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As filed with the Securities and Exchange Commission on December 16, 2014

Registration No. 333-200454

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 1

to

Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

KINDRED HEALTHCARE, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware		8050		61-1323993
(State or Other Jurisdiction of Incorporation or Organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number)

 

 

680 South Fourth Street

Louisville, Kentucky 40202-2412

(502) 596-7300

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

 

Joseph L. Landenwich, Esq.

Co-General Counsel and Corporate Secretary

Kindred Healthcare, Inc.

680 South Fourth Street

Louisville, Kentucky 40202

(502) 596-7300

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

 

 

Copies to:

 

Ethan A. Klingsberg, Esq. Benet J. O’Reilly, Esq. Cleary Gottlieb Steen & Hamilton LLP One Liberty Plaza New York, New York 10006 (212) 225-2000		John N. Camperlengo, Esq. Senior Vice President, General Counsel and Secretary Gentiva Health Services, Inc. 3350 Riverwood Parkway, Suite 1400 Atlanta, Georgia 30339 (770) 951-6450		Dennis J. Block, Esq. Greenberg Traurig, LLP 200 Park Avenue New York, New York 10166 (212) 801-2222

 

 

Approximate date of commencement of proposed sale to public: As soon as practicable following the effective date of this registration statement and the date on which all other conditions to the merger described herein have been satisfied or waived.

If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  ¨

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer		x		Accelerated filer		¨
Non-accelerated filer		¨  (Do not check if a smaller reporting company)		Smaller reporting company		¨

If applicable, place an “X” in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  ¨

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ¨

 

 

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act, or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

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The information in this proxy statement/prospectus is not complete and may be changed. Kindred Healthcare, Inc. may not sell the securities offered by this proxy statement/prospectus until the registration statement filed with the Securities and Exchange Commission, of which this document is a part, is effective. This proxy statement/prospectus is not an offer to sell these securities, and Kindred Healthcare, Inc. is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

PRELIMINARY—SUBJECT TO COMPLETION, DATED DECEMBER 16, 2014

 

MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT

Dear Stockholder:

We cordially invite you to attend a special meeting of stockholders of Gentiva Health Services, Inc., or Gentiva, to be held on Thursday, January 22, 2015, at 3:00 p.m. local time, at the Renaissance Waverly Hotel, 2450 Galleria Parkway, Atlanta, Georgia 30339, which we refer to as the special meeting. As previously announced on October 9, 2014, Kindred Healthcare, Inc., or Kindred, and Gentiva entered into an Agreement and Plan of Merger, dated as of October 9, 2014, which we refer to as the merger agreement, pursuant to which a subsidiary of Kindred will merge with and into Gentiva, which we refer to as the merger, with Gentiva surviving the merger as a wholly owned subsidiary of Kindred.

If the merger is completed, each issued and outstanding share of common stock, par value $0.10 per share, of Gentiva (other than any shares owned by Kindred, Gentiva or their respective wholly owned subsidiaries and shares that are owned by stockholders who have properly exercised and perfected appraisal rights under Delaware law) will automatically be converted into the right to receive $14.50 in cash and 0.257 of a share of common stock, par value $0.25 per share, of Kindred. Upon completion of the transaction, it is expected that, immediately upon completion of the merger, Gentiva stockholders will own approximately 12% of the outstanding shares of Kindred’s common stock (based upon the number of issued and outstanding shares of Gentiva and Kindred common stock as of December 15, 2014, the most recent practicable date before the mailing of this proxy statement/prospectus). Kindred common stock is traded on the New York Stock Exchange under the symbol “KND” and we encourage you to obtain quotations for shares of Kindred common stock, given that part of the merger consideration is payable in shares of Kindred common stock.

The merger cannot be completed unless Gentiva stockholders holding at least a majority of the shares of Gentiva common stock outstanding as of the close of business on December 19, 2014, the record date for the special meeting, vote in favor of the adoption of the merger agreement at the special meeting.

Gentiva’s board of directors unanimously recommends that Gentiva stockholders vote “FOR” adoption of the merger agreement and “FOR” the approval of the other matters to be considered at the Gentiva special meeting. In considering the recommendation of the board of directors of Gentiva, you should be aware that certain directors and executive officers of Gentiva will have interests in the merger that may be different from, or in addition to, the interests of Gentiva stockholders generally. See the section entitled “Interests of Gentiva Directors and Executive Officers in the Merger” beginning on page 66 of the accompanying proxy statement/prospectus.

This proxy statement/prospectus describes the special meeting of Gentiva, the merger, the documents relating to the merger and other related matters. We urge you to read the accompanying proxy statement/prospectus, and the documents incorporated by reference into the accompanying proxy statement/prospectus, carefully and in their entirety. In particular, we urge you to read carefully “Risk Factors” beginning on page 31.

We are very excited about the opportunities the proposed merger brings to both Gentiva and Gentiva stockholders, and we thank you for your consideration and continued support.

Sincerely,

 

Rodney D. Windley Executive Chairman		Tony Strange Chief Executive Officer

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the merger or other transactions described in the attached proxy statement/prospectus or the securities to be issued pursuant to the merger or passed upon the adequacy or accuracy of the attached proxy statement/prospectus. Any representation to the contrary is a criminal offense.

The accompanying proxy statement/prospectus is dated [—], 2014, and is first being mailed to Gentiva stockholders on or about [—].

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GENTIVA HEALTH SERVICES, INC.

3350 Riverwood Parkway

Suite 1400

Atlanta, Georgia 30339

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

Dear Stockholder:

You are cordially invited to attend a special meeting of Gentiva stockholders. The special meeting will be held on Thursday, January 22, 2015, at 3:00 p.m. local time, at the Renaissance Waverly Hotel, 2450 Galleria Parkway, Atlanta, Georgia, 30339, to consider and vote upon the following matters:

 

1.

a proposal to adopt the Agreement and Plan of Merger, dated as of October 9, 2014, as it may be amended from time to time, among Gentiva Health Services, Inc., a Delaware corporation, Kindred Healthcare, Inc., a Delaware corporation, and Kindred Healthcare Development 2, Inc., a Delaware corporation and wholly owned subsidiary of Kindred Healthcare, Inc. (a copy of the merger agreement is attached as Annex A to the proxy statement/prospectus accompanying this notice);

 

2.

a proposal to approve, by advisory (non-binding) vote, certain compensation arrangements for Gentiva’s named executive officers in connection with the merger; and

 

3.

a proposal for adjournments of the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement.

The record date for the special meeting is December 19, 2014. Only stockholders of record at the close of business on December 19, 2014, are entitled to notice of the special meeting and to vote at the special meeting and any adjournments or postponements of the special meeting. All stockholders of record as of that date are cordially invited to attend the special meeting in person. Approval of the merger proposal requires the affirmative vote of the holders of at least a majority of the outstanding shares of Gentiva common stock entitled to vote thereon. The proposal to approve the merger-related executive compensation requires the affirmative vote of the holders of a majority of shares of Gentiva common stock present in person or represented by proxy and entitled to vote thereon; however, such vote is advisory (non-binding) only. The approval of adjournments of the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement requires the affirmative vote of the holders of a majority of shares of Gentiva common stock present in person or represented by proxy and entitled to vote thereon, whether or not a quorum is present.

The Gentiva board of directors has unanimously approved and declared advisable the merger agreement and the transactions contemplated thereby, including the merger, and has unanimously determined that the merger agreement and the transactions contemplated thereby, including the merger, are fair to, and in the best interests of, Gentiva and Gentiva stockholders. The Gentiva board of directors unanimously recommends that you vote “FOR” the adoption of the merger agreement, “FOR” the proposal to approve the merger-related executive compensation and “FOR” the proposal to approve adjournments of the special meeting if there are insufficient votes at the time of the special meeting to adopt the merger agreement.

In deciding to approve the merger agreement and the transactions contemplated by the merger agreement, including the merger, the Gentiva board of directors considered a number of factors, including those beginning on page 52. When you consider the recommendation of the Gentiva board of directors, you should be aware that some of Gentiva’s directors and executive officers have interests in the merger that may be different from, or in addition to, the interests of Gentiva stockholders generally.

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Gentiva stockholders who do not vote in favor of the proposal to adopt the merger agreement will have the right to seek appraisal of the fair value of their shares of Gentiva common stock if they deliver a demand for appraisal before the vote is taken on the merger agreement and comply with all the requirements of Delaware law, which are summarized in the accompanying proxy statement/prospectus and reproduced in their entirety in Annex D to the proxy statement/prospectus.

Your vote is very important, regardless of the number of shares of Gentiva common stock you own. The merger cannot be completed unless the merger agreement is adopted by the affirmative vote of the holders of a majority of the outstanding shares of Gentiva common stock entitled to vote thereon. Even if you plan to attend the special meeting in person, Gentiva requests that you complete, sign, date and return, as promptly as possible, the enclosed proxy card in the postage-prepaid envelope provided, or submit your proxy by telephone or over the internet prior to the special meeting as described in the accompanying proxy statement/prospectus. Submitting a proxy or voting by telephone or internet now will not prevent you from being able to vote at the special meeting by attending in person and casting a vote. If you hold your shares in “street name” through a bank, brokerage firm or other nominee, you should follow the procedures provided by your bank, brokerage firm or other nominee to vote your shares. If you fail to submit a proxy or to attend the special meeting in person or do not provide your bank, brokerage firm or other nominee with instructions as to how to vote your shares, as applicable, your shares of Gentiva common stock will not be counted for purposes of determining whether a quorum is present at the special meeting and will have the same effect as a vote “AGAINST” the adoption of the merger agreement.

By order of the board of directors,

John N. Camperlengo

Senior Vice President, General Counsel and Secretary

Please vote your shares promptly. You can find instructions for voting on the enclosed proxy card.

If you have questions, contact:

Gentiva Health Services, Inc.

3350 Riverwood Parkway

Suite 1400

Atlanta, Georgia 30339

Attention: Investor Relations

(770) 951-6450

or

MacKenzie Partners, Inc.

105 Madison Avenue

New York, New York 10016

proxy@mackenziepartners.com

Call Collect: (212) 929-5500

or

Toll-Free: (800) 322-2885

 

Atlanta, Georgia

Dated: December [—], 2014

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REFERENCES TO ADDITIONAL INFORMATION

This proxy statement/prospectus incorporates important business and financial information about Gentiva and Kindred from other documents that Gentiva and Kindred have filed with the U.S. Securities and Exchange Commission, which we refer to as the SEC, and that are contained in or incorporated by reference into this proxy statement/prospectus. For a listing of documents incorporated by reference into this proxy statement/prospectus, please see the section entitled “Where You Can Find More Information” beginning on page 147 of this proxy statement/prospectus. This information is available for you to review at the SEC’s public reference room located at 100 F Street, N.E., Room 1580, Washington, DC 20549, and through the SEC’s website at www.sec.gov.

You may request copies of this proxy statement/prospectus and any of the documents incorporated by reference into this proxy statement/prospectus or other information concerning Gentiva, without charge, by telephone or written request directed to: John Mongelli, Vice President Treasury and Investor Relations, Telephone (770) 951-6450; or MacKenzie Partners, Inc., Gentiva’s proxy solicitor, at (212) 929-5500 or toll-free at (800) 322-2885.

You may also request a copy of this proxy statement/prospectus and any of the documents incorporated by reference into this proxy statement/prospectus or other information concerning Kindred without charge, by telephone or written request directed to: Investor Relations, Telephone (502) 596-7300 or toll-free at (800) 545-0749.

In order for you to receive timely delivery of the documents in advance of the special meeting of Gentiva stockholders to be held on January 22, 2015, you must request the information no later than five business days prior to the date of the special meeting, by January 14, 2015.

ABOUT THIS PROXY STATEMENT/PROSPECTUS

This document, which forms part of a registration statement on Form S-4 filed with the SEC by Kindred (File No. 333-200454), constitutes a prospectus of Kindred under Section 5 of the Securities Act of 1933, as amended, which we refer to as the Securities Act, with respect to the shares of common stock, par value $0.25 per share, of Kindred, which we refer to as Kindred common stock, to be issued to Gentiva stockholders pursuant to the Agreement and Plan of Merger, dated as of October 9, 2014, by and among Gentiva, Kindred and Kindred Healthcare Development 2, Inc., as it may be amended from time to time, which we refer to as the merger agreement. This document also constitutes a proxy statement of Gentiva under Section 14(a) of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act. It also constitutes a notice of meeting with respect to the special meeting, at which Gentiva stockholders will be asked to consider and vote upon the adoption of the merger agreement.

Kindred has supplied all information contained or incorporated by reference into this proxy statement/prospectus relating to Kindred, and Gentiva has supplied all such information relating to Gentiva.

You should rely only on the information contained in or incorporated by reference into this proxy statement/prospectus. Kindred and Gentiva have not authorized anyone to provide you with information that is different from that contained in or incorporated by reference into this proxy statement/prospectus. This proxy statement/prospectus is dated [—], and you should not assume that the information contained in this proxy statement/prospectus is accurate as of any date other than such date. Further, you should not assume that the information incorporated by reference into this proxy statement/prospectus is accurate as of any date other than the date of the incorporated document. Neither the mailing of this proxy statement/prospectus to Gentiva stockholders nor the issuance by Kindred of shares of its common stock pursuant to the merger agreement will create any implication to the contrary.

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TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING			4
SUMMARY			12
Information About Gentiva			12
Information About Kindred			12
Information About Merger Sub			12
The Merger			13
Gentiva’s Reasons for the Merger and Recommendation of Gentiva’s Board of Directors			15
Opinion of Gentiva’s Financial Advisor			15
Record Date; Outstanding Shares; Shares Entitled to Vote			16
Quorum and Vote Required			16
Interests of Gentiva Directors and Executive Officers in the Merger			16
Board of Directors and Management of Kindred Following the Merger			17
Listing of Kindred Common Stock and De-listing of Gentiva Common Stock			17
Appraisal Rights			17
Dividend Policy of Kindred Following the Merger			17
Conditions to Completion of the Merger			18
Regulatory Approvals			18
Termination of the Merger Agreement			18
Termination Fees and Expenses			19
Voting and Support Agreement			19
Litigation Related to the Merger			20
Material United States Federal Income Tax Consequences			20
Accounting Treatment			20
Risk Factors			20
Comparison of Rights of Stockholders			20
FINANCIAL SUMMARY			21
Comparative Market Price Data and Dividends			21
Selected Historical Consolidated Financial Data of Kindred			22
Selected Historical Consolidated Financial Data of Gentiva			24
Selected Unaudited Pro Forma Condensed Combined Financial Information			27
UNAUDITED COMPARATIVE PER SHARE INFORMATION			29
COMPARATIVE MARKET VALUE INFORMATION			30
RISK FACTORS			31
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS			38
THE MERGER			41
Overview			41
Background of the Merger			41
Gentiva’s Reasons for the Merger and Recommendation of Gentiva’s Board of Directors			52
Opinion of Gentiva’s Financial Advisor			55
Summary of Gentiva Projections			63
Stock Ownership of Directors and Executive Officers of Gentiva			65
Merger Consideration			65
Ownership of Kindred After the Merger			66
Interests of Gentiva Directors and Executive Officers in the Merger			66
Board of Directors and Management of Kindred Following the Merger			79
Listing of Kindred Common Stock Issued for Share Consideration; De-listing and Deregistration of Gentiva Common Stock			80
Regulatory Approvals			80
Litigation Related to the Merger			81
Dividend Policy of Kindred Following the Merger			81

 

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Financing Relating to the Merger			81
Gentiva Stockholders’ Rights of Appraisal			83
Accounting Treatment			87
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES			88
U.S. Holders			88
Non-U.S. Holders			89
Information Reporting and Backup Withholding			90
THE MERGER AGREEMENT			92
The Merger; Closing			92
Certificate of Incorporation and Bylaws of the Surviving Corporation; Directors and Officers			93
Merger Consideration			93
Fractional Shares			93
Exchange Procedures			94
Exchange of Shares			94
Lost Stock Certificates			94
Effect of the Merger on Gentiva’s Equity Awards			94
Representations and Warranties			96
Covenants and Agreements			98
Conditions to Completion of the Merger			105
Termination of the Merger Agreement			107
Termination Fees and Expenses			108
Amendments, Extensions and Waivers			109
Voting and Support Agreement			109
INFORMATION ABOUT THE SPECIAL MEETING			111
Overview			111
Date, Time and Place of the Special Meeting			111
Purposes of the Special Meeting			111
Gentiva Board of Directors Recommendation			111
Record Date; Outstanding Shares; Shares Entitled to Vote			111
Quorum and Vote Required			112
ITEM 1—PROPOSAL TO ADOPT THE MERGER AGREEMENT			113
ITEM  2—PROPOSAL TO APPROVE BY ADVISORY (NON-BINDING) VOTE MERGER-RELATED COMPENSATION FOR GENTIVA’S NAMED EXECUTIVE OFFICERS			113
ITEM 3—PROPOSAL TO APPROVE ADJOURNMENTS OF THE SPECIAL MEETING			114
Stock Ownership and Voting by Gentiva’s Directors and Executive Officers			114
How to Vote			114
Voting of Proxies			116
Revoking Your Proxy			116
Other Voting Matters			116
Proxy Solicitations and Expenses			117
Adjournment or Postponement of the Special Meeting			117
Stock Certificates			117
Other Business			117
Assistance			117
INFORMATION ABOUT GENTIVA			118
INFORMATION ABOUT KINDRED			119
INFORMATION ABOUT MERGER SUB			120
COMPARISON OF RIGHTS OF STOCKHOLDERS			121
Material Differences in Stockholder Rights			121
Certain Similarities in Stockholder Rights			125
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION			128
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION			133

 

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Note 1—Basis Of Presentation			133
Note 2—Preliminary Allocation of Merger Consideration			133
Note 3—Reclassification and Pro Forma Adjustments			135
LEGAL MATTERS			144
EXPERTS			144
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT			145
SUBMISSION OF FUTURE STOCKHOLDER PROPOSALS			146
HOUSEHOLDING OF PROXY MATERIALS			146
WHERE YOU CAN FIND MORE INFORMATION			147
ANNEXES
Agreement and Plan of Merger			A-1
Voting and Support Agreement			B-1
Opinion of Barclays Capital Inc.			C-1
Section 262 of the Delaware General Corporation Law			D-1

 

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QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING

The following questions and answers briefly address some commonly asked questions about the merger, the merger agreement and the special meeting. They may not include all the information that is important to you as a Gentiva stockholder. We urge you to read carefully this entire proxy statement/prospectus, including the annexes and the other documents to which we have referred you.

 

Q:	Why am I receiving this proxy statement/prospectus?

 

A:

You are receiving this proxy statement/prospectus because you were a Gentiva stockholder of record on December 19, 2014, the record date for the Gentiva special meeting. Gentiva has agreed to be acquired by Kindred under the terms of the merger agreement that are described in this proxy statement/prospectus. If the merger agreement is adopted by Gentiva stockholders and the other conditions to the closing under the merger agreement are satisfied or waived, Kindred Healthcare Development 2, Inc., which we refer to as merger sub, will merge with and into Gentiva, with Gentiva surviving the merger as a wholly owned subsidiary of Kindred.

Gentiva is holding the special meeting to ask its stockholders to consider and vote upon a proposal to adopt the merger agreement. Gentiva stockholders are also being asked to consider and vote upon (i) a proposal to approve, by advisory (non-binding) vote, certain compensation arrangements for Gentiva’s named executive officers in connection with the merger and (ii) a proposal to grant authority to proxy holders to vote in favor of adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement.

This proxy statement/prospectus contains important information about the merger, the merger agreement, a copy of which is attached to this proxy statement/prospectus as Annex A, and the special meeting. Gentiva stockholders should read this information carefully and in its entirety. The enclosed proxy materials allow you to grant a proxy or vote your shares by telephone or internet without attending the special meeting in person.

 

Q:	What will Gentiva stockholders receive in the merger?

 

A:

Each share of Gentiva common stock, other than shares owned by Kindred or Gentiva or their respective wholly owned subsidiaries, or shares owned by stockholders who have properly exercised and perfected appraisal rights under Delaware law, will be converted into the right to receive $14.50 in cash, without interest (which we sometimes refer to as the cash consideration), and 0.257 of a share of Kindred common stock (which we sometimes refer to as the stock consideration, and together with the cash consideration, we refer to as the merger consideration). Kindred will not issue any fractional shares as a result of the merger. Instead, Kindred will pay cash for fractional shares of its common stock that Gentiva stockholders would otherwise be entitled to receive.

 

Q:	What is the value of the per share merger consideration?

 

A:

Kindred and Gentiva agreed to the 0.257 exchange ratio for the merger based on the volume-weighted average price per share of Kindred common stock on the New York Stock Exchange, which we refer to as the NYSE, for the ten trading days ended on and including October 3, 2014, the date on which the exchange ratio was agreed. Based on the volume-weighted average price per share of Kindred common stock on the NYSE for this period, the merger consideration represented $19.50 in value for each share of Gentiva common stock. Based on the closing price per share of Kindred common stock on December 15, 2014, the most recent practicable trading day prior to the date of this proxy statement/prospectus, the merger consideration represented $19.19 in value for each share of Gentiva common stock. Because Kindred will issue a fixed fraction of a share of Kindred common stock in exchange for each share of Gentiva common stock, the value of the stock portion of the merger consideration that Gentiva stockholders will receive in the merger will depend on the market price of Kindred common stock at the time the merger is completed. The market price of Kindred common stock when Gentiva stockholders receive

 

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those shares after the merger is completed could be greater than, less than or the same as the market price of Kindred common stock on the date of this proxy statement/prospectus or at the time of the Gentiva special meeting. Kindred common stock is listed on the NYSE under the symbol “KND.” Gentiva common stock is listed on the NASDAQ Global Select Market, which we refer to as NASDAQ, under the symbol “GTIV.” You should obtain current stock price quotations for Kindred common stock and Gentiva common stock before deciding how to vote with respect to the adoption of the merger agreement.

 

Q:	What will holders of Gentiva equity awards receive in the merger?

 

A:

Stock Options. At the effective time of the merger, which we sometimes refer to as the effective time, each Gentiva option that is outstanding immediately prior to the effective time with a per share exercise price below the sum of (i) the value of the stock consideration (based on the average closing price per share of Kindred common stock on the NYSE for the ten consecutive trading days ending immediately prior to the closing date of the merger, which we refer to as the Kindred closing price) and (ii) the cash consideration, that is or will become vested as a result of the merger (which we refer to as an in-the-money option), will be canceled and converted into the right to receive an amount in cash equal to the cash consideration plus the value of the stock consideration (based on the Kindred closing price), less the exercise price, subject to withholding taxes. Each Gentiva option that is outstanding immediately prior to the effective time with a per share exercise price at or above the sum of (i) the value of the stock consideration (based on the Kindred closing price) and (ii) the cash consideration (which we refer to as out-of-the-money options) or that will not vest as a result of the merger will be converted into an option to purchase a number of shares of Kindred common stock determined by multiplying the number of shares of Gentiva common stock subject to such Gentiva option by a fraction, the numerator of which is the sum of (A) the product of the stock consideration multiplied by the Kindred closing price and (B) the cash consideration and the denominator of which is the Kindred closing price.

Restricted Stock; Deferred Stock Units. Each outstanding restricted share of Gentiva common stock, which we sometimes refer to as Gentiva restricted stock, that will vest as a result of the merger and each outstanding Gentiva deferred stock unit will receive the merger consideration, subject to withholding taxes. Each outstanding share of Gentiva restricted stock that will not vest as a result of the merger will receive merger consideration in the form of a Kindred restricted cash award in the amount of the cash consideration and restricted shares of Kindred common stock in the amount of the stock consideration, in each case subject to the vesting conditions of such shares of Gentiva restricted stock prior to the effective time.

Performance Cash Awards. Each Gentiva performance cash award that will become vested as a result of the merger will be accelerated and the recipient thereof will receive an amount in cash equal to the target amount of such cash award (unless such performance cash award provides for the accelerated vesting of such award at the maximum level, in which case the recipient thereof will receive an amount in cash equal to the maximum amount of such cash award), subject to withholding taxes. Each Gentiva performance cash award that will not vest as a result of the merger will be converted into the right to receive a Kindred cash award, subject to the vesting conditions of such performance cash award prior to the effective time. To the extent that any performance cash award is, immediately prior to the effective time, subject to any performance-based vesting or other performance conditions, the Kindred board of directors, or an applicable committee thereof, may, following the effective time, make such equitable adjustments, if any, to the applicable performance goals or conditions relating to the Kindred cash award received by the holder of such performance cash award as the Kindred board of directors (or such committee thereof) may determine to be necessary or appropriate as a result of the consummation of the transactions contemplated by the merger agreement, including the merger, and, in each case, subject to and in accordance with the terms and conditions of the applicable performance cash award and the applicable Gentiva stock plan.

Employee Stock Purchase Plan. Participants in the Gentiva Employee Stock Purchase Plan, which we refer to as the ESPP, will be entitled to receive the merger consideration for shares of Gentiva common stock purchased through the ESPP prior to the effective time. No new offering periods under the ESPP will commence after the date of the merger agreement.

 

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Q:	Does my vote matter?

 

A:

Yes. The merger cannot be completed unless the merger agreement is adopted by the Gentiva stockholders. For stockholders, if you fail to submit a proxy or vote in person at the special meeting, or vote to abstain, or you do not provide your bank, brokerage firm or other nominee with instructions, as applicable, this will have the same effect as a vote “AGAINST” the adoption of the merger agreement. The board of directors of Gentiva, which we refer to as the Gentiva board of directors or the Gentiva board, recommends that stockholders vote “FOR” the adoption of the merger agreement.

 

Q:	What is the vote required to approve each proposal at the special meeting?

 

A:

The adoption of the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of Gentiva common stock entitled to vote thereon. Stockholders holding approximately 15.4% of the outstanding shares of Gentiva common stock as of December 15, 2014, the most recent practicable date prior to the mailing of this proxy statement/prospectus, have agreed to vote for the merger (see the section titled “The Merger Agreement—Voting and Support Agreement” which begins on page 109). Because the affirmative vote required to adopt the merger agreement is based upon the total number of outstanding shares of Gentiva common stock, if you fail to submit a proxy or vote in person at the special meeting, or vote to abstain, or you hold your shares through a bank, brokerage firm or other nominee and you do not provide your bank, brokerage firm or other nominee with instructions, as applicable, this will have the same effect as a vote “AGAINST” the adoption of the merger agreement.

The proposal to approve certain compensation arrangements for Gentiva’s named executive officers in connection with the merger requires the affirmative vote of the holders of a majority of shares of Gentiva common stock present in person or represented by proxy and entitled to vote thereon; however, such vote is advisory (non-binding) only. If your shares of Gentiva common stock are present at the special meeting but your shares are not voted on the proposal, or if you vote to abstain on the proposal, each will have the effect of a vote “AGAINST” the compensation proposal. If you fail to submit a proxy and fail to attend the special meeting, or if you hold your shares through a bank, brokerage firm or other nominee and you do not instruct your bank, brokerage firm or other nominee to vote your shares of Gentiva common stock, your shares of Gentiva common stock will not be voted, but this will not have an effect on the advisory (non-binding) vote to approve the merger-related executive compensation except to the extent it results in there being insufficient shares present at the meeting to establish a quorum.

The approval of adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement requires the affirmative vote of the holders of a majority of shares of Gentiva common stock present in person or represented by proxy and entitled to vote thereon, whether or not a quorum is present. If your shares of Gentiva common stock are present at the special meeting but are not voted on the proposal, or if you vote to abstain on the proposal, each will have the effect of a vote “AGAINST” adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement. If you fail to submit a proxy and fail to attend the special meeting or if your shares of Gentiva common stock are held through a bank, brokerage firm or other nominee and you do not instruct your bank, brokerage firm or other nominee to vote your shares of Gentiva common stock, your shares of Gentiva common stock will not be voted, but this will not have an effect on the vote to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement.

 

Q:	How does the Gentiva board of directors recommend that I vote at the special meeting?

 

A:

The Gentiva board of directors has unanimously approved and declared advisable the merger agreement and the transactions contemplated thereby, including the merger, and has unanimously determined that the merger agreement and the transactions contemplated thereby, including the merger, are fair to, and in the best interests of, Gentiva and Gentiva stockholders. The Gentiva board of directors unanimously recommends that Gentiva stockholders vote “FOR” the proposal to adopt the merger agreement, “FOR” the

 

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proposal to approve by advisory (non-binding) vote certain merger-related executive compensation and “FOR” the proposal to approve adjournments of the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement.

 

Q:	What will happen to Gentiva as a result of the merger?

 

A:	If the merger is completed, merger sub will merge with and into Gentiva, with Gentiva continuing as the surviving corporation and a wholly owned subsidiary of Kindred.

 

Q:	What equity stake will Gentiva stockholders hold in Kindred immediately following the merger?

 

A:

Based upon the number of issued and outstanding shares of Kindred common stock and Gentiva common stock as of December 15, 2014, the most recent practicable date prior to the mailing of this proxy statement/prospectus, it is expected that, immediately upon completion of the merger, Gentiva stockholders will own approximately 12% of the outstanding shares of Kindred common stock.

 

Q:	Where will the Kindred common stock that I receive in the merger be publicly traded?

 

A:	Kindred will apply to have the new shares of Kindred common stock issued in the merger listed on the NYSE upon the closing of the merger.

 

Q:	When do you expect to complete the merger?

 

A:	If the merger agreement is adopted at the special meeting, we expect to complete the merger in the first quarter of 2015, subject to the satisfaction of the other conditions to the merger. However, we cannot assure you that such timing will occur or that the merger will be completed.

 

Q:	What happens if the merger is not consummated?

 

A:

If the merger agreement is not adopted by Gentiva stockholders or if the merger is not consummated for any other reason, Gentiva stockholders will not receive any payment for their shares in connection with the merger. Instead, Gentiva will remain an independent public company and Gentiva common stock will continue to be listed and traded on the NASDAQ.

Under specified circumstances, Gentiva may be required to pay to Kindred a fee with respect to the termination of the merger agreement, as described under “The Merger Agreement—Termination Fees and Expenses” beginning on page 108.

 

Q:	What am I being asked to vote on at the special meeting?

 

A:

At the special meeting, Gentiva stockholders of record at the close of business on December 19, 2014 will be asked to consider and vote upon the following proposals: (i) a proposal to adopt the merger agreement, as it may be amended from time to time; (ii) a proposal to approve, by advisory (non-binding) vote, certain compensation arrangements for Gentiva’s named executive officers in connection with the merger; and (iii) a proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement.

 

Q:	Why am I being asked to consider and vote on a proposal to approve, by advisory (non-binding) vote, certain compensation arrangements for Gentiva’s named executive officers in connection with the merger?

 

A:	Under SEC rules, Gentiva is required to seek an advisory (non-binding) vote with respect to the compensation that may be paid or become payable to its named executive officers that is based on, or otherwise relates to, the merger.

 

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Q.	What happens if Gentiva stockholders do not approve the merger-related executive compensation proposal?

 

A:

Approval of the compensation that may be paid or become payable to Gentiva’s named executive officers that is based on, or otherwise relates to, the merger is not a condition to completion of the merger. The vote is an advisory vote and will not be binding on Gentiva or the surviving company in the merger. If the merger is completed, the merger-related compensation may be paid to Gentiva’s named executive officers to the extent payable in accordance with the terms of their compensation and benefits agreements and arrangements even if Gentiva stockholders do not approve, by advisory (non-binding) vote, the merger-related compensation.

 

Q:	Do any of Gentiva’s directors or executive officers have interests in the merger that may differ from those of Gentiva stockholders?

 

A:

Gentiva’s directors and executive officers have interests in the merger that are different from, or in addition to, their interests as Gentiva stockholders. Other than Kindred’s entry into an employment agreement with David. A. Causby, Gentiva’s President and Chief Operating Officer, which took place after the signing of the merger agreement, the members of Gentiva’s board of directors were aware of and considered these interests, among other matters, in evaluating the merger agreement and the merger, and in recommending that Gentiva stockholders adopt the merger agreement. For a description of these interests, refer to the section entitled “The Merger—Interests of Gentiva Directors and Executive Officers in the Merger” beginning on page 66.

 

Q:	What constitutes a quorum at the special meeting?

 

A:

For business to be conducted at the special meeting, a quorum must be present. The presence of the holders of record of a majority of the issued and outstanding shares of Gentiva common stock entitled to vote at the special meeting constitutes a quorum. Stockholders may be present in person or by proxy. A stockholder will be considered part of the quorum if such stockholder returns a signed and dated proxy card, votes by telephone or the internet or votes in person at the special meeting.

