Item 1. Business
General
References to “we”, “us”, or the “Company” are to MBF Healthcare Acquisition Corp. Reference to “MBFHP” are to MBF Healthcare Partners, L.P., an affiliate of our officers and directors.
We are a blank check company incorporated in Delaware on June 2, 2006 in order to serve as a vehicle for the acquisition of an operating business through a merger, capital stock exchange, stock purchase, asset acquisition, or other similar business combination.
On April 13, 2007, MBFHP purchased an aggregate of 343,750 Private Units from us at a price of $8.00 per unit and 4,250,000 Private Placement Warrants at a purchase price of $1.00 per warrant, for an aggregate purchase price of $7,000,000. Each Private Unit consists of one share of our common stock, $0.0001 par value, and one redeemable common stock purchase warrant (each, a “Unit Warrant” and together with the Private Placement Warrants, the “Private Warrants”). Each Private Warrant entitles the holder to purchase from us one share of common stock at an exercise price of $6.00 commencing on the later of (a) April 17, 2008 or (b) the completion of a Business Combination with a target business or the distribution of the Trust Account and expiring four years from the date of the final prospectus for the IPO (as hereinafter defined). At our sole discretion, the Private Warrants will be redeemable at a price of $0.01 per Private Warrant upon 30 days’ notice after the Private Warrants become exercisable, only in the event that the last sale price of the common stock is at least $11.50 per share for any 20 trading days within a 30-day trading period ending on the third day prior to the date on which the notice of redemption is given. The Private Warrants will be identical to the Warrants, except that (1) upon a redemption of Private Warrants, MBFHP will have the right to exercise the Private Warrants on a cashless basis and (2) upon the exercise of the Private Warrants, MBFHP will receive unregistered shares of common stock.
On April 23, 2007, we completed our initial public offering (“IPO”) of 18,750,000 units (“Units”), consisting of one share of common stock and one warrant, and on May 8, 2007, we completed the closing of an additional 2,812,500 Units that were subject to the underwriters’ over-allotment option. The 21,562,500 Units sold in the IPO, including the 2,812,500 Units subject to the over-allotment option, were sold at an offering price of $8.00 per Unit, generating total gross proceeds of $172,500,000. Of the net proceeds after offering expenses of the IPO and the Private Placement, $170,962,500 was placed in a trust account maintained at Continental Stock Transfer & Trust Company (the “Trust Account”). Except for payment of taxes, the proceeds will not be released from the Trust Account until the earlier of (i) the completion of a Business Combination or (ii) our liquidation. Public stockholders voting against our initial business combination will be entitled to convert their common stock into a pro rata share of the amount held in the Trust Account (including the amount held in the Trust Account representing the deferred portion of the underwriters’ discounts and commissions), including any interest earned on their pro rata share (net of taxes payable), if the business combination is approved and consummated. Public stockholders who convert their stock into a pro rata share of the Trust Account will continue to have the right to exercise any warrants they may hold.
Each warrant entitles the registered holder to purchase one share of our common stock at a price of $6.00 per share, commencing on the later of the completion of the initial business combination or April 17, 2008. None of the Warrants issued in the Public Offering will be exercisable and we will not be obligated to issue shares of common stock unless at the time of exercise a prospectus relating to common stock issuable upon exercise of these Warrants is current and the common stock has been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the Warrants. In no event will we be required to net cash settle any Warrant exercise. Under the terms of the Warrant Agreement, we have agreed to use our reasonable best efforts to maintain a current prospectus relating to common stock issuable upon exercise of the Warrants issued in the Public Offering until the expiration of these Warrants. However, we make no assurance that we will be able to do so and, if we do not maintain a current prospectus relating to the common stock issuable upon exercise of the Warrants issued in the Public Offering, holders will be unable to exercise their Warrants and we will not be required to settle any such Warrant exercise. If the prospectus relating to the common stock issuable upon the exercise of these Warrants is not current, or if the common stock is not qualified or exempt from qualification in jurisdictions in
which the holders of the Warrants reside, these Warrants may have no value, the market for these Warrants may be limited and these Warrants may expire worthless. If a registration statement is not effective for any unexercised Warrant, then the purchaser of Units purchased in the Public Offering will be deemed to have paid the full purchase price of $8.00 for the one share of our common stock included in the Unit. Even if the prospectus relating to the common stock issuable upon exercise of the Warrants issued in the Public Offering is not current, the Private Warrants will be exercisable for unregistered shares of common stock. If and when the Warrants become redeemable by us, we may exercise its redemption right even if the Warrants are not exercisable by their holders.
In connection with our IPO, we paid the underwriters additional underwriting fees of $6,037,500, including units exercised with the over-allotment option which, the underwriters have agreed to defer until the consummation of our initial business combination. We expect that such fees will be paid out of the proceeds held in the Trust Account.
Recent Developments
On February 6, 2008, we entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Critical Homecare Solutions Holdings, Inc. (“CHS”), a Delaware corporation, Kohlberg Investors V, L.P. (the “Seller’s Representative”) and the other stockholders of CHS (each, together with the Seller’s Representative, the “Seller” and collectively the “Sellers”).
Pursuant to the terms of the Stock Purchase Agreement, we will acquire all of the outstanding capital stock of CHS for $420.0 million, subject to working capital and certain other customary adjustments as set forth in the Stock Purchase Agreement. We intend to fund the purchase price and the acquisition costs and provide additional capital to CHS for growth and expansion through a combination of approximately $180.0 million of cash in our trust account, approximately $180.0 million of debt, a $35.0 million equity issuance of our common stock to certain Sellers and a commitment from MBFHP to acquire up to an additional $50 million in shares of our common stock. The shares of our common stock to be issued to certain Sellers and the shares that are subject to the commitment from MBFHP will be priced at the closing per share price of our common stock on February 6, 2008, which was $7.65.
The closing of the acquisition and the issuance of equity to MBFHP pursuant to its commitment are subject to stockholder approval. The closing of the acquisition is also subject to customary regulatory approvals, including approval under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and other customary closing conditions.
Sector Focus
Since our IPO, we have been actively engaged in sourcing a suitable business combination candidate in the healthcare industry, which we believe currently offers a favorable environment both for completing a business combination and operating the target business. This belief is based on, among other things, the experience, expertise, and network of professional relationships of our management team and the members of our Board of Directors.
Healthcare Industry
According to the Centers for Medicare and Medicaid Services, or CMS, the healthcare industry is one of the largest segments of the U.S. economy, with total U.S. healthcare expenditures in 2005 of nearly $2.0 trillion, or $6,697 per person, which accounted for 16% of the 2005 U.S. gross domestic product, or GDP. Overall, national healthcare spending is anticipated to continue to grow at close to 7% per year, reaching nearly $4.0 trillion by 2015. In our view, the primary drivers behind these expenditures are: (i) medical service spending, (ii) hospital spending and (iii) prescription drug spending. In 2005, over 81% of total U.S. healthcare expenditures were related to the above categories, with medical services (including nursing homes and home healthcare), hospital care and prescription drugs, comprising 41%, 30% and 10%, respectively.
Industry Trends
Several significant trends affect the competitive landscape of our target industries, which we believe create significant investment opportunities. The following is a summary of some of the more influential of these trends:
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Expanding and Aging Population. According to U.S. Census Bureau estimates, in 2005 the American population is approximately 297 million and is expected to reach 392 million by 2050. Simultaneously, we are witnessing the “graying of America,” whereby the elderly population, the largest consumer of healthcare services, is increasing more rapidly than the rest of the population. According to the U.S. Census Bureau, approximately 12% of the U.S. population was over 65 in 2004 and was forecasted to account for roughly 20% of the population by 2030.
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Evolving Medical Treatments. Advances in technology have favorably impacted the development of more effective and easier-to-use medical devices, treatments and therapies. Many of these advances have reduced hospital stays, costs and recovery periods. The continued advancement of medical technology should continue to support the markets for healthcare goods and services.
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Increased Consumer Awareness. In recent years, publicity associated with advances in medical technology, treatments and therapies has increased the number of patients visiting healthcare professionals. We believe that more active and aware consumers, who are increasingly vocal due to rising costs and reduced access to physicians, will continue to stimulate a wide variety of healthcare segments. In addition, the market for discretionary medical services, such as cosmetic procedures, continues to grow.
No Assurance of Future Services from Executive Officers or Board Members
Our management team currently intends to stay involved with us following a business combination, either as managers or in an advisory capacity. The role that our management team or our Board of Directors will assume will depend on the type of business acquired and the sector of the healthcare industry in which the target company operates.
Effecting a Business Combination
General
We intend to utilize the net proceeds after expenses of the IPO, our capital stock, debt, or a combination of these as the consideration to be paid in a business combination. While substantially all of the net proceeds after expenses of our IPO are allocated to completing a business combination, the proceeds are not otherwise designated for more specific purposes. Accordingly, prospective investors will at the time of their investment in us not be provided an opportunity to evaluate the specific merits or risks of one or more target businesses. If we use our capital stock and/or debt financing as the consideration to fund the business combination, proceeds from our IPO then will be used to undertake additional acquisitions or to fund the operations of the combined business.
Subject to the requirement that our initial business combination must be with an operating business whose fair market value is at least equal to 80% of the balance in the trust account (less the deferred underwriting discounts and commissions and taxes payable) at the time of such acquisition, we have virtually unrestricted flexibility in seeking a business combination with one or more prospective target businesses in the healthcare industry. If we combine with a financially unstable company or an entity in the development stage, including an entity lacking an established record of sales or earnings, we may be affected by numerous risks inherent in the business and operations of a financially unstable or development stage entity. Although our management will assess the risks inherent in a particular target business with which we may combine, we cannot assure you that this assessment will result in our identifying all risks that a target business may encounter. Furthermore, some of those risks may be outside of our control, meaning that we can do nothing to control or reduce the chances that those risks will adversely impact a target business.
We cannot assure you that we will close a business combination with one or more target businesses.
Fair Market Value of Target Business or Businesses
Our initial business combination must be with one or more operating businesses whose fair market value is at least equal to 80% of the balance in the trust account (less the deferred underwriting discounts and commissions and taxes payable) at the time of such acquisition. As a result, we expect to effect an initial business combination of a company with a fair market value of at least $132,570,000. The actual amount of consideration which we will be able to pay for the business combination will depend on whether we choose, or are able, to pay a portion of the business combination consideration with shares of our common stock, if we are able to finance a portion of the business combination consideration with shares of our common stock, if we are able to finance a portion of the consideration with debt financing or if we are required to fund stockholder conversion rights.
In contrast to many other companies with business plans similar to ours where the minimum fair market value of the target businesses for the initial business combination is based on 80% of the acquiror’s net assets, our minimum fair market value is based on 80% of the balance in the trust account at the time of such acquisition. If we acquire less than 100% of one or more target businesses in our initial business combination, the aggregate fair market value of the portion or portions we acquire must equal at least 80% of the balance in the trust account (excluding deferred underwriting discounts and commissions and taxes payable) at the time of such initial business combination. In no instance will we acquire less than majority voting control of a target business. However, this restriction will not preclude a reverse merger or similar transaction where we will acquire the target business. The fair market value of a target business or businesses will be determined by our Board of Directors based upon standards generally accepted by the financial community, such as actual and potential sales, the values of comparable businesses, earnings and cash flow, and book value. If our Board of Directors is not able to independently determine that the target business has a sufficient fair market value to meet the threshold criterion, we will obtain an opinion from an unaffiliated, independent investment banking firm which is a member of the National Association of Securities Dealers, Inc. with respect to the satisfaction of such criterion.
Stockholder Approval of our Initial Business Combination
Prior to the completion of our initial business combination, we will submit the transaction to our stockholders for approval, even if the nature of the acquisition is such as would not ordinarily require stockholder approval under applicable state law. If a majority of the shares of common stock voted by the public stockholders are not voted in favor of a proposed initial business combination, we may continue to seek other target businesses with which to effect our initial business combination that meet the criteria set forth in this prospectus until April 23, 2009, 24 months from the consummation of our IPO. In connection with seeking stockholder approval of a business combination, we will furnish our stockholders with proxy solicitation materials prepared in accordance with the Securities Exchange Act, which, among other matters, will include a description of the operations of the target business and audited historical financial statements of the target business based on United States generally accepted accounting principles.
In connection with the vote required for any business combination, MBFHP has agreed to vote its shares of common stock acquired by it prior to the completion of our IPO, either for or against a business combination in the same manner that a majority of the shares of common stock are voted by our public stockholders. MBFHP has also agreed that it will not be eligible to exercise conversion rights with respect to those shares. In addition, our officers, directors and existing stockholder have agreed that they will vote any shares they purchase in the open market in or after our IPO, including shares purchased in the open market pursuant to an agreement with the underwriters, in favor of a business combination. As a result, an officer, director or existing stockholder who acquires shares in or after our IPO must vote those shares in favor of the proposed initial business combination with respect to those shares, and will therefore not be eligible to exercise conversion rights for those shares if our initial business combination is approved by a majority of our public stockholders. We will proceed with the business combination only if a majority of the shares of common stock voted by the public stockholders are voted in favor of the business combination and public stockholders owning fewer than 30% of the shares sold in our IPO exercise their conversion rights. Our threshold for conversion has been established at 30% in order for our IPO to be competitive with other blank check company offerings. However, to date a 20% threshold has been more typical for offerings of this type. We have increased the threshold to reduce the risk of a small group of stockholders exercising undue influence on the approval process. Voting against the business combination alone will not result in conversion of a stockholder’s shares into a pro rata share of the trust account. To do so, a stockholder must have also exercised the conversion rights described below.
Conversion Rights
At the time we seek stockholder approval of any business combination, we will offer each public stockholder the right to have such stockholder’s shares of common stock converted to cash if the stockholder votes against the business combination and the business combination is approved and completed. The actual per share conversion price will be equal to the aggregate amount then on deposit in the trust account including accrued interest, net of any income taxes on such interest, which shall be paid from the trust account (calculated as of two business days prior to the consummation of the proposed business combination), divided by the number of shares sold in our IPO. The initial per share conversion price would be approximately $7.96, or $0.04 less than the per-unit offering price of $8.00. An eligible stockholder may request conversion at any time after the mailing to our stockholders of the proxy statement and prior to the vote taken with respect to a proposed business combination at a meeting held for that purpose, but the request will not be granted unless the stockholder votes against the business combination and the business combination is approved and completed. A stockholder who requests conversion of his or her shares must hold these shares from the record date through the closing date of the business combination.
Due to the difficulty of identifying objecting beneficial owners of securities, we may not know at the time of the stockholder meeting whether the holders of shares on the record date who have voted to convert their shares continue to hold their shares through the stockholder meeting and consummation of the business combination and, therefore, whether a vote against the business combination of 30% or more would actually also result in more than 30% of the shares being converted, such that the business combination could not be consummated. Consequently, in order to ensure that we accurately account for shares to be converted, we may require that stockholders who wish to exercise their conversion rights tender physical share certificates not later than the day prior to the stockholder meeting. We will notify investors on a Current Report on Form 8-K and in our proxy statement related to the business combination if we impose this requirement. Initial public offerings by blank check companies with structures that are comparable to our IPO have not generally included disclosure in their initial public offering prospectuses regarding the ability of the issuer to require that stockholders tender physical share certificates in order to convert their shares. And, while some blank check companies have required physical delivery of stock certificates in connection with the vote on their initial business combination, most such companies have not imposed such a requirement. Consequently, you may have a higher likelihood of encountering difficulty in converting your shares in connection with the vote on our initial business combination than you would in connection with other blank check companies.
A stockholder who wishes to exercise his or her conversion rights should request delivery of a physical stock certificate at least two weeks prior to the stockholder meeting. However, because no assurance can be given that two weeks will provide a stockholder with adequate time to obtain physical certificates, a stockholder may wish to consider requesting delivery of physical certificates promptly following our announcement of a business combination. We have been informed that our transfer agent, Continental Stock & Trust Company, will charge a handling fee of $35.00 in connection with the tender of physical certificates and that the fee is the same whether the shares are tendered before or after the business combination. If we elect to require physical delivery of the share certificates, we would expect that stockholders would have to comply with the following steps. If the shares are held in street name, stockholders must instruct their account executive at the stockholders’ bank or broker to withdraw the shares from the stockholders’ account and request that a physical certificate be issued in the stockholders’ name. Our transfer agent, will be available to assist with this process. No later than the day prior to the stockholder meeting, the written instructions stating that the stockholder wishes to convert his or her shares into a pro rata share of the trust account and confirming that the stockholder has held the shares since the record date and will continue to hold them through the stockholder meeting and the closing of our business combination must be presented to our transfer agent. Certificates that have not been tendered in accordance with these procedures by the day prior to the stockholder meeting will not be converted into cash. In the event a stockholder tenders his or her shares and decides prior to the stockholder meeting that he or she does not want to convert his or her shares, the stockholder may withdraw the tender. In the event that a stockholder tenders shares and our business combination is not completed, these shares will not be converted into cash and the physical certificates representing these shares will be returned to the stockholder.
If a stockholder votes against the business combination but fails to properly exercise its conversion rights, such stockholder will not have its shares of common stock converted to its pro rata distribution of the trust account. Any request for conversion, once made, may be withdrawn at any time up to the date of the meeting. It is anticipated that the funds to be distributed to stockholders entitled to convert their shares who elect conversion will be distributed promptly after completion of a business combination. Public stockholders who convert their stock into their share of the trust account will still have the right to exercise the warrants that they received as part of the units. We will not complete our proposed initial business combination if public stockholders owning 30% or more of the shares sold in our IPO exercise their conversion rights.
As the initial conversion price of approximately $7.96 per share is lower than the $8.00 per unit offering price and may be less than the market price of the common stock on the date of conversion, there may be a disincentive on the part of public stockholders to exercise their conversion rights.
Plan of Dissolution and Distribution of Assets if No Business Combination
If we do not complete a business combination by April 23, 2009 (24 months after the consummation of our IPO), our corporate existence will terminate except for the purposes of winding up our affairs and liquidating pursuant to Section 278 of the DGCL, in which case we will as promptly as practicable thereafter adopt a plan of dissolution and distribution in accordance with Section 281(b) of the DGCL. Section 278 provides that our existence will continue for at least three years after its expiration for the purpose of prosecuting and defending suits, whether civil, criminal or administrative, by or against us, and of enabling us gradually to settle and close our business, to dispose of and convey our property, to discharge our liabilities and to distribute to our stockholders any remaining assets, but not for the purpose of continuing the business for which we were organized. Our existence will continue automatically even beyond the three-year period for the purpose of completing the prosecution or defense of suits begun prior to the expiration of the three-year period, until such time as any judgments, orders or decrees resulting from such suits are fully executed.
Section 281(b) will require us to adopt a plan of dissolution and distribution of our assets that will provide for the payment to our creditors and potential creditors, based on facts known to us at such time, of (i) all existing claims, (ii) all pending claims and (iii) all claims that may subsequently be brought against us in the subsequent 10 years. The plan will also provide that after reserving amounts sufficient to cover our liabilities and obligations and the costs of dissolution and liquidation, we will promptly distribute our remaining assets, including the amounts held in the trust account, solely to our public stockholders. We will liquidate our assets, including the trust account, and after reserving amounts sufficient to cover our liabilities and obligations and the costs of dissolution and promptly distribute those assets solely to our public stockholders. We cannot assure you that third parties will not seek to recover from assets distributed to our public stockholders any amounts owed to them by us. Under the DGCL, our stockholders could be liable for any claims against the corporation to the extent of distributions received by them after dissolution. Further, since we will distribute our assets in accordance with Section 281(b) rather than Sections 280 and 281(a), any such liability of our stockholders could extend to claims for which an action, suit or proceeding is begun after the third anniversary of our dissolution.
