AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 21, 2002
REGISTRATION NO. 333-82396
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
ACCREDO HEALTH, INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
<Table>
DELAWARE 8090 62-1642871
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</Table>
---------------------
1640 CENTURY CENTER PARKWAY, SUITE 101
MEMPHIS, TENNESSEE 38134
(901) 385-3688
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
---------------------
DAVID D. STEVENS
CHIEF EXECUTIVE OFFICER
1640 CENTURY CENTER PARKWAY, SUITE 101
MEMPHIS, TENNESSEE 38134
(901) 385-3688
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------
WITH COPIES TO:
<Table>
STEVEN L. POTTLE HELENE R. BANKS
ALSTON & BIRD LLP CAHILL GORDON & REINDEL
ONE ATLANTIC CENTER 80 PINE STREET
1201 WEST PEACHTREE STREET NEW YORK, NEW YORK 10005
ATLANTA, GEORGIA 30309 (212) 701-3000
(404) 881-7000
</Table>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as practicable after the acquisition described in this
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. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE TIME 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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), SHALL
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS AND PROXY STATEMENT
OF ACCREDO HEALTH, INCORPORATED
---------------------
PROXY STATEMENT OF GENTIVA HEALTH SERVICES, INC.
---------------------
On January 2, 2002, Accredo Health, Incorporated agreed to acquire
substantially all of the assets of Gentiva Health Services, Inc.'s specialty
pharmaceutical services business, or SPS business. The terms of the asset
purchase agreement provide that the purchase price to be paid to Gentiva is $415
million, which is subject to adjustment as described in this joint proxy
statement-prospectus and the accompanying asset purchase agreement. The purchase
price is payable 50% in cash and 50% in Accredo common stock, and the value of
the stock consideration will increase if Accredo's average common stock price
for a twenty trading day period ending on the second trading day prior to the
closing of the acquisition is greater than $41.00 and decrease if that average
is below $31.00, as further described in this joint proxy statement-prospectus.
Assuming no adjustment to the purchase price, Gentiva will receive $207.5
million in cash and, if the twenty trading day average common stock price was
equal to the closing price of Accredo common stock on the date of this joint
proxy statement-prospectus, shares of Accredo common stock.
Gentiva currently intends, following the consummation of the sale of the
SPS business, to distribute substantially all of the consideration it receives
pro rata based on the number of shares of Gentiva common stock held by each
stockholder, to Gentiva stockholders of record on a record date currently
anticipated to be five business days after the expected closing of the sale of
the SPS business.
Accredo's common stock is quoted on the Nasdaq National Market under the
symbol "ACDO."
Gentiva's common stock is quoted on the Nasdaq National Market under the
symbol "GTIV."
This joint proxy statement-prospectus provides you with detailed
information about the proposed acquisition/sale of the SPS business and the
other matters to be acted on at the special meetings. We encourage you to read
the entire joint proxy statement-prospectus and the accompanying annexes
carefully. SEE "RISK FACTORS" BEGINNING ON PAGE 19 OF THIS DOCUMENT FOR A
DISCUSSION OF RISKS RELEVANT TO THE ACQUISITION/SALE OF THE SPS BUSINESS.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THE SHARES OF ACCREDO COMMON STOCK TO BE ISSUED IN THE
ACQUISITION OR DETERMINED IF THIS JOINT PROXY STATEMENT-PROSPECTUS IS ACCURATE
OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Accredo is not making an offer to sell the common stock in any jurisdiction
where the offer or sale is not permitted.
This joint proxy statement-prospectus is dated , 2002 and is first
being mailed to stockholders on or about , 2002.
HOW TO OBTAIN ADDITIONAL INFORMATION
THIS JOINT PROXY STATEMENT-PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND
FINANCIAL INFORMATION ABOUT ACCREDO AND GENTIVA THAT IS NOT INCLUDED IN OR
DELIVERED WITH THIS DOCUMENT. THIS INFORMATION IS AVAILABLE TO YOU WITHOUT
CHARGE UPON YOUR WRITTEN OR ORAL REQUEST. YOU CAN OBTAIN FREE COPIES OF THIS
INFORMATION BY REQUESTING THEM IN WRITING OR BY TELEPHONE FROM THE APPROPRIATE
COMPANY AT THE FOLLOWING ADDRESSES AND TELEPHONE NUMBERS:
<Table>
Accredo Health, Incorporated Gentiva Health Services, Inc.
Ms. Kerry Finney Kimberly Herman
Investor Relations Investor Relations
1640 Century Center Parkway, Suite 101 3 Huntington Quadrangle 2S
Memphis, Tennessee 38134 Melville, New York 11747
(901) 385-3688 (631) 501-7000
</Table>
IN ORDER TO OBTAIN TIMELY DELIVERY OF THE DOCUMENTS, YOU MUST REQUEST THE
INFORMATION BY , 2002. Please also see "Where You Can Find More
Information" beginning on page 120 to obtain further information and learn about
other ways that you can get this information.
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
SUMMARY..................................................... 1
RISK FACTORS................................................ 19
THE SPECIAL MEETINGS........................................ 26
THE ACQUISITION/SALE OF THE SPS BUSINESS.................... 30
ACCREDO HEALTH, INCORPORATED 2002 LONG-TERM INCENTIVE
PLAN...................................................... 72
AMENDMENT TO ACCREDO CERTIFICATE OF INCORPORATION........... 76
ACCREDO UNAUDITED PRO FORMA CONDENSED FINANCIAL
STATEMENTS................................................ 78
ACCREDO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)............................................... 80
GENTIVA HEALTH SERVICES, INC. AND SUBSIDIARIES UNAUDITED PRO
FORMA CONSOLIDATED FINANCIAL DATA......................... 83
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE SPS BUSINESS............. 91
HISTORY OF GENTIVA.......................................... 96
SPS BUSINESS OF GENTIVA..................................... 96
HOME HEALTH CARE SERVICES BUSINESS OF GENTIVA............... 97
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF GENTIVA..................................... 107
BUSINESS OF ACCREDO......................................... 109
DESCRIPTION OF ACCREDO CAPITAL STOCK........................ 110
COMPARISON OF RIGHTS OF GENTIVA STOCKHOLDERS AND ACCREDO
STOCKHOLDERS.............................................. 110
COMPARATIVE MARKET PRICES AND DIVIDENDS..................... 118
STOCKHOLDER PROPOSALS....................................... 119
EXPERTS..................................................... 119
OPINIONS.................................................... 119
WHERE YOU CAN FIND MORE INFORMATION......................... 120
IMPORTANT INFORMATION ABOUT THIS JOINT PROXY STATEMENT-
PROSPECTUS................................................ 120
INCORPORATION BY REFERENCE.................................. 120
FORWARD LOOKING STATEMENTS.................................. 121
SPS BUSINESS FINANCIAL STATEMENTS........................... 123
ANNEX A..................................................... A-1
ANNEX B..................................................... B-1
ANNEX C..................................................... C-1
ANNEX D..................................................... D-1
ANNEX E..................................................... E-1
</Table>
i
QUESTIONS AND ANSWERS ABOUT THE ACQUISITION AND THE SPECIAL MEETINGS
Q: WHY ARE GENTIVA AND ACCREDO PROPOSING THE ACQUISITION BY ACCREDO OF
GENTIVA'S SPS BUSINESS?
A: After due consideration of all other alternatives reasonably available to
Gentiva, the Gentiva board of directors concluded that the sale of the SPS
business was expedient and in the best interest of Gentiva. In reaching its
determination, Gentiva considered, among other things, the terms of the
asset purchase agreement including the cash consideration to be received,
and the consideration payable in Accredo common stock which will, upon
distribution by Gentiva, allow the stockholders of Gentiva to recognize
immediate cash value and have both an interest in the combined Accredo/SPS
business and a continued interest in Gentiva's home health care services
business.
Accredo believes that the acquisition is desirable for many reasons,
including the complementary nature of the SPS business to its current
business and the greater sales, marketing and distribution capabilities and
increased pharmaceutical product offerings of Accredo when combined with
the SPS business.
Q: WHAT WILL GENTIVA RECEIVE IN THE ACQUISITION?
A: Subject to adjustment as described in this joint proxy
statement-prospectus, the asset purchase agreement generally provides that
Gentiva will receive consideration valued at $415 million, of which 50% is
payable in cash and 50% is payable in Accredo common stock. The number of
shares of Accredo common stock to be issued will be equal to one-half of
the purchase price divided by the average closing price for Accredo common
stock for the 20 trading days ending on the second business day prior to
the closing of the acquisition, subject to contractual limits on the amount
the average closing price can fluctuate for purposes of this calculation.
Q: AS A GENTIVA STOCKHOLDER, WILL I RECEIVE CASH AND SHARES OF ACCREDO COMMON
STOCK AS A RESULT OF THE SALE OF THE SPS BUSINESS?
A: Gentiva currently intends, following the sale of the SPS business, to
distribute substantially all of the proceeds it receives in connection with
the sale of the SPS business pro rata to Gentiva stockholders.
Q: WHAT WILL HAPPEN TO THE SHARES OF COMMON STOCK IN GENTIVA THAT I OWN AS A
RESULT OF THE SALE OF THE SPS BUSINESS?
A: Gentiva stockholders will continue to retain the shares they owned prior to
the consummation of the sale of the SPS business. The sale of the SPS
business will have no effect on the number of shares Gentiva stockholders
own. Upon the distribution of the stock proceeds and any cash proceeds from
the sale of the SPS business, the market price of Gentiva's common stock
will likely decrease to reflect the value of Accredo common stock and cash
provided to Gentiva stockholders.
Q: HOW WILL GENTIVA CHANGE AFTER THE SALE OF THE SPS BUSINESS?
A: Gentiva will continue to be a publicly traded company with its common stock
traded on the Nasdaq National Market. After the sale of the SPS business,
Gentiva will be a significantly smaller company focused on the home health
care services business.
Q: WHAT DO I NEED TO DO NOW?
A: After carefully reading and considering the information contained in this
joint proxy statement-prospectus, please respond by completing, signing and
dating your proxy card and returning it in the enclosed postage paid
envelope, as soon as possible so that your shares may be represented at
your special meeting.
ii
Q: WHAT IF I DON'T VOTE?
A: If you are a Gentiva stockholder and fail to respond, it will have the same
effect as a vote against the sale of the SPS business. If you respond and
do not indicate how you want to vote, your proxy as a Gentiva stockholder
will be counted as a vote FOR the sale of the SPS business. If you are a
Gentiva stockholder and you respond and abstain from voting, your proxy
will have the same effect as a vote against the sale of the SPS business.
If you are an Accredo stockholder and fail to respond, assuming a quorum is
present, your vote will have no effect on the approval of the issuance of
Accredo shares in the acquisition or the approval of the 2002 Long-Term
Incentive Plan. If you are an Accredo stockholder and fail to respond, it
will have the same effect as a vote against the increase in the number of
authorized shares of common stock. If you respond and do not indicate how
you want to vote, your proxy as an Accredo stockholder will be counted as a
vote FOR the issuance of Accredo shares, FOR approval of the 2002 Long-Term
Incentive Plan and FOR the increase in the number of authorized shares of
common stock. If you are an Accredo stockholder and you respond and abstain
from voting, your vote will be counted for purposes of determining whether
there is a quorum, but will not be voted, which will have the same effect
as a vote against the issuance of Accredo shares, the 2002 Long-Term
Incentive Plan and the increase in the number of authorized shares of
common stock.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: No. Your broker will vote your shares only if you provide written
instructions on how to vote. Without instructions, your shares will not be
voted by your broker.
Q: CAN I CHANGE MY VOTE AFTER I HAVE DELIVERED MY PROXY?
A: Yes. You can change your vote at any time before your proxy is voted at
your special meeting. You can do this in one of three ways. First, you can
revoke your proxy. Second, you can submit a new proxy. If you choose either
of these two methods, you must submit your notice of revocation or your new
proxy to the secretary of either Accredo or Gentiva, as appropriate, before
the special meeting. If your shares are held in an account at a brokerage
firm or bank, you should contact your brokerage firm or bank to change your
vote. Third, if you are a holder of record, you can attend your special
meeting and vote in person. Attendance at either special meeting will not
in and of itself constitute revocation of a proxy. If you submit your
proxy, you can change your vote by submitting a proxy at a later date but
prior to the special meeting, in which case your later submitted proxy will
be recorded and your earlier submitted proxy will be revoked.
Q: SHOULD I SEND IN MY GENTIVA STOCK CERTIFICATES?
A: No. Please do not send in your stock certificates with your proxy. Gentiva
stockholders are not required to surrender their stock certificates as part
of the sale of the SPS business or as part of the subsequent distribution.
Gentiva will continue as a publicly-traded company with its common stock
traded on the Nasdaq National Market and will continue to operate its home
health care services business. This transaction will have no effect on the
number of shares of Gentiva common stock that you own.
Q: AS A GENTIVA STOCKHOLDER, CAN I STILL SELL MY SHARES?
A: Neither the sale of the SPS business nor the asset purchase agreement will
affect your right to sell or otherwise transfer your shares of Gentiva
common stock. It will affect your right to receive the distribution if you
do not hold shares of Gentiva common stock on the record date selected for
the distribution.
iii
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have any questions about the acquisition or how to submit your
proxy, or if you need additional copies of this joint proxy
statement-prospectus or the enclosed proxy card, you should contact:
- If you are a Gentiva stockholder:
GENTIVA HEALTH SERVICES, INC.
Kimberly Herman
Investor Relations
3 Huntington Quadrangle 2S
Melville, New York 11747
(631) 501-7000
- If you are an Accredo stockholder:
ACCREDO HEALTH, INCORPORATED
Ms. Kerry Finney, Investor Relations
1640 Century Center Parkway, Suite 101
Memphis, Tennessee 38134
(901) 385-3688
iv
SUMMARY
This summary highlights selected information from this joint proxy
statement-prospectus and may not contain all of the information that is
important to you. You should carefully read this entire document and the other
documents we refer to in this document. These will give you a more complete
description of the transaction we are proposing. For more information about
Gentiva and Accredo, see "Where You Can Find More Information" on page 120. We
have included page references in this summary to direct you to other places in
this joint proxy statement-prospectus where you can find a more complete
description of the topics we have summarized.
THE COMPANIES (SEE PAGE 96 FOR GENTIVA, PAGE 109 FOR ACCREDO)
Accredo provides specialized contract pharmacy and related services
pursuant to agreements with biotechnology drug manufacturers to patients with
certain costly, chronic diseases. Accredo's services include collection of
timely drug utilization and patient compliance information, patient education
and monitoring through the use of written materials and telephonic consultation,
reimbursement expertise and overnight drug delivery.
Gentiva currently provides specialty pharmaceutical services and home
health care services. Gentiva's SPS business generally includes the distribution
of drugs for chronic diseases, the administration of drugs for acute diseases,
marketing and distribution services and clinical support services. Gentiva's
home health care services business generally includes Gentiva's nursing unit
which provides skilled nursing and therapy services, paraprofessional nursing
services and homemaker services and its CareCentrix unit which provides
outsourcing services and a wide range of nursing services for managed care
organizations and health plans. After the consummation of the sale of the SPS
business, Gentiva will retain its home health care services business.
THE ACQUISITION/SALE OF THE SPS BUSINESS (SEE PAGE 30)
Accredo proposes to acquire substantially all of the assets of the SPS
business of Gentiva. The SPS business to be acquired by Accredo includes:
- the distribution of drugs and other biological and pharmaceutical
products and professional support services for individuals with chronic
diseases, such as hemophilia, primary pulmonary hypertension, autoimmune
deficiencies and growth disorders,
- the administration of antibiotics, chemotherapy, nutrients and other
medications for patients with acute or episodic disease states,
- marketing and distribution services for pharmaceutical, biotechnology and
medical service firms, and
- clinical support services for pharmaceutical and biotechnology firms.
Following the closing of the acquisition, Accredo intends to separate and
reorganize the chronic and acute portions of the SPS business. While Gentiva
treated IVIG, Synagis(R), Cerezyme(R) and growth hormone as part of its acute
business, Accredo will consider these drugs as part of the chronic business
which it will continue to operate. Excluding the drugs mentioned above, Accredo
intends to assess strategic options for the portion of the SPS business which
relates to the administration of medications for acute diseases because this
business is inconsistent with Accredo's strategy and focus.
Accredo is not acquiring Gentiva's home health care services business and
after the sale of the SPS business Gentiva intends to continue to operate its
home health care services business as a separate publicly-held company.
WHAT GENTIVA WILL RECEIVE IN THE ACQUISITION (SEE PAGE 30)
According to the asset purchase agreement, the purchase price is $415
million, subject to adjustment as described in the asset purchase agreement,
which is payable half in cash and half in shares of Accredo
1
common stock. The stock consideration will be equal to one-half of the total
consideration divided by the average closing price per share of Accredo common
stock on the Nasdaq National Market for the twenty trading days ending on the
second trading day prior to the closing of the acquisition. Assuming no
adjustment to the purchase price, Gentiva would receive cash consideration of
$207.5 million and a number of shares calculated as follows:
<Table>
If the average closing price of Accredo Then the Accredo shares to be issued will
common stock is: be:
Greater than $41.00...................... 5,060,976
$31.00 to $41.00......................... Between 5,060,976 and 6,693,548
Less than $31.00......................... 6,693,548
</Table>
Assuming no adjustment to the purchase price, if the average closing price
is equal to or within $31.00 and $41.00, this calculation has the effect of
fixing the value of the stock consideration at $207.5 million. If the average
closing price is outside of these limits, the number of shares to be issued will
be fixed at the outside levels, and the value of the stock consideration will
fluctuate, increasing if the average closing price is above $41.00 and
decreasing if the average closing price is below $31.00. As of the date of this
joint proxy statement-prospectus, and assuming no adjustment to the purchase
price, Gentiva would receive cash consideration of $207.5 million and shares of
Accredo common stock assuming that the twenty trading day average common stock
price is equal to the closing price of the Accredo common stock on the date of
this joint proxy statement-prospectus. Of the cash portion of the consideration,
$2 million is allocated as consideration for the performance by Gentiva and its
affiliates (as defined in the restrictive covenant agreements) of covenants not
to compete and related restrictive covenants.
The purchase price of $415 million is subject to adjustment for changes in
the net book value of the SPS business as of the closing date of the
acquisition. Net book value is defined as the book value of the assets acquired
by Accredo less the liabilities assumed by Accredo on the closing date
determined in accordance with generally accepted accounting principles. The
asset purchase agreement provides that the accounting firms hired by Gentiva and
Accredo will prepare balance sheets as of the closing date which indicate the
estimated net book value. No adjustment to the purchase price will be made if
the net book value of the SPS business as of the closing date is between
$247,500,000 and $252,500,000. The purchase price to be paid to Gentiva will be
adjusted up at closing on a dollar for dollar basis to the extent that the
estimated net book value exceeds $252,500,000 and will be adjusted down at
closing on a dollar for dollar basis to the extent the estimated net book value
is less than $247,500,000. Following the closing of the acquisition, the
adjustment made at closing, if any, will be reconciled based upon the
preparation and agreement of the actual net book value of the SPS business as of
the closing date.
In addition, Accredo will assume identified liabilities of Gentiva, which
include the liabilities disclosed on the SPS business closing balance sheet to
be prepared by the parties, obligations of Accredo regarding employees of the
SPS business, and obligations arising from and after the closing date of the
acquisition with respect to assigned leases and contracts, open inventory and
open customer orders. All other liabilities of Gentiva, including liabilities
related to its home health care services business and other liabilities of the
SPS business, including litigation and contingent liabilities, will be retained
by Gentiva.
PROCEEDS OF THE SALE OF THE SPS BUSINESS; DISTRIBUTION (SEE PAGE 31)
Gentiva currently intends, following the consummation of the sale of the
SPS business, to distribute substantially all of the consideration it receives
in connection with the sale of the SPS business, pro rata based on the number of
shares of Gentiva common stock held by each stockholder, to Gentiva stockholders
of record on a record date currently anticipated to be five business days after
the expected closing of the sale of the SPS business. Gentiva expects that the
distribution will occur within 10 business days of the record date of the
distribution. To the extent the value of the Accredo common stock and cash
consideration is equal to or less than $460 million (based on the consideration
value as of the closing date or as of the distribution date, whichever is
greater), Gentiva will distribute to its stockholders all of the stock
consideration and all of the cash consideration received. To the extent the
value of the stock and cash consideration received by Gentiva
2
exceeds $460 million (based on the consideration value as of the closing date or
as of the distribution date, whichever is greater), Gentiva will distribute to
its stockholders all of the stock consideration and the amount of cash
consideration remaining after Gentiva retains, in cash, 35% of the value of the
aggregate stock and cash consideration in excess of $460 million to cover a
portion of the corporate taxes resulting from receipt of the consideration in
excess of $460 million for the sale of the SPS business. Gentiva stockholders
are not being asked to vote on the distribution and are not required to vote on
the distribution.
COMPLETION OF THE ACQUISITION (SEE PAGE 53)
The acquisition will become final after the closing conditions in the asset
purchase agreement have been met and the purchase price has been paid, subject
to later adjustment. Once the Gentiva stockholders approve the sale of the SPS
business at the Gentiva stockholders' meeting, the Accredo stockholders approve
the issuance of the Accredo common stock in the acquisition at the Accredo
stockholders' meeting, all required regulatory approvals are obtained and all
other conditions are satisfied, we will close the transaction within two
business days. Accredo and Gentiva currently anticipate that the acquisition
will be completed in the second quarter of 2002. Accredo and Gentiva cannot
assure you that they can obtain the necessary stockholder and regulatory
approvals or that the other conditions to consummation of the acquisition will
be satisfied.
THE GENTIVA SPECIAL MEETING (SEE PAGE 26)
Gentiva will hold a special meeting for the purpose of its stockholders
approving the sale of the SPS business. This special meeting will be held at
a.m. eastern time on , 2002 at .
Gentiva stockholders will be entitled to vote at the Gentiva special
meeting if they owned shares of Gentiva as of the close of business on
, 2002, the Gentiva record date.
As of , 2002, there were shares of Gentiva issued and
outstanding. The affirmative vote of a majority of the Gentiva shares
outstanding as of the Gentiva record date is necessary to approve the sale of
the SPS business.
Each holder of Gentiva common stock is entitled to one vote per share.
Certain directors and the chief executive officer of Gentiva, owning
approximately % of Gentiva common stock outstanding on the record date, have
entered into voting agreements with Accredo where they have agreed to vote their
shares of Gentiva common stock in favor of the approval of the sale of the SPS
business.
THE ACCREDO SPECIAL MEETING (SEE PAGE 26)
Accredo will hold a special meeting for the purpose of its stockholders
approving the issuance of Accredo shares in the acquisition. Accredo
stockholders will also consider and vote upon the 2002 Long-Term Incentive Plan
and an amendment to the certificate of incorporation to increase the number of
authorized shares of common stock from 50,000,000 to 100,000,000. This special
meeting will be held at 10:00 a.m. central time on , 2002 at Accredo's
corporate headquarters, 1640 Century Center Parkway, Suite 103, Memphis,
Tennessee 38134.
Accredo stockholders will be entitled to vote at the Accredo special
meeting if they owned shares of Accredo as of the close of business on
, 2002, the Accredo record date. Each holder of Accredo common stock
is entitled to one vote per share.
As of January 31, 2002 there were 26,098,680 shares of Accredo issued and
outstanding. The affirmative vote of a majority of the Accredo shares present at
the Accredo special meeting is necessary to approve the issuance of Accredo
shares in the acquisition and the Accredo Health, Incorporated 2002 Long-Term
Incentive Plan. The affirmative vote of a majority of the outstanding shares of
Accredo common stock is necessary to approve the amendment to the Accredo
certificate of incorporation to increase the number of authorized shares of
common stock.
3
RECOMMENDATION OF THE BOARDS OF DIRECTORS AND OPINIONS OF FINANCIAL ADVISORS
(FOR GENTIVA, SEE PAGES 36 AND 40 AND FOR ACCREDO, SEE PAGES 38 AND 47)
To Gentiva Stockholders: The Gentiva board of directors believes that the
sale of the SPS business is expedient and in the best interest of Gentiva and
voted to approve the sale of the SPS business on the terms set forth in the
asset purchase agreement and recommends that you vote FOR the approval of the
sale of the SPS business.
To Accredo Stockholders: The Accredo board of directors believes that the
acquisition is in the best interest of Accredo and voted to approve the asset
purchase agreement and recommends that you vote FOR the issuance of Accredo
shares in the acquisition. The Accredo board of directors also recommends that
you vote FOR approval of the 2002 Long-Term Incentive Plan and the amendment to
the certificate of incorporation to increase the number of authorized shares of
common stock from 50,000,000 to 100,000,000.
Opinion of Gentiva's Financial Advisor: In connection with the sale of the
SPS business, Gentiva's board of directors received a written opinion from
Gentiva's financial advisor, Lehman Brothers, that from a financial point of
view, the consideration to be received by Gentiva in connection with the sale of
the SPS business is fair to Gentiva. The full text of Lehman Brothers' opinion,
dated January 2, 2002, is included in this joint proxy statement-prospectus as
Annex C. We encourage you to read the opinion carefully in its entirety for a
description of the assumptions made, matters considered, limitations on the
review undertaken and opinions provided. LEHMAN BROTHERS' OPINION IS DIRECTED TO
GENTIVA'S BOARD OF DIRECTORS AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
STOCKHOLDER AS TO HOW TO VOTE ON THE SALE OF THE SPS BUSINESS OR ANY OTHER
MATTER RELATING TO THE PROPOSED TRANSACTION.
Opinion of Accredo's Financial Advisor: In deciding to approve the
acquisition and recommend the issuance of Accredo shares, the Accredo board of
directors considered the opinion of its financial advisor, Thomas Weisel
Partners, that as of the date of its opinion, the consideration to be paid by
Accredo in the acquisition was fair, from a financial point of view, to Accredo.
The full text of Thomas Weisel Partners' opinion is attached as Annex D to this
joint proxy statement-prospectus. Stockholders of Accredo should read this
opinion carefully in its entirety. THOMAS WEISEL PARTNERS DIRECTED ITS OPINION
TO THE ACCREDO BOARD OF DIRECTORS. THE OPINION DOES NOT CONSTITUTE A
RECOMMENDATION TO STOCKHOLDERS OF ACCREDO AS TO HOW ACCREDO STOCKHOLDERS SHOULD
VOTE WITH RESPECT TO THE ISSUANCE OF SHARES IN THE ACQUISITION.
GENTIVA'S REASONS FOR THE SALE OF THE SPS BUSINESS (SEE PAGE 36)
After due consideration of all other alternatives reasonably available to
Gentiva, the Gentiva board of directors concluded that the sale of the SPS
business was expedient and in the best interest of Gentiva. In reaching its
determination, Gentiva's board concluded that upon the distribution of the
proceeds of the sale of the SPS business, the stockholders of Gentiva will
recognize immediate cash value and have an interest in the combined Accredo/SPS
business and a continued interest in Gentiva's home health care services
business which will provide the ability to unlock stockholder value as well as
provide the best available opportunity for stockholders of Gentiva to realize
long-term value.
ACCREDO'S REASONS FOR THE ACQUISITION (SEE PAGE 38)
In reaching its decision to recommend the issuance of shares, Accredo's
board concluded that combining Gentiva's SPS business with Accredo's existing
operations provides an opportunity for Accredo to achieve its strategic goal of
being a leading provider of specialized contract pharmacy services to
biopharmaceutical manufacturers. The Accredo board believes that the acquisition
provides an opportunity for achieving enhanced financial performance and
increasing stockholder value.
REGULATORY APPROVAL AND OTHER CONDITIONS (SEE PAGES 54 AND 57)
On January 23, 2002, Accredo and Gentiva filed the notification and report
form under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
required for the transactions contemplated by the asset purchase agreement. The
waiting period required under the Hart-Scott-Rodino Act expired on
4
February 22, 2002. We expect to obtain all other required regulatory approvals
before the special meetings, but we cannot assure that this will happen.
In addition to the required regulatory approvals, the acquisition will be
completed only if certain conditions, including but not limited to the
following, are met or waived, if waivable:
- EBITDA (as defined in the asset purchase agreement) for the SPS business
for the fiscal year ended December 30, 2001 shall equal or exceed $47
million;
- Accredo obtains an audit and an unqualified audit opinion from Ernst &
Young LLP of the financial statements for the SPS business through the
fiscal year ended December 30, 2001, which shall not have changes from
the financial statements provided earlier by Gentiva except for changes
that would not have a material adverse effect (as defined in the asset
purchase agreement) on the SPS business;
- Gentiva's stockholders approve the sale of the SPS business at the
Gentiva stockholders' meeting;
- Accredo's stockholders approve the issuance of Accredo common stock at
the Accredo stockholders' meeting;
- receipt of specified consents;
- accuracy of the representations and warranties in all material respects;
- no governmental or regulatory action or legislation prohibiting the
acquisition; and
- no material adverse effect on Accredo or Gentiva has occurred and is
continuing from the date of the asset purchase agreement to the date the
acquisition is completed, provided that certain events relating to the
acute portion of the SPS business to be acquired by Accredo will not be
considered to have a material adverse effect.
In addition to these conditions, the asset purchase agreement, attached to
this joint proxy statement-prospectus as Annex A, describes other conditions
that must be met before the acquisition may be completed.
WAIVER, AMENDMENT AND TERMINATION (SEE PAGE 58)
Any provision of the asset purchase agreement may be changed, waived,
discharged or terminated only by an agreement signed by the party against whom
or which the enforcement of such change, waiver, discharge or termination is
sought. Accredo and Gentiva may agree to terminate the asset purchase agreement
and elect not to consummate the acquisition at any time before the acquisition
is completed, even if Gentiva's and Accredo's stockholders have already approved
the acquisition. Each of the parties also can terminate the acquisition in other
circumstances, including:
- if the acquisition is not completed by May 31, 2002, subject to extension
to August 31, 2002 if required regulatory approvals have not been
received;
- if any law or order permanently prohibiting the acquisition has become
final and nonappealable;
- if there is a material breach of a representation, warranty or covenant
that is not cured within 30 days after notice of the breach, subject to
limitations;
- if the stockholders of Gentiva fail to approve the sale of the SPS
business or the stockholders of Accredo fail to approve the issuance of
Accredo common stock in the acquisition at their respective stockholders'
meetings, subject to limitations; or
- if the conditions precedent are incapable of being satisfied by May 31,
2002 (or August 31, 2002 if required regulatory approvals have not been
received), including, but not limited to, a material adverse effect on
the other party.
In addition, Accredo may terminate the asset purchase agreement, if the
board of directors of Gentiva fails to reaffirm its recommendation of the sale
of the SPS business to Accredo, withholds, withdraws, amends or modifies its
recommendation of the sale of the SPS business to Accredo, or proposes to do so
or
5
changes its recommendation in a manner adverse to the sale of the SPS business
to Accredo following receipt of an acquisition proposal (as defined in the asset
purchase agreement). Accredo may also terminate the asset purchase agreement if
any person other than Accredo acquires beneficial ownership of 10% or more of
Gentiva's common stock in a transaction that does not constitute a permitted
acquisition proposal and Gentiva shall have redeemed the rights issuable under
its rights plan, waived or amended any provision of its rights plan or taken any
action or made any determination favorable to such person under its rights plan.
Gentiva may also terminate the asset purchase agreement, if the board of
directors of Gentiva changes its recommendation in a manner adverse to the
acquisition in order to approve a superior proposal (as defined in the asset
purchase agreement) in compliance with the terms of the asset purchase
agreement.
In the event of a suspension of trading in securities on the New York Stock
Exchange or Nasdaq, a banking moratorium across the United States or the
commencement or significant acceleration of a war or armed hostilities or other
national catastrophe directly involving the United States, in each case as a
result of a catastrophe similar to the World Trade Center disaster of September
11, 2001, Accredo and Gentiva have agreed to negotiate an appropriate delay of
the closing of the acquisition, but not later than June 30, 2002 or 30 days
after the scheduled stockholders meetings of Gentiva and Accredo and, if
requested by Accredo, an adjustment to the terms of the acquisition reasonably
appropriate as a consequence of the event. However, Gentiva or Accredo may
terminate the asset purchase agreement pursuant to any other termination
provision, if applicable. During such negotiations which will not exceed 30
days, the parties will not be considered in breach of the asset purchase
agreement as a result of such event. Gentiva will not be in breach of the asset
purchase agreement for failing to accept new terms proposed by Accredo during
such negotiations and Accredo will not be in breach of the asset purchase
agreement for failing to close the acquisition as a result of such catastrophic
event. Any provision of the asset purchase agreement may be changed, waived,
discharged or terminated only by an agreement signed by the party against whom
or which the enforcement of such change, waiver, discharge or termination is
sought.
TERMINATION FEE AND EXPENSES (SEE PAGE 65)
Gentiva has agreed to pay Accredo a termination fee of $12.5 million, less
any costs and expenses paid in accordance with the following paragraph, if the
asset purchase agreement is terminated:
- by Accredo because the Gentiva board of directors changes or withdraws
its recommendation that Gentiva stockholders vote in favor of the sale of
the SPS business to Accredo;
- by Gentiva if it receives an unsolicited superior acquisition proposal
and follows the procedures in the asset purchase agreement regarding the
offer;
- by Accredo due to the failure of Gentiva's stockholders to approve the
sale of the SPS business, or due to the failure to consummate the
acquisition or if the conditions precedent are incapable of being
fulfilled by the applicable date set forth in the asset purchase
agreement, and in each case an alternative acquisition proposal has been
publicly announced at the time of the termination of the asset purchase
agreement and within twelve months after the termination, an acquisition
proposal that meets the criteria set forth in the asset purchase
agreement is consummated or entered into; or
- by Accredo because Gentiva has failed to perform and comply with its
obligations, agreements and covenants required by the asset purchase
agreement and within twelve months of the termination an acquisition
proposal that meets the criteria set forth in the asset purchase
agreement is consummated or entered into.
The parties have agreed to share expenses other than advisor's fees and
Accredo has agreed to pay fees in connection with the Hart-Scott Rodino filings.
In the event of a termination of the asset purchase agreement because either
Gentiva or Accredo has breached its representations, warranties, covenants or
agreements, or because its stockholders have voted against the acquisition, each
of Gentiva and Accredo has agreed to pay the party that elected to terminate the
agreement its costs and expenses actually incurred in connection with the
acquisition, up to an aggregate of $2.5 million.
6
INDEMNIFICATION (SEE PAGE 62)
Gentiva and Accredo have agreed to indemnify each other for breaches of
representations and warranties of such party or the non-fulfillment of any
covenant or agreement of such party. In addition, Gentiva has agreed to
indemnify Accredo for the retained liabilities and for tax liabilities and
Accredo has agreed to indemnify Gentiva for assumed liabilities and the
operation of the SPS business after the closing of the acquisition. The
representations and warranties generally survive for the period of two years
after the closing of the acquisition, except that:
- representations and warranties related to health care compliance survive
for three years after the closing of the acquisition;
- representations and warranties related to title of the assets and
sufficiency of assets and employees survive for the applicable statute of
limitations period; and
- representations and warranties related to tax matters survive until
thirty days after the expiration of the applicable tax statute of
limitations period, including any extensions of the applicable period,
subject to certain exceptions.
Accredo and Gentiva may recover indemnification for a breach of a
representation or warranty only to the extent a party's claim exceeds $5,000,000
in the aggregate, subject to the following sentence, and only up to a maximum
amount of $100,000,000. If prior to reaching the $5,000,000 minimum amount, a
party incurs an individual claim for indemnification in excess of $1,000,000,
the amount of the claim that is up to $1,000,000 will be counted towards the
$5,000,000 minimum amount and will not be recoverable and the amount of the
claim that is in excess of $1,000,000 will be recoverable and will not be
counted towards the $5,000,000 minimum amount but will be counted towards the
$100,000,000 maximum amount. Accredo has agreed not to seek recourse against
Gentiva for up to $2,000,000 resulting from understatements of liabilities
(other than intentional and knowing understatements) on the actual balance
sheet, but such amounts shall be counted towards the $100,000,000 maximum
amount.
The indemnification rights are the exclusive remedy from and after the
closing of the acquisition, except for the right to seek specific performance of
any of the agreements in the asset purchase agreement, in any case where a party
is guilty of fraud in connection with the acquisition, and with respect to tax
liabilities and obligations.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE SALE OF THE SPS BUSINESS AND
DISTRIBUTION OF SPS SALE PROCEEDS (SEE PAGE 62)
Gentiva will recognize gain or loss on the sale of the SPS business, and
will recognize additional gain to the extent that the value of any Accredo
common stock on the date it is distributed to the Gentiva stockholders exceeds
its value on the date such stock is received by Gentiva. To the extent any such
gain is not offset by available net operating losses or other tax attributes,
Gentiva will be subject to corporate income tax on such gain.
Any distribution of the proceeds received by Gentiva to its stockholders
will be taxable as a dividend to the extent of Gentiva's current and accumulated
earnings and profits and any excess attributable to a Gentiva share will be
treated first as a tax-free return of capital that reduces the tax basis of such
share (to the extent of such tax basis) and thereafter as capital gain (which
will be long term capital gain if the stockholder has held the Gentiva share for
more than one year).
NO DISSENTER'S RIGHTS (SEE PAGE 29)
The proposed acquisition/sale of the SPS business is not a transaction
which entitles stockholders of Gentiva or Accredo to dissenters' rights of
appraisal under Delaware law.
7
RECENT COMPARATIVE CLOSING PRICES OF COMMON STOCK (SEE PAGE 118)
Accredo common stock is quoted on the Nasdaq National Market under the
symbol "ACDO." Gentiva common stock is quoted on the Nasdaq National Market
under the symbol "GTIV." The following table shows the closing prices of Accredo
and Gentiva common stock on January 2, 2002, the last trading day before the
asset purchase agreement was announced, and , 2002, the date of this
joint proxy statement-prospectus.
<Table>
<Caption>
GENTIVA COMMON ACCREDO COMMON
STOCK STOCK
-------------- --------------
January 2, 2002........................................ $21.59 $38.69
, 2002.......................................
</Table>
Common stock prices are subject to change and we urge you to obtain current
market quotations for Accredo common stock and Gentiva common stock.
INTERESTS OF PERSONS IN THE ACQUISITION THAT MAY BE DIFFERENT FROM GENTIVA
STOCKHOLDERS (SEE PAGES 66 AND 67)
Some of the directors and executive officers of Gentiva have interests in
the sale of the SPS business that are different from or in addition to the
interests of Gentiva stockholders. These interests include the hiring of Mr.
Robert Nixon as a consultant for Accredo, acceleration of vesting of options as
a result of the acquisition and payments to be made by Gentiva to certain of its
executive officers pursuant to change in control agreements. See "The
Acquisition/Sale of the SPS Business -- Change in Control Agreements with
Certain of Gentiva's Executive Officers" and "-- Stock Options."
RESTRICTIVE COVENANT AGREEMENTS (SEE PAGE 69)
As a condition to the closing of the acquisition, Accredo and Gentiva will
enter into a restrictive covenant agreement at the closing of the acquisition
pursuant to which, for a period of seven years following the closing of the
acquisition, neither Gentiva nor its affiliates (as defined in the restrictive
covenant agreements) will engage in the business of marketing or distributing
specified chronic disease drugs and related products within the United States
and Puerto Rico, nor will they call upon, solicit or otherwise interfere with
any of Accredo's suppliers, customers or employees relating to the chronic drug
distribution business. In addition, Accredo and Gentiva will enter into a
separate restrictive covenant agreement at the closing of the acquisition
pursuant to which, for a period of five years following the closing of the
acquisition, neither Gentiva nor its affiliates will engage in the acute drug
distribution business within the United States and Puerto Rico, nor will they
call upon, solicit or otherwise interfere with any of Accredo's suppliers,
customers or employees relating to the acute drug distribution business. Two
million dollars of the cash purchase price has been allocated as consideration
for these restrictive covenant agreements. The restrictive covenant agreements
do not preclude Gentiva from continuing its home health care services or
Gentiva's CareCentrix business.
In addition, Messrs. Edward Blechschmidt, John Collura and Ronald Malone
have entered into individual covenants not to compete similar to those that will
be entered into by Gentiva which will continue for a period of one year
following the closing date of the acquisition, without additional consideration.
Mr. Robert Nixon has also entered into similar restrictive covenant for the term
of his consulting agreement with Accredo and for one year thereafter for
additional consideration.
VOTING AGREEMENTS (SEE PAGE 69)
Certain directors and the chief executive officer of Gentiva, Edward
Blechschmidt, have entered into voting agreements with Accredo where they have
agreed to vote those shares of common stock that they own in favor of the sale
of the SPS business. As of , 2002, the record date, these stockholders
owned approximately % of Gentiva's outstanding common stock.
8
ACCOUNTING TREATMENT (SEE PAGE 65)
Accredo intends to account for the acquisition under the purchase method of
accounting. Accredo has allocated zero value to the acute business for
accounting purposes. Accredo intends to explore strategic alternatives for the
acute business. The entire purchase price has been allocated to the chronic
business of SPS.
CERTAIN DIFFERENCES IN STOCKHOLDERS' RIGHTS (SEE PAGE 110)
The rights of Accredo stockholders are governed by Delaware law and by
Accredo's certificate of incorporation and bylaws. The rights of Gentiva
stockholders are also governed by Delaware law and Gentiva's certificate of
incorporation and bylaws. Your rights as a Gentiva stockholder will not change,
but following the distribution, Gentiva stockholders will also hold shares of
Accredo common stock and, with respect to those shares, be entitled to the
rights of Accredo stockholders.
THE ACCREDO HEALTH, INCORPORATED 2002 LONG-TERM INCENTIVE PLAN (SEE PAGE 72)
On March , 2002, Accredo's board of directors adopted a resolution
approving and recommending to the stockholders the Accredo Health, Incorporated
2002 Long-Term Incentive Plan. If approved by the Accredo stockholders, the plan
will become effective at the Accredo stockholders' special meeting. Accredo will
reserve 2,600,000 shares of its common stock for issuance upon the grant or
exercise of awards pursuant to the plan. The Accredo board of directors believes
that this plan will provide employees with an incentive for outstanding
performance and recommends that its stockholder vote FOR the approval of the
2002 Long-Term Incentive Plan.
THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF ACCREDO (SEE PAGE 76)
The board of directors of Accredo has adopted, subject to stockholder
approval, an amendment to Accredo's Amended and Restated Certificate of
Incorporation to increase the number of authorized shares of Accredo common
stock from 50,000,000 to 100,000,000. The relative rights and limitations of the
Accredo common stock would remain unchanged under this amendment. The board of
directors of Accredo believes that the proposed increase in the number of
authorized shares of Accredo common stock will provide Accredo with flexibility
in possible future transactions approved by the Accredo board of directors, and
recommends that its stockholders vote FOR the approval of the amendment to the
certificate of incorporation.
9
ACCREDO SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The table below presents selected historical consolidated financial data of
Accredo. The information set forth below should be read in conjunction with
Accredo's annual report on Form 10-K for the fiscal year ended June 30, 2001 and
Accredo's quarterly report on Form 10-Q for the six months ended December 31,
2001, which are incorporated herein by reference and together with the section
thereof entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in addition to other annual reports, quarterly
reports and other information on file with the Securities and Exchange
Commission.
The selected consolidated statements of operations for the six month
periods ended December 31, 2001 and 2000 and the selected consolidated balance
sheet data as of December 31, 2001, have been derived from Accredo's unaudited
consolidated financial statements, incorporated by reference into this joint
proxy statement-prospectus. The selected consolidated statements of operations
for each of the three years in the period ended June 30, 2001, and the selected
consolidated balance sheet data as of June 30, 2001, and June 30, 2000, have
been derived from Accredo's audited consolidated financial statements,
incorporated by reference into this joint proxy statement-prospectus. The
selected consolidated statement of operations data for the years ended June 30,
1998 and June 30, 1997, and the selected condensed consolidated balance sheet
data as of June 30, 1999, June 30, 1998 and June 30, 1997, have been derived
from Accredo's audited financial statements for those periods.
<Table>
<Caption>
SIX MONTHS
ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
---------------------------------------------------- -------------------
1997 1998 1999 2000 2001 2000 2001
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Revenues:
Net patient service
revenue.................. $106,143 $170,002 $244,158 $335,601 $446,007 $205,408 $277,845
Other revenue.............. 8,049 9,806 12,277 15,432 14,985 7,524 8,116
Equity in net income of
joint ventures........... 1,017 1,150 1,919 2,002 1,148 514 873
-------- -------- -------- -------- -------- -------- --------
Total revenues........... 115,209 180,958 258,354 353,035 462,140 213,446 286,834
Operating expenses:
Cost of services........... 101,080 154,046 220,517 300,973 395,365 182,458 242,771
General and
administrative........... 5,939 12,489 17,637 23,831 29,871 14,211 19,303
Bad debts.................. 2,977 3,165 4,739 6,117 6,131 3,194 2,056
Depreciation and
amortization............. 4,877 3,861 3,911 3,397 4,263 2,040 1,462
-------- -------- -------- -------- -------- -------- --------
Total operating
expenses............... 114,873 173,561 246,804 334,318 435,630 201,903 265,592
-------- -------- -------- -------- -------- -------- --------
Operating income............. 336 7,397 11,550 18,717 26,510 11,543 21,242
Interest expense (income),
net........................ 984 3,552 3,165 2,136 (2,770) (1,256) (800)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before minority
interest in income of
consolidated joint venture,
income taxes and
extraordinary item......... (648) 3,845 8,385 16,581 29,280 12,799 22,042
Minority interest in income
of consolidated joint
venture.................... 0 0 0 (177) (692) (306) (633)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes and extraordinary
item....................... (648) 3,845 8,385 16,404 28,588 12,493 21,409
Income tax expense........... 1,502 2,420 4,003 6,508 11,333 4,962 8,315
-------- -------- -------- -------- -------- -------- --------
</Table>
10
<Table>
<Caption>
SIX MONTHS
ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
---------------------------------------------------- -------------------
1997 1998 1999 2000 2001 2000 2001
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED)
Income (loss) before
extraordinary item......... (2,150) 1,425 4,382 9,896 17,255 7,531 13,094
Extraordinary charge for
early extinguishment of
debt, net of income tax
benefit.................... 0 0 (1,254) 0 0 0 0
-------- -------- -------- -------- -------- -------- --------
Net income (loss)............ (2,150) 1,425 3,128 9,896 17,255 7,531 13,094
Mandatorily redeemable
cumulative preferred stock
dividends.................. (2,043) (2,043) (1,617) 0 0 0 0
-------- -------- -------- -------- -------- -------- --------
Net income (loss) to common
stockholders............... $ (4,193) $ (618) $ 1,511 $ 9,896 $ 17,255 $ 7,531 $ 13,094
======== ======== ======== ======== ======== ======== ========
Diluted earnings per common
share:
Income (loss) before
extraordinary item......... $ (0.19) $ 0.11 $ 0.28 $ 0.45 $ 0.66 $ 0.30 $ 0.49
Extraordinary charge......... 0.00 0.00 (0.08) 0.00 0.00 0.00 0.00
Preferred stock dividends.... (0.17) (0.16) (0.10) 0.00 0.00 0.00 0.00
-------- -------- -------- -------- -------- -------- --------
Net income (loss) to common
stockholders(1)............ $ (0.36) $ (0.05) $ 0.10 $ 0.45 $ 0.66 $ 0.30 $ 0.49
======== ======== ======== ======== ======== ======== ========
Cash dividends declared on
common stock............... $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash equivalents.... $ 3,676 $ 5,087 $ 5,542 $ 10,204 $ 54,520 $ 15,365
Working capital.............. 16,894 23,377 28,906 35,639 88,288 68,867
Total assets................. 113,309 114,049 146,746 205,229 289,244 342,615
Long-term debt............... 35,195 36,418 20,500 37,000 0 0
Mandatorily redeemable
cumulative preferred
stock...................... 27,749 29,792 0 0 0 0
Stockholders' equity......... 12,790 12,801 64,127 77,544 189,170 205,750
</Table>
- ---------------
(1) Historical diluted loss per share for the periods ended June 30, 1997 and
1998 have been calculated using the same denominator as used for basic loss
per share because the inclusion of dilutive securities in the denominator
would have an anti-dilutive effect.
11
GENTIVA SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table presents selected historical consolidated financial
data of Gentiva as of and for each of the fiscal years in the five-year period
ended December 31, 2000 and as of and for the nine-month periods ended October
1, 2000 and September 30, 2001. The consolidated financial data, insofar as it
relates to each of the fiscal years 1996-2000, has been derived from annual
financial statements, including the consolidated balance sheets at January 2,
2000 and December 31, 2000 and the related statements of operations and of cash
flows for the three years ended December 31, 2000 and notes thereto which are
incorporated by reference in this joint proxy statement-prospectus. The
consolidated financial data as of and for the nine months ended October 1, 2000
and September 30, 2001 have been derived from Gentiva's unaudited financial
statements, and they include, in the opinion of Gentiva's management, all
adjustments, consisting of normal recurring adjustments, necessary for a fair
statement of the results for the unaudited interim periods. The historical
consolidated financial information presents Gentiva's results of operations and
financial position as if Gentiva were a separate entity from Olsten Corporation
for all periods presented. The historical financial information may not be
indicative of Gentiva's performance and may not necessarily reflect what the
financial position and results of operations of Gentiva would have been if
Gentiva was a separate stand-alone entity during all the periods covered. You
should read this data together with Gentiva's financial statements and notes to
those financial statements, which are incorporated by reference in this joint
proxy statement-prospectus.
<Table>
<Caption>
FOR THE NINE
MONTHS ENDED
FISCAL YEAR -----------------------
-------------------------------------------------------------- OCT. 1, SEPT. 30,
1996 1997 1998 1999 2000 2000 2001
---------- ---------- ---------- ---------- ---------- ---------- ----------
53 WEEKS
(IN THOUSANDS, EXCEPT SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net revenues................... $1,374,353 $1,433,854 $1,330,303 $1,489,822 $1,506,644 $1,148,202 $1,020,884
Gross Profit................... 511,940 520,586 421,407 505,426 485,000 375,291 342,165
Selling, general and
administrative expenses...... 421,222 460,254 552,528 509,658 615,198 496,247 326,096
Net income (loss).............. (2,877) 26,847 (101,465) (15,086) (104,200) (130,081) 14,677
Net income (loss) per share
Basic........................ (0.14) 1.32 (4.99) (0.74) (5.05) (6.34) 0.65
Diluted...................... (0.14) 1.32 (4.99) (0.74) (5.05) (6.34) 0.61
Average shares outstanding
Basic........................ 20,345 20,345 20,345 20,345 20,637 20,521 22,442
Diluted...................... 20,345 20,345 20,345 20,345 20,637 20,521 25,746
OTHER SUPPLEMENTAL DATA:
Earnings before interest,
taxes, depreciation,
amortization and special
charges...................... 117,726 89,825 22,280 44,593 54,727 42,167 39,127
Special charges................ (74,820) -- (122,000) (15,200) (116,561) (138,816) (3,011)
Earnings (loss) before
interest, taxes, depreciation
and amortization(1).......... 42,906 89,825 (99,720) 29,393 (61,834) (96,649) 36,116
Cash flows provided by (used
in) operating activities..... (7,680) 20,200 (63,875) (141,465) (9,008) (21,857) 67,533
Cash flows provided by (used
in) investing activities..... (49,792) (17,913) (68,568) (20,725) 59,185 (4,778) (5,925)
Cash flows provided by (used
in) financing activities..... 27,980 (38,143) 133,242 164,333 (52,667) 26,799 21,526
</Table>
12
<Table>
<Caption>
FOR THE NINE
MONTHS ENDED
FISCAL YEAR -----------------------
-------------------------------------------------------------- OCT. 1, SEPT. 30,
1996 1997 1998 1999 2000 2000 2001
---------- ---------- ---------- ---------- ---------- ---------- ----------
53 WEEKS
(IN THOUSANDS, EXCEPT SHARE DATA)
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash equivalents...... -- -- 799 2,942 452 3,106 83,586
Working capital................ 334,512 346,135 367,915 438,536 348,684 303,431 388,315
Total assets................... 785,341 783,478 945,738 1,063,105 805,484 853,617 815,592
Long-term debt................. 86,250 86,250 86,250 78,562 20,000 20,000 --
Tangible net worth............. 297,051 295,707 305,743 454,994 335,447 298,236 389,074
Shareholder's equity........... 541,737 530,270 561,859 705,291 566,149 534,879 611,960
</Table>
- ---------------
(1) Earnings (loss) before interest, taxes, depreciation and amortization
(EBITDA) is presented and discussed because management believes that EBITDA
is a useful adjunct to net income and other measurements under accounting
principles generally accepted in the United States since it is a meaningful
measure of a company's performance and ability to meet its future debt
service requirements, fund capital expenditures and meet working capital
requirements. EBITDA is not a measure of financial performance under
accounting principles generally accepted in the United States and should not
be considered as an alternative to (i) net income (or any other measure of
performance under generally accepted accounting principles) as a measure of
performance or (ii) cash flows from operating, investing or financing
activities as an indicator of cash flows or as a measure of liquidity.
13
SPS BUSINESS SELECTED HISTORICAL FINANCIAL DATA
The tables below present selected historical financial data of the SPS
business of Gentiva which is being acquired by Accredo. The information set
forth below should be read in conjunction with Gentiva's annual report on Form
10-K for the fiscal year ended December 31, 2000, and quarterly reports on Form
10-Q for the quarters ended April 1, 2001, July 1, 2001 and September 30, 2001,
incorporated herein by reference and together with the section thereof entitled
"Management's Discussion and Analysis and Results of Operations" in addition to
other annual reports, quarterly reports and other information on file with the
Securities and Exchange Commission. The selected historical financial data
herein for the SPS business for all periods presented is consistent with
Gentiva's reclassification of reportable segments which was effective as of
fiscal 2001.
The selected statements of operations for the nine month period ended
September 30, 2001, and the years ended December 31, 2000, and January 2, 2000,
and the selected condensed balance sheet data as of September 30, 2001 and
December 31, 2000 have been derived from the audited financial statements for
the SPS business included in this joint proxy statement-prospectus. The selected
statements of operations for the years ended January 3, 1999 and December 27,
1997 and the selected condensed balance sheet data as of January 2, 2000,
January 3, 1999 and December 27, 1997 have been derived from the unaudited
financial statements for the SPS business and they include, in the opinion of
management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair statement of the results for those periods.
The historical financial information presents the results of operations and
financial position of the SPS business as if it were a separate entity for all
periods presented. The historical financial information may not be indicative of
the future performance of the SPS business and may not necessarily reflect what
the financial position and results of operations of the SPS business would have
been if the SPS business was a separate and stand-alone entity during the
periods covered. You should read this data together with the financial
statements and notes to those financial statements for the SPS business, which
are included elsewhere in this joint proxy statement-prospectus.
<Table>
<Caption>
NINE MONTHS
FISCAL YEAR ENDED
----------------------------------------- SEPTEMBER 30,
1997 1998 1999 2000 2001
-------- -------- -------- -------- -------------
53 WEEKS
(IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Net revenues.......................... $463,571 $558,392 $665,126 $699,327 $546,955
Gross profit.......................... 154,799 187,455 220,024 211,507 157,452
Selling, general and administrative
expenses............................ 126,967 144,000 175,049 273,404 133,775
Net income (loss)..................... 9,135 20,085 21,405 (42,054) 14,312
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital....................... 256,432 252,181 328,876 239,837 232,406
Total assets.......................... 313,548 366,434 441,817 324,920 305,858
Long-term debt........................ -- -- -- -- --
Divisional equity..................... 274,804 277,663 353,328 258,183 249,387
</Table>
14
SUMMARY UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
OF ACCREDO AND THE SPS BUSINESS
The following summary unaudited pro forma condensed financial statements
are derived from the unaudited pro forma condensed financial statements
contained elsewhere in this joint proxy statement-prospectus. The summary
unaudited pro forma condensed consolidated financial information presented
herein does not purport to represent the results Accredo would have obtained had
the transaction, in fact, occurred at the beginning of the period presented or
to project Accredo's results of operations in any future period. The pro forma
adjustments are based upon preliminary estimates, available information and
certain assumptions that management deems appropriate and are not necessarily
indicative of the results that may be expected in the future. The unaudited pro
forma condensed financial statements are based upon the selected historical
financial data for the SPS business, consistently presented with Gentiva's
reporting of segments since its reclassification of segments as of fiscal 2001.
The unaudited pro forma condensed financial statements should be read in
conjunction with the audited consolidated financial statements of Accredo
included in its Annual Report on Form 10-K for the year ended June 30, 2001, the
unaudited condensed consolidated financial statements of Accredo included in its
Quarterly Report on Form 10-Q for the period ended September 30, 2001, each of
which are incorporated herein by reference, and the audited financial statements
of the SPS business included elsewhere in this joint proxy statement-prospectus.
<Table>
<Caption>
YEAR THREE MONTHS
ENDED ENDED
JUNE 30, SEPTEMBER 30,
2001 2001
------------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues:
Net patient service revenue......................... $1,169,167 $293,280
Other revenue....................................... 22,607 5,662
Equity in net income of joint ventures.............. 1,148 446
---------- --------
Total revenues................................... 1,192,922 299,388
Operating expenses:
Cost of services.................................... 914,897 227,068
General and administrative.......................... 172,601 42,549
Bad debts........................................... 32,982 8,255
Depreciation and amortization....................... 16,257 3,531
---------- --------
Total operating expenses......................... 1,136,737 281,403
---------- --------
Operating income...................................... 56,185 17,985
Interest expense, net................................. 8,651 2,107
---------- --------
Income before minority interest in income of
consolidated joint venture and income taxes......... 47,534 15,878
Minority interest in income of consolidated joint
venture............................................. (692) (319)
---------- --------
Income before income taxes............................ 46,842 15,559
Income tax expense.................................... 18,533 6,080
---------- --------
Net income to common stockholders..................... $ 28,309 $ 9,479
========== ========
Diluted earnings per common share..................... $ 0.89 $ 0.29
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 53,342
Working capital....................................... 327,294
Total assets.......................................... 793,136
Long-term debt........................................ 227,200
Stockholders' equity.................................. 404,966
</Table>
15
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF GENTIVA
The following summary unaudited pro forma consolidated financial data of
Gentiva are derived from the unaudited pro forma consolidated financial
statements contained elsewhere in this joint proxy statement-prospectus which
give effect to the sale of the SPS business and the related transactions. The
summary unaudited pro forma consolidated financial information below does not
purport to represent the results Gentiva would have obtained had the
transaction, in fact, occurred at the beginning of the period presented or to
project Gentiva's results of operations in any future period. The pro forma
adjustments are based upon estimates, available information and certain
assumptions that Gentiva management deems appropriate and are not necessarily
indicative of the results that may be expected in the future. The unaudited pro
forma consolidated financial statements are based upon the historical financial
data for Gentiva and for the SPS business, consistently presented with Gentiva's
reporting of segments since its reclassification of segments as of fiscal 2001.
<Table>
<Caption>
YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
2000 2001
------------ -------------
(IN THOUSANDS, EXCEPT
PER SHARE)
STATEMENT OF OPERATIONS DATA:
Net revenues................................................ $881,765 $540,818
Cost of services sold....................................... 608,272 356,105
-------- --------
Gross profit........................................... 273,493 184,713
Selling, general and administrative expenses................ 356,359 199,129
Gain on sale of business.................................... (36,682) --
Interest expense, net....................................... 3,066 102
-------- --------
Loss before income taxes.................................... (49,250) (14,518)
Income tax expense (benefit)................................ 3,106 (493)
-------- --------
Net loss............................................... $(52,356) $(14,025)
======== ========
Diluted loss per share...................................... $ (2.54) $ (0.62)
======== ========
BALANCE SHEET DATA (AS OF SEPTEMBER 30, 2001):
Cash and cash equivalents................................... $ 83,568
Working capital............................................. 155,909
Total assets................................................ 523,051
Long-term debt.............................................. --
Stockholders' equity........................................ 362,573
</Table>
16
HISTORICAL AND PRO FORMA COMPARATIVE PER SHARE DATA
The following table sets forth:
- the historical net income (loss), cash dividends and book value per share
of Accredo common stock, and the combined per share data for Accredo on
an unaudited pro forma basis after giving effect to the proposed
acquisition under the purchase method of accounting; and
- the historical net income (loss), cash dividends and book value per share
of Gentiva common stock, and the per share data for Gentiva on an
unaudited pro forma basis after giving effect to the proposed sale of the
SPS business.
The following data should be read in connection with the historical
consolidated financial statements of Accredo and Gentiva, which are incorporated
by reference into or included in this joint proxy statement-prospectus.
The unaudited pro forma combined per share data is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the transaction had
been consummated at the beginning of the earliest period presented, nor is it
necessarily indicative of the future operating results of financial position.
The pro forma adjustments are estimates based upon information and assumptions
available at the time of the filing of this joint proxy statement-prospectus.
After the sale of the SPS business, Gentiva intends to distribute to its
stockholders substantially all of the proceeds of the sale of the SPS business.
See "The Acquisition/Sale of the SPS Business -- Proceeds of the Sale of the SPS
Business; Distribution." Assuming that there is no adjustment to the
consideration in accordance with the asset purchase agreement and based on the
closing price of Accredo common stock on , 2002, the last trading
day prior to the mailing of this joint proxy statement-prospectus, Gentiva will
distribute to its stockholders $ million in cash and shares of
Accredo common stock and Gentiva would distribute $ in cash and
shares of Accredo common stock per each share of Gentiva common stock, based on
such price of Accredo common stock.
<Table>
<Caption>
AT OR FOR AT OR FOR THE
THE THREE
YEAR ENDED MONTHS ENDED
JUNE 30, SEPTEMBER 30,
2001 2001
------------- -------------------
Historical Accredo:
Basic income (loss) per share.......................... $0.69 $0.23
Diluted income (loss) per share........................ 0.66 0.22
Cash dividends declared per share...................... 0.00 0.00
Book value per common share............................ -- 7.35
Unaudited pro forma combined -- Accredo:
Pro forma basic income (loss) per share................ $0.92 $0.30
Pro forma diluted income (loss) per share.............. 0.89 0.29
Pro forma cash dividends declared per share............ 0.00 0.00
Pro forma book value per common share.................. -- 12.42
</Table>
17
<Table>
<Caption>
AT OR FOR AT OR FOR THE
THE NINE
YEAR ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
2000 2001
------------- ------------------
Historical Gentiva:
Basic income (loss) per share........................... $(5.05) $ 0.65
Diluted income (loss) per share......................... $(5.05) $ 0.61
Cash dividends declared per share....................... $ 0.00 $ 0.00
Book value per common share............................. $26.71 $24.17
Unaudited pro forma -- Gentiva:
Pro forma basic loss per share.......................... $(2.54) $(0.62)
Pro forma diluted loss per share........................ $(2.54) $(0.62)
Pro forma cash dividends declared per share............. $ 0.00 $ 0.00
Pro forma book value per common share................... $14.53 $14.32
</Table>
18
RISK FACTORS
This joint proxy statement-prospectus contains forward-looking statements
which involve a number of risks and uncertainties. Actual results could differ
materially from those discussed in the forward-looking statements. Factors that
could cause actual results to differ materially include, without limitation, the
risk factors discussed below and elsewhere in this joint proxy
statement-prospectus. In addition, as a stockholder of Gentiva, if the sale of
the SPS business is consummated and a distribution of Accredo stock is made, you
will also be subject to the risks of investing in Accredo, as discussed below.
In addition to the other information contained in this joint proxy
statement-prospectus and the attached annexes, Gentiva stockholders and Accredo
stockholders should consider the following risk factors carefully in deciding
how to vote on the sale of the SPS business and the issuance of the Accredo
common stock.
RISKS RELATED TO THE ACQUISITION
THE NUMBER OF SHARES TO BE ISSUED IN THE ACQUISITION COULD BE SIGNIFICANTLY
DIFFERENT FROM WHAT IT WOULD BE IF DETERMINED BEFORE THE SPECIAL MEETINGS.
The number of shares of Accredo common stock Gentiva will receive in the
acquisition will be calculated based upon the average closing price of Accredo
shares for the twenty trading days ending on the second full trading day prior
to the closing of the acquisition. Because the stock consideration will not be
determined until the second trading day before the closing of the acquisition,
Accredo stockholders will be asked to decide whether or not to approve the
issuance of Accredo common stock in the acquisition contemplated by the asset
purchase agreement and Gentiva stockholders will be asked to decide whether or
not to approve the sale of the SPS business before knowing the actual number of
shares to be issued to Gentiva. Changes in the price of Accredo common stock
between the date of this joint proxy statement-prospectus and the closing of the
acquisition may cause the actual number of shares to be issued to Gentiva to
differ significantly from the number of shares that would have been issued if
the average closing price had been calculated on or before the special meetings.
Because the date the acquisition is completed will be later than the dates of
the stockholders' meetings, you will not know the market value of Accredo's
common stock that Gentiva will hold upon completion of the acquisition.
Neither Gentiva nor Accredo has the right to terminate the asset purchase
agreement as a result of any change in the value of the stock consideration
resulting from this calculation. We cannot predict the market prices for the
Accredo common stock and we encourage you to obtain current market quotations of
the Accredo common stock, which is listed on the Nasdaq National Market under
the symbol "ACDO."
IF THE ACQUISITION DOES NOT OCCUR, THE COMPANIES WILL NOT BENEFIT FROM THE
EXPENSES THEY HAVE INCURRED IN THE PURSUIT OF THE ACQUISITION.
The acquisition may not be completed. The asset purchase agreement may be
terminated for material adverse effects in either Accredo or the SPS business,
failure to obtain regulatory approvals, identified consents, and other reasons,
many of which are beyond the control of Accredo or Gentiva. In the event of a
termination of the asset purchase agreement because either Gentiva or Accredo
has breached its representations, warranties, covenants or agreements, or
because its stockholders have voted against the acquisition, the party in breach
or whose stockholders voted against the transaction has agreed to pay the costs
and expenses actually incurred in connection with the acquisition by the other
party, up to an aggregate of $2.5 million. Accredo and Gentiva will have
incurred substantial expenses of their own, and may have to reimburse the costs
and expenses of the other party, in each case for which no ultimate benefit will
have been received by either Accredo or Gentiva. Additionally, if the asset
purchase agreement is terminated under specified circumstances, Gentiva will be
required to pay Accredo a $12.5 million termination fee, less any costs and
expenses of Accredo paid by Gentiva. See "The Asset Purchase
Agreement -- Termination Fees and Expenses."
19
ACCREDO MAY NOT BE ABLE TO OBTAIN ADEQUATE FINANCING ON ACCEPTABLE TERMS FOR
THE CASH PORTION OF THE ACQUISITION CONSIDERATION.
Accredo must obtain financing for the cash portion of the acquisition
consideration. The asset purchase agreement does not contain a condition that
would allow Accredo to terminate the acquisition for its failure to obtain
financing. Although Accredo has entered into a commitment letter with a bank
with respect to the financing of the acquisition, there are certain conditions
precedent to the bank's obligations under the commitment letter, and Accredo may
not obtain this financing. The conditions to the bank's obligations to provide
this financing include:
- Bank of America not being aware of any information or other matter which
in its judgment is materially and adversely inconsistent with prior
information it has received;
- there being no material adverse conditions in the loan syndication market
or in the financial or capital markets generally that, in Bank of
America's discretion, would impair or prevent the syndication of the
credit facility;
- there being no change, occurrence or development that could, in Bank of
America's opinion, have a material adverse effect on the business, assets,
liabilities, operations, financial condition or prospects of Accredo or
the SPS business; and
- the completion of definitive documentation regarding the credit facility.
Accredo may not be able to arrange adequate financing on acceptable terms
or at all.
RISKS APPLICABLE TO ACCREDO STOCKHOLDERS AND TO GENTIVA STOCKHOLDERS AS A RESULT
OF THE DISTRIBUTION
ACCREDO'S DEBT LEVEL MAY LIMIT ITS FINANCIAL FLEXIBILITY.
Accredo intends to incur an additional $227 million of indebtedness in
order to consummate the acquisition. After giving effect to the acquisition of
the SPS business, including Accredo's intended financing of the cash portion of
the acquisition consideration and the issuance of the stock consideration, as of
September 30, 2001, Accredo would have had approximately $227 million of total
debt and a total debt to total capitalization ratio of 36%. Accredo may also
incur additional debt in the future, including in connection with other
acquisitions. While Accredo would also have additional assets and cash flow, the
level of Accredo's debt could have several important effects on the company's
future operations, including, among others:
- a significant portion of Accredo's cash flow from operations will be
dedicated to the payment of principal and interest on the debt and will
not be available for other purposes;
- covenants in Accredo's existing debt arrangements and anticipated
covenants related to the debt that Accredo intends to incur to finance
the cash portion of the acquisition consideration will require Accredo to
meet financial tests, and may impose other limitations that may limit
Accredo's flexibility in planning for and reacting to changes in its
business, including possible acquisition opportunities;
- Accredo's ability to obtain additional financing for working capital,
capital expenditures, acquisitions, general corporate and other purposes
may be limited;
- Accredo may be at a competitive disadvantage to similar companies that
have less debt; and
- Accredo's vulnerability to adverse economic and industry conditions may
increase.
THE FAILURE TO INTEGRATE SUCCESSFULLY ACCREDO AND THE SPS BUSINESS ACQUIRED
FROM GENTIVA MAY PREVENT ACCREDO FROM ACHIEVING THE ANTICIPATED POTENTIAL
BENEFITS OF THE ACQUISITION AND MAY ADVERSELY AFFECT ACCREDO'S BUSINESS.
Accredo will face significant challenges in consolidating functions,
integrating the procedures, operations and product lines of the SPS business in
a timely and efficient manner, and retaining key personnel of the SPS business.
The integration of Accredo and the SPS business will be complex and will require
substantial
20
attention from management. The diversion of management attention and any
difficulties encountered in the transition and integration process could have a
material adverse effect on the revenues, level of expenses and operating results
of Accredo.
ACCREDO MAY NOT BE ABLE TO BENEFIT FROM THE ACUTE PORTION OF THE SPS BUSINESS.
Accredo has not historically distributed the drugs represented by the acute
portion of the SPS business of Gentiva, except for IVIG, Synagis(R), Cerezyme(R)
and growth hormone. Following the acquisition, Accredo will treat these four
drugs as part of its chronic business, but otherwise Accredo does not intend to
distribute the drugs represented by the acute portion of the SPS business.
Accredo intends to assess strategic options related to the acute portion of the
SPS business following the closing of the acquisition. Accredo may not be able
to find an available or acceptable strategic alternative for the acute business,
and may have to sell the business for less than its fair value or shut down the
acute business which could cause Accredo to incur additional expenses. For these
reasons, Accredo has not assigned any value to the acute portion of the SPS
business it is acquiring for financial purposes. In addition, Accredo's
assessment of the strategic alternatives for the acute portion of the SPS
business or the actions required to shut down the acute business could divert
management time and company resources which could be better served elsewhere.
GENTIVA MAY BE UNABLE TO INDEMNIFY ACCREDO FOR LIABILITIES.
The asset purchase agreement provides that Gentiva will indemnify Accredo,
after the sale of the SPS business, for losses suffered or incurred by Accredo
and its affiliates arising from the retained liabilities of Gentiva, breaches of
Gentiva's representations, warranties, covenants or agreements under the asset
purchase agreement or agreements delivered pursuant thereto, failure to deliver
good, valid and marketable title to the assets of the SPS business, and
specified tax liabilities of Gentiva, including those related to Gentiva's
split-off from Olsten Corporation. However, Gentiva may not be able to fulfill
its indemnification obligations. Should any significant payment be required,
Gentiva may not have sufficient funds and may not be able to obtain the funds to
satisfy its potential indemnification obligations to Accredo. Accredo may suffer
impairment of assets or have to bear a liability for which it is entitled to
indemnification, but which it is unable to collect.
ACCREDO'S COMMON STOCK PRICE MAY BE ADVERSELY AFFECTED BY FUTURE SALES OR
ISSUANCES OF ACCREDO COMMON STOCK.
Assuming that the twenty trading day average common stock price was equal
to the closing price of Accredo common stock as of the date of this joint proxy
statement-prospectus, Accredo will issue approximately 5.1 million shares of its
common stock in the acquisition. According to the terms of the asset purchase
agreement, Accredo could be obligated to issue up to 6.7 million shares, plus
additional shares for adjustments to the purchase price in accordance with the
asset purchase agreement. Assuming the issuance of the 5.1 million shares based
on the current closing price of Accredo common stock, upon completion of the
acquisition, Accredo will have outstanding approximately 31.1 million shares of
common stock. The shares issued by Accredo are to be distributed to Gentiva
stockholders following the acquisition, resulting in an increase of
approximately 19.4% in the common stock available for resale on the market. The
sale of these additional shares could result in downward pricing pressure on the
Accredo common stock. Accredo may undertake additional transactions in the
future to simplify and restructure its capital structure, which may include, as
a part of these efforts, additional issuances of equity securities in exchange
for current indebtedness or indebtedness incurred in order to complete the
acquisition. The issuance of additional shares of common stock may be dilutive
to the existing holders of common stock, including holders who acquire shares of
common stock as a result of this transaction.
PRODUCT SHORTAGES MAY CONTINUE TO ADVERSELY AFFECT REVENUE GROWTH.
Gentiva has historically reported that its revenue growth was negatively
impacted by some product shortages of recombinant coagulation therapy, which is
used in the treatment of hemophilia, as well as by Bayer Corporation's decision
in 1999 to begin directly distributing Prolastin(R), an intravenous therapy used
in
21
the treatment of the hereditary disorder Alpha 1 Antirypsin Deficiency. These
drugs, affected by product shortages, accounted for approximately 14% of the
revenues of the SPS business for the nine months ended September 30, 2001. While
Accredo considered these factors when evaluating the acquisition of the SPS
business, continuing shortages of these products and new product shortages could
materially and adversely affect Accredo's ability to grow revenues.
RISKS APPLICABLE TO GENTIVA STOCKHOLDERS
GENTIVA'S BUSINESS WILL FACE CHALLENGES AS A SUBSTANTIALLY SMALLER COMPANY
WITH A NARROW FOCUS OF BUSINESS.
After the sale of the SPS business, Gentiva will be substantially smaller.
For the nine month period ended September 30, 2001, net revenues and gross
profit for the home health care services business were $540.8 million and $184.7
million, respectively, compared to net revenues and gross profit for the whole
company of $1,020.9 million and $342.2 million, respectively. While at December
30, 2001, Gentiva had a cash balance of $107.0 million, $20.9 million
represented cash advances from the Medicare program which are expected to be
repaid by Gentiva during 2002, approximately $14 million is expected to be paid
upon the closing of the sale of the SPS business as transaction costs (including
advisor fees and payments under change in control agreements and severance
arrangements), approximately $9 million (based on an aggregate consideration of
approximately $475 million) to cover a portion of the corporate taxes resulting
from the receipt of consideration from the sale of the SPS business and
approximately up to $20 million is intended to be used in connection with the
contemplated option tender offer. In addition, $35.2 million is restricted cash
held in a segregated account as collateral for a bond which was posted to cover
a judgment against Gentiva during the appeal process (which may be available if
Gentiva substitutes such bond with a letter of credit). Gentiva has historically
relied to a great degree on the earnings, cash flow and assets of the SPS
business for liquidity and capital requirements. Any existing challenges or
issues for Gentiva, whether by virtue of an existing or new liability,
litigation, regulation, payer reimbursement or otherwise, will have a much more
significant impact on Gentiva after the sale of the SPS business than they would
have if the SPS business was still part of Gentiva. Matters that did not have a
meaningful impact on Gentiva prior to the transaction could result in a material
adverse effect on Gentiva after the sale of the SPS business. In particular, the
outcome of pending litigation and government investigations may have a material
adverse effect on Gentiva. See "Home Health Care Services Business of
Gentiva -- Litigation" and "-- Government Investigations." Gentiva will also
face new issues and challenges that it did not experience when it was part of a
larger company. If Gentiva is unable to resolve these issues or overcome these
challenges, its results of operations and financial position will be adversely
affected. Examples of potential issues include:
- greater difficulty in obtaining financing on terms satisfactory to
Gentiva, if needed;
- difficulty in obtaining and maintaining insurance on terms that are
acceptable to Gentiva;
- inability to rely on the SPS business for financial assistance;
- inability to aggressively cut costs, take cash management measures and
generate sufficient cash flows from operations to satisfy Gentiva's
ongoing cash requirements;
- inability to rely on the experience and business relationships of some
personnel who may not be continuing employment with Gentiva; and
- greater adverse impact on Gentiva resulting from known and unknown
liabilities.
Gentiva's results of operations and prospects, as well as its stock price, may
be affected by factors that are different from those that have affected Gentiva
in the past. After the sale of the SPS business, Gentiva will be a smaller and
less diversified company than it was prior to the sale of the SPS business. In
the past two years, Gentiva's home health care services business has not
experienced revenue growth and was not, as a stand-alone business, profitable.
In addition, Gentiva's results of operations will be more affected by
competitive and market factors specific to the home health care industry. For
instance, the ongoing nursing personnel shortage
22
could have a material adverse effect on Gentiva, particularly with less
diversification in its stream of revenues. Furthermore, the adoption of a new
accounting pronouncement for goodwill and other intangible assets (Statement of
Financial Accounting Standards No. 142) in 2002 could result in a writedown for
goodwill impairment which could have a material impact on the earnings and
financial position of Gentiva's home health care services business.
THE VALUE OF THE ACCREDO COMMON STOCK THAT GENTIVA'S STOCKHOLDERS WILL RECEIVE
IN THE DISTRIBUTION MAY VARY AS A RESULT OF PRICE FLUCTUATIONS IN ACCREDO
COMMON STOCK.
The value of the Accredo common stock that Gentiva's stockholders will
receive upon the distribution of the Accredo common stock received by Gentiva as
stock consideration in the acquisition may vary as a result of the market value
of Accredo common stock. Such variations may be the result of changes in the
business, operations or prospects of Accredo, market assessments of the
likelihood that the sale of the SPS business will be consummated and the timing
of such sale, regulatory considerations, general market, economic and industry
conditions, the results of operations, liquidity and the market's perception of
the prospects of Accredo as well as other factors affecting Accredo including
the risk factors related to Accredo set forth herein and incorporated herein by
reference. Although there are some limited protections against volatility in the
Accredo common stock in the asset purchase agreement, they will not entirely
preserve the intended value of the stock consideration. Gentiva stockholders
will continue to be subject to the risk of variance in the market price of
Accredo common stock until any distribution to its stockholders.
In addition, although Gentiva intends to make the distribution promptly
following the closing of the acquisition, the asset purchase agreement only
requires Gentiva to distribute the Accredo common stock within one year of the
closing of the acquisition. If there is a significant delay between the Gentiva
special meeting and the time Gentiva stockholders receive any proceeds from the
sale of the SPS business, they will be subject to the risk of variance in the
market price of Accredo common stock. As a result, the market value of Accredo's
common stock that Gentiva stockholders receive could be diminished between the
time of the special meeting and when Gentiva stockholders actually receive the
Accredo stock.
GENTIVA MAY NOT DISTRIBUTE TO ITS STOCKHOLDERS THE FULL AMOUNT OF THE CASH
CONSIDERATION AFTER THE SALE OF THE SPS BUSINESS.
Gentiva currently intends, promptly following the sale of the SPS business,
to distribute substantially all of the proceeds of the sale of the SPS business
to Gentiva stockholders. To the extent the value of the Accredo common stock and
cash consideration is equal to or less than $460 million, Gentiva will
distribute to its stockholders all of the stock consideration and all of the
cash consideration. To the extent the value of the stock and cash consideration
exceeds $460 million, Gentiva will distribute to its stockholders all of the
stock consideration and the cash amount remaining after Gentiva retains, in
cash, 35% of the aggregate value of the stock and cash consideration in excess
of $460 million in value. In such instance, the amount of cash distributed to
Gentiva stockholders will be less than the full amount of cash consideration
received by Gentiva on the closing date. Gentiva will retain such amount of the
cash proceeds to cover a portion of the corporate taxes resulting from the
receipt of the consideration in excess of $460 million for the sale of the SPS
business. Assuming there is no adjustment to the consideration in accordance
with the asset purchase agreement and based on the closing price of Accredo
common stock on , 2002, the last trading day prior to the date of this
joint proxy statement-prospectus, Gentiva would receive $207.5 million in cash
and shares of Accredo common stock and Gentiva would distribute an
aggregate of $ million in cash and shares of Accredo common stock.
VARIOUS FACTORS MAY DEPRESS THE TRADING VALUE OF GENTIVA'S COMMON STOCK.
Some of Gentiva's stockholders may decide that they do not want to maintain
an investment in a company exclusively involved in home health care services. If
these stockholders decide to sell all or some of their shares, or the market
perceives that those sales could occur, the trading value of Gentiva common
stock may decline. After any distribution of the proceeds of the sale of the SPS
business, the market price of Gentiva's common stock should, all other things
being equal, decrease to reflect the value of such distribution.
23
In addition, because Gentiva will be a smaller and less diversified company than
it was before the sale of the SPS business, Gentiva's common stock may not be
followed as closely by market analysts or the investment community as it had
been in the past. If there is only a limited following by market analysts or the
investment community, the amount of market activity in Gentiva's common stock
may be reduced, making it more difficult for Gentiva stockholders to sell their
shares and potentially lowering the price of the shares.
GENTIVA MAY BE OBLIGATED TO INDEMNIFY ACCREDO FOR LIABILITIES WHICH COULD
REQUIRE GENTIVA TO PAY ACCREDO AMOUNTS THAT GENTIVA MAY NOT HAVE.
The asset purchase agreement provides that Gentiva will indemnify Accredo,
after the sale of the SPS business, for losses suffered or incurred by Accredo
and its affiliates arising from the retained liabilities of Gentiva, breaches of
Gentiva's representations, warranties, covenants or agreements under the asset
purchase agreement or agreements delivered pursuant thereto, failure to deliver
good, valid and marketable title to the assets of the SPS business, and
specified tax liabilities of Gentiva, including those related to Gentiva's
split-off from Olsten Corporation. The liabilities retained by Gentiva include
litigation and causes of action arising prior to the closing of the sale of the
SPS business. Gentiva is unable to predict the amount, if any, that may be
required for it to satisfy its indemnification obligations under the asset
purchase agreement. Should any significant payment be required, Gentiva may not
have sufficient funds available to satisfy its potential indemnification
obligations or may not be able to obtain the funds on terms satisfactory to
Gentiva, if at all.
THE SALE OF THE SPS BUSINESS WILL CAUSE GENTIVA TO BE REQUIRED TO MAKE
PAYMENTS TO CERTAIN EXECUTIVE OFFICERS UNDER EXISTING CHANGE IN CONTROL
AGREEMENTS.
Certain of our current executive officers are parties to change in control
agreements in connection with their employment with Gentiva, which generally
provide benefits to such executive officers in the event that the executive
officer's employment is terminated by Gentiva or the executive officer, in
specified circumstances, and the termination is within three years after a
change in control of Gentiva. The benefits conferred under these agreements
generally include a cash payment equal to two times the employee's base salary
and target bonus, continued benefits for two years following the termination or
until such earlier date that the employee obtains comparable benefits from
another employer, immediate vesting of any stock options held by the employee
(those options would remain exercisable for one year following the termination,
but not beyond the original full term), and full vesting of retirement and
deferred compensation benefits. The consummation of the sale of the SPS business
will constitute a change in control under these agreements and certain of these
executive officers' employment will be terminated. As a result, upon the closing
of the sale of the SPS business, Gentiva will be required to pay an aggregate of
approximately $6.2 million and provide the other benefits pursuant to these
change in control agreements.