 

Q:	Do Gentiva stockholders have appraisal rights?

 

A:

Yes. Under the Delaware General Corporation Law, which we refer to as the DGCL, holders of Gentiva common stock who do not vote for the adoption of the merger agreement have the right to seek appraisal of the fair value of their shares as determined by the Delaware Court of Chancery if the merger is completed, but only if they comply with all requirements of Delaware law, which are summarized in this proxy statement/prospectus. Failure to comply with all requirements of Delaware law may result in your waiver of, or inability to exercise, appraisal rights. Please see Annex D for the text of the applicable provisions of the DGCL as in effect with respect to this transaction.

 

Q:	What happens if I sell or transfer my shares of Gentiva common stock after the record date but before the special meeting?

 

A:

The record date for Gentiva stockholders entitled to vote at the special meeting is earlier than both the date of the Gentiva special meeting and the consummation of the merger. If you sell or transfer your shares of Gentiva common stock after the record date but before the special meeting, you will, unless other arrangements are made (such as provision of a proxy), retain your right to vote at the special meeting but will transfer the right to receive the merger consideration to the person to whom you sell or transfer your shares.

 

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Q:	What are the federal income tax consequences of the merger to Gentiva stockholders?

 

A:

In general, the exchange of shares of Gentiva common stock for cash and Kindred common stock pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes. We urge Gentiva stockholders to consult a tax advisor about the tax consequences of the exchange of their shares of Gentiva common stock for cash and Kindred common stock pursuant to the merger in light of the particular circumstances of each Gentiva stockholder, including the application and effect of any state, local, federal or other tax laws. For more information regarding the amount and timing of any income, gain or loss with respect to the merger, see “Material United States Federal Income Tax Consequences” beginning on page 88.

 

Q:	Are Kindred stockholders voting on the merger?

 

A:	No. The vote of Kindred stockholders is not required to complete the merger.

 

Q:	Should I send in my stock certificates now?

 

A:

NO, PLEASE DO NOT SEND YOUR STOCK CERTIFICATE(S) WITH YOUR PROXY CARD(S). If the merger is completed, you will be sent written instructions for sending in your stock certificates or, in the case of book-entry shares, for surrendering your book-entry shares. See “Information About the Special Meeting—Stock Certificates” beginning on page 117, and “The Merger Agreement—Exchange of Shares” beginning on page 94.

 

Q:	Who can answer my questions about the merger?

 

A:	If you have any questions about the merger or the special meeting, need assistance in voting your shares, or need additional copies of this proxy statement/prospectus or the enclosed proxy card(s), you should contact:

MacKenzie Partners, Inc.

105 Madison Avenue

New York, New York 10016

Call collect: (212) 929-5500 or toll-free: (800) 322-2885

 

Q:	When and where is the special meeting?

 

A:	The special meeting will be held on Thursday, January 22, 2015, at 3:00 p.m. local time, at the Renaissance Waverly Hotel, 2450 Galleria Parkway, Atlanta, Georgia 30339.

 

Q:	Who is eligible to vote at the special meeting?

 

A:

Owners of Gentiva common stock are eligible to vote at the special meeting if they were stockholders of record at the close of business on December 19, the record date for the special meeting. Each share of Gentiva common stock issued and outstanding on the record date is entitled to one vote in respect of each proposal.

 

Q:	What is a proxy?

 

A:	A proxy is a stockholder’s legal designation of another person, referred to as a “proxy,” to vote shares of such stockholder’s common stock at a stockholders’ meeting. The document used to designate a proxy to vote your shares of Gentiva common stock is called a “proxy card.”

 

Q:	What should I do now?

 

A:

You should read this proxy statement/prospectus carefully, including the annexes, and return your completed, signed and dated proxy card(s) by mail in the enclosed postage-paid envelope or submit your voting instructions by telephone or over the internet as soon as possible so that your shares will be

 

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represented and voted at the special meeting. A number of banks and brokerage firms participate in a program that also permits stockholders whose shares are held in “street name” to direct their vote by telephone or over the internet. This option, if available, will be reflected in the voting instructions from the bank or brokerage firm that accompany this proxy statement/prospectus. If your shares are held in an account at a bank or brokerage firm that participates in such a program, you may direct the vote of these shares by telephone or over the internet by following the voting instructions enclosed with the proxy card from the bank or brokerage firm.

 

Q:	May I attend the special meeting?

 

A:

All Gentiva stockholders of record or beneficial owners as of the close of business on December 19, 2014, the record date for the special meeting, or those persons who hold a valid proxy, may attend the special meeting. If your shares are held in “street name” by your broker, bank or other nominee, and you plan to attend the special meeting, you must present proof of your ownership of Gentiva common stock, such as a bank or brokerage account statement, to be admitted to the meeting. You also must present at the meeting a proxy issued to you by the holder of record of your shares.

 

Q:	If I am going to attend the special meeting, should I return my proxy card(s)?

 

A:

Yes. Returning your completed, signed and dated proxy card(s) or voting by telephone or over the internet ensures that your shares will be represented and voted at the special meeting. Voting your shares in advance of the special meeting will not impact your ability to attend the special meeting. If you do attend the meeting and decide to vote in person, your in person vote will revoke any previously submitted proxy cards.

 

Q:	How will my proxy be voted?

 

A:

If you complete, sign and date your proxy card(s) or vote by telephone or over the internet, your shares will be voted in accordance with your instructions. If you sign and date your proxy card(s) but do not indicate how you want to vote at the special meeting, your shares will be voted “FOR” the adoption of the merger agreement; “FOR” the approval to approve, by non-binding, advisory vote, the merger-related executive compensation; and “FOR” the proposal to approve adjournments or postponements of the special meeting, if necessary or appropriate, to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting to adopt the merger agreement.

 

Q:	What if my broker holds my shares in “street name?”

 

A:

If a broker holds your shares for your benefit but not in your own name, your shares are in “street name.” A number of banks and brokerage firms participate in a program that also permits stockholders whose shares are held in “street name” to direct their vote by telephone or over the internet. If your shares are held in an account at a bank or brokerage firm that participates in such a program, you may direct the vote of these shares by telephone or over the internet by following the voting instructions enclosed with the proxy form from the bank or brokerage firm. The internet and telephone proxy procedures are designed to authenticate stockholders’ identities, to allow stockholders to give their proxy voting instructions and to confirm that those instructions have been properly recorded. Votes directed by telephone or over the internet through such a program must be received by 11:59 p.m., Eastern Standard Time, on January 21, 2015. Directing the voting of your shares will not affect your right to vote in person if you decide to attend the special meeting. If your shares are held in “street name” by your broker, bank or other nominee, and you plan to attend the special meeting, you must present proof of your ownership of Gentiva common stock, such as a bank or brokerage account statement, to be admitted to the meeting. In addition, you must first obtain a signed and properly executed legal proxy from your bank, broker or other nominee to vote your shares held in “street name” at the special meeting. Requesting a legal proxy prior to the deadline described above will automatically cancel any voting directions you have previously given by telephone or over the internet with respect to your shares.

 

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Q.	Can I change my vote after I mail my proxy card(s) or vote by telephone or over the internet?

 

A:	Yes. If you are a stockholder of record (that is, you hold your shares in your own name), you can change your vote by:

 

•

sending a written notice to the corporate secretary of Gentiva, bearing a date later than the date of the proxy, that is received prior to the special meeting and states that you revoke your proxy;

 

•

voting at a later date by telephone or over the internet by 11:59 p.m., Eastern Standard Time, the day preceding the special meeting;

 

•

signing, dating and delivering a new valid proxy card(s) bearing a later date that is received prior to the special meeting; or

 

•

attending the special meeting and voting in person, although your attendance alone will not revoke your proxy.

If your shares of Gentiva common stock are held in “street name” by your broker, you will need to follow the instructions you receive from your broker to revoke or change your proxy.

 

Q:	What if I don’t provide my broker with instructions on how to vote?

 

A:

Your bank, brokerage firm or other nominee will only be permitted to vote your shares of Gentiva common stock if you instruct your bank, brokerage firm or other nominee how to vote. You should follow the procedures provided by your bank, brokerage firm or other nominee regarding the voting of your shares of Gentiva common stock. In accordance with the rules of NASDAQ, banks, brokerage firms and other nominees who hold shares of Gentiva common stock in “street name” for their customers have authority to vote on “routine” proposals when they have not received instructions from beneficial owners. However, banks, brokerage firms and other nominees are precluded from exercising their voting discretion with respect to non-routine matters, such as the adoption of the merger agreement, the proposal to approve, by non-binding, advisory vote, the merger-related executive compensation, and adjournments of the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement. As a result, absent specific instructions from the beneficial owner of such shares, banks, brokerage firms and other nominees are not empowered to vote such shares. The effect of not instructing your broker how you wish your shares to be voted will be the same as a vote “AGAINST” the adoption of the merger agreement, but will not have an effect on the proposal to approve, by non-binding, advisory vote, the merger-related executive compensation or on the vote to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement.

 

Q:	What does it mean if I receive multiple proxy cards?

 

A:

Your shares may be registered in more than one account, such as brokerage accounts and 401(k) accounts. To ensure that all your shares are voted, it is important that you complete, sign, date and return each proxy card or voting instruction form you receive or vote using the telephone or over the internet as described in the instructions included with your proxy card(s) or voting instruction form(s).

 

Q:	Where can I find more information about Kindred and Gentiva?

 

A:	You can find more information about Kindred and Gentiva from various sources described under “Where You Can Find More Information” beginning on page 147.

 

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RISK FACTORS

In deciding whether to vote for the adoption of the merger agreement, we urge you to consider carefully all of the information included or incorporated by reference in this proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 147. You should also read and consider the risks associated with each of the businesses of Kindred and Gentiva because these risks may also affect the combined company after the closing of the merger. The risks associated with the business of Kindred can be found in the Kindred Annual Report on Form 10-K for the year ended December 31, 2013, including a recast presentation of certain sections of such Annual Report included in Kindred’s Current Report on Form 8-K filed on November 14, 2014, and Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2014, which risks are incorporated by reference in this proxy statement/prospectus. The risks associated with the business of Gentiva can be found in the Gentiva Annual Report on Form 10-K/A for the year ended December 31, 2013, Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2014 and Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2014, which risks are incorporated by reference in this proxy statement/prospectus.

There can be no assurance that we will successfully complete the merger on the terms or timetable currently proposed or at all.

The merger is subject to customary closing conditions, including approval by the Gentiva stockholders, approval of the listing by the NYSE of the Kindred common stock to be issued in the merger, the absence of legal prohibitions on the consummation of the merger, the accuracy of the representations and warranties in the merger agreement and the performance by Kindred and Gentiva of their respective obligations under the agreement. Kindred’s obligation to close under the merger agreement is also conditioned upon the receipt of certain state healthcare and insurance regulatory clearances or approvals (which condition, if not already fulfilled, will be deemed satisfied on February 28, 2015) . There can be no assurance that the conditions to closing will be satisfied or waived or that other events will not intervene to delay or prevent the closing of the merger. A delay in closing or a failure to complete the merger could have a negative impact on Kindred’s and Gentiva’s respective business and on the trading price of Kindred’s and Gentiva’s respective common stock. Whether or not the merger is completed, Kindred and Gentiva have incurred and will continue to incur substantial nonrecurring transaction costs in connection with the merger. See “—Kindred and Gentiva have incurred and will continue to incur significant transaction and merger-related integration costs in connection with the merger” on page 33.

The merger is subject to certain governmental and regulatory approvals, which, if delayed, denied or granted with unacceptable conditions, may delay the consummation of the merger, result in additional expenditure of time and resources and reduce the anticipated benefits of the merger.

Kindred and Gentiva require certain governmental authorizations, consents, orders and approvals, including certain state licensure and regulatory approvals, in connection with the merger. The failure to obtain such approvals may delay closing until after February 28, 2015 and may reduce the anticipated benefits of the merger to Kindred and Gentiva stockholders. See “The Merger—Regulatory Approvals” beginning on page 80.

Failure to complete the merger could negatively impact the stock price and future business and financial results of Gentiva, and could result in substantial termination costs for Gentiva.

The merger agreement contains certain termination rights for Kindred and Gentiva (including if the merger is not consummated by March 31, 2015) and provides that upon termination of the merger agreement under specified circumstances, including, among others, following a change in recommendation of the Gentiva board of directors or Gentiva’s termination of the merger agreement to enter into a written definitive agreement for a superior proposal (as defined on page 103), Gentiva will be required to pay Kindred a termination fee of

 

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$32.5 million. If the merger is not completed for any reason, including as a result of Gentiva stockholders failing to approve the merger agreement, the ongoing business of Gentiva may be adversely affected and, without realizing any of the benefits of having completed the merger, Gentiva would also be subject to a number of risks, including the following:

 

•

Gentiva may experience negative reactions from the financial markets, including negative impacts on its stock price;

 

•

Gentiva may experience negative reactions from customers, partners and employees;

 

•

Gentiva will be required to pay certain costs relating to the merger, whether or not the merger is completed; and

 

•

matters relating to the merger (including integration planning) will require substantial commitments of time and resources by the management of Gentiva, which would otherwise have been devoted to day-to-day operations and other opportunities.

In addition to the above risks, Gentiva could be subject to litigation related to any failure to complete the merger or related to any enforcement proceeding commenced against Gentiva to perform its obligations under the merger agreement. If the merger is not completed, these risks may materialize and may adversely affect the business, financial position, results of operations and liquidity of Gentiva.

The fairness opinion obtained by Gentiva from its financial advisor Barclays will not reflect changes in circumstances after the date of the fairness opinion.

On October 8, 2014, Barclays delivered its opinion to Gentiva’s board of directors that as of such date and based upon and subject to the qualifications, limitations and assumptions stated in its opinion, the consideration to be offered to Gentiva’s stockholders (other than Kindred and its affiliates) in the merger was fair, from a financial point of view, to such stockholders. The full text of Barclays’ written opinion is attached to this proxy statement/prospectus as Annex C. The opinion does not reflect changes that may occur or may have occurred after the date of such opinion, including changes to the operations and prospects of Gentiva or Kindred, changes in general market and economic conditions or other factors. Any such changes, or changes in other factors on which the opinion is based, may materially alter or affect the conclusion reached in such opinion.

Kindred may not be able to successfully integrate Gentiva’s operations with its own or realize the anticipated benefits of the merger, which could adversely affect Kindred’s financial condition, results of operations and business prospects.

Kindred may not be able to successfully integrate Gentiva’s operations with its own, and Kindred may not realize all or any of the expected benefits of the merger as and when planned. The integration of Gentiva’s operations with Kindred’s will be complex, costly and time-consuming. Kindred expects that it will require significant attention from senior management and will impose substantial demands on Kindred’s operations and personnel, potentially diverting attention from other important pending projects. The difficulties and risks associated with the integration of Gentiva include:

 

•

the possibility that Kindred will fail to implement its business plans for the combined company, including as a result of new legislation or regulation in the healthcare industry that affects the timing or costs associated with the operations of the combined company or its integration plan;

 

•

possible inconsistencies in the standards, controls, procedures, policies and compensation structures of Kindred and Gentiva;

 

•

the possibility that Kindred may have failed to discover liabilities of Gentiva during Kindred’s due diligence investigation as part of the merger for which Kindred, as a successor owner, may be responsible;

 

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•

limitations prior to the consummation of the merger on the ability of management of each of Kindred and Gentiva to work together to develop an integration plan;

 

•

the increased scope and complexity of Kindred’s operations;

 

•

the potential loss of key employees and the costs associated with Kindred’s efforts to retain key employees;

 

•

provisions in Kindred’s and Gentiva’s contracts with third parties that may limit Kindred’s flexibility to take certain actions;

 

•

risks and limitations on Kindred’s ability to consolidate corporate and administrative infrastructures of the two companies;

 

•

obligations that Kindred will have to counterparties of Gentiva that arise as result of the change in control of Gentiva; and

 

•

the possibility of unanticipated delays, costs or inefficiencies associated with the integration of Gentiva’s operations with Kindred’s.

As a result of these difficulties and risks, Kindred may not accomplish the integration of Gentiva’s business smoothly, successfully or within Kindred’s budgetary expectations and anticipated timetable. Accordingly, Kindred may fail to realize some or all of the anticipated benefits of the merger, such as increase in Kindred’s scale, diversification, cash flows and operational efficiency and accretion to Kindred’s earnings per share.

The merger may not achieve its intended results, including anticipated synergies.

While Kindred expects the merger to result in a significant amount of synergies and other financial and operational benefits, it may be unable to realize these synergies or other benefits in the timeframe that it expects or at all. Achieving the anticipated benefits, including synergies, is subject to a number of uncertainties, including whether the businesses acquired can be operated in the manner Kindred intends and whether Kindred’s costs to finance the merger and integrate the business will be consistent with its expectations. Events outside of Kindred’s control, including, but not limited to, any conditions imposed by governmental authorities, operating changes or regulatory changes, could also adversely affect Kindred’s ability to realize the anticipated benefits from the merger. Thus, the integration may be unpredictable or subject to delays or changed circumstances, and the acquired businesses may not perform in accordance with Kindred’s expectations. Further, Kindred will incur implementation costs relative to these anticipated synergies, and Kindred’s expectations with respect to integration or synergies as a result of the merger may not materialize. Accordingly, you should not place undue reliance on the anticipated synergies. See “—Kindred may not be able to successfully integrate Gentiva’s operations with its own or realize the anticipated benefits of the merger, which could adversely affect Kindred’s financial condition, results of operations and business prospects.”

Kindred and Gentiva have incurred and will continue to incur significant transaction and merger-related integration costs in connection with the merger.

Kindred and Gentiva have incurred and expect to continue to incur a number of costs associated with completing the merger and integrating the operations of the two companies. Such costs include costs associated with borrowings under or amendments to Kindred’s existing credit facilities, any premiums in connection with refinancing Gentiva’s debt and the payment of certain fees and expenses incurred in connection with the merger and the related financing transactions, including legal and other professional advisor fees. The substantial majority of these costs will be non-recurring expenses and will primarily consist of transaction costs related to the merger, facilities and systems consolidation costs and employment-related costs. Additional unanticipated costs may be incurred in the integration of the businesses of Kindred and Gentiva. Although Kindred and Gentiva expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, may offset incremental transaction and merger-related costs over time, this net benefit may not be achieved in the near term, or at all.

 

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The price of Kindred common stock might decline prior to the completion of the merger, which would decrease the value of the merger consideration to be received by Gentiva stockholders in the merger because the exchange ratio is fixed.

Upon completion of the merger, Gentiva stockholders will be entitled to receive for each share of Gentiva common stock that they own, $14.50 in cash, without interest, and 0.257 shares of Kindred common stock. Because the exchange ratio will not be adjusted to reflect stock price changes prior to the completion of the merger, the value of the stock consideration will depend on the market price of Kindred common shares at the time the merger is completed. The value of the stock consideration has fluctuated since the date of the announcement of the merger agreement and will continue to fluctuate from the date of this proxy statement/prospectus to the date the merger is completed (and thereafter).

The market price of Kindred common stock at the time the merger is completed may vary significantly from, and could be substantially lower than, the price on the date of the merger agreement or from the price on the date of the special meeting. On October 8, 2014, the last full trading day prior to the public announcement of the proposed merger, Kindred common stock closed at $19.74 per share as reported on the NYSE. On December 15, 2014, the most recent practicable date before the mailing of this proxy statement/prospectus, the closing price of Kindred common stock was $18.23 per share as reported on the NYSE.

Kindred and Gentiva are working to complete the transaction as promptly as practicable and expect that the transaction will be completed during the first quarter of 2015. Because the date when the transaction is completed will be later than the date of the special meeting, Gentiva stockholders will not know the exact value of the Kindred common stock that will be issued in the merger at the time they vote on the proposal to adopt the merger agreement. As a result, if the market price of Kindred common stock upon the completion of the merger is lower than the market price on the date of the special meeting, the market value of the merger consideration received by Gentiva stockholders in the merger will be lower than the market value of the merger consideration at the time of the vote by the Gentiva stockholders, and such decrease in the market value could be significant. Moreover, during this interim period, events, conditions or circumstances could arise that could have a material impact or effect on Kindred, Gentiva or the industries in which they operate.

Kindred’s actual financial position and results of operations may differ materially from the unaudited pro forma financial information included in this proxy statement/prospectus.

The unaudited pro forma financial information included in this proxy statement/prospectus is presented for illustrative purposes only and is not necessarily indicative of what Kindred’s actual financial position or results of operations would have been had the merger been completed on the dates indicated. This information reflects adjustments, which are based upon preliminary estimates, to allocate the merger consideration to Gentiva’s identifiable net assets. The merger consideration allocation reflected in this proxy statement/prospectus is preliminary, and final allocation of the merger consideration will be based upon the actual merger consideration and the fair value of the assets and liabilities of Gentiva as of the date of the completion of the merger. In addition, subsequent to the closing date of the merger, there may be further refinements of the merger consideration allocation as additional information becomes available. Accordingly, the final acquisition accounting adjustments may differ materially from the pro forma adjustments reflected herein. See “Unaudited Pro Forma Condensed Combined Financial Information” beginning on page 128 for more information.

The financial forecasts included in this proxy statement/prospectus involve risks, uncertainties and assumptions, many of which are beyond the control of Kindred and Gentiva. As a result, they may not prove to be accurate and are not necessarily indicative of current values or future performance.

The financial forecasts of Gentiva contained in this proxy statement/prospectus involve risks, uncertainties and assumptions and are not a guarantee of future performance. The future financial results of Gentiva and, if the merger is completed, Kindred, may materially differ from those expressed in the financial forecasts due to factors

 

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that are beyond Gentiva’s and Kindred’s ability to control or predict. Neither Kindred nor Gentiva can provide any assurance that Gentiva’s financial forecasts will be realized or that Gentiva’s future financial results will not materially vary from the financial forecasts. The financial forecasts cover multiple years, and the information by its nature becomes subject to greater uncertainty with each successive year. The financial forecasts do not take into account any circumstances or events occurring after the date on which they were prepared. More specifically, the financial forecasts:

 

•

necessarily make numerous assumptions, many of which are beyond the control of Kindred or Gentiva and may not prove to be accurate;

 

•

do not necessarily reflect revised prospects for Gentiva’s businesses, changes in general business or economic conditions or any other transaction or event that has occurred or that may occur and that was not anticipated at the time the forecasts were prepared;

 

•

are not necessarily indicative of current values or future performance, which may be significantly less favorable than is reflected in the forecasts; and

 

•

should not be regarded as a representation that the financial forecasts will be achieved.

The announcement and pendency of the merger could adversely affect the business, financial results and operations of Kindred and Gentiva, and the market price of Kindred and/or Gentiva common stock.

The announcement and pendency of the merger could cause disruptions in and create uncertainty surrounding Kindred’s and Gentiva’s respective business and affect their relationships with customers and employees. In addition, Kindred and Gentiva have diverted, and will continue to divert, significant management resources to complete the merger, which could have a negative impact on both companies’ abilities to manage existing operations or pursue alternative strategic transactions, which could adversely affect Kindred’s and Gentiva’s respective business, operating results and financial condition. As a result of investor perceptions about the terms or benefits of the transaction, the market price of Kindred and/or Gentiva common stock may decline.

Uncertainty about the effect of the merger on Gentiva’s employees and customers may have an adverse effect on Gentiva and, consequently, the combined company.

The uncertainty created by the pending merger may impair Gentiva’s ability to attract, retain and motivate key personnel until the merger is completed as current and prospective employees may experience uncertainty about their future roles with the combined company. If key employees of Gentiva depart because of issues relating to the uncertainty and difficulty of integration or a desire not to become Kindred’s employees, Kindred’s ability to realize the anticipated benefits of the merger could be reduced or delayed. In addition, disruptions resulting from the merger may also affect Kindred’s and Gentiva’s relationships with their respective customers and employees.

Gentiva executive officers and directors may have financial interests in the merger that are different from, or in addition to, the interests of Gentiva stockholders.

When considering the recommendation of the Gentiva board of directors with respect to the proposal to adopt the merger, Gentiva stockholders should be aware that some directors and executive officers of Gentiva have interests in the merger that are different from, or in addition to, their interests as stockholders and the interests of stockholders of Gentiva generally. These interests include, but are not limited to, the following: the treatment of equity awards held by Gentiva’s executive officers and directors (including the acceleration of deferred stock units and certain unvested stock options, restricted stock awards and performance cash awards); the potential payment of severance and other benefits to Gentiva’s executive officers; the continuation of certain rights to indemnification and of coverage under directors’ and officers’ liability insurance policies following completion of the merger; the potential to serve as directors and/or officers of Kindred; that the Gentiva compensation committee has discretion to award Mr. Rodney D. Windley, Gentiva’s Executive Chairman, and

 

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certain other core management team members certain incentive bonus compensation in an aggregate amount of ten million dollars to be allocated at the sole discretion of the Gentiva compensation committee (provided that at least a significant minority of such pool will be allocated to core management team members other than Mr. Windley); that the Gentiva compensation committee has discretion to pay Mr. Windley, for 2014 and 2015, bonus payments in the ordinary course (apart from the timing of payment), both of which will be payable on or before the consummation of the merger; and the entry into an employment agreement between David A. Causby and Kindred. Other than Kindred’s entry into an employment agreement with David. A. Causby, which took place after the signing of the merger agreement, the Gentiva board of directors was aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger and in recommending that the merger agreement be adopted by Gentiva stockholders. See “The Merger—Interests of Gentiva Directors and Executive Officers in the Merger” beginning on page 66.

As of the close of business on December 15, 2014, Gentiva directors and executive officers were entitled to vote approximately 15.3% of the then outstanding shares of Gentiva common stock. See “The Merger—Stock Ownership of Directors and Executive Officers of Gentiva” beginning on page 65 and “Security Ownership of Certain Beneficial Owners and Management” beginning on page 145.

Kindred expects to incur substantial additional indebtedness to finance the merger and the acquisition of Centerre Healthcare Corporation and may not be able to meet its substantial debt service requirements.

A substantial portion of Kindred’s cash flows from operations is dedicated to the payment of principal and interest obligations on its outstanding indebtedness. Subject to certain restrictions, Kindred also has the ability to incur substantial additional borrowings. In addition, Kindred intends to incur substantial additional indebtedness in connection with the merger and Kindred’s pending acquisition of Centerre Healthcare Corporation, for a purchase price of approximately $195 million in cash, announced on November 12, 2014. If Kindred is unable to generate sufficient funds to meet its obligations under its outstanding notes or its credit facilities (including after giving effect to the merger), Kindred may be required to refinance, restructure or otherwise amend some or all of such obligations, sell assets or raise additional cash through the sale of its equity. Kindred cannot make any assurances that it would be able to obtain such refinancing on terms as favorable as its current financing or that such restructuring activities, sales of assets or issuances of equity can be accomplished or, if accomplished, would raise sufficient funds to meet these obligations.

The rights of Gentiva stockholders will change when they become stockholders of Kindred upon completion of the merger.

Upon completion of the merger, Gentiva stockholders will become Kindred stockholders. There are numerous differences between the rights of a stockholder of Gentiva and the rights of a stockholder of Kindred. For a detailed discussion of these differences, see “Comparison of Rights of Stockholders” beginning on page 121.

Gentiva stockholders will have a reduced ownership and voting interest after the merger and will exercise less influence over the management and policies of Kindred than they do over Gentiva.

Gentiva stockholders currently have the right to vote in the election of the board of directors of Gentiva and on other matters affecting Gentiva. When the merger occurs, each Gentiva stockholder that receives shares of Kindred common stock will become a stockholder of Kindred with a percentage ownership of the combined company that is much smaller than the stockholder’s percentage ownership of Gentiva. It is expected that the former stockholders of Gentiva as a group will own approximately 12% of the outstanding shares of Kindred immediately after the merger, based on the number of shares of Kindred and Gentiva common stock issued and outstanding as of December 15, 2014, the most recent practicable date prior to the mailing of this proxy statement/prospectus. Because of this, Gentiva stockholders will have less influence over the management and policies of Kindred than they now have over the management and policies of Gentiva.

 

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Legal proceedings in connection with the merger could delay or prevent the completion of the merger.

Purported class action lawsuits have been filed by third parties challenging the proposed merger and seeking, among other things, to enjoin the consummation of the merger. One of the conditions to the closing of the merger is that no governmental entity (including any national, state or local governmental authority) having jurisdiction over a party to the merger agreement has enacted, issued, enforced or entered any laws or orders that prohibit the completion of the merger. Because the merger agreement contains this condition, if a plaintiff is successful in obtaining an injunction prohibiting completion of the merger, then the injunction may delay the merger or prevent the merger from being completed. In addition, Gentiva and Kindred could incur significant costs or damages in connection with the lawsuits.

 

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This proxy statement/prospectus includes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These forward-looking statements include, but are not limited to, statements regarding the merger (including financing of the merger and the benefits, results, effects and timing of the transaction), all statements regarding Kindred’s and Gentiva’s (and Kindred’s and Gentiva’s combined) expected future financial position, results of operations, cash flows, dividends, financing plans, business strategy, budgets, capital expenditures, competitive positions, growth opportunities, plans and objectives of management and statements containing words such as “anticipate,” “approximate,” “believe,” “plan,” “estimate,” “expect,” “project,” “could,” “would,” “should,” “will,” “intend,” “may,” “potential,” “upside,” and other similar expressions.

Such forward-looking statements are inherently uncertain, and stockholders and other potential investors must recognize that actual results may differ materially from Kindred or Gentiva’s expectations as a result of a variety of factors, including without limitation, those discussed below and detailed from time to time in Kindred’s and Gentiva’s filings with the SEC. Such forward-looking statements are based upon management’s current expectations and include known and unknown risks, uncertainties and other factors, many of which Kindred and Gentiva are unable to predict or control, that may cause Kindred’s or Gentiva’s actual results, performance or plans to differ materially from any future results, performance or plans expressed or implied by such forward-looking statements.

We caution you that any forward-looking statements made by us are not guarantees of future performance. You should keep in mind that any forward-looking statement we make in this prospectus/proxy statement, the documents incorporated by reference or elsewhere speaks only as of the date on which we make it. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. In any event, these and other important factors, including those set forth under the above caption “Risk Factors” and the documents incorporated by reference, may cause actual results to differ materially from those indicated by our forward-looking statements. We have no duty, and do not intend, to update or revise the forward-looking statements we make in this proxy statement/prospectus, the documents incorporated by reference or elsewhere, except as may be required by law. In light of these risks and uncertainties, you should keep in mind that the future events or circumstances described in any forward-looking statement we make in this proxy statement/prospectus, the documents incorporated by reference or elsewhere might not occur.

In particular, the unaudited pro forma condensed combined financial information included in this proxy statement/prospectus reflect assumptions and estimates by the management of Kindred and Gentiva as of the date specified in the unaudited pro forma condensed combined financial information or the date of any document incorporated by reference in this proxy statement/prospectus. In addition, the projections by Gentiva management included in this proxy statement/prospectus reflect assumptions and estimates by the management of Gentiva as of the date specified in the projections or the date of any document incorporated by reference in this proxy statement/prospectus. While Kindred and Gentiva, as applicable, believe these assumptions and estimates to be reasonable in light of the facts and circumstances known as of the date hereof, the projections are necessarily speculative in nature. Many of these assumptions and estimates are driven by factors beyond the control of Kindred or Gentiva, and it can be expected that one or more of them will not materialize as expected or will vary significantly from actual results. No independent accountants have provided any assurance with respect to these projections. Moreover, neither Kindred nor Gentiva undertakes any obligation to update the projections and neither intends to do so. Accordingly, you should not place undue reliance on these projections or any of the other forward-looking statements in this proxy statement/prospectus, which are likewise subject to numerous uncertainties, and you should consider all of such information in light of the various risks identified in this proxy statement/prospectus and in the reports filed by Kindred and Gentiva with the SEC, as well as the other information that Kindred and Gentiva provide with respect to the merger.

