S>                            <C>         <C>       <C>       <C>        <C>       <C>                                             
                                                                                                                                   
INCOME STATEMENT DATA:                                                                                                             
Net patient service                                                                                                                
    revenue...............     $43,275     $41,862   $44,940   $45,755    $47,421   $53,954                                         
Gross profit..............      16,393      16,271    17,367    16,959     18,575    20,103                                         
Net income (loss).........       1,687       1,703     1,596       155      1,073      (771) 
Net income (loss)                                                                                                                  
    applicable to common                                                                                                           
    stockholders..........         537         554       446      (994)       (76)   (1,922) 
                                                                                                                                   
PER COMMON AND COMMON                                                                                                              
    EQUIVALENT SHARE (1):                                                                                                          
Net income (loss) per                                                                                                              
    common share..........        $.07        $.07      $.06     $(.23)     $(.02)    $(.44)             
</TABLE>                  

<TABLE>
<CAPTION>
                                             THREE MONTHS ENDED
                              --------------------------------------------------- 
                               June 30,  Sept. 30,  Dec. 31,  Mar. 31,   June 30,           
                                 1995      1995       1995      1996      1996              
                               -------   --------   -------   -------    -------            
                                   (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)                  
<S>                            <C>       <C>        <C>       <C>         <C>               
INCOME STATEMENT DATA:                                                                      
Net patient service                                                                         
    revenue...............     $64,440   $65,039    $65,065   $64,454     $61,995
Gross profit..............      21,845    21,768     22,564    22,343      21,007           
Net income (loss).........      (2,817)     (330)       372       396        (170)          
Net income (loss)                                                                           
    applicable to common                                                                    
    stockholders..........      (3,967)   (1,478)      (778)     (754)     (1,320)          
                                                                                            
PER COMMON AND COMMON                                                                       
    EQUIVALENT SHARE (1):                                                                   
Net income (loss) per                                                                       
    common share..........       $(.90)    $(.34)     $(.18)    $(.17)      $(.30)          
</TABLE> 
 
----------------------
(1) Fully diluted earnings per share are antidilutive for the periods and are
    not presented.


                                       19
<PAGE>   28
          SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA

         The following table presents summary unaudited pro forma selected
operations data for each of the three years in the period ended December 31,
1995 and the six month periods ended June 30, 1995 and June 30, 1996, after
giving effect to the Merger as if such Merger were consummated on January 1,
1993, and unaudited pro forma selected balance sheet data at June 30, 1996,
giving effect to the Merger as if the Merger were consummated on that date,
using the pooling-of-interests method of accounting.

         The following summary unaudited pro forma condensed combined financial
data is provided for comparative purposes only and should be read in conjunction
with the unaudited pro forma condensed combined financial statements and notes
thereto (see "UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS"), and
the separate audited consolidated financial statements and related notes 
included in the appendices attached hereto for Apria and included elsewhere in 
this Proxy Statement/Prospectus for Vitas. The following summary unaudited pro 
forma condensed combined financial data does not purport to be indicative of the
results which actually would have occurred if the Merger had been consummated on
the dates indicated or which may be obtained in the future.

   
<TABLE>
<CAPTION>
                                                                                                      SIX MONTHS ENDED
                                                            YEAR ENDED DECEMBER 31,                        JUNE 30,
                                                     -------------------------------------         -----------------------
                                                       1993          1994           1995(1)           1995          1996
                                                       ----          ----           ----              ----          ----

                                                                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<S>                                                  <C>         <C>            <C>                <C>            <C>     
STATEMENTS OF OPERATIONS DATA:
Net revenues.......................................  $898,665    $1,137,438     $1,363,192         $672,724       $726,904
Cost of net revenues...............................   319,149       395,326        508,299          235,957        272,706
                                                     --------    ----------     ----------         --------       --------
  Gross profit.....................................   579,516       742,112        854,893          436,767        454,198
Selling, distribution and administrative expenses..   458,663       570,991        675,268          326,103        322,448
Provision for doubtful accounts, net of
  recoveries.......................................    37,759        50,689        107,291           29,389         30,440
Amortization of intangible assets..................     4,822        12,665         18,097            8,805          9,718
Restructuring costs................................         -             -         70,324            2,661              -
Merger costs.......................................         -             -         12,193            6,988              -
Employee contracts, benefit plan and claim
  settlements......................................         -             -         20,367            3,206              -
Forgiveness of officer loans.......................     4,700             -              -                -              -
Loss on disposal of U.K. subsidiary................         -             -            500              500              -
                                                     --------    ----------     ----------         --------       --------
  Operating income (loss)..........................    73,572       107,767        (49,147)          59,115         91,592
Interest expense, net of interest (income).........    18,169        36,756         45,705           22,314         25,193
                                                     --------    ----------     ----------         --------       --------
  Income (loss) from continuing operations
    before taxes, extraordinary charge and
    cumulative effect of change in accounting
    method.........................................    55,403        71,011        (94,852)          36,801         66,399
Income tax provision (benefit).....................    19,741        30,254        (20,529)          13,210         23,939
                                                     --------    ----------     ----------         --------       --------
  Income (loss) from continuing operations        
    before extraordinary charge and cumulative
    effect of change in accounting method..........  $ 35,662    $   40,757     $  (74,323)        $ 23,591       $ 42,460     
                                                     ========    ==========     ==========         ========       ========     
  Income (loss) from continuing operations
    before extraordinary charge and cumulative
    effect of change in accounting method
    applicable to common stockholders..............  $ 32,548    $   36,159     $  (78,921)        $ 21,291       $ 40,160
                                                     ========    ==========     ==========         ========       ========

Per common and common equivalent share:
  Primary..........................................      $.82          $.78         $(1.63)            $.44           $.75
  Fully diluted....................................      $.79          $.76         $(1.63)            $.42           $.75
Number of shares used in calculation:           
  Primary..........................................    39,741        47,724         48,389           48,772         53,565
  Fully diluted....................................    45,467        53,008         48,389           52,427         53,678

</TABLE>                                  
    

<TABLE>
<CAPTION>
                                                                 AS OF JUNE 30,
                                                                      1996
                                                                 -------------
<S>                                                              <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......................................   $   22,485
Working capital.................................................      337,728
Total assets....................................................    1,212,826
Long-term obligations, including current maturities.............      698,820
Stockholders' equity............................................      338,523
</TABLE>

------------

   
(1)        In 1995, Apria incurred charges related to the Abbey/Homedco Merger,
           consisting of merger costs, restructuring charges, and costs for
           employee contracts, benefit plan and claim settlements as
           discussed in the notes to the consolidated financial statements
           included in the appendices attached hereto.

    

                                       20
<PAGE>   29
                                  RISK FACTORS

         The following factors should be considered carefully by the
stockholders of Vitas in connection with voting upon the Merger Agreement and
the transactions contemplated thereby. The following discussion contains
"forward- looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, which can be identified by the use of
forward-looking terminology, such as "may," "will," "expect," "anticipate,"
"estimate" or "continue" or the negative thereof or other variations thereon or
comparable terminology. See "FORWARD LOOKING STATEMENTS." The matters set forth
below constitute cautionary statements identifying important factors with
respect to such forward-looking statements, including certain risks and
uncertainties, that could cause actual results to differ materially from those
in such forward-looking statements. For a discussion of potential consequences
to Vitas and its stockholders if the Merger Agreement is not approved and
adopted by Vitas' stockholders, see "THE MERGER--Reasons for the Merger and
Recommendation of the Board of Directors," and "VITAS MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Liquidity and
Capital Resources."

INTEGRATION OF THE BUSINESSES

         The Merger involves the partial integration of two companies that have
previously operated independently. The basic operations of Apria and Vitas will
remain essentially independent, but portions of the administrative and support
aspects of Vitas' business will be consolidated with those of Apria. Among the
factors considered by the Boards of Directors of Apria and Vitas in connection
with their approval of the Merger Agreement were the opportunities for
administrative efficiencies that should result from the Merger. Apria 
previously has not provided hospice services and certain officers of Vitas are 
expected to resign or otherwise terminate their employment with Vitas as of the 
Effective Time or within 90 days thereafter. No assurance can be given that
difficulties will not be encountered by Apria in operating Vitas or in
integrating the administrative and support functions of Apria and Vitas or that
the benefits expected from such operation and integration will be realized. Any
delays or unexpected costs incurred in connection with such operation or
integration could have a material adverse effect on Apria's and/or Vitas'
business, results of operations or financial condition. See "THE MERGER." 

HEALTHCARE REFORM

         Healthcare is an area of extensive and dynamic regulatory change.
Changes in the law, new interpretations of existing laws, or changes in payment
methodology, may have a dramatic effect on the definition of permissible or
impermissible activities, the relative costs associated with doing business and
the amount of reimbursement by both government and other third-party payors. In
addition to specific legislative and regulatory influences, efforts to reduce
the growth of the federal budget and the Medicare and Medicaid programs have
spurred healthcare reform proposals by the current administration and by members
of Congress. In addition, state legislatures periodically consider various
healthcare reform proposals. Congress and state legislatures can be expected to
continue to review and assess alternative healthcare delivery systems and
payment methodologies, and public debate of these issues can be expected to
continue in the future. The ultimate timing or effect of legislative efforts
cannot be predicted and may impact Apria and Vitas in different ways. No
assurance can be given that any such efforts will not have a material adverse
effect on Apria's and/or Vitas' business, results of operations or financial 
condition.

         For fiscal 1995, approximately 33% of Apria's and 70% of Vitas'
revenues were derived from Medicare and 10% of Apria's and 22% of Vitas'
revenues were derived from Medicaid. On a combined basis, approximately 39% and
12% of the companies' revenues were derived from the Medicare and Medicaid
programs, respectively.

PRICING PRESSURES

         The healthcare industry is currently experiencing market-driven 
reforms from forces within and outside the industry that are exerting pressure 
on healthcare companies to reduce healthcare costs. These market-driven reforms 
are resulting in industry-wide consolidation that is expected to increase the 
downward pressure on home healthcare and hospice margins, as larger buyer and 
supplier groups exert pricing pressure on home healthcare and hospice 
providers. The ultimate timing or effect of market-driven reforms cannot be 
predicted, and short-term cost containment initiatives may vary substantially 
from long-term reforms and may impact Apria and Vitas in different ways. No 
assurance can be given that any such reforms will not have a material adverse
effect on Apria's and/or Vitas' business, results of operations or financial
condition.

REGULATORY ENVIRONMENT

         Reimbursement.  A substantial portion of each of Apria's and Vitas'
revenues is attributable to payments received from third-party payors, including
the Medicare and Medicaid programs and private insurers. In 1995, approximately
92% of Vitas' revenues were attributable to Medicare and Medicaid payments and
approximately 43% of Apria's revenues were attributable to Medicare and Medicaid
payments. Apria and Vitas believe approximately 51% of their combined revenues
in 1996 will be attributable to Medicare and Medicaid payments. Many payors are
increasing pressures to control healthcare costs. In addition, both public and
private payors are increasing pressures to decrease or limit increases in
reimbursement rates for healthcare services. The levels of revenues and
profitability of Apria and Vitas, similar to those of other healthcare
companies, will be subject to the effect of possible reductions in coverage or
payment rates by third-party payors. Such changes could have a material adverse
effect on the business and results of operations of Apria and/or Vitas. For
example, in October 1995, the U.S. House of Representatives and the Senate each
passed federal budget bills aimed at, among other things, containing Medicare
and Medicaid spending. In early December, the President vetoed the legislation
in its then-current form and announced a counter-proposal which included
Medicare and Medicaid reductions less drastic than those passed by Congress. The
Medicare 


                                       21
<PAGE>   30
reimbursement reductions envisioned in these competing proposals could, if 
passed into law, have a material adverse effect on Apria's and/or Vitas' 
business, results of operations or financial condition.

         Under Medicaid, hospice services are optional to the states. Most
states in which Vitas operates cover Medicaid hospice services; however, there
can be no assurance that the states in which Vitas is presently operating or
states into which it could expand operations will continue to cover Medicaid
hospice services. In addition, the Medicare and Medicaid programs are subject to
statutory and regulatory changes, retroactive and prospective rate and payment
adjustments, administrative rulings, freezes, and funding reductions, all of
which may adversely affect the level of program payments and could have a
material adverse effect on Apria's and/or Vitas' business, results of
operations or financial condition. For example, recently there have been varying
government proposals to reduce the Medicare home oxygen reimbursement rate by 10
to 40%. For both the year ended December 31, 1995 and the six months ended June
30, 1996, Medicare-reimbursed home oxygen services accounted for approximately
22% of Apria's net revenues. At this time, the reduction in the home oxygen
reimbursement rate that will be passed into law, if any, cannot be predicted.
Any significant rate reduction in excess of 10% that is ultimately enacted could
have a material adverse effect on Apria's business, results of operations or
financial condition.

         Medicare and Medicaid carriers and fiscal intermediaries also
periodically conduct post-payment reviews and other audits of claims submitted.
These Medicare and Medicaid contractors are under increasing pressure to
scrutinize more closely health care claims. During the past year, for example,
Vitas' fiscal intermediary has conducted several reviews of certain hospice
providers for which it processes claims, including Vitas programs. These
reviews include focused medical reviews of claims submitted for certain
patients, including patients with non-cancer diagnoses. There can be no 
assurance that such reviews and/or similar audits of Apria's or Vitas' claims 
will not result in material recoupments or denials which could have a material 
adverse effect on Apria's and/or Vitas' business, results of operations or 
financial condition.

         Fraud and Abuse Laws.  As suppliers and providers of services under the
Medicare and Medicaid programs, Apria and Vitas are subject to Medicare and
state healthcare program fraud and abuse laws. These laws include the Medicare
and Medicaid anti-kickback statute, which prohibits, among other things, the
offer, payment, solicitation or receipt of any remuneration in return for the
referral of patients for items or services, or arranging for the furnishing of
items or services, for which payment may be made under the Medicare, Medicaid or
other federally funded health care programs. Violations of these provisions may
result in civil and criminal penalties and exclusion from participation in
Medicare and state health programs such as Medicaid. Recently, Congress enacted
the Health Insurance Portability and Accounting Act of 1996, which includes an
expansion of certain fraud and abuse provisions, such as expanding the
application of Medicare and Medicaid fraud penalties to other federal healthcare
programs. In addition, several healthcare reform proposals have included an
expansion of the anti-kickback laws to include referrals of any patients
regardless of payor source.

         The broad language of the anti-kickback statute has been interpreted by
the courts and governmental enforcement agencies in a manner which could impose
liability on healthcare providers for engaging in a wide variety of business
transactions. Limited "safe harbor" regulations exempt certain practices from
enforcement action under the prohibitions. However, these safe harbors are only
available to transactions which fall entirely within the narrowly defined
guidelines. Transactions that do not fall within the safe harbors do not
necessarily violate the fraud and abuse laws and, therefore, parties to such
transactions either may or may not be subject to prosecution. In addition, an
increasing number of states in which Apria and Vitas operate have laws, which
vary from state to state, prohibiting certain direct or indirect remuneration or
fee-splitting arrangements between healthcare providers, regardless of payor
source, for the referral of patients to a particular provider. In addition,
under separate statutes, submission of claims for payment that are "not provided
as claimed" may lead to civil money penalties, criminal fines and imprisonment,
and/or exclusion from participation in Medicare, Medicaid and other federally
funded state healthcare programs. These false claims statutes include the
Federal False Claims Act, which allows any person to bring suit alleging false
or fraudulent Medicare or Medicaid claims or other violations of the statute and
to share in any amounts paid by the entity to the government in fines or
settlement. Such qui tam actions have increased significantly in recent years
and have increased the risk that a healthcare company will have to defend a
false claims action, pay fines or be excluded from the Medicare and/or Medicaid
programs as a result of an investigation arising out of such an action. Finally,
Congress enacted in 1993 the so-called "Stark Law," which prohibits referrals by
physicians to certain entities with which they have a financial relationship
unless an exception applies. Several states in which Apria and Vitas operate
also have similar laws. Possible sanctions for violation of these laws include
denial of payment, loss of licensure and civil and criminal penalties. Apria and
Vitas each maintains an internal regulatory compliance review program and from
time to time retains special counsel for guidance on applicable laws and
regulations. However, no assurance can be given that the practices of Apria or
Vitas, if reviewed, would be found to be in compliance with applicable health
regulatory laws, as such laws ultimately may be interpreted, or that any
non-compliance with such laws would not have a material adverse effect on Apria
and/or Vitas. 

         Qui Tam Lawsuit.  Apria is one of nine named defendants in a qui tam
lawsuit, which was filed under seal in the Northern District of Georgia on
August 23, 1995, by Mark Parker, a former employee, and served on Apria on May
31, 1996. The suit alleges that Apria violated the Civil False Claims Act by
paying illegal kickbacks to certain healthcare providers in exchange for
patient referrals. The suit also alleges that Apria violated the False Claims
Act by improperly generating "Certificates of Medical Necessity" for certain
products, including oxygen and low air-loss beds, and providing free benefits,
such as pulmonary function testing and pulse oximetry testing, to certain
physicians. Finally, the suit alleges that Mr. Parker's employment was
improperly terminated in violation of the whistleblower protection provisions
of the False Claims Act. Prior to the service of the lawsuit, the United States
Department of Justice investigated Mr. Parker's allegations and Apria fully
cooperated with that investigation. On June 27, 1996, the United States
intervened in the suit, and on July 10, 1996, it filed an amended complaint, in
which it essentially joined Mr. Parker's allegations concerning illegal
kickbacks, but declined to join any of the other allegations. In conjunction
with the qui tam action, a grand jury also is investigating allegations
contained in the qui tam complaint. Potential remedies under the Civil False
Claims Act include recovery of any actual damages suffered by the government,
treble damages, statutory fines of up to $10,000 per false claim, and certain
other remedies. The grand jury investigation could result in the imposition of
administrative, civil or criminal fines or penalties or restitutionary relief.
Apria intends to defend vigorously against the allegations. In that regard, on
July 25, 1996, Apria filed a motion to dismiss the qui tam lawsuit, and that
motion currently is pending. Regardless of the outcome of that motion, Apria
believes that the outcome of the qui tam lawsuit and the grand jury
investigation will not have a material adverse effect on Apria's business,
results of operations or financial condition.

         Operation Restore Trust.  Recently, the federal government made a
policy decision to increase significantly the financial and human resources
allocated to enforcing the fraud and abuse laws. Private insurers and various
state enforcement agencies also have increased their scrutiny of healthcare
claims in an effort to identify and prosecute fraudulent and abusive practices.
Under Operation Restore Trust ("ORT"), the Office of the Inspector General (the
"OIG"), in cooperation with other federal and state agencies, has focused on the
activities of home health agencies, hospices, durable medical equipment
suppliers and nursing homes in New York, Florida, Illinois, Texas and
California, states in which Apria and Vitas have significant operations. As part
of ORT, hospice programs, including certain of Vitas' programs, have been
audited. In a recent OIG report issued following the audit of one Florida
hospice program unrelated to Vitas, the OIG concluded that, based upon a review
of a sample of medical records of certain long stay patients (those who are in a
hospice program for longer than 210 days), the majority of the medical records
reviewed either (1) did not support the beneficiaries' eligibility for hospice
coverage, or (2) were not sufficient to determine whether the beneficiaries were
terminally ill. As a result of these findings, the OIG recommended that the
fiscal intermediary (1) recover a minimum of $8.9 million for the beneficiaries
determined not eligible for Medicare hospice benefits, and (2) conduct medical
reviews of the other cases in which the OIG was unable to determine whether the
beneficiaries were terminally ill, which cases, if determined to be ineligible,
could result in an additional recoupment of up to $5.9 million. The fiscal
intermediary has not publicly indicated whether it will be following the OIG's
recommendations and is not legally obligated to do so. In commenting on a draft
version of this report, however, the intermediary noted several issues raised by
the report and the OIG's recommendations, including the process to be followed
in reviewing the eligibility determinations and whether the provider or the
beneficiaries would be responsible for any overpayments.

         The OIG's review of hospice programs is ongoing, and no reports have
been issued by the OIG on the outcome of the audit of Vitas' locations.
According to public reports, the OIG audits have focused on the hospice
eligibility of long stay patients (those who are in a hospice program for longer
than 210 days). The ultimate disposition of this audit and its possible impact 
on Vitas cannot currently be predicted, and there can be no assurance that this 
audit will not have a material adverse effect on Vitas' business, results of 
operations or financial condition. See "REGULATORY ENVIRONMENT -- Operation
Restore Trust"; see also Note 5 to Notes to Condensed Consolidated Financial 
Statements (Unaudited) of Vitas for the period ended June 30, 1996. 


                                       22
<PAGE>   31
         Other Federal and State Regulations.  The federal government and all
states regulate various aspects of the home healthcare and hospice industries.
In particular, Apria's and Vitas' operations are subject to federal and state
laws covering the repackaging and dispensing of drugs (including oxygen) and
regulating interstate motor-carrier transportation, pharmacies, nursing services
and certain types of home health agency and hospice activities. Certain of
Apria's and Vitas' employees are subject to state laws and regulations governing
the ethics and professional practice of medicine, respiratory therapy, pharmacy
and nursing. Apria's and Vitas' operations are subject to periodic survey by
governmental and private accrediting entities to assure compliance with
applicable state licensing, Medicare and Medicaid certification, and
accreditation standards, as the case may be. From time to time in the ordinary
course of business, Apria and Vitas, like other healthcare companies, receive
survey reports containing deficiencies for alleged failure to comply with
applicable requirements. The companies review such reports and attempt to take
appropriate corrective action. The failure to effect such action or to obtain,
renew or maintain any of the required regulatory approvals, certifications or
licenses could adversely affect Apria's and/or Vitas' business, results of
operations or financial condition and could prevent the programs involved from
offering products and services to patients. In addition, laws and regulations
often are adopted to regulate new products, services and industries. There can
be no assurances that either the states or the federal government will not
impose additional regulations upon the activities of Apria and/or Vitas which
might adversely affect their business, results of operations or financial
condition.

         See "REGULATORY ENVIRONMENT."

RECENT LOSSES

         Vitas reported a net loss of $2.8 million and net income of $0.6
million for the year ended September 30, 1995 and the nine months ended June 30,
1996, respectively. Apria reported a net loss of $74.5 million for the year
ended December 31, 1995 and net income of $42.2 million for the six months ended
June 30, 1996. The Unaudited Pro Forma Condensed Combined Statements of
Operations of Apria and Vitas contained in this Proxy Statement/Prospectus
reflect a net loss before extraordinary charge of $74.3 million for the year
ended December 31, 1995 and net income of $42.5 million for the six months ended
June 30, 1996. The net loss reported by Apria for the year ended December 31,
1995 is attributable to charges aggregating $148.3 million which were recorded
in connection with the Abbey/Homedco Merger and related restructuring and
integration of operations. These charges consist of restructuring costs, $68.3
million, merger costs, $12.2 million, a special provision for uncollectible
accounts, $47.4 million, and employee contract, benefit plan and claim
settlements, $20.4 million. The net loss reported by Vitas for the year ended
September 30, 1995 is principally attributable to a $2.0 million charge related
to restructuring costs (principally severance costs), a charge of $1.4 million
related to the settlement of litigation, $0.6 million of costs associated with
the termination of certain employee benefit programs, and $0.3 million of costs
incurred related to a subordinated debt offering that was not completed. The net
loss for the year ended December 31, 1995 reflected in the Unaudited Pro Forma
Condensed Combined Statement of Operations of Apria and Vitas contained in this
Proxy Statement/Prospectus is derived by combining the individual net losses of
Apria and Vitas incurred during the periods covered by their respective
statements of operations. While Apria and Vitas have been profitable through the
interim periods ended June 30, 1996 and the Unaudited Pro Forma Condensed
Combined Statement of Operations of Apria and Vitas contained in this Proxy
Statement/Prospectus for the six months ended June 30, 1996 reflects net income
of $42.5 million, no assurances can be given that this performance will be
sustained in the future. See "AVAILABLE INFORMATION," "SELECTED FINANCIAL 
INFORMATION," "--Collectibility of Accounts Receivable," "VITAS MANAGEMENT'S 
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," 
"UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS" and the 
consolidated financial statements of Vitas contained in this Proxy Statement/
Prospectus.

COLLECTIBILITY OF ACCOUNTS RECEIVABLE

   
         Apria's 1995 provision for doubtful accounts represents 8.9% of net
revenues and included (1) an adjustment made in the third quarter of
approximately $26.3 million to provide for an impairment in Abbey's infusion
therapy accounts receivable and (2) a provision recorded in the fourth quarter
of approximately $13 million, or 3.7% of accounts receivable, for the
anticipated impact on realization resulting from field location consolidations,
terminations, relocations and reassignments of billing and collection personnel
and conversions of field information systems to a standard system.

         In connection with Apria's third quarter accounts receivable analysis,
Apria's management determined that facility consolidations, system conversions
and other integration activities arising from two significant business
combinations consummated by Abbey in late 1993 and early 1994 had resulted in
employee turnover and job security and morale issues and ultimately in increased
aging of the infusion accounts receivable.  The announcements of the
Abbey/Homedco Merger, new branch consolidations, decentralization of the billing
and collection functions and other changes caused the situation to worsen.  As a
result, allowance for doubtful accounts was increased by $26.3 million to
provide for an impairment in the Abbey infusion accounts.

         Following is information as of June 30, 1995 and August 31, 1995 about
the portion of the accounts receivable for which the impairment was recognized
in the third quarter:







<TABLE>
<CAPTION>
                                                                                             June 30,         August 31,
                                                                                               1995              1995
                                                                                             --------         ----------
                                                                                                (Dollars in thousands)
         <S>                                                                                <C>                <C>
         Abbey infusion accounts receivable . . . . . . . . . . . . . . . . . . . .            $65,339         $64,865
         Abbey infusion allowance for doubtful accounts . . . . . . . . . . . . . .              7,727           7,453
         Abbey infusion allowance for doubtful accounts as
               a percentage of Abbey infusion accounts receivable . . . . . . . . .                 12%             11%

         Percentage of Abbey infusion accounts aged over 180 days . . . . . . . . .                 36%             39%  
         Abbey infusion allowance for doubtful accounts as a
               percentage of Abbey infusion accounts aged over 180 days . . . . . .                 33%             29%

         Percentage of Abbey infusion accounts aged over 360 days . . . . . . . . .                 15%             22%

         Abbey infusion allowance for doubtful accounts as a percentage 
               of Abbey infusion accounts receivable, after third 
               quarter adjustment(1) . . . . . .  . . . . . . . . . . . . . . . . .                                 52%
          
         Abbey infusion allowance for doubtful accounts as a percentage
               of Abbey infusion accounts aged over 180 days, after
               third quarter adjustment(1)  . . . . . . . . . . . . . . . . . . . .                                133%
</TABLE>

(1) Abbey infusion allowance calculated by adding the third quarter adjustment
    of $26.3 million to the August 31, 1995 allowance.

         Based on subsequent activity and analysis, Apria's management believes
that the additional reserves provided in the third quarter of 1995 are
sufficient, however, no assurances can be given that additional charges for
uncollectible infusion accounts will not be required.

         Apria does not plan to take any actions in connection with the proposed
merger with Vitas that would significantly impact the realization of Vitas'
outstanding accounts receivable.  There are no plans, in the near term, to
integrate the Apria and Vitas field locations and billing and collection
functions nor convert Vitas' information systems.  However, no assurances can be
given that employee morale and turnover within the Vitas billing and collection
function will not be impacted as a result of the Merger and that such matters
would not affect the ultimate realizability of Vitas' accounts receivable.
    

   
         Apria's management believes that disruptions and delays in billing and
collection activity caused by field location consolidations and personnel
changes diminished significantly with the conclusion of those activities in
early 1996. However, because only approximately 50% of the planned 445 field
system conversions were completed by December 31, 1995, disruptions and delays
associated with conversion and employee training continue to impact the timing
and, in some cases, the ultimate amount of collections. Apria's days' sales in
outstanding receivables ("DSO"), a key measurement used by management to
evaluate the time frame in which accounts receivable are collected, increased
from 99 days at December 31, 1994 to 109 days at December 31, 1995 and 123 days
at June 30, 1996. The conversion of a field information system to the standard
system requires from one to four weeks, depending on facility size, for
conversion and employee training. During conversion and training, billing and
collection activity is substantially curtailed. After conversion and training is
complete, billing and collection activity generally resumes at a slower pace
than pre-conversion levels but normalizes within three to six months. Apria's
management expects such delays to continue for a period of time following the
final conversions which are scheduled for completion in September 1996. No
assurances can be given that additional charges for uncollectible accounts
receivable will not be required as a result of difficulties associated with the
continuing conversion activities and meeting payor documentation and claim
submission deadlines. See "AVAILABLE INFORMATION" and "APRIA HEALTHCARE GROUP
INC."
    

COMPETITION

         The home healthcare and hospice markets are highly competitive and
include a limited number of national providers and numerous regional and local
providers. Apria and Vitas compete with a large number of organizations in many
areas in which their branch facilities and programs are located. Apria's and
Vitas' competitors include major national and regional companies, hospital-based
programs, numerous local companies, physician groups, nursing homes, home health
agencies, infusion therapy companies and nursing agencies. Some of the current
and potential competitors of Apria and Vitas have or may obtain significantly
greater financial and marketing resources than Apria or Vitas. In addition,
relatively few barriers to entry exist in the local markets served by Apria and
Vitas. Accordingly, other companies, including hospitals and healthcare
organizations that are not currently serving the home healthcare or hospice
markets, may enter the markets and expand the variety of services offered. There
can be no assurance that Apria and Vitas will not encounter increased
competition in the future that could limit their ability to maintain or increase
their market share, including competition from parties in a position to
influence referrals to Apria and/or Vitas. Such increased competition could have
a material adverse effect on Apria's and/or Vitas' business, results of
operations or financial condition. 

DEPENDENCE ON RELATIONSHIPS WITH THIRD PARTIES

         The profitability and growth of Apria's and Vitas' businesses depend on
their ability to establish and maintain close working relationships with managed
care organizations, private and governmental third-party payors, hospitals,
physicians, physician groups, home health agencies, long-term care facilities
and other institutional healthcare providers, and large self-insured employers.
There can be no assurance that Apria's or Vitas' existing relationships will be
successfully maintained or that additional relationships will be successfully
developed and maintained in existing or future markets. The loss of such
existing relationships or the failure to continue to develop such relationships
in the future could have a material adverse effect on Apria's and/or Vitas'
business, results of operations or financial condition.

CONCENTRATION OF LARGE PAYORS

         Managed care organizations have grown substantially in terms of the
percentage of the population that is covered by such organizations and in terms
of their control over an increasing portion of the healthcare economy. Managed
care plans have continued to consolidate to enhance their ability to influence
the delivery of healthcare services and to exert pressure to control healthcare
costs. Apria and Vitas each have a number of contractual arrangements with
managed care organizations and other parties. While no individual arrangement
accounted for more than 3% of Vitas' net revenues or 5% of Apria's net revenues
in fiscal 1995, no assurances can be given that managed care organizations or
other large third party payors will not use their power to influence and exert
pressure on healthcare services or costs in a manner that could have a material
adverse effect on Apria's and/or Vitas' business, results of operations or
financial condition.


                                       23
<PAGE>   32
POTENTIAL LIABILITY

         Participants in the home healthcare and hospice markets are subject to
lawsuits alleging negligence, product liability or other similar legal theories,
many of which involve large claims and significant defense costs. From time to
time, Apria and Vitas each are subject to such lawsuits as a result of the
nature of their businesses. Although Apria and Vitas currently maintain
liability insurance intended to cover such claims, there can be no assurance
that the coverage limits of such insurance policies will be adequate or that all
such claims will be covered by the insurance. In addition, these insurance
policies must be renewed annually. While Apria and Vitas have been able to
obtain liability insurance in the past, such insurance varies in cost, is
difficult to obtain and may not be available in the future on terms acceptable
to Apria and Vitas, if at all. A successful claim in excess of the insurance
coverage could have a material adverse effect on Apria's and/or Vitas' results 
of operations or financial condition. Claims, regardless of their merit or 
eventual outcome, also may have a material adverse effect on the business and 
reputation of Apria and Vitas.

CERTAIN ANTI-TAKEOVER PROVISIONS

         Under certain circumstances, Section 203 of the Delaware General
Corporation Law ("GCL") may make it more difficult for a person who would be an
"interested stockholder" (as defined in such section) to effect various business
combinations with a corporation for a three-year period, although the
corporation's certificate of incorporation or stockholders may elect to exclude
a corporation from the restrictions imposed thereunder. The Restated Certificate
of Incorporation of Apria does not exclude Apria from the restrictions imposed
under Section 203 of the Delaware GCL. It is anticipated that the provisions of
Section 203 of the Delaware GCL may encourage companies interested in acquiring
Apria to negotiate in advance with Apria's Board of Directors, since the
stockholder approval requirement would be avoided if a majority of the directors
then in office approve either the business combination or the transaction which
results in the stockholder becoming an interested stockholder. As a result, an
unsolicited acquisition of control of Apria may be more difficult or expensive.
See "COMPARISON OF APRIA AND VITAS STOCKHOLDER RIGHTS--Business Combinations."
In addition, the Apria stockholders rights plan may also make an
unsolicited acquisition more difficult or expensive. See "COMPARISON OF APRIA
AND VITAS STOCKHOLDER RIGHTS--Apria Rights Agreement."

DEPENDENCE ON KEY PERSONNEL

         Apria and Vitas are dependent on the continued services and management
experience of their executive officers. If such executive officers were to
leave, the operating results of Apria and Vitas could be adversely affected. In
addition, the continued growth of Apria and Vitas depends on their ability to
attract, retain and motivate skilled employees, and on the ability of their
officers and key employees to manage growth successfully. Certain officers of
Vitas are expected to resign or otherwise terminate their employment with Vitas
as of the Effective Time or within 90 days thereafter. There can be no assurance
that such terminations will not have a material adverse effect on Apria's and/or
Vitas' business, results of operations or financial condition. See "THE
MERGER--Interests of Certain Persons in the Merger" and "THE MERGER
AGREEMENT--Management After the Merger." 

POSSIBLE VOLATILITY OF STOCK PRICE

   
         The market price of the Apria Common Stock may be subject to 
significant fluctuations in response to variations in Apria's quarterly
operating results, general trends in the market for home healthcare and hospice
products and services and other factors. In addition, broad market fluctuations,
as well as general economic or political conditions, or specific legislative and
regulatory influences, such as healthcare reform, may adversely affect the
market price of the Apria Common Stock, regardless of the actual performance of
Apria. The prices at which the Apria Common Stock has traded in the past have
varied significantly over relatively short periods of time. For example, at the
close of business on June 6, 1996, the trading day immediately preceding the
public announcement of the Merger, the closing sales price on the NYSE composite
tape of the Apria Common Stock was $31.875 per share, and on November 7, 1996,
the closing sales price on the NYSE composite tape of the Apria Common Stock was
$20.00 per share. The market price of Apria Common Stock has ranged from a high
of $32.750 to a low of $17.125 since the time the Merger Agreement was executed.
    

DIVIDEND POLICY

         No cash dividends have ever been paid on Apria Common Stock. Apria's
present intention is to retain all earnings for working capital, capital
expenditures, the repayment of outstanding indebtedness and general corporate
purposes. Accordingly, Apria does not anticipate paying any dividends on the
Apria Common Stock in the foreseeable future.

SIGNIFICANT POTENTIAL CONSEQUENCES IF THE MERGER IS NOT CONSUMMATED

   
         If the Merger Agreement is not approved and adopted by Vitas'
stockholders or if the Merger is not otherwise consummated, there are
significant potential consequences to Vitas and its stockholders. Pursuant to
the terms of Vitas' bank credit facilities, all borrowings outstanding under
such facilities were scheduled to mature on October 1, 1996. Pursuant to an
agreement dated as of September 29, 1996, Vitas, among other things, obtained an
extension of the maturity of all borrowings outstanding under its bank credit
facilities through the earlier of November 15, 1996 or the consummation,
cancellation or other termination of the Merger Agreement. Although Vitas is
currently seeking an extension of such maturity to permit consummation of the
transactions contemplated by the Merger Agreement, there can be no assurance
that such extension can be obtained. As of September 30, 1996, amounts
outstanding under such bank credit facilities totaled $36.25 million. See Note 6
to Notes to Consolidated Financial Statements for the year ended September 30,
1995 for certain additional information regarding Vitas' outstanding debt. In
addition, Vitas is required to redeem (but only to the extent funds are legally
available therefor and the Vitas Board so authorizes) approximately $8.3 million
of the 9% Preferred on December 31, 1996 and to make additional redemptions on
each of June 30 and December 31 of 1997 and 1998 thereafter. See Note 3 to Notes
to Consolidated Financial Statements for the year ended September 30, 1995 for
certain additional information regarding Vitas' redeemable preferred stock. In
the event that the Merger is not consummated, there can be no assurance that
Vitas could successfully obtain replacement debt or equity capital or that, if
obtainable, such debt or equity capital could be obtained in sufficient time to
avoid material disruption in its business. There also can be no assurance that,
could such replacement debt or equity capital be obtained, it would be obtained
on as favorable terms as those which exist under Vitas' current bank facilities
and the 9% Preferred.
    

APRIA INDEBTEDNESS

         Pursuant to the terms of the Merger Agreement, at or immediately
following the Effective Time, Apria will repay, or cause to be repaid, in full
(or assume, if permitted under the existing terms thereof) the then outstanding
principal of the Vitas Notes, which are estimated to aggregate $46 million as
of the Effective Time, and to repay or cause to be repaid in full the amount
due under the ESOP Note, which is estimated to aggregate $1.3 million as of the
Effective Time, together with interest accrued but unpaid thereon, and any
premium, charge or prepayment penalty, to the holders of the Vitas Notes and to
the holder of the ESOP Note. Apria expects to borrow approximately $75 million
against its $800 million line of credit and to assume $2.7 million in
capitalized leases as a direct result of the closing of the Merger. The
borrowings will be used to purchase the 9% Preferred, pay the first installment
due under the Noncompetition Agreement and repay the ESOP Note and the Vitas
Notes. As of June 30, 1996, Apria's long-term debt to equity ratio was 1.78
(2.03 on a pro forma combined basis). Based on the June 30, 1996 Unaudited Pro
Forma Condensed Combined Balance Sheet contained in this Proxy
Statement/Prospectus, availability on Apria's $800 million credit line would be
reduced to approximately $319 million immediately following the Merger.

POTENTIAL CONFLICTS OF INTEREST

         In considering the recommendation of the Vitas Board of Directors with
respect to the Merger Agreement and the transactions contemplated thereby, Vitas
securityholders should be aware that certain members of Vitas' management and
Board of Directors have interests in the Merger that are in addition to and may
conflict with the interests of Vitas securityholders generally. The Vitas Board
of Directors was aware of these interests and considered them, among other
factors, in approving the Merger Agreement and the transactions contemplated
thereby.

         At or prior to (but subject to) the closing of the Merger, Vitas
intends to enter into the Severance Agreement with Mr. Westbrook, Ms.
Colliflower and Collibrook. Mr. Westbrook and Ms. Colliflower are the Chairman
and Chief Executive Officer and a Vice Chairperson and a Senior Vice President,
respectively, of Vitas, as well as significant beneficial owners of Vitas Common
Stock. Collibrook is a Florida corporation owned and controlled by Mr. Westbrook
and Ms. Colliflower. Pursuant to the terms of the Severance Agreement, Mr.
Westbrook will be entitled to receive a cash severance payment of $1.25 million
less certain offsets and Collibrook will be entitled to receive $250,000 for
providing consulting services. In addition, at or prior to (but subject to) the
closing of the Merger, Vitas intends to enter into the Noncompetition Agreement
with Mr. Westbrook, pursuant to which Mr. Westbrook will be entitled to receive
an aggregate payment of $7 million. A summary of the terms of the Severance
Agreement and the Noncompetition Agreement is provided in "THE MERGER--Interests
of Certain Persons in the Merger--Payments to Mr. Westbrook; Sublease" and 
"PROPOSAL TO APPROVE SEPARATELY THE PAYMENTS TO HUGH A. WESTBROOK AND 
COLLIBROOK PURSUANT TO THE SEVERANCE AND NONCOMPETITION AGREEMENTS TO BE 
ENTERED INTO IN CONNECTION WITH THE MERGER IN ORDER THAT SUCH PAYMENTS NOT BE 
CHARACTERIZED AS "PARACHUTE PAYMENTS" FOR PURPOSES OF SECTIONS 280G AND 4999 OF 
THE CODE." In addition, in September, 1996, Mr. Westbrook and Apria entered
into negotiations regarding a sublease pursuant to which Mr. Westbrook would
sublease from Vitas, as the surviving corporation in the Merger, approximately
12,000 square feet of space at Vitas' principal executive offices located at
100 South Biscayne Boulevard, Miami, Florida 33131. The proposed sublease
provides for an approximate three-year term and rent of approximately $100,000,
$110,000 and $115,000 for the first, second and third years of the lease,
respectively. Apria believes that the terms of the proposed sublease are
equivalent to the terms that Apria would have offered to an unaffiliated third
party.

         Pursuant to the terms of the Merger Agreement, Vitas has also offered
to amend the SSAs of certain members of the senior management of Vitas
(including Ms. Colliflower), which amended SSAs would, among other things,
provide for severance to the recipients thereof in an amount greater than the
severance that would otherwise have been payable to such recipients absent such
amendments. See "THE MERGER--Interests of Certain Persons in the Merger--Special
Severance Agreements."

         The Merger Agreement also provides that the Surviving Corporation
maintain directors' and officers' liability insurance for six years from the
Effective Time and keep in effect the provisions in its Certificate of
Incorporation and Bylaws providing for the exculpation of director and officer
liability and indemnification to the fullest extent permitted under the Delaware
GCL, subject to certain limitations. See "THE MERGER--Interests of Certain
Persons in the Merger--Indemnification."

         William P. Ferretti and Timothy S. O'Toole, directors of Vitas,
currently hold Stock Options that will become exercisable as a result of the
Merger and that are expected to be exchanged for Apria Common Stock. In
addition, certain Stock Options held by certain senior members of Vitas
management will vest and become exercisable in accordance with their terms or
will otherwise be exchangeable for Apria Common Stock as a result of the Merger
and are expected to be exchanged for Apria Common Stock. See "THE
MERGER--Interests of Certain Persons in the Merger--Stock Options."

         In addition to Mr. O'Toole, two additional directors of Vitas, Bruce F.
Wesson and Patrick T. Hackett, are the designees of certain principal
stockholders of Vitas and serve in accordance with certain agreements entered
into between Vitas and certain stockholders of Vitas. See "THE MERGER--Interests
of Certain Persons in the Merger."

ADJUSTMENTS TO EXCHANGE RATIO

   
         The Collar Adjustment and the Debt Adjustment work independently of
each other. If the Market Price of Apria Common Stock were greater than $37.125,
the Collar Adjustment would serve to decrease the number of shares of Apria
Common Stock to be received in connection with the Merger. If the Market Price
of Apria Common Stock were lower than $27.125, the Collar Adjustment would serve
to increase the number of shares of Apria Common Stock to be received in
connection with the Merger. In either case, a Debt Adjustment would serve to
decrease the number of shares of Apria Common Stock to be received in connection
with the Merger. Because the Collar Adjustment is to be determined as of the
Closing Date, Apria and Vitas are unable to determine whether a Collar
Adjustment will be made, or, if made, the extent to which a Collar Adjustment
will be made. Similarly, the Debt Adjustment is calculated based upon the
Closing Balance Sheet. The Closing Balance Sheet will be prepared as of the last
day of the month ending immediately prior to the Closing Date, unless the
Closing Date is within 20 business days after the end of a month, in which event
it will be prepared as of the last day of the month ending immediately prior to
the month ending immediately prior to the Closing Date. Thus, if the Closing
Date is on or before December 30, 1996, the Closing Balance Sheet will be
prepared as of October 31, 1996.  If the Closing Date occurs after December 30,
1996 but before January 31, 1997, the Closing Balance Sheet will be prepared as
of November 30, 1996. Consequently, Vitas is unable to determine whether there
will be a Debt Adjustment until the Closing Date is determined and the
applicable Closing Balance Sheet is prepared. FURTHERMORE, THE MARKET VALUE OF
APRIA COMMON STOCK THAT THE VITAS SECURITYHOLDERS ULTIMATELY RECEIVE WILL BE
SUBJECT TO FLUCTUATIONS IN THE MARKET PRICE OF APRIA COMMON STOCK AND COULD BE
MORE OR LESS THAN ITS MARKET VALUE ON THE DATE OF THIS PROXY
STATEMENT/PROSPECTUS OR ON THE DATE OF THE SPECIAL MEETING. No assurance can be
given as to the market price of Apria Common Stock at any time before the
Closing Date or at any time thereafter. See "THE MERGER AGREEMENT--Conversion of
Securities" for a detailed discussion of the adjustments to the Exchange Ratio
and an illustrative table that sets forth examples of some, but not all,
possible Exchange Ratios based upon different adjustment scenarios. THE MERGER
AGREEMENT PROVIDES THAT IT MAY BE TERMINATED BY APRIA OR VITAS IF THE MARKET
PRICE OF APRIA COMMON STOCK IS LESS THAN $22.125. IN ADDITION, THE MERGER
AGREEMENT PROVIDES THAT IT MAY BE TERMINATED BY APRIA IF THERE IS A DEBT
ADJUSTMENT IN EXCESS OF $4 MILLION.
    

   
         FOR A DISCUSSION OF RECENT DEVELOPMENTS CONCERNING THE POSSIBLE
TERMINATION OF THE MERGER AGREEMENT, SEE "THE MERGER--BACKGROUND OF THE
MERGER--RECENT DEVELOPMENTS."
    

DILUTION OF VOTING POWER

         Consummation of the Merger and the transactions contemplated by the
Merger Agreement will result in a substantial reduction in the relative voting
interests of the securityholders of Vitas. The holders of Vitas Common Stock
and Series B Preferred currently own 100% of the voting securities of Vitas.
Immediately following the Merger, their aggregate stock ownership interest in
Apria will be between five percent and seven percent. Furthermore, pursuant to
the Merger Agreement, the holders of the Warrants and the Stock Options, who
will be receiving shares of Apria Common Stock, will have relative interests in
Apria that will be substantially lower than their relative interests would have
been in Vitas absent the Merger.


                                       24
<PAGE>   33
                           MARKET PRICE AND DIVIDENDS

         Vitas Common Stock. Vitas Common Stock was owned by 51 stockholders of
record as of the Vitas Record Date and there is not and has been no public
market for Vitas Common Stock. No dividends have been declared or paid by Vitas
on Vitas Common Stock since its inception.

   
         Apria Common Stock. Apria Common Stock is traded on the NYSE under the
symbol AHG. Prior to May 16, 1996, Apria Common Stock was listed and traded on
the Nasdaq National Market under the symbol APRA. The table below sets forth,
for the calendar periods indicated, the high and low sales prices per share of
Apria Common Stock as reported by the NYSE and the high and low bid information
per share of Apria Common Stock as reported by Nasdaq. The common stock of Abbey
and Homedco, the predecessors to Apria, was listed and traded on the Nasdaq
National Market. The table below sets forth the high and low bid information per
share of common stock of Abbey and Homedco as reported by Nasdaq. In connection
with the Abbey/Homedco Merger, Apria issued 1.4 shares of Apria Common Stock for
every one issued and outstanding share of common stock of Abbey and two shares
of Apria Common Stock for every one issued and outstanding share of common stock
of Homedco. At the close of business on June 6, 1996, the trading day
immediately preceding the public announcement of the proposed Merger, the
closing sales price on the NYSE composite tape of Apria Common Stock was $31.875
per share. For current price information, stockholders are encouraged to consult
publicly available sources. No cash dividends have been declared or paid by
Apria in the last five years.
    

   
<TABLE>
<CAPTION>
                                         HOMEDCO                        ABBEY                           APRIA
                                  ----------------------        ----------------------       ---------------------------
                                   HIGH            LOW            HIGH           LOW          HIGH                 LOW
                                  -------        -------        -------        -------       -------             -------
<S>                               <C>            <C>            <C>            <C>           <C>                 <C>
Year ended December 31,
1994
  First Quarter..............     $39.000        $29.500        $29.500        $22.750            --                  --
  Second Quarter.............      38.000         26.250         25.000         14.500            --                  --
  Third Quarter..............      35.750         26.250         19.750         14.750            --                  --
  Fourth Quarter.............      39.000         30.000         24.250         16.875            --                  --

Year ended December 31,
1995
  First Quarter..............     $56.500        $37.000        $37.750        $22.875            --                  --
  Second Quarter.............      60.750         48.000         41.625         33.000            --                  --
  Third Quarter..............          --             --             --             --       $35.750             $23.250
  Fourth Quarter.............          --             --             --             --        30.500              19.500

Year ended December 31,
1996
  First Quarter..............          --             --             --             --       $32.500             $23.000
  Second Quarter (1).........          --             --             --             --        35.500              29.125
  Third Quarter..............          --             --             --             --        32.750              17.125
  Fourth Quarter (2).........          --             --             --             --        20.750              16.750
</TABLE>
    

-------------------
(1)      These figures were determined by reference to the high and low sales
         prices per share of Apria's Common Stock as reported on the NYSE from
         May 16, 1996 through June 30, 1996 and the high and low bid information
         per share of Apria's Common Stock as reported on the Nasdaq Stock
         Market from April 1, 1996 through May 15, 1996.

   
(2)      Through November 7, 1996.
    

                                       25
<PAGE>   34

                           COMPARATIVE PER SHARE DATA

         The following table presents historical per share data of Apria and
historical and equivalent pro forma per share data of Vitas after giving effect
to the Merger using the pooling-of-interests method of accounting, assuming the
Merger had been effective during all periods presented. The pro forma equivalent
data of Vitas are based on the pro forma combined amounts per share multiplied
by .290, representing the number of shares of Apria Common Stock issuable in
exchange for one share of Vitas Common Stock in the Merger, excluding the effect
of certain adjustments. The pro forma data does not purport to be indicative of
the results of future operations or the results that would have occurred had the
Merger been consummated at the beginning of the periods presented. The
information set forth below should be read in conjunction with the financial
statements and notes thereto of Apria included in the appendices attached hereto
and the financial statements and notes thereto of Vitas and the unaudited pro
forma combined condensed financial statements included elsewhere in this Proxy
Statement/Prospectus. Neither Apria nor Vitas paid any cash dividends on their
Common Stock during the periods presented.

<TABLE>
<CAPTION>
                                                                          Apria                    Vitas
                                                                        ----------     ----------------------------
                                                            Pro forma                                    Equivalent
                                                            Combined    Historical     Historical (1)    Pro Forma
                                                            --------    ----------     ----------        ---------

<S>                                                         <C>         <C>            <C>                <C>  
Book value per share of common stock outstanding:
  At December 31, 1995....................................    $5.06        $5.72        $(8.47)             $1.47
  At June 30, 1996........................................     6.10         6.84         (8.88)              1.77
Fully diluted income (loss) per share from continuing
  operations before extraordinary charge and cumulative
  effect of change in accounting method (1):
1995......................................................    (1.63)       (1.52)        (1.69)              (.47)
1994......................................................      .76          .78           .15                .22
1993......................................................      .79          .89          (.60)               .23
Six months ended June 30, 1996............................      .75          .81          (.47)               .22
Six months ended June 30, 1995 (2)........................      .42          .47          (.45)               .12
</TABLE>

----------------------------

(1)   The annual information with respect to Vitas is for the fiscal years ended
      September 30, 1995, 1994 and 1993.

(2)   The information for the six months in 1995 with respect to Vitas is for 
      the six months ended March 31, 1995.


                                       26
<PAGE>   35
                               THE SPECIAL MEETING

         This Proxy Statement/Prospectus is being furnished by Vitas to its
stockholders in connection with the solicitation of proxies by the Board of
Directors of Vitas for use at the Special Meeting. At the Special Meeting, (i)
the holders of Vitas Common Stock, voting separately as a class, and the holders
of Series B Preferred, voting separately as a class, will be asked to approve
and adopt the Merger Agreement and the transactions contemplated thereunder,
including a merger pursuant to which Apria Sub would be merged with and into
Vitas, with Vitas being the surviving corporation, and Vitas would become a
wholly owned subsidiary of Apria; and (ii) the holders of Vitas Common Stock and
Series B Preferred, voting together as one class, will be asked to approve
separately the payments to be made to Hugh A. Westbrook, the Chairman and Chief
Executive Officer of Vitas, and Collibrook pursuant to the Severance Agreement
to be entered into among Vitas, Mr. Westbrook, Ms. Colliflower and Collibrook at
or prior to (but subject to) the closing of the Merger and the payments to be
made to Mr. Westbrook pursuant to the Noncompetition Agreement to be entered
into between Vitas and Mr. Westbrook at or prior to (but subject to) the closing
of the Merger in order that such payments not be characterized as "parachute
payments" for purposes of Sections 280G and 4999 of the Code.

VOTING INFORMATION FOR VITAS STOCKHOLDERS

   
         The close of business on October 30, 1996 has been fixed by the Vitas
Board of Directors as the Vitas Record Date. As of the Vitas Record Date, there
were issued and outstanding 4,408,842 shares of Vitas Common Stock and 262,500
shares of Series B Preferred. The affirmative vote of the holders of a majority
of the Vitas Common Stock outstanding on the Vitas Record Date, voting
separately as a class, and the affirmative vote of the holders of a majority of
the Series B Preferred outstanding on the Vitas Record Date, voting separately
as a class, is necessary to approve the Merger Agreement and the transactions
contemplated thereunder, including the Merger. THE SEPARATE AFFIRMATIVE VOTE OF
THE HOLDERS OF 75% OF THE TOTAL VOTES ATTRIBUTABLE TO THE AGGREGATE ISSUED AND
OUTSTANDING SHARES OF VITAS COMMON STOCK AND SERIES B PREFERRED ON THE VITAS
RECORD DATE (EXCLUDING ANY SHARES HELD DIRECTLY OR INDIRECTLY BY MR. WESTBROOK),
VOTING TOGETHER AS ONE CLASS, IS NECESSARY TO APPROVE THE PAYMENTS TO BE MADE TO
MR. WESTBROOK AND COLLIBROOK PURSUANT TO THE SEVERANCE AGREEMENT AND THE
PAYMENTS TO BE MADE TO MR. WESTBROOK PURSUANT TO THE NONCOMPETITION AGREEMENT IN
ORDER THAT SUCH PAYMENTS NOT BE CHARACTERIZED AS "PARACHUTE PAYMENTS" FOR
PURPOSES OF SECTIONS 280G AND 4999 OF THE CODE AND IS A CONDITION TO APRIA'S
OBLIGATION TO EFFECT THE MERGER AND THE TRANSACTIONS CONTEMPLATED UNDER THE
MERGER AGREEMENT. 
    
         
   
         Vitas anticipates that the Closing Date will occur as soon as
practicable after the Special Meeting. IN THE EVENT THAT THE EXPECTED EXCHANGE
RATIO AS OF THE DATE OF THE SPECIAL MEETING IS LOWER THAN 0.2909 OR GREATER THAN
0.4235, AND UNLESS THE MERGER AGREEMENT IS TERMINATED, (I) APRIA AND VITAS WILL
RECIRCULATE A SUPPLEMENT TO THIS PROXY STATEMENT/PROSPECTUS, WHICH SUPPLEMENT
WILL SET FORTH, AMONG OTHER THINGS, THE MOST RECENT CLOSING PRICE OF APRIA
COMMON STOCK, VITAS' MOST RECENT ESTIMATE OF THE LIKELIHOOD OF A DEBT
ADJUSTMENT, AND A REVISED EXPECTED RANGE OF THE EXCHANGE RATIO, AND VITAS WILL
ADJOURN THE SPECIAL MEETING IF NECESSARY TO ENABLE THE VITAS STOCKHOLDERS TO
HAVE A REASONABLE PERIOD OF TIME TO REVIEW SUCH SUPPLEMENTAL MATERIALS, AND (II)
THE HOLDERS OF VITAS COMMON STOCK AND SERIES B PREFERRED WILL BE GIVEN AN
OPPORTUNITY TO CHANGE THEIR VOTES WITH RESPECT TO THE MERGER AND THE PAYMENTS TO
BE MADE TO MR. WESTBROOK AND COLLIBROOK PURSUANT TO THE SEVERANCE AGREEMENT AND
THE PAYMENTS TO BE MADE TO MR. WESTBROOK PURSUANT TO THE NONCOMPETITION
AGREEMENT. 
    

   
         IF THE SPECIAL MEETING HAS ALREADY OCCURRED AND THE EXCHANGE RATIO AS
OF THE EXPECTED CLOSING DATE WOULD BE LOWER THAN 0.2909 OR GREATER THAN 0.4235,
AND UNLESS THE MERGER AGREEMENT IS TERMINATED, (I) VITAS WILL SET A DATE FOR A
SUBSEQUENT MEETING, (II) APRIA AND VITAS WILL RECIRCULATE A SUPPLEMENT TO THIS
PROXY STATEMENT/PROSPECTUS, WHICH SUPPLEMENT WILL SET FORTH, AMONG OTHER THINGS,
THE MOST RECENT CLOSING PRICE OF APRIA COMMON STOCK, VITAS' MOST RECENT ESTIMATE
OF THE LIKELIHOOD OF A DEBT ADJUSTMENT, AND A REVISED EXPECTED RANGE OF THE
EXCHANGE RATIO, AND (III) VITAS WILL RESOLICIT THE VOTES OF THE HOLDERS OF VITAS
COMMON STOCK AND SERIES B PREFERRED WITH RESPECT TO THE MERGER AND THE PAYMENTS
TO BE MADE TO MR. WESTBROOK AND COLLIBROOK PURSUANT TO THE SEVERANCE AGREEMENT
AND THE PAYMENTS TO BE MADE TO MR. WESTBROOK PURSUANT TO THE NONCOMPETITION
AGREEMENT.
    

   
         THE ADJOURNMENT OF THE SPECIAL MEETING OR THE NECESSITY OF A SUBSEQUENT
MEETING COULD SUBSTANTIALLY DELAY THE CLOSING OF THE MERGER. ALTHOUGH THE
SPECIAL MEETING HAS BEEN SCHEDULED FOR DECEMBER 2, 1996, THE MERGER AGREEMENT
PROVIDES THAT IT MAY BE TERMINATED BY EITHER PARTY, SUBJECT TO CERTAIN
CONDITIONS, IF THE MERGER SHALL NOT HAVE OCCURRED BY OCTOBER 31, 1996. SEE "THE
MERGER AGREEMENT." THE MERGER AGREEMENT ALSO PROVIDES THAT IT MAY BE TERMINATED
BY APRIA OR VITAS IF THE MARKET PRICE OF APRIA COMMON STOCK IS LESS THAN
$22.125. IN ADDITION, THE MERGER AGREEMENT PROVIDES THAT IT MAY BE TERMINATED BY
APRIA IF THERE IS A DEBT ADJUSTMENT IN EXCESS OF $4 MILLION. 
    

   
         FOR A DISCUSSION OF RECENT DEVELOPMENTS CONCERNING THE POSSIBLE
TERMINATION OF THE MERGER AGREEMENT, SEE "THE MERGER--BACKGROUND OF THE
MERGER--RECENT DEVELOPMENTS."
    

         Each holder of Vitas Common Stock is entitled to one vote for each
share on all matters submitted to a vote of stockholders. Except as otherwise
required by law or when a class vote is required pursuant to the Series B
Preferred Certificate (as in the case of the vote on the Merger Agreement and
the transactions contemplated thereunder, including the Merger), the holders of
Series B Preferred are entitled to vote on all matters together with the holders
of shares of Vitas Common Stock, subject to certain limitations set forth in the
Series B Preferred Certificate and the Stockholders' Agreement. As a result of
these voting rights and the limitations imposed in the Series B Preferred
Certificate and in the Stockholders' Agreement, the holders of the Series B
Preferred, when voting together with the holders of Vitas Common Stock (as in
the case of the separate vote on the payments to be made to Mr. Westbrook and
Collibrook pursuant to the Severance Agreement and the payments to be made to
Mr. Westbrook pursuant to the Noncompetition Agreement) are currently entitled
to cast that number of votes equal to approximately 28% of the total votes
eligible to be voted at a meeting of stockholders. The presence at the Special
Meeting, in person or by proxy, of the holders of a majority of the outstanding
shares of Vitas Common Stock and Series B Preferred entitled to vote at such
meeting will constitute a quorum for the transaction of business. Abstentions
and broker nonvotes will be treated as shares that are present and entitled to
vote for purposes of determining the presence of a quorum. Because both of the
proposals to be voted on at the Special Meeting require a percentage of the
outstanding shares, abstentions (other than the exclusion of shares held
directly or indirectly by Mr. Westbrook with respect to the payments to be made
to Mr. Westbrook and Collibrook pursuant to the Severance Agreement and the
payments to be made to Mr. Westbrook pursuant to the Noncompetition Agreement)
and broker nonvotes will be equivalent to votes cast against the Merger
Agreement, the transactions contemplated thereunder, including the Merger, and
separate votes cast against the payments to be made to Mr. Westbrook and
Collibrook pursuant to the Severance Agreement and the payments to be made to
Mr. Westbrook pursuant to the Noncompetition Agreement.


                                       27
<PAGE>   36
         Pursuant to the Significant Securityholders Agreement, the Significant
Securityholders, among other things, have agreed (i) to vote or cause to be
voted all shares of capital stock of Vitas owned of record or beneficially or
held in any capacity by or under their control and entitled to vote in favor of
the Merger and the transactions contemplated by the Merger Agreement and against
any inconsistent actions, proposals or transactions, (ii) to not claim or
exercise any dissenter or appraisal rights with respect to the Merger and (iii)
to take other actions contemplated by the Merger Agreement. Pursuant to the
Significant Securityholders Agreement, the holders of the 9% Preferred and the
Warrants have agreed to sell the 9% Preferred to Apria and exchange the Warrants
for shares of Apria Common Stock, as contemplated by the Merger Agreement, and
the holders of the Series B Preferred have agreed to convert the Series B
Preferred into shares of Vitas Common Stock which will then be exchanged for
shares of Apria Common Stock. See Appendix B. The Significant Securityholders
own, as of the Vitas Record Date, 1,948,944 shares of Vitas Common Stock
(approximately 44.2% of the outstanding Vitas Common Stock) and 200,000 shares
of Series B Preferred (approximately 76.2% of the outstanding Series B
Preferred), which constitutes approximately 39.2% of the total votes eligible to
be voted by the holders of Vitas Common Stock and Series B Preferred voting
together as one class, excluding any shares held directly or indirectly by Mr.
Westbrook.

         Stockholders of Vitas who do not vote in favor of or otherwise consent
to approval and adoption of the Merger Agreement and who otherwise comply with
the provisions of Section 262 of the Delaware GCL will have the right, if the
Merger is consummated, to dissent and to demand an appraisal of the fair value
of their shares. A copy of Section 262 is attached to this Proxy
Statement/Prospectus as Appendix D. See "RIGHTS OF DISSENTING VITAS
STOCKHOLDERS."

SOLICITATION OF PROXIES

         The accompanying proxy sent to Vitas stockholders is being solicited by
the Vitas Board of Directors. All proxies in the enclosed form of proxy that are
properly executed and returned to Vitas prior to commencement of voting at the
Special Meeting will be voted at the Special Meeting in accordance with the
instructions thereon. All executed but unmarked Vitas proxies will be voted FOR
approval and adoption of the Merger Agreement and the transactions contemplated
thereunder, including the Merger, and FOR the payments to be made to Mr.
Westbrook and Collibrook under the Severance Agreement and the payments to be
made to Mr. Westbrook under the Noncompetition Agreement in order that such
payments not be characterized as "parachute payments" for purposes of Sections
280G and 4999 of the Code. A stockholder may revoke a proxy at any time before
it is voted by filing with the Secretary of Vitas either an instrument revoking
the proxy or a duly executed proxy bearing a later date, or by attending the
Special Meeting and voting in person. Such filing should be sent to Mark A.
Sterling, Vice President -- Legal and Regulatory Affairs and Secretary of Vitas,
at Vitas Healthcare Corporation, 100 South Biscayne Boulevard, Miami, Florida
33131. Attendance at the Special Meeting will not by itself revoke the proxy. At
the Special Meeting, stockholder votes will be tabulated by persons appointed by
the Vitas Board of Directors to act as inspectors of election.

     VITAS STOCKHOLDERS SHOULD NOT SEND THEIR STOCK CERTIFICATES WITH THEIR
                                   PROXY CARDS

         The management of Vitas does not know of any other matters other than
those set forth herein which may come before the Special Meeting. If any other
matters are properly presented to the Special Meeting for action, it is intended
that the persons named in the applicable form of proxy will vote on such matters
as determined by the majority of the Vitas Board of Directors.

         The expense of printing this Proxy Statement/Prospectus and the proxies
solicited hereby will be shared equally by Apria and Vitas. In addition to the
use of the mails, proxies may be solicited by officers and directors and regular
employees of Vitas, without additional remuneration, by personal interviews,
telephone, telegraph or otherwise.

IN UNANIMOUSLY APPROVING THE MERGER AGREEMENT, THE VITAS BOARD OF DIRECTORS HAS
DETERMINED THAT THE MERGER AGREEMENT IS IN THE BEST INTERESTS OF VITAS AND ALL
OF VITAS' SECURITYHOLDERS AND RECOMMENDS THAT THE STOCKHOLDERS OF VITAS VOTE IN
FAVOR OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREUNDER,
INCLUDING THE MERGER, AND IN FAVOR OF THE PAYMENTS TO BE MADE TO MR. WESTBROOK
AND COLLIBROOK UNDER THE SEVERANCE AGREEMENT AND THE PAYMENTS 

                                       28
<PAGE>   37
TO BE MADE TO MR. WESTBROOK UNDER THE NONCOMPETITION AGREEMENT IN ORDER THAT
SUCH PAYMENTS NOT BE CHARACTERIZED AS "PARACHUTE PAYMENTS" FOR PURPOSES OF
SECTIONS 280G AND 4999 OF THE CODE. In voting in favor of the Merger Agreement
and such transactions, Mr. Westbrook and Ms. Colliflower abstained from
deliberations and voting with respect to the Severance Agreement and the
Noncompetition Agreement. In addition, Dr. Williams abstained from deliberations
and voting with respect to the proposed amendment to his SSA contemplated by the
Merger Agreement. The names of the members of the Vitas Board of Directors and
the stockholdings of such persons and certain information regarding their
interests in the Merger are set forth elsewhere in this Proxy
Statement/Prospectus. See "THE MERGER -- Reasons for the Merger and
Recommendation of the Board of Directors," "THE MERGER -- Interests of Certain
Persons in the Merger," "PROPOSAL TO APPROVE SEPARATELY THE PAYMENTS TO HUGH A.
WESTBROOK AND COLLIBROOK PURSUANT TO THE SEVERANCE AND NONCOMPETITION
AGREEMENTS TO BE ENTERED INTO IN CONNECTION WITH THE MERGER IN ORDER THAT SUCH
PAYMENTS NOT BE CHARACTERIZED AS "PARACHUTE PAYMENTS" FOR PURPOSES OF SECTIONS
280G AND 4999 OF THE CODE -- Recommendation of the Board of Directors" and
"PRINCIPAL STOCKHOLDERS -- Vitas Security Ownership."


                                       29
<PAGE>   38
                                   THE MERGER

GENERAL

         In the Merger, Apria Sub would be merged with and into Vitas, with
Vitas being the surviving corporation, and Vitas would become a wholly owned
subsidiary of Apria. In connection with the Merger, the securities of Vitas
would be converted, purchased or exchanged (except as otherwise noted in this
Proxy Statement/Prospectus), as more fully described below in "THE MERGER
AGREEMENT--Conversion of Securities."

BACKGROUND OF THE MERGER

         For the last several years, the healthcare industry in the United
States has undergone significant evolution. The ultimate payors for healthcare,
including governmental entities and employers, have become highly economically
driven in their healthcare purchasing decisions. As a result of these economic
pressures applied by the ultimate payors for healthcare, the market presence of
managed care organizations has grown at a rapid pace. As more organized
purchasers of healthcare, managed care organizations have, in turn, applied
significant pricing pressure on providers of healthcare services. Healthcare
providers have responded by pursuing various strategies to broaden their market
presence, gain economies of scale and organize their operations to meet the
rapidly changing needs of managed care organizations. As a result, the
healthcare provider industry is undergoing significant consolidation.

         Vitas, as the largest provider of hospice services in the United
States, has pursued various developmental strategies as the hospice industry has
grown and matured including the establishment of de novo sites in high
opportunity markets and the acquisition of other hospice providers. In addition,
Vitas has sought to align itself with other non-hospice healthcare providers
through joint venture or similar arrangements.

         Alternatives to the Merger.  During 1995, representatives of Vitas
approached various national healthcare providers to assess their interest in
pursuing a joint venture development strategy related to hospice services. Vitas
entered into discussions with four national healthcare companies, including
Apria, and had preliminary discussions with several other potential joint
venture parties. After initial discussions between Vitas and Apria, it became
clear that significant collaborative opportunities existed, particularly
relating to service delivery to patients with respiratory diseases. Associated
with these joint venture discussions, the Chairmen and Chief Executive Officers
of Apria (Mr. Jeremy M. Jones) and Vitas (Mr. Hugh A. Westbrook) met first in
September 1995 in New Orleans, Louisiana and again in February 1996 in Miami,
Florida to discuss this joint venture development opportunity. Mr. Westbrook and
Mr. Jones also discussed, in general, the possibility of a business combination
of Vitas and Apria in both of these initial meetings. Vitas continued to engage
in discussions with other potential joint venture parties until it entered into
the June 6, 1996 Letter Agreement with Apria (more fully described below), on or
about which time all other ongoing discussions terminated. Vitas did not enter
into any joint ventures or similar arrangements with parties other than Apria.

         Prior to the fall of 1995, Vitas had considered various capital
financing alternatives, including a possible initial public offering of its
common stock and alternatively a possible issuance of high-yield subordinated
notes. In the fall of 1995, Vitas initiated discussions with various possible
sources of financing to refinance bank debt and redeemable equity securities
which were to mature starting in October 1996. Vitas also sought to obtain
sufficient capital in the refinancing to continue its hospice acquisition
strategy. Vitas pursued various possible refinancing alternatives including a
private equity placement with a related restructuring of its bank facilities and
a high-yield subordinated note with exchangeable equity offering. The assessment
of these refinancing alternatives continued through early June, and Vitas was
prepared to commence the process of a high-yield subordinated note with
exchangeable equity offering. However, upon being informed by Vitas of the
agreement contemplated by the June 6, 1996 Letter Agreement between Vitas and
Apria, the underwriter of the proposed offering requested a $1.5 to $2.0 million
work fee to proceed with the discussions. As a result, Vitas discontinued
consideration of the high-yield debt offering alternative. In addition, because
Vitas believed the proposed transaction with Apria reduced the need for the
other refinancing alternatives then under consideration, Vitas also discontinued
all discussions relating to those alternatives.

         Discussions Leading to the Merger. Subsequent to the initial September
1995 and February 1996 meetings between Mr. Westbrook and Mr. Jones, Mr.
Westbrook visited Apria's headquarters on March 4 and 5, 1996 to continue
discussions of joint venture development opportunities and the possibility of a
business combination. During that visit, Mr. Westbrook met with various members
of Apria management, including Mr. Jones, Mr. Dennis Walsh, Apria's Vice
President -- Sales, and Mr. Steven T. Plochocki, Apria's President and Chief
Operating Officer. At that meeting, the parties discussed, among other things,
various aspects of Apria's business including Apria's contract sales process
(i.e., the negotiation of contracts and arrangements with managed care
companies), the market for hospice services and the application of hospice to
certain patients with respiratory diseases.

         Following the March 4 and 5 meetings, Mr. Westbrook contacted Vitas'
financial advisor, Furman Selz, to seek advice and assistance in the evolving
discussions with Apria. At that time, Vitas and Furman Selz began negotiating
the terms of Furman Selz's formal engagement as financial advisor to Vitas. On
March 11, 1996, Vitas and Apria entered into a Confidentiality Agreement under
which Vitas agreed to provide Apria with certain information related to Vitas
and its operations. On or about March 12, 1996, Furman Selz provided Apria with
a package of detailed historical and projected financial information with
respect to Vitas, which included projections with respect to the following: (i)
earnings, (ii) revenue growth, (iii) operations, (iv) central administration,
(v) current development sites and acquired sites, (vi) future development hubs,
(vii) future acquisitions and joint ventures, (viii) certain prototypes, (ix)
cash flow and balance sheets and (x) equity valuation. On March 18, 1996,
Apria's financial advisor, Robertson Stephens & Co., sent a preliminary due
diligence request through Furman Selz to Vitas which information was generally
delivered to Furman Selz on March 22, 1996. Representatives of Apria and
Robertson Stephens & Co. reviewed this information at the offices of Furman Selz
during the week of March 25, 1996.

         Vitas entered into an engagement letter with Furman Selz on March 25,
1996 pursuant to which Furman Selz agreed to represent Vitas in a possible sale
or business combination. For a discussion of the scope of the engagement of
Furman Selz, see "THE MERGER -- Fairness Opinion of Vitas' Financial Advisor."
Related to this engagement, Furman Selz 


                                       30

<PAGE>   39
contacted six healthcare companies (including Apria) and two potential financial
buyers regarding a possible acquisition of Vitas. On March 21 and 27, 1996,
respectively, two of the healthcare companies contacted by Furman Selz received
a copy of the same Vitas financial projection package that had been delivered by
Furman Selz to Apria on March 12. Both of the potential financial buyers
expressed some limited interest in an acquisition of Vitas but were not
interested in completing thorough due diligence or in making a specific
proposal. All six of the healthcare companies, which included companies involved
in the home healthcare, nursing home, acute care and managed care industries,
including Apria, undertook a review of Vitas' business. Four of the six
healthcare companies, including Apria, met with members of Vitas management
including Mr. Westbrook and Mr. Mark Ohlendorf, Vitas' Chief Financial Officer.
The three healthcare companies that received financial projection packages from
Furman Selz in March 1996, including Apria, completed a review of various
documentary information related to Vitas made available at the offices of Furman
Selz. These meetings and document reviews by the other healthcare companies were
completed principally during April 1996 and through May 14, 1996.

         On April 2, 1996, Messrs. Westbrook and Ohlendorf met with various
members of Apria management, including Mr. Jones, Mr. Raymond H. Noeker, Jr.,
Apria's Vice President--Business Operations, and Mr. Lawrence H. Smallen,
Apria's Chief Financial Officer, Senior Vice President--Finance and Treasurer,
and Robertson Stephens & Co. at the offices of Furman Selz in New York. At the
April 2, 1996 meeting, Apria management asked various questions raised by their
document review of the prior week and the parties discussed their views as to
the possible synergies between Vitas and Apria should a business combination
occur. In addition, the parties discussed in greater detail the organization of
Vitas' operations, as well as its capitalization structure, key financial
dynamics and acquisition strategy. Various telephonic discussions involving
principally Mr. Ohlendorf, Robertson Stephens & Co., Mr. Noeker and Mr. Smallen
ensued throughout April 1996 during which the parties discussed in greater
detail the financial aspects of Vitas' business, the financial performance of
its operating units and various other due diligence matters concerning Vitas and
its operations. Mr. Ohlendorf had brief discussions with Mr. Jones on April 13
and 14, 1996 relative to various possible synergies which might result from a
business combination, including Apria's ability to market and develop
opportunities in hospice for the merged company. On or about April 19, 1996,
representatives of Robertson Stephens & Co. orally communicated to Vitas'
financial advisor, Furman Selz, Apria's initial proposal for a business
combination at an enterprise value of $184 million (which value included the
total debt and redeemable securities of Vitas). Acting on behalf of Vitas,
Vitas' financial advisor rejected the initial proposal as inadequate. The status
of these Apria and other discussions were reported to the Vitas Board of
Directors at a meeting held on April 30, 1996.

         Thereafter, Apria continued its due diligence inquiry of Vitas which
resulted in a meeting in Washington, D.C. on May 7, 1996 attended by Mr.
Ohlendorf and Ms. Deirdre Lawe, a Vitas Regional Vice President, and various
representatives of Apria, including Mr. Noeker and Mr. Smallen. The May 7, 1996
meeting focused on exploring various possible merger synergies including
overhead savings and market development opportunities which might result. On May
11, 1996, Ms. Lawe and Mr. Richard I. Nevin, Jr., Vitas' Executive Vice
President--Operations, met at Apria's headquarters with various members of Apria
management, including Mr. Jones, to discuss further these market development
opportunities and Vitas' operations in general. On May 13, 1996, Apria's
financial advisor indicated to Vitas' financial advisor that Apria was prepared
to make a second proposal for a business combination at an enterprise value of
$200 million (which value included the total debt and redeemable securities of
Vitas). Vitas' financial advisor indicated that it would discuss the second
proposal with Vitas management.

         On May 14, 1996, Apria's financial advisor contacted Vitas' financial
advisor to indicate that Apria was prepared to make a third proposal for a
business combination at an enterprise value of $212 million (which value
included the total debt and redeemable securities of Vitas) on the condition
that Vitas cease the solicitation of competitive bids from other possible
acquirors. Mr. Westbrook telephonically polled the Vitas Board of Directors on
or about May 14, 1996 to discuss the third proposal. During the period in which
Vitas evaluated potential acquirors, Mr. Westbrook had discussions with certain
members of Vitas' management regarding the likelihood of a smooth integration
with various potential acquirors and concluded that Apria presented a better fit
with Vitas than any of the other healthcare companies under consideration. Of
significance was the fact that Apria had not yet entered the hospice business,
which eliminated the possibility that Vitas would be forced to convert its
hospice practices to fit those of its acquirer or convert to a home health care
agency model. Mr. Westbrook communicated these considerations to members of
Vitas' Board of Directors. Based on these factors, the members of Vitas' Board
of Directors determined that Apria represented the best possibility for
consummating a transaction and maximizing stockholder value under the
circumstances, and the members of the Vitas Board of Directors unanimously
concurred with Mr. Westbrook's recommendation to cease competitive bidding and
to work toward an agreement with Apria based, in principle, on the $212 million
enterprise value for Vitas.


         Representatives of Vitas and Apria, together with their legal and
financial advisors, continued discussions and negotiations as to more specific
terms related to a business combination through May 23, 1996. At a telephonic
meeting held on May 28, 1996, Vitas management briefed the Vitas Board of
Directors as to the status of the discussions and the Board authorized
management to proceed toward the negotiation of a definitive agreement with
Apria.

         On June 3, 1996, representatives of Vitas and Apria convened in
Washington, D.C. and continued the negotiations leading to the signing of a
Letter Agreement on June 6, 1996 between Vitas, certain Vitas securityholders
and Apria, the principal terms of which had been approved by the Vitas Board of
Directors in a telephonic meeting commenced on June 4, 1996 and reconvened on
June 6, 1996. Representatives of Vitas and Apria then commenced discussions
leading to definitive documentation of the merger resulting in the execution of
the Merger Agreement and related agreements as of June 28, 1996. The Merger
Agreement and related transactions contemplated thereby had been unanimously
approved by the Vitas Board of Directors at a telephonic meeting commenced on
June 21, 1996, that was recessed and later reconvened on June 24, 1996, when the
Vitas Board voted unanimously to approve the Merger Agreement. Furman Selz made
a presentation to the Vitas Board of Directors during the June 21, 1996
telephonic meeting, and subsequently delivered its opinion dated June 28, 1996
that the consideration to be received in the Merger by the holders of the Vitas
Common Stock is fair to such stockholders from a financial point of view.

                                       31

<PAGE>   40
         The Severance Agreement and the Noncompetition Agreement. Throughout 
the discussions between Vitas and Apria leading up to the execution of the
Merger Agreement, Mr. Westbrook and Furman Selz conducted parallel discussions
with Apria concerning the nature and scope of Mr. Westbrook's involvement with
Vitas after the Merger. For a detailed discussion of these negotiations, see
"PROPOSAL TO APPROVE SEPARATELY THE PAYMENTS TO HUGH A. WESTBROOK AND COLLIBROOK
PURSUANT TO THE SEVERANCE AND NONCOMPETITION AGREEMENTS TO BE ENTERED INTO IN
CONNECTION WITH THE MERGER IN ORDER THAT SUCH PAYMENTS NOT BE CHARACTERIZED AS
"PARACHUTE PAYMENTS" FOR PURPOSES OF SECTIONS 280G AND 4999 OF THE CODE."

         The Significant Securityholders Agreement. Throughout the negotiations
leading to the June 6 Letter Agreement and the Merger Agreement, Apria
conditioned its willingness to proceed with the contemplated merger upon the
receipt from certain significant securityholders of Vitas of assurances
indicating the significant securityholders' support of and commitment to the
Merger. This led to the negotiation and execution of the Significant
Securityholders Agreement dated as of June 28, 1996. These negotiations occurred
in conjunction with the negotiation of the Merger Agreement with Apria. Pursuant
to the Significant Securityholders Agreement, the significant securityholders,
among other things agreed (i) to vote or cause to be voted all shares of capital
stock of Vitas owned of record or beneficially or held in any capacity by or
under their control and entitled to vote in favor of the Merger and the
transactions contemplated by the Merger Agreement and against any inconsistent
actions, proposals or transactions, (ii) to not claim or exercise any dissenter
or appraisal rights with respect to the Merger and (iii) to take other actions
contemplated by the Merger Agreement. See Appendix B.

          Amendment of the Merger Agreement. Subsequent to August 1, 1996, it 
became clear to Apria's and Vitas' respective legal advisors that it would be
difficult to consummate the Merger by the September 30, 1996 deadline set forth
in the Merger Agreement. Throughout the month of August, Apria's and Vitas'
respective legal advisors discussed the possibility and terms of an agreement to
amend the Merger Agreement. Apria, Sub and Vitas entered into an Amendment No. 1
to Agreement and Plan of Merger dated as of August 26, 1996 (the "First
Amendment") in order, among other things, to extend the Expiration Date through
October 31, 1996, clarify the withholding arrangements for holders of Stock
Options and clarify the forms of the Affiliate Letter, the Severance Agreement
and the Noncompetition Agreement. During late September and early October 1996,
Apria's and Vitas' respective legal and financial advisors discussed the terms
of an additional amendment to the Merger Agreement. Apria, Sub and Vitas entered
into an Amendment No. 2 to Agreement and Plan of Merger dated as of October 4,
1996 (the "Second Amendment") in order to further clarify the withholding
arrangements for holders of Stock Options that are determined to be affiliates
of Vitas and to eliminate as a condition to the Merger the receipt by each of
Apria and Vitas of a letter, dated the effective date of the Proxy
Statement/Prospectus, from Ernst & Young LLP, regarding its concurrence with the
conclusions of Apria and Vitas management as to the appropriateness of
pooling-of-interests accounting for the Merger under Accounting Principles Board
Opinion No. 16 if it is closed and consummated in accordance with the Merger
Agreement. The First Amendment and the Second Amendment are included as part of
Appendix A attached hereto.

   
         Recent Developments.  During September and October 1996, Mr. Westbrook
had numerous conversations and private meetings with Mr. Jones, as a result of
which, according to Mr. Westbrook, Mr. Westbrook believed that Apria intended to
proceed with the transactions contemplated by the Merger Agreement.  On November
1, 1996, Mr. Jones informed Mr. Westbrook by telephone that Apria's management
would be recommending to Apria's Board of Directors that Apria terminate the
Merger Agreement.  According to Mr. Westbrook, this information came as a
complete surprise to him.  Apria later that day sent two draft press releases to
Vitas, one proposing to report unilateral termination of the Merger Agreement,
and the other proposing to report termination by mutual consent.  On November 2,
1996, Mr. Westbrook notified Mr. Jones that Vitas would not agree to a mutual
termination of the Merger Agreement and that Vitas believed that Apria did not
have any basis for unilaterally terminating the Merger Agreement. Mr. Westbrook
also informed Mr. Jones that if Apria sought to terminate the Merger Agreement
unilaterally, Vitas intended to commence litigation to hold Apria accountable
for the damages incurred by Vitas and which Vitas would incur in connection with
a wrongful termination of the Merger Agreement.
    

   
         On November 3, 1996, Apria's counsel notified Vitas' counsel that in
order to avoid costly and unproductive litigation, Apria had elected not to
terminate the Merger Agreement at such time, but that Apria believed that it has
the right to do so at any time and did not intend to waive such right.  Apria's
counsel also advised Vitas' counsel that Apria expected to resolve any remaining
issues with the Commission during the early part of that week, but that it was
Apria's intention to discuss with Vitas the benefits of a mutual termination of
the Merger Agreement and the contents of a press release.
    

   
         On November 5 and 6, 1996, representatives of Apria and Vitas met in
Washington, D.C. to discuss their respective positions concerning the possible
termination of the Merger Agreement and to explore possible alternatives to the
transactions contemplated by the Merger Agreement.  On November 6, 1996, after
consultation with Vitas, Apria issued a press release, which stated in pertinent
part that Apria had entered into discussions with Vitas concerning possible
alternatives to the Merger Agreement which would result in a mutual termination
of the Merger Agreement.  The press release further stated that Apria's desire
to terminate the Merger Agreement was based on, among other things, the recent
decline in Apria's share price, the need for Apria to focus on improving its
performance, and the apparent lack of accretive value of the combination of the
parties in 1997 as a result of recent operating results and other factors.  The
press release further stated that the Merger Agreement provides for various
termination rights, including termination by either party if the closing price
of Apria Common Stock on the day prior to the closing of the Merger is less than
$22.125.
    

   
         APRIA HAS ADVISED VITAS THAT APRIA'S MANAGEMENT PRESENTLY INTENDS TO
RECOMMEND TO APRIA'S BOARD OF DIRECTORS THAT THE MERGER AGREEMENT BE 
TERMINATED.  APRIA FURTHER HAS ADVISED VITAS THAT APRIA'S MANAGEMENT CONTINUES 
TO BELIEVE THAT THE COMBINATION LACKS ACCRETIVE VALUE FOR THE PARTIES IN 1997, 
AND THAT APRIA DOES NOT INTEND TO WAIVE ANY TERMINATION RIGHTS THAT APRIA
BELIEVES IT HAS UNDER THE MERGER AGREEMENT.  APRIA IS CONTINUING TO TAKE STEPS
TOWARD A POSSIBLE CLOSING OF THE MERGER IN ORDER TO PRESERVE ANY SUCH RIGHTS
REGARDING TERMINATION, WHILE DISCUSSING WITH VITAS ALTERNATIVES TO THE MERGER.
    

   
         AS OF THE DATE OF THIS PROXY STATEMENT/PROSPECTUS, NO AGREEMENT HAS
BEEN REACHED BETWEEN APRIA AND VITAS WITH RESPECT TO ANY ALTERNATIVES TO THE
MERGER AGREEMENT OR THE TERMINATION THEREOF.  VITAS CONTINUES TO BELIEVE THAT
APRIA HAS NO BASIS FOR TERMINATING THE MERGER AGREEMENT.  IF APRIA SEEKS TO
TERMINATE THE MERGER AGREEMENT UNILATERALLY, VITAS CURRENTLY INTENDS TO
CHALLENGE SUCH PURPORTED TERMINATION, ALTHOUGH THERE CAN BE NO ASSURANCE THAT
VITAS WOULD BE SUCCESSFUL.
    

REASONS FOR THE MERGER AND RECOMMENDATION OF THE BOARD OF DIRECTORS

         In approving the Merger Agreement and the transactions contemplated
thereby, and in recommending that Vitas' stockholders approve the same, Vitas'
Board of Directors consulted with Vitas management, as well as its financial and
legal advisors, and considered the following positive, negative and neutral 
factors:

         (i)   The structure, form and amount of consideration to be paid in the
Merger and the terms of the Merger Agreement were significantly favorable
reasons for the Board's determination to proceed with the Merger,
notwithstanding that the market price for the Apria Common Stock to be received
in the Merger will be subject to significant fluctuations in response to Apria's
quarterly operating results, general trends in the market for home healthcare
and hospice products and services and other factors. The Board considered as an
unfavorable factor that the Merger Agreement provides for the payment of a $10
million termination fee by Vitas to Apria under certain circumstances. However,
the Board was advised by its financial advisor that similar provisions were
customary in transactions such as the Merger and that the likelihood of the
payment of such fee was remote.
        
   
         The Board gave significant consideration to the opinion of Furman Selz
that the consideration to be received in the Merger by the holders of Vitas
Common Stock is fair to such stockholders from a financial point of view.
Notwithstanding the recent decline in the market price of Apria Common Stock,
the Vitas Board of Directors has not requested that Furman Selz update its
opinion. In reaching such conclusion, the Vitas Board considered (A) that the
Exchange Ratio is designed in part to take into account these market
fluctuations, (B) the available financial information regarding Apria and the
Board's view concerning Apria's prospects, (C) the recent operating results of
Vitas and Apria, (D) the alternatives to the Merger in the event the Merger is
not consummated, and (E) Vitas' discussions with its financial advisor. The
Board continues to believe that the Merger is in the best interests of Vitas and
all of Vitas' securityholders. Furthermore, the Merger Agreement provides that
it may be terminated by Vitas in the event the Market Price of Apria Common
Stock is less than $22.125.
    

        The Board considered as favorable the fact that the $212 million 
enterprise value assigned to Vitas in the Merger Agreement provided a means for
Vitas to meet near term capital maturities (as discussed in paragraph (ii)
below) and other indebtedness of approximately $40 million, permitted the
purchase of the 9% Preferred at its "Stated Value" of $100 per share, for an
aggregate payment of $27 million (plus accrued dividends of approximately
$607,500 as of September 30, 1996), and provided for the pro rata distribution
of the remaining $145 million on a common stock equivalent basis to the holders
of Vitas Common Stock, Series B Preferred, the Warrants and the Stock Options;

   
         (ii)  The Board also considered favorably the opportunity presented by
the Merger for Vitas to raise the needed capital to meet near term capital
maturities and to finance the growth of Vitas. Pursuant to the terms of Vitas'
bank credit facilities, all borrowings outstanding under such facilities were
scheduled to mature on October 1, 1996. Pursuant to an agreement dated as of
September 29, 1996, Vitas, among other things, obtained an extension of the
maturity of all borrowings outstanding under its bank credit facilities through
the earlier of November 15, 1996 or the consummation, cancellation or other
termination of the Merger Agreement. Although Vitas is currently seeking an
extension of such maturity to permit consummation of the transactions
contemplated by the Merger Agreement, there can be no assurance that such
extension can be obtained. As of September 30, 1996, amounts outstanding under
such bank credit facilities totaled $36.25 million. (See Note 6 to Notes to
Consolidated Financial Statements for the year ended September 30, 1995 for
certain additional information regarding Vitas' outstanding debt.) Vitas also is
required to redeem (but only to the extent funds are legally available therefor
and the Vitas Board so authorizes) approximately $8.3 million of the 9%
Preferred on December 31, 1996 and to make additional redemptions on each of
June 30 and December 31 of 1997 and 1998 thereafter. (See Note 3 to Notes to
Consolidated Financial Statements for the year ended September 30, 1995 for
certain additional information regarding Vitas' redeemable preferred stock.)
    

         In connection with its review of the factors described in this
paragraph (ii), the Board gave significant consideration to the fact that
pursuant to the terms of the Merger Agreement, at or immediately
following the Effective Time, Apria will repay, or cause to be repaid, in full
(or assume, if permitted under the existing terms thereof) all amounts
outstanding under such bank facilities as well as certain other indebtedness. As
noted above, Apria has also agreed to purchase all of the 9% Preferred at its
"Stated Value" of $100 per share, for an aggregate payment of $27 million
(plus accrued dividends of approximately $607,500 as of September 30, 1996). In
the event that the Merger is not consummated, there can be no assurance that
Vitas could successfully obtain replacement debt or equity capital or that, if
obtainable, such debt or equity capital could be obtained in sufficient time to
avoid material disruption in its business. There also can be no assurance that
could such replacement debt or equity capital be obtained, it would be obtained
on as favorable terms as those which exist under Vitas' current bank facilities
and the 9% Preferred;

         (iii) The Board was favorably impressed with the scope of integrated
homecare services provided by Apria and the market presence and competitive
position in the healthcare industry afforded by Apria's 350 branch locations
which serve patients in 49 states;

         (iv)  The Board also considered the opportunities for joint business
development between Vitas and Apria in both Vitas' existing geographic markets
and in potential new markets as a significantly positive reason for the Merger.
The Board considered as favorable the opportunities for enhancing Vitas' ability
to provide hospice services to terminally ill patients currently being served by
Apria, particularly the significant number of patients with respiratory
diseases;

         (v)   The Board recognized that as a result of the Merger the
stockholders of Vitas would have substantially less ability to influence the
affairs of Apria and Vitas, and that certain Vitas securityholders might view
such a reduction in influence as a negative factor. However, the Board was 
favorably impressed with the market capitalization of Apria (and continues to be
so notwithstanding the recent decline in the market price of Apria Common Stock)
and the opportunity, through the Merger, for Vitas' stockholders to have
increased liquidity in their investment as holders of publicly traded stock; 

         (vi)  The Board also favorably considered Vitas' management's
determination that the Merger presented opportunities to achieve cost savings
and efficiencies through the combination of certain Vitas and Apria business
processes and the elimination of duplicative functions, including but not
limited to those related to sales, human resources, legal affairs and
management; 

         (vii) The Board was aware that certain members of Vitas' management
and Board of Directors have interests in the Merger that are in addition to and
may conflict with the interests of Vitas securityholders generally. (For a
description of such interests, see "THE MERGER -- Interests of Certain Persons
in the Merger" and "PROPOSAL TO APPROVE SEPARATELY THE PAYMENTS TO HUGH A.
WESTBROOK AND COLLIBROOK PURSUANT TO THE SEVERANCE AND NONCOMPETITION
AGREEMENTS TO BE ENTERED INTO IN CONNECTION WITH THE MERGER IN ORDER THAT SUCH
PAYMENTS NOT BE CHARACTERIZED AS "PARACHUTE PAYMENTS" FOR PURPOSES OF SECTIONS
280G AND 4999 OF THE CODE.") However, the Board considered such interests to be
a neutral factor in its determination. Certain members of the Board of
Directors abstained from deliberations and voting with respect to certain
aspects of the Merger and the transactions contemplated in connection
therewith; and

         (viii) Other positive factors considered by the Board in recommending
the Merger included the receptivity of Apria management to the unique mission
and values of Vitas and its employees and the continued ability to satisfy the
distinctive needs of the patient population and communities which Vitas serves;
the financial resources which would be made available to Vitas after the Merger
to deal with uncertainties and changes which may result from the ongoing
consolidation and change in the healthcare industry; and the ability, through
the Merger, to recognize value from the strategic assets which Vitas has
developed, including its methods of operations, leading market presence and
systems capabilities.

         See "RISK FACTORS" for a detailed description of certain risk factors
which should be considered carefully by the stockholders of Vitas in connection
with voting upon the Merger Agreement and the transactions contemplated
thereby. 


         IN UNANIMOUSLY APPROVING THE MERGER AGREEMENT, THE VITAS BOARD OF
DIRECTORS HAS DETERMINED THAT THE MERGER AGREEMENT IS IN THE BEST INTERESTS OF
VITAS AND ALL OF VITAS' SECURITYHOLDERS AND RECOMMENDS THAT THE STOCKHOLDERS OF
VITAS VOTE IN FAVOR OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREUNDER, INCLUDING THE MERGER. IN VOTING IN FAVOR OF THE MERGER AGREEMENT AND
SUCH TRANSACTIONS, MR. WESTBROOK AND MS. COLLIFLOWER ABSTAINED FROM
DELIBERATIONS AND VOTING WITH RESPECT TO THE SEVERANCE AGREEMENT AND THE
NONCOMPETITION AGREEMENT. IN ADDITION, DR. WILLIAMS ABSTAINED FROM DELIBERATIONS
AND VOTING WITH RESPECT TO THE PROPOSED AMENDMENT TO HIS SSA CONTEMPLATED BY THE
MERGER AGREEMENT. THE NAMES OF THE MEMBERS OF THE VITAS BOARD OF DIRECTORS AND
THE STOCKHOLDINGS OF SUCH PERSONS AND CERTAIN INFORMATION REGARDING THEIR
INTERESTS IN THE MERGER ARE SET FORTH ELSEWHERE IN THIS PROXY
STATEMENT/PROSPECTUS. SEE "THE MERGER--INTERESTS OF CERTAIN PERSONS IN THE
MERGER" AND "PRINCIPAL STOCKHOLDERS--VITAS SECURITY OWNERSHIP."


                                       32

<PAGE>   41
FAIRNESS OPINION OF VITAS' FINANCIAL ADVISOR

         Furman Selz has acted as financial advisor to Vitas in connection with
the Merger. Vitas entered into an engagement letter with Furman Selz on March
25, 1996 (the "Engagement Letter"), pursuant to which Furman Selz agreed to
represent Vitas in a possible sale or business combination. Vitas' selection of
Furman Selz developed from the long-standing relationship between Furman Selz
and Vitas during which Furman Selz served as financial advisor to Vitas on
several transactions.

         In addition, Furman Selz is a nationally recognized investment banking
firm and is regularly engaged in the valuation of businesses and securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporations. Vitas selected Furman Selz as its financial
advisor, in part, based on Furman Selz's experience in mergers and acquisitions
and in securities valuation generally. The Engagement Letter specifically
provided that Furman Selz was being engaged solely in connection with the
possible sale, merger or consolidation or similar business combination
transaction involving all or a substantial portion of the business, assets or
stock of Vitas, and that any engagement relating to a significant capital
infusion or investment in Vitas would have to be subject to negotiation,
execution and delivery of a separate engagement letter between Vitas and Furman
Selz.
         Related to the retention of Furman Selz, Furman Selz contacted six
healthcare companies (including Apria) and two potential financial buyers
regarding a possible acquisition of Vitas. All six of the healthcare companies
contacted were experienced in the home healthcare, home nursing, acute care or
managed care industries. Three of the healthcare companies (including Apria)
each received from Furman Selz a package of detailed historical and projected
financial information with respect to Vitas. For a more detailed description
regarding the discussions between Furman Selz and the healthcare companies and
financial institutions contacted, see "THE MERGER--Background of the Merger."

         Furman Selz has delivered to the Board of Directors of Vitas its
written opinion dated June 28, 1996, to the effect that, as of the date of such
opinion and based upon and subject to certain matters as stated therein, the
consideration to be received in the Merger by the holders of the Vitas Common
Stock is fair, from a financial point of view, to the holders of Vitas Common
Stock.

         The full text and the written opinion of Furman Selz, which sets forth
the assumptions made, matters considered and limitations on the review
undertaken by Furman Selz, is attached as Appendix C hereto. Vitas stockholders
are urged to read the opinion carefully in its entirety. Furman Selz did not
recommend to Vitas that any specific exchange ratios constituted the appropriate
Exchange Ratios for the merger. Furman Selz's opinion is directed only to the
fairness of the consideration to be received in the Merger by the holders of
Vitas Common Stock from a financial point of view and does not constitute a
recommendation to any Vitas stockholder as to how such stockholder should vote
at the Special Meeting. The summary of the opinion of Furman Selz set forth in
this Proxy Statement/Prospectus is qualified in its entirety by reference to the
full text of such opinion.

   
        Furman Selz's opinion to the Vitas Board of Directors states that the
opinion "is for the benefit and use of the Company in its consideration of the
Merger and is not for the benefit of, and does not convey any rights or remedies
to any other person." In addition, based on Furman Selz's Engagement Letter with
Vitas, Furman Selz believes that Vitas' stockholders cannot rely upon the Furman
Selz opinion letter to support state law claims against Furman Selz.
Specifically, the Engagement Letter states that, "the Opinion is solely for the
use and benefit of the Company." If necessary, a determination concerning the
availability of such a state law defense would be determined by a court of
competent jurisdiction. The resolution of the availability of such a state law
defense will have no effect on the rights and responsibilities of the Vitas
Board under applicable state law. The availability of such a state law defense
would have no effect on the rights and responsibilities of Furman Selz or the
Vitas Board under federal securities laws. 
    

   
         Notwithstanding the recent decline in the market price of Apria Common
Stock, the Vitas Board of Directors has not requested that Furman Selz update
its opinion. In reaching such conclusion, the Vitas Board considered (i) that
the Exchange Ratio is designed in part to take into account these market
fluctuations, (ii) the available financial information regarding Apria and the
Board's view concerning Apria's prospects, (iii) the recent operating results of
Vitas and Apria, (iv) the alternatives to the Merger in the event the Merger is
not consummated, and (v) Vitas' discussions with its financial advisor. The
Board continues to believe that the Merger is in the best interests of Vitas and
all of Vitas' securityholders. Furthermore, the Merger Agreement provides that
it may be terminated by Vitas in the event the Market Price of Apria Common
Stock is less than $22.125. 
    

        To arrive at its opinion, Furman Selz, among other things, (i) analyzed
certain publicly available financial statements and other information of Vitas
and Apria, (ii) analyzed certain internal financial statements and other
financial and operating data concerning Apria and Vitas prepared by the
management of Apria and Vitas, respectively, (iii) analyzed certain financial
projections prepared by the management of Vitas, (iv) discussed the past and
current operations and financial condition and the prospects of Apria with
senior executives of Apria, (v) discussed the past and current operations and
financial condition and the prospects of Vitas with senior executives of Vitas,
and analyzed the pro forma impact of the Merger on Vitas' earnings per share,
consolidated capitalization and financial ratios, (vi) reviewed the reported
prices and trading activity for the Apria Common Stock, (vii) compared the
financial performance of Apria and Vitas and the prices and trading activity of
the Apria Common Stock with that of certain other comparable publicly traded
companies and their securities, (viii) reviewed the financial terms, to the
extent publicly available, of certain comparable acquisition transactions, (ix)
discussed with the respective managements of Vitas and Apria certain synergies
and other benefits expected to be derived from the Merger, (x) reviewed the
Merger Agreement and certain related documents and (xi) performed such other
analyses as it deemed appropriate.

         In rendering its opinion, Furman Selz assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by Furman Selz for purposes of its opinion. With respect to the
financial projections including the synergies and other benefits expected to
result from the Merger, Furman Selz assumed that they were reasonably prepared
on bases reflecting the best currently available estimates and judgments of the
future financial performance of each of Vitas and Apria. Furman Selz's opinion
was necessarily based on economic, market and other conditions as in effect on,
and the information made available to Furman Selz as of, the date of its
opinion.


                                       33

<PAGE>   42
         In connection with its June 21, 1996 presentation to the Vitas Board
and preparation of its opinion, Furman Selz performed certain financial and
comparative analyses, including those described below. The preparation of a
fairness opinion involves various determinations as to the most appropriate and
relevant methods of financial analysis and the application of those methods to
the particular circumstances, and therefore such an opinion is not readily
susceptible to summary description. Furthermore, in arriving at its fairness
opinion, Furman Selz did not attribute any particular weight to any analysis or
factor considered by it, except that Furman Selz disregarded its analysis of
total capitalization as a multiple of revenues for Vitas. Furman Selz did not
include in its analysis of comparable companies total capitalization as a
multiple of revenues for Vitas as Furman Selz believed that such an analysis
would have significantly overvalued Vitas. Furman Selz believes that its
analyses must be considered as a whole and that considering any portions of such
analyses and of the factors, could create a misleading or incomplete view of the
process underlying the opinion. In its analyses, Furman Selz made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of Vitas and
Apria. Any estimates contained in these analyses are not necessarily indicative
of actual values or predictive of future results or values, which may be
significantly more or less favorable than as set forth therein. In addition,
analyses relating to the value of businesses do not purport to be appraisals or
to reflect the prices at which businesses actually may be sold.

         No limitations were imposed by Vitas on the scope of Furman Selz's
investigation or the procedures to be followed by Furman Selz in rendering its
opinion. In arriving at its opinion, Furman Selz did not ascribe a specific
range of values to Vitas, but made its determination as to the fairness, from a
financial point of view, of the consideration to be paid by Apria in the Merger
on the basis of financial and comparative analyses including those referenced
below. Furman Selz's opinion is directed to the Vitas Board and does not
constitute a recommendation to any stockholder of Vitas as to how such
stockholder should vote. Furman Selz was not requested to opine as to, and its
opinion does not in any manner address, the allocation of consideration among
Vitas' stockholders or Vitas' underlying business decision to proceed with or
effect the Merger.

         The following is a brief summary of the analyses performed by Furman
Selz in preparation of its opinion dated June 28, 1996 and reviewed with the
Vitas Board of Directors.

         (i)    Discounted Cash Flow Analysis. Using a discounted cash flow 
("DCF") methodology, Furman Selz valued Vitas and Apria by estimating the
present value of future free cash flows to their respective equity holders if
Vitas and Apria were to perform on a stand-alone basis in accordance with
management forecasts for a one-year period that were extrapolated through 2000.
Free cash flow represents the amount of cash generated and available for
principal, interest and dividend payments after providing for ongoing business
operations. For both companies, Furman Selz aggregated (x) the present value of
the projected free cash flow over the four-and-a-half year period from June 30,
1996 to December 31, 2000 with (y) the present value of the range of terminal
values described below. The range of terminal values was calculated by applying
multiples ranging from 10.0x to 15.0x to both of Vitas' and Apria's earnings
before interest and taxes ("EBIT"). This range of terminal values represented,
for both Vitas and Apria, their respective projected value beyond 2000. As part
of the DCF analysis Furman Selz derived an implied equity value (assuming net
debt of $28.1 million as of April 30, 1996 and 9.809 million options/warrants
exercised at $3.97) for Vitas of $118.7 million to $284.4 million (or $6.01 to
$14.40 per share) and for Apria (assuming net debt of $560.4 million as of March
31, 1996) of $1,180.8 million to $2,975.8 million (or $23.25 to $58.59 per
share).

         (ii)   Comparable Company Analysis. Using publicly available
information, Furman Selz compared selected financial data of Vitas and Apria
with similar data of selected publicly traded companies engaged in businesses
considered by Furman Selz to be comparable to the operations of Vitas and Apria.
Specifically, Furman Selz included in its review American HomePatient, Apria
Healthcare Group Inc., Coram Healthcare Corporation, Home Health Corporation of
America, Lincare Holdings, Inc., Olsten Corporation, Pediatric Services of
America, Quantum Health Resources, Inc., RoTech Medical Corporation, and Vencor,
Inc. (collectively the "Comparable Universe"). In its analyses, Furman Selz
compared the value to be achieved by the Vitas stockholders in the Merger,
expressed as a multiple of certain operating results, to the market trading
values achieved by the stockholders of the comparable companies, expressed as a
multiple of the same operating results. Furman Selz calculated the following
valuation multiples based on, as to Vitas, an enterprise value of $212 million,
as to Apria, a market price of $32.13 per share for the Apria Common Stock to be
offered as consideration in the Merger, and, as to the Comparable Universe, on
market prices and other information available as of the date of the Furman Selz
opinion.
         The multiple for total capitalization for each of the indicated
statistics for Apria, Vitas and the Comparable Universe is as follows: (i) the
last twelve months ("LTM") earnings before interest, taxes, depreciation and
amortization expenses ("EBITDA") for the Comparable Universe ranged from 8.8x to
17.8x with a mean of 11.4x and a median of 10.5x as compared with 23.7x for
Vitas and 8.4x for Apria; (ii) LTM EBIT for the Comparable Universe ranged from
11.6x to 29.7x with a mean of 16.7x and a median of 15.5x as compared with
118.9x for Vitas and 13.6x for Apria; (iii) 1996E EBITDA for the Comparable
Universe ranged from 7.8x to 13.7x with a mean of 9.6x and a median of 9.3x as
compared with 11.2x for Vitas and 7.4x for Apria; (iv) 1996E EBIT for the
Comparable Universe ranged from 10.6x to 19.8x with a mean of 13.5x and a median
of 12.6x as compared with 19.5x for Vitas and 11.3x for Apria; (v) 1997E EBITDA
for the Comparable Universe ranged from 6.4x to 8.2x with a mean of 7.2x and a
median of 7.2x as compared with 7.9x for Vitas and 6.6x for Apria; (vi) 1997E
EBIT for the Comparable Universe ranged from 8.7x to 13.6x with a mean of 10.0x
and a median of 9.0x as compared with 11.4x for Vitas and 9.8x for Apria.

         The multiple for price for each of the indicated statistics for Vitas
and the Comparable Universe, and Price/Earnings Per Share for Apria ("EPS"), is
as follows: (i) LTM Net Income (LTM EPS for Apria) for the Comparable Universe 
ranged from 19.8x to 32.1x with a mean of 25.8x and a median of 24.5x as 
compared with a negative multiple for Vitas as Vitas was not profitable in the 
prior twelve months and 22.0 for Apria; (ii) 1996E Net Income (1996E EPS for 
Apria) for the Comparable Universe ranging from 16.8x to 28.7x with a mean of 
21.2x and a median of 20.0x as compared with 44.5x for Vitas and 18.2 for 
Apria; (iii) 1997E Net Income (1997E EPS for Apria) for the Comparable 
Universe ranging from 13.5x to 25.0x with a mean of 17.9x and a median of 
16.3x as compared with 21.5x for Vitas and 15.7 for Apria.
         Because of the inherent differences between the business, operations
and prospects of the companies included in the Comparable Universe, and because
the multiples of companies in the Comparable Universe reflected the value of
shares traded in the public markets and did not necessarily reflect a price a
purchaser would pay to purchase


                                       34

<PAGE>   43
control of a home health services company in a private transaction, Furman Selz
believed that it was inappropriate to, and therefore, did not rely solely on the
quantitative results of this analysis. Specifically, Furman Selz decided not to
include in its analysis of comparable companies' total capitalization as a
multiple of revenues for Vitas as Furman Selz believed that such an analysis 
would have significantly overvalued Vitas.

         (iii)  Comparable Transaction Analysis. Furman Selz reviewed the prices
paid, or proposed to be paid, to the extent publicly available, of selected
acquisition transactions in the home health care industry. Furman Selz compared
multiples of selected financial data and other financial data relating to the
proposed Merger with multiples paid in, and other financial data from, 40
acquisitions since December, 1991 of health care companies which provided home
health care, nursing, or rehabilitation services with total implied equity
values between $1.1 million and $1,250 million (the "Comparable Transactions").
The Comparable Transactions were selected primarily on the basis of the
aggregate transaction value of the business acquired and the target company's
involvement in home health care, nursing or rehabilitation services. In certain
situations Furman Selz utilized its industry expertise derived from working with
buyers and sellers of home health care companies over time to determine values
for certain transactions.

         This analysis produced multiples of total capitalization to LTM EBITDA
for the Comparable Transactions ranging from 3.5x to 18.6x with a mean of 9.4x
and a median of 8.6x as compared to 23.7x for Vitas. The multiple of total
capitalization to LTM EBIT for the Comparable Transactions ranged from 5.1x to
30.8x with a mean of 12.9x and a median of 11.9x as compared with 118.9x for
Vitas. The multiple for price to LTM Net Income for the Comparable Transactions
ranged from 4.9x to 153.4x with a mean of 28.9x and a median of 19.2x compared
to a negative multiple for Vitas as Vitas was not profitable in the prior twelve
months. The multiple of price to 1996E Net Income for the Comparable
Transactions ranged from 11.0x to 43.6x with a mean of 22.1x and a median of
18.8x as compared with 44.5x for Vitas.

         Because the reasons for and the circumstances surrounding each of the
transactions analyzed were specific to each transaction and because of the
inherent differences between the businesses, operations and prospects of Vitas
and the businesses, operations and prospects of the selected acquired companies
analyzed, Furman Selz believes that it was inappropriate to, and therefore did
not, rely solely on the quantitative results of the analysis, and accordingly
also made qualitative judgments concerning differences between the
characteristics of these transactions and the Merger that would affect the
acquisition value of Vitas and such acquired companies. Specifically, because
there were no public hospice companies involved in transactions similar to the
Vitas acquisition, Furman Selz selected public non-hospice health-care services
companies involved in transactions that Furman Selz considered similar to the
Vitas acquisition.

         (iv)   Apria Public Trading Analysis. Furman Selz examined the trading
history of Apria Common Stock in terms of both price and volume during the
period from June 29, 1995 to June 20, 1996. This analysis showed that over that
period the Common Stock of Apria traded in a range of $20.00 to $35.25.
         (v)    Have/Get Analysis. Using actual 1995 figures and estimated 1996
and 1997 results and assuming $10 million in savings for the combined entity,
Furman Selz compared the revenue, EBIT, net income, earnings per share, total
assets and total debt that the respective stockholders of Vitas and Apria each
have by virtue of their ownership of the respective companies with the amount of
revenue, EBIT, net income, earnings per share, total assets and total debt that
the respective stockholders of Vitas and Apria would each receive in the
proposed combined entity. In performing the Have/Get Analysis, Furman Selz
assumed that Apria stockholders would own, in the aggregate, 91.8% of the
outstanding stock of the combined entity and that Vitas stockholders would
receive, in the aggregate, 8.2% of the combined entity. The Have/Get Analysis
indicated that: (i) Apria stockholders would receive $1,267.1 million and Vitas
stockholders would receive $112.6 million of 1995A pro forma combined revenues
totaling $1,379.7 million; (ii) Apria stockholders would receive $144.7 million
and Vitas stockholders would receive $12.9 million of 1995A pro forma combined
EBIT totaling $157.6 million; (iii) Apria stockholders would receive $66.7
million and Vitas stockholders would receive $5.9 million of 1995A pro forma
combined net income totaling $72.7 million; (iv) Apria stockholders would
receive $1.30 and Vitas stockholders would receive $1.30 of 1995A pro forma
combined EPS.

        In applying the Have/Get Analysis, Furman Selz did not generate per
share data.

         (vi)   Contribution Analysis. Using actual 1995 figures and estimated
1996 and 1997 results, Furman Selz analyzed the relative contributions of Vitas
and Apria to the proposed combined entity with respect to net revenue, gross
profits, EBITDA, EBIT, pretax income and net income. For each of these
categories, Furman Selz expressed the comparisons as Vitas' and Apria's
percentage contribution to the combined entity. In addition, by formulating an
implied exchange ratio for each of these categories, Furman Selz was able to
compare these results to Vitas' post-transaction ownership of the combined
entity. In performing the Contribution Analysis, Furman Selz assumed that Apria
stockholders would own, in the aggregate, 91.8% of the outstanding stock of the
combined entity and that Vitas stockholders would receive, in the aggregate,
8.2% of the combined entity. The Contribution Analysis indicated that Vitas'
percentage contribution to the combined entity and the corresponding implied
exchange ratio were as follows: 17.5% and .5446 for 1995A Net Revenue; 18.7%
and .5900 for 1996E Net Revenue; 19.7% and .6315 for 1997E Net Revenue; 9.8%
and .2789 for 1995A Gross Profit; 10.7% and .3070 for 1996E Gross Profit; 11.7%
and .3402 for 1997E Gross Profit; 3.8% and .1015 for 1995A EBITDA; 6.0% and
 .1644 for 1996E EBITDA; 7.5% and .2089 for 1997E EBITDA; 2.3% and .0614 for
1995A EBIT; 5.3% and .1446 for 1996E EBIT; 7.6% and .2129 for 1997E EBIT; 0.9%
and .0242 for 1995A Pretax Income; 4.5% and .1209 for 1996E Pretax Income; 7.5%
and .2078 for 1997E Pretax Income; 0.9% and .0226 for 1995A Net Income; 4.2%
and .1133 for 1996E Net Income; 7.3% and .2012 for 1997E Net Income.

         The Contribution Analysis does not generate data on a per share basis.
         (vi) Vitas Purchase Price Analysis. Furman Selz derived multiples of
selected financial data using a per share price for Vitas ranging from $7.82 to
$10.82. The analysis assumed outstanding shares of 9.935 million, outstanding
options and warrants of 9.809 million with an average exercise price of $3.97,
fully diluted shares outstanding of 19.744 million, book value of $32.7 million,
and net debt of $28.1 million. Equity value as a multiple of LTM Net Income was
negative for all stock prices as Vitas was not profitable in the prior twelve
months. Equity Value as a multiple of 1996E Net Income ranged from 37.3x to
51.7x, and as a multiple of 1997E Net Income ranged from 18.0x to 25.0x. Value
of Common Equity as a multiple of book value ranged from 4.72x to 6.53x.
Transaction value as a multiple of LTM Revenue ranged from .70x to .93x, as a
multiple of 1996E Revenue ranged from .64x to .85x, and as a multiple of 1997E
Revenue ranged from .54x to .72x. Transaction Value as a multiple of LTM EBITDA
ranged from 20.4x to 27.0x, as a multiple of 1996E EBITDA ranged from 9.6x to
12.8x, and as a multiple of 1997E EBITDA ranged from 6.8x to 9.0x. Transaction
Value as a multiple of LTM EBIT ranged from 102.3x to 135.5x, as a multiple of
1996E EBIT ranged from 16.8x to 22.2x, and as a multiple of 1997E EBIT ranged
and from 9.8x to 13.0x.

INTERESTS OF CERTAIN PERSONS IN THE MERGER

         In considering the recommendation of the Vitas Board of Directors with
respect to the Merger Agreement and the transactions contemplated thereby, Vitas
securityholders should be aware that certain members of Vitas' management and
Board of Directors have interests in the Merger that are in addition to and may
conflict with the interests of Vitas securityholders generally. The Vitas Board
of Directors was aware of these interests and considered them, among other
factors, in approving the Merger Agreement and the transactions contemplated
thereby.
         Payments to Mr. Westbrook; Sublease. Mr. Westbrook currently has an
employment agreement with Vitas that provides for his services as Chief
Executive Officer and Chairman through June 4, 1998 and an annual base salary of
$600,000, subject to increase in the Board of Directors' sole discretion. In
July 1995, Mr. Westbrook voluntarily agreed to reduce his base salary under his
employment agreement to $420,000. The existing employment agreement also
provides that Mr. Westbrook is entitled to any bonuses as authorized by the
Board of Directors of Vitas in its sole discretion. In addition, the existing
agreement provides for remaining payments in the aggregate amount of $120,882
for covenants not to compete, $65,000 per year in respect of a $5 million split
dollar life insurance policy, and certain other benefits and perquisites. The
changes in management contemplated by the Merger Agreement would entitle Mr.
Westbrook to continuing payments under his employment agreement, absent other
arrangements. The Noncompetition Agreement with Mr. Westbrook and the Severance
Agreement with Mr. Westbrook, Ms. Colliflower and Collibrook will supersede and
replace the existing obligations of Vitas under Mr. Westbrook's employment
agreement. The Noncompetition Agreement provides for a longer noncompetition
period than under Mr. Westbrook's existing employment agreement. See "PROPOSAL
TO APPROVE SEPARATELY THE PAYMENTS TO HUGH A. WESTBROOK AND COLLIBROOK PURSUANT
TO THE SEVERANCE AND NONCOMPETITION AGREEMENTS TO BE ENTERED INTO IN CONNECTION
WITH THE MERGER IN ORDER THAT SUCH PAYMENTS NOT BE CHARACTERIZED AS "PARACHUTE
PAYMENTS" FOR PURPOSES OF SECTIONS 280G AND 4999 OF THE CODE." In addition, in
September, 1996, Mr. Westbrook and Apria entered into negotiations regarding a
sublease pursuant to which Mr. Westbrook would sublease from Vitas, as the
surviving corporation in the Merger, approximately 12,000 square feet of space
at Vitas' principal executive offices located at 100 South Biscayne Boulevard,
Miami, Florida 33131. The proposed sublease provides for an approximate
three-year term and rent of approximately $100,000, $110,000 and $115,000 for
the first, second and third years of the lease, respectively. Apria believes
that the terms of the proposed sublease are equivalent to the terms that Apria
would have offered to an unaffiliated third party.
         Special Severance Agreements. Vitas also has entered into SSAs with,
among other persons, the following five executive officers of Vitas: Esther 
T. Colliflower, a co-founder of Vitas, a Vice Chairperson and a Senior Vice
President; J.R. Williams, M.D., Executive Vice President and Chief Patient 
Care Officer; Richard I. Nevin, Jr., Executive Vice 

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<PAGE>   44
President--Operations; Mark Ohlendorf, Vice President, Chief Financial Officer,
Treasurer and Assistant Secretary; and Mark A. Sterling, Vice
President--Legal and Regulatory Affairs and Secretary. Pursuant to the SSAs, the
executive officers are entitled to certain severance benefits if their
employment is terminated within certain time periods after a change of control
other than for "cause" or if they end their employment for "good reason."
Pursuant to the terms of the Merger Agreement, Vitas has agreed to offer to
amend such SSAs and, to the extent applicable, any other relevant agreements, to
provide, effective as of the Effective Time, (a) that the total severance
benefit which would have otherwise been payable to such persons shall be a
minimum of $650,000, $600,000, $272,250, $355,925 and $412,400, respectively (it
being understood that such modifications will not impair the existing agreements
of Ms. Colliflower and Dr. Williams to refrain from competing with Vitas), and
(b) that as a condition of such amendments, such persons shall waive any and all
claims against Vitas, Apria and their respective affiliates and agents. If such
SSAs and other agreements are not amended, the total severance benefits payable
to such persons would be $390,550, $315,000, $272,250, $177,963 and $206,200,
respectively. The Merger Agreement contemplates that the payments to Ms.
Colliflower and Dr. Williams are to be paid on the Closing Date because their
employment with Vitas is expected to be terminated immediately prior to the
Effective Time. 

         Indemnification. The Merger Agreement provides that for six years from
the Effective Time, the Surviving Corporation will maintain in effect directors'
and officers' liability insurance against claims asserted based on acts or
omissions occurring at or prior to the Effective Time covering those Persons who
are currently covered by Vitas' directors' and officers' liability insurance
policy, on terms substantially as favorable as the terms of such insurance
coverage; provided, however, that in no event will the Surviving Corporation be
required to expend in any one year an amount in excess of 200% of the annual
premiums currently paid by Vitas for such insurance; and provided further that
if the annual premiums of such insurance coverage exceed such amount, the
Surviving Corporation will be obligated to obtain a policy with the best
coverage available in its reasonable judgment, after reasonable inquiry of at
least three carriers, for a cost not exceeding such amount. The Merger Agreement
also provides that the Surviving Corporation will keep in effect the provisions
in its Certificate of Incorporation and Bylaws providing for exculpation of
director and officer liability and indemnification to the fullest extent
permitted under the Delaware GCL, which provisions will not be amended, repealed
or otherwise modified except as required by applicable law, or except for
changes permitted by law that would enlarge the right of indemnification or
would not adversely affect the rights thereunder of individuals who on or prior
to the Effective Time were directors, officers, employees or agents of Vitas and
its subsidiaries or fiduciaries of its employee benefit plans.

         Stock Options.  Mr. Ferretti currently holds 25,000 Stock Options, all 
of which are vested. As a result of the Merger, such Stock Options will become
exercisable and are expected to be exchanged for Apria Common Stock.

         Mr. O'Toole currently holds 20,000 Stock Options, all of which are
vested. As a result of the Merger, such Stock Options will become exercisable
and are expected to be exchanged for Apria Common Stock.

         Mr. Nevin currently holds 75,000 Stock Options, 32,500 of which are
vested or would vest by their terms prior to the expected Effective Time. As a
result of the Merger, (i) the 32,500 Stock Options that are vested or would vest
by their terms prior to the expected Effective Time will become exercisable and
are expected to be exchanged for Apria Common Stock and (ii) an additional
15,000 Stock Options will vest and become exercisable by their terms and are
expected to be exchanged for Apria Common Stock. In addition, the 27,500 Stock
Options that are not currently vested or expected to vest prior to the expected
Effective Time and that would not vest or become exercisable as a result of the
Merger are expected to be exchanged for shares of Apria Common Stock, subject to
the Vesting Discount Amount.

         Mr. Ohlendorf currently holds 85,000 Stock Options, 30,000 of which are
vested and exercisable by their terms. As a result of the Merger, an additional
36,250 vested Stock Options will become exercisable and are expected to be
exchanged for Apria Common Stock. In addition, the 18,750 Stock Options that are
not currently vested or expected to vest prior to the expected Effective Time
and that would not vest or become exercisable as a result of the Merger are
expected to be exchanged for shares of Apria Common Stock, subject to the
Vesting Discount Amount.

         Mr. Sterling currently holds 70,000 Stock Options, 43,750 of which are
vested or would vest by their terms prior to the expected Effective Time. As a
result of the Merger, the 43,750 Stock Options that are vested or would vest by
their terms prior to the expected Effective Time will become exercisable and are
expected to be exchanged for Apria Common Stock. In addition, the 26,250 Stock
Options that are not currently vested or expected to vest


                                       36
<PAGE>   45
prior to the expected Effective Time and that would not vest or become
exercisable as a result of the Merger are expected to be exchanged for shares of
Apria Common Stock, subject to the Vesting Discount Amount.

         The Stockholders' Agreement provides that, so long as the Stockholders'
Agreement remains in effect and provided either of the Principal Investors
(defined therein to mean the Principal Galen Entities and Warburg, Pincus
Investors, L.P.) has Voting Power, the holders of a majority of the outstanding
shares of Series B Preferred shall be entitled to vote for and elect as
directors either one or both of the Principal Investors' designees to the Vitas
Board of Directors, depending on whether one or both of the Principal Investors
have Voting Power. Bruce F. Wesson and Patrick T. Hackett, the designees of the
Principal Galen Entities and Warburg, Pincus Investors, L.P., respectively, are
serving as directors of Vitas in accordance with this provision. The Investor
Agreement provides that, as long as OCR beneficially owns at least ten percent
of the outstanding shares of Vitas Common Stock, Vitas is obligated to nominate
one person designated by OCR for election as a director of Vitas. Mr. O'Toole,
an officer and director of Chemed, was nominated to serve as a director of Vitas
in accordance with this provision. The Investor Agreement provides, among other
things, that, as long as the Vitas Board of Directors is composed of ten or
fewer directors, OCR shall be entitled to only one designee.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES
         Assuming the Merger is consummated at the Effective Time pursuant to
the terms of the Merger Agreement, O'Melveny & Myers LLP, counsel to Apria, is
of the opinion that the material federal income tax consequences of the Merger
to Vitas stockholders are as follows:
         (1)   The Merger will constitute a taxable sale of Vitas Common Stock.

         (2)   Capital gain (or capital loss) will be recognized by a Vitas
stockholder whose Vitas Common Stock is converted into Apria Common Stock in the
Merger (assuming that the Vitas stock is a capital asset in the stockholder's
hands).
         (3)   The amount of gain (or loss) will be measured by the difference
between the stockholder's tax basis in Vitas Common Stock and the total of the
fair market value of Apria Common Stock at the Effective Time of the Merger and
cash received in lieu of fractional shares.
         (4)   In order to qualify for long-term capital gain treatment, the
stockholder must have held Vitas Common Stock for more than one year at the
Effective Time of the Merger.

         (5)   The basis of holders of Vitas Common Stock in the Apria Common
Stock received as a result of the Merger will equal the fair market value of
Apria Common Stock at the Effective Time of the Merger.

         (6)   The holding period of Apria Common Stock received by the holders 
of Vitas Common Stock as a result of the Merger will commence at the Effective
Time of the Merger.

         (7)   Each holder of a Warrant who surrenders such Warrant in 
connection with the Merger in exchange for Apria Common Stock will recognize
gain or loss equal to the difference between the amount of the fair market value
of the Apria Common Stock received in exchange for the Warrant and the basis of
the holder in the Warrant. Such gain or loss will be capital gain or loss if, at
the Effective Time, the Warrant is a capital asset in the hands of the holder
and the Vitas Common Stock underlying the Warrant would be a capital asset in
the hands of the holder if it were acquired by the holder pursuant to the
Warrant.
         Upon exchange of a Stock Option for Apria Common Stock, an optionee
will recognize ordinary income in an amount equal to the fair market value of
the Apria Common Stock received in the exchange (except that if the optionee is
subject to certain restrictions to comply with the "Pooling-of-Interests
Accounting" rules, the date on which such income is determined will be deferred
to the end of the restriction period unless the optionee files the special tax
election under Section 83(b) of the Code--See "--Special Tax
Election--Affiliates" below). Upon a subsequent sale or

                                       37
<PAGE>   46
exchange of shares acquired pursuant to the exchange of a Stock Option, the
optionee will have taxable gain or loss, measured by the difference between the
amount realized on the disposition and the value of the shares at the time the
income was determined.

         Under current federal income tax law, the highest tax rate on ordinary
income and short-term capital gains is 39.6% and long-term capital gains are
subject to a maximum tax rate of 28%. However, because of certain provisions in
the law relating to the "phase out" of personal exemptions and certain
limitations on itemized deductions, the federal income tax consequences to a
particular taxpayer of receiving additional amounts of ordinary income or
capital gain may be greater than would be indicated by application of the
foregoing tax rates to the additional amount of income or gain.

         Therefore, in determining the federal income tax consequences of the
exchange of a Stock Option or the sale of Apria Common Stock acquired pursuant
to the exchange of a Stock Option, an optionee will need to consider both his or
her own tax rate and the effect on his or her personal exemptions and itemized
deductions. Additionally, when an optionee exchanges a Stock Option
he or she should also determine whether the increase in his or her tax liability
is sufficient to cause him or her to be required to make payments of estimated
taxes during the year (or to increase such payments). Generally, an optionee
probably will not have to make estimated tax payments if all of the optionee's
income is subject to withholding (including withholding on the optionee's income
on exchange of a Stock Option), but tax law changes have greatly complicated the
rules on estimated taxes.

         THE FOREGOING IS A BRIEF SUMMARY OF CERTAIN OF THE FEDERAL TAX
CONSEQUENCES OF THE EXCHANGE OF A STOCK OPTION AND THE SALE OF APRIA COMMON
STOCK ACQUIRED THEREBY. OPTIONEES ARE URGED TO CONSULT WITH THEIR PERSONAL TAX
ADVISORS IN ORDER TO OBTAIN CURRENT AND INDIVIDUALIZED TAX ADVICE ON THE
CONSEQUENCES OF SUCH TRANSACTIONS TO THEM. SEE "THE MERGER AGREEMENT--TREATMENT
OF STOCK OPTIONS--WITHHOLDING ARRANGEMENTS" FOR A DESCRIPTION OF TAX WITHHOLDING
REQUIREMENTS WITH RESPECT TO THE EXCHANGE.

         Special Tax Election--Affiliates. Certain employees who are subject to
restrictions to comply with the "Pooling-of-Interests Accounting" rules can make
a special tax election under Section 83(b) of the Code. If the election is
filed, the employee will recognize ordinary income at the time the Stock Options
are exchanged, generally in an amount equal to the fair market value of the
Apria Common Stock received (without regard to any restrictions), and the
employee's basis in such shares generally will be equal to the amount of
ordinary income recognized. Any gain or loss recognized on a subsequent
disposition of shares as to which the election has been made generally will be
capital gain or loss. Employees should consult with their personal tax advisors
concerning this election. The special tax election must be filed within 30 days
of the date on which the Stock Option is exercised or exchanged. The Internal
Revenue Service will not grant any extension of the 30-day deadline.

         THE DISCUSSION REGARDING FEDERAL INCOME TAX CONSEQUENCES SET FORTH
ABOVE DOES NOT ADDRESS THE STATE, LOCAL OR FOREIGN TAX ASPECTS OF THE MERGER.
THIS DISCUSSION RELATES ONLY TO VITAS COMMON STOCK HELD AS CAPITAL ASSETS WITHIN
THE MEANING OF SECTION 1221 OF THE CODE, AND TO STOCK OPTIONS HELD BY PERSONS
WHO ARE CITIZENS OR RESIDENTS OF THE UNITED STATES. THIS DISCUSSION DOES NOT
ADDRESS TAX CONSEQUENCES TO CATEGORIES OF HOLDERS ENTITLED TO SPECIAL TREATMENT
UNDER THE CODE (INCLUDING, WITHOUT LIMITATION, FOREIGN PERSONS, TAX-EXEMPT
ORGANIZATIONS, INSURANCE COMPANIES, FINANCIAL INSTITUTIONS AND DEALERS IN STOCKS
AND SECURITIES). IT IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE CODE,
EXISTING AND PROPOSED TREASURY REGULATIONS THEREUNDER AND CURRENT ADMINISTRATIVE
RULINGS AND COURT DECISIONS. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE, AND ANY
SUCH CHANGE COULD AFFECT THE ACCURACY OF THIS DISCUSSION. NO RULING HAS BEEN
SOUGHT FROM THE INTERNAL REVENUE SERVICE WITH RESPECT TO THE FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER. VITAS STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX
ADVISORS WITH REGARD TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO THEM,
INCLUDING THE APPLICATION AND EFFECT OF ANY CURRENT OR PROPOSED STATE, LOCAL AND
FOREIGN TAX LAWS OR PROPOSED FEDERAL INCOME TAX LAW CHANGES.

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<PAGE>   47
REGULATORY APPROVALS

         Under the Hart-Scott Act, and the rules promulgated thereunder by the
Federal Trade Commission (the "FTC"), the Merger may not be consummated until
notifications have been given and certain information has been furnished to the
FTC and the Antitrust Division of the Department of Justice (the "Antitrust
Division"), and specified waiting period requirements have been satisfied. Apria
and Vitas filed premerger notification and report forms with the FTC and the
Antitrust Division on June 14, 1996.

         Early termination of the waiting period under the Hart-Scott Act for
Apria and Vitas was effective on June 24, 1996, without Apria or Vitas receiving
a request for additional information from the FTC or the Antitrust Division.

         At any time before or after the Effective Time, the Antitrust Division,
the FTC or a private person or entity could seek under the antitrust laws, among
other things, to enjoin the Merger or to cause Apria to divest itself, in whole
or in part, of the Surviving Corporation or of other businesses conducted by the
Surviving Corporation. There can be no assurance that a challenge to the Merger
will not be made or that, if such a challenge is made, Apria will prevail. The
obligations of Apria and Vitas to consummate the Merger are subject to the
condition that there be no temporary restraining order, preliminary or permanent
injunction or other order by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Merger. Each party
has agreed to use its best efforts to have any such injunction or order lifted.
See "THE MERGER AGREEMENT--Conditions to the Merger" and "--Termination."

         In connection with the Merger, Vitas will be required to submit
regulatory notices and may be required to take further actions in one or more of
the states in which Vitas and its subsidiaries operate. In some instances, these
regulatory notices and/or actions are required to be filed or taken a specified
period in advance of the effective date of the transaction. In addition, while
not required, Vitas intends to provide courtesy notices prior to the Effective
Time to government entities which have issued certain licenses, certifications
and similar healthcare regulatory approvals to Vitas and its subsidiaries. Apria
and Vitas believe that any material regulatory approvals will be obtained in the
normal course; however, there can be no assurance that all such approvals will
be obtained by the Effective Time.

ACCOUNTING TREATMENT
          The Merger is intended to qualify as a pooling-of-interests for
accounting and financial reporting purposes. Consummation of the Merger is
conditioned upon the receipt by each of Apria and Vitas of a letter, dated the
Closing Date, from Ernst & Young LLP, regarding its concurrence with the
conclusions of Apria and Vitas management as to the appropriateness of
pooling-of-interests accounting for the Merger under Accounting Principles Board
Opinion No. 16 if it is closed and consummated in accordance with the Merger
Agreement. Each of Apria and Vitas could elect to waive the condition to its
obligations under the Merger Agreement but do not anticipate doing so. See "THE
MERGER AGREEMENT--Conditions to the Merger." Under the pooling-of-interests
accounting method, (i) the recorded historical cost basis of the assets and
liabilities of Vitas will be carried forward and consolidated in the operations
of Apria generally at their recorded amounts and (ii) the consolidated financial
statements of Apria issued subsequent to the consummation of the Merger will be
restated to include the combined financial position, results of operations and
cash flows for Apria and Vitas for all periods presented therein. Certain
events, including certain transactions with respect to Apria Common Stock or
Vitas Common Stock by affiliates of Apria or Vitas, respectively, may prevent
the Merger from qualifying as a pooling-of-interests for accounting and
financial representation purposes. See "--Restrictions on Sales by Affiliates;
Pooling Considerations." If for some reason Ernst & Young LLP cannot deliver the
pooling letters, the Merger does not qualify for pooling-of-interests accounting
treatment and Apria and Vitas elect to proceed with the Merger, this Proxy
Statement/Prospectus will be revised to reflect the purchase method of
accounting (including the pro forma information contained in this Proxy
Statement/Prospectus) and the Vitas stockholders will be resolicited.

RESTRICTIONS ON SALES BY AFFILIATES; POOLING CONSIDERATIONS

         The shares of Apria Common Stock to be issued in connection with the
Merger have been registered under the 1933 Act. Such shares will be freely
transferable under the 1933 Act, except for shares issued to any person who may
be deemed to be an affiliate of Vitas (as such term is defined in Rule 145 under
the 1933 Act) ("Vitas Affiliates"). Vitas Affiliates may not sell their shares
of Apria Common Stock acquired in connection with the Merger except pursuant to
(a) an effective registration statement under the 1933 Act covering such shares,
(b) paragraph (d) of Rule 145, or (c) another applicable exemption. The
Significant Securityholders Agreement includes these and other restrictions on
transfer of Vitas or Apria shares (or rights with respect to those shares)
intended to assure compliance with applicable laws and to avoid transactions
that might affect the accounting for the transaction. Vitas has agreed to use
its reasonable efforts to obtain at least 30 days prior to the Effective Time a
written agreement 


                                     39
<PAGE>   48
regarding such transfer restrictions from each Vitas Affiliate
who has not signed the Significant Securityholders Agreement.

         Commission guidelines indicate that the pooling-of-interests method of
accounting will generally not be challenged on the basis of sales by affiliates
of the acquiring or acquired company if these persons do not dispose of any of
the shares of either corporation they own or received in connection with a
merger during the period beginning 30 days before the merger and ending when
financial results covering at least 30 days of post-merger operations of the
combined entity have been published. Apria has agreed to publish results
covering the first calendar month of combined operations of Vitas and Apria
within 45 days of such calendar month end.

         Each party has agreed to use its reasonable efforts to cause the Merger
to qualify, and will not take any actions which could prevent the Merger from
qualifying, for pooling-of-interests accounting treatment. Subject to the prior
consent of Apria, which will not be unreasonably withheld, Vitas has agreed to
use its best efforts to take such other actions as are necessary to cure any
facts or circumstances that could prevent the Merger from qualifying for
pooling-of-interests accounting treatment. Apria also has agreed to use its best
efforts to take such other actions as are necessary to cure any facts or
circumstances that could prevent the Merger from qualifying for
pooling-of-interests accounting treatment. For so long as resales of shares of
Apria Common Stock issued pursuant to the Merger are subject to resale
restrictions set forth in Rule 145 under the 1933 Act, Apria has agreed to use
its reasonable efforts to comply with Rule 144(c)(1) under the 1933 Act.


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<PAGE>   49
                              THE MERGER AGREEMENT

         THE MERGER AGREEMENT AND CERTAIN RELATED MATTERS ARE SUMMARIZED BELOW.
THE SUMMARY PROVIDES A BRIEF DISCUSSION OF THE MATERIAL TERMS OF THE MERGER
AGREEMENT, DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE COMPLETE TEXT OF THE MERGER AGREEMENT, WHICH IS ATTACHED AS
APPENDIX A TO THIS PROXY STATEMENT/PROSPECTUS AND INCORPORATED HEREIN BY
REFERENCE.

THE MERGER

         Subject to the terms and conditions of the Merger Agreement, at the
Effective Time, Apria Sub would be merged with and into Vitas with Vitas
continuing as the Surviving Corporation. The Merger will have the effects
specified in the Delaware GCL.

EFFECTIVE TIME OF THE MERGER

         The Merger will be effective upon the filing of the Certificate of
Merger with the Delaware Secretary of State, or at such later time as Apria Sub
and Vitas specify in the Certificate of Merger. The Effective Time is currently
expected to occur as promptly as practicable after the Special Meeting,
subject to the approval by the stockholders of Vitas of the matters described
herein and satisfaction or waiver of the conditions precedent to the Merger set
forth in the Merger Agreement.

CONVERSION OF SECURITIES

          Common Stock. In the Merger, each share of Vitas Common Stock issued
and outstanding as of the Effective Time (other than shares owned by Vitas,
Apria or any of their respective subsidiaries (including Apria Sub) and other
than shares as to which dissenters' rights have been perfected under the
Delaware GCL) would be converted into the right to receive a number of shares of
Apria Common Stock equal to the Exchange Ratio. The Exchange Ratio will be (i)
initially 0.290 (the "Initial Exchange Ratio"), subject to any Collar Adjustment
(i.e., the adjustment required in the event that the closing price of Apria
Common Stock on the NYSE on the trading day next preceding the Closing Date is
lower than $27.125 or greater than $37.125) if no Debt Adjustment (i.e., the
adjustment required in the event the Total Debt of Vitas exceeds $39.1 million
as reflected on the Closing Balance Sheet of Vitas) is deemed to occur or (ii)
the Recalculated Exchange Ratio (as defined below), subject to any Collar
Adjustment if a Debt Adjustment is deemed to occur, as the case may be. The term
"Exchange Ratio" means the Initial Exchange Ratio or the Recalculated Exchange
Ratio (as adjusted by any Collar Adjustment), whichever is applicable. In
addition, if, prior to the Effective Time, Apria should split, recapitalize,
reclassify, subdivide, exchange or combine the Apria Common Stock, or pay a
stock dividend or other stock distribution in Apria Common Stock, then the
Initial Exchange Ratio or the Recalculated Exchange Ratio, as the case may be
(as well as all references to prices of Apria Common Stock used for purposes of
any Collar Adjustment or related termination right), will be appropriately
adjusted to reflect such split, recapitalization, reclassification, subdivision,
exchange, combination, dividend or other distribution. 

   
         If the Market Price (i.e., closing price of Apria Common Stock on the
NYSE on the trading day next preceding the Closing Date) is between $27.125 and
$37.125 (inclusive) there will be no Collar Adjustment and any adjustment to the
Exchange Ratio would be solely as a result of a Debt Adjustment. If the Market
Price is less than $27.125 and there is no Recalculated Exchange Ratio, the
Initial Exchange Ratio will be multiplied by a fraction of which the numerator
will be $27.125 less 50% of the difference between $27.125 and the Market Price
(the "Market Price Decline Numerator") and the denominator will be the Market
Price. If the Market Price is more than $37.125 and there is no Recalculated
Exchange Ratio, the Initial Exchange Ratio will be multiplied by a fraction of
which the numerator will be $37.125 plus 50% of the difference between the
Market Price and $37.125 (the "Market Price Increase Numerator") and the
denominator will be the Market Price. If the Market Price is less than $27.125
and there is a Recalculated Exchange Ratio, the Recalculated Exchange Ratio will
be multiplied by a fraction of which the numerator will be the Market Price
Decline Numerator and the denominator will be the Market Price, and the result
will be the Exchange Ratio as referred to in the next-to-last sentence of the
preceding paragraph. If the Market Price is more than $37.125 and there is a
Recalculated Exchange Ratio, the Recalculated Exchange Ratio will be multiplied
by a fraction of which the numerator will be the Market Price Increase Numerator
and the denominator will be the Market Price, and the result will be the
Exchange Ratio as referred to in the next-to-last sentence of the preceding
paragraph. The Merger Agreement provides that if the Market Price is greater
than $42.125 or less than $22.125, either party may terminate the Merger
Agreement, but if neither party elects to terminate the Merger Agreement the
foregoing formulae, which constitute the Collar Adjustment, will continue to be
applicable.
    

   
         Vitas will prepare a balance sheet as of the last day of the month
ending immediately prior to the Closing Date unless the Closing Date is within
20 business days after the end of a month, in which event such balance sheet


                                       41
<PAGE>   50
will be as of the last day of the month ending immediately prior to the month
ending immediately prior to the Closing Date (the "Closing Balance Sheet"). If
the Total Debt of Vitas exceeds $39.1 million as reflected on the Closing
Balance Sheet, a Debt Adjustment will be deemed to occur. If a Debt Adjustment
is deemed to occur, the Initial Exchange Ratio will be replaced by the
"Recalculated Exchange Ratio" which will be determined by dividing (i) $9.32
less the Excess Per Share Debt Amount by (ii) $32.125. The "Excess Per Share
Debt Amount" means the Total Debt of Vitas in excess of $39.1 million divided by
19,738,635 (rounded to the nearest whole cent). "Total Debt" means all bank
debt, notes payable, other indebtedness for borrowed money, including any
indebtedness incurred in the acquisition by Vitas or its subsidiary of the
assets of Hospice of Central Florida, Inc., a Florida nonprofit corporation
("HCF"), and the current portions of all of the foregoing, but excluding
capitalized leases and the amount due under the ESOP Note, and all reduced by
(A) Vitas' then cash equivalents and cash on hand as reflected on the Closing
Balance Sheet, (B) the positive difference, if any, between (1) $1.554 million
and (2) the book value of the ESOP Note as reflected on the Closing Balance
Sheet, and (C) the sum of (x) the amount, if any, by which Vitas' then net
non-cash non-debt working capital (defined as current assets excluding cash,
cash equivalents and current deferred tax assets, minus current liabilities,
excluding current capital lease obligations, current portion of long-term debt
and current deferred tax liabilities) exceeds $(200,000) and (y) the amount of
any capital expenditures in excess of $500,000 per month which have previously
been approved in writing by Apria, and (z) the amount of any indebtedness
incurred in the acquisition by Vitas or its subsidiary of the assets of HCF up
to a maximum of $4.75 million. There is no limit on the extent to which a Debt
Adjustment may be deemed to occur; however, the Merger Agreement provides that
it may be terminated by Apria if a Debt Adjustment is deemed to occur and is in
excess of $4 million.
    

         The following table provides examples of Exchange Ratios based upon
differing Collar Adjustments and Debt Adjustments:

   
<TABLE>
<CAPTION>
                                                                                Value
                                                                      Per Share of Vitas Common
                         Exchange Ratio After                         Stock After Effect of Debt
   Market      Effect of Debt Adjustment In an Amount of              Adjustment In an Amount of
   Price      -------------------------------------------     ------------------------------------------
 for Apria       $0          $1          $2         $3          $0        $1           $2           $3
   Common      ------     -------     -------     -------     ------    -------      -------     -------
   Stock                  Million     Million     Million               Million      Million     Million
   -----                  -------     -------     -------               -------      -------     -------
<S>            <C>         <C>         <C>        <C>         <C>        <C>          <C>         <C>    
   $26.125     0.2956      0.2941      0.2925     0.2909      $7.723     $7.683       $7.642      $7.600
    25.125     0.3015      0.3001      0.2984     0.2968       7.575      7.540        7.497       7.457
    24.125     0.3080      0.3065      0.3048     0.3031       7.431      7.394        7.353       7.312
    23.125     0.3151      0.3136      0.3118     0.3101       7.287      7.252        7.210       7.171
    22.125     0.3228      0.3212      0.3194     0.3176       7.142      7.107        7.067       7.027
    21.125     0.3312      0.3296      0.3278     0.3259       6.997      6.963        6.925       6.885
    20.125     0.3404      0.3388      0.3369     0.3350       6.851      6.818        6.780       6.742
    19.125     0.3507      0.3490      0.3470     0.3451       6.707      6.675        6.636       6.600
    18.125     0.3620      0.3603      0.3583     0.3563       6.561      6.530        6.494       6.458
    17.125     0.3747      0.3729      0.3708     0.3687       6.417      6.386        6.350       6.314
    16.125     0.3889      0.3870      0.3849     0.3827       6.271      6.240        6.207       6.171
    15.125     0.4050      0.4031      0.4009     0.3986       6.126      6.097        6.064       6.029
    14.125     0.4235      0.4214      0.4191     0.4167       5.982      5.952        5.920       5.886
</TABLE>
    

   
         This table does not purport to include every possible Exchange Ratio
and assumes that the closing price of Apria Common Stock on the Closing Date is
the same as the Market Price. The actual Exchange Ratio and the actual value to
be received by Vitas securityholders may be higher or lower. On November 7,
1996, the market price of Apria Common Stock on the NYSE composite tape was
$20.00.
    

   
         The Collar Adjustment and the Debt Adjustment work independently of
each other. If the Market Price of Apria Common Stock were greater than $37.125,
the Collar Adjustment would serve to decrease the number of shares of Apria
Common Stock to be received in connection with the Merger. If the Market Price
of Apria Common Stock were lower than $27.125, the Collar Adjustment would serve
to increase the number of shares of Apria Common Stock to be received in
connection with the Merger. In either case, a Debt Adjustment would serve to
decrease the number of shares of Apria Common  Stock to be received in
connection with the Merger. Because the Collar Adjustment is to be determined as
of the Closing Date, Apria and Vitas are unable to determine whether a Collar
Adjustment will be made, or, if made, the extent to which a Collar Adjustment
will be made. Similarly, the Debt Adjustment is calculated based upon the
Closing Balance Sheet. The Closing Balance Sheet will be prepared as of the last
day of the month ending immediately prior to the Closing Date, unless the
Closing Date is within 20 business days after the end of a month, in which event
it will be prepared as of the last day of the month ending immediately prior to
the month ending immediately prior to the Closing Date. Thus, if the Closing
Date is on or before December 30, 1996, the Closing Balance Sheet will be
prepared as of October 31, 1996.  If the Closing Date occurs after December 30,
1996 but before January 31, 1997, the Closing Balance Sheet will be prepared as
of November 30, 1996. Consequently, Vitas is unable to determine whether there
will be a Debt Adjustment until the Closing Date is determined and the
applicable Closing Balance Sheet is prepared. FURTHERMORE, THE MARKET VALUE OF
APRIA COMMON STOCK THAT THE VITAS SECURITYHOLDERS ULTIMATELY RECEIVE WILL BE
SUBJECT TO FLUCTUATIONS IN THE MARKET PRICE OF APRIA COMMON STOCK AND COULD BE
MORE OR LESS THAN ITS MARKET VALUE ON THE DATE OF THIS PROXY
STATEMENT/PROSPECTUS OR ON THE DATE OF THE SPECIAL MEETING. No assurance can be
given as to the market price of Apria Common Stock at any time before the
Closing Date or at any time thereafter.
    

   
         The Initial Exchange Ratio of 0.290 was determined assuming a Market
Price of $32.125 and no Debt Adjustment. The closing price of Apria Common Stock
on November 7, 1996 was $20.00 per share. If the Market Price of Apria Common
Stock were $20.00, and assuming there were no Debt Adjustment, the Exchange
Ratio for each share of Vitas Common Stock (including shares of Vitas Common
Stock issuable upon conversion of the Series B Preferred as contemplated by the
Merger Agreement) would be 0.3417 shares of Apria Common Stock and a total of
5,316,752 shares of Apria Common Stock would be issued in respect of all shares
of Vitas Common Stock (and other securities of Vitas, including the Series B
Preferred, the Warrants and stock options). Assuming the Exchange Ratio was
0.3417 and the closing price of Apria Common Stock on the Closing Date was
$20.00 per share, the value to be received by Vitas securityholders on the
Closing Date for each share of Vitas Common Stock (including shares of Vitas
Common Stock issuable upon conversion of the Series B Preferred as contemplated
by the Merger Agreement) would be $6.83, and the total value to be received by
Vitas securityholders on the Closing Date in respect of all shares of Vitas
Common Stock (and other securities of Vitas, including the Series B Preferred,
the Warrants and stock options) would be approximately $106.3 million. 
    

   
         If, after giving effect to any Collar Adjustment and any Debt
Adjustment, the actual Exchange Ratio is between 0.2909 and 0.4235, a total of
between approximately 4,505,000 shares and 6,591,000 shares of Apria Common
Stock would be issued in respect of all shares of Vitas Common Stock (and other
securities of Vitas, including the Series B Preferred, the Warrants and stock
options). If the actual Exchange Ratio is between 0.2909 and 0.4235 and the
closing price of Apria Common Stock on the Closing Date is between $14.125 per
share and $26.125 per share, the value to be received by Vitas securityholders
on the Closing Date for each share of Vitas Common Stock (including shares of
Vitas Common Stock issuable upon conversion of the Series B Preferred as
contemplated by the Merger Agreement) would be between $5.98 and $7.60, and the
total value to be received by Vitas securityholders on the Closing Date in
respect of all shares of Vitas Common Stock (and other securities of Vitas,
including the Series B Preferred, the Warrants and stock options) would be
between approximately $93.1 million and $117.7 million.
    

   
         Vitas anticipates that the Closing Date will occur as soon as
practicable after the Special Meeting. AS NOTED IN "THE SPECIAL MEETING," IN THE
EVENT THAT THE EXPECTED EXCHANGE RATIO AS OF THE DATE OF THE SPECIAL MEETING IS
LOWER THAN 0.2909 OR GREATER THAN 0.4235, AND UNLESS THE MERGER AGREEMENT IS
TERMINATED, THE SPECIAL MEETING MAY BE ADJOURNED. FURTHERMORE, IF THE SPECIAL
MEETING HAS ALREADY OCCURRED AND THE EXCHANGE RATIO AS OF THE EXPECTED CLOSING
DATE WOULD BE LOWER THAN 0.2909 OR GREATER THAN 0.4235, AND UNLESS THE MERGER
AGREEMENT IS TERMINATED, A SUBSEQUENT MEETING WILL BE NECESSARY. THE ADJOURNMENT
OF THE SPECIAL MEETING OR THE NECESSITY OF A SUBSEQUENT MEETING COULD
SUBSTANTIALLY DELAY THE CLOSING OF THE MERGER. ALTHOUGH THE SPECIAL MEETING HAS
BEEN SCHEDULED FOR DECEMBER 2, 1996, THE MERGER AGREEMENT PROVIDES THAT IT MAY
BE TERMINATED BY EITHER PARTY, SUBJECT TO CERTAIN CONDITIONS, IN THE EVENT THE
MERGER SHALL NOT HAVE OCCURRED BY OCTOBER 31, 1996. SEE "THE SPECIAL MEETING".
THE MERGER AGREEMENT ALSO PROVIDES THAT IT MAY BE TERMINATED BY APRIA OR VITAS
IF THE MARKET PRICE OF APRIA COMMON STOCK IS LESS THAN $22.125. IN ADDITION, THE
MERGER AGREEMENT PROVIDES THAT IT MAY BE TERMINATED BY APRIA IF THERE IS A DEBT
ADJUSTMENT IN EXCESS OF $4 MILLION.
    