THE CHANGE OF SOME OF GENTIVA'S MANAGEMENT AND OTHER PERSONNEL MAY HAVE AN
ADVERSE EFFECT ON GENTIVA'S BUSINESS.
After the sale of the SPS business or shortly thereafter, it is expected
that some of Gentiva's present management and other personnel will no longer be
a part of Gentiva or will remain with Gentiva in substantially different roles.
In particular, the following executive officers will no longer be officers of
Gentiva: Edward A. Blechschmidt, Gentiva's president, chief executive officer
and chairman of the board of directors, John J. Collura, Gentiva's executive
vice president, chief financial officer and treasurer, Robert J. Nixon,
Gentiva's executive vice president, specialty pharmaceutical division, Richard
C. Christmas, Gentiva's senior vice president and chief information officer, E.
Rodney Hornbake, M.D., Gentiva's senior vice president and chief medical
officer, Patricia C. Ma, Gentiva's senior vice president, general counsel and
secretary, and David L. Silver, Gentiva's senior vice president of human
resources. The loss of Gentiva's personnel and transition of Gentiva's new
management and other personnel could have a material adverse effect on Gentiva's
business.
24
THERE WILL BE AN INCREASE IN SHARES SUBJECT TO OUTSTANDING OPTIONS.
When the board of directors approves the expected distribution, the
compensation committee will, pursuant to the Gentiva 1999 Stock Incentive Plan,
adjust the number of shares subject to stock options outstanding under Gentiva's
stock option plans and their exercise prices. These adjustments are intended to
preserve the spread between the fair market value of the Gentiva common stock
subject to the options and the exercise prices, as well as the ratio of the
exercise prices of the options to the fair market value of Gentiva's common
stock. Once these adjustments are made, the shares subject to outstanding
options will constitute a significant portion of Gentiva's outstanding shares of
common stock and will cause substantial dilution of the Gentiva common stock.
GENTIVA'S GROWTH STRATEGY MAY NOT BE SUCCESSFUL.
The future growth of Gentiva's business and its future financial
performance will depend on, among other things, its ability to increase its
revenue base through a combination of internal growth and strategic ventures. In
the past, Gentiva's growth has been driven solely by growth in the SPS business.
The SPS business grew 5% in 2000 and 19% in 1999 while Gentiva's home health
care services business had no growth during those periods. After the sale of the
SPS business, the growth of Gentiva's business will depend on its ability to
increase growth in its home health care services business. If Gentiva is not
able to achieve growth in its home health care services business, the sale of
the SPS business may have an adverse effect on Gentiva's business and financial
performance.
GENTIVA MAY BE SUBJECT TO LIABILITIES RESULTING FROM THE LAWS THAT PROTECT
GENTIVA'S CREDITORS.
Under United States federal and state fraudulent transfer laws, a court, in
a lawsuit by an unpaid creditor or a representative of creditors of Gentiva,
could determine that, after giving effect to the distribution of the proceeds of
the sale of the SPS business to its stockholders, Gentiva with only its home
health care services business
- was or would be rendered insolvent;
- had unreasonably small capital to carry on its business and all
businesses in which Gentiva intended to engage; or
- intended to incur, or believed Gentiva would incur, debts beyond its
ability to repay as they would mature.
If that determination is made, the court could invalidate, in whole or in
part, the distribution of the proceeds of the sale to Gentiva stockholders as a
fraudulent transfer or require Gentiva to pay various liabilities for the
benefit of creditors.
IF GENTIVA IS UNABLE TO MANAGE AND CONTAIN ITS COSTS AND EXPENSES, ITS
BUSINESS MAY NOT BE PROFITABLE.
Gentiva's corporate functions had supported the SPS business and the home
health care services business. With the sale of the SPS business, and prior to
any change in the corporate and other overhead expenses, Gentiva would have
recorded net losses as indicated in the "Unaudited Pro Forma Consolidated
Financial Data" included herein. As a result, Gentiva must reduce the overhead
expenses for those functions. If Gentiva is unable to achieve cost reductions in
corporate and other overhead expenses, Gentiva's business may not be profitable.
However, if Gentiva significantly reduces the costs and expenses, such a
reduction may disrupt its business operations.
In addition, with the sale of the SPS business, Gentiva will no longer be
able to deliver specialty pharmaceutical services, including the distribution of
chronic drugs and therapies and the provision of acute infusion services,
directly to payors and managed care, but will need to depend fully on
subcontracts with third parties, including Accredo. As a result, Gentiva may be
more susceptible to fluctuations in the prices it pays to third parties for
those services. These fluctuations in pricing may add to the cost of providing
the services, and as a result, adversely impact the profitability of Gentiva.
25
THE SPECIAL MEETINGS
GENERAL
This joint proxy statement-prospectus is being furnished in connection with
the solicitation of proxies by each of the boards of directors of Accredo and
Gentiva for use at their respective special meetings and any adjournments and
postponements thereof in connection with the proposed acquisition and sale of
the SPS business, and, with respect to Accredo, the proposed 2002 Long-Term
Incentive Plan and the amendment to the certificate of incorporation of Accredo
to increase the number of its authorized shares of common stock. This joint
proxy statement-prospectus is first being furnished to stockholders of Accredo
and Gentiva on or about , 2002
DATE, TIME AND PLACE OF THE SPECIAL MEETINGS
The special meetings are scheduled to be held as follows:
<Table>
For Accredo stockholders: For Gentiva stockholders
10:00 a.m. central time a.m. eastern time
, 2002 , 2002
1640 Century Center Parkway, Suite 103
Memphis, Tennessee 38134
</Table>
PURPOSE OF THE SPECIAL MEETINGS
Gentiva. At the Gentiva special meeting, holders of Gentiva common stock
will consider a proposal to approve the sale of the SPS business. At the Gentiva
special meeting, Gentiva stockholders may also consider and vote on any other
business incident to the conduct of the Gentiva special meeting as may properly
come before the special meeting. Additional information concerning the special
meeting, the sale of the SPS business and the asset purchase agreement is set
forth below.
Accredo. The Accredo special meeting is being held for Accredo
stockholders to consider and vote upon the approval of the issuance of Accredo
common stock in the acquisition in connection with Accredo's acquisition of the
SPS business of Gentiva as contemplated by the asset purchase agreement. At the
Accredo special meeting, Accredo stockholders will also be asked to approve the
Accredo Health, Incorporated 2002 Long-Term Incentive Plan and the amendment to
the certificate of incorporation of Accredo to increase the number of its
authorized shares of common stock from 50,000,000 to 100,000,000. At the Accredo
special meeting, Accredo stockholders may also consider and vote on any motion
submitted to a vote of the stockholders to adjourn or postpone the special
meeting to another time and place for the purpose of soliciting proxies and the
transaction of any other business incident to the conduct of the Accredo special
meeting as may properly come before the special meeting.
STOCKHOLDER RECORD DATE FOR THE SPECIAL MEETINGS
Gentiva. Gentiva's board of directors has fixed the close of business on
, 2002 as the record date for determination of Gentiva stockholders
entitled to notice of and to vote at the special meeting. On the record date,
there were of Gentiva common stock outstanding, held by approximately
holders of record. Each share of Gentiva common stock entitles its
holder to one vote.
Accredo. Accredo's board of directors has fixed the close of business on
, 2002 as the record date for determination of Accredo stockholders
entitled to notice of and to vote at the special meeting. On the record date,
there were shares of Accredo common stock outstanding, held by
approximately holders of record. Each share of Accredo common stock
entitles its holder to one vote.
26
VOTE REQUIRED
Gentiva. Under Delaware law, the sale of all or substantially all of the
assets of a company requires stockholder approval. Because the sale of the SPS
business may be regarded as a sale of substantially all of Gentiva's assets,
Gentiva is seeking approval of the sale of the SPS business by the affirmative
vote of the holders of a majority of the Gentiva common stock outstanding on the
record date. The holders of a majority of Gentiva's common stock present in
person or by proxy will constitute a quorum for the transaction of business at
the special meeting.
Only holders of record of Gentiva common stock as of the close of business
on , 2002 will be entitled to notice of and to vote at the special
meeting to approve the sale of the SPS business. As of the record date, Gentiva
directors and executive officers and their affiliates owned approximately %
of the outstanding shares of Gentiva common stock.
Accredo. A majority of the outstanding shares of Accredo common stock must
be represented, either in person or by proxy, to constitute a quorum at the
Accredo special meeting. The affirmative vote of the holders of a majority of
the shares of Accredo common stock present at the Accredo special meeting is
required to approve the issuance of Accredo shares in the acquisition, the 2002
Long-Term Incentive Plan and any motion to adjourn or postpone the special
meeting for the purpose of soliciting additional proxies. The affirmative vote
of the holders of a majority of the outstanding shares of Accredo common stock
is required to approve the amendment to the certificate of incorporation to
increase the number of authorized shares of common stock from 50,000,000 to
100,000,000.
Only holders of record of Accredo common stock as of the close of business
on , 2002 will be entitled to notice of and to vote at the special
meeting to approve the issuance of Accredo shares in the acquisition, the 2002
Long-Term Incentive Plan and the increase in the number of authorized shares of
common stock. As of the record date, Accredo directors and executive officers
and their affiliates owned approximately 3% of the outstanding shares of Accredo
common stock.
PROXIES
All shares of Gentiva common stock represented by properly executed proxies
received before or at the Gentiva special meeting and all shares of Accredo
common stock represented by properly executed proxies received before or at the
Accredo special meeting will, unless the proxies are revoked, be voted in
accordance with the instructions indicated on those proxies. If no instructions
are indicated on a properly executed proxy card, the shares of Gentiva common
stock will be voted FOR approval of the sale of the SPS business. If no
instructions are indicated on a properly executed proxy card, the shares of
Accredo common stock will be voted FOR the issuance of Accredo shares in the
acquisition, the 2002 Long-Term Incentive Plan, the increase in the number of
authorized shares of common stock and any motion to adjourn or postpone the
special meeting for the purpose of soliciting additional proxies. You are urged
to mark the box on the proxy card to indicate how to vote your shares.
If a Gentiva stockholder returns a properly executed proxy card and the
stockholder has abstained from voting on approval of the sale of the SPS
business, the Gentiva common stock represented by the proxy will be considered
present at the special meeting for purposes of determining a quorum, but will
not be considered to have been voted in favor of the approval of the sale of the
SPS business. If an Accredo stockholder returns a properly executed proxy card
and the stockholder has abstained from voting on the issuance of Accredo shares
in the acquisition, the 2002 Long-Term Incentive Plan, or the increase in the
number of authorized shares of common stock or any adjournment or postponement
to solicit additional proxies, the Accredo common stock represented by the proxy
will be considered present at the special meeting for purposes of determining a
quorum, but will not be considered to have been voted in favor of the issuance
of Accredo shares in the acquisition, the 2002 Long-Term Incentive Plan, the
increase in the number of authorized shares of common stock or any adjournment
or postponement to solicit additional proxies.
If your shares are held in an account at a brokerage firm or bank, you must
instruct them on how to vote your shares. For the Gentiva special meeting, if an
executed proxy card is returned by a broker or bank
27
holding shares which indicates that the broker or bank does not have
discretionary authority to vote on approval of the sale of the SPS business, the
shares will be considered present at the meeting for purposes of determining the
presence of a quorum, but will not be considered to have been voted in favor of
approval of the sale of the SPS business. For the Accredo special meeting, if an
executed proxy card is returned by a broker or bank holding shares which
indicates that the broker or bank does not have discretionary authority to vote
on whether to approve the issuance of Accredo shares in the acquisition, the
2002 Long-Term Incentive Plan or the increase in the number of authorized shares
of common stock, the shares will be considered present for purposes of
determining the presence of a quorum, but will not be considered to have been
voted in favor of the issuance of Accredo shares in the acquisition, the 2002
Long-Term Incentive Plan, the increase in the number of authorized shares of
common stock or any adjournment or postponement to solicit additional proxies.
Your broker or bank will vote your shares only if you provide instructions on
how to vote by following the information provided to you by your broker.
Because approval of the sale of the SPS business by Gentiva requires the
affirmative vote of at least a majority of the shares of Gentiva common stock
outstanding on the record date, failures to vote and broker non-votes by Gentiva
stockholders will have the same effect as a vote against approval of the sale of
the SPS business. The approval of the issuance of Accredo shares in the
acquisition and the 2002 Long-Term Incentive Plan require a majority vote of
those shares present at the Accredo special meeting, but since such shares are
counted for purposes of a quorum, failures to vote and broker non-votes will
have the same effect as a vote against the issuance of Accredo shares in the
acquisition and the 2002 Long-Term Incentive Plan. Because approval of the
amendment to the certificate of incorporation of Accredo to increase the number
of authorized shares of common stock requires the affirmative vote of at least a
majority of the shares of Accredo common stock outstanding on the record date,
failures to vote and broker non-votes by Accredo stockholders will have the same
effect as a vote against approval of the increase in the number of authorized
shares of common stock. In addition, a motion to adjourn or postpone the Accredo
special meeting requires a majority vote of the shares present at the Accredo
special meeting. Failures to vote or broker non-votes will be counted for
purposes of determining a quorum at the Gentiva special meeting and the Accredo
special meeting and for Accredo will have the same effect as a vote against any
adjournment or postponement of the Accredo special meeting to solicit additional
proxies.
The Gentiva special meeting may be adjourned only by the chairman of the
Gentiva special meeting. The Accredo special meeting may be adjourned or
postponed in order to permit further solicitation of proxies. No proxy voted
against the proposed acquisition or against the issuance of Accredo shares in
the acquisition will be voted on any proposal to adjourn or postpone the special
meeting that is submitted to the stockholders for a vote, except in accordance
with the instruction indicated, if any, with respect to any such approval.
Neither Gentiva nor Accredo expects that any matters other than those described
in this joint proxy statement-prospectus will be brought before its special
meeting. If, however, other matters incident to the conduct of the special
meetings are considered, the persons named as proxies will vote in accordance
with their judgment with respect to those matters, unless authority to do so is
withheld on the proxy card.
A stockholder may revoke his or her proxy at any time before it is voted
by:
- notifying in writing the Corporate Secretary of Accredo Health,
Incorporated at 1640 Century Center Parkway, Suite 101, Memphis,
Tennessee 38134, if you are a Accredo stockholder, or, the Secretary of
Gentiva Health Services, Inc. at 3 Huntington Quadrangle 2S, Melville,
New York 11747, if you are a Gentiva stockholder;
- granting a subsequently dated proxy; or
- appearing in person and voting at the special meeting if you are a holder
of record.
Attendance at either special meeting will not in and of itself constitute
revocation of a proxy.
SOLICITATION OF PROXIES
Accredo and Gentiva will equally share the expenses incurred in connection
with the printing and mailing of this joint proxy statement-prospectus. Accredo
and Gentiva will also request banks, brokers and other
28
intermediaries holding shares of Accredo or Gentiva common stock beneficially
owned by others to send this joint proxy statement-prospectus to, and obtain
proxies from, the beneficial owners and will reimburse the holders for their
reasonable expenses in so doing. Neither Accredo nor Gentiva intends to hire a
proxy solicitor. While neither Accredo nor Gentiva currently plans to take any
additional actions to solicit proxies, if either Accredo or Gentiva believes
that proxies are not being returned in a timely manner, either party may seek to
solicit proxies by telephone, telegram and other electronic means such as email,
advertisements and personal solicitation by the directors, officers or employees
of Accredo and Gentiva. No additional compensation will be paid to directors,
officers or employees for such solicitation.
YOU SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH YOUR PROXY CARD. YOU ARE
NOT REQUIRED TO SURRENDER YOUR STOCK CERTIFICATES AS PART OF THE ACQUISITION OR
AS PART OF THE SUBSEQUENT DISTRIBUTION.
APPRAISAL OR DISSENTER'S RIGHTS
Neither the holders of Gentiva common stock nor holders of Accredo common
stock have rights of appraisal or dissenter's rights under Delaware law in
connection with the acquisition/sale of the SPS business.
29
THE ACQUISITION/ SALE OF THE SPS BUSINESS
The following information describes material aspects of the
acquisition/sale of the SPS business. This description does not provide a
complete description of all the terms and conditions of the asset purchase
agreement. It is qualified in its entirety by the Annexes hereto, including the
text of the asset purchase agreement, which is attached as Annex A to this joint
proxy statement-prospectus. The asset purchase agreement is incorporated herein
by reference. You are urged to read the Annexes in their entirety.
THE ACQUISITION/SALE OF THE SPS BUSINESS
Assuming all the conditions to the acquisition are satisfied or waived in
accordance with the asset purchase agreement, the asset purchase agreement
provides for the acquisition by Accredo of substantially all of the assets of
Gentiva's SPS business.
Gentiva's SPS business includes:
- the distribution of drugs and other biological and pharmaceutical
products and professional support services for individuals with chronic
diseases, such as hemophilia, primary pulmonary hypertension, autoimmune
deficiencies and growth disorders,
- the administration of antibiotics, chemotherapy, nutrients and other
medications for patients with acute or episodic disease states,
- marketing and distribution services for pharmaceutical, biotechnology and
medical service firms, and
- clinical support services for pharmaceutical and biotechnology firms.
Accredo is not acquiring Gentiva's home health care services business and
Gentiva intends to continue to operate its home health business as a separate
publicly-held company.
Accredo will acquire both the chronic and acute portions of the SPS
business. However, following the closing of the acquisition, Accredo intends to
separate and reorganize the chronic and acute portions of the SPS business.
While Gentiva treated IVIG, Synagis(R), Cerezyme(R) and growth hormone as part
of its acute business, Accredo will consider these drugs as part of the chronic
business which it will continue to operate. Excluding the drugs mentioned above,
Accredo intends to assess strategic options for the portion of the SPS business
which relates to the administration of medications for acute diseases because
this business is inconsistent with Accredo's strategy and focus.
WHAT GENTIVA WILL RECEIVE IN THE ACQUISITION
In the acquisition, Gentiva will receive $415 million in consideration,
subject to adjustment as provided below, of which 50% is payable in cash and 50%
is payable in Accredo common stock. The number of shares of Accredo common stock
to be issued as the stock consideration will be equal to one-half of the
purchase price divided by the average closing price per share for Accredo common
stock for the twenty trading days ending on the second business day prior to the
closing. The range within which the average closing price determined in
accordance with the previous sentence of Accredo shares can fluctuate for
purposes of the calculation is limited so that Gentiva will receive, assuming no
adjustment to the purchase price:
- 6,693,548 Accredo shares if the average closing price of the Accredo
shares for such twenty trading day period is less than or equal to
$31.00; or
- a number of Accredo shares determined by dividing 50% of the purchase
price by the average closing price of Accredo shares for such twenty
trading day period if the average closing price of Accredo shares for
such twenty trading-day period is greater than $31.00 per share, but less
than $41.00; or
- 5,060,976 Accredo shares if the average closing price of the Accredo
shares for such twenty trading day period is greater than or equal to
$41.00.
If the average closing price is equal to or within $31.00 and $41.00, this
calculation has the effect of fixing the value of the stock consideration at
$207.5 million, subject to adjustment. If the average closing price is
30
outside of these limits, the number of shares to be issued will be fixed at the
outside levels, and the value of the stock consideration will fluctuate,
increasing if the average closing price is above $41.00 and decreasing if the
average closing price is below $31.00.
Assuming no adjustment to the purchase price, Gentiva will receive $207.5
million in cash and, assuming that the average closing price for Accredo common
stock for the 20 trading days ending on the second business day prior to the
closing of the acquisition is equal to the closing price of Accredo common stock
on the date of this joint proxy statement-prospectus, shares of
Accredo common stock. Of the cash portion of the consideration, $2 million is
allocated as consideration for the performance by Gentiva and its affiliates (as
defined in the restrictive covenant agreements) of covenants not to compete and
related restrictive covenants.
The purchase price of $415.0 million is subject to adjustment for changes
in the net book value of the SPS business as of the closing date of the
acquisition. Net book value is defined as the book value of the assets acquired
by Accredo less the liabilities assumed by Accredo as presented on a closing
balance sheet agreed to by the parties and prepared in accordance with generally
accepted accounting principles. The asset purchase agreement provides that the
accounting firms hired by Gentiva and Accredo will prepare balance sheets as of
the closing date which indicate estimated net book value. No adjustment to the
purchase price will be made if the estimated net book value of the SPS business
as of the closing date is between $247,500,000 and $252,500,000. The purchase
price to be paid to Gentiva will be adjusted up at closing on a dollar for
dollar basis to the extent that the estimated net book value exceeds
$252,500,000 and will be adjusted down at closing on a dollar for dollar basis
to the extent the net book value is less than $247,500,000. Following the
closing of the acquisition, the adjustment made at closing, if any, based on the
estimated net book value will be reconciled based upon the preparation and
agreement of the actual net book value as of the closing date.
In addition, Accredo will assume identified liabilities of Gentiva,
including liabilities disclosed on the closing balance sheet to be prepared by
the parties, obligations of Accredo regarding employees of the SPS business, and
obligations arising from and after the closing date with respect to assigned
leases and contracts, open inventory and open customer orders. All other
liabilities of Gentiva, including liabilities relating to Gentiva's home health
care services business and the other liabilities of the SPS business, are
retained by Gentiva.
If Accredo effects a stock split, stock dividend, or similar
recapitalization with respect to Accredo common stock and the record date, in
the case of a stock dividend, or the effective date, in the case of a stock
split or similar recapitalization for which a record date is not established, is
prior to the effective time, the average closing price limitations will be
adjusted appropriately.
For a discussion of certain federal income tax consequences of the
acquisition to Gentiva and Gentiva stockholders, see "-- Certain Federal Income
Tax Consequences of the Sale of the SPS Business and Distribution of SPS Sale
Proceeds" below.
PROCEEDS OF THE SALE OF THE SPS BUSINESS; DISTRIBUTION
Gentiva currently intends, following the consummation of the sale of the
SPS business, to distribute substantially all of the consideration it receives
in connection with the sale of the SPS business pro rata based on the number of
shares of Gentiva common stock held by each stockholder to Gentiva stockholders
of record as of a record date currently anticipated to be five business days
after the anticipated closing date of the sale of the SPS business. Gentiva
expects that the distribution will occur within 10 business days of the record
date. To the extent the value of the cash and Accredo common stock consideration
is equal to or less than $460 million (determined based on the average of the
high and low trading price of Accredo common stock on the closing date or on the
distribution date, whichever consideration value is greater) Gentiva will
distribute to its stockholders all of the stock consideration and all of the
cash consideration. To the extent the value of the stock and cash consideration
exceeds $460 million (determined based on the average of the high and low
trading price of Accredo common stock on the closing date or on the distribution
date, whichever consideration value is greater) Gentiva will distribute to its
stockholders all of the stock consideration and the
31
amount of cash consideration remaining after Gentiva retains, in cash, 35% of
the value of the aggregate stock and cash consideration over $460 million in
value to cover a portion of corporate taxes resulting from the receipt of the
consideration in excess of $460 million for the sale of the SPS business. In the
event there are any post-closing adjustments (upward or downward) to the
consideration received by Gentiva at closing in accordance with the asset
purchase agreement, the distribution amount to Gentiva's stockholders will not
be adjusted. Gentiva stockholders are not being asked to vote on the
distribution and are not required to vote on the distribution. Assuming there is
no adjustment to the consideration in accordance with the asset purchase
agreement and based on the closing price of Accredo common stock on ,
2002, the last trading date prior to the date of this joint proxy
statement-prospectus, Gentiva would distribute to its stockholders an aggregate
amount of $ in cash and shares of Accredo common stock.
If the sale of the SPS business is consummated, Gentiva's stockholders will
retain their equity interest in Gentiva. The sale of the SPS business will not
result in any changes in the rights of Gentiva's stockholders. Only stockholders
of record as of the record date established by the board of directors of Gentiva
will be entitled to receive the consideration in the distribution.
BACKGROUND OF THE ACQUISITION/SALE OF THE SPS BUSINESS
Beginning in the summer of 2000 after Gentiva's split-off from Olsten
Corporation, representatives of Gentiva's management received inquires from
Gentiva stockholders about strategies for enhancing stockholder value.
Representatives of Gentiva's management also received inquiries from parties
interested in acquiring either Gentiva's SPS business or home health care
services business. Gentiva's management participated in preliminary
conversations with various parties regarding the possibility of such
transactions, none of which proceeded past the initial stages.
On October 5, 2000, Gentiva's board of directors met and discussed various
strategic opportunities and alliances for its business lines as well as the
specific and industry risks to Gentiva's operations and businesses. Gentiva's
board of directors authorized Gentiva, through Mr. Edward Blechschmidt,
Gentiva's chief executive officer, to explore strategic opportunities and
alliances which would benefit Gentiva and enhance stockholder value. The board
of directors also authorized Gentiva to retain a financial advisor to assist in
such exploration. Gentiva's management held meetings with a number of potential
financial advisors.
In November 2000, Lehman Brothers performed a review of Gentiva's
operations, industry and market trends and developed a list of potential
interested parties. On November 27, 2000 Gentiva formally engaged Lehman
Brothers as its financial advisor to assist Gentiva in evaluating possible
alternatives that would benefit Gentiva and maximize stockholder value. During
November and December 2000, Lehman Brothers contacted prospective interested
parties, including strategic competitors in the specialty pharmaceutical
services industry or health services industry and financial buyers. By early
2001, Lehman Brothers eventually sent a confidential information memorandum
regarding Gentiva to 17 interested parties who signed confidentiality
agreements, including Accredo. On January 19, 2001, Accredo signed a
confidentiality agreement with Gentiva and received a confidential information
memorandum.
During January and February 2001, Gentiva's management and Lehman Brothers
conducted meetings and conference calls with potential interested parties,
regarding their level of interest in Gentiva's businesses. On February 6, 2001,
Mr. Blechschmidt and Mr. David Stevens, Accredo's chief executive officer, and
other representatives of Gentiva and Lehman Brothers met and Gentiva made a
presentation describing its businesses. Discussions between Gentiva and Accredo
did not continue beyond the first meeting due, in part, to Accredo's interest in
only the chronic portion of the SPS business and Gentiva's desire not to split
the chronic and acute businesses of its SPS business.
A few parties submitted to Gentiva preliminary non-binding indications of
interest. These indications of interests reflected varying structures, types and
amounts of consideration to be delivered, liabilities to be assumed and
conditions to closing. Some of the proposed structures included asset
acquisitions of either Gentiva's home health care services business or the SPS
business and others included an acquisition or merger of Gentiva with a
spin/split-off of the home health care services business.
32
On February 14, 2001, Gentiva's board of directors met and Mr. Blechschmidt
reviewed the general structures of the initial indications of interest and
reviewed the status of Gentiva's strategic options. Lehman Brothers presented
these options and discussed industry developments and consolidations impacting
Gentiva's strategic options. The board of directors authorized Gentiva to
continue to review its strategic options and authorized Gentiva's management to
engage in discussions with possible strategic partners.
In late March and early April 2001, Gentiva's management met with Lehman
Brothers a number of times to discuss possible transaction structures. By the
beginning of March 2001, there were only two interested parties continuing to
express an interest in a transaction with Gentiva. Preliminary negotiations
regarding contemplated structure and consideration continued with both parties
until April 4, 2001, when one of the two parties indicated that it did not want
to proceed with discussions with Gentiva.
On April 5, 2001, the board of directors of Gentiva met and Mr.
Blechschmidt discussed strategies, including strategic options, consideration,
and factors including industry developments, consolidations and competition. The
board discussed options regarding acquisitions, divestitures, separation of the
two business lines and conducting business as usual. Lehman Brothers reviewed
the status of the strategic options and discussions with Gentiva's board of
directors. The board of directors authorized management to proceed to review and
evaluate all strategic options and negotiate the best option possible, subject
to further board review and approval.
Representatives of Gentiva's management and Lehman Brothers continued to
pursue discussions with the one remaining interested party and its financial
advisor through April 2001, but this party no longer actively engaged Gentiva or
Lehman Brothers in substantive discussions. On May 18, 2001, Gentiva's board met
and Mr. Blechschmidt updated the board on the status of discussions with the
remaining party and Gentiva's evaluation of strategic options. Mr. Blechschmidt
reported to the board that he would soon be in a better position to evaluate
whether the one remaining party was still interested and whether Gentiva should
proceed with the discussions with the remaining party or cease all activities
related to pursuing strategic options, in which case it would terminate the
engagement with Lehman Brothers. Shortly thereafter, the remaining potential
interested party disengaged completely in any further discussions with Gentiva
or Lehman Brothers. Gentiva ceased actively pursuing strategic alternatives. On
June 1, 2001, Gentiva formally terminated Lehman Brothers' engagement with
Gentiva. Management focused on growing the business and did not participate in
any discussions regarding its alternative strategic options.
On July 12, 2001 representatives of Thomas Weisel Partners LLC, met with
Mr. Stevens and Mr. Joel Kimbrough, Accredo's chief financial officer, to
explore acquisition opportunities. Thomas Weisel Partners recommended to Accredo
considering a potential acquisition of Gentiva's SPS business. On August 8,
2001, Thomas Weisel Partners was retained as Accredo's financial advisor. In
August 2001, Accredo contacted Gentiva regarding a possible transaction
involving the sale of the SPS business. Mr. Blechschmidt instructed Accredo that
any interest in a possible transaction should be communicated through Lehman
Brothers and that Gentiva had not been pursuing strategic alternatives. Thomas
Weisel Partners then contacted Lehman Brothers about a possible transaction
involving Accredo and Gentiva's SPS business. Lehman Brothers indicated that
Gentiva was focusing on growing its business and was not pursuing any
transactions at the time but that Accredo's interest would be conveyed to
Gentiva.
On August 9, 2001, at a meeting of the board of directors of Gentiva, Mr.
Blechschmidt reviewed for the board opportunities for Gentiva and each of its
divisions as well as growth strategies for the SPS business, including
acquisition targets appropriate for the SPS business. The board authorized
Gentiva's management to proceed to review and evaluate all strategic options.
Beginning in late August 2001, Gentiva's management began to consider other
strategic alternatives for Gentiva, including acquisitions of business
complementary to the SPS business and/or the home health care services business.
On August 15, 2001, Gentiva's management met with Lehman Brothers and Lehman
Brothers discussed several strategic options including the possibility of a
transaction between Accredo and Gentiva. By September 2001, Gentiva was involved
in discussions with three other parties evaluating the potential for acquiring
those parties, in addition to discussions with Accredo regarding Accredo's
interest in acquiring the SPS business. Throughout September 2001, Gentiva had
discussions with various financial
33
advisors and the three interested parties, other than Accredo, related to each
of their businesses and possible transaction alternatives.
On August 24, 2001 and September 5, 2001, Thomas Weisel Partners provided
Accredo management with an analysis of potential transaction structures and,
with Accredo management, formulated a price range for a possible acquisition of
Gentiva's SPS business, based on the information available to them at the time.
In September 2001, Mr. Blechschmidt and Mr. Stevens had several discussions
regarding a possible transaction between Accredo and Gentiva. By mid-September
2001, Mr. Stevens presented to Mr. Blechschmidt the parameters of a transaction
that Accredo would consider with Gentiva to acquire the SPS business. Mr.
Blechschmidt indicated that the general range of consideration seemed to be too
low and suggested a higher range. Mr. Stevens discussed with Mr. Blechschmidt
the difficulty in making a proposal in the value ranges suggested by Mr.
Blechschmidt without being furnished with meaningful financial information about
Gentiva's SPS business. In September 2001, Mr. Kimbrough and Mr. John Collura,
Gentiva's chief financial officer, had a number of conversations regarding the
opportunities that a sale of the SPS business could afford each of Gentiva and
Accredo.
On September 19, 2001, Accredo presented Thomas Weisel Partners with a
written request for information about Gentiva in order for Accredo to evaluate a
possible transaction with Gentiva. Thomas Weisel Partners submitted this request
to Lehman Brothers by Accredo.
On October 2, 2001, while representatives of Gentiva and Accredo's
management met at the Raymond James Healthcare Conference, some discussions of
each of their businesses ensued. In particular, the representatives of Gentiva
responded to the diligence questions that were previously submitted to Lehman
Brothers.
At a meeting of the Accredo board of directors held on October 2, 2001, Mr.
Stevens apprised the Accredo board as to the discussion between Gentiva and
Accredo to date and presented an outline of a proposal to acquire the SPS
business of Gentiva, including the potential value range and the deal protection
that Accredo would require. Mr. Stevens presented management's rationale for
considering the transaction and explained the strategy of keeping the chronic
portion of the SPS business and considering strategic alternatives for the acute
pharmacy component of the SPS business. Mr. Stevens apprised the board that the
discussions were preliminary and that Accredo had not yet conducted meaningful
due diligence for a potential transaction.
On October 12, 2001, Thomas Weisel Partners orally communicated Accredo's
willingness to provide a proposal to Gentiva with a higher valuation, subject to
Accredo's review of detailed financial information.
On October 12, 2001, Lehman Brothers presented a proposed transaction with
Accredo to representatives of Gentiva's management.
On October 16, 2001, a proposal to sell the SPS business to Accredo was
presented by Lehman Brothers to Thomas Weisel Partners. Thomas Weisel Partners
verbally communicated to Lehman Brothers a counter proposal for negotiating a
possible transaction with Gentiva.
On October 18, 2001, Thomas Weisel Partners made a presentation to Accredo
management regarding collars, stockholder overlap analysis and an analysis of
financial scenarios. On October 22, 2001, Mr. Collura provided to Accredo
through Lehman Brothers certain additional information that had been requested
by Accredo. On October 30, 2001, representatives of Gentiva's management met
with representatives of Accredo's management to discuss a possible transaction,
share further information about their businesses and conduct financial due
diligence so that the parties could proceed with negotiations related to a
possible transaction.
By early November 2001, the discussions between Gentiva and each of the
three other possible acquisition targets had ceased.
On November 5, 2001, Accredo submitted a preliminary indication of interest
to Gentiva which resulted in a number of discussions between Gentiva's and
Accredo's management. The terms of that indication of
34
interest proposed Accredo acquiring the SPS business with a combination of cash
and Accredo common stock, and setting aside a portion of the consideration for
indemnification purposes. Gentiva held a board meeting on November 7, 2001 at
which Gentiva's management discussed strategic alternatives and Lehman Brothers
presented Accredo's preliminary indication of interest. After discussion of
other strategic alternatives, the Gentiva board authorized management to
explore, review and evaluate Accredo's proposal and to negotiate terms that are
in the best interest of Gentiva, subject to board approval. Shortly after this
meeting, the parties began discussions of a potential transaction with a
purchase price in the range of $415 million, subject to agreement on the
transaction structure, continuing due diligence, audit review, Accredo's ability
to explore financing and negotiating an asset purchase agreement and related
documents. Representatives of Gentiva and Accredo began negotiating a
preliminary non-binding term sheet, confidentiality agreement and an exclusivity
letter providing that Gentiva exclusively negotiate with Accredo until the
earlier of the execution of a definitive agreement or December 14, 2001, subject
to specified limitations.
On November 17, 2001, Gentiva and Accredo executed a mutual confidentiality
agreement and Gentiva executed an exclusivity agreement dated November 14, 2001.
Shortly thereafter each party commenced due diligence.
At a meeting of the Accredo board held on November 19, 2001, Mr. Stevens
reported on the status of discussions between Accredo and Gentiva. The
exclusivity letter and non-binding term sheet were presented to the Accredo
board. Possible financing scenarios for Accredo prepared by Thomas Weisel
Partners were discussed at this meeting, as well as a preliminary closing
timetable. No action with respect to any potential transaction was taken at this
meeting.
In mid November 2001, Accredo contacted Bank of America, N.A. to arrange
financing for the cash portion of the purchase price should a transaction with
Gentiva proceed. A confidentiality agreement was executed between Accredo
Health, Incorporated and Bank of America, N.A., on November 27, 2001.
Thereafter, Accredo and Bank of America negotiated a loan commitment with a
commitment letter being executed by the parties on January 2, 2002. On November
20, 2001, Mr. Stevens and Mr. Blechschmidt met to discuss the proposed
transaction.
From December 3 through December 5, 2001, representatives of Gentiva and
Accredo and their advisors met to conduct diligence and discuss terms of the
transaction (including the assets and liabilities to be retained and acquired,
the stock consideration collar, the consideration adjustments, the
nonsolicitation restrictions of Gentiva, the conduct of business restrictions of
Gentiva, the termination fee and indemnification obligations) as well as to
discuss the possible separation of the acute business and the chronic business
components of the SPS business. On December 10, 2001, representatives from Bank
of America and Accredo met with representatives of Gentiva to conduct due
diligence.
From early December until the execution of the asset purchase agreement,
Gentiva's and Accredo's representatives and outside advisors conducted due
diligence as well as discussions and negotiations regarding the terms of the
asset purchase agreement, including the assets and liabilities to be retained
and acquired, and indemnification obligations. On December 17, 2001, Gentiva
formally reinstated Lehman Brothers' engagement as Gentiva's financial advisor
by executing an amended and restated engagement letter.
At a meeting of the Accredo board of directors on December 12, 2001, Mr.
Stevens updated the Accredo board as to the status of the proposed transaction
with Gentiva. Mr. Thomas Bell, Senior Vice President and General Counsel of
Accredo, provided an update on the draft of the asset purchase agreement and
discussed the legal and regulatory issues that would be involved in the
acquisition. Mr. Kimbrough presented an accretion analysis of the Gentiva
transaction based upon financing the cash piece of the transaction through
senior debt.
At a meeting of the Accredo board of directors on December 26, 2001, Mr.
Stevens provided an update of the progress of the Gentiva negotiations. Several
issues were discussed which had not yet been resolved and management informed
the board that the parties were continuing to negotiate these issues. The board
reviewed internal financial analyses with respect to the sale and the latest
draft of the asset purchase agreement.
35
On the morning of January 2, 2002, Mr. Stevens had a conversation with Mr.
Welsh. Mr. Welsh expressed his approval of the transaction and provided Mr.
Stevens with his comments to be expressed at the Accredo board meeting to be
held later that day.
A special meeting of the Accredo board commenced on January 2, 2002 to
consider the proposed acquisition. All members of the Accredo board participated
in the meeting by conference telephone call, except Mr. Welsh who was in flight
and unable to be present. Also present at the meeting were representatives of
Alston & Bird LLP, Accredo's outside legal counsel; representatives from Ernst &
Young, LLP, Accredo's auditors; and representatives of Thomas Weisel Partners,
Accredo financial advisor for the proposed acquisition. At the January 2, 2002
meeting of the Accredo Board, Mr. Stevens discussed the history of the
negotiations with Gentiva and discussed in detail the materials distributed to
the Accredo board. The Accredo board reviewed with legal counsel certain
material terms in the asset purchase agreement, including the "fiduciary out"
provision, the circumstances under which a termination fee would be payable and
the formula for determining the amount of Accredo common stock to be issued to
Gentiva in the proposed acquisition. Ernst &Young reported on the results of its
audit of the SPS business for the nine months ended September 30, 2001. Thomas
Weisel Partners made a presentation to the Accredo board and provided an oral
opinion to the Accredo board, which opinion was confirmed by delivery of a
written opinion, dated January 2, 2002, to the effect that, as of that date, and
based on and subject to the matters described in its opinion, the consideration
to be paid by Accredo for the SPS business was fair from a financial point of
view. At this meeting, the Accredo board approved the asset purchase agreement,
determined that the terms of the acquisition and the transaction contemplated
with Gentiva were in the best interest of the Accredo stockholders and
authorized management to execute the asset purchase agreement.
On January 2, 2002, the board of directors of Gentiva held a meeting to
discuss the proposed sale of the SPS business to Accredo. All members of the
board participated in the meeting via telephone conference call, other than Dr.
Wilensky who was unable to be present. Also present via conference call were
representatives of Gentiva's management, representatives of Gentiva's outside
legal counsel, Cahill Gordon & Reindel, and representatives of Lehman Brothers.
At that meeting, representatives of Gentiva's management reviewed the status of
negotiations, including the resolution of previously open issues, the principal
terms of the proposed sale of the SPS business and the asset purchase agreement,
the strategic reasons for the sale of the SPS business and the material factors
for and against the transaction. Representatives of Gentiva and its legal
counsel discussed terms and conditions of the asset purchase agreement,
including, without limitation, the conditions to closing and non-solicitation
provisions, related agreements and legal issues. Representatives of Cahill
Gordon & Reindel explained the board's fiduciary duties in considering such a
transaction. Representatives of Lehman Brothers presented an overview of the
business of Accredo and reviewed with the Gentiva board of directors the
financial analyses performed in their evaluation of the consideration to be
received by Gentiva in the sale of the SPS business. Lehman Brothers rendered
its oral opinion, subsequently confirmed by delivery of a written opinion, to
the effect that, as of such date and based on and subject to the matters
described in its opinion, from a financial point of view the consideration to be
received by Gentiva in the sale of the SPS business was fair to Gentiva.
Representatives of Gentiva's management also discussed the viability of the home
health care services business and the opinion received regarding the solvency of
Gentiva after giving effect to the sale of the SPS business on the terms
contemplated. At the January 2, 2002 Gentiva board meeting, Gentiva's board of
directors determined that the sale of the SPS business was expedient and in the
best interest of Gentiva and approved the sale of the SPS business on the terms
set forth in the asset purchase agreement. Gentiva's board authorized management
to execute the asset purchase agreement for the sale of the SPS business.
On January 2, 2002, the definitive asset purchase agreement was executed
and each party issued a press release announcing the transaction. A copy of the
asset purchase agreement is attached as Annex A to this joint proxy
statement-prospectus.
RECOMMENDATION OF THE GENTIVA BOARD AND REASONS FOR THE SALE OF THE SPS BUSINESS
On January 2, 2002 Gentiva's board of directors, having determined that the
sale of the SPS business was expedient and in the best interest of Gentiva,
approved the sale of the SPS business on the terms set forth in
36
the asset purchase agreement. The board of directors recommends that you vote
"FOR" the approval of the sale of the SPS business.
In reaching its decision to recommend and approve the sale of the SPS
business on the terms set forth in the asset purchase agreement, Gentiva's board
of directors consulted with its senior management and advisors and considered a
number of factors, including the following:
- Information regarding the financial performance, business operations,
capital requirements and future prospects of the SPS business and the
home health care services business. The board reviewed the likelihood of
realizing a long-term value equal to or greater than the value offered by
Accredo if the SPS business was not sold. The board determined that the
ability to obtain such value would depend on numerous factors, many of
which were speculative or uncertain. In light of these uncertainties, the
board determined that Gentiva was better served by the sale of the SPS
business to Accredo.
- The ability of stockholders to receive ownership in the new combined
Accredo/SPS entity, which will be the largest distributor of specialty
pharmaceutical products, while retaining their equity interest in
Gentiva.
- The intention of Gentiva's board of directors to distribute substantially
all of the cash proceeds, allowing Gentiva stockholders to recognize an
immediate value through the meaningful cash portion of the net proceeds.
- The terms of the asset purchase agreement, including the price, the
proposed structure of the sale of the SPS business and Accredo's ability
to obtain financing and that Accredo obtaining financing is not a
condition to the sale of the SPS business.
- The ability of Gentiva stockholders to retain ownership in one of the
largest providers of home health care services with a debt-free capital
structure and excess cash.
- The ability to create two industry-leading companies.
- After giving effect to the sale of SPS business, each of the companies
will have a stronger presence in their respective markets than Gentiva
alone.
- The ability to unlock stockholder value by allowing Gentiva's two
divisions in two distinct industries to be valued independently and more
precisely by investors.
- The ability to focus on the growth of the home health care services
business of Gentiva internally through sales, marketing efforts and
customer service and/or through selective acquisitions.
- The combination of Accredo and the SPS business will create revenue
growth enhancement opportunities including the ability to cross-sell
products and gain new relationships with both payors and manufacturers.
- The thorough process engaged in by Gentiva's management and its financial
advisors which included discussions with potential acquirors of the SPS
business and other strategic alternatives.
- Gentiva's review of alternatives to a sale of the SPS business, including
maintaining the status quo of the two business segments, proceeding with
an initial public offering or split-off of the two business segments or
restructuring the SPS business to exit certain business areas.
- Lehman Brothers' presentation and written opinion that, as of the date of
the opinion and based upon and subject to certain matters stated therein,
the consideration to be received by Gentiva pursuant to the sale of the
SPS business is fair to Gentiva from a financial point of view. The full
text of Lehman Brothers' opinion is attached as Annex C to this joint
proxy statement-prospectus. Stockholders are urged to read the opinion in
its entirety.
37
The board believed that each of the above factors supported its
determination that the sale of the SPS business was expedient and in the best
interest of Gentiva. The board did, however, also consider, without limitation,
the following facts, risks and uncertainties associated with the sale of the SPS
business:
- The assets to be sold could be regarded as substantially all of Gentiva's
assets and the sale of these assets will leave Gentiva with significantly
less assets and revenues. There can be no assurance that Gentiva will be
successful with its narrower focus.
- The financial condition, results of operations, business and prospects of
Gentiva after the sale of the SPS business, as well as the liabilities to
be retained by Gentiva.
- The termination provisions of the asset purchase agreement, which under
certain circumstances could obligate Gentiva to pay a termination fee of
$12.5 million less any costs and expenses.
- The possibility that Gentiva stockholders could achieve more value over
the long term from the continued operation of Gentiva without the sale of
the SPS business.
- Under the asset purchase agreement, Gentiva has agreed to indemnify
Accredo for the breach of its representations and warranties contained in
the asset purchase agreement and other matters. If substantially all of
the cash proceeds of the sale of the SPS business are distributed to
Gentiva's stockholders as currently intended, Gentiva would be required
to fund the payment of any indemnification claims by Accredo under the
asset purchase agreement or otherwise out of its then existing working
capital and cash flows of its continuing businesses.
- The possibility that Accredo will not be able to obtain financing even
though it is not a condition to the asset purchase agreement.
- The risk factors described in this joint proxy statement-prospectus under
"Risk Factors."
The foregoing addresses the material information and factors considered by
Gentiva's board of directors in its consideration of the sale of the SPS
business. In view of the variety of factors and the amount of information
considered, Gentiva's board of directors did not find it practicable to provide
specific assessments of, quantify or otherwise assign relative weights to the
specific factors considered in reaching its determination. The determination to
recommend that Gentiva's stockholders approve the sale of the SPS business was
made after consideration of all of the factors taken as a whole. In addition,
individual members of the board may have given different weights to different
factors and may have considered other factors.
RECOMMENDATION OF THE ACCREDO BOARD AND REASONS FOR THE ACQUISITION
Accredo's board of directors voted to approve the asset purchase agreement
and the issuance of the shares in the acquisition and determined that the asset
purchase agreement, the acquisition and the issuance are in the best interest of
Accredo. Accordingly, the board recommends that Accredo stockholders vote to
approve the issuance of Accredo stock in the acquisition.
In reaching its decision to recommend the issuance of shares, Accredo's
board concluded that combining Gentiva's SPS business with Accredo's existing
operations provides the opportunity for Accredo to achieve its strategic goal of
being a leading provider of specialized contract pharmacy services to
biopharmaceutical manufacturers. The Accredo board believes that the acquisition
provides an opportunity for achieving enhanced financial performance and
increasing stockholder value.
In concluding that the acquisition of the SPS business is in the best
interest of Accredo, the Accredo board consulted with senior members of Accredo
management regarding the strategic and operational aspects of the acquisition
and the results of due diligence efforts undertaken by management. In addition,
the Accredo board consulted with Thomas Weisel Partners about the fairness, from
a financial perspective, of the consideration to be paid by Accredo in the
acquisition. In concluding that the acquisition is in the best interest of
Accredo, the Accredo board considered, among other things, the following factors
that supported its
38
decision to approve the acquisition and recommend that Accredo stockholders vote
to approve the issuance of Accredo stock in the acquisition:
- the increase from 8 to 16 in the number of major product lines Accredo
would serve, which would allow Accredo to diversify its revenue base;
- the increased number of manufacturing agreements and payor contracts,
increased patient base and volume which will improve Accredo's
effectiveness and economies of scale;
- the similar focus of Gentiva's SPS business on niche products and the
similar operating models of the SPS business and Accredo;
- the expansion of geographic distribution capabilities and national
coverage for certain products which require support staff on a regional
basis;
- the clinical business solutions division of the SPS business, which
provides support to pharmaceutical manufacturers for their drugs in
clinical trials and late stage developments, which would allow Accredo
access to manufacturers earlier in their drug approval process;
- the ability to spread general administrative, overhead and other
miscellaneous fixed costs over a larger business;
- the terms of the asset purchase agreement and the structure of the
acquisition, including the conditions of each party's obligations to
complete the acquisition;
- the agreement by Gentiva, subject to certain exceptions, not to solicit a
proposal for an acquisition other than the acquisition, and the agreement
by Gentiva to pay a $12.5 million termination fee, less costs and
expenses of Accredo paid by Gentiva, under certain circumstances where
another acquisition of Gentiva is publicly announced or the Gentiva board
of directors changes or withdraws its recommendation that Gentiva
stockholders vote in favor of the sale of the SPS business.
- the ability of Accredo and Gentiva to complete the acquisition, including
their ability to obtain the necessary regulatory approvals and their
obligations to attempt to obtain those approvals; and
- Thomas Weisel Partners' financial analyses and presentation to Accredo's
board of directors, and the opinion of Thomas Weisel Partners to the
board, based on assumptions made, matters considered and limits of review
set forth in Thomas Weisel Partners' written opinion, as to the fairness,
from a financial point of view, of the acquisition consideration to be
paid by Accredo in the acquisition. The full text of Thomas Weisel
Partners' opinion is attached as Annex D to this joint proxy statement-
prospectus. Stockholders are encourage to read the opinion in its
entirety.
The board of directors of Accredo also considered the possible adverse
consequences of other factors related to the proposed acquisition, including:
- the increased level of debt that Accredo would have to incur in order to
finance the cash portion of the purchase price in connection with the
acquisition;
- Accredo's need to separate and to assess strategic alternatives with
respect to the acute portion of the SPS business, which approximates 20%
to 25% of the revenues of the SPS business, because the acute business is
inconsistent with Accredo's strategy and focus;
- the risk of product supply shortages for some of the products of the SPS
business, in particular the product shortage experienced with recombinant
coagulation therapy;
- the risks that the benefits sought in the acquisition would not be
realized or that the acquisition would not be consummated;
- the substantial management time and effort that will be required to
consummate the acquisition and to integrate the operations of the
combined business; and
- other risk factors described in this joint proxy statement-prospectus
under "Risk Factors."
39
In the judgment of the Accredo board of directors, the potential benefits
of the acquisition substantially outweighed the risks inherent to the
acquisition.
The foregoing discussion of factors considered by Accredo's board is not
exclusive, but Accredo believes it includes the material factors considered by
the Accredo board. The Accredo board did not quantify or otherwise try to assign
relative weights to the specific factors the Accredo board considered in
reaching its determination to recommend the issuance of the Accredo shares in
the acquisition. Rather, the Accredo board viewed its position and
recommendation as being based on the total information presented to and
considered by the Accredo board.
OPINION OF GENTIVA'S FINANCIAL ADVISOR
On November 27, 2000, Gentiva engaged Lehman Brothers to act as its
financial advisor to explore various strategic opportunities, including the
potential sale of the SPS business of Gentiva. Lehman Brothers' engagement was
terminated by Gentiva on June 1, 2001, when Gentiva concluded that no acceptable
proposals had been received and all discussions with interested parties were
terminated. The engagement was formally reinstated with respect to the sale of
the SPS business on December 17, 2001. On January 2, 2002, Lehman Brothers
rendered its oral opinion (subsequently confirmed in writing) to Gentiva's board
of directors that as of such date and, based upon and subject to certain matters
stated therein, from a financial point of view, the consideration to be received
by Gentiva in the sale of the SPS business was fair to Gentiva. Lehman Brothers
did not recommend the amount of consideration to be paid to Gentiva.
THE FULL TEXT OF LEHMAN BROTHERS' WRITTEN OPINION, DATED JANUARY 2, 2002,
OR THE LEHMAN BROTHERS OPINION, IS ATTACHED AS ANNEX C TO THIS JOINT PROXY
STATEMENT-PROSPECTUS. STOCKHOLDERS MAY READ SUCH OPINION FOR A DISCUSSION OF THE
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, FACTORS CONSIDERED AND LIMITATIONS UPON
THE REVIEW UNDERTAKEN BY LEHMAN BROTHERS IN RENDERING ITS OPINION. THE FOLLOWING
IS A SUMMARY OF THE LEHMAN BROTHERS OPINION AND THE METHODOLOGY THAT LEHMAN
BROTHERS USED TO RENDER ITS FAIRNESS OPINION.
Lehman Brothers' advisory services and opinion were provided for the
information and assistance of Gentiva's board of directors in connection with
its consideration of the sale of the SPS business. The Lehman Brothers Opinion
is not intended to be and does not constitute a recommendation to any
stockholder of Gentiva as to how such stockholder should vote on the sale of the
SPS business. Lehman Brothers was not requested to opine as to, and the Lehman
Brothers Opinion does not address, Gentiva's underlying business decision to
proceed with or effect the sale of the SPS business or the distribution of cash
and Accredo stock received as consideration in the sale of the SPS business to
stockholders. In addition, Lehman Brothers was not requested to opine as to, and
the Lehman Brothers Opinion does not address, the prices at which the shares of
common stock of Accredo or Gentiva will trade following the consummation of the
sale of the SPS business.
In arriving at its opinion, Lehman Brothers reviewed and analyzed:
1. the asset purchase agreement, certain related documents and the
specific terms of the sale of the SPS business;
2. publicly available information concerning Gentiva and the SPS
business that Lehman Brothers believed to be relevant to its analysis,
including Gentiva's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000 and Gentiva's Quarterly Reports on Form 10-Q for the
quarters ended April 1, July 1 and September 30, 2001;
3. publicly available information concerning Accredo that Lehman
Brothers believed to be relevant to its analysis, including Accredo's
Annual Report on Form 10-K for the fiscal year ended June 30, 2001 and
Accredo's Quarterly Report on Form 10-Q for the quarter ended September 30,
2001;
4. financial and operating information with respect to the business,
operations and prospects of the SPS business furnished to Lehman Brothers
by Gentiva, including financial projections of the SPS business prepared by
the management of Gentiva for the fiscal years ended December 30, 2001 and
December 29, 2002;
40
5. a trading history of Accredo's common stock from April 16, 1999 (the
first trading day of Accredo) to the present and a comparison of that
trading history with those of other companies and market indices that
Lehman Brothers deemed relevant;
6. a comparison of the historical financial results and present
financial condition of the SPS business with those of other companies that
Lehman Brothers deemed relevant;
7. a comparison of the historical financial results and present
financial condition of Accredo with those of other companies that Lehman
Brothers deemed relevant;
8. published reports of third party research analysts with respect to
the future financial performance of the SPS business;
9. published reports of third party research analysts with respect to
the stock price targets and future financial performance of Accredo;
10. the results of Lehman Brothers' previous efforts to solicit
indications of interest from third parties with respect to a purchase of
all or part of Gentiva;
11. the potential pro forma impact on Accredo of the sale of the SPS
business, including the cost savings, operating synergies and strategic
benefits expected by the management teams of Gentiva and Accredo to result
from a combination of the businesses of the SPS business and Accredo; and
12. a comparison of the financial terms of the sale of the SPS business
with the financial terms of certain other transactions that Lehman Brothers
deemed relevant.
In addition, Lehman Brothers had discussions with the management of Gentiva, the
SPS business and Accredo concerning their respective businesses, operations,
assets, financial conditions and prospects and undertook such other studies,
analyses and investigations as Lehman Brothers deemed appropriate.
In arriving at its Opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by it
without assuming any responsibility for independent verification of such
information and further relied upon the assurances of management of Gentiva and
Accredo that they are not aware of any facts or circumstances that would make
such information inaccurate or misleading. With respect to the projections of
the SPS business, upon advice of Gentiva, Lehman Brothers assumed that such
projections were reasonably prepared on a basis reflecting the best currently
available estimates and judgments of the management of Gentiva as to the future
financial performance of the SPS business and that the SPS business will perform
in accordance with such projections. However, Lehman Brothers was not provided
with, and did not have any access to, any financial projections of the SPS
business for periods beyond fiscal 2002 and, upon the advice of Gentiva, has
relied upon guidance from the management of Gentiva with respect to the
appropriate growth rates, operating margins and other relevant measures of
future financial performance in analyzing the future financial performance of
the SPS business through fiscal 2006. Lehman Brothers was not provided with, and
did not have any access to, any financial projections of Accredo prepared by
Accredo's management. Accordingly, with Gentiva's consent, Lehman Brothers
assumed that the published estimates of third party research analysts were a
reasonable basis upon which to evaluate the future financial performance of
Accredo and that Accredo will perform substantially in accordance with such
estimates.
In arriving at its opinion, Lehman Brothers did not make or obtain any
evaluations or appraisals of the assets or liabilities of the SPS business or
Accredo. In addition, upon advice of Gentiva, Lehman Brothers assumed that the
sale of the SPS business (based on the consideration of $415 million described
above) will not result in material tax liabilities for Gentiva. The Lehman
Brothers Opinion was necessarily based upon market, economic and other
conditions as they existed on, and could be evaluated as of, the date of such
opinion.
In connection with rendering its opinion, Lehman Brothers performed certain
financial, comparative and other analyses as described below. In arriving at its
opinion, Lehman Brothers did not ascribe a specific range of value to the SPS
business, but rather made its determination as to the fairness, from a financial
point of
41
view, to Gentiva of the consideration to be received by Gentiva in the sale of
the SPS business on the basis of financial and comparative analyses. The
preparation of a fairness opinion involves various determinations as to the most
appropriate and relevant methods of financial and comparative 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 opinion, Lehman Brothers did not attribute any particular
weight to any analysis or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis and factor.
Accordingly, Lehman Brothers believes that its analyses must be considered as a
whole and that considering any portion of such analyses and factors, without
considering all analyses and factors as a whole, could create a misleading or
incomplete view of the process underlying its opinion. In its analyses, Lehman
Brothers made numerous assumptions with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond the
control of Gentiva and Accredo. None of Gentiva, Accredo, Lehman Brothers or any
other person assumes responsibility if future results are materially different
from those discussed. Any estimates contained in these analyses were 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.
The following is a summary of the material financial analyses used by
Lehman Brothers in connection with providing its opinion to Gentiva's board of
directors. Considering any portion of such analyses and of the factors
considered, without considering all analyses and factors, could create a
misleading or incomplete view of the process underlying the Lehman Brothers
Opinion.
TRANSACTION TERMS
Upon consummation of the sale of the SPS business, Gentiva will receive
consideration of $415 million, subject to certain adjustments as described in
the asset purchase agreement, comprised of $207.5 million in cash and $207.5
million in shares of Accredo common stock. The specific number of shares of
Accredo common stock that will be received by Gentiva as consideration in the
sale of the SPS business will be based upon the average of the daily closing
prices for the shares of Accredo common stock for a 20 day period prior to the
closing of the sale of the SPS business (the "Average Price"). At the Closing
Date and so long as the Accredo Average Price is greater than or equal to $31.00
per share or less than or equal to $41.00 per share, Gentiva will receive
sufficient shares of Accredo common stock to provide $207.5 million of Accredo
common stock. Assuming no adjustment to the purchase price, if the Accredo
Average Price is less than $31.00, Gentiva will receive 6,693,548 shares of
Accredo common stock and if the Accredo Average Price is greater then $41.00,
Gentiva will receive 5,060,976 shares of Accredo common stock. Lehman Brothers
understands that such cash and shares of Accredo common stock are expected to be
distributed to the stockholders of Gentiva following the consummation of the
sale of the SPS business.
COMPARABLE COMPANY ANALYSIS
In order to assess how the public market values shares of similar publicly
traded companies, Lehman Brothers reviewed and compared specific financial and
operating data relating to the SPS business with selected companies that Lehman
Brothers deemed comparable to the SPS business. The following companies are
primarily engaged in the distribution of pharmaceuticals and provision of
related healthcare services and share certain operational and financial
characteristics with the SPS business:
- ACCREDO HEALTH, INCORPORATED
Accredo Health, Incorporated provides specialized contract pharmacy
and related services pursuant to agreements with biopharmaceutical
drug manufacturers relating to the treatment of patients with certain
costly, chronic diseases. Accredo Health's services include
collection of timely drug utilization and patient compliance
information, patient education and monitoring through the use of
written materials and telephonic consultation, reimbursement
expertise and overnight drug delivery.
42
- AMERISOURCEBERGEN CORPORATION
AmerisourceBergen Corporation is a leading distributor of
pharmaceutical products and services to the hospital systems/acute
care market, alternative care facilities, and independent community
pharmacies. AmerisourceBergen Corporation is also a leader in the
institutional pharmacy marketplace.
- CARDINAL HEALTH, INC.
Cardinal Health, Inc. is a leading provider of products and services
supporting the healthcare industry. Cardinal Health companies
develop, manufacture, package and market products for patient care;
develop drug-delivery technologies; distribute pharmaceuticals,
medical-surgical and laboratory supplies; and offer consulting and
other services that improve quality and efficiency in health care.
- APRIA HEALTHCARE GROUP INC.
Apria Healthcare Group Inc. is a provider of respiratory therapy,
home infusion and home medical equipment. It provides comprehensive
home healthcare services through approximately 400 branches in 50
states.
- CHRONIMED, INC.
Chronimed, Inc., distributes pharmaceuticals and provides specialized
patient management services nationwide for people with long-term
chronic conditions, including HIV/AIDS, organ transplants and
diseases treated with injectable medications.
- D&K HEALTHCARE RESOURCES INC.
D&K Healthcare Resources, Inc., is a wholesale distributor of
pharmaceutical and related healthcare and beauty aid products to
independent and regional pharmacies, national pharmacy chains and
other healthcare providers.
- LINCARE HOLDINGS, INC.
Lincare Holdings, Inc. is one of the nation's largest providers of
oxygen and other respiratory therapy services to patients in the
home. Lincare provides services and equipment to over 320,000
customers in 44 states.
- MCKESSON CORPORATION
McKesson Corporation is a leading healthcare services company that is
organized under two operating segments: Health Care Supply Management
and Health Care Information Technology. The Health Care Supply
Management segment is a leading pharmaceutical and medical-surgical
supplies distributor.
- OMNICARE, INCORPORATED
Omnicare, Incorporated is the nation's largest provider of
professional pharmacy, related consulting and data management
services for skilled nursing, assisted living and other institutional
healthcare providers.
- PRIORITY HEALTHCARE CORPORATION
Priority Healthcare Corporation is a national specialty pharmacy and
distribution company providing specialized pharmaceutical services
for patients with chronic diseases or genetic disorders that require
high-cost, complex therapies.
43
- SYNCOR INTERNATIONAL CORPORATION
Syncor International Corporation is a leading provider of high
technology health care services concentrating on nuclear pharmacy
services, medical imaging, niche manufacturing and radiotherapy.
Using publicly available information, Lehman Brothers calculated and
analyzed each company's current stock price to its historical and projected
earnings per share (commonly referred to as a price to earnings ratio, or P/E),
each company's ratio of 2002 P/E to its future earnings per share growth rate
(commonly referred to as the PEG ratio) and each company's enterprise value to
certain historical financial criteria such as revenue, earnings before interest,
taxes, depreciation and amortization, or EBITDA, and earnings before interest
and taxes, or EBIT. The enterprise value of each company was obtained by adding
its short- and-long term debt to the sum of the market value of its common
equity, and the book value of any minority interest, and subtracting its cash
and cash equivalents. The following table displays various multiples for the
comparable companies as of December 31, 2001.
<Table>
<Caption>
RANGE OF MULTIPLES
------------------
Enterprise Value to:
Latest twelve months revenues 6.5x-4.2x
Latest twelve months EBITDA 6.5x-31.3x
Latest twelve months EBIT 11.9x-33.2x
Stock Price to:
2001 earnings per share 19.1x-49.6x
2002 earnings per share 15.8-37.8x
2002 PEG Ratio 0.7x-1.3x
</Table>
When comparing the comparable companies to the SPS business, Lehman
Brothers noted that the SPS business is a division of a public company and does
not have a complete stand-alone infrastructure and does not bear the expenses
related to certain corporate functions provided by Gentiva. For this reason the
ratios of purchase price to revenues, EBITDA, EBIT, and earnings of the SPS
business implied by the sale of the SPS business (the "Implied Multiples") are
not directly comparable to those of the comparable companies. The Implied
Multiples were at the lower end, and in some cases, below the range of the
comparable companies' primarily because of the SPS business' lower growth rate
as compared to the comparable companies and the absence of expenses associated
with certain corporate functions provided by Gentiva. Lehman Brothers noted that
the Implied Multiples would be increased if the expenses incurred by Gentiva for
the corporate functions were allocated to each of its operating divisions.
In addition, Lehman Brothers recognized that there was a significant
disparity between the future earnings growth rates of the comparable companies
and the SPS business. The growth rate of the comparable companies based upon
data from First Call ranged from 16% to 30% with a median of 20%. Based upon the
recent performance and guidance of Gentiva's management, Lehman Brothers used a
future earnings growth rate for the SPS business of approximately 8% to 10%.
Accordingly, Lehman Brothers focused its analysis on the PEG ratios of the
comparable companies that take the disparate growth rates into account. The
implied PEG ratios, based upon the range of growth rates that Lehman Brothers
assigned to the SPS business and the purchase price of $415 million, were 1.4x
to 1.7x. Lehman Brothers noted that this range is above the range of PEG ratios
of the comparable companies (0.7x to 1.3x). Lehman Brothers believed that in
light of the lower growth rate of the SPS business in comparison to the
comparable companies and the fact that the PEG ratio associated with the
transaction was above the range of the PEG ratios of the comparable companies
that the comparable company analysis supported the conclusion set forth in the
Lehman Brothers Opinion.
Because of the inherent differences between the business, operations and
prospects of the SPS business and the business, operations and prospects of the
companies included in the comparable companies, Lehman Brothers believed that it
was inappropriate to, and therefore did not, rely solely on the quantitative
results of
44
the comparable company analysis and accordingly also made qualitative judgments
concerning differences between the financial and operating characteristics and
prospects of the SPS business and the companies included in the comparable
company analysis that would affect the public trading values of each.
COMPARABLE TRANSACTION ANALYSIS
Lehman Brothers reviewed and compared the financial terms of the sale of
the SPS business with those of selected transactions that Lehman Brothers deemed
comparable to the sale of the SPS business. Lehman Brothers selected
transactions that involved the purchase of a company or division of a company
engaged in the distribution of pharmaceuticals and shared certain operational
and financial characteristics with the SPS business. The transactions that
Lehman Brothers selected were:
<Table>
<Caption>
NAME OF ACQUIRER NAME OF TARGET
---------------- --------------
AmeriSource Health Corporation Bergen Brunswig Corporation
Bergen Brunswig Corporation is a leading supplier
of pharmaceutical products and specialty
healthcare products.
Cardinal Health, Inc. Bindley Western Industries, Inc.
Bindley Western Industries, Inc. is a wholesale
distributor of pharmaceuticals and a provider of
nuclear pharmacy services.
AmeriSource Health Corporation C.D. Smith Healthcare, Inc.
C.D. Smith Healthcare Inc. is a wholesale
pharmaceutical distributor and serves independent
and chain pharmacies, hospitals, and managed care
facilities.
Bergen Brunswig Corporation PharMerica Inc.
PharMerica, Inc. is a leading provider of
pharmaceutical products and services serving
patients in skilled nursing facilities, assisted
living facilities, residential and independent
living communities, specialty hospitals and the
home setting.
Omnicare, Inc. United Professional Companies, Inc.
United Professional Companies, Inc., a wholly
owned subsidiary of Extendicare Health Services,
Inc., provides comprehensive pharmacy, related
consulting and infusion therapy services.
Genesis Health Ventures, Inc. Vitalink Pharmacy Services, Inc.
Vitalink Pharmacy Services, Inc. is a provider of
medications, consulting, infusion and other
ancillary services to customers with
institutional beds as well as to home infusion
patients.
Omnicare, Inc. American Medserve Corporation
American Medserve Corporation provides
comprehensive pharmacy and related services to
long-term care facilities.
Integrated Health Services, RoTech Medical Corporation
Inc. RoTech Medical Corporation is a leading provider
of home respiratory services, home infusion and
pharmacy products and home medical equipment.
McKesson Corporation General Medical Inc.
General Medical Inc. is a leading supplier to
alternate-site healthcare facilities, including
physicians and clinics, long-term care and
home-care sites, and also distributes
medical-surgical supplies to hospitals.
</Table>
45
<Table>
<Caption>
NAME OF ACQUIRER NAME OF TARGET
---------------- --------------
McKesson Corporation FoxMeyer Corporation's healthcare distribution
business
FoxMeyer Corporation's healthcare distribution
business
is a distributor of pharmaceuticals.
Cardinal Health, Inc. PCI Services Inc.
PCI Services, Inc. is a leader in providing
diversified packaging services to the
pharmaceutical industry in the United States and
Europe.
Owens & Minor, Inc. Stuart Medical, Inc.
Stuart Medical, Inc. is a distributor of medical
and surgical supplies to hospitals.
</Table>
Using publicly available information, Lehman Brothers calculated and
analyzed among other things, the ratio of the implied enterprise values in the
transactions at the announcement date to the trailing twelve month revenues,
EBITDA, and EBIT as well as the ratio of equity value at the announcement date
to trailing twelve month earnings and projected earnings. Lehman Brothers also
reviewed each transaction's PEG ratio.
<Table>
<Caption>
RANGE OF MULTIPLES
------------------
Enterprise Value to:
Latest twelve months revenues 0.1x-3.1x
Latest twelve months EBITDA 8.4x-18.9x
Latest twelve months EBIT 11.0x-28.0x
Equity Value to:
Latest twelve months earnings per share 15.4x-33.4x
2002 earnings per share 16.5x-39.1x
2002 PEG Ratio 0.8x-1.8x
</Table>
When comparing the comparable transactions to the SPS business, Lehman
Brothers noted that the SPS business is a division of a public company and does
not have a complete stand-alone infrastructure and does not bear the expenses
related to certain corporate functions provided by Gentiva. For this reason the
Implied Multiples are not directly comparable to those of the comparable
transactions. The Implied Multiples were at the lower end, and in some cases,
below the range of the comparable transactions' primarily because of the SPS
business' lower growth rate as compared to those of the companies being acquired
and the absence of expenses associated with certain corporate functions provided
by Gentiva. Lehman Brothers noted that the Implied Multiples would be increased
if the expenses incurred by Gentiva for the corporate functions were allocated
to each of its operating divisions.
Lehman Brothers focused its analysis on the PEG ratio since there was a
substantial disparity between the growth rate of the SPS business and those of
the companies being acquired in the comparable transactions. The median growth
rate of the companies being acquired in the comparable transactions was 16% with
a range of 15% to 30% as compared to the growth rate of the SPS business of 8%
to 10%. The implied PEG ratios, based upon the range of growth rates Lehman
Brothers assigned to the SPS business and the consideration of $415 million,
were 1.4x to 1.7x. Lehman Brothers noted that this range was at the high end of
comparable transactions' PEG ratios (0.8x to 1.8x). Lehman Brothers believed
that in light of the lower growth rate of the SPS business in comparison to the
comparable transactions and the fact that the PEG ratio associated with the
transaction was above the range of the PEG ratios of the comparable transactions
that the comparable transaction analysis supported the conclusion set forth in
the Lehman Brothers Opinion.
Because of the inherent differences between the business, operations and
prospects of the SPS business and the business, operations and prospects of the
acquired companies included in the comparable transactions, Lehman Brothers
believed that it was inappropriate to, and therefore did not, rely solely on the
quantitative results of the comparable transaction analysis and accordingly also
made qualitative judgments concerning differences between the financial and
operating characteristics and prospects of the SPS business
46
and the companies included in the comparable transaction analysis that would
affect the transaction values of each.
DISCOUNTED CASH FLOW ANALYSIS
As part of its analysis, Lehman Brothers prepared a discounted after-tax
cash flow model. The financial projections for fiscal 2002 were prepared by
Gentiva's management. For periods between fiscal 2003 and 2006, financial
projections were developed by Lehman Brothers based upon guidance from Gentiva's
management with respect to the appropriate revenue growth rates, operating
margins and other relevant measures of future financial performance. Lehman
Brothers used after-tax discount rates of 11.0% to 13.0% and a terminal value
based on a range of multiples of estimated EBITDA in 2006 of 7.0x to 9.0x. Based
on these discount rates and the midpoint of the terminal values, Lehman Brothers
calculated the enterprise value of the SPS business to be approximately $350 to
$450 million. Lehman Brothers noted that the purchase price of $415 million was
above the midpoint of this valuation range. Lehman Brothers believed that since
the transaction value of $415 million was within the range of enterprise values
it calculated using the discounted cash flow analysis that the discounted cash
flow analysis supported the conclusion set forth in the Lehman Brothers Opinion.
Lehman Brothers is an internationally recognized investment banking firm
and, as part of its investment banking activities, is regularly engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. Gentiva's board of directors
selected Lehman Brothers because of its expertise, reputation and familiarity
with Gentiva and the pharmaceutical distribution industry generally and because
its investment banking professionals have substantial experience in transactions
comparable to the sale of the SPS business.
As compensation for its services in connection with the transaction,
Gentiva will pay Lehman Brothers, upon consummation of the proposed transaction,
a fee equal to 1% of the consideration received in the transaction. In addition,
Gentiva has agreed to reimburse Lehman Brothers for reasonable out-of-pocket
expenses incurred in connection with the sale of the SPS business and to
indemnify Lehman Brothers for certain liabilities that may arise out of its
engagement by Gentiva and the rendering of the Lehman Brothers Opinion.
In the ordinary course of its business, Lehman Brothers may actively trade
in the debt or equity securities of Gentiva and Accredo for its own account and
for the accounts of its customers and, accordingly, may at any time hold a long
or short position in such securities.
OPINION OF ACCREDO'S FINANCIAL ADVISOR
In August 2001 the board of directors of Accredo hired Thomas Weisel
Partners LLC, based on Thomas Weisel Partners' qualifications, expertise and
reputation to act as Accredo's financial advisor in connection with the
acquisition of the SPS business. Thomas Weisel Partners is a nationally
recognized merchant bank specializing in advising and investing in companies
participating in the growth sectors of the economy including: healthcare,
technology, consumer, business services and telecommunications. On January 2,
2002, Thomas Weisel Partners delivered to the Accredo board of directors its
oral opinion that, as of that date and based on the assumptions made, matters
considered and limits of review set forth in Thomas Weisel Partners' written
opinion, the consideration to be paid by Accredo was fair to Accredo from a
financial point of view. Thomas Weisel Partners later delivered its written
opinion, dated January 2, 2002, confirming its oral opinion.
Accredo determined the consideration it would pay to Gentiva for the
acquisition of the SPS business through negotiations with Gentiva. Thomas Weisel
Partners did not recommend the amount of consideration to be paid to Gentiva.
Accredo did not impose any limitations on Thomas Weisel Partners with respect to
the investigations made or procedures followed in rendering its opinion.
Further, Accredo did not request the advice of Thomas Weisel Partners with
respect to alternatives to the acquisition of the SPS business and
47
Thomas Weisel Partners did not advise Accredo with respect to alternatives to
the acquisition of the SPS business or Accredo's underlying decision to proceed
with or effect the acquisition of the SPS business.
THE FULL TEXT OF THE WRITTEN OPINION THAT THOMAS WEISEL PARTNERS DELIVERED
TO THE ACCREDO BOARD OF DIRECTORS, WHICH SETS FORTH, AMONG OTHER THINGS, THE
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE
SCOPE OF THE REVIEW UNDERTAKEN BY THOMAS WEISEL PARTNERS IN DELIVERING ITS
OPINION, IS ATTACHED AS ANNEX D TO THIS JOINT PROXY STATEMENT-PROSPECTUS.
STOCKHOLDERS OF ACCREDO SHOULD READ THIS OPINION CAREFULLY AND IN ITS ENTIRETY.
THE FOLLOWING DESCRIPTION OF THE THOMAS WEISEL PARTNERS' WRITTEN OPINION IS ONLY
A SUMMARY OF THE THOMAS WEISEL PARTNERS' WRITTEN OPINION AND IS QUALIFIED BY AND
NOT A SUBSTITUTE FOR THE THOMAS WEISEL PARTNERS' WRITTEN OPINION.
THOMAS WEISEL PARTNERS DIRECTED ITS OPINION TO THE ACCREDO BOARD OF
DIRECTORS. THE OPINION DOES NOT CONSTITUTE A RECOMMENDATION TO STOCKHOLDERS OF
ACCREDO AS TO HOW ACCREDO STOCKHOLDERS SHOULD VOTE WITH RESPECT TO THE ISSUANCE
OF SHARES IN THE ACQUISITION. THE OPINION ADDRESSES ONLY THE FINANCIAL FAIRNESS
OF THE CONSIDERATION TO BE PAID BY ACCREDO FOR THE ACQUISITION OF THE SPS
BUSINESS. IT DOES NOT ADDRESS THE RELATIVE MERITS OF THE TRANSACTION OR ANY
ALTERNATIVES TO THE TRANSACTION. FURTHER, IT DOES NOT ADDRESS THE ACCREDO BOARD
OF DIRECTORS' UNDERLYING DECISION TO PROCEED WITH OR EFFECT THE TRANSACTION OR
ANY OTHER ASPECT OF THE ACQUISITION. IN FURNISHING ITS OPINION, THOMAS WEISEL
PARTNERS DID NOT ADMIT THAT IT IS AN EXPERT WITHIN THE MEANING OF THE TERM
"EXPERT" AS USED IN THE SECURITIES ACT OF 1933 AND THE RULES AND REGULATIONS
PROMULGATED THEREUNDER, NOR DID IT ADMIT THAT ITS OPINION CONSTITUTES A REPORT
OR VALUATION WITHIN THE MEANING OF SECTION 11 OF THE SECURITIES ACT OF 1933. THE
THOMAS WEISEL PARTNERS OPINION INCLUDES STATEMENTS TO THIS EFFECT.
In connection with its opinion, Thomas Weisel Partners, among other things:
(1) reviewed certain publicly available financial and other data with
respect to Accredo, including the consolidated financial statements for the
most recent year ending June 30, 2001 and the interim period ending
September 30, 2001 and certain other relevant financial and operating data
relating to Accredo made available to Thomas Weisel Partners from published
sources and from the internal records of Accredo;
(2) reviewed certain publicly available financial and other data with
respect to Gentiva, including the consolidated financial statements for the
most recent year ending December 31, 2000 and the interim periods ending
September 30, 2001 and certain other relevant financial and operating data
relating to the SPS business made available to Thomas Weisel Partners from
published sources and from the internal records of the SPS business;
(3) reviewed the financial terms and conditions of the draft asset
purchase agreement dated December 31, 2001;
(4) reviewed certain publicly available information concerning the stock
market trading history for Accredo common stock and Gentiva common stock;
(5) compared the SPS business and Accredo from a financial point of view
with certain other companies in the healthcare distribution industry which
Thomas Weisel Partners deemed to be relevant;
(6) considered the financial terms, to the extent publicly available, of
selected recent business combinations of companies in the healthcare
distribution industry which Thomas Weisel Partners deemed to be comparable,
in whole or in part, to the acquisition of the SPS business;
(7) reviewed and discussed with representatives of the management of
Accredo, Gentiva and the SPS business certain information of a business and
financial nature regarding Accredo and the SPS business, furnished to
Thomas Weisel Partners by Accredo and Gentiva, including financial
forecasts and related assumptions of Accredo and Gentiva;
(8) made inquiries regarding and discussed the acquisition of the SPS
business and the asset purchase agreement and other matters related thereto
with Accredo's counsel; and
48
(9) performed such other analyses and examinations as Thomas Weisel
Partners deemed appropriate.
In preparing its opinion, Thomas Weisel Partners did not assume any
responsibility to independently verify the information referred to above.
Instead, with Accredo's consent, Thomas Weisel Partners relied on the
information being accurate and complete in all material respects. Thomas Weisel
Partners also made the following assumptions, in each case with Accredo's
consent:
- with respect to the financial forecasts for Accredo and the SPS business
provided to Thomas Weisel Partners by their respective managements,
respectively, upon their advice and with Accredo's consent, Thomas Weisel
Partners assumed for purposes of their opinion that the forecasts had
been reasonably prepared on bases reflecting the best available estimates
and judgments of their respective managements at the time of preparation
as to the future financial performance of Accredo and the SPS business
and that they provided a reasonable basis upon which Thomas Weisel
Partners could form its opinion;
- that there had been no material changes in Accredo's or the SPS business'
assets, financial condition, results of operations, business or prospects
since the respective dates of Accredo's and Gentiva's last financial
statements made available to Thomas Weisel Partners;
- that it could rely on advice of counsel and independent accountants to
Accredo as to all legal and financial reporting matters with respect to
Accredo, the purchase of the SPS business and the asset purchase
agreement; and
- that the acquisition of the SPS business would be consummated in a manner
that complies in all respects with the applicable provisions of the
Securities Act of 1933, the Securities Exchange Act of 1934 and all other
applicable federal and state statutes, rules and regulations.
In addition, for purposes of its opinion:
- Thomas Weisel Partners did not assume responsibility for making an
independent evaluation, appraisal or physical inspection of any of the
assets or liabilities (contingent or otherwise) of Accredo or the SPS
business, nor was Thomas Weisel Partners furnished with any such
appraisals;
- Thomas Weisel Partners assumed that the acquisition of the SPS business
would be consummated in accordance with the terms described in the draft
of the asset purchase agreement dated December 31, 2001 without any
further amendment thereto and without waiver by Accredo of any of the
conditions to its obligations thereunder;
- Accredo management informed Thomas Weisel Partners, and Thomas Weisel
Partners assumed, that the acquisition of the SPS business would be
recorded as a purchase under generally accepted accounting principles;
and
- Thomas Weisel Partners based its opinion on economic, monetary, market
and other conditions as in effect on, and the information made available
to Thomas Weisel Partners as of, the date of its opinion. Since Thomas
Weisel Partners' opinion was rendered during a period of significant and
uncommon volatility in the capital markets, it is subject to the absence
of further material changes in economic, monetary and market and other
conditions from those existing on the date of the opinion. Accordingly,
although subsequent developments may affect its opinion, Thomas Weisel
Partners did not assume any obligation to update, revise or reaffirm its
opinion.
The following represents a brief summary of the material financial analyses
performed by Thomas Weisel Partners in connection with providing its opinion to
the Accredo board of directors. Some of the summaries of financial analyses
performed by Thomas Weisel Partners include information presented in tabular
format. In order to fully understand the financial analyses performed by Thomas
Weisel Partners, you should read the tables together with the text of each
summary. The tables alone do not constitute a complete description of the
financial analyses. Considering the data set forth in the tables without
considering the full narrative description of the financial analyses, including
the methodologies and assumptions underlying the analyses,
49
could create a misleading or incomplete view of the financial analyses performed
by Thomas Weisel Partners.
