Exhibit 10.1

 

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

 

IN RE BIOSCRIP, INC. ) CONSOLIDATED STOCKHOLDER LITIGATION ) C.A. No. 10893-VCG
)  

 

MEMORANDUM OF UNDERSTANDING

 

This Memorandum of Understanding (“Memorandum”) is entered into as of April 30,
2015, by and among the parties to the action captioned In re BioScrip
Stockholder Litigation, pending before the Court of Chancery of the State of
Delaware (the “Court of Chancery” or the “Court”) under Consolidated C.A. No.
10893-VCG (the “Action”), to document the agreement in principle for the
settlement of the Action on the terms and subject to the conditions set forth
herein;

 

WHEREAS, on March 9, 2015, the Board of Directors (the “Board”) of BioScrip,
Inc. (“BioScrip” or the “Company”) announced that it had entered into a
Securities Purchase Agreement (the “Purchase Agreement” and together with the
related agreements contemplated thereby, the “Transaction”) with certain
affiliates of Coliseum Capital Management, LLC, including Coliseum Capital
Partners, L.P., and Coliseum Capital Partners II, L.P., as well as Blackwell
Partners, LLC (collectively, “Coliseum”) (hereinafter, the term “Defendants”
shall refer to BioScrip, the Board and the Coliseum parties other than Blackwell
Partners, LLC (“Blackwell”));

 

WHEREAS, pursuant to the Purchase Agreement BioScrip issued and sold to Coliseum
for $62.5. million: (i) 625,000 shares of Series A Convertible Preferred Stock,
par value $0.0001 per share (“Preferred Stock”), (ii) 1,800,000 Class A Warrants
to purchase BioScrip common stock for $5.295 per share (the “Class A Warrants”),
and (iii) 1,800,000 Class B Warrants to purchase BioScrip common stock for
$6.595 per share (the “Class B Warrants” and, together with the Class A
Warrants, the “Warrants”);

 

 

 

 

WHEREAS, the terms of the Preferred Stock and Warrant Agreement contain caps on
the conversion of the Preferred Stock and exercise of the Warrants (the
“Conversion Caps”) and a cap on voting power (the “Voting Cap”) that prevent the
issuance of common shares if a single holder would own or vote more than 19.99%
of the common stock or have more than 19.99% of the voting power (the “Caps”);

 

WHEREAS, the terms of the Preferred Stock provide that, if the BioScrip
stockholders do not, on or before September 30, 2015, approve elimination of the
Caps (the “Stockholder Approval”), the dividend rates on the Preferred Stock
will increase (the “Dividend Rate Adjustment”) from 8.5% to 13.5% for cash
dividends and from 11.5% to 16.5% if the dividend is accrued and added to the
liquidation preference of the Preferred Stock;

 

WHEREAS, on March 10, 2015, BioScrip announced a possible Rights Offering for
BioScrip’s common stockholders, pursuant to which it would potentially
distribute the rights to purchase units, which in the aggregate would total
200,000 shares of Preferred Stock, 576,000 Class A Warrants, and 576,000 Class B
Warrants;

 

WHEREAS, on March 23, 2015, BioScrip and Coliseum entered into an Addendum to
the Warrant Agreement (“Addendum”) pursuant to which: (i) Coliseum paid an
additional $483,559; (ii) the exercise price of the Class A Warrants was reduced
to $5.17 from $5.295; and (iii) the exercise price of the Class B Warrants was
reduced to $6.45 from $6.595;

 

WHEREAS, on April 8, 2015, BioScrip filed with the United States Securities and
Exchange Commission (“SEC”) a Definitive Proxy Statement (the “Proxy”) for an
annual meeting noticed for May 11, 2015, and as may be adjourned from time to
time (the “Annual Meeting”), that contains as Proposal 2 a vote relating to the
Stockholder Approval for removal of the Conversion Caps and Voting Cap;

 

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WHEREAS, on April 9, 2015, plaintiffs Lawrence Cline and Roger Rubin
(“Plaintiffs”), each a stockholder of BioScrip, filed separate putative class
actions styled, Cline v. BioScrip, Inc., et al., C.A. No. 10893-VCG and Rubin v.
BioScrip, Inc., et al., C.A. No. 10895-VCG, respectively;

 

WHEREAS, Plaintiffs also moved, on April 9, 2015, to expedite proceedings and
moved for a preliminary injunction;