 

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The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements:

 

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the satisfaction of the closing conditions of the merger, including approval of the merger by the stockholders of Gentiva;

 

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the risk that healthcare regulatory, licensure or other approvals required as a result of the merger are not obtained or are obtained subject to terms and conditions that are not anticipated;

 

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Kindred’s ability to complete offerings of common stock and tangible equity units, and the debt financing as contemplated by the debt commitment letter;

 

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Kindred’s ability to integrate the operations of the acquired business and realize the anticipated revenues, economies of scale, cost synergies and productivity gains in connection with the merger and any other acquisitions that may be undertaken during 2014, as and when planned, including the potential for unanticipated issues, expenses and liabilities associated with those acquisitions and the risk that Gentiva fails to meet its expected financial and operating targets;

 

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the potential for diversion of management time and resources in seeking to complete the merger and integrate Gentiva’s operations;

 

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the potential failure of Kindred to retain key employees of Gentiva;

 

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the impact of Kindred’s significantly increased levels of indebtedness as a result of the merger on Kindred’s funding costs, operating flexibility and ability to fund ongoing operations with additional borrowings, particularly in light of potential volatility in the credit and capital markets;

 

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the potential for dilution to Kindred stockholders as a result of the merger and the financing of the merger;

 

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adverse effects on Kindred’s stock price resulting from the announcement or completion of the merger or the financing;

 

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potential adverse reactions or changes to business relationships resulting from the announcement or completion of the merger and competitive responses to the announcement or completion of the merger;

 

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the ability of Kindred to operate pursuant to the terms of its debt obligations, including Kindred’s obligations under financing undertaken to complete the merger, and the ability of Kindred to operate pursuant to its master lease agreements with Ventas, Inc.;

 

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the calculations of, and factors that would impact the calculations of, the acquisition price in accordance with the methodologies of the provisions of the authoritative guidance for business combinations, the allocation of this acquisition price to the net assets acquired, and the effect of this allocation on future results, including Kindred’s earnings per share, when calculated on a GAAP basis;

 

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general economic conditions are less favorable than expected;

 

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potential adverse changes in either company’s business during the period between now and the completion of the merger;

 

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liability for litigation, administrative actions, and similar disputes;

 

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the inability to obtain, renew or modify permits in a timely manner, comply with government regulations or make capital expenditures required to maintain compliance;

 

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changes in laws and regulations or interpretations or applications thereof;

 

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the ongoing impact of healthcare reform, including potential material changes to the delivery of healthcare services and the reimbursement paid for such services by the government or other third party payors;

 

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•

changes in the reimbursement rates or the methods or timing of payment from third party payors, including commercial payors and the Medicare and Medicaid programs, changes arising from and related to the Medicare prospective payment system for long-term acute care hospitals, including potential changes in the Medicare payment rules, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, and changes in Medicare and Medicaid reimbursements for nursing centers, and the expiration of the Medicare Part B therapy cap exception process; and

 

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the effects of additional legislative changes and government regulations, interpretation of regulations and changes in the nature and enforcement of regulations governing the healthcare industry.

Additional factors that may affect future results are contained in Kindred’s and Gentiva’s filings with the SEC, which are available at the SEC’s website at www.sec.gov. Many of these factors are beyond the control of Kindred or Gentiva.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof and are not guarantees of performance or results. There can be no assurance that forward-looking statements will prove to be accurate. Stockholders should also understand that it is not possible to predict or identify all risk factors and that neither this list nor the factors identified in Kindred’s and Gentiva’s SEC filings should be considered a complete statement of all potential risks and uncertainties. Kindred and Gentiva undertake no obligation to publicly update or release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof except as required by law.

 

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THE MERGER

The following is a description of the material aspects of the merger, which may not contain all of the information that is important to you and is qualified in its entirety by reference to the merger agreement attached to this proxy statement/prospectus as Annex A. We encourage you to read carefully this entire proxy statement/prospectus, including the merger agreement attached to this proxy statement/prospectus as Annex A, for a more complete understanding of the merger.

Overview

The Kindred board of directors and the Gentiva board of directors have each unanimously approved the merger agreement and the transactions contemplated by the merger agreement, including the merger. Pursuant to the merger agreement, merger sub will be merged with and into Gentiva, with Gentiva surviving the merger as a wholly owned subsidiary of Kindred.

As a result of the merger, Gentiva will cease to be a publicly traded company.

Background of the Merger

On August 28, 2013, Paul J. Diaz, Chief Executive Officer of Kindred, met with Gentiva’s Executive Chairman, Rodney D. Windley, and Gentiva’s Chief Executive Officer, Tony Strange, to discuss the home health and hospice industry and healthcare marketplace generally.

On April 9, 2014, Mr. Diaz met Messrs. Windley and Strange over lunch at Gentiva’s offices. At that meeting, Mr. Diaz made an unsolicited verbal proposal for Kindred to acquire all of the stock of Gentiva for a price that Messrs. Windley and Strange recalled was $13.25 per share, consisting of $6.625 in cash and $6.625 in Kindred stock. Mr. Diaz said that Kindred wanted to pursue a friendly transaction. Mr. Windley and Mr. Strange told Mr. Diaz that, in their view, the Gentiva board of directors was committed to the One Gentiva strategy, which had just launched during fourth quarter of 2013, but that they would take Kindred’s proposal to the Gentiva board of directors for its consideration and reply to Mr. Diaz in a few days.

Following the meeting with Mr. Diaz, Mr. Windley contacted Victor F. Ganzi, Gentiva’s lead independent director, and informed him of Mr. Diaz’s unsolicited verbal proposal. Mr. Windley and Mr. Ganzi decided to convene a telephonic meeting with the Gentiva board of directors for the next day to discuss the unsolicited proposal. On the April 10 Gentiva board of directors conference call, after careful consideration of the unsolicited proposal, including discussions with financial advisor Edge and legal counsel Greenberg Traurig, LLP, which we refer to as Greenberg Traurig, the Gentiva board of directors determined that Kindred’s unsolicited proposal undervalued Gentiva, was opportunistic and offered an unattractive currency. Accordingly, the Gentiva board of directors instructed Mr. Windley to inform Mr. Diaz of the Gentiva board of directors’ determination.

On April 14, 2014, Mr. Diaz contacted Mr. Strange by phone to reiterate Kindred’s proposal of April 9 and inform Mr. Strange that he would transmit a letter summarizing the key terms of the proposal. Mr. Strange informed Mr. Diaz that the Gentiva board of directors had determined that Kindred’s proposal of April 9 undervalued Gentiva, was opportunistic and offered an unattractive currency. Later that day, Mr. Diaz sent a letter to Messrs. Windley and Strange, which contained a proposal that Kindred acquire all of the stock of Gentiva for $13.00 per share, comprised of 50% cash and 50% Kindred stock, and requested a period of exclusivity through May 31, 2014 to negotiate the terms of a transaction.

On April 15, 2014, Mr. Diaz called Mr. Windley to inform him that the letter of April 14^th had been sent to him. When Mr. Windley received the letter later that day, he circulated it to the Gentiva board of directors, Greenberg Traurig and Edge, and a meeting of the Gentiva board of directors was called for April 17 to discuss the unsolicited proposal.

 

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On April 17, 2014, prior to the Gentiva board of directors meeting, Mr. Diaz called Mr. Windley to reiterate Kindred’s interest in acquiring Gentiva and to request a conversation with regard to price and terms, including, if the Gentiva board of directors desired, an all-cash proposal.

The Gentiva board of directors, at its April 17 meeting, again carefully considered the unsolicited proposal, with the assistance of Edge and Greenberg Traurig. The Gentiva board of directors determined that Kindred’s unsolicited proposal undervalued Gentiva, was opportunistic and offered an unattractive currency. The Gentiva board of directors’ also determined that its long-term strategy as a standalone company would generate greater value to stockholders than the Kindred unsolicited proposal. Accordingly, the Gentiva board of directors directed Greenberg Traurig to draft a response letter to Kindred, rejecting the unsolicited proposal.

On April 28, 2014, Mr. Windley, on behalf of the Gentiva board of directors, sent a letter to Mr. Diaz informing him of the determination of the Gentiva board of directors.

On April 29, 2014, Mr. Diaz called Mr. Strange and said he had not yet received Mr. Windley’s letter dated April 28, so Mr. Strange read him the contents. Mr. Diaz said that Kindred’s board of directors would be disappointed.

On May 5, 2014, Mr. Diaz sent Mr. Windley and Mr. Strange a letter proposing that Kindred acquire all of the stock of Gentiva for $14.00 per share, comprised of 50% cash and 50% Kindred stock, and requesting a response by the close of business on May 13, 2014. The letter from Mr. Diaz attached a letter from Kindred’s financial advisor, Citi, stating that it was highly confident in its ability to arrange debt financing for Kindred for the proposed transaction.

A meeting of the Gentiva board of directors was held on May 6, 2014 to discuss the revised unsolicited proposal. The Gentiva board of directors considered the proposal, with the assistance of Edge and Greenberg Traurig, and determined to consider further the Kindred proposal at the May 9 meeting of the Gentiva board of directors. At its May 9, 2014 meeting, after careful consideration of advice from its legal counsel, Greenberg Traurig, and financial information and analyses provided to Gentiva by Edge, the Gentiva board of directors unanimously concluded that Kindred’s unsolicited proposal undervalued Gentiva, was opportunistic and offered an unattractive currency. Accordingly, the Gentiva board of directors unanimously rejected the proposal and directed that a letter be sent to Kindred rejecting its proposal.

On May 13, 2014, Mr. Windley and Mr. Ganzi, on behalf of the Gentiva board of directors, sent a letter to Mr. Diaz rejecting the unsolicited proposal.

On May 15, 2014, Kindred publicly announced its unsolicited proposal to acquire all of the outstanding shares of Gentiva common stock for $14.00 per share, comprised of 50% cash and 50% Kindred stock, and also offered to modify its offer to comprise 100% cash, if the Gentiva board of directors so requested.

At a meeting of the Gentiva board of directors held later in the day on May 15, which included participation by Barclays, which had been retained as an additional financial advisor to Gentiva, the Kindred proposal was discussed and considered. After careful consideration of advice from Greenberg Traurig and financial information, analyses and advice provided to the Gentiva board of directors by Barclays and Edge, the Gentiva board of directors unanimously concluded that Kindred’s unsolicited proposal undervalued Gentiva, was opportunistic and offered an unattractive currency and, therefore, was not in the best interests of Gentiva stockholders. Accordingly, the Gentiva board of directors unanimously rejected the proposal and directed that a press release rejecting the unsolicited proposal be issued.

On May 16, 2014, representatives from a recognized owner, operator and investor in the healthcare sector, which we refer to as the Alternative Bidder, met with Mr. Windley and Mr. Strange to express their interest in potentially acquiring Gentiva and explore whether such an acquisition would be attractive to Gentiva. Between May 16, 2014 and July 17, 2014, Gentiva’s financial advisors had numerous conversations with representatives of the Alternative Bidder to discuss a potential proposal by the Alternative Bidder to acquire Gentiva.

 

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A meeting of the Gentiva board of directors was held on May 21, 2014, which included participation by the outside advisors as well as John N. Camperlengo, General Counsel of Gentiva, and Eric R. Slusser, Chief Financial Officer and Treasurer of Gentiva. At that meeting Barclays, Edge and Greenberg Traurig representatives discussed with the Gentiva board of directors some of the key variables of stockholder rights plans. Greenberg Traurig advised the Gentiva board of directors on its fiduciary duties and other legal considerations relating to its responsibilities in considering whether to adopt a stockholder rights plan. After considering various factors and determining that the possible accumulation of Gentiva common stock and derivative positions in Gentiva was a serious concern to Gentiva and its stockholders, the Gentiva board of directors unanimously determined that it was in the best interests of Gentiva and its stockholders to adopt a one year stockholder rights plan.

On May 22, 2014, in order to implement the one year stockholder rights plan, Gentiva entered into a Rights Agreement between Gentiva and Computershare Trust Company, N.A., which we refer to as the rights agreement.

On May 23, 2014, Gentiva issued a press release announcing that the Gentiva board of directors had adopted the rights agreement. The press release stated that the rights agreement was intended to ensure that the Gentiva board of directors remained in the best position to perform its fiduciary duties and to ensure that the value it is creating accrues to Gentiva.

On May 27, 2014, Mr. Diaz sent a letter to Messrs. Windley and Strange, which Kindred publicly disclosed, reiterating that Kindred wished to pursue a transaction and expressing disappointment at the adoption by Gentiva of the rights agreement.

On June 16, 2014, Kindred issued a press release announcing its intention to commence a tender offer on June 17, 2014, through merger sub, to acquire all of the outstanding shares of Gentiva common stock for $14.50 per share in cash.

On the same day, Gentiva issued a press release requesting that its stockholders take no action in response to the tender offer and informing its stockholders that the Gentiva board of directors, in consultation with its independent financial and legal advisors, intended to provide stockholders with its formal position regarding the tender offer within ten business days by making available to stockholders and filing with the SEC a solicitation/recommendation statement on Schedule 14D-9.

On June 17, 2014, Kindred and merger sub commenced the tender offer and filed a Tender Offer Statement on Schedule TO with the SEC. The tender offer was conditioned upon, among other things, the Gentiva board of directors having redeemed the rights associated with the Gentiva common stock pursuant to the rights agreement or merger sub being satisfied, in its reasonable judgment, that the rights had been invalidated or were otherwise inapplicable to the tender offer and the proposed merger with Gentiva.

On June 26, 2014, the Gentiva board of directors met to review the terms of the tender offer with the assistance of its financial advisors, Barclays and Edge (which we refer to, collectively, as Gentiva’s financial advisors), and Greenberg Traurig. During this meeting Barclays and Edge each rendered an oral opinion to the Gentiva board of directors that, as of June 26, 2014, and based upon and subject to various assumptions and limitations, the consideration offered to holders of Gentiva common stock (other than merger sub and its affiliates) pursuant to the tender offer was inadequate from a financial point of view to such holders. At the meeting, the Gentiva board of directors unanimously reconfirmed its prior determination that the tender offer undervalued Gentiva and was not in the best interests of Gentiva and its stockholders. Accordingly, the Gentiva board of directors unanimously determined to recommend that the Gentiva stockholders reject the tender offer and not tender their Gentiva common stock into the tender offer.

On June 27, 2014, Mr. Diaz sent a letter to Mr. Windley and Mr. Strange, which Kindred made public, requesting a meeting to discuss the possibility of a negotiated transaction.

 

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On June 30, 2014, Gentiva issued a press release and filed a Solicitation/Recommendation Statement on Schedule 14D-9 with the SEC, announcing the recommendation of the Gentiva board of directors that Gentiva’s stockholders reject the tender offer and not tender any of their shares of Gentiva common stock pursuant to the tender offer.

On July 1, 2014, Kindred issued a press release urging Gentiva shareholders to tender their Gentiva common stock and calling on the Gentiva board of directors and management team to negotiate a transaction.

Meanwhile, on July 11, 2014, representatives from the Alternative Bidder met with representatives from Edge to confirm their interest in Gentiva and the process for submitting a written preliminary proposal for the acquisition of Gentiva.

On July 14, 2014 (two days before the tender offer was initially scheduled to expire), Kindred and merger sub announced, by means of a press release and an amendment to their Schedule TO, that they were revising the tender offer to acquire only 5,489,914 outstanding shares of Gentiva common stock (or 14.9% of the outstanding Gentiva common stock) for $16.00 per share in cash, which we refer to as the amended tender offer. The amended tender offer was conditioned upon, among other things, a minimum of 5,489,914 shares being tendered and not withdrawn (which number represented, together with shares already owned by Kindred, 14.9% of Gentiva’s outstanding common stock, or less than the threshold to trigger the rights agreement). If the amended tender offer was oversubscribed, Kindred would purchase 5,489,914 shares of Gentiva common stock on a pro rata basis. At the time the amended tender offer was announced, the last closing price of Gentiva common stock (as of Friday, July 11) was $15.82 per share.

Later that day, Gentiva issued a press release noting that, consistent with its fiduciary duties and as required by applicable law, the Gentiva board of directors would review the amended tender offer in consultation with its financial and legal advisors to determine the course of action that it believed to be in the best interests of Gentiva and its stockholders, and requesting that its stockholders take no action in response to the amended tender offer pending the Gentiva board of directors’ review in consultation with its independent financial and legal advisors.

On July 15 and July 16, 2014, representatives of Edge and the Alternative Bidder held numerous calls to discuss a potential proposal from the Alternative Bidder. Discussion topics included the Alternative Bidder’s sources of equity and debt financing and the strategic rationale for bringing together Gentiva and the Alternative Bidder’s existing investments.

On July 17, 2014, the Alternative Bidder submitted a written proposal to acquire Gentiva for $17.25 in cash per share of common stock, which proposal was based on publicly available information and subject to financing and due diligence, as well as final internal approvals and the execution of a definitive transaction agreement. The Alternative Bidder stated that it was willing to enter into a confidentiality agreement containing customary terms and conditions, including customary standstill provisions. The proposal from the Alternative Bidder was accompanied by support letters from major financial institutions, subject to customary conditions. On that same date the Alternative Bidder delivered a due diligence request list to Gentiva.

Also on July 17, 2014, the Gentiva board of directors met to review the terms of Kindred’s amended tender offer with the assistance of Gentiva’s financial advisors and Greenberg Traurig. During this meeting Barclays and Edge each rendered an oral opinion to the Gentiva board of directors that, as of July 17, 2014 and based upon and subject to various assumptions and limitations, the consideration offered to holders of Gentiva common stock (other than merger sub and its affiliates) pursuant to the amended tender offer was inadequate from a financial point of view to such holders. The Gentiva board of directors unanimously determined that the amended tender offer significantly undervalued Gentiva’s shares, was coercive and not in the best interests of Gentiva stockholders. In particular, the Gentiva board of directors considered that the amended tender offer was a partial offer for only 14.9% of the outstanding Gentiva common stock and not an offer to acquire the entire company. Accordingly, the Gentiva board of directors unanimously determined to recommend that the Gentiva stockholders reject the amended tender offer and not tender their Gentiva common stock into the amended tender offer.

 

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At its July 17 meeting, the Gentiva board of directors also discussed the proposal received that day from the Alternative Bidder. Along with its recommendation that the Gentiva shareholders not tender their Gentiva common stock into the amended tender offer, Gentiva announced the receipt of the Alternative Bidder’s proposal and said that it would review the Alternative Bidder’s proposal carefully, in consultation with its financial and legal advisors, in due course.

Following Gentiva’s announcement, at Kindred’s direction, representatives of Citi and Guggenheim Securities, LLC (which we refer to as Guggenheim and, together with Citi, as Kindred’s financial advisors) contacted representatives of Gentiva’s financial advisors to seek to understand the steps, if any, Gentiva was considering with respect to the proposal from the Alternative Bidder and with respect to Kindred’s continued interest in pursuing an acquisition of Gentiva.

Between July 17 and July 21, 2014, Gentiva’s financial advisors had numerous conversations with Kindred’s financial advisors and indicated that Gentiva was likely to engage in discussions with and provide confidential information to the Alternative Bidder, subject to that party entering into an acceptable confidentiality and standstill agreement. They further advised that Gentiva likely would be prepared to engage in discussions with and provide confidential information to Kindred on a basis similar to the engagement with the other Alternative Bidder if Kindred withdrew its amended tender offer, indicated a willingness to enter into a confidentiality and standstill agreement and submitted an updated proposal to the Gentiva board of directors to acquire all outstanding shares of Gentiva common stock for at least $17.25 per share, with the expectation on Gentiva’s part that Kindred would raise its price after due diligence.

On July 21, 2014, Mr. Diaz sent a letter to Messrs. Windley and Strange containing a conditional proposal from Kindred to acquire all of the outstanding shares of Gentiva common stock for $17.25 per share in cash, and issued a press release regarding the same. Kindred indicated that this proposal was subject to “diligence to confirm such additional value is warranted.” Kindred also noted it was willing to enter into appropriate confidentiality and standstill agreements, in order to facilitate discussions. That same day, Gentiva issued a press release stating that the Gentiva board of directors, in consultation with its financial and legal advisors, would review the proposal carefully in due course and reminding stockholders not to tender their shares into the amended tender offer.

On July 24, 2014, Gentiva and the Alternative Bidder entered into a confidentiality agreement containing customary terms. On the same day, the Gentiva board of directors held a meeting, which was attended by Gentiva’s management, Gentiva’s financial advisors, Greenberg Traurig and representatives of Kekst and Company, which we refer to as Kekst, Gentiva’s communications advisor. Management and the Gentiva board of directors engaged in a discussion of the conditional proposal received on July 21 from Kindred to acquire all outstanding shares of Gentiva common stock for $17.25 per share in cash and determined that it was in the Gentiva stockholders’ best interest to allow both the Alternative Bidder and Kindred access to due diligence to encourage each of the Alternative Bidder and Kindred to increase the value of their offers to levels that would deliver full value to Gentiva’s stockholders. The Gentiva board of directors resolved to provide Kindred with due diligence information, subject to Kindred’s execution of a confidentiality and standstill agreement substantially similar in all material respects to the confidentiality agreement entered into with the Alternative Bidder and the termination of Kindred’s amended tender offer. Following the meeting of the Gentiva board of directors, Mr. Windley, on behalf of the Gentiva board of directors, sent Mr. Diaz a letter informing him of the determination of the Gentiva board of directors.

On the evening of July 24, 2014 and again on July 25, 2014, Gentiva management and its financial advisors met with the Alternative Bidder and its debt and equity financing sources to discuss the structure of the proposed transaction and to address preliminary due diligence questions raised by the Alternative Bidder and its advisors.

On July 26, 2014, Gentiva granted the Alternative Bidder access to an electronic dataroom and, during the period from July 27, 2014 through August 28, 2014, the Alternative Bidder, its debt and equity financing sources,

 

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legal advisors and accountants conducted extensive due diligence, including participating in numerous due diligence calls and meetings with Gentiva management and its financial advisors and accountants.

On July 28, 2014, Kindred announced the expiration of the amended tender offer and disclosed that, because certain conditions to the amended tender offer had not been satisfied, no shares were purchased pursuant to the amended tender offer and Kindred would promptly return all tendered shares. Kindred further announced that it was prepared to enter into appropriate confidentiality and standstill agreements with Gentiva in order to facilitate discussions regarding a business combination.

In late July and early August 2014, Gentiva’s financial advisors contacted six strategic investors, who had been identified by Gentiva’s management and financial advisors as the potential buyers who were most likely to be interested in a potential acquisition of Gentiva. None of the six strategic investors expressed an interest in exploring an acquisition of, or other strategic transaction with, Gentiva. Gentiva’s financial advisors did not contact any financial investors because Gentiva’s financial advisors determined that financial investors could not compete with Kindred or the Alternative Bidder due to the fact that a combination with a financial investor would not generate the same level synergies as a combination with either Kindred or the Alternative Bidder.

On August 4, 2014, Kindred executed a confidentiality and standstill agreement with Gentiva that was substantially similar in all material respects to the confidentiality agreement entered into with the Alternative Bidder. On August 5, 2014, Gentiva granted Kindred access to the electronic dataroom. During the period from August 5, 2014 through October 3, 2014, Kindred conducted an extensive due diligence review of Gentiva, including participating in numerous meetings and calls with Gentiva’s management and its financial and legal advisors and accountants.

On August 13, 2014, Gentiva management and its financial advisors met with Kindred to address preliminary due diligence questions raised by Kindred and its advisors. The following day, Gentiva management and Gentiva’s financial advisors met with the Alternative Bidder and its financial advisors and financing sources to address preliminary due diligence questions.

On August 25, 2014, Gentiva’s financial advisors requested final proposals from both Kindred and the Alternative Bidder and Greenberg Traurig distributed to both parties a draft merger agreement. On the same day, Messrs. Windley and Strange and Mr. David A. Causby, Gentiva’s President and Chief Operating Officer, Mr. Eric Slusser, Mr. Jeff Shaner, Senior Vice President and President of Operations, and Gentiva’s financial advisors met with management of the Alternative Bidder and its advisors to discuss potential operational synergies. The following day, Messrs. Windley and Strange and a representative from Edge met with one of the Alternative Bidder’s financing sources to address additional diligence items.

On August 28, 2014, the Alternative Bidder informed representatives from Edge that, for internal reasons, at this time, it was unable to submit a bid to acquire Gentiva.

On September 5, 2014, because of the potential for attractive synergies in a combination between Gentiva and the Alternative Bidder, Gentiva’s financial advisors arranged a telephonic meeting among certain members of the management team of the Alternative Bidder and its advisors and Gentiva and its financial advisors to explore potential alternative transactions. The Alternative Bidder reiterated that, for internal reasons, it was unable to submit a bid to acquire Gentiva at the current time, but agreed to explore whether any alternative transactions would be mutually beneficial.

During the period from September 5, 2014 through September 23, 2014, Gentiva’s financial advisors and representatives of the Alternative Bidder engaged in multiple discussions regarding whether any alternative transactions between the parties would be mutually beneficial.

On September 11, 2014, at Kindred’s direction, Kindred’s financial advisors indicated to Gentiva’s financial advisors that Kindred needed additional time to finalize its due diligence and submit a final proposal and that Kindred was contemplating offering a portion of the transaction consideration in shares of Kindred common

 

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stock. Gentiva’s financial advisors informed Messrs. Ganzi, Windley and Strange of this message. Messrs. Windley, Strange and Ganzi informed Gentiva’s financial advisors that the Gentiva board of directors was unlikely to agree to a transaction at $17.25 per share and had a preference for cash consideration. Messrs. Windley, Strange and Ganzi instructed Gentiva’s financial advisors to deliver this message to Kindred and to inform Kindred that it should submit a markup of the merger agreement to demonstrate the seriousness of its intention to acquire Gentiva. On September 12, 2014, Gentiva’s financial advisors so informed Kindred’s financial advisors.

On September 15, 2014, Kindred submitted a revised merger agreement to Gentiva’s financial advisors along with a proposed voting agreement to be executed by Gentiva’s directors and executive officers and a letter highlighting certain open diligence items that needed to be resolved before Kindred would propose a final price.

On September 19, 2014, Gentiva’s board of directors held a meeting, which was attended by Gentiva management and Gentiva’s financial and legal advisors. At the meeting, Mr. Windley reported that the Alternative Bidder and Gentiva management and its financial advisors had been exploring whether any alternative transactions would be mutually beneficial but no agreement was reached on a way forward in the near term. Mr. Windley and Gentiva’s financial advisors reviewed with the Gentiva board of directors the status of Kindred’s due diligence. Greenberg Traurig reviewed in detail the issues raised by Kindred’s markup of the draft merger agreement, including the inability to seek specific performance of Kindred’s obligation to consummate the merger in the event Kindred failed to secure its financing for the merger, the limitation of Kindred’s liability to the payment of only a reverse termination fee in the event the transaction failed to be completed because of Kindred’s inability to secure the required financing, that Gentiva would be required to provide cooperation to assist Kindred in obtaining its financing for the merger, the extension of the proposed end date for the merger, the proposal that all directors and officers enter into voting agreements, the expansion of events that would give rise to a termination fee payable by Gentiva to Kindred and the requirement that closing of the merger be conditioned upon receipt of certain state healthcare regulatory approvals. The Gentiva board of directors discussed the serious risks to Gentiva in entering into an agreement with respect to a transaction that is ultimately not consummated, and that, in addition to price, the Gentiva board of directors must concern itself with the certainty of closing any transaction. After further discussion among the directors, the Gentiva board of directors determined not to engage with Kindred on the terms of the merger agreement until Kindred submitted a proposal with consideration at a level that would deliver full value to Gentiva’s stockholders.

Later in the afternoon of September 19, 2014 and over the weekend of September 20-21, 2014, Gentiva’s financial advisors had multiple conversations with Kindred’s financial advisors during which Gentiva’s financial advisors sought an improvement in the financial terms of the transaction and informed Kindred that the Gentiva board of directors had indicated it would not accept a merger agreement that gave Kindred, in the event the transaction failed to be completed because of Kindred’s inability to secure the required financing, the ability to limit its liability to payment of a reverse termination fee.

On September 22, 2014, Kindred submitted a revised proposal to Gentiva’s financial advisors to acquire all of the outstanding shares of Gentiva common stock for a per share price of $15.00 in cash and $3.00 in Kindred common stock, with the stock component to be valued using the value-weighted average price of a share of Kindred common stock for the ten trading days immediately prior to the signing date of the merger agreement. Kindred also submitted both a revised merger agreement, which reflected that a portion of the proposed transaction consideration would be in the form of Kindred common stock, and a debt commitment letter from Citi, JPMorgan Chase Bank, N.A. and J.P. Morgan Securities LLC, which was subject to customary conditions.

On September 23, 2014, Gentiva’s financial advisors discussed with Mr. Ganzi and certain other members of the Gentiva board of directors, the revised Kindred bid and reported to Kindred that, based on their conversations with certain board members, including the lead director, the Gentiva board of directors was unlikely to approve a transaction for consideration of $18.00 per share. In conversations on September 23 and 24, 2014, Gentiva’s financial advisors indicated to Kindred’s financial advisors that Kindred would maximize its

 

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chances of a successful bid by offering a higher price and delivering a revised contract that removed the optionality inherent in the prior draft agreement and permitted Gentiva to seek specific performance of Kindred’s obligations to consummate the merger (including, in the event Kindred failed to secure financing for the merger). On September 24, 2014, at Kindred’s direction, Kindred’s financial advisors reported that Kindred would not rebid and requested that the Gentiva board of directors consider Kindred’s then-current proposal.

On September 23, 2014, the Alternative Bidder’s financial advisor contacted Gentiva’s financial advisors and discussed the possibility of Gentiva acquiring a portfolio company of the Alternative Bidder, but the terms on which the Alternative Bidder was prepared to consider such a transaction were not attractive to Gentiva. On September 24, 2014, representatives from the Alternative Bidder’s financial advisor called Edge to further discuss the possibility of Gentiva acquiring such portfolio company, but the terms on which the Alternative Bidder was prepared to consider such transaction remained unchanged and unattractive.

On September 25, 2014, Mr. Diaz contacted Mr. Windley to discuss Kindred’s current proposal and Mr. Windley informed Mr. Diaz that, based on his conversations with certain members of the Gentiva board of directors, the proposed consideration of $18.00 per share was unlikely to be accepted. Mr. Diaz asked Mr. Windley to obtain the response of the Gentiva board of directors to Kindred’s current proposal.

On September 26, 2014, the Gentiva board of directors held a meeting, attended by Gentiva’s management and financial and legal advisors, at which Gentiva management, assisted by Gentiva’s financial advisors and Greenberg Traurig, reviewed with the Gentiva board of directors the terms of Kindred’s revised proposal. Greenberg Traurig advised the Gentiva board of directors on its fiduciary duties and other legal considerations relating to its responsibilities in considering the revised proposal. Mr. Windley and Gentiva’s financial advisors reviewed with the Gentiva board of directors the discussions and information exchanges between Kindred and Gentiva that had taken place over the prior week. The Gentiva board of directors, aided by Gentiva’s management and financial advisors, discussed the merger consideration being offered, including the potential benefits and risks in accepting a portion of the merger consideration in stock at a fixed exchange ratio to be valued using the value-weighted average price of a share of Kindred common stock for the ten trading days immediately prior to the signing date of the merger agreement. Greenberg Traurig reviewed the changes to the draft merger agreement and explained that the revised merger agreement was changed primarily to reflect that a portion of consideration was now proposed to be paid in Kindred common stock and that none of the issues in the merger agreement related to certainty of closing, which had been discussed at the September 19, 2014 meeting of the Gentiva board of directors, had been addressed by Kindred, including that, under the revised draft of the merger agreement, Gentiva still would be unable to seek specific performance of Kindred’s obligation to consummate the merger in the event Kindred failed to secure its financing for the merger. The Gentiva board of directors discussed the terms of Kindred’s revised proposal and that, in the board’s view, the proposal did not represent Kindred’s best and final offer, and determined that the price offered was inadequate and did not represent full value for Gentiva’s stockholders. The Gentiva board of directors instructed Mr. Windley to seek an improvement in the financial terms of Kindred’s offer and to reiterate the need to receive Kindred’s best and final offer prior to 12:00 noon on September 29, 2014. On behalf of the Gentiva board of directors, Mr. Windley sent Mr. Diaz a letter indicating that the Gentiva board of directors had determined that Kindred’s revised proposal undervalued Gentiva and its future prospects and that the extent and nature of the proposed changes to the merger agreement were unacceptable. The letter indicated that Kindred should provide an enhanced offer no later than 12:00 noon on September 29, 2014, recognizing that the Company had a preference for cash consideration and instructed Kindred to provide a merger agreement that removed the optionality inherent in the prior draft agreement and permitted Gentiva to seek specific performance of Kindred’s obligations to consummate the merger (including, in the event Kindred failed to secure financing for the merger).

On the same day, following the meeting of the Gentiva board of directors, Gentiva’s financial advisors contacted Kindred’s financial advisors to facilitate direct discussions between Mr. Windley and Mr. Diaz. During that discussion and in accordance with Kindred’s directives, Kindred’s financial advisors indicated that Kindred would have difficulty increasing the cash component of its proposal and that, to deliver increased value, Kindred

 

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would need to increase the stock component of its proposal. Gentiva’s financial advisors and Kindred’s financial advisors also discussed the potential value associated with the stock component of Kindred’s proposal and synergies expected to be gained from a potential business combination. Gentiva’s financial advisors were convinced, after these discussions, that the deal synergies would be higher than Gentiva had anticipated. Gentiva’s financial advisors indicated that if Gentiva were to consider accepting a portion of the merger consideration in equity, Gentiva and its advisors would need access to due diligence on Kindred.