Public Market Companies Analysis. Based on public and other available
information, Thomas Weisel Partners calculated the multiples of aggregate value,
which Thomas Weisel Partners defined as equity value plus debt less cash and
cash equivalents, to calendar year 2001E and 2002E earnings before interest,
taxes, depreciation and amortization (EBITDA) and the multiples of equity value
to net income before goodwill expense for companies in the healthcare
distribution industry. Thomas Weisel Partners believes that the five companies
listed below have operations similar to some of the operations of Accredo and
the SPS business because each of the following five companies derives
significant revenue from the distribution of pharmaceutical products or
supplies, but noted that none of these companies have the same management,
composition, size or combination of businesses as Accredo and the SPS business:
- AMERISOURCEBERGEN CORPORATION
AmerisourceBergen Corporation is a leading distributor of pharmaceutical
products and services to the hospital systems/acute care market, alternative
care facilities, and independent community pharmacies. AmerisourceBergen
Corporation is also a leader in the institutional pharmacy marketplace.
- CARDINAL HEALTH, INC.
Cardinal Health, Inc. is a leading provider of products and services
supporting the healthcare industry. Cardinal Health companies develop,
manufacture, package and market products for patient care; develop drug-delivery
technologies; distribute pharmaceuticals, medical-surgical and laboratory
supplies; and offer consulting and other services that improve quality and
efficiency in health care.
- CHRONIMED, INC.
Chronimed, Inc., distributes pharmaceuticals and provides specialized
patient management services nationwide for people with long-term chronic
conditions, including HIV/AIDS, organ transplants and diseases treated with
injectable medications.
- MCKESSON CORPORATION
McKesson Corporation is a leading healthcare services company that is
organized under two operating segments: Health Care Supply Management and Health
Care Information Technology. The Health Care Supply Management segment is a
leading pharmaceutical and medical-surgical supplies distributor.
- PRIORITY HEALTHCARE CORPORATION
Priority Healthcare Corporation is a national specialty pharmacy and
distribution company providing specialized pharmaceutical services for patients
with chronic diseases or genetic disorders that require high-cost, complex
therapies.
The following table sets forth the multiples indicated by this analysis:
<Table>
<Caption>
RANGE OF TRANSACTION
AGGREGATE VALUE TO: MULTIPLES MULTIPLE
- ------------------- ------------- -----------
CY2001E EBITDA............................................. 11.0x - 16.0x 8.9x
CY2001E Net Income before Goodwill......................... 28.0x - 39.0x 17.8x
CY2002E EBITDA............................................. 9.0x - 12.0x 8.2x
CY2002E Net Income before Goodwill......................... 20.0x - 25.0x 16.1x
</Table>
While the comparable company analysis compared Accredo and the SPS business
to five companies in the healthcare distribution industry, Thomas Weisel
Partners did not include every company that could be deemed to be a participant
in this same industry, or in the specific sectors of this industry.
Thomas Weisel Partners noted that the aggregate value of the consideration
to be paid by Accredo in connection with the transaction implied multiples of
8.9x 2001E EBITDA, 17.8x 2001E Net Income before Goodwill, 8.2x 2002E EBITDA,
and 16.1x 2002E Net Income before Goodwill. The indicated range of
50
enterprise values based on this analysis were $515 million to $696 million.
Thomas Weisel Partners noted that the value of consideration to be paid by
Accredo was $415 million.
No company or transaction used in the comparable company or comparable
transactions analyses is identical to Accredo, the SPS business or the
transaction. Accordingly, an analysis of the results of the foregoing is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies and other factors that could affect the public trading value of the
companies to which Accredo, the SPS business and the transaction are being
compared.
Precedent Transactions Analysis. Because each of the following target
companies except one derives significant revenue from the distribution of
pharmaceutical products or supplies, Thomas Weisel Partners deemed each of these
transactions precedents for the acquisition of the SPS Business. Vallen
Corporation produces and distributes health care products to industrial
consumers and, therefore, Thomas Weisel Partners deemed its acquisition
comparable to the acquisition of certain product lines and services rendered by
the SPS Business. Based on public and other available information, Thomas Weisel
Partners calculated the multiples of aggregate value to the latest twelve
months, or LTM, and the next twelve months, or NTM, earnings before interest,
taxes, depreciation and amortization (EBITDA) for Accredo and the SPS business
implied in the following eight precedent transactions involving healthcare
distribution companies that have been announced since April 27, 1998:
<Table>
<Caption>
ANNOUNCEMENT DATE NAME OF ACQUIRER NAME OF TARGET
- ----------------- ---------------- --------------
3/19/01................. AmeriSource Health Corporation Bergen Brunswig Corporation
Bergen Brunswig Corporation is a
leading supplier of pharmaceutical
products and specialty healthcare
products.
12/4/00................. Cardinal Health, Inc. Bindley Western Industries, Inc.
Bindley Western Industries, Inc. is a
wholesale distributor of
pharmaceuticals and a provider of
nuclear pharmacy services.
7/12/00................. Advance Paradigm, Inc. PCS Health Systems, Inc.
PCS Health Systems, Inc. is a leading
drug benefit management company,
providing pharmacy-related services
to employers, health plans,
government agencies, and other
benefit plan sponsors.
7/5/00.................. CVS Corporation Stadtlander Pharmacy
Stadtlander Pharmacy is a leading
specialty pharmacy, providing
full-service care to patients
requiring special prescription needs
for challenging and long-term health
conditions. These long-term needs
include HIV/AIDS, organ transplants,
cancer and biotechnology-based
products for conditions such as
multiple sclerosis.
5/4/00.................. Merck & Co., Inc. ProVantage Health Services, Inc.
ProVantage Health Services, Inc. is a
leading health benefit management
company providing health benefit
management services, pharmacy mail
services, vision benefit management
services and health information and
clinical support services.
</Table>
51
<Table>
<Caption>
ANNOUNCEMENT DATE NAME OF ACQUIRER NAME OF TARGET
- ----------------- ---------------- --------------
11/15/99................ Hagemeyer P.P.S. North America Vallen Corporation
Vallen Corporation is a provider and
distributor of integrated safety
products and related services,
including emergency shower and
eyewash fountains for industrial
usage, and a broad line of non-
prescription safety eyewear
distributed throughout North and
South America.
1/11/99................. Bergen Brunswig Corporation PharMerica, Inc.
PharMerica, Inc. is a leading
provider of pharmaceutical products
and services serving patients in
skilled nursing facilities, assisted
living facilities, residential and
independent living communities,
specialty hospitals and the home
setting.
4/27/98................. Genesis Health Ventures, Inc. Vitalink Pharmacy Services, Inc.
Vitalink Pharmacy Services, Inc. is a
provider of medications, consulting,
infusion and other ancillary services
to customers with institutional beds
as well as to home infusion patients.
</Table>
The following table sets forth the multiples indicated by this analysis and
the multiples implied by the proposed transaction:
<Table>
<Caption>
PROPOSED
AGGREGATE VALUE TO: RANGE OF MULTIPLES TRANSACTION
- ------------------- ------------------ -----------
LTM EBITDA................................................ 7.0x - 11.0x 8.9x
NTM EBITDA................................................ 6.0x - 10.0x 8.2x
</Table>
The indicated range of enterprise values based on this analysis were $315
million to $510 million. Thomas Weisel Partners noted that the value of the
consideration to be paid by Accredo was $415 million.
Discounted Cash Flow Analysis. Thomas Weisel Partners used financial cash
flow forecasts of the SPS business for calendar year 2002, as estimated by
Gentiva's management, and financial cash flow forecasts of the SPS business for
calendar years 2003 through 2006, as estimated by Thomas Weisel Partners based
on conversations with Accredo's management and Gentiva's SPS management
regarding the historical performance of the SPS business and management's
expectations for the future performance of the SPS business, to perform a
discounted cash flow analysis. In conducting this analysis, Thomas Weisel
Partners assumed that the SPS business would perform in accordance with these
forecasts. Thomas Weisel Partners first estimated the terminal value of the
projected cash flows by applying multiples to the SPS business's estimated 2006
earnings before interest, taxes, depreciation and amortization (EBITDA), which
multiples ranged from 6.0x to 10.0x. Thomas Weisel Partners then discounted the
cash flows projected through 2006 and the terminal values to present values
using rates ranging from 10.0% to 14.0%. Using a discount rate of 12.0% (which
is the midpoint between 10.0% and 14.0%), this analysis indicated a range of
equity values. The indicated range of equity values based on this analysis were
$470 million to $696 million. Thomas Weisel Partners noted that the value of
consideration to be paid by Accredo was $415 million.
The foregoing description is only a summary of the analyses and
examinations that Thomas Weisel Partners deems material to its opinion. It is
not a comprehensive description of all analyses and examinations actually
conducted by Thomas Weisel Partners. The preparation of a fairness opinion
necessarily is not susceptible to partial analysis or summary description.
Thomas Weisel Partners believes that its analyses and the summary set forth
above must be considered as a whole and that selecting portions of its analyses
and of the factors considered, without considering all analyses and factors,
would create an incomplete view of the
52
process underlying the analyses set forth in its presentation to the Accredo
board of directors. In addition, Thomas Weisel Partners may have given various
analyses more or less weight than other analyses, and may have deemed various
assumptions more or less probable than other assumptions. The fact that any
specific analysis has been referred to in the summary above is not meant to
indicate that such particular analysis was given greater weight than any other
analysis in the summary presentation. Accordingly, the ranges of valuations
resulting from any particular analysis described above should not be taken to be
the view of Thomas Weisel Partners with respect to the actual value of Gentiva.
In performing its analyses, Thomas Weisel Partners made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of Accredo
and the SPS business. The analyses performed by Thomas Weisel Partners are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than those suggested by these analyses.
These analyses were prepared solely as part of the analysis performed by Thomas
Weisel Partners with respect to the financial fairness of the consideration to
be paid by Accredo pursuant to the transaction, and were provided to Accredo in
connection with the delivery of the Thomas Weisel Partners opinion. The analyses
do not purport to be appraisals or to reflect the prices at which a company
might actually be sold or the prices at which any securities may trade at any
time in the future.
As described above, Thomas Weisel Partners' opinion and presentation were
among the many factors that the Accredo board of directors took into
consideration in making its determination to approve the acquisition of the SBS
business and to recommend that Accredo stockholders approve the issuance of the
Accredo common stock in the acquisition.
Accredo has agreed to pay Thomas Weisel Partners a fee of $250,000 upon
delivery of its opinion (opinion fee) and a fee of $4,000,000 less the opinion
fee, that is contingent on the completion of the acquisition. Further, Accredo
has agreed to reimburse Thomas Weisel Partners for its reasonable out-of-pocket
expenses and to indemnify Thomas Weisel Partners, its affiliates, and their
respective partners, directors, officers, agents, consultants, employees and
controlling persons against specific liabilities, including liabilities under
the federal securities laws.
In the ordinary course of its business, Thomas Weisel Partners actively
trades the equity securities of Accredo for its own account and for the accounts
of customers and, accordingly, may at any time hold a long or short position in
these securities.
COMPLETION OF THE ACQUISITION
Subject to the conditions to the obligations of the parties to effect the
acquisition, the acquisition will be completed no later than the second business
day following the satisfaction or, in some instances, waiver of all closing
conditions, including the stockholders meetings.
Accredo and Gentiva anticipate that the acquisition will be consummated in
the second quarter of 2002. However, delays could occur. Accredo and Gentiva
cannot assure you that they will be able to obtain necessary stockholder and
regulatory approvals for the acquisition or that they will be able to satisfy
other conditions to completion of the acquisition. Either Gentiva or Accredo may
terminate the asset purchase agreement if the acquisition is not completed by
May 31, 2002 (which date will be extended to August 31, 2002, if the acquisition
has not been consummated as a result of the failure of the parties to have
received a material required consent of any regulatory authority, or if a court
or governmental or other regulatory authority has enacted legislation or taken
or threatened to take any other action which prohibits or would prohibit the
consummation of the acquisition), unless the acquisition has not been completed
because of the breach of the asset purchase agreement by the party seeking
termination. See "-- Conditions to Completion of the Acquisition" and
"-- Waiver, Amendment, and Termination."
53
CONDITIONS TO COMPLETION OF THE ACQUISITION
Accredo and Gentiva are required to complete the acquisition only after the
satisfaction, or in some cases waiver, of various conditions. These conditions,
among others, include:
- EBITDA (as defined in the asset purchase agreement) for the SPS business
for the fiscal year ended December 30, 2001 shall equal or exceed $47
million;
- Accredo shall have completed an audit and obtained an unqualified audit
opinion from Ernst & Young LLP on the financial statements for the SPS
business through the fiscal year ended December 30, 2001, which shall not
have changes from the financial statements provided earlier by Gentiva
except for changes that would not have a material adverse effect (as
defined in the asset purchase agreement) on the SPS business;
- the holders of a majority of the outstanding shares of Gentiva common
stock approve the sale of the SPS business;
- the holders of a majority of the shares of Accredo common stock present
at the Accredo stockholders' meeting and entitled to vote must have
approved the issuance of the shares of Accredo common stock in the
acquisition;
- the waiting period under the HSR Act must have expired or been terminated
and the parties must have received any other material required consent of
any regulatory authority, other than consents for certain licenses, and
such consents must not be conditioned or restricted in a manner which
Accredo determines would reasonably likely have a material adverse impact
on the SPS business if the acquisition was consummated;
- there must not be any law or order enacted by a court or governmental or
other regulatory authority or any other action taken or overtly
threatened to be taken by a court or governmental or other regulatory
authority which prohibits, restricts or makes illegal the consummation of
the acquisition;
- the registration statement, of which this joint proxy
statement-prospectus is a part, must continue to be effective under the
Securities Act, and all necessary approvals under state or federal
securities laws must have been obtained;
- the shares of Accredo common stock to be issued in the acquisition must
be approved for quotation on the Nasdaq National Market, subject to
official notice of issuance;
- the representations and warranties of Gentiva and Accredo set forth in
the asset purchase agreement must be true and correct in all material
respects as of the date the acquisition is completed subject to certain
qualifications;
- receipt of specified consents and approvals;
- Gentiva and Accredo must have performed all agreements and complied with
all covenants set forth in the asset purchase agreement in all material
respects;
- there must not have been a material adverse effect on Accredo or Gentiva
that has occurred and is continuing from the date of the asset purchase
agreement to the date the acquisition is completed, provided that certain
events relating to the acute portion of the SPS business to be acquired
by Accredo will not be considered to have a material adverse effect;
- Gentiva and Accredo shall have entered into restrictive covenants
agreements and other agreements regarding the transition and their
ongoing operations; and
- other customary conditions must be satisfied or, in some cases, waived.
We cannot assure you as to when or if all of the conditions to the
acquisition can or will be satisfied or waived by the party permitted to do so.
Either Gentiva or Accredo may terminate the asset purchase agreement in the
event the acquisition is not consummated by May 31, 2002 (which date will be
extended to August 31, 2002, if the acquisition has not been consummated as a
result of the failure of the parties to have
54
received a material required consent of any regulatory authority or if a court
or governmental or other regulatory authority has enacted legislation or taken
or threatened to take any other action which prohibits the consummation of the
acquisition), if the failure to consummate the acquisition is not caused by any
breach of the asset purchase agreement by the party seeking termination, either
Gentiva or Accredo may terminate the asset purchase agreement and abandon the
acquisition. See "-- Waiver, Amendment, and Termination."
CONDUCT OF BUSINESS PENDING THE ACQUISITION
Gentiva and Accredo have agreed to use their reasonable efforts to take all
actions necessary to consummate the acquisition as soon as reasonably
practicable after the date of the asset purchase agreement. Gentiva and its
subsidiaries that own assets of the SPS business have agreed to provide Accredo
reasonable access upon reasonable notice to the properties, books and records
that relate to the SPS business and to furnish Accredo with such additional
financial, operating and other information regarding the SPS business and its
properties that Accredo may reasonably request in order to allow Accredo to
audit the financial statements for the SPS business for the periods through the
closing of the acquisition. Gentiva will also allow Accredo reasonable access,
upon reasonable notice, to consult with its officers and employees, accountants
and agents in connection with such investigation.
The asset purchase agreement also obligates Gentiva and its subsidiaries
that own assets of the SPS business, until the closing of the acquisition or the
termination of the asset purchase agreement, unless the prior written consent of
Accredo has been obtained, which consent shall not be unreasonably withheld or
denied, to the extent that any of the following relates directly to the SPS
business or in any way may affect the acquisition or the assets of the SPS
business, to:
- operate the SPS business in the ordinary course of business, consistent
with past practices;
- use reasonable commercial efforts to preserve intact its business
organization, licenses, permits, government programs, private programs
and customers;
- use reasonable commercial efforts to retain the services of its
employees, agents and consultants on terms and conditions not less
favorable than those existing prior to the date of the signing of the
asset purchase agreement and to prevent any material or adverse changes
to employee relations;
- keep and maintain its assets in their present condition, repair and
working order, except for normal depreciation and wear and tear, and
maintain its insurance, rights and licenses;
- pay all accounts payable of Gentiva and its subsidiaries selling assets
in accordance with past practice and collect all accounts receivable in
accordance with past practice, but not less than in accordance with
reasonably prudent business practices;
- make available to Accredo true and correct copies of all internal
management and control reports (including aging of accounts receivable,
listings of accounts payable, and inventory control reports) and
available financial statements related to the SPS business;
- cause all tax returns that are due and have not been filed prior to the
date of the signing of the asset purchase agreement or which become due
on or prior to the closing of the acquisition (taking into account valid
extensions), to be prepared and filed on or before the date such tax
return is required to be filed; provided, however, that any such tax
return shall be prepared in accordance with past practice and custom and
applicable tax law unless Gentiva reasonably determines that changes are
required by changes in facts or applicable law;
- perform in all material respects all obligations under agreements
relating to or affecting Gentiva's assets, properties or rights, except
for the failure of which performance would not have a material adverse
effect on the SPS business taken as a whole, financial or otherwise;
- keep in full force and effect present insurance policies or other
comparable insurance coverage; and
- notify Accredo of (i) any event or circumstance which is reasonably
likely to have a seller material adverse effect (as defined in the asset
purchase agreement) or would cause or constitute a breach of any
representations, warranties or covenants of Gentiva; (ii) any material
change in the normal
55
course of business or in the operation of the assets of the SPS business,
and (iii) any governmental complaints, investigations or hearings (or
communications indicating that the same may be contemplated), any
adjudicatory proceedings, any budget meetings or any submissions
involving the assets of the SPS business.
In the asset purchase agreement, until the closing of the acquisition or
the termination of the asset purchase agreement, Gentiva and its subsidiaries
that own assets of the SPS business, have also agreed not to do any of the
following without the prior written consent of Accredo, which consent shall not
be unreasonably withheld or delayed, to the extent that any of the following
relates directly to the SPS business or in any way would reasonably be expected
to adversely affect the assets of the SPS business or either party's ability to
consummate the acquisition:
- take any action which would (a) adversely affect the ability of any party
to the asset purchase agreement or the agreements contemplated by the
asset purchase agreement to obtain any consents required for the
transactions contemplated by the asset purchase agreement, or (b)
adversely affect the ability of any party to the asset purchase agreement
or the agreements contemplated thereby to perform its covenants and
agreements thereunder;
- amend any of its organizational or governing documents, except for the
purpose of accomplishing the transactions contemplated by the asset
purchase agreement;
- impose, or suffer the imposition, on any material asset of the SPS
business of any lien or permit any such lien other than permitted liens
to exist;
- other than pursuant to the asset purchase agreement or the agreements
contemplated by it, sell, pledge or encumber, or enter into any contract
to sell, pledge or encumber, any interest in the assets of the SPS
business except in the ordinary course of business and consistent with
past practices and if not material;
- purchase or acquire any assets or properties related to the SPS business,
whether real or personal, tangible or intangible, or sell or dispose of
any assets or properties, whether real or personal, tangible or
intangible, except in the ordinary course of business and consistent with
past practices;
- grant any increase in compensation or benefits to any employee of the SPS
business, except in accordance with past practice; pay any severance or
termination pay or any bonus to any employee of the SPS business other
than pursuant to written policies or written contracts in effect as of
the date of the asset purchase agreement and disclosed pursuant thereto;
enter into or amend any severance agreements with any employee of the SPS
business;
- enter into or amend any employment contract between Gentiva or any
subsidiary that owns assets of the SPS business and any employee of the
SPS business (unless such amendment is required by law) that the Gentiva
entity does not have the unconditional right to terminate without
liability (other than compensation for services already rendered), at any
time on or after the closing of the acquisition;
- adopt any new employee benefit plan or make any material change in or to
any existing employee benefit plans applicable to the employees of the
SPS business other than any such change that is required by law or that,
in the opinion of counsel, is necessary or advisable to maintain the tax
qualified status of any such plan except as disclosed to Accredo pursuant
to the asset purchase agreement;
- make any significant change in any tax or accounting methods or systems
of internal accounting controls, except as may be appropriate to conform
to changes in tax laws or regulatory accounting requirements or generally
accepted accounting principles;
- commence any litigation other than in accordance with past practice,
settle any litigation involving any liability of the SPS business for
material money damages or restrictions upon the operations of the SPS
business;
56
- except in the ordinary course of business and which is not material,
modify, amend or terminate any material contract or waive, release,
compromise or assign any material rights or claims;
- except in the ordinary course of business and, even if in the ordinary
course of business, then not in an amount to exceed $100,000 in the
aggregate, make or commit to make any capital expenditure, or enter into
any lease of capital equipment as lessee or lessor, related to the SPS
business; or
- make any loan to any person or increase the aggregate amount of any loan
currently outstanding to any person other than advances in the ordinary
course of business consistent with past practices.
In addition, in the asset purchase agreement, until the closing of the
acquisition or the termination of the asset purchase agreement, Accredo has
agreed not to take the following actions without the prior written consent of
Gentiva, which consent shall not be unreasonably withheld or delayed, to the
extent that any of these would reasonably be expected to adversely affect
Accredo's business or either party's ability to consummate the acquisition:
- amend its organizational documents in a manner adverse to consummation of
the acquisition;
- declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock other than as contemplated by the asset purchase agreement;
- authorize, recommend, propose or announce an intention to authorize,
recommend or propose, or enter into any agreement with any other person
with respect to, any plan of liquidation or dissolution;
- maintain its books and records in a manner not in the ordinary course of
business consistent with past practice (except for any changes that are
not material);
- institute any significant change in accounting methods other than as may
be appropriate to conform to change in law or generally accepted
accounting principles; or
- revalue any of Accredo's assets, including without limitation, writing
down the value of inventory or writing off notes or accounts receivable,
in each case, except as are not material or that are in the ordinary
course of business consistent with past practice and except as may be
appropriate to conform to change in law or generally accepted accounting
principles.
REPRESENTATIONS AND WARRANTIES
Accredo and Gentiva have made customary representations and warranties
relating to their businesses and the acquisition in the asset purchase
agreement. The representations and warranties of Gentiva are contained in
Article 2 of the asset purchase agreement, and the representations and
warranties of Accredo are contained in Article 3 of the asset purchase
agreement. The asset purchase agreement is attached as Annex A to this joint
proxy statement-prospectus.
REGULATORY APPROVAL
Gentiva and Accredo are not aware of any material governmental approvals or
actions that are required to complete the acquisition, except as described
below. Should any other approval or action be required, Accredo and Gentiva have
agreed that they would seek such approval or action.
Accredo and Gentiva filed notification and report forms under the HSR Act
with the FTC and the Antitrust Division on January 23, 2002. The statutory
waiting period under the HSR Act expired on February 22, 2002. At any time
before or after completion of the acquisition, the Antitrust Division or the FTC
could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking to enjoin the completion of
the acquisition or seeking divestiture of substantial assets of Accredo or
Gentiva. At any time before or after the completion of the acquisition, any
state could take such action under the antitrust laws as it deems necessary or
desirable in the public interest. Such action could include seeking to enjoin
the completion of the acquisition or seeking divestiture of substantial assets
of
57
Accredo or Gentiva. Private parties may also seek to take legal action under the
antitrust laws under certain circumstances.
Accredo and Gentiva believe that the acquisition can be effected in
compliance with the federal and state antitrust laws; however, there can be no
assurance that a challenge to the completion of the acquisition on antitrust
grounds will not be made or that, if such a challenge were made, Accredo and
Gentiva would prevail or would not be required to accept certain adverse
conditions in order to complete the acquisition. Pursuant to the asset purchase
agreement, Accredo is not required to divest any of its businesses, product
lines or assets, or to take or agree to take any other action that Accredo
determines not to be in its best interest.
WAIVER, AMENDMENT, AND TERMINATION
Any provision of the asset purchase agreement may be changed, waived,
discharged or terminated only by an agreement signed by the party against whom
or which the enforcement of such change, waiver, discharge or termination is
sought. In addition, before or at the time the acquisition becomes effective,
either Gentiva or Accredo, or both, may waive any default in the performance of
any term of the asset purchase agreement by the other party or may waive or
extend the time for the compliance or fulfillment by the other party of any and
all of its obligations under the asset purchase agreement. In addition, either
Accredo or Gentiva may waive any default in the performance of any term of the
asset purchase agreement or any of the conditions precedent to its obligations
under the asset purchase agreement, unless a violation of any law or
governmental regulation would result. To be effective, a waiver must be in
writing and signed by an authorized officer of Gentiva or Accredo, as the case
may be. In the event an amendment or waiver to the asset purchase agreement
requires stockholder approval by law, the parties will resolicit proxies in an
effort to obtain stockholder approval of the transactions contemplated by the
asset purchase agreement, as amended.
At any time before the consummation of the acquisition, the boards of
directors of Accredo and Gentiva may agree by mutual written consent to
terminate the asset purchase agreement. In addition, either Accredo or Gentiva
may terminate the asset purchase agreement by written notice of termination to
the other party specifying the reason for termination in the following
circumstances:
- in the event the acquisition is not consummated by May 31, 2002 (which
date will be extended to August 31, 2002, if the acquisition has not been
consummated as a result of the failure of the parties to have received a
material required consent of any regulatory authority or if a court or
governmental or other regulatory authority has enacted any legislation or
taken or threatened to take any other action which prohibits the
consummation of the acquisition or if the registration statement has not
yet been declared effective), if the failure to consummate the
acquisition is not caused by any breach of the asset purchase agreement
by the party seeking termination (we refer to such date as the "end
date"); and
- if a breach by the other party of any representation, warranty, covenant
or agreement contained in the asset purchase agreement would, if
continuing on the closing date, permit the non-breaching party to refuse
to consummate the transactions contemplated by the asset purchase
agreement pursuant to the relevant standards discussed above in
"Conditions to Completion of the Acquisition." However, if the breach in
the representations, warranties, covenants or agreements is curable prior
to the end date through the exercise of reasonable efforts and the
breaching party exercises reasonable efforts to cure such breach, then
the non-breaching party may not terminate the asset purchase agreement
prior to 30 days following the receipt by the breaching party of written
notice of the breach; provided that the terminating party is not then in
material breach of any representation, warranty, covenant or other
agreement contained in the asset purchase agreement; and
- if any law or order permanently restraining, enjoining or otherwise
prohibiting the consummation of the acquisition has become final and
nonappealable; and
- if the stockholders of Gentiva fail to approve the sale of the SPS
business or the stockholders of Accredo fail to approve the issuance of
Accredo common stock in the acquisition at their respective stockholders'
meetings; provided, that this termination right is not available to a
party where the
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failure to obtain stockholder approval of the terminating party has been
caused by the action or failure to act by the party and the action or
failure to act constitutes a material breach by the party of the asset
purchase agreement; and
- if the conditions precedent are incapable of being satisfied by the end
date, so long as the terminating party is not then in material breach of
any representation, warranty, covenant or other agreement contained in
the asset purchase agreement.
In addition, Accredo may also terminate the asset purchase agreement by
written notice of termination to Gentiva, if
- the board of directors of Gentiva fails to reaffirm publicly its approval
following its receipt of an acquisition proposal within two business days
after Accredo's request for a reaffirmation, of the acquisition and the
transactions contemplated by the asset purchase agreement, or resolves
not to reaffirm the acquisition; or
- the board of directors of Gentiva fails to include in this joint proxy
statement-prospectus its recommendation to Gentiva stockholders that they
approve the sale of the SPS business, or withdraws, amends or modifies,
or proposes publicly to withdraw, qualify or modify, in a manner adverse
to Accredo, its recommendation to Gentiva's stockholders that they
approve the sale of the SPS business; or
- the board of directors of Gentiva makes a change of recommendation
adverse to the acquisition (as discussed in Solicitation Prohibitions)
or, within ten business days after commencement of any tender or exchange
offer for any shares of Gentiva common stock, the board of directors of
Gentiva fails to recommend against acceptance of the tender or exchange
offer by its stockholders or takes no position with respect to the
acceptance of the tender or exchange offer by its stockholders; or
- any person other than Accredo acquires beneficial ownership of 10% or
more of Gentiva's outstanding common stock in a transaction that does not
constitute a permitted acquisition proposal and Gentiva shall have
redeemed the rights issuable under its rights plan, waived or amended any
provision of its rights plan or taken any action or made any
determination favorable to such person under its rights plan.
We refer to a termination by Accredo as a result of any of the immediately
foregoing as a "Gentiva withdrawal termination."
In addition, Gentiva may also terminate the asset purchase agreement by
written notice of termination to Accredo, provided that Gentiva is not then in
material breach of any covenant or other agreement contained in the asset
purchase agreement and has not willfully breached any of its representations and
warranties contained in the asset purchase agreement, if the board of directors
of Gentiva has made a change of recommendation (as discussed in "-- Solicitation
Prohibitions") in order to approve and permit Gentiva to accept a superior offer
(as discussed in "-- Solicitation Prohibitions"); provided, however, that
- upon Accredo's request, Gentiva shall negotiate in good faith with
Accredo to modify the asset purchase agreement for three business days
after the initial notice of Gentiva's intent to terminate; and
- Gentiva shall have paid Accredo $12.5 million, less certain costs and
expenses already paid, after compliance with the foregoing and
concurrently with delivery of a final notice of termination.
We refer to a termination by Gentiva as a result of the immediately foregoing as
a "Gentiva superior offer termination."
In the event of a suspension of trading in securities on the New York Stock
Exchange or Nasdaq, a banking moratorium across the United States or the
commencement or significant acceleration of a war or armed hostilities or other
national catastrophe directly involving the United States in each case as a
result of a catastrophe similar to the World Trade Center disaster of September
11, 2001, Accredo and Gentiva have agreed to negotiate an appropriate delay of
the closing of the acquisition, but not later than June 30, 2002 or 30 days
after the scheduled stockholders' meetings of Gentiva and Accredo and, if
requested by Accredo, an
59
adjustment to the terms of the acquisition reasonably appropriate as a
consequence of the event. However, either Gentiva or Accredo may nevertheless
terminate the asset purchase agreement pursuant to any other termination
provision, as applicable, as described above. During such negotiations, which
will not exceed 30 days, the parties will not be considered in breach of the
asset purchase agreement as a result of such event. Gentiva will not be in
breach of the asset purchase agreement for failing to accept new terms proposed
by Accredo during such negotiations and Accredo will not be in breach of the
asset purchase agreement for failing to close the acquisition as a result of
such catastrophic event.
If the acquisition is terminated, the asset purchase agreement will become
void and have no effect, except that enumerated provisions of the asset purchase
agreement, including those relating to the obligations to share certain expenses
and maintain the confidentiality of certain information obtained, will survive.
Termination of the asset purchase agreement will not relieve any breaching party
from liability for any breach of the asset purchase agreement.
SOLICITATION PROHIBITIONS
The asset purchase agreement restricts Gentiva's ability to solicit other
acquisition proposals. In the asset purchase agreement, Gentiva has agreed that
it and its subsidiaries will immediately cease any and all existing activities,
discussions or negotiations with any third parties conducted prior to the date
of the asset purchase agreement with respect to any "acquisition proposal,"
which is defined in the asset purchase agreement to mean, any offer or proposal,
relating to any transaction or series of related transactions involving:
- any purchase from Gentiva, or acquisition by any person or group of more
than a 10% interest in the total outstanding voting securities of Gentiva
or any of its subsidiaries that own any of the assets of the SPS
business; or
- any tender offer or exchange offer that if consummated would result in
any person or group beneficially owning 10% or more of the total
outstanding voting securities of Gentiva or any of its subsidiaries that
own any of the assets of the SPS business; or
- any acquisition, consolidation, business combination or similar
transaction involving Gentiva or any of its subsidiaries that own any of
the assets of the SPS business; or
- any sale, lease (other than in the ordinary course of business),
exchange, transfer, license (other than in the ordinary course of
business), acquisition or disposition of more than 10% of the assets of
Gentiva and its subsidiaries; or
- any liquidation, spin-off or dissolution of the assets of the SPS
business or of Gentiva or any of its subsidiaries that own any of the
assets of the SPS business.
The asset purchase agreement also provides that neither Gentiva nor any of
its affiliates or representatives will solicit, initiate, encourage, knowingly
facilitate or induce any inquiry with respect to, or the making, submission or
announcement of, any acquisition proposal, participate in discussions or
negotiations regarding or furnish any nonpublic information with respect to any
acquisition proposal, or approve, endorse or recommend (except as specifically
permitted in the asset purchase agreement) or enter into any letter of intent or
similar agreement relating to any acquisition proposal. If Gentiva receives an
acquisition proposal or a request for non-public information which Gentiva
reasonably believes could lead to an acquisition proposal, it must notify
Accredo of the terms of such proposal within two business days.
Notwithstanding the foregoing, the asset purchase agreement provides that
an offer or proposal shall not be an acquisition proposal and may be pursued by
Gentiva, if upon receipt by Gentiva of an unsolicited acquisition proposal and
prior to any additional discussions, Gentiva informs the soliciting party of the
requirements for a "permitted acquisition proposal" and the party agrees to
pursue the transaction solely in accordance with the criteria for a permitted
acquisition proposal. A "permitted acquisition proposal" is defined to mean
either of the following proposed transactions, provided no stockholder vote on
such
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transaction is held prior to the Gentiva and Accredo stockholders' meeting for
this acquisition and such proposed transaction does not have any adverse impact
on the timing or the probability of this acquisition:
- an asset purchase, solely for the assets not being acquired by Accredo if
Gentiva and its subsidiaries agree that as a condition to the closing of
such transaction, the potential acquiror of the retained assets agrees to
be bound by Gentiva's indemnification obligations under the asset
purchase agreement; or
- an acquisition of 10% or more of Gentiva's outstanding common stock if
the potential acquiror has agreed in writing to be bound by the
provisions of the asset purchase agreement and the other agreements
contemplated by the asset purchase agreement and to vote any shares of
Gentiva common stock it holds in favor of the asset purchase agreement.
Gentiva may also provide third parties with non-public information, engage
in negotiations with, or otherwise facilitate an effort or attempt by a third
party to make or implement an acquisition proposal not solicited in violation of
the asset purchase agreement if the offer is a "superior offer," which is an
unsolicited offer to acquire, directly or indirectly, pursuant to a merger,
tender offer, exchange offer, acquisition, consolidation or other business
combination, substantially all of the assets of the SPS business and Gentiva's
home health care services business or more than 50% of the total outstanding
voting securities of Gentiva that Gentiva's board of directors determines in
good faith (following the receipt of advice from its legal and financial
advisors) is more favorable, from a financial point of view, to Gentiva's
stockholders than the acquisition (which shall be adjusted for comparison
purposes to include an implied residual enterprise value for Gentiva's assets
other than the SPS business), and that it is reasonably capable of being
consummated.
In connection with a superior offer, concurrently with furnishing any
non-public information to a third party, Gentiva's board of directors must give
Accredo written notice of its intention to provide such information, Gentiva
must receive from such third party an executed confidentiality agreement with
customary terms at least as restrictive as those contained in the
confidentiality agreement between Accredo and Gentiva, and Gentiva must provide
Accredo with any non-public information provided to the third party. In
addition, Gentiva may enter into negotiations with the third party with respect
to such superior offer, provided that concurrently with entering into
negotiations with such third party it gives Accredo written notice of its
intention to do so.
In response to the receipt of a superior offer, the board of directors of
Gentiva may withhold, withdraw, amend or modify its recommendation in favor of
the acquisition, and, in the case of a superior offer that is a tender or
exchange offer made directly to Gentiva's stockholders, may recommend that its
stockholders accept the tender or exchange offer (we refer to any of the
foregoing actions, whether by a board of directors or a committee thereof, as a
"change of recommendation"). However, the Gentiva board of directors may effect
a change in recommendation only if all of the following conditions are met at
least two days prior to a change of recommendation:
- a superior offer has been made and has not been withdrawn;
- Gentiva's stockholders' meeting has not occurred;
- Gentiva must have
- provided to Accredo written notice stating expressly (a) that it has
received a superior offer, (b) the material terms and conditions of
the superior offer and the identity of the person or group making the
superior offer and (c) that it intends to effect a change of
recommendation and the manner in which it intends to do so;
- provided to Accredo a copy of all written materials delivered to the
person or group making the superior offer in connection with such
superior offer; and
- made available to Accredo all materials and information made available
to the person or group making the superior offer in connection with
such superior offer;
- Gentiva's board of directors has concluded in good faith, after receipt
of advice of its legal counsel, that, in light of such superior offer,
the failure of the board of directors of Gentiva to effect a change of
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recommendation is reasonably likely to result in a breach of the
fiduciary obligations of Gentiva's board of directors to its stockholders
under applicable law; and
- Gentiva has not breached in any material respect the solicitation
prohibition provisions.
The obligation of Gentiva to call, give notice of, convene and hold its
stockholders' meeting is not limited or otherwise affected by the commencement,
disclosure, announcement or submission to Gentiva of any acquisition proposal
with respect to it, or by any change of recommendation. Gentiva has agreed not
to submit to the vote of its stockholders any acquisition proposal, or propose
to do so, and may not do so unless the board of directors of Gentiva has
terminated the asset purchase agreement in accordance with its terms as
discussed under "-- Waiver, Amendment, and Termination."
INDEMNIFICATION OBLIGATIONS
Gentiva and Accredo have agreed to indemnify each other for breaches of
representations and warranties of such party or the non-fulfillment of any
covenant or agreement of such party. In addition, Gentiva has agreed to
indemnify Accredo for the retained liabilities, including, without limitation,
litigation and contingent liabilities, for the failure to deliver good title to
the assets of the SPS business, and for tax liabilities. Accredo has agreed to
indemnify Gentiva for assumed liabilities and the operation of the SPS business
by Accredo after the closing of the acquisition. The representations and
warranties generally survive for the period of two years after the closing date,
except that:
- representations and warranties related to health care compliance survive
for three years after the closing date;
- representations and warranties related to title of the assets and
sufficiency of assets and employees shall survive for the applicable
statute of limitations period; and
- representations and warranties related to tax matters shall survive until
thirty days after the expiration of the applicable tax statute of
limitations period, including any extensions thereof, subject to certain
exceptions.
Accredo and Gentiva may recover indemnification for a breach of a
representation or warranty only to the extent a party's claims exceed $5,000,000
in the aggregate, subject to the following sentence, and only up to a maximum
amount of $100,000,000. If prior to reaching the $5,000,000 minimum amount, a
party incurs an individual claim for indemnification in excess of $1,000,000,
the amount of the claim that is up to $1,000,000 will be counted towards the
$5,000,000 minimum amount and will not be recoverable and the amount of the
claim that is in excess of $1,000,000 will be recoverable and will not be
counted towards the $5,000,000 minimum amount but will be counted towards the
$100,000,000 maximum amount. Accredo has agreed not to seek recourse against
Gentiva for up to $2,000,000 resulting from understatements of liabilities
(other than intentional and knowing understatements) on the actual balance
sheet, but such amounts shall be counted towards the $100,000,000 maximum
amount.
The indemnification rights are the exclusive remedy from and after the
closing of the acquisition, except for the right to seek specific performance of
any of the agreements in the asset purchase agreement, in any case where a party
is guilty of fraud in connection with the acquisition, and with respect to tax
liabilities and obligations.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE SALE OF THE SPS BUSINESS AND
DISTRIBUTION OF SPS SALE PROCEEDS
The following summary briefly describes certain material United States
federal income tax consequences, to Gentiva and its stockholders, of the sale of
the SPS business and distribution of SPS sale proceeds. This summary is based
upon the provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), and regulations, rulings and judicial decisions thereunder as now in
effect, and such authorities may be repealed, revoked or modified (possibly on a
retroactive basis) so as to result in federal income tax consequences different
from those discussed below. To the extent this summary constitutes matters of
law, this summary is
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supported by an opinion of Cahill Gordon & Reindel, counsel to Gentiva, which
will be filed as an exhibit to this joint proxy statement-prospectus. Such
opinion of counsel is based on the accuracy of each of the factual matters set
forth in this joint proxy statement-prospectus.
Except as specifically provided herein, this summary applies only to
Gentiva stockholders that are U.S. stockholders. A Gentiva stockholder is a U.S.
stockholder if, for United States federal income tax purposes, the stockholder
is (i) a citizen or resident of the U.S., (ii) a corporation which is created or
organized under the laws of the U.S. or any political subdivision thereof, (iii)
an estate, the income of which is subject to U.S. federal income tax without
regard to its source, or (iv) a trust if a court within the U.S. is able to
exercise primary supervision over the administration of the trust and one or
more U.S. persons have the authority to control all substantial decisions of the
trust or if the trust has made a valid election to be treated as a United States
person. Moreover, this summary only addresses those Gentiva stockholders that
hold their Gentiva shares as capital assets.
This summary does not address any federal alternative minimum tax
consequences or any state, local or foreign tax consequences to Gentiva or its
stockholders. In addition, this summary does not address certain tax
consequences that may be relevant to particular stockholders in light of their
personal circumstances, or to certain types of stockholders such as financial
institutions, partnerships or other pass-through entities, dealers in
securities, tax-exempt organizations, insurance companies, persons who hold
shares as part of a straddle or hedging or conversion transaction, or, except as
expressly provided below, persons who acquired their Gentiva shares pursuant to
the exercise of "incentive stock options" (within the meaning of the Code),
pursuant to Gentiva's employee stock purchase plan or otherwise as compensation.
Accordingly, we encourage each Gentiva stockholder to consult with and to
obtain the advice of his or her own tax advisor as to the tax consequences of
the sale of the SPS business and the distribution as to such stockholder.
As discussed below, the federal income tax consequences to Gentiva and its
stockholders will depend to a significant extent on the tax basis of Gentiva's
assets, the amount of Gentiva's available net operating loss carryovers and
other tax attributes and the amount of Gentiva's current and accumulated
earnings and profits through the end of calendar year 2002. Gentiva's
computations and estimates of these items have not been independently reviewed
or verified by Cahill Gordon & Reindel.
Sale of the SPS Business. Gentiva and certain of its affiliates will
recognize gain or loss on the sale of the SPS business. In general, the sale
will be a taxable sale and, assuming that a valid and timely election under
Section 338(h)(10) of the Code is made with respect to each Gentiva affiliate
that will be acquired by Accredo, Gentiva and its selling affiliates will
recognize gain or loss on the sale of each asset comprising the SPS business
equal to the difference, if any, between the "amount realized" by Gentiva or the
selling affiliate from the sale of such asset (i.e., the amount of cash plus the
fair market value (on the date of the sale of the SPS business) of Accredo
common stock received for such asset) and the adjusted tax basis of such asset.
To the extent any such gain is not offset by available net operating losses or
other tax attributes, Gentiva will be subject to corporate income tax on such
gain.
To the extent that the fair market value of the Accredo common stock when
distributed to the Gentiva stockholders differs from the fair market value of
such Accredo common stock on the date of the sale of the SPS business, any
increase in fair market value will result in additional gain to Gentiva, whereas
any decrease in fair market value will result in a non-deductible loss to
Gentiva. To the extent any gain recognized on the distribution of the Accredo
common stock to the Gentiva stockholders is not offset by available net
operating losses or other tax attributes, Gentiva will be subject to corporate
income tax on such gain.
Distribution of the Sales Proceeds to the Gentiva Stockholders. The
anticipated distribution of the sale proceeds will be treated as a dividend (and
taxable as ordinary income) to the extent that Gentiva has current or
accumulated profits through the end of Gentiva's taxable year. The amount of
Gentiva's current and accumulated earnings and profits will depend on a number
of items that cannot yet be determined including, without limitation, the amount
of gain recognized by Gentiva and its affiliates from the sale of the SPS
business and the distribution of Accredo common stock, the income or loss of
Gentiva and each of its
63
affiliates through the end of 2002 and whether Gentiva will make any
distributions during 2002 other than a distribution of proceeds from the sale of
the SPS business. Gentiva currently estimates that its current and accumulated
earnings and profits for 2002 should not exceed $100 million plus 60% of the
amount, if any, by which (1) the total cash proceeds from the sale of the SPS
business plus the fair market value (on the date of the distribution) of the
Accredo common stock being distributed exceed (2) $415 million, and may be lower
than that amount. However, Gentiva's actual current and accumulated earnings and
profits may exceed Gentiva's current estimate. Moreover, there can be no
assurance that the IRS will not successfully challenge Gentiva's computation of
its current or accumulated earnings and profits.
If the "amount" of the distribution with respect to a Gentiva share (i.e.,
the amount of cash plus the fair market value (on the date of the distribution)
of Accredo common stock being distributed with respect to such Gentiva share)
exceeds the amount of Gentiva's current and accumulated earnings and profits
attributable to such distribution, such excess will be treated first as a
tax-free return of capital that reduces the tax basis of such Gentiva share (to
the extent of such tax basis) and thereafter as capital gain. Any capital gain
recognized will be treated as long term capital gain if a stockholder has held
the Gentiva share in question for more than one year. Certain non-corporate
stockholders may be eligible for preferential tax rates with respect to any long
term capital gain. A Gentiva stockholder's tax basis in any Accredo common stock
distributed to such stockholder will equal the fair market value (on the
distribution date) of such Accredo common stock.
In the case of any Gentiva stockholder that is not a U.S. stockholder, the
distribution of the sales proceeds to such non-U.S. stockholder will generally
be subject to withholding at a rate of 30%, or such lower rate as may be
specified by an applicable income tax treaty, to the extent the distribution is
treated as a dividend. To obtain a reduced rate of withholding under a treaty, a
non-U.S. stockholder will be required to provide Gentiva with a properly
executed IRS Form W-8BEN certifying the non-U.S. stockholder's entitlement to
benefits under that treaty.
To the extent the distribution received by a corporate stockholder is
treated as a dividend, the stockholder generally will be entitled to a 70%
dividends-received deduction if the stockholder meets certain requirements
(including minimum holding period requirements), which dividends-received
deduction may be reduced or eliminated to the extent that the Gentiva shares are
considered to be "debt-financed."
A dividend received by a corporate stockholder that has held its Gentiva
shares for two years or less on the "dividend announcement date" (as defined
below) should be characterized as an "extraordinary dividend" under Section 1059
of the Code, in which event the stockholder's tax basis in its Gentiva shares
will be reduced by the amount of such stockholder's dividend-received deduction.
If the required reduction exceeds the corporate stockholder's tax basis in its
Gentiva shares, such excess will be recognized as capital gain.
The "dividend announcement date" with respect to a distribution of proceeds
from the sale of the SPS business is the date on which Gentiva "declares,
announces, or agrees to, the amount or payment of" such distribution, whichever
is the earliest. There is no clear guidance for determining the dividend
announcement date in this case, and the IRS might successfully assert that the
dividend announcement date has already occurred or will occur on some future
date prior to the date on which Gentiva formally announces or declares a
dividend of any proceeds from the sale of the SPS business. Corporate
stockholders should consult their own tax advisors to determine whether a
distribution of proceeds from the sale of the SPS business may result in an
"extraordinary dividend" to them.
In the case of any Gentiva stockholder who acquired his or her shares
through the exercise of an incentive stock option or pursuant to Gentiva's
employee stock purchase plan, the distribution may result in a "disqualifying
disposition" (within the meaning of the Code) which may result in adverse tax
consequences to the stockholder. In general, if a disqualifying disposition is
deemed to have occurred as a result of the distribution of proceeds from the
sale of the SPS business, an affected Gentiva stockholder would recognize
ordinary compensation income equal to the excess of the fair market value of the
Gentiva shares that were deemed to have been disposed (on the date such shares
were acquired) over the exercise price paid to
64
acquire such shares. Each such Gentiva stockholder should consult his or her own
tax advisor about the tax consequences of a "disqualifying disposition."
ACCOUNTING TREATMENT
Accredo will account for the acquisition under the purchase method of
accounting for business combinations. Accredo has allocated zero value to the
acute business for accounting purposes. Accredo intends to explore strategic
alternatives for the acute business. The entire purchase price has been
allocated to the chronic business of SPS.
STOCK LISTING
Accredo will use commercially reasonable efforts to cause the shares of
Accredo common stock to be issued in the acquisition to be approved for
quotation on the Nasdaq National Market, subject to official notice of issuance,
prior to the completion of the acquisition.
EXPENSES AND FEES
Except as discussed below, Accredo and Gentiva will, respectively, pay all
expenses incurred by it or on its behalf in connection with the acquisition.
Accredo and Gentiva have agreed to share equally expenses incurred in relation
to the printing and filing of the registration statement and this joint proxy
statement-prospectus and Accredo has agreed to pay the filing fees for the
filings under the HSR Act.
In the event that the asset purchase agreement is terminated in accordance
with its terms because Accredo's stockholders fail to approve the acquisition or
because Accredo has breached any representation, warranty, covenant or agreement
in the asset purchase agreement that permits Gentiva to refuse to consummate the
acquisition, Accredo has agreed to pay to Gentiva its costs and expenses
actually incurred in connection with the acquisition up to $2,500,000. In the
event that the asset purchase agreement is terminated in accordance with its
terms because Gentiva's stockholders fail to approve the sale of the SPS
business or because Gentiva has breached any representation, warranty, covenant
or agreement in the asset purchase agreement that permits Accredo to refuse to
consummate the acquisition, Gentiva has agreed to pay to Accredo its costs and
expenses actually incurred in connection with the acquisition up to $2,500,000.
In addition, Gentiva has agreed to pay Accredo a termination fee of $12.5
million, less any costs and expenses actually paid by Gentiva in accordance with
the previous paragraph, in the following circumstances:
- Either Accredo or Gentiva terminates the asset purchase agreement because
Gentiva's stockholders fail to approve the sale of the SPS business prior
to the termination of the asset purchase agreement, there has been
publicly announced an acquisition proposal and within twelve months of
such termination Gentiva shall either (i) consummate a transaction
involving an acquisition proposal relating to 50% of its or one of its
subsidiaries capital stock or assets or (ii) enter into an agreement with
respect to such transaction, whether or not such transaction is
subsequently consummated; or
- Gentiva or Accredo terminates the asset purchase agreement as a result of
the failure to consummate the acquisition by the end date or because the
conditions precedent are incapable of being fulfilled prior to the end
date and prior to the termination of the asset purchase agreement, there
has been publicly announced an acquisition proposal (provided that with
respect to a termination by Accredo due to the failure of the
satisfaction of the closing conditions regarding EBITDA or due to a
material adverse change in the financial statements of Gentiva, there
must have been publicly announced an acquisition proposal and Gentiva
must have failed to publicly disapprove without condition or
qualification such acquisition proposal and to publicly reaffirm without
condition or qualification, the acquisition), and within twelve months of
such termination Gentiva shall either (i) consummate a transaction
involving an acquisition proposal relating to 50% of its or one of its
subsidiaries capital stock or assets or (ii) enter into an agreement with
respect to such transaction, whether or not such transaction is
subsequently consummated; or
65
- Accredo terminates the asset purchase agreement because Gentiva has
failed to perform and comply in all material respects with any of its
obligations, agreements or covenants required by the asset purchase
agreement and within twelve months of such termination Gentiva shall
either (i) consummate a transaction involving an acquisition proposal
relating to 50% of its or one of its subsidiaries capital stock or assets
or (ii) enter into an agreement with respect to such transaction, whether
or not such transaction is subsequently consummated; or
- Accredo terminates the asset purchase agreement pursuant to a Gentiva
withdrawal termination discussed above under "-- Waiver, Amendment, and
Termination"; or
- Gentiva terminates the asset purchase agreement pursuant to a Gentiva
superior offer termination discussed above under "-- Waiver, Amendment,
and Termination."
If the termination fee is payable as a result of one of the first three
reasons above, the termination fee must be paid at or prior to the earlier of
the date of consummation of such acquisition transaction or the date of
execution of an agreement with respect to such acquisition transaction. If the
termination fee is payable as a result of the fourth reason above, the
termination fee must be paid upon the earlier of the date of execution of the
agreement with respect to such acquisition transaction or two business days from
the date of termination of the asset purchase agreement. If the termination fee
is payable as a result of the final reason above, the termination fee must be
paid concurrently with the delivery of the notice of termination of the asset
purchase agreement.
The parties have agreed that the payment of the fees and expenses discussed
above are liquidated damages for the breach, other than an intentional breach,
by Gentiva or Accredo of the terms of the asset purchase agreement and other
than in the event of an intentional breach of the asset purchase agreement, are
the exclusive remedy of the parties in the event of a termination of the asset
purchase agreement.
INTERESTS OF PERSONS IN THE ACQUISITION THAT DIFFER FROM GENTIVA STOCKHOLDERS
You should be aware that members of Gentiva's executive management and its
directors have interests in the acquisition that are different from, and in
addition to, the interests of other Gentiva stockholders, including the
consulting agreement and restrictive covenant agreement with Mr. Nixon, the
acceleration of vesting of options as a result of the sale of the SPS business
and cash payments pursuant to existing change in control agreements, each
described below.
Consulting Agreement and Restrictive Covenants Agreement with Mr. Robert
Nixon. Accredo has entered into a Consulting Agreement with Mr. Nixon, an
executive officer of Gentiva, pursuant to which Mr. Nixon will assist with the
transition of the SPS business and any other duties or responsibilities
consistent with such role as may be requested by the chief executive officer of
Accredo for a period of one year, or earlier, if terminated pursuant to the
consulting agreement, following the closing of the acquisition. As consideration
for the performance by Mr. Nixon of the consulting services, Accredo has agreed
to pay Mr. Nixon $400,000 in regular intervals over the course of the one-year
period following the closing of the acquisition, but in no event less frequently
than monthly. In addition, Mr. Nixon has entered into a Restrictive Covenants
Agreement containing non-competition and non-solicitation provisions similar to
those that will be entered into by Gentiva at the time of closing the
acquisition, for which Accredo will pay Mr. Nixon an additional $400,000
consisting of $200,000 to be paid upon the closing of the acquisition, $100,000
to be paid on the first anniversary following the closing of the acquisition and
$100,000 to be paid 18 months following the closing of the acquisition.
Change in Control Agreements with Certain of Gentiva's Executive
Officers. Messrs. Blechschmidt, Collura, Malone, Nixon, Christmas, Perry and
Silver and Ms. Ma are each a party to change in control agreements with Gentiva.
Because Gentiva's board of directors has determined that the sale of the SPS
business contemplated by the asset purchase agreement constitutes a "change in
control" under these change in control agreements, these officers will be
entitled to certain benefits in the event that (1) the employee's employment is
terminated by Gentiva and the termination is not for cause or is by the employee
for good reason (as specified in the agreement) and (2) the termination is
within three years after a change in control
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of Gentiva. The benefits conferred under these agreements generally include a
cash payment equal to two times the employee's base salary and target bonus,
continued benefits for two years following the termination or until such earlier
date that the employee obtains comparable benefits from another employer,
immediate vesting of any stock options held by the employee (those options would
remain exercisable for one year following the termination, but not beyond the
original full term), and full vesting of retirement and deferred compensation
benefits. Upon the closing of the sale of the SPS business or shortly
thereafter, Messrs. Blechschmidt, Collura, Christmas, Nixon and Silver and Ms.
Ma will no longer be employed by Gentiva and their change in control agreements
will be triggered. As a result of these change in control agreements, Gentiva
will be required to pay an aggregate of approximately $6.2 million on the date
of the closing of the sale of the SPS business.
Consulting Agreement with E. Rodney Hornbake, M.D. It is expected that
Gentiva will enter into a consulting agreement with Dr. Hornbake whereby he will
serve as Gentiva's chief medical officer. Pursuant to his consulting agreement,
which will expire in February 2003 and may be terminated by either party upon 30
days notice, Dr. Hornbake will receive a monthly retainer of $4,833.
Stock Options. All unvested options to purchase Gentiva common stock
granted under Gentiva's stock plans will become fully vested and exercisable
upon completion of the sale of the SPS business. Any option holder desiring to
participate in the distribution of the proceeds of the sale of the SPS business
will be required to exercise his or her options and hold Gentiva common stock on
the record date declared for the distribution (which record date is currently
anticipated to be five business days after the expected closing of the sale of
the SPS business). The exercise prices of Gentiva options outstanding after the
distribution will be adjusted on the record date of the distribution to give
effect to such distribution. As of March 18, 2002, the executive officers of
Gentiva, collectively, held options to purchase an aggregate of 995,194 shares
of Gentiva common stock pursuant to Gentiva's stock option plans, 650,201 of
which options to purchase Gentiva common stock were exercisable on or prior to
that date. In addition, as of March 18, 2002, the non-employee directors of
Gentiva, collectively, held options to purchase an aggregate of 35,000 shares of
Gentiva common stock, all of which options were exercisable on or prior to that
date. Upon the consummation of the sale of the SPS business, all of the options
held by such executive officers and directors will immediately become
exercisable in full. The treatment of options described above will be in
accordance with the applicable option plans whether an option holder is an SPS
business employee or is not an SPS business employee.
Severance Arrangements. Upon the closing of the sale of the SPS business,
Gentiva may make severance arrangements with certain employees who do not
continue employment with Gentiva, which could include payments to such
individuals.
GENTIVA TENDER OFFER FOR OUTSTANDING GENTIVA OPTIONS
Prior to the closing of the sale of the SPS business, Gentiva intends to
commence a cash tender offer for all of its outstanding options to purchase its
common stock. The tender offer will be subject to the satisfaction or waiver of
a number of conditions, including the consummation of the sale of the SPS
business. Under the terms of the tender offer, Gentiva will purchase for cash
tendered options at a purchase price to be calculated by subtracting the
applicable exercise price of the option per share from the market value per
share of Gentiva's common stock (the "option purchase price"). For this purpose,
market value will be the average of the daily closing price of Gentiva's common
stock on the Nasdaq National Market for the five trading days ending on the date
of the closing of the sale of the SPS business. It is expected that the tender
offer will expire five business days after the expected closing of the sale of
the SPS business. To the extent the aggregate option purchase price for all
options tendered exceeds $20 million, Gentiva intends to accept for payment only
such number of options which would result in an aggregate option purchase price
of as close as practicable to $20 million, reducing pro rata from each option
holder the number of options tendered. Payment for the tendered options not
validly withdrawn will be funded by Gentiva's existing cash on hand. Any
outstanding options after the tender offer will be exercisable in accordance
with Gentiva's existing applicable option plans and the exercise prices of such
options will be adjusted in accordance with Gentiva's existing applicable option
plans to give effect to the distribution of the proceeds of the sale of the SPS
business effective on the record date for the distribution of the proceeds of
the sale of the SPS business. This
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tender offer is not required by the asset purchase agreement and will be
commenced solely at the option of Gentiva.
Gentiva has not commenced the tender offer that is referred to in this
communication. Upon commencement of such offer, Gentiva will file with the
Securities and Exchange Commission a completed Schedule TO and related exhibits,
including the offer to purchase, letter of transmittal and other related
documents. Option holders are strongly encouraged to read the Schedule TO and
related exhibits, including the offer to purchase, letter of transmittal and
other related documents, when these become available because they will contain
important information about the offer. The Schedule TO and related exhibits will
be available without charge at the Securities and Exchange Commission website at
www.sec.gov and from Gentiva. Option holders who wish to obtain a copy of
Schedule TO and related exhibits from Gentiva, including the offer to purchase,
letter of transmittal and other related documents, when these become available
should contact Kimberly Herman at Gentiva Health Services, 3 Huntington
Quadrangle, 2S, Melville, NY 11747, telephone: (631) 501-7000. THIS DESCRIPTION
IS NEITHER AN OFFER TO PURCHASE NOR A SOLICITATION OF AN OFFER TO SELL
SECURITIES.
EMPLOYEE BENEFITS AND CONTRACTS
Accredo has agreed to make an offer of employment at the same salary,
position and geographic location as their current position, for each employee
who is engaged primarily in the SPS business except for up to 40 employees. For
the hired employees, Accredo has agreed to be responsible for all earned but
unpaid salary, bonus, vacation pay, sick pay, holiday pay, medical leave and
other like obligations and payments under welfare plans and compensation
programs for all periods ending on or prior to the closing date of the sale of
the SPS business, if those amounts are reserved on the actual balance sheet of
the SPS business prepared as of the closing of the acquisition/sale of the SPS
business. The asset purchase agreement requires Accredo to provide Gentiva
employees with standard employee benefits under the benefit plans offered by
Accredo to its similarly situated employees. For purposes of eligibility and
vesting Accredo will credit each hired employee under such plans with all
service credited to such employee under Gentiva's corresponding plan.
Gentiva will be responsible for severance, parachute or similar payments
owed to hired employees (as defined in the asset purchase agreement), if any, or
employees retained by Gentiva under any policy or agreement such employees have
with Gentiva. If Accredo terminates any employee it hires in the acquisition
within six months after the closing of the acquisition, Accredo has agreed to
pay severance to such employees in accordance with the severance policy of
Gentiva attached to the asset purchase agreement.
In addition, Accredo has entered into a Consulting Agreement and
Restrictive Covenants Agreement with Mr. Robert Nixon as described above in
"-- Interests of Persons in the Acquisition that Differ from Gentiva
Stockholders."
RESALES OF ACCREDO COMMON STOCK
The shares of Accredo common stock to be issued in the acquisition will be
registered under the Securities Act of 1933 and will be freely transferable
under the Securities Act, except for shares of Accredo stock issued to any
person who is deemed to be an "affiliate" of either Accredo or Gentiva at the
time of the special meetings. Persons who may be deemed to be affiliates include
individuals or entities that control, are controlled by, or under the common
control of either Accredo or Gentiva and may include executive officers and
directors, as well as significant stockholders. Affiliates may not sell their
shares of Accredo common stock acquired in connection with the acquisition or
upon the distribution except pursuant to:
- an effective registration statement under the Securities Act covering the
resale of those shares;
- an exemption under paragraph (d) of Rule 145 under the Securities Act; or
- any other applicable exemption under the Securities Act.
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Accredo's registration statement on Form S-4, of which this joint proxy
statement-prospectus forms a part, does not cover the resale of shares of
Accredo common stock to be received by affiliates in the acquisition.
DISSENTERS' RIGHTS
The proposed acquisition/sale of the SPS business is not a transaction
which entitles stockholders of Gentiva or Accredo to dissenters' rights of
appraisal under Delaware law.
RESTRICTIVE COVENANT AGREEMENTS
As a condition to the closing of the acquisition, Accredo and Gentiva will
enter into a restrictive covenant agreement pursuant to which, for a period of
seven years following the closing of the acquisition, neither Gentiva nor its
affiliates (as defined in the restrictive covenant agreements) will engage in
the business of marketing or distributing certain specified drugs, blood
clotting pharmaceuticals and related products, and certain premium drugs within
the United States and Puerto Rico, nor will they call upon, solicit or otherwise
interfere with any of Accredo's suppliers, customers or employees relating to
such business. Of the cash portion of the purchase price, $1.5 million is
consideration for this restrictive covenants agreement.
In addition, Accredo and Gentiva will enter into a separate restrictive
covenant agreement at the closing of the acquisition pursuant to which, for a
period of five years following the closing of the acquisition, neither Gentiva
nor its affiliates will engage in the business of the preparation and
administration of antibiotics, chemotherapy, nutrients and other prescription
drugs that require mixing using asceptic techniques and a laminar hood for
patients with acute or episodic diseases within the United States and Puerto
Rico, nor will they call upon, solicit or otherwise interfere with any of
Accredo's suppliers, customers or employees relating to such business. Of the
cash portion of the purchase price, $500,000 is consideration for this
restrictive covenants agreement.
Neither restrictive covenant agreement precludes Gentiva from continuing
its home health care services or CareCentrix business.
Messrs. Edward Blechschmidt, John Collura and Ronald Malone have also
entered into individual covenants not to compete similar to those to be entered
into by Gentiva which will continue for a period of one year following the
closing of the acquisition. Mr. Robert Nixon has entered into similar
restrictive covenants for the term of his consulting agreement with Accredo and
for one year thereafter for which he will be paid $400,000 over the 18-month
period following the closing of the acquisition.
VOTING AGREEMENTS
In connection with the execution and delivery of the asset purchase
agreement, certain members of the Gentiva board of directors and Gentiva's chief
executive officer entered into voting agreements with Accredo under which these
stockholders agreed to vote all their shares of Gentiva common stock in favor of
the approval of the sale of the SPS business. These stockholders also agreed to
vote all their shares of Gentiva common stock against the approval of any
transaction made in opposition to or in competition with the acquisition. As of
the record date, these stockholders owned shares of Gentiva common stock
representing an aggregate of approximately % of the total voting power of
the outstanding shares of Gentiva common stock.
The voting agreements executed by the Gentiva stockholders prohibit,
subject to limited exceptions, any stockholder from transferring or making an
arrangement to transfer any shares, except to a person who agrees to be bound by
the terms of the voting agreement.
The voting agreements terminate upon the earlier to occur of the
consummation of the acquisition or the termination of the asset purchase
agreement in accordance with its terms.
The form of voting agreement executed by Gentiva stockholders is attached
as Annex B to this joint proxy statement-prospectus.
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FINANCING
The total amount of cash and borrowings required by Accredo to complete the
acquisition, including payment to Gentiva of the cash portion of the purchase
price, refinancing of existing debt and transaction fees and expenses is
estimated to be approximately $219.5 million, but may exceed such amount due to
potential purchase price adjustments for increases in net book value of the SPS
business. Accredo has entered into a commitment letter with Bank of America,
N.A. with respect to the financing of the acquisition. Bank of America has
agreed, on the terms and subject to the conditions in the commitment letter, to
provide a senior secured credit facility of up to $275 million to Accredo. At
the option of Bank of America, but without limiting its commitment to provide
the entire credit facility, portions of the new credit facility may be provided
by other financial institutions. If the commitment letter is terminated or if
the funding under the commitment letter is reasonably likely to be unavailable
at the time of closing of the acquisition, Accredo will use its best efforts to
obtain financing from other sources. Accredo does not have a condition to
closing in the asset purchase agreement that would allow it to terminate the
asset purchase agreement if it does not obtain the financing contemplated by the
commitment letter.
The commitment is conditioned on, among other things:
- there being no material adverse conditions in the loan syndication market
or in the financial or capital markets generally that, at Bank of
America's sole discretion, would impair or prevent the syndication of the
credit facility;
- there being no change, occurrence or development that could, in Bank of
America's opinion, have a material adverse effect on the business,
assets, liabilities, operations, financial condition or prospects of
Accredo or the SPS business;
- Prior to and during the syndication of the credit facility, there not
being any competing offering, placement or arrangement of any debt
securities or bank financing by or on behalf of Accredo or the SPS
business;
- Bank of America not becoming aware after of any information or other
matter which in its judgment is inconsistent in a material and adverse
manner with any information or other matter disclosed to us prior to the
date hereof; and
- the completion of definitive documentation relating to the credit
facility (and satisfaction of any conditions in those documents) and the
consummation of the acquisition.
The commitment expires on May 31, 2002 if the acquisition has not been
completed by that time.
Senior Secured Credit Facility. Accredo expects that the senior secured
credit facility will include a $75 million revolving credit facility and two
term loan facilities, one in the amount of $75 million and the other in the
amount of $125 million. Accredo's obligations under the credit facility will be
secured by all of the capital stock of its domestic subsidiaries, 65% of the
capital stock of any future material foreign subsidiaries, and all other present
and future assets of Accredo and its subsidiaries. The revolving credit facility
and the $75 million of the term loan facility will each mature 5 years from the
closing date of the financing, while the $125 million term loan facility will
mature 7 years from the closing date of the financing. The outstanding principal
amounts of both term loan facilities are subject to scheduled amortization, and
the outstanding principal amount of the entire credit facility is subject to
mandatory prepayments of percentages of excess cash flow, such percentages being
based on the leverage ratio under the credit facility. Accredo may prepay
amounts borrowed under the credit facility at any time, without premium or
penalty (other than customary yield maintenance payments).
The interest rate applicable to the term loan facility will be, at
Accredo's option, the London Interbank Offered Rate, or LIBOR, plus a margin or
the alternate base rate, or ABR, plus a margin. The ABR is the higher of the
Bank of America prime rate or the federal funds rate plus .5%.
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The credit documents evidencing the credit facility will contain, among
other things:
- representations and warranties;
- affirmative, negative, and financial covenants; and
- events of default.
These terms have not yet been agreed upon. In addition, Accredo will
indemnify the lenders for costs, expenses and liabilities, including fees and
expenses of counsel, relating to the credit facility and the transactions
contemplated by the credit documents.
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ACCREDO HEALTH, INCORPORATED 2002 LONG-TERM INCENTIVE PLAN
On , 2002, Accredo's board of directors adopted a resolution
approving and recommending to the stockholders the Accredo Health, Incorporated
2002 Long-Term Incentive Plan. If approved by the stockholders, the plan will
become effective at the Accredo special meeting.
Accredo will reserve 2,600,000 shares of its common stock for issuance upon
the grant or exercise of awards pursuant to the plan. As of January 31, 2002,
there were approximately 200 employees, officers, and directors eligible to
participate in the plan. Accredo also maintains the Accredo Health, Incorporated
Amended and Restated Stock Option and Restricted Stock Purchase Plan and the
Accredo Health, Incorporated 1999 Long-Term Incentive Plan, under which stock
options with respect to an aggregate of 1,900,823 shares were outstanding as of
January 31, 2002. Whether or not the stockholders approve the 2002 Long-Term
Incentive Plan, Accredo may continue to grant options under these plans until
the authorized shares are depleted or until such plans otherwise expire.
A summary of the 2002 Long-Term Incentive Plan is set forth below. The
summary is qualified in its entirety by reference to the full text of the plan,
which is filed with this joint proxy statement-prospectus as Annex E.
ACCREDO'S BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF
THE 2002 LONG-TERM INCENTIVE PLAN.
SUMMARY OF THE PLAN
Purpose. The purpose of the plan is to promote Accredo's success by
linking the personal interests of its employees, officers, directors and
consultants to those of is stockholders, and by providing participants with an
incentive for outstanding performance.
Permissible Awards. The plan authorizes the granting of awards in the form
of options to purchase shares of common stock (which may be either incentive
stock options or non-qualified stock options), as well as restricted stock.
Limitations on Awards. No more than 10% of the shares authorized under the
plan may be granted as restricted stock awards, and the maximum fair market
value (measured as of the date of grant) of any restricted stock awards that may
be received by any one person (less any consideration paid by the person for
such award) during any one calendar year under the plan is $2,000,000. The
maximum number of shares of common stock with respect to one or more options
that may be granted during any one calendar year under the plan to any one
person is 500,000.
Administration. The plan will be administered by the compensation
committee of Accredo's board of directors. The committee has the authority to,
among other things:
- designate participants in the plan;
- determine the type of awards to be granted to each participant, and the
number, terms, and conditions of the awards;
- establish any rules and regulations which it deems advisable to
administer the plan;
- accelerate the vesting or lapse of restrictions of any outstanding award;
and
- adopt modifications, procedures, and subplans in order to comply with
provisions of the laws of non-U.S. jurisdictions in which Accredo (or any
parent or subsidiary company) may operate.
Accredo's board of directors may at any time administer the plan. If it does so,
it will have all the powers of the committee. In addition, the committee may
delegate to one or more officers the ability to grant a limited number of awards
under the plan to non-executive employees.
Stock Options. The committee is authorized to grant incentive stock
options or non-qualified stock options under the plan. The terms of an incentive
stock option must meet the requirements of Section 422 of
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the Code. The exercise price of an option may not be less than the fair market
value of the underlying stock on the date of grant, and no option may have a
term of more than 10 years.
Restricted Stock Awards. The committee may make awards of restricted stock
to participants, which will be subject to restrictions on transferability and
other restrictions as the committee may impose (including, without limitation,
limitations on the right to vote restricted stock or the right to receive
dividends, if any, on the restricted stock).
Performance Goals. The committee may designate any award as a qualified
performance-based award in order to make the award fully deductible without
regard to the $1,000,000 deduction limit imposed by Code Section 162(m). If an
award is so designated, the committee must establish objectively determinable
performance goals for the award based on one or more of the following
performance criteria:
- the achievement by Accredo (or a parent or subsidiary company) of a
specified target return, or target growth in return, on equity or assets;
- the achievement by Accredo (or a parent or subsidiary company) of a
specified target total; stockholder return (stock price appreciation plus
reinvested dividends), or target growth in total stockholder return;
- Accredo's (or a parent or subsidiary company's) stock price;
- the achievement by an individual or a business unit of Accredo (or a
parent or subsidiary company) of a specified target, or target growth in,
revenues, net income or earnings per share; or
- any combination of the goals set forth above.
The committee must establish such goals prior to the beginning of the
period for which such performance goal relates (or such later date as may be
permitted under applicable tax regulations), and the committee may for any
reason reduce (but not increase) any award, notwithstanding the achievement of a
specified goal. Any payment of an award granted with performance goals will be
conditioned on the written certification of the committee in each case that the
performance goals and any other material conditions were satisfied.
The plan is intended to comply with Code Section 162(m) so that the grant
of options under the plan will be excluded from the calculation of annual
compensation for purposes of Code Section 162(m) and will be fully deductible by
Accredo, whether or not the vesting of such options is based upon the
performance goals.
Limitations on Transfer; Beneficiaries. No award will be assignable or
transferable by a participant other than by will or the laws of descent and
distribution or, except in the case of an incentive stock option, pursuant to a
qualified domestic relations order; provided, however, that the committee may
(but need not) permit other transfers where the committee concludes that such
transferability does not result in accelerated taxation, does not cause any
option intended to be an incentive stock option to fail to qualify as such, and
is otherwise appropriate and desirable, taking into account any factors deemed
relevant, including without limitation, any state or federal tax or securities
laws or regulations applicable to transferable awards. A participant may, in the
manner determined by the committee, designate a beneficiary to exercise his or
her rights and to receive any distribution with respect to any award upon his or
her death.
Acceleration Upon Certain Events. Unless otherwise provided in an award
agreement, upon a change in control of Accredo (as defined in the plan) or upon
a participant's retirement, death, or disability, all of the participant's
outstanding options issued under the plan will become fully exercisable, and all
restrictions on restricted stock awards will lapse. Following the acceleration
of vesting, the options will continue or lapse in accordance with the other
provisions of the plan and the award agreement. In addition, the committee may
in its discretion at any time declare any or all awards to be fully vested, and
it may distinguish between participants and among awards in exercising such
discretion.
Adjustments. In the event of a stock split, a dividend payable in shares
of Accredo stock, or a combination or consolidation of Accredo stock into a
lesser number of shares, the aggregate and annual authorization limits in the
plan will automatically be adjusted proportionately, and the shares then subject
to each award will automatically be adjusted proportionately without any change
in the aggregate purchase price
73
for such award. If Accredo is involved in a corporate transaction or event that
affects its common stock, such as an extraordinary cash dividend,
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination or exchange of shares, the aggregate and annual share authorization
limits under the plan will be adjusted proportionately, and the committee may
adjust outstanding awards to preserve the benefits or potential benefits of the
awards.
TERMINATION AND AMENDMENT
Accredo's board of directors or the committee may, at any time and from
time to time, terminate, amend, or modify the plan without stockholder approval,
but they may condition any amendment on the approval of Accredo stockholders if
such approval is necessary or desirable under tax, securities, or other
applicable laws, policies, or regulations. No termination or amendment of the
plan may adversely affect any award previously granted under the plan without
the written consent of the participant. The committee may amend or terminate
outstanding awards issued under the plan, but any such amendment that reduces or
diminishes the value of an award determined as if the award had been exercised,
vested, cashed in, or otherwise settled on the date of such amendment or
termination will require the consent of the participant. Unless approved by
Accredo's stockholders, however, the original term of an option may not be
extended and the exercise price of an outstanding option may not be directly or
indirectly reduced, except as otherwise permitted by the antidilution provisions
of the plan.
CERTAIN FEDERAL TAX EFFECTS
Nonqualified Stock Options. There will be no federal income tax
consequences to the optionee or to Accredo upon the grant of a nonqualified
stock option under the plan. When the optionee exercises a nonqualified option,
however, he or she will realize ordinary income in an amount equal to the excess
of the fair market value of the common stock received upon exercise of the
option at the time of exercise over the exercise price, and Accredo will be
allowed a corresponding deduction. Any gain that the optionee realizes when he
or she later sells or disposes of the option shares will be short-term or
long-term capital gain, depending on how long the shares were held.
Incentive Stock Options. There typically will be no federal income tax
consequences to the optionee or to Accredo upon the grant or exercise of an
incentive stock option. If the optionee holds the option shares for the required
holding period of at least two years after the date the option was granted or
one year after exercise, the difference between the exercise price and the
amount realized upon sale or disposition of the option shares will be long-term
capital gain or loss, and Accredo will not be entitled to a federal income tax
deduction. If the optionee disposes of the option shares in a sale, exchange, or
other disqualifying disposition before the required holding period ends, he or
she will realize taxable ordinary income in an amount equal to the excess of (a)
the fair market value of the option shares at the time of exercise, or (b) the
sales price, whichever is less, over the exercise price, and Accredo will be
allowed a federal income tax deduction equal to such amount. Any additional gain
will be taxed as long-term or short-term capital gain, depending on how long the
stock was held. While the exercise of an incentive stock option does not result
in current taxable income, the excess of the fair market value of the option
shares at the time of exercise over the exercise price will be an item of
adjustment for purposes of determining the optionee's alternative minimum
taxable income.
Transfers of Options. The committee may, but is not required to, permit
the transfer of nonqualified stock options granted under the plan. Based on
current tax and securities regulations, such transfers, if permitted, are likely
to be limited to gifts to members of the optionee's immediate family or certain
entities controlled by the optionee or such family members. The following
paragraphs summarize the likely income, estate, and gift tax consequences to the
optionee, Accredo, and any transferees, under present federal tax regulations,
upon the transfer and exercise of such options. In the event that options are
deemed to be transferred in an arms'-length exchange, the tax effects will be
different.
Federal Income Tax. There will be no federal income tax consequences to
the optionee, Accredo, or the transferee upon the transfer of a nonqualified
stock option. However, the optionee will recognize ordinary
74
income when the transferee exercises the option, in an amount equal to the
excess of the fair market value of the option shares upon the exercise of such
option over the exercise price, and Accredo will be allowed a corresponding
deduction. The gain, if any, realized upon the transferee's subsequent sale or
disposition of the option shares will constitute short-term or long-term capital
gain to the transferee, depending on the transferee's holding period. The
transferee's basis in the stock will be the fair market value of such stock at
the time of exercise of the option.
Federal Estate and Gift Tax. If an optionee transfers a nonqualified stock
option to a transferee during the optionee's life but before the option has
become exercisable, the optionee will not be treated as having made a completed
gift for federal gift tax purposes until the option becomes exercisable.
However, if the optionee transfers a fully exercisable option during the
optionee's life, he or she will be treated as having made a completed gift for
federal gift tax purposes at the time of the transfer. If the optionee transfers
an option to a transferee by reason of death, the option will be included in the
decedent's gross estate for federal estate tax purposes. The value of such
option for federal estate or gift tax purposes may be determined using a
"Black-Scholes" or other appropriate option pricing methodology, in accordance
with IRS requirements.
Restricted Stock. Unless a participant makes an election to accelerate
recognition of the income to the date of grant as described below, the
participant will not recognize income, and Accredo will not be allowed a tax
deduction, at the time a restricted stock award is granted. When the
restrictions lapse, the participant will recognize ordinary income equal to the
fair market value of the common stock as of that date (less any amount he or she
paid for the stock), and Accredo will be allowed a corresponding federal income
tax deduction at that time, subject to any applicable limitations under Code
Section 162(m). If the participant files an election under Code Section 83(b)
within 30 days after the date of grant of the restricted stock, he or she will
recognize ordinary income as of the date of grant equal to the fair market value
of the stock as of that date (less any amount paid for the stock), determined as
if the stock was not restricted, and Accredo will be allowed a corresponding
federal income tax deduction at that time, subject to any applicable limitations
under Code Section 162(m). Any future appreciation in the stock will be taxable
to the participant at capital gains rates. However, if the stock is later
forfeited, the participant will not be able to recover the tax previously paid
pursuant to the Code Section 83(b) election.
BENEFITS TO NAMED EXECUTIVE OFFICERS AND OTHERS
As of , 2002, no awards had been granted or approved for grant
under the plan. Any future awards will be made at the discretion of the
committee. Therefore, it is not presently possible to determine the benefits or
amounts that will be received by any individuals or groups pursuant to the plan
in the future.
75
AMENDMENT TO ACCREDO CERTIFICATE OF INCORPORATION
The board of directors of Accredo has adopted, subject to stockholder
approval at the Accredo stockholders' special meeting, an amendment to Accredo's
Amended and Restated Certificate of Incorporation to increase the number of
authorized shares of Accredo common stock from 50,000,000 to 100,000,000. Other
than the change to the number of authorized shares of Accredo common stock, the
relative rights and limitations of the Accredo common stock would remain
unchanged under this amendment. The Accredo common stock does not have
preemptive rights. The proposed increase in the number of authorized shares of
Accredo common stock is for the reasons set forth below, and is not required
for, nor is it a condition to, the issuance of the shares of Accredo common
stock in the acquisition.
As of the Accredo record date, Accredo had shares of common stock
outstanding. In addition, approximately shares of Accredo common stock
were reserved for issuance under Accredo's stock plans. Therefore, as of
,2002, approximately shares of Accredo common stock were unissued and
not reserved for issuance. If the Accredo stockholders approve the issuance of
the shares of Accredo common stock in the acquisition and the acquisition is
otherwise consummated, and if the Accredo stockholders approve the adoption of
2002 Long-Term Incentive Plan, up to approximately an additional 6,693,548
shares of common stock would be issued in the acquisition of the SPS business
and an additional 2,600,000 shares would be reserved for issuance under the 2002
Long-Term Incentive Plan, leaving approximately shares of Accredo common
stock unissued and not reserved for issuance.
The Accredo board of directors believes that the proposed amendment to
increase the authorized common shares would provide several long-term advantages
to Accredo and its stockholders. The proposed increase in the number of
authorized shares of Accredo common stock will provide Accredo with flexibility
in possible future transactions approved by the Accredo board of directors,
including, but not limited to stock splits, stock dividends, mergers,
acquisitions, financings, issuances under Accredo stock plans and other
corporate purposes. The Accredo board of directors believes the availability of
such additional shares of Accredo common stock for such purposes without delay
or the necessity for a special stockholders meeting (except as may be required
by applicable law or regulatory authorities or by the rules of the Nasdaq
National Market or the rules of any stock exchange on which Accredo common stock
may then be listed) will be beneficial to Accredo by providing it with the
flexibility required to consider and respond to future business opportunities
and needs as they arise. The availability of additional shares of authorized
common stock will allow Accredo to act promptly if and when the Accredo board of
directors determines that the issuance of additional shares is advisable.
Except for shares of Accredo common stock to be issued upon approval and
consummation of the acquisition and reserved for issuance under Accredo's stock
plans, the board of directors of Accredo has no current plans for the use of
additional shares. However, Accredo frequently reviews and evaluates acquisition
candidates, although other than the acquisition of the SPS business, Accredo is
not currently a party to any definitive agreement or letter of intent regarding
any additional material acquisition that it considers probable.