 

WHEREAS, Plaintiffs claimed, among other things, that the vote on Proposal 2 is
allegedly coercive and invalid under NASDAQ Rules, the Conversion Caps and
Voting Caps are allegedly defective, the allegedly coercive vote on Proposal 2
could result in delisting of BioScrip’s common stock from NASDAQ, and the vote
on Proposal 2 is allegedly invalid because the Proxy materials are purportedly
misleading;

 

WHEREAS, on April 15, 2015, Plaintiffs filed a Motion to Consolidate Related
Actions and Appoint Co-Lead Counsel, which the Court granted on April 17, 2015;

 

WHEREAS, on April 17, 2015, during a telephonic hearing, the Court granted
Plaintiffs’ motion for expedited proceedings;

 

WHEREAS, on April 21, 2015, the Court so-ordered the dismissal of Blackwell from
this Action in its entirety and without prejudice;

 

WHEREAS, the Court scheduled a hearing on Plaintiffs’ Motion for Preliminary
Injunction for May 8, 2015, at 9:30 a.m.;

 

WHEREAS, counsel for Plaintiffs and counsel for Defendants in the Action have
engaged in arm’s-length negotiations concerning a possible settlement of the
Action;

 

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WHEREAS, counsel for all parties to the Action have reached an agreement in
principle, set forth in this Memorandum, providing for the settlement of the
Action between and among Plaintiffs, on behalf of themselves, and on behalf of
the putative Class (as defined below), and Defendants, on the terms and subject
to the conditions set forth below (the “Settlement”);

 

WHEREAS, Plaintiffs’ Counsel believes that a settlement of the Action on the
terms reflected in this Memorandum is fair, reasonable, adequate, and in the
best interests of Plaintiffs and the putative Class;

 

WHEREAS, Defendants and Blackwell have denied, and continue to deny, that they
have committed or aided and abetted in the commission of any violation of law or
engaged in any of the alleged wrongful acts, and expressly maintain that they
diligently and scrupulously complied with their fiduciary and other legal
duties. Solely to avoid the costs, disruption and distraction of further
litigation, Defendants and Blackwell have concluded that it is desirable that
the claims against them be settled and dismissed on the terms reflected in this
Memorandum and that settlement of the Action on the terms reflected in this
Memorandum is fair, reasonable, adequate, and in the best interests of BioScrip
and its stockholders;

 

NOW THEREFORE, as a result of the foregoing and the negotiations among counsel
for the parties, the parties to the Action have agreed as follows this day of
April 30, 2015:

 

1.           As a result of the negotiations between and among the parties, it
is agreed that, in consideration for the full settlement and release of the
Settled Claims (as defined below):

 

(a)           BioScrip will issue additional disclosures set forth in a
Supplement to the Proxy for the Annual Meeting, to be transmitted to the
stockholders no later than May 1, 2015, and in a form substantially similar to
the one attached hereto as Exhibit A (the “Supplemental Disclosures”);

 

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(b)           If Proposal 2 is approved at the Annual Meeting, the Conversion
Caps and Voting Cap with respect to the Preferred Stock and Warrants will be
removed, there will be no increase in the dividend rates for the Preferred
Stock, and the Action will be dismissed with prejudice, subject to the Court’s
approval of the Settlement;

 

(c)           If Proposal 2 is not approved at the Annual Meeting, the increased
dividends provided in the terms of the Preferred Stock shall not go into effect
unless the Court determines that the Conversion Caps, Voting Cap and Dividend
Rate Adjustment are valid. Upon execution of this Memorandum, the parties shall
jointly request a schedule that will allow a trial and final judgment to be
entered in this Action no later than August 31, 2015 and will request that, the
Court enter final judgment on or before that date;

 

(d)           If Proposal 2 is not approved at the Annual Meeting and the Court
determines the Conversion Caps, Voting Cap and Dividend Rate Adjustment are
valid, then those Caps will remain in effect and the increased dividends on the
Preferred Stock will become effective on October 1, 2015;

 