   
         FOR A DISCUSSION OF RECENT DEVELOPMENTS CONCERNING THE POSSIBLE
TERMINATION OF THE MERGER AGREEMENT, SEE "THE MERGER--BACKGROUND OF THE
MERGER--RECENT DEVELOPMENTS."
    

                                       42
<PAGE>   51
          9% Preferred. At the Effective Time, each of the 270,000 shares of 9%
Preferred would remain outstanding, and, upon surrender of the certificate
representing the 9% Preferred, in accordance with the terms of the Merger
Agreement and the Significant Securityholders Agreement, would be purchased by
Apria at a price equal to its "Stated Value" of $100 per share, together with
all accrued and unpaid dividends thereon. As of September 30, 1996, the accrued
and unpaid dividends were $607,500 on the aggregate "Stated Value" of
$27 million. All of the 9% Preferred is held by OCR, which has agreed to the
sale on these terms.

          Series B Preferred. The Merger Agreement contemplates that each share
of Series B Preferred issued and outstanding prior to the Effective Time,
together with all associated rights, preferences and restrictions set forth in
the Stockholders' Agreement, will be converted by the holder into a number of
shares of Vitas Common Stock issuable upon conversion of such share of Series B
Preferred, which is currently 21.052632 shares of Vitas Common Stock for each
share of Series B Preferred, and that such Vitas Common Stock would then be
converted into the right to receive a number of shares of Apria Common Stock
equal to the Exchange Ratio multiplied by the number of shares of Vitas Common
Stock so issued. Thus, the calculation of the exchange terms for the Series B
Preferred is subject to the determination of the Market Price and the extent of
any Debt Adjustment. The obligations of Apria under the Merger Agreement are
conditioned upon all Series B Preferred holders voluntarily converting their
shares. If a holder of Series B Preferred does not timely convert or agree to
convert its shares of Series B Preferred, Apria could waive such condition, in
which case the Series B Preferred would remain outstanding, but would cease to
be convertible, in accordance with its terms. Apria would not waive the
condition in any event if the non-conversion of Series B Preferred, when
considered together with other dissenting shares and similar matters, would
preclude the use of pooling-of-interests accounting treatment. Pursuant to the 
Significant Securityholders Agreement, the holders of approximately 76.2% of 
the Series B Preferred have agreed to effect the conversion contemplated by 
these provisions.

         Warrants. At or immediately prior to the Closing Date, the holder of
each of the Warrants, and all associated rights, preferences and restrictions
set forth in the Investor Agreement, will, in accordance with the provisions of
the Significant Securityholders Agreement surrender the Warrants in exchange for
a number of shares of Apria Common Stock in the Merger equal to the product of
(x) the quotient obtained by dividing (I) $9.32 less the sum of (A) any Excess
Per Share Debt Amount and (B) the exercise price per share of Vitas Common Stock
issuable upon exercise of the Warrant by (II) $32.125 (such quotient referred to
herein as the "Warrant Spread Value Exchange Ratio"), times (y) the number of
shares of Vitas Common Stock covered by such Warrant, subject to the following
adjustments. If the Market Price is less than $27.125, the Warrant Spread Value
Exchange Ratio will be multiplied by a fraction of which the numerator will be
the Market Price Decline Numerator and the denominator will be the Market Price.
If the Market Price is more than $37.125, the Warrant Spread Value Exchange
Ratio will be multiplied by a fraction of which the numerator will be the Market
Price Increase Numerator and the denominator will be the Market Price. Thus,
the calculation of the exchange terms for the Warrants is subject to the
determination of the Market Price and the extent of any Debt Adjustment. Both of
the Warrants are held by OCR, which has agreed to the exchange on these terms.

        The following table provides examples of Warrant Spread Value Exchange
Ratios based upon differing Market Prices for Apria Common Stock, Market Price
Decline Numerators, and Debt Adjustments.

   
<TABLE>
<CAPTION>

 Market 
 Price
for Apria                                                             Number of Apria Shares Issued
 Common     Warrant Spread Value Exchange Ratio After            In Exchange For Warrants After Effect
 Stock      Effect of Debt Adjustment In an Amount of             of Debt Adjustment In an Amount of
---------   -----------------------------------------            --------------------------------------
                   $0      $1       $2       $3                    $0        $1        $2        $3
                 ------  ------   ------   ------                -------   -------   -------   -------  
                        Million  Million  Million                          Million   Million   Million
                        -------  -------  -------                          -------   -------   -------    
<S>              <C>     <C>      <C>      <C>                   <C>        <C>       <C>       <C>                
$26.125          0.1512  0.1496   0.1481   0.1464                597,687   591,363   585,433   578,713        
 25.125          0.1543  0.1526   0.1511   0.1494                609,941   603,221   597,292   590,572        
 24.125          0.1576  0.1559   0.1543   0.1526                622,986   616,266   609,941   603,221       
 23.125          0.1612  0.1595   0.1579   0.1561                637,217   630,497   624,172   617,057        
 22.125          0.1652  0.1634   0.1617   0.1599                653,029   645,913   639,193   632,078        
 21.125          0.1695  0.1676   0.1659   0.1641                670,026   662,516   655,796   648,680        
 20.125          0.1742  0.1723   0.1706   0.1687                688,605   681,095   674,375   666,864        
 19.125          0.1794  0.1775   0.1757   0.1738                709,161   701,650   694,535   687,024        
 18.125          0.1852  0.1833   0.1814   0.1794                732,088   724,577   717,067   709,161        
 17.125          0.1917  0.1897   0.1877   0.1857                757,782   749,876   741,970   734,064
 16.125          0.1990  0.1969   0.1949   0.1927                786,639   778,337   770,432   761,735
 15.125          0.2073  0.2050   0.2029   0.2007                819,448   810,356   802,055   793,359
 14.125          0.2167  0.2144   0.2122   0.2098                856,606   847,514   838,818   829,331
</TABLE>
    

   
        This table does not purport to include every possible Warrant Spread
Value Exchange Ratio. The actual Warrant Spread Value Exchange Ratio and the
number of shares of Apria Common Stock to be received by the Vitas Warrant
holder may be higher or lower. On November 7, 1996, the market price of Apria
Common Stock on the NYSE composite tape was $20.00.
    

TREATMENT OF STOCK OPTIONS

         Exchange of Options. In accordance with the terms of certain of the
Stock Options, the exercisability of certain vested options will be accelerated
as a result of the Merger and, to the extent vested and exercisable, the option
may be exercised immediately prior to the Effective Time. At the Effective Time,
any Stock Option outstanding immediately prior to the Effective Time that has
not otherwise been exercised in accordance with its terms will be exchanged for
the right to receive from Apria, upon surrender of the applicable Stock Option
Agreement and confirmation of payment in cash by the holder to Apria (or other
provision for cash withholding from the holder by Apria) of all applicable
withholding taxes associated with the exchange, a number of shares of Apria
Common Stock equal to the product of (x) the quotient obtained by dividing (i)
$9.32 less the sum of (A) any Excess Per Share Debt Amount, (B) the exercise
price per share of Vitas Common Stock issuable upon exercise of the Stock Option
and (C) any applicable Vesting Discount Amount (as defined below) by (ii)
$32.125 (such quotient referred to herein as "Option Spread Value Exchange
Ratio"), times (y) the number of shares of Vitas Common Stock covered by such
Stock Option, subject to any adjustments which may be called for by the next two
sentences. If the Market Price is less than $27.125, the Option Spread Value
Exchange Ratio will be multiplied by a fraction of which the numerator will be
the Market Price Decline Numerator and the denominator will be the Market Price.
If the Market Price is more than $37.125, the Option Spread Value Exchange Ratio
will be multiplied by a fraction of which the numerator will be the Market Price
Increase Numerator and the denominator will be the Market Price. Any "Vesting
Discount Amount" will be equal to the undiscounted per share gain under each
Stock Option minus the present value of the per share gain under each Stock
Option (calculating such present value from the date(s) such Stock Option would
have vested by its terms). Thus, the calculation of the exchange terms for the
Stock Options is subject to the determination of the Market Price and the extent
of any Debt Adjustment and Vesting Discount Amount.

        As of October 1, 1996, Vitas had outstanding 5,848,164 options for the
purchase of Vitas Common Stock at a weighted-average exercise price of $3.575
per share. The following table provides examples of weighted-average Option
Spread Value Exchange Ratios for outstanding Stock Options based upon differing
Market Prices for Apria Common Stock, Market Price Decline Numerators, and Debt
Adjustments. The number of Apria shares to be issued in exchange for Stock
Options also reflects the effect of any applicable Vesting Discount Amount.

   
<TABLE>
<CAPTION>

 Market 
 Price
for Apria    Weighted Average Option Spread Value               Number of Apria Shares Issued
 Common         Exchange Ratio After Effect             In Exchange For All Stock Options After Effect
 Stock        of Debt Adjustment In an Amount of             of Debt Adjustment In an Amount of
---------    ------------------------------------       ----------------------------------------------
                $0      $1       $2       $3                 $0         $1          $2          $3
              ------  -------  -------  -------          ---------    -------     -------     -------  
                      Million  Million  Million                       Million     Million     Million
                      -------  -------  -------                       -------     -------     -------    
<S>           <C>     <C>      <C>      <C>              <C>         <C>         <C>         <C>                
$26.125       0.1822  0.1807   0.1791   0.1775           1,063,749   1,054,977   1,045,620   1,036,263
 25.125       0.1859  0.1844   0.1827   0.1811           1,085,456   1,076,684   1,066,742   1,057,385
 24.125       0.1899  0.1883   0.1866   0.1850           1,108,924   1,099,566   1,089,625   1,080,268
 23.125       0.1943  0.1926   0.1909   0.1893           1,134,737   1,124,795   1,114,853   1,105,496
 22.125       0.1990  0.1973   0.1956   0.1939           1,162,311   1,152,369   1,142,248   1,132,486
 21.125       0.2042  0.2025   0.2006   0.1989           1,192,818   1,182,877   1,171,765   1,161,823
 20.125       0.2099  0.2081   0.2063   0.2045           1,226,259   1,215,733   1,205,206   1,194,679
 19.125       0.2162  0.2144   0.2125   0.2106           1,263,220   1,252,694   1,241,582   1,230,471
 18.125       0.2232  0.2213   0.2193   0.2175           1,304,288   1,293,176   1,281,480   1,270,953
 17.125       0.2310  0.2291   0.2270   0.2251           1,350,049   1,338,938   1,326,657   1,315,545
 16.125       0.2398  0.2378   0.2356   0.2336           1,401,677   1,389,981   1,377,115   1,365,418
 15.125       0.2497  0.2476   0.2454   0.2433           1,459,759   1,447,478   1,434,612   1,422,331
 14.125       0.2611  0.2589   0.2566   0.2544           1,526,620   1,513,754   1,500,303   1,487,437 
</TABLE>
    

   
        This table does not purport to include every possible Option Spread
Value Exchange Ratio (which would vary based on the specific terms of the
underlying Stock Option Agreement). The actual Option Spread Value Exchange
Ratio and the number of shares of Apria Common Stock to be received by Vitas
Stock Option holders may be higher or lower. On November 7, 1996, the market
price of Apria Common Stock on the NYSE composite tape was $20.00.
    



                                       43
<PAGE>   52
         ANY HOLDER OF A STOCK OPTION MAY OBJECT TO THE EXCHANGE DESCRIBED
ABOVE. IF THE HOLDER OBJECTS IN WRITING TO THE EXCHANGE, THE STOCK OPTION WILL
TERMINATE AT THE EFFECTIVE TIME IN ACCORDANCE WITH ITS TERMS AND THE HOLDER WILL
RECEIVE NOTHING FOR HIS OR HER STOCK OPTION. IF THE HOLDER DOES NOTHING, THE
EXCHANGE OF OPTIONS FOR APRIA SHARES, AS DESCRIBED ABOVE, WILL OCCUR PROVIDED
THE APPLICABLE TAXES ARE PAID AND THE STOCK OPTION AGREEMENT IS SURRENDERED. THE
HOLDER DOES NOT NEED TO "EXERCISE" THE STOCK OPTION TO RECEIVE THE APRIA SHARES.
HOWEVER, IF PAYMENT OF WITHHOLDING TAXES IS NOT MADE OR DULY PROVIDED FOR BY THE
OPTIONEE IN CASH AT THE EFFECTIVE TIME OF THE MERGER, ONE-HALF OF THE APRIA
SHARES WILL BE HELD AS SECURITY FOR THE PAYMENT OF SUCH WITHHOLDING TAXES IN
ACCORDANCE WITH PROCEDURES DESCRIBED UNDER "--WITHHOLDING ARRANGEMENTS" BELOW.

         The Stock Options include provisions that limit benefits under the
Stock Option and other agreements to amounts that would avoid the
characterization of any payment or benefit as a "parachute payment" within the
meaning of Section 280G(b)(2) of the Code to the extent that the "cut back"
would enhance the after tax benefit to such holder after giving effect to
Section 280G penalty provisions. To the extent necessary, Vitas will use its
best efforts to require or encourage optionees to designate other rights,
payments or benefits received or to be received to be reduced or eliminated so
as to avoid the characterization of any option payment or benefit as a
"parachute payment." See "PROPOSAL TO APPROVE SEPARATELY THE PAYMENTS TO HUGH A.
WESTBROOK AND COLLIBROOK PURSUANT TO THE SEVERANCE AND NONCOMPETITION AGREEMENTS
TO BE ENTERED INTO IN CONNECTION WITH THE MERGER IN ORDER THAT SUCH PAYMENTS NOT
BE CHARACTERIZED AS "PARACHUTE PAYMENTS" FOR PURPOSES OF SECTIONS 280G AND 4999
OF THE CODE." 

         Termination of Options. All Stock Options including Stock Options under
Stock Option Agreements not surrendered will terminate as of the Effective Time
in accordance with their terms; the provisions in any compensatory plan,
agreement or arrangement of Vitas or any of its subsidiaries ("Benefit Plan")
(other than the ESOP) providing for the issuance, vesting, transfer or grant of
any capital stock of Vitas or any right or interest in respect of any capital
stock of Vitas will be deleted or will terminate as of the Effective Time. Vitas
has agreed to take reasonable steps to ensure that following the Effective Time
no holder of a Stock Option and no participant in any stock option plan or stock
option agreement identified on the Vitas Disclosure Schedule to the Merger
Agreement or other Benefit Plan (other than the ESOP) will have any right
thereunder to acquire any capital stock of Vitas or of the Surviving
Corporation, or, except as provided above, any shares of Apria Common Stock.
         Withholding Arrangements--Non-Affiliates. Each holder of an exchanged
Stock Option (other than a holder who also is an affiliate of Vitas) may, in
lieu of paying cash to Apria to cover all applicable withholding taxes, instruct
the Exchange Agent (as defined below) to deliver to a broker approved by Apria
(the "Designated Broker") the holder's rights to a sufficient number of shares
of Apria Common Stock received upon the exchange of such holder's Stock Options
to satisfy the holder's withholding tax liability, with instructions to the
Designated Broker to pay all sale proceeds directly to Apria to cover all
applicable withholding taxes.
         Withholding Arrangements--Affiliates. Each holder of a Stock Option who
is determined to be an affiliate of Vitas will receive shares of Apria Common
Stock in exchange for each of his or her Stock Options upon consummation of the
Merger. The certificates representing such shares will bear legends to refer to
the restrictions on transfer of such shares by affiliates under SEC Rule 145 and
applicable SEC pooling restrictions (as set forth in the Affiliate Letters) and,
as to one-half of the shares covered by such Stock Options, to a pledge of such
shares as partial security for the payment of tax withholding obligations. Such
shares will be registered in the name of the Optionee ("holder"), who will have
all voting and dividend rights in respect thereof. Each holder who is determined
to be an affiliate of Vitas and who has not paid all applicable withholding
taxes or provided to Apria's satisfaction for payment in cash of such
withholding taxes on or before the applicable Tax Date (as defined below) shall
have an amount equal to one-half of the shares (and any dividends thereon) held
by the Exchange Agent on behalf of Apria solely as security for the holder's
obligation to pay in cash all applicable withholding taxes at the time such
withholding is required by law to occur (the "Tax Date"). The Tax Date is the
Effective Time (if the holder makes a timely Section 83(b) election) or the date
the pooling restrictions lapse (if the Section 83(b) election is not made). This
date will not be determinable until, at the earliest, 30 days after the Merger,
the deadline for making a Section 83(b) election.

         If the Section 83(b) election is made, Apria will be deemed to have
made a loan to the holder, and the holder will be obligated to pay and deliver
to Apria a full recourse Demand Promissory Note ("Demand Note") dated as of the
Effective Time, as contemplated by Section 5.4.4 of the Merger Agreement. As
indicated above, if the Section 83(b) election is not made, the Tax Date will be
the date the pooling restrictions lapse (the "Lapse Date"), which date will not
necessarily be known until that time. In this case, Apria will be deemed to have
made a loan to the holder, and the holder will


                                       44
<PAGE>   53
be obligated to pay and deliver a Demand Note dated as of the Lapse Date, as
contemplated by Section 5.4.4 of the Merger Agreement. In either event, the cash
withholding tax obligation of the Optionee is due and payable as of the Tax
Date. At any time at or before the Tax Date, the Optionee may obtain a release
of the shares (subject to any remaining pooling and securities law restrictions
referred to above other than the pledge) by paying or adequately providing (to
Apria's satisfaction) for payment of the withholding obligation in cash. After
the Tax Date, the holder may obtain the release of the shares by paying or
arranging for third party payment of an amount equal to the balance then due
(with accrued interest) on the obligation evidenced by the Demand Note. The
obligation evidenced by the Demand Note is due and payable fifteen business days
after notice from Apria, but in no event is the obligation payable prior to
fifteen business days after the Lapse Date.
         At any time on or after the Lapse Date as to which Apria has provided
an affiliate holder with at least five business days' notice that the Demand
Note is payable (or deemed payable) and prior to Apria's receipt of payment,
Apria may cause the Exchange Agent, subject to any applicable legal
requirements, to sell the pledged shares (to the extent required) to remit to
Apria net proceeds sufficient to discharge the withholding obligations (as
certified by Apria) and evidenced by the Demand Note obligation, and any accrued
interest thereon. Any amount, or any remaining shares, in excess of the amount
required to discharge the obligations shall be promptly delivered to the holder
by the Exchange Agent. To the extent permitted by law, any deficiency in payment
to Apria may be recovered directly against the holder. The obligation to pay
withholding (and accrued interest) and the pledge are made with full recourse
against the holder. See also "THE MERGER--Restrictions on Sales by Affiliates;
Pooling Considerations." On the Lapse Date, procedures for sales through
Designated Brokers comparable to those applicable to non-affiliates, as
described above, will be available with respect to the payment of withholding
taxes by affiliates.

EXCHANGE OF STOCK CERTIFICATES AND WARRANTS

         As soon as reasonably practicable after the Effective Time, Apria will
instruct Norwest Bank Minnesota, N.A., as exchange agent ("Exchange Agent") to
mail a letter of transmittal and instructions to each holder of a Stock Option
and to each holder of a certificate or certificates which immediately prior to
the Effective Time represented outstanding shares of Vitas Common Stock
(including holders of certificates previously representing converted Series B
Preferred) other than shares to which dissenters' rights have been perfected
under the Delaware GCL (for convenience of reference, the certificates,
converted Series B Preferred and Stock Option Agreements are referred to as the
"Certificates"), advising the securityholder of the procedure for surrendering
the Certificates in exchange for certificates representing shares of Apria
Common Stock. Upon surrender of Certificates for cancellation to the Exchange
Agent, together with a duly executed letter of transmittal and such other
documents as may be reasonably required by the Exchange Agent or by the Merger
Agreement, the holder of the Certificates will be entitled to receive in
exchange therefor a certificate evidencing that number of whole shares of Apria
Common Stock which such holder has the right to receive in respect of the rights
formerly evidenced by such Certificates and cash in lieu of fractional shares.
No dividends or other distributions declared or made after the Effective Time
with respect to Apria Common Stock with a record date after the Effective Time
will be paid to the holder of any unsurrendered Certificate, and no cash payment
in lieu of fractional shares will be paid to any such holder pursuant to the
Merger Agreement, in each case until the surrender of such Certificate in
accordance with the terms of the Merger Agreement. Subject to the effect of
applicable escheat laws, following surrender of such Certificate, there will be
paid to the holder of the certificate representing whole shares of Apria Common
Stock issued in exchange therefor (subject in the case of Stock Options to
certain tax withholding requirements), without interest, (i) at the time of such
surrender, the amount of any such cash payable in lieu of a fractional share of
Apria Common Stock to which such holder is entitled and the amount of dividends
or other distributions with a record date after the Effective Time theretofore
paid with respect to such whole shares of Apria Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to such surrender and with a
payment date subsequent to such surrender payable with respect to such whole
shares of Apria Common Stock. At or immediately prior to the Closing, the
holders of the Warrants will have surrendered the Warrants for exchange as
contemplated by the Merger Agreement. See "--Conversion of
Securities--Warrants." CERTIFICATES SHOULD NOT BE SURRENDERED UNTIL THE LETTER
OF TRANSMITTAL IS RECEIVED.

         Apria or the Exchange Agent will be entitled to deduct and withhold
from the consideration otherwise payable to any holder of Certificates, Warrants
and 9% Preferred such amounts as Apria or the Exchange Agent, as the case may
be, is required under the Code, or any provision of state, local or foreign tax
law to deduct and withhold with respect to the making of such payments. To the
extent that amounts are so withheld by Apria or the Exchange Agent, such
withheld amounts will be treated as having been paid to the holder of the
Certificates in respect of which such deduction and withholding have been made
by Apria or the Exchange Agent. Except as set forth in "--Treatment 


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<PAGE>   54
of Stock Options--Withholding Arrangements," withholding obligations in respect
of Stock Options must be paid by the holders of the Stock Options to Apria and
must be evidenced by a certificate of satisfaction of withholding signed by
Apria and delivered to the Exchange Agent before any shares of Apria Common
Stock to be held as security for such payment are released to optionees in
respect of their Stock Options. Apria will promptly provide such certificate
after receipt of such funds.

FRACTIONAL SHARES

         No certificates or scrip representing fractional shares of Apria Common
Stock will be issued upon the surrender for exchange of Certificates, and no
Apria dividend, stock split or interest will relate to any fractional share. No
fractional share interests will entitle the owner thereof to vote or to any
rights of a stockholder of Apria. In lieu of any such fractional shares, each
securityholder who otherwise would be entitled to receive a fractional share of
Apria Common Stock in connection with the Merger will receive a cash payment
representing the value of such fractional share interest as determined by 
sales of Apria Common Stock effected by the Exchange Agent on the NYSE in 
accordance with the procedures set forth in the Merger Agreement, as described 
below.

        As promptly as practicable following the Effective Time, Apria will 
instruct the Exchange Agent to determine the excess of (i) the number of full 
shares of Apria Common Stock delivered to the Exchange Agent by Apria over (ii)
the aggregate number of full shares of Apria Common Stock to be distributed to 
holders of Certificates (such excess being called the "Excess Shares"). As soon 
after the Effective Time as practicable, the Exchange Agent, as agent for such 
holders of Certificates, will sell the Excess Shares at the then prevailing 
prices on the NYSE. The sale of the Excess Shares by the Exchange Agent will be
executed on the NYSE and will be executed in round lots to the extent 
practicable. Until the net proceeds of such sale or sales have been 
distributed to such holders of Certificates, the Exchange Agent will hold such 
proceeds in trust for such holders of Certificates (the "Trust"). Apria will 
pay all commissions, transfer taxes and other out-of-pocket transaction costs of
the Exchange Agent incurred in connection with such sale or sales of Excess 
Shares. In addition, Apria will pay the Exchange Agent's compensation and 
expenses in connection with such sales. The Exchange Agent will determine the 
portion of the Trust to which each holder of one or more Certificates is 
entitled, if any, by multiplying the amount of the aggregate proceeds 
comprising the Trust by a fraction the numerator of which is the amount of the 
fractional share interest to which such holder of Certificates is entitled 
(after taking into account all Warrants, Stock Options, and shares of Vitas 
Common Stock (including converted Series B Preferred) held of record 
immediately prior to the Effective Time by such holder) and the denominator of
which is the aggregate amount of fractional share interests to which all 
holders of Certificates are entitled. As soon as practicable after the 
determination of the amount of cash, if any, to be paid to holders of 
Certificates with respect to any fractional share interests, the Exchange Agent
will promptly pay such amounts to such holders of Certificates subject to and 
in accordance with the terms of the Merger Agreement.

VITAS INDEBTEDNESS 

         At or immediately following the Effective Time, Apria will repay, or
cause to be repaid, in full (or assume, if permitted under the existing terms
thereof) the then outstanding principal of Vitas Notes (which are estimated to
aggregate $46 million as of the Effective Time) and repay or cause to be repaid
in full the ESOP Note (which is estimated to aggregate $1.3 million as of the
Effective Time), together with interest accrued but unpaid thereon, and any
premium, charge or prepayment penalty, to the holders of the Vitas Notes and to
the holder of the ESOP Note, respectively.

REPRESENTATIONS AND WARRANTIES 

         The Merger Agreement contains certain mutual representations and
warranties with respect to, among other things, financial statements and
regulatory matters, the absence of material adverse changes and the absence of
certain legal proceedings. Vitas has represented and warranted that, among other
things, except as otherwise provided for in the Merger Agreement: its financial
statements have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis ("GAAP"); subject to certain
exceptions, there has not been any change in or event affecting Vitas that has
had a material adverse effect on its business; there is no litigation pending or
threatened against Vitas that could reasonably be expected to have a material
adverse effect; Vitas has timely filed all required federal, state and local tax
returns and reports; and Vitas owns, holds or possesses all licenses, permits,
approvals and other authorizations which are necessary to carry on and conduct
its business. Apria has represented and warranted that, among other things,
except as otherwise provided for in the Merger Agreement: Apria has filed with
the Commission all required reports and forms and all financial statements
included in such reports and forms have been prepared in conformity with GAAP;
subject to certain exceptions, Apria has conducted its business only in the
ordinary course consistent with prior practice and there has not been any
material adverse change; there is no litigation pending or threatened against
Apria that could reasonably be expected to have a material adverse effect; and
Apria owns, holds or possesses all licenses, permits, approvals and other
authorizations which are necessary to carry on its business as now conducted.
The Merger Agreement also contains additional representations of Vitas and
additional representations of Apria that are customary for the types of
transactions contemplated by the Merger Agreement. The representations and
warranties of each of Apria and Vitas in the Merger Agreement, if untrue as of
the Closing Date or the date of the Merger Agreement, generally constitute a
basis for termination of the Merger Agreement by the other party.

COVENANTS; CONDUCT OF BUSINESS PRIOR TO EFFECTIVE TIME

         Vitas has agreed that, among other things, between the date of the
Merger Agreement and the Effective Time, Vitas will, and will cause its
subsidiaries to, carry on their respective businesses in the ordinary course and
use all reasonable efforts to preserve intact their current business
organizations, keep available the services of their current officers and
employees and preserve their relationships with suppliers, providers and others
having business dealings with them.

         Vitas also has agreed that, between the date of the Merger Agreement
and the Effective Time, except as otherwise provided in the Merger Agreement,
Vitas will not, and will not permit any of its subsidiaries to: (a) (i) declare,
set aside or pay (whether in cash, stock, property or otherwise) any dividends
on, or make any other distributions in respect of, any of its capital stock,
other than dividends and distributions by any direct or indirect wholly owned
subsidiary of Vitas to its parent and other than the semi-annual dividend due on
the 9% Preferred for the period from January 1, 1996 through June 30, 1996 or
thereafter, (ii) split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, or (iii) purchase, redeem or
otherwise acquire any shares of capital stock of Vitas or any of its
subsidiaries or any other securities thereof or any rights, warrants or options
to acquire any such shares or other securities; (b) other than the issuance of
Vitas Common Stock upon the exercise of the Warrants or Stock Options and upon
the conversion of the Series B Preferred outstanding on June 28, 1996 in
accordance with their present terms, (i) issue, deliver, sell, award, pledge,
dispose of or otherwise encumber or authorize or propose the issuance, delivery,
grant, sale, award, pledge or other encumbrance (including limitations in voting
rights) or authorization of, any shares of its capital stock, any other equity
or voting securities or any securities convertible into, or any rights,


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<PAGE>   55
warrants or options to acquire, any such shares, equity or voting securities or
convertible securities, (ii) amend or otherwise modify the terms of any such
rights, warrants or options other than as a result of the Merger, (iii)
accelerate the vesting or exercisability of the Warrants or any of the Stock
Options other than as a result of the Merger, or (iv) contribute to the Vitas
Employee Stock Ownership Plan ("ESOP") any of its capital stock or other
employer security, or cause or allow the ESOP to acquire or become obligated to
acquire any of its capital stock or other employer security; (c) amend its
certificate of incorporation, bylaws or other comparable charter or
organizational documents other than as contemplated by the Merger Agreement; (d)
acquire or agree to acquire (for cash or shares of stock or otherwise) (i) by
merging or consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership,
joint venture, association or other business organization or division thereof or
(ii) any assets except purchases of equipment and supplies in the ordinary
course of business consistent with past practice; (e) mortgage or otherwise
encumber or subject to any lien other than pursuant to agreements or covenants
existing on June 28, 1996 and identified in the Vitas Disclosure Schedule to the
Merger Agreement, or sell, lease, exchange or otherwise dispose of any of, its
properties or assets, except for sales of its properties or assets (or leases
entered into) in the ordinary course of business consistent with past practice;
(f) (i) incur any indebtedness for borrowed money (except for advances in the
ordinary course under existing credit agreements) or guarantee any such
indebtedness of another Person, issue or sell any debt securities or warrants or
other rights to acquire any debt securities of Vitas or any of its subsidiaries,
guarantee any debt securities of another Person, enter into any "keep well" or
other agreement to maintain any financial statement condition of another Person
or enter into any arrangement to extend its credit or having the economic effect
of any of the foregoing, except in each case in the ordinary course of business
or (ii) make any loans, advances or capital contributions to, or investments in,
any other Person, other than to Vitas or any direct or indirect wholly owned
subsidiary of Vitas; (g) incur or commit to incur capital expenditures in excess
of a total of $500,000 per calendar month; (h) make or rescind any express or
deemed election relating to taxes, settle or compromise any claim, action, suit,
litigation, proceeding, arbitration, investigation, audit or controversy
relating to taxes, or change any of its methods of reporting income or
deductions for federal income tax purposes from those employed in the
preparation of its federal income tax return for the taxable year ending
September 30, 1994, except (in all such cases, relating to taxes), as may be
required by applicable law; (i) pay, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction, in
the ordinary course of business consistent with past practice, of liabilities
reflected or reserved against in, or contemplated by, the consolidated financial
statements (or the notes thereto) of Vitas for the fiscal year ended September
30, 1995 or incurred in the ordinary course of business consistent with past
practice; (j) (i) increase the rate or terms of compensation payable or to
become payable generally to any of Vitas' directors, officers, employees or
independent contractors other than in the ordinary course of business consistent
with past practice, (ii) pay or agree to pay any pension, retirement allowance
or other benefit not provided for by (or in a manner or at a time not provided
in) any existing pension plan, Benefit Plan or employment agreement described in
the Vitas Disclosure Schedule to the Merger Agreement, (iii) commit itself to
any additional pension, profit sharing, bonus, incentive, deferred compensation,
stock purchase, stock option, stock appreciation right, performance or incentive
program, group insurance, severance pay, continuation pay, termination pay,
retirement or other employee benefit plan, agreement or arrangement, or increase
the rate or terms of any plan or benefit arrangement other than as contemplated
by the Merger Agreement, (iv) enter into any employment agreement with or for
the benefit of any Person other than employment at will or (v) increase the rate
of compensation under or otherwise change the terms of any existing employment
agreement other than in the ordinary course of business consistent with past
practice; provided, however, that nothing in clause (j) shall preclude payments
(x) under the terms of the existing incentive compensation plans of Vitas in
accordance with past practice or (y) pursuant to normal salary adjustments on
the anniversary of hire dates or other benchmark dates in accordance with past
practice; (k) except in the ordinary course of business, modify, amend, renew,
fail to renew or terminate any material contract to which Vitas or any
subsidiary is a party or waive, release or assign any material rights or claims;
(l) enter into any group enrollment contract, insurance policy or any other
agreement pursuant to the terms of which Vitas or any subsidiary agrees or is
required to underwrite, administer, insure, reinsure or arrange for the
provision of healthcare services arising from any group or individual health
insurance plan or program; (m) terminate the participation of any program of
Vitas or its subsidiaries in Medicare, Medicaid or CHAMPUS, or, except in the
ordinary course of business consistent with past practice, other third party
payor program; (n) take any action which would have the effect of interfering
with or delaying the transactions contemplated by the Merger Agreement; or (o)
authorize any of, or commit or agree to take any of, the foregoing actions.

         Apria has agreed that, among other things, between the date of the
Merger Agreement and the Effective Time, except as otherwise provided in the
Merger Agreement, Apria will not, and will not permit any, of its 


                                       47
<PAGE>   56
subsidiaries to: (a) (i) declare, set aside or pay (whether in cash or property,
but excluding stock dividends) any dividends on, or make any other distributions
in respect of, any capital stock other than dividends and distributions by any
direct or indirect wholly owned subsidiary of Apria to its parent, (ii) combine
or reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of
Apria's capital stock, except for a stock dividend or stock split or (iii)
purchase, redeem or otherwise acquire any shares of Apria Common Stock; (b)
amend its certificate of incorporation, bylaws or other comparable charter or
organizational documents in a manner which would reasonably be expected to be
materially adverse to the stockholders of Vitas; (c) amend the Rights or the
agreements under which the Rights are issued in any manner adverse to the
stockholders of Vitas; (d) change its fiscal year; (e) take any action which
would have the effect of interfering with or delaying the transactions
contemplated by the Merger Agreement; or (f) authorize, or commit or agree to
take any of, the foregoing actions.

         Vitas and Apria have agreed that they will not, and will not permit any
of their respective subsidiaries to, take any action that would result in (i)
any of the representations and warranties of such party set forth in the Merger
Agreement that are qualified as to materiality, becoming untrue, (ii) any of
such representations and warranties that are not so qualified becoming untrue in
any material respect, or (iii) Apria being prevented from accounting for the
business combination to be effected by the Merger as a pooling-of-interests.

NEGOTIATIONS WITH OTHERS

         Vitas has agreed that it will not, nor will it permit any of its
subsidiaries to, nor will it authorize or permit any stockholder, officer,
director or employee of, or any investment banker, attorney or other advisor or
representative of, Vitas or any of its subsidiaries to, solicit or initiate, or
encourage the submission of, any proposal, or participate in any discussions or
negotiations regarding, or furnish to any Person any information with respect
to, or take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
Acquisition Transaction (as defined below); provided, however, that if at any
time prior to the Effective Time or the earlier termination of the Merger
Agreement the Board of Directors of Vitas reasonably determines in good faith,
(i) after consultation with one or more of Vitas' independent financial
advisors, that providing confidential or non-public information to a financially
capable Person (a "Potential Acquiror") could lead to an Acquisition Transaction
more favorable to the holders of Vitas Common Stock than the Merger and (ii)
after consultation with Vitas' outside legal counsel, that there is a
significant risk that the failure to provide such confidential or non-public
information to such Potential Acquiror would constitute a breach of its
fiduciary duty to the stockholders of Vitas, Vitas may, in response to a
Competing Proposal (as defined below) received by Vitas after the date of the
Merger Agreement, (x) furnish confidential or non-public information with
respect to Vitas to such Potential Acquiror pursuant to a customary
confidentiality agreement and (y) participate in negotiations with such
Potential Acquiror regarding such Competing Proposal. "Acquisition Transaction"
means the direct or indirect acquisition or purchase of all or any substantial
amount of the business or assets of Vitas or any of its subsidiaries or any
substantial amount of capital stock or other equity interests of Vitas or any of
its subsidiaries, whether by merger, consolidation, business combination, sale
of assets, sale of securities, tender offer, exchange offer, recapitalization,
liquidation, dissolution or otherwise, and whether for cash, securities or any
other consideration or combination thereof. "Competing Proposal" means any
proposal or offer (whether or not in writing and whether or not delivered to
Vitas' stockholders generally) from a Potential Acquiror relating to an
Acquisition Transaction.

         In the event that, prior to the Effective Time or the earlier
termination of the Merger Agreement, the Board of Directors of Vitas reasonably
determines in good faith (x) after consultation with its financial advisor, that
a Competing Proposal made to Vitas after the date of the Merger Agreement is
more favorable to the stockholders of Vitas than the Merger and that acceptance
of such Competing Proposal is in the best interests of the stockholders of Vitas
and (y) after consultation with its outside legal counsel, that there is a
significant risk that the failure to take any such action would constitute a
breach of its fiduciary duties to Vitas' stockholders, the Board of Directors of
Vitas may withdraw or modify its approval or recommendation of the Merger
Agreement and the Merger, approve or recommend such Competing Proposal or cause
Vitas to accept the Competing Proposal and enter into an agreement with respect
to such Competing Proposal; provided, however, that the Board of Directors of
Vitas may only take any such action if: (A) at least seven days prior to the
withdrawal or modification by the Vitas Board of Directors of its approval or
recommendation of the Merger Agreement or the acceptance by Vitas of such
Competing Proposal, Vitas will have furnished Apria with a written notice
advising Apria that the Board of Directors of Vitas has received such Competing
Proposal and enclosing a copy of such Competing Proposal and identifying the
Potential Acquiror making such Competing Proposal, (B) any agreement entered
into with respect to the Competing Proposal will be made 


                                       48
<PAGE>   57
expressly subject to a right of first refusal granted to Apria (exercisable by
Apria at any time within 30 days after Apria's receipt of the agreement with the
Potential Acquiror) to enter into an agreement with Vitas to complete the
Acquisition Transaction contemplated by the Competing Proposal in accordance
with the terms thereof, and (C) in the event Apria advises Vitas in writing that
Apria does not elect to exercise such right of first refusal, Vitas will
promptly pay to Apria or its designee, on demand, the Termination Fee (as
defined below) of $10 million. See "--Effect of Termination."

         Pursuant to the Merger Agreement, Vitas must promptly advise Apria
orally and in writing of any request for information or of any Competing
Proposal, or any inquiry with respect to or which could reasonably be expected
to lead to any Competing Proposal, the material terms and conditions of such
request, Competing Proposal or inquiry, and the identity of the person making
any such Competing Proposal or inquiry. Vitas has agreed to keep Apria
reasonably informed of the status and details of any such request, Competing
Proposal or inquiry.

MANAGEMENT AFTER THE MERGER


         Apria and Vitas have agreed that the Chairman of the Board of Directors
of Apria, Jeremy M. Jones, will, immediately following the Effective Time, be
the sole director of Vitas. Pursuant to the terms of the Merger Agreement, the
officers of Vitas immediately prior to the Effective Time (other than Mr.
Westbrook, Ms. Colliflower and Dr. Williams, each of whom is expected to resign
or otherwise terminate employment with Vitas as of the Effective Time, as well
as approximately six other officers of Vitas that are expected to resign or
otherwise terminate their employment with Vitas as of the Effective Time or
within 90 days thereafter) will continue as the officers of Vitas and will serve
at the pleasure of the Vitas Board. Raymond H. Noeker, Jr. will become the Chief
Executive Officer of Vitas at the Effective Time. Mr. Noeker has been employed
by Apria for over 15 years in various executive level positions both at the
corporate and operating levels.


INDEMNIFICATION AND INSURANCE

         The Merger Agreement provides that for six years from the Effective
Time, the Surviving Corporation will maintain in effect directors' and officers'
liability insurance against claims asserted based on acts or omissions occurring
at or prior to the Effective Time covering those Persons who are currently
covered by Vitas' directors' and officers' liability insurance policy, on terms
substantially as favorable as the terms of such insurance coverage; provided,
however, that in no event will the Surviving Corporation be required to expend
in any one year an amount in excess of 200% of the annual premiums currently
paid by Vitas for such insurance; and provided further that if the annual
premiums of such insurance coverage exceed such amount, the Surviving
Corporation will be obligated to obtain a policy with the best coverage
available in its reasonable judgment, after reasonable inquiry of at least three
carriers, for a cost not exceeding such amount. The Merger Agreement also
provides that the Surviving Corporation will keep in effect the provisions in
its Certificate of Incorporation and Bylaws providing for exculpation of
director and officer liability and indemnification to the fullest extent
permitted under the Delaware GCL, which provisions will not be amended, repealed
or otherwise modified except as required by applicable law, or except for
changes permitted by law that would enlarge the right of indemnification or
would not adversely affect the rights thereunder of individuals who on or prior
to the Effective Time were directors, officers, employees or agents of Vitas and
its subsidiaries or fiduciaries of its employee benefit plans.

CONDITIONS TO THE MERGER

         The respective obligations of Vitas and Apria to effect the Merger are
subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions: (i) the requisite approvals of the Vitas stockholders
shall have been obtained; (ii) the shares of Apria Common Stock issuable to
Vitas' securityholders (including holders of the Stock Options, Warrants and
Series B Preferred) pursuant to the Merger Agreement shall have been approved
for listing on the NYSE, subject to official notice of issuance; (iii) no
litigation brought by a Governmental Entity shall be pending, and no litigation
shall be threatened by any Governmental Entity, which seeks to enjoin or
prohibit the consummation of the Merger, and no temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect; (iv) the Registration Statement
shall have been declared effective by the Commission under the 1933 Act and no
stop order suspending the effectiveness of the Registration Statement shall have
been issued by the Commission, and no proceedings for that purpose shall have
been initiated or, to the knowledge of Apria or Vitas, threatened by the
Commission; (v) any applicable waiting period (and any extension thereof) under
the Hart-Scott Act shall have expired or been terminated; and (vi) other than
the filing of merger documents in accordance with the Delaware GCL, all
authorizations, consents, waivers, orders or approvals required to be obtained,
and all filings, 


                                       49
<PAGE>   58
notices or declarations required to be made, by Apria, Apria Sub and Vitas prior
to the consummation of the Merger and the transactions contemplated under the
Merger Agreement shall have been obtained from, and made with, all required
Governmental Entities except for such authorizations, consents, waivers, orders,
approvals, filings, notices or declarations the failure to obtain or make which
would not have a material adverse effect, at or after the Effective Time, on
Vitas or Apria or on the effectiveness of the Merger.

         The obligations of Apria and Apria Sub to effect the Merger also are
subject to the following conditions: (i) each of the representations and
warranties of Vitas contained in the Merger Agreement shall be true and correct
in all material respects (except that where any statement in a representation or
warranty expressly includes a standard of materiality, such statement shall be
true and correct in all respects giving effect to such standard) as of the
Closing Date as though made on and as of the Closing Date, provided that those
representations and warranties that address matters only as of a particular date
(including the date of the Merger Agreement) shall remain true and correct in
all respects (except that where any statement in a representation or warranty
expressly includes a standard of materiality, such statement shall be true and
correct in all respects giving effect to such standard) as of such date and
Apria shall have received a certificate of the Chief Executive Officer and Chief
Financial Officer of Vitas certifying to the best of their knowledge, to such
effect and to the effect that there has been no antidilution adjustment of the
Series B Preferred, the Warrants or the Stock Options and no event or
transaction has occurred that has required or will, as of the Effective Time,
require an antidilution adjustment of any thereof; (ii) Vitas shall have
performed or complied in all material respects with all agreements and covenants
required by the Merger Agreement to be performed or complied with by it on or
prior to the Closing Date and Apria shall have received a certificate of the
Chief Executive Officer and Chief Financial Officer of Vitas certifying to the
best of their knowledge, to that effect; (iii) Vitas shall have obtained all
consents and approvals required in connection with the Merger under all loan or
credit agreements, notes, leases or other agreements to which it or any of its
subsidiaries is a party, except those for which failure to obtain such consents
and approvals would not have a material adverse effect on the Surviving
Corporation after the Effective Time; (iv) each member of the Board of Directors
of Vitas shall have submitted to Vitas a written resignation as a director,
effective upon consummation of the Merger; (v) Apria shall have received from
Ernst & Young LLP, as independent auditors of Apria, a letter dated the Closing
Date, regarding its concurrence with the conclusion of the management of Apria
as to the appropriateness of pooling-of-interests accounting for the Merger
under Accounting Principles Board Opinion No. 16 if the Merger is consummated in
accordance with the terms of the Merger Agreement and no action shall have been
taken by any Governmental Entity or any statute, rule, regulation or order
enacted, promulgated or issued by any Governmental Entity, or any proposal made
for any such action by any Governmental Entity which is reasonably likely to be
put into effect, that would prevent Apria from accounting for the business
combination to be effected by the Merger as a pooling-of-interests; (vi) Apria
shall have received signed Affiliate Letters from all persons who may be deemed
to be affiliates of Vitas under Rule 145 of the 1933 Act; (vii) at or
immediately prior to the Closing Date, the holder of the 9% Preferred, subject
to consummation of the Merger, shall have sold or made a binding and enforceable
commitment to sell the 9% Preferred to Apria and the holders of the Warrants
shall have surrendered the Warrants for exchange and, in each case, Apria shall
have received all instruments reasonably required to be delivered by the holders
of the 9% Preferred and the Warrants to ensure compliance with such commitments
to sell and exchange; (viii) at or immediately prior to the Closing Date, the
holders of all the Series B Preferred, subject to consummation of the Merger,
shall have converted or made binding and enforceable commitments to convert the
Series B Preferred into shares of Vitas Common Stock in accordance with the
terms of the Series B Preferred Certificate, and Apria shall have received all
instruments reasonably required to be delivered by the holders of the Series B
Preferred to ensure compliance with such commitment to convert; (ix) each
signatory to the Significant Securityholders Agreement shall have complied in
all material respects with all agreements or covenants required by the
Significant Securityholders Agreement to be performed or complied with by such
Person to the extent such compliance was called for at or prior to the Closing
Date; (x) the aggregate number of shares as to which dissenters' rights have
been perfected under the Delaware GCL shall not exceed 9% of the outstanding
shares of Vitas Common Stock nor include any outstanding shares of the Series B
Preferred; (xi) the named investors (or any successors or assigns of their
rights) under the Investor Agreement and the Stockholders' Agreement shall have
acknowledged their waiver of any preemptive rights to any new common stock of
the Surviving Corporation and any other ongoing obligations of the Surviving
Corporation under either such agreement and such agreements shall be terminated
as of the Closing Date, subject to consummation of the Merger; (xii) the holders
of Vitas Common Stock and Series B Preferred shall have approved separately the
payments to be made under the Severance Agreement and the Noncompetition
Agreement in the manner contemplated by the Merger Agreement; (xiii) on or prior
to the Closing Date, the aggregate number of shares of Vitas Common Stock issued
upon exercise of Stock Options and the Warrants shall not exceed 10% of the
aggregate number of shares of Vitas Common Stock


                                       50
<PAGE>   59
issuable upon exercise thereof and Vitas shall not have received any notice 
of exercise that (individually or together with such other issuances) would 
result in the issuance of more than said number of shares of Vitas Common Stock;
and (xiv) Apria shall have received opinions of counsel for Vitas regarding 
certain legal matters.

         In addition, the obligations of Vitas to effect the Merger also are
subject to the following conditions: (i) each of the representations of Apria
contained in the Merger Agreement shall be true and correct in all material
respects (except that where any statement in a representation or warranty
expressly includes a standard of materiality, such statement shall be true and
correct in all respects giving effect to such standard) as of the Closing Date
as though made on and as of the Closing Date, provided that those
representations and warranties that address matters only as of a particular date
(including the date of the Merger Agreement) shall remain true and correct in
all material respects (except that where any statement in a representation or
warranty expressly includes a standard of materiality, such statement shall be
true and correct in all respects giving effect to such standard) as of such date
and Vitas shall have received a certificate of the Chief Executive Officer and
the Chief Financial Officer of Apria certifying to the best of their knowledge,
to such effect; (ii) Apria shall have performed or complied in all material
respects with all agreements and covenants required by the Merger Agreement to
be performed or complied with by it on or prior to the Closing Date and Vitas
shall have received a certificate of the Chief Executive Officer and the Chief
Financial Officer of Apria certifying to the best of their knowledge, to such
effect; (iii) Vitas shall have received from Ernst & Young LLP, as independent
auditors of Vitas, a letter dated the Closing Date, regarding its concurrence
with the conclusion of the management of Vitas as to the appropriateness of
pooling-of-interests accounting for the Merger under Accounting Principles Board
Opinion No. 16 if the Merger is consummated in accordance with the terms of the
Merger Agreement and no action shall have been taken by any Governmental Entity
or any statute, rule, regulation or order enacted, promulgated or issued by any
Governmental Entity, or any proposal made for any such action by any
Governmental Entity which is reasonably likely to be put into effect, that would
prevent Apria from accounting for the business combination to be effected by the
Merger as a pooling-of-interests; and (iv) Vitas shall have received an opinion
of counsel for Apria regarding certain legal matters.

         It is intended that the Merger will constitute a taxable sale of Vitas
Common Stock. See "THE MERGER--Certain Federal Income Tax Consequences."

         The Merger Agreement provides that at any time prior to the Effective
Time, the parties may (i) extend the time for the performance of any of the
obligations or other acts of the other parties, (ii) waive any inaccuracies in
the representations and warranties contained in the Merger Agreement or in any
document delivered pursuant to the Merger Agreement or (iii) subject to the
conditions set forth in the Merger Agreement, waive compliance with any of the
agreements or conditions contained in the Merger Agreement.

AMENDMENT

         The Merger Agreement may be amended by the parties at any time before
or after approval of the Merger Agreement by the stockholders of Vitas,
provided, however, that after such stockholder approval no amendment shall be
made which by law requires further approval by the stockholders of Vitas, such
as an amendment that would (i) alter or change the amount or kind of shares,
securities, cash, property or rights to be received in exchange for or on
conversion of all or any of the shares of any class or series thereof of Vitas,
(ii) alter or change any term of the Certificate of Incorporation of the
Surviving Corporation to be effected by the Merger or (iii) alter or change any
of the terms and conditions of the Merger Agreement if such alteration or change
would adversely affect the holders of any class or series of shares of Vitas,
without the further approval of such stockholders. The Merger Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties.

TERMINATION

   
         The Merger Agreement provides that it may be terminated by mutual
written consent of Apria and Vitas at any time prior to the Effective Time,
whether before or after approval by the stockholders of Vitas. The Merger
Agreement provides that it may be terminated and the Merger may be abandoned by
action of the Board of Directors of either Apria or Vitas, and notice thereof
given in writing to the other party (i) if any Governmental Entity shall have
issued an order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the consummation of the Merger
and such order, decree or ruling or other action shall have become final and
nonappealable, (ii) if the 
    

                                       51
<PAGE>   60
Merger shall not have occurred by the Expiration Date or (iii) if the Market
Price is greater than $42.125 or less than $22.125.

   
         The Merger Agreement provides that it may be terminated by Apria and
the Merger may be abandoned at any time prior to the Effective Time, either
before or after approval by the stockholders of Vitas, by action of the Board of
Directors of Apria and notice thereof given in writing to Vitas if (i) there has
been a breach in any material respect (except that where any statement in a
representation or warranty includes a standard of materiality, such statement
shall be true and correct in all respects giving effect to such standard) of any
representation, warranty, covenant or agreement on the part of Vitas set forth
in the Merger Agreement which breach is not curable or, if curable is not cured
within 15 days after written notice of such breach is given by Apria to Vitas
promptly after Apria's becoming aware of such breach, (ii) any representation or
warranty of Vitas has become untrue in any material respect, such that the
condition precedent set forth in the Merger Agreement concerning the truth and
correctness of Vitas' representations in Apria's reasonable view would be
incapable of being cured or satisfied by the Expiration Date after written
notice of such untruth is given by Apria to Vitas promptly after Apria's
becoming aware of such untruth, (iii) approval of the Merger Agreement and the
Merger by the stockholders of Vitas is not obtained at the Special Meeting by
the Expiration Date unless due to delay or default on the part of Apria, (iv)
separate approval by the stockholders of Vitas concerning the payments to be
made to Mr. Westbrook and Collibrook under the Severance Agreement and Mr.
Westbrook under the Noncompetition Agreement has not been obtained by the
Expiration Date, (v) Vitas accepts a Competing Proposal in accordance with the
Merger Agreement, (vi) more than 9% of the issued and outstanding shares of
Vitas Common Stock entitled to vote to approve the Merger shall have properly
demanded (and not withdrawn) appraisal of such shares in accordance with Section
262 of the Delaware GCL with respect to the Merger, or (vii) the Debt Adjustment
is deemed to occur and is in excess of $4 million as provided in the Merger
Agreement.
    

   
         The Merger Agreement provides that it may be terminated by Vitas and
the Merger may be abandoned at any time prior to the Effective Time, either
before or after approval by the stockholders of Vitas, by action of the Board of
Directors of Vitas and notice thereof given in writing to Apria if (i) there is
a breach in any material respect (except that where any statement in a
representation or warranty includes a standard of materiality, such statement
shall be true and correct in all respects giving effect to such standard) of any
representation, warranty, covenant or agreement on the part of Apria set forth
in the Merger Agreement which breach is not curable or, if curable is not cured
within 15 days after written notice of such breach is given by Vitas to Apria
promptly after Vitas' becoming aware of such breach, (ii) any representation or
warranty of Apria has become untrue in any material respect, such that the
condition precedent set forth in the Merger Agreement concerning the truth and
correctness of Apria's representations in Vitas' reasonable view would be
incapable of being cured or satisfied by the Expiration Date after written
notice of such untruth is given by Vitas to Apria promptly after Vitas' becoming
aware of such untruth or (iii) Vitas accepts a Competing Proposal in accordance
with the provisions of the Merger Agreement.
    

   
         FOR A DISCUSSION OF RECENT DEVELOPMENTS CONCERNING THE POSSIBLE
TERMINATION OF THE MERGER AGREEMENT, SEE "THE MERGER--BACKGROUND OF THE
MERGER--RECENT DEVELOPMENTS."
    

EFFECT OF TERMINATION

         In the event of termination of the Merger Agreement by either Vitas or
Apria (or by the mutual written consent of Vitas and Apria) as provided in the
Merger Agreement, the Merger Agreement will forthwith become void and have no
effect, without any liability or obligation on the part of Apria, Apria Sub or
Vitas, other than the certain provisions concerning confidentiality, fees and
expenses incurred in connection with the Merger and the termination fees
described below which will survive termination and except to the extent that
such termination results from the willful and material breach by a party of any
of its representations, warranties, covenants or agreements set forth in the
Merger Agreement.

         If the Merger Agreement is terminated by Vitas because Vitas has
accepted a Competing Proposal and Apria does not elect to exercise its right of
first refusal, or if Vitas enters into any Acquisition Transaction with a third
party without complying with the terms of the Merger Agreement, and Apria is not
otherwise in material breach of its obligations under the Merger Agreement,
Vitas has agreed to immediately pay to Apria the sum of $10 million in cash. In
addition, upon any such termination, Vitas also has agreed to reimburse Apria
(not later than one business day after submission of statements therefor) for
all reasonable fees and expenses incurred by Apria in connection with the
transactions contemplated by the Merger Agreement (including, without
limitation, consulting, accounting, legal and investment banking fees and
expenses incurred by Apria in connection with the transactions contemplated by
the Merger Agreement and the evaluation of the Competing Proposal).


                                       52
<PAGE>   61
LISTING ON STOCK EXCHANGE

         An application has been or will be filed for listing the shares of
Apria Common Stock to be issued in the Merger on the NYSE.

                           APRIA HEALTHCARE GROUP INC.

         Apria Healthcare Group Inc. provides and/or manages comprehensive
integrated homecare services including home infusion therapy, home respiratory
therapy, home medical equipment, women's healthcare and nursing. Apria also
coordinates the care of patients who may require any of the aforementioned
services or a combination thereof. Apria provides its services through 350
branch locations which serve patients in 49 states.

         Apria derives substantially all of its revenue from the home healthcare
segment of the healthcare market in principally three service lines: home
infusion therapy, home respiratory therapy and home medical equipment. In all
three lines, Apria provides patients with a variety of clinical services,
related products and supplies, most of which are prescribed by a physician as
part of a care plan. These services include high-tech infusion nursing,
respiratory care and pharmacy services, educating patients and their caregivers
about their illness and instructing them on the proper use of products in the
home, monitoring patient compliance with individualized treatment plans,
reporting to the physician and/or managed care organization, maintaining
equipment and processing claims to third party payors. Approximately 35% of
Apria's business is derived from managed care organizations for its integrated
service offerings, with the remainder being derived from traditional
referral/payor sources. Apria purchases or rents the products needed to provide
services to its patients.

         Home infusion therapy involves the administration of nutritional
supplements, anti-infectives and other intravenous and injectable medications.
Depending on the therapy, a broad range of venous access devices and pump
technology may be used to facilitate homecare and patient independence. Apria
employs licensed pharmacists, registered nurses and dietitians who have
specialized skills in the delivery of home infusion therapy. Apria currently
operates 60 pharmacy locations to serve its home infusion patients.

         Apria provides home respiratory therapy services to patients with a
variety of conditions, including chronic obstructive pulmonary disease (e.g.,
emphysema, chronic bronchitis and asthma), cystic fibrosis and neurologically-
related respiratory conditions. Apria employs a clinical staff of respiratory
care professionals to provide support to its home respiratory therapy patients,
according to physician-directed treatment plans.

         Apria's primary emphasis in the home medical equipment line of business
is on the provision of patient room equipment, principally hospital beds and
wheelchairs, to its patients receiving respiratory or infusion therapy. Apria's
integrated services approach allows patients and managed care systems accessing
either respiratory or infusion therapy services also to access needed home
medical equipment through a single source.

         Apria is a Delaware corporation, its principal executive offices are
located at 3560 Hyland Avenue, Costa Mesa, California 92626, and its telephone
number is (714) 427-2000.

   
         Additional information with respect to Apria is contained in
Appendices E -- J attached hereto. For a description of Apria's business, see
"Item 1 -- Business" of Apria's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, as amended, attached hereto as Appendix E. For a
description of Apria's property, see "Item 2 -- Properties" of Apria's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995, as amended,
attached hereto as Appendix E. For a description of Apria's legal proceedings,
see "Item 3 -- Legal Proceedings" of Apria's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995, as amended, attached hereto as Appendix E.
For information with respect to Apria's financial statements, financial
schedules and other financial information, see Apria's financial statements
contained in Item 14 of Apria's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, as amended, attached hereto as Appendix E, Item 1 of
Part I of Apria's Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1996, attached hereto as Appendix F and Item 1 of Part I of Apria's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1996, as
amended, attached hereto as Appendix G. For supplementary financial information
with respect to Apria, see the notes to the consolidated financial statements
contained in Apria's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, as amended, attached hereto as Appendix E. For Apria's
management's discussion and analysis of financial condition and results of
operations, see "Item 7 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations" of Apria's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995, as amended, attached hereto as Appendix
E, Item 2 of Part I of Apria's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1996, attached hereto as Appendix F and Item 2 of Part I
of Apria's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1996, as amended, attached hereto as Appendix G. 
    


                          VITAS HEALTHCARE CORPORATION

         Vitas is the largest provider of hospice services in the United States,
caring for the palliative medical and psychosocial needs of more than 29,000
terminally ill patients in fiscal 1995. Vitas provides an integrated and
comprehensive range of services to its patients and their families in the home
(including long-term care facilities) and inpatient facilities. These services
include nursing and pastoral care, social work and counseling services,
physician services, short-term inpatient care and respite care. Vitas also
provides home health aide and homemaker services, drugs for symptom management
and pain control, medical equipment and supplies, and ancillary services such as
physical, speech and occupational therapy. These services are coordinated
through an integrated team of professionals and volunteers. In addition, Vitas
provides various support and psychosocial services and bereavement counseling to
the families of its patients. Vitas' services are provided through its own staff
of over 3,000 employees and through contractual relationships with hospitals,
physicians, long-term care facilities and suppliers.

         To receive Medicare or Medicaid coverage for hospice services, a
hospice physician and the patient's attending physician (if any) must certify
that the patient has a life expectancy of six months or less if the illness runs


                                       53
<PAGE>   62
its normal course. Vitas is compensated generally on the basis of a fixed per
diem payment for each patient, in exchange for which Vitas manages and assumes
responsibility for all medical and psychosocial care, and certain support
services, associated with the patient's terminal illness. In fiscal 1995, more
than 95% of Vitas' days of care related to patients served in the home
(including long-term care and assisted living facilities). A substantial portion
of Vitas' patients are over 65 years of age and suffer from cancer, heart
disease, AIDS, chronic obstructive pulmonary disease, ALS, Alzheimer's disease
and other terminal or life limiting diseases. Because of the age and
circumstances of most of Vitas' patient population, Medicare and Medicaid
revenues together constituted approximately 92% of Vitas' revenues in fiscal
1995.

         Vitas' hospice programs in South Florida began operations in 1978.
Since 1983, Vitas has established programs through de novo start-ups in Texas,
Illinois, Indiana, Ohio, Wisconsin, Pennsylvania and New Jersey, and its service
areas extend to patients residing in Oklahoma. In fiscal 1995, Vitas acquired
the operations of Community Hospice Care, Inc. and its affiliated partnerships,
which operated six hospice locations in Southern California. In fiscal 1996,
Vitas acquired the operations of Hospice of the Miami Valley, Inc., which
operated a hospice in the greater Cincinnati, Ohio area, and these operations
have been combined with Vitas' existing operations in Cincinnati. In August
1996, Vitas also acquired the operations of Hospice of Central Florida, Inc.,
located in Orlando, Florida. To support its growth and expansion, Vitas has
invested heavily in its infrastructure including information and
telecommunication systems and has developed a proprietary enterprise-wide
information system called the "Vitas Exchange" or Vx. 

         Hospice offers choices to individuals with terminal illnesses who find
that the more traditional mode of treatment is not suitable to their physical
and emotional needs and the needs of their families. The traditional medical
treatment in the United States for patients with terminal illnesses often has
involved technologically intense and uncoordinated clinical care, aggressive
curative procedures and high-cost, acute care hospital stays. This treatment
frequently involves costly and painful procedures that occur shortly before a
patient's death. In contrast, hospice emphasizes palliative care rather than
curative treatment of these illnesses, with the focus on care outside of a
hospital setting and on patient and family participation in care planning and
delivery. In 1995, the National Hospice Organization estimated that there were
over 2,500 hospice programs in the United States and Puerto Rico, each caring
for an average of 134 patients per year. Over three-fourths of these hospice
programs were identified as not-for-profit or governmental organizations.

         Vitas is a Delaware corporation, its principal executive offices are
located at 100 South Biscayne Boulevard, Miami, Florida 33131, and its telephone
number is (305) 374-4143.

                COMPARISON OF APRIA AND VITAS STOCKHOLDER RIGHTS

         Apria and Vitas are incorporated in the State of Delaware. The rights
of stockholders of Vitas are currently governed by the Delaware GCL and by the
Amended and Restated Certificate of Incorporation of Vitas, as amended, the
Series B Preferred Certificate, the Certificate of Designation, Preferences and
Other Rights of the 9% Preferred, as amended (the "9% Preferred Certificate";
the Amended and Restated Certificate of Incorporation of Vitas, as amended,
together with the Series B Preferred Certificate and the 9% Preferred
Certificate, are collectively referred to herein as the "Vitas Certificate"),
and the Amended and Restated By-laws of Vitas (the "Vitas By-laws"). Upon
consummation of the Merger, holders of Vitas Common Stock will become
stockholders of Apria and their rights as such will be governed by the Delaware
GCL and by Apria's Restated Certificate of Incorporation (the "Apria
Certificate") and Restated Bylaws (the "Apria By-laws").

         Certain significant differences between the rights of stockholders of
Vitas and stockholders of Apria are set forth below. This summary is qualified
in its entirety by reference to the full text of the Apria Certificate and the
Apria By-laws. For information as to how such documents may be obtained, see
"AVAILABLE INFORMATION."

AUTHORIZED STOCK

   

         Apria. The Apria Certificate authorizes a total of 160,000,000 shares
of stock consisting of 150,000,000 shares of Common Stock, par value $0.001 per
share, and 10,000,000 shares of Preferred Stock, par value $0.001 per share. As
of October 30, 1996, Apria had 51,142,565 shares of Common Stock issued and
outstanding and no shares of Preferred Stock issued and outstanding. See
"PRINCIPAL STOCKHOLDERS--Apria Security Ownership." Each share of Apria Common
Stock carries with it a preferred share purchase right which entitles the holder
thereof to purchase, on the occurrence of certain events, Apria Preferred Stock.
See "--Apria Rights Agreement."

    



                                       54
<PAGE>   63
   
         Vitas. The Vitas Certificate authorizes a total of 44,500,000 shares of
stock consisting of 40,000,000 shares of Vitas Common Stock and 4,500,000 shares
of Vitas preferred stock. As of October 30, 1996, Vitas had 4,408,842 shares
of Vitas Common Stock issued and outstanding. The Vitas Certificate designates
270,000 shares of Vitas preferred stock as 9% Preferred. As of October 30,
1996, Vitas had 270,000 shares of 9% Preferred issued and outstanding. The Vitas
Certificate designates 262,500 shares of preferred stock as Series B Preferred.
As of October 30, 1996, Vitas had 262,500 shares of Series B Preferred issued
and outstanding. See "PRINCIPAL STOCKHOLDERS--Vitas Security Ownership."
    

         The Vitas Certificate requires Vitas to redeem the Series B Preferred
under certain circumstances. Further, the Vitas Certificate provides the holders
of Series B Preferred with certain rights to convert the Series B Preferred into
Vitas Common Stock pursuant to a conversion rate set forth in the Series B
Preferred Certificate. With respect to the 9% Preferred, the Vitas Certificate
provides for certain optional and mandatory redemption provisions pursuant to
which (i) Vitas may redeem all or part of the 9% Preferred at certain stated
prices and (ii) Vitas must redeem the 9% Preferred in accordance with the
schedule stated in the Vitas Certificate. See"--Redemption of Securities" and
"THE MERGER AGREEMENT--Conversion of Securities" and "--Treatment of Stock
Options."

PREEMPTIVE RIGHTS


         Delaware GCL. Under the Delaware GCL, security holders of a corporation
have only such preemptive rights as may be provided in the corporation's
certificate of incorporation.

         Apria.  The Apria Certificate does not provide for preemptive rights.

         Vitas. The Vitas Certificate provides that the holders of Series B
Preferred shall be entitled to certain rights to purchase newly-issued
securities of Vitas as, and to the extent, set forth in the Stockholders'
Agreement, as long as the Stockholders' Agreement is in effect. The
Stockholders' Agreement provides that the purchasers of the Series B Preferred
have certain preemptive rights to purchase new capital stock that Vitas may
issue in the future, which rights would terminate upon the closing of a public
offering that satisfies certain minimum criteria as specified therein. Although
the Merger may not be an event that would invoke these preemptive rights,
Apria's obligations under the Merger Agreement are conditioned upon a waiver of
any rights or claims of preemptive rights by these holders.

BUSINESS COMBINATIONS

         Delaware GCL. Under the Delaware GCL, the principal terms of a merger
generally require the approval of the stockholders of each of the merging
corporations, but do not require the approval of the stockholders of any parent
corporation, even when the parent corporation's securities are to be used as
consideration for the merger. Unless otherwise required in a corporation's
certificate of incorporation, the Delaware GCL does not require a stockholder
vote of the surviving corporation in a merger if (i) the merger agreement does
not amend the existing certificate of incorporation, (ii) each share of the
surviving corporation outstanding before the merger is an identical outstanding
or treasury share after the merger, and (iii) either no shares of the surviving
corporation and no securities convertible into such stock are to be issued in
the merger or the number of shares to be issued by the surviving corporation in
the merger does not exceed 20% of the shares outstanding immediately prior to
the merger.

         When a shareholder vote is required under the Delaware GCL to approve a
merger, the affirmative vote of the majority of shares present in person or
represented by proxy for each class of shares entitled to vote on the merger,
shall be required to approve the merger. If multiple classes of stock are
entitled to vote on the merger as separate classes, then a majority of each
class entitled to vote to approve the merger, voting separately as a class,
shall be required to approve the merger.

         Section 203 of the Delaware GCL provides that, subject to certain
exceptions specified therein, a corporation will not engage in any business
combination with any "interested stockholder" for a three-year period following
the date that such stockholder becomes an interested stockholder unless (i)
prior to such date, the board of directors of the corporation approved either
the business combination or the transaction which resulted in the stockholder
becoming an interested stockholder, (ii) upon consummation of the transaction
which resulted in the stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding 


                                       55
<PAGE>   64
at the time the transaction commenced (excluding shares held by directors who
are also officers and shares subject to employee stock purchase plans in which
employee participants do not have the right to determine confidentially whether
plan shares will be tendered in a tender or exchange offer) or (iii) on or
subsequent to such date, the business combination is approved by the board of
directors of the corporation and by the affirmative vote at an annual or special
meeting, and not by written consent, of at least 662/3% of the outstanding
voting stock which is not owned by the interested stockholder. Except as
specified in Section 203 of the Delaware GCL, an interested stockholder is
defined to include (a) any person that is the owner of 15% or more of the
outstanding voting stock of the corporation or is an affiliate or associate of
the corporation and was the owner of 15% or more of the outstanding voting stock
of the corporation, at any time within three years immediately prior to the
relevant date and (b) the affiliates and associates of any such person. Section
203(b)(4) exempts from the restrictions in Section 203 a corporation that does
not have a class of voting stock that is (i) listed on a national securities
exchange, (ii) authorized for quotation on The NASDAQ Stock Market or (iii) held
of record by more than 2,000 stockholders, unless any of the foregoing results
from action taken, directly or indirectly, by an interested stockholder or from
a transaction in which a person becomes an interested stockholder.

         Apria. Under certain circumstances, Section 203 of the Delaware GCL may
make it more difficult for a person who would be an "interested stockholder" to
effect various business combinations with a corporation for a three-year period,
although the corporation's certificate of incorporation or stockholders may
elect to exclude a corporation from the restrictions imposed thereunder. The
Apria Certificate does not exclude Apria from the restrictions imposed under
Section 203 of the Delaware GCL. It is anticipated that the provisions of
Section 203 of the Delaware GCL may encourage companies interested in acquiring
Apria to negotiate in advance with Apria's Board of Directors, since the
stockholder approval requirement would be avoided if a majority of the directors
then in office approve either the business combination or the transaction which
results in the stockholder becoming an interested stockholder.

         Vitas. The Vitas Certificate provides that, upon a merger or
consolidation having certain consequences, the holders of 9% Preferred are
entitled to receive preferred shares of the successor or resulting company with,
to the extent possible, the same powers, preferences and relative,
participating, optional or other special rights and restrictions thereon. Upon
notice of such a merger or consolidation, the holders of 9% Preferred are
entitled, at their option, to receive a cash payment equal to the stated value
of the 9% Preferred plus all accrued and unpaid dividends in exchange for the 9%
Preferred. Regardless of whether this provision applies to the Merger, the
holder of the 9% Preferred has agreed to sell to Apria all shares of 9%
Preferred held by such holder for a purchase price equal to the 9% Preferred's
"Stated Value" of $100 per share, together with all accrued and unpaid dividends
as of the Effective Time. The Vitas Certificate also provides that Vitas may
not, without the affirmative vote or consent of the holders of at least a
majority of the 9% Preferred, sell all or substantially all of the assets of
Vitas in a transaction to be submitted to the vote of the stockholders of Vitas,
and, without the affirmative vote or consent of the holders of at least a
majority of the Series B Preferred (i) sell all or substantially all of the
assets of Vitas in a transaction to be submitted to the vote of the stockholders
of Vitas, (ii) merge or consolidate or (iii) acquire the assets or stock of
another entity in a transaction for consideration having a fair market value in
excess of $20,000,000.

         The Stockholders' Agreement provides that the holders of Series B
Preferred are entitled to certain rights of first refusal and tag along rights
in the event of certain transfers of stock by Hugh A. Westbrook or Carole S.
Westbrook. Vitas, however, may enter into a merger, consolidation or
reorganization or certain other transactions without regard to the application
of the provisions regarding rights of first refusal or tag along rights if such
transaction is approved by a majority of Vitas' Board of Directors and the
holders of more than 50% of the outstanding shares of each class of stock
entitled to vote thereon.

         The Vitas Certificate does not exclude Vitas from the restrictions
imposed under Section 203 of the Delaware GCL. However, Vitas should be exempt
from said restrictions pursuant to Section 203(b)(4) because Vitas' securities
are not (i) listed on a national exchange, (ii) authorized for quotation on The
NASDAQ Stock Market or (iii) held of record by more than 2,000 stockholders.
Regardless, by resolution adopted at a meeting of the Vitas Board of Directors,
the Board determined that the authorization, approval and adoption by the Vitas
Board of Directors of the Merger Agreement and all of the transactions described
therein and contemplated thereunder, constitute authorization, adoption and
approval of the Merger Agreement and all of the transactions described therein
and contemplated thereunder for, among other things, purposes of Section 203 of
the Delaware GCL. Therefore, the restrictions in Section 203 of the Delaware GCL
should not be applicable to Apria's acquisition of Vitas capital stock in
connection with the Merger.


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<PAGE>   65
APRIA RIGHTS AGREEMENT

         In connection with the Rights Agreement (the "Rights Agreement")
between Apria and U.S. Stock Transfer Corporation, as Rights Agent (the "Rights
Agent"), dated as of February 8, 1995, the Apria Board of Directors created a
series of Apria Preferred Stock designated as Series A Junior Participating
Preferred Stock (the "Apria Series A Preferred Stock"). Pursuant to the Rights
Agreement, a Preferred Stock Purchase Right is issued with respect to each share
of Apria Common Stock issued by Apria. Each Right entitles the registered holder
to purchase from Apria one one-hundredth of a share of Apria Series A Preferred
Stock at a price of $130, subject to adjustment (the "Purchase Price").

         Currently, the Rights are attached to all certificates representing
shares of outstanding Apria Common Stock and are not represented by separate
Rights certificates. The Rights are evidenced by the Apria Common Stock
certificates and are transferable only in connection with the transfer of the
underlying Apria Common Stock until the earlier of (i) the tenth day following a
public announcement that a person or group of affiliated or associated persons
(an "Acquiring Person") has acquired, or obtained the right to acquire,
beneficial ownership of 20% or more of the Apria Common Stock (the "Shares
Acquisition Date") or (ii) the tenth day after the commencement of (or a public
announcement of an intention to make) a tender offer or exchange offer which
would result in any person or group of persons becoming an Acquiring Person (the
earlier of (i) and (ii) being called the "Rights Distribution Date"). Since no
person will become an Acquiring Person as a result of the Merger, the Merger
will not constitute a Rights Distribution Date and the Rights will not become
exercisable as a result of the Merger. Until the Rights Distribution Date (or
earlier redemption or expiration of the Rights), the surrender for transfer of
any certificates for Apria Common Stock outstanding as of the Record Date also
will constitute the transfer of the Rights associated with the Apria Common
Stock represented by any such certificate. The Apria Board of Directors has the
power, under certain circumstances, to postpone the Rights Distribution Date. As
soon as practicable following the Rights Distribution Date, separate
certificates evidencing the Rights (the "Rights Certificates") will be mailed to
holders of record of the Apria Common Stock as of the close of business on the
Rights Distribution Date. As of the Rights Distribution Date, the Rights will be
evidenced solely by such Rights Certificates.

         The Rights are not exercisable until the Rights Distribution Date. The
Rights expire on the earliest of (i) the close of business on February 7, 2005,
(ii) the redemption of the Rights by Apria as described below, (iii) the
consummation of certain mergers, acquisitions and other transactions involving
Apria pursuant to an agreement approved by the Apria Board of Directors or (iv)
the exchange of the Rights as described below.

         The Purchase Price payable, and the number of shares of Apria Series A
Preferred Stock or other securities issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Apria Series A Preferred Stock, (ii) upon the grant to holders of the Apria
Series A Preferred Stock of certain rights, options or warrants to subscribe for
or purchase Apria Series A Preferred Stock or certain convertible securities at
less than the current market price of the Apria Series A Preferred Stock or
(iii) upon the distribution to holders of Apria Series A Preferred Stock, except
in certain circumstances, of evidences of indebtedness, cash, securities or
assets or of convertible securities, subscription rights or warrants (other than
those referred to above).

         With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least one
percent (1%) in the Purchase Price. No fractional shares of Apria Series A
Preferred Stock will be issued and, in lieu thereof, an adjustment in cash will
be made based on the market price of the Apria Series A Preferred Stock on the
last trading date prior to the date of exercise.

         If a person becomes an Acquiring Person (except pursuant to certain
cash offers for all outstanding shares of Apria Common Stock approved by at
least a majority of the Continuing Directors (as defined below)) or if Apria
were the surviving corporation in a merger with an Acquiring Person or any
associate or affiliate of any Acquiring Person and the shares of Apria Common
Stock were not changed or exchanged, each holder of a Right (other than those
persons triggering such event) will thereafter have the right to receive upon
exercise that number of shares of Apria Common Stock which at the time of such
transaction would have a market value of two times the then current Purchase
Price of the Right. With certain exceptions, if, following the time that a
person has become an Acquiring Person, Apria is acquired in a merger or other
business combination transaction or more than 50% of Apria's assets or earning
power is sold, each holder of a Right will have the right to receive, upon the
exercise thereof at the then


                                       57
<PAGE>   66
current Purchase Price, that number of shares of common stock of the acquiring
company which at the time of such transaction would have a market value of two
times the then current Purchase Price.

         At any time after a person becomes an Acquiring Person and prior to the
acquisition by such Acquiring Person of 50% or more of the then outstanding
shares of Apria Common Stock, the Apria Board of Directors may cause Apria to
acquire the Rights (other than Rights which have become void), in whole or in
part, in exchange for that number of shares of Apria Common Stock having an
aggregate value equal to the excess of the value of the shares of Apria Common
Stock issuable upon exercise of a Right after a person becomes an Acquiring
Person over the Purchase Price per Right, appropriately adjusted to reflect any
stock split, stock dividend, recapitalization or similar transaction (the
"Exchange Consideration"). Effective immediately upon the action of the Apria
Board of Directors electing to exchange any Rights, the right to exercise such
Rights will terminate and the only right of the holders of such Rights will be
to receive the Exchange Consideration. Any partial exchange will be effected pro
rata based on the number of Rights (other than Rights which have become void)
held by each holder of Rights.


         At any time prior to the close of business on the tenth day following
the Shares Acquisition Date, the Apria Board of Directors may redeem in whole,
but not in part, all of the then outstanding Rights at a redemption price of
$.01 per Right, appropriately adjusted to reflect any stock split, stock
dividend, recapitalization or similar transaction (the "Redemption Price");
provided, however, that if Apria authorizes the redemption after an Acquiring
Person becomes such, then Continuing Directors must be in office and the
authorization will require the approval of at least a majority of such
Continuing Directors. Prior to the expiration of the period during which the
Rights may be redeemed (as discussed above), the Apria Board of Directors may
extend, one or more times, the period during which Rights may be redeemed beyond
the close of business on the tenth day following the Shares Acquisition Date;
provided, however, that Continuing Directors must be in office and any extension
will require the approval of at least a majority of such Continuing Directors.
Effective immediately upon the action of the Apria Board of Directors ordering
the redemption of the Rights, the right to exercise the Rights will terminate
and the only right of the holders of Rights will be to receive the Redemption
Price.

         Any of the provisions of the Rights Agreement may be amended by the
Apria Board of Directors prior to the Rights Distribution Date. After the Rights
Distribution Date, Apria and the Rights Agent may amend or supplement the Rights
Agreement without the approval of any holders of Rights Certificates to cure any
ambiguity, defect or inconsistency, shorten or lengthen any time period under
the Rights Agreement (subject to approval of a majority of the Continuing
Directors) or make changes which do not adversely affect the interests of
holders of Rights (excluding the interests of any Acquiring Person or affiliate
or associate thereof). Apria may, at any time prior to a person becoming an
Acquiring Person, lower the thresholds described above to not less than the
greater of (i) any percentage greater than the largest percentage of the
outstanding shares of Apria Common Stock then known by Apria to be beneficially
owned by any person or group of affiliated or associated persons or (ii) ten
percent.

         The term "Continuing Directors" means any member of the Apria Board of
Directors who was a director prior to the time that any person became an
Acquiring Person, and any person who is subsequently elected to the Apria Board
of Directors if such person is recommended or approved by a majority of the
Continuing Directors. Continuing Directors do not include an Acquiring Person,
an affiliate or associate of an Acquiring Person or any representative of any of
the foregoing.


         The Apria Series A Preferred Stock purchasable upon exercise of the
Rights will be nonredeemable and junior to any other series of preferred stock
Apria may issue (unless otherwise provided in the terms of such stock). Each
share of Apria Series A Preferred Stock will have a preferential quarterly
dividend in an amount equal to the greater of (i) 100 times the dividend
declared on each share of Apria Common Stock or (ii) $1.00. In the event of
liquidation, the holders of Apria Series A Preferred Stock will be entitled to
receive a minimum preferred liquidation payment of $100 per share, but will also
be entitled to an aggregate payment of 100 times the payment made per share of
Apria Common Stock. Each share of Apria Series A Preferred Stock will entitle
the holder thereof to 100 votes on all matters submitted to a vote of the
stockholders of Apria. The holders of the shares of Apria Series A Preferred
Stock and the holders of the shares of Apria Common Stock shall vote together as
one class on all matters submitted to a vote of stockholders of Apria. In the
event of any merger, consolidation or other transaction in which shares of Apria
Common Stock are exchanged, each share of Apria Series A Preferred Stock will be
entitled to receive 100 times the amount and type of consideration received per
share of Apria Common Stock. The rights of Apria Series A Preferred Stock as to
dividends, liquidation and voting, and in the event of mergers and
consolidations, are protected by customary antidilution provisions.


                                       58
<PAGE>   67
         Until a Right is exercised, the holder thereof, as such, has no rights
as a stockholder of Apria, including, without limitation, the right to vote or
to receive dividends.

         The Rights will cause substantial dilution to a person or group that
acquires 20% or more of the outstanding Apria Common Stock on terms not approved
by the Apria Board of Directors, except pursuant to an offer conditioned on a
substantial number of Rights being acquired. The Rights should not interfere
with any merger or other business combination approved by the Apria Board of
Directors prior to ten days after the time that a person or group has become an
Acquiring Person as the Rights may be redeemed by Apria at $.01 per Right prior
to such time.

         The foregoing summary of certain terms of the Rights is qualified in
its entirety by reference to the Rights Agreement, a copy of which is
incorporated herein by reference.

AMENDMENT OF CERTIFICATE OF INCORPORATION

         Delaware GCL. Under the Delaware GCL, an amendment to a corporation's
certificate of incorporation requires the approval of the board of directors and
the approval of a majority of the outstanding stock entitled to vote thereon and
a majority of the outstanding stock of each class entitled to vote thereon.
Under the Delaware GCL, the holders of the outstanding shares of a class are
entitled to vote as a separate class on a proposed amendment that would increase
or decrease the aggregate number of authorized shares of such class, increase or
decrease the par value of the shares of such class or alter or change the
powers, preferences or special rights of the shares of such class so as to
affect them adversely. If any proposed amendment would alter or change the
powers, preferences or special rights of one or more series of any class so as
to affect them adversely, but would not so affect the entire class, then only
the shares of the series so affected by the amendment will be considered a
separate class for purposes of voting by classes.

         Apria. The Apria Certificate does not address amendments to the Apria
Certificate. Accordingly, any amendment to the Apria Certificate is governed by
the Delaware GCL.

         Vitas. The Vitas Certificate provides that Vitas shall not, without the
affirmative vote or consent of the holders of at least a majority of the 9%
Preferred, authorize, issue or assume the obligations under, or increase the
stated or par value of other Vitas securities that are determined to be senior
to or in parity with the 9% Preferred; amend the Vitas Certificate so as
adversely to effect or change the powers, preferences or special rights of the
9% Preferred or authorize additional shares or change the par value of the 9%
Preferred. The Vitas Certificate also provides that Vitas shall not, without the
affirmative vote or consent of the holders of at least a majority of the Series
B Preferred, authorize, issue or assume the obligations under, or increase the
stated or par value of, other Vitas securities that are determined to be senior
to or in parity with the Series B Preferred; amend the Vitas Certificate so as
adversely to effect or change the powers, preferences or special rights of the
Series B Preferred; or authorize additional shares or change the par value of
the Series B Preferred. See "--Stockholder Voting Rights Generally."

AMENDMENT OF BYLAWS

         Delaware GCL. Under the Delaware GCL, an amendment to a corporation's
by-laws requires the approval of the stockholders, unless the certificate of
incorporation confers the power to amend the by-laws upon the board of
directors.

         Apria. The Apria Certificate provides that the Apria Board of Directors
is authorized to adopt, amend or repeal the Apria By-Laws. The Apria By-laws may
be amended or repealed, or new By-laws may be adopted (a) by the affirmative
vote of the holders of at least a majority of the Common Stock of Apria, or (b)
by the affirmative vote of the majority of the whole Board of Directors of Apria
at any regular or special meeting. Any By-laws adopted or amended by the
stockholders may be amended or repealed by the Board or the stockholders.
         Vitas. The Vitas Certificate provides that the Vitas Board of Directors
is expressly empowered to adopt, amend and repeal the Vitas By-laws. The Vitas
By-laws provide that they may be altered, amended or repealed and new By-laws
may be adopted by the Vitas Board of Directors or the stockholders. As a result,
the Vitas By-laws may be altered, amended or repealed and new By-laws adopted by
the vote of a majority of the Vitas Board of Directors or by the vote of a
majority of the Vitas stockholders entitled to vote thereon.

                                       59
<PAGE>   68
STOCKHOLDER VOTING RIGHTS GENERALLY

         Delaware GCL. Under the Delaware GCL, the affirmative vote of the
majority of shares present in person or represented by proxy at a duly held
meeting at which a quorum is present and entitled to vote on the subject matter
is deemed to be the act of the stockholders, unless the Delaware GCL, the
certificate of incorporation or the by-laws specify a different voting
requirement.

         Apria. The Apria By-laws provide that in all matters, when a quorum is
present at any meeting, the vote of the holders of a majority of the capital
stock having voting power present in person or represented by proxy shall decide
any question brought before such meeting, unless the question is one upon which
by express provision of applicable law or of the Apria Certificate, a different
vote is required in which case such express provision shall govern and control
the decision of such question. Such vote may be by voice or by written ballot;
provided, however, that the Apria Board may, in its discretion, require a
written ballot for any vote, and further provided that all elections for
directors must be by written ballot upon demand made by a stockholder at any
election and before the voting begins.

         Each stockholder shall at every meeting of the stockholders be entitled
to one vote in person or by proxy for each share of the capital stock having
voting power held by such stockholder. The Apria Certificate provides that the
Apria Common Stock shall possess the full voting power of Apria and the number
of authorized shares of any class or classes of stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of Apria entitled to
vote.

         Vitas. Each stockholder shall be entitled to one vote on each matter
for each share of Vitas' capital stock having voting power. The Vitas By-laws
provide that all matters shall be determined, adopted and approved by the vote
of a majority of the votes cast with respect to such matter, unless the proposed
action is one upon which, by the Delaware GCL or the Vitas Certificate, requires
a different vote, and except with respect to the election of directors.

         The Vitas Certificate provides that holders of 9% Preferred have no
voting rights, except that, so long as any shares of the 9% Preferred are
outstanding, Vitas shall not, without the affirmative vote or consent of the
holders of at least a majority of the 9% Preferred: (i) authorize, issue or
assume the obligations under, or increase the stated or par value of, any Senior
Securities (as defined therein) or any obligation or security convertible into
or evidencing the right to purchase any Senior Securities; (ii) authorize, issue
or assume the obligations under, or increase the stated or par value of, any
Parity Securities (as defined therein) or any obligation or security convertible
into or evidencing the right to purchase any Parity Securities; (iii) amend the
Vitas Certificate so as adversely to alter or change the powers, preferences or
special rights of the 9% Preferred or authorize additional shares of 9%
Preferred or increase or decrease the par value of the 9% Preferred; or (iv)
sell all or substantially all of the assets of Vitas in a transaction that is to
be submitted to a vote of the Vitas stockholders.

         The Vitas Certificate also provides that, except as otherwise required
by law or when a class vote is required, each holder of Series B Preferred shall
be entitled to vote on all matters together with the holders of Vitas Common
Stock. The number of votes allocated to each holder of Series B Preferred is
based on a formula specified in the Vitas Certificate. In addition, so long as
any shares of Series B Preferred are outstanding, Vitas shall not, without the
affirmative vote or consent of the holders of at least a majority of the Series
B Preferred outstanding at the time: (i) authorize, issue or assume the
obligations under, or increase the stated or par value of, any Senior Securities
(as defined therein) or any obligation or security convertible into or
evidencing the right to purchase any Senior Securities; (ii) authorize, issue or
assume the obligations under, or increase the stated or par value of, any Parity
Securities (as defined therein) or any obligation or security convertible into
or evidencing the right to purchase any Parity Securities; (iii) amend the Vitas
Certificate so as adversely to alter or change the powers, preferences or
special rights of the Series B Preferred or authorize additional shares of
Series B Preferred or increase or decrease the par value of the Series B
Preferred; (iv) sell all or substantially all of the assets of Vitas in a
transaction that is to be submitted to a vote of the Vitas stockholders; (v)
merge or consolidate Vitas with or into any other corporation in a transaction
that is to be submitted to a vote of Vitas stockholders; (vi) acquire the assets
or stock of another entity in a transaction for consideration having a Fair
Market Value (as defined therein) in excess of $20,000,000; (vii) issue or
transfer shares of any class or series of Vitas capital stock to Vitas' Employee
Stock Ownership Plan/Trust unless such issuance or transfer has been approved or
recommended by a disinterested majority of the members of the 


                                       60
<PAGE>   69
Compensation Committee of the Vitas Board of Directors; or (viii) redeem or
repurchase outstanding shares of any class or series of Vitas capital stock
except for (A) shares repurchased at or less than Fair Market Value from current
or former directors, officers, employees or consultants or of any direct or
indirect subsidiary up to an aggregate of $1,000,000, (B) shares of Series B
Preferred, (C) shares redeemed pursuant to the redemption provisions of the 9%
Preferred, (D) shares purchased pursuant to a right of first refusal, call,
option or similar right to purchase granted to Vitas and (E) the Stock
Repurchases, as defined in the Preferred Stock Repurchase Agreement dated as of
June 3, 1993, between Vitas and certain investors listed therein.

         The Stockholders' Agreement provides that holders of Vitas Common Stock
issued upon conversion of Series B Preferred are entitled to vote on matters
together with the holders of Vitas Common Stock, but the voting rights of such
issued conversion shares are limited in certain respects by requiring that
certain votes attributable to such shares be restricted in an amount and manner
comparable to the voting rights such holders had as holders of Series B
Preferred, and in other respects by requiring that certain other votes
attributable to such shares be voted pro rata based on the total votes cast on
such matters. In addition, the Investor Group (as defined therein) has agreed
that so long as they have total voting power of less than 51%, they will not,
among other things, propose a director or directors in opposition to the
nominees proposed by the Board or management of Vitas (other than as permitted
in the Stockholders' Agreement), exercise, directly or indirectly, control or
controlling influence over the management, policies or business operations of
Vitas or, until the closing of a public offering, publicly propose or solicit
any person or company to acquire Vitas or more than ten percent of Vitas Common
Stock. The Stockholders' Agreement also contains certain voting covenants with
respect to the election and removal of directors.

         The Investor Agreement provides that, so long as they beneficially own
at least five percent of the outstanding Vitas Common Stock and no change in
control of Vitas (as defined therein) has occurred, neither Chemed nor OCR or
their affiliates or associates will: (i) call a special meeting of stockholders
unless supported by the Vitas Board of Directors; (ii) institute, encourage or
participate in any proxy solicitation with respect to any matter submitted or
proposed to be submitted to a vote of Vitas stockholders; (iii) announce,
publicly propose or solicit any person or company to acquire, offer to acquire
or agree to acquire Vitas; (iv) seek to designate any Chemed/OCR designee as
Chairman of the Board of Directors; (v) propose a director in opposition to the
nominees proposed by management except as otherwise permitted in the Investor
Agreement; or (vi) exercise or attempt to exercise control or a controlling
influence over the management, policies or business operations of Vitas.

STOCKHOLDER ACTION BY WRITTEN CONSENT

         Delaware GCL. Under the Delaware GCL, unless otherwise provided in a
corporation's certificate of incorporation, any action that may be taken at any
annual or special meeting of stockholders may be taken without a meeting,
without prior notice and without a vote, if a consent (or consents) in writing,
setting forth the action so taken, is delivered to the corporation and is signed
by the holders of outstanding shares having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted.

         Apria. The Apria Certificate provides that any action required or
permitted to be taken by the stockholders of Apria must be taken at a meeting of
such stockholders and may not be taken by consent in writing, except (i) as
permitted by resolutions of the Apria Board of Directors fixing the powers and
preferences of any class or series of shares as to which the Board of Directors
has been expressly vested with authority to fix the powers and preferences, or
(ii) for the purpose of approving, authorizing, or adopting any action or
proposal theretofore approved, authorized or adopted by the Board of Directors.

         Vitas. The Vitas By-laws provide that stockholder action may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken, are (i) signed by the
holders of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted and
(ii) delivered to Vitas.

SPECIAL STOCKHOLDER MEETINGS

         Delaware GCL. Under the Delaware GCL, a special meeting of stockholders
may be called by the board of directors or by any other person authorized to do
so in the certificate of incorporation or the by-laws.


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<PAGE>   70
         Apria. The Apria By-laws provide that special meetings of the Apria
stockholders may be called at any time by the Apria Board of Directors and shall
be called by the President or the Secretary at the request in writing of a
majority of the Board, or at the request in writing of stockholders owning a
majority of the entire capital stock of Apria issued and outstanding and
entitled to vote.

         Vitas. The Vitas By-laws provide that special meetings of the
stockholders may be called by the Board of Directors, by the Chairman of the
Board, or by the President and shall be called by the President or Secretary at
the request in writing of stockholders owning a majority in amount of the entire
capital stock of Vitas issued and outstanding and entitled to vote generally for
the election of directors.

NUMBER AND ELECTION OF DIRECTORS

         Delaware GCL. Under the Delaware GCL, the minimum number of directors
is one. The Delaware GCL provides that the number of directors shall be fixed
by, or in the manner provided in, the by-laws, unless the certificate of
incorporation fixes the number of directors, in which case a change in the
number of directors may be made only upon amendment of the certificate of
incorporation. The vote of the majority of the directors present at a meeting at
which a quorum is present shall be the act of the board of directors unless the
certificate of incorporation or the by-laws shall require a vote of greater
number. In addition, the Delaware GCL permits, but does not require, a
classified board of directors, with staggered terms under which one-half or
one-third of the directors are elected for terms of two or three years,
respectively. A classified board is one in which a certain number, but not all,
of the directors are elected on a rotating basis each year.

         Apria. The Apria Certificate provides that the number of directors
constituting the Apria Board of Directors shall be fixed, initially, by the
Apria By-Laws. The Apria By-Laws provide that the Apria Board shall initially
consist of eight members. Thereafter the number of directors shall be fixed or
altered exclusively by resolutions adopted by the Board of Directors. The
directors shall be divided into three classes as nearly equal in number as
possible, designated Class I, Class II and Class III. The initial term of office
of Class I directors shall expire at the 1996 annual meeting of stockholders; of
Class II directors at the 1997 annual meeting of stockholders; and of Class III
directors at the 1998 annual meeting of stockholders. At each annual meeting of
stockholders, successors to the class of directors whose terms of office expire
in that year shall be elected to hold office for a term of three years. Each
director shall hold office until his successor is elected and qualified or until
his earlier resignation. No decrease in the number of directors shall shorten
the term of any incumbent director. The current number of directors is seven.

         Vitas. The Vitas Certificate provides that the number of directors
shall be fixed by or determined in accordance with the Vitas By-laws. The Vitas
By-laws provide that the number of directors is to be determined by resolution
of the Board of Directors. The number of directors is currently fixed at nine.
One seat is currently vacant. The Vitas Board of Directors is divided into three
classes, each consisting of approximately one-third of the total number of
directors. The term of office for each director is three years and such terms
expire in successive years at the time of the annual meeting of stockholders.
The Vitas By-laws provide that candidates for election as members of the Board
of Directors who receive the highest number of votes, up to the number of
directors to be chosen, shall stand elected, and an absolute majority of the
votes cast is not a prerequisite to the election of any candidate to the Board
of Directors.

         The Vitas Certificate also provides that the holders of Series B
Preferred, voting separately as a class, are entitled to vote for and elect as
directors only those persons whom the holders of Series B Preferred are entitled
to designate pursuant to the terms of the Stockholders' Agreement. The
Stockholders' Agreement provides that, so long as the Stockholders' Agreement
remains in effect and provided either of the Principal Investors (defined
therein to mean the Principal Galen Entities and Warburg, Pincus Investors,
L.P.) has Voting Power, the holders of a majority of the outstanding shares of
Series B Preferred shall be entitled to vote for and elect as directors either
one or both of the Principal Investors' designees to the Vitas Board of
Directors, depending on whether one or both of the Principal Investors have
Voting Power. Bruce F. Wesson and Patrick T. Hackett, the designees of the
Principal Galen Entities and Warburg, Pincus Investors, L.P., respectively, are
serving as directors of Vitas in accordance with this provision.

         The Investor Agreement provides that, as long as OCR beneficially owns
at least ten percent of the outstanding shares of Vitas Common Stock, Vitas is
obligated to nominate one person designated by OCR for election 


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<PAGE>   71
as a director of Vitas. Mr. O'Toole, an officer and director of Chemed, was
nominated to serve as a director of Vitas in accordance with this provision. The
Investor Agreement provides, among other things, that, as long as the Vitas
Board of Directors is composed of ten or fewer directors, OCR shall be entitled
to only one designee.

REMOVAL OF DIRECTORS

         Delaware GCL. The Delaware GCL provides that a director of a
corporation may be removed with or without cause by the holders of a majority of
the shares then entitled to vote at an election of directors, provided, that,
when a corporation has a classified board of directors, a director may be
removed only for cause, unless the certificate of incorporation otherwise
provides.

         Apria. Neither the Apria Certificate nor the Apria By-laws provide for
the removal of directors. Accordingly, stockholders of Apria may remove
directors only for cause and by the affirmative vote of the holders of at least
a majority of the capital stock entitled to vote.

         Vitas. Neither the Vitas Certificate nor the Vitas By-laws provide for
the removal of directors. Accordingly, stockholders of Vitas may remove
directors only for cause and by the affirmative vote of the holders of at least
a majority of the capital stock entitled to vote thereon.

         The Investor Agreement provides that, in the event OCR ceases to
beneficially own at least ten percent of the Vitas Common Stock, at the request
of a majority of the members of the Vitas Board of Directors, OCR will cause its
designee on the Vitas Board of Directors to resign.

         The Stockholders' Agreement provides that the Investor Group, acting by
a majority of the then outstanding shares of Series B Preferred, shall at all
times have the right to remove with or without cause, a director designated
pursuant to the terms of the Stockholders' Agreement.

VACANCIES ON THE BOARD OF DIRECTORS

         Delaware GCL. Under the Delaware GCL, vacancies and newly created
directorships may be filled by a majority of the directors then in office,
although less than a quorum, unless otherwise provided in the certificate of
incorporation or the by-laws. However, if the certificate of incorporation
directs that a particular class is to elect such director, such vacancy may be
filled only by the other directors elected by such class. If, at the time of
filling any vacancy or newly created directorship, the directors then in office
constitute less than a majority of the whole board as constituted immediately
prior to such increase, the Delaware Court of Chancery may, upon application of
stockholders holding at least ten percent of the total number of shares
outstanding having the right to vote for such directors, order an election to be
held to fill any such vacancies or newly created directorships or to replace the
directors chosen by the directors then in office.

         Apria. The Apria By-laws provide that, through the 1998 Annual Meeting
of Stockholders, any vacancy on the Board of Directors arising among Jeremy M.
Jones, David L. Goldsmith, Terry Hartshorn and Charles D. Martin (or any other
individual or individuals selected (i) as a replacement director for the
foregoing individuals or (ii) by the foregoing individuals or their successors)
and any nominee selected to fill a director position occupied by any of the
foregoing individuals will be filled or selected by a majority vote of the
remaining foregoing individuals, and any vacancy arising among Timothy M.
Aitken, Frederick S. Moseley, IV, Leonard Green and Vincent M. Prager (or any
other individual or individuals selected (i) as a replacement director for the
foregoing individuals or (ii) by the foregoing individuals or their successors)
and any nominee selected to fill a director position occupied by any of the
foregoing individuals will be filled or selected by a majority vote of the
remaining foregoing individuals. Mr. Aitken resigned in November 1995, and the
vacancy created by his resignation has not yet been filled. After the 1998
Annual Meeting of Stockholders, any vacancy on the Board, including any newly
created directorship resulting from an increase in the number of directors, may
be filled by a majority of the Board then in office, provided that a quorum is
present.

         Vitas. The Vitas By-laws provide that vacancies and newly created
directorships may be filled, for the unexpired term, by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. Each director so chosen shall hold office for the remainder of the
full term of the class of directors in which


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the new directorship was created or the vacancy occurred. The Vitas By-laws
further provide that, if, at the time of filling any vacancy or any newly
created directorship, the directors then in office constitute less than a
majority of the whole Board, the Court of Chancery of the State of Delaware may,
upon application of any stockholder or stockholders holding at least ten percent
of the total number of then outstanding shares having the right to vote for such
directors, summarily order an election to be held to fill any such vacancies or
newly created directorships, or to replace the directors chosen by the directors
then in office, in accordance with the Delaware GCL. The Vitas By-laws further
provide that, in the event a director resigns effective at a future date, a
majority of the directors then in office including those who have resigned,
shall have the power to fill such vacancy or vacancies, the vote to be taken
when such resignation or resignations shall become effective, and each director
so chosen shall hold office for the remainder of the full term of the class of
directors in which the vacancy occurs.

         The Stockholders' Agreement provides that, in the event of a vacancy
caused by the death, removal or resignation of a director elected in accordance
with the terms of the Stockholders' Agreement, such vacancy shall be filled at a
special meeting unless otherwise filled by the Vitas Board of Directors in
accordance with the terms of the Stockholders' Agreement.

TRANSACTIONS INVOLVING OFFICERS OR DIRECTORS

         Delaware GCL. Under the Delaware GCL, no contract or transaction
between a corporation and one or more of its directors or officers, or between a
corporation and any other entity in which one or more of its directors or
officers are directors or officers, or have a financial interest, is void or
voidable if (i) the material facts as to the director's or officer's
relationship or interest and as to the contract or transaction are disclosed or
known to the board of directors or committee which authorizes the contract or
transaction by the affirmative vote of a majority of the disinterested
directors; (ii) the material facts as to the director's or officer's
relationship or interest and as to the contract or transaction are disclosed or
known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved by the stockholders; or (iii) the contract
or transaction is fair as to the corporation as of the time it is authorized,
approved or ratified by the board of directors, a committee thereof or the
stockholders. A corporation may make loans to, guarantee the obligations of or
otherwise assist its officers or other employees and those of its subsidiaries,
including directors who are also officers or employees, when such action, in the
judgment of the directors, may reasonably be expected to benefit the
corporation.

         Apria. The Apria Certificate and the Apria By-laws do not address
contracts, loans or other transactions between Apria and its directors, officers
or employees.

         Vitas. The Vitas Certificate and the Vitas By-laws do not address
contracts, loans or other transactions between Vitas and its directors, officers
or employees.

INDEMNIFICATION OF DIRECTORS

         Delaware GCL. Under the Delaware GCL, directors may be indemnified for
liabilities incurred in connection with specified actions (other than any action
brought by or in the right of the corporation), if they acted in good faith and
in a manner they reasonably believed to be in and not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful. The
same standard of conduct is applicable for indemnification in the case of
derivative actions brought by or in the right of the corporation, except that in
such cases the Delaware GCL authorizes indemnification only for expenses
(including attorneys' fees) incurred in connection with the defense or
settlement of such cases. Moreover, the Delaware GCL requires court approval
before there can be any such indemnification where the person seeking
indemnification has been found liable to the corporation in a derivative action.
The Delaware GCL states expressly that the indemnification provided by or
granted pursuant to the Delaware GCL is not deemed exclusive of any
non-statutory indemnification rights existing under any bylaws, agreement, vote
of stockholders or disinterested directors or otherwise.

         Apria. The Apria Certificate generally requires that Apria provide
indemnification to the fullest extent permitted by Delaware law. Insofar as
indemnification for liabilities arising under the 1933 Act may be permitted to
directors, officers or persons controlling Apria pursuant to the foregoing
provisions, Apria has been informed that


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<PAGE>   73
in the opinion of the Commission such indemnification is against public policy
as expressed in the 1933 Act and is therefore unenforceable.

         Vitas. The Vitas By-laws generally require that Vitas provide
indemnification of expenses to the fullest extent permitted by Delaware law. In
addition to the general indemnification provision in the Vitas By-laws, Vitas
also has entered into indemnification agreements ("Indemnification Agreements")
with certain directors and officers of Vitas, which agreements provide, among
other things, that Vitas shall indemnify and hold harmless such director or
officer in the event that he or she is or was a party to or involved or becomes
involved in any manner or is threatened to be so involved in any Proceeding (as
defined therein) by reason of the fact that such person is or was a director or
officer of Vitas, against all expenses, liabilities and losses reasonably
incurred by such person in connection with such Proceeding, and includes the
advancement of certain expenses. A person is entitled to indemnification under
an Indemnification Agreement if, among other things, a Change of Control (as
defined therein to include, among other things, a merger involving Vitas) shall
have occurred and the officer or director so requests indemnification in
connection with a Proceeding.

LIMITATION OF PERSONAL LIABILITY OF DIRECTORS

         Delaware GCL. The Delaware GCL provides that a corporation's
Certificate of Incorporation may include a provision eliminating or limiting the
personal liability of a director to the corporation or its stockholders for
monetary damages resulting from certain breaches of fiduciary duties.

         Apria. The Apria Certificate contains such a provision limiting the
personal liability of a director.

         Vitas. The Vitas Certificate contains such a provision limiting the
personal liability of a director.

DECLARATION OF DIVIDENDS

         Delaware GCL. Under the Delaware GCL, a corporation is permitted to
declare and pay dividends out of surplus (as defined in the Delaware GCL) or, if
there is no surplus, out of net profits for the fiscal year in which the
dividend is declared and/or for the preceding fiscal year as long as the amount
of capital of the corporation following the declaration and payment of the
dividend is not less than the aggregate amount of the capital represented by the
issued and outstanding stock of all classes having a preference upon the
distribution of assets. In addition, the Delaware GCL generally provides that a
corporation may redeem or repurchase its shares only if such redemption or
repurchase would not impair the capital of the corporation.

         Apria. The Apria By-laws provide that dividends on the capital stock of
Apria, subject to the provisions of the Apria Certificate, if any, may be
declared by the Apria Board at any regular or special meeting, pursuant to law,
and may be paid in cash, in property or in shares of capital stock. Before
payment of any dividend, there may be set aside out of any funds of Apria
available for dividends such sums as the directors from time to time, in their
absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of Apria, or for such other purpose as the directors shall determine to
be in the best interest of Apria, and the directors may modify or abolish any
such reserve in the manner in which it was created.

         Vitas. The Vitas By-laws provide that the Board of Directors shall have
the power to declare dividends at any regular or special meeting. Such dividends
may be paid out of surplus or out of the net profits for the fiscal year in
which the dividend is declared and/or the preceding fiscal year. Dividends may
be paid in cash, property or shares of Vitas stock. The Vitas Certificate
provides that whenever a dividend is paid or declared and set aside for payment
to the holders of the outstanding shares of any class of stock having preference
over the Vitas Common Stock as to the payment of dividends, then dividends may
be paid on the Vitas Common Stock and on any class or series of stock entitled
to participate as to dividends out of any assets legally available for the
payment of dividends, but only if declared by the Board of Directors.

         The Vitas Certificate also provides that the dividend rate on the 9%
Preferred shall be nine percent per annum, calculated on the stated value of the
9% Preferred. Dividends on the 9% Preferred accrue semiannually. So long as any
shares of 9% Preferred remain outstanding, Vitas may not (i) declare, pay or set
aside for payment

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any dividend upon any Junior Securities (as defined in the Vitas Certificate)
(other than a dividend paid in Vitas Common Stock or in any other stock ranking
junior to the 9% Preferred) or upon any Parity Securities (as defined therein)
(other than a dividend paid in Parity Securities or Junior Securities or a
dividend paid in accordance with certain other requirements); (ii) make any
payment on account of, or set apart for payment money for a sinking or other
similar fund for, the repurchase, redemption or other retirement of any Junior
Securities or Parity Securities or any warrants, rights, or options exercisable
for or convertible into any Junior Securities or Parity Securities; or (iii)
make any distribution in respect of any Junior Securities or Parity Securities,
either directly or indirectly, and whether in cash, obligations, stock or
certain other property, unless Vitas first complies with certain conditions
relating to the payment and redemption of 9% Preferred; provided, that, Vitas
may, in certain circumstances, repurchase or redeem Vitas Common Stock from
current or former employees, consultants or directors or from Vitas
subsidiaries.

         The Vitas Certificate also provides that, so long as any shares of
Series B Preferred remain outstanding, Vitas may not (i) declare, pay or set
aside for payment any dividend upon any Junior Securities (as defined therein)
(other than a dividend paid in Vitas Common Stock or in any other stock ranking
junior to the Series B Preferred) or upon any Parity Securities (as defined
therein) (other than a dividend paid in Parity Securities or Junior Securities
or a dividend paid in accordance with certain other requirements); (ii) make any
payment on account of, or set apart for payment money for a sinking or other
similar fund for, the repurchase, redemption or other retirement of any Junior
Securities or Parity Securities or any warrants, rights, or options exercisable
for or convertible into any Junior Securities or Parity Securities (other than
certain stock repurchases referred to in the Preferred Stock Purchase Agreement,
dated December 17, 1991, between Vitas, Chemed and OCR); or (iii) make any
distribution in respect of any Junior Securities or Parity Securities, either
directly or indirectly, and whether in cash, obligations, stock or certain other
property, unless, in each case, prior thereto or concurrently therewith, Vitas
declares and pays a dividend on the outstanding shares of Series B Preferred
equal to eight percent per annum based on the stated value from the Original
Issue Date (as defined therein) and Vitas complies with certain redemption
obligations set forth in the Vitas Certificate; provided, that, Vitas may, in
certain circumstances, repurchase or redeem Vitas Common Stock from current or
former employees, consultants or directors or from Vitas subsidiaries.

         In addition, the holders of Series B Preferred are entitled to
participate equally with any dividend declared on the Vitas Common Stock. The
Vitas Certificate further prohibits Vitas from paying any cash dividends on the
Series B Preferred or any Junior or Parity Securities (as defined therein) that
would exceed 50% of the Cumulative Net Income (as defined therein) as measured
from March 31, 1993 through the month ended immediately preceding the proposed
payment date. The Vitas Certificate provides that the 9% Preferred ranks senior
to the Series B Preferred.

         The Warrants provide that Vitas may not pay a cash dividend on the
Vitas Common Stock or effect a Pro Rata Repurchase (as defined therein) of Vitas
Common Stock at a purchase price in excess of the Fair Market Value (as defined
therein) thereof, if the aggregate amount of all cash dividends paid by Vitas
since September 30, 1991 to holders of Vitas Common Stock combined with the
aggregate amount of all Pro Rata Repurchases since September 30, 1991 exceeds
15% of the Cumulative Consolidated Net Income of Vitas (as defined therein).

STOCK OWNERSHIP AND TRANSFER RESTRICTIONS

         Delaware GCL. Under the Delaware GCL, a written restriction on the
transfer of a security, if permitted by the Delaware GCL and noted conspicuously
on the certificate representing the security or, in the case of uncertificated
shares, contained in the notice required to be sent to the security holder
pursuant to the Delaware GCL, may be enforced against the holder or any
successor or transferee of the holder. A restriction on the transfer of
securities of a corporation may be imposed either by the certificate of
incorporation or by the by-laws or by an agreement among any number of security
holders or among such holders and the corporation. A restriction on the transfer
of securities of a corporation is permitted under the Delaware GCL if it (i)
contains a right of first refusal in favor of the corporation or any other
person, to be exercised within a reasonable time; (ii) obligates the corporation
or any other person to purchase the securities; (iii) requires the corporation
or the holders of any class of securities of the corporation to consent to any
proposed transfer of the restricted securities or to approve the proposed
transferee; or (iv) prohibits the transfer of the restricted securities to
designated persons or classes of persons, and such designation is not manifestly
unreasonable. Any other lawful restriction on the transfer of securities also is
permitted under the Delaware GCL.


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         Apria. Neither the Apria Certificate nor the Apria By-laws provides for
restrictions on the transfer of Apria securities.

         Vitas. The Vitas Certificate provides that the Series B Preferred may
be transferred only in accordance with the terms of the Stockholders' Agreement.
The Vitas Certificate also provides that the 9% Preferred cannot be transferred
without the consent of Vitas. The Warrants provide that they cannot be
transferred without the consent of Vitas. Pursuant to the terms of the Investor
Agreement, Vitas has a right of first refusal to purchase the Vitas Warrants or
Vitas Common Stock owned by OCR prior to the sale of such Warrants or Common
Stock in a private transaction. In addition, the Investor Agreement provides
that, in the event of a Change in Control (as defined therein) of Chemed and/or
OCR, Vitas has the right to repurchase the 9% Preferred, Warrants and Vitas
Common Stock owned by Chemed and OCR.

         The Stockholders' Agreement provides that the Series B Preferred is
subject to certain restrictions on the transfer of shares of any voting
securities owned or acquired by the holders of the Series B Preferred, including
certain rights of first refusal granted to Vitas, certain rights to be
designated as Vitas' designee for purposes of exercising rights of first refusal
initially granted to Vitas or transferred by other stockholders and certain tag
along rights granted to the holders of Series B Preferred that arise in the
event of certain transfers by Hugh A. Westbrook or Carole S. Westbrook. The
Stockholders' Agreement also provides that the Investor Group (as defined
therein) has agreed that, until the closing of a public offering, such persons
will not transfer any voting securities of Vitas to certain persons or entities
including competitors of Vitas or persons or entities whose ownership is
reasonably likely to cause certain adverse business effects or other regulatory
consequences.

         On June 4, 1993, Vitas entered into a Registration Rights Agreement
(the "Equity Registration Rights Agreement") with certain holders of Common
Stock of Vitas, Chemed and the purchasers of the Series B Preferred pursuant to
which such parties are entitled to certain registration rights in the event
Vitas engages in a Qualified Public Offering (as defined therein), registers its
securities or otherwise becomes a reporting company under Section 12 of the 1934
Act.

         In addition to the above-mentioned restrictions on transfer, various
agreements involving Mr. Westbrook and other significant Vitas securityholders
contain restrictions on the transferability of Vitas capital stock, including
rights of first refusal and tag along rights.

APPRAISAL RIGHTS

         Delaware GCL. Under the Delaware GCL, the right to receive the fair
market value of dissenting shares is made available to stockholders of a
constituent corporation in a merger or consolidation effected under the Delaware
Code. Dissenters' rights of appraisal are not available (i) with respect to a
merger or consolidation by a corporation the shares of which are either listed
on a national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or are held of record by more than 2,000 holders if
such stockholders receive only shares of the surviving corporation or shares of
any other corporation which are either listed on a national securities exchange
or held of record by more than 2,000 holders, plus cash in lieu of fractional
shares; or (ii) to stockholders of a parent corporation that is not itself a
constituent corporation in a merger transaction. See Appendix D.

         Apria. Neither the Apria Certificate nor the Apria By-laws contain any
additional provisions relating to dissenters' rights of appraisal.

         Vitas. Neither the Vitas Certificate nor the Vitas By-laws contain any
additional provisions relating to dissenters' rights of appraisal.

INSPECTION OF STOCKHOLDER LIST

         Delaware GCL. Under the Delaware GCL, any stockholder is allowed,
during the usual hours of business, to inspect and copy a corporation's
stockholder list for a purpose reasonably related to such person's interest as a
stockholder.


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         Apria. The Apria By-laws provide that the officer who has charge of the
stock ledger of Apria shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting or at the place of the meeting, and the list also shall be available at
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.

         Vitas. The Vitas By-laws provide that the officer who has charge of the
stock ledger shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present. The stock ledger is the only evidence as to those stockholders who are
entitled to examine the stock ledger.

LIQUIDATION RIGHTS UPON DISSOLUTION

         Delaware GCL. Under the Delaware GCL, unless the board of directors
approves a proposal to dissolve a corporation, the dissolution must be approved
by stockholders holding 100% of the total voting power of the corporation. If
the dissolution is initiated by the board of directors, it need only be approved
by a majority of the corporation's stockholders.

         Apria. Neither the Apria Certificate nor the Apria By-laws contain any
additional provisions relating to liquidation rights upon dissolution.

         Vitas. The Vitas Certificate provides that, upon liquidation, the
holders of 9% Preferred are entitled to priority over holders of Vitas Common
Stock and certain other securities determined to be junior to the 9% Preferred,
and are entitled to receive an amount equal to accrued and unpaid dividends plus
the "Stated Value" of the 9% Preferred. Thereafter, the holders of 9% Preferred
have no other right or claim to the assets of Vitas. The above-mentioned
liquidation provisions are not triggered by a merger involving Vitas.

         The Vitas Certificate also provides that, upon liquidation, the holders
of Series B Preferred are entitled to priority over the holders of Vitas Common
Stock and certain other securities determined to be junior to the Series B
Preferred, and are entitled to receive an amount equal to accrued and unpaid
dividends plus the "Stated Value" of the Series B Preferred. Thereafter, the
holders of Series B Preferred are entitled to participate with the holders of
Vitas Common Stock in the distribution of the remaining assets of Vitas. The
above-mentioned liquidation provisions are not triggered by a merger involving
Vitas. The Vitas Certificate further provides that the Series B Preferred is
junior to the 9% Preferred on liquidation.

REDEMPTION OF SECURITIES

         Delaware GCL. The Delaware GCL provides that the stock of any class or
series may be made subject to redemption for cash, property or rights by the
corporation at its option or at the option of the holders of such stock or upon
the happening of a specified event so long as, at the time of such redemption,
the corporation has outstanding shares of at least one class or series of stock
with full voting powers which shall not be subject to redemption. A corporation
may purchase, or redeem its own securities; provided, that (i) the capital of
the corporation is not impaired or such purchase or redemption would not cause
any impairment of the capital of the corporation, except that a corporation may
purchase or redeem out of capital any of its own shares which are entitled upon
any distribution of its assets, whether by dividend or in liquidation, to a
preference over another class or series of its stock if such shares will be
retired upon their acquisition and the capital of the corporation is reduced in
accordance with the relevant provisions of the Delaware GCL and (ii) shares
which are redeemable at the option of the corporation


                                       68
<PAGE>   77
are not purchased for more than the price at which they may then be redeemed.
Special redemption provisions must be set forth in the certificate of
incorporation or resolutions of the board of directors of the corporation.

         Apria. The Rights Agreement provides that at any time prior to the
close of business on the tenth day following the Shares Acquisition Date, the
Apria Board of Directors may redeem in whole, but not in part, all of the then
outstanding Rights at a redemption price of $.01 per Right, appropriately
adjusted to reflect any stock split, stock dividend, recapitalization or similar
transaction (the "Redemption Price"); provided, however, that if Apria
authorizes the redemption after an Acquiring Person becomes such, then
Continuing Directors must be in office and the authorization will require the
approval of at least a majority of such Continuing Directors. Prior to the
expiration of the period during which the Rights may be redeemed (as discussed
above), the Apria Board of Directors may extend, one or more times, the period
during which Rights may be redeemed beyond the close of business on the tenth
day following the Shares Acquisition Date; provided, however, that Continuing
Directors must be in office and any extension will require the approval of at
least a majority of such Continuing Directors. Effective immediately upon the
action of the Apria Board of Directors ordering the redemption of the Rights,
the right to exercise the Rights will terminate and the only right of the
holders of Rights will be to receive the Redemption Price. See "--Apria Rights
Agreement."

         Vitas. The Vitas Certificate provides that, at any time, Vitas may, at
its option, redeem all or a portion of the 9% Preferred at the redemption price
per share set forth in the Vitas Certificate, subject to appropriate
adjustments, plus the amount equal to all accrued and unpaid dividends thereon
to the date fixed for redemption, out of funds legally available for such
redemption. In addition, the Vitas Certificate provides for mandatory redemption
of the 9% Preferred in accordance with a redemption schedule included in the
Vitas Certificate, subject to appropriate adjustments in the event funds legally
available for such redemption are insufficient for such purpose. Upon each
mandatory redemption date, all accrued and unpaid dividends with respect to the
shares being redeemed are required to be paid. All shares to be redeemed must be
redeemed pro rata from all holders, unless otherwise required by law. See Note 3
to Notes to Consolidated Financial Statements of Vitas for the years ended 
September 30, 1995.

         The Vitas Certificate also contains redemption provisions with respect
to the Series B Preferred. On the earlier of June 30, 1999 or six months
following the redemption in full of the 9% Preferred, but in no event prior to
June 30, 1996, any holder of Series B Preferred may require Vitas to redeem all
of such holder's shares of Series B Preferred at a price per share equal to the
"Stated Value" plus the Series B Dividend Preference Amount (as defined therein)
less any dividends declared and paid on the shares prior to the Redemption Date
(as defined therein), out of funds legally available for such redemption. The
Vitas Certificate further provides that, in the event the cumulative effect of
any redemption of Series B Preferred would cause 2/3 of the shares of Series B
Preferred outstanding on the Original Issue Date (as defined therein) to have
been redeemed, Vitas shall redeem all of the remaining outstanding shares of
Series B Preferred, out of funds legally available for such redemption.

         The Investor Agreement provides that, in the event of a Change in
Control (as defined therein) of Chemed and/or OCR, Vitas or its designee shall
have the right to repurchase the Warrants and any Vitas capital stock owned by
Chemed and OCR in accordance with the terms and conditions specified in the
Investor Agreement.

                    APRIA HEALTHCARE GROUP INC. CAPITAL STOCK
   

         The authorized capital stock of Apria consists of 150,000,000 shares of
Common Stock, $.001 par value, and 10,000,000 shares of Preferred Stock, $.001
par value. As of October 30, 1996, Apria had 51,142,565 shares of Common 
Stock and no shares of Preferred Stock issued and outstanding.

    

         Each share of Apria Common Stock entitles the holder thereof to one
vote on all matters submitted to stockholders. The voting rights of the Apria
Common Stock are noncumulative, which means that the holders of more than 50% of
the shares voting for the election of directors can elect all of the directors
being elected if they choose to do so. However, at each annual meeting of
stockholders, directors of only one of the three classes of directors are
elected. Apria Common Stock is not subject to redemption or to liability for
further calls, and all outstanding shares of Apria Common Stock are fully paid
and nonassessable. Subject to any prior rights of holders of Preferred Stock
then outstanding, holders of Apria Common Stock will be entitled to receive such
dividends as may be declared by the Board of Directors out of funds legally
available therefor and to share pro rata in any distribution to stockholders.
The holders of the Apria Common Stock have no conversion, preemptive or other
subscription rights.

                                       69
<PAGE>   78
         Apria Preferred Stock may be issued from time to time in one or more
series. The Board of Directors of Apria is authorized to fix the number of
shares of any series of Apria Preferred Stock and to determine the designation
of any such series. The Board of Directors also is authorized to determine or
alter the rights (including voting rights, if any, and conversion rights, if
any), preferences, privileges and restrictions granted to or imposed upon any
wholly unissued series of Apria Preferred Stock and, within the limits and
restrictions stated in any resolution of the Board of Directors originally
fixing the number of shares constituting any series, to increase or decrease
(but not below the number of shares of such series then outstanding) the number
of shares of any series subsequent to the issue of shares of that series.

         Pursuant to the Rights Agreement, a Preferred Stock Purchase Right is
issued with respect to each share of Apria Common Stock issued by Apria. Each
Right entitles the registered holder to purchase from Apria one one-hundredth of
a share of Apria Series A Preferred Stock at the Purchase Price. Currently, the
Rights are attached to all certificates representing shares of outstanding Apria
Common Stock and are not represented by separate Rights certificates. The Rights
are evidenced by the Apria Common Stock certificates and are transferable only
in connection with the transfer of the underlying Apria Common Stock until the
Rights Distribution Date. The Rights are not exercisable until the Rights
Distribution Date. The Apria Series A Preferred Stock purchasable upon exercise
of the Rights will be nonredeemable and junior to any other series of preferred
stock Apria may issue (unless otherwise provided in the terms of such stock).
Each share of Apria Series A Preferred Stock will have a preferential quarterly
dividend in an amount equal to the greater of (i) 100 times the dividend
declared on each share of Apria Common Stock or (ii) $1.00. In the event of
liquidation, the holders of Apria Series A Preferred Stock will be entitled to
receive a minimum preferred liquidation payment of $100 per share, but will also
be entitled to an aggregate payment of 100 times the payment made per share of
Apria Common Stock. Each share of Apria Series A Preferred Stock will entitle
the holder thereof to 100 votes on all matters submitted to a vote of the
stockholders of Apria. The holders of the shares of Apria Series A Preferred
Stock and the holders of the shares of Apria Common Stock shall vote together as
one class on all matters submitted to a vote of stockholders of Apria. In the
event of any merger, consolidation or other transaction in which shares of Apria
Common Stock are exchanged, each share of Apria Series A Preferred Stock will be
entitled to receive 100 times the amount and type of consideration received per
share of Apria Common Stock. The rights of Apria Series A Preferred Stock as to
dividends, liquidation and voting, and in the event of mergers and
consolidations, are protected by customary antidilution provisions. Until a
Right is exercised, the holder thereof, as such, has no rights as a stockholder
of Apria, including, without limitation, the right to vote or to receive
dividends. See "COMPARISON OF APRIA AND VITAS STOCKHOLDER RIGHTS--Apria Rights
Agreement" and "--Business Combinations."

         The Apria Certificate provides that any action required or permitted to
be taken by the stockholders of Apria must be taken at a meeting and may not be
taken by consent in writing, except (i) as permitted by resolutions of the Board
of Directors fixing the powers and preferences of any class or series of shares
as to which the Board of Directors has been expressly vested with authority to
fix the powers and preferences, or (ii) for the purpose of approving,
authorizing, or adopting any action or proposal theretofore approved, authorized
or adopted by the Board of Directors. The Apria By-laws may be amended or
repealed, or new By-laws may be adopted (a) by the affirmative vote of the
holders of at least a majority of the Common Stock of Apria, or (b) by the
affirmative vote of the majority of the whole Board at any regular or special
meeting. Any By-laws adopted or amended by the stockholders may be amended or
repealed by the Board or the stockholders.

         Apria Common Stock is listed on the NYSE. The transfer agent and
registrar for Apria Common Stock is Norwest Bank Minnesota, N.A. Apria furnishes
its stockholders with annual reports, which include audited financial
statements, and quarterly unaudited reports of its operations.

                     RIGHTS OF DISSENTING VITAS STOCKHOLDERS

         Under Section 262 of the Delaware GCL, a copy of which is included as
Appendix D to this Proxy Statement/Prospectus, each holder of Vitas stock
entitled to vote thereon who does not vote in favor of (or otherwise consent to)
approval and adoption of the Merger Agreement will be entitled to dissent and
demand an appraisal of the "fair value" of its stock if, prior to the vote on
the Merger at the Special Meeting, such stockholder has delivered to Vitas a
written demand for appraisal.

         Section 262 represents the exclusive statutory remedy available under
the Delaware GCL to holders of Vitas stock entitled to vote on the Merger who
elect to seek appraisal of the fair value of their shares. Persons who are
beneficial owners of shares of such Vitas stock but whose shares are held of
record by another person, such as a broker, bank or nominee, should instruct
the record holder to follow the procedures outlined below and in Section 262 if
such persons wish to dissent with respect to any or all of their shares. Failure
to take any necessary step may result in a termination or waiver of appraisal
rights under Section 262.

         Under Section 262, not less than 20 days prior to the Special Meeting,
Vitas is required to notify each stockholder eligible for appraisal rights of
the availability of such appraisal rights. This Proxy Statement/Prospectus
constitutes notice to Vitas' stockholders that appraisal rights are available
to them. Vitas stockholders of record who desire to exercise their appraisal
rights must satisfy all of the following conditions. A written demand for
appraisal of any shares of Vitas stock must be filed with Vitas before the
taking of the vote on the Merger. Such written demand must reasonably inform
Vitas of the identity of the stockholder of record and of such stockholder's
intention to demand appraisal of the shares held by such stockholder. This
written demand for appraisal of shares must be in addition to and separate from
any proxy or vote abstaining from or voting against the Merger. Neither voting
against, abstaining from voting on, failing to return a proxy with respect to,
nor failing to vote on the Merger will constitute a demand for appraisal within
Section 262. A written demand for appraisal by a Vitas stockholder should be
sent to Mark A. Sterling, Vice President--Legal and Regulatory Affairs and
Secretary of Vitas, at Vitas Healthcare Corporation, 100 South Biscayne
Boulevard, Miami, Florida 33131.

         Only the holder of record of Vitas stock is entitled to seek appraisal
of the fair value of the shares registered in such holder's name. A demand for
appraisal must be executed by or for the stockholder of record, fully and
correctly, as such stockholder's name appears on the certificate(s)
representing the shares. If the shares are owned of record in a fiduciary
capacity (such as by a trustee, guardian or custodian), such demand must be
executed by the fiduciary. If the shares are owned of record by more than one
person (as in a joint tenancy or tenancy in common), such demand must be
executed by all owners. An authorized agent, including an agent for two or more
joint owners, may execute the demand for appraisal for a stockholder of record;
however, the agent must identify the record owner and expressly disclose the
fact that, in exercising the demand, such agent is acting as agent for the
record owner.

         A record owner, such as a broker who holds shares as a nominee for
others, may exercise the right of appraisal with respect to the shares held for
all or fewer than all beneficial owners of shares of Vitas stock as to which
the holder is the record owner. In such case, the written demand must set forth
the number of shares covered by such demand. Where the number of shares is
expressly stated, the demand will be presumed to cover all shares of Vitas
stock outstanding in the name of such record owner. A dissent submitted by a
beneficial owner who is not the record owner will not be honored.

          Within ten days after the Effective Time, Vitas shall notify each
stockholder exercising appraisal rights in compliance with Section 262 of the
Delaware GCL of the date that the Merger has become effective. At any time
within 60 days after the effective date of the Merger, any stockholder shall
have the right to withdraw a demand for appraisal and to accept the terms
offered upon the Merger. If the Merger is approved and becomes effective, any
Vitas stockholder that fails to comply with the requirements described above
will be bound by the terms of the Merger.

         Within 120 days after the effective date of the Merger, Vitas, as the
surviving corporation, or any Vitas stockholder who perfected appraisal rights
may file a petition in the Delaware Court of Chancery (the "Court") demanding a
determination of the value of the stock of all such stockholders. If no
petition for appraisal is filed with the Court within 120 days after the
effective date of the Merger, stockholders' rights to appraisal shall cease,
and all stockholders shall be entitled to accept the terms offered upon the
Merger. Inasmuch as Vitas has no obligation to file such a petition, and has no
present intention to do so, any stockholder who desires such a petition to be
filed is advised to file it on a timely basis. However, no petition timely
filed in the Court demanding appraisal shall be dismissed as to any stockholder
without the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.

          At the hearing on such petition, the Court shall determine the Vitas
stockholders who have complied with Section 262 of the Delaware GCL and who have
become entitled to appraisal rights. The Court may require that the stockholders
submit their certificates of stock, if any, to the Register in Chancery for
notation thereon of the pendency of the appraisal proceedings, and if any
stockholder fails to comply with such direction, the Court may dismiss the
proceedings as to such stockholder.

         After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares as to their fair value. In determining their fair
value, the Court shall take into account all relevant factors. In Weinberger v.
UOP, Inc., 457 A.2d 701 (1983), the Delaware Supreme Court expanded the factors
that could be considered in determining fair value in an appraisal proceeding,
stating that "proof of value by any techniques or methods which are generally
considered acceptable in the financial community and otherwise admissible in
court" should be considered and that "fair price obviously requires
consideration of all relevant facts involving the value of a company. . . ." The
Delaware Supreme Court stated that in making this determination of fair value,
the court must consider market value, asset value, dividends, earnings
prospects, the nature of the enterprise and any other facts which could be
ascertained as of the date of the merger which throw any light on future
prospects of the merged corporation. Section 262 provides that fair value is to
be "exclusive of any element of value arising from the accomplishment or
expectation of the merger." In Weinberger, the Delaware Supreme Court held that
"elements of future value, including the nature of the enterprise, which are
known or susceptible of proof as of the date of the merger and not the product
of speculation, may be considered."

         Vitas stockholders considering seeking appraisal should be aware that
the fair value of their shares determined under Section 262 could be more than,
the same as or less than the value of the consideration received for such
shares pursuant to the Merger Agreement if they did not seek appraisal rights,
and that investment banking opinions as to fairness from a financial point of
view are not necessarily opinions as to fair value under Section 262.

          The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by Vitas to the stockholders entitled to such
payment. The costs of the proceedings may be determined by the Court and taxed
against either Vitas, the stockholders or both as the Court deems equitable
under the circumstances.

         Any stockholder who has duly demanded appraisal in compliance with
Section 262 will not, after the effective date of the Merger, be entitled to
vote for any purpose the shares subject to such demand for appraisal or to
receive payment of dividends or other distributions on such shares, except for
dividends or distributions payable to stockholders of record at a date prior to
the effective date of the Merger.

         THE FOREGOING SUMMARY OF THE RIGHTS OF STOCKHOLDERS REQUESTING AN
APPRAISAL CONTAINS MATERIAL INFORMATION RELATING TO THE EXERCISE OF APPRAISAL
RIGHTS BUT DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF THE PROCEDURES TO BE
FOLLOWED BY VITAS STOCKHOLDERS DESIRING TO EXERCISE THEIR RIGHTS OF APPRAISAL.
THE PRESERVATION AND EXERCISE OF APPRAISAL RIGHTS ARE CONDITIONED ON STRICT
ADHERENCE TO THE APPLICABLE PROVISIONS OF SECTION 262

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<PAGE>   79
OF THE DELAWARE GCL. EACH VITAS STOCKHOLDER DESIRING TO EXERCISE APPRAISAL
RIGHTS SHOULD REFER TO SECTION 262 OF THE DELAWARE GCL FOR A COMPLETE STATEMENT
OF THE STOCKHOLDER'S RIGHTS AND THE STEPS WHICH MUST BE FOLLOWED IN CONNECTION
WITH THE EXERCISE OF THOSE RIGHTS.

         For further information relating to the exercise of appraisal rights,
see Appendix D to this Proxy Statement/Prospectus.

                 PROPOSAL TO APPROVE SEPARATELY THE PAYMENTS TO
           HUGH A. WESTBROOK AND COLLIBROOK PURSUANT TO THE SEVERANCE
                       AND NONCOMPETITION AGREEMENTS TO BE
                   ENTERED INTO IN CONNECTION WITH THE MERGER
    IN ORDER THAT SUCH PAYMENTS NOT BE CHARACTERIZED AS "PARACHUTE PAYMENTS"
               FOR PURPOSES OF SECTIONS 280G AND 4999 OF THE CODE

         The stockholders of Vitas are being asked to approve separately certain
payments to Hugh A. Westbrook, the Chairman and Chief Executive Officer of
Vitas, and Collibrook as set forth below, in connection with the proposed
Merger. The separate approval by the stockholders of Vitas of the payments
described below is being solicited because such payments may otherwise be deemed
"parachute payments" under Sections 280G and 4999 of the Code. Approval of such
payments is a condition to Apria's obligation to effect the Merger and the
transactions contemplated under the Merger Agreement.

         Under Sections 280G and 4999 of the Code, payments of compensation made
to specified "disqualified individuals," including officers of the employer
corporation, that are contingent on a change in control of the employer and
exceed certain amounts may be characterized as "excess parachute payments"
subject to adverse tax treatment. Excess parachute payments are nondeductible by
the employer and subject to a 20% excise tax on the recipient (in addition to
the regular income tax due with respect to such payments). However, an exception
to the foregoing treatment applies to any payment made by a non-publicly traded
employer corporation if (i) such payment is approved by a vote of holders of
more than 75% of the voting power of all outstanding stock (not including stock
owned or constructively owned by or for the recipient of such payments under
Code Section 318(a)) immediately prior to the change in control, and (ii) there
is adequate disclosure to the stockholders of all material facts concerning such
payments.

BACKGROUND OF THE SEVERANCE AGREEMENT AND THE NONCOMPETITION AGREEMENT

         In September 1995, Apria and Vitas first began discussions regarding a
joint development strategy related to hospice services. During these
discussions, Mr. Westbrook and Mr. Jones also discussed, in general, the
possibility of a business combination of Vitas and Apria, as well as the nature
and scope of Mr. Westbrook's involvement with Vitas following the consummation
of a business combination. From the outset of these discussions, Mr. Westbrook
communicated to Mr. Jones and Apria his desire not to remain in a management
position if Vitas were merged into or acquired by a company such as Apria.
Apria communicated to Mr. Westbrook its desire to retain the services of Mr.
Westbrook in some capacity because of, among other things, his expertise in
public policy matters relating to the hospice industry, his relationships and
credibility within the hospice industry, his experience with acquisitions in the
not-for-profit hospice sector of the industry and his ability to provide
technical assistance to Vitas' operations. For these same reasons, Apria
indicated that it would be necessary for the parties to enter into appropriate
arrangements to restrict Mr. Westbrook's ability to compete with Vitas or Apria
after consummation of a business combination. For a discussion of the
background of the Merger, see "THE MERGER--Background of the Merger."

         From September 1995 through early April 1996, Mr. Westbrook and Mr.
Jones discussed periodically the nature and scope of Mr. Westbrook's involvement
with Vitas in the event Vitas and Apria entered into a business combination.
During Mr. Westbrook's visit to Apria's headquarters on March 4 and 5, 1996, Mr.
Jones indicated to Mr. Westbrook that, in the event of a merger between Vitas
and Apria, Apria would seek to enter into appropriate arrangements with Mr.
Westbrook pursuant to which Mr. Westbrook would continue to advise Vitas on
public policy and other issues with respect to hospices given his knowledge 
and stature within the hospice industry. From time to time during this same time
period, Furman Selz had similar discussions with representatives of Apria,
including Mr. Jones. Apria's representatives continued to emphasize Mr.
Westbrook's value to Vitas as well as the financial threat he could pose as a
competitor of Vitas.

         Preliminary discussions between Vitas' and Apria's financial advisers
continued through April 1996. On May 13, 1996, concurrently with Apria's
proposal for a business combination with an enterprise value of $200 million,
Robertson Stephens & Co. indicated to Mr. Westbrook that Apria was prepared to
enter into appropriate noncompetition, severance and consulting arrangements
with Mr. Westbrook with an aggregate value of approximately $7 million. This
offer was rejected by Mr. Westbrook. On May 14, 1996, Robertson Stephens & Co.
indicated that Apria would be willing to increase the aggregate value of such
arrangements to approximately $8.5 million. Mr. Westbrook agreed to work with
Apria toward an acceptable arrangement based, in principle, on the $8.5 million
proposal made by Apria.

         During the June 3 through June 6 merger agreement negotiations between
Apria and Vitas in Washington D.C., Mr. Westbrook and his personal legal counsel
engaged in separate discussions with representatives of Apria, including Mr.
Jones and Mr. Noeker, as to the specific terms of the noncompetition, severance
and consulting arrangements and the related allocation of the $8.5 million
aggregate value among the arrangements. These discussions continued
intermittently until, following further analysis of his preexisting benefits,
the consulting services contemplated and competitive market considerations, the
allocation was finalized. The forms of the Noncompetition Agreement and the
Severance Agreement as finally agreed to are attached as exhibits to the Merger
Agreement.

THE SEVERANCE AGREEMENT AND THE NONCOMPETITION AGREEMENT

         At or prior to the Closing Date, it is contemplated that Vitas would
enter into the Noncompetition Agreement with Mr. Westbrook and the Severance
Agreement with Mr. Westbrook, Ms. Colliflower and Collibrook. As set forth
below, Mr. Westbrook will receive $8,250,000 and Collibrook will receive an
additional $250,000, subject to stockholder approval, in cash under the terms
of these agreements.

         Pursuant to the Severance Agreement, Mr. Westbrook will no longer be an
employee of Vitas and his current employment agreement with Vitas would be
terminated. Mr. Westbrook's existing employment agreement would otherwise expire
June 4, 1998. Under that agreement Mr. Westbrook would have been entitled to an
annual base salary of $600,000 plus discretionary bonuses and coverage under a
$5,000,000 life insurance policy with an annual premium of $65,000. (In July
1995, Mr. Westbrook voluntarily agreed to reduce his base salary under his
employment agreement to $420,000.) Under the existing agreement, Mr. Westbrook
is also subject to a noncompete provision under which aggregate payments of
$120,882 are due through June 4, 1998. This provision would expire one year
after the employment agreement's expiration. Pursuant to the Severance
Agreement, Mr. Westbrook will be entitled to receive, at the Effective Time, a
cash severance payment of $1,250,000 less certain offsets for, among other
things, property of Vitas, such as life insurance policies, which will be
assigned to him.

         The Severance Agreement will also entitle Collibrook to receive
$250,000 payable at the Effective Time for providing consulting services to
Vitas for a period of one year. The services of Collibrook would be provided by
Mr. Westbrook on its behalf unless he dies or becomes disabled, in which case
the services would be performed by Ms. Colliflower. The consulting services will
include consultation and assistance to Vitas in connection with issues involving
acquisitions, operations, finance, industry conditions, legislation, litigation,
or other matters or developments involving or affecting Vitas or associated
entities. The consulting services will be provided whenever reasonably


                                       71
<PAGE>   80
requested by either of the top two senior executive officers of Apria or Vitas
at reasonable times taking into account Mr. Westbrook's other activities.

         Pursuant to the Noncompetition Agreement, Mr. Westbrook will agree that
for a period of seven years, he would not compete with the business of Vitas in
the business areas of home health care, hospice care, hospice or other related
business segments throughout the United States to the maximum extent permitted
by law or actively invest in those industry segments. Furthermore, under the
Noncompetition Agreement, Mr. Westbrook would agree to maintain the
confidentiality of Vitas trade secrets for ten years. He will be entitled to
receive an aggregate payment of $7,000,000 in exchange for this agreement
payable $5,000,000 at the Effective Time and $1,000,000 on each of the first two
anniversaries of the Effective Time.

         The Severance Agreement and the Noncompetition Agreement provide that
notwithstanding any other provision of such agreements or of any other
agreement, contract, or understanding theretofore, concurrently or thereafter
entered into by Mr. Westbrook with Vitas or any subsidiary or affiliate, except
an agreement, contract, or understanding thereafter entered into that expressly
modifies or excludes application of the following provisions (the "Other
Agreements"), and notwithstanding any formal or informal plan or other
arrangement theretofore or thereafter adopted by Vitas or any subsidiary or
affiliate for the direct or indirect compensation of Mr. Westbrook (including
groups or classes of participants or beneficiaries of which Mr. Westbrook is a
member), whether or not such compensation is deferred, is in cash, or is in the
form of an option or other benefit to or for Mr. Westbrook (a "Covered Benefit
Plan"), Mr. Westbrook and Collibrook shall not have any right to receive any
payment or other benefit under such agreement, any Other Agreement, or any
Covered Benefit Plan if such right to exercise, payment, or benefit, taking into
account all other rights, payments, or benefits to or for Mr. Westbrook under
the Noncompetition Agreement and Mr. Westbrook and/or Collibrook under the
Severance Agreement, all Other Agreements, and all Covered Benefit Plans, would
cause any right, payment, or benefit to Mr. Westbrook under the Noncompetition
Agreement or Mr. Westbrook or Collibrook under the Severance Agreement to be
considered a "parachute payment" within the meaning of Section 280G(b)(2) of the
Code as then in effect (a "Parachute Payment"). The Severance Agreement and the
Noncompetition Agreement further provide that in the event that the receipt of
any such right to exercise or any other payment or benefit under such agreement,
any Other Agreement, or any Covered Benefit Plan would cause Mr. Westbrook to be
considered to have received a Parachute Payment under such agreement, then Mr.
Westbrook shall have the right, in Mr. Westbrook's sole discretion, to designate
those rights, payments, or benefits under such agreement, any Other Agreements,
and/or any Covered Benefit Plans, that should be reduced or eliminated so as to
avoid having the right, payment, or benefit to Mr. Westbrook under the
Noncompetition Agreement or Mr. Westbrook or Collibrook under the Severance
Agreement be deemed to be a Parachute Payment.

RECOMMENDATION OF THE BOARD OF DIRECTORS

         The Vitas Board of Directors recommends that stockholders approve the
payments to be made to Mr. Westbrook and Collibrook pursuant to the Severance
Agreement and the payments to be made to Mr. Westbrook pursuant to the
Noncompetition Agreement. The Vitas Board of Directors approved the Severance
Agreement and the Noncompetition Agreement concurrently with its approval of the
Merger Agreement. In recommending approval of such payments, the Board of
Directors of Vitas gave favorable consideration to the amounts to be paid to Mr.
Westbrook under such agreements in light of his current compensation, his
contributions to Vitas and his role as a founder of Vitas and the amounts that
Mr. Westbrook could have earned over the seven-year post-Merger period of
restriction. The Board was aware that Mr. Westbrook and Ms. Colliflower have
interests in the Merger that are in addition to and may conflict with the
interests of Vitas securityholders generally. However, the Board considered such
interests to be a neutral factor in its determination. Furthermore, both Mr.
Westbrook and Ms. Colliflower abstained from deliberations and voting with
respect to the Severance Agreement and the Noncompetition Agreement.

         In connection with the Board's review of the proposed arrangements,
Vitas also retained the services of Hay during the negotiations of the Severance
Agreement and the Noncompetition Agreement to assist the Board in its review of
the reasonableness of the payments proposed to be made to Mr. Westbrook in
consideration for his agreement not to compete for a seven-year period or to
divulge any trade secrets for a ten-year period, for his agreement to consult
with Vitas for a one-year period, and for his agreement to waive his existing
employment agreement (which contained a noncompete provision as to which there
may be some uncertainty regarding enforceability in light of recent developments
under Florida law). No limitations were imposed by Vitas on the scope of Hay's
investigation or the procedures to be followed by Hay in rendering its report.
The Board gave favorable consideration to Hay's views.

         The Hay Report.  By letter dated August 5, 1996, Hay confirmed in
writing to the Board its analysis and conclusions (the "Hay Report") with
respect to the reasonableness of the aggregate $8.5 million payment to be made
to Mr. Westbrook pursuant to the Noncompetition Agreement and the Severance
Agreement. Hay's analysis is organized into two components: (a) an evaluation of
the reasonableness of the aggregate $7,250,000 payment--$7,000,000 pursuant to
the Noncompetition Agreement and $250,000 pursuant to the Severance
Agreement--made in exchange for Mr. Westbrook's agreement not to compete with
Vitas for seven years, not to divulge trade secrets for 10 years and to consult
with Vitas for one year, and (b) an evaluation of the reasonableness of the
$1,250,000 severance payment called for in the Severance Agreement. For purposes
of the Hay Report, Hay assumed that all payments under the Severance Agreement
and the Noncompetition Agreement would be made directly or indirectly to Mr.
Westbrook.

         The Hay Report--Noncompetition and Consulting Payments.  Hay's analysis
of the noncompetition payment is predicated on several assumptions: (i) Mr.
Westbrook has been employed as the chief executive officer of a company in the
industry for over 10 years; (ii) he has successfully proven that he has, and in
the future could, found and manage a similar venture in the industry and the
restricted geographic area; (iii) he has successfully generated a reasonable
return for Vitas' stockholders; and (iv) Hay knows of no reason other than the
Noncompetition Agreement why Mr. Westbrook could not find similar employment or
start a competing venture in the industry and restricted geographic area.

         With these assumptions in mind, Hay considered the lost earnings
opportunity due to the non-compete restrictions as well as several other factors
as discussed below. Hay reviewed definitive proxy statements of 31 companies
(containing compensation data for up to three years) identified to be in the
home health care, sub-acute care and nursing home segments, segments which Hay
considered to be those most comparable to the hospice segment of the healthcare
industry. The median revenue of the group -- $286 million -- was slightly above
the annualized 1996 revenue projected for Vitas. The mean revenue of the group
was $341 million.

         In analyzing compensation data from the 31 companies, Hay considered
the compensation value of the following elements: (i) salary -- Hay utilized
the most recent year's salary data (usually 1995); (ii) annual incentive --
sporadic bonus payments were averaged for the three reported years, and data
from the most recent year was utilized for bonuses showing a trend; (iii) stock
options -- Hay used the Black-Scholes method of options valuation to arrive at
a present value of the grant; (iv) restricted stock -- Hay valued restricted
stock at the market value on the day of grant with similar adjustments for
vesting restrictions and for sporadic granting practices as were applied with
respect to stock options; and (v) executive benefits -- Hay tabulated the
practices and estimated the range of typical programs offered to executives in
the industry (of the 31 companies, 13 had defined benefit plans with accrual
values of about 20% to 30% of salary per year, nine had 401(k) plans that would
equate to an average contribution of $4,500 per year and nine had no plan
provisions). 

         Hay's findings are based on actual 1995 data projected to 1996, using a
5% inflation factor, which adjustment Hay concluded to be representative of the
compensation escalation factors in the healthcare industry. Hay determined that
the median annual compensation level (salary, bonus and long-term incentives)
for the 31 companies is approximately $1.22 million in projected 1996 dollars.
Hay also prepared a separate regression analysis to compensate for the varying
sizes of the companies. The regression analysis predicted that an expected
annual compensation level (salary, bonus and long-term incentives) of a
comparably sized company is approximately $1.27 million in projected 1996
dollars. Hay noted that the compensation levels are comparable under the two
analyses.

         Hay concluded that, based on the factors listed below, it is not
unreasonable to anticipate that Mr. Westbrook could find employment which would
pay him annual compensation (salary, bonus and long-term incentives) within the
range of payment between the median and the third quartile of the 31 companies
(between $1.22 and $2.38 million in projected 1996 dollars, or between $8.54 and
$16.66 million over a seven-year period). Hay relied on the following factors to
support this conclusion: (i) Mr. Westbrook had an instrumental role in the
hospice movement and remains influential in the industry; (ii) Mr. Westbrook's
knowledge, experience, key relationships, and prominence and visibility in the
healthcare community would be extremely valuable to any competitor set up in the
restricted geographic area; (iii) Mr. Westbrook has already demonstrated the
ability to found, grow and manage a successful business in the industry; and
(iv) in seven years, after the industry matures, Mr. Westbrook's experience and
visibility in the healthcare field may not be in as much demand.

         In addition to considering the lost earnings opportunity, Hay also
considered the fact that Mr. Westbrook had agreed to two additional concessions
which would have significant value to the surviving corporation: (i) Mr.
Westbrook's agreement to consult with Vitas for a one-year period after the
change in control (which Hay considered significant despite its inability to
estimate the value of such support); and (ii) Mr. Westbrook's agreement to
cancel his existing employment agreement (which contained a noncompete provision
as to which there may be some uncertainty regarding enforceability in light of
recent developments under Florida law). Hay concluded that Mr. Westbrook's
concession to replace the existing agreement with the proposed Noncompetition
Agreement reduces uncertainty and competitive risks and represents additional
value to the surviving corporation.

         Three additional factors were recognized by Hay but determined to not
be of significant effect on its conclusions: (i) the use of 1996 dollars to
value Mr. Westbrook's lost compensation opportunity, which probably only
moderately understates the present value of such lost compensation; (ii) the
failure to consider the amount Mr. Westbrook could earn as a clergy person,
which would only slightly reduce Hay's lost compensation opportunity estimate;
and (iii) the use of for-profit public corporations instead of non-profit
corporations because the non-profit sector was not viewed as the most logical
career choice given the current status of hospice as an emerging industry.

         After considering the lost earnings opportunity and other relevant
factors summarized above, Hay concluded that the combined consideration of
$7,250,000 -- $7,000,000 not to compete and $250,000 for consulting -- under the
Noncompetition Agreement and Severance Agreement is reasonable and competitive
and, in fact, is less than what Mr. Westbrook would have earned in only three to
six years instead of the full seven year restriction period.