The proposed increase in the authorized number of shares of Accredo common
stock could have a number of effects on the stockholders of Accredo depending on
the exact nature and circumstances of any actual issuances of any authorized but
unissued shares. The increase could have an anti-takeover effect, in that
additional shares could be issued (within the limits imposed by applicable law)
in one or more transactions that could make a change in control or takeover of
Accredo more difficult. For example, additional shares could be issued by
Accredo so as to dilute the stock ownership or voting rights of persons seeking
to obtain control of Accredo. Similarly, the issuance of additional shares to
certain persons allied with Accredo's management could have the effect of making
it more difficult to remove Accredo's current management by diluting the stock
ownership or voting rights of persons seeking to cause such removal. Shares of
Accredo common stock may be issued at a time and under circumstances that may
increase or decrease earnings per share and increase or decrease the book value
per share of shares presently held. Additional issuances of Accredo common stock
could also effect the market price of the Accredo common stock.
The increase in the number of authorized shares of common stock is not a
condition to consummation of the acquisition of the SPS business. If the
acquisition of the SPS business is approved but the increase in the
76
number of authorized shares of common stock is not approved, the acquisition of
the SPS business will be consummated by Accredo unless terminated for other
reasons in accordance with the asset purchase agreement. If the acquisition of
the SPS business is not approved but the increase in the number of authorized
shares of common stock is approved, the amendment to the certificate of
incorporation of Accredo will be implemented by Accredo and the increase in the
number of shares of Accredo common stock will be effected.
If the amendment is approved, the first sentence of Article IV of the
Accredo certificate of incorporation would be amended to read as follows:
The total number of shares of all classes of stock which the Corporation
shall have authority to issue is 105,000,000 shares, consisting of (a)
5,000,000 shares of preferred stock, $1.000 par value, which shares
shall be issued from time to time in one or more series, at the
discretion of the Board of Directors (the "Undesignated Preferred
Stock"), and (b) 100,000,000 shares of Common Stock, $.01 par value
("Common Stock").
The only change to Article IV of the certificate of incorporation that
would be effected if the amendment is approved is the change set forth in bold
face type above. Currently, the Accredo certificate of incorporation provides
that the maximum number of authorized shares of Accredo common stock is
50,000,000. All other portions of Article IV of the Accredo certificate of
incorporation would remain unchanged.
The Accredo board of directors recommends that the stockholders of Accredo
vote FOR the amendment to the certificate of incorporation to increase the
number of authorized shares of common stock.
77
ACCREDO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated balance sheet as
of September 30, 2001, gives effect to the acquisition of the SPS business as if
the acquisition had been completed as of September 30, 2001. The following
unaudited pro forma condensed consolidated statements of income for the year
ended June 30, 2001 and the three months ended September 30, 2001, give effect
to the acquisition of the SPS business as if the acquisition had been completed
as of July 1, 2000.
The unaudited pro forma condensed consolidated financial information
presented herein does not purport to represent the results Accredo would have
obtained had the acquisition of the SPS business, in fact, occurred at the
beginning of the period presented or to project Accredo's results of operations
in any future period. The pro forma adjustments are based upon estimates,
available information and certain assumptions that management deems appropriate
and are not necessarily indicative of the results that may be expected in the
future. The unaudited pro forma condensed financial statements are based upon
the selected historical financial data for the SPS business, consistently
presented with Gentiva's reporting of segments since its reclassification of
segments as of fiscal 2001. The unaudited pro forma condensed financial
statements should be read in conjunction with the audited consolidated financial
statements of Accredo included in its Annual Report on Form 10-K for the year
ended June 30, 2001, the unaudited condensed consolidated financial statements
of Accredo included in its Quarterly Report on Form 10-Q for the period ended
September 30, 2001 and the audited financial statements of the SPS division
included elsewhere in this joint proxy statement-prospectus.
ACCREDO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001
<Table>
<Caption>
GENTIVA'S
ACCREDO SPS PRO FORMA PRO FORMA
HEALTH DIVISION ADJUSTMENTS CONSOLIDATED
----------- ---------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues:
Net patient service revenue.... $ 122,295 $ 170,985 $ 293,280
Other revenue.................. 3,907 1,755 5,662
Equity in net income of joint
ventures.................... 446 0 446
----------- ---------- --------- -----------
Total revenues.............. 126,648 172,740 0 299,388
Operating expenses:
Cost of services............... 107,012 120,056 227,068
General and administrative..... 8,481 34,068 42,549
Bad debts...................... 1,055 7,200 8,255
Depreciation and
amortization................ 691 1,847 993(a) 3,531
----------- ---------- --------- -----------
Total operating expenses.... 117,239 163,171 993 281,403
----------- ---------- --------- -----------
Operating income................. 9,409 9,569 (993) 17,985
Interest expense (income), net... (514) 55 2,566(b) 2,107
----------- ---------- --------- -----------
Income before minority interest
in income of consolidated joint
venture and income taxes....... 9,923 9,514 (3,559) 15,878
Minority interest in income of
consolidated joint venture..... (319) 0 (319)
----------- ---------- --------- -----------
Income before income taxes....... 9,604 9,514 (3,559) 15,559
Income tax expense............... 3,727 3,723 (1,370)(c) 6,080
----------- ---------- --------- -----------
Net income to common
stockholders................... $ 5,877 $ 5,791 $ (2,189) $ 9,479
=========== ========== ========= ===========
</Table>
78
<Table>
<Caption>
GENTIVA'S
ACCREDO SPS PRO FORMA PRO FORMA
HEALTH DIVISION ADJUSTMENTS CONSOLIDATED
----------- ---------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Weighted average number of shares
Basic.......................... 25,996,817 5,763,889(e) 31,760,706
Diluted........................ 26,848,897 5,763,889(e) 32,612,786
Earnings per common share
Basic.......................... $ 0.23 $ 0.30
Diluted........................ $ 0.22 $ 0.29
</Table>
ACCREDO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
FOR THE YEAR ENDED JUNE 30, 2001
<Table>
<Caption>
GENTIVA'S
ACCREDO SPS PRO FORMA PRO FORMA
HEALTH DIVISION(1) ADJUSTMENTS CONSOLIDATED
----------- ----------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues:
Net patient service revenue..... $ 446,007 $723,160 $ 1,169,167
Other revenue................... 14,985 7,622 22,607
Equity in net income of joint
ventures..................... 1,148 0 1,148
----------- -------- ---------- -----------
Total revenues............... 462,140 730,782 0 1,192,922
Operating expenses:
Cost of services................ 395,365 519,532 914,897
General and administrative...... 29,871 142,730 172,601
Bad debts....................... 6,131 26,851 32,982
Depreciation and amortization... 4,263 8,023 3,971(a) 16,257
----------- -------- ---------- -----------
Total operating expenses..... 435,630 697,136 3,971 1,136,737
----------- -------- ---------- -----------
Operating income.................. 26,510 33,646 (3,971) 56,185
Interest expense (income), net.... (2,770) 1,868 9,553(b) 8,651
----------- -------- ---------- -----------
Income before minority interest in
income of consolidated joint
venture and income taxes........ 29,280 31,778 (13,524) 47,534
Minority interest in income of
consolidated joint venture...... (692) 0 0 (692)
----------- -------- ---------- -----------
Income before income taxes........ 28,588 31,778 (13,524) 46,842
Income tax expense................ 11,333 12,407 (5,207)(c) 18,533
----------- -------- ---------- -----------
Net income to common
stockholders.................... $ 17,255 $ 19,371 $ (8,317) $ 28,309
=========== ======== ========== ===========
Weighted average number of shares
Basic........................... 24,994,496 5,763,889(e) 30,758,385
Diluted......................... 26,125,529 5,763,889(e) 31,889,418
Earnings per common share
Basic........................... $ 0.69 $ 0.92
Diluted......................... $ 0.66 $ 0.89
</Table>
- ---------------
(1) Information is derived from the SPS business statement of operations for the
nine months ended September 30, 2001, included in this joint proxy
statement-prospectus, plus the unaudited results of operations for the three
months ended December 31, 2000.
79
ACCREDO PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 2001
<Table>
<Caption>
GENTIVA'S
ACCREDO SPS PRO FORMA PRO FORMA
HEALTH DIVISION ADJUSTMENTS CONSOLIDATED
-------- --------- ----------- ------------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents........................... $ 53,324 $ 18 $ 53,342
Marketable securities............................... 5,500 0 5,500
Receivables:
Patients accounts................................. 92,007 314,257 406,264
Allowance for doubtful accounts................... (11,477) (77,566) (89,043)
-------- -------- -------- --------
80,530 236,691 0 317,221
Due from affiliates............................... 2,352 0 2,352
Other............................................. 14,251 0 14,251
-------- -------- -------- --------
97,133 236,691 0 333,824
Inventories......................................... 33,797 47,683 81,480
Prepaid expenses and other current assets........... 995 2,729 3,724
Deferred income taxes............................... 5,016 0 5,016
-------- -------- -------- --------
Total current assets......................... 195,765 287,121 0 482,886
Property and equipment, net........................... 10,081 13,536 23,617
Other assets:
Joint venture investments........................... 3,256 0 3,256
Goodwill, net....................................... 89,499 3,309 163,123(d) 255,931
Other intangible assets, net........................ 3,364 0 22,190(d) 25,554
Other assets........................................ 0 1,892 1,892
-------- -------- -------- --------
Total assets................................. $301,965 $305,858 $185,313 $793,136
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................... $ 92,678 $ 48,797 $141,475
Accrued expenses.................................... 5,729 5,918 11,647
Income taxes payable................................ 2,470 2,470
-------- -------- -------- --------
Total current liabilities.................... 100,877 54,715 0 155,592
Deferred income taxes................................. 2,301 2,301
Other liabilities..................................... 0 1,756 1,756
Minority interest in consolidated joint venture....... 1,321 1,321
Long-term debt........................................ 227,200(e) 227,200
Stockholders' equity:
Undesignated Preferred Stock, 5,000,000 shares
authorized, no shares issued...................... 0 0 0
Common stock, $.01 par value; 50,000,000 shares
authorized; 26,042,753 shares issued and
outstanding at September 30, 2001, and 31,806,642
shares issued and outstanding on a pro forma basis
giving effect to the transaction.................. 260 58(e) 318
Additional paid-in capital.......................... 163,509 207,442(e) 370,951
Retained earnings................................... 33,697 249,387 (249,387)(d) 33,697
-------- -------- -------- --------
Total stockholders' equity................... 197,466 249,387 (41,887) 404,966
-------- -------- -------- --------
Total liabilities and stockholders' equity... $301,965 $305,858 $185,313 $793,136
======== ======== ======== ========
</Table>
80
- ---------------
NOTES TO ACCREDO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Income statements pro forma adjustments:
(a) Adjustment to reflect the net increase in amortization expense relating to
the other intangible assets recorded for the acquisition under the
purchase method of accounting. The other intangible assets are estimated
to be $14.5 million for acquired patient population, $2.0 million for
non-compete agreements and $5.7 million for loan fees. These assets are
being amortized using the straight-line method over their estimated useful
lives of five to seven years. The balance of the purchase price has been
allocated to goodwill, which is not amortized in accordance with the
provisions of the Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets but will be subject to annual
impairment tests.
(b) Adjustment to reflect the additional interest expense related to the debt
used to finance the acquisition. The senior secured credit facility will
include a $75 million revolving credit facility and two term loan
facilities, one in the amount of $75 million and the other in the amount
of $125 million. The revolving credit facility and the $75 million term
loan facility will each mature 5 years from the closing date of the
financing and the $125 million term loan facility will mature 7 years from
the closing date of the financing. The interest rate will be variable
based upon, at Accredo's option, either the London Interbank Offered Rate
(LIBOR), plus a margin, or the alternate base rate (ABR), plus a margin.
The ABR is the higher of the Bank of America prime rate or the federal
funds rate plus .5%. The adjustment for interest expense in the pro forma
income statements reflects the interest rate that would currently be in
effect based upon the terms of the senior secured credit facility, which
is 4.133% for the revolving credit facility and the $75 million term loan
and 4.633% for the $125 million term loan.
If the interest rate were .125% higher, pro forma net income would have
been $145,000 lower for the year ended June 30, 2001 and $34,000 lower for
the three months ended September 30, 2001.
(c) Adjustment to reflect a combined federal and state tax rate of 38.5% on
the pro forma adjustments.
Balance sheet pro forma adjustments:
(d) Adjustments to reflect the purchase of the SPS business for $415 million,
subject to adjustment, plus acquisition and related exit costs of
approximately $19.7 million. The purchase price has been preliminarily
allocated to net assets acquired of $249.4 million, other intangible
assets of $22.2 million and goodwill of $163.1 million.
(e) Adjustments to reflect the issuance of 5,763,889 shares of common stock
(par value of $.01 per share) at a price of $36 per share and the
borrowing of $227.2 million to purchase the SPS division and pay the
estimated acquisition and related exit costs.
The number of shares of Accredo common stock to be issued will be equal to
one-half of the purchase price divided by the average closing price for Accredo
common stock for the 20 trading days ending on the second business day prior to
the closing of the acquisition. However, if the average closing price is greater
than $41 per share, the number of shares to be issued will be equal to one-half
of the purchase price divided by $41, or 5,060,976. If the average closing price
is less than $31 per share, the number of shares issued will be equal to
one-half of the purchase price divided by $31, or 6,693,548. The adjustment
reflects the issuance of 5,763,889 shares of common stock (par value of $.01 per
share) at a price of $36 per share, which is the average of the high and low
ends of the range since the measurement date has not been fixed.
81
The following table reflects the pro forma earnings per share information
based upon the issuance of the common stock at the high and low ends of the
range:
<Table>
<Caption>
$41 PER SHARE $31 PER SHARE
------------- -------------
For the year ended June 30, 2001
Weighted average number of shares
Basic.................................................. 30,055,472 31,688,044
Diluted................................................ 31,186,505 32,819,077
Earnings per common share
Basic.................................................. $ 0.94 $ 0.89
Diluted................................................ $ 0.91 $ 0.86
For the three months ended September 30, 2001
Weighted average number of shares
Basic.................................................. 31,057,793 32,690,365
Diluted................................................ 31,909,873 33,542,445
Earnings per common share
Basic.................................................. $ 0.31 $ 0.29
Diluted................................................ $ 0.30 $ 0.28
</Table>
82
GENTIVA HEALTH SERVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following data provides unaudited pro forma consolidated financial data
of Gentiva as of and for the nine months ended September 30, 2001 and for the
years ended December 31, 2000, January 2, 2000 and January 3, 1999. The data
reflects adjustments to the historical consolidated financial information of
Gentiva to give effect to the sale of the SPS business. For purposes of the
following unaudited pro forma consolidated financial data, the selected
historical financial data for the SPS business is consistent for all periods
presented with Gentiva's reclassification of reportable segments which was
effective as of fiscal 2001.
The unaudited pro forma consolidated financial statements have been
prepared assuming that the sale of Gentiva's SPS business and related
transactions occurred as of the date of the balance sheet, for purposes of the
unaudited pro forma consolidated balance sheet, and as of the first day of
fiscal 1998, for purposes of the unaudited pro forma consolidated statements of
operations.
The unaudited pro forma financial statements are based upon estimates,
available information and certain assumptions that Gentiva management deem
appropriate and do not necessarily reflect the consolidated results of
operations or financial position that would have existed had the sale of the SPS
business been effective on the date specified nor are they necessarily
indicative of future results. The unaudited pro forma consolidated financial
statements and adjustments should be read with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Gentiva's
historical consolidated financial statements and the notes to the financial
statements which are incorporated by reference in the joint proxy
statement-prospectus.
83
GENTIVA HEALTH SERVICES, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 2001
<Table>
<Caption>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(IN THOUSANDS)
ASSETS
Current assets
Cash................................................... $ 83,586 $ (18)(1) $ 83,568
Accounts receivables
Gross................................................ 456,559 (314,257)(1) 155,619
13,317(2)
Allowance for doubtful accounts...................... (90,256) 77,566(1) (12,690)
--------- --------- ---------
Net.................................................. 366,303 (223,374) 142,929
Inventories............................................ 48,709 (47,683)(1) 1,026
Prepaid expenses and other current assets.............. 47,100 (2,729)(1) 44,371
--------- --------- ---------
Total current assets............................ 545,698 (273,804) 271,894
Fixed assets, net........................................ 30,939 (13,536)(1) 17,403
Goodwill, net of accumulated amortization................ 222,886 (3,309)(1) 219,577
Other assets............................................. 16,069 (1,892)(1) 14,177
--------- --------- ---------
Total assets........................................... $ 815,592 $(292,541) $ 523,051
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable....................................... $ 57,552 $ (48,797)(1) $ 8,755
Accrued expenses....................................... 57,031 (1,727)(1) 68,621
13,317(2)
Payroll and related taxes.............................. 13,029 (2,444)(1) 10,585
Insurance costs........................................ 29,771 (1,747)(1) 28,024
--------- --------- ---------
Total current liabilities....................... 157,383 (41,398) 115,985
Deferred taxes and other liabilities..................... 46,249 (1,756)(1) 44,493
--------- --------- ---------
Total liabilities............................... 203,632 (43,154) 160,478
Stockholders' equity..................................... 611,960 (249,387)(1) 362,573
--------- --------- ---------
Total liabilities and stockholders' equity...... $ 815,592 $(292,541) $ 523,051
========= ========= =========
</Table>
- ---------------
NOTES
(1) Adjustments to reflect the sale of the net assets of the SPS business,
assuming that the sale of the SPS business and the distribution of
substantially all of the proceeds from the sale had occurred as of the
balance sheet date. The following summary reconciles the distribution of the
sale proceeds to Gentiva stockholders and the change in stockholders'
equity:
<Table>
Distribution of sale proceeds:
Cash consideration........................................ $ 207,500
Value of Accredo common stock............................. 207,500
---------
Total distribution........................................ 415,000
Gain on sale of the SPS business............................ (165,613)
---------
Change in stockholders' equity.............................. $ 249,387
=========
</Table>
The value of Accredo common stock is computed under the assumption that the
average closing price for the Accredo common stock for the 20 trading days
ending on the second business day prior to the closing of the transaction is
between $31 and $41 per share and that the number of shares of Accredo
common stock to be issued will be determined at the closing date to result
in a value of $207.5 million. The gain on the sale of the SPS business is
excluded from the accompanying statement of operations for the nine months
ended September 30, 2001.
(2) Adjustment to add back the intersegment elimination of receivables and
accrued expenses between the SPS business and the home health care services
business.
84
GENTIVA HEALTH SERVICES, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2001
<Table>
<Caption>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net revenues............................................ $1,020,884 $(546,955)(1) $ 540,818
66,889(2)
Cost of services sold................................... 678,719 (389,503)(1) 356,105
66,889(2)
---------- --------- ---------
Gross profit.......................................... 342,165 (157,452) 184,713
Selling, general and administrative expenses............ 326,096 (126,967)(3) 199,129(6)
Interest expense, net................................... 267 (165)(4) 102
---------- --------- ---------
Income (loss) before income taxes....................... 15,802 (30,320) (14,518)
Income tax expense (benefit)............................ 1,125 (1,618)(5) (493)
---------- --------- ---------
Net income (loss)..................................... $ 14,677 $ (28,702) $ (14,025)
========== ========= =========
Net income (loss) per share:
Basic................................................. $ 0.65 $ (0.62)
Diluted............................................... $ 0.61 $ (0.62)
Average shares outstanding:
Basic................................................. 22,442 22,442
Diluted............................................... 25,746 22,442
</Table>
- ---------------
NOTES
(1) Adjustment to eliminate net revenues and cost of services sold of the SPS
business, assuming that the sale had occurred as of the first day of fiscal
1998.
(2) Adjustment to add back to net revenue and cost of services sold amounts for
the intersegment elimination between the SPS business and the home health
care services business which were reflected in the historical financial
statements. This adjustment is required to reflect the net revenues and cost
of services sold of Gentiva, after excluding the SPS business.
(3) Adjustment to reflect the elimination of selling, general and administrative
expenses which are directly attributable to the operations of the SPS
business. Such expenses include field administrative costs, the provision
for doubtful accounts, depreciation and amortization and corporate office
support costs. The selling, general and administrative expenses which are
eliminated do not include any allocation of corporate overhead costs which
do not have a direct benefit on the SPS operations.
(4) Adjustment to reflect the elimination of interest expense, net attributable
to the SPS business. Interest expense, net was allocated to the SPS division
based on the ratio of SPS's net assets to the sum of total net assets plus
consolidated debt for Gentiva.
(5) Adjustment to eliminate income tax expense attributable to the SPS business
based on its inclusion in the consolidated tax return of Gentiva.
(6) Selling, general and administrative expenses on a pro forma basis represent
the following (in thousands):
<Table>
Field administrative costs.................................. $140,828
Provision for doubtful accounts............................. 4,429
Corporate expenses.......................................... 36,662
Depreciation................................................ 6,648
Amortization................................................ 7,551
Special charges -- legal settlements........................ 3,011
--------
Total..................................................... $199,129
========
</Table>
Selling, general and administrative expenses on a pro forma basis do not
include any adjustments relating to potential costs savings of field
administrative costs and corporate expenses which may result from planned
realignment and consolidation initiatives. Gentiva is currently evaluating
alternative realignment and consolidation initiatives in an effort to
achieve cost savings following the sale of the SPS business.
85
GENTIVA HEALTH SERVICES, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
YEAR ENDED DECEMBER 31, 2000
<Table>
<Caption>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net revenues.................................... $1,506,644 $ (699,327)(1) $881,765
74,448(2)
Cost of services sold........................... 1,021,644 (487,820)(1) 608,272
74,448(2)
---------- ---------- --------
Gross profit.................................. 485,000 (211,507) 273,493
Selling, general and administrative expenses.... 615,198 (258,839)(3) 356,359(6)
Gain on sales of businesses..................... (36,682) (36,682)
Interest expense, net........................... 9,878 (6,812)(4) 3,066
---------- ---------- --------
Income (loss) before income taxes............... (103,394) 54,144 (49,250)
Income tax expense.............................. 806 2,300(5) 3,106
---------- ---------- --------
Net income (loss)............................. $ (104,200) $ 51,844 $(52,356)
========== ========== ========
Net income (loss) per share:
Basic......................................... $ (5.05) $ (2.54)
Diluted....................................... $ (5.05) $ (2.54)
Average shares outstanding:
Basic......................................... 20,637 20,637
Diluted....................................... 20,637 20,637
</Table>
- ---------------
NOTES
(1) Adjustment to eliminate net revenues and cost of services sold of the SPS
business, assuming that the sale had occurred as of the first day of fiscal
1998.
(2) Adjustment to add back to net revenue and cost of services sold amounts for
the intersegment elimination between the SPS business and the home health
care services business which were reflected in the historical financial
statements. This adjustment is required to reflect the net revenues and cost
of services sold of the remaining Gentiva, after excluding the SPS business.
(3) Adjustment to reflect the elimination of selling, general and administrative
expenses which are directly attributable to the operations of the SPS
business. Such expenses include field administrative costs, the provision
for doubtful accounts, depreciation and amortization and corporate office
support costs. The selling, general and administrative expenses which are
eliminated do not include any allocation of corporate overhead costs which
do not have a direct benefit on the SPS operations.
(4) Adjustment to reflect the elimination of interest expense, net attributable
to the SPS business. Interest expense, net was allocated to the SPS division
based on the ratio of SPS's net assets to the sum of total net assets plus
consolidated debt for Gentiva.
(5) Adjustment to eliminate income tax expense or benefit attributable to the
SPS business based on its inclusion in the consolidated tax return of
Gentiva.
86
(6) Selling, general and administrative expenses on a pro forma basis represent
the following (in thousands):
<Table>
Field administrative costs.................................. $229,183
Provision for doubtful accounts............................. 31,157
Corporate expenses.......................................... 55,707
Depreciation................................................ 11,262
Amortization................................................ 10,798
Restructuring and other special charges -- corporate........ 18,252
--------
Total.................................................. $356,359
========
</Table>
Selling, general and administrative expenses on a pro forma basis do not
include any adjustments relating to potential costs savings of field
administrative costs and corporate expenses which may result from planned
realignment and consolidation initiatives. Gentiva is currently evaluating
alternative realignment and consolidation initiatives in an effort to
achieve cost savings following the sale of the SPS business.
GENTIVA HEALTH SERVICES, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
YEAR ENDED JANUARY 2, 2000
<Table>
<Caption>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net revenues............................................ $1,489,822 $(665,126)(1) $879,295
54,599(2)
Cost of services sold................................... 984,396 (445,102)(1) 593,893
54,599(2)
---------- --------- --------
Gross profit.......................................... 505,426 (220,024) 285,402
Selling, general and administrative expenses............ 509,658 (166,903)(3) 342,755(6)
Interest expense, net................................... 16,975 (9,802)(4) 7,173
---------- --------- --------
Loss before income taxes................................ (21,207) (43,319) (64,526)
Income tax benefit...................................... (6,121) (2,500)(5) (8,621)
---------- --------- --------
Net loss.............................................. $ (15,086) $ (40,819) $(55,905)
========== ========= ========
Net loss per share:
Basic................................................. $ (0.74) $ (2.75)
Diluted............................................... $ (0.74) $ (2.75)
Average shares outstanding:
Basic................................................. 20,345 20,345
Diluted............................................... 20,345 20,345
</Table>
- ---------------
NOTES
(1) Adjustment to eliminate net revenues and cost of services sold of the SPS
business, assuming that the sale had occurred as of the first day of fiscal
1998.
(2) Adjustment to add back to net revenue and cost of services sold amounts for
the intersegment elimination between the SPS business and the home health
care services business which were reflected in the historical financial
statements. This adjustment is required to reflect the net revenues and cost
of services sold of the remaining Gentiva, after excluding the SPS business.
87
(3) Adjustment to reflect the elimination of selling, general and administrative
expenses which are directly attributable to the operations of the SPS
business. Such expenses include field administrative costs, the provision
for doubtful accounts, depreciation and amortization and corporate office
support costs. The selling, general and administrative expenses which are
eliminated do not include any allocation of corporate overhead allocation
which do not have a direct benefit on the SPS operations.
(4) Adjustment to reflect the elimination of interest expense, net attributable
to the SPS business. Interest expense, net was allocated to the SPS division
based on the ratio of SPS's net assets to the sum of total net assets plus
consolidated debt for Gentiva.
(5) Adjustments to eliminate income tax benefit attributable to the SPS business
based on its inclusion in the consolidated tax return of Gentiva.
(6) Selling, general and administrative expenses on a pro forma basis represent
the following (in thousands)
<Table>
Field administrative costs.................................. $255,822
Provision for doubtful accounts............................. 8,440
Corporate expenses.......................................... 55,201
Depreciation................................................ 12,693
Amortization................................................ 10,599
--------
Total..................................................... $342,755
========
</Table>
Selling, general and administrative expenses on a pro forma basis do not
include any adjustments relating to potential costs savings of field
administrative costs and corporate expenses which may result from planned
realignment and consolidation initiatives. Gentiva is currently evaluating
alternative realignment and consolidation initiatives in an effort to
achieve cost savings following the sale of the SPS business.
88
GENTIVA HEALTH SERVICES, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
YEAR ENDED JANUARY 3, 1999
(53 WEEKS)
<Table>
<Caption>
PRO
HISTORICAL FORMA ADJUSTMENTS PRO FORMA
----------- ----------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net revenues.......................................... $ 1,330,303 $(558,392)(1) $ 825,647
53,736(2)
Cost of services sold................................. 908,896 (370,934)(1) 591,698
53,736(2)
----------- --------- ---------
Gross profit........................................ 421,407 (187,458) 233,949
Selling, general and administrative expenses.......... 552,528 (137,188)(3) 415,340(6)
Interest expense, net................................. 17,414 (10,448)(4) 6,966
----------- --------- ---------
Loss before income taxes.............................. (148,535) (39,822) (188,357)
Income tax benefit.................................... (47,070) (12,620)(5) (59,690)
----------- --------- ---------
Net loss............................................ $ (101,465) $ (27,202) $(128,667)
=========== ========= =========
Net loss per share:
Basic............................................... $ (4.99) $ (6.32)
Diluted............................................. $ (4.99) $ (6.32)
Average shares outstanding:
Basic............................................... 20,345 20,345
Diluted............................................. 20,345 20,345
</Table>
- ---------------
NOTES
(1) Adjustment to eliminate net revenues and cost of services sold of the SPS
business, assuming that the sale had occurred as of the first day of fiscal
1998.
(2) Adjustment to add back to net revenue and cost of services sold amounts for
the intersegment elimination between the SPS business and the home health
care services business which were reflected in the historical financial
statements. This adjustment is required to reflect the net revenues and cost
of services sold of the remaining Gentiva, after excluding the SPS business.
(3) Adjustment to reflect the elimination of selling, general and administrative
expenses which are directly attributable to the operations of the SPS
business. Such expenses include field administrative costs, the provision
for doubtful accounts, depreciation and amortization and corporate office
support costs. The selling, general and administrative expenses which are
eliminated do not include any allocation of corporate overhead costs which
do not have a direct benefit on the SPS operations.
(4) Adjustment to reflect the elimination of interest expense, net attributable
to the SPS business. Interest expense, net was allocated to the SPS division
based on the ratio of SPS's net assets to the sum of total net assets plus
consolidated debt for Gentiva.
(5) Adjustments to eliminate income tax expense or benefit attributable to the
SPS business based on its inclusion in the consolidated tax return of
Gentiva.
89
(6) Selling, general and administrative expenses on a pro forma basis represent
the following (in thousands)
<Table>
Field administrative costs.................................. $206,907
Provision for doubtful accounts............................. 4,626
Corporate expenses.......................................... 59,751
Depreciation................................................ 12,288
Amortization................................................ 9,768
Restructuring and other special charges..................... 122,000
--------
Total.................................................. $415,340
========
</Table>
Selling, general and administrative expenses on a pro forma basis do not
include any adjustments relating to potential costs savings of field
administrative costs and corporate expenses which may result from planned
realignment and consolidation initiatives. Gentiva is currently evaluating
alternative realignment and consolidation initiatives in an effort to
achieve cost savings following the sale of the SPS business.
90
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE SPS BUSINESS
GENERAL
The specialty pharmaceutical services division of Gentiva provides
specialty pharmaceutical services through a network of 40 pharmacies across the
United States. Services provided by the SPS business include (i) the
distribution of drugs and other biological and pharmaceutical products and
professional support services for individuals with chronic diseases, such as
hemophilia, primary pulmonary hypertension, autoimmune deficiencies and growth
disorders, (ii) the administration of antibiotics, chemotherapy, nutrients and
other medications for patients with acute or episodic disease states, (iii)
distribution services for pharmaceutical, bio-technology and medical services
firms, and (iv) delivery management and administration of products in the home
setting and evaluation of equipment needs of the patient.
On March 15, 2000, Gentiva was split-off from Olsten Corporation through
the issuance of Gentiva's shares of common stock to Olsten's shareholders and
Gentiva became an independent, publicly-owned company. Prior to the split-off,
Gentiva operated Olsten's health services business (including the SPS business)
as a wholly-owned subsidiary of Olsten.
The accompanying consolidated financial statements reflect the results of
operations, financial position and changes in divisional equity of the SPS
business as if it were a stand-alone entity for all periods presented. The
consolidated financial statements have been prepared using the historical basis
in the assets and liabilities and historical results of operations related to
the SPS business. In this regard, the consolidated financial statements reflect
corporate office support costs which were incurred primarily at Gentiva's
corporate administrative locations to provide back office and other services for
the direct benefit of the SPS business. These costs include a portion of
salaries and fringes, lease expenses, professional service fees, travel expenses
and miscellaneous other costs incurred in various corporate departments,
including information services, accounting and finance, contracts, purchasing,
human resources, clinical and other areas. In addition, such financial
statements reflect an allocation of corporate overhead cost incurred primarily
at Gentiva's corporate administrative locations which represent costs associated
with corporate executive management personnel and costs that are required to
maintain an independent public company. Management believes all allocations
related to general corporate overhead expenses are reasonable; however, the
costs charged to SPS were not necessarily indicative of the costs that would
have been incurred if the SPS business had been a stand-alone entity or a
division of another entity during the period in which such expenses were
allocated.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000
Revenues
Net revenues for the nine months ended September 30, 2001 were $547 million
compared to net revenues of $699 million for the year ended December 31, 2000.
Excluding revenues of $184 million in the fourth quarter of fiscal 2000, net
revenues increased by $32 million or 6.1 percent for the nine months ended
September 30, 2001 as compared to the corresponding period of the prior year.
The SPS business experienced volume increases in several core chronic
therapies. These therapies included (i) Flolan, an intravenous therapy used in
treatment of primary pulmonary hypertension, which increased 6.2 percent (ii)
Intravenous Immune Globulin (IVIG), used in the treatment of primary immune
deficiency and other diagnosis, which increased 13.5 percent and (iii) growth
hormone, used in the treatment of growth hormone disorders, which increased 10.1
percent. Revenue growth was negatively impacted in the nine month period of 2001
by some product shortages of recombinant coagulation therapy, which is used in
the treatment of hemophilia. In addition, revenue relating to acute infusion
products decreased 1.0 percent due to management's decision to terminate certain
contracts in an effort to improve revenue quality and cash flow. Due to the
significant purchases by wholesale customers early in 2001, revenue relating to
Oxandrin, an oral pharmaceutical for involuntary weight loss, increased 35.1
percent during the fiscal 2001 year to date
91
period as compared to the corresponding period of fiscal 2000 as a result of
growth in unit volume during the first half of fiscal 2001 offset by a decrease
in volume during the third quarter.
Gross Profit
Gross profit margins as a percentage of net revenues decreased from 30.2
percent in fiscal year 2000 to 28.8 percent in the first nine months of fiscal
2001. The decrease in margins was attributable primarily to a change in business
mix reflecting growth in lower margin specialty pharmaceutical services
products, such as Oxandrin and Synagis, an injectible product for respiratory
syncytial virus (RSV) found in infants, and higher costs attributable to certain
biological and pharmaceutical products due to product shortages. Furthermore,
gross profit margins were negatively impacted in fiscal year 2000 by a $6.4
million adjustment for changes in cost estimates arising from a systems
conversion and certain physical inventory procedures.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the nine months ended
September 30, 2001 were $134 million compared to selling, general and
administrative expenses of $273 million for the year ended December 31, 2000.
Excluding selling, general and administrative expenses of $49 million in the
fourth quarter of fiscal 2000, selling, general and administrative expenses
decreased by $90 million for the nine months ended September 30, 2001 as
compared to the corresponding period of the prior year. This decrease in the
fiscal 2001 period as compared to the fiscal 2000 period results from special
charges of $91 million which were recorded in the fiscal 2000 period and a
reduction in corporate office support costs during the fiscal 2001 period due to
the impact of corporate and administrative restructuring activities which
commenced during the fourth quarter of fiscal 2000, offset somewhat by
investments intended to expand the SPS business national specialty
pharmaceutical and managed care sales force.
During the first nine months of fiscal 2000, the SPS business recorded
special charges aggregating $91 million, representing incremental bad debt
expense. During fiscal 2000, Gentiva launched several initiatives including (i)
changes to systems, operational processes and procedures in its contracting,
delivery and billing and collection functions, (ii) development of numerous
enhancements to the billing and collection system, and (iii) hiring of external
consultants to pursue focused collections efforts on specific aged accounts
receivable. In the third quarter of fiscal 2000, Gentiva management analyzed the
results of these activities and concluded that certain receivables previously
thought to be collectible were uncollectible. Moreover, Gentiva management
determined that the SPS business' resources would be more effectively redirected
to the collection of more current balances.
Interest Expense, Net
Interest expense, net was $0.2 million for the nine months ended September
30, 2001 compared to $6.8 million for the year ended December 31, 2000. Gentiva
uses a centralized cash management system. Interest expense and interest income
were allocated to the SPS business from Gentiva based on a percentage of the SPS
business' working capital as compared to Gentiva's working capital. Gentiva
management believes that all allocations of interest income and expense to the
SPS business are reasonable; however, such interest income or expense is not
necessarily indicative of the amount that would have been credited or incurred
if the SPS business had been a stand-alone entity or a division of another
entity during the period in which such interest income and expense were
allocated.
The reduction of interest expense in the fiscal 2001 period as compared to
the fiscal 2000 period resulted primarily from improvement in cash collections
and the retirement of long term debt in October 2000.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED JANUARY 2, 2000
Revenues
For the year ended December 31, 2000, net revenues increased by $34 million
or 5.1 percent to $699 million as compared to net revenues of $665 million for
the year ended January 2, 2000. Revenue growth
92
for fiscal 2000 was attributable to volume increases in the pulmonary
hypertension therapy, Flolan, and the nutrition support therapies such as Total
Parental Nutrition (TPN). The revenue growth in these therapies, however, was
negatively impacted by some product shortages of recombinant coagulation
therapy, which is used in the treatment of hemophilia and the Bayer
Corporation's decision in 1999 to begin directly distributing Prolastin, an
intravenous therapy used in the treatment of the hereditary disorder Alpha 1
Antirypsin Deficiency.
Gross Profit
Gross profit for the year ended December 31, 2000 was $212 million,
representing a decrease of $8 million or 3.9 percent as compared to the prior
year period. Gross profit margins as a percentage of net revenues decreased from
33.1 percent in fiscal 1999 to 30.2 percent during fiscal 2000. Of the total
decrease in margins, approximately 1 percent can be attributed to an adjustment
of $6.4 million which was recorded in costs of services sold during the year
ended December 31, 2000 for changes in cost estimates arising from the systems
conversion and certain physical inventory procedures. The remaining decrease in
margins was primarily attributable to a change in business mix and higher cost
attributable to certain biological and pharmaceutical products due to product
shortages.
Selling, General and Administrative expenses
Selling, general and administrative expenses for the year ended December
31, 2000 were $273 million compared to selling, general and administrative
expenses of $175 million for the year ended January 2, 2000. The increase in
selling, general and administrative expenses of $98 million during fiscal 2000
can be attributable to an incremental provision for doubtful accounts which was
recorded in fiscal 2000 and incremental restructuring and special charges which
were reflected in the corporate overhead allocation, offset somewhat by
efficiency improvement efforts. Excluding the impact of special charges recorded
in both years, selling, general and administrative expenses were 25.0 percent of
net revenues in fiscal 2000 and 26.0 percent of net revenues in fiscal 1999.
During the year ended December 31, 2000, the SPS business recorded
restructuring and other special charges in selling, general and administrative
expenses of $99 million, of which $91 million was recorded in the provision for
doubtful accounts and $8 million was recorded in corporate overhead allocation.
The nature of these charges is described below.
- During the year ended December 31, 2000, the SPS business launched
several initiatives including (i) changes to systems, operational
processes and procedures in its contracting, delivery, billing and
collection functions and inventory management, (ii) development of
numerous enhancements to the billing and collections system and (iii)
hiring of external consultants to pursue focused collection efforts on
specific aged accounts receivable.
- Gentiva management analyzed the results of these activities and concluded
that certain receivables previously thought to be collectible were
uncollectible. Moreover, Gentiva management determined that the SPS
business' resources would be more effectively redirected to the
collection of more current balances. In connection with these activities,
the SPS business recorded an incremental provision for doubtful accounts
of approximately $91 million during fiscal 2000.
- Gentiva incurred costs totaling approximately $4 million resulting from
Gentiva's split-off from Olsten and transition costs associated with the
establishment of Gentiva as an independent, publicly owned entity. These
special charges included change of control and compensation and benefit
payments made to certain former employees of Gentiva and Olsten and an
executive officer of Gentiva, and transition costs relating to
registration cost, professional fees and other items. Substantially, all
amounts were paid as of December 31, 2000. Approximately $2 million of
these costs were allocated to the SPS division and are included in the
corporate overhead allocation.
- Gentiva recorded charges in connection with a restructuring plan which
included the realignment and consolidation of certain corporate and
administrative support functions due primarily to the sale of
93
Gentiva's Staffing Services business and Canadian operations. These
charges included approximately $3 million for asset write downs, employee
severance, future lease payments and other associated costs.
Approximately $1 million of these costs were allocated to the SPS
business and are included in corporate overhead allocation.
- Gentiva also recorded a $7 million charge during fiscal 2000 to reflect
estimated settlement costs in excess of insurance coverage relating to
class action securities and derivative lawsuits, the obligation for which
was assumed by Gentiva from Olsten under an indemnification provision in
connection with the split-off, as well as estimated settlement costs
relating to government inquiries in New Mexico and North Carolina.
Approximately $3 million of these costs were allocated to the SPS
business and are included in corporate overhead allocation.
- Special charges of approximately $4 million were incurred in fiscal 2000
in connection with the change of company name to Gentiva Health Services,
Inc.. These special charges primarily consisted of costs incurred and
paid for consulting fees, promotional items and advertising.
Approximately $2 million of these costs were allocated to the SPS
business and were included in corporate overhead allocation.
Interest Expense, Net
Interest expense, net was $6.8 million for the year ended December 31, 2000
and $9.8 million for the year ended January 2, 2000. Interest expense and
interest income were allocated to the SPS business from Gentiva based on a
percentage of the SPS business' working capital as compared to Gentiva's working
capital. Interest expense, net represented primarily an allocated portion of
interest on Gentiva's outstanding 4 3/4 percent convertible subordinated
debentures during fiscal 1999 and the period from January 3, 2000 to October 1,
2000 (the debentures' maturity date), net inter-company borrowings with Olsten
for fiscal 1999 and the period from January 3, 2000 to March 15, 2000 (the
split-off date), and, subsequent to March 15, 2000, borrowings and fees relating
to the revolving credit facility and mandatorily redeemable securities issued by
Gentiva. The reduction of interest expense in fiscal 2000 as compared to fiscal
1999 resulted primarily from improvement in cash collections during the second
half of fiscal 2000 and the retirement of long term debt in October 2000.
YEAR ENDED JANUARY 2, 2000 COMPARED TO YEAR ENDED JANUARY 3, 1999
Revenues
Net revenues were $665 million for the year ended January 2, 2000,
representing an increase of $107 million or 19.1 percent as compared to the year
ended January 3, 1999. Revenue growth for fiscal 1999 was driven by the launch
of Enbrel, a new drug for rheumatoid arthritis, as well as revenue growth in
Flolan, a therapy to treat pulmonary hypertension, coagulation therapy, used in
the treatment of hemophilia, Oxandrin, an oral pharmaceutical for involuntary
weight loss, various acute therapies and other drugs.
Gross Profit
For the year ended January 2, 2000, gross profit was $220 million,
representing an increase of $33 million or 17.4 percent as compared to the prior
year. Gross profit margins as a percentage of net revenues decreased from 33.6
percent in fiscal 1998 to 33.1 percent during fiscal 1999. The decrease in
margins was attributable primarily to a change in business mix resulting from
growth in certain lower margin products such as Enbrel and higher costs
associated with certain pharmaceutical products such as IVIG.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the year ended January 2,
2000 were $175 million compared to selling, general and administrative expenses
of $145 million during the year ended January 3, 1999. The increase in selling,
general and administrative expenses of $30 million or 17.1 percent during fiscal
1999 was attributable to an increase for provision for doubtful accounts which
was recorded in fiscal 1999 and incremental field administrative costs resulting
from increases in unit volume and business activity.
94
LIQUIDITY AND CAPITAL RESOURCES
Working capital at September 30, 2001, was $232 million, a decrease of $8
million as compared to $240 million at December 31, 2000. Net receivables of
$237 million at September 30, 2001 decreased by $16 million as compared to net
receivables of $253 million at December 31, 2000 as a result of improved cash
collections driven by enhancements in the billing system for the SPS business as
well as increases in billings through electronic data interchange which
contribute to more timely payments from customers.
Historically, the SPS business has relied on cash flow from operations and
advances and other financial resources from Gentiva to meet the needs of its
operating and investing activities. Gentiva uses a centralized cash management
system. As a result, cash (other than petty cash) was not allocated to the SPS
business and any borrowings under a revolving credit facility and other debt of
Gentiva were not reflected on the SPS business' books.
Historically, Gentiva has maintained a credit facility, which provides for
up to $150 million in borrowings. Gentiva may borrow up to maximum of 80% of
eligible accounts receivable, as defined. At Gentiva's option, the interest rate
on borrowings under the credit facility is based on the London Interbank Offered
Rate (LIBOR) plus 2.5% or the lender's prime rate plus 0.25%. As of September
30, 2001, there were no borrowings outstanding under the credit facility and
total outstanding letters of credit of approximately $26 million. The amended
credit facility, which expires in 2004, includes certain covenants requiring
Gentiva to maintain a minimum tangible net worth and minimum earnings before
interest, taxes, depreciation and amortization. Gentiva's obligations under the
credit facility are collateralized by all of Gentiva's and SPS business'
tangible personal property and other equipment. As of September 30, 2001,
Gentiva was in compliance with its financial covenants and had borrowing
capacity under the credit facility, after adjusting for outstanding letters of
credit, of approximately $124 million.
95
HISTORY OF GENTIVA
Gentiva became an independent publicly owned company on March 15, 2000,
when the common stock of Gentiva was issued to the stockholders of Olsten
Corporation, a Delaware corporation, the former parent corporation of Gentiva.
Prior to the split-off, all of the assets and liabilities of Olsten's health
services business, including its health care staffing business, home health care
services business and specialty pharmaceutical services business, were
transferred to Gentiva pursuant to a separation agreement and other agreements
between Gentiva, Olsten and Adecco SA. Gentiva was incorporated in the State of
Delaware on August 6, 1999. Gentiva currently operates in the home health care
services business and the specialty pharmaceutical services business; however,
the SPS business is the subject to the acquisition by Accredo as contemplated by
this joint proxy statement-prospectus.
SPS BUSINESS OF GENTIVA
SPECIALTY PHARMACEUTICAL SERVICES
The asset purchase agreement provides that Accredo is to acquire the SPS
business from Gentiva in accordance with the terms thereof.
The SPS business is coordinated through its network of 40 pharmacies across
the United States and generally includes:
- the distribution of drugs and other biological and pharmaceutical
products and professional support services for individuals with chronic
diseases, such as hemophilia, primary pulmonary hypertension, autoimmune
deficiencies and growth disorders;
- the administration of antibiotics, chemotherapy, nutrients and other
medications for patients with acute or episodic disease states;
- marketing and distribution services for pharmaceutical, biotechnology and
medical service firms; and
- clinical support services for pharmaceutical and biotechnology firms.
The SPS business provides a wide range of home infusion therapies. Home
infusion therapy involves the administration of medications intravenously (into
veins), subcutaneously (under the skin), intramuscularly (into muscle),
intraecally or epidurally (via spinal routes) or through feeding tubes into the
digestive tract. Infusion therapy often begins during hospitalization of a
patient and continues in the home environment.
Gentiva's SPS business also addresses therapeutic, socioeconomic,
psychosocial and professional support needs for individuals with rare, chronic
diseases including, hemophilia, primary pulmonary hypertension,
immunodeficiency/autoimmune disorders, and growth disorders.
Some of Gentiva's other significant specialty pharmaceutical services also
include:
- Antibiotic therapies, which are the infusion of antibiotic medications
into a patient's bloodstream. These medications are typically used to
treat a variety of serious infections and diseases.
- Total Parenteral Nutrition (TPN), which is the long-term provision of
nutrients for patients with chronic gastrointestinal conditions. These
nutrients are infused through surgically implanted central vein catheters
or through peripherally inserted central catheters. Enteral nutrition is
the infusion of nutrients through a feeding tube inserted directly into a
patient's digestive tract. This long-term therapy is prescribed for
patients who are unable to eat and drink normally.
- Chemotherapy, which is the infusion of drugs into a patient's bloodstream
to treat various forms of cancer.
- Pain management, which involves the infusion of certain drugs into the
bloodstream of patients suffering from acute or chronic pain.
- Wholesale distribution of various pharmaceutical products.
96
PAYORS
In fiscal year 2000 and the nine months ended September 30, 2001,
approximately 67 percent and 64 percent, respectively, of Gentiva's SPS business
revenues were attributable to third party commercial pay sources, approximately
11 percent and 12 percent, respectively, of Gentiva's SPS business revenues were
attributable to the CareCentrix division of Gentiva's home health business, 13
percent and 14 percent, respectively, of Gentiva's SPS business revenues were
attributable to Medicaid reimbursement, state reimbursed programs and other
state/county funding programs, and 9 percent and 10 percent, respectively, of
Gentiva's SPS business revenues were attributable to Medicare reimbursement.
Except for these payors, no other payor accounts for 10 percent or more of the
revenues of the SPS business. The revenues from commercial payors are primarily
generated under fee for service contracts which are traditionally one year in
term and renewable automatically on an annual basis, unless terminated by either
party.
SOURCE AND AVAILABILITY OF PERSONNEL
Employees are generally full-time, salaried personnel and include licensed
professionals, such as pharmacists and nurses. Employees are recruited through
various means, including advertising in local and national media, job fairs and
solicitations on web sites. Currently, the specialty pharmaceutical services
industry, as a whole, is experiencing some shortage of pharmacists.
TRADEMARKS
CHRONICARE(R) and A.C.C.E.S.S.(R) are the only trademarks of Gentiva's SPS
business that are registered with the U.S. Patent and Trademark Office.
BUSINESS ENVIRONMENT
The specialty pharmaceutical services industry has been and is fueled by
significant developments of new drugs and therapies by biotechnology and
pharmaceutical manufacturers. Many of these drugs and therapies require
specialized storage, distribution and handling by specialty pharmaceutical
services companies. In addition, the complexity of these therapies often
requires properly trained nurses and pharmacists to administer and monitor the
therapies for the patients.
COMPETITIVE POSITION
The SPS business is highly competitive. Companies engaged in this business
include national chain pharmacies, mail order pharmacies, hospital-based
pharmacies and specialty pharmaceutical distributors. Prior to the transaction,
Gentiva's primary national competitors were Caremark RX, Inc. (CTS), Accredo and
Priority Healthcare Corporation. Based on an investment banking research report
published in 2000, Gentiva believes that its SPS business currently has
approximately an 11% market share in the specialty pharmaceutical services
industry. Competition is based on quality of care and service offerings, as well
as upon patient and referral source relationships, price and reputation.
PROPERTIES
The SPS business maintains leases for its pharmacies and for other office
locations on various terms expiring on various dates.
HOME HEALTH CARE SERVICES BUSINESS OF GENTIVA
After the consummation of the sale of the SPS business, Gentiva will retain
its home health care services business.
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HOME HEALTH CARE SERVICES
Gentiva's home health care services business is conducted through more than
275 locations and delivers a wide range of services principally through its two
major operating units, Nursing and CareCentrix.
Gentiva's nursing unit operates licensed and Medicare-certified nursing
agencies located in 35 states. These branches provide skilled nursing and
therapy services, paraprofessional nursing services and homemaker services in
both general and highly specialized units serving pediatric, adult and mature
adult patients. Reimbursement sources for this unit include government programs,
including Medicare and Medicaid as well as other state and county programs, and
private sources including health insurance plans, large managed care
organizations, long term care insurance plans and personal funds. Gentiva's
nursing unit is organized in five geographic regions, each staffed with a
clinical, operational and sales management team. Regions are further separated
into operating areas. Each area is comprised of branches, each of which is led
by an agency director and staffed with clinical and administrative support staff
as well as associates who deliver direct patient care. These caregivers are
employed primarily on either a full-time basis or are paid on a per visit basis.
Gentiva's CareCentrix unit provides outsourcing services and a wide range
of nursing services, acute and chronic infusion therapies and durable medical
equipment for managed care organizations and health plans. These services are
delivered through an extensive nationwide network of providers which also
includes Gentiva's nursing unit. CareCentrix accepts case referrals from a wide
variety of sources, verifies eligibility and benefits and transfers case
requirements to credentialed providers for final fulfillment. The unit provides
services to its customers, including: the fulfillment of case requirements, case
management, provider credentialing, eligibility and benefits verification and
data reporting and analysis. Contracts within the CareCentrix unit are
structured as fee-for-service, whereby a payer is billed on a per usage basis
for various services, and at-risk capitation, whereby the payer is billed on the
basis of projected usage per member per month, subject to certain limitations.
Gentiva's home health care services business also delivers services to its
customers through smaller emerging business units that include Rehab Without
Walls, a unit providing rehabilitation services for patients with brain or
spinal cord injuries or disease, and Gentiva Business Services, a unit providing
software, billing, management and consulting services to other home health
agencies.
PAYORS
In fiscal year 2000 and the nine months ended September 30, 2001,
approximately 52 percent and 56 percent, respectively, of Gentiva's home health
care services business revenues were attributable to commercial pay sources, 26
percent and 23 percent, respectively, of Gentiva's home health care services
business revenues were attributable to Medicaid reimbursement, state reimbursed
programs and other state/county funding programs, and 22 percent and 21 percent,
respectively, of Gentiva's home health care services business revenues were
attributable to Medicare reimbursement. In addition, for the same periods, Cigna
Healthcare accounted for approximately 29 percent and 35 percent, respectively,
of revenues from Gentiva's home health care services business. Gentiva has
renewed its contract with Cigna Healthcare for the seventh consecutive year,
with the current contract expiring on December 31, 2003, with an option to
renew. Except for these payors, no other payor accounts for 10 percent or more
of the revenues of Gentiva's home health care services business. The revenues
from commercial payors are primarily generated under fee for service contracts
which are traditionally one year in term and renewable automatically on an
annual basis, unless terminated by either party.
SOURCE AND AVAILABILITY OF PERSONNEL
To maximize the cost effectiveness and productivity of caregivers, Gentiva
utilizes customized systems and procedures that have been developed and refined
over the years. Personalized matching to recruit and select applicants who fit
the patients' individual needs is achieved through initial applicant profiles,
personal interviews, skill evaluations and background and reference checks.
Caregivers are recruited through a variety of sources, including advertising in
local and national media, job fairs, solicitations on web sites, direct mail and
telephone solicitations, as well as referrals obtained directly from clients and
other caregivers. Caregivers
98
are generally paid on a per visit basis or are employed on a full-time salaried
basis. Gentiva also employs caregivers who are paid on an hourly basis for time
actually worked. In certain areas of the United States, Gentiva, along with its
competitors, is currently experiencing a shortage of licensed professionals. A
continued shortage of professionals could have a material adverse effect on the
Gentiva's business.
TRADEMARKS
Gentiva's home health care services business has various trademarks
registered with the U.S. Patent and Trademark Office, including REHAB WITHOUT
WALLS(R) or in the process of being registered with the U.S. Patent and
Trademark Office, including CARECENTRIX(sm), CARE YOU CAN COUNT ON(sm) and
GENTIVA(sm). These trademarks will be retained by Gentiva.
BUSINESS ENVIRONMENT
Factors that Gentiva believes have contributed and will contribute to the
development of home health care in particular include recognition that home
health care can be a cost-effective alternative to lengthy, more expensive
institutional care; an aging population; increasing consumer awareness and
interest in home health care; the psychological benefits of recuperating from an
illness or accident in one's own home; and advanced technology that allows more
health care procedures to be provided at home.
Gentiva is actively pursuing relationships with managed care organizations.
Gentiva believes that its nationwide office network, financial resources and the
quality, range and cost-effectiveness of its services are important factors as
it seeks opportunities in its managed care relationships in a consolidating home
health care industry. Gentiva offers the direct and managed provision of care as
a single source, thereby optimizing utilization.
MARKETING AND SALES
In general, Gentiva obtains clients through personal and corporate sales
presentations, telephone marketing calls, direct mail solicitation, referrals
from other clients and advertising in a variety of local and national media,
including the Yellow Pages, newspapers, magazines, trade publications and
television. Gentiva also maintains an Internet web site that describes Gentiva,
its services and products, Marketing efforts also involve personal contact with
case managers for managed health care programs, such as those involving health
maintenance organizations and preferred provider organizations, insurance
company representatives and employers with self-funded employee health benefit
programs. Gentiva does not seek reimbursement from government payors for
unallowable marketing and sales expenses.
Gentiva expects managed care contracts will generate an increasing number
of referrals as the penetration of managed care accelerates in its markets.
Gentiva believes that it has the local relationships, the knowledge of the
regional markets in which it operates, and the cost-effective, comprehensive
services and products required to compete effectively for managed care contracts
and other referrals.
Gentiva believes that its success in furnishing caregivers is based, among
other factors, on its reputation for quality and local market expertise combined
with the resources of an extensive office network. Gentiva also empowers its
branch directors with a high level of responsibility, providing strong
incentives to manage the business effectively at the local level, one of the
central ingredients in a business where relationships are vital to success.
COMPETITIVE POSITION
The segments of the home health care industry in which Gentiva operates are
also highly competitive and fragmented. Home health care nursing providers range
from facility-based (hospital, nursing home, rehabilitation facility, government
agency) agencies to independent companies to visiting nurse associations and
nurse registries. They can be not-for-profit organizations or for-profit
organizations. In addition, there are relatively few barriers to entry in some
segments of the home health care market in which Gentiva operates. Gentiva's
primary competitors for its home health care nursing services business are
hospital-based home
99
health agencies and visiting nurse associations. Based on a published industry
study and a government website, Gentiva believes it holds the number one market
position in home health care nursing as a national provider, which it believes
to be currently approximately a 2% to 3% market share. Gentiva competes with
other home health care providers on the basis of availability of personnel,
quality and expertise of services and the value and price of services. Gentiva
believes that it has a favorable competitive position, attributable mainly to
its widespread office network and the consistently high quality and targeted
services it has provided over the years to its patients, as well as to its
screening and evaluation procedures and training programs for caregivers.
Gentiva expects that industry forces will impact it and its competitors.
Gentiva's competitors will likely strive to improve their service offerings and
price competitiveness. Gentiva also expects its competitors to develop new
strategic relationships with providers, referral sources and payors, which could
result in increased competition. The introduction of new and enhanced services,
acquisitions and industry consolidation and the development of strategic
relationships by Gentiva's competitors could cause a decline in sales or loss of
market acceptance of Gentiva's services or price competition, or make Gentiva's
services less attractive.
100
MANAGEMENT
Executive Officers and Directors
After the sale of the SPS business or shortly thereafter, upon election by
Gentiva's board of directors, the following individuals will serve as Gentiva's
officers: Mr. Ronald A. Malone, Gentiva's chief executive officer and chairman
of the board of directors; Mr. John R. Potapchuk, Gentiva's chief financial
officer, treasurer and secretary; Mr. Vernon A. Perry, president and chief
operating officer and Mr. Christopher Anderson, chief compliance officer. It is
expected that Dr. Hornbake will enter into a consulting agreement with Gentiva
whereby he will serve as Gentiva's chief medical officer.
It is anticipated that Gentiva's board of directors will remain unchanged
following the closing of the sale of the SPS business, subject to the possible
election of successors or other changes to the board of directors at Gentiva's
next annual meeting of stockholders. Although Mr. Blechschmidt will no longer
serve as an executive officer of Gentiva, it is expected that he will remain on
Gentiva's board of directors.
Employment Agreement
On or prior to the date of the sale of the SPS business, Gentiva will enter
into an employment agreement with Mr. Ronald A. Malone, Gentiva's new chief
executive officer and chairman of the board of directors. The agreement will
become effective on the closing date of the sale of the SPS business or May 20,
2002, whichever is later, and will be in effect for a period of three years from
the closing of the sale of the SPS business. During the term of the agreement,
Mr. Malone will receive: (1) a base salary of $400,000 per year, and (2) an
annual bonus, based on the achievement of target levels of performance, with
target bonus equal to 80 percent of his base salary and the maximum bonus equal
to 140 percent of his salary. However, Mr. Malone's bonus will not be less than
50 percent of his target bonus for 2002. Mr. Malone will also receive customary
benefits, perquisites and reimbursement for expenses.
The agreement provides that Mr. Malone's employment will terminate:
- upon the death or disability of Mr. Malone,
- upon termination of his employment for cause by Gentiva,
- for termination of his employment without cause by Gentiva, or
- termination of his employment for good reason by Mr. Malone.
In the event his employment is terminated as a result of his death or
disability, he or his estate will be entitled to receive his earned salary,
vested benefits and accelerated vesting of his accrued pension benefits. He will
not be entitled to severance benefits. In the event the agreement is terminated
for cause by Gentiva, he will be entitled to receive earned salary and vested
benefits and will not be entitled to severance benefits. In the event the
agreement is terminated for good reason by Mr. Malone or without cause by
Gentiva, he will be entitled to earned salary, vested benefits, severance
benefits and accelerated vesting of his accrued pension benefits and continued
medical benefits for up to two years. Severance benefits as referred to in this
section, are equal to two times Mr. Malone's base salary, so long as Mr. Malone
does not receive any amounts under his change in control agreement.
The agreement also restricts Mr. Malone's ability to engage in any of
Gentiva's business lines in the United States for the term of the agreement and
during the nine months after termination of his employment, other than
termination without cause and termination for good reason. It also contains
confidentiality provisions and provisions for non-solicitation of Gentiva's
employees.
Mr. Malone will enter into a change in control agreement with Gentiva,
similar to the terms described below.
101
Change in Control Agreements
Some of Gentiva's officers will be parties to change in control agreements
in connection with their employment with Gentiva. These agreements will have a
term of three years, commencing on the closing date of the sale of the SPS
business. They will generally provide benefits in the event: (1) the employee's
employment is terminated by Gentiva and the termination is not for cause or is
by the employee for good reason (as specified in the agreement) and (2) the
termination is within three years after a change in control (as defined in the
change in control agreements) of Gentiva. In addition, these officers will
receive the benefit of their agreements if they are terminated by Gentiva
without cause up to a year before a change in control, if their terminations
arise in connection with a change in control. These agreements will be entered
into upon the officer's election by the board of directors or Gentiva, of
shortly thereafter.
The benefits conferred under these agreements generally will include the
following:
- a cash payment equal to one to two times the employee's base salary and
target bonus;
- continued benefits for two years following the termination or until such
earlier date that the employee obtains comparable benefits from another
employer;
- immediate vesting of any stock options held by the employee (those
options would remain exercisable for one year following the termination,
but not beyond the original full term); and
- full vesting of retirement and deferred compensation benefits
Under certain circumstances the benefits could be reduced in order to avoid
the incurrence of excise taxes by the employees.
Under the agreements, a change in control is defined to include the
following events:
- a person or group beneficially owns at least 25 percent or more of
Gentiva's voting stock;
- either the directors of Gentiva named in this joint proxy
statement-prospectus (and their approved successors) cease to constitute a
majority of Gentiva's board of directors or a majority of the persons
nominated by Gentiva's board of directors fails to be elected;
- a merger of Gentiva if Gentiva's stockholders do not own a majority of
the stock of the surviving company or if the members of Gentiva's board of
directors do not constitute a majority of directors of the surviving
company's board;
- if Gentiva is liquidated; or
- if all or substantially all of Gentiva's assets are sold.
In addition, Gentiva's change in control agreements provide that if an
employee substantially prevails in a dispute with Gentiva relating to his or her
agreement, Gentiva will pay that employee's attorney's fees which result from
his or her lawsuit. Gentiva's employees who have these agreements are not
required to seek other employment or otherwise mitigate any damages caused as a
result of a change in control, but they are required to keep Gentiva's
confidential information private.
Severance Agreements
Some of Gentiva's officers will be parties to severance agreements in
connection with their employment with Gentiva. These severance agreements
generally provide that, in the event the executive officer is terminated other
than for cause or has his or her base salary reduced in a situation that is not
part of a general salary reduction, the executive officer has the right to
receive payments from Gentiva for periods ranging from one to two years in an
amount based on that executive officer's base salary at the time of termination.
Additionally, the severance agreements provide that Gentiva will provide these
executive officers with health benefits based on their benefit levels at the
time of termination for the same period or until they obtain similar health
benefits elsewhere.
102
NUMBER OF PERSONS EMPLOYED
After giving effect to the sale of the SPS business, it is expected that
Gentiva will have approximately 2,600 full-time administrative staff and 350
full-time caregivers. Gentiva also employs caregivers on a temporary basis, as
needed, to provide home health care services. Gentiva believes that its
relationships with its employees are generally good. Gentiva believes that it
maintains insurance coverages that are adequate for the purposes of its
business.
PROPERTIES
Gentiva's headquarters is leased and is located at 3 Huntington Quadrangle
2S, Melville, New York, 11747-8943. Gentiva also maintains leases for other
offices and locations on various terms expiring on various dates.
LITIGATION
In addition to the matters referenced below, Gentiva is party to certain
legal actions arising in the ordinary course of business including legal actions
arising out of services rendered by its various operations, personal injury and
employment disputes.
On November 22, 2000, the jury in an age-discrimination lawsuit commenced
in 1998, captioned Fredrickson v. Olsten Health Services Corp. and Olsten
Corporation, Case No. 98 CV 1937, Court of Common Pleas, Mahoning County, Ohio
(the "Fredrickson Lawsuit"), returned a verdict in favor of the plaintiff
against Olsten consisting of $675,000 in compensatory damages, $30 million in
punitive damages and an undetermined amount of attorneys' fees. The jury found
that, although Olsten had lawfully terminated the plaintiff's employment, its
failure to transfer or rehire the plaintiff rendered Olsten liable to the
plaintiff. The parties filed several post-trial motions, and following a March
23, 2001 hearing on the parties' respective post-trial motions, the trial court,
on May 17, 2001, denied all post-trial motions, and entered judgment for the
plaintiff for the full amount of compensatory and punitive damages, and awarded
the plaintiff reduced attorney's fees of $247,938. On June 14, 2001, defendants
timely filed a Notice of Appeal with the Court of Appeals, Seventh Appellate
District, Mahoning County, Ohio, and on June 19, 2001, Gentiva posted a
supersedeas bond for the full amount of the judgment, plus interest. On October
12, 2001, Gentiva timely filed its appellate brief with the Court of Appeals.
Plaintiff filed its response brief on January 14, 2002, and defendants' reply
brief was filed on February 8, 2002. Oral arguments have not been scheduled yet.
Gentiva intends to defend itself vigorously in this matter.
On January 14, 1999, Kimberly Home Health Care, Inc. ("Kimberly"), one of
Gentiva's subsidiaries, initiated three arbitration proceedings against
hospitals owned by Columbia/HCA Healthcare Corp. ("Columbia/HCA") with which
Kimberly had management services agreements to provide services to the
hospitals' home health agencies. The basis for each of the arbitrations is that
Columbia/HCA sold the home health agencies without assigning the management
services agreements and, as a result, Columbia/HCA has breached the management
services agreements. In response to the arbitrations, Columbia/HCA has asserted
that the arbitrations be consolidated and stayed, in part based upon its alleged
claims against Kimberly for breach of contract, and requested indemnity and
possibly return of management fees. Columbia/HCA has not yet formally presented
these claims in the arbitrations or other legal proceedings and has not yet
quantified the claims. Still pending before the arbitrators is Columbia/HCA's
request to consolidate the proceedings, which Kimberly has opposed. The
proceedings are currently in abeyance pending a ruling on Columbia/ HCA's motion
to consolidate.
On January 2, 2002, Cooper v. Gentiva CareCentrix, Inc. t/a/d/b/a Gentiva
Health Services, U.S. District Court (W.D. Penn), Civil Action No. 01-0508, an
amended complaint, was served on Gentiva alleging that the defendant submitted
false claims to the government for payment in violation of the Federal False
Claims Act and that the defendant had wrongfully terminated the plaintiff. The
plaintiff claims that infusion pumps delivered to patients did not supply the
full amount of medication, allegedly resulting in substandard care and
overbilling to the government. Based on a review of the court's docket sheet,
the plaintiff filed a complaint under seal in March 2001. In October 2001, the
United States Government filed a Notice
103
with the court declining to intervene in this matter, and on October 24, 2001,
the court ordered that the seal be lifted. Plaintiff filed a motion to amend
complaint on December 27, 2001 and served the complaint that same day.
Defendant's answer and counterclaim were filed on February 25, 2002. Gentiva has
denied the allegations of wrongdoing in the complaint and intends to defend
itself vigorously.
On November 1, 2001, Gentiva received notice of the entry of an Order dated
October 25, 2001, unsealing a complaint in an action captioned United States of
America ex rel. Lee Einer v. Olsten Corporation, No. CIV-S-99-0860 DFL/DAD filed
with the U.S. District Court for the Eastern District of California. This civil
action was brought pursuant to the False Claims Act. The original sealed
complaint was filed in April 1999 and alleged that Olsten Corporation falsely
took into income during the conversion of its financial data systems alleged
overpayments due to payors. In November 2000, plaintiff filed an amended
complaint adding the allegation that Olsten Corporation made false
representations to the United States Government in connection with a settlement
agreement entered into in July 1999. Gentiva acknowledged service of the amended
complaint on November 29, 2001 and filed its answer and counterclaim on December
3, 2001. Plaintiff filed his reply to counterclaim, counterclaim against Gentiva
and cross claim against the United States government on January 18, 2002.
Gentiva's answer was filed on February 12, 2002. Gentiva believes that it was
the filing of the original complaint that triggered the December 1999 document
subpoena from the Department of Health and Human Services, Office of Inspector
General, which is discussed below under "Government Investigations."
Furthermore, in connection with the split-off, Gentiva agreed to assume, to
the extent permitted by law, the liabilities, if any, arising out of (and to
indemnify Olsten for) the above lawsuits and arbitration proceedings and other
liabilities arising out of the health services business, including any such
liabilities arising after the split-off in connection with the government
investigations described below. In addition, in connection with the sale of the
SPS business, Gentiva has agreed to retain and indemnify Accredo for specified
liabilities including the litigation described above and the government
investigations described below. See "The Acquisition/Sale of the SPS
Business -- Indemnification Obligations."
GOVERNMENT INVESTIGATIONS
In early December 1999, Olsten received a document subpoena from the
Department of Health and Human Services, Office of Inspector General, and Office
of Investigations. After preliminary discussions with the Office of Inspector
General, Gentiva believes that the subpoena relates to an investigation of
possible overpayments made to Gentiva by the Medicare program. Gentiva provided
the Office of Inspector General and other government agencies with requested
documents and cooperated fully with this investigation. On November 1, 2001,
Gentiva received notice of the entry of an Order dated October 25, 2001,
unsealing a complaint in an action captioned United States of America ex rel.
Lee Einer v. Olsten Corporation, which is discussed above under "Litigation." In
connection with the unsealing of the complaint, and as recited in the Order
unsealing the complaint, the United States gave notice to the District Court
that the United States was declining to intervene in the action. Gentiva
believes that it was this complaint that gave rise to the December 1999 document
subpoena, and that following an almost two year investigation into the
allegations made in the complaint, the United States decided not to intervene
and not to proceed with this action. Gentiva believes that the government has
concluded its investigation into this matter.
In early February 2000, Gentiva received a document subpoena from the
Department of Health and Human Services, Office of Inspector General, and Office
of Investigations. Gentiva believes the subpoena relates to its agencies' cost
reporting procedures concerning contracted nursing and home health aide costs.
Gentiva continues to provide the Office of Inspector General and other
government agencies with the requested documents and to cooperate fully with
their investigation. At this time, Gentiva is unable to assess the probable
outcome or potential liability, if any, arising from this subpoena.
In October 1998, in connection with its settlement of a government
investigation into the health care practices of Quantum Health Resources (a
subsidiary of Gentiva) for a period prior to 1997, Olsten executed a corporate
integrity agreement with the U.S. Department of Justice, the Office of Inspector
General of the U.S. Department of Health and Human Services, the U.S. Secretary
of Defense (for the CHAMPUS/
104
Tricare Program) and the Attorneys General for the States of New York and
Oklahoma that was in effect until December 31, 2001. The October 1998 corporate
integrity agreement applies to Gentiva's specialty pharmaceutical services
business and focuses on the training and billing of blood factor products for
hemophiliacs.
In connection with the July 19, 1999 settlement with various government
agencies, Olsten executed a separate corporate integrity agreement with the
Office of Inspector General of the Department of Health and Human Services which
will remain in effect until August 18, 2004. The July 1999 corporate integrity
agreement applies to Gentiva's businesses that bill the federal government
health programs directly for services, such as its home care nursing business
(but excluding the specialty pharmaceutical services business). This corporate
integrity agreement focuses on issues and training related to cost report
preparation, contracting, medical necessity and billing of claims.
Under each of the corporate integrity agreements, Gentiva is required, for
example, to maintain a corporate compliance officer to develop and implement
compliance programs, to retain an independent review organization to perform
annual reviews and to maintain a compliance program and reporting systems, as
well as provide certain training to employees.
Gentiva's compliance program will be implemented for all newly established
or acquired business units if their type of business is covered by the corporate
integrity agreements. Reports under each integrity agreement are to be filed
annually with the Department of Health and Human Services, Office of Inspector
General. After each corporate integrity agreement expires, Gentiva is to file a
final annual report with the government. Gentiva is in compliance with both
corporate integrity agreements and has timely filed all required reports. If
Gentiva fails to comply with the terms of either of its corporate integrity
agreements, Gentiva will be subject to penalties.
REGULATIONS
Gentiva's business is subject to extensive federal and state regulations
which govern, among other things:
- Medicare, Medicaid, CHAMPUS and other government-funded reimbursement
programs;
- reporting requirements, certification and licensing standards for certain
home health agencies; and
- in some cases, certificate-of-need requirements.
Gentiva's compliance with these regulations may affect its participation in
Medicare, Medicaid, CHAMPUS and other federal health care programs. Gentiva is
also subject to a variety of federal and state regulations which prohibit fraud
and abuse in the delivery of health care services. These regulations include,
among other things:
- prohibitions against the offering or making of direct or indirect
payments for the referral of patients;
- rules against physicians making referrals under Medicare for clinical
services to a home health agency with which the physician has certain
types of financial relationship; and
- laws against the filing of false claims.
As part of the extensive federal and state regulation of the home health
care business and under Gentiva's corporate integrity agreements, Gentiva is
subject to periodic audits, examinations and investigations conducted by, or at
the direction of, governmental investigatory and oversight agencies. Violation
of the applicable federal and state health care regulations can result in
excluding a health care provider from participating in the Medicare, Medicaid
and/or CHAMPUS programs and can subject the provider to substantial civil and/or
criminal penalties.
Periodic and random audits conducted by intermediaries may result in a
delay in receipt, or an adjustment to the amounts of reimbursement due or
received under Medicare, Medicaid, CHAMPUS and other federal health care
programs. Gentiva received notices of program reimbursement from its Medicare
fiscal intermediary indicating that the intermediary disagreed with Gentiva's
methodology of allocating a
105
portion of its residual overhead in its 1997 and 1998 Medicare cost reports. The
intermediary completed its audit, finalized such cost reports and withheld
reimbursement to Gentiva relating to this issue. Gentiva believes its
methodology used to allocate such overhead cost was accurate and consistent with
past practice accepted by the fiscal intermediary and has filed appeals of this
decision with the Provider Reimbursement Review Board. Gentiva is unable to
predict the outcome of these appeals. However, Gentiva has made appropriate
provision for the disallowance of such cost in its consolidated financial
statements.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF GENTIVA
The following table sets forth, as of March 13, 2002, the amount of
beneficial ownership of Gentiva's common stock by the five named executive
officers of Gentiva; each director of Gentiva; each beneficial owner of more
than five percent of Gentiva's common stock; and all executive officers and
directors of Gentiva as a group. For the purpose of the table, a person or group
of persons is deemed to have "beneficial ownership" of any shares that such
person or group has the right to acquire within 60 days after such date through
the exercise of options or exchange or conversion rights, but such shares are
not deemed to be outstanding for the purpose of computing the percentage
ownership of any other person.
<Table>
<Caption>
AMOUNT OF SHARES
OF
COMMON STOCK AND
NATURE OF BENEFICIAL PERCENT OF CLASS
OWNERSHIP(1)(2) OWNED (IF MORE
NAME OF BENEFICIAL OWNER (3)(4) THAN 1%)
- ------------------------ -------------------- ----------------
Edward A. Blechschmidt...................................... 589,464 2.2%
John J. Collura............................................. 66,703 --
E. Rodney Hornbake.......................................... 18,334 --
Ronald A. Malone............................................ 70,703 --
Robert J. Nixon............................................. 109,947 --
Victor F. Ganzi............................................. 45,257 --
Steven E. Grabowski(5)...................................... 1,371,706 5.3%
Stuart R. Levine............................................ 34,824 --
Stuart Olsten(6)............................................ 1,541,927 5.9%
Raymond S. Troubh(7)........................................ 136,021 --
Josh S. Weston.............................................. 7,800 --
Gail Wilensky............................................... 7,562 --
Cheryl Olsten(8)............................................ 1,371,706 5.3%
Highfields Capital Management LP(9)......................... 1,755,373 6.8%
200 Clarendon Street
Boston, MA
Steinberg Priest Capital Management Company, Inc.(10)....... 1,671,873 6.5%
12 East 49th Street
New York, NY
All executive officers and directors as a group (18
persons).................................................. 3,481,184(11) 13.1%
</Table>
- ---------------
(1) Unless otherwise indicated, the stockholders identified in this table have
sole voting and investment power with respect to the shares beneficially
owned by them.
(2) Includes beneficial ownership of the following number of shares that may be
acquired upon exercise of presently exercisable stock options under
Gentiva's stock option plans: Mr. Blechschmidt -- 389,464; Mr.
Collura -- 35,000; Dr. Hornbake -- 11,666; Mr. Malone -- 39,070; Mr.
Nixon -- 71,816; Mr. Ganzi -- 5,000; Mr. Grabowski -- 5,000; Mr.
Levine -- 5,000; Mr. Olsten -- 5,000; Mr. Troubh -- 5,000; Mr.
Weston -- 5,000; and Dr. Wilensky -- 5,000.
(3) Includes beneficial ownership of the following number of whole shares
acquired and currently held under Gentiva's Employee Stock Purchase Plan:
Mr. Collura -- 341; Mr. Malone -- 3,212; and Mr. Nixon -- 2,115.
(4) Includes beneficial ownership of the following number of shares
representing the equivalent of units deferred under Gentiva's Stock &
Deferred Compensation Plan for Non-Employee Directors: Mr. Ganzi -- 5,124;
Mr. Grabowski -- 5,124; Mr. Olsten -- 5,124; and Mr. Troubh -- 5,124.
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(5) Mr. Grabowski's holdings include 1,425 shares owned directly and 1,360,157
shares beneficially owned by his wife, Cheryl Olsten, as to which shares he
disclaims beneficial ownership. See footnote (8).
(6) Mr. Stuart Olsten's holdings include 845,813 shares owned directly and 300
shares owned by his wife, as to which shares he disclaims beneficial
ownership. Mr. Olsten has shared voting and investment power as a trustee
with respect to 630,709 shares owned by a trust for his and his sister's
benefit. He has shared voting and investment power as a trustee with
respect to 11,250 shares owned by a trust for the benefit of his son,
22,500 shares owned by two trusts for the benefit of his niece and nephew
and 20,901 shares owned by a trust for the benefit of his descendants, as
to which shares he disclaims beneficial ownership. His holdings further
include 330 shares held in a custodial account for his daughter, as to
which shares he disclaims beneficial ownership.
(7) Mr. Troubh's holdings include 56,149 shares owned directly and 69,748
shares owned by a limited partnership.
(8) Ms. Cheryl Olsten owns directly 674,797 shares and has shared voting and
investment power as a trustee with respect to 630,709 shares owned by a
trust for her and her brother's benefit. Ms. Olsten has shared voting and
investment power as a trustee with respect to 22,500 shares owned by two
trusts for the benefit of her two children, 11,250 shares held by a trust
for the benefit of her nephew and 20,901 shares owned by a trust for the
benefit of her descendants, as to which shares she disclaims beneficial
ownership. Ms. Olsten's holdings also include 11,549 shares beneficially
owned by her husband, Mr. Grabowski, as to which shares she disclaims
beneficial ownership.
(9) Based on a Schedule 13G (Amendment No. 2) dated February 14, 2001 and filed
with the Securities and Exchange Commission, Highfields Capital Management
LP held sole voting power and sole dispositive power as to all of such
shares.
(10) Based on a Schedule 13G (Amendment No. 1) dated January 28, 2002 and filed
with the Securities and Exchange Commission, Steinberg Priest Capital
Management Company, Inc. held sole voting power as to 780,423 of such
shares and sole dispositive power as to 1,671,873 of such shares.
(11) Includes 2,775,487 shares owned by executive officers and directors,
685,201 shares that may be acquired upon exercise of presently exercisable
stock options and 20,496 shares representing shares deferred as share
units.
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BUSINESS OF ACCREDO
Accredo provides specialized contract pharmacy services on behalf of
biopharmaceutical manufacturers to patients with chronic diseases. Accredo's
services help simplify the difficult and often challenging medication process
for patients with a chronic disease and help ensure that patients receive and
take their medication as prescribed. Accredo's services benefit
biopharmaceutical manufacturers by accelerating patient acceptance of new drugs,
facilitating patient compliance with the prescribed treatment and capturing
valuable clinical information about a new drug's effectiveness.
Accredo's services include contract pharmacy services, clinical services,
reimbursement services and delivery services. Accredo provides overnight,
temperature-controlled delivery of all drugs and supplies necessary for patients
to self-administer their drug dosages safely and effectively in the privacy of
their homes. Accredo's pharmacists and customer service staff talk frequently
with patients over the telephone, help them comply with prescribed treatment
schedules and educate them about ways to manage their complex diseases more
effectively. Accredo's reimbursement specialists manage the complicated
paperwork that is required to collect payment for the patient's medication from
insurance companies and managed care plans. Accredo sells a limited number of
drugs to its patients.
Accredo mainly focuses its services on drugs that:
- are used on a recurring basis to treat chronic and potentially
life-threatening diseases;
- are expensive, with annual costs generally ranging from approximately
$8,000 to $200,000 per patient; and
- require temperature control or other specialized handling.
Accredo has agreements with six major biopharmaceutical manufacturers to
provide specialized contract pharmacy services. Although Accredo's agreements
are not exclusive, Accredo's status generally means that it is a recommended
provider of the manufacturer's drug to patients and physicians. These agreements
also contain favorable pricing from the manufacturer and compensate Accredo for
its specialized services. The terms of these agreements may be adjusted
periodically in the event of changed market conditions or required service
levels.
Accredo's objective is to be the leading provider of specialized contract
pharmacy services to biopharmaceutical manufacturers. Key elements of its
strategy include: (i) expanding the number of chronic diseases served; (ii)
leveraging Accredo's expertise to expand its service offerings; (iii)
establishing additional relationships with academic medical centers and
children's hospitals that treat patients with costly, chronic diseases; (iv)
increasing the number of payor contracts; and (v) pursuing selective
acquisitions of similar or complementary businesses.
Accredo Health, Incorporated, was incorporated in Delaware in 1996. Accredo
acquired Southern Health Systems, Inc., or SHS, and its wholly owned subsidiary
Nova Factor, Inc., or Nova Factor, in 1996 and continues to own SHS and its
subsidiary, Nova Factor. In June 1997, Accredo acquired all of the outstanding
stock of Hemophilia Health Services, Inc. Accredo consummated an initial public
offering of its common stock in April 1999.
In October 1999, Accredo acquired two pharmacies located in Florida and
California from Home Medical of America, Inc. It also acquired all of the
outstanding stock of Sunrise Health Management, Inc. on December 1, 1999.
During fiscal year ended June 30, 2001, Accredo consummated a second public
offering of its common stock in August 2000 and acquired all of the outstanding
stock of Pharmacare Resources, Inc. and a related company NCL Management, Inc.
in May 2001.