(e)           BioScrip will commence the Rights Offering on or before June 30,
2015, subject to confirmation that a June 30, 2015 commencement is achievable in
light of any required regulatory or other approvals. In exercising rights in the
Rights Offering, any stockholder entitled to receive a fractional right
consisting of at least ½ right will be rounded up to the nearest whole right
(such rights resulting from rounding, the “Incremental Rights”), and any
stockholder entitled to receive a fractional right consisting of less than ½
right will be rounded down to the nearest whole right (for example, a
shareholder holding 400 shares of common stock would be entitled to one (1)
right (1.16 rights rounded down) and a shareholder holding 600 shares of common
stock would be entitled to two (2) rights (1.74 rights rounded up)); provided
that, if the total number of units subscribed for exceeds 200,000, then each
subscribing stockholder’s allocation of units will be reduced on such pro rata
basis that results in a total subscription of 200,000 units; and

 

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(f)           Without admitting any wrongdoing, Defendants and Blackwell
acknowledge that the filing and prosecution of the Action and discussions with
Plaintiffs’ Counsel were the sole cause of the terms of the Settlement.

 

2.           The parties to the Action will use their best efforts to agree
upon, and execute prior to May 11, 2015, a formal stipulation of settlement
(“Stipulation”) and to present the Stipulation to the Court along with such
other documents as may be necessary and appropriate to obtain (i) the prompt
approval by the Court of the Settlement, and (ii) subject to the terms of the
Settlement including any final judgment based on the trial described in
Paragraph 1 above, the dismissal with prejudice of the Action, in the manner
contemplated herein and by the Stipulation; provided, however, that nothing
herein shall be construed to permit dismissal of the Action unless and until
either: (i) the BioScrip stockholders grant the Stockholder Approval of Proposal
2 as contemplated in Paragraph 1(b); or (ii) the Court issues a determination
concerning the validity of the Conversion Caps, the Voting Cap and Dividend Rate
Adjustment.

 

3.           Plaintiffs’ Motion for a Preliminary Injunction is withdrawn. All
proceedings in the Action, which, without limitation and for the avoidance of
doubt, includes any obligation of any third-party to respond to any subpoena or
other discovery demand, shall be stayed until after the May 11, 2015 Annual
Meeting. If the Stockholder Approval is not obtained at the Annual Meeting,
proceedings related to the Court’s determination of the validity of the
Conversion Caps, the Voting Cap and Dividend Rate Adjustment shall proceed on a
schedule permitting a trial and final judgment of the Court no later than August
31, 2015.

 

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4.           The Stipulation shall include, among other things, provisions for
the following:

 

(a)           the conditional certification of the Action as a non opt-out class
action pursuant to Court of Chancery Rules 23(b)(1) and (b)(2) on behalf of a
Class consisting of all record and beneficial owners of BioScrip common stock
during the period beginning on March 9, 2015, through the date of the
consummation of the Rights Offering, including any and all of their respective
successors in interest, predecessors, representatives, trustees, executors,
administrators, heirs, assigns or transferees, immediate and remote, and any
person or entity acting for or on behalf of, or claiming under, any of them, and
each of them (the “Class,” to be composed of “Class Members”). Excluded from the
Class are Defendants and Blackwell, members of the immediate family of any
Defendant or Blackwell, any entity in which a Defendant or Blackwell has or had
a controlling interest, and the legal representatives, heirs, successors or
assigns of any such excluded person;

 

(b)           an agreement to a form of notice to submit for Court approval
(when approved by the Court, the “Notice”). BioScrip shall be responsible for
providing Notice of the Settlement to the members of the Class and to the
current stockholders of BioScrip in the form and manner directed by the Court.
BioScrip or its insurer(s) shall cause to be paid all costs and expenses
incurred in providing Notice of the Settlement to the Class Members and to the
current stockholders of BioScrip;

 