Upon its receipt of notice that our existence has terminated, the trustee will promptly commence liquidating the investments constituting the trust account and distribute the proceeds to our public stockholders. We anticipate that it will take no more than 10 days to effectuate such distribution. MBFHP, has waived its right to participate in any distributions occurring upon our failure to complete a business combination with respect to shares of common stock acquired by it prior to our IPO and in the private placement. In addition, MBF Healthcare Partners, L.P. and our officers and directors have agreed to waive any claim against us and the trust account, other than with respect to any shares of common stock acquired in our IPO or in the open market following the consummation of our IPO. We estimate that, in the event we liquidate the trust account and distribute those assets to our public stockholders, each public stockholder will receive approximately $7.96 per share plus his proportionate share of the net interest earned on the trust account. We expect that all costs associated with implementing our dissolution and our plan for the distribution, including payments to any creditors, will be funded by the proceeds of our IPO and the private placement which are not held in the trust account. We estimate that our total costs and expenses for implementing and completing our dissolution and plan of distribution of our assets will be in the range of $50,000 to $75,000. This amount includes all costs and expenses relating to filing of our certificate of dissolution in the State of Delaware, the winding up of our company. While we believe that there should be sufficient funds available from the proceeds not held in the trust account to fund the $50,000 to $75,000 of expenses, MBF Healthcare Partners, L.P. has agreed to pay the costs of our dissolution in the event our remaining assets outside the trust account are insufficient to pay those costs. However, if we do not have sufficient funds to cover our liabilities and obligations or if MBF Healthcare Partners, L.P. does not have sufficient funds to cover the amount that the costs and expenses for implementing and completing our dissolution exceeds our remaining assets outside the trust account, if any, the amount distributed to our public stockholders would be less than $7.96 per share.
Under the DGCL, stockholders may be held liable for claims by third parties against a corporation to the extent of distributions received by them in a dissolution. If we complied with certain procedures set forth in Section 280 of the DGCL intended to ensure that it makes reasonable provision for all claims against us, including a 60-day notice period during which any third-party claims can be brought against us, a 90-day period during which we may reject any claims brought, and an additional 150-day waiting period before any liquidating distributions are made to stockholders, any liability of a stockholder with respect to a liquidating distribution is limited to the lesser of such stockholder’s pro rata share of the claim or the amount distributed to the stockholder, and any liability of the stockholder would be barred after the third anniversary of the dissolution. However, it is our intention to make liquidating distributions to our public stockholders as soon as reasonably possible after dissolution and, therefore, we do not intend to comply with those procedures. As such, our public stockholders could potentially be liable for any claims to the extent of distributions received by them in a dissolution and any such liability of our public stockholders will likely extend beyond the third anniversary of such dissolution. Because we will not be complying with Section 280 or 281(a), we will comply with Section 281(b) of the DGCL, requiring us to adopt a plan of dissolution that will provide for our payment, based on facts known to us at such time, of (i) all existing claims, (ii) all pending claims and (iii) all claims that may be potentially brought against us within the subsequent 10 years. However, because we are a blank check company, rather than an operating company, and our operations will be limited to searching for prospective target businesses to acquire, the only likely claims to arise would be from our vendors (such as accountants, lawyers, investment bankers, etc.) or potential target businesses. Although we will seek to have all vendors, prospective target businesses, and other entities with whom we execute agreements waive any right, title, interest, or claim of any kind in or to any monies held in the trust account for the benefit of our public stockholders, there is no guarantee that they will enter into such agreements, and it is not a condition to our doing business with anyone. Examples of possible instances where we may engage a third party that refuses to execute a waiver include the engagement of a third party consultant whose particular expertise or skills are believed by management to be significantly superior to those of other consultants that would agree to execute a waiver or in cases where management is unable to find a provider of required services willing to provide the waiver. However to the extent that claims arise from third parties who have not executed agreements waiving their right to any monies held in trust or to the extent that such agreements are found to be unenforceable, the proceeds held in the trust account could be subject to claims that could take priority over the claims of our public stockholders and the per share liquidation price could be less than approximately $7.96, plus interest (net of taxes payable on such interest, which taxes, if any, shall be paid from the trust account), due to claims of such creditors or other entities.
Our current officers have each agreed to be jointly and severally personally liable for ensuring that the proceeds in the trust account are not reduced by (i) the claims of vendors for services rendered or products sold to us, (ii) claims of prospective target businesses for fees and expenses of third parties for which we agree in writing to be liable and (iii) claims by vendors or prospective target businesses, if such person or entity does not provide a valid and enforceable waiver to rights or claims to the trust account so as to ensure that the proceeds in the trust account are not reduced by the claims of such persons that are owed money by us, in each case to the extent any insurance we may procure is inadequate to cover any claims made against the trust account and the payment of such debts or obligations actually reduces the amount in the trust account. Based on representations made to us by our officers, we currently believe that they are of substantial means and capable of funding a shortfall in our trust account to satisfy their foreseeable indemnification obligations, but we have not asked them to reserve for such an eventuality. The indemnification obligations may be substantially higher than our officers currently foresee or expect and their financial resources may deteriorate in the future. Hence, we cannot assure you that our officers will be able to satisfy those obligations or that the proceeds in the trust account will not be reduced by those claims. If our Board of Directors adopts a plan of distribution of our assets and it is subsequently determined that our reserve for claims and liabilities to third parties is insufficient, stockholders who received funds from our trust account could be liable for up to such amounts to creditors.
If we are forced to file a bankruptcy case or an involuntary case is filed against us that is not dismissed, the funds held in the trust account will be subject to applicable bankruptcy law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our stockholders. To the extent any bankruptcy claims deplete the trust account, the per share liquidation distribution would be less than the initial $7.96 per share held in the trust account.
Amended and Restated Certificate of Incorporation
Our amended and restated certificate of incorporation sets forth certain requirements and restrictions that will apply to us until the consummation of a business combination. Specifically, our amended and restated certificate of incorporation provides, among other things, that:
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upon consummation of our IPO, $170,962,500 of the proceeds from our IPO and the private placement and the deferred underwriting discount were placed into the trust account, which funds may not be disbursed from the trust account except in connection with our initial business combination or upon our liquidation;
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prior to the consummation of our initial business combination, we will submit such business combination to our stockholders for approval;
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we may not consummate our initial business combination unless (i) it is approved by a majority of the shares of our common stock voted by our public stockholders and (ii) public stockholders owning less than 30% of the shares sold in our IPO both vote against the business combination and exercise their conversion rights;
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if our initial business combination is approved and consummated, public stockholders who voted against the business combination and who exercised their conversion rights will receive their pro rata share of the trust account (net of taxes payable);
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if a business combination is not consummated within the 24-month time period, our corporate existence will terminate and our powers will immediately thereupon be limited to acts and activities relating to winding up our affairs, including distribution of our assets, and we will not be able to engage in any other business activities; and
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we may not consummate our initial business combination unless it meets the conditions specified in this prospectus, including the requirement that the business combination be with an operating business whose fair market value is equal to at least 80% of the balance in the trust account (less the deferred underwriting discounts and commissions and taxes payable) at the time of such business combination.
Our amended and restated certificate of incorporation requires that we obtain unanimous consent of our stockholders to amend the above-described provisions. However, the validity of unanimous consent provisions under Delaware law has not been settled. A court could conclude that the unanimous consent requirement constitutes a practical prohibition on amendment in violation of the stockholders’ implicit rights to amend the corporate charter. In that case, the above-described provisions would be amendable without unanimous consent and any such amendment could reduce or eliminate the protection afforded to our stockholders. However, we view the foregoing provisions as obligations to our stockholders, and we will not take any action to waive or amend any of these provisions.
Our amended and restated certificate of incorporation provides that at the time we submit an initial business combination to our stockholders for approval, we will also submit an amendment to Article Fourth thereof to permit our continued existence. This is the only instance in which Article Fourth can be amended.
Competition
In consummating a business combination, we may encounter intense competition from other entities having a business objective similar to ours including other blank check companies, private equity groups and leveraged buyout funds, and operating businesses seeking acquisitions. Many of these entities are well established and have extensive experience identifying and effecting business combinations directly or through affiliates. Moreover, many of these competitors possess greater financial, technical, human, and other resources than us. While we believe there are numerous potential target businesses with which we could combine, our ability to acquire larger target businesses will be limited by our available financial resources. This inherent limitation gives others an advantage in pursuing the acquisition of a target business. In addition:
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the requirement that we obtain stockholder approval of an initial business combination and audited and perhaps interim-unaudited financial information to be included in the proxy statement to be sent to stockholders in connection with such business combination may delay or prevent the completion of a transaction;
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our obligation not to target any companies with respect to which MBF Healthcare Partners, L.P. has initiated any contacts or entered into any discussions, formal or informal, or negotiations regarding such company’s acquisition prior to the completion of our offering may prevent the consummation of a transaction within the required time frame;
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the conversion of common stock held by our public stockholders into cash may reduce the resources available to us to fund an initial business combination;
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our outstanding warrants, and the dilution they potentially represent, may not be viewed favorably by certain target businesses; and
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the requirement to acquire assets or an operating business that has a fair market value at least equal to 80% of the balance in the trust account (less the deferred underwriting discounts and commissions and taxes payable) at the time of the acquisition could require us to acquire several assets or closely related operating businesses at the same time, all of which sales would be contingent on the closings of the other sales, which could make it more difficult to consummate the business combination.
Any of these factors may place us at a competitive disadvantage in successfully negotiating a business combination. Our management believes, however, that a privately held target business may view our status as a well-financed public entity as offering advantages over other entities that have a business objective similar to ours.
Based upon publicly available information, as of February 22, 2008, approximately 153 similarly structured “blank check” companies have completed initial public offerings in the United States since August 2003, and numerous others have filed registration statements. Of these companies, we estimate that 47 companies have consummated a business combination, while 22 other companies have announced that they have entered into definitive agreements or letters of intent with respect to potential business combinations, but have not yet consummated such business combinations. Accordingly, there are a significant number of “blank check” companies which we estimate to have more than $14.8 billion in trust and are or will be seeking to enter into a business combination. While some of these companies have specific industries in which they must identify a potential target business, a number of these companies may complete a business combination in any industry they choose. As a result, we may be subject to competition from these and other companies seeking to complete a business combination within the healthcare industry, which, in turn, will result in an increased demand for privately-held companies in these industries. Further, the fact that only 47 “blank check” companies have completed a business combination, and 22 other companies have entered into definitive agreements or letters of intent with respect to potential business combinations, may be an indication that there are a limited number of attractive target businesses available or that many target businesses may not be inclined to enter into a business combination with a publicly-held “blank check” company.
If we succeed in effecting a business combination, there will, in all likelihood, be intense competition from competitors of the target businesses. In particular, certain industries that experience rapid growth frequently attract an increasingly larger number of competitors, including competitors with increasingly greater financial, marketing, technical, human, and other resources than the initial competitors in the industry. The degree of competition characterizing the industry of any prospective target business cannot presently be ascertained. We cannot assure you that, subsequent to a business combination, we will have the resources to compete effectively, especially to the extent that the acquired businesses are in high-growth industries.
Available information
We are required to file Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q with the Securities and Exchange Commission (“SEC”) on a regular basis, and are required to disclose certain material events (e.g., changes in corporate control; acquisitions or dispositions of a significant amount of assets other than in the ordinary course of business and bankruptcy) in a current report on Form 8-K. The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The SEC’s Internet website is located at http://www.sec.gov.
Employees
We currently have three officers, all of whom are also members of our Board of Directors. Although our officers are not obligated to contribute any specific number of hours per week to our business, Mike Fernandez, Marcio Cabrera and Jorge Rico, devote a significant portion of their working time to our business. Each of such persons is actively employed by MBFHP, a private equity firm engaged in seeking to make investments and acquisitions in the healthcare industry. The amount of time Mike Fernandez, Marcio Cabrera and Jorge Rico devote to us in any time period varies based on the availability of suitable target businesses to investigate, the course of negotiations with target businesses, and the due diligence preceding and accompanying a possible business combination. We do not intend to have any other employees prior to the consummation of a business combination.
Item 1A.
Item 1A. Risk Factors
An investment in our securities involves a high degree of risk. You should consider carefully all of the risks described below, together with the other information contained in this Form 10-K before making a decision to invest in our securities. If any of the following risks occur, our business, financial condition and results of operations may be adversely affected. In that event, the trading price of our securities could decline, and you could lose all or a part of your investment.
Risks Relating to the Company
We are a development stage company with no operating history and, accordingly, you will have no basis upon which to evaluate our ability to achieve our business objective.
We are a recently incorporated development stage company with no operating results to date. Therefore, our ability to begin operations was dependent upon obtaining financing through the public offering of our securities. Because we do not have an operating history, you will have no basis upon which to evaluate our ability to achieve our business objective, which is to acquire one or more operating businesses in the healthcare industry. We will not generate any revenues (other than interest income on the proceeds of our initial public offering held in the trust account) until, if at all, after the consummation of a business combination. We cannot assure you as to when, or if, a business combination will occur.
We may not be able to complete a business combination within the required time frame, in which case our corporate existence will terminate and we will be forced to liquidate.
We must complete a business combination with a fair market value at least equal to 80% of the balance in the trust account (less the deferred underwriting discounts and commissions and taxes payable) at the time of the acquisition by April 23, 2009 (24 months after the consummation of our IPO). If we fail to complete a business combination within the required time frame, our corporate existence will terminate and our amended and restated certificate of incorporation requires that we promptly initiate procedures to liquidate and distribute our assets in compliance with Section 281(b) of the DGCL. We have agreed that any target companies with respect to which MBFHP has initiated any contacts or entered into any discussions, formal or informal, or negotiations regarding such company’s acquisition prior to the completion of our IPO will not be a potential acquisition target for us. Consequently, we may not be able to consummate a business combination with a suitable target businesses within the required time frame. In addition, our negotiating position and our ability to conduct adequate due diligence on any potential target may be reduced as we approach the deadline for the consummation of a business combination.
If we are forced to liquidate before a business combination, our public stockholders will receive less than $8.00 per share upon distribution of the funds held in the trust account and our warrants will expire with no value.
If we are unable to complete a business combination and are forced to liquidate our assets, the per share liquidation amount will be less than $8.00 because of the expenses related to our IPO, our general and administrative expenses, and the anticipated costs associated with seeking a business combination. Furthermore, holders of our warrants are not entitled to participate in a liquidation distribution and the warrants will expire with no value if we liquidate before the completion of a business combination. As a result, purchasers of the units will have paid the full unit purchase price of $8.00 solely for the share of common stock included in each unit.
Unlike most other blank check offerings, we allow up to but less than 30% of our public stockholders to exercise their conversion rights. This higher threshold will make it easier for us to get a business combination approved over stockholder dissent, and you may not receive the full amount of your original investment upon exercise of your conversion rights.
When we seek stockholder approval of a business combination, we will offer each public stockholder (other than our founding stockholder and our officers and directors) the right to have their shares of common stock converted to cash if the stockholder votes against the business combination and the business combination is approved and consummated. We will consummate the initial business combination only if the following two conditions are met: (i) a majority of the shares of common stock voted by the public stockholders are voted in favor of the business combination and (ii) public stockholders owning 30% or more of the shares sold in our IPO do not vote against the business combination and exercise their conversion rights. Because we permit a larger number of stockholders to exercise their conversion rights, it will reduce the requirement to consummate an initial business combination with a target business which you may vote against, making it easier for us to get a business combination approved over stockholder dissent, and you may not receive the full amount of your original investment upon exercise of your conversion rights.
Unlike most other blank check offerings, we allow up to but less than 30% of our public stockholders to exercise their conversion rights. The ability of a larger number of our stockholders to exercise their conversion rights may not allow us to consummate the most efficient business combination or optimize our capital structure.
When we seek stockholder approval of a business combination, we will offer each public stockholder (other than our founding stockholder and our officers and directors) the right to have their shares of common stock converted to cash if the stockholder votes against the business combination and the business combination is approved and consummated. Such holder must both vote against such business combination and then exercise their conversion rights to receive a pro rata share of the trust account. Unlike most other blank check offerings which have a 20% threshold, we allow up to but less than 30% of our public stockholders to exercise their conversion rights. Accordingly, if our business combination requires us to use substantially all of our cash to pay the purchase price, because we will not know how many stockholders may exercise such conversion rights, we may either need to reserve part of the trust account for possible payment upon such conversion if the transaction is approved, or we may need to arrange third party financing to help fund our business combination in case a larger percentage of stockholders exercise their conversion rights than we expect. In the event that the acquisition involves the issuance of our stock as consideration, we may be required to issue a higher percentage of our stock to make up for a shortfall in funds. Raising additional funds to cover any shortfall may involve dilutive equity financing or incurring indebtedness at a higher than desirable level. This may limit our ability to effectuate the most attractive business combination available to us.
Under Delaware law, the requirements and restrictions relating to our IPO contained in our amended and restated certificate of incorporation may be amended, which could reduce or eliminate the protection afforded to our stockholders by such requirements and restrictions.
Our amended and restated certificate of incorporation contains certain requirements and restrictions relating to our IPO that will apply to us until the consummation of a business combination. Specifically, our amended and restated certificate of incorporation provides, among other things, that:
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upon consummation of our IPO, $170,962,500 of the proceeds from our IPO and of the private placement and the deferred underwriting discount were placed into the trust account, which funds may not be disbursed from the trust account except in connection with our initial business combination or upon our liquidation;
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prior to the consummation of our initial business combination, we will submit such business combination to our stockholders for approval;
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we may not consummate our initial business combination unless (i) it is approved by a majority of the shares of our common stock voted by our public stockholders and (ii) public stockholders owning less than 30% of the shares sold in our IPO both vote against the business combination and exercise their conversion rights;
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if our initial business combination is approved and consummated, public stockholders who voted against the business combination and who exercised their conversion rights will receive their pro rata share of the trust account (net of taxes payable);
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if a business combination is not consummated within the 24-month period specified in our final prospectus filed with the SEC on April 17, 2007, our corporate existence will terminate and our power will immediately thereupon be limited to acts and activities relating to winding up our affairs, including distribution of our assets, and we will not be able to engage in any other business activities; and
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we may not consummate our initial business combination unless it meets the conditions specified in our final prospectus filed with the SEC on April 17, 2007, including the requirement that the business combination be with an operating business whose fair market value is equal to at least 80% of the balance in the trust account (less the deferred underwriting discounts and commissions and taxes payable) at the time of such business combination.
Our amended and restated certificate of incorporation requires that we obtain the unanimous consent of our stockholders to amend the above provisions. However, the validity of unanimous consent provisions under Delaware law has not been settled. A court could conclude that the unanimous consent requirement constitutes a practical prohibition on amendment in violation of the stockholders’ implicit rights to amend the corporate charter. In that case, some or all of the above provisions could be amended without unanimous consent and any such amendment could reduce or eliminate the protection afforded to our stockholders. However, we view the foregoing provisions as obligations to our stockholders and we will not take any action to waive or amend any of these provisions.
Because there are numerous “blank check” companies similar to ours seeking to effectuate a business combination, it may be more difficult for us to complete a business combination.
Based upon publicly available information, as of February 22, 2008, approximately 153 similarly structured “blank check” companies have completed initial public offerings in the United States since August 2003 and numerous others have filed registration statements. Of these companies, we estimate that only 47 companies have consummated a business combination, while 22 other companies have announced that they have entered into definitive agreements or letters of intent with respect to potential business combinations but have not yet consummated such business combinations. Accordingly, there are a significant number of “blank check” companies which we estimate to have more than $14.8 billion in trust that have filed registration statements and are or will be seeking to enter into a business combination. Because of this competition, we cannot assure you that we will be able to effectuate a business combination within the required time period. If we are unable to find a suitable target operating business within such time periods, the terms of our amended and restated certificate of incorporation will require us to liquidate.
We may have insufficient resources to cover our operating expenses and the expenses of consummating a business combination.