On December 20, 2001, Accredo acquired all of the outstanding stock of
BioPartners in Care, Inc. BioPartners operated pharmacy locations in Lenexa,
Kansas and St. Louis, Missouri.
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Accredo's principal executive offices are located at 1640 Century Center
Parkway, Suite 101, Memphis, Tennessee 38134. Its telephone number at that
address is 901-385-3688.
DESCRIPTION OF ACCREDO CAPITAL STOCK
Accredo is authorized by its certificate of incorporation to issue up to
55,000,000 shares of capital stock, consisting of (a) 50,000,000 shares of
common stock, $0.01 par value per share (26,220,589 of which were outstanding as
of February 28, 2002), and (b) 5,000,000 shares of preferred stock, $1.00 par
value per share (none of which are currently outstanding). Assuming approval of
the issuance of Accredo common stock in the acquisition and approval of the
amendment to Accredo's certificate of incorporation to increase the number of
authorized shares of Accredo common stock, Accredo will be authorized by its
certificate of incorporation to issue up to 105,000,000 shares of its capital
stock, consisting of (a) 100,000,000 shares of common stock (approximately
31,300,000 of which will be outstanding following the closing of the acquisition
of Gentiva's SPS business, assuming the average closing price per share of
Accredo common stock on the Nasdaq National Market for the twenty trading days
ending on the second trading day prior to the closing of the acquisition is
greater than $41.00), and (b) 5,000,000 shares of preferred stock (none of which
will be outstanding). The holders of shares of Accredo common stock are entitled
to one vote for each share held on all matters submitted to a vote of
stockholders and do not have cumulative voting rights. Accordingly, holders of a
majority of the shares of Accredo common stock entitled to vote in any election
of directors may elect all of the directors standing for election. Holders of
Accredo common stock are entitled to share ratably in dividends, if any, as may
be declared from time to time by the board of directors in its discretion out of
funds legally available therefor. Upon Accredo's liquidation, dissolution or
winding up, holders of Accredo common stock are entitled to share ratably in the
net assets of Accredo available for distribution after the payment of all debts
and other liabilities. Holders of Accredo common stock have no preemptive,
subscription, redemption or conversion rights. The rights, preferences and
privileges of holders of Accredo common stock are subject to, and may be
adversely affected by, the rights of the holders of shares of any series of
preferred stock that Accredo may designate and issue in the future.
COMPARISON OF RIGHTS OF GENTIVA STOCKHOLDERS
AND ACCREDO STOCKHOLDERS
Accredo and Gentiva are both organized under the laws of the State of
Delaware. Any differences, therefore, in the rights of holders of Accredo
capital stock and Gentiva capital stock arise primarily from differences in
their respective certificates of incorporation and bylaws. Upon closing of the
sale of the SPS business and the distribution to the holders of Gentiva common
stock of the shares of Accredo common stock received by Gentiva in the
acquisition, holders of Gentiva common stock will (i) continue to be
stockholders of Gentiva and their rights with respect to such Gentiva stock will
be governed by Delaware law, the Gentiva certificate of incorporation and the
Gentiva bylaws as they were prior to the sale of the SPS business and (ii)
become holders of Accredo common stock and their rights with respect to such
Accredo stock will be governed by Delaware law, the Accredo certificate of
incorporation and the Accredo bylaws.
This section of the joint proxy statement-prospectus describes the material
differences between the rights of Accredo stockholders and Gentiva stockholders.
This section does not include a complete description of all differences among
the rights of these stockholders, nor does it include a complete description of
the specific rights of these stockholders. In addition, the identification of
some of the differences in the rights of these stockholders as material is not
intended to indicate that other differences that are equally important do not
exist.
All Accredo stockholders and Gentiva stockholders are urged to read
carefully the relevant provisions of Delaware law, as well as the certificates
of incorporation and bylaws of each of Accredo and Gentiva. Copies of the
certificates of incorporation and bylaws of Accredo and Gentiva will be sent to
Accredo stockholders and Gentiva stockholders, as applicable, upon request. See
"Where You Can Find More Information."
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CAPITALIZATION
Accredo. The authorized capital stock of Accredo consists of:
- 50,000,000 shares of Accredo common stock, par value $.01 per share;
and
- 5,000,000 shares of Accredo preferred stock, par value $1.00 per
share.
Gentiva. The authorized capital stock of Gentiva consists of:
- 100,000,000 shares of Gentiva common stock, par value $.10 per share;
and
- 25,000,000 shares of Gentiva preferred stock, par value $.01 per
share.
VOTING RIGHTS
Accredo. Each holder of Accredo common stock has the right to cast one
vote for each share of Accredo common stock held of record on all matters
submitted to a vote of stockholders of Accredo, including the election of
directors. Holders of Accredo common stock do not have cumulative voting rights.
Gentiva. Each holder of Gentiva common stock has the right to cast one
vote for each share of Gentiva common stock held of record on matters submitted
to a vote of stockholders of Gentiva, including the election of directors.
Holders of Gentiva common stock do not have cumulative voting rights.
NUMBER AND ELECTION OF DIRECTORS
Accredo. The board of directors of Accredo currently has eight members.
The Accredo amended and restated certificate of incorporation provides that the
number of directors of Accredo will not be less than five or more than twelve,
with the exact number of directors to be fixed from time to time by the Accredo
board of directors by a resolution approved by at least two-thirds of the
directors then in office.
The Accredo board of directors is divided into three classes, as nearly
equal in size as possible, with one class being elected each year. Members of
the Accredo board of directors are elected to serve a term of three years, and
until their successors are elected and qualified.
The Accredo bylaws provides for directors to be elected by a plurality of
the votes cast by Accredo stockholders entitled to vote in the election of
directors at a meeting at which a quorum is present.
Gentiva. The board of directors of Gentiva currently has eight members.
The Gentiva bylaws provide that the number of directors of Gentiva will not be
less than five nor more than twelve, with the exact number of directors to be
fixed from time to time by the Gentiva board of directors by a resolution
approved by a majority of the directors.
The Gentiva board of directors is divided into three classes, as nearly
equal in number as possible, with one class being elected each year. Members of
the Gentiva board of directors are elected to serve a term of three years, and
until their successors are elected and qualified.
The Gentiva bylaws provide for directors to be elected by a plurality of
the votes cast by Gentiva stockholders entitled to vote in the election of
directors at a meeting at which a quorum is present.
REMOVAL OF DIRECTORS AND VACANCIES ON THE BOARD OF DIRECTORS
Accredo. Accredo's certificate of incorporation provides that neither the
board of directors nor any individual director may be removed without cause. Any
individual director or all of the directors may be removed only for cause by the
affirmative vote of the holders of a majority of the shares then entitled to
vote in the election of directors.
Vacancies on the board of directors of Accredo, including vacancies
resulting from an increase in the authorized number of directors or from the
death, resignation, retirement, disqualification or removal of a director, may
be filled only by the affirmative vote of at least two-thirds of the directors
then in office, although
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they may constitute less than a quorum. Directors elected to fill any vacancy
shall serve for the remainder of the term of directors of their class and until
their successors are elected and qualified.
Gentiva. Gentiva's certificate of incorporation provides that Gentiva's
stockholders may remove any director or the entire board of directors only for
cause by the affirmative vote of a majority of the shares of Gentiva common
stock entitled to vote at an election of directors.
Vacancies on the board of directors of Gentiva, including vacancies
resulting from an increase in the authorized number of directors or from any
other reason, may be filled only by a majority vote of the directors then in
office, although they may constitute less than a quorum. Directors elected to
fill any vacancy shall serve for the remainder of the term of directors of their
class and until their successors are elected and qualified.
AMENDMENTS TO THE CERTIFICATE OF INCORPORATION
General. Under Delaware law, an amendment to the certificate of
incorporation of a corporation requires the approval of the corporation's board
of directors and the approval of holders of a majority of the outstanding stock
entitled to vote upon the proposed amendment, unless a higher vote is required
by the corporation's certificate of incorporation.
Accredo. Accredo's certificate of incorporation requires that the
affirmative vote of both (a) a majority of the members of the board of directors
then in office, and (b) a majority of the Accredo shares entitled to vote at an
election of directors in order to amend, alter, change or repeal any provision
of the certificate. In addition, the affirmative vote of at least two-thirds of
all outstanding shares of capital stock is required to amend, alter, adopt any
provision inconsistent with or repeal certain provisions of the certificate of
incorporation relating to the board of directors of Accredo, amendments to the
certificate of incorporation, indemnification of officers and directors and
stockholders' ability to act by written consent in lieu of a meeting.
Gentiva. Gentiva's certificate of incorporation does not impose a higher
vote requirement than the requirement imposed by Delaware law to amend any
provision of the certificate.
AMENDMENTS TO THE BYLAWS
General. Under Delaware law, stockholders entitled to vote have the power
to adopt, amend or repeal bylaws. In addition, a corporation may, in its
certificate of incorporation, confer this power on the board of directors. The
stockholders always have the power to adopt, amend or repeal the bylaws, even
though the board may also be delegated the power.
Accredo. Accredo's certificate of incorporation provides that Accredo's
bylaws may be amended, altered or repealed and new bylaws adopted by (i) the
holders of a majority of the outstanding stock entitled to vote at any meeting
of stockholders, provided, however, that the affirmative vote of at least
two-thirds of all outstanding shares of capital stock is required to amend,
alter or adopt any provision inconsistent with or repeal certain provisions of
the bylaws relating to notice of stockholder meetings, special meetings of
stockholders and nominations for and number of directors, or (ii) the majority
of the board of directors
Gentiva. Gentiva's certificate of incorporation authorizes the Gentiva
board of directors to make, alter, amend or repeal Gentiva's bylaws. Gentiva's
bylaws provide that they may be altered, amended or repealed or new bylaws
adopted if approved by a majority of all of the members of the board of
directors or by the holders of a majority of the total outstanding shares of
Gentiva voting stock entitled to vote at any meeting of stockholders.
ACTION BY WRITTEN CONSENT
General. Delaware law provides that, unless otherwise stated in the
certificate of incorporation, any action which may be taken at an annual meeting
or special meeting of stockholders may be taken without a meeting, if a consent
in writing is signed by the holders of the outstanding stock having the minimum
number of votes necessary to authorize the action at a meeting of stockholders
at which all shares entitled to vote at the meeting were present and voted.
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Accredo. The Accredo certificate of incorporation limits the ability of
its stockholders to act by written consent by requiring any action by written
consent to be unanimous.
Gentiva. The Gentiva certificate of incorporation provides that no action
may be taken by the stockholders by written consent.
ABILITY TO CALL SPECIAL STOCKHOLDER MEETINGS
Accredo. The Accredo bylaws provide that special meetings of Accredo
stockholders may be called by Accredo's board of directors, the chairman of the
board, the chief executive officer or holders of not less than two-thirds of all
the shares entitled to vote at such meeting if such holders deliver a written
request for the meeting describing the purpose for which it is to be held.
Gentiva. The Gentiva bylaws provide that special meetings of Gentiva
stockholders may be called by Gentiva's board of directors (pursuant to a
resolution adopted by a majority of the directors then in office stating the
purpose for the special meeting), the chairman of the board, or the chief
executive officer. Stockholders do not have the right to call a special meeting
or to propose any business to be conducted at a special meeting.
NOTICE OF STOCKHOLDER ACTION
Accredo. Under the Accredo bylaws, in order for a stockholder to nominate
candidates for election to Accredo's board of directors at any annual meeting of
stockholders or any special stockholder meeting at which directors will be
elected, timely written notice must be given to the Secretary of Accredo before
the annual or special meeting. Similarly, in order for a stockholder to propose
business to be brought before any annual stockholder meeting or special
stockholder meeting, timely written notice must be given to the Secretary of
Accredo before the annual or special meeting.
Under Accredo's bylaws, to be timely, notice of stockholder nominations or
proposals to be made at an annual meeting or special meeting must be received by
the Secretary of Accredo not less than 60 days nor more than 90 days prior to
the scheduled date of the annual or special meeting. However, if less than 70
days notice or prior public disclosure of the date of the annual or special
meeting is given or made to stockholders, notice by a stockholder, in order to
be timely, must be received by Accredo no later than the 10th day following the
date on which the earlier of notice is first given or public disclosure of the
meeting is first made.
A stockholder's notice to Accredo must set forth the stockholder's name and
address as they appear in Accredo's records and the number of shares of Accredo
common stock which are beneficially owned and owned of record by the
stockholder. If any other persons are acting together with the stockholder, this
information must be provided with respect to those persons as well.
Notices relating to stockholder proposals must also include a brief
description of the business the stockholder proposes to bring before the
meeting, and the reasons for conducting such business at the meeting and any
other information the Accredo board of directors reasonably determines is
necessary for the board and the stockholders to consider the proposal.
Notices relating to stockholder nominations to the board of directors must
also include, as to each person whom the stockholder proposes to nominate as a
director, the name, age, principal occupation, business address and residence
address, the class and number of shares of Accredo capital stock which are
beneficially owned by such person, and any other information relating to such
person that would be required to be disclosed pursuant to Regulation 13D in
connection with the acquisition of shares and Regulation 14A of the Exchange Act
of 1934 in connection with the solicitation of proxies with respect to nominees
for directors.
The board of directors or the presiding officer at any Accredo stockholder
meeting has the power to determine whether the nomination or proposal was made
by the stockholder in accordance with the advance notice procedures set forth in
Accredo's bylaws. If the presiding officer determines that the nomination or
proposal is not in compliance, the presiding officer may declare that the
defective proposal or nomination will be disregarded.
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Gentiva. Under the Gentiva bylaws, in order for a stockholder to nominate
persons for election to the board of directors at an annual meeting of
stockholders or at a special meeting called for the purpose of electing
directors or to propose any business to be conducted at an annual meeting, the
stockholder must be a holder of record at the time of giving notice in
accordance with the provisions of the Gentiva bylaws and be entitled to vote at
the meeting and must otherwise comply with the procedures set forth in the
Gentiva bylaws.
For business to be properly brought before an annual meeting by a
stockholder, including the nomination of candidates for election to Gentiva's
board of directors, the stockholder must give timely written notice to the
Secretary of Gentiva not less than 90 days nor more than 120 days prior to the
anniversary date of the preceding year's annual meeting. In the event that the
annual meeting is more than 30 days prior to or more than 60 days after the
anniversary of the preceding year's annual meeting, notice by the stockholder to
be timely must be delivered not earlier than 120 days prior to such annual
meeting and not later than the later of 90 days prior to the annual meeting or
10 days following the day on which public announcement of the date of the annual
meeting is first made. In order for a stockholder to make timely notice of a
nomination for an election to the board of directors to be held at a special
meeting, notice must be received by Gentiva not less than 90 days nor more than
120 days prior to the special meeting or not later than the 10th day following
the date on which public disclosure of the meeting is first made.
Stockholder notices relating to business to be transacted at an annual
meeting or relating to the nomination of candidates for election to the board of
directors must include:
- the stockholder's name and address as they appear on Gentiva's books;
- the class and number of shares of Gentiva stock which are owned
beneficially or of record by the stockholder;
- a description of all arrangements or understandings between the
stockholder and any other persons, including nominees for directors,
relating to a nomination or business proposal by the stockholder, and any
material interest the stockholder has in the business desired to be
brought before the meeting;
- a representation that the stockholder intends to appear in person or by
proxy at the meeting to nominate the persons or bring the business
specified in the notice before the meeting;
- a representation whether the stockholder intends to solicit proxies in
support of the director nomination or business proposal; and
- any other information about the nominee, the business proposal or the
stockholder required to be disclosed in a proxy statement or other filing
for the solicitation of proxies related to the election of directors
pursuant to Section 14 of the Securities Exchange Act of 1934.
In the case of a notice relating to a stockholder proposal, the notice must
also set forth a brief description of the business desired to be brought before
the annual meeting, the text of the proposal or business, the reasons for
conducting such business at the annual meeting and any material interest in such
business of such stockholder and of any of such stockholder's affiliates.
In the case of a notice of nomination of candidates for election to
Gentiva's board of directors, the notice must also set forth:
- the name, age, business address and residence address of the person to be
nominated;
- the principal occupation and employment of the nominee;
- the class or series and number of shares of capital stock of Gentiva
owned beneficially or of record by the nominee; and
- the consent of each nominee to serve as a director of Gentiva if so
elected.
The chairman of any annual or special meeting of Gentiva's stockholders may
refuse to permit any business to be brought before the meeting that fails to
comply with the advance notice procedures set forth in Gentiva's bylaws. If the
chairman determines that the nomination or proposal is not in compliance with
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Gentiva's advance notice procedures, the chairman may declare that the defective
proposal or nomination will be disregarded.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS AND OFFICERS
General. Delaware law provides that a corporation may include in its
certificate of incorporation a provision limiting or eliminating the liability
of its directors to the corporation and its stockholders for monetary damages
arising from a breach of fiduciary duty, except for:
- a breach of the duty of loyalty to the corporation or its stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- payment of a dividend or the repurchase or redemption of stock in
violation of Delaware law; or
- any transaction from which the director derived an improper personal
benefit.
Accredo. The Accredo certificate of incorporation provides that no
director of Accredo will be liable to Accredo or its stockholders for monetary
damages for breach of fiduciary duty as a director to the fullest extent
permitted by Delaware law.
Gentiva. The Gentiva certificate of incorporation provides that no
director of Gentiva will be liable to Gentiva or its stockholders for monetary
damages for breach of fiduciary duty as a director to the fullest extent
permitted by Delaware law.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
General. Under Delaware law, a corporation generally may indemnify
directors and officers:
- for actions taken in good faith and in a manner they reasonably believed
to be in, or not opposed to, the best interests of the corporation; and
- with respect to any criminal proceeding, if the directors and officers
had no reasonable cause to believe that their conduct was unlawful.
In addition, Delaware law provides that a corporation may advance to a
director or officer expenses incurred in defending any action upon receipt of an
undertaking by the director or officer to repay the amount advanced if it is
ultimately determined that he or she is not entitled to indemnification.
Accredo. The Accredo certificate of incorporation provides that any person
who was or is a party or is threatened to be a party to, or is involved in any
action, suit or proceeding, whether civil, criminal, administrative, arbitrative
or investigative, because that person is or was a director or officer of
Accredo, or is or was, while a director or officer of Accredo, serving at the
request of Accredo as a director, trustee, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan, will be indemnified
and held harmless by Accredo to the fullest extent permitted by Delaware law.
The rights of indemnification provided to Accredo directors and officers
continue as to a person who has ceased to be a director, trustee, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such person. The indemnification rights conferred by Accredo
are not exclusive of any other right which persons seeking indemnification may
be entitled under any statute, Accredo's certificate of incorporation or bylaws,
any agreement, vote of stockholders or disinterested directors or otherwise.
The Accredo certificate of incorporation and bylaws provide that Accredo
shall pay expenses incurred by its directors and officers in defending a civil
or criminal action, suit or proceeding because they are directors or officers in
advance of the final disposition of the action, suit or proceeding. The payment
of expenses will be made only if Accredo receives an undertaking by or on behalf
of a director or officer to repay all amounts advanced if it is ultimately
determined that the director or officer is not entitled to be indemnified by
Accredo, as authorized by Accredo's certificate of incorporation and bylaws.
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In addition, Accredo may, to the extent authorized from time to time by its
board of directors, grant rights to indemnification and to the advancement of
expenses to any employee or agent of Accredo (or any person serving at Accredo's
request as a director, trustee, officer, employee or agent of another
enterprise) or to any person who is or was a director, officer, employee or
agent of any of Accredo's affiliates, predecessor or subsidiary corporations or
a constituent corporation absorbed by Accredo in a consolidation or merger or
who is or was serving at the request of such affiliate, predecessor or
subsidiary corporation or of such constituent corporation as a director,
officer, employee or agent of another enterprise.
The Accredo bylaws authorize Accredo to maintain insurance to protect
itself and any director, trustee, officer, employee or agent against any
expense, liability or loss, whether or not Accredo would have the power to
indemnify under Delaware law.
Gentiva. The Gentiva bylaws provide for indemnification, to the fullest
extent permitted by Delaware law, of any person who is or was a director or
officer of Gentiva and who was or is made a party to or is threatened to be made
party to any threatened, pending or completed action, suit, or proceeding
(including any appeal thereof), whether civil, criminal, administrative,
regulatory or investigative in nature, by reason of the fact that he or she is
or was a director or officer, of Gentiva, or, while serving as a director or
officer of Gentiva, is or was serving at the request of Gentiva as a director,
officer, partner, member, trustee, fiduciary, employee or agent of another
corporation, partnership, joint venture, limited liability company, trust or
other enterprise, if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of Gentiva.
The indemnification rights conferred by Gentiva are not exclusive of any other
right which persons seeking indemnification may be entitled under any statute,
Gentiva's certificate of incorporation or bylaws, any agreement, vote of
stockholders or disinterested directors or otherwise.
In addition, the Gentiva bylaws provide that expenses and costs incurred by
or on behalf of a director or officer in connection with any investigation,
claim, action, suit or proceeding will be advanced to the director or officer by
Gentiva upon the request of the director or officer which request will include
an undertaking by or on behalf of the director or officer to repay the amounts
advanced if ultimately it is determined that the director or officer was not
entitled to be indemnified against the expenses.
The rights of indemnification provided to Gentiva directors and officers
continue as to a person who has ceased to be a director, trustee, officer,
employee or agent and shall insure to the benefit of the heirs, executors and
administrators of such person.
Gentiva is authorized to purchase and maintain insurance on behalf of its
directors, officers, employees and agents.
STATE ANTI-TAKEOVER STATUTES
General. Under the business combination statute of Delaware law, a
corporation is prohibited, for a three year period following the time a
stockholder becomes an interested stockholder, from engaging in any business
combination with an interested stockholder who, together with its affiliates or
associates, owns, or who is an affiliate or associate of the corporation and
within a three-year period did own, 15% or more of the corporation's voting
stock, unless:
- prior to the time the stockholder became an interested stockholder, the
board of directors of the corporation approved either the business
combination or 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, excluding specified shares, upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder; or
- at or subsequent to the time the stockholder became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and authorized by the affirmative vote, at
an annual or special meeting and not by written consent, of at least 66
2/3% of the outstanding voting shares of the corporation, excluding
shares held by that interested stockholder.
116
A business combination generally includes:
- mergers, consolidations and sales or other dispositions of 10% or more of
the aggregate market value of the assets of a corporation to or with an
interested stockholder;
- specified transactions resulting in the issuance or transfer to an
interested stockholder of any capital stock of the corporation or its
subsidiaries; and
- other transactions resulting in a disproportionate financial benefit to
an interested stockholder.
The provisions of the Delaware business combination statute do not apply to
a corporation if, subject to certain requirements, the certificate of
incorporation or bylaws of the corporation contain a provision expressly
electing not to be governed by the provisions of the statute or the corporation
does not have voting stock listed on a national securities exchange, authorized
for quotation on an inter-dealer quotation system of a registered national
securities association or held of record by more than 2,000 stockholders.
Accredo. Because Accredo has not adopted any provision in its certificate
of incorporation to "opt-out" of the Delaware business combination statute, the
statute is applicable to business combinations involving Accredo. In addition,
the following provisions contained in Accredo's certificate of incorporation and
bylaws may discourage or delay attempts to gain control of Accredo. Accredo's
certificate of incorporation includes provisions (a) classifying the board of
directors into three classes, (b) authorizing directors to fill vacancies on the
board of directors occurring between annual stockholders meetings, (c) requiring
the affirmative vote of at least two-thirds of the outstanding shares to alter,
amend or otherwise modify any provision of the certificate relating to the
number of members of the board of directors, board classification, vacancies and
removal of directors or to amend any other provision of the certificate in a
manner inconsistent with these provisions and (d) requiring that special
meetings may be called only by the board of directors, the chairman of the
board, the chief executive officer or holders of not less than two-thirds of the
shares entitled to vote. Accredo's bylaws include provisions governing the
conduct of business at stockholder meetings and the nominations of persons for
election as Accredo directors.
Gentiva. Because Gentiva has not adopted any provision in its certificate
of incorporation to "opt-out" of the Delaware business combination statute, the
statute is applicable to business combinations involving Gentiva.
STOCKHOLDER RIGHTS AGREEMENTS
Accredo. Accredo does not have a stockholder rights plan.
Gentiva. Gentiva adopted a Rights Agreement in March 2001, which serves as
an anti-takeover mechanism for Gentiva's board of directors. Under this plan,
Gentiva declared a dividend distribution of one Right for each outstanding share
of Gentiva common stock which is currently represented by ownership in Gentiva's
common stock. The rights agreement provides that the exercisability of the
rights will be triggered upon the earlier to occur of (i) 10 days following a
public announcement that a person or group of affiliated persons has acquired
beneficial ownership of 10% or more of the outstanding shares of Gentiva common
stock or (ii) 10 days following (unless otherwise delayed by the Gentiva's board
of directors) the commencement of a tender offer or exchange offer that would
result in a person or group of affiliated persons beneficially owning 10% or
more of the outstanding shares of Gentiva common stock. After an event causing
the exercisability of a right, each Right entitles the registered holder to
purchase from Gentiva a unit consisting of one one-thousandth of a share of
Series A Junior Participating Preferred Stock, par value $.01 per share, at a
price of $75 per one one-thousandth of a share, subject to adjustments. The
Olsten family is, to some extent, protected from triggering the exercisability
of rights under the Rights Agreement. Gentiva's board of directors may redeem or
exchange rights or amend the Rights Agreement in certain circumstances..
Each holder of a Right other than the person triggering the distribution
will in such event have the right to receive shares of Gentiva common stock
having a value equal to two times the exercise price of the Right. The Rights
will expire on the close of business on March 2, 2010, unless such date is
extended or the Rights are earlier redeemed or exchanged by Gentiva at a price
of $.001 per Right.
117
COMPARATIVE MARKET PRICES AND DIVIDENDS
Accredo common stock is quoted on the Nasdaq National Stock Market under
the symbol "ACDO." Gentiva common stock is quoted on the Nasdaq National Stock
Market under the symbol "GTIV". The following table sets forth, for the
indicated periods, the high and low bid prices for the Accredo and Gentiva
common stock as reported by the Nasdaq National Market. No cash dividends have
been declared on the Accredo or Gentiva common stock for the indicated periods.
<Table>
<Caption>
ACCREDO COMMON GENTIVA COMMON
STOCK PRICE PER STOCK PRICE PER
SHARE SHARE
--------------- ---------------
HIGH LOW HIGH LOW
------ ------ ------ ------
1999
Quarter ended June 30, 1999(1)........................... $21.83 $12.71 -- --
Quarter ended Sept. 30, 1999............................. $24.58 $18.00 -- --
Quarter ended Dec. 31, 1999.............................. $22.17 $17.75 -- --
2000
Quarter March 31, 2000(2)................................ $39.38 $19.25 $ 7.25 $ 5.25
Quarter ended June 30, 2000.............................. $37.75 $18.38 $10.00 $ 6.19
Quarter ended Sept. 30, 2000............................. $32.92 $31.83 $14.00 $ 7.63
Quarter ended Dec. 31, 2000.............................. $37.20 $23.25 $14.38 $10.19
2001
Quarter ended March 31, 2001............................. $35.55 $23.50 $20.38 $13.06
Quarter ended June 30, 2001.............................. $39.95 $26.06 $23.50 $15.60
Quarter ended Sept. 30, 2001............................. $39.25 $27.59 $20.90 $16.35
Quarter ended Dec. 31, 2001.............................. $41.80 $29.77 $22.44 $15.66
2002
Quarter ended March 31, 2002 (through , 2002)
</Table>
- ---------------
(1) Accredo common stock began trading on the Nasdaq National Market following
its initial public offering on April 16, 1999.
(2) Gentiva common stock began trading on the Nasdaq National Market on March
16, 2000 following its split-off from Olsten Corporation.
On January 2, 2002, the last trading day prior to public announcement of
the acquisition, the last sale price of Accredo common stock as reported on the
Nasdaq National Market was $38.69 per share and the last sale price of Gentiva
common stock as reported on the Nasdaq National Market was $21.59 per share.
Accredo has not paid or declared any cash dividends on shares of its common
stock since its inception. Accredo's policy is to retain all net earnings for
the development of its business, and it does not anticipate paying cash
dividends on Accredo common stock in the foreseeable future. The payment of
future cash dividends will be at the sole discretion of the board of directors
and will depend upon Accredo's profitability, financial condition, cash
requirements, future prospects and other factors deemed relevant by the board of
directors. The payment of dividends is limited by certain covenants within
Accredo's loan agreements.
118
STOCKHOLDER PROPOSALS
Whether or not the acquisition is completed, Accredo and Gentiva will hold
annual stockholders' meetings in 2002. Subject to the requirements of Rule 14a-8
under the Exchange Act, stockholders of each company may present proposals for
inclusion in a company's proxy statement and for consideration at the next
annual meeting of its stockholders by submitting their proposals to the company
in a timely manner.
Accredo 2002 Annual Meeting. According to securities laws, the deadline
for submission of a stockholder proposal in connection with the 2002 annual
meeting of Accredo stockholders is June 14, 2002. If, however, Accredo schedules
an annual meeting of stockholders to be held on a date after December 16, 2002,
stockholders may present a proposal for inclusion in Accredo's proxy statement
and presentation at the annual meeting a reasonable time before Accredo begins
to print and mail its proxy materials. According to Accredo's bylaws, in order
to be timely, an Accredo stockholder's notice must be delivered to or mailed and
received at the principal executive offices of Accredo not less than 60 days nor
more than 90 days prior to the meeting. In the event that less than 70 days'
notice or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder must be received not later than the
close of business on the tenth day following the day on which notice of the date
of the meeting was mailed or public disclosure was made. The notice must contain
specified information as required by law and Accredo's bylaws about each nominee
or the proposed business and the stockholder making the nomination or proposal.
Gentiva 2002 Annual Meeting. Proposals of stockholders intended for
inclusion in Gentiva's proxy statement and form of proxy for its 2002 Annual
Meeting needed to have been received in writing by December 17, 2001 at the
Office of Secretary at Gentiva's principal executive offices located at 3
Huntington Quadrangle 2S, Melville, New York 11747-8943. In addition, notice of
any proposal that a stockholder desires to propose for consideration at the 2002
Annual Meeting must, to satisfy requirements under Gentiva's By-Laws, be
received in writing by Gentiva at the above address on or after January 18, 2002
and on or before February 17, 2002.
EXPERTS
The consolidated financial statements and schedule of Accredo Health,
Incorporated as of June 30, 2000 and 2001, and for each of the three years in
the period ended June 30, 2001, are included in our 2001 annual report on Form
10-K, which is incorporated by reference in the registration statement. Ernst &
Young LLP, independent auditors, have audited these consolidated financial
statements and schedule as set forth in their report, which is incorporated by
reference in the registration statement. The financial statements and schedule
are incorporated by reference in reliance on Ernst & Young LLP's report, given
on their authority as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the financial
statements and schedule of Specialty Pharmaceutical Services, a division of
Gentiva Health Services, Inc., as of September 30, 2001, and December 31, 2000,
and for the nine months ended September 30, 2001, and the years ended December
31, 2000, and January 2, 2000, as set forth in their report. We have included
these financial statements and schedule in the Registration Statement in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
The consolidated financial statements of Gentiva Health Services, Inc. and
subsidiaries, as of December 31, 2000 and January 2, 2000, and for each of the
years in the three-year period ended December 31, 2000 have been incorporated
herein by reference and in the registration statement in reliance upon the
report of PricewaterhouseCoopers LLP, independent accountants, given upon the
authority of said firm as experts in accounting and auditing.
OPINIONS
The legality of the shares of Accredo common stock to be issued in the
acquisition will be passed upon by Alston & Bird LLP.
119
WHERE YOU CAN FIND MORE INFORMATION
Accredo and Gentiva file annual, quarterly and current reports, proxy and
information statements, and other information with the SEC under the Securities
Exchange Act of 1934. You may read and copy this information at the Public
Reference Section at the SEC at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an
Internet site that contains reports, proxy and information statements, and other
information about issuers that file electronically with the SEC. The address of
that site is http://www.sec.gov. In addition, you can read and copy this
information at the regional offices of the SEC at Woolworth Building, 233
Broadway, New York, New York 10279 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661.
IMPORTANT INFORMATION ABOUT THIS JOINT PROXY STATEMENT-PROSPECTUS
No one has been authorized to give any information or make any
representation about Gentiva or Accredo, the acquisition/sale of the SPS
business, the proposed Accredo 2002 Long-Term Incentive Plan or the proposed
amendment of Accredo's amended and restated certificate of incorporation, that
differs from, or adds to, the information:
- contained in this joint proxy statement-prospectus;
- contained in the documents that are referred to in this joint proxy
statement-prospectus; or
- contained in the documents Gentiva and Accredo file with the Securities
and Exchange Commission, or the SEC, and incorporated herein by reference.
If anyone does give you different or additional information, you should not rely
on it.
This joint proxy statement-prospectus has been prepared as of ,
2002. There may be changes in the affairs of Accredo or Gentiva since that date
that are not reflected in this document.
Accredo has supplied all information contained or incorporated by reference
in this joint proxy statement-prospectus relating to Accredo, as well as all pro
forma financial information of Accredo, and Gentiva has supplied all information
contained or incorporated by reference in this joint proxy statement-prospectus
relating to Gentiva, as well as all pro forma financial information of Gentiva.
All financial data included herein and all financial data incorporated by
reference into this joint proxy statement-prospectus for periods in fiscal 2001
reflect the reclassification of Gentiva's reportable segments, which was
effective as of fiscal 2001. Financial data incorporated by reference into this
joint proxy statement-prospectus for periods prior to fiscal 2001 have not been
reclassified to conform with the fiscal 2001 presentation. Upon filing of the
fiscal 2001 Form 10-K, Gentiva intends to reclassify fiscal 2000 and 1999
segment disclosure to reflect the reclassification made and reflected in 2001. A
description of this reclassification is included more fully in Gentiva's
Quarterly Reports on Form 10-Q for the quarters ended April 1, 2001, July 1,
2001 and September 30, 2001, which are incorporated by reference herein.
INCORPORATION BY REFERENCE
Accredo filed a registration statement with the SEC under the Securities
Act of 1933, as amended, relating to the Accredo common stock offered to
Gentiva. The registration statement contains additional information about
Accredo and the Accredo common stock. The SEC allows Accredo to omit certain
information included in the registration statement from this joint proxy
statement-prospectus. The registration statement may be inspected and copied at
the SEC's public reference facilities described above.
This joint proxy statement-prospectus incorporates important business and
financial information about Accredo and Gentiva that is not included in or
delivered with this joint proxy statement-prospectus.
120
The following documents filed with the SEC by Accredo are incorporated by
reference in this joint proxy statement-prospectus (SEC File No. 000-25769):
(1) Accredo's Annual Report on Form 10-K for the fiscal year ended June
30, 2001 (including those portions of the Accredo's definitive proxy
statement for the Annual Meeting of Shareholders held on November 16, 2001
incorporated by reference therein);
(2) Accredo's Quarterly Report on Form 10-Q for the three months ended
September 30, 2001;
(3) Accredo's Quarterly Report on Form 10-Q for the three months ended
December 31, 2001;
(4) Accredo's Current Report on Form 8-K dated January 4, 2002;
(5) Description of Accredo's common stock set forth in Accredo's
registration statement filed pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended, and any report or amendment filed for the
purpose of updated any such description.
The following documents filed with the SEC by Gentiva are incorporated by
reference in this joint proxy statement-prospectus (SEC File No. 001-15669):
(1) Gentiva's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000;
(2) Gentiva's Quarterly Reports on Form 10-Q for the quarters ended
April 1, 2001, July 1, 2001 and September 30, 2001;
(3) Gentiva's Current Reports on Form 8-K dated May 21, 2001 and January
7, 2002.
Accredo and Gentiva also incorporate by reference additional documents
filed by them pursuant to Sections 13(a), 13(c), 14, or 15(d) of the Exchange
Act after the date of this joint proxy statement-prospectus and prior to final
adjournment of the special meetings. Any statement contained in this joint proxy
statement-prospectus or in a document incorporated or deemed to be incorporated
by reference in this joint proxy statement-prospectus shall be deemed to be
modified or superseded to the extent that a statement contained herein or in any
subsequently filed document which also is, or is deemed to be, incorporated by
reference herein modifies or supersedes such statement.
You may obtain copies of the information incorporated by reference in this
joint proxy statement-prospectus upon written or oral request. The inside front
cover of this joint proxy statement-prospectus contains information about how
such requests should be made. ANY REQUEST FOR DOCUMENTS SHOULD BE MADE BY
, 2002 TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS.
All information contained in this joint proxy statement-prospectus or
incorporated herein by reference with respect to Accredo was supplied by
Accredo, and all information contained in this joint proxy statement-prospectus
with respect to Gentiva was supplied by Gentiva.
FORWARD LOOKING STATEMENTS
This document, including information included or incorporated by reference
in this document, contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 with respect to the financial
condition, results of operations and business of Accredo and Gentiva and
assuming consummation of the acquisition/sale of the SPS business, the combined
Accredo and SPS business, and Gentiva without the SPS business. Such statements
include, but are not limited to, statements relating to:
- Synergies expected to be realized from the acquisition;
- Business opportunities and strategies potentially available to Accredo
and Gentiva;
- Acquisition-related and restructuring charges expected to be incurred;
- Management, operations and policies of each of Accredo and Gentiva after
the acquisition;
- The amount of the cash distribution;
121
- Statements preceded by, followed by or that include the words "believes,"
"expects," "anticipates," "intends," "estimates," "should" or similar
expressions;
- The value of Accredo's common stock; and
- The financial and growth ability of Gentiva after the sale of the SPS
business.
These forward-looking statements involve some risks and uncertainties.
Factors that may cause actual results to differ materially from those
contemplated by these forward looking statements include, among other things,
the following possibilities,, as well as those described under "Risk Factors":
- The risk that the businesses of Accredo and the SPS business acquired
from Gentiva will not be integrated successfully or such integration may
be more difficult, time-consuming or costly than expected;
- Risks associated with Gentiva's narrower focus on its home health care
services business;
- Expected revenue synergies and cost savings from the acquisition may not
be fully realized within the expected time frame;
- The effect of competition in the markets where Accredo and Gentiva
operate;
- Contingent liabilities;
- Risks associated with debt service;
- The effect the distribution will have on the value of Gentiva's common
stock; and
- Losses of key personnel.
For additional information that could cause actual results to differ
materially from those described in the forward looking statements, you should
refer to the Annual Report on Form 10-K for Accredo for the year ended June 30,
2001 and the Annual Report of Form 10-K for Gentiva for the fiscal year ended
December 31, 2000, including any amendments.
122
SPS BUSINESS FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
SPECIALTY PHARMACEUTICAL SERVICES
A DIVISION OF GENTIVA HEALTH SERVICES, INC.
NINE MONTHS ENDED SEPTEMBER 30, 2001, AND YEARS ENDED DECEMBER 31, 2000, AND
JANUARY 2, 2000, WITH REPORT OF INDEPENDENT AUDITORS
123
SPECIALTY PHARMACEUTICAL SERVICES
A DIVISION OF GENTIVA HEALTH SERVICES, INC.
FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2001, AND YEARS ENDED
DECEMBER 31, 2000, AND JANUARY 2, 2000
CONTENTS
<Table>
Report of Independent Auditors.............................. F-2
Balance Sheets as of September 30, 2001, and December 31,
2000...................................................... F-3
Statements of Operations for the nine months ended September
30, 2001, and for the years ended December 31, 2000, and
January 2, 2000........................................... F-4
Statements of Changes in Divisional Equity for the nine
months ended September 30, 2001, and for the years ended
December 31, 2000, and January 2, 2000.................... F-5
Statements of Cash Flows for the nine months ended September
30, 2001, and for the years ended December 31, 2000, and
January 2, 2000........................................... F-6
Notes to Financial Statements............................... F-7
Schedule II -- Valuation and Qualifying Accounts............ F-18
</Table>
F-1
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Gentiva Health Services, Inc.
We have audited the accompanying balance sheets of Specialty Pharmaceutical
Services (SPS), a division of Gentiva Health Services, Inc., as of September 30,
2001, and December 31, 2000, and the related statements of operations, changes
in divisional equity and cash flows for the nine months ended September 30,
2001, and the years ended December 31, 2000, and January 2, 2000. Our audits
also included the financial statement schedule listed in the index. These
financial statements and schedule are the responsibility of SPS's management.
Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 financial statements referred to above present fairly,
in all material respects, the financial position of Specialty Pharmaceutical
Services at September 30, 2001, and December 31, 2000, and the results of its
operations and its cash flows for the nine months ended September 30, 2001, and
the years ended December 31, 2000, and January 2, 2000, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ Ernst & Young LLP
Memphis, Tennessee
January 11, 2002
F-2
SPECIALTY PHARMACEUTICAL SERVICES
A DIVISION OF GENTIVA HEALTH SERVICES, INC.
BALANCE SHEETS
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------- ------------
(IN THOUSANDS)
ASSETS
Current assets:
Cash...................................................... $ 18 $ 18
Accounts receivable....................................... 314,257 340,160
Allowance for doubtful accounts........................... (77,566) (87,506)
-------- --------
236,691 252,654
Inventories............................................... 47,683 50,065
Prepaid expenses and other................................ 2,729 2,002
-------- --------
Total current assets................................. 287,121 304,739
Property and equipment, net................................. 13,536 14,600
Intangibles, net............................................ 3,309 3,596
Other assets................................................ 1,892 1,985
-------- --------
Total assets......................................... $305,858 $324,920
======== ========
LIABILITIES AND DIVISIONAL EQUITY
Current liabilities:
Accounts payable.......................................... $ 48,797 $ 56,029
Accrued expenses.......................................... 1,727 3,632
Payroll and related taxes................................. 2,444 3,495
Insurance costs........................................... 1,747 1,746
-------- --------
Total current liabilities............................ 54,715 64,902
Other liabilities........................................... 1,756 1,835
-------- --------
Total liabilities.................................... 56,471 66,737
Commitments and contingencies
Divisional equity........................................... 249,387 258,183
-------- --------
Total liabilities and divisional equity.............. $305,858 $324,920
======== ========
</Table>
See accompanying notes.
F-3
SPECIALTY PHARMACEUTICAL SERVICES
A DIVISION OF GENTIVA HEALTH SERVICES, INC.
STATEMENTS OF OPERATIONS
<Table>
<Caption>
NINE MONTHS
ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2001 DECEMBER 31, 2000 JANUARY 2, 2000
------------------ ----------------- ---------------
(IN THOUSANDS)
Net revenues.................................. $546,955 $699,327 $665,126
Cost of services sold......................... 389,503 487,820 445,102
-------- -------- --------
Gross profit.................................. 157,452 211,507 220,024
Selling, general and administrative expenses:
Field administrative costs.................. 82,301 110,162 94,717
Provision for doubtful accounts............. 22,500 113,726 30,247
Depreciation and amortization............... 5,849 9,622 11,112
Corporate office support costs.............. 16,317 25,329 30,827
Corporate overhead allocation............... 6,808 14,565 8,146
-------- -------- --------
133,775 273,404 175,049
-------- -------- --------
Operating profit (loss)....................... 23,677 (61,897) 44,975
Interest expense, net......................... 165 6,812 9,802
-------- -------- --------
Income (loss) before income taxes............. 23,512 (68,709) 35,173
Income tax expense (benefit).................. 9,200 (26,655) 13,768
-------- -------- --------
Net income (loss)............................. $ 14,312 $(42,054) $ 21,405
======== ======== ========
</Table>
See accompanying notes.
F-4
SPECIALTY PHARMACEUTICAL SERVICES
A DIVISION OF GENTIVA HEALTH SERVICES, INC.
STATEMENTS OF CHANGES IN DIVISIONAL EQUITY
<Table>
<Caption>
(IN THOUSANDS)
Balance at January 3, 1999.................................. $277,663
Net income................................................ 21,405
Net transactions with Parent.............................. 54,260
--------
Balance at January 2, 2000.................................. 353,328
Net loss.................................................. (42,054)
Net transactions with Parent.............................. (53,091)
--------
Balance at December 31, 2000................................ 258,183
Net income................................................ 14,312
Net transactions with Parent.............................. (23,108)
--------
Balance at September 30, 2001............................... $249,387
========
</Table>
See accompanying notes.
F-5
SPECIALTY PHARMACEUTICAL SERVICES
A DIVISION OF GENTIVA HEALTH SERVICES, INC.
STATEMENTS OF CASH FLOWS
<Table>
<Caption>
NINE MONTHS
ENDED
SEPTEMBER YEAR ENDED YEAR ENDED
30, 2001 DECEMBER 31, 2000 JANUARY 2, 2000
----------- ----------------- ---------------
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income (loss).................................. $ 14,312 $(42,054) $ 21,405
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities
Depreciation and amortization.................... 5,849 9,622 11,112
Provision for doubtful accounts.................. 22,500 113,726 30,247
Changes in assets and liabilities
Accounts receivable.............................. (6,537) (49,837) (100,989)
Inventories...................................... 2,382 41,643 (3,744)
Prepaid expenses and other current assets........ (727) 7,094 (1,925)
Current liabilities.............................. (10,187) (23,587) (281)
Other, net......................................... 15 283 366
-------- -------- ---------
Net cash provided by (used in) operating
activities....................................... 27,607 56,890 (43,809)
-------- -------- ---------
INVESTING ACTIVITIES
Purchases of property and equipment................ (4,499) (3,798) (10,449)
-------- -------- ---------
Net cash used in investing activities.............. (4,499) (3,798) (10,449)
-------- -------- ---------
FINANCING ACTIVITIES
Net transactions with Parent....................... (23,108) (53,091) 54,260
-------- -------- ---------
Net cash provided by (used in) financing
activities....................................... (23,108) (53,091) 54,260
-------- -------- ---------
Net change in cash................................. -- 1 2
Cash at beginning of period........................ 18 17 15
-------- -------- ---------
Cash at end of period.............................. $ 18 $ 18 $ 17
======== ======== =========
</Table>
See accompanying notes.
F-6
SPECIALTY PHARMACEUTICAL SERVICES
A DIVISION OF GENTIVA HEALTH SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, 2001, AND YEARS ENDED
DECEMBER 31, 2000, AND JANUARY 2, 2000
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
The Specialty Pharmaceutical Services Division ("SPS" or the "Division") of
Gentiva Health Services, Inc. (the "Parent" or "Gentiva") provides specialty
pharmaceutical services (including infusion therapy and distribution services)
through a network of 40 pharmacies across the United States. Services provided
by SPS include (i) the distribution of drugs and other biological and
pharmaceutical products and professional support services for individuals with
chronic diseases, such as hemophilia, primary pulmonary hypertension, autoimmune
deficiencies and growth disorders, (ii) the administration of antibiotics,
chemotherapy, nutrients and other medications for patients with acute or
episodic disease states, (iii) distribution services for pharmaceutical,
biotechnology and medical service firms and (iv) delivery management and
administration of products in the home setting and evaluation of equipment needs
of the patient.
On March 15, 2000, Gentiva was split-off (the "Split-off") from Olsten
Corporation ("Olsten") through the issuance of Gentiva's shares of common stock
to Olsten's shareholders, and Gentiva became an independent, publicly owned
company. Prior thereto, Gentiva operated Olsten's health services business as a
wholly owned subsidiary of Olsten.
BASIS OF PRESENTATION
The accompanying financial statements reflect the financial position,
results of operations, changes in divisional equity and cash flows of SPS as if
it were a separate entity. The financial statements have been prepared using the
historical basis of assets and liabilities and historical results of operations
related to SPS. The financial information in these financial statements is not
necessarily indicative of results that would have occurred if SPS had been a
separate stand-alone entity during the periods presented or of future results of
the SPS business.
Net transactions with Gentiva, including net transactions with Olsten prior
to the Split-off, are included in divisional equity and are primarily comprised
of the accumulated deficiency (excess) of net cash outlays made by SPS to
Gentiva.
Gentiva uses a centralized cash management system. As a result, cash (other
than petty cash) and borrowings were not allocated to SPS. Substantially all the
net transactions with the Parent reflected in the statements of changes in
divisional equity are cash transactions which are settled through intercompany
accounts.
The Division's assets are pledged as collateral on Gentiva's line of
credit.
Gentiva incurred corporate overhead costs relating to SPS during the
periods presented. Gentiva charged certain corporate office support costs to SPS
by specifically identifying SPS-related expenses and including those in the
operating expense accounts. Indirect costs were allocated based on SPS's portion
of Gentiva's total revenue and are included in corporate overhead allocation in
the accompanying statements of operations.
The SPS financial statements include income taxes calculated on a separate
company basis and the costs experienced by the Parent's benefit plans for
employees of the SPS division.
F-7
SPECIALTY PHARMACEUTICAL SERVICES
A DIVISION OF GENTIVA HEALTH SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenues and related costs, including labor, payroll taxes, fringe
benefits, products and supplies and contractor costs, are recognized in the
period in which the services and products are provided or delivered. Revenues
are recorded based on fee-for-service or contractual arrangements with customers
and third-party payors.
Approximately 24%, 22% and 21% of net revenues for the nine months ended
September 30, 2001, and the years ended December 31, 2000, and January 2, 2000,
respectively, were derived from participation in Medicare, Medicaid and other
state-sponsored programs.
Revenue adjustments result from differences between estimated and actual
reimbursement amounts, an inability to obtain appropriate billing documentation
or authorizations acceptable to the payor and other reasons unrelated to credit
risk. Revenue adjustments are deducted directly from gross billings. Management
prepares various analyses including accounts receivable aging trends, historical
collection and write-off data and other statistical information by business line
in order to determine the allowance for doubtful accounts.
SHIPPING AND HANDLING COSTS
Shipping and handling costs are included in cost of services sold on the
accompanying statements of operations.
ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The most significant estimate relates to the allowance for doubtful accounts.
INVENTORIES
Inventories consist primarily of biological and pharmaceutical products and
supplies held for sale or distribution to patients through prescription. SPS
records inventories at the lower of cost or market. Cost represents the weighted
average cost of purchased products and supplies.
PROPERTY AND EQUIPMENT
Property and equipment, including costs of internally developed software,
are stated at cost and depreciated over the estimated useful lives of the assets
using the straight-line method. Leasehold improvements are amortized over the
shorter of the life of the lease or the life of the improvement.
F-8
SPECIALTY PHARMACEUTICAL SERVICES
A DIVISION OF GENTIVA HEALTH SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INTANGIBLES
Intangibles, principally goodwill, associated with acquired businesses are
being amortized on a straight-line basis over twenty years. Amortization expense
recorded for the nine months ended September 30, 2001, and the years ended
December 31, 2000, and January 2, 2000, was approximately $287, $381 and $384,
respectively.
<Table>
<Caption>
SEPTEMBER 30, 2001 DECEMBER 31, 2000
------------------ -----------------
Goodwill............................................ $7,581 $7,581
Accumulated amortization............................ (4,272) (3,985)
------ ------
$3,309 $3,596
====== ======
</Table>
VALUATION OF LONG-LIVED ASSETS
Management periodically evaluates carrying values of long-lived assets,
including property and equipment, strategic investments, goodwill and other
intangible assets, to determine whether events and circumstances indicate that
these assets have been impaired. An asset is considered impaired when
undiscounted cash flows to be realized from such asset are less than its
carrying value. In that event, a loss is determined based on the amount that the
carrying value exceeds the fair market value of such assets.
INSURANCE COSTS
Gentiva is obligated for certain costs under various insurance programs,
including employee health and welfare, workers compensation and professional
liability. Gentiva recognizes obligations associated with these policies in the
period the claim is incurred. The costs of both reported claims and claims
incurred but not reported, up to specified deductible limits, relating to these
programs are estimated based on historical data, current enrollment statistics
and other information. Such estimates and the resulting reserves are reviewed
and updated periodically, and any adjustments resulting therefrom are reflected
in earnings currently. Insurance costs are allocated to SPS by the Parent based
on the costs experienced by the Parent for the SPS division.
INCOME TAXES
The SPS division has historically been included, where applicable, in the
consolidated income tax returns of the Parent or of Olsten prior to the
Split-off date. The provision for income taxes in the statement of operations
has been calculated on a separate company basis. SPS provides for taxes based on
current taxable income and the future tax consequences of temporary differences
between the financial reporting and income tax carrying values of its assets and
liabilities.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument represents the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced sale or liquidation. Significant differences can arise
between the fair value and carrying amount of financial instruments that are
recognized at historical amounts.
The carrying amounts of SPS's accounts receivable and accounts payable
approximate fair value because of their short maturity.
F-9
SPECIALTY PHARMACEUTICAL SERVICES
A DIVISION OF GENTIVA HEALTH SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.
Under the new rules, goodwill and intangible assets deemed to have indefinite
lives will no longer be amortized but will be subject to annual impairment tests
in accordance with the Statements. Other intangible assets will continue to be
amortized over their estimated useful lives.
The Division will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of fiscal year 2002.
Application of the non-amortization provisions of the Statement is expected to
result in an increase in net income of approximately $381 in fiscal year 2002.
The Division will also perform the first of the required impairment tests of
goodwill and indefinite lived intangible assets as of December 31, 2001, the
beginning of fiscal year 2002. The Division does not expect these impairment
tests to have a material impact on the earnings and financial position of the
Division.
3. SPECIAL AND OTHER CHARGES
During the year ended December 31, 2000, SPS recorded special and other
charges aggregating $97,025, as discussed below.
PROVISION FOR DOUBTFUL ACCOUNTS
During the year ended December 31, 2000, SPS launched several initiatives
including (i) changes to systems, operational processes and procedures in its
contracting, delivery, billing and collection functions and inventory
management, (ii) development of numerous enhancements to the billing and
collection system, and (iii) hiring of external consultants to pursue focused
collection efforts on specific aged accounts receivable.
Management analyzed the results of these activities and concluded that
certain receivables previously thought to be collectible were uncollectible.
Moreover, management determined that SPS's resources would be more effectively
redirected to the collection of more current balances.
In connection with these activities, SPS recorded an incremental provision
for doubtful accounts of approximately $90,625, which is reflected in the
provision for doubtful accounts in the accompanying statement of operations for
the year ended December 31, 2000.
COST OF SERVICES SOLD
An adjustment of $6,400 was recorded in cost of services sold for changes
in cost estimates arising from the systems conversion and physical inventory
procedures, which were performed during the year ended December 31, 2000.
F-10
SPECIALTY PHARMACEUTICAL SERVICES
A DIVISION OF GENTIVA HEALTH SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment at September 30, 2001, and December 31, 2000, are
comprised of the following:
<Table>
<Caption>
USEFUL LIVES SEPTEMBER 30, DECEMBER 31,
(YEARS) 2001 2000
------------- ------------- ------------
Computer equipment and software................ 3-5 $ 18,150 $ 17,813
Furniture and fixtures......................... 5 9,732 9,622
Machinery and equipment........................ 5 14,615 12,407
Automobiles.................................... 5 388 600
Building and improvements...................... 3-7 7,768 8,324
-------- --------
50,653 48,766
Less accumulated depreciation.................. (37,117) (34,166)
-------- --------
$ 13,536 $ 14,600
======== ========
</Table>
Depreciation expense was approximately $5,562, $9,241 and $10,728 for the
nine months ended September 30, 2001, and the years ended December 31, 2000, and
January 2, 2000, respectively. Purchases of property and equipment were $3,280,
$1,708 and $5,279 for the nine months ended September 30, 2001, and for the
years ended December 31, 2000, and January 2, 2000, respectively.
5. INCOME TAXES
Income tax expense (benefit) is as follows:
<Table>
<Caption>
NINE MONTHS
ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2001 DECEMBER 31, 2000 JANUARY 2, 2000
------------------ ----------------- ---------------
CURRENT
Federal............................. $4,573 $ (4,317) $11,845
State and local..................... 960 (1,508) 2,152
------ -------- -------
5,533 (5,825) 13,997
DEFERRED
Federal............................. 3,208 (18,226) (201)
State and local..................... 459 (2,604) (28)
------ -------- -------
3,667 (20,830) (229)
------ -------- -------
$9,200 $(26,655) $13,768
====== ======== =======
</Table>
F-11
SPECIALTY PHARMACEUTICAL SERVICES
A DIVISION OF GENTIVA HEALTH SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the differences between income tax expense (benefit)
computed at the federal statutory rate and expense (benefit) for income taxes is
as follows:
<Table>
<Caption>
NINE MONTHS ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2001 DECEMBER 31, 2000 JANUARY 2, 2000
------------------ ----------------- ---------------
Income taxes computed at federal
statutory tax rate.................. $ 8,229 $(24,048) $12,311
State taxes, net of federal tax
benefit............................. 921 (2,672) 1,380
Amortization of intangibles........... 21 32 32
Other................................. 29 33 45
------- -------- -------
$ 9,200 $(26,655) $13,768
======= ======== =======
</Table>
Deferred tax assets and liabilities are as follows:
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------- ------------
DEFERRED TAX ASSETS
Reserves and allowances..................................... $31,780 $35,756
Other....................................................... 458 462
------- -------
Total deferred tax assets................................... 32,238 36,218
DEFERRED TAX LIABILITIES
Capitalized software........................................ (943) (1,065)
Intangible assets........................................... (1,343) (1,314)
Depreciation................................................ (835) (1,055)
------- -------
Total deferred tax liabilities.............................. (3,121) (3,434)
------- -------
Net deferred tax assets..................................... $29,117 $32,784
======= =======
</Table>
Deferred tax assets and liabilities and current taxes receivable or payable
are included in divisional equity in the accompanying balance sheets.
6. TRANSACTIONS WITH GENTIVA
SPS provides services to other Gentiva businesses and records such
transactions on a basis similar to outside customers. For the nine months ended
September 30, 2001, and the years ended December 31, 2000, and January 2, 2000,
net revenues included approximately $66,889, $74,448 and $54,599, respectively,
relating primarily to sales to Gentiva's home health care services division. At
September 30, 2001, and December 31, 2000, net accounts receivable included
approximately $13,456 and $17,941, respectively, relating to billings primarily
to Gentiva's home health care services division.
Corporate expenditures of approximately $23,125, $39,894 and $38,973 were
allocated to SPS by Gentiva and are reflected in the accompanying statements of
operations for the nine months ended September 30, 2001, and the years ended
December 31, 2000, and January 2, 2000, respectively. A description of these
charges and the methodology used to allocate the charges are summarized below:
- Corporate office support costs of approximately $16,317, $25,329 and
$30,827 for the nine months ended September 30, 2001, and the years ended
December 31, 2000, and January 2, 2000, respectively, were incurred
primarily at Gentiva's corporate administrative locations to provide back
office and other services for the benefit of the SPS division. These
costs include a portion of salaries and fringes,
F-12
SPECIALTY PHARMACEUTICAL SERVICES
A DIVISION OF GENTIVA HEALTH SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
lease expenses, professional service fees, travel expenses and
miscellaneous other costs incurred in various corporate departments. Such
costs were charged to the SPS division using a specific identification
method where appropriate or, as an alternative, allocation methodologies
based on headcount, numbers of locations or other factors relevant to
each department. Support costs in the year ended December 31, 2000,
included approximately $4,500 relating to consulting fees incurred in
connection with efforts to improve processes, systems and procedures
associated with the SPS billing and collection function.
- Corporate overhead costs of approximately $5,808, $6,465 and $6,416 for
the nine months ended September 30, 2001, and the years ended December
31, 2000, and January 2, 2000, respectively, represents an allocation of
costs incurred primarily at Gentiva's corporate administrative locations,
which, in management's judgment, do not have a direct benefit to SPS
operations but represent costs associated with corporate executive
management personnel and costs that are required to maintain an
independent public company. Total corporate overhead costs subject to
allocation were allocated based on net revenue for the SPS division as
compared to total consolidated net revenue for Gentiva. Corporate
overhead costs are included in corporate overhead allocation in the
accompanying statements of operations.
- During the nine months ended September 30, 2001, Gentiva incurred special
charges of approximately $3,000 in connection with the settlement of
certain lawsuits and various other legal costs. Approximately $1,000 of
these costs were allocated to the SPS division and are included in
corporate overhead allocation in the accompanying statements of
operations.
- During the year ended December 31, 2000, Gentiva incurred costs totaling
approximately $4,100 resulting from Split-off and transition costs
associated with the establishment of Gentiva as an independent, publicly
owned entity. These special charges included change of control and
compensation and benefit payments made to certain former employees of
Gentiva and Olsten and an executive officer of Gentiva, and transition
costs relating to registration costs, professional fees and other items.
Substantially all amounts were paid as of December 31, 2000.
Approximately $1,800 of these costs were allocated to the SPS division
and are included in the corporate overhead allocation in the accompanying
statements of operations.
- Gentiva recorded charges in the year ended December 31, 2000, in
connection with a restructuring plan which included the realignment and
consolidation of certain corporate and administrative support functions
due primarily to the sale of Gentiva's Staffing Services business and
Canadian operations. These charges included $1,200 of asset writedowns
and $2,100 relating to employee severance due to the termination of
certain corporate and administrative departments, future lease payments
and other associated costs. As of September 30, 2001, all of the
consolidation of facilities and expected terminations had occurred; the
unpaid portion of these restructuring charges aggregated $400.
Approximately $1,400 of these costs were allocated to the SPS division
and are included in corporate overhead allocation in the accompanying
statements of operations.
- Gentiva also recorded a $7,200 charge in the year ended December 31,
2000, to reflect estimated settlement costs in excess of insurance
coverage relating to class action securities and derivative lawsuits, the
obligation for which was assumed by Gentiva from Olsten under an
indemnification provision in connection with the Split-off, as well as
estimated settlement costs related to government inquiries in New Mexico
and North Carolina. As of December 31, 2000, all payments had been made.
Approximately $3,200 of these costs were allocated to the SPS division
and are included in corporate overhead allocation in the accompanying
statements of operations.
F-13
SPECIALTY PHARMACEUTICAL SERVICES
A DIVISION OF GENTIVA HEALTH SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- Charges of approximately $3,900 were incurred in the year ended December
31, 2000, in connection with the change of company name to Gentiva Health
Services, Inc. These special charges primarily consisted of costs
incurred and paid for consulting fees, promotional items and advertising.
Approximately $1,700 of these costs were allocated to the SPS division
and are included in corporate overhead allocation in the accompanying
statements of operations.
- During the year ended January 2, 2000, Gentiva recorded a restructuring
charge aggregating $16,700. This charge was for the realignment of
business units as part of a new restructuring plan, including
compensation and severance costs of $5,000 to be paid to operational
support staff, branch administrative personnel and management, asset
write-offs of $6,500 related primarily to fixed assets being disposed of
in offices being closed and facilities being consolidated, as well as
fixed assets and goodwill attributable to Gentiva's exit from certain
businesses previously acquired but not within Gentiva's strategic
objectives, and integration costs of $5,200, primarily related to
obligations under lease agreements for offices and other facilities being
closed. As of the end of fiscal 1999, substantially all of the closures
and consolidations of facilities and expected terminations had occurred.
Approximately $1,730 of these costs were allocated to the SPS division
and are included in corporate overhead allocation in the accompanying
statements of operations.
Interest expense, net of interest income, of $165, $6,812 and $9,802 for
the nine months ended September 30, 2001, and the years ended December 31, 2000,
and January 2, 2000, respectively, was allocated to the SPS division from
Gentiva based on a percentage of SPS's working capital compared to total working
capital for Gentiva.
Management believes all expense allocations are reasonable; however, the
costs charged to SPS are not necessarily indicative of the costs that would have
been incurred if SPS had been a stand-alone entity during the period in which
such expenses were allocated.
Gentiva created a non-qualified defined contribution retirement plan in the
year ended December 31, 2000, for salaried employees. Certain assets and
obligations from a legacy Olsten plan were transferred into the Gentiva plan at
the Split-off date. All pre-tax contributions, matching contributions and profit
sharing contributions (and the earnings thereon) are held in a Rabbi Trust and
are subject to the claims of the general, unsecured creditors of Gentiva. All
post-tax contributions are held in a secular trust and are not subject to the
claims of the creditors of Gentiva. The fair value of the assets held in the
Rabbi Trust and the liability to plan participants as of September 30, 2001, and
December 31, 2000, totaling approximately $1,756 and $1,835, respectively, are
included in other assets and other liabilities on the accompanying balance
sheets.
The SPS financial statements include the costs of the Parent's 401(k) and
health benefit plans for employees of the SPS division which amounted to
approximately $5,038, $5,437 and $4,252 for the nine months ended September 30,
2001, and the years ended December 31, 2000, and January 2, 2000, respectively.
7. COMMITMENTS
SPS rents certain properties under noncancelable, long-term operating
leases which expire at various dates. Certain of these leases require additional
payments for taxes, insurance and maintenance and, in many cases, provide for
renewal options. Rent expense under all leases was $4,798, $5,776 and $4,634 for
the nine months ended September 30, 2001, and the years ended December 31, 2000,
and January 2, 2000.
F-14
SPECIALTY PHARMACEUTICAL SERVICES
A DIVISION OF GENTIVA HEALTH SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum rental commitments for all noncancelable leases having an
initial or remaining term in excess of one year at September 30, 2001, are as
follows:
<Table>
<Caption>
TOTAL
FISCAL YEAR COMMITMENT
- ----------- ----------
2002........................................................ $ 6,562
2003........................................................ 5,240
2004........................................................ 4,510
2005........................................................ 3,149
2006........................................................ 384
Thereafter.................................................. 70
-------
$19,915
=======
</Table>
8. STOCK PLANS
Prior to the Split-off, Olsten as sole stockholder of Gentiva approved the
adoption of the Company's 1999 Stock Incentive Plan (the "1999 Plan") under
which 5 million shares of common stock were reserved for issuance upon exercise
of options thereunder. The maximum total number of shares of common stock for
which grants may be made to any employee, consultant or director under the 1999
plan in any calendar year is 300,000. These options may be awarded in the form
of incentive stock options ("ISOs") or non-qualified stock options ("NQSOs").
The option price of an ISO and NQSO cannot be less than 100 percent and 85
percent, respectively, of the fair market value at the date of grant. As of
September 30, 2001, there were 524,000 Gentiva options granted to SPS employees.
Effective as of the Split-off date, all options to purchase Olsten stock
("Olsten stock options") held by Gentiva employees, including employees of the
SPS business, became options to purchase Gentiva's common stock ("Gentiva stock
options") and Gentiva's employees became fully vested in the Gentiva stock
options. Olsten stock options were converted into Gentiva stock options at the
ratio of 1 to 2.077; the exercise price of a Gentiva stock option represents
48.1 percent of the corresponding Olsten stock option exercise price.
A summary of Gentiva stock options relating to employees of the SPS
business for the nine months ended September 30, 2001 and the year ended
December 31, 2000 is presented below.
<Table>
<Caption>
NINE MONTHS ENDED YEAR ENDED
9/30/01 12/31/00
------------------- ------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
-------- -------- ------- --------
Options outstanding, beginning of period..... 568,291 $ 6.72 -- $ --
Granted in connection with conversion of
Olsten options............................. -- -- 405,470 6.94
Granted...................................... 319,500 13.19 204,500 5.80
Exercised.................................... (233,872) 6.60 (35,176) 4.03
Cancelled.................................... (29,108) 12.29 (6,503) 6.14
-------- ------ ------- -----
Options outstanding, end of period........... 624,811 $ 9.81 568,291 $6.72
======== ====== ======= =====
Options exercisable, end of period........... 197,157 $ 7.37 365,791 $7.23
======== ====== ======= =====
</Table>
The weighted average fair value of Gentiva stock options held by employees
of the SPS business, calculated using the Black-Scholes option pricing model,
granted during the nine months ended Septem-
F-15
SPECIALTY PHARMACEUTICAL SERVICES
A DIVISION OF GENTIVA HEALTH SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
ber 30, 2001 and December 31, 2000, was $7.74 and $2.93 per option,
respectively. The fair value of each option grant is estimated on the date of
grant with the following weighted-average assumptions used for grants in the
2001 nine month period and fiscal 2000, respectively: risk-free interest rates
of 4.88 and 6.14 to 6.65 percent; dividend yield of 0 percent for the 2001 nine
month period and fiscal 2000; expected lives of five years for all; and
volatility of 65 percent for the 2001 nine month period and 47 percent for
fiscal 2000.
The following table summarizes information about Gentiva stock options
outstanding which are held by SPS employees at September 30, 2001.
<Table>
<Caption>
NUMBER EXERCISABLE
NUMBER WEIGHTED AVERAGE AT
OUTSTANDING AT REMAINING WEIGHTED AVERAGE SEPTEMBER 30,
RANGE OF EXERCISE PRICES SEPTEMBER 30, 2001 CONTRACTUAL LIFE EXERCISE PRICE 2001
- ------------------------ ------------------ ---------------- ---------------- ------------------
$ 3.61 to $ 4.39...... 33,010 7.06 $ 3.98 33,010
$ 5.56 to $ 6.75...... 180,664 8.45 5.72 52,010
$ 6.80 to $ 8.69...... 49,353 5.00 7.23 49,353
$ 8.92 to $12.44...... 60,299 5.42 10.02 57,799
$13.19 to $14.50...... 296,500 9.26 13.19 --
$16.70 to $20.75...... 4,985 0.70 18.96 4,985
------- ---- ------ -------
$ 3.61 to $20.75...... 624,811 8.13 $ 9.81 197,157
======= ==== ====== =======
</Table>
The weighted average exercise price of options exercisable at September 30,
2001 was $7.37.
SPS has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized under the
stock option plans. Had compensation cost for Gentiva's stock option plans been
determined based on the fair value at the grant date for awards consistent with
the provisions of SFAS No. 123, net income (loss) for the SPS business for the
nine months ended September 30, 2001 and the year ended December 31, 2000 would
have changed to the pro forma amounts indicated below (in thousands):
<Table>
<Caption>
2001 2000
------- --------
Net income (loss) -- as reported............................ $14,312 $(42,054)
Net income (loss) -- pro forma.............................. 13,546 (42,391)
</Table>
9. LITIGATION
On January 2, 2002, Cooper v. Gentiva CareCentrix, Inc. t/a/d/b/a Gentiva
Health Services, U.S. District Court (W.D. Penn), Civil Action No. 01-0508, an
amended complaint, was served on Gentiva alleging that the defendant submitted
false claims to the government for payment in violation of the Federal False
Claims Act and that the defendant had wrongfully terminated the plaintiff. The
plaintiff claims that infusion pumps delivered to patients did not supply the
full amount of medication, allegedly resulting in substandard care. Based on a
review of the court's docket sheet, the plaintiff filed a complaint under seal
in March 2001. In October 2001, the United States Government filed a Notice with
the court declining to intervene in this matter, and on October 24, 2001, the
court ordered that the seal be lifted. The plaintiff filed a motion to amend the
complaint on December 27, 2001, and served the complaint that same day.
Gentiva's response was filed on or about February 25, 2002. This dispute is in
the preliminary stages, and therefore, Gentiva is unable to predict the outcome
of this matter but does not believe that the complaint has merit and intends to
defend itself vigorously.
F-16
SPECIALTY PHARMACEUTICAL SERVICES
A DIVISION OF GENTIVA HEALTH SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. SUBSEQUENT EVENT
On January 2, 2002, Gentiva entered into an agreement with Accredo Health,
Incorporated (Accredo) for Accredo to purchase substantially all the assets of
the SPS division for approximately $415,000, subject to adjustment, to be paid
with an equal combination of cash and Accredo common stock.
F-17
SPECIALTY PHARMACEUTICAL SERVICES
A DIVISION OF GENTIVA HEALTH SERVICES, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001, AND
YEARS ENDED DECEMBER 31, 2000, AND JANUARY 2, 2000
<Table>
<Caption>
COL. B COL. C COL. D COL. E
------------ ---------- ------------- -------------
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT
PERIOD EXPENSES DEDUCTIONS(1) END OF PERIOD
------------ ---------- ------------- -------------
(IN THOUSANDS)
ALLOWANCES FOR DOUBTFUL ACCOUNTS
For the nine months ended September 30,
2001........................................ $87,506 $ 22,500 $(32,440) $77,566
For the year ended December 31, 2000.......... 34,800 113,726 (61,020) 87,506
For the year ended January 2, 2000............ 19,866 30,247 (15,313) 34,800
</Table>
- ---------------
(1) Represents amounts written off as uncollectible.
F-18
ANNEX A
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
ACCREDO HEALTH, INCORPORATED
AND
GENTIVA HEALTH SERVICES, INC.
AND THE OTHER SELLERS NAMED HEREIN
DATED JANUARY 2, 2002
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of January 2, 2002 by and between Accredo Health, Incorporated, a Delaware
corporation ("Buyer") and Gentiva Health Services, Inc., a Delaware corporation
("Parent") and the other Sellers.
PREAMBLE
Parent and its Subsidiaries own and operate a Specialty Business and a Home
Health Business; and
The Sellers desire to sell to Buyer and Buyer desires to purchase from the
Sellers substantially all of the assets and rights used in or related to the
operation or conduct of the Specialty Business, but not any of the assets or
rights used in or related to the operation or conduct of the Home Health
Business, on the terms and conditions set forth in this Agreement (the
"Acquisition").
Concurrent with the execution of this Agreement, as an inducement to
Buyer's willingness to enter into this Agreement, (i) certain stockholders of
Parent have entered into Voting Agreements (copies of which are attached hereto)
pursuant to which those stockholders have agreed, among other things, subject to
the terms of such Voting Agreement, to vote their shares of capital stock of
Parent over which such Persons have voting power to approve this Agreement and
the Acquisition and (ii) certain executive officers of Parent have entered into
employment agreements and restrictive covenant agreements (copies of which are
attached hereto) that become effective automatically with the Closing.
Certain terms used in this Agreement are defined in Article 10 hereof.
References herein to Schedules are references to the applicable section of the
Disclosure Memorandum furnished to Buyer.
NOW, THEREFORE, in consideration of the above and the mutual warranties,
representations, covenants and agreements set forth herein, the parties agree as
follows:
ARTICLE 1
PURCHASE OF RIGHTS AND ASSETS
1.1 Agreement to Purchase and Sell. Subject to the terms and conditions
set forth herein, the Sellers agree to sell, convey, transfer, assign and
deliver to Buyer, and Buyer agrees to purchase, all of the Sellers' right, title
and interest in and to all of the rights and assets owned by Sellers and used or
held for use in the operation of the Specialty Business (except for Retained
Assets as defined in Section 1.4 below), free and clear of all Liens, except
Permitted Liens, including, without limitation, the following (collectively, the
"Assets"):
(a) All tangible personal property used or held for use in the operation of
the Specialty Business, including all furniture, machinery, office furnishings,
equipment and equipment leasehold improvements and all office and warehouse
supplies (except for such supplies located at the Melville, New York location)
existing on the Closing Date;
(b) All authorizations, permits and licenses used by Sellers to operate the
Specialty Business as currently conducted by Sellers, to the extent assignable;
(c) All leases set forth on Schedule 1.1(c) including any and all security
and other deposits, advance rents and any other payments made thereunder prior
to Closing (the "Assigned Leases");
(d) Contracts and agreements relating to the Specialty Business as provided
in Section 1.10;
(e) All guarantees, warranties and rights of the Sellers against suppliers
and manufacturers to the extent applicable to the Specialty Business;
(f) All intangible assets relating to the operation of the Specialty
Business, including, but not limited to, all patents, trademarks, service marks
and designs and those trade names and service names set forth on
A-1
Schedule 1.1(f) hereto, data, information systems and software, and all
telephone numbers and the goodwill in or arising from the operation of the
Specialty Business;
(g) All prepaid items including, without limitation, all equipment, lease
and other deposits existing on the Closing Date;
(h) All patient lists and patient medical or operating records, employment
records, customer lists, customer contracts and financial records relating to
the Specialty Business (copies of the foregoing documents may be provided to
Buyer in lieu of originals where Sellers are required by law to retain original
documentation);
(i) Except for corporate records and minutes, all books, records and
documents owned, required for or incident to the operation of the Specialty
Business (copies of the foregoing documents may be provided to Buyer in lieu of
originals where Sellers are required by law to retain original documentation);
(j) All inventory as of the close of business on the Closing Date and used
in the operation of the Specialty Business (the "Inventory");
(k) All accounts receivable arising out of or relating to the Specialty
Business and outstanding at the Closing Date;
(l) Rights to Ordered Inventory and Open Customer Orders;
(m) All equity securities, and all corporate records and minutes, of
Gentiva Health Services (Infusion), Inc., Gentiva Health Services (Quantum)
Corp., and Quantum Health Resources, Inc. (New York) (the "Acquired
Subsidiaries"); provided that, prior to the Closing Date, Buyer may, at its
election, (i) instead of acquiring the equity securities of any such Acquired
Subsidiary, choose to acquire all of the Assets of such Acquired Subsidiary
(other than Retained Assets) and (ii) not acquire the equity securities of
Quantum Health Resources, Inc. (New York), in which event Gentiva Health
Services (Quantum) Corp. shall cause such equity securities to be distributed to
its parent corporation on or prior to the Closing Date, in each case by
providing Parent with written notice of such election not later than thirty (30)
days following the date of this Agreement; and
(n) Any and all other assets of whatever type or description, other than
the Retained Assets (as defined in Section 1.4 hereof) which are (i) reflected
in the books and records of the Specialty Business, except to the extent any
such assets have been disposed of in the ordinary course of business or (ii)
used or held for use in the operation of the Specialty Business. Buyer
understands and agrees that the Assets will remain at their current locations at
the Closing. Parent agrees to deliver or cause to be delivered, at the
instruction and cost of Buyer, any Assets that are not located at premises of
the Specialty Business to be occupied by Buyer or its Affiliates from and after
the Closing.
1.2 Consideration.
(a) The aggregate consideration to be paid by Buyer to Parent and the
Sellers for the Assets and the Restrictive Covenants Agreements shall be Four
Hundred Fifteen Million Dollars ($415,000,000), subject to adjustment as set
forth in Section 1.3 below (the "Consideration"), which shall be allocated to
the Restrictive Covenants Agreements as set forth in Section 1.2(d) and among
the Assets as provided in Section 1.8. The Consideration shall be payable 50% in
cash (the "Cash Consideration") and 50% in a number of shares of Buyer's Common
Stock (rounded to the nearest number of whole shares) (the "Stock
Consideration") determined as set forth in clause (b) of this Section 1.2.
(b) The Stock Consideration shall equal a number of shares of Buyer Common
Stock determined by dividing the amount of the Stock Consideration (after any
adjustment to the Consideration resulting from Section 1.3(a)) by the Base
Period Trading Price; provided, that if the Base Period Trading Price shall be
more than $41.00 the Base Period Trading Price shall be deemed to equal $41.00
and if the Base Period Trading Price is less than $31.00 the Base Period Trading
Price shall be deemed to equal $31.00.
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(c) The Consideration shall be payable as follows:
(i) Cash Consideration. On the Closing Date, Buyer shall deliver to
Parent the Cash Consideration by wire transfer of immediately available
funds in cash to such account or accounts as Parent shall designate.
(ii) Stock Consideration. At the Closing, Buyer shall cause to be
issued to Parent duly authorized and issued stock certificates in such
amounts as Sellers request representing the Stock Consideration.
(d) The Parties agree that Two Million Dollars ($2,000,000) of the Cash
Consideration shall be allocated to and payable upon execution and delivery of
the Restrictive Covenants Agreements by wire transfer of immediately available
funds in cash to such account or accounts as Parent shall designate.
1.3 Closing Balance Sheets.
(a) Buyer and Sellers shall cause Ernst & Young LLP ("E&Y") and
PriceWaterhouseCoopers LLP ("PWC") to jointly prepare and deliver to Seller and
Buyer five (5) days prior to the Closing Date a closing balance sheet which
identifies and estimates the Assets and Assumed Liabilities expected to be
accrued in the ordinary course of business of the Specialty Business as of the
Closing Date (the "Estimated Closing Balance Sheet"). The Estimated Closing
Balance Sheet shall be prepared in accordance with generally accepted accounting
principles ("GAAP") and with respect to corporate allocations to the Specialty
Business shall be prepared consistent with the Statement of Assets and
Liabilities included in the Adjusted Financial Statements in each case except as
set forth on Schedule 1.3(a), and with respect to accounts receivable,
consistent with the policies and procedures applied in establishing the reserves
for Statement of Assets and Liabilities included in the Adjusted Financial
Statements. Based on the Estimated Closing Balance Sheet, the Consideration will
be adjusted up at Closing on a dollar for dollar basis to the extent that the
Net Book Value exceeds $252,500,000 and will be adjusted down at Closing on a
dollar for dollar basis to the extent that the Net Book Value is less than
$247,500,000. The "Net Book Value Range" shall be from $247,500,000 to
$252,500,000. In the event that E&Y and PWC are unable to agree on the Net Book
Value by five (5) days prior to the Closing Date, the Net Book Value for
purposes of this Section 1.3(a) shall be equal to the average of the Net Book
Value as determined by E&Y and the Net Book Value as determined by PWC.
(b) Within twenty (20) days after the Closing Date or as soon as possible
thereafter, Buyer shall cause Ernst & Young LLP to update the Estimated Closing
Balance Sheet to reflect the actual line items as of the Closing Date (the
"Actual Closing Balance Sheet"), and determine the difference between the Net
Book Value based on the Actual Closing Balance Sheet and the Net Book Value
based on the Estimated Closing Balance Sheet. The Actual Closing Balance Sheet
shall be prepared in a manner consistent with the basis required in Section
1.3(a) for the preparation of the Estimated Closing Balance Sheet and payments
shall be trued up in accordance with the following process:
(i) If the Net Book Value on the Estimated Closing Balance Sheet and the
Net Book Value on the Actual Closing Balance Sheet are both within the Net
Book Value Range, no payment shall be required to be made.
(ii) If the Net Book Value on the Estimated Closing Balance Sheet and
the Actual Closing Balance Sheet are both higher than the Net Book Value
Range or both lower than the Net Book Value Range, and (x) the Net Book
Value on the Actual Closing Balance Sheet is greater than the Net Book
Value on the Estimated Closing Balance Sheet, the amount of such difference
(the "Buyer Payment") shall be paid by Buyer to Parent by wire transfer of
immediately available funds in cash within ten (10) days of such
determination unless disputed in good faith in accordance with Section
1.3(c) below; or (y) the Net Book Value on the Actual Closing Balance Sheet
is less than the Net Book Value on the Estimated Closing Balance Sheet, the
absolute value of the amount of such difference (the "Parent Payment")
shall be paid by Parent to Buyer by wire transfer of immediately available
funds in cash within ten (10) days of such determination unless disputed in
good faith in accordance with Section 1.3(c) below.
(iii) If the Estimated Net Book Value is above the Net Book Value Range
and the Actual Net Book Value is lower than the Net Book Value Range, or
vice versa, the amount of the Buyer Payment or
A-3
the Parent Payment, as applicable, less Five Million Dollars ($5,000,000),
shall be paid in accordance with procedures set forth in Section 1.3(b)(ii)
above.
(iv) If the Estimated Net Book Value is within the Net Book Value Range
and the Actual Net Book Value is outside of the Net Book Value Range, the
amount of difference (or, if a negative number, the absolute value of the
amount of difference) between the Net Book Value based on the Estimated
Closing Balance Sheet and the Net Book Value based on the Actual Closing
Balance Sheet shall be paid in accordance with the procedures set forth
Section 1.3(b)(ii) above by (i) Buyer to Parent to the extent Net Book
Value based on the Actual Closing Balance Sheet is greater than
$252,500,000 and (ii) Parent to Buyer to the extent Net Book Value based on
the Actual Closing Balance Sheet is less than $247,500,000 (for example, if
Net Book Value based on the Estimated Closing Balance Sheet is equal to
$250,000,000 and the Net Book Value based on the Actual Closing Balance
Sheet is $253,000,000 Buyer shall pay to Parent $500,000 (not $3,000,000)).
