UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

Filed by the Registrant þ

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

þ  Preliminary Proxy Statement

o  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

o  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Pursuant to § 240.14a-12

 

BIOSCRIP, INC.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

o  No fee required.

 

 

 

Critical Homecare Solutions Holdings, Inc. common stock, par value $0.001 per share, and Series A Convertible Preferred Stock, par value $0.001 per share

 

90,898,079 shares of common stock and 25,036.5 shares of preferred stock of Critical Homecare Solutions Holdings, Inc.

 

 

$141,165,000, calculated pursuant to Rule 0-11(c)(1)(i) and Rule 0-11(a)(4) of the Securities Exchange Act of 1934, as amended, which represents the book value of Critical Homecare Solutions Holdings, Inc. (including the preferred stock value).

 

 

$141,165,000, calculated pursuant to Rule 0-11(c)(1)(i) and Rule 0-11(a)(4) of the Securities Exchange Act of 1934, as amended.

 

 

$10,066

 

 

 

 

 

 

 

 

 

 

 

          , 2010

 

To the Stockholders of BioScrip, Inc.:

 

We cordially invite you to attend a special meeting of the stockholders of BioScrip, Inc., or BioScrip, to be held at executive offices located at 100 Clearbrook Road, Elmsford, New York 10523 on          , 2010 at     , local time.

 

On January 24, 2010, BioScrip entered into an Agreement and Plan of Merger with Camelot Acquisition Corp., or Camelot, which is a wholly owned subsidiary of BioScrip, Critical Homecare Solutions Holdings, Inc., or CHS, Kohlberg Investors V, L.P., as the stockholders’ representative, and the stockholders of CHS, or the Stockholders. CHS is a privately held company that is a leading provider of home infusion and home nursing products and services to patients suffering from chronic and acute medical conditions. At the effective time of the merger, CHS will merge with and into Camelot, with Camelot as the surviving entity. If the merger is completed, BioScrip will:

 

 

If the net indebtedness of CHS at the closing of the merger is less than $132 million, then one-half of the difference would be paid in cash to the Stockholders and the other half would be paid in stock based on a value per share of $8.3441, the 10-day volume weighted trading average share price of BioScrip’s common stock over the 10-day period ended January 22, 2010. If the net indebtedness of CHS exceeds $132 million, then the cash payment of $110 million would be reduced by the amount of the excess.

 

In order to fund the cash consideration, repay existing indebtedness of CHS and refinance indebtedness of BioScrip, BioScrip has received a financing commitment from Jefferies Finance LLC, or Jefferies Finance, pursuant to which Jefferies Finance has committed to provide BioScrip with $375 million of debt financing.

 

Pursuant to the rules of the Nasdaq Global Market, the securities exchange on which BioScrip’s common stock is listed, the issuance of BioScrip’s common stock in connection with the merger, including the shares to be issued upon exercise of the warrants, requires approval of BioScrip’s stockholders because the issuance exceeds 20% of the number of shares of BioScrip common stock outstanding prior to the issuance.

 

At the special meeting, you will be asked to consider and vote on a proposal to approve the issuance of shares of BioScrip common stock, including shares of common stock to be issued upon exercise of the warrants. You also may be asked to approve a proposal to adjourn the special meeting of stockholders, for a period of not more than 30 days, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the special meeting to approve the common stock issuance proposal.

 

The board of directors of BioScrip has determined that the Agreement and Plan of Merger and the merger are advisable and in the best interests of BioScrip stockholders and has approved the Agreement and Plan of Merger and the merger. Accordingly, the board of directors of BioScrip recommends that you vote “FOR” the proposal to approve the issuance of BioScrip common stock and “FOR” the proposal to adjourn the special meeting, if necessary, to enable us to solicit additional proxies.

 

Your vote is very important. We cannot complete the merger without the approval of the issuance of BioScrip common stock in connection with the merger. This approval requires the affirmative vote of the

holders of a majority of the common stock present in person or represented by proxy at the special meeting at which a quorum is present. Even if you plan to attend the special meeting, we recommend that you submit your proxy before the special meeting so that your vote will be counted if you later decide not to attend the meeting. You can also vote your shares via the Internet or by telephone as provided in the instructions set forth on the enclosed proxy card. If you hold your shares in “street name” through a broker, you should follow the procedures provided by your broker.

 

The accompanying proxy statement explains the proposed merger in greater detail. We urge you to carefully read this proxy statement, including the annexes and information incorporated by reference and the matters discussed under “Risk Factors” beginning on page 24.

 

Sincerely,

 

Richard H. Friedman
Chairman and Chief Executive Officer

 

Neither the Securities and Exchange Commission nor any state securities regulator has approved or disapproved the proposed issuance of shares of BioScrip common stock in connection with the merger or determined whether this proxy statement is truthful or complete. Any representation to the contrary is a criminal offense.

 

This proxy statement is dated          , 2010 and is first being mailed to BioScrip stockholders on or about          , 2010.

REFERENCE TO ADDITIONAL INFORMATION

 

This proxy statement incorporates by reference important business and financial information about BioScrip from documents that are not included in or delivered with this proxy statement. You may obtain documents that are incorporated by reference in this proxy statement without charge by requesting them in writing or by telephone from BioScrip at:

BioScrip, Inc.

100 Clearbrook Road

Elmsford, New York 10523

Attention: Corporate Secretary

 

In addition, you may also obtain these and other documents filed with the Securities and Exchange Commission at BioScrip’s website at www.bioscrip.com at the “Investors” section under “About Us”.

 

Please note that copies of the documents provided to you will not include exhibits, unless the exhibits are specifically incorporated by reference in the documents or this proxy statement.

 

In order to receive timely delivery of requested documents in advance of the special meeting, you should make any written or telephonic requests by no later than          , 2010. Documents will be distributed within one business day of receipt of such request.

 

For a more detailed description of the information incorporated by reference in this proxy statement and how you may obtain it, see the section entitled “Where You Can Find More Information” on page 130.

 

 

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To be held on          , 2010

 

 

To the Stockholders of BioScrip, Inc.:

 

A special meeting of stockholders of BioScrip, Inc., a Delaware corporation (“BioScrip”), will be held at BioScrip’s executive offices at 100 Clearbrook Road, Elmsford, New York 10523 on          ,          , 2010 at          , local time, for the following purposes:

 

 

Please refer to the accompanying proxy statement for further information with respect to the business to be transacted at the special meeting of stockholders.

 

The close of business on February 8, 2010 has been fixed as the record date for determining those BioScrip stockholders entitled to notice of and to vote at the special meeting. Accordingly, only stockholders of record at the close of business on that date will receive this notice of, and be eligible to vote at, the special meeting and any adjournments of the special meeting.

 

If BioScrip is to complete the merger with CHS, then BioScrip’s stockholders must approve Proposal No. 1 relating to the issuance of BioScrip common stock in accordance with the terms of the Agreement and Plan of Merger.

 

The BioScrip board of directors recommends that you vote “FOR” each of the above proposals.

 

Your vote is important.  Please read the proxy statement and the instructions on the enclosed proxy card and, whether or not you plan to attend the special meeting in person and no matter how many shares you own, please submit your proxy promptly by telephone or via the Internet in accordance with the instructions on the enclosed proxy card, or by completing, dating and returning your proxy card in the envelope provided. Returning your proxy by one of these three methods will not prevent you from voting in person at the special meeting. It will, however, help assure a quorum and to avoid added proxy solicitations.

 

You may revoke your proxy at any time before the vote is taken by delivering to the Secretary of BioScrip a written revocation or a proxy with a later date (including a proxy by telephone or via the Internet) or by voting your shares in person at the special meeting, in which case your proxy would be disregarded.

 

By order of the Board of Directors

 

Barry A. Posner
Executive Vice President, Secretary and General
Counsel

 

          , 2010

 

TABLE OF CONTENTS

 

 

The following is a summary of the proposed transaction between BioScrip, Inc. (“BioScrip”) and Critical Homecare Solutions Holdings, Inc. (“CHS”) pursuant to which CHS will merge with and into a wholly owned subsidiary of BioScrip. BioScrip is seeking stockholder approval of the issuance of its common stock in connection with the merger with CHS. This term sheet is a summary and does not contain all of the information that may be important to you. You should carefully read this entire document, including the annexes and the other documents to which this document refers you, for a more complete understanding of the matters being considered at this special meeting. See the section entitled “Where You Can Find More Information” beginning on page 130.

 

 

 

 

 

 

 

 

MacKenzie Partners, Inc.

105 Madison Avenue

New York, NY 10016

Stockholders, Banks and Brokers call toll-free: (800) 322-2885

 

 

BioScrip, Inc.
100 Clearbrook Road
Elmsford, New York 10523
Attention: Corporate Secretary
Telephone: (914) 460-1600

 

 

SUMMARY

 

The Transaction (see page 35)

 

BioScrip’s Reasons for the Transaction (see page 39)

 

Financing Related to the Transaction (see page 48)

 

Opinion of BioScrip’s Financial Advisor (see page 41)

 

The Companies

 

Board of Directors and Management of BioScrip Following the Transaction (see page 49)

 

The Special Meeting of BioScrip Stockholders (see page 31)

	•	The Issuance of Common Stock Proposal (Proposal No. 1).  You will be asked to approve the issuance of up to approximately 12.9 million shares of BioScrip common stock (subject to increase as described in this proxy statement if the net indebtedness of CHS is less than $132 million at closing), as well as 3,400,945 shares of common stock to be issued upon exercise of warrants to be issued to the Stockholders and certain optionholders of CHS, pursuant to the Agreement and Plan of Merger. If the issuance of shares of BioScrip’s common stock is approved, then in accordance with the Agreement and Plan of Merger, CHS will merge with and into Camelot, with Camelot as the surviving entity. The

		approval of the issuance of BioScrip common stock is a condition to the completion of the merger with CHS.

	•	The Adjournment Proposal (Proposal No. 2).  You may be asked to approve an adjournment of the special meeting for a period of not more than 30 days, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the special meeting to approve Proposal No. 1. The approval of the adjournment of the special meeting is not a condition to completion of the merger with CHS.

 

The Agreement and Plan of Merger (see page 53)

	•	BioScrip’s stockholders adopting and approving the proposal to issue shares of BioScrip common stock at the special meeting of stockholders called for this purpose;

	•	the representations and warranties of the Stockholders and CHS being true and correct as of the date of closing, or, to the extent they expressly relate to a specific date, then as of that specific date, with only these exceptions which, individually or in the aggregate, would not reasonably be expected to have a material adverse effect;

	•	any waiting period under the HSR Act applicable to the merger having terminated or expired;
	•	on the date of closing, there existing no injunctions or other order issued by any government authority or court of competent jurisdiction which prohibits the consummation of the merger or materially deprives BioScrip of the benefits of the merger;
	•	BioScrip having received payoff letters with respect to the payment of the aggregate outstanding principal and accrued interest and other amounts payable in respect of certain CHS credit agreements and the release of any liens related thereto;
	•	all required licenses, permits, consents, authorizations, approvals, qualifications and orders of governmental authorities and certain other persons having been obtained;
	•	the Escrow Agreement having been executed and delivered by the Stockholders’ Representative;
	•	the Stockholders’ Agreement having been executed and delivered by each of the Stockholders and any holders of CHS stock options, if any, receiving shares of BioScrip’s common stock in connection with the merger with CHS;
	•	BioScrip having received the proceeds of the debt financing on the specified terms;
	•	BioScrip having received the opinion of King & Spalding LLP to the effect that the merger will be treated as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”);
	•	BioScrip having received the audited consolidated balance sheet of CHS and its subsidiaries as of December 31, 2009 and the related audited consolidated statements of income, shareholders’ equity and cash flows of CHS and its subsidiaries for the year then ended, together with the notes and schedules thereto and an unqualified audit opinion of its independent registered public accounting firm with respect thereto;

	•	BioScrip having received the accountants’ consent and “comfort” letters that have been reasonably requested under the Agreement and Plan of Merger prior to the closing date in connection with the debt financing;

	•	in the event that the Stockholders would receive BioScrip common stock valued at the Applicable Stock Value (as defined below) as a result of cash amounts that otherwise would have been paid to the Stockholders causing the Threshold Percentage (as defined below) to be lower than 40.5% at the time of such payments, the Applicable Stock Value (as determined at 4:00 p.m. as of the last trading day immediately preceding the scheduled date of closing, and as adjusted for splits, conversions and reverse splits) not being less than $5.2151. The term “Applicable Stock Value” means the average of the high and low selling prices of a share of BioScrip’s common stock quoted on NASDAQ, as reported by The Wall Street Journal, for the last trading day immediately before (1) January 24, 2010 if, as of the closing date, Temp. Reg. section 1.368-1(e)(2) has not expired or has been replaced by a regulation permitting or requiring BioScrip’s common stock to be valued, for purposes of applying the continuity of interest requirement under Section 368 of the Code, on the last trading day immediately before January 24, 2010, or (2) the date of closing if the condition described in clause (1) above is not satisfied as of such date. The term “Threshold Percentage” means the quotient (expressed as a percentage) obtained by dividing (i) the product of the aggregate number of shares of BioScrip’s

		common stock delivered to the Stockholders under the Agreement and Plan of Merger (excluding the 2,969,516 shares to be held in escrow) multiplied by the Applicable Stock Value (the “Non-Escrow Stock Consideration”), by (ii) the sum of (a) the Non-Escrow Stock Consideration, plus (b) the aggregate amount of cash paid to the Stockholders, plus (c) all amounts payable to the holders of CHS’s Series A Preferred Stock, $0.001 par value per share, at the closing of the merger, plus (d) $15 million (which represents the aggregate fair market value of the warrants to be issued pursuant to the Warrant Agreement); and

	•	CHS, the Stockholders’ Representative and the Stockholders having satisfied other customary closing conditions.