         The Hay Report--Severance Payment.  Hay reviewed the definitive proxy
statements of the 31 companies to isolate the size and nature of the severance
payment arrangements for the chief executive of each of the companies. Hay then
tabulated the required multiple of salary which would be paid after a
termination subsequent to a change in control. In addition, Hay determined the
estimated dollar value of any payment based on each executive's 1995
compensation levels. In conducting its analysis, Hay also considered: (i) the
requirement to mitigate severance payments in the event of subsequent
employment; (ii) the requirements to consult or to not compete with the company;
(iii) the acceleration of stock option or stock grants; and (iv) the
continuation of benefits after termination.

         Hay concluded that the projected payment for Mr. Westbrook ($1,250,000)
is between the median ($974,000) and the third quartile ($1,695,000) levels of
the 31 companies. In addition, Hay evaluated the data and calculated a
reasonable competitive multiple of salary paid to a terminated chief executive
officer in cases of change in control (3.25 times salary). The application of
this multiple to Mr. Westbrook's current salary of $420,000 resulted in Hay's
determination that $1,365,000 would be a reasonable lump sum severance payment.
Based on Hay's evaluation of the above-mentioned data, Hay concluded that the
$1,250,000 payment to Mr. Westbrook is within the reasonable range of payments
made to chief executives of other comparable companies.

         Finally, Hay concluded that the combined value of the noncompete and
severance compensation elements is between $9.51 and $18.36 million, and that
the aggregate $8.5 million payment to be paid to Mr. Westbrook pursuant to the
Noncompetition and Severance Agreements is below this competitive range and is
reasonable.

         The summary of the Hay Report set forth in this Proxy
Statement/Prospectus is qualified in its entirety by reference to the full text
of the Hay Report included as an exhibit to the Registration Statement. In
addition, a copy of the Hay report is available for inspection and copying by
any interested Vitas equity securityholder (or the representative of such
securityholder designated in writing) at the principal executive offices of
Vitas located at 100 South Biscayne Boulevard, Miami, Florida 33131 during
regular business hours.

         In the event such payments under the Severance Agreement and the
Noncompetition Agreement are not separately approved by the Vitas stockholders,
Apria may elect to waive such condition and consummate the Merger, in which case
such payments would be made to Mr. Westbrook and Collibrook, subject to the
limitations described in the preceding paragraph if such payments are deemed to
constitute "parachute payments" under Sections 280G and 4999 of the Code. In
voting in favor of the Merger Agreement and the transactions contemplated
thereunder, including the Merger, Mr. Westbrook and Ms. Colliflower abstained
from deliberations and voting with respect to the Severance Agreement and the
Noncompetition Agreement.

         IN CONSIDERING THE RECOMMENDATION OF THE VITAS BOARD OF DIRECTORS WITH
RESPECT TO THE PAYMENTS TO BE MADE TO MR. WESTBROOK AND COLLIBROOK PURSUANT TO
THE SEVERANCE AGREEMENT AND THE PAYMENTS TO BE MADE TO MR. WESTBROOK PURSUANT TO
THE NONCOMPETITION AGREEMENT, VITAS SECURITYHOLDERS SHOULD BE AWARE THAT CERTAIN
MEMBERS OF VITAS' MANAGEMENT AND BOARD OF DIRECTORS HAVE INTERESTS IN THE MERGER
THAT ARE IN ADDITION TO AND MAY CONFLICT WITH THE INTERESTS OF VITAS
SECURITYHOLDERS GENERALLY. THE VITAS BOARD OF DIRECTORS WAS AWARE OF THESE
INTERESTS AND CONSIDERED THEM, AMONG OTHER FACTORS, IN APPROVING SUCH PAYMENTS.
SEE "THE MERGER -- REASONS FOR THE MERGER AND RECOMMENDATION OF THE BOARD OF
DIRECTORS."

                                       72
<PAGE>   81

                             PRINCIPAL STOCKHOLDERS


APRIA SECURITY OWNERSHIP
   

         The following table sets forth information as of October 30, 1996
with respect to the beneficial ownership of Apria Common Stock by each person
who is known by Apria to beneficially own more than 5% of Apria's Common Stock,
each director of Apria, the Chief Executive Officer of Apria, the former
President of Apria, Apria's six most highly compensated executive officers
other than the Chief Executive Officer and former President, and by all
directors and officers as a group.  Except as otherwise indicated, beneficial
ownership includes both voting and investment power with respect to the shares
shown.

    

   
<TABLE>
<CAPTION>
                                                                                  AMOUNT AND
                                                                                   NATURE OF
                                                                                  BENEFICIAL         PERCENT OF
NAME OF BENEFICIAL OWNER                                                           OWNERSHIP           CLASS   
------------------------                                                         ------------       -----------
<S>                                                                                  <C>               <C>
T. Rowe Price Associates, Inc.(1) . . . . . . . . . . . . . . . . . . . . .          5,254,800         10.27%
Jurika & Voyles, Inc.(2)  . . . . . . . . . . . . . . . . . . . . . . . . .          3,312,021          6.48%
AIM Management Group Inc. (3) . . . . . . . . . . . . . . . . . . . . . . .          3,102,459          6.07%
Columbia Management Company (4) . . . . . . . . . . . . . . . . . . . . . .          3,049,620          6.0%
George C. Argyros(5)  . . . . . . . . . . . . . . . . . . . . . . . . . . .          2,753,768          5.4%
Jeremy M. Jones(6)(21)(22)  . . . . . . . . . . . . . . . . . . . . . . . .          1,085,114          2.1%
Timothy M. Aitken(7)  . . . . . . . . . . . . . . . . . . . . . . . . . . .            143,346           *
David L. Goldsmith(8)21)  . . . . . . . . . . . . . . . . . . . . . . . . .            308,569           *
Charles D. Martin(9)(21)  . . . . . . . . . . . . . . . . . . . . . . . . .            185,085           *
Leonard Green(10)(21) . . . . . . . . . . . . . . . . . . . . . . . . . . .             10,000           *
Frederick S. Moseley IV(11)(21) . . . . . . . . . . . . . . . . . . . . . .             69,996           *
Terry Hartshorn(12)(21) . . . . . . . . . . . . . . . . . . . . . . . . . .             36,333           *
Vincent M. Prager (13)(21)  . . . . . . . . . . . . . . . . . . . . . . . .             14,830           *
Steven T. Plochocki(14)(22) . . . . . . . . . . . . . . . . . . . . . . . .             70,600           *
Lawrence H. Smallen(15)(22) . . . . . . . . . . . . . . . . . . . . . . . .            149,060           *
Manny A. Brown(16)(22)  . . . . . . . . . . . . . . . . . . . . . . . . . .             39,000           *
Thomas A. Robbins(17)(22) . . . . . . . . . . . . . . . . . . . . . . . . .             30,600           *
Sarah L. Eames(18)  . . . . . . . . . . . . . . . . . . . . . . . . . . . .              7,428           *
Richard J. Rapp (19)  . . . . . . . . . . . . . . . . . . . . . . . . . . .             14,000           *
All directors and executive officers as a group (14 persons)(20)  . . . . .          2,174,121          4.2%
</TABLE>
    

_____________
* Less than one percent.

   

(1)              According to a Schedule 13G, dated October 10, 1996, filed
                 with the Commission, T. Rowe Price Associates, Inc., a
                 registered investment advisor ("T. Rowe Price"), has sole
                 voting power as to 184,900 of the shares and sole dispositive
                 power as to 5,254,800

    
                                       73
<PAGE>   82
                 of the shares.  The mailing address of T. Rowe Price is 100 E.
                 Pratt Street, Baltimore, Maryland 21202.

   
(2)              According to a Schedule 13G, dated February 12, 1996, and a
                 Form 13F, dated October 4, 1996, both of which have been filed
                 with the Commission, Jurika & Voyles, Inc., a registered
                 investment advisor ("Jurika"), has shared voting power as to
                 3,159,856 of the shares and sole dispositive power as to
                 3,312,021 of the shares.  The mailing address of Jurika is 1999
                 Harrison Street, Suite 700, Oakland, California 94612.
    

(3)              According to a Schedule 13G, dated February 12, 1996, and a
                 Form 13F, dated June 30, 1996, both of which have been filed
                 with the Commission, AIM Management Group Inc., a registered
                 investment advisor ("AIM"), has shared voting power as to
                 3,102,459 of the shares and sole dispositive power as to
                 3,102,459 of the shares.  The mailing address of AIM is 11
                 Greenway Plaza, Suite 1919, Houston, Texas  77046.

(4)              According to a Form 13F, dated June 30, 1996, filed with the
                 Commission, Columbia Management Company, a registered
                 investment advisor ("Columbia"), has sole voting power as to
                 2,717,460 of the shares and sole dispositive power as to
                 3,049,620 of the shares.  The mailing address of Columbia is
                 1300 S.W. Sixth, P.O. Box 1350, Portland, Oregon 97207.

(5)              According to a Schedule 13D Amendment, dated August 20, 1996,
                 filed with the Commission, this number includes 2,430,670 and
                 636 shares owned by HBI Financial, Inc. and GLA Financial
                 Corporation, respectively.  Mr. Argyros is the sole
                 shareholder of HBI Financial, Inc. and GLA Financial
                 Corporation.  This number also includes (i) 267,560 shares
                 owned by a nonprofit corporation of which Mr. Argyros is a
                 director and officer, (ii) 11,252 shares held in trust by a
                 private charitable foundation of which Mr. Argyros is a
                 trustee, (iii) 2,600 shares held in a charitable trust of
                 which Mr. Argyros is a trustee and (iv) 31,050 shares held in
                 a trust for the benefit of Mr. Argyros' children, for which
                 Mr. Argyros disclaims beneficial ownership. The mailing
                 address for Mr. Argyros is c/o Arnel & Affiliates, 950 South
                 Coast Drive, Suite 200, Costa Mesa, California 92626.

   

(6)              Includes 298,260 shares subject to options that are currently
                 exercisable or will become exercisable before December 29,
                 1996.  Also includes 702,124 shares held in a family trust of
                 which Mr. Jones is a trustee and 19,730 shares held in a trust
                 for the benefit of Mr. Jones' children for which Mr. Jones
                 disclaims beneficial ownership.

(7)              Includes 100,000 shares subject to options that are currently
                 exercisable or will become exercisable before December 29,
                 1996.  Mr. Aitken resigned from Apria as of November 7, 1995.

(8)              Includes 8,333 shares subject to options that are currently
                 exercisable or will become exercisable before December 29,
                 1996.

(9)              Includes 8,333 shares subject to options that are currently
                 exercisable or will become exercisable before December 29,
                 1996.

(10)             Includes 10,000 shares subject to options that are currently
                 exercisable or will become exercisable before December 29,
                 1996.

(11)             Includes 18,000 shares subject to options that are currently
                 exercisable or will become exercisable before December 29,
                 1996.

    



                                       74
<PAGE>   83

   

(12)             Includes 36,333 shares subject to options that are currently
                 exercisable or will become exercisable before December 29,
                 1996.

(13)             Includes 14,000 shares subject to options that are currently
                 exercisable or will become exercisable before December 29,
                 1996.

(14)             Includes 70,600 shares subject to options that are currently
                 exercisable or will become exercisable before December 29,
                 1996.

(15)             Includes 45,320 shares subject to options that are currently
                 exercisable or will become exercisable before December 29,
                 1996.

(16)             Includes 39,000 shares subject to options that are currently
                 exercisable or will become exercisable before December 29,
                 1996.

(17)             Includes 30,600 shares subject to options that are currently
                 exercisable or will become exercisable before December 29,
                 1996.

(18)             Ms. Eames resigned from Apria as of November 22, 1995.

(19)             Includes 14,000 shares subject to options that are currently
                 exercisable or will become exercisable before December 29,
                 1996.  Mr. Rapp resigned as an executive officer of Apria as
                 of July 1, 1995.

(20)             Includes shares owned by certain trusts.  Also includes
                 706,219 shares subject to options that are currently
                 exercisable or will become exercisable before December 29,
                 1996. Does not include shares beneficially owned by Messrs.
                 Aitken or Rapp or Ms. Eames.  See Notes 4 through 17.

    

(21)             Messrs. Jones, Goldsmith, Martin, Green, Moseley, Hartshorn
                 and Prager are all directors of Apria.

(22)             Mr. Jones serves as the Chairman of the Board and the Chief
                 Executive Officer.  Mr. Plochocki serves as the President and
                 Chief Operating Officer.  Mr. Smallen serves as the Chief
                 Financial Officer, Senior Vice President - Finance and
                 Treasurer.  Mr. Brown serves as the Senior Vice President,
                 Midwest Zone.  Mr. Robbins serves as the Senior Vice
                 President, Southern Zone.





                                       75
<PAGE>   84
VITAS SECURITY OWNERSHIP

   
         The following table sets forth certain information with respect to
beneficial ownership of Vitas Common Stock as of October 30, 1996 by 
(i) each person known to Vitas to be the beneficial owner of more than five
percent of the outstanding shares of Vitas Common Stock or Series B Preferred,
(ii) by each executive officer and director of Vitas and (iii) all executive
officers and directors of Vitas as a group. In addition, certain information
with respect to the ownership of the Series B Preferred is reflected on the
following table. Further, the voting power of the holders of Vitas Common Stock
and Series B Preferred voting together as one class is also indicated on the
following table as of October 30, 1996. Under the Vitas Certificate, the 
Series B Preferred has certain rights to vote together with the holders of Vitas
Common Stock as to certain matters (including the separate approval of the
payments to be made to Mr. Westbrook and Collibrook pursuant to the Severance
Agreement and the payments to be made to Mr. Westbrook pursuant to the
Noncompetition Agreement), but is subject to certain limitations on voting
power. See "COMPARISON OF APRIA AND VITAS STOCKHOLDER RIGHTS--Stockholder Voting
Rights Generally."
    

<TABLE>
<CAPTION>
                                                  Common                  Series B    
                                            Shares Beneficially       Preferred Stock            Common Voting        
                                                 Owned(1)           Beneficially Owned(1)           Power(2)          
                                         -------------------------  ---------------------     ----------------------  
                                                         PERCENT                PERCENT        NUMBER      PERCENT    
Name of Beneficial Owner                    NUMBER       OF CLASS    NUMBER     OF CLASS      OF VOTES     OF VOTES   
------------------------                    ------       --------    ------     --------      --------     --------   
<S>                                      <C>             <C>         <C>        <C>           <C>          <C>        
Hugh A. Westbrook(3)(4)(5)(20)(22).....   4,705,602        23.8%          --         --       1,009,000      16.5%    
Carole S. Westbrook(3)(5)..............   3,707,944        18.8%          --         --         107,944       1.8%    
Westbrook Family Partnership, L.P.                                                                                    
  c/o Westbrook Family Corporation,                                                                                   
  General Partner(5)...................     291,000         1.5%          --         --         291,000       4.8%    
Chemed Corporation(6)..................   3,952,958        20.0%          --         --              --        --    
Galen Entities(7)......................   2,355,264        11.9%     100,000       38.1%        796,734      13.0%    
Warburg, Pincus Investors, L.P.(8).....   2,105,264        10.7%     100,000       38.1%        653,527      10.7%    
Vitas Healthcare Corporation Employee                                                                                 
  Stock Ownership Trust(4)(5)..........     997,658         5.1%          --         --         998,052      16.3%    
Earl M. Collier, Jr.(9)................     862,500         4.4%          --         --          67,857       1.1%    
Esther T. Colliflower(5)(10)(20)(22)...     644,702         3.2%          --         --           3,702         *    
Colliflower Family Partnership, L.P.                                                                                  
  c/o The Colliflower Family                                                                                          
  Corporation, General Partner(5)......     291,000         1.5%          --         --         291,000       4.8%    
Donald J. Gaetz(5)(11)(20).............     507,054         2.6%          --         --         407,054       6.6%    
J.R. Williams, MD(5)(12)(20)(22).......     366,202         1.8%          --         --          28,702         *    
The Formanek Investment Trust(13)......     328,947         1.7%          --         --         274,507       4.5%    
Mark W. Ohlendorf(5)(14)(22)...........      85,167            *          --         --             167         *    
Richard I. Nevin, Jr.(5)(15)(22).......      75,000            *          --         --              --        --    
Mark A. Sterling(5)(16)(22)............      70,000            *          --         --              --        --    
William P. Ferretti(17)(20)............      57,000            *          --         --          32,000         *    
Timothy O'Toole(18)(20)................      20,000            *          --         --              --        --    
Patrick T. Hackett(19)(20).............   2,105,264         10.7%    100,000        38.1%            --        --    
Bruce F. Wesson (20)(21)...............   2,355,264         11.9%    100,000        38.1%            --        --    
Deutsche Beteiligungsgesellschaft                                                                                     
mbH(23) ...............................          --            *      22,500         8.6%       147,043       2.4%    
All directors and executive officers as                                                                               
a group (11 persons)...................  10,879,982         55.1%    200,000        76.2%     3,620,830      59.1%   
</TABLE>

----------------------------
*           Less than one percent.

(1)         Under Rule 13d-3 under the 1934 Act, a person has beneficial 
            ownership of any securities as to which such person, directly or
            indirectly, through any contract, arrangement, undertaking,
            relationship or otherwise has or shares voting power and/or
            investment power and as to which such person has the right to
            acquire such voting and/or investment power within 60 days.
            Beneficial ownership as to any person as of a particular date is
            calculated by dividing the number of shares beneficially owned by
            such person by the sum of the number of shares outstanding as of
            such date and the number of shares as to which such person has the
            right to acquire voting and/or investment power within 60 days. The
            Merger Agreement contemplates that the Series B Preferred would be
            converted by the holders thereof into Vitas Common Stock at or
            immediately prior to the Closing Date and Vitas' outstanding stock
            options would be exchanged for shares of Apria Common Stock (whether
            or not then vested pursuant to the terms of the related option
            agreements) at the Effective Time. This table reflects percentage of
            beneficial ownership after giving effect to the conversion of the
            Series B Preferred and the exchange of the Vitas


                                       76
<PAGE>   85
   
            stock options and is based on 19,736,280 shares of Vitas Common
            Stock and equivalents and 262,500 shares of Series B Preferred,
            respectively, outstanding as of October 30, 1996.
    

   
(2)         Voting Power means one vote per share to the holder of record in 
            the case of shares of Vitas Common Stock and a formula- determined
            number of votes per share to the holder of record in the case of
            shares of Series B Preferred when holders of Series B Preferred
            vote together with holders of Vitas Common Stock. As of October
            30, 1996, a potential maximum of 6,123,460 votes attributable to
            the Vitas Common Stock and Series B Preferred would be cast at a
            meeting of Vitas stockholders. For Mr. Westbrook, excludes votes
            attributable to shares of Vitas Common Stock he might exercise as
            Trustee of the ESOP and through his interest in the Westbrook
            Family Corporation, the general partner of the Westbrook Family
            Partnership, L.P. For Ms. Colliflower, excludes her voting
            influence through her interest in The Colliflower Family
            Corporation, the general partner of the Colliflower Family
            Partnership, L.P.
    

(3)         Includes 291,000 shares owned by the Westbrook Family Partnership,
            L.P. whose general partner is the Westbrook Family Corporation (a
            corporation owned by Hugh A. Westbrook and Carole S. Westbrook)
            which votes the shares held by the partnership. For Mr. Westbrook,
            includes 2,300,000 shares issuable upon the exercise of options that
            are exercisable on or before the Closing Date, 997,658 shares
            held by the ESOP, as to which Mr. Westbrook is the sole Trustee (but
            see footnote 4) and 107,944 shares beneficially owned by Carole S.
            Westbrook. For Ms. Westbrook, includes 3,309,000 shares beneficially
            owned by Hugh A. Westbrook. Mr. Westbrook disclaims beneficial
            ownership of shares held by his wife, Carole S. Westbrook, and
            Carole S. Westbrook disclaims beneficial ownership of shares held by
            her husband, Hugh A. Westbrook.

(4)         Mr. Westbrook is the sole Trustee of the ESOP and as such votes the
            shares held by the ESOP, except in connection with certain corporate
            transactions, including a merger, in which case the ESOP
            participants direct the voting of allocated shares (493,713 at this
            time) and the unallocated shares are voted by the Trustee. However,
            in connection with the Merger, Vitas is engaging Consulting
            Fiduciaries, Inc. ("CFI"), an independent professional fiduciary
            service, to perform all roles of the Trustee in connection with the
            voting of the shares held by the ESOP and to determine what action
            the ESOP should take with respect to the Merger. As fiduciary, CFI
            will receive the Proxy Statement/Prospectus at the time it is
            delivered to Vitas securityholders. Based on the material contained
            in the Proxy Statement/Prospectus and due diligence regarding the
            Merger which has been undertaken by CFI, CFI will prepare an
            appropriate disclosure document pursuant to the standards applicable
            under the Employee Retirement Income Security Act of 1974, as
            amended, and distribute that document to each ESOP participant
            requesting instructions directing the voting of shares which have
            been allocated to such ESOP participant's account. At the Special
            Meeting, CFI will vote all shares as to which it has received
            instructions in accordance with those instructions and will vote all
            unallocated shares and all allocated shares as to which instructions
            have not been received in accordance with CFI's determination of the
            best interests of the ESOP participants.

(5)         The business mailing address of the named person or entity is c/o
            Vitas Healthcare Corporation, 100 South Biscayne Boulevard, Suite
            1500, Miami, Florida 33131.

   
(6)         As of October 30, 1996, Chemed, through its wholly-owned
            subsidiary OCR, held warrants to purchase 3,952,958 shares of Vitas
            Common Stock. Chemed also owns, through OCR, 270,000 shares of 9%
            Preferred. The mailing address of Chemed is 2600 Chemed Center, 
            255 East Fifth Street, Cincinnati, Ohio 45202.
    

   
(7)         As of October 30, 1996, includes shares owned by the following
            Galen entities (collectively, the "Galen Entities") which are
            affiliates through common ownership and/or control: (i) Galen
            Partners II, L.P. which held 72,114 shares of Series B Preferred
            which are convertible into 1,518,190 shares of Vitas Common Stock
            and 180,036 shares of Vitas Common Stock, or a total of 1,698,226
            equivalent shares of Vitas Common Stock; (ii) Galen Partners
            International II, L.P. which held 27,591 shares of Series B
            Preferred which are convertible into 580,863 shares of Vitas Common
            Stock and 68,883 shares of Vitas Common Stock, or a total of 649,746
            equivalent shares of Vitas Common Stock; and (iii) Galen Employee
            Fund, L.P. which held 295 shares of Series B Preferred Stock which
            are convertible into 6,211 shares of Vitas Common Stock and 1,081
            shares of Vitas Common Stock, or a total of 7,292 equivalent shares
            of Vitas Common Stock. The mailing address of the Galen Entities is
            666 Third Avenue, Suite 1400, New York, New York 10017.
    

(8)         The sole general partner of Warburg, Pincus Investors, L.P.
            ("Investors") is Warburg, Pincus & Co., a New York general
            partnership ("WP"). Lionel I. Pincus is the managing partner of WP
            and may be deemed to control it. E.M. Warburg, Pincus & Company, a
            New York general partnership ("E.M. Warburg"), manages Investors. WP
            has a 20% interest in the profit of Investors and through its wholly
            owned subsidiary, E.M. Warburg, Pincus & Co., Inc. ("EMW") owns
            1.13% of the limited partnership interests in Investors. Patrick T.
            Hackett, a director of Vitas, is a General Partner of WP and E.M.
            Warburg and a Managing Director of EMW. As such, Mr. Hackett may be
            deemed to have an indirect pecuniary interest (within the meaning of
            Rule 16a-1 of the 1934 Act) in an indeterminate portion of the
            shares beneficially owned by Investors, EMW and WP. Mr. Hackett
            disclaims beneficial ownership of shares beneficially owned by
            Investors, EMW and WP within Rule 13d-3 under the 1934 Act. The
            mailing address of Investors is 466 Lexington Avenue, New York, New
            York 10017.


                                      77
<PAGE>   86

(9)         Includes 794,643 shares issuable upon the exercise of options that
            are exercisable on or before the Closing Date and 67,857 shares of
            Vitas Common Stock.

(10)        Includes 291,000 shares owned by the Colliflower Family Partnership,
            L.P. whose general partner is The Colliflower Family Corporation (a
            corporation owned by Esther T. Colliflower and her husband Owen
            Colliflower) which votes the shares held by the partnership.
            Includes 350,000 shares issuable upon the exercise of options that
            are exercisable on or before the Closing Date. Includes 3,702 shares
            held by the ESOP allocated to Ms. Colliflower's ESOP account.

   
(11)        Pursuant to a call agreement between Mr. Gaetz, Ms. Colliflower and
            Mr. Westbrook, Mr. Gaetz has the right to purchase up to 50,000
            shares of Vitas Common Stock from each of Ms. Colliflower and Mr.
            Westbrook at $3.58 per share, which call right becomes exercisable
            in increments, subject to certain terms and conditions, through
            December 17, 1998. Under such call agreement, as of October 30,
            1996, Mr. Gaetz has the right to purchase 35,000 shares of Vitas
            Common Stock from each of Ms. Colliflower and Mr. Westbrook. As a
            result of the Merger, Mr. Gaetz will be entitled to exercise his
            rights to purchase all shares subject to the call agreement,
            including those shares with respect to which the call has not yet
            vested. Includes 3,702 shares held by the ESOP allocated to Mr.
            Gaetz's ESOP account.
    

(12)        Includes 337,500 shares issuable upon the exercise of options that
            are exercisable on or before the Closing Date and 25,000 shares of
            Vitas Common Stock. Includes 3,702 shares held by the ESOP allocated
            to Dr. Williams' ESOP account.

(13)        Includes 3,750 shares of Series B Preferred which are convertible
            into 78,947 shares of Vitas Common Stock and 250,000 shares of Vitas
            Common Stock. Peter R. Formanek is the sole Trustee of The Formanek
            Investment Trust.

(14)        Includes 85,000 shares issuable upon the exercise of options that
            are exercisable or will become exchangeable for Apria Common Stock
            on or before the Closing Date. Certain of these stock options will
            be subject to a Vesting Discount Amount. See "THE MERGER
            AGREEMENT--Treatment of Stock Options." Includes 167 shares held by
            the ESOP allocated to Mr. Ohlendorf's ESOP account.

(15)        Consists of 75,000 shares issuable upon the exercise of options that
            are exercisable or will become exchangeable for Apria Common Stock
            on or before the Closing Date. Certain of these stock options will
            be subject to a Vesting Discount Amount. See "THE MERGER
            AGREEMENT--Treatment of Stock Options."

(16)        Consists of 70,000 shares issuable upon the exercise of options that
            are exercisable or will become exchangeable for Apria Common Stock
            on or before the Closing Date. Certain of these stock options will
            be subject to a Vesting Discount Amount. See "THE MERGER
            AGREEMENT--Treatment of Stock Options."

(17)        Consists of 25,000 shares issuable upon the exercise of options that
            are exercisable or will become exchangeable for Apria Common Stock
            on or before the Closing Date and 32,000 shares of Vitas Common
            Stock.

   
(18)        Consists of 20,000 shares issuable upon the exercise of options that
            are exercisable or will become exchangeable for Apria Common Stock
            on or before the Closing Date. Mr. O'Toole disclaims beneficial
            ownership of the shares held by Chemed through OCR.
    

(19)        Mr. Hackett disclaims beneficial ownership of the shares 
            beneficially owned by Investors, EMW and WP within Rule 13d-3 under
            the 1934 Act. Mr. Hackett's mailing address is c/o Warburg, Pincus
            Investors, L.P., 466 Lexington Avenue, New York, New York 10017.

(20)        Messrs. Westbrook, Gaetz, Williams, Ferretti, O'Toole, Hackett, 
            Wesson and Ms. Colliflower are all directors of Vitas.

(21)        Bruce F. Wesson, a director of Vitas, is a General Partner of the 
            General Partner of Galen Partners II, L.P. and Galen Partners
            International II, L.P. and a General Partner of Galen Employee Fund,
            L.P. 

                                       78

<PAGE>   87
            Except to the extent of his partnership interest, Mr. Wesson
            disclaims beneficial ownership of the shares held by the Galen
            Entities.

(22)        Mr. Westbrook serves as the Chairman and Chief Executive Officer.
            Ms. Colliflower serves as a Vice Chairperson and a Senior Vice
            President. Dr. Williams serves as Executive Vice President and Chief
            Patient Care Officer. Mr. Nevin serves as Executive Vice President
            -- Operations. Mr. Ohlendorf serves as Vice President, Chief
            Financial Officer, Treasurer and Assistant Secretary. Mr. Sterling
            serves as Vice President -- Legal and Regulatory Affairs and
            Secretary.

(23)        The mailing address for Deutsche Beteiligungsgesellschaft mbH is
            Bockenheimer Landstrasse 42, D-6000 Frankfurt am Main 1, Germany
            841.

                                       79
<PAGE>   88
                                  LEGAL OPINION

         The validity of the shares of Apria Common Stock offered hereby and
the federal income tax consequences in connection with the Merger will be 
passed upon by O'Melveny & Myers LLP, Newport Beach, California, counsel to
Apria.

                                     EXPERTS

APRIA HEALTHCARE GROUP INC.
         The consolidated financial statements of Apria Healthcare Inc. included
in the appendices attached hereto have been audited by Ernst & Young LLP,
independent auditors, to the extent indicated in their reports thereon. The
consolidated financial statements of Abbey Healthcare Group Incorporated for the
year ended December 31, 1993 have been audited by KPMG Peat Marwick LLP,
independent auditors, as set forth in their report thereon. Such consolidated
financial statements have been included in the appendices attached hereto in
reliance upon such reports given the authority of such firms as experts in
accounting and auditing.

VITAS HEALTHCARE CORPORATION

         The consolidated financial statements of Vitas Healthcare Corporation
as of September 30, 1995 and 1994 and for each of the three years in the period
ended September 30, 1995, appearing in this Proxy Statement/Prospectus have been
audited by Ernst & Young LLP, independent certified public accountants, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.

                  VITAS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

         The following discussion of Vitas' financial condition and results of
operations should be read in conjunction with the Financial Statements and notes
thereto included elsewhere in this Proxy Statement/Prospectus.

INTRODUCTION

         In fiscal 1995, 70% of Vitas' total revenue was from the Medicare
program and 22% of Vitas' total revenue was from various state Medicaid
programs. Approximately 99% of Vitas' days of care in fiscal 1995 were
reimbursed on a "per diem" basis, while approximately 1% of Vitas' days of care
were billed based upon "fee for service" arrangements with private payors. Under
such "fee for service" arrangements, services are billed based on the quantity
and type of services and supplies delivered at pre-established rates. Under the
per diem method of hospice payment, Vitas is paid a pre-established rate per day
of hospice service, which daily rate of payment typically differs depending on
the type of care provided. Medicare currently provides reimbursement for five
different types of services: routine home care (which also includes the hospice
care for patients who reside in long-term care facilities), general inpatient
care, continuous home care, inpatient respite care, and physician services.

         Vitas' daily reimbursement under the per diem method of payment does
not differ (other than distinguishing between the types of care) based upon the
cost of services delivered to individual patients. The cost of services
delivered to individual patients varies by the number and type of visits which
the patient receives, the type and quantity of pharmaceuticals required to treat
the patient, the type and quantity of medical equipment and supplies required to
treat the patient and various other factors. Routine home care and general
inpatient care together account for more than 98% of days of service provided.
In general, direct service gross margins are higher for routine home care than
for general inpatient care. Due to the fixed per diem nature of Vitas' revenue,
Vitas' profitability is "at risk" and dependent upon its ability to effectively
manage its costs. Vitas has developed proprietary information systems that
assist in the management of Vitas' direct hospice care costs. Vitas believes
that it has historically been successful in managing its variable direct hospice
care costs against this fixed per diem payment. Vitas also bills and collects
and includes in its total revenue the Medicaid "room and board" benefit for its
Medicaid-eligible hospice patients who reside in long-term care facilities.
Vitas contracts with various nursing homes for the nursing homes' provision of
certain "room and board" services. Federal law requires that state Medicaid
programs pay to hospices, for the "room and board" of such patients, an amount
equal to at least 95% of the amount that would otherwise have been payable
directly to the nursing home under the state's Medicaid plan. Under this
"unified rate" arrangement, this amount is paid to the hospice in addition to
the applicable Medicare or Medicaid hospice per diem rate for routine home care.

         Direct hospice care costs consist of the various labor, employee
benefit and supply costs related to the direct delivery of hospice services to
patients. General and administrative costs include other costs including those
related 

                                       80
<PAGE>   89
to admission activities, local program administrative costs and the costs
associated with the operation of Vitas' corporate office. As indicated in the
notes to Vitas' audited consolidated financial statements for the periods ended
September 30, 1995, Vitas records an ongoing provision for uncollectible
accounts. The amount of this provision and the related reserve is estimated
based on historical collection experience, the aging of its accounts receivable
and other known facts, such as the existence of claim denials or disputes.

RESULTS OF OPERATIONS

         The following table sets forth, for the periods indicated, selected
consolidated financial data expressed as a percentage of revenue.

<TABLE>
<CAPTION>
                                                                                  Nine Months Ended
                                            Year Ended September 30,                  June 30,
                                      --------------------------------------  -------------------------
                                         1993          1994         1995         1995          1996
                                         ----          ----         ----         ----          ----
Net revenue........................      100.0%        100.0%       100.0%       100.0%        100.0%
                                         -----         -----        -----        -----         -----
<S>                                      <C>           <C>          <C>          <C>           <C> 
Operating expenses:
Direct hospice care costs..........       62.4          61.9         64.3         63.5          65.6

General and administrative.........       32.0          30.7         31.7         32.9          29.1

Provision for bad debts............        2.2           2.2          3.0          3.0           2.1

Amortization of intangibles........        0.5           0.7          0.8          0.8           1.0

Other operating expenses...........        3.1            --          0.9          1.2            --
                                         -----         -----        -----        -----         -----
Total operating expenses...........      100.2          95.5        100.7        101.4          97.8
                                         -----         -----        -----        -----         -----
Income (loss) from operations......       (0.2)          4.5         (0.7)        (1.4)          2.2
                                         -----         -----        -----        -----         -----

Interest expense (income), net.....       (0.1)         (0.2)         1.2          1.0           1.6
                                         -----         -----        -----        -----         -----
Income (loss) before taxes.........       (0.1)%         4.7%        (1.9)%       (2.4)%         0.6%
                                         =====         =====        =====        =====         =====
</TABLE>

         The following table sets forth the utilization distribution for the
service types based on days of service provided for the indicated periods:

<TABLE>
<CAPTION>
                                                                        
                                                    Year Ended                       Nine Months
                                                   September 30                     Ended June 30
                                        -----------------------------------      --------------------
                                         1993          1994           1995        1995          1996
                                         ----          ----           ----        ----          ----
<S>                                     <C>            <C>            <C>         <C>           <C>  
Routine home care.....................  92.9%          93.7%          94.8%       94.5%         93.6%
General inpatient care................   6.8%           6.0%           4.7%        4.8%          4.7%
Other.................................   0.3%           0.3%           0.6%        0.7%          1.7%
</TABLE>

NINE MONTHS ENDED JUNE 30, 1996 COMPARED TO NINE MONTHS ENDED JUNE 30, 1995

   
         Revenue increased 15.5%, or $25.7 million, from $165.8 million in 1995
to $191.5 million in 1996. The increase in revenue was primarily attributable to
revenues from businesses acquired during 1995 and 1996 including the
acquisitions of substantially all of the assets of Community Hospice Care, Inc.
and its affiliated limited partnerships ("CHC") and substantially all of the
assets of Hospice of the Miami Valley, Inc. ("HMV"). These two acquisitions
together resulted in a 15.8% increase in revenue between the periods. Revenue
also increased by an overall amount of 1.4% due to the October 1, 1995 Medicare
rate increase of 2.0%. Revenue decreased by 1.8% between the periods due to
lower census and revenue levels at Vitas' operations other than those acquired
from CHC and HMV. This decrease in census in non-acquisition operations was due
principally to a decline in overall average length of stay from 68.7 days in the
1995 period to 67.8 days in the 1996 period, a decline of 1.3%. Vitas management
believes that this decline in average length of stay between the periods was
principally attributable to later than average referral decisions by referring
physicians resulting from an overreaction to enhanced public initiatives by
regulatory authorities (including activities related to ORT and focused medical
review activities by Medicare fiscal intermediaries) affecting Vitas and other
hospices and the publicity (including coverage in hospice and home health trade
publications and newspaper articles) that these initiatives received. Census at
Vitas' non- acquisition operations was also adversely affected by increased
competitive pressure from other healthcare providers, such as home health
agencies and nursing homes.
    

         Direct hospice care costs increased 19.3%, or $20.3 million, from
$105.3 million in 1995 to $125.6 million in 1996. The increase in direct care
costs related principally to the increased average patient census in the period.
Direct hospice care costs as a percentage of revenue also increased by 2.1% of
revenue, from 63.5% in 1995 to 65.6% in 1996 due primarily to the higher cost
structure of the CHC and HMV operations which are reflected in the 1996 results.
The higher cost structures of the former CHC and HMV operations are attributable
to their prior autonomous operation as freestanding organizations and the
related overhead and infrastructure costs. Vitas believes that the cost
structures of the former CHC and HMV operations will, over time, be reduced as
overhead costs are reduced and those operations begin to fully utilize Vitas'
information systems and methods of operations.

         General and administrative costs increased 2.4%, or $1.3 million, from
$54.5 million in 1995 to $55.8 million in 1996. The change in general and
administrative costs related principally to increased costs due to the addition
of the CHC and HMV operations in the 1996 period offset by lower costs
associated with Vitas' corporate office operations in 1996. General and
administrative costs as a percentage of revenue decreased by 3.8% of revenue,
from 32.9% in 1995 to 29.1% in 1996 due primarily to the effect of reduced
corporate office costs with increased revenue between 1995 and 1996.

                                       81
<PAGE>   90
         Provision for bad debts decreased both in dollars (from $5.0 million in
1995 to $4.0 million in 1996) and as a percentage of revenue (from 3.0% in 1995
to 2.1% in 1996) due to improvements in Vitas' admission and billing processes
in 1996. These improvements included the implementation of a new computerized
accounts receivable system which is integrated into the information system
utilized to admit patients, the use of enhanced system edits at the point of
admission to improve the accuracy of data necessary for billing, and improved
processes related to the verification of payor coverage of patients at the point
of admission. Net interest expense increased (from $1.6 million in 1995 to $3.1
million in 1996) primarily due to borrowings outstanding in 1996 related to the
acquisitions of CHC and HMV. Expenses associated with the amortization of
intangible assets also increased (from $1.3 million in 1995 to $1.9 million in
1996) due primarily to the acquisitions of CHC and HMV which acquisitions were
accounted for as purchases. The 1995 period was also affected by a $2.0 million
(or 1.2% of revenue) charge related to restructuring costs incurred principally
to establish a severance reserve related to an overhead reduction program
implemented in 1995.

         As a result of these various changes between the periods discussed
above, income before taxes increased from a loss of $3.9 million to a profit of
$1.1 million and net income increased from a loss of $2.5 million to a profit of
$0.6 million between 1995 and 1996, respectively.

FISCAL YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO FISCAL YEAR ENDED 
SEPTEMBER 30, 1994

         Revenue increased 31.3%, or $55.1 million, from $175.8 million in 1994
to $230.9 million in 1995. The increase in revenue was attributable to an
increase in average patient census of 28.3%, which change in average patient
census related principally to an increase in average census resulting from the
acquisition of CHC and increased census in certain Vitas programs which had
initially commenced operations in fiscal 1993 and fiscal 1994. In addition, the
1995 period reflects the effect of a Medicare rate increase, effective October
1, 1994, of 2.1%.

         Direct hospice care costs increased 36.6%, or $39.8 million, from
$108.8 million in 1994 to $148.6 million in 1995. The increase in direct care
costs related principally to the increased average patient census in the period.
Direct hospice care costs as a percentage of revenue also increased by 2.4% of
revenue, from 61.9% in 1994 to 64.3% in 1995 due primarily to the higher cost
structure of the CHC operations which are reflected in a portion of the 1995
results and due to some margin deterioration caused by the high cost structure
of certain Vitas programs which had initially commenced operations in fiscal
1993 and fiscal 1994. Vitas management believes that these higher cost structure
programs which commenced operations in fiscal 1993 and fiscal 1994 will, over
time, evolve to more normal cost structures as these start-up programs grow in
size and fixed costs are distributed over a larger revenue base.

         General and administrative costs increased 35.7%, or $19.3 million,
from $54.0 million in 1994 to $73.3 million in 1995. The change in general and
administrative costs related principally to increased costs due to the addition
of the CHC operations in the 1995 period. General and administrative costs as a
percentage of revenue increased by 1.0% of revenue, from 30.7% in 1994 to 31.7%
in 1995 due primarily to higher spending as a percentage of revenue in 1995 on
admission activities. General and administrative costs in 1995 were also higher
due to $0.6 million of costs associated with the termination of certain employee
benefit programs, $0.3 million of costs incurred related to a subordinated debt
offering that was not completed and a charge of $1.4 million related to the
settlement of litigation. The employee benefit programs were terminated in
conjunction with the overhead reduction program which is described below. The
litigation settlement resulted from a contractual dispute which had arisen
with one of Vitas' suppliers in late 1994. Vitas also incurred $2.0 million
(or 0.9% of revenue) of restructuring costs in 1995 which related principally to
the establishment of a severance reserve related to an overhead reduction
program implemented in 1995. The overhead reduction program, which was
implemented in the fourth quarter of fiscal 1995, reduced Vitas' annual overhead
costs by approximately $4.9 million. Overhead costs reduced included $1.8
million of reduced employment-related costs effected through lay-offs and
staffing reductions, $1.9 million in reduced employee-benefit related costs
effected through the elimination of employee- benefit programs and a $1.2
million reduction in spending related to professional fees and other overhead
expenses. Vitas anticipates that the balance of the restructuring cost reserve
will be fully liquidated by December 1996.
         Provision for bad debts increased both in dollars (from $4.0 million in
1994 to $6.8 million in 1995) and as a percentage of revenue (from 2.2% in 1994
to 3.0% in 1995) due primarily to the increased revenues between the periods and
due, in part, to a failure to collect certain billings related to the
application of more stringent documentation requirements by certain of Vitas'
third-party payors, especially state Medicaid programs.  Vitas became aware in
fiscal 1995 of new facts (the absence of certain documentation required for
billing purposes) which caused it to believe that certain of its accounts
receivable might be uncollectible. The uncollectible accounts receivable related
generally to services delivered in 1994 and early 1995. The additional bad debt
provision recorded in 1995 related to the application of these more stringent
documentation requirements was approximately $1.7 million, or 0.7% of 1995
revenues. Because Vitas became aware of these new facts in fiscal 1995, the
accounting estimate for the provision for bad debts was adjusted accordingly in
that period. As discussed above, Vitas implemented various improvements in its
admission and billing processes in 1996, including the implementation of a new
computerized accounts receivable system which is integrated into the information
system utilized to admit patients, the use of enhanced system edits at the point
of admission to improve the accuracy of data necessary for billing, and improved
processes related to the verification of payor coverage of patients at the point
of admission. Net interest expense (income) increased (from ($0.4) million in
1994 to $2.8 million in 1995) primarily due to borrowings outstanding in 1995
related to the acquisition of CHC and due to lower interest income resulting
from lower invested cash levels in 1995. Expenses associated with the
amortization of intangible assets also increased (from $1.2 million in 1994 to
$1.8 million in 1995) due primarily to the acquisition of CHC which acquisition
was accounted for as a purchase.
         As a result of these various changes between the periods discussed
above, income before taxes decreased from $8.3 million to a loss of $4.4 million
and net income decreased from $5.1 million to a loss of $2.8 million between
1994 and 1995, respectively.


                                       82
<PAGE>   91
FISCAL YEAR ENDED SEPTEMBER 30, 1994 COMPARED TO FISCAL YEAR ENDED 
SEPTEMBER 30, 1993
         Revenue increased 16.4%, or $24.8 million, from $151.0 million in 1993
to $175.8 million in 1994. The increase in revenue was attributable to an
increase in average patient census of 17.9%, which change in average patient
census related principally to an increase in average census throughout Vitas'
operations. In addition, the 1994 period reflects the effect of a Medicare rate
increase, effective October 1, 1993, of 2.3%, which had the effect of 
increasing overall revenue by 1.6%. The effects of the census increase and 
Medicare rate increase were partially offset by a decrease in the percentage of
patients who received inpatient services during 1994 compared to 1993.
         Direct hospice care costs increased 15.5%, or $14.6 million, from $94.2
million in 1993 to $108.8 million in 1994. The increase in direct care costs
related principally to the increased average patient census in the period.
Direct hospice care costs as a percentage of revenue decreased by 0.5% of
revenue, from 62.4% in 1993 to 61.9% in 1994 due primarily to cost efficiencies
related to the higher average patient census and revenue in 1994.

         General and administrative costs increased 11.8%, or $5.7 million, from
$48.3 million in 1993 to $54.0 million in 1994. The change in general and
administrative costs related principally to increased costs due to additional
hospice programs opened in 1993 and 1994 and due to increased spending in the
corporate office due to Vitas' continued growth and expansion. General and
administrative costs as a percentage of revenue decreased by 1.3% of revenue,
from 32.0% in 1993 to 30.7% in 1994 due primarily to the effect of reduced
corporate office costs with increased revenue between 1993 and 1994. In 1993,
certain officers' loans were forgiven, resulting in a $4.7 million charge
related to the forgiveness of the loans and related accrued interest and the
payment of a bonus to cover the income tax consequences of the loan and accrued
interest forgiveness.

         Provision for bad debts increased from $3.3 million in 1993 to $4.0
million in 1994 while bad debt expense as a percentage of revenue remained
relatively constant between the periods. Net interest income increased (from
$0.1 million in 1993 to $0.4 million in 1994) primarily due to the prepayment
of $3.6 million of outstanding notes in September 1993 and due to higher
interest earnings in 1994 principally relating to earnings on the cash proceeds
from the placement of the Series B Preferred in June 1993.

         As a result of these various changes between the periods discussed
above, income before taxes improved from a loss of $0.1 million to a profit of
$8.3 million and net income (before the cumulative effect of a change in
accounting principle related to income taxes) improved from a loss of $0.2
million to a profit of $5.1 million between 1993 and 1994, respectively.

LIQUIDITY AND CAPITAL RESOURCES

         In June 1993, Vitas improved its liquidity and capital position with
the issuance of the Series B Preferred. The net proceeds from the issuance of
the Series B Preferred was $24.1 million, and $8.2 million of such net proceeds
were utilized to redeem $8.1 million of Vitas Common Stock from two of Vitas'
principal stockholders, directors and executive officers.

         In August 1994, Vitas established a $15 million revolving credit
facility with a commercial bank and also arranged third-party replacement
financing through that commercial bank for $2.4 million principal balance of
Vitas' loan to the ESOP. In February 1995, Vitas' bank credit facilities were
amended to provide a $20 million revolving credit facility and a $25 million
term loan which was funded in conjunction with the CHC acquisition. Outstanding
draws against the revolving credit facility currently bear interest at the prime
rate plus 1% or at certain LIBOR rates plus 2.5%. The term loan facility
currently bears interest at the prime rate plus 1.5% or at certain LIBOR rates
plus 3.0%. In conjunction with the CHC acquisition, CHC agreed to accept a
portion of the purchase consideration in the form of two subordinated notes
(Note A in an initial amount of $6.0 million and Note B in an initial amount of
$5.4 million) both bearing interest at 9%.

         Net cash provided by (used in) operations was $4.0 million in fiscal
1993, $3.1 million in fiscal 1994, ($2.3) million in fiscal 1995 and $6.9
million in the nine months ended June 30, 1996. Cash, cash equivalents and
marketable securities totaled $17.2 million, $13.8 million, $4.5 million and
$2.4 million at September 30, 1993, September 30, 1994, September 30, 1995 and
June 30, 1996, respectively. Vitas' cash position was affected beginning in the
September 30, 1995 period by the initial working capital funding of the CHC and
HMV operations.


                                       83
<PAGE>   92
         Days' sales in outstanding receivables ("DSO") were 34.0, 39.4, 43.3
and 39.2 at September 30, 1993, September 30, 1994, September 30, 1995 and June
30, 1996. DSO were high at September 30, 1995 due to accounts receivable payment
disruptions resulting from delays with respect to regulatory approvals relating
to the change in ownership of the CHC operations in February 1995. Subsequent to
September 30, 1995 such change in ownership issues were resolved and DSO
returned to a more normal level of 39.2 at June 30, 1996. 
         
         Capital expenditures were $5.2 million in fiscal 1993, $6.7 million in
fiscal 1994, $5.3 million in fiscal 1995 and $4.6 million in the nine months
ended June 30, 1996 or 3.4%, 3.8%, 2.3% and 2.4% of net revenue, respectively.
Capital expenditures were made principally to purchase computer hardware, to
purchase or develop computer software, to purchase telephone systems and for
various leasehold improvements and equipment. Capital expenditures were
financed, in part, by capital leases in amounts of $2.1 million, $2.5 million,
$1.3 million and $0.3 million in fiscal 1993, 1994, 1995 and the nine months
ended June 30, 1996, respectively.

         Cash dividend payments on the outstanding shares of 9% Preferred
amounted to $2.4 million in fiscal 1993 through 1995 and $1.2 million in the
nine months ended June 30, 1996. 

         Subsequent to the quarter ended March 31, 1996, Vitas' results of
operations have been adversely affected by various factors, including the
disruption to operations resulting from the proposed Merger. Due to such
factors, management of Vitas believes that Vitas' results of operations will be
increasingly adversely affected until the closing of the Merger. These
disruptions included the preparation for reorganization of Vitas' senior
management, initial communications to various Vitas personnel of the projected
termination date of their employment after the closing of the Merger,
communications relative to anticipated reorganization of various support
functions including marketing and sales activities and the need for
communication to Vitas' general employee base and referral sources regarding
the Merger. Vitas management believes that the effects of these disruptions will
gradually diminish following the Closing of the Merger. In addition to
disruption to operations resulting from the proposed Merger, Vitas' results of
operations have continued to be negatively affected by a reduction in the
overall average length of stay (as discussed above) and by increased competitive
pressure from other healthcare providers such as home health agencies and 
nursing homes.

          By letter dated August 5, 1996, Vitas' bank lender amended, effective
as of April 1, 1996, certain covenants in Vitas' bank loan agreement relating to
Vitas' consolidated interest coverage ratio and consolidated fixed charge ratio.
Without this amendment, Vitas would have been in non-compliance with its
consolidated interest coverage ratio and consolidated fixed charge ratio
covenants as of and for the quarter ended June 30, 1996. Such amendments were
effective through September 29, 1996. As a result of such amendments, Vitas
continued to be in compliance with such covenants as of June 30, 1996. Pursuant
to an agreement dated as of September 29, 1996, such covenants, together with
the current ratio covenant and the consolidated leverage ratio covenant, were
amended to require Vitas to be in compliance with such covenants only at the
end of any fiscal quarter, rather than at any time during the fiscal quarter.
In addition, pursuant to such agreement, Vitas is not required to report to its
bank lender any default or event of default under such covenants until the
earlier of the delivery of certain financial reports pursuant to the loan
agreement or the date upon which the Merger Agreement is terminated or
cancelled. Vitas believes it is likely that when such financial reports are
prepared, they will show that Vitas would have been in violation of such
covenants as of September 30, 1996. There is no assurance that Vitas' bank 
lender will agree to further amendments or waivers to such financial covenants 
or other terms of Vitas' bank credit agreements. However, Vitas believes, 
based on discussions with its bank lender, that pending the Merger the bank 
will not declare an event of default with respect to such debt or take any
other action under the bank loan agreement, although there is no assurance that
this will be the case. 

   
         If the Merger Agreement is not approved and adopted by Vitas'
stockholders or if the Merger is not otherwise consummated, there are
significant potential consequences to Vitas and its stockholders. Pursuant to
the terms of Vitas' bank credit facilities, all borrowings outstanding under
such facilities were scheduled to mature on October 1, 1996. Pursuant to the
agreement dated as of September 29, 1996, Vitas also obtained an extension of
the maturity of all borrowings outstanding under its bank credit facilities
through the earlier of November 15, 1996 or the consummation, cancellation or
other termination of the Merger Agreement. Although Vitas is currently seeking
an extension of such maturity to permit consummation of the transactions
contemplated by the Merger Agreement, there can be no assurance that such
extension can be obtained. As of September 30, 1996, amounts outstanding under
such bank credit facilities totaled $36.25 million. See Note 6 to Notes to
Consolidated Financial Statements for the year ended September 30, 1995 for
certain additional information regarding Vitas' outstanding debt. In addition,
Vitas is required to redeem (to the extent funds are legally available therefor)
approximately $8.3 million of the 9% Preferred on December 31, 1996 and to make
additional redemptions on each of June 30 and December 31 of 1997 and 1998
thereafter. See Note 3 to Notes to Consolidated Financial Statements for the
year ended September 30, 1995 for certain additional information regarding
Vitas' redeemable preferred stock. In the event that the Merger is not
consummated, there can be no assurance that Vitas could successfully obtain
replacement debt or equity capital or that, if obtainable, such debt or equity
capital could be obtained in sufficient time to avoid material disruption in its
business. There also can be no assurance that, could such replacement debt or
equity capital be obtained, it would be obtained on as favorable terms as those
which exist under Vitas' current bank facilities and the 9% Preferred. All Vitas
bank debt is classified as a current liability in the June 30, 1996 Condensed
Consolidated Balance Sheet. 
    

         As of June 30, 1996, approximately 44.5% of Vitas' assets are
intangible in nature. These intangible assets resulted principally from Vitas'
asset acquisitions of CHC and HMV and represent costs in excess of net tangible
assets acquired in those acquisitions which were accounted for as purchase
transactions and are being amortized over a period of 30 years. The carrying
value of costs in excess of net tangible assets acquired will be reviewed if the
facts and circumstances suggest that it may be impaired. If this review
indicates that these costs will not be recoverable, as determined based on the
undiscounted cash flows of the entity acquired over the remaining amortization
period, Vitas will reduce the carrying value by the estimated shortfall of cash
flows, such shortfall to be calculated using discounted cash flows.


MATTERS CONCERNING THIRD-PARTY REIMBURSEMENT

         Operation Restore Trust. In May 1995, President Clinton announced a
coordinated effort by federal and state agencies, named Operation Restore Trust
("ORT"), to review industry practices and regulatory compliance of home health
agencies, nursing homes and certain durable medical equipment suppliers. This
initiative was targeted to California, Florida, Illinois, Texas, and New York,
the five states in which Medicare spending is the highest. In June 1995, federal
officials announced their intention to conduct a review as part of ORT in these
five states of hospice eligibility issues, based upon a study by the OIG of the
Department of Health and Human Services which involved two Puerto Rico hospices
unrelated to Vitas in which the OIG found a substantial number of patients not
eligible for the Medicare hospice benefit.

         Vitas operates in four of the five ORT states. As a part of its review
of hospices under ORT, the OIG has conducted an audit at various of Vitas'
hospice programs and at Vitas' corporate offices. Based upon public information,
Vitas understands that the OIG's audit of the hospice industry is planned to
continue at least through the end of fiscal 1997. The OIG's review of hospices
under ORT is ongoing, and no reports have been issued by the OIG on the outcome
of the audit of Vitas' locations. According to public reports, the OIG audits
have focused on the hospice eligibility of long stay patients (those who are in
a hospice program for longer than 210 days). Based upon public comments made by
OIG representatives and one published report on the OIG's audit of a Florida
hospice program unrelated to Vitas, it appears that the OIG's interpretation of
applicable Medicare requirements does not reflect the general hospice industry
practices regarding documentation of eligibility for the Medicare hospice
benefit. In addition, the OIG's interpretation of these requirements is
inconsistent with advice received by hospices from fiscal intermediaries and the
specific language of the applicable regulations. Vitas' revenue applicable to
services delivered to patients after 210 days of Medicare hospice services was
17%, 21%, 24%, 24% and 21% of Vitas' net patient services revenue in the years
ended September 30, 1993, 1994 and 1995, and the nine months ended June 30, 1995
and 1996, respectively. Vitas strongly disagrees with the OIG's apparent
interpretation and application of these requirements, and believes, based upon
advice from outside regulatory counsel, among other things, that it meets
applicable Medicare eligibility documentation requirements in all material
respects. The ultimate disposition of this audit and its possible impact on
Vitas cannot be predicted.

         Other Administrative Matters. Vitas is involved in various
administrative matters related to its payments from Medicare and various state
Medicaid programs. On an ongoing basis, Vitas records an estimate to reserve for
projected uncollectible third-party claims. Vitas management is not aware of any
liabilities that may result from the resolution of these various administrative
matters that, in the aggregate, would reasonably be expected to have a material
adverse effect on Vitas' consolidated financial condition or results of
operations. 


EFFECT OF INFLATION

         The effect of inflation on Vitas' results of operations has not been
material over the last three years. However, annual inflationary rate increases
under the Medicare program (and as a result, state Medicaid programs) were
reduced in the Omnibus Budget Reconciliation Act of 1993 by 2.0% for fiscal 1993
and fiscal 1994, 1.5% for fiscal 1995 and 1996, and 0.5% for fiscal 1997.
Additional future reductions in inflationary rate increases are possible and
normal inflationary increases in Vitas' operating costs could in the future be
at rates higher than those of Vitas' Medicare rate increases.

                            REGULATORY ENVIRONMENT

REIMBURSEMENT

         A substantial portion of each of Apria's and Vitas' revenues is
attributable to payments received from third-party payors, including the
Medicare and Medicaid programs and private insurers. In 1995, approximately 92%
of Vitas' revenues were attributable to Medicare and Medicaid payments and
approximately 43% of Apria's revenues were attributable to Medicare and Medicaid
payments. Apria and Vitas believe approximately 51% of their combined revenues
in 1996 will be attributable to Medicare and Medicaid payments. Many payors are
increasing pressures to control healthcare costs. In addition, both public and
private payors are increasing pressures to decrease or limit increases in
reimbursement rates for healthcare services. The levels of revenues and
profitability of Apria and Vitas, similar to those of other healthcare
companies, will be subject to the effect of possible reductions in coverage or
payment rates by third-party payors. Such changes could have a material adverse
effect on the business and results of operations of Apria and/or Vitas. For
example, in October 1995, the U.S. House of Representatives and the Senate each
passed federal budget bills aimed at, among other things, containing Medicare
and Medicaid spending. In early December, the President vetoed the legislation
in its then-current form and announced a counter-proposal which included
Medicare and Medicaid reductions less drastic than those passed by Congress. The
Medicare reimbursement reductions envisioned in these competing proposals could,
if passed into law, have a material adverse effect on Apria's and/or Vitas'
business, results of operations or financial condition.

         Under Medicaid, hospice services are optional to the states. Most
states in which Vitas operates cover Medicaid hospice services; however, there
can be no assurance that the states in which Vitas is presently operating or
states into which it could expand operations will continue to cover Medicaid
hospice services. In addition, the Medicare and Medicaid programs are subject
to statutory and regulatory changes, retroactive and prospective rate and
payment adjustments, administrative rulings, freezes, and funding reductions,
all of which may adversely affect the level of program payments and could have
a material adverse effect on Apria's and/or Vitas' business, results of
operations or financial condition. For example, recently there have been 
varying government proposals to reduce the Medicare home oxygen reimbursement 
rate by 10 to 40%. For both the year ended December 31, 1995 and the six 
months ended June 30, 1996, Medicare-reimbursed home oxygen services accounted 
for approximately 22% of Apria's net revenues. At this time, the reduction in 
the home oxygen reimbursement rate that will be passed into law, if any, 
cannot be predicted. Any significant rate reduction in excess of 10% that is 
ultimately enacted could have a material adverse effect on Apria's business, 
results of operations or financial condition.

         Medicare and Medicaid carriers and fiscal intermediaries also
periodically conduct post-payment reviews and other audits of claims submitted.
These Medicare and Medicaid contractors are under increasing pressure to
scrutinize more closely health care claims. During the past year, for example,
Vitas' fiscal intermediary has conducted several reviews of certain hospice
providers for which it processes claims, including Vitas programs. These
reviews include focused medical reviews of claims submitted for certain
patients, including patients with non-cancer diagnoses. There can be no
assurance that such reviews and/or similar audits of Apria's or Vitas' claims
will not result in material recoupments or denials which could have a material
adverse effect on Apria's and/or Vitas' business, results of operations or
financial condition.

FRAUD AND ABUSE LAWS

         As suppliers and providers of services under the Medicare and Medicaid
programs, Apria and Vitas are subject to Medicare and state healthcare program
fraud and abuse laws. These laws include the Medicare and Medicaid
anti-kickback statute, which prohibits, among other things, the offer, payment,
solicitation or receipt of any remuneration in return for the referral of
patients for items or services, or arranging for the furnishing of items or
services, for which payment may be made under the Medicare, Medicaid or other
federally funded health care programs. Violations of these provisions may
result in civil and criminal penalties and exclusion from participation in
Medicare and state health programs such as Medicaid. Recently, Congress enacted
the Health Insurance Portability and Accounting Act of 1996, which includes an
expansion of certain fraud and abuse provisions, such as expanding the
application of Medicare and Medicaid fraud penalties to other federal
healthcare programs. In addition, several healthcare reform proposals have
included an expansion of the anti-kickback laws to include referrals of any
patients regardless of payor source.

         The broad language of the anti-kickback statute has been interpreted by
the courts and governmental enforcement agencies in a manner which could impose
liability on healthcare providers for engaging in a wide variety of business
transactions. Limited "safe harbor" regulations exempt certain practices from
enforcement action under the prohibitions. However, these safe harbors are only
available to transactions which fall entirely within the narrowly defined
guidelines. Transactions that do not fall within the safe harbors do not
necessarily violate the fraud and abuse laws and, therefore, parties to such
transactions either may or may not be subject to prosecution. In addition, an
increasing number of states in which Apria and Vitas operate have laws, which
vary from state to state, prohibiting certain direct or indirect remuneration or
fee-splitting arrangements between healthcare providers, regardless of payor
source, for the referral of patients to a particular provider. In addition,
under separate statutes, submission of claims for payment that are "not provided
as claimed" may lead to civil money penalties, criminal fines and imprisonment,
and/or exclusion from participation in Medicare, Medicaid and other federally
funded state healthcare programs. These false claims statutes include the
Federal False Claims Act, which allows any person to bring suit alleging false
or fraudulent Medicare and Medicaid claims or other violations of the statute
and to share in any amounts paid by the entity to the government in fines or
settlement. Such qui tam actions have increased significantly in recent years
and have increased the risk that a healthcare company will have to defend a
false claims action, pay fines or be excluded from the Medicare and/or Medicaid
programs as a result of an investigation arising out of such action. Finally,
Congress enacted in 1993 the so-called "Stark Law," which prohibits referrals by
physicians to certain entities with which they have a financial relationship
unless an exception applies. Several states in which Apria and Vitas operate
also have similar laws. Possible sanctions for violation of these laws include
denial of payment, loss of licensure and civil and criminal penalties. Apria and
Vitas each maintains an internal regulatory compliance review program and from
time to time retains special counsel for guidance on applicable laws and
regulations. However, no assurance can be given that the practices of Apria or
Vitas, if reviewed, would be found to be in compliance with applicable health
regulatory laws, as such laws ultimately may be interpreted, or that any
non-compliance with such laws would not have a material adverse effect on Apria
and/or Vitas.

QUI TAM LAWSUIT

         Apria is one of nine named defendants in a qui tam lawsuit, which was
filed under seal in the Northern District of Georgia on August 23, 1995, by
Mark Parker, a former employee, and served on Apria on May 31, 1996. The suit
alleges that Apria violated the Civil False Claims Act by paying illegal
kickbacks to certain healthcare providers in exchange for patient referrals.
The suit also alleges that Apria violated the False Claims Act by improperly
generating "Certificates of Medical Necessity" for certain products, including
oxygen and low air-loss beds, and providing free benefits, such as pulmonary
function testing and pulse oximetry testing, to certain physicians. Finally,
the suit alleges that Mr. Parker's employment was improperly terminated in
violation of the whistle-blower protection provisions of the False Claims Act.
Prior to the service of the lawsuit, the United States Department of Justice
investigated Mr. Parker's allegations and Apria fully cooperated with that
investigation. On June 27, 1996, the United States intervened in the suit, and
on July 10, 1996, it filed an amended complaint, in which it essentially joined
Mr. Parker's allegations concerning illegal kickbacks, but declined to join any
of the other allegations. In conjunction with the qui tam action, a grand jury
also is investigating allegations contained in the qui tam complaint. Potential
remedies under the Civil False Claims Act include recovery of any actual
damages suffered by the government, treble damages, statutory fines of up to
$10,000 per false claim, and certain other remedies. The grand jury
investigation could result in the imposition of administrative, civil or
criminal fines or penalties or restitutionary relief. Apria intends to defend
vigorously against the allegations. In that regard, on July 25, 1996, Apria
filed a motion to dismiss the qui tam lawsuit, and that motion currently is
pending. Regardless of the outcome of that motion, Apria believes that the
outcome of the qui tam lawsuit and the grand jury investigation will not have a
material adverse effect on Apria's business, results of operations or financial
condition. 

OPERATION RESTORE TRUST

         Recently, the federal government made a policy decision to increase
significantly the financial and human resources allocated to enforcing the
fraud and abuse laws. Private insurers and various state enforcement agencies
also have increased their scrutiny of healthcare claims in an effort to
identify and prosecute fraudulent and abusive practices. Under ORT, the OIG, in
cooperation with other federal and state agencies, has focused on the
activities of home health agencies, hospices, durable medical equipment
suppliers and nursing homes in New York, Florida, Illinois, Texas and
California, states in which Apria and Vitas have significant operations. As
part of ORT, hospice programs, including certain of Vitas' programs, have been
audited. In a recent OIG report issued following the audit of one Florida
hospice program unrelated to Vitas, the OIG concluded that, based upon a review
of a sample of medical records of certain long stay patients (those who are in
a hospice program for longer than 210 days), the majority of the medical
records reviewed either (1) did not support the beneficiaries' eligibility for
hospice coverage, or (2) were not sufficient to determine whether the
beneficiaries were terminally ill. As a result of these findings, the OIG
recommended that the fiscal intermediary (1) recover a minimum of $8.9 million
for the beneficiaries determined not eligible for Medicare hospice benefits,
and (2) conduct medical reviews of the other cases in which the OIG was unable
to determine whether the beneficiaries were terminally ill, which cases, if
determined to be ineligible, could result in an additional 
<PAGE>   93
recoupment of up to $5.9 million. The fiscal intermediary has not publicly
indicated whether it will be following the OIG's recommendations and is not
legally obligated to do so. In commenting on a draft version of this report,
however, the intermediary noted several issues raised by the report and the
OIG's recommendations, including the process to be followed in reviewing the
eligibility determinations and whether the provider or the beneficiaries would
be responsible for any overpayments.

         The OIG's review of hospice programs is ongoing, and no reports have
been issued by the OIG on the outcome of the audit of Vitas' locations.
According to public reports, the OIG audits have focused on the hospice
eligibility of long stay patients (those who are in a hospice program for longer
than 210 days). Based upon public comments made by OIG representatives, and the
OIG report discussed above, it appears that the OIG's interpretation of
applicable Medicare requirements does not reflect general hospice industry
practices regarding documentation of eligibility for the Medicare hospice
benefit. In addition, the OIG's interpretation of these requirements is
inconsistent with advice received by hospices from fiscal intermediaries and the
specific language of the applicable regulations. Vitas strongly disagrees with
the OIG's apparent interpretation and application of these requirements, and
believes that Vitas meets applicable Medicare eligibility documentation
requirements in all material respects. The ultimate disposition of this audit
and its possible impact on Vitas cannot currently be predicted, and there can be
no assurance that this audit will not have a material adverse effect on Vitas'
business, results of operations or financial condition. See Note 5 to Notes to
Condensed Consolidated Financial Statements (Unaudited) of Vitas for the period
ended June 30, 1996.

OTHER FEDERAL AND STATE REGULATIONS

         The federal government and all states regulate various aspects of the
home healthcare and hospice industries. In particular, Apria's and Vitas'
operations are subject to federal and state laws covering the repackaging and
dispensing of drugs (including oxygen) and regulating interstate motor-carrier
transportation, pharmacies, nursing services and certain types of home health
agency and hospice activities. Certain of Apria's and Vitas' employees are
subject to state laws and regulations governing the ethics and professional
practice of medicine, respiratory therapy, pharmacy and nursing. Apria's and
Vitas' operations are subject to periodic survey by governmental and private
accrediting entities to assure compliance with applicable state licensing,
Medicare and Medicaid certification, and accreditation standards, as the case
may be. From time to time in the ordinary course of business, Apria and Vitas,
like other healthcare companies, receive survey reports containing deficiencies
for alleged failure to comply with applicable requirements. The companies
review such reports and attempt to take appropriate corrective action. The
failure to effect such action or to obtain, renew or maintain any of the
required regulatory approvals, certifications or licenses could adversely
affect Apria's and/or Vitas' business, results of operations or financial
condition and could prevent the programs involved from offering products and
services to patients. In addition, laws and regulations often are adopted to
regulate new products, services and industries. There can be no assurances that
either the states or the federal government will not impose additional
regulations upon the activities of Apria and/or Vitas which might adversely
affect their business, results of operations or financial condition.

                           FORWARD LOOKING STATEMENTS

         Apria and Vitas believe that information set forth in this Proxy 
Statement/Prospectus under the captions "RISK FACTORS," "VITAS MANAGEMENT'S 
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and 
"UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS" and information 
set forth in Apria's Annual Report on Form 10-K for the fiscal year ended 
December 31, 1995, as amended,  and in Apria's Quarterly Reports on Form 10-Q 
for the quarters ended March 31, 1996 and June 30, 1996, as amended, which 
reports are included in the appendices attached hereto, contain various 
"forward looking statements" within the meaning of Section 27A of the 1933 
Act, and Section 21E of the 1934 Act, which statements represent Apria's and 
Vitas' reasonable judgment concerning the future and are subject to risks and 
uncertainties that could cause Apria's and Vitas' actual operating results and 
financial position to differ materially. Such forward looking statements
include the following: Apria's belief that it will achieve some savings in
certain administrative costs as a result of the Merger; Apria's and Vitas' 
expectation that Congress and state legislatures will continue to review and 
assess alternative healthcare delivery systems and payment methodologies and 
that public debate of these issues will continue in the future; Apria's belief 
that the levels of revenues and profitability of Apria and/or Vitas, similar 
to those of other healthcare companies, will be subject to the effect of 
possible reductions in coverage or payment rates by third-party payors; 
Apria's intention not to pay any dividends on the Apria Common Stock in the 
foreseeable future; Apria's belief that managed care plans will continue to 
increase their influence over the delivery and cost of the healthcare services; 
Apria's belief that any liability that might be incurred by Apria upon the 
resolution of certain legal proceedings in which it is involved


                                       84

<PAGE>   94
will not, in the aggregate, have a material adverse effect on the consolidated
financial condition or results of operations of Apria; Apria's belief that
restructuring activities resulting in payroll, rent and other cost savings from
workforce reductions and branch consolidations will continue in the near term to
be partially offset by integration costs; Apria's belief that the disruption of
the day to day operations caused by the consolidation and integration activities
arising from the Abbey/Homedco Merger will not continue long term; Apria's
intention to increase collections and reduce accounts receivable and days' sales
in outstanding receivables by implementing operational processes and incentive
programs in 1996; Apria's belief that cash provided by operations and amounts
available under its new and existing credit and lease financing will be
sufficient to finance its current operations for at least the next 12 months;
Apria's expectation that integration costs will decrease significantly as the
integration activities subside; Apria's belief that disruptions and billing
delays due to facility consolidations and employee terminations will diminish
in 1996; Apria's expectation that delays will continue in 1996 for regions that
are scheduled for system conversion through September 1996; Apria's belief that
system conversions will continue to impact the timing of billing and
collections; Apria's expectation that its processing backlog will be eliminated
during the first two quarters of 1996; Apria's belief that the counterparties
to its swap and cap agreements will be able to fully satisfy their obligations
under the contracts; Apria's expectation that company-wide cash collections will
improve by the fourth quarter of 1996 as normal processing resumes; Apria's
belief that payments made against the restructuring cost accrual will continue
through the year 2000, according to contractual terms; Vitas' belief that future
reductions in inflationary rate increases are possible and that normal
inflationary increases in Vitas' operating costs could in the future be at rates
higher than those of Vitas' Medicare rate increases; Apria's expectation that no
significant stock option or stock purchase right exercises will result from the
Merger; Apria's expectation of further increases in accounts receivable in the
third quarter of 1996; Apria's belief that the anticipated resignation or
termination of officers of Vitas will not adversely impact the integration of
the two companies or have a material adverse effect on Apria or Vitas; Apria's
and Vitas' belief that approximately 51% of their combined revenue in 1996 will
be attributed to Medicare and Medicaid payments; Vitas' belief that there will
be no Debt Adjustment based on its Total Debt as of July 31, 1996; Vitas' belief
that the cost structures of the former CHC and HMV operations will, over time,
be reduced as overhead costs are reduced and those operations begin to fully
utilize Vitas' information systems and methods of operations; Vitas' belief that
the higher cost structures of certain start-up programs will, over time, evolve
to more normal cost structures as the start-up programs grow in size and fixed
costs are distributed over a larger revenue base; and Vitas' anticipation that
the balance of the restructuring cost reserve will be fully liquidated by
December 1996.

Apria and Vitas caution that the above statements are further qualified by
important factors that could cause Apria's and Vitas' actual operating results
to differ materially from those in the forward looking statements. Such factors
include, without limitation, those set forth in this Proxy Statement/Prospectus
under "RISK FACTORS" and the following: difficulties encountered in the
integration of the operations of Apria and Vitas; reforms in the healthcare
industry and increased pricing pressures on home healthcare and hospice
providers; changes in the regulatory environment with respect to reimbursement
under Medicare and Medicaid programs, fraud and abuse laws, ORT and other
federal and state regulations; recent losses reported by Apria and Vitas;
difficulties encountered by Apria in collecting accounts receivable; greater
than anticipated competition; possible loss of existing relationships with
managed care organizations, private and governmental third-party payors,
hospitals, physicians, physician groups, home health agencies, long-term care
facilities and other institutional healthcare providers, and large self-insured
employers; an increase in the concentration of large payors; inability to
maintain adequate liability insurance to cover legal claims; certain
anti-takeover provisions which may make an unsolicitated acquisition of control
of Apria more difficult or expensive; dependence on key personnel; possible
volatility of the stock price; Apria's intention not to pay any dividends on
Apria Common Stock in the foreseeable future; significant potential consequences
to Vitas if the Merger is not consummated; potential conflicts of interest
between Vitas securityholders and certain members of Vitas' management and Board
of Directors; possible adjustments to the Exchange Ratio; and dilution of voting
power of Vitas securityholders if the Merger is consummated. See "RISK FACTORS."

                                       85
<PAGE>   95
           UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

         The following unaudited pro forma condensed combined financial
statements are presented assuming the Merger has been consummated and accounted
for as a pooling of interests. The pro forma condensed combined statements of
operations for each of the three years in the period ended December 31, 1995,
and the six month periods ended June 30, 1995 and June 30, 1996 have been
prepared as if the Merger had occurred on January 1, 1993. The pro forma
condensed combined balance sheet as of June 30, 1996 has been prepared as if
the Merger had occurred on June 30, 1996. The pro forma combined data is based
on the separate historical consolidated financial statements of Apria and Vitas
giving effect to the Merger under the assumptions and adjustments outlined in
the accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements. The unaudited pro forma condensed combined financial statements are
provided for comparative purposes only and are not necessarily indicative of the
results that would have been obtained had the Merger occurred on the dates
indicated or that may be achieved in the future.

         For all applicable periods presented in the unaudited pro forma
condensed combined statements of operations, shares used in the computation of
earnings per common and common equivalent share and supplemental earnings per
common and common equivalent share give effect to the Exchange Ratio, excluding
the adjustments contemplated by the Merger Agreement.

         The unaudited pro forma condensed combined financial statements should
be read in conjunction with the separate audited consolidated financial
statements of Apria included in the appendices attached hereto and those of
Vitas included in this Proxy Statement/Prospectus.

                                       86
<PAGE>   96
                                   APRIA/VITAS
              UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

                                 JUNE 30, 1996
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
 
                                                        Historical                                  Pro Forma
                                                 ------------------------         ---------------------------------------------
                                                    Apria         Vitas           Adjustments       Reference         Combined
                                                 ----------     ---------         -----------       ---------        ----------
<S>                                              <C>            <C>                <C>              <C>              <C>       
Cash and cash equivalents....................    $   20,089     $   2,396          $                                 $   22,485
Accounts receivable, net.....................       334,586        26,683               (108)       (4)(a)              361,161
Other current assets.........................       135,085         5,159                250        (6)                 140,494
                                                 ----------     ---------          ---------                         ----------
     Total current assets....................       489,760        34,238                142                            524,140 
Patient service equipment, net...............       192,187             -                                               192,187
Property, equipment and improvements, net....       105,916        15,470                                               121,386
Goodwill, net................................       296,135        42,034                                               338,169
Other assets.................................        27,480         2,686              6,778        (4)(b)(7)            36,944
                                                 ----------     ---------          ---------                         ----------
     Total assets............................    $1,111,478     $  94,428          $   6,920                         $1,212,826
                                                 ==========     =========          =========                         ==========

Accounts payable.............................    $   62,276     $  15,590          $   5,924        (4)(a)(c)(6)     $   83,790
Other current liabilities....................        91,299        45,980            (34,657)       (4)(c)(6)(8)        102,622
                                                 ----------     ---------          ---------                         ----------
     Total current liabilities...............       153,575        61,570            (28,733)                           186,412
Long-term debt...............................       609,200        10,459             65,887        (4)(b)(d)(8)        685,546
Other non-current liabilities................             -         1,596                749        (4)(d)(7)             2,345
Redeemable preferred stock:
  9% Preferred Stock.........................             -        27,308            (27,308)       (9)                       -
  Series B Preferred Stock...................             -        32,641            (32,641)       (9)                       -
Stockholders' equity (deficiency):
  Common Stock...............................            51             4                                                    55
  Additional paid-in capital.................       316,752       (30,644)            32,641        (9)                 318,749
  Retained earnings (deficit)................        31,900        (7,071)            (5,110)       (9)                  19,719
  Indebtedness of employee stock 
    ownership plan ..........................             -        (1,435)             1,435        (8)                       -
                                                 ----------     ---------          ---------                         ----------
     Total stockholders' equity (deficiency).       348,703       (39,146)            28,966                            338,523
                                                 ----------     ---------          ---------                         ----------
     Total liabilities and stockholders' 
       equity (deficiency)...................    $1,111,478     $  94,428          $   6,920                         $1,212,826
                                                 ==========     =========          =========                         ==========

Common shares outstanding as of June 30, 1996        51,014         4,409                100        (9)                  55,523
</TABLE>



             See accompanying Notes to Unaudited Pro Forma Condensed
                         Combined Financial Statements

                                       87
<PAGE>   97
                                   APRIA/VITAS
         UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

                     FOR THE SIX MONTHS ENDED JUNE 30, 1995
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                       Historical                                      Pro Forma
                                             ------------------------------       -------------------------------------------------
                                                      Apria        Vitas               Adjustments     Reference      Combined
                                                   --------       -------              -----------     ---------      ---------
<S>                                                <C>           <C>                   <C>               <C>         <C>      
Net revenues.................................      $571,895      $101,375               $   (546)         (5)         $ 672,724
Cost of net revenues.........................       173,806        62,697                   (546)         (5)           235,957
                                                   --------      --------               --------                      ---------
  Gross profit...............................       398,089        38,678                      -                        436,767
Selling, distribution and 
 administrative expenses ....................       292,090        34,013                                               326,103
Provision for doubtful accounts..............        26,363         3,026                                                29,389
Amortization of intangible assets............         8,134           671                                                 8,805
Restructuring costs..........................         2,661             -                                                 2,661
Merger costs.................................         6,988             -                                                 6,988
Employee contract settlements................         3,206             -                                                 3,206
Loss on disposition of U.K. subsidiary.......           500             -                                                   500
                                                   --------      --------               --------                      ---------
  Operating income...........................        58,147           968                      -                         59,115
Interest expense, net of interest (income)...        21,816           498                                                22,314
                                                   --------      --------               --------                      ---------
  Income before taxes and extraordinary
    charge...................................        36,331           470                      -                         36,801
Income taxes.................................        13,042           168                                                13,210
                                                   --------      --------               --------                      ---------
  Income before extraordinary charge.........      $ 23,289      $    302               $      -                      $  23,591
                                                   ========      ========               ========                      =========
  Income before extraordinary charge    
    applicable to common stockholders........      $ 23,289      $ (1,998)              $      -                      $  21,291
                                                   ========      ========               ========                      =========

Per common and common equivalent share:
  Primary....................................      $    .49      $   (.45)                                            $     .44
  Fully diluted..............................      $    .47      $   (.45)                                            $     .42
Number of shares used in calculation:
  Primary....................................        47,495         4,402                 (3,125)         (11)           48,772
  Fully diluted..............................        51,150         4,402                 (3,125)         (11)           52,427

Supplemental per common and common 
equivalent share(11):
  Primary....................................                                                                         $     .46
  Fully diluted..............................                                                                         $     .44
Supplemental number of shares used 
in calculation(11):
  Primary....................................                                                                            51,977
  Fully diluted..............................                                                                            55,632
</TABLE>



           See accompanying Notes to Unaudited Pro Forma Condensed
                        Combined Financial Statements

                                      88
<PAGE>   98
                                   APRIA/VITAS
         UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

                     FOR THE SIX MONTHS ENDED JUNE 30, 1996
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
                                                       Historical                                      Pro Forma
                                             ------------------------------       -------------------------------------------------
                                                    Apria          Vitas               Adjustments     Reference    Combined
                                                  ---------       -------              -----------     ---------   ---------
<S>                                               <C>             <C>                   <C>               <C>         <C>      
Net revenues.................................     $ 601,882      $126,449               $  (1,427)        (5)         $ 726,904
Cost of net revenues.........................       191,034        83,099                  (1,427)        (5)           272,706
                                                  ---------       -------               ---------                     ---------
  Gross profit...............................       410,848        43,350                       -                       454,198
Selling, distribution and administrative 
  expenses ..................................       285,437        37,011                                               322,448
Provision for doubtful accounts..............        27,858         2,582                                                30,440
Amortization of intangible assets............         8,451         1,267                                                 9,718
                                                  ---------       -------               ---------                     ---------
  Operating income...........................        89,102         2,490                       -                        91,592
Interest expense, net of interest (income)...        23,111         2,082                                                25,193
                                                  ---------       -------               ---------                     ---------
  Income before taxes........................        65,991           408                       -                        66,399
Income taxes.................................        23,757           182                                                23,939
                                                  ---------       -------               ---------                     ---------
  Net income.................................     $  42,234       $   226               $       -                     $  42,460
                                                  =========       =======               =========                     =========

  Net income (loss) applicable to common
      stockholders...........................     $  42,234       $(2,074)              $       -                     $  40,160
                                                  =========       =======               =========                     =========

Per common and common equivalent share:
  Primary....................................     $     .81       $  (.47)                                            $     .75
  Fully diluted..............................     $     .81       $  (.47)                                            $     .75
Number of shares used in calculation:
  Primary....................................        52,286         4,409                  (3,130)        (11)           53,565
  Fully diluted..............................        52,399         4,409                  (3,130)        (11)           53,678

Supplemental per common and common 
equivalent share(11):
  Primary....................................                                                                         $     .73
  Fully diluted..............................                                                                         $     .72
Supplemental number of shares used 
in calculation(11):
  Primary....................................                                                                            56,788
  Fully diluted..............................                                                                            56,901
</TABLE>


           See accompanying Notes to Unaudited Pro Forma Condensed
                        Combined Financial Statements
                                      
                                      89
<PAGE>   99
                                   APRIA/VITAS
         UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

                      FOR THE YEAR ENDED DECEMBER 31, 1993
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                           Historical                                      Pro Forma
                                                  -----------------------------   -------------------------------------------------
                                                       Apria           Vitas           Adjustments     Reference        Combined
                                                     ----------      --------          -----------     ---------        --------
<S>                                                  <C>             <C>               <C>                <C>              <C>     
Net revenues.....................................    $  748,901      $150,964          $  (1,200)         (5)              $898,665
Cost of net revenues.............................       226,124        94,225             (1,200)         (5)               319,149
                                                     ----------      --------          ---------                           --------
  Gross profit...................................       522,777        56,739                  -                            579,516
Selling, distribution and administrative expenses       410,392        48,271                                               458,663
Provision for doubtful accounts..................        34,476         3,283                                                37,759
Amortization of intangible assets................         4,103           719                                                 4,822
Forgiveness of officer loans.....................             -         4,700                                                 4,700
                                                     ----------      --------          ---------                           --------
  Operating income (loss)........................        73,806          (234)                 -                             73,572
Interest expense, net of interest (income).......        18,266           (97)                                               18,169
                                                     ----------      --------          ---------                           --------
  Income (loss) from continuing 
      operations before taxes
      and cumulative effect of change
      in accounting method.......................        55,540          (137)                 -                             55,403
Income taxes.....................................        19,695            46                                                19,741
                                                     ----------      --------          ---------                           --------
  Income (loss) from continuing operations before
      cumulative effect of change
      in accounting method.......................    $   35,845      $   (183)         $       -                           $ 35,662
                                                     ==========      ========          =========                           ========

  Income (loss) from continuing operations 
      applicable to common stockholders 
      before cumulative effect of change in
      accounting method..........................    $   35,845      $ (3,297)         $       -                           $ 32,548
                                                     ==========      ========          =========                           ========

Per common and common equivalent share:
  Primary........................................    $      .94      $   (.60)                                             $    .82
  Fully diluted..................................    $      .89      $   (.60)                                             $    .79
Number of shares used in calculation:
  Primary........................................        38,138         5,527             (3,924)         (11)               39,741
  Fully diluted..................................        43,864         5,527             (3,924)         (11)               45,467

Supplemental per common and common equivalent
share(11):
  Primary........................................                                                                          $    .77
  Fully diluted..................................                                                                          $    .75
Supplemental number of shares used in
calculation(11):
  Primary........................................                                                                            42,880
  Fully diluted..................................                                                                            48,606
</TABLE>



             See accompanying Notes to Unaudited Pro Forma Condensed
                         Combined Financial Statements

                                       90
<PAGE>   100
                                   APRIA/VITAS
         UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

                      FOR THE YEAR ENDED DECEMBER 31, 1994
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                      HISTORICAL                           PRO FORMA
                                                               ------------------------     ---------------------------------------
                                                                  APRIA         VITAS       ADJUSTMENTS    REFERENCE      COMBINED
                                                               ----------    ----------     -----------    ---------     ----------
<S>                                                            <C>           <C>            <C>            <C>           <C>       
Net revenues .............................................     $  962,812    $  175,832     $   (1,206)        (5)       $1,137,438
Cost of net revenues .....................................        287,690       108,842         (1,206)        (5)          395,326
                                                               ----------    ----------     ----------                   ----------
  Gross profit ...........................................        675,122        66,990           --                        742,112
Selling, distribution and administrative expenses ........        517,027        53,964                                     570,991
Provision for doubtful accounts ..........................         46,716         3,973                                      50,689
Amortization of intangible assets ........................         11,504         1,161                                      12,665
                                                               ----------    ----------     ----------                   ----------
  Operating income .......................................         99,875         7,892           --                        107,767
Interest expense, net of interest (income) ...............         37,155          (399)                                     36,756
                                                               ----------    ----------     ----------                   ----------
  Income from continuing operations before taxes .........         62,720         8,291           --                         71,011
Income taxes .............................................         27,104         3,150                                      30,254
                                                               ----------    ----------     ----------                   ----------
  Income from continuing operations ......................     $   35,616    $    5,141     $     --                     $   40,757
                                                               ==========    ==========     ==========                   ==========

  Income from continuing operations applicable to
      common stockholders ................................     $   35,616    $      543     $     --                     $   36,159
                                                               ==========    ==========     ==========                   ==========

Per common and common equivalent share:
  Primary ................................................     $      .81    $      .15                                  $      .78
  Fully diluted ..........................................     $      .78    $      .15                                  $      .76
Number of shares used in calculation:                                                                                 
  Primary ................................................         44,096        12,511         (8,883)       (11)           47,724
  Fully diluted ..........................................         49,284        12,843         (9,119)       (11)           53,008

Supplemental per common and common
equivalent share(11):
  Primary ................................................                                                               $      .79
  Fully diluted ..........................................                                                               $      .76
Supplemental number of shares used in
calculation(11):
  Primary ................................................                                                                   48,571
  Fully diluted ..........................................                                                                   53,759
</TABLE>


                  See accompanying Notes to Unaudited Pro Forma
                     Condensed Combined Financial Statements



                                       91
<PAGE>   101
                                   APRIA/VITAS
         UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

                      FOR THE YEAR ENDED DECEMBER 31, 1995
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

   
<TABLE>
<CAPTION>
                                                                HISTORICAL                           PRO FORMA                     
                                                         ------------------------     ---------------------------------------      
                                                            APRIA         VITAS       ADJUSTMENTS    REFERENCE      COMBINED       
                                                         ----------    ----------     -----------    ---------     ----------      
<S>                                                      <C>           <C>            <C>            <C>           <C>             
Net revenues .......................................     $1,133,600    $  230,854     $    (1,262)       (5)       $1,363,192      
Cost of net revenues ...............................        360,999       148,562          (1,262)       (5)          508,299      
                                                         ----------    ----------     -----------                  ----------      
  Gross profit .....................................        772,601        82,292            --                       854,893      
Selling, distribution and administrative expenses ..        601,978        73,290                                     675,268      
Provision for doubtful accounts ....................        100,463         6,828                                     107,291       
Amortization of intangible assets ..................         16,273         1,824                                      18,097      
Restructuring costs ................................         68,304         2,020                                      70,324      
Merger costs .......................................         12,193          --                                        12,193      
Employee contracts, benefit plan and claim                                                                                         
  settlements ......................................         20,367          --                                        20,367      
Loss on disposition of U.K. subsidiary .............            500          --                                           500      
                                                         ----------    ----------     -----------                  ----------      
  Operating loss ...................................        (47,477)       (1,670)           --                       (49,147)
Interest expense, net of interest (income) .........         42,942         2,763                                      45,705      
                                                         ----------    ----------     -----------                  ----------      
  Loss before taxes and extraordinary charge .......        (90,419)       (4,433)           --                       (94,852)
Income tax benefit .................................        (18,941)       (1,588)                                    (20,529)
                                                         ----------    ----------     -----------                  ----------      
  Net loss before extraordinary charge .............     $  (71,478)   $   (2,845)    $      --                    $  (74,323)
                                                         ==========    ==========     ===========                  ==========      
                                                                                                                                   
  Net loss before extraordinary charge applicable to                                                                               
      common stockholders ..........................     $  (71,478)   $   (7,443)    $      --                    $  (78,921)
                                                         ==========    ==========     ===========                  ==========      
                                                                                                                                   
Per common and common equivalent share:                                                                                            
  Primary ..........................................     $    (1.52)   $    (1.69)                                 $    (1.63)
  Fully diluted ....................................     $    (1.52)   $    (1.69)                                 $    (1.63)
Number of shares used in calculation:                                                                                              
  Primary ..........................................         47,112         4,402          (3,125)       (11)          48,389      
  Fully diluted ....................................         47,112         4,402          (3,125)       (11)          48,389      
                                                                                                                                   
Supplemental per common and common equivalent                                                                                      
share(11):                                                                                                                         
  Primary ..........................................                                                               $    (1.49)
  Fully diluted ....................................                                                               $    (1.49)
Supplemental number of shares used in                                                                                              
calculation(11):                                                                                                                   
  Primary ..........................................                                                                   51,600      
  Fully diluted ....................................                                                                   51,600      
</TABLE>                                                             
    

                  See accompanying Notes to Unaudited Pro Forma
                    Condensed Combined Financial Statements



                                       92
<PAGE>   102
      NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The unaudited pro forma condensed combined financial statements have been
prepared by combining the historical balances of Apria and Vitas. The following
notes describe the adjustments and other items relevant to the pro forma
statements.

(1)  ACCOUNTING PERIOD DIFFERENCES

The results of operations for Vitas included in the unaudited pro forma
condensed combined statements of operations for the three years ended December
31, 1993, 1994 and 1995 were derived from Vitas' audited financial statements
for the three fiscal years ended September 30, 1993, 1994 and 1995. The
unaudited results of operations for the quarters ended December 31, 1993, 1994
and 1995 were as follows:

<TABLE>
<CAPTION>

                                                  Three Months Ended                    
                                                      December 31,                      
                                          ------------------------------------         
                                             1993        1994         1995              
                                             ----        ----         ----              
                                                                                        
                                          (in thousands, except per share data)         
                                                                                        
<S>                                        <C>         <C>          <C>                 
Net revenues .........................     $43,275     $47,421      $65,065             
Net income ...........................       1,687       1,073          372             
Net income (loss) applicable to common                                                  
   stockholders ......................         537         (76)        (778)            
Net income (loss) per common share ...      $  .07      $ (.02)      $ (.18)            
</TABLE>


If Vitas' operating results for the twelve months ended December 31, 1995 had
been used in preparing the unaudited pro forma condensed combined statements of
operations for the year ended December 31, 1995, pro forma revenues and loss
before extraordinary item would be $1,380,836,000 and $(75,024,000),
respectively.

The results of operations for Vitas included in the unaudited pro forma
condensed combined statements of operations for the six month periods ended June
30, 1995 and 1996 were derived from Vitas' unaudited statements of operations
for the six month periods ended March 31, 1995 and June 30, 1996, respectively.
The balance sheet for Vitas included in the unaudited pro forma condensed
combined balance sheet as of June 30, 1996 was derived from Vitas' unaudited
balance sheet as of June 30, 1996.

(2)  RESTRUCTURING AND INTEGRATION COSTS

Apria anticipates that Vitas will continue to operate as an autonomous unit with
integration activities focused on the restructuring and consolidation of Vitas'
administrative and support functions with those of Apria. Apria expects to incur
certain expenses in connection with the restructuring and consolidation,
primarily the cost of reducing personnel. These expenses are not currently
estimable with a reasonable degree of accuracy. Accordingly, they are not
reflected in the unaudited pro forma condensed combined financial statements.

The specific elements of the restructuring plan are expected to be determined 
by the merger date and to be implemented over the fourth quarter of 1996. 
The estimated costs associated with the restructuring activities will be 
expensed in the same period. 

(3)  ACCOUNTING CONFORMITY

Under the pooling of interests accounting method, the accounting policies
followed by the combining companies must be conformed. A review of the
accounting policies of Apria and Vitas uncovered no significant differences.

(4)  RECLASSIFICATIONS

The unaudited pro forma condensed combined financial statements reflect the
following reclassifications to conform all periods to Apria's current year
presentation.

         (a)  Vitas' prepaid unified rate of $108,000 as accounts payable 
              rather than accounts receivable.

                                       93

<PAGE>   103
      NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
                                  (continued)

         (b)  Vitas' deferred debt costs of $222,000 as a reduction of long-term
              debt rather than as a non-current asset.

         (c)  Vitas' payroll withholdings of $768,000 as other liabilities 
              rather than accounts payable.

         (d)  Vitas' capitalized lease obligations of $1,251,000 as long-term
              debt rather than other non-current liabilities.


(5)  INTERCOMPANY TRANSACTIONS

The unaudited pro forma condensed combined statements of operations reflect
adjustments necessary to eliminate transactions between Apria and Vitas.

(6)  TRANSACTION FEES AND CEO SEVERANCE

Under the pooling of interests accounting method, direct transactions costs are
expensed in the period in which the transaction is consummated. Such costs are
estimated to be $5,300,000 and include investment banking, legal, accounting,
printing, solicitation, filing fees and similar expenses. The accrual of these
expenses, net of estimated tax benefits of $1,908,000, has been reflected in the
unaudited pro forma condensed combined balance sheet at June 30, 1996 but not in
the unaudited pro forma condensed combined statement of operations for the six
month period then ended.

Concurrent with the closing of the Merger, Vitas' Chief Executive Officer
("CEO") will receive a severance payment of $1,250,000 and a prepaid consulting
fee of $250,000. These amounts, net of estimated tax benefits of $450,000, have
been reflected in the unaudited pro forma condensed combined balance sheet at
June 30, 1996 but not in the unaudited pro forma condensed combined statements
of operations for the six month period then ended.

(7)  NON-COMPETITION COVENANT

The seven year Non-Competition Agreement negotiated with Vitas' CEO will result
in three installment payments totalling $7,000,000: $5,000,000 at the closing of
the Merger and $1,000,000 on each of the first two anniversaries of the closing
of the Merger. The unaudited pro forma condensed combined balance sheet at June
30, 1996 reflects a $2,000,000 liability for future amounts due and a $5,000,000
increase in debt for the covenant payment made at the closing of the Merger.

(8)  LONG-TERM DEBT


In order to effect the Merger and to meet the working capital needs of the
combined company, additional financing has been obtained. Effective August 9,
1996, Apria entered into an agreement with a syndicate of banks which provides
for borrowings of up to $800,000,000. The agreement is structured as an
unsecured five year revolving line of credit, which provides for variable rate
interest options including Federal Funds Rate plus .5%, the Prime Rate or London
Interbank Offered Rate ("LIBOR") plus up to 1.00%. The LIBOR option is subject
to discount based on Apria achieving certain targeted ratios of debt to earnings
before interest, taxes, depreciation and amortization. The agreement contains
restrictive covenants requiring the maintenance of certain financial ratios,
limitations on additional borrowings and capital expenditures and restrictions
on cash dividends and other distributions.


                                       94
<PAGE>   104
      NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
                                  (continued)

Apria expects to borrow approximately $75,317,000 against the line of credit and
to assume $2,659,000 in capitalized leases as a direct result of the
contemplated Merger transaction. The borrowings will be used to purchase Vitas'
9% Preferred Stock, $27,308,000, pay the first installment of the Non-compete
Agreement, $5,000,000, repay indebtedness of the employee stock ownership plan,
$1,435,000 and repay Vitas' credit facility and other outstanding notes
$41,574,000 (including current maturities of $32,550,000).

Maturities of long-term debt, exclusive of capital lease obligations, for the
five years ending December 31, 2001 and thereafter, are as follows (in
thousands):

<TABLE>
                <S>                                        <C>     
                Six months remaining 1996                  $  1,219
                1997                                          1,111
                1998                                            172
                1999                                             --
                2000                                             --
                2001                                        479,617
                Thereafter                                  200,000
                                                           --------
                                                           $682,119
                                                           ========
</TABLE>

(9)  STOCKHOLDERS' EQUITY

The exchanges of Vitas equity securities for Apria Common Stock are computed
based on the Initial Exchange Ratio of .290. Application of this ratio assumes
the market price of Apria Common Stock at the effective date of the Merger will
be at least $27.125 and will not exceed $37.125. Should the market price at the
effective date not fall within this range, the Initial Exchange Ratio is subject
to certain adjustments as stipulated in the Merger Agreement. Also, the Initial
Exchange Ratio is subject to additional adjustments if Vitas' long-term debt
exceeds certain levels at the effective date of the Merger.

The unaudited pro forma condensed combined balance sheet at June 30, 1996
reflects the following adjustments to stockholders' equity:

         9% Preferred Stock has been eliminated to reflect the purchase of
         270,000 of such issued and outstanding shares by Apria.

         Series B Preferred Stock, Common Stock, and additional paid-in capital
         have been adjusted to reflect the conversion of 262,500 issued and
         outstanding shares of Vitas Series B Preferred Stock into 5,526,316
         shares of Vitas Common Stock.

   
         Common Stock and additional paid-in capital have been adjusted to
         reflect the issuance of approximately 2,881,000 shares of Apria Common
         Stock with a par value of $.001 in exchange for 9,935,158 issued and
         outstanding shares of Vitas Common Stock (which reflects the shares
         issued upon conversion of the Series B Preferred Stock). In addition,
         Common Stock and additional paid-in capital have been adjusted to
         reflect the issuance of approximately 1,628,000 shares of Apria Common
         Stock with a par value of $.001 to holders of Vitas warrants and stock
         options. Adjusted exchange ratios of .2909 and .4235 would result in
         the issuance of approximately 4,505,000 and 6,591,000 shares of Apria 
         Common Stock, respectively, in exchange for Vitas Common Stock, 
         Warrants and Stock Options.
    

         Retained earnings has been adjusted for the net effects of the
         aforementioned pro forma adjustments as follows:

         Accrual of transaction costs, net of estimated tax
           effects of $1,908,000                                    $3,392,000
         Accrual of CEO severance, net of estimated tax effects
           of $450,000                                                 800,000
         Compensation expense on settlement of employee stock
           ownership plan indebtedness, net of estimated tax 
           effects of $517,000                                         918,000
                                                                    ----------
                                                                    $5,110,000
                                                                    ==========

No significant stock option or stock purchase right exercises are expected to
result from the Merger.

(10)  INCOME TAXES

The tax effects of the aforementioned pro forma adjustments have been reflected
in the unaudited pro forma condensed combined balance sheet at June 30, 1996
assuming a 36% effective tax rate.

                                       95
<PAGE>   105
      NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
                                  (continued)

The transaction is not expected to result in a further limitation of Apria's net
operating loss carryforward under Code Section 382.

(11)  EARNINGS PER SHARE

   
The weighted average common share amounts reflected in the unaudited pro forma
condensed combined statements of operations represent the aggregate weighted
average shares of Apria and Vitas adjusted to reflect the Initial Exchange Ratio
of .290 shares of Apria Common Stock for Vitas Common Stock. The Initial
Exchange Ratio applied in this computation excludes the adjustments contemplated
by the Merger Agreement (see Note 9). At adjusted exchange ratios of .2909 and
 .4235, the pro forma per share earnings (loss) amounts would not differ by more
than $.03 from the amounts presented for all periods.
    

The weighted average common share amounts reflected in the supplemental earnings
per share computation assume the exchange of Vitas Common Stock, Series B
Preferred Stock, Stock Options and Warrants for Apria Common Stock (at the
Initial Exchange Ratio of .290) at the beginning of the periods presented.
Accordingly, net income (loss) applicable to common stockholders used in the
supplemental earnings per share computation excludes adjustments related to the
aforementioned Vitas equity items.


                                       96
<PAGE>   106

                          INDEX TO FINANCIAL STATEMENTS
                         OF VITAS HEALTHCARE CORPORATION

<TABLE>
<CAPTION>
                                                                                                      Page
                                                                                                      ----

<S>                                                                                                    <C>
A.     Audited Financial Statements for the Years Ended September 30, 1993, 1994 and 1995

       1.  Report of Independent Certified Public Accountants......................................    F-2
                                                                                                     
       2.  Consolidated Balance Sheets--September 30, 1994 and 1995................................    F-3
                                                                                                     
       3.  Consolidated Statements of Operations--Years ended                                        
                    September 30, 1993, 1994 and 1995..............................................    F-5
                                                                                                     
       4.  Consolidated Statements of Changes in Redeemable Preferred                                
                    Stock and Stockholders' Deficit--Years ended                                     
                    September 30, 1993, 1994 and 1995..............................................    F-6
                                                                                                     
       5.  Consolidated Statements of Cash Flows--Years ended                                        
                    September 30, 1993, 1994 and 1995..............................................    F-7
                                                                                                     
       6.  Notes to Consolidated Financial Statements..............................................    F-9
                                                                                                     
B.     Condensed Consolidated Financial Statements for the Periods Ended June 30, 1996 and 1995     
       (unaudited)                                                                                   
                                                                                                     
       1.  Condensed Consolidated Balance Sheets...................................................    F-27
                                                                                                     
       2.  Condensed Consolidated Statements of Operations ........................................    F-29
                                                                                                     
       3.  Condensed Consolidated Statements of Cash Flows.........................................    F-30
                                                                                                     
       4.  Notes to Condensed Consolidated Financial Statements....................................    F-31
</TABLE>


                                       F-1
<PAGE>   107

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors and Stockholders
Vitas Healthcare Corporation and Subsidiaries

We have audited the consolidated balance sheets of Vitas Healthcare Corporation
and Subsidiaries as of September 30, 1994 and 1995, and the related consolidated
statements of operations, changes in redeemable preferred stock and
stockholders' deficit and cash flows for each of the three years in the period
ended September 30, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Vitas
Healthcare Corporation and Subsidiaries as of September 30, 1994 and 1995, and
the results of their operations and their cash flows for each of the three years
in the period ended September 30, 1995 in conformity with generally accepted
accounting principles.

As discussed in Note 9 to the financial statements, in 1993 the Company changed
its method of accounting for income taxes.

                                                        
                                                                                
                                                     ERNST & YOUNG LLP


Miami, Florida
December 14, 1995

                                       F-2
<PAGE>   108
                  VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                    (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                           SEPTEMBER 30,
                                                       --------------------
                                                         1994        1995
                                                        -------     -------
<S>                                                     <C>         <C>    
ASSETS
Current assets:
   Cash and cash equivalents                            $ 5,715     $ 4,545
   Marketable securities                                  8,077        --
   Accounts receivable from patient services,
     net of allowance for uncollectible accounts of
     $3,500 in 1994 and $5,300 in 1995                   19,587      30,576
   Income tax receivable                                   --         1,322
   Deferred taxes - current                                 896       1,997
   Other current assets                                   2,961       2,295
                                                        -------     -------
Total current assets                                     37,236      40,735

Property and equipment, net                              12,748      15,104

Notes receivable from stockholders and employees            394         121

Intangible assets, net                                    2,161      39,405

Other assets                                              1,114       1,696

Deferred taxes                                              283         946






                                                        -------     -------
Total assets                                            $53,936     $98,007
                                                        =======     =======
</TABLE>


See accompanying notes.


                                       F-3
<PAGE>   109
                  VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)
                    (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)


<TABLE>
<CAPTION>
                                                                                         SEPTEMBER 30,
                                                                                    ----------------------
                                                                                      1994          1995
                                                                                    --------      --------
<S>                                                                                 <C>           <C>     
LIABILITIES AND STOCKHOLDERS' DEFICIT 
Current liabilities:
   Accounts payable                                                                 $ 12,082      $ 18,877
   Accrued compensation                                                                5,308         5,168
   Accrued health insurance                                                            1,191           768
   Other accrued expenses                                                              2,147         5,972
   Current portion of long-term debt and capital lease obligations                     1,039         2,536
   Income taxes payable                                                                  656          --
                                                                                    --------      --------
Total current liabilities                                                             22,423        33,321

Long-term debt and line of credit                                                         10        39,294
Capital lease obligations                                                              2,596         2,190
Other long-term liabilities                                                              768           354
Guarantee of Employee Stock Ownership Plan loan                                        2,267         1,792

Commitments and contingencies

Redeemable preferred stock, $100 stated value,
   $1 par value
     Authorized shares--4,500,000 
     Issued and outstanding shares:
       9% Preferred Stock, cumulative, nonconvertible, redeemable--
          270,000 shares; liquidation preference equal to stated value per
          share plus all accrued and unpaid dividends                                 27,189        27,257
       Series B-- convertible, redeemable--262,500 shares; liquidation
          preference equal to stated value per share plus a dividend preference
          amount of 8% per annum from date of issuance less
          any dividends paid                                                          28,966        31,066

Stockholders' deficit
   Common Stock, $.001 par value:
     Authorized shares--40,000,000
     Issued and outstanding shares--4,401,842 in 1994 and 1995                             4             4
   Additional paid-in capital                                                        (26,892)      (29,047)
   Indebtedness of Employee Stock Ownership Plan                                      (2,267)       (1,792)
   Accumulated deficit                                                                (1,128)       (6,432)
                                                                                    --------      --------
Total stockholders' deficit                                                          (30,283)      (37,267)
                                                                                    --------      --------
Total liabilities and stockholders' equity                                          $ 53,936      $ 98,007
                                                                                    ========      ========
</TABLE>


See accompanying notes.

                                       F-4
<PAGE>   110
                  VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                       YEAR ENDED SEPTEMBER 30,
                                                          ------------------------------------------------
                                                              1993              1994              1995
                                                          ------------      ------------      ------------

<S>                                                       <C>               <C>               <C>         
Net patient service revenue                               $    150,964      $    175,832      $    230,854

Operating expenses:
   Direct hospice care costs                                    94,225           108,842           148,562
   General and administrative                                   48,271            53,964            73,290
   Provision for doubtful accounts, net of recoveries            3,283             3,973             6,828
   Amortization of intangible assets                               719             1,161             1,824
   Restructuring costs                                            --                --               2,020
   Officers' loans forgiven                                      4,700              --                --
                                                          ------------      ------------      ------------
                                                               151,198           167,940           232,524
                                                          ------------      ------------      ------------
(Loss) income from operations                                     (234)            7,892            (1,670)

Interest expense (income), net of interest (income)                (97)             (399)            2,763
                                                          ------------      ------------      ------------
(Loss) income before provision for income                         (137)            8,291            (4,433)
   taxes
Provision for income taxes (benefit)                                46             3,150            (1,588)
                                                          ------------      ------------      ------------
(Loss) income before cumulative effect of
   change in accounting principle for income taxes                (183)            5,141            (2,845)
Cumulative effect of change in accounting
   principle for income taxes                                      259              --                --
                                                          ------------      ------------      ------------
Net income (loss)                                         $         76      $      5,141      $     (2,845)
                                                          ============      ============      ============
Net (loss) income attributable to common
   stockholders                                           $     (3,038)     $        543      $     (7,443)
                                                          ============      ============      ============

(Loss) earnings per share:
   Before cumulative effect of change in
     accounting principle                                 $       (.60)     $        .15      $      (1.69)
   Cumulative effect of change in
     accounting principle                                          .05              --                --
                                                          ------------      ------------      ------------
   (Loss) income per common share                         $       (.55)     $        .15      $      (1.69)
                                                          ============      ============      ============
Weighted average number of common and
   common stock equivalents                                  5,526,686        12,510,629         4,401,842
                                                          ============      ============      ============
</TABLE>

See accompanying notes.


                                       F-5
<PAGE>   111
                  VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CHANGES IN
              REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                              9%                   SERIES B                 COMMON           
                                                       PREFERRED STOCK          PREFERRED STOCK              STOCK           
                                                      SHARES     DOLLARS      SHARES     DOLLARS      SHARES      DOLLARS    
                                                      ------     -------      ------     -------      ------      -------    
<S>                                                  <C>         <C>         <C>         <C>         <C>          <C>        
Balance at October 1, 1992                                270    $ 27,053        --      $   --         6,088     $      6   
   Common Stock purchased by the Company                 --          --          --          --        (1,736)          (2)  
     Issuance of Series B Preferred Stock                --          --           263      26,250        --           --     
     Payments on ESOP note receivable                    --          --          --          --          --           --     
     9% Preferred Stock dividends paid                   --          --          --          --          --           --     
     Amortization of accelerated vesting of
       compensatory stock options                        --          --          --          --          --           --     
     Accretion of preferred stock                        --            68        --           616        --           --     
     Net income                                          --          --          --          --          --           --     
                                                     --------    --------    --------    --------    --------     --------   
   Balance at September 30, 1993                          270      27,121         263      26,866       4,352            4   
     Net reduction of ESOP indebtedness                  --          --          --          --          --           --     
     9% Preferred Stock dividends paid                   --          --          --          --          --           --     
     Accretion of preferred stock                        --            68        --         2,100        --           --     
     Exercise of stock options and related income
       tax benefits                                      --          --          --          --            50         --     
     Net income                                          --          --          --          --          --           --     
                                                     --------    --------    --------    --------    --------     --------   
   Balance at September 30, 1994                          270      27,189         263      28,966       4,402            4   
     Net reduction of ESOP indebtedness                  --          --          --          --          --           --     
     9% Preferred Stock dividends paid                   --          --          --          --          --           --     
     Accretion of preferred stock                        --            68        --         2,100        --           --     
     Exercise of stock options and related income
       tax benefits                                      --          --          --          --             5            1   
     Common Stock purchased by the Company
       and retired                                       --          --          --          --            (5)          (1)  
     Net loss                                            --          --          --          --          --           --     
                                                     --------    --------    --------    --------    --------     --------   
   Balance at September 30, 1995                          270    $ 27,257         263    $ 31,066       4,402     $      4   
                                                     ========    ========    ========    ========    ========     ========   
</TABLE>

<TABLE>                                              
<CAPTION>                                            
                                                      ADDITIONAL                                            TOTAL    
                                                       PAID-IN      DEFERRED   INDEBTEDNESS ACCUMULATED STOCKHOLDERS'
                                                       CAPITAL    COMPENSATION   OF ESOP      DEFICIT      DEFICIT   
                                                      ----------  ------------ ------------ ----------- -------------
<S>                                                   <C>         <C>          <C>          <C>         <C>          
Balance at October 1, 1992                             $(13,905)    $   (979)    $ (2,864)    $ (1,485)    $(19,227) 
   Common Stock purchased by the Company                 (8,145)        --           --           --         (8,147) 
     Issuance of Series B Preferred Stock                (2,106)        --           --           --         (2,106) 
     Payments on ESOP note receivable                      --           --            335         --            335  
     9% Preferred Stock dividends paid                     --           --           --         (2,430)      (2,430) 
     Amortization of accelerated vesting of                                                                          
       compensatory stock options                          --            979         --           --            979  
     Accretion of preferred stock                          (684)        --           --           --           (684) 
     Net income                                            --           --           --             76           76  
                                                       --------     --------     --------     --------     --------  
   Balance at September 30, 1993                        (24,840)        --         (2,529)      (3,839)     (31,204) 
     Net reduction of ESOP indebtedness                    --           --            262         --            262  
     9% Preferred Stock dividends paid                     --           --           --         (2,430)      (2,430) 
     Accretion of preferred stock                        (2,168)        --           --           --         (2,168) 
     Exercise of stock options and related income                                                                    
       tax benefits                                         116         --           --           --            116  
     Net income                                            --           --           --          5,141        5,141  
                                                       --------     --------     --------     --------     --------  
   Balance at September 30, 1994                        (26,892)        --         (2,267)      (1,128)     (30,283) 
     Net reduction of ESOP indebtedness                    --           --            475         --            475  
     9% Preferred Stock dividends paid                     --           --           --         (2,430)      (2,430) 
     Accretion of preferred stock                        (2,168)        --           --           --         (2,168) 
     Exercise of stock options and related income                                                                    
       tax benefits                                          13         --           --           --             14  
     Common Stock purchased by the Company                                                                           
       and retired                                         --           --           --            (29)         (30) 
     Net loss                                              --           --           --         (2,845)      (2,845) 
                                                       --------     --------     --------     --------     --------  
   Balance at September 30, 1995                       $(29,047)    $   --       $ (1,792)    $ (6,432)    $(37,267) 
                                                       ========     ========     ========     ========     ========  
</TABLE>                                             


See accompanying notes.

                                       F-6
<PAGE>   112
                  VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                              YEAR ENDED SEPTEMBER 30,
                                                         ----------------------------------
                                                           1993         1994         1995
                                                         --------     --------     --------
<S>                                                      <C>          <C>          <C>      
OPERATING ACTIVITIES
Net income (loss)                                        $     76     $  5,141     $ (2,845)
Adjustments to reconcile net (loss) income to net
   cash provided by operating activities:
     Cumulative effect of change in accounting
       principle                                              259         --           --
     Depreciation                                           1,792        2,424        3,462
     Amortization                                             719        1,161        2,391
     Provision for deferred income taxes                     (200)        (379)      (2,200)
     Accelerated depreciation in nonrecurring charges         311         --           --
     Provision for losses on accounts receivable            3,283        3,973        6,828
     Amortization of deferred compensation                    979         --           --
     (Increase) decrease in assets:
       Accounts receivable from patient services           (6,667)      (8,398)     (17,817)
       Income tax receivable                                 --           --         (1,322)
       Other current assets                                   540         (799)         666
     Increase (decrease) in liabilities:
       Accounts payable and accrued expenses                4,106         (630)       9,128
       Income taxes payable                                (1,347)         656         (220)
       Other long-term liabilities                            191          (47)        (414)
                                                         --------     --------     --------
Net cash provided by (used in) operating activities         4,042        3,102       (2,343)

INVESTING ACTIVITIES
Purchase of property and equipment, net                    (3,040)      (4,230)      (3,932)
Assets of business acquired                                  --           --        (27,466)
(Purchase) sale of investments                               --         (8,077)       8,077
Increase in intangible assets                                (315)        (219)        (567)
Decrease in notes receivable                                2,368          178          273
Increase in other assets                                     (197)        (795)        (416)
Decrease in indebtedness of Employee Stock
   Ownership Plan                                             334          262          475
                                                         --------     --------     --------
Net cash used in investing activities                    $   (850)    $(12,881)    $(23,556)
</TABLE>


                                       F-7
<PAGE>   113
                  VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                              YEAR ENDED SEPTEMBER 30,
                                                          ----------------------------------
                                                            1993         1994         1995
                                                          --------     --------     --------
<S>                                                       <C>          <C>          <C>     
FINANCING ACTIVITIES
Proceeds from long-term debt and line of credit           $   --       $   --       $ 36,000
Principal payments on long-term debt and capital lease
   obligations                                              (5,223)      (1,706)      (8,350)
Proceeds from Series B  Preferred Stock                     24,144         --           --
Dividends on 9% Preferred Stock                             (2,430)      (2,430)      (2,430)
Purchase of Common Stock                                    (8,147)        --            (30)
Proceeds from exercise of stock options and related
   income tax benefits                                        --            116           14
Proceeds from repayment of ESOP loan (ESOP
   contribution)                                              --          2,267         (475)
                                                          --------     --------     --------
Net cash provided by (used in) financing activities          8,344       (1,753)      24,729
                                                          --------     --------     --------

Net increase (decrease) in cash                             11,536      (11,532)      (1,170)
Cash and cash equivalents, beginning of period               5,711       17,247        5,715
                                                          --------     --------     --------
Cash and cash equivalents, end of period                  $ 17,247     $  5,715     $  4,545
                                                          ========     ========     ========

SUPPLEMENTAL CASH FLOW INFORMATION
Cash interest paid                                        $    689     $    316     $  1,464
                                                          ========     ========     ========

Cash income taxes paid                                    $  1,114     $  2,753     $  1,962
                                                          ========     ========     ========


Property and equipment financed by capital leases         $  2,113     $  2,460     $  1,325
                                                          ========     ========     ========
</TABLE>

See accompanying notes.


                                       F-8
<PAGE>   114
                  VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 1995

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

COMPANY

Vitas Healthcare Corporation and its subsidiaries, collectively "Vitas" or the
"Company," provides palliative medical and psychosocial services to individuals
with terminal or life-limiting illnesses through state-licensed and
federally-certified hospice programs. These services include physician services,
nursing care, social services, counseling services and pastoral care, short-term
inpatient and respite care, drugs for symptom management and pain control,
medical equipment and supplies, home health aide and homemaker services,
bereavement counseling and ancillary services, such as physical, speech and
occupational therapy. In addition, the Company provides various support and
psychosocial services and bereavement care to families of its patients. The
Company provides services through interdisciplinary teams of professionals and
staff that include physicians, registered nurses, social workers, chaplains and
other counselors, home health aides, psychological and bereavement
professionals, volunteers and homemakers, managing care in various settings,
including the home, long-term care facilities, and inpatient settings with the
goal of making a patient's final stage of life as dignified and comfortable as
possible. In providing these services, the Company manages and assumes clinical
and financial responsibility for all medical, psychosocial care and certain
other support services associated with the patient's terminal illness.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Vitas Healthcare
Corporation and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include currency, checks on hand and overnight
repurchase agreements of government securities.

ACCOUNTS RECEIVABLE

Accounts receivable represent amounts due from patients, third-party payors
(Medicare and Medicaid), and others for services rendered. Approximately 47% and
35% of the accounts receivable at September 30, 1994 and 1995, respectively, are
due in aggregate from the four Medicaid programs in Florida, Illinois, Texas and
California.


                                       F-9
<PAGE>   115
                  VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

MARKETABLE SECURITIES

Marketable securities, which consist of state and local government agency
obligations, are stated at cost, which approximates quoted market value.

Effective October 1, 1994, the Company adopted Statement of Accounting Standards
No. 115, Accounting for Certain Investments in Debt and Equity Securities, which
requires that certain investment securities be recorded at market value with
unrealized gains and losses reported as a separate component of stockholders'
equity. In accordance with Statement of Accounting Standards No. 115, prior
period financial statements have not been restated to reflect the change in
accounting principle. Adoption of Statement No. 115 had no impact on the
Company's financial position at October 1, 1994 or September 30, 1995.

CHARITY CARE

The Company has a policy of providing charity care to patients who are unable to
pay and maintains records to identify and monitor the level of charity care it
provides. These records include the amount of charges for services provided
which are computed using established rates. Because the Company does not pursue
collection of amounts determined to qualify as charity care, they are not
reported as revenue.

Charity care amounted to $2.4 million, $2.9 million and $3.4 million for the
years ended September 30, 1993, 1994 and 1995, respectively.

NET PATIENT SERVICE REVENUE

Net patient service revenue is reported at the estimated net realizable amounts
from patients, third-party payors (primarily Medicare and Medicaid), and others
for services rendered. Payors may determine that the services provided are not
covered and do not qualify for reimbursement. Management has provided an
estimate for such adjustments. Changes in the estimate will be adjusted in
future periods as final settlements are determined. There were no material
changes to net patient service revenue as a result of final settlements in
1993, 1994, or 1995. The percentage of net patient service revenue derived 
under the Medicare and Medicaid programs was 93% in 1993 and 1994, and 92% in 
1995.



                                      F-10
<PAGE>   116
                  VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INTANGIBLE ASSETS

Intangible assets are comprised primarily of costs in excess of net tangible
assets acquired and deferred costs and are amortized on a straight-line basis
over periods ranging from five to thirty years. Accumulated amortization is $4.2
million at September 30, 1994 and $5.3 million at September 30, 1995.

The carrying value of costs in excess of net tangible assets acquired will be
reviewed if the facts and circumstances suggest that it may be impaired. If this
review indicates that these costs will not be recoverable, as determined based
on the undiscounted cash flows of the entity acquired over the remaining
amortization period, the Company's carrying value will be reduced by the
estimated shortfall of cash flows, such shortfall to be calculated using
discounted cash flows.

START-UP COSTS

The Company expenses costs incident to the start-up of hospice operations in new
locations as incurred.

PROPERTY AND EQUIPMENT

Property and equipment, including improvements to existing facilities, are
recorded at cost. Amortization of assets recorded under capital lease
obligations is included in depreciation expense. Certain software development
costs are capitalized. Capitalization of software development costs begins upon
the establishment of technological feasibility. Amortization of capitalized
software costs begins when the software is placed into service and is included
in amortization expense.

Depreciation and amortization are calculated principally using the straight-line
method over the estimated useful lives of the assets. Estimated useful lives for
major asset categories are 4 to 5 years for leasehold improvements, 3 to 5 years
for equipment, 5 years for software development costs, and 5 years for office
furniture.

In March of 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement No. 121 is effective for fiscal
years beginning after December 15, 1995. The Company believes that the effect of
adopting Statement No. 121, based on current circumstances, will not be
material.

                                      F-11
<PAGE>   117
                  VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

CAPITAL LEASES

Assets and related obligations for equipment under capital leases are initially
recorded at an amount equal to the present value of the future minimum lease
payments using interest rates implicit within the leases. Equipment under
capital leases is amortized over the estimated useful lives of the assets.

(LOSS) EARNINGS PER SHARE

(Loss) earnings per share is computed by dividing net (loss) earnings, after
reduction for dividends on the 9% Preferred Stock and dividends which would have
been payable under the mandatory redemption features of the Series B Preferred
Stock by the weighted average number of common and common equivalent shares
outstanding. Common equivalent shares included in the computation represent
shares issuable upon assumed exercise of stock options and warrants (calculated
using the modified treasury stock method) in years where their assumed exercise
has a dilutive effect. Common stock equivalents are antidilutive in 1993 and
1995. Fully diluted earnings per share are antidilutive for all periods and have
not been presented.

INCOME TAXES

Effective October 1, 1992, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109).
The effects of adoption are described in Note 9.

2. ACQUISITIONS

On February 17, 1995, Vitas Healthcare Corporation of California
(Vitas-California), a wholly owned subsidiary of the Company, acquired
substantially all of the assets and assumed certain liabilities of Community
Hospice Care, Inc. and its affiliated limited partnerships (CHC) which offered
hospice, home health and other related healthcare and support services through
hospice programs in several communities in Southern California. The acquisition
was accounted for as a purchase and the results of operations of CHC have been
included in the consolidated financial statements since the date of acquisition.


                                      F-12
<PAGE>   118
                  VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. ACQUISITIONS (CONTINUED)

The acquisition cost was approximately $38.9 million, including expenses
associated with the acquisition of approximately $3.6 million. The purchase
price was paid with $23.9 million in cash and the issuance of $11.4 million in
subordinated notes payable due in monthly installments through 1998. Cost in
excess of net assets acquired were approximately $38.3 million and are being
amortized over thirty years.

The following unaudited pro forma information presents a summary of consolidated
results of operations of the Company and CHC as if the acquisition had occurred
at the beginning of 1994 after giving effect to certain pro forma adjustments,
including, among others, adjustments to owner's compensation and amortization of
goodwill, together with related income tax effects. This pro forma financial
information is presented for informational purposes only and may not be
indicative of the results of operations as they would have been if the Company
and CHC had been a single entity during 1994 and 1995, or is it necessarily
indicative of the results of operations which may occur in the future (in
thousands except per share data):

<TABLE>
<CAPTION>
                                                            SEPTEMBER 30,
                                                      -------------------------
                                                        1994            1995
                                                      ---------       ---------
<S>                                                   <C>             <C>      
Net revenue                                           $ 230,923       $ 254,309
Net income (loss)                                         3,858          (3,567)
Net loss attributable to common
  stockholders                                             (740)         (8,165)
Net loss per common share and
  common stock equivalent outstanding                 $    (.17)      $   (1.85)
</TABLE>

Effective November 3, 1995, the Company completed the acquisition of
substantially all of the assets and assumed certain liabilities of Hospice of
Miami Valley, Inc., a nonprofit provider of hospice services located near
Cincinnati, Ohio, for approximately $1.8 million in cash plus related
acquisition costs. The acquisition has been accounted for using the purchase
method of accounting. Pro forma results of operations have not been presented
because the effect of this acquisition is not significant.


                                      F-13
<PAGE>   119
                  VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. REDEEMABLE PREFERRED STOCK

The 9% Preferred Stock has a stated value of $100 per share and accrues
cumulative dividends. The 9% Preferred Stock is nonvoting and mandatorily
redeemable in December 1996 through December 1998 with a portion being redeemed
at a premium of $243,000. Following is the redemption schedule:

<TABLE>
<CAPTION>
    MANDATORY                      NUMBER OF SHARES             REDEMPTION PRICE
 REDEMPTION DATE                    TO BE REDEEMED                  PER SHARE
-----------------                  ----------------             ----------------
<S>                                <C>                          <C> 
December 31, 1996                       81,000                        $102
June 30, 1997                           40,500                        $101
December 31, 1997                       40,500                        $101
June 30, 1998                           54,000                        $100
December 31, 1998                       54,000                        $100
</TABLE>

Cumulative unpaid dividends on the 9% Preferred Stock totaled approximately
$608,000 at September 30, 1994 and 1995.

The Series B Preferred Stock, which is subject to redemption at the option of
the holders in certain circumstances, has a stated value of $100 per share, a
par value of $1 per share and a cumulative dividend preference of 8%. Dividends
may not be paid on the Company's Common Stock prior to the payment of dividends
on the Series B Preferred Stock from the original issue date. However, unless
dividends are paid on the Company's Common Stock, no dividends are payable on
the Series B Preferred Stock unless the Series B Preferred Stock is redeemed.
The carrying amount of the Series B Preferred Stock has been increased for
amounts representing dividends not currently declared or paid, but which would
be payable upon redemption. Costs related to the issuance of the Series B
Preferred Stock totaled approximately $2.1 million.

Shares of Series B Preferred Stock are redeemable (including dividends from the
original issue date not previously paid) at the option of the holder at the
earlier of six months after the redemption in full of the Company's 9% Preferred
Stock or June 30, 1999, but in no event prior to June 30, 1996. The Company has
certain rights to effect the redemption of the Series B Preferred Stock in three
annual installment payments. The Series B Preferred Stock is convertible into
5,526,308 of the Company's Common Stock, or approximately 28% of the Company's
Common Stock on a fully diluted basis subject to adjustment under certain
circumstances. Such conversion may be made at the election of the holder of the
Series B Preferred Stock, and will be mandatory and automatic should the Company
complete a public offering of its Common Stock which meets certain minimum
requirements.


                                      F-14
<PAGE>   120
                  VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. REDEEMABLE PREFERRED STOCK (CONTINUED)

The Series B Preferred Stock has certain voting rights along with the holders of
the Company's Common Stock. As a result, the holders of the Series B Preferred
Stock are currently entitled to cast that number of votes equal to approximately
28% of the total shares of Common Stock entitled to vote at a meeting of
stockholders. Holders of the Series B Preferred Stock also have the right to
elect two directors of the Company's Board of Directors. Registration rights
were also granted to the purchasers of the Series B Preferred Stock which rights
allow registration of the Common Stock obtained through the conversion of the
Series B Preferred Stock under certain circumstances.

4. STOCK OPTIONS AND WARRANTS

The Company has outstanding two Common Stock purchase warrants covering a total
of 2,556,153 and 1,396,805 shares of Common Stock, respectively, which were
originally issued on December 17, 1991 to the original holder of the 9%
Preferred Stock. The holder of the warrants is entitled to purchase each share
of Common Stock thereunder at an exercise price of approximately $4.55
(approximately $11.6 million total purchase price) and $4.56 per share
(approximately $6.4 million total purchase price), respectively, subject to
various anti-dilution adjustments. The warrants may be exercised at any time,
unless previously repurchased, through December 16, 1999. The warrant for
2,556,153 shares would expire earlier upon the completion of a public offering
of the Company's Common Stock which meets certain minimum requirements.

The Company has granted nonqualified stock options (NQSOs) to purchase the
Company's Common Stock to various employees, officers, directors and consultants
in conjunction with their employment or service with the Company. All NQSOs
expire between five and ten years after the initial grant and are
nontransferable. Proceeds from the issuance of shares under these plans are
included in stockholders' equity.


                                      F-15
<PAGE>   121
                  VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. STOCK OPTIONS AND WARRANTS (CONTINUED)

On June 30, 1992 and January 24, 1994 the Company adopted the 1992 Management
Equity Incentive Plan (MEIP) and the 1994 MEIP, respectively. These MEIP options
are issued at prices not less than market value at date of grant and generally
become nonforfeitable at 25% per year beginning the year subsequent to the
grant, but currently are not exercisable. At September 30, 1994 and 1995,
3,018,768 and 4,075,601 options, respectively, are vested under these plans.
Transactions under the option plans are as follows:

<TABLE>
<CAPTION>
                                        1992           1994                                      OPTION PRICE
                                        MEIP           MEIP          OTHER          TOTAL          PER SHARE
                                     ----------     ----------     ----------     ----------     -------------
<S>                                  <C>            <C>            <C>            <C>            <C>
Outstanding at October 1, 1993        1,152,000             --      3,967,143      5,119,143     $0.09 - $4.75
   Granted                              118,500        597,000        150,000        865,500     $5.75 - $6.00
   Exercised                                 --             --        (50,000)       (50,000)    $0.09 - $6.00
                                     ----------     ----------     ----------     ----------
Outstanding at September 30, 1994     1,270,500        597,000      4,067,143      5,934,643     $0.09 - $6.00
   Granted                                   --        379,000             --        379,000     $6.00 - $7.00
   Exercised                                 --             --         (5,000)        (5,000)    $        0.10
   Canceled                            (148,979)      (175,500)      (150,000)      (474,479)    $3.90 - $7.00
                                     ----------     ----------     ----------     ----------
Outstanding at September 30, 1995     1,121,521        800,500      3,912,143      5,834,164     $ .09 - $7.00
                                     ==========     ==========     ==========     ==========
</TABLE>

Included in stock options outstanding are options to purchase 725,000 shares of
Common Stock, exercisable at $.70 per share, which were issued to two of the
Company's executive officers, directors and stockholders. This is a discount
from the fair market value of the Company's shares at the date of grant of
approximately $1.80 per share or $1.3 million. These options are fully vested.
The amount of discount from the fair market value of the Company's shares at the
date of grant charged to expense in fiscal 1993 was $979,000.

At September 30, 1995, the Company had reserved Common Stock for future issuance
under warrant and option agreements and upon conversion of the Series B
Preferred Stock as follows:

<TABLE>
<S>                                                              <C>      
Stock option plans                                                5,834,164
Ungranted options under 1992 MEIP and 1994 MEIP                     351,979
Common Stock purchase warrants                                    3,952,958
Conversion of Series B Preferred Stock                            5,526,308
                                                                 ----------
Total                                                            15,665,409
                                                                 ==========
</TABLE>



                                      F-16
<PAGE>   122
                  VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                             September 30,
                                                      -------------------------
                                                        1994             1995
                                                      --------         --------
<S>                                                   <C>              <C>     
Leasehold improvements                                $  1,485         $  2,146
Equipment (including equipment under
   capital lease)                                       12,083           15,906
Software development costs                               3,372            4,191
Office furniture                                         1,994            3,148
                                                      --------         --------
                                                        18,934           25,391
Less accumulated depreciation and
   amortization                                         (6,186)         (10,287)
                                                      --------         --------
                                                      $ 12,748         $ 15,104
                                                      ========         ========
</TABLE>

6. DEBT

On August 11, 1994, the Company obtained a revolving credit facility of up to
$15.0 million, including a revolving letter of credit sub-facility of up to $2.5
million. In connection with the CHC acquisition described in Note 2, effective
February 17, 1995, the credit agreement was amended and restated to increase the
revolving credit facility from $15 million to $20 million and to provide for a
$25 million term loan facility secured by substantially all of the assets of the
Company. Under the terms of the credit agreement, which was further amended
effective June 30, 1995, the Company is required to meet certain financial and
other covenants, such as minimum net worth requirements and the maintenance of
certain financial ratios.

Pursuant to the terms of the credit agreement, the Company is prohibited from
making dividend payments on its common stock. The revolving credit facility and
term loan are due on October 1, 1996. The Company must pay a fee of 0.5%
annually on the unused portion of the revolving credit facility commitment.
Interest is payable quarterly. Outstanding draws bear interest at the prime rate
plus 1% or at certain LIBOR rates plus 2.5%. At September 30, 1995, the Company
had $4.5 million of outstanding draws against the revolving credit facility.

                                      F-17
<PAGE>   123
                  VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. DEBT (CONTINUED)

Under the term loan, the Company can select to pay the quarterly interest due
based on the LIBOR rate plus 2.5% or the floating rate plus 1.0%. If on or
before January 31, 1996 the Company does not prepay at least $6.0 million of
principal on the term loan facility, the interest rate on the term loan
increases to LIBOR plus 2.75% or floating rate plus 1.25% through April 30, 1996
and subsequent to that date, to LIBOR plus 3.0% or floating rate plus 1.5%
through maturity. Both the term loan and revolving credit facilities bore
interest at a rate of 8.32% at September 30, 1995.

Debt is as follows (in thousands):

<TABLE>
<CAPTION>
                                                                  SEPTEMBER 30,
                                                               -------------------
                                                                1994        1995
                                                               -------     -------
<S>                                                            <C>         <C>    
Term loan. Payments of principal and
   interest are due as described above                         $  --       $25,000

Line of credit                                                    --         4,500

Subordinated note payable, bearing interest at 9% per
   annum. Principal and interest payable commencing on
   March 31, 1995 as follows: twenty-four monthly
   installments of $100,000 each with the unpaid principal
   balance plus all accrued and unpaid interest due on
   March 31, 1997                                                 --         5,623

Subordinated note payable, bearing interest at 9% per
   annum. Principal and interest payable commencing on
   March 31, 1995 as follows: twelve monthly installments
   of $75,000 each, followed by twenty-four monthly
   installments of $50,000 each with the unpaid principal
   balance plus all accrued and unpaid interest due on
   March 31, 1998                                                 --         5,169
Other                                                              120         105
                                                               -------     -------
                                                                   120      40,397
Less current portion                                               110       1,103
                                                               -------     -------
                                                               $    10     $39,294
                                                               =======     =======
</TABLE>

                                      F-18
<PAGE>   124
                  VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. DEBT (CONTINUED)

Scheduled maturities of long-term debt outstanding at September 30, 1995 are
(based on a fiscal year end of September 30): 1996--$1.1 million; 1997--$34.6
million; 1998--$4.7 million.

At September 30, 1995, the Company has outstanding a standby letter of credit
under the line of credit sub-facility of $1.4 million, in favor of the Company's
workers compensation program administrator, which is maintained as security for
the obligation for unpaid claims.

7. CAPITAL LEASE OBLIGATIONS

The Company leases certain of its equipment under capital leases. Obligations
under capital lease agreements are payable as follows (in thousands):

<TABLE>
<CAPTION>
Year ending September 30:
<S>                                                                  <C>   
   1996                                                              $1,662
   1997                                                               1,268
   1998                                                                 722
   1999                                                                 405
                                                                     ------
                                                                      4,057
   Less amounts representing interest                                  (434)
                                                                     ------
                                                                     $3,623
                                                                     ======
</TABLE>

8. DEFERRED RENT

The Company entered into lease agreements for office space in which monthly
rental payments are deferred for a specific period of time. The resulting
liability for deferred rent of $794,000 and $688,000 at September 30, 1994 and
1995, respectively, represents the difference between the monthly expense
accrued on a straight-line basis from the date of occupancy through the
expiration of the lease terms and the actual payments in accordance with the
lease agreement.

9. INCOME TAXES

Effective October 1, 1992, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by SFAS
109. The cumulative effect of adopting SFAS 109 as of October 1, 1992 was to
increase net income by $259,000.

                                      F-19
<PAGE>   125
                  VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. INCOME TAXES (CONTINUED)

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows (in thousands):

<TABLE>
<CAPTION>
                                                               SEPTEMBER 30,
                                                           ---------------------
                                                            1994           1995
                                                           ------         ------
<S>                                                        <C>            <C>   
Deferred tax liabilities:
   Tax over book depreciation                              $  453         $  374
   Prepaid insurance                                           40              9
                                                           ------         ------
Total deferred tax liabilities                                493            383

Deferred tax assets:
   Book over tax amortization                                 145             50
   Deferred compensation amortization                         515            515
   Accrued expenses                                         1,012          1,045
   Bad debt reserves                                         --              610
   Restructuring reserves                                    --            1,061
   Other                                                     --               45
                                                           ------         ------
Total deferred tax assets                                   1,672          3,326
                                                           ------         ------
Net deferred tax assets                                    $1,179         $2,943
                                                           ======         ======
</TABLE>

Significant components of the provision (benefit) for income taxes are as
follows (in thousands):

<TABLE>
<CAPTION>
                                1993         1994         1995
                              -------      -------      -------
<S>                           <C>          <C>          <C>    
               Current:
                  Federal     $   174      $ 3,050      $   522
                  State            72          479           90
               Deferred:
                  Federal        (173)        (326)      (1,894)
                  State           (27)         (53)        (306)
                              -------      -------      -------
                              $    46      $ 3,150      $(1,588)
                              =======      =======      =======
</TABLE>

                                      F-20
<PAGE>   126
                  VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. INCOME TAXES (CONTINUED)

The reconciliation of income tax attributable to continuing operations computed
at the U.S. federal statutory tax rates to income tax expense (benefit) is (in
thousands):

<TABLE>
<CAPTION>
                                            1993           1994           1995
                                          -------        -------        -------
<S>                                       <C>            <C>            <C>     
Tax at U.S. statutory rate                $   (47)       $ 2,819        $(1,508)
State income tax--net of
   federal tax benefit                         30            278           (160)
Permanent differences                          81             33            167
Other items, net                              (18)            20            (87)
                                          -------        -------        -------
                                          $    46        $ 3,150        $(1,588)
                                          =======        =======        =======
</TABLE>

10. EMPLOYEE BENEFIT PLANS

Effective October 1, 1989, the Company formed an Employee Stock Ownership Plan
(ESOP) covering all employees who meet service period requirements. Effective
October 1, 1992, the Company amended the ESOP to exclude certain management
employees from participation. The Company, at its option, may make annual
contributions to the ESOP in the form of Common Stock or cash. On December 17,
1991, the Company and its ESOP acquired 596,648 and 800,000 shares,
respectively, of the outstanding Common Stock of the Company from an individual
who is a director, stockholder, and a former executive officer for approximately
$2.1 million and $2.9 million, respectively. The 596,648 shares of Common Stock
acquired by the Company were restored to the authorized but unissued shares of
Common Stock.

The ESOP initially obtained a loan for approximately $2.9 million from the
Company to acquire its shares. The loan accrued interest at the prime rate plus
2% per annum and was payable in quarterly installments of $47,733, plus accrued
interest. Interest income on this loan totaled $207,000 in 1993 and $254,000 in
1994. On August 11, 1994, the Company refinanced the ESOP loan. Under the terms
of the new agreement, the ESOP trust is directly liable for principal and
interest payments, with the Company serving as guarantor. The Company will make
contributions to the ESOP equal to the required principal and interest payments
on the note. Interest accrues at the prime rate or certain LIBOR rates plus 2%.
Contribution expense related to the ESOP was $406,000 in 1993, $396,000 in 1994
and $669,000 in 1995. The outstanding balance of the ESOP loan was approximately
$1.8 million at September 30, 1995.

                                      F-21
<PAGE>   127
                  VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. EMPLOYEE BENEFIT PLANS (CONTINUED)

In January 1993, the Company established a voluntary 401(k) savings plan
covering all eligible employees. Contributions made by the Company to the 401(k)
plan are based on a specified percentage of employee contributions. Expense for
the plan totaled $128,000, $180,000 and $234,000 in 1993, 1994 and 1995,
respectively.

During 1993, the Company entered into agreements with certain officers pursuant
to which the Company will provide annual supplemental retirement benefits for
life upon retirement or for ten years upon death. The projected benefit
obligation accrued at September 30, 1994 was $309,000. During 1995, this program
was terminated and the related life insurance policies were thereafter
distributed to the participants. As a result of the termination, the Company
realized a reduction of benefit costs of approximately $120,000.

11. RELATED PARTY TRANSACTIONS

The Company has engaged in the following transactions with related parties:

     -   At September 30, 1994 and 1995, notes receivable from stockholders,
         employees and officers were approximately $394,000 and $121,500,
         respectively. The notes bear interest ranging from five to nine percent
         and are due through October 1997.

     -   In conjunction with the issuance of the Series B Preferred Stock, the
         Board of Directors of the Company voted to terminate a previously
         adopted performance bonus arrangement with two of the Company's
         executive officers who are also significant stockholders and directors.
         Pursuant to the termination of the performance bonus arrangement, the
         Company forgave the principal and interest of two notes due from these
         individuals and paid certain bonuses to these individuals to cover the
         income tax consequences of the forgiveness of these amounts. The
         termination of the performance bonus arrangement together with the
         forgiveness of certain other notes and the related bonus to cover
         income tax consequences totaled $4.7 million which is reported as
         officers' loans forgiven in 1993.

     -   In June 1993, the Company acquired and subsequently retired 1,302,079
         shares of the outstanding Common Stock of the Company from two of its
         principal stockholders, executive officers and directors for
         approximately $8.2 million.

                                      F-22
<PAGE>   128
                  VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. RELATED PARTY TRANSACTIONS (CONTINUED)

     -   During 1992, the Company entered into employment and noncompete
         agreements with two principal stockholders, executive officers and
         directors. In June of 1993, the noncompete agreements were amended to
         reduce the payments due thereunder from $3.5 million to $2.1 million,
         such amount to be paid over the next five years in exchange for
         agreements not to compete with the Company for a period of six years.
         An additional amendment effective January 1, 1995 reduced the future
         payments to a total of $462,000. The agreements will expire in June
         1999. Payments made under the noncompete agreements totaled $375,000 in
         1994 and $135,000 in 1995. At September 30, 1994 and 1995, $604,000 and
         $520,000, respectively, of previously paid noncompete payments are
         being deferred over future periods.

12. RESTRUCTURING COSTS

During the third quarter of 1995, as a result of the Company's review of its
operating strategies and in order to improve competitiveness and future
profitability, the Company recorded a restructuring charge of $2.0 million in
connection with the establishment of a severance reserve.

                                      F-23
<PAGE>   129
                  VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. COMMITMENTS AND CONTINGENCIES

The Company contracts with various healthcare providers for inpatient services
for its patients. In most cases, the Company is charged for inpatient services
at negotiated rates determined on a per diem basis. In some instances, the
Company leases or makes arrangements for the use of the space and operates
inpatient units using its own employees. These lease costs are included in
hospice program costs in the accompanying financial statements. The Company also
leases office space at its various locations.

Total rental expense was approximately $4.0 million, $4.1 million and $5.7
million for the years ended September 30, 1993, 1994 and 1995, respectively.

Future minimum rental commitments under noncancelable operating leases for the
years subsequent to September 30, 1995 are as follows (in thousands):

<TABLE>
<S>                                                           <C>    
     1996                                                     $ 3,980
     1997                                                       3,159
     1998                                                       2,321
     1999                                                       2,101
     2000                                                         698
                                                              -------
                                                              $12,259
                                                              =======
</TABLE>

Effective July 1, 1992, for its Florida locations, and July 1, 1993, for its
remaining locations, the Company became self-insured for workers compensation
insurance coverages. The Company records an accrual for the self-insured portion
of these costs and maintains certain per occurrence and aggregate stop-loss
insurance for this self-insured program.

In May 1995, President Clinton announced a coordinated effort by federal and
state agencies, named Operation Restore Trust (ORT), to review industry
practices and regulatory compliance of home health agencies, nursing homes, and
certain durable medical equipment suppliers. This initiative was targeted to
California, Florida, Illinois, Texas, and New York, the five states in which
Medicare spending is the highest. In June 1995, federal officials announced
their intention to conduct a review as part of ORT in these five states of
hospice eligibility issues, based upon a study by the Office of Inspector
General (OIG) of the Department of Health and Human Services which involved two
Puerto Rico hospices unrelated to the Company in which the OIG found a
substantial number of patients not eligible for the Medicare hospice benefit.

                                      F-24
<PAGE>   130
                  VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. COMMITMENTS AND CONTINGENCIES (CONTINUED)

The Company operates in four of the five ORT states. As a part of its review of
hospices under ORT, the OIG has conducted an audit at various of the Company's
hospice programs and at the Company's corporate offices. Based upon public
information, the Company understands that the OIG's audit of the hospice
industry is planned to continue at least through the end of fiscal year 1996.
The OIG's review of hospices under ORT is ongoing, and no formal reports have
been issued by the OIG on the outcome of the audit of Company locations. Based
upon recent public comments made by representatives of the OIG, it appears that
the OIG may be of the view that general hospice industry practices regarding
documentation of eligibility for the Medicare hospice benefit, particularly
those relative to long stay patients (those who are in a hospice program for
longer than 210 days), do not meet the OIG's interpretation of applicable
Medicare requirements. The Company strongly disagrees with this view and based
upon advice from outside regulatory counsel believes, among other things, that
it meets applicable Medicare eligibility documentation requirements in all
material respects. Due to the early stage of the OIG's hospice audit activities,
however, the ultimate disposition of this audit and its possible impact on the
Company cannot currently be predicted.

                                      F-25
<PAGE>   131
                             THIS PAGE INTENTIONALLY
                                   LEFT BLANK
<PAGE>   132
                  VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                    (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
                                                             JUNE 30,  SEPTEMBER 30,
                                                               1996        1995
                                                           ----------- -------------
                                                           (Unaudited)    (Note 1)
<S>                                                        <C>         <C>    
ASSETS
Current assets
     Cash and cash equivalents                               $ 2,396     $ 4,545
     Accounts receivable from patient services, net           26,683      30,576
     Income tax receivable                                       465       1,322
     Deferred taxes--current                                   1,832       1,997
     Other current assets                                      2,862       2,295
                                                             -------     -------
Total current assets                                          34,238      40,735

Property and equipment, net                                   15,470      15,104

Intangible assets, net                                        42,034      39,405

Other assets                                                   2,686       2,763
                                                             -------     -------
Total assets                                                 $94,428     $98,007
                                                             =======     =======
</TABLE>
     See notes to condensed consolidated financial statements.

                                      F-27
<PAGE>   133
                  VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES

                CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
                    (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                   JUNE 30,   SEPTEMBER 30,
                                                                                    1996          1995
                                                                                 -----------  -------------
                                                                                 (Unaudited)     (Note 1)
<S>                                                                              <C>          <C>     
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
     Accounts payable                                                             $ 15,590      $ 18,877
     Accrued compensation                                                            7,482         5,168
     Other accrued expenses                                                          4,540         6,740
     Current portion of long-term debt and capital lease obligations                33,958         2,536
                                                                                  --------      --------
Total current liabilities                                                           61,570        33,321

Long-term debt and line of credit                                                    9,024        39,294
Other long-term liabilities                                                          1,596         2,544
Guarantee of Employee Stock Ownership Plan loan                                      1,435         1,792

Redeemable preferred stock:
Redeemable preferred stock, $100 stated value,
     $1 par value
         Authorized shares--4,500,000
         Issued and outstanding shares:
             9% Preferred Stock, cumulative, nonconvertible,
                  redeemable--270,000 shares; liquidation preference equal
                  to stated value per share plus all accrued and unpaid
                  dividends                                                         27,308        27,257
             Series B--convertible, redeemable--262,500 shares;
                  liquidation preference equal to stated value per share plus
                  a dividend preference amount of 8% per annum from date
                  of issuance less any dividends paid                               32,641        31,066

Stockholders' deficit:
     Common Stock, $.001 par value:
     Authorized shares--40,000,000
         Issued and outstanding shares--4,408,842 in 1996
             and 4,401,842 in 1995                                                       4             4
     Additional paid-in capital                                                    (30,644)      (29,047)
     Indebtedness of Employee Stock Ownership Plan                                  (1,435)       (1,792)
     Accumulated deficit                                                            (7,071)       (6,432)
                                                                                  --------      --------
Total stockholders' deficit                                                        (39,146)      (37,267)
                                                                                  --------      --------
Total liabilities and stockholders' equity                                        $ 94,428      $ 98,007
                                                                                  ========      ========
</TABLE>
Note: The balance sheet at September 30, 1995 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.

See notes to condensed consolidated financial statements.

                                      F-28
<PAGE>   134
                 VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                             QUARTERS ENDED JUNE 30,      NINE MONTHS ENDED JUNE 30,
                                            --------------------------    --------------------------
                                               1996           1995           1996           1995
                                            -----------    -----------    -----------    -----------
<S>                                         <C>            <C>            <C>            <C>        
Net patient service revenue                 $    61,995    $    64,440    $   191,514    $   165,815
Operating expenses:
     Direct hospice care costs                   40,988         42,595        125,600        105,292
     General and administrative                  18,327         20,544         55,768         54,544
     Provision for doubtful accounts, net
         of recoveries                            1,333          1,945          4,035          4,971
     Amortization of intangible assets              644            579          1,930          1,263
     Restructuring costs                             --          2,020             --          2,020
                                            -----------    -----------    -----------    -----------
                                                 61,292         67,683        187,333        168,090
                                            -----------    -----------    -----------    -----------
Income (loss) from operations                       703         (3,243)         4,181         (2,275)

Interest expense, net of interest income          1,013          1,146          3,094          1,643
                                            -----------    -----------    -----------    -----------
Income (loss) before provision for
     income taxes                                  (310)        (4,389)         1,087         (3,918)
Provision for income taxes (benefit)               (140)        (1,572)           489         (1,403)
                                            -----------    -----------    -----------    -----------
Net income (loss)                           $      (170)   $    (2,817)   $       598    $    (2,515)
                                            ===========    ===========    ===========    ===========
Net loss attributable to common
     stockholders                           $    (1,320)   $    (3,967)   $    (2,852)   $    (5,965)
                                            ===========    ===========    ===========    ===========
Net loss per common share                   $      (.30)   $      (.90)   $      (.65)   $     (1.36)
                                            ===========    ===========    ===========    ===========
Weighted average number of shares of
     common stock outstanding                 4,408,842      4,401,842      4,406,397      4,401,842
                                            ===========    ===========    ===========    ===========
</TABLE>

See notes to condensed consolidated financial statements.

                                      F-29
<PAGE>   135
                  VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (AMOUNTS IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                              NINE MONTHS ENDED
                                                                  JUNE 30,
                                                           ----------------------
                                                             1996          1995
                                                           --------      --------
<S>                                                        <C>           <C>      
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES        $  6,859      $(13,772)

INVESTING ACTIVITIES

Purchase of property and equipment, net                      (4,336)       (4,175)
Assets of business acquired                                  (2,910)      (23,514)
Sale of investments                                            --           8,077
Increase in intangible assets                                  (844)         --
Increase (decrease) in other assets                              77        (1,300)
Decrease in indebtedness of Employee Stock
     Ownership Plan                                             357           356
                                                           --------      --------
Net cash used in investing activities                        (7,656)      (20,556)

FINANCING ACTIVITIES

Proceeds from long-term debt and line of credit               2,751        32,984
Principal payments on long-term debt and capital lease
     obligations                                             (2,538)       (1,212)
Dividends on 9% Preferred Stock                              (1,215)       (1,215)
Proceeds from exercise of stock options and related
     income tax benefits, net                                     7           (17)
Proceeds ESOP contributions                                    (357)         (356)
                                                           --------      --------
Net cash (used in) provided by financing activities          (1,352)       30,184
                                                           --------      --------

Net decrease in cash                                          2,149        (4,144)
Cash and cash equivalents, beginning of period                4,545         5,715
                                                           --------      --------
Cash and cash equivalents, end of period                   $  2,396      $  1,571
                                                           ========      ========
</TABLE>

See notes to condensed consolidated financial statements.