(v) If the Net Book Value based on the Estimated Closing Balance Sheet
is outside of the Net Book Value Range and if the Net Book Value based on
the Actual Closing Balance Sheet is within the Net Book Value Range, the
amount of difference (or, if a negative number, the absolute value of the
amount of difference) between the Net Book Value based on the Estimated
Closing Balance Sheet and the Net Book Value based on the Actual Closing
Balance Sheet shall be paid in accordance with the procedures set forth in
Section 1.3(b)(ii) above by (i) Parent to Buyer to the extent Net Book
Value based on the Estimated Closing Balance Sheet was greater than
$252,500,000 and (ii) Buyer to Parent to the extent Net Book Value based on
the Estimated Closing Balance Sheet was less than $247,500,000 (for
example, if Net Book Value based on the Estimated Closing Balance Sheet is
equal to $253,000,000 and the Net Book Value based on the Actual Closing
Balance Sheet is $250,000,000, Parent shall pay to Buyer $500,000 (not
$3,000,000)).
(c) At the time of delivery of the Actual Closing Balance Sheet to Parent,
Buyer shall submit to Parent a calculation, with reasonable detail, of the
actual Net Book Value derived from the Actual Closing Balance Sheet and Parent
shall have thirty (30) days upon its receipt of such Actual Closing Balance
Sheet to dispute such calculation by written notice to Buyer. Buyer shall make
the books and records of account of the Specialty Business reasonably available
to Parent solely for use in verifying the Actual Closing Balance Sheet and
calculating the Net Book Value. Failure to provide Buyer written notice of such
dispute within such thirty (30) days shall be deemed acceptance by Parent of
Buyer's calculation. If Parent does not dispute Buyer's calculation or earlier
accepts Buyer's calculation in writing, then the payments shall be made in
accordance with Section 1.3(b). If Parent disputes the calculation by written
notice to Buyer within such thirty (30) days, then Buyer and Parent shall have
thirty (30) days to negotiate in good faith to resolve the dispute. If such
Parties do not reach a mutual resolution from such negotiations, then the
dispute shall be submitted to a nationally recognized public accounting firm
agreeable to each such Party and with whom neither such Party (or any of its
Affiliates) has had a relationship within the past two (2) years. Such
accounting firm and Parent shall be given reasonable access to all relevant
records to calculate the actual Net Book Value, which calculation shall be
submitted by the accounting firm to Buyer and Parent within thirty (30) days.
Each of Buyer and Parent shall have twenty (20) days thereafter to submit to
each other and the independent accountant written comments on such calculation
and an additional fifteen (15) days to similarly submit to each other and the
independent accountant written rebuttal comments to each other's initial
comments. Within fifteen (15) days after the rebuttal comment period, the
independent accountant shall submit its final calculation to each of Buyer and
Parent, which shall be final and binding on the parties hereto. Buyer and Parent
shall share equally the fees and expenses of such accounting firm, provided if
(i) the amount of the actual Net Book Value shown by such accounting firm is
more than two percent (2%) greater than the actual Net Book Value calculated by
Buyer, all of such fees and expenses shall be paid by Buyer and (ii) the amount
of the actual Net Book Value shown by such accounting firm is more than two
percent (2%) less than the actual Net Book Value calculated by Buyer, all of
such fees and expenses shall be paid by Parent. Interest shall accrue on any
unpaid portion of the Parent Payment or the Buyer Payment, as applicable,
commencing on the date Parent gives Notice of Dispute of the calculation. The
rate of interest
A-4
shall be that rate of interest then published by Bank of America, New York, New
York, as its "prime" lending rate for commercial borrowers.
1.4 Retained Assets. The Parties expressly agree that excluded from the
Assets sold or assigned to Buyer hereunder are (i) assets used exclusively in
the Home Health Business, (ii) all cash on hand, cash equivalents, investments
and bank accounts of the Sellers at the Closing Date, (iii) Medicare and
Medicaid and similar government provider numbers except for those held by the
Acquired Subsidiaries, (iv) the name Gentiva and any trademark, service mark,
trade name or service name which uses the corporate names of the Sellers, (v)
those assets shared by Parent and the Home Health Business on the one hand and
the Specialty Business on the other hand and set forth in Schedule 1.4(a)
hereto, and (vi) those assets that are not shared as described in the previous
item and which are listed on Schedule 1.4(b) thereto (collectively, the
"Retained Assets").
1.5 Retained Liabilities. Except as specifically set forth in Section
1.6, Parent retains all Liabilities directly or indirectly arising out of or
related to (i) the Home Health Business, (ii) the Retained Assets and (iii) the
operation of the Specialty Business on and prior to the Closing Date, whether
such Liabilities are disclosed on a Schedule hereto or any other document
provided to Buyer, known or unknown, disclosed or undisclosed, matured or
unmatured, accrued, absolute or contingent on and as of the Closing Date
(collectively, the "Retained Liabilities"). Parent shall fully assume all
Liabilities that constitute Retained Liabilities of the Acquired Subsidiaries
and shall indemnify and hold harmless Buyer as to such Retained Liabilities in
accordance with Article 8 hereof. Without limiting the generality of the first
sentence of this Section 1.5, except as specifically described in Section 1.6,
Buyer shall not assume or become liable for any obligations or Liabilities of
any Seller, including without limitation, the following Retained Liabilities:
(a) Any Liability of the type identified in the Actual Closing Balance
Sheet but which is in excess of the amount of such Liability set forth on the
Actual Closing Balance Sheet;
(b) Any Liability for any incorrect, erroneous, improper or false billings
or requests for reimbursements made by any Seller or overpayments received by
any Seller under any Medicare, Medicaid, CHAMPUS, TRICARE or other government or
private payor arrangement in respect of goods or services provided on or prior
to the Closing Date or any other violation of Laws or Orders on or prior to the
Closing Date;
(c) Any Liability for failure by any Seller to have complied with the terms
of its Corporate Integrity Agreements or other corporate integrity programs or
compliance plans with Regulatory Authorities;
(d) Any Liability arising out of any breach by any Seller prior to or on or
as a result of the Closing of any provision of the Seller Agreements (as defined
herein) or any other contract to which any Seller is a party;
(e) Except as specifically set forth in Section 9.1 as an obligation of
Buyer, any Liability arising prior to or as a result of the Closing, to any
employee, agent, or independent contractor of any Seller, whether or not
employed by Buyer after the Closing, or under any benefit arrangement with
respect thereto;
(f) Except as specifically set forth in Section 9.1 as an obligation of
Buyer, (i) all wages, commissions, vacation, holiday, workers' compensation and
sick pay obligations of any Seller with respect to its respective employees
accrued through the Closing Date and all bonuses and fringe benefits as to such
employees accrued through the Closing Date, and (ii) all severance pay
obligations of any Seller to employees resulting from the consummation of the
transactions contemplated by this Agreement;
(g) Except as specifically set forth in Section 9.1 as an obligation of
Buyer, any Liability arising out of any employee benefit plan maintained by or
covering employees of any Seller or to which any Seller has made any
contribution or to which any Seller could be subject to any Liability;
(h) Any Liability for any Taxes of any Seller whether disputed or not
(including any Liability for any Taxes of any Acquired Subsidiary for any
taxable period ending on or prior to the Closing Date and Taxes of any Acquired
Subsidiary attributable to the Pre-Closing Straddle Period for which Sellers are
responsible pursuant to Section 8.5(a)(i) (but not including any liability for
Taxes for which Sellers are not responsible pursuant to the proviso in Section
8.5(a)(i)), including any liability for any Taxes resulting from the ongoing
Kentucky Revenue Cabinet's examination and audit of Seller's and Acquired
Subsidiaries tax records for the
A-5
Tax period beginning January 1, 1993 through December 31, 1997), other than any
Liabilities or obligations of any Seller relating to sales and use, real estate
transfer, documentary, or other similar Taxes levied on or as a result of the
transfer of the Assets (responsibility for which is provided for in Section
4.15);
(i) Parent shall retain all liability and responsibility under that certain
Indianapolis Lease, dated February 24, 1995, by and between Parkwood Joint
Venture and Quantum Health Resources, and that certain Indianapolis sublease
dated December 23, 1996, by and between Quantum Health Resources and ADESA, in
each instance covering space at 310 East 96th Street, Indianapolis, Indiana;
(j) Any Liability related to, arising out of, or in connection with the
parties' waiver of compliance with any Bulk Transfer Act or any similar statute
as enacted in any jurisdiction, domestic or foreign (if applicable), including
the defenses thereof and reasonable attorneys' and other professional fees.
1.6 Assumed Liabilities. Buyer shall assume on the Closing Date (i)
Sellers' liabilities arising solely out of the conduct of the Specialty Business
in the ordinary course of its business and which are specifically disclosed on
the Actual Closing Balance Sheet, but excluding any liabilities that are
specifically described in paragraphs 1.5(b) through (j) as being Retained
Liabilities, (ii) the obligations of Buyer described in Section 9.1, and (iii)
the performance of obligations arising from and after the Closing Date as part
of the Assets assumed by Buyer, including under Ordered Inventory, Open Customer
Orders and the Assigned Leases and contracts and agreements specified in Section
1.10, except to the extent any such obligations relate to a default occurring on
or before the Closing Date (the "Assumed Liabilities"). Without altering the
foregoing, Buyer agrees not to seek recourse against Sellers for, and to pay, up
to Two Million Dollars ($2,000,000) of liabilities for a line item of an Assumed
Liability which is included as part of the Actual Closing Balance Sheet but
which is understated (other than intentional and knowing understatements of such
liability), provided that all of such items for which Buyer does not seek such
recourse and pays shall be counted toward the Aggregate Threshold Amount in
Section 8.6.
1.7 Time and Place of Closing. The closing (the "Closing") will take
place no later than two business days following satisfaction of the conditions
set forth in Article 6 hereof (the "Closing Date"). The place of Closing shall
be at Buyer's offices located at 1640 Century Center Parkway, Suite 101,
Memphis, Tennessee, or such other place as may be mutually agreed upon by the
Parties. The Closing shall be effective as of the close of business on the
Closing Date.
1.8 Allocation of Consideration. The Parties intend that the Acquisition
be treated as a taxable transaction for federal and state tax purposes. The
consideration paid for the Assets (including the Acquired Subsidiaries),
together with any assumed liabilities and capitalizable costs (the "Allocable
Consideration"), shall be allocated as shown on an allocation schedule (the
"Allocation Schedule") to be prepared jointly by Buyer and Sellers prior to the
Closing Date. If there is an increase or decrease in the Allocable
Consideration, then the adjusted Allocation Consideration shall be allocated as
shown on a revised allocation schedule (the "Revised Allocation Schedule") to be
jointly prepared by Buyer and Sellers in a manner consistent with the Allocation
Schedule and to be prepared within ninety (90) days after the adjustment of the
Allocable Consideration occurs. The allocation set forth in such Allocation
Schedule, or the Revised Allocation Schedule if there is an adjustment to
Allocable Consideration, shall comply with the rules of Section 1060 of the Code
and the treasury regulations promulgated thereunder. Except to the extent that a
contrary position is required by law, Buyer and Sellers agree to be bound by the
allocation set forth in the Allocation Schedule (or the Revised Allocation
Schedule if there has been an adjustment to the Consideration) for all purposes
of tax reporting, including the filing of applicable IRS Forms in accordance
with the Allocation Schedule, and the filing of applicable IRS Forms in the
event a Revised Allocation Schedule is prepared. The Parties agree that the
Allocation Schedule and the Revised Allocation Schedule, if applicable, shall
include an allocation by state where necessary to calculate applicable state
sales or transfer taxes applicable to the transaction.
1.9 Prorations. To the extent not reflected on the Actual Closing Balance
Sheet, the following prorations relating to the Assets will be made as soon as
practical after receipt of an applicable invoice, with the Sellers liable to the
extent such items relate to any time period on or prior to the Closing Date and
Buyer liable to the extent such items relate to periods after the Closing Date:
(i) personal property, real estate,
A-6
occupancy and other similar Taxes, if any, on or with respect to the Assets;
(ii) the amount of charges for water, telephone, electricity and other
utilities; and (iii) other similar items. After Closing, Buyer and Sellers each
shall provide to the other, promptly after receipt, each third party invoice
relating to any items so estimated. Within ten (10) business days thereafter,
Buyer and Sellers shall make any payments to the other that are necessary to
compensate for any difference between the proration made at the Closing and the
correct proration based on the third party invoice, and amounts owed by any
Seller shall be considered a Retained Liability of Parent and amounts owed by
Buyer shall be considered an Assumed Liability of Buyer.
1.10 Assignment of Contracts and Agreements. Sellers shall assign to
Buyer all of Sellers' rights under such contracts and agreements, including all
rights of Sellers under agreements with third party payors, other managed care
organizations, suppliers, customers, which are part of the Assets and are not in
the name of an Acquired Subsidiary (unless Buyer elects not to acquire the
equity securities of an Acquired Subsidiary in accordance with Section 1.1(m)),
including those which are listed on Schedule 1.10, but not including those
contracts and agreements listed on Schedule 1.4 or the matters listed on
Schedule 2.20(a) to the extent not assignable. The Sellers shall use their
commercially reasonable efforts, and Buyer shall reasonably cooperate with such
efforts, to obtain at the earliest practicable date following execution of this
Agreement all Consents of third parties related to the consummation of the
transactions contemplated hereby and will provide to Buyer copies of each such
Consent as such Consents are obtained. Sellers shall be responsible for any
reasonable out-of-pocket costs required to obtain the Consents (except for
Licenses and software licenses which reasonable out-of-pocket costs shall be the
responsibility of Buyer) for the contracts and agreements assigned pursuant to
this Agreement. To the extent that the assignment of any of such contracts and
agreements requires the Consent of another party that is not obtained at Closing
and, if it is a Consent specified on Schedule 6.1(c) as a Consent Seller must
obtain, Buyer waives its right at Closing to receive such Consent in its sole
discretion, (i) such contracts will not be transferred or assigned at Closing
and shall constitute "Deferred Contracts," (ii) Sellers will continue to
undertake commercially reasonable efforts, and Buyer shall reasonably cooperate
with such efforts, to obtain any such Consent and/or remove any other
impediments to the transfer or assignment of such Deferred Contracts at the
earliest practicable date and shall transfer or assign such Deferred Contract
within three (3) business days after receipt of such Consent, (iii) until the
time of assignment of a Deferred Contract, Sellers shall cooperate with Buyer to
provide Buyer all benefits under any such contract or agreement and to allow
Buyer to perform its obligations under the Assumed Liabilities, to the same
extent as if the Deferred Contract were transferred or assigned to Buyer at
Closing, and each Party shall bear its own administrative expenses incurred in
connection with any such arrangement, and (iv) until the time of assignment or
termination of a Deferred Contract, Sellers shall, at the request and for the
account of Buyer, and subject to the Buyer's reasonable direction, enforce, at
the Buyer's expense, the Sellers' rights thereto or interests therein against
other parties.
1.11 Parent Distribution. Parent shall distribute the Stock Consideration
to the holders of Parent Common Stock on a pro rata basis in accordance with
their ownership of capital stock of Parent and otherwise in accordance with Rule
145(a)(3)(ii).
1.12 Anti-Dilution. In the event Buyer changes the number of shares of
Buyer Common Stock issued and outstanding after the date hereof and prior to the
Closing Date as a result of a stock split, stock dividend, combination of shares
or similar recapitalization with respect to such stock, and the record date
therefor (in the case of a stock dividend) or the effective date thereof (in the
case of a stock split or similar recapitalization for which a record date is not
established) shall be prior to the Closing Date, (i) the Base Period Trading
Price shall be determined on an as adjusted basis as if such event had occurred
prior to the beginning of the base period and (ii) limitations on the Base
Period Trading Price set forth in Section 1.2(b) hereof shall be proportionately
adjusted to appropriately reflect the number of shares to be issued hereunder so
that Parent shall receive a number of shares of Buyer Common Stock having the
same value as they would have received prior to such event.
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ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Sellers, jointly and severally, represent and warrant the following to
Buyer:
2.1 Organization, Authority and Capacity. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and each other Seller is a corporation duly organized, validly
existing and in good standing under the laws of its state of incorporation, and
each Seller has the full power and authority necessary to (i) execute, deliver
and perform its obligations under the Acquisition Documents and (ii) carry on
its business as it has been and is now being conducted and to own and lease the
properties and assets which it now owns or leases. Each Seller is duly qualified
to do business and is in good standing in every jurisdiction in which the
failure to be so qualified or in good standing would have a Seller Material
Adverse Effect. Set forth in Schedule 2.1 is a list of all jurisdictions in
which each Seller is required to be qualified as a foreign corporation by reason
of its ownership or operation of the Specialty Business.
2.2 Authorization and Validity. The execution, delivery and performance
of the Acquisition Documents have been duly authorized by all necessary
corporate action on the part of each Seller. The Acquisition Documents to be
executed and delivered by each Seller have been or will be, as the case may be,
duly executed and delivered by such Seller and constitute or will constitute the
legal, valid and binding obligations of such Seller, enforceable in accordance
with their respective terms, except as may be limited by bankruptcy, insolvency,
or other laws affecting creditors' rights generally, or as may be modified by a
court of equity.
2.3 Absence of Conflicting Agreements or Required Consents. Except as set
forth in Schedule 2.3, the execution, delivery and performance by each Seller of
the Acquisition Documents to be executed and delivered by such Seller: (i) do
not require the consent, approval, authorization, clearance, exemption, waiver
or similar affirmation of or notice to any Regulatory Authority; (ii) will not
conflict with any provision of organizational documents (including certificate
or articles of incorporation and bylaws) of such Seller; (iii) will not conflict
with or result in a violation of any Law, ordinance, regulation, ruling,
judgment, order or injunction of any court or Regulatory Authority to which such
Seller is subject or by which such Seller or any of its assets or properties are
bound; (iv) will not conflict with, constitute grounds for termination of,
result in a breach of, constitute a default under, require any notice under, or
accelerate or permit the acceleration of any performance required by the terms
of any material agreement, instrument, license or permit to which such Seller is
a party or by which such Seller or any of its properties are bound; and (v) will
not create any Lien upon any of the Assets or any other of the assets or
properties of such Seller, except for Permitted Liens.
2.4 Governing Documents of Sellers. True and correct copies of the
certificate or articles of incorporation and all amendments thereto and bylaws
of each Seller have been provided to Buyer. Buyer has previously been provided
with access to the books and records of each Seller related to the Specialty
Business, including without limitation, the books of account, which books and
records are correct in all material respects and there have been no material
transactions involving the Specialty Business or any Seller which properly
should have been set forth therein and which have not been so set forth. Buyer
has previously been provided with access to all of the minutes of each Seller
which minutes accurately reflect in all material respects the proceedings of the
board of directors (and all committees thereof) and shareholders of each Seller.
2.5 Subsidiaries and Investments. (a) Except as set forth in Schedule
2.5(a), no Seller has owned or currently owns, directly or indirectly, of
record, beneficially or equitably, any capital stock or other equity, ownership
or proprietary interest in any entity or Person, which has an ownership interest
in the Assets.
(b) Except as listed in Schedule 2.5(b), no Seller has, within the last six
months and other than in the ordinary course of its business, sold or disposed
of, by way of asset sale, stock sale, spin-off or otherwise, any assets or
business in any way related to the Specialty Business or the Assets.
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(c) The Acquired Subsidiaries were formed for the purpose of, and have
never been engaged in any business other than, the Specialty Business. No
License or provider numbers for a Government Program held by the Acquired
Subsidiaries, and no other provider number held exclusively by the Acquired
Subsidiaries, has ever been used for any purpose other than the Specialty
Business and no Acquired Subsidiary has billed any Government Program for any
goods or services outside of the scope of the Specialty Business.
2.6 SEC Filings; Parent Financial Statements.
(a) Parent has delivered or made available to Buyer (through reference to
documents filed by EDGAR or otherwise) accurate and complete copies of all
forms, reports and documents filed by Parent with the Securities and Exchange
Commission ("SEC") since March 15, 2000 (the "Parent SEC Reports"), which are
all the forms, reports and documents required to be filed by Parent with the SEC
since such date. As of their respective dates, the Parent SEC Reports (i) were
prepared in accordance and complied in all material respects with the
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as the
case may be, and the rules and regulations of the SEC thereunder applicable to
such Parent SEC Reports and (ii) did not at the time they were filed contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. None of
Parent's Subsidiaries is required to file any forms, reports or other documents
with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in Parent SEC Reports (the "Parent
Financials") (i) complied as to form in all material respects with the published
rules and regulations of the SEC with respect thereto, (ii) were prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto or, in the case of
unaudited interim financial statements, as may be permitted by the SEC on Form
10-Q under the Exchange Act) and (iii) fairly presented, in all material
respects, the financial position of the Parent as at the respective dates
thereof and the results of the Parent's operations and cash flows for the
periods indicated, except that the unaudited interim financial statements may
not contain footnotes.
2.7 Financial Information.
(a) Income statements for the Specialty Business for the twelve-month
periods ended January 2, 2000 and December 31, 2000 and the nine-month period
ended September 30, 2001 (the "Income Statements") and statements of the assets
and liabilities of the Specialty Business, as of January 2, 2000 and December
31, 2000 and September 30, 2001 (the "Statements of Assets and Liabilities," and
together with the Income Statements, the "Business Financial Statements") are
set forth in Schedule 2.7(a). The Income Statements fairly present in all
material respects the results of operations for the Specialty Business for the
periods set forth therein, and have been prepared in accordance with GAAP
consistently applied, except for the omission of footnotes. The Statements of
Assets and Liabilities fairly present in all material respects the assets and
liabilities set forth therein, and have been prepared in accordance with GAAP
consistently applied, except for the omission of footnotes. The Income
Statements are subject to the qualification that the Specialty Business does not
and has not operated as a separate "stand-alone" entity within the Parent. As a
result, the Specialty Business received certain allocated charges and credits as
described in Schedule 2.7(a). Such charges and credits, while believed by Parent
to be reasonable, do not necessarily reflect the amounts which would have
resulted from arms-length transactions. In order to present stand-alone Business
Financial Statements for the Specialty Business, a number of assumptions
(including assumptions regarding allocations) have been made by Parent, all of
which are believed to be reasonable and are described in Schedule 2.7(a).
(b) Parent and each of its Subsidiaries is able to pay its debts generally
as they become due and is solvent (determined by the fair market value of its
assets exceeding its liabilities) and will not be rendered insolvent as a result
of the transactions contemplated hereby. None of Parent or any of its
Subsidiaries is in breach or default of any obligation owed to any creditor for
borrowed money or any other creditor who may have a Lien other than a Permitted
Lien on any of its rights or assets, other than any person who is a lienholder
by reason of being a lessor of property under an operating lease with such
party. None of Parent or
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any of its Subsidiaries has, either voluntarily or involuntarily, (i) admitted
in writing that it is or may become unable to pay its debts generally as they
become due, (ii) filed or consented to the filing against it of a petition in
bankruptcy or a petition to take advantage of an insolvency act, (iii) made an
assignment for the benefit of its creditors, (iv) consented to the appointment
of a receiver for itself or for the whole or any substantial part of its
property, (v) to the Knowledge of Sellers, had a petition in bankruptcy filed
against it, (vi) been adjudged a bankrupt or filed a petition or answer seeking
reorganization or arrangement under the federal bankruptcy laws or any law or
statute of the United States of America or any other jurisdiction, or (vii)
incurred, or believed or reasonably should have believed it would incur, debts
that are or will be beyond its ability to pay as such debts mature. The Sellers,
on a consolidated basis, are not engaged nor currently contemplate being engaged
in a business or transaction for which any property remaining with them would be
insufficient to continue to operate their businesses.
(c) Schedule 2.7(c) contains a pro forma balance sheet dated as of
September 30, 2001 representing the Retained Assets and the Retained Liabilities
and a pro forma income statement for the nine months ended September 30, 2001
representing the operations of the Retained Assets, in each case after giving
effect on a pro forma basis to the Acquisition as if it had occurred as of the
date of such balance sheet or on January 1, 2001 with respect to such income
statement. Such balance sheet and income statement fairly present in all
material respects, on a pro forma basis, the assets and liabilities and results
of operations, respectively, set forth therein, and have been prepared in
accordance with GAAP consistently applied, except for the omission of footnotes.
(d) Parent is receiving reasonably equivalent and fair value in exchange
for its conveyance of the Specialty Business and other agreements hereunder and
the Consideration hereunder is sufficient, together with other assets available
to Parent, to satisfy all Liabilities of Parent and its Subsidiaries, whether
related to the Specialty Business or otherwise No transfer of property is being
made and no obligation is being incurred voluntarily or involuntarily in
connection with the transactions contemplated hereby in order to effect the
transactions contemplated hereby with the actual intent to hinder, delay or
defraud either present or future creditors of Parent or its Subsidiaries.
(e) Set forth in Schedule 2.7(e) is a list of each creditor with which any
Seller has debt for borrowed money or to which any Seller has granted a Lien
(other than a Permitted Lien) in any of the Assets other than in connection with
personal property leases that are not material to the Specialty Business.
2.8 Absence of Changes. Except as set forth in Schedule 2.8, and except
as contemplated by this Agreement, since July 2, 2001, the Specialty Business
has been operated only in the ordinary course and with respect to the Specialty
Business, the Sellers have not:
(i) suffered any material adverse change in working capital, financial
condition, assets, liabilities, reserves, business or operations (but
excluding any impact from an Excluded Acute Event);
(ii) paid, discharged or satisfied any material Liability other than in
the ordinary course of business;
(iii) written off as uncollectible any account receivable other than in
the ordinary course of business;
(iv) compromised any debts, claims or rights or disposed of any of its
properties or assets other than in the ordinary course of business;
(v) entered into any commitments or transactions not in the ordinary
course of business involving a value in excess of $100,000 or made
aggregate capital expenditures or commitments in excess of $500,000;
(vi) made any material change in any method of accounting or accounting
practice;
(vii) sold, assigned or transferred any tangible asset other than in the
ordinary course of business or any patents, trademarks, trade names,
copyrights or other intangible assets;
(viii) subjected any of its assets, tangible or intangible, to any Lien
(other than a Permitted Lien);
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(ix) increased any salaries, wages or employee benefits or made any
arrangement for payment of any bonus or special compensation for any
employee who devotes substantially all of their time to the operation of
the Specialty Business other than in the ordinary course of business;
(x) hired or committed to hire any employee or terminated any employee
other than in the ordinary course of business;
(xi) terminated or amended any material contract, license or other
instrument or suffered any loss or termination or been expressly notified
of a threatened loss or termination of any existing material business
arrangement or supplier;
(xii) sold or otherwise transferred any interest in the Specialty
Business or the Assets other than in the ordinary course of business; or
(xiii) agreed, whether in writing or otherwise, to take any action
described in this Section 2.8.
2.9 No Undisclosed Liabilities. Except as listed in Schedule 2.9 or as
accrued or reserved in the Business Financial Statements or trade payables and
other operating expenses incurred in the ordinary course of business since the
date of the most recent balance sheet contained in the Business Financial
Statements, there are no Liabilities or obligations, whether accrued, absolute,
contingent or otherwise, relating to or affecting the Specialty Business or the
Assets that are greater than $250,000 in the aggregate.
2.10 Litigation, etc. Except as listed in Schedule 2.10 and except for
routine government inquiries, examinations and inspections which the Sellers
have no reason to believe are material, there is no Litigation pending against
any Seller affecting or relating to the Specialty Business or which could have a
material adverse affect on Parent's remaining business after the Acquisition.
Schedule 2.10 identifies which items of Litigation are against or affecting the
Specialty Business or the Home Health Business, or both. Except as listed in
Schedule 2.10, Sellers have not been expressly notified of a threat of such
matter described in the previous sentence and, to the Knowledge of Sellers,
there is no basis for any such action. Except as listed in Schedule 2.10, there
are no judgments against or consent decrees binding on a Seller relating to or
which affect the Specialty Business, the Assets or the transactions contemplated
hereby. For purposes of this Section 2.10, Litigation that could have a material
adverse effect on Parent's remaining business after the Acquisition shall
include, without limitation, any matter that would be required to be disclosed
on any form, report or document required by Parent to be filed with the SEC or
to be publicly disclosed pursuant to the Nasdaq rules and regulations, without
regard to the required timing of any such filing or public disclosure, and
determined in reference to Parent's Home Health Business on a stand-alone basis.
2.11 No Violation of Law. No Seller has been or is currently in violation
of any applicable local, state or federal Law, order, injunction or decree, or
any other requirement of any governmental body, agency or Regulatory Authority
or court, affecting or relating to the Specialty Business or which could have a
material adverse affect on Parent's remaining business after the Acquisition. No
Seller is subject to any fine, penalty, Liability or disability as the result of
a failure to comply with any requirement of federal, state or local Law nor has
any Seller received any notice of such noncompliance, affecting or relating to
the Specialty Business or which could have a material adverse affect on Parent's
remaining business after the Acquisition.
2.12 Title to Assets; Sufficiency of Assets and Employees.
(a) Except as set forth in Schedule 2.12(a), each Seller (i) has good and
valid title to all of the personal and mixed, tangible and intangible property,
rights and assets included among the Assets which such Seller purports to own;
(ii) owns such rights, assets and personal property free and clear of all Liens
other than Permitted Liens; and (iii) will, upon the Closing, convey good and
valid title to the Assets to Buyer free and clear of any and all Liens other
than Permitted Liens. All of the Assets, whether owned or leased, are and will
be in the possession and control of and owned by the Sellers at the Closing, and
no other Subsidiary of Parent has any right or interest in or to the Assets.
(b) The Assets, in conjunction with the rights under the other Acquisition
Documents, comprise substantially all of the assets currently used or held for
use by Sellers to operate, and are collectively sufficient to provide Buyer with
the means and capability to operate, the Specialty Business, as and in the
manner the
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Specialty Business has been performed by the Sellers prior to the date of this
Agreement except as may hereafter be caused by an Excluded Acute Event. Any
assets which were shared with the Home Health Business and are included as a
Retained Asset hereunder, are not material to the operation of the Specialty
Business as conducted prior to the Closing Date.
(c) The Business Employees are those employees of Sellers who are engaged
primarily in operating the Specialty Business and there are no other employees
of Sellers whose services are primarily engaged in the Specialty Business.
2.13 Real, Personal and Intellectual Property.
(a) Sellers do not own any real property used in the operation of the
Specialty Business. Schedule 2.13(a) contains a true and correct description of
all real property leased by Sellers and used in the Specialty Business (the
"Facilities"). The Facilities are the only real property and improvements used
primarily in the Specialty Business. Sellers have valid and binding leases for
each such property, true and complete, copies of which have been made available
to Buyer, and (i) Sellers are current with respect to all payments due under
such leases, (ii) Sellers have complied in all material respects with its
obligations under such leases, and (iii) there are no material defaults under
any such lease that remain uncured and no condition exists which, with the lapse
of time or giving of notice, or both, would give rise to a material default
under any such lease. No condemnation or similar actions are currently in effect
or pending and no Seller has been expressly notified of a threatened
condemnation or similar action against any part of any such real property leased
by a Party. There are no encroachments, leases, easements, covenants,
restrictions, reservations or other burdens of any nature which could reasonably
be expected to materially impair the use of any such leased real property in a
manner consistent with past practices nor does any part of any building
structure or any other improvement thereon encroach on any other property.
(b) The present zoning, subdivision, building and other ordinances and
regulations applicable to the leased real property listed in Schedule 2.13(a)
permit the continued operation, use, occupancy and enjoyment of such real
property consistent with past practices, and, with respect to such leased real
property, each Seller is in material compliance with, and has received no
notices of violations of, any applicable zoning, subdivision or building
regulation, ordinance or other law, regulation, or requirement. The Sellers have
all rights and easements necessary for public ingress thereto and egress
therefrom and for the provision of all utility services thereto, including any
required curb cut or street opening permits or licenses for vehicular access
over presently existing roads and driveways. No portion of the leased real
property listed in Schedule 2.13(a), or any building, structure, fixture or
improvement thereon, is the subject of, or affected by, any condemnation,
taking, eminent domain or inverse condemnation proceeding currently instituted
or pending, and none of the foregoing are, or, to the Knowledge of Sellers will
be, the subject of, or affected by, any such proceedings.
(c) The tangible property included in the Assets is in satisfactory
operating condition and repair, ordinary wear and tear excepted. Since March 15,
2000, the Sellers and their predecessors have only conducted the Specialty
Business under such names and at such locations as are identified in Schedule
2.13(c), and all of the Assets are currently located (or by the Closing Date
will be located) at those locations identified in Schedule 1.1(a).
(d) Schedule 2.13(d) contains a complete and correct list of all
trademarks, trade names, service marks, service names, brand names, copyrights,
technology rights and licenses, know-how, software and patents, registrations
thereof and applications therefor, and any other intellectual property used
primarily in the Specialty Business, together with a complete list of all
licenses granted by or to the Sellers with respect to any of the foregoing. No
Seller is currently in receipt of any notice of any violation or infringement
of, and has no reason to believe that the operations of the Specialty Business
are violating or infringing, the rights of others with respect to any such
matter. No proceedings have been instituted or are pending or, to the Knowledge
of Sellers, threatened, which challenge the rights of any Seller with respect to
the intellectual property used, sold or licensed by such Seller in the course of
the Specialty Business. Except as set forth in Schedule 2.13(d), no Seller is
obligated to pay any recurring royalties to any Person with respect to
intellectual property.
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2.14 Contracts and Commitments.
(a) Schedule 2.14(a) contains a complete and accurate list of all material
contracts, agreements, commitments, instruments and obligations (whether written
or oral, proposed, contingent or otherwise) of the Sellers (identifying which
Seller is a Party thereto), which relate to or affect the Specialty Business or
the Assets (the "Seller Agreements") including all such Seller Agreements
(whether or not material) concerning the following matters:
(i) the lease, as lessee or lessor, or license, as licensee or licensor,
of any (x) real property or (x) personal property (tangible or intangible)
that requires financial payments in excess of $100,000;
(ii) (x) the employment or engagement of any officer or director, other
than those terminable at will without severance, (y) the employment or
engagement of any employee, consultant or agent, other than those
terminable at will without severance obligation or other than in the
ordinary course of business, and (z) any covenant not to compete with any
former employees other than in the ordinary course of business;
(iii) any contract or commitment that requires financial payments in the
aggregate in excess of $500,000 per year;
(iv) any arrangement with any person or entity affiliated with or
related to any Seller or any Affiliate of any Seller or any immediate
family member thereof that would be required to be disclosed pursuant to
Item 404 of Regulation S-K promulgated under the Securities Act viewing the
Specialty Business as a stand-alone business;
(v) any arrangement limiting the freedom of any Seller to compete,
solicit customers or solicit employees in any manner in any geographic area
or line of business, or requiring any Seller to share profits;
(vi) any arrangement not in the ordinary course of business under which
any Seller has agreed to assume Liabilities of another party or indemnify
or hold harmless another party;
(vii) any arrangement that could reasonably be anticipated to have a
Seller Material Adverse Effect;
(viii) any material arrangement not in the ordinary course of business;
(ix) any power of attorney, whether limited or general, granted by or to
any Seller materially affecting the Specialty Business;
(x) any charitable commitment in excess of $20,000 individually per
year; and
(xi) any arrangement with customers, patients, managed care
organizations, third party payors, pharmacy benefit managers or drug
suppliers that requires financial payments (but not including sales of
product by Sellers to patients) in the aggregate in excess of $100,000 per
year.
(b) Sellers have delivered to Buyer true and complete copies of all of the
written Seller Agreements. Except as indicated in Schedule 2.14(b), the Seller
Agreements are valid and effective in accordance with their terms, and there is
not under any of such Seller Agreements (i) any existing or claimed default by
any Seller or event which, with the notice or lapse of time, or both, would
constitute a default by any Seller or (ii) to the Knowledge of Sellers, any
existing or claimed default by any other party or event which with notice or
lapse of time, or both, would constitute a material default by any such party.
Except as indicated in Schedule 2.14(b), the continuation, validity and
effectiveness of the Seller Agreements will not be affected by the Acquisition,
and the Acquisition will not result in a breach of or default under, or require
the Consent of any other party to, any of the Seller Agreements. There is no
actual or, to the Knowledge of Sellers, threatened termination, cancellation or
limitation of any Seller Agreements identified in Section 2.14(a)(i) or (xi). To
the Knowledge of Sellers, there is no pending or threatened bankruptcy,
insolvency or similar proceeding with respect to any other party to the Seller
Agreements.
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2.15 Employment and Labor Matters.
(a) Each Seller has complied in all material respects with all applicable
Laws respecting employment and employment practices, terms and conditions of
employment, wages and hours, and occupational safety and health, including Laws
concerning unfair labor practices within the meaning of Section 8 of the
National Labor Relations Act, and the employment of non-residents under the
Immigration Reform and Control Act of 1986.
(b) Except as disclosed in Schedule 2.15(b), with respect to the Specialty
Business:
(i) except for routine government inquiries, examinations and
inspections which the Sellers have no reason to believe are material, there
are no charges, governmental audits, investigations, administrative
proceedings or complaints concerning the employment practices of any Seller
pending, nor has any Seller been expressly notified of any such matter
being threatened, before any federal, state or local agency or court and,
to the Knowledge of Sellers, no basis for any such matter exists;
(ii) except for routine government inquiries, examinations and
inspections which the Sellers have no reason to believe are material, there
are no inquiries, investigations or monitoring of activities pending, nor
has any Seller been expressly notified of any such matter being threatened,
by any state professional board or agency charged with regulating the
professional activities of any licensed, registered, or certified
professional personnel employed by, credentialed or privileged by, or
otherwise affiliated with any Seller and who provides services to the
Specialty Business;
(iii) no Seller is a party to any union or collective bargaining
agreement, no union attempts to organize its employees have been made, nor
are any such attempts now threatened;
(iv) no Seller has experienced any organized slowdown, work
interruption, strike, or work stoppage by any of its employees; and
(v) no Seller will incur any Liability to any Business Employee or
violate any applicable Laws respecting employment and employment practices
as a result of the Acquisition.
2.16 Employee Benefit Matters.
(a) A true, correct and complete list of the Business Employees as of the
date hereof is included in Schedule 2.16(a) hereto.
(b) The Business Employees receive benefits or are eligible under only the
employee pension benefit plans, as defined in Section 3(2) of ERISA, as are
listed in Schedule 2.16(b) (the "Pension Plans"). Except as disclosed in
Schedule 2.16(b), no Seller has maintained or contributed within the last six
(6) years to any other employee pension benefit plan, as defined in Section 3(2)
of ERISA, which was subject to Title IV of ERISA.
(c) Business Employees receive benefits or are eligible under only the
employee welfare benefit plans, as defined in Section 3(1) of ERISA (including
but not limited to, life insurance, medical, hospitalization, holiday, vacation,
disability dental and vision plans) as are listed in Schedule 2.16(c) (the
"Welfare Plans").
(d) Business Employees receive benefits or are eligible under only written
or unwritten incentive compensation, material fringe benefit, material payroll
or employment practice, bonus, option, stock purchase, severance, sick pay,
salary continuation, deferred compensation, supplemental executive compensation
plans, employment agreements (other than those terminable at will without
severance) and consulting agreements for the benefit of their officers,
directors, employees, former employees, or independent contractors as are listed
in Schedule 2.16(d) (the "Compensation Programs").
(e) Each Pension Plan and Welfare Plan has been operated and administered
in substantial compliance with ERISA and the Code; each Pension Plan which is
intended to be qualified under Section 401(a) of the Code has been determined by
the IRS to be so qualified or a request for such determination has been timely
filed with the IRS or the Pension Plan is a prototype plan for which the
prototype sponsor has obtained a favorable IRS opinion letter (and no Seller has
Knowledge that any event has occurred between the date of
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the last such determination and the Closing Date that would reasonably be
expected to cause the Internal Revenue Service to revoke such determination).
(f) All amounts required to be paid by any Seller with respect to any
Business Employee under each Pension Plan, Welfare Plan and Compensation Program
on or before the Closing Date have or will be paid.
(g) Except as set forth in Schedule 2.16(g), neither the execution and
delivery of this Agreement nor the consummation of any of the transactions
contemplated hereby will (i) result in any payment (including, without
limitation, severance, unemployment compensation, golden parachute or otherwise)
becoming due to any current or former officer or director of Parent or its
Subsidiaries or current or former Business Employee, (ii) increase any benefits
otherwise payable under any Pension Plan, Welfare Plan or Compensation Program
to any Business Employee, or (iii) result in any acceleration of the time of
payment or vesting of any such benefits.
2.17 Insurance Policies.
(a) All of the Assets and the operations of the Specialty Business of an
insurable nature and of a character usually insured by companies of similar size
and in similar businesses are insured by Sellers in such amounts and against
such losses, casualties or risks as is (i) usual in such companies and for such
assets, operations and businesses, (ii) required by any Law applicable to
Sellers, or (iii) required by any contract or agreement entered into by any
Seller. All such policies are identified in Schedule 2.17 and correct and
complete copies of certificates of insurance for all such policies have been
delivered to Buyer by Sellers on or before the date of this Agreement. All such
policies are in full force and effect and enforceable in accordance with their
terms. No Seller is currently in default regarding the provisions of any such
policy, including, without limitation, failure to make timely payment of all
premiums due thereon, and has not failed to file any notice or present any claim
thereunder in due and timely fashion. No Seller has been refused, or denied
renewal of, any insurance coverage by insurance companies offering such
insurance in connection with the ownership or use of the Assets or the operation
of the Specialty Business. Each Seller has provided to Buyer correct and
complete copies of all insurance audit reports, loss prevention reports, all
claims made and loss history reports in respect of any insurance maintained by
such Seller or any predecessor of such Seller, including under any organized
plan of self insurance, relating to the Specialty Business since March 15, 2000,
each of which is listed in Schedule 2.17. All professional and general liability
insurance covering the Specialty Business has been "occurrence" based insurance.
(b) To the Knowledge of Sellers, the licensed professional employees
included among Sellers' employees (i) have not, since March 15, 2000, filed a
written application for professional malpractice insurance coverage which has
been denied by an insurance agency or carrier; (ii) have been continuously
insured for professional malpractice claims during the same period; and (iii)
are not in default with respect to any provision contained in any such policy
and none of them has failed to give any notice or present any claim under any
such policy in due and timely fashion.
2.18 Environmental Matters.
(a) Sellers' operations of the Specialty Business and their Facilities are,
and have been, in compliance in all material respects with Environmental Laws
and none of the Sellers has received any notice that the Facilities are not in
compliance with Environmental Laws. There is no Litigation pending, nor has any
Seller been expressly notified of Litigation threatened, before any Regulatory
Authority or other forum in which any Seller or any of its Facilities has been,
or with respect to pending Litigation, may be named as a defendant (i) for
alleged noncompliance (including by any predecessor) or with Liability under any
Environmental Law or (ii) relating to the release, discharge, spillage, or
disposal into the environment of any Hazardous Material, whether or not
occurring at, on, under, adjacent to, or affecting (or potentially affecting) a
site currently or formerly owned, leased, or operated by any Seller or any of
its Facilities, nor, to the Knowledge of Sellers, is there any reasonable basis
for any Litigation of a type described in this sentence.
(b) During the period of (i) any Seller's ownership or operation of any of
its current properties, or (ii) any Seller's participation in the management of
any Facility, there have been no releases, discharges, spillages, or disposals
of Hazardous Material in, on, under, adjacent to, or affecting (or potentially
affecting)
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such properties. Prior to the period of (i) any Seller's ownership or operation
of any of its current properties, or (ii) any Seller's participation in the
management of any Facility, to the Knowledge of Sellers, there were no releases,
discharges, spillages, or disposals of Hazardous Material in, on, under, or
affecting any such properties.
(c) Schedule 2.18(c) contains a true, complete and accurate listing and
description of each facility or location at which any Seller has been named as
or alleged to be a responsible party or potentially responsible party under any
Environmental Law in connection with the release, disposal, transportation or
arrangement for the release, disposal or transportation of Hazardous Materials.
(d) Each Seller has obtained all permits, licenses, approvals, consents and
authorizations which are required under any Environmental Law in connection with
the ownership, use, or lease of the Assets ("Environmental Permits"). Schedule
2.18(d) contains a true, complete and accurate listing and description of, and
Sellers have delivered, or caused to be delivered or made available, to Buyer
true and complete copies of each Environmental Permit. Each Seller is in
compliance in all material respects with each such Environmental Permit, and no
Environmental Permit restricts such Seller from operating any equipment covered
by such Environmental Permit as currently conducted.
2.19 Taxes.
(a) Each Seller and each of its Subsidiaries has timely filed with the
appropriate Taxing authorities all Tax Returns in all jurisdictions in which Tax
Returns are required to be filed, and such Tax Returns are correct and complete;
provided that no representation is being made regarding the validity of the
carryover to any taxable period ending after the Closing Date of any net
operating loss or other loss or credit carryover. None of the Sellers or their
Subsidiaries is the beneficiary of any extension of time within which to file
any Tax Return that has not yet been filed. All Taxes of the Sellers and their
Subsidiaries (whether or not shown on any Tax Return) that are due and payable
through the date hereof have been fully and timely paid and adequate provision
has been made in accordance with GAAP for any unpaid Taxes. There are no Liens
for any Taxes (other than a Lien for current real property or ad valorem Taxes
not yet due and payable) on any of the Assets of any of the Sellers or their
Subsidiaries. No claim has ever been made in writing by an authority in a
jurisdiction where any Seller or Subsidiary of a Seller does not file a Tax
Return that such entity may be subject to Taxes by that jurisdiction.
(b) Except as disclosed in Schedule 2.19(b), none of the Sellers or their
Subsidiaries has received any notice of assessment or proposed assessment in
connection with any Taxes, and there are no claims, audits or examinations
regarding any Taxes of any Seller or Subsidiary thereof or the assets of any
Seller or Subsidiary thereof that are currently in progress or have been
proposed or threatened in writing. None of the Sellers or their Subsidiaries has
waived any statute of limitations in respect of any Taxes. All Tax assessments
or deficiencies asserted in writing have been paid or fully and finally settled.
(c) Each Acquired Subsidiary has complied with all applicable Laws, rules
and regulations relating to the withholding of Taxes and the payment thereof to
appropriate authorities, including Taxes required to have been withheld and paid
in connection with amounts paid or owing to any employee or independent
contractor, and Taxes required to be withheld and paid pursuant to Sections 1441
and 1442 of the Internal Revenue Code or similar provisions under foreign Law.
(d) None of the Acquired Subsidiaries is a party to any Tax allocation or
sharing agreement and none of the Acquired Subsidiaries has been a member of an
affiliated group filing a consolidated federal income Tax Return (other than a
group the common parent of which is Parent) or has any Tax Liability of any
Person under Treasury Regulation Section 1.1502-6 or any similar provision of
state, local or foreign Law (other than the other members of a consolidated,
combined or similar group of which Parent or a Subsidiary of Parent is the
common parent), or as a transferee or successor, by contract or otherwise.
(e) During the five-year period ending on the date hereof, none of the
Sellers or their Subsidiaries was a distributing corporation or a controlled
corporation in a transaction intended to be governed by Section 355 of the
Internal Revenue Code.
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(f) None of the Acquired Subsidiaries will be required to include in any
Tax period ending after the Closing Date any adjustment in taxable income
pursuant to Section 481 of the Internal Revenue Code or any comparable provision
under state or foreign Tax Laws as a result of transactions or events occurring
prior to the Closing.
2.20 Licenses, Authorizations and Provider Programs.
(a) Except as set forth Schedule 2.20(a), each Seller holds all licenses
and other rights, accreditations, permits and authorizations required by law,
ordinance, regulation or ruling of any Regulatory Authority necessary to operate
the Specialty Business (collectively, "Licenses"). Except as disclosed in
Schedule 2.20(a), with respect to the Specialty Business, each Seller is
certified for participation and reimbursement under Titles XVIII and XIX of the
Social Security Act (the "Medicare and Medicaid programs") (Medicare and
Medicaid programs and such other similar federal, state or local reimbursement
or governmental programs for which any Seller is eligible are hereinafter
referred to collectively as the "Government Programs") and has current provider
agreements for such Government Programs and with such private non-governmental
programs, including without limitation, any private insurance program under
which they directly or indirectly are presently receiving payments (such
non-governmental programs herein referred to as "Private Programs"). Set forth
in Schedule 2.20(a) is a correct and complete list, with respect to the
Specialty Business, of such Licenses and provider agreements under all
Government and Private Programs (indicating which Seller is the holder thereof
or party thereto), complete and correct copies of which have been provided to
Buyer. True, complete and correct copies of all surveys of each Seller or its
predecessors in interest conducted in connection with any Government Program,
Private Program or licensing or accrediting body during the past two (2) years
have been provided or made available to Buyer.
(b) Except as disclosed in Schedule 2.20(b), no violation, default, order
or deficiency exists with respect to any of the items listed in Schedule
2.20(a). No Seller has received any notice of any action pending or recommended
by any state or federal agencies having jurisdiction over the items listed in
Schedule 2.20(a), either to revoke, withdraw or suspend any license, right or
authorization, or to terminate the participation of Seller in any Government or
Private Program. No event has occurred which, with the giving of notice, the
passage of time, or both, would constitute grounds for a violation, order or
deficiency with respect to any of the items listed in Schedule 2.20(a) or to
revoke, withdraw or suspend any such license, or to terminate or modify the
participation of Seller in any Government or Private Program. Except as set
forth in Schedule 2.20(b), since January 1, 2000, there has been no decision not
to renew any provider or third-party payor agreement of any Seller. Except as
listed in Schedule 2.20(b), no Consent or approval of, prior filing with or
notice to, or any action by, any governmental body or agency or any other third
party in connection with the transfer or change of ownership of such License, or
Government or Private Program, by reason of the assignment thereof to Buyer at
the Closing, and the continued operation of the Business by Buyer thereafter on
a basis consistent with past practices.
(c) Each Seller has timely filed all reports and billings required to be
filed prior to the date hereof with respect to the Specialty Business in
accordance with the Government and Private Programs, all fiscal intermediaries
and other insurance carriers and all such reports and billings are complete and
accurate in all material respects and have been prepared in compliance with all
applicable laws, rules and regulations governing reimbursement and payment
claims. True and complete copies of such reports and billings for the most
recent year have heretofore been made available to Buyer. Each Seller has paid
or caused to be paid all known and undisputed refunds, overpayments, discounts
or adjustments which have become due pursuant to such reports and billings and
has no Liability under any Government or Private Program for any refund,
overpayment, discount or adjustment. Except as set forth in Schedule 2.20(c),
(i) there are no pending appeals, adjustments, challenges, audits, claims, or
notices of intent to audit such prior reports or billings, and (ii) during the
last two years no Seller has been audited, examined or otherwise by any
Government or Private Program. There are no other reports required to be filed
by any Seller in order to be paid under any Government or Private Program for
services rendered in connection with the Business, except for reports not yet
due.
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(d) Sellers are in compliance with the terms of the Corporate Integrity
Agreements and any other agreements, corporate integrity programs or compliance
plans with a Regulatory Authority. Sellers have provided Buyer with true,
correct and complete copies of the Corporate Integrity Agreements and any other
agreement, corporate integrity program or compliance plan that is applicable to
Parent or any Subsidiary of Parent. The 1999 CIA does not and will not apply to
the Specialty Business.
2.21 Inspections and Investigations. Except as set forth and described in
Schedule 2.21, (i) no Seller's right nor the right of any licensed professional
or other individual affiliated with the Specialty Business to receive
reimbursements pursuant to any Government or Private Program has been terminated
or otherwise adversely affected as a result of any investigation or action
whether by any federal or state governmental Regulatory Authority or other third
party, (ii) no Seller, nor any licensed professional or other individual who
provides services in connection with the operation of the Specialty Business on
behalf of any Seller has, during the past three (3) years, been the subject of
any non-routine inspection, investigation, survey, audit, monitoring or other
form of review by any Regulatory Authority, trade association, professional
review organization, accrediting organization or certifying agency based upon
any alleged improper activity on the part of such individual, nor has any Seller
received any notice of deficiency (other than those that have been cured) during
the past three (3) years in connection with the operations of the Specialty
Business, and (iii) there are not presently, and at the Closing Date there will
not be, any material outstanding deficiencies or work orders of any governmental
authority having jurisdiction over the Specialty Business or the Assets, or
requiring conformity to any applicable agreement, statute, regulation, ordinance
or bylaw, including but not limited to, the Government and Private Programs.
Attached to Schedule 2.21 are copies of all reports, correspondence, notices and
other documents relating to any matter described or referenced therein.
2.22 Certain Relationships. Except as set forth in Schedule 2.22, no
Seller has, with respect to the Specialty Business:
(a) offered, paid, solicited or received anything of value, paid directly
or indirectly, overtly or covertly, in cash or in kind ("Remuneration") to or
from any physician, family member of a physician, or an entity in which a
physician or physician family member has an ownership or investment interest,
including, but not limited to:
(i) payments for personal or management services pursuant to a medical
director agreement, consulting agreement, management contract, personal
services agreement, or otherwise;
(ii) payments for the use of premises leased to or from a physician, a
family member of a physician or an entity in which a physician or family
member has an ownership or investment interest; or
(iii) payments for the acquisition or lease of equipment, goods or
supplies from a physician, a family member of a physician or an entity in
which a physician or family member has an ownership or investment interest;
(b) except for discounts offered in the ordinary course of business
consistent with industry practice, offered, paid, solicited or received any
Remuneration (excluding fair market value payments for equipment or supplies) to
or from any healthcare provider, pharmacy, drug or equipment supplier,
distributor or manufacturer, including, but not limited to:
(i) payments or exchanges of anything of value under a warranty provided
by a manufacturer or supplier of an item to a Seller; or
(ii) discounts, rebates, or other reductions in price on a good or
service received by a Seller;
(c) except for discounts offered in the ordinary course of business
consistent with industry practice, offered, paid, solicited or received any
Remuneration to or from any person or entity in order to induce business,
including, but not limited to, payments intended not only to induce referrals of
patients, but also to induce the purchasing, leasing, ordering or arrangement
for any good, facility, service or item;
(d) entered into any joint venture, partnership, co-ownership or other
arrangement involving any ownership or investment interest by any physician, or
family member of a physician, or an entity in which
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physician or physician family member has an ownership or investment interest,
directly or indirectly, through equity, debt, or other means, including, but not
limited to, an interest in an entity providing goods or services to a Seller;
(e) entered into any joint venture, partnership, co-ownership or other
arrangement involving any ownership or investment interest by any person or
entity including, but not limited to, a hospital, pharmacy, drug or equipment
supplier, distributor or manufacturer, that is or was in a position to make or
influence referrals, furnish items or services to, or otherwise generate
business for any Seller; or
(f) entered into any agreement providing for the referral of any patient
for the provision of goods or services by a Seller, or payments by a Seller as a
result of any referrals of patients to a Seller (excluding commercial payor
contracts providing for such referrals and payments).
2.23 Stark; Fraud and Abuse; False Claims. No Seller nor any independent
contractor providing professional services on behalf of and in connection with
the Specialty Business, nor to Sellers' Knowledge, any of Sellers' respective
predecessors, have engaged in any activities which are prohibited under 42
U.S.C. sec. 1320a-7b, 42 U.S.C. sec. 1395nn or 31 U.S.C. sec. 3729-3733 (or
other federal or state statutes related to false or fraudulent claims) or the
regulations promulgated thereunder pursuant to such statutes, or related state
or local statutes or regulations, or which are prohibited by rules of
professional conduct, including but not limited to the following: (a) knowingly
and willfully making or causing to be made a false statement or representation
of a fact in any application for any benefit or payment; (b) knowingly and
willfully making or causing to be made any false statement or representation of
a fact for use in determining rights to any benefit or payment; (c) failing to
disclose knowledge by a claimant of the occurrence of any event affecting the
initial or continued right to any benefit or payment on its own behalf or on
behalf of another, with intent to fraudulently secure such benefit or payment;
and (d) knowingly and willfully soliciting or receiving any remuneration
(including any kickback, bribe or rebate), directly or indirectly, overtly or
covertly, in cash or in kind or offering to pay or receive such remuneration (i)
in return for referring an individual to a person for the furnishing or
arranging for the furnishing of any item or service for which payment may be
made in whole or in part by Medicare or Medicaid, or (ii) in return for
purchasing, leasing, or ordering or arranging for or recommending purchasing,
leasing, or ordering any good, facility, service or item for which payment may
be made in whole or in part by Medicare or Medicaid.
2.24 Rates and Reimbursement Policies. Except for ethical limitations and
applicable Medicare, Medicaid or consumer protection laws and regulations, the
jurisdictions in which Sellers conduct business do not currently impose any
restrictions or limitations on rates which may be charged to private pay
patients receiving services provided by Sellers. None of the Sellers have
Knowledge of any applicable law, which has been enacted, promulgated or issued
within the eighteen (18) months preceding the date of this Agreement of any such
legal requirement in the jurisdictions in which Sellers do business, which would
have a Seller Material Adverse Effect or may result in the imposition of
additional Medicaid, Medicare, charity, free care, welfare, or other discounted
or government assisted patients or require Sellers to obtain any necessary
authorization which they do not currently possess.
2.25 Controlled Substances. No Seller, or to the Knowledge of Sellers,
any independent contractor who provides professional services on behalf of and
in connection with the Specialty Business has, in connection with their
activities directly or indirectly related to a Seller, engaged in any activities
which are prohibited under the Federal Controlled Substances Act, 21 U.S.C.
sec. 801 et seq. or the regulations promulgated pursuant to such statute or any
related state or local statutes or regulations concerning the dispensing and
sale of controlled substances.
2.26 Accounts Receivable; Inventories.
(a) Except as set forth in Schedule 2.26(a), the accounts receivable
reflected in the Statements of Assets and Liabilities, and all accounts
receivable arising since September 30, 2001(collectively, the "Accounts
Receivable"), arose and will at Closing have arisen from bona fide transactions
in the ordinary course of business. Except as set forth in Schedule 2.26(a), the
Accounts Receivable have been and will as of Closing (as reflected on the Actual
Closing Balance Sheet) be properly recorded and reserved against (taking
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into account rights of set-off, collection losses, contractual discounts and
other adjustments from third party payers) in accordance with GAAP and, in the
case of the reserves on the Actual Closing Balance Sheet, consistent with the
policies and procedures applied in establishing the reserves for the Statement
of Assets and Liabilities included in the Adjusted Financial Statements. Except
as disclosed in Schedule 2.26(a), no such Accounts Receivable have been or will
at Closing be assigned or pledged to any other person, firm or corporation.
(b) All items of Inventory of Sellers will at the Closing consist of items
of a quality and quantity usable and saleable in the ordinary course of business
and conform to generally accepted standards in the industry in which Specialty
Business is a part. Except as set forth in Schedule 2.26(b), since September 30,
2001, no Inventory has been sold or disposed of, except through sales in the
ordinary course of business, and in no event at prices less than the book value
of such Inventory as of September 30, 2001.
2.27 Business Relationships. (a) Except as disclosed in Schedule 2.27(a),
the relationships between Sellers and all customers, clients, third party
payors, patients, Employees and vendors who receive goods and services from or
provide goods and services to a Seller in connection with the Specialty Business
are generally satisfactory, and Sellers have no Knowledge of (i) any facts or
circumstances which might materially alter, negate, impair or in any way
adversely affect the continuity of any such relationships or (ii) any material
complaints, claims, threats of which Sellers have received express notice, plans
or intentions to discontinue or curtail relations under any such relationships.
No Seller is under any obligation with respect to the return of goods in the
possession of customers or patients related to the Specialty Business.
(b) Except as disclosed in Schedule 2.27(b), Sellers have no Knowledge of
any present or future condition or state of facts or circumstances which would
prevent the Specialty Business from being carried on by Buyer after the Closing
Date in the same manner as it is presently being carried on.
2.28 Absence of Certain Business Practices. Except as disclosed in
Schedule 2.28, no Seller, nor, to the Knowledge of Sellers, any independent
contractor of a Seller or any other person or entity acting on behalf of a
Seller in connection with the Specialty Business, acting alone or together, has
(i) received, directly or indirectly, any rebates, payments, commissions,
promotional allowances or any other economic benefits, regardless of their
nature or type, from any customer, governmental employee or other person or
entity with whom a Seller has done business directly or indirectly, or (ii)
directly or indirectly, given or agreed to give any gift or similar benefit to
any customer, governmental employee or other person or entity who is or may be
in a position to help or hinder the Specialty Business (or assist any Seller in
connection with any actual or proposed transaction) which, in the case of either
clause (i) or clause (ii) above, would reasonably be expected to subject a
Seller to any damage or penalty in any civil, criminal or governmental
Litigation. No Seller, nor to the Knowledge of Sellers, any independent
contractor of a Seller, has used any funds for unlawful contributions, gifts,
entertainment or other expenses relating to political activity or otherwise, or
has made any direct or indirect unlawful payment to governmental officials or
employees from a Seller's funds or been reimbursed from a Seller's funds for any
such payment, or is aware that any other person acting on behalf of a Seller has
engaged in any such activities.
2.29 Opinion of Financial Advisor. Parent has received the opinion of
Lehman Brothers, dated the date of this Agreement, to the effect that, as of the
date hereof, the Consideration is fair, from a financial point of view, to
Parent.
2.30 Board Recommendation. The Board of Directors of Parent, at a meeting
duly called and held, has (i) determined that this Agreement and the Acquisition
and the transactions contemplated hereby, taken together, are in the best
interests of the stockholders of Parent and (ii) resolved to recommend that the
holders of the shares of Parent Common Stock approve this Agreement and the
Acquisition.
2.31 Statements True and Correct. No representation or warranty made
herein by Sellers, nor in any statement, certificate or instrument to be
furnished to Buyer by any Seller pursuant to any Acquisition Document, contains
or will contain any untrue statement of material fact or omits or will omit to
state a material fact necessary to make these statements contained herein and
therein not misleading.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Sellers as follows:
3.1 Organization, Authority and Capacity. Buyer is a corporation, duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Buyer has the full power and authority necessary to (i) execute,
deliver and perform its obligations under the Acquisition Documents to be
executed and delivered by it, and (ii) carry on its business as it has been and
is now being conducted and to own and lease the properties and assets which it
now owns or leases. Buyer is duly qualified to do business and is in good
standing in each jurisdiction in which the failure to be so qualified or in good
standing would have a Buyer Material Adverse Effect.
3.2 Authorization and Validity. The execution, delivery and performance
of the Acquisition Documents to be executed and delivered by Buyer have been
duly authorized by all necessary action by Buyer. The Acquisition Documents to
be executed and delivered by Buyer have been or will be, as the case may be,
duly executed and delivered by Buyer and constitute or will constitute the
legal, valid and binding obligations of Buyer, enforceable in accordance with
their respective terms, except as may be limited by bankruptcy, insolvency, or
other laws affecting creditors' rights generally, or as may be modified by a
court of equity.
3.3 Absence of Conflicting Agreements or Required Consents. The
execution, delivery and performance by Buyer of the Acquisition Documents to be
executed and delivered by it: (i) do not require the Consent of or notice to any
Regulatory Authority; (ii) will not conflict with any provision of Buyer's
charter or bylaws; (iii) will not conflict with or result in a violation of any
law, ordinance, regulation, ruling, judgment, order or injunction of any court
or governmental instrumentality to which Buyer is a party or by which Buyer or
any of its properties is bound; (iv) will not conflict with, constitute grounds
for termination of, result in a breach of, constitute a default under, require
any notice under, or accelerate or permit the acceleration of any performance
required by the terms of any agreement, instrument, license or permit to which
Buyer is a party or by which any of Buyer's properties are bound, except that
Buyer will need the Consent of Bank of America, N.A. and First Tennessee Bank
National Association and Brown Brothers Harriman & Co. and Bank of America, N.A.
as Agent; and (v) will not create any Lien other than Permitted Liens upon any
assets or properties of Buyer.
3.4 Capitalization. The authorized capital stock of Buyer consists of (i)
50,000,000 shares of Buyer Common Stock, of which 26,050,775 shares are issued
and outstanding as of October 26, 2001, (ii) 5,000,000 shares of Buyer Preferred
Stock, none of which are issued and outstanding, and (iii) other than as
disclosed in the Buyer SEC Reports and options issued in the ordinary course of
business, there are no options, warrants, convertible securities or other
rights, agreements, arrangements or commitments of any character relating to the
capital stock of Buyer to issue or sell any shares, capital stock of, or any
other interest in, Buyer. All of the issued and outstanding shares of Buyer
Capital Stock are duly and validly issued and outstanding and fully paid and
nonassessable under the DGCL.
3.5 SEC Filings.
(a) Buyer has delivered or made available to Parent (through reference to
documents filed by EDGAR or otherwise) accurate and complete copies of all
forms, reports and documents filed by Buyer with the SEC since January 1, 2000
(the "Buyer SEC Reports"), which are all the forms, reports and documents
required to be filed by Buyer with the SEC since such date. As of their
respective dates, the Buyer SEC Reports (i) were prepared in accordance and
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 thereunder applicable to such Buyer SEC Reports and (ii) did not at the time
they were filed contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. None of Buyer's Subsidiaries is required to file any
forms, reports or other documents with the SEC.
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(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in Buyer SEC Reports (the "Buyer
Financials") (i) complied as to form in all material respects with the published
rules and regulations of the SEC with respect thereto, (ii) were prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods involved (except as may be indicated in the notes
thereto or, in the case of unaudited interim financial statements, as may be
permitted by the SEC on Form 10-Q under the Exchange Act) and (iii) fairly
presented, in all material respects, the financial position of the Buyer as at
the respective dates thereof and the results of the Buyer's operations and cash
flows for the periods indicated, except that the unaudited interim financial
statements may not contain footnotes and were or are subject to normal and
recurring year-end adjustments.
3.6 Litigation. Except as set forth in the Buyer SEC Reports and except
for routine government inquiries, examinations and inspections which Buyer has
no reason to believe are material, there is no material Litigation pending or
threatened against Buyer and, to the Knowledge of Buyer, there is no basis for
any such action. Except as set forth in the Buyer SEC Reports, there are no
material judgments against or consent decrees binding on Buyer.
3.7 Financing. Buyer has delivered to Parent a commitment letter from
Bank of America providing for funds to be delivered to Buyer on the Closing Date
sufficient to enable Buyer to deliver the Cash Consideration at Closing.
3.8 Discharge of Patients. Buyer shall not discharge existing patients of
Sellers as of the Closing Date in violation of applicable Law.
3.9 Buyer Common Stock. The Buyer Common Stock to be issued to Parent
pursuant to this Agreement, when so issued, will be duly and validly authorized
and issued, fully paid and non-assessable, and Parent will acquire good and
valid title thereto, free and clear of any preemptive rights or Liens created by
Buyer, subject to any required prior notice of issuance being given to the
Nasdaq National Market.
3.10 Opinion of Financial Advisor. Buyer has received the opinion of
Thomas Weisel Partners LLC, dated the date of this Agreement, to the effect
that, as of the date hereof, the terms of the Acquisition are fair, from a
financial point of view, to the holders of Buyer Common Stock.
3.11 Board Recommendation. The Board of Directors of Buyer, at a meeting
duly called and held, has (i) determined that this Agreement and the Acquisition
and the transactions contemplated hereby, taken together, are in the best
interests of the stockholders of Buyer and (ii) resolved to recommend that the
holders of the shares of Buyer Common Stock approve the issuance of shares of
Buyer Common Stock that comprise the Stock Consideration.
3.12 Statements True and Correct. No representation or warranty made
herein by Buyer, nor in any statement, certificate or instrument to be furnished
to Sellers by Buyer pursuant to any Acquisition Document contains or will
contain any untrue statement of material fact or omits or will omit to state a
material fact necessary to make these statements contained therein not
misleading.
ARTICLE 4
ADDITIONAL AGREEMENTS
4.1 Proxy Statement/Prospectus; Registration Statement.
(a) As promptly as practicable after the execution of this Agreement, Buyer
and Parent shall prepare and file with the SEC the Proxy Statement/Prospectus,
and Buyer shall prepare and file with the SEC the Registration Statement in
which the Proxy Statement/Prospectus is to be included as a prospectus. Buyer
and Parent shall provide each other with any information which may be required
in order to effectuate the preparation and filing of the Proxy
Statement/Prospectus and the Registration Statement pursuant to this Section
4.1. Each of Buyer and Parent shall respond to any comments from the SEC and
shall use all reasonable efforts to cause the Registration Statement to be
declared effective under the Securities Act as promptly as practicable after
such filing. Each of Buyer and Parent shall notify the other promptly upon the
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receipt of any comments from the SEC or its staff in connection with the filing
of, or amendments or supplements to, the Registration Statement and/or the Proxy
Statement/Prospectus. Whenever any event occurs which is required to be set
forth in an amendment or supplement to the Proxy Statement/Prospectus or the
Registration Statement, Buyer or Parent, as the case may be, shall promptly
inform the other of such occurrence and mutually prepare and file with the SEC
or its staff, and/or mailing to stockholders of Buyer and/or Parent, such
amendment or supplement. Each of Buyer and Parent shall cooperate and provide
the other (and its counsel) with a reasonable opportunity to review and comment
on any amendment or supplement to the Registration Statement and Proxy
Statement/Prospectus prior to filing such with the SEC, and shall mutually
prepare all such filings made with the SEC. Each of Buyer and Parent shall cause
the Proxy Statement/Prospectus to be mailed to its respective stockholders at
the earliest practicable time after the Registration Statement is declared
effective by the SEC.
(b) None of the information supplied or to be supplied by or on behalf of
Parent for inclusion or incorporation by reference in the Registration Statement
will, at the time such incorporated documents are filed with the SEC or at the
time the Registration Statement 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 in order to make the statements
therein not misleading. None of the information supplied or to be supplied by or
on behalf of Parent for inclusion or incorporation by reference in the Proxy
Statement/Prospectus to be filed with the SEC, will, at the time the Proxy
Statement/Prospectus is mailed to the stockholders of Parent and Buyer, or at
the time of the Parent Stockholders' Meeting or Buyer Stockholders' Meeting,
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 the light of the circumstances under which they are made, not
misleading. The Proxy Statement/Prospectus will comply as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations promulgated by the SEC thereunder, except that no representation or
warranty is made by Parent with respect to statements made or incorporated by
reference therein which are by or about Buyer or based on information supplied
by Buyer for inclusion or incorporation by reference in the Proxy
Statement/Prospectus.
(c) None of the information supplied or to be supplied by or on behalf of
Buyer for inclusion or incorporation by reference in the Registration Statement
will, at the time such incorporated documents are filed with the SEC or at the
time the Registration Statement 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 in order to make the statements
therein not misleading. None of the information supplied or to be supplied by or
on behalf of Buyer for inclusion or incorporation by reference in the Proxy
Statement/Prospectus to be filed with the SEC, will, at the time the Proxy
Statement/Prospectus is mailed to the stockholders of Parent and Buyer, or at
the time of the Parent Stockholders' Meeting or Buyer Stockholders' Meeting,
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 the light of the circumstances under which they are made, not
misleading. The Registration Statement and the Proxy Statement/Prospectus, if
applicable, will comply as to form in all material respects with the provisions
of the Securities Act and the Exchange Act and the rules and regulations
promulgated by the SEC thereunder, except that no representation or warranty is
made by Buyer with respect to statements made or incorporated by reference
therein based on information supplied by Parent for inclusion or incorporation
by reference in the Registration Statement.
4.2 Meetings of Stockholders; Board Recommendation.
(a) Promptly after the Registration Statement is declared effective under
the Securities Act, each of Buyer and Parent shall take all action necessary in
accordance with the DGCL and its respective Certificate of Incorporation and
Bylaws to call, hold and convene a meeting of its respective stockholders to
consider, in the case of Buyer, the issuance of shares of Buyer Common Stock
pursuant to the Acquisition and such other matters as it deems appropriate, and,
in the case of Parent, adoption and approval of this Agreement and approval of
the Acquisition (each, a "Stockholders' Meeting") to be held as promptly as
practicable (without limitation, within 30 days, if practicable) after the
declaration of effectiveness of the Registration Statement. Each of Buyer and
Parent shall use their respective commercially reasonable efforts to hold their
respective Stockholders' Meetings on the same date. Subject to Section 4.3(d),
each of Buyer and Parent shall use all
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reasonable efforts to solicit from its respective stockholders proxies in favor
of, in the case of Buyer, the issuance of shares of Buyer Common Stock pursuant
to the Acquisition, and, in the case of Parent, the adoption and approval of
this Agreement and the approval of the Acquisition, and shall take all other
action necessary or advisable to secure the vote or consent of their respective
stockholders required by the rules of the NASD or the DGCL to obtain such
approvals. Notwithstanding anything to the contrary contained in this Agreement,
Buyer or Parent, as the case may be, may adjourn or postpone its Stockholders'
Meeting to the extent necessary to ensure that any necessary supplement or
amendment to the Proxy Statement/Prospectus is provided to its respective
stockholders in advance of a vote on the issuance of Buyer Common Stock or the
Acquisition and this Agreement, as applicable, or, if as of the time for which
the Stockholders' Meeting is originally scheduled (as set forth in the Proxy
Statement/Prospectus) there are insufficient shares of capital stock of Buyer or
Parent, as the case may be, represented (either in person or by proxy) to
constitute a quorum necessary to conduct the business of such Stockholders'
Meeting. Each of Buyer and Parent shall ensure that its respective Stockholders'
Meeting is called, noticed, convened, held and conducted, that all proxies
solicited in connection with its Stockholders' Meeting are solicited in
compliance with the DGCL, its Certificate of Incorporation and Bylaws, the rules
of the NASD and all other applicable Laws, and that all proxies are voted at
such Stockholders' Meeting in accordance with their instructions.
(b) Except as expressly permitted by Section 4.3(d): (i) the Board of
Directors of each of Buyer and Parent shall recommend that the respective
stockholders of Buyer and Parent vote in favor of, in the case of Buyer, the
issuance of shares of Buyer Common Stock pursuant to the Acquisition, and, in
the case of Parent, adoption and approval of this Agreement and approval of the
Acquisition, at their respective Stockholders' Meetings, (ii) the Proxy
Statement/Prospectus shall include a statement to the effect that the Board of
Directors of Buyer has recommended that Buyer's stockholders vote in favor of
the issuance of shares of Buyer Common Stock pursuant to the Acquisition at
Buyer's Stockholders' Meeting and the Board of Directors of Parent has
recommended that Parent's stockholders vote in favor of adoption and approval of
this Agreement and approval of the Acquisition at Parent's Stockholders'
Meeting, and (iii) neither the Board of Directors of Buyer or Parent nor any
committee thereof shall withdraw, amend or modify, or propose or resolve to
withdraw, amend or modify in a manner adverse to the other party, the
recommendation of its respective Board of Directors that the respective
stockholders of Buyer and Parent vote in favor of, in the case of Buyer, the
issuance of shares of Buyer Common Stock pursuant to the Acquisition, and, in
the case of Parent, adoption and approval of this Agreement and the Acquisition.
(c) The provisions of this Section 4.2 and all references in this Agreement
to the Stockholders' Meeting of Buyer, shall not apply to Buyer if Buyer
reasonably determines that a vote of its stockholders is not required by
applicable Law or the rules of the NASD.
4.3. Acquisition Proposals.
(a) Parent agrees that neither it nor any of its Subsidiaries nor any of
the officers and directors of it or its Subsidiaries shall, and that it shall
cause its and its Subsidiaries' employees, agents and Representatives not to
(and shall not authorize any of them to) directly or indirectly: (i) solicit,
initiate, encourage, knowingly facilitate or induce any inquiry with respect to,
or the making, submission or announcement of, any Acquisition Proposal (as
defined in Section 4.3(g)), (ii) participate in any discussions or negotiations
regarding, or furnish to any Person any nonpublic information with respect to,
or take any other action to knowingly facilitate any inquiries or the making of
any proposal that constitutes or may reasonably be expected to lead to, any
Acquisition Proposal, (iii) approve, endorse or recommend any Acquisition
Proposal (except to the extent specifically permitted pursuant to Section
4.3(d)), or (iv) enter into any letter of intent or similar document or any
contract, agreement or commitment contemplating or otherwise relating to any
Acquisition Proposal or transaction contemplated thereby. Parent and its
Subsidiaries and their respective officers, directors, employees, agents and
representatives shall immediately cease any and all existing activities,
discussions or negotiations with any third parties conducted heretofore with
respect to any Acquisition Proposal.
(b) (i) Within two (2) business days after receipt of any Acquisition
Proposal or any request for nonpublic information or inquiry which it
reasonably believes could lead to an Acquisition Proposal,
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Parent shall provide Buyer with oral and written notice of the material
terms and conditions of such Acquisition Proposal, request or inquiry, and
the identity of the Person or Group making any such Acquisition Proposal,
request or inquiry and a copy of all written materials provided in
connection with such Acquisition Proposal, request or inquiry. Upon receipt
of the Acquisition Proposal, request or inquiry, Parent shall provide Buyer
as promptly as practicable oral and written notice setting forth all such
information as is reasonably necessary to keep Buyer informed in all
material respects of the status and details (including material amendments
or proposed material amendments) of any such Acquisition Proposal, request
or inquiry and shall promptly provide to Buyer a copy of all written
materials subsequently provided in connection with such Acquisition
Proposal, request or inquiry.
(ii) Parent shall provide Buyer with forty-eight (48) hours prior notice
(or such lesser prior notice as is provided to the members of its Board of
Directors) of any meeting of its Board of Directors at which its Board of
Directors is reasonably expected to consider any Acquisition Proposal.
(c) Notwithstanding anything to the contrary contained in Section 4.3(a)
and subject to compliance with Section 4.3(b), in the event that Parent receives
an unsolicited, bona fide Acquisition Proposal from a Person that its Board of
Directors has in good faith concluded (following the receipt of the advice of
its outside legal counsel and its financial advisor), is, or is reasonably
likely to result in, a Superior Offer (as defined in Section 4.3(g)), it may
then take the following actions (but only if and to the extent that its Board of
Directors concludes in good faith, following the receipt of advice of its
outside legal counsel, that the failure to do so is reasonably likely to result
in a breach of its fiduciary obligations under applicable law): (i) furnish
nonpublic information to the third party making such Acquisition Proposal,
provided that (A) (1) concurrently with furnishing any such nonpublic
information to such party, it gives Buyer written notice of its intention to
furnish nonpublic information and (2) it receives from the third party an
executed confidentiality agreement containing customary limitations on the use
and disclosure of all nonpublic written and oral information furnished to such
third party on its behalf, the terms of which are at least as restrictive as the
terms contained in the Confidentiality Agreement and (B) contemporaneously with
furnishing any such nonpublic information to such third party, it furnishes such
nonpublic information to Buyer (to the extent such nonpublic information has not
been previously so furnished); and (ii) engage in negotiations with the third
party with respect to the Acquisition Proposal, provided that concurrently with
entering into negotiations with such third party, it gives Buyer written notice
of its intention to enter into negotiations with such third party.
(d) In response to the receipt of a Superior Offer, the Board of Directors
of Parent may withhold, withdraw, amend or modify its recommendation in favor of
the Acquisition, and, in the case of a Superior Offer that is a tender or
exchange offer made directly to its stockholders, may recommend that its
stockholders accept the tender or exchange offer (any of the foregoing actions,
whether by a Board of Directors or a committee thereof, a "Change of
Recommendation"), if all of the following conditions in clauses (i) through (v)
are met at least two days prior to any Change of Recommendation: (i) a Superior
Offer with respect to it has been made and has not been withdrawn; (ii) its
Stockholders' Meeting has not occurred; (iii) it shall have (A) provided to
Buyer written notice which shall state expressly (1) that it has received a
Superior Offer, (2) the material terms and conditions of the Superior Offer and
the identity of the Person or Group making the Superior Offer, and (3) that it
intends to effect a Change of Recommendation and the manner in which it intends
to do so, (B) provided to Buyer a copy of all written materials delivered to the
Person or Group making the Superior Offer in connection with such Superior
Offer, and (C) made available to Buyer all materials and information made
available to the Person or Group making the Superior Offer in connection with
such Superior Offer; (iv) its Board of Directors has concluded in good faith,
after receipt of advice of its outside legal counsel, that, in light of such
Superior Offer, the failure of the Board of Directors to effect a Change of
Recommendation is reasonably likely to result in a breach of its fiduciary
obligations to its stockholders under applicable Law; and (v) it shall not have
breached in any material respect any of the provisions set forth in Section 4.2
or this Section 4.3.
(e) Notwithstanding anything to the contrary contained in this Agreement,
(i) the obligation of Parent to call, give notice of, convene and hold its
Stockholders' Meeting shall not be limited or otherwise affected by the
commencement, disclosure, announcement or submission to it of any Acquisition
Proposal with
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respect to it, or by any Change of Recommendation, and (ii) Parent shall not
submit to the vote of its respective stockholders any Acquisition Proposal, or
propose to do so.
(f) Nothing contained in this Agreement shall prohibit either party or its
respective Board of Directors from taking and disclosing to its stockholders a
position contemplated by Rules 14d-9 and 14e-2(a) promulgated under the Exchange
Act; provided that Parent shall not effect a Change of Recommendation unless
specifically permitted pursuant to the terms of Section 4.3(d).
(g) For purposes of this Agreement, the following terms shall have the
following meanings:
(i) "Acquisition Proposal" shall mean any offer or proposal, relating to
any transaction or series of related transactions involving: (A) any
purchase from Parent or acquisition by any Person or "Group" (as defined
under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) of more than a ten percent (10%) interest in the total
outstanding voting securities of Parent or any Seller which owns any of the
Assets or any tender offer or exchange offer that if consummated would
result in any Person or Group beneficially owning ten percent (10%) or more
of the total outstanding voting securities of Parent or any Seller which
owns any of the Assets, or any acquisition, consolidation, business
combination or similar transaction involving Parent or any Seller which
owns any of the Assets, (B) any sale, lease (other than in the ordinary
course of business), exchange, transfer, license (other than in the
ordinary course of business), acquisition or disposition of more than ten
percent (10%) of the assets of Parent and its Subsidiaries, or (C) any
liquidation, spin-off or dissolution of the Assets or any Seller which owns
any of the Assets; provided, however, that an offer or proposal shall not
be deemed to be an Acquisition Proposal if upon receipt of an unsolicited
Acquisition Proposal and prior to any additional discussions, Parent
informs such party of the requirements for a Permitted Acquisition
Proposal, and such party agrees to pursue such transaction solely in
accordance with the criteria set forth in (A) or (B) of a Permitted
Acquisition Proposal, as applicable.
(ii) "Permitted Acquisition Proposal" shall mean (A) a proposed asset
acquisition solely for the Retained Assets if Parent and its Subsidiaries
comply with the provisions of Section 8.8 hereof, or (B) an acquisition for
ten percent (10%) or more of the total outstanding voting securities of
Parent if the potential acquiror has agreed in writing to be bound by the
provisions of this Agreement and the Acquisition Documents and to vote any
shares of Parent Common Stock it holds in favor of this Agreement, and, in
the event of either (A) or (B), no stockholder vote on such proposed
transaction is held prior to the Stockholders' Meeting to be held pursuant
to this Agreement and such proposed transaction does not have any adverse
impact on the timing or probability of the consummation of the Acquisition
and the transactions contemplated hereby, including the filing and
effectiveness of the Registration Statement and the Proxy
Statement/Prospectus, the filings made under the HSR Act, or the other
closing conditions contained in Article VI hereof.