	•	the representations and warranties of BioScrip being true and correct in all material respects as of the date of closing, or, to the extent they expressly related to a specific date, then as of the specific date, with only those exceptions which, individually or in the aggregate, would not reasonably be expected to have a material adverse effect;
	•	any waiting period under the HSR Act applicable to the merger having terminated or expired;
	•	on the date of closing, there existing no injunctions or other order issued by any government authority or court of competent jurisdiction which prohibits the consummation of the merger;
	•	all required licenses, permits, consents, authorizations, approvals, qualifications and orders of governmental authorities and certain persons having been obtained;
	•	the Escrow Agreement having been executed and delivered by the Stockholders’ Representative and BioScrip;
	•	the Stockholders’ Agreement having been executed and delivered by each of the Stockholders and any holders of CHS stock options, if any, receiving shares of BioScrip’s common stock in connection with the merger with CHS;
	•	BioScrip having received the proceeds of the debt financing on the specified terms;
	•	the BioScrip stockholders having approved the proposal to issue shares of BioScrip common stock;
	•	CHS having received the opinion of Paul, Weiss, Rifkind, Wharton & Garrison LLP (“Paul, Weiss”) to the effect that the merger will be treated as a reorganization within the meaning of Section 368(a) of the Code;
	•	the per share price (as determined at 4:00 pm as of the relevant date) of BioScrip’s common stock on NASDAQ (as adjusted for splits, conversions and reverse splits) not being less than $5.2151 for the 10 trading days immediately preceding the scheduled date of closing; and
	•	BioScrip having satisfied other customary closing conditions.

	•	by mutual written consent of BioScrip and the Stockholders’ Representative; or
	•	by either BioScrip or the Stockholders’ Representative if the closing date has not occurred on or before June 30, 2010 (subject to extension by mutual agreement in the event of regulatory or antitrust issues),

		but only if the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained in the Agreement and Plan of Merger; or

	•	subject to BioScrip’s obligations relating to challenges to the merger as violative of antitrust laws, by BioScrip or the Stockholders’ Representative if a court of competent jurisdiction or other governmental authority has issued an order or injunction or taken any other action (which order, injunction or action the parties will use their commercially reasonable efforts to lift) permanently restraining, enjoining or otherwise prohibiting the transactions contemplated under the Agreement and Plan of Merger and such order or action has become final and nonappealable; or
	•	by the Stockholders’ Representative, if neither CHS nor any of the Stockholders is then in material breach of any term of the Agreement and Plan of Merger, upon written notice to BioScrip, upon a material breach of any representation, warranty or covenant of BioScrip contained in the Agreement and Plan of Merger such that the conditions to closing set forth in Agreement and Plan of Merger cannot be satisfied and such breach is not capable of being cured or has not been cured within 30 days after the giving of notice thereof by the Stockholders’ Representative to BioScrip; or
	•	by BioScrip, if BioScrip is not then in material breach of any term of the Agreement and Plan of Merger, upon written notice to Stockholders’ Representative, upon a material breach of any representation, warranty or covenant of CHS or the Stockholders contained in the Agreement and Plan of Merger such that the conditions to closing set forth in Agreement and Plan of Merger cannot be satisfied and such breach is not capable of being cured or has not been cured within 30 days after the giving of notice thereof by BioScrip to the Stockholders’ Representative; or
	•	by the Stockholders’ Representative or BioScrip if the BioScrip stock issuance proposal has been submitted to the BioScrip stockholders for adoption by written consent or at a duly convened special meeting of stockholders (or adjournment thereof) and the approval of the BioScrip stockholders was not obtained.

 

The Stockholders’ Agreement (see page 68)

 

The Warrant Agreement (see page 72)

 

The Common Stock Voting Agreement (see page 74)

 

Escrow Agreement (see page 76)

 

Regulatory Approvals Required for the Merger with CHS (see page 49)

 

Material U.S. Federal Income Tax Consequences of the Merger (see page 50)

 

Anticipated Accounting Treatment (see page 50)

 

COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA

														CHS
		BioScrip				BioScrip				CHS				Equivalent
		Historical				Pro Forma				Historical				Pro Forma
Net Income (loss) per common share — basic:(A)
Fiscal year ended December 31, 2008		$	(1.93	)		$	(1.51	)		$	0.06			$	(0.21	)
Nine months ended September 30, 2009		$	0.35			$	0.30			$	0.11			$	0.04
Net Income (loss) per common share — diluted:(A)
Fiscal year ended December 31, 2008		$	(1.93	)		$	(1.51	)		$	0.06			$	(0.21	)
Nine months ended September 30, 2009		$	0.34			$	0.29			$	0.10			$	0.04
Cash dividends per share:
Fiscal year ended December 31, 2008		$	0.00			$	0.00			$	0.00			$	0.00
Nine months ended September 30, 2009		$	0.00			$	0.00			$	0.00			$	0.00
Book value per share as of September 30, 2009		$	2.87			$	4.36			$	1.00			$	0.61

(A)		CHS Historical amounts are based on CHS net income available to common stockholders.

 

PER SHARE MARKET PRICE DATA

		High				Low
Fiscal Year 2007
First Quarter			3.85				2.88
Second Quarter			4.96				3.00
Third Quarter			6.84				4.44
Fourth Quarter			9.82				6.35
Fiscal Year 2008
First Quarter			8.47				5.65
Second Quarter			7.06				2.55
Third Quarter			5.07				1.94
Fourth Quarter			5.00				1.26
Fiscal Year 2009
First Quarter			2.84				1.35
Second Quarter			5.99				1.95
Third Quarter			7.29				5.26
Fourth Quarter			9.05				6.25
Fiscal Year 2010
First Quarter (through          , 2010)

 

SUMMARY SELECTED HISTORICAL CONSOLIDATED
FINANCIAL DATA OF CRITICAL HOMECARE SOLUTIONS HOLDINGS, INC.

	•	The consolidated statement of operations data for the years ended December 31, 2004 and 2005 and the consolidated balance sheet data as of December 31, 2004 and 2005 have been derived from each of CHS’s predecessors’ consolidated financial statements and the related notes thereto.
	•	The consolidated statement of operations data for the eight months ended August 31, 2006 and the consolidated balance sheet data as of August 31, 2006 have been derived from each of CHS’s predecessors’ audited consolidated financial statements and the related notes thereto, which were audited by Deloitte & Touche LLP, an independent registered public accounting firm, and which are included elsewhere in this proxy statement.

																						Predecessor												Predecessor
		CHS(1)																				(New England Home Therapies)(1)												(Specialty Pharma)(1)
																		Period from				Period from												Period from
		Nine Months Ended								Fiscal Year Ended								September 1–				January 1–				Fiscal Year Ended								January 1–				Fiscal Year Ended
		September 30,								December 31,								December 31,				August 31,				December 31,								August 31,				December 31,
		2009				2008				2008				2007				2006				2006				2005				2004				2006				2005				2004
		(in thousands, except per share amounts)
Statements of Operations Data:
Revenue		$	187,457			$	166,746			$	230,868			$	193,853			$	16,897			$	13,217			$	17,266			$	15,374			$	19,741			$	29,287			$	26,575
Gross Profit		$	96,326			$	87,320			$	118,910			$	98,507			$	7,746			$	7,508			$	9,803			$	8,294			$	7,322			$	11,934			$	11,163
Terminated transaction costs(2)		$	—			$	2,187			$	3,580			$	4,379			$	—			$	—			$	—			$	—			$	—			$	—			$	—
(Loss) gain related to reorganization(3)		$	—			$	—			$	—			$	—			$	—			$	—			$	(56	)		$	9,144			$	—			$	—			$	—
Net (loss) income		$	11,650			$	6,183			$	5,967			$	1,612			$	286			$	647			$	1,006			$	9,564			$	(781	)		$	157			$	233
Income available to common stockholders		$	10,359			$	6,107			$	5,723			$	1,612			$	286			$	647			$	1,006			$	9,564			$	(1,132	)		$	(335	)		$	(220	)
Net income (loss) available to common stockholders per share — basic		$	0.11			$	0.07			$	0.06			$	0.02			$	0.01			$	323.68			$	503.02			$	4,781.78			$	(16.59	)		$	(4.91	)		$	(3.23	)
Net income (loss) available to common stockholders per share — diluted		$	0.10			$	0.06			$	0.06			$	0.02			$	0.01			$	323.68			$	503.02			$	4,781.78			$	(16.59	)		$	(4.91	)		$	(3.23	)
Weighted average shares outstanding used in computing:
basic income (loss) per share			90,898				90,898				90,898				86,050				25,350				2				2				2				68				68				68
diluted income (loss) per share			104,424				95,941				96,857				86,840				25,350				2				2				2				68				68				68
Balance Sheet Data:
Working capital(4)		$	30,078			$	31,325			$	32,515			$	27,346			$	5,807			$	2,020			$	1,530			$	1,534			$	1,953			$	2,011			$	2,612
Short term debt (including capital leases)		$	8,090			$	5,280			$	5,989			$	3,214			$	1,041			$	716			$	881			$	729			$	1,953			$	2,635			$	3,007
Long term debt (including capital leases)		$	134,208			$	149,181			$	145,831			$	151,580			$	24,981			$	2,429			$	2,237			$	3,025			$	1,318			$	1,547			$	2,155
Total assets		$	312,251			$	301,473			$	306,880			$	288,270			$	61,512			$	7,230			$	6,474			$	5,504			$	11,731			$	13,922			$	15,133
Stockholders’ equity (deficit)		$	116,129			$	103,362			$	103,429			$	96,274			$	25,461			$	1,652			$	1,144			$	138			$	(1,456	)		$	(324	)		$	12
Book value per common share outstanding		$	1.3			$	1.1			$	1.1			$	1.1			$	1.0			$	826.0			$	572.0			$	69.0			$	(21.3	)		$	(4.7	)		$	0.2
Common shares outstanding at end of period			90,898				90,898				90,898				90,898				25,350				2				2				2				68				68				68

(1)		No dividends were declared by CHS’s predecessors or CHS for any of the periods presented.
(2)		2008 primarily reflects transaction costs relative to the termination of CHS’s proposed acquisition by MBF Healthcare Acquisition Corp, which was effective October 31, 2008. 2007 reflects stock issuance costs, relative to the termination of CHS’s initial public offering on Form S-1 with the SEC in January 2008.
(3)		Relates to New England Home Therapies’ Plan of Reorganization, pursuant to the provisions of Chapter 11 of the Bankruptcy Code, filed in February 2004 for the restructuring of its outstanding creditor claims.
(4)		Working capital includes current portion of deferred tax assets, capital lease obligations and long term debt.

 

SUMMARY SELECTED HISTORICAL CONSOLIDATED
FINANCIAL DATA OF BIOSCRIP

		Nine Months Ended
		September 30,								Fiscal Year Ended December 31,
		2009				2008				2008				2007				2006				2005				2004
		(in thousands, except per share amounts)
Statement of Operations Data:
Revenue(1)		$	987,974			$	1,035,338			$	1,401,911			$	1,197,732			$	1,151,940			$	1,072,895			$	630,516
Gross profit		$	115,874			$	104,179			$	142,170			$	137,015			$	118,056			$	116,376			$	68,156
Merger related expenses(2)		$	—			$	—			$	—			$	—			$	58			$	4,575			$	—
Goodwill and intangible impairment(3)		$	—			$	—			$	93,882			$	—			$	—			$	25,165			$	—
Net (loss) income (4, 5, 6)		$	13,409			$	2,552			$	(74,032	)		$	3,317			$	(38,289	)		$	(23,847	)		$	7,033
Net (loss) income per common share—basic		$	0.35			$	0.07			$	(1.93	)		$	0.09			$	(1.03	)		$	(0.70	)		$	0.32
Net (loss) income per common share—diluted (7)		$	0.34			$	0.07			$	(1.93	)		$	0.09			$	(1.03	)		$	(0.70	)		$	0.31
Weighted average common shares outstanding used in computing:
basic (loss) income per share			38,807				38,359				38,417				37,647				37,304				34,129				22,245
diluted (loss) income per share (7)			39,345				39,187				38,417				38,491				37,304				34,129				22,702
Balance Sheet Data:
Working capital		$	76,153			$	55,296			$	58,844			$	49,213			$	37,023			$	67,488			$	13,968
Line of credit		$	39,584			$	55,024			$	50,411			$	33,778			$	52,895			$	7,427			$	7,303
Total assets(3, 6)		$	240,180			$	336,963			$	246,957			$	296,822			$	305,456			$	298,629			$	185,788
Stockholders’ equity(3, 6)		$	112,701			$	171,628			$	95,537			$	166,203			$	161,833			$	195,765			$	115,683
Book value per common share outstanding(3, 6)		$	2.87			$	4.47			$	2.47			$	4.35			$	4.32			$	5.28			$	5.19
Common shares outstanding at end of period			39,272				38,403				38,691				38,251				37,488				37,094				22,307