We have reserved approximately $1,800,000 from the proceeds of our IPO to cover our operating expenses for the 24 months following our IPO, including expenses incurred in connection with a business combination, based upon our management’s estimate of the amount required for these purposes. This estimate may prove inaccurate, especially if a portion of the available proceeds is used to make a down payment or pay exclusivity or similar fees in connection with a business combination or if we expend a significant portion of the available proceeds in pursuit of a business combination that is not consummated. If we do not have sufficient proceeds available to cover our expenses, we may be forced to obtain additional financing. We may not be able to obtain additional financing and neither MBFHP nor our management is obligated to provide any additional financing. If we do not have sufficient proceeds and are unable to obtain additional financing, we may be forced to liquidate prior to consummating a business combination.
The ability of our stockholders to exercise their conversion rights may not allow us to consummate the most desirable business combination or optimize our capital structure.
When we seek stockholder approval of our initial business combination, we will offer each public stockholder (other than our founding stockholder) the right to have his, her or its shares of common stock converted to cash if the stockholder votes against our initial business combination and our initial business combination is approved and consummated. Such holder must both vote against such business combination and then exercise his, her or its conversion rights to receive a pro rata share of the trust account. Accordingly, if our business combination requires us to use substantially all of our cash to pay the purchase price, because we will not know how many stockholders may exercise such conversion rights, we may either need to reserve part of the trust account for possible payment upon such conversion, or we may need to arrange third party financing to help fund our business combination in case a larger percentage of stockholders exercise their conversion rights than we expect. Therefore, we may not be able to consummate a business combination that requires us to use all of the funds held in the trust account as part of the purchase price, or we may end up having to incur an amount of leverage that is not optimal for our business combination. This may limit our ability to effectuate the most attractive business combination available to us.
Because the amount of time it will take to obtain physical stock certificates is uncertain and beyond our control, stockholders who wish to convert may be unable to obtain physical certificates by the deadline for exercising their conversion rights.
We may require that stockholders who wish to exercise their conversion rights tender physical certificates representing their shares to us not later than the day prior to the stockholders meeting. While some blank check companies have required physical delivery of certificates, most such companies do not impose such a requirement. Consequently, our stockholders may have a higher likelihood of encountering difficulty in converting their shares than they would in connection with other blank check companies. In order to obtain a physical stock certificate, a stockholder’s broker and/or clearing broker, DTC and our transfer agent will need to act to facilitate this request. It is our understanding that stockholders should generally allot at least two weeks to obtain physical certificates from the transfer agent. However, because we do not have any control over this process or over the brokers or DTC, it may take significantly longer than two weeks to obtain a physical stock certificate. If it takes longer than we anticipate to obtain a physical certificate, stockholders who wish to convert may be unable to obtain physical certificates by the deadline for exercising their conversion rights and thus will be unable to convert their shares.
You will not be entitled to protections normally afforded to investors of blank check companies under federal securities laws.
Because the net proceeds from our IPO are intended to be used to complete a business combination with one or more operating businesses, we may be deemed to be a blank check company under federal securities laws. However, since we had net tangible assets in excess of $5,000,000 upon the successful consummation of our IPO and filed a Current Report on Form 8-K with the Securities and Exchange Commission, or the SEC, including an audited balance sheet demonstrating this fact, we believe that we are exempt from the rules promulgated by the SEC to protect investors in blank check companies, such as Rule 419. Accordingly, investors will not be afforded the benefits or protections of those rules. Because we do not believe we are subject to Rule 419, our units will be immediately tradeable and we will have a longer period of time within which to complete a business combination in certain circumstances than would be permitted under Rule 419.
If we do not consummate a business combination and dissolve, payments from the trust account to our public stockholders may be delayed.
We currently believe that our dissolution and any plan of distribution subsequent to the expiration of the 24-month deadline contained in our amended and restated certificate of incorporation would proceed in approximately the following manner. Our board of directors will, consistent with our amended and restated certificate of incorporation, as promptly as practicable thereafter adopt a plan of distribution in accordance with Section 281(b) of the DGCL. Due to the need to comply with Section 281(b), we cannot provide any assurances that the distribution of our assets will occur within a specified time frame.
Our stockholders may be held liable for claims by third parties against us to the extent of distributions received by them, regardless of when the claims are filed.
We cannot assure you that third parties will not seek to recover from the assets distributed to our public stockholders any amounts owed to them by us. Under the DGCL, our stockholders could be liable for any claims against the company to the extent of distributions received by them in dissolution. Further, because we will distribute our assets in accordance with Section 281(b) rather than Sections 280 and 281(a), any such liability of our stockholders could extend to claims for which an action, suit or proceeding is begun after the third anniversary of our dissolution. The limitations on stockholder liability under the DGCL for claims against a dissolved corporation are determined by the procedures that a corporation follows for distribution of its assets following dissolution. If we complied with the procedures set forth in Sections 280 and 281(a) of the DGCL (which would include, among other things, a 60-day notice period during which any third-party claims can be brought against us, a 90-day period during which we may reject any claims brought, an additional 150-day waiting period before any liquidating distributions are made to stockholders, as well as review by the Delaware Court of Chancery) our stockholders would have no further liability with respect to claims on which an action, suit or proceeding is begun after the third anniversary of our dissolution. However, in accordance with our intention to dissolve and distribute our assets to our stockholders as soon as reasonably possible after dissolution, our amended and restated certificate of incorporation provides that we will comply with Section 281(b) of the DGCL instead of Sections 280 and 281(a). Accordingly, our stockholders’ liability could extend to claims for which an action, suit or proceeding is begun after the third anniversary of our dissolution.
If third parties bring claims against us, the proceeds held in the trust account could be reduced and the per share liquidation price received by our stockholders would be less than approximately $7.96 per share.
Placing the funds in a trust account may not protect those funds from third-party claims against us. Pursuant to Sections 280 and 281 of the DGCL, upon our dissolution we will be required to pay or make reasonable provision to pay all claims and obligations of the corporation, including all contingent, conditional, or unmatured claims. While we intend to pay those amounts from our funds not held in trust, we cannot assure you those funds will be sufficient to cover such claims and obligations. Although we will seek to have all vendors, prospective target businesses, and other entities with whom we execute agreements waive any right, title, interest, or claim of any kind in or to any monies held in the trust account for the benefit of our public stockholders, there is no guarantee that they will enter into such agreements, and it is not a condition to our doing business with anyone. Examples of possible instances where we may engage a third party that refuses to execute a waiver include the engagement of a third party consultant whose particular expertise or skills are believed by management to be significantly superior to those of other consultants that would agree to execute a waiver or in cases where management is unable to find a provider of required services willing to provide the waiver. In any event, our management would perform an analysis of the alternatives available to it and would enter into an agreement with a third party that did not execute a waiver only if management believed that such third party’s engagement would be significantly more beneficial to us than any alternative. In addition, there is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts, or agreements with us and will not seek recourse against the trust account for any reason. Accordingly, the proceeds held in the trust account could be subject to claims that could take priority over the claims of our public stockholders and the per share liquidation price could be less than approximately $7.96, plus interest (net of taxes payable on such interest, which taxes, if any, shall be paid from the trust account), due to claims of such creditors or other entities. Any insurance we may procure to cover such claims will be subject to various limits and exclusions and may be insufficient to adequately protect the trust account against such claims.
If we are unable to complete a business combination and are forced to liquidate, our current officers have each agreed to be jointly and severally personally liable for ensuring that the proceeds in the trust account are not reduced by (i) the claims of vendors for services rendered or products sold to us, (ii) claims of prospective target businesses for fees and expenses of third parties for which we agree in writing to be liable and (iii) claims by vendors or prospective target businesses, or if such person or entity does not provide a valid and enforceable waiver to rights or claims to the trust account so as to ensure that the proceeds in the trust account are not reduced by the claims of such persons that are owed money by us, in each case to the extent any insurance we may procure is inadequate to cover any claims made against the trust account and the payment of such debts or obligations actually reduces the amount in the trust account. Based on representations made to us by our officers, we currently believe that they are of substantial means and capable of funding a shortfall in our trust account to satisfy their foreseeable indemnification obligations, but we have not asked them to reserve for such an eventuality. The indemnification obligations may be substantially higher than our officers currently foresee or expect and their financial resources may deteriorate in the future. Hence, we cannot assure you that our officers will be able to satisfy those obligations or that the proceeds in the trust account will not be reduced by those claims. If our Board of Directors adopts a plan of distribution of our assets and it is subsequently determined that our reserve for claims and liabilities to third parties is insufficient, stockholders who received funds from our trust account could be liable for up to such amounts to creditors.
If we are forced to file a bankruptcy case or an involuntary case is filed against us that is not dismissed, the funds held in the trust account will be subject to applicable bankruptcy law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our stockholders. To the extent any bankruptcy claims deplete the trust account, the per share liquidation distribution would be less than the initial $7.96 per share held in the trust account.
A significant portion of working capital could be expended in pursuing acquisitions that are not consummated.
The investigation of each specific target business and the negotiation, drafting, and execution of relevant agreements, disclosure documents, and other instruments will require substantial management time and attention and substantial costs for accountants, attorneys, and others. In addition, we may opt to make down payments or pay exclusivity or similar fees in connection with structuring and negotiating a business combination. If a decision is made not to complete a specific business combination, the costs incurred up to that point in connection with the abandoned transaction, potentially including down payments or exclusivity or similar fees, will not be recoverable. Furthermore, we may fail to consummate the transaction for any number of reasons including those beyond our control, such as if 30% or more of our public stockholders vote against the transaction even though a majority of our public stockholders approve the transaction. Any such event will result in a loss to us of the related costs incurred, which could materially adversely affect subsequent attempts to locate and acquire or merge with another business.
We may issue additional shares of our capital stock, including through convertible debt securities, to complete a business combination, which would reduce the equity interest of our stockholders and may cause a change in control of our ownership.
Our amended and restated certificate of incorporation authorizes the issuance of up to 50,000,000 shares of common stock, par value $.0001 per share, and 1,000,000 shares of preferred stock, par value $.0001 per share. Immediately after our initial public offering, there were 1,562,500 authorized but unissued shares of our common stock available for issuance (after appropriate reservation of shares issuable upon full exercise of our outstanding warrants) and all of the 1,000,000 shares of preferred stock available for issuance. We may issue a substantial number of additional shares of our common stock, preferred stock, or a combination of both, including through convertible debt securities, to complete a business combination. The issuance of additional shares of our common stock or any number of shares of preferred stock, including upon conversion of any debt securities:
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may significantly reduce the equity interest of our stockholders;
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could cause a change in control which may affect, among other things, our ability to use our net operating loss carryforwards, if any, and result in the resignation or removal of our present officers and directors; and
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may adversely affect prevailing market prices for our common stock and warrants.
We may issue notes or other debt securities, or otherwise incur substantial debt, to complete a business combination, which may adversely affect our leverage and financial condition.
We may incur a substantial amount of debt to finance a business combination. The incurrence of debt:
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may lead to default and foreclosure on our assets if our operating revenues after a business combination are insufficient to pay our debt obligations;
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may cause an acceleration of our obligation to repay the debt, even if we make all principal and interest payments when due, if we breach the covenants contained in the terms of any debt documents, such as covenants that require the maintenance of certain financial ratios or reserves, without a waiver or renegotiation of such covenants;
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may create an obligation to repay immediately all principal and accrued interest, if any, upon demand to the extent any debt securities are payable on demand;
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may require us to dedicate a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our common stock, working capital, capital expenditures, acquisitions, and other general corporate purposes;
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may limit our flexibility in planning for and reacting to changes in our business and in the industry in which we operate;
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may make us more vulnerable to adverse changes in general economic, industry, and competitive conditions and adverse changes in government regulation;
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may limit our ability to borrow additional amounts for working capital, capital expenditures, acquisitions, debt service requirements, execution of our strategy, or other purposes; and
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may place us at a disadvantage compared to our competitors who have less debt.
Any desire by our current officers and directors to remain with us following a business combination may result in a conflict of interest in determining whether a particular target business is appropriate for a business combination and in the public stockholders’ best interests.
The personal and financial interests of our current officers and directors may influence them to negotiate their retention with us following the business combination, and to view more favorably acquisition targets that offer them a continuing relationship, either as an officer, director, consultant, or other third-party service provider, after the business combination. In addition, there may be a conflict of interest in the negotiation of the terms and conditions related to such continuing relationships as our officers and directors may be influenced by their personal and financial interests rather than the best interests of our public stockholders.
The loss of any member of our management team prior to the consummation of a business combination could adversely affect our ability to successfully consummate a business combination.
Our operations prior to our initial business combination are dependent upon a relatively small group of members of our management, including Mike Fernandez, Marcio Cabrera and Jorge Rico. We believe that our success prior to the consummation of a business combination depends upon the continued service of our management. We cannot assure you that these individuals will remain with us for the immediate or foreseeable future. We do not have key man life insurance on these individuals. We do not have employment contracts with any of our current management. The loss of any of these individuals would have an adverse effect on our ability to successfully consummate a business combination.
Our ability to be successful following a business combination will depend on the efforts of the management team that remains with the combined company.
Our management team currently intends to stay involved with us following a business combination, either as managers or in an advisory capacity. The future role of our management personnel following a business combination, however, cannot presently be fully ascertained. In making the determination whether our current management should remain with us following the business combination, management will analyze the experience and skill set of the target business’ management, determine whether it is in the best interests of the combined company to retain such personnel and negotiate with such personnel as appropriate. We will have limited ability to evaluate the management of the target business and we cannot assure you that our assessment of these individuals will prove to be correct.
Our management team will only be able to remain with the combined company after the consummation of a business combination if they are able to negotiate mutually agreeable employment terms as a part of any such combination, which terms would be disclosed to our stockholders in any proxy statement relating to such transaction. If our current management chooses to remain with us after the business combination, they will negotiate the terms of the business combination as well as the terms of their employment arrangements and may have a conflict of interest in negotiating the terms of the business combination while, at the same time, negotiating terms of their employment arrangements. The unexpected loss of the services of one or more of these members of our management team could have a detrimental effect on us.
Our officers and directors will allocate their time to other businesses, thereby causing conflicts of interest in their determination as to how much time to devote to our affairs. This could have a negative impact on our ability to complete a business combination.
Our officers and directors are not required to, and will likely not, commit their full time to our affairs, which may result in a conflict of interest in allocating their time between our operations and other businesses. We do not intend to have any full-time employees prior to the consummation of a business combination. Each member of our management team is engaged in several other business endeavors, including without limitation, active employment with MBFHP, and they are not obligated to contribute any specific number of hours per week to our affairs. As active employees of MBFHP, or the fund, members of our management team are required to identify target businesses for the fund, which could impact their ability to identify target businesses for us. Furthermore, we have agreed that any target companies with respect to which MBFHP has initiated any contacts or entered into any discussions, formal or informal, or negotiations regarding such company’s acquisition prior to the completion of our IPO will not be a potential acquisition target for us. If our officers’ and directors’ other business affairs require them to devote substantial amounts of time to such affairs in excess of their current commitment levels, it could limit their ability to devote time to our affairs and could have a negative impact on our ability to complete a business combination.
Our officers and directors are, and may in the future become, affiliated with entities in the healthcare industry and, accordingly, may have conflicts of interest in determining to which entity a particular business opportunity should be presented.
Our officers and directors are affiliated with entities, including other “blank check” companies, that are engaged in a similar business. Each of Mike Fernandez, Marcio Cabrera and Jorge Rico is affiliated with MBFHP, a private equity firm targeting companies in the healthcare industry for acquisition or investment. Roger J. Medel and Carlos Saladrigas, members of our Board of Directors, are also on the Advisory Committee of MBFHP. Mike Fernandez is a majority owner of Healthcare Atlantic, Inc., one of Florida’s largest dental health maintenance organizations. In addition, Mr. Fernandez is on the board of directors of Pediatrix Medical Group, Inc., a provider of newborn, maternal-fetal and pediatric physician services, and Dr. Medel is the Chief Executive Officer and a director of Pediatrix Medical Group, Inc. These entities may compete with us for investment and acquisition opportunities.
Each of Messrs. Fernandez, Cabrera, Rico and Saladrigas, Antonio Argiz and MBFHP has granted us a “right of first refusal,” effective upon the consummation of our IPO, with respect to any company or business in the healthcare industry whose aggregate enterprise value is at least equal to 80% of the balance in the trust account (less the deferred underwriting discounts and commissions and taxes payable). However, if our other officers and directors become aware of business opportunities that may be appropriate for presentation to us as well as the other entities with which they are or may be affiliated, due to existing and potential future affiliations with these and other entities, they may have fiduciary obligations to present potential business opportunities to those entities prior to presenting them to us.
Mike Fernandez, our Chairman and Chief Executive Officer, is subject to non-competition restrictions that will restrict us from pursuing business opportunities in selected sectors of the healthcare industry. This could have a negative impact on our ability to complete a business combination.
In connection with the disposition of previously owned businesses in the healthcare industry, Mike Fernandez entered into various noncompetition agreements. Mike Fernandez agreed that until February 16, 2010, he cannot (1) own or operate any medical center, office, clinic or facility in Florida or (2) directly or indirectly engage in any Medicare+Choice/Medicare Advantage Program, Medicare insurance line of business or Medicare insurance product in any of the following jurisdictions: Arizona, Colorado, Florida, Georgia, Illinois, Iowa, Kansas, Kentucky, Louisiana, Michigan, Minnesota, Missouri, North Carolina, North Dakota, Ohio, Puerto Rico, South Carolina, South Dakota, Tennessee, Texas, Utah and Wisconsin. Because of Mike Fernandez’s position as our Chairman and Chief Executive Officer, the restrictions in his non-competition agreements will effectively restrict us from pursuing business combinations and investments that involve certain government sponsored healthcare services which we could have considered had these non-competition agreements not been in place. Our inability to pursue these opportunities could have a negative impact on our ability to complete a business combination.
None of our officers or directors has ever been associated with a publicly held blank check company.
Our officers and directors have never served as officers or directors of a development stage public company with the business purpose of raising funds to acquire a company. Furthermore, our officers and directors have limited experience in private equity companies with the business purpose of raising funds to acquire a company. Accordingly, you may not be able to adequately evaluate their ability to successfully complete a business combination through a blank check public company or a company with a structure similar to ours.
Because Mike Fernandez, our Chairman and Chief Executive Officer, indirectly owns shares of our common stock that will not participate in liquidating distributions, he may have a conflict of interest in determining whether a particular target business is appropriate for a business combination.
Mike Fernandez, our Chairman and Chief Executive Officer, through MBFHP, indirectly owns shares of our common stock. Upon our liquidation, MBFHP will not have the right to receive distributions from the trust account with respect to shares of our common stock it acquired prior to the completion of our IPO and it would lose its entire investment in us were this to occur. Therefore, Mr. Fernandez’s personal and financial interests may influence his motivation in identifying and selecting target businesses and completing a business combination in a timely manner. This may result in a conflict of interest when determining whether the terms, conditions, and timing of a particular business combination are appropriate and in our stockholders’ best interest.
Our officers’ and directors’ interests in obtaining reimbursement for any out-of-pocket expenses incurred by them may lead to a conflict of interest in determining whether a particular target business is appropriate for a business combination and in the public stockholders’ best interest.
Our officers and directors will not receive reimbursement for any out-of-pocket expenses incurred by them to the extent that such expenses exceed the amount of available proceeds not deposited in the trust account unless the business combination is consummated. The amount of available proceeds is based upon our management’s estimate of the amount needed to fund our operations for the next 14 months and complete a business combination. This estimate may prove to be inaccurate, especially if a portion of the available proceeds is used to make a down payment in connection with a business combination or pay exclusivity or similar fees or if we expend a significant portion of the available proceeds in pursuit of an acquisition that is not consummated. The financial interest of our officers and directors could influence their motivation in selecting a target business and thus, there may be a conflict of interest when determining whether a particular business combination is in our public stockholders’ best interest.