                                      F-30
<PAGE>   136
                  VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

                                 JUNE 30, 1996

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three- and nine-month periods ended
June 30, 1996 are not necessarily indicative of the results that may be expected
for the year ended September 30, 1996. For further information, refer to the
Company's consolidated financial statements and footnotes thereto for the year
ended September 30, 1995.

The condensed consolidated financial statements include the accounts of Vitas
Healthcare Corporation and its subsidiaries (the Company). All significant
intercompany accounts and transactions have been eliminated in consolidation.

2. CHANGE IN OWNERSHIP

On June 6, 1996 the Company signed a letter of intent to merge with a subsidiary
of Apria Healthcare Group Inc. in a transaction to be accounted for as a pooling
of interests. This transaction is expected to be consummated by September 30,
1996.

3. ACQUISITIONS

On February 17, 1995, Vitas Healthcare Corporation of California
(Vitas-California), a wholly owned subsidiary of the Company, acquired
substantially all of the assets and assumed certain liabilities of Community
Hospice Care, Inc. and its affiliated limited partnerships (CHC) which offered
hospice, home health and other related healthcare and support services through
hospice programs in several communities in Southern California. The acquisition
was accounted for as a purchase and the results of operations of CHC have been
included in the consolidated financial statements since the date of acquisition.

                                      F-31
<PAGE>   137
                  VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3. ACQUISITIONS (CONTINUED)

On November 3, 1995, the Company acquired substantially all of the assets and
assumed certain liabilities of the Hospice of the Miami Valley Inc. (HMV) for
approximately $2.8 million, including expenses associated with the acquisition
of approximately $1.0 million. The acquisition was accounted for as a purchase
and the results of operations of HMV have been included in the consolidated
financial statements since the date of acquisition. Pro forma results of
operations of HMV have not been presented because the effect of the acquisition
is not significant.

On August 8, 1996, the Company acquired substantially all of the assets and
assumed certain liabilities of Hospice of Central Florida, Inc. (HCF) for
approximately $4.75 million.

The following unaudited pro forma information presents a summary of consolidated
results of operations of the Company, CHC and HCF, assuming the acquisitions had
occurred on October 1, 1994 and after giving effect to certain pro forma
adjustments, including, among others, adjustments to owner's compensation and
amortization of goodwill, together with related income tax effects (in thousands
except per share data):

<TABLE>
<CAPTION>
                                                         NINE MONTHS ENDED
                                                             JUNE 30,
                                                   --------------------------
                                                     1995              1996
                                                   --------          --------
<S>                                                <C>                <C>      
Net revenue                                        $197,078          $199,629
Net income (loss)                                  $ (3,068)         $    759
Net loss attributable to common
     stockholders                                  $ (6,517)         $ (2,690)
Net loss per common share                          $  (1.48)         $   (.61)
</TABLE>


                                      F-32
<PAGE>   138
                  VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. INCOME TAXES

Income taxes have been provided at the effective tax rate expected for the year.
The Company's effective tax rate differs from statutory rates primarily as a
result of certain costs which are not deductible for income tax purposes and
state income taxes, net of federal benefit.

5. CONTINGENCIES

In May 1995, President Clinton announced a coordinated effort by federal and
state agencies, named Operation Restore Trust (ORT), to review industry
practices and regulatory compliance of home health agencies, nursing homes, and
certain durable medical equipment suppliers. This initiative was targeted to
California, Florida, Illinois, Texas, and New York, the five states in which
Medicare spending is the highest. In June 1995, federal officials announced
their intention to conduct a review as part of ORT in these five states of
hospice eligibility issues, based upon a study by the Office of Inspector
General (OIG) of the Department of Health and Human Services which involved two
Puerto Rico hospices unrelated to the Company in which the OIG found a
substantial number of patients not eligible for the Medicare hospice benefit.


The Company operates in four of the five ORT states. As a part of its review of
hospices under ORT, the OIG has conducted an audit at various of the Company's
hospice programs and at the Company's corporate offices. Based upon public
information, the Company understands that the OIG's audit of the hospice
industry is planned to continue at least through the end of fiscal year 1997.
The OIG's review of hospices under ORT is ongoing, and no reports have been
issued by the OIG on the outcome of the audit of the Company's locations.
According to public reports, the OIG audits have focused on the hospice
eligibility of long stay patients (those who are in a hospice program for longer
than 210 days). Based upon recent public comments made by representatives of the
OIG and one published report on the OIG's audit of a Florida hospice program
unrelated to the Company, it appears that the OIG's interpretation of applicable
Medicare requirements does not reflect the general hospice industry practices
regarding documentation of eligibility for the Medicare hospice benefit. The
Company strongly disagrees with the OIG's apparent interpretation and
application of these requirements and believes, based upon advice from outside
regulatory counsel, among other things, that it meets applicable Medicare
eligibility documentation requirements in all material respects. The ultimate
disposition of this audit and its possible impact on the Company cannot
currently be predicted.


6. BANK DEBT MATURITY

         Subsequent to the quarter ended March 31, 1996, Vitas' results of
operations have been adversely affected by a number of factors, including the
disruption to operations resulting from the proposed Merger. Due to such
factors, management of Vitas believes that Vitas' results of operations will be
increasingly adversely affected in the months leading up to the closing of the
Merger. By letter dated August 5, 1996, Vitas' bank lender amended, effective as
of April 1, 1996, certain covenants in Vitas' bank loan agreement relating to
Vitas' consolidated interest coverage ratio and consolidated fixed charge ratio.
Such amendments were effective through September 29, 1996. As a result of such
amendments, Vitas continued to be in compliance with such covenants as of June
30, 1996. Pursuant to an agreement dated as of September 29, 1996, such
covenants, together with the current ratio covenant and the consolidated
leverage ratio covenant, were amended to require Vitas to be in compliance 
with such covenants only at the end of any fiscal quarter, rather than at any 
time during the fiscal quarter. In addition, pursuant to such agreement, Vitas 
is not required to report to its bank lender any default or event of default 
under such covenants until the earlier of the delivery of certain financial 
reports pursuant to the loan agreement or the date upon which the Merger 
Agreement is terminated or cancelled. Vitas believes it is likely that when 
such financial reports are prepared, they will show that Vitas would have been 
in violation of such covenants as of September 30, 1996. There is no assurance 
that Vitas' bank lender will agree to further amendments or waivers to such 
financial covenants or other terms of Vitas' bank credit agreements. However, 
Vitas believes, based on discussions with its bank lender, that pending the 
Merger the bank will not declare an event of default with respect to such debt 
or take any other action under the bank loan agreement, although there is no 
assurance that this will be the case. All bank debt is classified as a current 
liability in the June 30, 1996 Condensed Consolidated Balance Sheet.


   
Pursuant to the terms of Vitas' bank credit facilities, all borrowings
outstanding under such facilities were scheduled to mature on October 1, 1996.
Pursuant to the agreement dated as of September 19, 1996, Vitas, among other
things, obtained an extension of the maturity of all borrowings under its bank
credit facilities through the earlier of November 15, 1996 or the consummation,
cancellation or other termination of the Merger Agreement. Although Vitas is
currently seeking an extension of such maturity to permit consummation of the
transactions contemplated by the Merger Agreement, there can be no assurance
that such an extension can be obtained.
    


                                      F-33
<PAGE>   139
                                   APPENDIX A

                               [MERGER AGREEMENT]

                                      A-1

<PAGE>   140
                                                                      EXHIBIT 2






 
--------------------------------------------------------------------------------



 
                          AGREEMENT AND PLAN OF MERGER

 
                           DATED AS OF JUNE 28, 1996

 
                                     AMONG

 
                          APRIA HEALTHCARE GROUP INC.,

 
                             APRIA NUMBER TWO, INC.

 
                                      AND

 
                          VITAS HEALTHCARE CORPORATION



 
--------------------------------------------------------------------------------
<PAGE>   141
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                                                            PAGE
                                                                                            ----
<S>    <C>      <C>                                                                         <C>
                                  ARTICLE I
                                 THE MERGER

1.1    The Merger.......................................................................      1
1.2    Closing..........................................................................      1
1.3    Effective Time...................................................................      1
1.4    Effects of the Merger............................................................      2
1.5    Certificate of Incorporation and Bylaws..........................................      2
       1.5.1    Certificate of Incorporation............................................      2
       1.5.2    Bylaws..................................................................      2
1.6    Directors........................................................................      2
1.7    Officers.........................................................................      2

                                  ARTICLE II
               EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
             CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES;
                           PURCHASE OF 9% PREFERRED

2.1    Effect on Capital Stock..........................................................      2
       2.1.1    Capital Stock of Sub....................................................      2
       2.1.2    Cancellation of Treasury Stock and Apria Owned Stock....................      2
       2.1.3    Conversion of Vitas Common Stock........................................      2
       2.1.4    9% Preferred............................................................      3
       2.1.5    Series B Preferred......................................................      3
       2.1.6    Warrants................................................................      3
       2.1.7    Stock Options...........................................................      3
       2.1.8    Exchange Ratio..........................................................      3
       2.1.9    Collar Adjustment.......................................................      4
       2.1.10   Debt Adjustment.........................................................      4
       2.1.11   Certain Apria Adjustments...............................................      4
       2.1.12   Cancellation of Stock, Warrants and Stock Options.......................      5

2.2    Exchange of Certificates.........................................................      5
       2.2.1    Exchange Agent..........................................................      5
       2.2.2    Exchange Procedure......................................................      5
       2.2.3    Distributions with Respect to Unexchanged Common Shares.................      6
       2.2.4    No Further Ownership Rights in Vitas Stock..............................      6
       2.2.5    No Fractional Shares....................................................      6
       2.2.6    Termination of Exchange Fund and Trust .................................      7
       2.2.7    No Liability............................................................      7
       2.2.8    Withholding Rights......................................................      7
       2.2.9    Investment of Exchange Fund and Trust...................................      7
       2.2.10   Lost Certificates.......................................................      7

2.3    Dissenters' Rights...............................................................      8
</TABLE>
 
                                        i
<PAGE>   142
 
<TABLE>
<CAPTION>
                                                                                            PAGE
                                                                                            ----
<S>    <C>      <C>                                                                         <C>
                                 ARTICLE III
                        REPRESENTATIONS AND WARRANTIES

3.1    Representations and Warranties of Vitas..........................................      8
       3.1.1    Organization, Standing and Corporate Power..............................      8
       3.1.2    Subsidiaries............................................................      8
       3.1.3    Capital Structure.......................................................      8
       3.1.4    Authority; Noncontravention.............................................      9
       3.1.5    Financial Statements; Changes; Contingencies............................     10     
       3.1.6    Information Supplied....................................................     11
       3.1.7    Litigation; Administrative Proceedings .................................     11
       3.1.8    Taxes...................................................................     12
       3.1.9    Employee Benefits.......................................................     12
       3.1.10   Qualified Plans.........................................................     13
       3.1.11   Title IV Plans..........................................................     14
       3.1.12   Multiemployer Plans.....................................................     14
       3.1.13   No Excess Parachute Payments............................................     14
       3.1.14   Compliance with Applicable Laws.........................................     14
       3.1.15   State Takeover Statutes.................................................     16
       3.1.16   Brokers.................................................................     16
       3.1.17   Opinion of Financial Advisor............................................     16
       3.1.18   Contracts...............................................................     16
       3.1.19   Title to Properties.....................................................     18
       3.1.20   Accounting Matters......................................................     18
       3.1.21   Voting Requirements.....................................................     18
       3.1.22   Noncompetition..........................................................     18
       3.1.23   Intellectual Property...................................................     18
       3.1.24   CHAMPUS, Medicare and Medicaid..........................................     19
       3.1.25   Minute Books............................................................     19
       3.1.26   Accounting Records; Internal Controls...................................     19
       3.1.27   Insurance...............................................................     19
       3.1.28   Dividends and Other Distributions.......................................     20
       3.1.29   Certain Interests.......................................................     20
       3.1.30   Bank Accounts, Powers, etc..............................................     20
       3.1.31   Supplies................................................................     20
       3.1.32   Suppliers...............................................................     20
       3.1.33   Disclosure..............................................................     20

3.2    Representations and Warranties of Apria and Sub .................................     20
       3.2.1    Organization, Standing and Corporate Power..............................     20
       3.2.2    Capital Structure.......................................................     21
       3.2.3    Authority; Noncontravention.............................................     21
       3.2.4    SEC Documents; Financial Statements.....................................     22
       3.2.5    Information Supplied....................................................     22
       3.2.6    Absence of Certain Changes or Events....................................     23
       3.2.7    Litigation; Administrative Proceedings .................................     23
       3.2.8    Compliance with Applicable Laws.........................................     23
       3.2.9    Brokers.................................................................     23
</TABLE>
 
                                       ii
<PAGE>   143
 
<TABLE>
<CAPTION>
                                                                                            PAGE
                                                                                            ----
<S>    <C>      <C>                                                                         <C>
       3.2.10   Opinion of Financial Advisor............................................     24
       3.2.11   Contracts; Debt Instruments.............................................     24
       3.2.12   Accounting Matters......................................................     24
       3.2.13   Interim Operations of Sub...............................................     24
       3.2.14   Disclosure..............................................................     24


                                  ARTICLE IV
                  COVENANTS RELATING TO CONDUCT OF BUSINESS

4.1    Conduct of Business; Actions.....................................................     24
       4.1.1    Conduct of Business by Vitas............................................     24
       4.1.2    Actions by Apria........................................................     26
       4.1.3    Other Actions...........................................................     27
     
4.2    No Solicitation..................................................................     27
       4.2.1    Competing Proposal......................................................     27
       4.2.2    Acceptance of Competing Proposal........................................     28
       4.2.3    Notice of Inquiry.......................................................     28


                                  ARTICLE V
                            ADDITIONAL AGREEMENTS

5.1    Preparation of Form S-4 and Proxy Statement; Vitas Stockholders' Meeting.........     28
       5.1.1    Proxy Statement.........................................................     28
       5.1.2    Vitas Stockholders' Meeting.............................................     29

5.2    Access to Information; Confidentiality...........................................     29

5.3    Reasonable Efforts; Notification; Cooperation....................................     29
       5.3.1    Actions to be Taken.....................................................     29
       5.3.2    Notice of Change........................................................     29
       5.3.3    Cooperation; Best Efforts...............................................     30

5.4    Stock Option Plans...............................................................     30
       5.4.1    Exchange of Stock Options...............................................     30
       5.4.2    Additional Limitations..................................................     30
       5.4.3    Termination of Plans....................................................     30
       5.4.4    Withholding Arrangements................................................     31
       5.4.5    Necessary Actions.......................................................     31

5.5    Voting Directions By ESOP Participants...........................................     31

5.6    Indemnification and Insurance....................................................     31
       5.6.1    Certificate of Incorporation............................................     31
       5.6.2    Liability Insurance.....................................................     31
       5.6.3    Assumption of Obligations...............................................     31
       5.6.4    Survival................................................................     31

5.7    Letters of Accountants...........................................................     32
       5.7.1    Apria Comfort Letter....................................................     32
       5.7.2    Vitas Comfort Letter....................................................     32

5.8    Fees and Expenses................................................................     32

5.9    Public Announcements.............................................................     32
</TABLE>
 
                                       iii
<PAGE>   144
 
<TABLE>
<CAPTION>
                                                                                            PAGE
                                                                                            ----
<S>    <C>      <C>                                                                         <C>
5.10   Affiliates; Accounting and Tax Treatment.........................................     32
       5.10.1   Vitas Affiliates........................................................     32
       5.10.2   Pooling of Interests....................................................     32
       5.10.3   Combined Results........................................................     33

5.11   Conveyance Taxes.................................................................     33

5.12   Vitas Notes; ESOP Loan Waiver....................................................     33

5.13   Vitas' Board Composition.........................................................     33

5.14   Consulting, Severance and Noncompete Agreements..................................     33

5.15   Repayment of Affiliate Receivables...............................................     33

5.16   Purchase of 9% Preferred.........................................................     33

5.17   Employee Benefits, Employment....................................................     34
       5.17.1   Benefit Plans...........................................................     34
       5.17.2   Vacation Pay............................................................     34
       5.17.3   Further Actions.........................................................     34
       5.17.4   No Third Party Rights...................................................     34

5.18   Review of Vitas Disclosure Schedule..............................................     34

5.19   Employment Severance Agreements..................................................     34


                                  ARTICLE VI
                             CONDITIONS PRECEDENT

6.1    Conditions to Each Party's Obligations to Effect the Merger......................     35
       6.1.1    Stockholder Approval....................................................     35
       6.1.2    NYSE Listing............................................................     35
       6.1.3    No Injunctions or Restraints............................................     35
       6.1.4    Form S-4................................................................     35
       6.1.5    HSR Act.................................................................     35
       6.1.6    Approvals...............................................................     35

6.2    Additional Conditions to Obligations of Apria and Sub............................     35
       6.2.1    Representations and Warranties..........................................     35
       6.2.2    Agreements and Covenants................................................     36
       6.2.3    Consents Under Agreements...............................................     36
       6.2.4    Resignation of Directors................................................     36
       6.2.5    Pooling Letter..........................................................     36
       6.2.6    Affiliate Agreements....................................................     36
       6.2.7    Sale of 9% Preferred; Exchange of Warrants..............................     36
       6.2.8    Conversion of Series B Preferred........................................     36
       6.2.9    Significant Securityholders Agreement...................................     36
       6.2.10   Appraisal Rights........................................................     37
       6.2.11   Termination of Agreements...............................................     37
       6.2.12   Approval of Severance Agreement.........................................     37
       6.2.13   Exercise of Stock Options and Warrants..................................     37
       6.2.14   Opinions of Counsel to Vitas............................................     37

6.3    Additional Conditions to Obligations of Vitas....................................     37
       6.3.1    Representations and Warranties..........................................     37
       6.3.2    Agreements and Covenants................................................     37
       6.3.3    Pooling Letter..........................................................     37
       6.3.4    Opinion of Counsel to Apria.............................................     37
</TABLE>
 
                                       iv
<PAGE>   145
 
<TABLE>
<CAPTION>
                                                                                            PAGE
                                                                                            ----
<S>    <C>      <C>                                                                         <C>
                                 ARTICLE VII
                      TERMINATION, AMENDMENT AND WAIVER

7.1    Termination by Mutual Consent....................................................     38
7.2    Termination by Either Apria or Vitas.............................................     38
7.3    Termination by Apria.............................................................     38
7.4    Termination by Vitas.............................................................     38
7.5    Effect of Termination............................................................     38
7.6    Amendment........................................................................     39
7.7    Extension; Waiver................................................................     39
7.8    Termination Fees and Expenses....................................................     39
       7.8.1    Payments by Vitas.......................................................     39
       7.8.2    Payments by Apria.......................................................     39


                                 ARTICLE VIII
                              GENERAL PROVISIONS

8.1    Survival of Representations and Warranties.......................................     39
8.2    Notices..........................................................................     40
8.3    Definitions......................................................................     40
8.4    Interpretation...................................................................     41
8.5    Counterparts.....................................................................     41
8.6    Entire Agreement; No Third-Party Beneficiaries...................................     41
8.7    Governing Law....................................................................     41
8.8    Assignment.......................................................................     41
8.9    Enforcement......................................................................     41
</TABLE>
 
                                        v
<PAGE>   146
 
                          AGREEMENT AND PLAN OF MERGER
 
     THIS AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") is dated as of June
28, 1996 by and among APRIA HEALTHCARE GROUP INC., a Delaware corporation
("APRIA"), APRIA NUMBER TWO, INC., a Delaware corporation and a direct
wholly-owned subsidiary of Apria ("SUB"), and VITAS HEALTHCARE CORPORATION, a
Delaware corporation ("VITAS").
 
                                   BACKGROUND
 
     A.  The respective Boards of Directors of Apria, Sub and Vitas have
approved the merger of Sub with and into Vitas (the "MERGER"), upon the terms
and subject to the conditions set forth in this Agreement and in accordance with
the General Corporation Law of the State of Delaware (the "DGCL").
 
     B.  The Merger requires the Vitas Stockholder Approval as defined in
Subsection 3.1.21.
 
     C.  Apria, Sub and Vitas desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger.
 
     D.  For accounting purposes, the parties hereto intend that the Merger will
be accounted for as a "pooling-of-interests."
 
     E.  Concurrently with the execution and delivery of this Agreement and as
an inducement to Apria to enter into this Agreement, certain securityholders of
Vitas (the "SIGNIFICANT SECURITYHOLDERS"), have entered into an agreement with
Apria (the "SIGNIFICANT SECURITYHOLDERS AGREEMENT") pursuant to which the
Significant Securityholders have, among other things, agreed (i) to vote their
shares of Vitas Common Stock (as hereinafter defined) and other securities in
favor of the Merger, (ii) to sign and deliver to Apria affiliate letters
substantially in the form contemplated by this Agreement and (iii) to take
certain other actions as provided therein.
 
                                   AGREEMENT
 
     In consideration of the representations, warranties, covenants and
agreements contained in this Agreement, the parties agree as follows:
 
                                   ARTICLE I
 
                                   THE MERGER
 
     1.1 THE MERGER.  Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the DGCL, Sub will be merged with and
into Vitas at the Effective Time (as hereinafter defined). Following the Merger,
the separate corporate existence of Sub will cease and Vitas will continue as
the surviving corporation (the "SURVIVING CORPORATION") and will succeed to and
assume all the rights and obligations of Vitas and of Sub in accordance with the
DGCL.
 
     1.2 CLOSING.  The closing under this Agreement will take place at 10:00
a.m. on a date to be specified by the parties, which shall be no later than the
second business day after satisfaction or waiver of the conditions set forth in
Article VI (the "CLOSING DATE"), at the offices of O'Melveny & Myers LLP, 555
13th Street, N.W., Washington, DC 20004-1109 unless another time, date or place
is agreed to in writing by the parties hereto or unless this Agreement has been
terminated in accordance with its terms.
 
     1.3 EFFECTIVE TIME.  Subject to the provisions of this Agreement, as soon
as practicable on or after the Closing Date, the parties will file a certificate
of merger or other appropriate documents (in any such case, the "CERTIFICATE OF
MERGER") executed in accordance with the relevant provisions of the DGCL and
will make all other filings or recordings required under the DGCL. The Merger
will become effective at such time as the Certificate of Merger is duly filed
with the Delaware Secretary of State, or at such later time as Sub and Vitas
specify in the Certificate of Merger (the close of business on such date of
filing, or such later date as may be set forth therein, being the "EFFECTIVE
TIME").
 
                                        1
<PAGE>   147
 
     1.4 EFFECTS OF THE MERGER.  The Merger will have the effects set forth in
Section 259 of the DGCL.
 
     1.5 CERTIFICATE OF INCORPORATION AND BYLAWS.
 
          1.5.1 CERTIFICATE OF INCORPORATION.  The certificate of incorporation
     of Sub as in effect at the Effective Time (the "CERTIFICATE OF
     INCORPORATION"), together with a Certificate of Designation, Preferences
     and Other Rights of a 9% Cumulative Nonconvertible Preferred Stock and of a
     Series B Convertible Preferred Stock (in each case, having the same powers,
     preferences and relative participating, optional or other special rights
     and the qualifications, limitations or restrictions thereon, that the 9%
     Preferred (as defined below) and the Series B Preferred (as defined below)
     have as of the date of this Agreement), will be the Certificate of
     Incorporation of the Surviving Corporation (except that such Certificate of
     Incorporation will be amended at the Effective Time to provide that the
     name of the Surviving Corporation will be "Vitas Healthcare Corporation"),
     until thereafter amended as provided therein or by applicable law.
 
          1.5.2 BYLAWS.  The bylaws of Sub as in effect at the Effective Time
     (the "BYLAWS") will be the Bylaws of the Surviving Corporation, until
     thereafter amended as provided therein or by applicable law.
 
     1.6 DIRECTORS.  The sole director of Sub at the Effective Time will be the
sole director of the Surviving Corporation, until the earlier of his resignation
or removal or until his successor is duly elected and qualified, as the case may
be.
 
     1.7 OFFICERS.  The officers of Vitas immediately prior to the Effective
Time will become the officers of the Surviving Corporation, until the earlier of
their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be.
 
     1.8 ADDITIONAL ACTIONS.  If, at any time after the Effective Time, the
Surviving Corporation determines or is advised that any deeds, bills of sale,
assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of Sub or Vitas or otherwise to carry out this Agreement,
the officers and directors of the Surviving Corporation will have the power and
authority to execute and deliver, in the name and on behalf of Sub or Vitas, all
such deeds, bills of sale, assignments and assurances and to take and do, in the
name and on behalf of Sub or Vitas, all such other actions and things as may be
necessary or desirable to vest, perfect or confirm any and all right, title and
interest in, to and under such rights, properties or assets in the Surviving
Corporation or otherwise to carry out this Agreement so long as such actions and
things are consistent with the terms of this Agreement and the Certificate of
Merger.
 
                                   ARTICLE II
 
                EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
              CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES;
                            PURCHASE OF 9% PREFERRED
 
     2.1 EFFECT ON CAPITAL STOCK.  At the Effective Time, the equity securities
of Sub and Vitas will be converted as follows:
 
          2.1.1 CAPITAL STOCK OF SUB.  Each share of the capital stock of Sub
     issued and outstanding immediately prior to the Effective Time will be
     converted into and exchanged for one fully paid and nonassessable share of
     common stock of the Surviving Corporation.
 
          2.1.2 CANCELLATION OF TREASURY STOCK AND APRIA OWNED STOCK.  Each
     share of Vitas Common Stock (as defined in Subsection 3.1.3) that is owned
     by Vitas or by any subsidiary of Vitas and each share of Vitas Common Stock
     that is owned by Apria, Sub or any other subsidiary of Apria immediately
     prior to the Effective Time will automatically be cancelled and retired
     without any conversion thereof and no consideration will be delivered with
     respect thereto.
 
          2.1.3 CONVERSION OF VITAS COMMON STOCK.  Each share of Vitas Common
     Stock issued and outstanding as of the Effective Time other than shares to
     be cancelled in accordance with Subsection
 
                                        2
<PAGE>   148
 
     2.1.2 and shares held by stockholders ("DISSENTING STOCKHOLDERS") who have
     delivered a written demand and who have otherwise duly exercised appraisal
     rights under, and duly satisfied the other requirements of, Section 262 of
     the DGCL ("DISSENTERS SHARES"), will be converted into the right to receive
     a number of shares of Apria Common Stock equal to the Exchange Ratio (as
     defined below).
 
          2.1.4 9% PREFERRED.  Each share of 9.0% Cumulative Nonconvertible
     Preferred Stock of Vitas (the "9% PREFERRED") whose rights, preferences and
     privileges are designated under the Certificate of Designation, Preferences
     and Other Rights of the 9.0% Preferred, as amended (the "9% PREFERRED
     CERTIFICATE" and collectively with the Series B Preferred Certificate (as
     defined below), the "PREFERRED STOCK CERTIFICATES"), will remain
     outstanding, and, upon surrender of the certificate representing the 9%
     Preferred, will be purchased by Apria as provided in Section 5.16 and in
     the Significant Securityholders Agreement.
 
          2.1.5 SERIES B PREFERRED.  Each share of Series B Convertible
     Preferred Stock of Vitas (the "SERIES B PREFERRED") whose rights,
     preferences and privileges are designated under the Certificate of
     Designation, Preferences and Other Rights of the Series B Preferred, as
     amended (the "SERIES B PREFERRED CERTIFICATE"), issued and outstanding as
     of the Effective Time, together with all associated rights, preferences and
     restrictions set forth in the Stockholders' Agreement dated June 4, 1993
     among Vitas and the parties named therein (the "STOCKHOLDERS' AGREEMENT"),
     will, in accordance with the provisions of Subsection 6.2.8 and the
     Significant Securityholders Agreement, first be converted into a number of
     shares of Vitas Common Stock issuable upon conversion of such share of
     Series B Preferred and will then be converted into the right to receive a
     number of shares of Apria Common Stock equal to the Exchange Ratio
     multiplied by the number of shares of Vitas Common Stock so issued.
 
          2.1.6 WARRANTS.  Each of the stock purchase warrants issued by Vitas
     on December 17, 1991 and designated Warrant A and Warrant B to purchase an
     aggregate of 3,952,958 shares of Vitas Common Stock (collectively, the
     "WARRANTS"), and all associated rights, preferences and restrictions set
     forth in the Investors Agreement dated December 17, 1991 among Vitas and
     the parties named therein (the "INVESTOR AGREEMENT"), will, in accordance
     with the provisions of the Significant Securityholders Agreement, be
     exchanged for a number of shares of Apria Common Stock equal to the
     quotient obtained by dividing (i) $9.32 less the sum of (A) any Excess Per
     Share Debt Amount (as defined below) and (B) the exercise price per share
     of Vitas Common Stock issuable upon exercise of the Warrant by (ii) $32.125
     (such quotient referred to herein as "WARRANT SPREAD VALUE EXCHANGE RATIO")
     times the number of shares of Vitas Common Stock covered by such Warrant,
     subject to any adjustments which may be called for by the next two
     sentences. If the Market Price (as defined below) is less than $27.125, the
     Warrant Spread Value Exchange Ratio will be multiplied by a fraction of
     which the numerator will be the Market Price Decline Numerator (as defined
     below) and the denominator will be the Market Price (as defined below). If
     the Market Price is more than $37.125, the Warrant Spread Value Exchange
     Ratio will be multiplied by a fraction of which the numerator will be the
     Market Price Increase Numerator (as defined below) and the denominator will
     be the Market Price.
 
          2.1.7 STOCK OPTIONS.  If any Stock Option (as defined below)
     outstanding immediately prior to the Effective Time has not been exercised
     in accordance with its terms, it will be exchanged for the right to receive
     shares of Apria Common Stock as provided in Subsection 5.4.1 upon surrender
     of the stock option agreement applicable thereto (the "STOCK OPTION
     AGREEMENT"), unless the holder objects in writing to such exchange, in
     which case the Stock Option will terminate in accordance with its terms.
 
          2.1.8 EXCHANGE RATIO.  The Exchange Ratio shall be (i) initially
     0.290, subject to the adjustments (if any) contemplated by Subsection
     2.1.11 (as so adjusted, the "INITIAL EXCHANGE RATIO"), and further subject
     to any Collar Adjustment as set forth in Subsection 2.1.9 if no Debt
     Adjustment as set forth in Subsection 2.1.10 is deemed to occur or (ii) the
     Recalculated Exchange Ratio (as defined in Subsection 2.1.10), subject to
     the adjustments (if any) contemplated by Subsection 2.1.11, and further
     subject to any Collar Adjustment as set forth in Subsection 2.1.9 if a Debt
     Adjustment as set forth in Subsection 2.1.10 is deemed to occur, as the
     case may be. The term "EXCHANGE RATIO" means the Initial Exchange Ratio or
     the Recalculated Exchange Ratio as so adjusted, whichever is applicable.
 
                                        3
<PAGE>   149
 
          2.1.9 COLLAR ADJUSTMENT.  If the closing price of Apria Common Stock
     on the New York Stock Exchange, Inc. (the "NYSE") on the trading day next
     preceding the Closing Date (the "MARKET PRICE") is between $27.125 and
     $37.125 (inclusive) there will be no Collar Adjustment (as defined below).
     If the Market Price is less than $27.125 and there is no Recalculated
     Exchange Ratio, the Initial Exchange Ratio will be multiplied by a fraction
     of which the numerator will be $27.125 less 50% of the difference between
     $27.125 and the Market Price (the "MARKET PRICE DECLINE NUMERATOR") and the
     denominator will be the Market Price. If the Market Price is more than
     $37.125 and there is no Recalculated Exchange Ratio, the Initial Exchange
     Ratio will be multiplied by a fraction of which the numerator will be
     $37.125 plus 50% of the difference between the Market Price and $37.125
     (the "MARKET PRICE INCREASE NUMERATOR") and the denominator will be the
     Market Price. If the Market Price is less than $27.125 and there is a
     Recalculated Exchange Ratio, the Recalculated Exchange Ratio will be
     multiplied by a fraction of which the numerator will be the Market Price
     Decline Numerator and the denominator will be the Market Price, and the
     result will be the Exchange Ratio as referred to in the last sentence of
     Subsection 2.1.8. If the Market Price is more than $37.125 and there is a
     Recalculated Exchange Ratio, the Recalculated Exchange Ratio will be
     multiplied by a fraction of which the numerator will be the Market Price
     Increase Numerator and the denominator will be the Market Price, and the
     result will be the Exchange Ratio as referred to in the last sentence of
     Subsection 2.1.8. If the Market Price is greater than $42.125 or less than
     $22.125, either party may terminate this Agreement, but if neither party
     elects to terminate this Agreement the foregoing formulae ("COLLAR
     ADJUSTMENT") shall continue to be applicable.
 
          2.1.10 DEBT ADJUSTMENT.  Vitas shall prepare a balance sheet as of the
     last day of the month ending immediately prior to the Closing Date unless
     the Closing Date is within 20 business days after the end of a month, in
     which event such balance sheet shall be as of the last day of the month
     ending immediately prior to the month ending immediately prior to the
     Closing Date (the "CLOSING BALANCE SHEET"). If the Total Debt of Vitas (as
     defined below) exceeds $39.1 million as reflected on the Closing Balance
     Sheet, a Debt Adjustment will be deemed to occur. If a Debt Adjustment is
     deemed to occur, the Initial Exchange Ratio will be replaced by the
     "RECALCULATED EXCHANGE RATIO" which will be determined by dividing (i)
     $9.32 less the Excess Per Share Debt Amount (as defined below) by (ii)
     $32.125. The "EXCESS PER SHARE DEBT AMOUNT" means the Total Debt of Vitas
     in excess of $39.1 million divided by 19,738,635 (rounded to the nearest
     whole cent). "TOTAL DEBT" means, for purposes of this Subsection 2.1.10,
     all bank debt, notes payable, other indebtedness for borrowed money,
     including any indebtedness incurred in the acquisition by Vitas or its
     subsidiary of the assets of Hospice of Central Florida, Inc., a Florida
     nonprofit corporation ("HCF"), and the current portions of all of the
     foregoing, but excluding capitalized leases and the amount due under the
     ESOP (as defined in Subsection 3.1.10) loan documents (the "ESOP NOTE"),
     and all reduced by (A) Vitas' then cash equivalents and cash on hand as
     reflected on the Closing Balance Sheet, (B) the positive difference, if
     any, between (1) $1.554 million and (2) the book value of the ESOP Note as
     reflected on the Closing Balance Sheet and (C) the sum of (x) the amount,
     if any, by which Vitas' then net non-cash non-debt working capital (defined
     as current assets excluding cash, cash equivalents and current deferred tax
     assets, minus current liabilities, excluding current capital lease
     obligations, current portion of long-term debt and current deferred tax
     liabilities) exceeds $(200,000) and (y) the amount of any capital
     expenditures in excess of $500,000 per month which have previously been
     approved in writing by Apria, and (z) the amount of any indebtedness
     incurred in the acquisition by Vitas or its subsidiary of the assets of HCF
     up to a maximum of $4.75 million. If a Debt Adjustment is deemed to occur
     and is in excess of $4 million, Apria will have the right to terminate this
     Agreement.
 
          2.1.11 CERTAIN APRIA ADJUSTMENTS.  If, prior to the Effective Time,
     Apria should split, recapitalize, reclassify, subdivide, exchange or
     combine the Apria Common Stock, or pay a stock dividend or other stock
     distribution in Apria Common Stock, then the Initial Exchange Ratio or the
     Recalculated Exchange Ratio, as the case may be (as well as all references
     to prices of Apria Common Stock used for purposes of any Collar Adjustment
     or related termination right set forth in Subsection 2.1.9), will be
     appropriately adjusted to reflect such split, recapitalization,
     reclassification, subdivision, exchange, combination, dividend or other
     distribution. Each share of Apria Common Stock issued pursuant to this
 
                                        4
<PAGE>   150
 
     Agreement will be accompanied by one Right (as defined in Subsection 3.2.2)
     unless the Rights are not outstanding as of the Effective Time.
 
          2.1.12 CANCELLATION OF STOCK, WARRANTS AND STOCK OPTIONS.  As of the
     Effective Time, all shares of Vitas Common Stock and the Warrants will no
     longer be outstanding and will automatically be cancelled and retired and
     will cease to exist, and the holders of certificates previously evidencing
     such shares of Vitas Common Stock or the Warrants or the Stock Options will
     cease to have any rights with respect thereto, except as otherwise provided
     herein or by law including any rights of Dissenting Stockholders to require
     the Surviving Corporation to purchase their shares in accordance with
     applicable law. Each certificate previously representing the Vitas Common
     Stock (other than Dissenters Shares) will thereafter represent the right to
     receive a certificate representing the shares of Apria Common Stock into
     which the Vitas Common Stock was converted in the Merger. Certificates
     previously representing such shares of Vitas Common Stock will be exchanged
     for certificates representing whole shares of Apria Common Stock issued in
     consideration therefor upon the surrender of such Vitas certificates in
     accordance with the provisions of Section 2.2, without interest. No
     fractional share of Apria Common Stock will be issued, and, in lieu
     thereof, a cash payment will be made pursuant to Subsection 2.2.5.
 
     2.2 EXCHANGE OF CERTIFICATES.
 
          2.2.1 EXCHANGE AGENT.  Apria will deposit, or will cause to be
     deposited, with Norwest Bank Minnesota, N.A., as exchange agent for the
     Apria Common Stock (the "EXCHANGE AGENT") as of the Effective Time (or
     otherwise when requested by the Exchange Agent from time to time in order
     to effect any exchange pursuant to Section 2.2), for the benefit of the
     holders of shares of Vitas Common Stock and of holders of the Warrants,
     Stock Options and converted Series B Preferred, for exchange in accordance
     with this Article II through the Exchange Agent, certificates representing
     the shares of Apria Common Stock issuable pursuant to (i) Section 2.1 in
     exchange for the outstanding shares of Vitas Common Stock, (ii) Subsection
     5.4.1 upon surrender of the Stock Option Agreements, and (iii) Subsection
     2.1.6 upon surrender of the certificates evidencing the Warrants (such
     certificates representing shares of Apria Common Stock, together with any
     dividends or distributions with respect thereto, being collectively
     referred to as the "EXCHANGE FUND"). The Exchange Agent will, pursuant to
     irrevocable instructions, deliver the Apria Common Stock contemplated to be
     issued pursuant to Section 2.1 and Subsection 5.4.1 out of the Exchange
     Fund. Except as contemplated by Subsection 2.2.5, the Exchange Fund shall
     not be used for any other purpose.
 
          2.2.2 EXCHANGE PROCEDURE.  As soon as reasonably practicable after the
     Effective Time, Apria will instruct the Exchange Agent to mail to each
     holder of record of a Warrant, to each holder of a Stock Option and to each
     holder of a certificate or certificates which immediately prior to the
     Effective Time represented outstanding shares of Vitas Common Stock
     (including holders of certificates previously representing Series B
     Preferred) other than Dissenters Shares (for convenience of reference, the
     certificates, Warrants, converted Series B Preferred and Stock Option
     Agreements are referred to as the "CERTIFICATES"), (i) a letter of
     transmittal (which shall specify that delivery will be effected, and risk
     of loss and title to the Certificates will pass, only upon proper delivery
     of the Certificates to the Exchange Agent and which shall be in a customary
     form) and (ii) instructions for use in effecting the surrender of the
     Certificates in exchange for certificates representing shares of Apria
     Common Stock. Upon surrender of Certificates for cancellation to the
     Exchange Agent, together with such letter of transmittal, duly executed,
     and such other documents as may reasonably be required by the Exchange
     Agent, and, in the case of holders of Stock Options, evidence of
     satisfaction of all applicable withholdings as provided in Subsection
     2.2.8, the holder of the Certificate or Certificates will be entitled to
     receive in exchange therefor a certificate evidencing that number of whole
     shares of Apria Common Stock which such holder has the right to receive in
     respect of the rights formerly evidenced by such Certificate or
     Certificates (after taking into account the provisions of this Agreement
     and all shares of Vitas Common Stock then held of record by such holder and
     all Warrants and all Stock Options held by such holder), cash in lieu of
     fractional shares of Apria Common Stock to which any holder is entitled
     pursuant to Subsection 2.2.5 and any dividends or other distributions to
     which such holder is entitled pursuant to Subsection 2.2.3, and the
     Certificate so surrendered will forthwith be cancelled. In the event of a
     transfer of ownership of Vitas
 
                                        5
<PAGE>   151
 
     Common Stock which is not registered in the transfer records of Vitas, a
     certificate representing the proper number of shares of Apria Common Stock
     may be issued to a Person (as defined in Section 8.3) other than the Person
     in whose name the Certificate so surrendered is registered, if such
     Certificate, accompanied by all documents required to evidence and effect
     such transfer, is properly endorsed or otherwise in proper form for
     transfer and the Person requesting such payment pays any transfer or other
     taxes required by reason of the issuance of shares of Apria Common Stock to
     a Person other than the registered holder of such Certificate or
     establishes to the reasonable satisfaction of Apria that such tax has been
     paid or is not applicable. Until surrendered as contemplated by Section
     2.2, each Certificate (other than in respect of Dissenters Shares) will be
     deemed at any time after the Effective Time to represent only the right to
     receive upon such surrender the certificate evidencing whole shares of
     Apria Common Stock, cash in lieu of any fractional shares of Apria Common
     Stock to which such holder is entitled pursuant to Subsection 2.2.5 and any
     dividends or other distributions to which such holder is entitled pursuant
     to Subsection 2.2.3. No interest will be paid or will accrue on any cash
     payable pursuant to Subsections 2.2.3 or 2.2.5.
 
          2.2.3 DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED COMMON SHARES.  No
     dividends or other distributions declared or made after the Effective Time
     with respect to Apria Common Stock with a record date after the Effective
     Time will be paid to the holder of any unsurrendered Certificate, and no
     cash payment in lieu of fractional shares will be paid to any such holder
     pursuant to Subsection 2.2.5, in each case until the surrender of such
     Certificate in accordance with this Article II. Subject to the effect of
     applicable escheat laws, following surrender of such Certificate, there
     will be paid to the holder of the certificate representing whole shares of
     Apria Common Stock issued in exchange therefor, without interest, (i) at
     the time of such surrender, the amount of any such cash payable in lieu of
     a fractional share of Apria Common Stock to which such holder is entitled
     pursuant to Subsection 2.2.5 and the amount of dividends or other
     distributions with a record date after the Effective Time theretofore paid
     with respect to such whole shares of Apria Common Stock, and (ii) at the
     appropriate payment date, the amount of dividends or other distributions
     with a record date after the Effective Time but prior to such surrender and
     with a payment date subsequent to such surrender payable with respect to
     such whole shares of Apria Common Stock.
 
          2.2.4 NO FURTHER OWNERSHIP RIGHTS IN VITAS STOCK.  All shares of Apria
     Common Stock issued upon the surrender for exchange of Certificates in
     accordance with the terms of this Article II (including any cash paid
     pursuant to Subsections 2.2.3 or 2.2.5) will be deemed to have been issued
     (and paid) in full satisfaction of all rights pertaining to the shares of
     Vitas Common Stock or to the Stock Options or Warrants, as the case may be,
     theretofore represented by such Certificates. At the Effective Time, the
     stock transfer books of Vitas will be closed, and there will be no further
     registrations of transfers of shares of Vitas Common Stock, Series B
     Preferred, conversion of the Series B Preferred, exercise of the Warrants
     or exercise or conversion of the Stock Options thereafter on the records of
     Vitas. If, after the Effective Time, Certificates are presented to the
     Surviving Corporation, Apria or the Exchange Agent for any reason, they
     will be cancelled and exchanged as provided in Article II.
 
          2.2.5 NO FRACTIONAL SHARES.
 
             (a) No Certificates or scrip representing fractional shares of
        Apria Common Stock will be issued upon the surrender for exchange of
        Certificates, and such fractional share interests will not entitle the
        owner thereof to vote or to any rights of a stockholder of Apria.
 
             (b) As promptly as practicable following the Effective Time, Apria
        will instruct the Exchange Agent to determine the excess of (i) the
        number of full shares of Apria Common Stock delivered to the Exchange
        Agent by Apria pursuant to Subsection 2.2.1 over (ii) the aggregate
        number of full shares of Apria Common Stock to be distributed to holders
        of Certificates pursuant to Subsection 2.2.2 (such excess being herein
        called the "EXCESS SHARES"). As soon after the Effective Time as
        practicable, the Exchange Agent, as agent for such holders of
        Certificates, will sell the Excess Shares at the then prevailing prices
        on the NYSE, all in the manner provided in paragraph (c) of this
        Subsection 2.2.5.
 
                                        6
<PAGE>   152
 
             (c) The sale of the Excess Shares by the Exchange Agent will be
        executed on the NYSE and will be executed in round lots to the extent
        practicable. Until the net proceeds of such sale or sales have been
        distributed to such holders of Certificates, the Exchange Agent will
        hold such proceeds in trust for such holders of Certificates (the
        "TRUST"). Apria will pay all commissions, transfer taxes and other
        out-of-pocket transaction costs of the Exchange Agent incurred in
        connection with such sale or sales of Excess Shares. In addition, Apria
        will pay the Exchange Agent's compensation and expenses in connection
        with such sales. The Exchange Agent will determine the portion of the
        Trust to which each holder of one or more Certificates is entitled, if
        any, by multiplying the amount of the aggregate proceeds comprising the
        Trust by a fraction the numerator of which is the amount of the
        fractional share interest to which such holder of Certificates is
        entitled (after taking into account all Warrants, Stock Options, and
        shares of Vitas Common Stock (including converted Series B Preferred)
        held of record immediately prior to the Effective Time by such holder)
        and the denominator of which is the aggregate amount of fractional share
        interests to which all holders of Certificates are entitled.
 
             (d) As soon as practicable after the determination of the amount of
        cash, if any, to be paid to holders of Certificates with respect to any
        fractional share interests, the Exchange Agent will promptly pay such
        amounts to such holders of Certificates subject to and in accordance
        with the terms of Subsection 2.2.3.
 
          2.2.6 TERMINATION OF EXCHANGE FUND AND TRUST.  Any portion of the
     Exchange Fund and Trust that remains undistributed to the holders of
     Certificates for six months after the Effective Time will be delivered to
     Apria, upon demand, and any holders of Certificates who have not
     theretofore complied with this Article II shall thereafter look only to
     Apria for the shares of Apria Common Stock, any cash in lieu of fractional
     shares of Apria Common Stock and any dividends or distributions with
     respect to Apria Common Stock to which they are entitled.
 
          2.2.7 NO LIABILITY.  None of Apria, Sub, Vitas or the Exchange Agent
     will be liable to any holder of shares of Vitas Common Stock, Vitas
     Preferred Stock, Warrants or Stock Options for any shares of Apria Common
     Stock (or dividends or distributions with respect thereto) or cash from the
     Exchange Fund or the Trust that has been delivered to a public official
     pursuant to any applicable abandoned property, escheat or similar law.
 
          2.2.8 WITHHOLDING RIGHTS.  Apria or the Exchange Agent will be
     entitled to deduct and withhold from the consideration otherwise payable
     pursuant to this Agreement to any holder of Certificates such amounts as
     Apria or the Exchange Agent, as the case may be, is required under the
     Internal Revenue Code of 1986, as amended (the "CODE"), or any provision of
     state, local or foreign tax law to deduct and withhold with respect to the
     making of payments hereunder. To the extent that amounts are so withheld by
     Apria or the Exchange Agent, such withheld amounts will be treated for all
     purposes of this Agreement as having been paid to the holder of the
     Certificates in respect of which such deduction and withholding have been
     made by Apria or the Exchange Agent. Subject to the provisions of
     Subsection 5.4.4, withholding obligations in respect of Stock Options must
     be paid by the holders of the Stock Options in cash to Apria and must be
     evidenced by a certificate of satisfaction of withholding signed by Apria
     and delivered to the Exchange Agent. Apria agrees to promptly provide such
     certificate after receipt of such funds.
 
          2.2.9 INVESTMENT OF EXCHANGE FUND AND TRUST.  The Exchange Agent will
     invest any cash included in the Exchange Fund and the Trust, as reasonably
     directed by Apria, on a daily basis. Any interest and other income
     resulting from such investments shall be paid to Apria.
 
          2.2.10 LOST CERTIFICATES.  If any Certificate shall have been lost,
     stolen or destroyed, upon the making of an affidavit of that fact by the
     person claiming such Certificate to be lost, stolen or destroyed and, if
     required by the Surviving Corporation, an indemnity (if relating to no more
     than 10,000 shares of Vitas Common Stock or equivalent) or the posting by
     such person of a bond in such reasonable amount as the Surviving
     Corporation may direct as indemnity against any claim that may be made
     against it with respect to such Certificate, the Exchange Agent will issue
     in exchange for such lost, stolen or destroyed
 
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<PAGE>   153
 
     Certificate the shares of Apria Common Stock and any cash in lieu of
     fractional shares, and unpaid dividends and distributions on shares of
     Apria Common Stock deliverable in respect thereof, pursuant to this
     Agreement.
 
     2.3 DISSENTERS' RIGHTS.  If any Dissenting Stockholder is entitled to (or
demands or asserts entitlement to) require Vitas to purchase the stockholder's
shares pursuant to Section 262 of the DGCL or otherwise, Vitas shall give Apria
notice thereof and Apria will have the right to participate in all negotiations
and proceedings with respect to any such claims or demand. Vitas shall not,
except with the prior written consent of Apria, voluntarily make any payment,
evaluation or appraisal with respect to, or settle or offer to settle, any claim
or demand for payment. If any Dissenting Stockholder fails to perfect or shall
have effectively withdrawn or lost the right to dissent or have an appraisal,
the shares held by the stockholder will thereupon be entitled to be surrendered
in exchange for the Apria Common Stock at the Exchange Ratio and otherwise in
accordance with Article II.
 
                                  ARTICLE III
 
                         REPRESENTATIONS AND WARRANTIES
 
     3.1 REPRESENTATIONS AND WARRANTIES OF VITAS.  Vitas represents and warrants
to Apria and Sub as follows:
 
          3.1.1 ORGANIZATION, STANDING AND CORPORATE POWER.  Vitas and each of
     its subsidiaries is a corporation duly organized, validly existing and in
     good standing under the laws of the jurisdiction in which it is organized
     and has the requisite corporate power and authority to carry on its
     business as now being conducted. Vitas and each of its subsidiaries is duly
     qualified or licensed to do business and is in good standing in each
     jurisdiction in which the nature of its business or the ownership or
     leasing of its properties makes such qualification or licensing necessary,
     other than in such jurisdictions where the failure to be so qualified or
     licensed (individually or in the aggregate) would not have a "material
     adverse effect" (as defined in Section 8.3). Vitas has delivered to Apria
     complete and correct copies of its and each of its subsidiary's certificate
     of incorporation and by-laws, in each case as amended to the date of this
     Agreement. Neither Vitas nor any subsidiary of Vitas is a registered or
     reporting company under the Securities Exchange Act of 1934, as amended
     (the "EXCHANGE ACT").
 
          3.1.2 SUBSIDIARIES.  The disclosure schedule delivered by Vitas to
     Apria prior to the execution of this Agreement (the " VITAS DISCLOSURE
     SCHEDULE") lists each subsidiary of Vitas and its jurisdiction of
     incorporation or organization. Except as set forth in the Vitas Disclosure
     Schedule, all the outstanding shares of capital stock of each such
     subsidiary have been validly issued and are fully paid and nonassessable
     and are directly or indirectly owned by Vitas, free and clear of all
     pledges, claims, liens, charges, encumbrances and security interests of any
     kind or nature whatsoever (collectively, "LIENS"). Except for the capital
     stock of its subsidiaries, and as disclosed in the Vitas Disclosure
     Schedule, Vitas does not own, directly or indirectly, any capital stock or
     other ownership interest in any corporation, partnership, joint venture or
     other entity or serve as a general partner of any other entity.
 
          3.1.3 CAPITAL STRUCTURE.  The authorized capital stock of Vitas
     consists of 40,000,000 shares of Common Stock, $.001 par value (the "VITAS
     COMMON STOCK"), and 4,500,000 shares of preferred stock, $1.00 par value
     (the " VITAS PREFERRED STOCK"). At the date of this Agreement (i) 4,408,842
     shares of Common Stock are issued and outstanding, (ii) 270,000 shares of
     9% Preferred are issued and outstanding, (iii) 262,500 shares of Series B
     Preferred are issued and outstanding, (iv) at June 14, 1996, 5,849,289
     shares of Vitas Common Stock were reserved for issuance upon exercise of
     outstanding stock options to purchase shares of Vitas Common Stock (" STOCK
     OPTIONS") granted under stock option plans or pursuant to stock option
     agreements identified on the Vitas Disclosure Schedule (collectively, the
     "STOCK OPTION PLANS") and no additional Stock Options have been granted
     since June 14, 1996, (v) 5,526,308 shares of Vitas Common Stock are
     reserved for issuance upon conversion of the Series B Preferred, and (vi)
     3,952,958 shares of Vitas Common Stock are reserved for issuance upon
     exercise of the Warrants. Except as set forth in this Subsection 3.1.3, at
     the date of this Agreement no shares of
 
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<PAGE>   154
 
     capital stock or other equity or voting securities of Vitas were issued,
     reserved for issuance or outstanding. Except as set forth in the Vitas
     Disclosure Schedule, there are no outstanding stock appreciation rights of
     Vitas and no outstanding limited stock appreciation or similar rights or
     other rights to receive or redeem for cash options, warrants or derivative
     securities of Vitas. Except as set forth in the Vitas Disclosure Schedule,
     all outstanding shares of capital stock of Vitas are, and all shares which
     may be issued upon the exercise of Stock Options or the Warrants or upon
     conversion of the Series B Preferred will be, when issued, duly authorized,
     validly issued, fully paid and nonassessable and not subject to preemptive
     rights. There are no bonds, debentures, notes or other indebtedness of
     Vitas having the right to vote (or convertible into, or exchangeable for,
     securities having the right to vote) on any matters on which stockholders
     of Vitas may vote. Except as set forth in this Subsection 3.1.3 or in the
     Vitas Disclosure Schedule, and except for provisions calling for
     antidilution adjustments or pre-emptive rights in the Series B Preferred
     and the Warrants, none of which adjustments or rights has been or will by
     virtue of this Agreement or the transactions contemplated hereby be
     triggered, there are no outstanding securities, options, warrants, calls,
     rights, commitments, agreements, arrangements or undertakings of any kind
     to which Vitas or any of its subsidiaries is a party or by which any of
     them is bound obligating Vitas or any of its subsidiaries to issue, deliver
     or sell, or cause to be issued, delivered or sold, additional equity or
     voting securities of Vitas or of any of its subsidiaries or obligating
     Vitas or any of its subsidiaries to issue, grant, extend or enter into any
     such security, option, warrant, call, right, commitment, agreement,
     arrangement or undertaking. Except as set forth in the Vitas Disclosure
     Schedule, there are no outstanding contractual or other obligations of
     Vitas or any of its subsidiaries to repurchase, redeem or otherwise acquire
     any shares of capital stock (or options or warrants or other rights to
     acquire any such shares) of Vitas or any of its subsidiaries, except for
     the redemption obligations in the Preferred Stock Certificates. Except as
     set forth in the Vitas Disclosure Schedule, there are no agreements,
     arrangements or commitments of any character (contingent or otherwise)
     pursuant to which any Person is or may be entitled to receive any payment
     based on the revenues, earnings or financial performance of Vitas or any of
     its subsidiaries or assets or calculated in accordance therewith (other
     than ordinary course payments to employees of Vitas in the nature of
     incentive compensation as specified in the Vitas Disclosure Schedule) or
     except for the Registration Rights Agreement dated June 4, 1993 among Vitas
     and certain Vitas stockholders, to cause Vitas or any of its subsidiaries
     to file with the Securities and Exchange Commission (the "SEC") a
     registration statement under the Securities Act of 1933, as amended (the
     "SECURITIES ACT") or which otherwise relate to the registration of any
     securities of Vitas.
 
          3.1.4 AUTHORITY; NONCONTRAVENTION.  Vitas has the requisite corporate
     power and authority to execute and deliver this Agreement and, subject to
     Vitas Stockholder Approval and to the receipt of the consents and approvals
     by the Vitas securityholders set forth in the Vitas Disclosure Schedule, to
     consummate the transactions by Vitas contemplated by this Agreement. Except
     as set forth in the Vitas Disclosure Schedule, the execution and delivery
     of this Agreement by Vitas and the consummation by Vitas of the
     transactions contemplated by this Agreement have been duly authorized by
     all necessary corporate action on the part of Vitas, subject to Vitas
     Stockholder Approval. This Agreement has been duly executed and delivered
     by Vitas and constitutes a valid and binding obligation of Vitas,
     enforceable against Vitas in accordance with its terms, subject to
     applicable bankruptcy, insolvency, moratorium or other similar laws
     relating to creditors' rights and general principles of equity. Except as
     set forth in the Vitas Disclosure Schedule, the execution and delivery of
     this Agreement by Vitas does not, and the consummation by Vitas of the
     transactions contemplated by this Agreement and compliance with the
     provisions of this Agreement will not, conflict with, or result in any
     violation of or default (with or without notice or lapse of time, or both)
     under, or give rise to a right of termination, cancellation, acceleration
     or augmentation of any obligation or to loss of a material benefit under,
     or result in the creation of any Lien upon any of the properties or assets
     of Vitas or any of its subsidiaries under, (i) the certificate of
     incorporation or bylaws of Vitas or the comparable charter or
     organizational documents of any of its subsidiaries, (ii) subject to the
     governmental filings and other matters referred to in the following
     sentence, any loan or credit agreement, note, bond, mortgage, indenture,
     lease or other agreement, instrument, permit, concession, franchise or
     license applicable to Vitas or any of its subsidiaries or their respective
     properties or assets or (iii) subject to the governmental filings and other
     matters referred to in
 
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<PAGE>   155
 
     the following sentence, any judgment, order, decree, statute, law,
     ordinance, rule or regulation applicable to Vitas or any of its
     subsidiaries or their respective properties or assets, other than, in the
     case of clauses (ii) or (iii), any such conflicts, violations, defaults,
     rights or Liens that individually or in the aggregate would not (x) have a
     material adverse effect, (y) impair in any material respect the ability of
     Vitas to perform its obligations under this Agreement or (z) prevent or
     materially delay the consummation by Vitas of any of the transactions
     contemplated by this Agreement. No consent, approval, order or
     authorization of, or registration, declaration or filing with, any federal,
     state or local government or any court, administrative or regulatory agency
     or commission or other governmental authority or agency, domestic or
     foreign (a "GOVERNMENTAL ENTITY"), is required by Vitas or any of its
     subsidiaries for the execution and delivery of this Agreement by Vitas or
     the consummation by Vitas of the transactions contemplated by this
     Agreement, except for (1) the filing with the Federal Trade Commission and
     the Antitrust Division of the Department of Justice (the "SPECIFIED
     AGENCIES") of a premerger notification and report form by Vitas under the
     Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR ACT"), (2)
     the filing of the Certificate of Merger with the Delaware Secretary of
     State and appropriate documents with the relevant authorities of other
     states in which Vitas is qualified to do business, (3) the regulatory
     filings set forth on the Vitas Disclosure Schedule and (4) such other
     consents, approvals, orders, authorizations, registrations, declarations
     and filings the failure of which to be obtained or made would not,
     individually or in the aggregate, have a material adverse effect or prevent
     or materially delay the consummation by Vitas of any of the transactions
     contemplated by this Agreement.
 
          3.1.5 FINANCIAL STATEMENTS; CHANGES; CONTINGENCIES.
 
             (a) Vitas has delivered to Apria consolidated and consolidating
        balance sheets for Vitas and its subsidiaries at September 30, 1995,
        1994, 1993, 1992 and 1991 and the related consolidated and consolidating
        statements of operations, changes in stockholders' equity and changes in
        financial position or cash flow for the periods then ended. All such
        financial statements have been examined by Ernst & Young LLP whose
        reports thereon are included with such financial statements. All such
        financial statements have been prepared in conformity with generally
        accepted accounting principles applied on a consistent basis ("GAAP")
        (except for changes, if any, required by GAAP and disclosed therein).
        Such statements of operations and cash flow present fairly in all
        material respects the results of operations, changes in stockholders'
        equity and cash flows of Vitas and its subsidiaries for the respective
        periods covered, and the balance sheets present fairly in all material
        respects the financial condition of Vitas and its subsidiaries as of
        their respective dates. Vitas has made available to Apria copies of each
        management letter delivered to Vitas by its auditors in connection with
        such financial statements or other letter delivered to Vitas by its
        auditors relating to any review by its auditors of the internal controls
        of Vitas during the five-year period ended September 30, 1995 or
        thereafter, and has made available for inspection all reports and
        working papers produced or developed by its auditors or management in
        connection with their examination of such financial statements, as well
        as all such reports and working papers for prior periods for which any
        tax liability of Vitas has not been finally determined or barred by
        applicable statutes of limitation. Since September 30, 1995, there has
        been no change in any of the significant accounting policies, practices
        or procedures of Vitas or its subsidiaries.
 
             (b) Vitas has delivered to Apria consolidated balance sheets for
        Vitas and its subsidiaries at December 31, 1995 and March 31, 1996, and
        the related consolidated statements of operations and cash flows and
        changes in stockholder's equity for the periods then ended and the prior
        year's period and prior comparable period. All such interim financial
        statements have been prepared in conformity with GAAP applied on a
        consistent basis except for changes, if any, required by GAAP and
        disclosed therein and except for the absence of footnotes and other
        information required by GAAP for complete financial statements and
        subject to year-end adjustments. The statements of operations and cash
        flows present fairly the results of operations and cash flows of Vitas
        and its subsidiaries for the respective periods covered, and the balance
        sheets present fairly the financial condition of Vitas and its
        subsidiaries as of their respective dates. All such interim financial
        statements reflect all adjustments (which consist only of normal
        recurring adjustments not material in amount and include
 
                                       10
<PAGE>   156
 
        but are not limited to estimated provisions for year-end adjustments)
        necessary for a fair presentation. At the dates of such balance sheets,
        neither Vitas nor any of its subsidiaries had any material liability
        (actual, contingent or accrued) that, in accordance with GAAP, should
        have been shown or reflected therein but were not.
 
             (c) Since September 30, 1995, whether or not in the ordinary course
        of business, there has not been, occurred or arisen: (i) except as set
        forth in the Vitas Disclosure Schedule, any change in or event affecting
        Vitas or any of its subsidiaries, the business or the capital stock of
        Vitas or any of its subsidiaries, that has had or may reasonably be
        expected to have a material adverse effect, (ii) any strike or other
        labor dispute, or (iii) any casualty, loss, damage or destruction
        (whether or not covered by insurance) of any material property of Vitas
        or its subsidiaries with a book value in excess of $100,000 or that has
        involved or may involve a loss to Vitas or any subsidiary of more than
        $100,000.
 
             (d) Neither Vitas nor any subsidiary has any liabilities of any
        nature, whether known, unknown, accrued, absolute, contingent or
        otherwise, and whether due or to become due, probable of assertion or
        not, except liabilities that (i) are reflected or disclosed in the most
        recent of the financial statements referred to in paragraphs (a) or (b)
        of this Subsection 3.1.5, (ii) were incurred after September 30, 1995 in
        the ordinary course of business consistent with past practice and in the
        aggregate do not exceed $100,000 or (iii) are set forth in the Vitas
        Disclosure Schedule.
 
             (e) All receivables of Vitas and its subsidiaries, whether
        reflected on the balance sheet or otherwise, represent services actually
        provided in the ordinary course of business. The reserves shown on the
        balance sheet at March 31, 1996 are adequate and were calculated on a
        basis consistent with GAAP and past practices. Vitas has delivered to
        Apria an aging list of all receivables of Vitas and each subsidiary that
        in all material respects is accurate and complete. The receivables of
        Vitas and its subsidiaries have been appropriately adjusted to reflect
        current reimbursement policies of third party payors, including, without
        limitation, CHAMPUS, Medicare, Medicaid, Blue Cross/Blue Shield, private
        insurers, health maintenance organizations, preferred provider
        organizations, alternative delivery systems and managed care systems.
        Such receivables, adjusted as set forth above, relating to such third
        party payors do not exceed amounts Vitas reasonably believes it is
        entitled to receive under any capitation arrangement, fee schedule,
        discount formula, cost based reimbursement or other adjustment or
        limitation to the usual charges of Vitas and its subsidiaries.
 
          3.1.6 INFORMATION SUPPLIED.  None of the information supplied or to be
     supplied by or on behalf of Vitas or any subsidiary (i) to any Person for
     inclusion in any document or application filed with any Governmental Entity
     having jurisdiction over or in connection with the transactions
     contemplated by this Agreement or (ii) to Apria or Sub, its agents or
     representatives in connection with or for use or inclusion in the Form S-4
     or Proxy Statement (as defined in Subsection 5.1.1) did contain, or at the
     respective times such information is or was delivered, will contain any
     untrue statement of a material fact, or omitted or will omit to state any
     material fact required to be stated therein or necessary in order to make
     the statements therein, in light of the circumstances under which they were
     made, not misleading or to correct a prior statement. If any of such
     information at any time subsequent to delivery and prior to the Closing
     Date becomes untrue or misleading in any material respect, Vitas will
     promptly notify Apria in writing of such fact and the reason for such
     change. All documents required to be filed by Vitas or any subsidiary with
     any Governmental Entity in connection with this Agreement or the
     transactions contemplated by this Agreement will comply in all material
     respects with the provisions of applicable law. Without limiting the
     generality of the foregoing, Vitas agrees to use its best efforts to
     provide all information required to be included in the Form S-4 and the
     Proxy Statement in respect of Vitas and its subsidiaries in accordance with
     applicable standards imposed on public companies.
 
          3.1.7 LITIGATION; ADMINISTRATIVE PROCEEDINGS.  Except as disclosed in
     the Vitas Disclosure Schedule, there is no suit, action, investigation,
     charge with local, state or federal administrative agencies, claim
     involving workers compensation relating to classes of employees, audit or
     proceeding pending or, to the knowledge of Vitas, threatened against Vitas
     or any of its subsidiaries that, individually or in the
 
                                       11
<PAGE>   157
 
     aggregate, could reasonably be expected to (i) have a material adverse
     effect, (ii) impair in any material respect the ability of Vitas to perform
     its obligations under this Agreement or (iii) prevent the consummation by
     Vitas of any of the transactions contemplated by this Agreement, nor is
     there any judgment, decree, injunction, rule or order of any Governmental
     Entity or arbitrator outstanding against Vitas or any of its subsidiaries
     having, or which is reasonably likely to have, any effect referred to in
     the foregoing clauses (i) through (iii).
 
        3.1.8 TAXES.
 
             (a) Except as set forth in the Vitas Disclosure Schedule, each of
        Vitas and its subsidiaries has timely filed all federal, state, local
        and foreign tax returns and reports required to be filed by it through
        the date hereof and shall timely file all such returns and reports
        required to be filed on or before the Effective Time. All such returns
        and reports are and will be true, complete and correct in all material
        respects. Vitas and each of its subsidiaries has paid and discharged (or
        Vitas has paid and discharged on such subsidiary's behalf) all taxes due
        from them, other than such taxes as are being contested in good faith by
        appropriate proceedings and are adequately reserved for on the most
        recent financial statements. The most recent financial statements
        properly reflect in accordance with GAAP all taxes payable by Vitas and
        its subsidiaries for all taxable periods and portions thereof through
        the date of such financial statements. Adequate provision has been made
        in the books and records of Vitas and each subsidiary, and to the extent
        required by GAAP in the financial statements referred to in Subsection
        3.1.5 above or delivered to Apria, for all taxes whether or not due and
        payable and whether or not disputed. Neither Vitas nor any subsidiary
        has elected to be treated as a consenting corporation under Section
        341(f) of the Code.
 
             (b) No claim or deficiency for any taxes has been proposed,
        threatened, asserted or assessed by the Internal Revenue Service (the
        "IRS") or any other taxing authority or agency against Vitas or any of
        its subsidiaries which, if resolved against Vitas or any of its
        subsidiaries, would, individually or in the aggregate, have a material
        adverse effect. No requests for waivers of the time to assess any taxes
        are pending. Except as set forth in the Vitas Disclosure Schedule, none
        of the federal income tax returns of Vitas and each of its subsidiaries
        consolidated in such returns has been examined by and settled with the
        IRS for any year.
 
             (c) As used in this Agreement, "TAXES" means all federal, state,
        local and foreign income, property, sales, excise and other taxes, of
        any nature whatsoever (whether payable directly or by withholding),
        together with any interest and penalties, additions to tax or additional
        amounts imposed with respect thereto. For the purposes of this
        Subsection 3.1.8, references to Vitas and each of its subsidiaries
        includes former subsidiaries of Vitas for the periods during which any
        such corporations were included in the consolidated federal income tax
        return of Vitas.
 
          3.1.9 EMPLOYEE BENEFITS.  Except as set forth in the Vitas Disclosure
     Schedule:
 
             (a) The Vitas Disclosure Schedule lists all director, independent
        contractor and employee benefit plans and collective bargaining,
        employment or severance agreements or other similar arrangements to
        which Vitas or any subsidiary is a party or by which any of them is
        bound, including, without limitation, (i) any profit-sharing, deferred
        compensation, bonus, stock option, stock purchase, pension, retainer,
        consulting, retirement, severance, welfare, performance or incentive
        plan, agreement or arrangement that by its terms obligates Vitas or any
        of its subsidiaries to pay an amount determinable at the time of signing
        any thereof in excess of $20,000, (ii) any plan, agreement or
        arrangement providing for "fringe benefits" or perquisites to employees,
        officers, directors or agents, including but not limited to benefits
        relating to any Vitas automobiles, other modes of transport, clubs,
        vacation, child care, parenting, sabbatical, sick leave, medical,
        dental, hospitalization, life insurance and other types of insurance,
        (iii) any employment agreement other than for an employment at will,
        (iv) any other "employee benefit plan" within the meaning of the
        Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
        or (v) any other employee benefit plan or arrangement to which Vitas or
        any of its subsidiaries is or has been a party under which there is any
        liability to any Person.
 
                                       12
<PAGE>   158
 
             (b) Vitas has delivered to Apria true and complete copies of all
        documents and summary plan descriptions with respect to such plans,
        agreements and arrangements, or summary descriptions of any such plans,
        agreements or arrangements not otherwise in writing.
 
             (c) Except as contemplated by this Agreement, there are no
        negotiations, demands or proposals that are pending or have been made
        which concern matters now covered, or that would be covered, by plans,
        agreements or arrangements of the type described in this Subsection
        3.1.9.
 
             (d) Vitas and its subsidiaries are in compliance in all material
        respects with the applicable provisions of ERISA (as amended through the
        date of this Agreement), the regulations and published authorities
        thereunder, and all other laws applicable with respect to all such
        employee benefit plans, agreements and arrangements. Vitas and its
        subsidiaries have performed all of their obligations under all such
        plans, agreements and arrangements. To the best knowledge of Vitas,
        there are no actions (other than routine claims for benefits) pending or
        threatened against such plans or their assets, or arising out of such
        plans, agreements or arrangements, and, to the best knowledge of Vitas,
        no facts exist which may reasonably be expected to give rise to any such
        actions.
 
             (e) Each of the plans, agreements or arrangements can be terminated
        by Vitas or by one of the subsidiaries within a period of 30 days
        following the Effective Time, without payment of any additional
        compensation or amount or the additional vesting or acceleration of any
        such benefits.
 
             (f) Except as required by applicable law, since September 30, 1995,
        there has not been any adoption or amendment in any material respect by
        Vitas or any of its subsidiaries of any compensatory plans, agreements
        or arrangements (collectively, "BENEFIT PLANS") providing benefits to
        any current or former employee, officer or director of Vitas or any of
        its subsidiaries. Since September 30, 1995, neither Vitas nor any of its
        subsidiaries has taken any action to accelerate any rights or benefits
        under any Benefit Plan, either generally or specifically, for the
        benefit of any director, officer, or employee or class thereof.
 
          3.1.10 QUALIFIED PLANS.
 
             (a) The Vitas Disclosure Schedule lists all "employee pension
        benefit plans" (within the meaning of Section 3(2) of ERISA) which are
        also stock bonus, pension or profit-sharing plans within the meaning of
        Section 401(a) of the Code.
 
             (b) Each such plan has been duly authorized and approved by the
        appropriate board of directors of Vitas and each participating
        subsidiary. Each such plan is qualified in form and operation under
        Section 401(a) of the Code and each trust under each such plan is exempt
        from tax under Section 501(a) of the Code. No event has occurred that
        will or could give rise to disqualification or loss of tax-exempt status
        of any such plan or trust under such sections. No event has occurred
        that will or could subject any such plans to tax under Section 511 of
        the Code. No prohibited transaction (within the meaning of Section 4975
        of the Code) or party-in-interest transaction (within the meaning of
        Section 406 of ERISA) has occurred with respect to any of such plans.
 
             (c) Except as set forth in the Vitas Disclosure Schedule, Vitas has
        delivered to Apria for each such plan copies of the following documents:
        (i) the Form 5500 filed in each of the most recent three plan years
        including but not limited to all schedules thereto and financial
        statements with attached opinions of independent accountants, (ii) the
        most recent determination letter from the IRS, (iii) the consolidated
        statement of assets and liabilities of such plan as of its most recent
        valuation date, and (iv) the statement of changes in fund balance and in
        financial position or the statement of changes in net assets available
        for benefits under such plan for the most recently ended plan year. The
        financial statements so delivered fairly present the financial condition
        and the results of operations of each of such plans as of such dates, in
        accordance with GAAP.
 
             (d) Except as set forth in the Vitas Disclosure Schedule, the Vitas
        Employee Stock Ownership Plan ("ESOP"), is not, as of the date of this
        Agreement, indebted to any party (including Vitas) on account of a loan
        or loans made in connection with any acquisition by the ESOP of any
        "employer
 
                                       13
<PAGE>   159
 
        security," as defined in Section 407(d)(1) of ERISA, and Vitas is not
        obligated to make any contributions to the ESOP. Any transactions with
        or by the ESOP involving employer securities satisfy all applicable
        requirements for exemptions from the prohibited transaction provisions
        of Section 4975 of the Code and Section 406 of ERISA. No employee
        contributions have ever been made or permitted under the ESOP. The Vitas
        401(k) Plan has never invested in employer securities.
 
          3.1.11 TITLE IV PLANS.  No plan listed in the Vitas Disclosure
     Schedule is subject to Title IV of ERISA.
 
          3.1.12 MULTIEMPLOYER PLANS.  No plan listed in the Vitas Disclosure
     Schedule is a "multiemployer plan" (within the meaning of Section 3(37) of
     ERISA). Neither Vitas nor any subsidiary has ever contributed to or had an
     obligation to contribute to any multiemployer plan.
 
          3.1.13 NO EXCESS PARACHUTE PAYMENTS.  Subject to the receipt of the
     approval contemplated by Section 5.14, any amount that could be received
     (whether in cash or property or the vesting of property) as a result of any
     of the transactions contemplated by this Agreement by any employee, officer
     or director of Vitas or any of its affiliates (as defined in Section 8.3)
     who is a "disqualified individual" (as such term is defined in proposed
     Treasury Regulation Section 1.280G-1) under any employment, severance or
     termination agreement, other compensation arrangement or Benefit Plan
     currently in effect would not be characterized as an "excess parachute
     payment" (as such term is defined in Section 280G(b)(1) of the Code).
 
          3.1.14 COMPLIANCE WITH APPLICABLE LAWS.  Except as set forth in the
     Vitas Disclosure Schedule:
 
             (a) Each of Vitas and its subsidiaries owns, holds or possesses all
        licenses, franchises, permits, privileges, immunities, approvals and
        other authorizations from Governmental Entities which are necessary to
        entitle it to own or lease, operate and use its assets, to participate
        in the Medicare, Medicaid, CHAMPUS and all other reimbursement programs
        as currently participated in and to carry on and conduct its business
        substantially as currently conducted except for any licenses,
        franchises, permits, privileges, immunities, approvals or other
        authorizations the lack of which individually or in the aggregate would
        not have a material adverse effect (herein collectively called
        "PERMITS"). The Vitas Disclosure Schedule sets forth a list and brief
        identification of each Permit, except for such incidental licenses,
        franchises, permits, privileges, immunities, approvals and other
        authorizations which would be readily obtainable by any qualified
        applicant without undue burden in the event of any lapse, termination,
        cancellation or forfeiture thereof, or the lapse, termination,
        cancellation or forfeiture of which would not have a material adverse
        effect. Complete and correct copies of all the Permits or evidence
        thereof have heretofore been delivered by Vitas to Apria. Vitas and each
        of its subsidiaries has fulfilled and performed in all material respects
        its obligations under each of the respective Permits, and no event has
        occurred or condition or state of facts exists which constitutes or,
        after notice or lapse of time or both, would constitute a material
        breach or default under any Permit either (i) which permits or, after
        notice or lapse of time or both, would permit revocation or termination
        of any Permit, or (ii) which may reasonably be expected to adversely
        affect in any material respect the rights of Vitas or any subsidiary of
        Vitas under any Permit; no notice of cancellation, suspension,
        revocation, or material default or of any material dispute concerning
        any Permit, or of any event, condition or state of facts described in
        the preceding clause, has been received by, or is known to, Vitas or its
        subsidiaries, or, to the knowledge of Vitas, is proposed or threatened
        except where such circumstances would not have a material adverse
        effect; and each of the Permits is valid, subsisting and in full force
        and effect and may reasonably be expected to continue in full force and
        effect after the Effective Time in each case without (x) the occurrence
        of any breach, default or forfeiture of rights thereunder, or (y) the
        consent, approval, or act of, or the making of any filing with, any
        Governmental Entity. Neither Vitas nor any subsidiary has made any
        fraudulent misrepresentations in connection with any judicial or
        regulatory proceedings or actions before any Governmental Entity.
 
                                       14
<PAGE>   160
 
             (b) Neither Vitas nor any subsidiary has submitted any claims in
        connection with any referrals to any of its programs which violated any
        applicable self-referral law, including the Stark Bill (42 U.S.C. sec.
        1395nn) or any applicable state self-referral law as those laws are
        currently interpreted.
 
             (c) Except where the failure to do so would not have a material
        adverse effect, each program operated by Vitas and its subsidiaries has
        (i) where required by applicable law, obtained all Certificates of Need
        ("CONS"), (ii) obtained and maintains in good standing all required
        healthcare licenses, (iii) where required by applicable law, obtained
        and maintains accreditation for such programs, (iv) obtained and
        maintains all certifications required from any Governmental Entity
        including, without limitation, where required by applicable law, CHAMPUS
        Certification (if applicable), Medicaid Certification and Medicare
        Certification and (v) obtained and maintains eligibility and good
        standing for reimbursement from Medicare and Medicaid. Those programs
        that have obtained and maintained eligibility and good standing for
        reimbursement from CHAMPUS are identified on the Vitas Disclosure
        Schedule.
 
             (d) There are no situations which involved or involve Vitas or any
        subsidiary in (i) the use of any corporate funds for unlawful
        contributions, gifts, entertainment or other unlawful expenses related
        to political activity, (ii) the making of any direct or indirect
        unlawful payments to government officials from corporate funds or the
        establishment or maintenance of any unlawful or unrecorded funds, (iii)
        the violation of any of the provisions of The Foreign Corrupt Practices
        Act of 1977, or any rules or regulations promulgated thereunder, (iv)
        the payment of or offering to pay any illegal remuneration for any
        referral to any of its programs in violation of any applicable anti-
        kickback law, including the "Medicare Anti-kickback Statute" (42 U.S.C.
        sec. 1320a-7b(b)) or any applicable state anti-kickback law, except
        where such circumstances would not have a material adverse effect (v)
        the violation of any material Medicare or Medicaid requirements,
        including the fraud and abuse provisions, except where such
        circumstances would not have a material adverse effect (vi) the receipt
        of any illegal discounts or rebates or any other violation of the
        anti-trust laws, (vii) any investigation by the SEC or (viii) any
        investigation of Vitas or any of its subsidiaries by a Medicare
        intermediary or carrier, the Health Care Finance Administration, the
        Office of the Inspector General of the Department of Heath and Human
        Services or any other federal, foreign, state or local government agency
        or authority, except where such circumstances would not have a material
        adverse effect. The Vitas Disclosure Schedule lists all pledges,
        payments and contributions made by Vitas and its subsidiaries (including
        any employee reimbursements of same) from October 1, 1994 to May 31,
        1996 to any political, non-profit or charitable fund, foundation or
        institution.
 
             (e) Vitas and each of its subsidiaries is, and has been, and each
        of Vitas' former subsidiaries, while subsidiaries of Vitas, was, in
        compliance in all material respects with all applicable Environmental
        Laws, except for noncompliance which individually or in the aggregate
        would not have a material adverse effect. The term "ENVIRONMENTAL LAWS"
        means any federal, state, local or foreign statute, code, ordinance,
        rule, regulation, policy, guideline, permit, consent, approval, license,
        judgment, order, writ, decree, injunction or other authorization,
        including the requirement to register underground storage tanks,
        relating to (i) emissions, discharges, releases or threatened releases
        of Hazardous Material (as defined below) into the environment,
        including, without limitation, into ambient air, soil, sediments, land
        surface or subsurface, buildings or facilities, surface water,
        groundwater, publicly owned treatment works, septic systems or land or
        (ii) the generation, treatment, storage, disposal, use, handling,
        manufacturing, transportation or shipment of Hazardous Material.
 
             (f) During the period of ownership or operation by Vitas and its
        subsidiaries of any of their operations or their respective current or
        previously owned or leased properties, there have been no releases of
        Hazardous Material in, on, under or affecting such properties or, to the
        knowledge of Vitas, any surrounding site, except in each case for those
        which individually or in the aggregate are not reasonably likely to have
        a material adverse effect. Prior to the period of ownership or operation
        by Vitas and its subsidiaries of any of their respective current or
        previously owned or leased
 
                                       15
<PAGE>   161
 
        properties, to the knowledge of Vitas, no Hazardous Material was
        generated, treated, stored, disposed of, used, handled or manufactured
        at, or transported, shipped or disposed of from, such current or
        previously owned or leased properties, and there were no releases of
        Hazardous Material in, on, under or affecting any such property or any
        surrounding site, except in each case for those which individually or in
        the aggregate are not reasonably likely to have a material adverse
        effect. The term "HAZARDOUS MATERIAL" means (i) hazardous or toxic
        materials, contaminants, constituents, regulated medical wastes,
        hazardous wastes or infectious and hazardous substances as those terms
        are defined in the following statutes and their implementing
        regulations: the Hazardous Materials Transportation Act, as amended by
        the Hazardous Materials Transportation Authorization Act of 1994, 49
        U.S.C. sec. 1801 et seq., 49 U.S.C. sec. 5101 et seq., the Resource
        Conservation and Recovery Act, 42 U.S.C. sec. 6901 et seq., the
        Comprehensive Environmental Response, Compensation and Liability Act, as
        amended by the Superfund Amendments and Reauthorization Act, 42 U.S.C.
        sec. 9601 et seq., the Clean Water Act, 33 U.S.C. sec. 1251 et seq. and
        the Clean Air Act, 42 U.S.C. sec. 7401 et seq., (ii) substances that are
        defined or listed in, or otherwise classified pursuant to, any
        applicable laws as "hazardous" or "toxic", or by any other formulation
        intended to define, list or classify substances by reason of deleterious
        properties such as ignitibility, corrosivity, reactivity, radioactivity,
        carcinogenicity, reproductive toxicity or "EP toxicity," (iii)
        petroleum, including drilling fluids, crude oil and any fractions
        thereof, (iv) natural gas, synthetic gas and any mixtures thereof,
        produced waters and other wastes associated with the exploration,
        development, or production of crude oil, natural gas or geothermal
        energy, (v) asbestos and/or asbestos-containing material and (vi)
        polychlorinated biphenyls ("PCBS") or materials or fluids containing
        PCBs in excess of 50 ppm.
 
             (g) Neither Vitas nor any of its subsidiaries has submitted any
        claim for payment to any payor source, either governmental or
        nongovernmental, in material violation of any false claim or fraud law,
        including the "False Claim Act" (31 U.S.C. sec. 3729) or any applicable
        state false claim or fraud law, except for violations which individually
        or in the aggregate would not have a material adverse effect.
 
             (h) Vitas and each of its subsidiaries is, and has been, and each
        of Vitas' former subsidiaries, while subsidiaries of Vitas, was, in
        compliance in all material respects with all other applicable laws and
        regulations, except for noncompliance which individually or in the
        aggregate would not have a material adverse effect.
 
          3.1.15 STATE TAKEOVER STATUTES.  Vitas has taken all requisite action
     to render inapplicable to this Agreement and the Significant
     Securityholders Agreement and the transactions contemplated hereby and
     thereby, the provisions of Section 203 of the DGCL and such action was
     effective at (or prior to and as of) the date of this Agreement.
 
          3.1.16 BROKERS.  No broker, investment banker, financial advisor or
     other Person, other than Furman Selz LLC, is entitled to any broker's,
     finder's, financial advisor's or other similar fee or commission in
     connection with the transactions contemplated by this Agreement based upon
     arrangements made by or on behalf of Vitas. Except as set forth in the
     Vitas Disclosure Schedule, the fees and expenses required to be paid to
     Furman Selz LLC will not exceed the amounts reflected in the engagement
     letter dated March 25, 1996, a copy of which has been delivered to Apria.
 
          3.1.17 OPINION OF FINANCIAL ADVISOR.  Vitas has received the opinion
     of Furman Selz LLC, dated the date of this Agreement, to the effect that,
     as of such date, the consideration to be received in the Merger by the
     holders of the Vitas Common Stock is fair to such stockholders from a
     financial point of view, and a copy of such executed opinion has been
     delivered to Apria for use in the Form S-4 (as hereinafter defined).
 
        3.1.18 CONTRACTS.
 
             (a) The Vitas Disclosure Schedule lists each contract (by date,
        parties signatory thereto and subject matter to which Vitas or any of
        its subsidiaries or any of their respective assets is subject or
 
                                       16
<PAGE>   162
 
        by which any thereof is bound) that is material to the business of Vitas
        or its subsidiary, as the case may be, as defined below ("MATERIAL
        CONTRACTS"). The Material Contracts include all contracts of Vitas and
        its subsidiaries which fit within the following illustrative categories:
        any contract that (i) after May 1, 1996 obligates Vitas or any of its
        subsidiaries to pay an amount determinable at the time of its signing in
        excess of $500,000, (ii) represents a contract upon which Vitas or any
        of its subsidiaries is substantially dependent, (iii) provides for an
        extension of credit other than consistent with normal credit terms, (iv)
        limits or restricts the ability of Vitas or any of its subsidiaries to
        compete or otherwise to conduct its business in any manner or place, (v)
        provides for a guaranty or indemnity by Vitas or any of its subsidiaries
        (other than customary indemnities in contracts relating to acts or
        omissions or the breach of representations or covenants contained
        therein) of an amount in excess of $50,000, (vi) grants a power of
        attorney, agency or similar authority to another Person or entity, (vii)
        requires Vitas or any of its subsidiaries to buy or sell goods or
        services with respect to which there will be material losses or will be
        costs and expenses materially in excess of expected receipts (other than
        as provided for or otherwise reserved against on the most recent balance
        sheet of Vitas referred to in Subsection 3.1.5), (viii) was not made in
        the ordinary course of business, or (ix) is required by any other
        provision of this Agreement to be identified in the Vitas Disclosure
        Schedule. Except as set forth in the Vitas Disclosure Schedule, true,
        correct and complete copies of the Material Contracts, including all
        amendments and supplements, have been delivered to Apria. Each Material
        Contract is valid and subsisting. Except as set forth in the Vitas
        Disclosure Schedule, there is no litigation pending or, to Vitas'
        knowledge, threatened by any party with respect to any Material
        Contract. Except as set forth in the Vitas Disclosure Schedule, Vitas
        and each of its subsidiaries has duly performed all of its obligations
        under each Material Contract to which it is a party to the extent that
        such obligations to perform have accrued, and no breach or default,
        alleged breach or default, or event which would (with the passage of
        time, notice or both) constitute a breach or default thereunder by Vitas
        or any of its subsidiaries (or, to Vitas' knowledge, any other party or
        obligor with respect thereto), has occurred or as a result of this
        Agreement or its performance will occur (assuming receipt of all
        required approvals), except for violations or defaults that could not,
        individually or in the aggregate, reasonably be expected to result in a
        material adverse effect. Except as set forth on the Vitas Disclosure
        Schedule, consummation by Vitas of the transactions contemplated by this
        Agreement will not (and will not give any Person a right to) terminate
        or modify any rights of, or accelerate or augment any obligation of,
        Vitas or any of its subsidiaries under any of the Material Contracts
        except where such results would not have a material adverse effect.
 
             (b) The Vitas Disclosure Schedule contains a list of each existing
        Medicare and Medicaid contract (the "PROGRAM AGREEMENTS") or evidence
        thereof relating to the participation by Vitas and its subsidiaries in
        the Medicare and Medicaid Programs (the "GOVERNMENTAL PROGRAMS"). The
        businesses of Vitas and its subsidiaries are in compliance with all
        material terms, conditions and provisions of the Program Agreements
        except where the failure to comply would not have a material adverse
        effect. Except as set forth in the Vitas Disclosure Schedule, (i) no
        notice of any offsets against future reimbursement has been received by
        Vitas or any subsidiary, nor to the knowledge of Vitas, is there any
        reasonable basis therefor with respect to the Governmental Programs
        except with respect to offsets in the ordinary course of business which
        could not, individually or in the aggregate, reasonably be expected to
        result in a material adverse effect, (ii) there are no pending appeals,
        adjustments, challenges, audits, litigation, notices of intent to reopen
        or open completed payments with respect to the Governmental Programs
        except such adjustments made in the ordinary course of business which
        could not, individually or in the aggregate, reasonably be expected to
        result in a material adverse effect, and (iii) neither Vitas nor any
        subsidiary of Vitas has received notice of pending, threatened or
        possible decertification or other loss of participation in any of the
        Governmental Programs which remains in effect as of the date hereof.
        Vitas and each of its subsidiaries currently have contractual
        arrangements with third party payors, the Material Contracts of which
        are listed on the Vitas Disclosure Schedule, and copies of which have
        been made available to Apria. Vitas and each of its subsidiaries, as
        applicable, are in compliance in all material respects with all of
 
                                       17
<PAGE>   163
 
        the terms, conditions and provisions of the contracts referenced in the
        immediately preceding sentence.
 
          3.1.19 TITLE TO PROPERTIES.
 
             (a) Neither Vitas nor any of its subsidiaries owns any real
        property. Except as set forth in the Vitas Disclosure Schedule, the
        Vitas Disclosure Schedule identifies each leasehold interest in real
        property of Vitas and each of its subsidiaries. Vitas and its
        subsidiaries have valid leasehold interests in, each of the properties
        and assets listed on the Vitas Disclosure Schedule, subject only to the
        terms of the governing leases with respect to the leasehold interests,
        all of which, individually or in the aggregate, would not have a
        material adverse effect or affect the ability of Vitas or a subsidiary,
        as the case may be, to use, operate or occupy any of such properties
        following the Effective Time.
 
             (b) Each of Vitas and its subsidiaries has complied in all material
        respects with the terms of all leases to which it is a party and under
        which it is in occupancy, and all such leases are to the knowledge of
        Vitas in full force and effect and no material defaults (by landlord or
        tenant) exist thereunder, except for such defaults, failures to comply
        or to be in full force and effect which would not, individually or in
        the aggregate, have a material adverse effect or affect the ability of
        Vitas or its subsidiaries to operate, use or occupy such leased
        properties following the Effective Time. Each of Vitas and its
        subsidiaries enjoys peaceful and undisturbed possession under all such
        leases.
 
             (c) Except as set forth in the Vitas Disclosure Schedule, true and
        complete copies of each of the leases in effect with respect to the
        leased properties of Vitas and its subsidiaries have been delivered to
        Apria prior to the date hereof and, other than as set forth in such
        documents, no consents or approvals with respect thereto are required to
        be obtained with respect to the Merger or the use, occupancy or
        operation of the leased properties following the Effective Time.
 
             (d) Except as set forth in the Vitas Disclosure Schedule, neither
        Vitas nor any of its subsidiaries has received any notices of violation
        or is aware of any failure of any of the properties to comply with any
        applicable laws, rules or regulations with respect to the use, occupancy
        or operation of such properties.
 
          3.1.20 ACCOUNTING MATTERS.  Neither Vitas nor, to its knowledge, any
     of its affiliates has taken or agreed to take any action or is aware of any
     condition that would prevent Apria from accounting for the business
     combination to be effected by the Merger as a pooling-of-interests.
 
          3.1.21 VOTING REQUIREMENTS.  The approval by the affirmative vote or
     consent of a majority of the outstanding shares of Vitas Common Stock
     voting as a separate class, as well as by the affirmative vote or consent
     of a majority of the shares of the Series B Preferred voting as a separate
     class, are the only votes required by the Vitas security holders to approve
     this Agreement and the Merger in accordance with the DGCL and the
     Certificate of Incorporation (as amended) of Vitas and the Preferred Stock
     Certificates (the " VITAS STOCKHOLDER APPROVAL"). Except for the Vitas
     Stockholder Approval and as set forth in the Vitas Disclosure Schedule,
     there are no consents or approvals required by the Vitas securityholders to
     approve this Agreement and the transactions to be consummated by Vitas or
     the Vitas securityholders as contemplated hereunder, subject to the
     approval contemplated by Section 5.14 of this Agreement.
 
          3.1.22 NONCOMPETITION.  Except as set forth in the Vitas Disclosure
     Schedule, Vitas and its subsidiaries are not, and after the Effective Time
     the Surviving Corporation will not be (by reason of any agreement to which
     Vitas or any subsidiary of Vitas is a party), subject to any
     non-competition or similar restriction on their respective businesses.
 
          3.1.23 INTELLECTUAL PROPERTY.  Vitas and each of its subsidiaries owns
     or possesses adequate and enforceable licenses or other rights to use all
     patents, trade secrets, trade names, trademarks, inventions and processes
     used in the business of Vitas or such subsidiary as currently conducted
     (including products and services under development) and has not received
     any notice of conflict of infringement which asserts the rights of others
     with respect thereto. Vitas owns or rightfully possesses (i) the source
     code, recorded on computer magnetic media and not in written form, for its
     information systems programs commonly
 
                                       18
<PAGE>   164
 
     known as Vitas Exchange or Vx (the "SOFTWARE"), and (ii) all commentary,
     explanations, specifications, documentation, proprietary information, test
     programs and program specifications, and descriptions of system/program
     generation and programs not owned by Vitas but required for use or support,
     relating to the Software that are reasonably necessary for Apria to
     maintain and enhance the Software, and to provide a commercially standard
     level of service and support to users (as of the date of this Agreement) of
     the Software without the aid of any other party other than outside
     programmers currently under contract with Vitas and without use of any
     other material.
 
          3.1.24 CHAMPUS, MEDICARE AND MEDICAID.  Neither Vitas nor any of its
     subsidiaries is engaged in termination proceedings as to its participation
     in CHAMPUS, Medicare or Medicaid or has received notice that its current
     participation, if any, in CHAMPUS, Medicare or Medicaid is subject to any
     contest, termination or suspension as a result of alleged violations or any
     non-compliance with participation requirements. Except as set forth in the
     Vitas Disclosure Schedule, there is no pending or, to the knowledge of
     Vitas, threatened proceeding or investigation involving participation by
     Vitas or its subsidiaries in the CHAMPUS, Medicare or Medicaid programs.
     Except as set forth in the Vitas Disclosure Schedule, to the knowledge of
     Vitas, neither Vitas nor any of its subsidiaries has received reimbursement
     in excess of the amount provided by law. All material liabilities and
     contractual adjustments of the business under any third party payor or
     reimbursement programs have been properly reflected and adequately reserved
     for in the financial statements as of the dates thereof (with the reserves
     being established consistently with past practices). Except as disclosed in
     the Vitas Disclosure Schedule, Vitas and each of its subsidiaries have
     always been and are currently in compliance in all material respects with
     applicable rules and regulations governing reimbursement under the CHAMPUS,
     Medicare and Medicaid programs except for noncompliance which individually
     or in the aggregate would not have a material adverse effect.
 
          3.1.25 MINUTE BOOKS.  Except as disclosed in the Vitas Disclosure
     Schedule, the minute books of Vitas and its subsidiaries accurately reflect
     all actions and proceedings taken to date by the respective stockholders,
     boards of directors and committees of Vitas and its subsidiaries, and such
     minute books contain true and complete copies of the charter documents of
     Vitas and its subsidiaries and all related amendments. The stock record
     books of Vitas and each subsidiary of Vitas reflect accurately all
     transactions in their respective capital stock of all classes.
 
          3.1.26 ACCOUNTING RECORDS; INTERNAL CONTROLS.
 
             (a) Vitas and its subsidiaries have records that accurately and
        validly reflect in all material respects their respective transactions,
        and accounting controls sufficient to insure that such transactions are
        (i) executed substantially in accordance with management's general or
        specific authorization and (ii) recorded as necessary to permit
        presentation of financial statements in conformity with GAAP except, in
        each case, as set forth in the Vitas Disclosure Schedule.
 
             (b) The Vitas Disclosure Schedule describes (i) Vitas' policies and
        procedures regarding storage of records and (ii) Vitas' disaster
        recovery policies and procedures regarding data processing equipment and
        software.
 
          3.1.27 INSURANCE.  Vitas and its subsidiaries are, and at all times
     during the past five years have been, insured with reputable insurers
     against all risks normally insured against by companies in similar lines of
     business, and all of the insurance policies and bonds maintained by Vitas
     and its subsidiaries are to the knowledge of Vitas in full force and
     effect. The Vitas Disclosure Schedule lists all insurance policies and
     bonds maintained by Vitas and its subsidiaries. Neither Vitas nor any
     subsidiary is in default under any such policy or bond. Vitas and its
     subsidiaries have timely filed claims with their respective insurers with
     respect to all material matters and occurrences for which they believe they
     have coverage. Vitas has received no notice or other indication from any
     insurer or agent of any intent to cancel or not so renew any of such
     insurance policies. Vitas and its subsidiaries have complied in all
     material respects with and implemented all outstanding (i) requirements of
     and recommendations of any insurance company that has issued a policy with
     respect to any of the material properties and assets of Vitas or any
     subsidiary
 
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<PAGE>   165
 
     and (ii) the requirements and recommendations of any Governmental Entity
     with respect to any such insurance policy.
 
          3.1.28 DIVIDENDS AND OTHER DISTRIBUTIONS.  Except for semi-annual
     dividends on the 9% Preferred, there has been no dividend or other
     distribution of assets, whether consisting of money, property or any other
     thing of value, or securities declared, issued or paid subsequent to the
     date of the most recent financial statements described in Subsection 3.1.5
     by Vitas or (other than to Vitas) any subsidiary.
 
          3.1.29 CERTAIN INTERESTS.  Except as set forth in the Vitas Disclosure
     Schedule, no affiliate of Vitas or any subsidiary of Vitas nor any officer
     or director of any thereof, has any material interest in any asset used in
     or pertaining to the respective businesses of Vitas or its subsidiaries; no
     such Person is indebted to Vitas or any of its subsidiaries; and neither
     Vitas nor any of its subsidiaries is indebted or otherwise obligated to any
     such Person, except for amounts due under normal arrangements applicable to
     all employees generally as to salary or reimbursement of ordinary business
     expenses not unusual in amount or significance. Except as set forth in the
     Vitas Disclosure Schedule and as contemplated by Section 5.14 of this
     Agreement, the consummation by Vitas of the transactions contemplated by
     this Agreement will not (either alone, or upon the occurrence of any act or
     event, or with the lapse of time, or both) result in any benefit or payment
     (severance or other) arising or becoming due from Vitas or any of its
     subsidiaries or the successors or assigns of any thereof to any Person.
 
          3.1.30 BANK ACCOUNTS, POWERS, ETC.  The Vitas Disclosure Schedule
     lists each bank, trust company, savings institution, brokerage firm, mutual
     fund or other financial institution with which Vitas or any subsidiary of
     Vitas has an account or safe deposit box and the names and identification
     of all Persons authorized to draw thereon or to have access thereto, and
     lists the names of each Person holding powers of attorney or agency
     authority from Vitas or any subsidiary of Vitas and a summary of the terms
     thereof.
 
          3.1.31 SUPPLIES.  All supplies of Vitas and each of its subsidiaries
     are of good merchantable quality, reasonably in balance and currently
     usable in the ordinary course of business.
 
          3.1.32 SUPPLIERS.  The Vitas Disclosure Schedule lists the names of
     and describes all contracts (i) between Vitas or its subsidiaries and
     suppliers of home medical equipment, respiratory and infusion products,
     pharmacy products and medical supplies to the extent that such suppliers
     provide at least $100,000 per annum in supplies to Vitas and its
     subsidiaries, (ii) to the extent not already included in clause (i), with
     the thirty most significant suppliers of the respective businesses of Vitas
     and its subsidiaries at the date of this Agreement, and (iii) any
     sole-source suppliers of significant goods or services (other than
     electricity, gas, telephone or water) to Vitas or any of its subsidiaries
     with respect to which alternative sources of supply are not readily
     available on comparable terms and conditions.
 
          3.1.33 DISCLOSURE.  Except as set forth in the Vitas Disclosure
     Schedule, no representation or warranty by Vitas contained in this
     Agreement, and no statement contained in the Vitas Disclosure Schedule or
     any other document, certificate or other instrument delivered to or to be
     delivered by or on behalf of Vitas pursuant to this Agreement, contains or
     will contain any untrue statement of a material fact or omit or will omit
     to state any material fact necessary, in light of the circumstances under
     which it was or will be made, in order to make the statements herein or
     therein not misleading.
 
          3.2 REPRESENTATIONS AND WARRANTIES OF APRIA AND SUB.  Apria and Sub
     represent and warrant to Vitas as follows:
 
             3.2.1 ORGANIZATION, STANDING AND CORPORATE POWER.  Each of Apria
        and Sub is a corporation duly organized, validly existing and in good
        standing under the laws of the State of Delaware and has the requisite
        corporate power and authority to carry on its business as now being
        conducted. Each of Apria and Sub is duly qualified or licensed to do
        business and is in good standing in each jurisdiction in which the
        nature of its business or the ownership or leasing of its properties
        makes such qualification or licensing necessary, other than in such
        jurisdictions where the failure to be so qualified or licensed
        (individually or in the aggregate) would not have a material adverse
        effect. Apria has delivered to Vitas complete and correct copies of its
        certificate of incorporation and bylaws
 
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<PAGE>   166
 
        and the certificate of incorporation and bylaws of Sub, in each case as
        amended to the date of this Agreement.
 
             3.2.2 CAPITAL STRUCTURE.  The authorized capital stock of Apria
        consists of 150,000,000 shares of Common Stock, $.001 par value (the
        "APRIA COMMON STOCK"), and 10,000,000 shares of Preferred Stock, par
        value $.001 per share. At the close of business on June 13, 1996, (i)
        50,938,126 shares of Apria Common Stock and no shares of Preferred Stock
        were issued and outstanding, and (ii) 5,571,911 shares of Apria Common
        Stock were reserved for issuance upon exercise of outstanding employee
        stock options to purchase shares of Apria Common Stock. Each share of
        Apria Common Stock carries with it a preferred share purchase right (a
        "RIGHT") which entitles the holder thereof to purchase, on the
        occurrence of certain events, Apria Preferred Stock. Except as set forth
        above, at the close of business on June 13, 1996 no shares of capital
        stock or other voting securities of Apria were issued, reserved for
        issuance or outstanding. All outstanding shares of capital stock of
        Apria are, and all shares which may be issued pursuant to this Agreement
        will be, when issued, duly authorized, validly issued, fully paid and
        nonassessable and not subject to preemptive rights. As of the date of
        this Agreement there are no bonds, debentures, notes or other
        indebtedness of Apria having the right to vote (or convertible into, or
        exchangeable for, securities having the right to vote) on any matters on
        which stockholders of Apria may vote. Except as set forth above, as of
        the date of this Agreement, there are no outstanding securities,
        options, warrants, calls, rights, commitments, agreements, arrangements
        or undertakings of any kind to which Apria or any of its subsidiaries is
        a party or by which any of them is bound obligating Apria or any of its
        subsidiaries to issue, deliver or sell, or cause to be issued, delivered
        or sold, additional shares of capital stock or other voting securities
        of Apria or of any of its subsidiaries or obligating Apria or any of its
        subsidiaries to issue, grant, extend or enter into any such security,
        option, warrant, call, right, commitment, agreement, arrangement or
        undertaking. As of the date of this Agreement, there are no outstanding
        contractual obligations of Apria or any of its subsidiaries to
        repurchase, redeem or otherwise acquire any shares of capital stock of
        Apria or its subsidiaries. The authorized capital stock of Sub consists
        of 1,000 shares of common stock, par value $.01 per share, of which 100
        shares have been validly issued, are fully paid and nonassessable and
        are owned by Apria free and clear of any Liens.
 
             3.2.3 AUTHORITY; NONCONTRAVENTION.  Apria and Sub have the
        requisite corporate power and authority to execute and deliver this
        Agreement and to consummate the transactions by Apria contemplated by
        this Agreement. The execution and delivery of this Agreement and the
        consummation of the transactions contemplated by this Agreement in
        accordance with the terms hereof have been duly authorized by all
        necessary corporate action on the part of Apria and Sub and no approval
        is required by any class or series of capital stock or other securities
        of Apria. This Agreement has been duly executed and delivered by Apria
        and Sub and constitutes a valid and binding obligation of each such
        party, enforceable against each such party in accordance with its terms,
        subject to applicable bankruptcy, insolvency, moratorium or other
        similar laws relating to creditors' rights and general principles of
        equity. The execution and delivery of this Agreement does not, and the
        consummation of the transactions contemplated by this Agreement and
        compliance with the provisions of this Agreement will not, conflict
        with, or result in any violation of, or default (with or without notice
        or lapse of time, or both) under, or give rise to a right of
        termination, cancellation or acceleration of any obligation or to loss
        of a material benefit under, or result in the creation of any Lien upon
        any of the properties or assets of Apria or any of its subsidiaries
        under, (i) the certificate of incorporation or bylaws of Apria or Sub,
        (ii) any loan or credit agreement, note, bond, mortgage, indenture,
        lease or other agreement, instrument, permit, concession, franchise or
        license applicable to Apria or any of its subsidiaries or their
        respective properties or assets or (iii) subject to the governmental
        filings and other matters referred to in the following sentence, any
        judgment, order, decree, statute, law, ordinance, rule or regulation
        applicable to Apria or any of its subsidiaries or their respective
        properties or assets, other than, in the case of clauses (ii) or (iii),
        any such conflicts, violations, defaults, rights, Liens or losses that
        individually or in the aggregate would not (x) have a material adverse
        effect, (y) impair in any material respect the ability of Apria and Sub
        to perform
 
                                       21
<PAGE>   167
 
        their respective obligations under this Agreement or (z) prevent or
        materially delay the consummation of any of the transactions
        contemplated by this Agreement. No consent, approval, order or
        authorization of, or registration, declaration or filing with any
        Governmental Entity is required by Apria or any of its subsidiaries in
        connection with the execution and delivery of this Agreement or the
        consummation by Apria or Sub, as the case may be, of any of the
        transactions contemplated by this Agreement, except for (1) the filing
        with the Specified Agencies of a premerger notification and report form
        under the HSR Act, (2) the filing with the SEC of (A) the Form S-4 and
        (B) such reports under Sections 13(a), 13(d) and 16(a) of the Exchange
        Act as may be required in connection with this Agreement and the
        transactions contemplated by this Agreement, (3) the filing of the
        Certificate of Merger with the Delaware Secretary of State and
        appropriate documents with the relevant authorities of other states in
        which Vitas is qualified to do business and (4) such other consents,
        approvals, orders, authorizations, registrations, declarations and
        filings, including under the "takeover" or "blue sky" laws of various
        states, the failure of which to be obtained or made would not,
        individually, or in the aggregate, have a material adverse effect or
        prevent or materially delay the consummation of any of the transactions
        contemplated by this Agreement.
 
             3.2.4 SEC DOCUMENTS; FINANCIAL STATEMENTS.  Since June 30, 1995,
        Apria has filed with the SEC all required reports and forms and other
        documents (the "APRIA SEC DOCUMENTS"). As of their respective dates, the
        Apria SEC Documents complied in all material respects with the
        requirements of the Securities Act or the Exchange Act, as the case may
        be, and the rules and regulations of the SEC promulgated thereunder
        applicable to the Apria SEC Documents, and none of the Apria SEC
        Documents contained any untrue statement of a material fact or omitted
        to state a material fact required to be stated therein or necessary in
        order to make the statements therein, in light of the circumstances
        under which they were made, not misleading. Except to the extent that
        information contained in any Apria SEC Document has been revised or
        superseded by a later Apria SEC Document filed and publicly available
        prior to the date of this Agreement, none of the Apria SEC Documents
        contains any untrue statement of a material fact or omits to state any
        material fact required to be stated therein or necessary in order to
        make the statements therein, in light of the circumstances under which
        they were made, not misleading. The financial statements of Apria
        included in the Apria SEC Documents comply as to form in all material
        respects with applicable accounting requirements and the published rules
        and regulations of the SEC with respect thereto, have been prepared in
        accordance with GAAP (except, in the case of unaudited statements, as
        permitted by Form 10-Q of the SEC) applied on a consistent basis during
        the periods involved (except as may be indicated in the notes thereto)
        and fairly present the consolidated financial position of Apria and its
        consolidated subsidiaries as of the dates thereof and the consolidated
        results of their operations and cash flows for the periods then ended
        (subject, in the case of unaudited statements, to normal year-end
        adjustments). Except as set forth in the Apria SEC Documents (including
        any thereof filed after the date hereof), and except for liabilities and
        obligations incurred in the ordinary course of business consistent with
        past practice, since the date of the most recent consolidated balance
        sheet included in the Apria SEC Documents, neither Apria nor any of its
        subsidiaries has any liabilities or obligations of any nature (whether
        accrued, absolute, contingent or otherwise) required by GAAP to be
        recognized or disclosed on a consolidated balance sheet of Apria and its
        consolidated subsidiaries or in the notes thereto which could reasonably
        be expected to have a material adverse effect.
 
             3.2.5 INFORMATION SUPPLIED.  None of the information supplied or to
        be supplied by Apria or Sub for inclusion or incorporation by reference
        in (i) the Form S-4 will, at the time the Form S-4 is filed with the
        SEC, at any time it is amended or supplemented or at the time it becomes
        effective under the Securities Act, contain any untrue statement of a
        material fact or omit to state any material fact required to be stated
        therein or necessary to make the statements therein not misleading, or
        (ii) the Proxy Statement will, at the date the Proxy Statement is first
        mailed to Vitas' stockholders or at the time of the Vitas Stockholders'
        Meeting (as defined in Subsection 5.1.2), contain any untrue statement
        of a material fact or omit to state any material fact required to be
        stated therein or necessary in order to make the statements therein, in
        light of the circumstances
 
                                       22
<PAGE>   168
 
        under which they are made, not misleading, provided (as to changes that
        occur after such mailing) that Vitas supplements the Proxy Statement as
        reasonably requested by Apria. If any of such information at any time
        subsequent to delivery and prior to the Closing Date becomes untrue or
        misleading in any material respect, Apria will promptly notify Vitas in
        writing of such fact and the reason of such change. All documents
        required to be filed by Apria or any subsidiary with any Governmental
        Entity in connection with this Agreement or the transactions
        contemplated by this Agreement will comply in all material respects with
        the provisions of applicable law. The Form S-4 will comply as to form in
        all material respects with the requirements of the Securities Act and
        the rules and regulations promulgated thereunder, except that no
        representation or warranty is made by Apria or Sub with respect to
        statements made or incorporated by reference in either the Form S-4 or
        the Proxy Statement based on information supplied by Vitas specifically
        for inclusion or incorporation by reference therein. None of the
        information supplied or to be supplied by or on behalf of Apria or any
        subsidiary to any Person for inclusion in any document or application
        filed or to be filed with any Governmental Entity having jurisdiction
        over or in connection with the transactions contemplated by this
        Agreement did contain, or at the respective times such information is or
        was delivered, will contain any untrue statement of a material fact, or
        omitted or will omit to state any material fact required to be stated
        therein or necessary in order to make the statements therein, in light
        of the circumstances under which they were made, not misleading or to
        correct a prior statement.
 
             3.2.6 ABSENCE OF CERTAIN CHANGES OR EVENTS.  Except as disclosed in
        the Apria SEC Documents filed prior to the date of this Agreement, since
        the end of the period covered by its most recent Form 10-K, Apria has
        conducted its business only in the ordinary course consistent with prior
        practice and there has not been (i) any material adverse change in
        Apria, (ii) any declaration, setting aside or payment of any dividend or
        distribution (whether in cash, stock or property) with respect to any of
        Apria's capital stock or any issuance or the authorization of any
        issuance of any other securities in respect of, in lieu of or in
        substitution for shares of its capital stock, (iii) any damage,
        destruction or loss, whether or not covered by insurance, that has or
        could have a material adverse effect or (iv) any change in accounting
        methods, principles or practices by Apria materially affecting its
        assets, liabilities or business, except insofar as may have been
        required by a change in GAAP.
 
             3.2.7 LITIGATION; ADMINISTRATIVE PROCEEDINGS.  Except as disclosed
        in the Apria SEC Documents filed prior to the date of this Agreement,
        there is no suit, action, investigation, charge with local, state or
        federal administrative agencies, claim involving workers compensation
        relating to classes of employees, audit or proceeding pending, or, to
        the knowledge of Apria, threatened against Apria or any of its
        subsidiaries that, individually or in the aggregate, could reasonably be
        expected to (i) have a material adverse effect, (ii) impair in any
        material respect the ability of Apria to perform its obligations under
        this Agreement or (iii) prevent the consummation by Apria of any of the
        transactions contemplated by this Agreement, nor is there any judgment,
        decree, injunction, rule of order of any Governmental Entity or
        arbitrator outstanding against Apria or any of its subsidiaries having,
        or which is reasonably likely to have any effect referred to in the
        foregoing clauses (i) through (iii).
 
             3.2.8 COMPLIANCE WITH APPLICABLE LAWS.  Each of Apria and its
        subsidiaries has in effect all Permits necessary for it to own, lease or
        operate its properties and assets and to carry on its business as now
        conducted, and there has occurred no default under any such Permit,
        except for the lack of Permits and for defaults under Permits which lack
        or default individually or in the aggregate would not have a material
        adverse effect. Except as disclosed in the Apria SEC Documents filed
        prior to the date of this Agreement, Apria and its subsidiaries are in
        compliance with all applicable statutes, laws, ordinances, rules, orders
        and regulations of any Governmental Entity, except for possible
        noncompliance which individually or in the aggregate would not have a
        material adverse effect.
 
             3.2.9 BROKERS.  No broker, investment banker, financial advisor or
        other Person, other than Robertson, Stephens & Company LLC, the fees and
        expenses of which will be paid by Apria, is entitled to any broker's,
        finder's, financial advisor's or other similar fee or commission in
        connection
 
                                       23
<PAGE>   169
 
        with the transactions contemplated by this Agreement based upon
        arrangements made by or on behalf of Apria or Sub.
 
             3.2.10 OPINION OF FINANCIAL ADVISOR.  Apria has received the
        opinion of Robertson, Stephens & Company LLC, dated the date of this
        Agreement, to the effect that, as of such date, the consideration to be
        paid by Apria in the Merger is fair to Apria and the stockholders of
        Apria from a financial point of view, and a signed copy of such opinion
        has been delivered to Vitas.
 
             3.2.11 CONTRACTS; DEBT INSTRUMENTS.  Except as disclosed in the
        Apria SEC Documents filed prior to the date of this Agreement, as of the
        date of this Agreement there are no contracts or agreements that are
        material to the business, financial condition or results of operations
        of Apria. Neither Apria nor any of its subsidiaries is in violation of
        or in default under (nor does there exist any condition which upon the
        passage of time or the giving of notice, or both, would cause such a
        violation of or default under) any loan or credit agreement, note, bond,
        mortgage, indenture or lease or other contract agreement, arrangement or
        understanding, to which it is a party or by which it or any of its
        properties or assets is bound, except for violations or defaults that
        could not, individually or in the aggregate, reasonably be expected to
        result in a material adverse effect. There has been no material change
        as of the date of this Agreement to the amount and terms of the
        indebtedness of Apria and its subsidiaries as described in Apria's Form
        10-K for the year ended December 31, 1995.
 
             3.2.12 ACCOUNTING MATTERS.  Neither Apria nor, to its best
        knowledge, any of its affiliates has taken or agreed to take any action
        that would prevent Apria from accounting for the business combination to
        be effected by the Merger as a pooling-of-interests.
 
             3.2.13 INTERIM OPERATIONS OF SUB.
 
                (a) Sub has engaged in no business activities and has conducted
           its operations only as contemplated hereby.
 
                (b) As of the date hereof and the Effective Time, except for
           obligations or liabilities incurred in connection with its
           incorporation or organization and the transactions contemplated by
           this Agreement, Sub has not and will not have incurred, directly or
           indirectly, through any subsidiary, any obligations or liabilities or
           engaged in any business activities of any type or kind whatsoever.
 
             3.2.14 DISCLOSURE.  No representation or warranty by Apria
        contained in this Agreement, and no statement contained in any other
        document, certificate or other instrument delivered to or to be
        delivered by or on behalf of Apria pursuant to this Agreement, contains
        or will contain any untrue statement of a material fact or omit or will
        omit to state any material fact necessary, in light of the circumstances
        under which it was or will be made, in order to make the statements
        herein or therein not misleading.
 
                                   ARTICLE IV
 
                   COVENANTS RELATING TO CONDUCT OF BUSINESS
 
     4.1 CONDUCT OF BUSINESS; ACTIONS.
 
          4.1.1 CONDUCT OF BUSINESS BY VITAS.  Between the date of this
     Agreement and the Effective Time, Vitas shall, and will cause its
     subsidiaries to, carry on their respective businesses in the ordinary
     course and use all reasonable efforts to preserve intact their current
     business organizations, keep available the services of their current
     officers and employees and preserve their relationships with suppliers,
     providers and others having business dealings with them. Without limiting
     the generality of the foregoing, between the date of this Agreement and the
     Effective Time, except (i) as contemplated by this Agreement, (ii) as
 
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<PAGE>   170
 
     set forth in the Vitas Disclosure Schedule, or (iii) as consented to in
     writing by Apria, Vitas shall not, and will not permit any of its
     subsidiaries to:
 
             (a) (i) declare, set aside or pay (whether in cash, stock,
        property, or otherwise) any dividends on, or make any other
        distributions in respect of, any of its capital stock, other than
        dividends and distributions by any direct or indirect wholly owned
        subsidiary of Vitas to its parent and other than the semi-annual
        dividend due on the 9% Preferred for the period from January 1, 1996
        through June 30, 1996 or thereafter, (ii) split, combine or reclassify
        any of its capital stock or issue or authorize the issuance of any other
        securities in respect of, in lieu of or in substitution for shares of
        its capital stock, or (iii) purchase, redeem or otherwise acquire any
        shares of capital stock of Vitas or any of its subsidiaries or any other
        securities thereof or any rights, warrants or options to acquire any
        such shares or other securities;
 
             (b) other than the issuance of Vitas Common Stock upon the exercise
        of the Warrants or Stock Options and upon the conversion of the Series B
        Preferred outstanding on the date of this Agreement in accordance with
        their present terms, (i) issue, deliver, sell, award, pledge, dispose of
        or otherwise encumber or authorize or propose the issuance, delivery,
        grant, sale, award, pledge or other encumbrance (including limitations
        in voting rights) or authorization of, any shares of its capital stock,
        any other equity or voting securities or any securities convertible
        into, or any rights, warrants or options to acquire, any such shares,
        equity or voting securities or convertible securities, (ii) amend or
        otherwise modify the terms of any such rights, warrants or options other
        than as contemplated by this Agreement, (iii) accelerate the vesting or
        exercisability of the Warrants or any of the Stock Options other than as
        contemplated by this Agreement, or (iv) contribute to the ESOP any of
        its capital stock or other employer security, or cause or allow the ESOP
        to acquire or become obligated to acquire any of its capital stock or
        other employer security;
 
             (c) amend its certificate of incorporation, bylaws or other
        comparable charter or organizational documents other than as
        contemplated by this Agreement;
 
             (d) acquire or agree to acquire (for cash or shares of stock or
        otherwise) (i) by merging or consolidating with, or by purchasing a
        substantial portion of the assets of, or by any other manner, any
        business or any corporation, partnership, joint venture, association or
        other business organization or division thereof or (ii) any assets
        except purchases of equipment and supplies in the ordinary course of
        business consistent with past practice;
 
             (e) mortgage or otherwise encumber or subject to any Lien other
        than pursuant to agreements or covenants existing on the date of this
        Agreement and identified on the Vitas Disclosure Schedule, or sell,
        lease, exchange or otherwise dispose of any of, its properties or
        assets, except for sales of its properties or assets (or leases entered
        into) in the ordinary course of business consistent with past practice;
 
             (f) (i) incur any indebtedness for borrowed money (except for
        advances in the ordinary course under existing credit agreements) or
        guarantee any such indebtedness of another Person, issue or sell any
        debt securities or warrants or other rights to acquire any debt
        securities of Vitas or any of its subsidiaries, guarantee any debt
        securities of another Person, enter into any "keep well" or other
        agreement to maintain any financial statement condition of another
        Person or enter into any arrangement to extend its credit or having the
        economic effect of any of the foregoing, except in each case in the
        ordinary course of business or (ii) make any loans, advances or capital
        contributions to, or investments in, any other Person, other than to
        Vitas or any direct or indirect wholly owned subsidiary of Vitas;
 
             (g) incur or commit to incur capital expenditures in excess of a
        total of $500,000 per calendar month;
 
             (h) make or rescind any express or deemed election relating to
        taxes, settle or compromise any claim, action, suit, litigation,
        proceeding, arbitration, investigation, audit or controversy relating to
        taxes, or change any of its methods of reporting income or deductions
        for Federal income tax
 
                                       25
<PAGE>   171
 
        purposes from those employed in the preparation of its Federal income
        tax return for the taxable year ending September 30, 1994, except (in
        all such cases, relating to taxes), as may be required by applicable
        law;
 
             (i) pay, discharge or satisfy any claims, liabilities or
        obligations (absolute, accrued, asserted or unasserted, contingent or
        otherwise), other than the payment, discharge or satisfaction, in the
        ordinary course of business consistent with past practice, of
        liabilities reflected or reserved against in, or contemplated by, the
        consolidated financial statements (or the notes thereto) of Vitas for
        the fiscal year ended September 30, 1995 or incurred in the ordinary
        course of business consistent with past practice;
 
             (j) (i) increase the rate or terms of compensation payable or to
        become payable generally to any of Vitas' directors, officers, employees
        or independent contractors other than in the ordinary course of business
        consistent with past practice, (ii) pay or agree to pay any pension,
        retirement allowance or other benefit not provided for by (or in a
        manner or at a time not provided in) any existing pension plan, Benefit
        Plan or employment agreement described in the Vitas Disclosure Schedule,
        (iii) commit itself to any additional pension, profit sharing, bonus,
        incentive, deferred compensation, stock purchase, stock option, stock
        appreciation right, performance or incentive program, group insurance,
        severance pay, continuation pay, termination pay, retirement or other
        employee benefit plan, agreement or arrangement, or increase the rate or
        terms of any plan or benefit arrangement other than as contemplated by
        Sections 5.14, 5.17 and 5.19, (iv) enter into any employment agreement
        with or for the benefit of any Person other than employment at will or
        (v) increase the rate of compensation under or otherwise change the
        terms of any existing employment agreement other than in the ordinary
        course of business consistent with past practice; provided, however,
        that nothing in this clause (j) shall preclude payments (x) under the
        terms of the existing incentive compensation plans of Vitas in
        accordance with past practice or (y) pursuant to normal salary
        adjustments on the anniversary of hire dates or other benchmark dates in
        accordance with past practice;
 
             (k) except in the ordinary course of business, modify, amend,
        renew, fail to renew or terminate any Material Contract to which Vitas
        or any subsidiary is a party or waive, release or assign any material
        rights or claims;
 
             (l) enter into any group enrollment contract, insurance policy or
        any other agreement pursuant to the terms of which Vitas or any
        subsidiary agrees or is required to underwrite, administer, insure,
        reinsure or arrange for the provision of health care services arising
        from any group or individual health insurance plan or program;
 
             (m) terminate the participation of any program of Vitas or its
        subsidiaries in Medicare, Medicaid or CHAMPUS, or, except in the
        ordinary course of business consistent with past practice, other third
        party payor program;
 
             (n) take any action which would have the effect of interfering with
        or delaying the transactions contemplated by this Agreement; or
 
             (o) authorize any of, or commit or agree to take any of, the
        foregoing actions.
 
          4.1.2 ACTIONS BY APRIA.  During the period from the date of this
     Agreement to the Effective Time, except as (i) contemplated by this
     Agreement or (ii) as consented to in writing by Vitas, Apria shall not, and
     will not permit any, of its subsidiaries to:
 
             (a) (i) declare, set aside or pay (whether in cash or property, but
        excluding stock dividends) any dividends on, or make any other
        distributions in respect of, any capital stock other than dividends and
        distributions by any direct or indirect wholly owned subsidiary of Apria
        to its parent, (ii) combine or reclassify any of its capital stock or
        issue or authorize the issuance of any other securities in respect of,
        in lieu of or in substitution for shares of Apria's capital stock,
        except for a
 
                                       26
<PAGE>   172
 
        stock dividend or stock split or (iii) purchase, redeem or otherwise
        acquire any shares of Apria Common Stock;
 
             (b) amend its certificate of incorporation, bylaws or other
        comparable charter or organizational documents in a manner which would
        reasonably be expected to be materially adverse to the stockholders of
        Vitas;
 
             (c) amend the Rights or the agreements under which the Rights are
        issued in any manner adverse to the stockholders of Vitas;
 
             (d) change its fiscal year;
 
             (e) take any action which would have the effect of interfering with
        or delaying the transactions contemplated by this Agreement; or
 
             (f) authorize, or commit or agree to take any of, the foregoing
        actions.
 
          4.1.3 OTHER ACTIONS.  Vitas and Apria will not, and shall not permit
     any of their respective subsidiaries to, take any action that would result
     in (i) any of the representations and warranties of such party set forth in
     this Agreement that are qualified as to materiality, becoming untrue, (ii)
     any of such representations and warranties that are not so qualified
     becoming untrue in any material respect, or (iii) Apria being prevented
     from accounting for the business combination to be effected by the Merger
     as a pooling-of-interests.
 
     4.2 NO SOLICITATION.
 
          4.2.1 COMPETING PROPOSAL.  In light of the consideration given by the
     Board of Directors of Vitas prior to the execution of this Agreement to,
     among other things, the transactions contemplated hereby and to various
     alternatives to the transactions contemplated by this Agreement, in light
     of Vitas' representations contained in Subsection 3.1.17 and in light of
     the Significant Securityholders Agreement, Vitas agrees that it will not,
     nor will it permit any of its subsidiaries to, nor will it authorize or
     permit any stockholder, officer, director or employee of, or any investment
     banker, attorney or other advisor or representative of, Vitas or any of its
     subsidiaries to, solicit or initiate, or encourage the submission of, any
     proposal, or participate in any discussions or negotiations regarding, or
     furnish to any Person any information with respect to, or take any other
     action to facilitate any inquiries or the making of any proposal that
     constitutes, or may reasonably be expected to lead to, any Acquisition
     Transaction (as defined below); provided, however, that if at any time
     prior to the Effective Time or the earlier termination of this Agreement
     the Board of Directors of Vitas reasonably determines in good faith, (i)
     after consultation with one or more of Vitas' independent financial
     advisors, that providing confidential or non-public information to a
     financially capable Person (a "POTENTIAL ACQUIROR") could lead to an
     Acquisition Transaction more favorable to the holders of Vitas Common Stock
     than the Merger and (ii) after consultation with Vitas' outside legal
     counsel, that there is a significant risk that the failure to provide such
     confidential or non-public information to such Potential Acquiror would
     constitute a breach of its fiduciary duty to the stockholders of Vitas, 
     Vitas may, in response to a Competing Proposal (as defined below) 
     received by Vitas after the date hereof and subject to compliance with 
     Subsection 4.2.3, (x) furnish confidential or non-public information with
     respect to Vitas to such Potential Acquiror pursuant to a customary 
     confidentiality agreement and (y) participate in negotiations with such 
     Potential Acquiror regarding such Competing Proposal. For purposes of 
     this Agreement "ACQUISITION TRANSACTION" means the direct or indirect 
     acquisition or purchase of all or any substantial amount of the business 
     or assets of Vitas or any of its subsidiaries or any substantial amount 
     of capital stock or other equity interests of Vitas or any of its 
     subsidiaries, whether by merger, consolidation, business combination, 
     sale of assets, sale of securities, tender offer, exchange offer, 
     recapitalization, liquidation, dissolution or otherwise, and whether for 
     cash, securities or any other consideration or combination thereof. 
     "COMPETING PROPOSAL" means any proposal or offer (whether or not in 
     writing and whether or not delivered to Vitas' stockholders generally) 
     from a Potential Acquiror relating to an Acquisition Transaction.
 
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<PAGE>   173
 
          4.2.2 ACCEPTANCE OF COMPETING PROPOSAL.  Except as set forth in this
     Subsection 4.2.2., neither the Board of Directors of Vitas nor any
     committee thereof shall (i) withdraw or modify, or propose to withdraw or
     modify, in a manner adverse to Apria, the approval or recommendation of
     such Board of Directors or such committee of this Agreement or the Merger,
     (ii) approve or recommend to the stockholders of Vitas, or propose to
     approve or recommend to the stockholders of Vitas, any Competing Proposal
     or (iii) cause Vitas to accept or enter into any agreement with respect to
     any Competing Proposal; provided, however, that nothing contained in this
     Subsection 4.2.2 will prohibit Vitas from entering into any confidentiality
     agreement or taking any other action incidental to the actions permitted
     pursuant to the proviso to Subsection 4.2.1 so long as Vitas does not
     accept a Competing Proposal. Notwithstanding the foregoing, in the event
     that, prior to the Effective Time or the earlier termination of this
     Agreement, the Board of Directors of Vitas reasonably determines in good
     faith (x) after consultation with its financial advisor, that a Competing
     Proposal made to Vitas after the date hereof is more favorable to the
     stockholders of Vitas than the Merger and that acceptance of such Competing
     Proposal is in the best interests of the stockholders of Vitas and (y)
     after consultation with its outside legal counsel, that there is a
     significant risk that the failure to take any such action would constitute
     a breach of its fiduciary duties to Vitas' stockholders, the Board of
     Directors of Vitas may withdraw or modify its approval or recommendation of
     this Agreement and the Merger, approve or recommend such Competing Proposal
     or cause Vitas to accept the Competing Proposal and enter into an agreement
     with respect to such Competing Proposal; provided, however, that the Board
     of Directors of Vitas may only take any such action if: (A) at least seven
     days prior to the withdrawal or modification by the Vitas Board of
     Directors of its approval or recommendation of this Agreement or the
     acceptance by Vitas of such Competing Proposal, Vitas shall have furnished
     Apria with a written notice advising Apria that the Board of Directors of
     Vitas has received such Competing Proposal and enclosing a copy of such
     Competing Proposal and identifying the Potential Acquiror making such
     Competing Proposal, (B) any agreement entered into with respect to the
     Competing Proposal shall be made expressly subject to a right of first
     refusal hereby granted to Apria (exercisable by Apria at any time within 30
     days after Apria's receipt of the agreement with the Potential Acquiror) to
     enter into an agreement with Vitas to complete the Acquisition Transaction
     contemplated by the Competing Proposal in accordance with the terms
     thereof, and (C) in the event Apria advises Vitas in writing that Apria
     does not elect to exercise such right of first refusal, Vitas shall
     promptly pay to Apria or its designee, on demand, the Termination Fee in
     accordance with Section 7.8.
 
          4.2.3 NOTICE OF INQUIRY.  Vitas will promptly advise Apria orally and
     in writing of any request for information or of any Competing Proposal, or
     any inquiry with respect to or which could reasonably be expected to lead
     to any Competing Proposal, the material terms and conditions of such
     request, Competing Proposal or inquiry, and the identity of the Person
     making any such Competing Proposal or inquiry. Vitas will keep Apria
     reasonably informed of the status and details of any such request,
     Competing Proposal or inquiry.
 
                                   ARTICLE V
 
                             ADDITIONAL AGREEMENTS
 
     5.1 PREPARATION OF FORM S-4 AND PROXY STATEMENT; VITAS STOCKHOLDERS'
MEETING.
 
          5.1.1 PROXY STATEMENT.  As promptly as practicable after the execution
     of this Agreement, (i) Vitas will cooperate with Apria in preparing, filing
     and mailing a prospectus and a proxy or information statement including
     information relating to Vitas and the vote of Vitas' stockholders to be
     held to obtain Vitas Stockholder Approval (together with any amendments and
     supplements thereof or supplements thereto, the "PROXY STATEMENT"), and
     (ii) Apria will prepare and file with the SEC a registration statement on
     Form S-4 (together with all amendments thereto, the "FORM S-4") in which
     the Proxy Statement will be included as a prospectus, in connection with
     the registration under the Securities Act of the shares of Apria Common
     Stock to be issued to the stockholders of Vitas pursuant to the Merger.
     Each of Apria and Vitas will use all reasonable efforts to cause the Form
     S-4 to become
 
                                       28
<PAGE>   174
 
     effective as promptly as practicable, and Apria will take all or any action
     required under any applicable Federal or state securities laws in
     connection with the issuance of shares of Apria Common Stock pursuant to
     the Merger. Each of Apria and Vitas will use its reasonable efforts to
     furnish all information concerning itself to the other as the other may
     reasonably request in connection with such actions and the preparation of
     the Form S-4 and the Proxy Statement. Apria promptly will advise Vitas when
     the Form S-4 has become effective and of any supplements or amendments
     thereto, and Vitas will not distribute any written or other materials that
     would constitute, as advised by either counsel to Vitas or counsel to
     Apria, a "prospectus" relating to the Merger or Apria Common Stock within
     the meaning of the Securities Act or any applicable state securities law,
     without the prior written consent of Apria. As promptly as practicable
     after the Form S-4 has become effective, Vitas and Apria will mail the
     Proxy Statement to all of the Vitas stockholders. Apria agrees promptly to
     advise Vitas if at any time prior to the Vitas Stockholders' Meeting any
     information provided by it in the Proxy Statement is or becomes incorrect
     or incomplete in any material respect and to provide Vitas with the
     information needed to correct such inaccuracy or omission. Apria will
     furnish Vitas with such supplemental information as may be necessary in
     order to cause the Proxy Statement, insofar as it relates to Apria and its
     subsidiaries, to comply with applicable law after the mailing thereof to
     the stockholders of Vitas.
 
          5.1.2 VITAS STOCKHOLDERS' MEETING.  As soon as practicable following
     the date, and subject to the provisions, of this Agreement, Vitas will call
     and hold a meeting of its stockholders (the "VITAS STOCKHOLDERS' MEETING"),
     for the purpose of obtaining the required Vitas Stockholder Approval. Vitas
     will use its reasonable efforts to solicit from its stockholders proxies,
     and will take all other action necessary or advisable to secure the vote or
     consent of stockholders required by applicable law to obtain Vitas
     Stockholder Approval and, through its Board of Directors, will (subject to
     their exercise of fiduciary duties as specified in Section 4.2) recommend
     to its stockholders their approval of this Agreement and the Merger. Vitas
     agrees promptly to advise Apria if at any time prior to the Vitas
     Stockholders' Meeting or the Closing Date any information provided by Vitas
     in the Proxy Statement is or becomes incorrect or incomplete in any
     material respect and to provide Apria with the information needed to
     correct such inaccuracy or omission. Vitas will furnish Apria with such
     supplemental information as may be necessary in order to cause the Proxy
     Statement, insofar as it relates to Vitas and its subsidiaries, to comply
     with applicable law after the mailing thereof to the stockholders of Vitas.
 
     5.2 ACCESS TO INFORMATION; CONFIDENTIALITY.  Vitas shall, and will cause
each of its subsidiaries to, afford to Apria, and to the officers, employees,
accountants, counsel, financial advisers and other representatives of Apria,
reasonable access during normal business hours during the period prior to the
Effective Time to all its properties, books, contracts, commitments, personnel
and records and, during such period, Vitas shall, and will cause each of its
subsidiaries to, furnish promptly to Apria, all information concerning its
business, properties and personnel as Apria may reasonably request. Except as
required by law, Apria will hold, and will cause its respective officers,
employees, accountants, counsel, financial advisers and other representatives
and affiliates to hold, any confidential information in accordance with the
terms of that certain Confidentiality Agreement dated March 11, 1996, between
Apria and Vitas (the "CONFIDENTIALITY AGREEMENT").
 
     5.3 REASONABLE EFFORTS; NOTIFICATION; COOPERATION.
 
          5.3.1 ACTIONS TO BE TAKEN.  Upon the terms and subject to the
     conditions set forth in this Agreement, each of the parties agrees to use
     reasonable efforts to take, or cause to be taken, all actions, and to do,
     or cause to be done, and to assist and cooperate with the other parties in
     doing, all things necessary, proper or advisable to consummate and make
     effective, as promptly as practicable, the Merger and the other
     transactions contemplated by this Agreement, including (i) the making of
     all necessary registrations and filings (including filings with
     Governmental Entities), (ii) the obtaining of all necessary consents,
     approvals or waivers from third parties, and (iii) the execution and
     delivery of any additional instruments or documents as may be necessary or
     reasonably requested by the other party to consummate the transactions
     contemplated by, and to fully carry out the purposes of, this Agreement.
 
          5.3.2 NOTICE OF CHANGE.  Vitas will give notice to Apria, and Apria
     will give notice to Vitas, in each case promptly after obtaining knowledge
     thereof, of (i) any representation or warranty made by it
 
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<PAGE>   175
 
     contained in this Agreement that is qualified as to materiality becoming
     untrue or inaccurate in any respect or any such representation or warranty
     that is not so qualified becoming untrue or inaccurate in any material
     respect or (ii) the failure by it to comply with or satisfy in any material
     respect any covenant, condition or agreement to be complied with or
     satisfied by it under this Agreement, provided, however, that no such
     notification shall affect the representations, warranties, covenants or
     agreements of the parties or the conditions to the obligations of the
     parties under this Agreement.
 
          5.3.3 COOPERATION; BEST EFFORTS.  Apria and Vitas will use their
     respective best efforts to consummate the Merger and other transactions
     contemplated by this Agreement and any ancillary agreements in accordance
     with the terms hereof.
 
     5.4 STOCK OPTION PLANS.
 
          5.4.1 EXCHANGE OF STOCK OPTIONS.  As soon as practicable following the
     date of this Agreement, the Board of Directors of Vitas (or, if
     appropriate, the committee administering the Stock Options Plans) will
     adopt such resolutions or take such other actions as are required to
     provide notice (accompanied by a copy of the Proxy Statement included as a
     prospectus in the Form S-4) to all holders of Stock Options at the same
     time the Proxy Statement is mailed to holders of Vitas Common Stock in
     accordance with Subsection 5.1.1, and to confirm that no Stock Option is
     exercisable before the moment in time immediately prior to the Effective
     Time, whether or not then vested. To the extent not then exercised for
     cash, each Stock Option will be exchanged as of the Effective Time into the
     right to receive from Apria, upon surrender of the applicable Stock Option
     Agreement as provided in Subsection 2.2.2 and (subject to the provisions of
     Subsection 5.4.4) confirmation of payment in cash by the holder to Apria
     (or other cash withholding from the holder by Apria) of all applicable
     withholding taxes associated with the exchange, a number of shares of Apria
     Common Stock equal to the quotient obtained by dividing (i) $9.32 less the
     sum of (A) any Excess Per Share Debt Amount (as defined in Subsection
     2.1.10), (B) the exercise price per share of Vitas Common Stock issuable
     upon exercise of the Stock Option and (C) any applicable Vesting Discount
     Amount (as defined in EXHIBIT 5.4.1) by (ii) $32.125 (such quotient
     referred to herein as "OPTION SPREAD VALUE EXCHANGE RATIO") times the
     number of shares of Vitas Common Stock covered by such Stock Option,
     subject to any adjustments which may be called for by the next two
     sentences. If the Market Price is less than $27.125, the Option Spread
     Value Exchange Ratio will be multiplied by a fraction of which the
     numerator will be the Market Price Decline Numerator and the denominator
     will be the Market Price. If the Market Price is more than $37.125, the
     Option Spread Value Exchange Ratio will be multiplied by a fraction of
     which the numerator will be the Market Price Increase Numerator and the
     denominator will be the Market Price. Vitas will provide to all holders of
     Stock Options an appropriate notice regarding the procedures for exchange
     and other matters required to implement the arrangements contemplated by
     this Subsection 5.4.1.
 
          5.4.2 ADDITIONAL LIMITATIONS.  Notwithstanding the foregoing, the
     number of shares of Apria Common Stock deliverable to any optionee will not
     be reduced to avoid the characterization of any payment or benefit
     hereunder or under the Stock Option held by the optionee to be considered a
     "parachute payment" within the meaning of Section 280G(b)(2) of the Code.
     Rather, Vitas will use its best efforts to require such optionee to
     designate other rights, payments or benefits received or to be received
     that should be reduced or eliminated so as to avoid the characterization as
     a "parachute payment."
 
          5.4.3 TERMINATION OF PLANS.  All Stock Options including Stock Options
     under Stock Option Agreements not surrendered will terminate as of the
     Effective Time and the provisions in any Benefit Plan (other than the ESOP)
     providing for the issuance, transfer or grant of any capital stock of Vitas
     or any right or interest in respect of any capital stock of Vitas will be
     deleted or will terminate as of the Effective Time, and Vitas shall take
     reasonable steps to ensure that following the Effective Time no holder of a
     Stock Option or any participant in any Stock Option Plan or other Benefit
     Plan (other than the ESOP) will have any right thereunder to acquire any
     capital stock of Vitas or the Surviving Corporation, or (except as provided
     in Subsections 2.1.7 and 5.4.1) any shares of Apria Common Stock.
 
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<PAGE>   176
 
          5.4.4 WITHHOLDING ARRANGEMENTS.  Each holder of a Stock Option (other
     than a holder who also is an affiliate of Vitas as determined in accordance
     with Subsection 5.10.1) may, in lieu of paying cash to Apria to cover all
     applicable withholding taxes, instruct the Exchange Agent to deliver to a
     broker designated by Apria (the "DESIGNATED BROKER") a sufficient number of
     shares of Apria Common Stock received upon the exchange of such holder's
     Stock Options to satisfy the holder's withholding tax liability, with
     instructions to the Designated Broker to pay all sale proceeds directly to
     Apria to cover all applicable withholding taxes. Each holder of a Stock
     Option who is determined to be an affiliate of Vitas may, in lieu of paying
     cash to Apria to cover all applicable withholding taxes, deliver to Apria a
     full recourse promissory note (the "DEMAND NOTE") in substantially the form
     attached as EXHIBIT 5.4.4A in a principal amount equal to all applicable
     withholding taxes, bearing interest at the rate of 7% per annum and secured
     by a pledge of 50% of the shares of Apria Common Stock received upon
     conversion of the holder's Stock Options pursuant to the terms of a pledge
     agreement in substantially the form attached as EXHIBIT 5.4.4B. The Demand
     Note will be payable on the fifth business day after such holder receives
     written notice from Apria that all resale restrictions applicable to such
     shares of Apria Common Stock have been lifted, and may be prepaid by the
     maker thereof at any time without penalty.
 
          5.4.5 NECESSARY ACTIONS.  Apria agrees to take such actions as are
     necessary for the issuance, listing on the NYSE and registration under the
     Securities Act of the Apria Common Stock to be issued under this Agreement.
 
     5.5 VOTING DIRECTIONS BY ESOP PARTICIPANTS.  The appropriate fiduciaries of
the ESOP shall cause the ESOP to obtain and follow the directions of ESOP
participants (in a manner which satisfies the requirements of Section 409(e) of
the Code and any requirements contained in the ESOP), as to the voting of the
shares held by the ESOP with respect to the Vitas Stockholder Approval referred
to in Subsection 3.1.21.
 
     5.6 INDEMNIFICATION AND INSURANCE.
 
          5.6.1 CERTIFICATE OF INCORPORATION.  The Surviving Corporation will
     keep in effect the provisions in its Certificate of Incorporation and
     Bylaws providing for exculpation of director and officer liability and
     indemnification to the fullest extent permitted under the DGCL, which
     provisions will not be amended, repealed or otherwise modified except as
     required by applicable law, or except for changes permitted by law that
     would enlarge the right of indemnification or would not adversely affect
     the rights thereunder of individuals who on or prior to the Effective Time
     were directors, officers, employees or agents of Vitas and its subsidiaries
     or fiduciaries of its employee benefit plans.
 
          5.6.2 LIABILITY INSURANCE.  For six years from the Effective Time, the
     Surviving Corporation will maintain in effect directors' and officers'
     liability insurance against claims asserted based on acts or omissions
     occurring at or prior to the Effective Time covering those Persons who are
     currently covered by Vitas' directors' and officers' liability insurance
     policy, a copy of which has been heretofore delivered to Apria, on terms
     substantially as favorable as the terms of such insurance coverage;
     provided, however, that in no event will the Surviving Corporation be
     required to expend in any one year an amount in excess of 200% of the
     annual premiums currently paid by Vitas for such insurance; and provided
     further that if the annual premiums of such insurance coverage exceed such
     amount, the Surviving Corporation will be obligated to obtain a policy with
     the best coverage available in its reasonable judgment, after reasonable
     inquiry of at least three carriers, for a cost not exceeding such amount.
 
          5.6.3 ASSUMPTION OF OBLIGATIONS.  In the event the Surviving
     Corporation or any of its successors or assigns (i) consolidates with or
     merges into any other Person and is not the continuing or surviving
     corporation or entity of such consolidation or merger or (ii) transfers all
     or substantially all of its properties and assets to any Person, then and
     in each such case, proper provisions will be made so that the successors
     and assigns of the Surviving Corporation will assume the obligations set
     forth in Section 5.6 if they are not otherwise assumed by operation of law.
 
          5.6.4 SURVIVAL.  This Section 5.6 (i) will survive the consummation of
     the Merger, (ii) is intended to benefit Vitas and its subsidiaries, the
     Surviving Corporation and the individuals who at or before the Effective
     Time were directors, officers, fiduciaries, employees and agents of Vitas
     and its subsidiaries and
 
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<PAGE>   177
 
     employee benefit plans and their respective heirs, executors,
     administrators, representatives and successors and (iii) is in addition to,
     and not in substitution for, any other rights to indemnification,
     contribution or insurance that any such person may have by contract or
     otherwise.
 
          5.7 LETTERS OF ACCOUNTANTS.
 
          5.7.1 APRIA COMFORT LETTER.  Vitas will use its reasonable efforts to
     cause to be delivered to Apria "comfort" letters of Ernst & Young LLP,
     Vitas' independent public accountants, dated and delivered a date within
     two business days before the date on which the Form S-4 becomes effective
     and within two business days before the Closing Date, each addressed to
     Apria, in form and substance reasonably satisfactory to Apria and
     reasonably customary in scope and substance for letters delivered by
     independent public accountants in connection with transactions such as
     those contemplated by this Agreement.
 
          5.7.2 VITAS COMFORT LETTER.  Apria will use its reasonable efforts to
     cause to be delivered to Vitas "comfort" letters of Ernst & Young LLP,
     Apria's independent public accountants, dated a date within two business
     days before the date on which the Form S-4 becomes effective and within two
     business days before the Closing Date, each addressed to Vitas, in form and
     substance reasonably satisfactory to Vitas and reasonably customary in
     scope and substance for letters delivered by independent public accountants
     in connection with transactions such as those contemplated by this
     Agreement.
 
     5.8 FEES AND EXPENSES.  All fees and expenses incurred in connection with
the Merger, this Agreement and the transactions contemplated hereby will be paid
by the party incurring such fees or expenses, whether or not the Merger is
consummated, except as otherwise provided in Subsections 7.8.1 or 7.8.2.
 
     5.9 PUBLIC ANNOUNCEMENTS.  Apria and Sub, on the one hand, and Vitas, on
the other hand, will consult with each other before issuing, and provide each
other a reasonable opportunity to review and comment upon, any press release or
other public statements with respect to the transactions contemplated by this
Agreement, including the Merger, and will not issue any such press release or
make any such public statement prior to such consultation, except to the extent
required by applicable law, court process or by obligations pursuant to any
listing agreement with any national securities exchange. The parties agree that
the initial press release to be issued with respect to the transactions
contemplated by this Agreement will be in the form heretofore agreed to by the
parties.
 
     5.10 AFFILIATES; ACCOUNTING AND TAX TREATMENT.
 
          5.10.1 VITAS AFFILIATES.  Vitas, in consultation with its legal
     counsel, has set forth in the Vitas Disclosure Schedule a list of all
     Persons who may be deemed affiliates of Vitas under Rule 145 of the
     Securities Act or otherwise under applicable SEC accounting releases with
     respect to pooling-of-interests accounting treatment. Vitas will use its
     reasonable efforts to obtain at least 30 days prior to the Effective Time a
     written agreement in substantially the form of EXHIBIT 5.10.1 from each
     such Person who has not signed such a written agreement pursuant to the
     terms of the Significant Securityholders Agreement. Vitas also will use its
     reasonable efforts to obtain such a written agreement as soon as
     practicable from any Person who may be deemed to have become an affiliate
     of Vitas after the date of this Agreement and prior to the Effective Time.
 
          5.10.2 POOLING OF INTERESTS.  Each party hereto will use its
     reasonable efforts to (i) cause the Merger to qualify, and will not take
     any actions which could prevent the Merger from qualifying, for
     pooling-of-interests accounting treatment and (ii) obtain the letters from
     the accountants referred to in Subsections 6.2.5 and 6.3.3 and the opinions
     of counsel referred to in Subsections 6.2.4 and 6.3.4 of this Agreement.
     Subject to the prior consent of Apria, which shall not be unreasonably
     withheld, Vitas will use its best efforts to take such other actions as are
     necessary to cure any facts or circumstances that could prevent the Merger
     from qualifying for pooling-of-interests accounting treatment. Apria will
     use its best efforts to take such other actions as are necessary to cure
     any facts or circumstances that could prevent the Merger from qualifying
     for pooling-of-interests accounting treatment. For so long as resales of
     shares of Apria Common Stock issued pursuant to the Merger are subject to
     resale restrictions set forth in
 
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<PAGE>   178
 
     Rule 145 under the Securities Act, Apria will use its reasonable efforts to
     comply with Rule 144(c)(1) under the Securities Act.
 
          5.10.3 COMBINED RESULTS.  If the Effective Time occurs on or before
     August 31, 1996, Apria will publish results covering at least 30 days of
     combined operations of Vitas and Apria in or with its Quarterly Report on
     Form 10-Q for the third quarter of 1996, and such publication of results of
     combined operations will conform to the requirements of Accounting Series
     Release 130, as amended, of the SEC. If the Effective Time occurs
     subsequent to August 31, 1996, Apria will publish results covering the
     first calendar month of combined operations of Vitas and Apria within 45
     days of such calendar month end, and such publication of results of
     combined operations will conform to the requirements of Accounting Series
     Release 130, as amended, of the SEC.
 
     5.11 CONVEYANCE TAXES.  Apria and Vitas will cooperate in the preparation,
execution and filing of all notifications, returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp taxes, any transfer, recording,
registration and other fees, and any similar taxes which become payable by Apria
or Vitas in connection with the transactions contemplated hereby that are
required or permitted to be filed on or before the Effective Time. All such
taxes and expenses shall be borne equally by Apria and Vitas.
 
     5.12 VITAS NOTES; ESOP LOAN WAIVER.  The Vitas Disclosure Schedule sets
forth the categories of Vitas indebtedness (the "VITAS NOTES"), including the
ESOP Note, and the amounts outstanding at May 31, 1996. At or immediately
following the Effective Time, Apria will repay, or cause to be repaid, in full
(or assume, if permitted under the existing terms thereof) the then outstanding
principal of the Vitas Notes, and repay or cause to be repaid in full the ESOP
Note, in each case together with interest accrued but unpaid thereon, and any
premium, charge or prepayment penalty (including the LIBOR breakage fee under
Section 4.04 of Vitas' Amended and Restated Revolving Credit Term Loan and
Reimbursement Agreement dated as of February 7, 1995 (the "VITAS CREDIT
AGREEMENT")), to the holders of the Vitas Notes. Prior to the Closing Date,
Vitas shall use its best efforts to secure from Nations Bank all requisite
waivers of defaults under the ESOP loan documents.
 
     5.13 VITAS' BOARD COMPOSITION.  Apria and Vitas will take such action as
may be necessary such that the Chairman of the Board of Directors of Apria will,
immediately following the Effective Time, be the sole director of Vitas.
 