(iii) "Superior Offer" shall mean an unsolicited, bona fide offer made
by a third party to acquire, directly or indirectly, pursuant to a merger,
tender offer, exchange offer, acquisition, consolidation or other business
combination, substantially all of the assets of both the Specialty Business
and the Home Health Business or more than 50% of the total outstanding
voting securities of Parent on terms that the Board of Directors of Parent
has in good faith concluded (following the receipt of advice of its outside
legal counsel and consultation with its financial adviser), taking into
account, among other things, all legal, financial, regulatory and other
aspects of the offer and the Person making the offer, to be more favorable,
from a financial point of view, to Parent's stockholders (in their
capacities as stockholders) than the terms of the Acquisition (which shall
be adjusted for comparison purposes to include an implied residual
enterprise value for Parent's and its Subsidiaries' assets other than the
Specialty Business) and is reasonably capable of being consummated.
4.4 Audit; Closing Balance Sheet; EBITDA. Sellers shall make available
their financial records in accordance with Section 5.1 hereof and execute such
reasonable management letters, certificates or reports so that the audit of the
financial statements for the Specialty Business can be obtained for the three
fiscal years 1999, 2000 and 2001 and any stub period between the first day of
the 2002 fiscal year and the Closing Date, and Buyer shall use commercially
reasonable efforts to cause its accountants to complete its audit of the
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Specialty Business in accordance with generally accepted auditing procedures and
issue its audit opinion for the periods required by Regulation S-X of the
Securities Act for Buyer to comply with all of the rules and regulations of the
Securities Act. Sellers shall make available their financial records in
accordance with Section 5.1 hereof and the Parties shall use their best efforts
to determine, identify and complete the following items within the time periods
set forth herein (or if no time period is established a reasonable period prior
to the Closing Date), all of which shall be prepared and calculated in
accordance with generally accepted accounting procedures: (i) the Estimated
Closing Balance Sheet; (ii) the Actual Closing Balance Sheet; (iii) Net Book
Value and (iv) EBITDA.
4.5 Antitrust Notification; Consents of Regulatory Authorities.
(a) To the extent required by the HSR Act, each of the Parties shall,
promptly following the date hereof, file with the United States Federal Trade
Commission ("FTC") and the United States Department of Justice ("DOJ") the
notification and report form required for the transactions contemplated hereby,
shall promptly file any supplemental or additional information which may
reasonably be requested in connection therewith pursuant to the HSR Act, and
shall comply in all material respects with the requirements of the HSR Act. Each
Party shall use its reasonable efforts to resolve objections, if any, which may
be asserted with respect to the Acquisition under the HSR Act, the Sherman Act,
as amended, the Clayton Act, as amended, the Federal Trade Commission Act, as
amended, and any other federal, state or foreign Law or, regulation or decree
designed to prohibit, restrict or regulate actions for the purpose or effect of
monopolization or restraint of trade (collectively "Antitrust Laws"). In the
event any Litigation is threatened or instituted challenging the Acquisition as
violative of Antitrust Laws, each Party shall use its reasonable efforts to
avoid the filing of, or resist or resolve such Litigation. Each Party shall use
its reasonable efforts to take such action as may be required by: (i) the DOJ
and/or the FTC in order to resolve such objections as either of them may have to
the Acquisition under the Antitrust Laws, or (ii) any federal or state court of
the United States, or similar court of competent jurisdiction in any foreign
jurisdiction, in any suit brought by any Regulatory Authority or any other
Person challenging the Acquisition as violative of the Antitrust Laws, in order
to avoid the entry of any Order (whether temporary, preliminary or permanent)
which has the effect of preventing the consummation of the Acquisition and to
have vacated, lifted, reversed or overturned any such Order. Reasonable efforts
shall not include the willingness of Buyer to accept an Order agreeing to the
divestiture, or the holding separate, of any assets of Buyer or any of its
Subsidiaries or any Assets of Sellers which Buyer reasonably determines to be
material to Buyer or to the benefits of the transaction for which it has
bargained for hereunder. Buyer shall be entitled to direct any proceedings or
negotiations with any Regulatory Authority relating to any of the foregoing,
provided that it shall afford Parent a reasonable opportunity to participate
therein. Notwithstanding anything to the contrary in this Section, Buyer shall
not be required to divest any of its businesses, product lines or assets, or to
take or agree to take any other action or agree to any limitation, that Buyer
deems not to be in its best interest.
(b) The Parties hereto shall cooperate with each other and use their
reasonable efforts to promptly prepare and file all necessary documentation, to
effect all applications, notices, petitions and filings (which shall include the
filings pursuant to subsection (a) above), and to obtain as promptly as
practicable all Consents of all Regulatory Authorities and other Persons which
are necessary or advisable to consummate the Acquisition and the other
transactions contemplated by this Agreement. The Parties agree that they shall
consult with each other with respect to the obtaining of all Consents of all
Regulatory Authorities and other Persons necessary or advisable to consummate
the transactions contemplated by this Agreement and each Party shall keep the
other apprised of the status of matters relating to consummation of the
transactions contemplated herein. Each Party also shall promptly advise the
other upon receiving any communication from any Regulatory Authority or other
Person whose Consent is required for consummation of the transactions
contemplated by this Agreement which causes such Party to believe that there is
a reasonable likelihood that any requisite Consent shall not be obtained or that
the receipt of any such Consent will be materially delayed.
(c) Sellers and Buyer will coordinate causing Sellers' Licenses related to
the Specialty Business to be transferred to Buyer and where appropriate Buyer
shall apply, at Buyer's expense, for any change of ownership required for
Licenses or for new Licenses to enable Buyer to operate the Specialty Business
from and after the Closing Date. To the extent permissible by Law, Sellers
shall, at Buyer's reasonable request and
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at Buyer's cost for any out-of-pocket expense, cause Licenses that are not held
by the Acquired Subsidiaries to be transferred to the Acquired Subsidiaries
prior to the Closing Date. In the event that any License cannot be transferred
as described in each of the foregoing sentences and such failure is material to
Buyer, Sellers will reasonably cooperate in making alternate arrangements in
accordance with the Services and Transition Agreement in order to facilitate
Buyer's ability to conduct the Specialty Business in the same manner as
conducted by Sellers prior to Closing.
4.6 Leases. Subject to obtaining any necessary Consents, at Closing, (i)
Sellers shall assign, if possible, or otherwise Buyer shall enter into space
leases with the owners of the buildings used by Sellers in the Specialty
Business and listed on Schedule 1.1(c), (or if leases cannot be negotiated,
Buyer will sublease the space from Sellers), and (ii) Buyer and Parent shall
enter into an agreement under which Parent will sublease from Buyer or its
Affiliate 40% of the space in the Kansas City facility. The leases or subleases
shall contain terms reasonably acceptable to Buyer but in no event shall such
terms be less favorable to Buyer than Sellers' current leases for said space.
4.7 Agreement as to Efforts to Consummate. Subject to the terms and
conditions of this Agreement, each Party agrees to use, and to cause its
Subsidiaries to use, its reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable Laws to consummate and make effective, as soon as
reasonably practicable after the date of this Agreement, the transactions
contemplated by this Agreement, including using its reasonable efforts to lift
or rescind any Order adversely affecting its ability to consummate the
transactions contemplated herein and to cause to be satisfied the conditions
referred to in Article 6; provided, that nothing herein shall preclude either
Party from exercising its rights under this Agreement. Buyer and Sellers agree,
on or prior to the Closing Date, to execute those documents listed in Article 6
hereof to which they are a party and to cause their Affiliates to execute any
such documents to which they are to become a party.
4.8 Press Releases. Prior to the Closing Date, Parent and Buyer shall
consult with each other as to the form and substance of any press release or
other public disclosure materially related to this Agreement or any other
transaction contemplated hereby and each of Parent and Buyer shall have the
right to approve each other's press releases prior to issuance, such approval
not to be unreasonably withheld or delayed; provided, that nothing in this
Section 4.8 shall be deemed to prohibit any Party from making any disclosure
which its counsel deems necessary or advisable in order to satisfy such Party's
disclosure obligations imposed by Law.
4.9 Confidentiality Agreements.
(a) The Parties acknowledge and affirm the Mutual Confidentiality Agreement
between them and their Affiliates, dated November 17, 2001 (the "Confidentiality
Agreement"), such Mutual Confidentiality Agreement incorporated by reference
herein.
(b) Sellers shall take all reasonable commercial actions to maintain the
confidentiality of the confidential information and trade secrets relating to
the Specialty Business and to enforce the provisions of its confidentiality
agreements (including any standstill provisions contained therein) with other
Persons, including such reasonable commercial actions as requested by Buyer.
4.10 Bulk Transfer Act. The parties hereby waive compliance with the any
state "Bulk Transfer Act," to the extent applicable to the transactions
contemplated hereby. Sellers shall indemnify Buyer with respect to such waiver
as a Retained Liability as provided in Section 8.1.
4.11 Retained Liabilities. Sellers covenant and agree to pay or otherwise
satisfy all Retained Liabilities, as and when due. Each Seller further covenants
and agrees that it will not take or fail to take any action which is likely to
adversely affect Buyer's relationship with any suppliers or representatives
related to the Specialty Business between the date hereof and the Closing Date.
4.12 Risk of Loss. Sellers shall maintain all risk of condemnation,
destruction, loss or damage due to fire or other casualty from the date of this
Agreement until the Closing. If the condemnation, destruction, loss or damage is
such that the operation of the Specialty Business is materially interrupted or
curtailed or has a Seller Material Adverse Effect, then Buyer shall have the
right to terminate this Agreement. If Buyer
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nonetheless elects to close, Sellers shall remit all net condemnation proceeds
or third party insurance proceeds to Buyer and the Cash Consideration shall be
adjusted at Closing to reflect such condemnation, destruction, loss or damage to
the extent that insurance or condemnation proceeds are not sufficient to cover
such destruction, loss or damage.
4.13 Certain Tax Matters.
(a) Election Under Section 338(h)(10) of the Internal Revenue Code.
(i) Parent represents that it has filed a consolidated federal income
tax return with each Acquired Subsidiary for the taxable year immediately
preceding the current taxable year and that Parent is eligible to make an
election under Section 338(h)(10) of the Code with respect to each Acquired
Subsidiary. Buyer represents that it is eligible to make an election under
Section 338(h)(10) of the Code with respect to each Acquired Subsidiary.
(ii) Buyer and Parent shall (A) take, and cooperate with each other to
take, all reasonable actions necessary and appropriate (including, without
limitation, the preparation, completion and timely joint filing by Buyer
and Parent of applicable IRS Forms, and the preparation, completion and
timely filing of such other forms, returns, elections, schedules and other
documents and instruments) to effect, perfect and preserve a timely
election in accordance with Section 338(h)(10) of the Code and the Treasury
Regulations promulgated thereunder and all comparable elections permitted
under applicable state, local or foreign law (collectively, the "Section
338(h)(10) Elections") with respect to all the Acquired Subsidiaries; (B)
report the purchase and sale of all the Acquired Subsidiaries consistent
with the foregoing Section 338(h)(10) Elections; and (C) unless otherwise
required by Law, take no position contrary thereto or inconsistent
therewith in any Tax Return, or in any discussion with or any proceeding
before any Taxing authority or other governmental body or otherwise.
(iii) The portion of the Allocable Consideration that comprises the
"aggregate deemed sales price" (as defined in, and required to be allocated
pursuant to, Section 338(h)(10) of the Code) with respect to each Acquired
Subsidiary ("Acquired Subsidiaries Allocable Consideration") shall be
determined in accordance with the Allocation Schedule and the proper
allocation of the Acquired Subsidiaries Allocable Consideration among the
assets of the Acquired Subsidiaries shall be in accordance with the
"Acquired Subsidiaries Allocation Schedule" to be prepared by jointly Buyer
and Sellers prior to the Closing Date. If there is an increase or decrease
in the Acquired Subsidiaries Allocable Consideration, then the adjusted
Acquired Subsidiaries Allocation Consideration shall be allocated in a
manner consistent with the Acquired Subsidiaries Allocation Schedule as
shown on a revised allocation schedule (the "Revised Acquired Subsidiaries
Allocation Schedule") to be prepared by jointly by Buyer and Sellers within
ninety (90) days of such adjustment. The allocation set forth in such
Acquired Subsidiaries Allocation Schedule, or the Revised Acquired
Subsidiaries Allocation Schedule if there is an adjustment to Acquired
Subsidiaries Allocable Consideration, shall comply with the rules of
Section 338 of the Code and the Treasury Regulations promulgated
thereunder. Except to the extent a contrary position is required by law,
Buyer, Parent and the Sellers agree to be bound by the allocation set forth
in the Acquired Subsidiaries Allocation Schedule (or the Revised Acquired
Subsidiaries Allocation Schedule if there has been an adjustment to the
consideration paid) for all purposes of Tax reporting.
(b) Sellers shall prepare and file (or cause to be prepared and filed) in a
timely manner all Tax Returns of the Acquired Subsidiaries (i) that are due on
or before the Closing Date, taking into account extensions of time to file
granted, or (ii) that are related to any taxable period ending on or before the
Closing Date ("Pre-Closing Tax Period") and which have not been filed on or
before the Closing Date. The Buyer shall do the same for the Tax Returns of the
Acquired Subsidiaries after the Closing Date with respect to any taxable period
beginning before the Closing Date and ending after the Closing Date. The
foregoing Tax Returns to be prepared and filed by each of Buyer and the Sellers
shall be prepared in accordance with applicable Tax laws and with past custom
and practice (unless the preparing party reasonably believes that other
treatment is required by facts or applicable laws). With respect to any Tax
Return required to be filed by any Seller with respect to any Acquired
Subsidiary pursuant to this Section 4.13(b), Parent shall provide Buyer with a
copy of
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such completed Tax Return (or, if such Tax Return is a consolidated, combined or
similar Tax Return, the portion of such Tax Return that relates to an Acquired
Subsidiary) on or prior to the due date of such Tax Return. With respect to any
Tax Return required to be filed by the Buyer with respect to any Acquired
Subsidiary pursuant to this Section 4.13(b), the Buyer shall provide the Parent
with a copy of such completed Tax Return (or, if such Tax Return is a
consolidated, combined or similar Tax Return, the portion of such Tax Return
that relates to the Acquired Subsidiary) and a statement certifying the amount
of Tax shown on such Tax Return that is allocable to Parent or any other Seller
pursuant to Section 8.5, together with appropriate supporting information and
schedules at least 45 days prior to the due date (including extensions) for the
filing of such Tax Return, and Parent shall have the right to review and comment
on such Tax Return and statement prior to the filing of such Tax Return. At
least ten (10) days prior to the due date of a Tax Return to be filed by Buyer
pursuant to this Section 4.13(b), the Parent shall make prompt payment to the
Buyer (or to the applicable Taxing authority, if appropriate, and promptly
furnish proof of such payment to the Buyer) of the amount shown as allocable to
the Parent or to another Seller on a Tax Return and accompanying certifying
statement provided to Parent by the Buyer pursuant to this Section 4.13(b). The
Buyer and the Sellers agree to consult and resolve in good faith any issue
arising out of the review of any such Tax Return to be filed by Buyer pursuant
to this Section 4.13(b), provided that no Tax Return to be filed pursuant to
this Section 4.13(b) affecting any Seller's liability under Section 8.5(b) shall
be filed without the consent of the Parent, not to be unreasonably withheld or
delayed.
(c) All Tax sharing agreements and similar agreements (other than the
provisions of this Agreement) that any Acquired Subsidiary is a party to shall
be terminated with respect to such Acquired Subsidiary as of the Closing Date,
and such Acquired Subsidiary shall not have any liability from and after the
Closing Date under any such agreement.
(d) Promptly after receipt by Buyer (or one of its Affiliates) or a Seller
(or one of its Affiliates) of written notice of the assertion or commencement of
any material claim, audit, examination or other proposed change or adjustment by
any Taxing Authority relating to an Acquired Subsidiary for any period beginning
on or prior to the Closing Date (a "Tax Claim"), the recipient shall immediately
notify the other party thereto. Such notice shall contain factual information to
the extent known) describing the asserted Tax Claim in reasonable detail and
shall include copies of any notice or other document received from any Taxing
authority in respect of any such asserted Tax Claim. From and after the Closing,
a Seller shall have the right to represent each Acquired Subsidiary's interests
in any Tax audit or administrative or court proceeding relating to any Tax
Claim, and to employ counsel of Seller's choice at its expense; provided,
however, that Buyer and its representatives shall be permitted, at their
expense, to be present at any such audit or proceeding. Notwithstanding the
foregoing, from and after the Closing, neither any Seller nor any Affiliate of
Seller shall be entitled to settle, either administratively or after the
commencement of litigation, any claim for Taxes of an Acquired Subsidiary which
could reasonably be expected to affect an Acquired Subsidiary with respect to
any taxable period of such Acquired Subsidiary ending after the Closing Date
without the prior written consent of Buyer not to be unreasonably withheld or
delayed. Neither Buyer nor any Buyer Affiliate shall be entitled to settle,
either administratively or after the commencement of litigation, any claim for
Taxes of an Acquired Subsidiary for which any Seller reasonably could be
expected to be liable in whole or in part under Section 8.5 without the prior
written consent of the Parent, such consent not to be unreasonably withheld or
delayed. Neither Buyer nor any Buyer Affiliate shall amend any Tax Return
relating to any taxable period of any Acquired Subsidiary beginning on or prior
to the Closing Date without the prior written consent of the Parent, not to be
unreasonably withheld or delayed.
(e) After the Closing Date, each of Seller and Buyer shall (and cause their
respective Affiliates to):
(i) assist the other party in preparing any Tax Return which such other
party is responsible for preparing and filing in accordance with this
Section 4.13;
(ii) cooperate fully in preparing for any audits of, or disputes with
Taxing authorities;
(iii) make available to the other party and any Taxing authority as
reasonably requested all information, records, and documents relating to
Taxes of each Acquired Subsidiary; and
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(iv) furnish the other party with copies of all correspondence received
from any Taxing authority in connection with any Tax Claim.
(f) Parent and the other Sellers hereby agree and acknowledges that none of
the Acquired Subsidiaries is bound by or has any obligations under the Tax
Sharing Agreement, dated as of August 17, 1999 by and among Olsten Corporation,
Gentiva Health Services, Inc. and Adecco SA; and Parent and the other Sellers
will not seek to assert any rights against any of the Acquired Subsidiaries,
Buyer or any Buyer Affiliate under such Tax Sharing Agreement.
4.14 Title Search; Discharge of Liens. As soon as practicable after the
date hereof, but in no event later than the Closing, Sellers shall (i) use
commercially reasonable efforts to ascertain all Liens (other than Permitted
Liens), if any, to which any of the Assets is subject, whether in the name of a
Seller, a Parent Subsidiary or any predecessor of a Seller or Parent Subsidiary
(which may include reviewing Lien searches obtained by Buyer and provided to
Sellers), (ii) notify Buyer in writing of the nature and extent thereof, and
(iii) discharge all such Liens other than Permitted Liens.
4.15 Transfer Taxes. Sellers shall pay fifty percent (50%) and Buyer
shall pay fifty percent (50%) of (i) all transfer and documentary taxes and fees
imposed with respect to instruments of conveyance in the transactions
contemplated hereby and (ii) all sales, excise and other transfer or similar
taxes on the transfer of the Assets contemplated hereunder. Buyer and Sellers
shall cooperate with one another in promptly making any filings in connection
with any such taxes. Buyer or Sellers, as the case may be, shall execute and
deliver to each other, at Closing any certificates or other documents as the
other may reasonably request to perfect any exemption from any such transfer,
documentary sales, or excise tax.
4.16 Services and Transition Agreement. The Parties shall enter into a
Services and Transition Agreement, generally in the form of Exhibit 4.16, with
such revisions as shall be negotiated in good faith by the Parties between the
date hereof and the Closing Date, it being the agreement of the parties to make
certain services available to each other for a reasonable period of time at each
party's direct and indirect costs therefor to facilitate, among other things,
the orderly transfer of the Specialty Business to Buyer and retention of the
Home Health Business by Sellers so that each may continue to operate the
respective businesses on a basis consistent with past practices. Sellers agree
that Buyer shall have the right to provide all notices of the transfer to the
patients of the Specialty Business in the form and at the time reasonably agreed
to by Buyer and Sellers as necessary to satisfy the Sellers' legal requirements
for discontinuing services to such patients.
4.17 Network Provider Contract. That certain CareCentrix Network Provider
Agreement, dated December 21, 2001, by and between Gentiva CareCentrix, Inc.,
Gentiva Health Services (Infusion), Inc. and Gentiva Health Services (Quantum),
Corp., shall be amended and restated substantially in the form of Exhibit 4.17
hereto (the "Amended and Restated CareCentrix Network Provider Agreement") and
shall be assigned to Buyer in the event Buyer elects not to acquire the equity
interests of the Acquired Subsidiaries in accordance with Section 1.1(m) of this
Agreement.
4.18 Restrictive Covenants Agreement. The Parties shall enter into a
Restrictive Covenants Agreement containing non-competition and non-solicitation
provisions, in the form of Exhibits 4.18-1 and 4.18-2. If, prior to the Closing
Date, Parent or any of its Subsidiaries shall sell a substantial portion of any
of its assets other than the Assets, such party shall provide Buyer at Closing
with an agreement from the purchaser of such assets in which such purchaser
shall agree to be bound by the restrictive covenants contained in Section 2(b)
of the Restrictive Covenants Agreement effective as of the Closing Date.
4.19 Corporate Integrity Agreements. Sellers shall comply with the
requirements of the Corporate Integrity Agreements, including notification of
any proceedings and timely filing all reports due; provided, that Sellers shall
file the final report for the 1998 CIA within sixty (60) days after the date of
this Agreement (or such earlier date as is practicable prior to the scheduled
date of the Stockholders' Meetings), regardless of the due date for such final
report. Sellers agree that they shall, in consultation with Buyer, undertake
reasonable commercial efforts to seek and obtain from the Office of Inspector
General/Health and Human Services written confirmation that the 1998 CIA is
closed and that neither of the Acquired Subsidiaries nor
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any of the Assets are subject to or have further responsibility or liability
thereunder and (ii) the Acquired Subsidiaries and the Assets have not been and
will not be subject to or have any Liability under the 1999 CIA.
4.20 Nasdaq Listing. Buyer shall use its commercially reasonable efforts
to list, prior to the Closing Date, on the Nasdaq National Market, subject to
official notice of issuance, the shares of Buyer Common Stock to be issued to
Parent pursuant to the Acquisition, and Buyer shall give all notices and make
all filings with the Nasdaq National Market required in connection with the
transactions contemplated herein.
4.21 Tail Insurance. Sellers agree to obtain and provide to Buyer
evidence of customary extended reporting endorsements, or "tail binders," on any
"claims made" insurance covering professional and general liability of the
Specialty Business.
4.22 Collection of Receivables. In the event that any of the receivables
that are part of the Assets include governmental or other receivables that may
not be assigned as provided hereunder, Sellers agree to implement such
reasonable procedures as Buyer may request, and in a manner for which Buyer is
not subject to credit risk with Sellers, for the continued collection by Sellers
and such receivables and the immediate payment to Buyer of such receivables, all
of which procedures shall be reflected in the Services and Transition Agreement.
ARTICLE 5
CONDUCT OF BUSINESS
5.1 Access to Information. At all times prior to the Closing, Sellers
will afford the officers and authorized representatives of Buyer reasonable
access upon reasonable notice to all of the properties, books and records that
relate to or concern the Specialty Business and will furnish such parties with
such additional financial, operating and other information as to the business
and properties of the Specialty Business as such parties may from time to time
reasonably request and in order to allow Buyer and its accountants and
representatives to complete the audit and calculations set forth in Section 4.4.
Buyer shall also be allowed reasonable access, upon reasonable notice, to
consult with the officers, employees, accountants, counsel and agents of Sellers
in connection with such investigation of the Specialty Business. No such
investigation shall diminish or otherwise affect any of the representations,
warranties, covenants or agreements of any party under this Agreement. At all
times following the Closing, (i) Sellers will afford the officers and authorized
representatives of Buyer reasonable access upon reasonable notice to all of the
books and records that are retained as part of the Retained Assets as such
parties may from time to time reasonably request and (ii) Buyer will afford the
officers and authorized representatives of Sellers reasonable access, after
reasonable notice, to the books and records of the Specialty Business as the
Sellers may from time to time reasonably request, but solely as necessary to
complete tax returns or handle tax disputes, to administer the Retained Assets
and Retained Liabilities and to perform Sellers' indemnification obligations
under Article 8 hereof. Prior to the Closing Date, each Party shall keep the
other Party advised of all material developments relevant to its business and to
consummation of the Acquisition.
5.2 Affirmative Covenants of Sellers.
(a) From the date hereof until the earlier of the Closing Date or the
termination of this Agreement, unless the prior written consent of Buyer shall
have been obtained, such consent not to be unreasonably withheld or denied, and
except as otherwise expressly contemplated herein, Sellers shall to the extent
any of the following relates directly to the Specialty Business or in any way
may affect the Acquisition or the Assets:
(i) operate the Specialty Business in the ordinary course of business,
consistent with past practices;
(ii) use reasonable commercial efforts to preserve intact its business
organization, licenses, permits, government programs, private programs and
customers;
(iii) use reasonable commercial efforts to retain the services of its
employees, agents and consultants on terms and conditions not less
favorable than those existing prior to the date hereof and to prevent any
material or adverse changes to employee relations;
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(iv) keep and maintain its assets in their present condition, repair and
working order, except for normal depreciation and wear and tear, and
maintain its insurance, rights and licenses;
(v) pay all accounts payable of Sellers in accordance with past practice
and collect all accounts receivable in accordance with past practice, but
not less than in accordance with reasonably prudent business practices;
(vi) make available to Buyer true and correct copies of all internal
management and control reports (including aging of accounts receivable,
listings of accounts payable, and inventory control reports) and available
financial statements related to the Specialty Business;
(vii) cause all Tax Returns that are due and have not been filed prior
to the date hereof or which become due on or prior to the Closing Date
(taking into account valid extensions), to be prepared and filed on or
before the date such Tax Return is required to be filed; provided, however,
that any such Tax Return shall be prepared in accordance with past practice
and custom and applicable Tax law unless Parent reasonably determine that
changes are required by changes in facts or applicable law;
(viii) perform in all material respects all obligations under agreements
relating to or affecting its assets, properties or rights, except for the
failure of which performance would not have a material adverse effect on
the Business taken as a whole, financial or otherwise;
(ix) keep in full force and effect present insurance policies or other
comparable insurance coverage; and
(x) notify Buyer of (i) any event or circumstance which is reasonably
likely to have a Seller Material Adverse Effect or would cause or
constitute a breach of any representations, warranties or covenants of
Sellers contained herein; (ii) any material change in the normal course of
business or in the operation of the assets of the Specialty Business, and
(iii) any governmental complaints, investigations or hearings (or
communications indicating that the same may be contemplated), any
adjudicatory proceedings, any budget meetings or any submissions involving
the Assets. Sellers shall keep Buyer fully informed of such events and
permit Buyer's representatives reasonable access to all materials prepared
in connection therewith.
(b) Parent shall provide Buyer such information and supporting
documentation as reasonably requested by Buyer to support the representations
and warranties made by Sellers pursuant to Sections 2.7(b) and 2.7(d) hereof.
5.3 Negative Covenants of Sellers. From the date hereof until the earlier
of the Closing Date or the termination of this Agreement, no Seller will, other
than as contemplated hereby or as disclosed in Schedule 5.3, do any of the
following without the prior written consent of Buyer, which consent shall not be
unreasonably withheld or delayed, to the extent any of the following relates
directly to the Specialty Business or in any way would reasonably be expected to
adversely affect the Assets or either Party's ability to consummate the
Acquisition:
(i) take any action which would (a) adversely affect the ability of any
party to the Acquisition Documents to obtain any Consents required for the
transactions contemplated thereby, or (b) adversely affect the ability of
any party hereto to perform its covenants and agreements under the
Acquisition Documents;
(ii) amend any of its organizational or governing documents, except for
the purpose of accomplishing the transactions contemplated by this
Agreement;
(iii) impose, or suffer the imposition, on any material asset of the
Specialty Business of any Lien or permit any such Lien other than Permitted
Liens to exist;
(iv) other than pursuant to the Acquisition Documents, sell, pledge or
encumber, or enter into any contract to sell, pledge or encumber, any
interest in the assets of the Specialty Business except in the ordinary
course of business and consistent with past practices and if not material;
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(v) purchase or acquire any assets or properties related to the
Specialty Business, whether real or personal, tangible or intangible, or
sell or dispose of any assets or properties, whether real or personal,
tangible or intangible, except in the ordinary course of business and
consistent with past practices;
(vi) grant any increase in compensation or benefits to any Business
Employee, except in accordance with past practice; pay any severance or
termination pay or any bonus to any Business Employee other than pursuant
to written policies or written contracts in effect as of the date hereof
and disclosed in Schedule 5.3(a)(vi); enter into or amend any severance
agreements with any Business Employee;
(vii) enter into or amend any employment contract between any Seller and
any Business Employee (unless such amendment is required by law) that
Seller does not have the unconditional right to terminate without Liability
(other than compensation for services already rendered), at any time on or
after the Closing Date;
(viii) adopt any new employee benefit plan or make any material change
in or to any existing employee benefit plans applicable to the Business
Employees other than any such change that is required by law or that, in
the opinion of counsel, is necessary or advisable to maintain the tax
qualified status of any such plan except as disclosed in Schedule
5.3(a)(viii);
(ix) make any significant change in any Tax or accounting methods or
systems of internal accounting controls, except as may be appropriate to
conform to changes in Tax Laws or regulatory accounting requirements or
generally accepted accounting principles;
(x) commence any Litigation other than in accordance with past practice,
settle any Litigation involving any Liability of the Specialty Business for
material money damages or restrictions upon the operations of the Specialty
Business;
(xi) except in the ordinary course of business and which is not
material, modify, amend or terminate any material contract or waive,
release, compromise or assign any material rights or claims;
(xii) except in the ordinary course of business and, even if in the
ordinary course of business, then not in an amount to exceed $100,000 in
the aggregate, make or commit to make any capital expenditure, or enter
into any lease of capital equipment as lessee or lessor, related to the
Specialty Business; or
(xiii) make any loan to any person or increase the aggregate amount of
any loan currently outstanding to any person other than advances in the
ordinary course of business consistent with past practices.
5.4 Negative Covenants of Buyer. From the date hereof until the earlier
of the Closing Date or the termination of this Agreement, unless the prior
written consent of Parent shall have been obtained, such consent not to be
unreasonably withheld or delayed, and except as otherwise expressly contemplated
herein, Buyer shall not, to the extent any of these would reasonably be expected
to adversely affect Buyer's business or either Party's ability to consummate the
Acquisition:
(i) amend its organizational documents in a manner adverse to
consummation of the Acquisition;
(ii) declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect
of its capital stock other than as contemplated by Section 1.12;
(iii) authorize, recommend, propose or announce an intention to
authorize, recommend or propose, or enter into any agreement with any other
person with respect to, any plan of liquidation or dissolution;
(iv) maintain its books and records in a manner not in the ordinary
course of business consistent with past practice (except for any changes
that are not material);
(v) institute any significant change in accounting methods other than as
may be appropriate to conform to change in Law or GAAP; or
(vi) revalue any of its assets, including without limitation, writing
down the value of inventory or writing off notes or accounts receivable, in
each case, except as are not material or that are in the
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ordinary course of business consistent with past practice and except as may
be appropriate to conform to change in Law or GAAP.
ARTICLE 6
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
6.1 Conditions to Obligations of Each Party.
The respective obligations of each Party to perform this Agreement and
consummate the Acquisition and the other transactions contemplated hereby are
subject to the satisfaction of the following conditions, unless waived by both
Parties pursuant to Section 11.3:
(a) Stockholder Approval. The stockholders of Parent shall have adopted
and approved this Agreement, and the consummation of the transactions
contemplated hereby, including the Acquisition, as and to the extent required by
Law, by the provisions of any governing instruments, or by the rules of the
NASD. The stockholders of Buyer shall have approved the issuance of shares of
Buyer Common Stock pursuant to the Acquisition, as and to the extent required by
Law, by the provisions of any governing instruments, or by the rules of the
NASD.
(b) Regulatory Approvals. All material Consents of, filings and
registrations with, and notifications to, all Regulatory Authorities required
for consummation of the Acquisition shall have been obtained or made and shall
be in full force and effect and all waiting periods required by Law shall have
expired, other than the Consents for Licenses described in Schedule 2.20(a). No
such Consent obtained from any Regulatory Authority which is necessary to
consummate the transactions contemplated hereby shall be conditioned or
restricted in a manner (including requirements relating to the disposition of
assets) which Buyer determines would reasonably likely have a material adverse
impact on the Business if the Acquisition were consummated notwithstanding such
conditions or restrictions.
(c) Consents and Approvals. Sellers shall have obtained the Consents
listed in Schedule 6.1(c). Buyer shall have obtained the Consents listed in
Section 3.3 of this Agreement. No Consent so obtained which is necessary to
consummate the transactions contemplated hereby shall be conditioned or
restricted in a manner which Buyer determines would reasonably likely have a
material adverse impact on the Business if the Acquisition were consummated
notwithstanding such conditions or restrictions.
(d) Legal Proceedings. No court or governmental or Regulatory Authority of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any Law or Order (whether temporary, preliminary or permanent) or taken
any other action which prohibits, restricts or makes illegal consummation of the
transactions contemplated by this Agreement and no such Law, Order or action
shall be pending or overtly threatened.
(e) Registration Statement. The Registration Statement shall be effective
under the Securities Act, no stop orders suspending the effectiveness of the
Registration Statement shall have been issued, no action, suit, proceeding or
investigation by the SEC to suspend the effectiveness thereof shall have been
initiated and be continuing, and all necessary approvals under state securities
Laws or the Securities Act or Exchange Act relating to the issuance or trading
of the shares of Buyer Common Stock issuable pursuant to the Acquisition shall
have been received.
(f) Nasdaq National Market Listing. The shares of Buyer Common Stock
issuable pursuant to the Acquisition shall have been approved for quotation on
the Nasdaq National Market, subject to official notice of issuance.
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6.2 Conditions to Obligations of Buyer.
The obligations of Buyer to perform this Agreement and consummate the
Acquisition and the other transactions contemplated hereby are subject to the
satisfaction of the following conditions, unless waived by Buyer pursuant to
Section 11.3:
(a) Representations and Warranties. For purposes of this Section 6.2(a),
the accuracy of the representations and warranties of Sellers set forth in this
Agreement shall be assessed as of the date of this Agreement and as of the
Closing Date with the same effect as though all such representations and
warranties had been made on and as of the Closing Date (provided that
representations and warranties which are confined to a specified date shall
speak only as of such date). The representations and warranties of Sellers
contained herein shall be true and correct in all material respects as of the
Closing Date, provided that any representation or warranty that is qualified as
to materiality shall be true and correct in all respects as of the Closing Date,
after giving effect to such qualification as to materiality.
(b) Performance of Agreements and Covenants. Each and all of the
agreements and covenants of Sellers to be performed and complied with pursuant
to this Agreement and the other agreements contemplated hereby prior to the
Closing Date shall have been duly performed and complied with in all material
respects.
(c) Material Adverse Effect. No Seller Material Adverse Effect shall have
occurred and be continuing.
(d) Certificates. Each Seller shall have duly executed and delivered to
Buyer (i) a certificate, dated as of the Closing Date and signed on its behalf
by its chief executive officer and its chief financial officer, to the effect
that the conditions set forth in Section 6.1 as relates to such Seller and in
Sections 6.2(a), 6.2(b) and 6.2(c) have been satisfied, and (ii) certified
copies of resolutions duly adopted by such Seller's Board of Directors and
stockholders evidencing the taking of all corporate action necessary to
authorize the execution, delivery and performance of this Agreement, and the
consummation of the transactions contemplated hereby, all in such reasonable
detail as Buyer and its counsel shall request.
(e) EBITDA. EBITDA for the Specialty Business for the fiscal year ended
December 30, 2001 shall equal or exceed Forty Seven Million Dollars
($47,000,000.00).
(f) Delivery of Documents at Closing. Delivery of the following documents,
duly executed by authorized officers of each Seller:
(i) Bills of sale in favor of Buyer and, at the direction of Buyer, the
Buyer Subsidiaries designated by Buyer, in such form as shall be mutually
agreed to by the Parties for the transfer of the Assets, and all such other
endorsements, assignments and other instruments as the Buyer may reasonably
request and are reasonably necessary to transfer to the Buyer or the Buyer
Subsidiaries, as the case may be, good and marketable title to the Assets
(the "Conveyance Documents");
(ii) Assignment and assumption agreements in favor of the Buyer and, at
the direction of the Buyer, the Buyer Subsidiaries, in such form as shall
be mutually agreed to by the Parties, for the Assumed Liabilities (the
"Assignment and Assumption Agreements");
(iii) Unless Buyer elects not to acquire the equity securities of the
Acquired Subsidiaries in accordance with Section 1.1(m), the assignment and
assumption agreement pursuant to which Parent assumes all Liabilities of
the Acquired Subsidiaries that constitute Retained Liabilities, in such
form as shall be reasonably acceptable to Buyer;
(iv) The Services and Transition Agreement as contemplated by Section
4.16;
(v) The Amended and Restated CareCentrix Network Provider Agreement in
substantially the form attached hereto as Exhibit 4.17;
(vi) The Restrictive Covenants Agreements with Buyer in the form
attached as Exhibit 4.18-1 and 4.18-2; and
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(vii) An affidavit, stating under penalty of perjury, each Seller's
United States taxpayer identification number and that the transferor is not
a foreign person, pursuant to Section 1445(b)(2) of the Internal Revenue
Code.
(g) Audit. Buyer shall have completed its audit as set forth in Section
4.4 of the Business Financial Statements and the full fiscal year ending
December 30, 2001 and obtained an unqualified audit opinion from Ernst & Young
LLP (i) for the Business Financial Statements (which as audited shall not have
any changes except for such as would not have a Seller Material Adverse Effect)
and (ii) for the full fiscal year ending December 30, 2001.
(h) Lien Releases. Buyer shall have received evidence, reasonably
satisfactory to it, that Sellers have identified and discharged all Liens on the
Assets, other than Permitted Liens, on or prior to the Closing Date.
(i) Legal Opinion. Buyer shall have received an opinion of counsel to
Seller to the effect set forth in Exhibit 6.2(i).
(j) Patient List. Buyer shall have received a complete list of the
patients of the Specialty Business.
6.3 Conditions to Obligations of Sellers.
The obligations of Sellers to perform this Agreement and consummate the
Acquisition and the other transactions contemplated hereby are subject to the
satisfaction of the following conditions, unless waived by Sellers pursuant to
Section 11.3:
(a) Representations and Warranties. For purposes of this Section 6.3(a),
the accuracy of the representations and warranties of Buyer set forth in this
Agreement shall be assessed as of the date of this Agreement and as of the
Closing Date with the same effect as though all such representations and
warranties had been made on and as of the Closing Date (provided that
representations and warranties which are confined to a specified date shall
speak only as of such date). The representations and warranties of Buyer
contained herein shall be true and correct in all material respects as of the
Closing Date, provided that any representation or warranty that is qualified as
to materiality shall be true and correct in all respects as of the Closing Date,
after giving effect to such qualification as to materiality.
(b) Performance of Agreements and Covenants. Each and all of the
agreements and covenants of Buyer to be performed and complied with pursuant to
this Agreement and the other agreements contemplated hereby prior to the Closing
Date shall have been duly performed and complied with in all material respects.
(c) Material Adverse Effect. No Buyer Material Adverse Effect shall have
occurred and be continuing.
(d) Certificates. Buyer shall have delivered to Sellers (i) a certificate,
dated as of the Closing Date and signed on its behalf by its chief executive
officer and its chief financial officer, to the effect that the conditions set
forth in Section 6.1 as relates to Buyer and in Sections 6.3(a), 6.3(b) and
6.3(c) have been satisfied, and (ii) certified copies of resolutions duly
adopted by Buyer's Board of Directors and stockholders evidencing the taking of
all corporate action necessary to authorize the execution, delivery and
performance of this Agreement, and the consummation of the transactions
contemplated hereby, all in such reasonable detail as Sellers and their counsel
shall request.
(e) Delivery of Documents at Closing. Delivery of the following documents,
duly executed by authorized officers of Buyer:
(i) The Assignment and Assumption Agreements;
(ii) The Services and Transition Agreement as contemplated by Section
4.16;
(iii) The Amended and Restated CareCentrix Network Provider Agreement in
substantially the form attached hereto as Exhibit 4.17; and
(iv) The Restrictive Covenant Agreements in the form attached hereto as
Exhibit 4.18-1 and 4.18-2.
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(f) Legal Opinion. Parent shall have received an opinion of counsel to
Buyer to the effect set forth in Exhibit 6.3(f).
ARTICLE 7
TERMINATION
7.1 Termination.
Notwithstanding any other provision of this Agreement, and notwithstanding
the approval of this Agreement by the stockholders of Parent and the
stockholders of Buyer or both, this Agreement may be terminated and the
Acquisition abandoned at any time prior to the Closing Date as follows:
(a) By mutual written consent duly authorized by the Boards of Directors of
Buyer and Parent; or
(b) By either Buyer or Parent in the event that the Acquisition shall not
have been consummated by May 31, 2002 (which date shall be extended to August
31, 2002, if the Acquisition shall not have been consummated as a result of the
failure to satisfy the conditions set forth in Section 6.1(b), (d) or (e), as
appropriate, the "End Date"), if the failure to consummate the transactions
contemplated hereby on or before such date is not caused by any breach of this
Agreement by the Party seeking to terminate pursuant to this Section 7.1(b); or
(c) By either Buyer or Parent (provided that the terminating Party is not
then in material breach of any representation, warranty, covenant, or other
agreement contained in this Agreement) in the event of a breach by the other
Party of any representation, warranty, covenant or agreement contained in this
Agreement which breach would, if continuing on the Closing Date, permit such
Party to refuse to consummate the transactions contemplated by this Agreement
pursuant to the standards set forth in Section 6.2(a) or (b) or 6.3(a) or (b),
as applicable; provided that if such breach in the representations, warranties,
covenants or agreements is curable prior to the End Date through the exercise of
reasonable efforts and the breaching Party is exercising reasonable efforts to
cure such breach, then the non-breaching Party may not terminate this Agreement
under this Section 7.1(c) prior to 30 days following the receipt of written
notice of such breach; or
(d) By either Buyer or Parent in the event any Law or Order permanently
restraining, enjoining or otherwise prohibiting the consummation of the
Acquisition shall have become final and nonappealable; or
(e) By either Buyer or Parent in the event the stockholders of Parent or
stockholders of Buyer fail to vote their approval of the matters relating to
this Agreement and the transactions contemplated hereby at the Stockholders'
Meetings at which such matters were presented to such stockholders for approval
and voted upon; provided, however, that the right to terminate this Agreement
under this Section 7.1(e) shall not be available to a Party where the failure to
obtain stockholder approval of such Party shall have been caused by the action
or failure to act by such Party and such action or failure to act constitutes a
material breach by such Party of this Agreement; or
(f) By Buyer in the event that (i) the Board of Directors of Parent, shall
have failed to reaffirm publicly its approval, following receipt of an
Acquisition Proposal, within two (2) business days after Buyer's request for
such reaffirmation, of the Acquisition and the transactions contemplated by this
Agreement, or shall have resolved not to reaffirm the Acquisition, or (ii) the
Board of Directors of Parent shall have failed to include in the Proxy
Statement/Prospectus its recommendation, without modification or qualification,
that Parent stockholders approve and adopt this Agreement and approve the
Acquisition or shall have withdrawn, qualified or modified, or proposed publicly
to withdraw, qualify or modify, in a manner adverse to Buyer, the recommendation
of such Board of Directors to Parent stockholders that they approve and adopt
this Agreement and approve the Acquisition, or (iii) the Board of Directors of
Parent shall have made a Change of Recommendation or, within ten business days
after commencement of any tender or exchange offer for any shares of Parent
Common Stock, the Board of Directors of Parent shall have failed to recommend
against acceptance of such tender or exchange offer by its stockholders or takes
no position with respect to the acceptance of such tender or exchange offer by
its stockholders, or (iv) any Person (other than Buyer) shall have acquired
beneficial ownership (determined pursuant to Rule 13d-3 promulgated under the
Exchange
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Act) of 10% or more of the outstanding shares of Parent Common Stock in a
transaction that does not constitute a Permitted Acquisition Proposal and Parent
shall have redeemed the Rights, waived or amended any provision of the Rights
Agreement or otherwise taken any action or made any determination favorable to
such Person under the Rights Agreement; or
(g) By Parent, (provided that Parent has complied with Sections 4.2 and 4.3
hereof), if the Board of Directors of Parent has made a Change of Recommendation
in order to approve and permit Parent to accept a Superior Offer; provided,
however, that (i) upon request by Buyer, the Board of Directors of Parent shall
negotiate in good faith to modify this Agreement for three (3) business days
after Parent has provided to Buyer an initial notice of its intent to terminate
pursuant to this Section 7.1(g), and (ii) Parent shall have tendered to Buyer
payment in full of the amount specified in Section 7.3(b) after compliance with
the foregoing clause (i) and concurrently with delivery of its final notice of
termination pursuant to this Section 7.1(g); or
(h) By either Buyer or Parent (provided that the terminating Party is not
then in material breach of any representation, warranty, covenant, or other
agreement contained in this Agreement) in the event that any of the conditions
precedent to the obligations of such Party (as contained in Sections 6.2 and
6.3, as applicable) to consummate the Acquisition is incapable of being
satisfied or fulfilled by the End Date; or
(i) In the event of a suspension of trading in securities on the New York
Stock Exchange or NASDAQ, a banking moratorium across the United States or the
commencement or significant acceleration of a war or armed hostilities or other
national catastrophe directly involving the United States in each case as a
result of a catastrophe similar to the World Trade Center disaster of September
11, 2001, then, notwithstanding anything else contained in this Agreement, the
Parties shall negotiate in good faith (x) an appropriate delay of the Closing in
order to allow either Party to complete any action that was delayed as a result
of the event or events described above, but not later than the later of June 30,
2002 or thirty days after date of the scheduled Stockholders' Meeting (which for
this purpose shall then be considered the "End Date" under paragraph (b) of this
Section 7.1), provided that either Party may nevertheless terminate this
Agreement pursuant to any other paragraph under this Section 7.1, and (y) if
requested by Buyer, an adjustment to the terms of the transactions contemplated
hereby reasonably appropriate as a consequence of the event. During any such
negotiations, which shall continue for no longer than thirty (30) days from the
date of such event, neither Party shall be considered in breach of this
Agreement as a result of such event or events and Sellers shall not be in breach
of this Agreement for failure to accept new terms (other than an appropriate
delay) proposed by Buyer during such negotiations. Buyer shall not be in breach
of this Agreement for failing to close the transactions contemplated hereby in
the event of a catastrophic event as described in the first sentence of this
Section 7.1(i).
7.2 Effect of Termination.
In the event of the termination and abandonment of this Agreement pursuant
to Section 7.1, this Agreement shall become void and have no effect, except that
(i) the provisions of Sections 4.9(a), 7.2, 7.3 and Article 11, shall survive
any such termination and abandonment, and (ii) no such termination shall relieve
the breaching Party from Liability resulting from any breach by that Party of
this Agreement. No termination of this Agreement shall affect the obligations of
the parties contained in the Confidentiality Agreement, all of which obligations
shall survive termination of this Agreement in accordance with their terms.
7.3 Expenses.
(a) Except as otherwise provided in this Section 7.3, each of the Parties
shall bear and pay all direct costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereunder, including filing,
registration and application fees, printing fees, and fees and expenses of its
own financial or other consultants, investment bankers, accountants, and
counsel; provided, however, that (i) Buyer and Parent shall share equally all
fees and expenses, other than attorneys' and accountants' fees and expenses
which fees shall be paid for by the party incurring such expense, incurred in
relation to the printing and filing (with the SEC) of the Proxy
Statement/Prospectus (including any preliminary materials related thereto)
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and the Registration Statement (including financial statements and exhibits) and
any amendments or supplements thereto and (ii) Buyer shall pay the filing fee
for the Notification and Report Forms filed by Buyer and Parent with the FTC and
DOJ under the HSR Act.
(b) Notwithstanding the foregoing, if:
(i) (x) Either Parent or Buyer terminates this Agreement pursuant to
Section 7.1(e) (as it relates to approval of Parent stockholders) or (y)
Buyer shall terminate this Agreement pursuant to Section 7.1(c), then
Parent shall pay to Buyer an amount equal to Buyer's costs and expenses
(including attorneys' fees) actually incurred in connection with the
Acquisition, including those costs and expenses discussed in paragraph (a)
above ("Costs and Expenses"), in an amount up to $2,500,000;
(ii) (x) Either Parent or Buyer terminates this Agreement pursuant to
Section 7.1(e) (as it relates to approval of Buyer stockholders) or (y)
Parent shall terminate this Agreement pursuant to Section 7.1(c), then
Buyer shall pay to Parent an amount equal to Parent's and Sellers' combined
Costs and Expenses in an amount up to $2,500,000; and
(iii) (x) (A) Other than as set forth in the following clause (B),
either Parent or Buyer terminates this Agreement pursuant to 7.1(b),
Section 7.1(e) (as it relates to the approval of Parent stockholders) or
7.1(h) and there has been publicly announced an Acquisition Proposal (other
than the Acquisition) prior to the termination date, (B) Buyer terminates
this Agreement pursuant to Section 7.1(b) or 7.1(h) due to the failure to
meet the condition precedent set forth in Section 6.2(e) or the
parenthetical (i) of Section 6.2(g), and there has been publicly announced
an Acquisition Proposal (other than the Acquisition) prior to the
termination date, and Parent has not publicly disapproved without condition
or qualification such Acquisition Proposal and publicly reaffirmed without
condition or qualification its approval of the Acquisition, or (C) Parent
has failed to perform and comply in all material respects with any of its
obligations, agreements or covenants required by this Agreement and Buyer
terminates this Agreement pursuant to Section 7.1(c), and within twelve
months of such termination under any of (A), (B) or (C) above Parent shall
either (1) consummate an Acquisition Proposal or (2) enter into an
agreement with respect to an Acquisition Proposal, whether or not such
Acquisition Proposal (but changing, in the case of (1) and (2), the
references to the 10% amounts in the definition of Acquisition Proposal to
50%) is subsequently consummated; or
(y) Buyer shall terminate this Agreement pursuant to 7.1(f); or
(z) Parent shall terminate this Agreement pursuant to 7.1(g);
then Parent shall pay to Buyer an amount equal to $12,500,000, less any
amount of Costs and Expenses actually paid to Buyer pursuant to Section
7.3(b)(i) (the "Termination Fee"). Parent hereby waives any right to
set-off or counterclaim against such amounts. The Costs and Expenses shall
be paid in same-day funds within two business days from the date of
termination of this Agreement. If the Termination Fee shall be payable
pursuant to subsection (b)(iii)(x) of this Section 7.3, the Termination Fee
shall be paid in same-day funds at or prior to the earlier of the date of
consummation of such Acquisition Proposal or the date of execution of an
agreement with respect to such Acquisition Proposal. If the Termination Fee
shall be payable pursuant to subsection (b)(iii)(y) of this Section 7.3,
the Termination Fee shall be paid in same-day funds upon the earlier of (i)
the execution of an agreement with respect to such Acquisition Proposal or
(ii) two business days from the date of termination of this Agreement. If
the Termination Fee shall be payable pursuant to subsection (b)(iii)(z) of
this Section 7.3, the Termination Fee shall be paid in same-day funds
concurrently with the delivery of the notice of termination of this
Agreement pursuant to Section 7.1(g).
(c) The Parties acknowledge that the agreements contained in paragraph (b)
of this Section 7.3 are an integral part of the transactions contemplated by
this Agreement, and that without these agreements, they would not enter into
this Agreement; accordingly, if a Party fails to pay promptly any fee payable by
it pursuant to this Section 7.3, then such Party shall pay to the other Party,
the other Party's costs and expenses (including reasonable attorneys' fees) in
connection with collecting such fee, together with interest on the amount of the
fee at the rate of interest then published by Bank of America, New York, New
York, as its
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"prime" lending rate for commercial borrowers, from the date such payment was
due under this Agreement until the date of payment.
(d) In the event that this Agreement is terminated, the remedies provided
in this Section 7.3 shall constitute liquidated damages for the breach by a
Party, other than an intentional breach by a Party, of the terms of this
Agreement and, other than in the event of an intentional breach by a Party,
shall be the exclusive remedy of the Parties in the event of a termination of
this Agreement.
ARTICLE 8
INDEMNIFICATION
8.1 Indemnification by Sellers. Sellers, jointly and severally, shall
indemnify and hold harmless Buyer, the Acquired Subsidiaries and the respective
officers, directors, agents or Affiliates of Buyer and, following the Closing,
the Acquired Subsidiaries (the "Buyer Indemnified Parties"), from and against
any and all demands, claims, actions or causes of action, assessments, losses,
diminution in value, damages (including special and consequential damages),
liabilities, costs and expenses, including but not limited to reasonable
attorneys' fees ("Losses"), suffered or incurred by any such party by reason of
or arising out of any of the following:
(a) the Retained Liabilities;
(b) the breach of any representation or warranty of Sellers contained
herein or in any other document or instrument delivered by a Seller pursuant to
Sections 6.2(d) and (f) hereto;
(c) the non-fulfillment of any covenant or agreement of a Seller contained
herein or any other document or instrument delivered by a Seller pursuant to
Sections 6.2(d) and (f) hereto;
(d) the failure to deliver good, valid and marketable title to any of the
Assets; and
(e) as set forth in Section 8.5 hereof.
8.2 Indemnification by Buyer. Buyer shall indemnify and hold harmless
Sellers, and any of their officers, directors, agents and Affiliates (the
"Seller Indemnified Parties"), at all times after the date hereof from and
against any and all Losses suffered or incurred by any such party by reason of,
or arising out of any of the following:
(a) the Assumed Liabilities and the operation by Buyer of the Specialty
Business after the Closing;
(b) the breach of any representation or warranty contained herein or in any
other document or instrument delivered by Buyer pursuant to Sections 6.3(d) and
(e) hereto; and
(c) the non-fulfillment of any covenant or agreement of Buyer contained
herein or in any other document or instrument delivered by Buyer pursuant to
Sections 6.3(d) and (e) hereto.
8.3 Notice and Opportunity to Defend; Third Party Claims.
(a) The Buyer Indemnified Party or the Seller Indemnified Party, as
applicable (the "Indemnified Party"), shall promptly notify in writing the
indemnifying party (the "Indemnifying Party") of any matter giving rise to an
obligation to indemnify, specifying the basis on which indemnification is
sought.
(b) If the claim for indemnification does not involve a Third Party Claim,
the Indemnifying Party shall have twenty (20) days to object to such claim by
delivery of a written notice of such objection to the Indemnified Party
specifying the basis for such objection. Failure to timely so object shall
constitute a final and binding acceptance by the Indemnifying Party of the claim
and the Indemnifying Party shall pay such claim by wire transfer of immediately
available funds within ten (10) days after such twenty (20) day period or, if
later, the date the amount of such claim is determined.
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(c) If the claim for indemnification arises or results from a Third Party
Claim, such Third Party Claim shall be subject to the following terms and
conditions:
(i) The Indemnifying Party shall have thirty (30) days (or such lesser
time as may be necessary to comply with statutory response requirements for
litigation claims) from receipt of the claim (the "Notice Period") to
notify the Indemnified Party, (x) whether or not the Indemnifying Party
disputes its Liability to the Indemnified Party with respect to such Third
Party Claim, and (y) notwithstanding any such dispute, whether or not the
Indemnifying Party desires, at its sole cost and expense, to defend the
Indemnified Party against such Third Party Claim.
(ii) In the event that the Indemnifying Party notifies the Indemnified
Party within the Notice Period that it desires to defend the Indemnified
Party against such Third Party Claim then, except as hereinafter provided,
the Indemnifying Party shall have the right to defend the Indemnified Party
by appropriate proceedings, which proceedings shall be promptly settled or
prosecuted by the Indemnifying Party to a final conclusion in such a manner
as to minimize the risk of the Indemnified Party becoming subject to
Liability for any significant matter. If the Indemnified Party desires to
participate in, but not control, any such defense or settlement, it may do
so at its sole cost and expense. If in the reasonable opinion of this
Indemnified Party, any such Third Party Claim or the litigation or
resolution of any such Third Party Claim involves an issue or matter which,
if determined adversely to the Indemnified Party, would have a Material
Adverse Effect on the Indemnified Party, including without limitation the
administration of the Tax Returns of the Indemnified Party or a dispute
with a significant customer or supplier of the Business, then the
Indemnified Party (upon further notice to the Indemnifying Party) shall
have the right to control the defense or settlement of any such claim or
demand and its reasonable costs and expenses shall be included as part of
the indemnification obligation of the Indemnifying Party. If the
Indemnified Party should elect to exercise such right, the Indemnifying
Party shall have the right to participate in, but not control, the defense
or settlement of such claim at its sole cost and expense.
(iii) Except where the Indemnifying Party disputes its Liability in a
timely manner under this Section 8.3(c), the Indemnifying Party shall be
conclusively liable for the amount of any Loss resulting from such claim or
defense which is unsuccessful.
(iv) The Indemnified Party and the Indemnifying Party shall cooperate
with each other in all reasonable respects in connection with the defense
of any Third Party Claim, including making available records relating to
such claim and management employees as may be reasonably necessary for the
preparation of the defense of any such claim or for testimony as witness in
any proceeding relating to such Third Party Claim.
(v) No settlement of a Third Party Claim shall be made without the prior
written consent of the Indemnified Party, which consent shall not be
unreasonably withheld or delayed.
8.4 Survival of Representations and Warranties. The representations and
warranties of the Parties hereto contained herein shall survive the Closing and
shall remain in full force and effect until the second anniversary of the
Closing Date; except that the representations and warranties set forth in
Section 2.5(c) shall terminate upon an election by Buyer in accordance with
Section 1.1(m) not to acquire the equity securities of any of the Acquired
Subsidiaries, and except that each representation or warranty set forth in
Sections 2.20, 2.21, 2.22, 2.23, 2.25 and 2.28 shall remain in full force and
effect until the third anniversary of the Closing date and that each
representation and warranty set forth in Sections 2.12(a) shall remain in full
force and effect until the expiration of the applicable statute of limitation
period for any claim related thereto and each representation and warranty set
forth in Section 2.19 shall survive as provided for in Section 8.5(b). Any right
of indemnification pursuant to this Article 8 with respect to a claimed breach
of a representation or warranty shall expire at the date of termination of the
representation or warranty claimed to be breached except that the Indemnifying
Party shall continue to be responsible after such date for those specific claims
and losses of which they have received notice required by this Section prior to
the end of the survival periods referred to herein. The representations,
warranties, covenants and agreements herein shall not be affected or deemed
waived by reason of the fact that the other Party or its representatives should
have known that any such representations, warranties, covenants or agreements
are or might be inaccurate in any respect. Except
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as set forth in this Agreement, any furnishing of information to a Party by the
other Party, pursuant to, or otherwise in connection with, this Agreement shall
not waive a Party's right to rely on any representation, warranty, covenant or
agreement made by the other Party.
8.5 Tax Indemnity.
(a) Sellers jointly and severally shall indemnify and hold harmless the
Buyer Indemnified Parties from and against any and all Taxes or related
Liabilities (other than Taxes responsibility for which is allocated under
Section 4.15) (i) imposed on or incurred by the Acquired Subsidiaries for any
taxable year or taxable period ending on or prior to the close of the Closing
Date (including any short periods up to and including the close of the Closing
Date and in the case of a year beginning before the Closing Date and ending
after the Closing Date ("Straddle Period"), the Taxes attributable to portion of
the Straddle Period ending on and including the Closing Date (the "Pre-Closing
Straddle Period") (determined on a "closing of the books basis" by assuming that
the books of the Acquired Subsidiaries were closed at the close of the Closing
Date; provided, however that real and personal property taxes shall be
calculated on an annual basis, and apportioned on a daily basis)); provided,
that this Subsection 8.5(a)(i) shall not include any Taxes accrued as
liabilities on the Actual Closing Balance Sheet or Taxes resulting from any
actions taken solely by Buyer (including, without limitation, a Section 338(g)
election that does not qualify as a Section 338(h)(10) election), the Acquired
Subsidiary or any of the Affiliates of the Buyer (other than Taxes or
liabilities covered by Section 8.5(a)(iii) below) on the Closing Date and after
the closing time and not in the ordinary course of business, (ii) imposed on or
incurred by the Acquired Subsidiaries or Buyer Indemnified Parties resulting
solely from any of the Acquired Subsidiaries having been included in any
consolidated, combined or unitary Tax Return for any Taxable period (or portion
thereof) ending on or before the Closing Date pursuant to Treasury Regulation
Section 1.1502-6(a) or any analogous or similar state, local or foreign law or
regulations; (iii) imposed on Parent, Sellers or any Acquired Subsidiary, or for
which any Acquired Subsidiary may otherwise be liable, resulting from any
Section 338(h)(10) Election made in accordance with Section 4.13 of this
Agreement; and (iv) arising as a result of a breach of any of the
representations or covenants made by any Seller related to Tax matters contained
in this Agreement.
(b) Anything in this Agreement to the contrary notwithstanding, the
provisions of Section 2.19, Section 4.13 and this Section 8.5 shall survive
until thirty (30) days after the expiration of the applicable tax statute of
limitation period (including any extensions thereof provided that Sellers will
not consent to the extension of the statute of limitations without Buyer's
consent, such consent not to be unreasonably withheld) for the Taxes referred to
herein, provided however, that if Buyer elects to acquire the Assets of any of
the Acquired Subsidiaries instead of the equity securities of any of the
Acquired Subsidiaries pursuant to Section 1.1(m), the provisions of Section 4.13
and this Section 8.5 as they relate to such Acquired Subsidiary whose Assets are
acquired shall survive until the Closing Date, and the provisions of Section
2.19 shall survive until the second anniversary of the Closing Date (except that
to the extent any of the provisions contained in Sections 2.19, 4.13 and 8.5
relate to state sales, use, employment and all other taxes, the nonpayment of
which may give rise to successor liability under state law, they shall survive
until 30 days after the expiration of applicable statute of limitations with
respect to such Taxes regardless of whether or not Buyer makes an election to
acquire the Assets of the Acquired Subsidiaries pursuant to Section 1.1(m)). Any
Taxes subject to indemnification under this Section 8.5 shall not be subject to
the limitations of Section 8.4 or Section 8.6 hereof.
8.6 Indemnification Limitations. The Buyer on the one hand and Sellers on
the other hand may recover under indemnification claims under Sections 8.1(b)
and 8.2(b), respectively, (a) only to the extent such Party's claims in the
aggregate have exceeded Five Million Dollars ($5,000,000) (the "Aggregate
Threshold Amount") and (b) not in excess of One Hundred Million Dollars
($100,000,000) (the "Maximum Amount"); provided, that if prior to reaching the
Aggregate Threshold Amount, an Indemnified Party incurs an individual claim for
indemnification that exceeds One Million Dollars ($1,000,000), (i) the amount of
such claim that is up to $1,000,000 shall be counted towards the Aggregate
Threshold Amount and (ii) the amount of such claim that is in excess of
$1,000,000 shall be recoverable in accordance with this Article VIII without
regard to the Aggregate Threshold Amount and shall not be counted towards such
Aggregate Threshold Amount but shall be counted towards the Maximum Amount;
provided further, that the
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up to $2,000,000 in understatements of liabilities on the Actual Closing Balance
Sheet which Buyer has agreed not to seek resource against and has paid in
accordance with Section 1.6 hereof shall be counted towards the Aggregate
Threshold Amount. After the aggregate of all such Losses suffered or incurred by
the Indemnified Party exceeds the Aggregate Threshold Amount, the Indemnifying
Party shall be obligated to indemnify the Indemnified Party for all such Losses
that are in excess of the Aggregate Threshold Amount; provided that the
Aggregate Threshold Amount shall not be counted as a claim applying against the
Maximum Amount. This Section 8.6 shall not apply to any intentional breach of
any representation or warranty if the Party making the representation or
warranty had actual knowledge of such breach. Neither Buyer nor Sellers shall
have any indemnification obligation for any amount which has already been
included in an adjustment to the Consideration in accordance with Section 1.3
hereof, and no adjustment to the Consideration in accordance with Section 1.3
shall apply towards the Aggregate Threshold Amount or the Maximum Amount.
8.7 Exclusive Remedy. From and after the Closing, the rights of the
Sellers on the one hand, and Buyer on the other hand, under the indemnification
rights provided in this Section 8 shall be the exclusive remedy of these parties
pursuant to this Agreement with respect to any dispute arising out of or related
to this Agreement, except for (a) the right to seek specific performance of any
of the agreements contained herein, (b) in any case where one Party has been
guilty of fraud in connection with this transaction, or (c) as set forth in
Section 8.5 hereof. As used herein, fraud shall be construed as actual fraud and
deceit as determined by applicable law, and shall exclude conduct which would
only give rise to a claim for negligent misrepresentation. No provision
contained in this Article 8 shall apply to a breach of the terms of any
Acquisition Document other than this Agreement, and the parties to the
Acquisition Documents other than this Agreement shall have all rights and
remedies provided to them by Law or equity without limitation. The provisions of
this Section 8.7 shall not in any way limit (i) the rights of the Parties to
take any actions permitted by this Agreement prior to Closing (including,
without limitation, rights of termination and payment of fees and expenses), or
(ii) the right of any Indemnified Party to support its claim for indemnification
under this Article 8 based on more than one provision of this Agreement.
8.8 Indemnification Security. The indemnification obligations of Sellers
under this Article 8 shall be binding on successors and assigns of Parent and
its Subsidiaries. In the event that Parent or its Subsidiaries enter into a
transaction or series of transactions at any time after the date of this
Agreement but prior to the expiration of all indemnification obligations under
this Agreement to sell a material portion of Parent's and its Subsidiaries'
remaining business other than in the ordinary course of business, then, as a
condition to the closing of such transaction or transactions, the buyer shall
agree to be subject to and bound by Sellers' indemnification obligations
contained in this Article 8.
ARTICLE 9
EMPLOYEE MATTERS
9.1 Employees.
(a) Buyer agrees that it shall make a Qualifying Offer to each of the
Business Employees, except for up to 40 such employees with respect to whom
Buyer in its sole discretion may either not make any offer or may make an offer
that is not a Qualifying Offer. A "Qualifying Offer" shall be an offer of
employment at the same salary, position and geographic location as under the
Business Employee's current employment with Sellers. Buyer agrees to notify
Parent within fifteen (15) days prior to the Closing of the identity of the
Business Employees to whom it will make no offer or an offer that is not a
Qualifying Offer. Buyer agrees to pay severance in accordance with the severance
policy set forth in Exhibit 9.1(d) to Hired Employees that Buyer terminates
within six (6) months after the Closing Date. The Parties agree that the
covenants in this Article 9 shall apply to Business Employees that may be
employed by an Acquired Subsidiary; provided that prior to Closing, Parent shall
cause any employee of an Acquired Subsidiary that is not a Hired Employee to be
transferred to, and employed by, an entity of Parent that is not an Acquired
Subsidiary.
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(b) Buyer shall be responsible for the payment of all earned but unpaid
salaries, bonus, vacation pay, sick pay, holiday pay, medical leave and other
like obligations and payments under Welfare Plans and Compensation Programs to
the Hired Employees for all periods ending on or prior to the Closing Date,
provided that such amounts are reserved on the Actual Closing Balance Sheet and
only up to the amount of such Liability set forth on the Actual Closing Balance
Sheet (subject to the last sentence of Section 1.6). Sellers shall be
responsible for any severance, parachute or similar payments that are payable to
the Hired Employees under any policy or agreement such Hired Employees have with
Seller.
(c) Sellers shall be responsible for the payment of all earned but unpaid
salaries, bonus, vacation pay, sick pay, holiday pay, medical leave and other
like obligations and payments under Welfare Plans and Compensation Programs to
the Retained Employees whether prior to or after the Closing Date. Sellers shall
be responsible for any severance, parachute or similar payments that are payable
to the Retained Employees under any policy or agreement such Retained Employees
have with Seller.
(d) Sellers shall be responsible for the payment of all earned but unpaid
salaries, bonus, vacation pay, sick pay, holiday pay, medical leave and other
like obligations and payments under Welfare Plans and Compensation Programs to
the Released Employees whether prior to or after the Closing Date, provided that
Buyer shall reimburse Sellers for such amounts as are reserved on the Actual
Closing Balance Sheet and only up to the amount of such Liability set forth on
the Actual Closing Balance Sheet (subject to the last sentence of Section 1.6).
Buyer shall reimburse Sellers for severance payable to the Released Employees in
accordance with the severance policy and agreements attached hereto as Exhibit
9.1(d); provided, that (i) Sellers shall be responsible for any severance,
parachute or similar payments that are payable to the Released Employees under
any policy, arrangement or agreement, other than such severance policy and
agreements included in Exhibit 9.1(d), that such Released Employees have with a
Seller, and (ii) if a Seller rehires a Released Employee within six (6) months
of the date of termination of such Released Employee, Sellers shall reimburse
Buyer any amounts that Buyer paid to a Seller with respect to such Released
Employee under this Section 9.1(d).
(e) Other than as specifically set forth in Sections 9.1(b), (c) and (d),
Sellers shall be responsible for the payment of any amounts due to its employees
pursuant to the employee benefit plans of Sellers as a result of the employment
of its employees prior to the Closing Date. Sellers shall be responsible for all
Liabilities arising under the Pension Plans of the Seller.
(f) Effective at the Closing, Sellers (i) shall assign to Buyers any
confidentiality agreement or covenants not to compete previously entered into
between Sellers and such employees related to the Specialty Business, and (ii)
hereby do release all Hired Employees of the Business from any employment and
(iii) to the extent such confidentiality agreements or covenants not to compete
are not assignable, do hereby release all Hired Employees from confidentiality
agreements and covenants not to compete previously entered into between Sellers
and such employees relating to the Specialty Business to the extent (but only to
the extent) necessary for Buyer to operate the Specialty Business in the same
manner as operated by Sellers prior to the Closing Date. No Seller shall release
any employee from any confidentiality agreement executed by such employee in
favor of third parties relating to receipt of confidential information in
connection with potential business acquisitions.
9.2 Sellers' Benefit Plans. Sellers shall be responsible for complying
with the requirements of Code Section 4980B and Part 6 of Title 1 of ERISA for
Business Employees (whether or not such employees are hired by Buyer) and their
"qualified beneficiaries" whose "qualifying event" (as such terms are defined in
Code Section 4980B) occurs prior to, on or by action of Sellers as of or
following the Closing Date. Each Seller will, at its or one of its Affiliate's
expense, cause all applicable employer matching contributions to be made to the
accounts of all Hired Employees under Sellers' Code Section 401(k) plan for that
portion of the plan year during which such Hired Employee was eligible to
receive an employer matching contribution, without regard to any requirement
that such employee be employed on any particular date or earn any minimum number
of hours of service to receive such contribution. Seller shall cause all Hired
Employees to become fully vested as of the Closing Date in their accounts under
Sellers' Code 401(k) plan. To the extent permitted by, and in accordance with,
the provisions of Sellers' Code Section 401(k) plan, the Code and
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ERISA, Sellers will provide for distribution under such plan to each Business
Employee by reason of the termination of employment of such employee from any
Seller.
9.3 Employee Files. To the extent permitted by Law, on the Closing Date,
or as soon as practicable thereafter, Sellers shall deliver to a designee of
Buyer a copy of all historical personnel and medical records of each of the
Hired Employees, including, but not limited to, employment agreements,
confidentiality and noncompete agreements, employment applications, corrective
action reports, disciplinary reports, notices of transfer, notices of rate
changes, other similar documents and all medical records. Buyer shall be
responsible for any unlawful use or disclosure by it of any such personnel or
medical records.
9.4 Past Service Credit. For purposes of eligibility and vesting, Buyer
shall, with respect to each benefit plan, policy, program or arrangement
maintained by the Buyer after the Closing Date, credit each Hired Employee with
all service credited to such Hired Employees under Sellers' corresponding plan,
policy, program or arrangement applicable to such Hired Employee as of the
Closing Date (provided that no material modifications have been made to any
plan, policy, program or arrangement of Seller in effect prior to the date
hereof. Buyer shall permit Hired Employees to participate in Buyer's standard
employee benefit programs that are offered to similarly situated employees of
Buyer.
9.5 Vacation and Other Paid Time Off. To the extent liability for
vacation and other paid time off is included on the Actual Closing Balance Sheet
attributable to such Hired Employees, Buyer shall provide vacation and other
paid time off to the Hired Employees.
9.6 WARN Act. To the extent that any obligations under the WARN Act or
any similar provision of Law ("WARN Obligations") arise as a consequence of the
transactions contemplated by this Agreement, it is agreed that the Sellers shall
be responsible for any WARN Obligations arising as a result of any employment
losses from the Sellers occurring prior to the Closing Date, except to the
extent that such WARN Obligations are the result of the offers of employment
made by Buyer to the Business Employees which WARN Obligations shall be the
responsibility of Buyer, and Buyer shall be responsible for any WARN Obligations
arising as a result of any employment losses occurring upon or following the
Closing Date.
9.7 Retained Liabilities and Assumed Liabilities. All amounts under this
Article 9 which Sellers are specifically responsible for shall constitute
Retained Liabilities, and all amounts under this Article 9 which Buyer is
specifically responsible for shall constitute Assumed Liabilities.
ARTICLE 10
CERTAIN DEFINITIONS
10.1 Definitions.
(a) Except as otherwise provided herein, the capitalized terms set forth
below shall have the following meanings:
"Acquisition Documents" shall mean this Agreement and the other
documents and instruments to be delivered pursuant to this Agreement.
"Acute Division" shall mean the business of the Sellers derived from the
"Acute Business" as defined in Exhibit 4.18-2 hereto.
"Adjusted Financial Statements" shall mean the Income Statement and the
Statement of Assets and Liabilities for the Specialty Business attached
hereto as Exhibit 10.
"Affiliate" of a party shall mean: (i) any other Person directly, or
indirectly through one or more intermediaries, controlling, controlled by
or under common control with such party; (ii) any officer, director,
partner, employer or direct or indirect beneficial owner of any ten percent
(10%) or greater equity or voting interest of such party; or (iii) any
other Person for which a Person described in clause (ii) above acts in any
such capacity. For purposes of the foregoing, "control" shall have the
meaning provided by Rule 405 of the Securities Act, or any successor rule
thereto.
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"Agreement" shall mean this Asset Purchase Agreement, including the
Exhibits and Schedules delivered pursuant hereto and incorporated herein by
reference.
"Base Period Trading Price" shall mean the average of the daily closing
prices for the shares of Buyer Common Stock for the twenty (20) consecutive
days on which such shares are actually traded on the Nasdaq National Market
(as reported by the Wall Street Journal or, if not reported thereby, any
other authoritative source) ending at the close of trading on the second
trading day immediately prior to the Closing Date.
"Business Employees" shall mean those employees of Sellers who are
engaged primarily in the Specialty Business.
"Buyer Capital Stock" shall mean collectively, the Buyer Common Stock,
the Buyer Preferred Stock, and any other class or series of capital stock
of Buyer.
"Buyer Common Stock" shall mean the $0.01 par value per share common
stock of Buyer.
"Buyer Material Adverse Effect" shall mean an event, change or
occurrence which, individually or together with any other event, change or
occurrence, has had or is reasonably likely to have a material adverse
impact on (i) the financial position, business, or results of operations of
Buyer, or (ii) the ability of Buyer to perform its obligations under this
Agreement or to consummate the Acquisition or the other transactions
contemplated by this Agreement; provided that "Buyer Material Adverse
Effect" shall not be deemed to have occurred by reason of (A) changes in
the market price or trading volume of Buyer Common Stock, (B) changes
affecting the general economic condition in the jurisdictions where Buyer
operates (which changes do not disproportionately affect Buyer in any
material respect), or (C) changes affecting any of the industries in which
Buyer operates generally (which changes do not disproportionately affect
Buyer in any material respect).
"Buyer Preferred Stock" shall mean the undesignated preferred stock of
Buyer.
"Chronic Division" shall mean the business of the Sellers derived from
the "Drug Distribution Business" as defined in Exhibit 4.18-1 hereto.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"Consent" shall mean any consent, approval, authorization, clearance,
exemption, waiver of or similar affirmation by any Person pursuant to any
contract or agreement, Law, Order or permit.
"Corporate Integrity Agreements" shall mean (i) the Corporate Integrity
Agreement between the Office of Inspector General of the Department of
Health and Human Services and Olsten Health Services (Quantum) Corp. and
Olsten Corporation dated as of October 1998 ("1998 CIA") and (ii) the
Corporate Integrity Agreement between the Office of Inspector General of
the Department of Health and Human Services and Olsten Corporation dated as
of July 1999 ("1999 CIA").
"DGCL" shall mean the Delaware General Corporation Law.
"EBITDA" shall mean earnings before interest, taxes, depreciation and
amortization, each as determined in accordance with generally accepted
accounting principles and shall be prepared consistent with the Income
Statement as of September 30, 2001 included in the Adjusted Financial
Statements; provided that EBITDA shall be computed by taking the amount of
gross profit (net revenues less cost of services sold) and subtracting from
the gross profit the amounts representing (i) field administrative costs
after eliminating depreciation and (ii) corporate office support costs
excluding depreciation. In this regard, expenses representing an allocation
of the Parent's general corporate overhead (including, for example, costs
associated with the Chief Executive Officer and Chief Financial Officer of
Parent) shall not be included in the calculation of EBITDA.
"Environmental Laws" means all Laws relating to pollution or protection
of human health or the environment (including ambient air, surface water,
groundwater, land surface, or subsurface strata),
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including, without limitation (i) the Comprehensive Environmental Response
Compensation and Liability Act, 42 U.S.C. sec.sec.9601 et seq. ("CERCLA");
(ii) the Solid Waste Disposal Act, as amended by the Resource Conservation
and Recovery Act, as amended, 42 U.S.C. sec.sec.6901 et seq., ("RCRA");
(iii) the Emergency Planning and Community Right to Know Act (42 U.S.C.
sec.sec.11001 et seq.); (iv) the Clean Air Act (42 U.S.C. sec.sec. 7401 et
seq.); (v) the Clean Water Act (33 U.S.C. sec.sec.1251 et seq.); (vi) the
Toxic Substances Control Act (15 U.S.C. sec.sec.2601 et seq.); (vii) the
Hazardous Materials Transportation Act (49 U.S.C. sec.sec.5101 et seq.);
(viii) the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C.
sec.sec.136 et seq.); (ix) the Safe Drinking Water Act (41 U.S.C.
sec.sec.300f et seq.); (x) any state, county, municipal or local statutes,
laws or ordinances similar or analogous to the federal statutes listed in
parts (i) - (ix) of this subparagraph; (xi) any amendments to the statutes,
laws or ordinances listed in parts (i) - (x) of this subparagraph,
regardless of whether in existence on the date hereof; (xii) any rules,
regulations, guidelines, directives, orders or the like adopted pursuant to
or implementing the statutes, laws, ordinances and amendments listed in
parts (i) - (xi) of this subparagraph; and (xiii) any other law, statute,
ordinance, amendment, rule, regulation, guideline, directive, order or the
like in effect now or in the future relating to environmental, health or
safety matters.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA Affiliate" shall mean, with respect to any entity, any other
entity, which, together with such entity, would be treated as a single
employer (i) under Section 414(b) or (c) of the Code or (ii) for purposes
of any Benefit Plan subject to Title IV of ERISA, under Section 414(b),
(c), (m) or (o) of the Code.
"Excluded Acute Event" shall mean the occurrence, after the date hereof,
of (A) any loss of employees, (B) any loss of revenues solely of the Acute
Division, (C) the termination of any arrangement or agreement between any
Seller and its payors that relate solely to the Acute Division or both the
Acute and Chronic Division, (D) termination of any arrangement or agreement
between any Seller and its suppliers that relate solely to the Acute
Division, or (E) any increase or decrease in accounts receivable of the
Acute Division caused directly or indirectly by the announcement of the
Acquisition.
"Exhibits" shall mean the Exhibits so marked, copies of which are
attached to this Agreement. Such Exhibits are hereby incorporated by
reference herein and made a part hereof, and may be referred to in this
Agreement and any other related instrument or document without being
attached hereto.
"Hazardous Material" means any chemical, substance, waste, material,
pollutant, contaminant, equipment or fixture defined as or deemed hazardous
or toxic or otherwise regulated under any Environmental Law, including,
without limitation, RCRA hazardous wastes, CERCLA hazardous substances,
pesticides and other agricultural chemicals, oil and petroleum products or
byproducts and any constituents thereof, asbestos and asbestos-containing
materials, and polychlorinated biphenyls (PCBs).
"Hired Employees" shall mean those Business Employees to whom Buyer
makes an offer of employment and who accept such offers of employment.
"Home Health Business" shall mean the business of Seller (and prior to
such time Olsten Corporation and any other predecessor entities) that is
identified as the Home Health Care Services business in Parent's Form 10-K
for the fiscal year 2000, as updated by its Form 10-Q for the quarterly
period ending September 30, 2001.
"HSR Act" shall means Section 7A of the Clayton Act, as added by Title
II of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the rules and regulations promulgated thereunder.
"IRS" means the Internal Revenue Service.
"Knowledge" as used with respect to a Person (including references to
such Person being aware of a particular matter) shall mean those facts
which are known after due inquiry (which the Parties agree is required) by
the chairman, president, chief financial officer, controller, chief
operating officer, general
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counsel, any assistant or deputy general counsel, compliance officer, any
senior or executive vice president of such Person, and, with respect to
Sellers, the President of the Specialty Business and those Persons
identified on Schedule 10.1, whether or not included in the foregoing
list.. "Knowledge" of Sellers shall mean Knowledge of any one Seller.
"Law" shall mean any code, law, ordinance, regulation, reporting or
licensing requirement, rule, or statute applicable to a person or its
assets, Liabilities or business, including those promulgated, interpreted
or enforced by any Regulatory Authority.
"Liability" shall mean any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, cost or expense (including
costs of investigation, collection and defense), claim, deficiency,
guaranty or endorsement of or by any Person (other than endorsements of
notes, bills, checks, and drafts presented for collection or deposit in the
ordinary course of business) of any type, including any obligation related
to unclaimed or abandoned property, whether accrued, absolute or
contingent, liquidated or unliquidated, matured or unmatured, or otherwise.
"Lien" means any lien, mortgage, pledge, reservation, option, right of
first refusal, restriction, security interest, title retention, or other
security arrangement, conditional sale agreement, default of title,
easement, encroachment, encumbrance, hypothecation, infringement or any
adverse right or interest, charge, or claim of any nature whatsoever of,
on, or with respect to any property or property interest, other than Liens
for current property Taxes not yet due and payable.