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(c)           the complete discharge, dismissal with prejudice on the merits,
release of and settlement, to the fullest extent permitted by law, and a
permanent injunction barring, any and all manner of claims, counter-claims,
cross-claims, demands, rights, actions, causes of action, liabilities, damages,
losses, obligations, judgments, duties, suits, costs, expenses, matters, and
issues, known or unknown, contingent or absolute, suspected or unsuspected,
disclosed or undisclosed, liquidated or unliquidated, matured or unmatured,
accrued or unaccrued, apparent or unapparent, known and unknown claims, of every
nature and description whatsoever, against Defendants or Blackwell and their
respective current or former predecessors, successors-in-interest, parents,
subsidiaries, affiliates, representatives, agents, assigns or transferees and
any person or entity acting for or on behalf of any of them and each of them,
(including, without limitation, Cain Brothers & Company LLC, and any financial
advisors, consultants, commercial bankers, investment bankers, accountants,
insurers, reinsurers or attorneys, and any officers, directors, controlling
persons and employees of any of them, as well as their respective successors and
assigns) (collectively, the “Released Parties”), that have been or could have
been asserted in the action or in any other proceeding against any Defendant or
Blackwell by Plaintiffs, any member of the Class in his, her, or its capacity as
a stockholder, or any of the Released Parties, in any forum, including class,
derivative, individual, or other claims (including, but not limited to any
claims arising under federal, state, foreign or common law, including the
federal securities laws and any state disclosure law), which have arisen, or
could have arisen, arise now or hereafter may arise out of or relate in any
manner to the acts, events, facts, matters, transactions, occurrences,
statements, representations, or any other matter whatsoever set forth in or
otherwise related, directly or indirectly to, or concerning (i) the allegations,
facts or circumstances asserted in the Action; (ii) any fiduciary obligations of
any Defendant or Blackwell in connection with the Transaction or any
deliberations, negotiations, or disclosures in connection therewith; (iii) the
fees, expenses or costs incurred in prosecuting, defending or settling the
Action, other than as provided in this Memorandum; (iv) the Purchase Agreement,
(v) the Warrant Agreement, (vi) the Addendum, (vii) the Certificate of
Designations (“COD”), (viii) the Rights Offering, or (ix) the disclosures in the
Proxy and the Supplemental Disclosures (collectively, the “Settled Claims”);
provided, however, that the Settled Claims shall not include: (i) if Proposal 2
is not approved at the Annual Meeting, Plaintiffs’ claims regarding the validity
of the Conversion Caps, the Voting Cap and Dividend Rate Adjustment, which will
be determined by the Court as set forth in Paragraph 1(c); and (ii) the right of
the Plaintiffs or any members of the Class to enforce in the Court the terms of
the Stipulation;

 

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(d)           a statement that Defendants and Blackwell have denied, and
continue to deny, that any of them have committed or have threatened to commit
any violations of law or breaches of duty to the Plaintiffs, the Class or anyone
else concerning the Settled Claims;

 

(e)           a statement that Defendants and Blackwell are entering into the
Settlement solely because it will eliminate the uncertainty, distraction, burden
and expense of further litigation;

 

(f)           a statement that Plaintiffs believe that their claims had merit
when filed, continue to have merit and that Plaintiffs are settling the Settled
Claims because they believe that the Settlement will provide substantial value
to the stockholders of BioScrip;

 

(g)           a statement that each of the Released Parties shall fully,
finally, and forever release, relinquish and discharge each and all of
Plaintiffs, the Class Members, and Plaintiffs’ Counsel from all claims
(including Unknown Claims) arising out of, relating to, or in connection with,
the institution, prosecution, assertion, settlement or resolution of the Action
or the Settled Claims;

 

(h)           a statement that Plaintiffs have concluded that the Settlement is
fair and adequate, and that it is reasonable to pursue the Settlement based upon
the terms and procedures outlined herein;

 

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(i)           an Order, subject to further Order of the Court, that pending
final determination of whether the Settlement should be approved, Plaintiffs
(except to the extent contemplated by the Settlement) and all members of the
Class, or any individually, are barred and enjoined to the maximum extent
permitted under law from commencing, prosecuting, instigating or in any way
participating in the commencement or prosecution of any action asserting any
Settled Claims, either directly, representatively, derivatively or in any other
capacity, against any Released Parties;

 

(j)           a statement that except for the limitations contemplated by
Paragraphs 1(c) and 4(c): (i) the release contemplated by the Stipulation shall
extend to claims that the parties granting the release (the “Releasing Parties”)
do not know or suspect to exist at the time of the release, and which if known,
might have affected the Releasing Parties’ decision to enter into the release;
(ii) the Releasing Parties shall be deemed to relinquish, to the extent
applicable, and to the full extent permitted by law, the provisions, rights and
benefits of Section 1542 of the California Civil Code; and (iii) the Releasing
Parties shall be deemed to waive any and all provisions, rights and benefits
conferred by any law of any state or territory of the United States, or
principle of common law, which is similar, comparable or equivalent to
California Civil Code § 1542, which provides:

 

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH
IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH
THE DEBTOR.

 

Plaintiffs acknowledge, and the members of the Class shall be deemed by
operation of the entry of a final order and judgment approving the Settlement to
have acknowledged, that the foregoing waiver was separately bargained for, is an
integral element of the Settlement, and was relied upon by each and all of the
Defendants and Blackwell in entering into the Settlement.

 

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5.           This Memorandum shall be null and void and of no force and effect,
unless otherwise agreed to by the parties pursuant to the terms hereof, if: (i)
the Settlement does not obtain final approval by the Court for any reason; or
(ii) the Court declines to certify a mandatory non-opt-out Class as requested in
the Stipulation. In the event that this Memorandum shall become null and void as
a result of either (i) or (ii) this Memorandum shall not be deemed to prejudice
in any way the respective positions of the parties with respect to the Action,
including without limitation Plaintiffs’ Counsel’s right to apply for attorneys’
fees and expenses based on benefits obtained in the Action and Defendants’ and
Blackwell’s right to object to same.

 

6.           This Memorandum will be executed by counsel for the parties to the
Action, each of whom represents and warrants that they have the authority from
their client(s) to enter into this Memorandum and bind their clients thereto.
Plaintiffs represent and warrant that they have been stockholders of BioScrip at
all relevant times, that as of the date hereof, they continue to hold stock in
the Company, and that none of their claims or causes of action referred to in
any complaint in the Action or this Memorandum have been assigned, encumbered or
in any manner transferred in whole or in part.

 

7.           This Memorandum, the Stipulation and the Settlement shall be
governed by and construed in accordance with the laws of the State of Delaware
without regard to Delaware’s principles governing choice of law. The Settlement
shall be submitted for approval only by the Court, and all fee applications must
be made in the Court. The parties agree that any dispute arising out of or
relating in any way to this Memorandum, the Stipulation or the Settlement shall
not be litigated or otherwise pursued in any forum or venue other than the
Court, and the parties expressly waive any right to demand a jury trial as to
any such dispute.

 

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8.           This Memorandum may be modified or amended only by a writing,
signed by all of the signatories hereto, that refers specifically to this
Memorandum.

 

9.           The provisions contained in this Memorandum shall not be deemed a
presumption, concession or admission by any party of any fault, liability,
wrongdoing, or any infirmity or weakness of any claim or defense, as to any
facts or claims that have been or might be alleged or asserted in the Action, or
any other action or proceeding that has been, will be, or could be brought, and
shall not be interpreted, construed, deemed, invoked, offered, or received in
evidence or otherwise used by any person in the Action, or in any other action
or proceeding, whether civil, criminal or administrative, for any purpose other
than as provided expressly herein.

 

10.         This Memorandum shall be binding upon and inure to the benefit of
the parties and their respective agents, executors, heirs, successors and
assigns.

 

11.         Subject to the terms and conditions of this Memorandum, the terms
and conditions of the Stipulation contemplated hereby and subject to final
approval of the Settlement and an award of attorneys’ fees and expenses by the
Court, BioScrip, on behalf of itself and for the benefit of the other Defendants
and Blackwell in the Action, or BioScrip’s insurance carrier, shall pay such
fees and expenses as are awarded by the Court to Plaintiffs’ Counsel within
thirty (30) days of the entry of an order awarding them, subject to Plaintiffs’
Counsel’s joint and several obligation to refund any amounts by which the fee
award may be subsequently reduced upon appeal or by collateral attack. As of the
signing of this Memorandum, Plaintiffs and Defendants (and Blackwell) have not
discussed the amount of any such fee award. Any failure by the parties to reach
agreement in the Stipulation on an amount of fees and expenses, or by the Court
to approve the amount of such fees, shall not affect the validity of the
Settlement. Except as provided in this Memorandum, the Released Parties shall
bear no other expenses, costs, damages, or fees alleged or incurred by the named
Plaintiffs, by any member of the Class, or by any of their attorneys, experts,
advisors, agents or representatives. For avoidance of any doubt, Plaintiffs’
Counsel intends to, and nothing herein shall constitute waiver of, Plaintiffs’
Counsel’s right to seek an award of attorneys’ fees and expenses for claims
settled pursuant to the Settlement.