(1)		Revenues in 2008 include Competitive Acquisition Program (“CAP”) revenues of $54.0 million for the nine months ended September 30, 2008 and $71.2 million for the twelve months ended December 31, 2008. The CAP program ended December 31, 2008. Revenues in 2008 also include United Healthcare (“UHC”) HIV/AIDS and solid organ transplant services of $83.7 million for the nine months ended September 30, 2008 and $116.6 million for the twelve months ended December 31, 2008. 2009 revenues

		include $23.3 million related to the UHC HIV/AIDS and solid organ transplant services which were terminated in 2009. Certain pharmacy benefit management customer contracts ended in 2007 and prior years. Revenue related to these contracts was $15 million, $76.8 million, $154.8 million and $136.1 million in the years 2007, 2006, 2005 and 2004, respectively.
(2)		Reflects merger, integration and re-branding expenses related to the acquisition of Chronimed, Inc. on March 12, 2005.
(3)		2008 includes a $90.0 million charge related to impairment of goodwill, and a $3.9 million charge related to write-off of remaining intangible assets. 2005 includes a $6.6 million charge related to write-off of non-compete agreements, trade names and customer lists due to our rebranding strategy in the Specialty Services segment and an $18.6 million charge, related to goodwill impairment in the Traditional Pharmacy Services segment which includes pharmacy benefit management services. These charges reduced book value by $2.32 per common share as of December 31, 2008 and $0.68 per common share as of December 31, 2005.
(4)		Net income in 2004 includes a $0.5 million charge, net of tax, related to a settlement with Value Options of Texas, Inc.
(5)		Net loss in 2005 includes a $4.3 million charge, net of tax, to reflect an increase in the allowance for doubtful accounts receivable created by lower than expected collections during the merger integration period.
(6)		Net loss in 2006 includes a $25.7 million income tax charge for the establishment of a valuation allowance recorded against deferred tax assets. This adjustment reduced book value by $0.68 per common share outstanding as of December 31, 2006.
(7)		The 2008, 2006 and 2005 net loss per diluted share excludes the effect of common stock equivalents, as their inclusion would be anti-dilutive.

 

SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL DATA OF BIOSCRIP

						Pro Forma
		Pro Forma				Year Ended
		Nine Months Ended				December 31,
		September 30, 2009				2008
		(In thousands, except per share data)
Statement of Operations Data:
Revenue		$	1,175,431			$	1,632,779
Gross profit		$	212,200			$	261,080
Goodwill and intangible impairment		$	—			$	93,882
Net income (loss)		$	15,274			$	(77,784	)
Income (loss) per common share — basic(A)		$	0.30			$	(1.51	)
Income (loss) per common share — diluted(A)		$	0.29			$	(1.51	)
Balance Sheet Data:
Working capital		$	174,676
Total assets		$	669,779
Stockholders’ equity		$	227,701

(A)		CHS Historical amounts are based on CHS net income available to common stockholders.

 

In addition to the other information included or incorporated by reference in this proxy statement, you should carefully consider the material risks described below in deciding whether to vote for approval of the proposals presented in this proxy statement. Additional risks and uncertainties not presently known to us or that are not currently believed to be material, if they occur, also may adversely affect BioScrip following the merger.

 

Although we expect that the merger with CHS will result in benefits to BioScrip, we may not realize those benefits because of integration difficulties.

 

Integrating the operations of the businesses of CHS successfully or otherwise realizing any of the anticipated benefits of the merger with CHS, including anticipated cost savings and additional revenue opportunities, involves a number of potential challenges. The failure to meet these integration challenges could seriously harm our results of operations and the market price of BioScrip common stock may decline as a result.

 

Realizing the benefits of the merger will depend in part on the integration of information technology, operations and personnel. These integration activities are complex and time-consuming and we may encounter unexpected difficulties or incur unexpected costs, including:

 

 

We may not successfully integrate the operations of the businesses of CHS in a timely manner, and we may not realize the anticipated net reductions in costs and expenses and other benefits and synergies of the merger with CHS to the extent, or in the timeframe, anticipated. In addition to the integration risks discussed above, our ability to realize these net reductions in costs and expenses and other benefits and synergies could be adversely impacted by practical or legal constraints on our ability to combine operations.

 

If the merger is completed and BioScrip is unable to manage its growth profitably, its business, financial results and stock price could suffer.

 

BioScrip’s future financial results will depend in part on its ability to profitably manage its growth on a combined basis with CHS. Management will need to maintain existing customers and attract new customers, recruit, retain and effectively manage employees, as well as expand operations and integrate customer support and financial control systems. We expect to spend approximately $3 million of integration-related capital

expenditures in the first 12 months after completion of the transaction and to incur $5 million of integration-related non-recurring expenses during that 12-month period. If the integration-related expenses and capital expenditure requirements are greater than anticipated, or if BioScrip is unable to manage its growth profitably after the merger, the financial results and market price of BioScrip’s common stock may decline.

 

BioScrip’s financing commitment for the merger is subject to certain conditions and an expiration date, and therefore may not be available to provide us with adequate financing to complete the merger.

 

It is a condition to the completion of the merger that we will have received financing in an amount sufficient to consummate the merger. As described in “The Transaction — Financing Related to the Transaction” beginning on page 48, we have received a commitment for such financing, comprised of a senior secured term loan and, in the event we are not successful in effecting an offering of senior unsecured notes before the closing of the merger, borrowings under a senior bridge loan facility. In addition, we have received a commitment for a senior secured revolving credit facility which will be available for borrowings by us after the closing of the merger. However, the financing commitment will expire on June 30, 2010, even if the merger has not been completed by that date, and is subject to certain conditions, including the negotiation of acceptable legal documentation. There can be no assurance that all of these conditions will be satisfied or that we will be able to obtain adequate financing if we do not complete the merger prior to the expiration of our financing commitment.

 

We anticipate that the significant indebtedness that will be incurred if we complete the merger will impose operating and financial restrictions on us which, together with the resulting debt service obligations, may significantly limit our ability to execute our business strategy and increase the risk of default under our debt obligations.

 

We intend to borrow or assume an aggregate of approximately $325 million (not including up to $50 million that would also be available under our new revolving credit facility) in connection with the merger. We expect that the terms of our new credit facilities that we will enter into in connection with the merger will require us to comply with certain financial covenants, including a maximum total leverage ratio and a minimum fixed charge coverage ratio. In addition, the proposed terms of our new indebtedness also include certain covenants restricting or limiting our ability to, among other things:

 

 

These covenants may adversely affect our ability to finance future operations or limit our ability to pursue certain business opportunities or take certain corporate actions. The covenants may also restrict our flexibility in planning for changes in our business and the industry and make us more vulnerable to economic downturns and adverse developments. The documentation governing our new indebtedness has not been finalized and, accordingly, the actual terms may further restrict our operation of our business.

 

Following the completion of the merger, our ability to meet our cash requirements, including our debt service obligations, will be dependent upon our ability to substantially improve our operating performance, which will be subject to general economic and competitive conditions and to financial, business and other factors affecting our operations, many of which are or may be beyond our control. In addition, our credit

facilities have interest payments that are subject to variable interest rates and are therefore dependent upon future fluctuations in interest rates, which are beyond our control. We cannot provide assurance that our business operations will generate sufficient cash flows from operations to fund these cash requirements and debt service obligations. If our operating results, cash flow or capital resources prove inadequate, or if interest rates increase significantly, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt and other obligations. If we are unable to service our debt, we could be forced to reduce or delay planned expansions and capital expenditures, sell assets, restructure or refinance our debt or seek additional equity capital, and we may be unable to take any of these actions on satisfactory terms or in a timely manner. Further, any of these actions may not be sufficient to allow us to service our debt obligations or may have an adverse impact on our business. Our debt agreements may limit our ability to take certain of these actions. Our failure to generate sufficient operating cash flow to pay our debts or to successfully undertake any of these actions could have a material adverse effect on us.

 

In addition, the degree to which we may be leveraged as a result of the indebtedness incurred in connection with the merger or otherwise could materially and adversely affect our ability to obtain additional financing for working capital, capital expenditures, acquisitions, debt service requirements or other purposes, could make us more vulnerable to general adverse economic, regulatory and industry conditions, could limit our flexibility in planning for, or reacting to, changes and opportunities in the markets in which we compete, could place us at a competitive disadvantage compared to our competitors that have less debt or could require us to dedicate a substantial portion of our cash flow to service our debt.

 

A shortage of qualified registered nursing staff and other caregivers could adversely affect our ability to attract, train and retain qualified personnel and could increase operating costs after the merger.

 

CHS’s home nursing business relies significantly on its ability to attract and retain caregivers who possess the skills, experience and licenses necessary to meet the requirements of its patients. CHS competes for personnel with other providers of home health services. Our ability to attract and retain caregivers after the merger will depend on several factors, including our ability to provide these caregivers with attractive assignments and competitive benefits and salaries. There can be no assurance that BioScrip will be successful in any of these areas. In addition, there are occasional shortages of qualified health care personnel in some of the markets in which CHS operates. As a result, we may face higher costs to attract caregivers and we may have to provide them with more attractive benefit packages than originally anticipated, either of which could cause our profitability to decline. Finally, if we expand CHS’s operations into geographic areas where health care providers historically have unionized, we cannot assure you that negotiating collective bargaining agreements will not have a negative effect on our ability to timely and successfully recruit qualified personnel. Generally, if we are unable to attract and retain caregivers, the quality of our services may decline and we could lose patients and referral sources.

 

Failure to complete the merger could negatively impact the stock price and the future business and financial results of BioScrip.

 

Although we have agreed to use our reasonable efforts to obtain stockholder approval of the proposal to issue shares of BioScrip common stock, there is no assurance that this proposal will be approved. If this proposal is not approved, and as a result the merger is not completed:

 

 

The anticipated per share dilution and accretion and net reductions in costs and expenses from the merger with CHS are based on projections, which are uncertain.

 

The anticipated dilution of approximately $0.01 per diluted share on an adjusted GAAP basis (without taking into account transaction expenses and net reductions in costs and expenses of approximately $8 million during the first 12 months following the closing of the merger) is based on projections that are uncertain. The anticipated accretion of approximately $0.01 per diluted share and net reductions in costs and expenses of approximately $5 million between 12 and 24 months following the closing of the merger are also based on projections that are uncertain. These projections are based on assumptions and on preliminary information, which may prove to be inaccurate. There can be no assurance that we will realize the dilution or accretion per diluted share or the net reductions in costs and expenses from the merger to the extent, or in the time frame, anticipated. The market price of BioScrip’s common stock may decline if the estimates are not realized or we do not achieve the perceived benefits of the merger as rapidly or to the extent anticipated.

 

The announcement and pendency of the merger may cause disruptions in the business of CHS, which could have an adverse effect on its business, financial condition or results of operations and, post-closing, BioScrip’s business, financial condition or results of operations.

 

The announcement and pendency of the transaction could cause disruptions in the business of CHS. Specifically:

 

 

 

 

These disruptions could be exacerbated by a delay in the completion of the merger or termination of the Agreement and Plan of Merger and could have an adverse effect on the business, financial condition or results of operations of CHS prior to the completion of the merger and on BioScrip if the merger is completed.

 

The merger with CHS is subject to the receipt of consents and approvals from government entities that may not be received or that may impose conditions that could have an adverse effect on BioScrip following the completion of the merger.

 

We cannot complete the merger unless we receive various consents, orders, approvals and clearances from antitrust and other authorities in the United States. While we believe that we will receive the requisite regulatory approvals from these authorities, there can be no assurance that such approvals will be received. In addition, these authorities may impose conditions on the completion of the merger with CHS or require changes to the terms of the merger that could result in the divestiture of certain assets of BioScrip or CHS. While we do not currently expect that any such conditions or changes would be imposed, there can be no assurance that they will not be, and any such conditions or changes could have the effect of delaying completion of the merger or imposing additional costs on or limiting the revenues of BioScrip following the merger, any of which may have an adverse effect on us following the merger. See the sections entitled “The Transaction — Regulatory Approvals Required for the Merger with CHS” on page 49 and “The Agreement and Plan of Merger — Conditions to Closing the Transaction” beginning on page 61 for a more detailed discussion.

If the market price of BioScrip’s common stock increases prior to the completion of the merger with CHS, the market value of BioScrip’s common stock to be issued in connection with the merger will increase correspondingly and, therefore, we may pay more than we intended for the CHS businesses.

 

The number of shares of BioScrip’s common stock to be issued in connection with the merger with CHS will not be adjusted in the event of any increase or decrease in the market price of BioScrip’s common stock before the closing of the merger. As a result, the market value of the shares to be issued in connection with the merger, as reflected in the market price of BioScrip common stock, may be substantially higher at the time of the merger than the market value at the time we received a fairness opinion from Jefferies & Company and the BioScrip board of directors approved the merger. The market price of BioScrip’s common stock may fluctuate due to, among other things, changes in our business, operations or prospects, market assessments of the likelihood of completion of the merger, the timing of the completion of the merger, general market and economic conditions and other factors. As of January 22, 2010, the last trading day before the public announcement of the proposed merger with CHS, the market price of BioScrip’s common stock was $7.82 per share and the prior one-month average closing market price was $8.16 per share.