     5.14 CONSULTING, SEVERANCE AND NONCOMPETE AGREEMENTS.  At or prior to the
Closing Date, Vitas will enter into (i) a Consulting, Severance and
Confidentiality Agreement (the "SEVERANCE AGREEMENT"), and (ii) a Noncompetition
Agreement (the "NONCOMPETITION AGREEMENT") with the Chief Executive Officer of
Vitas (the "VITAS CEO") and, in the case of the Severance Agreement, with the
other parties identified therein, substantially in the forms of EXHIBITS 5.14(A)
and 5.14(B), respectively. The Severance Agreement and the Noncompetition
Agreement will, by their terms, be effective only if the Merger occurs. Vitas
will use its reasonable efforts to solicit from its stockholders proxies, and
will take all other actions necessary or advisable to secure the vote or consent
of 75% of the outstanding shares of Vitas Common Stock and Series B Preferred
(excluding any shares held by the Vitas CEO), voting together as one class, to
each of the payments to be made to the Vitas CEO under the Severance Agreement
and the Noncompetition Agreement.
 
     5.15 REPAYMENT OF AFFILIATE RECEIVABLES.  At or prior to the Closing Date,
Vitas agrees that it will use its best efforts to cause to be paid in full (with
accrued and unpaid interest) all amounts owing to Vitas and its subsidiaries by
any stockholder, officer or director or affiliate of Vitas or any of its
subsidiaries.
 
     5.16 PURCHASE OF 9% PREFERRED.  At or immediately prior to the Closing
Date, subject to consummation of the Merger, Apria will purchase (and hereby
consents to and approves the purchase and the Merger and waives any notice that
may be required under the 9% Preferred Certificate, the bylaws of Vitas or the
DGCL to effect the Merger) from the holder of the 9% Preferred all outstanding
shares of the 9% Preferred at a price equal to its Stated Value of $100 per
share, together with all accrued and unpaid dividends thereon.
 
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<PAGE>   179
 
     5.17 EMPLOYEE BENEFITS, EMPLOYMENT.
 
          5.17.1 BENEFIT PLANS.  Apria will endeavor to cause the Surviving
     Corporation to continue to provide through December 31, 1996 compensation
     and benefits to Vitas employees on substantially the same terms and
     conditions as exist on the date of this Agreement; provided, however, that
     Apria reserves the right at any time following the Effective Time to cause
     the Surviving Corporation to amend or terminate the ESOP in any manner
     permitted by law. For any Vitas employee who becomes a member of an
     employee benefit plan of Apria (an "APRIA BENEFIT PLAN"), Apria will cause
     such Apria Benefit Plan to recognize prior service with Vitas and its
     affiliates to the extent recognized under the corresponding Vitas benefit
     plan prior to the Closing Date as service with Apria and its affiliates.
     The foregoing service applies to (i) any Apria Benefit Plan that is not an
     employee pension benefit plan for purposes of any waiting period and
     eligibility requirements and (ii) any Apria Benefit Plan that is an
     employee pension benefit plan, for purposes of eligibility (including
     eligibility for early retirement benefits) and vesting (but not benefit
     accrual) thereunder. Commencing January 1, 1997, (i) Vitas employees who,
     on December 31, 1996, were participating in the Vitas 401(k) Plan, will be
     eligible to participate in an Apria 401(k) plan, and (ii) Vitas employees
     who on December 31, 1996 were participating in a Vitas health and major
     medical plan will be eligible to participate in an Apria health and major
     medical plan, subject to the terms and conditions of such plans but not
     subject to any waiting periods or (in the case of the health and major
     medical plan) preexisting condition exclusions.
 
          5.17.2 VACATION PAY.  On and after the Closing Date, Apria will make
     paid time off payments (when such paid time off is taken or employment is
     terminated) to or with respect to the Vitas employees without regard to
     when the liability for such vacation pay arose (including any vacation pay
     earned but unpaid as of the Closing Date and any "carryover" or "banked"
     vacation pay that had not been paid as of the Closing Date).
 
          5.17.3 FURTHER ACTIONS.  Vitas and Apria will take such further action
     (before, at or after the Closing Date), if any, as reasonably may be
     necessary or convenient to implement the intent of Apria's and Vitas'
     agreements contained in this Section 5.17. Vitas will make available to
     Apria such information as Apria may reasonably request to enable Apria to
     determine such matters relating to employment and salary histories for
     purposes of the Apria Benefit Plans.
 
          5.17.4 NO THIRD PARTY RIGHTS.  No provision of this Section 5.17 will
     create any third party beneficiary rights in any employee or former
     employee of Vitas in respect of continued employment (or resumed
     employment) or any other matters and no provision of this Section 5.17
     shall create any such rights in any such Person in respect of any benefit
     plan or arrangement, including any Apria Benefit Plan.
 
     5.18 REVIEW OF VITAS DISCLOSURE SCHEDULE.  The parties hereto acknowledge
and agree that Apria has not had sufficient time to review and understand the
information contained or referred to in the Vitas Disclosure Schedule and the
underlying documents referenced therein, and Vitas hereby agrees that, by
executing and delivering this Agreement, Apria will not be deemed to have
accepted, or to have actual or constructive knowledge of, or to have consented
to, any information or disclosures contained or referred to in the Vitas
Disclosure Schedule or such underlying documents until 6:01 p.m., Miami time on
July 17, 1996, unless prior to such time and date this Agreement has been
terminated in accordance with its terms or Apria has notified Vitas in writing
that Apria is waiving its right to terminate this Agreement pursuant to clause
(viii) of Section 7.3. In the event Apria waives such right to terminate or
fails to exercise such right, the Vitas Disclosure Schedules shall be deemed to
have been accepted by Apria as of the date of this Agreement.
 
     5.19 EMPLOYMENT SEVERANCE AGREEMENTS.  At or prior to the Closing Date,
Vitas will offer to amend each of the Special Severance Agreements (the "SSAS")
currently in effect with the individuals identified in Section 5.19 of the Vitas
Disclosure Schedule to provide, effective as of the Effective Time, that (i)
Current Compensation (as such term is defined in the SSAs) shall be equal to the
greater of (A) the amount specified as severance per agreement in Section 5.19
of the Vitas Disclosure Schedule and (B) the amount otherwise defined as Current
Compensation, (ii) for certain of the individuals identified in Section 5.19 of
the Vitas Disclosure Schedule Current Compensation, as determined under clause
(i) above, shall be multiplied by one and one-half or two as specified in
Section 5.19 of the Vitas Disclosure Schedule, (iii) for Esther Colliflower
 
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<PAGE>   180
 
and J.R. Williams, each of the relevant SSAs and any other relevant documents
shall be modified to provide that the total severance benefit which would
otherwise have been payable under an SSA or any other agreement with such
individual shall be the amount shown for such individual in Section 5.19 of the
Vitas Disclosure Schedule and shall be paid on the Closing Date (it being
understood that such modification shall not impair the agreements of such
individuals to refrain from competition with Vitas) and (iv) for all individuals
identified in Section 5.19 of the Vitas Disclosure Schedule, as a condition to
the other modifications described in this Section 5.19 to provide a waiver of
all claims against Apria. To the extent any individual identified in Section
5.19 of the Vitas Disclosure Schedule has not already entered into an SSA, Vitas
shall enter into its standard SSA with such person as modified above.
 
                                   ARTICLE VI
 
                              CONDITIONS PRECEDENT
 
     6.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER.  The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
 
          6.1.1 STOCKHOLDER APPROVAL.  Vitas Stockholder Approval as referred to
     in Subsection 3.1.21 shall have been obtained.
 
          6.1.2 NYSE LISTING.  The shares of Apria Common Stock issuable to
     Vitas' securityholders (including holders of the Stock Options, Warrants
     and Series B Preferred) pursuant to this Agreement shall have been approved
     for listing on the NYSE, subject to official notice of issuance.
 
          6.1.3 NO INJUNCTIONS OR RESTRAINTS.  No litigation brought by a
     Governmental Entity shall be pending, and no litigation shall be threatened
     by any Governmental Entity, which seeks to enjoin or prohibit the
     consummation of the Merger, and no temporary restraining order, preliminary
     or permanent injunction or other order issued by any court of competent
     jurisdiction or other legal restraint or prohibition preventing the
     consummation of the Merger shall be in effect.
 
          6.1.4 FORM S-4.  The Form S-4 shall have been declared effective by
     the SEC under the Securities Act. No stop order suspending the
     effectiveness of the Form S-4 shall have been issued by the SEC, and no
     proceedings for that purpose shall have been initiated or, to the knowledge
     of Apria or Vitas, threatened by the SEC.
 
          6.1.5 HSR ACT.  Any applicable waiting period (and any extension
     thereof) under the HSR Act shall have expired or been terminated.
 
          6.1.6 APPROVALS.  Other than the filing of merger documents in
     accordance with the DGCL, all authorizations, consents, waivers, orders or
     approvals required to be obtained, and all filings, notices or declarations
     required to be made, by Apria, Sub and Vitas prior to the consummation of
     the Merger and the transactions contemplated hereunder shall have been
     obtained from, and made with, all required Governmental Entities except for
     such authorizations, consents, waivers, orders, approvals, filings, notices
     or declarations the failure to obtain or make which would not have a
     material adverse effect, at or after the Effective Time, on Vitas or Apria
     or on the effectiveness of the Merger.
 
     6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF APRIA AND SUB.  The obligations
of Apria and Sub to effect the Merger also are subject to the following
conditions:
 
          6.2.1 REPRESENTATIONS AND WARRANTIES.  Each of the representations and
     warranties of Vitas contained in this Agreement shall be true and correct
     in all material respects (except that where any statement in a
     representation or warranty expressly includes a standard of materiality,
     such statement shall be true and correct in all respects giving effect to
     such standard) as of the Closing Date as though made on and as of the
     Closing Date, provided that those representations and warranties that
     address matters only as of a particular date (including the date of this
     Agreement) shall remain true and correct in all respects (except that where
     any statement in a representation or warranty expressly includes a
 
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<PAGE>   181
 
     standard of materiality, such statement shall be true and correct in all
     respects giving effect to such standard) as of such date. Apria shall have
     received a certificate of the Chief Executive Officer and Chief Financial
     Officer of Vitas certifying to the best of their knowledge, to such effect
     and to the effect that there has been no antidilution adjustment of the
     Series B Preferred, the Warrants or the Stock Options and no event or
     transaction has occurred that has required or will, as of the Effective
     Time, require an antidilution adjustment of any thereof.
 
          6.2.2 AGREEMENTS AND COVENANTS.  Vitas shall have performed or
     complied in all material respects with all agreements and covenants
     required by this Agreement to be performed or complied with by it on or
     prior to the Closing Date. Apria shall have received a certificate of the
     Chief Executive Officer and Chief Financial Officer of Vitas certifying to
     the best of their knowledge, to that effect.
 
          6.2.3 CONSENTS UNDER AGREEMENTS.  Vitas shall have obtained the
     consent or approval of each Person whose consent or approval shall be
     required in connection with the Merger under all loan or credit agreements,
     notes, mortgages, indentures, leases or other agreements or instruments to
     which it or any of its subsidiaries is a party, except those for which
     failure to obtain such consents and approvals would not have a material
     adverse effect on the Surviving Corporation after the Effective Time.
 
          6.2.4 RESIGNATION OF DIRECTORS.  Each member of the Board of Directors
     of Vitas shall have submitted to Vitas a written resignation as a director,
     effective upon consummation of the Merger.
 
          6.2.5 POOLING LETTER.  Apria shall have received from Ernst & Young
     LLP, as independent auditors of Apria, on the date of the Proxy Statement
     and on the Closing Date, letters, in each case dated as of such respective
     dates, addressed to Apria, in form and substance reasonably acceptable to
     Apria regarding its concurrence with the conclusion of the management of
     Apria as to the appropriateness of pooling-of-interests accounting for the
     Merger under Accounting Principles Board Opinion No. 16 if the Merger is
     consummated in accordance with the terms of this Agreement. No action shall
     have been taken by any Governmental Entity or any statute, rule, regulation
     or order enacted, promulgated or issued by any Governmental Entity, or any
     proposal made for any such action by any Governmental Entity which is
     reasonably likely to be put into effect, that would prevent Apria from
     accounting for the business combination to be effected by the Merger as a
     pooling-of-interests.
 
          6.2.6 AFFILIATE AGREEMENTS.  Apria shall have received from each
     Person who may be deemed to be an affiliate of Vitas (under Rule 145 of the
     Securities Act or otherwise under applicable SEC accounting releases with
     respect to pooling-of-interests accounting treatment) on or prior to the
     Closing Date a signed agreement substantially in the form of EXHIBIT
     5.10.1.
 
          6.2.7 SALE OF 9% PREFERRED; EXCHANGE OF WARRANTS.  At or immediately
     prior to the Closing Date, the holder of the 9% Preferred, subject to
     consummation of the Merger, shall have sold or made a binding and
     enforceable commitment to sell the 9% Preferred to Apria as contemplated by
     Section 5.16 and the holders of the Warrants shall have surrendered the
     Warrants for exchange as contemplated by Subsection 2.1.6 and, in each
     case, Apria shall have received all instruments reasonably required to be
     delivered by the holders of the 9% Preferred and the Warrants to ensure
     compliance with such commitments to sell and exchange.
 
          6.2.8 CONVERSION OF SERIES B PREFERRED.  At or immediately prior to
     the Closing Date, the holders of all the Series B Preferred, subject to
     consummation of the Merger, shall have converted or made binding and
     enforceable commitments to convert the Series B Preferred into shares of
     Vitas Common Stock in accordance with the terms of the Series B Preferred
     Certificate, and Apria shall have received all instruments reasonably
     required to be delivered by the holders of the Series B Preferred to ensure
     compliance with such commitment to convert.
 
          6.2.9 SIGNIFICANT SECURITYHOLDERS AGREEMENT.  Each signatory to the
     Significant Securityholders Agreement shall have complied in all material
     respects with all agreements or covenants required by the Significant
     Securityholders Agreement to be performed or complied with by such Person
     to the extent such compliance was called for at or prior to the Closing
     Date.
 
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<PAGE>   182
 
          6.2.10 APPRAISAL RIGHTS.  The aggregate number of Dissenters Shares
     shall not exceed 9% of the outstanding shares of Vitas Common Stock nor
     include any outstanding shares of the Series B Preferred.
 
          6.2.11 TERMINATION OF AGREEMENTS.  The named investors (or any
     successors or assigns of their rights) under the Investor Agreement and the
     Stockholders' Agreement shall have acknowledged their waiver of any
     preemptive rights to any new common stock of the Surviving Corporation and
     any other ongoing obligations of the Surviving Corporation under either
     such agreement and such agreements shall be terminated as of the Closing
     Date, subject to consummation of the Merger.
 
          6.2.12 APPROVAL OF SEVERANCE AGREEMENT AND NONCOMPETITION AGREEMENT.
     The holders of Vitas Common Stock and Series B Preferred shall have 
     approved the payments to be made under the Severance Agreement and the
     Noncompetition Agreement as contemplated by Section 5.14.
 
          6.2.13 EXERCISE OF STOCK OPTIONS AND WARRANTS.  On or prior to the
     Closing Date, the aggregate number of shares of Vitas Common Stock issued
     upon exercise of Stock Options and the Warrants shall not exceed 10% of the
     aggregate number of shares of Vitas Common Stock issuable upon exercise
     thereof and Vitas shall not have received any notice of exercise that would
     result in the issuance of more than said number of shares of Vitas Common
     Stock.
 
          6.2.14 OPINIONS OF COUNSEL TO VITAS.  Apria shall have received the
     opinions of Hogan & Hartson L.L.P., special corporate counsel to Vitas, and
     Reed Smith Shaw & McClay, special regulatory counsel to Vitas, both dated
     the Closing Date, in substantially the forms attached as EXHIBIT 6.2.14(A)
     and EXHIBIT 6.2.14(B), respectively.
 
     6.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF VITAS.  The obligations of
Vitas to effect the Merger also are subject to the following conditions:
 
          6.3.1 REPRESENTATIONS AND WARRANTIES.  Each of the representations of
     Apria contained in this Agreement shall be true and correct in all material
     respects (except that where any statement in a representation or warranty
     expressly includes a standard of materiality, such statement shall be true
     and correct in all respects giving effect to such standard) as of the
     Closing Date as though made on and as of the Closing Date, provided that
     those representations and warranties that address matters only as of a
     particular date (including the date of this Agreement) shall remain true
     and correct in all material respects (except that where any statement in a
     representation or warranty expressly includes a standard of materiality,
     such statement shall be true and correct in all respects giving effect to
     such standard) as of such date. Vitas shall have received a certificate of
     the Chief Executive Officer and the Chief Financial Officer of Apria
     certifying to the best of their knowledge, to such effect.
 
          6.3.2 AGREEMENTS AND COVENANTS.  Apria shall have performed or
     complied in all material respects with all agreements and covenants
     required by this Agreement to be performed or complied with by it on or
     prior to the Closing Date. Vitas shall have received a certificate of the
     Chief Executive Officer and the Chief Financial Officer of Apria certifying
     to the best of their knowledge, to such effect.
 
          6.3.3 POOLING LETTER.  Vitas shall have received from Ernst & Young
     LLP, as independent auditors of Vitas, on the date of the Proxy Statement
     and on the Closing Date letters, in each case dated as of such respective
     dates, addressed to Vitas, in form and substance reasonably acceptable to
     Vitas regarding its concurrence with the conclusion of the management of
     Vitas as to the appropriateness of pooling-of-interests accounting for the
     Merger under Accounting Principles Board Opinion No. 16 if the Merger is
     consummated in accordance with the terms of this Agreement. No action shall
     have been taken by any Governmental Entity or any statute, rule, regulation
     or order enacted, promulgated or issued by any Governmental Entity, or any
     proposal made for any such action by any Governmental Entity which is
     reasonably likely to be put into effect, that would prevent Apria from
     accounting for the business combination to be effected by the Merger as a
     pooling-of-interests.
 
          6.3.4 OPINION OF COUNSEL TO APRIA.  Vitas shall have received the
     opinion of O'Melveny & Myers LLP, special counsel to Apria, dated the
     Closing Date, in substantially the form attached as EXHIBIT 6.3.4.
 
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<PAGE>   183
 
                                  ARTICLE VII
 
                       TERMINATION, AMENDMENT AND WAIVER
 
     7.1 TERMINATION BY MUTUAL CONSENT.  This Agreement may be terminated by
mutual written consent of Apria and Vitas at any time prior to the Effective
Time, whether before or after Vitas Stockholder Approval.
 
     7.2 TERMINATION BY EITHER APRIA OR VITAS.  This Agreement may be terminated
and the Merger may be abandoned by action of the Board of Directors of either
Apria or Vitas, and notice thereof given in writing to the other party (i) if
any Governmental Entity shall have issued an order, decree or ruling or taken
any other action permanently enjoining, restraining or otherwise prohibiting the
consummation of the Merger and such order, decree or ruling or other action
shall have become final and nonappealable, (ii) if the Merger shall not have
occurred by August 31, 1996, unless the failure to consummate the Merger is the
result of a breach of a covenant set forth in this Agreement or a
misrepresentation or breach of any warranty set forth in this Agreement by the
party seeking to terminate this Agreement provided however, such date shall be
extended to September 30, 1996 if the Form S-4 is not declared effective by the
SEC on or before August 1, 1996 (the applicable termination date is referred to
herein as the "EXPIRATION DATE") or (iii) in accordance with Subsection 2.1.9.
 
     7.3 TERMINATION BY APRIA.  This Agreement may be terminated by Apria and
the Merger may be abandoned at any time prior to the Effective Time, either
before or after Vitas Stockholder Approval, by action of the Board of Directors
of Apria and notice thereof given in writing to Vitas if (i) there has been a
breach in any material respect (except that where any statement in a
representation or warranty includes a standard of materiality, such statement
shall be true and correct in all respects giving effect to such standard) of any
representation, warranty, covenant or agreement on the part of Vitas set forth
in this Agreement which breach is not curable or, if curable is not cured within
15 days after written notice of such breach is given by Apria to Vitas promptly
after Apria's becoming aware of such breach, (ii) any representation or warranty
of Vitas has become untrue in any material respect, such that the condition set
forth in Subsection 6.2.1 in Apria's reasonable view would be incapable of being
cured or satisfied by the Expiration Date after written notice of such untruth
is given by Apria to Vitas promptly after Apria's becoming aware of such
untruth, (iii) Vitas Stockholder Approval is not obtained at the Vitas
Stockholders' Meeting (or any adjournment thereof) by the Expiration Date unless
due to delay or default on the part of Apria, (iv) approval by the stockholders
of Vitas referred to in Section 5.14 has not been obtained by the Expiration
Date, (v) Vitas accepts a Competing Proposal in accordance with Subsection
4.2.2, (vi) more than 9% of the issued and outstanding shares of Vitas Common
Stock entitled to vote to approve the Merger shall have properly demanded (and
not withdrawn) appraisal of such shares in accordance with Section 262 of the
DGCL with respect to the Merger, (vii) the Debt Adjustment is deemed to occur
and is in excess of $4 million as provided in Subsection 2.1.10 or (viii) at any
time during the period from the date of this Agreement up to 6:00 p.m., Miami
time on July 17, 1996, Apria determines based on its due diligence review of
Vitas that it is inadvisable for Apria to proceed with the Merger.
 
     7.4 TERMINATION BY VITAS.  This Agreement may be terminated by Vitas and
the Merger may be abandoned at any time prior to the Effective Time, either
before or after Vitas Stockholder Approval, by action of the Board of Directors
of Vitas and notice thereof given in writing to Apria if (i) there is a breach
in any material respect (except that where any statement in a representation or
warranty includes a standard of materiality, such statement shall be true and
correct in all respects giving effect to such standard) of any representation,
warranty, covenant or agreement on the part of Apria set forth in this Agreement
which breach is not curable or, if curable is not cured within 15 days after
written notice of such breach is given by Vitas to Apria promptly after Vita's
becoming aware of such breach, (ii) any representation or warranty of Apria has
become untrue in any material respect, such that the condition set forth in
Subsection 6.3.1 in Vitas' reasonable view would be incapable of being cured or
satisfied by the Expiration Date after written notice of such untruth is given
by Vitas to Apria promptly after Vitas' becoming aware of such untruth or (iii)
Vitas accepts a Competing Proposal in accordance with the provisions of
Subsection 4.2.2.
 
     7.5 EFFECT OF TERMINATION.  In the event of termination of this Agreement
by either Vitas or Apria (or by the mutual written consent of Vitas and Apria)
as provided in this Article VII, this Agreement will
 
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<PAGE>   184
 
forthwith become void and have no effect, without any liability or obligation on
the part of Apria, Sub or Vitas, other than the provisions of the last sentence
of Section 5.2, Sections 5.8 and 7.8 which will survive termination and except
to the extent that such termination results from the willful and material breach
by a party of any of its representations, warranties, covenants or agreements
set forth in this Agreement.
 
     7.6 AMENDMENT.  This Agreement may be amended by the parties at any time
before or after Vitas Stockholder Approval; provided, however, that after Vitas
Stockholder Approval there shall not be made any amendment that by law requires
further approval by the stockholders of Vitas, such as an amendment that would
(i) alter or change the amount or kind of shares, securities, cash, property or
rights to be received in exchange for or on conversion of all or any of the
shares of any class or series thereof of Vitas, (ii) alter or change any term of
the Certificate of Incorporation of the Surviving Corporation to be effected by
the Merger or (iii) alter or change any of the terms and conditions of this
Agreement if such alteration or change would adversely affect the holders of any
class or series thereof of Vitas, without the further approval of such
stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties.
 
     7.7 EXTENSION; WAIVER.  At any time prior to the Effective Time, the
parties may (i) extend the time for the performance of any of the obligations or
other acts of the other parties, (ii) waive any inaccuracies in the
representations and warranties contained in this Agreement or in any document
delivered pursuant to this Agreement or (iii) subject to the proviso of Section
7.6, waive compliance with any of the agreements or conditions contained in this
Agreement. Except as otherwise required by law, (A) any agreement on the part of
a party to any such extension or waiver shall be valid only if set forth in an
instrument in writing, signed on behalf of such party and (B) the failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of those rights.
 
     7.8 TERMINATION FEES AND EXPENSES.
 
          7.8.1 PAYMENTS BY VITAS.  If this Agreement is terminated by Vitas
     pursuant to clause (iii) of Section 7.4 and Apria does not elect to
     exercise its right of first refusal as provided in clause (C) of Subsection
     4.2.2, or if Vitas enters into any Acquisition Transaction with a third
     party without complying with Subsection 4.2.2, and Apria is not otherwise
     in material breach of its obligations under this Agreement, Vitas shall
     immediately pay to Apria the sum of $10 million in cash (the "TERMINATION
     FEE"). In addition, upon any such termination, Vitas also shall reimburse
     Apria (not later than one business day after submission of statements
     therefor) for all reasonable fees and expenses incurred by Apria in
     connection with the transactions contemplated by this Agreement (including,
     without limitation, consulting, accounting, legal and investment banking
     fees and expenses incurred by Apria in connection with the transactions
     contemplated by this Agreement and in the evaluation of the Competing
     Proposal).
 
          7.8.2 PAYMENTS BY APRIA.  If this Agreement is terminated by Apria
     pursuant to clause (viii) of Section 7.3, and Vitas is not otherwise in
     material breach of its obligations under this Agreement, Apria shall
     immediately pay to Vitas a sum equal to the lesser of (i) $750,000 or (ii)
     all reasonable fees and expenses incurred by Vitas in connection with the
     transactions contemplated by this Agreement (including without limitation,
     consulting, accounting, legal and investment banking fees and expenses
     incurred by Vitas in connection with the transactions contemplated by this
     Agreement).
 
     7.9 PROCEDURE FOR TERMINATION, AMENDMENT, EXTENSION OR WAIVER.  A
termination of this Agreement pursuant to Sections 7.1, 7.2, 7.3 or 7.4, an
amendment of this Agreement pursuant to Section 7.6 or an extension or waiver
pursuant to Section 7.7 shall, in order to be effective, require in the case of
Apria, Sub or Vitas, action by its Board of Directors or the duly authorized
designee of its Board of Directors.
 
                                  ARTICLE VIII
 
                               GENERAL PROVISIONS
 
     8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.  The representations and
warranties in this Agreement shall not survive the Effective Time. This Section
8.1 shall not limit any covenant or agreement of the parties
 
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<PAGE>   185
 
herein, in the Significant Securityholders Agreements or in the letters of
affiliates referred to in Subsection 5.10.1 which by their terms contemplate
performance after the Effective Time of the Merger.
 
     8.2 NOTICES.  All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and will be deemed given
if delivered personally or sent by overnight courier (providing proof of
delivery) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
 
          (a) IF TO APRIA OR SUB:
 
          Apria Healthcare Group Inc.
          3560 Hyland Avenue
          Costa Mesa, California 92626
          Facsimile: (714) 957-0910
 
          Attention: Jeremy M. Jones
 
          with a copy (which shall not constitute notice) to:
 
          O'Melveny & Myers LLP
          610 Newport Center Drive, Suite 1700
          Newport Beach, California 92660
          Facsimile: (714) 669-6994
 
          Attention: William G. Adams, Esq.
 
          (b) IF TO VITAS:
 
           Vitas Healthcare Corporation
           100 South Biscayne Boulevard
           Suite 1500
           Miami, Florida 33131
           Facsimile: (305) 577-1089
 
           Attention: Hugh A. Westbrook
 
          with a copy (which shall not constitute notice) to:
 
          Hogan & Hartson L.L.P.
          Columbia Square
          555 13th Street NW
          Washington, DC 20004
          Facsimile: (202) 637-5910
 
          Attention: Robert J. Waldman, Esq.
 
     8.3 DEFINITIONS.  For purposes of this Agreement:
 
          (a) "AFFILIATE" of any Person means another Person that directly or
     indirectly, through one or more intermediaries, controls, is controlled by,
     or its under common control with, such first Person;
 
          (b) "BUSINESS" means, when used in connection with Apria, Vitas, a
     subsidiary of Vitas or the Surviving Corporation, the business and
     operations of the party and is deemed to include all of the following
     incidents of such business: income, cash flow, operations, financial
     condition, assets, properties, goodwill, intangibles and prospects.
 
          (c) "SUBSIDIARY" of any Person means another Person, an amount of the
     voting securities, other voting ownership or voting partnership interests
     of which is sufficient to elect at least a majority of its Board of
     Directors or other governing body (or, if there are no such voting
     interests, 50% or more of the equity interests of which) is owned directly
     or indirectly by such first Person;
 
          (d) "MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" means, when
     used in connection with Apria, Vitas, or the Surviving Corporation, any
     change or effect (or development that insofar as can
 
                                       40
<PAGE>   186
 
     reasonably be foreseen, is likely to result in any change or effect) that
     is materially adverse to the business of such party and its subsidiaries
     taken as a whole.
 
          (e) "PERSON" means an individual, corporation, partnership, joint
     venture, association, trust, unincorporated organization or other entity.
 
     8.4 INTERPRETATION.  When a reference is made in this Agreement to a
Subsection, Section, Exhibit or Schedule, such reference is to a Subsection or
Section of, or an Exhibit or Schedule to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" and
"including" are used in this Agreement, they are deemed to be followed by the
words "without limitation". For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires, (i) the
terms defined include the plural as well as the singular, (ii) all accounting
terms not otherwise defined herein have the meanings assigned under GAAP, and
(iii) the words "herein," "hereof" and "hereunder" and other words of similar
import refer to this Agreement as a whole and not to any particular Article,
Section, Subsection or other subdivision.
 
     8.5 COUNTERPARTS.  This Agreement may be executed in one or more
counterparts, all of which are considered one and the same agreement and will
become effective when one or more counterparts have been signed by each of the
parties and delivered to the other parties.
 
     8.6 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES.  This Agreement, the
Significant Securityholders Agreement and the Confidentiality Agreement
constitute the entire agreement, and supersede all prior agreements and
understandings (including the letter agreement dated June 6, 1996 among Apria,
Vitas and certain securityholders of Vitas, and the accompanying Term Sheet),
both written and oral, among the parties with respect to the subject matter of
this Agreement. Except (after the Effective Time) for the provisions of Article
II and Sections 5.4 and 5.6, Subsection 5.10.3 and Section 5.14, the provisions
of this Agreement shall not confer upon any Person other than the parties hereto
any rights or remedies.
 
     8.7 GOVERNING LAW.  This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflict of laws.
 
     8.8 ASSIGNMENT.  Neither this Agreement nor any of the rights, interests or
obligations under this Agreement shall be assigned, in whole or in part, by
operation of law or otherwise by any of the parties without the prior written
consent of the other parties. Subject to the preceding sentence and the last
sentence of Section 8.6, this Agreement will be binding upon, inure to the
benefit of, and be enforceable by, the parties and their respective successors
and assigns.
 
     8.9 ENFORCEMENT.  The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with its specific terms or were otherwise breached. The parties
accordingly agree that the parties will be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Delaware or in Delaware state court, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (i) consents to submit itself to the
personal jurisdiction of any Federal court located in the State of Delaware or
any Delaware state court if any dispute arises out of the Agreement or any of
the transactions contemplated by this Agreement, (ii) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or other request
for leave from any such court and (iii) agrees that it will not bring any action
relating to this Agreement in any court other than a Federal or state court
sitting in the State of Delaware.
 
                                       41
<PAGE>   187
 
     IN WITNESS WHEREOF, Apria, Sub and Vitas have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
 
Attest:                                          APRIA HEALTHCARE GROUP INC.
 
By: /s/ ROBERT S. HOLCOMBE                       By: /s/ JEREMY M. JONES
    -----------------------------                   ---------------------------
    Robert S. Holcombe                               Jeremy M. Jones
    Secretary                                        Chairman of the Board and
                                                     Chief Executive Officer


Attest:                                          APRIA NUMBER TWO, INC.
 
By: /s/ ROBERT S. HOLCOMBE                       By: /s/ JEREMY M. JONES
    -----------------------------                   ---------------------------
    Robert S. Holcombe                               Jeremy M. Jones
    Secretary                                        President


Attest:                                          VITAS HEALTHCARE CORPORATION
 
By: /s/ MARK A. STERLING                         By: /s/ HUGH A. WESTBROOK
    -----------------------------                   ---------------------------
        Mark A. Sterling                             Hugh A. Westbrook
        Secretary                                    Chairman of the Board and
                                                     Chief Executive Officer
 

                                       42
<PAGE>   188
                               AMENDMENT NO. 1 TO
                          AGREEMENT AND PLAN OF MERGER

         THIS AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER ("Amendment") is
made as of August 26, 1996 among APRIA HEALTHCARE GROUP INC., a Delaware
corporation ("Apria"), APRIA NUMBER TWO, INC., a Delaware corporation ("Sub"),
and VITAS HEALTHCARE CORPORATION, a Delaware corporation ("Vitas").

         WHEREAS, Apria, Sub and Vitas are parties to an Agreement and Plan of
Merger dated as of June 28, 1996 (the "Agreement"); and

         WHEREAS, Apria, Sub and Vitas wish to amend certain of the terms and
conditions of the Agreement as more fully set forth below.

         NOW, THEREFORE, in consideration of the foregoing, the parties hereto
agree as follows:

         1. Subsection 2.1.6. Subsection 2.1.6 of the Agreement is hereby
amended by deleting the first sentence of Subsection 2.1.6 in its entirety and
replacing it with the following:

            "2.1.6 WARRANTS. Each of the stock purchase warrants issued by Vitas
         on December 17, 1991 and designated Warrant A and Warrant B to purchase
         an aggregate of 3,952,958 shares of Vitas Common Stock (collectively,
         the "WARRANTS"), and all associated rights, preferences and
         restrictions set forth in the Investor Agreement dated December 17,
         1991 among Vitas and the parties named therein (the "INVESTOR
         AGREEMENT"), will, in accordance with the provisions of the Significant
         Securityholders Agreement, be exchanged for a number of shares of Apria
         Common Stock equal to the product of (x) the quotient obtained by
         dividing (i) $9.32 less the sum of (A) any Excess Per Share Debt Amount
         (as defined below) and (B) the exercise price per share of Vitas Common
         Stock issuable upon exercise of the Warrant by (ii) $32.125 (such
         quotient referred to herein as the "WARRANT SPREAD VALUE EXCHANGE
         RATIO"), times (y) the number of shares of Vitas Common Stock covered
         by such Warrant, subject to any adjustments which may be called for by
         the next two sentences."
<PAGE>   189
         2. Subsection 2.1.7. Subsection 2.1.7 of the Agreement is hereby
amended by inserting the phrase "and provision for tax withholding as provided
in Subsection 5.4.4" immediately after the parenthetical "(the "STOCK OPTION
AGREEMENT")".

         3. Subsection 2.2.2. Subsection 2.2.2 of the Agreement is hereby
amended by inserting the parenthetical "(subject in the case of Stock Options to
the provisions of Subsection 5.4.4)" immediately after the phrase "whole shares
of Apria Common Stock" set forth in the penultimate sentence of Subsection
2.2.2.

         4. Subsection 5.4.1. Subsection 5.4.1 of the Agreement is hereby
amended by deleting the second sentence of Subsection 5.4.1 in its entirety and
replacing it with the following:

         "To the extent not then exercised in accordance with its terms, each
         Stock Option will be exchanged as of the Effective Time into the right
         to receive from Apria, upon surrender of the applicable Stock Option
         Agreement as provided in Subsection 2.2.2 and (subject to the
         provisions of Subsection 5.4.4) confirmation of payment in cash by the
         holder to Apria (or other cash withholding from the holder by Apria) of
         all applicable withholding taxes associated with the exchange, a number
         of shares of Apria Common Stock equal to the product of (x) the
         quotient obtained by dividing (i) $9.32 less the sum of (A) any Excess
         Per Share Debt Amount (as defined in Subsection 2.1.10), (B) the
         exercise price per share of Vitas Common Stock issuable upon exercise
         of the Stock Option and (C) any applicable Vesting Discount Amount (as
         defined in EXHIBIT 5.4.1) by (ii) $32.125 (such quotient referred to
         herein as the "OPTION SPREAD VALUE EXCHANGE RATIO"), times (y) the
         number of shares of Vitas Common Stock covered by such Stock Option,
         subject to any adjustments which may be called for by the next two
         sentences."

         Subsection 5.4.1 of the Agreement is hereby further amended by
inserting the

                                        2
<PAGE>   190
phrase "and Subsection 5.4.4." to the end of the last sentence of Subsection
5.4.1.

         5. Subsection 5.4.4. Subsection 5.4.4 of the Agreement is hereby
amended by deleting such Subsection in its entirety and replacing it with the
following:

            "5.4.4 WITHHOLDING ARRANGEMENTS. Each holder of a Stock Option
         (other than a holder who also is an affiliate of Vitas as determined in
         accordance with Subsection 5.10.1) may, in lieu of paying cash to Apria
         to cover all applicable withholding taxes, instruct the Exchange Agent
         to deliver to a broker approved by Apria (the "DESIGNATED BROKER") a
         sufficient number of shares of Apria Common Stock received upon the
         exchange of such holder's Stock Options to satisfy the holder's
         withholding tax liability, with instructions to the Designated Broker
         to pay all sale proceeds directly to Apria to cover all applicable
         withholding taxes. Each holder of a Stock Option who is determined to
         be an affiliate of Vitas who has not paid such withholding taxes or
         provided to Apria's satisfaction for payment in cash of such
         withholding taxes on or before the applicable tax date shall be
         obligated to pay the amount thereof and deliver to Apria a full
         recourse promissory note (the "DEMAND NOTE") evidencing such obligation
         in substantially the form attached as EXHIBIT 5.4.4A in a principal
         amount equal to all applicable withholding taxes, with interest from
         the applicable tax date at the rate of 7% per annum until paid. This
         obligation shall be secured by a pledge as of the Effective Time, for
         the benefit of Apria, of 50% of the shares of Apria Common Stock
         received upon conversion of the holder's Stock Options, pursuant to the
         terms of a pledge agreement in substantially the form attached as
         EXHIBIT 5.4.4B. The Exchange Agent shall withhold such number of shares
         from delivery to the holder. The obligation and Demand Note will be
         payable on the fifth business day after such holder receives written
         notice from Apria that all resale restrictions applicable to such
         shares of Apria Common Stock have been lifted, and may be prepaid by
         the maker thereof at any time without penalty."

         6. Section 5.12. Section 5.12 of the Agreement is hereby amended by
deleting the last sentence of such Section in its entirety.

         7. Section 5.19. Section 5.19 of the Agreement is hereby amended by
inserting a comma between the words "Schedule" and "Current" in clause (ii)
thereof. Section 5.19 of the Agreement is hereby further amended by deleting
clause (iv) thereof in its entirety and replacing it with the following:

         "(iv) for all individuals identified in Section 5.19 of the Vitas
         Disclosure Schedule, as a condition to the other modifications
         described in this Section 5.19, to provide for a waiver of all claims
         against Vitas or Apria or any of their respective affiliates or
         agents."

         8. Section 7.2. Section 7.2 of the Agreement is hereby amended by
deleting the date "September 30, 1996" from clause (ii) thereof and replacing it
with "October 31,


                                        3
<PAGE>   191
1996."

         9. Exhibit 5.4.1. Exhibit 5.4.1 to the Agreement is hereby superseded
in its entirety by Exhibit 5.4.1 attached hereto.

         10. Exhibit 5.4.4A. Exhibit 5.4.4A to the Agreement is hereby
superseded in its entirety by Exhibit 5.4.4A attached hereto.

         11. Exhibit 5.4.4B. Exhibit 5.4.4B to the Agreement is hereby
superseded in its entirety by Exhibit 5.4.4B attached hereto.

         12. Exhibit 5.10.1. Exhibit 5.10.1 to the Agreement is hereby
superseded in its entirety by Exhibit 5.10.1 attached hereto.

         13. Exhibit 5.14A. Exhibit 5.14A to the Agreement is hereby superseded
in its entirety by Exhibit 5.14A attached hereto.

         14. Exhibit 5.14B. Exhibit 5.14B to the Agreement is hereby superseded
in its entirety by Exhibit 5.14B attached hereto.

         15. Other Provisions. All other provisions of the Agreement shall
remain in full force and effect.

         16. Defined Terms. Capitalized terms used in this Amendment and not
otherwise defined shall have the meanings set forth in the Agreement.

         17. Counterparts. This Amendment may be executed in two or more
counterparts, each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute one and the same instrument.

         18. Governing Law. This Amendment shall be governed by, and construed
in accordance with, the laws of the State of Delaware, regardless of the laws
that might otherwise govern under applicable principles of conflict of laws.


                                        4
<PAGE>   192
         IN WITNESS WHEREOF, Apria, Sub and Vitas have caused this Amendment to
be signed by their respective officers thereunto duly authorized, all as of the
date first written above.


                                               APRIA HEALTHCARE GROUP INC.
Attest:

By: /s/ Robert S. Holcombe                     By: /s/ Lawrence H. Smallen
    ----------------------------                  ------------------------------
    Robert S. Holcombe                            Lawrence H. Smallen
    Secretary                                     Chief Financial Officer


                                               APRIA NUMBER TWO, INC.
Attest:

By: /s/ Robert S. Holcombe                     By: /s/ Lawrence H. Smallen
    ---------------------------                   ------------------------------
    Robert S. Holcombe                            Lawrence H. Smallen
    Secretary                                     Chief Financial Officer


                                               VITAS HEALTHCARE CORPORATION
Attest:

By: /s/ Mark A. Sterling                       By: /s/ Hugh A. Westbrook
    ---------------------------                   -----------------------------
    Mark A. Sterling                               Hugh A. Westbrook
    Secretary                                      Chairman of the Board and
                                                        Chief Executive Officer



                                        5
<PAGE>   193
                               AMENDMENT NO. 2 TO
                          AGREEMENT AND PLAN OF MERGER

        THIS AMENDMENT NO. 2 TO AGREEMENT AND PLAN OF MERGER ("Amendment") is
made as of October 4, 1996 among APRIA HEALTHCARE GROUP INC., a Delaware
corporation ("Apria"), APRIA NUMBER TWO, INC., a Delaware corporation ("Sub"),
and VITAS HEALTHCARE CORPORATION, a Delaware corporation ("Vitas").

        WHEREAS, Apria, Sub and Vitas are parties to an Agreement and Plan of
Merger dated as of June 28, 1996, as amended by an Amendment No. 1 dated as of
August 26, 1996 (the "Agreement"); and

        WHEREAS, Apria, Sub and Vitas wish to amend certain of the terms and
conditions of the Agreement as more fully set forth below.

        NOW, THEREFORE, in consideration of the foregoing, the parties hereto
agree as follows:

        1.      Subsection 6.2.5.  Subsection 6.2.5 of the Agreement is hereby
amended by deleting such Subsection in its entirety and replacing it with the
following:

                "6.2.5 POOLING LETTER.  Apria shall have received from Ernst &
        Young LLP, as independent auditors of Apria, on the Closing Date, a
        letter, dated as of such date, addressed to Apria, in form and
        substance reasonably acceptable to Apria regarding its concurrence with
        the conclusion of the management of Apria as to the appropriateness of
        pooling-of-interests accounting for the Merger under Accounting
        Principles Board Opinion No. 16 if the Merger is consummated in
        accordance with the terms of this Agreement. No action shall have been
        taken by any Governmental Entity or any statute, rule, regulation or
        order enacted, promulgated or issued by any Governmental Entity, or any
        proposal made for any such action by any Governmental Entity which is
        reasonably likely to be put into effect, that would prevent Apria from
        accounting for the business combination to be effected by the Merger as
        a pooling-of-interests."

        2.      Subsection 6.3.3.  Subsection 6.3.3 of the Agreement is hereby
amended by deleting such Subsection in its entirety and replacing it with the
following:

                "6.3.3 POOLING LETTER.  Vitas shall have received from Ernst &
        Young LLP, as independent auditors of Vitas, on the Closing Date, a
        letter, dated as of such date, addressed to Vitas, in form and substance
        reasonably acceptable to Vitas regarding its concurrence with the
        conclusion of the management of Vitas as to the appropriateness of
        pooling-of-interests accounting for the Merger under Accounting
        Principles Board Opinion No. 16 if the Merger is consummated in
        accordance with the terms of this Agreement. No action shall have been
        taken by any Governmental Entity or any statute, rule, regulation or
        order enacted, promulgated or issued by any Governmental Entity, or any
        proposal made for any such action by any Governmental Entity which is
        reasonably 

<PAGE>   194
likely to be put into effect, that would prevent Apria from accounting for the 
business combination to be effected by the Merger as a pooling-of-interests." 

        3.  Exhibit 5.4.4A.  Exhibit 5.4.4A to the Agreement is hereby
superseded in its entirety by Exhibit 5.4.4A attached hereto.

        4.  Other Provisions.  All other provisions of the Agreement shall
remain in full force and effect.

        5.  Defined Terms.  Capitalized terms used in this Amendment and not
otherwise defined shall have the meanings set forth in the Agreement.

        6.  Counterparts.  This Amendment may be executed in two or more
counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. 

        7.  Governing Law.  This Amendment shall be governed by, and construed
in accordance with, the laws of the State of Delaware, regardless of the laws
that might otherwise govern under applicable principles of conflict of laws.

        IN WITNESS WHEREOF, Apria, Sub and Vitas have caused this Amendment to
be signed by their respective officers thereunto duly authorized, all as of the
date first written above.

                                        APRIA HEALTHCARE GROUP INC.

Attest:


By: /s/ Robert S. Holcombe              By: /s/ Lawrence H. Smallen
    ---------------------------             ---------------------------
    Robert S. Holcombe                      Lawrence H. Smallen
    Secretary                               Chief Financial Officer


Attest:                                 APRIA NUMBER TWO, INC.


By: /s/ Robert S. Holcombe             By:  /s/ Lawrence H. Smallen
    --------------------------              -------------------------
    Robert S. Holcombe                      Lawrence H. Smallen
    Secretary                               Chief Financial Officer



                                       2
<PAGE>   195
                                              VITAS HEALTHCARE CORPORATION
Attest:


By: /s/ Mark A. Sterling                      /s/ Hugh A. Westbrook
   ---------------------------------          ---------------------------------
   Mark A. Sterling                           Hugh A. Westbrook
   Secretary                                  Chairman of the Board and Chief
                                                 Executive Officer






                                          3
<PAGE>   196

                                                                  EXHIBIT 5.4.1

                            Vesting Discount Amount



                 For purposes of Subsection 5.4.1 of the Agreement and Plan of
Merger dated as of June 28, 1996, as amended, by and among Apria Healthcare
Group Inc., a Delaware corporation, Apria Number Two, Inc., a Delaware
corporation and a direct wholly-owned subsidiary of Apria Healthcare Group Inc.,
and Vitas Healthcare Corporation, a Delaware corporation (the "MERGER
AGREEMENT"), the Vesting Discount Amount (V) will be calculated for each option
as follows:

                          V = OS - PV(OS)
                              -----------
                                  S


                 where

                          OS = S * [$9.32 - (D + E)]

                          PV(OS) =  the present value of OS assuming a        
                                    7.9% interest rate and equal annual       
                                    installments consistent with the          
                                    options vesting schedule                  

                          S = the number of Vitas shares under option which    
                              are not vested pursuant to the terms of the      
                              related option agreement                         

                          D = Excess purchase debt amount, as defined in the
                              Agreement

                          E = Exercise price per share

                 which shall, assuming a Closing Date of August 31, 1996 and no
                 requirement for a Debt Adjustment, result in a Vesting
                 Discount Amount to be applied to options which are not vested
                 pursuant to the terms of the related option agreement as
                 follows:

<TABLE>
<CAPTION>

                        Option                               Vesting                
                      Grant Date                         Discount Amount            
                      ----------                         ---------------            
                    <S>                                      <C>                    
                    October 27, 1992                         $0.014                 
                    May 11, 1993                             $0.059                 
                    September 28, 1993                       $0.096                 
                    January 25, 1994                         $0.116                 
                    May 3, 1994                              $0.138                 
                    June 27, 1994                            $0.155                 
                    October 24, 1994                         $0.198                 
</TABLE>
<PAGE>   197
 
                                                                  EXHIBIT 5.4.4A
 
                             DEMAND PROMISSORY NOTE

$________*                                                      ________, 1996**
 
     FOR VALUE RECEIVED, ________("MAKER") unconditionally promises to pay to
the order of APRIA HEALTHCARE GROUP INC., a Delaware corporation ("LENDER"), on
demand and in accordance with the provisions set forth below, the principal
amount of ________________Dollars ($________)* with interest on the unpaid
principal balance of this Note, from the date of this Note until the Note is
paid in full, at the rate of seven percent per year. Accrued interest shall be
computed on the basis of a 360-day year, based on the actual number of days
elapsed.
 
     This Note is being delivered in accordance with the terms of that certain
Agreement and Plan of Merger dated June __, 1996, as amended, by and among
Lender, Apria Number Two, Inc., a Delaware corporation and wholly-owned
subsidiary of Lender, and Vitas Healthcare Corporation, a Delaware corporation
(the "AGREEMENT"), including the terms contained in Subsection 5.4.4 of the
Agreement. Each capitalized term used herein without definition shall have the
meaning ascribed to it in the Agreement.
 
     The proceeds from this Note are being used by Maker to pay all withholding
taxes applicable to the exchange of Maker's Stock Options for shares of Lender's
Common Stock in accordance with Subsection 2.1.7 and Section 5.4 of the
Agreement, the aggregate amount of which represents the principal amount [as
completed above]. This Note is secured by that certain Pledge and Security
Agreement of even date herewith. This Note is with full recourse against the
Maker to the extent any recovery on the collateral so pledged is insufficient
to discharge all obligations under this Note.

     This Note shall be payable fifteen business days after Lender's delivery to
Maker of written notice that all resale restrictions applicable to the shares of
Apria Common Stock received by Maker in the Merger have been lifted. For
purposes of this Note, notices to Maker shall be deemed given if delivered
personally or sent by overnight courier (providing proof of delivery) to Maker
at the address set forth below the signature of Maker (or such other address for
Maker as shall be specified by like notice to Lender).
 
     If demand for payment hereunder shall be made on a legal holiday under the
laws of the State of California or any other day on which commercial banks in
the City of Los Angeles, California are obligated or authorized by law to close,
such payment shall be made on the next succeeding business day, and such
additional time shall be included in computing interest in connection with such
payment.
 
     All payments hereunder are payable in lawful money of the United States of
America to Lender in immediately available funds at 3560 Hyland Avenue, Costa
Mesa, California 92626, or such other place as Lender shall have designated in
writing to Maker for such purpose at least three days in advance. This Note
shall be governed by and construed and enforced in accordance with the laws of
the State of California. No provision of this Note shall alter or impair the
obligation of Maker, which is absolute and unconditional, to pay the principal
of and interest on this Note in the manner herein prescribed. Maker and any
endorsers of this Note hereby consent to renewals and extensions of time at or
after the maturity hereof, without notice, and hereby waive diligence,
presentment for payment, demand, notice of dishonor and protest of this Note and
further agree that none of the terms or provisions of this Note may be waived,
altered, modified or amended except as Lender may consent thereto in a writing
duly signed for and on its behalf. If this Note is not paid when due, Maker
promises to pay all costs of enforcement and collection, including but not
limited to, reasonable attorney's fees and costs, whether or not any action or
proceeding is brought to enforce the provisions hereof.
 
     The obligations of Maker under this Note constitute absolute,
unconditional, irrevocable, present and continuing obligations, regardless of
any regulation, writ, judgment, injunction, order, decree or award now or
hereafter in effect which might in any way affect any of these terms hereof or
the rights of Lender or any other person against Maker, or which might cause or
permit to be invoked any alteration of the time, amount or manner of payment by
Maker under this Note.
     
This Note may be prepaid at any time without penalty or premium.

--------------
 * Amount to be inserted is the aggregate amount of withholding taxes
   attributable to the option exchange.

** Date to be inserted is the applicable tax date.
 
                                        1
<PAGE>   198
 
     To the full extent permitted by law, the obligations of Maker under this
Note shall not be subject to any counterclaim, set-off, deduction, diminution,
abatement, recoupment, suspension, deferment, reduction or defense (other than
the full and strict compliance by Maker, as the case may be, with those
obligations) based on any claim that Maker may have against Lender or any other
person.
 
     IN WITNESS WHEREOF, Maker has executed and delivered this Note as of the
date and place first written above.
 
                                          "MAKER"
 
                                          --------------------------------------
                                          By:
                                          Address:
 
                                        2
<PAGE>   199
                                 EXHIBIT 5.4.4B

                          PLEDGE AND SECURITY AGREEMENT

         THIS PLEDGE AND SECURITY AGREEMENT (this "AGREEMENT"), dated as of
_________, 1996, is made by ____________________, an individual ("DEBTOR"), in
favor of Apria Healthcare Group Inc., a Delaware corporation ("SECURED PARTY"),
with reference to the following recitals of fact:

                                    RECITALS

         A.       Each capitalized term used herein without definition shall
have the meaning ascribed to it in that certain Agreement and Plan of Merger
dated June 28, 1996, as amended, by and among Secured Party, Apria Number Two,
Inc., a Delaware corporation and wholly-owned subsidiary of Debtor, and Vitas
Healthcare Corporation, a Delaware corporation, (the "MERGER AGREEMENT").
Concurrently with the execution of this Agreement, Debtor has executed and
delivered to Secured Party a Demand Promissory Note (the "NOTE") whose proceeds
are or will be used by Debtor to pay all withholding taxes applicable to the
exchange of Debtor's Stock Options for shares of Secured Party's Common Stock in
accordance with Subsection 2.1.7 and Section 5.4 of the Merger Agreement.

         B.       Pursuant to the terms of the Merger Agreement and the Note,
Debtor has agreed that [____________________] [insert number = 50% of the shares
received by Debtor] of the shares of Common Stock of Secured Party (the
"SHARES") received by Debtor in exchange for Debtor's Stock Options shall serve
as security for the full payment of all amounts due and owing under the Note,
with full recourse against Debtor for any deficiency thereunder.

         C.       In connection with Secured Party's extension of the loan
evidenced by the Note, and in order to secure the performance of Debtor's
obligations under the Note, Debtor has agreed, among other things, to make the
pledge and grant the security interest to Secured Party as contemplated by this
Agreement.

                                    AGREEMENT

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, Debtor and Secured Party agree as
follows:

         1.       PLEDGE; GRANT OF SECURITY.

                  (A)      SECURITY INTEREST. Debtor hereby pledges,
         hypothecates, assigns, grants, transfers, sets over and
<PAGE>   200
         delivers to Secured Party and hereby grants and assigns to Secured
         Party with power of sale, a continuing security interest in all of
         Debtor's right, title and interest in and to the Shares, together with
         the certificates representing the Shares, all securities hereafter
         delivered to Debtor in substitution for or in addition to the Shares,
         all certificates and instruments representing or evidencing such
         securities, all securities or other non-cash property at any time and
         from time to time received, receivable or otherwise distributed in
         respect of any or all of the foregoing, and all securities, cash or
         other property at any time and from time to time received, receivable
         or otherwise distributed in exchange for any or all of the foregoing,
         all of which Debtor shall deliver to Secured Party promptly upon
         receipt for retention by Secured Party hereunder. The Shares,
         certificates, instruments, securities, cash and other property which
         are subject to the pledge and security interest created hereby, are
         herein collectively referred to as the "COLLATERAL".

                (B)      DELIVERY OF CERTIFICATES. Concurrently with the
         execution of this Agreement, Debtor shall deliver the certificate or
         certificates representing the Shares to the Exchange Agent under the
         Merger Agreement, acting for purposes hereof as Secured Party's agent,
         together with a stock power endorsed for transfer in blank by Debtor,
         to be held by the Exchange Agent for the benefit of the Secured Party
         pursuant to this Agreement. The Exchange Agent hereby acknowledges
         receipt of such certificate or certificates, together with such stock
         power and accepts the agency contemplated hereby. Secured Party shall
         at all times have the right to exchange certificates or instruments
         representing or evidencing the Collateral for certificates or
         instruments of smaller or larger denominations for any purpose
         consistent with the terms of this Agreement.

         2.       SECURITY FOR OBLIGATIONS. This Agreement secures, and the
Collateral is collateral security for, the prompt payment or performance in full
when due, whether at stated maturity, by required prepayment, declaration,
acceleration, demand or otherwise (including the payment of amounts that would
become due but for the operation of the automatic stay under Section 362(a) of
the Bankruptcy Code, 11 U.S.C. Section362(a)), of all obligations and
liabilities of every nature of Debtor now or hereafter existing under or arising
out of the Note and all extensions or renewals thereof, whether for principal,
interest (including without limitation interest that, but for the filing of a
petition in bankruptcy with respect to Debtor, would accrue on such
obligations), fees, expenses, indemnities or otherwise, whether voluntary or
involuntary, direct or indirect, absolute or contingent, liquidated or
unliquidated, whether or not jointly owed with others, and whether or not from
time to time decreased or extinguished and later increased, created or incurred,
and all or any portion of such obligations or liabilities that are paid, to the
extent all or any part of such payment is avoided or recovered directly or
indirectly from Secured Party as a

                                        2
<PAGE>   201
preference, fraudulent transfer or otherwise (all such obligations and
liabilities being the "UNDERLYING DEBT"), and all obligations of every nature of
Debtor now or hereafter existing under this Agreement (all such obligations of
Debtor, together with the Underlying Debt, being the "SECURED OBLIGATIONS").

         3.       REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants
as follows:

                  (a)      AUTHORIZATION. Debtor has full power and authority to
         grant security interests in the Collateral, and to execute, deliver,
         and perform this Agreement, without the consent or approval of any
         other person.

                  (b)      BINDING OBLIGATION. This Agreement constitutes the
         legally valid and binding obligation of Debtor, enforceable against
         Debtor in accordance with its terms, except as enforcement may be
         limited by bankruptcy, insolvency, reorganization, moratorium or
         similar laws or equitable principles relating to or limiting creditors'
         rights generally.

                  (c)      OWNERSHIP OF COLLATERAL. Except for the security
         interest created by this Agreement, Debtor owns, or at the time the
         Collateral comes into existence will own, the Collateral free and clear
         of any lien, mortgage, pledge, assignment, security interest, charge or
         encumbrance of any kind (including any conditional sale or other title
         retention agreement, any lease in the nature thereof, and any agreement
         to give any security interest) and any option, trust or other
         preferential arrangement having the practical effect of any of the
         foregoing (any of the foregoing, a "LIEN"). Except as may have been
         filed in favor of Secured Party relating to this Agreement, no
         effective financing statement or other instrument similar in effect
         covering all or any part of the Collateral is on file in any filing or
         recording office.

                  (d)      NO CONFLICT. The execution, delivery and performance
         by Debtor of this Agreement will not (i) violate any provision of law
         applicable to Debtor, or any order, judgment or decree of any court or
         other agency of government binding on Debtor, (ii) be in conflict with,
         result in a breach of, or constitute (with due notice or lapse of time
         or both) a default under any contractual obligation of Debtor or (iii)
         result in or require the creation or imposition of any Lien upon any of
         his properties or assets.

                  (e)      OTHER INFORMATION. All information heretofore, herein
         or hereafter supplied to Secured Party by or on behalf of Debtor with
         respect to the Collateral is accurate and complete in all respects.

                                        3
<PAGE>   202
         4.       FURTHER ASSURANCES. Debtor agrees that from time to time, at
the expense of Debtor, Debtor will promptly execute and deliver all further
instruments and documents, and take all further action, that may be necessary or
desirable, or that Secured Party may request, in order to perfect and protect
any security interest granted or purported to be granted hereby or to enable
Secured Party to exercise and enforce its rights and remedies hereunder with
respect to any Collateral. Without limiting the generality of the foregoing,
Debtor will (i) execute and file such financing or continuation statements, or
amendments thereto, and such other instruments or notices, as may be necessary
or desirable, or as Secured Party may request, in order to perfect and preserve
the security interests granted or purported to be granted hereby and (ii) at
Secured Party's request, appear in and defend any action or proceeding that may
affect Debtor's title to or Secured Party's security interest in all or any part
of the Collateral.

         5.       TRANSFERS AND OTHER LIENS. Debtor shall not (i) sell, assign
(by operation of law or otherwise) or otherwise dispose of any of the
Collateral; or (ii) except for the security interest created by this Agreement,
create or suffer to exist any Lien upon or with respect to any of the Collateral
to secure the indebtedness or other obligations of any person or entity; or
(iii) do, or permit or suffer to be done, anything that may impair the value of
the Collateral or the security intended to be effected hereby and shall use its
best efforts to preserve, protect and enhance the value of the Collateral.

         6.       EVENTS OF DEFAULT. The occurrence of any of the following
events shall constitute an "EVENT OF DEFAULT":

                  (a)      FAILURE TO MAKE PAYMENTS WHEN DUE. Failure of Debtor
         to pay any principal, interest or other amount due under the Note when
         due, whether by required prepayment, declaration, acceleration,
         demand or otherwise; or

                  (b)      BREACH OF COVENANTS. Failure of Debtor to perform or
         observe any other term, covenant or agreement on his part to be
         performed or observed pursuant to this Agreement or the Note within
         five (5) days after written notice of such failure is given to Debtor
         by Secured Party; or

                  (c)      BREACH OF REPRESENTATION OR WARRANTY. Any
         representation or warranty made by Debtor to Secured Party in
         connection with this Agreement or the Note shall prove to have been
         false in any material respect when made; or

                  (d)      INVOLUNTARY BANKRUPTCY, ETC. (i) A court having
         jurisdiction in the premises shall enter a decree or order for relief
         in respect of Debtor in an involuntary case

                                        4
<PAGE>   203
         under Title 11 of the United States Code entitled "Bankruptcy" (as now
         and hereinafter in effect, or any successor thereto, the "BANKRUPTCY
         CODE") or any applicable bankruptcy, insolvency or other similar law
         now or hereafter in effect, which decree or order is not stayed; or any
         other similar relief shall be granted under any applicable federal or
         state law or (ii) an involuntary case shall be commenced against Debtor
         under any applicable bankruptcy, insolvency or other similar law now or
         hereafter in effect; or a decree or order of a court having
         jurisdiction in the premises for the appointment of a receiver,
         liquidator, sequestrator, trustee, custodian or other officer having
         similar powers over Debtor or over all or a substantial part of
         Debtor's property shall have been entered; or the involuntary
         appointment of an interim receiver, trustee or other custodian of
         Debtor for all or a substantial part of Debtor's property shall have
         occurred; or a warrant of attachment, execution or similar process
         shall have been issued against any substantial part of the property of
         Debtor, and, in the case of any event described in this clause (ii),
         such event shall have continued for 60 days unless dismissed, bonded or
         discharged; or

                  (e)      VOLUNTARY BANKRUPTCY, ETC. An order for relief shall
         be entered with respect to Debtor, or Debtor shall commence a voluntary
         case under the Bankruptcy Code or any applicable bankruptcy, insolvency
         or other similar law now or hereafter in effect, or shall consent to
         the entry of an order for relief in an involuntary case, or to the
         conversion of an involuntary case to a voluntary case, under any such
         law, or shall consent to the appointment of or taking possession by a
         receiver, trustee or other custodian for all or a substantial part of
         Debtor's property.

         7.       REMEDIES. If any Event of Default shall have occurred and be
continuing, Secured Party may exercise in respect of the Collateral, in addition
to all other rights and remedies provided for herein or otherwise available to
it, all the rights and remedies of a secured party on default under the Uniform
Commercial Code as in effect in any relevant jurisdiction (the "CODE") (whether
or not the Code applies to the affected Collateral).

         8.       CONTINUING SECURITY INTEREST; TRANSFER OF NOTE. This Agreement
shall create a continuing security interest in the Collateral and shall (i)
remain in full force and effect until the payment in full of the Secured
Obligations, (ii) be binding upon Debtor, his successors and assigns and (iii)
inure, together with the rights and remedies of Secured Party hereunder, to the
benefit of Secured Party and its successors, transferees and assigns. Without
limiting the generality of the foregoing clause (iii), Secured Party may assign
or otherwise transfer the Note only to any affiliate of Secured Party, and such
affiliate shall

                                        5
<PAGE>   204
thereupon become vested with all the benefits in respect thereof granted to
Secured Party herein or otherwise. Upon the payment in full of all Secured
Obligations, the security interest granted hereby shall terminate and all rights
to the Collateral shall revert to Debtor. Upon any such termination Secured
Party will, at Debtor's expense, execute and deliver to Debtor such documents as
Debtor shall reasonably request to evidence such termination.

         9.       AMENDMENTS; ETC. No amendment, modification, termination or
waiver of any provision of this Agreement, and no consent to any departure by
Debtor therefrom, shall in any event be effective unless the same shall be in
writing and signed by Secured Party and, in the case of any such amendment or
modification, by Debtor.

         10.      NOTICES. Any communications between Secured Party and Debtor
and any notices or requests provided herein to be given shall be given in
accordance with the provisions set forth in the Note.

         11.      FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
failure or delay on the part of Secured Party in the exercise of any power,
right or privilege hereunder shall impair such power, right or privilege or be
construed to be a waiver of any default or acquiescence therein, nor shall any
single or partial exercise of any such power, right or privilege preclude any
other or further exercise thereof or of any other power, right or privilege. All
rights and remedies existing under this Agreement are cumulative to, and not
exclusive of, any rights or remedies otherwise available.

         12.      INDEMNITY AND EXPENSES. Debtor agrees to indemnify Secured
Party from and against any and all claims, losses and liabilities arising out of
or resulting from this Agreement (including, without limitation, enforcement of
this Agreement), except claims, losses or liabilities resulting from Secured
Party's negligence or willful misconduct. Debtor will upon demand pay to Secured
Party the amount of any and all reasonable expenses, including the reasonable
fees and disbursements of counsel and of any experts and agents, which Secured
Party may incur in connection with (i) the administration of this Agreement,
(ii) the custody, preservation, use or operation of, or the sale of, collection
from or other realization upon any of the Collateral, (iii) the exercise or
enforcement of any of its rights hereunder or (iv) the failure by Debtor to
perform or observe any of the provisions hereof.

         13.      SEVERABILITY. In case any provision in or obligation under
this Agreement shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.

                                        6
<PAGE>   205
         14.      HEADINGS. Section and subsection headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive effect.

         15.      GOVERNING LAW; TERMS. This Agreement and the rights and
obligations of the parties hereunder shall be governed by, and shall be
construed and enforced in accordance with, the internal laws of the State of
California without regard to conflicts of laws principles, except to the extent
that the Code provides that the validity or perfection of the security interest
hereunder, or remedies hereunder, in respect of any particular collateral are
governed by the laws of a jurisdiction other than the State of California.
Unless otherwise defined herein or in the Note, terms used in Articles 8 and 9
of the Uniform Commercial Code in the State of California are used herein as
therein defined.

         16.      COUNTERPARTS. This Agreement may be executed in one or more
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.

         IN WITNESS WHEREOF, Debtor and Secured Party have caused this Agreement
to be duly executed and delivered as of the date first written above.

                                        "DEBTOR"

                                        By:      
                                           --------------------------------
                                        Name:

                                        "SECURED PARTY"

                                        APRIA HEALTHCARE GROUP INC.,
                                        a Delaware corporation

                                        By:      
                                           --------------------------------
                                        Name:

 
                                        7
<PAGE>   206
 
                                                                  EXHIBIT 5.10.1
 
               REVISED FORM OF COMPANY AFFILIATE LETTER AGREEMENT
 
                                                                   _______, 1996
 
Apria Healthcare Group Inc.
3560 Hyland Avenue
Costa Mesa, California 92626
 
Ladies and Gentlemen:

     The undersigned has been advised that as of the date of this letter the
undersigned may be deemed to be an "affiliate" of Vitas Healthcare Corporation,
a Delaware corporation ("VITAS"), as the term "affiliate" is (i) defined within
the meaning of Rule 145 of the rules and regulations (the "RULES AND
REGULATIONS") of the Securities and Exchange Commission (the "COMMISSION") under
the Securities Act of 1933, as amended (the "ACT"), and/or (ii) used in and for
purposes of Accounting Series Releases 130 and 135, as amended, of the
Commission. Pursuant to the terms of the Agreement and Plan of Merger dated as
of June 28, 1996, as amended, among Apria Healthcare Group Inc., a Delaware 
corporation ("APRIA"), Apria Number Two, Inc., a Delaware corporation ("SUB"), 
and Vitas (the "AGREEMENT"), Sub will be merged with and into Vitas (the 
"MERGER").

     In connection with the Merger, the undersigned will be entitled to receive
shares of Common Stock, par value $.001 per share, of Apria (the "APRIA SHARES")
in exchange, to the extent applicable to the undersigned securityholder, (i) for
shares (or options for shares) of Common Stock of Vitas, $.001 par value per
share (the "VITAS COMMON STOCK"), owned by the undersigned, (ii) for shares of
Vitas Common Stock acquired on conversion of the Series B Convertible Preferred
Stock of Vitas (the "SERIES B PREFERRED") and (iii) for the stock purchase
warrants of Vitas dated December 17, 1991 (the "WARRANTS"). The undersigned has
been advised that you require from the undersigned certain assurances and
representations in connection with your determination of certain accounting
matters relating to the Agreement. The undersigned has also been advised that
the sale or other disposition of Apria Shares to be issued in connection with
the Merger by "affiliates" of Vitas or Apria will be subject to restrictions
under Rule 145 of the Rules and Regulations.
 
     1. PRE-MERGER RESTRICTIONS ON VITAS SECURITIES AND APRIA SHARES;
POST-MERGER POOLING RESTRICTIONS ON APRIA SHARES.  The undersigned agrees that
the undersigned will not offer to sell or, sell, transfer or otherwise dispose
of (a) any shares of Vitas Common Stock or other securities of Vitas other than
through (i) (if the undersigned owns Series B Preferred) the undersigned's
exercise of conversion rights to acquire shares of Vitas Common Stock and the
conversion of such shares of Vitas Common Stock into the right to receive Apria
Shares in the Merger, (ii) (if the undersigned holds options to purchase Vitas
Common Stock) the undersigned's exercise of the options to acquire shares of
Vitas Common Stock and the conversion of such shares of Vitas Common Stock into
the right to receive Apria Shares in the Merger, or the conversion of such
options into the right to receive Apria Shares in the Merger, (iii) (if the
undersigned holds Warrants) the exercise of the Warrants for shares of Vitas
Common Stock and the conversion of such shares of Vitas Common Stock into the
right to receive Apria Shares in the Merger or the undersigned's exchange of the
Warrants for Apria Shares in the Merger, or (b) any of the Apria Shares that the
undersigned may now hold or that the undersigned will receive in the Merger
until such time (the "PUBLISHING TIME") as financial results covering at least
30 days of post-merger combined operations of Vitas and Apria have been
published, whether by issuance of a quarterly earnings report on Form 10-Q or
other public issuance (such as a press release) which includes such information.
Further, the undersigned will not engage in any transactions in or with respect
to the shares of Vitas Common Stock or other securities of Vitas or Apria
Shares, including put or call options, from July 1, 1996 until the Publishing
Time other than transactions contemplated by the Agreement.
 
     2. ADDITIONAL RESTRICTIONS ON APRIA SHARES.  The undersigned represents,
warrants and covenants to Apria that in the event the undersigned receives any
Apria Shares as a result of the Merger:
 
          (a) The undersigned will not make any sale, transfer or other
     disposition of the Apria Shares in violation of the Act or the Rules and
     Regulations;
 
                                        1
<PAGE>   207
 
          (b) The undersigned has been advised that the issuance of Apria Shares
     to the undersigned pursuant to the Merger will be registered with the
     Commission under the Act on a Registration Statement on Form S-4. However,
     because the undersigned has been advised that, at the time the Merger is
     submitted for a vote of the stockholders of Vitas, (i) the undersigned may
     be deemed to be an affiliate of Vitas, and (ii) other than as set forth in
     the Agreement, the distribution by the undersigned of the Apria Shares has
     not been registered under the Act, the undersigned will not be able to
     sell, transfer or otherwise dispose of Apria Shares issued to the
     undersigned in the Merger unless (A) such sale, transfer or other
     disposition is made in conformity with the volume and other applicable
     limitations of Rule 145 promulgated by the Commission under the Act, (B)
     such sale, transfer or other disposition has been made pursuant to a
     separate effective registration statement under the Act, or (C) in the
     opinion of counsel reasonably acceptable to Apria or as described in a
     "no-action" or interpretive letter from the staff of the Commission, such
     sale, transfer or other disposition is otherwise exempt from registration
     under the Act.
 
          (c) The undersigned understands that Apria is under no obligation to
     register the sale, transfer or other disposition of the Apria Shares by the
     undersigned or on the undersigned's behalf under the Act or to take any
     other action necessary in order to make compliance with an exemption from
     such registration available solely as a result of the Merger. The
     undersigned consents to each company's issuance of stop transfer
     instructions with respect to the undersigned's securities of Vitas and the
     undersigned's Apria Shares to enforce the restrictions evidenced by this
     letter agreement.
 
          (d) The undersigned understands that there will be placed on the
     certificates for the Apria Shares issued to the undersigned, or any
     substitutions therefor, a legend stating in substance:
 
              THE SHARES REPRESENTED BY THIS CERTIFICATE WERE
              ISSUED IN A TRANSACTION TO WHICH RULE 145
              PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS
              AMENDED, APPLIES. THE SHARES REPRESENTED BY THIS
              CERTIFICATE MAY ONLY BE TRANSFERRED IN ACCORDANCE
              WITH THE TERMS OF AN AGREEMENT DATED _________, 1996
              BETWEEN THE REGISTERED HOLDER HEREOF AND THE
              COMPANY, A COPY OF WHICH AGREEMENT IS ON FILE AT THE
              PRINCIPAL OFFICES OF THE COMPANY.
 
          (e) The undersigned further understands and you agree that the legend
     set forth in paragraph (d) above shall be removed by delivery of substitute
     certificates without such legend upon the undersigned's request if one or
     more of the alternative conditions set forth in clauses (A), (B) and (C) of
     paragraph (b) above shall have occurred.

    2A. ADDITIONAL COMMITMENTS RE OPTION SHARES.  The undersigned, to the extent
of his or her holdings of Stock Options of Vitas to be exchanged for Apria
Common Stock in the Merger, agrees to the provisions and procedures for tax
withholding, to the pledges of the Apria Common Stock and to the deemed loan, as
set forth at pages 44-46 of the Proxy Statement/Prospectus dated July ____, 1996
(the "Disclosure") to the same extent as if such provisions and procedures were
fully set forth herein. If the undersigned fails to deliver the Demand Note as
contemplated, he or she nevertheless hereby agrees to pay to Apria according to
the terms of the form of the Demand Note (Exhibit 5.4.4A) and agrees to the
terms of the pledge and security agreement (Exhibit 5.4.4B), each completed in
accordance with the terms of the Disclosure, to the same extent as if such
obligations were fully set forth herein. The undersigned acknowledges that he or
she has received such Proxy Statement/Prospectus and reviewed the Disclosure.

     3. REPORTS.  From and after the Effective Time (as defined in the
Agreement) and for so long as necessary in order to permit the undersigned to
sell the Apria Shares pursuant to Rule 145 and, to the extent applicable, Rule
144 of the Rules and Regulations, you agree that Apria will use its best efforts
to file on a timely basis all reports required to be filed by it pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, referred
to in paragraph (c)(1) of Rule 144 (or, if applicable, Apria will use its best
efforts to make publicly available the information regarding itself referred to
in paragraph (c)(2) of Rule 144), in order to permit the undersigned to sell,
pursuant to the terms and conditions of Rule 145 and the applicable provisions
of Rule 144, the Apria Shares.
 
     4. ACKNOWLEDGMENT.  The undersigned understands the restrictions and
prohibitions on sales and dispositions also applies to shares held or acquired
under the Vitas Employee Stock Ownership Plan and other benefit plans. The
undersigned understands that if the undersigned receives a distribution of
shares held in the undersigned's account, the undersigned must hold the shares
until the Publishing Time.
 
     5. DISCLAIMER.  To the extent the undersigned felt necessary, the
undersigned has discussed this letter and any applicable limitations upon the
sale or other disposition of the undersigned's securities with the undersigned's
counsel.
 
                                        2
<PAGE>   208
 
     Execution of this letter should not be considered an admission on the
undersigned's part that the undersigned is an "affiliate" of Vitas as described
in the first paragraph of this letter, or as a waiver of any rights the
undersigned may have to object to any claim that the undersigned is such an
affiliate on or after the date of this letter.
 
                                          Very truly yours,
 
                                          --------------------------------------
 
ACCEPTED AS OF THIS ____ DAY OF
_______, 1996:
 
APRIA HEALTHCARE GROUP INC.
 
BY:
----------------------------------------------------
 
VITAS HEALTHCARE CORPORATION
 
BY:
----------------------------------------------------
 
                                        3
<PAGE>   209
                               EXHIBIT 5.14(A)

                                      TO

                         AGREEMENT AND PLAN OF MERGER

                                 (APPENDIX A)








                             CONSULTING, SEVERANCE

                         AND CONFIDENTIALITY AGREEMENT

                              MADE BY AND BETWEEN

                               HUGH A. WESTBROOK

                          COLLIBROOK CONSULTANTS, INC.

                               ESTHER COLLIFLOWER

                                      AND

                          VITAS HEALTHCARE CORPORATION

                             AS OF __________, 1996
<PAGE>   210





                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                       Page
                                                                       ----
          <S>  <C>                                                       <C>
          1.   Termination of Employment  . . . . . . . . . . . . . . .   2
               (a)  Termination . . . . . . . . . . . . . . . . . . . .   2
               (b)  Return of Company Property  . . . . . . . . . . . .   2

          2.   Severance Payment and Benefits . . . . . . . . . . . . .   2
               (a)  Severance Payment . . . . . . . . . . . . . . . . .   2
               (b)  Stock Options . . . . . . . . . . . . . . . . . . .   3
               (c)  Qualified Plan Payments . . . . . . . . . . . . . .   3
               (d)  COBRA Benefits  . . . . . . . . . . . . . . . . . .   3
               (e)  Taxes . . . . . . . . . . . . . . . . . . . . . . .   4

          3.   Consulting Services  . . . . . . . . . . . . . . . . . .   4
               (a)  Amount and Nature of Service  . . . . . . . . . . .   4
               (b)  Consulting Fee  . . . . . . . . . . . . . . . . . .   4
               (c)  Taxes . . . . . . . . . . . . . . . . . . . . . . .   4
               (d)  Independent Contractor Relationship . . . . . . . .   5
               (e)  Business Expenses . . . . . . . . . . . . . . . . .   5
               (f)  Compliance; Conflicts . . . . . . . . . . . . . . .   5
               (g)  Work-Product Owned by Company . . . . . . . . . . .   5
               (h)  Events of Termination . . . . . . . . . . . . . . .   6

          4.   General Release  . . . . . . . . . . . . . . . . . . . .   6
               (a)  Release of All Claims . . . . . . . . . . . . . . .   6
               (b)  ADEA Waiver . . . . . . . . . . . . . . . . . . . .   7
               (c)  Waiver of Known and Unknown Claims  . . . . . . . .   8
               (d)  Indemnification . . . . . . . . . . . . . . . . . .   8

          5.   Confidentiality; Cooperation with Legal Process;
               Non-Solicitation . . . . . . . . . . . . . . . . . . . .   8
               (a)  Confidentiality . . . . . . . . . . . . . . . . . .   8
               (b)  Cooperation With Legal Process  . . . . . . . . . .   9
               (c)  Non-Solicitation  . . . . . . . . . . . . . . . . .   9
               (d)  Nondisclosure of this Agreement . . . . . . . . . .   9

          6.   Miscellaneous Provisions . . . . . . . . . . . . . . . .  10
               (a)  Parachute Limitations . . . . . . . . . . . . . . .  10
               (b)  Construction  . . . . . . . . . . . . . . . . . . .  10
               (c)  Counterparts  . . . . . . . . . . . . . . . . . . .  10
               (d)  Consent to Jurisdiction . . . . . . . . . . . . . .  11
               (e)  Enforceability Representation . . . . . . . . . . .  11
               (f)  Consents  . . . . . . . . . . . . . . . . . . . . .  11
               (g)  Waivers . . . . . . . . . . . . . . . . . . . . . .  11
               (h)  Cooperation . . . . . . . . . . . . . . . . . . . .  11
               (i)  Opportunity to Review . . . . . . . . . . . . . . .  11
               (j)  Attorney's Fees . . . . . . . . . . . . . . . . . .  12
               (k)  Choice of Law . . . . . . . . . . . . . . . . . . .  12
               (l)  No Reliance . . . . . . . . . . . . . . . . . . . .  12
               (m)  Severability  . . . . . . . . . . . . . . . . . . .  12
               (n)  Entire Agreement  . . . . . . . . . . . . . . . . .  12
               (o)  Succession  . . . . . . . . . . . . . . . . . . . .  13
</TABLE>





                                       i
<PAGE>   211





<TABLE>
               <S>  <C>                                                  <C>
               (p)  Injunctive Relief . . . . . . . . . . . . . . . . .  13
               (q)  Independent Agreements and Remedies . . . . . . . .  13
               (r)  Representation of Westbrook . . . . . . . . . . . .  13
               (s)  Notice  . . . . . . . . . . . . . . . . . . . . . .  13
               (t)  Revocation  . . . . . . . . . . . . . . . . . . . .  14
               (u)  Third Party Beneficiary . . . . . . . . . . . . . .  15
</TABLE>





                                      ii
<PAGE>   212
                             CONSULTING, SEVERANCE

                         AND CONFIDENTIALITY AGREEMENT



                 This Consulting, Severance and Confidentiality Agreement (this
"Agreement") is entered into by and between HUGH A. WESTBROOK ("Westbrook"),
COLLIBROOK CONSULTANTS, INC. (the "Consultant"), ESTHER COLLIFLOWER
("Colliflower") and VITAS HEALTHCARE CORPORATION (the "Company") on
_____________, 1996 [not less than eight days before the Effective Time of the
Merger].

                                    RECITALS

                 A.       Westbrook is a founder of the Company, has been
instrumental in developing and expanding the business and operations of the
Company and obtaining its financing, possesses valuable knowledge and skills
with respect to such business, including trade secrets, and maintains strong
ties with the business community significant to the business and growth of the
Company.

                 B.       Westbrook has served as Chairman of the Board of
Directors and Chief Executive Officer of the Company, pursuant to an employment
agreement which was made effective March 7, 1992, executed on December 18,
1992, as amended by the First Amendment to Employment Agreement dated as of
June 4, 1993, between the Company and Westbrook and amended and restated by the
Amended and Restated Employment Agreement dated September 12, 1994 (the
"Employment Agreement"), which provides for his services in accordance with the
terms thereof.

                 C.       The parties anticipate that Apria Healthcare Group
Inc. ("Apria") will acquire control of the Company under the terms of an
Agreement and Plan of Merger, dated as of June 28, 1996, as amended, among 
Apria, its wholly-owned subsidiary, and the Company (the "Merger Agreement"), 
and that Westbrook, Apria and the Company will enter into a Noncompetition 
Agreement as of the effective time of the Merger (the "Noncompetition 
Agreement").

                 D.       The Merger Agreement contemplates a termination of
Westbrook's services as an employee, officer and director of Company and its
subsidiaries and affiliates as of the Effective Date, the settlement of all
employment related obligations of the Company to Westbrook (except as expressly
provided herein) and the continuation of services through the Consultant under
this Agreement.

                 E.       Subject to the conditions of this Agreement, the
Consultant will provide general and specialized consulting services to Company
during the year following the Merger, and the Consultant, Westbrook and
Colliflower will make additional



                                       1

<PAGE>   213
commitments to preserve the Company's goodwill and enhance its other assets and
relationships.

                 NOW THEREFORE, in consideration of the mutual promises and
covenants herein contained, the parties hereby agree as follows:

         1.      Termination of Employment.

                 (a)      Termination.  Westbrook and the Company hereby agree
that, from and after the effective time of the Merger (the "Effective Date"),
the Employment Agreement will be cancelled and Westbrook will no longer be an
employee, officer or director of the Company or any of its subsidiaries or
affiliates and will be deemed to be retired from the Company.  Westbrook
acknowledges that, subject to the payments to be made under this Agreement, as
of the Effective Date, he will have been paid all amounts to which he is
entitled as a result of his active employment with or service to the Company or
such subsidiaries or affiliates at or prior to the Effective Time, including
all salary, incentives and perquisites, including but not limited to any and
all accrued but unused vacation benefits.

                 (b)      Return of Company Property.  Except as contemplated
by Section 2(a)(iv), Westbrook agrees to return to the Company promptly upon
request all Company property, including, but not limited to, any Company car,
memberships, keys, credit cards, documents, files and records of any kind
whatsoever that he has in his possession or control (except for any Company
property that Westbrook and the Company agree in writing is necessary to his
provision of the Consulting Services as hereafter defined).  The Company agrees
to permit Westbrook to retain copies of certain documents contained in his
office files that are personal in nature.

         2.      Severance Payment and Benefits.  Westbrook agrees with the
Company that, notwithstanding anything in the Employment Agreement or any other
agreement, oral or written, express or implied to the contrary, the following,
together with amounts payable pursuant to Section 3 hereof, accurately reflect
all of the compensation, benefits and perquisites payable or otherwise to be
provided to or for services of Westbrook by the Company at or after the
Effective Date and that neither Westbrook nor Consultant is entitled to any
compensation, benefits, payments or perquisites except as set forth in the
Noncompetition Agreement and this Agreement:

                 (a)      Severance Payment.  Westbrook will be entitled to
receive a cash severance payment of $1,250,000 less the sum of (i) all required
withholdings and deductions as contemplated by Section 2(e), (ii) any costs
incurred by the Company in respect of benefits described in Sections 2(d),
(iii) the aggregate amount of all debts or obligations of Westbrook to the
Company or any of its subsidiaries, (iv) the amount or the value of other



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<PAGE>   214
benefits, including any benefits under the SERP, and perquisites, including the
assigned value of any retained memberships and other property listed on
Schedule 2(a)(iv) hereto, (v) the amount of the Company's Interest (including
any bonus payments) in the Split Dollar Policy or the cash surrender value of
the Split Dollar Policy, whichever is greater, [which interest/policy will be
assigned to ________________ as of the Effective Date], and (vi) the amount of
any required post-closing payments for services by the Company prior to the
Effective Date, (collectively, the "Offsets").  The gross severance payment
less the Offsets (the "Settlement Amount") shall become due and payable in lump
sum on the Effective Date.  (Any negative balance of the Settlement Amount may
be offset against payments due under the Noncompetition Agreement.) This
severance payment is for and in lieu of all accrued but unpaid wages and other
compensation of any kind or nature, whether accrued or contingent, known or
unknown, including vacation pay and any bonus, pension, retirement, severance,
incentive, personal or other payments or benefits and (except as required by
law) none thereof shall accrue or be owing on or after the Effective Date;
provided, however, that Westbrook shall be entitled to receive any additional
benefits (without reference to the Settlement Amount) under the 401(k) Savings
Plan and Employee Stock Ownership Plan.

                 (b)      Stock Options.  Westbrook acknowledges that any and
all of his rights under any and all of the stock options or other rights
previously granted to Westbrook under any stock related benefit, arrangement or
plan of the Company or otherwise have been settled, to his satisfaction, as of
the Merger Date, in accordance with Section 5.4 of the Merger Agreement.

                 (c)      Qualified Plan Payments.  Commencing on the Effective
Date, no further benefits shall accrue under any Company plan qualified under
Section 401(a) of the Internal Revenue Code or under any supplemental executive
retirement plan (the "SERP") or under other plans covering active (as
distinguished from retired) executive officers and/or employees including
without limitation the Employee Stock Ownership Plan, the Performance Bonus
Plan and the 401(k) Savings Plan.  No benefits shall commence under the 401(k)
Savings Plan (the "Retirement Plan") until Westbrook ceases to perform
Consulting Services for Company (as provided under Section 3 hereof) or such
earlier date as Company in its sole discretion (consistent with applicable
qualification and other requirements) may permit.  No benefits shall accrue
under any employee benefit plan as a result of or in respect of the severance
or any other payment made to Westbrook under this Agreement or the
Noncompetition Agreement.

                 (d)      COBRA Benefits.  Westbrook shall have the option to
convert and continue his health insurance on or after the Effective Date as may
be required or authorized by law under the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA").  Westbrook acknowledges and agrees that,
except as set forth in this Agreement, no other life, health, accident,
disability or



                                       3


<PAGE>   215
other insurance policies will be provided for him by the Company after the
Effective Date.

                 (e)      Taxes.  All compensation, benefits and perquisites
payable under this Section 2 shall be paid after any withholding for taxes or
other charges and authorized deductions required (or permitted hereunder) to be
withheld by the Company, including but not limited to any federal income taxes,
any applicable state taxes, FICA, Medicare, and any similar state taxes or
required state withholdings.

         3.      Consulting Services.

                 (a)      Amount and Nature of Service.  The Company hereby
engages the Consultant to provide the services of Westbrook and Westbrook
hereby agrees to serve on behalf of the Consultant until the 1st anniversary of
the Effective Date (the "Consulting Term") at reasonable times and upon
reasonable notice, as an advisor and consultant to the Company in all matters
affecting its business, taking into account Westbrook's business, personal,
philanthropic, governmental and political commitments and activities.  The
Consultant agrees to provide the services of Westbrook to perform its duties
hereunder; provided, however, that in the event of the death or disability  of
Westbrook such services will be performed by Colliflower on behalf of the
Consultant and further provided that in the event of death or disability of
both Westbrook and Colliflower such services will be provided by an employee of
the Consultant of comparable stature in the industry, reasonably satisfactory
to the Company.  Without limiting the foregoing, the Consultant agrees that the
consulting services provided by Westbrook will include consultation with and
assistance to the Company, whenever reasonably requested by either of the top
two senior executive officers of Apria or the Company, in connection with
issues involving acquisitions, operations, finance, industry conditions,
legislation, litigation, any governmental or other regulations, or other
developments involving or affecting the Company or any of its affiliated or
associated entities.  The Consultant agrees to cause Westbrook to provide such
advice and consulting services and Westbrook agrees to provide them
(collectively, the "Consulting Services") upon a request therefor communicated
to him by either of the top two senior executive officers of the Company or
Apria.  During the Consulting Term, the Consultant shall cause Westbrook to use
and he shall use his reasonable efforts and abilities to promote the Company's
interests.

                 (b)      Consulting Fee.  In consideration of the Consulting
Services to be performed during the term and provided those services are
performed in accordance with the terms hereof, the Consultant shall be entitled
to receive a consulting fee of $250,000, which shall be advanced on the
Effective Date.

                 (c)      Taxes.  The Consultant agrees to accept exclusive
liability for the payment of all federal and state taxes or


                                       4



<PAGE>   216
contributions for unemployment insurance or old age pensions or annuities or
social security payments which are measured by payments to the Consultant or
the employees of the Consultant for the performance of the Consulting Services.
Consultant agrees fully to defend, indemnify and hold harmless the Company from
the payment of taxes, interest, penalties or contributions which are required
of the Company by any government agency at any time as the result of payment of
the amounts set forth in this Section 3 or which the Company may otherwise be
compelled to pay (except to the extent required by law to be withheld and in
fact withheld) by the Company.  The Consultant further agrees to comply with
all valid administrative regulations respecting the assumption of liability for
such taxes and contributions.  Westbrook guarantees the Consultant's payment
obligations under this Section 3(c).

                 (d)      Independent Contractor Relationship.  This Agreement
establishes between the Consultant and the Company an independent contractor
relationship and all the terms and conditions of this Agreement shall be
interpreted in light of that relationship.  There is no intention to create, by
way of this Agreement, an employer-employee relationship with Westbrook or
Colliflower and neither Westbrook nor Colliflower shall  serve as an officer or
director of the Company.  Except where expressly agreed upon in writing by an
executive officer of Apria (an "Authorized Officer") or authorized by the
Board, none of the Consultant, Westbrook or Colliflower shall have or represent
that it, he or she has general authority to enter into, and nor shall enter
into, any agreement or obligation on behalf of or in the name of the Company or
any affiliate or otherwise purport to bind the Company or any affiliate.

                 (e)      Business Expenses.  The Consultant will be eligible
to be reimbursed for reasonable business expenses (other than overhead)
incurred in providing the Consulting Services to the Company in accordance with
the Company's policy for independent contractors as in effect from time to
time.

                 (f)      Compliance; Conflicts.  In rendering services
hereunder, the Consultant and its employees and agents, including Westbrook and
Colliflower, shall obtain and maintain all necessary or appropriate licenses,
permits and registrations and shall comply with all applicable laws and
regulations and policies of the Company.  The Consultant shall ensure that
Westbrook and Colliflower will not pursue any business opportunities which
constitute or may constitute or appear to constitute a conflict of interest or
which materially interfere with, delay, jeopardize or otherwise conflict with
the Consultant's or their duties under this Agreement, without the prior
written consent of an Authorized Officer, which (in the case of possible or
apparent conflicts (as distinguished from actual conflicts)) shall not be
unreasonably withheld.

                 (g)      Work-Product Owned by Company.  All information
developed under this Agreement, of whatever type relating to the



                                       5


<PAGE>   217
work performed under this Agreement, shall be the exclusive property of the
Company.  All writings, instruments or other items produced or assembled by
Westbrook or Colliflower pursuant to this Agreement, shall be the exclusive
property of Company.

                 (h)      Events of Termination.  The Consultant's services
hereunder shall be terminated and all of its rights to retain consulting fees
hereunder in respect of the remaining term shall terminate in the event that
(a) the Consultant or Westbrook (or, during any service by her, Colliflower) is
found guilty by a court or regulatory body of having committed fraud or theft
against the Company or any governmental entity or having committed a felony
involving moral turpitude; (b) the Consultant, Westbrook or (during the period
of her service to the Consultant) Colliflower, in the reasonable judgment of
the Board, has compromised trade secrets or other proprietary information of
the Company and such breach or compromise has a significant adverse effect on
the Company; (c) Westbrook has breached in any material respect the terms of
this Agreement and has failed to cure such breach within 30 days after written
notice from the Company; (d) in the reasonable judgment of the Board, Westbrook
or the Consultant has neglected or willfully failed or refused to perform
material assigned duties and such failure or refusal continues for 30 days
after written notice from the Company specifying the manner in which he has
neglected, or willfully failed or refused to perform such duties; or (e) in the
reasonable judgment of the Board, the Consultant or Westbrook engaged in gross
or willful misconduct that causes substantial and material harm to the
business, operations or reputation of the Company or a subsidiary or any
affiliate.

If the Consultant or Westbrook fails or refuses to perform Consulting Services
in the manner specified in this Section 3 and has failed to cure such breach
within 30 days after written notice from the Company or the Company terminates
the Consultant or Westbrook pursuant to any of the provisions of this Section
3(h), the Company shall so notify the Consultant and in addition to the other
rights and remedies of the Company for breach of this Agreement, the Company
may offset against the amount that is due and payable to Westbrook or the
Consultant under any other agreement (including the Noncompetition Agreement)
an amount equal to:

           $250,000 X (365 DAYS - NUMBER OF DAYS BEFORE TERMINATION)
                      ----------------------------------------------
                                  365 DAYS

         4.      General Release.
                 (a)      Release of All Claims.  In further consideration of
the foregoing and the obligations undertaken by the Company pursuant to this
Agreement [and the Noncompetition Agreement], Westbrook, on his own behalf and
on behalf of his descendants, dependents, heirs, executors, successors, assigns
and


                                       6


<PAGE>   218
administrators hereby (1) covenants not to sue, (2) fully releases and
discharges, and (3) agrees to indemnify and hold harmless the Company and each
of its parent, subsidiary and/or related companies or entities, and each of its
and/or their executors, administrators, partners, predecessors, successors,
assigns, officers, directors, shareholders, representatives, attorneys,
employees and agents, past and present, with respect to and from and against
any and all claims, demands, obligations, causes of action, debts, expenses,
damages, judgments, orders and liabilities of whatever kind or nature, in law,
equity or otherwise, whether now known or unknown, suspected or unsuspected,
matured or unmatured, and whether or not concealed or hidden (collectively, the
"Claims"), which Westbrook now owns or holds or has at any time heretofore
owned or held or had, or may at any time own or hold or have, against the
Company, including without limiting the generality of the foregoing, any Claims
arising out of or in any way connected with (i) any transactions, occurrences,
acts or omissions regarding or relating to his employment with the Company, or
the termination of his employment, including without limitation any claims
arising from any alleged violation by the Company of any federal, state or
local statutes, ordinances or common laws, including, but not limited to, the
Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964
and/or the Civil Rights Act of 1991, the Americans with Disabilities Act, and
the Family and Medical Leave Act of 1993, or any claim for severance pay,
bonus, sick leave, holiday pay, vacation pay, life insurance, health or medical
insurance or any other fringe benefit, workers' compensation or disability.

                 (b)      ADEA Waiver.  Westbrook expressly acknowledges and
agrees that, by entering into this Agreement, he is waiving any and all rights
or claims that he may have arising under the Age Discrimination in Employment
Act of 1967, as amended, which have arisen on or before the date of execution
of this Agreement.  Westbrook further expressly acknowledges and agrees that:

                 (1)      In return for this Agreement, he will receive
         consideration beyond that which he was already entitled to receive
         before entering into this Agreement;

                 (2)      He was orally advised by Company and is hereby
         advised in writing by this Agreement to consult with an attorney
         before signing this Agreement;

                 (3)      He was given a copy of this Agreement on September __,
         1996, and informed that he had at least 21 days within which to
         consider the Agreement; and

                 (4)      He was informed that he has seven (7) days following
         the date of execution of the Agreement in which to revoke the
         Agreement.


                                       7



<PAGE>   219
                 (c)      Waiver of Known and Unknown Claims.  It is the
intention of Westbrook in executing this Agreement that the same shall be
effective as a bar to each and every claim, demand and cause of action
hereinabove specified; in furtherance of this intention Westbrook hereby
expressly waives any and all rights and benefits conferred upon Westbrook by
any statutory provision and expressly agrees that this Agreement shall be given
full force and effect according to each and all of its express terms and
provisions.  This release extends to unknown and unsuspected claims, demands
and causes of action, if any, as well as to those relating to any other claims,
demands and causes of action hereinabove specified.  Westbrook makes this
waiver with full knowledge of his rights, after adequate opportunity to consult
with legal counsel.

                 Westbrook acknowledges that he may hereafter discover claims
or facts in addition to or different from those which he now knows or believes
to exist with respect to the subject matter of this Agreement and which, if
known or suspected at the time of executing this Agreement, may have materially
affected this settlement.  Nevertheless, Westbrook hereby waives any right,
claim or cause of action that might arise as a result of such different or
additional claims or facts.  Westbrook hereby understands and acknowledges the
significance and consequence of such release and waiver.

                 (d)      Indemnification.  Westbrook warrants and represents
that Westbrook has not heretofore assigned or transferred to any person not a
party to this Agreement any released matter or any part or portion thereof and
Westbrook shall defend, indemnify and hold harmless Company from and against
any claim (including the payment of attorneys' fees and costs actually incurred
whether or not litigation is commenced) based on or in connection with or
arising out of any such assignment or transfer made, purported or claimed.

         5.      Confidentiality; Cooperation with Legal Process;
                 Non-Solicitation.

                 (a)      Confidentiality.  Westbrook and Colliflower each
acknowledges that he and she has held a sensitive management position with the
Company and will continue to perform services through Consultant for the
Company as provided herein and that, by virtue of having held such position,
they have had access to and have learned (and will continue to have access to
and to learn) the Company's and its subsidiaries' and affiliates' confidential
and proprietary information and trade secrets pertaining to its business and
operations.  Examples of such proprietary information and trade secrets
include, but are not limited to, information as to Company's products,
services, systems, software, finances (including prices, costs and revenues),
marketing plans, programs, methods of operation, prospective and existing
contracts, other business arrangements or business plans, procedures,
strategies (including acquisition


                                       8



<PAGE>   220
strategies), customer lists, referral sources, lists of doctors, and other
information concerning the Company's practices and procedures.  The Consultant,
Westbrook and Colliflower  represent that they have held all such information
confidential and will continue to do so and that none of them will disclose any
such information to any other person, except as may be required by law or as
may (with the consent of the Company) be necessary in furtherance of the
performance of the Consulting Services hereunder.  Without limiting the
generality of the foregoing, each of them agrees that it will not respond to or
in any way participate in or contribute to any public discussion, notice or
other publicity concerning or in any way related to proprietary or confidential
information concerning the Company, its subsidiaries, affiliates, operations,
officers or directors, or any matters concerning their employment with or
consulting for the Company.  The Consultant, Westbrook and Colliflower each
further agrees that any disclosure of any of the information referred to herein
or any solicitation in violation of Section 5(c) hereof shall constitute a
material breach of this Agreement and, in addition to other remedies available
to the Company, shall entitle it to reimbursement any payments hereunder
consistent with the formula in Section 3(h).

                 (b)      Cooperation With Legal Process.  The parties agree
that no provision of this Section 5 or any other provision of this Agreement
shall be construed or interpreted in any way to limit, restrict or preclude
either party hereto from cooperating with any governmental agency in the
performance of its investigatory or other lawful duties or producing materials
or giving testimony pursuant to a court proceeding, or restrict the Consultant
in the performance of Consulting Services.  The Consultant, Westbrook and
Colliflower agree that if any of them receive a subpoena or is otherwise
required by law to provide information to a governmental entity or other person
concerning the activities of the Company or their activities in connection with
the Company's business, they will immediately notify the Company of such
subpoena or requirement and deliver to the Company a copy of such subpoena or
other notice, unless such disclosure would in the opinion of a recognized legal
expert on such matters, be prohibited by law.

                 (c)      Non-Solicitation.  The Consultant, Westbrook and
Colliflower each agrees that it will not solicit any employee of the Company
for employment or other services for itself, himself or any other entity.

                 (d)      Nondisclosure of this Agreement.  Each of the
Consultant, Westbrook and Colliflower agrees that except for disclosures in the
Proxy Statement/Prospectus for the Merger, they will keep the terms, amounts
and facts of this Agreement completely confidential, and will not hereafter
disclose any information concerning this Agreement or the services to anyone
except their respective attorneys or accountants, including, but not limited
to, any past, present, or prospective employees of



                                       9


<PAGE>   221
the Company or any of its parent, subsidiary or related companies or entities,
except, in each case, as may be required by law or as permitted in writing by
the Company or as may be necessary in furtherance of the performance of the
Consulting Services hereunder.

         6.      Miscellaneous Provisions.

                 (a)      Parachute Limitations.  Notwithstanding any other
provision of this Agreement or of any other agreement, contract, or
understanding heretofore, concurrently or hereafter entered into by Westbrook
with the Company or any subsidiary or affiliate, except an agreement, contract,
or understanding hereafter entered into that expressly modifies or excludes
application of this Section 6(a) (the "Other Agreements"), and notwithstanding
any formal or informal plan or other arrangement heretofore or hereafter
adopted by the Company or any subsidiary or affiliate for the direct or
indirect compensation of Westbrook (including groups or classes of participants
or beneficiaries of which Westbrook is a member), whether or not such
compensation is deferred, is in cash, or is in the form of an option or other
benefit to or for Westbrook (a "Benefit Plan"), neither Westbrook nor the
Consultant shall have any right to receive any payment or other benefit under
this Agreement, any Other Agreement, or any Benefit Plan if such right to
exercise, payment, or benefit, taking into account all other rights, payments,
or benefits to or for Westbrook or the Consultant under this Agreement, all
Other Agreements, and all Benefit Plans, would cause any right, payment, or
benefit to Westbrook or the Consultant under this Agreement to be considered a
"parachute payment" within the meaning of Section 280G(b)(2) of the Internal
Revenue Code as then in effect (a "Parachute Payment").  In the event that the
receipt of any such right to exercise or any other payment or benefit under
this Agreement, any Other Agreement, or any Benefit Plan would cause Westbrook
to be considered to have received a Parachute Payment under this Agreement,
then Westbrook shall have the right, in Westbrook's sole discretion, to
designate those rights, payments, or benefits under this Agreement, any Other
Agreements, and/or any Benefit Plans, that should be reduced or eliminated so
as to avoid having the right, payment, or benefit to Westbrook or the
Consultant under this Agreement be deemed to be a Parachute Payment.

                 (b)      Construction.  Each party has cooperated in the
drafting and preparation of this Agreement.  Accordingly, this Agreement shall
not be construed against any party on the basis that the party was the drafter.

                 (c)      Counterparts.  This Agreement may be executed in
counterparts, and each counterpart, when executed, shall have the efficacy of a
signed original.  Photostatic copies of such signed counterparts may be used in
lieu of the originals for any purpose.



                                       10


<PAGE>   222
                 (d)      Consent to Jurisdiction.  All judicial proceedings
brought against the Company arising out of or relating to this Agreement must
be brought in a state or federal court of competent jurisdiction in the State
of California.  All judicial proceedings brought against the Consultant,
Westbrook or Colliflower, arising out of or relating to this Agreement must be
brought in a state or federal court of competent jurisdiction in the State of
Florida.  By execution and delivery of this Agreement the parties accept for
themselves, respectively, and in connection with their properties, generally
and unconditionally, the exclusive jurisdiction of the aforesaid courts and
waive any defense of forum non conveniens and irrevocably agree to be bound by
any judgment rendered thereby in connection with this Agreement, in each
respect to the maximum extent permitted by law.

                 (e)      Enforceability Representation.  Each party to this
Agreement represents that this Agreement constitutes the legally valid and
binding obligation of such party, enforceable against such party in accordance
with its terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting creditors'
rights generally (including, without limitation, fraudulent conveyance laws)
and by general principles of equity, including without limitation, concepts of
materiality, reasonableness, good faith and fair dealing and the possible
unavailability of specific performance or injunctive relief, regardless of
whether considered in a proceeding in equity or at law.

                 (f)      Consents.  Each of the parties further represents
that it is not required to submit any notice, report or other filing to or
obtain any consent or approval from any governmental authority or third party
under any agreement to which the party is a party or under any law to which it
is subject in order to execute, deliver and perform this Agreement as
contemplated hereby.

                 (g)      Waivers.  No waiver of any breach of any term or
provision of this Agreement shall be construed to be, or shall be, a waiver of
any other breach of this Agreement.  No waiver shall be binding unless in
writing and signed by the party waiving the breach.

                 (h)      Cooperation.  All parties agree to cooperate fully
and to execute any and all supplementary documents and to take all additional
actions that may be necessary or appropriate to give full force to the basic
terms and intent of this Agreement and which are not inconsistent with its
terms.

                 (i)      Opportunity to Review.  Westbrook and Colliflower
each represent and agrees that he or she has discussed all aspects of this
Agreement with an attorney of his or her choice, that he or she has carefully
read and fully understands all of



                                       11


<PAGE>   223
the provisions of this Agreement and that he, she and the Consultant are
voluntarily entering into this Agreement.

                 (j)      Attorney's Fees.  In the event of any action by any
party arising under or out of, in connection with or in respect of this
Agreement, including any participation in bankruptcy proceedings to enforce
against a party a right or claim in such proceedings, the prevailing party
shall be entitled to reasonable costs, expenses and attorneys' fees incurred in
such action.  Attorney's fees incurred in enforcing any judgment in respect of
this Agreement are recoverable as a separate item.  The parties intend that the
preceding sentence be severable from the other provisions of this Agreement,
survive any judgment and, to the maximum extent permitted by law, not be deemed
merged into such judgment.
                 (k)      Choice of Law.  This Agreement shall in all respects
be interpreted, enforced and governed under the laws of the State of Florida,
without regard to conflicts of laws principles.
                 (l)      No Reliance.  The Consultant, Westbrook and
Colliflower each represents and acknowledges that in executing this Agreement,
none of them has relied and has not relied on any representations or statements
made by Apria, the Company, or any of the Company's agents, representatives or
attorneys with regard to the subject matter, basis or effect of this Agreement,
or otherwise.

                 (m)      Severability.  Without limiting the provisions of
Section 4 hereof, should any provision of this Agreement be declared and/or be
determined by any court to be illegal or invalid, the validity of the remaining
parts, terms or provisions shall not be affected thereby.

                 (n)      Entire Agreement.  This Agreement constitutes and
contains the entire agreement and final understanding concerning Westbrook's
employment with and services to the Company, the termination of the employment
relationship,  Westbrook's voluntary resignation, the Consultant's relationship
(and Westbrook's new role through the Consultant), and the other subject matter
addressed herein between the parties (except for the Noncompetition Agreement
between them dated as of the Effective Date, to the extent (if any)  any such
other subject matter may be deemed to overlap with certain provisions thereof).
This Agreement is intended by the parties as a complete and exclusive statement
of the terms of their agreement.  It supersedes and replaces all prior
negotiations and all agreements proposed or otherwise, whether written or oral,
concerning the subject matters hereof, including but not limited to any and all
obligations of the Company under (i) the Employment Agreement; (ii) the
Split-Dollar Agreement dated as of December 10, 1992 by and among the Company,
Westbrook, and Martin Kalb, as Owner; (iii) the Indemnification Agreement dated
as of June 28, 1994 by



                                       12


<PAGE>   224
and between Company and Westbrook; (iv) the Stock Purchase Agreement dated as
of December 17, 1991 among the Company, Westbrook and Esther T.  Colliflower
(except for the indemnity provisions in favor of the Company provided therein);
(v) the Stock Purchase Agreement dated as of June 4, 1993 by and between the
Company and Westbrook; (vi) any SERP; and (vii) any other significant
compensatory benefits.  All of the Company's obligations under the Agreements
referenced under (i) to (vii) above shall terminate as of the Effective Date.
Any representation, promise or agreement not specifically included in the
Agreements shall not be binding upon or enforceable against either party.  This
is a fully integrated agreement.  No modification of this Agreement shall be
valid unless made in writing and signed by the parties hereto.

                 (o)      Succession.  This Agreement shall inure to the
benefit of and shall be binding upon Company, its successors and assigns, but
without the prior written consent of the Consultant this Agreement may not be
assigned other than to a transferee of all or a substantial part of the
business and/or its associated goodwill or to a purchaser of more than 10% of
the stock of Company or to Apria or any of its affiliates or subsidiaries.  The
obligations and duties of the Consultant, Westbrook and Colliflower hereunder
shall be personal and not assignable.

                 (p)      Injunctive Relief.  The Consultant, Westbrook and
Colliflower hereby acknowledge and agree that because of the unique services
and relationships contemplated by Section 3 hereof and for other reasons, any
breach of or default under this Agreement will cause damage to the Company in
an amount difficult to ascertain.  Accordingly, in addition to any other relief
to which the Company may be entitled, the Company shall be entitled, without
proof of actual damages, to such injunctive relief as may be ordered by any
court of competent jurisdiction including, but not limited to, an injunction
restraining any violation of Section 5 hereof.

                 (q)      Independent Agreements and Remedies.  This Agreement
is in addition to the Merger Agreement and the Noncompetition Agreement, and
Company's rights and remedies under this Agreement, and the Noncompetition
Agreement and under the Merger Agreement shall (except as otherwise expressly
provided) be independent, separate and distinct but shall be cumulative.

                 (r)      Representation of Westbrook.  Westbrook represents
that he shall render all services and perform all other obligations to be
performed by the Consultant as provided in this Agreement, and that the Company
shall have all rights, privileges and remedies granted to the Company in
respect of the Consultant and may pursue the same against Westbrook, if the
Consultant shall fail to perform.

                 (s)      Notice.  For purposes of this Agreement, notices and
all other communications provided for in this Agreement shall


                                       13



<PAGE>   225
be in writing and shall be deemed to have been duly given when hand delivered,
sent by overnight courier, or mailed by first-class, registered or certified
mail, return receipt requested, postage prepaid, or transmitted by telegram,
telecopy, or telex, addressed as follows:

                 If to the Company:

                          Vitas Healthcare Corporation
                          c/o Ray Noeker
                          Apria Healthcare Group, Inc.
                          94 Holmes Road
                          Newington, Connecticut 06111
                          Tel. No. 203/666-6199 x2306
                          Fax No. 203/666-5205

                 with a copy (which shall not constitute notice but shall be
                 essential to a valid notice to Company) to:

                          Apria Healthcare Group Inc.
                          3560 Hyland Avenue
                          Costa Mesa, CA  92626
                          Attention:  Robert S. Holcombe, Esq.



                          Telecopy No.:  714/427-4332

                 If to the Consultant or Westbrook:

                          Reverend Hugh A. Westbrook
                          Collibrook Consulting Services Inc.
                          158 South Prospect Drive
                          Coral Gables, Florida  33133

                 with a copy (which shall not constitute notice) to:

                          Greenberg, Traurig, Hoffman, Lipoff,
                             Rosen & Quentel, P.A.
                          1221 Brickell Avenue
                          Miami, Florida  33131
                          Attention:  Martin Kalb, Esq.
                          Telecopy No.:  (305) 579-0717

                 If to Colliflower:

                             Esther T. Colliflower

                             ---------------------

                             ---------------------

                             --------------------- 
                                               

                 (t)      Revocation.  This Agreement may be revoked by
Westbrook at any time prior to the Effective Date; provided that a written
notice of such revocation be signed by Westbrook and hand-delivered to and
received by the Company prior to the


                                       14



<PAGE>   226
Effective Date at the address noted above.  A copy of such notice shall be
delivered also to Apria Healthcare Group, Inc. at the address noted above.

                 (u)      Third Party Beneficiary.  The parties agree that
Apria and its subsidiaries shall be express third party beneficiaries of the
Consultant's, Westbrook's and Colliflower's obligations under this Agreement.



                                       15


<PAGE>   227
         IN WITNESS WHEREOF, the parties hereto, having first read the same,
have set their names as of the date first written above.

         PLEASE READ CAREFULLY.  THIS AGREEMENT INCLUDES A RELEASE OF ALL KNOWN
AND UNKNOWN CLAIMS.





                                           __________________________________
                                           HUGH A. WESTBROOK

                                           Date of Execution:  __________, 1996


                                           VITAS HEALTHCARE CORPORATION


                                           By: _______________________________

                                           Title: ____________________________

                                           Date of Execution:  ___________, 1996



                                           COLLIBROOK CONSULTANTS, INC.


                                           By: _______________________________

                                           Title: ____________________________

                                           Date of Execution:  ___________, 1996



                                           __________________________________
                                           ESTHER COLLIFLOWER

                                           Date of Execution:  __________, 1996


ACKNOWLEDGED:

APRIA HEALTH CARE GROUP, INC.


By: __________________________





                                       16
                                       
<PAGE>   228
                               EXHIBIT 5.14(B)

                                      TO

                         AGREEMENT AND PLAN OF MERGER

                                 (APPENDIX A)










                            NONCOMPETITION AGREEMENT

                              MADE BY AND BETWEEN

                               HUGH A. WESTBROOK

                                      AND

                          VITAS HEALTHCARE CORPORATION

                             AS OF __________, 1996
<PAGE>   229





                               TABLE OF CONTENTS

   
<TABLE>
<CAPTION>
                                                                       Page
                                                                       ----
          <S>                                                           <C>
          RECITALS  . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

          1.   Substance and Scope  . . . . . . . . . . . . . . . . . .   2
          2.   Trade Secrets  . . . . . . . . . . . . . . . . . . . . .   2
          3.   Payments . . . . . . . . . . . . . . . . . . . . . . . .   3
          4.   Reasonableness of Restrictions and Enforceability  . . .   3
          5.   Miscellaneous Provisions . . . . . . . . . . . . . . . .   4
               (a)  Third Party Beneficiaries . . . . . . . . . . . . .   4
               (b)  Parachute Limitations . . . . . . . . . . . . . . .   4
               (c)  Construction  . . . . . . . . . . . . . . . . . . .   4
               (d)  Counterparts  . . . . . . . . . . . . . . . . . . .   4
               (e)  Consent to Jurisdiction . . . . . . . . . . . . . .   5
               (h)  Waivers . . . . . . . . . . . . . . . . . . . . . .   5
               (i)  Cooperation . . . . . . . . . . . . . . . . . . . .   5
               (j)  Opportunity to Review . . . . . . . . . . . . . . .   5
               (k)  Attorney's Fees . . . . . . . . . . . . . . . . . .   6
               (l)  Choice of Law . . . . . . . . . . . . . . . . . . .   6
               (m)  No Reliance . . . . . . . . . . . . . . . . . . . .   6
               (n)  Severable Covenants . . . . . . . . . . . . . . . .   6
               (o)  Entire Agreement; Changes . . . . . . . . . . . . .   6
               (p)  Succession  . . . . . . . . . . . . . . . . . . . .   6
               (q)  Injunctive Relief . . . . . . . . . . . . . . . . .   7
               (r)  Independent Agreements and Remedies . . . . . . . .   7
               (s)  Notice  . . . . . . . . . . . . . . . . . . . . . .   7

</TABLE>
    





                                          i
<PAGE>   230





                            NONCOMPETITION AGREEMENT



                 This Noncompetition Agreement (this "Agreement") is made by
and between HUGH A. WESTBROOK ("Westbrook") and VITAS HEALTHCARE CORPORATION
(the "Company") and APRIA HEALTHCARE GROUP INC. ("Apria") as of __________,
1996.




                                    RECITALS

                 A.       Westbrook is a founder and (until the date hereof)
principal shareholder of the Company, has been instrumental in developing and
expanding the business and operations of the Company and obtaining its
financing, possesses valuable knowledge and skills with respect to such
business, has had and will continue to have access to proprietary and
confidential business and technical information of the Company, including its
trade secrets, and maintains strong ties with the business community
significant to the business and growth of the Company.

                 B.       On the date hereof, Apria Healthcare Group Inc.
("Apria") is acquiring control of the Company under the terms of an Agreement
and Plan of Merger, dated as of June 28, 1996, as amended, among Apria, its
wholly-owned subsidiary, and the Company (the "Merger Agreement") pursuant to
which Westbrook's shares and options in the Company are being converted into
shares of Apria in the merger of Apria's wholly-owned subsidiary with and into
the Company (the "Merger").

                 C.       Apria has conditioned the Merger on the execution and
delivery of this Agreement.

                 D.       To induce Apria to enter into the Merger Agreement
and to consummate the Merger, and to enable Apria to protect and preserve the
value of the Company and of the business assets, capital stock and goodwill of
the Company over which Apria gains control upon the consummation of the Merger,
Westbrook has agreed to enter into this Noncompetition Agreement and provides
certain covenants to the Company for the benefit of the Company and Apria.

                 E.       Westbrook has entered into a Consulting, Severance
and Confidentiality Agreement by and between Westbrook, Collibrook Consultants,
Inc. ("Collibrook"), Esther Colliflower and the Company that becomes effective
concurrently herewith (the "Consulting Agreement").



                                       1

<PAGE>   231
                 NOW THEREFORE, in consideration of the mutual promises and
covenants herein contained, the Company and Westbrook and Apria hereby agree as
follows:

   
         1.      Substance and Scope.  Westbrook agrees that until the day
before the seventh anniversary or, with respect to trade secrets, the tenth
anniversary of this Agreement, he will not, directly or indirectly, for his own
benefit or as agent for another, carry on or participate in the ownership,
management or control of, or be employed by, or serve as director of, or consult
for, or license or provide know how to, or otherwise render services to, as a
consultant, independent contractor or otherwise, or allow his name or reputation
to be used in or by, any other present or future business enterprise providing
or arranging for hospice, hospice care, home health care or similar services or
otherwise directly or indirectly competing with the Company or its current or
future subsidiaries or affiliates in any of the lines of business in which the
Company or such subsidiaries or affiliates are now or during the term hereof
engaged, throughout each and all of the United States of America to the maximum
extent permitted by law (the "Locations"); provided that nothing contained
herein shall limit the right of Westbrook, as an investor, to hold and make
investments in securities of any corporation or other entity that competes in
the lines of business in which the Company, its subsidiaries or its affiliates
are engaged that (1) is owned indirectly by Westbrook through a venture capital
or other similar type of fund and Westbrook's aggregate direct and indirect
interests do not exceed 5% of the outstanding equity interests in such
corporation or other entity or (2) is registered on a national securities
exchange or admitted to trading privileges thereon or actively traded in a
generally recognized over-the-counter market, provided that the aggregate of all
Westbrook's direct and indirect equity interests therein does not exceed 2% of
the outstanding equity interests in such corporation or other entity. 
    

         2.      Trade Secrets.  Westbrook acknowledges that he has held a
sensitive management position with the Company and will continue to perform
services for the Company as provided in the Consulting Agreement and that, by
virtue of having held such position, he has had access to and has learned (and
will continue to have access to and to learn) the Company's and its
subsidiaries' and affiliates' confidential and proprietary information and
trade secrets pertaining to its business and operations.  Examples of such
proprietary information and trade secrets include, but are not limited to,
information as to Company's products, services, systems, software, finances
(including prices, costs and revenues), marketing plans, programs, methods of
operation, prospective and existing contracts, other business arrangements or
business plans, procedures, strategies (including acquisition strategies),
customer lists, referral sources, lists of doctors, and other


                                       2



<PAGE>   232
information concerning the Company's practices and procedures.  Westbrook
represents that he has held all such information confidential and will continue
to do so and that he shall not disclose any such information to any other
person, except as may be required by law or as may (with the consent of the
Company) be necessary in furtherance of his performance of the Consulting
Services under the Consulting Agreement.  Without limiting the generality of
the foregoing, Westbrook agrees that he will not respond to or in any way
participate in or contribute to any public discussion, notice or other
publicity concerning or in any way related to proprietary or confidential
information concerning the Company, its subsidiaries, affiliates, operations,
officers or directors.  Westbrook further agrees that any disclosure by him of
any of the information referred to herein shall constitute a material breach of
this Agreement and, in addition to other remedies available to the Company,
shall entitle it to cease any further payments hereunder.

         3.      Payments.  For the covenants in Sections 1 and 2, the Company
agrees to pay Westbrook an aggregate amount of $7,000,000 payable in three
installments as follows:  $5,000,000 on the Effective Date, and $1,000,000 on
each of the first two anniversaries of the Effective Date.

         4.      Reasonableness of Restrictions and Enforceability.  By virtue
of the conversion of Westbrook's shares of the Company's Common Stock and
options pursuant to the Merger Agreement, Westbrook shall be deemed a "seller"
of the shares of a corporation.  Given Westbrook's position as a seller, a
founder, a former major shareholder, the former Chief Executive Officer and
Chairman of the Board of the Company and his strong business and community ties
significant to the business and growth of the Company, Westbrook acknowledges
that the restrictions set forth in this section are reasonable both
individually and in the aggregate and that the duration, geographic scope,
extent and application of each of such restrictions is no greater than is
necessary for the protection of the legitimate business interests of the
Company, which include but are not limited to the Company's trade secrets and
other valuable confidential business information, the Company's substantial
relationships with prospective or existing customers, patients or clients, and
goodwill associated with the Company's business.  It is the desire and intent
of the parties hereto that the provisions of this Agreement shall be enforced
to the fullest extent permissible under the laws and public policies applied in
each jurisdiction in which enforcement is sought.  If any particular provision
or portion of this Section shall be adjudicated to be invalid or unenforceable,
such adjudication shall apply only with respect to the operation of such
provision to that extent and in the particular jurisdiction in which such
adjudication is made.  Further, in the event that any restriction herein shall
be found to be void or unenforceable for its term or scope but would be valid
or enforceable if some part or parts thereof were deleted


                                       3



<PAGE>   233
or the period or area of application reduced, each of the parties hereby agrees
that the applicable restriction shall apply with such modifications as may be
necessary to make it valid and enforceable.

         5.      Miscellaneous Provisions.

                 (a)      Third Party Beneficiaries.  The parties agree and
intend that Apria and its subsidiaries and other affiliates are and will be
express third party beneficiaries of the covenants set forth in this Agreement.

                 (b)      Parachute Limitations.  Notwithstanding any other
provision of this Agreement or of any other agreement, contract, or
understanding heretofore, concurrently or hereafter entered into by Westbrook
with the Company or any subsidiary or affiliate, except an agreement, contract,
or understanding hereafter entered into that expressly modifies or excludes
application of this Section 5(b) (the "Other Agreements"), and notwithstanding
any formal or informal plan or other arrangement heretofore or hereafter
adopted by the Company or any subsidiary or affiliate for the direct or
indirect compensation of Westbrook (including groups or classes of participants
or beneficiaries of which Westbrook is a member), whether or not such
compensation is deferred, is in cash, or is in the form of an option or other
benefit to or for Westbrook (a "Benefit Plan"), Westbrook shall not have any
right to receive any payment or other benefit under this Agreement, any Other
Agreement, or any Benefit Plan if such right to exercise, payment, or benefit,
taking into account all other rights, payments, or benefits to or for Westbrook
under this Agreement, and Westbrook and/or the Consultant under the Consulting
Agreement, all Other Agreements, and all Benefit Plans, would cause any right,
payment, or benefit to Westbrook under this Agreement to be considered a
"parachute payment" within the meaning of Section 280G(b)(2) of the Internal
Revenue Code as then in effect (a "Parachute Payment").  In the event that the
receipt of any such right to exercise or any other payment or benefit under
this Agreement, any Other Agreement, or any Benefit Plan would cause Westbrook
to be considered to have received a Parachute Payment under this Agreement,
then Westbrook shall have the right, in Westbrook's sole discretion, to
designate those rights, payments, or benefits under this Agreement, any Other
Agreements, and/or any Benefit Plans, that should be reduced or eliminated so
as to avoid having the right, payment, or benefit to Westbrook under this
Agreement be deemed to be a Parachute Payment.

                 (c)      Construction.  Each party has cooperated in the
drafting and preparation of this Agreement.  Accordingly, this Agreement shall
not be construed against any party on the basis that the party was the drafter.



                                       4


<PAGE>   234
                 (d)      Counterparts.  This Agreement may be executed in
counterparts, and each counterpart, when executed, shall have the efficacy of a
signed original.  Photostatic copies of such signed counterparts may be used in
lieu of the originals for any purpose.

                 (e)      Consent to Jurisdiction.  All judicial proceedings
brought against the Company arising out of or relating to this Agreement must
be brought in a state or federal court of competent jurisdiction in the State
of California.  All judicial proceedings brought against Westbrook arising out
of or relating to this Agreement must be brought in a state or federal court of
competent jurisdiction in the State of Florida.  By execution and delivery of
this Agreement,  the Company, Apria and Westbrook accept for themselves,
respectively, and in connection with their properties, generally and
unconditionally, to the extent permitted by law, the exclusive jurisdiction of
the aforesaid courts and waive any defense of forum non conveniens and
irrevocably agree to be bound by any judgment rendered thereby in connection
with this Agreement.

                 (f)      Enforceability Representation.  Each party to this
Agreement represents that this Agreement constitutes the legally valid and
binding obligation of such party, enforceable against such party in accordance
with its terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting creditors'
rights generally (including, without limitation, fraudulent conveyance laws)
and by general principles of equity, including without limitation, concepts of
materiality, reasonableness, good faith and fair dealing and the possible
unavailability of specific performance or injunctive relief, regardless of
whether considered in a proceeding in equity or at law.

                 (g)      Consents.  Neither Westbrook nor the Company is
required to submit any notice, report or other filing to or obtain any consent
or approval from any governmental authority or third party under any agreement
to which either the Company or Westbrook is a party in order to execute,
deliver and perform this Agreement as contemplated hereby.

                 (h)      Waivers.  No waiver of any breach of any term or
provision of this Agreement shall be construed to be, or shall be, a waiver of
any other breach of this Agreement.  No waiver shall be binding unless in
writing and signed by the party waiving the breach.

                 (i)      Cooperation.  All parties agree to cooperate fully
and to execute any and all supplementary documents and to take all additional
actions that may be necessary or appropriate to give full force to the basic
terms and intent of this Agreement and which are not inconsistent with its
terms.


                                       5



<PAGE>   235
                 (j)      Opportunity to Review.  Westbrook represents and
agrees that he has discussed all aspects of this Agreement with an attorney of
his choice, that he has carefully read and fully understands all of the
provisions of this Agreement and that he is voluntarily entering into this
Agreement.

                 (k)      Attorney's Fees.  In the event of any action by any
party arising under or out of, in connection with or in respect of this
Agreement, the prevailing party shall be entitled to reasonable costs, expenses
and attorneys' fees incurred in such action.  Attorney's fees incurred in
enforcing any judgment in respect of this Agreement are recoverable as a
separate item.  The parties intend that the preceding sentence be severable
from the other provisions of this Agreement, survive any judgment and, to the
maximum extent permitted by law, not be deemed merged into such judgment.

                 (l)      Choice of Law.  This Agreement shall in all respects
be interpreted, enforced and governed under the laws of the State of Florida,
without regard to conflicts of laws principles.

                 (m)      No Reliance.  Westbrook represents and acknowledges
that in executing this Agreement, he does not rely and has not relied on any
representations or statements made by the Company, or any of the Company's
agents, representatives or attorneys with regard to the subject matter, basis
or effect of this Agreement, or otherwise.

                 (n)      Severable Covenants.  The parties hereto intend that
the covenants set forth in Sections 1 and 2 hereof shall be construed as a
series of separate covenants, each consisting of the covenants set forth in
Sections 1 and 2 for each of the Locations.  Except for such Locations, all
such separate covenants shall be deemed identical.  It is the desire and intent
of the parties hereto that the provisions of this Agreement shall be enforced
to the fullest extent permissible under the laws and public policies applied in
each jurisdiction in which enforcement is sought.  Without limiting the
generality of Section 4 hereof, if any particular provision or portion of this
Agreement shall be adjudicated to be invalid or unenforceable, such
adjudication shall apply only with respect to the operation of this Agreement
in the particular jurisdiction in which such adjudication is made.

                 (o)      Entire Agreement; Changes.  This Agreement
constitutes the entire agreement and final understanding between Westbrook and
the Company and Apria concerning the subject hereof and supersedes any prior
negotiations and all agreements whether existing, proposed or otherwise,
whether written or oral, concerning the subject hereof, subject to provisions
of other agreements that may expressly authorize an offset to any payments by
the Company hereunder.  No modification of this Agreement



                                       6


<PAGE>   236
shall be valid unless made in writing and signed by the parties hereto.

                 (p)      Succession.  This Agreement shall inure to the
benefit of and shall be binding upon the parties and, as to the corporate
parties, their respective successors and assigns, but without the prior written
consent of Westbrook this Agreement may not be assigned other than to a
transferee of all or a substantial part of the business and/or its associated
goodwill or to a purchaser of more than 10% of the stock of Company or to Apria
or any of its affiliates or subsidiaries.  The obligations and duties of
Westbrook hereunder shall be personal and not assignable.

                 (q)      Injunctive Relief.  Westbrook hereby acknowledges and
agrees that any breach of or default under this Agreement will cause damage to
the Company and Apria in an amount difficult to ascertain.  Accordingly, in
addition to any other relief to which Company may be entitled, Company and
Apria shall be entitled, without proof of actual damages, to such injunctive
relief as may be ordered by any court of competent jurisdiction including, but
not limited to, an injunction restraining any violation of Section 1 or 2
hereof.

                 (r)      Independent Agreements and Remedies.  This Agreement
is in addition to the Merger Agreement and the parties' rights and remedies
under this Agreement and under the Merger Agreement shall be independent,
separate and distinct, but also shall be cumulative.

                 (s)      Notice.  For purposes of this Agreement, notices and
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when hand delivered, sent by overnight
courier, or mailed by first-class, registered or certified mail, return receipt
requested, postage prepaid, or transmitted by telegram, telecopy, or telex,
addressed as follows:

                 If to the Company:

                          Vitas Healthcare Corporation
                          c/o Ray Noeker
                          Apria Healthcare Group, Inc.
                          94 Holmes Road
                          Newington, Connecticut 06111
                          Tel. No. 203/666-6199 x2306
                          Fax No. 203/666-5205

                 with a copy (which shall not constitute notice but shall be
                 essential to a valid notice to the Company) to:



                                       7


<PAGE>   237
                          Apria Healthcare Group Inc.
                          3560 Hyland Avenue
                          Costa Mesa, CA  92626
                          Attention:  Robert S. Holcombe, Esq.
                          Telecopy No.:  714/427-4332

                 If to Apria:  as set forth above

                 If to Westbrook:

                          Reverend Hugh A. Westbrook
                          158 South Prospect Drive
                          Coral Gables, Florida  33133

                 with a copy (which shall not constitute notice) to:

                          Greenberg, Traurig, Hoffman, Lipoff,
                             Rosen & Quentel, P.A.
                          1221 Brickell Avenue
                          Miami, Florida  33131
                          Attention:  Martin Kalb, Esq.
                          Telecopy No.:  (305) 579-0717


         IN WITNESS WHEREOF, the parties hereto, having first read the same,
have set their names as of the date first written above.


                                             __________________________________
                                             HUGH A. WESTBROOK

                                             Date of Execution __________, 1996



                                             VITAS HEALTHCARE CORPORATION


                                             By:_______________________________

                                             Title: ___________________________

                                             Date of Execution __________, 1996




APRIA HEALTHCARE GROUP INC.


By: ______________________

Its: _____________________



                                       8


<PAGE>   238
                         ACKNOWLEDGEMENT AND AGREEMENT 




                 Collibrook Consulting, Inc. agrees to be bound by the
commitments of Hugh A. Westbrook in the foregoing NonCompetition Agreement to
the same extent as Hugh A. Westbrook, to and for the benefit of the Company and
Apria and their respective affiliates.




                                        COLLIBROOK CONSULTING, INC.



                                        By: _______________________



                                       9


<PAGE>   239


                                   APPENDIX B



                     [SIGNIFICANT SECURITYHOLDERS AGREEMENT]


                                       B-1
<PAGE>   240
 
                                                                      APPENDIX B
 
                     SIGNIFICANT SECURITYHOLDERS AGREEMENT
 
                                                                   June 28, 1996
 
Apria Healthcare Group Inc.
3560 Hyland Avenue
Costa Mesa, California 92626
Attn: Jeremy M. Jones
 
Re: Agreement of Principal Securityholders Concerning Transfer and Voting of
    Securities of Vitas Healthcare Corporation (the "COMPANY")
 
     Each of the undersigned understands that you and the Company, of which the
undersigned are securityholders, are prepared to enter into an Agreement and
Plan of Merger dated as of June 28, 1996 (the "AGREEMENT") calling for the
Merger of your wholly-owned subsidiary ("SUB") into the Company, but that you
have conditioned your willingness to proceed with the Agreement upon your
receipt from each of the undersigned of assurances satisfactory to you of each
of the undersigned's support of and commitment to the Merger on the terms set
forth in the Agreement.
 
     For valid consideration, the receipt of which is hereby acknowledged, and
to evidence such commitment and induce you to enter into the Agreement, each of
the undersigned hereby, in our capacity solely as a securityholder of Vitas,
severally but not jointly, represents and warrants to you and agrees with you as
follows:
 
     1. DEFINED TERMS.  Capitalized terms not defined herein are used as defined
in the Agreement.
 
     2. VOTING.  Until August 31, 1996 or, if the Agreement is extended in
accordance with its terms or by mutual written agreement of the parties thereto,
such extended date, or, if the Agreement is terminated earlier than August 31,
1996 or such extended date by the Company under clause (iii) of Section 7.4 of
the Agreement (i.e., the Company accepts a Competing Proposal in accordance with
the provisions of Subsection 4.2.2) such earlier date, each of the undersigned
(a) will vote or cause to be voted all shares of capital stock of the Company
owned of record or beneficially or held in any capacity by or under the control
of any of the undersigned and entitled to vote in favor of the Merger and
transactions contemplated by the Agreement and against any inconsistent actions,
proposals or transactions and (b) will not claim or exercise any dissenter or
appraisal rights with respect to the Merger.
 
     3. OWNERSHIP.  As of the date of this letter agreement, each of the
undersigned's only ownership of, or interest in, equity securities, including
convertible securities, of the Company consists solely of the interests
described in Schedule 1 hereto (collectively, the "Securities") (including if
appropriate, a notation of any pledges of the Securities).
 
     4. EXCLUSIVE DEALING; RESTRICTION ON TRANSFER.  Until August 31, 1996 or,
if the Agreement is extended in accordance with its terms or by mutual written
agreement of the parties thereto, such extended date, or, if the Agreement is
terminated earlier than August 31, 1996 or such extended date by the Company
under clause (iii) of Section 7.4 of the Agreement (i.e., the Company accepts a
Competing Proposal in accordance with the provisions of Subsection 4.2.2) such
earlier date, each of the undersigned, except as required by the Merger or as
otherwise contemplated by the Agreement, will not sell, transfer, pledge or
otherwise dispose of any of the Securities or any interest therein or agree to
sell, transfer, pledge or otherwise dispose of any of the Securities or any
interest therein or solicit offers to do or entertain discussions or negotiate
to do any of the foregoing, without your express written consent.
<PAGE>   241
 
     5. LEGENDS.  Each of the undersigned securityholders agrees as promptly as
possible to take reasonable steps to cause the certificates evidencing the
Securities of such securityholder to be legended to refer to this letter
agreement and the foregoing restrictions on transfer. By its acknowledgement,
the Company agrees not to remove any legend without your advance written
consent.
 
     6. AGREEMENTS TO SELL, EXCHANGE AND CONVERT.  The undersigned holder or
holders of the 9% Preferred hereby agree to sell the 9% Preferred to you for a
cash price on the terms and conditions set forth in Subsection 2.1.4 and Section
5.16 and Subsection 6.2.7 of the Agreement. The undersigned holder or holders of
the Warrants hereby agree to exchange the Warrants and all associated rights,
preferences and restrictions set forth in the Investors Agreement dated December
17, 1991, for shares of your Common Stock on the terms and conditions set forth
in Subsection 2.1.6 and Subsection 6.2.7 of the Agreement. The undesigned
holders of the Series B Preferred hereby agree to convert such shares and all
associated rights, preferences and restrictions set forth in the Stockholders'
Agreement dated June 4, 1993, into shares of your Common Stock in accordance
with the terms and conditions set forth in Subsections 2.1.5 and 6.2.8 of the
Agreement.
 
     7. PRE- AND POST-MERGER SALE RESTRICTIONS; OTHER CONDITIONS.  To the extent
applicable to any securities of the Company held of record or beneficially by
the undersigned securityholder, each such undersigned securityholder agrees to
the terms and conditions contemplated by Sections and Subsections 2.1.7, 2.1.8,
2.1.9, 2.1.10, 2.1.11, 2.1.12, 2.2.8, 4.2, 5.1, 5.4, 5.10, 5.16, 6.2.7, 6.2.8,
6.2.9, and 6.2.11 of the Agreement, and each of the undersigned securityholders
will execute such further agreements, documents and instruments and take such
further actions including those contemplated by the foregoing Sections and
Subsections as you may reasonably request to implement this letter agreement.
 
     8. WAIVER OF RIGHTS; TERMINATION OF AGREEMENTS.  To the extent applicable
to any securities of the Company held of record or beneficially by the
undersigned securityholders each such undersigned securityholder hereby
irrevocably waives any and all rights of first refusal and other similar rights,
advance notice rights, election rights and other similar rights, and contractual
and other pre-emptive rights and other similar rights, which would be in
conflict with or variance from or which would otherwise be required or called
for in order to effect the treatment of the Series B Preferred, 9% Preferred,
Warrants and Stock Options as contemplated by the Merger and other transactions
contemplated under the Agreement and which are contained in the Preferred Stock
Certificates, the Warrants, the Investor Agreement, the Stockholders' Agreement
and any stock option or other agreements entered into with the Company. Without
limiting the foregoing, (a) the undersigned holder or holders of the 9%
Preferred acknowledge that such waivers shall include without limitation a
waiver of all rights under Section 8(b) of the 9% Preferred Certificate, (b) the
undersigned holder or holders of the Warrants acknowledge that such waivers
shall include without limitation a waiver of all rights under Section 6 of each
of the Warrants, (c) the undersigned holder or holders of the Series B Preferred
acknowledge that such waivers shall include without limitation a waiver of all
rights under Section 4(g) of the Series B Preferred Certificate and (d) the
undersigned who are "Investors" as such term is defined in the Stockholders'
Agreement acknowledge that such waivers shall include without limitation a
waiver of all rights under Section 3.9 et seq. of the Stockholders' Agreement.
The Company, Apria, Sub and their respective outside accountants, counsel and
financial advisors shall be entitled to rely upon the waivers set forth in this
Paragraph 8 for the purposes of consummating the Merger and other transactions
contemplated by the Agreement. Furthermore, the undersigned who are parties to
the aforementioned Investors Agreement and Stockholders' Agreement agree to
cause such agreements to be terminated as of the Closing Date, subject to
consummation of the Merger.
 
     9. AFFILIATE LETTERS.  Concurrently herewith, each of the undersigned is
executing and delivering to you an affiliate letter in the form attached to the
Agreement as Exhibit 5.10.1.
 
     10. INDEMNIFICATION.  Each of the undersigned securityholders severally but
not jointly agrees to indemnify you and Sub and hold you and Sub harmless from
and against any Loss (as defined below) that you or Sub may incur, directly or
indirectly, as a result of any breach of this letter agreement or any material
misrepresentation or omission in the Proxy Statement in respect of information
with respect to such securityholder provided you furnish to the affected
securityholder an opportunity to review and comment on any such information
prior to any use thereof.
 
                                        2
<PAGE>   242
 
     As used herein, "LOSS" means any cost, damage, disbursement, expense,
liability, loss, deficiency, diminution in value, obligation, penalty or
settlement of any kind or nature, whether foreseeable or unforeseeable,
including but not limited to, interest or other carrying costs, penalties,
legal, accounting and other professional fees and expenses reasonably incurred
in the investigation, collection, prosecution and defense of claims and amounts
paid in settlement, that may be imposed on or otherwise incurred or suffered by
the specified person; provided, however, that no undersigned securityholder
shall have any obligation under this Section 10 for any amounts paid in
settlement unless such undersigned securityholder shall have consented to such
settlement (such consent not to be unreasonably withheld).
 
     This indemnity will survive the Merger for a period of one year.
 
     11. SUCCESSION; REMEDIES.  Upon your acceptance and execution of the
Agreement, this letter agreement will mutually bind and benefit you and each of
the undersigned, any of the undersigned's heirs, successors and assigns and any
of your successors. You will not assign any of your rights or obligations under
this letter agreement other than to one of your wholly-owned subsidiaries. Each
of the undersigned agrees that in light of the inadequacy of damages as a
remedy, specific performance will be available to you, in addition to any other
remedies you may have for the violation of this letter agreement.
 
     12. NATURE OF HOLDINGS; SECURITIES.  All references herein to each of the
undersigned's holdings of the Securities are deemed to include Securities held
or controlled by any of the undersigned individually, jointly (as community
property or otherwise), in trust (excluding the ESOP), by or through
partnerships or other entities or in any other capacity, and will extend to any
securities, cash or other property issued to any of the undersigned by the
Company in respect of the Securities prior to the Effective Time.
 
     13. TERMINATION.  If the Agreement terminates in accordance with its terms
other than because of any securityholder's default, misrepresentation or breach
under this letter agreement, this letter agreement will also terminate. Nothing
in this Paragraph 13 shall affect the period of time in which by their terms
Paragraphs 2 and 4 remain in effect.
 
                                        3
<PAGE>   243
 
     14. COUNTERPARTS.  This Agreement may be executed in two or more
counterparts, each of which shall be considered an original, but all of which
together shall constitute one and the same instrument.

                                          Very truly yours,
 
/s/ Esther Colliflower                    /s/ Hugh A. Westbrook
-------------------------------------     -------------------------------------
  Esther Colliflower                      Hugh A. Westbrook


                                          /s/ Carole S. Westbrook
                                          -------------------------------------
                                          Carole S. Westbrook

 
COLLIFLOWER FAMILY                        WESTBROOK FAMILY PARTNERSHIP, LTD.    
  PARTNERSHIP, LTD.                       By: Westbrook Family Corporation      
                                              (its General Partner)             
By: The Colliflower Family Corporation                                          
    (its General Partner)                 By: /s/ Hugh A. Westbrook
                                              -------------------------------   
By: /s/ Esther T. Colliflower                 Hugh A. Westbrook                 
    -------------------------------           President                         
    Esther T. Colliflower                                                       
    President                                                                   
                                          GALEN PARTNERS II, L.P.               
                                                                                
OCR HOLDING COMPANY                       By: GWW Partners, L.P.                
                                              (its General Partner)             
By: /s/ Naomi C. Dallob                                                   
    -------------------------------       By: /s/ William R. Grant
    Naomi C. Dallob                           -------------------------------   
    Secretary                                 William R. Grant
                                              General Partner
                                                                       
CHEMED CORPORATION                        GALEN PARTNERS INTERNATIONAL II, L.P. 
                                                                                
By: /s/ Timothy S. O'Toole                By: GWW Partners, L.P.                
    -------------------------------           (its General Partner)             
    Timothy S. O'Toole
    Executive Vice President

                                          By: /s/ William R. Grant
WARBURG, PINCUS INVESTOR                      -------------------------------   
                                              William R. Grant        
                                              General Partner        
By: Warburg Pincus & Co.
    (its General Partner)                 GALEN EMPLOYEE FUND, L.P.             
                                                                                
By: /s/ Patrick T. Hackett                By: /s/ Bruce F. Wesson
    -------------------------------           -------------------------------   
    Patrick T. Hackett                        Bruce F. Wesson
    Partner                                   General Partner
                                 
ACCEPTED:                                 AGREED TO THE EXTENT APPLICABLE:      
APRIA HEALTHCARE GROUP INC.               VITAS HEALTHCARE CORPORATION          
                                                                                
By: /s/ Jeremy M. Jones                   By: /s/ Hugh A. Westbrook
    -------------------------------           -------------------------------   
                                      
                                       
 
                                        4
<PAGE>   244

                                   APPENDIX C



                 [FAIRNESS OPINION OF VITAS' FINANCIAL ADVISOR]



                                       C-1
<PAGE>   245
 
                                                                      APPENDIX C
 
                                                                   June 28, 1996
 
Board of Directors
Vitas Healthcare Corporation
100 South Biscayne Boulevard
Miami, Florida 33131
 
Ladies and Gentlemen:
 
     We understand that Apria Healthcare Group, Inc. ("APRIA"), Vitas Healthcare
Corporation (the "COMPANY"), and Apria Number Two, Inc., a wholly owned
subsidiary of Apria ("MERGER SUB"), have entered into an Agreement and Plan of
Merger, dated as of June 28, 1996 (the "MERGER AGREEMENT"), which provides for,
among other things, the merger of Merger Sub into the Company (the "MERGER").
Pursuant to the Merger, the Company will become a wholly owned subsidiary of
Apria and each issued and outstanding share of common stock, par value $.001 per
share ("COMMON STOCK") of the Company, other than any shares of Common Stock of
the Company owned by Apria or any subsidiary of Apria or by the Company or any
subsidiary of the Company, will be converted into the right to receive a number
of shares of common stock, par value $.001 per share of Apria ("APRIA COMMON
STOCK"), equal to the Exchange Ratio (as defined in the Merger Agreement). The
Merger is intended to be accounted for as a "pooling of interests," and with
your consent, we have assumed the same to be true. The terms and conditions of
the Merger are more fully set forth in the Merger Agreement.
 
     You have asked for our opinion as to whether the consideration to be
received by the holders of Common Stock of the Company other than Apria and its
affiliates pursuant to the Merger Agreement is fair from a financial point of
view to such holders. Our opinion only addresses consideration to be received by
the holders of Common Stock of the Company pursuant to Article II and other
applicable provisions of the Merger Agreement.
 
     In conducting our analysis and arriving at our opinion as expressed herein,
we have reviewed and analyzed, among other things, the following:
 
        (i)   The Merger Agreement and the Significant Securityholders Agreement
              dated as of June 28, 1996, as referred to in the Merger Agreement;
 
        (ii)  Apria and its predecessors' Annual Reports on Form 10-K for the
              fiscal years ended December 31, 1993, December 31, 1994 and
              December 31, 1995 and Form 10-Q for the quarter ended March 31,
              1996;
 
        (iii) publicly available information concerning the industry which
              Furman Selz believed to be relevant to its inquiry;
 
        (iv)  financial and operating information with respect to the business,
              operations and prospects of the Company furnished to Furman Selz
              by the Company and of Apria supplied to Furman Selz by Apria;
 
        (v)   a comparison of the financial positions and operating results of
              the Company and Apria with those of publicly traded companies
              Furman Selz deemed relevant;
 
        (vi)  certain publicly available information concerning the trading of
              and the market for Apria Common Stock; and
 
        (vii) a comparison of certain financial terms of the Merger to certain
              financial terms of selected business combinations Furman Selz
              deemed relevant.
 
     We have also met with certain officers and employees of the Company and
Apria concerning their respective businesses, operations, assets, present
condition and future prospects and undertook such other studies, analyses and
investigations as we deemed appropriate.
<PAGE>   246
 
     In arriving at our opinion, we have not visited or conducted a physical
inspection of the properties and facilities of the Company or Apria (although we
have visited each company's headquarters), nor have we assumed any
responsibility for any independent evaluation or appraisal of any such
properties and facilities or of the assets and liabilities of the Company or
Apria. We have assumed and relied upon the accuracy and completeness of the
financial and other information supplied to or otherwise used by us in arriving
at our opinion and have not assumed any responsibility for independent
verification of such information. In addition, we have assumed that the
Company's and Apria's forecasts and projections supplied to us represent the
best currently available estimates and judgments of the Company's and Apria's
management as to the expected future financial condition and results of
operations of the Company and Apria, and have assumed that such forecasts and
projections have been reasonably prepared based on such currently available
estimates and judgments. We assume no responsibility for and express no view as
to such forecasts and projections or the assumptions on which they are based.
 
     We have also taken into account our assessment of general economic, market
and financial conditions and our experience in similar transactions, as well as
our experience in securities valuation in general. Our opinion necessarily is
based upon conditions as they exist and can be evaluated on the date hereof.
 
     We do not express any view as to any terms of the Merger other than the
fairness from a financial point of view of the consideration to be received by
the holders of Common Stock of the Company. Our opinion is necessarily based on
economic market, financial and other conditions as they exist on, and
information made available to us as of, the date of this letter. It should be
understood that, although subsequent developments may affect this opinion, we do
not have any obligation to update, revise or reaffirm this opinion, but if
requested we will do so. We are making no projection or providing any assurance
herein, as to the prices at which Apria Common Stock will actually trade at any
time.
 
     It is understood that this letter is for the benefit and use of the
Company in its consideration of the Merger and is not for the benefit of, and
does not convey any rights or remedies to, any other person. This opinion does
not address the relative merits of the Merger and any other transactions or
business strategies discussed by the Board of Directors of the Company as
alternatives to the Merger or the underlying business decision of the Board of
Directors of the Company to proceed with or effect the Merger.
 
     We hereby consent to the Company's delivery to Apria, as contemplated in
the Merger Agreement, of a copy of this opinion for use in the Form S-4 (as
defined in the Merger Agreement).
 
As you are aware:
 
          (i) Furman Selz has previously rendered certain investment banking and
     financial advisory services to the Company and provided a fairness opinion
     dated December 17, 1991 to the Board of Directors of the Company with
     regard to the issuance and sale to a corporate purchaser of 9% Cumulative
     Nonconvertible Preferred Stock, the purchase of all of the outstanding
     shares of common stock of Hospice, Inc. (now a subsidiary of the Company)
     from Hugh Westbrook and Esther Colliflower, and the repurchase of certain
     shares of Common Stock of the Company from a director who was also then an
     officer and principal stockholder. Furman Selz was paid investment banking
     fees for providing such services and rendering such opinion.
 
          (ii) Furman Selz acted as financial advisor to the Company in
     connection with its latest equity financing and the related stock
     repurchases in June 1993, and participated on behalf of the Company in the
     negotiations relating thereto. Furman Selz was paid investment banking fees
     for providing such services.
 
          (iii) Furman Selz rendered a fairness opinion dated February 14, 1995
     to the Company regarding the acquisition of Community Hospice Care, Inc., a
     California corporation, and its affiliated partnerships. Furman Selz was
     paid investment banking fees for providing such services.
 
          (iv) An affiliate of Furman Selz, Furman Selz Ventures, L.P.,
     currently owns 145,000 shares of Common Stock of the Company purchased in
     1992 at $3.58 per share.
 
                                        2
<PAGE>   247
 
          (v) In the ordinary course of our business, we may actively trade in
     the equity securities of Apria for our own account and for the accounts of
     our customers and, accordingly, may at any time hold a long or short
     position in such securities.
 
     We do not believe the facts described in clauses (i)-(v) above affect our
qualifications to render this opinion.
 
     Furman Selz will receive a fee for its services to the Company in
connection with rendering this opinion. In addition, Furman Selz will receive a
fee in connection with the Merger and the Company has agreed to reimburse Furman
Selz for certain out-of-pocket expenses, and to indemnify Furman Selz for
certain liabilities arising from the delivery of this opinion.
 
     Based upon and subject to the foregoing, it is our opinion as investment
bankers that the consideration to be received by the holders of the Common Stock
of the Company in the Merger is fair to such stockholders from a financial point
of view.
 
                                          Very truly yours,
 
                                          FURMAN SELZ LLC
 
                                        3
<PAGE>   248
                                  APPENDIX D



                 [SECTION 262 OF THE GENERAL CORPORATION LAW
                          OF THE STATE OF DELAWARE]







                                     D-1

<PAGE>   249
                                   APPENDIX D

                   SECTION 262 OF THE GENERAL CORPORATION LAW
                            OF THE STATE OF DELAWARE

         262 APPRAISAL RIGHTS.--(a) Any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a demand pursuant
to subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to Section 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.