We may engage in a business combination with one or more target businesses that have relationships with entities that may be affiliated with our founding stockholder or our officers and directors, which may raise potential conflicts of interest.
In light of our founding stockholder’s and our officers’ and directors’ involvement with other healthcare companies and our intent to complete a business combination with one or more operating businesses in the same industry, we may decide to acquire one or more businesses affiliated with our founding stockholder or our officers and directors. For example, each of Mike Fernandez, Marcio Cabrera and Jorge Rico is affiliated with our founding stockholder, MBFHP, a private equity firm that has acquired one healthcare company and is targeting companies in the healthcare industry for acquisition or investment. In addition, Mike Fernandez is the majority owner of Healthcare Atlantic, Inc. and Hospitalists of America, LLC, both companies in the healthcare industry. Further, Mr. Fernandez is on the board of directors of Pediatrix Medical Group, Inc. and Dr. Medel is the Chief Executive Officer and a director of Pediatrix Medical Group, Inc. Despite our agreement to obtain an opinion from an independent investment banking firm regarding the fairness to our public stockholders from a financial point of view of a business combination with one or more businesses affiliated with our founding stockholder, or our officers and directors, potential conflicts of interest still may exist and, as a result, the terms of the business combination may not be as advantageous to our public stockholders as they would be absent any conflicts of interest.
We will not generally be required to obtain a determination of the fair market value of a target business or target businesses from an unaffiliated, independent investment banking firm.
Our initial business combination must be with one or more operating businesses whose fair market value is at least equal to 80% of the balance in the trust account (less the deferred underwriting discounts and commissions and taxes payable) at the time of such acquisition. The fair market value of such business or businesses will be determined by our Board of Directors based upon standards generally accepted by the financial community, such as actual and potential sales, earnings, cash flow, and book value. We have agreed to obtain an opinion from an unaffiliated, independent investment banking firm which is a member of the National Association of Securities Dealers, Inc., or NASD, with respect to the satisfaction of such criteria. However, we will not be required to obtain an opinion from an investment banking firm as to the fair market value if our Board of Directors independently determines that the target business or businesses have sufficient fair market value, even if the target business or businesses are affiliated with one of our officers or directors.
The American Stock Exchange may delist our securities from trading on its exchange which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions.
Our securities are currently listed on the American Stock Exchange, a national securities exchange. We cannot assure you that our securities will continue to be listed on the American Stock Exchange in the future prior to a business combination. Additionally, in connection with our business combination, it is likely that the American Stock Exchange may require us to file a new initial listing application and meet its initial listing requirements as opposed to its more lenient continued listing requirements. We cannot assure you that we will be able to meet those initial listing requirements at that time.
If the American Stock Exchange delists our securities from trading on its exchange and we are not able to list our securities on another exchange or to have them quoted on Nasdaq, our securities could be quoted on the OTC Bulletin Board, or “pink sheets.” As a result, we could face significant material adverse consequences including:
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a limited availability of market quotations for our securities;
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a determination that our common stock is a “penny stock” which will require brokers trading in our common stock to adhere to more stringent rules and possibly resulting in a reduced level of trading activity in the secondary trading market for our securities;
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a limited amount of news and analyst coverage for our company; and
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a decreased ability to issue additional securities or obtain additional financing in the future.
The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities”. Since we will be listed on the American Stock Exchange, our securities will be covered securities. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. While we are not aware of a state having used these powers to prohibit or restrict the sale of securities issued by blank check companies, certain state securities regulators view blank check companies unfavorably and might use these powers, or threaten to use these powers, to hinder the sale of securities of blank check companies in their states. Further, if we were no longer listed on the American Stock Exchange, our securities would not be covered securities and we would be subject to regulation in each state in which we offer securities.
If our common stock becomes subject to the SEC’s penny stock rules, broker-dealers may experience difficulty in completing customer transactions and trading activity in our securities may be adversely affected.
If at any time our securities are no longer listed on the American Stock Exchange or another exchange or quoted on Nasdaq or we have net tangible assets of $5,000,000 or less or our common stock has a market price per share of less than $5.00, transactions in our common stock may be subject to the “penny stock” rules promulgated under the Securities Exchange Act of 1934, as amended. Under these rules, broker-dealers who recommend such securities to persons other than institutional accredited investors must:
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make a special written suitability determination for the purchaser;
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receive the purchaser’s written agreement to a transaction prior to sale;
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provide the purchaser with risk disclosure documents that identify certain risks associated with investing in “penny stocks” and that describe the market for these “penny stocks,” as well as a purchaser’s legal remedies; and
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obtain a signed and dated acknowledgment from the purchaser demonstrating that the purchaser has actually received the required risk disclosure document before a transaction in “penny stock” can be completed.
If our common stock becomes subject to these rules, broker-dealers may find it difficult to effect customer transactions and trading activity in our securities may be adversely affected. As a result, the market price of our securities may be depressed, and you may find it more difficult to sell our securities.
We may only be able to complete one business combination, which may cause us to be solely dependent on a single business and a limited number of products or services.
The net proceeds from our IPO and the private placement were $172,762,500 which provided us with approximately $170,962,500, which we may use to complete a business combination. Although we are permitted to effect a business combination with more than one target business, we currently intend to effect our initial business combination with a single operating business whose fair market value is at least equal to 80% of the balance in the trust account (less the deferred underwriting discounts and commissions and taxes payable) at the time of the acquisition. If we acquire more than one target business, additional issues would arise, including possible complex accounting issues, which would include generating pro forma financial statements reflecting the operations of several target businesses as if they had been combined, and numerous logistical issues, which would include attempting to coordinate the timing of negotiations, proxy statement disclosure, and closing with multiple target businesses. In addition, we would be exposed to the risk that conditions to closings with respect to the acquisition of one or more of the target businesses would not be satisfied, bringing the fair market value of the business combination below the required threshold of 80% of the balance in the trust account (less the deferred underwriting discounts and commissions and taxes payable). As a result, we are likely to complete a business combination with only a single operating business, which may have only a limited number of products or services. The resulting lack of diversification may:
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result in our dependency upon the performance of a single operating business;
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result in our dependency upon the development or market acceptance of a single or limited number of products, processes, or services; and
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subject us to numerous economic, competitive, and regulatory developments, any or all of which may have a substantial adverse impact upon the particular industry in which we may operate subsequent to a business combination.
In this case we will not be able to diversify our operations or benefit from the possible spreading of risks or offsetting of losses, unlike other entities that may have the resources to complete several business combinations in different industries or different areas of a single industry so as to diversify risks and offset losses. Further, the prospects for our success may be entirely dependent upon the future performance of the initial target business or businesses we acquire.
Any attempt to consummate more than one transaction as our initial business combination will make it more difficult to consummate our initial business combination.
We may seek to acquire contemporaneously multiple operating companies whose collective fair market value is at least equal to 80% of the balance in the trust account (less the deferred underwriting discounts and commissions and taxes payable) at the time of those acquisitions. Acquisitions involve a number of special risks, including diversion of management’s attention, legal, financial, accounting, and due diligence expenses, and general risks that transactions will not be consummated. To the extent we try to consummate more than one transaction at the same time, all of these risks will be exacerbated, especially in light of the small size of our management team and our limited financial and other resources. Completing our initial business combination through more than one acquisition likely would result in increased costs as we would be required to conduct a due diligence investigation of more than one business and negotiate the terms of the acquisition with multiple sellers. In addition, due to the difficulties involved in consummating multiple acquisitions concurrently, our attempt to complete our initial business combination in this manner would increase the chance that we would be unable to successfully complete our initial business combination in a timely manner. In addition, if our initial business combination entails simultaneous transactions with different sellers, each seller will need to agree that its transaction is contingent upon the simultaneous closing of the other transactions, which may make it more difficult for us, or delay our ability, to complete the initial business combination. As a result, if we attempt to consummate our initial business combination in the form of multiple transactions, there is an increased risk that we will not be in a position to consummate some or all of those transactions, which could result in our failure to satisfy the requirements for an initial business combination and force us to liquidate.
Because of our limited resources and the significant competition for business combination opportunities, we may not be able to consummate an attractive business combination.
We expect to encounter intense competition from other entities having a business objective similar to ours, including venture capital funds, leveraged buyout funds, operating businesses, and other entities and individuals, both foreign and domestic. Many of these entities are well established and have extensive experience in identifying and effecting business combinations directly or through affiliates. Many of these competitors possess greater technical, human, and other resources than we do and our financial resources will be relatively limited when contrasted with those of many of these competitors. While we believe that there are numerous potential target businesses that we could acquire with the net proceeds of our IPO, together with additional financing, if available, our ability to compete in acquiring certain sizable target businesses will be limited by our available financial resources. This inherent competitive limitation gives others an advantage in pursuing the acquisition of certain target businesses. Further:
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our obligation to seek stockholder approval of a business combination may delay or prevent the consummation of a transaction;
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our obligation not to target any companies with respect to which MBFHP has initiated any contacts or entered into any discussions, formal or informal, or negotiations regarding such company’s acquisition prior to the completion of our offering may prevent the consummation of a transaction within the required time frame;
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our obligation to convert the shares of common stock into cash in certain instances may reduce the resources available for a business combination; and
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our outstanding warrants, and the future dilution they potentially represent, may not be viewed favorably by certain target businesses.
Any of these factors may place us at a competitive disadvantage in successfully negotiating a business combination.
We may seek to acquire contemporaneously multiple operating companies whose collective fair market value is at least equal to 80% of the balance in the trust account (less the deferred underwriting discounts and commissions and taxes payable) at the time of those acquisitions. To the extent that our business combination entails the contemporaneous acquisition of more than one operating business, we may not have sufficient resources, financial or otherwise, to effectively and efficiently conduct adequate due diligence and negotiate definitive agreements on terms most favorable to our stockholders. In addition, because our business combination may be with different sellers, we will need to convince such sellers to agree that the purchase of their businesses is contingent upon the simultaneous closings of the other acquisitions.
We may acquire a target business with a history of poor operating performance and there is no guarantee that we will be able to improve the operating performance of that target business.
Due to the competition for business combination opportunities, we may acquire a target business with a history of poor operating performance if we believe that target business has attractive attributes that can take advantage of trends in the healthcare industry. However, acquiring a target company with a history of poor operating performance can be extremely risky and we may not be able to improve operating performance. If we cannot improve the operating performance of such a target business following our business combination, then our business, financial condition, and results of operations will be adversely affected. Factors that could result in us not being able to improve operating performance include, among other things:
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inability to predict changes in technological innovation;
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inability to predict changes in consumer tastes and preferences;
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competition from superior or lower-priced products;
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lack of financial resources;
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inability to attract and retain key executives and employees;
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claims for infringement of third-party intellectual property rights and/or the availability of third-party licenses; and
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changes in, or costs imposed by, government regulation.
We may acquire a target business with operations located outside of the United States which may subject us to additional risks that could have an adverse effect on our business operations and financial results subsequent to the business combination.
Acquiring and operating a domestic target company with operations located outside of the United States may involve additional risks, including changes in trade protection and investment laws, policies and measures, and other regulatory requirements affecting foreign trade and investment; social, political, labor, or economic conditions in a specific country or region; and difficulties in staffing and managing foreign operations. In addition, significant fluctuations in exchange rates between the U.S. dollar and foreign currencies may adversely affect the price of acquiring a foreign target business and, subsequent to acquisition, our future net revenues. These types of risks may impede our ability to successfully complete a business combination with a target business which has operations located outside of the United States and may impair our financial results and operations if we consummate such a business combination.
Our founding stockholder controls a substantial interest in us and thus may influence certain actions requiring a stockholder vote.
Our founding stockholder, MBFHP, owns approximately 18.9% of our issued and outstanding shares of common stock. In addition, there is no restriction on the ability of our founding stockholder and our officers and directors to purchase units or shares of our common stock in the market. If it were to do so, the percentage of our outstanding common stock held by our founding stockholder and our officers and directors would increase. Our Board of Directors will be divided into three classes, each of which generally will serve for a term of three years, with only one class of directors being elected in each year. There may not be an annual meeting of stockholders to elect new directors prior to the consummation of a business combination, in which case all of the current directors will continue in office at least until the consummation of the business combination. If there is an annual meeting, as a consequence of this “staggered” Board of Directors, only a minority of the Board of Directors would be considered for election. As a result of his substantial beneficial ownership through control of our founding stockholder, Mike Fernandez, our Chairman and Chief Executive Officer, may exert considerable influence on actions requiring a stockholder vote, including the election of officers and directors, amendments to our amended and restated certificate of incorporation, the approval of benefit plans, mergers, and similar transactions (other than approval of the initial business combination). Moreover, except to the extent stockholder proposals are properly and timely submitted, our directors will determine which matters, including prospective business combinations, to submit to a stockholder vote. As a result, they will exert substantial control over actions requiring a stockholder vote both before and following a business combination.
Because of our founding stockholder’s agreement with the underwriters to make open market purchases of common stock commencing on the later of (a) ten business days after we file a Current Report on Form 8-K announcing our execution of a definitive agreement for our initial business combination or (b) 60 calendar days after the end of the “restricted period” under Regulation M promulgated by the SEC, and ending on the business day immediately preceding the record date for the meeting of stockholders at which such business combination is to be voted upon by our stockholders, our founding stockholder may obtain an even larger ownership block of our common stock which could permit it to influence the outcome of all matters requiring approval by our stockholders at such time, including our initial business combination, the election of directors and approval of significant corporate transactions following the consummation of our initial business combination. For a more complete discussion, including a detailed description of when such purchases may begin under Regulation M, please see the section of our final prospectus filed with the SEC on April 17, 2007 entitled “Principal Stockholders.”
Our outstanding warrants may have an adverse effect on the market price of common stock and make it more difficult to effect a business combination.
In connection with our IPO, as part of the units, we issued warrants to purchase 21,562,500 shares of common stock. In addition, in connection with the private placement, we issued warrants to purchase 343,750 shares of common stock as part of the units, and additional warrants to purchase 4,250,000 shares of common stock. To the extent we issue shares of common stock to effect a business combination, the potential for the issuance of substantial numbers of additional shares upon exercise of these warrants could make us a less attractive acquisition vehicle in the eyes of a target business as such securities, when exercised, will increase the number of issued and outstanding shares of our common stock and the potential for such issuance could reduce the value of the shares that may be issued to complete the business combination. Accordingly, the existence of our warrants may make it more difficult to effectuate a business combination or may increase the acquisition cost of a target business if we are unable to complete a business combination solely with cash. Additionally, the sale, or potential sale, of the shares underlying the warrants could have an adverse effect on the market price for our securities or on our ability to obtain future public financing. If and to the extent these warrants are exercised, you may experience dilution to your holdings.
Our founding stockholder’s obligation to purchase common stock in the open market commencing on the later of ten business days after we file a current report on Form 8-K announcing our execution of a definitive agreement for our initial business combination or 60 calendar days after the end of the “restricted period” under Regulation M and ending on the business day immediately preceding the record date for the meeting of stockholders at which such business combination is voted upon by our stockholders may support the market price of the common stock and/or warrants during such period and, accordingly, the termination of the support provided by such purchases may materially adversely affect the market price of the common stock and/or warrants.
Our founding stockholder has agreed, pursuant to an agreement with the underwriters in our IPO in accordance with guidelines specified by Rule 10b5-1 under the Securities Exchange Act of 1934, to purchase up to $12.0 million of our common stock in the open market, at market prices not to exceed the per share amount held in the trust account (less taxes payable), commencing on the later of (a) ten business days after we file a Current Report on Form 8-K announcing our execution of a definitive agreement for our initial business combination (“Signing 8-K”) or (b) 60 calendar days after the end of the “restricted period” under Regulation M, and ending on the business day immediately preceding the record date for the meeting of stockholders at which such business combination is to be voted upon by our stockholders. Based on the execution date of the Stock Purchase Agreement, our founding stockholder began making these open market purchases on February 25, 2008. The per share amount held in the trust account (less taxes payable) as determined on February 5, 2008 was $8.13. Our founding stockholder will not have any discretion or influence with respect to such purchases and will not be able to sell or transfer any common stock purchased in the open market pursuant to such agreement until six months following the consummation of a business combination. Consequently, if the market does not view a business combination positively, these purchases may have the effect of counteracting the market’s view of the business combination, which would otherwise be reflected in a decline in the market price of our securities. The termination of the support provided by these purchases may materially adversely affect the market price of our securities.
An effective registration statement may not be in place when an investor desires to exercise warrants, which would preclude an investor from being able to exercise his, her or its warrants and cause those warrants to be practically worthless.
None of the warrants issued in our IPO will be exercisable, and we will not be obligated to issue shares of common stock unless, at the time a holder seeks to exercise these warrants, a prospectus relating to the common stock issuable upon exercise of these warrants is current and the common stock has been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the warrants. Under the terms of the warrant agreement, we have agreed to use our reasonable best efforts to maintain a current prospectus relating to the common stock issuable upon exercise of the warrants until the expiration of these warrants. However, we cannot assure you that we will be able to do so, and if we do not maintain a current prospectus related to the common stock issuable upon exercise of the warrants issued in our IPO, holders will be unable to exercise their warrants and we will not be required to settle any such warrant exercise. In no event will we be required to net cash settle any warrant exercise. If the prospectus relating to the common stock issuable upon the exercise of these warrants is not current or if the common stock is not qualified or exempt from qualification in the jurisdictions in which the holders of the warrants reside, these warrants may have no value, the market for these warrants may be limited and these warrants may expire worthless. Thus, in these instances, the purchaser of a unit purchased in our IPO would have paid the full $8.00 purchase price solely for the one share of our common stock included in the unit. Even if the prospectus relating to the common stock issuable upon exercise of the warrants is not current, the warrants issued in the private placement to MBF Healthcare Partners, L.P. will be exercisable for unregistered shares of common stock.
We may choose to redeem our outstanding warrants when a prospectus relating to the common stock issuable upon exercise of such warrants is not current, the warrants will not be exercisable and the warrant holders may receive less than fair market value for the warrant or no value at all.
We may redeem the warrants at any time after the warrants become exercisable in whole and not in part, at a price of $0.01 per warrant, upon a minimum of 30 days’ prior written notice of redemption, if and only if, the last sales price of our common stock equals or exceeds $11.50 per share for any 20 trading days within a 30 trading day period ending three business days before we send the notice of redemption to warrant holders. Redemption of the warrants could force the warrant holders (i) to exercise the warrants and pay the exercise price therefore at a time when it may be disadvantageous for the holders to do so, (ii) to sell the warrants at the then current market price when they might otherwise wish to hold the warrants or (iii) to accept the nominal redemption price which, at the time the warrants are called for redemption, is likely to be substantially less than the market value of the warrants. Further, if we redeem the warrants while the prospectus relating to the common stock issuable upon exercise of the warrants is not current, public warrant holders will not be able to exercise the warrants and may receive much less than fair value for the warrant or no value at all. In addition, public warrant holders may not be able to exercise their warrants during the 30-day notice period prior to redemption if a current prospectus is unavailable.
Our founding stockholder’s exercise of its registration rights may have an adverse effect on the market price of our common stock, and the existence of these rights may make it more difficult to effect a business combination.
MBFHP is entitled to demand on up to two occasions that we register the resale of its shares of common stock and warrants, including those shares of common stock included in, or issued upon exercise of the warrants purchased in this private placement and included in the units purchased in the private placement, in certain circumstances and has certain “piggy back” registration rights. If MBFHP exercises its registration rights with respect to all of its shares of common stock and warrants (including the shares and warrants included in the units and the warrants issued in the private placement) then there will be an additional 9,625,000 shares of common stock eligible for trading in the public market. This potential increase in trading volume may have an adverse effect on the market price of our common stock. In addition, the existence of these rights may make it more difficult to effect a business combination or increase the acquisition cost of a target business in the event that we are unable to complete a business combination solely with cash, as the stockholders of a particular target business may be discouraged from entering into a business combination with us or will request a higher price for their securities as a result of these registration rights and the potential future effect their exercise may have on the trading market for our common stock.