 

The obligation of CHS to complete the merger is subject to the satisfaction or waiver of certain conditions, including with respect to the per share stock price of BioScrip’s common stock.

 

The obligation of CHS to complete the merger is contingent upon, among other things, the per share price of BioScrip common stock on NASDAQ being greater than $5.2151 for the 10 trading days immediately preceding the scheduled date of closing. If the per share price of our common stock during this period is less than $5.2151 and CHS chooses not to waive this condition, then we will be unable to complete the merger and the per share market price of our common stock could decrease as a result of our inability to complete the merger.

 

Subject to certain limitations, the Stockholders and certain optionholders of CHS may sell BioScrip common stock beginning six months following the closing of the merger with CHS, which could cause BioScrip’s stock price to decline.

 

The shares of BioScrip common stock that the Stockholders and certain optionholders of CHS will receive following the completion of the merger with CHS are restricted, but such Stockholders and optionholders may sell the shares of BioScrip common stock following the merger under certain circumstances. We have entered into a Stockholders’ Agreement with the Stockholders and certain optionholders of CHS, which will give such parties unlimited registration rights on Form S-3 beginning six months after the closing of the merger, so long as BioScrip is eligible at the time of the exercise of any registration rights to file a registration statement on Form S-3. In addition, if at any time following the closing date of the merger BioScrip proposes for any reason to register its own shares or shares held by any holder of shares of the BioScrip common stock issued in connection with the merger, including the shares issuable upon exercise of the warrants (other than a registration on Form S-4 or Form S-8), then such parties will have unlimited pro rata “piggyback” rights subject to underwriter cutbacks which will be pro rata among all such holders. The sale of a substantial number of our shares by such parties or our other stockholders within a short period of time could cause our stock price to decline, make it more difficult for us to raise funds through future offerings of BioScrip common stock or acquire other businesses using BioScrip common stock as consideration.

 

You will experience a reduction in percentage ownership and voting power with respect to the BioScrip common stock you currently own as a result of the merger with CHS.

 

In connection with the merger with CHS, we will issue up to approximately 12.9 million shares of BioScrip common stock, as well as up to 3,400,945 shares of common stock to be issued upon exercise of the warrants. Therefore, following the completion of the merger, you will experience a substantial reduction in your respective percentage ownership interests and effective voting power relative to your respective

percentage ownership interests in BioScrip common stock and effective voting power prior to the merger. In addition, the issuance of shares of our common stock could have an adverse effect on the market price for our securities or on our ability to obtain future public financing. If and to the extent the shares are issued, you may experience dilution in your earnings.

 

BioScrip’s issuance of common stock in the merger will increase the risk that BioScrip could experience an “ownership change” in the future that could significantly limit its ability to utilize its net operating losses.

 

As of September 30, 2009, BioScrip had net operating losses (“NOLs”) for U.S. federal income tax purposes of approximately $29 million. BioScrip’s ability to utilize its NOLs to offset future taxable income may be significantly limited if BioScrip experiences an “ownership change” as defined in Section 382 of the Code. In general, an ownership change will occur if there is a cumulative change in BioScrip’s ownership by “5-percent shareholders” that exceeds 50 percentage points over a rolling three-year period. A corporation that experiences an ownership change will generally be subject to an annual limitation on its pre-ownership change NOLs equal to the value of the corporation immediately before the ownership change, multiplied by the long-term tax-exempt rate (subject to certain adjustments). The annual limitation for a taxable year would be increased by the amount of any “recognized built-in gains” for such year and the amount of any unused annual limitation in a prior year.

 

BioScrip will not experience an ownership change upon the issuance of common stock in the merger. However, the issuance of common stock in the merger, together with other issuances of common stock during the applicable 3-year period could cause an ownership change under Section 382 of the Code. As a result, the issuance of BioScrip common stock in the merger will increase the risk that BioScrip could experience an ownership change during the 3-year period following the merger.

 

This proxy statement contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to expectations, beliefs, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts or that necessarily depend upon future events. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,” and similar expressions. Without limiting the generality of the preceding sentence, statements contained in the sections “Summary,” “The Transaction — BioScrip’s Reasons for the Transaction,” and “The Transaction — Opinion of BioScrip’s Financial Advisor” include forward-looking statements. Forward-looking statements contained in this proxy statement include projections of earnings, revenues, synergies, accretion or other financial items; any statements of the plans, strategies and objectives of management for future operations, including the execution of integration plans and the future management of BioScrip; approvals relating to, and the closing of, the merger with CHS; any statements regarding future economic conditions or performance; statements of belief and any statement of assumptions underlying any of the foregoing; and statements relating to BioScrip obtaining financing.

 

The forward-looking statements contained in this proxy statement reflect our current views about future events, are based on assumptions, and are subject to known and unknown risks and uncertainties. Many important factors could cause actual results or achievements to differ materially from any future results or achievements expressed in or implied by our forward-looking statements, including the factors listed below. Many of the factors that will determine future events or achievements are beyond our ability to control or predict. Certain of these are important factors that could cause actual results or achievements to differ materially from the results or achievements reflected in our forward-looking statements, including, but not limited to:

 

 

The forward-looking statements contained in this proxy statement reflect our views and assumptions only as of the date of this proxy statement. You should not place undue reliance on forward-looking statements. Except as required by law, we assume no responsibility for updating any forward-looking statements.

 

Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors that could cause or contribute to such differences are discussed in the section entitled “Risk Factors” beginning on page 24 and the section entitled “Risk Factors” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008, and risk factors detailed in BioScrip’s most recent quarterly reports on Form 10-Q. We qualify all of our forward-looking statements by these cautionary statements. In addition, with respect to all of our forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

 

A special meeting of BioScrip stockholders will be held at           local time, on          , 2010 at BioScrip’s executive offices at 100 Clearbrook Road, Elmsford, New York 10523.

 

The purpose of the special meeting is to consider and vote on the following proposals:

 

 

The approval of Proposal No. 1 for the issuance of BioScrip common stock is a condition to the completion of the merger with CHS. Accordingly, if BioScrip is to complete the merger with CHS, the stockholders must approve Proposal No. 1.

 

At the special meeting, BioScrip stockholders will also be asked to consider and vote on any other matter that may properly come before the special meeting or any adjournment of the special meeting. At this time, the BioScrip board of directors is unaware of any matters, other than those set forth above, that may properly come before the special meeting.

 

BioScrip has fixed the close of business on February 8, 2010 as the record date for the determination of holders of BioScrip common stock entitled to notice of and to vote at the special meeting and any adjournment of the special meeting. No other shares of BioScrip capital stock are entitled to notice of and to vote at the special meeting. At the close of business on the record date, BioScrip had outstanding and entitled to vote            shares of common stock.

 

If you hold your shares in your own name, you may submit a proxy by telephone, via the Internet or by mail or vote by attending the special meeting and voting in person.

 

 

 

If your shares are held in the name of a bank, broker or other nominee, you will receive instructions from the holder of record that you must follow for your shares to be voted. Please follow their instructions carefully. Also, please note that if the holder of record of your shares is a broker, bank or other nominee and you wish to vote in person at the special meeting, you must request a legal proxy from your bank, broker or other nominee that holds your shares and present that proxy and proof of identification at the special meeting.

 

You will have the power to revoke your proxy at any time before it is exercised by:

 

 

Any written notice of revocation, or later dated proxy, should be delivered to:

 

BioScrip, Inc.
100 Clearbrook Road
Elmsford, New York 10523
Attention: Corporate Secretary

 

Alternatively, you may hand deliver a written revocation notice, or a later dated proxy, to the Secretary at the special meeting before we begin voting.

 

If your shares of BioScrip common stock are held by a bank, broker or other nominee, you must follow the instructions provided by the bank, broker or other nominee if you wish to change your vote.

 

If you provide specific voting instructions, your shares will be voted at the special meeting in accordance with your instructions. If you hold shares in your name and sign and return a proxy card or submit a proxy by telephone or via the Internet without giving specific voting instructions, your shares will be voted as follows:

 

“FOR” the approval of issuance of the shares of BioScrip common stock, including the shares of common stock to be issued upon exercise of the warrants, pursuant to the Agreement and Plan of Merger; and

 

“FOR” the approval of an adjournment of the special meeting, if necessary, to solicit additional proxies in favor of the BioScrip common stock issuance proposal.

 

At this time, we are unaware of any matters, other than those matters set forth above, that may properly come before the special meeting. If any other matters properly come before the special meeting, the persons named in the enclosed proxy, or their duly constituted substitutes acting at the special meeting or any adjournment of the special meeting, will be deemed authorized to vote or otherwise act on such matters in accordance with their judgment.

The persons named in the enclosed proxy, or their duly constituted substitutes acting at the special meeting or any adjournment of the special meeting, may propose and vote for one or more adjournments of the special meeting. Proxies solicited may be voted only at the special meeting and any adjournment of the special meeting and will not be used for any other BioScrip meeting of stockholders.

 

BioScrip’s transfer agent, American Stock Transfer & Trust Company LLC, will serve as proxy tabulator and count the votes. The results will be certified by the inspector of elections.

 

An “abstention” occurs when a stockholder sends in a proxy with explicit instructions to decline to vote regarding a particular matter. Broker “non-votes” are shares held by brokers or nominees for which voting instructions have not been received from the beneficial owners or the persons entitled to vote those shares and the broker or nominee does not have discretionary voting power under rules applicable to broker-dealers. Under rules applicable to broker-dealers, neither the proposal to approve the issuance of BioScrip common stock in accordance with the terms of the Agreement and Plan of Merger nor the proposal to adjourn the special meeting, if necessary, to enable BioScrip to solicit additional proxies in favor of the BioScrip common stock issuance proposal is an item on which brokerage firms may vote in their discretion on behalf of their clients if such clients have not furnished voting instructions within ten days of the special meeting.

 

In deciding all matters that come before the special meeting, each holder of common stock as of the record date is entitled to one vote per share of common stock. As of February 8, 2010, the record date for the special meeting, there were           shares of BioScrip common stock outstanding.

 

Votes cast by proxy or in person at the special meeting will be tabulated by the inspector of elections of the special meeting. The inspector of elections also will determine whether or not a quorum is present. The presence, in person or by proxy, of the holders of a majority of the shares of common stock issued and outstanding as of the record date for the special meeting is necessary to constitute a quorum at the special meeting. Shares of common stock represented at the special meeting in person or by proxy but not voted will be counted for purposes of determining a quorum. Accordingly, abstentions and broker “non-votes” (shares as to which a broker or nominee has indicated that it does not have discretionary authority to vote) on a particular matter will be treated as shares that are present and entitled to vote at the special meeting for purposes of determining the presence of a quorum.

 

Proposal No. 1:  Proposal No. 1 to approve the issuance of BioScrip common stock in accordance with the terms of the Agreement and Plan of Merger requires the affirmative vote of the holders of a majority of the shares of BioScrip common stock present in person or represented by proxy at the special meeting at which a quorum is present. Abstentions with respect to this proposal will have the same effect as a vote against the proposal. Failures to vote and broker “non-votes” could have the same effect as votes cast against approval if they cause less than a majority of the shares of BioScrip common stock present, in person or by proxy, to be cast on the proposal. The approval of Proposal No. 1 is a condition to the completion of the merger with CHS, and thus a vote against this proposal effectively will be a vote against the merger with CHS.

 

Proposal No. 2:  Proposal No. 2 to adjourn the special meeting, if necessary, to enable BioScrip to solicit additional proxies in favor of Proposal No. 1, requires the affirmative vote of the holders of a majority of the shares of BioScrip common stock present in person or represented by proxy at the special meeting, whether or not a quorum is present. Abstentions with respect to this proposal will have the same effect as a vote against the proposal. Failures to vote and broker “non-votes” could have the same effect as votes cast against approval if they cause less than a majority of the shares of BioScrip common stock present, in person or by proxy, to be cast on the proposal. The approval of Proposal No. 2 is not a condition to the completion of the merger with CHS.

The directors and executive officers of BioScrip and their respective affiliates collectively owned approximately 4,505,242 shares as of February 2, 2010 (inclusive of shares subject to stock options exercisable within 60 days following that date). Such shares represented approximately 10.43% of BioScrip’s outstanding common stock (including shares subject to stock options exercisable within 60 days held by the directors and officers) as of such date. Each member of the board of directors of BioScrip has advised BioScrip that such member intends to vote all of the shares of BioScrip common stock held, directly or indirectly, by such director in favor of each of the above proposals. Certain of our directors and executive officers have entered into a Common Stock Voting Agreement with CHS and the Stockholders’ Representative, pursuant to which they have agreed to vote their shares of BioScrip common stock in favor of the proposal to approve the issuance of BioScrip common stock in accordance with the terms of the Agreement and Plan of Merger, and in favor of the proposal to adjourn the special meeting, if necessary, to enable BioScrip to solicit additional proxies in favor of the common stock issuance proposal. As of January 24, 2010, these directors and executive officers collectively held shares representing approximately 3.4% of BioScrip’s outstanding common stock.