   (b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
subsection (g) of Section 251), 252, 254, 257, 258, 263 or 264 of this title:

         (1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of Section 251 of this title.

         (2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to Sections 251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:

         a.       Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;

         b.       Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;

         c.       Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this paragraph;
or

         d.       Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.


                                      D-1
<PAGE>   250
         (3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.

   (c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.

   (d) Appraisal rights shall be perfected as follows:

         (1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of his
shares shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of his shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to take such action
must do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or

         (2) If the merger or consolidation was approved pursuant to Section 228
or Section 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within 10 days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval of
the merger or consolidation and that appraisal rights are available for any or
all shares of such class or series of stock of such constituent corporation, and
shall include in such notice a copy of this section; provided that, if the
notice is given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation to all such
holders of any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of such notice, demand in writing, from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or within 10
days after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such second
notice need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent corporation may
fix, in advance, a record date that shall be not more than 10 days prior to the
date the notice is given; provided that, if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day next
preceding the day on which the notice is given. 
   
   (e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.

                                       D-2
<PAGE>   251
   (f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.

   (g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.

   (h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.

   (i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.

   (j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.

   (k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the

                                       D-3
<PAGE>   252
merger or consolidation as provided in subsection (e) of this section or
thereafter with the written approval of the corporation, then the right of such
stockholder to an appraisal shall cease. Notwithstanding the foregoing, no
appraisal proceeding in the Court of Chancery shall be dismissed as to any
stockholder without the approval of the Court, and such approval may be
conditioned upon such terms as the Court deems just.

         (l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.

                                       D-4
<PAGE>   253

                                   APPENDIX E








                  [APRIA'S ANNUAL REPORT ON FORM 10-K FOR THE
                FISCAL YEAR ENDED DECEMBER 31, 1995, AS AMENDED]



                                      E-1
<PAGE>   254
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K
(Mark One)

[X]               ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
              OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
                   For the Fiscal Year Ended December 31, 1995
                                       OR
[ ]             TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
            OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

                          Commission File No. 000-19854

                           APRIA HEALTHCARE GROUP INC.
             (Exact name of Registrant as specified in its charter)

            DELAWARE                                       33-0488566
 (State of other jurisdiction of                        (I.R.S. Employer
 incorporation or organization)                          Identification)

       3560 HYLAND AVENUE                                     92626  
        COSTA MESA, CA                                    (Zip Code)
(Address of principal executive offices)

       Registrant's telephone number, including area code: (714) 427-2000

        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to Section 12(g) of the Act:

                    COMMON STOCK, $0.001 PAR VALUE PER SHARE
                                (Title of class)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes  X   No
                                       ---     ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
           ---

As of February 29, 1996, there were outstanding 50,245,452 shares of the
Registrant's Common Stock, par value $0.001 ("Common Stock"), which is the only
class of Common Stock of the Registrant. As of February 29, the aggregate market
value of the shares of Common Stock held by non-affiliates of the Registrant,
computed based on the closing sale price of $31.25 per share as reported by
Nasdaq, was approximately $1,515,996,313.

                       DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III is incorporated by reference to the
definitive Proxy Statement for the 1996 Annual Meeting of Stockholders of the
Registrant which will be filed with the Securities and Exchange Commission not
later than 120 days after December 31, 1995.
<PAGE>   255
                                     PART I

ITEM 1.  BUSINESS

GENERAL

         Apria Healthcare Group Inc. ("Apria Healthcare" or the "Company")
provides and/or manages comprehensive integrated homecare services including
home infusion therapy, home respiratory therapy, home medical equipment, women's
healthcare and nursing. The Company also coordinates the care of patients who
may require any of the aforementioned services or a combination thereof. The
Company provides its services through 350 branch locations which serve patients
in 48 states.

         On June 28, 1995, Homedco Group, Inc. ("Homedco") merged with and into
Abbey Healthcare Group Incorporated ("Abbey") to form the Company. In connection
with the merger transaction (the "merger"), the Company issued 21,547,529 shares
of its Common Stock for 15,391,092 issued and outstanding shares of Abbey Common
Stock and 26,034,612 shares of its Common Stock for 13,017,306 issued and
outstanding shares of Homedco Common Stock. The merger has been accounted for
under the pooling-of-interests method of accounting. Accordingly, the historical
financial statements for periods prior to the consummation of the merger have
been restated as though the companies had been combined. The restated financial
statements, included herewith, have been adjusted to conform the differing
accounting policies of the separate companies.

         On September 30, 1994, the Company sold its 51% interest in Abbey
Pharmaceutical Services, Inc. to Living Centers of America, Inc. ("Living
Centers") for cash consideration of $20.3 million and warrants to purchase
247,500 shares of Living Centers common stock for $35.00 per share.

         On January 2, 1994, the Company acquired the outstanding stock of
Protocare, Inc. ("Protocare") for a cash payment of $11.9 million plus direct
acquisition costs of $3.7 million. In addition, pursuant to an earnout
provision, as amended in June 1994, approximately 979,000 shares of Common Stock
valued at $11.6 million were issued in February 1995 to the former Protocare
stockholders.

         On November 10, 1993, the Company acquired the outstanding stock of
Total Pharmaceutical Care, Inc. for a cash payment of $154.2 million plus direct
acquisition costs of $9.4 million and the issuance of approximately 2,002,000
shares of Common Stock valued at $33.5 million.

         On August 7, 1992, the Company acquired substantially all of the
business and assets of Glasrock Home Healthcare, Inc. for a cash payment of
$68.4 million plus the assumption of liabilities amounting to $3.3 million and
direct acquisition costs of $11.4 million

         The Company was incorporated in 1991 in the state of Delaware.


LINES OF BUSINESS

         Apria Healthcare derives substantially all of its revenue from the home
healthcare segment of the healthcare market in principally three service lines:
home infusion therapy, home respiratory therapy and home medical equipment. In
all three lines, the Company provides patients with a variety of clinical
services, related products and supplies, most of which are prescribed by a
physician as part of a care plan. These services include high-tech infusion
nursing, respiratory care and pharmacy services, educating patients and their
caregivers about their illness and instructing them on the proper use of
products in the home, monitoring patient compliance with individualized
treatment plans, reporting to the physician and/or managed care organization,
maintaining equipment and processing claims to third party payors. Approximately
35% of the Company's business is derived from managed care organizations for its
integrated service offerings, with the remainder being derived from traditional
referral/payor sources. The Company purchases or rents the products needed to
provide services to its patients.


                                       1
<PAGE>   256


         The following table sets forth a summary of revenues by source,
expressed as percentages of total net revenues:

<TABLE>
<CAPTION>
                                                                                    YEAR ENDED DECEMBER 31,
                                                                                 1995         1994         1993
                                                                                 ----         ----         ----

<S>                                                                            <C>            <C>          <C>
         Infusion therapy..................................................     24%            25%          15%
         Respiration therapy...............................................     53             54           61
         Home medical equipment/other......................................     23             21           24
                                                                               ---            ---          ---
         Total net revenues................................................    100%           100%         100%
                                                                               ===            ===          ===
</TABLE>


         INFUSION THERAPY. Home infusion therapy involves the administration of
nutritional supplements, anti-infectives and other intravenous and injectable
medications. Depending on the therapy, a broad range of venous access devices
and pump technology may be used to facilitate homecare and patient independence.
Apria Healthcare employs licensed pharmacists, registered nurses and dietitians
who have specialized skills in the delivery of home infusion therapy. The
Company currently operates 60 pharmacy locations to serve its home infusion
patients.  Following is a brief description of the major therapies:

         Anti-infective Therapy. Anti-infective therapy typically is a
short-duration therapy involving the infusion of antibiotic, antiviral or
antifungal drugs into the patient's bloodstream in order to treat a variety of
infections and diseases, including osteomyelitis, endocarditis, post-surgical
wound infections, AIDS-related infections and urinary tract infections.
Generally, anti-infectives are administered intravenously from one to six times
per day for a period of several days to several weeks.

         Total Parenteral Nutrition Therapy. Total parenteral nutrition ("TPN")
is the intravenous provision of life-sustaining nutrients, acting as a
replacement for normal food intake, to patients with a gastrointestinal illness
or dysfunction. TPN therapy is usually administered over a period of months with
some patients continuing therapy for longer periods due to chronic conditions.

         Enteral Nutrition Therapy. Enteral nutrition is the delivery of
nutrients directly through a feeding tube to a patient's partially functioning
gastrointestinal tract to accommodate an inability to intake food normally.
Enteral nutrition therapy is often administered over a long period, generally
for more than six months.

         Pain Management. Pain management is the intravenous or intraspinal
administration of analgesic drugs to patients suffering chronic pain from
terminal or chronic conditions, such as cancer or AIDS.

         Chemotherapy. Chemotherapy is the intermittent or continuous
intravenous administration of drugs to patients with various types of cancer.
Although most chemotherapy is administered in physicians' offices, the
development of new continuous delivery pumps and antiemetic drugs has allowed
for the administration of chemotherapy in the home and other ambulatory
settings.

         Chronic Condition Therapy. Chronic condition therapy is the intravenous
or injectable administration of drugs to treat congenital or acquired chronic
conditions, such as Prolastin(R) therapy for patients with congenital emphysema,
human growth hormone therapy for pediatric patients with growth hormone
deficiencies, blood clotting factor therapy for patients with hemophilia, and
intravenous immunoglobulin ("IVIG") therapy for immune-deficient or
immunosuppressed patients.

         Other Therapies. New infusion delivery devices and medications that
address a broad range of patient conditions, such as complications or side
effects associated with solid organ and bone marrow transplantation, HIV/AIDS
and cancer, continue to emerge for use in the home setting. Among the other
therapies provided by the Company are colony stimulating factors, chelation
therapy for patients with iron overload, dobutamine for patients with congestive
heart failure ("CHF"), and hydration therapy for patients with dehydration or
hyperemesis due to pregnancy.


                                       2
<PAGE>   257




         RESPIRATORY THERAPY. The Company provides home respiratory therapy
services to patients with a variety of conditions, including chronic obstructive
pulmonary disease ("COPD", e.g., emphysema, chronic bronchitis and asthma),
cystic fibrosis and neurologically-related respiratory conditions. Apria
Healthcare employs a clinical staff of respiratory care professionals to provide
support to its home respiratory therapy patients, according to
physician-directed treatment plans.

         A majority of the Company's respiratory therapy revenues are derived
from the provision of oxygen systems, nebulizers (devices to aerosolize
medication) and home ventilators. The remaining respiratory revenues are
generated from the provision of apnea monitors used to monitor the vital signs
of newborns, continuous positive airway pressure ("CPAP/BiPAP") devices used to
control adult sleep apnea and other respiratory therapy products.

         The Company has developed a home respiratory medication service, which
is fulfilled through the Apria Pharmacy Network ("APN"). Through APN, the
Company offers its patients physician-prescribed medications along with the
nebulizer through which they are administered. This comprehensive program offers
patients and payors a broad base of services from one source, including
medications in a premixed unit dose form, professional respiratory clinical
training and support and claims processing.

         HOME MEDICAL EQUIPMENT/OTHER. Apria Healthcare's primary emphasis in
the home medical equipment line of business is on the provision of patient room
equipment, principally hospital beds and wheelchairs, to its patients receiving
respiratory or infusion therapy. The Company's integrated services approach
allows patients and managed care systems accessing either respiratory or
infusion therapy services to also access needed home medical equipment through a
single source.

         As Apria Healthcare's managed care organization customer base has
grown, the Company has recognized the need to expand its ability to manage
ancillary provider networks on behalf of the managed care organization. The
Company may facilitate the referral process for ancillary services, such as
hospice care, physical and occupational therapy, and traditional home health
nursing services, depending on the needs of the managed care organization and in
accordance with state regulatory policy. Such networks must be credentialed and
qualified by Apria Healthcare's Clinical Services department.

         Although still in its developmental stage, the Company offers a
comprehensive program of women's health services primarily related to the
continuous care associated with pregnancy and childbirth. The range of programs
includes telephonic risk assessment and prenatal education, early discharge
services, home uterine activity monitoring of high-risk cases and tocolytic
therapy for women with signs and symptoms of premature labor. These programs are
supported centrally, managed locally and primarily targeted to the Company's
existing managed care organization customer base.


ORGANIZATION AND OPERATIONS

         Organization. In connection with the merger, the Company adopted a plan
to restructure and consolidate its operating locations and administrative
functions within specific geographic areas. At the end of 1995, 105 of the
planned 120 branch consolidations had been completed. The branches are organized
into four geographic zones, which are further divided into 21 geographic
regions. Each region is operated as a separate business unit and consists of a
number of branches which are typically clustered within 100 miles of the region
office. The region office provides each of its branches with key support
services such as billing, purchasing and equipment repair. This structure is
designed to create operating efficiencies associated with centralized services
while promoting responsiveness to local market needs.

         Operating Systems and Controls. Apria Healthcare has developed
comprehensive operational policies and procedures which are utilized to run the
business on a day-to-day basis. Through experience, the Company also has
developed performance indicators which measure operating results against
expected thresholds, allowing all levels of management to identify, monitor and
adjust areas requiring improvement. Operating models with strategic targets have
been developed to move the Company toward more effectively managing the clinical
and distribution areas of its business. The Company's management team is
compensated using performance-based incentives focused on revenue growth, timely
cash collections and improvement in operating income. The Company's management
information


                                       3
<PAGE>   258



systems enable this information to be collected and analyzed and also provide
all accounts receivable billing and collection processing.

         In connection with the restructuring plan, the Company decided to
standardize its branch information systems onto a common IBM AS/400-based
system. Through the end of 1995, approximately 225 system conversions had
occurred. The remaining system conversions are expected to be completed by the
end of the third quarter of 1996. With the increasing emphasis being placed on
cost efficiencies by healthcare payors, the Company has begun to package data
available through its system for managed care organizations, which enables more
effective monitoring of utilization and costs. The Company believes that this
capability provides an important competitive advantage.

         Accounts Receivable Management. The Company derives substantially all
its revenues from third party payors, including private insurers, managed care
organizations, Medicare and Medicaid. For 1995, approximately 33% and 10% of the
Company's net revenues were derived from Medicare and Medicaid, respectively.
Each third party payor generally has specific claims requirements. The Company
has policies and procedures in place to manage the claims submission process,
including verification procedures to facilitate complete and accurate
documentation.

         The Company's computer systems are integral to the claims submission
process and are capable of producing claims in accordance with individual payor
specifications. In addition, the majority of Medicare claims are processed
electronically, thus facilitating prompt payment. The Company is capable of
submitting claims electronically to other third party payors capable of
receiving claims submissions in this manner. The Company's comprehensive
in-house information systems department provides for quick adjustment to
regulatory or reimbursement changes.


MARKETING

         The Company markets its services to managed care organizations,
hospitals, physicians, medical groups, home health agencies and case managers
through its field sales force. The following marketing initiatives address the
requirements of its referring customers:

         ApriaDirect. ApriaDirect is a comprehensive Company program which
allows managed care organizations and other customers to access the full range
of Apria services as well as network-managed services (home health, supplies,
etc.) through a single central telephone number (1-800-APRIA-88) and center. The
program consolidates order intake and complex care management, billing and
outcome reporting for clients with broad product and geographic needs.

         JCAHO Accreditation. The Joint Commission on Accreditation of
Healthcare Organizations ("JCAHO") is a nationally recognized organization which
develops standards for various healthcare industry segments and monitors
compliance with those standards through voluntary surveys of participating
providers. As the home healthcare industry has grown, the need for objective
quality measurements has increased. JCAHO accreditation entails a lengthy review
process which is conducted every three years. Accreditation is increasingly
being considered a prerequisite for entering into contracts with managed care
organizations at every level. Because accreditation is expensive and time
consuming, not all providers choose to undergo the process. In part because of
its leadership role in establishing quality standards for home healthcare and
its active and early participation in this process, Apria Healthcare is viewed
favorably by referring healthcare professionals. The Company's 350 branch
locations are all accredited by or in the process of receiving accreditation
from JCAHO.

         Care Management Programs. As more alternate site healthcare is managed
and directed by various managed care organizations, new methods and systems are
sought to simultaneously control costs and improve outcomes. Apria Healthcare
has developed a series of diagnosis-specific care management programs designed
to proactively manage patients in conjunction with a managed care partner and
the patient's physician in an alternate site setting. These programs include
patient and environmental assessments, screening/diagnostics, patient education,
clinical monitoring, pharmacological management, utilization reporting and
outcome reporting. Mutually established goals for inpatient hospital day
reductions are a portion of the basis for provider compensation.
Diagnosis-specific


                                       4
<PAGE>   259
programs include Asthma, COPD and a broad-based program targeting diagnoses with
high potential for home health utilization and hospital day reductions.


SALES

         The Company employs approximately 350 sales professionals whose primary
responsibility is to target key customers for all lines of business. Key
customers include but are not limited to managed care organizations,
hospital-based healthcare professionals, and physicians and their staffs. Sales
professionals are afforded the necessary clinical and technical training to
represent the Company's major service offerings of home infusion therapy, home
respiratory therapy and home medical equipment. As the sales force becomes
increasingly involved with managed care clients, their working knowledge of
pricing and specialty-care management programs is being enhanced as well.

         An integral component of the Company's overall sales strategy is to
increase volume through a variety of contractual relationships with both managed
care organizations and other healthcare providers. Managed care organizations
have grown substantially in terms of the percentage of the U.S. population that
is covered by such plans and in terms of their influence over an increasing
portion of the healthcare economy. Managed care plans are consolidating,
increasing their influence over the delivery and cost of healthcare services.
The Company believes this trend will continue. As a result, the Company focuses
a significant portion of its marketing efforts and specialized sales resources
on managed care organizations to develop mutually beneficial risk sharing
programs, including capitation arrangements. Managed care organizations already
represent a significant portion of the Company's business in several of its
primary metropolitan markets. No one account, however, represented more than 5%
of the Company's net revenues for 1995. Among its managed care agreements, the
Company has contracts with Aetna Health Plans, Foundation Health, Health
Insurance Plan of New York, Kaiser Permanente, PacifiCare Health Systems, Inc.
and United HealthCare Corporation. The Company also offers discount agreements
and various fee-for-service arrangements to hospitals or hospital systems, such
as Columbia/HCA Healthcare Corporation, whose patients have home healthcare
needs.


COMPETITION

         The segment of the healthcare market in which the Company operates is
highly competitive. In each of its lines of business there are a limited number
of national providers and numerous regional and local providers.

         The competitive factors most important in Apria Healthcare's lines of
business are its wide geographic coverage, the ability to develop and maintain
contractual relationships with managed care organizations, price of services,
ease of doing business, quality of care and service and reputation with
referring customers, including local physicians and hospital-based
professionals. Additionally, it is increasingly important to be able to both
offer and integrate a broad range of homecare services through a single source.
The Company believes that it competes effectively in each of its business lines
with respect to all of the above factors and that it has an established record
as a quality provider of home infusion therapy and respiratory therapy as
reflected by its JCAHO accreditation. The Company also believes that its
integrated line of home healthcare products and services broadens its appeal to
local healthcare professionals and to managed care organizations.

         Other types of healthcare providers, including hospitals, home health
agencies and health maintenance organizations, have entered, and may continue to
enter, Apria Healthcare's various lines of business. Depending on their
individual situation it is possible that competitors of the Company may have or
may obtain significantly greater financial and marketing resources than the
Company.


GOVERNMENT REGULATION

         The federal government and all states in which the Company currently
operates regulate various aspects of the Company's business. In particular, the
operations of the Company's branch locations are subject to federal laws
regulating the repackaging and dispensing of drugs (including oxygen), the
maintenance and tracking of certain life-sustaining and life-supporting
equipment, the handling and disposal of medical waste and interstate
motor-carrier


                                       5
<PAGE>   260
transportation. The Company's operations also are subject to state laws
governing pharmacies, nursing services and certain types of home health agency
activities. Certain of the Company's employees are subject to state laws and
regulations governing the ethics and professional practice of respiratory
therapy, pharmacy and nursing. The failure to obtain, renew or maintain any of
the required regulatory approvals or licenses could adversely affect expansion
of the Company's business and could prevent the location involved from offering
certain products and services to patients.

         As a provider of services under the Medicare and Medicaid programs, the
Company is subject to the Medicare and Medicaid fraud and abuse laws. These laws
prohibit any bribe, kickback or rebate in return for the referral of Medicare or
Medicaid patients. Violations of these provisions may result in civil and
criminal penalties and exclusion from participation in the Medicare and Medicaid
programs. In addition, several states in which the Company operates have laws
that prohibit certain direct or indirect payments or fee-splitting arrangements
between healthcare providers, if such arrangements are designed to induce or
encourage the referral of patients to a particular provider. Possible sanctions
for violation of these restrictions include loss of licensure and civil and
criminal penalties. Such statutes vary from state to state, are often vague and
have seldom been interpreted by the courts or regulatory agencies. Recently, the
federal government has made a policy decision to significantly increase the
financial resources allocated to enforcing the fraud and abuse laws. In
addition, private insurers and various state enforcement agencies have increased
their level of scrutiny of healthcare claims in an effort to identify and
prosecute fraudulent and abusive practices in the healthcare area. Moreover,
both the federal government and various state legislatures have enacted bans on
the practice of so-called "physician self-referrals." Finally, recent
enforcement activity and resulting case law developments have increased the
legal risks of engaging in joint venture arrangements with physicians.

         Apria Healthcare maintains several programs designed to minimize the
likelihood that the Company would engage in conduct or enter into contracts
violative of the fraud and abuse laws. All contracts of the types subject to
these laws are reviewed and approved at the corporate level. The Company
maintains an extensive contract compliance review program conducted by outside
counsel reporting solely to the corporate office. The Company also maintains
various educational programs designed to keep its managers updated and informed
on developments with respect to the fraud and abuse laws and to remind all
employees of the Company's policy of strict compliance in this area. While the
Company believes its discount agreements and various fee-for-service
arrangements with other healthcare providers comply with applicable laws and
regulations, there can be no assurance that further judicial interpretations of
existing laws or legislative enactment of new laws will not have a material
adverse effect on the Company's business.

         Economic, political and regulatory influences are subjecting the
healthcare industry in the United States to fundamental change. Healthcare
reform proposals have been formulated by members of Congress and by the current
administration. In addition, some of the states in which the Company operates
periodically consider various healthcare reform proposals. The Company
anticipates that Congress and state legislatures will continue to review and
assess alternative healthcare delivery systems and payment methodologies and
public debate of these issues will continue in the future. Due to uncertainties
regarding the ultimate features of reform initiatives and their enactment and
implementation, the Company cannot predict which, if any, of such reform
proposals will be adopted, when they may be adopted or that any such reforms
will not have a material adverse effect on the Company's business and results of
operations.

         Healthcare is an area of extensive and dynamic regulatory change.
Changes in the law or new interpretations of existing laws can have a dramatic
effect on permissible activities, the relative costs associated with doing
business and the amount of reimbursement by government and other third party
payors. In August 1993, Congress passed the Omnibus Budget Reconciliation Act of
1993 ("OBRA 1993") which included approximately $56 billion in reimbursement
reductions to the Medicare program over the five years beginning on January 1,
1994. The estimates of the impact of OBRA 1993 on the healthcare services
industry are reimbursement reductions of $950 million over five years.

         Congress proposed to balance the federal budget in seven years by the
year 2002 in the Balanced Budget Act that passed on November 30, 1995. That
proposal, along with significant tax reduction proposals, could require a
reduction in the seven-year Medicare budget of $270 billion. The proposed
reduction to the home oxygen benefit could be $2.5 billion out of a total seven
year program budget of $10.2 billion.


                                       6
<PAGE>   261
         President Clinton vetoed that bill on December 6, 1995, and efforts to
reach agreement between Congress and the Administration have lowered the
proposed Medicare reductions by more than $100 billion. While it is uncertain
whether a budget agreement will be reached, it is unlikely that any agreement
would reduce the Medicare reimbursement benefit for services provided by the
Company by more than $2 billion. The Clinton Administration and various
congressional healthcare leaders have announced support for seven-year program
reductions of $1.4 billion.

         During the congressional budget deliberations, the Health Care
Financing Administration ("HCFA") announced that it was considering a rulemaking
to reduce reimbursement for home oxygen services. That proposed rulemaking has
been placed on indefinite hold pending the conclusion of the congressional
budget process.

         Laws and regulations are often adopted to regulate new and existing
products and services. There can be no assurance that either the states or the
federal government will not impose additional regulations upon the Company's
activities which might adversely affect the Company's business.


INSURANCE

         In recent years, physicians, hospitals and other participants in the
healthcare market have become subject to an increasing number of lawsuits
alleging professional negligence, product liability or related claims, many of
which involve large claims and significant defense costs. The Company is from
time to time subject to such suits due to the nature of its business. The
Company currently maintains liability insurance intended to cover such claims.
There can be no assurance that the coverage limits of the Company's insurance
policies will be adequate. While the Company has been able to obtain liability
insurance in the past, such insurance varies in cost, is difficult to obtain and
may not be available in the future on acceptable terms or at all. A successful
claim against the Company in excess of the Company's insurance coverage could
have a material adverse effect upon the Company and its financial condition.
Claims against the Company, regardless of their merit or eventual outcome, also
may have a material adverse effect upon the Company's reputation and business.


EMPLOYEES

         As of March 4, 1996, the Company had 8,309 employees, of which 8,038
were full time and 271 were part time. The Company's employees are not currently
represented by a labor union or other labor organization, except for
approximately 32 employees in the state of New York. The Company believes that
its employee relations are good.


                      EXECUTIVE OFFICERS OF THE REGISTRANT

         Set forth below are the names, ages, titles with the Company and
present and past positions of the persons serving as executive officers of the
Company as of March 15, 1996.

            NAME AND AGE                    OFFICE AND EXPERIENCE

Jeremy M. Jones, 54 .........    Chairman of the Board and Chief Executive
                                 Officer. Mr. Jones held these titles with
                                 Homedco since November 1987. He also held the
                                 title of President until June 1995. He served
                                 as President of NME Home Care Group and
                                 National Medical Homecare, Inc. (the
                                 predecessor to Homedco) ("NMH") from 1984 until
                                 November 1987.

Steven T. Plochocki, 44 .....    President and Chief Operating Officer. Mr.
                                 Plochocki was promoted to President in February
                                 1996. He has served as Chief Operating Officer
                                 since promoted to this position at Abbey in
                                 June 1994. He served as Executive Vice
                                 President, Sales and Operations of Abbey
                                 Medical, Inc.


                                       7
<PAGE>   262
                                 ("AMI"), a wholly owned subsidiary of Abbey,
                                 from February 1994 through June 1994. From
                                 April 1992 through February 1994, Mr. Plochocki
                                 served as Vice President of Marketing and Sales
                                 of AMI. From December 1990 to April 1992, Mr.
                                 Plochocki served as Vice President of Marketing
                                 and Sales for The Olsten Corporation.

Lawrence H. Smallen, 47 .....    Chief Financial Officer, Vice President,
                                 Finance, Treasurer and Secretary. Mr. Smallen
                                 held these titles (except Secretary) with
                                 Homedco since November 1987. From 1985 until
                                 November 1987, he served as Vice President,
                                 Finance of NMH.

Christopher F. Koch, 47 .....    Senior Vice President, Eastern Zone. Mr. Koch
                                 served in his current position with Homedco
                                 since November 1987. He served as Senior Vice
                                 President, Eastern Region of NMH from 1986
                                 until November 1987. From 1983 until 1984, Mr.
                                 Koch served as Assistant District Manager and
                                 from 1984 until 1986 as District Manager of the
                                 Philadelphia district of NMH.

Thomas M. Robbins, 46 .......    Senior Vice President, Southern Zone. Mr.
                                 Robbins joined Homedco in August 1992 as Senior
                                 Vice President, Southeast Region. Prior to
                                 joining Homedco, Mr. Robbins was Vice
                                 President, Northeast Region, for Glasrock Home
                                 Healthcare, Inc. from 1990 until August 1992.

Merl A. Wallace, 46 .........    Senior Vice President, Western Zone. Mr.
                                 Wallace was promoted to Senior Vice President,
                                 Western Zone in June 1995. Mr. Wallace served
                                 as Vice President, Operations of Homedco from
                                 April 1994 to June 1995. From November 1990 to
                                 April 1994, he served as General Manager of the
                                 Southwest district of Homedco

Manny A. Brown, 40 ..........    Senior Vice President, Midwest Zone. Mr. Brown
                                 was appointed Senior Vice President, Midwest
                                 Zone in June 1995. He served as Senior Vice
                                 President, East for Abbey from June 1994
                                 through January 1995 and was promoted to
                                 Executive Vice President, East in January 1995.
                                 He was an Area Vice President, North Central
                                 Area of AMI from February 1992 until June 1994.
                                 Mr. Brown managed a family owned business from
                                 April 1991 until February 1992. He joined
                                 Foster Medical Corporation ("Foster") in 1986
                                 (which was acquired by and became a wholly
                                 owned subsidiary of AMI in 1988) and held
                                 numerous positions with Foster. After AMI
                                 acquired Foster, he held various positions with
                                 AMI, including the position of Regional Manager
                                 for the Chicago region, until April 1991.

Dennis E. Walsh, 45..........    Senior Vice President, Sales and Marketing. Mr.
                                 Walsh was promoted to Senior Vice President,
                                 Sales and Marketing in June 1995. He served as
                                 Vice President, Sales of Homedco from November
                                 1987 to June 1995. From 1986 until November
                                 1987, he served as Vice President, Sales of
                                 NMH. Mr. Walsh served as Midwest Regional Sales
                                 Manager of NMH from 1984 until 1986.

James E. Baker, 44 ..........    Vice President, Controller. Mr. Baker was
                                 promoted to Vice President, Controller of
                                 Homedco in August 1991. He served as Corporate
                                 Controller from November 1987 to August 1991.
                                 From 1985 until November 1987, Mr. Baker served
                                 as Controller of NMH.


                                       8
<PAGE>   263




ITEM 2.  PROPERTIES

         The Company's headquarters are located in Costa Mesa, California and
consist of approximately 160,000 square feet of office space. The lease expires
in 2001. The Company has 350 branch facilities serving patients in 48 states.
These branch facilities are typically located in light industrial areas and
average approximately 8,000 square feet. Each facility is a combination
warehouse and office, with approximately 50% of the square footage consisting of
warehouse space. Lease terms on branch facilities are generally five years or
less.

         Except for the facilities in Sherman, Texas and Beckley, West Virginia,
which the Company owns, the Company leases all of its facilities.


ITEM 3.  LEGAL PROCEEDINGS

         CLASS ACTION LAWSUIT. On October 7, 1994, Barbara Nowack, who claims to
have purchased 100 shares of Abbey Common Stock on June 16, 1994, filed a class
action complaint ("Complaint") on behalf of herself and all other persons who
purchased or sold the Company's Common Stock during the period of September 7,
1993 through June 16, 1994 ("Class Period") in the United States District Court
for the Central District of California ("District Court") asserting federal
securities fraud claims against the Company, certain of its directors and
officers and certain former directors and officers of Total Pharmaceutical Care,
Inc. ("TPC").

         The Complaint alleges that the defendants knowingly and recklessly
disseminated false and misleading statements and reports with respect to the
Company, its financial condition and future prospects, in particular, as it is
related to the acquisition and integration of TPC. The Complaint also alleges
that the defendants violated Section 10(b) of the Exchange Act and Rule 10b-5
promulgated thereunder, and in addition, that the individual defendants have
asserted claims against the Company, pursuant to the bylaws of the Company and
TPC, for advancement of expenses and indemnification.

         On January 17, 1995, an amended Complaint was filed substituting for
the plaintiff, Arthur Kapit and Joseph Opich, shareholders who claim to have
purchased 1,200 shares and 400 shares, respectively, of the Company's Common
Stock during the Class Period. On February 12, 1996, the Court granted
plaintiff's Motion for Class Certification. The parties have conducted numerous
non-binding mediations throughout the course of the litigation in an effort to
settle the case. However, these sessions have not yet resulted in a settlement
and the Company and the other defendants continue to vigorously defend the
lawsuit.

         OTHER. In addition to the foregoing matter, the Company is involved in
legal proceedings arising in the ordinary course of its business. The Company
believes that it currently has adequate insurance coverage with respect to such
proceedings where such coverage is cost effective. Nevertheless, in the opinion
of management, any liability that might be incurred by the Company upon the
resolution of these proceedings, and the aforementioned class action lawsuit, in
the aggregate, will not have a material adverse effect on the consolidated
financial condition or results of operations of the Company.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

  No matters were submitted to a vote of the Company's stockholders during the
fourth quarter of the fiscal year covered by this report.


                                       9
<PAGE>   264




                                   PART II

ITEM 5.     MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
            MATTERS

         The Company's Common Stock trades on the Nasdaq National Market tier of
the Nasdaq Stock Market under the symbol APRA. The following table sets forth,
for the periods indicated, the high and low closing sale prices per share of the
Common Stock as reported by Nasdaq:

<TABLE>
<CAPTION>
 
                                               HOMEDCO                     ABBEY                    APRIA
                                          High          Low          High         Low          High        Low
                                          ----          ---          ----         ---
<S>                                      <C>          <C>           <C>         <C>           <C>         <C>    
Year ended December 31, 1994

  First Quarter                          19.500       14.875        20.714      16.964            --          --
  Second Quarter                         18.625       13.313        17.143      10.536            --          --
  Third Quarter                          17.500       14.313        13.571      10.893            --          --
  Fourth Quarter                         19.250       16.250        16.786      12.500            --          --

Year ended December 31, 1995
  First Quarter                          27.563       18.500        26.339      19.911            --          --
  Second Quarter                         29.938       24.250        29.464      24.643            --          --
  Third Quarter                              --           --            --          --        35.250      24.000
  Fourth Quarter                             --           --            --          --        30.250      20.000
</TABLE>



         The high and low closing prices set forth in the table above are
adjusted to give retroactive effect to the merger, with and into Abbey.

         As of February 29, 1996, there were 726 holders of record and
approximately 17 beneficial holders of the Common Stock.

         The Company has not paid any dividends since its inception and does not
intend to pay any dividends on its Common Stock in the foreseeable future. In
addition, the Company has a bank credit agreement which prohibits the payment of
dividends.


                                       10
<PAGE>   265




ITEM 6.  SELECTED FINANCIAL DATA

         The following table presents selected financial data of Apria
Healthcare Group Inc., giving effect to the merger between Homedco and Abbey
using the pooling-of-interests method of accounting for the five years ended
December 31, 1995. The data set forth below have been derived from the audited
consolidated financial statements of the Company and are qualified by reference
to, and should be read in conjunction with, the Consolidated Financial
Statements and related notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included in this report. As
discussed in the Notes to the Consolidated Financial Statements, certain
adjustments have been made to conform the two companies' accounting practices.

<TABLE>
<CAPTION>
                                                                                YEAR ENDED DECEMBER 31,
                                                                       ----------------------------------------
                                                                             1995(1)       1994(2)       1993       
                                                                             -------       -------       ----       
                                                                       (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<S>                                                                  <C>                <C>            <C>     
STATEMENTS OF OPERATIONS DATA:
Net revenues .................................................       $ 1,133,600        $962,812       $748,901
Gross profit .................................................           772,601         675,122        522,777
(Loss) income from continuing operations
  before extraordinary items and
  cumulative effect of change in
  accounting method ..........................................           (71,478)         35,616         35,845
Net (loss) income ............................................           (74,476)         39,031         37,311

Per common and common equivalent share:
    (Loss) income from continuing operations
      before extraordinary items and cumulative effect
      of change in accounting method .........................       $     (1.52)       $   0.81       $   0.94
    Net (loss) income per common share .......................       $     (1.58)       $   0.89       $   0.98

Per common and common equivalent share assuming full dilution:
    (Loss) income from continuing operations
      before extraordinary items and cumulative effect
      of change in accounting method .........................       $     (1.52)       $   0.78       $   0.89
    Net (loss) income per common share .......................       $     (1.58)       $   0.85       $   0.93


BALANCE SHEET DATA:
Working capital ..............................................       $   198,630        $157,608       $187,370
Total assets .................................................           979,985         856,167        710,122
Long-term obligations, including current maturities ..........           500,307         438,304        391,822
Stockholders' equity .........................................           284,238         261,910        176,632


<CAPTION>
                                                                      YEAR ENDED DECEMBER 31,
                                                              ----------------------------------------
                                                                      1992(3)         1991(4) 
                                                                      -------         ------- 
                                                              (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                                  <C>            <C>      
STATEMENTS OF OPERATIONS DATA:                                       
Net revenues .................................................       $513,269       $ 420,338
Gross profit .................................................        359,237         291,582
(Loss) income from continuing operations
  before extraordinary items and
  cumulative effect of change in
  accounting method ..........................................         22,752           2,747
Net (loss) income ............................................         27,256          30,343

                                            
Per common and common equivalent share:
    (Loss) income from continuing operations
      before extraordinary items and cumulative effect
      of change in accounting method .........................       $   0.61       $   (0.26)
    Net (loss) income per common share .......................       $   0.73       $    0.68

Per common and common equivalent share assuming full dilution:
    (Loss) income from continuing operations
      before extraordinary items and cumulative effect
      of change in accounting method .........................       $   0.61       $   (0.26)
    Net (loss) income per common share .......................       $   0.73       $    0.68


BALANCE SHEET DATA:
Working capital ..............................................       $109,122       $  42,172
Total assets .................................................        402,216         224,929
Long-term obligations, including current maturities ..........        202,071         106,745
Stockholders' equity .........................................         80,401          33,647
</TABLE>



(1)      In 1995, the Company incurred charges related to merger, restructuring
         and integration activities as discussed in Note 3 of the Notes to the
         Consolidated Financial Statements.

(2)      In 1994, the Company disposed of a subsidiary as described in Note 2 of
         the Notes to the Consolidated Financial Statements.

(3)      The Statements of Operations Data and Balance Sheet Data reflect the
         Glasrock business acquisition of August 7, 1992 and a related
         restructuring charge of approximately $4.3 million.

(4)      Net income (loss) applicable to common stockholders and net income
         (loss) per common share prior to May 1991 include the impact of (a) the
         accretion to fair market value of a warrant with put option and (b) the
         accretion of preferred stock dividends in accordance with generally
         accepted accounting principles. The warrant was exercised upon
         consummation of the Company's initial public offering in 1991 and the
         put feature which necessitated the accretion of fair market value
         terminated. In addition, the Company redeemed a portion of the
         outstanding preferred stock thereby eliminating the dividend accretion
         thereon.


         The Company did not pay any cash dividends on its Common Stock during
any of the periods set forth in the table above.


                                       11
<PAGE>   266




ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

RESULTS OF OPERATIONS

         Apria Healthcare Group Inc. ("the Company") was formed by the merger of
Abbey Healthcare Group Incorporated ("Abbey") and Homedco Group, Inc.
("Homedco") in June 1995. This transaction was accounted for as a
pooling-of-interests and as such, the results of operations for all periods
presented reflect the combined operations of Abbey and Homedco. The financial
statements have been restated to conform the differing accounting policies of
the separate companies, principally relating to the use of salvage values
recognized for certain patient service equipment and the capitalization of low
dollar patient service items, supplies, accessories and repairs.

         In connection with the merger, the Company initiated a significant
consolidation and restructuring plan to consolidate operating locations and
administrative functions within specific geographic markets. The plan provides
for a workforce reduction of approximately 1,220 employees, consolidation of
approximately 120 operating facilities and conversion of branch operating
locations to a standardized information system. The employee reduction and
branch consolidations were substantially complete as of December 1995, with a
reduction of 1,120 employees and consolidation of 105 branch locations. The
Company has also completed approximately 50% of the information system
conversions as of December 1995. The remaining system conversions (approximately
220) are scheduled during 1996. The Company expects the plan to be completed by
September 1996.

         During 1995, a charge of approximately $68.3 million was recorded in
connection with the Company's restructuring efforts. The primary components of
the restructuring charge include severance and related costs of $21.5 million
due to workforce reductions, $22.2 million associated with the consolidation of
information systems, $23.1 million related to the closure of duplicate
facilities and $1.5 million for other restructuring activities. The Company
anticipates these activities to result in payroll, rent and other cost savings
from workforce reductions and branch consolidations which have and will continue
in the near term to be partially offset by integration costs.

         Merger costs of approximately $12.2 million were incurred during 1995
and consisted primarily of fees for investment banking, legal, consulting,
accounting, filing requirements and specific insurance coverage required by the
merger agreement.

         Additional charges of approximately $20.4 million during 1995, were
recorded for settlements of employee contracts and claims and costs associated
with the termination of the Abbey Medical, Inc. Employee Retirement Plan, a
defined benefit pension plan.

         Net revenues increased 17.7% to $1,133.6 million in 1995, 28.6% to
$962.8 million in 1994 and 45.9% to $748.9 million in 1993. The increase in
revenues in 1995 and 1994 was due to growth from locations owned and operated by
the Company at the beginning of the fiscal year (existing locations) and
acquisitions. The internal growth was primarily generated by increased volumes
realized in managed care markets. 1995 revenues were negatively impacted by the
fact that the last half of the year was the first in which the Company operated
as a merged entity and as a result, there was a disruption of the day to day
operations caused by the consolidation and integration activities. Management
believes this trend to be short term, as indicated by an increase in revenue
during the fourth quarter of 1995.

         During 1993, Congress passed the Omnibus Budget Reconciliation Act of
1993 ("OBRA 1993"), which the Company estimates reduced its revenues by
approximately $12.8 million during 1994. No additional reductions related to
OBRA 1993 were incurred during 1995. The OBRA legislation provides a consumer
price index update, effective January 1, 1996, of 3%. Medicare and Medicaid
reimbursement rates are continually being reviewed by the federal and state
governments, respectively, and additional reimbursement reduction may occur in
the future.

         Infusion therapy, respiratory therapy and home medical equipment/other
revenues represent 24%, 53% and 23%, respectively, of total revenue and grew at
rates of 14.9%, 15.2% and 27.7%, respectively, in 1995. Growth in all three
lines of business was primarily due to increased volume from existing locations
and revenue contributed from acquisitions. Additionally, the shift to a managed
care environment has required the Company to provide a full range of services,
resulting in volume increases, specifically in the home medical equipment/other
lines of business. This


                                       12
<PAGE>   267
growth was mitigated by price competition within the managed care environment.
Revenue growth in 1994 was 117.4%, 14.1% and 10.8% for infusion therapy,
respiratory therapy and home medical equipment/other services, respectively. The
significant growth in infusion revenue in 1994 was primarily due to the Total
Pharmaceutical Care, Inc. ("TPC") and Protocare, Inc. acquisitions. Price
increases had a minimal impact on revenue growth.

         Gross margins were 68.2% in 1995, 70.1% in 1994 and 69.8% in 1993.
Increased participation in the managed care market place has resulted in price
compression and has shifted product mix toward lower-margin medical equipment
and supply items. In addition, the impact of conforming capitalization policies
and providing for excess and obsolete inventory and equipment associated with
lines of business no longer deemed consistent with the Company's business
strategies reduced gross margins. Due to the Company's larger size and resulting
increase in volume requirements, management has renegotiated purchasing
contracts for more attractive pricing and has implemented purchase compliance
programs at its operational locations. Consequently, the Company has realized
cost savings in the last half of 1995 and expects to realize savings in 1996.

         Selling, distribution and administrative expenses decreased as a
percent of net revenues to 53.1% in 1995 from 53.7% in 1994 and 54.8% in 1993.
The year to year improvement is due in part to the Company's initiatives to more
effectively manage the delivery and clinical support components of the business.
Due to the more cost conscious health care environment and the Company's
decision to aggressively participate in the managed care approach to providing
health care, the Company is continually evaluating how it can provide home
healthcare at a lower cost. Operating and clinical efficiency models with
strategic targets are in place to move the Company toward more effectively
managing the delivery and clinical areas of its business. Additionally, the
Company was able to leverage these types of costs as a result of the merger,
contributing significantly to the reduction in selling, distribution and
administrative expenses during 1995. These reductions were partially offset in
1995 by integration costs.

         The provision for doubtful accounts as a percent of net revenue was
4.7% in 1995, 4.9% in 1994 and 4.6% in 1993. In addition, the Company recorded a
special provision for uncollectible accounts of $47.4 million or 4.2% of net
revenue in 1995 as a result of the Company's decision to align and conform
accounting policies and methodologies and to provide for estimated losses due to
the significant number of facility consolidations and information system
conversions. The consolidations and system conversions were accelerated in the
fourth quarter and require a dedicated effort which may detract from normal
operations. This effort results in billing and collection delays which generally
reduce the ultimate collectibility of accounts receivable. The system conversion
and implementation process is expected to be substantially completed in the
third quarter of 1996.

         Amortization expense increased to $16.3 million in 1995 from $11.5
million in 1994 and $4.1 million in 1993. The increase in amortization expense
relates to intangible assets recorded in conjunction with business acquisitions.

         Interest expense increased to $42.9 million in 1995 from $37.2 million
in 1994 and $18.3 million in 1993. The increase in interest expense in 1995 was
primarily due to the additional debt financing required for restructuring,
merger and integration activities, acquisitions and, to a lesser extent,
increases in interest rates (see Liquidity and Capital Resources).

         The Company recognized a tax benefit in 1995 of $20.6 million which was
primarily attributable to carryback of the current year loss and to an increase
in deferred tax assets (future deductions). Included in deferred tax assets are
net operating loss carryforwards available to reduce future taxes of
approximately $20 million, subject to limitations by Section 382 of the Internal
Revenue Code.

         Income tax expense for 1994 and 1993 represents the combined tax
provisions of Homedco and Abbey prepared on a separate tax return basis.
Accordingly, complimentary tax attributes of the companies were not considered
available for benefit until periods following the merger. The Company's 1994
combined effective tax rate was 43% which exceeded the statutory rate primarily
because of the effects of non-deductible goodwill. The Company's 1993 combined
effective tax rate was approximately 35%. The lower rate was due primarily to
the utilization of operating loss carryforwards not previously recognized.


LIQUIDITY AND CAPITAL RESOURCES


                                       13
<PAGE>   268
         Cash used in the Company's operating activities was $9.9 million in
1995 compared to $61,000 in 1994 and positive cash from operations of $27.0
million in 1993. Significantly contributing to the use of cash in 1995 were
outlays of approximately $47.2 million for merger expenses, restructuring costs
and employee-related matters. An additional $22.4 million is expected to be paid
over periods generally not exceeding five years and funded by internally
generated cash and existing credit facilities . Partially offsetting such cash
outlays are tax refunds of $27.7 million for estimated payments made prior to
the merger and for carryback of the 1995 loss which are expected to be received
in 1996. In addition, increased revenue levels were supported by purchases of
patient service equipment and resulted in increased levels of accounts
receivable.

         Days' sales in outstanding receivables ("DSO") is a measurement the
Company uses to evaluate the time frame in which accounts receivable are
collected. DSO increased to 110 days in 1995 from 96 days in 1994 and was
consistent from 1993 to 1994. Among the primary factors contributing to the
increase in accounts receivable were branch consolidations and information
system conversions resulting from the merger. These activities generally cause
disruptions to normal operations, creating billing and collection delays and an
increase in accounts receivable and DSO. The conversion activity is expected to
be substantially completed by September 1996, at which time management expects
the accounts receivable position to improve. In addition, management has
implemented operational processes and incentive programs in 1996 which are
intended to increase collections and reduce accounts receivable and DSO.

         Purchases of property, equipment and improvements, net of retirements
and trade-ins, were $49.3 million in 1995, $26.8 million in 1994 and $17.2
million in 1993. The majority of the increase in 1995 was due to additions and
enhancements to the Company's data processing systems. In connection with the
merger and restructure plan, the Company is standardizing branch information
systems, thus necessitating additional expenditures for hardware and software.
The Company estimates that expenditures of $12.5 million and $1.2 million for
hardware and software, respectively, will be made in 1996 to convert the
remaining locations.

         In conjunction with the merger, the Company entered into a credit
agreement with certain banks and Banque Paribas, as administrative agent. The
agreement, which expires in June 2000, provides for a revolving loan facility up
to $500 million. The proceeds were used, among other things, to repay borrowings
under the prior separate credit agreements of Homedco and Abbey. The agreement
provides for variable rate interest options including the Federal Funds Rate
plus .5%, the Prime Rate, or London Interbank Offered Rate ("LIBOR") plus 1.50%.
In July 1995, the Company entered into one-year swap agreements to fix the
interest on the notional amount of $266 million. At December 31, 1995, the
Company's outstanding letters of credit amounted to $960,000 and the
availability under the revolving credit facility was $212.7 million.

         During the third quarter of 1995, the Company completed the conversion
of all outstanding convertible subordinated debentures.

         During 1995, business acquisitions, which were financed, resulted in
payments of approximately $46.1 million in cash, $787,000 in shares of the
Company's common stock and the assumption of $3.4 million of liabilities.
Covenants not to compete and goodwill arising from these acquisitions resulted
in an increase in intangible assets from December 31, 1994 to December 31, 1995.
Other assets at December 31, 1995, is primarily comprised of payments for
businesses which have not yet been allocated to the various underlying acquired
assets.

         During 1994, the Company entered into a five-year agreement to purchase
medical supplies totalling $112.5 million, with annual purchases ranging from
$7.5 million in the first year to $30 million in the third through fifth years.
Beginning in the year ended August 31, 1996, failure to purchase at least 90% of
the annual commitment will result in a penalty of 10% of the difference between
the annual commitment and actual purchases.

         The Company believes that cash provided by operations and amounts
available under its existing credit and lease financing will be sufficient to
finance its current operations for at least the next 12 months.

         The Company believes that inflation has not had a significant impact on
the Company's historical operations.
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                                       14
<PAGE>   269
         Information with respect to this item is set forth in "Index to
Consolidated Financial Statements and Financial Statement Schedule."


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

         On July 19, 1994, the Company filed a Current Report on Form 8-K with
the Commission reporting the dismissal of KPMG Peat Marwick LLP ("KPMG") as its
independent auditors effective July 18, 1994. On July 15, 1994, the audit
committee of the Board of Directors of the Company approved management's
decision to dismiss KPMG. None of KPMG's reports on the Company's consolidated
financial statements for either of the fiscal years ended January 1, 1994 and
January 2, 1993 contained an adverse opinion or a disclaimer of opinion or was
qualified or modified as to uncertainty, audit scope or accounting principles.

         During the Company's fiscal years ended January 1, 1994 and January 2,
1993 and each subsequent interim period preceding the dismissal of KPMG, there
were no disagreements between the Company and KPMG regarding a matter of (i)
accounting principles or practices, (ii) financial statement disclosure or (iii)
auditing scope or procedure which if not resolved to the satisfaction of KPMG
would have caused KPMG to make reference to the disagreement in its reports.
Furthermore, during the same period no reportable events (as such events are set
forth in Item 304 (a) (1) (iv) of Registration S-K) occurred between the Company
and KPMG.

         Effective as of July 18, 1994, Ernst & Young LLP ("Ernst & Young") was
engaged by the Company as its independent auditors to audit its consolidated
financial statements. During the fiscal years ended January 1, 1994 and January
2, 1993 and each subsequent interim period prior to engaging Ernst & Young, the
Company did not consult Ernst & Young regarding either (i) the application of
accounting principles to a specified transaction (completed or proposed) or the
type of audit opinion that might be rendered on the Company's consolidated
financial statements or (ii) any matter that was either the subject of a
disagreement or a reportable event relating to KPMG.


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Information with respect to this item is incorporated by reference from
the Company's definitive Proxy Statement to be filed with the Commission within
120 days after the close of the Company's fiscal year. Information regarding
executive officers of the Company is set forth under the caption "Executive
Officers" in Item 1 hereof.


ITEM 11.  EXECUTIVE COMPENSATION

         Information with respect to this item is incorporated by reference from
the Company's definitive Proxy Statement to be filed with the Commission within
120 days after the close of the Company's fiscal year.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Information with respect to this item is incorporated by reference from
the Company's definitive Proxy Statement to be filed with the Commission within
120 days after the close of the Company's fiscal year.


                                       15
<PAGE>   270




ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Information with respect to this item is incorporated by reference from
the Company's definitive Proxy Statement to be filed with the Commission within
120 days after the close of the Company's fiscal year.


                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K

          (a)     1.       The documents described in the "Index to Consolidated
                           Financial Statements and Financial Statement
                           Schedule" are included in this report starting at
                           page F-1.

                  2.       The financial statement schedule described in the
                           "Index to Consolidated Financial Statements and
                           Financial Statement Schedule" are included in this
                           report starting on page S-1.

                           All other schedules for which provision is made in
                           the applicable accounting regulation of the
                           Securities and Exchange Commission are not required
                           under the related instructions or are inapplicable,
                           and therefore have been omitted.

                  3.       Exhibits included or incorporated herein:

                           See Exhibit Index

          (b)     Reports on Form 8-K:

                  Apria Healthcare Group Inc. filed a Current Report on Form
                  8-K, dated November 7, 1995, with the Securities and Exchange
                  Commission on November 7, 1995 attaching the supplemental
                  consolidated financial statements of the Company.


                                       16
<PAGE>   271
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                        AND FINANCIAL STATEMENT SCHEDULE

<TABLE>
<CAPTION>
                                                                                                               PAGE

<S>                                                                                                            <C>
CONSOLIDATED FINANCIAL STATEMENTS
  Reports of Independent Auditors.........................................................................     F-1
  Consolidated Balance Sheets -- December 31, 1995 and 1994...............................................     F-3
  Consolidated Statements of Operations -- Years ended
    December 31, 1995, 1994 and 1993......................................................................     F-4
  Consolidated Statements of Stockholders' Equity -- Years ended
    December 31, 1995, 1994 and 1993......................................................................     F-5
  Consolidated Statements of Cash Flows -- Years ended
    December 31, 1995, 1994 and 1993......................................................................     F-6
  Notes to Consolidated Financial Statements..............................................................     F-7

CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
  Schedule II - Valuation and Qualifying Accounts.........................................................     S-1
</TABLE>
<PAGE>   272
                         REPORT OF INDEPENDENT AUDITORS


Stockholders and Board of Directors
Apria Healthcare Group Inc.


We have audited the accompanying consolidated balance sheets of Apria Healthcare
Group Inc. (formed as a result of the consolidation of Abbey Healthcare Group
Incorporated and Homedco Group, Inc.) as of December 31, 1995 and 1994 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. Our
audits also included the financial statement schedule listed in the Index at
Item 14 (a). These financial statements are the responsibility of the management
of Apria Healthcare Group Inc. Our responsibility is to express an opinion on
these financial statements based on our audits. We did not audit the
consolidated financial statements of Abbey Healthcare Group Incorporated for the
year ended December 31, 1993, which statements reflects total revenues of $278
million. Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to data included for
Abbey Healthcare Group Incorporated, is based solely on the report of the other
auditors.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.

In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Apria Healthcare Group Inc. and
subsidiaries at December 31, 1995 and 1994 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
Also, in our opinion, based on our audits and the report of other auditors, the
related financial statement schedule referred to above, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.

We also audited the adjustments described in Note 2 that were applied to restate
the 1994 and 1993 financial statements. In our opinion, such adjustments are
appropriate and have been properly applied.



                                                     ERNST & YOUNG LLP

Orange County, California
March 6, 1996

                                      F-1
<PAGE>   273


                          INDEPENDENT AUDITORS' REPORT



The Board of Directors and Shareholders
Abbey Healthcare Group Incorporated:

We have audited the accompanying consolidated statements of income, changes in
shareholders' equity and cash flows of Abbey Healthcare Group Incorporated and
subsidiaries for the year ended January 1, 1994. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and the cash flows
of Abbey Healthcare Group Incorporated and subsidiaries for the year ended
January 1, 1994, in conformity with generally accepted accounting principles.


                                      KPMG PEAT MARWICK LLP


Orange County, California
February 15, 1994


                                       F-3
<PAGE>   274
                           APRIA HEALTHCARE GROUP INC.

                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS
<TABLE>
<CAPTION>
                                                                                        DECEMBER 31,
                                                                                  ----------------------
                                                                                  1995              1994
                                                                                  ----              ----
                                                                                  (DOLLARS IN THOUSANDS)

<S>                                                                              <C>              <C>     
CURRENT ASSETS
  Cash ...................................................................       $  18,829        $ 21,188
  Accounts receivable, less allowance for doubtful accounts of $86,567 and
    $61,038 at December 31, 1995 and 1994, respectively ..................         258,332         225,619
  Inventories ............................................................          45,198          35,898
  Deferred income taxes ..................................................          45,883          36,947
  Refundable income taxes ................................................          27,710           5,439
  Prepaid expenses and other current assets ..............................           7,770          10,472
                                                                                 ---------        --------
         TOTAL CURRENT ASSETS ............................................         403,722         335,563
PATIENT SERVICE EQUIPMENT, less accumulated depreciation of $167,082 and
   $129,621 at December 31, 1995 and 1994, respectively ..................         167,090         152,358
PROPERTY, EQUIPMENT AND IMPROVEMENTS, NET ................................          80,108          73,976
INVESTMENT IN OMNICARE plc ...............................................           1,504              --
INTANGIBLE ASSETS, NET ...................................................         319,142         282,724
OTHER ASSETS .............................................................           8,419          11,546
                                                                                 ---------        --------
                                                                                 $ 979,985        $856,167
                                                                                 =========        ========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Accounts payable .......................................................       $ 100,653        $ 78,912
  Accrued payroll and related taxes and benefits .........................          26,792          23,045
  Accrued restructuring costs ............................................          19,085              --
  Other accrued liabilities ..............................................          48,910          43,798
  Current portion of long-term debt ......................................           9,652          32,200
                                                                                 ---------        --------
         TOTAL CURRENT LIABILITIES .......................................         205,092         177,955
LONG-TERM DEBT ...........................................................         490,655         406,104
DEFERRED INCOME TAXES ....................................................              --           9,238
OTHER NON-CURRENT LIABILITIES ............................................              --             960
STOCKHOLDERS' EQUITY Preferred Stock, $.001 par value:
    10,000,000 shares authorized; none issued ............................              --              --
  Common Stock, $.001 par value:
    150,000,000 shares authorized; 49,692,266 and 42,001,788 shares issued
    and outstanding at December 31, 1995 and 1994, respectively ..........              50              42
  Additional paid-in capital .............................................         294,522         206,405
  Retained (deficit) earnings ............................................         (10,334)         55,463
                                                                                 ---------        --------
                                                                                   284,238         261,910
COMMITMENTS AND CONTINGENCIES ............................................              --              --
                                                                                 ---------        --------
                                                                                 $ 979,985        $856,167
                                                                                 =========        ========
</TABLE>


                 See notes to consolidated financial statements.


                                       F-4
<PAGE>   275

                           APRIA HEALTHCARE GROUP INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                         YEAR ENDED DECEMBER 31,
                                                                                 ------------------------------------
                                                                                 1995             1994           1993
                                                                                 ----             ----           ----
                                                                                    (IN THOUSANDS, EXCEPT PER SHARE DATA)

<S>                                                                          <C>                <C>            <C>     
Net revenues .........................................................       $ 1,133,600        $962,812       $748,901
Costs and expenses:
  Cost of net revenues:
    Product and supply costs .........................................           286,919         234,604        188,276
    Patient service equipment depreciation ...........................            57,400          42,735         33,019
    Nursing services .................................................             7,361           5,947          2,821
    Other ............................................................             9,319           4,404          2,008
                                                                             -----------        --------       --------
                                                                                 360,999         287,690        226,124
  Selling, distribution and administrative ...........................           601,978         517,027        410,392
  Provision for doubtful accounts, net of recoveries .................            53,023          46,716         34,476
  Amortization of intangible assets ..................................            16,273          11,504          4,103
  Restructuring costs ................................................            68,304              --             --
  Merger costs .......................................................            12,193              --             --
  Special provision for uncollectible accounts .......................            47,440              --             --
  Employee contracts, benefit plan and claim settlements .............            20,367              --             --
  Loss on disposition of U.K. subsidiary .............................               500              --             --
                                                                             -----------        --------       --------
                                                                               1,181,077         862,937        675,095
                                                                             -----------        --------       --------
    OPERATING (LOSS) INCOME ..........................................           (47,477)         99,875         73,806
Interest expense .....................................................            42,942          37,155         18,266
                                                                             -----------        --------       --------
    (LOSS) INCOME FROM CONTINUING OPERATIONS
    BEFORE TAXES AND EXTRAORDINARY CHARGE ............................           (90,419)         62,720         55,540
Income tax (benefit) expense .........................................           (18,941)         27,104         19,695
                                                                             -----------        --------       --------
    (LOSS) INCOME FROM CONTINUING OPERATIONS
    BEFORE EXTRAORDINARY CHARGE ......................................           (71,478)         35,616         35,845
Income from discontinued operations, net of taxes ....................                --             344          1,466
Gain on disposal of discontinued operations, net of taxes ............                --           3,071             --
                                                                             -----------        --------       --------
    (LOSS) INCOME BEFORE EXTRAORDINARY CHARGE ........................           (71,478)         39,031         37,311
Extraordinary charge on debt refinancing, net of taxes ...............             2,998              --             --
                                                                             -----------        --------       --------
    NET (LOSS) INCOME ................................................       $   (74,476)       $ 39,031       $ 37,311
                                                                             ===========        ========       ========

PER COMMON AND COMMON EQUIVALENT SHARE:
  (Loss) income from continuing operations before extraordinary charge       $     (1.52)       $    .81       $    .94
                                                                             ===========        ========       ========
  Extraordinary charge on debt refinancing, net of taxes .............       $     (0.06)       $     --       $     --
                                                                             ===========        ========       ========
  Net (loss) income ..................................................       $     (1.58)       $    .89       $    .98
                                                                             ===========        ========       ========

  Weighted average number of common and common equivalent
    shares outstanding ...............................................            47,112          44,096         38,138

PER COMMON SHARE ASSUMING FULL DILUTION:
  (Loss) income from continuing operations before extraordinary charge       $     (1.52)       $    .78       $    .89
                                                                             ===========        ========       ========
  Extraordinary charge on debt refinancing, net of taxes .............       $     (0.06)       $     --       $     --
                                                                             ===========        ========       ========
  Net (loss) income ..................................................       $     (1.58)       $    .85       $    .93
                                                                             ===========        ========       ========

Weighted average number of common and common
  equivalent shares outstanding ......................................            47,112          49,284         43,864
</TABLE>


                 See notes to consolidated financial statements.


                                       F-5
<PAGE>   276
                           APRIA HEALTHCARE GROUP INC.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                 COMMON STOCK          ADDITIONAL        RETAINED                        TOTAL
                                            ----------------------      PAID-IN          EARNINGS      TREASURY      STOCKHOLDERS'
                                            SHARES       PAR VALUE      CAPITAL          (DEFICIT)       STOCK          EQUITY
                                            ------       ---------      -------           -------        -----          ------
                                                                                      (IN THOUSANDS)

<S>                                         <C>          <C>           <C>             <C>            <C>             <C>      
Balance at December 31, 1992...........     33,409       $   34        $ 115,029       $ (20,879)     $ (13,783)      $  80,401

Issuance of Common Stock...............         22                           273                                            273
Treasury stock issued..................      1,748                           558                         12,716          13,274
Exercise of stock options..............        438            1            1,054                                          1,055
Notes receivable payments..............                                    1,201                                          1,201
Tax benefits related to stock options..                                    1,082                                          1,082
Compensatory stock options granted.....                                      105                                            105
Conversion of subordinated
  debentures...........................        604            1            8,443                                          8,444
Acquisition of Total
  Pharmaceutical Care, Inc.............      2,002            2           33,520                                         33,522
Other  ................................                                      (36)                                           (36)
Net income ..........................                                                    37,311                          37,311
                                            ------       ------         --------       --------       ---------        --------

Balance at December 31, 1993...........     38,223           38          161,229         16,432          (1,067)        176,632

Issuance of Common Stock...............      1,362            2           17,785                                         17,787
Treasury stock issued..................        142                            49                          1,067           1,116
Exercise of stock options..............        395                         1,830                                          1,830
Notes receivable payments..............                                       15                                             15
Tax benefits related to stock options..                                    1,343                                          1,343
Conversion of subordinated
  debentures...........................        799            1           11,159                                         11,160
Common Stock issued for acquisitions
  and earnouts.........................      1,081            1           12,877                                         12,878
Other  ................................                                      118                                            118
Net income ..........................                                                   39,031                           39,031
                                            ------       ------         --------      --------        ---------        --------

Balance at December 31, 1994...........     42,002           42          206,405        55,463               --         261,910

Net activity for Homedco - October 1,
  1994 to December 31, 1994............         51                         1,663         8,647                         10,310
Issuance of Common Stock...............         36                           570                                            570
Exercise of stock options..............      1,473            2           13,259                                         13,261
Notes receivable payments..............                                        6                                              6
Tax benefits related to stock options..                                    8,138                                          8,138
Conversion of subordinated
  debentures, net of issuance costs
  of $2,785............................      4,772            5           63,856                                         63,861
Exercise of warrants...................      1,338            1               (1)                                            --
Acceleration of stock option vesting...                                      542                                            542
Other..................................         20                            84            32                              116
Net loss   ............................                                                (74,476)              --         (74,476)
                                            ------       ------         --------      --------        ---------        --------
Balance at December 31, 1995...........     49,692       $   50         $294,522      $(10,334)       $      --        $284,238
                                            ======       ======         ========      ========        =========        ========
</TABLE>

                 See notes to consolidated financial statements.


                                      F-6
<PAGE>   277

                           APRIA HEALTHCARE GROUP INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                             YEAR ENDED DECEMBER 31,
                                                                                    -------------------------------------
                                                                                    1995             1994            1993
                                                                                    ----             ----            ----
                                                                                                 (IN THOUSANDS)
OPERATING ACTIVITIES
<S>                                                                               <C>              <C>              <C>      
Net (loss) income .........................................................       $ (74,476)       $  39,031        $  37,311
Items included in net (loss) income not requiring (providing) cash:
    Income from discontinued operations ...................................              --             (344)          (1,466)
    Extraordinary charge on debt refinancing ..............................           4,684               --               --
    Provisions for doubtful accounts ......................................         100,463           46,716           34,476
    Depreciation ..........................................................          84,607           63,895           46,180
    Amortization of intangible assets .....................................          16,273           11,504            4,103
    Amortization of deferred debt costs ...................................           1,908            4,878            2,882
    Loss (gain) on sale of property, equipment and improvements ...........           3,938              765             (108)
    Impairment losses .....................................................          32,557               --               --
    Gain on disposal of discontinued operations ...........................              --           (3,071)              --
    Deferred income taxes .................................................         (19,548)           4,031           (5,452)
Change in operating assets and liabilities, net of effects of acquisitions:
    Increase in accounts receivable .......................................        (118,151)         (86,116)         (55,914)
    Increase in inventories ...............................................          (4,904)          (4,895)          (2,291)
    (Increase) decrease in prepaids and other current assets ..............         (12,194)          (2,147)           1,751
    Decrease in other non-current assets ..................................           3,269            4,221              692
    Increase in accounts payable ..........................................          18,942           16,231            9,313
    Increase (decrease) in accruals and other non-current liabilities .....           3,434           (6,735)          (3,832)
    Increase in accrued restructuring costs ...............................          19,085               --               --
Other .....................................................................           2,733           (2,296)            (822)
Net purchases of patient service equipment, net of effects of 
  acquisitions ............................................................          (72,518)         (85,729)         (39,784)
                                                                                  ---------        ---------        ---------
         NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES ..............          (9,898)             (61)          27,039

INVESTING ACTIVITIES
    Purchases of property, equipment and
      improvements, net of effects of acquisitions ........................         (49,327)         (26,757)         (17,249)
    Proceeds on disposal of discontinued operations .......................              --           20,344               --
    Proceeds on disposition of U.K. subsidiary ............................             926               --               --
    Proceeds from sale of property, equipment and improvements ............             331              540              963
    Acquisitions ..........................................................         (46,086)         (73,782)        (185,625)
                                                                                  ---------        ---------        ---------
         NET CASH USED IN INVESTING ACTIVITIES ............................         (94,156)         (79,655)        (201,911)

FINANCING ACTIVITIES
    Proceeds under revolving credit facility ..............................         463,999          172,954           93,556
    Payments under revolving credit facility ..............................        (229,171)        (164,532)         (60,792)
    Proceeds from issuance of subordinated notes ..........................              --               --          200,000
    Proceeds from senior and other long-term debt .........................         126,557           44,474            1,878
    Payments of senior and other long-term debt ...........................        (275,022)         (12,929)         (41,316)
    Capitalized debt costs, net ...........................................          (1,429)          (2,502)          (9,863)
    Issuances of Common Stock .............................................          13,064            2,042            2,256
                                                                                  ---------        ---------        ---------
         NET CASH PROVIDED BY FINANCING ACTIVITIES ........................          97,998           39,507          185,719
                                                                                  ---------        ---------        ---------

NET (DECREASE) INCREASE IN CASH ...........................................          (6,056)         (40,209)          10,847
Cash at beginning of period ...............................................          21,188           61,397           50,550
Net activity for Homedco - October 1, 1994 to December 31, 1994 ...........           3,697               --               --
                                                                                  ---------        ---------        ---------
         CASH AT END OF PERIOD ............................................       $  18,829        $  21,188        $  61,397
                                                                                  =========        =========        =========
</TABLE>

                 See notes to consolidated financial statements.


                                      F-7
<PAGE>   278
                           APRIA HEALTHCARE GROUP INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Basis of Presentation: The accompanying consolidated financial
statements include the accounts of Apria Healthcare Group Inc. ("the Company")
and its subsidiaries. All significant intercompany transactions and accounts
have been eliminated. As described more fully in Note 2, on June 28, 1995,
Homedco Group, Inc. ("Homedco") merged with and into Abbey Healthcare Group
Incorporated ("Abbey") to form the Company ("the merger"). The merger was
accounted for as a pooling-of-interests and, accordingly, the consolidated
financial statements reflect the combined financial position and operating
results of Abbey and Homedco for all periods presented.

         In conjunction with the merger, the Company adopted a fiscal year end
of December 31. Previously, Abbey reported on a fiscal year ending the Saturday
nearest December 31, and Homedco reported on a fiscal year ending September 30.
The consolidated financial statements for 1994 and 1993 combine the results of
Abbey for the fiscal years ended December 31, 1994 and January 1, 1994 and the
results of Homedco for each of the two years ended September 30, 1994 and
September 30, 1993. The consolidated balance sheet at December 31, 1994 combines
the accounts of Abbey as of December 31, 1994 and Homedco as of September 30,
1994. The consolidated balance sheet and statements of cash flows at December
31, 1995 combines the accounts of Abbey and Homedco on such a date and reflects
the activity of Homedco from October 1, 1994 through December 31, 1994. The
consolidated statements of operations for 1995 reflect combined results for the
year ended December 31, 1995 and exclude the operations of Homedco for the
period October 1, 1994 through December 31, 1994. Homedco's revenues and net
income for this period amounted to $146,293,000 and $8,647,000, respectively.

         Company Background: The Company provides home healthcare services
including home infusion therapy, home respiratory therapy and home medical
equipment/other to patients in the home throughout the United States. Infusion
therapy, respiratory therapy and home medical equipment/other represent
approximately 24%, 53% and 23%, of total revenue, respectively.

         Revenue Recognition and Concentration of Credit Risk: Revenues are
recognized on the date services and related products are provided to patients
and are recorded at amounts estimated to be received under reimbursement
arrangements with a large number of third party payors, including private
insurers, prepaid health plans, Medicare and Medicaid. Approximately 43% of the
Company's revenues are reimbursed under arrangements with Medicare and Medicaid.
No other third party payor group represents 10% or more of the Company's
revenues. The Company establishes an allowance for doubtful accounts based upon
factors surrounding the credit risk of specific third party payors, historical
trends and other information. Because of continuing changes in healthcare
regulations and reimbursement and disruptions caused by the Company's merger,
restructuring and integration activities, it is reasonably possible that the
Company's estimates of net collectible revenue could change in the near term.

         Use of Accounting Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.

         Cash Equivalents: The Company considers all highly liquid instruments
purchased with a maturity of less than three months to be cash equivalents. The
Company maintains cash with various financial institutions. These financial
institutions are located throughout the United States and the Company's cash
management practices limit exposure to any one institution. Outstanding checks
in excess of bank balances, which are reported as a component of accounts
payable, were $27,608,000 and $18,185,000 at December 31, 1995 and 1994,
respectively.

         Inventories: Inventories are stated at the lower of cost (first-in,
first-out method) or market and consist primarily of medical supplies sold
directly to patients for use in their homes.

         Patient Service Equipment: Patient service equipment consists of
medical equipment provided to in-home patients and is stated at cost.
Depreciation is provided using the straight-line method over the estimated
useful lives of the equipment which range from three to ten years. Included in
patient service equipment are assets under capitalized leases which consist
primarily of oxygen related equipment. Depreciation for equipment under
capitalized leases is provided using the straight-line method over the estimated
useful life or the lease term.


                                      F-8
<PAGE>   279
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


         Property, Equipment and Improvements: Property, equipment and
improvements are stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the property which range
from three to thirty years. Included in property and equipment are assets under
capitalized leases which consist primarily of computer equipment. Depreciation
for equipment under capitalized leases is provided using the straight-line
method over the estimated useful life or the lease term.

         Long-lived Assets: Effective January 1, 1995, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed
Of. In accordance with the statement, the Company records impairment losses on
long-lived assets used in operations when events and circumstances indicate that
the assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amounts of those assets. No
financial statement impact resulted from the adoption of the statement.

         Intangible Assets: Intangible assets consist of covenants not to
compete and goodwill arising from business combinations (see Note 2). The values
assigned to intangible assets, based in part on independent appraisals, are
amortized on a straight-line basis. The covenants are amortized over contractual
terms which range from three to ten years. Goodwill, representing the excess of
the purchase price over the estimated fair value of the net assets of the
acquired business, is amortized over the period of expected benefit. The
amortization periods for goodwill range from twenty years for businesses
operating primarily in the home respiratory therapy and home medical equipment
lines and forty years for pharmaceutical and infusion therapy businesses. The
carrying value of goodwill is reviewed if the facts and circumstances suggest
that it may be impaired. If this review indicates that goodwill will not be
recoverable, as determined based on the undiscounted cash flows of the entity
acquired over the remaining amortization period, the carrying value of the
goodwill is reduced.

         Fair Value of Financial Instruments: The fair value of long-term debt
is determined by reference to borrowing rates currently available to the Company
for loans with similar terms and average maturities.

         Advertising: Advertising costs amounting to $3,849,000, $3,753,000 and
$3,627,000 for 1995, 1994 and 1993, respectively, are expensed as incurred and
included in "Selling, distribution and administrative expenses."

         Income Taxes: The Company provides for income taxes under the liability
method. Accordingly, deferred income tax assets and liabilities are computed for
differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to amounts which are
more likely than not to be realized. The provision for income taxes represents
the tax payable or refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.

         Per Share Amounts: Primary per share amounts are calculated by dividing
the applicable operating statement caption by the weighted average number of
common and dilutive common equivalent shares outstanding. Common equivalent
shares consist primarily of stock options. Fully diluted per share amounts
include further adjustments to the applicable operating statement captions and
weighted average shares outstanding to assume conversion of convertible
debentures from issuance, if dilutive. The calculation of per share amounts for
periods prior to the merger reflect the issuance of two shares of the Company's
Common Stock for each share of Homedco Common Stock used in such calculation and
one and four tenths shares of the Company's Common Stock for each share of Abbey
Common Stock used in such calculation.

         Stock-based Compensation: The Company grants options for a fixed number
of shares to employees with an exercise price equal to the fair value of the
shares at the date of grant. The Company accounts for stock option grants in
accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees,
and, accordingly, recognizes no compensation expense for the stock option
grants.

         Reclassifications: Certain amounts for prior periods have been
reclassified to conform to the current year presentation.


                                      F-9
<PAGE>   280
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 2 -- BUSINESS COMBINATIONS AND DISPOSITIONS

         On June 28, 1995, Homedco merged with and into Abbey to form the
Company. Homedco and Abbey provided similar homecare services including infusion
therapy, respiratory therapy and home medical equipment. In connection with the
merger transaction, the Company issued 21,547,529 shares of its Common Stock for
15,391,092 issued and outstanding shares of Abbey Common Stock and 26,034,612
shares of its Common Stock for 13,017,306 issued and outstanding shares of
Homedco Common Stock.

         The merger has been accounted for under the pooling-of-interests method
of accounting. Accordingly, the historical financial statements for periods
prior to the consummation of the combination have been restated as though the
companies had been combined. The restated financial statements have been
adjusted to conform the differing accounting policies of the separate companies.
Such differences relate principally to the use of salvage values recognized for
certain patient service equipment and the capitalization of low dollar patient
service items, supplies, accessories and repairs.

         Separate and combined results of Abbey and Homedco prior to the merger
are as follows:

<TABLE>
<CAPTION>
                                                                                             ADJUSTMENTS
                                                                                                 AND
                                                                    ABBEY      HOMEDCO     RECLASSIFICATIONS    COMBINED
                                                                    -----      -------     -----------------    --------
                                                                                      (IN THOUSANDS)
<S>                                                               <C>          <C>              <C>              <C>

         Three months ended March 31, 1995
         Revenues............................................     $123,394     $161,175         $     40         $284,609
         Net Income..........................................        7,091        9,047             (346)          15,792

         Year ended December 31, 1994
         Revenues............................................     $439,175     $523,469         $    168         $962,812
         Net Income..........................................       12,307       29,810           (3,086)          39,031

         Year ended December 31, 1993
         Revenues............................................     $278,457     $470,283         $    161         $748,901
         Net Income..........................................       14,312       24,544           (1,545)          37,311
</TABLE>


         On January 2, 1994, the Company acquired the outstanding stock of
Protocare, Inc. ("Protocare") for a cash payment of $11,915,000 plus direct
acquisition costs of $3,700,000. In addition, pursuant to an earnout provision,
as amended in June 1994, approximately 979,000 shares of Common Stock valued at
$11,594,000 were issued in February 1995 to the former Protocare stockholders.
The shares are reflected in the accompanying financial statements as issued and
outstanding at December 31, 1994.

         On November 10, 1993, the Company acquired the outstanding stock of
Total Pharmaceutical Care, Inc. ("TPC") for a cash payment of $154,183,000 plus
direct acquisition costs of $9,376,000 and the issuance of approximately
2,002,000 shares of Common Stock valued at $33,522,000.

         In addition to the above business combinations, during 1995, 1994 and
1993, the Company acquired numerous complementary businesses in specific
geographic markets. None of these businesses was individually significant. The
transactions, including Protocare and TPC, were accounted for as purchases and,
accordingly, the operations of the acquired businesses are included in the
consolidated statements of operations from the dates of acquisition. The
purchase prices, which aggregated approximately $46,873,000, $109,747,000 and
$231,225,000 in 1995, 1994 and 1993, respectively, consisted of cash, common
stock and notes. The value ascribed to a portion of the common shares issued in
1994 and 1993 reflects a discount from the quoted price of the Company's Common
Stock due to the absence of registration. The purchase prices were allocated to
the various underlying tangible and intangible assets and liabilities on the
basis of estimated fair value, determined in part by independent appraisal.


                                      F-10
<PAGE>   281
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



         The following table summarizes the allocation of the purchase prices,
including non-cash financing activities, of acquisitions made by the Company:

<TABLE>
<CAPTION>
                                                                                   EAR ENDED DECEMBER 31,
                                                                               ------------------------------
                                                                               1995        1994          1993
                                                                               ----        ----          ----
                                                                                      (IN THOUSANDS)
<S>                                                                          <C>         <C>           <C>


         Fair value of assets acquired..............................         $50,255     $124,496      $249,554
         Liabilities assumed........................................          (3,382)     (14,749)      (18,329)
         Promissory note payable to seller..........................               -       (4,382)            -
         Common Stock issued........................................            (787)     (31,583)      (47,069)
                                                                             -------     --------      --------
           Cash paid................................................         $46,086     $ 73,782      $184,156
                                                                             =======     ========      ========
</TABLE>


         In June 1995, the Company entered an agreement for the sale of the
capital stock of Omnicare Group Ltd. ("Omnicare"), a United Kingdom-based
subsidiary, to a newly formed holding company, Stanton Industries Ltd.
("Stanton"), that is owned and managed by an officer/director of Omnicare and a
shareholder/former director of Abbey. Consideration for the sale amounted to
$2,913,000 and consisted of cash of $968,000, a convertible note in the amount
of $1,605,000 and the assumption of a liability in the amount of $340,000. The
difference between the net sales price per the agreement and the carrying value
of the Company's investment in Omnicare has been reflected as a loss in the
accompanying financial statements.

         In September 1995, Stanton transferred its shares of Omnicare common
stock to a newly-formed public limited company, Omnicare plc, in exchange for
6,166,656 ordinary shares of Omnicare plc. Also in September 1995, the Company
converted the note due from Stanton into 1,875,000 unregistered ordinary shares
of Omnicare plc. As a result of these transactions, Stanton and the Company hold
approximately 63% and 27%, respectively, of the issued ordinary share capital of
Omnicare plc. The Company has agreed not to dispose of the shares and to certain
noncompetition covenants for a period of two years. The investment in Omnicare
plc is accounted for using the equity method. At March 6, 1996, the quoted
market value of the investment was approximately $2,400,000. The valuation
represents a mathematical calculation based on a closing quotation published by
the London Alternative Investment Market and is not necessarily indicative of
the amount that could be realized upon sale.

         On September 30, 1994, the Company sold its 51% interest in Abbey
Pharmaceutical Services, Inc. ("APS") to Living Centers of America, Inc.
("Living Centers") for cash consideration of $20,300,000 and warrants to
purchase 248,000 shares of Living Center common stock for $35.00 per share. No
value was assigned to the warrants. The APS operating results have been
presented as discontinued operations for 1994 and 1993 (net of applicable income
taxes of $1,879,000 and $2,428,000 in 1994 and 1993, respectively). Net revenues
of the discontinued operations were $43,770,000 and $50,678,000 in 1994 and
1993, respectively.

         Supplemental unaudited pro forma information giving effect to business
acquisitions made in 1994 and 1993 and excluding the operations of APS, is as
follows:

<TABLE>
<CAPTION>
                                           YEAR ENDED DECEMBER 31,
                                           -----------------------
                                            1994              1993
                                            ----              ----
                                              (IN THOUSANDS)
<S>                                        <C>               <C>
Net revenues                               $986,062          $930,192
Income from continuing operations            35,209            27,498
Per share amounts:
  Primary                                  $   0.79 $0.63
  Fully diluted                            $   0.76 $0.63
</TABLE>


         The pro forma financial information presented above is not necessarily
indicative of any trends or results that may be expected for any other period.
Pro forma financial information for business acquisitions and dispositions made
in 1995 is not presented because the effects on the Company's operating results
are not material.

         In February 1996, the Company signed a letter of intent for the sale of
its M&B Ventures, Inc. home health operations, located in South Carolina under
the assumed business name of Doctor's Home Health, Inc. The sale, which is
expected to be completed in May 1996, is subject to certain conditions. The
proposed sales price of $2,900,000 approximates the book value of the



                                      F-11
<PAGE>   282
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


assets of Doctor's Home Health, Inc. The operations of Doctor's Home Health,
Inc. had revenues of approximately $8,870,000 and $7,340,000 for 1995 and 1994,
respectively.


NOTE 3 -- RESTRUCTURING COSTS AND SPECIAL PROVISION FOR UNCOLLECTIBLE ACCOUNTS

         In connection with the merger, the Company adopted a plan to
restructure and consolidate its operating locations and administrative functions
within specific geographic areas. The principal elements of the plan include a
workforce reduction of approximately 1,220 employees across all employee groups,
the consolidation of approximately 120 branch locations and the conversion of
information systems at the continuing branches to a standardized system. The
plan, which the Company anticipates will be substantially completed by September
1996, resulted in a restructuring charge of approximately $68,304,000 consisting
of accrued costs and impairments.

         Through December 31, 1995, the Company had completed a significant
portion of the plan, including the consolidation of approximately 105 branch
locations and a reduction of approximately 1,120 employees. The Company's
decision to consolidate branches and standardize branch information systems
resulted in write-offs of excess patient service equipment, leasehold
improvements and the hardware and capitalized software relating to information
systems being discontinued. Approximately $1,325,000 in hardware and capitalized
software costs, representing the approximate amount of depreciation attributable
to the expected period of usage prior to completion of the conversion plan, is
included in property, equipment and improvements at December 31, 1995. The
following table summarizes the principal components of the charge, amounts paid
through December 31, 1995, and the remaining accrual at December 31, 1995.

<TABLE>
<CAPTION>
                                                       ACCRUALS      IMPAIRMENTS
                                                           (IN THOUSANDS)
<S>                                                    <C>             <C>
Severance and related personnel costs...............   $ 21,538        $     --
Branch and billing center closures..................     13,709           9,354
Information systems.................................         --          22,160
Other...............................................      1,000             543
                                                       --------        --------
                                                         36,247        $ 32,057
Severance amounts paid through December 31, 1995....    (12,607)       ========
Other amounts paid through December 31, 1995........     (4,555)
                                                       --------
Accrual at December 31, 1995........................   $ 19,085
                                                       ========
</TABLE>


         A special provision for uncollectible accounts of $47,440,000 was
recorded to conform the allowance estimation methodologies of Homedco and Abbey
and to provide for estimated losses resulting from the significant volume of
facility consolidations and information system conversions. These activities
detract from normal operations and result in billing and collection delays which
generally reduce the ultimate collectibility of accounts receivable.


NOTE 4 -- PROPERTY, EQUIPMENT AND IMPROVEMENTS

         Property, equipment and improvements consists of the following:

<TABLE>
<CAPTION>
                                                                                     DECEMBER 31,
                                                                               -----------------------
                                                                               1995               1994
                                                                               ----               ----
                                                                                   (IN THOUSANDS)
<S>                                                                          <C>               <C>


         Land and improvements........................................       $     88          $    100
         Buildings and leasehold improvements.........................         14,620            14,160
         Equipment and furnishings....................................         56,507            43,412
         Information systems..........................................         74,741            65,913
                                                                             --------          --------
                                                                              145,956           123,585
         Less accumulated depreciation................................        (65,848)          (49,609)
                                                                             --------          --------
                                                                             $ 80,108          $ 73,976
                                                                             ========          ========
</TABLE>


                                      F-12
<PAGE>   283
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 5 -- INTANGIBLE ASSETS

         Intangible assets consist of the following:

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                              1995              1994
                                                              ----              ----
                                                                  (IN THOUSANDS)
<S>                                                        <C>               <C>


         Covenants not to compete...................       $  32,815         $  28,235
         Goodwill...................................         319,571           271,063
                                                             -------           -------
                                                             352,386           299,298
         Less accumulated amortization..............         (33,244)          (16,574)
                                                            --------          --------
                                                            $319,142          $282,724
                                                            ========          ========
</TABLE>



NOTE 6 -- CREDIT FACILITY AND LONG-TERM DEBT

         Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                                                     DECEMBER 31,
                                                                                               1995               1994
                                                                                               ----               ----
                                                                                                   (IN THOUSANDS)
<S>                                                                                          <C>                <C>
         Notes payable relating to revolving credit facilities                               $286,300          $ 41,372
         Term loans payable...........................................................              -            75,000
         Acquisition line of credit...................................................              -            43,443
         6.5% Convertible subordinated debentures.....................................              -            66,646
         9.5% Senior subordinated notes...............................................        200,000           200,000
         Other, interest at rates ranging from 4.1% to 11.0%, payments
           due at various dates through December 1998                                           4,071             9,792
         Capital lease obligations (see Note 9).......................................         16,520            16,880
                                                                                             --------          --------
                                                                                              506,891           453,133
         Less: Current maturities.....................................................         (9,652)          (32,200)
                  Unamortized deferred debt costs.....................................         (6,584)          (14,829)
                                                                                             --------          --------
                                                                                             $490,655          $406,104
                                                                                             ========          ========
</TABLE>

         Credit Agreements Prior to Merger: Prior to June 28, 1995, the Company
had credit agreements with various banks ("Bank Credit Agreement") and General
Electric Capital Corporation ("GE Capital Agreement") providing for borrowings
up to $350,000,000. The Bank Credit Agreement included a $75,000,000 term loan,
a $75,000,000 acquisition credit line and a $100,000,000 revolving credit
facility of which $15,000,000 was accessible in the form of letters of credit.
The GE Capital Agreement provided an additional $100,000,000 in revolving
credit. Borrowings under each revolving credit facility were limited to
specified levels of qualified accounts receivable, inventory, and, in the case
of the GE Capital Agreement, patient service equipment.

         Each agreement permitted the Company to select from two interest rate
options: prime plus up to 1.25% or London Interbank Offered Rate ("LIBOR") plus
up to 2.25%. Each rate option was subject to reduction for borrowing level, in
the case of the GE Capital Agreement, and achieving targeted levels of earnings
before interest, taxes, depreciation, and amortization, in the case of the Bank
Credit Agreement.

         Term loan principal was payable quarterly, in varying amounts,
commencing December 31, 1994 through March 31, 1998. Principal payments under
the acquisition credit line were payable quarterly, commencing June 30, 1997
through December 31, 1998, with a final payment due May 2, 1999.

         The agreements required payment of commitment fees of .25% to .50% of
the unused portion of each facility and contained restrictive covenants
requiring the maintenance of certain financial ratios, limitations on additional
borrowings and capital expenditures, and restrictions on cash dividends or other
distributions.


                                      F-13
<PAGE>   284
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

         Credit Agreement Subsequent to Merger: Effective June 28, 1995, the
Company executed a credit agreement with certain banks and Banque Paribas, as
administrative agent. The agreement, which expires in June 2000, provides a
revolving loan facility of up to $500,000,000. Proceeds were used, among other
purposes, to retire borrowings under the Bank Credit Agreement and the GE
Capital Agreement. The credit agreement contains restrictive covenants requiring
the maintenance of certain financial ratios, limitations on additional
borrowings and certain expenditures and restrictions on cash dividends and other
distributions. At December 31, 1995, the Company's outstanding letters of credit
amounted to $960,000 and credit available under the agreement was $212,740,000.

         Borrowings under the credit agreement bear interest at the higher of
prime or .5% in excess of the Federal Funds rate. The Company may also elect an
interest rate ranging from LIBOR plus .375% to LIBOR plus 1.5% dependent on the
ratio of funded indebtedness to earnings before interest, taxes, depreciation
and amortization. The Company uses interest rate swap and cap agreements to
moderate its exposure to interest rate changes. At December 31, 1995,
approximately $266,000,000 of the Company's outstanding borrowings were subject
to interest rate swap agreements pursuant to which quarterly receipt or payment
of the interest differential is made and recognized as an adjustment to interest
expense. The cap agreement, which expires in July 1996, limits the three-month
LIBOR rate to 6% on outstanding indebtedness of up to $50,000,000. The effective
interest rate at December 31, 1995, including the effects of interest rate swap
and cap agreements, was 5.5%, 6.6% and 8.5% for borrowings of $266,000,000,
$13,000,000 and $7,300,000, respectively. The swap agreements were cancelled and
replaced with an agreement for $280,000,000 of notional principal in January
1996.

         As a result of the aforementioned refinancing, unamortized deferred
debt costs of $2,998,000, net of income taxes of $1,686,000, relating to the
refinanced debt were expensed as an extraordinary charge.

         The carrying amounts reported for the obligations relating to revolving
credit facilities, term loans and acquisition line approximate fair value
because the underlying instruments are variable rate notes that reprice
frequently.

         6.5% Convertible Subordinated notes: The 6.5% convertible subordinated
debentures were convertible into shares of the Company's Common Stock at a
conversion price of $13.97 per share and were scheduled to mature on December 1,
2002. Pursuant to a redemption feature, all outstanding 6.5% convertible
subordinated debentures were converted to Common Stock in September 1995. The
fair value of these debentures was $79,259,000 at December 31, 1994.

         9.5% Senior Subordinated notes: The 9.5% senior subordinated notes
mature November 1, 2002 and are subordinated to all senior debt of the Company
and senior in right of payment to subordinated debt of the Company. The fair
value of these notes, determined by reference to quoted market prices, is
$210,340,000 and $183,280,000 at December 31, 1995 and 1994, respectively.

         Total interest paid in 1995, 1994 and 1993 amounted to $37,454,000,
$32,395,000, and $12,074,000, respectively.

         Maturities of long-term debt, exclusive of capital lease obligations,
for the five years ending December 31, 2000 and thereafter, are as follows:

<TABLE>

                                                                                              (IN THOUSANDS)
<S>                                                                                             <C>
         1996..............................................................................       $2,807
         1997..............................................................................        1,092
         1998..............................................................................          172
         1999..............................................................................            -
         2000..............................................................................            -
         Thereafter........................................................................      486,300
                                                                                                --------
                                                                                                $490,371
                                                                                                ========
</TABLE>


NOTE 7 -- STOCKHOLDERS' EQUITY

         Common Stock: The Company has granted registration rights to certain
holders of Common Stock under which the Company is obligated to pay the expenses
associated with certain of such registration rights.


                                      F-14
<PAGE>   285
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

         Prior to June 28, 1995, the Company had adopted preferred stock
purchase rights plans pursuant to which the Company's common stockholders were
granted one right for each share of Common Stock held. Each right allowed its
holder to purchase one-hundredth of a share of Junior Participating Preferred
Stock at a specified price, subject to adjustment. The rights would become
exercisable at certain times associated with a transaction whereby a person or
group of affiliated persons acquired beneficial ownership of 20% or more of the
Company's general voting power, unless the Board of Directors determined the
transaction to be fair and in the best interests of the Company and its
stockholders. The Board of Directors determined that the merger of Abbey and
Homedco is fair and in the best interests of the Company and its stockholders
and, accordingly, the preferred stock purchase rights did not become
exercisable. As a result of the merger, the outstanding preferred stock purchase
rights were converted into Apria preferred stock purchase rights with terms
essentially the same as the predecessor plans.

         Stock Option Plans: The Company has various stock option plans that
provide for the granting of incentive stock options or non-statutory options to
certain key employees, non-employee members of the Board of Directors,
consultants and independent contractors. In the case of incentive stock options,
the exercise price may not be less than the fair market value of a share of
Common Stock on the date of grant, and may not be less than 110% of the fair
market value of a share of Common Stock on the date of grant for any individual
possessing 10% or more of the voting power of all classes of stock of the
Company. The options become exercisable over periods ranging from three to five
years and expire not later than 10 years from the date of grant.

         Transactions under these plans are summarized as follows:

<TABLE>
<CAPTION>
                                                                                          NUMBER OF
                                                                                           SHARES         PRICE RANGE
                                                                                           ------         -----------
<S>                                                                                     <C>             <C>
         Outstanding at December 31, 1992..........................................      2,542,935    $   .75    $11.00
             Granted...............................................................      2,052,053       4.45     16.87
             Exercised.............................................................       (437,323)       .75     11.00
             Cancelled.............................................................        (99,995)       .75     12.25
                                                                                      ------------
         Outstanding at December 31, 1993..........................................      4,057,670        .75     16.87
             Granted...............................................................      1,203,253      11.25     20.00
             Exercised.............................................................       (394,938)       .75     14.11
             Cancelled.............................................................     (1,111,407)       .75     20.00
             Substitute options granted for outstanding options of
               acquired company....................................................        308,563        .97     11.36
                                                                                      ------------
         Outstanding at December 31, 1994..........................................      4,063,141        .75     17.05
             Net activity from October 1, 1994 to December 31, 1994 (see Note 1)...        (54,340)      1.50     33.25
             Granted...............................................................      2,028,475      17.68     28.03
             Exercised.............................................................     (1,233,243)       .75     20.25
             Cancelled.............................................................       (620,242)       .75     28.05
                                                                                      ------------
         Outstanding at December 31, 1995..........................................      4,183,791        .75     28.03
                                                                                      ============
         Exercisable at December 31, 1995..........................................      1,572,459        .75     28.03
                                                                                      ============
         Available for grant at January 1, 1995....................................      1,753,430
                                                                                      ============
         Available for grant at December 31, 1995..................................      1,030,985
                                                                                      ============
</TABLE>


         In addition, the Company has a Long-Term Senior Management Equity Plan
(the "Equity Plan") which provides for the granting of non-statutory stock
options to key members of senior management at fair market value on the date of
grant. As a result of the merger, half of the outstanding options under this
plan became exercisable. The remaining options vest at a rate of 25% per year,
upon announcement of financial results, commencing with the announcement of
financial results for 1995. Vesting may be accelerated under certain
circumstances. The Equity Plan allows for the issuance of 2,000,000 shares of
Common Stock. During 1995, options to purchase 239,600 and 253,000 shares of
Common Stock at prices ranging from $11.00 to $14.63 per share were exercised
and cancelled, respectively. During the period October 1, 1994 through December
31, 1994 (see Note 1) options to purchase 96,000 shares of Common Stock at a
price of $11.00 per share were cancelled. At December 31, 1995, options to
purchase 1,365,400 shares of Common Stock at prices ranging from $11.00 to
$13.50 per share were outstanding. Options granted under this plan expire not
later than 10 years from the date of grant.

         Approximately 5,085,000 shares of Common Stock are reserved for future
issuance upon exercise of stock options.


                                      F-15
<PAGE>   286
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8 -- INCOME TAXES

         Significant components of the Company's deferred tax assets and
liabilities are as follows:

<TABLE>
<CAPTION>
                                                                                                  DECEMBER 31,
                                                                                             1995             1994
                                                                                             ----             ----
                                                                                                (IN THOUSANDS)
<S>                                                                                    <C>              <C>

         Deferred tax liabilities:
          Tax over book depreciation.................................................    $  7,836         $  2,260
           Intangible assets..........................................................      1,733            1,332
           Other, net.................................................................      3,552            3,875
                                                                                         --------         --------
         Total deferred tax liabilities...............................................     13,121            7,467

         Deferred tax assets:
           Allowance for doubtful accounts............................................     34,194           24,860
           Accruals...................................................................     24,855           17,002
           Asset valuation reserves...................................................     13,371            4,182
           Net operating loss carryforward, limited by Section 382                         19,771           19,352
           Other, net.................................................................      3,047            3,304
                                                                                         --------          -------
         Total deferred tax assets....................................................     95,238           68,700
         Valuation allowance..........................................................    (36,234)         (33,524)
                                                                                         --------          -------
         Net deferred tax assets......................................................     59,004           35,176
                                                                                         --------          -------
         Net deferred taxes...........................................................   $ 45,883          $27,709
                                                                                         ========          =======
         Current deferred tax assets, net of current deferred
           tax liabilities ...........................................................   $ 45,883          $36,947
         Non-current deferred tax liabilities, net of non-current
           deferred tax assets .......................................................          0           (9,238)
                                                                                         --------          -------
         Net deferred taxes...........................................................   $ 45,883          $27,709
                                                                                          =======          =======
</TABLE>


         The recognition in 1995 of additional net deferred tax assets was based
primarily on the availability of taxable income in carryback years and to a
lesser extent on future taxable income. The Company's future taxable income
assumption considers the Company's taxable earnings in the fourth quarter of
1995, the Company's history of earnings in periods prior to the merger, and
anticipated integration activities and certain revenue concentration
uncertainties (see Note 12).

         At December 31, 1995, the Company's federal and state operating loss
carryforwards approximated $138,000,000 and $135,000,000, respectively, and
begin to expire in 2003 for federal tax purposes and 1996 for state tax
purposes. As a result of an ownership change in March 1992 which met specified
criteria of Section 382 of the Internal Revenue Code, future use of federal and
state operating loss carryforwards are each limited to $4,150,000 per year.
Because of the annual limitation, approximately $89,000,000 each of the
Company's federal and state operating loss carryforwards may expire unused.

         A valuation allowance is provided primarily against the Company's net
operating loss carryforwards and certain other deferred tax assets the expected
use of which extends beyond the Company's earning assumption period and are not
otherwise offset by deferred tax liabilities.


                                      F-16
<PAGE>   287
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



         Income tax (benefit) expense consists of the following:

<TABLE>
<CAPTION>
                                                                                   YEAR ENDED DECEMBER 31,
                                                                            1995            1994            1993
                                                                            ----            ----            ----
                                                                                       (IN THOUSANDS)
<S>                                                                     <C>               <C>           <C>
         Currently (refundable) payable:
           Federal....................................................    $ (9,569)        $17,746         $18,906
           State......................................................         495           3,984           5,159
                                                                          --------         -------         -------
                                                                            (9,074)         21,730          24,065
         Deferred tax benefit or liability:
           Federal....................................................     (16,810)          3,650          (4,793)
           State......................................................      (2,738)            381            (659)
                                                                          --------         -------         -------
                                                                           (19,548)          4,031          (5,452)

         Tax benefits credited to paid-in capital and goodwill               9,681           1,343           1,082
                                                                          --------         -------         -------
                                                                          $(18,941)        $27,104         $19,695
                                                                          ========         =======         =======
</TABLE>


         The exercise of stock options granted under the Company's various stock
option plans gives rise to compensation which is includable as taxable income to
the employee and deductible by the Company for federal and state tax purposes
but is not recognized as expense for financial reporting purposes. In addition,
the recognition for income tax purposes of certain deferred tax assets relating
to acquired businesses reduces related goodwill for financial reporting
purposes.

         Differences between the Company's income tax (benefit) expense and an
amount calculated utilizing the federal statutory rate are as follows:

<TABLE>
<CAPTION>
                                                                                     YEAR ENDED DECEMBER 31,
                                                                            1995             1994            1993
                                                                            ----             ----            ----
                                                                                        (IN THOUSANDS)
<S>                                                                       <C>              <C>             <C>
Income tax (benefit) expense at statutory rate........................    $(30,742)        $21,952         $19,439
Minimum tax credit....................................................           -               -            (408)
Non-deductible goodwill and merger costs..............................       4,907           1,353               -
Use of net operating loss carryforward................................           -          (1,453)         (1,411)
Tax benefit of deferred items not currently (previously) recognized          5,287               -            (531)
Tax benefit of acquired company.......................................           -           2,142               -
State taxes, net of federal benefit and state loss carryforwards               825           3,116           2,603
Other.................................................................         782              (6)              3
                                                                          --------         -------        --------
                                                                          $(18,941)        $27,104        $ 19,695
                                                                          ========         =======        ========
</TABLE>


         Income taxes paid (net of refunds received) in 1995, 1994 and 1993,
amounted to $15,159,000, $25,323,000, and $26,650,000, respectively.


NOTE 9 -- LEASES

         The Company operates principally in leased offices and warehouse
facilities. In addition, the Company leases delivery vehicles and office
equipment. Lease terms range from one to ten years with renewal options for
additional periods. Many leases provide that the Company pay taxes, maintenance,
insurance and other expenses. Rentals are generally increased annually by the
consumer price index subject to certain maximum amounts defined within
individual agreements.

         In addition, during 1995, 1994 and 1993 the Company acquired patient
service equipment, information systems and equipment and furnishings totalling
$5,876,000, $10,719,000, and $7,736,000, respectively, under capital lease
arrangements with lease terms ranging from two to five years. Amortization of
the leased patient service equipment and information systems amounted to
$4,410,000, $5,669,000, and $4,236,000, in 1995, 1994 and 1993, respectively.


                                      F-17
<PAGE>   288
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

         The following amounts for assets acquired under capital lease
obligations are included in both the patient service equipment and property,
equipment and improvements:

<TABLE>
<CAPTION>
                                                                                                 DECEMBER 31,
                                                                                             -------------------
                                                                                             1995           1994
                                                                                             ----           ----
                                                                                               (IN THOUSANDS)
<S>                                                                                      <C>              <C>
         Patient service equipment....................................................   $  3,145         $ 14,419
         Information systems..........................................................     19,891           15,832
         Equipment and furnishings....................................................      3,796            3,885
         Buildings and improvements...................................................        565            1,687
                                                                                         --------         --------
                                                                                           27,397           35,823
         Less accumulated depreciation................................................     (9,905)         (15,659)
                                                                                         --------         --------
                                                                                         $ 17,492         $ 20,164
                                                                                         ========         ========
</TABLE>


         Future minimum payments by year and in the aggregate required under
noncancellable operating leases and capital lease obligations consist of the
following at December 31, 1995:

<TABLE>
<CAPTION>
                                                        CAPITAL         OPERATING
                                                        LEASES           LEASES
                                                        ------           ------
                                                              (IN THOUSANDS)
<S>                                                  <C>               <C>
1996...............................................    $   7,418        $  38,387
1997...............................................        7,015           30,353
1998...............................................        3,241           24,233
1999...............................................          192           17,833
2000...............................................         --             10,949
Thereafter.........................................         --             18,963
                                                       ---------        ---------
                                                       $  17,866        $ 140,718
                                                                        =========
Less interest included in minimum lease payments...       (1,346)
                                                       ---------
Present value of minimum lease payments............       16,520
Less current portion...............................       (6,845)
                                                       ---------
                                                       $   9,675
                                                       =========
</TABLE>


         Rent expense in 1995, 1994 and 1993 amounted to $47,658,000,
$37,543,000, and $30,577,000, respectively. Facilities leased from lessors in
which stockholders and employees have a financial interest comprised $245,000,
$310,000, and $330,000 of rent expense in 1995, 1994 and 1993, respectively.


NOTE 10 -- EMPLOYEE BENEFIT PLANS

         The Company had two defined contribution plans and a defined benefit
plan covering substantially all employees. The defined contribution plans were
401(k) plans whereby eligible employees voluntarily contributed up to a defined
percentage of their annual compensation. Employee contributions were partially
matched by the Company under one plan. Total expenses to the Company relating to
the defined contribution plans for 1995, 1994 and 1993 were $2,980,000,
$3,080,000, and $2,180,000, respectively.

         Effective January 1, 1996, the net assets of the Abbey 401(k) plan were
transferred into the Apria 401(k) plan, formerly the Homedco 401(k) plan. The
Company is currently in the process of implementing certain amendments to the
plan which have recently been approved by the Board of Directors. As amended,
the plan provides eligibility for all employees having completed one year of
service with at least 1,000 hours. Participants may contribute up to 16% of
annual basic earnings. Employee contributions are matched 50% for the first 8%
by the Company.


                                      F-18
<PAGE>   289
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

         On September 22, 1995, the defined benefit plan trustees agreed to
terminate the defined benefit plan effective April 30, 1996. As a result, the
Company recognized a settlement loss of $2,275,000 in 1995. Prior to the
termination, the defined benefit plan benefits were based upon years of service
and the employees' average compensation over the last five years of employment.
The Company's funding policy was to fund the recommended amount as determined by
the plan's actuaries. Contributions were intended to provide not only for
benefits attributed to services performed to date, but also for those expected
to be earned in the future. Net periodic pension cost included in selling,
distribution and administration expenses amounted to $925,000, $1,136,000 and
$653,000 in 1995, 1994 and 1993, respectively.


         The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 112, Employers' Accounting for Postemployment Benefits.
The cumulative effect of its application is not presented because the amount is
not material to the Company's 1995 operating results.


NOTE 11 -- RELATED PARTY TRANSACTIONS

         In December 1992, pursuant to a secured promissory note agreement, the
Company loaned $1,250,000 to an officer/director. The note bore interest at 8%
per annum and principal and interest were due December 28, 1996. During 1995,
1994 and 1993 principal and interest of $196,000, $188,000 and $675,000,
respectively, were cancelled and recorded as compensation expense. The remaining
outstanding principal and related interest totalling $397,000 was forgiven in
January 1996.

         Through September 1995, the Company retained a firm, in which a member
of the Board of Directors of the Company is a managing director, to provide
ongoing financial advisory services. During 1995, 1994 and 1993, the firm was
paid fees of $3,810,000, $910,000 and $1,886,000, respectively, in connection
with various financing transactions and other investment banking activities. The
fees paid in 1995 related primarily to the merger.

         In December 1994, the Company made an interest bearing loan of $100,000
due in December 1997 to an Officer of the Company. In connection with the
Protocare acquisition, the Company also assumed from Protocare a 9% loan to the
same officer which amounted to $597,000. The officer resigned in May 1995, and
the outstanding principal and interest on this assumed loan, amounting to
$499,000 and $288,000, was forgiven in 1995 and 1994, respectively.


NOTE 12 -- COMMITMENTS AND CONTINGENCIES

         Purchase Commitments: On September 1, 1994, the Company entered into a
five-year agreement to purchase medical supplies totalling $112,500,000, with
annual purchases ranging from $7,500,000 in the first year to $30,000,000 in the
third through fifth years. Beginning in the year ended August 31, 1996, failure
to purchase at least 90% of the annual commitment will result in a penalty of
10% of the difference between the annual commitment and actual purchases.

         Litigation: The Company is engaged in the defense of certain claims and
lawsuits arising out of the ordinary course and conduct of its business, the
outcome of which are not determinable at this time. The Company has insurance
policies covering such potential losses where such coverage is cost effective.
In the opinion of management, any liability that might be incurred by the
Company upon the resolution of these claims and lawsuits will not, in the
aggregate, have a material adverse effect on the consolidated financial
condition. During 1995 and thereafter, certain claims and lawsuits were settled
for amounts (including cost of defense) totalling approximately $10,590,000 and
$1,950,000, respectively.

         Certain Concentrations: Over 50% of the Company's revenue is derived
from the provision of respiratory therapy services, a significant portion of
which is reimbursed under the Federal Medicare program. Various budgets
currently under consideration by Congress and the Federal Administration propose
reductions in Medicare spending including, among other matters, reimbursement
for home oxygen. It is currently uncertain when a budget agreement will be
reached and the ultimate impact such budget will have on home oxygen
reimbursement.

         The Company currently purchases approximately 40% of its patient
service equipment and supplies from two supplier(s). Although there are a
limited number of suppliers, management believes that other suppliers could
provide similar products on 


                                      F-19
<PAGE>   290
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



comparable terms. A change in suppliers, however, could cause a delay in service
delivery and a possible loss in revenues which could affect operating results
adversely.

NOTE 13 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                     QUARTER
                                                     FIRST         SECOND                      THIRD            FOURTH
                                                     -----         ------                      -----            ------
                                                            (in thousands, except per share data)
<S>                                                 <C>            <C>                       <C>              <C>
1995
Net revenues ................................       $ 284,609       $ 287,286                $ 277,670        $ 284,035
Gross profit ................................         199,073         199,016                  178,833          195,679
Operating income (loss) .....................          36,032          22,115                 (133,948)          28,324
Income (loss) before extraordinary charge ...          15,792           7,497                 (112,166)          17,399
Net income (loss) ...........................       $  15,792       $   4,499                $(112,166)       $  17,399

Per share amounts:
  Primary:
    Income (loss) before extraordinary charge       $    0.34       $    0.15                $   (2.32)       $    0.34
    Net income (loss) .......................       $    0.34       $    0.09                $   (2.32)       $    0.34
  Fully diluted:
    Income (loss) before extraordinary charge       $    0.32       $    0.15                $   (2.32)       $    0.34
    Net income (loss) .......................       $    0.32       $    0.09                $   (2.32)       $    0.34



1994
Net revenues ................................       $ 226,925       $ 231,312                $ 244,928        $ 259,647
Gross profit ................................         157,882         161,200                  172,968          183,072
Operating income ............................          12,906          24,420                   28,722           33,827
Net income ..................................       $     160       $   9,897                $  14,124        $  14,850

Per share amounts:
  Primary:
    Net income ..............................       $    0.00       $    0.23                $    0.32        $    0.33
  Fully diluted:
    Net income ..............................       $    0.00       $    0.22                $    0.30        $    0.31
</TABLE>


         The quarterly financial information for all periods presented reflect
the conformed accounting policies of Homedco and Abbey (see Note 2).

         The second and third quarters of 1995, include charges of approximately
$12,900,000 and $133,800,000, respectively, relating to restructuring, merger
and integration activities and to accounts receivable valuation and
employment-related matters. During the fourth quarter of 1995, the Company
reevaluated the estimates inherent in the restructuring and other merger-related
costs recorded through the end of the third quarter. This evaluation resulted in
a reallocation of expenses which increased the special provision for
uncollectible accounts by $13,000,000 and reduced restructuring costs and other
merger-related costs by $10,316,000 and $2,684,000, respectively. Additionally,
an extraordinary charge on debt refinance of approximately $2,998,000, net of
income taxes of $1,686,000, was recorded in the second quarter of 1995.

         During the first quarter of 1994, the company initiated a program to
integrate the TPC operations and to shift market and sales emphasis from home
medical equipment to respiratory therapy. This program resulted in the write-off
of surplus inventory of $2,100,000, costs related to the consolidation of branch
operations of $3,200,000, and an increase in the provision for doubtful accounts
of $1,600,000. The costs related to the consolidation of branch operations
include the costs of closing eight branch offices



                                      F-20
<PAGE>   291
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


and severance for the termination of approximately 350 employees. Also in the
first quarter, the company recorded acquisition-related charges of $4,600,000,
including legal costs and executive severance expenses.



                                      F-21
<PAGE>   292
                           APRIA HEALTHCARE GROUP INC.

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                       Additions
                                                                 ---------------------------

                                                Balance at       Charged to       Charged to                       Balance
                                                Beginning        Costs and           Other                        at End of
                Description                     of Period         Expenses         Accounts       Deductions        Period
-----------------------------------------       ---------         --------         --------       ----------        ------
<S>                                             <C>               <C>              <C>               <C>            <C>
Year ended December 31, 1995
Deducted from asset accounts:
    Allowance for doubtful accounts              $61,038          $100,463 (a)     $2,655 (f)        $77,589         $86,567
    Reserve for inventory shortages                3,952             2,898 (e)          8 (f)          1,104           5,754
    Reserve for patient service equipment
       shortages                                   4,546            16,783 (e)        117 (f)          1,802          19,644
                                                 -------          --------         ------            -------        --------
                   Totals                        $69,536          $120,144         $2,780            $80,495        $111,965
                                                 =======          ========         ======            =======        ========

Year ended December 31, 1994
Deducted from asset accounts:
    Allowance for doubtful accounts              $52,102          $ 48,718  (b)    $9,089 (c)        $48,871(d)      $61,038
    Reserve for inventory shortages                3,143             1,124              -                316           3,952
    Reserve for patient service equipment
       shortages                                   1,810             3,312            448              1,024           4,546
                                                 -------          --------         ------            -------         -------
                   Totals                        $57,055          $ 53,154         $9,537            $50,211         $69,536
                                                 =======          ========         ======            =======         =======

Year ended December 31, 1993
Deducted from asset accounts:
    Allowance for doubtful accounts              $42,630           $37,279  (b)    $8,779 (c)        $36,586(d)      $52,102
    Reserve for inventory shortages                3,216               438                               511           3,143
    Reserve for patient service equipment
       shortages                                   1,252             2,767                             2,209           1,810
                                                 -------           -------         ------            -------         -------

                   Totals                        $47,098           $40,484         $8,779            $39,306         $57,055
                                                 =======           =======         ======            =======         =======
</TABLE>



---------------
 (a)    Includes $47,440 for special provision of uncollectible accounts for the
        year ended December 31, 1995.

 (b)    Includes $2,002 and $2,803 for discontinued operations for the years
        ended December 31, 1994 and 1993, respectively.

 (c)    Includes amounts added in conjunction with business acquisitions.

 (d)    Includes the charge-off of uncollectible accounts receivable and a
        reversal of the allowance for doubtful accounts related to discontinued
        operations for the year ended December 31, 1994.

 (e)    Includes amounts recorded in conjunction with the establishment of the
        merger and restructuring reserves.

 (f)    Represents the net activity for Homedco for the period of October 1,
        1994 through December 31, 1994.

                                      F-22
<PAGE>   293
                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Dated: March 29, 1996

                                         HOMEDCO GROUP, INC.

                                       By:        /s/ JEREMY M. JONES
                                                  -----------------------------
                                                  Jeremy M. Jones
                                                  Chairman of the Board
                                                  and Chief Executive Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
        SIGNATURE                                   TITLE                                           DATE
        ---------                                   -----                                           ----
<S>                                       <C>                                                    <C>


/s/ JEREMY M. JONES                        Chairman of the Board and                              March 29, 1996
----------------------------               Chief Executive Officer
Jeremy M. Jones                            (Principal Executive Officer)
                            
                            

/s/ LAWRENCE H. SMALLEN                    Chief Financial Officer, Vice President,               March 29, 1996
----------------------------               Finance, Treasurer and Secretary
Lawrence H. Smallen                        (Principal Financial Officer)
                            
                            

/s/ JAMES E. BAKER                         Vice President, Controller                             March 29, 1996
----------------------------               (Principal Accounting Officer)
James E. Baker              
                            


/s/ DAVID L. GOLDSMITH                     Director                                               March 29, 1996
----------------------------
David L. Goldsmith          


/s/ LEONARD GREEN                          Director                                               March 29, 1996
----------------------------
Leonard Green                              


/s/ TERRY HARTSHORN                        Director                                               March 29, 1996
----------------------------
Terry Hartshorn                            


/s/ CHARLES D. MARTIN                      Director                                               March 29, 1996
----------------------------
Charles D. Martin                          


/s/ FREDERICK S. MOSELEY, IV               Director                                               March 29, 1996
----------------------------
Frederick S. Moseley, IV                   


/s/ VINCENT M. PRAGER                      Director                                               March 29, 1996
----------------------------
Vincent M. Prager                          
</TABLE>

                                      F-23
<PAGE>   294
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                 AMENDMENT NO.1
                                       ON
                                   FORM 10-K/A

(Mark One)
/x/               ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
              OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
                   For the Fiscal Year Ended December 31, 1995
                                       OR
/ /            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
            OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

                          Commission File No. 000-19854

                           APRIA HEALTHCARE GROUP INC.
             (Exact name of Registrant as specified in its charter)

               DELAWARE                                        33-0488566
    (State of other jurisdiction of                         (I.R.S. Employer
    incorporation or organization)                           Identification)

         3560 HYLAND AVENUE                                      92626
            COSTA MESA, CA                                     (Zip Code)
(Address of principal executive offices)

       Registrant's telephone number, including area code: (714) 427-2000

        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to Section 12(g) of the Act:

                    COMMON STOCK, $0.001 PAR VALUE PER SHARE
                                (Title of class)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes  X      No
                                       ---        ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.

As of February 29, 1996, there were outstanding 50,245,452 shares of the
Registrant's Common Stock, par value $0.001 ("Common Stock"), which is the only
class of Common Stock of the Registrant. As of February 29, the aggregate market
value of the shares of Common Stock held by non-affiliates of the Registrant,
computed based on the closing sale price of $31.25 per share as reported by
Nasdaq, was approximately $1,515,996,313.

                       DOCUMENTS INCORPORATED BY REFERENCE

The information called for by Part III is incorporated by reference to the
definitive Proxy Statement for the 1996 Annual Meeting of Stockholders of the
Registrant which will be filed with the Securities and Exchange Commission not
later than 120 days after December 31, 1995.
<PAGE>   295
Item 7 of Part II and Item 14 of Part IV of the Annual Report on Form 10-K for
the fiscal year ended December 31, 1995 are amended in their entirety as
follows:

                                    PART II.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

RESULTS OF OPERATIONS

         Apria Healthcare Group Inc. ("the Company") was formed by the merger of
Abbey Healthcare Group Incorporated ("Abbey") and Homedco Group, Inc.
("Homedco") in June 1995. This transaction was accounted for as a
pooling-of-interests and as such, the results of operations for all periods
presented reflect the combined operations of Abbey and Homedco. The financial
statements have been restated to conform the differing accounting policies of
the separate companies, principally relating to the use of salvage values
recognized for certain patient service equipment and the capitalization of low
dollar patient service items, supplies, accessories and repairs.

         In connection with the merger, the Company initiated a significant
consolidation and restructuring plan to consolidate operating locations and
administrative functions within specific geographic markets. The plan provides
for a workforce reduction of approximately 1,220 employees, consolidation of
approximately 120 operating facilities and conversion of branch operating
locations to a standardized information system. The employee reduction and
branch consolidations were substantially complete as of December 1995, with a
reduction of 1,120 employees and consolidation of 105 branch locations. The
Company has also completed approximately 50% of the information system
conversions as of December 1995. The remaining system conversions (approximately
220) are scheduled during 1996. The Company expects the plan to be completed by
September 1996.

         During 1995, a charge of approximately $68.3 million was recorded in
connection with the Company's restructuring efforts. The primary components of
the restructuring charge include severance and related costs of $21.5 million
due to workforce reductions, $22.2 million associated with the consolidation of
information systems, $23.1 million related to the closure of duplicate
facilities and $1.5 million for other restructuring activities. The Company
anticipates these activities to result in payroll, rent and other cost savings
from workforce reductions and branch consolidations. Such savings to date have
been partially offset by integration costs, including employee relocation,
temporary and transitional employee costs, overtime and consulting which totaled
approximately $11.5 million in 1995 and are expected to decrease significantly
as the integration activities subside.

         Merger costs of approximately $12.2 million were incurred during 1995
and consisted primarily of fees for investment banking, legal, consulting,
accounting, filing requirements, and, as required by the merger agreement, the
cost of liability insurance covering directors and officers of the predecessor
companies for a period of six years against claims arising from facts or events
occurring prior to the merger.

         Employee contracts, benefit plan and claim settlements of $20.4 million
were recorded in 1995. Included is approximately $14.4 million provided for
employment and payroll tax related claims and lawsuits, $3.4 million to settle
certain employee contracts, and a settlement loss of $2.3 million for the
termination of the Abbey Medical, Inc. Employee Retirement Plan, a defined
benefit pension plan. At December 31, 1995, the remaining accrual was
approximately $10 million, the majority of which should be settled and paid
within one year.

         Net revenues increased 17.7% to $1,133.6 million in 1995, 28.6% to
$962.8 million in 1994 and 45.9% to $748.9 million in 1993. The increase in
revenues in 1995 and 1994 was due to growth from locations owned and operated by
the Company at the beginning of the fiscal year (existing locations) and
acquisitions. The internal growth was primarily generated by increased volumes
realized in managed care markets. 1995 revenues were negatively impacted by the
fact that the last half of the year was the first in which the Company operated
as a merged entity and as 


                                       2
<PAGE>   296
a result, there was a disruption of the day to day operations caused by the
consolidation and integration activities. Management believes this trend to be
short term, as indicated by an increase in revenue during the fourth quarter of
1995.

         During 1993, Congress passed the Omnibus Budget Reconciliation Act of
1993 ("OBRA 1993"), which the Company estimates reduced its revenues by
approximately $12.8 million during 1994. No additional reductions related to
OBRA 1993 were incurred during 1995. The OBRA legislation provides a consumer
price index update, effective January 1, 1996, of 3%. Medicare and Medicaid
reimbursement rates are continually being reviewed by the federal and state
governments, respectively, and additional reimbursement reduction may occur in
the future.

         Infusion therapy, respiratory therapy and home medical equipment/other
revenues represent 24%, 53% and 23%, respectively, of total revenue and grew at
rates of 14.9%, 15.2% and 27.7%, respectively, in 1995. Growth in all three
lines of business was primarily due to increased volume from existing locations
and revenue contributed from acquisitions. Additionally, the shift to a managed
care environment has required the Company to provide a full range of services,
resulting in volume increases, specifically in the home medical equipment/other
lines of business. This growth was mitigated by price competition within the
managed care environment. Revenue growth in 1994 was 117.4%, 14.1% and 10.8% for
infusion therapy, respiratory therapy and home medical equipment/other services,
respectively. The significant growth in infusion revenue in 1994 was primarily
due to the Total Pharmaceutical Care, Inc. ("TPC") and Protocare, Inc.
acquisitions. Price increases had a minimal impact on revenue growth.

         Gross margins were 68.2% in 1995, 70.1% in 1994 and 69.8% in 1993.
Increased participation in the managed care market place has shifted product mix
toward lower-margin medical equipment and supply items. Also, the managed care
market fosters competition, which places downward pressure on prices. The 1995
gross margin was also adversely impacted by an adjustment of $5.4 million
necessary to conform the accounting policies of the predecessor companies for
certain low dollar patient service items, supplies and accessories and a $7.5
million provision for excess and obsolete patient service equipment and
shrinkage associated with the facility consolidations. Due to the Company's
larger size and resulting increase in volume requirements, management has
renegotiated purchasing contracts for more attractive pricing and has
implemented purchase compliance programs at its operational locations.
Consequently, the Company has realized some cost savings in the last half of
1995 and expects to realize additional savings in 1996. In general, the Company
has not experienced significant fluctuations in its cost structure and expects
this trend to continue for the near term.

         Selling, distribution and administrative expenses decreased as a
percentage of net revenues to 53.1% in 1995 from 53.7% in 1994 and 54.8% in
1993. The year to year improvement is due in part to the Company's initiatives
to more effectively manage the delivery and clinical support components of the
business. Due to the more cost conscious health care environment and the
Company's decision to aggressively participate in the managed care approach to
providing health care, the Company is continually evaluating how it can provide
home healthcare at a lower cost. The Company has developed operating models that
facilitate the accumulation and analysis of various statistics related to the
delivery and clinical areas of the business. The models, which are targeted at
the local level, are utilized as tools to expose inefficiencies and determine
the optimal labor mix to best service the needs of the patients. Additionally,
the Company was able to leverage these types of costs as a result of the merger,
contributing significantly to the reduction in selling, distribution and
administrative expenses during 1995. These reductions were partially offset in
1995 by integration costs.

                                       3
<PAGE>   297
         The provision for doubtful accounts as a percentage of net revenue was
4.7% in 1995, 4.9% in 1994 and 4.6% in 1993. In 1995, the Company recorded a
special provision for uncollectible accounts of $47.4 million or 4.2% of net
revenue. The special provision consisted of an adjustment made in the third
quarter of approximately $34.4 million to conform the methodologies used to
estimate the net realizable value of accounts receivable and a provision in the
fourth quarter of approximately $13 million, or 3.7% of accounts receivable, for
the anticipated impact on realization resulting from field location
consolidations, changes in billing and collection personnel, and information
systems conversions. The conformity adjustment was determined by application of
a standard allowance policy, consistent with Homedco's past practice, to the
Company's aged accounts receivable. Increases during the second half of 1995 and
early 1996 in write-offs, the aging of accounts receivables, and days sales
outstanding and decreases in collections in that period as well as experience
with a prior business combination involving extensive field consolidations,
personnel changes and information systems conversions were considered by
management in estimating the impact on accounts receivable resulting from the
aforementioned field disruptions.

         As of December 1995, the Company had completed approximately 90% of the
planned facility consolidations and employee terminations, including the
elimination of approximately 200 billing and collection positions, and 50% of
the 445 planned system conversions. In connection with the facility
consolidations, each branch information system was first converted to the
predominate system in place within its region. Conversion of the branches to a
standard, company-wide system then occurred on a region by region basis. Because
of the conversion to interim systems prior to final conversion, locations
representing approximately 80% of the Company's accounts receivable have been or
will be subject to conversion.

         Disruptions caused by the physical movement of billing information and
patient files, data conversion difficulties, employee terminations, relocations
and reassignments and the facility consolidation process itself resulted in
billing delays and, ultimately, difficulties in receiving timely reimbursement.
Billing delays were due, in part, to incomplete claim documentation and in part
to lack of familiarity with new systems and payor requirements. The passage of
time reduces the likelihood of collection and increases the likelihood of denial
because missing documentation is less likely to be located or replaced and payor
imposed submission deadlines may be exceeded. Because substantially all of the
planned facility consolidations and employee terminations have been completed,
management expects disruptions and delays of this type to diminish in 1996.

         In addition to the delays described above, the conversion of a field
information system to the standard system requires from one to four weeks,
depending on facility size, for conversion and employee training during which
time, billing and collection activity is substantially curtailed. After
conversion and training is complete, billing and collection activity generally
resumes at a slower pace than pre-conversion levels but normalizes within three
to six months. The delays caused by conversion have had the effect of increasing
the age of accounts receivable and delaying collection. Management expects such
delays to continue in 1996 for regions that are scheduled for conversion through
September 1996.

         Amortization expense increased to $16.3 million in 1995 from $11.5
million in 1994 and $4.1 million in 1993. The increase in amortization expense
relates to intangible assets recorded in conjunction with business acquisitions.

         Interest expense increased to $42.9 million in 1995 from $37.2 million
in 1994 and $18.3 million in 1993. The increase in interest expense in 1995 was
primarily due to the additional debt financing required for restructuring,
merger and integration activities, acquisitions and, to a lesser extent,
increases in interest rates (see Liquidity and Capital Resources).

         The Company recognized a tax benefit in 1995 of $20.6 million that was
primarily attributable to carryback of the current year loss and to an increase
in deferred tax assets (future deductions). Included in deferred tax assets are
net operating loss carryforwards available to reduce future taxes of
approximately $20 million, subject to limitations by Section 382 of the Internal
Revenue Code.

         Income tax expense for 1994 and 1993 represents the combined tax
provisions of Homedco and Abbey prepared on a separate tax return basis.
Accordingly, complimentary tax attributes of the companies were not considered
available for benefit until periods following the merger. The Company's 1994
combined effective tax rate 


                                       4
<PAGE>   298
was 43% which exceeded the statutory rate primarily because of the effects of
non-deductible goodwill. The Company's 1993 combined effective tax rate was
approximately 35%. The lower rate was due primarily to the utilization of
operating loss carryforwards not previously recognized.


LIQUIDITY AND CAPITAL RESOURCES

         Cash used in the Company's operating activities was $9.9 million in
1995 compared to $61,000 in 1994 and positive cash from operations of $27.0
million in 1993. Significantly contributing to the use of cash in 1995 were
outlays of approximately $47.2 million for merger expenses, restructuring costs
and employee-related matters. An additional $22.4 million is expected to be paid
over periods generally not exceeding five years and funded by internally
generated cash and existing credit facilities . Partially offsetting such cash
outlays are tax refunds of $27.7 million for estimated payments made prior to
the merger and for carryback of the 1995 loss which are expected to be received
in 1996. In addition, increased revenue levels were supported by purchases of
patient service equipment and resulted in increased levels of accounts
receivable.

         Days' sales in outstanding receivables ("DSO"), cash receipts as a
percentage of net revenues and the accounts receivable aging are among the key
measurements the Company uses to evaluate the time frame in which accounts
receivable are collected. DSO (calculated as of year-end by dividing gross
accounts receivable by the 90-day rolling average of net revenues) increased to
109 days in 1995 from 99 days in 1994 and 104 days in 1993. Among the factors
contributing to the increase in accounts receivable and DSO were disruptions and
delays in billing and collection activity caused by the numerous facility
consolidations, billing and collection personnel changes, and field information
system conversions (see Results of Operations). The facility conversions and
personnel changes were substantially complete at year end. The system
conversions are scheduled to continue through the third quarter of 1996 and,
accordingly, are expected to continue to impact the timing of billing and
collections. To control and contain the impact on accounts receivable and
collection levels caused by the system conversions, management, among other
steps, documented and disseminated best billing and collection practices,
upgraded the standard field system to incorporate certain features of the
discontinued systems, conducted extensive training at all field locations
undergoing conversion, retained a number of experienced reimbursement employees
on a temporary basis, initiated collection incentive programs with special
emphasis on older accounts, and developed and implemented standard management
reports including key accounts receivable and collection statistics,
expectations and field rankings.

         During 1995, the Company centralized its accounts payable function in
connection with the restructuring and consolidation plan. The centralization
process disrupted day-to-day activities causing a processing backlog which was
reflected by the increase in the accounts payable balance at December 31, 1995
as compared to December 31, 1994. The Company expects to eliminate the backlog
during the first two quarters of 1996.

         In conjunction with the merger, /the Company entered into a credit
agreement with certain banks and Banque Paribas, as administrative agent. The
agreement, which expires in June 2000, provides for borrowings of up to $500


                                       5
<PAGE>   299
million under a revolving credit facility. The proceeds were used, among other
things, to repay borrowings under the prior separate credit agreements of
Homedco and Abbey. The agreement provides for variable rate interest options
including the higher of the Federal Funds Rate plus .5% or the Prime Rate, or
London Interbank Offered Rate ("LIBOR") plus a margin which is dependent on the
ratio of funded indebtedness to earnings before interest, taxes, depreciation
and amortization. At December 31, 1995, borrowings of $286.3 million were
outstanding, letters of credit amounted to $960,000, and availability under the
revolving credit facility was $212.7 million. The effective interest rates at
December 31, 1995 for borrowings under the credit facility not subject to the
swap or cap agreements (see discussion below) were 6.6% and 8.5% on $13 million
and $7.3 million, respectively.

         The Company has limited involvement with derivative financial
instruments and does not use them for trading purposes. Interest rate swap and
cap agreements are used as a means of managing the Company's interest rate
exposure. The swap agreements are contracts to periodically exchange fixed and
floating interest rate payments over the life of the agreement. The Company's
exposure to credit loss under these agreements is limited to the interest rate
spread in the event of nonperformance by the counterparties to the contracts.
The Company anticipates that the counterparties will be able to fully satisfy
their obligations under the contracts. In July 1995, the Company entered into
one-year swap agreements having a total notional principal amount of $266
million which effectively convert variable rate borrowings to fixed rate
borrowings. For the period from July 1995 through December 1995, the Company
received interest at a weighted average rate of 6.7% and paid interest at a
weighted average rate of 6.2%. Payment or receipt of the interest differential
is made quarterly and recognized monthly in the financial statements as an
adjustment to interest expense. In January 1996, the Company canceled its swap
agreements at a cost of $198,000 and entered a new one-year agreement with a
total notional principal amount of $280 million that exchanges floating rate
borrowings for a fixed LIBOR rate of 5.1%.

         Under a cap agreement, which expires in July 1996, the three-month
LIBOR rate is limited to 6% on outstanding indebtedness of up to $50 million.
The Company did not derive any benefit from the cap agreement in 1995 due to
lower LIBOR rates.

         The 6.5% convertible subordinated debentures were convertible into
shares of the Company's Common Stock at a conversion price of $13.97 per share
and were scheduled to mature on December 1, 2002. Pursuant to a redemption
feature which was based on the market value of the Company's Common Stock, all
outstanding convertible debentures as of December 31, 1994, which amounted to
$66.6 million, were converted into 4,771,962 shares of Common Stock during 1995.
The conversion of the debentures eliminates annual interest payments of
approximately $4.3 million and decreases long-term debt by $66.6 million.

         Purchases of property, equipment and improvements, net of retirements
and trade-ins, were $49.3 million in 1995, $26.8 million in 1994 and $17.2
million in 1993. The majority of the increase in 1995 was due to additions and
enhancements to the Company's data processing systems. In connection with the
merger and restructure plan, the Company is standardizing branch information
systems, thus necessitating additional expenditures for hardware and software.
The Company estimates that expenditures of $12.5 million and $1.2 million for
hardware and software, respectively, will be made in 1996 to convert the
remaining locations. Capital expenditures will be financed by cash provided by
operations and borrowings available under the credit facility.

         During 1995, business acquisitions, which were financed, resulted in
payments of approximately $46.1 million in cash, $787,000 in shares of the
Company's common stock and the assumption of $3.4 million of liabilities.
Covenants not to compete and goodwill arising from these acquisitions resulted
in an increase in intangible assets from December 31, 1994 to December 31, 1995.
Other assets at December 31, 1995, is primarily comprised of payments for
businesses which have not yet been allocated to the various underlying acquired
assets.

         During 1994, the Company entered into a five-year agreement to purchase
medical supplies totaling $112.5 million, with annual purchases ranging from
$7.5 million in the first year to $30 million in the third through fifth years.
Beginning in the year ended August 31, 1996, failure to purchase at least 90% of
the annual commitment will result in a 


                                       6
<PAGE>   300
penalty of 10% of the difference between the annual commitment and actual
purchases. Purchases will be financed using cash provided by operations and
borrowings available under the credit facility.

         Overall, the Company believes that cash provided by operations and
amounts available under its existing credit and lease financing will be
sufficient to finance its current operations for at least the next 12 months.

         The Company believes that inflation has not had a significant impact on
the Company's historical operations.



                                       7
<PAGE>   301

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K

          (a)   1.   The documents described in the "Index to Consolidated
                     Financial Statements and Financial Statement Schedule" are
                     included in this report starting at page F-1.

                2.   The financial statement schedule described in the "Index to
                     Consolidated Financial Statements and Financial Statement
                     Schedule" are included in this report starting on page S-1.

                     All other schedules for which provision is made in the
                     applicable accounting regulation of the Securities and
                     Exchange Commission are not required under the related
                     instructions or are inapplicable, and therefore have been
                     omitted.

                3.   Exhibits included or incorporated herein:

                     Exhibit
                     Number        Description
                     -------       -----------

                      23.1         Consent of Ernst and Young LLP

                      23.2         Consent of KPMG Peat Marwick LLP

          (b)   Reports on Form 8-K:

                Apria Healthcare Group Inc. filed a Current Report on Form 8-K,
                dated November 7, 1995, with the Securities and Exchange
                Commission on November 7, 1995 attaching the supplemental
                consolidated financial statements of the Company.



                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                        AND FINANCIAL STATEMENT SCHEDULE

<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            
<S>                                                                         <C>
CONSOLIDATED FINANCIAL STATEMENTS                                           
Reports of Independent Auditors .........................................    F-1
Consolidated  Balance Sheets -- December 31, 1995 and 1994 ..............    F-3
Consolidated Statements of Operations -- Years ended                        
  December 31, 1995, 1994 and 1993 ......................................    F-4
Consolidated Statements of Stockholders' Equity -- Years ended              
  December 31, 1995, 1994 and 1993 ......................................    F-5
Consolidated Statements of Cash Flows -- Years ended                        
  December 31, 1995, 1994 and 1993 ......................................    F-6
Notes to Consolidated Financial Statements ..............................    F-7
                                                                         
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
  Schedule II - Valuation and Qualifying Accounts........................    S-1
</TABLE>

                                       8
<PAGE>   302
                         REPORT OF INDEPENDENT AUDITORS


Stockholders and Board of Directors
Apria Healthcare Group Inc.


We have audited the accompanying consolidated balance sheets of Apria Healthcare
Group Inc. (formed as a result of the consolidation of Abbey Healthcare Group
Incorporated and Homedco Group, Inc.) as of December 31, 1995 and 1994 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. Our
audits also included the financial statement schedule listed in the Index at
Item 14 (a). These financial statements are the responsibility of the management
of Apria Healthcare Group Inc. Our responsibility is to express an opinion on
these financial statements based on our audits. We did not audit the
consolidated financial statements of Abbey Healthcare Group Incorporated for the
year ended December 31, 1993, which statements reflects total revenues of $278
million. Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to data included for
Abbey Healthcare Group Incorporated, is based solely on the report of the other
auditors.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.

In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Apria Healthcare Group Inc. and
subsidiaries at December 31, 1995 and 1994 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
Also, in our opinion, based on our audits and the report of other auditors, the
related financial statement schedule referred to above, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.

We also audited the adjustments described in Note 2 that were applied to restate
the 1994 and 1993 financial statements. In our opinion, such adjustments are
appropriate and have been properly applied.

                 
                                            ERNST & YOUNG LLP


Orange County, California
March 6, 1996





                                      F-1
<PAGE>   303

                          INDEPENDENT AUDITORS' REPORT



The Board of Directors and Shareholders
Abbey Healthcare Group Incorporated:

We have audited the accompanying consolidated statements of income, changes in
shareholders' equity and cash flows of Abbey Healthcare Group Incorporated and
subsidiaries for the year ended January 1, 1994. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and the cash flows
of Abbey Healthcare Group Incorporated and subsidiaries for the year ended
January 1, 1994, in conformity with generally accepted accounting principles.


                                        KPMG PEAT MARWICK LLP

Orange County, California
February 15, 1994



                                      F-2
<PAGE>   304
                           APRIA HEALTHCARE GROUP INC.

                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                                                                     DECEMBER 31,                
                                                                                  ------------------
                                                                                  1995          1994
                                                                                  ----          ----
                                                                                 (DOLLARS IN THOUSANDS)

<S>                                                                            <C>            <C>     
CURRENT ASSETS
  Cash ......................................................................  $ 18,829       $ 21,188
  Accounts receivable, less allowance for doubtful accounts of $86,567 and
    $61,038 at December 31, 1995 and 1994, respectively......................   258,332        225,619
  Inventories................................................................    45,198         35,898
  Deferred income taxes......................................................    45,883         36,947
  Refundable income taxes....................................................    27,710          5,439
  Prepaid expenses and other current assets..................................     7,770         10,472
                                                                               --------       --------
         TOTAL CURRENT ASSETS................................................   403,722        335,563
PATIENT SERVICE EQUIPMENT, less accumulated depreciation of $167,082 and
   $129,621 at December 31, 1995 and 1994, respectively......................   167,090        152,358
PROPERTY, EQUIPMENT AND IMPROVEMENTS, NET....................................    80,108         73,976
INVESTMENT IN OMNICARE plc ..................................................     1,504              -
INTANGIBLE ASSETS, NET.......................................................   319,142        282,724
OTHER ASSETS.................................................................     8,419         11,546
                                                                               --------       --------
                                                                               $979,985       $856,167
                                                                               ========       ========
                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Accounts payable...........................................................  $100,653       $ 78,912
  Accrued payroll and related taxes and benefits.............................    26,792         23,045
  Accrued restructuring costs................................................    19,085              -
  Other accrued liabilities..................................................    48,910         43,798
  Current portion of long-term debt..........................................     9,652         32,200
                                                                               --------       --------
         TOTAL CURRENT LIABILITIES...........................................   205,092        177,955
LONG-TERM DEBT...............................................................   490,655        406,104
DEFERRED INCOME TAXES........................................................         -          9,238
OTHER NON-CURRENT LIABILITIES................................................         -            960
STOCKHOLDERS' EQUITY
  Preferred Stock, $.001 par value:
    10,000,000 shares authorized; none issued................................         -              -
  Common Stock, $.001 par value:
    150,000,000 shares authorized; 49,692,266 and 42,001,788 shares issued
    and outstanding at December 31, 1995 and 1994, respectively..............        50             42
  Additional paid-in capital.................................................   294,522        206,405
  Retained (deficit) earnings................................................   (10,334)        55,463
                                                                               --------       --------
                                                                                284,238        261,910
COMMITMENTS AND CONTINGENCIES................................................         -              -
                                                                               --------       --------
                                                                               $979,985       $856,167
                                                                               ========       ========
</TABLE>


                 See notes to consolidated financial statements.


                                      F-3
<PAGE>   305
                           APRIA HEALTHCARE GROUP INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                  YEAR ENDED DECEMBER 31,                
                                                                           --------------------------------------
                                                                              1995           1994          1993
                                                                              ----           ----          ----
                                                                           (IN THOUSANDS, EXCEPT PER SHARE DATA)

<S>                                                                        <C>             <C>           <C>     
Net revenues.............................................................  $1,133,600      $962,812      $748,901
Costs and expenses:
  Cost of net revenues:
    Product and supply costs.............................................     286,919       234,604       188,276
    Patient service equipment depreciation...............................      57,400        42,735        33,019
    Nursing services.....................................................       7,361         5,947         2,821
    Other................................................................       9,319         4,404         2,008
                                                                           ----------      --------      --------
                                                                              360,999       287,690       226,124
  Selling, distribution and administrative...............................     601,978       517,027       410,392
  Provision for doubtful accounts, net of recoveries.....................      53,023        46,716        34,476
  Amortization of intangible assets......................................      16,273        11,504         4,103
  Restructuring costs....................................................      68,304             -             -
  Merger costs...........................................................      12,193             -             -
  Special provision for uncollectible accounts...........................      47,440             -             -
  Employee contracts, benefit plan and claim settlements.................      20,367             -             -
  Loss on disposition of U.K. subsidiary.................................         500             -             -
                                                                           ----------      --------      --------
                                                                            1,181,077       862,937       675,095
                                                                           ----------      --------      --------
    OPERATING (LOSS) INCOME..............................................     (47,477)       99,875        73,806
Interest expense.........................................................      42,942        37,155        18,266
                                                                           ----------      --------      --------
    (LOSS) INCOME FROM CONTINUING OPERATIONS
    BEFORE TAXES AND EXTRAORDINARY CHARGE................................     (90,419)       62,720        55,540
Income tax (benefit) expense.............................................     (18,941)       27,104        19,695
                                                                           ----------      --------      --------
    (LOSS) INCOME FROM CONTINUING OPERATIONS
    BEFORE EXTRAORDINARY CHARGE..........................................     (71,478)       35,616        35,845
Income from discontinued operations, net of taxes........................           -           344         1,466
Gain on disposal of discontinued operations, net of taxes................           -         3,071             -
                                                                           ----------      --------      --------
    (LOSS) INCOME BEFORE EXTRAORDINARY CHARGE............................     (71,478)       39,031        37,311
Extraordinary charge on debt refinancing, net of taxes...................       2,998             -             -
                                                                           ----------      --------      --------
    NET (LOSS) INCOME....................................................  $  (74,476)     $ 39,031      $ 37,311
                                                                           ==========      ========      ========
PER COMMON AND COMMON EQUIVALENT SHARE:
  (Loss) income from continuing operations before extraordinary charge...  $    (1.52)     $    .81      $    .94
                                                                           ==========      ========      ========
  Extraordinary charge on debt refinancing, net of taxes.................  $    (0.06)     $      -      $      -
                                                                           ==========      ========      ========
  Net (loss) income......................................................  $    (1.58)     $    .89      $    .98
                                                                           ==========      ========      ========
  Weighted average number of common and common equivalent                                                    
    shares outstanding...................................................      47,112        44,096        38,138

PER COMMON SHARE ASSUMING FULL DILUTION:
  (Loss) income from continuing operations before extraordinary charge...  $    (1.52)     $    .78      $    .89
                                                                           ==========      ========      ========
  Extraordinary charge on debt refinancing, net of taxes.................  $    (0.06)     $      -      $      - 
                                                                           ==========      ========      ========
  Net (loss) income......................................................  $    (1.58)     $    .85      $    .93
                                                                           ==========      ========      ========
Weighted average number of common and common                                                                  
  equivalent shares outstanding..........................................      47,112        49,284        43,864
</TABLE>


                 See notes to consolidated financial statements.



                                      F-4
<PAGE>   306
                           APRIA HEALTHCARE GROUP INC.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                 COMMON STOCK         ADDITIONAL      RETAINED                      TOTAL
                                            ----------------------      PAID-IN       EARNINGS    TREASURY      STOCKHOLDERS'
                                            SHARES       PAR VALUE      CAPITAL       (DEFICIT)     STOCK          EQUITY  
                                            ------       ---------    ----------      ---------   --------      -------------
                                                                             (IN THOUSANDS)
                                                                      
<S>                 <C> <C>                 <C>           <C>         <C>             <C>          <C>           <C>     
Balance at December 31, 1992............    33,409        $   34        $115,029       $(20,879)   $(13,783)       $ 80,401
                                                                      
Issuance of Common Stock................        22                           273                                        273
Treasury stock issued...................     1,748                           558                     12,716          13,274
Exercise of stock options...............       438             1           1,054                                      1,055
Notes receivable payments...............                                   1,201                                      1,201
Tax benefits related to stock options...                                   1,082                                      1,082
Compensatory stock options granted......                                     105                                        105
Conversion of subordinated                                            
  debentures............................       604             1           8,443                                      8,444
Acquisition of Total                                                  
  Pharmaceutical Care, Inc..............     2,002             2          33,520                                     33,522
Other ..................................                                     (36)                                       (36)
Net income..............................                                                 37,311                      37,311
                                            ------        ------        --------       --------    --------        --------
Balance at December 31, 1993............    38,223            38         161,229         16,432      (1,067)        176,632
                                                                      
Issuance of Common Stock................     1,362             2          17,785                                     17,787
Treasury stock issued...................       142                            49                      1,067           1,116
Exercise of stock options...............       395                         1,830                                      1,830
Notes receivable payments...............                                      15                                         15
Tax benefits related to stock options...                                   1,343                                      1,343
Conversion of subordinated                                            
  debentures............................       799             1          11,159                                     11,160
Common Stock issued for acquisitions                                  
  and earnouts..........................     1,081             1          12,877                                     12,878
Other ..................................                                     118                                        118
Net income..............................                                                 39,031                      39,031
                                            ------        ------        --------       --------    --------        --------
Balance at December 31, 1994............    42,002            42         206,405         55,463           -         261,910
                                                                      
Net activity for Homedco - October 1,                                 
  1994 to December 31, 1994.............        51                         1,663          8,647                      10,310
Issuance of Common Stock................        36                           570                                        570
Exercise of stock options...............     1,473             2          13,259                                     13,261
Notes receivable payments...............                                       6                                          6
Tax benefits related to stock options...                                   8,138                                      8,138
Conversion of subordinated                                            
  debentures, net of issuance costs                                   
  of $2,785.............................     4,772             5          63,856                                     63,861
Exercise of warrants....................     1,338             1              (1)                                         -
Acceleration of stock option vesting....                                     542                                        542
Other...................................        20                            84             32                         116
Net loss ...............................                                                (74,476)          -         (74,476)
                                            ------        ------        --------       --------    --------        --------
Balance at December 31, 1995............    49,692        $   50        $294,522       $(10,334)   $      -        $284,238
                                            ======        ======        ========       ========    ========        ========
</TABLE>                                                              
                                                                      
                 See notes to consolidated financial statements.    


                                      F-5
<PAGE>   307
                           APRIA HEALTHCARE GROUP INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                      YEAR ENDED DECEMBER 31,  
                                                                                   -----------------------------    
                                                                                   1995        1994         1993
                                                                                   ----        ----         ----
                                                                                          (IN THOUSANDS)
OPERATING ACTIVITIES
<S>                                                                             <C>          <C>         <C>     
Net (loss) income.............................................................  $ (74,476)   $ 39,031    $  37,311
Items included in net (loss) income not requiring (providing) cash:
    Income from discontinued operations.......................................          -        (344)      (1,466)
    Extraordinary charge on debt refinancing..................................      4,684           -            -
    Provisions for doubtful accounts..........................................    100,463      46,716       34,476
    Depreciation..............................................................     84,607      63,895       46,180
    Amortization of intangible assets.........................................     16,273      11,504        4,103
    Amortization of deferred debt costs.......................................      1,908       4,878        2,882
    Loss (gain) on sale of property, equipment and improvements...............      3,938         765         (108)
    Impairment losses.........................................................     32,557           -            -
    Gain on disposal of discontinued operations...............................          -      (3,071)           -
    Deferred income taxes.....................................................    (19,548)      4,031       (5,452)
Change in operating assets and liabilities, net of effects of acquisitions:
    Increase in accounts receivable...........................................   (118,151)    (86,116)     (55,914)
    Increase in inventories...................................................     (4,904)     (4,895)      (2,291)
    (Increase) decrease in prepaids and other current assets..................    (12,194)     (2,147)       1,751
    Decrease in other non-current assets......................................      3,269       4,221          692
    Increase in accounts payable..............................................     18,942      16,231        9,313
    Increase (decrease) in accruals and other non-current liabilities.........      3,434      (6,735)      (3,832)
    Increase in accrued restructuring costs...................................     19,085           -            -
Other.........................................................................      2,733      (2,296)        (822)
Net purchases of patient service equipment, net of effects of acquisitions ...    (72,518)    (85,729)     (39,784)
                                                                                ---------    --------    ---------
         NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES..................     (9,898)        (61)      27,039

INVESTING ACTIVITIES
    Purchases of property, equipment and
      improvements, net of effects of acquisitions............................    (49,327)    (26,757)     (17,249)
    Proceeds on disposal of discontinued operations...........................          -      20,344            -
    Proceeds on disposition of U.K. subsidiary................................        926           -            -
    Proceeds from sale of property, equipment and improvements................        331         540          963
    Acquisitions..............................................................    (46,086)    (73,782)    (185,625)
                                                                                ---------    --------    ---------
         NET CASH USED IN INVESTING ACTIVITIES................................    (94,156)    (79,655)    (201,911)

FINANCING ACTIVITIES
    Proceeds under revolving credit facility..................................    463,999     172,954       93,556
    Payments under revolving credit facility..................................   (229,171)   (164,532)     (60,792)
    Proceeds from issuance of subordinated notes..............................          -           -      200,000
    Proceeds from senior and other long-term debt.............................    126,557      44,474        1,878
    Payments of senior and other long-term debt...............................   (275,022)    (12,929)     (41,316)
    Capitalized debt costs, net...............................................     (1,429)     (2,502)      (9,863)
    Issuances of Common Stock.................................................     13,064       2,042        2,256
                                                                                ---------    --------    ---------
         NET CASH PROVIDED BY FINANCING ACTIVITIES............................     97,998      39,507      185,719
                                                                                ---------    --------    ---------

NET (DECREASE) INCREASE IN CASH...............................................     (6,056)    (40,209)      10,847
Cash at beginning of period...................................................     21,188      61,397       50,550
Net activity for Homedco - October 1, 1994 to December 31, 1994...............      3,697           -            -
                                                                                ---------    --------    ---------
         CASH AT END OF PERIOD................................................  $  18,829   $  21,188    $  61,397
                                                                                =========   =========    =========
</TABLE>

                 See notes to consolidated financial statements.


                                      F-6
<PAGE>   308
                           APRIA HEALTHCARE GROUP INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Basis of Presentation: The accompanying consolidated financial
statements include the accounts of Apria Healthcare Group Inc. ("the Company")
and its subsidiaries. All significant intercompany transactions and accounts
have been eliminated. As described more fully in Note 2, on June 28, 1995,
Homedco Group, Inc. ("Homedco") merged with and into Abbey Healthcare Group
Incorporated ("Abbey") to form the Company ("the merger"). The merger was
accounted for as a pooling-of-interests and, accordingly, the consolidated
financial statements reflect the combined financial position and operating
results of Abbey and Homedco for all periods presented.

