UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION
STATEMENT UNDER SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
Lincare Holdings Inc.
(Name of Subject Company)
Lincare
Holdings Inc.
(Names of Persons Filing Statement)
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Class of Securities)
532791100
(CUSIP Number of Class of Securities)
John P. Byrnes
Chief Executive Officer
Lincare Holdings Inc.
19387 US 19 North
Clearwater, Florida 33764
(727) 530-7700
With copies to:
Michael J. Aiello
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
(212) 310-8000
(Name, address, and telephone numbers of person
authorized to receive notices and communications on behalf of the persons filing statement)
¨
Check the box if the filing relates solely to preliminary communications made before the commencement
of a tender offer.
Table of Contents
i
ITEM 1.
SUBJECT COMPANY
INFORMATION.
Name and Address.
The name of the subject company to which this Solicitation/Recommendation Statement on Schedule 14D-9 (together with any exhibits and
annexes attached hereto, this
Schedule 14D-9
) relates is Lincare Holdings Inc., a Delaware corporation (the
Company
,
we
or
us
). The
Companys principal executive office is located at 19387 US 19 North, Clearwater, Florida 33764. The Companys telephone number at such address is (727) 530-7700.
Securities.
The title of the class of
equity securities to which this Schedule 14D-9 relates is the Companys common stock, par value $0.01 per share (each, a
Share
). As of July 9, 2012, there were 86,440,611 Shares issued and outstanding.
ITEM 2.
IDENTITY AND BACKGROUND OF FILING PERSON.
Name and Address.
The filing person is the subject company. The name, business address and business telephone number of the Company are set forth above in
Item 1. Subject Company Information Name and
Address.
Offer.
This Schedule 14D-9 relates to the tender offer by Linde US Inc., a Delaware corporation (
Purchaser
) and a wholly owned indirect subsidiary of Linde AG, a stock corporation
organized under the laws of Germany (
Parent
and together with Purchaser, the
Offerors
) to purchase all of the issued and outstanding Shares at a purchase price of $41.50 per Share (the
Offer Price
), subject to any required withholding of taxes, net to the seller in cash and without any interest thereon, on the terms and subject to the conditions provided for in the Offer to Purchase, dated July 11, 2012
(as amended or supplemented from time to time, the
Offer to Purchase
), and the related Letter of Transmittal (as amended or supplemented from time to time, the
Letter of Transmittal
, and, together
with the Offer to Purchase, the
Offer
). The Shares will be purchased by Purchaser. The Offer is described in a Tender Offer Statement on Schedule TO (as amended or supplemented from time to time, the
Schedule
TO
), filed by the Offerors with the Securities and Exchange Commission (the
SEC
) on July 11, 2012. The Offer to Purchase and the Letter of Transmittal are filed as Exhibits (a)(1) and (a)(2) to this Schedule
14D-9, respectively, and are hereby incorporated herein by reference.
The Offer is being made pursuant to an Agreement and
Plan of Merger, dated as of July 1, 2012 (as amended or modified from time to time, the
Merger Agreement
), among the Company, Parent and Purchaser. The Merger Agreement provides, among other things, that following the
consummation of the Offer and subject to the satisfaction or waiver of the applicable conditions set forth in the Merger Agreement, Purchaser will be merged with and into the Company (the
Merger
), with the Company surviving
as a wholly owned indirect subsidiary of Parent (the
Surviving Corporation
). At the effective time of the Merger (the
Effective Time
), each Share not acquired in the Offer (other than (i) Shares
owned by Parent or Purchaser or Shares owned by the Company as treasury stock, which will be cancelled and will cease to exist, (ii) Shares owned by a subsidiary of the Company or a subsidiary of Parent (other than Purchaser), which will be
converted into and become shares of common stock of the surviving corporation, and (iii) Shares owned by the Companys stockholders who properly demand appraisal of their Shares pursuant to the Delaware General Corporation Law (the
DGCL
)) will be cancelled and converted into the right to receive an amount in cash equal to the Offer Price, without interest and subject to any required withholding of taxes (the
Merger
Consideration
).
The Offer is initially scheduled to expire at 12:00 midnight, New York City time, on Tuesday,
August 7, 2012 (which is the end of day on August 7, 2012), subject to extension in certain circumstances as required or permitted by the Merger Agreement, the SEC or the NASDAQ Stock Market (as so extended, if applicable, the
Expiration Time
).
The foregoing summary of the Offer is qualified in its entirety by the more detailed
description and explanation contained in the Offer to Purchase and the Letter of Transmittal.
As set forth in the Schedule
TO, the address of the principal executive offices of Parent are located at Klosterhofstrasse 1, 80331 Munich, Germany, and the telephone number at such principal offices is +49-89-35757-01. The principal offices of Purchaser are located at 575
Mountain Avenue, Murray Hill, NJ 07974, and the telephone number at such principal offices is (908) 464-8100. Upon filing this Schedule 14D-9 with the SEC, the Company will make this Schedule 14D-9 publicly available on its website at
www.lincare.com
.
ITEM 3.
PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND
AGREEMENTS.
Except as set forth in this Schedule 14D-9 or in the Information Statement attached to this
Schedule 14D-9 as
Annex A
(the
Information Statement
) and hereby incorporated herein by reference, or as otherwise incorporated herein by reference, to the knowledge of the Company, as of the date of this Schedule
14D-9, there are no material agreements, arrangements or understandings, nor any actual or potential conflicts of interest, between the Company or any of its affiliates and (i) any of the Companys executive officers, directors or
affiliates or (ii) the Offerors or any of their respective executive officers, directors or affiliates.
Relationship with the Offerors and Certain of Their Affiliates.
Merger Agreement.
On July 1, 2012, the Company, Parent and Purchaser entered into the Merger Agreement. A summary of the Merger Agreement is contained in
Section 11The Transaction Agreements
in the Offer to Purchase and is hereby incorporated herein by reference. This summary does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement, which is filed as Exhibit (e)(1) to this Schedule 14D-9 and
is hereby incorporated herein by reference.
Investors and security holders should read the Merger Agreement for a more
complete description of the provisions summarized in the Offer to Purchase. The summary provided in the Offer to Purchase has been included to provide investors and security holders with information regarding its terms and is qualified in its
entirety by the terms and conditions of the Merger Agreement. It is not intended to provide factual information about the Company, Parent or Purchaser. The Merger Agreement contains representations and warranties by each of the parties to the Merger
Agreement, which were made only for purposes of that agreement and as of specified dates. The representations, warranties and covenants in the Merger Agreement were made solely for the benefit of the parties to the Merger Agreement; may be subject
to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the Merger Agreement instead of establishing these matters as
facts; and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Investors are not third-party beneficiaries under the Merger Agreement. Investors should not rely on the
representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the Company or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject
matter of the representations, warranties and covenants may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in the Companys public disclosures.
Representation on the Board.
Upon the purchase of Shares pursuant to the Offer and for so long thereafter as Parent and its subsidiaries own in the aggregate more than 50% of the outstanding Shares on a fully-diluted basis, and
subject to compliance with applicable federal securities laws and applicable rules of NASDAQ, Parent is entitled to designate for appointment or election to the Companys board of directors (the
Board
) such number of
directors, rounded up to the nearest whole number, as is equal to the product obtained by multiplying the total
2
number of directors on the Board (after giving effect to the increase described in this sentence) by the percentage that the number of Shares owned by Parent and its subsidiaries bears to the
total number of Shares then outstanding on a fully diluted basis.
Upon the request of Parent, the Company will use its
reasonable best efforts to promptly cause Parents designees (and any replacement designees) to be so appointed or elected to the Board, including by increasing the size of the Board and/or obtaining the resignations of such number of its
incumbent directors. Notwithstanding the foregoing, until the Effective Time, the Board will include at least three directors who (i) were directors of the Company on the date of the Merger Agreement and (ii) are Qualified
Persons, which is defined as an individual who (x) is not an officer of the Company or any of its subsidiaries, (y) qualifies as an independent director for purposes of NASDAQ listing rules and (z) is eligible to
serve on the Companys audit committee under the applicable rules of the Securities Exchange Act of 1934, as amended, and NASDAQ. For more information see
Section 11
The Transaction Agreements
in the
Offer to Purchase.
The Information Statement attached as
Annex A
hereto is being furnished in connection with the
possible designation by Parent, pursuant to the Merger Agreement, of certain persons to be appointed to the Board other than at a meeting of stockholders as described in the Information Statement, and is incorporated herein by reference.
The foregoing summary of the provisions of the Merger Agreement concerning representation on the Board does not purport to be complete
and is qualified in its entirety by reference to the Merger Agreement.
Confidentiality Agreement
On April 15, 2011, the Company and Parent entered into a confidentiality agreement (the
2011 Confidentiality
Agreement
) and on May 25, 2012, the Company and Parent entered into a letter agreement pursuant to which the Company and Parent amended the terms of the 2011 Confidentiality Agreement (the
Confidentiality
Amendment
, together with the 2011 Confidentiality Agreement, the
Confidentiality Agreement
). Under the Confidentiality Agreement, Parent agreed, among other things, to keep all non-public information
concerning the Company confidential (subject to certain exceptions).
The foregoing description of the Confidentiality
Agreement does not purport to be complete and is qualified in its entirety by reference to both the 2011 Confidentiality Agreement, which has been included as Exhibit (e)(2) to this Schedule 14D-9 and the Confidentiality Amendment, which has been
included as Exhibit (e)(3) to this Schedule 14D-9 and are incorporated by reference.
Commercial Relationship
A wholly owned indirect subsidiary of the Company purchases medical gas products and related services from a wholly owned
indirect subsidiary of Parent. The total purchases made by the Company amounted to approximately $20.4 million in 2010, approximately $18.3 million in 2011 and approximately $6.5 million in the first five months of 2012.
Arrangements with Current Executive Officers and Directors of the Company.
Certain of the Companys executive officers and directors have financial interests in the transactions contemplated by the Merger
Agreement, including the Offer and the Merger, that are different from, or in addition to, the interests of stockholders generally. The Board was aware of these potentially differing interests and considered them, among other matters, in evaluating
and negotiating the Merger Agreement and in reaching its decision to approve the Merger Agreement and the transactions contemplated thereby, as more fully discussed below in
Item 4. The Solicitation or Recommendation Background and
Reasons for the Recommendation Reasons for the Recommendation
.
3
Effect of the Offer and the Merger Agreement on Equity Awards.
Treatment of Company Stock Options.
The Merger Agreement provides that, except as otherwise agreed by Parent and the holder of an Option (as defined below), immediately prior to the time at which Purchaser accepts for payment all Shares
validly tendered into the Offer and not properly withdrawn prior to the Expiration Time (such time, the
Acceptance Time
and such date, the
Acceptance Date
), each outstanding option to purchase
Shares (an
Option
) granted under the Companys stock plans or otherwise (other than the Companys 2009 Employee Stock Purchase Plan (the
ESPP
)), whether vested or unvested, will be
cancelled immediately prior to the consummation of the Offer, and the holder of such Option will receive an amount in cash equal to the product of (x) the total number of shares of common stock of the Company subject to such Option and
(y) the excess, if any, of the Offer Price over the exercise price per share of Company common stock subject to such Option, with the aggregate amount of such payment rounded down to the nearest cent (the
Option
Consideration
), less such amounts as are required to be withheld or deducted as taxes. The cash payments with respect to the Options will be delivered as soon as reasonably practicable following the Effective Time, without interest.
The table below sets forth information regarding the Options held by the Companys executive officers and directors as
of July 10, 2012 and the estimated consideration that each of them would receive after the Effective Time in connection with the cancellation of, and payment for, such Options pursuant to the Merger Agreement as described above. The below table
assumes continued employment through the Effective Time.
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Vested Options to be
Converted to Option
Consideration
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Unvested Options to be
Accelerated and Converted to
the Option
Consideration
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Name
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Number of
Shares
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Weighted
Average
Exercise
Price per
Share
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Number of
Shares
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Weighted
Average
Exercise
Price per
Share
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Total
Estimated
Option
Consideration
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Directors
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John P. Byrnes
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1,850,000
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$
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24.43
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175,000
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$
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20.38
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$
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35,267,660
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Stuart H. Altman, Ph.D.
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168,000
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26.63
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12,000
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20.38
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$
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2,751,840
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Chester B. Black
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168,000
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26.63
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12,000
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20.38
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$
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2,751,840
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Angela P. Bryant
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Frank D. Byrne, M.D.
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168,000
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26.63
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12,000
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20.38
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$
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2,751,840
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William F. Miller, III
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168,000
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26.63
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12,000
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20.38
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$
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2,751,840
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Ellen M. Zane
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Executive Officers (other than Mr. Byrnes)
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Paul G. Gabos
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950,000
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24.33
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100,000
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20.38
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18,425,830
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Shawn S. Schabel
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1,295,000
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24.47
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125,000
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20.38
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24,695,263
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Treatment of Restricted Shares.
The Merger Agreement provides that, except as otherwise agreed by Parent and the holder of any outstanding shares of restricted stock
(
Restricted Shares
), each Restricted Share granted under the Companys stock plans that has not previously vested will be converted, at the Effective Time, into the right to receive the Merger Consideration.
The table below sets forth the number of outstanding unvested Restricted Shares held by the Companys executive officers
and directors as of July 10, 2012 and the estimated Merger Consideration that each of them would receive after the Effective Time in connection with the conversion of, and payment for, such Restricted Shares pursuant to the Merger Agreement as
described above. The below table assumes continued employment through the Effective Time.
4
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Name
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Number of
Unvested
Restricted
Shares
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Estimated Merger Consideration
Payable in Respect of Unvested
Restricted Shares
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Directors
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John P. Byrnes
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1,060,000
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$
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43,990,000
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Stuart H. Altman, Ph.D.
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66,000
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$
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2,739,000
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Chester B. Black
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66,000
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$
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2,739,000
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Angela P. Bryant
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52,000
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$
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2,158,000
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Frank D. Byrne, M.D.
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66,000
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$
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2,739,000
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William F. Miller, III
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66,000
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$
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2,739,000
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Ellen M. Zane
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52,000
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$
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2,158,000
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Executive Officers (other than Mr. Byrnes)
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Paul G. Gabos
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330,000
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$
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13,695,000
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Shawn S. Schabel
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735,000
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$
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30,502,500
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Treatment of Employee Stock Purchase Plan.
The Company will take all actions necessary to suspend the ESPP so that no further offering periods commence after July 1, 2012 and
the ESPP will terminate, effective upon the earlier of the first offering following July 1, 2012 and the day immediately prior to the Acceptance Time (the
New Exercise Date
). If the New Exercise Date
occurs prior to the first offering date under the ESPP after July 1, 2012, each purchase right outstanding on such date will be automatically exercised by applying payroll deductions of each then-current participant in the ESPP for the
then-current offering period to the purchase of whole shares of Company common stock at a purchase price per share equal to the lesser of (1) 85% of the fair market value of the Shares as of the final day of the immediately preceding offering period
under the ESPP and (2) 85% of the fair market value of the Shares as of the New Exercise Date. With respect to the offering period in effect as of July 1, 2012, the Company will prevent any new participants and any increases in payroll
deductions by then-current participants.
Employment Agreements with Messrs. Byrnes, Gabos and Schabel.
The Company has employment agreements with Messrs. Byrnes, Gabos and Schabel. The respective agreements set forth the terms and conditions
of each executive officers employment for a period beginning on January 1, 2005 through December 31, 2012 for Mr. Gabos and January 1, 2005 through December 31, 2014 for Messrs. Byrnes and Schabel, or if employment
thereunder is earlier terminated, such shorter period. Each agreement provides for a base salary, annual cost of living adjustments and for such salary increases as may be determined by the Board of Directors in its sole discretion. In addition to
salary, the employment agreements provide that each such person will be eligible to receive bonus compensation based upon the achievement of the performance targets set forth in the respective agreements. During the employment term, each executive
officer will be eligible to participate in all employee benefit programs generally available to executive employees in accordance with the provisions of any such plans and will be entitled to reimbursement of certain out-of-pocket expenses incurred
in the performance of such persons duties on behalf of the Company. For additional information regarding these agreements, see
Annex AEmployment Arrangements and Potential Payments Upon Termination or Change of
Control
.
The employment agreements with Messrs. Byrnes, Gabos and Schabel provide that the employment term will end
upon the occurrence of a Change of Control (as defined below, and which will be triggered in connection with the transactions contemplated by the Merger Agreement) and provide for payments to be made to each executive officer upon a
Change of Control.
If the executives employment term ends by reason of the occurrence of a Change of Control
(regardless of whether the executive experiences a termination of employment), then the Company will pay to
5
the executive, as severance pay or liquidated damages or both, an amount equal to two times the sum of (A) his then-current annual salary in effect immediately prior to the occurrence
of such event; plus (B) the average of the bonus paid to or earned by the executive with respect to the three calendar years immediately preceding such termination; plus (C) an amount determined by the Company, in its sole discretion, to
be equal to the average annual cost for Company employees of obtaining medical, dental and vision insurance under COBRA. All amounts payable pursuant to a Change of Control will be paid no later than ten business days after the end of the
employment term.
The term Change of Control is defined in each executives employment agreement to mean any
of the following: (A) sale or other disposition (or the last such sale or other disposition) resulting in the transfer of more than 50% of the outstanding common stock of the Company to an unrelated and unaffiliated third party purchaser;
(B) the consolidation or merger of the Company or a subsidiary thereof with or into any other entity (unless immediately following such consolidation or merger, the outstanding common stock of the Company immediately prior to such consolidation
or merger continues to represent (either by remaining outstanding or being converted into voting securities of the resulting or surviving entity or any parent thereof) more than 50% of the outstanding shares of common stock and the combined
voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such consolidation or merger (including, without limitation, a corporation that
owns the Company or all or substantially all of the Companys assets either directly or through one or more subsidiaries); (C) a sale of substantially all of the properties and assets of the Company as an entirety to an unrelated and
unaffiliated third party purchaser; or (D) the time at which any person (including a persons affiliates and associates) or group (as that term is understood under Section 13(d) of the Exchange Act and the rules and regulations
thereunder), files a Schedule 13-D or 14D-1 (or any successor schedule, form or report under the Exchange Act) disclosing that such person or group has become the beneficial owner (as defined under Rule 13d-3 or any successor rule or regulation
promulgated under the Exchange Act) of shares of capital stock of the Company giving such person or group a majority of the voting power of all outstanding capital stock of the Company with the right to vote generally in an election for directors or
other capital stock of the Company into which the common stock or other voting stock is reclassified or changed.
Summary
of Certain Benefits Payable in Connection with the Contemplated Transactions
The terms and conditions related to
compensation that is based on or otherwise related to the transactions contemplated by the Merger Agreement are described in
Item 8. Additional InformationGolden Parachute Compensation
below and are incorporated herein by
reference.
Compensation Actions Between Signing of Merger Agreement and Completion of Merger.
During this interim period, the Company may, in the ordinary course of business and consistent with past practice, increase
employees base salaries and cash bonuses. However, the Company may not otherwise, among other things, increase the compensation or benefits (including loans, equity-based compensation and awards under any benefit or stock plan) of any Company
personnel in any manner. Such restrictions include, among other things, prohibiting the Company from (i) adopting, establishing, terminating, amending or modifying any restrictive covenant agreements with Company personnel in a manner that
would be adverse to the Company or any collective bargaining agreement, (ii) granting, paying, or increasing any severance, separation, change in control, retention, termination or similar compensation or benefits to Company personnel,
(iii) taking action to fund or secure the payment of compensation or benefits under any benefit plan, and (iv) taking any action to accelerate the time of payment or vesting of any compensation or benefits under any benefit plan, including
making any material determination under any benefit plan that is inconsistent with the ordinary course of business or past practice.
Employee Matters Following Closing.
The Merger Agreement provides that
from the date of the consummation of the Merger and for a period of 12 months thereafter, Parent will cause the Surviving Corporation and its subsidiaries to provide to employees
6
of the Company and its subsidiaries as of the Acceptance Time (
Company Employees
) compensation and employee benefits that, taken as a whole, are substantially comparable
in the aggregate to the compensation and employee benefits provided by the Company and its subsidiaries to Company Employees prior to the Merger; provided, however, that Parent will not be required to provide equity or equity-based compensation, and
no plans or arrangements of the Company or any of its subsidiaries providing for equity or equity based compensation will be taken into account in determining whether compensation and employee benefits are comparable in the aggregate.
Under the Merger Agreement, the service of Company Employees with the Company prior to the Effective Time will be recognized by Parent or
one of its affiliates for purposes of any waiting period, vesting, eligibility, and benefit entitlement in connection with any tax-qualified pension plan, 401(k) savings plan, paid time off, service awards, severance and other welfare benefit plans
and policies maintained by Parent or one of its affiliates which is made available to Company Employees following the Effective Time, except that service need not be recognized for purposes of any defined benefit pension plan or to the extent it
would result in duplication of benefits. With respect to participation and coverage requirements applicable to Company Employees under any welfare benefit plan made available to Company Employees following the Effective Time by Parent or one of its
affiliates, Parent will (i) waive, or cause its insurance carriers to waive, all limitations as to pre-existing and at-work conditions, if any, except to the extent that such pre-existing or at-work condition would have been applicable under
the comparable Company welfare benefit plan immediately prior to the Effective Time, and (ii) provide credit to Company Employees for any co-payments, deductibles and out-of-pocket expenses paid by such employees under the employee benefit
plans, programs and arrangements of the Company and its subsidiaries during the portion of the relevant plan year including the Effective Date.
As of the date of this Schedule 14D-9, no members of the Companys current management have entered into any agreement, arrangement or understanding with the Offerors or their affiliates to
provide continuing employment with, or the right to convert into or reinvest or participate in the equity of, Parent or the Surviving Corporation or any of its subsidiaries. The Offerors did, however, indicate in the negotiation of the Merger
Agreement, and in submitting their indications of interest to purchase all of the issued and outstanding Shares of the Company, that they intend to enter into employment agreements with certain members of the Companys current management. It is
possible that certain members of the Companys current management team will enter into arrangements with the Offerors or their affiliates regarding employment (or severance arrangements) and the right to purchase or participate in the equity of
Parent. As of the date of this Schedule 14D-9, preliminary discussions have occurred between certain members of the Companys current management and representatives of the Offerors or their affiliates regarding any such arrangements, but no
agreements have been entered into between the parties.
Indemnification; Directors and Officers
Insurance.
The Companys directors and officers are entitled under the Merger Agreement to continued
indemnification, advancement of expenses and director and officer insurance coverage. The foregoing summary does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement. For additional information regarding
these arrangements, see
Section 11The Transaction Agreements
in the Offer to Purchase.
Section 16 Matters.
Pursuant to the Merger Agreement, the Board has adopted a resolution so that the disposition of all Company equity securities pursuant to the Merger Agreement by any officer or director of the Company who
is a covered person for the purposes of Section 16 of the Securities Exchange Act of 1934, as amended (the
Exchange Act
) will be an exempt transaction for purposes of Section 16 of the Exchange Act.
7
Continuing Directors.
The Merger Agreement provides that, from the Acceptance Time until the Effective Time, at least three existing directors of the Company
will continue to serve on the Board. The foregoing summary does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement. For additional information regarding these arrangements, see
Section
11The Transaction Agreements
in the Offer to Purchase.
ITEM 4.
THE SOLICITATION
OR RECOMMENDATION.
Recommendation of the Board.
At a meeting held on July 1, 2012, the Board unanimously:
(i) approved the Merger Agreement and the transactions contemplated thereby, including the Offer and the Merger, upon the terms and subject to the conditions provided for in the Merger Agreement;
(ii) determined that each of the Merger Agreement, the Merger and the Offer is advisable, fair to and in the best interests
of the Company and its stockholders; and
(iii) resolved to recommend that the Companys stockholders accept the Offer
and tender their Shares pursuant to the Offer and, if required by applicable law, vote in favor of the adoption of the Merger Agreement.
Accordingly, and for the other reasons described in more detail below, the Board of Directors unanimously recommends that the Companys stockholders accept the Offer and tender their Shares
pursuant to the Offer and, if required, vote in favor of the adoption of the Merger Agreement.
Background
and Reasons for the Recommendation.
Background of the Offer.
As a matter of course and in their ongoing effort to enhance stockholder value, the Board and senior management of the Company regularly
review and evaluate the Companys business plan and strategy, including a review of strategic alternatives available to the Company, taking into account recent developments, trends and conditions impacting the Companys business. These
alternatives included the continued execution of the Companys strategy to improve its competitive position through internal growth and strategic business acquisitions, as well as a potential sale of the Company. This review and evaluation
continued into 2012 as the Company considered the uncertainty of recently enacted healthcare legislation affecting Medicare and Medicaid reimbursement amounts and the implementation of the competitive bidding process under Medicare.
From time to time, the Company received informal and unsolicited indications of interest from third parties expressing interest in a
potential transaction with the Company. In April 2011, after speaking with the Board, senior management of the Company met with senior management of Parent in Munich, Germany. During the meeting, senior management of the Company provided Parent with
an overview of the Companys recent financial performance, as well as certain new strategic product initiatives being developed by the Company. Following that meeting, Parent and the Company entered into a confidentiality agreement dated April
15, 2011, pursuant to which the Company would provide Parent with certain confidential information in order to assist Parent in evaluating a potential transaction with the Company. During the period from mid-April 2011 through mid-July 2011, the
Company provided Parent with certain confidential information and the Company and Parent had a series of discussions regarding a possible transaction, but both parties ultimately decided against pursuing a transaction at that time in order to focus
on their respective businesses.
After the discussions with Parent ceased in mid-July 2011, senior management of the Company
continued executing on the Companys strategy of improving its competitive position through internal growth and strategic acquisitions.
In January and February 2012, the Company received unsolicited inquiries from a third party, which we refer to as Party B, as to the Companys willingness to enter into discussions with such party
that could result
8
in a strategic relationship between the two companies, including an acquisition of the Company by Party B. During that time period, the Company also received unsolicited inquires from several
financial buyers regarding the Companys interest in a potential sale of the Company. After receiving these informal and unsolicited inquiries from third parties in early 2012, the Board determined to again consider potential strategic
alternatives for enhancing stockholder value, including the indications of interest that had been received to date. With direction from the Board, in April 2012, the Company engaged with Weil, Gotshal & Manges LLP
(
Weil
), as legal counsel and J.P. Morgan Securities LLC (
J.P. Morgan
), as financial advisor, to assist with a review of strategic alternatives available to the Company, including a possible sale of
the Company. With the assistance of senior management of the Company, J.P. Morgan identified thirteen strategic parties as potential buyers of the Company, which included five industrial gas companies, including Parent, Party A and Party B, and
eight healthcare companies. Based on publicly available information, J.P. Morgan analyzed, among other things, the strategic fit of the Company with the identified parties and the financial capability and likelihood of the identified parties to
execute a transaction. J.P. Morgan and senior management of the Company determined that financial buyers would not be likely buyers of the Company due to the nature of the Companys business and the regulatory environment in which the Company
operates (including the uncertainty surrounding Medicare reimbursement policies), as well as the low probability of financial buyers being able to make a competitive offer for the Company (as compared to strategic buyers) given the lack of synergies
and the required financial returns of financial buyers in leveraged buy-out transactions.
At a meeting of the Board on May 9,
2012, the Board discussed with senior management of the Company the status of various strategic initiatives being developed or undertaken by the Company, as well as potential alternatives for enhancing stockholder value available to the Company. At
this meeting, the Board discussed the formal engagement of J.P. Morgan as financial advisor to assist the Company in continuing to consider strategic alternatives, to respond to the inquiries that had been received by the Company and to oversee a
process for considering strategic alternatives that could result in a sale of the Company. The Board and senior management discussed, among other things, J.P. Morgans qualifications and experience in the industry and in advising companies and
boards of directors under similar circumstances. J.P. Morgan reminded the Board that it beneficially owned, as of such date, approximately 9% of the shares of the Companys common stock primarily through funds managed by J.P. Morgan on a
fiduciary basis for third parties and that it held less than 1% of the Companys common stock on a proprietary basis. After discussion, the Board resolved to formally engage J.P. Morgan as financial advisor to assist the Company.
In May 2012, as part of the process of assisting the
Company in considering strategic alternatives, J.P. Morgan approached the thirteen previously identified strategic parties to determine their interest in a potential transaction involving the Company. Of the parties contacted, three parties
expressed preliminary interest in exploring a potential transaction with the Company. To facilitate the exchange of confidential information in contemplation of a potential transaction, the Company executed confidentiality agreements with two
parties Party A and Party B on May 10, 2012 and May 15, 2012, respectively. On May 29, 2012, the Company entered into an amendment to its previous confidentiality agreement with Parent dated April 15, 2011.
The first stage of the process consisted of senior management presentations to the interested parties with supporting due diligence
information about the Company contained in an information memorandum provided to the three interested parties. During May 2012, the Companys senior management and representatives of J.P. Morgan had in-person meetings and engaged in discussions
with each of these parties. The interested parties were provided with, among other things, a general overview of the Companys business and industry dynamics and managements financial forecasts for the Company through 2015. Subsequent to
these meetings, on May 30, 2012, J.P. Morgan instructed each of these three parties to submit to J.P. Morgan a non-binding written indication of interest regarding a potential acquisition of the Company by 12:00 p.m. (Eastern time) on June 15, 2012.
On June 14, 2012, Party B informed J.P. Morgan that it would not submit an indication of interest to acquire the Company
given its perspective with respect to the Companys business and industry, generally.
9
On June 15, 2012, Party A submitted a non-binding indication of interest to acquire the
Company for $33.00 to $34.00 per share. The Companys stock price closed at $26.54 on June 15, 2012.
On June 18, 2012,
Parent submitted a non-binding indication of interest to acquire the Company for $33.50 per share in cash. Parent submitted its non-binding indication of interest on June 18th in order to allow sufficient time for Parents Executive Board to
meet on Sunday, June 17, 2012 and to approve submission of the bid.
On June 18, 2012, the Board held a telephonic meeting to
discuss the status of the process undertaken to date, as well as the non-binding indications of interest received from Parent and Party A and Party Bs decision not to proceed. Representatives of J.P. Morgan discussed and answered questions
regarding the process undertaken by the Company to such point, including the decision to reach out to the thirteen strategic parties and the determination that financial buyers would likely not be buyers of the Company. Representatives of J.P.
Morgan then outlined the two indications of interest received and discussed the next steps of the process. Representatives from Weil also discussed and answered questions concerning the Boards fiduciary duties under Delaware law, including
with respect to the strategic process that had been undertaken. After further discussions, the Board instructed J.P. Morgan to continue discussions with the two interested parties and instructed management to continue assisting the interested
parties with their due diligence efforts.
Following the Board meeting, J.P. Morgan contacted representatives of Parent and
Party A to indicate that the Company would be providing additional due diligence information in an electronic dataroom and a draft merger agreement over the course of the next week. J.P. Morgan explained to both parties that the Company was
considering requesting that each of the parties complete due diligence and submit a final offer in mid-July.
On June 20,
2012, representatives of Parent and its financial advisor contacted senior management of the Company and a representative of J.P. Morgan and indicated that Parent would be submitting an offer to acquire the Company for $37.00 per share. Later that
day, Parent confirmed its oral offer in writing and requested that the Company accelerate the process with Parent, provide Parent with priority access to due diligence information until July 4, 2012 and provide Parent with a draft merger agreement
and begin negotiating the terms of the merger agreement with Parent as soon as possible (and not wait until it was provided to other interested parties). In connection with its offer, Parent submitted signed commitment letters from Morgan Stanley
for the financing necessary for Parent to complete an acquisition of the Company.
On June 21, 2012, the Board held a
telephonic meeting, with representatives of management, J.P. Morgan and Weil present, to discuss the status of the process, including the most recent offer from Parent. Representatives from J.P. Morgan provided additional detail regarding
Parents offer and discussed Parents request that the Company engage with Parent on a priority basis through July 4, 2012, including that the Company provide Parent with priority due diligence access and provide and negotiate a merger
agreement with Parent as soon as possible. Representatives of Weil discussed a conversation with representatives of Cravath, Swaine & Moore LLP (
Cravath
), counsel to Parent, in which Cravath confirmed that Parent only
had confirmatory diligence to complete and Parent had received approval from its Supervisory Board for the offer in its June 20 letter. After further discussion regarding the status of the process, the interested parties bids and Parents
request, the Board instructed representatives of J.P. Morgan and Weil to continue the process with all remaining parties as had been previously approved by the Board and senior management; however, given Parents bid and its willingness to
proceed more aggressively, the Board was comfortable moving more quickly with Parent.
On the morning of June 23, 2012, Weil distributed an
initial draft merger agreement to Cravath. The merger agreement included, among other things, a customary non-solicitation provision providing for a fiduciary out, customary termination rights for both the Company and Parent and a termination fee
equal to 2% of the equity value of the Company, which would be payable in certain circumstances involving a competing transaction or a change in recommendation by the Board. On June 25, 2012, Weil and Cravath had an initial discussion regarding the
merger agreement.
10
On the evening of June 25, 2012, Weil distributed the initial draft of the merger agreement
to legal counsel for Party A.
On June 26, 2012, Cravath sent Weil a revised draft of the merger agreement.
On June 27, 2012, due to a report on the
Financial Times
website, rumors of a possible sale transaction involving the Company
began to circulate causing the trading price of the Companys stock to increase from $25.43 (the opening market price on June 27, 2012) to $31.17 (the closing market price on June 27, 2012).
On June 28, 2012, representatives from Cravath, Parent and Weil had an in-person meeting at Weils office to discuss the merger
agreement.
On June 28, 2012, Party A submitted a revised indication of interest to acquire the Company at a price of $39.00
per share and included a markup of the draft of the merger agreement.
Later in the day on June 28, 2012, the Board held
another telephonic meeting, with representatives of senior management, J.P. Morgan and Weil present, to discuss the revised offer submitted by Party A, as well as the negotiations with Parent to that point. Representatives of J.P. Morgan informed
the Board of the terms of the revised offer submitted by Party A, including that such offer indicated it had been fully approved by the board of directors of Party A. Representatives of Weil reviewed with the Board the material terms and conditions
of the merger agreement as provided by each of the interested parties with their revised proposals, including the circumstances under which the Board could consider a competing proposal, could terminate the merger agreement and be required to pay to
the buyer a termination fee. These representatives also discussed the timetable for completing a potential acquisition of the Company. Representatives of J.P. Morgan then proposed moving forward by asking each interested party to submit their
best and final offer by the morning of July 1, 2012. After further discussion, the Board authorized J.P. Morgan to proceed on that basis.
Later that day on June 28, 2012, representatives of J.P. Morgan contacted both interested parties to inform them that they should plan to complete negotiations on the merger agreement as soon as possible
and submit their best and final offers by 9:00 a.m. (Eastern time) on July 1, 2012.
During the period from June
28, 2012 through 8:30 a.m. (Eastern time) on July 1, 2012, representatives of Weil engaged in negotiations regarding the provisions of the merger agreement and the related disclosure schedules with both Cravath, on behalf of Parent, and legal
counsel for Party A. The negotiations addressed, among other things, the circumstances in which the buyer would be required to extend the Offer, the nature of the representations and warranties to be made by the Company, the conditions to closing
the Offer, termination rights and the fees and/or expenses payable upon termination in certain circumstances, remedies for breaches of the covenants and agreements in the merger agreement, non-solicitation obligations, the level of efforts required
to obtain antitrust approval, and the limitations on the conduct of business by the Company between signing and closing.
At
9:00 a.m. (Eastern time) on July 1, 2012, Party A submitted a best and final offer to acquire the Company for $39.50 per share along with a final version of the merger agreement. Similarly, Parent submitted its best and final
offer to acquire the Company for $41.50 per share along with a final version of the merger agreement.
At 9:30 a.m. (Eastern time) on July 1, 2012, the Board
held a telephonic meeting, with representatives of senior management, J.P. Morgan and Weil present, to evaluate both offers. At the meeting, representatives of J.P. Morgan first provided the Board with an update, including a summary of each
partys final offer. Representatives of Weil reviewed with the Board the legal framework relevant to consideration of both offers, and explained and discussed with the Board the principal terms and conditions of the merger agreements for both
parties. The Board, together with representatives of senior management, J.P. Morgan and Weil, again discussed
11
the process that had been undertaken by the Company to consider strategic alternatives for enhancing stockholder value, including a potential sale of the Company. J.P. Morgan presented its
financial analyses of the proposed transaction with Parent and delivered its oral opinion to the Board, which was confirmed by delivery of a written opinion dated July 1, 2012, that, as of such date, and based upon and subject to the factors,
assumptions, qualifications and limitations set forth in its opinion, the consideration to be paid to the holders of the common stock of the Company in the proposed transaction with Parent was fair, from a financial point of view, to such holders.
For a summary of J.P. Morgans financial analysis, see
Opinion of the Companys Financial Advisor
below. J.P. Morgan reminded the Board that it beneficially owned, as of such date, approximately 9% of the
shares of the Companys common stock primarily through funds managed by J.P. Morgan on a fiduciary basis for third parties and that it held less than 1% of the Companys common stock on a proprietary basis. Mr. Byrnes discussed his
view on the principal benefits to the Company and its stockholders of the transaction and recommended, on behalf of management, that the Board approve the transaction. The Board then discussed the reasons for the transaction with Parent. For a
discussion of such principal benefits of the transaction, see
Reasons for the
Recommendation
below. Following review and discussion among the members of the Board, the Board unanimously (i) approved the Merger
Agreement and the transactions contemplated thereby, including the making of the Offer and the Merger, upon the terms and subject to the conditions provided for in the Merger Agreement, (ii) determined that each of the Merger Agreement, the Merger
and the Offer is advisable, fair to and in the best interests of the Company and the stockholders of the Company upon the terms and subject to the conditions provided for in the Merger Agreement and (iii) resolved to recommend that, subject to the
Boards ability to change its recommendation in accordance with the Merger Agreement, the stockholders of the Company accept the Offer and tender their shares of common stock pursuant to the Offer and, if required by applicable Law, vote in
favor of the adoption of the Merger Agreement.
Following the Board meeting, representatives from Cravath and Weil finalized
the terms of the Merger Agreement and the related disclosure schedules, and the Company, Parent and Purchaser executed and delivered the definitive Merger Agreement.
Following the execution and delivery of the Merger Agreement, Parent delivered an ad hoc notice to its securities regulator, which was required under German law, and the parties issued a joint press
release announcing the transaction on July 2, 2012.
Reasons for the Recommendation.
In evaluating the Merger Agreement and the transactions contemplated thereby, including the Offer and the Merger, the Board consulted with
the Companys senior management, as well as J.P. Morgan and Weil. In the course of reaching its determination of the fairness of the terms of the Offer and the Merger and its recommendation that stockholders accept the Offer, tender their
Shares into the Offer and adopt the Merger Agreement, the Board considered numerous factors, including the following material factors and benefits of the Offer and the Merger, each of which the Board believed supported its unanimous determination
and recommendation:
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Offer Price.
The Board considered:
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the fact that the Offer Price represents a 64% premium to the trading price at which the Shares closed on June 26, 2012 (the last day prior to press
reports speculating as to a potential sale of the Company);
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the fact that the per-Share trading price of the Shares has never exceeded the level of the Offer Price;
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the fact that the Offer Price represents a 37% premium to the 52-week high for the trading price of the Shares; and
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the Boards belief that it had obtained Parents and Purchasers best and final offer, and that, as of the date of the Merger Agreement,
the Offer Price represented the highest per-Share consideration reasonably obtainable.
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Business and Financial Condition of the Company.
The Board considered its and senior managements familiarity with the business,
operations, prospects, business strategy, properties, assets, cash position and financial condition of the Company, and the certainty of realizing in cash a compelling value for the Shares in the Offer and Merger compared to the risk and uncertainty
associated with the operation of the Companys business in a highly regulated industry that is significantly dependent on federal and state healthcare reimbursement programs.
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Certainty of Value of Cash Consideration.
The Board considered the all-cash nature of the consideration to be paid in the Offer and the Merger,
which allows holders of Shares to realize immediate value, in cash, for their investment in the Company, providing such holders of Shares certainty of value and liquidity for their Shares.
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Strategic Alternatives.
The Board considered its and the senior management teams belief that the value offered to holders of Shares in the
Offer and the Merger was more favorable to holders of Shares than the potential value of remaining an independent public company. The Company actively sought proposals from other potential buyers (as more fully described above in
Background of the Offer
).
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Negotiation Process.
The course of the negotiations between the Company and Parent resulted in an increase from $33.50 to $41.50 in the price
per Share offered by Parent. Parent represented that it will have available at the Acceptance Time cash and cash equivalents to pay for all the Shares tendered pursuant to the Offer and at the Effective Time cash and cash equivalents to make
payments in respect of the Companys equity awards and to consummate the Merger, and the transactions are not conditioned on Parent receiving third party financing.
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J.P. Morgans Fairness Opinion and Related Analyses.
The Board considered (i) J.P. Morgans oral opinion rendered on July 1, 2012, and
subsequently confirmed in writing, to the Board to the effect that, as of such date and based upon and subject to the assumptions made, procedures followed, matters considered and limitations and qualifications on the scope of the review undertaken
by J.P. Morgan as set forth in such written opinion, the consideration of $41.50 per Share in cash to be received by the holders of Shares in the Offer and the Merger pursuant to the Merger Agreement was fair, from a financial point of view, to such
holders, as more fully described below in
Opinion of the Companys Financial Advisor
and (ii) the related financial analyses conducted by J.P. Morgan and presented by J.P. Morgan to the Board, as more fully described
below in
Opinion of the Companys Financial Advisor
. The Board was aware that J.P. Morgan became entitled to certain fees upon the delivery of its opinion and will become entitled to additional fees upon consummation
of the Merger, as more fully described below in
Opinion of the Companys Financial Advisor
. The Board was also aware that J.P. Morgan beneficially owned (as of such date) approximately 9% of shares of the
Companys common stock primarily through funds managed by J.P. Morgan on a fiduciary basis for third parties and that it held (as of such date) less than 1% of the Companys common stock on a proprietary basis. See
Background of the Offer.
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Tender Offer Structure.
The Board considered the fact that the transaction is structured as a tender offer, which can be completed, and the cash
Offer Price can be delivered to the Companys stockholders, on a prompt basis, reducing the period of uncertainty during the pendency of the contemplated transactions, and the fact that the Merger Agreement requires Parent, if it acquires a
majority of the fully-diluted outstanding Shares in the Offer, to consummate a second-step Merger in which stockholders who do not tender their Shares in the Offer will receive cash consideration equal to the Offer Price. The Board also considered
the business reputation of Parent and its management and believed that the substantial financial resources of Parent should permit the Offer and Merger to be completed relatively quickly and in an orderly manner.
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Likelihood of Completion; Certainty of Payment
. The Board considered its belief that the Offer and the Merger will likely be consummated, based
on, among other factors:
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the absence of any financing condition to consummation of the Offer or the Merger;
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the reputation and financial condition of Parent, and Parents general ability to complete acquisition transactions;
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the fact that the Offer and Merger are not subject to the approval by Parents shareholders;
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the fact that the conditions to the Offer and Merger are specific and limited in scope;
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the probability of the Offer and Merger being approved by applicable regulatory authorities;
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the Companys ability to request the Delaware Court of Chancery to specifically enforce the Merger Agreement, including the consummation of the
Offer and the Merger; and
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the Companys ability under the Merger Agreement to pursue damages.
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Terms of the Merger Agreement
. The Board considered the fact that the provisions of the Merger Agreement which give the Board the ability,
should the Company receive a bona fide written takeover proposal that was not solicited by the Company, which constitutes or could reasonably be expected to result in a superior proposal, to furnish information and conduct negotiations with a third
party, and enter into an agreement for a superior proposal after complying with certain requirements including payment of a termination fee. In addition, the provisions of the Merger Agreement provide the Board with the ability to withdraw or modify
its recommendation in favor of the Offer and the Merger under certain circumstances. Finally, the Board may change its recommendation at any time if the Board determines in good faith, after consultation with its outside legal and financial
advisors, that the failure to change its recommendation would be inconsistent with the Boards fiduciary duties to the Companys stockholders.
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Extension of the Offer.
The Board considered the fact that Purchasers obligation to accept for and pay for all Shares that have been
validly tendered into the Offer and not properly withdrawn is subject to a number of conditions. However, Purchaser is required, under certain circumstances as provided for in the Merger Agreement, to extend the Offer beyond the initial Expiration
Time if, at any otherwise scheduled Expiration Time, certain conditions have not been satisfied or waived.
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Appraisal Rights
. The Board considered the availability of statutory appraisal rights under Delaware law in connection with the Merger for
stockholders who do not tender their Shares into the Offer and, if applicable, do not vote their Shares in favor of adoption of the Merger Agreement (and who otherwise comply with the statutory requirements of Delaware law), and who believe that
exercising such rights would yield them a greater per-Share amount than the Offer Price, which appraisal rights avoid delays in the transaction so that other stockholders will be able to receive the Offer Price for their Shares in the Offer and
Merger.
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In reaching its determinations and recommendations described above, the Board also considered the
following potentially negative factors:
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Risks the Offer and Merger May Not Be Completed
. The Board considered the risk that the conditions to the Offer may not be satisfied and that,
therefore, Shares may not be purchased pursuant to the Offer and the Merger may not be consummated. The Board also considered the risks and costs to the Company if the Offer and the Merger are not consummated, including the diversion of management
and employee attention, potential employee attrition, the potential effect on business and customer relationships and the potential effect on the trading price of the Shares.
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Interim Operating Covenants
. The Board considered that the Merger Agreement imposes restrictions on the conduct of the Companys business
prior to the consummation of the Offer, requiring the Company to conduct its business in the ordinary course of business and, to the extent consistent therewith, use reasonable
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best efforts to preserve substantially intact its current business organization and to preserve its relationships with governmental authorities, customers and suppliers, subject to specific
limitations, which may delay or prevent the Company from undertaking business opportunities that may arise pending completion of the Offer.
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No Participation in the Companys Future
. The Board considered that if the Offer and Merger are consummated, stockholders will receive the
Offer Price in cash and will no longer have the opportunity to (i) participate in any future earnings or growth of the Company or the combined company or (ii) benefit from any potential future appreciation in the value of the Shares, including any
value that could be achieved if the Company engages in future strategic or other transactions or successfully commercializes any of its product candidates.
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Tax Treatment
. The Board considered that the receipt of the Offer Price and the consideration payable in the Merger will generally be taxable to
stockholders. The Board believed that this was mitigated by the fact that the entire consideration payable in the Offer and the Merger would be cash, providing adequate cash for the payment of any taxes due.
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Expense Reimbursement and Termination Fees
. The Board considered the fact that the Company must pay Parent its documented, out-of-pocket
expenses actually incurred in connection with the Merger Agreement and the transactions contemplated thereby up to a maximum of $10 million if the Merger Agreement is terminated in certain circumstances. The Board also considered the fact that the
Company must pay Parent a termination fee equal $155 million (subject to a credit for any expense reimbursement previously paid) if the Merger Agreement is terminated in certain circumstances. The Board determined that these expense reimbursement
and termination fee provisions were reasonable and that they would be unlikely to deter a third party from making a superior proposal. In addition, the Board recognized that the provisions in the Merger Agreement relating to these fees were insisted
upon by Parent as a condition to entering into the Merger Agreement.
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Potential Conflicts of Interest
. The Board considered the potential conflict of interest created by the fact that the Companys executive
officers and directors have financial interests in the transactions contemplated by the Merger Agreement, including the Offer and the Merger, as more fully described in
Item 3
.
Past Contacts, Transactions, Negotiations and Agreements
Arrangements with Current Executive Officers and Directors of the Company
.
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After
considering these factors, the Board concluded that the positive factors relating to the Merger Agreement and the transactions contemplated thereby, including the Offer and the Merger, substantially outweighed the potential negative factors.
The foregoing discussion of the factors considered by the Board is intended to be a summary, and is not intended to be
exhaustive, but rather includes the principal factors considered by the Board and the principal reasons for making its recommendation. The Board collectively reached the conclusion to approve the Merger Agreement and the related transactions,
including the Offer and the Merger, in light of the various factors described above and other factors that the members of the Board believed were appropriate. In view of the wide variety of factors considered by the Board in connection with its
evaluation of the Merger Agreement and the transactions contemplated thereby, including the Offer and the Merger, and the complexity of these matters, the Board did not consider it practical, and did not attempt, to quantify, rank or otherwise
assign relative weights to the specific factors it considered in reaching its decision, and it did not undertake to make any specific determination as to whether any factor, or any particular aspect of any factor, supported or did not support its
ultimate determination. Rather, the Board made its recommendation based on the totality of information it received and the investigation it conducted. In considering the factors discussed above, individual directors may have given different weights
to different factors.
15
Intent to Tender.
As of July 9, 2012, the directors and executive officers of the Company beneficially owned 1,276,938 Shares (not including any Shares
deliverable upon exercise or conversion of any Company Options or any unvested Restricted Shares), representing approximately 1.48% of the outstanding Shares. The directors and executive officers of the Company have informed the Company that they
intend to tender or cause to be tendered all Shares held of record or beneficially by them into the Offer (other than Shares as to which such holder does not have discretionary authority and Shares which may be retained in order to facilitate estate
and tax planning dispositions) and, if necessary, to vote such Shares in favor of the adoption of the Merger Agreement.
Opinion of the Companys Financial Advisor.
Pursuant to an engagement letter dated May 15, 2012 and effective
as of March 7, 2012, the Company retained J.P. Morgan as its financial advisor in connection with a potential acquisition of the Company.
At the meeting of the Board, on July 1, 2012, J.P. Morgan rendered its oral opinion to the Board, which opinion was subsequently confirmed in writing by delivery of J.P. Morgans written opinion
dated the same date to the Board that, as of such date, and based upon and subject to the factors, assumptions, qualifications and limitations set forth in its opinion, the consideration to be paid to the holders of the Shares in the Offer and the
Merger (together, the
Transactions
) was fair, from a financial point of view, to such holders.
The full text of the written opinion of J.P. Morgan, dated July 1, 2012, which sets forth, among other things, the assumptions made,
procedures followed, matters considered and limitations on the review undertaken in rendering its opinion, is attached as
Annex B
to this Schedule 14D-9 and is incorporated herein by reference. The summary of the written opinion of J.P.
Morgan set forth in this Schedule 14D-9 is qualified in its entirety by reference to the full text of such opinion. Stockholders are urged to read this opinion in its entirety. J.P. Morgans written opinion is addressed to the Board, is
directed only to the consideration to be paid in the proposed Transactions, and does not constitute a recommendation to any stockholder of the Company as to whether such stockholder should tender Shares in the Offer or how any holder of Shares
should vote with respect to the Merger or any other matter.
In connection with preparing the opinion, J.P. Morgan, among
other things:
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reviewed the Merger Agreement;
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reviewed certain publicly available business and financial information concerning the Company and the industries in which it operates;
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compared the proposed financial terms of the Transactions with the publicly available financial terms of certain transactions involving companies J.P.
Morgan deemed relevant and the consideration paid for such companies;
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compared the financial and operating performance of the Company with publicly available information concerning certain other companies that J.P. Morgan
deemed relevant, and reviewed the current and historical market prices of the Shares and certain publicly traded securities of such other companies;
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reviewed certain internal financial analyses and forecasts prepared by, or at the direction of, the management of the Company relating to its business;
and
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|
performed such other financial studies and analyses and considered such other information as J.P. Morgan deemed appropriate for the purposes of its
opinion.
|
J.P. Morgan also held discussions with certain members of the Companys management with
respect to certain aspects of the Transactions, and the past and current business operations of the Company, the financial condition and future prospects and operations of the Company, and certain other matters J.P. Morgan believed necessary or
appropriate to its inquiry.
16
J.P. Morgan relied upon and assumed the accuracy and completeness of all information that
was publicly available or was furnished to or discussed with J.P. Morgan by the Company or otherwise reviewed by or for J.P. Morgan, and J.P. Morgan did not independently verify (nor did it assume responsibility or liability for independently
verifying) any such information or its accuracy or completeness. J.P. Morgan did not conduct, and was not provided with, any valuation or appraisal of any assets or liabilities, nor did J.P. Morgan evaluate the solvency of the Company or Parent
under any state or federal laws relating to bankruptcy, insolvency or similar matters. In relying on financial analyses and forecasts provided to J.P. Morgan or derived therefrom, J.P. Morgan assumed that they were reasonably prepared based on
assumptions reflecting the best currently available estimates and judgments by management as to the expected future results of operations and financial condition of the Company to which such analyses or forecasts relate. J.P. Morgan expressed no
view as to such analyses or forecasts or the assumptions on which they were based. J.P. Morgan also assumed that the Transactions and the other transactions contemplated by the Merger Agreement will be consummated as described in the Merger
Agreement. J.P. Morgan also assumed that the representations and warranties made by the Company and Parent in the Merger Agreement and the related agreements are and will be true and correct in all respects material to J.P. Morgans analysis.
J.P. Morgan is not a legal, regulatory or tax expert and relied on the assessments made by advisors to the Company with respect to such issues. J.P. Morgan further assumed that all material governmental, regulatory or other consents and approvals
necessary for the consummation of the Transactions will be obtained without any adverse effect on the Company or on the contemplated benefits of the Transactions.
J.P. Morgans opinion is necessarily based on economic, market and other conditions as in effect on, and the information made available to J.P. Morgan as of, the date of its opinion. It should be
understood that subsequent developments may affect J.P. Morgans opinion, and that J.P. Morgan does not have any obligation to update, revise or reaffirm such opinion. J.P. Morgans opinion is limited to the fairness, from a financial
point of view, of the consideration to be paid to the holders of the Shares in the proposed Transactions and J.P. Morgan has expressed no opinion as to the fairness of any consideration paid in connection with the Transactions to the holders of any
other class of securities, creditors or other constituencies of the Company or as to the underlying decision by the Company to engage in the Transactions. Furthermore, J.P. Morgan has expressed no opinion with respect to the amount or nature of any
compensation to any officers, directors, or employees of any party to the Transactions, or any class of such persons relative to the consideration to be paid to the holders of the Shares in the Transactions or with respect to the fairness of any
such compensation.
In accordance with customary investment banking practice, J.P. Morgan employed generally accepted
valuation methods in reaching its opinion. The following is a summary of certain of the financial analyses undertaken by J.P. Morgan in connection with providing its opinion and does not purport to be a complete description of the analyses or data
presented by J.P. Morgan. Some of the summaries of the financial analyses include information presented in tabular format. The tables are not intended to stand alone, and in order to more fully understand the financial analyses used by J.P. Morgan,
the tables must be read together with the full text of each summary. Considering the data in the tables without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the
analyses, could create a misleading or incomplete view of J.P. Morgans financial analyses.
The financial forecasts
furnished to J.P. Morgan by the Company and used in connection with its analysis of the Transactions were prepared by or at the direction of the management of the Company. The Company does not as a matter of course publicly disclose internal
management financial forecasts of the type provided to J.P. Morgan in connection with J.P. Morgans analysis of the Transactions, and such forecasts were not prepared with a view toward public disclosure. These financial forecasts, while
prepared with numerical specificity, necessarily were based on numerous variables and assumptions, including, but not limited to, those relating to industry performance, general business, economic, regulatory, market and financial conditions and
other future events, as well as matters specific to the Companys business, all of which are difficult to predict and many of which are beyond the Companys control. Accordingly, actual results could vary significantly from those set forth
in such financial forecasts.
17
All values in the following
Public Trading Multiples Analysis
(other than with respect to the stock price to estimated earnings per share for calendar year 2012, or P/E),
Selected Transactions Analysis
and
Discounted Cash Flow Analysis
sections are presented
on an equity value per share basis, rounded to the nearest $0.05. In arriving at equity value per Share for the Company, the analysis started with the determination of Firm Value, or FV, for the Company. Firm Value was then adjusted by subtracting
total debt outstanding as of June 28, 2012, and adding total cash and cash equivalents outstanding as of June 28, 2012, to arrive at Equity Value for the Company. Equity Value was then divided by the Share count to arrive at equity value per Share.
In arriving at the equity value per Share for purposes of the P/E, the earnings per share was multiplied by the relevant public trading multiple.
Public Trading Multiples Analysis
Using publicly available information,
J.P. Morgan compared selected financial data of the Company with similar data for publicly traded companies engaged in businesses which J.P. Morgan deemed to be relevant to the business of the Company. The companies were as follows:
Respiratory/Home Infusion
Home Health
|
|
|
Gentiva Health Services Inc.
|
Medicare Focused
Medical Equipment
|
|
|
Hill-Rom Holdings, Inc.
|
None of the selected companies reviewed is identical or directly comparable to the Company. Accordingly, J.P. Morgan made judgments and
assumptions concerning differences in financial and operating characteristics of the selected companies and other factors that could affect the public trading value of the selected companies.
In all instances, multiples were based on closing stock prices on June 28, 2012 (except for LHC Group, Inc., which is based upon the
stock price prior to public disclosure of a strategic alternatives review on February 13, 2012). For each of the following analyses performed by J.P. Morgan, estimated financial data for the selected companies were based on the selected
companies filings with the Securities and Exchange Commission and publicly available Wall Street research analysts consensus estimates.
18
In conducting its analyses, J.P. Morgan reviewed the selected companies trading
multiples based on (1) FV to estimated EBITDA for calendar year 2012, or FV/2012E EBITDA, and (2) stock price to estimated earnings per share for calendar year 2012, or P/E. The analyses indicated that such FV/2012E EBITDA multiples for the selected
companies ranged from a low of 4.6x to a high of 12.1x and such P/E multiples ranged from a low of 5.8x to a high of 15.8x. Results of the analysis were presented for the selected companies, as indicated in the following table:
|
|
|
|
|
|
|
|
|
Company
|
|
FV/2012E
EBITDA
|
|
|
P/E
|
|
BioScrip, Inc.
|
|
|
12.1x
|
|
|
|
N/M
|
|
Rotech Healthcare Inc.
|
|
|
5.8x
|
|
|
|
N/M
|
|
Almost Family Inc.
|
|
|
4.8x
|
|
|
|
10.7x
|
|
Amedisys Inc.
|
|
|
4.6x
|
|
|
|
11.9x
|
|
Gentiva Health Services Inc.
|
|
|
6.2x
|
|
|
|
5.8x
|
|
LHC Group, Inc.
|
|
|
4.9x
|
|
|
|
9.5x
|
|
Davita Inc.
|
|
|
8.7x
|
|
|
|
15.8x
|
|
HealthSouth Corp.
|
|
|
8.0x
|
|
|
|
15.7x
|
|
Getinge AB
|
|
|
9.0x
|
|
|
|
13.7x
|
|
Hill-Rom Holdings, Inc.
|
|
|
5.3x
|
|
|
|
11.8x
|
|
Invacare Corp.
|
|
|
N/M
|
|
|
|
9.2x
|
|
Based on both of the
above analyses, J.P. Morgan then applied a multiple reference range of (1) 5.0x to 8.5x for FV/2012E EBITDA to the Companys estimated EBITDA for calendar year 2012 based on management estimates and (2) 10.5x to 15.5x for P/E to the
Companys estimated GAAP earnings per Share for calendar year 2012 based on management estimates. Compared to the Offer price per Share of $41.50, the analyses indicated equity values per Share of (1) using the FV/2012E EBITDA multiple range,
$21.70 to $38.85 and (2) using the P/E multiple range, $24.40 to $36.00.
Selected Transactions Analysis
J.P. Morgan conducted an analysis of selected transactions in the home heathcare industry. For each of the selected transactions, J.P.
Morgan calculated, to the extent information was publicly available, the transaction value divided by the targets EBITDA for the twelve-month period immediately preceding the announcement of the respective transaction (the TV/LTM
EBITDA). The transactions considered, the month and year each transaction was announced, and the resulting TV/LTM EBITDA are as follows:
|
|
|
|
|
|
|
|
|
Acquiror
|
|
Target
|
|
Month/Year Announced
|
|
TV/LTM EBITDA
|
|
Linde AG
|
|
Air Products Continental European Homecare
|
|
January 2012
|
|
|
9.9x
|
|
Highland Capital Management, L.P.
|
|
American HomePatient, Inc.
|
|
July 2010
|
|
|
7.2x
|
|
Bioscrip, Inc.
|
|
Critical Homecare Solutions Holdings, Inc.
|
|
January 2010
|
|
|
8.8x
|
|
The Blackstone Group
|
|
Apria Healthcare Group Inc.
|
|
June 2008
|
|
|
5.1x
|
|
Apria Healthcare Group Inc.
|
|
Coram, Inc.
|
|
October 2007
|
|
|
15.5x
|
|
Walgreen Co.
|
|
Option Care, Inc.
|
|
July 2007
|
|
|
17.5x
|
|
MBF Healthcare Acquisition Corp.
|
|
Critical Homecare Solutions Holdings, Inc.
|
|
February 2007
|
|
|
9.8x
|
|
19
Based on the results of this analysis and other factors that J.P. Morgan considered
appropriate, J.P. Morgan applied a TV/LTM EBITDA multiple of 7.0 to 10.0 to the Companys EBITDA for the twelve-month period ended March 31, 2012. The analysis indicated implied equity values per Share of $28.80 to $41.85, as compared to the
$41.50 consideration per Share in the Transactions.
Discounted Cash Flow Analysis
J.P. Morgan conducted a discounted cash flow analysis for the purpose of determining an implied fully diluted equity value per Share. A
discounted cash flow analysis is a method of evaluating an asset using estimates of the future unlevered free cash flows generated by the asset and taking into consideration the time value of money with respect to those future cash flows by
calculating their present value. Present value refers to the current value of one or more future cash payments from the asset, which J.P. Morgan refers to as that assets cash flows, and is obtained by discounting those
cash flows back to the present using a discount rate that takes into account macro-economic assumptions and estimates of risk, the opportunity cost of capital, capitalized returns and other appropriate factors. Terminal value refers to
the capitalized value of all cash flows from an asset for periods beyond the final projection period.
J.P. Morgan calculated
the unlevered free cash flows that the Company is expected to generate during the fiscal year 2012 through 2021 based upon forecasts provided by the Companys management for 2012 through 2015 and extrapolated projections for 2016 through 2021
reviewed and approved by the Companys management for J.P. Morgans use in connection with its financial analyses and rendering its fairness opinion. J.P. Morgan also calculated a range of terminal values of the Company at the end of the
ten year period ending 2021 by applying a perpetual growth rate of 2.0% to 3.0% to the unlevered free cash flow of the Company during the terminal period of the projections. The unlevered free cash flows and the range of terminal values were
discounted to present values using a range of discount rates from 9.0% to 10.0%, which were chosen by J.P. Morgan based upon an analysis of the capital structures and costs of equity and debt of the Company and its publicly traded comparable
companies. For purposes of the discounted cash flow analysis, J.P. Morgan treated stock-based compensation as a cash expense.
J.P. Morgan then calculated the equity value per Share implied by each of these reference ranges of multiples described above. The
analysis indicated implied equity values per Share of $25.90 to $33.35, as compared to the $41.50 cash consideration per Share in the Offer.
General
The foregoing summary of certain financial analyses does not
purport to be a complete description of the analyses or data presented by J.P. Morgan. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. J.P. Morgan believes
that the foregoing summary and its analyses must be considered as a whole and that selecting portions of the foregoing summary and these analyses, without considering all of its analyses as a whole, could create an incomplete view of the processes
underlying the analyses and its opinion. As a result, the ranges of valuations resulting from any particular analysis or combination of analyses described above were merely utilized to create points of reference for analytical purposes and should
not be taken to be the view of J.P. Morgan with respect to the actual value of the Company. In arriving at its opinion, J.P. Morgan reviewed various financial and operational metrics for the Company, including forecasts with respect to the Company
which were made available to J.P. Morgan by or on behalf of the Company. In arriving at its opinion, J.P. Morgan did not attribute any particular weight to any analyses or factors considered by it and did not form an opinion as to whether any
individual analysis or factor (positive or negative), considered in isolation, supported or failed to support its opinion. Rather, J.P. Morgan considered the totality of the factors and analyses performed in determining its opinion. Analyses based
upon forecasts of future results are inherently uncertain, as they are subject to numerous factors or events beyond the control of the parties and their advisors. Accordingly, forecasts and analyses used or made by J.P. Morgan are not necessarily
indicative of actual future results, which may be significantly more or less favorable than suggested by those analyses. Moreover, J.P. Morgans analyses are not and do not purport to be appraisals or otherwise reflective of the prices at which
businesses actually could be bought or sold. None of the selected companies
20
reviewed as described in the above summary is identical to the Company, and none of the selected transactions reviewed was identical to the Transactions. However, the companies were chosen
because they are publicly traded companies with operations and businesses that, for purposes of J.P. Morgans analysis, may be considered similar to those of the Company. The transactions selected were similarly chosen because their
participants, size and other factors, for purposes of J.P. Morgans analysis, may be considered similar to the Transactions. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operating
characteristics of the companies involved and other factors that could affect the companies compared to the Company and the transactions compared to the Transactions.
As a part of its investment banking business, J.P. Morgan and its affiliates are continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions,
investments for passive and control purposes, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. J.P. Morgan was selected to advise the
Company with respect to the Transactions on the basis of such experience and its familiarity with the Company.
For services
rendered in connection with the proposed Transactions, the Company has agreed to pay J.P. Morgan a transaction fee of approximately $34 million, payable if the proposed Transactions are consummated, of which $1.0 million was earned upon delivery of
the opinion. In addition, the Company has agreed to reimburse J.P. Morgan for its expenses incurred in connection with its services, including the fees and disbursements of counsel, and will indemnify J.P. Morgan against certain liabilities,
including liabilities arising under the federal securities laws. During the two years preceding the date of its opinion, J.P. Morgan and its affiliates did not have any other material financial advisory or other material commercial or investment
banking relationships with the Company or Parent other than that J.P. Morgans commercial banking affiliate provides treasury, cash management and related services to Parent for which it received customary compensation or other financial
benefits. In addition, J.P. Morgans asset management affiliate provides asset and wealth management services to Parent for which it receives customary compensation. In the ordinary course of J.P. Morgans businesses, it and its affiliates
may actively trade the debt and equity securities of the Company or Parent for its own account or for the accounts of customers and, accordingly, J.P. Morgan may at any time hold long or short positions in such securities.
Forecasts and Projections.
The Companys management does not as a matter of course publicly disclose forecasts or projections as to future performance, earnings or other results beyond the current fiscal year and is especially
cautious of making financial forecasts for extended periods because of the unpredictability of the underlying assumptions and estimates. However, in connection with the evaluation of a possible transaction involving the Company and in connection
with the rendering of J.P. Morgans opinion described above under
Opinion of the Companys Financial Advisor
, the Company provided J.P. Morgan and potential purchasers certain non-public, unaudited,
stand-alone, financial forecasts that were not prepared for public disclosure.
The forecasts were prepared solely for
internal use. The forecasts and projections set forth below were not prepared with a view toward public disclosure and, accordingly, do not necessarily comply with the published guidelines of the SEC regarding projections and the use of measures
other than generally accepted accounting principles as applied in the United States, the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial projections or forecasts, or
generally accepted accounting principles. Neither the Companys independent registered public accounting firm, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the forecasts and
projections described below, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and they assume no responsibility for, and disclaim any association with, the forecasts and projections.
The forecasts and projections, while presented with numerical specificity, necessarily were based on numerous variables and
assumptions, including, but not limited to, those relating to industry performance,
21
general business, economic, regulatory, market and financial conditions and other future events, as well as matters specific to our business, all of which are difficult to predict and many of
which are beyond our control. The forecasts and projections are subjective in many respects and thus are susceptible to multiple interpretations and periodic revisions based on actual experience and business developments. There can be no assurance
that the forecasted or projected results will be realized or that actual results will not be significantly higher or lower than forecasted or projected. The forecasts and projections cover multiple years and such information by its nature becomes
less predictive with each successive year. The assumptions upon which the forecasts and projections were based necessarily involve judgments with respect to, among other things, future economic, competitive and regulatory conditions and financial
market conditions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. The forecasts and projections also reflect assumptions as to certain business decisions that are subject to change. The
forecasts and projections cannot, therefore, be considered a guarantee of future operating results, and this information should not be relied on as such. None of the Company, Parent, Purchaser, J.P. Morgan, any of their respective affiliates or
any other person assumes any responsibility for the validity, reasonableness, accuracy or completeness of the forecasts or projections described below. The forecasts and projections do not take into account any circumstances or events occurring
after the date they were prepared, including the announcement of the potential acquisition of the Company by Parent and Purchaser pursuant to the Offer and the Merger.
The forecasts and projections contain forward-looking statements. For information on factors that may cause our future financial results to materially vary, see
Item 8. Additional Information
Cautionary Statement Regarding Forward-Looking Statements
below.
The information from the forecasts and
projections set forth below should be evaluated, if at all, in conjunction with the historical consolidated financial statements and other information regarding the Company contained elsewhere in this Schedule 14D-9, the Offer to Purchase and our
public filings with the SEC. In light of the foregoing factors and the uncertainties inherent in the forecasts and projections, readers of this Schedule 14D-9 are cautioned not to place undue, if any, reliance on the forecasts or projections
described in this Schedule 14D-9.
The forecasts and projections set forth below are not being included in this Schedule
14D-9 to influence your decision whether to tender your Shares in the Offer or because we believe they are material or because we believe they are a reliable prediction of actual future results, but because the forecasts were made available to
potential purchasers and J.P. Morgan.
A summary of the material forecasted financial information provided to potential
purchasers and J.P. Morgan that was included in the forecasts is set forth below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending December 31
|
|
|
|
2012P
|
|
|
2013P
|
|
|
2014P
|
|
|
2015P
|
|
|
|
(Dollars in Millions)
|
|
Revenues
|
|
$
|
2,040
|
|
|
$
|
2,186
|
|
|
$
|
2,358
|
|
|
$
|
2,598
|
|
EBITDA
|
|
|
504
|
|
|
|
535
|
|
|
|
563
|
|
|
|
637
|
|
Less
Depreciation and Amortization
|
|
|
134
|
|
|
|
141
|
|
|
|
148
|
|
|
|
156
|
|
EBIT
|
|
|
369
|
|
|
|
393
|
|
|
|
414
|
|
|
|
481
|
|
Less
Interest
|
|
|
37
|
|
|
|
25
|
|
|
|
18
|
|
|
|
2
|
|
Less
Taxes
|
|
|
132
|
|
|
|
146
|
|
|
|
157
|
|
|
|
187
|
|
Net Income
|
|
|
201
|
|
|
|
223
|
|
|
|
240
|
|
|
|
292
|
|
|
|
|
|
|
Net Cash provided by Operating Activities
|
|
|
342
|
|
|
|
458
|
|
|
|
455
|
|
|
|
465
|
|
Less
Capital Expenditures
|
|
|
140
|
|
|
|
153
|
|
|
|
161
|
|
|
|
171
|
|
Free Cash Flow
|
|
|
202
|
|
|
|
305
|
|
|
|
294
|
|
|
|
294
|
|
22
In addition, for purposes of performing its financial analysis of the Company, J.P. Morgan
relied upon forecasts provided by the Companys management for 2012 through 2015 and extrapolated projections for 2016 through 2021 reviewed and approved by the Companys management for J.P. Morgans use in connection with its
financial analyses and rendering its fairness opinion. These forecasts and projections are set forth below. All amounts are expressed in millions of dollars.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forecasts
|
|
|
Extrapolated Projections
|
|
|
|
2012E
|
|
|
2013E
|
|
|
2014E
|
|
|
2015E
|
|
|
2016E
|
|
|
2017E
|
|
|
2018E
|
|
|
2019E
|
|
|
2020E
|
|
|
2021E
|
|
Revenue
|
|
$
|
2,040
|
|
|
$
|
2,186
|
|
|
$
|
2,358
|
|
|
$
|
2,598
|
|
|
$
|
2,762
|
|
|
$
|
2,917
|
|
|
$
|
3,057
|
|
|
$
|
3,180
|
|
|
$
|
3,284
|
|
|
$
|
3,366
|
|
EBITDA
|
|
$
|
504
|
|
|
$
|
535
|
|
|
$
|
563
|
|
|
$
|
637
|
|
|
$
|
624
|
|
|
$
|
644
|
|
|
$
|
659
|
|
|
$
|
669
|
|
|
$
|
674
|
|
|
$
|
673
|
|
Less
Depreciation
|
|
$
|
(130
|
)
|
|
$
|
(138
|
)
|
|
$
|
(145
|
)
|
|
$
|
(153
|
)
|
|
$
|
(164
|
)
|
|
$
|
(175
|
)
|
|
$
|
(185
|
)
|
|
$
|
(195
|
)
|
|
$
|
(203
|
)
|
|
$
|
(210
|
)
|
Less
Amortization
|
|
$
|
(4
|
)
|
|
$
|
(4
|
)
|
|
$
|
(3
|
)
|
|
$
|
(3
|
)
|
|
$
|
(3
|
)
|
|
$
|
(3
|
)
|
|
$
|
(3
|
)
|
|
$
|
(3
|
)
|
|
$
|
(3
|
)
|
|
$
|
(3
|
)
|
EBIT
|
|
$
|
369
|
|
|
$
|
393
|
|
|
$
|
414
|
|
|
$
|
481
|
|
|
$
|
457
|
|
|
$
|
466
|
|
|
$
|
470
|
|
|
$
|
471
|
|
|
$
|
468
|
|
|
$
|
460
|
|
Less
Taxes
|
|
$
|
(144
|
)
|
|
$
|
(153
|
)
|
|
$
|
(162
|
)
|
|
$
|
(188
|
)
|
|
$
|
(178
|
)
|
|
$
|
(182
|
)
|
|
$
|
(183
|
)
|
|
$
|
(184
|
)
|
|
$
|
(182
|
)
|
|
$
|
(179
|
)
|
EBIAT
|
|
$
|
225
|
|
|
$
|
240
|
|
|
$
|
253
|
|
|
$
|
293
|
|
|
$
|
279
|
|
|
$
|
284
|
|
|
$
|
287
|
|
|
$
|
287
|
|
|
$
|
285
|
|
|
$
|
281
|
|
Plus
Depreciation and Amortization
|
|
$
|
134
|
|
|
$
|
141
|
|
|
$
|
148
|
|
|
$
|
156
|
|
|
$
|
167
|
|
|
$
|
178
|
|
|
$
|
188
|
|
|
$
|
198
|
|
|
$
|
206
|
|
|
$
|
213
|
|
Less
Capex
|
|
$
|
(140
|
)
|
|
$
|
(153
|
)
|
|
$
|
(161
|
)
|
|
$
|
(171
|
)
|
|
$
|
(182
|
)
|
|
$
|
(192
|
)
|
|
$
|
(201
|
)
|
|
$
|
(209
|
)
|
|
$
|
(216
|
)
|
|
$
|
(221
|
)
|
Less
Acquisition Expenditures
|
|
$
|
(57
|
)
|
|
$
|
(42
|
)
|
|
$
|
(42
|
)
|
|
$
|
(42
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Less
Change in Net Working Capital
|
|
$
|
(62
|
)
|
|
$
|
40
|
|
|
$
|
15
|
|
|
$
|
(23
|
)
|
|
$
|
(16
|
)
|
|
$
|
(15
|
)
|
|
$
|
(13
|
)
|
|
$
|
(12
|
)
|
|
$
|
(10
|
)
|
|
$
|
(8
|
)
|
Unlevered free cash flow
|
|
$
|
100
|
|
|
$
|
227
|
|
|
$
|
212
|
|
|
$
|
214
|
|
|
$
|
248
|
|
|
$
|
256
|
|
|
$
|
261
|
|
|
$
|
264
|
|
|
$
|
266
|
|
|
$
|
265
|
|
Free cash flow for discounting(1)
|
|
$
|
79
|
|
|
$
|
227
|
|
|
$
|
212
|
|
|
$
|
214
|
|
|
$
|
248
|
|
|
$
|
256
|
|
|
$
|
261
|
|
|
$
|
264
|
|
|
$
|
266
|
|
|
$
|
265
|
|
(1)
|
Free cash flow for discounting adjusted for $57 million assumed acquisition outflow in the first six months of 2012.
|
The Companys stockholders are cautioned not to place undue reliance on the forecasts and projections included in this
Schedule 14D-9, and such forecasted and projected financial information should not be regarded as an indication that the Company, the Board, J.P. Morgan, or any other person considered, or now considers, them to be reliable predictions of
future results, and they should not be relied upon as such.
ITEM 5.
PERSONS/ASSETS RETAINED,
EMPLOYED, COMPENSATED OR USED.
Information pertaining to the retention of J.P. Morgan in
Item 4. The
Solicitation or Recommendation Background and Reasons for the Recommendation Opinion of the Companys Financial Advisor
is incorporated herein by reference.
Except as set forth above, neither the Company nor any person acting on its behalf has or currently intends to employ, retain or
compensate any person to make solicitations or recommendations to stockholders on its behalf with respect to the Offer.
ITEM 6.
INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
No transactions with respect to
Shares have been effected during the 60 days prior to the date of this Schedule 14D-9 by the Company or, to the Companys knowledge after making reasonable inquiry, by any of its executive officers, directors, affiliates or subsidiaries, other
than the grant of the Top-Up Option pursuant to the Merger Agreement and the following purchase of 291 shares at the average price of $19.49 by Shawn Schabel on May 31, 2012 pursuant to the ESPP as set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Date of
Transaction
|
|
|
Nature of Transaction
|
|
Number of
Shares
|
|
|
Weighted
Average Price
/
Share
|
|
Shawn Schabel
|
|
|
May 31, 2012
|
|
|
Purchase pursuant to ESPP
|
|
|
291
|
|
|
$
|
19.49
|
|
23
ITEM 7.
PURPOSES OF THE TRANSACTION AND PLANS OR
PROPOSALS.
Subject Company Negotiations.
Except as otherwise set forth in this Schedule 14D-9 (including in the Exhibits to this Schedule 14D-9) or as incorporated in this
Schedule 14D-9 by reference, the Company is not currently undertaking or engaged in any negotiations in response to the Offer that relate to, or would result in, (i) a tender offer for, or other acquisition of, Shares by the Company, any of its
subsidiaries or any other person, (ii) any extraordinary transaction, such as a merger, reorganization or liquidation, involving the Company or any of its subsidiaries, (iii) any purchase, sale or transfer of a material amount of assets of
the Company or any of its subsidiaries or (iv) any material change in the present dividend rate or policy, or indebtedness or capitalization, of the Company.
Except as described above or otherwise set forth in this Schedule 14D-9 (including in the Exhibits to this Schedule 14D-9) or as incorporated in this Schedule 14D-9 by reference, there are no
transactions, resolutions of the Board, agreements in principle or signed contracts in response to the Offer that relate to, or would result in, one or more of the events referred to in the preceding paragraph.
ITEM 8.
ADDITIONAL INFORMATION
.
Regulatory Approvals.
The Offer is conditioned on satisfaction (or waiver) of the condition that all waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the regulations thereunder
(the
HSR Act
) will have expired or been terminated (the
Regulatory Condition
). In order to satisfy the Regulatory Condition, the parties must make a filing with the Federal Trade Commission (the
FTC
) and the Antitrust Division of the Department of Justice (the
Antitrust Division
). If Purchasers acquisition of Shares is delayed due to a failure to satisfy the Regulatory Condition, the
Offer will be extended in certain circumstances. See
Section 15Certain Conditions of the Offer
and
Section 16Certain Legal Matters; Regulatory Approvals
in the Offer to Purchase.
Under the HSR Act and the rules that have been promulgated thereunder by the FTC, certain acquisition transactions may not be consummated
unless certain information has been furnished to the FTC and the Antitrust Division and certain waiting period requirements have been satisfied. The purchase of Shares pursuant to the Offer is subject to such requirements. See
Section
15Certain Conditions of the Offer
and
Section 16Certain Legal Matters; Regulatory Approvals
in the Offer to Purchase.
The parties anticipate filing Notification and Report Forms pursuant to the HSR Act with the FTC and the Antitrust Division on or prior to July 11, 2012. Under the HSR Act, the required waiting
period will expire at 11:59 pm, New York City time on the 15th calendar day after the filing, unless earlier terminated by the FTC and the Antitrust Division or unless Parent or the Company receives a request for additional information or
documentary material (
Second Request
) from either the FTC or the Antitrust Division prior to that time. If a Second Request issues, the waiting period with respect to the Offer (and the Merger) would be extended for an
additional period of ten calendar days following the date of Parents or the Companys, as applicable, substantial compliance with that request. If either the 15-day or ten-day waiting period expires on a Saturday, Sunday or federal
holiday, then the period is extended until 11:59 p.m. of the next day that is not a Saturday, Sunday or federal holiday.
The
FTC and the Antitrust Division scrutinize the legality under the antitrust laws of transactions such as the acquisition of Shares by Purchaser pursuant to the Offer. At any time before or after the consummation of any such transactions, the FTC or
the Antitrust Division could take such action under the antitrust laws of the United States as it deems necessary or desirable in the public interest, including seeking to enjoin the purchase of Shares pursuant to the Offer or seeking divestiture of
the Shares so acquired or divestiture of substantial assets of the Company. Private parties or individual states may also bring legal actions under the antitrust laws of the
24
United States. The Company does not believe that the consummation of the Offer will result in a violation of any applicable antitrust laws. However, there can be no assurance that a challenge to
the Offer on antitrust grounds will not be made, or if such a challenge is made, what the result will be.
Appraisal Rights.
No appraisal rights are available in connection with the Offer. However, if the Merger is consummated, stockholders who have not properly tendered into the Offer and have not voted in favor of adoption of
the Merger Agreement, and who otherwise comply with the applicable procedures under Section 262 of the DGCL, will be entitled to demand appraisal of their Shares and the right to receive in cash the fair value of their Shares, as
determined by the Delaware Court of Chancery, in accordance with Section 262 of the DGCL. Any stockholder contemplating the exercise of such appraisal rights should review carefully the provisions of Section 262 of the DGCL, particularly
the procedural steps required to perfect such rights.
The obligations of the Company to notify stockholders of their
appraisal rights will depend on how the Merger is effected. If a meeting of the Companys stockholders is held to adopt the Merger Agreement, the Company will be required to send a notice to each stockholder of record not less than 20 days
prior to the special meeting of Company stockholders that appraisal rights are available, together with a copy of Section 262 of the DGCL. Within 10 days after the effective time of the Merger, the Surviving Corporation will be required to send
a notice that the Merger has become effective to each stockholder who delivered to the Company a demand for appraisal prior to the vote and who did not vote in favor of adoption of the Merger Agreement. Alternatively, if the Merger is consummated
through a short-form merger procedure without any meeting of stockholders, the Surviving Corporation will be required to send a notice within 10 days after the date the Merger has become effective to each Company stockholder of record on the
effective date of the Merger. The notice will inform stockholders of the effective date of the Merger and of the availability of, and procedure for demanding, appraisal rights, and will include a copy of Section 262 of the DGCL. FAILURE TO
FOLLOW THE STEPS REQUIRED BY SECTION 262 OF THE DGCL FOR PERFECTING APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS.
APPRAISAL RIGHTS CANNOT BE EXERCISED AT THIS TIME. THE INFORMATION SET FORTH ABOVE IS FOR INFORMATIONAL PURPOSES ONLY WITH RESPECT TO
ALTERNATIVES AVAILABLE TO STOCKHOLDERS IF THE MERGER IS COMPLETED. STOCKHOLDERS WHO WILL BE ENTITLED TO APPRAISAL RIGHTS IN CONNECTION WITH THE MERGER WILL RECEIVE ADDITIONAL INFORMATION CONCERNING APPRAISAL RIGHTS AND THE PROCEDURES TO BE FOLLOWED
IN CONNECTION THEREWITH BEFORE SUCH STOCKHOLDERS HAVE TO TAKE ANY ACTION RELATING THERETO.
STOCKHOLDERS WHO SELL SHARES IN
THE OFFER WILL NOT BE ENTITLED TO EXERCISE APPRAISAL RIGHTS WITH RESPECT THERETO BUT, RATHER, WILL RECEIVE THE OFFER PRICE.
The foregoing discussion is not a complete statement of law pertaining to appraisal rights under the DGCL and is qualified in its
entirety by the full text of Section 262 of the DGCL, the text of which is set forth in
Annex C
hereto and hereby incorporated herein by reference.
Anti-Takeov
er Statute.
The Company is
incorporated under the laws of the State of Delaware. In general, Section 203 of the DGCL (
Section 203
) prohibits a Delaware corporation from engaging in any business combination (defined to include mergers
and certain other transactions) with an interested stockholder (which includes a person who owns or has the right to acquire 15% or more of the corporations issued and outstanding voting stock) for a period of three years following
the time such person became an interested stockholder unless, among other
25
things, prior to the interested stockholder becoming such, the board of directors approved either the business combination or the transaction which resulted in the interested stockholder becoming
such. The Boards approval of the Merger Agreement, the Offer, and the Merger constitutes an approval of the business combination and transaction for the purposes of Section 203, and the Board has approved each of Parent and Purchaser (and
any designee of Parent pursuant to the terms of the Merger Agreement) becoming an interested stockholder for purposes of Section 203 pursuant to the Offer and the Merger.
The Company is not aware of any other state takeover laws or regulations that are applicable to the Offer or the Merger and has not attempted to comply with any other state takeover laws or regulations.
As set forth in the Offer to Purchase, in the event it is asserted that one or more state takeover statutes is applicable to the Offer and an appropriate court does not determine that such statute is inapplicable or invalid as applied to the Offer,
Purchaser might be required to file certain information with, or to receive approval from, the relevant state authorities, and Purchaser might be unable to accept for payment or pay for Shares tendered into the Offer, or be delayed in consummating
the Offer.
Vote Required to Approve the Merger.
The Board has approved the Offer, the Merger and the Merger Agreement in accordance with the DGCL. If Parent, Purchaser and any of
Parents other subsidiaries hold, in the aggregate, at least 90% of the issued and outstanding Shares after completion of the Offer (the
Short Form Threshold
), including any subsequent offering period (as provided in
Rule 14d-11 under the Exchange Act), Purchaser will merge with and into the Company under the short-form merger provisions of the DGCL, without prior notice to, or any action by, any other stockholder of the Company. If Parent, Purchaser
and any of Parents other subsidiaries hold, in the aggregate, less than 90% of the outstanding Shares, the affirmative vote, as permitted under Delaware law, of the holders of a majority of the issued and outstanding Shares to adopt the Merger
Agreement will be required under the DGCL to effect the Merger. After the purchase of the Shares by Purchaser pursuant to the Offer, Purchaser will own a majority of the outstanding Shares and will be able to effect the Merger without the
affirmative vote of any other stockholder of the Company.
Top-Up Option.
Subject to the terms of the Merger Agreement, the Company has granted Purchaser an irrevocable option (the
Top-Up
Option
) exercisable by Purchaser once, in whole and not in part, immediately after the Acceptance Time (or the expiration of any subsequent offering period) and on the terms and conditions set forth in the Merger Agreement, to purchase
from the Company that number of newly-issued shares of Company common stock (the
Top-Up Option Shares
) that, when added to the number of Shares owned by Parent and its subsidiaries immediately following consummation of the
Offer, will constitute one Share more than the Short Form Threshold (after giving effect to the issuance of such Shares), subject to the maximum number of authorized and unissued shares of Company common stock available for issuance. The aggregate
amount payable to the Company for the Top-Up Option Shares is equal to the product of the number of the Top-Up Option Shares and the Offer Price (the
Top-Up Consideration
). The Top-Up Consideration will consist of
(i) an amount equal to the par value of the Top-Up Option Shares, to be paid in cash, and (ii) an amount equal to the balance of the Top-Up Consideration to be paid either in cash or by issuance of a promissory note in accordance with the
terms of the Merger Agreement. Purchasers exercise of the Top-Up Option is subject to the conditions that, among other things, (i) upon exercise of the Top-Up Option, the aggregate number of Shares owned by Parent and its subsidiaries
would exceed the Short Form Threshold and (ii) Purchaser has accepted for payment all Shares validly tendered in the Offer and not withdrawn.
The ability of the Purchaser to exercise the Top-Up Option will terminate upon the earlier of (i) the fifth business day after the later of the Acceptance Date and the expiration of any subsequent
offering period and (ii) the termination of the Merger Agreement in accordance with its terms. If, following the Offer, with or without the exercise of the Top-Up Option, Purchaser owns at least 90% of the outstanding Shares, Parent,
26
Purchaser and the Company will take all necessary and appropriate action to consummate the Merger as a short-form merger as soon as practicable without a meeting of stockholders in accordance
with Section 253 of the DGCL. The parties have agreed that Shares issued pursuant to the Top-Up Option and the consideration received therefor will not be considered in any statutory appraisal proceeding.
This summary of the Top-Up Option is qualified in its entirety by reference to the Merger Agreement.
Certain Litigation.
On July 11, 2012, a putative shareholder class action complaint, captioned
Fader v. Lincare Holdings, Inc., et. al.
, Case No.
12-8401, was filed in the Circuit Court of the 6th Judicial Circuit in and for Pinellas County, Florida, Circuit Civil Division (the
Fader Complaint
), against the Company, the members of the Board, Parent and
Purchaser. The Fader Complaint alleges that the members of the Board breached their fiduciary duties to the Companys shareholders by entering into the Merger Agreement, and further alleges that Parent and Purchaser aided and abetted the
members of the Board in breaching their fiduciary duties. The Fader Complaint seeks, among other things, to enjoin the transactions contemplated by the Merger Agreement. The Company, Parent and Purchaser intend to vigorously defend against
these claims.
Section 14(f) Information Statement.
The Information Statement is being furnished to the stockholders pursuant to Section 14(f) of the Exchange Act, and Rule 14f-1
promulgated thereunder, in connection with Purchasers right, pursuant to the Merger Agreement, to designate persons to the Board promptly after the Acceptance Time.
Golden Parachute Compensation.
This
section sets forth the information required by Item 402(t) of Regulation S-K regarding the compensation for each of our current named executive officers that is based on or otherwise relates to the Offer and the Merger. This compensation is
referred to as golden parachute compensation by the applicable SEC disclosure rules, and in this section we use such term to describe the merger-related compensation payable to our named executive officers.
Messrs. Byrnes, Gabos and Schabel are the Companys current named executive officers. The Company has entered into employment
agreements with its named executive officers, as described above in
Item 3. Past Contacts, Transactions, Negotiations and Agreements Arrangements with Current Executive Officers and Directors of the Company Employment
Agreements with Messrs. Byrnes, Gabos and Schabel
and such employment agreements are incorporated herein by reference.
The terms of the outstanding Company equity awards provide for vesting in connection with transactions contemplated by the Merger Agreement, as described above in
Item 3. Past Contacts,
Transactions,
Negotiations and Agreements Arrangements with Current Executive Officers and Directors of the Company Effect of the Offer and the Merger Agreement on Equity Awards
and
Annex A Executive
Compensation Outstanding Equity Awards
.
The amounts reported below are estimates based on multiple assumptions that
may or may not actually occur, including assumptions described in this Schedule 14D-9, and do not reflect certain compensation actions occurring before completion of the Merger. As a result, the actual amounts, if any, to be received by a named
executive officer may differ materially from the amounts set forth below.
The following table sets forth the information
required by Item 402(t) of Regulation S-K regarding the compensation for each named executive officer that is based on or otherwise relates to the Offer and the Merger, assuming the following:
|
(a)
|
the Merger is pursuant to a single triggering event;
|
|
(b)
|
payments to the named executive officers are not conditional upon resignation or termination of the named executive officers; and
|
|
(c)
|
the $41.50 per Share cash consideration payable under the Merger Agreement.
|
27
Golden Parachute Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Cash($)(1)
|
|
|
Equity($)(2)
|
|
|
Pension/
NQDC($)(3)
|
|
|
Perquisites/
Benefits($)(4)
|
|
|
Tax
Reimbursement
($)(5)
|
|
|
Other($)(6)
|
|
|
Total ($)
|
|
John Byrnes
|
|
|
3,705,112
|
|
|
|
47,686,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,391,112
|
|
Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shawn Schabel
|
|
|
2,480,540
|
|
|
|
33,142,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,623,040
|
|
Chief Operating Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul Gabos
|
|
|
1,866,418
|
|
|
|
15,807,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,673,418
|
|
Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
These amounts represent severance payments payable in a lump sum cash payment.
|
Mr. Byrnes will receive a lump sum cash severance payment of $3,705,112, consisting of two-times the sum of (A) his annual base salary for fiscal year 2012 of $962,891, (B) his average
bonus amount for the preceding three calendar years (2009-2011) of $875,801; and (C) an amount determined by the Company, in its sole discretion, to be equal to the average annual cost for Company employees of obtaining medical, dental and
vision insurance under COBRA, which amount is estimated to be $13,864.
Mr. Schabel will receive a lump sum cash severance
payment of $2,480,540, consisting of two-times the sum of (A) his annual base salary for fiscal year 2012 of $642,247, (B) his average bonus amount for the preceding three calendar years (2009-2011) of $584,159; and (C) an amount
determined by the Company, in its sole discretion, to be equal to the average annual cost for Company employees of obtaining medical, dental and vision insurance under COBRA, which amount is estimated to be $13,864.
Mr. Gabos will receive a lump sum cash severance payment of $1,866,418, consisting of two-times the sum of (A) his annual base
salary for fiscal year 2012 of $481,445, (B) his average bonus amount for the preceding three calendar years (2009-2011) of $437,900; and (C) an amount determined by the Company, in its sole discretion, to be equal to the average annual
cost for Company employees of obtaining medical, dental and vision insurance under COBRA, which amount is estimated to be $13,864.
These amounts assume that base salaries remain unchanged from their levels in effect on the date of this Schedule 14D-9. These amounts also assume that each named executive officer has satisfied the
requirements under his employment agreement to receive such payments for the maximum period of time.
(2)
|
These amounts represent the aggregate amount of unvested restricted shares as well as the option spread value with respect to the outstanding unvested options.
Mr. Byrnes would benefit from the acceleration of the vesting of 1,060,000 shares of restricted stock having a gross value of $43,990,000 based on the $41.50 per share closing price of the Companys common stock and options to purchase
175,000 shares of common stock with a net value of $3,696,000 based on the difference between the $41.50 closing price and the $20.38 exercise price of the in-the-money stock options.
|
Mr. Schabel would benefit from the acceleration of the vesting of 735,000 shares of restricted stock having a gross value of
$30,502,500 based on the $41.50 per share closing price of the Companys common stock and options to purchase 125,000 shares of common stock with a net value of $2,640,000 based on the difference between the $41.50 closing price and the $20.38
exercise price of the in-the-money stock options.
Mr. Gabos would benefit from the acceleration of the vesting of 330,000
shares of restricted stock having a gross value of $13,695,000 based on the $41.50 per share closing price of the Companys common stock and options to purchase 100,000 shares of common stock with a net value of $2,112,000 based on the
difference between the $41.50 closing price and the $20.38 exercise price of the in-the-money stock options.
(3)
|
The named executive officers are not entitled to any pension or non-qualified deferred compensation benefit enhancements for a qualifying termination in connection with
a change of control or otherwise.
|
(4)
|
The named executive officers are not entitled to any perquisites or other personal benefits or property for a qualifying termination in connection with a change of
control, other than for reimbursement of healthcare costs (including the costs of healthcare insurance) included in (1). These benefits have been calculated based on assumptions used by the Company for financial reporting purposes under generally
accepted accounting principles, including that the cost of COBRA coverage would represent the cost of continuing coverage.
|
(5)
|
The named executive officers are not entitled to any make-up payments for taxes incurred by each named executive officer in connection with the change of control.
|
(6)
|
These amounts represent the aggregate dollar value of any other compensation that is based on or otherwise relates to the transactions contemplated by the Merger
Agreement not reported in columns (1) through (5).
|
28
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Schedule 14D-9 contains forward-looking statements that involve significant risks and uncertainties.
All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including: any statements regarding the anticipated timing of filings and approvals relating to the Offer and the Merger; any
statements regarding the expected timing of the completion of the Offer and the Merger; any statements regarding the ability to complete the Offer or the Merger considering the various closing conditions, including that the Offerors acquire more
than 50% of the outstanding Shares on a fully diluted basis pursuant to the Offer, any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. Investors and stockholders are cautioned not to place
undue reliance on these forward-looking statements. Actual results could differ materially from those currently anticipated due to a number of risks and uncertainties. Risks and uncertainties that could cause results to differ from expectations
include: uncertainties as to the timing of the Offer and the Merger; uncertainties as to how many of the stockholders will tender their Shares into the Offer; the possibility that various closing conditions for the Offer or the Merger may not be
satisfied or waived, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the Offer or the Merger; the effects of disruption from the Offer and the Merger making it more difficult for the
Company to maintain relationships with employees, licensees, other business partners or governmental entities; other business effects, including the effects of industrial, economic or political conditions outside of the Companys control;
transaction costs; actual or contingent liabilities; and other risks and uncertainties discussed in this Schedule 14D-9 and other documents filed with the SEC by the Company, as well as the Schedule TO filed with the SEC by Purchaser. All of the
materials related to the Offer (and all other offer documents filed with the SEC) are available at no charge from the SEC through its website at
www.sec.gov
. Stockholders also may obtain free copies of the documents filed with the SEC by the
Company at
www.lincare.com
. The Company does not undertake any obligation to update any forward-looking statements as a result of new information, future developments or otherwise, except as expressly required by law.
29
ITEM 9.
EXHIBITS.
The following Exhibits are filed herewith or incorporated herein by reference:
|
|
|
Exhibit No.
|
|
Description
|
(a)(1)
|
|
Offer to Purchase, dated July 11, 2012 (incorporated by reference to Exhibit (a)(1)(A) to the Tender Offer Statement on Schedule TO filed by Linde AG and Linde US Inc. on July 11,
2012 (the
Schedule TO
)).
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|
(a)(2)
|
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Letter of Transmittal (incorporated by reference to Exhibit (a)(1)(B) to the Schedule TO).
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(a)(3)
|
|
Letter, dated July 11, 2012, to the stockholders of Lincare Holdings Inc.*
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|
(a)(4)
|
|
Notice of Guaranteed Delivery (incorporated by reference to Exhibit (a)(1)(C) to the Schedule TO).
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(a)(5)
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Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees (incorporated by reference to Exhibit (a)(1)(D) to the Schedule TO).
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|
(a)(6)
|
|
Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees (incorporated by reference to Exhibit (a)(1)(E) to the Schedule
TO).
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|
(a)(7)
|
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Letter to Participants in Lincare Holdings Inc. 2009 Stock Purchase Plan for use by the Administrator of the Plan (incorporated by reference to Exhibit (a)(1)(F) to the Schedule
TO).
|
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|
(a)(8)
|
|
Joint Press Release of Linde AG and Lincare Holdings Inc., dated July 2, 2012 (incorporated by reference to Exhibit 99.1 to the Companys Current Report on Form 8-K dated July
6, 2012, File No. 005-43150, Exhibit 99.1).
|
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|
(a)(9)
|
|
Opinion of J.P. Morgan Securities LLC, dated July 1, 2012 (included as
Annex B
to this Schedule 14D-9).*
|
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(a)(10)
|
|
Information Statement Pursuant to Section 14(f) of the Securities Exchange Act of 1934 and Rule 14f-1 thereunder (included as
Annex A
to this Schedule
14D-9).*
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(a)(11)
|
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Summary Advertisement, published July 11, 2012 in The Wall Street Journal (incorporated by reference to Exhibit (a)(5)(G) to the Schedule TO).
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|
(e)(1)
|
|
Agreement and Plan of Merger, dated as of July 1, 2012 among Linde AG, Linde US Inc. and Lincare Holdings Inc. (incorporated by reference to Exhibit 2.1 to the Companys
Current Report on Form 8-K filed on July 6, 2012, File No. 005-43150, Exhibit 2.1).
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|
(e)(2)
|
|
Confidentiality Agreement, dated April 15, 2011, by and between Lincare Holdings Inc. and Linde AG (incorporated by reference to Exhibit (d)(2) to the Schedule TO).
|
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|
(e)(3)
|
|
Letter Agreement Regarding Confidentiality Agreement, dated May 29, 2012, by and between Lincare Holdings Inc. and Linde AG (incorporated by reference to Exhibit (d)(3) to the
Schedule TO).
|
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|
(e)(4)
|
|
Amended and Restated Lincare Holdings Inc. 1998 Stock Plan (incorporated by reference to Exhibit 10.24 to the Companys Annual Report on Form 10-K dated March 29,
2001)
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|
(e)(5)
|
|
Lincare Holdings Inc. 2000 Stock Plan (incorporated by reference to Exhibit 10.25 to the Companys Annual Report on Form 10-K dated March 29, 2001)
|
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|
(e)(6)
|
|
Amended Lincare Holdings Inc. 2001 Stock Plan (incorporated by reference to Exhibit 10.27 to the Companys Quarterly Report on Form 10-Q dated August 14,
2003)
|
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|
(e)(7)
|
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Lincare Holdings Inc. 2004 Stock Plan (incorporated by reference to the Companys Form DEF 14A dated April 22, 2004)
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(e)(8)
|
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Lincare Holdings Inc. 2007 Stock Plan (incorporated by reference to Exhibit B to the Companys Proxy Statement on Schedule 14A dated April 5,
2007)
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30
|
|
|
Exhibit No.
|
|
Description
|
(e)(9)
|
|
Lincare Inc. 401(k) Plan (incorporated by reference to Exhibit 10.30 to the Companys Quarterly Report on Form 10-Q dated May 13, 2002)
|
|
|
(e)(10)
|
|
Lincare Holdings Inc. 2009 Employee Stock Purchase Plan (incorporated by reference to the Exhibit A to the Companys Proxy Statement on Schedule 14A dated April 1,
2009)
|
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|
(e)(11)
|
|
Non-Qualified Stock Option Agreement between Lincare Holdings Inc. and John P. Byrnes dated October 1, 2009 (incorporated by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K dated October 5, 2009)
|
|
|
(e)(12)
|
|
Non-Qualified Stock Option Agreement between Lincare Holdings Inc. and Shawn S. Schabel dated October 1, 2009 (incorporated by reference to Exhibit 10.2 to the Companys
Current Report on Form 8-K dated October 5, 2009)
|
|
|
(e)(13)
|
|
Non-Qualified Stock Option Agreement between Lincare Holdings Inc. and Paul G. Gabos dated October 1, 2009 (incorporated by reference to Exhibit 10.3 to the Companys Current
Report on Form 8-K dated October 5, 2009)
|
|
|
(e)(14)
|
|
Restricted Stock Agreement between Lincare Holdings Inc. and John P. Byrnes dated October 1, 2009 (incorporated by reference to Exhibit 10.4 to the Companys Current Report on
Form 8-K dated October 5, 2009)
|
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|
(e)(15)
|
|
Restricted Stock Agreement between Lincare Holdings Inc. and Shawn S. Schabel dated October 1, 2009 (incorporated by reference to Exhibit 10.5 to the Companys Current Report
on Form 8-K dated October 5, 2009)
|
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|
(e)(16)
|
|
Restricted Stock Agreement between Lincare Holdings Inc. and Paul G. Gabos dated October 1, 2009 (incorporated by reference to Exhibit 10.6 to the Companys Current Report on
Form 8-K dated October 5, 2009)
|
|
|
(e)(17)
|
|
Restricted Stock Agreement between Lincare Holdings Inc. and John P. Byrnes dated February 10, 2012 (incorporated by reference to Exhibit 10.3 to the Companys Current Report
on Form 8-K dated February 14, 2012)
|
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|
(e)(18)
|
|
Restricted Stock Agreement between Lincare Holdings Inc. and Shawn S. Schabel dated February 10, 2012 (incorporated by reference to Exhibit 10.4 to the Companys Current
Report on Form 8-K dated February 14, 2012)
|
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|
(e)(19)
|
|
Form of Executive Employment Agreement dated December 15, 2001 (incorporated by reference to Exhibit 10.44 to the Companys Annual Report on Form 10-K dated March 28,
2002)
|
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|
(e)(20)
|
|
Employment Agreement between Lincare Holdings Inc. and John P. Byrnes dated November 15, 2004 (incorporated by reference to Exhibit 99.2 to the Companys Current Report on Form
8-K dated November 18, 2004)
|
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|
(e)(21)
|
|
Employment Agreement between Lincare Holdings Inc. and Shawn S. Schabel dated November 15, 2004 (incorporated by reference to Exhibit 99.3 to the Companys Current Report
on Form 8-K dated November 18, 2004)
|
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|
(e)(22)
|
|
Employment Agreement between Lincare Holdings Inc. and Paul G. Gabos dated November 15, 2004 (incorporated by reference to Exhibit 99.4 to the Companys Current Report on Form
8-K dated November 18, 2004)
|
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|
(e)(23)
|
|
Second Amended Employment Agreements between Lincare Holdings Inc. and John P. Byrnes dated December 28, 2007 (incorporated by reference to Exhibit 99.2 to the
Companys Current Report on Form 8-K dated January 3, 2008)
|
31
|
|
|
Exhibit No.
|
|
Description
|
(e)(24)
|
|
Second Amended Employment Agreements between Lincare Holdings Inc. and Shawn S. Schabel dated December 28, 2007 (incorporated by reference to Exhibit 99.3 to the Companys
Current Report on Form 8-K dated January 3, 2008)
|
|
|
(e)(25)
|
|
Second Amended Employment Agreements between Lincare Holdings Inc. and Paul G. Gabos dated December 28, 2007 (incorporated by reference to Exhibit 99.4 to the
Companys Current Report on Form 8-K dated January 3, 2008)
|
|
|
(e)(26)
|
|
Third Amended Employment Agreements between Lincare Holdings Inc. and John P. Byrnes dated February 10, 2012 (incorporated by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K dated October 5, 2009)
|
|
|
(e)(27)
|
|
Third Amended Employment Agreements between Lincare Holdings Inc. and Shawn S. Schabel dated February 10, 2012 (incorporated by reference to Exhibit 10.2 to the Companys
Current Report on Form 8-K dated October 5, 2009)
|
|
|
(e)(28)
|
|
Third Amended Employment Agreements between Lincare Holdings Inc. and Paul G. Gabos dated February 10, 2012 (incorporated by reference to Exhibit 10.3 to the Companys Current
Report on Form 8-K dated October 5, 2009)
|
|
|
(e)(29)
|
|
Form of Non-employee Director Stock Option Agreement (incorporated by reference to Exhibit 10.43 to the Companys Annual Report on Form 10-K dated March 26,
1998)
|
|
|
(e)(30)
|
|
Form of Non-qualified Stock Option Agreement (incorporated by reference to Exhibit 10.44 to the Companys Annual Report on Form 10-K dated March 26, 1998)
|
|
|
(e)(31)
|
|
Fourth Amended Executive Employment Agreement, dated February 10, 2012 (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed dated
February 14, 2012)
|
|
|
(e)(32)
|
|
Fourth Amended Executive Employment Agreement, dated February 10, 2012 (incorporated by reference to Exhibit 10.2 to the Companys Current Report on Form 8-K dated
February 14, 2012)
|
|
|
(e)(33)
|
|
Employment Agreement with Paul Gabos, dated October 1, 2009 (incorporated by reference to Exhibit 10.3 to the Companys Current Report on Form 8-K dated February 14,
2012)
|
32
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Schedule 14D-9 is true, complete and correct.
|
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|
LINCARE HOLDINGS INC.
|
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|
Dated: July 11, 2012
|
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|
By:
|
|
/
S
/ P
AUL
G. G
ABOS
|
|
|
|
|
Name:
|
|
Paul G. Gabos
|
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|
|
|
Title:
|
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Chief Financial Officer
|
33
ANNEX A
LINCARE HOLDINGS INC.
19387 U.S. 19 North
Clearwater, Florida 33764
INFORMATION STATEMENT PURSUANT TO SECTION 14(f) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED AND RULE 14f-1 THEREUNDER
WE ARE NOT ASKING FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A
PROXY
This Information Statement (this
Information Statement
) is being mailed on or about July
11, 2012 to holders of record of common stock, par value $0.01 per share (
Shares
), of Lincare Holdings Inc., a Delaware corporation (
Lincare
or the
Company
), as a part of
the Solicitation/Recommendation Statement on Schedule 14D-9 (the
Schedule 14D-9
) of the Company with respect to the cash tender offer (the
Offer
) by Linde US Inc.
(
Purchaser
), a Delaware corporation and a wholly owned indirect subsidiary of Linde AG, a stock corporation organized under the Laws of Germany (
Parent
), to purchase all Shares that are issued and
outstanding. Unless the context indicates otherwise, in this Information Statement, we use the terms us, we, and our to refer to the Company. You are receiving this Information Statement in connection with the
possible appointment of persons designated by Parent without a meeting of stockholders to a majority of the seats on the Companys board of directors (the
Board
). Such designation would be made pursuant to the
Agreement and Plan of Merger, dated as of July 1, 2012, by and among Parent, Purchaser and the Company (as such agreement may be amended or supplemented from time to time in accordance with its terms, the
Merger
Agreement
).
Pursuant to the Merger Agreement, Purchaser commenced a cash tender offer on July 11, 2012 to
purchase all of the issued and outstanding Shares at a purchase price of $41.50 per Share (the
Offer Price
), subject to any required withholding taxes, net to the seller in cash and without any interest thereon, on the
terms and subject to the conditions provided for in the Offer to Purchase, dated July 11, 2012 (as amended or supplemented from time to time, the
Offer to Purchase
), and the related letter of transmittal (as it may be
amended or supplemented from time to time). The Offer is described in a Tender Offer Statement on Schedule TO (as amended or supplemented from time to time, the
Schedule TO
), filed by Parent and Purchaser with the United
States Securities and Exchange Commission (the
SEC
) on July 11, 2012.
The Merger Agreement
provides, among other things, that within two business days following the completion of the Offer and satisfaction or waiver of the remaining applicable conditions set forth in the Merger Agreement, Purchaser will merge with and into the Company
(the
Merger
), with the Company surviving as a wholly owned indirect subsidiary of Parent. The Merger Agreement provides that the Merger may not be consummated unless the Offer is completed. At the effective time of the
Merger (the
Effective Time
), each outstanding Share (other than (i) Shares owned by Parent or Purchaser or Shares owned by the Company as treasury stock, which will be cancelled and will cease to exist, (ii) Shares owned by
a subsidiary of the Company or a subsidiary of Parent (other than Purchaser), which will be converted into and become shares of common stock of the surviving corporation, and (iii) Shares owned by the Companys stockholders who properly demand
appraisal of their Shares pursuant to the Delaware General Corporation Law (as described in Item 8 under the heading
Additional Information Appraisal Rights
of the Schedule 14D-9)), will be cancelled and converted into
the right to receive an amount in cash equal to the Offer Price, without interest and subject to any required withholding of taxes (the
Merger Consideration
).
The Offer is initially scheduled to expire at 12:00 midnight, New York City time, on Tuesday, August 7, 2012 (which is the end of
the day on August 7, 2012), subject to extension in certain circumstances as required or permitted by the Merger Agreement, the SEC or applicable law.
A-1
The Merger Agreement provides that, upon the purchase of Shares pursuant to the Offer and
for so long thereafter as Parent and its subsidiaries own in the aggregate more than 50% of Shares then outstanding determined on a fully diluted basis, Parent will, subject to compliance with the applicable federal securities Laws and the
applicable rules of the NASDAQ Stock Market (
NASDAQ
), be entitled designate for appointment or election to the Board, upon written notice to the Company, such number of directors, rounded up to the next whole number, as is
equal to the product obtained by multiplying the total number of directors on the Board (after giving effect to the directors designated by Parent pursuant to this sentence) by the percentage that the number of Shares so owned by Parent and its
subsidiaries bears to the total number of Shares then outstanding on a fully-diluted basis. The Merger Agreement further provides that the Company will, upon request of Parent, use its reasonable best efforts to promptly cause Parents
designees (and any replacement designees in the event that any designee will no longer be on the Board) to be so appointed or elected to the Board and, in furtherance thereof, to the extent necessary, use its reasonable best efforts to increase the
size of the Board or obtain the resignation of such number of the incumbent directors as is necessary to give effect to the foregoing provision.
This Information Statement is required by Section 14(f) of the Securities Exchange Act of 1934, as amended (the
Exchange Act
), and Rule 14f-1 thereunder, in connection with
the possible appointment of Parents designees to the Board. This Information Statement supplements certain information in the Schedule 14D-9 to which this Information Statement is attached as
Annex A
. You are not required to take any
action with respect to the subject matter of this Information Statement.
The information contained in this Information
Statement (including information incorporated by reference herein) concerning Purchaser and concerning Parents designees has been furnished to the Company by Parent and Purchaser, and the Company assumes no responsibility for the accuracy or
completeness of such information.
PARENTS DESIGNEES TO THE BOARD
Information with Respect to the Designees
Parent has informed the Company that it will choose its designees to the Board from the list of persons set forth below (the
Potential Designees
).
The Potential Designees have consented to serve as directors of the Company if so elected or appointed. None of the Potential Designees
currently is a director of, or holds any position with, the Company. Parent has informed the Company that, to its knowledge, none of the Potential Designees beneficially owns any equity securities or rights to acquire any equity securities of the
Company, has a familial relationship with any director or executive officer of the Company or has been involved in any transactions with the Company or any of its directors, executive officers or affiliates that are required to be disclosed pursuant
to the rules of the SEC.
Parent has informed the Company that, to the best of its knowledge, none of the Potential Designees
has, during the past 10 years, (i) been convicted in a criminal proceeding (excluding traffic violations or other minor offenses) or (ii) been subject to a judgment, decree or final order (other than those that were subsequently reversed,
suspended or vacated) enjoining the person from future violations of, or prohibiting activities subject to, U.S. federal or state securities laws, or a finding of any violation of U.S. federal or state securities laws.
It is expected that the designees of Parent may assume office at any time following the purchase by Purchaser of Shares pursuant to the
Offer, which purchase cannot be earlier than August 8, 2012, and that, upon assuming office, such designees will thereafter constitute at least a majority of the Board.
List of Potential Designees
The following table sets forth information
with respect to the Potential Designees (including, as of July 11, 2012, age, current principal occupation or employment and employment history during the last five years). The
A-2
business address of Mr. Luehring, Mr. Murphy and Mr. Weller is Linde US Inc., 575 Mountain Avenue, Murray Hill, NJ 07974. The business address of Mr. Schneider is Linde AG,
Klosterhofstrasse 1, 80331 Munich, Germany.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
|
Current Principal Occupation or Employment;
Position(s)
Held During At Least the Past Five Years; Business Experience
|
Jens Luehring
|
|
|
39
|
|
|
Jens Luehring has been the Head of Finance, Americas, of The Linde Group since April 2012. Mr. Luehring also serves as a director and the
Chief Financial Officer of Purchaser. Prior to his current role, Mr. Luehring had been the Head of Mergers & Acquisitions of The Linde Group from April 2007 to March 2012. Mr. Luehring received a Master of Business Economics from Hanover
University in 1998. Prior to joining The Linde Group in January 2006, Mr. Luehring gained experience in investment banking, covering corporate finance, private equity, equity capital markets and mergers & acquisitions. At The Linde Group in
the Americas, Mr. Luehrings responsibilities include accounting, tax, business planning, investments, treasury, procurement and insurance.
|
|
|
|
Patrick F. Murphy
|
|
|
60
|
|
|
Patrick Murphy has been the Chief Executive Officer and President of Linde North America Inc. since 2007. Mr. Murphy also serves as a director
and the Chief Executive Officer of Purchaser. Prior to his current role, Mr. Murphy was Chief Executive Officer and President of Linde Gas LLC. Mr. Murphy has been responsible for Parents North American business since 2000 and for
Parents North American healthcare business since 2009.
|
|
|
|
Bjoern Schneider
|
|
|
41
|
|
|
Bjoern Schneider is the Head of Group Accounting, Insurance & Risk Management of Linde AG and has been a member of The Linde Group since 2003.
Prior to joining Parent, Mr. Schneider held various roles at an audit firm and received a certification as a Wirtschaftspruefer (a German certified public accountant) and as a tax advisor.
|
|
|
|
Mark D. Weller
|
|
|
56
|
|
|
Mark Weller is Vice President, General Counsel and Secretary of Linde North America Inc., Linde LLC, Linde Gas North America LLC and various
related subsidiaries of Linde North America Inc. Mr. Weller is an attorney licensed in Ohio and holds a limited law license in New Jersey. Mr. Weller received an undergraduate degree in political science from Pennsylvania State University,
a Doctor of Jurisprudence from the Cleveland Marshall College of Law and a Master in Business Administration from Cleveland State University.
|
GENERAL INFORMATION CONCERNING THE COMPANY
The authorized capital stock of the Company consists of 205,000,000 shares, of which 200,000,000 shares are designated Shares, par value
$0.01 per share and 5,000,000 shares are designated preferred stock, par value $1.00 per share. The common stock is the only type of security entitled to vote at a meeting of the Companys stockholders. Each Share entitles its record holder to
one vote on all matters submitted to a vote of the stockholders. As of July 9, 2012, there were 86,440,611 Shares outstanding. As of the date of this Information Statement, Parent and Purchaser are not the owners of record of any Shares.
A-3
CURRENT BOARD AND MANAGEMENT
Directors and Executive Officers
The following table sets forth the
directors and executive officers of the Company, their ages, and the positions held by each such person with the Company on July 11, 2012, as well as the years in which the current terms of the directors expire:
|
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|
|
|
|
|
|
|
|
Name
|
|
Age
|
|
|
Position
|
|
Expiration
of Term
|
|
John P. Byrnes
|
|
|
53
|
|
|
Chairman of the Board, Chief
Executive Officer
|
|
|
2013
|
|
Stuart H. Altman, Ph.D.(2)(4)
|
|
|
74
|
|
|
Director
|
|
|
2013
|
|
Chester B. Black(2)(3)
|
|
|
66
|
|
|
Director
|
|
|
2013
|
|
Angela P. Bryant(1)(4)
|
|
|
46
|
|
|
Director
|
|
|
2013
|
|
Frank D. Byrne, M.D.(1)(4)
|
|
|
59
|
|
|
Director
|
|
|
2013
|
|
William F. Miller, III(1)(3)
|
|
|
62
|
|
|
Director
|
|
|
2013
|
|
Ellen M. Zane(2)(3)
|
|
|
58
|
|
|
Director
|
|
|
2013
|
|
Shawn S. Schabel
|
|
|
47
|
|
|
President and Chief Operating Officer
|
|
|
2014
|
|
Paul G. Gabos
|
|
|
47
|
|
|
Chief Financial Officer
|
|
|
2012
|
|
(1)
|
Member of the Audit Committee.
|
(2)
|
Member of the Compensation Committee.
|
(3)
|
Member of the Nominating and Governance Committee.
|
(4)
|
Member of the Compliance Committee
|
The
Board
John P. Byrnes
,
53
, has served as the Chief Executive Officer of the Company since January 1997 and as
a Director of the Company since May 1997. Mr. Byrnes was appointed Chairman of the Board in March 2000. Mr. Byrnes also served as the Companys President from June 1996 until April 2003. Prior to becoming the Companys President,
Mr. Byrnes served the Company in a number of capacities over a ten-year period, including serving as the Companys Chief Operating Officer throughout 1996. Mr. Byrnes was a director of Kinetic Concepts, Inc. until February 2011. In
nominating Mr. Byrnes, the Nominating and Governance Committee considered as important factors Mr. Byrnes significant contribution to the success of the Company and his particular knowledge of and experience in the home health care
services industry in which the Company competes.
Stuart H. Altman, Ph.D., 74
, has been a director of the Company since
December 2001. Dr. Altman, Professor of National Health Policy at Brandeis University, is a member of the faculty of The Heller School for Social Policy and Management on Brandeis Waltham, Massachusetts campus and is an economist whose
research interests are primarily in the area of federal and state health policy. He served as Co-Chair of the Governor/Legislative Health Care Task Force for the Commonwealth of Massachusetts from 2000 to 2002. In 1997, he was appointed by President
Clinton to the National Bipartisan Commission on the Future of Medicare. Dr. Altman was Dean of the Heller School from 1977 to 1993 and served as interim President of Brandeis University from 1990 to 1991. Earlier in his career, Dr. Altman
was Deputy Assistant Secretary for Planning and Evaluation/Health at the U.S. Department of Health Education & Welfare and has since advised national and state governments on major health care issues and legislation. Dr. Altman is a
director of Aveta Inc., a health insurance organization, and several privately-held managed care and disease management companies. In nominating Dr. Altman, the Nominating and Governance Committee considered as important factors
Dr. Altmans expertise in public health care policy matters and his extensive knowledge of managed care and disease management organizations.
A-4
Chester B. Black
,
66
, has been a director of the Company since January 1991.
From 1989 to 1995, Mr. Black served as Chairman and President of ImageAmerica (and its predecessor companies), a provider of diagnostic imaging services. Since 1998, Mr. Black has been a managing partner in Angel Healthcare Investors, a
venture capital firm investing primarily in early stage health care companies. Mr. Black currently serves as managing partner of a privately-held company providing basic and life support ambulance transfers and serves as an advisor to many
small health care companies in the Boston area. In nominating Mr. Black, the Nominating and Governance Committee considered as important factors Mr. Blacks extensive experience in organizing, managing and investing in numerous
business entities engaged in diverse aspects of the health care services industry and his strong knowledge of, and value to, the Companys business gained from his long record of service as a member of the Companys board.
Angela P. Bryant, 46
, has been a director of the Company since September 2010. Ms. Bryant served as General Counsel of
Lincare Holdings Inc. from 1999 through 2004, and as Corporate Counsel to the Company from 1996 through 1998. From November 1991 to March 1996, Ms. Bryant served as General Counsel to Sports & Recreation, Inc. in Tampa, Florida. After
receiving her Juris Doctor degree from the University of Florida in 1989, Ms. Bryant worked as an associate in the law firm of Troutman Sanders in Atlanta, Georgia until November 1991. In nominating Ms. Bryant, the Nominating and
Governance Committee considered as important factors Ms. Bryants extensive experience with health care regulatory matters and her previous service to Lincare as General Counsel which the Committee believes will benefit the Company as it
seeks to expand its scope of health care services.
Frank D. Byrne, M.D., 59
, has been a director of the Company since
December 1999. Since 2004, Dr. Byrne has served as President of St. Marys Hospital, a 440-bed community hospital in Madison, Wisconsin. From 1991 until 2004, he served at Parkview Health, an integrated delivery network headquartered in
Fort Wayne, Indiana, in a variety of executive, governance, and clinical leadership roles, including President of Parkview Hospital from 1995 to 2002. From 1982 to 1994, Dr. Byrne practiced pulmonary and critical care medicine. He is a Clinical
Professor of Medicine at the University of Wisconsin School of Medicine and holds fellowships in the American College of Physicians, the American College of Chest Physicians, the American College of Healthcare Executives, and the American College of
Physician Executives. Dr. Byrne has a B.S. from the University of Notre Dame, a Master of Medical Management from Carnegie Mellon University, and an M.D. from the State University of New York Downstate Medical Center. He has attended the
Executive Program at the University of Michigan Business School and corporate governance education programs at Harvard Business School, the University of Wisconsin and Stanford University. Dr. Byrne also serves as a director of Steel Dynamics,
Inc. In nominating Dr. Byrne, the Nominating and Governance Committee considered as important factors Dr. Byrnes extensive executive, governance and clinical leadership roles in several leading integrated health systems and hospitals
and his experience as a practicing physician in the areas of pulmonary and critical care medicine.
William F. Miller, III,
62
, has been a director of the Company since December 1997. Mr. Miller is a partner with the private equity firm Highlander Partners in Dallas, Texas. From 2000 to 2005, Mr. Miller was the Chairman and Chief Executive Officer of HMS
Holdings Corp., a provider of innovative revenue enhancement and services to public and private health care programs and payors. From 1983 to 1999, Mr. Miller served as President and Chief Operating Officer of Emcare Holdings, Inc., a leading
national health care services firm focused on the provision of emergency physician medical services. Mr. Miller is a director of HMS Holdings Corp. and various private companies. In nominating Mr. Miller, the Nominating and Governance
Committee considered as important factors Mr. Millers extensive experience in executive and financial management of a diverse range of health care services companies, his past experience in the preparation and examination of financial
statements and his extensive knowledge and understanding of capital markets.
Ellen M. Zane, 58
, has been a director of
the Company since 2010. Effective September 30, 2011, Ms. Zane retired as President and Chief Executive Officer of Tufts Medical Center. From January 2004 to September 2011, she served as President and Chief Executive Officer of Tufts
Medical Center, a hospital in Boston, Massachusetts. From May 1994 to January 2004, she served as Network President for Partners Healthcare
A-5
System, a physician network. Prior to 2004, Ms. Zane served as Chief Executive Officer of Quincy Hospital in Quincy, Massachusetts. Ms. Zane is a director of Parexel International
Corporation. In nominating Ms. Zane, the Nominating and Governance Committee considered as important factors her extensive experience in management of hospital and health care related enterprises delivered across the continuum of care which the
Committee believes will benefit the Company as it explores new growth opportunities in the health care market.
Executive Officers of the
Company
All of our executive officers are appointed annually and serve at the pleasure of our board of directors. The
names, positions, ages, and background of our executive officers are set forth below.
There are no family relationships
between any of our directors and executive officers. None of the corporations or other organizations referred to below with which an executive officer has previously been employed or otherwise associated is a parent, subsidiary, or affiliate of the
Company.
John P. Byrnes
,
53
, has served as the Chief Executive Officer of the Company since January 1997 and as
a Director of the Company since May 1997. Mr. Byrnes was appointed Chairman of the Board in March 2000. Mr. Byrnes also served as the Companys President from June 1996 until April 2003. Prior to becoming the Companys President,
Mr. Byrnes served the Company in a number of capacities over a ten-year period, including serving as the Companys Chief Operating Officer throughout 1996. Mr. Byrnes was a director of Kinetic Concepts, Inc. until February 2011. In
nominating Mr. Byrnes, the Nominating and Governance Committee considered as important factors Mr. Byrnes significant contribution to the success of the Company and his particular knowledge of and experience in the home health care
services industry in which the Company competes.
Shawn S. Schabel, 47
, was appointed President of the Company in April
2003 and Chief Operating Officer of the Company in January 2001. From 1998 to 2001, Mr. Schabel served as Senior Vice President of the Company. Mr. Schabel served the Company in a number of management capacities since joining Lincare in
1989. Mr. Schabel holds a Respiratory Therapy degree from Wichita State University. Mr. Schabel served on the board of Odyssey Healthcare, Inc. until August 2010.
Paul G. Gabos, 47
, has served as the Chief Financial Officer of the Company since June 1997. Prior to his appointment as Chief Financial Officer, Mr. Gabos served as Vice President,
Administration. Before joining Lincare in 1993, Mr. Gabos worked for Coopers & Lybrand and for Dean Witter Reynolds Inc. Mr. Gabos holds a Bachelor of Science in Economics from The Wharton School of the University of Pennsylvania.
Mr. Gabos is a director of MEDNAX, Inc.
CORPORATE GOVERNANCE
General
Pursuant to
Delaware law and our Bylaws, our business and affairs are managed by or under the direction of our Board. Members of the Board are kept informed of our business through discussions with our Chief Executive Officer and other officers, by reviewing
materials provided to them and by participating in meetings of the Board and its committees. Our Board has four standing committees, the Audit Committee, the Nominating and Governance Committee, the Compensation Committee and the Compliance
Committee.
Copies of the written charters for our standing committees of the Board, as well as our formal written Corporate
Governance Policies, are available on our website located at
www.lincare.com
, and can be found under the Investor Relations link. Information contained on our website is not incorporated by reference in, or considered part of,
this Information Statement.
A-6
Director Independence
Under applicable NASDAQ rules, a director of the Company will only qualify as an independent director if, in the opinion of the Companys Board, that person does not have a relationship
that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Board has determined that directors Altman, Black, Bryant, Byrne, Miller and Zane have no relationships that would interfere with
the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is independent as defined under Rule 4200 of the Marketplace Rules of the NASDAQ Stock Market, Inc. (the
NASDAQ
Marketplace Rules
). For each of the independent directors, there were no transactions, relationships or arrangements that were required to be considered by the Board under the applicable independence definitions in determining that the
director is independent. Mr. Byrnes, the Companys current Chief Executive Officer and Chairman of the Board, is the only director who is not independent as defined under Rule 4200(a)(15) of the NASDAQ Marketplace Rules. The Company
applies these same independence standards to the standing committees of its Board. Mr. Byrnes is not a member of any standing committee of the Board.
Board Leadership Structure
As noted above, our Board is currently
comprised of six independent directors and one employee director and held five meetings in 2011 and seven meetings in 2012. Mr. Byrnes was appointed Chairman of the Board in March 2000, and has served as Chief Executive Officer and has been a
member of our Board since 1997. The Board has not appointed a lead independent director or other such designee and Mr. Byrnes presides as Chairman at all meetings of our Board. The Board holds executive sessions of its non-employee directors
generally at each regularly scheduled meeting. Since the Board is comprised of only seven members, six of which are non-employee directors, we have not assigned a lead director to preside over the executive sessions of the Board. We believe that
this approach promotes open, active discussion among the independent directors at such executive sessions, and Mr. Byrnes meets with the full Board immediately following such sessions in order to gain feedback on such matters that have been
determined by the independent directors to be important.
We recognize that different board leadership structures may be
appropriate for companies in different situations and believe that no one structure is suitable for all companies. We believe our current Board leadership structure is optimal for us because it demonstrates to our employees, customers and other
stakeholders that Lincare is under strong leadership, with a single person setting the tone and having primary responsibility for managing our operations. Having a single leader for both the Company and the Board eliminates the potential for
confusion or duplication of effort, and provides clear leadership for Lincare. We believe that the Company has been well served by this leadership structure.
Risk Oversight
Our Board is responsible for overseeing the Companys
risk management process. The Board evaluates Lincares general risk management approach with regard to the most significant risks facing Lincare and ensures that appropriate risk mitigation strategies are implemented by management. The Board is
also apprised of particular risk management matters in connection with its general oversight and approval of corporate matters.
The Board has delegated to its Audit Committee, Compensation Committee and Compliance Committee oversight of specific risk management
processes. Among its other duties, the Audit Committee reviews with management Lincares system of disclosure controls and system of internal controls over financial reporting and its process for determining significant areas of risk with
respect to its financial statements. Among its other duties, the Compliance Committee reviews with management Lincares compliance with legal and regulatory requirements and the organization, management, implementation and monitoring activities
of its corporate health care compliance program. Among its other duties, the Compensation Committee reviews with management the structure of Lincares compensation programs in order to assess the extent to which the Companys compensation
policies and practices for its employees are reasonably likely to adversely affect risk management
A-7
practices and risk-taking incentives throughout the organization. The Board receives reports from each of its committees with respect to these risk oversight functions and provides
recommendations and feedback to Lincares management concerning such activities.
Lincares management is
responsible for developing, implementing and evaluating the risk management activities of the Company. This responsibility includes identifying, evaluating and addressing potential risks that may exist at the enterprise, strategic, financial,
operational, compliance and reporting levels.
We believe that the division of risk management responsibilities described
above is an effective approach for addressing the risks facing the Company and that our Board leadership structure supports this approach.
Stock Ownership Guidelines
The Board believes that it is in the best interests of the Company and its shareholders to align the financial interests of Lincare executive officers and non-employee directors with those of the
Companys shareholders through ownership of shares of our common stock. Therefore, we have adopted minimum stock ownership requirements for our named executive officers and directors. The executives covered under the guidelines include our
Chief Executive Officer, President and Chief Financial Officer. Covered executives must maintain ownership, directly or indirectly, of shares of our common stock with a market value of three times their base salary. Non-employee directors must own
shares with a minimum value of three times the amount of their annual cash retainer. Shares of stock that the covered individual has the right to acquire through the exercise of stock options, whether or not vested, are not included as qualifying
shares for purposes of the stock ownership guidelines.
BOARD OF DIRECTOR COMMITTEES
Audit Committee
The
Board has a separately designated standing Audit Committee composed of three independent directors established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934 (the
Exchange Act
). The Audit
Committee assists the Board in achieving its oversight and monitoring responsibilities to the stockholders relating to the accounting and financial reporting processes, financial controls and audits of the financial statements of the Company. The
Audit Committee has the specific responsibilities and authority necessary to comply with Rule 10A-3(b)(2-5) under the Exchange Act (subject to the exemptions provided in Rule 10A-3(c)), concerning responsibilities relating to: (i) independent
registered public accounting firms, (ii) complaints relating to accounting, internal accounting controls or auditing matters, (iii) authority to engage advisors, and (iv) funding as determined by the Audit Committee. The Board has
approved a formal written charter for the Audit Committee, a current copy of which is available on the Companys web site at www.lincare.com, under the heading Investor Relations. The Audit Committee is comprised of directors
Bryant, Byrne and Miller and held six meetings in 2011 and three meetings in 2012. The Board has determined that each of the Audit Committee members: (i) are independent as defined under Rule 4200(a)(15) of the NASDAQ Marketplace Rules;
(ii) meet the criteria for independence set forth in Rule 10A-3(b)(1) under the Exchange Act (subject to the exemptions provided in Rule 10A-3(c) of the Exchange Act); (iii) have not participated in the preparation of the financial
statements of the Company or any current subsidiary of the Company at any time during the past three years; and (iv) are able to read and understand fundamental financial statements, including a companys balance sheet, income statement
and cash flow statement. At least one member of the Audit Committee has past employment experience in finance or accounting, requisite professional certification in accounting, or other comparable experience or background that results in the
individuals financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities. The Board has determined that Mr. Miller qualifies
as an audit committee financial expert as defined by the rules and regulations of the Securities and Exchange Commission.
A-8
Nominating and Governance Committee
The Nominating and Governance Committee selects and recommends candidates to the Board to be submitted for election at the Annual Meeting
and candidates to fill any vacancies on the Board and develops and recommends to the Board a set of corporate governance policies, as well as changes thereto, that should be applicable to the Company. The Board has approved a formal written charter
for the Nominating and Governance Committee and a set of formal written Corporate Governance Policies, current copies of which are available on the Companys web site at www.lincare.com, under the heading Investor Relations. The
Nominating and Governance Committee will consider director candidates proposed by stockholders in the same manner as it considers Nominating and Governance Committee nominees (see
Annex A Director Nomination Process
below).
The Companys Bylaws permit stockholders to nominate directors at a stockholder meeting provided that stockholders give timely notice thereof in writing to the Secretary of the Company and otherwise comply with the procedures set forth in the
Companys Bylaws. The Nominating and Governance Committee is comprised of directors Black, Miller and Zane, each of whom is independent as defined under the NASDAQ Marketplace Rules, and held one meeting in 2011 and one meeting in 2012.
Compliance Committee
The Compliance Committee reviews health care compliance issues related to the Companys health care compliance programs and, where appropriate, provides reports and recommendations to the Board
regarding these programs. The Compliance Committee is comprised of directors Altman, Bryant and Byrne and held three meetings in 2011 and two meetings in 2012.
Compensation Committee
The Board has a standing Compensation Committee
comprised of directors Altman, Black and Zane, each of whom is independent as defined under the NASDAQ Marketplace Rules. The Compensation Committee assists the Board in discharging its responsibilities relating to all aspects of director
compensation and executive compensation for the Chief Executive Officer and other senior executives of the Company. The Board has approved a formal written charter for the Compensation Committee, a current copy of which is available on the
Companys web site at www.lincare.com, under the heading Investor Relations. The Compensation Committee reviews and reassesses the adequacy of the committees formal written charter on an annual basis and recommends any
proposed changes to the Board for approval. In 2011, the Compensation Committee held four meetings and two meetings in 2012.
Related-Person Transactions
The Companys policies and procedures for the review, approval, or ratification of any transactions with related persons are set forth in writing and were approved by the Board. All directors and
executive officers of the Company are required to avoid any transaction that might (i) impair, or appear to impair, the proper performance of their company-related responsibilities or (ii) affect their independence of judgment with respect
to any business dealings between the Company and any other organization or individual. To this end, no director or executive officer of the Company may enter into or facilitate any related party transaction, as defined in the policy, on the
Companys behalf unless such transaction has been approved in accordance with the policy. The policy specifies required procedures for identification, reporting, review, and approval of, and record-keeping with respect to, any related-person
transactions with the Company. In 2011, there were no transactions or proposed transactions in which the Company was or is to be a participant and in which any related person had or will have a direct or indirect material interest.
For purposes of the policy, a related-person transaction includes, but is not limited to, any financial transaction, arrangement or
relationship (including any indebtedness or guarantee of indebtedness) or any series of similar transactions, arrangements or relationships between or involving the Company (or any of its consolidated subsidiaries or affiliated professional
associations, corporations and partnerships) and any related
A-9
person or any other corporation, firm, association or entity in which any related person is a director or officer or is financially interested. Transactions pertaining to director or executive
officer compensation, benefits and perquisites that are approved in accordance with the charter of the Compensation Committee or by the Board are not subject to the policy. A related person is defined under the policy as any executive officer,
director or nominee for director, or holder of more than five percent of the outstanding voting stock of the Company or any of their respective immediate family members.
Any employee or director of the Company who is aware of any related-person transaction that has occurred or that may occur, or who has a question about whether a related-person transaction exists, is
required without unreasonable delay to notify the Companys Chief Financial Officer. If the Companys Chief Financial Officer or an immediate family member of the Chief Financial Officer appears to be a participant in a related-person
transaction, then the transaction would be reported instead to another executive officer who does not appear to be a participant in the transaction (a disinterested executive officer).
The Audit Committee of the Board is responsible for applying the policy and administering the procedures for reviewing all related-person
transactions. If the Chief Financial Officer (or a disinterested executive officer) determines that a related-person transaction has occurred or will occur, then he or she is required to promptly refer the matter to disinterested members of the
Audit Committee for their review. In the event that less than a majority of the members of the Audit Committee are disinterested, the matter would be referred promptly to all of the disinterested members of the Board acting as a committee. The Audit
Committee would conduct such review at its next regularly-scheduled meeting, or earlier if a special meeting is called by the Chairman of the Audit Committee. The disinterested members of the Audit Committee would review each referred related-person
transaction to determine whether such transaction is in good faith and on fair and reasonable terms that are no less favorable to the Company than those that would be available to the Company in a comparable transaction in arms-length dealings with
an unrelated third party at the time it is authorized by the Audit Committee. If approved (based solely on the aforementioned standards of review) by a majority of the disinterested members of the Audit Committee, then such related-person
transaction would not be disallowed solely by reason of its related nature. If the related-person transaction has already occurred and the Audit Committee is aware of this fact during its deliberation, then its approval, if given, would constitute a
ratification of such transaction. Such approval or ratification would not be construed to require the consummation of such transaction, but rather would evidence solely the Audit Committees non-objection thereto based only on the related
nature of the transaction.
Certain material related-person transactions may be required by law to be disclosed publicly.
Therefore, the Audit Committee would, in the course of its review, create or cause to be created a record of information for each transaction reviewed, including without limitation a narrative description of the nature of the transaction, the amount
involved and the identity and extent of involvement of each participant who is a related person, the decision of the Audit Committee, the dates of referral to, and review and decision by, the Audit Committee, and the date the transaction was
consummated (if applicable).
DIRECTOR COMPENSATION
Retainer and Committee Chair Fees
Directors who are employees of the
Company do not receive any additional compensation for their services as directors. During fiscal year 2011, non-employee directors received an annual retainer, which is paid quarterly, and an additional retainer for serving as a chairman of a
committee of the Board. The annual retainer for each non-employee director is $60,000. In addition to the annual retainer, the following annual fees are payable to the respective chairmen of the committees of the Board: (a) Audit Committee
($20,000), (b) Compensation Committee ($15,000) and (c) Compliance Committee ($10,000). In addition to the retainer and committee chair fees, non-employee directors are reimbursed for travel and other reasonable out-of-pocket expenses
related to attendance at Board and committee meetings.
A-10
Equity Compensation
Non-employee directors are eligible to participate in the Companys stock plans pursuant to which they may be granted options to purchase common stock of the Company or awarded shares of restricted
common stock of the Company. Historically, the exercise prices for all stock options granted to non-employee directors have been equal to the market price of the Companys common stock on the date of grant, and the options have generally vested
in equal increments over a three-year period and expire within eight years of the date of grant. Stock options granted to directors become immediately exercisable upon a change of control of the Company. In the event that a director ceases to be a
non-employee director for reasons other than a change of control, the vested stock options held by such director as of the date of termination of directorship must be exercised within one year.
The following table shows compensation information for the Companys non-employee directors for fiscal year 2011.
Director Compensation
for Fiscal Year 2011
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Name
|
|
Fees Earned
or Paid in
Cash
($)
|
|
|
Stock
Awards
($)(1)(2)
|
|
|
Option
Awards
($)(1)(3)
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|
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Non-Equity
Incentive Plan
Compensation
($)
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Change
in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings ($)
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All Other
Compensation
($)
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Total
($)
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Stuart H. Altman, Ph.D.
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70,000
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965,160
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1,035,160
|
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Director, Compliance
Committee Chairman
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Chester B. Black
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75,000
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965,160
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1,040,160
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Director, Compensation
Committee Chairman
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Angela P. Bryant
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60,000
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965,160
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1,025,160
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Director
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Frank D. Byrne, M.D.
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60,000
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965,160
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1,025,160
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Director
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William F. Miller, III.
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80,000
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965,160
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1,045,160
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Director, Audit
Committee Chairman
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Ellen M. Zane
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60,000
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965,160
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1,025,160
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Director
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(1)
|
Amounts shown do not reflect compensation actually received by the directors. Instead, the amounts shown represent the aggregate grant date fair values of stock and
option awards granted within the fiscal year computed in accordance with FASB ASC Topic 718. The assumptions made in the valuation computations can be found in Note 12, Stock-Based Compensation, to the Consolidated Financial Statements
included in Lincares Annual Report on Form 10-K for fiscal year 2011 filed with the Securities and Exchange Commission.
|
(2)
|
The aggregate grant date fair values of the restricted stock awards granted on October 20, 2011 to directors Altman, Black, Bryant, Byrne, Miller and Zane were
$965,160, representing the closing price of the common stock on the grant date of $22.98 per share multiplied by the 42,000 shares granted to each director. The shares become unrestricted in equal increments of 21,000 shares on November 1, 2013
and 2014. As of December 31, 2011, directors Altman, Black, Byrne and Miller each held 66,000 shares of restricted common stock and directors Bryant and Zane each held 52,000 shares of restricted stock.
|
(3)
|
As of December 31, 2011, directors Altman, Black, Byrne and Miller each held unexercised options to purchase 168,000 shares of Company common stock that are
currently exercisable.
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A-11
Director Nomination Process
Director Qualifications.
The Nominating and Governance Committee believes that individuals who are nominated by the Committee to be a director should have demonstrated notable or significant
achievements in business, education or public service; should have a breadth of knowledge about issues affecting the Company; should possess the requisite intelligence, education and experience to make a significant contribution to the Board and
bring a diverse range of skills and perspectives to its deliberations; should demonstrate a willingness to apply sound and independent business judgment and have no present conflicts of interest; and should have the highest ethical standards, a
strong sense of professionalism and intense dedication to serving the interests of the stockholders. Consideration will also be given to candidates with financial management, reporting and control expertise or other experience that would qualify the
candidate as a financial expert under established standards. Further, each candidate must be willing to commit, as well as have, sufficient time available for meetings and consultation on Company matters and to otherwise discharge the
duties of Board membership and should have sufficient years available for service to make a significant contribution to the Company over time.
Selection and Nomination Process.
When recommending to the Board the slate of directors to be nominated for election at the Annual Meeting, the Nominating and Governance Committee reviews the
qualifications and backgrounds of nominees for director, as well as the overall composition of the Board. The Nominating and Governance Committee is authorized to use any methods it deems appropriate for identifying candidates for Board membership,
including recommendations from current Board members and recommendations from stockholders. When a board vacancy arises, the committee seeks to identify the most capable candidates available who meet the Boards criteria for nomination and who
will be able to serve the best interests of all stockholders. The committee will ensure that women and minority candidates are routinely sought as part of every director search it undertakes and will take every reasonable step to ensure that women
and minority candidates are in the pool from which Board nominees are chosen. The committee may engage outside search firms to identify suitable candidates. The Nominating and Governance Committee is also authorized to engage in whatever evaluation
processes it deems appropriate to assess the suitability of a candidate for service on the Board. In formulating its recommendation, the Nominating and Governance Committee will consider not only the findings and conclusions of its evaluation
process, but also the composition of the Board to ensure that the Board reflects the knowledge, experience, skills, expertise and diversity required for the Board to fulfill its duties. In considering whether to recommend directors who are eligible
to stand for re-election, the Nominating and Governance Committee may consider a variety of factors, including a directors contributions to the Board and ability to continue to contribute productively, attendance at Board and committee
meetings, and the independence of the director, as well as whether the director continues to possess the attributes, capabilities and qualifications considered necessary or desirable for Board service. The committee assesses the effectiveness of the
Companys nomination policies on an annual basis, as part of the Boards evaluation of its effectiveness as a group. In the course of this performance evaluation, the Board considers whether the Boards composition reflects an
appropriate mix of skills, experience and diversity, in relation to the needs of the Company.
Stockholder Nominations.
The Companys Bylaws permit stockholders to nominate directors at a stockholder meeting provided that stockholders give timely notice thereof in writing to the Secretary of the Company and otherwise comply with the procedures set forth in the
Companys Bylaws. Stockholders who wish to nominate a person for election as a director may submit the recommendation to the Secretary of the Company in compliance with the procedures described in the Companys Bylaws. Stockholders may
also recommend prospective candidates for consideration by the Nominating and Governance Committee, and such candidates will be considered in the same manner as other candidates. A stockholder who wishes to make such a recommendation should notify
the Secretary of the Company in writing and include, at a minimum, (i) the name and address, as they appear in the Companys books, of the stockholder giving the notice, (ii) the class and number of shares of the Company that are
beneficially owned by the stockholder, (iii) a statement that the candidate is willing to be nominated and to serve as a director if elected, and (iv) any other information regarding the candidate that the Securities and Exchange
Commission would require to be included in a proxy statement. If the Nominating and Governance Committee determines that a stockholder-recommended candidate is suitable for
A-12
Board membership, it will include the candidate in the pool of candidates to be considered for nomination upon the occurrence of the next Board vacancy or in connection with the next Annual
Meeting of Stockholders.
Communicating with the Board
The Board provides a process for stockholders to send communications to the Board. The Board will give appropriate attention to written communications that are submitted by stockholders, and will respond
if and as appropriate. The Chairman of the Audit Committee, with the assistance of the Companys Corporate Compliance Manager, is primarily responsible for monitoring communications from stockholders and for providing copies or summaries to the
other directors as he or she considers appropriate.
Communications are forwarded to all directors if they relate to important
substantive matters and include suggestions or comments that the Chairman of the Audit Committee considers to be important for the directors to know. In general, communications relating to corporate governance and long-term corporate strategy are
more likely to be forwarded than communications relating to ordinary business affairs and matters as to which the Company tends to receive repetitive or duplicative communications.
Stockholders who wish to send communications on any topic to the Board should address such communications to Board, c/o Audit Committee,
Lincare Holdings Inc., 19387 U.S. 19 North, Clearwater, Florida 33764.
Compensation Committee Interlocks and Insider Participation
During fiscal 2011, no member of our Compensation Committee was an officer or employee of ours. In addition, none of our
executive officers served as a member of the board of directors or compensation committee of another entity, one of whose executive officers served as a member of our board of directors or our Compensation Committee.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Companys directors and executive officers, and beneficial owners of more than 10% of a registered class of the Companys equity securities,
to file with the Securities and Exchange Commission and The NASDAQ Global Market initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company.
Based on a review of the copies of such filings furnished to the Company, the Company believes that all of its directors, executive
officers and beneficial owners of more than 10% of its equity securities complied with all filing requirements applicable to them with respect to transactions completed during the 2011 fiscal year.
A-13
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information available as of July 10, 2012 with respect to the beneficial ownership of the
Companys common stock, by each person who is known by the Company to beneficially own more than 5% of the common stock and by each director and executive officer and by all directors and executive officers as a group. As of July 9, 2012, there
were 86,440,611 shares outstanding and entitled to vote. Beneficial ownership is determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934. Unless otherwise indicated, the address of all directors and executive officers is
c/o Lincare Holdings Inc., 19387 U.S. 19 North, Clearwater, FL 33764. Shares beneficially owned by each director and executive officer include all exercisable and unexercisable options to purchase shares of the Companys common stock as of the
date of this Information Statement and shares of restricted stock.
|
|
|
|
|
|
|
|
|
Name of Beneficial Owner
|
|
Amount
and nature
of
Beneficial
Ownership
|
|
|
Percent
|
|
FMR LLC(1)
|
|
|
14,018,408
|
|
|
|
16.22
|
%
|
82 Devonshire Street
Boston, MA 02109
|
|
|
|
|
|
|
|
|
|
|
|
JP Morgan Chase & Co.(2)
|
|
|
8,726,671
|
|
|
|
10.10
|
%
|
270 Park Avenue
New York, NY 10017
|
|
|
|
|
|
|
|
|
|
|
|
BlackRock, Inc.(3)
|
|
|
6,390,756
|
|
|
|
7.39
|
%
|
40 East 52nd Street
New York, NY 10022
|
|
|
|
|
|
|
|
|
|
|
|
Glenview Capital Management, LLC(4)
|
|
|
5,496,422
|
|
|
|
6.36
|
%
|
767 Fifth Avenue, 44th Floor
New York, NY 10153
|
|
|
|
|
|
|
|
|
|
|
|
Wellington Management Company, LLP(5)
|
|
|
5,434,869
|
|
|
|
6.29
|
%
|
280 Congress Street
Boston, MA 02210
|
|
|
|
|
|
|
|
|
|
|
|
John P. Byrnes(6)
|
|
|
3,544,151
|
|
|
|
4.10
|
%
|
|
|
|
Paul G. Gabos(7)
|
|
|
1,671,232
|
|
|
|
1.93
|
%
|
|
|
|
Shawn S. Schabel(8)
|
|
|
2,446,605
|
|
|
|
2.83
|
%
|
|
|
|
Stuart H. Altman, Ph.D.(9)
|
|
|
284,000
|
|
|
|
(*
|
)
|
|
|
|
Chester B. Black(10)
|
|
|
306,550
|
|
|
|
(*
|
)
|
|
|
|
Angela P. Bryant(11)
|
|
|
62,000
|
|
|
|
(*
|
)
|
|
|
|
Frank D. Byrne, M.D.(12)
|
|
|
306,900
|
|
|
|
(*
|
)
|
|
|
|
William F. Miller, III(13)
|
|
|
301,500
|
|
|
|
(*
|
)
|
|
|
|
Ellen M. Zane(14)
|
|
|
62,000
|
|
|
|
(*
|
)
|
|
|
|
All Executive Officers and Directors as a Group (nine persons)
|
|
|
8,984,938
|
|
|
|
10.39
|
%
|
(1)
|
All information relating to FMR LLC is based on information disclosed in a Schedule 13G filed by FMR LLC with the Securities and Exchange Commission on
February 14, 2012. According to that filing, FMR LLC has the sole power to dispose or direct the disposition of 14,018,408 shares.
|
A-14
(2)
|
All information relating to JP Morgan Chase & Co. is based on information disclosed in a Schedule 13G filed by JP Morgan Chase & Co. with the
Securities and Exchange Commission on January 27, 2012.
|
|
According to that filing, JP Morgan Chase & Co. has the sole power to vote or direct the vote of 7,613,969 shares, shared power to vote or direct the vote of
340,879 shares, the sole power to dispose or direct the disposition of 8,356,934 shares and shared power to dispose or direct the disposition of 355,937 shares.
|
(3)
|
All information relating to BlackRock, Inc. is based on information disclosed in a Schedule 13G filed by BlackRock, Inc. with the Securities and Exchange Commission on
February 13, 2012. According to that filing, BlackRock, Inc. has the sole power to vote or direct the vote of, and the sole power to dispose or direct the disposition of, 6,390,756 shares.
|
(4)
|
All information relating to Glenview Capital Management, LLC is based on information disclosed in a Schedule 13G filed by Glenview Capital Management, LLC with the
Securities and Exchange Commission on February 14, 2012. According to that filing, Glenview Capital Management, LLC has shared power to vote or direct the vote of, and shared power to dispose or direct the disposition of, 5,496,422 shares.
|
(5)
|
All information relating to Wellington Management Co., LLP is based on information disclosed in a Schedule 13G filed by Wellington Management Co., LLP with the
Securities and Exchange Commission on February 14, 2012. According to that filing, Wellington Management Co., LLP has shared power to vote or direct the vote of 4,361,939 shares and shared power to dispose or direct the disposition of 5,361,564
shares.
|
(6)
|
Includes options to purchase 1,850,000 shares of common stock that are currently exercisable, options to purchase 175,000 shares of common stock that are currently
unexercisable, 459,151 shares of common stock and 1,060,000 shares of restricted stock.
|
(7)
|
Includes options to purchase 950,000 shares of common stock that are currently exercisable, options to purchase 100,000 shares of common stock that are currently
unexercisable, 291,232 shares of common stock and 330,000 shares of restricted stock.
|
(8)
|
Includes options to purchase 1,295,000 shares of common stock that are currently exercisable, options to purchase 125,000 shares of common stock that are currently
unexercisable, 291,314 shares of common stock and 735,000 shares of restricted stock.
|
(9)
|
Includes options to purchase 168,000 shares of common stock that are currently exercisable, options to purchase 12,000 shares of common stock that are currently
unexercisable, 38,000 shares of common stock and 66,000 shares of restricted stock.
|
(10)
|
Includes options to purchase 168,000 shares of common stock that are currently exercisable, options to purchase 12,000 shares of common stock that are currently
unexercisable, 60,550 shares of common stock (including 5,000 shares owned by Mr. Blacks spouse and 50 shares representing a 1.0% pecuniary interest held by The Black Family Charitable Foundation) and 66,000 shares of restricted stock.
|
(11)
|
Includes 10,000 shares of common stock and 52,000 shares of restricted stock.
|
(12)
|
Includes options to purchase 168,000 shares of common stock that are currently exercisable, options to purchase 12,000 shares of common stock that are currently
unexercisable, 60,900 shares of common stock and 66,000 shares of restricted stock.
|
(13)
|
Includes options to purchase 168,000 shares of common stock that are currently exercisable, options to purchase 12,000 shares of common stock that are currently
unexercisable, 55,500 shares of common stock and 66,000 shares of restricted stock.
|
(14)
|
Includes 10,000 shares of common stock and 52,000 shares of restricted stock.
|
(*)
|
Less than one percent.
|
COMPENSATION DISCUSSION AND ANALYSIS
Compensation Discussion and Analysis
The Board has a standing Compensation
Committee comprised of Messrs. Altman and Black and Ms. Zane, each of whom is independent as defined under the NASDAQ Marketplace Rules. The Compensation Committee operates under a formal written charter that has been approved by the Board, a
current copy of which is available on the Companys website at www.lincare.com, in the Committee Charters section under the heading Investor Relations.
A-15
The Compensation Committee assists the Board in discharging its responsibilities relating to
all aspects of director and executive officer compensation. The Committee reviews corporate goals and objectives relevant to such compensation and makes recommendations to the Board for adoption. The Compensation Committee evaluates the performance
of the directors and executive officers based on corporate goals and objectives and other such factors as it deems appropriate, such as, (i) the short-term and long-term performance of the Company, (ii) the performance of the executive
officers in light of relevant goals and objectives recommended by the Committee and approved by the Board, (iii) executive compensation levels at comparable companies, and (iv) the recommendations of the Chief Executive Officer. Based on
its evaluation, the Compensation Committee recommends to the Board the compensation of the directors and executive officers, including salary, annual and long-term incentive compensation, annual incentive goals, option awards, stock awards,
non-equity incentive plan compensation, benefits, perquisites and other compensation. The Committee also makes recommendations to the Board regarding director and executive officer employment contracts or arrangements.
The Role of Shareholder Advisory Votes on Compensation
At our 2012 Annual Meeting of Stockholders, we held a say-on-pay advisory stockholder vote on the compensation of our named
executive officers. Our executive compensation program received the support of over 96% of shares that were voted in respect thereof. The Compensation Committee has considered the results of this advisory vote and views this outcome as evidence of
shareholder support of our executive compensation decisions and policies. Accordingly, the Compensation Committee has substantially maintained its executive compensation policies for 2012. The Compensation Committee will consider the outcome of
future advisory votes in connection with its ongoing evaluation of the Companys compensation program.
Compensation Committee Process
The Compensation Committee evaluates the internal equity and external competitiveness of the compensation offered to the directors and executive officers and recommends action to the Board as it deems
appropriate. The Committee makes recommendations to the Board with respect to equity based and non-equity based plans of the Company and it administers such plans with authority to make and modify grants under, and to approve or disapprove
participation in, such plans. The Compensation Committee is directly responsible for the appointment, compensation, retention and oversight of any compensation consultants engaged to assist the Committee in carrying out its functions and
responsibilities. At the request of the Committee to do so, the Chief Executive Officer or Chief Financial Officer may pre-negotiate engagement fees with such compensation consultants and may provide a recommendation to the Committee for its
consideration. The Company provides for appropriate funding, as determined by the Committee, for payment of compensation to any consultants employed by the Committee and ordinary administrative expenses that are necessary and appropriate in carrying
out its duties. The Committee may form and delegate authority to one or more sub-committees, but has not done so in the past.
In April 2009, in advance of negotiating certain amendments to the employment agreements with the Companys executive officers and
prior to the expiration at the end of that year of the agreements in effect at that time, the Compensation Committee engaged Frederick W. Cook & Co., Inc. (
F.W. Cook
), executive compensation consultants, to assist
with its review of the Companys executive compensation levels, practices and programs. The scope of the engagement included an assessment of the competitiveness of the Companys compensation levels including base salary, annual bonus,
long-term incentives and other forms of compensation and a review of the key terms and conditions of the employment agreements for the Companys executive officers in relation to market practices.
F.W. Cook developed a peer group consisting of 15 publicly-traded health services companies headquartered in the United States with
annual revenues, market capitalizations, and product and service offerings similar to those of the Company. The peer group included: Amedisys, Chemed Corporation, Davita, Emergency Medical Services, Gentiva Health Services, Laboratory Corporation of
America, LifePoint Hospitals,
A-16
Magellan Health Services, Mednax, National HealthCare, Omnicare, Psychiatric Solutions, Res-Care, Sun Healthcare Group and Universal Health Services. F.W. Cook also considered the compensation
levels and practices of the only two publicly-traded, albeit smaller, direct competitors of the Company, American HomePatient and Rotech Healthcare. F.W. Cook presented the Compensation Committee with an analysis of various size metrics of the peer
companies compared with the Company, including market capitalization, net revenues, net income, total assets and number of employees, and various one-year and three-year performance measures including growth in net revenues, net income and total
shareholder returns. The analysis included a comparison of the cash and equity-based compensation elements of each of the Companys executive officers to the respective compensation amounts earned by the executive officers of the peer companies
for the most recently available fiscal year. F.W. Cook also prepared a summary for the Committee of the key terms and conditions in the executive officers expiring employment agreements and provided observations and comments to be considered
by the Committee when negotiating amendments to those agreements with each executive officer.
The Committee considered F.W.
Cooks observations and recommendations in evaluating the components and levels of executive compensation to be set forth in the executive officers amended employment agreements. F.W. Cook presented the comparative position of the various
elements of the Companys executive compensation program relative to market percentiles. The Committee believes that these comparisons were useful in evaluating the competitiveness of the Companys program. While the Committee does not
establish specific percentile objectives for the individual elements of compensation or for aggregate compensation, the Committee determined that it would target the Companys executive compensation levels between the 75th and 90th percentiles
of the peer universe. The Committee concluded that it was important to establish compensation levels for the Companys executive officers that were higher than the average compensation levels earned by individuals employed by peer companies in
positions of similar job responsibilities. Compensation levels within the 75th and 90th percentiles were deemed relevant by the Committee in light of the strong relative performance achieved by the Company under the direction of its executive
officers in the preceding one- and three-year periods, as shown in the comparative performance data presented by F.W. Cook. The Committee placed particular emphasis on the Companys superior results compared with its direct competitors in light
of significant, industry-specific factors that affected performance during the periods evaluated. The home medical equipment industry in which the Company operates has come under tremendous reimbursement pressure from Medicare and other government
payment sources that were deemed by the Committee to be unique when compared with the broader peer company universe. The Committee also placed significant emphasis on the long tenure of each executive officer with the Company in their respective
positions.
The Committee considered the F.W. Cook observations and recommendations as it negotiated amendments to the
employment agreements with the executive officers, which were otherwise set to expire on December 31, 2009. On October 1, 2009, the Company entered into amended agreements (the
Third Amended Employment Agreements
)
with each of its executive officers principally to extend the terms of the employment agreements from December 31, 2009 to December 31, 2012. The specific compensation levels and other terms and conditions established in the Third Amended
Employment Agreements were substantially similar to the compensation levels and other terms and conditions previously in effect. Specifically, the annual salaried amounts and bonus compensation formulas for the executive officers and other key
employment provisions were unchanged in the amended agreements. The Committee also used the data compiled by F.W. Cook to establish the value of an equity-based grant to each executive officer to be awarded as of the effective date of the third
amended employment agreements. The vesting provisions of the equity-based awards, consisting of non-qualified stock options and shares of restricted stock, are subject to specified service conditions that are essentially concurrent with the
employment period covered by the amended agreements. The restricted shares vest on November 1, 2012, approximately concurrent with the original expiration dates of the Third Amended Employment Agreements. The stock options vest in equal
one-third increments on November 1, 2010, 2011 and 2012 and were granted with an exercise price equal to the fair market value of the Companys common stock on the date of the grant.
A-17
In January 2012, in advance of negotiating certain amendments to the employment agreements
with the Companys executive officers and prior to the expiration at the end of 2012 of the agreements in effect at that time, the Committee engaged F.W. Cook to update its review of the key terms of the employment agreements with the executive
officers and its competitive analysis of target compensation levels for these executives to reflect current market conditions.
F.W. Cook conducted a competitive analysis of compensation levels for the Companys Chief Executive Officer, President/Chief
Operating Officer and Chief Financial Officer using publicly available compensation data from a custom, 14-company peer group. All data were sourced from each peer companys most recently filed proxy statement and were aged to 2012 assuming an
annual increase rate of 3.0%. The elements of compensation reviewed included total cash compensation, including the sum of base salary and annual incentive bonus shown both in terms of actual and target cash compensation, and total direct
compensation, equal to the sum of total cash compensation and the expected present value of long-term incentives such as stock option grants and restricted stock and performance shares valued based on the fair market value at the time of grant. F.W.
Cook revised the peer group used in its 2009 evaluation by removing companies that were no longer publicly-traded or that had a market capitalization of less than $100 million and by adding new peer companies that were deemed to be comparative. The
revised peer group included: Amedisys, Chemed Corporation, Davita, Gentiva Health Services, Healthsouth Corporation, Health Management Associates, Kindred Healthcare, Laboratory Corporation of America, LifePoint Hospitals, Magellan Health Services,
MEDNAX, National HealthCare, Omnicare and Universal Health Services. F.W. Cook presented the Committee with an analysis of various size metrics of the peer companies compared with the Company, including market capitalization, net revenues, operating
income, net income, total assets and number of employees. The analysis included a comparison of the cash and equity-based compensation elements of each of the Companys executive officers to the respective compensation amounts earned by the
executive officers of the peer companies. F.W. Cook also prepared a summary for the Committee of the key terms and conditions in the executive officers expiring employment agreements and provided observations and comments to be considered by
the Committee when negotiating amendments to the agreements with each executive officer.
The Committee considered the
observations and recommendations of F.W. Cook as it negotiated amendments to the employment agreements with the executive officers, which were otherwise set to expire on December 31, 2012. On February 10, 2012, at the recommendation of the
Committee, the Company entered into amended agreements (the
Fourth Amended Employment Agreements
) with its Chief Executive Officer, Mr. Byrnes and its President and Chief Operating Officer, Mr. Schabel principally
to extend the terms of their employment agreements from December 31, 2012 to December 31, 2014. The Companys Chief Financial Officer, Mr. Gabos, advised the Board of his intention to retire from the Company at the end of his
current employment term on December 31, 2012, and accordingly, no amendments were made to his employment agreement currently in effect.
The specific compensation levels and other terms and conditions established in the Fourth Amended Employment Agreements were substantially similar to the compensation levels and other terms and conditions
previously in effect. Specifically, the annual salaried amounts and bonus compensation formulas for Mr. Byrnes and Mr. Schabel and other key employment provisions were unchanged in the amended agreements. The Committee also used the data
compiled by F.W. Cook to establish the value of an equity-based grant to each executive officer to be awarded as of the effective date of the Fourth Amended Employment Agreements. The vesting provisions of the equity-based awards, consisting of
shares of restricted stock, are subject to specified service conditions that are concurrent with the employment period covered by the amended agreements. The restricted shares vest on December 31, 2014, concurrent with the expiration of the
Fourth Amended Employment Agreements, subject to each executive officers continued employment with the Company and other such terms and conditions as specified in the agreements.
The Committee has the authority to make recommendations to the Board with regard to amending the employment agreements or establishing
additional elements of executive compensation in the future when and if it deems appropriate.
A-18
Compensation Policies and Overall Objectives
The Companys executive compensation program is intended to attract, retain and motivate high quality executives with a
performance-based compensation package that promotes Company growth and enhancement of stockholder value. The executive compensation program consists of two primary components: (i) cash compensation and (ii) equity-based compensation,
historically delivered through the grant of stock options and restricted stock pursuant to the Companys shareholder-approved stock plans. The Companys executive compensation program is administered by the Compensation Committee of the
Board. The Committee does not target a specific mix of cash and equity-based, or short-term and long-term, compensation elements in structuring such program.
The Compensation Committee views the cash compensation component to be in recognition of the contribution by the executive officers to the Companys financial performance in the current fiscal year.
The cash compensation component of executive pay is comprised of two primary elements: (i) base salary and (ii) performance-based bonus compensation. The cash component of the Companys executive compensation program is intended to
provide compensation for carrying out the duties expected of each executive position and to reward achievement of short-term annual financial goals, as measured by the Companys operating results in the current fiscal year. The Committee seeks
to offer salaried compensation to the Companys executive officers that provide fair payment for the responsibilities and demands of their respective position, consistent with the experience, qualities and commitment of each individual and
competitive with potential market demand for their services. The performance-based bonus compensation is intended to motivate and reward the executive officers for contributing to the Companys delivery of strong operating performance as
reflected in its financial results.
Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to
public companies for compensation in excess of $1.0 million paid to certain of their most highly compensated executive officers. Qualifying performance-based compensation will not be subject to the deduction limit if certain requirements are met. It
is the Committees objective to maximize deductibility under Section 162(m) with minimal sacrifices in flexibility and corporate objectives. In accordance with that objective, certain long-term incentives such as stock options issued
pursuant to equity plans approved by stockholders are designed as qualifying performance-based compensation, while annual salaries and bonuses that are not approved by stockholders are not considered as such for tax purposes. Shareholder approval of
specific bonus compensation arrangements would be required to qualify for exclusion from the deduction limit, and the Committee believes that such approval would limit its flexibility in negotiating or otherwise determining such arrangements with
management on behalf of the stockholders.
Base Salaries
The Compensation Committee reviews each executive officers base salary annually. The Committee generally establishes the base salary
of each executive officer at the time that it enters into an employment agreement with each executive. The employment agreements currently in place for the Companys executive officers, Mr. John Byrnes (Chief Executive Officer),
Mr. Paul Gabos (Chief Financial Officer and Secretary) and Mr. Shawn Schabel (President and Chief Operating Officer), set forth the terms and conditions of employment for each executive throughout the period of employment. The base salary
amounts established at the commencement of the employment period in the Third Amended Employment Agreements on October 1, 2009 were initially set at an annual rate equal to each executives 2009 salary. In the case of Mr. Byrnes and
Mr. Schabel, the Fourth Amended Employment Agreements effective as of February 10, 2012 did not amend each officers then current base salary amount. The employment agreements provide for annual increases in the base salary amounts
based on the CPI-U for the preceding twelve months, or such higher amounts as may be determined from time to time by the Compensation Committee in its sole discretion. These increases are established by the Committee at the beginning of each
calendar year upon its review of the published CPI-U data for the preceding calendar year.
A-19
Based on its review of the findings and considerations presented by F.W. Cook in 2009, the
Compensation Committee determined that no adjustments would be made to any of the base salaries in effect at the commencement of the terms of employment covered by the Third Amended Employment Agreements effective October 1, 2009. In
establishing the rate of increase in the base salaries of the executives in calendar years 2010, 2011 and 2012, the Committee used the year over year increase in the CPI-U for December of the immediately preceding year, as published by the U.S.
Department of Labor. Accordingly, the Committee approved increases in the base salaries of the executive officers for the 2010, 2011 and 2012 calendar year periods of 2.7%, 1.5% and 3.0%, respectively, consistent with the published CPI-U statistics.
Annual Cash Bonuses
The Compensation Committee determines the annual performance-based cash compensation for the Companys executive officers pursuant to the terms of the officers respective employment agreements.
The Committee believes that the cash bonus plan promotes the Companys performance-based compensation philosophy by providing executives with direct cash incentives for achieving specific performance goals. Under the terms of the employment
agreements with the executive officers, the bonus amounts are calculated pursuant to a formula that compares the Companys reported diluted Earnings Per Share (EPS) in each fiscal year with the expected diluted EPS of the Company for such year
as set forth in the annual business plan prepared in advance by the Company and approved by the Board (
Business Plan EPS
). Bonus payments under the formula are subject to a maximum cash bonus payment of 200% of annual
salary. Under the formula, in respect of each calendar year (or applicable portion thereof) during the term of his employment, the Company will pay bonus compensation to each executive officer in an amount equal to the lesser of 200% of such
executives annual salary or: (i) the percentage of salary set forth in the table below which corresponds to the percentage by which the Companys reported diluted EPS for such calendar year compares with the Business Plan EPS,
multiplied by (ii) the executives annual salary for such calendar year.
|
|
|
Fully-Diluted EPS as a %
Of Business Plan EPS
|
|
% of Salary
|
0-99%
|
|
0%
|
100%
|
|
80%
|
101%
|
|
90%
|
102%
|
|
100%
|
103%
|
|
110%
|
104%
|
|
120%
|
105%
|
|
130%
|
> 105%
|
|
130% + an additional 10% for each full percentage point of EPS achieved over Business Plan EPS
|
The Compensation Committee believes that the current bonus compensation formula is appropriate and in the
best interests of the stockholders of the Company. In developing the formula, the Committee considered the impact that ongoing reductions in payment amounts put into effect by government payors, such as Medicare, for the Companys products and
services are likely to have on the Companys EPS growth in the future. The Committee believes that a formula based on achieving or exceeding the target operating results set forth in the Companys annual business plan, which include an
estimate of the impact of expected Medicare price reductions in the coming year, is consistent with the overall objectives of the performance-based component of the cash compensation program. The Committee believes that a bonus plan that establishes
performance targets in advance and incorporates anticipated changes in reimbursement for the Companys products and services or other factors expected to affect the Companys financial results in a given year is preferable to one that
adjusts reported financial results for such factors retrospectively. The Committee reserves its right to adjust upward or downward at its discretion the Business Plan EPS to account equitably for (i) any extraordinary charges; (ii) any
unusual non-recurring items; (iii) changes in accounting principles required under generally accepted accounting principles; or (iv) any unanticipated events or occurrences, which events impact the Companys fully-diluted EPS in
respect of any such applicable period.
A-20
The Committee believes that EPS is the most appropriate company performance measure for
determining bonus compensation because EPS is determined in accordance with generally accepted accounting principles, includes all income and expense components of net profitability, and takes into account potential stockholder dilution (or
anti-dilution) from all equity-based transactions. The percentage of base salary paid as a cash bonus under the formula increases incrementally with increases in the percentage by which annual reported EPS exceeds the Business Plan EPS. The
Committee recognizes that EPS is a Company-level metric and, as such, the individual performance of each executive officer within their respective areas of responsibility is not considered in establishing the amount of bonus earned and believes that
it is important for the executive officers to work toward a common performance goal on behalf of the stockholders. In the event that the Companys performance goals are met, the Committee believes that the cash bonus plan should result in an
annual cash bonus payment to each executive officer that is approximately equal to one to two times the amount of annual salaried compensation for such officer. This level of bonus compensation is also consistent with the findings and considerations
presented to the Committee by F.W. Cook in 2009 and as updated by F.W. Cook in 2012 in connection with its evaluation of the Companys executive compensation programs.
On February 7, 2012, the Committee determined that no cash bonus had been earned by the executive officers for services performed in 2011, in accordance with the annual performance-based bonus
compensation provisions contained in the executive employment agreements. The Companys earnings per share of $1.93 in 2011 did not meet the pre-established Business Plan EPS of $2.15 that had been approved by the Board for 2011. As a result,
no bonus payments were made to Messrs. Byrnes, Gabos or Schabel for fiscal year 2011.
On February 2, 2011, the Committee
approved the cash bonus amounts to be paid to each executive officer for services performed in 2010 in accordance with the annual performance-based bonus compensation provisions contained in the executive employment agreements. The Company achieved
earnings of $1.87 per share in 2010, exceeding the pre-established Business Plan EPS of $1.81 (adjusted for a 3-for-2 stock split in 2010). The Committee concluded that actual EPS as a percentage of Business Plan EPS in 2010 was approximately 103%,
which, pursuant to the bonus compensation formula, resulted in earned bonus compensation of 110% of each executive officers base salary. The resulting bonus payments made to Messrs. Byrnes, Gabos and Schabel for fiscal year 2010 were
$1,013,134, $506,567 and $675,759, respectively.
On February 23, 2010, the Committee approved the cash bonus amounts to
be paid to each executive officer for services performed in 2009 in accordance with the annual performance-based bonus compensation provisions contained in the executive employment agreements. The Company achieved earnings of $1.32 per share in 2009
(adjusted for the 3-for-2 stock split in 2010), exceeding the pre-established Business Plan EPS of $1.20 (as adjusted). The Business Plan EPS figure included an estimate of the impact on the Companys 2009 operating results from significant
reductions in Medicare payment amounts for the Companys primary products and services. The estimate of the impact to the 2009 financial results was determined by the Committee to have been accurate in all material respects. The Committee
concluded that actual EPS as a percentage of Business Plan EPS in 2009 was approximately 110%, which, pursuant to the bonus compensation formula, resulted in earned bonus compensation of 180% of each executive officers base salary. The
resulting bonus payments made to Messrs. Byrnes, Gabos and Schabel for fiscal year 2009 were $1,614,268, $807,134 and $1,076,718, respectively.
Long-Term, Stock-Based Compensation
The Compensation Committee
believes that the Companys executive officers should be motivated to achieve, and participate significantly in, the creation of long-term shareholder value attained through appreciation in the market price of the Companys common stock.
Stock options and/or restricted shares may be granted to the Companys executives at the discretion of the Committee in order to enhance the link between shareholder value creation and executive pay. The Committee administers the stock-based
compensation program in accordance with the terms of the Companys stockholder-approved equity plans. The Committee reserves the right to determine the mix of stock options and restricted shares to be included in any particular grant and
believes that both forms of equity compensation serve to align the goals of the Companys executive
A-21
officers with those of the shareholders. Specifically, the Committee believes that the issuance of restricted shares promotes long-term common share ownership by the Companys executive
officers and may be issued subject to service-based or performance-based conditions as determined at the discretion of the Committee. Stock options are also believed by the Committee to enhance the link between shareholder value creation and
executive pay and, in addition, exhibit certain other favorable characteristics, including: (1) stock options are granted with an exercise price equal to the fair market value of the Companys common stock on the date of the grant, so
stock options have realizable value to the recipient only if the stock price appreciates after the date the options are granted; (2) stock options result in cash proceeds to the Company through the sale of newly issued shares of common stock at
a price equal to the exercise price of the option; and (3) non-qualified stock options are deemed to be performance-based under Section 162(m) of the Internal Revenue Code and result in more favorable tax treatment to the Company than
restricted stock.
The findings and recommendations presented to the Committee by F.W. Cook in 2009 and as updated by F.W.
Cook in 2012 include a long-term equity incentive framework for the Committee to consider that takes into account the size of equity grants and resulting stockholder dilution and compares the practices of the Company to companies in its peer group.
While the Committee does not target a specific mix of cash and equity-based, or short-term and long-term, compensation elements, the Committee believes that the current mix of long-term compensation creates the appropriate incentives for its
executive officers consistent with the overall objectives of the Company. The Companys long-term incentive program and the amounts awarded under such program are reviewed annually and are determined solely at the discretion of the Committee.
On October 1, 2009, concurrent with the execution of the Third Amended Employment Agreements with the Companys
executive officers which extended the terms of their employment for three additional years to December 31, 2012, the Committee awarded, adjusted for the 3-for-2 stock split in 2010, to Mr. Byrnes a total of 660,000 shares of restricted
stock and 525,000 stock options, to Mr. Gabos a total of 330,000 shares of restricted stock and 300,000 stock options and to Mr. Schabel a total of 435,000 shares of restricted stock and 375,000 stock options. In determining the number of
restricted shares and stock options awarded to the executive officers and the related terms and conditions of the grants, the Committee considered the findings and recommendations of F.W. Cook as well as each officers position and level of
responsibility, his contribution to the long-term success of the Company and each officers historical award levels. Subject to each executive officers continued employment with the Company and other such terms and conditions as specified
in the underlying employment agreements, the restricted shares vest on November 1, 2012, approximately concurrent with the original expiration dates of the Third Amended Employment Agreements. The stock options vest in equal one-third
increments on November 1, 2010, 2011 and 2012 and were granted with an exercise price equal to the fair market value of the Companys common stock on the date of the grant.
On February 10, 2012, concurrent with the execution of the Fourth Amended Employment Agreements with Mr. Byrnes and
Mr. Schabel which extended the terms of their employment for two additional years to December 31, 2014, the Committee awarded to Mr. Byrnes a total of 400,000 shares of restricted stock and to Mr. Schabel a total of 300,000
shares of restricted stock. In determining the number of restricted shares awarded to the executive officers and the related terms and conditions of the grants, the Committee considered the findings and recommendations of F.W. Cook as well as each
officers position and level of responsibility, his contribution to the long-term success of the Company and each officers historical award levels. The restricted shares vest on December 31, 2014, concurrent with the expiration of
the Fourth Amended Employment Agreements, subject to each executive officers continued employment with the Company and other such terms and conditions as specified in the agreements.
Stock-based compensation awarded to the Companys executive officers is subject to the terms and conditions set forth in the
respective agreements underlying the award of stock options and restricted shares. Generally, rights to exercise stock options granted by the Company are subject to vesting provisions that typically entitle the optionee to exercise the options in
scheduled increments between one to three years and expire eight years from the date of grant. Restricted stock grants may be subject to performance and service
A-22
conditions, the achievement of which removes the restrictions on the shares over a period that is defined in the underlying agreement. Such performance conditions may include achievement of
certain EPS or other financial targets established by the Committee and are subject to continued employment of the executive over the measurement period.
The Committee does not have a formal policy for determining when stock-based awards are granted, but does require, in the case of stock options, that such awards be granted with an exercise price equal to
the market price of the Companys stock on the date of grant. The Committee has established stock ownership requirements specifying applicable amounts and forms of ownership of the Companys common stock by its executive officers and
non-employee directors. Pursuant to these requirements, the Companys executive officers are required to maintain ownership of shares of Company stock equivalent to three times their respective base salary, and for non-employee directors, three
times the amount of the annual cash retainer. The Company also maintains a policy that prohibits any employee from hedging the economic risk of ownership and/or engaging in the purchase or sale of any derivative securities derived from the
Companys common shares.
The Company has no formal policy to either retroactively increase or recover previously awarded
bonuses or vested equity compensation in the event of a restatement of its financial results; however, the Company anticipates adopting a clawback policy consistent with any NASDAQ listing requirements that will be established in the
future pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Benefits and Perquisites
The Companys executives are eligible to participate in certain benefit programs available to all employees of
the Company including health insurance, life and disability insurance, Company contributions to a 401(k) plan (subject to certain regulatory and other limits) and participation in an employee stock purchase plan. The employee stock purchase plan
allows employees to accumulate payroll deductions for the purpose of purchasing shares of the Companys common stock on a quarterly basis at a price per share equal to 85% of the lower of the market price of a share of common stock on the last
day of the previous plan quarter or the last trading day of the current plan quarter. Except for the severance arrangements described below, the Company does not offer any post-employment or retirement benefits to any of its employees. The
Compensation Committee does not believe that such retirement benefits serve the interests of the Companys stockholders.
A limited number of perquisites are available to the Chief Executive Officer and other executive officers that are not otherwise
available to non-executive employees of the Company. The Company pays for a golf club membership on behalf of the Chief Executive Officer. The club is in close proximity to the corporate headquarters office and is thereby convenient for use in
conjunction with various business-related activities. The Company also pays for the Chief Executive Officer to undergo an extensive annual physical examination that is not otherwise available to employees of the Company. The Company makes available
to its executive officers personal use of Company owned and operated aircraft. The personal use of Company owned aircraft, if any, is included in each executive officers earnings reported to the Internal Revenue Service and the Company does
not reimburse the individual for the income taxes payable on such earnings. The Company also makes available to its executive officers an annual allowance of up to $7,000 per year for financial planning services.
The executive officers employment and equity compensation agreements contain various severance and change of control provisions.
Such provisions provide for the payment of cash compensation upon the occurrence of certain events, as defined in the employment agreement, whereby the executives employment term will end and the executives employment there under will be
terminated. In the event of termination of the executives employment at any time other than for cause or for good reason (as defined in the employment agreement), then the Company will pay to the executive an amount equal to two times the sum
of (A) his then-current annual salary in effect immediately prior to such termination, plus (B) the average of the bonus paid to or earned by the executive with respect to the three calendar years immediately preceding such termination,
paid in 24 equal monthly installments. An equivalent amount of cash compensation would also be payable to the executive officer upon a change of control of the Company (as defined in the agreement) plus an additional amount equal to two
A-23
times the average annual cost for Company employees of obtaining medical, dental and vision insurance under COBRA, and such severance amounts payable pursuant to a change of control are paid in a
lump sum within 10 business days after the change of control. The employment agreements also contain non-competition and non-solicitation provisions during the two-year period commencing on the date the employment term ends for any reason
whatsoever.
The Companys stock option and restricted stock agreements with its executive officers contain provisions
that accelerate in full the vesting of rights to exercise stock options and the removal of the Companys purchase option related to unvested restricted shares upon a change of control. The Committee believes such change of control provisions
help ensure managements focus and commitment during a contentious period that might include a contest for control of the Company. The Companys relatively diffuse ownership structure as a publicly-held corporation may increase the
probability of managerial resistance to takeover bids that would enhance shareholder value. Without exit compensation, management may be more likely to choose to resist a takeover bid, and this managerial resistance could lead to a depletion of
valuable corporate resources. The Committee believes that exit compensation upon a change of control serves to increase shareholder value and is therefore in the best interests of the Company and its stockholders.
Risk Consideration in Our Compensation Program
The Company has reviewed its compensation structures and policies as they pertain to risk and has determined that our compensation programs do not create or encourage the taking of risks that are
reasonably likely to have a material adverse effect on the Company.
EXECUTIVE COMPENSATION
Summary Compensation
The following table sets forth all compensation paid to, or earned by, each of the Companys executive officers for fiscal years 2009 through 2011.
Summary Compensation Table
For Past Three Fiscal Years
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Name and
Principal Position
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Year
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Salary
($)
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Bonus
($)
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|
Stock
Awards
($) (1)
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|
Option
Awards
($) (2)
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|
Non-Equity
Incentive Plan
Compensation
($) (3)
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Change in
Pension
Value
and
Nonqualified
Deferred
Compensation
Earnings
($)
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All Other
Compensation
($)
|
|
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Total
($)
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John P. Byrnes
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|
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2011
|
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|
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934,846
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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33,924
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(4)
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|
|
968,770
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Chief Executive Officer
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2010
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921,030
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|
|
|
|
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|
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1,013,134
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|
|
|
|
|
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37,643
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(4)
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1,971,807
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2009
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|
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896,816
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|
|
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13,450,800
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3,751,649
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1,614,268
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|
|
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40,469
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(4)
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19,754,002
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Paul G. Gabos
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|
|
2011
|
|
|
|
467,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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20,175
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(5)
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487,598
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Chief Financial Officer and Secretary
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2010
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|
|
460,515
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|
|
|
|
|
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|
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506,567
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|
|
|
|
|
|
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19,907
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(5)
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|
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986,989
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|
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2009
|
|
|
|
448,408
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|
|
|
|
|
|
|
6,725,400
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|
|
|
2,143,799
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|
|
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807,134
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|
|
|
|
|
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16,687
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(5)
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10,141,428
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Shawn S. Schabel
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2011
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|
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623,541
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40,885
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(6)
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664,426
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President and Chief Operating Officer
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2010
|
|
|
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614,328
|
|
|
|
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675,759
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|
|
|
|
|
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16,884
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(6)
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1,306,971
|
|
|
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2009
|
|
|
|
598,177
|
|
|
|
|
|
|
|
8,865,300
|
|
|
|
2,679,749
|
|
|
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1,076,718
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|
|
|
|
|
|
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29,955
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(6)
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|
|
13,249,899
|
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(1)
|
Stock awards consist only of restricted shares. In accordance with the SECs proxy disclosure rules, included in the Stock Awards
column are the aggregate grant date fair values of restricted shares made during the respective fiscal years computed in accordance with FASB ASC Topic 718. For information regarding assumptions made in calculating the amounts reflected in this
column, see Note 12, Stock-Based Compensation, to the Companys Consolidated Financial Statements included in its Annual Report on Form 10-K for fiscal year 2011. Amounts shown do not reflect compensation actually received by the
named executive officer or the value the named executive officer could realize on disposition. Such awards
|
A-24
|
are subject to service-based vesting conditions that may result in forfeiture upon termination of the executive officers employment by the Company for Cause or by the executive
without Good Reason as defined in the respective employment agreements. There were no stock awards granted in 2010 or 2011.
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(2)
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In accordance with the SECs proxy disclosure rules, included in the Option Awards column are the aggregate grant date fair values of option awards
made during the respective fiscal years computed in accordance with FASB ASC Topic 718. The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. Option awards were made on October 1,
2009 with a Black-Scholes value of $10.72 per share. For information regarding assumptions made in calculating the amounts reflected in this column, see Note 12, Stock-Based Compensation, to the Companys Consolidated Financial
Statements included in its Annual Report on Form 10-K for fiscal year 2011. Amounts shown do not reflect compensation actually received by the named executive officer or the value the named executive officer could realize on disposition. Such awards
are subject to service-based vesting conditions that may result in forfeiture upon termination of the executive officers employment by the Company for Cause or by the executive without Good Reason as defined in the
respective employment agreements. There were no stock options granted in 2010 or 2011.
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(3)
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Amounts consist of incentive bonuses earned for services rendered in each fiscal year. The incentive bonuses paid to Messrs. Byrnes, Gabos and Schabel were paid
pursuant to the terms of their respective employment agreements based on achieving certain earnings per share targets. For a discussion of the views of the Compensation Committee of the Companys Board regarding the amount of salary and
incentive bonus paid to the named executive officers in proportion to total compensation, please see the section entitled Compensation Discussion and Analysis contained in this Information Statement.
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(4)
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Reflects amounts in 2011, 2010 and 2009 for (a) Lincares contributions of $12,250 for each year under the Companys tax-qualified 401(k) Plan, which
provides for broad-based employee participation, (b) payments of $10,362, $7,715 and $9,285, respectively, for golf club membership fees, and (c) $11,312, $17,678 and $18,934, respectively, for personal use of Company-owned aircraft. The
amounts shown for personal use of Company-owned aircraft represent the incremental cost to the Company based on the cost of fuel, crew travel expenses, landing fees, supplies, aircraft repair and maintenance, and other variable costs. Since the
Company-owned aircraft are used primarily for business travel, such amounts do not include fixed costs that do not change based on usage, such as pilot salaries and related expenses, depreciation of the purchase costs of Company-owned aircraft,
insurance and hangar lease charges.
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(5)
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Reflects amounts in 2011, 2010 and 2009 for (a) Lincares contributions of $12,250 for each year under the Companys tax-qualified 401(k) Plan, which
provides for broad-based employee participation, (b) $2,925, $2,657 and $4,437, respectively, for personal use of Company-owned aircraft and (c) $5,000 for financial planning services in 2011 and 2010. The amounts shown for personal use of
Company-owned aircraft represent the incremental cost to the Company based on the cost of fuel, crew travel expenses, landing fees, supplies, aircraft repair and maintenance, and other variable costs. Since the Company-owned aircraft are used
primarily for business travel, such amounts do not include fixed costs that do not change based on usage, such as pilot salaries and related expenses, depreciation of the purchase costs of Company-owned aircraft, insurance and hangar lease charges.
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(6)
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Reflects amounts in 2011, 2010 and 2009 for (a) Lincares contributions of $12,250 for each year under the Companys tax-qualified 401(k) Plan, which
provides for broad-based employee participation, and (b) $28,635, $4,634 and $17,705, respectively, for personal use of Company-owned aircraft. The amounts shown for personal use of Company-owned aircraft represent the incremental cost to the
Company based on the cost of fuel, crew travel expenses, landing fees, supplies, aircraft repair and maintenance, and other variable costs. Since the Company-owned aircraft are used primarily for business travel, such amounts do not include fixed
costs that do not change based on usage, such as pilot salaries and related expenses, depreciation of the purchase costs of Company-owned aircraft, insurance and hangar lease charges.
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Grants of Plan-Based Awards
No plan-based awards were granted to the Companys executive officers in 2011.
A-25
Outstanding Equity Awards
The following table shows all outstanding equity awards held by the named executive officers as of December 31, 2011.
Outstanding Equity Awards at 2011 Fiscal Year-End
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Option Awards
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Stock Awards
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Number of
Securities
Underlying
Unexercised
Options (#)
|
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
|
|
|
Option
Exercise
Price
|
|
|
Option
Expiration
|
|
|
Number of
Shares or
Units of
Stock
That
Have Not
Vested
|
|
|
Market
Value of Shares or
Units of
Stock That
Have Not
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
($)
|
|
|
Date
|
|
|
(#)(2)
|
|
|
Vested ($)(3)
|
|
John P. Byrnes
|
|
|
450,000
|
|
|
|
0
|
|
|
|
21.15
|
|
|
|
7/31/2012
|
|
|
|
660,000
|
|
|
|
16,968,600
|
|
|
|
|
600,000
|
|
|
|
0
|
|
|
|
28.22
|
|
|
|
8/30/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000
|
|
|
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0
|
|
|
|
25.67
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|
|
5/31/2014
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|
200,000
|
|
|
|
0
|
|
|
|
26.02
|
|
|
|
5/31/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
350,000
|
|
|
|
0
|
|
|
|
20.38
|
|
|
|
12/1/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175,000
|
(1)
|
|
|
20.38
|
|
|
|
12/1/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul G. Gabos
|
|
|
225,000
|
|
|
|
0
|
|
|
|
21.15
|
|
|
|
7/31/2012
|
|
|
|
330,000
|
|
|
|
8,484,300
|
|
|
|
|
300,000
|
|
|
|
0
|
|
|
|
28.22
|
|
|
|
8/30/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
125,000
|
|
|
|
0
|
|
|
|
25.67
|
|
|
|
5/31/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
0
|
|
|
|
26.02
|
|
|
|
5/31/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
0
|
|
|
|
20.38
|
|
|
|
12/1/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
(1)
|
|
|
20.38
|
|
|
|
12/1/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shawn S. Schabel
|
|
|
300,000
|
|
|
|
0
|
|
|
|
21.15
|
|
|
|
7/31/2012
|
|
|
|
435,000
|
|
|
|
11,183,850
|
|
|
|
|
420,000
|
|
|
|
0
|
|
|
|
28.22
|
|
|
|
8/30/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
175,000
|
|
|
|
0
|
|
|
|
25.67
|
|
|
|
5/31/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
26.02
|
|
|
|
5/31/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000
|
|
|
|
0
|
|
|
|
20.38
|
|
|
|
12/1/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125,000
|
(1)
|
|
|
20.38
|
|
|
|
12/1/2017
|
|
|
|
|
|
|
|
|
|
(1)
|
The options were granted on October 1, 2009 and, assuming continued employment with Lincare, will become exercisable on November 1, 2012.
|
(2)
|
The restricted shares were granted on October 1, 2009 and, assuming continued employment with Lincare, will vest on November 1, 2012.
|
(3)
|
Value based on a stock price of $25.71, which was the closing price of a share of Lincares common stock on the NASDAQ Global Market on December 31, 2011.
|
Option Exercises and Stock Vested
No stock options were exercised by the Companys executive officers during fiscal year 2011 and no stock awards held by the executive
officers vested during fiscal year 2011.
Pension Benefits and Non-Qualified Deferred Compensation
The Company does not have any defined pension or defined contribution plans for its named executive officers other than the tax-qualified
401(k) Plan. The Company does not maintain any non-qualified deferred compensation plans.
A-26
EMPLOYMENT ARRANGEMENTS AND POTENTIAL PAYMENTS
UPON TERMINATION OR CHANGE OF CONTROL
Mr. Byrnes currently serves as Chief Executive Officer at an annual salary of $962,891. Mr. Gabos currently serves as Chief Financial Officer and Secretary at an annual salary of $481,445.
Mr. Schabel currently serves as President and Chief Operating Officer at an annual salary of $642,247.
The Company has
employment agreements with Messrs. Byrnes, Gabos and Schabel. The respective agreements set forth the terms and conditions of each executive officers employment for a period beginning on January 1, 2005 through December 31, 2012 for
Mr. Gabos and January 1, 2005 through December 31, 2014 for Messrs. Byrnes and Schabel, or if employment thereunder is earlier terminated, such shorter period. Each agreement provides for a base salary, annual cost of living
adjustments and for such salary increases as may be determined by the Board in its sole discretion. In addition to salary, the employment agreements provide that each such person will be eligible to receive bonus compensation based upon the
achievement of the performance targets set forth in the respective agreements. During the employment term, each executive officer will be eligible to participate in all employee benefit programs generally available to executive employees in
accordance with the provisions of any such plans and will be entitled to reimbursement of certain out-of-pocket expenses incurred in the performance of such persons duties on behalf of the Company.
The employment agreements contain non-competition and non-solicitation provisions in effect during each executive officers
employment term and during the two-year period commencing on the date the employment term ends for any reason whatsoever. In executing employment agreements with the Company, each executive acknowledges and agrees that a remedy at law for any breach
or threatened breach of such provisions would be inadequate and, therefore, agrees that the Company will be entitled to injunctive relief in addition to any other available rights and remedies in cases of any such breach or threatened breach.
The employment agreements with Messrs. Byrnes, Gabos and Schabel provide for payments to be made to each executive officer
upon the termination of such persons employment pursuant to the occurrence of certain events. Those provisions are summarized below.
Termination of Employment Due to Death or Disability.
In the event that the executives employment terminates by reason of his death or disability, then the Company will pay to the
executive (or his estate) in a lump sum payment no later than ten business days after the end of the employment term, his base salary to the termination date and a pro rata portion of the bonus that the executive would have received had his
employment not terminated (as determined in accordance with the Employment Agreement).
Termination by Company without
Cause or by Executive for Good Reason.
If the Company terminates the executives employment at any time other than for Cause or an executive terminates his employment for Good Reason, then the Company will pay
to the executive, as severance pay or liquidated damages or both, an amount equal to two (2) times the sum of (A) his then-current annual salary in effect immediately prior to such termination; plus (B) the average of the bonus paid
to or earned by the executive with respect to the three calendar years immediately preceding such termination. All amounts payable under this clause (i) will be paid in twenty-four (24) equal monthly installments commencing on the first
day of the calendar month immediately following the end of the employment term or such later date as may be required to be treated as a separate payment for purposes of Section 409A of the U.S. Internal Revenue Code of 1986, as amended (the
Code
), and the guidance issued thereunder (
Section 409A
).
The term
Cause is defined in each executives employment agreement to mean (A) conviction for having committed a felony; (B) determination by at least two-thirds of the members of the Board that the executive has committed acts of
dishonesty or moral turpitude; (C) failure to follow reasonable and lawful directives of the Board; or (D) gross negligence or willful misconduct by the executive in the performance of his obligations hereunder. The term Good
Reason is defined for these purposes as the occurrence of any of the following
A-27
events without the executives written consent: (A) a material diminution in or adverse alteration to the executives duties or responsibilities, (B) the relocation of the
executives principal office outside of the area that comprises a fifty (50) mile radius from Clearwater, Florida, (C) the Company requires the executive to relocate his personal place of residence or (D) a failure of the Company
to comply with any material provision of his employment agreement (other than any such failure caused by a change in applicable law or regulation); provided, however, that such events shall not constitute Good Reason (1) until the executive
provides written notice to the Company within ninety (90) days of his becoming aware of the occurrence of the event or circumstance giving rise to his claim of Good Reason and (2) the executive actually resigns within 30 days
after the end of such 90 day period unless such event or circumstance has not been cured by the Company within thirty (30) days after the Companys receipt of such written notice.
Termination of Employment Upon a Change of Control.
If the executives employment term ends by reason of the occurrence
of a Change of Control (regardless of whether the executive experiences a termination of employment), then the Company will pay to the executive, as severance pay or liquidated damages or both, an amount equal to two (2) times the
sum of (A) his then-current annual salary in effect immediately prior to the occurrence of such event; plus (B) the average of the bonus paid to or earned by the executive with respect to the three calendar years immediately preceding such
termination; plus (C) an amount determined by the Company, in its sole discretion, to be equal to the average annual cost for Company employees of obtaining medical, dental and vision insurance under COBRA. All amounts payable pursuant to a
Change of Control will be paid no later than ten (10) business days after the end of the employment term.
The term
Change of Control is defined in each executives employment agreement to mean any of the following: (A) sale or other disposition (or the last such sale or other disposition) resulting in the transfer of more than 50% of the
outstanding common stock of the Company to an unrelated and unaffiliated third party purchaser; (B) the consolidation or merger of the Company or a subsidiary thereof with or into any other entity (unless immediately following such
consolidation or merger, the outstanding common stock of the Company immediately prior to such consolidation or merger continues to represent (either by remaining outstanding or being converted into voting securities of the resulting or surviving
entity or any parent thereof) more than fifty percent (50%) of the outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such consolidation or merger (including, without limitation, a corporation that owns the Company or all or substantially all of the Companys assets either directly or through one or more subsidiaries);
(C) a sale of substantially all of the properties and assets of the Company as an entirety to an unrelated and unaffiliated third party purchaser; or (D) the time at which any person (including a persons affiliates and associates) or
group (as that term is understood under Section 13(d) of the Exchange Act and the rules and regulations thereunder), files a Schedule 13-D or 14D-1 (or any successor schedule, form or report under the Exchange Act) disclosing that such person
or group has become the beneficial owner (as defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of shares of capital stock of the Company giving such person or group a majority of the voting power of all
outstanding capital stock of the Company with the right to vote generally in an election for directors or other capital stock of the Company into which the common stock or other voting stock is reclassified or changed.
Vesting of Equity Awards.
The non-qualified stock option agreements and restricted stock agreements in effect between the
Company and the named executive officers contain provisions regarding the vesting and exercise of stock options and shares of restricted stock upon termination of employment or upon a Change of Control of the Company. In the event of termination of
employment of the executive by the Company at any time other than for Cause or in the event that the executive terminates his employment for Good Reason, stock options vested as of the date of termination may only be exercised within one year after
the date that employment ends and only to the extent that the executive was entitled to exercise the option on the date that employment ends and had not previously done so. In the event of a Change of Control of the Company, all unvested stock
options held by the executive vest and become immediately exercisable. If employment ends due to the death or disability of the executive, stock options may be exercised (by the executor or administrator of the executives estate or by
A-28
any person who will have acquired the option through bequest or inheritance) as if the executive continued to be employed on a full-time basis by the Company in accordance with the terms of the
stock option agreement.
Shares of restricted stock held by an executive officer become unrestricted upon the following
events: (i) termination of employment due to death or disability; (ii) termination by the Company without Cause or by the executive for Good Reason; (iii) a Change of Control of the Company.
Potential Payments Upon Termination of Employment
The following table shows all potential payments upon termination of employment if each executive officers employment had terminated on December 31, 2011, the last business day of the
Companys 2011 fiscal year. The amounts presented in the table are estimates only and do not necessarily reflect the actual value of the payments and other benefits that would be received by the named executive officers, which would only be
known at the time that employment actually terminates. The amounts shown for share-based awards, including stock options and restricted stock, include the values to be realized from the acceleration of the vesting provisions of the respective
share-based agreements with respect to in-the-money stock options and restricted shares that were unvested as of December 31, 2011.
A-29
Potential Payments Upon Termination of Employment
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Triggering Event
|
|
|
By Company
Without
Cause or By
Executive
for Good
Reason
|
|
|
Change of
Control
|
|
|
Death or
Disability
|
|
John P. Byrnes
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary
|
|
$
|
1,869,692
|
|
|
$
|
1,869,692
|
|
|
|
|
|
Bonus
|
|
|
2,528,840
|
|
|
|
2,528,840
|
|
|
|
|
|
Other Benefits
|
|
|
|
|
|
|
27,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,398,532
|
|
|
|
4,426,260
|
|
|
|
|
|
Acceleration of Restricted Stock
|
|
|
16,968,600
|
|
|
|
16,968,600
|
|
|
$
|
16,968,600
|
|
Acceleration of Stock Options
|
|
|
|
|
|
|
932,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
21,367,132
|
|
|
$
|
22,327,610
|
|
|
$
|
16,968,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul G. Gabos
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Financial Officer and Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary
|
|
$
|
934,846
|
|
|
$
|
934,846
|
|
|
|
|
|
Bonus
|
|
|
1,264,420
|
|
|
|
1,264,420
|
|
|
|
|
|
Other Benefits
|
|
|
|
|
|
|
27,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,199,266
|
|
|
|
2,226,994
|
|
|
|
|
|
Acceleration of Restricted Stock
|
|
|
8,484,300
|
|
|
|
8,484,300
|
|
|
$
|
8,484,300
|
|
Acceleration of Stock Options
|
|
|
|
|
|
|
533,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,683,566
|
|
|
$
|
11,244,294
|
|
|
$
|
8,484,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shawn S. Schabel
|
|
|
|
|
|
|
|
|
|
|
|
|
President and Chief Operating Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary
|
|
$
|
1,247,082
|
|
|
$
|
1,247,082
|
|
|
|
|
|
Bonus
|
|
|
1,686,738
|
|
|
|
1,686,738
|
|
|
|
|
|
Other Benefits
|
|
|
|
|
|
|
27,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,933,820
|
|
|
|
2,961,548
|
|
|
|
|
|
Acceleration of Restricted Stock
|
|
|
11,183,850
|
|
|
|
11,183,850
|
|
|
$
|
11,183,850
|
|
Acceleration of Stock Options
|
|
|
|
|
|
|
666,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,117,670
|
|
|
$
|
14,811,648
|
|
|
$
|
11,183,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential Payments Upon Termination of Employment.
If the Company had terminated
Mr. Byrnes employment other than for Cause or if he had terminated his employment for Good Reason on December 31, 2011, Mr. Byrnes would have received cash severance under his employment agreement in the amount of $4,398,532
payable in twenty-four (24) equal monthly installments of $183,272, consisting of two-times the sum of (A) his annual base salary for fiscal year 2011 of $934.846 and (B) his average bonus amount for the preceding three calendar years
(2008-2010) of $1,264,420. Mr. Byrnes would also benefit from the acceleration of the vesting of 660,000 shares of restricted stock having a gross value of $16,968,600 based on the $25.71 per share closing price of Lincare common stock on
December 31, 2011. If Mr. Byrnes employment had ended on December 31, 2011 as a result of termination of his employment term upon a Change of Control of the Company, Mr. Byrnes would have received a lump sum cash severance
payment of $4,426,260, consisting of two-times the
A-30
sum of (A) his annual base salary for fiscal year 2011 of $934,846, (B) his average bonus amount for the preceding three calendar years (2008-2010) of $1,264,420; and (C) an amount
determined by the Company, in its sole discretion, to be equal to the average annual cost for Company employees of obtaining medical, dental and vision insurance under COBRA, which amount is estimated to be $13,864. Mr. Byrnes would also
benefit from the acceleration of the vesting of 660,000 shares of restricted stock having a gross value of $16,968,600 based on the $25.71 per share closing price of Lincare common stock on December 31, 2011 and options to purchase 175,000
shares of common stock with a net value of $932,750 based on the difference between the $25.71 closing price and the $20.38 exercise price of the in-the-money stock options. If Mr. Byrnes employment had terminated on December 31,
2011 due to death or disability, then the Company would pay to him (or his estate) any accrued and unpaid salary up to the termination date and a pro rata portion of the bonus that he would have received had his employment not terminated (as
determined in accordance with his employment agreement). Mr. Byrnes (or his estate) would also benefit from the acceleration of the vesting of 660,000 shares of restricted stock having a gross value of $16,968,600 based on the $25.71 per share
closing price of Lincare common stock on December 31, 2011.
If the Company had terminated Mr. Gabos
employment other than for Cause or if he had terminated his employment for Good Reason on December 31, 2011, Mr. Gabos would have received cash severance under his employment agreement in the amount of $2,199,266 payable in twenty-four
(24) equal monthly installments of $91,636, consisting of two-times the sum of (A) his annual base salary for fiscal year 2011 of $467,423 and (B) his average bonus amount for the preceding three calendar years (2008-2010) of
$632,210. Mr. Gabos would also benefit from the acceleration of the vesting of 330,000 shares of restricted stock having a gross value of $8,484,300 based on the $25.71 per share closing price of Lincare common stock on December 31, 2011.
If Mr. Gabos employment had ended on December 31, 2011 as a result of termination of his employment term upon a Change of Control of the Company, Mr. Gabos would have received a lump sum cash severance payment of $2,226,994,
consisting of two-times the sum of (A) his annual base salary for fiscal year 2011 of $467,423, (B) his average bonus amount for the preceding three calendar years (2008-2010) of $632,210; and (C) an amount determined by the Company,
in its sole discretion, to be equal to the average annual cost for Company employees of obtaining medical, dental and vision insurance under COBRA, which amount is estimated to be $13,864. Mr. Gabos would also benefit from the acceleration of
the vesting of 330,000 shares of restricted stock having a gross value of $8,484,300 based on the $25.71 per share closing price of Lincare common stock on December 31, 2011 and options to purchase 100,000 shares of common stock with a net
value of $533,000 based on the difference between the $25.71 closing price and the $20.38 exercise price of the in-the-money stock options. If Mr. Gabos employment had terminated on December 31, 2011 due to death or disability, then
the Company would pay to him (or his estate) any accrued and unpaid salary up to the termination date and a pro rata portion of the bonus that he would have received had his employment not terminated (as determined in accordance with his employment
agreement). Mr. Gabos (or his estate) would also benefit from the acceleration of the vesting of 330,000 shares of restricted stock having a gross value of $8,484,300 based on the $25.71 per share closing price of Lincare common stock on
December 31, 2011.
If the Company had terminated Mr. Schabels employment other than for Cause or if he had
terminated his employment for Good Reason on December 31, 2011, Mr. Schabel would have received cash severance under his employment agreement in the amount of $2,933,820 payable in twenty-four (24) equal monthly installments of
$122,243, consisting of two-times the sum of (A) his annual base salary for fiscal year 2011 of $623,541 and (B) his average bonus amount for the preceding three calendar years (2008-2010) of $843,369. Mr. Schabel would also benefit
from the acceleration of the vesting of 435,000 shares of restricted stock having a gross value of $11,183,850 based on the $25.71 per share closing price of Lincare common stock on December 31, 2011. If Mr. Schabels employment had
ended on December 31, 2011 as a result of termination of his employment term upon a Change of Control of the Company, Mr. Schabel would have received a lump sum cash severance payment of $2,961,548, consisting of two-times the sum of
(A) his annual base salary for fiscal year 2011 of $623,541, (B) his average bonus amount for the preceding three calendar years (2008-2010) of $843,369; and (C) an amount determined by the Company, in its sole discretion, to be equal
to the average annual cost for Company employees of obtaining medical, dental and vision insurance under COBRA, which amount is
A-31
estimated to be $13,864. Mr. Schabel would also benefit from the acceleration of the vesting of 435,000 shares of restricted stock having a gross value of $11,183,850 based on the $25.71 per
share closing price of Lincare common stock on December 31, 2011 and options to purchase 125,000 shares of common stock with a net value of $666,250 based on the difference between the $25.71 closing price and the $20.38 exercise price of the
in-the-money stock options. If Mr. Schabels employment had terminated on December 31, 2011 due to death or disability, then the Company would pay to him (or his estate) any accrued and unpaid salary up to the termination date and a
pro rata portion of the bonus that he would have received had his employment not terminated (as determined in accordance with his employment agreement). Mr. Schabel (or his estate) would also benefit from the acceleration of the vesting of
435,000 shares of restricted stock having a gross value of $11,183,850 based on the $25.71 per share closing price of Lincare common stock on December 31, 2011.
GOLDEN PARACHUTE COMPENSATION
This section sets forth the information
required by Item 402(t) of Regulation S-K regarding the compensation for each of our current named executive officers that is based on or otherwise relates to the Offer and the Merger. This compensation is referred to as golden
parachute compensation by the applicable SEC disclosure rules, and in this section we use such term to describe the merger-related compensation payable to our named executive officers.
Messrs. Byrnes, Gabos and Schabel are the Companys current named executive officers. The Company has entered into employment
agreements with Messrs. Byrnes, Gabos and Schabel, as described above in
Annex A Employment Arrangements and Potential Payments Upon Termination or Change of Control
and are incorporated herein by reference.
The Merger Agreement provides for vesting of outstanding Company equity awards in connection with the Transactions, as described above in
Annex A Outstanding Equity Awards
.
The amounts reported below are estimates based on multiple
assumptions that may or may not actually occur, including assumptions described in this Schedule 14D-9, and do not reflect certain compensation actions occurring before completion of the Merger. As a result, the actual amounts, if any, to be
received by a named executive officer may differ materially from the amounts set forth below.
A-32
The following table sets forth the information required by Item 402(t) of Regulation
S-K regarding the compensation for each named executive officer that is based on or otherwise relates to the Offer and the Merger, assuming the following:
|
(a)
|
The Merger is pursuant to a single triggering event;
|
|
(b)
|
Payments to the named executive officers are not conditional upon resignation or termination of the named executive officers; and
|
|
(c)
|
The $41.50 per Share cash consideration payable under the Merger Agreement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Golden Parachute Compensation
|
|
|
|
|
|
|
|
|
|
Name
|
|
Cash($)(1)
|
|
|
Equity($)(2)
|
|
|
Pension/
NQDC($)(3)
|
|
|
Perquisites/
Benefits($)(4)
|
|
|
Tax
Reimbursement
($)(5)
|
|
|
Other($)(6)
|
|
|
Total ($)
|
|
John Byrnes
|
|
|
3,705,112
|
|
|
|
47,686,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,391,112
|
|
Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shawn Schabel
|
|
|
2,480,540
|
|
|
|
33,142,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,623,040
|
|
Chief Operating Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul Gabos
|
|
|
1,866,418
|
|
|
|
15,807,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,673,418
|
|
Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
These amounts represent severance payments payable in a lump sum cash payment.
|
|
Mr. Byrnes will receive a lump sum cash severance payment of $3,705,112, consisting of two-times the sum of (A) his annual base salary for fiscal year 2012 of
$962,891, (B) his average bonus amount for the preceding three calendar years (2009-2011) of $875,801; and (C) an amount determined by the Company, in its sole discretion, to be equal to the average annual cost for Company employees of
obtaining medical, dental and vision insurance under COBRA, which amount is estimated to be $13,864.
|
|
Mr. Schabel will receive a lump sum cash severance payment of $2,480,540, consisting of two-times the sum of (A) his annual base salary for fiscal year 2012
of $642,247, (B) his average bonus amount for the preceding three calendar years (2009-2011) of $584,159; and (C) an amount determined by the Company, in its sole discretion, to be equal to the average annual cost for Company employees of
obtaining medical, dental and vision insurance under COBRA, which amount is estimated to be $13,864.
|
|
Mr. Gabos will receive a lump sum cash severance payment of $1,866,418, consisting of two-times the sum of (A) his annual base salary for fiscal year 2012 of
$481,445, (B) his average bonus amount for the preceding three calendar years (2009-2011) of $437,900; and (C) an amount determined by the Company, in its sole discretion, to be equal to the average annual cost for Company employees of
obtaining medical, dental and vision insurance under COBRA, which amount is estimated to be $13,864.
|
|
These amounts assume that base salaries remain unchanged from their levels in effect on the date of this Information Statement. These amounts also assume that each
executive officer has satisfied the requirements under his Employment Agreement to receive such payments for the maximum period of time.
|
(2)
|
These amounts represent the aggregate amount of unvested restricted shares as well as the option spread value with respect to the outstanding unvested options.
Mr. Byrnes would benefit from the acceleration of the vesting of 1,060,000 shares of restricted stock having a gross value of $43,990,000 based on the $41.50 per share closing price of Lincare common stock and options to purchase 175,000 shares
of common stock with a net value of $3,696,000 based on the difference between the $41.50 closing price and the $20.38 exercise price of the in-the-money stock options.
|
|
Mr. Schabel would benefit from the acceleration of the vesting of 735,000 shares of restricted stock having a gross value of $30,502,500 based on the $41.50 per
share closing price of Lincare common stock and options to purchase 125,000 shares of common stock with a net value of $2,640,000 based on the difference between the $41.50 closing price and the $20.38 exercise price of the in-the-money stock
options.
|
|
Mr. Gabos would benefit from the acceleration of the vesting of 330,000 shares of restricted stock having a gross value of $13,695,000 based on
the $41.50 per share closing price of Lincare common stock and
|
A-33
|
options to purchase 100,000 shares of common stock with a net value of $2,112,000 based on the difference between the $41.50 closing price and the $20.38 exercise price of the in-the-money stock
options.
|
(3)
|
The named executive officers are not entitled to any pension or non-qualified deferred compensation benefit enhancements for a qualifying termination in connection with
a change of control or otherwise.
|
(4)
|
The named executive officers are not entitled to any perquisites or other personal benefits or property for a qualifying termination in connection with a change of
control, other than for reimbursement of healthcare costs (including the costs of healthcare insurance) included in (1). These benefits have been calculated based on assumptions used by the Company for financial reporting purposes under generally
accepted accounting principles, including that the cost of COBRA coverage would represent the cost of continuing coverage for the full 12 or 6 months, as applicable.
|
(5)
|
The named executive officers are not entitled to any make-up payments for taxes incurred by each named executive officer in connection with the change of control.
|
(6)
|
These amounts represent the aggregate dollar value of any other compensation that is based on or otherwise relates to the transaction not properly reported in columns
(1) through (5).
|
AUDIT COMMITTEE REPORT
The Audit Committee of the Board (for purposes of this report, the
Committee
) has prepared this report on its
activities with respect to the Companys audited consolidated financial statements for the fiscal year ended December 31, 2011 (the
Audited Financial Statements
).
(1)
|
The Committee has reviewed and discussed the Audited Financial Statements with management and KPMG LLP, the Companys independent registered public accounting
firm;
|
(2)
|
The Committee has discussed with KPMG LLP the matters required to be discussed by Statement on Auditing Standards No. 61, as amended, as adopted by the Public
Company Accounting Oversight Board in Rule 3200T;
|
(3)
|
The Committee has received the written disclosures and the letter from KPMG LLP required by applicable requirements of the Public Company Accounting Oversight Board
regarding KPMG LLPs communications with the audit committee concerning independence, and has discussed with KPMG LLP its independence; and
|
(4)
|
Based on its review and discussions with management and KPMG LLP concerning the Companys Audited Financial Statements referred to above and relying thereon, and
its review of KPMG LLPs report on such Audited Financial Statements, the Committee recommended to the Board, and the Board approved, that the Audited Financial Statements be included in the Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 2011, filed with the U.S. Securities and Exchange Commission.
|
|
Angela P. Bryant
|
|
Frank D. Byrne, M.D.
|
|
William F. Miller, III
|
|
Audit Committee
|
A-34
ANNEX B
July 1, 2012
The Board of Directors
Lincare Holdings Inc.
19387 U.S. North 19
Clearwater, FL 33764
Members of the Board of Directors:
You have requested our opinion as to the fairness, from a financial point of view, to the holders of common stock, par value $0.01 per share (the
Company Common Stock), of Lincare Holdings Inc. (the Company) of the consideration to be paid to such holders in the proposed Tender Offer and Merger (each as defined below) pursuant to the Agreement and Plan of Merger dated
as of July 1, 2012 (the Agreement), among the Company, Linde AG (the Acquiror) and a wholly-owned indirect subsidiary of the Acquiror, Linde US Inc. (Acquisition Sub). Pursuant to the Agreement, the Acquiror
will cause Acquisition Sub to commence a tender offer for all the shares of the Company Common Stock (the Tender Offer) at a price for each share equal to $41.50 (the Consideration) payable in cash. The Agreement further
provides that, following completion of the Tender Offer, Acquisition Sub will be merged with and into the Company (the Merger) and each outstanding share of Company Common Stock, other than shares of Company Common Stock owned by the
Company or any subsidiary of the Company or any shares owned by the Acquiror, Acquisition Sub or any other subsidiary of Acquiror and other than Dissenting Shares (as defined in the Agreement), will be converted into the right to receive an amount
equal to the Consideration in cash. The Tender Offer and Merger, together and not separately, are referred to herein as the Transaction.
In connection with preparing our opinion, we have (i) reviewed the Agreement; (ii) reviewed certain publicly available business and financial information concerning the Company and the
industries in which it operates; (iii) compared the proposed financial terms of the Transaction with the publicly available financial terms of certain transactions involving companies we deemed relevant and the consideration paid for such
companies; (iv) compared the financial and operating performance of the Company with publicly available information concerning certain other companies we deemed relevant and reviewed the current and historical market prices of the Company
Common Stock and certain publicly traded securities of such other companies; (v) reviewed certain internal financial analyses and forecasts prepared by, or at the direction of, the management of the Company relating to its business; and
(vi) performed such other financial studies and analyses and considered such other information as we deemed appropriate for the purposes of this opinion.
In addition, we have held discussions with certain members of the management of the Company with respect to certain aspects of the Transaction, and the past and current business operations of the Company,
the financial condition and future prospects and operations of the Company, and certain other matters we believed necessary or appropriate to our inquiry.
In giving our opinion, we have relied upon and assumed the accuracy and completeness of all information that was publicly available or was furnished to or discussed with us by the Company or otherwise
reviewed by or for us, and we have not independently verified (nor have we assumed responsibility or liability for independently verifying) any such information or its accuracy or completeness. We have not conducted or been provided with any
valuation or appraisal of any assets or liabilities, nor have we evaluated the solvency of the Company or the Acquiror under any state or federal laws relating to bankruptcy, insolvency or similar matters. In relying on financial analyses and
forecasts provided to us or derived therefrom, we have assumed that they have been reasonably prepared based on assumptions reflecting the best currently available estimates and judgments by management as to the expected future results of operations
and financial condition of the Company to which such
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analyses or forecasts relate. We express no view as to such analyses or forecasts or the assumptions on which they were based. We have also assumed that the Transaction and the other transactions
contemplated by the Agreement will be consummated as described in the Agreement. We have also assumed that the representations and warranties made by the Company and the Acquiror in the Agreement and the related agreements are and will be true and
correct in all respects material to our analysis. We are not legal, regulatory or tax experts and have relied on the assessments made by advisors to the Company with respect to such issues. We have further assumed that all material governmental,
regulatory or other consents and approvals necessary for the consummation of the Transaction will be obtained without any adverse effect on the Company or on the contemplated benefits of the Transaction.
Our opinion is necessarily based on economic, market and other conditions as in effect on, and the information made available to us as of, the date
hereof. It should be understood that subsequent developments may affect this opinion and that we do not have any obligation to update, revise, or reaffirm this opinion. Our opinion is limited to the fairness, from a financial point of view, of the
Consideration to be paid to the holders of the Company Common Stock in the proposed Transaction and we express no opinion as to the fairness of any consideration paid in connection with the Transaction to the holders of any other class of
securities, creditors or other constituencies of the Company or as to the underlying decision by the Company to engage in the Transaction. Furthermore, we express no opinion with respect to the amount or nature of any compensation to any officers,
directors, or employees of any party to the Transaction, or any class of such persons relative to the Consideration to be paid to the holders of the Company Common Stock in the Transaction or with respect to the fairness of any such
compensation
.
We have acted as financial advisor to the Company with respect to the proposed Transaction and will receive a fee from
the Company for our services, a substantial portion of which will become payable only if the proposed Transaction is consummated. In addition, the Company has agreed to indemnify us for certain liabilities arising out of our engagement. Please be
advised that during the two years preceding the date of this letter, neither we nor our affiliates have had any other material financial advisory or other material commercial or investment banking relationships with the Company or the Acquiror other
than that our commercial banking affiliate provides treasury, cash management and related services to the Acquiror for which it receives customary compensation or other financial benefits. In addition, our asset management affiliate provides asset
and wealth management services to the Acquiror for which it receives customary compensation. In the ordinary course of our businesses, we and our affiliates may actively trade the debt and equity securities of the Company or the Acquiror for our own
account or for the accounts of customers and, accordingly, we may at any time hold long or short positions in such securities.
On the basis
of and subject to the foregoing, it is our opinion as of the date hereof that the consideration to be paid to the holders of the Company Common Stock in the proposed Transaction is fair, from a financial point of view, to such holders.
The issuance of this opinion has been approved by a fairness opinion committee of J.P. Morgan Securities LLC. This letter is provided to the Board of
Directors of the Company (in its capacity as such) in connection with and for the purposes of its evaluation of the Transaction. This opinion does not constitute a recommendation to any shareholder of the Company as to whether such shareholder
should tender its shares into the Tender Offer or how such shareholder should vote with respect to the Transaction or any other matter. This opinion may not be disclosed, referred to, or communicated (in whole or in part) to any third party for any
purpose whatsoever except with our prior written approval. This opinion may be reproduced in full in any Schedule 14D-9, proxy or information statement mailed to shareholders of the Company but may not otherwise be disclosed publicly in any manner
without our prior written approval.
|
Very truly yours,
|
|
J.P. MORGAN SECURITIES LLC
|
|
/s/J.P. Morgan Securities LLC
|
B-2
ANNEX C
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
§ 262. Appraisal rights
(a) Any stockholder of a corporation of this State who holds shares of stock on the date of the making of a demand
pursuant to subsection (d) of this section with respect to such shares, who continuously holds such shares through the effective date of the merger or consolidation, who has otherwise complied with subsection (d) of this section and who
has neither voted in favor of the merger or consolidation nor consented thereto in writing pursuant to § 228 of this title shall be entitled to an appraisal by the Court of Chancery of the fair value of the stockholders shares of
stock under the circumstances described in subsections (b) and (c) of this section. As used in this section, the word stockholder means a holder of record of stock in a corporation; the words stock and
share mean and include what is ordinarily meant by those words; and the words depository receipt mean a receipt or other instrument issued by a depository representing an interest in 1 or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for
the shares of any class or series of stock of a constituent corporation in a merger or consolidation to be effected pursuant to § 251 (other than a merger effected pursuant to § 251(g) of this title), § 252,
§ 254, § 255, § 256, § 257, § 258, § 263 or § 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be available for the shares of any class or series of stock, which stock, or depository receipts in respect thereof, at the record
date fixed to determine the stockholders entitled to receive notice of the meeting of stockholders to act upon the agreement of merger or consolidation, were either (i) listed on a national securities exchange or (ii) held of record by
more than 2,000 holders; and further provided that no appraisal rights shall be available for any shares of stock of the constituent corporation surviving a merger if the merger did not require for its approval the vote of the stockholders of the
surviving corporation as provided in § 251(f) of this title.
(2) Notwithstanding paragraph (1) of this
subsection, appraisal rights under this section shall be available for the shares of any class or series of stock of a constituent corporation if the holders thereof are required by the terms of an agreement of merger or consolidation pursuant to
§§ 251, 252, 254, 255, 256, 257, 258, 263 and 264 of this title to accept for such stock anything except:
a.
Shares of stock of the corporation surviving or resulting from such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in respect thereof, which shares of stock (or depository receipts in respect thereof) or depository receipts at the effective date of
the merger or consolidation will be either listed on a national securities exchange or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary
Delaware corporation party to a merger effected under § 253 or § 267 of this title is not owned by the parent immediately prior to the merger, appraisal rights shall be available for the shares of the subsidiary Delaware
corporation.
(c) Any corporation may provide in its certificate of incorporation that appraisal rights under this section
shall be available for the shares of any class or series of its stock as a result of an amendment to its certificate of
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incorporation, any merger or consolidation in which the corporation is a constituent corporation or the sale of all or substantially all of the assets of the corporation. If the certificate of
incorporation contains such a provision, the procedures of this section, including those set forth in subsections (d) and (e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are provided under this section is to be submitted for approval at a meeting of stockholders, the corporation, not less than 20 days
prior to the meeting, shall notify each of its stockholders who was such on the record date for notice of such meeting (or such members who received notice in accordance with § 255(c) of this title) with respect to shares for which
appraisal rights are available pursuant to subsection (b) or (c) of this section that appraisal rights are available for any or all of the shares of the constituent corporations, and shall include in such notice a copy of this section and,
if 1 of the constituent corporations is a nonstock corporation, a copy of § 114 of this title. Each stockholder electing to demand the appraisal of such stockholders shares shall deliver to the corporation, before the taking of the
vote on the merger or consolidation, a written demand for appraisal of such stockholders shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such stockholders shares. A proxy or vote against the merger or consolidation shall not constitute such a demand. A stockholder electing to take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or consolidation, the surviving or resulting corporation shall notify each stockholder of each constituent corporation who has complied with this subsection and has not voted in favor
of or consented to the merger or consolidation of the date that the merger or consolidation has become effective; or
(2) If
the merger or consolidation was approved pursuant to § 228, § 253, or § 267 of this title, then either a constituent corporation before the effective date of the merger or consolidation or the surviving or resulting
corporation within 10 days thereafter shall notify each of the holders of any class or series of stock of such constituent corporation who are entitled to appraisal rights of the approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such constituent corporation, and shall include in such notice a copy of this section and, if 1 of the constituent corporations is a nonstock corporation, a copy of § 114
of this title. Such notice may, and, if given on or after the effective date of the merger or consolidation, shall, also notify such stockholders of the effective date of the merger or consolidation. Any stockholder entitled to appraisal rights may,
within 20 days after the date of mailing of such notice, demand in writing from the surviving or resulting corporation the appraisal of such holders shares. Such demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such holders shares. If such notice did not notify stockholders of the effective date of the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the effective date of the merger or consolidation notifying each of the holders of any class or series of stock of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or resulting corporation shall send such a second notice to all such holders on or within 10 days after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such second notice need only be sent to each stockholder who is entitled to appraisal rights and who has demanded appraisal of such holders shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the transfer agent of the corporation that is required to give either notice that such notice has been given shall, in the absence of fraud, be prima facie evidence of the facts
stated therein. For purposes of determining the stockholders entitled to receive either notice, each constituent corporation may fix, in advance, a record date that shall be not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or consolidation, the record date shall be such effective date. If no record date is fixed and the notice is given prior to the effective date, the record date shall be the close of
business on the day next preceding the day on which the notice is given.
C-2
(e) Within 120 days after the effective date of the merger or consolidation, the surviving
or resulting corporation or any stockholder who has complied with subsections (a) and (d) of this section hereof and who is otherwise entitled to appraisal rights, may commence an appraisal proceeding by filing a petition in the Court of
Chancery demanding a determination of the value of the stock of all such stockholders. Notwithstanding the foregoing, at any time within 60 days after the effective date of the merger or consolidation, any stockholder who has not commenced an
appraisal proceeding or joined that proceeding as a named party shall have the right to withdraw such stockholders demand for appraisal and to accept the terms offered upon the merger or consolidation. Within 120 days after the effective date
of the merger or consolidation, any stockholder who has complied with the requirements of subsections (a) and (d) of this section hereof, upon written request, shall be entitled to receive from the corporation surviving the merger or
resulting from the consolidation a statement setting forth the aggregate number of shares not voted in favor of the merger or consolidation and with respect to which demands for appraisal have been received and the aggregate number of holders of
such shares. Such written statement shall be mailed to the stockholder within 10 days after such stockholders written request for such a statement is received by the surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) of this section hereof, whichever is later. Notwithstanding subsection (a) of this section, a person who is the beneficial owner of shares of such stock held either in a
voting trust or by a nominee on behalf of such person may, in such persons own name, file a petition or request from the corporation the statement described in this subsection.
(f) Upon the filing of any such petition by a stockholder, service of a copy thereof shall be made upon the surviving or resulting
corporation, which shall within 20 days after such service file in the office of the Register in Chancery in which the petition was filed a duly verified list containing the names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been reached by the surviving or resulting corporation. If the petition shall be filed by the surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall give notice of the time and place fixed for the hearing of such petition by registered or certified mail to the surviving or resulting corporation and to the
stockholders shown on the list at the addresses therein stated. Such notice shall also be given by 1 or more publications at least 1 week before the day of the hearing, in a newspaper of general circulation published in the City of Wilmington,
Delaware or such publication as the Court deems advisable. The forms of the notices by mail and by publication shall be approved by the Court, and the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the stockholders who have complied with this section and who have become
entitled to appraisal rights. The Court may require the stockholders who have demanded an appraisal for their shares and who hold stock represented by certificates to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with such direction, the Court may dismiss the proceedings as to such stockholder.
(h) After the Court determines the stockholders entitled to an appraisal, the appraisal proceeding shall be conducted in accordance with the rules of the Court of Chancery, including any rules
specifically governing appraisal proceedings. Through such proceeding the Court shall determine the fair value of the shares exclusive of any element of value arising from the accomplishment or expectation of the merger or consolidation, together
with interest, if any, to be paid upon the amount determined to be the fair value. In determining such fair value, the Court shall take into account all relevant factors. Unless the Court in its discretion determines otherwise for good cause shown,
interest from the effective date of the merger through the date of payment of the judgment shall be compounded quarterly and shall accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during
the period between the effective date of the merger and the date of payment of the judgment. Upon application by the surviving or resulting corporation or by any stockholder entitled to participate in the appraisal proceeding, the Court may, in its
discretion, proceed to trial upon the appraisal prior to the final determination of the stockholders entitled to an appraisal. Any stockholder whose name appears on the list filed by the surviving or resulting corporation pursuant to subsection
(f) of this section and who has submitted such stockholders certificates of stock to the Register in Chancery, if such is
C-3
required, may participate fully in all proceedings until it is finally determined that such stockholder is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Payment shall be so made to each such stockholder, in the case of holders of uncertificated stock forthwith, and the case of holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Courts decree may be enforced as other decrees in the Court of Chancery may be enforced, whether such surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and taxed upon the parties as the Court deems equitable
in the circumstances. Upon application of a stockholder, the Court may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorneys fees and
the fees and expenses of experts, to be charged pro rata against the value of all the shares entitled to an appraisal.
(k)
From and after the effective date of the merger or consolidation, no stockholder who has demanded appraisal rights as provided in subsection (d) of this section shall be entitled to vote such stock for any purpose or to receive payment of
dividends or other distributions on the stock (except dividends or other distributions payable to stockholders of record at a date which is prior to the effective date of the merger or consolidation); provided, however, that if no petition for an
appraisal shall be filed within the time provided in subsection (e) of this section, or if such stockholder shall deliver to the surviving or resulting corporation a written withdrawal of such stockholders demand for an appraisal and an
acceptance of the merger or consolidation, either within 60 days after the effective date of the merger or consolidation as provided in subsection (e) of this section or thereafter with the written approval of the corporation, then the right of
such stockholder to an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed as to any stockholder without the approval of the Court, and such approval may be conditioned upon such
terms as the Court deems just; provided, however that this provision shall not affect the right of any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party to withdraw such stockholders demand
for appraisal and to accept the terms offered upon the merger or consolidation within 60 days after the effective date of the merger or consolidation, as set forth in subsection (e) of this section.
(l) The shares of the surviving or resulting corporation to which the shares of such objecting stockholders would have been converted had
they assented to the merger or consolidation shall have the status of authorized and unissued shares of the surviving or resulting corporation.
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