"Litigation" means any action, arbitration, cause of action, lawsuit,
claim, complaint, criminal prosecution, governmental or other examination,
investigation or inquiry (whether formal or informal), audit (other than
regular audits of financial statements by outside auditors), compliance
review, inspection, hearing, administrative or other proceeding relating to
or affecting a Party, its business, its records, its policies, its
practices, its compliance with Law, its actions, its assets (including
contracts related to it), or the transactions contemplated by this
Agreement.
"Net Book Value" shall mean the book value of the Assets acquired less
the Assumed Liabilities for the Specialty Business as shown on the
Estimated Closing Balance Sheet and Actual Closing Balance Sheet, as
applicable, determined in accordance with GAAP.
"Open Customer Orders" shall mean prescription orders from Sellers'
patients served by the Specialty Business that have been received by a
Seller but not filled by a Seller prior to the Closing Date, a list of
which shall be provided to Buyer at the Closing, and which shall be limited
to orders (i) received by a Seller in the ordinary course of business
consistent with past practices (with prices no less favorable than
customarily obtained for similar prescriptions), (ii) comply with Buyer's
credit policies and procedures and (iii) are otherwise acceptable to Buyer.
"Order" shall mean any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial decision or award, ruling or
writ of any federal, state, local or foreign or other court, arbitrator,
mediator, tribunal, administrative agency, or Regulatory Authority.
"Ordered Inventory" shall mean purchase orders by a Seller for
prescription drugs for use in the Specialty Business that have not been
received by a Seller prior to the Closing (and which are therefore not
included among the Inventory), a list of which shall be provided to Buyer
at Closing and which shall be limited to orders in the ordinary course of
business consistent with past practices and not in excess of normal,
ordinary and usual requirements of a Seller, and not at prices in excess of
prices normally and customarily paid by a Seller for similar prescription
drugs.
"Party" means Buyer, on the one hand, and Sellers, on the other hand,
and "Parties" means Sellers and Buyer.
"Permitted Liens" shall mean (i) Liens for current taxes or assessments
that are not yet due and payable and that were incurred in the ordinary
course of business and accrued on the Actual Closing Balance Sheet, (ii)
builder, mechanic, warehousemen, materialmen, contractor Liens or other
similar Liens imposed by Law arising in the ordinary course of business, in
each case for obligations which are
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not yet due and payable, and (iii) other similar Liens which do not
materially affect the value of the Assets subject to such Liens or the
usefulness or marketability of such Assets.
"Person" shall mean a natural person or any legal, commercial or
governmental entity, such as, but not limited to, a corporation, general
partnership, joint venture, limited partnership, limited liability company,
trust, business association, group acting in concert, or any person acting
in a representative capacity.
"Proxy Statement/Prospectus" shall mean the proxy statement used by
Parent and, if necessary, Buyer to solicit the approval of their respective
stockholders of the transactions contemplated by this Agreement, which
shall include the prospectus of Buyer relating to the issuance of the Buyer
Common Stock to Parent.
"Registration Statement" shall mean the Registration Statement on Form
S-4, or other appropriate form, including any pre-effective or
post-effective amendments or supplements thereto, filed with the SEC by
Buyer under the Securities Act with respect to the shares of Buyer Common
Stock to be issued to Seller in connection with the transactions
contemplated by this Agreement.
"Regulatory Authorities" shall mean, collectively, all federal and state
regulatory agencies having jurisdiction over the Parties and their
respective Subsidiaries.
"Released Employees" shall mean those Business Employees to whom Buyer
does not make a Qualifying Offer of employment and whose employment has
been terminated by Seller within thirty (30) days after the Closing Date.
"Retained Employees" shall mean those Business Employees to whom Buyer
makes a Qualifying Offer of employment and who do not accept such offers of
employment, or to whom Buyer does not make a Qualifying Offer of
employment, and whose employment in either event is not terminated by
Seller within thirty (30) days after the Closing Date.
"Rights" shall mean the rights issuable pursuant to the Rights
Agreement.
"Rights Agreement" shall mean that certain Rights Agreement dated March
2, 2000 between Parent and EquiServe Limited Partnership, as rights agent.
"Sellers" shall mean (i) for all purposes, collectively, Parent and the
Subsidiaries of Parent who own the Assets, which are identified on the
signature pages hereto, and (ii) for purposes of the representation and
warranty disclosure in Article 2 and, prior to the Closing, the covenants
and agreements of Sellers set forth herein (but specifically excluding
post-closing obligations, including any indemnification obligations or
Liabilities), the Acquired Subsidiaries.
"Seller Material Adverse Effect" shall mean an event, change or
occurrence which, individually or together with any other event, change or
occurrence, has had or is reasonably likely to have a material adverse
impact on (i) the Assets or on the financial position, business, or results
of operations of the Specialty Business, or (ii) the ability of any Seller
to perform its obligations under this Agreement or to consummate the
Acquisition or the other transactions contemplated by this Agreement;
provided that "Seller Material Adverse Effect" shall not be deemed to have
occurred be reason of (A) changes affecting the general economic condition
in the jurisdictions where Sellers operate (which changes do not
disproportionately affect Sellers in any material respect), (B) changes
affecting any of the industries in which Buyer operates generally (which
changes do not disproportionately affect Sellers in any material respect),
or (C) an Excluded Acute Event.
"Specialty Business" or "Business" shall mean the business of Sellers
(and prior to such time Olsten Corporation and any other predecessor
entities) that is identified as the Specialty Pharmaceutical Services
business in Parent's Form 10-K for fiscal year 2000, as updated by its Form
10-Q for the quarterly period ending September 30, 2001.
"Subsidiaries" shall mean all those corporations, associations, or other
business entities of which the entity in question either (i) owns or
controls 50% or more of the outstanding equity securities either
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directly or through an unbroken chain of entities as to each of which 50%
or more of the outstanding equity securities is owned directly or
indirectly by its parent (provided, there shall not be included any such
entity the equity securities of which are owned or controlled in a
fiduciary capacity), (ii) in the case of partnerships, serves as a general
partner, (iii) in the case of limited liability companies, serves as a
managing member, or (iv) otherwise has the ability to elect a majority of
the directors, trustees, managing members or managers thereof.
"Taxes" shall mean any federal, state, county, local, foreign or other
tax, charge, imposition or other levy (including interest or penalties
thereon) including without limitation, income taxes, estimated taxes,
excise taxes, sales taxes, use taxes, gross receipts taxes, franchise
taxes, taxes on earnings and profits, employment and payroll related taxes,
property taxes, real property transfer taxes, Federal Insurance
Contributions Act taxes, any taxes related to unclaimed property, taxes on
value added and import duties, whether or not measured in whole or in part
by net income, imposed by the United States or any political subdivision
thereof or by any jurisdiction other than the United States or any
political subdivision thereof.
"Tax Return" shall mean any and all returns, reports, filings, claims
for refunds, declarations and statements relating to Taxes that are
required to be filed, recorded, or deposited with any Regulatory Authority,
including any attachment thereto or amendment thereof.
"Third Party Claim" shall mean any Litigation threatened or instituted
against an Indemnified Party by anyone not a Party to this Agreement which
would be a matter for which the Indemnified Party is entitled to
indemnification under Article 8 of this Agreement.
(b) In addition to the terms defined in Section 10.1(a) above, the terms
set forth below shall have the meanings ascribed thereto in the referenced
sections:
Acquired Subsidiaries -- Section 1.1(m)
Acquired Subsidiaries Allocable Consideration --
Section 4.13(a)
Acquired Subsidiaries Allocation Schedule --
Section 4.13(a)
Acquisition -- Preamble
Acquisition Proposal -- Section 4.3(g)
Actual Closing Balance Sheet -- Section 1.3(b)
Agreement -- Preamble
Allocable Consideration -- Section 1.8
Allocation Schedule -- Section 1.8
Amended and Restated CareCentrix Network
Provider Agreement -- Section 4.17
Antitrust Laws -- Section 4.5
Assets -- Section 1.1
Assigned Leases -- Section 1.1(c)
Assumed Liabilities -- Section 1.6
Assignment and Assumption Agreements --
Section 6.2(f)(ii)
Business Employees -- Section 2.16(a)
Business Financial Statements -- Section 2.7(a)
Buyer -- Preamble
Buyer Financials -- Section 3.5(b)
Buyer Indemnified Parties -- Section 8.1
Buyer Payment -- Section 1.3(b)(ii)
Buyer SEC Reports -- Section 3.5
Buyer Welfare Plans -- Section 9.5
Buyer's 402(k) Plan -- Section 9.3
Cash Consideration -- Section 1.2(a)
Change of Recommendation -- Section 4.3(d)
Closing -- Section 1.7
Closing Date -- Section 1.7
Compensation Programs -- Section 2.16(c)
Confidentiality Agreement -- Section 4.9
Consideration -- Section 1.2
Costs and Expenses -- Section 7.3
Conveyance Documents -- Section 6.2(f)(i)
Deferred Contracts -- Section 1.10
DOJ -- Section 4.5
End Date -- Section 7.1(b)
Estimated Closing Balance Sheet -- Section 1.3(a)
Exchange Act -- Section 2.6
E&Y -- Section 1.3
Facilities -- Section 2.13(a)
Final Determination -- Section 8.5(b)
FTC -- Section 4.5
GAAP -- Section 1.3(a)
Government Programs -- Section 2.20
Group -- Section 4.3(g)
Indemnified Party -- Section 8.3
Indemnifying Party -- Section 8.3
Income Statements -- Section 2.7(a)
Inventory -- Section 1.1(j)
IRS -- Section 2.17(b)
Licenses -- Section 2.20(a)
Losses -- Section 8.1
Management Agreement -- Preamble
Maximum Amount -- Section 8.6
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Medicare and Medicaid programs --
Section 2.20(a)
Net Book Value -- Section 6.2(e)
Net Book Value Range -- Section 1.3
Notice Period -- Section 8.3(c)
Parent -- Preamble
Parent Financials -- Section 2.6(b)
Parent Payment -- Section 1.3(b)(ii)
Parent SEC Reports -- Section 2.6(a)
Patients -- Section 1.8
Pension Plans -- Section 2.16(a)
Pre-Closing Tax Period -- Section 4.13(b)
Pre-Closing Straddle Period -- Section 8.5(a)
Private Programs -- Section 2.20(a)
PWC -- Section 1.3
Qualifying Offer -- Section 9.1(a)
Remuneration -- Section 2.22(a)
Retained Assets -- Section 1.4
Retained Liabilities -- Section 1.5
Revised Allocation Schedule -- Section 1.8
Revised Acquired Subsidiaries Allocation
Schedule -- Section 4.13(a)
SEC -- Section 2.6
Section 338(h)(10) Elections -- Section 4.13(a)
Securities Act -- Section 2.6
Seller Agreements -- Section 2.14
Seller Indemnified Parties -- Section 8.2
Seller's 401(k) Plan -- Section 9.2
Severance -- Section 9.8
Specialty Business Employees -- Section 9.1
Statements of Assets and Liabilities --
Section 2.7(a)
Stock Consideration -- Section 1.2(a)
Stockholders' Meeting -- Section 4.2(a)
Straddle Period -- Section 8.5(a)
Superior Offer -- Section 4.3(g)
Tax Claim -- Section 4.13(d)
Tax Deposit -- Section 8.5(b)
Termination Fee -- Section 7.3
Threshold Amount -- Section 8.6
WARN Obligations -- Section 9.6
Welfare Plans -- Section 2.16(b)
(c) Any singular term in this Agreement shall be deemed to include the
plural, and any plural term the singular. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed
followed by the words "without limitation." The terms Parent, Buyer and Sellers
shall be deemed to include their respective Subsidiaries where the context
requires but such term is not provided.
ARTICLE 11
MISCELLANEOUS PROVISIONS
11.1 Notices. (a) Any notice sent in accordance with the provisions of
this Section 11.1 shall be deemed to have been received (even if delivery is
refused or unclaimed) on the date which is: (i) the date of proper posting, if
sent by certified U.S. mail or by Express U.S. mail or private overnight
courier; or (ii) the date on which sent, if sent by facsimile transmission, with
confirmation and with the original to be sent by certified U.S. mail, addressed
as follows:
If to the Sellers:
Gentiva Health Services, Inc.
3 Huntington Quadrangle 2S
Melville, New York 11747-8943
Separate Copies Each to the Attention of the:
Chief Executive Officer and General Counsel
Telecopy Number: (931) 814-4847
Copy to Counsel:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Attention: Helene Banks, Esq.
Telecopy Number: (212) 269-5420
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If to Buyer:
Accredo Health, Incorporated
1640 Century Center Parkway, Suite 101
Memphis, Tennessee 38134
Separate Copies Each to the Attention of the:
Chief Executive Officer and General Counsel
Telecopy Number: (901) 385-3689
Copy to Counsel:
Alston & Bird LLP
One Atlantic Center
1201 W. Peachtree Street
Atlanta, Georgia 30309
Attention: Steven L. Pottle, Esq.
Telecopy Number: (404) 881-7777
(b) Any party hereto may change its address specified for notices herein by
designating a new address by notice in accordance with this Section 11.1.
11.2 Further Assurances. Each party covenants that at any time, and from
time to time, after the Closing, it will execute such additional instruments and
take such actions as may be reasonably requested by the other parties to confirm
or perfect or otherwise to carry out the intent and purposes of this Agreement.
11.3 Waiver. Each Party has the right to waive any default in the
performance of any term of this Agreement by the other Party, to waive or extend
the time for compliance or fulfillment by the other Party of any of its
obligations under this Agreement, and to waive any of the conditions precedent
to the obligations of such Party under this Agreement except any condition
which, if not satisfied, would result in the violation of any Law. No such
waiver shall be effective unless in writing signed by a duly authorized officer
of Buyer or Sellers, as applicable.
11.4 Assignment. This Agreement shall not be assignable by either of the
Parties hereto without the written consent of the other Party, provided that
Buyer may assign its rights and obligations under this Agreement, in whole or in
part, without the consent of Sellers to any direct or indirect subsidiary or
affiliate of Buyer or to any party that acquires substantially all of the assets
or stock of Buyer or any successor entity resulting from a merger or
consolidation of or with Buyer. No such assignment shall relieve Buyer of its
obligations hereunder.
11.5 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, legal
representatives, executors, administrators, successors and assigns. This
Agreement shall survive the Closing and not be merged therein.
11.6 Headings. The section and other headings in this Agreement are
inserted solely as a matter of convenience and for reference, and are not a part
of this Agreement.
11.7 Entire Agreement. All Schedules and Exhibits attached to this
Agreement are by reference made a part hereof. This Agreement and the Exhibits,
Schedules, certificates and other documents delivered pursuant hereto or
incorporated herein by reference, contain and constitute the entire agreement
among the parties and supersede and cancel any prior agreements,
representations, warranties, or communications, whether oral or written, among
the parties relating to the transactions contemplated by this Agreement. Neither
this Agreement nor any provision hereof may be changed, waived, discharged or
terminated orally, but only by an agreement in writing signed by the party
against whom or which the enforcement of such change, waiver, discharge or
termination is sought.
11.8 Governing Law; Severability. This Agreement shall be governed by and
construed in accordance with the Laws of the State of Delaware, without regard
to any applicable conflicts of Laws. The provisions of this Agreement are
severable and the invalidity of one or more of the provisions herein shall not
have any effect upon the validity or enforceability of any other provision.
A-53
11.9 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.10 Brokers. Sellers shall indemnify, hold harmless and defend Buyer
and its Affiliates, and Buyer shall indemnify, hold harmless and defend Sellers
and their Affiliates from and against the payment of any and all broker's and
finder's expenses, commissions, fees or other forms of compensation which may be
due or payable from or by the indemnifying party, or which may have been earned
by any third party acting on behalf of the indemnifying party in connection with
the negotiation, execution and consummation of the transactions contemplated
hereby.
11.11 No Intention to Benefit Third Parties. Nothing in this Agreement is
intended to and shall not benefit any Person other than the parties hereto
create any third party beneficiary right in any such other Person.
[Signatures Begin on Next Page]
A-54
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed on its behalf and its corporate seal to be hereunto affixed and
attested by officers thereunto as of the day and year first above written.
BUYER:
ACCREDO HEALTH, INCORPORATED
By:
--------------------------------------
Title:
--------------------------------------
PARENT:
GENTIVA HEALTH SERVICES, INC.
By:
--------------------------------------
Title:
--------------------------------------
SELLERS:
GENTIVA HEALTH SERVICES HOLDING CORP.
By:
--------------------------------------
Title:
--------------------------------------
GENTIVA HEALTH SERVICES (INFUSION),
INC.
By:
--------------------------------------
Title:
--------------------------------------
GENTIVA HEALTH SERVICES (QUANTUM)
CORP.
By:
--------------------------------------
Title:
--------------------------------------
A-55
GENTIVA HEALTH SERVICES (USA)
By:
--------------------------------------
Title:
--------------------------------------
QHR SOUTHWEST BUSINESS TRUST
By:
--------------------------------------
Title:
--------------------------------------
QHR SOUTHWEST HOLDING CORP.
By:
--------------------------------------
Title:
--------------------------------------
QUANTUM DISEASES MANAGEMENT INC.
By:
--------------------------------------
Title:
--------------------------------------
QUANTUM CARE NETWORK INC.
By:
--------------------------------------
Title:
--------------------------------------
A-56
QUANTUM HEALTH RESOURCES, SOUTHWEST LP
By:
--------------------------------------
Title:
--------------------------------------
QUANTUM HEALTH RESOURCES, INC. (DE)
By:
--------------------------------------
Title:
--------------------------------------
QUANTUM HEALTH RESOURCES, INC. (NY)
By:
--------------------------------------
Title:
--------------------------------------
THE IV CLINIC, INC.
By:
--------------------------------------
Title:
--------------------------------------
THE IV CLINIC II, INC.
By:
--------------------------------------
Title:
--------------------------------------
A-57
THE IV CLINIC III, INC.
By:
--------------------------------------
Title:
--------------------------------------
QUALITY CARE-USA, INC.
By:
--------------------------------------
Title:
--------------------------------------
OHS SERVICE CORP.
By:
--------------------------------------
Title:
--------------------------------------
CHRONIC HEALTH MANAGEMENT OF
CALIFORNIA
By:
--------------------------------------
Title:
--------------------------------------
GENTIVA SERVICES OF NEW YORK, INC.
By:
--------------------------------------
Title:
--------------------------------------
A-58
ANNEX B
VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement") is made and entered into as of
January 2, 2002 by and among Accredo Health, Incorporated, a Delaware
corporation ("Buyer") and the undersigned stockholder of Seller (the
"Stockholder").
WHEREAS, the Stockholder desires that Buyer and Gentiva Health Services,
Inc. ("Seller") and certain subsidiaries of Seller enter into an asset purchase
agreement dated the date hereof (the "Purchase Agreement") whereby Buyer agrees
to purchase from Seller, and Seller agrees to sell to Buyer, substantially all
of the assets used in or related to the operation or conduct of the Specialty
Business (as such term is defined in the Purchase Agreement) (the "Sale
Transaction"); and
WHEREAS, the Stockholder is executing this Agreement as an inducement to
Buyer to enter into and execute the Purchase Agreement (but the execution of
this Agreement does not constitute a condition precedent to the closing of the
transactions contemplated thereby identified in Article 6 of the Purchase
Agreement due to this Agreement being executed and delivered to Buyer
simultaneously with the Purchase Agreement);
NOW, THEREFORE, in consideration of the execution and delivery by Buyer of
the Purchase Agreement and the mutual covenants, conditions and agreements
contained herein and therein, the parties agree as follows:
1. Representations and Warranties. The Stockholder (solely with respect
to the Stockholder Shares (as defined below) owned by the Stockholder)
represents and warrants to Buyer as follows:
(a) The Stockholder is the record and beneficial owner of the number of
shares (such "Stockholder's Shares") of common stock, $.10 par value, of Seller
("Seller Stock") set forth below such Stockholder's name on the signature page
hereof. Except for the Stockholder's Shares and any other shares of Seller Stock
subject hereto, the Stockholder is not the record or beneficial owner of any
shares of Seller Stock. This Agreement has been duly authorized, executed and
delivered by, and constitutes a valid and binding agreement of, the Stockholder,
enforceable in accordance with its terms, except to the extent that (i) such
enforcement may be limited by applicable bankruptcy, insolvency or similar laws
affecting creditors rights and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
(b) Neither the execution and delivery of this Agreement nor the
consummation by the Stockholder of the transactions contemplated hereby will
result in a violation of, or a default under, or conflict with, any contract,
trust, commitment, agreement, understanding, arrangement or restriction of any
kind to which the Stockholder is a party or bound or to which the Stockholder's
Shares are subject. If the Stockholder is married and the Stockholder's Shares
constitute community property, this Agreement has been duly authorized, executed
and delivered by, and constitutes a valid and binding agreement of, the
Stockholder's spouse, enforceable against such person in accordance with its
terms. Consummation by the Stockholder of the transactions contemplated hereby
will not violate, or require any consent, approval, or notice under, any
provision of any judgment, order, decree, statute, law, rule or regulation
applicable to the Stockholder or the Stockholder's Shares.
(c) The Stockholder's Shares and the certificates representing such Shares
are now, and at all times during the term hereof will be, held by the
Stockholder, or by a nominee or custodian for the benefit of such Stockholder,
free and clear of all liens, claims, security interests, proxies, voting trusts
or agreements, understandings or arrangements or any other encumbrances
whatsoever, except for any such encumbrances or proxies arising hereunder.
(d) No broker, investment banker, financial adviser or other person is
entitled to any broker's, finder's, financial adviser's or other similar fee or
commission in connection with the transactions contemplated hereby based upon
arrangements made by or on behalf of the Stockholder.
B-1
(e) The Stockholder understands and acknowledges that Buyer is entering
into the Purchase Agreement in reliance upon the Stockholder's execution and
delivery of this Agreement. The Stockholder acknowledges that the irrevocable
proxy set forth in Section 4 is granted in consideration for the execution and
delivery of the Purchase Agreement by Buyer.
2. Voting Agreements. The Stockholder agrees with, and covenants to,
Buyer as follows:
(a) At any meeting of stockholders of Seller called to vote upon the Sale
Transaction and the Purchase Agreement or at any adjournment thereof or in any
other circumstances upon which a vote, consent or other approval with respect to
the Sale Transaction and the Purchase Agreement is sought (the "Stockholders'
Meeting"), the Stockholder shall vote (or cause to be voted) the Stockholder's
Shares in favor of the Sale Transaction, the execution and delivery by Seller of
the Purchase Agreement, and the approval of the terms thereof and each of the
other transactions contemplated by the Purchase Agreement, provided that the
terms of the Purchase Agreement shall not have been amended in order to reduce
the consideration payable in the Sale Transaction to a lesser amount or
otherwise to materially and adversely impair the Stockholder's rights or
increase the Stockholder's obligations thereunder (provided that this proviso
shall not apply to adjustments to the consideration made in accordance with the
terms of the Purchase Agreement as of the date hereof).
(b) At any meeting of stockholders of Seller or at any adjournment thereof
or in any other circumstances upon which their vote, consent or other approval
is sought, the Stockholder shall vote (or cause to be voted) such Stockholder's
Shares against (i) any merger agreement or merger, consolidation, combination,
sale of substantial assets (other than the Sale Transaction and the Purchase
Agreement), reorganization, recapitalization, dissolution, liquidation or
winding up of or by Seller or (ii) any amendment of Seller's Articles of
Incorporation or Bylaws or other proposal or transaction involving Seller or any
of its subsidiaries which amendment or other proposal or transaction could
reasonably be expected to impede, frustrate, prevent or nullify the Sale
Transaction, the Purchase Agreement or any of the other transactions
contemplated by the Purchase Agreement (each of the foregoing in clause (i) or
(ii) above, a "Competing Transaction").
(c) The provisions of this Section 2 shall not prohibit any director of
Seller from taking actions in his or her capacity as such which are permitted or
required under the Purchase Agreement, nor shall the taking of any such actions
in his or her capacity as director affect the obligations under this Agreement.
3. Covenants. The Stockholder shall not (i) transfer (which term shall
include, without limitation, for the purposes of this Agreement, any sale, gift,
pledge or other disposition), or consent to any transfer of, any or all of the
Stockholder's Shares or any interest therein, except pursuant to the Sale
Transaction; (ii) enter into any contract, option or other agreement or
understanding with respect to any transfer of any or all of such Shares or any
interest therein, (iii) grant any proxy, power of attorney or other
authorization in or with respect to such Shares, except for this Agreement, or
(iv) deposit such Shares into a voting trust or enter into a voting agreement or
arrangement with respect to such Shares; provided, that the Stockholder may
transfer (as defined above) any of the Stockholder's Shares to any other person
who is on the date hereof, or to any family member of a person or charitable
institution which prior to the Stockholders' Meeting and prior to such transfer
becomes, a party to this Agreement bound by all the obligations of the
Stockholder hereunder. Each Stockholder severally and not jointly agrees with,
and covenants to, Buyer that such Stockholder shall not request that Seller
register the transfer (by book-entry or otherwise) of any certificate or
uncertificated interest representing any of the Stockholder's Shares, unless
such transfer is in compliance with this Agreement.
4. Grant of Irrevocable Proxy; Appointment of Proxy.
(a) The Stockholder hereby irrevocably grants to, and appoints, Buyer and
David Stevens, Chief Executive Officer of Buyer, and Thomas W. Bell, Jr.,
General Counsel of Buyer, in their respective capacities as officers of Buyer,
and any individual who shall hereafter succeed to any such office of Buyer, and
each of them individually, the Stockholder's proxy and attorney-in-fact (with
full power of substitution), for and in the name, place and stead of the
Stockholder, to vote the Stockholder's Shares, or grant a consent or approval in
respect of such Shares (i) in favor of the Sale Transaction, the execution and
delivery of the Purchase Agreement and approval of the terms thereof and each of
the other transactions contemplated by the
B-2
Purchase Agreement, provided that the terms of the Purchase Agreement shall not
have been amended to reduce the consideration payable in the Sale Transaction to
a lesser amount or otherwise to materially and adversely impair the
Stockholder's rights or increase the Stockholder's obligations thereunder, and
(ii) against any Competing Transaction.
(b) The Stockholder represents that any proxies heretofore given in respect
of the Stockholder's shares are not irrevocable, and that any such proxies are
hereby revoked.
(c) The Stockholder hereby affirms that the irrevocable proxy set forth in
this Section 4 is given in connection with the execution of the Purchase
Agreement, and that such irrevocable proxy is given to secure the performance of
the duties of the Stockholder under this Agreement. The Stockholder hereby
further affirms that the irrevocable proxy is coupled with an interest and may
under no circumstances be revoked. The Stockholder hereby ratifies and confirms
all that such irrevocable proxy may lawfully do or cause to be done by virtue
hereof. Such irrevocable proxy is executed and intended to be irrevocable in
accordance with the provisions of Section 212 of the Delaware General
Corporation Law.
5. Certain Events. The Stockholder agrees that this Agreement and the
obligations hereunder shall attach to the Stockholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of such
Shares shall pass, whether by operation of law or otherwise, including without
limitation the Stockholder's successors or assigns. In the event of any stock
split, stock dividend, merger, reorganization, recapitalization or other change
in the capital structure of Seller affecting the Seller Stock, or the
acquisition of additional shares of Seller Stock or other voting securities of
Seller by any Stockholder, the number of Shares subject to the terms of this
Agreement shall be adjusted appropriately and this Agreement and the obligations
hereunder shall attach to any additional shares of Seller Stock or other voting
securities of Seller issued to or acquired by the Stockholder.
6. Further Assurances. The Stockholder shall, upon request of Buyer,
execute and deliver any additional documents and take such further actions as
may reasonably be deemed by Buyer to be necessary or desirable to carry out the
provisions hereof and to vest the power to vote such Stockholder's Shares as
contemplated by Section 4 in Buyer and the other irrevocable proxies described
therein at the expense of Buyer.
7. Termination. This Agreement, and all rights and obligations of the
parties hereunder, including the irrevocable proxy as set forth in Section 4,
shall terminate upon the first to occur of (x) the Closing of the Sale
Transaction or (y) the date upon which the Purchase Agreement is terminated in
accordance with its terms; provided that if, prior to termination of the
Purchase Agreement, Buyer and Seller agree to extend the term of the Purchase
Agreement (the "Extension Period"), the rights and obligations of the parties
hereto shall continue in full force and effect until the termination of the
Extension Period.
8. Miscellaneous.
(a) None of the representations, warranties, covenants and agreements in
this Agreement shall survive the Closing of the Sale Transaction.
(b) Capitalized terms used and not otherwise defined in this Agreement
shall have the respective meanings assigned to them in the Purchase Agreement.
(c) All notices, requests, claims, demands and other communications under
this Agreement shall be in writing and shall 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): (i) if to Buyer or Seller, to their
respective addresses provided in the Purchase Agreement; and (ii) if to the
Stockholder; to its address shown below its signature on the last page hereof.
(d) The headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
(e) This Agreement may be executed in two or more counterparts, all of
which shall be considered one and the same agreement.
B-3
(f) This Agreement (including the documents and instruments referred to
herein) constitutes the entire agreement, and supersedes all prior agreements
and understandings, both written and oral, among the parties with respect to the
subject matter hereof.
(g) 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 conflicts of laws thereof, except with
respect to matters of law concerning the internal corporate affairs of any
corporate entity which is a party to or subject to this Agreement, and as to
those matters the law of the jurisdiction under which the respective entity
derives its powers shall govern.
(h) 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, except as expressly contemplated by Section 3(a). Any assignment
in violation of the foregoing shall be void.
(i) The Stockholder agrees that irreparable damage would occur and that
Buyer would not have any adequate remedy at law in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that Buyer
shall be entitled to an injunction or injunctions to prevent breaches by the
Stockholder 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 such party to the personal
jurisdiction of any Federal court located in the State of Delaware or any
Delaware state court in the event any dispute arises out of this Agreement or
any of the transactions contemplated hereby, (ii) agrees that such party 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 such party will not
bring any action relating to this Agreement or any of the transactions
contemplated hereby in any court other than a Federal court sitting in the State
of Delaware or a Delaware state court.
(j) If any term, provision, covenant or restriction herein, or the
application thereof to any circumstance, shall, to any extent, be held by a
court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions herein and the
application thereof to any other circumstances, shall remain in full force and
effect, shall not in any way be affected, impaired or invalidated, and shall be
enforced to the fullest extent permitted by law.
(k) No amendment, modification or waiver in respect of this Agreement shall
be effective against any party unless it shall be in writing and signed by such
party.
B-4
IN WITNESS WHEREOF, the undersigned parties have executed and delivered
this Voting Agreement as of the day and year first above written.
ACCREDO HEALTH, INCORPORATED
By:
--------------------------------------
Title:
--------------------------------------
STOCKHOLDER
Name:
--------------------------------------
Address:
--------------------------------------
--------------------------------------
Number of Shares Beneficially Owned:
--------------------------------------
B-5
ANNEX C
LEHMAN BROTHERS
January 2, 2002
Board of Directors
Gentiva Health Services, Inc.
3 Huntington Quadrangle 2S
Melville, NY 11747
Members of the Board:
We understand that Accredo Health, Inc. ("Accredo") intends to acquire
certain assets and assume certain liabilities of the specialty pharmaceutical
distribution business (the "Specialty Business") of Gentiva Health Services,
Inc. ("Gentiva" or the "Company") for $415 million, comprised of $207.5 million
in cash and $207.5 million in shares of Accredo common stock (the "Proposed
Transaction"). The specific number of shares of Accredo common stock that will
be received by the Company in the Proposed Transaction will be based upon the
average of the daily closing prices for the shares of Accredo common stock for a
certain number of days prior to the closing of the Proposed Transaction (the
"Average Price"), provided that the Average Price will be subject to a floor of
$31.00 per share and a cap of $41.00 per share. We further understand that such
cash and shares of Accredo common stock will be distributed to the stockholders
of the Company (the "Distribution") following the consummation of the Proposed
Transaction. The terms and conditions of the Proposed Transaction are set forth
in more detail in the Asset Purchase Agreement dated January 2, 2001 (the
"Agreement") among Accredo, Gentiva and the other sellers named therein.
We have been requested by the Board of Directors of the Company to render
our opinion with respect to the fairness, from a financial point of view, to the
Company of the consideration to be received by the Company in the Proposed
Transaction. We have not been requested to opine as to, and our opinion does not
in any manner address, the Company's underlying business decision to proceed
with or effect the Proposed Transaction or the Distribution.
In arriving at our opinion, we reviewed and analyzed: (1) the Agreement and
the specific terms of the Proposed Transaction, (2) publicly available
information concerning the Company and the Specialty Business that we believe to
be relevant to our analysis, including the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 2000, and the Company's Quarterly Reports
on Form 10-Q for the quarters ended April 1, July 1 and September 30, 2001, (3)
publicly available information concerning Accredo that we believe to be relevant
to our analysis, including Accredo's Annual Report on Form 10-K for the fiscal
year ended June 30, 2001 and Accredo's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2001, (4) financial and operating information with
respect to the business, operations and prospects of the Specialty Business
furnished to us by the Company, including financial projections of the Specialty
Business prepared by the management of the Company for fiscal years ended
December 30, 2001 and December 29, 2002 (the "Specialty Business Projections"),
(5) a trading history of Accredo's common stock from April 16, 1999 to the
present and a comparison of that trading history with those of other companies
and market indices that we deemed relevant, (6) a comparison of the historical
financial results and present financial condition of the Specialty Business with
those of other companies that we deemed relevant, (7) a comparison of the
historical financial results and present financial condition of Accredo with
those of other companies that we deemed relevant, (8) published reports of third
party research analysts with respect to the future financial performance of the
Specialty Business, (9) published reports of third party research analysts with
respect to the stock price targets and future financial performance of Accredo,
(10) the results of our previous efforts to solicit indications of interest from
third parties with respect to a purchase of all or part of the Company, (11) the
potential pro forma impact on Accredo of the Proposed Transaction, including the
cost savings, operating synergies and strategic benefits expected by the
managements of the Company and Accredo to result from a combination of the
businesses of the Specialty
C-1
Business and Accredo, and (12) a comparison of the financial terms of the
Proposed Transaction with the financial terms of certain other transactions that
we deemed relevant. In addition, we have had discussions with the managements of
the Company, the Specialty Business and Accredo concerning their respective
businesses, operations, assets, financial conditions and prospects and have
undertaken such other studies, analyses and investigations as we deemed
appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of the financial and other information used by us without
assuming any responsibility for independent verification of such information and
have further relied upon the assurances of management of the Company that they
are not aware of any facts or circumstances that would make such information
inaccurate or misleading. With respect to the Specialty Business Projections,
upon advice of the Company we have assumed that such projections have been
reasonably prepared on a basis reflecting the best currently available estimates
and judgments of the management of the Company as to the future financial
performance of the Specialty Business and that the Specialty Business will
perform in accordance with such projections. However, we have not been provided
with, and did not have any access to, any financial projections of the Specialty
Business for periods beyond fiscal 2002 and, upon the advice of the Company, we
have relied upon guidance from the management of the Company with respect to the
appropriate growth rates, operating margins and other relevant measures of
future financial performance in analyzing the future financial performance of
the Specialty Business through fiscal 2006. We also have not been provided with,
and did not have any access to, any financial projections of Accredo prepared by
management of Accredo. Accordingly, upon advice of Accredo's management and with
the Company's consent, we have assumed that the published estimates of third
party research analysts are a reasonable basis upon which to evaluate the future
financial performance of Accredo and that Accredo will perform substantially in
accordance with such estimates.
In arriving at our opinion, we have not conducted a physical inspection of
the properties and facilities of the Specialty Business and have not made or
obtained any evaluations or appraisals of the assets or liabilities of the
Specialty Business. Since June 1, 2001, you have not authorized us to solicit,
and we have not solicited, any indications of interest from any third party with
respect to the purchase of all or a part of the Company's business. In addition,
upon advice of the Company, we have assumed that the Proposed Transaction (based
on the consideration of $415 million described above) will not result in
material tax liabilities for the Company. Our opinion necessarily is based upon
market, economic and other conditions as they exist on, and can be evaluated as
of, the date of this letter. In addition, we express no opinion as to the prices
at which the shares of common stock of Accredo or the Company will trade
following the consummation of the Proposed Transaction.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the consideration to be
received by the Company in the Proposed Transaction is fair to the Company.
We have acted as financial advisor to the Company in connection with the
Proposed Transaction and will receive a fee for our services which is contingent
upon the consummation of the Proposed Transaction. In addition, the Company has
agreed to indemnify us for certain liabilities that may arise out of the
rendering of this opinion. In the ordinary course of our business, we actively
trade in the equity securities of the Company 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.
This opinion is for the use and benefit of the Board of Directors of the
Company and is rendered to the Board of Directors in connection with its
consideration of the Proposed Transaction. This opinion is not intended to be
and does not constitute a recommendation to any stockholder of the Company as to
how such stockholder should vote with respect to the Proposed Transaction.
Very truly yours,
LEHMAN BROTHERS
C-2
ANNEX D
THOMAS WEISEL PARTNERS
MERCHANT BANKING
Robert W. Kitts
Partner
Co-Head of M & A
Head of Private Equity Coverage
January 2, 2002
Board of Directors
Accredo Health, Incorporated
1640 Century Center Parkway
Suite 101
Memphis, Tennessee 381.34
Members of the Board:
We understand that Accredo Health, Incorporated, a Delaware corporation
("Buyer"), and Centiva Health Services, Inc., a Delaware corporation ("Company")
and certain subsidiaries of Company specified in the Asset Purchase Agreement
propose to enter into an Asset Purchase Agreement (the "Asset Purchase
Agreement"), pursuant to which Buyer will acquire substantially all of the
assets and rights used in or related to the operation or conduct of the
Company's Specialty Pharmaceutical Services Business (the "SPS Business").
Pursuant to the Asset Purchase Agreement, as more fully described in the draft,
dated December 31, 2001, of the Asset Purchase Agreement, the SPS Business shall
be acquired for $415 million (the "Consideration"), subject to certain post
closing adjustments. The Consideration shall be payable 50% in cash and 50% in a
number of shares of common stock, par value $.01 per share, of Buyer ("Buyer
Common Stock") determined by dividing the Stock Consideration (as defined in the
Asset Purchase Agreement), as adjusted, by the Base Period Trading Price (as
defined in the Asset Purchase Agreement), provided, that if the Base Period
Trading Price shall be more than $41, the Base Period Trading Price shall be
deemed equal to $41 and if the Base Period Trading Price is less than $31, the
Base Period Trading Price shall be equal to $31. The terms and conditions of the
purchase by Buyer of the SPS Business are set forth in more detail in the Asset
Purchase Agreement.
You have asked for our opinion as investment bankers as to whether the
Consideration to be paid by Buyer pursuant to the Asset Purchase Agreement is
fair to Buyer from a financial point of view, as of the date hereof.
In connection with our opinion, we have, among other things, (i) reviewed
certain publicly available financial and other data with respect to Buyer,
including the consolidated financial statements for the most recent year ending
June 30, 2001 and the interim period ending September 30, 2001 and certain other
relevant financial and operating data relating to Buyer made available to us
from published sources and from the internal records of Buyer; (ii) reviewed
certain publicly available financial and other data with respect to the Company,
including the consolidated financial statements for the most recent year ending
December 31, 2000 and the interim periods ending September 30, 2001. and certain
other relevant financial and operating data relating to the SPS Business made
available to us from published sources and from the internal records of the SPS
Business; (iii) reviewed the financial terms and conditions of the draft, dated
December 31, 2001 of the Asset Purchase Agreement; (iv) reviewed certain
publicly available information concerning the stock market trading history for
Buyer Common Stock and common stock, par value $.10 per share, of the Company;
(v) compared the SPS Business and Buyer from a financial point of view with
certain other companies in the health care distribution industry which we deem
to be relevant; (vi) considered the financial terms, to the extent publicly
available, of selected recent business combinations of companies in the health
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care distribution industry which we deemed to be comparable, in whole or in
part, to the purchase of the SPS Business; (vii) reviewed and discussed with
representatives of the management of Buyer, Company and the SPS Business certain
information of a business and financial nature regarding Buyer and the SPS
Business, furnished to us by Buyer and Company, including financial forecasts
and related assumptions of Buyer and Company; (viii) made inquiries regarding
and discussed the purchase of the SPS Business and the Asset Purchase Agreement
and other matters related thereto with Buyer's counsel; and (ix) performed such
other analyses and examinations as we have deemed appropriate.
In connection with our review, we have not assumed any obligation
independently to verify the foregoing information and have relied on its being
accurate and complete in all material respects. With respect to the financial
forecasts for Buyer and the SPS Business provided to us by their respective
managements, respectively, upon their advice and with your consent we have
assumed for purposes of our opinion that the forecasts have been reasonably,
prepared on bases reflecting the best available estimates and judgments of their
respective managements at the time of preparation as to the future financial
performance of Buyer and the SPS Business and that they provide a reasonable
basis upon which we can form our opinion. We have also assumed that there have
been no material changes in Buyer's or the SPS Business' assets, financial
condition, results of operations, business or prospects since the respective
dates of Buyer's and Company's last financial statements made available to us.
We have relied on advice of counsel and independent accountants to Buyer as to
all legal and financial reporting matters with respect to Buyer, the purchase of
the SPS Business and the Asset Purchase Agreement. We have assumed that the
purchase of the SPS Business will be consummated in a manner that complies in
all respects with the applicable provisions of the Securities Act of 1933, as
amended (the "Securities Act"), the Securities Exchange Act of 1934 and all
other applicable federal and state statutes, rules and regulations. In addition,
we have not assumed responsibility for making an independent evaluation,
appraisal or physical inspection of any of the assets or liabilities (contingent
or otherwise) of Buyer or the SPS Business, nor have we been furnished with any
such appraisals. The Buyer management team has informed us, and we have assumed,
that the purchase of the SPS Business will be recorded as a purchase under
generally accepted accounting principles. Finally, our opinion is based on
economic, monetary and market and other conditions as in effect on, and the
information made available to us as of, the date hereof. Since this opinion is
being rendered during a period of significant and uncommon volatility in the
capital markets, it is subject to the absence of further material changes in
economic, monetary, market and other conditions from those existing on the date
hereof. Accordingly, although subsequent developments may affect this opinion,
we have not assumed any obligation to update, revise or reaffirm this opinion.
We have further assumed with your consent that the purchase of the SPS
Business will be consummated in accordance with the terms described in the draft
dated December 31, 2001 of the Asset Purchase Agreement, without any further
amendments thereto, and without waiver by Buyer of any of the conditions to its
obligations thereunder.
We have acted as financial advisor to Buyer in connection with the purchase
of the SPS Business and will receive a fee for our services, including rendering
this opinion; a significant portion of which is contingent upon the consummation
of the purchase of the SPS Business. In the ordinary course of our business, we
actively trade the equity securities of Buyer for our own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
Based upon the foregoing and in reliance thereon, it is our opinion as
investment bankers that the Consideration to be paid by Buyer in connection with
the purchase of the SPS Business is fair to Buyer from a financial point of
view, as of the date hereof.
This opinion is directed to the Board of Directors of Buyer in its
consideration of the purchase of the SPS Business and is not a recommendation to
any shareholder as to how such shareholder should vote with respect to such
transaction. Further, this opinion addresses only the financial fairness of the
Consideration and does not address the relative merits of the purchase of the
SPS Business and any alternatives to the purchase of the SPS Business, Buyer's
underlying decision to proceed with or effect the purchase of the SPS Business,
or any other aspect of the purchase of the SPS Business. This opinion may not be
used or referred to by Buyer,
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or quoted or disclosed to any person in any manner, without our prior written
consent, which consent is hereby given to the inclusion of this opinion in the
proxy statement/prospectus to be filed with the Securities and Exchange
Commission in connection with the purchase of the SPS Business, provided that
this opinion be disclosed in its entirety in such proxy statement/prospectus and
that any description of or reference to us or summary of this opinion or related
valuation analyses be in form and substance acceptable to us and our legal
counsel. In furnishing this opinion, we do not admit that we are experts within
the meaning of the term "experts" as used in the Securities Act and the rules
and regulations promulgated thereunder, nor do we admit that this opinion
constitutes a report or valuation within the meaning of Section 11 of the
Securities Act.
Very truly yours
THOMAS WEISEL PARTNERS LLC
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ANNEX E
ACCREDO HEALTH, INCORPORATED
2002 LONG-TERM INCENTIVE PLAN
ARTICLE I
PURPOSE
1.1. General. The purpose of the Accredo Health, Incorporated 2002
Long-Term Incentive Plan (the "Plan") is to promote the success, and enhance the
value, of Accredo Health, Incorporated (the "Corporation"), by linking the
personal interests of its employees, officers, consultants and directors to
those of Corporation's stockholders and by providing such persons with an
incentive for outstanding performance. The Plan is further intended to provide
flexibility to the Corporation in its ability to motivate, attract, and retain
the services of employees, officers, consultants and directors upon whose
judgment, interest, and special effort the successful conduct of the
Corporation's operation is largely dependent. Accordingly, the Plan permits the
grant of incentive awards from time to time to selected employees, officers,
directors, and consultants; provided, however, to the extent necessary to
preserve the employee benefits plan exemption under applicable state blue sky
laws, no non-employee director or consultant of the Corporation will be eligible
to receive Awards under the Plan until such time, if any, as the Corporation's
common stock shall be traded on a national securities exchange or on the Nasdaq
National Market.
ARTICLE 2
EFFECTIVE DATE
2.1. Effective Date. The Plan shall be effective as of the date it is
approved by both the Board and the majority of the holders of the Stock of the
Company.
ARTICLE 3
DEFINITIONS
3.1. Definitions. When a word or phrase appears in this Plan with the
initial letter capitalized, and the word or phrase does not commence a sentence,
the word or phrase shall generally be given the meaning ascribed to it in this
Section or in Section 1.1 unless a clearly different meaning is required by the
context. The following words and phrases shall have the following meanings:
(a) "Award" means any Option, Restricted Stock Award, or any other right or
interest relating to Stock or cash, granted to a Participant under the Plan.
(b) "Award Agreement" means any written agreement, contract, or other
instrument or document evidencing an Award.
(c) "Board" means the Board of Directors of the Corporation.
(d) "Cause" as a reason for a Participant's termination of employment shall
have the meaning assigned such term in the employment agreement, if any, between
such Participant and the Corporation or an affiliated company, provided, however
that if there is no such employment agreement in which such term is defined,
"Cause" shall mean any of the following acts by the Participant, as determined
by the Board: gross neglect of duty, prolonged absence from duty without the
consent of the Corporation, intentionally engaging in any activity that is in
conflict with or adverse to the business or other interests of the Corporation,
or willful misconduct, misfeasance or malfeasance of duty which is reasonably
determined to be detrimental to the Corporation.
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(e) "Change in Control" means and includes:
(1) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the 1934 Act) of 25% or more of the combined voting power of the then
outstanding voting securities of the Corporation entitled to vote generally
in the election of directors (the "Outstanding Corporation Voting
Securities"); provided, however, that for purposes of this subsection (1),
the following acquisitions shall not constitute a Change of Control: (i)
any acquisition by a Person who is on the Effective Date the beneficial
owner of 25% or more of the Outstanding Corporation Voting Securities, (ii)
any acquisition directly from the Corporation, (iii) any acquisition by the
Corporation, (iv) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Corporation or any corporation
controlled by the Corporation, or (v) any acquisition by any corporation
pursuant to a transaction which complies with clauses (i), (ii) and (iii)
of subsection (3) of this definition; or
(2) Individuals who, as of the Effective Date, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the Effective Date whose election, or nomination for election
by the Corporation's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or on behalf of
a Person other than the Board; or
(3) Consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the
Corporation (a "Business Combination"), in each case, unless, following
such Business Combination, (i) all or substantially all of the individuals
and entities who were the beneficial owners of the Outstanding Corporation
Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50% of the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors of the corporation resulting from
such Business Combination (including, without limitation, a corporation
which as a result of such transaction owns the Corporation or all or
substantially all of the Corporation's assets either directly or through
one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the
Outstanding Corporation Voting Securities, and (ii) no Person (excluding
any corporation resulting from such Business Combination or any employee
benefit plan (or related trust) of the Corporation or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 25% or more of the combined voting power of the then
outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination, and (iii) at
least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial agreement, or
of the action of the Board, providing for such Business Combination; or
(4) Approval by the stockholders of the Corporation of a complete
liquidation or dissolution of the Corporation.
(f) "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
(g) "Committee" means the committee of the Board described in Article 4.
(h) "Corporation" means Accredo Health, Incorporated, a Delaware
corporation.
(i) "Covered Employee" means a covered employee as defined in Code Section
162(m)(3).
(j) "Disability" shall mean any illness or other physical or mental
condition of a Participant that renders the Participant incapable of performing
his customary and usual duties for the Corporation, or any medically
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determinable illness or other physical or mental condition resulting from a
bodily injury, disease or mental disorder which, in the judgment of the
Committee, is permanent and continuous in nature. The Committee may require such
medical or other evidence as it deems necessary to judge the nature and
permanency of the Participant's condition. Notwithstanding the above, with
respect to an Incentive Stock Option, Disability shall mean Permanent and Total
Disability as defined in Section 22(e)(3) of the Code.
(k) "Effective Date" has the meaning assigned such term in Section 2.1.
(l) "Fair Market Value", on any date, means (i) if the Stock is listed on a
securities exchange or is traded over the Nasdaq National Market, the closing
sales price on such exchange or over such system on such date or, in the absence
of reported sales on such date, the closing sales price on the immediately
preceding date on which sales were reported, or (ii) if the Stock is not listed
on a securities exchange or traded over the Nasdaq National Market, the mean
between the bid and offered prices as quoted by Nasdaq for such date, provided
that if the Stock is not quoted on Nasdaq or it is determined that the fair
market value is not properly reflected by such Nasdaq quotations, Fair Market
Value will be determined by such other method as the Committee determines in
good faith to be reasonable.
(m) "Incentive Stock Option" means an Option that is intended to meet the
requirements of Section 422 of the Code or any successor provision thereto.
(n) "Non-Qualified Stock Option" means an Option that is not an Incentive
Stock Option.
(o) "Option" means a right granted to a Participant under Article 7 of the
Plan to purchase Stock at a specified price during specified time periods. An
Option may be either an Incentive Stock Option or a Non-Qualified Stock Option.
(p) "Other Stock-Based Award" means a right, granted to a Participant under
Article 12, that relates to or is valued by reference to Stock or other Awards
relating to Stock.
(q) "Parent" means a corporation which owns or beneficially owns a majority
of the outstanding voting stock or voting power of the Corporation.
Notwithstanding the above, with respect to an Incentive Stock Option, Parent
shall have the meaning set forth in Section 424(e) of the Code.
(r) "Participant" means a person who, as an employee, officer, consultant
or director of the Corporation or any Subsidiary, has been granted an Award
under the Plan.
(s) "Plan" means the Accredo Health, Incorporated 2002 Long-Term Incentive
Plan, as amended from time to time.
(t) "Restricted Stock Award" means Stock granted to a Participant under
Article 8 that is subject to certain restrictions and to risk of forfeiture.
(u) "Retirement" means a Participant's voluntary termination of employment
with the Corporation, Parent or Subsidiary after attaining age 55.
(v) "Stock" means the $.01 par value common stock of the Corporation and
such other securities of the Corporation as may be substituted for Stock
pursuant to Article 10.
(w) "Subsidiary" means any corporation, limited liability company,
partnership or other entity of which a majority of the outstanding voting stock
or voting power is beneficially owned directly or indirectly by the Corporation.
Notwithstanding the above, with respect to an Incentive Stock Option, Subsidiary
shall have the meaning set forth in Section 424(f) of the Code.
(x) "1933 Act" means the Securities Act of 1933, as amended from time to
time.
(y) "1934 Act" means the Securities Exchange Act of 1934, as amended from
time to time.
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ARTICLE 4
ADMINISTRATION
4.1. Committee. The Plan shall be administered by a committee appointed
by the Board (which Committee shall consist of two or more directors) or, at the
discretion of the Board from time to time, the Plan may be administered by the
Board. The Committee shall consist of two or more members of the Board. It is
intended that the directors appointed to serve on the Committee shall be
"non-employee directors" (within the meaning of Rule 16b-3 promulgated under the
1934 Act) and "outside directors" (within the meaning of Code Section 162(m) and
the regulations thereunder) to the extent that Rule 16b-3 and, if necessary for
relief from the limitation under Code Section 162(m) and such relief is sought
by the Corporation, Code Section 162(m), respectively, are applicable. However,
the mere fact that a Committee member shall fail to qualify under either of the
foregoing requirements shall not invalidate any Award made by the Committee
which Award is otherwise validly made under the Plan. The members of the
Committee shall be appointed by, and may be changed at any time and from time to
time in the discretion of, the Board. During any time that the Board is acting
as administrator of the Plan, it shall have all the powers of the Committee
hereunder, and any reference herein to the Committee (other than in this Section
4.1) shall include the Board.
4.2 Action by the Committee. For purposes of administering the Plan, the
following rules of procedure shall govern the Committee. A majority of the
Committee shall constitute a quorum. The acts of a majority of the members
present at any meeting at which a quorum is present, and acts approved
unanimously in writing by the members of the Committee in lieu of a meeting,
shall be deemed the acts of the Committee. Each member of the Committee is
entitled to, in good faith, rely or act upon any report or other information
furnished to that member by any officer or other employee of the Corporation or
any Parent or Subsidiary, the Corporation's independent certified public
accountants, or any executive compensation consultant or other professional
retained by the Corporation to assist in the administration of the Plan.
4.3 Authority of Committee. Except as provided below, the Committee has
the exclusive power, authority and discretion to:
(a) Designate Participants;
(b) Determine the type or types of Awards to be granted to each
Participant;
(c) Determine the number of Awards to be granted and the number of shares
of Stock to which an Award will relate;
(d) Determine the terms and conditions of any Award granted under the Plan,
including but not limited to, the exercise price, grant price, or purchase
price, any restrictions or limitations on the Award, any schedule for lapse of
forfeiture restrictions or restrictions on the exercisability of an Award, and
accelerations or waivers thereof, based in each case on such considerations as
the Committee in its sole discretion determines;
(e) Accelerate the vesting or lapse of restrictions of any outstanding
Award, based in each case on such considerations as the Committee in its sole
discretion determines;
(f) Determine whether, to what extent, and under what circumstances an
Award may be settled in, or the exercise price of an Award may be paid in, cash,
Stock, other Awards, or other property, or an Award may be canceled, forfeited,
or surrendered;
(g) Prescribe the form of each Award Agreement, which need not be identical
for each Participant;
(h) Decide all other matters that must be determined in connection with an
Award;
(i) Establish, adopt or revise any rules and regulations as it may deem
necessary or advisable to administer the Plan;
(j) Make all other decisions and determinations that may be required under
the Plan or as the Committee deems necessary or advisable to administer the
Plan;
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(k) Amend the Plan or any Award Agreement as provided herein; and
(l) Adopt such modifications, procedures, and subplans as may be necessary
or desirable to comply with provisions of the laws of non-U.S. jurisdictions in
which the Corporation or any Parent or Subsidiary may operate, in order to
assure the viability of the benefits of Awards granted to participants located
in such other jurisdictions and to meet the objectives of the Plan.
Notwithstanding the above, the Board or the Committee may expressly
delegate to one or more officers of the Corporation some or all of the
Committee's authority under subsections (a) and (c) above; provided that such
delegation shall be limited to a number of Awards specified by the Committee;
and provided further that no officer may grant Awards to himself or to eligible
Participants who, at the time of grant, are or are anticipated to become, either
(i) Covered Employees or (ii) persons subject to the insider trading
restrictions of Section 16 of the 1934 Act.
4.4. Decisions Binding. The Committee's interpretation of the Plan, any
Awards granted under the Plan, any Award Agreement and all decisions and
determinations by the Committee with respect to the Plan are final, binding, and
conclusive on all parties.
ARTICLE 5
SHARES SUBJECT TO THE PLAN
5.1. Number of Shares. Subject to adjustment as provided in Section 10.1,
the aggregate number of shares of Stock reserved and available for Awards shall
be 2,600,000, of which not more than 10% may be granted as Awards of Restricted
Stock.
5.2. Lapsed Awards. To the extent that an Award is canceled, terminates,
expires or lapses for any reason, any shares of Stock subject to the Award will
again be available for the grant of an Award under the Plan.
5.3. Stock Distributed. Any Stock distributed pursuant to an Award may
consist, in whole or in part, of authorized and unissued Stock, treasury Stock
or Stock purchased on the open market.
5.4. Limitation on Awards. Notwithstanding any provision in the Plan to
the contrary (but subject to adjustment as provided in Section 10.1), the
maximum number of shares of Stock with respect to one or more Options that may
be granted during any one calendar year under the Plan to any one Participant
shall be 500,000. The maximum fair market value (measured as of the date of
grant) of any Restricted Stock Awards that may be received by any one
Participant (less any consideration paid by the Participant for such Award)
during any one calendar year under the Plan shall be $2,000,000.
ARTICLE 6
ELIGIBILITY
6.1. General. Awards may be granted only to individuals who are
employees, officers, consultants or directors of the Corporation or a Parent or
Subsidiary; provided, however, that to the extent necessary to preserve the
employee benefits plan exemption under applicable state blue sky laws, no
non-employee director or consultant of the Corporation will be eligible to
receive Awards under the Plan until such time, if any, as the Corporation's
common stock shall be traded on a national securities exchange or on the Nasdaq
National Market.
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ARTICLE 7
STOCK OPTIONS
7.1. General. The Committee is authorized to grant Options to
Participants on the following terms and conditions:
(a) Exercise Price. The exercise price per share of Stock under an Option
shall be determined by the Committee, provided that the exercise price for any
Option shall not be less than the Fair Market Value as of the date of the grant.
(b) Time and Conditions of Exercise. The Committee shall determine the
time or times at which an Option may be exercised in whole or in part, subject
to Section 7.1(e). The Committee also shall determine the performance or other
conditions, if any, that must be satisfied before all or part of an Option may
be exercised or vested. The Committee may waive any exercise or vesting
provisions at any time in whole or in part based upon factors as the Committee
may determine in its sole discretion so that the Option becomes exercisable or
vested at an earlier date. The Committee may permit an arrangement whereby
receipt of Stock upon exercise of an Option is delayed until a specified future
date.
(c) Payment. The Committee shall determine the methods by which the
exercise price of an Option may be paid, the form of payment, including, without
limitation, cash, shares of Stock, or other property (including "cashless
exercise" arrangements), and the methods by which shares of Stock shall be
delivered or deemed to be delivered to Participants; provided, however, that if
shares of Stock are used to pay the exercise price of an Option, such shares
must have been held by the Participant for at least six months.
(d) Evidence of Grant. All Options shall be evidenced by a written Award
Agreement between the Corporation and the Participant. The Award Agreement shall
include such provisions, not inconsistent with the Plan, as may be specified by
the Committee.
(e) Exercise Term. In no event may any Option be exercisable for more than
ten years from the date of its grant.
7.2. Incentive Stock Options. The terms of any Incentive Stock Options
granted under the Plan must comply with the following additional rules:
(a) Exercise Price. The exercise price per share of Stock shall be set by
the Committee, provided that the exercise price for any Incentive Stock Option
shall not be less than the Fair Market Value as of the date of the grant.
(b) Exercise. In no event may any Incentive Stock Option be exercisable
for more than ten years from the date of its grant.
(c) Lapse of Option. An Incentive Stock Option shall lapse under the
earliest of the following circumstances; provided, however, that the Committee
may, prior to the lapse of the Incentive Stock Option under the circumstances
described in paragraphs (3), (4) and (5) below, provide in writing that the
Option will extend until a later date, but if the Option is exercised after the
dates specified in paragraphs (3), (4) and (5) below, it will automatically
become a Non-Qualified Stock Option:
(1) The Incentive Stock Option shall lapse as of the option expiration
date set forth in the Award Agreement.
(2) The Incentive Stock Option shall lapse ten years after it is
granted, unless an earlier time is set in the Award Agreement.
(3) If the Participant terminates employment for any reason other than
as provided in paragraph (4) or (5) below, the Incentive Stock Option shall
lapse, unless it is previously exercised, three months after the
Participant's termination of employment; provided, however, that if the
Participant's employment is terminated by the Corporation for Cause or by
the Participant without the consent of the Corporation, the Incentive Stock
Option shall (to the extent not previously exercised) lapse immediately.
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(4) If the Participant terminates employment by reason of his
Disability, the Incentive Stock Option shall lapse, unless it is previously
exercised, one year after the Participant's termination of employment.
(5) If the Participant dies while employed, or during the three-month
period described in paragraph (3) or during the one-year period described
in paragraph (4) and before the Option otherwise lapses, the Option shall
lapse one year after the Participant's death. Upon the Participant's death,
any exercisable Incentive Stock Options may be exercised by the
Participant's beneficiary, determined in accordance with Section 9.5.
Unless the exercisability of the Incentive Stock Option is accelerated as
provided in Article 9, if a Participant exercises an Option after termination of
employment, the Option may be exercised only with respect to the shares that
were otherwise vested on the Participant's termination of employment.
(d) Individual Dollar Limitation. The aggregate Fair Market Value
(determined as of the time an Award is made) of all shares of Stock with respect
to which Incentive Stock Options are first exercisable by a Participant in any
calendar year may not exceed $100,000.00.
(e) Ten Percent Owners. No Incentive Stock Option shall be granted to any
individual who, at the date of grant, owns stock possessing more than ten
percent of the total combined voting power of all classes of stock of the
Corporation or any Parent or Subsidiary unless the exercise price per share of
such Option is at least 110% of the Fair Market Value per share of Stock at the
date of grant and the Option expires no later than five years after the date of
grant.
(f) Expiration of Incentive Stock Options. No Award of an Incentive Stock
Option may be made pursuant to the Plan after the day immediately prior to the
tenth anniversary of the Effective Date.
(g) Right to Exercise. During a Participant's lifetime, an Incentive Stock
Option may be exercised only by the Participant or, in the case of the
Participant's Disability, by the Participant's guardian or legal representative.
(h) Directors. The Committee may not grant an Incentive Stock Option to a
non-employee director. The Committee may grant an Incentive Stock Option to a
director who is also an employee of the Corporation or Parent or Subsidiary but
only in that individual's position as an employee and not as a director.
ARTICLE 8
RESTRICTED STOCK AWARDS
8.1. Grant of Restricted Stock. The Committee is authorized to make
Awards of Restricted Stock to Participants in such amounts and subject to such
terms and conditions as may be selected by the Committee. All Awards of
Restricted Stock shall be evidenced by a Restricted Stock Award Agreement.
8.2. Issuance and Restrictions. Restricted Stock shall be subject to such
restrictions on transferability and other restrictions as the Committee may
impose (including, without limitation, limitations on the right to vote
Restricted Stock or the right to receive dividends on the Restricted Stock).
These restrictions may lapse separately or in combination at such times, under
such circumstances, in such installments, upon the satisfaction of performance
goals or otherwise, as the Committee determines at the time of the grant of the
Award or thereafter.
8.3. Forfeiture. Except as otherwise determined by the Committee at the
time of the grant of the Award or thereafter, upon termination of employment
during the applicable restriction period or upon failure to satisfy a
performance goal during the applicable restriction period, Restricted Stock that
is at that time subject to restrictions shall be forfeited and reacquired by the
Corporation; provided, however, that the Committee may provide in any Award
Agreement that restrictions or forfeiture conditions relating to Restricted
Stock will be waived in whole or in part in the event of terminations resulting
from specified causes, and the Committee may in other cases waive in whole or in
part restrictions or forfeiture conditions relating to Restricted Stock.
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8.4. Certificates for Restricted Stock. Restricted Stock granted under
the Plan may be evidenced in such manner as the Committee shall determine. If
certificates representing shares of Restricted Stock are registered in the name
of the Participant, certificates must bear an appropriate legend referring to
the terms, conditions, and restrictions applicable to such Restricted Stock.
ARTICLE 9
PROVISIONS APPLICABLE TO AWARDS
9.1. Stand-Alone, Tandem, and Substitute Awards. Awards granted under the
Plan may, in the discretion of the Committee, be granted either alone or in
addition to, in tandem with, or in substitution for, any other Award granted
under the Plan. If an Award is granted in substitution for another Award, the
Committee may require the surrender of such other Award in consideration of the
grant of the new Award. Awards granted in addition to or in tandem with other
Awards may be granted either at the same time as or at a different time from the
grant of such other Awards.
9.2. Term of Award. The term of each Award shall be for the period as
determined by the Committee, provided that in no event shall the term of any
Incentive Stock Option exceed a period of ten years from the date of its grant
(or, if Section 7.2(e) applies, five years from the date of its grant).
9.3. Form of Payment for Awards. Subject to the terms of the Plan and any
applicable law or Award Agreement, payments or transfers to be made by the
Corporation or a Parent or Subsidiary on the grant or exercise of an Award may
be made in such form as the Committee determines at or after the time of grant,
including without limitation, cash, Stock, other Awards, or other property, or
any combination, and may be made in a single payment or transfer, in
installments, or on a deferred basis, in each case determined in accordance with
rules adopted by, and at the discretion of, the Committee.
9.4. Limits on Transfer. No right or interest of a Participant in any
unexercised or restricted Award may be pledged, encumbered, or hypothecated to
or in favor of any party other than the Corporation or a Parent or Subsidiary,
or shall be subject to any lien, obligation, or liability of such Participant to
any other party other than the Corporation or a Parent or Subsidiary. No
unexercised or restricted Award shall be assignable or transferable by a
Participant other than by will or the laws of descent and distribution or,
except in the case of an Incentive Stock Option, pursuant to a domestic
relations order that would satisfy Section 414(p)(1)(A) of the Code if such
Section applied to an Award under the Plan; provided, however, that the
Committee may (but need not) permit other transfers where the Committee
concludes that such transferability (i) does not result in accelerated taxation,
(ii) does not cause any Option intended to be an Incentive Stock Option to fail
to be described in Code Section 422(b), and (iii) is otherwise appropriate and
desirable, taking into account any factors deemed relevant, including without
limitation, any state or federal tax or securities laws or regulations
applicable to transferable Awards.
9.5. Beneficiaries. Notwithstanding Section 9.4, a Participant may, in
the manner determined by the Committee, designate a beneficiary to exercise the
rights of the Participant and to receive any distribution with respect to any
Award upon the Participant's death. A beneficiary, legal guardian, legal
representative, or other person claiming any rights under the Plan is subject to
all terms and conditions of the Plan and any Award Agreement applicable to the
Participant, except to the extent the Plan and Award Agreement otherwise
provide, and to any additional restrictions deemed necessary or appropriate by
the Committee. If no beneficiary has been designated or survives the
Participant, payment shall be made to the Participant's estate. Subject to the
foregoing, a beneficiary designation may be changed or revoked by a Participant
at any time provided the change or revocation is filed with the Committee.
9.6. Stock Certificates. All Stock issuable under the Plan is subject to
any stop-transfer orders and other restrictions as the Committee deems necessary
or advisable to comply with federal or state securities laws, rules and
regulations and the rules of any national securities exchange or automated
quotation system on which the Stock is listed, quoted, or traded. The Committee
may place legends on any Stock certificate to reference restrictions applicable
to the Stock.
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9.7. Acceleration Upon Death, Retirement or Disability. Except as
otherwise provided in the Award Agreement, upon the Participant's death,
Retirement or Disability during his employment or service as a consultant or
director, all outstanding Options shall become fully exercisable and all
restrictions on outstanding Restricted Stock Awards shall lapse. Any Option
shall thereafter continue or lapse in accordance with the other provisions of
the Plan and the Award Agreement. To the extent that this provision causes
Incentive Stock Options to exceed the dollar limitation set forth in Section
7.2(d), the excess Options shall be deemed to be Non-Qualified Stock Options.
9.8. Acceleration Upon a Change in Control. Except as otherwise provided
in the Award Agreement, upon the occurrence of a Change in Control, all
outstanding Options shall become fully exercisable and all restrictions on
outstanding Awards shall lapse. To the extent that this provision causes
Incentive Stock Options to exceed the dollar limitation set forth in Section
7.2(d), the excess Options shall be deemed to be Non-Qualified Stock Options.
9.9. Acceleration for any Other Reason. Regardless of whether an event
has occurred as described in Section 9.7 or 9.8 above, the Committee may in its
sole discretion at any time determine that all or a portion of a Participant's
Options shall become fully or partially exercisable, and/or that all or a part
of the restrictions on all or a portion of the outstanding Restricted Stock
Awards shall lapse, in each case, as of such date as the Committee may, in its
sole discretion, declare. The Committee may discriminate among Participants and
among Awards granted to a Participant in exercising its discretion pursuant to
this Section 9.10.
9.10. Effect of Acceleration. If an Award is accelerated under Section
9.8 or 9.9, the Committee may, in its sole discretion, provide (i) that the
Award will expire after a designated period of time after such acceleration to
the extent not then exercised, (ii) that the Award will be settled in cash
rather than Stock, (iii) that, if the Award will be assumed by another party to
a transaction giving rise to the acceleration or otherwise be equitably
converted or substituted in connection with such transaction, (iv) that the
Award may be settled by payment in cash or cash equivalents equal to the excess
of the Fair Market Value of the underlying Stock, as of a specified date
associated with the transaction, over the exercise price of the Award, or (v)
any combination of the foregoing. The Committee's determination need not be
uniform and may be different for different Participants whether or not such
Participants are similarly situated.
9.11. Performance Goals. The Committee may determine that any Award
granted pursuant to this Plan to a Participant (including, but not limited to,
Participants who are Covered Employees) shall be determined solely on the basis
of (a) the achievement by the Corporation or a Parent or Subsidiary of a
specified target return, or target growth in return, on equity or assets, (b)
the achievement by the Corporation or a Parent or Subsidiary of a specified
target total stockholder return (stock price appreciation plus reinvested
dividends), or target growth in total stockholder return, (c) the Corporation's,
Parent's or Subsidiary's stock price, (d) the achievement by an individual or a
business unit of the Corporation, Parent or Subsidiary of a specified target, or
target growth in, revenues, net income or earnings per share, or (e) any
combination of the goals set forth in (a) through (d) above. If an Award is made
on such basis, the Committee shall establish goals prior to the beginning of the
period for which such performance goal relates (or such later date as may be
permitted under Code Section 162(m) or the regulations thereunder) and the
Committee has the right for any reason to reduce (but not increase) any Award,
notwithstanding the achievement of a specified goal. Any payment of an Award
granted with performance goals shall be conditioned on the written certification
of the Committee in each case that the performance goals and any other material
conditions were satisfied.
9.14. Termination of Employment. Whether military, government or other
service or other leave of absence shall constitute a termination of employment
shall be determined in each case by the Committee at its discretion, and any
determination by the Committee shall be final and conclusive. A termination of
employment shall not occur (i) in a circumstance in which a Participant
transfers from the Corporation to one of its Parents or Subsidiaries, transfers
from a Parent or Subsidiary to the Corporation, or transfers from one Parent or
Subsidiary to another Parent or Subsidiary, or (ii) in the discretion of the
Committee as specified at or prior to such occurrence, in the case of a
spin-off, sale, or disposition of the Participant's employer from
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the Corporation or any Parent or Subsidiary. To the extent that this provision
causes Incentive Stock Options to extend beyond three months from the date a
Participant is deemed to be an employee of the Corporation, a Parent or
Subsidiary for purposes of Section 424(f) of the Code, the Options held by such
Participant shall be deemed to be Non-Qualified Stock Options.
ARTICLE 10
CHANGES IN CAPITAL STRUCTURE
10.1. General. In the event of a corporate transaction involving the
Corporation (including, without limitation, any stock dividend, stock split,
extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination or exchange of shares), the
authorization limits under Section 5.1 and 5.4 shall be adjusted
proportionately, and the Committee may adjust Awards to preserve the benefits or
potential benefits of the Awards. Action by the Committee may include: (i)
adjustment of the number and kind of shares which may be delivered under the
Plan; (ii) adjustment of the number and kind of shares subject to outstanding
Awards; (iii) adjustment of the exercise price of outstanding Awards; and (iv)
any other adjustments that the Committee determines to be equitable. In
addition, the Committee may, in its sole discretion, provide (i) that Awards
will be settled in cash rather than Stock, (ii) that Awards will become
immediately vested and exercisable and will expire after a designated period of
time to the extent not then exercised, (iii) that Awards will be assumed by
another party to a transaction or otherwise be equitably converted or
substituted in connection with such transaction, (iv) that outstanding Awards
may be settled by payment in cash or cash equivalents equal to the excess of the
Fair Market Value of the underlying Stock, as of a specified date associated
with the transaction, over the exercise price of the Award, or (v) any
combination of the foregoing. The Committee's determination need not be uniform
and may be different for different Participants whether or not such Participants
are similarly situated. Without limiting the foregoing, in the event a stock
dividend or stock split is declared upon the Stock, the authorization limits
under Section 5.1 and 5.4 shall be increased proportionately, and the shares of
Stock then subject to each Award shall be increased proportionately without any
change in the aggregate purchase price therefor.
ARTICLE 11
AMENDMENT, MODIFICATION AND TERMINATION
11.1. Amendment, Modification and Termination. Subject to Section 11.2,
the Board or the Committee may, at any time and from time to time, amend, modify
or terminate the Plan without stockholder approval; provided, however, that the
Board or Committee may condition any amendment or modification on the approval
of stockholders of the Corporation if such approval is necessary or deemed
advisable with respect to tax, securities, or other applicable laws, policies,
or regulations; and provided further that the last sentence of Section 11.2 may
not be amended or modified without stockholder approval.
11.2. Awards Previously Granted. No termination, amendment, or
modification of the Plan shall adversely affect any Award previously granted
under the Plan, without the written consent of the Participant. At any time and
from time to time, the Committee may amend, modify or terminate any outstanding
Award without approval of the Participant; provided, however, that:
(a) subject to the terms of the applicable Award Agreement, such amendment,
modification, or termination shall not, without the Participant's consent,
reduce or diminish the value of such Award determined as if the Award had been
exercised, vested, cashed in or otherwise settled on the date of such amendment
or termination;
(b) the original term of any Option may not be extended without the prior
approval of the stockholders of the Company; and
(c) except as otherwise provided in Article 10, the exercise price of any
Option may not be reduced, directly or indirectly, without the prior approval of
the stockholders of the Company.
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ARTICLE 12
GENERAL PROVISIONS
12.1. No Rights to Awards. No Participant or any eligible participant
shall have any claim to be granted any Award under the Plan, and neither the
Corporation nor the Committee is obligated to treat Participants or eligible
participants uniformly.
12.2. No Stockholder Rights. No Award gives the Participant any of the
rights of a stockholder of the Corporation unless and until shares of Stock are
in fact issued to such person in connection with such Award.
12.3. Withholding. The Corporation or any Parent or Subsidiary shall have
the authority and the right to deduct or withhold, or require a Participant to
remit to the Corporation, an amount sufficient to satisfy federal, state, and
local taxes (including the Participant's FICA obligation) required by law to be
withheld with respect to any taxable event arising as a result of the Plan. With
respect to withholding required upon any taxable event under the Plan, the
Committee may, at the time the Award is granted or thereafter, require or permit
that any such withholding requirement be satisfied, in whole or in part, by
withholding from the Award shares of Stock having a Fair Market Value on the
date of withholding equal to the minimum amount (and not any greater amount)
required to be withheld for tax purposes, all in accordance with such procedures
as the Committee establishes.
12.4. No Right to Continued Service. Nothing in the Plan or any Award
Agreement shall interfere with or limit in any way the right of the Corporation
or any Parent or Subsidiary to terminate any Participant's employment or status
as an officer, director or consultant at any time, nor confer upon any
Participant any right to continue as an employee, officer, director or
consultant of the Corporation or any Parent or Subsidiary.
l2.5. Unfunded Status of Awards. The Plan is intended to be an "unfunded"
plan for incentive and deferred compensation. With respect to any payments not
yet made to a Participant pursuant to an Award, nothing contained in the Plan or
any Award Agreement shall give the Participant any rights that are greater than
those of a general creditor of the Corporation or any Parent or Subsidiary.
12.6. Indemnification. To the extent allowable under applicable law, each
member of the Committee shall be indemnified and held harmless by the
Corporation from any loss, cost, liability, or expense that may be imposed upon
or reasonably incurred by such member in connection with or resulting from any
claim, action, suit, or proceeding to which such member may be a party or in
which he may be involved by reason of any action or failure to act under the
Plan and against and from any and all amounts paid by such member in
satisfaction of judgment in such action, suit, or proceeding against him
provided he gives the Corporation an opportunity, at its own expense, to handle
and defend the same before he undertakes to handle and defend it on his own
behalf. The foregoing right of indemnification shall not be exclusive of any
other rights of indemnification to which such persons may be entitled under the
Corporation's Certificate of Incorporation or Bylaws, as a matter of law, or
otherwise, or any power that the Corporation may have to indemnify them or hold
them harmless.
12.7. Relationship to Other Benefits. No payment under the Plan shall be
taken into account in determining any benefits under any pension, retirement,
savings, profit sharing, group insurance, welfare or benefit plan of the
Corporation or any Parent or Subsidiary unless provided otherwise in such other
plan.
12.8. Expenses. The expenses of administering the Plan shall be borne by
the Corporation and its Parents or Subsidiaries.
12.9. Titles and Headings. The titles and headings of the Sections in the
Plan are for convenience of reference only, and in the event of any conflict,
the text of the Plan, rather than such titles or headings, shall control.
12.10. Gender and Number. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine; the
plural shall include the singular and the singular shall include the plural.
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12.11. Fractional Shares. No fractional shares of Stock shall be issued
and the Committee shall determine, in its discretion, whether cash shall be
given in lieu of fractional shares or whether such fractional shares shall be
eliminated by rounding up.
12.12. Government and Other Regulations. The obligation of the
Corporation to make payment of awards in Stock or otherwise shall be subject to
all applicable laws, rules, and regulations, and to such approvals by government
agencies as may be required. The Corporation shall be under no obligation to
register under the 1933 Act, or any state securities act, any of the shares of
Stock issued in connection with the Plan. The shares issued in connection with
the Plan may in certain circumstances be exempt from registration under the 1933
Act, and the Corporation may restrict the transfer of such shares in such manner
as it deems advisable to ensure the availability of any such exemption.
12.13. Governing Law. To the extent not governed by federal law, the Plan
and all Award Agreements shall be construed in accordance with and governed by
the laws of the State of Tennessee.
12.14. Additional Provisions. Each Award Agreement may contain such other
terms and conditions as the Committee may determine; provided that such other
terms and conditions are not inconsistent with the provisions of this Plan.
The foregoing is hereby acknowledged as being the Accredo Health,
Incorporated 2002 Long-Term Incentive Plan as adopted by the Board of Directors
of the Corporation on , 2002 and approved by the stockholders of the
Corporation on , 2002.
ACCREDO HEALTH, INCORPORATED
By:
--------------------
Thomas W. Bell, Jr.
Senior Vice President and Secretary
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Accredo's Amended and Restated Certificate of Incorporation provides that
Accredo shall, to the fullest extent permitted by Section 145 of the Delaware
General Corporation Law, as amended from time to time, indemnify its officers
and directors.
Section 145 permits a corporation, under specified circumstances, to
indemnify its directors, officers, employees or agents against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by them in connection with any action, suit or
proceeding brought by third parties by reason of the fact that they were or are
directors, officers, employees or agents of the corporation, if such directors,
officers, employees or agents acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reason to believe their conduct was unlawful. In a derivative action, i.e., one
by or in the name of the corporation, indemnification may be made only for
expenses actually and reasonably incurred by directors, officers, employees or
agents in connection with the defense or settlement of any action or suit, and
only with respect to a matter as to which they shall have acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made if
such person shall have been adjudged liable to the corporation, unless and only
to the extent that the court in which the action or suit was brought shall
determine upon application that the defendant directors, officers, employees or
agents are fairly and reasonably entitled to indemnity for such expenses despite
such adjudication of liability.
Accredo's Amended and Restated Certificate of Incorporation contains a
provision which eliminates, to the fullest extent permitted by the Delaware
General Corporation Law, director liability for monetary damages for breaches of
the fiduciary duty of care or any other duty as a director.
Accredo has purchased a policy of director's and officer's insurance that
would in certain instances provide the funds necessary for Accredo to meet its
indemnification obligations under its Amended and Restated Certificate of
Incorporation.
ITEM 21. EXHIBITS
The following exhibits are filed herein or have been, as noted, previously
filed:
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
2.1 -- Asset Purchase Agreement, dated as of January 2, 2002, by
and between Accredo Health, Incorporated, Gentiva Health
Services, Inc. and the Sellers named therein (Included as
Annex A to the joint proxy statement-prospectus included in
this Registration Statement)
4.1 -- Form of Voting Agreement, dated January 2, 2002 between
Accredo Health, Incorporated and certain stockholders of
Gentiva Health Services, Inc. (Included as Annex B to the
joint proxy statement-prospectus included in this
Registration Statement)
5.1 -- Form of opinion of Alston & Bird LLP
8.1 -- Opinion of Cahill Gordon & Reindel regarding certain tax
matters*
21.1 -- Subsidiaries of the Registrant+
23.1 -- Consent of Ernst & Young LLP*
23.2 -- Consent of PricewaterhouseCoopers LLP*
23.3 -- Consent of Alston & Bird LLP (included in Exhibit 5.1)
23.4 -- Consent of Lehman Brothers+
23.5 -- Consent of Thomas Weisel Partners (included in Annex D to
the joint proxy statement-prospectus included in this
Registration Statement)
</Table>
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<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
23.6 -- Consent of Cahill Gordon & Reindel (included in Exhibit
8.1)*
24.1 -- Power of Attorney+
99.1 -- Form of Proxy of Gentiva Health Services, Inc.
99.2 -- Form of Proxy of Accredo Health, Incorporated
99.3 -- Letter to Shareholders and Notice of Special Meeting of
Gentiva Health Services, Inc.
99.4 -- Letter to Shareholders and Notice of Special Meeting of
Accredo Health, Incorporated
</Table>
- ---------------
+Previously filed.
* To be filed by amendment.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the registration statement 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.
(2) 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
SEC 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.
(3) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form S-4, within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed subsequent to
the effective date of the registration statement through the date of
responding to the request.
(4) 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.
(5) That prior to any public reoffering of the securities registered
hereunder through the 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.
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(6) That every prospectus: (i) that is filed pursuant to Paragraph (7)
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.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this amendment to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Memphis,
State of Tennessee on this the 20th day of March, 2002.
By: /s/ DAVID D. STEVENS
------------------------------------
David D. Stevens
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on behalf
of the registrant in the capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ DAVID D. STEVENS Chief Executive Officer March 20, 2002
------------------------------------------------ (Principal Executive Officer)
David D. Stevens
* Senior Vice President and Chief March 20, 2002
------------------------------------------------ Financial Officer (Principal
Joel R. Kimbrough Financial and Accounting Officer)
* Director March 20, 2002
------------------------------------------------
Patrick J. Welsh
* Director March 20, 2002
------------------------------------------------
John R. Grow
* Director March 20, 2002
------------------------------------------------
Kenneth R. Masterson
* Director March 20, 2002
------------------------------------------------
Kenneth J. Melkus
Director
------------------------------------------------
Kevin L. Roberg
* Director March 20, 2002
------------------------------------------------
Kyle J. Callahan
* Director March 20, 2002
------------------------------------------------
Dick R. Gourley
*By: /s/ THOMAS W. BELL, JR.
------------------------------------------
Thomas W. Bell, Jr.
Attorney-in-Fact
</Table>
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