 

As of the close of business on the record date for the special meeting, CHS and its affiliates did not beneficially own any shares of BioScrip common stock and, to the knowledge of CHS, none of its directors or executive officers beneficially owned any shares of BioScrip common stock.

 

BioScrip is soliciting proxies from its stockholders on behalf of its board of directors and will pay for all costs incurred by it in connection with the solicitation. In addition to solicitation by mail, the directors, officers and employees of BioScrip, CHS and their respective subsidiaries may solicit proxies from stockholders of BioScrip in person or by telephone, facsimile or other electronic methods without additional compensation other than reimbursement for their actual expenses.

 

BioScrip has retained MacKenzie Partners, Inc., a proxy solicitation firm, to assist it in the solicitation of proxies for the special meeting. BioScrip will pay MacKenzie Partners, Inc. a fee of $10,000 for its services. In addition, BioScrip will reimburse MacKenzie Partners, Inc. for its reasonable out-of-pocket expenses.

 

Arrangements also will be made with brokerage firms and other custodians, nominees and fiduciaries for the forwarding of solicitation material to the beneficial owners of stock held of record by such persons, and BioScrip will reimburse such custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses in connection therewith.

 

The BioScrip board of directors has unanimously determined that the merger with CHS is fair to and in the best interests of BioScrip and its stockholders and approved the issuance of BioScrip common stock in accordance with the Agreement and Plan of Merger. See the section entitled “The Transaction — BioScrip’s Reasons for the Transaction” beginning on page 39 for a more detailed discussion.

 

The BioScrip board of directors recommends that you vote “FOR” approval of the issuance of BioScrip common stock in accordance with the Agreement and Plan of Merger and “FOR” approval of an adjournment of the special meeting, if necessary, to enable BioScrip to solicit additional proxies in favor of the common stock issuance proposal.

 

As part of their ongoing review of our company and its position in its industry, our board of directors, directly and through its corporate strategy committee, together with management regularly reviews the strategic alternatives available to BioScrip, including, among other things, possible strategic combinations and acquisitions. Consistent with this periodic review of its strategic alternatives, our board had previously formed a corporate strategy committee, which is currently comprised of the following directors: Messrs. Myron Holubiak (chair), Richard H. Friedman, David R. Hubers and Richard L. Robbins.

 

Beginning in the fall of 2008, members of BioScrip’s management were in contact from time to time with representatives of the Kohlberg Entities, in its capacity as majority stockholders of CHS. In January 2009, Richard M. Smith, our President, had contacted Gordon H. Woodward, a representative of the Kohlberg Entities, concerning possible strategic alternatives, and non-disclosure agreements were executed by BioScrip and CHS. The Kohlberg Entities declined offers to discuss strategic alternatives with BioScrip at that time, but agreed to revisit the subject later in the year. In August 2009, Mr. Smith again contacted Mr. Woodward to discuss strategic opportunities between CHS and BioScrip, and in September 2009, Mr. Woodward agreed to participate in such discussions.

 

On September 10, 2009, Mr. Friedman, our chief executive officer, and Mr. Smith met with Mr. Woodward, Benjamin Mao and Ahmed Wahla of the Kohlberg Entities to discuss BioScrip’s business generally and interest in a possible transaction with CHS, as well as the due diligence process and timing in connection with a possible transaction.

 

In early October 2009, representatives of the Kohlberg Entities and representatives of BioScrip’s management agreed on the broad outlines of a potential transaction, subject to the completion of mutual due diligence. The terms were reflected in a non-binding letter of intent negotiated by them and their legal counsel. The non-binding letter of intent, which was executed on October 12, 2009, by BioScrip, CHS and the Kohlberg Entities, provided, among other things:

 

1. for a purchase price of $420 million, consisting of a combination of cash and BioScrip common stock in proportions to be later determined by BioScrip and the Stockholders; and

 

2. that a portion of the purchase price consisting of $7.5 million in cash and an amount of common stock equal to $22.5 million would be placed into escrow as BioScrip’s sole remedy for any indemnification obligation of the Stockholders.

 

In addition, the letter of intent provided that the Stockholders would deal exclusively with BioScrip regarding any proposed sale of CHS until November 2, 2009.

 

After the letter of intent was executed, each of the parties began conducting due diligence, including through management presentations and access to online data rooms. BioScrip retained a third party advisor to focus on the financial, tax, human resources and information technology aspects, and utilized King & Spalding LLP (“King & Spalding”), corporate counsel, and Bryan Cave LLP (“Bryan Cave”), healthcare regulatory counsel, for legal and healthcare regulatory due diligence, respectively. The Kohlberg Entities and CHS retained Paul, Weiss as corporate counsel and Sonnenschein Nath & Rosenthal LLP as healthcare regulatory counsel.

 

The corporate strategy committee of our board met on October 16, 2009 for the purpose of having management brief them on the proposed transaction with CHS, including a brief summary of CHS’s business, and to establish the general procedures by which the committee would review the status of the transaction on an ongoing basis and keep abreast of any significant developments.

 

On October 16, 2009, Paul, Weiss provided to representatives of BioScrip, King & Spalding and Bryan Cave the initial draft of the merger agreement. At various dates and times between October 16 and October 29, 2009, BioScrip and its advisors discussed certain issues raised by the initial draft of the merger agreement, including the scope, nature and survival period of representations and warranties made on behalf of the Kohlberg Entities, CHS and BioScrip, limitations on certain actions between the date of execution of the merger agreement and the closing date, the payment of expenses in the event of termination of the merger

agreement and certain limitations on indemnification. On October 29, 2009, King & Spalding provided a revised draft of the merger agreement to Paul, Weiss addressing these and other issues.

 

On October 27, 2009, the corporate strategy committee of our board held a meeting to hear back to back presentations from representatives of Jefferies & Company and another investment bank, and to discuss each firm’s view of the proposed transaction and the terms of a proposed financing. Management had also met with other investment banks to discuss their respective views of the proposed transaction and terms of a proposed financing, but had recommended to the corporate strategy committee the two firms that management believed would provide BioScrip with the best overall advice and committed debt financing alternatives.

 

On October 29, 2009, the board of directors held a meeting for the purpose of being introduced to the Jefferies & Company and Jefferies Finance teams, and being updated on the status of the proposed transaction. At this meeting, representatives from Jefferies & Company and Jefferies Finance presented an overview of the proposed merger, including a proposed transaction timeline, discussion of potential benefits and risks, a preliminary CHS valuation analysis and pro forma merger analysis, and debt financing alternatives.

 

On October 30, 2009, Mr. Friedman and Mr. Smith met with Samuel Frieder and Messrs. Woodward, Mao and Wahla, representatives of the Kohlberg Entities, to discuss at a high level the results of BioScrip’s preliminary financial due diligence. At that meeting, management proposed a reduction in purchase price to in the range of $340 million to $350 million based on the results of such due diligence relating to the valuation of CHS. This reduction was attributed to, among other factors, BioScrip’s determination that it would continue to utilize CHS’s existing infrastructure after the merger (thus reducing previously assumed cost savings) and increased pro forma costs associated with the assumption of CHS employees under BioScrip’s employee benefit plans. At that time, Mr. Woodward declined to consider a reduction in purchase price, and negotiations ceased.

 

On November 17, 2009, the corporate strategy committee of our board met telephonically for the purpose of discussing how to proceed following the cessation of negotiations with the Kohlberg Entities and CHS. Management advised the committee that, based on discussions with the Kohlberg Entities between October 30, 2009 and November 17, 2009, representatives of the Kohlberg Entities had indicated a willingness to resume negotiations if certain outstanding issues could be resolved.

 

On November 21, 2009, the engagement letter with Jefferies & Company was executed.

 

The corporate strategy committee of our board held a meeting on November 24, 2009 to be updated on the status of the proposed transaction since the last board meeting. Members of BioScrip’s management presented an overview of the discussions and meetings with the Kohlberg Entities that had occurred over the past several weeks, and noted that during that time the Kohlberg Entities had signaled their willingness to consider a purchase price in the range of $375 million to $385 million and that BioScrip had made a non-binding offer of $350 million ($110 million in cash, repayment of $132 million of net debt and a 25.7% ownership interest in BioScrip post-merger based on the November 20, 2009 stock price of $7.64). Representatives of Jefferies & Company and Jefferies Finance presented updated financial analyses of CHS and updated information regarding BioScrip’s debt financing alternatives. Management reported to the corporate strategy committee on its updated financial analysis of CHS. After discussion and deliberation, the corporate strategy committee authorized management to proceed with an offer of $350 million to the Kohlberg Entities. The corporate strategy committee also discussed the debt financing fees outlined in the engagement letter with Jefferies & Company, and ratified its execution.

 

On December 4, 2009, BioScrip’s corporate strategy committee held a meeting for the purpose of being updated on the status of the negotiations on the proposed merger since the November 24, 2009 meeting. Management reported to the committee on the recent negotiations with the Kohlberg Entities and CHS, and outlined the current terms of the proposed transaction, including a purchase price of $365 million consisting of:

 

 

 

In addition, the escrow holdback for the offset of any of the Stockholders’ and CHS’s indemnity obligations was reduced to $22.5 million consisting solely of BioScrip common stock. Management also noted that they were still in negotiations regarding the number of directors to be named by the Kohlberg Entities to the BioScrip board. The corporate strategy committee also discussed the lack of exclusivity since the expiration of the letter of intent on November 2, 2009 (an extension of which had been requested by BioScrip and refused by the Kohlberg Entities) and concluded that CHS’s agreement to reimburse BioScrip for transaction expenses incurred after the date of such agreement of up to $1 million in the event that CHS entered into a definitive agreement with a third party on or before February 28, 2010 would be sufficient protection. On December 7, 2009, a letter setting forth the agreement regarding expense reimbursement was executed by BioScrip and CHS.

 

On December 7, 2009, Paul, Weiss circulated a list describing the remaining issues and open points presented by King & Spalding’s October 30, 2009 draft of the merger agreement. On December 8, 2009, management and representatives of Jefferies & Company and King & Spalding discussed how to respond to the numerous issues raised by Paul, Weiss, and on December 9, 2009, lawyers from King & Spalding and Paul, Weiss discussed BioScrip’s positions and possible resolutions. Paul, Weiss circulated a revised draft of the merger agreement to BioScrip and King & Spalding on December 10, 2009.

 

On December 16, 2009, BioScrip’s board of directors held a meeting. The purpose of the meeting was to provide the board with an overview of the proposed transaction, including a review of the key proposed terms from management and discussion of the transaction rationale, to hear a presentation from Jefferies & Company on its financial analysis of the merger, including the financial impact based on a $365 million transaction value, and for management to provide an update on due diligence. At this meeting, the board also discussed certain of the open issues under consideration with respect to the merger. Stanley Rosenbaum, our chief financial officer, also summarized the status of financial and other due diligence performed by a third party advisor and management, as well as the legal due diligence performed by BioScrip’s in-house counsel, management, King & Spalding and Bryan Cave.

 

On December 16, 2009, Barry Posner, our general counsel, and representatives of King & Spalding and Bryan Cave met telephonically to identify and discuss the more significant issues for BioScrip raised in the December 10, 2009 version of the merger agreement. Based on this discussion, on December 17, 2009, King & Spalding circulated a revised draft of the merger agreement to Paul, Weiss reflecting BioScrip’s proposal on such issues.

 

On December 17, 2009, Mr. Friedman and Mr. Woodward had a phone call to discuss the status of each party’s due diligence investigation and results, and numerous open business issues.

 

Between December 18 and December 22, 2009, representatives of BioScrip and its advisers and the Kohlberg Entities’ personnel and representatives of Paul, Weiss discussed, at various dates and times, the significant open issues in the draft of the merger agreement circulated by King & Spalding on December 17, 2009, as well as additional issues uncovered during the due diligence process, and significant progress was made during these negotiations. On December 22, 2009, Mr. Friedman telephoned Mr. Woodward to update Mr. Woodward on the results of BioScrip’s financial due diligence. On December 23, 2009, Paul, Weiss circulated a revised draft of the merger agreement, noting that certain issues remained open pending the completion of BioScrip’s due diligence and financial analysis of CHS.

 

During the period between December 23, 2009 and early January 2010, BioScrip continued to finalize its diligence. On January 5, 2010, at a meeting at the offices of Paul, Weiss, teams from BioScrip, King & Spalding, Bryan Cave, Jefferies & Company, the Kohlberg Entities, CHS, Paul, Weiss and Sutherland Asbill & Brennan LLP, special counsel to CHS, met to discuss results of BioScrip’s diligence.

On January 6, 2010, there was a meeting between Mr. Friedman and Messrs. Frieder and Woodward in Mt. Kisco, New York, during which the parties discussed the potential resolutions of remaining outstanding due diligence matters with respect to the merger. At this meeting, Mr. Friedman also proposed the concept of a minimal earn-out feature to replace an equal amount of stock in the merger consideration payable at the closing.

 

After consultation with the corporate strategy committee and another BioScrip director, over the next two days BioScrip and its advisors worked on fine-tuning an earn-out proposal, which representatives from Jefferies & Company presented to the Kohlberg Entities team on January 8, 2010. Mr. Woodward advised Mr. Friedman that the Kohlberg Entities would decline to accept this most recent proposal.