On the afternoon of September 26, 2014, Mr. Diaz contacted Mr. Windley and indicated that Kindred was prepared to increase its proposal to acquire all of the outstanding shares of Gentiva common stock to a per share price of (i) $18.50 with $15.00 payable in cash and $3.50 payable in shares of Kindred common stock or, (ii) if Gentiva would agree to take a higher percentage of the merger consideration in Kindred common stock, $19.00 with $14.00 payable in cash and $5.00 payable in shares of Kindred common stock. Mr. Windley said that he would contact Mr. Diaz after he had an opportunity to discuss the revised proposal with his advisors and the lead director of the Gentiva board of directors.

On the morning of September 27, 2014, Mr. Windley discussed Kindred’s revised proposal with Mr. Ganzi and Gentiva’s financial advisors. Mr. Ganzi and Mr. Windley agreed that Mr. Windley should seek a further improvement in the financial terms of Kindred’s proposal. Later that day, Mr. Windley spoke to Mr. Diaz and requested that Kindred increase its proposed per share consideration to $19.50, which consideration could be divided as either (i) $14.50 in cash and $5.00 in Kindred common stock or (ii) $13.00 in cash and $6.50 in Kindred common stock. Mr. Diaz asked whether the Gentiva board of directors would accept consideration of $19.50. Mr. Windley stated that, while he could not be certain, he had spoken to the lead director and believed that it was likely the Gentiva board of directors would accept an offer valued at $19.50 if Kindred also provided a revised merger agreement that addressed the conditionality inherent in the prior draft of the merger agreement. Mr. Diaz said that he was not authorized to offer a value in excess of $19.00 per share, but that he would schedule a board meeting for later that evening and present the proposal to the Kindred board of directors.

On the evening of September 27, Mr. Diaz informed Mr. Windley that the Kindred board of directors had agreed to increase Kindred’s per share proposed price to acquire all of the outstanding shares of Gentiva common stock to $14.25 in cash and $5.00 in Kindred common stock. Mr. Windley told Mr. Diaz that a price of $19.25 per share was not likely to be considered adequate.

On September 28, 2014, Mr. Diaz informed Mr. Windley that the Kindred board of directors had agreed to increase Kindred’s per share proposed price to $19.50, comprised of $14.50 in cash and $5.00 of Kindred common stock to acquire all of the outstanding shares of Gentiva common stock. Mr. Diaz told Mr. Windley he would send a revised proposal letter the following day.

On September 29, 2014, Mr. Diaz sent a letter to Mr. Windley containing an updated proposal from Kindred to acquire all of the outstanding shares of Gentiva common stock for a per share price of $14.50 in cash and $5.00 of Kindred common stock, with the stock component valued at a fixed exchange ratio based on the volume-weighted average closing price per share of Kindred common stock over the five trading days immediately prior to the signing of the merger agreement.

Later on September 29, the Gentiva board of directors held a meeting, attended by Gentiva’s management and Gentiva’s financial advisors and Greenberg Traurig, at which Gentiva’s management, assisted by Gentiva’s financial advisors and Greenberg Traurig, reviewed with the Gentiva board of directors the terms of Kindred’s revised proposal. Greenberg Traurig advised the Gentiva board of directors on its fiduciary duties and other legal considerations relating to its responsibilities in considering the revised proposal. Mr. Windley and Gentiva’s financial advisors reviewed with the Gentiva board of directors the discussions and information exchanges between Kindred and Gentiva that had taken place over the prior weekend. Gentiva’s financial advisors also reviewed with the Gentiva board of directors the financial aspects of the revised offer. The Gentiva board of directors, aided by Gentiva’s management and financial advisors, discussed the merger consideration being offered and determined that the consideration was acceptable, except that Gentiva and Kindred had agreed that

 

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the stock exchange ratio would be based on the value-weighted average closing price per share of the Kindred common stock over the ten trading days immediately prior to the signing of the merger agreement (rather than the five trading days prior to signing as indicated in Kindred’s most recent offer letter). The Gentiva board of directors further determined that the conditionality inherent in the merger agreement and the timing of the closing of the merger proposed by Kindred was not acceptable. The Gentiva board of directors instructed Mr. Windley and Greenberg Traurig to move forward on the negotiation of the merger agreement. Following the meeting, Mr. Windley, on behalf of the Gentiva board of directors, sent Mr. Diaz a letter informing him of the determination of the Gentiva board of directors.

On the evening of September 29, Greenberg Traurig delivered a revised merger agreement to Cleary, Gottlieb, Steen & Hamilton LLP, which we refer to as Cleary Gottlieb, Kindred’s legal advisor. On September 30, 2014, John N. Camperlengo, Gentiva’s General Counsel, Greenberg Traurig and Cleary Gottlieb negotiated certain key issues in the draft merger agreement, including (i) the presence of a reverse termination fee and Gentiva’s ability to specifically enforce Kindred’s obligations to consummate the merger in the event Kindred is unable to secure required financing, (ii) the appropriate end date for the merger agreement, (iii) whether Gentiva would be required to hold a stockholder meeting to consider the approval of the merger regardless of a change of recommendation by the Gentiva board of directors, (iv) the scope of Gentiva’s obligations to cooperate with Kindred in the arrangement of its financing and the consequences of Gentiva’s failure to comply with such covenants, (v) the circumstances under which a termination fee would be payable from Gentiva to Kindred, and (vi) whether certain state healthcare regulatory approvals should be a condition to Kindred’s obligation to close. During these negotiations, it was agreed that Gentiva would be permitted to seek specific performance by Kindred of its obligations to consummate the merger, including in the circumstance in which Kindred is unable to secure its financing for the merger. Gentiva agreed to certain revised covenants to cooperate with Kindred in the arrangement of its financing for the merger. The other key issues remained unresolved, including the end date for the merger agreement, whether Gentiva would be obligated to hold a stockholder meeting to approve the merger regardless of a change of recommendation by the Gentiva board of directors, the circumstances under which a termination fee would be payable and whether certain state healthcare regulatory approvals should be a condition to Kindred’s obligation to close.

On October 1, 2014, Gentiva executed a confidentiality agreement with Kindred and was granted access to an electronic dataroom. During the period from October 1, 2014 through October 4, 2014, Gentiva and its financial and legal advisors and accountants conducted a due diligence review of Kindred primarily to assess whether there was any information that might impact the valuation of Kindred’s common stock.

On October 1, 2014, Cleary Gottlieb circulated to Greenberg Traurig a revised draft of the merger agreement. The significant open points in the merger agreement included (i) the amount of the termination fee (Kindred proposed $45 million), (ii) the circumstances under which a termination fee would be payable from Gentiva to Kindred, (iii) the appropriate end date for the merger agreement, (iv) whether Gentiva would be required to hold a stockholder meeting to consider the approval of the merger regardless of a change of recommendation by the Gentiva board of directors, (v) the consequences of Gentiva’s failure to comply with covenants requiring Gentiva to assist Kindred in arranging its financing and (vi) whether certain state healthcare regulatory approvals should be a condition to Kindred’s obligation to close.

On October 3, 2014, Kindred and Gentiva agreed to fix the exchange ratio for the stock consideration at 0.257, which would provide Gentiva stockholders with $5.00 of Kindred common stock per share of Gentiva common stock, based on the volume-weighted average price of Kindred common stock for the ten trading days ended on and including October 3. Also on October 3, 2014, Greenberg Traurig circulated to Cleary Gottlieb a revised draft of the merger agreement. The significant open points in the merger agreement included (i) the amount of the termination fee (Gentiva proposed $25 million), (ii) the circumstances under which a termination fee would be payable from Gentiva to Kindred, (iii) whether Gentiva would be required to hold a stockholder meeting to consider the approval of the merger regardless of a change of recommendation by the Gentiva board of directors, (iv) the consequences of Gentiva’s failure to comply with covenants requiring Gentiva to assist Kindred in arranging its financing and (v) whether certain state healthcare regulatory approvals should be a

 

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condition to Kindred’s obligation to close. Greenberg Traurig’s revised draft of the merger agreement proposed that Gentiva would agree to call a stockholder meeting to consider approval of the merger if the Gentiva board of directors changed its recommendation due to an intervening event, but not if the Gentiva board of directors changed its recommendation on the basis of a superior proposal.

On October 4, 2014, Cleary Gottlieb circulated to Greenberg Traurig a revised draft of the merger agreement. On October 5, Greenberg Traurig and Cleary Gottlieb held a teleconference with respect to the merger agreement. During these negotiations, it was proposed that if Kindred agreed to reduce the amount of the termination fee, Gentiva would be more flexible regarding the circumstances under which a termination fee would be payable from Gentiva to Kindred and would agree to hold a stockholder meeting to consider the approval of the merger regardless of a change of recommendation by the Gentiva board of directors, except that Gentiva would be able to terminate the merger agreement prior to the stockholder meeting to accept a superior proposal. Gentiva was willing to incur this restriction in order to secure the benefits of a lower termination fee, but, also, because it was of the view that this provision would not deter another bidder from submitting offers. Kindred also proposed that certain state healthcare regulatory approvals should be a condition to Kindred’s obligation to close but that this condition would be deemed satisfied on the third business day prior to the end date if such consents had not yet been obtained. The consequences of Gentiva’s failure to comply with covenants requiring Gentiva to assist Kindred in arranging its financing remained an open point.

Also on October 5, after the financial terms of the transaction were agreed, representatives of Edge informed representatives of Guggenheim that the compensation committee of the Gentiva board of directors (which we refer to as the compensation committee) intended to provide certain incentive bonus compensation to Mr. Windley as he had been the architect of Gentiva’s turnaround, had assumed a more significant role in the operation of the business and the transaction than had been anticipated by his existing compensation and that, but for the transaction, over the next two to three years he would have received significant additional equity awards that would have provided additional material compensation to him for his efforts. During the period between October 5, 2014 and October 8, 2014, representatives of Edge and Guggenheim had several discussions regarding the incentive bonus compensation intended to be awarded to Mr. Windley and the amount and structure of such compensation. On October 8, 2014, Mr. Ganzi discussed with Mr. Diaz the incentive bonus compensation and other bonuses that the Gentiva compensation committee intended to award Mr. Windley and other core management team members (which are described in the section entitled “The Merger—Interests of Gentiva Directors and Executive Officers in the Merger”).

During negotiations from October 6, 2014 through the morning of October 9, 2014, Greenberg Traurig and Cleary Gottlieb exchanged additional drafts of the merger agreement and held numerous teleconferences with respect to the open points on the merger agreement. The parties ultimately agreed to a termination fee of $32.5 million to be payable under certain circumstances where (i) the merger agreement is terminated and, within 12 months of the termination date, Gentiva enters into a definitive agreement relating to a takeover proposal or any such transaction is consummated, (ii) Gentiva enters into a written agreement with respect to a superior proposal or (iii) the merger agreement is terminated, or at the time of termination could have been terminated by Kindred due to (a) a change of recommendation by the Gentiva board of directors, (b) Gentiva’s entry into, or public announcement of its intention to enter into, a company acquisition agreement (other than an acceptable confidentiality agreement), or (c) the Gentiva board of directors’ failure to reaffirm its recommendation to Gentiva stockholders to approve the merger agreement within ten business days after the date a takeover proposal is first publicly disclosed and, in each case, at the time of the event giving rise to such termination there has not been a material adverse effect on Kindred. The parties further agreed that receipt of certain state healthcare regulatory approvals would be a condition to Kindred’s obligation to close the merger but that this condition would be deemed satisfied on February 28, 2015 if such consents had not yet been obtained. The parties also agreed that if Gentiva used commercially reasonable efforts to provide the cooperation, documents and information contemplated by the financing cooperation covenants, Gentiva’s failure to provide the items contemplated by such covenants would not be construed as a waiver of its right to specific performance or any other right or privilege under the merger agreement.

 

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On the evening of October 8, 2014, the Gentiva board of directors held a meeting, attended by Gentiva’s management, Gentiva’s financial advisors and Greenberg Traurig. At this meeting, Gentiva’s management, together with Gentiva’s financial advisors and Greenberg Traurig, reviewed with Gentiva’s board of directors the terms of the Kindred proposal and the most recent draft of the merger agreement. Edge and Barclays reviewed with the Gentiva board of directors certain financial aspects of the merger. Greenberg Traurig advised the Gentiva board of directors on its fiduciary duties and other legal considerations relating to its responsibilities in considering the proposed merger and made a presentation regarding the structure and key terms and conditions of the proposed merger. Representatives of Barclays reviewed its financial analysis of the per share consideration of $14.50 in cash and 0.257 of a share of Kindred common stock and rendered to the Gentiva board of directors its oral opinion, which opinion was subsequently confirmed in writing, that as of October 8, 2014, and based upon and subject to the qualifications, limitations and assumptions stated in its opinion, the merger consideration to be received by Gentiva stockholders (apart from Kindred and its affiliates) in the merger was fair, from a financial point of view, to such stockholders. Mr. Ganzi reviewed with the Gentiva board of directors the actions in respect of incentive bonus compensation that the Gentiva compensation committee was considering taking. The Gentiva board of directors agreed to consider overnight the proposed merger and meet again the following morning.

On the morning of October 9, 2014, the Gentiva board of directors held a meeting, attended by Gentiva’s management and Gentiva’s financial advisors and Greenberg Traurig. Mr. Windley asked the members of the Gentiva board of directors if any additional questions or concerns had arisen since the prior night’s meeting and the members of the Gentiva board of directors said none had. Following this confirmation that there were no additional questions or concerns, and considering the proposed terms of the merger agreement and the voting agreement, the views of Gentiva’s management and the prior presentations of its legal and financial advisors and the opinion of Barclays, and taking into consideration the factors described in the section entitled “The Merger—Gentiva’s Reasons for the Merger and Recommendation of Gentiva’s Board of Directors” beginning on page 52, the Gentiva board of directors unanimously determined that the merger agreement, the voting agreement and the transactions contemplated thereby, including the merger, were fair to, and in the best interests of, Gentiva and Gentiva’s stockholders and voted unanimously to approve the merger agreement and the voting agreement and to recommend that Gentiva’s stockholders adopt the merger agreement. Following that motion, the Gentiva board of directors approved an amendment to the rights agreement providing that, contingent on the closing of the merger, the final expiration date of the rights agreement will occur immediately prior to the closing of the merger. Mr. Ganzi reported the compensation committee’s recommendations to provide incentive bonus compensation to the core management team, which recommendations, after some discussion, were adopted by the Gentiva board of directors.

Following the meeting of the Gentiva board of directors on October 9, 2014, the merger agreement and the voting agreement were executed and delivered and the parties announced the transaction.

Gentiva’s Reasons for the Merger and Recommendation of Gentiva’s Board of Directors

On October 9, 2014, after careful review and consideration, the Gentiva board of directors unanimously determined that the merger agreement and the transactions contemplated thereby, including the merger, are fair to and in the best interest of Gentiva and Gentiva stockholders. The Gentiva board of directors unanimously resolved to recommend that Gentiva stockholders vote “FOR” the proposal to adopt the merger agreement at the special meeting.

In evaluating the merger, the Gentiva board of directors consulted with Gentiva’s management and legal and financial advisors and gave careful consideration not only to the proposed transaction with Kindred but also to other strategic alternatives, including the alternative of remaining as a standalone company. In assessing Gentiva’s strategic alternatives, Gentiva’s board of directors considered the values that might be realized by Gentiva’s stockholders at closing, the certainty and timing for realizing those values and the risks associated with each of the various alternatives. In making its determination that the merger agreement and the transactions contemplated thereby, including the merger, are fair to and in the best interest of Gentiva and Gentiva stockholders and to recommend adoption of the merger agreement, the Gentiva board of directors considered the following, among other factors.

 

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In particular, the Gentiva board of directors considered the following factors relating to the economic situation of Gentiva:

 

•

the risks and uncertainties associated with maintaining Gentiva’s existence as a standalone company and the opportunities presented by the merger;

 

•

the relationship of the merger consideration to the historical trading levels of Gentiva common stock, including the fact that, as of the date the Gentiva board of directors approved the merger agreement, the merger consideration represented a 128% premium to Gentiva’s stock price on May 14, 2014, the day before Kindred made its first public bid for Gentiva, and a 17% premium to Gentiva’s closing price on October 8, 2014, the day prior to the public announcement of the proposed merger;

 

•

the risks and costs to Gentiva if the merger does not close, including the diversion of management and employee attention and potential employee attrition;

 

•

costs and other issues associated with the risk that the merger may not be completed in a timely manner or at all, including that the financing contemplated by Kindred’s financing commitments may not be obtained; and

 

•

the efforts of Gentiva to obtain greater value for Gentiva stockholders than the proposed merger with Kindred and the merger consideration over the course of a rigorous, almost five-month process that included consideration of other alternatives as well as the proposed merger and the recognition by Gentiva that the proposed merger and the merger consideration were likely a greater value to stockholders than could be expected from any of the other alternatives available to Gentiva.

In the course of reaching its determination and decisions, and making the recommendations described above, the Gentiva board of directors considered the following factors relating to the fairness of process:

 

•

the fact that discussions with third parties were conducted on Gentiva’s behalf and that multiple alternatives were considered by Gentiva in the context of transforming Gentiva into a more competitive business while maximizing shareholder value, including remaining a standalone company, and the timing and likelihood of actually achieving additional value from such alternatives;

 

•

the fact that Gentiva’s legal and financial advisors were involved throughout the negotiations and updated the Gentiva board of directors directly and regularly, which provided the Gentiva board of directors with additional perspectives on the negotiations in addition to those of management;

 

•

the benefits that Gentiva was able to obtain as a result of extensive negotiations with Kindred and its advisors, including a meaningful increase in the merger consideration from the time of Kindred’s initial unsolicited proposal to the end of the negotiations, and the conclusion of the Gentiva board of directors that the merger consideration reflected the best value that Kindred would be willing to provide at the present time;

 

•

the fact that members of Gentiva’s management had no agreement with Kindred regarding future employment and would have been free to work with any competing bidders;

 

•

the delivery by Kindred of letters setting forth the debt financing commitments Kindred contemplates using to consummate the acquisition;

 

•

the fact that the merger consideration represents a premium to the value the Gentiva board of directors believed, after consultation with management (including management’s presentation), would reasonably be likely to result from the execution of the current Gentiva business plan or any identified modification or alternative to that business plan;

 

•

the opinion of Barclays, dated October 8, 2014, to the Gentiva board of directors as to the fairness, from a financial point of view and as of the date of the opinion, of the merger consideration to be received in the merger by the Gentiva stockholders, as more fully described in “The Merger—Opinion of Gentiva’s Financial Advisor” beginning on page 55. In relying on this opinion, Gentiva’s board of

 

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directors took account of the fee arrangements that had been negotiated between Gentiva and Barclays (including the fact that a significant portion of the fees payable were contingent upon the consummation of the merger); and

 

•

the results of the due diligence reviews conducted by members of Gentiva’s management and advisors relating to Kindred’s business and operations, which were consistent with the expectations of Gentiva’s management and board of directors with respect to the strategic and financial benefits of the merger.

In the course of reaching its determination and decisions, and making the recommendations described above, the Gentiva board of directors considered the following factors relating to certain aspects of the merger agreement:

 

•

the terms of the merger agreement, including the right of the Gentiva board of directors to be able to (i) consider and negotiate a superior proposal, taking into account the limits on such opportunities that would be imposed by the terms of the merger agreement and (ii) change its recommendation to the Gentiva stockholders regarding the merger in the exercise of its fiduciary duties, in each case prior to the stockholders’ adoption of the merger agreement and approval of the merger and subject to payment of a reasonable termination fee (as described below);

 

•

the fact that the financial and other terms and conditions of the merger agreement minimize, to the extent reasonably practicable, the risk that a condition to closing would not be satisfied and also provided reasonable flexibility to operate the Gentiva business during the pendency of the merger;

 

•

the view of the Gentiva board of directors that the requirement to pay Kindred a termination fee of $32.5 million under certain specified circumstances outlined in the merger agreement, which fee is comparable to termination fees in transactions of a similar size, would not likely deter alternative acquisition proposals and would not likely be required to be paid unless the Gentiva board of directors changes its recommendation or enters into an agreement providing for a transaction that would be more favorable to the Gentiva stockholders than the transactions contemplated by the merger agreement;

 

•

the fact that Kindred’s obligation to consummate the merger is not subject to any financing condition and that Kindred represents and warrants in the merger agreement that it will have sufficient funds to complete the transactions contemplated by the merger agreement, including the merger; and

 

•

the fact that Gentiva has the ability to seek specific performance of Kindred’s obligation to consummate the merger.

In the course of reaching its determination and decisions, and making the recommendations described above, the Gentiva board of directors considered the following factors relating to Gentiva stockholders:

 

•

that, based on the volume-weighted average price per share of Kindred common stock of $19.46 for the ten trading days ended on and including October 3, 2014 (which Kindred and Gentiva used as the basis for the agreed-upon exchange ratio), the 0.257 exchange ratio, taken together with the $14.50 per share cash consideration, represents total payments of $19.50 per share of Gentiva common stock. Because the merger agreement does not provide a maximum or minimum for the value of the shares of Kindred common stock to be received, this value will be greater or lesser if, at the closing of the merger, the price per share of Kindred common stock is greater or lesser than $19.46 per share;

 

•

the merger presents a means for the holders of large blocks of Gentiva common stock to receive a premium price in cash for their holdings without adversely affecting the market price for shares of Gentiva common stock;

 

•

the right of Gentiva stockholders to exercise appraisal rights in accordance with Delaware law, which gives Gentiva stockholders the ability to seek and be paid a judicially determined appraisal of the “fair value” of their shares of Gentiva common stock at the completion of the merger;

 

•

that the majority of the merger consideration will be paid in cash, giving Gentiva stockholders an opportunity to realize certain value for a significant portion of their investment immediately upon the completion of the merger;

 

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•

that a portion of the merger consideration will be paid in shares of Kindred common stock and, as a result, Gentiva stockholders will have the opportunity to participate in any future earnings or growth of the combined company and future appreciation in the value of Kindred common stock following completion of the merger; and

 

•

that the merger is expected to be a taxable transaction for U.S. federal income tax purposes, and the receipt of cash and Kindred common stock will, therefore, generally be taxable to Gentiva common stockholders for U.S. federal income tax purposes. See “Material United States Federal Income Tax Consequences” beginning on page 88.

In the course of reaching its determination and decisions, and making the recommendations described above, the Gentiva board of directors considered the following additional factors:

 

•

the fact that the merger will combine complementary areas of expertise and allow the combined company to be able to draw upon the intellectual capital, technical expertise and experience of a larger workforce;

 

•

the expectation that the merger can be completed on a timely basis;

 

•

the potential additional or different interests of Gentiva’s directors and executive officers in respect of the merger, as described in the section “The Merger—Interests of Gentiva Directors and Executive Officers in the Merger” beginning on page 66; and

 

•

the risk factors described under “Risk Factors” beginning on page 31.

The above discussion summarizes the material factors considered by the Gentiva board of directors in its consideration of the merger. After considering these factors and focusing primarily on the interests of Gentiva stockholders, the Gentiva board of directors concluded that the positive factors relating to the merger agreement and the merger substantially outweighed the potential negative factors. In view of the wide variety of factors considered by the Gentiva board of directors in connection with its evaluation of the merger agreement and the merger, and the complexity of these matters, the Gentiva board of directors, both individually and collectively, did not find it practicable to, and did not, quantify or otherwise assign relative weights to the foregoing factors. Instead the Gentiva board of directors made its determination after consideration of all factors taken together. In addition, individual members of the Gentiva board of directors may have given different weight to different factors. Based upon the totality of the information presented to and considered by it, the Gentiva board of directors unanimously approved the merger agreement and the transactions contemplated thereby, including the merger, and determined to recommend that the Gentiva stockholders vote in favor of adoption of the merger agreement.

Accordingly, the Gentiva board of directors unanimously recommends that Gentiva stockholders vote “FOR” the adoption of the merger agreement, “FOR” the proposal to approve by advisory (non-binding) vote the merger-related executive compensation and “FOR” the proposal to approve adjournments of the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement.

Opinion of Gentiva’s Financial Advisor

Gentiva engaged Barclays to act as one of its financial advisors with respect to the merger. On October 8, 2014, Barclays rendered its oral opinion (which was subsequently confirmed in writing) to the Gentiva board of directors that, as of such date and based upon and subject to the qualifications, limitations and assumptions stated in its opinion, the consideration to be offered to Gentiva stockholders (other than Kindred and its affiliates) in the merger was fair, from a financial point of view, to such stockholders.

The full text of Barclays’ written opinion, dated as of October 8, 2014, is attached as Annex C to this proxy statement/prospectus. Barclays’ written opinion sets forth, among other things, the assumptions made, procedures followed, factors considered and limitations upon the review undertaken by Barclays in

 

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rendering its opinion. You are encouraged to read the opinion carefully in its entirety. The following is a summary of Barclays’ opinion and the methodology that Barclays used to render its opinion. This summary is qualified in its entirety by reference to the full text of the opinion.

Barclays’ opinion, the issuance of which was approved by Barclays’ Fairness Opinion Committee, is addressed to the board of directors of Gentiva, addresses only the fairness, from a financial point of view, to Gentiva’s stockholders (other than Kindred and its affiliates) of the consideration to be offered to such stockholders in the merger and does not constitute a recommendation to any stockholder of Gentiva as to how such stockholder should vote with respect to the merger or any other matter. The terms of the merger were determined through arm’s length negotiations between Gentiva and Kindred and were unanimously approved by the Gentiva board of directors. Barclays did not recommend any specific form of consideration to Gentiva or that any specific form of consideration constituted the only appropriate consideration for the merger. Barclays was not requested to opine as to, and its opinion does not in any manner address, Gentiva’s underlying business decision to proceed with or effect the merger or the likelihood of consummation of the merger. Barclays’ opinion does not address the relative merits of the merger as compared to any other transaction or business strategy in which Gentiva might engage. In addition, Barclays expressed no opinion on, and its opinion does not in any manner address, the fairness of the amount or the nature of any compensation to any officers, directors or employees of any parties to the merger, or any class of such persons, including relative to the consideration to be offered to the stockholders of Gentiva in the merger.

In arriving at its opinion, Barclays, among other things:

 

•

reviewed and analyzed the execution version of the merger agreement to be dated as of October 9, 2014, and the specific terms of the merger;

 

•

reviewed and analyzed publicly available information concerning Gentiva and Kindred that Barclays believed to be relevant to its analysis, including for each of Gentiva and Kindred the Annual Reports on Form 10-K for the fiscal year ended December 31, 2013, and the Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2014 and June 30, 2014, and other relevant filings made by Gentiva and Kindred with the SEC;

 

•

reviewed and analyzed financial and operating information with respect to the business, operations and prospects of Gentiva furnished to Barclays by Gentiva, including financial projections of Gentiva prepared by the management of Gentiva, which we refer to as the business model case;

 

•

reviewed and analyzed a trading history of Gentiva common stock from October 7, 2009 to October 7, 2014 and a comparison of such trading history with those of other companies that Barclays deemed relevant;

 

•

reviewed and analyzed a trading history of Kindred common stock from October 7, 2011 to October 7, 2014 and a comparison of that trading history with those of other companies that Barclays deemed relevant;

 

•

reviewed and analyzed a comparison of the historical financial results and present financial condition of Gentiva and Kindred with each other and with those of other companies that Barclays deemed relevant;

 

•

reviewed and analyzed a comparison of the financial terms of the merger with the financial terms of certain other transactions that Barclays deemed relevant;

 

•

reviewed and analyzed the results of Barclays’ efforts to solicit indications of interest from third parties with respect to a sale of Gentiva;

 

•

reviewed and analyzed the pro forma impact of the merger on the future financial performance of the combined company, including cost savings, operating synergies and other strategic benefits expected by the management of Kindred to result from a combination of the businesses, which we refer to as the expected synergies; and

 

•

reviewed published estimates of independent research analysts with respect to the future financial performance and stock price targets of each of Gentiva and Kindred.

 

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In addition, Barclays had discussions with the management of Gentiva and Kindred concerning their respective business, operations, assets, liabilities, financial condition and prospects and undertook such other studies, analyses and investigations as Barclays deemed appropriate.

In arriving at its opinion, Barclays assumed and relied upon the accuracy and completeness of the financial and other information used by Barclays without any independent verification of such information (and has not assumed responsibility or liability for any independent verification of such information). Barclays also relied upon the assurances of the management of Gentiva that they were not aware of any facts or circumstances that would make such information inaccurate or misleading. With respect to the business model case, upon the advice of Gentiva, Barclays assumed that such projections were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of Gentiva as to Gentiva’s future financial performance, assumed that Gentiva will perform in accordance with such projections and, upon the advice of Gentiva, relied on the business model case in performing its analysis. (For a summary of the business model case, see “The Merger—Summary of Gentiva Projections” beginning on page 63.) Furthermore, upon the advice of Gentiva, Barclays assumed that the amounts and timing of the expected synergies were reasonable and that the expected synergies would be realized in accordance with such estimates. In arriving at its opinion, Barclays assumed no responsibility for and expressed no view as to any such projections or estimates described above or the assumptions on which they were based. In arriving at its opinion, Barclays did not conduct a physical inspection of the properties and facilities of Gentiva or Kindred and did not make or obtain any evaluations or appraisals of the assets or liabilities of either Gentiva or Kindred. Barclays’ opinion was necessarily based upon market, economic and other conditions as they existed on, and could be evaluated as of October 8, 2014. Barclays assumed no responsibility for updating or revising its opinion based on events or circumstances that may have occurred after October 8, 2014. Barclays did not express an opinion as to the prices at which shares of Gentiva common stock or Kindred common stock would trade at any time following the announcement of the merger or the prices at which Kindred common stock would trade at any time following the consummation of the merger. Barclays’ opinion should not be viewed as providing any assurance that the market value of the Kindred common stock to be received by the stockholders of Gentiva in the merger plus the cash to be received by the stockholders of Gentiva in the merger would be in excess of the market value of Gentiva common stock owned by such stockholders at any time prior to the announcement or consummation of the merger.

Barclays assumed the accuracy of the representations and warranties made by each party to the merger agreement contained in the merger agreement and all agreements related thereto. Barclays also assumed, upon the advice of Gentiva, that all material governmental, regulatory and third party approvals, consents and releases for the merger would be obtained within the constraints contemplated by the merger agreement and that the merger would be consummated in accordance with the terms of the merger agreement without waiver, modification or amendment of any material term, condition or agreement thereof. Barclays did not express any opinion as to any tax or other consequences that might result from the merger, nor did Barclays’ opinion address any legal, tax, regulatory or accounting matters, as to which Barclays understood that Gentiva had obtained such advice as it deemed necessary from qualified professionals.

In connection with rendering its opinion, Barclays performed certain financial, comparative and other analyses as summarized below. In arriving at its opinion, Barclays did not ascribe a specific range of values to the shares of Gentiva common stock but rather made its determination as to fairness, from a financial point of view, to Gentiva stockholders (other than Kindred and its affiliates) of the consideration to be offered to such stockholders in the merger on the basis of various financial and comparative analyses. The preparation of a fairness opinion is a complex process and involves various determinations as to the most appropriate and relevant methods of financial and comparative analyses and the application of those methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to summary description.

In arriving at its opinion, Barclays did not attribute any particular weight to any single analysis or factor considered by it but rather made qualitative judgments as to the significance and relevance of each analysis and factor relative to all other analyses and factors performed and considered by it and in the context of the circumstances of the particular transaction. Accordingly, Barclays believes that its analyses must be considered

 

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as a whole, as considering any portion of such analyses and factors, without considering all analyses and factors as a whole, could create a misleading or incomplete view of the process underlying its opinion.

Summary of Analyses

The following is a summary of the material financial analyses performed by Barclays with respect to Gentiva and Kindred in preparing Barclays’ opinion:

 

•

historical share price analysis;

 

•

comparable companies analysis;

 

•

in the case of Gentiva, comparable transactions analysis;

 

•

in the case of Gentiva, discounted cash flow analysis; and

 

•

analysis of equity research analyst price targets.

Each of these methodologies was used to generate reference enterprise or equity value ranges for each of Gentiva and Kindred, as applicable. For the methodologies that generated reference enterprise value ranges, the implied per share equity value was calculated by subtracting Gentiva’s or Kindred’s, as applicable, net debt from its implied enterprise value ranges and dividing by the diluted number of shares outstanding.