If we are deemed to be an investment company, we may be required to institute burdensome compliance requirements and our activities may be restricted, which may make it difficult for us to complete a business combination.
If we are deemed to be an investment company under the Investment Company Act of 1940, as amended, our activities may be restricted, including:
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restrictions on the nature of our investments; and
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restrictions on the issuance of securities, each of which may make it difficult for us to complete a business combination.
In addition, we may have imposed upon us burdensome requirements, including:
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registration as an investment company;
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adoption of a specific form of corporate structure; and
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reporting, record keeping, voting, proxy, and disclosure requirements, and other rules and regulations.
We do not believe that our anticipated principal activities will subject us to the Investment Company Act of 1940. To this end, the proceeds held in the trust account may only be invested by the trustee in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act of 1940 or securities issued or guaranteed by the United States. By restricting the investment of the proceeds to these instruments, we intend to avoid being deemed an investment company within the meaning of the Investment Company Act of 1940. Our common stock is not intended for persons who are seeking a return on investments in government securities. The trust account and the purchase of government securities for the trust account is intended as a holding place for funds pending the earlier to occur of either: (i) the consummation of our primary business objective, which is a business combination, or (ii) absent a business combination, our dissolution and return of the funds held in the trust account to our public stockholders as part of our plan of dissolution and distribution. If we do not invest the proceeds as discussed above, we may be deemed to be subject to the Investment Company Act of 1940. If we were deemed to be subject to the Investment Company Act of 1940, compliance with these additional regulatory burdens would require additional expense for which we have not accounted.
Our directors, including those we expect to serve on our Audit Committee, may not be considered “independent” under the policies of the North American Securities Administrators Association, Inc. and, therefore, may take actions or incur expenses that are not deemed to be independently approved or independently determined to be in our best interest.
Under the policies of the North American Securities Administrators Association, Inc., an international organization devoted to investor protection, because all of our directors may receive reimbursement for out-of-pocket expenses incurred by them in connection with activities on our behalf such as attending meetings of the Board of Directors, identifying potential target businesses, and performing due diligence on suitable business combinations, and certain of our directors indirectly own shares of our securities, state securities administrators could take the position that such individuals are not “independent.” If this were the case, they would take the position that we would not have the benefit of independent directors examining the propriety of expenses incurred on our behalf and subject to reimbursement. There is no limit on the amount of out-of-pocket expenses that could be incurred and there will be no review of the reasonableness of the expenses by anyone other than our Board of Directors, which would include persons who may seek reimbursement, or a court of competent jurisdiction if such reimbursement is challenged. To the extent such out-of-pocket expenses exceed the available proceeds not deposited in the trust account, such out-of-pocket expenses would not be reimbursed by us unless we complete a business combination. Although we believe that all actions taken by our directors on our behalf will be in our best interests, whether or not they are deemed to be “independent,” we cannot assure you that this will actually be the case. If actions are taken, or expenses are incurred that actually are not in our best interests, it could have a material adverse effect on our business and operations and the price of our stock held by the public stockholders.
If the private placement was not conducted in compliance with applicable law, our founding stockholder may have the right to rescind its unit and warrant purchase. The rescission rights, if any, may require us to refund an aggregate of $7,000,000 to our founding stockholder, thereby reducing the amount in the trust account available to us to consummate a business combination, or, in the event we do not complete a business combination within the period prescribed by our IPO, the amount available to our public stockholders upon our liquidation.
Although we believe that we conducted the private placement in accordance with applicable law, there is a risk that the securities issued in the private placement should have been registered under the Securities Act of 1933, as amended, and applicable blue sky laws. Although our founding stockholder has waived its rights, if any, to rescind its unit and warrant purchases as a remedy to our failure to register these securities, its waiver may not be enforceable in light of the public policy underlying Federal and state securities laws. If the founding stockholder brings a claim against us and successfully asserts rescission rights, we may be required to refund an aggregate of $7,000,000, plus interest, to it, thereby reducing the amount in the trust account available to us to consummate a business combination, or, in the event we do not complete a business combination within the period prescribed by our IPO, the amount available to our public stockholders upon our liquidation.
Risks Associated With The Healthcare Industry
We intend to acquire a company in the healthcare industry. Businesses in the healthcare industry are subject to numerous risks, including the following:
The healthcare industry is subject to various influences, each of which may adversely affect our prospective business.
The healthcare industry is subject to changing political, economic and regulatory influences. These factors affect the purchasing practices and operations of healthcare organizations. Any changes in current healthcare financing and reimbursement systems could require us to make unplanned enhancements of our prospective products or services, or result in delays or cancellations of orders, or in the revocation of endorsement of our prospective products or services by clients. Federal and state legislatures have periodically considered programs to reform or amend the U.S. healthcare system at both the federal and state level. Such programs may increase governmental regulation or involvement in healthcare, lower reimbursement rates, or otherwise change the environment in which healthcare industry participants operate. Healthcare industry participants may respond by reducing their investments or postponing investment decisions, including investments in our prospective products or services.
Many healthcare industry participants are consolidating to create integrated healthcare systems with greater market power. As the healthcare industry consolidates, competition to provide products and services to industry participants will become even more intense, as will the importance of establishing a relationship with each industry participant. Industry participants may try to use their market power to negotiate price reductions for our prospective products and services. If we were forced to reduce our prices, our operating results would be adversely affected if we could not achieve corresponding reductions in our expenses.
Any business we acquire will be subject to extensive government regulation. Any changes to the laws and regulations governing our prospective business, or the interpretation and enforcement of those laws or regulations, could cause us to modify our possible operations and could adversely affect our operating results.
We believe that our prospective business may be extensively regulated by the federal government and any states in which we decide to operate. The laws and regulations which may govern our prospective operations are generally intended to benefit and protect persons other than our stockholders. The government agencies administering these laws and regulations have broad latitude to enforce them. These laws and regulations along with the terms of any government contracts we may enter into would regulate how we do business, what products and services we could offer and how we would interact with the public. These laws and regulations, and their interpretations, are subject to frequent change. Changes in existing laws or regulations, or their interpretations, or the enactment of new laws or regulations could reduce our revenue by:
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imposing additional capital requirements;
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increasing our liability;
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increasing our administrative and other costs;
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increasing or decreasing mandated benefits;
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forcing us to restructure our relationships with providers; or
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requiring us to implement additional or different programs and systems.
For example, Congress enacted the Health Insurance Portability and Accountability Act of 1996, which mandates that health plans enhance privacy protections for member protected health information. This requires health plans to add, at significant cost, new administrative, information and security systems to prevent the inappropriate release of protected member health information. Compliance with this law is uncertain and has affected the revenue streams of entities subject to it. Similarly, individual states periodically consider adding operational requirements applicable to health plans, often without identifying funding for these requirements. In 1999, the California legislature enacted a law effective in 2001 for all health care service plan contracts issued, delivered, amended or renewed on or after January 1, 2000, requiring all health plans to make available to members independent medical review of their claims. Any analogous requirements applied to our prospective products or services would be costly to implement and could adversely affect our prospective revenues.
We believe that our business, if any, will be subject to various routine and non-routine governmental reviews, audits and investigations. Violation of the laws governing our prospective operations, or changes in interpretations of those laws, could result in the imposition of civil or criminal penalties, the cancellation of any contracts to provide products or services, the suspension or revocation of any licenses, and exclusion from participation in government sponsored health programs, such as Medicaid. If we become subject to material fines or if other sanctions or other corrective actions were imposed upon us, we might suffer a substantial reduction in revenue and might also lose one or more of our government contracts and as a result lose significant numbers of members and amounts of revenue.
The current administration’s issuance of new regulations, its review of the existing Health Insurance Portability and Accountability Act of 1996 rules and other newly published regulations, the states’ ability to promulgate stricter rules and uncertainty regarding many aspects of the regulations may make compliance with any new regulatory landscape difficult. In order to comply with any new regulatory requirements, any prospective business we acquire may be required to employ additional or different programs and systems, the costs of which are unknown to us at this time. Further, compliance with any such new regulations may lead to additional costs that we have not yet identified. We do not know whether, or the extent to which, we would be able to recover our costs of complying with any new regulations. Any new regulations and the related compliance costs could adversely affect our business.
We may face substantial risks of litigation as a result of operating in the healthcare industry. If we become subject to malpractice and related legal claims, we could be required to pay significant damages, which may not be covered by insurance.
Litigation is a risk that each business contends with, and businesses operating in the healthcare industry do so more than most. In recent years, medical product companies have issued recalls of medical products, and physicians and other healthcare providers have become subject to an increasing number of legal actions alleging malpractice, product liability or related legal theories. Many of these actions involve large monetary claims and significant defense costs. We intend to maintain liability insurance in amounts that we believe will be appropriate for our prospective operations. We also intend to maintain business interruption insurance and property damage insurance, as well as an additional umbrella liability insurance policy. However, this insurance coverage may not cover all claims against us. Furthermore, insurance coverage may not continue to be available at a cost allowing us to maintain adequate levels of insurance. If one or more successful claims against us were not covered by, or exceeded the coverage of, our insurance, our financial condition could be adversely affected.
We may be dependent on payments from Medicare and Medicaid. Changes in the rates or methods governing these payments for our prospective products or services, or delays in such payments, could adversely affect our prospective revenue.
A large portion of our revenue may consist of payments from Medicare and Medicaid programs. Because these are generally fixed payments, we would be at risk for the cost of any products or services provided to our clients. We cannot assure you that Medicare and Medicaid will continue to pay in the same manner or in the same amount that they currently do. Any reductions in amounts paid by government programs for our prospective products or services or changes in methods or regulations governing payments would adversely affect our potential revenue. Additionally, delays in any such payments, whether as a result of disputes or for any other reason, would also adversely affect our potential revenue.
If our costs were to increase more rapidly than fixed payment adjustments we receive from Medicare, Medicaid or other third-party payors for any of our potential products or services, our revenue would be adversely affected.
We may receive fixed payments for our prospective products or services based on the level of service or care that we provide. Accordingly, our revenue may be largely dependent on our ability to manage costs of providing any products or services and to maintain a client base. We may become susceptible to situations where our clients may require more extensive and therefore more expensive products or services than we may be able to profitably deliver. Although Medicare, Medicaid and certain third-party payors currently provide for an annual adjustment of various payment rates based on the increase or decrease of the medical care expenditure category of the Consumer Price Index, these increases have historically been less than actual inflation. If these annual adjustments were eliminated or reduced, or if our costs of providing our products or services increased more than the annual adjustment, any revenue stream we may generate would be adversely affected.
We may depend on payments from third-party payors, including managed care organizations. If these payments are reduced, eliminated or delayed, our prospective revenues could be adversely affected.
We may be dependent upon private sources of payment for any of our potential products or services. Any amounts that we may receive in payment for such products and services may be adversely affected by market and cost factors as well as other factors over which we have no control, including regulations and cost containment and utilization decisions and reduced reimbursement schedules of third-party payors. Any reductions in such payments, to the extent that we could not recoup them elsewhere, would adversely affect our prospective business and results of operations. Additionally, delays in any such payments, whether as a result of disputes or for any other reason, would adversely affect our prospective business and results of operations.
Medical reviews and audits by governmental and private payors could result in material payment recoupments and payment denials, which could adversely affect our business.
Medicare fiscal intermediaries and other payors may periodically conduct pre-payment or post-payment medical reviews or other audits of our prospective products or services. In order to conduct these reviews, the payor would request documentation from us and then review that documentation to determine compliance with applicable rules and regulations, including the documentation of any products or services that we might provide. We cannot predict whether medical reviews or similar audits by federal or state agencies or commercial payors of such products or services will result in material recoupments or denials, which could adversely affect our financial condition and results of operations.
Regional concentrations of our prospective business may subject us to economic downturns in those regions.
Our business may include or consist of regional companies. If our operations are concentrated in a small number of states, we will be exposed to potential losses resulting from the risk of an economic downturn in these states. If economic conditions in these states deteriorate, we may experience a reduction in existing and new business, which may adversely affect our business, financial condition and results of operations.
We may be dependent primarily on a single potential product or service. Such a product or service may take us a long time to develop, gain approval for and market.
Our future financial performance may depend in significant part upon the development, introduction and client acceptance of new or enhanced versions of a single potential product or service to the healthcare industry. We cannot assure you that we will be successful in acquiring, developing or marketing such a product or service or any potential enhancements to it. Such activities may take us a long time to accomplish, and there can be no guarantee that we will ever actually acquire, develop or market any such product or service. In addition, competitive pressures or other factors may result in price erosion that could adversely affect our results of operation.
If the FDA or other state or foreign agencies impose regulations that affect our potential products, our costs will increase.
The development, testing, production and marketing of any of our potential products that we may manufacture, market or sell following a business combination may be subject to regulation by the Food and Drug Administration, or the FDA under the Federal Food, Drug and Cosmetic Act. Product candidates and the activities associated with their development and commercialization, including their testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, will be subject to comprehensive regulation by the FDA and other United States regulatory agencies and by comparable authorities in other countries. Securing approval requires the submission of extensive preclinical and clinical data, information about product manufacturing processes and inspection of facilities and supporting information for each therapeutic indication to establish the product candidate’s safety and efficacy.
The FDA requires producers of medical devices and drug products to obtain FDA licensing prior to commercialization in the United States. Testing, preparation of necessary applications and the processing of those applications by the FDA is expensive and time consuming. We do not know if the FDA would act favorably or quickly in making such reviews, and significant difficulties or costs may potentially be encountered by us in any efforts to obtain FDA licenses. The FDA may also place conditions on licenses that could restrict commercial applications of such products. Product approvals may be withdrawn if compliance with regulatory standards is not maintained or if problems occur following initial marketing. Delays imposed by the FDA licensing process may materially reduce the period during which we have the exclusive right to commercialize any potential patented products. We may make modifications to any potential devices and may make additional modifications in the future that we may believe do not or will not require additional clearances or approvals. If the FDA should disagree and require new clearances or approvals for the potential modifications, we may be required to recall and to stop marketing the potential modified devices. We also may be subject to reporting regulations, which would require us to report to the FDA if our products were to cause or contribute to a death or serious injury, or malfunction in a way that would likely cause or contribute to a death or serious injury. We cannot assure you that such problems will not occur in the future.
Additionally, our potential products may be subject to regulation by similar agencies in other states and foreign countries. Compliance with such laws or regulations, including any new laws or regulations in connection with any potential products developed by us, might impose additional costs on us or marketing impediments on such products, which could adversely affect our prospective revenues and increase our expenses. The FDA and state authorities have broad enforcement powers. Our failure to comply with applicable regulatory requirements could result in an enforcement action by the FDA or state agencies, which may include any of the following sanctions:
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warning letters, fines, injunctions, consent decrees and civil penalties;
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repair, replacement, refunds, recall or seizure of our products;
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operating restrictions or partial suspension or total shutdown of production;
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refusal of requests for regulatory clearance or pre-market approval of new products, new intended uses or modifications to existing products;
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withdrawal of regulatory approvals previously granted; and
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criminal prosecution.
If any of these events were to occur, it could adversely affect our business.
The FDA can impose civil and criminal enforcement actions and other penalties on us if we were to fail to comply with stringent FDA regulations.
Medical device manufacturing facilities must maintain records, which are available for FDA inspectors, documenting that the appropriate manufacturing procedures were followed. Should we acquire such a facility as a result of a business combination, the FDA would have authority to conduct inspections of such a facility. Labeling and promotional activities are also subject to scrutiny by the FDA and, in certain instances, by the Federal Trade Commission. Any failure by us to take satisfactory corrective action in response to an adverse inspection or to comply with applicable FDA regulations could result in an enforcement action against us, including a public warning letter, a shutdown of manufacturing operations, a recall of our products, civil or criminal penalties or other sanctions. From time to time, the FDA may modify such requirements, imposing additional or different requirements, which could require us to alter our business methods which could potentially result in increased expenses.
If we consummate an acquisition of a healthcare technology company and are unable to keep pace with the changes in the technology applicable to the healthcare industry, our products could become obsolete and it could hurt our prospective results of operations.
The healthcare technology industry is generally characterized by intense, rapid changes, often resulting in product obsolescence or short product life cycles. If we consummate an acquisition of a healthcare technology company, then our ability to compete after consummation of a business combination will be dependent upon our ability to keep pace with changes in healthcare technology. If we are ultimately unable to adapt our operations as needed, our financial condition following a business combination will be adversely affected.
If we are unable to obtain and maintain protection for the intellectual property relating to our technologies and products or services following a business combination, the value of our technology, products or services may decline, which could adversely affect our business.
Intellectual property rights in the fields of biotechnology, pharmaceuticals, diagnostics and medical devices are highly uncertain and involve complex legal and scientific questions. At the same time, the profitability of companies in these fields generally depends on sustained competitive advantages and differentiation that are based in part on intellectual property. Our success following a business combination will depend in large part on our ability to obtain and maintain protection in the United States and other countries for the intellectual property covering or incorporated into our technology, products or services. We may not be able to obtain additional issued patents relating to our technology, products or services. Even if issued, patents may be challenged, narrowed, invalidated or circumvented, which could limit our ability to stop competitors from marketing similar products or services, limit the length of term of patent protection we may have for our products or services, and expose us to substantial litigation costs and drain our resources. Changes in either patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property or narrow the scope of our patent protection.
If we are unable to attract qualified healthcare professionals at reasonable costs, it could limit our ability to grow, increase our operating costs and negatively impact our business
We may rely significantly on our ability to attract and retain qualified healthcare professionals who possess the skills, experience and licenses necessary to meet the certification requirements and the requirements of the hospitals, nursing homes and other healthcare facilities with which we may work, as well as the requirements of applicable state and federal governing bodies. We will compete for qualified healthcare professionals with hospitals, nursing homes and other healthcare organizations. Currently, for example, there is a shortage of qualified nurses in most areas of the United States. Therefore, competition for nursing personnel is increasing, and nurses’ salaries and benefits have risen. This may also occur with respect to other healthcare professionals on whom our business may become dependent.
Our ability to attract and retain such qualified healthcare professionals will depend on several factors, including our ability to provide attractive assignments and competitive benefits and wages. We cannot assure you that we will be successful in any of these areas. Because we may operate in a fixed reimbursement environment, increases in the wages and benefits that we must provide to attract and retain qualified healthcare professionals or increases in our reliance on contract or temporary healthcare professionals could negatively affect our revenue. We may be unable to continue to increase the number of qualified healthcare professionals that we recruit, decreasing the potential for growth of our business. Moreover, if we are unable to attract and retain qualified healthcare professionals, we may have to limit the number of clients for whom we can provide any of our prospective products or services.
The healthcare industry may not accept our products or services, if any, or buy such products or services, which would adversely affect our financial results.
We will have to attract customers throughout the healthcare industry or our financial results will be adversely affected. To date, the healthcare industry has been resistant to adopting certain new products and services, such as information technology solutions.
We believe that we will have to gain significant market share with our prospective products and services before our competitors introduce alternative products or services with features similar to ours. Any significant shortfall in the number of clients using our prospective products or services would adversely affect our financial results.
Our prospective business may rely on third-party manufacturers or subcontractors to assist in producing our healthcare products, and any delay or failure to perform by these third parties may adversely affect our business.
Our prospective business may use third-party manufacturers to produce medical devices or other healthcare products or product components. This arrangement affords less control over the reliability of supply, quality and price of products or product components. Our target company may risk disruptions in its supply of key products or components if its suppliers fail to perform because of strikes, natural disasters or other factors beyond the control of our prospective business. Products or components that are supplied by a third-party manufacturer may not perform as expected, and these performance failures may adversely affect our business.
If our prospective business infringes on the rights of third parties, we could be prevented from selling products, forced to pay damages, and may have to defend against litigation.