 

On January 10, 2010, management and representatives of Jefferies & Company discussed revising its proposal by eliminating the earn-out proposal and shifting $12.5 million of equity consideration into warrants, with the total value of the transaction to remain at $365.0 million.

 

On January 10, 2010, Mr. Friedman, Mr. Smith and representatives of Jefferies & Company met telephonically with Mr. Woodward to discuss BioScrip’s new proposal. The key terms of the proposal were: (1) cash in the amount of $110.0 million, (2) repayment of CHS net debt of $131.8 million, (3) issuance of BioScrip common stock valued at $105.7 million, based on the average of the volume-weighted average prices of BioScrip’s common stock for the ten trading days immediately preceding the date of the execution of the merger agreement, and (4) warrants valued at $17.5 million, based on a $10.00 per share strike price, a 5-year term, and 66% share volatility. The parties agreed to shift $10.0 million of equity consideration into warrants, so that the total stock consideration would be $108.0 million and total warrant consideration would be $15.0 million.

 

On January 13, 2010, BioScrip management and advisors from King & Spalding met with representatives from the Kohlberg Entities, CHS and Paul, Weiss at the offices of King & Spalding to discuss and negotiate the remaining outstanding open issues in the merger agreement. On January 19, 2010, representatives from BioScrip, King & Spalding, the Kohlberg Entities, CHS and Paul, Weiss met telephonically to finalize the merger agreement and ancillary transaction documents. On January 20, 2010, Mr. Smith and Mr. Woodward finalized the terms of the Kohlberg Entities’ post-merger stockholder rights, including the number of directors that the Kohlberg Entities were entitled to nominate.

 

On January 20, 2010, the corporate strategy committee of our board of directors held a special telephonic meeting to discuss the proposed acquisition terms and merger agreement and invited all directors to participate. All of the members of the board of directors were in attendance at this meeting. During this meeting:

 

 

Following consideration of all the relevant factors and subject to the receipt of Jefferies & Company’s fairness opinion, the corporate strategy committee unanimously determined to recommend the merger with CHS to BioScrip’s board of directors.

 

At various dates and times between January 20 and January 24, 2010, representatives of BioScrip and its attorneys from King & Spalding and Bryan Cave met telephonically with the Stockholders’ representatives and attorneys from Paul, Weiss to finalize the terms of the merger agreement and the related ancillary documents.

 

On January 24, 2010, our board of directors held a special meeting to discuss the proposed acquisition terms and merger agreement. During this meeting:

 

 

After discussing the terms of merger agreement and all other relevant matters, our board of directors unanimously determined that the merger is advisable and in the best interests of BioScrip and our stockholders, approved the Agreement and Plan of Merger and its execution, authorized the debt financing documents and recommended to the stockholders that they approve the issuance of shares of our common stock and warrants in connection with the merger at a special meeting.

 

On January 24, 2010, the parties thereto executed the definitive Agreement and Plan of Merger, the Stockholders’ Agreement and the Common Stock Voting Agreement.

 

On January 25, 2010, BioScrip issued a press release announcing the approval of the merger.

 

On January 27, 2010, BioScrip filed a Form 8-K with the SEC announcing the execution of the Agreement and Plan of Merger, the Stockholders’ Agreement and the Common Stock Voting Agreement.

 

Our board of directors believes that the merger with CHS will provide substantial benefits to BioScrip’s business and operations by, among other things, transforming BioScrip into one of the largest home infusion providers in the U.S. In making its determination to approve the merger and the other transactions contemplated by the Agreement and Plan of Merger, and to recommend approval of the BioScrip common stock issuance proposal to our stockholders, our board of directors consulted with our senior management team, our internal and outside legal counsel and our financial advisor regarding the strategic and operational aspects of the merger, and considered various factors, including the following:

 

 

 

Our board of directors also considered the potential risks that the transaction poses to BioScrip and BioScrip’s stockholders, including the risks described above in the section entitled “Risk Factors.”

 

The foregoing discussion of the information and factors considered by the board of directors of BioScrip is not exhaustive. In view of the wide variety of factors, both positive and negative, considered by our board of directors, the board did not consider it practical to, nor did it attempt to quantify, rank or otherwise seek to, assign relative weights to the specific factors that it considered in reaching its determination that the issuance of BioScrip common stock pursuant to the Agreement and Plan of Merger is advisable and in the best interests of BioScrip’s stockholders. Rather, our board of directors viewed its determination as being based upon the judgment of its members, in light of the totality of the information presented and considered. In considering the factors described above, individual members of our board of directors may have given different weights to

different factors and may have applied different analyses to each of the material factors considered by the board collectively.

 

If the merger is completed, BioScrip will:

 

 

If the net indebtedness of CHS at closing of the merger is $132 million and CHS’s expenses incurred in connection with the merger are $10 million, then the number of shares of BioScrip common stock to be issued in connection with the merger (in addition to shares issuable upon exercise of the warrants being issued) would be approximately 12,655,600 shares, or approximately     % of the then outstanding common stock of BioScrip, assuming that no outstanding options to purchase shares of CHS’s common stock are exercised before the closing of the merger. If the net indebtedness of CHS at the closing of the merger is less than $132 million, then one-half of the difference would be paid in cash to the CHS stockholders and the other half would be paid in stock based on a value per share of $8.3441, the 10-day volume weighted trading average share price of the BioScrip common stock over the 10-day period ended January 22, 2010. If the net indebtedness of CHS exceeds $132 million, then the cash payment of $110 million would be reduced by the amount of the excess.

 

Jefferies & Company was engaged to render an opinion to the board of directors as to whether the consideration to be paid by BioScrip pursuant to the Agreement and Plan of Merger was fair, from a financial point of view, to BioScrip. On January 24, 2010, Jefferies & Company delivered to the board of directors its oral opinion, subsequently confirmed in writing, that, as of the date of its opinion, based upon and subject to the assumptions, limitations, qualifications, and factors contained in its opinion, the consideration (as defined in the opinion) to be paid by BioScrip pursuant to the Agreement and Plan of Merger was fair, from a financial point of view, to BioScrip.

 

The full text of Jefferies & Company’s opinion, which sets forth, among other things, the assumptions made, matters considered and limitations on the scope of review undertaken by Jefferies & Company in rendering its opinion, is attached to this proxy statement as Annex D. BioScrip encourages its stockholders to read the Jefferies & Company opinion carefully and in its entirety. Jefferies & Company’s opinion was provided to the BioScrip board of directors in connection with its consideration of the merger and addresses only the fairness to BioScrip, from a financial point of view and as of the date of Jefferies & Company’s opinion, of the consideration (as defined in the opinion) to be paid by BioScrip pursuant to the Agreement and Plan of Merger and does not address any other aspect of the merger. Jefferies & Company’s opinion does not constitute a recommendation as to how any BioScrip stockholder, or any other person, including any CHS stockholder, should vote or act with respect to the merger or any matter related thereto. The summary of Jefferies & Company’s opinion set forth in this proxy statement is qualified in its entirety by reference to the full text of the opinion.

 

In connection with its opinion, Jefferies & Company, among other things:

 

(i) reviewed a draft dated January 22, 2010 of the Agreement and Plan of Merger;

(ii) reviewed certain diligence information compiled at the request of BioScrip’s management;

 

(iii) reviewed certain publicly available financial and other information about CHS;

 

(iv) reviewed certain information furnished to Jefferies & Company by BioScrip’s and CHS’s management, including financial forecasts and analyses, relating to the business, operations and prospects of BioScrip and/or CHS;

 

(v) held discussions with members of senior management of BioScrip and CHS concerning the matters described in clauses (iii) and (iv) above;

 

(vi) compared CHS to certain publicly traded companies that Jefferies & Company deemed relevant;

 

(vii) compared the proposed financial terms of the merger with the financial terms of certain other transactions that Jefferies & Company deemed relevant;

 

(viii) considered the potential pro forma impact of the merger; and

 

(ix) conducted such other financial studies, analyses and investigations as Jefferies & Company deemed appropriate.

 

In Jefferies & Company’s review and analysis and in rendering its opinion, Jefferies & Company assumed and relied upon, but did not assume any responsibility to independently investigate or verify, the accuracy and completeness of all financial and other information that was supplied or otherwise made available by BioScrip or CHS or that was publicly available to Jefferies & Company (including, without limitation, the information described above), or that was otherwise reviewed by Jefferies & Company. Jefferies & Company relied on assurances of the management of BioScrip and CHS that they were not aware of any facts or circumstances that would make such information inaccurate or misleading. In its review, Jefferies & Company did not obtain any independent evaluation or appraisal of any of the assets or liabilities of, nor did Jefferies & Company conduct a physical inspection of any of the properties or facilities of CHS, nor was Jefferies & Company furnished with any such evaluations or appraisals or the results of any such physical inspections, nor did Jefferies & Company assume any responsibility to obtain any such evaluations or appraisals or conduct any such physical inspections. Jefferies & Company assumed that the representations and warranties of all of the parties contained in the Agreement and Plan of Merger were true and correct, that each of the parties would perform all of the covenants and agreements required to be performed by it under the Agreement and Plan of Merger and that all conditions to the consummation of the merger would be satisfied without waiver or amendment thereof.

 

With respect to the financial forecasts provided to and examined by it, Jefferies & Company’s opinion noted that projecting future results of any company is inherently subject to uncertainty. BioScrip and CHS informed Jefferies & Company, however, and Jefferies & Company assumed, that such financial forecasts were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the management of BioScrip and CHS as to the future financial performance of BioScrip or CHS, or the realization of expected synergies as a result of the merger, as applicable. Jefferies & Company expressed no opinion as to BioScrip’s or CHS’s financial forecasts or the assumptions on which they were made.

 

Jefferies & Company’s opinion was based on economic, monetary, regulatory, market and other conditions existing and which could be evaluated as of January 24, 2010. Jefferies & Company expressly disclaimed any undertaking or obligation to advise any person of any change in any fact or matter affecting Jefferies & Company’s opinion of which Jefferies & Company may become aware after such date.

 

Jefferies & Company has made no independent investigation of any legal or accounting matters affecting BioScrip and/or CHS, and Jefferies & Company assumed the correctness in all respects material to Jefferies & Company’s analysis of all legal and accounting advice given to BioScrip and the BioScrip board of directors, including, without limitation, advice as to the legal, accounting and tax consequences of the terms of, and transactions contemplated by, the Agreement and Plan of Merger to BioScrip. Jefferies & Company was

advised by BioScrip that the merger would qualify as a tax-free reorganization for federal income tax purposes. Jefferies & Company assumed that the final form of the Agreement and Plan of Merger would be substantially similar to the last draft reviewed by it. In addition, Jefferies & Company assumed that in the course of obtaining the necessary regulatory or third party approvals, consents and releases for the merger, no delay, limitation, restriction or condition would be imposed that would have an adverse effect on BioScrip, CHS or the contemplated benefits of the merger.

 

Jefferies & Company’s opinion was for the use and benefit of the BioScrip board of directors in its consideration of the merger, and Jefferies & Company’s opinion did not address the relative merits of the transactions contemplated by the Agreement and Plan of Merger as compared to any alternative transaction or opportunity that might be available to BioScrip, nor did it address the underlying business decision by BioScrip to engage in the merger or the terms of the Agreement and Plan of Merger or the documents referred to therein. Jefferies & Company expressed no opinion as to the price at which shares of BioScrip common stock will trade at any time. Jefferies & Company’s opinion speaks only as to the fairness from a financial point of view, to BioScrip, as of the date of the opinion, of the consideration to be paid by BioScrip pursuant to the Agreement and Plan of Merger and does not address any other aspect of the Agreement and Plan of Merger or any other agreement or transaction contemplated thereby. Furthermore, Jefferies & Company did not express any view or opinion as to the fairness, financial or otherwise, of the amount or nature of any compensation payable or to be received by any of BioScrip’s or CHS’s officers, directors or employees, or any class of such persons, in connection with the merger relative to the consideration.

 

In preparing its opinion, Jefferies & Company performed a variety of financial and comparative analyses. The preparation of a fairness opinion is a complex process involving various determinations as to the most appropriate and relevant quantitative and qualitative methods of financial analysis and the applications of those methods to the particular circumstances and, therefore, is not necessarily susceptible to partial analysis or summary description. Jefferies & Company believes its analyses must be considered as a whole. Considering any portion of Jefferies & Company’s analyses or the factors considered by Jefferies & Company, without considering all analyses and factors, could create a misleading or incomplete view of the process underlying the conclusion expressed in Jefferies & Company’s opinion. In addition, Jefferies & Company may have given various analyses more or less weight than other analyses and may have deemed various assumptions more or less probable than other assumptions, so that the range of valuation resulting from any particular analysis described below should not be taken to be Jefferies & Company’s view of CHS’s actual value. Accordingly, the conclusions reached by Jefferies & Company are based on all analyses and factors taken as a whole and also on the application of Jefferies & Company’s own experience and judgment. In performing its analyses, Jefferies & Company considered numerous assumptions with respect to industry performance, general business, economic, monetary, regulatory, market and other conditions and other matters, many of which are beyond BioScrip’s, CHS’s and Jefferies & Company’s control. The analyses performed by Jefferies & Company are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than suggested by such analyses. In addition, analyses relating to the per share value of BioScrip common stock do not purport to be appraisals or to reflect the prices at which BioScrip common stock may actually be sold. The analyses performed were prepared solely as part of Jefferies & Company’s analysis of the fairness, from a financial point of view, of the merger consideration to be paid by BioScrip pursuant to the Agreement and Plan of Merger, and were provided to the BioScrip board of directors in connection with the delivery of Jefferies & Company’s opinion.