         In conjunction with the merger, the Company adopted a fiscal year end
of December 31. Previously, Abbey reported on a fiscal year ending the Saturday
nearest December 31, and Homedco reported on a fiscal year ending September 30.
The consolidated financial statements for 1994 and 1993 combine the results of
Abbey for the fiscal years ended December 31, 1994 and January 1, 1994 and the
results of Homedco for each of the two years ended September 30, 1994 and
September 30, 1993. The consolidated balance sheet at December 31, 1994 combines
the accounts of Abbey as of December 31, 1994 and Homedco as of September 30,
1994. The consolidated balance sheet and statements of cash flows at December
31, 1995 combines the accounts of Abbey and Homedco on such a date and reflects
the activity of Homedco from October 1, 1994 through December 31, 1994. The
consolidated statements of operations for 1995 reflect combined results for the
year ended December 31, 1995 and exclude the operations of Homedco for the
period October 1, 1994 through December 31, 1994. Homedco's revenues and net
income for this period amounted to $146,293,000 and $8,647,000, respectively.

         Company Background: The Company provides home healthcare services
including home infusion therapy, home respiratory therapy and home medical
equipment/other to patients in the home throughout the United States. Infusion
therapy, respiratory therapy and home medical equipment/other represent
approximately 24%, 53% and 23%, of total revenue, respectively.

         Revenue Recognition and Concentration of Credit Risk: Revenues are
recognized on the date services and related products are provided to patients
and are recorded at amounts estimated to be received under reimbursement
arrangements with a large number of third party payors, including private
insurers, prepaid health plans, Medicare and Medicaid. Approximately 43% of the
Company's revenues are reimbursed under arrangements with Medicare and Medicaid.
No other third party payor group represents 10% or more of the Company's
revenues. The Company establishes an allowance for doubtful accounts based upon
factors surrounding the credit risk of specific third party payors, historical
trends and other information. Because of continuing changes in healthcare
regulations and reimbursement and disruptions caused by the Company's merger,
restructuring and integration activities, it is reasonably possible that the
Company's estimates of net collectible revenue could change in the near term.

         Use of Accounting Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.

         Cash Equivalents: The Company considers all highly liquid instruments
purchased with a maturity of less than three months to be cash equivalents. The
Company maintains cash with various financial institutions. These financial
institutions are located throughout the United States and the Company's cash
management practices limit exposure to any one institution. Outstanding checks
in excess of bank balances, which are reported as a component of accounts
payable, were $27,608,000 and $18,185,000 at December 31, 1995 and 1994,
respectively.

         Inventories: Inventories are stated at the lower of cost (first-in,
first-out method) or market and consist primarily of medical supplies sold
directly to patients for use in their homes.

         Patient Service Equipment: Patient service equipment consists of
medical equipment provided to in-home patients and is stated at cost.
Depreciation is provided using the straight-line method over the estimated
useful lives of the equipment which range from three to ten years. Included in
patient service equipment are assets under capitalized leases which consist
primarily of oxygen related equipment. Depreciation for equipment under
capitalized leases is provided using the straight-line method over the estimated
useful life or the lease term.


                                      F-7
<PAGE>   309
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


         Property, Equipment and Improvements: Property, equipment and
improvements are stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the property which range
from three to thirty years. Included in property and equipment are assets under
capitalized leases which consist primarily of computer equipment. Depreciation
for equipment under capitalized leases is provided using the straight-line
method over the estimated useful life or the lease term.

         Long-lived Assets: Effective January 1, 1995, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed
Of. In accordance with the statement, the Company records impairment losses on
long-lived assets used in operations when events and circumstances indicate that
the assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amounts of those assets. No
financial statement impact resulted from the adoption of the statement.

         Intangible Assets: Intangible assets consist of covenants not to
compete and goodwill arising from business combinations (see Note 2). The values
assigned to intangible assets, based in part on independent appraisals, are
amortized on a straight-line basis. The covenants are amortized over contractual
terms which range from three to ten years. Goodwill, representing the excess of
the purchase price over the estimated fair value of the net assets of the
acquired business, is amortized over the period of expected benefit. The
amortization periods for goodwill range from twenty years for businesses
operating primarily in the home respiratory therapy and home medical equipment
lines and forty years for pharmaceutical and infusion therapy businesses. The
carrying value of goodwill is reviewed if the facts and circumstances suggest
that it may be impaired. If this review indicates that goodwill will not be
recoverable, as determined based on the undiscounted cash flows of the entity
acquired over the remaining amortization period, the carrying value of the
goodwill is reduced.

         Fair Value of Financial Instruments: The fair value of long-term debt
is determined by reference to borrowing rates currently available to the Company
for loans with similar terms and average maturities.

         Advertising: Advertising costs amounting to $3,849,000, $3,753,000 and
$3,627,000 for 1995, 1994 and 1993, respectively, are expensed as incurred and
included in "Selling, distribution and administrative expenses."

         Income Taxes: The Company provides for income taxes under the liability
method. Accordingly, deferred income tax assets and liabilities are computed for
differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to amounts which are
more likely than not to be realized. The provision for income taxes represents
the tax payable or refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.

         Per Share Amounts: Primary per share amounts are calculated by dividing
the applicable operating statement caption by the weighted average number of
common and dilutive common equivalent shares outstanding. Common equivalent
shares consist primarily of stock options. Fully diluted per share amounts
include further adjustments to the applicable operating statement captions and
weighted average shares outstanding to assume conversion of convertible
debentures from issuance, if dilutive. The calculation of per share amounts for
periods prior to the merger reflect the issuance of two shares of the Company's
Common Stock for each share of Homedco Common Stock used in such calculation and
one and four tenths shares of the Company's Common Stock for each share of Abbey
Common Stock used in such calculation.

         Stock-based Compensation: The Company grants options for a fixed number
of shares to employees with an exercise price equal to the fair value of the
shares at the date of grant. The Company accounts for stock option grants in
accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees,
and, accordingly, recognizes no compensation expense for the stock option
grants.

         Reclassifications: Certain amounts for prior periods have been
reclassified to conform to the current year presentation.



                                      F-8
<PAGE>   310
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 2 -- BUSINESS COMBINATIONS AND DISPOSITIONS

         On June 28, 1995, Homedco merged with and into Abbey to form the
Company. Homedco and Abbey provided similar homecare services including infusion
therapy, respiratory therapy and home medical equipment. In connection with the
merger transaction, the Company issued 21,547,529 shares of its Common Stock for
15,391,092 issued and outstanding shares of Abbey Common Stock and 26,034,612
shares of its Common Stock for 13,017,306 issued and outstanding shares of
Homedco Common Stock.

         The merger has been accounted for under the pooling-of-interests method
of accounting. Accordingly, the historical financial statements for periods
prior to the consummation of the combination have been restated as though the
companies had been combined. The restated financial statements have been
adjusted to conform the differing accounting policies of the separate companies.
Such differences relate principally to the use of salvage values recognized for
certain patient service equipment and the capitalization of low dollar patient
service items, supplies, accessories and repairs.

         Separate and combined results of Abbey and Homedco prior to the merger
are as follows:

<TABLE>
<CAPTION>
                                                                              ADJUSTMENTS
                                                                                  AND
                                                   ABBEY      HOMEDCO      RECLASSIFICATIONS    COMBINED
                                                   -----      -------      -----------------    --------
                                                                     (IN THOUSANDS)
<S>                                              <C>          <C>              <C>              <C>
         Three months ended March 31, 1995
         Revenues..............................  $123,394     $161,175         $     40         $284,609
         Net Income............................     7,091        9,047             (346)          15,792

         Year ended December 31, 1994
         Revenues..............................  $439,175     $523,469         $    168         $962,812
         Net Income............................    12,307       29,810           (3,086)          39,031

         Year ended December 31, 1993
         Revenues..............................  $278,457     $470,283         $    161         $748,901
         Net Income............................    14,312       24,544           (1,545)          37,311
</TABLE>

         On January 2, 1994, the Company acquired the outstanding stock of
Protocare, Inc. ("Protocare") for a cash payment of $11,915,000 plus direct
acquisition costs of $3,700,000. In addition, pursuant to an earnout provision,
as amended in June 1994, approximately 979,000 shares of Common Stock valued at
$11,594,000 were issued in February 1995 to the former Protocare stockholders.
The shares are reflected in the accompanying financial statements as issued and
outstanding at December 31, 1994.

         On November 10, 1993, the Company acquired the outstanding stock of
Total Pharmaceutical Care, Inc. ("TPC") for a cash payment of $154,183,000 plus
direct acquisition costs of $9,376,000 and the issuance of approximately
2,002,000 shares of Common Stock valued at $33,522,000.

         In addition to the above business combinations, during 1995, 1994 and
1993, the Company acquired numerous complementary businesses in specific
geographic markets. None of these businesses was individually significant. The
transactions, including Protocare and TPC, were accounted for as purchases and,
accordingly, the operations of the acquired businesses are included in the
consolidated statements of operations from the dates of acquisition. The
purchase prices, which aggregated approximately $46,873,000, $109,747,000 and
$231,225,000 in 1995, 1994 and 1993, respectively, consisted of cash, common
stock and notes. The value ascribed to a portion of the common shares issued in
1994 and 1993 reflects a discount from the quoted price of the Company's Common
Stock due to the absence of registration. The purchase prices were allocated to
the various underlying tangible and intangible assets and liabilities on the
basis of estimated fair value, determined in part by independent appraisal.


                                      F-9
<PAGE>   311
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


         The following table summarizes the allocation of the purchase prices,
including non-cash financing activities, of acquisitions made by the Company:

<TABLE>
<CAPTION>
                                                    YEAR ENDED DECEMBER 31,    
                                               --------------------------------
                                                 1995        1994        1993
                                                 ----        ----        ----
                                                        (IN THOUSANDS)

<S>                                            <C>         <C>         <C>     
         Fair value of assets acquired.......  $50,255     $124,496    $249,554
         Liabilities assumed.................   (3,382)     (14,749)    (18,329)
         Promissory note payable to seller...        -       (4,382)          -
         Common Stock issued.................     (787)     (31,583)    (47,069)
                                               -------     --------    --------
           Cash paid.........................  $46,086     $ 73,782    $184,156
                                               =======     ========    ========
</TABLE>

         In June 1995, the Company entered an agreement for the sale of the
capital stock of Omnicare Group Ltd. ("Omnicare"), a United Kingdom-based
subsidiary, to a newly formed holding company, Stanton Industries Ltd.
("Stanton"), that is owned and managed by an officer/director of Omnicare and a
shareholder/former director of Abbey. Consideration for the sale amounted to
$2,913,000 and consisted of cash of $968,000, a convertible note in the amount
of $1,605,000 and the assumption of a liability in the amount of $340,000. The
difference between the net sales price per the agreement and the carrying value
of the Company's investment in Omnicare has been reflected as a loss in the
accompanying financial statements.

         In September 1995, Stanton transferred its shares of Omnicare common
stock to a newly-formed public limited company, Omnicare plc, in exchange for
6,166,656 ordinary shares of Omnicare plc. Also in September 1995, the Company
converted the note due from Stanton into 1,875,000 unregistered ordinary shares
of Omnicare plc. As a result of these transactions, Stanton and the Company hold
approximately 63% and 27%, respectively, of the issued ordinary share capital of
Omnicare plc. The Company has agreed not to dispose of the shares and to certain
noncompetition covenants for a period of two years. The investment in Omnicare
plc is accounted for using the equity method. At March 6, 1996, the quoted
market value of the investment was approximately $2,400,000. The valuation
represents a mathematical calculation based on a closing quotation published by
the London Alternative Investment Market and is not necessarily indicative of
the amount that could be realized upon sale.

         On September 30, 1994, the Company sold its 51% interest in Abbey
Pharmaceutical Services, Inc. ("APS") to Living Centers of America, Inc.
("Living Centers") for cash consideration of $20,300,000 and warrants to
purchase 248,000 shares of Living Center common stock for $35.00 per share. No
value was assigned to the warrants. The APS operating results have been
presented as discontinued operations for 1994 and 1993 (net of applicable income
taxes of $1,879,000 and $2,428,000 in 1994 and 1993, respectively). Net revenues
of the discontinued operations were $43,770,000 and $50,678,000 in 1994 and
1993, respectively.

         Supplemental unaudited pro forma information giving effect to business
acquisitions made in 1994 and 1993 and excluding the operations of APS, is as
follows:

<TABLE>
<CAPTION>
                                                 YEAR ENDED DECEMBER 31,      
                                                 -----------------------
                                                   1994           1993
                                                   ----           ----
                                                     (IN THOUSANDS)

<S>                                              <C>            <C>     
         Net revenues.........................   $986,062       $930,192
         Income from continuing operations....     35,209         27,498
         Per share amounts:
           Primary............................   $   0.79       $   0.63
           Fully diluted......................   $   0.76       $   0.63

</TABLE>

         The pro forma financial information presented above is not necessarily
indicative of any trends or results that may be expected for any other period.
Pro forma financial information for business acquisitions and dispositions made
in 1995 is not presented because the effects on the Company's operating results
are not material.

         In February 1996, the Company signed a letter of intent for the sale of
its M&B Ventures, Inc. home health operations, located in South Carolina under
the assumed business name of Doctor's Home Health, Inc. The sale, which is
expected to be completed in May 1996, is subject to certain conditions. The
proposed sales price of $2,900,000 approximates the book value of the 


                                      F-10
<PAGE>   312
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


assets of Doctor's Home Health, Inc. The operations of Doctor's Home Health, 
Inc. had revenues of approximately $8,870,000 and $7,340,000 for 1995 and 1994,
respectively.

NOTE 3 -- CERTAIN OPERATING STATEMENT CAPTIONS

         In connection with the merger, the Company adopted a plan to
restructure and consolidate its operating locations and administrative functions
within specific geographic areas. The principal elements of the plan include a
workforce reduction of approximately 1,220 employees across all employee groups,
the consolidation of approximately 120 branch locations and the conversion of
information systems at the continuing branches to a standardized system. The
plan, which the Company anticipates will be substantially completed by September
1996, resulted in a restructuring charge of approximately $68,304,000 consisting
of accrued costs and impairments.

         Through December 31, 1995, the Company had completed a significant
portion of the plan, including the consolidation of approximately 105 branch
locations and a reduction of approximately 1,120 employees. The Company's
decision to consolidate branches and standardize branch information systems
resulted in write-offs of excess patient service equipment, leasehold
improvements and the hardware and capitalized software relating to information
systems being discontinued. Approximately $1,325,000 in hardware and capitalized
software costs, representing the approximate amount of depreciation attributable
to the expected period of usage prior to completion of the conversion plan, is
included in property, equipment and improvements at December 31, 1995. The
following table summarizes the principal components of the charge, amounts paid
through December 31, 1995, and the remaining accrual at December 31, 1995.

<TABLE>
<CAPTION>
                                                          ACCRUALS     IMPAIRMENTS     
                                                          --------     -----------     
                                                               (IN THOUSANDS)          
                                                                                       
    <S>                                                   <C>           <C>            
    Severance and related personnel costs..............   $ 21,538       $     -       
    Branch and billing center closures.................     13,709         9,354       
    Information systems................................          -        22,160       
    Other..............................................      1,000           543       
                                                          --------       -------       
                                                            36,247       $32,057       
    Severance amounts paid through December 31, 1995...    (12,607)      =======       
    Other amounts paid through December 31, 1995.......     (4,555)                    
                                                          --------                     
    Accrual at December 31, 1995.......................   $ 19,085                     
                                                          ========                     
</TABLE>

         A special provision for uncollectible accounts of $47,440,000 was
recorded to conform the allowance estimation methodologies of Homedco and Abbey
and to provide for estimated losses resulting from the significant volume of
facility consolidations and information system conversions. These activities
detract from normal operations and result in billing and collection delays which
generally reduce the ultimate collectibility of accounts receivable.

         Merger costs totaling $12,193,000 were incurred and paid during 1995
and consisted primarily of investment banking fees of $4,899,000, accounting,
consulting, legal and filing fees of $4,767,000 and liability insurance of
$1,699,000 covering directors and officers of the predecessor companies against
pre-merger claims.

         In 1995, the Company accrued $20,367,000 for employee contract, benefit
plan and claim settlements. The accrual included $14,407,000 provided for
employee and payroll tax related claims and lawsuits, $3,481,000 to settle
certain employee contracts, and the settlement loss of $2,275,000 for the
termination of the Abbey Medical, Inc. Employee Retirement Plan, a defined
benefit pension plan. At December 31, 1995, the remaining accrual was
$10,479,000, the majority of which is expected to be settled and paid during
1996.


                                      F-11
<PAGE>   313
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 4 -- PROPERTY, EQUIPMENT AND IMPROVEMENTS

         Property, equipment and improvements consists of the following:

<TABLE>
<CAPTION>
                                                                                      DECEMBER 31,     
                                                                              --------------------------
                                                                                1995               1994
                                                                                ----               ----
                                                                                    (IN THOUSANDS)

<S>                                                                         <C>                <C>      
         Land and improvements...........................................     $     88          $    100
         Buildings and leasehold improvements............................       14,620            14,160
         Equipment and furnishings.......................................       56,507            43,412
         Information systems.............................................       74,741            65,913
                                                                              --------          --------
                                                                               145,956           123,585
         Less accumulated depreciation...................................      (65,848)          (49,609)
                                                                              --------          --------
                                                                              $ 80,108          $ 73,976
                                                                              ========          ========
</TABLE>

NOTE 5 -- INTANGIBLE ASSETS

         Intangible assets consist of the following:

<TABLE>
<CAPTION>
                                                                                      DECEMBER 31,     
                                                                              --------------------------
                                                                                1995               1994
                                                                                ----               ----
                                                                                    (IN THOUSANDS)

<S>                                                                           <C>               <C>     
         Covenants not to compete........................................     $ 32,815          $ 28,235
         Goodwill........................................................      319,571           271,063
                                                                              --------          --------
                                                                               352,386           299,298
         Less accumulated amortization...................................      (33,244)          (16,574)
                                                                              --------          --------
                                                                              $319,142          $282,724
                                                                              ========          ========
</TABLE>

NOTE 6 -- CREDIT FACILITY AND LONG-TERM DEBT

         Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                                      DECEMBER 31,   
                                                                              -------------------------- 
                                                                                1995               1994
                                                                                ----               ---- 
                                                                                    (IN THOUSANDS)

<S>                                                                           <C>              <C>      
         Notes payable relating to revolving credit facilities...........     $286,300         $  41,372
         Term loans payable..............................................            -            75,000
         Acquisition line of credit......................................            -            43,443
         6.5% Convertible subordinated debentures........................            -            66,646
         9.5% Senior subordinated notes..................................      200,000           200,000
         Other, interest at rates ranging from 4.1% to 11.0%, payments
           due at various dates through December 1998....................        4,071             9,792
         Capital lease obligations (see Note 9)..........................       16,520            16,880
                                                                              --------          --------
                                                                               506,891           453,133
         Less: Current maturities........................................       (9,652)          (32,200)
                  Unamortized deferred debt costs........................       (6,584)          (14,829)
                                                                              --------          --------
                                                                              $490,655          $406,104
                                                                              ========          ========
</TABLE>

         Credit Agreements Prior to Merger: Prior to June 28, 1995, the Company
had credit agreements with various banks ("Bank Credit Agreement") and General
Electric Capital Corporation ("GE Capital Agreement") providing for borrowings
up to $350,000,000. The Bank Credit Agreement included a $75,000,000 term loan,
a $75,000,000 acquisition credit line and a $100,000,000 revolving credit
facility of which $15,000,000 was accessible in the form of letters of credit.
The GE Capital 


                                      F-12
<PAGE>   314
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Agreement provided an additional $100,000,000 in revolving credit. Borrowings 
under each revolving credit facility were limited to specified levels of 
qualified accounts receivable, inventory, and, in the case of the GE Capital 
Agreement, patient service equipment.

         Each agreement permitted the Company to select from two interest rate
options: prime plus up to 1.25% or London Interbank Offered Rate ("LIBOR") plus
up to 2.25%. Each rate option was subject to reduction for borrowing level, in
the case of the GE Capital Agreement, and achieving targeted levels of earnings
before interest, taxes, depreciation, and amortization, in the case of the Bank
Credit Agreement.

         Term loan principal was payable quarterly, in varying amounts,
commencing December 31, 1994 through March 31, 1998. Principal payments under
the acquisition credit line were payable quarterly, commencing June 30, 1997
through December 31, 1998, with a final payment due May 2, 1999.

         The agreements required payment of commitment fees of .25% to .50% of
the unused portion of each facility and contained restrictive covenants
requiring the maintenance of certain financial ratios, limitations on additional
borrowings and capital expenditures, and restrictions on cash dividends or other
distributions.

         Credit Agreement Subsequent to Merger: Effective June 28, 1995, the
Company executed a credit agreement with certain banks and Banque Paribas, as
administrative agent. The agreement, which expires in June 2000, provides a
revolving loan facility of up to $500,000,000. Proceeds were used, among other
purposes, to retire borrowings under the Bank Credit Agreement and the GE
Capital Agreement. The credit agreement contains restrictive covenants requiring
the maintenance of certain financial ratios, limitations on additional
borrowings and certain expenditures and restrictions on cash dividends and other
distributions. At December 31, 1995, the Company's outstanding letters of credit
amounted to $960,000 and credit available under the agreement was $212,740,000.

         Borrowings under the credit agreement bear interest at the higher of
prime or .5% in excess of the Federal Funds rate. The Company may also elect an
interest rate ranging from LIBOR plus .375% to LIBOR plus 1.5% dependent on the
ratio of funded indebtedness to earnings before interest, taxes, depreciation
and amortization. The effective interest rates at December 31, 1995, were 6.2%,
6.6% and 8.5% for borrowings of $266,000,000, $13,000,000 and $7,300,000,
respectively.

         The Company has limited involvement with derivative financial
instruments and does not use them for trading purposes. Interest rate swap and
cap agreements are used as a means of managing the Company's interest rate
exposure. The swap agreements are contracts to periodically exchange fixed and
floating interest rate payments over the life of the agreement. In July 1995,
the Company entered into several one-year swap agreements totaling $266,000,000
in notional principal. For the period from July 1995 through December 1995, the
Company received interest at a weighted average rate of 6.7% and paid interest
at a weighted average rate of 6.2%. Payment or receipt of the interest
differential is made quarterly and recognized monthly in the financial
statements as an adjustment to interest expense. The cap agreement, which
expires in July 1996, limits the three-month LIBOR rate to 6% on indebtedness of
up to $50,000,000. In January 1996, the Company canceled its swap agreements and
entered into a new one-year agreement covering $280,000,000 of notional
principal with a fixed LIBOR rate of 5.1%.

         As a result of the aforementioned refinancing, unamortized deferred
debt costs of $2,998,000, net of income taxes of $1,686,000, relating to the
refinanced debt were expensed as an extraordinary charge.

         The carrying amounts reported for the obligations relating to revolving
credit facilities, term loans and acquisition line approximate fair value
because the underlying instruments are variable rate notes that reprice
frequently.

         6.5% Convertible Subordinated notes: The 6.5% convertible subordinated
debentures were convertible into shares of the Company's Common Stock at a
conversion price of $13.97 per share and were scheduled to mature on December 1,
2002. Pursuant 


                                      F-13
<PAGE>   315
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


to a redemption feature, all outstanding 6.5% convertible subordinated 
debentures were converted to Common Stock in September 1995. The fair value of 
these debentures was $79,259,000 at December 31, 1994.

         9.5% Senior Subordinated notes: The 9.5% senior subordinated notes
mature November 1, 2002 and are subordinated to all senior debt of the Company
and senior in right of payment to subordinated debt of the Company. The fair
value of these notes, determined by reference to quoted market prices, is
$210,340,000 and $183,280,000 at December 31, 1995 and 1994, respectively.

         Total interest paid in 1995, 1994 and 1993 amounted to $37,454,000,
$32,395,000, and $12,074,000, respectively.

         Maturities of long-term debt, exclusive of capital lease obligations,
for the five years ending December 31, 2000 and thereafter, are as follows:

<TABLE>
<CAPTION>
                                                      (IN THOUSANDS)
                                                      --------------
<S>      <C>                                             <C>     
         1996 .....................................      $  2,807
         1997 .....................................         1,092
         1998 .....................................           172
         1999 .....................................             -
         2000 .....................................             -
         Thereafter ...............................       486,300
                                                         --------
                                                         $490,371
                                                         ========
</TABLE>
                                                         
NOTE 7 -- STOCKHOLDERS' EQUITY                           
                                                        
         Common Stock: The Company has granted registration rights to certain
holders of Common Stock under which the Company is obligated to pay the expenses
associated with certain of such registration rights.

         Prior to June 28, 1995, the Company had adopted preferred stock
purchase rights plans pursuant to which the Company's common stockholders were
granted one right for each share of Common Stock held. Each right allowed its
holder to purchase one-hundredth of a share of Junior Participating Preferred
Stock at a specified price, subject to adjustment. The rights would become
exercisable at certain times associated with a transaction whereby a person or
group of affiliated persons acquired beneficial ownership of 20% or more of the
Company's general voting power, unless the Board of Directors determined the
transaction to be fair and in the best interests of the Company and its
stockholders. The Board of Directors determined that the merger of Abbey and
Homedco is fair and in the best interests of the Company and its stockholders
and, accordingly, the preferred stock purchase rights did not become
exercisable. As a result of the merger, the outstanding preferred stock purchase
rights were converted into Apria preferred stock purchase rights with terms
essentially the same as the predecessor plans.

         Stock Option Plans: The Company has various stock option plans that
provide for the granting of incentive stock options or non-statutory options to
certain key employees, non-employee members of the Board of Directors,
consultants and independent contractors. In the case of incentive stock options,
the exercise price may not be less than the fair market value of a share of
Common Stock on the date of grant, and may not be less than 110% of the fair
market value of a share of Common Stock on the date of grant for any individual
possessing 10% or more of the voting power of all classes of stock of the
Company. The options become exercisable over periods ranging from three to five
years and expire not later than 10 years from the date of grant.

         Transactions under these plans are summarized as follows:

<TABLE>
<CAPTION>
                                                NUMBER OF
                                                 SHARES          PRICE RANGE
                                                 ------        ---------------
<S>                                            <C>            <C>       <C>   
         Outstanding at December 31, 1992....   2,542,935     $  .75    $11.00
             Granted.........................   2,052,053       4.45     16.87
             Exercised.......................    (437,323)       .75     11.00
             Cancelled.......................     (99,995)       .75     12.25
                                               ----------
         Outstanding at December 31, 1993....   4,057,670        .75     16.87
             Granted.........................   1,203,253      11.25     20.00
</TABLE>


                                      F-14

<PAGE>   316
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


<TABLE>
<S>                                                                                    <C>             <C>       <C>  
             Exercised...............................................................    (394,938)       .75     14.11
             Cancelled...............................................................  (1,111,407)       .75     20.00
             Substitute options granted for outstanding options of acquired company..     308,563        .97     11.36
                                                                                       ----------
         Outstanding at December 31, 1994............................................   4,063,141        .75     17.05
             Net activity from October 1, 1994 to December 31, 1994 (see Note 1).....     (54,340)      1.50     33.25
             Granted.................................................................   2,028,475      17.68     28.03
             Exercised...............................................................  (1,233,243)       .75     20.25
             Cancelled...............................................................    (620,242)       .75     28.05
                                                                                       ----------
         Outstanding at December 31, 1995............................................   4,183,791        .75     28.03
                                                                                       ==========
         Exercisable at December 31, 1995............................................   1,572,459        .75     28.03
                                                                                       ==========
         Available for grant at January 1, 1995......................................   1,753,430
                                                                                       ==========
         Available for grant at December 31, 1995....................................   1,030,985
                                                                                       ==========
</TABLE>

         In addition, the Company has a Long-Term Senior Management Equity Plan
(the "Equity Plan") which provides for the granting of non-statutory stock
options to key members of senior management at fair market value on the date of
grant. As a result of the merger, half of the outstanding options under this
plan became exercisable. The remaining options vest at a rate of 25% per year,
upon announcement of financial results, commencing with the announcement of
financial results for 1995. Vesting may be accelerated under certain
circumstances. The Equity Plan allows for the issuance of 2,000,000 shares of
Common Stock. During 1995, options to purchase 239,600 and 253,000 shares of
Common Stock at prices ranging from $11.00 to $14.63 per share were exercised
and cancelled, respectively. During the period October 1, 1994 through December
31, 1994 (see Note 1) options to purchase 96,000 shares of Common Stock at a
price of $11.00 per share were cancelled. At December 31, 1995, options to
purchase 1,365,400 shares of Common Stock at prices ranging from $11.00 to
$13.50 per share were outstanding. Options granted under this plan expire not
later than 10 years from the date of grant.

         Approximately 5,085,000 shares of Common Stock are reserved for future
issuance upon exercise of stock options.

NOTE 8 -- INCOME TAXES

         Significant components of the Company's deferred tax assets and
liabilities are as follows:

<TABLE>
<CAPTION>
                                                                             DECEMBER 31,    
                                                                         --------------------
                                                                         1995            1994
                                                                         ----            ----
                                                                             (IN THOUSANDS)
<S>                                                                    <C>              <C>     
         Deferred tax liabilities:
           Tax over book depreciation...............................   $  7,836         $  2,260
           Intangible assets........................................      1,733            1,332
           Other, net...............................................      3,552            3,875
                                                                       --------         --------
         Total deferred tax liabilities.............................     13,121            7,467

         Deferred tax assets:
           Allowance for doubtful accounts..........................     34,194           24,860
           Accruals.................................................     24,855           17,002
           Asset valuation reserves.................................     13,371            4,182
           Net operating loss carryforward, limited by Section 382..     19,771           19,352
           Other, net...............................................      3,047            3,304
                                                                       --------         --------
         Total deferred tax assets..................................     95,238           68,700
         Valuation allowance........................................    (36,234)         (33,524)
                                                                       --------         --------
         Net deferred tax assets....................................     59,004           35,176
                                                                       --------         --------
         Net deferred taxes.........................................   $ 45,883         $ 27,709
                                                                       ========         ========
         Current deferred tax assets, net of current deferred
           tax liabilities .........................................   $ 45,883         $ 36,947
         Non-current deferred tax liabilities, net of non-current
           deferred tax assets .....................................          0           (9,238)
                                                                       --------         --------
</TABLE>

                                      F-15
<PAGE>   317
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


<TABLE>
<S>                                                                    <C>              <C>     
         Net deferred taxes.........................................   $ 45,883         $ 27,709
                                                                       ========         ========
</TABLE>

         The recognition in 1995 of additional net deferred tax assets was based
primarily on the availability of taxable income in carryback years and to a
lesser extent on future taxable income. The Company's future taxable income
assumption considers the Company's taxable earnings in the fourth quarter of
1995, the Company's history of earnings in periods prior to the merger, and
anticipated integration activities and certain revenue concentration
uncertainties (see Note 12).

         At December 31, 1995, the Company's federal and state operating loss
carryforwards approximated $138,000,000 and $135,000,000, respectively, and
begin to expire in 2003 for federal tax purposes and 1996 for state tax
purposes. As a result of an ownership change in March 1992 which met specified
criteria of Section 382 of the Internal Revenue Code, future use of federal and
state operating loss carryforwards are each limited to $4,150,000 per year.
Because of the annual limitation, approximately $89,000,000 each of the
Company's federal and state operating loss carryforwards may expire unused.

         A valuation allowance is provided primarily against the Company's net
operating loss carryforwards and certain other deferred tax assets the expected
use of which extends beyond the Company's earning assumption period and are not
otherwise offset by deferred tax liabilities.



                                      F-16
<PAGE>   318
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


         Income tax (benefit) expense consists of the following:

<TABLE>
<CAPTION>
                                                                          YEAR ENDED DECEMBER 31,       
                                                                   ----------------------------------
                                                                     1995         1994          1993
                                                                     ----         ----          ----
                                                                                (IN THOUSANDS)
<S>                                                                <C>           <C>          <C>    
         Currently (refundable) payable:
           Federal..............................................   $ (9,569)     $17,746      $18,906
           State................................................        495        3,984        5,159
                                                                   --------      -------      -------
                                                                     (9,074)      21,730       24,065
         Deferred tax benefit or liability:
           Federal..............................................    (16,810)       3,650       (4,793)
           State................................................     (2,738)         381         (659)
                                                                   --------      -------      -------
                                                                    (19,548)       4,031       (5,452)

         Tax benefits credited to paid-in capital and goodwill..      9,681        1,343        1,082
                                                                   --------      -------      -------
                                                                   $(18,941)     $27,104      $19,695
                                                                   ========      =======      =======
</TABLE>

         The exercise of stock options granted under the Company's various stock
option plans gives rise to compensation which is includable as taxable income to
the employee and deductible by the Company for federal and state tax purposes
but is not recognized as expense for financial reporting purposes. In addition,
the recognition for income tax purposes of certain deferred tax assets relating
to acquired businesses reduces related goodwill for financial reporting
purposes.

         Differences between the Company's income tax (benefit) expense and an
amount calculated utilizing the federal statutory rate are as follows:

<TABLE>
<CAPTION>
                                                                               YEAR ENDED DECEMBER 31,        
                                                                        ----------------------------------
                                                                          1995          1994         1993
                                                                          ----          ----         ----
                                                                                   (IN THOUSANDS)

<S>                                                                     <C>           <C>          <C>    
Income tax (benefit) expense at statutory rate........................  $(30,742)     $21,952      $19,439
Minimum tax credit....................................................         -            -         (408)
Non-deductible goodwill and merger costs..............................     4,907        1,353            -
Use of net operating loss carryforward................................         -       (1,453)      (1,411)
Tax benefit of deferred items not currently (previously) recognized...     5,287            -         (531)
Tax benefit of acquired company.......................................         -        2,142            -
State taxes, net of federal benefit and state loss carryforwards......       825        3,116        2,603
Other.................................................................       782           (6)           3
                                                                        --------      -------      -------
                                                                        $(18,941)     $27,104      $19,695
                                                                        ========      =======      =======
</TABLE>

         Income taxes paid (net of refunds received) in 1995, 1994 and 1993,
amounted to $15,159,000, $25,323,000, and $26,650,000, respectively.

NOTE 9 -- LEASES

         The Company operates principally in leased offices and warehouse
facilities. In addition, the Company leases delivery vehicles and office
equipment. Lease terms range from one to ten years with renewal options for
additional periods. Many leases provide that the Company pay taxes, maintenance,
insurance and other expenses. Rentals are generally increased annually by the
consumer price index subject to certain maximum amounts defined within
individual agreements.

         In addition, during 1995, 1994 and 1993 the Company acquired patient
service equipment, information systems and equipment and furnishings totalling
$5,876,000, $10,719,000, and $7,736,000, respectively, under capital lease
arrangements with lease terms ranging from two to five years. Amortization of
the leased patient service equipment and information systems amounted to
$4,410,000, $5,669,000, and $4,236,000, in 1995, 1994 and 1993, respectively.


                                      F-17
<PAGE>   319
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


         The following amounts for assets acquired under capital lease
obligations are included in both the patient service equipment and property,
equipment and improvements:

<TABLE>
<CAPTION>
                                                         DECEMBER 31,
                                                     --------------------   
                                                     1995            1994
                                                     ----            ----
                                                        (IN THOUSANDS)

<S>                                                <C>             <C>     
         Patient service equipment..............   $ 3,145         $ 14,419
         Information systems....................    19,891           15,832
         Equipment and furnishings..............     3,796            3,885
         Buildings and improvements.............       565            1,687
                                                   -------         --------
                                                    27,397           35,823
         Less accumulated depreciation..........    (9,905)         (15,659)
                                                   -------         --------
                                                   $17,492         $ 20,164
                                                   =======         ========
</TABLE>

         Future minimum payments by year and in the aggregate required under
noncancellable operating leases and capital lease obligations consist of the
following at December 31, 1995:

<TABLE>
<CAPTION>
                                                               CAPITAL    OPERATING      
                                                               LEASES      LEASES        
                                                               ------     ---------        
                                                                 (IN THOUSANDS)            
                                                                                         
         <S>                                                   <C>         <C>           
         1996...............................................   $ 7,418    $ 38,387       
         1997...............................................     7,015      30,353       
         1998...............................................     3,241      24,233       
         1999...............................................       192      17,833       
         2000...............................................         -      10,949       
         Thereafter.........................................         -      18,963       
                                                               -------    --------       
                                                               $17,866    $140,718       
         Less interest included in minimum lease payments...    (1,346)   ========       
                                                               -------
         Present value of minimum lease payments............    16,520
         Less current portion...............................    (6,845)
                                                               -------
                                                               $ 9,675 
                                                               =======
</TABLE>

         Rent expense in 1995, 1994 and 1993 amounted to $47,658,000,
$37,543,000, and $30,577,000, respectively. Facilities leased from lessors in
which stockholders and employees have a financial interest comprised $245,000,
$310,000, and $330,000 of rent expense in 1995, 1994 and 1993, respectively.

NOTE 10 -- EMPLOYEE BENEFIT PLANS

         The Company had two defined contribution plans and a defined benefit
plan covering substantially all employees. The defined contribution plans were
401(k) plans whereby eligible employees voluntarily contributed up to a defined
percentage of their annual compensation. Employee contributions were partially
matched by the Company under one plan. Total expenses to the Company relating to
the defined contribution plans for 1995, 1994 and 1993 were $2,980,000,
$3,080,000, and $2,180,000, respectively.

         Effective January 1, 1996, the net assets of the Abbey 401(k) plan were
transferred into the Apria 401(k) plan, formerly the Homedco 401(k) plan. The
Company is currently in the process of implementing certain amendments to the
plan which have recently been approved by the Board of Directors. As amended,
the plan provides eligibility for all employees having completed one year of
service with at least 1,000 hours. Participants may contribute up to 16% of
annual basic earnings. Employee contributions are matched 50% for the first 8%
by the Company.


                                      F-18
<PAGE>   320
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


         On September 22, 1995, the defined benefit plan trustees agreed to
terminate the defined benefit plan effective April 30, 1996. As a result, the
Company recognized a settlement loss of $2,275,000 in 1995. Prior to the
termination, the defined benefit plan benefits were based upon years of service
and the employees' average compensation over the last five years of employment.
The Company's funding policy was to fund the recommended amount as determined by
the plan's actuaries. Contributions were intended to provide not only for
benefits attributed to services performed to date, but also for those expected
to be earned in the future. Net periodic pension cost included in selling,
distribution and administration expenses amounted to $925,000, $1,136,000 and
$653,000 in 1995, 1994 and 1993, respectively.

         The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 112, Employers' Accounting for Postemployment Benefits.
The cumulative effect of its application is not presented because the amount is
not material to the Company's 1995 operating results.

NOTE 11 -- RELATED PARTY TRANSACTIONS

         In December 1992, pursuant to a secured promissory note agreement, the
Company loaned $1,250,000 to an officer/director. The note bore interest at 8%
per annum and principal and interest were due December 28, 1996. During 1995,
1994 and 1993 principal and interest of $196,000, $188,000 and $675,000,
respectively, were cancelled and recorded as compensation expense. Pursuant to
the terms of a severance agreement dated November 7, 1995, the remaining
outstanding principal and related interest totalling $397,000 was forgiven and
was recorded as compensation expense in 1995.

         Through September 1995, the Company retained a firm, in which a member
of the Board of Directors of the Company is a managing director, to provide
ongoing financial advisory services. During 1995, 1994 and 1993, the firm was
paid fees of $3,810,000, $910,000 and $1,886,000, respectively, in connection
with various financing transactions and other investment banking activities. The
fees paid in 1995 related primarily to the merger.

         In December 1994, the Company made an interest bearing loan of $100,000
due in December 1997 to an Officer of the Company. In connection with the
Protocare acquisition, the Company also assumed from Protocare a 9% loan to the
same officer which amounted to $597,000. The officer resigned in May 1995, and
the outstanding principal and interest on this assumed loan, amounting to
$499,000 and $288,000 was forgiven and expensed in 1995 and 1994, respectively.

NOTE 12 -- COMMITMENTS AND CONTINGENCIES

         Purchase Commitments: On September 1, 1994, the Company entered into a
five-year agreement to purchase medical supplies totalling $112,500,000, with
annual purchases ranging from $7,500,000 in the first year to $30,000,000 in the
third through fifth years. Beginning in the year ended August 31, 1996, failure
to purchase at least 90% of the annual commitment will result in a penalty of
10% of the difference between the annual commitment and actual purchases.

         Litigation: The Company is engaged in the defense of certain claims and
lawsuits arising out of the ordinary course and conduct of its business, the
outcome of which are not determinable at this time. The Company has insurance
policies covering such potential losses where such coverage is cost effective.
In the opinion of management, any liability that might be incurred by the
Company upon the resolution of these claims and lawsuits will not, in the
aggregate, have a material adverse effect on the Company's consolidated results
of operations and financial position. During 1995, certain claims and lawsuits
were settled and the Company paid amounts (including cost of defense) totaling
approximately $10,590,000, and $12,400,000 was charged to income to provide for
probable losses related to matters arising in the period and to revise estimates
for matters arising prior to 1995. Subsequent to year end the Company settled
claims totaling $1,950,000.

         Certain Concentrations: Over 50% of the Company's revenue is derived
from the provision of respiratory therapy services, a significant portion of
which is reimbursed under the Federal Medicare program. Various budgets
currently under consideration by Congress and the Federal Administration propose
reductions in Medicare spending including, among other matters, reimbursement
for home oxygen. It is currently uncertain when a budget agreement will be
reached and the ultimate impact such budget will have on home oxygen
reimbursement.


                                      F-19
<PAGE>   321
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


         The Company currently purchases approximately 40% of its patient
service equipment and supplies from two supplier(s). Although there are a
limited number of suppliers, management believes that other suppliers could
provide similar products on comparable terms. A change in suppliers, however,
could cause a delay in service delivery and a possible loss in revenues which
could affect operating results adversely.

         Other: Management is not aware of any material claims or disputes
related to any of its third-party reimbursement arrangements.

NOTE 13 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                  QUARTER
                                                                                  -------
                                                             FIRST        SECOND          THIRD         FOURTH
                                                             -----        ------          -----         ------
                                                                     (in thousands, except per share data)

         1995
<S>                                                         <C>          <C>           <C>             <C>     
         Net revenues...................................    $284,609     $287,286      $ 277,670       $284,035
         Gross profit...................................     199,073      199,016        178,833        195,679
         Operating income (loss)........................      36,032       22,115       (133,948)        28,324
         Income (loss) before extraordinary charge......      15,792        7,497       (112,166)        17,399
         Net income (loss)..............................    $ 15,792     $  4,499      $(112,166)      $ 17,399

         Per share amounts:
           Primary:
             Income (loss) before extraordinary charge..    $   0.34     $   0.15      $   (2.32)      $   0.34
             Net income (loss)..........................    $   0.34     $   0.09      $   (2.32)      $   0.34
           Fully diluted:                                                                                  
             Income (loss) before extraordinary charge..    $   0.32     $   0.15      $   (2.32)      $   0.34
             Net income (loss)..........................    $   0.32     $   0.09      $   (2.32)      $   0.34
                                                                                                           
                                                                                                        
                                                                            
         1994                                                               
         Net revenues...................................    $226,925     $231,312      $ 244,928       $259,647
         Gross profit...................................     157,882      161,200        172,968        183,072
         Operating income...............................      12,906       24,420         28,722         33,827
         Net income.....................................    $    160     $  9,897      $  14,124       $ 14,850

         Per share amounts:
           Primary:
             Net income.................................    $   0.00     $   0.23      $    0.32       $   0.33
           Fully diluted:
             Net income.................................    $   0.00     $   0.22      $    0.30       $   0.31
</TABLE>

         The quarterly financial information for all periods presented reflect
the conformed accounting policies of Homedco and Abbey (see Note 2).

         The second and third quarters of 1995, include charges of approximately
$12,900,000 and $133,800,000, respectively, relating to restructuring, merger
and integration activities and to accounts receivable valuation and
employment-related matters. During the fourth quarter of 1995, the Company
reevaluated the estimates inherent in the restructuring and other merger-related
costs recorded through the end of the third quarter. This evaluation resulted in
a reallocation of expenses which increased the special provision for
uncollectible accounts by $13,000,000 and reduced restructuring costs and other
merger-related costs by $10,316,000 and $2,684,000, respectively. Additionally,
an extraordinary charge on debt refinance of approximately $2,998,000, net of
income taxes of $1,686,000, was recorded in the second quarter of 1995.


                                      F-20
<PAGE>   322
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


         During the first quarter of 1994, the company initiated a program to
integrate the TPC operations and to shift market and sales emphasis from home
medical equipment to respiratory therapy. This program resulted in the write-off
of surplus inventory of $2,100,000, costs related to the consolidation of branch
operations of $3,200,000, and an increase in the provision for doubtful accounts
of $1,600,000. The costs related to the consolidation of branch operations
include the costs of closing eight branch offices and severance for the
termination of approximately 350 employees. Also in the first quarter, the
company recorded acquisition-related charges of $4,600,000, including legal
costs and executive severance expenses.







                                      F-21

<PAGE>   323
                           APRIA HEALTHCARE GROUP INC.

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                                 (in thousands)

<TABLE>
<CAPTION>
                                                                     Additions
                                                            -------------------------
                                             Balance at     Charged to     Charged to                 Balance
                                             Beginning      Costs and        Other                   at End of
               Description                   of Period       Expenses       Accounts    Deductions    Period
-----------------------------------------    ----------     ----------     ----------   ----------   ---------

<S>                                          <C>            <C>            <C>          <C>          <C>
Year ended December 31, 1995
Deducted from asset accounts:
    Allowance for doubtful accounts           $61,038       $100,463 (a)   $2,655 (f)    $77,589      $ 86,567
    Reserve for inventory shortages             3,952          2,898 (e)        8 (f)      1,104         5,754
    Reserve for patient service equipment
       shortages                                4,546         16,783 (e)      117 (f)      1,802        19,644
                                              -------       --------       ------        -------      --------
                  Totals                      $69,536        $120,144      $2,780        $80,495      $111,965
                                              =======        ========      ======        =======      ========
Year ended December 31, 1994
Deducted from asset accounts:
    Allowance for doubtful accounts           $52,102        $ 48,718 (b)  $9,089 (c)    $48,871 (d)  $ 61,038
    Reserve for inventory shortages             3,143           1,124                        316         3,952
    Reserve for patient service equipment
       shortages                                1,810           3,312         448          1,024         4,546
                                              -------       --------       ------        -------      --------
                  Totals                      $57,055        $ 53,154      $9,537        $50,211      $ 69,536
                                              =======        ========      ======        =======      ========
Year ended December 31, 1993
Deducted from asset accounts:
    Allowance for doubtful accounts           $42,630        $ 37,279 (b)  $8,779 (c)    $36,586 (d)  $ 52,102
    Reserve for inventory shortages             3,216             438                        511         3,143
    Reserve for patient service equipment
       shortages                                1,252           2,767                      2,209         1,810
                                              -------       --------       ------        -------      --------
                  Totals                      $47,098         $40,484      $8,779        $39,306      $ 57,055
                                              =======         =======      ======        =======      ========
</TABLE>

--------------------
(a)      Includes $47,440 for special provision of uncollectible accounts for
         the year ended December 31, 1995.

(b)      Includes $2,002 and $2,803 for discontinued operations for the years
         ended December 31, 1994 and 1993, respectively.

(c)      Includes amounts added in conjunction with business acquisitions.

(d)      Includes the charge-off of uncollectible accounts receivable and a
         reversal of the allowance for doubtful accounts related to discontinued
         operations for the year ended December 31, 1994.

(e)      Includes amounts recorded in conjunction with the establishment of the
         merger and restructuring reserves.

(f)      Represents the net activity for Homedco for the period of October 1,
         1994 through December 31, 1994.


                                      S-1
<PAGE>   324
                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                            APRIA HEALTHCARE GROUP INC.
                                                     Registrant




October 4, 1996                             /s/ LAWRENCE H. SMALLEN
                                            ------------------------------------
                                            Lawrence H. Smallen
                                            Chief Financial Officer,
                                            Senior Vice President, Finance
                                            and Treasurer
                                            (Principal Financial Officer)
<PAGE>   325
                                                                   EXHIBIT 23.1


                        CONSENT OF INDEPENDENT AUDITORS


        We consent to the incorporation by reference in the Registration
Statements (Form S-8 Nos. 33-94026, 33-51234, 33-75028, 33-77684, 33-57628,
33-80581 and 33-80583), pertaining to the Apria Healthcare Group Inc./Homedco
Group, Inc.'s Stock Incentive Plan, Apria Healthcare Group Inc. Amended and
Restated 1992 Stock Option Plan, 1992 Stock Incentive Plan, 1994 Employee Stock
Purchase Plan, 1991 Nonqualified Stock Option Plan and 1991 Management Stock
Purchase Plan of our report dated March 6, 1996, with respect to the
consolidated financial statements and schedule of Apria Healthcare Group Inc.
for the year ended December 31, 1995, as amended, included in this Form 10-K/A.



                                                ERNST & YOUNG LLP

Orange County, California
October 4, 1996

<PAGE>   326
                                                                   EXHIBIT 23.2




                        CONSENT OF INDEPENDENT AUDITORS



The Board of Directors
Apria Healthcare Group, Inc.:


We consent to incorporation by reference in the registration statements on Form
S-8 (33-94026, 33-51234, 33-75028, 33-77684, and 33-57628 pertaining to Apria
Healthcare Group Inc./Homedco Group Inc.'s Stock Incentive Plan and Abbey
Healthcare Group Incorporated's 1992 Stock Option Plan, 1992 Stock Incentive
Plan, 1994 Stock Purchase Plan and 1991 Management Stock Purchase Plan) of our
report dated February 15, 1994, with respect to the consolidated statements of
income, changes in shareholders' equity, and cash flows of Abbey Healthcare
Group Incorporated and subsidiaries for the year ended January 1, 1994, which
report is included in the Form 10-K of Apria Healthcare Group Inc. for the year
ended December 31, 1995.

                                        

                                                KPMG PEAT MARWICK LLP


Orange County, California
October 4, 1996
        
<PAGE>   327
[ ]                               UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                 AMENDMENT NO. 2
                                       ON
                                   FORM 10-K/A
(Mark One)
[x]
                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
              OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
                   For the Fiscal Year Ended December 31, 1995
                                       OR
[ ]             TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
            OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

                          Commission File No. 000-19854

                           APRIA HEALTHCARE GROUP INC.
             (Exact name of Registrant as specified in its charter)

                     DELAWARE                              33-0488566
          (State of other jurisdiction of               (I.R.S. Employer
          incorporation or organization)                 Identification)

                3560 HYLAND AVENUE                            92626
                  COSTA MESA, CA                           (Zip Code)
     (Address of principal executive offices)

       Registrant's telephone number, including area code: (714) 427-2000

        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to Section 12(g) of the Act:

                    COMMON STOCK, $0.001 PAR VALUE PER SHARE
                                (Title of class)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
                                          Yes X   No
                                             ----   ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. 
           ----

As of February 29, 1996, there were outstanding 50,245,452 shares of the
Registrant's Common Stock, par value $0.001 ("Common Stock"), which is the only
class of Common Stock of the Registrant. As of February 29, the aggregate market
value of the shares of Common Stock held by non-affiliates of the Registrant,
computed based on the closing sale price of $31.25 per share as reported by
Nasdaq, was approximately $1,515,996,313.

                       DOCUMENTS INCORPORATED BY REFERENCE

The information called for by Part III is incorporated by reference to the
definitive Proxy Statement for the 1996 Annual Meeting of Stockholders of the
Registrant which will be filed with the Securities and Exchange Commission not
later than 120 days after December 31, 1995.
<PAGE>   328
Item 7 of Part II and Item 14 of Part IV of the Annual Report on Form 10-K for
the fiscal year ended December 31, 1995 are amended in their entirety as
follows:



                                    PART II.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RESULTS OF OPERATIONS

        Apria Healthcare Group Inc. ("the Company") was formed by the merger of
Abbey Healthcare Group Incorporated ("Abbey") and Homedco Group, Inc.
("Homedco") in June 1995. This transaction was accounted for as a
pooling-of-interests and as such, the results of operations for all periods
presented reflect the combined operations of Abbey and Homedco. The financial
statements have been restated to conform the differing accounting policies of
the separate companies, principally relating to the use of salvage values
recognized for certain patient service equipment and the capitalization of low
dollar patient service items, supplies, accessories and repairs.

        In connection with the merger, the Company initiated a significant
consolidation and restructuring plan to consolidate operating locations and
administrative functions within specific geographic markets. The plan provides
for a workforce reduction of approximately 1,220 employees, consolidation of
approximately 120 operating facilities and conversion of branch operating
locations to a standardized information system. The employee reduction and
branch consolidations were substantially complete as of December 1995, with a
reduction of 1,120 employees and consolidation of 105 branch locations. The
Company has also completed approximately 50% of the information system
conversions as of December 1995. The remaining system conversions (approximately
220) are scheduled during 1996. The Company expects the plan to be completed by
September 1996.

        During 1995, a charge of approximately $68.3 million was recorded in
connection with the Company's restructuring efforts. The primary components of
the restructuring charge include severance and related costs of $21.5 million
due to workforce reductions, $22.2 million associated with the consolidation of
information systems, $23.1 million related to the closure of duplicate
facilities and $1.5 million for other restructuring activities. The Company
anticipates these activities to result in payroll, rent and other cost savings
from workforce reductions and branch consolidations. Such savings to date have
been partially offset by integration costs, including employee relocation,
temporary and transitional employee costs, overtime and consulting which totaled
approximately $11.5 million in 1995 and are expected to decrease significantly
as the integration activities subside.

        Merger costs of approximately $12.2 million were incurred during 1995
and consisted primarily of fees for investment banking, legal, consulting,
accounting, filing requirements, and, as required by the merger agreement, the
cost of liability insurance covering directors and officers of the predecessor
companies for a period of six years against claims arising from facts or events
occurring prior to the merger.

        Employee contracts, benefit plan and claim settlements of $20.4 million
were recorded in 1995. Included is approximately $14.4 million provided for
employment and payroll tax related claims and lawsuits, $3.4 million to settle
certain employee contracts, and a settlement loss of $2.3 million for the
termination of the Abbey Medical, Inc. Employee Retirement Plan, a defined
benefit pension plan. At December 31, 1995, the remaining accrual was
approximately $10 million, the majority of which should be settled and paid
within one year.

        Net revenues increased 17.7% to $1,133.6 million in 1995, 28.6% to
$962.8 million in 1994 and 45.9% to $748.9 million in 1993. The increase in
revenues in 1995 and 1994 was due to growth from locations owned and operated by
the Company at the beginning of the fiscal year (existing locations) and
acquisitions. The internal growth was primarily generated by increased volumes
realized in managed care markets. 1995 revenues were negatively impacted by the
fact that the last half of the year was the first in which the Company operated
as a merged entity and as a result, there was a disruption of the day to day
operations caused by the consolidation and integration activities. Management
believes this trend to be short term, as indicated by an increase in revenue
during the fourth quarter of 1995.


                                       2
<PAGE>   329
        During 1993, Congress passed the Omnibus Budget Reconciliation Act of
1993 ("OBRA 1993"), which the Company estimates reduced its revenues by
approximately $12.8 million during 1994. No additional reductions related to
OBRA 1993 were incurred during 1995. The OBRA legislation provides a consumer
price index update, effective January 1, 1996, of 3%. Medicare and Medicaid
reimbursement rates are continually being reviewed by the federal and state
governments, respectively, and additional reimbursement reduction may occur in
the future.
        
        Infusion therapy, respiratory therapy and home medical equipment/other
revenues represent 24%, 53% and 23%, respectively, of total revenue and grew at
rates of 14.9%, 15.2% and 27.7%, respectively, in 1995. Growth in all three
lines of business was primarily due to increased volume from existing locations
and revenue contributed from acquisitions. Additionally, the shift to a managed
care environment has required the Company to provide a full range of services,
resulting in volume increases, specifically in the home medical equipment/other
lines of business. This growth was mitigated by price competition within the
managed care environment. Revenue growth in 1994 was 117.4%, 14.1% and 10.8% for
infusion therapy, respiratory therapy and home medical equipment/other services,
respectively. The significant growth in infusion revenue in 1994 was primarily
due to the Total Pharmaceutical Care, Inc. ("TPC") and Protocare, Inc.
acquisitions. Price increases had a minimal impact on revenue growth.

        Gross margins were 68.2% in 1995, 70.1% in 1994 and 69.8% in 1993.
Increased participation in the managed care market place has shifted product mix
toward lower-margin medical equipment and supply items. Also, the managed care
market fosters competition, which places downward pressure on prices. The 1995
gross margin was also adversely impacted by an adjustment of $5.4 million
necessary to conform the accounting policies of the predecessor companies for
certain low dollar patient service items, supplies and accessories and a $7.5
million provision for excess and obsolete patient service equipment and
shrinkage associated with the facility consolidations. Due to the Company's
larger size and resulting increase in volume requirements, management has
renegotiated purchasing contracts for more attractive pricing and has
implemented purchase compliance programs at its operational locations.
Consequently, the Company has realized some cost savings in the last half of
1995 and expects to realize additional savings in 1996. In general, the Company
has not experienced significant fluctuations in its cost structure and expects
this trend to continue for the near term.

        Selling, distribution and administrative expenses decreased as a
percentage of net revenues to 53.1% in 1995 from 53.7% in 1994 and 54.8% in
1993. The year to year improvement is due in part to the Company's initiatives
to more effectively manage the delivery and clinical support components of the
business. Due to the more cost conscious health care environment and the
Company's decision to aggressively participate in the managed care approach to
providing health care, the Company is continually evaluating how it can provide
home healthcare at a lower cost. The Company has developed operating models that
facilitate the accumulation and analysis of various statistics related to the
delivery and clinical areas of the business. The models, which are targeted at
the local level, are utilized as tools to expose inefficiencies and determine
the optimal labor mix to best service the needs of the patients. Additionally,
the Company was able to leverage these types of costs as a result of the merger,
contributing significantly to the reduction in selling, distribution and
administrative expenses during 1995. These reductions were partially offset in
1995 by integration costs.

        The provision for doubtful accounts as a percentage of net revenue was
8.9% in 1995, 4.9% in 1994 and 4.6% in 1993. The increase in 1996 is
principally attributable to (1) an adjustment to the allowance for doubtful
accounts of approximately $26.3 million to provide for an impairment in Abbey's
infusion therapy accounts receivable and (2) a provision recorded in the fourth
quarter of approximately $13 million, or 3.7% of accounts receivable, for the
anticipated impact on realization resulting from field location consolidations,
changes in billing and collection personnel, and information systems
conversions. The circumstances leading to the recording of both amounts are
discussed more fully below.

        Abbey had entered the infusion market primarily through its acquisitions
of TPC and Protocare in November 1993 and March 1994, respectively. From the
point of acquisition through the end of 1994, the receivables of the acquired
TPC business were processed centrally in two billing centers. Cooperation and
assistance from the branch/pharmacy personnel responsible for the initiation and
fulfillment of orders was an important aspect of centralized billing and
collection. In mid-1994, many of the former TPC branch and region level
managers were terminated due to the post-acquisition integration of TPC's
branch/pharmacy operations into Abbey's organizational structure. These changes
had a negative impact on the morale of the branch/pharmacy personnel and
resulted in significant turnover and less cooperation with billing center
personnel. Also in mid-1994, one of the billing centers was relocated and only
a portion of the personnel were transferred to the new location. Consequently,
numerous new billing and collection employees had to be hired and trained.
During the first quarter of 1995, Abbey began to convert and, in some cases,
automate for the first time, the billing and collection procedures of the
acquired TPC operations. Also in early 1995, Abbey  began to convert and
centralize the billing and collection functions of the acquired Protocare
branches. These changes, coupled with the announcements on March 1, 1995 of the
Abbey/Homedco merger and later of branch consolidations, led to significant
turnover of billing and collection personnel in the acquired Protocare branches.
All of the aforementioned conditions and disruptions had a negative impact on
the aging of Abbey's infusion receivables. At June 30, 1995 Abbey's infusion
accounts aged in excess of 180 days represented 36% of total infusion accounts
as compared to 31% at March 31, 1995, 30% at December 31, 1994, 22% at September
30, 1994, and 16% at December 31, 1993.


                                       3
<PAGE>   330
        In response to the deteriorating aging, Abbey management deployed
additional resources and instituted programs to limit potential collection
losses. These efforts included hiring an infusion reimbursement specialist,
reengineering the centralized infusion billing center procedures, hiring
additional manager and director level personnel and instituting collection
incentive programs. Based on Abbey management's expectation that these efforts
would be successful in collecting delinquent infusion accounts receivable, the
Company did not increase its allowance for doubtful accounts as of June 30,
1995.

        However, in the third quarter, the Company's management decided to
transfer the infusion billing and collection processes from Abbey's recently
converted centralized system to Homedco's decentralized, branch-based system.
Many of the incentive and other programs instituted by Abbey management were
discontinued in order to focus resources and efforts on completing branch
consolidations, effecting the planned system conversions, training personnel in
the proper use of the new systems and improving the efficiency and effectiveness
of the intake function. During the process, the centralized billing center was
downsized and relocated a second time, pending permanent closure at a later
date. Each of these post-merger decisions caused additional turnover at the
billing centers responsible for collecting the existing receivables and
seriously impacted employee morale.

        In connection with management's third quarter accounts receivable
analysis, serious consideration was given to the impact that the merger, planned
branch consolidations and system conversions and reductions in force would
likely have on the already unstable condition of Abbey's infusion accounts
receivable. As a result of a marked deterioration in the aging of Abbey's
infusion accounts in July and August of 1995 and other deteriorating trends, a
provision of $26.3 million was recorded.

        Following is information as of June 30, 1995 and August 31, 1995 about
the portion of the accounts receivable for which the impairment was recognized
in the third quarter:

<TABLE>
<CAPTION>
                                                                      JUNE 30,         AUGUST 31,
                                                                        1995              1995
                                                                      --------         ----------
                                                                         (Dollars in thousands)

  <S>                                                                  <C>             <C>           
  Abbey infusion accounts receivable................................   $65,339          $64,865           
  Abbey infusion allowance for doubtful accounts....................     7,727            7,453    
  Abbey infusion allowance for doubtful accounts as                                                                  
    a percentage of Abbey infusion accounts receivable..............        12%              11%   
  Percentage of Abbey infusion accounts aged over 180 days..........        36%              39%  
  Abbey infusion allowance for doubtful accounts as a percentage                                                  
    of Abbey infusion accounts aged over 180 days...................        33%              29%  
  Percentage of Abbey infusion accounts aged over 360 days..........        15%              22%     
  Abbey infusion allowance for doubtful accounts as a percentage of                                                        
    Abbey infusion accounts receivable, after third quarter
    adjustment(1)...................................................                         52%  
  Abbey infusion allowance for doubtful accounts as a percentage of
    Abbey infusion accounts aged aver 180 days, after third quarter
    adjustment(1)...................................................                        133%
</TABLE>

----------------
(1)  Abbey infusion allowance calculated by adding the third quarter adjustment
     of $26.3 million to the August 31, 1995 allowance.

        The percentage of consolidated infusion accounts receivable aged in
excess of 180 days increased from 21% at June 30, 1995 to 36% at September 30,
1995 and December 31, 1995. Management believes that the additional reserves
provided for collection losses associated with Abbey's infusion accounts will be
sufficient.


                                      4

<PAGE>   331
        Also included in the third quarter provision is $5.5 million for Abbey's
home medical equipment and respiratory therapy accounts, which relates primarily
to the application to accounts aged from 181 days to 360 days of more
conservative percentages used to determine the allowance for doubtful accounts
and to a deterioration in July and August in the aging due to post-merger
disruptions caused by the Company's branch consolidation plan.

        Increases during the second half of 1995 and early 1996 in write-offs,
the aging of accounts receivables, and days sales outstanding and decreases in
collections in that period as well as experience with a prior business
combination involving extensive field consolidations, personnel changes and
information systems conversions were considered by management in estimating the
$13 million fourth quarter provision relating to the aforementioned field
disruptions. Disruptions caused by the field location consolidations, changes
in billing and collection personnel, and information systems conversions
resulted in billing delays and, ultimately, difficulties in receiving timely
reimbursement. Billing delays were due, in part, to incomplete claim
documentation. The conditions contributing to this problem include documents
lost in the physical movement of billing information and patient files, data
lost due to data field incompatibilities, lack of familiarity with new systems,
and lack of continuity and familiarity with payor requirements due to employee
terminations. The passage of time reduces the likelihood of collection and
increases the likelihood of denial because missing documentation is less likely
to be located or replaced and payor imposed submission deadlines may be
exceeded. Because substantially all of the planned facility consolidations and
employee terminations have been completed, management expects disruptions and
delays of this type to diminish in 1996.

        As of December 1995, the Company had completed approximately 90% of the
planned facility consolidations and employee terminations, including the
elimination of approximately 200 billing and collection positions, and 50% of
the 445 planned system conversions. In connection with the facility
consolidations, each branch information system was first converted to the
predominate system in place within its region. Conversion of the branches to a
standard, company-wide system then occurred on a region by region basis. Because
of the conversion to interim systems prior to final conversion, locations
representing approximately 80% of the Company's accounts receivable have been or
will be subject to conversion.

        In addition to the delays described above, the conversion of a field
information system to the standard system requires from one to four weeks,
depending on facility size, for conversion and employee training during which
time, billing and collection activity is substantially curtailed. After
conversion and training is complete, billing and collection activity generally
resumes at a slower pace than pre-conversion levels but normalizes within three
to six months. The delays caused by conversion have had the effect of
increasing the age of accounts receivable and delaying collection. Management
expects such delays to continue in 1996 for regions that are scheduled for
conversion through September 1996.
                
        Amortization expense increased to $16.3 million in 1995 from $11.5
million in 1994 and $4.1 million in 1993. The increase in amortization expense
relates to intangible assets recorded in conjunction with business acquisitions.

        Interest expense increased to $42.9 million in 1995 from $37.2 million
in 1994 and $18.3 million in 1993. The increase in interest expense in 1995 was
primarily due to the additional debt financing required for restructuring,
merger and integration activities, acquisitions and, to a lesser extent,
increases in interest rates (see Liquidity and Capital Resources).

        The Company recognized a tax benefit in 1995 of $20.6 million that was
primarily attributable to carryback of the current year loss and to an increase
in deferred tax assets (future deductions). Included in deferred tax assets are
net operating loss carryforwards available to reduce future taxes of
approximately $20 million, subject to limitations by Section 382 of the Internal
Revenue Code.

        Income tax expense for 1994 and 1993 represents the combined tax
provisions of Homedco and Abbey prepared on a separate tax return basis.
Accordingly, complimentary tax attributes of the companies were not considered
available for benefit until periods following the merger. The Company's 1994
combined effective tax rate was 43% which exceeded the statutory rate primarily
because of the effects of non-deductible goodwill. The Company's 1993 combined
effective tax rate was approximately 35%. The lower rate was due primarily to
the utilization of operating loss carryforwards not previously recognized.


LIQUIDITY AND CAPITAL RESOURCES

        Cash used in the Company's operating activities was $9.9 million in 1995
compared to $61,000 in 1994 and positive cash from operations of $27.0 million
in 1993. Significantly contributing to the use of cash in 1995 were outlays of
approximately $47.2 million for merger expenses, restructuring costs and
employee-related matters. An additional $22.4 million is expected to be paid
over periods generally not exceeding five years and funded by internally
generated cash and existing credit facilities . Partially offsetting such cash
outlays are tax refunds of $27.7 million for estimated payments made prior to
the merger and for carryback of the 1995 loss which are expected to be received
in


                                       5
<PAGE>   332
1996. In addition, increased revenue levels were supported by purchases of
patient service equipment and resulted in increased levels of accounts
receivable.

        Days' sales in outstanding receivables ("DSO"), cash receipts as a
percentage of net revenues and the accounts receivable aging are among the key
measurements the Company uses to evaluate the time frame in which accounts
receivable are collected. DSO (calculated as of year-end by dividing gross
accounts receivable by the 90-day rolling average of net revenues) increased to
109 days in 1995 from 99 days in 1994 and 104 days in 1993. Among the factors
contributing to the increase in accounts receivable and DSO were disruptions and
delays in billing and collection activity caused by the numerous facility
consolidations, billing and collection personnel changes, and field information
system conversions (see Results of Operations). The facility conversions and
personnel changes were substantially complete at year end. The system
conversions are scheduled to continue through the third quarter of 1996 and,
accordingly, are expected to continue to impact the timing of billing and
collections. To control and contain the impact on accounts receivable and
collection levels caused by the system conversions, management, among other
steps, documented and disseminated best billing and collection practices,
upgraded the standard field system to incorporate certain features of the
discontinued systems, conducted extensive training at all field locations
undergoing conversion, retained a number of experienced reimbursement employees
on a temporary basis, initiated collection incentive programs with special
emphasis on older accounts, and developed and implemented standard management
reports including key accounts receivable and collection statistics,
expectations and field rankings.

        During 1995, the Company centralized its accounts payable function in
connection with the restructuring and consolidation plan. The centralization
process disrupted day-to-day activities causing a processing backlog which was
reflected by the increase in the accounts payable balance at December 31, 1995
as compared to December 31, 1994. The Company expects to eliminate the backlog
during the first two quarters of 1996.

        In conjunction with the merger, the Company entered into a credit
agreement with certain banks and Banque Paribas, as administrative agent. The
agreement, which expires in June 2000, provides for borrowings of up to $500
million under a revolving credit facility. The proceeds were used, among other
things, to repay borrowings under the prior separate credit agreements of
Homedco and Abbey. The agreement provides for variable rate interest options
including the higher of the Federal Funds Rate plus .5% or the Prime Rate, or
London Interbank Offered Rate ("LIBOR") plus a margin which is dependent on the
ratio of funded indebtedness to earnings before interest, taxes, depreciation
and amortization. At December 31, 1995, borrowings of $286.3 million were
outstanding, letters of credit amounted to $960,000, and availability under the
revolving credit facility was $212.7 million. The effective interest rates at
December 31, 1995 for borrowings under the credit facility not subject to the
swap or cap agreements (see discussion below) were 6.6% and 8.5% on $13 million
and $7.3 million, respectively.

        The Company has limited involvement with derivative financial
instruments and does not use them for trading purposes. Interest rate swap and
cap agreements are used as a means of managing the Company's interest rate
exposure. The swap agreements are contracts to periodically exchange fixed and
floating interest rate payments over the life of the agreement. The Company's
exposure to credit loss under these agreements is limited to the interest rate
spread in the event of nonperformance by the counterparties to the contracts.
The Company anticipates that the counterparties will be able to fully satisfy
their obligations under the contracts. In July 1995, the Company entered into
one-year swap agreements having a total notional principal amount of $266
million which effectively convert variable rate borrowings to fixed rate
borrowings. For the period from July 1995 through December 1995, the Company
received interest at a weighted average rate of 6.7% and paid interest at a
weighted average rate of 6.2%. Payment or receipt of the interest differential
is made quarterly and recognized monthly in the financial statements as an
adjustment to interest expense. In January 1996, the Company canceled its swap
agreements at a cost of $198,000 and entered a new one-year agreement with a
total notional principal amount of $280 million that exchanges floating rate
borrowings for a fixed LIBOR rate of 5.1%.

        Under a cap agreement, which expires in July 1996, the three-month LIBOR
rate is limited to 6% on outstanding indebtedness of up to $50 million. The
Company did not derive any benefit from the cap agreement in 1995 due to lower
LIBOR rates.

        The 6.5% convertible subordinated debentures were convertible into
shares of the Company's Common Stock at a conversion price of $13.97 per share
and were scheduled to mature on December 1, 2002. Pursuant to a redemption
feature which was based on the market value of the Company's Common Stock, all
outstanding convertible


                                       6
<PAGE>   333
debentures as of December 31, 1994, which amounted to $66.6 million, were
converted into 4,771,962 shares of Common Stock during 1995. The conversion of
the debentures eliminates annual interest payments of approximately $4.3 million
and decreases long-term debt by $66.6 million.

        Purchases of property, equipment and improvements, net of retirements
and trade-ins, were $49.3 million in 1995, $26.8 million in 1994 and $17.2
million in 1993. The majority of the increase in 1995 was due to additions and
enhancements to the Company's data processing systems. In connection with the
merger and restructure plan, the Company is standardizing branch information
systems, thus necessitating additional expenditures for hardware and software.
The Company estimates that expenditures of $12.5 million and $1.2 million for
hardware and software, respectively, will be made in 1996 to convert the
remaining locations. Capital expenditures will be financed by cash provided by
operations and borrowings available under the credit facility.

        During 1995, business acquisitions, which were financed, resulted in
payments of approximately $46.1 million in cash, $787,000 in shares of the
Company's common stock and the assumption of $3.4 million of liabilities.
Covenants not to compete and goodwill arising from these acquisitions resulted
in an increase in intangible assets from December 31, 1994 to December 31, 1995.
Other assets at December 31, 1995, is primarily comprised of payments for
businesses which have not yet been allocated to the various underlying acquired
assets.

        During 1994, the Company entered into a five-year agreement to purchase
medical supplies totaling $112.5 million, with annual purchases ranging from
$7.5 million in the first year to $30 million in the third through fifth years.
Beginning in the year ended August 31, 1996, failure to purchase at least 90% of
the annual commitment will result in a penalty of 10% of the difference between
the annual commitment and actual purchases. Purchases will be financed using
cash provided by operations and borrowings available under the credit facility.

        Overall, the Company believes that cash provided by operations and
amounts available under its existing credit and lease financing will be
sufficient to finance its current operations for at least the next 12 months.

        The Company believes that inflation has not had a significant impact on
the Company's historical operations.


                                       7
<PAGE>   334
                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K

        (a)    1.     The documents described in the "Index to Consolidated
                      Financial Statements and Financial Statement Schedule" are
                      included in this report starting at page F-1.

               2.     The financial statement schedule described in the "Index
                      to Consolidated Financial Statements and Financial
                      Statement Schedule" are included in this report starting
                      on page S-1.

                      All other schedules for which provision is made in the
                      applicable accounting regulation of the Securities and
                      Exchange Commission are not required under the related
                      instructions or are inapplicable, and therefore have been
                      omitted.

               3.     Exhibits included or incorporated herein:

                      Exhibit
                      Number        Description

                      23.1          Consent of Ernst and Young LLP

                      23.2          Consent of KPMG Peat Marwick LLP


        (b)    Reports on Form 8-K:

               Apria Healthcare Group Inc. filed a Current Report on Form 8-K,
               dated November 7, 1995, with the Securities and Exchange
               Commission on November 7, 1995 attaching the supplemental
               consolidated financial statements of the Company.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                        AND FINANCIAL STATEMENT SCHEDULE

                                                                  PAGE
                                                                  ----
CONSOLIDATED FINANCIAL STATEMENTS
  Reports of Independent Auditors...............................   F-1
  Consolidated Balance Sheets -- December 31, 1995 and 1994.....   F-3
  Consolidated Statements of Operations -- Years ended
    December 31, 1995, 1994 and 1993............................   F-4
  Consolidated Statements of Stockholders' Equity -- Years ended
    December 31, 1995, 1994 and 1993............................   F-5
  Consolidated Statements of Cash Flows -- Years ended
    December 31, 1995, 1994 and 1993............................   F-6
  Notes to Consolidated Financial Statements....................   F-7


CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
  Schedule II - Valuation and Qualifying Accounts...............   S-1


                                       8
<PAGE>   335
                         REPORT OF INDEPENDENT AUDITORS


Stockholders and Board of Directors
Apria Healthcare Group Inc.


We have audited the accompanying consolidated balance sheets of Apria Healthcare
Group Inc. (formed as a result of the consolidation of Abbey Healthcare Group
Incorporated and Homedco Group, Inc.) as of December 31, 1995 and 1994 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. Our
audits also included the financial statement schedule listed in the Index at
Item 14 (a). These financial statements are the responsibility of the management
of Apria Healthcare Group Inc. Our responsibility is to express an opinion on
these financial statements based on our audits. We did not audit the
consolidated financial statements of Abbey Healthcare Group Incorporated for the
year ended December 31, 1993, which statements reflects total revenues of $278
million. Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to data included for
Abbey Healthcare Group Incorporated, is based solely on the report of the other
auditors.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.

In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Apria Healthcare Group Inc. and
subsidiaries at December 31, 1995 and 1994 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
Also, in our opinion, based on our audits and the report of other auditors, the
related financial statement schedule referred to above, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.

We also audited the adjustments described in Note 2 that were applied to restate
the 1994 and 1993 financial statements. In our opinion, such adjustments are
appropriate and have been properly applied.



                                            ERNST & YOUNG LLP


Orange County, California
March 6, 1996


                                      F-1
<PAGE>   336







                          INDEPENDENT AUDITORS' REPORT



The Board of Directors and Shareholders
Abbey Healthcare Group Incorporated:

We have audited the accompanying consolidated statements of income, changes in
shareholders' equity and cash flows of Abbey Healthcare Group Incorporated and
subsidiaries for the year ended January 1, 1994. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and the cash flows
of Abbey Healthcare Group Incorporated and subsidiaries for the year ended
January 1, 1994, in conformity with generally accepted accounting principles.


                                     KPMG PEAT MARWICK LLP


Orange County, California
February 15, 1994


                                      F-2
<PAGE>   337
                           APRIA HEALTHCARE GROUP INC.

                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                                                                    DECEMBER 31,
                                                                              ----------------------
                                                                                 1995         1994
                                                                              ---------     --------
                                                                              (DOLLARS IN THOUSANDS)
<S>                                                                           <C>           <C>     
CURRENT ASSETS
  Cash ...................................................................    $  18,829     $ 21,188
  Accounts receivable, less allowance for doubtful accounts of $86,567 and
    $61,038 at December 31, 1995 and 1994, respectively ..................      258,332      225,619
  Inventories ............................................................       45,198       35,898
  Deferred income taxes ..................................................       45,883       36,947
  Refundable income taxes ................................................       27,710        5,439
  Prepaid expenses and other current assets ..............................        7,770       10,472
                                                                              ---------     --------
        TOTAL CURRENT ASSETS .............................................      403,722      335,563
PATIENT SERVICE EQUIPMENT, less accumulated depreciation of $167,082 and
   $129,621 at December 31, 1995 and 1994, respectively ..................      167,090      152,358
PROPERTY, EQUIPMENT AND IMPROVEMENTS, NET ................................       80,108       73,976
INVESTMENT IN OMNICARE plc ...............................................        1,504           --
INTANGIBLE ASSETS, NET ...................................................      319,142      282,724
OTHER ASSETS .............................................................        8,419       11,546
                                                                              ---------     --------
                                                                              $ 979,985     $856,167
                                                                              =========     ========
                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Accounts payable .......................................................    $ 100,653     $ 78,912
  Accrued payroll and related taxes and benefits .........................       26,792       23,045
  Accrued restructuring costs ............................................       19,085           --
  Other accrued liabilities ..............................................       48,910       43,798
  Current portion of long-term debt ......................................        9,652       32,200
                                                                              ---------     --------
        TOTAL CURRENT LIABILITIES ........................................      205,092      177,955
LONG-TERM DEBT ...........................................................      490,655      406,104
DEFERRED INCOME TAXES ....................................................           --        9,238
OTHER NON-CURRENT LIABILITIES ............................................           --          960
STOCKHOLDERS' EQUITY Preferred Stock, $.001 par value:
    10,000,000 shares authorized; none issued ............................           --           --
  Common Stock, $.001 par value:
    150,000,000 shares authorized; 49,692,266 and 42,001,788 shares issued
    and outstanding at December 31, 1995 and 1994, respectively ..........           50           42
  Additional paid-in capital .............................................      294,522      206,405
  Retained (deficit) earnings ............................................      (10,334)      55,463
                                                                              ---------     --------
                                                                                284,238      261,910
COMMITMENTS AND CONTINGENCIES ............................................           --           --
                                                                              ---------     --------
                                                                              $ 979,985     $856,167
                                                                              =========     ========
</TABLE>

                 See notes to consolidated financial statements.


                                      F-3
<PAGE>   338
                           APRIA HEALTHCARE GROUP INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                  YEAR ENDED DECEMBER 31,
                                                                          ------------------------------------
                                                                             1995           1994        1993
                                                                          -----------     --------    --------
                                                                          (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                                       <C>             <C>         <C>     
Net revenues .........................................................    $ 1,133,600     $962,812    $748,901
Costs and expenses:
  Cost of net revenues:
    Product and supply costs .........................................        286,919      234,604     188,276
    Patient service equipment depreciation ...........................         57,400       42,735      33,019
    Nursing services .................................................          7,361        5,947       2,821
    Other ............................................................          9,319        4,404       2,008
                                                                          -----------     --------    --------
                                                                              360,999      287,690     226,124
  Selling, distribution and administrative ...........................        601,978      517,027     410,392
  Provision for doubtful accounts, net of recoveries .................        100,463       46,716      34,476
  Amortization of intangible assets ..................................         16,273       11,504       4,103
  Restructuring costs ................................................         68,304           --          --
  Merger costs .......................................................         12,193           --          --
  Employee contracts, benefit plan and claim settlements .............         20,367           --          --
  Loss on disposition of U.K. subsidiary .............................            500           --          --
                                                                          -----------     --------    --------
                                                                            1,181,077      862,937     675,095
                                                                          -----------     --------    --------
    OPERATING (LOSS) INCOME ..........................................        (47,477)      99,875      73,806
Interest expense .....................................................         42,942       37,155      18,266
                                                                          -----------     --------    --------
    (LOSS) INCOME FROM CONTINUING OPERATIONS
    BEFORE TAXES AND EXTRAORDINARY CHARGE ............................        (90,419)      62,720      55,540
Income tax (benefit) expense .........................................        (18,941)      27,104      19,695
                                                                          -----------     --------    --------
    (LOSS) INCOME FROM CONTINUING OPERATIONS
    BEFORE EXTRAORDINARY CHARGE ......................................        (71,478)      35,616      35,845
Income from discontinued operations, net of taxes ....................             --          344       1,466
Gain on disposal of discontinued operations, net of taxes ............             --        3,071          --
                                                                          -----------     --------    --------
    (LOSS) INCOME BEFORE EXTRAORDINARY CHARGE ........................        (71,478)      39,031      37,311
Extraordinary charge on debt refinancing, net of taxes ...............          2,998           --          --
                                                                          -----------     --------    --------
    NET (LOSS) INCOME ................................................    $   (74,476)    $ 39,031    $ 37,311
                                                                          ===========     ========    ========
PER COMMON AND COMMON EQUIVALENT SHARE:
  (Loss) income from continuing operations before extraordinary charge    $     (1.52)    $    .81    $    .94
                                                                          ===========     ========    ========
  Extraordinary charge on debt refinancing, net of taxes .............    $     (0.06)    $     --    $     --
                                                                          ===========     ========    ========
  Net (loss) income ..................................................    $     (1.58)    $    .89    $    .98
                                                                          ===========     ========    ========
  Weighted average number of common and common equivalent
    shares outstanding ...............................................         47,112       44,096      38,138

PER COMMON SHARE ASSUMING FULL DILUTION:
  (Loss) income from continuing operations before extraordinary charge    $     (1.52)    $    .78    $    .89
                                                                          ===========     ========    ========
  Extraordinary charge on debt refinancing, net of taxes .............    $     (0.06)    $     --    $     --
                                                                          ===========     ========    ========
  Net (loss) income ..................................................    $     (1.58)    $    .85    $    .93
                                                                          ===========     ========    ========
Weighted average number of common and common
  equivalent shares outstanding ......................................         47,112       49,284      43,864
</TABLE>

                 See notes to consolidated financial statements.


                                      F-4
<PAGE>   339
                           APRIA HEALTHCARE GROUP INC.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                 COMMON STOCK        ADDITIONAL     RETAINED                    TOTAL
                                         -----------------------      PAID-IN       EARNINGS      TREASURY   STOCKHOLDERS'
                                           SHARES      PAR VALUE      CAPITAL      (DEFICIT)       STOCK        EQUITY
                                         ---------     ---------     ----------    ---------     ---------   -------------
                                                                         (IN THOUSANDS)
<S>                                         <C>        <C>           <C>           <C>           <C>           <C>      
Balance at December 31, 1992 ........       33,409     $      34     $ 115,029     $ (20,879)    $ (13,783)    $  80,401

Issuance of Common Stock ............           22                         273                                       273
Treasury stock issued ...............        1,748                         558                      12,716        13,274
Exercise of stock options ...........          438             1         1,054                                     1,055
Notes receivable payments ...........                                    1,201                                     1,201
Tax benefits related to stock options                                    1,082                                     1,082
Compensatory stock options granted ..                                      105                                       105
Conversion of subordinated
  debentures ........................          604             1         8,443                                     8,444
Acquisition of Total
  Pharmaceutical Care, Inc. .........        2,002             2        33,520                                    33,522
Other ...............................                                      (36)                                      (36)
Net income ..........................                                   37,311                                    37,311
                                         ---------     ---------     ---------     ---------     ---------     ---------
Balance at December 31, 1993 ........       38,223            38       161,229        16,432        (1,067)      176,632

Issuance of Common Stock ............        1,362             2        17,785                                    17,787
Treasury stock issued ...............          142                          49                       1,067         1,116
Exercise of stock options ...........          395                       1,830                                     1,830
Notes receivable payments ...........                                       15                                        15
Tax benefits related to stock options                                    1,343                                     1,343
Conversion of subordinated
  debentures ........................          799             1        11,159                                    11,160
Common Stock issued for acquisitions
  and earnouts ......................        1,081             1        12,877                                    12,878
Other ...............................                                      118                                       118
Net income ..........................                                                 39,031                      39,031
                                         ---------     ---------     ---------     ---------     ---------     ---------
Balance at December 31, 1994 ........       42,002            42       206,405        55,463            --       261,910

Net activity for Homedco - October 1,
  1994 to December 31, 1994 .........           51                       1,663         8,647                      10,310
Issuance of Common Stock ............           36                         570                                       570
Exercise of stock options ...........        1,473             2        13,259                                    13,261
Notes receivable payments ...........                                        6                                         6
Tax benefits related to stock options                                    8,138                                     8,138
Conversion of subordinated
  debentures, net of issuance costs
  of $2,785 .........................        4,772             5        63,856                                    63,861
Exercise of warrants ................        1,338             1            (1)                                       --
Acceleration of stock option vesting                                       542                                       542
Other ...............................           20                          84            32                         116
Net loss ............................                                                (74,476)           --       (74,476)
                                         ---------     ---------     ---------     ---------     ---------     ---------
Balance at December 31, 1995 ........       49,692     $      50     $ 294,522     $ (10,334)    $      --     $ 284,238
                                         =========     =========     =========     =========     =========     =========
</TABLE>

                 See notes to consolidated financial statements.


                                      F-5
<PAGE>   340
                           APRIA HEALTHCARE GROUP INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                       YEAR ENDED DECEMBER 31,
                                                                               -------------------------------------
                                                                                  1995          1994          1993
                                                                               ---------     ---------     ---------
                                                                                           (IN THOUSANDS)
<S>                                                                            <C>           <C>           <C>      
OPERATING ACTIVITIES
Net (loss) income .........................................................    $ (74,476)    $  39,031     $  37,311
Items included in net (loss) income not requiring (providing) cash:
    Income from discontinued operations ...................................           --          (344)       (1,466)
    Extraordinary charge on debt refinancing ..............................        4,684            --            --
    Provisions for doubtful accounts ......................................      100,463        46,716        34,476
    Depreciation ..........................................................       84,607        63,895        46,180
    Amortization of intangible assets .....................................       16,273        11,504         4,103
    Amortization of deferred debt costs ...................................        1,908         4,878         2,882
    Loss (gain) on sale of property, equipment and improvements ...........        3,938           765          (108)
    Impairment losses .....................................................       32,557            --            --
    Gain on disposal of discontinued operations ...........................           --        (3,071)           --
    Deferred income taxes .................................................      (19,548)        4,031        (5,452)
Change in operating assets and liabilities, net of effects of acquisitions:
    Increase in accounts receivable .......................................     (118,151)      (86,116)      (55,914)
    Increase in inventories ...............................................       (4,904)       (4,895)       (2,291)
    (Increase) decrease in prepaids and other current assets ..............      (12,194)       (2,147)        1,751
    Decrease in other non-current assets ..................................        3,269         4,221           692
    Increase in accounts payable ..........................................       18,942        16,231         9,313
    Increase (decrease) in accruals and other non-current liabilities .....        3,434        (6,735)       (3,832)
    Increase in accrued restructuring costs ...............................       19,085            --            --
Other .....................................................................        2,733        (2,296)         (822)
Net purchases of patient service equipment, net of effects of acquisitions       (72,518)      (85,729)      (39,784)
                                                                               ---------     ---------     ---------
        NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES ...............       (9,898)          (61)       27,039

INVESTING ACTIVITIES
    Purchases of property, equipment and
      improvements, net of effects of acquisitions ........................      (49,327)      (26,757)      (17,249)
    Proceeds on disposal of discontinued operations .......................           --        20,344            --
    Proceeds on disposition of U.K. subsidiary ............................          926            --            --
    Proceeds from sale of property, equipment and improvements ............          331           540           963
    Acquisitions ..........................................................      (46,086)      (73,782)     (185,625)
                                                                               ---------     ---------     ---------
        NET CASH USED IN INVESTING ACTIVITIES .............................      (94,156)      (79,655)     (201,911)

FINANCING ACTIVITIES
    Proceeds under revolving credit facility ..............................      463,999       172,954        93,556
    Payments under revolving credit facility ..............................     (229,171)     (164,532)      (60,792)
    Proceeds from issuance of subordinated notes ..........................           --            --       200,000
    Proceeds from senior and other long-term debt .........................      126,557        44,474         1,878
    Payments of senior and other long-term debt ...........................     (275,022)      (12,929)      (41,316)
    Capitalized debt costs, net ...........................................       (1,429)       (2,502)       (9,863)
    Issuances of Common Stock .............................................       13,064         2,042         2,256
                                                                               ---------     ---------     ---------
        NET CASH PROVIDED BY FINANCING ACTIVITIES .........................       97,998        39,507       185,719
                                                                               ---------     ---------     ---------
NET (DECREASE) INCREASE IN CASH ...........................................       (6,056)      (40,209)       10,847
Cash at beginning of period ...............................................       21,188        61,397        50,550
Net activity for Homedco - October 1, 1994 to December 31, 1994 ...........        3,697            --            --
                                                                               ---------     ---------     ---------
        CASH AT END OF PERIOD .............................................    $  18,829     $  21,188     $  61,397
                                                                               =========     =========     =========
</TABLE>

                 See notes to consolidated financial statements.


                                      F-6
<PAGE>   341
                           APRIA HEALTHCARE GROUP INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        Basis of Presentation: The accompanying consolidated financial
statements include the accounts of Apria Healthcare Group Inc. ("the Company")
and its subsidiaries. All significant intercompany transactions and accounts
have been eliminated. As described more fully in Note 2, on June 28, 1995,
Homedco Group, Inc. ("Homedco") merged with and into Abbey Healthcare Group
Incorporated ("Abbey") to form the Company ("the merger"). The merger was
accounted for as a pooling-of-interests and, accordingly, the consolidated
financial statements reflect the combined financial position and operating
results of Abbey and Homedco for all periods presented.

        In conjunction with the merger, the Company adopted a fiscal year end of
December 31. Previously, Abbey reported on a fiscal year ending the Saturday
nearest December 31, and Homedco reported on a fiscal year ending September 30.
The consolidated financial statements for 1994 and 1993 combine the results of
Abbey for the fiscal years ended December 31, 1994 and January 1, 1994 and the
results of Homedco for each of the two years ended September 30, 1994 and
September 30, 1993. The consolidated balance sheet at December 31, 1994 combines
the accounts of Abbey as of December 31, 1994 and Homedco as of September 30,
1994. The consolidated balance sheet and statements of cash flows at December
31, 1995 combines the accounts of Abbey and Homedco on such a date and reflects
the activity of Homedco from October 1, 1994 through December 31, 1994. The
consolidated statements of operations for 1995 reflect combined results for the
year ended December 31, 1995 and exclude the operations of Homedco for the
period October 1, 1994 through December 31, 1994. Homedco's revenues and net
income for this period amounted to $146,293,000 and $8,647,000, respectively.

        Company Background: The Company provides home healthcare services
including home infusion therapy, home respiratory therapy and home medical
equipment/other to patients in the home throughout the United States. Infusion
therapy, respiratory therapy and home medical equipment/other represent
approximately 24%, 53% and 23%, of total revenue, respectively.

        Revenue Recognition and Concentration of Credit Risk: Revenues are
recognized on the date services and related products are provided to patients
and are recorded at amounts estimated to be received under reimbursement
arrangements with a large number of third party payors, including private
insurers, prepaid health plans, Medicare and Medicaid. Approximately 43% of the
Company's revenues are reimbursed under arrangements with Medicare and Medicaid.
No other third party payor group represents 10% or more of the Company's
revenues. The Company establishes an allowance for doubtful accounts based upon
factors surrounding the credit risk of specific third party payors, historical
trends and other information. Because of continuing changes in healthcare
regulations and reimbursement and disruptions caused by the Company's merger,
restructuring and integration activities, it is reasonably possible that the
Company's estimates of net collectible revenue could change in the near term.

        Use of Accounting Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.

        Cash Equivalents: The Company considers all highly liquid instruments
purchased with a maturity of less than three months to be cash equivalents. The
Company maintains cash with various financial institutions. These financial
institutions are located throughout the United States and the Company's cash
management practices limit exposure to any one institution. Outstanding checks
in excess of bank balances, which are reported as a component of accounts
payable, were $27,608,000 and $18,185,000 at December 31, 1995 and 1994,
respectively.

        Inventories: Inventories are stated at the lower of cost (first-in,
first-out method) or market and consist primarily of medical supplies sold
directly to patients for use in their homes.

        Patient Service Equipment: Patient service equipment consists of medical
equipment provided to in-home patients and is stated at cost. Depreciation is
provided using the straight-line method over the estimated useful lives of the
equipment which range from three to ten years. Included in patient service
equipment are assets under capitalized leases which consist primarily of oxygen
related equipment. Depreciation for equipment under capitalized leases is
provided using the straight-line method over the estimated useful life or the
lease term.


                                      F-7
<PAGE>   342
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

        Property, Equipment and Improvements: Property, equipment and
improvements are stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the property which range
from three to thirty years. Included in property and equipment are assets under
capitalized leases which consist primarily of computer equipment. Depreciation
for equipment under capitalized leases is provided using the straight-line
method over the estimated useful life or the lease term.

        Long-lived Assets: Effective January 1, 1995, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed
Of. In accordance with the statement, the Company records impairment losses on
long-lived assets used in operations when events and circumstances indicate that
the assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amounts of those assets. No
financial statement impact resulted from the adoption of the statement.

        Intangible Assets: Intangible assets consist of covenants not to compete
and goodwill arising from business combinations (see Note 2). The values
assigned to intangible assets, based in part on independent appraisals, are
amortized on a straight-line basis. The covenants are amortized over contractual
terms which range from three to ten years. Goodwill, representing the excess of
the purchase price over the estimated fair value of the net assets of the
acquired business, is amortized over the period of expected benefit. The
amortization periods for goodwill range from twenty years for businesses
operating primarily in the home respiratory therapy and home medical equipment
lines and forty years for pharmaceutical and infusion therapy businesses. The
carrying value of goodwill is reviewed if the facts and circumstances suggest
that it may be impaired. If this review indicates that goodwill will not be
recoverable, as determined based on the undiscounted cash flows of the entity
acquired over the remaining amortization period, the carrying value of the
goodwill is reduced.

        Fair Value of Financial Instruments: The fair value of long-term debt is
determined by reference to borrowing rates currently available to the Company
for loans with similar terms and average maturities.

        Advertising: Advertising costs amounting to $3,849,000, $3,753,000 and
$3,627,000 for 1995, 1994 and 1993, respectively, are expensed as incurred and
included in "Selling, distribution and administrative expenses."

        Income Taxes: The Company provides for income taxes under the liability
method. Accordingly, deferred income tax assets and liabilities are computed for
differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to amounts which are
more likely than not to be realized. The provision for income taxes represents
the tax payable or refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.

        Per Share Amounts: Primary per share amounts are calculated by dividing
the applicable operating statement caption by the weighted average number of
common and dilutive common equivalent shares outstanding. Common equivalent
shares consist primarily of stock options. Fully diluted per share amounts
include further adjustments to the applicable operating statement captions and
weighted average shares outstanding to assume conversion of convertible
debentures from issuance, if dilutive. The calculation of per share amounts for
periods prior to the merger reflect the issuance of two shares of the Company's
Common Stock for each share of Homedco Common Stock used in such calculation and
one and four tenths shares of the Company's Common Stock for each share of Abbey
Common Stock used in such calculation.

        Stock-based Compensation: The Company grants options for a fixed number
of shares to employees with an exercise price equal to the fair value of the
shares at the date of grant. The Company accounts for stock option grants in
accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees,
and, accordingly, recognizes no compensation expense for the stock option
grants.

        Reclassifications: Certain amounts for prior periods have been
reclassified to conform to the current year presentation.


                                      F-8
<PAGE>   343
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2 -- BUSINESS COMBINATIONS AND DISPOSITIONS

        On June 28, 1995, Homedco merged with and into Abbey to form the
Company. Homedco and Abbey provided similar homecare services including infusion
therapy, respiratory therapy and home medical equipment. In connection with the
merger transaction, the Company issued 21,547,529 shares of its Common Stock for
15,391,092 issued and outstanding shares of Abbey Common Stock and 26,034,612
shares of its Common Stock for 13,017,306 issued and outstanding shares of
Homedco Common Stock.

        The merger has been accounted for under the pooling-of-interests method
of accounting. Accordingly, the historical financial statements for periods
prior to the consummation of the combination have been restated as though the
companies had been combined. The restated financial statements have been
adjusted to conform the differing accounting policies of the separate companies.
Such differences relate principally to the use of salvage values recognized for
certain patient service equipment and the capitalization of low dollar patient
service items, supplies, accessories and repairs.

        Separate and combined results of Abbey and Homedco prior to the merger
are as follows:

<TABLE>
<CAPTION>
                                                                    ADJUSTMENTS
                                                                        AND
                                          ABBEY         HOMEDCO  RECLASSIFICATIONS   COMBINED
                                        --------       --------  -----------------   --------
                                                           (IN THOUSANDS)
<S>                                     <C>            <C>            <C>            <C>     
Three months ended March 31, 1995
Revenues ........................       $123,394       $161,175       $    40        $284,609
Net Income ......................          7,091          9,047          (346)         15,792

Year ended December 31, 1994
Revenues ........................       $439,175       $523,469       $   168        $962,812
Net Income ......................         12,307         29,810        (3,086)         39,031

Year ended December 31, 1993
Revenues ........................       $278,457       $470,283       $   161        $748,901
Net Income ......................         14,312         24,544        (1,545)         37,311
</TABLE>

        On January 2, 1994, the Company acquired the outstanding stock of
Protocare, Inc. ("Protocare") for a cash payment of $11,915,000 plus direct
acquisition costs of $3,700,000. In addition, pursuant to an earnout provision,
as amended in June 1994, approximately 979,000 shares of Common Stock valued at
$11,594,000 were issued in February 1995 to the former Protocare stockholders.
The shares are reflected in the accompanying financial statements as issued and
outstanding at December 31, 1994.

        On November 10, 1993, the Company acquired the outstanding stock of
Total Pharmaceutical Care, Inc. ("TPC") for a cash payment of $154,183,000 plus
direct acquisition costs of $9,376,000 and the issuance of approximately
2,002,000 shares of Common Stock valued at $33,522,000.

        In addition to the above business combinations, during 1995, 1994 and
1993, the Company acquired numerous complementary businesses in specific
geographic markets. None of these businesses was individually significant. The
transactions, including Protocare and TPC, were accounted for as purchases and,
accordingly, the operations of the acquired businesses are included in the
consolidated statements of operations from the dates of acquisition. The
purchase prices, which aggregated approximately $46,873,000, $109,747,000 and
$231,225,000 in 1995, 1994 and 1993, respectively, consisted of cash, common
stock and notes. The value ascribed to a portion of the common shares issued in
1994 and 1993 reflects a discount from the quoted price of the Company's Common
Stock due to the absence of registration. The purchase prices were allocated to
the various underlying tangible and intangible assets and liabilities on the
basis of estimated fair value, determined in part by independent appraisal.


                                      F-9
<PAGE>   344
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

        The following table summarizes the allocation of the purchase prices,
including non-cash financing activities, of acquisitions made by the Company:

<TABLE>
<CAPTION>
                                                  YEAR ENDED DECEMBER 31,
                                             ------------------------------------
                                               1995         1994           1993
                                             --------     ---------     ---------
                                                       (IN THOUSANDS)
<S>                                          <C>          <C>           <C>      
        Fair value of assets acquired ...    $ 50,255     $ 124,496     $ 249,554
        Liabilities assumed .............      (3,382)      (14,749)      (18,329)
        Promissory note payable to seller          --        (4,382)           --
        Common Stock issued .............        (787)      (31,583)      (47,069)
                                             --------     ---------     ---------
          Cash paid .....................    $ 46,086     $  73,782     $ 184,156
                                             ========     =========     =========
</TABLE>

        In June 1995, the Company entered an agreement for the sale of the
capital stock of Omnicare Group Ltd. ("Omnicare"), a United Kingdom-based
subsidiary, to a newly formed holding company, Stanton Industries Ltd.
("Stanton"), that is owned and managed by an officer/director of Omnicare and a
shareholder/former director of Abbey. Consideration for the sale amounted to
$2,913,000 and consisted of cash of $968,000, a convertible note in the amount
of $1,605,000 and the assumption of a liability in the amount of $340,000. The
difference between the net sales price per the agreement and the carrying value
of the Company's investment in Omnicare has been reflected as a loss in the
accompanying financial statements.

        In September 1995, Stanton transferred its shares of Omnicare common
stock to a newly-formed public limited company, Omnicare plc, in exchange for
6,166,656 ordinary shares of Omnicare plc. Also in September 1995, the Company
converted the note due from Stanton into 1,875,000 unregistered ordinary shares
of Omnicare plc. As a result of these transactions, Stanton and the Company hold
approximately 63% and 27%, respectively, of the issued ordinary share capital of
Omnicare plc. The Company has agreed not to dispose of the shares and to certain
noncompetition covenants for a period of two years. The investment in Omnicare
plc is accounted for using the equity method. At March 6, 1996, the quoted
market value of the investment was approximately $2,400,000. The valuation
represents a mathematical calculation based on a closing quotation published by
the London Alternative Investment Market and is not necessarily indicative of
the amount that could be realized upon sale.

        On September 30, 1994, the Company sold its 51% interest in Abbey
Pharmaceutical Services, Inc. ("APS") to Living Centers of America, Inc.
("Living Centers") for cash consideration of $20,300,000 and warrants to
purchase 248,000 shares of Living Center common stock for $35.00 per share. No
value was assigned to the warrants. The APS operating results have been
presented as discontinued operations for 1994 and 1993 (net of applicable income
taxes of $1,879,000 and $2,428,000 in 1994 and 1993, respectively). Net revenues
of the discontinued operations were $43,770,000 and $50,678,000 in 1994 and
1993, respectively.

        Supplemental unaudited pro forma information giving effect to business
acquisitions made in 1994 and 1993 and excluding the operations of APS, is as
follows:

<TABLE>
<CAPTION>
                                           YEAR ENDED DECEMBER 31,
                                           -----------------------
                                               1994        1993
                                             --------    --------
                                                (IN THOUSANDS)
<S>                                          <C>         <C>     
        Net revenues ....................    $986,062    $930,192
        Income from continuing operations      35,209      27,498
        Per share amounts:
          Primary .......................    $   0.79    $   0.63
          Fully diluted .................    $   0.76    $   0.63
</TABLE>

        The pro forma financial information presented above is not necessarily
indicative of any trends or results that may be expected for any other period.
Pro forma financial information for business acquisitions and dispositions made
in 1995 is not presented because the effects on the Company's operating results
are not material.

        In February 1996, the Company signed a letter of intent for the sale of
its M&B Ventures, Inc. home health operations, located in South Carolina under
the assumed business name of Doctor's Home Health, Inc. The sale, which is
expected to be completed in May 1996, is subject to certain conditions. The
proposed sales price of $2,900,000 approximates the book value of the


                                      F-10
<PAGE>   345
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

assets of Doctor's Home Health, Inc. The operations of Doctor's Home Health,
Inc. had revenues of approximately $8,870,000 and $7,340,000 for 1995 and 1994,
respectively.

NOTE 3 --CERTAIN OPERATING STATEMENT CAPTIONS

        Restructuring Costs: In connection with the merger, the Company adopted
a plan to restructure and consolidate its operating locations and administrative
functions within specific geographic areas. The principal elements of the plan
include a workforce reduction of approximately 1,220 employees across all
employee groups, the consolidation of approximately 120 branch locations and the
conversion of information systems at the continuing branches to a standardized
system. The plan, which the Company anticipates will be substantially completed
by September 1996, resulted in a restructuring charge of approximately
$68,304,000 consisting of accrued costs and impairments.

        Through December 31, 1995, the Company had completed a significant
portion of the plan, including the consolidation of approximately 105 branch
locations and a reduction of approximately 1,120 employees. The Company's
decision to consolidate branches and standardize branch information systems
resulted in write-offs of excess patient service equipment, leasehold
improvements and the hardware and capitalized software relating to information
systems being discontinued. Approximately $1,325,000 in hardware and capitalized
software costs, representing the approximate amount of depreciation attributable
to the expected period of usage prior to completion of the conversion plan, is
included in property, equipment and improvements at December 31, 1995. The
following table summarizes the principal components of the charge, amounts paid
through December 31, 1995, and the remaining accrual at December 31, 1995.

<TABLE>
<CAPTION>

                                                    ACCRUALS   IMPAIRMENTS         
                                                    --------   -----------         
                                                       (IN THOUSANDS)              
<S>                                                 <C>          <C>               
Severance and related personnel costs ..........    $ 21,538     $    --           
Branch and billing center closures .............      13,709       9,354           
Information systems ............................          --      22,160           
Other ..........................................       1,000         543           
                                                    --------     -------           
                                                      36,247     $32,057           
Severance amounts paid through December 31, 1995     (12,607)    =======           
Other amounts paid through December 31, 1995 ...      (4,555)                      
                                                    --------                       
Accrual at December 31, 1995 ...................    $ 19,085                       
                                                    ========                       
</TABLE>

        Provision for doubtful accounts:  The 1995 provision for doubtful
accounts includes (1) an adjustment made in the third quarter of approximately
$26.3 million to provide for an impairment in Abbey's infusion therapy
receivables and (2) a provision recorded in the fourth quarter of approximately
$13 million, or 3.7% of accounts receivable, for the anticipated impact on
realization resulting from field location consolidations, changes in billing and
collection personnel, and information systems conversions.  Such activities
detract from normal operations and result in billing and collection delays which
generally reduce the ultimate collectibility of accounts receivable.

        Merger Costs: Merger costs totaling $12,193,000 were incurred and paid
during 1995 and consisted primarily of investment banking fees of $4,899,000,
accounting, consulting, legal and filing fees of $4,767,000 and liability
insurance of $1,699,000 covering directors and officers of the predecessor
companies against pre-merger claims.

        Employee Contracts, Benefit Plan and Claim Settlements: In 1995, the
Company accrued $20,367,000 for employee contract, benefit plan and claim
settlements. The accrual included $14,407,000 provided for employee and payroll
tax related claims and lawsuits, $3,481,000 to settle certain employee
contracts, and the settlement loss of $2,275,000 for the termination of the
Abbey Medical, Inc. Employee Retirement Plan, a defined benefit pension plan. At
December 31, 1995, the remaining accrual was $10,479,000, the majority of which
is expected to be settled and paid during 1996.


                                      F-11
<PAGE>   346
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4 -- PROPERTY, EQUIPMENT AND IMPROVEMENTS

        Property, equipment and improvements consists of the following:

<TABLE>
<CAPTION>
                                                     DECEMBER 31,
                                                -----------------------
                                                   1995          1994
                                                ---------     ---------
                                                    (IN THOUSANDS)
<S>                                             <C>           <C>      
        Land and improvements ..............    $      88     $     100
        Buildings and leasehold improvements       14,620        14,160
        Equipment and furnishings ..........       56,507        43,412
        Information systems ................       74,741        65,913
                                                ---------     ---------
                                                  145,956       123,585
        Less accumulated depreciation ......      (65,848)      (49,609)
                                                ---------     ---------
                                                $  80,108     $  73,976
                                                =========     =========
</TABLE>

NOTE 5 -- INTANGIBLE ASSETS

        Intangible assets consist of the following:

<TABLE>
<CAPTION>
                                                     DECEMBER 31,
                                               ------------------------
                                                  1995           1994
                                               ---------      ---------
                                                    (IN THOUSANDS)
<S>                                            <C>            <C>      
        Covenants not to compete .........     $  32,815      $  28,235
        Goodwill .........................       319,571        271,063
                                               ---------      ---------
                                                 352,386        299,298
        Less accumulated amortization ....       (33,244)       (16,574)
                                               ---------      ---------
                                               $ 319,142      $ 282,724
                                               =========      =========
</TABLE>

NOTE 6 -- CREDIT FACILITY AND LONG-TERM DEBT

        Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                               DECEMBER 31,
                                                                         -----------------------
                                                                            1995          1994
                                                                         ---------     ---------
                                                                             (IN THOUSANDS)
<S>                                                                      <C>           <C>      
        Notes payable relating to revolving credit facilities .......    $ 286,300     $  41,372
        Term loans payable ..........................................           --        75,000
        Acquisition line of credit ..................................           --        43,443
        6.5% Convertible subordinated debentures ....................           --        66,646
        9.5% Senior subordinated notes ..............................      200,000       200,000
        Other, interest at rates ranging from 4.1% to 11.0%, payments
          due at various dates through December 1998 ................        4,071         9,792
        Capital lease obligations (see Note 9) ......................       16,520        16,880
                                                                         ---------     ---------
                                                                           506,891       453,133
        Less: Current maturities ....................................       (9,652)      (32,200)
                 Unamortized deferred debt costs ....................       (6,584)      (14,829)
                                                                         ---------     ---------
                                                                         $ 490,655     $ 406,104
                                                                         =========     =========
</TABLE>

        Credit Agreements Prior to Merger: Prior to June 28, 1995, the Company
had credit agreements with various banks ("Bank Credit Agreement") and General
Electric Capital Corporation ("GE Capital Agreement") providing for borrowings
up to $350,000,000. The Bank Credit Agreement included a $75,000,000 term loan,
a $75,000,000 acquisition credit line and a $100,000,000 revolving credit
facility of which $15,000,000 was accessible in the form of letters of credit.
The GE Capital


                                      F-12
<PAGE>   347
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Agreement provided an additional $100,000,000 in revolving credit. Borrowings
under each revolving credit facility were limited to specified levels of
qualified accounts receivable, inventory, and, in the case of the GE Capital
Agreement, patient service equipment.

        Each agreement permitted the Company to select from two interest rate
options: prime plus up to 1.25% or London Interbank Offered Rate ("LIBOR") plus
up to 2.25%. Each rate option was subject to reduction for borrowing level, in
the case of the GE Capital Agreement, and achieving targeted levels of earnings
before interest, taxes, depreciation, and amortization, in the case of the Bank
Credit Agreement.

        Term loan principal was payable quarterly, in varying amounts,
commencing December 31, 1994 through March 31, 1998. Principal payments under
the acquisition credit line were payable quarterly, commencing June 30, 1997
through December 31, 1998, with a final payment due May 2, 1999.

        The agreements required payment of commitment fees of .25% to .50% of
the unused portion of each facility and contained restrictive covenants
requiring the maintenance of certain financial ratios, limitations on additional
borrowings and capital expenditures, and restrictions on cash dividends or other
distributions.

        Credit Agreement Subsequent to Merger: Effective June 28, 1995, the
Company executed a credit agreement with certain banks and Banque Paribas, as
administrative agent. The agreement, which expires in June 2000, provides a
revolving loan facility of up to $500,000,000. Proceeds were used, among other
purposes, to retire borrowings under the Bank Credit Agreement and the GE
Capital Agreement. The credit agreement contains restrictive covenants requiring
the maintenance of certain financial ratios, limitations on additional
borrowings and certain expenditures and restrictions on cash dividends and other
distributions. At December 31, 1995, the Company's outstanding letters of credit
amounted to $960,000 and credit available under the agreement was $212,740,000.

        Borrowings under the credit agreement bear interest at the higher of
prime or .5% in excess of the Federal Funds rate. The Company may also elect an
interest rate ranging from LIBOR plus .375% to LIBOR plus 1.5% dependent on the
ratio of funded indebtedness to earnings before interest, taxes, depreciation
and amortization. The effective interest rates at December 31, 1995, were 6.2%,
6.6% and 8.5% for borrowings of $266,000,000, $13,000,000 and $7,300,000,
respectively.

        The Company has limited involvement with derivative financial
instruments and does not use them for trading purposes. Interest rate swap and
cap agreements are used as a means of managing the Company's interest rate
exposure. The swap agreements are contracts to periodically exchange fixed and
floating interest rate payments over the life of the agreement. In July 1995,
the Company entered into several one-year swap agreements totaling $266,000,000
in notional principal. For the period from July 1995 through December 1995, the
Company received interest at a weighted average rate of 6.7% and paid interest
at a weighted average rate of 6.2%. Payment or receipt of the interest
differential is made quarterly and recognized monthly in the financial
statements as an adjustment to interest expense. The cap agreement, which
expires in July 1996, limits the three-month LIBOR rate to 6% on indebtedness of
up to $50,000,000. In January 1996, the Company canceled its swap agreements and
entered into a new one-year agreement covering $280,000,000 of notional
principal with a fixed LIBOR rate of 5.1%.

        As a result of the aforementioned refinancing, unamortized deferred debt
costs of $2,998,000, net of income taxes of $1,686,000, relating to the
refinanced debt were expensed as an extraordinary charge.

        The carrying amounts reported for the obligations relating to revolving
credit facilities, term loans and acquisition line approximate fair value
because the underlying instruments are variable rate notes that reprice
frequently.

        6.5% Convertible Subordinated notes: The 6.5% convertible subordinated
debentures were convertible into shares of the Company's Common Stock at a
conversion price of $13.97 per share and were scheduled to mature on December 1,
2002. Pursuant to a redemption feature, all outstanding 6.5% convertible
subordinated debentures were converted to Common Stock in September 1995. The
fair value of these debentures was $79,259,000 at December 31, 1994.

        9.5% Senior Subordinated notes: The 9.5% senior subordinated notes
mature November 1, 2002 and are subordinated to all senior debt of the Company
and senior in right of payment to subordinated debt of the Company. The fair
value of these notes, determined by reference to quoted market prices, is
$210,340,000 and $183,280,000 at December 31, 1995 and 1994, respectively.


                                      F-13
<PAGE>   348
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

        Total interest paid in 1995, 1994 and 1993 amounted to $37,454,000,
$32,395,000, and $12,074,000, respectively.

        Maturities of long-term debt, exclusive of capital lease obligations,
for the five years ending December 31, 2000 and thereafter, are as follows:

<TABLE>
<CAPTION>
                                                             (IN THOUSANDS)
<S>                                                             <C>     
        1996 .....................................              $  2,807
        1997 .....................................                 1,092
        1998 .....................................                   172
        1999 .....................................                    --
        2000 .....................................                    --
        Thereafter ...............................               486,300
                                                                --------
                                                                $490,371
                                                                ========
</TABLE>

NOTE 7 -- STOCKHOLDERS' EQUITY

        Common Stock: The Company has granted registration rights to certain
holders of Common Stock under which the Company is obligated to pay the expenses
associated with certain of such registration rights.

        Prior to June 28, 1995, the Company had adopted preferred stock purchase
rights plans pursuant to which the Company's common stockholders were granted
one right for each share of Common Stock held. Each right allowed its holder to
purchase one-hundredth of a share of Junior Participating Preferred Stock at a
specified price, subject to adjustment. The rights would become exercisable at
certain times associated with a transaction whereby a person or group of
affiliated persons acquired beneficial ownership of 20% or more of the Company's
general voting power, unless the Board of Directors determined the transaction
to be fair and in the best interests of the Company and its stockholders. The
Board of Directors determined that the merger of Abbey and Homedco is fair and
in the best interests of the Company and its stockholders and, accordingly, the
preferred stock purchase rights did not become exercisable. As a result of the
merger, the outstanding preferred stock purchase rights were converted into
Apria preferred stock purchase rights with terms essentially the same as the
predecessor plans.

        Stock Option Plans: The Company has various stock option plans that
provide for the granting of incentive stock options or non-statutory options to
certain key employees, non-employee members of the Board of Directors,
consultants and independent contractors. In the case of incentive stock options,
the exercise price may not be less than the fair market value of a share of
Common Stock on the date of grant, and may not be less than 110% of the fair
market value of a share of Common Stock on the date of grant for any individual
possessing 10% or more of the voting power of all classes of stock of the
Company. The options become exercisable over periods ranging from three to five
years and expire not later than 10 years from the date of grant.


                                      F-14
<PAGE>   349
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

        Transactions under these plans are summarized as follows:

<TABLE>
<CAPTION>
                                                                                       NUMBER OF
                                                                                        SHARES          PRICE RANGE
                                                                                      ----------     ----------------
<S>                                                                                   <C>            <C>        
        Outstanding at December 31, 1992 .........................................     2,542,935     $  .75    $11.00
            Granted ..............................................................     2,052,053       4.45     16.87
            Exercised ............................................................      (437,323)       .75     11.00
            Cancelled ............................................................       (99,995)       .75     12.25
                                                                                      ----------
        Outstanding at December 31, 1993 .........................................     4,057,670        .75     16.87
            Granted ..............................................................     1,203,253      11.25     20.00
            Exercised ............................................................      (394,938)       .75     14.11
            Cancelled ............................................................    (1,111,407)       .75     20.00
            Substitute options granted for outstanding options of acquired company       308,563        .97     11.36
                                                                                      ----------
        Outstanding at December 31, 1994 .........................................     4,063,141        .75     17.05
            Net activity from October 1, 1994 to December 31, 1994 (see Note 1) ..       (54,340)      1.50     33.25
            Granted ..............................................................     2,028,475      17.68     28.03
            Exercised ............................................................    (1,233,243)       .75     20.25
            Cancelled ............................................................      (620,242)       .75     28.05
                                                                                      ----------
        Outstanding at December 31, 1995 .........................................     4,183,791        .75     28.03
                                                                                      ==========
        Exercisable at December 31, 1995 .........................................     1,572,459        .75     28.03
                                                                                      ==========
        Available for grant at January 1, 1995 ...................................     1,753,430
                                                                                      ==========
        Available for grant at December 31, 1995 .................................     1,030,985
                                                                                      ==========
</TABLE>

        In addition, the Company has a Long-Term Senior Management Equity Plan
(the "Equity Plan") which provides for the granting of non-statutory stock
options to key members of senior management at fair market value on the date of
grant. As a result of the merger, half of the outstanding options under this
plan became exercisable. The remaining options vest at a rate of 25% per year,
upon announcement of financial results, commencing with the announcement of
financial results for 1995. Vesting may be accelerated under certain
circumstances. The Equity Plan allows for the issuance of 2,000,000 shares of
Common Stock. During 1995, options to purchase 239,600 and 253,000 shares of
Common Stock at prices ranging from $11.00 to $14.63 per share were exercised
and cancelled, respectively. During the period October 1, 1994 through December
31, 1994 (see Note 1) options to purchase 96,000 shares of Common Stock at a
price of $11.00 per share were cancelled. At December 31, 1995, options to
purchase 1,365,400 shares of Common Stock at prices ranging from $11.00 to
$13.50 per share were outstanding. Options granted under this plan expire not
later than 10 years from the date of grant.

        Approximately 5,085,000 shares of Common Stock are reserved for future
issuance upon exercise of stock options.


                                      F-15
<PAGE>   350
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8 -- INCOME TAXES

        Significant components of the Company's deferred tax assets and
liabilities are as follows:

<TABLE>
<CAPTION>
                                                                         DECEMBER 31,
                                                                    ---------------------
                                                                      1995         1994
                                                                    --------     --------
                                                                        (IN THOUSANDS)
<S>                                                                 <C>          <C>     
        Deferred tax liabilities:
          Tax over book depreciation ...........................    $  7,836     $  2,260
          Intangible assets ....................................       1,733        1,332
          Other, net ...........................................       3,552        3,875
                                                                    --------     --------
        Total deferred tax liabilities .........................      13,121        7,467

        Deferred tax assets:
          Allowance for doubtful accounts ......................      34,194       24,860
          Accruals .............................................      24,855       17,002
          Asset valuation reserves .............................      13,371        4,182
          Net operating loss carryforward, limited by
            Section 382.........................................      19,771       19,352
          Other, net ...........................................       3,047        3,304
                                                                    --------     --------
        Total deferred tax assets ..............................      95,238       68,700
        Valuation allowance ....................................     (36,234)     (33,524)
                                                                    --------     --------
        Net deferred tax assets ................................      59,004       35,176
                                                                    --------     --------
        Net deferred taxes .....................................    $ 45,883     $ 27,709
                                                                    ========     ========
        Current deferred tax assets, net of current deferred
          tax liabilities ......................................    $ 45,883     $ 36,947
        Non-current deferred tax liabilities, net of non-current
          deferred tax assets ..................................           0       (9,238)
                                                                    --------     --------
        Net deferred taxes .....................................    $ 45,883     $ 27,709
                                                                    ========     ========
</TABLE>

        The recognition in 1995 of additional net deferred tax assets was based
primarily on the availability of taxable income in carryback years and to a
lesser extent on future taxable income. The Company's future taxable income
assumption considers the Company's taxable earnings in the fourth quarter of
1995, the Company's history of earnings in periods prior to the merger, and
anticipated integration activities and certain revenue concentration
uncertainties (see Note 12).

        At December 31, 1995, the Company's federal and state operating loss
carryforwards approximated $138,000,000 and $135,000,000, respectively, and
begin to expire in 2003 for federal tax purposes and 1996 for state tax
purposes. As a result of an ownership change in March 1992 which met specified
criteria of Section 382 of the Internal Revenue Code, future use of federal and
state operating loss carryforwards are each limited to $4,150,000 per year.
Because of the annual limitation, approximately $89,000,000 each of the
Company's federal and state operating loss carryforwards may expire unused.

        A valuation allowance is provided primarily against the Company's net
operating loss carryforwards and certain other deferred tax assets the expected
use of which extends beyond the Company's earning assumption period and are not
otherwise offset by deferred tax liabilities.


                                      F-16
<PAGE>   351
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

        Income tax (benefit) expense consists of the following:

<TABLE>
<CAPTION>
                                                                      YEAR ENDED DECEMBER 31,
                                                                 ----------------------------------
                                                                   1995         1994         1993
                                                                 --------     --------     --------
                                                                          (IN THOUSANDS)
<S>                                                              <C>          <C>          <C>     
        Currently (refundable) payable:
          Federal ...........................................    $ (9,569)    $ 17,746     $ 18,906
          State .............................................         495        3,984        5,159
                                                                 --------     --------     --------
                                                                   (9,074)      21,730       24,065
        Deferred tax benefit or liability:
          Federal ...........................................     (16,810)       3,650       (4,793)
          State .............................................      (2,738)         381         (659)
                                                                 --------     --------     --------
                                                                  (19,548)       4,031       (5,452)
        Tax benefits credited to paid-in capital and goodwill       9,681        1,343        1,082
                                                                 --------     --------     --------
                                                                 $(18,941)    $ 27,104     $ 19,695
                                                                 ========     ========     ========
</TABLE>

        The exercise of stock options granted under the Company's various stock
option plans gives rise to compensation which is includable as taxable income to
the employee and deductible by the Company for federal and state tax purposes
but is not recognized as expense for financial reporting purposes. In addition,
the recognition for income tax purposes of certain deferred tax assets relating
to acquired businesses reduces related goodwill for financial reporting
purposes.

        Differences between the Company's income tax (benefit) expense and an
amount calculated utilizing the federal statutory rate are as follows:

<TABLE>
<CAPTION>
                                                                                    YEAR ENDED DECEMBER 31,
                                                                               ----------------------------------
                                                                                 1995         1994         1993
                                                                               --------     --------     --------
                                                                                         (IN THOUSANDS)
<S>                                                                            <C>          <C>          <C>     
        Income tax (benefit) expense at statutory rate ....................    $(30,742)    $ 21,952     $ 19,439
        Minimum tax credit ................................................          --           --         (408)
        Non-deductible goodwill and merger costs ..........................       4,907        1,353           --
        Use of net operating loss carryforward ............................          --       (1,453)      (1,411)
        Tax benefit of deferred items not currently (previously) recognized       5,287           --         (531)
        Tax benefit of acquired company ...................................          --        2,142           --
        State taxes, net of federal benefit and state loss carryforwards ..         825        3,116        2,603
        Other .............................................................         782           (6)           3
                                                                               --------     --------     --------
                                                                               $(18,941)    $ 27,104     $ 19,695
                                                                               ========     ========     ========
</TABLE>

        Income taxes paid (net of refunds received) in 1995, 1994 and 1993,
amounted to $15,159,000, $25,323,000, and $26,650,000, respectively.


NOTE 9 -- LEASES

        The Company operates principally in leased offices and warehouse
facilities. In addition, the Company leases delivery vehicles and office
equipment. Lease terms range from one to ten years with renewal options for
additional periods. Many leases provide that the Company pay taxes, maintenance,
insurance and other expenses. Rentals are generally increased annually by the
consumer price index subject to certain maximum amounts defined within
individual agreements.

        In addition, during 1995, 1994 and 1993 the Company acquired patient
service equipment, information systems and equipment and furnishings totalling
$5,876,000, $10,719,000, and $7,736,000, respectively, under capital lease
arrangements with lease terms ranging from two to five years. Amortization of
the leased patient service equipment and information systems amounted to
$4,410,000, $5,669,000, and $4,236,000, in 1995, 1994 and 1993, respectively.


                                      F-17
<PAGE>   352
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

        The following amounts for assets acquired under capital lease
obligations are included in both the patient service equipment and property,
equipment and improvements:

<TABLE>
<CAPTION>
                                                     DECEMBER 31,
                                                  1995           1994
                                                --------       --------
                                                    (IN THOUSANDS)
<S>                                             <C>            <C>     
        Patient service equipment ........      $  3,145       $ 14,419
        Information systems ..............        19,891         15,832
        Equipment and furnishings ........         3,796          3,885
        Buildings and improvements .......           565          1,687
                                                --------       --------
                                                  27,397         35,823
        Less accumulated depreciation ....        (9,905)       (15,659)
                                                --------       --------
                                                $ 17,492       $ 20,164
                                                ========       ========
</TABLE>

        Future minimum payments by year and in the aggregate required under
noncancellable operating leases and capital lease obligations consist of the
following at December 31, 1995:

<TABLE>
<CAPTION>
                                                             CAPITAL      OPERATING
                                                             LEASES        LEASES
                                                            ---------     ---------
                                                                 (IN THOUSANDS)
<S>                                                         <C>           <C>     
        1996 ...........................................    $   7,418     $ 38,387
        1997 ...........................................        7,015       30,353
        1998 ...........................................        3,241       24,233
        1999 ...........................................          192       17,833
        2000 ...........................................           --       10,949
        Thereafter .....................................           --       18,963
                                                            ---------     --------
                                                            $  17,866     $140,718
                                                                          ========
        Less interest included in minimum lease payments       (1,346)
                                                            ---------
        Present value of minimum lease payments ........       16,520
        Less current portion ...........................       (6,845)
                                                            ---------
                                                            $   9,675
                                                            =========
</TABLE>

        Rent expense in 1995, 1994 and 1993 amounted to $47,658,000,
$37,543,000, and $30,577,000, respectively. Facilities leased from lessors in
which stockholders and employees have a financial interest comprised $245,000,
$310,000, and $330,000 of rent expense in 1995, 1994 and 1993, respectively.


NOTE 10 -- EMPLOYEE BENEFIT PLANS

        The Company had two defined contribution plans and a defined benefit
plan covering substantially all employees. The defined contribution plans were
401(k) plans whereby eligible employees voluntarily contributed up to a defined
percentage of their annual compensation. Employee contributions were partially
matched by the Company under one plan. Total expenses to the Company relating to
the defined contribution plans for 1995, 1994 and 1993 were $2,980,000,
$3,080,000, and $2,180,000, respectively.

        Effective January 1, 1996, the net assets of the Abbey 401(k) plan were
transferred into the Apria 401(k) plan, formerly the Homedco 401(k) plan. The
Company is currently in the process of implementing certain amendments to the
plan which have recently been approved by the Board of Directors. As amended,
the plan provides eligibility for all employees having completed one year of
service with at least 1,000 hours. Participants may contribute up to 16% of
annual basic earnings. Employee contributions are matched 50% for the first 8%
by the Company.


                                      F-18
<PAGE>   353
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

        On September 22, 1995, the defined benefit plan trustees agreed to
terminate the defined benefit plan effective April 30, 1996. As a result, the
Company recognized a settlement loss of $2,275,000 in 1995. Prior to the
termination, the defined benefit plan benefits were based upon years of service
and the employees' average compensation over the last five years of employment.
The Company's funding policy was to fund the recommended amount as determined by
the plan's actuaries. Contributions were intended to provide not only for
benefits attributed to services performed to date, but also for those expected
to be earned in the future. Net periodic pension cost included in selling,
distribution and administration expenses amounted to $925,000, $1,136,000 and
$653,000 in 1995, 1994 and 1993, respectively.

        The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 112, Employers' Accounting for Postemployment Benefits.
The cumulative effect of its application is not presented because the amount is
not material to the Company's 1995 operating results.


NOTE 11 -- RELATED PARTY TRANSACTIONS

        In December 1992, pursuant to a secured promissory note agreement, the
Company loaned $1,250,000 to an officer/director. The note bore interest at 8%
per annum and principal and interest were due December 28, 1996. During 1995,
1994 and 1993 principal and interest of $196,000, $188,000 and $675,000,
respectively, were cancelled and recorded as compensation expense. Pursuant to
the terms of a severance agreement dated November 7, 1995, the remaining
outstanding principal and related interest totalling $397,000 was forgiven and
was recorded as compensation expense in 1995.

        Through September 1995, the Company retained a firm, in which a member
of the Board of Directors of the Company is a managing director, to provide
ongoing financial advisory services. During 1995, 1994 and 1993, the firm was
paid fees of $3,810,000, $910,000 and $1,886,000, respectively, in connection
with various financing transactions and other investment banking activities. The
fees paid in 1995 related primarily to the merger.

        In December 1994, the Company made an interest bearing loan of $100,000
due in December 1997 to an Officer of the Company. In connection with the
Protocare acquisition, the Company also assumed from Protocare a 9% loan to the
same officer which amounted to $597,000. The officer resigned in May 1995, and
the outstanding principal and interest on this assumed loan, amounting to
$499,000 and $288,000 was forgiven and expensed in 1995 and 1994, respectively.


NOTE 12 -- COMMITMENTS AND CONTINGENCIES

        Purchase Commitments: On September 1, 1994, the Company entered into a
five-year agreement to purchase medical supplies totalling $112,500,000, with
annual purchases ranging from $7,500,000 in the first year to $30,000,000 in the
third through fifth years. Beginning in the year ended August 31, 1996, failure
to purchase at least 90% of the annual commitment will result in a penalty of
10% of the difference between the annual commitment and actual purchases.

        Litigation: The Company is engaged in the defense of certain claims and
lawsuits arising out of the ordinary course and conduct of its business, the
outcome of which are not determinable at this time. The Company has insurance
policies covering such potential losses where such coverage is cost effective.
In the opinion of management, any liability that might be incurred by the
Company upon the resolution of these claims and lawsuits will not, in the
aggregate, have a material adverse effect on the Company's consolidated results
of operations and financial position. During 1995, certain claims and lawsuits
were settled and the Company paid amounts (including cost of defense) totaling
approximately $10,590,000, and $12,400,000 was charged to income to provide for
probable losses related to matters arising in the period and to revise estimates
for matters arising prior to 1995. Subsequent to year end the Company settled
claims totaling $1,950,000.

        Certain Concentrations: Over 50% of the Company's revenue is derived
from the provision of respiratory therapy services, a significant portion of
which is reimbursed under the Federal Medicare program. Various budgets
currently under consideration by Congress and the Federal Administration propose
reductions in Medicare spending including, among other matters, reimbursement
for home oxygen. It is currently uncertain when a budget agreement will be
reached and the ultimate impact such budget will have on home oxygen
reimbursement.


                                      F-19
<PAGE>   354
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

        The Company currently purchases approximately 40% of its patient service
equipment and supplies from two supplier(s). Although there are a limited number
of suppliers, management believes that other suppliers could provide similar
products on comparable terms. A change in suppliers, however, could cause a
delay in service delivery and a possible loss in revenues which could affect
operating results adversely.

        Other: Management is not aware of any material claims or disputes
related to any of its third-party reimbursement arrangements.

NOTE 13 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                                                           QUARTER
                                                                           -------
                                                           FIRST      SECOND       THIRD        FOURTH
                                                         --------    --------    ---------     --------
                                                            (in thousands, except per share data)
<S>                                                      <C>         <C>         <C>           <C>     
        1995
        Net revenues ................................    $284,609    $287,286    $ 277,670     $284,035
        Gross profit ................................     199,073     199,016      178,833      195,679
        Operating income (loss) .....................      36,032      22,115     (133,948)      28,324
        Income (loss) before extraordinary charge ...      15,792       7,497     (112,166)      17,399
        Net income (loss) ...........................    $ 15,792    $  4,499    $(112,166)    $ 17,399

        Per share amounts:
          Primary:
            Income (loss) before extraordinary charge    $   0.34    $   0.15    $   (2.32)    $   0.34
            Net income (loss) .......................    $   0.34    $   0.09    $   (2.32)    $   0.34
          Fully diluted:
            Income (loss) before extraordinary charge    $   0.32    $   0.15    $   (2.32)    $   0.34
            Net income (loss) .......................    $   0.32    $   0.09    $   (2.32)    $   0.34

        1994
        Net revenues ................................    $226,925    $231,312    $ 244,928     $259,647
        Gross profit ................................     157,882     161,200      172,968      183,072
        Operating income ............................      12,906      24,420       28,722       33,827
        Net income ..................................    $    160    $  9,897    $  14,124     $ 14,850

        Per share amounts:
           Primary:
              Net income ............................    $   0.00    $   0.23    $    0.32     $   0.33
           Fully diluted:
              Net income ............................    $   0.00    $   0.22    $    0.30     $   0.31
</TABLE>

        The quarterly financial information for all periods presented reflect
the conformed accounting policies of Homedco and Abbey (see Note 2).

        The second and third quarters of 1995, include charges of approximately
$12,900,000 and $133,800,000, respectively, relating to restructuring, merger
and integration activities and to accounts receivable valuation and
employment-related matters. During the fourth quarter of 1995, the Company
reevaluated the estimates inherent in the restructuring and other merger-related
costs recorded through the end of the third quarter. This evaluation resulted in
a reallocation of expenses which increased the provision for doubtful accounts
by $13,000,000 and reduced restructuring costs and other merger-related costs by
$10,316,000 and $2,684,000, respectively. Additionally, an extraordinary charge
on debt refinance of approximately $2,998,000, net of income taxes of
$1,686,000, was recorded in the second quarter of 1995.


                                      F-20
<PAGE>   355
                           APRIA HEALTHCARE GROUP INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

        During the first quarter of 1994, the company initiated a program to
integrate the TPC operations and to shift market and sales emphasis from home
medical equipment to respiratory therapy. This program resulted in the write-off
of surplus inventory of $2,100,000, costs related to the consolidation of branch
operations of $3,200,000, and an increase in the provision for doubtful accounts
of $1,600,000. The costs related to the consolidation of branch operations
include the costs of closing eight branch offices and severance for the
termination of approximately 350 employees. Also in the first quarter, the
company recorded acquisition-related charges of $4,600,000, including legal
costs and executive severance expenses.


                                      F-21
<PAGE>   356
                           APRIA HEALTHCARE GROUP INC.

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                  Additions
                                                          -----------------------
                                             Balance at  Charged to    Charged to                     Balance at
                                             Beginning   Costs and        Other                         End of
         Description                         of Period    Expenses       Accounts      Deductions       Period
------------------------------               ---------    --------       --------      ----------       ------

<S>                                           <C>         <C>             <C>           <C>            <C>     
Year ended December 31, 1995
Deducted from asset accounts:
    Allowance for doubtful accounts           $61,038     $100,463(a)     $2,655(f)     $77,589        $ 86,567
    Reserve for inventory shortages             3,952        2,898(e)          8(f)       1,104           5,754
    Reserve for patient service equipment
       shortages                                4,546       16,783(e)        117(f)       1,802          19,644
                                              -------     --------        ------        -------        --------

                  Totals                      $69,536     $120,144        $2,780        $80,495        $111,965
                                              =======     ========        ======        =======        ========

Year ended December 31, 1994
Deducted from asset accounts:
    Allowance for doubtful accounts           $52,102     $ 48,718(b)     $9,089(c)     $48,871(d)     $ 61,038
    Reserve for inventory shortages             3,143        1,124                          316           3,952
    Reserve for patient service equipment
       shortages                                1,810        3,312           448          1,024           4,546
                                              -------     --------        ------        -------        --------
                  Totals                      $57,055     $ 53,154        $9,537        $50,211        $ 69,536
                                              =======     ========        ======        =======        ========

Year ended December 31, 1993
Deducted from asset accounts:
    Allowance for doubtful accounts           $42,630     $ 37,279(b)     $8,779(c)     $36,586(d)     $ 52,102
    Reserve for inventory shortages             3,216          438                          511           3,143
    Reserve for patient service equipment
       shortages                                1,252        2,767                        2,209           1,810
                                              -------     --------        ------        -------        --------
                  Totals                      $47,098     $ 40,484        $8,779        $39,306        $ 57,055
                                              =======     ========        ======        =======        ========
</TABLE>


(a)      See Note 3 to the consolidated financial statements.

(b)      Includes $2,002 and $2,803 for discontinued operations for the years
         ended December 31, 1994 and 1993, respectively.

(c)      Includes amounts added in conjunction with business acquisitions.

(d)      Includes the charge-off of uncollectible accounts receivable and a
         reversal of the allowance for doubtful accounts related to discontinued
         operations for the year ended December 31, 1994.

(e)      Includes amounts recorded in conjunction with the establishment of the
         merger and restructuring reserves.

(f)      Represents the net activity for Homedco for the period of October 1,
         1994 through December 31, 1994.


                                       S-1
<PAGE>   357
                                   SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                                       APRIA HEALTHCARE GROUP INC.
                                       ----------------------------
                                               Registrant





November 8, 1996                       /s/ LAWRENCE H. SMALLEN
                                       ------------------------
                                       Lawrence H. Smallen
                                       Chief Financial Officer,
                                       Senior Vice President, Finance
                                       and Treasurer
                                       (Principal Financial Officer)
<PAGE>   358
                                                                    EXHIBIT 23.1



                         CONSENT OF INDEPENDENT AUDITORS


         We consent to the incorporation by reference in the Registration
Statements (Form S-8 Nos. 33-94026, 33-51234, 33-75028, 33-77684, 33-57628,
33-80581 and 33-80583), pertaining to the Apria Healthcare Group Inc./Homedco
Group, Inc.'s Stock Incentive Plan, Apria Healthcare Group Inc. Amended and
Restated 1992 Stock Option Plan, 1992 Stock Incentive Plan, 1994 Employee Stock
Purchase Plan, 1991 Nonqualified Stock Option Plan and 1991 Management Stock
Purchase Plan of our report dated March 6, 1996, with respect to the
consolidated financial statements and schedule of Apria Healthcare Group Inc.
for the year ended December 31, 1995, as amended, included in this Form 10-K/A.


                                             ERNST & YOUNG LLP


Orange County, California
November 7, 1996
<PAGE>   359
                                                                    EXHIBIT 23.2


                         CONSENT OF INDEPENDENT AUDITORS





The Board of Directors
Apria Healthcare Group, Inc.:

We consent to incorporation by reference in the registration statements on Form
S-8 (33-94026, 33-51234, 33-75028, 33-77684, 33-57628 pertaining to Apria
Healthcare Group Inc./Homedco Group Inc.'s Stock Incentive Plan and Abbey
Healthcare Group Incorporated's 1992 Stock Option Plan, 1992 Stock Incentive
Plan, 1994 Stock Purchase Plan and 1991 Management Stock Purchase Plan) of our
report dated February 15, 1994, with respect to the consolidated statements of
income, changes in shareholders' equity, and cash flows of Abbey Healthcare
Group Incorporated and subsidiaries for the year ended January 1, 1994, which
report is included in the Form 10-K of Apria Healthcare Group Inc. for the year
ended December 31, 1995.


                                                     KPMG PEAT MARWICK LLP




Orange County, California
November 7, 1996
<PAGE>   360

                                   APPENDIX F







                     [APRIA'S QUARTERLY REPORT ON FORM 10-Q
                  FOR THE FISCAL QUARTER ENDED MARCH 31, 1996]



                                      F-1
<PAGE>   361
                              UNITED STATES
                    SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C.  20549
                                     
                                 Form 10-Q

(Mark One)
[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934

                    For the period ended March 31, 1996
                                     
                                    OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934


                    Commission File Number:  000-19854
                                     
                                     
                        APRIA HEALTHCARE GROUP INC.
          (Exact name of registrant as specified in its charter)


                                                     
                DELAWARE                        33-0488566
    (State or other jurisdiction of          (I.R.S. Employer
     incorporation or organization)       Identification Number)


   3560 HYLAND AVENUE, COSTA MESA, CA             92626
(Address of principal executive offices)        (Zip Code)

     Registrant's telephone number, including area code: (714)427-2000




Indicate  by  check mark whether the registrant (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the Securities Exchange  Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject  to
such filing requirements for the past 90 days.

                    Yes    X       No
                         -----          -----

There  were 50,789,756 shares of Common Stock, $.001 par value, outstanding
at May 3, 1996.
<PAGE>   362
                        APRIA HEALTHCARE GROUP INC.
                                     
                                 FORM 10-Q
                                     
                    For the period ended March 31, 1996
                                     





PART I. FINANCIAL INFORMATION
------------------------------

Item 1.   Financial Statements (unaudited)

          Consolidated Balance Sheets

          Consolidated Income Statements

          Consolidated Statements of Cash Flows

          Notes to Consolidated Financial Statements

Item 2.   Management's Discussion and Analysis of
          Financial Condition and Results of Operations

PART II.  OTHER INFORMATION
---------------------------

Item 1.   Legal Proceedings
Item 2.   Changes in Securities
Item 3.   Defaults Upon Senior Securities
Item 4.   Submission of Matters to a Vote of Security
          Holders
Item 5.   Other Information
Item 6.   Exhibits and Reports on Form 8-K

SIGNATURES
----------
<PAGE>   363
                        APRIA HEALTHCARE GROUP INC.
                                     
                        CONSOLIDATED BALANCE SHEETS
                                     
                                  ASSETS
<TABLE>
<CAPTION>                                     
                                                  March 31,     December 31,
                                                     1996           1995
                                                  ----------    ------------
                                                   (Dollars in thousands)
<S>                                              <C>            <C>
CURRENT ASSETS
  Cash                                           $   24,052     $   18,829
  Accounts receivable, less allowance for
    doubtful accounts of $90,341 and $86,567
    at March 31, 1996 and December 31, 1995,
    respectively                                    306,980        258,332
  Inventories                                        54,140         45,198
  Deferred income taxes                              45,769         45,883
  Refundable income taxes                            24,079         27,710
  Prepaid expenses and other current assets          10,035          7,770
                                                  ---------      ---------
      TOTAL CURRENT ASSETS                          465,055        403,722
PATIENT SERVICE EQUIPMENT, less accumulated
  depreciation of $168,815 and $161,953 at
  March 31, 1996 and December 31, 1995,
  respectively                                      178,726        167,090
PROPERTY, EQUIPMENT AND IMPROVEMENTS, NET            92,236         80,108
INVESTMENT IN OMNICARE plc                            1,504          1,504
COVENANTS NOT TO COMPETE, NET                        19,167         20,272
GOODWILL, NET                                       297,383        298,870
OTHER ASSETS                                          5,052          8,419
                                                  ---------      ---------
                                                 $1,059,123     $  979,985
                                                  =========      =========

                                     
                   LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Accounts payable                               $   73,563     $  100,653
  Accrued payroll and related taxes
    and benefits                                     22,203         26,792
  Accrued restructuring costs                        13,767         19,085
  Other accrued liabilities                          52,035         48,910
  Current portion of long-term debt                   8,975          9,652
                                                  ---------      ---------
      TOTAL CURRENT LIABILITIES                     170,543        205,092
LONG-TERM DEBT                                      567,190        490,655

STOCKHOLDERS' EQUITY
  Preferred Stock, $.001 par value:
    10,000,000 shares authorized; none issued             -              -
  Common Stock, $.001 par value:
    150,000,000 shares authorized; 50,713,571
      and 49,692,266 shares issued and
      outstanding at March 31, 1996 and
      December 31, 1995, respectively                    51             50
  Additional paid-in capital                        311,347        294,522
  Retained earnings (deficit)                         9,992       (10,334)
                                                  ---------      ---------
                                                    321,390        284,238
COMMITMENTS AND CONTINGENCIES                             -              -
                                                  ---------      ---------
                                                 $1,059,123     $  979,985
                                                  =========      =========
</TABLE>
              See notes to consolidated financial statements.
<PAGE>   364
                        APRIA HEALTHCARE GROUP INC.
                                     
                      CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
                                                      Three Months Ended
                                                          March 31,
                                                   -----------------------
                                                     1996          1995
                                                     ----           ----
                                                    (In thousands, except
                                                       per share data)
<S>                                                <C>            <C>
Net revenues                                       $295,303       $284,609
Costs and expenses:
  Cost of net revenues                               94,091         85,536
  Selling, distribution and administrative          140,944        145,903
  Provision for doubtful accounts                    13,298         13,214
  Amortization of intangible assets                   4,102          3,924
                                                   --------       --------
    OPERATING INCOME                                 42,868         36,032
Interest expense                                     11,108         10,682
                                                   --------       --------
    INCOME BEFORE TAXES                              31,760         25,350
Income taxes                                         11,434          9,558
                                                   --------       --------
    NET INCOME                                     $ 20,326       $ 15,792
                                                   ========       ========


EARNINGS PER COMMON AND COMMON
  EQUIVALENT SHARE                                 $   0.39       $   0.34
                                                   ========       ========
Weighted average number of common and common
  equivalent shares outstanding                      51,997         46,410

EARNINGS PER COMMON AND COMMON EQUIVALENT
  SHARE ASSUMING FULL DILUTION                     $   0.39       $   0.32
                                                   ========       ========
Weighted average number of common and common
  equivalent shares outstanding assuming
  full dilution                                      52,221         50,942
</TABLE>
              See notes to consolidated financial statements.
<PAGE>   365
                        APRIA HEALTHCARE GROUP INC.
                                     
                   CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                      Three Months Ended
                                                          March 31,
                                                     -------------------
                                                     1996           1995
                                                    ------         ------
                                                    (Dollars in thousands)
<S>                                                <C>            <C>
OPERATING ACTIVITIES
Net income                                         $ 20,326       $ 15,792
Items included in net income not
  requiring (providing) cash:
  Provision for doubtful accounts                    13,298         13,214
  Depreciation                                       19,855         19,478
  Amortization of intangible assets                   4,102          3,924
  Amortization of deferred debt costs                   260          1,137
  Loss on sale of property, equipment
    and improvements                                     10            155
Changes in operating assets and liabilities,
  net of effects of acquisitions:
  Increase in accounts receivable                  (61,880)       (38,920)
  Increase in inventories                           (8,533)        (4,255)
  Decrease (increase) in prepaids and
    other assets                                      9,157        (2,804)
  Decrease in accounts payable                     (27,090)        (3,205)
  Decrease in accrued payroll
    and other liabilities                           (1,359)          (396)
  Decrease in accrued restructuring costs           (5,318)              -
Net purchases of patient service equipment,
  net of effects of acquisitions                   (25,186)       (25,281)
                                                   --------       --------
    NET CASH USED IN OPERATING ACTIVITIES          (62,358)       (21,161)

INVESTING ACTIVITIES
  Purchases of property, equipment and
    improvements, net of effects of
    acquisitions                                   (17,322)       (10,383)
  Proceeds from sale of property, equipment
    and improvements                                     18             78
  Acquisitions and payments of
    contingent consideration                          (489)       (32,349)
                                                   --------       --------
    NET CASH USED IN INVESTING ACTIVITIES          (17,793)       (42,654)

FINANCING ACTIVITIES
  Proceeds under revolving credit facility          125,100         91,713
  Payments under revolving credit facility         (46,900)       (67,495)
  Proceeds from senior and other long-term debt           -        115,156
  Payments of senior and other long-term debt       (2,550)       (75,022)
  Capitalized debt costs, net                          (11)          (546)
  Issuances of Common Stock                           9,735          4,549
                                                   --------       --------
    NET CASH PROVIDED BY FINANCING ACTIVITIES        85,374         68,355
                                                   --------       --------

NET INCREASE IN CASH                                  5,223          4,540
Cash at beginning of period                          18,829         21,188
Net activity for Homedco - October 1, 1994 to
  December 31, 1994                                       -          3,697
                                                   --------       --------
      CASH AT END OF PERIOD                        $ 24,052       $ 29,425
                                                   ========       ========
</TABLE>
              See notes to consolidated financial statements.
                                     
                                     
                                     
                                     
                                     
                                     
<PAGE>   366
                   APRIA HEALTHCARE GROUP INC.
                                
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE A - POOLING OF INTERESTS AND BASIS OF PRESENTATION


The  accompanying consolidated financial statements  include  the
accounts of Apria Healthcare Group Inc. ("the Company")  and  its
subsidiaries.   All  significant  intercompany  transactions  and
accounts have been eliminated.  On June 28, 1995, Homedco  Group,
Inc.  ("Homedco")  merged with and into  Abbey  Healthcare  Group
Incorporated ("Abbey") to form Apria Healthcare Group Inc.  ("the
merger").  The merger was accounted for as a pooling-of-interests
and,  accordingly, the consolidated financial statements  reflect
the  combined financial position and operating results  of  Abbey
and  Homedco  and  have  been adjusted to conform  the  differing
accounting  policies of the separate companies  for  all  periods
presented.

In  the  opinion  of management, all adjustments,  consisting  of
normal  recurring accruals, necessary for a fair presentation  of
the  results of operations for the interim periods presented have
been  reflected  herein.  The results of operations  for  interim
periods  are  not  necessarily indicative of the  results  to  be
expected for the entire year.  For further information, refer  to
the  consolidated financial statements and footnotes thereto  for
the  year ended December 31, 1995, filed with the Company's  Form
10-K.

NOTE B - RECLASSIFICATIONS

Certain  amounts  from  prior periods have been  reclassified  to
conform to the current year presentation.

NOTE C - INCOME TAXES

Income  taxes  have  been  provided at  the  effective  tax  rate
expected for the year.  The Company's effective tax rate  differs
from the statutory rate as a result of state income taxes (net of
federal benefit) and the use of net operating loss carryforwards.

NOTE D - RESTRUCTURING COSTS

In  connection  with the merger, the Company adopted  a  plan  to
restructure   and   consolidate  its  operating   locations   and
administrative functions within specific geographic  areas.   The
plan,   which  the  Company  anticipates  will  be  substantially
completed  by September 1996, resulted in a restructuring  charge
in  1995 of approximately $68,304,000 consisting of accrued costs
and  impairments.   The following table summarizes  amounts  paid
through  March 31, 1996 and the remaining accrual  at  March  31,
1996.
<PAGE>   367
<TABLE>
<CAPTION>
                                                    Accruals
                                                    --------
                                                 (in thousands)
<S>                                                  <C>



Accrual at December 31, 1995                         $19,085
Severance amounts paid through March 31, 1996        (4,120)
Other amounts paid through March 31, 1996            (1,198)
                                                     -------
Accrual at March 31, 1996                            $13,767
                                                     =======
</TABLE>


NOTE E - EQUITY

The  change in stockholders' equity, other than from net  income,
resulted from the exercise of stock options, shares issued  under
the  employee stock purchase plan and the tax benefit  associated
with  disqualifying dispositions of incentive stock  options  and
exercises  of  nonqualified stock options.  For the three  months
ended March 31, 1996, proceeds from the exercise of stock options
amounted  to  $9,292,000,  the related tax  benefit  amounted  to
$7,091,000  and shares valued at $443,000 were issued  under  the
employee stock purchase plan.

NOTE F - COMMITMENTS AND CONTINGENCIES

The  Company  is  engaged in the defense of  certain  claims  and
lawsuits  arising out of the ordinary course and conduct  of  its
business, the outcome of which are not determinable at this time.
The Company has insurance policies covering such potential losses
where  such  coverage  is  cost effective.   In  the  opinion  of
management,  any liability that might be incurred by the  Company
upon the resolution of these claims and lawsuits will not, in the
aggregate,  have  a material adverse effect on  the  consolidated
financial condition of the Company.

NOTE G - LONG-TERM DEBT

The  Company  uses  interest  rate swap  and  cap  agreements  to
moderate  its  exposure to interest rate  changes.   The  Company
entered  into a new swap agreement for $280,000,000  of  notional
principal  in  January  1996.   The  counterparty  to  the   swap
agreement has an option to terminate the swap transaction in July
1996.   If this option is not exercised, the swap agreement  will
terminate in January 1997.



ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS


Results of Operations
---------------------

      Net revenues increased 3.8% to $295.3 million for the first
quarter of 1996 compared with $284.6 million for the same  period
last  year.  Respiratory therapy and medical equipment/other grew
at  rates of 6.2% and 4.1%, respectively, while infusion  therapy
decreased by 1.8%.  The growth in the respiratory therapy line is
due  to volume increases in both the traditional and managed care
markets.   Although  the Company believes  its  long-term  growth
<PAGE>   368
opportunities  are  mainly  in managed  care  markets,  continued
development  of business from traditional referral/payor  sources
is  equally  important.  The slight decrease in infusion  therapy
can  be  attributed to price compression in managed care markets,
as  volume actually increased.  Also contributing slightly to the
quarter  to  quarter revenue increase was the impact  of  certain
small complementary businesses acquired in early 1995.

      The  gross margin was 68.1% for the first quarter  in  1996
versus  69.9%  for  the first quarter of 1995.   The  decline  is
primarily  attributable to an increase in the  Company's  managed
care  organization customer base.  Participation in  the  managed
care  system requires a broad offering of products and  services,
including  lower-margin services, medical equipment and supplies.
Also,  the  intense competition in these markets has caused  some
price compression.  To mitigate the effect of these factors,  the
Company  is  implementing  various  initiatives  to  reduce   its
operating costs and has placed sales force incentives on  certain
higher-margin "focus" products.

      Selling,  distribution  and administrative  expenses  as  a
percent  of net revenues decreased to 47.7% in the first  quarter
of  1996  compared with 51.3% for the same period  in  the  prior
year.   Much  of  this  improvement  can  be  attributed  to  the
successful execution of the restructuring and consolidation  plan
initiated  in  conjunction with the merger.  Employee  reductions
and  branch  consolidations are substantially  complete  and  the
associated expense savings is gradually being realized.  Further,
operating  and  clinical efficiency models are being  implemented
which   are   expected   to  contribute  to  additional   expense
improvement.   Certain  aspects of  the  models  were  rolled-out
during  the  first quarter, so the full impact  of  the  expected
savings is not yet reflected in the operating results.

      Interest  expense increased to $11.1 million in  the  first
quarter of 1996 from $10.7 million for the same period last year.
The  increase  is primarily due to an increase in long-term  debt
(see  Liquidity  and Capital Resources).  In  January  1996,  the
Company  entered into a new one-year swap agreement  to  fix  the
interest rate on the notional principal amount of $280 million.


      Income  taxes were $11.4 million in the first  quarter,  up
from $9.6 million in the first quarter of 1995.  The increase  is
due  primarily  to higher pretax income and was  mitigated  by  a
slight  reduction in the effective tax rate.  The rate  reduction
reflects  lower state income taxes resulting from  the  Company's
merged  and  reorganized operations and the use of net  operating
loss carryforwards.

Liquidity and Capital Resources
-------------------------------

      During  the first quarter of 1996, the Company's  operating
activities required the use of $62.4 million, compared  to  $21.2
million  for  the same period last year.  The two  major  factors
contributing  to  the  increase in cash  used  during  the  first
quarter  of  1996  were  increases  in  accounts  receivable  and
reductions in accounts payable.
<PAGE>   369
      In  conjunction  with the restructuring  and  consolidation
plan,  the  Company  decided  to  convert  all  branch  operating
locations to one standardized information system.  The activities
associated   with   the   system  conversions   generally   cause
disruptions  to  normal  operations,  which  create  billing  and
collection  delays  and has resulted in an increase  in  accounts
receivable.  At the end of the first quarter, approximately  two-
thirds  of  the  planned  conversions were  completed,  with  the
remaining 160 conversions scheduled for completion by the end  of
the  third  quarter.  Cash collections are expected to show  some
improvement by the end of the second quarter as normal processing
resumes.  In addition, collections-based incentive programs  have
been  implemented  at  the local and regional  levels  to  ensure
proper focus is given to billing and collection activities.

      The  Company also centralized its accounts payable function
in connection with the restructuring and consolidation plan.  The
centralization process disrupted day-to-day activities causing  a
processing  backlog which was reflected in the  accounts  payable
balance at December 31, 1995.  During the first quarter of  1996,
the   backlog   was   substantially  eliminated,   resulting   in
significant outlays of cash.

      Other operating activities contributing to the use of  cash
include purchases of resale inventory to support business  growth
and   payments  made  against  the  restructuring  cost  accrual,
comprised  primarily  of severance and trailing  facility  costs.
Such payments are expected to continue through 2000, according to
contractual terms.

      Long-term debt, and specifically the amount borrowed  under
the revolving credit facility, increased significantly during the
first  quarter  due to the operating activities discussed  above.
Also  contributing to the increase were expenditures  to  support
the   information  systems  conversions/enhancements  and  branch
consolidations.   These expenditures resulted in a  corresponding
increase to property, plant and equipment.



      At  December 31, 1995, other assets was primarily comprised
of payments for businesses acquired late in the year.  During the
first  quarter,  the  payments  were  allocated  to  the  various
underlying acquired assets.

      The  Company believes that cash provided by operations  and
amounts  available  under its existing credit  facility  will  be
sufficient  to finance its current operations for  at  least  the
next 12 months.  At March 31, 1996, availability under the credit
facility was $134.5 million.



PART II. OTHER INFORMATION
--------------------------

Item 1-5. Not applicable

Item 6.   Exhibits and Reports on Form 8-K
          --------------------------------
<PAGE>   370
          (a)  Exhibits:

               Exhibit
               Number    Description and Reference
               -------   -------------------------
               3.2       Restated Bylaws of Registrant

               11.1      Statement of Computation of Earnings
                         per Share

               27.1      Financial Data Schedule

          (b)  Reports on Form 8-K:

               No reports on Form 8-K were filed during the
               quarter for which this report is filed.
<PAGE>   371
                           SIGNATURES




Pursuant  to the requirements of the Securities Exchange  Act  of
1934, the registrant has duly caused this report to be signed  on
its behalf by the undersigned thereunto duly authorized.


                               Apria Healthcare Group Inc.
                              ------------------------------
                                        Registrant



May 14, 1996                  /s/  Lawrence H. Smallen
                              ------------------------------
                              Lawrence H. Smallen
                              Chief Financial Officer,
                              Vice President, Finance,
                              Treasurer and Secretary
                              (Principal Financial Officer)

<PAGE>   372

                                   APPENDIX G








                     [APRIA'S QUARTERLY REPORT ON FORM 10-Q
            FOR THE FISCAL QUARTER ENDED JUNE 30, 1996, AS AMENDED]



                                      G-1
<PAGE>   373
                              UNITED STATES
                    SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C.  20549
                                     
                                 Form 10-Q

(Mark One)
[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934

                    For the period ended June 30, 1996
                                     
                                    OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934


                    Commission File Number:  000-19854
                                     
                                     
                        APRIA HEALTHCARE GROUP INC.
          (Exact name of registrant as specified in its charter)


                                                     
                DELAWARE                        33-0488566
    (State or other jurisdiction of          (I.R.S. Employer
     incorporation or organization)       Identification Number)


   3560 HYLAND AVENUE, COSTA MESA, CA             92626
(Address of principal executive offices)        (Zip Code)

     Registrant's telephone number, including area code: (714)427-2000

Indicate  by  check mark whether the registrant (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the Securities Exchange  Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject  to
such filing requirements for the past 90 days.

                    Yes    X       No
                         -----          -----

There  were 51,079,608 shares of Common Stock, $.001 par value, outstanding
at August 2, 1996.
<PAGE>   374
                        APRIA HEALTHCARE GROUP INC.
                                     
                                 FORM 10-Q
                                     
                    For the period ended June 30, 1996
                                     





PART I. FINANCIAL INFORMATION
------------------------------

Item 1.   Financial Statements (unaudited)

          Consolidated Balance Sheets

          Consolidated Income Statements

          Consolidated Statements of Cash Flows

          Notes to Consolidated Financial Statements

Item 2.   Management's Discussion and Analysis of
          Financial Condition and Results of Operations

PART II.  OTHER INFORMATION
---------------------------

Item 1.   Legal Proceedings
Item 2.   Changes in Securities
Item 3.   Defaults Upon Senior Securities
Item 4.   Submission of Matters to a Vote of Security
          Holders
Item 5.   Other Information
Item 6.   Exhibits and Reports on Form 8-K

SIGNATURES
----------
<PAGE>   375

                        APRIA HEALTHCARE GROUP INC.
                                     
                        CONSOLIDATED BALANCE SHEETS
                                     
                                  ASSETS
<TABLE>
<CAPTION>
                                                   June 30,     December 31,
                                                     1996           1995
                                                  ----------    ------------
                                                 (Unaudited)
                                                   (Dollars in thousands)
<S>                                              <C>            <C>
CURRENT ASSETS
  Cash                                           $   20,089     $   18,829
  Accounts receivable, less allowance for
    doubtful accounts of $85,075 and $86,567
    at June 30, 1996 and December 31, 1995,
    respectively                                    334,586        258,332
  Inventories                                        60,127         45,198
  Deferred income taxes                              47,712         45,883
  Refundable income taxes                            16,360         27,710
   Prepaid expenses and other current assets         10,886          7,770
                                                  ---------      ---------
      TOTAL CURRENT ASSETS                          489,760        403,722
PATIENT SERVICE EQUIPMENT, less accumulated
  depreciation of $180,610 and $161,953 at
  June 30, 1996 and December 31, 1995,
  respectively                                      192,187        167,090
PROPERTY, EQUIPMENT AND IMPROVEMENTS, NET           105,916         80,108
INVESTMENT IN OMNICARE plc                            1,467          1,504
COVENANTS NOT TO COMPETE, NET                        17,950         20,272
GOODWILL, NET                                       296,135        298,870
OTHER ASSETS                                          8,063          8,419
                                                  ---------      ---------
                                                 $1,111,478     $  979,985
                                                  =========      =========

                                     
                   LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Accounts payable                               $   62,276     $  100,653
  Accrued payroll and related taxes
    and benefits                                     26,825         26,792
  Accrued restructuring costs                        11,030         19,085
  Other accrued liabilities                          41,578         48,910
  Current portion of long-term debt                  11,866          9,652
                                                  ---------      ---------
      TOTAL CURRENT LIABILITIES                     153,575        205,092
LONG-TERM DEBT                                      609,200        490,655

STOCKHOLDERS' EQUITY
  Preferred Stock, $.001 par value:
     10,000,000 shares authorized; none issued                            -
-
  Common Stock, $.001 par value:
    150,000,000 shares authorized; 51,014,267
      and 49,692,266 shares issued and
      outstanding at June 30, 1996 and
      December 31, 1995, respectively                    51             50
  Additional paid-in capital                        316,752        294,522
  Retained earnings (deficit)                        31,900        (10,334)
                                                  ---------      ---------
                                                    348,703        284,238
COMMITMENTS AND CONTINGENCIES                             -              -
                                                  ---------      ---------
                                                 $1,111,478     $  979,985
                                                  =========      =========
</TABLE>
              See notes to consolidated financial statements.
<PAGE>   376
                        APRIA HEALTHCARE GROUP INC.
                                     
                      CONSOLIDATED INCOME STATEMENTS
                                (Unaudited)
<TABLE>
<CAPTION>
                                       Three Months Ended  Six Months Ended
                                            June 30,           June 30,
                                        ----------------  -----------------
                                          1996    1995     1996     1995
                                         ------  ------   ------   ------
                                      (in thousands, except per share data)
<S>                                    <C>      <C>        <C>      <C>
Net revenues                           $306,579 $287,286   $601,882 $571,895
Costs and expenses:
   Cost of net revenues                  96,943   88,270    191,034  173,806
   Selling, distribution and
     administrative                     144,493  146,187    285,437  292,090
   Provision for doubtful accounts,
     net of recoveries                   14,560   13,149     27,858   26,363
    Amortization of intangible assets     4,349    4,210      8,451    8,134
   Restructuring costs                        -    2,661          -    2,661
   Merger costs                               -    6,988          -    6,988
   Employee contract settlements              -    3,206          -    3,206
   Loss on disposition of
     U.K. subsidiary                          -      500          -      500
                                        -------  -------    -------  -------
                                        260,345  265,171    512,780  513,748
                                        -------  -------    -------  -------
     OPERATING INCOME                    46,234   22,115     89,102   58,147
Interest expense                         12,003   11,134     23,111   21,816
                                        -------  -------    -------  -------
     INCOME BEFORE TAXES AND
     EXTRAORDINARY CHARGE                34,231   10,981     65,991   36,331
Income taxes                             12,323    3,484     23,757   13,042
                                        -------  -------    -------  -------
   INCOME BEFORE EXTRAORDINARY CHARGE    21,908    7,497     42,234   23,289
Extraordinary charge on debt
  refinancing, net of taxes                   -    2,998          -    2,998
                                        -------  -------    -------  -------
     NET INCOME                        $ 21,908 $  4,499   $ 42,234 $ 20,291
                                        =======  =======    =======  =======




EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE:
   Income before extraordinary charge   $  0.42  $  0.15   $   0.81  $  0.49
  Extraordinary charge on debt
    refinancing, net of taxes                      (0.06)              (0.06)
                                        -------  -------    -------  -------
  Net income                            $  0.42  $  0.09    $  0.81  $  0.43
                                        =======  =======    =======  =======

Weighted average number of common
  and common equivalent shares
  outstanding                            52,575   48,539     52,286   47,495

EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE
ASSUMING FULL DILUTION:
   Income before extraordinary charge   $  0.42  $  0.15   $   0.81  $  0.47
  Extraordinary charge on debt
    refinancing, net of taxes                      (0.06)              (0.06)
                                        -------  -------    -------  -------
  Net income                            $  0.42  $  0.09   $   0.81  $  0.41
                                        =======  =======   ========  =======

Weighted average number of common
  and common equivalent shares
  outstanding                            52,576   51,323     52,399  51,150

</TABLE>
              See notes to consolidated financial statements.
<PAGE>   377
                        APRIA HEALTHCARE GROUP INC.
                                     
                   CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (Unaudited)
<TABLE>
<CAPTION>
                                                       Six Months Ended
                                                           June 30,
                                                     -------------------
                                                     1996           1995
                                                    ------         ------
                                                    (Dollars in thousands)
<S>                                                <C>            <C>
OPERATING ACTIVITIES
Net income                                         $ 42,234       $ 20,291
Items included in net income not
  requiring (providing) cash:
  Provision for doubtful accounts                    27,858         26,363
  Depreciation                                       44,217         41,207
  Amortization of intangible assets                   8,451          8,134
  Amortization of deferred debt costs                   519          6,061
  Loss (gain) on sale of property,
    equipment and improvements                           21           (150)
  Impairment loss                                         -            500
  Deferred income taxes                              (1,173)         6,276
Changes in operating assets and liabilities,
  net of effects of acquisitions:
  Increase in accounts receivable                  (103,440)       (47,515)
  Increase in inventories                           (14,392)          (882)
  Decrease (increase) in prepaids and
    other current assets                             17,492        (13,037)
  Increase in other non-current assets                  960           (542)
  Decrease in accounts payable                      (38,377)       (10,438)
  Decrease in accrued payroll
    and other liabilities                            (7,205)        (8,885)
  Decrease in accrued restructuring costs            (8,055)             -
Other                                                     -            609
Net purchases of patient service equipment,
  net of effects of acquisitions                    (56,298)       (51,601)
                                                   --------       --------
    NET CASH USED IN OPERATING ACTIVITIES           (87,188)       (23,609)

INVESTING ACTIVITIES
  Purchases of property, equipment and
    improvements, net of effects of
    acquisitions                                    (30,094)       (22,804)
  Proceeds from sale of property,
    equipment and improvements                           67            509
  Acquisitions and payments of
    contingent consideration                         (7,317)       (38,587)
                                                   --------       --------
    NET CASH USED IN INVESTING ACTIVITIES           (37,344)       (60,882)

FINANCING ACTIVITIES
   Proceeds under revolving credit facility         222,300        397,222
   Payments under revolving credit facility        (104,300)      (169,694)
   Proceeds from senior and other long-term debt          -        119,857
   Payments of senior and other long-term debt       (5,084)      (263,333)
  Capitalized debt costs, net                           (11)        (1,343)
  Issuances of Common Stock                          12,887          7,210
                                                   --------       --------
     NET CASH PROVIDED BY FINANCING ACTIVITIES      125,792         89,919
                                                   --------       --------

NET INCREASE IN CASH                                  1,260          5,428
Cash at beginning of period                          18,829         21,188
Net activity for Homedco - October 1, 1994
  to December 31, 1994                                    -          3,697
                                                   --------       --------
      CASH AT END OF PERIOD                        $ 20,089       $ 30,313
                                                   ========       ========
</TABLE>
              See notes to consolidated financial statements.
<PAGE>   378
                        APRIA HEALTHCARE GROUP INC.
                                     
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE A - POOLING OF INTERESTS AND BASIS OF PRESENTATION


The accompanying consolidated financial statements include the accounts  of
Apria  Healthcare  Group Inc. ("the Company") and  its  subsidiaries.   All
significant  intercompany transactions and accounts have  been  eliminated.
On  June  28,  1995, Homedco Group, Inc. ("Homedco") merged with  and  into
Abbey  Healthcare  Group Incorporated ("Abbey") to  form  Apria  Healthcare
Group  Inc.  ("the merger").  The merger was accounted for as a pooling-of-
interests  and, accordingly, the consolidated financial statements  reflect
the  combined financial position and operating results of Abbey and Homedco
and  have been adjusted to conform the differing accounting policies of the
separate companies for all periods presented.

In  the  opinion  of  management,  all adjustments,  consisting  of  normal
recurring  accruals, necessary for a fair presentation of  the  results  of
operations  for the interim periods presented, have been reflected  herein.
The   results  of  operations  for  interim  periods  are  not  necessarily
indicative of the results to be expected for the entire year.  For  further
information,  refer to the consolidated financial statements and  footnotes
thereto for the year ended December 31, 1995, filed with the Company's Form
10-K.
<PAGE>   379
NOTE B - RECLASSIFICATIONS

Certain amounts from prior periods have been reclassified to conform to the
current year presentation.

NOTE C - INCOME TAXES

Income taxes have been provided at the effective tax rate expected for  the
year.  The Company's effective tax rate differs from the statutory rate  as
a  result of state income taxes (net of federal benefit) and the use of net
operating loss carryforwards.

NOTE D - ACQUISITIONS

The Company periodically makes acquisitions of complementary businesses  in
specific geographic markets.  Acquisitions that closed during the six month
period  ended  June  30,  1996 resulted in cash payments  of  approximately
$6,509,000.

NOTE E - RESTRUCTURING COSTS

In  connection  with the merger, the Company adopted a plan to  restructure
and consolidate its operating locations and administrative functions within
specific  geographic  areas.   The plan, which is  substantially  complete,
resulted  in  a  restructuring charge in 1995 of approximately  $68,304,000
consisting   of  accrued  costs  and  impairments.   The  following   table
summarizes amounts paid through June 30, 1996 and the remaining accrual  at
June 30, 1996.

<TABLE>
<S>                                             <C>
Accrual at December 31, 1995                     $19,085,000
Severance amounts paid through June 30, 1996     (5,545,000)
Other amounts paid through June 30, 1996         (2,510,000)
                                                 -----------
Accrual at June 30, 1996                         $11,030,000
                                                 ===========
</TABLE>


NOTE F - LONG-TERM DEBT

The  Company  uses interest rate swap and cap agreements  to  moderate  its
exposure  to  interest  rate changes.  The Company  currently  has  a  swap
agreement covering $280,000,000 of notional principal.

NOTE G - EQUITY

The  change  in stockholders' equity, other than from net income,  resulted
from shares issued under the employee stock purchase plan, the exercise  of
stock   options   and   the  tax  benefit  associated  with   disqualifying
dispositions of incentive stock options and exercises of nonqualified stock
options.  For the six months ended June 30, 1996, shares valued at $440,000
were  issued  under  the employee stock purchase plan,  proceeds  from  the
exercise  of  stock  options amounted to $12,447,000 and  the  related  tax
benefit amounted to $9,344,000.

NOTE H - AGREEMENT AND PLAN OF MERGER

On  June  28,  1996, the Company, Apria Number Two, Inc.,  a  wholly  owned
<PAGE>   380
subsidiary  of  the Company ("Apria Sub") and Vitas Healthcare  Corporation
("Vitas")  entered  into an Agreement and Plan of Merger ("the  Agreement")
providing for the merger of Apria Sub with and into Vitas with Vitas  being
the  surviving  corporation and becoming a wholly owned subsidiary  of  the
Company.   Under the Agreement, subject to possible adjustments as provided
by  the  Agreement, (i) each share of Vitas Common Stock will be  converted
into  the right to receive .290 shares of the Company's Common Stock,  (ii)
each  share  of  Vitas 9% Cumulative Nonconvertible Preferred  Stock  would
remain  outstanding and be purchased by the Company for  its  stated  value
plus  all  accrued and unpaid dividends thereon, (iii) each share of  Vitas
Series  B Preferred Stock would first be converted into Vitas Common Stock,
which would then be converted into the right to receive .290 shares of  the
Company's  Common  Stock,  (iv) each of the Vitas stock  purchase  warrants
would  be  exchanged for a number of shares of the Company's  Common  Stock
based  on  the  exchange  ratio of .290 and (v)  any  Vitas  stock  options
outstanding  would  be  exchanged for the right to receive  shares  of  the
Company's  Common  Stock  based  on  the  exchange  ratio  of  .290.    The
transaction is expected to close in the fourth quarter of 1996  and  to  be
accounted for as a pooling of interests.

NOTE I - COMMITMENTS AND CONTINGENCIES

The  Company  is  engaged  in the defense of certain  claims  and  lawsuits
arising out of the ordinary course and conduct of its business, the outcome
of  which  are  not determinable at this time.  The Company  has  insurance
policies  covering  such  potential losses  where  such  coverage  is  cost
effective.   In  the  opinion of management, any liability  that  might  be
incurred  by  the Company upon the resolution of these claims and  lawsuits
will  not,  in  the  aggregate,  have a  material  adverse  effect  on  the
consolidated financial condition of the Company.

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS


Results of Operations
---------------------

      Net  revenues increased 6.7% to $306.6 million for the second quarter
of  1996  compared with $287.3 million for the same quarter  of  the  prior
year.   For  the six months ended June 30, 1996, net revenues  were  $601.9
million compared with $571.9 million for the same period of the prior year,
representing  a  5.2% increase. Infusion therapy, respiratory  therapy  and
medical   equipment/other  grew  at  rates  of  3.4%,   6.2%   and   11.5%,
respectively,  for the second quarter of 1996, and 2.5%,  4.0%  and  10.9%,
respectively,  for the six months ended June 30, 1996, over the  comparable
1995 periods. Growth in all three business lines is due to volume increases
in both the traditional and managed care markets.  The impact of four 
significant managed care contracts signed in early 1996 was realized during
the second quarter.  Although the Company believes  its long-term  growth  
opportunities  are mainly  in  managed  care   markets, continued  development 
of business from traditional referral/payor  sources is equally important.

      Gross margins for the second quarter and six months ended June 30, 1996,
were 68.4% and 68.3%, respectively, compared with 69.3% and 69.6% for the same
periods of 1995. The decline is primarily attributable to an increase in the
Company's managed care customer base. Participation in the managed care system
requires a broad offering of products and services, including lower-margin
services, medical equipment 
<PAGE>   381
and supplies. Also, the intense competition in these markets has caused some
price compression. To mitigate the effect of these factors, the Company is
implementing various initiatives to reduce its operating costs and has placed
sales force incentives on certain higher-margin "focus" products.

      Selling, distribution and administrative expenses as a percent of net
revenues  for the second quarter and six months ended June 30,  1996,  were
47.1%  and 47.4%, respectively, compared with 50.9% and 51.1% for the  same
periods  last  year.  Much of this improvement can  be  attributed  to  the
successful execution of the restructuring and consolidation plan  initiated
in  conjunction  with  the Abbey/Homedco merger ("the  Merger").   Employee
reductions  and  branch consolidations are substantially complete  and  the
associated expense savings is gradually being realized.

     Also contributing to the improvement in operating income in the 1996
periods is the absence of certain charges recorded during the comparable 
periods in 1995.  The three and six month periods ended June 30, 1995 included 
charges of  $2.7  million,  $7.0 million and $3.2 million for restructuring  
costs, merger costs, and employee contract settlements, respectively, recorded  
in conjunction with the Merger.

     Interest expense increased for the second quarter and six months ended
June 30, 1996, to $12.0 million and $23.1 million, respectively, from $11.1
million  and $21.8 million for the same periods last year. The increase  is
primarily  due to an increase in long-term debt (see Liquidity and  Capital
Resources).  In January 1996, the Company entered into a new one-year  swap
agreement to fix the interest rate on the notional principal amount of $280
million.

      Income  taxes  were  $12.3 million and $23.8 million  in  the  second
quarter  and  six months ended June 30, 1996, respectively,  up  from  $1.8
million and $11.4 million for the same periods in the prior year (the  1995
amounts reflect a tax benefit of $1.7 million on the extraordinary charge).
The  increase is due primarily to higher pretax income.  Income tax expense
for the three months ended June 30, 1995 reflects a change in the estimated
annual effective tax rate due to the merger of Homedco and Abbey during that
quarter.


Liquidity and Capital Resources
-------------------------------

      Cash  used  in the Company's operating activities for the six  months
ended June 30, 1996, was $87.2 million, compared with $23.6 million for the
same  period in the prior year.  The two major factors contributing to  the
additional use of cash were increases in accounts receivable and reductions
in accounts payable.  Offsetting the cash uses somewhat were income tax 
refunds received of $8.0 million and prior year payments applied to current 
year estimated tax payments of $19.0 million.

      In  conjunction  with the restructuring and consolidation  plan,  the
Company  decided  to  convert  all  branch  operating  locations   to   one
standardized information system.  The activities associated with the system
conversions generally cause disruptions to normal operations, which  create
billing  and collection delays and have resulted in an increase in accounts
receivable.  During the second quarter, the Company aggressively  increased
its conversion activity, completing 125 conversions compared with 43 during
the  first  quarter.   At the end of the second quarter,  approximately  85
<PAGE>   382
percent  of  the planned conversions were completed, with the remaining  50
conversions scheduled for completion by the end of the third quarter.   The
Company  has experienced some improvement in cash collections for locations
that  converted  in 1995 and early 1996. Company-wide cash collections  are
expected  to  improve  by the fourth quarter as normal processing  resumes.
Further, collections-based incentive programs have been implemented at  the
local  and regional levels and an accounts receivable task force  has  been
assembled  to  ensure  proper  focus is given  to  billing  and  collection
activities.  Increased revenue also contributed to the increased levels  of
accounts receivable.

      The  Company  also  centralized  its  accounts  payable  function  in
connection   with   the   restructuring   and   consolidation   plan.   The
centralization process disrupted day-to-day activities causing a processing
backlog which was reflected in the accounts payable balance at December 31,
1995.   During  the  six  months  ended June  30,  1996,  the  backlog  was
substantially eliminated, resulting in significant outlays of cash.

      Other  factors  contributing to the use  of  cash  and  corresponding
increase in long-term debt include purchases of resale inventory to support
business  growth and payments made against the restructuring cost  accrual,
comprised  primarily  of  severance  and  trailing  facility  costs.   Such
payments  are  expected  to continue through the year  2000,  according  to
contractual  terms.   Additional expenditures  were  made  to  support  the
information  systems  conversions/enhancements and  branch  consolidations,
resulting in a corresponding increase to property, plant and equipment.

      On June 28, 1996, the Company entered into an agreement to merge with
Vitas Healthcare Corporation, the nation's largest hospice provider,  in  a
transaction  to  be  accounted  for  as  a  pooling  of  interests.    This
transaction  is expected to close during the fourth quarter  of  1996.   In
order  to effect the transaction and meet the working capital needs of  the
combined company, additional financing has been obtained.  Effective August
9,  1996,  the Company entered into an agreement with a syndicate of  banks
which  provides  for borrowings of up to $800 million.   The  agreement  is
structured as an unsecured, five-year revolving line of credit.

     The Company believes that amounts available under the new credit
facility and cash provided by operations will be sufficient to finance its
operations for at least the next 12 months.  At August 9, 1996,
availability under the credit facility was $398 million.
<PAGE>   383
PART II. OTHER INFORMATION
--------------------------

Item 1-3. Not applicable

Item 4.   Submission of Matters to a Vote of Security Holders

          (a)  Annual Meeting of Stockholders of the Company on June 12,
               1996

          (b)  Directors re-elected at Annual Meeting:
                    David L. Goldsmith
                    Leonard Green
                    Frederick S. Moseley

               Member of the Board whose term expires in 1997:
                    Jeremy M. Jones
<PAGE>   384
               Members of the Board whose terms expire in 1998:
                    Terry Hartshorn
                    Charles D. Martin
                    Vincent M. Prager

          (c)  Matters Voted Upon at Annual Meeting:

               1.   Election of Directors
                    ---------------------

                    The Company's Board currently consists of seven
                    directors and is divided into three classes with
                    staggered three year terms.  Voting results were
                    as follows:
                                                FOR         WITHHOLD
                                             ----------     --------
                    David L. Goldsmith       45,202,585     123,446
                    Leonard Green            45,135,185     190,846
                    Frederick S. Moseley     44,778,485     547,546

               2.   Ratification of the Company's Independent Accountants
                    -----------------------------------------------------

                    The Board of Directors has selected Ernst & Young
                    to serve as the Company's independent accountants
                    for the fiscal year ending December 31, 1996,
                    subject to ratification by the holders of a majority
                    of the shares represented at the Annual Meeting.
                    Voting results were as follows:

                    For                      45,262,808
                    Against                      15,949
                    Abstain                      47,274
                    Broker Non-Votes                  0

Item 5.   Not applicable

Item 6.   Exhibits and Reports on Form 8-K

          (a)  Exhibits:

               Exhibit
               Number    Description and Reference
               -------   -------------------------
               2.5       Agreement and Plan of Merger dated June 28, 1996
                         among Apria Healthcare Group Inc., Apria Number
                         Two, Inc. and Vitas Healthcare Corporation.
                         Incorporated by reference to Apria Healthcare
                         Group Inc.'s Registration Statement on Form S-4
                         (Registration No. 333-9407), as filed with
                         the Securities and Exchange Commission on August
                         1, 1996.

               10.57     Standard Commercial Single Tenant Lease, dated
                         May 1, 1996, between 555 First Street, Inc. and
                         Apria Healthcare, Inc. for the premises at 555
                         First Street, San Fernando, California.

               10.58     Standard Commercial Multi-Tenant Lease, dated
<PAGE>   385
                         March 15, 1996, between Watson Land Company and
                         Apria Healthcare, Inc. for the premises at
                         Watson Industrial Center South, Building #173,
                         909 E. 236th Street, Carson, California.

               11.1      Statement of Computation of Earnings
                         per Share.

               27.1      Financial Data Schedule.

          (b)  Reports on Form 8-K:

               No reports on Form 8-K were filed during the
               quarter for which this report is filed.
<PAGE>   386
                                SIGNATURES




Pursuant  to the requirements of the Securities Exchange Act of  1934,  the
registrant  has duly caused this report to be signed on its behalf  by  the
undersigned thereunto duly authorized.


                               APRIA HEALTHCARE GROUP INC.
                              ------------------------------
                                        Registrant



August 13, 1996               /s/  Lawrence H. Smallen
                              ------------------------------
                              Lawrence H. Smallen
                              Chief Financial Officer,
                              Senior Vice President, Finance
                              and Treasurer
                              (Principal Financial Officer)
<PAGE>   387
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                 AMENDMENT NO.1
                                       ON
                                   FORM 10-Q/A


(Mark One)

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                       For the period ended June 30, 1996

                                       OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934


                        Commission File Number: 000-19854


                           APRIA HEALTHCARE GROUP INC.
             (Exact name of registrant as specified in its charter)



                DELAWARE                                        33-0488566
     (State or other jurisdiction of                         (I.R.S. Employer
     incorporation or organization)                       Identification Number)


   3560 HYLAND AVENUE, COSTA MESA, CA                              92626
(Address of principal executive offices)                        (Zip Code)

        Registrant's telephone number, including area code: (714)427-2000

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                               Yes X    No ____

There were 51,079,608 shares of Common Stock, $.001 par value, outstanding at
August 2, 1996.


<PAGE>   388




Item 1 of Part I and Item 1 of Part II of the Quarterly Report on Form 10-Q
for the period ended June 30, 1996 are amended in their entirety as follows:








PART 1.  FINANCIAL INFORMATION

Item 1.           Financial Statements (unaudited)

                  Consolidated Balance Sheets

                  Consolidated Income Statements

                  Consolidated Statements of Cash Flows

                  Notes to Consolidated Financial Statements

PART II. OTHER INFORMATION

Item 1.           Legal Proceedings

<PAGE>   389



                           APRIA HEALTHCARE GROUP INC.

                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                        June 30,        December 31,
                                                                          1996             1995
                                                                       ----------       ----------
                           ASSETS                                       (Unaudited)
                                                                          (Dollars in thousands)
CURRENT ASSETS
<S>                                                                    <C>              <C>       
  Cash .........................................................       $   20,089       $   18,829
  Accounts receivable, less allowance for doubtful
    accounts of $85,075 and $86,567 at June 30, 1996
    and December 31, 1995, respectively ........................          334,586          258,332
  Inventories ..................................................           60,127           45,198
  Deferred income taxes ........................................           47,712           45,883
  Refundable income taxes ......................................           16,360           27,710
  Prepaid expenses and other current assets ....................           10,886            7,770
                                                                       ----------       ----------
TOTAL CURRENT ASSETS ...........................................          489,760          403,722
PATIENT SERVICE EQUIPMENT, less accumulated
  depreciation of $180,610 and $161,953 at June 30, 1996
  and December 31, 1995, respectively ..........................          192,187          167,090
PROPERTY, EQUIPMENT AND IMPROVEMENTS, NET ......................          105,916           80,108
INVESTMENT IN OMNICARE plc .....................................            1,467            1,504
COVENANTS NOT TO COMPETE, NET ..................................           17,950           20,272
GOODWILL, NET ..................................................          296,135          298,870
OTHER ASSETS ...................................................            8,063            8,419
                                                                       ----------       ----------
                                                                       $1,111,478       $  979,985
                                                                       ==========       ==========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Accounts payable .............................................       $   62,276       $  100,653
  Accrued payroll and related taxes and benefits ...............           26,825           26,792
  Accrued restructuring costs ..................................           11,030           19,085
  Other accrued liabilities ....................................           41,578           48,910
  Current portion of long-term debt ............................           11,866            9,652
                                                                       ----------       ----------
TOTAL CURRENT LIABILITIES ......................................          153,575          205,092
LONG-TERM DEBT .................................................          609,200          490,655

STOCKHOLDERS' EQUITY
  Preferred Stock, $.001 par value:
    10,000,000 shares authorized; none issued ..................             --               --
  Common Stock, $.001 par value:  150,000,000 shares authorized;
    51,014,267 and 49,692,266 shares issued and outstanding at
     June 30, 1996 and December 31, 1995, respectively .........               51               50
  Additional paid-in capital ...................................          316,752          294,522
  Retained earnings (deficit) ..................................           31,900          (10,334)
                                                                       ----------       ----------
                                                                          348,703          284,238
COMMITMENTS AND CONTINGENCIES ..................................             --               --
                                                                       ----------       ----------
                                                                       $1,111,478       $  979,985
                                                                       ==========       ==========
</TABLE>


                 See notes to consolidated financial statements.


<PAGE>   390



                           APRIA HEALTHCARE GROUP INC.

                         CONSOLIDATED INCOME STATEMENTS
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                   Three Months Ended               Six Months Ended
                                                                        June 30,                        June 30,
                                                               -------------------------        -------------------------
                                                                 1996            1995             1996            1995
                                                               ---------       ---------        ---------       ---------
                                                                        (in thousands, except per share data)
<S>                                                            <C>             <C>              <C>             <C>      
Net revenues ...........................................       $ 306,579       $ 287,286        $ 601,882       $ 571,895
Costs and expenses:
   Cost of net revenues ................................          96,943          88,270          191,034         173,806
   Selling, distribution and administrative ............         144,493         146,187          285,437         292,090
   Provision for doubtful accounts, net of recoveries ..          14,560          13,149           27,858          26,363
   Amortization of intangible assets ...................           4,349           4,210            8,451           8,134
   Restructuring costs .................................            --             2,661             --             2,661
   Merger costs ........................................            --             6,988             --             6,988
   Employee contract settlements .......................            --             3,206             --             3,206
   Loss on disposition of U.K. subsidiary ..............            --               500             --               500
                                                               ---------       ---------        ---------       ---------
                                                                 260,345         265,171          512,780         513,748
                                                               ---------       ---------        ---------       ---------
         OPERATING INCOME ..............................          46,234          22,115           89,102          58,147
Interest expense .......................................          12,003          11,134           23,111          21,816
                                                               ---------       ---------        ---------       ---------
          INCOME BEFORE TAXES AND
          EXTRAORDINARY CHARGE .........................          34,231          10,981           65,991          36,331
Income taxes ...........................................          12,323           3,484           23,757          13,042
                                                               ---------       ---------        ---------       ---------
          INCOME BEFORE
          EXTRAORDINARY CHARGE .........................          21,908           7,497           42,234          23,289
Extraordinary charge on debt refinancing,
   net of taxes ........................................            --             2,998             --             2,998
                                                               ---------       ---------        ---------       ---------
          NET INCOME ...................................       $  21,908       $   4,499        $  42,234       $  20,291
                                                               =========       =========        =========       =========


EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE:
  Income before extraordinary charge ...................       $    0.42       $    0.15        $    0.81       $    0.49
  Extraordinary charge on debt refinancing,
     net of taxes ......................................                           (0.06)                           (0.06)
                                                               ---------       ---------        ---------       ---------
  Net income ...........................................       $    0.42       $    0.09        $    0.81       $    0.43
                                                               =========       =========        =========       =========

  Weighted average number of common and
    common equivalent shares outstanding ...............          52,575          48,539           52,286          47,495

EARNINGS PER COMMON AND COMMON EQUIVALENT
SHARE ASSUMING FULL DILUTION:
  Income before extraordinary charge ...................       $    0.42       $    0.15        $    0.81       $    0.47
  Extraordinary charge on debt refinancing,
     net of taxes ......................................                           (0.06)                           (0.06)
                                                               ---------       ---------        ---------       ---------
  Net income ...........................................       $    0.42       $    0.09        $    0.81       $    0.41
                                                               =========       =========        =========       =========

  Weighted average number of common
    and common equivalent shares outstanding ...........          52,576          51,323           52,399          51,150
</TABLE>

                 See notes to consolidated financial statements.


<PAGE>   391



                           APRIA HEALTHCARE GROUP INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                       Six Months Ended
                                                                                            June 30,
                                                                                   --------------------------
                                                                                     1996             1995
                                                                                   ---------        ---------
                                                                                     (Dollars in thousands)
OPERATING ACTIVITIES
<S>                                                                                <C>              <C>      
Net income .................................................................       $  42,234        $  20,291
Items included in net income not requiring (providing) cash:
  Provision for doubtful accounts ..........................................          27,858           26,363
  Depreciation .............................................................          44,217           41,207
  Amortization of intangible assets ........................................           8,451            8,134
  Amortization of deferred debt costs ......................................             519            6,061
  Loss (gain) on sale of property, equipment and improvements ..............              21             (150)
  Impairment loss ..........................................................            --                500
  Deferred income taxes ....................................................          (1,173)           6,276
Changes in operating assets and liabilities, net of effects of acquisitions:
  Increase in accounts receivable ..........................................        (103,440)         (47,515)
  Increase in inventories ..................................................         (14,392)            (882)
  Decrease (increase) in prepaids and other current assets .................          17,492          (13,037)
  Decrease (increase) in other non-current assets ..........................             960             (542)
  Decrease in accounts payable .............................................         (38,377)         (10,438)
  Decrease in accrued payroll and other liabilities ........................          (7,205)          (8,885)
  Decrease in accrued restructuring costs ..................................          (8,055)            --
Other ......................................................................            --                609
Net purchases of patient service equipment,
  net of effects of acquisitions ...........................................         (56,298)         (51,601)
                                                                                   ---------        ---------
          NET CASH USED IN OPERATING ACTIVITIES ............................         (87,188)         (23,609)

INVESTING ACTIVITIES
  Purchases of property, equipment and improvements,
     net of effects of acquisitions ........................................         (30,094)         (22,804)
  Proceeds from sale of property, equipment and improvements ...............              67              509
  Acquisitions and payments of contingent consideration ....................          (7,317)         (38,587)
                                                                                   ---------        ---------
          NET CASH USED IN INVESTING ACTIVITIES ............................         (37,344)         (60,882)

FINANCING ACTIVITIES
  Proceeds under revolving credit facility .................................         222,300          397,222
  Payments under revolving credit facility .................................        (104,300)        (169,694)
  Proceeds from senior and other long-term debt ............................            --            119,857
  Payments of senior and other long-term debt ..............................          (5,084)        (263,333)
  Capitalized debt costs, net ..............................................             (11)          (1,343)
  Issuances of Common Stock ................................................          12,887            7,210
                                                                                   ---------        ---------
          NET CASH PROVIDED BY FINANCING ACTIVITIES ........................         125,792           89,919
                                                                                   ---------        ---------

NET INCREASE IN CASH .......................................................           1,260            5,428
Cash at beginning of period ................................................          18,829           21,188
Net activity for Homedco - October 1, 1994  to December 31, 1994 ...........            --              3,697
                                                                                   ---------        ---------
          CASH AT END OF PERIOD ............................................       $  20,089        $  30,313
                                                                                   =========        =========
</TABLE>

                 See notes to consolidated financial statements.

<PAGE>   392



                           APRIA HEALTHCARE GROUP INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE A - POOLING OF INTERESTS AND BASIS OF PRESENTATION

The accompanying consolidated financial statements include the accounts of Apria
Healthcare Group Inc. ("the Company") and its subsidiaries. All significant
intercompany transactions and accounts have been eliminated. On June 28, 1995,
Homedco Group, Inc. ("Homedco") merged with and into Abbey Healthcare Group
Incorporated ("Abbey") to form Apria Healthcare Group Inc. ("the merger"). The
merger was accounted for as a pooling-of-interests and, accordingly, the
consolidated financial statements reflect the combined financial position and
operating results of Abbey and Homedco and have been adjusted to conform the
differing accounting policies of the separate companies for all periods
presented.

In the opinion of management, all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the results of operations for the
interim periods presented, have been reflected herein. The results of operations
for interim periods are not necessarily indicative of the results to be expected
for the entire year. For further information, refer to the consolidated
financial statements and footnotes thereto for the year ended December 31, 1995,
filed with the Company's Form 10-K.

NOTE B - RECLASSIFICATIONS

Certain amounts from prior periods have been reclassified to conform to the
current year presentation.

NOTE C - INCOME TAXES

Income taxes have been provided at the effective tax rate expected for the year.
The Company's effective tax rate differs from the statutory rate as a result of
state income taxes (net of federal benefit) and the use of net operating loss
carryforwards.

NOTE D - ACQUISITIONS

The Company periodically makes acquisitions of complementary businesses in
specific geographic markets. Acquisitions that closed during the six month
period ended June 30, 1996 resulted in cash payments of approximately
$6,509,000.

NOTE E - RESTRUCTURING COSTS

In connection with the merger, the Company adopted a plan to restructure and
consolidate its operating locations and administrative functions within specific
geographic areas. The plan, which is substantially complete, resulted in a
restructuring charge in 1995 of approximately $68,304,000 consisting of accrued
costs and impairments. The following table summarizes amounts paid through June
30, 1996 and the remaining accrual at June 30, 1996.

<TABLE>
<S>                                                    <C>         
Accrual at December 31, 1995 ...................       $ 19,085,000
Severance amounts paid through June 30, 1996 ...         (5,545,000)
Other amounts paid through June 30, 1996 .......         (2,510,000)
                                                       ------------
Accrual at June 30, 1996 .......................       $ 11,030,000
                                                       ============
</TABLE>

The remaining accrual balance consists primarily of $3,615,000 for severance and
related personnel costs and $7,562,000 for branch and billing center closure
costs.

<PAGE>   393

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE F - LONG-TERM DEBT

The Company has limited involvement with derivative financial instruments and
does not use them for trading purposes. Interest rate swap and cap agreements
are used as a means of managing the Company's interest rate exposure. In July
1996, the counterparty to the existing $280,000,000 swap agreement exercised
their option to terminate. In August 1996, the Company entered into two new
one-year swap agreements: one for $280,000,000 of notional principal with a
fixed interest rate of 5.69% and one for $100,000,000 of notional principal with
a fixed interest rate of 5.59%. Both agreements allow the counterparty an option
to terminate in February 1997, with termination in August 1997 if these options
are not exercised. The receipt or payment of the interest differential is made
on a monthly and quarterly basis for the $100,000,000 and $280,000,000
agreements, respectively, and recognized monthly in the financial statements as
an adjustment to interest expense.

NOTE G - EQUITY

The change in stockholders' equity, other than from net income, resulted from
shares issued under the employee stock purchase plan, the exercise of stock
options and the tax benefit associated with disqualifying dispositions of
incentive stock options and exercises of nonqualified stock options. For the six
months ended June 30, 1996, shares valued at $440,000 were issued under the
employee stock purchase plan, proceeds from the exercise of stock options
amounted to $12,447,000 and the related tax benefit amounted to $9,344,000.

NOTE H - AGREEMENT AND PLAN OF MERGER

On June 28, 1996, the Company, Apria Number Two, Inc., a wholly owned subsidiary
of the Company ("Apria Sub") and Vitas Healthcare Corporation ("Vitas") entered
into an Agreement and Plan of Merger ("the Agreement") providing for the merger
of Apria Sub with and into Vitas with Vitas being the surviving corporation and
becoming a wholly owned subsidiary of the Company. Under the Agreement, subject
to possible adjustments as provided by the Agreement, (i) each share of Vitas
Common Stock will be converted into the right to receive .290 shares of the
Company's Common Stock, (ii) each share of Vitas 9% Cumulative Nonconvertible
Preferred Stock would remain outstanding and be purchased by the Company for its
stated value plus all accrued and unpaid dividends thereon, (iii) each share of
Vitas Series B Preferred Stock would first be converted into Vitas Common Stock,
which would then be converted into the right to receive .290 shares of the
Company's Common Stock, (iv) each of the Vitas stock purchase warrants would be
exchanged for a number of shares of the Company's Common Stock based on the
exchange ratio of .290 and (v) any Vitas stock options outstanding would be
exchanged for the right to receive shares of the Company's Common Stock based on
the exchange ratio of .290. The transaction is expected to close in the fourth
quarter of 1996 and to be accounted for as a pooling of interests.

NOTE I - COMMITMENTS AND CONTINGENCIES

The Company is engaged in the defense of certain claims and lawsuits arising out
of the ordinary course and conduct of its business, the outcome of which are not
determinable at this time. The Company has insurance policies covering such
potential losses where such coverage is cost effective. In the opinion of
management,
<PAGE>   394

any liability that might be incurred by the Company upon the resolution of these
claims and lawsuits will not, in the aggregate, have a material adverse effect
on the consolidated results of operations or financial position of the Company.




<PAGE>   395
PART II. OTHER INFORMATION

Item 1.         Legal Proceedings

        The Company is one of nine named defendants in a qui tam lawsuit, which
was filed under seal in the Northern District of Georgia on August 23, 1995, by
Mark Parker, a former employee, and served on the Company on May 31, 1996. The
suit alleges that the Company violated the Civil False Claims Act by paying
illegal kickbacks to certain health care providers in exchange for patient
referrals. The suit also alleges that the Company violated the False Claims Act
by improperly generating "Certificates of Medical Necessity" for certain
products, including oxygen and low air-loss beds, and providing free benefits,
such as pulmonary function testing and pulse oximetry testing, to certain
physicians. Finally, the suit alleges that Mr. Parker's employment was
improperly terminated in violation of the whistleblower protection provisions
of the False Claims Act.

        Prior to the service of the lawsuit, the United States Department of
Justice investigated Mr. Parker's allegations and the Company fully cooperated
with that investigation. On June 27, 1996, the United States intervened in the
suit, and on July 10, 1996, it filed an amended complaint, in which it
essentially joined Mr. Parker's allegations concerning illegal kickbacks, but
declined to join any of the other allegations. In conjunction with the qui tam
action, a grand jury also is investigating allegations contained in the qui tam
complaint. Potential remedies under the Civil False Claims Act include recovery
of any actual damages suffered by the government, treble damages, statutory
fines of up to $10,000 per false claim, and certain other remedies. The grand
jury investigation could result in the imposition of administrative, civil or
criminal fines or penalties or restitutionary relief.

        The Company intends to defend vigorously against the allegations. In
that regard, on July 25, 1996, the Company filed a motion to dismiss the qui tam
lawsuit, and that motion currently is pending. Regardless of the outcome of that
motion, the Company believes that the outcome of the qui tam lawsuit and the
grand jury investigation will not have a material adverse effect on the
consolidated results of operations or financial position of the Company.
<PAGE>   396
                                   SIGNATURES




Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                               APRIA HEALTHCARE GROUP INC.
                                               ---------------------------
                                                       Registrant



October 4, 1996                                /s/  LAWRENCE H. SMALLEN
                                               ------------------------------
                                               Lawrence H. Smallen
                                               Chief Financial Officer,
                                               Senior Vice President, Finance
                                               and Treasurer
                                               (Principal Financial Officer)

<PAGE>   397
                                   APPENDIX H




             [APRIA'S DEFINITIVE PROXY STATEMENT, DATED MAY 8, 1996,
         USED IN CONNECTION WITH APRIA'S ANNUAL MEETING OF STOCKHOLDERS
                             HELD ON JUNE 12, 1996]




                                      H-1
<PAGE>   398
                                                                     May 8, 1996

Dear Stockholder:

         You are cordially invited to attend the 1996 Annual Meeting of
Stockholders of Apria Healthcare Group Inc. to be held on Wednesday, June 12,
1996. We sincerely hope that you will be able to attend the meeting which will
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 10:00 a.m., local time.

         At this meeting you are being asked to elect three incumbent directors
for the ensuing three years. David L. Goldsmith, Leonard Green and Frederick S.
Moseley IV are the nominees for re-election to the Board of Directors to serve
until their terms expire at the 1999 Annual Meeting of Stockholders. You are
also being asked to ratify the selection of Ernst & Young LLP as the Company's
independent accountants for the fiscal year ending December 31, 1996. Your Board
of Directors recommends that you vote "FOR" these proposals.

         The members of the Board and management look forward to personally
greeting as many stockholders as possible at the meeting. However, whether or
not you plan to attend personally, and regardless of the number of shares you
own, it is important that your shares be represented.

         Although you presently may plan to attend the Annual Meeting, please
complete, sign, date and promptly return the enclosed proxy card. If you do
attend the Annual Meeting and wish to vote in person, you may withdraw your
proxy at that time.

                                        Sincerely,


                                        Jeremy M. Jones
                                        Chairman of the Board and
                                        Chief Executive Officer
<PAGE>   399
                           APRIA HEALTHCARE GROUP INC.
                               3560 HYLAND AVENUE
                          COSTA MESA, CALIFORNIA 92626

                    NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
                           TO BE HELD ON JUNE 12, 1996

         The Annual Meeting of Stockholders of Apria Healthcare Group Inc., a
Delaware corporation (the "Company"), will 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 10:00 a.m., local time, on
Wednesday, June 12, 1996, for the following purposes:

                  (1) To reelect three members of the Board of Directors to hold
         office for a three-year term or until their successors are elected and
         qualified;

                  (2) To ratify the selection of Ernst & Young LLP as the
         Company's independent accountants for the fiscal year ending December
         31, 1996; and

                  (3) To transact such other business as may properly come
         before the Annual Meeting and at any adjournment thereof.

         Shares represented by properly executed proxies will be voted in
accordance with the specifications therein. It is the intention of the Board of
Directors that shares represented by proxies, which are not limited to the
contrary, will be voted for: (1) the election of the directors named in the
attached proxy statement and (2) the ratification of the selection of Ernst &
Young LLP as the Company's independent accountants for the 1996 fiscal year.

         The Board of Directors has fixed the close of business on April 15,
1996 as the record date for determining stockholders entitled to notice of and
to vote at the Annual Meeting and at any adjournment thereof. 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.


                                        By Order of the Board of Directors


                                        Lawrence H. Smallen
                                        Chief Financial Officer, Vice President,
                                        Finance, Treasurer and Secretary


Costa Mesa, California
May 8, 1996

                             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, 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.




                                        2
<PAGE>   400
                           APRIA HEALTHCARE GROUP INC.
                               3560 HYLAND AVENUE
                          COSTA MESA, CALIFORNIA 92626

                                 PROXY STATEMENT

                             SOLICITATION OF PROXIES

         The accompanying proxy is being solicited by the Board of Directors of
Apria Healthcare Group Inc. (the "Company") for use at the Company's Annual
Meeting of Stockholders to be held on Wednesday, June 12, 1996, at 10:00 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 May 8, 1996.

         All shares represented by each properly executed unrevoked proxy
received in time for the Annual Meeting will be voted in the manner specified
therein. An executed proxy may be revoked at any time before its exercise by
filing with the Secretary of the Company, at 3560 Hyland Avenue, Costa Mesa,
California 92626, the principal executive office of the Company, a written
notice of revocation or a duly executed proxy bearing a later date. The
execution of the enclosed proxy will not affect a stockholder's right to vote in
person should such stockholder find it convenient to attend the Annual Meeting
and desire to vote in person.

         The expense of soliciting proxies will be borne by the Company. Proxies
will be solicited principally through the use of the mail, but directors,
officers and regular employees of the Company may solicit proxies personally or
by telephone or special letter without any additional compensation. The Company
also will reimburse banks, brokerage houses and other custodians, nominees and
fiduciaries for any reasonable expenses in forwarding proxy materials to
beneficial owners.

         On June 28, 1995, Homedco Group, Inc., a Delaware corporation
("Homedco"), merged with and into Abbey Healthcare Group Incorporated, a
Delaware corporation ("Abbey"), to form the Company. In connection with this
merger transaction (the "Merger"), the Company issued 21,547,529 shares of its
Common Stock for 15,391,092 issued and outstanding shares of Abbey Common Stock
and 26,034,612 shares of its Common Stock for 13,017,306 issued and outstanding
shares of Homedco Common Stock.

           SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT

         On April 15, 1996, the record date with respect to this solicitation
for determining stockholders entitled to notice of and to vote at the Annual
Meeting, 50,717,889 shares of the Company's Common Stock were outstanding. No
shares of any other class of stock were outstanding. Only stockholders of record
on such date are entitled to notice of and to vote at the Annual Meeting and at
any adjournment thereof. Each stockholder of record is entitled to one vote for
each share held on all matters to come before the Annual Meeting and at any
adjournment thereof.

         The following table sets forth information as of April 1, 1996 with
respect to the beneficial ownership of the Company's Common Stock by each person
who is known by the Company to beneficially own more than 5% of the Company's
Common Stock, each director of the Company, the Chief Executive Officer, the
former President, the Company's six most highly compensated executive officers
other than the Chief Executive Officer and former President, and by all
directors and officers as a group. Except as otherwise indicated, beneficial
ownership includes both voting and investment power with respect to the shares
shown.




                                        3
<PAGE>   401
                            SECURITY OWNERSHIP TABLE


<TABLE>
<CAPTION>
                                                                      AMOUNT AND
                                                                      NATURE OF
                                                                      BENEFICIAL        PERCENT
NAME OF BENEFICIAL OWNER                                              OWNERSHIP         OF CLASS
------------------------                                              ---------         --------
<S>                                                                   <C>               <C>    
Jurika & Voyles, Inc.(1)                                              3,087,581           6.1%
George C. Argyros(2)                                                  2,963,650           5.8%
Putnam Investments, Inc.(3)                                           2,697,110           5.3%
Jeremy M. Jones(4)                                                    1,262,376           2.5%
Timothy M. Aitken(5)                                                    253,346             *
David L. Goldsmith(6)                                                   303,569             *
Charles D. Martin(7)                                                    180,085             *
Leonard Green(8)                                                         10,000             *
Frederick S. Moseley IV(9)                                               69,996             *
Terry Hartshorn(10)                                                      31,333             *
Vincent M. Prager(11)                                                    14,630             *
Steven T. Plochocki(12)                                                  43,400             *
Lawrence H. Smallen(13)                                                 154,380             *
Manny A. Brown(14)                                                       23,600             *
Thomas A. Robbins(15)                                                    32,000             *
Sarah L. Eames(16)                                                            0             *
Richard J. Rapp(17)                                                      58,561             *
All directors and executive officers as a group (15 persons)(18)      2,416,689           4.7%
</TABLE>

  *  Less than 1%

 (1)     According to a Schedule 13G, dated February 12, 1996, filed with the
         Securities and Exchange Commission, Jurika & Voyles, Inc., a registered
         investment advisor ("Jurika"), has shared voting power as to 2,970,781
         of the shares and shared dispositive power as to 3,087,581 of the
         shares. The mailing address of Jurika is 1999 Harrison Street, Suite
         700, Oakland, California 94612.

 (2)     According to a Schedule 13D, Amendment No. 2, dated April 7, 1995,
         filed with the Securities and Exchange Commission, this number includes
         1,930,670 and 636 shares owned by HBI Financial, Inc. and GLA Financial
         Corporation, respectively. Mr. Argyos is the sole shareholder of HBI
         Financial, Inc. and GLA Financial Corporation. This number also
         includes (i) 267,560 shares owned by a nonprofit corporation of which
         Mr. Argyos is a director and officer, (ii) 11,252 shares held in trust
         by a private charitable foundation of which Mr. Argyos is a trustee,
         (iii) 724,032 shares held in two charitable remainder unitrusts of
         which Mr. Argyos is an indirect beneficiary and (iv) 29,500 shares held
         in a trust for the benefit of Mr. Argyos' children, for which Mr.
         Argyos disclaims beneficial ownership. The mailing address for Mr.
         Argyos is c/o Arnel & Affiliates, 950 South Coast Drive, Suite 200,
         Costa Mesa, California 92626.

 (3)     According to a Schedule 13G, dated January 15, 1996, filed with the
         Securities and Exchange Commission, this number includes (i) 2,507,630
         shares beneficially owned by Putnam Investment Management, Inc., a
         registered investment advisor ("PIM"), and (ii) 189,480 shares
         beneficially owned by the Putnam Advisory Company, Inc., a registered
         investment advisor ("PAC"). PIM and PAC each have shared voting power
         over 121,123 of the shares and shared dispositive power over 2,507,630
         and 189,480 of the shares, respectively. The mailing address of Putnam
         Investments, Inc. is One Post Office Square, Boston, Massachusetts
         02109.

 (4)     Includes 304,260 shares subject to options that are currently
         exercisable or will become exercisable before May 31, 1996. Also
         includes (i) 702,124 shares held in a family trust of which Mr. Jones
         is a trustee, (ii) 171,262 shares held in a charitable remainder
         unitrust of which Mr. Jones is the lead beneficiary and (iii) 19,730
         shares held in a trust for the benefit of Mr. Jones' children for which
         Mr. Jones disclaims beneficial ownership.

 (5)     Includes 160,000 shares subject to options that are currently
         exercisable or will become exercisable before May 31, 1996. Mr. Aitken
         resigned from the Company as of November 7, 1995.




                                       4
<PAGE>   402
 (6)     Includes 3,333 shares subject to options that are currently exercisable
         or will become exercisable before May 31, 1996.

 (7)     Includes 3,333 shares subject to options that are currently exercisable
         or will become exercisable before May 31, 1996.

 (8)     Includes 10,000 shares subject to options that are currently
         exercisable or will become exercisable before May 31, 1996.

 (9)     Includes 18,000 shares subject to options that are currently
         exercisable or will become exercisable before May 31, 1996.

(10)     Includes 31,333 shares subject to options that are currently
         exercisable or will become exercisable before May 31, 1996.

(11)     Includes 14,000 shares subject to options that are currently
         exercisable or will become exercisable before May 31, 1996.

(12)     Includes 43,400 shares subject to options that are currently
         exercisable or will become exercisable before May 31, 1996.

(13)     Includes 47,640 shares subject to options that are currently
         exercisable or will become exercisable before May 31, 1996.

(14)     Includes 23,600 shares subject to options that are currently
         exercisable or will become exercisable before May 31, 1996.

(15)     Includes 32,000 shares subject to options that are currently
         exercisable or will become exercisable before May 31, 1996.

(16)     Ms.  Eames resigned from the Company as of November 22, 1995.

(17)     Includes 14,000 shares subject to options that are currently
         exercisable or will become exercisable before May 31, 1996. Mr. Rapp
         resigned as an executive officer of the Company as of July 1, 1995.

(18)     Includes shares owned by certain trusts. Also includes 715,619 shares
         subject to options that are currently exercisable or will become
         exercisable before May 31, 1996. Does not include shares beneficially
         owned by Messrs. Aitken or Rapp or Ms. Eames. See Notes 4 through 17.




                                       5
<PAGE>   403
                              ELECTION OF DIRECTORS

         The Company's Board of Directors consists of that number of directors
as may be determined by the Board of Directors. The full Board of Directors
consists of eight directors. However, since the resignation of Mr. Timothy M.
Aitken, as of November 7, 1995, the Board of Directors has consisted of only
seven directors. Pursuant to the Company's bylaws, the vacancy created by Mr.
Aitken's resignation will be filled or selected by a majority vote of Messrs.
Frederick S. Moseley IV, Leonard Green and Vincent M. Prager (or any other
individual or individuals selected as a replacement director for any of the
foregoing directors). The Board of Directors is divided into three classes, with
staggered three-year terms. Two of the classes have three directors and the
remaining class has two directors (which currently has one vacancy due to the
resignation of Mr. Aitken). At the 1996 Annual Meeting of Stockholders, three
directors are to be elected for a term of three years or until election and
qualification of their successors. 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.

         Votes cast by proxy or in person at the Annual Meeting will be counted
by the persons appointed by the Company 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 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."

         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).

         The accompanying proxies solicited by the Board of Directors will be
voted for the election of the nominees named below, unless the proxy card is
marked to withhold authority to vote for any nominee. The nominees are presently
members of the Company's Board of Directors and were previously elected to their
present terms of office by the stockholders of the Company.

         The nominees for election are:

                                             David L. Goldsmith
                                             Leonard Green
                                             Frederick S. Moseley IV

         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 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 reduce the number of directors.




                                       6
<PAGE>   404
                  INFORMATION REGARDING THE BOARD OF DIRECTORS

NOMINEES AND DIRECTORS

         The following table provides information regarding the nominees and the
other members of the Board of Directors. The ages shown are as of April 15,
1996.

<TABLE>
<CAPTION>
                                   BUSINESS EXPERIENCE DURING LAST      DIRECTOR
NAME AND AGE                       FIVE YEARS AND DIRECTORSHIPS          SINCE
------------                       ----------------------------          -----

                 MEMBERS OF THE BOARD WHOSE TERMS EXPIRE IN 1996

                                   (NOMINEES)
<S>                            <C>                                      <C>  
David L. Goldsmith (48)        Managing Director of Robertson,           1987*
                               Stephens & Company LLC, an investment
                               banking firm, since 1981. Mr.
                               Goldsmith is also a director of Matria
                               Healthcare, Inc. and The Spectranetics
                               Corporation.

Leonard Green (69)             President and Chief Executive Officer     1993**
                               of Green Management and Investment,
                               Co., a private investment management
                               company, since 1985. Mr. Green also
                               serves as a director of Ornda Health
                               Corp. and Nu-Tech Bio-Med, Inc.

Frederick S. Moseley IV (43)   Managing Director of Triumph Corporate    1991**
                               Finance Group, Inc. (formerly The
                               Boston Corporate Finance Group, Inc.)
                               and of Triumph Capital Group, Inc.,
                               since March 1990. From 1985 to March
                               1990, Mr. Moseley was a Managing
                               Director of Drexel Burnham Lambert
                               Incorporated.

<CAPTION>
                 MEMBER OF THE BOARD WHOSE TERM EXPIRES IN 1997
<S>                            <C>                                      <C>  
Jeremy M. Jones (54)           Chairman of the Board and Chief           1987*
                               Executive Officer of the Company since
                               the Merger. Chairman of the Board of
                               Homedco from 1991 to the Merger and
                               Chief Executive Officer of Homedco
                               from 1987 to the Merger. Mr. Jones was
                               also the President of Homedco from
                               1987 until 1994. From 1984 to 1987,
                               Mr. Jones served as President of NME
                               Home Care Group and National Medical
                               Homecare, Inc. Mr. Jones also serves
                               as a director of On Assignment, Inc.,
                               a national provider of temporary
                               professionals.

<CAPTION>
                 MEMBERS OF THE BOARD WHOSE TERMS EXPIRE IN 1998
<S>                            <C>                                      <C>  
Terry Hartshorn (50)           President and Chief Executive Officer     1991*
                               of UniHealth America and Chairman of
                               the Board of PacificCare Health
                               Systems, a managed care organization,
                               since April 1993. From 1976 through
                               April 1993, Mr. Hartshorn served as
                               President, Chief Executive Officer and
                               a director of PacificCare Health
                               Systems and as a director Pacific
                               Health Systems and Emcare Holdings
                               Inc.
</TABLE>




                                        7
<PAGE>   405
<TABLE>
<CAPTION>
                                   BUSINESS EXPERIENCE DURING LAST      DIRECTOR
NAME AND AGE                       FIVE YEARS AND DIRECTORSHIPS          SINCE
------------                       ----------------------------          -----
<S>                            <C>                                      <C>  
Charles D. Martin (59)         General Partner of Enterprise             1987*
                               Partners, a venture capital firm,
                               since 1985. Mr. Martin has also been a
                               General Partner of Westar Capital, a
                               leveraged buyout firm, since 1987.

Vincent M. Prager (52)         Partner in Montreal office of the law     1994**
                               firm of Stikeman, Elliott since 1977.
                               Mr. Prager serves on the Boards of
                               Directors of OOCL Canada, Inc. (the
                               Canadian subsidiary of the OOCL Group
                               of Hong Kong), the Beaverbrook
                               Canadian Foundation, Tradau Inc. and
                               Virion Inc. as well as the boards of
                               directors of several privately-held
                               companies and a foundation.
</TABLE>

 *       Director of Homedco from the date shown until the date of the Merger.
         Director of the Company from the date of the Merger until the present.

**       Director of Abbey from the date shown until the date of the Merger.
         Director of the Company from the date of the Merger until the present.

                                 DIRECTORS' FEES

         All directors of the Company are reimbursed for their out-of-pocket
expenses incurred in connection with attending Board and Committee meetings. All
non-employee directors of the Company receive: (i) a $4,500 quarterly retainer,
(ii) $1,000 per Board or Committee meeting attended in person ($1,500, if such
director is the Committee's chairman) and (iii) $500 per Board or Committee
meeting attended via telephone. In addition, each non-employee director is
granted an option to purchase 15,000 shares of the Company's Common Stock as of
the date he or she is elected to the Board, which vests over a three-year term,
and is granted an option to purchase an additional 15,000 shares of Common Stock
on each re-election of such director, which also vests over a three-year term.

                COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS

         The committees of the Board of Directors consist of an Audit Committee,
a Compensation Committee and an Executive Committee. During the 1995 fiscal
year, all directors attended 75% or more of the total meetings of the Board of
Directors and Committees of the Board of Directors on which they served. The
Board of Directors held eleven meetings from January 1, 1995 until the date of
the Merger and six meetings from the date of the Merger until the end of the
1995 fiscal year.

         Audit Committee. The Audit Committee meets periodically with the
Company's independent accountants and management to make inquiries regarding the
manner in which the responsibilities of each are being discharged. The Audit
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) the Company's accounting
principles and (iii) the adequacy of the Company's internal controls. The Audit
Committee is comprised of Messrs. Leonard Green (Chairman), David L. Goldsmith,
Terry Hartshorn and Vincent M. Prager and held three meetings during the 1995
fiscal year.

         Compensation Committee. The Compensation Committee reviews the
salaries, bonuses and stock ownership awards for the officers of the Company.
The Compensation Committee is comprised of Messrs. Charles D. Martin (Chairman),
Leonard Green, Terry Hartshorn and Frederick S. Moseley IV and held three
meetings during the 1995 fiscal year. See "Report of the Compensation Committee"
regarding 1995 fiscal year compensation and stock ownership programs.

         Executive Committee.  The Executive Committee focuses on the overall
management of the business and affairs of the Company. The Executive Committee
is comprised of Messrs. Jeremy M. Jones (Chairman), Frederick S. Moseley IV and
Charles D. Martin and held three meetings during the 1995 fiscal year.




                                       8
<PAGE>   406
                  EXECUTIVE COMPENSATION AND OTHER INFORMATION

SUMMARY OF EXECUTIVE COMPENSATION

         The following table sets forth all compensation for the 1995, 1994 and
1993 fiscal years paid to or earned by the Chief Executive Officer, the former
President, and the six other most highly compensated executive officers of the
Company other than the Chief Executive Officer and the former President during
the 1995 fiscal year.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                       LONG TERM(1)
                                                                                       COMPENSATION
                                                               ANNUAL COMPENSATION       OPTIONS           ALL OTHER
                                                  SALARY              BONUS              GRANTED          COMPENSATION
NAME                                YEAR           ($)                 ($)                 (#)                ($)
----                                ----           ---                 ---                 ---                ---
<S>                                 <C>        <C>             <C>                     <C>               <C>          
Jeremy M. Jones                     1995       $390,100(2)        $  157,000           200,000           $    5,940(3)
  Chairman of the Board             1994        338,701               92,267                --                6,122(3)
  and Chief Executive Officer       1993        317,684              130,000                --                6,400(3)

Timothy M. Aitken(4)                1995        316,967(5)         3,119,200(6)         29,400(7)         2,032,656(8)
  Former Vice Chairman of           1994        350,000              538,034(9)             --                   --
  the Board and President           1993        350,000            1,140,250(10)       322,000                   --

Steven T. Plochocki                 1995        193,591(11)          222,500(12)        81,400                   --
  President and Chief               1994        175,000              175,000            12,600                   --
  Operating Officer                 1993        168,043               45,004            21,000                   --

Lawrence H. Smallen                 1995        190,436(13)           34,651            48,000                5,281(3)
  Chief Financial Officer,          1994        156,701               25,000                --                6,268(3)
  Vice President, Finance,          1993        148,008               36,966                --                4,896(3)
  Treasurer and Secretary

Manny A. Brown                      1995        172,883(14)          200,000(15)        69,000(16)               --
  Senior Vice President,            1994        144,823              165,000            37,800                   --
  Midwest Zone                      1993        113,700              108,260            21,840                   --

Thomas M. Robbins                   1995        146,256(17)           42,023            98,000(18)            5,850(3)
  Senior Vice President,            1994        135,392               18,751                --                5,223(3)
  Southern Zone                     1993        116,352               29,832            50,000

Sarah L. Eames(19)                  1995        156,756(20)          165,400(21)        21,000(22)          735,000(25)
  Former Vice President,            1994        152,000               19,259             7,000(23)               --
  Marketing                         1993         96,819               58,539            35,000(24)               --

Richard J. Rapp(26)                 1995        172,852(27)          138,750(28)            --              370,000(29)
  Former Vice President,            1994        185,000               10,250                --                   --
  Chief Financial Officer           1993        193,502              164,113           126,000                   --
  and Treasurer
</TABLE>

 (1)     The Company has not issued stock appreciation rights or restricted
         stock awards. The Company currently has no "long-term incentive plan"
         as that term is defined in the applicable rules.

 (2)     This amount reflects $195,100 paid by Homedco and $195,000 paid by the
         Company.

 (3)     Annual contribution by the Company to the Company's 401(k) Savings Plan
         in the name of the individual.

 (4)     Mr. Aitken was the Company's Chairman of the Board, Chief Executive
         Officer and President prior to the Merger. Mr. Aitken resigned from the
         Company as of November 7, 1995.

 (5)     This amount reflects $175,432 paid by Abbey and $141,535 paid by the
         Company.

 (6)     This amount reflects $3,025,000 paid by Abbey and $94,200 paid by the
         Company.

 (7)     These options were cancelled on November 7, 1995 in connection with Mr.
         Aitken's resignation.



                                       9
<PAGE>   407
 (8)     This amount reflects $196,000 of principal and interest owing by Mr.
         Aitken under a loan extended to Mr. Aitken in 1992 to purchase a home
         (the "1992 Loan") which was forgiven by the Company in connection with
         his resignation. This amount also reflects $1,836,656 in severance
         payments made in connection with Mr. Aitken's resignation.

 (9)     This amount reflects (i) the forgiveness of $188,034 in principal and
         interest due to Abbey under the 1992 Loan and (ii) a discretionary cash
         bonus of $350,000 awarded in recognition of certain achievements by
         Abbey in 1994.

(10)     This amount reflects (i) the forgiveness of $337,500 in principal and
         interest due to Abbey under the 1992 Loan, (ii) the forgiveness of
         $337,500 in principal and interest due to Abbey under the 1992 Loan in
         recognition of Mr. Aitken's efforts in consummating the acquisition of
         Total Pharmaceutical Care, Inc. ("TPC") in 1993, (iii) a cash bonus of
         $175,000 (50% of base salary) under Abbey's Management Incentive Bonus
         Plan, and (iv) a discretionary cash bonus of $290,250 awarded in
         recognition of the TPC acquisition and other achievements during 1993.
         The discretionary cash bonus represents the estimated dollar amount
         necessary to pay income taxes associated with the forgiveness of
         indebtedness.

(11)     This amount reflects $89,357 paid by Abbey and $104,234 paid by the
         Company.

(12)     This amount reflects $222,500 paid by Abbey.

(13)     This amount reflects $90,018 paid by Homedco and $100,418 paid by the
         Company.

(14)     This amount reflects $83,765 paid by Abbey and $89,118 paid by the
         Company.

(15)     This amount reflects $200,000 paid by Abbey.

(16)     Options to purchase 21,000 shares of the Company's Common Stock were
         granted pursuant to the 1992 Plan (as defined in Note 1 to the Option
         Grants Table below). All of such options were cancelled as of January
         30, 1996. Options to purchase an additional 21,000 shares of the
         Company's Common Stock were granted pursuant to the 1992 Plan
         contingent upon the cancellation of the options to purchase the 21,000
         shares referred to above. Options to purchase 27,000 shares were also
         granted pursuant to the 1992 Plan.

(17)     This amount reflects $70,167 paid by Homedco and $76,089 paid by the
         Company.

(18)     Options to purchase 50,000 shares of the Company's Common Stock were
         granted pursuant to Part III of the 1995 Plan (as defined in Note 1 to
         the Option Grants Table below). All of such options were cancelled as
         of January 30, 1996. Options to purchase 48,000 shares of the Company's
         Common Stock were granted pursuant to the 1992 Plan contingent upon the
         cancellation of the options to purchase the 50,000 shares referred to
         above.

(19)     Ms.  Eames resigned from the Company as of November 22, 1995.

(20)     This amount reflects $66,797 paid by Abbey and $89,959 paid by the
         Company.

(21)     This amount reflects $165,400 paid by Abbey.

(22)     These options were cancelled on November 22, 1995 in connection with
         Ms. Eames' resignation.

(23)     This amount includes 4,667 options which were cancelled on November 22,
         1995 in connection with Ms. Eames' resignation.

(24)     This amount includes 11,667 options which were cancelled on November
         22, 1995 in connection with Ms. Eames' resignation.

(25)     This amount reflects severance payments to be made in connection with
         Ms. Eames' resignation.

(26)     Mr. Rapp resigned as an executive officer of the Company as of July 1,
         1995.

(27)     This amount reflects $92,877 paid by Abbey and $79,975 paid by the
         Company.

(28)     This amount reflects $138,750 paid by Abbey.

(29)     This amount reflects severance payments to be made in connection with
         Mr. Rapp's resignation as an executive officer.




                                       10
<PAGE>   408
SUMMARY OF OPTION GRANTS TABLE

         The following table provides information with respect to grants of
options during the most recently completed fiscal year to the Chief Executive
Officer, the former President and the six other most highly compensated
executive officers of the Company other than the Chief Executive Officer and the
former President during the 1995 fiscal year.

                               OPTION GRANTS TABLE

                        OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                                                                                         POTENTIAL REALIZABLE  
                                                          % OF TOTAL                                       VALUE AT ASSUMED    
                                        NUMBER OF          OPTIONS                                         ANNUAL RATES OF     
                                        SECURITIES        GRANTED TO                                   STOCK PRICE APPRECIATION
                                        UNDERLYING        EMPLOYEES                                        FOR OPTION TERM     
                                         OPTIONS          IN FISCAL      EXERCISE      EXPIRATION          ---------------
NAME                                    GRANTED(1)         YEAR(2)         PRICE          DATE            5%             10%
----                                    ----------         -------         -----          ----            --             ---
<S>                                     <C>               <C>            <C>            <C>           <C>             <C>
Jeremy M. Jones                         200,000(3)          10.9%         $25.38         3/23/05      $3,192,269      $8,089,837
Timothy M. Aitken*                       29,400(4)           1.6%          27.68         6/20/05         511,789       1,296,975
Steven T. Plochocki                      29,400(5)           1.6%          27.68         6/20/05         511,789       1,296,975
                                         52,000(6)           2.8%          20.50        10/12/05         670,402       1,698,929
Lawrence C. Smallen                      48,000(7)           2.6%          20.50        10/12/05         618,832       1,568,243
Manny A. Brown                           21,000(8)           1.1%          27.68         6/20/05         365,564         926,411
                                         21,000(9)           1.1%          20.50        10/12/05         270,739         686,106
                                        27,000(10)           1.5%          20.50        10/12/05         348,093         882,136
Thomas A. Robbins                       50,000(11)           2.7%          28.03         4/26/05         881,396       2,233,630
                                        48,000(12)           2.6%          20.50        10/12/05         618,832       1,568,243
Sarah L. Eames*                         21,000(13)           1.1%          27.68         6/20/05         365,564         926,411
Richard J. Rapp*                            --                --              --              --              --              --
</TABLE>

*        Messrs. Aitken and Rapp and Ms. Eames resigned as executive officers of
         the Company prior to the end of the 1995 fiscal year.

 (1)     These options were granted under two different employee benefit plans,
         the Amended and Restated 1992 Stock Incentive Plan (the "1992 Plan")
         and the Apria Healthcare Group Inc./Homedco Group, Inc. Stock Incentive
         Plan (the "1995 Plan").

         The 1992 Plan authorizes the issuance of up to 3,150,000 shares of
         Common Stock of the Company, plus 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.
         An option granted under the 1992 Plan may be either an incentive stock
         option as defined in the Internal Revenue Code of 1986, as amended, or
         a non-statutory stock option. Incentive stock options may be granted to
         employees only. Unless previously terminated by the Board of Directors,
         the 1992 Plan will terminate in July 2003. See "Amended and Restated
         1992 Stock Incentive Plan."

         The 1995 Plan consists of three parts: Part I of the 1995 Plan was
         formerly the Homedco Group, Inc. 1988 Stock Option Plan, Part II of the
         1995 Plan was formerly the Homedco Group, Inc. Long-Term Senior
         Management Equity Plan and Part III of the 1995 Plan was formerly the
         Homedco Group, Inc. 1994 Stock Incentive Plan. The 1995 Plan as a whole
         authorizes the issuance of an aggregate of up to 5,327,051 shares of
         Common Stock of the Company upon the exercise of options or in
         satisfaction of awards granted under any Part of the 1995 Plan. Unless
         previously terminated by the Board of Directors, the 1995 Plan will
         terminate on the respective dates set forth in Parts I, II and III of
         the 1995 Plan. See "Apria Healthcare Group Inc./Homedco Group, Inc.
         Stock Incentive Plan."

         Under Part I of the 1995 Plan, the Company may issue shares of Common
         Stock of the Company upon the exercise of options or in satisfaction of
         stock appreciation rights granted. An option granted under Part I of
         the 1995 Plan may be either an incentive stock option as defined in the
         Internal Revenue Code of 1986, as amended, or a non-statutory stock
         option. Incentive stock options may be granted to key employees only.
         Unless previously terminated by the Board of Directors, Part I of the
         1995 Plan will terminate in July 1998. See "Apria Healthcare Group
         Inc./Homedco Group, Inc. Stock Incentive Plan."




                                       11
<PAGE>   409
         Under Part II of the 1995 Plan, the Company may issue shares of Common
         Stock of the Company upon the exercise of options granted. An option
         granted under Part II of the 1995 Plan must be designated as a
         non-qualified stock option. The purchase price for each share of Common
         Stock issued in connection with the options granted may not be less
         than 100% of the fair market value of a share of Common Stock on the
         date the option is granted. Options granted under Part II of the 1995
         Plan become exercisable under either a specified earnings based vesting
         schedule commencing with the announcement of financial results for the
         fiscal year of the Company ending in 1995, or a time vesting schedule
         commencing with such announcement. Under the time vesting schedule, 25%
         of the shares covered become exercisable at the time of such
         announcement and an additional 25% of the option shares become
         exercisable on each successive anniversary date, with full time vesting
         occurring with the announcement of financial results for the fiscal
         year of the Company ending in 1998. The achievement of specified
         earnings for each fiscal year will result in accelerated vesting.
         Unless previously terminated by the Board of Directors, Part II of the
         1995 Plan will terminate in March 2002. See "Apria Healthcare Group
         Inc./Homedco Group, Inc. Stock Incentive Plan."

         Under Part III of the 1995 Plan, the Company may issue shares of Common
         Stock of the Company upon the exercise of options or in satisfaction of
         stock appreciation rights, restricted stock awards, performance share
         awards and stock bonuses. An option granted under Part III of the 1995
         Plan may either be an incentive stock option or a nonqualified stock
         option. Incentive stock options may be granted to employees only.
         Except as provided in an applicable award agreement, no award made
         under Part III of the 1995 Plan may be exercisable or may vest until at
         least six months after the initial award date. Unless previously
         terminated by the Board of Directors, Part III of the 1995 Plan will
         terminate in April 2004. See "Apria Healthcare Group Inc./Homedco
         Group, Inc. Stock Incentive Plan."

 (2)     Includes all options granted to employees by Abbey, Homedco and the
         Company collectively at any time during the 1995 fiscal year.

 (3)     These options were granted pursuant to Part I of the 1995 Plan and are
         subject to a five year vesting schedule.

 (4)     These options were granted pursuant to the 1992 Plan and were subject
         to a three year vesting schedule. These options were cancelled on
         November 7, 1995 in connection with Mr. Aitken's resignation.

 (5)     These options were granted pursuant to the 1992 Plan and are subject to
         a three year vesting schedule.

 (6)     These options were granted pursuant to the 1992 Plan and are subject to
         a five year vesting schedule.

 (7)     These options were granted pursuant to the 1992 Plan and are subject to
         a five year vesting schedule.

 (8)     These options were granted pursuant to the 1992 Plan and were subject
         to a three year vesting schedule. These options were cancelled in
         connection with the grant of 21,000 options on October 12, 1995.

 (9)     These options were granted pursuant to the 1992 Plan, are subject to a
         five year vesting schedule and were conditioned upon the cancellation
         of the 21,000 options granted to Mr. Brown on June 20, 1995.

(10)     These options were granted pursuant to the 1992 Plan and are subject to
         a five year vesting schedule.

(11)     These options were granted pursuant to Part III of the 1995 Plan and
         were subject to a five year vesting schedule. These options were
         cancelled in connection with the grant of 48,000 options on October 12,
         1995.

(12)     These options were granted pursuant to the 1992 Plan, are subject to a
         five year vesting schedule and were conditioned upon the cancellation
         of the 50,000 options granted to Mr. Robbins on April 26, 1995.

(13)     These options were granted pursuant to the 1992 Plan and were subject
         to a three year vesting schedule. These options were cancelled on
         November 22, 1995 in connection with Ms. Eames' resignation.




                                       12
<PAGE>   410
SUMMARY OF OPTIONS EXERCISED

         The following table provides information with respect to the exercise
of stock options during the most recently completed fiscal year by the Chief
Executive Officer, the former President and the six other most highly
compensated executive officers of the Company other than the Chief Executive
Officer and the former President during the 1995 fiscal year together with the
fiscal year-end value of unexercised options.

                    OPTION EXERCISES AND YEAR-END VALUE TABLE

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE

<TABLE>
<CAPTION>
                                                                    NUMBER OF             VALUE OF UNEXERCISED
                                                              SECURITIES UNDERLYING           IN-THE-MONEY
                                SHARES                        UNEXERCISED OPTIONS AT           OPTIONS AT       
                               ACQUIRED        VALUE(1)         FISCAL YEAR-END(#)        FISCAL YEAR-END(1)($)
                              ON EXERCISE      REALIZED            EXERCISABLE/               EXERCISABLE/
NAME                              (#)            ($)               UNEXERCISABLE              UNEXERCISABLE
----                              ---            ---               -------------              -------------
<S>                           <C>             <C>             <C>                         <C>                                
Jeremy M. Jones                  94,000       $1,991,250         169,160/358,000          $3,100,030/$3,348,500
Timothy M. Aitken*               74,666          944,173         327,600/37,334(2)         5,506,762/468,008(3)
Steven T. Plochocki                 -0-              -0-          53,200/96,800              962,525/612,849
Lawrence H. Smallen               7,200          171,900          60,000/99,000            1,107,000/1,269,750
Manny A. Brown                    9,800          151,594          30,800/73,200              437,851/732,900
Thomas A. Robbins                   -0-              -0-          25,000/73,000              400,000/772,000
Sarah L. Eames*                     -0-              -0-          39,666/0(4)                713,916/0(5)
Richard J. Rapp*                    -0-              -0-         181,066/14,000            3,115,726/175,500
</TABLE>

 *       Messrs. Aitken and Rapp and Ms. Eames resigned as executive officers of
         the Company prior to the end of the 1995 fiscal year.

(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.

(2)      This amount does not include 29,400 options which were cancelled on
         November 7, 1995 in connection with Mr. Aitken's resignation.

(3)      This amount does not include the value of 29,400 options which where
         cancelled on November 7, 1995 in connection with Mr. Aitken's
         resignation.

(4)      This amount does not include 37,334 options which were cancelled on
         November 7, 1995 in connection with Ms. Eames' resignation.

(5)      This amount does not include the value of 37,334 options which were
         cancelled on November 7, 1995 in connection with Ms. Eames'
         resignation.




                                       13
<PAGE>   411
SUMMARY OF OPTION REPRICING

         The following table provides information with respect to stock options
previously granted to the Chief Executive Officer, the former President and the
six other most highly compensated executive officers of the Company other than
the Chief Executive Officer and the former President which were reissued during
the 1995 fiscal year. See "Report of the Compensation Committee."

                            TEN-YEAR OPTION REPRICING

<TABLE>
<CAPTION>
                                                                                                                       LENGTH OF
                                                         NUMBER OF      MARKET PRICE      EXERCISE                     ORIGINAL
                                                        SECURITIES       OF STOCK AT        PRICE                     OPTION TERM
                                                        UNDERLYING         TIME OF       AT TIME OF                    REMAINING
                                                          OPTIONS         REPRICING       REPRICING        NEW            AT
                                                        REPRICED OR          OR              OR         EXERCISE        DATE OF
                                                          AMENDED         AMENDMENT       AMENDMENT       PRICE      REPRICING OR
NAME                                     DATE               (#)              ($)             ($)           ($)         AMENDMENT
----                                     ----               ---              ---             ---           ---         ---------
<S>                                     <C>              <C>               <C>             <C>            <C>          <C>
Manny A. Brown                          10/12/95         21,000(1)         $20.50          $27.68         $20.50       9 2/3 years
  Senior Vice President,
  Midwest Zone
Thomas A. Robbins                       10/12/95         48,000(2)          20.50           28.03          20.50       9 2/3 years
  Senior Vice President,
  Southern Zone
</TABLE>

(1)      Granted in connection with the cancellation of options to purchase
         21,000 shares.

(2)      Granted in connection with the cancellation of options to purchase
         50,000 shares.




                                       14
<PAGE>   412
           COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         The Company's Compensation Committee consists of Messrs. Charles D.
Martin (Chairman), Leonard Green, Terry Hartshorn and Frederick S. Moseley IV.
No member of the Compensation Committee is either an officer or employee of the
Company.

         Prior to the Merger, the Compensation Committee consisted of G. Richard
Green, Leonard Green, Frederick S. Moseley IV and Vincent M. Prager (the
"Pre-Merger Compensation Committee"). No member of the Pre-Merger Compensation
Committee was either an officer or employee of the Company.

         Through September 1995, the Company retained a firm in which Mr.
Moseley is a managing director to provide ongoing financial advisory services.
During 1995, 1994 and 1993, the firm was paid reasonable and customary fees of
$3,810,000, $910,000 and $1,886,000, respectively, in connection with various
financing transactions and other investment banking activities. The fees paid in
1995 related primarily to the Merger.

                      REPORT OF THE COMPENSATION COMMITTEE

To: The Board of Directors

         As members of the Compensation Committee, it is our duty to administer
the Company's overall compensation program for its senior management. The
Compensation Committee oversees the administration of the 1995/1996 Incentive
Compensation Program, the Management Incentive Compensation Plan, the Amended
and Restated 1992 Stock Incentive Plan (the "1992 Plan") and the Apria
Healthcare Group Inc./Homedco Group, Inc. Stock Incentive Plan (the "1995
Plan"). In addition, the Compensation Committee establishes the compensation of
the Chief Executive Officer and President, evaluates the performance of such
individuals and performs other related matters. The Compensation Committee is
comprised entirely of non-employee directors.

         The primary philosophy of the Company regarding compensation is to
offer a program which rewards each of the members of senior management
commensurately with the Company's overall growth and financial performance,
including each person's individual performance during the previous fiscal year.
The Company's compensation program for senior management is designed to 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.

         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 well as the individual
contribution of each particular person to that success. As a result, a
significant portion of the total compensation package consists of variable,
performance-based components, such as bonuses and stock awards, which can
increase or decrease to reflect changes in corporate and individual performance.

         The Compensation Committee evaluates the total compensation for the
Company's Chief Executive Officer, Mr. Jeremy M. Jones, and certain other
members of senior management in light of information regarding the compensation
practices of entities similarly situated with the Company. The Company has
retained the services of a nationally recognized consulting firm specializing in
executive compensation issues to assist the Compensation Committee in its
evaluation of such compensation practices. The compensation consultant analyzes
compensation data from a pool of primarily public companies chosen by the
compensation consultant from a cross-section of industries, including many
health care companies, based on a similar gross revenue basis as that of the
Company. This comparison pool of companies is different from the Peer Group
index used in the Performance Graph in this proxy statement. The Compensation
Committee considers various indicators of qualitative and quantitative success
on both a corporate and an individual level in determining the overall
compensation package for Mr. Jones and other members of senior management. The
Compensation Committee considers such corporate performance measures as
increases in earnings per share, revenue growth, cost containment and
consolidation economies resulting from the Merger, together with various
individual performance indicators and goals. While the Compensation Committee
applies certain specific quantitative analyses with respect to increases in
earnings per share and revenue growth, in particular, the Compensation Committee
also evaluates numerous other non-financial and qualitative factors, among them,
such factors as organizational strength and development, investor relations and
competitive positioning.



                                       15
<PAGE>   413
         The Company's annual compensation package for Mr. Jones and the other
members of senior management typically consists of the following components: (a)
salary, (b) annual cash incentive or bonus and (c) long-term incentive or
non-cash awards, primarily stock options.

         Mr. Jones' base salary for the 1995 fiscal year was based principally
on his employment agreement with the Company, which expires in June 1998 (the
"Employment Agreement"), pursuant to which he serves as Chief Executive Officer.
The Employment Agreement established Mr. Jones' minimum annual base salary at
not less than $390,000 per year, subject to annual increases at the discretion
of the Board of Directors. At its current level, comparative analysis performed
by the Company's compensation consultant indicated that Mr. Jones' compensation
was below the average for similarly situated Chief Executive Officers. As a
result, in recognition of the Company's growth and performance under Mr. Jones'
leadership, the Compensation Committee determined that an increase from
approximately $390,000 in fiscal 1995 to approximately $460,000 in fiscal 1996,
approximately an 18% change, was appropriate to bring his salary into the range
being paid to Chief Executive Officers of comparable companies after the Merger.
Mr. Jones' new compensation places him under the 50th percentile of such
similarly situated Chief Executive Officers. The Company looks to similar data
in determining the salaries of other members of senior management.

         The compensation for Timothy M. Aitken, as Chief Executive Officer and
President of the Company prior to the Merger, was determined by the Pre-Merger
Compensation Committee. Pursuant to his employment agreement during such time,
Mr. Aitken's annual base salary was $350,000. Mr. Aitken resigned from the
Company as of November 7, 1995.

         Under the Company's 1995/1996 Incentive Compensation Program and
Management Incentive Compensation Plan (collectively, the "Incentive Plans"),
bonuses for the Company's senior managers, including Mr. Jones and other
officers, are based upon the Company's achieving certain objectives such as
increases in earnings per share, operating earnings and a certain level of
revenue growth. In addition, bonuses are based on whether the performance of
each participant in the Incentive Plans satisfies certain specific or key
objectives. Mr. Jones' cash incentive compensation for the 1995 fiscal year was
based in part on his participation in Homedco's Management Incentive
Compensation Plan prior to the Merger. Pursuant to this Plan, Mr. Jones earned a
bonus of $157,000 (which was paid by the Company after the Merger) based on (i)
his overall performance, which included, among other factors: increases in
earnings per share, revenue growth, economic competitiveness, organizational
strength and investor relations and (ii) his successful completion of the
Merger. This $157,000 amounted to approximately 28% of his total cash
compensation for the 1995 fiscal year. While certain of the above factors were
specifically weighted in determining Mr. Jones' bonus, such as the Company's
increase in earnings per share and revenue prior to the Merger, the overall
incentive compensation package earned by Mr. Jones prior to the Merger was not
tied to any specific formula. Mr. Jones also participated in the Company's
1995/1996 Incentive Compensation Program from the date of the Merger until the
end of the 1995 fiscal year. Mr. Jones' bonus under such plan was based on
targeted increases in earnings per share after the Merger together with certain
qualitative key management objectives. Because the Company did not meet the
targeted earnings per share objectives, no bonus was paid to Mr. Jones pursuant
to the 1995/1996 Incentive Compensation Program. The Compensation Committee
determines the incentive compensation package paid to other members of senior
management in a similar manner as that of the Chief Executive Officer. Each
officer has certain individual quantitative factors which are specifically
weighted; however, in determining the overall incentive compensation package,
the Compensation Committee considers various other non-financial factors that it
believes to be pertinent to each officer's personal performance.

         During the 1995 fiscal year, while Mr. Aitken was Chief Executive
Officer of Abbey, he received a bonus of approximately $3,025,000 which was paid
by Abbey prior to the Merger. The $3,025,000 was paid to Mr. Aitken in
recognition of certain achievements by Abbey in 1995 prior to the Merger and to
acknowledge Mr. Aitken's contributions in connection with the Merger.

         The Company also provides compensation to certain members of its
management under the Company's 1992 Plan and 1995 Plan (collectively, the "Stock
Plans"). The Stock Plans provide the Company with the ability to periodically
reward key employees with options to purchase shares of the Company's Common
Stock. These long-term incentives are designed to couple the interests of key
employees with those of the stockholders of the Company. Stock option grants
provide an incentive that focuses the individual's attention on 



                                       16
<PAGE>   414
managing the Company from the perspective of an owner, with an equity stake in
the business. 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.
Stock options reward management for long-term strategic planning through the
resulting enhancement of share price. The Company believes that a compensation
structure which includes the periodic granting of long-term incentives such as
stock options helps to attract and retain senior managers with long-term
management perspectives.

         During the 1995 fiscal year, Mr. Jones was awarded options to purchase
200,000 shares of the Company's Common Stock. These options were granted in an
effort to (i) bring Mr. Jones' overall compensation package more in line with
the compensation packages received by Chief Executive Officers at companies
comparable to that of the Company after the Merger and (ii) reward Mr. Jones for
his leadership in connection with the Merger. During the 1995 fiscal year and
prior to the Merger, Mr. Aitken was awarded options to purchase 29,400 shares of
the Company's Common Stock. These options were cancelled in connection with Mr.
Aitken's resignation.

         During the 1995 fiscal year, certain of the executive officers of the
Company were issued options to purchase shares of the Company's Common Stock
upon cancellation of a similar number of options which had previously been
granted to such executive officers (the "Repriced Options"). These Repriced
Options were granted by the Company in an effort to align the long term
compensation awards of similarly situated executive officers within the Company.
See "Summary of Option Repricing."

         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
Internal Revenue Code of 1986, as amended. 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. 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. 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.

                                        THE COMPENSATION COMMITTEE
                                        OF THE BOARD OF DIRECTORS


                                        Charles D. Martin (Chairman)
                                        Leonard Green
                                        Terry Hartshorn
                                        Frederick S. Moseley IV




                                       17
<PAGE>   415
                                PERFORMANCE GRAPH

         The following graph shows a comparison of cumulative total returns(1)
for (i) Abbey for the period from the initial registration of Abbey's Common
Stock under Section 12 of the Securities Exchange Act of 1934, as amended, until
the date of the Merger, and for the Company from the date of the Merger until
the end of the 1995 fiscal year, (ii) the S&P 500 Stock Index, and (iii) a Peer
Group Index.(2)




(1)      Total returns assumes reinvestment of dividends.

(2)      The Peer Group is an index based on the comparison of cumulative total
         returns for the following companies: Coram Healthcare (since July
         1994), Caremark International, Inc., Lincare Holdings and Optioncare,
         Inc. Each company within the Peer Group was selected based on its
         similar product lines and marketing areas. The Peer Group has been
         modified from the Peer Group used by the Company in its 1995 proxy
         statement to delete those companies who are either no longer in
         existence or whose common stock is no longer registered under Section
         12 of the Securities Exchange Act of 1934, as amended.

(3)      Assumes $100 invested on 02/28/92 (the date on which Abbey consummated
         its initial public offering and was registered under Section 12 of the
         Securities Exchange Act of 1934, as amended).

         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 SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, OR
INCORPORATED BY REFERENCE IN ANY DOCUMENT SO FILED.




                                       18
<PAGE>   416
                              CERTAIN TRANSACTIONS

         The Company is a party to two leases with an entity with which Jeremy
M. Jones, the Company's Chairman of the Board and Chief Executive Officer, has
an affiliation. The leases expire in October 1996 but may be renewed at the
option of the Company. As of the end of the Company's 1995 fiscal year, the
remaining rent payments under the leases totalled approximately $188,000.

         In December 1992, pursuant to a secured promissory note agreement, the
Company loaned $1,250,000 to Timothy M. Aitken, the Company's former President.
The note bore interest at 8% per annum and principal and interest were due
December 28, 1996. During 1995, 1994 and 1993, principal and interest of
$196,000, $188,000 and $675,000, respectively, were cancelled and recorded as
compensation expense. The remaining outstanding principal and related interest
totalling $397,000 was forgiven in January 1996.

         Through September 1995, the Company retained a firm in which Frederick
S. Moseley IV, a member of the Board of Directors of the Company, is a managing
director to provide ongoing financial advisory services. During 1995, 1994 and
1993, the firm was paid reasonable and customary fees of $3,810,000, $910,000
and $1,886,000, respectively, in connection with various financing transactions
and other investment banking activities. The fees paid in 1995 related primarily
to the Merger.

         In December 1994, the Company made a 9% interest bearing loan of
$100,000 due in December 1997 to Jerilyn P. Asher, the Company's former
President. In connection with the acquisition of Protocare, Inc., the Company
also assumed from Protocare a 9% interest bearing loan to Ms. Asher which
amounted to $597,000. Ms. Asher resigned from the Company in May 1995, and the
outstanding principal and interest on this assumed loan, amounting to $499,000
and $288,000, was forgiven in 1995 and 1994, respectively.

                       EMPLOYMENT AND SEVERANCE AGREEMENTS

         The Company has employment agreements with the following executive
officers:

         Jeremy M. Jones. Pursuant to Mr. Jones' employment agreement, expiring
in June 1998, he serves as Chief Executive Officer. Mr. Jones receives an annual
salary of not less than $390,000 (which has been increased to $460,000 for the
1996 fiscal year), subject to annual increases at the discretion of the
Compensation Committee of the Board of Directors, and is entitled to participate
in the Company's stock option plans and all other benefit programs generally
available to executive officers of the Company. In addition, Mr. Jones is
entitled to receive an automobile allowance and reimbursement of certain other
expenses. He also is provided reasonable access to the Company's accountants and
counsel for personal financial planning and legal services. If the Company
terminates Mr. Jones' employment without cause, Mr. Jones is entitled to a lump
sum severance payment equal to three times his base salary plus an additional
amount determined as set forth in the employment agreement.

         Steven T. Plochocki. Pursuant to Mr. Plochocki's employment agreement,
expiring in June 1997, he serves as Executive Vice President and Chief Operating
Officer. However, on February 26, 1996 Mr. Plochocki was elected as President
and Chief Operating Officer of the Company. Mr. Plochocki receives an annual
salary of not less than $190,000, subject to annual increases at the discretion
of the Compensation Committee of the Board of Directors. Mr. Plochocki may also
receive such bonuses as the Compensation Committee may, from time to time, in
its sole discretion award. In addition, Mr. Plochocki's employment is entitled
to receive an automobile allowance and reimbursement of certain other expenses
and is entitled to participate in the Company's various benefit plans. If the
Company terminates Mr. Plochocki without cause, Mr. Plochocki is entitled to
receive additional compensation in an amount equal to three times his base
salary plus an additional amount determined as set forth in the employment
agreement.

         Manny A. Brown. Pursuant to Mr. Brown's employment agreement, expiring
in June 1997, he serves as Executive Vice President, East Region. Mr. Brown
receives an annual salary of not less than $175,000, subject to annual increases
at the discretion of the Compensation Committee of the Board of Directors. Mr.
Brown may also receive such bonuses as the Compensation Committee may, from time
to time, in its sole discretion award. In addition, Mr. Brown is entitled to
receive an automobile allowance and reimbursement of certain other expenses and
is entitled to participate in the Company's 



                                       19
<PAGE>   417
various benefit plans. If the Company terminates Mr. Brown's employment without
cause, Mr. Brown is entitled to receive additional compensation in an amount
equal to two times his base salary plus an additional amount determined as set
forth in the employment agreement.

         The Company had employment agreements and has executed severance
agreements with the following former executive officers:

         Timothy M. Aitken. Mr. Aitken had an employment agreement with the
Company which was terminated as of November 7, 1995 in connection with his
resignation. At the time of his resignation, Mr. Aitken and the Company entered
into a Resignation and General Release Agreement. Pursuant to such Agreement,
Mr. Aitken received aggregate payments of approximately $1,837,000, together
with certain other severance benefits set forth therein. In addition, the dates
on which certain stock options previously granted to Mr. Aitken would have
otherwise terminated in connection with his resignation were extended.

         Richard J. Rapp. Mr. Rapp had an employment agreement with the Company
which was terminated as of December 18, 1995 in connection with his resignation.
At the time of his resignation, Mr. Rapp and the Company entered into a
Resignation and General Release Agreement. Pursuant to such Agreement, Mr. Rapp
received certain severance benefits set forth therein. In addition, the dates on
which certain stock options previously granted to Mr. Rapp would have otherwise
terminated in connection with his resignation were extended.

         Sarah L. Eames. Ms. Eames had an employment agreement with the Company
which was terminated as of November 9, 1995 in connection with her resignation.
At the time of her resignation, Ms. Eames and the Company entered into a
Resignation and General Release Agreement. Pursuant to such Agreement, Ms. Eames
received aggregate payments of approximately $735,000, together with certain
other severance benefits set forth therein.

  Severance Pay Plan for Selected Employees.

         Certain employees of the Company, including, without limitation,
Lawrence H. Smallen and Thomas M. Robbins, are eligible to participate in the
Company's Severance Pay Plan for Selected Employees (the "Severance Plan") for a
period of up to two years after the date of the Merger. Pursuant to the
Severance Plan, eligible employees receive a severance benefit, distributed over
a two-year period, based on (i) the length of time between such employee's
termination date and the date of the Merger and (ii) such employee's prior
compensation; provided, however, that in no event may any employee receive a
severance benefit which would be deemed to be an "excess parachute payment"
under Section 280G of the Internal Revenue Code of 1986, as amended.

                    1995/1996 INCENTIVE COMPENSATION PROGRAM

         The Company has implemented the 1995/1996 Incentive Compensation
Program (the "1995/1996 Incentive Plan") to provide key management employees
with bonus compensation upon the achievement of certain performance levels. The
1995/1996 Incentive Plan covers the six-month period ending December 31, 1995
and the Fiscal Year ending December 31, 1996. Persons eligible to receive awards
under the 1995/1996 Incentive Plan are the executive officers of the Company.
Bonuses are awarded upon the achievement of certain earnings per share levels
and the achievement of certain qualitative objectives. The Compensation
Committee in its discretion may determine what adjustments shall be made to the
bonus awards.

                     MANAGEMENT INCENTIVE COMPENSATION PLAN

         In 1995, the Company adopted the Management Incentive Compensation Plan
(the "1995 Incentive Plan") to provide key employees with bonus compensation
upon the achievement of certain performance levels. The 1995 Incentive Plan
covered the period from July 1, 1995 to December 31, 1995. Persons eligible to
receive awards under the 1995 Incentive Plan include various regional, sales and
branch managers, vice presidents and directors. Awards are made under the 1995
Incentive Plan upon the achievement of certain objectives, earnings per share
levels and revenue goals. Awards may be paid in cash, Company stock, Company
stock options or other forms determined by the Board of Directors.
Recommendations for awards are reviewed by the Company's senior management and
approved by the Board of Directors.




                                       20
<PAGE>   418
                                  401(K) PLANS

         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. The Company's
401(k) Plan is comprised of two previous plans, Homedco's 401(k) Savings Plan
("Homedco's 401(k) Plan") and Abbey's 401(k) Plan. Homedco's 401(k) Plan and
Abbey's 401(k) Plan were merged as of January 1, 1996 to form the Company's
401(k) Plan. Under Homedco's 401(k) Plan, employees were eligible once they had
completed one year of service with at least 1,000 hours of service during the
year. Homedco employees were able to contribute up to 10% of their eligible
earnings and Homedco would match 100% of the first 2% of such contributions and
50% of the next 4% of such contributions. Under Abbey's 401(k) Plan, employees
were eligible once they had completed six months of service with at least 500
hours of service during the year. Abbey employees were able to contribute up to
16% of their eligible earnings with no matching by Abbey. 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. As of the end
of the 1995 fiscal year, the collective matching contributions for all executive
officers as a group who received matching contributions (9 persons) was $35,872.

                       1991 NONQUALIFIED STOCK OPTION PLAN

         The Company's 1991 Nonqualified Stock Option Plan (the "1991 Plan")
authorizes 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, key employees and directors 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 Internal Revenue Code of 1986, as
amended. The Administrative 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.

                 AMENDED AND RESTATED 1992 STOCK INCENTIVE PLAN

         The Company's Amended and Restated 1992 Stock Incentive Plan (the "1992
Plan") authorizes the issuance of 3,150,000 shares of Common Stock of the
Company, plus 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 directors and 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 Internal Revenue Code of 1986, as
amended, or a non-statutory stock option. Incentive stock options may be granted
to employees only. A Committee appointed by the Board of Directors administers
the 1992 Plan and fixes the option exercise price with respect to the options,
except that the exercise price of options granted to non-employee directors will
be the fair market value of the shares of Common Stock on the date of the grant.
Unless previously terminated by the Board of Directors, the 1992 Plan will
terminate in July 2003.




                                       21
<PAGE>   419
                 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 which was formerly the
Homedco Group, Inc. 1994 Stock Incentive Plan. The 1995 Plan as a whole
authorizes the issuance of an aggregate of up to 5,327,051 shares of Common
Stock of the Company upon the exercise of options or in satisfaction of awards
under the 1995 Plan. The 1995 Plan is administered by a Committee appointed by
the Board of Directors. Unless previously terminated by the Board of Directors,
the 1995 Plan will terminate on the respective dates set forth in Parts I, II
and III of the 1995 Plan.

         Under Part I of the 1995 Plan, the Company may issue shares of Common
Stock of the Company upon the exercise of options or in satisfaction of stock
appreciation rights granted. Persons eligible to receive options and stock
appreciation rights are certain key employees (including officers and directors)
of the Company, non-employee members of the Board and certain consultants or
independent contractors who provide valuable services to the Company. An option
granted under Part I of the 1995 Plan may be either an incentive stock option as
defined in the Internal Revenue Code of 1986, as amended, or a non-statutory
stock option. Incentive stock options may be granted to key employees only. The
Stock Option Committee fixes the option exercise price with respect to each
option, provided that, the exercise price of an incentive stock option may not
be less than the fair market value of a share of Common Stock on the date of
grant. Unless previously terminated by the Board of Directors, Part I of the
1995 Plan will terminate in July 1998.

         Under Part II of the 1995 Plan, the Company may issue shares of Common
Stock of the Company upon the exercise of options granted. Persons eligible to
receive options are certain key senior management employees (including officers
and directors) of the Company. An option granted under Part II of the 1995 Plan
must be designated as a non-qualified stock option. The purchase price for each
share of Common Stock issued in connection with the options granted will not be
less than 100% of the fair market value of a share of Common Stock on the date
the option is granted. Options granted under Part II of the 1995 Plan become
exercisable under either a specified earnings based vesting schedule commencing
with the announcement of financial results for the fiscal year of the Company
ending in 1995, or a time vesting schedule commencing with such announcement.
Under the time vesting schedule, 25% of the shares covered become exercisable at
the time of such announcement and an additional 25% of the option shares become
exercisable on each successive anniversary date, with full time vesting
occurring with the announcement of financial results for the fiscal year of the
Company ending in 1998. The achievement of specified earnings for each fiscal
year will result in accelerated vesting. Unless previously terminated by the
Board of Directors, Part II of the 1995 Plan will terminate in March 2002.

         Under Part III of the 1995 Plan, the Company may issue shares of Common
Stock of the Company upon the exercise of options or in satisfaction of stock
appreciation rights, restricted stock awards, performance share awards and stock
bonuses. Persons eligible to receive awards are certain key employees (including
officers and directors) of the Company, outside directors of the Company and
significant agents and consultants who perform substantial services for the
Company of a nature similar to those performed by key employees. An option
granted under Part III of the 1995 Plan may either be an incentive stock option
or a nonqualified stock option. Incentive stock options may be granted to
employees only. Except as provided in an applicable award agreement, no award
made under Part III of the 1995 Plan may be exercisable or may vest until at
least six months after the initial award date. Unless previously terminated by
the Board of Directors, Part III of the 1995 Plan will terminate in April 2004.




                                       22
<PAGE>   420
                                 RETIREMENT PLAN

         Abbey established a non-contributory defined benefit retirement plan
("Retirement Plan") effective September 18, 1986, covering all non-union
employees of Abbey who are paid for 1,000 hours or more of service per year.*
The Retirement Plan provides for full vesting of benefits upon the earlier of
the date the participant has completed seven years of service or the date the
participant attains age 65 while employed by Abbey. Normal retirement is at age
65. However, a participant may defer retirement or may elect to retire early. If
a participant retires before age 65, the amount of pension benefits are reduced
actuarially.

         Payment of retirement benefits is generally in monthly installments,
commencing when the participant retires and continuing for the remaining
lifetime of the participant. The amount of a participant's pension benefit is
based upon years of service, age at retirement and the participant's highest
five-year average compensation during the last ten years of service. For each
year of benefit service prior to January 1, 1989, a participant's annual pension
benefit is equal to (i)(a) the sum of 2.5% of his or her final average
compensation as of December 31, 1988, up to a maximum of 20 years of projected
service, plus 0.5% of his or her final average compensation as of December 31,
1988 in excess of 20 years of projected service at age 65, up to a maximum of 20
additional years, less (b) 3.25% of his or her social security benefit, up to a
maximum of 20 years of projected service at age 65, times (ii) the number of
years of credited service at December 31, 1988 divided by the number of years of
expected service at his or her retirement date. For each year of benefit service
on or after January 1, 1989, a participant's annual pension benefit is equal to
the sum of 1.0% of his or her final average compensation after January 1, 1989,
up to a maximum of 20 years, plus 0.65% of his or her final average compensation
in excess of "covered compensation" after January 1, 1989, in excess of 20
years, up to a maximum of an additional 20 years. "Covered compensation" is the
average of the social security taxable wage base for the 35-year period ending
in the year preceding the year the participant reaches his or her social
security normal retirement age. The average is based upon the participant's age
and the social security wage base in effect when the participant terminates his
or her employment, as published annually by the Internal Revenue Service.
Starting January 1, 1994, compensation in excess of $150,000 is not credited for
benefit accrual purposes. The $150,000 ceiling is increased annually based on
the consumer price index beginning January 1, 1995.




*        Effective January 1, 1996, benefit accruals under the Retirement Plan
         were frozen. The Company expects to terminate the Retirement Plan on
         April 1, 1996. The Company now provides benefits to its employees
         through matching contributions under its 401(k) Savings Plan.




                                       23
<PAGE>   421
                               PENSION PLAN TABLE

         The following table illustrates the estimated annual benefits payable
upon retirement at age 65 under the Retirement Plan to a participant in the
specified annual compensation and years of service classifications.

<TABLE>
<CAPTION>
                                         YEARS OF SERVICE AT RETIREMENT
                                         ------------------------------
REMUNERATION            15             20              25            30             35
------------            --             --              --            --             --
<S>                   <C>            <C>             <C>           <C>            <C>
125,000               $25,800        $34,404         $37,524       $40,656        $43,776
150,000               $31,992        $42,648         $46,404       $50,148        $53,904
</TABLE>

         The table above assumes a vested right to benefits, retirement at age
65, no increase in current rates of annual compensation and no adjustments based
on changes in the consumer price index. Based upon 17, 23, 31 and 21 years of
service, Messrs. Aitken, Plochocki, Brown and Rapp would receive lifetime
monthly payments of approximately $3,200, $3,700, $4,100 and 3,600,
respectively.

      COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1933,
                    AS AMENDED, 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 National
Association of Securities Dealers, 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 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
1995 fiscal year.

                     APPOINTMENT OF INDEPENDENT ACCOUNTANTS

         In recognition of the important role of independent accountants, the
Board of Directors has determined that its selection of the independent
accountants for the Company should be submitted to the stockholders of the
Company for ratification. The Board of Directors has selected Ernst & Young LLP
to serve as the Company's independent accountants for the fiscal year ending
December 31, 1996, subject to ratification by the holders of a majority of the
shares represented at the Annual Meeting. In the event that the stockholders do
not approve Ernst & Young LLP as independent accountants, the selection of
another independent accountant will be considered by the Board of Directors. A
representative of Ernst & Young LLP is expected to be present at the Annual
Meeting and will have an opportunity to make a statement and to respond to
appropriate questions.

                                  ANNUAL REPORT

         The Company's 1995 Annual Report, containing audited financial
statements for the fiscal years ended December 31, 1995 and 1994, has previously
been provided or accompanies this proxy statement. Upon written request, the
Company will send you, without charge, a copy of its Annual Report on Form 10-K
(without exhibits) for the fiscal year ended December 31, 1996, which the
Company has filed with the Securities and Exchange Commission. The written
request should be directed to the Investor Relations Department, 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 the Company's 1997 Annual Meeting of Stockholders, they must be
received by the Secretary of the Company no later than January 8, 1997.




                                       24
<PAGE>   422
                                  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


                                        Lawrence H. Smallen,
                                        Chief Financial Officer, Vice President,
                                        Finance, Treasurer and Secretary


Costa Mesa, California
May 8, 1996

         IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE,
STOCKHOLDERS ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY
IN THE ENCLOSED ENVELOPE.




                                       25
<PAGE>   423
                           APRIA HEALTHCARE GROUP INC.
           THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned appoints Jeremy M. Jones and Lawrence H. Smallen, 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 as of April 15, 1996, 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 10:00
a.m., local time, on Wednesday, June 12, 1996, and at any adjournment thereof,
upon the following matters:

(1) ELECTION OF DIRECTORS

      FOR the nominees listed below (except as
      noted to the contrary below)                WITHHOLD AUTHORITY to vote for
                                                  each nominee listed below

      Donald L. Goldsmith          Leonard Green         Frederick S. Moseley IV

(Instructions: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.)

(2) RATIFICATION OF THE COMPANY'S INDEPENDENT ACCOUNTANTS

                  FOR      AGAINST      ABSTAIN WITH RESPECT TO

the proposal to ratify the selection of Ernst & Young LLP as the Company's
independent accountants for the fiscal year ending December 31, 1996.

(3) 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.

                (Continued and to be signed on the reverse side)




                                       26
<PAGE>   424
                           (continued from other side)

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
PROPOSALS (1) AND (2) 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                             , 1996

                                        Signature or signatures of stockholder

                                         (Your signature(s) should conform to
                                           your name(s) as printed hereon.
                                             Co-owners should all sign.)




                                       27
<PAGE>   425
3560 HYLAND AVENUE
COSTA MESA, CALIFORNIA 92626




                       IMPORTANT--PROXY MATERIAL ENCLOSED




                                       28
<PAGE>   426

                                   APPENDIX I





        [REGISTRATION STATEMENT ON FORM 8-A FILED ON FEBRUARY 11, 1992,
         UNDER APRIA'S PRIOR NAME, ABBEY HEALTHCARE GROUP INCORPORATED]



                                      I-1
<PAGE>   427
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 8-A

                FOR REGISTRATION OF CERTAIN CLASSES OF SECURITIES
                     PURSUANT TO SECTION 12(b) OR (g) OF THE
                         SECURITIES EXCHANGE ACT OF 1934



                       ABBEY HEALTHCARE GROUP INCORPORATED
             (Exact name of registrant as specified in its charter)


                       DELAWARE                              33-0488566
            (State or other jurisdiction of               (I.R.S. Employer
            incorporation or organization)             Identification Number)


          3560 HYLAND AVENUE, COSTA MESA, CA                           92626
       (Address of principal executive offices)                     (Zip Code)

        Securities to be registered pursuant to Section 12(b) of the Act:


      Title of each class                       Name of each exchange on which
      to be so registered                         each class is to registered

              N/A                                             N/A


        Securities to be registered pursuant to Section 12(g) of the Act:


                                  COMMON STOCK
                                (Title of Class)
<PAGE>   428
                 INFORMATION REQUIRED IN REGISTRATION STATEMENT

Item 1.           Description of Registrant's Securities to be Registered

                  The description of the Registrant's Common Stock contained
under the caption "Description of Capital Stock" on pages 44 to 45, inclusive,
of the prospectus which forms a part of Amendment No. 3 to the Registrant's
Registration Statement on Form S-1 (File No. 33-44690) (the "Registration
Statement"), as filed February 5, 1992, is incorporated herein by this
reference.

Item 2.           Exhibits

                  The following Exhibits are filed as part of the Registration
Statement:

                  1.       Specimen of certificate evidencing the Registrant's
                           Common Stock registered hereunder;

                  2(a)     Certificate of Incorporation of the Registrant as in
                           effect to January 28, 1992. Pursuant to Rule 12b-32,
                           the Registrant incorporates herein by this reference
                           Exhibit 3.1 to the Registrant's Registration
                           Statement filed December 23, 1991;

                  2(b)     Certificate of Amendment of Certificate of
                           Incorporation of the Registrant effective as of
                           January 28, 1992. Pursuant to Rule 12b-32, the
                           Registrant incorporates herein by this reference
                           Exhibit 3.3 to the Registrant's Amendment No. 3 to
                           Registration Statement filed February 5, 1992.

                  2(c)     Bylaws of the Registrant. Pursuant to Rule 12b-32,
                           the Registrant incorporates herein by this reference
                           Exhibit 3.2 to the Registrant's Registration
                           Statement filed December 23, 1991.

                                    SIGNATURE

                  Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the Registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereto duly authorized.

                                          ABBEY HEALTHCARE GROUP INCORPORATED



Dated:  February 4, 1992          By:     /s/  Richard J. Rapp
                                          --------------------
                                               Richard J. Rapp
                                               Vice President, Chief Financial
                                               Officer and Treasurer


<PAGE>   429
                                   APPENDIX J












           [REGISTRATION STATEMENT ON FORM 8-A FILED ON JUNE 26, 1995,
         UNDER APRIA'S PRIOR NAME, ABBEY HEALTHCARE GROUP INCORPORATED]



                                        J-1
<PAGE>   430
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549


                                     -------


                                    FORM 8-A


                FOR REGISTRATION OF CERTAIN CLASSES OF SECURITIES
                     PURSUANT TO SECTION 12(b) OR (g) OF THE
                         SECURITIES EXCHANGE ACT OF 1934




                       Abbey Healthcare Group Incorporated
             (Exact name of registrant as specified in its charter)


             Delaware                                        33-0488566
        (State of incorporation                             (IRS Employer
           or organization)                               Identification No.)



        3560 Hyland Avenue, Costa Mesa, California,            92626
        (Address of principal executive offices)             (Zip Code)




Securities to be registered pursuant to Section 12(b) of the Act:


                                      None
                                (Title of Class)


Securities to be registered pursuant to Section 12(g) of the Act:


       Title of each class                       Name of each exchange on which
       to be so registered                       each class is to be registered

      Preferred Stock Purchase Rights             NASDAQ National Market System
<PAGE>   431
Item 1. Description of Securities to be Registered.

        On February 8, 1995, the Board of Directors of Abbey Healthcare Group
Incorporated ("Abbey") declared a dividend of one preferred stock purchase right
(the "Rights") for each share of Common Stock of Abbey outstanding at the close
of business on February 24, 1995 (the "Record Date"). Pursuant to the Rights
Agreement dated as of February 8, 1995 (the "Rights Agreement") between Abbey
and U.S. Stock Transfer Corporation, as Rights Agent (the "Rights Agent"), each
Right will entitle the registered holder thereof, after the Rights become
exercisable and until February 7, 2005 (or the earlier redemption, exchange or
termination of the Rights), to purchase from Abbey one one-hundredth (1/100th)
of a share of Series A Junior Participating Preferred Stock, par value $.001 per
share (the "Preferred Shares"), at a price of $130 per one one-hundredth
(1/100th) of a Preferred Share, subject to certain antidilution adjustments (the
"Purchase Price"). The Rights will be represented by the Common Stock
certificates until the earlier to occur of (i) ten (10) days following a public
announcement that a person or group of affiliated or associated persons has
acquired, or obtained the right to acquire, beneficial ownership of 20% or more
of the Common Stock (an "Acquiring Person") or (ii) ten (10) days after a person
or group commences, or announces an intention to commence, a tender or exchange
offer, the consummation of which would result in the beneficial ownership by a
person or group of 20% or more of the Common Stock (the earlier of (i) and (ii)
being called the "Distribution Date"). The Board of Directors has the power,
under certain circumstances, to postpone the Distribution Date. Separate
certificates representing the Rights will be mailed to holders of record of
Common Stock as of the close of business on the Distribution Date. The Rights
will first become exercisable on the Distribution Date, unless earlier redeemed
or exchanged, and may then begin trading separately from the shares of Common
Stock.

        The Purchase Price payable, and the number of one-hundredths of a
Preferred Share or other securities or property issuable, upon exercise of the
Rights are subject to adjustment from time to time to prevent dilution (i) in
the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Preferred Shares, (ii) upon the grant to holders of the
Preferred Shares of certain rights or warrants to subscribe for or purchase
Preferred Shares or convertible securities at less than the current market price
of the Preferred Shares or (iii) upon the distribution to holders of the
Preferred Shares of evidences of indebtedness, cash, securities or assets
(excluding regular periodic cash dividends at a rate not in excess of 125% of
the rate of the last regular periodic cash dividend paid or, if regular periodic
cash dividends have not previously been paid, at a rate not in excess of 50% of
the average net income per share of Abbey for the four quarters ended
immediately prior to the payment of such dividend, or dividends payable in
Preferred Shares (which dividends will be subject to the adjustment described in
clause (i) above)) or of subscription rights or warrants (other than those
referred to above).

        No adjustment in the Purchase Price will be required until cumulative
adjustments require an adjustment of at least one percent (1%) in such Purchase
Price. No fractional shares will be issued and in lieu thereof, a payment in
cash will be made based on the market price of the Preferred Shares on the last
trading date prior to the date of exercise.

        If a person becomes an Acquiring Person (except pursuant to certain cash
offers for all outstanding Common Stock approved by a majority of the Continuing
Directors (as defined below)) or if Abbey were the surviving corporation in a
merger with an Acquiring Person or any affiliate or associate of an Acquiring
Person and the Common Stock was not changed or exchanged, each holder of a
Right, other than Rights that are or were acquired or beneficially owned by the
Acquiring Person (which Rights will thereafter be void), will thereafter have
the right to receive upon exercise that number of shares of Common Stock having
a market value of two times the then current Purchase Price of the Right. With
certain exceptions, if, following the time that a person has become an Acquiring
Person, Abbey is acquired in a merger or other business combination transaction
or more than 50% of its assets or earning power is sold, each holder of a Right
will thereafter have the right to receive, upon the exercise thereof at the then
current Purchase Price of the Right, that number of shares of common stock of
the acquiring company which at the time of such transaction would have a market
value of two times the then current Purchase Price of the Right.



                                        2
<PAGE>   432
        At any time after a person becomes an Acquiring Person and prior to the
acquisition by such Acquiring Person of 50% or more of the then outstanding
shares of Common Stock, the Board of Directors may cause Abbey to acquire the
Rights (other than Rights which have become void), in whole or in part, in
exchange for that number of shares of Common Stock having an aggregate value
equal to the excess of the value of the shares of Common Stock issuable upon
exercise of a Right after a person becomes an Acquiring Person over the Purchase
Price (the "Spread") per Right, appropriately adjusted to reflect any stock
split, stock dividend, recapitalization or similar transaction (the "Exchange
Consideration"). Effective immediately upon the action of the Board of Directors
electing to exchange any Rights, the right to exercise such Rights will
terminate and the only right of the holders of such Rights will be to receive
the Exchange Consideration. Any partial exchange will be effected pro rata based
on the number of Rights (other than Rights which have become void) held by each
holder of Rights.

        The Rights may be redeemed in whole, but not in part, at a price of $.01
per Right (the "Redemption Price") by the Board of Directors at any time prior
to the close of business on the tenth day following the first date of public
announcement that a person or group has become an Acquiring Person. The Board of
Directors has the power, under certain circumstances, to extend the ten-day
redemption period. Under certain circumstances set forth in the Rights
Agreement, the decision to redeem or to lengthen or shorten the redemption
period will require the concurrence of a majority of the Continuing Directors.
Immediately upon the action of the Board of Directors electing to redeem the
Rights, Abbey shall make an announcement thereof, and upon such election, the
right to exercise the Rights will terminate and the only right of the holders of
Rights will be to receive the Redemption Price.

        Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of Abbey beyond those as an existing stockholder,
including, without limitation, the right to vote or to receive dividends.

        Any of the provisions of the Rights Agreement may be amended by the
Board of Directors prior to the Distribution Date. After the Distribution Date,
Abbey and the Rights Agent may amend or supplement the Rights Agreement without
the approval of any holders of Rights to cure any ambiguity, defect or
inconsistency, shorten or lengthen any time period under the Rights Agreement
(subject to the approval of a majority of Continuing Directors) or, so long as
the interests of the holders of Rights (other than an Acquiring Person or an
affiliate or associate of an Acquiring Person) are not adversely affected
thereby, make any other amendments in regard to matters or questions arising
thereunder which Abbey and the Rights Agent may deem necessary or desirable.
Abbey may, at any time prior to such time as any person becomes an Acquiring
Person, amend the Rights Agreement to lower the thresholds described above to
not less than the greater of (i) any percentage greater than the largest
percentage of the outstanding Common Stock then known by Abbey to be
beneficially owned by any persons or group of affiliated or associated persons
or (ii) ten percent (10%).

        The term "Continuing Directors" means any member of the Board of
Directors who was a director prior to the time that any person becomes an
Acquiring Person, and any person who is subsequently elected to the Board if
such person is recommended or approved by a majority of the Continuing
Directors. Continuing Directors do not include an Acquiring Person, an affiliate
or associate of an Acquiring Person or any representative of the foregoing.

        Each Preferred Share purchasable upon exercise of the Rights will be
entitled to a preferential quarterly dividend payment of 100 times the dividend,
if any, declared per share of Common Stock, but in no event less than $1.00. In
the event of liquidation, the holders of the Preferred Shares will be entitled
to a minimum preferential liquidation payment of $100 per share, but will also
be entitled to an aggregate payment of 100 times the payment made per share of
Common Stock. Each Preferred Share will have 100 votes, voting together with the
Common Stock. In the event of any merger, consolidation or other transaction in
which Common Stock is exchanged, each Preferred Share will be entitled to
receive 100 times the amount and type of consideration received per share of
Common Stock. These rights are protected by customary antidilution provisions.
Because of the nature of the Preferred Shares' dividend, liquidation and voting
rights, the value of one one-hundredth


                                        3
<PAGE>   433
of a Preferred Share purchasable upon exercise of each Right should approximate
the value of one share of Common Stock.

        One Right was distributed to stockholders of Abbey for each share of
Common Stock owned of record by them on February 24, 1995. As long as the Rights
are attached to the Common Stock, Abbey will issue one Right with each new share
of Common Stock so that all such shares will have attached Rights. Abbey has
agreed that, from and after the Distribution Date, Abbey will reserve 1,500,000
Preferred Shares initially for issuance upon exercise of the Rights.

        The Rights will cause substantial dilution to a person or group that
acquires 20% or more of Abbey's Common Stock on terms not approved by Abbey's
Board of Directors, except pursuant to an offer conditioned on a substantial
number of Rights being redeemed. The Rights should not interfere with any merger
or other business combination approved by the Board of Directors prior to ten
days after the time that a person or group has become an Acquiring Person as the
Rights may be redeemed by Abbey at $.01 per Right prior to such time.

        The Rights Agreement specifying the terms of the Rights, the text of the
press release announcing the declaration of the Rights and the form of a letter
sent to the holders of Abbey's Common Stock dated February 24, 1995 explaining
the Rights, are incorporated herein by reference as exhibits to Abbey's Current
Report on Form 8-K dated February 8, 1995. The foregoing description of the
Rights is qualified in its entirety by reference to such exhibits.




                                        4
<PAGE>   434
Item 2. Exhibits.

        1.  Agreement and Plan of Merger dated as of March 1, 1995, as amended
            on May 18, 1995, by and between Homedco Group, Inc. and Abbey
            Healthcare Group Incorporated incorporated by reference to Appendix
            A to the Final Joint Proxy Statement/Prospectus filed pursuant to
            Rule 424(b) on May 26, 1995.

        2.  Rights Agreement, dated as of February 8, 1995, between Abbey
            Healthcare Group Incorporated and U.S. Stock Transfer Corporation
            incorporated by reference to Exhibit 4.1 to Abbey's Current Report
            on Form 8-K dated February 8, 1995.

        3.  Form of Letter to the holders of Abbey Healthcare Group Incorporated
            Common Stock, dated February 24, 1995 incorporated by reference to
            Exhibit 20.1 to Abbey's Current Report on Form 8-K dated February 8,
            1995.

        4.  Text of Press Release, dated February 8, 1995, incorporated by
            reference to Exhibit 99.2 to Abbey's Current Report on Form 8-K
            dated February 8, 1995.




                                        5
<PAGE>   435
                                    SIGNATURE


        Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned hereunto duly authorized.


                                   ABBEY HEALTHCARE GROUP INCORPORATED


Date: June 23, 1995                By:      /s/ MARILYN U. MACNIVEN-YOUNG
                                            -----------------------------
                                   Marilyn U. MacNiven-Young
                                   Vice President, General Counsel and Secretary




                                        6
<PAGE>   436
                                  EXHIBIT INDEX

        1.  Agreement and Plan of Merger dated as of March 1, 1995, as amended
            on May 18, 1995, by and between Homedco Group, Inc. and Abbey
            Healthcare Group Incorporated incorporated by reference to Appendix
            A to the Final Joint Proxy Statement/Prospectus filed pursuant to
            Rule 424(b) on May 26, 1995.

        2.  Rights Agreement, dated as of February 8, 1995, between Abbey
            Healthcare Group Incorporated and U.S. Stock Transfer Corporation
            incorporated by reference to Exhibit 4.1 to Abbey's Current Report
            on Form 8-K dated February 8, 1995.

        3.  Form of Letter to the holders of Abbey Healthcare Group Incorporated
            Common Stock, dated February 24, 1995 incorporated by reference to
            Exhibit 20.1 to Abbey's Current Report on Form 8-K dated February 8,
            1995.

        4.  Text of Press Release, dated February 8, 1995, incorporated by
            reference to Exhibit 99.2 to Abbey's Current Report on Form 8-K
            dated February 8, 1995.




                                        7



<PAGE>   437
                 PART II. INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

         Apria is a Delaware corporation. Apria's Restated Certificate of
Incorporation and Bylaws provide for indemnification of the officers and
directors of Apria to the fullest extent permitted by law. Section 102(b)(7) of
the Delaware General Corporation Law (the "DGCL") provides that a Delaware
corporation has the power to eliminate or limit the personal liability of a
director for violations of the director's fiduciary duty, except (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the
DGCL (providing for liability of directors for unlawful payment of dividends or
unlawful stock purchases or redemptions) or (iv) for any transaction from which
a director derived an improper personal benefit. In addition, Apria has entered
into separate indemnification agreements with each of its directors and officers
and maintains insurance on behalf of any person who is or was a director or
officer of Apria for up to $30 million of covered losses.

         Section 145 of the DGCL provides that a corporation may indemnify any
persons, including officers and directors, who are, or are threatened to be
made, parties to any threatened, pending or completed legal action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of such corporation), by reason of the fact that
such person was a director, officer, employee or agent of such corporation, or
is or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation or enterprise. The indemnity may
include expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding, provided such officer, director, employee or
agent acted in good faith and in a manner he reasonably believed to be in or not
opposed to the corporation's best interests and, for criminal proceedings, had
no reasonable cause to believe that his conduct was unlawful. A Delaware
corporation may indemnify officers and directors in an action by or in the right
of the corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation. Where an officer is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses which such officer or director actually and
reasonably incurred.

ITEM 21. EXHIBITS.

   (a) Exhibits included or incorporated herein:

       See Exhibit Index.

   (b) The opinion of Furman Selz LLC is included in the Proxy 
Statement/Prospectus starting on page C-1.

ITEM 22. UNDERTAKINGS.

   (a) The undersigned registrant hereby undertakes:

         (1) to file during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:

                  (i)      to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;

                  (ii)     to reflect in the prospectus any facts or event
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement.

                                      II-1
<PAGE>   438
                  (iii)    to include any material information with respect to
the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement.

         (2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement related to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

         (3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.

   (b)(1) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.

         (2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to the paragraph immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

   (c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.

   (d) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.

                                      II-2
<PAGE>   439
                                   SIGNATURES
   
         Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Amendment No. 4 to the Registration
Statement (No. 333-09407) to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Costa Mesa, State of California on the
11th day of November, 1996.
    

                                       APRIA HEALTHCARE GROUP INC.


                                       By: /s/ ROBERT S. HOLCOMBE
                                          -------------------------------
                                               Robert S. Holcombe
                                               Vice President, Secretary
                                               and General Counsel

   
         Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 4 to the Registration Statement (No. 333-09407) has been
signed below by the following persons in the capacities and on the dates
indicated.
    

   
<TABLE>
<CAPTION>

             Name                                     Title                             Date
             ----                                     -----                             ----
<S>                                           <C>                                  <C> 

/s/ JEREMY M. JONES*                          Chairman and                         November 11, 1996
------------------------------------------    Chief Executive Officer
    Jeremy M. Jones       
                        

/s/ LAWRENCE H. SMALLEN*                      Chief Financial Officer, Senior      November 11, 1996
------------------------------------------    Vice President, Finance and      
    Lawrence H. Smallen                       Treasurer


/s/  DAVID L. GOLDSMITH*                      Director                             November 11, 1996
------------------------------------------
     David L. Goldsmith


/s/  LEONARD GREEN*                           Director                             November 11, 1996
------------------------------------------
     Leonard Green


/s/  TERRY HARTSHORN*                         Director                             November 11, 1996
------------------------------------------
     Terry Hartshorn


/s/  CHARLES D. MARTIN*                       Director                             November 11, 1996
------------------------------------------
     Charles D. Martin


/s/  FREDERICK S. MOSELEY, IV*                Director                             November 11, 1996
------------------------------------------
     Frederick S. Moseley, IV


/s/  VINCENT M. PRAGER*                       Director                             November 11, 1996
------------------------------------------
     Vincent M. Prager


*By: /s/ ROBERT S. HOLCOMBE
------------------------------------------
         Robert S. Holcombe
         Attorney-in-Fact
</TABLE>
    

                                      II-3
<PAGE>   440
                                  EXHIBIT INDEX

<TABLE>
<CAPTION>

 Exhibit
 Number                                 Description                                                     Page/Ref
---------                               -----------                                                     --------
<S>        <C>                                                                                             <C>  
   2       Agreement and Plan of Merger, dated as of June 28, 1996 and amended by an Amendment
           No. 1 dated as of August 26, 1996 and an Amendment No. 2 dated as of October 4,
           1996 to Agreement and Plan of Merger, among Apria Healthcare Group Inc., Apria
           Number Two, Inc. and Vitas Healthcare Corporation (included as Appendix A to the
           Proxy Statement/Prospectus).

  3.1      Restated Certificate of Incorporation of Registrant.                                            (m)

  3.2      Restated Bylaws of Registrant, as amended.                                                      (t)

   4       Rights Agreement, dated as of February 8, 1995, between Abbey Healthcare Group                  (l)
           Incorporated and U.S. Stock Transfer Corporation, as Rights Agent.

   5       Opinion of O'Melveny & Myers LLP.                                                                

   8       Opinion of O'Melveny & Myers LLP regarding certain tax matters.                                  

 10.4      Office/Warehouse Lease, dated September 3, 1990, between NCI Building II                        (a)
           Partnership, Ltd.  and Homedco, Inc. for the premises located at 300 E. Mineral
           Avenue, Littleton, Colorado.

 10.5      Lease Agreement, dated November 12, 1990, between Abbey Infusion Services                       (s)
           ("AIS") and Surf Management Associated.

 10.6      1991 Management Stock Purchase Plan.                                                            (c)

 10.7      Form of Subscription Agreement between Abbey and the Purchasers under the 1991                  (c)
           Management Stock Purchase Plan, together with the Form of Secured Nonrecourse
           Promissory Note and Form of Stock Pledge.

 10.8      1991 Stock Option Plan.                                                                         (c)

 10.9      Lease Agreement, dated May 1, 1991, between Abbey Pharmaceutical Services, Inc.                 (c)
           ("APS") and State of California Public Employees' Retirement System.

 10.10     Letter Agreement, dated November 4, 1991, between Abbey and the Boston                          (c)
           Corporate Finance Group, Inc.

 10.11     1992 Stock Option Plan.                                                                         (b)

 10.12     1992 Employee Stock Purchase Plan.                                                              (d)

 10.13     Business Center Lease, dated February 24, 1992, between CK Airpark Associates, a                (s)
           California Limited Partnership, and Homedco, Inc. for the premises located at
           2202 East University, Phoenix, Arizona.

 10.14     Industrial Real Estate Lease (Multi-Tenant Facility), dated December 17, 1992,                  (s)
           between JB Company and Homedco, Inc. for the premises located at 4244 South
           Market Court, Sacramento, California.

 10.15     Loan Agreement, dated December 28, 1992, between Timothy M. Aitken and                          (d)
           Abbey.

 10.16     1993 Management Incentive Plans for officers of Abbey, officers of Abbey Home                   (h)
           Healthcare ("AHH") and for Area Vice Presidents of AHH.

 10.17     Lease Agreement, notarized June 15, 1993, between 1111 19th Street Associates                   (s)
           Limited Partnership and Homedco, Inc. for the premises at Konterra Business
           Campus, 12400 Kiln Court, Beltsville, Maryland.

 10.18     Net Lease Agreement, dated July 7, 1993, between Scannel Properties and Homedco,                (g)
           Inc. for the premises located in Indianapolis, Indiana.
</TABLE>

                                           II-4
<PAGE>   441
<TABLE>
<CAPTION>

Exhibit
Number                                  Description                                                        Page/Ref
------                                  -----------                                                        --------
<S>        <C>                                                                                             <C>  
 10.19     Agreement and Plan of Reorganization, dated September 1, 1993, among AHH,                       (h)
           Abbey, Life Air, Inc., Louis McNabb, M.D., Jagminder Bhalla, M.D., Clyde Dos
           Santos, M.D., Hormohinder Gogia, M.D., William E. Matteson, James Pearle,
           M.D., Narindar Singh, M.D., Bruce Tammelin, M.D., Dennis Wolin, and Brea
           Medical Group.

 10.20     Schedule of Registration Procedures and Related Matters.                                        (f)

 10.21     Asset Purchase Agreement, dated October 1, 1993, among AHH, Abbey, Preferred                    (h)
           Home Care of Tampa, Ltd., and Preferred Management and Marketing of Tampa,
           Inc.

 10.22     Asset Purchase Agreement, dated October 12, 1993, among AHH, Abbey,                             (h)
           Mississippi Medical Products, Inc., Homecare Affiliates, Inc. and Roy L. Hathcock.

 10.23     Asset Purchase Agreement, dated October 18, 1993, among AHH, Abbey, Infusion                    (h)
           Care Systems, Inc., Respiratory Support Systems, Inc., and the shareholders of

           Infusion Care Systems, Inc. and Respiratory Support Systems, Inc.

 10.24     Asset Purchase Agreement, dated December 6, 1993, among AIS, Firstcare, Inc.,                   (h)
           and the shareholders of Firstcare, Inc.

 10.25     Asset Purchase Agreement, dated December 9, 1993, among AHH, Abbey,                             (h)
           Homecare Oxygen & Medical Equipment Co., Michael L. Cohen., M.D., and Harry
           J. MacDannald.

 10.26     Industrial Building Lease, dated April 21, 1994, between Lasalle National Trust,                (s)
           N.A. and Abbey Medical, Inc. for the premises at 565 Lamont Road, Elmhurst,
           Illinois.

 10.27     Standard Industrial/Commercial Single-Tenant Lease, dated June 10, 1994, between                (s)
           Gustine HMD Associates, Ltd., a Pennsylvania limited partnership, and Homedco,
           Inc. for the premises at Lots 21B and 22 of the Southpointe Development in Cecil
           Township, Technology  Drive-Southpoint, Canonsburg, Pennsylvania.

 10.28     Net Lease Agreement, dated June 10, 1994, between Gustine HMD Associates, Ltd.                  (k)
           and Homedco, Inc. for the premises located in Cecil, Pennsylvania.

 10.29     Loan Agreement, without exhibits, dated September 30, 1994, between Abbey and                   (i)
           General Electric Capital Corporation ("GE Capital").

 10.30     U.S. $100,000,000 Loan Agreement, without exhibits, dated September 30, 1994,                   (j)
           between Abbey and General Electric Capital Corporation.

 10.31     Employees' Retirement Plan, dated December 19, 1994.                                            (s)

 10.32     Homedco 401(k) Savings Plan, restated effective October 1, 1993, amended                        (s)
           December 28, 1994.

 10.33     1995 Management Incentive Compensation Plan for Key Employees.                                  (s)

 10.34     Apria/Homedco Stock Incentive Plan, dated March 1, 1995.                                        (r)

 10.35     Stock Option Agreement, dated March 23,1995, between Homedco and                                (e)
           Jeremy M. Jones.

 10.36     Amended and Restated 1992 Stock Incentive Plan.                                                 (q)

 10.37     Executive Employment Agreement, dated June 16, 1995, between Abbey and                          (p)
           James F. Philipp.

</TABLE>


                                      II-5
<PAGE>   442
<TABLE>
<CAPTION>

Exhibit
Number                                  Description                                                        Page/Ref
------                                  -----------                                                        --------
<S>        <C>                                                                                             <C>  
 10.38     Executive Employment Agreement, dated June 23, 1995, between Abbey and                          (p)
           Manny A. Brown.

 10.39     Executive Employment Agreement, dated June 26, 1995, between Homedco and                        (p)
           Jeremy M. Jones.

 10.40     Executive Employment Agreement, dated June 26, 1995, between Abbey and                          (p)
           Steven T. Plochocki.

 10.41     Agreement, dated June 26, 1995, between Abbey and James F. Philipp.                             (p)

 10.42     First 1995 Amendment to the Abbey Employees' Retirement Plan, dated June 26,                    (s)
           1995.

 10.43     Executive Employment Agreement, dated June 26, 1995, between Abbey and                          (s)
           Sarah L. Eames.

 10.44     Amendment Number Two to the Homedco 401 (k) Savings Plan, executed June 27,                     (s)
           1995.

 10.45     Credit Agreement, dated June 28, 1995, among Apria Healthcare and certain of its                (n)
           subsidiaries, Banque Paribas, Bank of America National Trust and Savings
           Association, Nationsbank of Texas, N.A., Nationsbanc Capital markets, Inc. and
           certain other financial  institutions from time to time party thereto.

 10.46     Employment Agreement, dated June 29, 1995, between Apria Healthcare and                         (p)
           Timothy M. Aitken.

 10.47     Employment Agreement, dated July 1, 1995, between Apria Healthcare and                          (s)
           Richard J. Rapp.

 10.48     Standard Industrial/Commercial Multi-Tenant Lease, dated July 14, 1995, between                 (o)
           Building 7 Partnership and Apria Healthcare, Inc. for the premises located at 9115
           Activity Road, San Diego, California.

 10.49     Assignment, Assumption and Consent Re: Lease, dated July 21, 1995, between                      (o)
           C.J. Segerstrom & Sons, a California general partnership and Apria Healthcare, Inc.
           for the  premises located in the Harbor Gateway Business Center, Costa Mesa,
           California.

 10.50     Building Lease, dated July 21, 1995, between C. J. Segerstrom & Sons, a California              (s)
           general  partnership, and Apria Healthcare Inc. for 10 locations within Harbor
           Gateway Business Center, Hyland Avenue, Costa Mesa, California.

 10.51     Assignment, Assumption and Consent Re: Lease, executed July 21, 1995, from                      (s)
           Abbey Medical, Inc. (Assignor) to Apria Healthcare Inc. (Assignee) the Building
           Lease, dated December 1, 1988, between C. J. Segerstrom & Sons, a California
           general partnership, and Assignor, as  tenant, certain premises located in Harbor
           Gateway Business Center, Costa Mesa, California.

 10.52     Standard Industrial/Commercial Multi-Tenant Lease, dated July 31, 1995, between                 (o)
           Carlson Real Estate Company and Apria Healthcare, Inc. for the premises at
           Building III, Carlson Business Center South, Cheshire Lane, Minnetonka, Minnesota.

 10.53     Standard Commercial Multi-Tenant Lease, dated October 15, 1995, between                         (s)
           Cole-Haan and Apria Healthcare Inc. for the premises located at 44 North Elm
           Street, Yarmouth, Maine.
</TABLE>


                                      II-6
<PAGE>   443
<TABLE>
<CAPTION>

Exhibit
Number                                  Description                                                        Page/Ref
------                                  -----------                                                        --------
<S>        <C>                                                                                             <C>  
 10.54     Standard Industrial/Commercial Single-Tenant Lease, dated October 31, 1995,                     (s)
           between  Scannel Properties #3, L.P., an Indiana limited partnership, and Apria
           Healthcare, Inc. for the premises located at Lot #1, Lenexa, Kansas.

 10.55     Amendment Number Three to the Homedco 401(k) Savings Plan, executed                             (s)
           December 29, 1995.

 10.56     Form of Consulting, Severance and Confidentiality Agreement, dated
           as of _________, 1996, by and between Hugh A. Westbrook and Vitas
           Healthcare Corporation (included as Exhibit 5.14(A) to Appendix A to
           the Proxy Statement/Prospectus).

 10.57     Form of Noncompetition Agreement, dated as of _________, 1996, by
           and between Hugh A. Westbrook and Vitas Healthcare Corporation
           (included as Exhibit 5.14(B) to Appendix A to the Proxy
           Statement/Prospectus).

 10.58     Credit Agreement, dated as of August 9, 1996, by and between Apria Healthcare                    *
           Group Inc. and certain of its subsidiaries, Bank of America National Trust and 
           Savings Association, Nationsbank of Texas, N.A. and the other financial
           institutions party to the Credit Agreement.

 10.59     Guaranty, dated as of August 9, 1996, made by Apria Healthcare Group Inc.,                       *
           Apria Healthcare, Inc., Apria Number One, Inc., Apria Number Two, Inc., Protocare
           of Metropolitan New York, Inc. and Homedco of New York State, Inc. in favor of 
           Bank of America National Trust and Savings Association.
 
 10.60     Standard Commercial Single Tenant Lease, dated May 1, 1996, by and between 555                  (u)
           First Street, Inc. and Apria Healthcare, Inc. for the premises at 555 First Street,
           San Fernando, California.

 10.61     Standard Commercial Multi-Tenant Lease, dated March 15, 1996, by and between Watson             (u)
           Land Company and Apria Healthcare, Inc. for the premises at Watson Industrial
           Center South, Building #173, 909 E. 236th Street, Carson, California.

 11.1      Apria Statement of Computation of Earnings per Share.                                         (s)(t)

 11.2      Vitas Statement of Computation of Earnings per Share.                                            

 13.1      Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,               (t)
           1996.

 13.2      Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,                (u)
           1996, as amended by Form 10-Q/A filed on October 7, 1996.

 21        List of Subsidiaries.                                                                           (s)

 23.1      Consent of Ernst & Young LLP, Orange County, California.

 23.2      Consent of Ernst & Young LLP, Miami, Florida.

 23.3      Consent of KPMG Peat Marwick LLP.

 23.4      Consent of O'Melveny & Myers LLP (included in Exhibit 5).                                        

 23.5      Consent of O'Melveny & Myers LLP (included in Exhibit 8).

 23.6      Consent of Furman Selz, L.L.C.

 23.7      Consent of The Hay Group.

 24.1      Power of Attorney (included at page II-4). 

 27        Financial Data Schedule.                                                                         *

 99.1      Vitas Healthcare Corporation Form of Proxy.

 99.2      Report of The Hay Group.
---------------
* Previously filed
</TABLE>
     REFERENCES--DOCUMENTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION


(a)      Incorporated by reference to Homedco's Form S-1 (No. 33-39488), as
         filed on March 18, 1991.

(b)      Incorporated by reference to Abbey's definitive proxy statement for the
         1992 Annual Meeting of Shareholders (File No. 000-19854), as filed on
         June 5, 1991.

(c)      Incorporated by reference to Abbey's Registration Statement on Form S-1
         (Registration No. 33-44690), as filed on December 23, 1991.

(d)      Incorporated by reference to Abbey's Annual Report on Form 10-K for the
         year ended January 2, 1993.

(e)      Incorporated by reference to Homedco's Form 10-Q for the period ended
         March 31, 1995, as filed on May 11, 1995.

                                      II-7
<PAGE>   444
(f)      Incorporated by reference to Abbey's Registration Statement on Form S-4
         (Registration No. 33-69094), as filed on September 17, 1993.

(g)      Incorporated by reference to Homedco's Annual Report on Form 10-K for
         the year ended September 30, 1993, as filed on December 9, 1993.

(h)      Incorporated by reference to Abbey's Annual Report on Form 10-K for the
         year ended January 1, 1994.

(i)      Incorporated by reference to Abbey's Quarterly Report on Form 10-Q for
         the quarter ended October 1, 1994.

(j)      Incorporated by reference to Amendment No. 1 to Abbey's Quarterly
         Report on Form 10-Q/A for the quarter ended October 1, 1994.

(k)      Incorporated by reference to Homedco's Annual Report on Form 10-K for
         the year ended September 30, 1994, as filed on December 20, 1994.

(l)      Incorporated by reference to Abbey's Current Report on Form 8-K, as
         filed on March 20, 1995.

(m)      Incorporated by reference to Abbey's Registration Statement on Form S-4
         (Registration No. 33-90658), and its appendices, as filed on March 27,
         1995.

(n)      Incorporated by reference to the Registrant's form 10-Q dated June 30,
         1995, as filed on August 14, 1995.

(o)      Incorporated by reference to the Registrant's Form 10-Q dated September
         30, 1995, as filed on November 14, 1995.

(p)      Incorporated by reference to the Registrant's Form 10-Q/A dated June
         30, 1995, as filed on November 15, 1995.

(q)      Incorporated by reference to the Registrant's Registration Statement on
         Form S-8, as filed on December 31, 1995.

(r)      Incorporated by reference to the Registrant's Registration Statement on
         Form S-8, as filed on June 28, 1995.

   
(s)      Incorporated by reference to the Registrant's Annual Report on Form
         10-K, as filed on April 1, 1996, as amended by Form 10-K/A filed on
         October 7, 1996 and Form 10-K/A filed on November 8, 1996.
    

(t)      Incorporated by reference to the Registrant's Form 10-Q dated March 31,
         1996, as filed on May 14, 1996.

(u)      Incorporated by reference to the Registrant's Form 10-Q dated June 30,
         1996, as filed on August 14, 1996, as amended by Form 10-Q/A filed on
         October 7, 1996.

                                      II-8