The implied equity value ranges per share of Gentiva common stock were compared to the implied value of the merger consideration of $19.50 per Gentiva share to be offered to Gentiva stockholders in the transaction (based on Kindred’s volume-weighted average price for the ten trading days ended on and including October 3, 2014). In addition, the implied equity value ranges per share of Kindred common stock were compared to Kindred’s closing stock price of $19.96 on October 7, 2014.

In addition, Barclays also analyzed and reviewed: (i) the daily historical intra-day trading prices of Gentiva common stock for the period from October 7, 2009 to October 7, 2014 and Kindred common stock for the period from October 7, 2011 to October 7, 2014; (ii) the capitalization of the pro forma combined company and (iii) the pro forma impact of the transaction on the current and future financial performance and credit profile of the combined company for projected estimates for 2015 and 2016 for earnings per share for the combined company.

In particular, in applying the various valuation methodologies to the particular businesses, operations and prospects of Gentiva and Kindred, and the particular circumstances of the transaction, Barclays made qualitative judgments as to the significance and relevance of each analysis. In addition, Barclays made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of Gentiva and Kindred. Such qualitative judgments and assumptions of Barclays were made following discussions with the management of each of Gentiva and Kindred. Accordingly, the methodologies and the implied common equity value ranges per share derived therefrom must be considered as a whole and in the context of the narrative description of the financial analyses, including the assumptions underlying these analyses. Considering the implied common equity value ranges per share without considering the full narrative description of the financial analyses, including the assumptions underlying these analyses, could create a misleading or incomplete view of the process underlying, and conclusions represented by, Barclays’ opinion.

The implied equity value ranges per share as presented below, derived using certain of the various valuation methodologies listed above, supported the conclusion that the merger consideration to be offered to Gentiva stockholders (other than Kindred and its affiliates) was fair, from a financial point of view, to such stockholders.

Historical Share Price Analysis

To illustrate the trend in the historical trading prices of Gentiva common stock, Barclays considered historical data with regard to the trading prices of Gentiva common stock for the period from October 7, 2009 to October 7, 2014. Barclays noted that during the period from May 14, 2013 to May 14, 2014 (the 52-week period preceding Kindred’s public offer for Gentiva common stock), the intra-day trading prices of Gentiva common

 

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stock ranged from $7.35 to $13.85. Barclays also noted that during the period following Kindred’s public offer, from May 15, 2014 to October 7, 2014, the intra-day trading prices of Gentiva common stock ranged from $13.30 to $18.93.

To illustrate the trend in the historical trading prices of Kindred common stock, Barclays considered historical data with regard to the trading prices of Kindred common stock for the period from October 7, 2011 to October 7, 2014. Barclays noted that during the period from October 7, 2013 to October 7, 2014, the intra-day trading prices of Kindred common stock ranged from $13.13 to $26.81. Barclays noted that during the period following Kindred’s public offer, from May 15, 2014 to October 7, 2014, the intra-day trading prices of Kindred common stock ranged from $18.80 to $26.81. Barclays also noted that, on June 16, 2014, Kindred priced an underwritten public offering for an aggregate of nine million shares of Kindred common stock at a public offering price of $23.75 per share (including an over-allotment option to the underwriters to purchase up to an additional 1.35 million shares).

Selected Comparable Company Analysis

In order to assess how the public market values shares of similar publicly traded companies, Barclays reviewed and compared specific financial and operating data relating to Gentiva and Kindred with selected companies that Barclays, based on its experience in the healthcare industry, deemed comparable to Gentiva and Kindred, respectively. Barclays calculated and compared various financial multiples and ratios of Gentiva and Kindred, respectively, and the respective selected comparable companies. As part of its selected comparable company analysis, Barclays calculated and analyzed multiples of the enterprise value of Gentiva to its expected 2014 earnings before interest, taxes, depreciation and amortization, which we refer to as EBITDA, as adjusted to exclude charges related to cost savings initiatives and acquisition and integration activities, losses on closed locations, a weather-specific adjustment for the first quarter of 2014 and merger related expenses, which we refer to in this section “—Opinion of Gentiva’s Financial Advisor” as Adjusted EBITDA, and expected 2015 EBITDA. Barclays also calculated and analyzed the multiple of the enterprise value of Kindred to its expected 2014 EBITDA, and the multiple of the adjusted enterprise value of Kindred to its expected 2014 earnings before interest, taxes, depreciation, amortization and rent expense, which we refer to as EBITDAR. The enterprise value of each company was obtained by adding its short and long-term debt to the sum of the market value of its common stock and the book value of its preferred stock and the book value of any non-controlling interest, and subtracting its cash and cash equivalents. All of these calculations were performed, and based on publicly available financial data and closing prices, as of October 7, 2014. The results of this selected comparable company analysis for Gentiva are summarized below:

 

Name of Company		Enterprise Value / Expected 2014 Adjusted EBITDA				Enterprise Value / Expected 2015 EBITDA
Amedisys Inc. (1)			12.9x				11.1x
Chemed Corp.			9.3x				8.8x
Almost Family Inc.			9.1x				8.8x
Addus HomeCare Corp.			8.8x				7.4x
LHC Group, Inc. (2)			8.6x				7.7x
Mean			9.7x				8.8x
Median			9.1x				8.8x
Mean (excl. Amedisys Inc.)			8.9x				8.2x
Median (excl. Amedisys Inc.)			8.9x				8.3x
Gentiva at $19.50 (3)			9.6x				8.7x

 

(1)	Amedisys Inc. debt assumes $35 million of additional debt for payment of a U.S. Department of Justice settlement.

(2)	LHC Group Inc. excluded the book value of its non-controlling interest from the Enterprise Value and adjusted its Expected 2014 EBITDA and Expected 2015 EBITDA accordingly for the non-controlling interest.

(3)	Multiple for expected 2014 results based on Gentiva Adjusted EBITDA.

 

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The results of this selected comparable company analysis for Kindred are summarized below:

 

Name of Company		Enterprise Value / Expected 2014 EBITDA				Adjusted Enterprise Value / Expected 2014 EBITDAR (2)
The Ensign Group, Inc.			6.2x				7.4x
Select Medical Holdings Corp.			8.5x				7.9x
Skilled Healthcare Group, Inc.			7.8x				6.6x
HealthSouth Corp. (1)			8.2x				8.0x
Kindred			7.2x				6.6x

 

(1)	Includes a net operating loss value of $266.5 million.

(2)	Rent was capitalized at 6.0x.

Barclays selected the comparable companies listed above because their businesses and operating profiles are reasonably similar to that of Gentiva and Kindred, respectively. However, because of the inherent differences between the business, operations and prospects of Gentiva and Kindred, respectively, and those of the respective selected comparable companies, Barclays believed that it was inappropriate to, and therefore did not, rely solely on the quantitative results of the selected comparable company analysis. Accordingly, Barclays, based on its professional judgment and experience, also made qualitative judgments concerning differences between the business, financial and operating characteristics and prospects of Gentiva and Kindred, respectively, and the respective selected comparable companies that could affect the public trading values of each in order to provide a context in which to consider the results of the quantitative analysis. These qualitative judgments related primarily to the differing sizes, growth prospects, profitability levels and degree of operational risk between Gentiva and Kindred, respectively, and the respective companies included in the selected company analysis. Based upon these judgments, Barclays selected a range of 8.5x to 9.5x multiples of Gentiva’s 2014 expected Adjusted EBITDA, which equaled $189 million (based upon actual results and the business model case) and a range of 8.0x to 9.0x multiples of Gentiva’s 2015 expected EBITDA, which equaled $208 million (based upon the business model case). Based upon these judgments, Barclays also selected a range of 7.0x to 8.5x multiples of Kindred’s 2014 expected EBITDA, which equaled $382 million (based upon Wall Street research estimates) and a range of 6.5x to 8.0x multiples of Kindred’s 2014 expected EBITDAR, which equaled $712 million (based upon Wall Street research estimates). Using the range of multiples and expected EBITDA, Adjusted EBITDA and EBTIDAR, as the case may be, Barclays calculated a range of implied enterprise values. The implied equity value per share was calculated by subtracting Gentiva’s and Kindred’s net debt from its implied enterprise values, and in the case of adjusted enterprise value subtracting the value of Kindred’s capitalized rent, and dividing by the diluted number of shares outstanding. The following summarizes the results of these calculations:

 

		Implied Equity Value Per Share
Gentiva
EV / 2014E Adjusted EBITDA		$	14.36 – 19.25
EV / 2015E EBITDA		$	15.78 – 21.15
Kindred
EV / 2014E EBITDA		$	18.29 – 27.18
EV / 2014E EBITDAR		$	18.24 – 30.42

Selected Precedent Transaction Analysis

Barclays reviewed and compared the purchase prices and financial multiples paid in selected other transactions that Barclays, based on its experience with merger and acquisition transactions, deemed relevant. Barclays chose such transactions based on, among other things, the similarity of the applicable target companies in the transactions to Gentiva with respect to the size, mix, margins and other characteristics of their businesses.

 

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Using publicly available information, Barclays analyzed the transaction value to the target company’s last 12 months, or LTM, EBITDA. The following table sets forth the transactions analysis based on such characteristics:

 

Date		Target Company		Acquirer		TV/ LTM EBITDA
January 2006		The Healthfield Group		Gentiva			9.7x
May 2010		Odyssey HealthCare		Gentiva			11.5x
April 2011		Regency Hospice		Curo Health Services			9.5x
August 2011		Professional HealthCare		Kindred Healthcare			9.0x
November 2011		SouthernCare		Kohlberg & Company			9.5x
November 2011		SeniorBridge Family Companies		Humana			10.0x
June 2012		Community Hospice		Curo Health Services			10.8x
August 2012		IntegraCare Holdings		Kindred Healthcare			8.3x
October 2012		Celtic Healthcare		The Washington Post			9.3x
January 2013		Guardian Healthcare Group		Envision Healthcare			9.1x
September 2013		Harden Healthcare		Gentiva Health Services, Inc.			11.1x
November 2013		SunCrest Healthcare		Almost Family			9.9x
April 2014		Great Lakes Caring		Wellspring Capital			8.5x

The reasons for and the circumstances surrounding each of the selected precedent transactions analyzed were diverse and there are inherent differences in the business, operations, financial conditions and prospects of Gentiva and the companies included in the selected precedent transaction analysis. Accordingly, Barclays believed that a purely quantitative selected precedent transaction analysis would not be particularly meaningful in the context of considering the merger. Barclays therefore made qualitative judgments concerning differences between the characteristics of the selected precedent transactions and the merger which would affect the acquisition values of the selected target companies, on the one hand, and Gentiva and Kindred, on the other hand. Based upon these judgments, Barclays selected a range of 9.0x to 10.5x multiples (which compares to mean and median multiples of 9.7x and 9.5x, respectively, for the transactions listed above) and applied such range to Gentiva’s LTM Adjusted EBITDA for the year ended June 30, 2014 of $180 million to calculate a range of implied prices per share of Gentiva common stock.

The following table sets forth the transaction analyzed based on such characteristics and the results of such analysis:

 

		Implied Equity Value Per Share
Gentiva		$	14.65 – 21.62

Discounted Cash Flow Analysis

In order to estimate the present value of Gentiva, Barclays performed a discounted cash flow analysis of Gentiva. A discounted cash flow analysis is a traditional valuation methodology used to derive a valuation of an asset by calculating the “present value” of estimated future cash flows of the asset. “Present value” refers to the current value of future cash flows or amounts and is obtained by discounting those future cash flows or amounts by a discount rate that takes into account macroeconomic assumptions and estimates of risk, the opportunity cost of capital, expected returns and other appropriate factors. To calculate the estimated enterprise value of Gentiva using the discounted cash flow method, Barclays added (i) Gentiva’s projected after-tax unlevered free cash flows for the third and fourth quarters of fiscal year 2014 and fiscal years 2015 through 2018 based on the business model case to (ii) the “terminal value” of Gentiva as of 2018, and discounted such amount to its present value using a range of selected discount rates from 9.5% to 11.5%. The discount rates were based on Barclays’ analysis in accordance with the capital asset pricing model of the weighted average cost of capital for Gentiva. The after-tax unlevered free cash flows were calculated by taking the tax-affected estimated EBITDA for the fiscal years ended 2014 through 2018 and subtracting capital expenditures and adjusting for changes in working

 

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capital. In the discounted cash flow analysis, which we refer to as the DCF analysis (standalone), the residual value of Gentiva at the end of the forecast period, or “terminal value,” was estimated by selecting a range of terminal value multiples of 8.0x to 9.0x for the period ending 2018 and applying such range to the business model case. Such terminal value multiples were derived based upon Barclays’ professional judgment and a review of forward enterprise value to EBITDA multiples over a five-year period for the companies included in the selected comparable companies analysis. Barclays then calculated a range of implied prices per share of Gentiva by subtracting net debt as of June 30, 2014 from the estimated enterprise value using the discounted cash flow method and dividing such amount by the shares of Gentiva common stock calculated using the treasury stock method. The following summarizes the results of these calculations:

 

		Implied Equity Value Per Share
DCF analysis (standalone)		$	16.14 – 23.80

Analysis of Equity Research Analyst Price Targets

Barclays reviewed the publicly available price targets of Gentiva and Kindred published by independent equity research analysts associated with various Wall Street firms. Barclays reviewed equity research analyst price targets for Gentiva both before and after the tender offer commenced on May 15, 2014. The price targets before the tender offer ranged from $7.00 to $11.00 per share and the price targets after the tender offer ranged from $17.25 to $20.00 per share, which were each in line with the implied value, as of October 7, 2014, of the merger consideration of $19.50 per Gentiva share to be offered to Gentiva stockholders in the merger (based on Kindred’s volume-weighted average price for the ten trading days ended on and including October 3, 2014). Barclays’ analysis of equity research analyst price targets for Kindred implied an equity value range for Kindred after the transaction announcement of $17.00 to $27.00 per Kindred share (with an outlier at $42.00 per share), as compared to Kindred’s closing stock price of $19.96 on October 7, 2014.

General

Barclays is an internationally recognized investment banking firm and, as part of its investment banking activities, is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, investments for passive and control purposes, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. The Gentiva board of directors selected Barclays because of its familiarity with Gentiva and its qualifications, reputation and experience in the valuation of businesses and securities in connection with mergers and acquisitions generally, as well as substantial experience in transactions comparable to the merger.

Barclays is acting as financial advisor to Gentiva in connection with the merger. As compensation for its services in connection with the merger, compensation of $12 million will be payable to Barclays on completion of the merger, and compensation of $2 million was paid to Barclays upon delivery of the Barclays opinion. In addition, Gentiva has agreed to reimburse Barclays for its expenses incurred in connection with the merger and to indemnify Barclays for certain liabilities that may arise out of its engagement by Gentiva and the rendering of Barclays’ opinion. Barclays has performed various investment banking and financial services for Gentiva and Kindred in the past, and expects to perform such services in the future, and has received, and expects to receive, customary fees for such services. Specifically, Barclays is a lender to both companies’ credit facilities, the administrative agent for Gentiva and, in the past two years, has performed the following investment banking and financial services: (i) provided committed financing to Gentiva for its acquisition of Harden, (ii) acted as lead left arranger and joint bookrunner on Gentiva’s $925 million Senior Secured Credit Facilities in connection with the Harden acquisition, (iii) acted as joint lead arranger and joint bookrunner on Kindred’s refinancing of its capital structure comprised of $1,750 million Senior Secured Credit Facilities and $500 million of Senior Secured Notes and (iv) as part of Kindred’s refinancing, Barclays acted as a counterparty to an interest rate swap.

Barclays and its affiliates engage in a wide range of businesses from investment and commercial banking, lending, asset management and other financial and non-financial services. In the ordinary course of its business,

 

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Barclays and affiliates may actively trade and effect transactions in the equity, debt and/or other securities (and any derivatives thereof) and financial instruments (including loans and other obligations) of Gentiva and Kindred and their respective affiliates for its own account and for the accounts of its customers and, accordingly, may at any time hold long or short positions and investments in such securities and financial instruments.

Summary of Gentiva Projections

Although Gentiva periodically may issue limited guidance to investors concerning its expected financial performance, Gentiva does not as a matter of course publicly disclose detailed financial projections. However, in connection with the negotiation of the merger, Gentiva management prepared non-public forecasts for the years ended December 31, 2014 through December 31, 2018, which we refer to as the business model case and the upside case and which, collectively, we refer to as the Gentiva projections. While the Gentiva projections are being included in this proxy statement/prospectus, the Gentiva projections were not prepared with a view toward public disclosure, compliance with the published guidelines of the SEC regarding projections and the use of non-GAAP measures or compliance with the published guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of “prospective financial information.” In the view of Gentiva’s management, the Gentiva projections were prepared on a reasonable basis and reflected the best then-currently available estimates and judgments of Gentiva’s management. The inclusion of the Gentiva projections in this proxy statement/prospectus should not be regarded as an indication that Gentiva or any other recipient of this information considered, or now considers, this information to be necessarily predictive of actual future results, and does not constitute an admission or representation by any person that such information is material and readers are cautioned not to place undue reliance on the prospective financial information.

The Gentiva projections are unaudited. This prospective financial information included in this proxy statement/prospectus has been prepared by, and is the responsibility of, Gentiva’s management. PricewaterhouseCoopers LLP, which we refer to as PwC, has neither examined, complied with, nor performed any procedures with respect to the Gentiva projections and, accordingly, PwC does not express an opinion or any other form of assurance with respect thereto or their achievability. PwC assumes no responsibility for, and disclaims any association with, the Gentiva projections. PwC’s report included in Gentiva’s 2013 Annual Report on Form 10-K/A incorporated by reference herein relates to Gentiva historical financial information. It does not extend to the prospective financial information and should not be read to do so. The Gentiva projections:

 

•

were based on numerous assumptions, as further described below, many of which are beyond the control of Gentiva and may not prove to be accurate;

 

•

do not necessarily reflect current estimates or assumptions that Gentiva’s management may have about prospects for Gentiva’s businesses, changes in general business or economic conditions or any other transaction or event that has occurred or that may occur and that was not anticipated at the time the forecasts were prepared;

 

•

are not necessarily indicative of current values or future performance, which may be significantly more favorable or less favorable than as set forth below;

 

•

are not, and should not be regarded as a representation that any of the expectations contained in, or forming a part of, the Gentiva projections will be achieved;

 

•

assume that (i) there will be no material change in the ownership and control of Gentiva; (ii) there will be no acquisitions or disposals by Gentiva during the forecast period; (iii) there will be no material adverse change in the economic conditions in the markets in which Gentiva operates; and (iv) any changes in relevant legislation, healthcare reimbursement and reform, governmental policy or other regulatory requirements will not materially affect the forecasted results of Gentiva; and

 

•

were developed for Gentiva on a standalone basis without giving effect to the merger, and do not reflect any effects of the merger or any changes to Gentiva’s operations or strategy that may be implemented after the consummation of the merger, including any revenue and cost synergies realized.

 

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Business Model Case

The business model case was prepared by Gentiva’s management in May 2014. The business model case was based on the 2014 budget approved by the Gentiva board of directors and reflects various assumptions and estimates that Gentiva’s management made in good faith, including without limitation: (i) census growth, revenue per episode, revenue per visit, revenue per patient day and revenue per hour, cost per visit, cost per patient day and selling, general and administrative expenses; (ii) the effect of the One Gentiva initiative on Gentiva’s business; and (iii) the impact of GentivaLink on Gentiva’s business. The business model case was provided to the Gentiva board of directors and its advisors. Gentiva provided the business model case to its financial advisors for use in their financial analyses of Gentiva, including the financial analyses performed by Barclays in connection with its fairness opinion. Gentiva believes the business model case is a reasonable forecast of its future results and was a reasonable basis upon which to evaluate the business and prospects of Gentiva. See “The Merger—Opinion of Gentiva’s Financial Advisor” beginning on page 55.

 

		Year Ending December 31,
		2014E				2015E				2016E				2017E				2018E
		(dollars in millions)
Revenue		$	1,987			$	2,028			$	2,070			$	2,119			$	2,188
Gross Profit			897				921				939				957				991
EBITDA(2)			189	(1)			208				221				236				258
Net Income			39				52				62				71				88
Unlevered free cash flow(3)			89				100				120				129				140

 

(1)	2014 estimates based on Adjusted EBITDA(2) .

 

(2)

EBITDA and Adjusted EBITDA are non-GAAP financial measures. EBITDA is defined as earnings before interest expense, income taxes and depreciation and amortization. Adjusted EBITDA also excludes charges relating to cost savings initiatives and acquisition and integration activities, losses on closed locations, a weather-specific adjustment for the first quarter of 2014 and merger related expenses. Management uses Adjusted EBITDA to evaluate overall performance and compare current operating results with other companies in the healthcare industry. Adjusted EBITDA should not be considered in isolation or as a substitute for income from continuing operations, net income, operating income or cash flow statement data determined in accordance with accounting principles generally accepted in the United States.

 

(3)	Unlevered free cash flow is calculated as EBITA minus taxes, changes in net working capital and capital expenditures, plus depreciation. EBITA is calculated as net earnings before interest, taxes and amortization.

Upside Case

The upside case was prepared by Gentiva’s management in July 2014 in response to due diligence requests from potential buyers of Gentiva. Compared to the business model case, the upside case assumed (i) a more aggressive outlook for home health and hospice reimbursement, (ii) enhanced profitability primarily due to lower selling, general and administrative costs and (iii) modified assumptions regarding home health and hospice volumes. The upside case was made available to Kindred and other potential buyers of Gentiva.

 

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		Year Ending December 31,
		2014E				2015E				2016E				2017E				2018E
		(dollars in millions)
Revenue		$	1,977			$	2,014			$	2,061			$	2,118			$	2,186
Gross Profit			901				925				945				971				998
EBITDA(2)			191	(1)			219				237				263				278
Net Income			40				58				72				88				101

 

(1)	2014 estimates based on Adjusted EBITDA(2) .

 

(2)

EBITDA and Adjusted EBITDA are non-GAAP financial measures. EBITDA is defined as earnings before interest expense, income taxes and depreciation and amortization. Adjusted EBITDA also excludes charges relating to cost savings initiatives and acquisition and integration activities, losses on closed locations, a weather-specific adjustment for the first quarter of 2014 and merger related expenses. Management uses Adjusted EBITDA to evaluate overall performance and compare current operating results with other companies in the healthcare industry. Adjusted EBITDA should not be considered in isolation or as a substitute for income from continuing operations, net income, operating income or cash flow statement data determined in accordance with accounting principles generally accepted in the United States.

Gentiva cannot assure you that the Gentiva projections will be realized or that its future financial results will not materially vary from the Gentiva projections. The Gentiva projections cover multiple years and such information by its nature becomes less predictive with each succeeding year.

The Gentiva projections do not necessarily take into account any circumstances or events occurring after the date they were prepared. Gentiva does not intend to update the Gentiva projections. The Gentiva projections are forward-looking statements. For additional information on factors which may cause Gentiva’s actual future financial results to materially vary from the Gentiva projections, see “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors” beginning on pages 38 and 31, respectively.

Stock Ownership of Directors and Executive Officers of Gentiva

As of December 15, 2014, the most recent practicable date prior to the mailing of this proxy statement/prospectus, the directors and executive officers of Gentiva beneficially owned and were entitled to vote approximately 5,718,819 shares of Gentiva common stock, collectively representing approximately 15.3% of the shares of Gentiva common stock outstanding on that date.

Merger Consideration

At the effective time, each share of Gentiva common stock outstanding immediately prior to the effective time, other than shares owned by Kindred or Gentiva or their respective wholly owned subsidiaries, or shares owned by stockholders who have properly exercised and perfected appraisal rights under Delaware law, will be converted into the right to receive $14.50 in cash, without interest, and 0.257 of a share of Kindred common stock.

Kindred will not issue any fractional shares as a result of the merger. Instead, holders of Gentiva common stock who would otherwise be entitled to receive a fractional share of Kindred common stock will receive an amount in cash (rounded to the nearest whole cent and without interest) determined by multiplying the fractional share interest by the Kindred closing price.

The exchange ratio is a fixed ratio. Therefore, the number of shares of Kindred common stock to be received by holders of Gentiva common stock as a result of the merger will not change between now and the time the merger is completed to reflect changes to the trading price of Kindred common stock.

 

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Ownership of Kindred After the Merger

Based on the number of shares of Kindred common stock and Gentiva common stock issued and outstanding as of December 15, 2014, the most recent practicable date prior to the mailing of this proxy statement/prospectus, the former Gentiva stockholders will own approximately 12% of Kindred’s outstanding common stock after completion of the merger.

Interests of Gentiva Directors and Executive Officers in the Merger

In considering the information in this proxy statement/prospectus and the recommendation of the Gentiva board of directors to adopt the merger agreement, you should be aware that Gentiva’s directors and executive officers have interests in the merger that may be different from, or in addition to, the interests of Gentiva stockholders generally. Other than the entry into an employment agreement with David A. Causby, which took place after the signing of the merger agreement, the Gentiva board of directors was aware of these interests and considered them, among other matters, in reaching its decision to approve the merger agreement, the merger and the transactions contemplated by the merger agreement, and in recommending to Gentiva stockholders that the merger agreement be adopted. These interests include those described below.

Completion of the transactions contemplated by the merger agreement will constitute a change in control of Gentiva under all of the Gentiva agreements and arrangements described below.

Gentiva’s current executive officers are: Rodney D. Windley, Executive Chairman and Director; Tony Strange, Chief Executive Officer and Director; David A. Causby, President and Chief Operating Officer; Eric R. Slusser, Executive Vice President, Chief Financial Officer and Treasurer; John N. Camperlengo, Senior Vice President, General Counsel and Secretary; Jeff Shaner, Senior Vice President and President of Operations; and Charlotte A. Weaver, Senior Vice President and Chief Clinical Officer.

Equity Interests of Gentiva’s Directors and Executive Officers

The merger, if consummated, would constitute a change in control of Gentiva for purposes of the Gentiva 2004 Equity Incentive Plan (amended and restated as of March 16, 2011), as amended by Amendments No. 1 and 2 thereto (which we refer to as the Plan), the change in control agreements described below and the severance agreements described below.

As a result, zero outstanding stock options and 230,300 shares of Gentiva restricted stock granted under the Plan to executive officers and directors prior to September 12, 2013 (but excluding stock options and restricted stock granted to executive officers in 2013 prior to September 12, 2013), will immediately become vested and exercisable, any restrictions on such restricted stock awards or performance cash awards will immediately lapse and all awards would remain exercisable for the remainder of their terms, even if the award recipient were not to terminate employment. However, 763,864 outstanding stock options, 401,200 shares of Gentiva restricted stock and performance cash awards totaling $6,825,000 under the Plan granted on or after September 12, 2013 or granted to named executive officers in 2013 prior to September 12, 2013 will become vested and exercisable and any restrictions thereupon will lapse upon a change in control only upon a termination of a grantee’s service by Gentiva without cause or for good reason within two years after a change in control. If the merger is consummated, all awards under the Plan will be treated as dictated under the merger agreement. See “The Merger Agreement—Effect of the Merger on Gentiva’s Equity Awards” beginning on page 94.

Stock Options

At the effective time, each Gentiva in-the-money option that is or will become vested as a result of the merger will be canceled and converted into the right to receive an amount in cash, without interest, equal to the cash consideration plus the value of the stock consideration (based on the Kindred closing price), less the exercise price, subject to withholding taxes. Each Gentiva out-of-the-money option or Gentiva option that will not vest as a result of the merger will be converted into an option to purchase a number of shares of Kindred

 

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common stock determined by multiplying the number of shares of Gentiva common stock subject to such Gentiva option by a fraction, the numerator of which is the sum of (A) the product of the stock consideration multiplied by the Kindred closing price and (B) the cash consideration and the denominator of which is the Kindred closing price.

Restricted Stock; Deferred Stock Units

Each outstanding share of Gentiva restricted stock that will vest as a result of the merger and each outstanding Gentiva deferred stock unit will receive the merger consideration, subject to withholding taxes. Each outstanding share of Gentiva restricted stock that will not vest as a result of the merger will receive merger consideration in the form of a Kindred restricted cash award in the amount of the cash consideration and Kindred restricted shares in the amount of the stock consideration, in each case subject to the vesting conditions of Kindred restricted shares prior to the effective time of the merger.

Performance Cash Awards

Each Gentiva performance cash award that will become vested as a result of the merger may be accelerated and the recipient thereof would receive an amount in cash equal to the target amount of such cash award (unless such performance cash award provides for the accelerated vesting of such award at the maximum level, in which case the recipient thereof would receive an amount in cash equal to the maximum amount of such cash award), subject to withholding taxes. No Gentiva performance cash awards granted to executive officers will become vested solely as a result of the merger. Each Gentiva performance cash award that will not vest as a result of the merger will be converted into the right to receive a Kindred cash award, subject to the vesting conditions of such performance cash award prior to the effective time of the merger. To the extent that any performance cash award is, immediately prior to the effective time, subject to any performance-based vesting or other performance conditions, the Kindred board of directors, or an applicable committee thereof, may, following the effective time, make such equitable adjustments, if any, to the applicable performance goals or conditions relating to the Kindred cash award received by the holder of such performance cash award, as the Kindred board of directors (or such committee thereof) may determine to be necessary or appropriate as a result of the consummation of the transactions contemplated by the merger agreement, including the merger, and, in each case, subject to and in accordance with the terms and conditions of the applicable performance cash award and the applicable Gentiva stock plan.

See also “The Merger Agreement—Effect of the Merger on Gentiva’s Equity Awards” beginning on page 94.

Quantification of Equity Interests of Gentiva’s Directors and Executive Officers

The following table sets forth, as of December 12, 2014, the most recent practicable date prior to the filing of this proxy statement/prospectus, the number of outstanding (i) in-the-money options that are vested or will vest as a result of the merger, (ii) shares of Gentiva restricted stock that will vest as a result of the merger, (iii) deferred stock units and (iv) performance cash awards that will vest as a result of the merger, in each case held by such executive officer or director of Gentiva, and the consideration that will be received by them pursuant to the merger agreement, assuming continued employment or service as a director through the effective time of the merger and assuming that the effective time of the merger occurs on March 1, 2015. The following table is calculated using assumed merger consideration of $19.50, which is derived from a Kindred common stock price of $19.46, the volume-weighted average price of Kindred common stock for the ten trading days ended on and including October 3, 2014, which was the basis for the agreed-upon exchange ratio.

 

Name		In-the-Money Options				Restricted Stock				Deferred Stock Units				Performance Cash Awards (1)				Resulting Consideration
		#				#				#				$				$
Rodney D. Windley			125,000				—				35,415				—				1,766,843
Executive Chairman and Director
Tony Strange			86,333				70,900				—				—				2,103,286
Chief Executive Officer and Director

 

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Name		In-the-Money Options				Restricted Stock				Deferred Stock Units				Performance Cash Awards (1)				Resulting Consideration
		#				#				#				$				$
David A. Causby			22,367				34,400				—				—				858,991
President and Chief Operating Officer
Eric R. Slusser			164,834				38,500				—				—				2,841,617
Executive Vice President, Chief Financial Officer and Treasurer
John N. Camperlengo			15,767				32,400				—				—				763,431
Senior Vice President, General Counsel and Secretary
Jeff Shaner			16,767				34,400				—				—				810,775
Senior Vice President and President of Operations
Dr. Charlotte A. Weaver			9,600				19,700				—				—				464,298
Senior Vice President and Chief Clinical Officer
Robert S. Forman, Jr.			—				—				43,938				—				856,791
Director
Victor F. Ganzi			—				—				68,245				—				1,330,778
Lead Independent Director
R. Steven Hicks			—				—				10,385				—				202,508
Director
Philip R. Lochner, Jr.			—				—				43,938				—				856,791
Director
Stuart Olsten			—				—				68,245				—				1,330,778
Director
Sheldon M. Retchin			—				—				43,938				—				856,791
Director
Raymond S. Troubh			—				—				65,215				—				1,271,693
Director

 

(1)	No performance cash awards will vest as a result of the merger.

The following table sets forth, as of December 12, 2014, the most recent practicable date prior to the filing of this proxy statement/prospectus, the cash value of the awards that will be rolled over into awards based on shares of Kindred common stock, including the number of outstanding (i) unvested in-the-money options that will not vest as a result of the merger, (ii) out-of-the-money options, (iii) unvested restricted shares of Gentiva common stock that will not vest as a result of the merger, and (iv) unvested performance cash awards that will not vest as a result of the merger, in each case held by such executive officer or director. The following table is calculated using assumed merger consideration of $19.50, which is derived from a Kindred common stock price of $19.46, the volume-weighted average price of Kindred common stock for the ten trading days ended on and including October 3, 2014.

 

Name		Unvested In- the- Money Options				Out-of-the- Money Options				Restricted Stock				Performance Cash Awards				Total Cash Value of Rollover Awards
		#				#				#				$				$
Rodney D. Windley			500,000				—				—				—				4,467,500
Executive Chairman and Director
Tony Strange			133,033				369,950				123,700				2,625,000				6,159,973
Chief Executive Officer and Director
David A. Causby (1)			37,033				59,300				73,800				1,112,500				2,866,065
President and Chief Operating Officer
Eric R. Slusser			28,866				93,500				62,600				950,000				2.414,334
Executive Vice President, Chief Financial Officer and Treasurer

 

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Name		In-the- Money Options				Out-of-the- Money Options				Restricted Stock				Performance Cash Awards				Total Cash Value of Rollover Awards
		#				#				#				$				$
John N. Camperlengo			24,299				59,900				52,800				800,000				2,034,692
Senior Vice President, General Counsel and Secretary
Jeff Shaner			25,833				61,300				56,100				850,000				2,161,983
Senior Vice President and President of Operations
Dr. Charlotte A. Weaver			14,800				83,800				32,200				487,500				1,240,320
Senior Vice President and Chief Clinical Officer
Robert S. Forman, Jr.			—				—				—				—				—
Director
Victor F. Ganzi			—				—				—				—				—
Lead Independent Director
R. Steven Hicks			—				—				—				—				—
Director
Philip R. Lochner, Jr.			—				—				—				—				—
Director
Stuart Olsten			—				—				—				—				—
Director
Sheldon M. Retchin			—				—				—				—				—
Director
Raymond S. Troubh			—				—				—				—				—
Director

 

(1)	The grant of Kindred replacement RSUs (as defined below under “—Employment Agreement with Kindred”) will be in lieu of any treatment of Mr. Causby’s unvested in-the-money options and performance cash awards contemplated under the merger agreement.

Beneficial Ownership of Officers and Directors

Gentiva’s executive officers and directors hold shares of Gentiva common stock, which will be treated like all other shares of Gentiva common stock in the merger. See “Security Ownership of Certain Beneficial Owners and Management” beginning on page 145 of this proxy statement/prospectus for further details.

Indemnification; Directors and Officers Insurance

Under the merger agreement, each present and former director and officer of Gentiva will have rights to indemnification and expense advancement from Kindred and the surviving corporation in the merger and Kindred has agreed to cause the surviving corporation to maintain directors’ and officers’ insurance policies or purchase tail coverage, in each case for a six-year period. See “The Merger Agreement—Covenants and Agreements—Indemnification and Insurance” beginning on page 104 of this proxy statement/prospectus.

Employment Agreement with Kindred

In November 2014, following Kindred’s entry into the merger agreement, Kindred entered into an employment agreement with David A. Causby, who is currently a named executive officer of Gentiva. Following the closing of the merger, Mr. Causby will become the President of the combined Kindred at Home business and will serve on Kindred’s Executive Committee.

The employment agreement has an initial term of one year with automatic one-day extensions. Mr. Causby’s annual base salary will be $550,000. He will be eligible for an annual short-term bonus with a target equal to

 

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60% and a maximum equal to 101.25% of his base salary, a long-term bonus with a target equal to 50% and a maximum equal to 100% of his base salary and a performance-based cash bonus in an aggregate amount of $1 million. Upon commencement of employment with Kindred, Mr. Causby will receive a sign-on cash payment of $1 million. In addition, on or prior to the closing of the merger, Kindred’s CEO will recommend that Kindred’s Executive Compensation Committee grant Mr. Causby an award of Kindred restricted stock units (which we refer to as RSUs) with a grant date value of $1,035,000, subject to certain vesting criteria. At the next regularly scheduled meeting of the Kindred board of directors following the closing of the merger, Kindred’s CEO will recommend that Kindred’s Executive Compensation Committee make a grant of an equity stock award to Mr. Causby with a grant date fair value of 150% of his base salary, which shall be in the form of 50% time-based restricted shares and 50% performance stock units.

According to the employment agreement, at a meeting of the Kindred board of directors that will take place at or around the closing of the merger, Kindred’s CEO will also recommend that the Kindred Executive Compensation Committee make a one-time grant of RSUs (which we refer to as replacement RSUs) with a grant date fair value equal to the sum of (i) the cash value of Mr. Causby’s outstanding and unvested performance cash awards immediately prior to the consummation of the merger and (ii) the intrinsic value of all outstanding and unvested in-the-money options held by Mr. Causby as of immediately prior to the consummation of the merger, subject to vesting on the dates the performance cash awards or in-the-money options would otherwise have vested, except that the replacement RSUs he will receive in connection therewith will be subject to immediate, automatic and full vesting upon a termination of his employment by Kindred for any reason, by Mr. Causby for good reason, or due to his death or disability. The grant of the replacement RSUs will be in lieu of any treatment of Mr. Causby’s in-the-money options and performance cash awards contemplated under the merger agreement and all unvested in-the-money options and performance cash awards held by Mr. Causby as of the closing of the merger will be cancelled.

In addition, any restricted share award held by Mr. Causby prior to the closing of the merger will be treated the same as the restricted shares held by the other Gentiva executive officers, except that the Kindred restricted cash award and Kindred restricted shares he will receive in connection therewith will be subject to immediate, automatic and full vesting upon a termination of his employment by Kindred for any reason, by Mr. Causby for good reason, or due to his death or disability.

Under the employment agreement, Mr. Causby will be eligible to participate in all pension benefit, welfare benefit and fringe benefit plans from time to time in effect for officers of Kindred, and such bonus, stock option, or other incentive compensation plans of Kindred and its affiliates in effect from time to time for officers of Kindred.

In the event Mr. Causby’s employment with Kindred is terminated during the term of the employment agreement but on or after the first anniversary of the effective date of the employment agreement by Kindred for a reason other than cause or by Mr. Causby for good reason, Mr. Causby will be entitled to the following payments in addition to base salary through the date of termination, unreimbursed business expenses, accrued but unused vacation time, and any amounts owed to him pursuant to the terms and conditions of Kindred’s benefit plans and programs at the time such payments are due:

 

•

within fourteen days following the date of termination, Kindred will pay him a cash severance payment in an amount equal to 1.5 times the sum of his base salary and target bonus as of the date of termination;

 

•

for a period of eighteen months following the date of termination (which we refer to as the benefit continuation period), Mr. Causby will be treated as if he had continued to be an executive for all purposes under Kindred’s health insurance plan and dental insurance plan; or if he is prohibited from participating in such plans, Kindred will otherwise provide such benefits;

 

•

for the benefit continuation period, Kindred will maintain in force, at its expense, Mr. Causby’s life insurance in effect under Kindred’s voluntary life insurance benefit plan as of the date of termination;

 

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•

for the benefit continuation period, Kindred will provide short-term and long-term disability insurance benefits equivalent to the coverage that Mr. Causby would have had if he had remained employed under the disability insurance plans applicable to him on the date of termination;

 

•

within fifteen days after the date of termination, Kindred will pay Mr. Causby a cash payment in an amount, if any, necessary to compensate him for the unvested interests under Kindred’s retirement savings plan which are forfeited by Mr. Causby in connection with the termination of his employment; and

 

•

any outstanding unvested stock options, stock performance units or similar equity awards (other than restricted stock awards) held by Mr. Causby on the date of termination will continue to vest in accordance with their original terms (including any related performance measures) for the duration of the benefit continuation period as if he had remained an employee of Kindred through the end of such period and any such stock option, stock performance unit or other equity award (other than restricted stock awards) that has not vested as of the conclusion of such benefit continuation period will be immediately cancelled and forfeited as of such date. In addition, Mr. Causby will have the right to continue to exercise any outstanding vested stock options held by him during the benefit continuation period; provided that in no event will he be entitled to exercise any such option beyond the original expiration date of such option. Any outstanding restricted stock award held by Mr. Causby as of the date of termination that would have vested during the benefit continuation period had he remained an employee of Kindred through the end of such period will be immediately vested as of the date of termination and any restricted stock award that would not have vested as of the conclusion of such period shall be immediately cancelled and forfeited as of such date.

In order to receive any severance benefits set forth in the employment agreement, Mr. Causby must execute a general release of claims against Kindred. In addition, the employment agreement contains confidentiality provisions and, for a period of one year following termination of employment, Mr. Causby will be subject to covenants not to compete and not to solicit Kindred’s employees.

Mr. Causby is expected to become an executive officer of Kindred and will be subject to Kindred’s stock ownership policies, which will require him to maintain a certain ownership level of shares of Kindred common stock and impose retention requirements on equity awards until the requisite ownership requirements are satisfied.

Gentiva Executive Officers Ordinary Course Bonuses

Gentiva’s executive officers will be entitled to receive bonuses under the Gentiva Executive Officers Bonus Plan, to be paid in the ordinary course of business.

In addition, subject to the sole discretion of the compensation committee, Gentiva’s Executive Chairman will receive for 2014 and 2015 bonus payments in the ordinary course (apart from the timing of payment), both of which will be payable on or before the consummation of the merger. If these ordinary course bonus payments are paid to Gentiva’s Executive Chairman, the amounts paid will be in the discretion of the compensation committee but will not exceed $2 million for 2014 and $1 million for 2015.

Transaction Bonuses

The Gentiva compensation committee has discretion to award to Mr. Windley, Gentiva’s executive chairman, and certain other core management team members incentive bonus compensation from a $10 million executive bonus pool to be allocated at the sole discretion of the compensation committee. At least a significant minority of such bonus pool will be allocated to core management team members other than Mr. Windley, Gentiva’s Executive Chairman.

 

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Potential Severance Payments and Benefits to Executive Officers

Gentiva has entered into change in control agreements with Messrs. Tony Strange, David A. Causby, Eric R. Slusser, John N. Camperlengo, Jeff Shaner and Rodney D. Windley and Dr. Charlotte Weaver. The terms of the change in control agreements provide salary and benefit continuation if (1) there is a change in control of Gentiva and (2) Gentiva or a successor terminates a covered executive’s employment without cause (as defined below) or the executive terminates employment for good reason (as defined below), in each case within two years following a change in control, or Gentiva terminates the executive without cause within one year before a change in control, if the termination arises in connection with the change in control (which we refer to as a qualifying termination). Pursuant to the employment agreement with Kindred entered into in November 2014, and, subject to the grant of the RSUs, the Replacement RSUs, the Kindred restricted cash award and the Kindred restricted share award on the terms agreed to by the parties in the employment agreement, Mr. Causby has waived any and all rights to payments or benefits under his severance agreement and his change in control agreement with Gentiva upon consummation of the merger.

Under the change in control agreements, “cause” generally means the executive’s:

 

•

felony conviction or a plea of guilty or nolo contendere of a felony;

 

•

act of willful fraud, dishonesty or moral turpitude;

 

•

willful and continued failure to substantially perform the executive’s duties for us, which is not corrected after we make a written demand; or

 

•

willfully engaging in conduct which is demonstrably and materially injurious to us.

No benefits are payable under a change in control agreement if an executive’s employment is terminated for “cause.”

Termination for “good reason” generally means, unless remedied by Gentiva within 30 days after receipt of written notice from the executive, the executive is terminated due to:

 

•

a material reduction in the executive’s annual base salary except as part of a general reduction for all of Gentiva’s executive officers unless such reduction exceeds 20% of base salary;

 

•

relocation of the executive more than 40 miles farther from the executive’s principal residence than was the executive’s office location immediately before the “protection period” under the change in control agreement;

 

•

Gentiva’s failure to maintain benefits not materially less favorable as those in place before the change in control or taking any action that would reduce the executive’s benefits, other than a minor reduction that applies to all participants;

 

•

a material reduction in the executive’s positions, duties and responsibilities;

 

•

Gentiva’s failure to have a successor assume the change in control agreement; or

 

•

Gentiva’s attempt to terminate the executive for cause or without cause without giving the executive advance written notice.

Under the change in control agreements, in the event of a qualifying termination, an executive will be entitled to:

 

•

a lump-sum payment equal to two times the sum of (1) the executive’s annual base salary at the time of termination, plus (2) the executive’s target annual bonus for the year of termination or average annual bonus for the three years before the year of termination, whichever is higher;

 

•

payment of base salary through the date of termination of employment, together with payment for unused vacation;

 

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•

pro rata share of the target annual bonus for the year of termination without regard to whether the performance goals are attained;

 

•

payment of base salary through the date of termination of employment, together with payment for unused vacation; continued health, life, disability and other employee welfare benefits on the same basis as an active employee for the lesser of two years or until the executive is provided substantially similar benefits by another employer;

 

•

full vesting of the executive’s options, other equity-based awards and performance cash awards and continued exercisability of stock options for one year following termination (but not beyond the original full term of the stock option) or for such longer period of time as may be provided under the plan under which the stock options were granted, whichever is longer;

 

•

accelerated vesting of any accrued retirement benefits;

 

•

additional cash payments for any equity or incentive awards that are forfeited in connection with certain terminations of employment within the one year period before a change in control occurs; and

 

•

outplacement services for up to 12 months.

The cash and non-cash amounts payable under the change in control agreements will be reduced to the maximum amount permitted without the imposition of an excise tax under the Internal Revenue Code of 1986, but only if the resulting net after-tax amount for the individual is greater than the net after-tax amount without any such reduction.

Gentiva has in place severance agreements with Messrs. Strange, Causby, Slusser, Camperlengo, Shaner and Windley and Dr. Weaver. These severance agreements provide severance benefits if Gentiva or any successor terminates the officer other than for cause (as defined below) or if, subject to certain notice and cure provisions, the officer terminates his employment within 60 days after Gentiva or any successor reduces the officer’s base salary, other than a general salary reduction that applies to a majority of salaried employees. However, in connection with the merger, we do not expect benefits to be payable under these severance agreements because no benefits are payable under an officer’s severance agreement if benefits are payable under such officer’s change in control agreement. Pursuant to the employment agreement with Kindred entered into in November 2014, and, subject to the grant of the RSUs, the Replacement RSUs, the Kindred restricted cash award and the Kindred restricted share award on the terms agreed to by the parties in the employment agreement, Mr. Causby has waived any and all rights to payments or benefits under his severance agreement and his change in control agreement with Gentiva upon consummation of the merger.

“Cause” in the severance agreements is generally defined as the officer’s:

 

•

conviction for any felony;

 

•

act of willful fraud, dishonesty or moral turpitude;

 

•

controlled substance abuse;

 

•

abuse of alcohol or drugs that interferes with or affects responsibilities to us or negatively reflects upon our integrity or reputation;

 

•

gross negligence that is materially injurious to us;

 

•

violation of any express written directions or any reasonable written policy or procedure we may establish regarding the conduct of our business; or

 

•

violation of any material term and condition of the severance agreement.

The severance benefits generally consist of:

 

•

continued base salary for 12 months;

 

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•

an additional cash payment in an amount equal to one times the executive’s target annual bonus for the year of termination;

 

•

a pro rata share of the target annual bonus for the year of termination (subject to attainment of the performance goals established for such year);

 

•

outplacement services for up to 12 months; and

 

•

continued health benefits for up to 12 months on the same basis as active employees for the same period, or until the executive obtains similar health benefits from a new employer, whichever comes first.

Pursuant to the severance agreements, the officers agreed to sign a general release following termination. In addition, separate non-solicitation, non-competition and confidentiality agreements with each of our executives contain valuable covenants to protect Gentiva’s confidential information, as well as non-competition and non-solicitation covenants that protect its business.

Excise Tax Cutback

Payments to the executive officers are subject to an excise tax cutback provision, which generally provides for a reduction in their change in control benefits and payments to just below the amount that would trigger the excise tax. However, no reduction in the benefits and payments for the purpose of avoiding the incurrence of the 20% federal excise tax will be applied if the net after-tax benefit (after taking into account federal, state, local and other income, employment, self-employment and excise taxes) to which each executive officer would otherwise be entitled without such reduction would be greater than the net after-tax benefit (after taking into account federal, state, local or other income, employment, self-employment and excise taxes) to the executive officer resulting from the receipt of such benefits and payments with such reduction. The amounts reflected below do not include a reduction to avoid the 20% federal excise tax.

Quantification of Potential Payments to Gentiva’s Executive Officers in Connection with the Merger

The information below is intended to comply with Item 402(t) of Regulation S-K, which requires disclosure of information about compensation for each Gentiva “named executive officer” that is based on or otherwise relates to the merger, and assumes, among other things, that the named executive officers (other than Mr. Causby) will incur a qualifying termination of employment immediately following consummation of the merger. For additional details regarding the terms of the payments described below, see the discussion under the caption “The Merger—Interests of Gentiva Directors and Executive Officers in the Merger” beginning on page 66.

The amounts indicated below are estimates based on the material assumptions described in the notes to the tables below, which may or may not actually occur. Some of these assumptions are based on information currently available and, as a result, the actual amounts, if any, that may become payable to a named executive officer may differ in material respects from the amounts set forth below. Furthermore, for purposes of calculating such amounts, Gentiva has assumed:

 

•

a closing date for the merger of March 1, 2015;

 

•

a price per share of Gentiva common stock equal to $19.78 (calculated based on the average closing price of Kindred common stock for the first five trading days following the public disclosure of the merger, as required per Item 402(t) of Regulation S-K); and

 

•

with respect to each named executive officer, a qualifying termination within two years of a change in control.

 

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GOLDEN PARACHUTE COMPENSATION

GOLDEN PARACHUTE COMPENSATION UNDER THE EMPLOYMENT AGREEMENT BETWEEN MR. CAUSBY AND KINDRED

The amounts provided in the following table include the payments that will be made to Mr. Causby in connection with his employment agreement with Kindred. A description of these payments can be found in “The Merger—Interests of Gentiva Directors and Executive Officers in the Merger—Employment Agreement with Kindred” beginning on page 69. These amounts are based on the assumption that Mr. Causby will waive any and all benefits he is entitled to under his severance agreement and his change in control agreement with Gentiva. Because the waiver of such payments and benefits is subject to the grant of the RSUs, the Replacement RSUs, the Kindred restricted cash award and the Kindred restricted share award on the terms agreed to by the parties in the employment agreement, the table set forth below, entitled “Golden Parachute Compensation Under Gentiva’s Arrangements” includes the amounts Mr. Causby would be eligible to receive under his severance agreement and his change in control agreement with Gentiva absent such a waiver.

 

Name		Cash				Equity				Pension/ NQDC				Perquisites/ benefits				Tax Reimbursement				Other				Total
		($)				($)				($)				($)				($)				($)				($)
(a)		(b) (1)				(c) (2)				(d)				(e)				(f)				(g)				(h)
David A. Causby			1,000,000				4,612,530				—				—				—				—				5,612,530

 

(1)

The “Cash” amount reflected above includes a one-time, non-refundable lump sum cash payment of $1,000,000 to Mr. Causby, pursuant to his employment agreement with Kindred. The amount does not reflect any salary, short-term bonus, long-term bonus or performance bonus that may be earned by Mr. Causby, or any severance he might receive in connection with the termination of his employment, under the employment agreement with Kindred. The cash amount is essentially a “single-trigger” payment (as defined below), as Mr. Causby is entitled to receive it as a result of the merger and entry into the employment agreement with Kindred. See the description of Mr. Causby’s employment agreement in “The Merger—Interests of Gentiva Directors and Executive Officers in the Merger—Employment Agreement with Kindred” on page 69.

 

(2)

The “Equity” amount reflected above includes the cash value of the following awards: (i) outstanding shares of Gentiva restricted stock held by Mr. Causby in the amount of $680,432, which are payable upon a change in control (which we refer to as single trigger); (ii) an award of RSUs with a grant date fair value of $1,035,000; (iii) an award of Replacement RSUs to be granted in lieu of (A) Mr. Causby’s outstanding and unvested target 2013 Performance Cash Award and unvested target 2014 Performance Cash Award, in the amounts of $425,000 and $687,500, respectively, and (B) Mr. Causby’s outstanding and unvested in-the-money options, in the amount of $324,834; and (iv) Mr. Causby’s unvested award of Gentiva restricted stock, in the amount of $1,459,764. The values reflect an assumed merger consideration value of $19.78 per share, which is calculated based on a price per share of Kindred common stock of $20.56 (the average closing price of Kindred common stock for the first five trading days following public disclosure of the proposed merger on October 9, 2014, as required per Item 402(t) of Regulation S-K). The awards included in clauses (ii) through (iv) represent payments to Mr. Causby pursuant to his employment agreement with Kindred and are essentially “single-trigger” payments (as defined below), as he is entitled to receive them as a result of the merger and entry into the employment agreement with Kindred. The awards included in clauses (ii) through (iv) will vest and be settled during Mr. Causby’s employment with Kindred and upon certain terminations of such employment. See the description of his employment agreement in “The Merger—Interests of Gentiva Directors and Executive Officers in the Merger—Employment Agreement with Kindred” on page 69.

 

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GOLDEN PARACHUTE COMPENSATION UNDER GENTIVA’S ARRANGEMENTS

 

Name		Cash				Equity				Pension/ NQDC				Perquisites/ benefits				Tax Reimbursement				Other				Total
		($)				($)				($)				($)				($)				($)				($)
(a)		(b) (1)				(c) (2)				(d)				(e) (3)				(f)				(g)				(h)
Tony Strange			6,268,836				5,009,261				—				67,600				—				—				11,345,697
Eric R. Slusser			2,671,062				2,251,475				—				67,600				—				—				4,990,137
David A. Causby (4)			3,224,349				2,465,030				—				67,600				—				—				5,756,979
Jeff Shaner			2,389,897				2,015,356				—				67,600				—				—				4,472,853
Rodney Windley			3,500,000				4,607,500				—				67,600				—				—				8,175,100

 

(1)

The “Cash” amounts reflected above include cash severance (two times the sum of base salary and the greater of target bonus or the average of the executive’s bonuses for the prior three years), a portion of the 2015 annual incentive calculated at target performance and pro rated to the date of the merger, and accelerated payment of outstanding long term cash incentive cycles (at target). All of these amounts are “double trigger” (as defined in note 2 below) and payable upon a qualifying termination within two years of a change in control. The Cash amount does not include each named executive officer’s allocable share of a bonus pool that is contingent upon the successful closing of the merger because such bonuses are at the discretion of the Gentiva compensation committee. If the Gentiva compensation committee makes a determination to pay such bonuses, the specific allocation for each named executive officer and the terms and conditions that may be attached to payment of the bonus will be determined by the Gentiva compensation committee prior to the merger completion date. The bonus pool is described in greater detail in “Interests of Gentiva Directors and Executive Officers in the Merger—Transaction Bonuses” on page 71. Severance amounts may be reduced if doing so eliminates the excise tax from “excess parachutes,” but only if doing so produces a better after-tax result for the executive officer. The following table provides these individual amounts for each named executive officer:

 

		Double Trigger
Name		Severance				Pro Rata 2015 Annual Incentive				2013 Cash Award Target				2014 Cash Award Target				Total
		($)				($)				($)				($)				($)
Tony Strange			3,500,000				143,836				1,312,500				1,312,500				6,268,836
Eric R. Slusser			1,662,500				58,562				475,000				475,000				2,671,062
David A. Causby			2,035,000				76,849				425,000				687,500				3,224,349
Jeff Shaner			1,487,500				52,397				425,000				425,000				2,389,897
Rodney Windley			3,500,000				—				—				—				3,500,000

 

(2)

The equity amounts above include the value of accelerated vesting of Gentiva restricted stock and accelerated vesting of nonqualified stock options. These values reflect an assumed merger consideration value of $19.78, which is calculated based on a price per share of Kindred common stock of $20.56. Equity awards granted before 2013 accelerate upon a change in control and equity awards granted after 2012 accelerate upon a qualifying termination following a change in control (which awards we refer to as double trigger). The following table provides these individual amounts for each named executive officer:

 

		Single Trigger								Double Trigger
Name		Gentiva Restricted Stock				Stock Options				Gentiva Restricted Stock				Stock Options				Total
		($)				($)				($)				($)				($)
Tony Strange			1,402,402				—				2,446,786				1,160,073				5,009,261
Eric R. Slusser			761,530				—				1,238,228				251,717				2,251,475
David A. Causby			680,432				—				1,459,764				324,834				2,465,030
Jeff Shaner			680,432				—				1,109,658				225,266				2,015,356
Rodney Windley			—				—				—				4,607,500				4,607,500

 

 

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(3)

The amounts reflected above include the employer’s portion of the premium cost of continuing the health and welfare benefits (medical, dental, and annual physical) and executive life insurance coverage for two years and the estimated cost of outplacement. All of these amounts are payable upon a qualifying termination within two years of a change in control. The following table provides these individual amounts for each named executive officer:

 

Name		Health & Welfare				Executive Life Insurance				Outplacement				Total
		($)				($)				($)				($)
Tony Strange			36,500				1,100				30,000				67,600
Eric R. Slusser			36,500				1,100				30,000				67,600
David A. Causby			36,500				1,100				30,000				67,600
Jeff Shaner			36,500				1,100				30,000				67,600
Rodney Windley			36,500				1,100				30,000				67,600

 

(4)

Upon consummation of the merger, it is anticipated that Mr. Causby will become employed by Kindred Healthcare, Inc., and his Change in Control Agreement with Gentiva Health Services will be terminated. Accordingly, upon a change in control all of the double trigger amounts shown above for Mr. Causby will no longer apply, and will be replaced by the terms of his employment agreement with Kindred.

Narrative Disclosure to Golden Parachute Compensation Table

The merger, if consummated, would constitute a change in control of Gentiva for purposes of the Plan (amended and restated as of March 16, 2011), as amended by Amendments No. 1 and 2 thereto, the change in control agreements described below and the severance agreements described below.

As a result, zero outstanding stock options and 178,200 shares of Gentiva restricted stock granted under the Plan to named executive officers prior to September 12, 2013 (but excluding stock options and restricted stock granted to named executive officers in 2013 prior to September 12, 2013), will immediately become vested and exercisable, any restrictions on such restricted stock awards or performance cash awards will immediately lapse and all awards would remain exercisable for the remainder of their terms, even if the award recipient were not to terminate employment. However, 724,765 outstanding stock options, 316,200 shares of Gentiva restricted stock and performance cash awards totaling $5,537,500 under the Plan granted on or after September 12, 2013 or granted to named executive officers in 2013 prior to September 12, 2013 will become vested and exercisable and any restrictions thereupon will lapse upon a change in control only upon a termination of a grantee’s service by Gentiva without cause or for good reason within two years after a change in control. If the merger is consummated, all awards under the Plan will be treated as dictated under the merger agreement. See “The Merger Agreement—Effect of the Merger on Gentiva’s Equity Awards” beginning on page 94.

Potential Severance Payments and Benefits to Executive Officers

Gentiva has entered into change in control and severance agreements with Messrs. Tony Strange, David A. Causby, Eric R. Slusser, John N. Camperlengo, Jeff Shaner and Rodney D. Windley and Dr. Charlotte Weaver. A description of these agreements can be found in “The Merger—Interests of Gentiva Directors and Executive Officers in the Merger—Potential Severance Payments and Benefits to Executive Officers” beginning on page 72.

 

 

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The following tables present, with respect to each Gentiva executive officer, an estimate of the amounts of severance benefits payable in the event of a qualifying termination, estimated as of March 1, 2015.

Single Trigger (a)

($)

 

Name		Unvested Restricted Stock (b)
Executive Officers
Tony Strange			1,402,402
Eric R. Slusser			761,530
David A. Causby			680,432
Jeff Shaner			680,432
Rodney Windley			—
John Camperlengo			640,872
Charlotte Weaver			389,666
Total Executives			4,555,334

Notes

 

a)

This table is based in part on a merger consideration value of $19.78, which is calculated using a value of $20.56 per share of Kindred common stock, the average closing price of Kindred common stock for the first five trading days following the public disclosure of the proposed merger on October 9, 2014, as required per Item 402(t) of Regulation S-K.

 

b)

Rodney Windley did not participate in the 2010 restricted stock grant, which is single trigger.

Double Trigger (a)

($)

 

Name		Severance 2 x Base Salary				Severance 2 x Annual Incentive				Pro- Rata Annual Cash Incentive (b)				Unvested Options				Unvested Restricted Stock				2013 Performance Cash Award (c)				2014 Performance Cash Award (c)				Health and Welfare Benefits				Life Insurance				Executive Physical				Outplacement Services				Total (e)
Executive Officers
Tony Strange			1,750,000				1,750,000				143,836				1,160,073				2,446,786				1,312,500				1,312,500				27,700				1,100				8,800				30,000				11,345,697
Eric R. Slusser			950,000				712,500				58,562				251,717				1,238,228				475,000				475,000				27,700				1,100				8,800				30,000				4,990,137
David A. Causby (d)			1,100,000				935,000				76,849				324,834				1,459,764				425,000				687,500				27,700				1,100				8,800				30,000				5,756,979
Jeff Shaner			850,000				637,500				52,397				225,266				1,109,658				425,000				425,000				27,700				1,100				8,800				30,000				4,472,853
Rodney Windley			1,500,000				2,000,000				—				4,607,500				—				—				—				27,700				1,100				8,800				30,000				8,175,100
John Camperlengo			800,000				560,000				46,027				211,895				1,044,384				400,000				400,000				27,700				1,100				8,800				30,000				4,170,779
Charlotte Weaver			650,000				455,000				37,397				129,064				636,916				243,750				243,750				8,800				1,000				8,800				30,000				2,834,143
Total Executives			7,600,000				7,050,000				415,068				6,910,349				7,935,736				3,281,250				3,543,750				175,000				7,600				61,600				210,000				41,745,688

Notes

 

a)

This table is based in part on a merger consideration value of $19.78, which is calculated using a value of $20.56 per share of Kindred common stock, the average closing price of Kindred common stock for the first five trading days following the public disclosure of the proposed merger on October 9, 2014, as required per the Item 402(t) of Regulation S-K.

 

b)

The pro-rata annual cash incentive is for 2015.

 

c)

The 2013 and 2014 long-term incentive plans vest at target.

 

d)

The amounts shown for Mr. Causby assume termination of his employment following the closing of the merger. If Mr. Causby remains employed with Kindred following the closing of the merger, he will not receive double trigger payments shown above and instead will receive amounts that are described in his employment agreement with Kindred that will become effective at the closing of the merger. See “The Merger—Interests of Gentiva Directors and Officers in the Merger—Employment Agreement with Kindred” beginning on page 69.

 

e)

Includes both single trigger and double trigger severance benefits payable in the event of a qualifying termination.

 

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Transaction Bonuses

Certain executive officers of Gentiva, as determined by the compensation committee of the Gentiva board, will be eligible to receive bonuses from a $10 million executive bonus pool to be allocated at the sole discretion of the compensation committee. At least a significant minority of such bonus pool will be allocated to core management team members other than Mr. Windley, Gentiva’s Executive Chairman.

In addition, subject to the sole discretion of the compensation committee, Mr. Windley will receive, for 2014 and 2015, bonus payments in the ordinary course (apart from the timing of payment), both of which will be payable on or before the consummation of the merger. If these ordinary course bonus payments are paid to Mr. Windley, the amounts paid will be in the discretion of the compensation committee but will not exceed $2 million for 2014 and $1 million for 2015.

Directors’ Compensation

Under Gentiva’s director compensation policy, only directors who are not employees of Gentiva receive compensation for their services as directors. Non-employee directors receive an annual retainer of $50,000 payable in cash, plus a fee of $2,000 for each Board or committee meeting attended (or $750 if attendance is at a meeting held by telephone), and $750 for participating in each business update conducted by management. Any non-employee director who serves as chairperson of a committee of the Gentiva board of directors receives an additional $10,000 annual retainer for acting as chairperson, except that the chairperson of the audit committee receives a $20,000 annual retainer. The lead independent director receives an additional $20,000 annual retainer.

A majority of the non-employee directors’ compensation is in the form of deferred stock units awarded pursuant to the Stock & Deferred Compensation Plan for Non-Employee Directors (amended and restated as of December 31, 2007), as amended by Amendments No. 1, 2 and 3 thereto, (which we refer to as the Non-Employee Directors Plan). Pursuant to the Non-Employee Directors Plan, each non-employee director also receives an annual retainer in the form of a deferred stock unit award valued at $120,000, which is credited quarterly to a bookkeeping account for the non-employee director. The number of deferred stock units credited to each director’s account quarterly is calculated by dividing $30,000 by the average closing price of a share of Gentiva common stock on NASDAQ for the ten trading days preceding the quarterly calculation date. Upon termination of service on the Gentiva board of directors, the director is entitled to receive that number of shares of Gentiva common stock equal to the number of deferred stock units then credited to the director’s account. The shares of Gentiva common stock underlying the deferred stock units cannot be sold by the directors until termination of their directorship. After October 9, 2014, no additional deferred stock units will be awarded pursuant to the Non-Employee Directors Plan. In December 2014, each of the seven non-employee directors will receive a cash payment of $30,000.