 

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12.         The parties to the Action will present the Settlement to the Court
for hearing and approval as soon as reasonably practicable following
dissemination of appropriate notice to Class members, and will use their
individual and collective best efforts to obtain Final Court Approval of the
Settlement and the dismissal of the Action with prejudice as to all Settled
Claims in the Action and without costs to any party, except as expressly
provided herein. As used herein, “Final Court Approval” of the Settlement means
that the Court has entered an order approving the Settlement in accordance with
the Stipulation, and such order is finally affirmed on appeal or is no longer
subject to appeal and the time for any petition for reargument, appeal or
review, by leave, certiorari, or otherwise, has expired.

 

13.         This Memorandum may be executed in any number of actual or
telecopied counterparts and by each of the different parties on several
counterparts, each of which when so executed and delivered will be an original.
The executed signature page(s) from each actual or telecopied counterpart may be
joined together and attached and will constitute one and the same instrument.

 

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IN WITNESS WHEREOF, the parties have executed this Memorandum effective as of
the date set forth above.

 

OF COUNSEL:

 

KESSLER TOPAZ

MELTZER & CHECK, LLP

Lee D. Rudy

Eric L. Zagar

Michael C. Wagner

Christopher M. Windover

280 King of Prussia Road

Radnor, Pennsylvania 19087

(610) 667-7706

PRICKETT, JONES & ELLIOTT, P.A.

 

By: /s/ Corinne Elise Amato             

Michael Hanrahan (#941)

Paul A. Fioravanti, Jr. (#3808)

Corinne Elise Amato (#4982)

1310 N. King Street

Wilmington, Delaware 19801

(302) 888-6500

Co-Lead Counsel for Plaintiffs

Lawrence Cline and Roger Rubin

 

OF COUNSEL:

 

KIRKLAND & ELLIS LLP

Jay P. Lefkowitz, P.C.

Joseph Serino, Jr., P.C.

Shireen A. Barday

601 Lexington Avenue

New York, New York 10022

(212) 446-4800

RICHARDS, LAYTON & FINGER, P.A.

 

By: /s/ Gregory P. Williams                  

Gregory P. Williams (#2168)

Brock E. Czeschin (#3938)

Sarah A. Clark (#5872)

One Rodney Square

920 N. King Street

Wilmington, Delaware 19801

(302) 651-7700

Counsel for BioScrip, Inc., Myron

Z. Holubiak, Charlotte W. Collins,

Samuel P. Frieder, David R. Hubers,

Yon Y. Jorden, Tricia N. Nguyen,

Stuart A. Samuels, Gordon H. Woodward,

and Richard M Smith

 

OF COUNSEL

 

PAUL HASTINGS LLP

Kevin C. Logue

Kurt W. Hansson

75 East 55th Street

New York, New York 10022

(212) 318-6039

MORRIS, NICHOLS, ARSHT & TUNNELL LLP

 

By: /s/ Thomas W. Briggs, Jr.                

William M. Lafferty (#2755)

Thomas W. Briggs, Jr. (#4706)

Lauren K. Neal (#5940)

1201 N. Market Street

Wilmington, Delaware 19801

(302) 658-9200

Counsel for Coliseum Capital Management,
LLC, Coliseum Capital Partners, L.P.,
Coliseum Capital Partners II, L.P. and
Christopher S. Shackelton

 

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OF COUNSEL:

 

AKIN GUMP STRAUSS

HAUER & FELD LLP

Robert H. Pees

Jacqueline Yecies

One Bryant Park

New York, New York 10036

(212) 872-7479

POTTER ANDERSON CORROON LLP

 

By: /s/ Matthew F. Davis                         

Matthew F. Davis (#4696)

Hercules Plaza

1313 North Market Street, 6th Floor

P.O. Box 951

Wilmington, Delaware 19801

(302) 984-6000

Counsel for Blackwell Partners LLC

 

Dated: April 30, 2015

 

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EXHIBIT A

 

TO

 

THE

 

MEMORANDUM

 

OF

 

UNDERSTANDING

 

 

 

 

 

In re BioScrip, Inc. Stockholder Litig.

 

Proxy Supplement

 

This Proxy Supplement supplements the information concerning Proposal 2
contained on pages 14-23 of the April 8, 2015 Proxy Statement of BioScrip, Inc.
(the “Proxy Statement”).

 

1.Description of Litigation and Litigation Settlement

 

On April 9, 2015, two holders of BioScrip Common Stock filed class action
complaints in the Delaware Court of Chancery asserting, among other things, that
the 5% increase in the dividend rates of the Preferred Stock if the Company did
not obtain Rule 5635 Approval by September 30, 2015 was invalid, that the
BioScrip directors had breached their fiduciary duties, that the stockholder
vote on the Rule 5635 Approval scheduled for the May 11, 2015 Annual Meeting was
coercive and based on misleading and incomplete disclosure and that the Coliseum
Investors had aided and abetted the directors’ breach of fiduciary duty. The
Court of Chancery granted plaintiffs’ request for expedited proceedings on April
17, 2015, and a hearing was scheduled for May 8, 2015 on plaintiffs’ motion for
a preliminary injunction preventing the vote on the Rule 5635 Approval.

 

After arm’s-length negotiations, plaintiffs and defendants reached an
agreement-in-principle on the following settlement terms (the “Litigation
Settlement”):

 

BioScrip will expand the disclosures in the Proxy Statement by sending this
Proxy Supplement to the BioScrip stockholders.

 

If Proposal 2 is approved at the Annual Meeting, the Conversion Caps and Voting
Cap with respect to the Series A Preferred Stock and Warrants will be removed
and there will be no increase in the dividend rates for the Series A Preferred
Stock.

 

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If Proposal 2 is not approved at the Annual Meeting, the increased dividends
provided in the terms of the Series A Preferred Stock will not go into effect
until October 1, 2015 and unless the Delaware Court of Chancery in a decision to
be rendered by August 31, 2015, determines that the Conversion Caps, Voting Cap
and increased dividends are valid.

 

If Proposal 2 is not approved at the Annual Meeting and the Delaware Court of
Chancery determines the Conversion Caps, Voting Cap and increased dividends are
valid, then those caps will remain in effect and the increased dividends on the
Series A Preferred Stock will become effective on October 1, 2015.

 

BioScrip will commence the Rights Offering described below on or before June 30,
2015, subject to confirmation that a June 30, 2015 commencement is achievable in
light of any required regulatory or other approvals. In the Rights Offering,
stockholders entitled to receive a fractional right consisting of at least ½
right will be rounded up to the nearest whole right, and stockholders entitled
to receive a fractional right consisting of less than ½ right will be rounded
down to the nearest whole right, provided that if the total number of units
subscribed for exceeds 200,000, then each subscribing stockholder’s allocation
of units will be reduced on a pro rata basis that results in a total
subscription of 200,000 units.

 

The Litigation Settlement is subject to execution of a definitive settlement
agreement and approval of the Court.

 

The description of the impact on Stockholders of approval or disapproval of this
Proposal 2 found on page 22 of the Proxy Statement is modified by the terms of
the Litigation Settlement.

 

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2.Supplemental Disclosure Regarding Increased Dividends If Proposal Is Not
Approved

 

The disclosure in the second paragraph on page 14 of the Proxy Statement and the
first paragraph on page 17 of the Proxy Statement is supplemented by adding at
the end of those paragraphs the following:

 

However, pursuant to the Litigation Settlement described above, the increased
dividend rates will not go into effect unless the Delaware Court of Chancery
determines that the Conversion Caps, Voting Cap and increased dividends are
valid.

 

3.Supplemental Disclosure Concerning the Coliseum Transactions and Debt
Repayment

 

The disclosure provided in the first paragraph under “General” on page 14 of the
Proxy Statement is supplemented by adding the following to the end of that
paragraph:

 

Additionally, under the Purchase Agreement, the Company agreed that it will use
at least 75% of the net proceeds from the offering of 625,000 shares of Series A
Preferred Stock for the repayment of outstanding indebtedness. As of April 30,
2015, the Company had repaid approximately $41.1 million of indebtedness from
those net proceeds. The size of the Transaction was negotiated between the
Company and the Coliseum Investors based on Company needs. The primary purposes
of the Transaction were to reduce the Company’s leverage, strengthen its balance
sheet and provide additional working capital.

 

4.Supplemental Disclosure Concerning the March 23, 2015 Addendum

 

The disclosure in the Proxy Statement concerning the March 23, 2015 Addendum is
supplemented by adding after the first full sentence on page 15 of the Proxy
Statement, the following:

 

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Prior to the Addendum, the exercise price of the Class A Warrants was $5.295 per
share and the exercise price of the Class B Warrants was $6.595 per share. The
purpose of the Addendum was to ensure the Transaction complied with NASDAQ
Marketplace Rule 5635(d). The Addendum provides that the Warrants to be offered
in the Rights Offering will have the reduced exercise prices set by the
Addendum.

 

5.Supplemental Disclosure Concerning the Conversion Caps and Voting Cap

 

The disclosure provided in the first sentence of the first bullet point on page
15 of the Proxy Statement is supplemented by adding the following after that
sentence:

 

For purposes of determining the Conversion Cap, the number of common shares
beneficially owned by a holder includes shares of Common Stock held as a result
of prior conversion of Preferred Stock or exercise of Warrants, and the shares
of Common Stock issuable upon the conversion of Preferred Stock being sought.
Shares of Common Stock issuable upon conversion of shares of Preferred Stock
that are not being converted and shares of Common Stock issuable upon exercise
of Warrants that have not been previously exercised are not included in the
shares beneficially owned by a holder for purposes of determining the Conversion
Cap.

 

The disclosure in the first sentence of the second bullet point on page 15 of
the Proxy Statement is supplemented by adding the following to the end of that
bullet point:

 

For purposes of determining the Conversion Cap, the number of common shares
beneficially owned by a holder includes shares of Common Stock held as a result
of prior conversion of Preferred Stock or exercise of Warrants, and shares of
Common Stock issuable upon the exercise of Warrants being sought. Shares of
Common Stock issuable upon conversion of shares of Preferred Stock that are not
being converted and shares of Common Stock issuable upon exercise of Warrants
that have not been previously exercised are not included in the shares
beneficially owned by a holder for purposes of determining the Conversion Cap.

 

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The disclosure in the last paragraph on page 15 of the Proxy Statement is
supplemented by adding the following fourth sentence of that paragraph:

 

Assuming the number of shares of outstanding Common Stock remains the same as
what was outstanding as of the Record Date, it would require approximately five
Accrued Dividends for the aggregate beneficial ownership of the Coliseum
Investors to reach 20% assuming full conversion of their Series A Preferred
Stock and full exercise of the Warrants. While there is a possibility that
certain events could result in the Conversion Caps or Voting Caps applying, it
is also possible that those caps may never apply.

 

The disclosure in the last paragraph on page 15 of the Proxy Statement is
supplemented by adding the following after the fifth sentence of that paragraph:

 

However, the adjustments to the Series A Preferred Stock and Warrants as a
result of such transactions may be proportionate and may not increase the
Coliseum Investors potential aggregate beneficial ownership.

 

6.Supplemental Disclosure on the Relationship of the Conversion Caps and Voting
Cap to Increased Dividends on the Series A Preferred Stock

 

The Conversion Caps, the Voting Cap, and the increased dividends on the Series A
Preferred Stock are the result of an arms-length negotiation between the Company
and the Coliseum Investors.

 

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7.Supplemental Disclosure on the Rights Offering

 

The Company intends to offer the remaining 200,000 authorized shares of Series A
Preferred Stock to holders of Common Stock pursuant to a rights offering to
commence on or before June 30, 2015 (the “Rights Offering”). In accordance with
the terms of the Transaction, the Coliseum Investors will not be permitted to
participate in the Rights Offering.

 

In the Rights Offering, rights to purchase units consisting of one (1) share of
Preferred Stock, 2.88 Class A Warrants exercisable at $5.17 per common share and
2.88 Class B Warrants exercisable at $6.45 per common share will be distributed
to BioScrip’s common stockholders for a subscription price of $100 per unit. The
Company will be filing a Final Prospectus at the time the Rights Offering is
commenced, which will contain final terms.

 

The rights and securities offered for subscription under the Rights Offering may
not be sold, nor may offers to buy be accepted, prior to the time the applicable
registration statement becomes effective. This does not constitute an offer to
sell or the solicitation of an offer to buy, nor shall there be any sale of the
Rights Offering securities in any state or jurisdiction in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such state or jurisdiction.

 

8.Supplemental Disclosure Concerning Section 203 of the Delaware General
Corporation Law

 

The Coliseum Investors are not subject to the restrictions set forth in 8 Del.
C. § 203 because the Company’s Board approved the Transaction prior to its close
on March 9, 2015. The Company did not waive the protections under Section 203 of
the Delaware General Corporate Law in its certificate of incorporation.

 

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