Liberty Medical Supply Highlights the Impact of the Alleged Inequitable Conduct of Express Scripts' Subsidiary, Medco Health

   Liberty Medical Supply Highlights the Impact of the Alleged Inequitable
 Conduct of Express Scripts' Subsidiary, Medco Health Solutions, On Liberty's
                           Chapter 11 Exit Strategy

PR Newswire

PORT ST. LUCIE, Fla., April 17, 2014

PORT ST. LUCIE, Fla., April 17, 2014 /PRNewswire/ --Liberty Medical Supply,
Inc., together with its parent company FGST Investments, Inc., holding
company, ATLS Acquisition, LLC., and Polymedica Corporation, the legacy parent
company of Liberty Healthcare Group, Inc., and their collective affiliates
(collectively, "Liberty" or "the Company"), today reaffirmed its commitment to
supporting its patients, business partners, employees and communities as it
takes the necessary steps to restructure under chapter 11 of the U.S.
Bankruptcy Code. Liberty is focused on operating in the normal course of
business while it develops its exit strategy from chapter 11 and positions
itself for long-term success.

The Company highlighted today a recent complaint that it filed with the U.S.
Bankruptcy Court for the District of Delaware ("Bankruptcy Court") against
Medco Health Solutions, Inc. ("Medco"), a subsidiary of Express Scripts
Holding Company (NASDAQ: ESRX). In the complaint, the Company alleges that
Medco engaged in inequitable conduct related to Liberty management's December
2012 buyout of Medco's then-subsidiary Polymedica, a transaction that included
the Liberty business.

Among other remedies, Liberty seeks damages relating to a series of
transactions and over $1 billion in equity redemptions that left Liberty and
its subsidiaries insolvent at a time when the businesses were being prepared
for sale. The complaint also asks the Bankruptcy Court to find that Medco
improperly failed to pay certain pre-closing taxes, improperly refused to
transfer certain assets and breached various material contract and financial
statement warranties in connection with the sale of the Liberty business to
management.

Liberty issued the following statement with respect to the substance of its
complaint against Medco:

  The Liberty Board and management team believe it is important to set the
  record straight with respect to the causes, effects and outlook of our
  restructuring, particularly with respect to the inequitable conduct taken by
  Medco leading up to the chapter 11 cases and the impact that conduct has in
  connection with the Liberty's emergence from chapter 11.

  In early April 2012, Medco, which included Polymedica and the Liberty
  business, was acquired by Express Scripts Holding Company for $29.1 billion.
  Subsequently, in December 2012, Medco sold Polymedica and the Liberty
  business to the Liberty management team for $30 million in cash. Less than
  three months later, Liberty found itself unable to survive without the
  immediate intervention of the Bankruptcy Court and was forced into
  bankruptcy.

  It is our view that Medco was aware that Liberty would be unable to survive
  as a stand-alone company should Medco fail to perform as promised in
  connection with the management buyout. We are further disappointed that the
  inequitable conduct and overreaching that we have alleged against Medco
  occurred under the oversight of Medco's parent company, Express Scripts,
  which claims a strong commitment to ethical business practices. Indeed,
  Express Scripts has itself benefited from Medco's actions: in late 2012 it
  recorded an impairment charge of $23 million in connection with the sale of
  Liberty and Polymedica, and it is currently pursuing an additional tax
  write-off of approximately $545 million to reflect a claimed loss on the
  sale.

  Liberty's complaint details that in October 2012, with preparations for a
  sale of Liberty already underway, Medco caused Polymedica to redeem a large
  portion of Medco's equity in a series of transactions that left Polymedica
  and its subsidiaries insolvent. Specifically, we allege that Medco cancelled
  more than $900 million in outstanding debt that it owed to Liberty and
  saddled those entities with an additional $200 million in new debt due to
  Medco. It is alleged that Medco's actions reduced Liberty's stockholder
  equity from more than $1.3 billion to negative $80 million in the months
  leading to its sale to management, all in violation of state and federal
  laws. In addition, from October through December 2012, Liberty alleges that
  Medco caused Polymedica to transfer approximately $27 million in cash from
  Liberty's accounts for which Liberty received no cognizable value and at a
  time when Liberty was insolvent.

  Liberty alleges that Medco prepared certain financial statements that
  overstated the value of the Liberty business by more than $26 million. It
  was only after the filing of the chapter 11 cases that Liberty's management
  learned that more than $42 million listed in accounts receivable were
  uncollectable, that the value of Liberty's property and equipment was
  overstated by $9 million and that Liberty owed potentially millions of
  dollars in undisclosed credit payables.

  Liberty also alleges that Medco, in addition to breaches of various
  financial warranties, also breached its contractual obligations under the
  purchase agreement to provide certain vital assets and payments that were
  and remain critical to Liberty's operations. Among other things, Medco:

    oDid not deliver software that was essential to Liberty's accounting and
      management functions, causing a $4 million loss;
    oRefused to indemnify Liberty officers in lawsuits arising out of
      pre-closing activity; and
    oFailed to compensate Liberty management for third-party expenses
      associated with the transaction.

  Most significantly, despite the urging of its own accounting staff, the
  Company alleges that Medco has refused to pay pre-closing taxes for
  Polymedica leaving Liberty on the hook for millions of dollars in taxes.

  Liberty's complaint seeks to compel Medco to comply with the purchase
  agreement, to recover funds associated with the allegedly fraudulent
  transfers of value from Liberty and to subordinate and disallow Medco's
  claims against Liberty. Should Liberty be successful in its case, the
  Company intends to use this additional liquidity to pay its creditors and
  support its business of providing lifesaving treatments to patients who
  depend on Liberty.

About Liberty Medical
Liberty® Medical, headquartered in Port St. Lucie, Florida, is among the
largest direct-to-patient providers of diabetes testing supplies in the
country. In operation for over 20 years, Liberty is contracted with more than
200 commercial and government insurance programs and provides products,
service and support to hundreds of thousands of patients across the U.S. In
addition to diabetes testing supplies, Liberty offers CPAP, Catheter and
Ostomy supplies, and operates an Insulin Pump Center of Excellence and
full-service pharmacy. Liberty is currently among the largest employers in
Port St. Lucie and St. Lucie County.

Liberty Medical:
Andy Brimmer / Nick Lamplough / Eve Binder
Joele Frank, Wilkinson Brimmer Katcher
212-355-4449

SOURCE Liberty Medical Supply, Inc.
 
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