Any director who is also an employee does not receive any additional compensation for serving on Gentiva’s board of directors. However, Gentiva reimburses all directors, regardless of whether or not they are Gentiva employees, for out-of-pocket expenses incurred in connection with attending board of directors and committee meetings.

Gentiva’s Employment Agreements with its Named Executive Officers

We have not entered into employment agreements with any of our named executive officers. We do have a letter agreement with Tony Strange, which is effective as of February 28, 2008 and sets out the terms and conditions of his employment with us, including his title, salary, bonus opportunity, equity compensation, severance benefits and health and welfare benefits. In connection with the promotion of Mr. Strange to Chief Executive Officer, effective January 1, 2009, we amended the letter agreement to increase his annual base salary to $625,000 (which was subsequently increased to $875,000) and his target annual bonus to 100% of base salary.

Board of Directors and Management of Kindred Following the Merger

Following the closing of the merger, the Kindred board of directors is expected to remain the same as the current Kindred board of directors, subject to the planned appointment of Benjamin A. Breier as a member,

 

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effective March 31, 2015. The Kindred senior management team after the closing of the merger is expected to be the same as the current senior management team of Kindred, with the addition of Mr. Causby and subject to the planned transition of Mr. Breier, who currently serves as Kindred’s Chief Operating Officer and President, as successor to Paul J. Diaz as Chief Executive Officer, effective March 31, 2015. Following Gentiva and Kindred’s entry into the merger agreement, Mr. Causby, who is currently a named executive officer of Gentiva, entered into an employment agreement with Kindred, pursuant to which he will become President of the combined Kindred at Home business and will serve on Kindred’s Executive Committee following the closing of the merger.

Information concerning the historical compensation paid by Kindred to its executive officers, all of whom are expected to continue as the executive officers of Kindred, can be found in Kindred’s Annual Report on Form 10-K for the year ended December 31, 2013. Information concerning the historical compensation paid by Gentiva to Mr. Causby can be found in Gentiva’s Annual Report on Form 10-K/A for the year ended December 31, 2013.

Listing of Kindred Common Stock Issued for Share Consideration; De-listing and Deregistration of Gentiva Common Stock

It is a condition to the merger that the shares of Kindred common stock in connection with the merger be authorized for issuance on the NYSE, subject to official notice of issuance. Shares of Kindred common stock are currently traded on the NYSE under the symbol “KND.” If the merger is completed, Gentiva common stock will no longer be listed on NASDAQ, will be deregistered under the Exchange Act and Gentiva will no longer file periodic reports with the SEC.

Regulatory Approvals

General. Kindred and Gentiva have agreed, subject to specified limitations, to use their reasonable best efforts to take, or cause to be taken, all reasonable actions, and to do, or cause to be done, and to assist and cooperate with the other in doing, all reasonable things necessary, proper or advisable under applicable law and regulations to complete the merger in the most expeditious manner practicable.

Under the merger agreement, the use of such reasonable best efforts does not require Kindred or merger sub to be obligated to accept any undertaking, enter into any consent order, make any divestiture or accept any operational restriction, or take or commit to take any action (i) the effectiveness or consummation of which is not conditional on the consummation of the merger or (ii) that individually or in the aggregate would reasonably be expected to have a material adverse effect on Kindred, Gentiva and their respective subsidiaries, taken as a whole, assuming for such purpose the businesses of Kindred, Gentiva and their respective subsidiaries, taken as a whole, had assets, liabilities, revenues, cash flows and operations the size of those of Gentiva and its subsidiaries, taken as a whole.

Antitrust. Under the HSR Act, certain acquisition transactions, including the merger, may not be completed unless certain information has been furnished to the Antitrust Division and the FTC and statutory waiting periods have expired or been terminated. In connection with the tender offer, pursuant to the requirements of the HSR Act, on June 18, 2014, Kindred filed a Notification and Report Form with respect to the potential acquisition of Gentiva and its subsidiaries with the Antitrust Division and the FTC (which it voluntarily withdrew on July 2, 2014, and re-filed on July 8, 2014, in order to ensure that the FTC had adequate time to review Kindred’s filings). Gentiva submitted its responsive filings under the HSR Act on June 24, 2014. On July 22, 2014, the FTC granted termination of the waiting period under the HSR Act. The completion of the merger is therefore not conditioned upon the expiration or termination of any statutory waiting period under the HSR Act. Kindred, merger sub and Gentiva have agreed to respond as promptly as practicable to any request for additional information or documentary material from governmental entities under the HSR Act or any other applicable antitrust laws and, subject to the limitations described above under “General,” to use their reasonable best efforts to take, or cause to be taken, all other actions as are necessary or advisable to obtain prompt approval of the

 

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transactions contemplated by the merger agreement by any governmental entity or expiration of applicable waiting periods.

Healthcare Regulatory and Other Approvals.

Federal and state laws and regulations require that Gentiva or Kindred obtain approvals, consents or certificates of need from, file new license and/or permit applications with, and/or provide notice to, applicable governmental authorities in connection with the merger.

In, addition, prior to February 28, 2015, the obligation of Kindred to consummate the merger is subject to:

 

•

completion of a “no control” affidavit process for state licensure consents and certificate of need approvals for the Gentiva home health business and Department of Insurance approval for the change of control for Gentiva’s captive insurance subsidiary, in the State of New York;

 

•

hospice state licensure consents and certificate of need approvals from the State of Rhode Island; and

 

•

home health certificate of need approval form the State of West Virginia.

See “The Merger Agreement—Conditions to Completion of the Merger” beginning on page 105.

Litigation Related to the Merger

On October 20, 2014, Siew K. Stevens filed a purported stockholder class action complaint against Gentiva, the members of the Gentiva board of directors, Kindred, and merger sub in the Delaware Court of Chancery, captioned Stevens v. Gentiva Health Services, Inc., et al., C.A. No. 10261-VCG. On October 24, 2014, Milton Pfeiffer filed a purported stockholder class action complaint against Gentiva, the members of the Gentiva board of directors, Kindred and merger sub in the Delaware Court of Chancery, captioned Pfeiffer v. Gentiva Health Services, Inc., et al., C.A. No. 10281-VCG. On November 7, 2014, Denise Kline filed a purported stockholder class action complaint against Gentiva, the members of the Gentiva board of directors, Kindred, and merger sub in the Delaware Court of Chancery, captioned Kline v. Gentiva Health Services, Inc., et al., C.A. No. 10333-VCG. Plaintiff in each action alleges that the members of the Gentiva board of directors breached their fiduciary duties by (a) agreeing to the merger for inadequate consideration and (b) agreeing to lock up the merger with various deal protection provisions. Plaintiff in each action further alleges that Gentiva, Kindred, and merger sub aided and abetted these alleged breaches of fiduciary duties. Plaintiff in each action seeks (among other things) to enjoin Gentiva and the Gentiva board of directors from consummating the merger, and requests attorneys’ fees, costs and damages in an unspecified amount. Plaintiff in the Pfeiffer action also seeks to rescind the merger to the extent already implemented and seeks rescissory damages as an alternative to rescission. Gentiva, the members of the Gentiva board of directors, Kindred and merger sub each believe that all allegations contained in the complaint filed in each of the Stevens, Pfeiffer and Kline actions are without merit. On November 18, 2014, the Stevens, Pfeiffer and Kline lawsuits were consolidated for all purposes by the Delaware Court of Chancery.

Dividend Policy of Kindred Following the Merger

The payment of dividends by Kindred after the merger is subject to the determination of its board of directors. Decisions regarding whether to pay dividends and the amount of any dividends will be based on compliance with the DGCL, compliance with agreements governing Kindred’s indebtedness, earnings, cash requirements, results of operations, cash flows and financial condition and other factors that the Kindred board of directors may consider important.

Financing Relating to the Merger

Kindred entered into the debt commitment letter with the debt commitment parties, pursuant to which the debt commitment parties committed to provide a $750 million senior secured asset-based revolving credit facility, a $992.5 million senior secured term loan facility and a $1,700 million senior unsecured bridge loan facility.

 

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The commitments for the asset-based revolving credit facility and the term loan facility were available to refinance Kindred’s existing credit facilities in the event that Kindred did not obtain the consents required for certain amendments to such credit facilities on or prior to the closing of the merger. The maturity dates of Kindred’s existing asset-based revolving credit facility and the term loan facility are April 9, 2019 and April 9, 2021, respectively. Kindred obtained the consents required for the amendments to its existing asset-based revolving credit facility and term loan facility on October 31, 2014 and November 25, 2014, respectively, and, as a result, the commitments for such facilities were terminated on such dates.

The commitments for the bridge loan facility are available to finance, in part, the cash portion of the merger consideration, refinance certain existing debt of Gentiva and/or pay transaction fees and expenses, but only to the extent Kindred has not completed planned offerings of senior unsecured notes, common stock and tangible equity units prior to the closing of the merger. On November 25, 2014, Kindred completed an offering of 150,000 7.50% tangible equity units for $150 million in gross cash proceeds and 5,000,000 shares of Kindred common stock for approximately $98.8 million in gross cash proceeds. On December 1, 2014, the underwriters for the tangible equity units and common stock offerings exercised their over-allotment options to purchase 22,500 additional tangible equity units for approximately $22.5 million in gross cash proceeds and 395,759 additional shares of Kindred common stock for approximately $7.8 million in gross cash proceeds, each of which closed on December 3, 2014. As a result of Kindred’s issuance of tangible equity units and common stock, the commitments for the bridge loan facility were reduced to $1,421 million.

On December 8, 2014, the escrow issuer launched the senior notes offering. The senior notes priced on December 11, 2014 and are expected to close on December 18, 2014. The senior notes consist of $750 million aggregate principal amount of 8.00% senior notes due 2020 and $600 million aggregate principal amount of 8.75% senior notes due 2023. The net proceeds of the offering will be deposited into an escrow account and such funds will be released to Kindred subject to the concurrent closing of the acquisition of Gentiva, the merger of the escrow issuer with and into Kindred, and Kindred’s assumption of the escrow issuer’s obligations under the senior notes. Kindred does not expect to draw on the bridge loan facility to complete the merger.

The bridge loan facility, if drawn, will mature initially on the first anniversary of the closing of the merger, at which time the maturity of any outstanding loans thereunder will be extended automatically to the eighth anniversary of the closing of the merger and may be exchanged by the lenders for notes due on such eighth anniversary.

The availability and funding of the debt financing commitments are subject to:

 

•

the non-occurrence of a material adverse effect regarding Gentiva;

 

•

the closing of the merger occurring no later than March 31, 2015;

•

the consummation of the merger in accordance with the terms of the merger agreement;

•

the repayment of certain indebtedness of Gentiva and the termination of commitments thereunder;

•

a 15 consecutive business day period for the marketing of senior notes after the delivery by Kindred of an offering memorandum or preliminary prospectus and other marketing materials for such notes; and

•

other customary conditions more fully set forth in the debt commitment letter.

In the merger agreement, Kindred has agreed to use its reasonable best efforts to obtain the debt financing on the terms and conditions described in the debt commitment letter, unless it has sufficient funds from other sources. Kindred may amend, replace or otherwise modify, or waive its rights under the debt commitment letter, unless such amendment, replacement, modification or waiver would:

 

•

reduce the aggregate amount of the debt financing; or

 

•

impose new or additional conditions or otherwise modify any of the conditions to the receipt of any portion of the debt financing in a manner that would reasonably be expected to (i) materially delay or

 

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prevent the closing of the merger, (ii) make the funding of the debt financing less likely to occur or (iii) adversely impact the ability of Kindred to enforce its rights against the debt commitment parties or any parties to the definitive financing agreements.

Kindred’s obligation to consummate the merger is not subject to its consummation of, nor its receipt of the proceeds from, the debt financing described in the debt commitment letter.

A copy of the debt commitment letter is filed as exhibit 10.1 hereto and incorporated by reference herein. This summary of terms and conditions of the debt financing commitments is qualified in its entirety by reference to the full text of the debt commitment letter.

On December 12, 2014, Kindred also entered into an incremental joinder agreement to its existing asset-based revolving credit facility. Upon the closing of the merger and the satisfaction of certain other conditions, the incremental joinder agreement provides for additional revolving commitments in an aggregate principal amount of $150 million. Kindred expects to finance, in part, the merger with borrowings under its existing asset-based revolving credit facility, regardless of whether it obtains such additional revolving commitments.

Gentiva Stockholders’ Rights of Appraisal

Under Section 262 of the DGCL, which we refer to as Section 262, stockholders are entitled to appraisal rights if they are required under the terms of a merger agreement to accept cash (other than cash in lieu of fractional shares) for their shares.

Stockholders who do not vote in favor of the merger, and who otherwise comply with the provisions of Delaware law described below, may pursue an appraisal remedy for the fair value of their shares of Gentiva common stock. Determination of “fair value” is based on all relevant factors, but excludes any appreciation or depreciation arising from the accomplishment or expectation of the merger. Stockholders who elect to exercise appraisal rights must comply with all the procedures to preserve those rights. Strict compliance with the statutory procedures in Section 262 is required. Failure to follow precisely any of the statutory requirements will result in the loss of your appraisal rights.

The following is intended to be a brief summary of the material provisions of Section 262, which sets forth the procedure for demanding statutory appraisal rights. This summary, however, is not a complete statement as to all requirements of Section 262 and is qualified in its entirety by reference to Section 262, a copy of the text of which is attached to this proxy statement/prospectus as Annex D. The following summary does not constitute any legal or other advice nor does it constitute a recommendation that stockholders exercise their appraisal rights under Section 262. Neither Gentiva nor Kindred will give you any notice of your appraisal rights other than as described in this proxy statement/prospectus and as required by the DGCL.

Under Section 262, when a merger agreement is to be submitted for adoption at a meeting of stockholders, the company submitting the matter to a vote of stockholders must notify the stockholders that appraisal rights will be available not less than twenty days before the meeting to vote on the transaction. This proxy statement/prospectus constitutes that notice to you. A copy of Section 262 must be included with this notice. A full copy of the text of Section 262 is attached to this proxy statement/prospectus as Annex D, in compliance with the requirements of Section 262. If you wish to consider exercising your appraisal rights, you are urged to carefully review the text of Section 262. Due to the complexity of the procedures for exercising the right to seek appraisal of shares of Gentiva common stock, Gentiva believes that if a stockholder is considering exercising such rights, such stockholders should seek the advice of legal counsel.

If you wish to demand appraisal of your shares of Gentiva common stock, you must satisfy each of the following conditions: you must deliver to Gentiva a written demand for appraisal of your shares of Gentiva common stock before the vote is taken to approve the proposal to adopt the merger agreement, which must be separate from the proxy; you must reasonably inform Gentiva of your identity; and you must not vote or submit a proxy in favor of the proposal to adopt the merger agreement.

 

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If you fail to comply with any of these conditions and the merger is completed, you will be entitled to receive payment for your shares of Gentiva common stock as provided for in the merger agreement, but you will have no appraisal rights with respect to your shares of Gentiva common stock. A holder of shares of Gentiva common stock wishing to exercise appraisal rights must hold of record the shares of Gentiva common stock on the date the written demand for appraisal is made and must continue to hold such shares of Gentiva common stock of record through the effective time of the merger, because appraisal rights will be lost if such shares of Gentiva common stock are transferred prior to the effective time of the merger. A proxy that is submitted and does not contain voting instructions will, unless revoked, be voted in favor of the proposal to adopt the merger agreement, and it will constitute a waiver of the stockholder’s right of appraisal and will nullify any previously delivered written demand for appraisal. Therefore, a stockholder who submits a proxy and who wishes to exercise appraisal rights must either submit a proxy containing instructions to vote against the proposal to adopt the merger agreement or abstain from voting on the proposal to adopt the merger agreement. Voting against or failing to vote for the proposal to adopt the merger agreement by itself does not constitute a demand for appraisal within the meaning of Section 262. The written demand for appraisal must be in addition to and separate from any proxy or vote on the proposal to adopt the merger agreement.

All demands for appraisal should be addressed to Gentiva’s Secretary, 3350 Riverwood Parkway, Suite 1400, Atlanta, Georgia 30339, and must be delivered before the vote is taken to approve the proposal to adopt the merger agreement at the special meeting. The demand must reasonably inform Gentiva of the identity of the stockholder and the intention of the stockholder to demand appraisal of the “fair value” of his, her or its shares of Gentiva common stock. A stockholder’s failure to make the written demand prior to the taking of the vote on the adoption of the merger agreement at the special meeting of Gentiva stockholders will constitute a waiver of appraisal rights.

Only a holder of record of shares of Gentiva common stock is entitled to demand an appraisal of the shares registered in that holder’s name. Accordingly, to be effective, a demand for appraisal by a stockholder of Gentiva common stock must be made by, or in the name of, the record stockholder, fully and correctly, as the stockholder’s name appears on the stockholder’s stock certificate(s) or in the transfer agent’s records, in the case of uncertificated shares, should specify the stockholder’s mailing address and the number of shares registered in the stockholder’s name, and must state that the person intends thereby to demand appraisal of the stockholder’s shares in connection with the merger. The demand cannot be made by the beneficial owner if he or she does not also hold the shares of Gentiva common stock of record. The beneficial holder must, in such cases, have the registered owner, such as a broker, bank or other nominee, submit the required demand with respect to those shares of Gentiva common stock. If you hold your shares of Gentiva common stock through a broker, bank or other nominee and you wish to exercise appraisal rights, you should consult with your broker, bank or other nominee to determine the appropriate procedures for the making of a demand for appraisal by the nominee.

If shares of Gentiva common stock are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of a demand for appraisal should be made in that capacity. If the shares of Gentiva common stock are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand should be executed by or for all joint owners. An authorized agent, including an authorized agent for two or more joint owners, may execute the demand for appraisal for a stockholder of record; however, the agent must identify the record owner or owners and expressly disclose the fact that, in executing the demand, he or she is acting as agent for the record owner. A record owner, such as a broker, bank or other nominee, who holds shares of Gentiva common stock as a nominee for others, may exercise his or her right of appraisal with respect to the shares of Gentiva common stock held for one or more beneficial owners, while not exercising this right for other beneficial owners. In that case, the written demand should state the number of shares of Gentiva common stock as to which appraisal is sought. Where no number of shares of Gentiva common stock is expressly mentioned, the demand will be presumed to cover all shares of Gentiva common stock held in the name of the record owner.

 

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Within ten days after the effective time of the merger, the surviving corporation must give written notice of the effective date of the merger to each stockholder who has properly filed a written demand for appraisal and who did not vote in favor of the proposal to adopt the merger agreement. At any time within sixty days after the effective time, any stockholder who has not commenced an appraisal proceeding or joined a proceeding as a named party may withdraw the demand and accept the consideration specified by the merger agreement for that stockholder’s shares of Gentiva common stock by delivering to the surviving corporation a written withdrawal of the demand for appraisal. However, any such attempt to withdraw the demand made more than sixty days after the effective time will require written approval of the surviving corporation. Unless the demand is properly withdrawn by the stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party within sixty days after the effective date of the merger, no appraisal proceeding in the Delaware Court of Chancery will be dismissed as to any stockholder without the approval of the Delaware Court of Chancery, with such approval conditioned upon such terms as the court deems just. If the surviving corporation does not approve a request to withdraw a demand for appraisal when that approval is required, or, except with respect to any stockholder who withdraws such stockholder’s right to appraisal in accordance with the proviso in the immediately preceding sentence, if the Delaware Court of Chancery does not approve the dismissal of an appraisal proceeding, the stockholder will be entitled to receive only the appraised value determined in any such appraisal proceeding, which value could be less than, equal to or more than the merger consideration.

Within 120 days after the effective time of the merger, but not thereafter, either the surviving corporation or any stockholder who has complied with the requirements of Section 262 and is entitled to appraisal rights under Section 262 may commence an appraisal proceeding by filing a petition in the Delaware Court of Chancery demanding a determination of the fair value of the shares of Gentiva common stock held by all stockholders entitled to appraisal. Upon the filing of the petition by a stockholder, service of a copy of such petition shall be made upon the surviving corporation. The surviving corporation has no obligation to file such petition and has no present intention to file a petition and holders should not assume that the surviving corporation will file a petition. In the event that the surviving corporation does not file such petition, it is the obligation of the stockholders to initiate all necessary action to perfect their appraisal rights with respect to shares of Gentiva common stock within the time prescribed in Section 262. The failure of a stockholder to file such a petition within the period specified in Section 262 could nullify the stockholder’s previous written demand for appraisal. In addition, within 120 days after the effective time, any stockholder who has properly filed a written demand for appraisal and who did not vote in favor of the merger agreement, will be entitled to receive from the surviving corporation, upon written request, a statement setting forth the aggregate number of shares of Gentiva common stock not voted in favor of the merger agreement and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. The statement must be mailed within ten days after such written request has been received by the surviving corporation or within ten days after the expiration of the period for delivery of demands for appraisal, whichever is later. A person who is the beneficial owner of shares of Gentiva common stock held either in a voting trust or by a nominee on behalf of such person may, in such person’s own name, file a petition for appraisal or request from the surviving corporation such statement.

If a petition for appraisal is duly filed by a stockholder and a copy of the petition is delivered to the surviving corporation, then the surviving corporation will be obligated, within twenty days after receiving service of a copy of the petition, to file with the Delaware Register in Chancery a duly verified list containing the names and addresses of all stockholders who have demanded an appraisal of their shares of Gentiva common stock and with whom agreements as to the value of their shares of Gentiva common stock have not been reached. After notice to stockholders who have demanded appraisal, if such notice is ordered by the Delaware Court of Chancery, the Delaware Court of Chancery is empowered to conduct a hearing upon the petition and to determine those stockholders who have complied with Section 262 and who have become entitled to the appraisal rights provided by Section 262. The Delaware Court of Chancery may require stockholders who have demanded payment for their shares of Gentiva common stock to submit their stock certificates to the Register in Chancery for notation of the pendency of the appraisal proceedings; and if any stockholder fails to comply with that direction, the Delaware Court of Chancery may dismiss the proceedings as to that stockholder.

 

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After determination of the stockholders entitled to appraisal of their shares of Gentiva common stock, the Delaware Court of Chancery will appraise the shares of Gentiva common stock, determining their fair value as of the effective time of the merger after taking into account all relevant factors exclusive of any element of value arising from the accomplishment or expectation of the merger, together with interest, if any, to be paid upon the amount determined to be the fair value. When the fair value has been determined, the Delaware Court of Chancery will direct the payment of such value upon surrender by those stockholders of the certificates representing their shares of Gentiva common stock. Unless the Court in its discretion determines otherwise for good cause shown, interest from the effective date of the merger through the date of payment of the judgment shall be compounded quarterly and shall accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective time of the merger and the date of payment of the judgment.

Neither Gentiva nor Kindred anticipates offering more than the per share merger consideration to any stockholder exercising appraisal rights and each reserves the right to assert, in any appraisal proceeding, that, for purposes of Section 262, the “fair value” of a share of Gentiva common stock is less than the per share merger consideration. In determining “fair value,” the court is required to take into account all relevant factors. In Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983), the Delaware Supreme Court discussed the factors that could be considered in determining fair value in an appraisal proceeding, stating that “proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court” should be considered and that “[f]air price obviously requires consideration of all relevant factors involving the value of a company.” The Delaware Supreme Court has stated that in making this determination of fair value, the court must consider market value, asset value, dividends, earnings prospects, the nature of the enterprise and any other facts that could be ascertained as of the date of the merger that throw any light on future prospects of the merged corporation. Section 262 provides that fair value is to be “exclusive of any element of value arising from the accomplishment or expectation of the merger.” In Cede & Co. v. Technicolor, Inc., 634 A.2d 345 (Del. 1993), the Delaware Supreme Court stated that such exclusion is a “narrow exclusion [that] does not encompass known elements of value,” but which rather applies only to the speculative elements of value arising from such accomplishment or expectation. In Weinberger, the Delaware Supreme Court also stated that “elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered.” In addition, the Delaware Courts have decided that the statutory appraisal remedy, depending on factual circumstances, may or may not be a dissenting stockholder’s exclusive remedy.

Costs of the appraisal proceeding (which do not include attorneys’ fees or the fees and expenses of experts) may be determined by the Delaware Court of Chancery and imposed upon the surviving corporation and the stockholders participating in the appraisal proceeding by the Delaware Court of Chancery, as it deems equitable in the circumstances. Upon the application of a stockholder, the Delaware Court of Chancery may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts used in the appraisal proceeding, to be charged pro rata against the value of all shares of Gentiva common stock entitled to appraisal. Any stockholder who demanded appraisal rights will not, after the effective time, be entitled to vote shares of Gentiva common stock subject to that demand for any purpose or to receive payments of dividends or any other distribution with respect to those shares of Gentiva common stock, other than with respect to payment as of a record date prior to the effective time. If no petition for appraisal is filed within 120 days after the effective time, or if the stockholder otherwise fails to perfect his or her appraisal rights, successfully withdraws or loses such holder’s right to appraisal, then the right of that stockholder to appraisal will cease and that stockholder’s shares of Gentiva common stock will be deemed to have been converted at the effective time into the right to receive the merger consideration pursuant to the merger agreement. In addition, as indicated above, a stockholder may withdraw his, her or its demand for appraisal in accordance with Section 262 and accept the merger consideration offered pursuant to the merger agreement.

 

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Failure to comply strictly with all of the procedures set forth in Section 262 of the DGCL will result in the loss of a stockholder’s statutory appraisal rights. In view of the complexity of Section 262 of the DGCL, Gentiva stockholders who may wish to pursue appraisal rights should consult their legal and financial advisors.

Accounting Treatment

The merger will be accounted for under the acquisition method of accounting, in conformity with GAAP. Under the acquisition method of accounting, the assets (including identifiable intangible assets) and liabilities (including executory contracts and other commitments) of Gentiva as of the effective time will be recorded at their respective fair values and added to those of Kindred. Any excess of purchase price over the fair value of the assets is recorded as goodwill. Financial statements of Kindred issued after the merger would reflect these fair values.

 

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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

The following is a summary of the material U. S. federal income tax consequences of the merger and ownership of Kindred common stock to U.S. holders and non-U.S. holders (as defined below) of Gentiva common stock who hold their stock as a capital asset (generally, assets held for investment). This summary is based on the provisions of the Internal Revenue Code of 1986, which we refer to as the Code, Treasury regulations, administrative rulings and judicial authority, all as in effect as of the date hereof, and all of which are subject to change, possibly with retroactive effect. No assurances can be given that any change in these laws or authorities will not affect the accuracy of the discussion set forth herein.

This summary is not a complete description of all the tax consequences of the merger and, in particular, may not address U.S. federal income tax considerations applicable to holders of Gentiva common stock who are subject to special treatment under U.S. federal income tax law, including, for example certain U.S. expatriates, banks, financial institutions, S corporations, partnerships, limited liability companies taxed as partnerships, or other pass-through entities (or investors in such pass-through entities), dealers in securities, traders in securities that elect mark-to-market treatment, insurance companies, tax-exempt entities, persons whose “functional currency” is not the U.S. dollar, holders who are subject to the alternative minimum tax, holders who acquired Gentiva common stock pursuant to the exercise of an employee stock option or right or otherwise as compensation, holders exercising dissenters’ rights or appraisal rights, and holders who hold Gentiva common stock as part of a hedge, straddle, constructive sale or conversion transaction.

This summary does not address U.S. federal income tax considerations applicable to holders of options to purchase Gentiva common stock, or holders of other Gentiva equity or cash-based awards. In addition, this summary does not address any aspect of state, local or non-U.S. laws or estate, gift, excise or other non-income tax laws, including U.S. Medicare taxes. Neither Kindred nor Gentiva has requested a ruling from the Internal Revenue Service (which we refer to as the IRS) in connection with the merger. Accordingly, the discussion below neither binds the IRS nor precludes it from adopting a contrary position. Furthermore, no opinion of counsel has been, or is expected to be, rendered with respect to the tax consequences of the merger.

WE URGE HOLDERS TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER IN LIGHT OF THEIR PERSONAL CIRCUMSTANCES AND THE CONSEQUENCES OF THE MERGER UNDER U.S. FEDERAL NON-INCOME TAX LAWS AND STATE, LOCAL AND NON-U.S. TAX LAWS.

For purposes of this discussion, the term “U.S. holder” means a beneficial holder of Gentiva common stock that is:

 

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a citizen or resident of the U.S.;

 

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a corporation (including any entity treated as a corporation for U.S. federal income tax purposes) created or organized under the laws of the U.S. or any of its political subdivisions;

 

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a trust that (i) is subject to the supervision of a court within the U.S. and the control of one or more U.S. persons or (ii) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person; or

 

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an estate that is subject to U.S. federal income tax on its income regardless of its source.

If a partnership (including any entity or arrangement, domestic or foreign, treated as a partnership for U.S. federal income tax purposes) holds Gentiva common stock, the tax treatment of a partner will generally depend on the status of the partners and the activities of the partnership. Partnerships and partners in such a partnership should consult their tax advisors about the tax consequences of the merger to them.

U.S. Holders

Tax Consequences of the Merger. The exchange of Gentiva common stock for Kindred common stock and cash in the merger will be a taxable transaction for U.S. federal income tax purposes. A U.S. holder whose

 

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Gentiva common stock is converted into the right to receive Kindred common stock and cash in the merger will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference, if any, between (1) the sum of (i) the fair market value of Kindred common stock received by such holder in the merger, and (ii) the amount of cash received by such holder in the merger, including any cash received in lieu of fractional shares of Kindred common stock, and (2) the U.S. holder’s adjusted tax basis in such Gentiva common stock. A U.S. holder’s adjusted tax basis will generally equal the price the U.S. holder paid for such Gentiva common stock. Gain or loss will be determined separately for each block of Gentiva common stock. A block of stock is generally a group of shares acquired at the same cost in a single transaction. Such gain or loss will be long-term capital gain or loss provided that a U.S. holder’s holding period for such Gentiva common stock is more than one year at the time of the completion of the merger. Long-term capital gains of certain non-corporate U.S. holders (including individuals) may be taxable at preferential rates. A U.S. holder’s aggregate tax basis in its Kindred common stock received in the merger will equal the fair market value of such stock at the effective time, and the holder’s holding period for such stock will begin on the day after the merger.

Ownership of Kindred Common Stock. As a result of the merger, current Gentiva stockholders will hold Kindred common stock. In general, distributions with respect to Kindred common stock will constitute dividends to the extent made out of current or accumulated earnings and profits, as determined under U.S. federal income tax principles. If a distribution exceeds Kindred’s current and accumulated earnings and profits, the excess will be treated as a non-taxable return of capital to the extent of a U.S. holder’s adjusted tax basis in its shares and thereafter as capital gain from the sale or exchange of such shares. Dividends received by a corporate U.S. holder will be eligible for the dividends-received deduction, provided such a corporate U.S. holder meets certain holding period and other applicable requirements. Dividends received by a non-corporate U.S. holder are taxable at preferential rates provided such a non-corporate U.S. holder meets certain holding period and other applicable requirements.

Upon the sale or other disposition of Kindred common stock, a U.S. holder will generally recognize capital gain or loss equal to the difference between the amount realized and the adjusted tax basis in its Kindred common stock. Such capital gain or loss will generally be long-term if the selling stockholder’s holding period in respect of such shares (as discussed under “—Tax Consequences of the Merger” above) is more than one year. Certain non-corporate U.S. holders (including individuals) may be eligible for preferential tax rates in respect of long-term capital gain. The deductibility of capital losses is subject to limitations.

Non-U.S. Holders

A “non-U.S. holder” is a beneficial owner of Gentiva common stock (other than an entity treated as a partnership for U.S. federal income tax purposes) that is not a U.S. holder.

Tax Consequences of the Merger. Any gain a non-U.S. holder recognizes from the exchange of Gentiva common stock for Kindred common stock and cash in the merger generally will not be subject to U.S. federal income tax unless (a) the gain is effectively connected with a trade or business conducted by the non-U.S. holder in the United States (and, if an income tax treaty applies, is attributable to a U.S. permanent establishment maintained by the non-U.S. holder), or (b) in the case of a non-U.S. holder who is an individual, such holder is present in the United States for 183 days or more in the taxable year of the sale and other conditions are met.

Non-U.S. holders described in (a) above, will generally be subject to tax on gain (net of certain deductions) recognized at applicable U.S. federal income tax rates and, in addition, non-U.S. holders that are corporations (or treated as corporations for U.S. federal income tax purposes) may be subject to a branch profits tax equal to 30% (or lesser rate under an applicable income tax treaty) on your effectively connected earnings and profits for the taxable year, which would include such gain. Non-U.S. holders described in (b) above, will be subject to a flat 30% tax on any gain recognized, which may be offset by U.S.-source capital losses.

Ownership of Kindred Common Stock. As a result of the merger, current Gentiva stockholders will hold Kindred common stock. Dividends paid to non-U.S. holders (to the extent paid out of Kindred’s current or accumulated earnings and profits, as determined for U.S. federal income tax purposes) with respect to such

 

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shares of Kindred common stock will be subject to withholding at a 30% rate or such lower rate as may be specified by an applicable income tax treaty unless the dividends are effectively connected with the conduct of a trade or business within the United States and, if certain tax treaties apply, are attributable to a U.S. permanent establishment, as discussed below. Even if a non-U.S. holder is eligible for a lower treaty rate, Kindred will generally be required to withhold at a 30% rate (rather than the lower treaty rate) on dividend payments unless (1) Kindred has received a valid IRS Form W-8BEN or other documentary evidence establishing entitlement to a lower treaty rate with respect to such payments, and (2) in the case of actual or constructive dividends paid, if required by the Foreign Account Tax Compliance Act or any intergovernmental agreement enacted pursuant to that law, the non-U.S. holder or any entity through which the non-U.S. holder receives such dividends has provided the withholding agent with certain information with respect to the non-U.S. holder’s or the entity’s direct and indirect U.S. owners, and if the non-U.S. holder holds the Kindred common stock through a foreign financial institution, such institution has entered into an agreement with the U.S. government to collect and provide to the U.S. tax authorities information about its accountholders (including certain investors in such institution or entity) and the non-U.S. holder has provided any required information to such institution.

If a non-U.S. holder is subject to withholding at a rate in excess of a reduced rate for which it is eligible under a tax treaty or otherwise, it may be able to obtain a refund of or credit for any amounts withheld in excess of the applicable rate. Investors are encouraged to consult with their own tax advisors regarding the possible implications of these withholding requirements.

Dividends that are effectively connected with the conduct of a trade or business within the United States and, if certain tax treaties apply, are attributable to a U.S. permanent establishment, are not subject to withholding tax, but instead are subject to U.S. federal income tax on a net income basis at applicable graduated rates. Special certification and disclosure requirements must be satisfied for effectively connected income to be exempt from withholding. Any such effectively connected dividend received by a non-U.S. holder that is a corporation for U.S. federal income tax purposes may be subject to an additional branch profits tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.

Any gain a non-U.S. holder recognizes on the sale or other taxable disposition of Kindred common stock generally will not be subject to U.S. federal income tax unless (a) the gain is effectively connected with a trade or business conducted by the non-U.S. holder in the United States (and, if an income tax treaty applies, is attributable to a U.S. permanent establishment maintained by the Non-U.S. holder), or (b) in the case of a non-U.S. holder who is an individual, such holder is present in the United States for 183 days or more in the taxable year of the sale and other conditions are met. In the case of dispositions of Kindred common stock on or after January 1, 2017, a non-U.S. holder may be subject to a 30% withholding tax on the gross proceeds of the sale or disposition under the Foreign Account Tax Compliance Act unless the requirements described in (2) under the first paragraph of this section are satisfied. Investors are encouraged to consult with their own tax advisors regarding the possible impactions of these withholding requirements.

Information Reporting and Backup Withholding

In general, information reporting requirements may apply to the amounts paid to U.S. holders and non-U.S. holders in connection with the merger consideration, dividends paid with respect to Kindred common stock and proceeds received from the sale or exchange of Kindred common stock, unless an exemption applies. Backup withholding may be imposed (currently at a 28% rate) on the above payments if a U.S. holder or non-U.S. holder (1) fails to provide a taxpayer identification number or appropriate certifications or (2) fails to report certain types of income in full.

Any amounts withheld under the backup withholding rules are not additional tax and will be allowed as a refund or credit against applicable U.S. federal income tax liability provided the required information is furnished to the IRS.

 

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THE FOREGOING DISCUSSION OF UNITED STATES FEDERAL INCOME TAX CONSEQUENCES IS FOR GENERAL INFORMATION PURPOSES ONLY AND IS NOT INTENDED TO CONSTITUTE A COMPLETE DESCRIPTION OF ALL TAX CONSEQUENCES RELATING TO THE MERGER. TAX MATTERS ARE VERY COMPLICATED, AND THE TAX CONSEQUENCES OF THE MERGER TO HOLDERS WILL DEPEND UPON THE FACTS OF THEIR PARTICULAR SITUATION. BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, HOLDERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE APPLICABILITY TO THEM OF THE RULES DISCUSSED ABOVE AND THE PARTICULAR TAX EFFECTS TO THEM OF THE MERGER, INCLUDING THE APPLICATION OF STATE, LOCAL AND FOREIGN TAX LAWS.

 

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THE MERGER AGREEMENT

The following is a summary of certain material provisions of the merger agreement, a copy of which is attached as Annex A to this proxy statement/prospectus and is incorporated into this proxy statement/prospectus by reference. Gentiva and Kindred urge you to read carefully this entire proxy statement/prospectus, including the annexes and the other documents which have been referred to you. You should also review the section titled “Where You Can Find More Information” beginning on page 147.

This summary does not purport to be complete and may not contain all of the information about the merger that is important to you. The merger agreement has been included for your convenience to provide you with information regarding its terms, and we recommend that you read it in its entirety. Except for its status as the contractual document that establishes and governs the legal relations between Gentiva and Kindred with respect to the merger, Gentiva and Kindred do not intend for the merger agreement to be a source of factual, business or operational information about either Gentiva or Kindred. The merger agreement contains representations and warranties that Gentiva and Kindred have made to each other for the principal purpose of establishing the circumstances in which a party to the merger agreement may have the right not to consummate the merger if the representations and warranties of the other party prove to be untrue due to a change in circumstances or otherwise, and allocating risk between the parties to the merger agreement, rather 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 merger agreement.

First, except for the parties themselves, under the terms of the merger agreement, only certain other specifically identified persons are third party beneficiaries of the merger agreement who may enforce it and rely on its terms.

Second, the representations and warranties are qualified in their entirety by certain information of each of Gentiva and Kindred filed with the SEC prior to the date of the merger agreement, as well as by confidential disclosure schedules that each of Gentiva and Kindred prepared and delivered to the other immediately prior to signing the merger agreement.

Third, certain of the representations and warranties made by Gentiva, on the one hand, and Kindred, on the other hand, were made as of a specified date, may be subject to a contractual standard of materiality different from what might be viewed as material to stockholders, and may have been used for the purpose of allocating risk between the parties to the merger agreement rather than as establishing matters as facts.

Fourth, none of the representations or warranties will survive the closing of the merger and they will therefore have no legal effect under the merger agreement after the closing. The parties will not be able to assert the inaccuracy of the representations and warranties as a basis for refusing to close unless all such inaccuracies would reasonably be expected to have, individually or in the aggregate, a material adverse effect on the party that made the representations and warranties, except for certain limited representations and warranties that must be true and correct in all, or all but de minimis, respects. Otherwise, for purposes of the merger agreement, the representations and warranties will be deemed to have been sufficiently accurate to require a closing.

For the foregoing reasons, you should not rely on the representations and warranties as statements of factual information. Moreover, information concerning the subject matter of the representations and warranties may have changed since the date of the merger agreement, and subsequently developed or new information qualifying a representation or warranty may have been included in a filing with the SEC made since the date of the merger agreement (including in this proxy statement/prospectus).

The Merger; Closing

Upon the terms and subject to the conditions of the merger agreement, and in accordance with Delaware law, at the effective time, merger sub will merge with and into Gentiva, with Gentiva continuing as the surviving corporation and a wholly owned subsidiary of Kindred.

 

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Unless Gentiva and Kindred agree otherwise, the closing of the merger will occur on the third business day following the date on which all of the conditions to the merger, other than conditions that, by their nature are to be satisfied at the closing (but subject to satisfaction, or, to the extent permissible, waiver of those conditions at closing) have been satisfied or, to the extent permissible, waived. However, if such conditions have been satisfied or waived but the marketing period (as described below) has not ended, the closing will occur at the earlier of (i) the third business day following the final day of the marketing period and (ii) a date during the marketing period specified by Kindred with at least two business days’ notice to Gentiva, in each case, subject to satisfaction or waiver of such conditions. The term “marketing period” is defined in the merger agreement to mean the first period of twenty consecutive business days subject to certain excluded dates throughout which (i) Kindred has received (and its financing sources have had access to) all financial information of Gentiva that meets specified requirements as more fully descried in the merger agreement and (ii) all of the conditions to the closing of the merger are capable of being satisfied (other than the adoption of the merger agreement by Gentiva stockholders, the receipt of certain regulatory approvals specified in the merger agreement and those conditions that by their nature can only be satisfied at the closing) if closing were scheduled for any time during such period. However, the marketing period will not commence prior to the mailing of this proxy statement/prospectus to Gentiva stockholders, and will end on any earlier date on which the full amount of the financing contemplated under the debt commitment letter is funded.

Subject to the satisfaction or waiver of the conditions to the closing of the merger described in the section entitled “The Merger Agreement—Conditions to Completion of the Merger” beginning on page 105 of this proxy statement/prospectus, including the adoption of the merger agreement by Gentiva stockholders at the special meeting, it is anticipated that the merger will be completed in the first quarter of 2015. It is possible that factors outside the control of both companies could result in the merger being completed at a different time, or not at all.

Upon the closing, Kindred, merger sub and Gentiva will file a certificate of merger with the Secretary of State of the State of Delaware. The effective time will be the time the certificate of merger is filed or at a later time upon which the parties may mutually agree and specify in the certificate of merger.

Certificate of Incorporation and Bylaws of the Surviving Corporation; Directors and Officers

At the effective time, the certificate of incorporation of merger sub, as amended as set forth in Exhibit A of the merger agreement, and the bylaws of merger sub as in effect immediately prior to the effective time, will become the certificate of incorporation and bylaws of the surviving corporation.

The individuals holding positions as directors and officers of merger sub immediately prior to the effective time will become the initial directors and officers of the surviving corporation.

Merger Consideration

At the effective time, each share of Gentiva common stock outstanding immediately prior to the effective time (other than shares owned by (i) Kindred or Gentiva or their respective wholly owned subsidiaries (which will be canceled) or (ii) stockholders who have properly exercised and perfected appraisal rights under the DGCL) will be converted into the right to receive the merger consideration, without interest.

Fractional Shares

No fraction of a share of Kindred common stock will be issued in the merger. Instead, holders of Gentiva common stock who would otherwise be entitled to receive a fraction of a share of Kindred common stock will receive, upon surrender for exchange of Gentiva common stock, an amount in cash (rounded to the nearest whole cent), without interest, equal to the product of (i) such fraction multiplied by (ii) the average closing price per share of Kindred common stock on the NYSE for the 10 consecutive trading days ending immediately prior to the closing date of the merger, which we refer to as the Kindred closing price.

 

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Exchange Procedures

Prior to the effective time, Kindred will appoint an exchange agent reasonably acceptable to Gentiva to pay the merger consideration to the holders of Gentiva common stock in connection with the merger, including the payment of cash for fractional shares. Immediately prior to the effective time, Kindred will deposit with the exchange agent, for the benefit of the holders of Gentiva common stock, book-entry shares representing the total number of shares of Kindred common stock issuable in the merger and cash sufficient to pay the cash consideration. From time to time thereafter, Kindred will deposit with the exchange agent funds sufficient to pay cash in lieu of fractional shares and in respect of any dividends or distributions on Kindred common stock with a record date after the effective time.

At the effective time, each certificate representing shares or uncertificated shares in book-entry form of Gentiva common stock that has not been surrendered, other than any shares owned by Kindred or Gentiva, will represent only the right to receive, upon such surrender and without any interest, the merger consideration into which such shares of Gentiva common stock were converted. Following the effective time, no further registrations of transfers on the stock transfer books of Gentiva of the shares of Gentiva common stock will be made. If, after the effective time, Gentiva stock certificates or shares of Gentiva common stock represented by book-entry are presented to Kindred, the surviving corporation or the exchange agent, for any reason, they will be canceled and exchanged as described above.

Exchange of Shares

Promptly after the effective time, Kindred will send, or will cause the exchange agent to send, to each holder of record of shares of Gentiva common stock at the effective time, a letter of transmittal and instructions explaining how to surrender Gentiva stock certificates or transfer book-entry shares in exchange for the merger consideration.

After the effective time, and upon surrender of a Gentiva stock certificate or transfer of a book-entry share to the exchange agent, together with a letter of transmittal or “agent’s message,” the holder of the Gentiva stock certificate or book-entry share will be entitled to receive the merger consideration, and the Gentiva stock certificates or book entries evidencing book-entry shares so surrendered will be canceled. No interest will be paid or will accrue on any merger consideration payable under the merger agreement. If payment is to be made to a person other than the person in whose name the certificate or book-entry share surrendered or transferred is registered, the certificate or book-entry share so surrendered must be properly endorsed or otherwise in proper form for transfer and the person requesting such payment must pay any transfer or other taxes required by the reason of the payment to a person other than the registered holder of the certificate or book-entry share so surrendered, unless the person requesting such payment can establish to the satisfaction of the exchange agent that such tax has been paid or is not payable.

Lost Stock Certificates

If any stock certificate has been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the stock certificate to be lost, stolen or destroyed and, if required by Kindred, the posting by such person of a bond in a reasonable amount as Kindred may direct as indemnity against any claim that may be made against it with respect to the stock certificate, the exchange agent will issue, in exchange for such lost, stolen or destroyed stock certificate, the merger consideration in respect of such shares. These procedures will be described in the letter of transmittal that Gentiva stockholders will receive, which such stockholders should read carefully in its entirety.

Effect of the Merger on Gentiva’s Equity Awards

Stock Options

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Kindred closing price) and (ii) the cash consideration, that is or will become vested as a result of the merger, will be canceled and converted into the right to receive an amount in cash equal to the cash consideration plus the value of the stock consideration (based on the Kindred closing price), less the exercise price, subject to withholding taxes. Each Gentiva option that is outstanding immediately prior to the effective time of the merger with a per share exercise price at or above the sum of the (i) value of the stock consideration (based on the Kindred closing price) and (ii) the cash consideration or that will not vest as a result of the merger will be converted into an option to purchase a number of shares of Kindred common stock determined by multiplying the number of shares of Gentiva common stock subject to such Gentiva option by a fraction, the numerator of which is the sum of (A) the product of the stock consideration multiplied by the Kindred closing price and (B) the cash consideration and the denominator of which is the Kindred closing price.

Gentiva Restricted Stock; Deferred Stock Units

Each outstanding share of Gentiva restricted stock that will vest as a result of the merger and each outstanding Gentiva deferred stock unit will receive the merger consideration, subject to withholding taxes. Each outstanding share of Gentiva restricted stock that will not vest as a result of the merger will receive merger consideration in the form of a restricted Kindred cash award in the amount of cash consideration and restricted Kindred common stock in the amount of stock consideration, in each case subject to the vesting conditions of such restricted shares prior to the effective time of the merger.

Performance Cash Awards

Each Gentiva performance cash award that will become vested as a result of the merger will be accelerated and the recipient thereof will receive an amount in cash, without interest, equal to the target amount of such cash award (unless such performance cash award provides for the accelerated vesting of such award at the maximum level, in which case the recipient thereof will receive an amount in cash, without interest, equal to the maximum amount of such cash award), subject to withholding taxes. Each Gentiva performance cash award that will not vest as a result of the merger will be converted into the right to receive a Kindred cash award, subject to the vesting conditions of such performance cash award prior to the effective time of the merger. To the extent that any performance cash award is, immediately prior to the effective time, subject to any performance-based vesting or other performance conditions, the Kindred board, or an applicable committee thereof, may, following the effective time make such equitable adjustments, if any, to the applicable performance goals or conditions relating to the Kindred cash award received by the holder of such performance cash award, as the Kindred board (or such committee thereof) may determine to be necessary or appropriate as a result of the consummation of the transactions contemplated by the merger agreement, including the merger, and, in each case, subject to and in accordance with the terms and conditions of the applicable performance cash award and the applicable Gentiva stock plan.

Employee Stock Purchase Plan

The merger agreement provides that as soon as practicable following the date of the merger agreement, Gentiva will take all reasonable actions, including adopting any necessary resolution, to (i) terminate the Gentiva Employee Stock Purchase Plan, which we refer to as the ESPP, as of immediately prior to the closing date, (ii) ensure that no new offering period will be commenced after the date of the merger agreement, (iii) if the closing will occur prior to the end of the offering period in existence under the ESPP on the date of the merger agreement, cause a new exercise date to be set for the business day immediately prior to the closing, (iv) prohibit participants in the ESPP from altering their payroll deductions from those in effect on the date of the merger agreement (other than to discontinue their participation in the ESPP), and (v) provide that the amount of the accumulated contributions of each participant under the ESPP as of immediately prior to the effective time of the merger, to the extent not used to purchase shares of Gentiva common stock in accordance with the terms and conditions of the ESPP, be refunded to such participant as promptly as practicable following the effective time of the merger, without interest. Shares of Gentiva common stock purchased pursuant to the ESPP prior to the effective time will receive the merger consideration, as described above.

 

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Representations and Warranties

The merger agreement contains customary representations and warranties made by each party to the other, which are subject, in some cases, to specified exceptions and qualifications contained in the merger agreement and the matters contained in the confidential disclosure schedules that each of Gentiva and Kindred prepared and delivered to the other prior to signing the merger agreement. These representations and warranties relate to, among other things:

 

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due organization, good standing and the requisite corporate power and authority to carry on their respective businesses;

 

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capitalization;

 

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corporate power and authority to enter into the merger agreement, the valid and binding nature of the merger agreement and enforceability of the merger agreement;

 

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absence of conflicts with organizational documents, breaches of contracts and agreements, and liens upon assets and violations of applicable law resulting from the execution and delivery of the merger agreement and consummation of the transactions contemplated by the merger agreement;

 

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absence of required governmental consents in connection with execution, delivery and performance of the merger agreement and consummation of the transactions contemplated by the merger agreement other than governmental filings specified in the merger agreement;

 

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board of directors approval of the merger agreement and the voting agreement and, in the case of Gentiva, recommendation to its stockholders to adopt the merger agreement;

 

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timely filing of required documents with the SEC since January 1, 2012, compliance of such documents with the requirements of the Securities Act, and the Exchange Act, and the absence of untrue statements of material facts or omissions of material facts in those documents;

 

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compliance of financial statements with GAAP;

 

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effectiveness of internal controls over financial reporting and disclosure controls and procedures;

 

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compliance with the certifications required by the Sarbanes-Oxley Act;

 

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absence of any outstanding reviews by, or unresolved comments received by, auditors from the Public Company Accounting Oversight Board related to or in connection with audits completed or in progress by the accountants of the parties;

 

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absence of outstanding or unresolved SEC comments on documents filed with the SEC, and absence of any internal investigations, SEC inquiries or investigations or other governmental inquiries regarding accounting practices of the parties;

 

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absence of any liabilities other than (i) as and to the extent disclosed, reflected or reserved against in the most recent balance sheets of Gentiva and Kindred filed with the SEC prior to the date of the merger agreement, (ii) as incurred in the ordinary course of business since June 30, 2014, (iii) that would not have had, and would not reasonably be expected to have, individually or in the aggregate, a material adverse effect or (iv) arising out of or in connection with the merger agreement or the transactions contemplated thereby, including the merger;

 

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since December 31, 2013, conduct of business in the ordinary course and, in the case of Gentiva, absence of specified changes or events;

 

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absence since December 31, 2013 of any material adverse effect or any event, occurrence, fact, condition or change that has had or would reasonably be expected to have, individually or in the aggregate, a material adverse effect;

 

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no brokers’ or finders’ fees; and

 

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absence of misleading information contained or incorporated into this proxy statement/prospectus.

 

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Gentiva made certain additional representations and warranties to Kindred in the merger agreement, including with respect to the following matters:

 

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ownership of subsidiaries;

 

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inapplicability of takeover statutes;

 

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tax matters;

 

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intellectual property;

 

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compliance with applicable laws and holding of all necessary permits;

 

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compliance with corporate integrity agreements;

 

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government and third party reimbursements;

 

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disclosure or absence of litigation;

 

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absence of governmental orders;

 

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employee benefits matters and ERISA compliance;

 

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labor matters and compliance with labor and employment law;

 

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real property and personal property;

 

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environmental matters and compliance with environmental laws;

 

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material contracts;

 

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insurance; and

 

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receipt of an opinion from one or both of Gentiva’s financial advisors.

Kindred made certain additional representations and warranties to Gentiva in the merger agreement, including with respect to the following matters in connection with the debt financing arrangements:

 

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sufficiency of funds;

 

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validity and enforceability of the debt commitment letter;

 

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absence of default under the debt commitment letter; and

 

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absence of contingencies related to the funding of financing other than as set forth in the debt commitment letter.

Many of the representations and warranties in the merger agreement are qualified as to “materiality” or “material adverse effect.” For purposes of the merger agreement, a “material adverse effect” on Gentiva or Kindred, as applicable, means: any event, occurrence, fact, condition, change or effect, taken as a whole, that is materially adverse to (i) the business, assets, liabilities, operations or financial condition of such party and its subsidiaries, taken as a whole, or (ii) the ability of such party to consummate the transactions contemplated by the merger agreement. However, with respect to (i) above, no such event, occurrence, fact, condition, change or effect will be a material adverse effect on either Gentiva or Kindred, as the case may be, to the extent it arises out of, relates to or results from: (a) general economic, business, political, or regulatory conditions; (b) any changes or developments in financial, banking or securities markets in general, including any disruption thereof and any decline in the price of any security or any market index or any change in prevailing interest rates; (c) the negotiation, execution, delivery, performance, announcement, pendency or completion of the transactions contemplated by the merger agreement, including any litigation, action, proceeding, claim, investigation or challenge related thereto or any losses or threatened losses of employees, customers, suppliers, distributors or others having relationships with such party resulting therefrom (except with respect to any representation or warranty that is intended to address the consequences of the execution, delivery or performance of the merger

 

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agreement or completion of the transactions contemplated by the merger agreement); (d) the identity of Kindred or Gentiva, as the case may be, as the other party to the merger agreement or any facts or circumstances concerning such other party or any of its affiliates; (e) any acts of war (whether or not declared), armed hostilities or terrorism, or the escalation or worsening thereof; (f) any changes or conditions generally affecting the industries in which such party and its subsidiaries operate; (g) any matter disclosed in the confidential disclosure schedules delivered by such party; (h) any changes in applicable laws or accounting rules or principles (including GAAP) or the enforcement, implementation or interpretation thereof; (i) any failure by such party to meet any internal or published projections, forecasts, performance measures, operating statistics or revenue or earnings predictions for any period or a decline in the price or trading volume of such party’s common stock (but not any underlying causes of such failures or decline that are not otherwise excluded from the definition of material adverse effect); (j) any action taken (or omitted to be taken) with the written consent of or at the written request of the other party; or (k) any natural or man-made disasters or acts of God, except in the case of clauses (a), (b), (e), (f), (h), or (k), to the extent that any such event, occurrence, fact, condition, change or effect has a material and disproportionate effect on the such party and its subsidiaries, taken as a whole, relative to others operating in the industries in which such party and any of its subsidiaries operate.

The representations and warranties contained in the merger agreement will expire at the effective time, and not survive the consummation of the merger, but they form the basis of specified conditions to the parties’ obligations to complete the merger.

Covenants and Agreements

Operating Covenants

Gentiva. Gentiva has agreed that from the date of the merger agreement until the effective time, Gentiva will, and will cause each of its subsidiaries to, except as expressly contemplated by the merger agreement, as required by applicable law or with the prior written consent of Kindred (not to be unreasonably withheld, delayed or conditioned):

 

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conduct its business in the ordinary course consistent with past practice; and

 

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use its reasonable best efforts to preserve substantially intact its business organization, keep available the services of its current officers and key employees, and preserve its present relationships with its customers, suppliers, distributors, licensors, licensees, lenders and others having business relationships with it and governmental entities with jurisdiction over healthcare-related matters.

In addition, from the date of the merger agreement until the effective time, except as expressly contemplated by the merger agreement, as required by applicable law or with Kindred’s prior written consent (not to be unreasonably withheld, conditioned or delayed), Gentiva has agreed, among other things, it will not, nor will it permit any of its subsidiaries to:

 

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amend or propose to amend its organizational documents;

 

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(i) split, combine or reclassify any shares of its voting securities or those of its subsidiaries, (ii) redeem, repurchase or otherwise acquire, or offer to redeem, repurchase, or otherwise acquire, any of its voting securities or those of its subsidiaries or (iii) declare, set aside or pay any dividend or make any other distribution in respect of, or enter into any contract with respect to the voting of, any shares of its capital stock (other than dividends from its wholly owned subsidiaries);

 

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issue, sell, grant, pledge, dispose of or encumber, or authorize the issuance, sale, grant, pledge, disposal or encumbrance of, any of its voting securities, other than (i) the issuance of any shares upon the exercise of outstanding Gentiva options outstanding as of the date of the merger agreement or (ii) the issuance of any securities of its subsidiaries to Gentiva or a wholly owned subsidiary of Gentiva;

 

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except as required by applicable law or existing employee plans, and other than bonuses determined and paid in the ordinary course under the Gentiva Executive Officers Bonus Plan and Corporate

 

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Administration Plan and the transaction bonuses described on pages 71 and 79 (i) increase the compensation payable or that could become payable by Gentiva or its subsidiaries to directors, officers or employees other than increases made in the ordinary course of business consistent with past practice; (ii) enter into any new, or amend in any material respect, any existing employment, indemnification, severance, retention, change in control or similar agreement with any past or present officers or employees; (iii) establish, adopt, enter into, amend, terminate, exercise any discretion under, or take any action to accelerate rights under any employee plan; (iv) enter into any third-party contract with respect to an employee plan having a term of greater than one year and providing for payments by Gentiva having a value greater than $250,000 (other than (a) contracts terminable on less than 180 days’ notice without penalty, (b) a financial renewal, in the ordinary course of business, of a contract existing on the date of the merger agreement or (c) a contract that does not increase Gentiva’s annual costs by more than one percent over the cost of an analogous contract existing on the date of the merger agreement); (v) accelerate any rights or benefits, or, other than in the ordinary course of business and consistent with past practice, make any determinations or interpretations with respect to any employee plan; (vi) fund any rabbi trust or similar arrangement, other than in the ordinary course of business; (vii) grant or amend any equity awards; or (ix) hire or terminate (other than for cause) any officer, employee, independent contractor or consultant with target annual compensation in excess of $250,000 or any other employee at the level of director or above;

 

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acquire any business or person or division or make any loans, advances or capital contributions to or investments in any person in excess of $5,000,000 in the aggregate;

 

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(i) transfer, sell, lease, license, mortgage, encumber or otherwise dispose of any assets (whether by way of merger, consolidation, sale of stock or assets, or otherwise), including the capital stock or equity interest in any subsidiary, except in connection with services or products provided in the ordinary course of business, sales of obsolete assets and sales, leases, licenses or other dispositions of any asset or group of related assets with a fair market value not in excess of $1,000,000 individually or $5,000,000 in the aggregate, other than pursuant to material contracts in effect as of the date of the merger agreement; or (ii) adopt or effect, or propose to adopt or effect, a plan of complete or partial liquidation, dissolution, restructuring, recapitalization or other reorganization;

 

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issue, sell, repurchase, prepay or incur any indebtedness, or guarantee or otherwise become liable for or modify in any material respect any indebtedness or issue or sell any options, warrants, calls or other rights to acquire any indebtedness of Gentiva or any of its subsidiaries, except for (i) indebtedness for borrowed money solely incurred in the ordinary course of business consistent with past practices in replacement of existing indebtedness for borrowed money on terms substantially consistent with or more favorable to Gentiva than the terms of the indebtedness being replaced or (ii) guarantees by Gentiva of indebtedness of wholly owned subsidiaries of Gentiva, provided that any such indebtedness shall be drawn in an aggregate amount not to exceed $40,000,000;

 

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make any loans or advances (other than in the ordinary course of business consistent with past practice) to any person, other than loans among Gentiva and its wholly owned subsidiaries, or cancel, release or assign any material indebtedness owed by any person to Gentiva or its subsidiaries, or any claims held by it against any such person;

 

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make any material capital expenditures not contemplated by Gentiva’s capital expenditure budget as disclosed to Kindred prior to the merger agreement;

 

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enter into or amend or modify in any material respect, or consent to the termination of (other than at its stated expiry date), cancellation or renewal of, or waive, release or assign any material rights under, (i) any material contract or lease with respect to material real estate or any other contract or lease that, if in effect as of the date of the merger agreement, would constitute a material contract or lease with respect to material real estate, except which if so entered into, modified, amended, terminated, waived, released or assigned would reasonably be expected to (a) prevent or materially delay or impair the ability of Gentiva and its subsidiaries to consummate the merger, or (b) materially impair the ability of

 

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Gentiva and its subsidiaries, taken as a whole, to conduct their business in ordinary course consistent with past practice or (ii) any material contract (or contract that would be, if it existed as of the date of the merger agreement, a material contract) or any lease;

 

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commence, settle or compromise or offer to settle or compromise, or waive any rights relating to, any legal actions pending or threatened before any arbitrator, court or other governmental entity involving (i) the payment of monetary damages by Gentiva or any of its subsidiaries of any amount exceeding $500,000 in the aggregate (excluding amounts covered under insurance policies), (ii) any material restriction on the business of Gentiva or any of its subsidiaries or (iii) the admission of wrongdoing by Gentiva or any of its subsidiaries, other than (a) any legal action brought against Kindred or merger sub arising out of a breach or alleged breach of the merger agreement by Kindred or merger sub, and (b) the settlement of claims, liabilities or obligations reserved against on the most recent balance sheet of Gentiva included in Gentiva’s SEC filings for amounts not in excess of the relevant reserve (and without the imposition of any material restriction on the business of Gentiva or any of its subsidiaries or any admission of wrongdoing by Gentiva or any of its subsidiaries);

 

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cancel or compromise any material claim or waive or release any material right of Gentiva or any of its subsidiaries except in the ordinary course of business;

 

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make any material change in any financial accounting methods, principles or practice, in each case except for any such change required by a concurrent change in GAAP or applicable law or required by the Public Company Accounting Oversight Board or Financial Accounting Standards Board;

 

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enter into a material new line of business directly or indirectly or, except as required by applicable law, change any material policy established by the executive officers of Gentiva that generally applies to the operations of Gentiva;

 

•

extend, renew or enter into any contracts containing non-compete or exclusivity provisions that would restrict or limit the operations of Gentiva and its subsidiaries or apply to any current or future affiliates of Gentiva, Kindred or the surviving corporation;

 

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other than in the ordinary course of business consistent with past practice, materially reduce the amount of insurance coverage or fail to renew any material existing insurance policies;

 

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amend in a manner that adversely impacts in any material respect the ability to conduct its business, terminate or allow to lapse any material permits;

 

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convene any regular (except to the extent required by applicable law or order) or special meeting (or any adjournment or postponement thereof) of the Gentiva stockholders, other than the special meeting of stockholders to approve the merger agreement;

 

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settle or compromise any material tax claim, audit or assessment, make or change any material tax election (other than in the ordinary course of business consistent with past practice), adopt or change any method of tax accounting, or amend any material tax returns or file claims for material tax refunds; or

 

•

agree, resolve or commit to do any of the foregoing.

Kindred. Kindred has agreed that from the date of the merger agreement until the effective time, Kindred will, and will cause each of its subsidiaries to, except as expressly contemplated by the merger agreement, as set forth in its confidential disclosure schedules delivered to Gentiva, or as required by applicable law or with the prior written consent of Gentiva (not to be unreasonably withheld, delayed or conditioned):

 

•

conduct its business in the ordinary course of business consistent with past practice; and

 

•

use its reasonable best efforts to preserve substantially intact its business organization, keep available the services of its current officers and key employees, and preserve its present relationships with customers, suppliers, distributors, licensors, licensees, lenders and other persons having business relationships with it and governmental entities with jurisdiction over healthcare-related matters.

 

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Kindred has also agreed that from the date of the merger agreement until the effective time, it will not, nor will it permit merger sub to, except as expressly contemplated by the merger agreement, as set forth in its confidential disclosure schedule