 

The following is a summary of the material financial and comparative analyses performed by Jefferies & Company in connection with Jefferies & Company’s delivery of its opinion. The financial analyses summarized below include information presented in tabular format. In order to fully understand Jefferies & Company’s financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data described below 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 Jefferies & Company’s financial analyses.

Transaction Overview

 

For purposes of its opinion, Jefferies & Company noted that the consideration pursuant to the Agreement and Plan of Merger was based upon a total purchase price of $365,000,000 as follows: (i) assumption of $132,000,000 of CHS net indebtedness; (ii) $110,000,000 in cash (subject to adjustment if CHS net indebtedness does not equal $132,000,000); (iii) $108,000,000 of BioScrip common stock, (subject to adjustment if CHS net indebtedness does not equal $132,000,000), $22,500,000 of which (the “escrow amount”) will be deposited into escrow; and (iv) warrants valued at $15,000,000 (collectively, after taking into account the assumptions in clauses (i) through (iii) of the following sentence, the “Consideration”). For all purposes in connection with its opinion, Jefferies & Company was advised by BioScrip and/or assumed, among other things, that (i)  CHS’s net indebtedness as of the closing will equal $132,000,000, (ii) the escrow amount will be fully paid and (iii) a value of $8.3441 per share of BioScrip common stock, resulting in the payment of 12,943,277 shares of common stock in the aggregate and 3,400,945 warrants. Further, Jefferies & Company understood that if the Consideration is adjusted in respect of any increase or decrease in CHS net indebtedness as of the closing date, such adjustments will be made on a dollar-for-dollar basis corresponding to the actual increase or decrease in such net indebtedness; thus, for all purposes of the opinion and related analyses Jefferies & Company assumed that any adjustments to the Consideration provided for in the Agreement and Plan of Merger would have no net effect on the fairness, from a financial point of view, to BioScrip, of the Consideration to be paid by BioScrip pursuant to the Agreement and Plan of Merger, and disregarded any such potential adjustments.

 

CHS Analysis

 

Comparable Public Company Analysis.  Using publicly available information and information provided by BioScrip and CHS management, Jefferies & Company analyzed the trading multiples of the following specialty pharmacy/pharmacy benefit management and home nursing companies, which it considered to have similar services, operating and financial characteristics, and markets as compared to CHS:

 

Specialty Pharmacy/Pharmacy Benefit Management:

 

 

Home Nursing:

 

 

In its analysis, Jefferies & Company derived and compared multiples for the selected companies, calculated as follows:

 

 

This analysis indicated the following:

 

Comparable Public Company Multiples

 

 

Using a reference range of 9.5x to 10.5x CHS’s CY2009E EBITDA, and 9.0x to 10.0x CHS’s CY2010P EBITDA, Jefferies & Company determined an implied total enterprise value for CHS. This analysis indicated an implied total enterprise value range for CHS of approximately $384 million to $425 million using CY2009E EBITDA, and $347 million to $385 million using CY2010P EBITDA.

 

No company utilized in the comparable company analysis is identical to CHS. In evaluating the selected companies, Jefferies & Company made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond BioScrip’s, CHS’s and Jefferies & Company’s control.

 

Comparable Transaction Analysis

 

Using publicly available information, Jefferies & Company examined the following transactions representing acquisitions of specialty pharmacy/pharmacy benefit management and home nursing companies announced since 2003. The transactions considered, and the month and year each transaction was announced, were as follows:

 

Specialty Pharmacy/Pharmacy Benefit Management:

 

Home Nursing:

 

 

Using publicly available estimates for each of these transactions, Jefferies & Company reviewed the applicable transaction value as a multiple of the target company’s last twelve months EBITDA (“LTM EBITDA”) immediately preceding announcement of the transaction (the “Transaction Value/LTM EBITDA”) as well as the applicable transaction value as a multiple of the target company’s forward fiscal year estimate EBITDA (“FY EBITDA”) immediately preceding announcement of the transaction (the “Transaction Value/ FY EBITDA”). In each case, the price paid in the transaction was adjusted for the target’s cash and debt at the time of acquisition when such information was available.

 

This analysis indicated the following:

 

Comparable Transaction Multiples

 

 

Using a reference range of 10.5x to 11.5x CHS’s LTM EBITDA, Jefferies & Company determined an implied transaction value for CHS. This analysis indicated an implied transaction value range for CHS of approximately $425 million to $465 million. Using a reference range of 9.5x to 10.5x CHS’s FY EBITDA, this analysis indicated an implied transaction value range for CHS of approximately $366 million to $405 million.

 

No transaction utilized as a comparison in the comparable transaction analysis is identical to the merger. In evaluating the merger, Jefferies & Company made numerous judgments and assumptions with regard to industry performance, general business, economic, market, and financial conditions and other matters, many of which are beyond BioScrip’s, CHS’s and Jefferies & Company’s control. Mathematical analysis, such as determining the average or the median, is not in itself a meaningful method of using comparable transaction data.

 

Discounted Cash Flow Analysis

 

Jefferies & Company also employed a discounted cash flow analysis for the purposes of its opinion with respect to the merger. The discounted cash flow methodology values a target company as the sum of its unlevered (before financing costs) free cash flows over a forecast period and the target company’s terminal or residual value at the end of the forecast period. Jefferies & Company used financial forecasts for CHS, as estimated by BioScrip’s and CHS’s management, to perform a discounted cash flow with respect to CHS. In conducting this analysis, Jefferies & Company assumed that CHS would perform in accordance with these forecasts.

Using a terminal EBITDA multiple range of 10.0x to 11.0x, selected based on the trading multiples of the companies included in Jefferies & Company’s comparable public company analysis, Jefferies & Company determined an implied terminal value for CHS. Jefferies & Company then discounted the cash flows projected and the terminal value to present value using discount rates ranging from 11.0% to 13.0%. These discount rates were selected based on the weighted average cost of capital rate for the companies included in Jefferies & Company’s comparable public company analysis. The resulting analysis indicated an implied total enterprise value range for CHS of approximately $356 million to $419 million.

 

Pro Forma Merger Analysis

 

Jefferies & Company reviewed the impact of the merger on earnings by comparing the earnings per share of BioScrip common stock on a standalone basis projected by BioScrip’s management to the pro forma earnings per share of the combined company following the merger, using projections provided by BioScrip’s management, projections prepared by CHS’s management and forecasts of synergies prepared by BioScrip management. For purposes of this analysis, Jefferies & Company assumed a closing date of the merger of March 31, 2010. Based on this analysis, the merger would be accretive to BioScrip’s shareholders on a non-GAAP earnings per share basis in 2010 and on both a GAAP and non-GAAP earnings per share basis in 2011, in each case after taking into account of the forecasts of synergies prepared by BioScrip management.

 

Miscellaneous

 

Jefferies & Company’s opinion was one of many factors taken into consideration by the BioScrip board of directors in its consideration of the merger and should not be considered determinative of the views of the BioScrip board of directors with respect to the merger.

 

Jefferies & Company was selected by BioScrip based on Jefferies & Company’s qualifications, expertise and reputation. Jefferies & Company is an internationally recognized investment banking and advisory firm. Jefferies & Company, as part of its investment banking business, is regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements, financial restructurings and other financial services. Jefferies & Company’s opinion was authorized by the fairness committee of Jefferies & Company.

 

Pursuant to an engagement letter between BioScrip and Jefferies & Company dated November 21, 2009, Jefferies & Company was engaged by BioScrip to act as its financial advisor in connection with the merger and will receive a fee of $3,000,000 for its services, $500,000 of which was payable upon delivery of its opinion and the remainder of which will be payable contingent upon consummation of the merger. In addition, BioScrip has agreed to reimburse Jefferies & Company for certain expenses incurred in connection with its engagement. BioScrip also has agreed to indemnify Jefferies & Company against liabilities arising out of or in connection with the services rendered and to be rendered by it pursuant to its engagement. Jefferies Finance, an affiliate of Jefferies & Company, has also been engaged to provide financing to BioScrip in connection with the closing of the transactions contemplated by the Agreement and Plan of Merger and will receive fees for its services in connection therewith, a significant portion of which will only be received if the closing of the merger takes place. Jefferies & Company currently holds a portion of CHS’s outstanding debt, which will be repaid in connection with the closing of the merger. Jefferies & Company maintains a market in the securities of BioScrip, and in the ordinary course of Jefferies & Company’s business, Jefferies & Company and its affiliates may trade or hold securities of BioScrip or CHS and/or their respective affiliates for Jefferies & Company’s own account and for the accounts of Jefferies & Company’s customers and, accordingly, may at any time hold long or short positions in those securities. In addition, Jefferies & Company may seek to, in the future, provide financial advisory and financing services to BioScrip, CHS and/or their respective affiliates, for which Jefferies & Company would expect to receive compensation.

 

In order to fund the cash payments in respect of the merger and refinance existing indebtedness of CHS (approximately $132 million) and BioScrip, BioScrip has entered into a commitment letter with Jefferies Finance, pursuant to which Jefferies Finance has committed to provide BioScrip with $375 million in debt financing comprised of $150 million in senior credit facilities and $225 million in other debt facilities.

 

The senior credit facilities to be provided by Jefferies Finance consist of a $100 million term loan and a $50 million revolving line of credit. The term loan matures five years after funding and has a repayment schedule equal to 2.5%, 5.0%, 7.5%, 10.0% and 12.5% of its principal amount in years one through five with the balance due at maturity. The revolving line of credit will be available for five years after the closing of the merger and $5 million of the revolving line of credit will be available for letters of credit and swing line loans. Interest on both the term loan and advances under the revolving line of credit will be based on a base rate or Eurodollar rate plus an applicable margin. The revolving line of credit will also carry a commitment fee payable on the unused portion of the credit line. Both the term loan and the revolving line of credit will be guaranteed by all subsidiaries of BioScrip and be secured by first priority security interests in substantially all assets of BioScrip (including the capital stock of its subsidiaries) and all such subsidiary guarantors. Definitive documentation will include customary affirmative and negative covenants and events of defaults, as well as financial covenants relating to a maximum total leverage ratio and a minimum fixed charge coverage ratio.

 

The other debt facilities are expected to be in the form of $225 million in senior unsecured notes with a 51/2 year term to be offered in a private placement to “qualified institutional buyers” (as such term is defined in Rule 144A of the Securities Act). The notes are expected to be guaranteed by BioScrip’s subsidiaries, but will be unsecured. Definitive documentation would be expected to include customary affirmative and negative covenants and events of default, but no financial covenants. However, if BioScrip is unsuccessful in selling the senior unsecured notes before the closing of the merger, Jefferies Finance has committed to provide a $225 million bridge loan facility. The bridge loan would mature one year after funding and if not repaid at maturity would be converted into a senior secured second lien term loan with a maturity of 41/2 years after conversion. If so converted, the lenders would have the right to exchange the term loan for exchange notes which will include registration rights. Interest on the bridge loan would be based on a Eurodollar rate, plus an applicable margin that increases for each three-month period outstanding. Lenders would have a put at 101% of the principal amount in the event of a change of control of BioScrip. The bridge loan would be guaranteed by all subsidiaries of BioScrip and be secured by second priority security interests in substantially all assets of BioScrip (including the capital stock of its subsidiaries) and its subsidiaries. Definitive documentation would include customary affirmative, negative covenants and events of default, as well as financial covenants relating to a maximum total leverage ratio and a minimum fixed charge coverage ratio.

 

Closing of the credit facilities will be subject to standard conditions precedent, including consummation of the transaction contemplated by the merger agreement; delivery of financial statements showing satisfaction of certain historical and pro forma financial compliance tests; the execution of definitive documentation; and the absence of any material adverse change.

 

The commitments of Jefferies Finance will terminate if the merger is abandoned; if CHS accepts an alternative acquisition proposal; or if the merger and financings have not closed by June 30, 2010.

 

Jefferies Finance will act as sole administrative agent, collateral agent, book-runner, lead arranger and syndication agent with respect to the financing, and will receive certain fees in connection therewith from BioScrip.

 

Jefferies Finance has reserved the right to require, after consultation with BioScrip, at a time determined by Jefferies Finance, that BioScrip cause the senior credit facilities to be closed into escrow pursuant to the definitive debt documents, with escrowed loan proceeds to be distributed to finance the closing or pay in full all senior loans then made not later than June 30, 2010.

 

Following the transaction, the BioScrip board of directors will be expanded to 10 directors from nine directors (with an existing vacancy). The existing vacancy and the vacancy created by the increase in the authorization of the additional directorship will be filled by the two Kohlberg Director Designees upon the closing of the merger. The two Kohlberg Director Designees will hold office until the next annual meeting of BioScrip’s stockholders and until their successors are duly elected and qualified, unless sooner displaced.

 

For as long as Stockholders’ Representative has the right to designate one or more of the Kohlberg Director Designees pursuant to the terms of the Stockholders’ Agreement, as described in the section entitled “The Stockholders’ Agreement,” and except as may be prohibited by applicable law, at least one of the Kohlberg Director Designees will be entitled to representation on each of the audit committee, the compensation committee and the corporate strategy committee of the BioScrip board of directors.