In the event that the products, methods, processes or other technologies of our prospective business are claimed to infringe the proprietary rights of other parties, we could incur substantial costs and may be required to:
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obtain licenses, which may not be available on commercially reasonable terms, if at all;
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abandon an infringing product, process or technology;
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redesign our products, processes or technologies to avoid infringement;
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stop using the subject matter claimed in the patents held by others;
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defend litigation or administrative proceedings; or
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pay damages.
If we complete a business combination that involves a target focused on pharmaceutical compounds or biotechnology therapeutics, we may not be able to commercialize our product candidates.
Before obtaining regulatory approval for the sale of drug product candidates, pharmaceutical and biotechnology therapeutic companies must conduct, at their own expense, extensive preclinical tests and clinical trials to demonstrate the safety and efficacy in humans of their product candidates. Preclinical and clinical testing is expensive, is difficult to design and implement, necessarily involves substantial cooperation with and reliance on third parties, can take many years to complete and is uncertain as to outcome. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and interim results of a clinical trial do not necessarily predict final results. A failure of one or more clinical trials can occur at any stage of testing.
Our failure to obtain and maintain regulatory approval for a product candidate following a business combination will prevent us from commercializing it. Product candidates and the activities associated with their development and commercialization, including their testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, will be subject to comprehensive regulation by the FDA and other United States regulatory agencies and by comparable authorities in other countries. Securing approval requires the submission of extensive preclinical and clinical data, information about product manufacturing processes and inspection of facilities and supporting information for each therapeutic indication to establish the product candidate’s safety and efficacy. Varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent regulatory approval of a product candidate. The process of obtaining and maintaining regulatory approvals may vary and involves substantial regulatory discretion, is expensive, and often takes many years, if approval is obtained at all.
We will also have to rely on third parties for the production of clinical and commercial quantities of drug product candidates. There are a limited number of manufacturers operating under the FDA’s current Good Manufacturing Practices, or cGMP, regulations that will be both capable of manufacturing our products and willing to do so. These manufacturers are subject to inspection to ensure strict compliance with cGMP regulations and other governmental regulations and corresponding foreign standards. We will not be certain that our manufacturers will be able to comply with these regulations and standards and will not control their compliance, while we will risk regulatory sanctions, liabilities and penalties if they fail to comply. Our dependence upon others for the manufacture of product candidates and products may adversely affect our future profits and our ability, on a timely and competitive basis, both to develop product candidates and to commercialize any products that receive regulatory approval.
Item 1B.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2.
Item 2. Facilities
We do not own any real estate or other physical properties. We currently maintain our executive offices at 121 Alhambra Plaza, Suite 1100, Coral Gables, Florida 33134. The cost for this space is included in the $7,500 per-month fee MBFHP charges us for general and administrative services pursuant to a letter agreement between us and MBFHP. The agreement provides for a term that terminates on the earlier of our consummation of a business combination or our liquidation. We believe that based on rents and fees for similar services in the Miami, Florida area that the fee charged by MBFHP is at least as favorable as we could have obtained from an unaffiliated party. We consider our existing office space adequate for our current operations.
Item 3.
Item 3. Legal Proceedings
To the knowledge of management, there is no litigation currently pending or contemplated against us.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of our shareholders during the fourth quarter of the fiscal year ended December 31, 2007.
PART II
Item 5.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our units, common stock and warrants are listed on the American Stock Exchange under the symbols “MBH.U,” “MBH” and “MBH.WS,” respectively. The following table sets forth the range of high and low sales prices for the units, common stock and warrants for the periods indicated since the units commenced public trading on April 18, 2007, and since the common stock and warrants commenced public trading separately on July 2, 2007:
Holders of Common Equity
As of March 28, 2008, we had two stockholders of record of our outstanding common stock, two holders of record of our outstanding units, and two holders of record of our outstanding warrants.
Dividend Policy
We have not paid any dividends on our common stock to date. It is the present intention of our Board of Directors to retain all earnings, if any, for use in our business operations and, accordingly, our Board of Directors does not anticipate declaring any dividends in the foreseeable future. The payment of dividends, if any, will be contingent upon our revenues and earnings, if any, capital requirements, and general financial condition. We do not intend to pay dividends prior to the completion of a business combination. The payment of any dividends subsequent to a business combination will be within the discretion of our then Board of Directors and subject to any restrictions in our debt agreements.
Item 6.
Item 6. Selected Financial Data
Results of Operations
The following table sets forth selected historical financial information derived from our audited financial statements included elsewhere in this Report for the period from June 2, 2006 (inception) to December 31, 2006, for the year ended December 31, 2007 and for the period from June 2, 2006 (inception) to December 31, 2007. The following data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements including the notes thereto, included elsewhere in this Annual Report on Form 10-K.
Statement of Operations Information:
Balance Sheet Information:
Quarterly Results of Operations
(unaudited)
The following table sets forth unaudited operating data for each of the quarters of the year ended December 31, 2007 and the period from June 2, 2006 (inception) to December 31, 2006. This quarterly information has been prepared on the same basis as the annual financial statements of the Company and, in the opinion of management, reflects all significant adjustments (consisting primarily of normal recurring adjustments) necessary for a fair presentation of results of operations for the periods presented.
(1)
In April 2007, the Company completed its IPO, raising gross proceeds of $172.5 million.
(2)
The sum of the quarters is not meant to agree to the year-to-date amount due to calculations on a quarterly basis for purposes of this presentation.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with “Selected Financial Data” and our financial statements and notes thereto that appear elsewhere in this Annual Report on Form 10-K. This discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those presented under “Risks Relating to the Company” included in Item 1A and elsewhere in this Annual Report on Form 10-K.
Overview
References to “we”, “us”, or the “Company” are to MBF Healthcare Acquisition, Corp. Reference to “MBFHP” are to MBF Healthcare Partners, L.P., an affiliate of our officers and directors.
We are a blank check company incorporated in Delaware on June 2, 2006 in order to serve as a vehicle for the acquisition of an operating business through a merger, capital stock exchange, stock purchase, asset acquisition, or other similar business combination.
On April 13, 2007, MBFHP purchased an aggregate of 343,750 Private Units from us at a price of $8.00 per unit and 4,250,000 Private Placement Warrants at a purchase price of $1.00 per warrant, for an aggregate purchase price of $7,000,000. Each Private Unit consists of one share of our common stock, $0.0001 par value, and one redeemable common stock purchase warrant (each, a “Unit Warrant” and together with the Private Placement Warrants, the “Private Warrants”). Each Private Warrant entitles the holder to purchase from us one share of common stock at an exercise price of $6.00 commencing on the later of (a) April 17, 2008 or (b) the completion of a Business Combination with a target business or the distribution of the Trust Account (as hereinafter defined), and expiring four years from the date of the final prospectus for the IPO (as hereinafter defined). At our sole discretion, the Private Warrants will be redeemable at a price of $0.01 per Private Warrant upon 30 days’ notice after the Private Warrants become exercisable, only in the event that the last sale price of the common stock is at least $11.50 per share for any 20 trading days within a 30-day trading period ending on the third day prior to the date on which the notice of redemption is given. The Private Warrants will be identical to the Warrants, except that (1) upon a redemption of Private Warrants, MBFHP will have the right to exercise the Private Warrants on a cashless basis and (2) upon the exercise of the Private Warrants, MBFHP will receive unregistered shares of common stock.
On April 23, 2007, we completed our initial public offering (“IPO”) of 18,750,000 units (“Units”), consisting of one share of common stock and one warrant, and on May 8, 2007, we completed the closing of an additional 2,812,500 Units that were subject to the underwriters’ over-allotment option. The 21,562,500 Units sold in the IPO, including the 2,812,500 Units subject to the over-allotment option, were sold at an offering price of $8.00 per Unit, generating total gross proceeds of $172,500,000. Of the net proceeds after offering expenses of the IPO and the Private Placement, $170,962,500 was placed in a trust account maintained at Continental Stock Transfer & Trust Company (the “Trust Account”). Except for payment of taxes, the proceeds will not be released from the Trust Account until the earlier of (i) the completion of a Business Combination or (ii) our liquidation. Public stockholders voting against our initial business combination will be entitled to convert their common stock into a pro rata share of the amount held in the Trust Account (including the amount held in the Trust Account representing the deferred portion of the underwriters’ discounts and commissions), including any interest earned on their pro rata share (net of taxes payable), if the business combination is approved and consummated. Public stockholders who convert their stock into a pro rata share of the Trust Account will continue to have the right to exercise any warrants they may hold.
Each warrant entitles the registered holder to purchase one share of our common stock at a price of $6.00 per share, commencing on the later of the completion of the initial business combination or April 23, 2008. None of the Warrants issued in the Public Offering will be exercisable and we will not be obligated to issue shares of common stock unless at the time of exercise a prospectus relating to common stock issuable upon exercise of these Warrants is current and the common stock has been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the Warrants. In no event will we be required to net cash settle any Warrant exercise. Under the terms of the Warrant Agreement, we have agreed to use its reasonable best efforts to maintain a current prospectus relating to common stock issuable upon exercise of the Warrants issued in the Public Offering until the expiration of these Warrants. However, the we make no assurance that it will be able to do so and, if we do not maintain a current prospectus relating to the common stock issuable upon exercise of the Warrants issued in the Public Offering, holders will be unable to exercise their Warrants and we will not be required to settle any such Warrant exercise. If the prospectus relating to the common stock issuable upon the exercise of these Warrants is not current, or if the common stock is not qualified or exempt from qualification in jurisdictions in which the holders of the Warrants reside, these Warrants may have no value, the market for these Warrants may be limited and these Warrants may expire worthless. If a registration statement is not effective for any unexercised Warrant, then the purchaser of Units purchased in the Public Offering will be deemed to have paid the full purchase price of $8.00 for the one share of our common stock included in the Unit. Even if the prospectus relating to the common stock issuable upon exercise of the Warrants issued in the Public Offering is not current, the Private Warrants will be exercisable for unregistered shares of common stock. If and when the Warrants become redeemable by us, we may exercise its redemption right even if the Warrants are not exercisable by their holders.
In connection with our IPO, we paid the underwriters additional underwriting fees of $6,037,500, including units exercised with the over-allotment option which, the underwriters have agreed to defer until the consummation of our initial business combination. We expect that such fees will be paid out of the proceeds held in the Trust Account.
Recent Developments
On February 6, 2008, we entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Critical Homecare Solutions Holdings, Inc. (“CHS”), a Delaware corporation, Kohlberg Investors V, L.P. (the “Seller’s Representative”) and the other stockholders of CHS (each, together with the Seller’s Representative, the “Seller” and collectively the “Sellers”).
Pursuant to the terms of the Stock Purchase Agreement, we will acquire all of the outstanding capital stock of CHS for $420.0 million, subject to working capital and certain other customary adjustments as set forth in the Stock Purchase Agreement. We intend to fund the purchase price and the acquisition costs and provide additional capital to CHS for growth and expansion through a combination of approximately $180.0 million of cash in our trust account, approximately $180.0 million of debt, a $35.0 million equity issuance of our common stock to certain Sellers and a commitment from MBFHP to acquire up to an additional $50 million in shares of our common stock. The shares of our common stock to be issued to certain Sellers and the shares that are subject to the commitment from MBFHP will be priced at the closing per share price of our common stock on February 6, 2008, which was $7.65.
The closing of the acquisition and the issuance of equity to MBFHP pursuant to its commitment are subject to stockholder approval. The closing of the acquisition is also subject to customary regulatory approvals, including approval under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and other customary closing conditions.
Results of Operations and Known Trends or Future Events
We have neither engaged in any operations nor generated revenues to date. Since our inception, our only activities have been organizational activities and those necessary to prepare for our IPO, and thereafter, certain expenses related to pursuing a target business. We will not generate any operating revenues until the completion of a business combination, if any. We have generated non-operating income in the form of interest income on cash and cash equivalents and our other short term investments. Since our IPO, we have been actively engaged in sourcing a suitable business combination candidate. We have met with target companies, service professionals and other intermediaries to discuss our company, the background of our management and our combination preferences. In the course of these discussions, we have also spent time explaining the capital structure of our IPO, the business combination approval process and the timeline under which we may operate before the proceeds of our IPO are returned to investors.
Critical Accounting Policies and Significant Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we re-evaluate all of our estimates. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may materially differ from these estimates under different assumptions or conditions as additional information becomes available in future periods.
Management has discussed the development and selection of critical accounting estimates with the Audit Committee of the Board of Directors and the Audit Committee has reviewed our disclosure relating to critical accounting estimates in this Annual Report.
Results of Operations, Financial Condition and Liquidity
The following table sets forth the results of operations for the year ended December 31, 2007 and the period ended December 31, 2006 and for the period from June 2, 2006 through December 31, 2007.
Our operating expenses totaled $467,277 and $52,088 respectively, for the year ended December 31, 2007, and for the period from inception to December 31, 2006. Operating expenses were comprised primarily of insurance, accounting and legal expenses.
We had interest income earned on marketable securities held in the Trust Account of $6,138,829 for the year ended December 31, 2007. Interest income earned on funds held in the Trust Account associated with common stock subject to possible conversion and, except for amounts equal to any taxes payable by us relating to such interest earned, will not be released from the Trust Account until the earlier of the completion of a business combination or the expiration of the time period during which we may complete a business combination. The remaining interest income was primarily related to funds held outside of the Trust Fund.
We have provided for an effective tax rate of 38% for the year ended December 31, 2007.
We expect to use substantially all of the proceeds from our IPO to acquire a target business, including identifying and evaluating prospective acquisition candidates, selecting the target business and structuring, negotiating and consummating the business combination. To the extent that our capital stock is used in whole or in part as consideration to effect a business combination the proceeds held in the trust account as well as any other net proceeds not expended will be used to finance operations of the target business. We believe we will have sufficient available funds outside of the trust account to operate through April 29, 2009, assuming that a business combination is not consummated during that time. Until we enter into a business combination, we expect to use our available resources for general working capital as well as legal, accounting and due diligence expenses for structuring and negotiating a business combination and legal and accounting fees relating to our Securities and Exchange Commission reporting obligations.
Impact of Recently Issued Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). This statement provides a single definition of fair value, a framework for measuring fair value, and expanded disclosures concerning fair value. Previously, different definitions of fair value were contained in various accounting pronouncements creating inconsistencies in measurement and disclosures. SFAS No. 157 applies under those previously issued pronouncements that prescribe fair value as the relevant measure of value, except SFAS No. 123(R) and related interpretations and pronouncements that require or permit measurement similar to fair value but are not intended to measure fair value. This pronouncement is effective for fiscal years beginning after November 15, 2007. We are evaluating the impact of SFAS No. 157, but do not expect the adoption of SFAS No. 157 to have a material impact on our financial statements.
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159 (“SFAS No. 159”) “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The provisions of SFAS No. 159 will be effective for the Company beginning January 1, 2008. We are in the process of determining the effect, if any, the adoption of SFAS No. 159 will have on our financial statements.
In December 2007, the FASB issued proposed FASB Staff Position (FSP) 157-b, “Effective Date of FASB Statement No. 157,” that would permit a one-year deferral in applying the measurement provisions of SFAS 157 to non-financial assets and non-financial liabilities (non-financial items) that are not recognized or disclosed at fair value in an entity’s financial statements on a recurring basis (at least annually). Therefore, if the change in fair value of a non-financial item is not required to be recognized or disclosed in the financial statements on an annual basis or more frequently, the effective date of application of Statement 157 to that item is deferred until fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. This deferral does not apply, however, to an entity that applies Statement 157 in interim or annual financial statements before proposed FSP 157-b is finalized. We are currently evaluating the impact, if any, that the adoption of FSP 157-b will have on our operating income or net earnings.
On December 4, 2007, the FASB issued SFAS No. 141R (revised 2007) Business Combinations, which will change the accounting for business combinations. Under SFAS No. 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS No. 141R retains the purchase method of accounting for acquisitions, but requires a number of changes, including expensing acquisition costs as incurred, capitalization of in-process research and development at fair value, recording noncontrolling interests at fair value and recording acquired contingent liabilities at fair value. SFAS No. 141R will apply prospectively to business combinations with an acquisition date on or after the beginning of the first annual reporting period beginning after December 15, 2008. Both early adoption and retrospective application are prohibited. SFAS No. 141R will have an impact on the accounting for the our business combinations once adopted, but the effect depends on the terms of our business combinations subsequent to January 1, 2009, if any.
A variety of proposed or otherwise potential accounting standards are currently under study by standard-setting organizations and various regulatory agencies. Because of the tentative and preliminary nature of these proposed standards, management has not determined whether implementation of such proposed standards would be material to our consolidated financial statements.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the sensitivity of income to changes in interest rates, foreign exchanges, commodity prices, equity prices, and other market-driven rates or prices. We are not presently engaged in and, if we do not consummate a suitable business combination prior to the prescribed liquidation date of the trust fund, we may not engage in, any substantive commercial business. Accordingly, we are not and, until such time as we consummate a business combination, we will not be, exposed to risks associated with foreign exchange rates, commodity prices, equity prices or other market-driven rates or prices. The net proceeds of our initial public offering held in the trust fund may be invested by the trustee only in United States “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act of 1940 having a maturity of 180 days or less, or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act of 1940. Given our limited risk in our exposure to government securities and money market funds, we do not view the interest rate risk to be significant.
Item 8.
Item 8. Financial Statements and Supplementary Data
Reference is made to the Index to Financial Statements that appears on page of this Annual Report. The Report of Independent Registered Public Accounting Firm, the Financial Statements and the Notes of Financial Statements, listed in the Index to Financial Statements, which appear beginning on page of this Annual Report, are incorporated by reference into this Item 8.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Item 9A. Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the our disclosure controls and procedures (as such term is defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of December 31, 2007 (the “Evaluation Date”). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to the Company required to be included in the our periodic filings under the Exchange Act. This annual report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of the company’s registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.
Since the Evaluation Date, there have not been any significant changes in our controls over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.
Item 9B. Other Information
Not applicable.
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance
Our current directors and executive officers are as follows:
Below is a summary of the business experience of each of our executive officers and directors.
Mike B. Fernandez became our Chairman and Chief Executive Officer upon our formation in June 2006. Mr. Fernandez has served as Chairman and is a Managing Director of MBF Healthcare Partners, L.P., a healthcare private equity firm, since its formation in April 2005. Mr. Fernandez served as Chief Executive Officer of CAC-Florida Medical Centers, LLC, a group of ten medical clinics, CarePlus Health Plans, Inc., a health maintenance organization serving Medicare-eligible individuals in South Florida, and PrescribIT Rx, LLC (f/k/a CarePlus Pharmacies, LLC), a pharmacy company, from December 2002 until February 2005 when all three companies were sold to Humana Inc. (NYSE: HUM). Mr. Fernandez founded and served as Chief Executive Officer of Physicians Healthcare Plans, Inc., a full service health maintenance organization, from 1993 until December 2002 when it was sold to AMERIGROUP Corporation (NYSE: AGP), a managed health services company. Mr. Fernandez has also founded and is a majority owner of Healthcare Atlantic, Inc., parent company for Atlantic Dental, Inc., a dental benefit company, and Hospitalists of America, LLC, a hospitalists service provider. Mr. Fernandez has 30 years of experience in the healthcare industry in the areas of operations, health insurance programs, managed care solutions, business development and investments. Mr. Fernandez currently sits on the boards of Pediatrix Medical Group, Inc. (NYSE: PDX), a provider of newborn, maternal-fetal and pediatric physician services, Healthcare Atlantic, Inc., HSC Health & Wellness, Inc., a health benefit discount plan, and Medical Specialties Distributors, LLC, a distributor of medical supplies and bio-med equipment, as well as several charitable organizations.
Jorge L. Rico became our Senior Vice President, Chief Operating Officer and a member of our Board of Directors upon our formation in June 2006. Mr. Rico has served as a Managing Director of MBF Healthcare Partners, L.P., since its formation in April 2005. From July 2004 until April 2005, Mr. Rico served as a private consultant. Mr. Rico served as President of Division III, of Psychiatric Solutions, Inc. (Nasdaq: PSYS), a provider of inpatient behavioral healthcare services, from June 2003 to July 2004. Mr. Rico served as Executive Vice President and Chief Operating Officer of Ramsay Youth Services, Inc. (f/k/a Ramsay Health Care, Inc. (Nasdaq: RHCI)), a provider of behavioral healthcare treatment programs and services focused on at-risk and special-needs youth, from February 1997 until it was sold in June 2003 to Psychiatric Solutions. Mr. Rico has 20 years of experience in the healthcare industry in the areas of operations, health plan administration, hospital administration, business development and information technology. Mr. Rico currently sits on the Board of Directors of Hospitalists of America, LLC and Medical Specialties Distributors, LLC.
Marcio C. Cabrera became our Senior Vice President, Chief Financial Officer and a member of our Board of Directors upon our formation in June 2006. Mr. Cabrera has served as a Managing Director of MBF Healthcare Partners, L.P. since its formation in January 2005. From July 2004 until April 2005, Mr. Cabrera served as a private consultant. From July 1998 to June 2004, Mr. Cabrera held various management positions at Ramsay Youth Services, Inc. (and at Psychiatric Solutions, Inc. (Nasdaq: PSYS) subsequent to the sale of Ramsay Youth Services, Inc. to Psychiatric Solutions, Inc. in June 2003). His various positions included Executive Vice President, Chief Financial Officer and Treasurer. Mr. Cabrera currently sits on the boards of Hospitalists of America, LLC, Medical Specialties Distributors, LLC and Healthcare Atlantic, Inc.
Antonio L. Argiz became a member of our Board of Directors upon our formation in June 2006. Since 1997, Mr. Argiz has served as Managing Partner of Morrison, Brown, Argiz & Farra, a public accounting firm. Mr. Argiz previously served on the American Institute of Certified Public Accountant’s (AICPA) Nominations Committee, the governing body of the AICPA (The Council) and served as the Chairman of the Florida Board of Accountancy.
Roger J. Medel, M.D. became a member of our Board of Directors upon our formation in June 2006. Dr. Medel has been a director of Pediatrix Medical Group, Inc. (NYSE: PDX) since he co-founded the company in 1979 with Dr. Gregory Melnick. Dr. Medel served as Pediatrix’s President until May 2000 and as Chief Executive Officer until December 2002. In March 2003, Dr. Medel reassumed the position of President, serving in that position until May 2004, and became Chief Executive Officer, a position in which he continues to serve today. Dr. Medel is a member of the Advisory Committee of MBF Healthcare Partners, L.P. Dr. Medel has been an instructor in pediatrics at the University of Miami and participates as a member of several medical and professional organizations. Dr. Medel also holds a Masters Degree in Business Administration from the University of Miami.
Carlos A. Saladrigas became a member of our Board of Directors upon our formation in June 2006. Mr. Saladrigas has been the Chairman of the Board of Premier American Bank, a banking and financial services company, since 2002. In 2002 he retired as Chief Executive Officer of ADP TotalSource (previously The Vincam Group, Inc.), a human resources outsourcing company that provides services to small and mid-sized businesses. He currently sits on the Boards of Directors of Progress Energy, Inc. (NYSE: PGN), a diversified energy holding company, and Advance Auto Parts, Inc. (NYSE: AAP), a retailer of automotive parts. Mr. Saladrigas is a member of the Advisory Committee of MBF Healthcare Partners, L.P.
Number and Terms of Directors
Our Board of Directors has six directors and is divided into three classes with only one class of directors being elected in each year and each class serving a three-year term. The term of office of the first class of directors, consisting of Jorge Rico and Antonio Argiz, will expire at our first annual meeting of stockholders. The term of office of the second class of directors, consisting of Marcio Cabrera and Roger Medel, will expire at the second annual meeting. The term of office of the third class of directors, consisting of Mike Fernandez and Carlos Saladrigas, will expire at the third annual meeting. Each of our current directors has served on our Board of Directors since June 2006.
Our directors will play a key role in structuring, negotiating and consummating an acquisition. None of our directors has been a principal of or affiliated with a public blank check company that executed a business plan similar to our business plan and none of our directors is currently affiliated with such an entity.
Director Independence
Our Board of Directors has determined that Messrs. Argiz and Saladrigas are “independent directors” as defined in the American Stock Exchange listing standards and applicable SEC rules. The American Stock Exchange listing standards require that a majority of our Board of Directors be independent. However, since we have listed on the American Stock Exchange in connection with our IPO, we are not required to meet this requirement until one year from our listing on the American Stock Exchange. We intend to appoint additional members to our Board of Directors in the future to meet the requirement that a majority of our Board of Directors be independent within one year of our listing on the American Stock Exchange.
Committees of the Board of Directors
Audit Committee
Our Board of Directors has an Audit Committee that reports to the Board of Directors. Messrs. Argiz, Saladrigas and Cabrera serve as members of our Audit Committee. Under the American Stock Exchange listing standards and applicable SEC rules, we are required to have three members of the Audit Committee, all of whom must be independent. However, since we have listed on the American Stock Exchange in connection with our IPO, we are permitted to have one independent member at the time of listing, a majority of independent members within 90 days of listing and all independent members within one year.
Currently, two members of the Audit Committee are independent, Messrs. Argiz and Saladrigas. We intend to replace Mr. Cabrera with an independent member in the future to meet the requirement that we have three independent members on our Audit Committee within one year of our listing on the American Stock Exchange.
Mr. Argiz serves as the chairman of the Audit Committee. Each member of the Audit Committee is financially literate and our Board of Directors has determined that Mr. Argiz qualifies as an “audit committee financial expert” as defined in applicable SEC rules. The Audit Committee is responsible for meeting with our independent accountants regarding, among other issues, audits, and adequacy of our accounting and control systems.
In addition, the Audit Committee will monitor compliance on a quarterly basis. If any noncompliance is identified, then the Audit Committee will be charged with the responsibility to immediately take all necessary action to rectify such noncompliance or otherwise cause compliance.. The Audit Committee’s approval will be required for any related person transaction.
We do not have a compensation or similar committee. We anticipate that the independent members of our Board of Directors perform the functions of a compensation committee including:
•
reviewing and approving our overall compensation strategy and policies;
•
reviewing and approving corporate performance goals and objectives relevant to the compensation of our executive officers and other senior management;
•
determining the compensation and other terms of employment of our Chief Executive Officer; and
•
reviewing and approving the compensation and other terms of employment of the other executive officers and senior management.
We do not have a nominating or similar committee. The independent members of our Board of Directors perform the functions of a nominating committee including:
•
identifying, reviewing and evaluating candidates to serve as our directors (consistent with criteria approved by the Board of Directors);
•
reviewing and evaluating incumbent directors;
•
recommending candidates to the Board of Directors for election to the Board of Directors; and
•
making recommendations to the Board of Directors regarding membership on committees of the Board of Directors.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act of 1934, as amended, requires our officers, directors and persons who own more than ten percent of a registered class of our equity securities to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Officers, directors and ten percent stockholders are required by regulation to furnish us with copies of all Section 16(a) forms they file. We believe that, during the most recent fiscal year, all filing requirements applicable to our officers, directors and greater than ten percent beneficial owners were complied with.
Code of Ethics
We have adopted a code of ethics that applies to our officers, directors and employees. We will provide a copy free of charge. To obtain a copy, write to: MBF Healthcare Acquisition Corp., 121 Alhambra Plaza, Suite 1100, Coral Gables, Florida 33134, Attn: Jorge Rico.
Item 11.
Item 11. Executive Compensation
None of our executive officers or directors has received any cash compensation for services rendered. Commencing on April 23, 2007 through the acquisition of a target business, we have paid, and will continue to pay MBFHP, an affiliate of our officers and directors, approximately $7,500 per month for office space and certain additional general and administrative services. We believe that, based on rents and fees for similar services in the Miami, Florida area, the fee charged by MBFHP is at least as favorable as we could have obtained from an unaffiliated third party. This arrangement was agreed to by MBFHP for our benefit and is not intended to provide Mr. Fernandez with compensation in lieu of his salary. During 2007, approximately $63,250 was incurred under this arrangement. Other than this $7,500 per-month fee to MBFHP, reimbursement for out-of-pocket expenses payable to our officers and directors and reimbursement to MBF Healthcare Management for costs arising from our officers’ and directors’ use of its corporate jet at a cost up to $750 per person per flight, no compensation of any kind, including finder’s and consulting fees, will be paid to any of our initial stockholders, including our officers and directors, or any of their respective affiliates, for services rendered, including attendance at Board of Directors meetings, prior to or in connection with a business combination. However, these individuals will be reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying a potential target business and performing due diligence on a suitable business combination. There is no limit on the amount of these out-of-pocket expenses and there will be no review of the reasonableness of the expenses by anyone other than our board of directors, which includes persons who may seek reimbursement, or a court of competent jurisdiction if such reimbursement is challenged. We have not reserved any specific amount for such payments, which may have the effect of reducing the available proceeds not deposited in the trust account for payment of our ongoing expenses and reimbursement of out-of-pocket expenses incurred on our behalf.
In addition, since the role of present management after a business combination is uncertain, we have no ability to determine what remuneration, if any, will be paid to those persons after a business combination. While the role of present management after a business combination is uncertain, our executive officers and directors who remain with us may be paid consulting, management or other fees from the combined company with any and all amounts being fully disclosed to stockholders, to the extent then known, in the proxy solicitation materials furnished to our stockholders. It is unlikely the amount of such compensation will be known at the time of a stockholder meeting held to consider a business combination, as it will be up to the directors of the post-combination business to determine executive and director compensation. In this event, such compensation will be publicly disclosed at the time of its determination in a Form 8-K, as required by the SEC.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding the beneficial ownership of our common stock as of February 26, 2008 by:
•
each person known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock;
•
each of our officers and directors; and
•
all of our officers and directors as a group.
As of February 28, 2008, we had 26,593,750 shares of common stock issued and outstanding. Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them.
(8)
Represents 1,832,767 shares of common stock owned by QVT Financial LP (“QVT Financial”), which is the investment manager for QVT Fund LP (the “Fund”), which beneficially owns 1,580,979 shares of Common Stock, and for Quintessence Fund L.P. (“Quintessence), which beneficially owns 176,254 shares of Common Stock. QVT Financial is also the investment manager for a separate discretionary account managed for Deutsche Bank AG (the “Separate Account”), which holds 75,534 shares of Common Stock. QVT Financial has the power to direct the vote and disposition of the Common Stock held by the Fund, Quintessence and the Separate Account. Accordingly, QVT Financial may be deemed to be the beneficial owner of an aggregate amount of 1,832,767 shares of Common Stock, consisting of the shares owned by the Fund, Quintessence and the shares held in the Separate Account. The Fund, Quintessence and the Separate Account own Warrants that are not exerciseable until the later of the MBF completion of a business combination and April 17, 2008, and will expire on April 16, 2011 or earlier upon redemption. QVT Financial GP LLC, as General Partner of QVT Financial, may be deemed to beneficially own the same number of shares of Common Stock reported by QVT Financial. QVT Associates GP LLC, as General Partner of the Fund and Quintessence, may be deemed to beneficially own the aggregate number of shares of Common Stock owned by the Fund and Quintessence, and accordingly, QVT Associates GP LLC may be deemed to be the beneficial owner of an aggregate amount of 1,757,233 shares of Common Stock. Each of QVT Financial and QVT Financial GP LLC disclaims beneficial ownership of the shares of Common Stock owned by the Fund, Quintessence and the Separate Account. QVT Associates GP LLC disclaims beneficial ownership of all shares of Common Stock owned by the Fund and Quintessence, except to the extent of its pecuniary interest therein. The business address of QVT Financial is 1177 Avenue of the Americas, 9th Floor, New York, New York 10036. The foregoing information was derived from a Schedule 13G filed with the SEC on July 10, 2007
(9)
Represents 1,972,000 shares of common stock owned by Fidelity Management & Research Company (“Fidelity”), a wholly-owned subsidiary of FMR Corp. and an investment adviser registered under Section 203 of the Investment Advisers Act of 1940. as a result of acting as investment adviser to various investment companies registered under Section 8 of the Investment Company Act of 1940. Edward C. Johnson 3d and FMR Corp., through its control of Fidelity, and the funds each has sole power to dispose of the 1,972,000 shares owned by the Funds. Members of the family of Edward C. Johnson 3d, Chairman of FMR Corp., are the predominant owners, directly or through trusts, of Series B shares of common stock of FMR Corp., representing 49% of the voting power of FMR Corp. The Johnson family group and all other Series B shareholders have entered into a shareholders’ voting agreement under which all Series B shares will be voted in accordance with the majority vote of Series B shares. Accordingly, through their ownership of voting common stock and the execution of the shareholders’ voting agreement, members of the Johnson family may be deemed, under the Investment Company Act of 1940, to form a controlling group with respect to FMR Corp. Neither FMR Corp. nor Edward C. Johnson 3d, Chairman of FMR Corp., has the sole power to vote or direct the voting of the shares owned directly by the Fidelity Funds, which power resides with the Funds’ Boards of Trustees. Fidelity carries out the voting of the shares under written guidelines established by the Funds’ Boards of Trustees. The business address of Fidelity is 82 Devonshire Street, Boston, Massachusetts 02109. The foregoing information was derived from a Schedule 13G filed with the SEC on May 10, 2007.
(10)
Federated Investors, Inc. (the “Parent”) is the parent holding company of Federated Equity Management Company of Pennsylvania and Federated Global Investment Management Corp. (the “Investment Advisers”), which act as investment advisers to registered investment companies and separate accounts that own shares of common stock (the “Reported Securities’). The Investment Advisers are wholly owned subsidiaries of FII Holdings, Inc., which is wholly owned subsidiary of Federated Investors, Inc., the Parent. All of the Parent’s outstanding voting stock is held in the Voting Shares Irrevocable Trust (the “Trust”) for which John F. Donahue, Rhodora J. Donahue and J. Christopher Donahue act as trustees (collectively, the “Trustees”). The Trustees have joined in filing this Schedule 13G because of the collective voting control that they exercise over the Parent. In accordance with Rule 13d-4 under the Securities Act of 1934, as amended, the Parent, the Trust, and each of the Trustees declare that this statement should not be construed as an admission that they are the beneficial owners of the Reported Securities, and the Parent, the Trust, and each of the Trustees expressly disclaim beneficial ownership of the Reported Securities. The business address of Parent is 5800 Corporate Drive, Pittsburgh, PA 15222. The foregoing information is derived from a Schedule 13G filed with the SEC on February 13, 2008.
(11)
Represents 1,400,000 shares of common stock owned by Highbridge International LLC. Highbridge International LLC holds 115,100 shares of Common Stock and each of Highbridge Capital Management, LLC, Glenn Dubin and Henry Swieca may be deemed the beneficial owner of the 115,100 shares of Common Stock held by Highbridge International LLC. Highbridge Capital Management, LLC is the trading manager of Highbridge International LLC. Glenn Dubin is the Chief Executive Officer of Highbridge Capital Management, LLC. Henry Swieca is the Chief Investment Officer of Highbridge Capital Management, LLC. In addition, each of Highbridge Capital Management, LLC, Glenn Dubin and Henry Swieca disclaims beneficial ownership of shares of Common Stock owned by Highbridge International LLC. In addition to the reported shares of Common Stock, the Reporting Persons may be deemed to beneficially own 1,400,000 shares of Common Stock issuable to Highbridge International LLC upon exercise of warrants (the “Warrants”). However, pursuant to the terms of these Warrants, the Warrants cannot be exercised until the later of the completion of a business combination by MBF and April 17, 2008. Highbridge Capital Management, LLC is the trading manager of Highbridge International LLC. Glenn Dubin is the Chief Executive Officer of Highbridge Capital Management, LLC. Henry Swieca is the Chief Investment Officer of Highbridge Capital Management, LLC. The foregoing should not be construed in and of itself as an admission by any Reporting Person as to beneficial ownership of Shares of Common Stock owned by another Reporting Person. In addition, each of Highbridge Capital Management, LLC, Glenn Dubin and Henry Swieca disclaims beneficial ownership of shares of Common Stock owned by Highbridge International LLC. The business address of Highbridge International LLC is c/o Harmonic Fund Services, The Cayman Corporate Centre, 4th Floor, 27 Hospital Road, Grand Cayman, Cayman Islands, British West Indies. The foregoing information was derived from a Schedule 13G filed with the SEC on October 19, 2007 and a 13G/A filed with the SEC on January 23, 2008.
Item 13.
Item 13. Certain Relationships and Related Transactions
On June 2, 2006, we issued 4,687,500 shares of our common stock to MBFHP for $20,000 in cash at a purchase price of approximately $0.0043 per share.
On July 3, 2006, we entered into an agreement with MBFHP pursuant to which it has agreed to purchase an aggregate of 312,500 units at a purchase price of $8.00 per unit. On February 2, 2007, the agreement was amended and restated to increase the number of units to 343,750 units at a purchase price of $8.00 per unit and to obligate MBF Healthcare Partners, L.P. to purchase 2,750,000 warrants at a purchase price of $1.00 per warrant, for an aggregate purchase price of $5,500,000. On April 13, 2007, the agreement was further amended and restated to increase the number of warrants to 4,250,000, for an additional purchase price of $1,500,000, resulting in an aggregate purchase price of $7,000,000. These securities will be purchased in a private placement pursuant to an exemption from registration contained in Section 4(2) of the Securities Act of 1933. The private placement will occur prior to the completion of our IPO.
MBFHP will be entitled to make up to two demands that we register these securities, including the shares of common stock included in, or issued upon exercise of the warrants purchased by it in the private placement and included in the units purchased by it in the private placement, pursuant to an agreement to be signed prior to or on the date of this prospectus. MBFHP can elect to exercise these registration rights at any time beginning three months prior to the date on which the escrow period applicable to such securities expires. The escrow period expires six months following the consummation of the initial business combination, unless we were to consummate a transaction after the consummation of the initial business combination which results in all of the stockholders of the combined entity having the right to exchange their shares of common stock for cash, securities or other property. However, if (1) during the last 17 days of the six-month period, we issue material news or a material event relating to us occurs or (2) before the expiration of the six-month period, we announce that material news or a material event will occur during the 16-day period beginning on the last day of the six-month period, the six-month period will be extended for up to 18 days beginning on the issuance of the material news or the occurrence of the material event. We may not waive the escrow provisions. In addition, MBFHP has certain “piggy-back” registration rights with respect to these securities on registration statements filed subsequent to such date. We will bear the expenses incurred in connection with the filing of any such registration statements.
We will reimburse our officers and directors for any out-of-pocket business expenses incurred by them in connection with certain activities on our behalf such as identifying and investigating possible target businesses and business combinations, including reimbursement of up to $750 per person per flight that may be paid to MBF Healthcare Management, an entity owned by Mike Fernandez, our Chairman and Chief Executive Officer, for the use of its corporate jet in connection with activities on our behalf, such as identifying and investigating targets for our initial business combination. There is no limit on the amount of accountable out-of-pocket expenses reimbursable by us, which will be reviewed only by our Board of Directors or a court of competent jurisdiction if such reimbursement is challenged. To the extent such out-of-pocket expenses exceed the available proceeds not deposited in the trust account, such out-of-pocket expenses would not be reimbursed by us unless we complete a business combination.
Other than the payment of $7,500 per month to MBFHP in connection with the general and administrative services arrangement for services rendered to us, reimbursement for out-of-pocket expenses payable to our officers and directors and reimbursement to MBF Healthcare Management for costs arising from our officers’ and directors’ use of its corporate jet, no compensation of any kind, including finder’s and consulting fees, will be paid to any of our officers, directors, or existing stockholder or any of their respective affiliates prior to or in connection with the business combination. In 2007, the expense for rent and general and administrative services and for the use of the corporate jet was $63,250 and $29,250, respectively.
