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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