 

The following table sets forth information regarding the current directors of BioScrip who will continue to serve as directors on our board and their positions after completion of the transaction:

 

 

 

 

Information about the current BioScrip directors can be found in BioScrip’s proxy statement for its 2009 annual meeting of stockholders, which is incorporated by reference herein.

 

Regulatory Approvals Required for the Merger with CHS

 

Under the HSR Act and the rules and regulations promulgated thereunder, BioScrip’s merger with CHS may not be consummated until required information and materials have been furnished to the DOJ and the FTC, and certain waiting period requirements have expired or been terminated. On January 29, 2010, each of BioScrip and CHS filed a Pre-Merger Notification and Report Form pursuant to the HSR Act with the DOJ and the FTC. At any time before the closing of the merger, the DOJ, the FTC or others could take action under the antitrust laws with respect to the merger, including seeking to enjoin the consummation of the merger, to rescind the merger or to require the divestiture of certain assets of BioScrip or CHS. There can be no assurance that a challenge to the merger on antitrust grounds will not be made or, if such a challenge is made, that it would not be successful.

 

CHS, through its subsidiaries, holds healthcare licenses, permits and registrations with various state and federal agencies, including home health agency licenses, pharmacy licenses and registrations with the U.S. Drug Enforcement Administration. In connection with the merger, certain of these licenses, permits and registrations may need to be transferred or new ones obtained to reflect the change in control of CHS. Further, CHS, through its subsidiaries, participates in Medicare and various state Medicaid programs. In connection with the merger, some of these Medicare provider numbers may need to be transferred or new ones obtained

to reflect the change in control of CHS. There could be interruption of cash flow and/or loss of revenue during the pendency of any changes to CHS’s Medicare provider numbers.

 

The merger will be accounted for by BioScrip as an acquisition. The aggregate consideration to be paid by BioScrip in connection with the merger will be allocated to CHS’s assets and liabilities based on their fair values, with any excess being treated as goodwill. CHS’s assets, liabilities and results of operations will be consolidated with the assets, liabilities and results of operations of BioScrip after consummation of the merger.

 

The following discussion summarizes the material U.S. federal income tax consequences of the merger. This discussion does not address any tax consequences arising under the laws of any state, local or foreign jurisdiction, or under any U.S. federal laws other than those pertaining to income tax. This discussion is based upon the Code, the Treasury regulations promulgated under the Code and court and administrative rulings and decisions, all as in effect on the date hereof. These laws may change, possibly retroactively, and any change could affect the accuracy of the statements and conclusions set forth in this discussion.

 

The completion of the merger is conditioned on, among other things, the receipt by BioScrip and CHS of tax opinions from King & Spalding LLP and Paul, Weiss, Rifkind, Wharton & Garrison LLP, respectively, dated as of the closing date of the merger, to the effect that the merger will be treated for United States federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code. These opinions will be based on certain customary assumptions and representations provided by BioScrip and CHS. These tax opinions will not be binding on the IRS. Neither BioScrip nor CHS intends to request any ruling from the IRS as to the U.S. federal income tax consequences of the merger. Consequently, no assurance can be given that the IRS will not assert, or that a court would not sustain, a position contrary to any of those set forth below. In addition, if any of the representations or assumptions upon which the opinions described above are based is inconsistent with the actual facts, the U.S. federal income tax consequences of the merger could be adversely affected.

 

As a result of the merger qualifying as a “reorganization” within the meaning of Section 368(a) of the Code:

 

 

This summary of the material U.S. federal income tax consequences of the merger and is not tax advice.

 

Under applicable law, BioScrip stockholders do not have the right to an appraisal of the value of their shares in connection with the merger with CHS.

 

Under the terms of the Agreement and Plan of Merger, CHS will merge with and into a wholly-owned subsidiary of BioScrip and as a result will become an indirect wholly-owned subsidiary of BioScrip. CHS is a privately held company that is a leading provider of home infusion therapy and home nursing products and services to patients suffering from chronic and acute medical conditions.

 

If the merger is completed, we will:

 

 

If the net indebtedness of CHS at the closing of the merger is $132 million and CHS’s expenses incurred in connection with the merger are $10 million, then the number of shares of BioScrip common stock to be issued in connection with the merger (in addition to shares issuable upon exercise of the warrants being issued) would be approximately 12,655,600 shares, or approximately     % of the then outstanding common stock of BioScrip, assuming that no outstanding options to purchase shares of CHS’s common stock are exercised before the closing of the merger. If the net indebtedness of CHS at the closing of the merger is less than $132 million, then one-half of the difference would be paid in cash to the CHS stockholders and the other half would be paid in stock, valued at $8.3441 per share, the 10-day volume weighted trading average share price of BioScrip’s common stock over the 10-day period ended January 22, 2010. If the net indebtedness of CHS exceeds $132 million, then the cash payment of $110 million would be reduced by the amount of the excess.

 

In order to fund the cash payments and refinance existing indebtedness of CHS and BioScrip, BioScrip has received a financing commitment from Jefferies Finance, pursuant to which Jefferies Finance has committed to provide senior credit facilities in the amount of $150 million and a bridge loan facility in the amount of $225 million on the terms and subject to the conditions in the commitment letter. BioScrip intends to offer $225 million in senior unsecured notes in a private placement to “qualified institutional buyers” (as such term is defined in Rule 144A of the Securities Act). The bridge loan facility is expected to be drawn only if BioScrip is unsuccessful in selling the senior unsecured notes before the date on which the merger closes.

 

Under NASDAQ Rule 5635, a company listed on NASDAQ is required to obtain stockholder approval before the issuance of common stock if:

 

 

The shares of BioScrip common stock to be issued, including the shares of common stock to be issued upon exercise of the warrants to be issued to the Stockholders and certain optionholders of CHS, exceed the thresholds under NASDAQ Rule 5635 and, therefore, the issuance requires the approval of our stockholders. Accordingly, you are being asked to approve the proposal to issue shares of BioScrip common stock.

 

The shares of BioScrip common stock to be issued pursuant to Proposal No. 1 in connection with the merger, plus the additional shares of common stock to be issued upon exercise of the warrants, would be identical to the shares of common stock now issued and outstanding, and this issuance would not affect the rights of current holders of BioScrip common stock.

 

Approval of the proposal to issue shares of BioScrip common stock requires the affirmative vote of a majority of the shares of BioScrip common stock present in person or represented by proxy and entitled to vote at the special meeting at which a quorum is present. Abstentions with respect to this proposal will have the same effect as a vote against the proposal. Failures to vote on this proposal and broker “non-votes” could have the same effect as a vote cast against approval of the proposal if they cause less than a majority of the shares of BioScrip common stock present in person or represented by proxy, to be cast for the proposal. Accordingly, beneficial owners of BioScrip shares should instruct their brokers or nominees how to vote. The approval of Proposal No. 1 is a condition to the completion of the merger with CHS and thus a vote against this proposal effectively will be a vote against the merger with CHS.

 

The BioScrip board of directors has unanimously determined that the merger with CHS is fair to and in the best interests of BioScrip and its stockholders and has approved the issuance of BioScrip common stock in accordance with the Agreement and Plan of Merger and recommends that you vote “FOR” approval of the BioScrip Stock Issuance.

 

For a more detailed description of the Agreement and Plan of Merger and the transactions contemplated by the Agreement and Plan of Merger, see the sections below entitled “The Agreement and Plan of Merger,” “The Stockholders’ Agreement,” “The Warrant Agreement,” “The Common Stock Voting Agreement” and “The Escrow Agreement.”

 

The following is a summary of the material provisions of the Agreement and Plan of Merger and is qualified in its entirety by reference to the Agreement and Plan of Merger, a copy of which is attached to this proxy statement as Annex A and which we incorporate by reference into this document. This summary may not contain all of the information about the Agreement and Plan of Merger that is important to you. We urge you to read the entire Agreement and Plan of Merger carefully because it is the legal document governing the proposed merger with CHS.

 

The description of the Agreement and Plan of Merger in this proxy statement has been included to provide you with information regarding its terms, and we recommend that you read carefully the Agreement and Plan of Merger in its entirety. Except for its status as the contractual document that establishes and governs the legal relations among the parties with respect to the transaction, we do not intend for its text to be a source of business or operational information about BioScrip or CHS. That kind of information can be found elsewhere in this proxy statement and in the documents incorporated herein by reference. The Agreement and Plan of Merger contains representations and warranties of the parties as of specific dates and may have been used for the purposes of allocating risk between the parties other than establishing matters as facts. Those representations and warranties are qualified in several important respects, which you should consider as you read them in the Agreement and Plan of Merger, including contractual standards of materiality that may be different from what may be viewed as material to stockholders. Only the parties themselves may enforce and rely on the terms of the Agreement and Plan of Merger. As stockholders, you are not third party beneficiaries of the Agreement and Plan of Merger and therefore may not directly enforce or rely upon its terms and conditions and you should not rely on its representations, warranties or covenants as characterizations of the actual state of facts or condition of BioScrip or CHS or any of their respective affiliates. Moreover, information concerning the subject matter of the representations and warranties may have changed since the date of the Agreement and Plan of Merger and subsequently developed or new information qualifying a representation or warranty may have been included in this proxy statement.

 

On January 24, 2010, BioScrip entered into the Agreement and Plan of Merger with Camelot, CHS, the Stockholders’ Representative, and the Stockholders. Pursuant to the Agreement and Plan of Merger, CHS will merge with and into Camelot, with Camelot as the surviving entity.

 

Unless the parties agree otherwise, the closing of the merger with CHS will take place at the offices of King & Spalding LLP, 1185 Avenue of the Americas, New York, New York, on the second business day following the satisfaction or waiver of all closing conditions, except for those conditions that, by their nature, have to be satisfied at the closing, but subject to the satisfaction or waiver of those conditions. See the section below entitled “— Conditions to Closing the Transaction” beginning on page 61 for a more detailed discussion of the conditions. The merger is expected to be consummated promptly after the special meeting of BioScrip’s stockholders described in this proxy statement.

 

If the merger is completed, BioScrip will:

 

 

 

If the net indebtedness of CHS at the closing of the merger is $132 million and CHS’s expenses incurred in connection with the merger are $10 million, then the number of shares of BioScrip common stock to be issued in connection with the merger (in addition to shares issuable upon exercise of the warrants being issued) would be approximately 12,655,600 shares, or approximately     % of the then outstanding common stock of BioScrip, assuming that no outstanding options to purchase shares of CHS’s common stock are exercised before the closing of the merger. If the net indebtedness of CHS at the closing of the merger is less than $132 million, then one-half of the difference will be paid in cash to the Stockholders and the other half will be paid in stock based on a value per share of $8.3441, the 10-day volume weighted trading average share price of the BioScrip common stock over the 10-day period ended January 22, 2010. If the net indebtedness of CHS exceeds $132 million, then the cash payment of $110 million will be reduced by the amount of the excess.

 

The Agreement and Plan of Merger contains representations and warranties of each of the Stockholders, CHS and BioScrip. These representations are subject, in some cases, to specified exceptions and qualifications contained in the Agreement and Plan of Merger or in the information provided pursuant to disclosure obligations set forth in the Agreement and Plan of Merger. Some of the representations and warranties are qualified as to “materiality” or “material adverse effect.” For the purpose of the Agreement and Plan of Merger, a “material adverse effect” with respect to either CHS or BioScrip, as applicable, means a material adverse effect on the business, results of operations, properties or assets of CHS and its subsidiaries or BioScrip and its subsidiaries, as applicable, taken as a whole, with certain exclusions.

 

Representations and Warranties of the Stockholders

 

The Agreement and Plan of Merger contains representations and warranties of each of the Stockholders relating to, among other things:

 

 

Representations and Warranties of CHS

 

The Agreement and Plan of Merger contains representations and warranties of CHS relating to, among other things:

 

 

 

Representations and Warranties of BioScrip and Camelot

 

The Agreement and Plan of Merger contains representations and warranties of BioScrip and Camelot relating to, among other things:

 

 

 

The parties to the Agreement and Plan of Merger have various obligations and responsibilities under the Agreement and Plan of Merger, including, but not limited to, the following covenants:

 

Conduct of the Business of CHS.  Subject to certain exceptions, CHS has agreed, and has agreed to cause its subsidiaries to agree, to (i) conduct its business and operations in the ordinary course consistent with past practices, (ii) use commercially reasonable efforts to preserve intact its business organization and (iii) use commercially reasonable efforts to retain the services of its executive officers and key employees, and to preserve the goodwill of its material customers and suppliers. In addition, CHS and its subsidiaries will not take any of the following actions without the prior written consent of BioScrip:

 

 

 

Conduct of the Business of BioScrip.  Subject to certain exceptions, BioScrip has agreed, and has agreed to cause its subsidiaries to agree, to (i) conduct its business and operations in the ordinary course consistent with past practices, (ii) use commercially reasonable efforts to preserve intact its business organization and (iii) use commercially reasonable efforts to retain the services of its executive officers and key employees, and to preserve the goodwill of its material customers and suppliers. In addition, BioScrip and its subsidiaries will not take any of the following actions without the prior written consent of the Stockholders’ Representative: