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| MBH > SEC Filings for MBH > Form 10-Q on 12-Nov-2008 | All Recent SEC Filings |
12-Nov-2008
Quarterly Report
In connection with the IPO, we agreed to pay 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.
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 a 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 $123.6 million of cash in the Trust Account,
approximately $209.0 million of debt, a $55.0 million equity issuance of MBH
common stock to certain Sellers, a commitment from MBF Healthcare Partners, L.P.
to acquire up to an additional $30.4 million in shares of MBH common stock and a
$2 million equity issuance of MBH common stock to CIT Healthcare LLC ("CIT") in
connection with its financing commitment. The shares of MBH common stock to be
issued to certain Sellers, the shares that are subject to the commitment from
MBF Healthcare Partners, L.P. and the shares issued to CIT will be priced at the
closing per share price of MBH common stock on the date of close, estimated at
$8.27.
On April 22, 2008, we, CHS and the Sellers entered into Amendment No. 1 to
the Stock Purchase Agreement, Amendment No. 1 was entered into to provide for
the issuance of 4,000 shares of Series A Convertible Preferred Stock, $0.001 par
value ("Preferred Shares"), by CHS to certain Sellers and to include the
Preferred Shares in the outstanding capital stock of CHS to be acquired by us in
the transaction. In addition, Amendment No. 1 amended the Stock Purchase
Agreement to indicate that CHS will appoint a designee of the Kohlberg Entities,
as defined in the Stock Purchase Agreement, to the Board of Directors of the
Company rather than nominate a designee for election as previously contemplated.
On July 7, 2008, we, CHS and the Sellers entered into Amendment No. 2 to the
Stock Purchase Agreement. Amendment No. 2 extends the termination date from
June 30, 2008 to July 31, 2008.
On July 31, 2008, the financing commitment letter with Jefferies Finance LLC,
dated February 6, 2008, expired pursuant to its terms. Also on July 31, 2008,
we, CHS and the Sellers entered into Amendment No. 3 to the Stock Purchase
Agreement. Pursuant to Amendment No. 3, the parties, have agreed to set the
termination date of the Stock Purchase Agreement as August 29, 2008, subject to
the parties' ability to secure a new committed credit facility on or before
August 29, 2008, and our ability to acquire at least 16,171,875 warrants from
certain MBH warrant holders in privately negotiated transactions and
subsequently retire such warrants. If both of these conditions are met, the
termination date will be extended to September 30, 2008. In connection with
meeting these conditions, MBF LP and Sellers will seek to revise certain terms
of the Stock Purchase Agreement, including increasing the Sellers' equity
participation and decreasing MBF LP's share purchase commitment.
On August 29, 2008, we, CHS and the Sellers entered into Amendment No. 4 to
the Stock Purchase Agreement to extend the termination date of the Stock
Purchase Agreement from August 29, 2007 to October 31, 2008.
On September 10, 2008, we, CHS and the Sellers entered into Amendment No. 5
to the Stock Purchase Agreement. Pursuant to Amendment No. 5, the expenses of
CHS were increased by $12.0 million, thereby decreasing the cash amount paid to
the Sellers at the closing of the acquisition by $12.0 million. Exhibit D to the
Stock Purchase Agreement was also replaced with a subscription agreement
executed by the Sellers pursuant to which, at the closing of the acquisition, we
will issue shares of unregistered common stock to the Sellers for the purpose of
raising not less than $55.0 million in connection with the acquisition and up to
an additional $13.2 million to fund the conversion of dissenting stockholders'
shares if the acquisition is consummated.
Amendment No. 5 also provided for a subscription agreement (the "Subscription
Agreement") and a letter agreement (the "Letter Agreement") from MBF LP to us,
each dated September 10, 2008, pursuant to which, at the closing of the
acquisition, we will issue shares of unregistered common stock to MBF LP for the
purpose of raising not less than $30.4 million, substantially all of which will
be used to finance a portion of the consideration required to acquire CHS and up
to an additional $8.0 million to fund the conversion of dissenting stockholders'
shares if the acquisition is consummated.
Amendment No. 5 also established an earn-out provision for the Sellers as
follows: after the conclusion of each of the five successive twelve-month
periods beginning January 1, 2009 and ending December 31, 2013 and within thirty
(30) days of us filing of our annual report on Form 10-K with the SEC, we shall
pay to the Sellers and the Optionholders (as such term is defined in the Stock
Purchase Agreement) (i) twenty-five percent (25%) of CHS' EBITDA in excess of
$52.5 million if paid in cash or (ii) thirty-three and one third percent
(331/3%) of CHS' EBITDA in excess of $52.5 million if paid in our common stock
calculated at the average closing sales price of our common stock for the ten
consecutive trading days prior to the delivery of our common stock for a given
earn-out period; provided that the maximum earn-out paid for all such earn-out
periods (whether paid in cash, our common stock or any combination thereof)
shall not exceed $12.0 million in the aggregate. We are granted the sole and
absolute discretion to determine whether to pay the earn-out in cash or its
common stock.
Finally, Amendment No. 5 provided for the issuance of 6,036 Preferred Shares
by CHS to Kohlberg Investors V, L.P., Kohlberg TE Investors V, L.P., Kohlberg
Offshore Investors V, L.P., Kohlberg Partners V, L.P. and SAC in exchange for
$6.036 million paid by such entities to CHS and to revise the number of
Preferred Shares to be acquired by MBH in the transaction.
The closing of the acquisition and the issuance of equity to MBF LP pursuant
to its commitment are subject to SEC and 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.
On October 31, 2008, we, CHS and the Sellers mutually terminated the Stock
Purchase Agreement. Pursuant to our Amended and Restated Certificate of
Incorporation, we intend to continue to seek a suitable operating business in
the healthcare industry for a merger, capital stock exchange, asset acquisition
or other similar business combination. If we are unable to complete a business
combination by April 23, 2009, 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.
Results of Operations, Financial Condition and Liquidity
Net loss of $1,969,424 reported for the quarter ended September 30, 2008 and
net loss of $263,312 reported for the nine month period ended September 30, 2008
consisted primarily of acquisition expense partially offset by interest income
earned on cash held in the Trust Account. Acquisition expense consists primarily
of legal, printing, due diligence and accounting fees which were incurred
through September 30, 2008 in connection with the CHS purchase. As a result of
the termination of the Stock Purchase Agreement on October 31, 2008, such costs
were expensed during the quarter ended September 30, 2008. Formation and
operating costs were $106,368 and $414,363 for the three and nine months ended
September 30, 2008. Formation and operating costs consist primarily of legal,
accounting and printing fees and expenses. We expect to use substantially all of
the net proceeds from our initial public offering 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 the operations of the target business. In the event that the Company
does not have sufficient available funds outside of the Trust Account to operate
through April 23, 2009, assuming that a business combination is not consummated
during that time, on August 7, 2008, the Company entered into a $300,000
non-revolving line of credit facility as evidenced by a letter agreement MBF
Healthcare Management, LLC, a related party. The proceeds of this line of credit
is being used for purposes of funding our operating costs through April 2009.
The line of credit bears interest at a rate of 5% per annum and is payable upon
the consummation of the combination. On October 31, 2008, the line of credit was
increased to $2,000,000. The balance on the line of credit as of September 30,
2008 was $317,500. The current balance on the line of credit is $1,433,940.
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.
We do not believe we will need to raise additional funds in order to meet the
expenditures required for operating our business through April 23, 2009.
However, we may need to raise additional funds through a private offering of
debt or equity securities if such funds are required to consummate a business
combination that is presented to us.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet financing arrangements and
have not established any special purpose entities. We have not guaranteed any
debt or commitments of other entities or entered into any options on
non-financial assets.
Recent Accounting Pronouncements
In September 2006, FASB issued SFAS No. 157, Fair Value Measurements ("SFAS
No. 157"). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value and expands disclosures about fair value measurements. SFAS
No. 157 does not impose fair value measurements on items not already accounted
for at fair value; rather it applies, with certain exceptions, to other
accounting pronouncements that either require or permit fair value measurements.
Under SFAS No. 157, fair value refers to the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between
market participants in the principal or most advantageous market. The standard
clarifies that fair value should be based on the assumptions market participants
would use when pricing the asset or liability. In February 2008, the FASB issued
FASB Staff Position No. 157-2, Effective Date of FASB Statement No. 157 ("FSP
FAS 157-2"), which delays the effective date of SFAS No. 157 for all
non-financial assets and liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis, until
fiscal years beginning after November 15, 2008. These non-financial items
include assets and liabilities such as non-financial assets and liabilities
assumed in a business combination, reporting units measured at fair value in a
goodwill impairment test and asset retirement obligations initially measured at
fair value. We adopted the provisions of SFAS No. 157 for assets and liabilities
recognized at fair value on a recurring basis effective January 1, 2008. The
partial adoption of SFAS No. 157 did not have a material impact on our financial
statements.
This standard requires that a company measure its financial assets and
liabilities using inputs from the three levels of the fair value hierarchy. A
financial asset or liability classification within the hierarchy is determined
based on the lowest level input that is significant to the fair value
measurement. The three levels are as follows:
[ ] Level 1 - Inputs are unadjusted quoted prices in active markets for
identical assets or liabilities that the Company has the ability to
access at the measurement date.
[ ] Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
[ ] Level 3 - Unobservable inputs reflect the Company's judgments about the assumptions market participants would use in pricing the asset or liability since limited market data exists. The Company develops these inputs based on the best information available, including the Company's own data.
As of the January 1, 2008 and September 30, 2008, we have no financial assets
or liabilities that are measured at fair value.
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 were effective for us beginning January 1, 2008. The adoption of
SFAS No. 159 did not have a material impact on our financial statements.
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 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, we have not determined whether implementation of such proposed
standards would be material to our financial statements.
Critical Accounting Policies
A description of our critical accounting policies is contained in our Annual
Report on Form 10-K for the year ended December 31, 2007.
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