Item 14.
Item 14. Principal Accountant Fees and Services
Audit Fees. The aggregate fees for professional services rendered by Grant Thornton LLP, our independent auditors, for the audit of our financial statements for fiscal year 2007, which include fees related to our IPO and the 2007 year end audit were approximately $101,000.
Audit-Related Fees. Audit-related fees are for assurance and related services including, among others, consultation concerning financial accounting and reporting standards. There were no aggregate fees billed for audit-related services rendered by Grant Thornton LLP.
Tax Fees. There were no fees paid for tax compliance, tax planning and tax advice rendered by Grant Thornton LLP for the fiscal year ended December 31, 2007.
All Other Fees. There were no fees paid to Grant Thornton LLP for services other than audit services, audit-related services, tax compliance, tax planning, and tax advice rendered by Grant Thornton LLP for the fiscal year ended December 31, 2007.
PART IV
Item 15.
Item 15. Exhibits and Financial Statement Schedules
(1)
Financial Statements
See Item 8 - Financial Statements and Supplementary Data.
(2)
Financial Statement Schedules
All supplemental schedules have been omitted since the required information is not present in amounts sufficient to require submission of the schedule, or because the required information is included in the financial statements or notes thereto.
EXHIBIT INDEX
MBF HEALTHCARE ACQUISITION CORP.
(A DEVELOPMENT STAGE COMPANY)
Report of Independent Registered Public Accounting Firm
Balance Sheets as of December 31, 2007 and 2006
Statements of Operations for the year ended December 31, 2007, for the period from June 2, 2006 (date of inception) through December 31, 2006 and, for the period from June 2, 2006 (date of inception) through December 31, 2007
Statements of Stockholders’ Equity (Deficit) from June 2, 2006 (date of inception) through December 31, 2006 and for the year ended December 31, 2007
Statements of Cash Flows for the year ended December 31, 2007, for the period from June 2, 2006 (date of inception) through December 31, 2006 and, for the period from June 2, 2006 (date of inception) through December 31, 2007
Notes to Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
MBF Healthcare Acquisition Corp.
We have audited the accompanying balance sheets of MBF Healthcare Acquisition Corp. (a development stage Company) (the “Company”) as of December 31, 2007 and 2006 and the related statements of operations, changes in stockholders’ equity (deficit) and cash flows for the year ended December 31, 2007, the period from June 2, 2006 (date of inception) through December 31, 2006, and the period from June 2, 2006 (date of inception) through December 31, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2007 and 2006 and the results of its operations and its cash flows for the year ended December 31, 2007, the period from June 2, 2006 (date of inception) through December 31, 2006, and the period from June 2, 2006 (date of inception) through December 31, 2007 in conformity with accounting principles generally accepted in the United States of America.
/s/ Grant Thornton LLP
Miami, Florida
March 14, 2008
MBF HEALTHCARE ACQUISITION CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
SEE NOTES TO AUDITED FINANCIAL STATEMENTS
MBF HEALTHCARE ACQUISITION CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
SEE NOTES TO AUDITED FINANCIAL STATEMENTS
MBF HEALTHCARE ACQUISITION CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
SEE NOTES TO AUDITED FINANCIAL STATEMENTS
MBF HEALTHCARE ACQUISITION CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
SEE NOTES TO AUDITED FINANCIAL STATEMENTS
MBF HEALTHCARE ACQUISITION CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007
Note A - Organization and Business Operations
MBF Healthcare Acquisition Corp. (the “Company”) was incorporated in Delaware on June 2, 2006. The Company was formed to serve as a vehicle for the acquisition of an operating business through a merger, capital stock exchange, stock purchase, asset acquisition, or other similar business combination (the “Business Combination”). The Company has neither engaged in any operations nor generated any revenue to date. The Company is considered to be in the development stage and is subject to the risks associated with activities of development stage companies. The Company has selected December 31st as its fiscal year end.
The Company’s management has broad discretion with respect to the specific application of the net proceeds of the initial public offering of Units (as defined in Note C below) and the private placement of 343,750 units and 4,250,000 warrants that occurred prior to the initial public offering (the “Private Placement”), although substantially all of the net proceeds of the initial public offering and Private Placement are intended to be generally applied toward consummating a Business Combination with (or acquisition of) one or more operating businesses in the healthcare industry. Furthermore, there is no assurance that the Company will be able to successfully effect a Business Combination. Upon the closing of the initial public offering, at least ninety-nine and a half (99.5%) percent of the gross proceeds of the initial public offering, after payment of certain amounts to the underwriters, were deposited in a trust account (the “Trust Account”), and were invested in money market funds meeting conditions of the Investment Company Act of 1940 or securities principally issued or guaranteed by the U.S. government until the earlier of (i) the consummation of its first Business Combination or (ii) the distribution of the Trust Account as described below. The remaining proceeds may be used to pay for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses. The Company, after signing a definitive agreement for the acquisition of a target business, will submit such transaction for stockholder approval. The Company will proceed with the Business Combination only if:
•
a majority of the shares of common stock voted by the public stockholders are voted in favor of the Business Combination; and
•
public stockholders owning less than 30% of the shares sold in the initial public offering both vote against the Business Combination and exercise their conversion rights as described below.
Public stockholders voting against the Business Combination will be entitled to convert their stock into a pro rata share of the amount held in the Trust Account (including the amount held in the Trust Account representing the deferred portion of the underwriters’ discounts and commissions), including any interest earned on their pro rata share (net of taxes payable), if the Business Combination is approved and consummated.
In the event that the Company does not complete a Business Combination within 24 months from the consummation of the initial public offering, the Company will dissolve and distribute the proceeds held in the Trust Account to public stockholders, excluding the existing stockholder to the extent of its initial stockholdings and the shares purchased by it in the Private Placement. In the event of such distribution, the per share value of the residual assets remaining available for distribution (including Trust Account assets) will be less than the initial public offering price per share in the initial public offering.
Note B - Summary of Significant Accounting Policies
[1]Cash and cash equivalents:
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.
MBF HEALTHCARE ACQUISITION CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS - (CONTINUED)
[2] Earnings (loss) per common share:
Income (loss) per share is computed by dividing net income (loss) applicable to common stockholders by the weighted average number of common shares outstanding for the period. The dilutive effect of common stock equivalents have been excluded from the diluted income (loss) per share calculation for the 2006 period presented as the effect is antidilutive. Included in the weighted average shares calculation for Diluted EPS purposes are 3,867,674 and 2,442,390 shares related to the dilutive effect of outstanding stock warrants for the year ended December 31, 2007 and the period from June 2, 2006 through December 31, 2007, respectively.
[3] Use of estimates:
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the report period. Actual results could differ from those estimates.
[4] Income taxes:
Deferred income taxes are provided for the differences between the bases of assets and liabilities for financial reporting and income tax purposes. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.
The Company recorded a deferred tax asset for the tax effect of net operating loss carryforwards, aggregating approximately $22,400 at December 31, 2006. In recognition of the uncertainty regarding the ultimate amount of income tax benefits to be derived, the Company has recorded a full valuation allowance at December 31, 2006. The Company recorded an income tax expense $2,125,395 for the year ended December 31, 2007. As of December 31, 2007, the net operating loss carry forward was fully utilized and thus the valuation allowance was reversed. The temporary differences as of December 31, 2007 represent prepaid expenses and accrued liabilities. In 2007, the Company recognized a deferred tax benefit of $47,110. For the year December 31, 2007, the effective tax rate of 38% differs from the statutory rate of 35% due to the provision for state income taxes. For the period ended December 31, 2006, the effective tax rate of 0% differs from the statutory rate of 35% due to the valuation allowance.
The Company adopted the provisions of FASB Interpretation 48, Accounting for Uncertainty in Income Taxes, on January 1, 2007. Previously, the Company had accounted for tax contingencies in accordance with Statement of Financial Accounting Standards 5, Accounting for Contingencies. As required by Interpretation 48, which clarifies Statement 109, Accounting for Income Taxes, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. At the adoption date, the Company applied Interpretation 48 to all tax positions for which the statute of limitations remained open. As a result of the implementation of Interpretation 48, the Company did not recognize any additional unrecognized tax benefits. As of December 31, 2007, the Company has no unrecognized tax benefits on the balance sheet
The Company is subject to income taxes in the U.S. federal jurisdiction and in the state of Florida. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. The Company’s policy is to record interest and penalties as part of income tax expense.
[5] Deferred offering costs:
Deferred offering costs as of December 31, 2006 consisted principally of legal and accounting fees incurred through the balance sheet date that were related to the planned initial public offering and were charged to additional paid-in capital upon the closing of the initial public offering.
MBF HEALTHCARE ACQUISITION CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS - (CONTINUED)
[6] Fair value of financial instruments:
Financial instruments consist primarily of cash in which the fair market value approximates the carrying value due to its short term nature.
[7] Recent accounting pronouncements:
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). This statement provides a single definition of fair value, a framework for measuring fair value, and expanded disclosures concerning fair value. Previously, different definitions of fair value were contained in various accounting pronouncements creating inconsistencies in measurement and disclosures. SFAS No. 157 applies under those previously issued pronouncements that prescribe fair value as the relevant measure of value, except SFAS No. 123(R) and related interpretations and pronouncements that require or permit measurement similar to fair value but are not intended to measure fair value. This pronouncement is effective for fiscal years beginning after November 15, 2007. The Company is evaluating the impact of SFAS No. 157, but does not expect the adoption of SFAS No. 157 to have a material impact on its financial position, results of operations, or cash flows.
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159 (“SFAS No. 159”) “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The provisions of SFAS No. 159 will be effective for the Company beginning January 1, 2008. The Company is in the process of determining the effect, if any, the adoption of SFAS No. 159 will have on its financial statements.
In December 2007, the FASB issued proposed FASB Staff Position (FSP) 157-b, “Effective Date of FASB Statement No. 157,” that would permit a one-year deferral in applying the measurement provisions of SFAS 157 to non-financial assets and non-financial liabilities (non-financial items) that are not recognized or disclosed at fair value in an entity’s financial statements on a recurring basis (at least annually). Therefore, if the change in fair value of a non-financial item is not required to be recognized or disclosed in the financial statements on an annual basis or more frequently, the effective date of application of Statement 157 to that item is deferred until fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. This deferral does not apply, however, to an entity that applies Statement 157 in interim or annual financial statements before proposed FSP 157-b is finalized. The Company is currently evaluating the impact, if any, that the adoption of FSP 157-b will have on the Company’s operating income or net earnings.
On December 4, 2007, the FASB issued SFAS No. 141R (revised 2007) Business Combinations, which will change the accounting for business combinations. Under SFAS No. 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS No. 141R retains the purchase method of accounting for acquisitions, but requires a number of changes, including expensing acquisition costs as incurred, capitalization of in-process research and development at fair value, recording noncontrolling interests at fair value and recording acquired contingent liabilities at fair value. SFAS No. 141R will apply prospectively to business combinations with an acquisition date on or after the beginning of the first annual reporting period beginning after December 15, 2008. Both early adoption and retrospective application are prohibited. SFAS No. 141R will have an impact on the accounting for the Company’s business combinations once adopted, but the effect depends on the terms of the Company’s business combinations subsequent to January 1, 2009, if any.
A variety of proposed or otherwise potential accounting standards are currently under study by standard-setting organizations and various regulatory agencies. Because of the tentative and preliminary nature of these proposed standards, management has not determined whether implementation of such proposed standards would be material to the Company’s consolidated financial statements.
MBF HEALTHCARE ACQUISITION CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS - (CONTINUED)
Note C - Public Offering
On April 23, 2007, the Company completed its initial public offering (“IPO”) of 18,750,000 units (“Units”), consisting of one share of common stock and one warrant, and on May 8, 2007, the Company completed the closing of an additional 2,812,500 Units that were subject to the underwriters’ over-allotment option. The 21,562,500 Units sold in the IPO, including the 2,812,500 Units subject to the over-allotment option, were sold at an offering price of $8.00 per Unit, generating total gross proceeds of $172,500,000. Of the net proceeds after offering expenses of the IPO and the Private Placement, $170,962,500 was placed in a Trust Account. Except for payment of taxes, the proceeds will not be released from the Trust Account until the earlier of (i) the completion of a Business Combination or (ii) liquidation of the Company. Public stockholders voting against the Company’s initial business combination will be entitled to convert their common stock into a pro rata share of the amount held in the Trust Account (including the amount held in the Trust Account representing the deferred portion of the underwriters’ discounts and commissions), including any interest earned on their pro rata share (net of taxes payable), if the business combination is approved and consummated. Public stockholders who convert their stock into a pro rata share of the Trust Account will continue to have the right to exercise any warrants they may hold.
Note D - Related Party Transactions
[ 1 ] The Company issued a $200,000 unsecured promissory note to its stockholder, MBF Healthcare Partners, L.P. (“MBFHP”), on June 12, 2006. On August 25, 2006, the promissory note was amended and restated to increase the principal amount of the note to $400,000 and convert the loan to a non-revolving line of credit. As of December 31, 2006, the outstanding principal balance was $240,000. In 2007, the Company borrowed an additional $35,000 on this note. The note bore interest at a rate of 5% per annum and was paid in full upon the consummation of the Public Offering. Mike Fernandez, the Company’s Chairman and Chief Executive Officer has an interest in MBFHP.
[2] The Company presently occupies office space provided by MBFHP, an affiliate of several of the officers of the Company. Such affiliate has agreed that it will make such office space, as well as certain office and secretarial services, available to the Company, as may be required by the Company from time to time. The Company has agreed to pay such affiliate $7,500 per month for such services which commenced on the effective date of the Registration Statement, April 17, 2007 and continues until the earlier of the acquisition of a target business by the Company or the Company’s liquidation. In 2007, the expense for such services was $63,250. The Company has also agreed to reimburse MBF Healthcare Management, an entity owned by a related party, of up to $750 per person per flight for the use of its corporate jet by the Company’s officers and directors in connection with activities on the Company’s behalf, such as identifying and investigating targets for the Company’s initial Business Combination. In 2007, the expense for the use of the corporate jet was $29,250 of which all was accrued as of December 31, 2007.
Note E - Commitments
In connection with the Public Offering, the Company has committed to pay a fee of 3.5% of the gross offering proceeds, including the over-allotment option, to the underwriters at the closing of the Public Offering (or the over-allotment option, as the case may be). In addition, the Company has committed to pay a deferred fee of 3.5% of the gross proceeds to the underwriters on the completion of an initial business combination by the Company (subject to a pro rata reduction of $0.28 per share for public stockholders who exercise their conversion right). The Company paid the underwriters $6,037,500 upon the closing of the Public Offering and the underwriters’ over-allotment option. The remaining $5,250,000 from the Public Offering and an additional $787,500 from the exercise of the Units that were subject to the underwriters’ over-allotment option, for a total of $6,037,500, has been accrued by the Company as of December 31, 2007.
MBF HEALTHCARE ACQUISITION CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS - (CONTINUED)
Note F - Private Placement
On April 13, 2007, MBFHP, a related party to the Company purchased an aggregate of 343,750 Private Units from the Company at a price of $8.00 per unit and 4,250,000 Private Placement Warrants at a purchase price of $1.00 per warrant, for an aggregate purchase price of $7,000,000. Each Private Unit consists of one share of the Company’s common stock, $0.0001 par value, and one redeemable common stock purchase warrant (each, a “Unit Warrant” and together with the Private Placement Warrants, the “Private Warrants”). Each Private Warrant entitles the holder to purchase from the Company one share of common stock at an exercise price of $6.00 commencing on the later of (a) one year from the date of the final prospectus for the IPO (April 17, 2007) or (b) the completion of a Business Combination with a target business or the distribution of the Trust Account, and expiring four years from the date of the final prospectus for the IPO. At the Company’s sole discretion, the Private Warrants will be redeemable at a price of $0.01 per Private Warrant upon 30 days’ notice after the Private Warrants become exercisable, only in the event that the last sale price of the common stock is at least $11.50 per share for any 20 trading days within a 30-day trading period ending on the third day prior to the date on which the notice of redemption is given. The Private Warrants will be identical to the Warrants, except that (1) upon a redemption of Private Warrants, MBFHP will have the right to exercise the Private Warrants on a cashless basis and (2) upon the exercise of the Private Warrants, MBFHP will receive unregistered shares of common stock.
Note G - Warrants
Each warrant entitles the registered holder to purchase one share of our common stock at a price of $6.00 per share, commencing on the later of the completion of the initial business combination or one year from the date of the completion of the Public Offering (April 17, 2008). None of the Warrants issued in the Public Offering will be exercisable and the Company will not be obligated to issue shares of common stock unless at the time of exercise a prospectus relating to common stock issuable upon exercise of these Warrants is current and the common stock has been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the Warrants. In no event will the Company be required to net cash settle any Warrant exercise. Under the terms of the Warrant Agreement, the Company has agreed to use its reasonable best efforts to maintain a current prospectus relating to common stock issuable upon exercise of the Warrants issued in the Public Offering until the expiration of these Warrants. However, the Company makes no assurance that it will be able to do so and, if the Company does not maintain a current prospectus relating to the common stock issuable upon exercise of the Warrants issued in the Public Offering, holders will be unable to exercise their Warrants and the Company will not be required to settle any such Warrant exercise. If the prospectus relating to the common stock issuable upon the exercise of these Warrants is not current, or if the common stock is not qualified or exempt from qualification in jurisdictions in which the holders of the Warrants reside, these Warrants may have no value, the market for these Warrants may be limited and these Warrants may expire worthless. If a registration statement is not effective for any unexercised Warrant, then the purchaser of Units purchased in the Public Offering will be deemed to have paid the full purchase price of $8.00 for the one share of the Company’s common stock included in the Unit. Even if the prospectus relating to the common stock issuable upon exercise of the Warrants issued in the Public Offering is not current, the Private Warrants will be exercisable for unregistered shares of common stock. If and when the Warrants become redeemable by the Company, the Company may exercise its redemption right even if the Warrants are not exercisable by their holders.
Note H - Common Stock Subject to Possible Redemption
Public stockholders voting against the Company’s initial business combination will be entitled to convert their common stock into a pro rata share of the amount held in the Trust Account (including the amount held in the Trust Account representing the deferred portion of the underwriters’ discounts and commissions), including any interest earned on their pro rata share (net of taxes payable), if the business combination is approved and consummated. Public stockholders who convert their stock into a pro rata share of the Trust Account will continue to have the right to exercise any warrants they may hold. As a result of the potential redemption, the Company has recorded a long term liability of $51,491,242 as of December 31, 2007.
Note I - Subsequent Events
On February 6, 2008, the Company entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Critical Homecare Solutions Holdings, Inc. (“CHS”), a Delaware corporation, Kohlberg Investors V, L.P. (the “Seller’s Representative”) and the other stockholders of CHS (each, together with the Seller’s Representative, a “Seller” and collectively the “Sellers”).
Pursuant to the terms of the Stock Purchase Agreement, the Company will acquire all of the outstanding capital stock of CHS for $420.0 million, subject to a working capital and certain other customary adjustments as set forth in the Stock Purchase Agreement. The Company intends to fund the purchase price and the acquisition costs and provide additional capital to CHS for growth and expansion through a combination of approximately $180.0 million of cash in its trust account, approximately $180.0 million of debt, a $35.0 million equity issuance of MBH common stock to certain Sellers and a commitment from MBF Healthcare Partners, L.P. to acquire up to an additional $50 million in shares of MBH common stock. The shares of MBH common stock to be issued to certain Sellers and the shares that are subject to the commitment from MBF Healthcare Partners, L.P. will be priced at the closing per share price of MBH common stock on February 6, 2008, which was $7.65.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: