SCHEDULE 14A
(RULE 14a-101)
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant
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Filed by a Party other than the Registrant
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Check the appropriate box:
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Preliminary
Proxy Statement
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Confidential,
for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
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Definitive
Proxy Statement
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Definitive
Additional Materials
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Soliciting
Material Pursuant to
Section 240.14a-12
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MEDCATH CORPORATION
(Name of Registrant as Specified In
Its Charter)
N/A
(Name of Person(s) Filing Proxy
Statement)
Payment of Filing Fee (Check the appropriate box):
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No
fee required.
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Fee
computed on table below per Exchange Act
Rules 14a-6(i)(4)
and 0-11.
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(1)
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Title of each class of securities to which transaction applies:
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(2)
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Aggregate number of securities to which transaction applies:
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(3)
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Per unit price or other underlying value of transaction computed
pursuant to Exchange Act
Rule 0-11
(set forth the amount on which the filing fee is calculated and
state how it was determined):
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(4)
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Proposed maximum aggregate value of transaction:
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Fee
paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by
Exchange Act
Rule 0-11(a)(2)
and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its
filing.
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(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
PRELIMINARY
COPY-SUBJECT TO COMPLETION, DATED AUGUST 5,
2011
MEDCATH CORPORATION
10720 Sikes Place, Suite 200
Charlotte, North Carolina 28277
[ ],
2011
Dear Stockholder:
You are cordially invited to attend the Special Meeting of
Stockholders of MedCath Corporation (the Company or
MedCath) to be held at Moore & Van Allen
PLLC, 100 North Tryon Street, Suite 4700, Charlotte, North
Carolina 28202, on
[ ],
2011 at [ ] a.m. Eastern
Time (the Special Meeting). We look forward to
greeting personally those stockholders who are able to attend.
Whether or not you plan to attend the Special Meeting, it is
important that your shares be represented.
To ensure that
your vote will be received and counted, please sign, date and
mail the enclosed proxy at your earliest convenience. Your vote
is important regardless of the number of shares you own.
Please submit your proxy as soon as possible so your shares
will be voted at the Special Meeting. This is your Special
Meeting, and your participation is important.
By order of the Board of Directors,
O. Edwin French
President and Chief Executive Officer
Charlotte, North Carolina
[ ],
2011
MEDCATH
CORPORATION
10720 Sikes Place,
Suite 200
Charlotte, North Carolina 28277
NOTICE OF SPECIAL MEETING OF
STOCKHOLDERS
To Be Held on
[ ],
2011
You are cordially invited to attend the Special Meeting of
Stockholders of MedCath Corporation (the Company or
MedCath) to be held at Moore & Van Allen
PLLC, 100 North Tryon Street, Suite 4700, Charlotte, North
Carolina 28202, on
[ ],
2011 at [ ] a.m. Eastern
Time (the Special Meeting) for the following
purposes:
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1.
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to consider and vote upon a proposal (the Asset
Sale-Complete Liquidation Proposal) to approve:
(a) the sale of all or substantially all of the remaining
assets of the Company prior to filing a certificate of
dissolution and (b) the Companys complete liquidation
(as the term complete liquidation is described in
Section 346(a) of the Internal Revenue Code of 1986, as
amended);
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2.
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to consider and vote upon a proposal (the Dissolution
Proposal) to approve the dissolution of the Company and
the Plan of Dissolution pursuant to which the Company will be
dissolved;
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3.
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to conduct a non-binding advisory vote on certain compensation
and other payments to executives as disclosed in the
accompanying proxy statement;
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to consider and vote upon a proposal (the Adjournment
Proposal) to adjourn the Special Meeting if necessary or
appropriate, including to solicit additional proxies for the
proposals to be acted upon at the Special Meeting in the event
there are insufficient votes at the time of the Special Meeting
or any adjournment thereof to approve one or more of the
proposals; and
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5.
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to transact such other business as may properly come before the
Special Meeting and any adjournment or postponement thereof.
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The Asset Sale-Complete Liquidation Proposal and the Dissolution
Proposal are independent proposals. A vote for or against one of
these proposals does not count as a vote for or against the
other. However, our Board of Directors believes that the Asset
Sale-Complete Liquidation Proposal and the Dissolution Proposal
are integral parts of the Board of Directors overall plan
to maximize stockholder value. In the event our stockholders do
not approve both the Asset Sale-Complete Liquidation Proposal
and the Dissolution Proposal, our Board of Directors will
consider whether to proceed with the transactions and processes
contemplated by these two proposals and may, in its sole
discretion, decide not to implement either proposal.
These items of business are described more thoroughly in the
accompanying proxy statement. The proxy statement and its
appendices form a part of this Notice. Only holders of record of
the Companys common stock on August 5, 2011 are
entitled to notice of, and to vote at, the Special Meeting and
any adjournments or postponements of the Special Meeting. The
Companys Board of Directors is soliciting proxies for the
Special Meeting and recommends that you vote
FOR
the foregoing proposal numbered 1-4.
Your vote is important.
Whether or not you
plan to attend the Special Meeting, it is important that your
shares are represented. Please sign and date the enclosed proxy
card and return it in the envelope provided today. No postage
need be affixed if the proxy card is mailed in the United
States. Returning the proxy card will not limit your right to
attend or vote at the Special Meeting. Your prompt cooperation
will be greatly appreciated.
By the order of the Board of Directors,
O. Edwin French
President and Chief Executive Officer
Charlotte, NC
[ ],
2011
Important Notice Regarding the Availability of Proxy
Materials for the Special Meeting of Stockholders
To Be Held on
[ ],
2011:
The
Companys proxy statement on Schedule 14A and form of
proxy card are available at: [Insert Link]
Neither the SEC nor any state securities regulatory agency
has approved or disapproved any of the matters to be acted upon
at the Special Meeting, passed upon the merits or fairness of
such matters or passed upon the adequacy or accuracy of the
disclosure in this proxy statement. Any representation to the
contrary is a criminal offense.
PRELIMINARY
COPY-SUBJECT TO COMPLETION, DATED AUGUST 5,
2011
MEDCATH
CORPORATION
10720 Sikes Place,
Suite 200
Charlotte, North Carolina 28277
(704) 815-7700
PROXY STATEMENT
FOR
SPECIAL MEETING OF STOCKHOLDERS
To Be Held on
[ ],
2011
INFORMATION
ABOUT THE SPECIAL MEETING AND VOTING
This proxy statement is being furnished in connection with the
solicitation of proxies by the Board of Directors of MedCath
Corporation for use at the special meeting of stockholders (the
Special Meeting) to be held at Moore & Van
Allen PLLC, 100 North Tryon Street, Suite 4700, Charlotte,
North Carolina 28202, on
[ ],
2011 at [ ] a.m. Eastern
Time and at any adjournments or postponements of the meeting.
Stockholders may obtain directions to the offices of
Moore & Van Allen PLLC by contacting James A. Parker,
MedCaths Secretary, at
(704) 815-7700.
In this proxy statement, the terms MedCath
Corporation, MedCath, Company,
we, our, ours, and
us refer to MedCath Corporation, a Delaware
corporation. References to the Board or the Board of Directors
are to the Board of Directors of MedCath Corporation.
Stockholders are urged to review carefully this proxy statement
(including supplemental materials, if any) and the annexes
hereto and information incorporated by reference herein in their
entirety before casting their vote.
At our annual meeting of stockholders held July 26, 2011
(the Annual Meeting), the stockholders approved
(i) the sale of substantially all of the assets of Heart
Hospital of New Mexico (the New Mexico Sale) and
(ii) the sale of all of the Companys equity interest
in Arkansas Heart Hospital (the Arkansas Sale), as
more fully described in our definitive proxy statement on
Schedule 14A filed with the Securities and Exchange Commission
(the SEC) on June 27, 2011 (the June
Proxy) furnished in connection with the solicitation of
proxies by the Board of Directors for use at the Annual Meeting.
These sales, each of which closed effective as of August 1,
2011, were the result of our previously announced strategic
options process.
Two of the matters to be acted upon at the Special Meeting are
also the result and a continuation of our previously announced
strategic options process. Specifically, our Board of Directors
is now asking MedCaths stockholders to consider and vote
upon: (i) a proposal to approve (a) the sale of all or
substantially all of the remaining assets of the Company prior
to filing a certificate of dissolution and (b) the
Companys complete liquidation (as the term complete
liquidation is described in Section 346(a) of the
Internal Revenue Code of 1986, as amended) (see
Proposal No. 1 Sale of All or
Substantially All of the Remaining Assets of the Company and
Complete Liquidation); and (ii) a proposal to approve
the dissolution of the Company and the Plan of Dissolution
pursuant to which the Company will be dissolved, its remaining
assets liquidated and its affairs wound down (see
Proposal No. 2 Dissolution).
It is anticipated that this proxy statement and the accompanying
form of proxy will be mailed to stockholders on or about
[ ],
2011.
TABLE OF
CONTENTS
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A-1
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2
QUESTIONS
AND ANSWERS
The following are some questions that we believe you, as a
stockholder of MedCath, may have regarding certain of the
proposals contained in this proxy statement and brief answers to
those questions. It constitutes only a summary of certain
information in this proxy statement and we urge you to read
carefully the entire proxy statement (including supplemental
materials, if any) and the annexes related to the proposals and
information incorporated by reference herein, including our
Annual Report on
Form 10-K
for the fiscal year ended September 30, 2010, as amended
and
Forms 10-Q
for the period ending March 31, 2011 carefully before
submitting your proxy or casting your vote.
What am I
being asked to vote on?
Our Board of Directors is asking MedCaths stockholders of
record at the close of business on August 5, 2011 (the
Record Date) to consider and vote upon: (i) a
proposal to approve (a) the sale of all or substantially
all of the Companys four remaining hospitals and our other
remaining assets (collectively, the Remaining
Assets) as described in this proxy statement prior to
filing a certificate of dissolution and (b) the
Companys complete liquidation (as the term complete
liquidation is described in Section 346(a) of the
Internal Revenue Code of 1986, as amended) (the Complete
Liquidation); (ii) a proposal to approve the
dissolution of the Company and the sale of the Companys
remaining assets and the wind down of its affairs pursuant to
that certain Plan of Dissolution of MedCath Corporation, a copy
of which is attached hereto as Annex A (the Plan of
Dissolution and, collectively, the
Dissolution); (iii) a non-binding advisory vote
on certain compensation and other payments to executives;
(iv) a proposal to adjourn the Special Meeting if necessary
or appropriate, including to solicit additional proxies for the
proposals to be acted upon at the Special Meeting in the event
there are insufficient votes at the time of the Special Meeting
or any adjournment thereof to approve one or more of the
proposals (the Adjournment); and (v) such other
business as may properly come before the Special Meeting and any
adjournment or postponement thereof. Throughout this proxy
statement, we use the term Asset Sale-Complete Liquidation
Proposal to refer to the proposal for the sale of all or
substantially all of the Remaining Assets and the Complete
Liquidation of the Company, and the term Dissolution
Proposal to refer to the proposal for the Dissolution.
The Board of Directors currently knows of no other business that
will be presented for consideration at the Special Meeting. In
the event any matters other than those referred to in the
accompanying Notice of Meeting and this proxy statement should
properly come before and be considered at the Special Meeting,
it is intended that proxies in the form MedCath provides to
its stockholders will be voted thereon in accordance with the
judgment of the person or persons voting such proxies.
Does the
Board of Directors recommend that I vote FOR the
Proposals?
Yes. The Board of Directors recommends that you vote
FOR
proposal numbered 1-4.
What
happens if stockholders approve the Asset Sale-Complete
Liquidation Proposal and the Dissolution Proposal?
If stockholders owning shares representing at least a majority
of the outstanding voting power of our shares entitled to vote
at the Special Meeting approve the Asset Sale-Complete
Liquidation Proposal and the Dissolution Proposal, then the
Company anticipates the following will occur:
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If no currently unknown or unanticipated material liabilities of
the Company arise, the Company expects to make a distribution
equal to $6.75 per share of the Companys common stock (the
First Liquidating Distribution) prior to
December 31, 2011 to stockholders as of the record date for
such distribution. See
Proposal No. 2
Dissolution Plan of Dissolution and Estimate of Cash
Distributable to Stockholders;
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We will seek to sell all or substantially all of our Remaining
Assets. See Proposal No. 1 Sale of All or
Substantially All of the Remaining Assets of the Company and
Complete Liquidation;
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We will seek to pay, or establish a reserve to pay, all of the
Companys liabilities, including without limitation
(a) any liabilities arising out of the United States
Department of Justices national investigation regarding
implantable cardioverter defibrillators implantations (see
Risk Factors Risks Related to the Dissolution
Proposal (Proposal No. 2) Cash
distributions to stockholders could be substantially reduced and
delayed as part of our liquidation and dissolution due to the
pending ICD Investigation, such Risk Factor includes the
definition of the ICD Investigation), (b) other
currently unknown or unanticipated liabilities, and (c) a
reserve of such additional amount as the Board of Directors
determines to be necessary or appropriate under the General
Corporation Law of the State of Delaware (DGCL) with
respect to additional liabilities that may arise or be
identified after the Filing (the Liability Payment
Condition);
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We will file a certificate of dissolution in accordance with
Section 275 of the DGCL (the Filing) no later
than the date which is on or about the one year anniversary date
of the approval of these proposals at the Special Meeting (the
Outside Filing Date). However, the date of Filing
may be extended by the Board of Directors under certain
circumstances discussed below;
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If prior to the Outside Filing Date the Board of Directors
determines in the exercise of its fiduciary duties that the
Company has (a) sold substantially all, but not necessarily
all, of its Remaining Assets (the Asset Sale
Condition and, together with the Liability Payment
Condition, the Additional Distribution Conditions)
and (b) satisfied the Liability Payment Condition, then the
Company currently anticipates making one or more additional
liquidating distributions (the Additional Liquidating
Distributions, which defined term refers to any additional
liquidating distributions made either before or after the
Filing) prior to the Filing. See Proposal
No. 2 Dissolution Plan of
Dissolution and Estimate of Cash Distributable to
Stockholders;
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If the Board of Directors determines that the Additional
Distribution Conditions have not been satisfied by the Outside
Filing Date, then the Company currently anticipates calling a
special meeting of its stockholders and submitting an additional
proxy statement to seek the approval of our stockholders to
delay the Filing for such additional period of time as the Board
of Directors determines is advisable to provide the Company with
an extended time period during which to satisfy the Additional
Distribution Conditions and make additional liquidating
distributions prior to the Filing (such extended date of the
Filing hereafter referred to as the Extended Filing
Date). If such approval from our stockholders is obtained,
then the Filing will be delayed to the Extended Filing Date in
accordance with the terms described in such subsequent proxy
statement. If such approval to delay the Filing is not obtained
from our stockholders, then the Filing will not be so delayed
and the Filing will be made on or about the Outside Filing Date;
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In addition to the First Liquidating Distribution, the Company
will seek to make one or more Additional Liquidating
Distributions to stockholders of the Companys common stock
as of the record date for any such distributions under the
circumstances described herein. See
Proposal No. 2
Dissolution Plan of Dissolution and Estimate of Cash
Distributable to Stockholders;
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The amount and timing of any Additional Liquidating
Distributions may be subject to material reduction and delay
based upon, among other factors: (i) the Companys
ability to sell all or a substantial portion of the Remaining
Assets as well as the timing and terms thereof, (ii) the
payment or establishment of reserves to satisfy any liabilities
arising out of the ICD Investigation, other currently unknown or
unanticipated liabilities (which may be material) and the
establishment of a reserve of such additional amount as the
Board of Directors determines to be necessary or appropriate
under the DGCL with respect to additional liabilities that may
arise or be identified after the Filing (see Risk
Factors Risks Related to the Dissolution Proposal
(Proposal No. 2) Cash distributions to
stockholders could be substantially reduced and delayed as part
of our liquidation and dissolution due to pending ICD
Investigation), and (iii) the realization of certain
Tax Attributes by the Company. See Q&A Relating to
the Complete Liquidation and the Dissolution How
will the Companys Tax Attributes affect Distributions to
Stockholders?, such section includes the definition of
Tax Attributes;
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While the potential additional amount available for
distribution, following the First Liquidating Distribution, may
be, in the aggregate, in the range of up to $8.19 to $10.21 per
share, that range does not include a reserve for any liabilities
arising out of the ICD Investigation, other currently unknown or
unanticipated liabilities or a reserve of such additional amount
as the Board of Directors determines to be necessary or
appropriate under the DGCL with respect to additional
liabilities that may arise or be identified after the Filing,
the amounts of which may materially reduce the amount of any
Additional Liquidating Distributions. See Risk
Factors Risks Related to the Asset Sale-Complete
Liquidation Proposal (Proposal No. 1) and Risk
Factors Risks Related to the Dissolution Proposal
(Proposal No. 2);
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It is not possible to predict with certainty the portion of any
Additional Liquidating Distributions which will be made before
the Filing and the portion of any Additional Liquidating
Distributions which will be made after the Filing, or the amount
of any Additional Liquidating Distributions. The Board of
Directors, in the exercise of its fiduciary duties, will make
the determination as to whether and when the Additional
Distribution Conditions have been satisfied which may be prior
to the Outside Filing Date or the Extended Filing Date or after
such dates. See Risk Factors Risks Related to
the Asset Sale-Complete Liquidation Proposal
(Proposal No. 1) and Risk
Factors Risks Related to the Dissolution Proposal
(Proposal No. 2);
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As of the date of the Filing, the Company will close its stock
transfer books and the Companys common stock will cease to
trade, and the Company anticipates publicly announcing, and
filing with the SEC, a current report on
Form 8-K
informing our stockholders of the Companys intention to
make the Filing at least 20 days prior to the date on which
such Filing is to be made. See
Proposal No. 2
Dissolution Final Record Date;
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After the Filing, the Company will seek to sell or otherwise
liquidate its remaining assets in accordance with the provisions
of Sections 280 and 281(a) of the DGCL which it has not
sold prior to the Filing. See
Proposal No. 2 Dissolution;
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After the Filing, the Company will pay, or establish reserves
for payment of, all of its liabilities and obligations in the
manner provided under the DGCL. Those liabilities and
obligations will include, among other things, all valid claims
made against us and all expenses arising out of the sale of
assets, the liquidation and dissolution provided for in the Plan
of Dissolution and the liabilities associated with the pending
ICD Investigation. We do not know the amount of these potential
liabilities but currently believe that such amounts may be
material and may materially reduce the amount of Additional
Liquidating Distributions. Such payments and reserves will be
made using the funds which the Company retains or collects as of
or after the Filing. See Risk Factors Risks
Related to the Dissolution Proposal
(Proposal No. 2) and
Proposal No. 2
Dissolution Dissolution Process;
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After the Filing, when the Company has paid or made adequate
provision for payment of all of its liabilities and obligations
in the manner provided under the DGCL, including without
limitation liabilities which may arise in respect of the ICD
Investigation, successfully sold any of its Remaining Assets,
one or more Additional Liquidating Distributions may be made to
stockholders as of the record date for such distributions which
record date shall be on or about the date of the Filing. The
timing and amount of the benefits of the Tax Attributes realized
by the Company will also affect the amounts and timing of any
Additional Liquidating Distributions. We currently anticipate
that any post-Filing Additional Liquidating Distributions would
be made no sooner than at least the date which is approximately
nine months after the Filing as a result of the dissolution
process required pursuant to the DGCL and may not occur, if at
all, until several years after the Filing. See
Proposal No. 2
Dissolution Plan of Dissolution and Estimate of Cash
Distributable to Stockholders.
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Why is
stockholder approval being sought for the Asset Sale-Complete
Liquidation Proposal and the Dissolution Proposal?
Under the DGCL, stockholder approval by the holders of a
majority of the outstanding voting power of the shares entitled
to vote on the matter is required for certain fundamental
corporate transactions, such as a
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sale of all or substantially all of the assets of the
corporation, the Complete Liquidation of the corporation or the
dissolution of the corporation. The Board has determined that,
in light of the prior dispositions by the Company (See
Background of the Asset Sale-Complete Liquidation Proposal
and the Dissolution Proposal Completed
Transactions), and notwithstanding approval by
stockholders of the Companys sale of assets on
July 26, 2011 (which the Board of Directors previously
determined constituted a sale of substantially all of the
Companys assets), that it was advisable to seek
stockholder approval of the sale of all or substantially all of
the Remaining Assets. The Dissolution Proposal contemplates the
dissolution of the Company, winding up of its affairs after
dissolution and liquidation of any remaining assets pursuant to
the Plan of Dissolution. Therefore, under the DGCL, the
Dissolution Proposal requires stockholder approval.
What are
the tax implications to the stockholders of the approval of the
Asset Sale-Complete Liquidation Proposal and the Dissolution
Proposal?
If the stockholders approve and we effect the Complete
Liquidation of the Company, all dividends and distributions by
the Company will be deemed to be in full payment for the shares
of stock owned by the stockholder. A stockholder will recognize
gain or loss separately on each block of stock owned by the
stockholder. All distributions in liquidation will be deemed to
be made proportionately with respect to each outstanding share
of the Companys stock. Gain on the distributions in
liquidation of the Company will be recognized with respect to a
block of Company stock only when the amount of the aggregate
distributions (in money or in the fair market value of property
distributed to the stockholder or on his behalf) with respect to
such block exceeds the tax basis in such block. After the
stockholder has received distributions with respect to a block
that equals his tax basis in such block, all distributions with
respect to such block will be taxable as capital gain.
A stockholder will recognize a loss with respect to each of his
blocks of stock in the Company only in the tax year in which the
final distribution to him is made, and only if the stockholder
has not received distributions equal to the stockholders
tax basis in such block. The amount of the loss will be equal to
the difference between the amount by which the
stockholders basis in such block exceeds the amount of
distributions that the stockholder has received with respect to
such block.
For stockholders who hold their shares as capital assets all
such gains or losses on shares will be long term capital gains
or losses if such shares have been held by such stockholder for
at least one year. Currently the maximum long term capital gains
rate for individuals is 15%, but it is scheduled to increase to
20% in 2013. Also, starting in 2013 the Medicare tax of 3.8%
will apply to capital gain income for high income individuals,
estates and most trusts. For individuals, high income is income
in excess of modified adjusted gross income of between $125,000
and $250,000 depending on the individuals circumstances.
WE URGE EACH STOCKHOLDER TO CONSULT WITH HIS OR HER OWN TAX
ADVISORS REGARDING TAX CONSEQUENCES OF THE TRANSACTIONS
CONTEMPLATED BY THE ASSET SALE COMPLETE LIQUIDATION
PROPOSAL AND THE DISSOLUTION PROPOSAL.
See Proposal No. 2
Dissolution Material U.S. Federal Income Tax
Consequences of the Complete Liquidation and
Dissolution U.S. Federal Income Tax
Consequences to our Stockholders.
What
happens if stockholders do not approve each of the Asset
Sale-Complete Liquidation Proposal and the Dissolution
Proposal?
The Asset Sale-Complete Liquidation Proposal and the Dissolution
Proposal are independent proposals. A vote for or against one of
these proposals does not count as a vote for or against the
other. However, our Board of Directors believes that the Asset
Sale-Complete Liquidation Proposal and the Dissolution Proposal
are integral parts of the Board of Directors overall plan
to maximize stockholder value. In the event our stockholders do
not approve both the Asset Sale-Complete Liquidation Proposal
and Dissolution Proposal, our Board of Directors will consider
whether to proceed with the transactions and processes
contemplated by these two proposals and may, in its sole
discretion, decide not to implement either proposal or may elect
to implement the one proposal that is approved.
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Additionally, if our stockholders do not approve both of the
Asset Sale-Complete Liquidation Proposal and the Dissolution
Proposal, the Board of Directors may decide not to make any
liquidating distributions and will continue to consider our
strategic options with respect to our assets.
Any dividends that the Company pays (other than in connection
with the Complete Liquidation, and up to the Companys
earnings and profits) will be subject to federal income taxation
at a maximum rate of 15%. If the Asset Sale Complete
Liquidation Proposal and the Dissolution Proposal are not
approved by our stockholders, all distributions, if any, by the
Company to our stockholders will be taxable as dividends to the
extent of the Companys earnings and profits. Dividends are
currently taxable at a maximum tax rate of 15%, but the maximum
tax rate on dividends is currently scheduled to increase to
39.6% in 2013. Also, starting in 2013 the Medicare tax of 3.8%
will apply to dividend income for high income individuals,
estates and most trusts. For individuals, high income is income
in excess of modified adjusted gross income of between $125,000
and $250,000 depending on the individuals circumstances.
At the Special Meeting, we may ask our stockholders to vote on a
proposal to adjourn the Special Meeting if necessary or
appropriate in the sole discretion of our Board of Directors,
including to solicit additional proxies for one or more
proposals in the event that there are not sufficient votes at
the time of the Special Meeting or any adjournment thereof to
approve one or more of the proposals. See
Proposal No. 4 Adjournment.
How may I
vote?
Holders of shares of our common stock entitled to vote may have
their shares voted by proxy or may vote in person at the Special
Meeting. Proxies in the form provided by MedCath, properly
executed and duly returned and not revoked, will be voted at the
Special Meeting, including any adjournments or postponements
thereof. Where a specification is made in such proxy regarding
each of the proposals, such proxy will be voted in accordance
with the specification. If no specification is made, proxies
will be voted: (i)
FOR
the Asset
Sale-Complete Liquidation Proposal; (ii)
FOR
the Dissolution Proposal; (iii)
FOR
the Non-Binding Advisory Vote on Certain Compensation and other
Payments to Executives; and (iv)
FOR
the
Adjournment Proposal. Proxies will be voted in the discretion of
the proxy holders on any other business that may properly come
before the Special Meeting.
Proxies should be sent to:
American Stock Transfer & Trust Co., LLC
Operations Center Proxy Dept.
6201 15th Ave
Brooklyn, NY
11219-9821
May I
change my vote or revoke my proxy after I return my proxy
card?
Yes. Stockholders who execute proxies may revoke or change them
at any time before they are voted by delivering a written
revocation to James A. Parker, the Secretary of MedCath, either
at the Special Meeting or prior to the meeting date at
MedCaths principal executive offices 10720 Sikes Place,
Suite 200, Charlotte, North Carolina 28277, by executing
and delivering a later-dated proxy, or by attending the Special
Meeting and voting in person. Attendance at the Special Meeting
alone will not revoke your proxy.
What vote
is required to approve the proposals?
The presence, in person or by proxy, of at least a majority of
the outstanding shares of common stock entitled to vote at the
Special Meeting is necessary to establish a quorum for the
transaction of business. Shares represented by proxies that
contain one or more abstentions or broker non-votes will be
counted as present for purposes of determining the presence or
absence of a quorum for the Special Meeting. Only stockholders
of record at the close of business on the Record Date are
entitled to notice of, and to vote at, the Special Meeting and
at any adjournments or postponements of the meeting. As of
August 4, 2011, there were 20,436,291 shares of our
common stock outstanding. Each share of common stock is entitled
to one vote per
7
share on all matters presented to our stockholders for approval.
MedCath has no other class of voting securities outstanding.
Each of the Asset Sale-Complete Liquidation Proposal and the
Dissolution Proposal require the affirmative vote of the holders
of a majority of the outstanding shares of common stock entitled
to vote. The Adjournment Proposal will be approved if it
receives an affirmative vote of a majority of shares present or
represented and entitled to vote at the Special Meeting. The
other proposal (Proposal #3), while
non-binding, will become effective if it receives the
affirmative vote of the holders of a majority of the shares of
common stock present in person or represented by proxy and
entitled to vote on that proposal are cast in favor thereof.
Broker non-votes occur when nominees, such as brokers and banks,
holding shares on behalf of street name owners do
not receive voting instructions from those owners regarding a
matter and do not have discretionary authority to vote on the
matter under Nasdaq Stock Market rules. With respect to matters
such as the Asset Sale-Complete Liquidation Proposal, the
Dissolution Proposal and the Adjournment Proposal, nominees
cannot vote unless they receive instructions from the
street name owner. The failure to receive such
instructions as to such a matter results in a broker non-vote.
With respect to the Adjournment Proposal, broker non-votes and
abstentions will be counted to determine a quorum, but will not
be counted as votes for or against any proposal and therefore
have the practical effect of reducing the number of affirmative
votes required to achieve a majority by reducing the total
number of shares from which the majority is calculated.
With respect to the Asset Sale-Complete Liquidation Proposal and
the Dissolution Proposal, only shares affirmatively voted
FOR
the proposals will be counted as
favorable votes. Shares of our common stock held by persons
attending the Special Meeting but not voting, broker non-votes
and shares of our common stock for which we received proxies but
with respect to which holders of those shares have abstained
from voting, will have the same effect as votes
AGAINST the Asset Sale-Complete Liquidation Proposal
and the Dissolution Proposal for purposes of determining whether
or not the requisite vote was received.
If you hold your shares of MedCath common stock through a broker
and wish to vote on the proposals described in this proxy
statement that are non-routine, you must instruct
your broker how to vote your shares. IF YOU FAIL TO INSTRUCT
YOUR BROKER HOW TO VOTE WITH RESPECT TO THE ASSET SALE-COMPLETE
LIQUIDATION PROPOSAL AND THE DISSOLUTION PROPOSAL, THE
RESULTING BROKER NON-VOTE ON SUCH PROPOSALS WILL HAVE THE
EFFECT OF A VOTE AGAINST SUCH PROPOSALS.
Who bears
the costs of the solicitation of proxies?
MedCath will pay the cost of solicitation of proxies, including
the cost of assembling and mailing this proxy statement and the
enclosed materials and fees and expenses of MacKenzie Partners,
Inc. (MacKenzie), the proxy solicitation firm the
Company has engaged in connection with the Special Meeting.
MacKenzie was engaged to assist in the solicitation of proxies
by mail, personally, by telephone, facsimile or other means of
communication, and such firm will receive a fee estimated to be
$25,000 and will be reimbursed for
out-of-pocket
expenses. In addition to the use of the mails, proxies may be
solicited personally or by telephone or email by corporate
officers and employees of MedCath without additional
compensation. MedCath intends to request brokers and banks
holding stock in their names or in the names of nominees to
solicit proxies from their customers who own our stock, where
applicable, and will reimburse them for their reasonable
expenses of mailing proxy materials to their customers.
Q&A
Relating to the Asset Sale-Complete Liquidation
Proposal
What will
happen if the Asset Sale-Complete Liquidation Proposal is
approved by our stockholders?
If the Asset Sale-Complete Liquidation Proposal is approved by
the requisite stockholder vote, we will proceed with our
strategic options review of transactions and seek to sell our
Remaining Assets. Although we currently intend to complete the
sale of all or substantially all of the Remaining Assets as
expeditiously as possible, we cannot predict when or if the
sales of our Remaining Assets will be consummated.
8
What will
happen if the Asset Sale-Complete Liquidation Proposal is not
approved by our stockholders?
If the Asset Sale-Complete Liquidation Proposal and the
Dissolution Proposal are not approved by the requisite
stockholder vote, the Board of Directors may not make the First
Liquidating Distribution or any Additional Liquidating
Distributions or may materially reduce the amount of the First
Liquidating Distribution or any such Additional Liquidating
Distributions and will continue its efforts to determine what,
if any, other alternatives would be in the best interests of our
stockholders.
If the Dissolution Proposal is approved by our stockholders, but
the Asset Sale-Complete Liquidation Proposal is not approved,
the Board of Directors currently intends to make the Filing and
will have the authority under the DGCL following the Filing to
complete transactions involving our Remaining Assets on any
terms it determines are in the best interest of our stockholders
without further stockholder approval. Under such circumstances,
the Board of Directors may not make the First Liquidating
Distribution or any Additional Liquidating Distributions prior
to the Dissolution and the Filing, and we will close our
transfer books on the date on which we make the Filing and on
that date our common stock will cease to be quoted on a
registered securities exchange or otherwise cease to be traded.
If the Company is dissolved pursuant to the Dissolution, any
liquidating distributions made after the Filing will be treated
as distributions in complete liquidation of the Company. Under
such circumstances, it is unclear whether the First Liquidating
Distribution or any Additional Liquidating Distributions made
before the Filing will be treated as dividends or whether they
will be treated as distributions in complete liquidation of the
Company.
The Asset Sale-Complete Liquidation Proposal and the Dissolution
Proposal are independent proposals. A vote for or against one of
these proposals does not count as a vote for or against the
other. However, our Board of Directors believes that the Asset
Sale-Complete Liquidation Proposal and the Dissolution Proposal
are integral parts of the Board of Directors overall plan
to maximize stockholder value. In the event our stockholders do
not approve both the Asset Sale-Complete Liquidation Proposal
and Dissolution Proposal, our Board of Directors will consider
whether to proceed with the transactions and processes
contemplated by these two proposals and may, in its sole
discretion, decide not to implement either proposal or may
implement the proposal that has been approved.
What is
the Board of Directors estimate of the net proceeds of the
sale of the Remaining Assets?
The Board of Directors currently is willing to continue to
consider a number of scenarios for disposing of the
Companys Remaining Assets to maximize stockholder value.
These scenarios include sales of individual hospitals or other
assets, transactions that would involve the sale of the equity
of our subsidiaries holding those assets in one or more
transactions or a merger or other transaction involving the
outstanding common stock of MedCath. The Board of
Directors determination(s) regarding these scenario(s)
will be based upon, without limitation, consideration of seeking
the highest purchase prices obtainable under the circumstances,
certainty and time periods for closing sales of our remaining
assets, the risk that the value of our remaining assets will
decrease over time and the costs of continuing operations of a
limited number of hospitals and other factors the Board of
Directors deems relevant to its determination. We cannot assure
you which, if any, of these scenarios will result from the
evaluation of our strategic options or that our efforts to
dispose of our Remaining Assets will be successful or on terms
favorable to us. We currently estimate that proceeds which may
be received by the Company in connection with the sale of our
hospitals included in our Remaining Assets in the aggregate may
be in the range of $82,641,000 to $93,398,000, however there is
no assurance that such amounts will finally be received by the
Company. See Proposal No. 1 Sale of
All or Substantially All of the Remaining Assets of the Company
and Complete Liquidation Remaining Assets and
Risk Factors Risks Related to the Asset
Sale-Complete Liquidation Proposal
(Proposal No. 1).
How would
the proceeds from the sale of the Remaining Assets be
used?
We currently expect to use the proceeds from the sale of the
Remaining Assets to pay any outstanding liabilities and
obligations and establish a contingency reserve or make other
provision for any contingent liabilities that may exist upon
completion of the sale of all or substantially all of the
Remaining Assets or that become due as we wind down our affairs.
To the extent the Board of Directors determines that the
Additional Distribution Conditions have been satisfied and each
of the Asset Sale Complete Liquidation Proposal and
the Dissolution Proposal are approved by the stockholders, the
Company currently anticipates making one or
9
more Additional Liquidating Distributions to our stockholders.
See Proposal No. 2
Dissolution Plan of Dissolution and Estimate of Cash
Distributable to Stockholders.
What does
the Board of Directors recommend regarding the Asset
Sale-Complete Liquidation Proposal?
Our Board of Directors unanimously recommends that you vote
FOR
the approval of the Asset Sale-Complete
Liquidation Proposal.
Do I have
appraisal rights in connection with the sale of all or
substantially all of the Remaining Assets?
No, under the DGCL, appraisal rights are not provided to
stockholders in connection with the transactions contemplated by
the Asset Sale-Complete Liquidation Proposal.
Are there
any risks to the sale of all or substantially all of the
Remaining Assets?
Yes. You should carefully read the section entitled Risk
Factors.
Q&A
Relating to the Complete Liquidation and the
Dissolution
What do
the Complete Liquidation and the Dissolution entail?
The Complete Liquidation and the Dissolution provide for the
completion of the voluntary liquidation, winding up and
dissolution of MedCath and a series of liquidating distributions
to our stockholders. If the Asset Sale-Complete Liquidation
Proposal is approved, the liquidation of the Company will begin
in connection with the implementation of that proposal and shall
be pursued to the extent possible prior to the Outside Filing
Date (as may be extended to the Extended Filing Date). On or
about the Outside Filing Date (as may be extended to the
Extended Filing Date), MedCath currently intends to make the
Filing and to complete the liquidation, winding up and
dissolution of MedCath after such Filing. We intend to provide
our stockholders notice of the date we intend to make the Filing
with the Delaware Secretary of State by public announcement and
by filing a current report on
Form 8-K,
no less than 20 calendar days prior to the Filing.
What will
happen if the Dissolution is approved?
If the Dissolution Proposal and the Asset Sale-Complete
Liquidation Proposal are approved by our stockholders, then the
Company will seek to achieve the following objectives prior to
the Filing and the Dissolution: (i) the sale of our
Remaining Assets, (ii) either the payment or the
establishment of a reserve to pay all of the Companys
liabilities, which may be material, including without limitation
(a) any liabilities arising out of the ICD Investigation,
(b) other currently unknown or unanticipated liabilities,
and (c) a reserve of such additional amount as the Board of
Directors determines to be necessary or appropriate under the
DGCL with respect to additional liabilities that may arise or be
identified after the Filing, and (iii) make potentially,
one or more Additional Liquidating Distributions. In all events,
we will dissolve the Company by making the Filing, which we
anticipate will be on or about the Outside Filing Date (as may
be extended to the Extended Filing Date) and thereafter,
liquidate our remaining assets, satisfy or make reasonable
provisions for our remaining obligations, including estimated
unknown liabilities, and make distributions to the stockholders
of any available liquidation proceeds. See
Proposal No. 2
Dissolution Plan of Dissolution and Estimate of Cash
Distributable to Stockholders.
If the Dissolution Proposal is approved, but our Board of
Directors thereafter determines that dissolution is not in our
best interests and the best interests of our stockholders, our
Board of Directors may direct that the Dissolution be abandoned,
without additional approval, or may amend or modify the Plan of
Dissolution to the extent not prohibited by the DGCL without the
necessity of further stockholder approval. See
Proposal No. 2
Dissolution Revocation of the Plan of
Dissolution.
Can
MedCath estimate the additional distributions that the
stockholders would receive following the First Liquidating
Distribution?
If the Asset Sale-Complete Liquidation Proposal and the
Dissolution Proposal are approved, the Company intends to make
the First Liquidating Distribution prior to December 31,
2011 and, subject to the risks and conditions outlined
throughout this proxy statement including without limitation the
Additional Distribution
10
Conditions, thereafter the Company will seek to make one or more
Additional Liquidating Distributions. If the Board of Directors
determines in the exercise of its fiduciary duties that the
Additional Distribution Conditions have been satisfied prior to
the Outside Filing Date (as may be extended to the Extended
Filing Date) it will seek to make Additional Liquidating
Distributions prior to the Filing. However, it is not possible
to predict with certainty the portion of any Additional
Liquidating Distributions which will be made before the Filing
and the portion of any Additional Liquidating Distributions
which will be made after the Filing.
The potential additional amount available for distribution,
following the First Liquidating Distribution, may be, in the
aggregate, in the range of up to $8.19 to $10.21 per share. That
range does not include a reserve or estimate for any liabilities
arising out of the ICD Investigation, other currently unknown or
unanticipated liabilities or a reserve of such additional amount
as the Board of Directors may determine to be necessary or
appropriate under the DGCL with respect to additional
liabilities that may arise or be identified after the Filing.
Those amounts may be material and may materially reduce the
amount of any Additional Liquidating Distributions.
Additionally, to the extent that prior to the Outside Filing
Date (as may be extended to the Extended Filing Date),
substantially all of our Remaining Assets are not sold or all
potential Tax Attributes are not realized, then the amount of
any Additional Liquidating Distributions which may be made prior
to the Filing may be reduced and the Company will seek to make
post-Filing Additional Liquidating Distributions to the extent
funds are, in the judgment of the Board of Directors, available
therefore. We currently anticipate that any post-Filing
Additional Liquidating Distributions would be made no sooner
than at least the date which is approximately nine months after
the Filing and may not occur, if at all, until several years
after the Filing. See Risk Factors Risks
Related to the Dissolution Proposal
(Proposal No. 2) and
Proposal No. 2
Dissolution Plan of Dissolution and Estimate of Cash
Distributable to Stockholders.
How will
the Companys Tax Attributes affect Distributions to
Stockholders?
We expect that a substantial portion of the Remaining Assets of
the Company will be sold at a substantial loss for income tax
purposes. We cannot predict with certainty whether any portion
of such losses will be incurred in fiscal 2011, or whether all
of such losses and wind down operating losses will be incurred
after fiscal 2011. Losses incurred in fiscal 2012 and fiscal
2013 will be carried back for income tax purposes to the
Companys fiscal year ending September 30, 2011, and
it is expected that the Company will be entitled to a refund of
a substantial portion of the income taxes that were paid or are
payable in connection with the asset sales completed in fiscal
2011 (the refund resulting from the carry back of such losses
are collectively referred to as the Tax Attributes).
If, however, there should be an ownership change
under and as defined in Section 382 of the Internal Revenue
Code of 1986, as amended, a possibility that the Company
believes is unlikely, the expected refund of income taxes could
be substantially reduced.
On June 13, 2011, the Company entered into a
Section 382 stockholders rights plan (the
Section 382 Rights Plan) seeking to preserve
for the Companys stockholders the value or availability of
certain of the Companys tax attributes. See the
Companys current report on
Form 8-K
filed with the SEC on June 16, 2011 and Background of
the Asset Sale-Complete Liquidation Proposal and the Dissolution
Proposal General.
What will
happen if the Dissolution is approved but either (i) the
Asset Sale-Complete Liquidation Proposal is not approved by our
stockholders or (ii) a substantial portion of, but not
necessarily all of, the Remaining Assets are not sold prior to a
Filing?
If the Dissolution is approved but either (i) the Asset
Sale-Complete Liquidation Proposal is not approved by our
stockholders or (ii) a substantial portion of, but not
necessarily all of, the Remaining Assets are not sold by the
Outside Filing Date (as may be extended to the Extended Filing
Date), then our Board of Directors, in accordance with its
fiduciary duties, may determine not to make the First
Liquidating Distribution or any Additional Liquidating
Distributions, or may materially reduce the amount of the First
Liquidating Distribution or any Additional Liquidating
Distributions. In such event, the Board of Directors will have
the authority following the Filing under the DGCL to complete
transactions involving our remaining assets on any terms it
determines are in the best interest of our stockholders, without
stockholder approval. Further, in the Board of Directors
discretion, it may, but will not be obligated, to proceed with
the Filing and the Dissolution and may take such actions as it
deems advisable and in the best interests of our stockholders to
dispose of MedCaths
11
assets in a manner designed to maximize stockholder value and
that complies with applicable law. If we proceed with the
Filing, we will close our transfer books on the date on which we
make the Filing and on that date our common stock will cease to
be quoted on a registered securities exchange and otherwise
cease to be traded. If the Company is dissolved pursuant to the
Dissolution, any liquidating distributions made after the Filing
will be treated as distributions in complete liquidation of the
Company. It is unclear whether the First Liquidating
Distribution or any Additional Liquidating Distributions made
before the Filing will be treated as dividends, or whether they
will be treated as distributions in complete liquidation of the
Company.
What will
happen if the Asset Sale-Complete Liquidation Proposal is
approved by our stockholders but the Dissolution is not
approved?
The Asset Sale-Complete Liquidation Proposal and the Dissolution
Proposal are independent proposals. A vote for or against one of
these proposals does not count as a vote for or against the
other. However, our Board of Directors believes that the Asset
Sale-Complete Liquidation Proposal and the Dissolution Proposal
are integral parts of the Board of Directors overall plan
to maximize stockholder value. In the event our stockholders
approve the Asset Sale-Complete Liquidation Proposal but not the
Dissolution Proposal, our Board of Directors will consider
whether to proceed with the transactions and processes
contemplated by these two proposals and may, in its sole
discretion, decide not to implement either proposal.
If our stockholders do not approve the Dissolution, our Board of
Directors would have to evaluate our alternatives. The Board of
Directors believes that any other alternatives are likely to be
less favorable to our stockholders than the Dissolution. We
currently intend to continue our efforts to sell our Remaining
Assets if the Asset Sale-Complete Liquidation Proposal is
approved by our stockholders. In that case, we will have
transferred all or substantially all of the operating assets of
the sold assets to third parties, and we will have limited
operations to generate revenue to support our expense structure.
If our stockholders do not approve the Dissolution Proposal but
approve the Asset Sale-Liquidation Proposal, our Board of
Directors may determine not to make the First Liquidating
Distribution or any Additional Liquidating Distributions or may
materially reduce the amount of the First Liquidating
Distribution or any Additional Liquidating Distributions since
we would require additional funds to continue to operate our
business and pursue alternative strategic options.
If neither the Asset Sale-Complete Liquidation Proposal nor the
Dissolution Proposal is approved, any distribution we make will
be taxed as a dividend to the extent of the Companys
earnings and profits rather than as long term capital gains.
Dividends are currently taxable to individuals at a maximum tax
rate of 15%, but the maximum tax rate on dividends is currently
scheduled to increase to 39.6% in 2013. Also, starting in 2013
the Medicare tax of 3.8% will apply to dividend income for high
income individuals, estates and most trust. For individuals,
high income is income in excess of modified adjusted gross
income between $125,000 and $250,000 depending on the
individuals circumstances. See
Proposal No. 2
Dissolution Material U.S. Federal Income Tax
Consequences of the Complete Liquidation and Dissolution.
We would likely continue to ask the stockholders to approve the
Dissolution, either via an adjournment of the Special Meeting or
at a separate special meeting of stockholders called for the
purpose of seeking approval of the Dissolution.
Can I
sell my shares once the certificate of dissolution is
filed?
No. If the Dissolution is approved and our Board of Directors
determines that it is in our and our stockholders best
interests to proceed with the Dissolution, then we will make the
Filing with the Delaware Secretary of State. We will close our
transfer books on the date on which we make the Filing and on
that date our common stock will cease to be quoted on a
registered securities exchange or otherwise cease to be traded.
The Company will not retain a transfer agent following the date
of the Filing. We intend to provide our stockholders notice of
the date we intend to make the Filing with the Delaware
Secretary of State by public announcement and by filing a
current report on
Form 8-K,
no less than 20 calendar days prior to the Filing.
12
Certificates representing shares of common stock will remain
outstanding following the Filing. From and after the
effectiveness of the Filing, and subject to applicable law, each
holder of our common stock will have the right to receive
liquidation distributions pursuant to and in accordance with the
Plan of Dissolution until the final liquidation distribution is
made. The final liquidation distribution under the Plan of
Dissolution will be in complete cancellation of all of the
outstanding shares of our common stock. Primary factors
determining the timing of such liquidation distributions
include, without limitation, the timing of the sale of our
assets, the timing of the Company having paid or made adequate
provision for payment of all of its liabilities and obligations
in the manner provided under the DGCL and the determination by
the Board of Directors that all or any portion of the
Companys contingency reserve is no longer required.
When will
the stockholders receive any payment from the Complete
Liquidation?
If both of the Asset Sale-Complete Liquidation Proposal and the
Dissolution Proposal are approved by our stockholders, and no
currently unknown or unanticipated material liabilities of the
Company arise, we expect to make the First Liquidating
Distribution of $6.75 per share of the Companys common
stock prior to December 31, 2011 to stockholders as of the
record date for such distribution. Thereafter, subject to the
risks and conditions outlined throughout this proxy statement
including without limitation the Additional Distribution
Conditions, the Company will seek to make one or more Additional
Liquidating Distributions prior to the Filing.
The potential additional amount available for distribution,
following the First Liquidating Distribution, may be, in the
aggregate, in the range of up to $8.19 to $10.21 per share. That
range does not include a reserve or estimate for any liabilities
arising out of the ICD Investigation, other currently unknown or
unanticipated liabilities or a reserve of such additional amount
as the Board of Directors determines to be necessary or
appropriate under the DGCL with respect to additional
liabilities that may arise or be identified after the Filing.
Those amounts may be material and may materially reduce the
amount of any Additional Liquidating Distributions.
Additionally, to the extent that prior to the Outside Filing
Date (as may be extended to the Extended Filing Date),
substantially all of our Remaining Assets are not sold or all
potential Tax Attributes are not realized, then the amount of
any Additional Liquidating Distributions which may be made prior
to the Filing may be reduced and the Company will seek to make
post-Filing Additional Liquidating Distributions to the extent
funds are, in the judgment of the Board of Directors, available
therefore. We currently anticipate that any post-Filing
Additional Liquidating Distributions would be made no sooner
than at least the date which is approximately nine months after
the Filing and may not occur, if at all, until several years
after the Filing. See Risk Factors Risks
Related to the Dissolution Proposal
(Proposal No. 2) and
Proposal No. 2
Dissolution Plan of Dissolution and Estimate of Cash
Distributable to Stockholders.
It is not possible to predict with certainty the portion of any
Additional Liquidating Distributions which will be made before
the Filing and the portion of any Additional Liquidating
Distributions which will be made after the Filing. The timing of
any distributions to our stockholders after the Filing will in
large part depend on our ability to pay or make adequate
provision for payment of all of our liabilities and obligations
in the manner provided under the DGCL following the Filing, the
timing of the sale of our assets and our ability to provide for
the payment of liabilities and obligations that are not
identified or not fixed at the time of the Filing. Under the
DGCL, before a dissolved corporation may make any distributions
to its stockholders, it must pay or make reasonable provision to
pay all of its liabilities and obligations, including all
contingent, conditional or unmatured claims known to the
corporation, and claims which, based on facts known to the
corporation, are likely to arise or become known to the
corporation within five years (or such longer period of time as
the Delaware Court of Chancery may determine, not to exceed
10 years). We are unable to currently determine the amount
of all liabilities and obligations that we will owe, or the
amount of a contingency reserve we will be required to
establish, upon the Filing, including but not limited to any
contingent reserves with respect to liability arising from the
ICD Investigation. As a result, we anticipate a substantial
period of time may transpire between the Filing and any
subsequent Additional Liquidating Distributions. See
Proposal No. 2
Dissolution Plan of Dissolution and Estimate of Cash
Distributable to Stockholders.
The Dissolution Proposal provides for the dissolution to be
effected pursuant to Sections 280 and 281(a) of the DGCL,
but allows MedCath to elect to effect the dissolution pursuant
to Section 281(b) of the DGCL.
13
The Board of Directors currently intends to effectuate the
dissolution in accordance with the procedures set forth in
Sections 280 and 281(a) of the DGCL. The procedures of
Sections 280 and 281(a) of the DGCL require that any
distribution be subject to a notice and claims process and the
prior completion of proceedings in the Delaware Court of
Chancery. A dissolution pursuant to Section 281(b) of the
DGCL would allow the Company to avoid the notice and claims
process and the proceedings in the Delaware Court of Chancery
but would also require the Company to make provisions for
unknown claims which might arise over the next ten years instead
of potentially the five years provided under Section 280
and 281(a) of the DGCL. See
Proposal No. 2
Dissolution Dissolution Process.
Does the
Dissolution present any risk of liability to our
stockholders?
If the Dissolution becomes effective, we intend to establish a
contingency reserve designed to satisfy any additional claims
against and obligations of the Company that may arise. Any
contingency reserve may, however, not be adequate to cover all
of our liabilities and obligations. Under the DGCL, if we fail
to create an adequate contingency reserve for payment of our
liabilities and obligations during the three-year period after
we make the Filing, each stockholder could be held liable for
payment to our creditors of the lesser of (i) such
stockholders pro rata share of amounts owed by the Company
to creditors in excess of the contingency reserve and
(ii) the amounts of any liquidating distributions
previously received by such stockholder in dissolution from us
and from any liquidating trust or trusts that may be established
in accordance with the Plan of Dissolution. Accordingly, in such
event, a stockholder could be required to return part or all of
the distributions previously made to such stockholder, and a
stockholder could receive nothing from us under the Plan of
Dissolution. See Proposal No. 2
Dissolution Potential Creditor Claims if Reserves
Insufficient.
What does
the Board of Directors recommend with respect to the
Dissolution?
Our Board of Directors unanimously recommends that the
stockholders vote
FOR
the Dissolution.
Do I have
appraisal rights in connection with the Dissolution?
No, under the DGCL, appraisal rights are not provided to
stockholders in connection with the Dissolution.
Are there
any risks to the Dissolution?
Yes. You should carefully read the section entitled Risk
Factors.
Q&A
Relating to Adjournment Proposal
What is
the effect of voting to approve the proposal to adjourn the
Special Meeting, if necessary or appropriate, to solicit
additional proxies?
If you vote in favor of the proposal to adjourn the Special
Meeting, if necessary or appropriate, to solicit additional
proxies, you will be voting to permit the Special Meeting to be
adjourned in order to solicit additional votes in favor of the
proposals, including the Asset Sale-Complete Liquidation
Proposal, the Dissolution Proposal or both. In the event that
the Asset Sale-Complete Liquidation Proposal or the Dissolution
Proposal has not received the requisite stockholder approval, it
is likely that MedCath would seek to adjourn the Special Meeting
to solicit additional proxies in favor of both proposals. In the
event that only one of the Asset Sale-Complete Liquidation
Proposal or the Dissolution Proposal has not received the
requisite stockholder approval, it is likely that MedCath would
seek to adjourn the Special Meeting to solicit additional votes
only with respect to such proposal while closing the polls on
the proposal(s) which has received the requisite stockholder
approval. For example, in the event that the requisite
stockholder vote in favor of the Asset Sale-Complete Liquidation
Proposal has been obtained but the requisite stockholder vote in
favor of the Dissolution Proposal has not been obtained, it is
likely that MedCath would seek to close the polls and register
the authorization of the Asset Sale-Complete Liquidation
Proposal in order to proceed with efforts to consummate the
Asset Sale-Complete Liquidation Proposal, while adjourning the
Special Meeting for the sole
14
purpose of soliciting additional votes to obtain approval of the
Dissolution Proposal. The receipt of sufficient votes in favor
of the adjournment proposal would allow MedCath to take such
actions.
CAUTIONARY
STATEMENT
CONCERNING FORWARD-LOOKING INFORMATION
This proxy statement includes forward-looking statements,
including statements regarding the proposed sale of all or
substantially all of our remaining assets, our potential
dissolution and future dividends or other cash distributions.
These statements are not statements of historical facts and do
not reflect historical information. This proxy statement
contains certain forward-looking statements with respect to the
financial condition, results of operations, plans, objectives,
future performance and business of the Company and its
subsidiaries and the effect of the proposed sale of all or
substantially all of our remaining assets, our potential
dissolution and future dividends or other cash distributions.
Words or phrases such as will likely result,
are expected to, will continue, is
anticipated, estimate, project,
believe or similar expressions identify
forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, as amended.
Forward-looking statements are subject to numerous risks and
uncertainties and actual results may differ materially from
those statements. Stockholders are cautioned not to place undue
reliance on such statements, which speak only as of the date
hereof. Neither the Company nor any of its subsidiaries
undertakes any obligation to update such forward-looking
statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
15
RISK
FACTORS
Risks, uncertainties and other factors may affect our future
business and results. In addition to the risks, uncertainties,
and other factors discussed below and elsewhere in this proxy
statement, the risks, uncertainties, and other factors that
could cause or contribute to actual results differing materially
from those expressed or implied in any forward-looking
statements include, without limitation, those set forth under
Part I, Item 1A Risk Factors in
MedCaths Annual Report on
Form 10-K
for the fiscal year ended September 30, 2010 filed with the
SEC on December 14, 2010, as amended by MedCaths
Annual Report on
Form 10-K/A
filed with the SEC on January 28, 2011, the June Proxy, and
those contained in MedCaths other filings with the SEC.
The matters discussed below could cause our future results to
materially differ from past results or those described in
forward-looking statements and could have a material adverse
effect on our business, financial condition and stock price.
Risks
Related to the Asset Sale-Complete Liquidation Proposal
(Proposal No. 1)
The
fact that we are in discussions involving the sales of our
Remaining Assets but that binding terms and conditions with
acceptable third party purchases have not been agreed upon could
have a material and adverse effect on our business, financial
condition and results of operations.
While sales of our Remaining Assets are being sought, they
create uncertainty about our future and the future operation of
the hospitals. As a result of this uncertainty, our business
partners may decide to delay, defer or cancel entering into new
business arrangements with us and patients and physicians who
refer patients to us may use other hospitals, pending completion
of the sale of all or substantially all of the Remaining Assets
or termination of thereof.
In addition, while sales of our Remaining Assets are being
sought, we are subject to a number of risks, including:
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the diversion of management and employee attention from the
day-to-day
business of the Company;
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the potential disruption to our business partners, suppliers and
other service providers;
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the loss of employees who may depart due to their concern about
losing their jobs following the sale of all or substantially all
of the Remaining Assets; and
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the potential inability to respond effectively to competitive
pressures, industry developments and future opportunities.
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The occurrence of any of these events individually or in
combination could have a material adverse effect on our
business, financial condition and results of operation.
The
sales of our Remaining Assets may not be completed, which could
materially and adversely impact our business, financial
condition and results of operations.
To complete sales of our Remaining Assets, our stockholders must
approve the Asset Sale-Complete Liquidation Proposal or the
Dissolution Proposal. Additionally, we have not finally
identified buyers, nor agreed upon terms and conditions of sale,
regarding sales of our Remaining Assets. Further, when
agreements are entered into, we must be able to satisfy all of
the closing conditions for which we are obligated under any such
agreements relating to the sale of any of the Remaining Assets.
If we are unable to complete sales of our Remaining Assets, the
Company would be subject to a number of risks, including the
following:
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The Company may not be able to identify alternative sale
transactions, and if alternative sale transactions are
identified, such alternative sale transactions may not result in
an equivalent price to what is anticipated in connection with
the sale of all or substantially all of the Remaining Assets;
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The trading price of our common stock may decline to the extent
that the current market price reflects a market assumption that
the sale of all or substantially all of the Remaining Assets
will be completed;
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Our relationships with our physicians, suppliers, the
communities in which our patients reside and employees may be
damaged and our business may be harmed; and
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The Company will incur significant transaction, compliance and
other transaction related fees and costs which will need to be
paid out of current cash on hand and cash from operations. These
expenses include, but are not limited to, financial advisory,
legal and accounting fees and expenses, employee expenses,
filing fees, printing expenses, proxy solicitation and other
related charges.
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The occurrence of any of these events individually or in
combination could have a material adverse effect on our
business, financial condition and results of operation.
A
delay in the sales of our Remaining Assets is likely to decrease
the funds available for distribution to
stockholders.
Claims, liabilities and expenses from operations (including
operating costs such as salaries, directors fees,
directors and officers insurance, federal and state income
taxes, payroll and local taxes, legal and accounting fees and
miscellaneous office expenses) will continue to be incurred by
us as we seek to close sales of our Remaining Assets. In the
event the sale of our Remaining Assets is delayed, we will incur
additional claims, liabilities and expenses from operations that
will reduce the net funds ultimately available for distribution
to our stockholders.
Even
if our stockholders approve the Asset Sale-Complete Liquidation
Proposal, the sales of our Remaining Assets may not be
completed.
The sales of each of our Remaining Assets are subject to
continuing negotiations and numerous risks, some of which are
out of the Companys control, and there can be no guarantee
that the Company will be able to successfully sell each of its
remaining assets. See Proposal No. 1
Sale of All or Substantially All of the Remaining Assets of the
Company and Complete Liquidation.
If the
sales of our Remaining Assets are not completed, or they are
delayed, there will be fewer funds available for distribution to
our stockholders.
If sales of our Remaining Assets are not consummated or they are
delayed, we believe that the Company will have limited
alternative strategic options available to it with respect to
these assets, and there is a substantial risk that our
stockholders will realize materially less value from the
proposed liquidation and dissolution of the Company. As of this
time, we are not aware of any alternatives that would enable the
Company to deliver similar or higher value to our stockholders
as compared to the value to be received in connection with sales
of our Remaining Assets.
Even
if our stockholders approve the Asset Sale-Complete Liquidation
Proposal, the Internal Revenue Service may not treat the
distributions to our stockholders as distributions in complete
liquidation as such term is described in Section 346(a) of
the Internal Revenue Code.
The term complete liquidation is not defined in the
Internal Revenue Code. The approval of the Asset
Sale Complete Liquidation Proposal does not ensure
that the First Liquidating Distribution or any Additional
Liquidating Distributions the Company intends to make will be
treated as distributions in complete liquidation by
the Internal Revenue Service. The Internal Revenue Service has a
policy of not issuing private letter rulings regarding the tax
effect to stockholders of corporate liquidations when the
distributions in liquidation are to be made over a period in
excess of three years. The Company has not sought a private
letter ruling.
The case law on complete liquidations does not require that a
complete liquidation be completed within three years. The
Company will seek to make the First Liquidating Distribution and
any Additional Liquidating Distributions to its stockholders
within a three year period, but there are no assurances it will
be able to do so. Either the failure to complete the sale of the
Remaining Assets or to pay, or establish reserves to pay, all
of
17
the Companys creditors or the various requirements of the
DGCL could make it impossible to complete the liquidating
distributions within a three year period.
The Company will also endeavor to ensure that any liquidating
trust or limited liability company formed to be the transferee
of certain of the assets of the Company will be treated for tax
purposes as a liquidating trust, or in the case of a limited
liability company as a partnership, for Federal income tax
purposes. However, there can be no assurance that any
liquidating trust or limited liability company, if created, will
be treated as a liquidating trust or a partnership for Federal
income tax purposes, or that the First Liquidating Distribution
and any Additional Liquidating Distributions, will be treated as
liquidating distributions. If the liquidating trust or the
limited liability company are not treated as a trust or a
partnership, as the case may be, but are instead treated as a
continuation of the existing corporation for Federal income tax
purposes, the liquidating distributions would likely not be
treated as distributions in complete liquidation for tax
purposes and would likely be treated as taxable dividends to the
extent of the Companys earnings and profits.
Risks
Related to the Dissolution Proposal
(Proposal No. 2)
Cash
distributions to stockholders could be substantially limited and
delayed since, as part of our liquidation and dissolution, the
Company is required to make adequate provision to satisfy all of
our known and unknown liabilities before authorizing any cash
distribution to stockholders.
Following (i) the approval of the Asset Sale-Complete
Liquidation Proposal and the Dissolution Proposal by our
stockholders, (ii) if successful, the sale of a substantial
portion, but not necessarily all, of our Remaining Assets and
(iii) the payment, or establishment of a reserve to pay,
the Companys liabilities (which may be material),
including without limitation (a) any liabilities arising
out of the ICD Investigation, (b) other currently unknown
or unanticipated liabilities, (c) a reserve of such
additional amount as the Board of Directors determines to be
necessary or appropriate under the DGCL with respect to
additional liabilities that may arise or be identified after the
Filing, the Company currently anticipates making one or more
Additional Liquidating Distributions prior to the Outside Filing
Date (as may be extended to the Extended Filing Date) and the
Filing. However, the process of accounting for our liabilities
(including those that are presently unknown) involve
assumptions, estimates and complex valuation.
The industry in which we participate, providing inpatient and
outpatient hospital services, is subject to significant laws and
regulations, including those regulations relating to Medicare
and Medicaid programs. These regulations relate to such areas as
compliance with regulations relating to preparation and filing
of cost reports and claim submission, receipt of
disproportionate payments, and relationships with physicians.
These laws and regulations are subject to interpretation, which
may vary from time to time. We believe that our hospitals are in
substantial compliance with current federal, state and local
regulations and standards. However, we remain subject to
government review and regulatory oversight, the result of which
makes it difficult to estimate the adequacy and certainty of
reserves.
These uncertainties could impede the Boards ability to
make, and diminish the amount available, for distribution to our
stockholders. Substantial time may be required for us to
determine the extent of our liabilities to known third party
creditors and claimants and for us to settle or judicially
resolve any claims that are contested. Furthermore, pursuant to
the DGCL, we may be subject to claims being commenced against us
for liabilities unknown to us for potentially up to
10 years after dissolution. Assuming we effect the
Dissolution pursuant to Sections 280 and 281(a) of the
DGCL, a period of time, likely more than nine months but
potentially a significantly longer period, must elapse after the
Filing and commencement of the wind down process before we may
make any Additional Liquidating Distributions, if any, to allow
for the notice and claims process. Such distributions may be
made in more than one installment over an extended period of
time. See Proposal No. 2
Dissolution Plan of Dissolution and Estimate of Cash
Distributable to Stockholders.
18
Cash
distributions to stockholders could be substantially reduced and
delayed as part of our liquidation and dissolution due to the
pending ICD Investigation.
On March 12, 2010, the United States Department of Justice
(DOJ) issued a Civil Investigative Demand
(CID) to the Heart Hospital of New Mexico
(HHNM) regarding ICD implantations (the New
Mexico ICD Investigation). The CID was issued in
connection with an ongoing, national investigation relating to
ICDs and Medicare coverage requirements for these devices. The
CID requested certain documents and patient medical records
regarding the implantation of ICDs for the period 2002 to the
present. The Company has provided materials responsive to the
CID.
On September 17, 2010, consistent with letters received by
other hospitals and hospital systems, DOJ sent a letter
notifying the Company of DOJs investigation of eight
Company hospitals regarding ICD implantations (together with the
New Mexico ICD Investigation, the ICD
Investigation). In its letter, DOJ stated that its review
was preliminary and its data suggests that Company hospitals may
have submitted claims for ICDs and related services that were
inconsistent with Medicare policy.
Based upon our legal advisors discussions and meetings
with DOJ, the primary focus of the investigations involves ICDs
implanted since October 1, 2003 within prohibited
timeframes (
i.e.
, timeframe violations). A
timeframe violation involves an ICD implanted for
primary prevention (
i.e.
, prevention of
sudden cardiac death in patients without a history of induced or
spontaneous arrhythmias) within 30 days of a myocardial
infarction, or within 90 days of a coronary artery bypass
graft or percutaneous transluminal coronary angioplasty. The
timeframes do not apply to ICDs implanted for secondary
prevention (
i.e
., prevention of sudden cardiac
death in patients who have survived a prior cardiac arrest or
sustained ventricular tachyarrhythmia).
On November 19, 2010, DOJ provided the Company a
spreadsheet detailing instances (based upon DOJs data) in
which an ICD was implanted at the eight Company hospitals in
potential violation of the applicable timeframes. The data
provided by DOJ is raw, and we understand that, as
of this date, such data had not been analyzed by DOJ.
Additionally, DOJ confirmed that some of the ICDs identified in
its data as alleged timeframe violations were in fact
appropriately implanted and billed to Medicare, including those
implanted for secondary prevention.
On February 17, 2011, legal counsel for the Company and
HHNM met with representatives of DOJ to discuss the
agencys review of the patient medical records provided in
response to the CID. In addition to discussing DOJs review
process, DOJ reconfirmed that certain ICD implantations were not
being examined by the agency. As noted above, these include
implantations prior to October 1, 2003 and implantations
for secondary (rather than primary) prevention. With respect to
primary prevention implantations, we discussed clinical comments
supporting the implantations, and agreed to additional meetings
and presentations regarding those implantations for other
Company hospitals. In that regard, the Company has engaged a
physician-expert to assist with patient medical record reviews.
During the period March 2011 through July 2011, legal counsel
for the Company has met on three occasions with representatives
of DOJ to discuss the investigation and present preliminary
findings regarding an internal review of a Company hospital
other than HHNM. These preliminary findings were submitted to
DOJ, and reviewed by its experts, and continue to be discussed
by the parties. The Company intends to similarly present and
submit findings for its other hospitals under investigation.
As discussed above, the Company has complied with all requests
from DOJ for information, is actively engaged in discussions
with DOJ regarding the issues involved in the investigations,
and continues developing and presenting arguments supporting the
ICD implantations. Pursuant to DOJs request, the Company
has entered into a tolling agreement that tolls the statute of
limitations for allegations related to ICDs until October 2011.
To date, DOJ has not asserted any claims against the Company and
we expect to continue to have input into the investigation.
Because the investigation is in its early stages, however, the
Company is unable to evaluate the outcome of the investigations.
As such, the estimates of the First Liquidating Distribution and
the Additional Liquidating Distributions do not include an
estimate or reserve for any liability arising from the ICD
Investigation. Total ICD revenue is a material component of
total net patient revenue and this investigation, and any
resulting liability, may have a material adverse effect on the
Companys financial condition, results of operation and on
the amounts available for distribution to our stockholders.
19
If our
contingent reserves are insufficient to satisfy our liabilities,
creditors could assert claims against us seeking to prevent
distributions or against our stockholders to the extent of
distributions received.
If a court holds at any time that we have failed to make
adequate provision for our expenses and liabilities or if the
amount ultimately required to be paid in respect of such
liabilities exceeds the amount available from the contingency
reserve, our creditors could seek an injunction against the
making of distributions on the grounds that the amounts to be
distributed are needed to provide for the payment of our
expenses and liabilities. Any such action could delay or
substantially diminish the amount of any cash distributions to
stockholders.
If we fail to create an adequate contingency reserve for payment
of our expenses and liabilities, creditors could assert claims
against each stockholder receiving a distribution for the
payment of any shortfall, up to the amounts previously received
by the stockholder in distributions from us.
Our
stockholders could approve the Dissolution Proposal but vote
against the Asset Sale-Complete Liquidation
Proposal.
The Asset Sale-Complete Liquidation Proposal and the Dissolution
Proposal are independent proposals. A vote for or against one of
these proposals does not count as a vote for or against the
other. However, our Board of Directors believes that the Asset
Sale-Complete Liquidation Proposal and the Dissolution Proposal
are integral parts of the Board of Directors overall plan
to maximize stockholder value. In the event our stockholders do
not approve both the Asset Sale-Complete Liquidation Proposal
and Dissolution Proposal, our Board of Directors will consider
whether to proceed with the transactions and processes
contemplated by these two proposals and may, in its sole
discretion, decide not to implement either proposal.
If the Dissolution Proposal is approved but (i) the Asset
Sale-Complete Liquidation Proposal is not approved by our
stockholders or (ii) sales of our Remaining Assets are not
successfully consummated, then our Board of Directors, in
accordance with its fiduciary duties, may determine not to make
the First Liquidating Distribution or any Additional Liquidating
Distributions or to make no liquidating distributions until
after the Filing, or may materially reduce the amount of the
First Liquidating Distribution or any Additional Liquidating
Distributions prior to the Filing. However, our board of
directors may also elect to make the Filing and to proceed with
the Dissolution and take such actions as it deems advisable and
in the best interests of our stockholders to dispose of
MedCaths assets in a manner designed to maximize
stockholder value and that complies with applicable law.
If the Dissolution Proposal is approved by our stockholders, but
the Asset Sale-Complete Liquidation Proposal is not approved,
the Board of Directors currently intends to make the Filing and
will have the authority under the DGCL to complete the sale of
our Remaining Assets on any terms it determines are in the best
interest of our stockholders, without stockholder approval
following the Filing but no dividend or other distributions may
be made prior to its Filing.
The
Board of Directors may determine not to proceed with the
Dissolution.
Even if the Dissolution Proposal and the Asset Sale-Complete
Liquidation Proposal are approved by our stockholders, the Board
of Directors may determine, in the exercise of its fiduciary
duties, not to make the Filing or to proceed with the
Dissolution. If our Board of Directors elects to pursue any
alternative to the Plan of Dissolution, our stockholders may not
receive any of the funds currently estimated to be available for
distribution to our stockholders. See
Proposal No. 2
Dissolution Revocation of the Plan of
Dissolution.
Our
stockholders will not be able to buy or sell shares of our
common stock after we close our stock transfer books on the date
on which we make the Filing.
We currently intend to close our stock transfer books and
discontinue recording transfers of our common stock on the date
on which we make the Filing with the Delaware Secretary of State
(the Dissolution Effective Date). After we close our
stock transfer books, we will not record any further transfers
of our common stock on our books except by will, intestate
succession or operation of law. Therefore, shares of our
20
common stock will not be transferable after the Dissolution
Effective Date. All distributions after the Dissolution
Effective Date will be made to our stockholders pro rata
according to their respective holdings of common stock as of the
Dissolution Effective Date. We intend to provide our
stockholders notice of the date we intend to make the Filing
with the Delaware Secretary of State by public announcement and
by filing a current report on
Form 8-K,
no less than 20 calendar days prior to the Filing.
The
directors and officers of the Company will continue to receive
benefits from the Company following the sale of all or
substantially all of the Remaining Assets, the Complete
Liquidation and the Dissolution.
Following the Filing, we will continue to indemnify each of our
current and former directors and officers to the extent
permitted under the DGCL and the Companys certificate of
incorporation, bylaws and agreements as in effect at the time of
the Filing. In addition, we intend to maintain directors
and officers insurance coverage throughout the wind down
period. See Proposal No. 2
Dissolution Indemnification of Directors and
Officers.
We
will continue to incur the expenses of complying with public
company reporting requirements.
We have an obligation to continue to comply with the applicable
reporting requirements of the Securities Exchange Act of 1934,
as amended (the Exchange Act), even though
compliance with such reporting requirements is economically
burdensome. In order to curtail expenses, we currently intend,
after the Filing, to seek relief from the SEC from the reporting
requirements under the Exchange Act. However, the SEC may not
grant any such relief, in which case we would be required to
continue to bear the expense of being a public reporting company.
We can
abandon or revoke the Dissolution and this will cause prior
distributions made in liquidation to be treated as
Dividends.
By approving the Dissolution Proposal, stockholders will also be
granting the Board of Directors the authority, notwithstanding
stockholder approval of the Dissolution Proposal, to abandon the
Dissolution prior to the Filing without further stockholder
action, if the Board of Directors determines that liquidation
and dissolution are not in the best interests of the Company and
our stockholders. After the Filing, the Board of Directors may
revoke the Dissolution if holders of a majority of the voting
power of the Companys common stock entitled to vote on the
Dissolution Proposal approve a resolution adopted by the Board
of Directors recommending such revocation. If the Dissolution is
abandoned or revoked, then all prior distributions made in
liquidation to stockholders may be treated as dividends to the
extent of the Companys earnings and profits. Dividends are
currently taxed at a maximum rate of 15%, but the maximum tax
rate for dividends is scheduled to increase to 39.6% in 2013.
Also, starting in 2013 the Medicare tax of 3.8% will apply to
dividend income for high income individuals, estates and most
trusts. For individuals, high income is income in excess of
modified adjusted gross income of between $125,000 and $250,000
depending on the individuals circumstances. Dividends in
excess of the Companys earnings and profits would be tax
free to stockholders to the extent of their tax basis in their
shares, and thereafter would be taxable as capital gains.
21
BACKGROUND
OF THE ASSET SALE-COMPLETE LIQUIDATION PROPOSAL AND THE
DISSOLUTION PROPOSAL
General
This section provides general background of the Asset
Sale-Complete Liquidation Proposal and the Dissolution Proposal.
For background relating to each of the transactions previously
closed by the Company since the establishment of the strategic
options committee, see Background of the Asset
Sale-Complete Liquidation Proposal and the Dissolution
Proposal Completed Transactions.
Over the last several years, due substantially to (i) lack
of growth in the Companys share price and earnings and
(ii) legislative proposals which, if adopted, would
severely restrict the Companys business model which is
based upon the development and ownership of additional
physician-owned hospitals, the Company began to explore new
strategies for growth in order to enhance its financial
performance and increase stockholder value. Specifically, the
legislative proposals, while grandfathering existing
physician-owned hospitals, eliminate the right to develop
additional physician-owned hospitals and effectively prohibit
existing physician-owned hospitals from expanding their number
of operating rooms, procedure rooms,
and/or
beds,
and from increasing the existing number of physician-investors
(the Legislative Reforms).
As a part of this effort to enhance its financial performance
and increase stockholder value, in October 2009, the Board of
Directors established a Strategic Assessment Committee (the
Assessment Committee) comprised of independent
directors to review and assess growth strategies and
opportunities for the future. The Assessment Committee consisted
of Woodrin Grossman, James A. Deal, Robert S. McCoy, Jr.,
Edward R. Casas, M.D. and Jacque J. Sokolov, M.D. In
connection with that effort, the Assessment Committee also began
to solicit proposals from prospective external advisors to
assist in this review and assessment.
In October 2009, the Assessment Committee held numerous meetings
with management aimed at developing a sustainable business model
in light of the Legislative Reforms and market forces
threatening the Companys ability to enter into new
partnerships with physicians to develop and own hospitals. The
Assessment Committee reviewed the possible retention of external
advisors to assist the Committee in evaluating the
Companys existing business model and new models for the
development or acquisition of hospitals. The Assessment
Committee considered Navigant Consulting, Inc. (Navigant
Consulting) at the suggestion of a member of the
Assessment Committee who, in connection with an unrelated
company, had previously worked with a consultant who was now an
employee of Navigant Consulting. The member of the Assessment
Committee suggested that Navigant Consulting had unique
expertise that suited the Companys current needs. In
connection with the Assessment Committees review,
Dr. Casas reminded the Committee that he was employed by
Navigant Consulting, serving as a Senior Managing Director and
Practice Leader for Navigant Capital Advisors, the firms
corporate finance business unit, and that he was also an officer
of Navigant Capital Advisors, LLC (NCA), a
subsidiary of Navigant Consulting. Accordingly, Dr. Casas
recused himself from all discussions and determinations as to
the retention of the external advisor. Dr. Casas informed
the Assessment Committee that the practice area of Navigant
Consulting that would advise the Assessment Committee was a
separate business segment from the Navigant Capital Advisors
business unit, that neither NCA nor Dr. Casas would receive
any compensation related to the engagement of Navigant
Consulting and that Dr. Casas would not be involved in the
negotiation of the terms of the engagement or the provision of
services to the Company.
At its meeting on October 14, 2009, the Assessment
Committee (without Dr. Casas voting or participating in the
discussions) determined, following discussion with management,
to recommend to the Board of Directors that the Company retain
Navigant Consulting. Another external advisor was reviewed and
considered, but the Assessment Committee determined that
Navigant Consulting would best serve the needs of the Assessment
Committee due to their extensive expertise and experience with
healthcare and physician-owned ventures. As part of its
deliberations, the Assessment Committee considered the
possibility of a conflict of interest as a result of
Dr. Casas relationship with Navigant Consulting.
After considering the qualifications of Navigant Consulting,
other relevant factors and the information provided by
Dr. Casas, the Board of Directors determined (without
Dr. Casas voting or participating in the discussions), to
retain Navigant Consulting.
22
Between November 2009 and February 2010, the Assessment
Committee met periodically with management and advisors present
to continue evaluating the Companys business model and
strategic options. The Assessment Committee considered several
potential growth opportunities and strategic options aimed at
increasing earnings
and/or
increasing stockholder value, including the following
growth-related options: (i) the development of new joint
venture hospitals, (ii) the purchase of physician interests
in the Companys existing joint ventures, (iii) the
acquisition of existing third-party owned hospitals and
(iv) the commencement of several physician integration
strategies, including the purchase by the Company of certain
physicians practices directly and seeking partnerships
with other area hospitals. The Assessment Committee determined,
with the advice of Navigant Consulting, that option (i) was
not viable due to, among other reasons, the significant risks
arising from the Legislative Reforms and the possible direction
of proposed healthcare reform, and that options (ii) and
(iii) above were not viable because of, among other
reasons, their cost-prohibitive nature, given the market
limitations on accessing additional capital. Accordingly, the
Assessment Committee and management viewed option (iv) as
the only potentially viable option for consideration by the
Company.
The Assessment Committee discussed with management and Navigant
Consulting the substantial risks involved in focusing on
physician integration strategies (including the acquisition of
individual physician practices and seeking partnerships with
other area hospitals) as a catalyst for growth, such as the
time-consuming nature of pursuing and completing such
transactions and the difficulty of implementation because of, in
part, the changing regulatory and reimbursement rules which are
leading physicians to affiliate with larger, general hospitals
rather than specialty hospitals (such as those owned by the
Company). The Assessment Committee directed Navigant Consulting
to further investigate and provide additional insights with
respect to both the potential for the Companys pursuit of
physician integration strategies and seeking partnerships with
other area hospitals (option (iv) above) and alternative
non-growth related strategic options through which the Company
might maximize stockholder value. Management also expressed
concern to the Assessment Committee over whether revenue growth
could be achieved even with the pursuit of physician integration
strategies.
During January 2010 the Assessment Committee, together with the
Board of Directors and management, considered and evaluated the
Companys strategic options to maximize stockholder value,
including the Companys pursuit of physician integration
strategies and the possible sale of the Company or its assets.
Navigant Consulting and one of the investment banks the Company
had retained in the past participated in a February 2, 2010
Board of Directors meeting to discuss the exploration of
strategic options to maximize stockholder value. The Board of
Directors also requested that management present its
recommendations regarding strategic options to maximize
stockholder value at the meeting.
At its February 2, 2010 meeting, the Board of Directors
reviewed with representatives of Navigant Consulting and the
investment bank referred to above possible strategic options for
maximizing stockholder value, related financial and tax issues
and, on a preliminary basis, the ranges of possible share value
to be realized in connection with a sale of the Company or its
assets. The investment bank had not been retained by the Board
of Directors and participated in the discussion on an informal
basis due to its prior relationship with the Company and in
anticipation that they may be considered for a future engagement
if the Board of Directors determined to pursue certain strategic
options. Management also made a presentation regarding strategic
options for maximizing stockholder value at the February 2,
2010 meeting. Management described the Companys current
business model and the challenges posed by both the Legislative
Reforms and the difficulties and risks in implementing physician
integration strategies. Management identified a number of
factors for the Board of Directors consideration,
including (i) the challenges and risks involved with
transforming MedCath away from its historic physician
partnership model, noting that efforts to date to expand its
hospitals and affiliated medical staffs had not resulted in
earnings growth, (ii) reductions in physician reimbursement
for 2010 which management believed would likely encourage its
physician partners to elect to affiliate or integrate with
larger, more diversified hospital systems, (iii) the
inability to develop new physician owned hospitals, or to expand
existing hospitals, due to the Legislative Reforms,
(iv) changes in medical technologies which led to a
relative increase in outpatient procedures with lower hospital
reimbursement and a corresponding decrease in inpatient
procedures, (v) a general decrease in cardiology related
hospital procedures due to improvements in cardiac care, and
(vi) the risks of failing to meet financial covenants in
that certain
23
Amended and Restated Credit Agreement dated as of
November 10, 2008 among the Company, MedCath Holdings
Corp., the other guarantors party thereto, Bank of America,
N.A., as administrative agent (BofA), Wells Fargo
Bank, National Association (as successor to Wachovia Bank,
National Association), Fifth Third Bank, Raymond James Bank FSB
and Branch Banking and Trust, and the other lenders party
thereto (the MedCath Credit Agreement) in the
long-term if new growth opportunities were not developed
successfully. Management also reviewed with the Board of
Directors each of the Companys individual hospitals. For
these reasons and other reasons, including lack of growth in the
Companys share price and earnings, management recommended
to the Board of Directors that it consider a merger of the
Company or other enterprise-level transaction or a sale of its
individual assets.
The Companys outside legal advisor made a presentation to
the Board of Directors regarding its fiduciary duties in the
context of a possible merger of the Company or other
enterprise-level transaction or a sale of its individual assets
at the February 2, 2010 meeting. The Board of Directors
decided to reconvene later in February to give each Board member
an opportunity to consider the reports, analyses and
recommendations provided in connection with the Board of
Directors evaluation of strategic options available to the
Company.
The Board of Directors met on February 19, 2010 to further
discuss the possible strategic options for the Company. The
Board of Directors further discussed and reviewed all of the
reports, analyses and recommendations of management and the
Companys advisors and unanimously concluded that it was in
the best interests of the Companys stockholders to further
explore simultaneously considering a sale of the Company and
sales of its individual assets. The Board of Directors
determined to retain a qualified financial advisor to assist the
Board of Directors with respect to the exploration of such a
transaction or transactions. The Board of Directors discussed
the merits of retaining various financial advisors to assist
with such a possible transaction or transactions.
Because of the possibility that NCA might be considered for
retention as a financial advisor, Dr. Casas recused himself
from all discussions and determinations as to the retention of
the financial advisor. In addition, Dr. Casas committed
that in connection with any such retention, he would not
negotiate with the Company the terms of NCAs possible
engagement and that, if NCA were to be selected by the Board of
Directors as a financial advisor, Dr. Casas would resign
from the Board of Directors in order to avoid a possible
conflict of interest.
During the February 19, 2010 meeting, the Board of
Directors (other than Dr. Casas) considered proposals from
four financial advisors and management provided an overview of
each of the financial advisors, including their respective
qualifications and a comparison of their fee proposals. After a
discussion regarding the needs of the Company and the
qualifications of each financial advisor, the Board of Directors
concluded that NCA was best qualified to advise the Company,
primarily due to NCAs significant advisory experience
involving healthcare companies with physician-partnership
business models and the associated operational and regulatory
challenges, along with experience advising on sales of
individual hospitals and other individual health care
facilities. The Board of Directors also determined that if the
Company were to be sold through a strategy involving individual
asset sales followed by a dissolution of the Company rather than
a merger or other enterprise-level transaction, NCA had the
capability to offer assistance during that process. Furthermore,
the Board of Directors believed that Dr. Casas would be
uniquely skilled at interacting with individual physician
partners based upon his professional background as a physician
and his familiarity with the Companys business. In light
of these factors, the Board of Directors unanimously (with
Dr. Casas not voting or participating in the discussions)
authorized the Companys engagement of NCA, subject to a
number of conditions, including that Dr. Casas resign from
the Board of Directors and not participate in the negotiations
with the Company related to NCAs engagement, that NCA not
be requested to and not render any fairness opinion in
connection with any of the anticipated transactions and that if
it were determined to seek such a fairness opinion or opinions,
the Company engage another financial advisor to render the
fairness opinions.
At the February 19, 2010 meeting, the Board of Directors
formed a Strategic Options Committee (the Committee)
comprised of the following independent directors:
Messrs. Grossman, McCoy, Deal and Dr. Sokolov, with
Mr. Grossman as its chairman. The Committee was directed to
work with the Companys advisors to pursue, consider and
evaluate strategic options available to the Company. The
Committee was
24
given the further authority to negotiate the terms of a
transaction or transactions, subject to the final approval of
the full Board of Directors with respect to each such
transaction.
On February 25, 2010, the Committee met for the first time.
The Companys outside legal advisor advised the Committee
members regarding their fiduciary duties to the Company and its
stockholders in the context of a possible sale of the Company or
its individual assets. Management reported to the Committee that
it had negotiated the terms of NCAs engagement as
financial advisor, which terms included a reduction of
NCAs original fee proposal. The Committee approved the
engagement of NCA subject to the conditions previously mandated
by the Board of Directors. On February 25, 2010,
Dr. Casas resigned from the Board of Directors.
The Committee met on March 8, 2010. At this meeting, NCA
presented significant aspects of a recommended strategy and
proposed a timeline for the process. NCA also presented
preliminary observations as to potential bidders for the entire
Company and for individual assets. The Committee reviewed with
NCA and management the recommended strategy and process, as well
as communication strategies with hospital teams and physician
partners.
During March and April 2010, the Committee received updates from
NCA on preparation of a data room, drafts of Confidential
Information Memoranda and the compilation of preliminary lists
of potential buyers for both the entire Company and for its
individual assets.
On March 29, 2010, the Committee met, with NCA, management
and legal advisors present. The Committee, management and NCA
discussed the merits of a stock buyback of a portion of our
outstanding common stock, an action which one of the
Companys major stockholders had asked to be considered.
Committee members expressed concern as to whether a buyback
would be in the best interests of the Company and the
stockholders at that time. The Committee agreed that additional
advice would be sought on the issue and the matter would be
discussed again at a later meeting.
The Committee also discussed the possibility of seeking an
amendment to certain financial covenants and other requirements
of the MedCath Credit Agreement to provide additional financial
and liquidity flexibility if the individual assets of the
Company were to be sold in separate transactions, rather than a
sale of the entire Company in a single transaction.
Mr. James A. Parker, the Companys Executive Vice
President and Chief Financial Officer, had responsibility for
developing the terms of the proposed amendment for the Committee
and for negotiating such terms with BofA once the terms of a
proposed amendment, in particular those relating to the
application of proceeds of individual asset sales, were approved
by the Committee.
On April 7, 2010, the Committee met, with NCA and the
Companys legal advisors present. The Committee reviewed
the need to limit retained and other post-closing liabilities if
the strategic option of pursuing individual asset sales and
dissolution of the Company was to be pursued. The Committee
discussed the importance of limiting post-closing liabilities in
the individual asset sale transactions to the extent possible to
facilitate an efficient wind down of the Company and to maximize
stockholder value.
On April 19, 2010, the Committee met, with management, NCA
and the Companys legal advisors present. NCA briefed the
Committee on NCAs marketing efforts and indicated that NCA
planned to begin delivery of the Confidential Information
Memoranda during the last two weeks of April 2010. The Committee
also discussed a preliminary draft memorandum on tax issues
prepared by the Companys special tax counsel.
NCA presented to the Committee its preliminary estimates, which
were subject to certain identified qualifications and
limitations which materially affect the reliability and accuracy
of such preliminary estimates, of net distributable proceeds to
the Company and its stockholders which might result from the
cumulative sales of individual assets. The estimates included
initial entity valuation assessments, analysis of estimated net
proceeds to the Company from each entity disposition, assessment
of the tax situation and overall operating and wind down costs.
The estimates did not reflect estimates of potential contingent
liabilities, whether accrued as retained liabilities at the
corporate level or those retained by the partnerships or limited
liability companies that own our hospitals which may result from
or in connection with individual asset sales or otherwise. The
Committee discussed the estimates, and related analysis and
findings, including certain tax matters related to individual
asset sales and operating and wind down of the Company.
25
At this meeting, at every subsequent regular Board of Directors
meeting and at certain Committee meetings, following the
retention of NCA and throughout the strategic options evaluation
process, NCA updated the Board of Directors (or the Committee,
as applicable) regarding the status of developments involving
each individual hospital asset and negotiations with potential
buyers of each such asset and the estimates described in the
preceding paragraph. During and following NCAs
presentation at each such meeting, the Board of Directors
discussed with NCA and management strategic options and
developments involving the Companys individual assets and
the effect of such developments on the estimates.
The Committee also discussed at its April 19, 2010 meeting
the issue of whether a stock buyback was advisable. A
presentation was made by a representative of an investment
banking firm that had been requested to provide a presentation
to the Committee regarding a possible stock buyback due to its
expertise on such strategies. In addition to this firms
presentation, the Committee discussed legal issues which would
arise in connection with a stock buyback. The Committee reviewed
potential concerns regarding a stock buyback, including risks
regarding the Companys possible needs for liquidity during
the strategic options process and potential difficulties with
the disclosure requirements that might arise in connection with
the purchase of the Companys common stock at a time it was
attempting to confidentially negotiate sales of its assets or
the sale of the Company. The Committee determined that a stock
buyback was not an advisable strategy for the Company to pursue
under the circumstances at that time.
A Board of Directors meeting was convened on May 4, 2010.
NCA outlined the steps it had taken to contact and develop
strategies for dealing with potential buyers of both the entire
Company and its individual assets. NCA noted that based upon
preliminary feedback from potential bidders, individual asset
sales appeared likely to result in the realization of greater
value for the Companys stockholders when compared to the
value that would be realized from a merger of the Company or
other enterprise-level transaction. In addition to reviewing
preliminary feedback from potential buyers of the Companys
individual assets, the Committee reviewed with the Board of
Directors its deliberations regarding a possible stock buyback
transaction and the considerations raised in review of such
matter by Committee members, senior management, outside legal
advisors to the Company and NCA. The Committee reviewed its
determination that a stock buyback was not an advisable strategy
for the Company to pursue under the circumstances at that time,
and, following discussion, the Board of Directors concurred with
this determination.
On May 25, 2010, the Board of Directors met, with NCA,
management and the Companys legal advisors present.
Mr. Parker presented to the Board of Directors an update on
negotiations to revise the MedCath Credit Agreement, noting that
the key points under discussion with BofA included the asset
dispositions covenant, the EBITDA definition and the
fixed charge coverage ratio financial covenant. The Board of
Directors discussed the proposed revisions to the MedCath Credit
Agreement and instructed Mr. Parker to proceed with
finalizing the MedCath Credit Agreement amendments with BofA.
On June 2, 2010, the Board of Directors met, with NCA,
management and the Companys legal advisors present. NCA
updated the Board of Directors with respect to potential
transactions involving the Companys individual assets and
reported that to date 80 potential buyers had been contacted,
resulting in 52 executed confidentiality agreements, 25
indications of interest, 11 pending non-binding offers and 25
responses from potential buyers that they had no further
interest. NCA updated the Board of Directors on its solicitation
of proposals for a merger of the Company or other
enterprise-level transaction and related discussions with
numerous private equity firms and other companies, including
hospital companies and healthcare real estate investment trusts
(REITs). NCA reported that as of that time no viable
bids for the entire Company had been received. The Board of
Directors discussed various aspects of the strategic options
evaluation process with NCA and management, including the need
to continue to proactively manage relationships with the
Companys various physician partners at each of its
hospitals in connection with the strategic options evaluation
process.
On June 30, 2010, the Committee met, with NCA, management
and the Companys legal advisors present. Management
reported that negotiations with BofA to amend the MedCath Credit
Agreement to permit additional individual asset sales, provide
for a six-month moratorium on covenants related to the fixed
charge coverage ratio and revise the EBITDA definition were
proceeding and results were progressing. The
26
Committee then discussed the MedCath Credit Agreement amendment
and its timing and impact on the process of pursuing strategic
options with respect to the Companys individual assets.
The Committee discussed the status of individual asset sales
with NCA and management.
On July 20, 2010, the Committee met, with NCA, management
and the Companys legal advisors present. Management
updated the Committee on progress made negotiating an amendment
to the MedCath Credit Agreement with BofA. A proposed amendment
was slated for distribution to the banking syndicate for its
review and would also be presented to the Board of Directors for
approval. The Committee discussed the amendment to the MedCath
Credit Agreement and the status of individual asset sales with
NCA and management.
The Companys legal advisors then addressed several points
related to requirements of Delaware corporate law and the
potential dissolution process that would become relevant if the
Company pursued the strategic option of selling the
Companys individual assets, winding down and subsequently
dissolving the Company. The Companys legal advisors
advised the Board of Directors that special Delaware counsel
should be engaged to assist with this process. The Committee
discussed these issues and agreed that the issues regarding
dissolution would be further considered by the Board of
Directors at its August 23, 2010 meeting.
At the August 23, 2010 Board of Directors meeting, the
Companys legal advisors outlined steps to be taken by the
Company and its advisors if the Board of Directors decided to
seek a vote of the stockholders to approve the sale of all or
substantially all of the Companys assets and the
Companys dissolution. Mr. Grossman informed the Board
of Directors that the Committee had unanimously voted to
recommend to the Board of Directors the engagement of special
Delaware counsel. The Board of Directors discussed this
recommendation and unanimously approved such engagement.
At the September 8, 2010 Board of Directors meeting, the
Board of Directors discussed the status of individual asset
sales with NCA and management.
At the September 14, 2010 Board of Directors meeting, NCA
made a presentation related to the potential dissolution of the
Company, focusing on wind down issues, employee and management
incentives and related processes for facilitating an orderly
transition of MedCaths business to maximize stockholder
value. The Companys legal advisors discussed issues
related to the possible dissolution of the Company. The Board of
Directors was advised, given the nature of the Companys
business, of the importance of knowledge continuity when
considering potential governance structures as well as
management and staffing duties. The Companys special
Delaware counsel discussed the processes related to
creditors notices and the establishment and management of
reserves required to be maintained under the Delaware
dissolution statute.
Also at the September 14, 2010 Board of Directors meeting,
Mr. Parker presented managements recommendations for
maintaining its provision of hospital support and transition
services, including the possibility of outsourcing information
technology and billing services. Managements
recommendations focused on ensuring uninterrupted and
cost-effective support for any hospitals retained by the Company
as well as for those hospitals where the Company had agreed, or
may in the future agree, to provide transition services
following individual asset sales. Mr. Parker also reviewed
managements preliminary findings for estimated wind down
costs. Following further discussion of the dissolution process,
the Board of Directors requested that management continue to
develop a plan to include a summary of alternatives and costs of
operation during a possible dissolution and wind down period.
At the September 28, 2010 Board of Directors meeting, the
Board of Directors discussed the status of individual asset
sales with NCA and management. The Companys special
healthcare counsel described the status of the ICD
Investigation, and the Board of Directors discussed the ICD
Investigation with its legal advisors and management.
At the October 12, 2010 Committee meeting, the Committee
discussed the status of individual asset sales with NCA and
management.
At the November 3, 2010 Board of Directors meeting, the
Board of Directors discussed the status of individual asset
sales with NCA and management.
27
At the Board of Directors November 9, 2010 meeting,
the Companys special Delaware counsel provided an overview
of the DGCL relating to the dissolution and winding up of a
Delaware corporation, including a discussion of the rights,
duties and potential liabilities of directors in that process.
The Companys special Delaware counsel explained that
because the Company could significantly benefit from having its
directors and certain of its officers remain employed to guide
it through the remainder of the Companys strategic review
and possible dissolution process, the Board of Directors could
appropriately consider adopting additional director and officer
indemnification provisions consistent with those set forth in
the Companys certificate of incorporation. The
Companys special Delaware counsel advised the Board of
Directors to consider both indemnification agreements comparable
to those adopted by other public companies and amendments to the
Companys bylaws to ensure that indemnification rights
could not be eliminated in the future with respect to prior
periods. The Companys special Delaware counsel advised
that the rights in the proposed indemnification agreements and
bylaw amendment were consistent with what many other public
companies had adopted. The directors elected to take these items
into consideration, but made no decision about their adoption at
that time.
The Board of Directors also discussed the benefits of a merger
or other enterprise-level transaction involving the sale of the
whole Company once certain assets had been sold. The Board of
Directors acknowledged that such a transaction, if feasible,
would potentially expedite the realization of proceeds by the
Companys stockholders and simplify the strategic options
process. The Board of Directors agreed that the Committee had
the authority to continue to evaluate transaction options, and,
if feasible, pursue a merger of the Company or other
enterprise-level transaction as well as the sale of individual
assets.
At the November 23, 2010 Board of Directors meeting,
Mr. Grossman updated the Board of Directors on the
preparations by management and the Companys advisors to
effect the eventual conclusion of the strategic options process.
Multiple options were being explored, including
(i) additional individual asset sales followed by an
eventual dissolution and wind down of the Company and
(ii) additional individual asset sales followed by a
subsequent merger or other enterprise-level transaction at a
time at which the Company would still hold certain individual
assets, all retained liabilities and cash to capitalize the
retained liabilities. The Board of Directors discussed the
advantages and disadvantages of each strategy. Mr. Grossman
said that the Committee would continue to consider these options
with its advisors and keep the Board of Directors updated on
these alternatives.
At the Board of Directors December 21, 2010 meeting,
the Companys legal advisors reviewed the process through
which the Company might seek stockholder approval of both a sale
of all or substantially all of its assets and the dissolution of
the Company. Additionally, Mr. Parker and Mr. O. Edwin
French, the Companys President and Chief Executive
Officer, delivered a management presentation which
Mr. Grossman had requested regarding the Companys
continued consideration of a merger or other enterprise-level
transaction following the disposition of certain additional
individual assets. After discussions with its financial
advisors, the Board of Directors concluded that the Company
should continue to pursue this strategic option due to the
relative simplicity of a final, enterprise-level transaction
when compared to the complexity and duration of the dissolution
and wind down processes.
At the January 4, 2011 Board of Directors meeting, the
Companys legal advisors summarized healthcare regulatory
compliance issues related to possible sale transactions. The
Board of Directors discussed the status of on-going sale
negotiations and regulatory compliance issues with NCA,
management and the Companys legal advisors.
At the January 18, 2011 Committee meeting, the Committee
discussed the prospects for a transaction involving a business
combination and issues related to the wind down of the Company
following the sale of its assets.
At the February 1, 2011 Committee meeting, the Committee
also discussed with NCA and management NCAs efforts to
seek potential buyers interested in a business combination,
including the possibility of attempting to engage in a wider
solicitation of potential buyers that, through such a business
combination would be interested in assuming the wind down of a
properly capitalized Company with its limited remaining assets,
retained liabilities and cash.
28
At the February 8, 2011 Board of Directors meeting, the
Board of Directors discussed the prospects for a business
combination and strategic alternatives and issues to be
considered in connection with such a transaction as compared to
individual asset sales followed by a dissolution and wind down
of the Company. At that time there were no identified potential
buyers interested in pursuing such a business combination. The
Board of Directors also discussed with management and its
special healthcare regulatory counsel, the status of the ICD
Investigation and its impact on the Companys evaluation of
its strategic options.
At its March 1, 2011 meeting, the Board of Directors
discussed the Companys on-going sale processes and
authorized NCA to move forward with potential buyers of
individual assets.
At the March 24, 2011 Board of Directors meeting, NCA
presented to the Board of Directors the status of discussions
with potential buyers for each of the Companys remaining
individual assets. The Board of Directors discussed these
on-going negotiations with NCA and management. The Board of
Directors discussed with NCA and its legal advisors the possible
timing of distributions in the context of the Companys
prospective wind down, DGCL issues and tax considerations. The
Companys special healthcare regulatory counsel updated the
Board of Directors regarding the status of the ICD
Investigation. The Board of Directors discussed the ICD
Investigation and its impact on the strategic options under
exploration and prospective wind down of the Company with NCA,
management and its legal advisors. Management presented a
preliminary report to the Board of Directors describing
operational issues arising during the prospective wind down
process, including the need to maintain adequate corporate
support for so long as the Company continued to operate
individual assets. The Board of Directors discussed the
operational issues raised by management with management and
legal advisors.
At its April 12, 2011 meeting, the Board of Directors
discussed with the Companys legal advisors and management
anticipated securities filings and related timing requirements
arising from the execution of transaction documentation related
to the sales of the Companys assets.
At the May 10, 2011 Board of Directors meeting, in addition
to receiving its regular updates from NCA, the Board of
Directors discussed the retention of key employees through the
anticipated dissolution and wind down process. The Board of
Directors noted that while certain current executives were
likely to cease working for the Company in the coming months as
it was anticipated that such executives service to the
Company would not be required during the entire wind down
process, the dissolution and wind down process would require at
least a minimum level of experienced leadership to manage
through to completion. The Board of Directors also discussed the
status of the ICD Investigation and its impact on the wind down
process and the Companys ability to make distributions to
stockholders.
At its May 24, 2011 meeting the Board of Directors met with
its legal advisors, management and NCA to discuss the process of
seeking stockholder approval of a sale of all or substantially
all of the Companys assets and the liquidation and
dissolution of the Company pursuant to the DGCL. Following
discussion, the Board of Directors unanimously adopted
resolutions declaring the sale of substantially all of the
assets of Heart Hospital of New Mexico, the sale of the
Companys equity interest in Arkansas Heart Hospital, and
the liquidation and dissolution of the Company advisable and in
the best interests of the Companys stockholders, and
recommending that the stockholders vote in favor of each
proposal. The Board of Directors also unanimously adopted
resolutions approving the filing of the preliminary proxy
statement.
On May 27, 2011, the Company filed the preliminary proxy
statement for its Annual Meeting with the SEC.
At its June 7, 2011 meeting, the Board of Directors
discussed the unsolicited feedback received by management from
certain of the Companys stockholders in response to the
preliminary proxy statement. The Board of Directors discussed
that a significant number of stockholders had expressed concern
with the restrictions on the liquidity of the Companys
common stock once its transfer books were closed (which would
occur upon the filing of a certificate of dissolution pursuant
to the proposed plan of dissolution described in the preliminary
proxy statement filed on May 27, 2011). Stockholders also
expressed concern that sales of significant amounts of the
Companys common stock by the Companys institutional
stockholders prior to the closing of the transfer books could
have a negative impact on the ability of the Company to benefit
from
29
certain income tax benefits related to the tax losses the
Company expects to incur after the completion of the sale of all
or substantially all of the Remaining Assets (the Tax
Attributes). As a result of these concerns, a number of
stockholders, who in the aggregate hold a significant number of
shares of the Companys common stock, had indicated that
they were unlikely to vote in favor of the dissolution proposal.
Following discussion, the Board of Directors determined that it
would be in the best interests of the Company and our
stockholders to remove the dissolution proposal from the proxy
statement and to seek approval of the liquidation and
dissolution of the Company from our stockholders at a later date.
The Companys special Delaware counsel then made a
presentation to the Board of Directors describing the
ramifications of adopting a Section 382 stockholders rights
plan to protect the Companys Tax Attributes. Such a plan
was designed to reduce the likelihood of an ownership
change, as defined in Section 382 of the Internal
Revenue Code of 1986, as amended, by restricting or deterring
the acquisition of the Companys common stock by existing
or potential 5% stockholders. The Board of Directors then
discussed the possibility of adopting a Section 382
stockholders rights plan to protect the Companys Tax
Attributes and the potential responses the Companys
stockholders may have to such a plan. Following discussion, the
Board of Directors directed management and the Companys
legal advisors to prepare a Section 382 stockholders rights
plan and related documentation for the Board of Directors to
review and consider in more detail.
At the June 13, 2011 Board of Directors meeting, the Board
of Directors reviewed the terms and provisions of the
Section 382 Rights Plan that had been prepared by the
Companys special Delaware counsel. The Board of Directors
was advised by the Companys financial officers that as of
June 13, 2011, the Company currently has Tax Attributes
which may entitle the Company to either reduce income taxes that
may otherwise become due or to seek a refund of income taxes due
with respect to the Companys current fiscal 2011 tax year
totaling up to as much as approximately $40,000,000 of tax
reductions. The Companys Chief Financial Officer reviewed
the Companys financial records with the Board of Directors
and advised the Board of Directors that the Company could pay
the rights dividend contemplated by the Section 382 Rights
Plan without violating the surplus requirements of the DGCL.
After discussion, the Board determined that it was in the best
interests of the Company and its stockholders to seek to
preserve for the Companys stockholders the value and
availability of the Tax Attributes by adopting the
Section 382 Rights Plan. In connection with its adoption of
the Section 382 Rights Plan, the Board of Directors
authorized a new series of Preferred Stock of the Company to be
designated the Series A Junior Participating
Preferred Stock and declared a dividend of one
Series A Junior Participating Preferred Stock purchase
right on each outstanding share of the Companys common
stock to be payable to holders of record as of the close of
business on June 29, 2011.
On June 16, 2011, the Company filed the revised preliminary
proxy statement for its Annual Meeting with the SEC.
On June 27, 2011, the Company filed the definitive proxy
statement for its Annual Meeting with the SEC and began mailing
copies to all stockholders entitled to vote at the Annual
Meeting.
On July 26, 2011, the Company held its Annual Meeting. At
the Annual Meeting, as part of the strategic options process,
the stockholders entitled to vote approved each of the New
Mexico Sale and the Arkansas Sale.
At its July 28, 2011 meeting the Board of Directors met
with its legal advisors, management and NCA to discuss the
process of seeking stockholder approval of proposals to
(i) sell all or substantially all of the Remaining Assets
as part of a plan of complete liquidation, and (ii) the
dissolution of the Company pursuant to the DGCL. Following
discussion, the Board of Directors unanimously adopted
resolutions declaring the (i) sale of all or substantially
all of the Remaining Assets as part of a plan of complete
liquidation, and (ii) the dissolution of the Company
pursuant to the DGCL advisable and in the best interests of the
Companys stockholders, and recommending that the
stockholders vote in favor of each proposal. The Board of
Directors also unanimously adopted resolutions approving the
filing of the preliminary proxy statement.
The Company closed each of the New Mexico Sale and the Arkansas
Sale effective as of August 1, 2011.
On August 5, 2011, the Company filed the preliminary proxy
statement for a Special Meeting with the SEC.
30
Agreements
entered into granting MedCath the authority to sell individual
hospitals
The operating agreements and limited partnership agreements
governing the limited liability companies and limited
partnerships which own the Companys affiliated hospitals
state that the hospital itself, and frequently the
Companys equity interest in the partnership or limited
liability company that own the hospital, cannot be sold without
the approval or consent of a
majority-in-interest
of the Companys physician partners in the applicable
hospital. Such approval is not required if the Company enters
into a merger of the Company or other enterprise-level
transaction under certain additional circumstances which were
reflected in certain of those agreements.
Accordingly, the consent of such physician partners is generally
a condition to the sale of the Companys hospital assets.
To provide, where possible, the Company with the authority to
negotiate and enter into binding sale agreements to sell its
hospital, the Company has entered into, and may in the future
enter into, agreements with its physician partners under which
the Company receives the authority to select a hospital
purchaser and to agree to binding transaction terms and
conditions, in exchange for a commitment from the Company to the
applicable physicians partners that they will receive no less
than the amount of their net unreturned capital contributions (a
Fixed Price) to the hospital upon the closing of the
applicable asset sale (each such agreement, a Consent
Agreement). If the physician partners pro rata share
of net sale proceeds, taking into consideration reserves for
liabilities known and unknown liabilities, exceeds that amount,
they would instead receive their pro rata share of net sales
proceeds (a Share of Net Proceeds). Such a Consent
Agreement may involve either the purchase of the equity
interests of the physician partners for a purchase price based
upon the amounts described above or a payment from the Company
to the applicable physician partners at the closing of the
applicable asset sale. If the amount due to physician partners
under a Consent Agreement is based upon a Share of Net Proceeds,
then it is anticipated that any contingent liabilities of the
applicable hospital incurred post-closing will be shared pro
rata by the Company and by the applicable physician partners. If
the amount due to physician partners under a Consent Agreement
is based upon a Fixed Price, then it is anticipated that any
contingent liabilities of the applicable hospital incurred
post-closing will be the responsibility only of the Company and
will not be shared with the applicable physician partners.
A Consent Agreement was entered into in August 2010 with respect
to the sale of TexSAn Heart Hospital (TexSAn) which
closed December 31, 2010. With respect to TexSAn, the
physician partners sold their equity interests to the Company
based upon a Share of Net Proceeds. See Background of the
Asset Sale-Complete Liquidation Proposal and the Dissolution
Proposal Completed Transactions TexSAn
Heart Hospital below.
Consent Agreements have also been entered into with physician
partners at three of the Companys hospitals, including
Hualapai Mountain Medical Center (HMMC), Bakersfield
Heart Hospital (BHH) and Louisiana Medical
Center & Heart Hospital (LMCHH), though no
agreement to sell any of those hospitals has been entered into
as of the date of this proxy statement. The terms of future
Consent Agreements may be equivalent to or may vary materially
from the Consent Agreements described above.
Completed
Transactions
Arizona
Heart Hospital
Due to a decline of earnings and local market challenges
experienced during 2008 and 2009, the Company began exploring a
possible sale of Arizona Heart Hospital (AzHH) in
2009. This effort pre-dated and was initially unrelated to the
commencement of the Companys Strategic Assessment
Committee process. As a part of this process, the Company
engaged Cain Brothers & Company, LLC (Cain
Brothers), an investment bank, in February, 2009. Cain
Brothers has expertise in the healthcare area and had
successfully assisted the Company in prior years with respect to
the sale of the Companys Milwaukee Heart Hospital and a
refinancing of the Harlingen Medical Center.
On October 30, 2009, management reported to the Assessment
Committee on available strategic options for improving
AzHHs declining financial performance
and/or
maximizing stockholder value by engaging in a transaction
involving this hospital. Management suggested several strategic
options should be considered,
31
including (i) implementation of a cash call and
recapitalization of AzHH, (ii) formation of a joint venture
with a another hospital or healthcare provider not currently
affiliated with AzHH or the Company, (iii) recapitalization
and continuation of on-going operations after unwinding the
existing arrangement with the Companys physician partners
at AzHH and (iv) an outright sale of the assets of AzHH.
Mr. French summarized the proposals received by Cain
Brothers to date involving strategic options for AzHH, including
potential asset sale transactions. Mr. David Bussone
(Mr. Bussone), Executive Vice President and
President, Operations Division, presented an operations plan and
budget for strategic options involving both continuing
operations at AzHH without consolidation and the Companys
acquiring all of the equity interests in AzHH from the physician
investors and continuing to operate the hospital. The Assessment
Committee discussed various strategic options involving AzHH and
instructed management to continue the consideration of strategic
options, including potential asset sale transactions, for AzHH
with the assistance of Cain Brothers.
Following the Board of Directors formation of the
Committee and the retention of NCA to act as the Companys
financial advisor in connection with the exploration of the
Companys strategic options in February 2010, the Committee
included AzHH among the individual assets which were within the
scope of NCAs engagement. At that time, the Cain Brothers
engagement had expired.
The Committee convened a meeting on March 29, 2010 at which
NCA presented a letter of intent (the Vanguard LOI)
with Vanguard Health Systems (Vanguard), which
contemplated the sale of substantially all of the assets of AzHH
for a purchase price of $32,000,000. The Committee directed NCA
to pursue the transaction described in the Vanguard LOI. The
approval of the Companys physician partners at AzHH was
required to approve the transaction terms set forth in the
Vanguard LOI under the terms of the operating agreement of AzHH.
, The physician investors consented on April 15, 2010 to
the sale of AzHH to Vanguard on the terms set forth in the
Vanguard LOI.
Despite providing the Vanguard LOI to the Company, Vanguard
indicated to the Company that it desired to proceed with the
purchase of AzHH contemporaneously with its purchase of the
medical practice of a group of physician investors in AzHH whose
physicians provide services to AzHH. Discussions between the
Company and the physician investors in the AzHH regarding the
proposed sale to Vanguard continued through July 2010. During
this time, the Committee, NCA and management monitored and
discussed the progress of the proposed transaction at the
Committees meetings and provided updates to the Board of
Directors.
In early August, 2010 Vanguard entered into an agreement to
purchase the medical practice of the physician investors in AzHH
out of a bankruptcy proceeding that had been initiated by the
medical practice of those physicians. On August 3, 2010,
the Board of Directors met and reviewed the proposed terms of
the sale of substantially all of the assets of AzHH to Vanguard.
The Board of Directors received NCAs analysis of net
proceeds expected to result from the sale of AzHH to Vanguard.
The Board of Directors also received a fairness opinion from
Houlihan Lokey Capital, Inc. (Houlihan Lokey) as to
the fairness to AzHH, from a financial point of view, of the
consideration to be received by AzHH in the sale of
substantially all of its assets to Vanguard, which was
$32,000,000, subject to working capital adjustments.
On August 6, 2010, the Company signed the AzHH purchase
agreement with Vanguard. The AzHH sale closed on October 1,
2010.
Yuma
Cardiac Catheterization Laboratory
On October 12, 2010, the Committee learned that the member
physicians at Southwest Arizona Heart and Vascular Center (the
Yuma Physicians, and, the Yuma Facility)
had expressed interest in exercising a contractual right of
first refusal which they held (ROFR) to buy the
Companys interest in the Yuma Facility. The contractual
ROFR called for a purchase price of $7,900,000 payable over two
years. The Yuma Physicians alternatively offered a one-time
payment of $7,000,000 in cash. The Committee and the Board of
Directors considered this alternative proposal conditioned on a
November 2010 closing. Following discussion among the Committee,
NCA and management, the Committee approved this proposal to sell
the Companys interest in the Yuma Facility.
32
The Board of Directors approved the proposed sale of the Yuma
Facility proposal on October 19, 2010. The Yuma transaction
closed on November 1, 2010.
Heart
Hospital of Austin
In 2009, Austin Heart, P.A., a medical practice and an affiliate
of the Companys physician partner and minority owner of
Heart Hospital of Austin (HHA), entered into an
agreement to be acquired by an affiliate of HCA, Inc.
(HCA and the Austin Physicians
Transaction). HCA is affiliated with St. Davids
Hospital, which was a competitor of HHA in the Austin, Texas
market. The Company subsequently entered into negotiations with
HCA to sell HHA to HCA. At the direction of the Board of
Directors, representatives of management also discussed the sale
of HHA with several other possible buyers, including owners of
other hospitals located in Texas. None of those parties elected
to actively pursue the purchase of HHA. Prior to the
commencement of the Companys decision to explore its
alternative strategic options, HCA and the Company explored a
hospital exchange whereby the Company would exchange HHA for an
operating hospital of HCA in a different market. After an
evaluation of the Companys broader strategic options, the
Board of Directors declined to pursue such an asset exchange. At
its meeting on January 14, 2010, the Assessment Committee
directed management to terminate negotiations regarding the
proposed asset exchange and to pursue only a sale of HHA or its
assets.
On February 2, 2010, the Board of Directors approved the
sale of substantially all of the assets of HHA to St.
Davids Healthcare Partnership L.P. (St.
Davids), an affiliate of HCA, for $83,800,000,
subject to customary post-closing adjustments (the HHA
Transaction). An asset purchase agreement was signed with
St. Davids on February 16, 2010. The Board of
Directors determined it did not require, and did not seek, a
fairness opinion with respect to HHA Transaction.
The closing of the HHA Transaction was delayed by information
requests from the Federal Trade Commission (the
FTC), which were made in response to the
Companys
Hart-Scott-Rodino
Anti-Trust Act (HSR) filing. The FTC reviewed
the HHA Transaction for several months.
In late October 2010, the FTC completed its review of the HHA
Transaction which allowed the HHA Transaction to subsequently
close on November 1, 2010.
South
Dakota
NCA began soliciting offers for the Companys 33.3% equity
interest in Avera Heart Hospital of South Dakota
(AHHSD) in connection with the Companys
exploration of strategic options in April 2010. Prior to the
sale, AHHSD was owned equally by the Company, Avera McKennan, a
South Dakota based health system (Avera), and
Northern Cardiology Institute (NCI), a group of
cardiologists based in South Dakota. Avera indicated to the
Company that it was interested in acquiring the Companys
indirect 33.3% equity interest in AHHSD (the AHHSD
Interest) shortly after the Company announced it was
considering strategic options. Under the terms of AHHSDs
limited liability company operating agreement, Avera along with
the Company and NCI, each held (i) approval rights over any
proposed sale of the equity interest or assets of AHHSD to a
third party and (ii) each held a right of first refusal to
purchase the AHHSD Interest for a purchase price equal to 33.3%
of the amount determined by multiplying five by the net income
of AHHSD for the 12 month period ended as of the most
recent calendar quarter. However, after the passage of the
Legislative Reforms, NCI was no longer legally permitted to
purchase the AHHSD Interest without causing AHHSD to lose its
Medicare provider number.
Between April and August 2010, NCA negotiated the terms of the
sale with Avera at the direction of the Board of Directors. In
addition, NCA continued to market the AHHSD Interest in
connection with a broader sale of MedCath. However, NCA noted
the challenges in obtaining a competing offer for AHHSD based
upon the fact that Avera had the right, under the operating
agreement entered into between the Company, Avera and NCI upon
the formation of the limited liability company which owned
AHHSD, to purchase the AHHSD Interest at a purchase price based
upon a valuation equal to five multiplied by the net income of
AHHSD for the twelve months prior to such purchase.
33
The terms of an equity purchase agreement (the AHHSD
Purchase Agreement) whereby Avera would purchase the AHHSD
Interest were finalized during August 2010, pursuant to which
the Company agreed to sell a subsidiary which was the owner of
the AHHSD Interest to Avera for cash consideration equal to
$20,000,000 adjusted based upon AHHSDs net working capital
as of closing. The AHHSD Purchase Agreement did not include an
indemnity provision for Averas benefit and included only
limited rights to make claims for damages in connection with
breaches of the AHHSD Purchase Agreement.
On August 23, 2010, the Board of Directors received a
fairness opinion from Houlihan Lokey as to the fairness to SFHM,
Inc., a subsidiary of the Company, from a financial point of
view, of the consideration to be received by SFHM, Inc. in the
sale of its indirect interest in AHHSD to Avera, which at such
time was estimated to be $20,000,000, subject to working capital
adjustments. The Board of Directors also received NCAs
analysis of net proceeds to be received in connection with the
sale of the AHHSD Interest to Avera. Following further
discussion, the Board of Directors voted to approve the sale of
the Companys interest in AHHSD to Avera.
The sale of the Companys AHHSD Interest to Avera closed on
October 1, 2010.
TexSAn
Heart Hospital
NCA began soliciting offers for TexSAn in connection with the
Companys exploration of strategic options in April 2010.
In connection with this process, NCA contacted over 30 parties
interested in evaluating all the hospital assets of MedCath and
seven potential buyers regarding their specific interest in
TexSAn. As a result, 20 parties executed confidentiality
agreements to receive a Confidential Information Memorandum for
all MedCath assets and four parties executed confidentiality
agreements to receive a Confidential Information Memorandum only
for TexSAn.
At the Committee meeting on June 30, 2010, NCA informed the
Committee that NCA had received four preliminary bids for
TexSAn. A fifth party had previously submitted a proposal
involving the acquisition of multiple MedCath hospitals but
subsequently withdrew its bid.
In order to avoid delays in its efforts to sell TexSAn arising
from the need to obtain required approvals from S.A.H.H.
Hospital Management, LLC and S.A.H.H. Investment Group, Ltd.,
the minority physician partners in TexSAn (collectively, the
TexSAn Physicians), the Company sought to enter into
a Consent Agreement (the TexSAn Consent Agreement)
with the TexSAn Physicians. See Background of the Asset
Sale-Complete Liquidation Proposal and the Dissolution
Proposal Agreements entered into granting MedCath
the authority to sell individual hospitals.
At its August 3, 2010 meeting, NCA reported to the Board of
Directors that two potential buyers were completing due
diligence and that NCA was negotiating with those third parties
in order to obtain the most favorable price and other material
terms for TexSAn. By August 15, 2010, one of the potential
buyers, Methodist Healthcare System of San Antonio, a
subsidiary of HCA (MHS), had confirmed the terms of
its offer, which was subject to final due diligence and included
a purchase price of $77,000,000 for substantially all of the
assets of TexSAn, which was greater than the purchase price
proposed by the other remaining potential buyer.
At the August 17, 2010 Committee meeting, the Committee
discussed the terms of the TexSAn Consent Agreement being
negotiated by NCA at the Committees direction with the
TexSAn Physicians. After consideration by the Committee and
discussion with NCA, management and the Companys legal
advisors, the Consent was approved by the Committee on
August 17, 2010.
On August 20, 2010, the Company executed the TexSAn Consent
Agreement with the TexSAn Physicians. NCA and the Companys
legal advisors, at the Committees direction, then sought
to complete the asset purchase agreement with MHS.
During September and October 2010, the Company and NCA continued
to negotiate the terms of the TexSAn asset purchase agreement
with MHS.
34
On November 5, 2010, the Board of Directors received a
fairness opinion from Houlihan Lokey as to the fairness to
TexSAn, from a financial point of view, of the consideration to
be received by TexSAn in the sale of substantially all of
TexSAns assets to MHS, which at such time was estimated to
be $76,193,850, subject to working capital adjustments and
certain de minimus obligations. The Board of Directors also
received NCAs analysis of net proceeds to be received in
connection with the sale of substantially all of TexSAns
assets to MHS. Following further discussion, the Board of
Directors voted to approve the sale of substantially all of
TexSAns assets to MHS.
The Company entered into a definitive agreement with MHS on
November 5, 2010. The final purchase price was reduced from
$77,000,000 to $76,250,000 as a result of further negotiations
between MHS and the Company regarding the terms of certain
contracts held by TexSAn. The Company submitted an HSR filing
for the TexSAn transaction to the FTC on November 11, 2010,
which was supplemented with amendments to the HSR filing on
November 29, 2010. Early termination of the HSR waiting
period was granted by the FTC on December 15, 2010. The
Company closed its sale of substantially all of TexSAns
assets to MHS on December 31, 2010.
MedCath
Partners
NCA began soliciting offers for MedCath Partners, LLC
(MedCath Partners) in connection with the
Companys exploration of strategic options in April 2010.
MedCath Partners focused on the ownership and management of
cardiac catheterization facilities in North Carolina and in
several other states. The material portion of MedCath
Partners assets and operations were in North Carolina and
were conducted pursuant to a the settlement agreement with the
State of North Carolina (the CON Settlement
Agreement) which provides that MedCath Partners nine
North Carolina cardiac catheterization labs are exempt from
North Carolina Certificate of Need requirements (the NC
Business).
At the April 19, 2010 Committee meeting, NCA reported that
it had made preliminary contact with six potential buyers of
MedCath Partners but only one confidentiality agreement had been
executed.
At the May 4, 2010 Board meeting, the Board discussed with
management and its legal advisors legal issues arising under
North Carolina law in connection with a prospective transaction
involving MedCath Partners, including whether the CON Settlement
Agreement was transferable to a third party. Following this
discussion, the Board instructed the Companys legal
advisors to research the matter further. By that time, NCA had
distributed Confidential Information Memoranda related to
MedCath Partners to two potential buyers.
At the June 30, 2010 Committee meeting, the Companys
legal advisors reported on recent meetings with North Carolina
officials regarding legal issues potentially raised by a
transaction involving MedCath Partners. Preliminary discussions
with North Carolina officials indicated that the Company could
sell MedCath Partners and the buyer would retain the benefits of
the CON Settlement Agreement. At this point, NCA had received
four preliminary bids for MedCath Partners. During July 2010,
two potential buyers conducted site visits and attended
management presentations in order to discuss and investigate
prospective transactions involving MedCath Partners.
At the August 3, 2010 Board of Directors meeting,
management informed the Board of Directors that certain of
MedCath Partners operations unrelated to the NC Business
were in the process of either being sold or terminated and
described the terms thereof. See Background of the Asset
Sale-Complete Liquidation Proposal and the Dissolution
Proposal Completed Transactions Yuma
Cardiac Catheterization Laboratory. NCA reported that two
potential buyers continued to perform due diligence on certain
of MedCath Partners operations.
At the September 28, 2010 Board of Directors meeting, NCA
reported to the Board of Directors that five potential buyers
were conducting due diligence on MedCath Partners.
Through October and November 2010, the Committee continued to
evaluate strategic options with respect to MedCath Partners.
From December 2010 through March 2011, the Company negotiated
the terms of a purchase with a potential buyer that had made a
favorable preliminary bid to purchase the NC Business of
35
MedCath Partners, subject to confirmatory due diligence and the
satisfaction of certain closing conditions. However, a
disagreement over specific closing conditions ultimately halted
the negotiations with this potential buyer. Additional bids from
two other potential buyers of MedCath Partners were received by
the Company, with an initial preliminary bid from a potential
buyer received on January 14, 2011 and a subsequent
preliminary bid received from DLP Cardiac Partners, LLC, an
affiliate of Historic Lifepoint Hospitals, Inc. and Duke
University Health System (DLP), on March 18,
2011. The Committee determined that the bid received on
January 14, 2011 was not viable because it also required an
unacceptable closing condition.
At the March 24, 2011 Board of Directors meeting, the Board
of Directors discussed the March 18, 2011 offer from DLP
with NCA, management and the Companys other advisors.
Following discussion, the Board concluded that the DLP offer
represented the preferable transaction relating to MedCath
Partners and instructed NCA to move forward with negotiations
with DLP.
During March and April 2011, DLP conducted due diligence on
MedCath Partners, and the Company and NCA negotiated the terms
of a purchase agreement with DLP (the MedCath Partners
Purchase Agreement) pursuant to which DLP would acquire
the assets of the NC Business of MedCath Partners (the DLP
Transaction) other than the Companys minority
interest in Coastal Carolina Heart, LLC, and a related cardiac
catheterization laboratory management agreement which involved a
relationship with New Hanover Regional Medical Center and area
physicians (the New Hanover Assets).
The terms of the DLP Transaction were negotiated during April
2011, pursuant to which the DLP offered to purchase the NC
Business, other than the New Hanover Assets, for $25,000,000,
with the Company retaining net working capital and liability for
pre-closing ownership and operations. The MedCath Partners
Purchase Agreement included limited indemnity provisions for
DLPs benefit related to the Companys ownership,
authority and good title to the assets and included limited
rights of DLP to make claims for damages upon the Companys
failure to satisfy pre-closing liabilities.
At its April 28, 2011 meeting, the Board of Directors
received a summary from NCA of the proposed terms of the DLP
Transaction and a fairness opinion from Stout Risius Ross, Inc.
(SRR) on the fairness to the Company from a
financial point of the consideration to be received by the
Company from the DLP Transaction. The Board of Directors voted
to approve the DLP Transaction subject to the Company completing
negotiations of the MedCath Partners Purchase Agreement. The
Board of Directors also approved the sale of the New Hanover
Assets to New Hanover Regional Medical Center, including the
cancellation of a management agreement, for total consideration
of $5,000,000 (the New Hanover Transaction).
Negotiation regarding all terms of the DLP Transaction were
completed, and the transaction closed, effective May 1,
2011. Negotiation regarding all terms of the New Hanover
Transaction were completed, and the transaction closed,
effective May 5, 2011.
Heart
Hospital of New Mexico
NCA began soliciting offers for HHNM in connection with the
Companys exploration of strategic options in April 2010.
The June Proxy included a proposal regarding the sale of
substantially all of the assets of HHNM and provided, among
other things, a description of the terms of the transaction, the
events leading up to the sale and the recommendation of the
Board of Directors to approve the sale. The stockholders of the
Company approved the proposal to sell substantially all of the
assets of HHNM at its Annual Meeting of Stockholders held on
July 26, 2011.
Effective August 1, 2011 the Company completed the sale of
substantially all of the assets of HHNM to Lovelace Health
System, Inc. (LHS) an affiliate of Ardent Health
Services. The transaction values HHNMs assets at
$119,000,000. The limited liability company that owned HHNM, of
which 74.8% is owned by the Company, retained its net working
capital. The Company anticipates receiving approximately
$62,000,000 in net proceeds from the transaction, including its
share of HHNMs cash, and after collection of all accounts
receivable, payment of all known liabilities, including taxes,
repayment of inter-company debt owed by HHNM to MedCath,
pro-rata minority interest payments and an allocation of
additional funds to the limited liability companys
minority partners by MedCath in consideration for such minority
partners consent to the
36
transaction that was required under the limited liability
companys Operating Agreement as a condition to entering
into this transaction. The limited liability company that owned
HHNM retains liability for pre-closing operations of the
hospital. The anticipated net proceeds do not include any
reserves for unknown or contingent liabilities retained by HHNM,
including without limitation any liability which may arise from
the New Mexico ICD Investigation.
Arkansas
Heart Hospital
NCA began soliciting offers for the Companys interest in
Arkansas Heart Hospital (AHH) in connection with the
Companys exploration of strategic options in April 2010.
The June Proxy also included a proposal regarding the sale of
the Companys 70.3% membership interest in the limited
liability company that owns AHH and provided, among other
things, a description of the terms of the transaction, the
events leading up to the sale and the recommendation of the
Board of Directors to approve the sale. The stockholders of the
Company approved the proposal to sell the Companys
interest in AHH at its Annual Meeting of Stockholders held on
July 26, 2011.
Effective August 1, 2011 the Company completed the sale of
its membership interest and management rights in AHH to AR-MED,
LLC, which is majority owned by Dr. Bruce Murphy, a
physician affiliated with Little Rock Cardiology Clinic, P.A.,
and a current investor in AHH. The transaction is based on the
hospitals valuation of $73,000,000 plus the Companys
percentage of the hospitals available cash. MedCath
anticipates receiving approximately $60,000,000 in net proceeds
from the transaction after closing costs and taxes. The net
proceeds anticipated to be received by MedCath includes
repayment of inter-company debt owed by AHH to MedCath. The
purchaser and Dr. Murphy have agreed to indemnify MedCath
for liabilities arising from the pre-closing operations of the
hospital, including, but not limited to any liability of AHH
arising from the ICD Investigation.
PROPOSAL NO. 1
SALE OF
ALL OR SUBSTANTIALLY ALL OF THE REMAINING ASSETS OF THE COMPANY
AND COMPLETE LIQUIDATION
We are seeking the approval of our stockholders of the sale of
all or substantially all of the Remaining Assets and the
Complete Liquidation of the Company.
The Asset Sale-Complete Liquidation Proposal and the Dissolution
Proposal are independent proposals. A vote for or against one of
these proposals does not count as a vote for or against the
other proposal. However, our Board of Directors believes that
the Asset Sale-Complete Liquidation Proposal and the Dissolution
Proposal are integral parts of the Board of Directors
overall plan to maximize stockholder value. In the event our
stockholders do not approve both the Asset Sale-Complete
Liquidation Proposal and the Dissolution Proposal, our Board of
Directors will consider whether to proceed with the transactions
and processes contemplated by these two proposals and may, in
its sole discretion, decide not to implement either proposal.
Remaining
Assets
The Board of Directors currently intends to continue to consider
a number of scenarios for disposing of the Remaining Assets to
maximize stockholder value. These scenarios include sales of the
Companys individual hospitals and other assets,
transactions that would involve the sale of the equity of our
subsidiaries holding those assets in one or more transactions or
a merger or other transaction involving the outstanding common
stock of the Company. The Board of Directors
determination(s) regarding these scenario(s) will include
consideration of seeking the highest purchase prices obtainable
under the circumstances, certainty and time periods for closing
sales of our Remaining Assets, the risk that the value of our
Remaining Assets will decrease over time and the costs of
continuing operations of a limited number of hospitals after the
Filing and other factors the Board of Directors deems relevant
to its determination. We cannot assure you which of these
37
scenarios, if any, will result from our strategic options
process or that our efforts to dispose of our Remaining Assets
will be successful or on terms favorable to us. Our Remaining
Assets include the following hospitals:
Bakersfield
Heart Hospital
The Company owns a 53.3% equity interest in Bakersfield Heart
Hospital located in Bakersfield, California (BHH)
and physician investors hold the remainder. The Company also
holds a first mortgage and security interest in all of the
assets of BHH.
Louisiana
Medical Center & Heart Hospital
The Company owns an 89.2% equity interest in Louisiana Medical
Center & Heart Hospital located in Lacombe, Louisiana
(LMCHH) and physician investors hold the remainder.
The Company also holds a first mortgage and security interest in
all of the assets of on LMCHH.
Hualapai
Mountain Medical Center
The Company owns an 82.5% equity interest in Hualapai Mountain
Medical Center located in Kingman, Arizona (HMMC)
and physician investors hold the remainder. The Company also
holds a first mortgage and security interest in all of the
assets of HMMC.
Harlingen
Medical Center
The Company owns a 34.8% equity interest in Harlingen Medical
Center Limited Partnership, the partnership that owns Harlingen
Medical Center located in Harlingen, Texas (HMC) and
a 36% equity interest in HMC Realty LLC, the limited liability
company that owns the underlying real estate of HMC (HMC
Realty). The remaining interests in HMC and HMC Realty are
owned by physician investors and Valley Baptist Hospital. The
Company does not hold a mortgage or security interest in the
assets of HMC or HMC Realty.
NCA began soliciting offers for the Remaining Assets in
connection with the Companys exploration of strategic
options in April 2010. Since that time, NCA has contacted
numerous potential buyers regarding their interest in each of
the Remaining Assets. Potential buyers who have been willing to
execute confidentiality agreements have received a Confidential
Information Memorandum relating to the hospital in which they
have an interest and have had opportunities to conduct due
diligence relating to such hospitals. As of August 4, 2011,
there are one or more potential buyers who have expressed
continued interest in acquiring each of the Companys
remaining hospitals and are continuing to conduct due diligence.
The timing and material terms upon which the Company may enter
into agreements to sell the Remaining Assets are uncertain and
subject to material change. Although no agreement has been
reached with respect to the sale of any of the Remaining Assets,
the Company is continuing to negotiate potential sales of these
assets with potential buyers and could reach agreement with
respect to the sale of some of the Remaining Assets prior to the
Special Meeting. The Company has not granted exclusive
negotiating rights to any of the potential buyers, though the
Company may commit to reimburse the out of pocket expenses of a
potential buyer that is willing to purchase a hospital but that
is not permitted to purchase such hospital because the hospital
is sold to another buyer.
Approval
of Asset Sale-Complete Liquidation Proposal
On July 26, 2011 the stockholders of the Company approved
(i) the New Mexico Sale and (ii) the Arkansas Sale.
Those transactions have since closed. The Board of Directors has
determined that in light of the closing of the New Mexico Sale
and the Arkansas Sale, each of which the Board of Directors
concluded (when coupled with prior asset dispositions by the
Company) constituted a sale of substantially all of the
Companys assets (See Background of the Asset
Sale-Complete Liquidation Proposal and the Dissolution
Proposal Completed Transactions), and
notwithstanding the approval by our stockholders of the New
Mexico Sale and the Arkansas Sale on July 26, 2011, it is
advisable to seek stockholder approval of the sale of all or
substantially all of the Remaining Assets, to one or more
potential buyers at a price and on such terms and conditions as
the Board of Directors deems to be fair to and in the best
interests of the Company
38
and its stockholders. We currently estimate that proceeds which
may be received by the Company in connection with the sale of
the hospitals included in our Remaining Assets in the aggregate
may be in the range of $82,641,000 to $93,398,000, however there
is no assurance that such amounts will finally be received by
the Company. If the Asset Sale-Complete Liquidation Proposal is
authorized by the requisite stockholder vote, we will proceed
with our strategic options review of, and seek to sell all of
our Remaining Assets.
As discussed in Background of the Asset Sale
Complete Liquidation Proposal and the Dissolution Proposal
and Proposal No. 2
Dissolution, the Board of Directors has determined that
the sale of all or substantially all of the Remaining Assets,
the Complete Liquidation and the Dissolution are in the best
interest of the Company and its stockholders. In connection with
the Dissolution and in order to make the First Liquidating
Distribution and any Additional Liquidating Distributions to the
stockholders prior to the closing of the stock transfer books in
connection with the Filing, the Company is seeking approval from
the stockholders of the sale of our Remaining Assets. While the
Company is negotiating with several potential buyers in an
effort to sell the Remaining Assets, as of the mailing of this
proxy statement, no definitive agreement has been reached with
any of these potential buyers for the sale of any of the
Remaining Assets. Although we currently intend to seek to
complete sales of our Remaining Assets as expeditiously as
possible, we cannot predict when or if the sale of all or
substantially all of the Remaining Assets will be consummated.
Since the price and terms of any future agreement for the sale
of our Remaining Assets are uncertain, we are seeking authority
to sell all or substantially all of our Remaining Assets to one
or more potential buyers at a price on such terms and conditions
as the Board of Directors deems to be fair to and in the best
interests of the Company and its stockholders. We currently
estimate that the proceeds which may be received by the Company
in connection with the sale of the hospitals included in our
Remaining Assets in the aggregate may be in the range of
$82,641,000 to $93,398,000, however there is no assurance that
such amounts will finally be received by the Company.
If this Asset Sale-Complete Liquidation Proposal and the
Dissolution Proposal are approved, we intend to make the First
Liquidating Distribution to our stockholders and seek to
complete the sale of our Remaining Assets. We currently expect
to use the net proceeds from the sale of all or substantially
all of the Remaining Assets to pay any outstanding liabilities
and obligations and establish a contingency reserve or make
other provision for any contingent liabilities that may exist
upon completion of the sale of all or substantially all of the
Remaining Assets or that otherwise become due as we wind down
our affairs. Following these actions, if our Board of Directors
determines in the exercise of its fiduciary duties that the
Additional Distribution Conditions have been satisfied prior to
the Outside Filing Date (as may be extended to the Extended
Filing Date), then the Company currently anticipates making one
or more Additional Liquidating Distributions to our stockholders
prior to the Filing and the Dissolution. We then intend to make
the Filing, proceed with the Dissolution and the wind down of
the Company and make one or more Additional Liquidating
Distributions. For more information on the First Liquidating
Distribution, the Additional Liquidating Distributions and the
Dissolution, see Proposal No. 2
Dissolution.
By approving this Asset Sale-Complete Liquidation Proposal, you
will be giving the Board of Directors the discretion to
negotiate and consummate the sale of all or substantially all of
the Remaining Assets in one or more transactions without further
approval by the stockholders. While the Board of Directors will
seek to negotiate a sale of the hospitals included in our
Remaining Assets at a price, in the aggregate, of not less than
a range of $82,641,000 to $93,398,000, there is no guarantee
that the Company will be able to (i) successfully
consummate the sale of all or substantially all of the Remaining
Assets at such a price or (ii) sell substantially all of
the Remaining Assets prior to the Filing and the Outside Filing
Date (as may be extended to the Extended Filing Date), if at all.
For discussion of the background of the sale of all or
substantially all of the Remaining Assets and information about
the Company, see Background of the Asset Sale-Complete
Liquidation Proposal and the Dissolution Proposal. For
discussion of pro forma financial information and certain
federal income tax consequences of the sale of all or
substantially all of the Remaining Assets, see
Proposal No. 2 Dissolution.
39
Material U.S. Federal Income Tax Consequences of the Sale of
All or Substantially all of the Remaining Assets
See Proposal No. 2
Dissolution Material U.S. Federal Income Tax
Consequences of the Complete Liquidation and Dissolution.
Absence
of Appraisal Rights
Under the DGCL, appraisal rights are not provided to
stockholders in connection with the sale of all or substantially
all of the Remaining Assets.
Reasons
for the Asset Sale-Complete Liquidation Proposal and the
Dissolution Proposal
In considering the sale of all or substantially all of the
Remaining Assets, the Complete Liquidation and the Dissolution,
the Board of Directors considered the terms of the Plan of
Dissolution and the dissolution process under the DGCL, as well
as other available strategic options. As part of the Board of
Directors evaluation process, the Board of Directors
considered the risks and timing of each strategic option
available to the Company, and consulted with NCA, management and
the Companys legal advisors. In approving the sale of all
or substantially all of the Remaining Assets, the Complete
Liquidation and the Dissolution, the Board of Directors
considered a number of factors, including but not limited to the
factors described elsewhere in this proxy statement as well as
the following factors:
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The viability of the Companys business model at present
and the significant costs that would be required to alter the
Companys current business structure;
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The determination by the Board of Directors, after conducting a
review of the Companys financial condition, evaluation of
the Companys strategic alternatives, prospects for the
sale of the Company as a whole or its remaining assets in
individual sales, the results of operations and the
Companys future business prospects, that continuing to
operate as a going concern is not reasonably likely to create
greater value for the stockholders than the value that may be
obtained for the stockholders pursuant to the sale of all or
substantially all of the Remaining Assets, the Complete
Liquidation and the Dissolution;
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The Companys inability to identify a potential buyer of
the entire Company in a merger or similar transaction despite
the Board of Directors publicly announced strategic review
process and NCAs efforts to locate such potential buyers,
including contacting over 80 such potential buyers;
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That the sale of all or substantially all of the Remaining
Assets, the Complete Liquidation and the Dissolution provide
stockholders with an opportunity to potentially monetize their
investment in the Company and allows the Company to distribute
the maximum amount of cash to the Companys stockholders
from the sale of all or substantially all of the Remaining
Assets;
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The current intent of the Company to declare and pay the First
Liquidating Distribution of up to $6.75 per share of the
Companys common stock prior to December 31, 2011 if
the Asset Sale-Complete Liquidation Proposal and the Dissolution
Proposal are approved by the Companys stockholders and no
currently unknown or unanticipated material liabilities of the
Company arise;
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The current intent of the Company, if the Additional
Distribution Conditions have been satisfied, to seek to declare
and pay one or more Additional Liquidating Distributions prior
to the Filing;
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The fact that if the Board of Directors determines that the
Additional Distribution Conditions have not been satisfied by
the Outside Filing Date, then the Company anticipates submitting
an additional proxy statement to seek the approval of our
stockholders to delay the Filing for such additional period of
time as the Board of Directors determines is advisable to
provide the Company with an extended time period during which to
seek to satisfy the Additional Distribution Conditions and make
one or more Additional Liquidating Distributions prior to the
Filing;
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The potential tax benefits of making distributions to the
Companys stockholders pursuant to the Complete Liquidation;
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The material costs associated with the Companys
operations, including accounting, legal and other expenses in
connection with required filings with the SEC and required to
support the
day-to-day
operations of the Companys unsold hospitals, which have
already been reduced to the extent management believes
reasonable to allow the continuation of the Companys
operations;
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The significant reduction of the Companys
revenue-generating operations following the completion of the
Arkansas Sale, the New Mexico Sale and the sale of all or
substantially all of the Remaining Assets and the resulting
effect on the Companys ability to support its expense
structure as a public company and operate its business as a
going concern;
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The cost of transferring services currently provided by the
Companys corporate staff to each of the unsold hospitals
in order to allow continuity of operations;
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The volatile state of the economy and the economic uncertainty
globally as well as within the healthcare industry, including
the impact of the Legislative Reforms on the Companys
business prospects;
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The range of aggregate net proceeds which may be realizable by
the Company from the sale of all or substantially all of the
Remaining Assets;
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The historical performance of the Companys common stock
relative to the stock of its competitors and also relative
market indices;
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The terms and conditions of the Dissolution, including the
provisions that permit the Board of Directors to abandon the
Dissolution prior to the effective time of the Dissolution if
the Board of Directors determines that, in light of new
proposals presented or changes in circumstances, the Dissolution
is no longer advisable and in the best interests of the Company
and its stockholders;
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That under the DGCL, if the circumstances justifying the
Dissolution change, the certificate of dissolution may be
revoked after the effective time of the Dissolution if the Board
of Directors adopts a resolution recommending revocation and if
the stockholders originally entitled to vote on the Dissolution
approve such revocation at a meeting of stockholders;
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The fact that the DGCL requires that the sale of all or
substantially all of the Remaining Assets, the Complete
Liquidation and the Dissolution be approved by the affirmative
vote of holders of a majority of the voting power of the shares
of the Companys common stock entitled to vote which
ensures that the Board of Directors will not be taking action
without the support of a significant portion of the stockholders;
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The fact that dissolving the Company allows the Company to
complete individual asset sales more quickly because completing
sales after the Company has dissolved will no longer require
additional approval by the Companys stockholders;
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That any claim against the Company which is the subject of a
pending action, suit or proceeding to which the Company is a
party will continue against the Company;
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The costs associated with supporting and implementing existing
and new information technologies utilized to provide hospital
services;
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The costs associated with archiving and maintaining historical
information required to be retained during the wind down period;
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The costs of retaining the staff necessary to administer and
manage the Companys assets and retained liabilities during
the wind down period and the timing and costs of planned staff
departures, including the Companys executive officers,
when and if the Board of Directors determines their employment
is no longer necessary to the Dissolution process;
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The composition of the Board of Directors during the wind down
period; and
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The decisions made by the directors of comparable companies to
dissolve and the resulting distributions to the stockholders of
those comparable companies as a result of dissolution.
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The Board of Directors also considered certain material risks or
potentially adverse factors in making its determination and
recommendation, including, but not limited to, the following:
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The uncertainty of the timing, nature and amount of any
liquidation proceeds and distributions to stockholders,
including the risk that there could be unanticipated delays in
selling all or substantially all of the Remaining Assets, the
Complete Liquidation and the Dissolution, or that the need to
resolve or otherwise address contingent liabilities and the
potential emergence of additional liabilities or contingent
obligations during the dissolution process could significantly
delay, reduce or prevent any distributions to the Companys
stockholders;
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That further stockholder approval of sales will not be required
after either the approval of this Asset Sale
Complete Liquidation Proposal or the Dissolution Proposal and
that the Board of Directors may authorize sales with which the
Companys stockholders may not agree;
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The fact that, under the DGCL, the Companys stockholders
are not entitled to appraisal rights for their shares of common
stock in connection with the sale of all or substantially all of
the Remaining Assets, the Complete Liquidation and the
Dissolution;
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The risk that stockholders may be required to repay some or all
of the amounts distributed to them by the Company pursuant to
the Dissolution if unknown or unanticipated claims arise against
the Company during the wind down period;
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The risk that the directors of the Company may be held
personally liable for the unpaid portion of any claims against
the Company if they fail to comply with the statutory procedures
for the Dissolution, including the payment of claims against the
Company;
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Uncertainty of the value, if any, of the Remaining Assets;
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Potential changes in applicable laws (including tax laws) and
regulations;
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The risk that the IRS could treat the First Liquidating
Distribution or any Additional Liquidating Distributions as an
ordinary dividend and that the Companys stockholders would
receive less favorable tax treatment with respect to this
distribution than is currently anticipated;
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The risk that the amounts available for distribution to the
Companys stockholders may be significantly less than the
Company currently estimates due to unknown or contingent
liabilities or increases in the costs and expenses related to
settling the Companys liabilities and winding up its
business;
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The risks associated with the sale of all or substantially all
of the Remaining Assets, including the risk that completing any
such sales may take longer than currently anticipated and the
risk that the Company may not be able to realize full value for
the Remaining Assets in the context of a dissolution;
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The risk that the Company will not receive relief from the
Companys registration and reporting obligations under the
Exchange Act and that the Company will continue to incur costs
related to compliance with these requirements;
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The costs and potentially lengthy duration of the Dissolution
process, especially if contingent obligations such as the ICD
Investigation cannot be resolved in a timely manner;
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The fact that, if the Companys stockholders approve the
Dissolution, the stockholders would not be permitted to transfer
their shares of the Companys common stock after the
effective date of the Dissolution except by will, intestate
succession or operation of law;
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The risk of diverting management focus and resources from other
strategic options and from operational matters while working to
implement the Dissolution;
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The possibility of disruption to the Companys operations
following any announcement of a sale of all or substantially all
of, or a portion of, the Remaining Assets, the Complete
Liquidation and the Dissolution, and the resulting effects if
these actions are not completed, including the diversion of
management and employee attention, potential employee attrition
and the potential effects on the Companys business and its
relationships with its customers, suppliers and physician
partners;
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The risks related to the fact that the Company will not be
retaining certain of its current directors, officers and
employees and that, if necessary, the Company may be unable to
attract qualified replacement directors, officer and employees
to conduct the wind down process;
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The interests of the Companys directors and executive
officers in the sale of all or substantially all of the
Remaining Assets, the Complete Liquidation and the Dissolution,
including the Companys continuing indemnification
obligations to certain directors and officers during the wind
down period and the compensation that will be received by the
directors and officers conducting the wind down process; and
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That the Dissolution forecloses the Company from entering into
any future strategic business transaction that could enhance
stockholder value, the potential loss of benefits to
stockholders of remaining investors in a publicly traded
shell company, and that a dissolution necessarily
has the effect of liquidating each stockholders investment
in the Company.
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The members of the Board of Directors need not quantify or
otherwise assign relative significance to any of the factors
considered when making their determination, but may instead
consider whether the factors as a whole justify recommending the
sale of all or substantially all of the Remaining Assets, the
Complete Liquidation and the Dissolution to the Companys
stockholders. The foregoing summarizes the material factors and
risks considered by the Board of Directors but it is in no way
meant to be exhaustive of the discussion and information
considered by the Board of Directors. In view of its many
considerations, the Board of Directors did not quantify or
otherwise assign relative significance to any factor considered.
In addition, each member of the Board of Directors may have
given different significance to each factor.
Recommendation
of our Board of Directors
After due consideration, our Board of Directors concluded that
the potential benefits to our stockholders of receiving cash
pursuant to the sale of all or substantially all of the
Remaining Assets, the Complete Liquidation and the Dissolution
outweigh any potential for future development of a profitable
business opportunity by the Company, such as those reasonably
anticipated to be available to the Company based on the Board of
Directors extensive efforts to identify strategic
alternatives for the Company, and the potential risks to the
Company and its stockholders of not liquidating and dissolving.
In connection with the Dissolution, the Board of Directors has
concluded that the sale of all or substantially all of the
Remaining Assets to one or more potential buyers on such terms
and conditions, including without limitation the purchase price,
as the Board of Directors deems to be fair to and in the best
interests of the Company and its stockholders is in the best
interests of the Company and its stockholders and recommends
that you vote
FOR
the approval of the Asset
Sale Complete Liquidation Proposal.
Vote
Required
The affirmative vote, whether in person or by proxy, of the
holders of a majority of the outstanding voting power of the
shares entitled to vote on the matter is required to approve the
Asset Sale Complete Liquidation Proposal.
The Asset Sale-Complete Liquidation Proposal and the Dissolution
Proposal are independent proposals. A vote for or against one of
these proposals does not count as a vote for or against the
other. However, our Board of Directors believes that the Asset
Sale-Complete Liquidation Proposal and the Dissolution Proposal
are integral parts of the Board of Directors overall plan
to maximize stockholder value. In the event our stockholders do
not approve both the Asset Sale-Complete Liquidation Proposal
and Dissolution Proposal, our
43
Board of Directors will consider whether to proceed with the
transactions and processes contemplated by these two proposals
and may, in its sole discretion, decide not to implement either
proposal.
If the Company does not obtain the requisite stockholder
approval for the Asset Sale-Complete Liquidation Proposal, the
Board of Directors may not make the First Liquidating
Distribution or any Additional Liquidating Distributions or may
materially reduce the amount of the First Liquidating
Distribution or any Additional Liquidating Distributions. If the
Asset Sale-Complete Liquidation Proposal is not approved, we
will continue to consider our strategic options with respect to
our Remaining Assets and will continue with our efforts to
determine what, if any, other alternatives would be in the best
interests of our stockholders.
The
approval of Proposal No.1 is not contingent on approval of
Proposal No.2.
THE BOARD
OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
YOU VOTE FOR PROPOSAL NO.1.
PROPOSAL NO. 2
DISSOLUTION
We are seeking the approval of our stockholders of the
Dissolution, which we intend to implement after a substantial
portion of, but not necessarily all, of our remaining assets are
sold (if the Asset Sale-Complete Liquidation Proposal described
elsewhere in this proxy statement is approved). Implementation
of the Dissolution is contingent upon stockholder approval of
this proposal, though the Board of Directors reserves the right,
in the exercise of its fiduciary duties, to not implement the
Dissolution notwithstanding stockholder approval of this
Dissolution Proposal.
The Asset Sale-Complete Liquidation Proposal and the Dissolution
Proposal are independent proposals. A vote for or against one of
these proposals does not count as a vote for or against the
other. However, our Board of Directors believes that the Asset
Sale-Complete Liquidation Proposal and the Dissolution Proposal
are integral parts of the Board of Directors overall plan
to maximize stockholder value. In the event our stockholders do
not approve both the Asset Sale-Complete Liquidation Proposal
and the Dissolution Proposal, our Board of Directors will
consider whether to proceed with the transactions and processes
contemplated by these two proposals and may, in its sole
discretion, decide not to implement either proposal.
Recommendation
of our Board of Directors and Reasons for the Dissolution
Proposal
On July 28, 2011, our Board of Directors unanimously
adopted a resolution that it was appropriate, advisable and in
the best interests of our stockholders to dissolve the Company
and wind down its affairs in order to maximize stockholder value
pursuant to the Complete Liquidation and the Dissolution. The
Board of Directors recommends that stockholders vote
FOR
the Dissolution. Approval of the
Dissolution shall constitute the required stockholder approval
to dissolve the Company and to approve the Plan of Dissolution.
For the reasons for the Board of Directors recommendation
of stockholder approval of the Dissolution, see
Proposal No. 1 Sale of All or
Substantially All of the Remaining Assets of the Company and
Complete Liquidation Reasons for the Asset
Sale-Complete Liquidation Proposal and the Dissolution
Proposal and Proposal No. 1
Sale of All or Substantially All of the Remaining Assets of the
Company and Complete Liquidation Recommendation of
our Board of Directors.
Additionally, the approval of the Dissolution Proposal will
authorize the Board of Directors to wind up the affairs of the
Company, to cease operating the business for which the Company
was organized and to finally terminate the existence of the
Company.
Plan of
Dissolution and Estimate of Cash Distributable to
Stockholders
The Plan of Dissolution provides for the completion of the
voluntary liquidation, winding up and dissolution of MedCath
which shall have begun in connection with the implementation of
the Asset Sale-Complete Liquidation Proposal. If the Asset
Sale-Complete Liquidation Proposal and the Dissolution Proposal
44
are approved by our stockholders, then prior to the Outside
Filing Date, as may be extended to the Extended Filing Date, we
will seek to (i) sell our Remaining Assets, (ii) pay,
or establish a reserve to pay, all of the Companys
liabilities, including without limitation (a) any
liabilities arising out of the ICD Investigation, (b) other
currently unknown or unanticipated liabilities, and (c) a
reserve of such additional amount as the Board of Directors
determines to be necessary or appropriate under the DGCL with
respect to additional liabilities that may arise after the
Filing, and (iii) make one or more Additional Liquidating
Distributions. Thereafter, we will make the Filing in order to
dissolve and will attempt to liquidate our remaining assets,
satisfy or make reasonable provisions for the satisfaction of
our remaining obligations, and make distributions to
stockholders of any available liquidation proceeds, as well as
any remaining cash on hand. If at any time prior to the Filing
our Board of Directors determines that the Dissolution is not in
the best interests of our stockholders, our Board of Directors
may direct that the Dissolution be abandoned, or may amend or
modify the Plan of Dissolution, to the extent permitted by the
DGCL, without further stockholder approval. After the Filing,
the Board of Directors may seek stockholder approval for the
revocation of the Dissolution if it determines that the
Dissolution is no longer in the best interests of the Company
and our stockholders.
If the Asset Sale-Complete Liquidation Proposal and the
Dissolution Proposal are approved by our stockholders, and no
currently unknown or unanticipated material liabilities of the
Company arise, we anticipate making the First Liquidating
Distribution to our stockholders of $6.75 per share of common
stock prior to December 31, 2011. Thereafter, subject to
the risks and conditions outlined throughout this proxy
statement including without limitation the Additional
Distribution Conditions, the Company will seek to make prior to
the Filing one or more Additional Liquidating Distributions.
The potential additional amount available for distribution,
following the First Liquidating Distribution, may be, in the
aggregate, in the range of up to $8.19 to $10.21 per share. That
range does not include a reserve or estimate for any liabilities
arising out of the ICD Investigation, other currently unknown or
unanticipated liabilities or a reserve of such additional amount
as the Board of Directors determines to be necessary or
appropriate under the DGCL with respect to additional
liabilities that may arise after the Filing. Those amounts may
be material and may materially reduce the amount of any
Additional Liquidating Distributions. Additionally, to the
extent that prior to the Outside Filing Date, as may be extended
to the Extended Filing Date, the Company has not been successful
at selling substantially all of our Remaining Assets, or the net
proceeds from the sale of our Remaining Assets are less than the
Companys current estimates, or all potential Tax
Attributes are not realized, then the amount of any Additional
Liquidating Distributions which may be made prior to the Filing
may be reduced and the Company will seek to make post-Filing
Additional Liquidating Distributions to the extent funds are
finally available therefore, the final amount of which may also
be reduced due to the risks and conditions discussed above. We
currently anticipate that any post-Filing Additional Liquidating
Distributions would be made no sooner than at least the date
which is approximately nine months after the Filing and may not
occur, if at all, until several years after the Filing. See
Risk Factors Risks Related to the Dissolution
Proposal (Proposal No. 2) and
Proposal No. 2
Dissolution Plan of Dissolution and Estimate of Cash
Distributable to Stockholders.
It is not possible to predict with certainty the portion of any
Additional Liquidating Distributions which will be made before
the Filing and the portion of any Additional Liquidating
Distributions which will be made after the Filing.
The Company also estimates that the amount of income taxes that
may be reduced or refunded as a result of the sale of
MedCaths remaining unsold hospitals at an expected loss
may be in the range of $21,600,000 to $25,054,000. If, however,
there should be an ownership change under and as
defined in Section 382 of the Internal Revenue Code of
1986, as amended, a possibility that the Company believes is
unlikely, there may be little or no such refund of income taxes.
On June 13, 2011, the Company entered into the
Section 382 Rights Plan seeking to preserve for the
Companys stockholders the value or availability of certain
of the Companys Tax Attributes. See the Companys
current report on
Form 8-K
filed on June 16, 2011 and Background of the Asset
Sale-Complete Liquidation Proposal and the Dissolution
Proposal General.
The sales of our Remaining Assets will occur in one or more
transactions, and cash distributions may be made in one or more
installments. The timing of cash distributions to our
stockholders will depend on, among
45
other things, the timing of the consummation of all or a portion
of the sale transactions and payment of or reservation for
liabilities, known or unknown, contingent or otherwise and tax
refunds associated with any tax losses, to the extent we have
tax gains to offset. The amount and timing of the First
Liquidating Distribution and any Additional Liquidating
Distributions will be at the discretion of our Board of
Directors and, following the Filing with the Delaware Secretary
of State, approval of the Delaware Court of Chancery.
The management of the Company has prepared the prospective
financial information set forth below to present the potential
distributable proceeds available for distribution to
stockholders after the completion of the sales of our Remaining
Assets, the Complete Liquidation and the Dissolution of the
Company. The prospective financial information was not prepared
with a view toward complying with the guidelines established by
the American Institute of Certified Public Accountants with
respect to prospective financial information, but, in the view
of the Company, was prepared on a reasonable basis, reflects the
best currently available estimates and judgments, and presents,
to the best of the Companys knowledge and belief, the
expected course of action and the expected future financial
performance of the Company. However, this information is not
fact and should not be relied upon as being necessarily
indicative of future results, and readers of this proxy
statement are cautioned not to place undue reliance on the
prospective financial information. Neither the Companys
independent auditors, nor any other independent accountants,
have compiled, examined, or performed any procedures with
respect to the prospective financial information contained
herein, nor have they expressed any opinion or any other form of
assurance on such information or its achievability, and assume
no responsibility for, and disclaim any association with, the
prospective financial information.
The prospective financial information below does not include an
estimate of the amount, if any, that the Company may pay for the
reimbursement and related fines and penalties as a result of the
ICD Investigation or other currently unknown liabilities which
could be material. See Risk Factors Risks
Related to the Dissolution Proposal
(Proposal No. 2). Any reimbursement and related
fines and penalties, if any, will reduce the assets available
for distribution to our stockholders and may be substantial.
Estimated
Liquidating Distributions to Stockholders
|
|
|
|
|
|
|
|
|
|
|
Estimated Range
|
|
|
|
Low
|
|
|
High
|
|
|
|
(In thousands, except for per share amounts)
|
|
|
Pro Forma Cash and Cash Equivalents as of March 31, 2011(1)
|
|
$
|
220,227
|
|
|
$
|
220,227
|
|
Estimated Cash Proceeds and (Outlays)
|
|
|
|
|
|
|
|
|
Cash attributable to minority partners(2)
|
|
|
(6,314
|
)
|
|
|
(5,683
|
)
|
Liquidation of net working capital after sale of HHNM(3)
|
|
|
2,956
|
|
|
|
3,284
|
|
Liquidation of net working capital of discontinued operations(4)
|
|
|
23,359
|
|
|
|
25,954
|
|
Proceeds from sale of remaining assets(5)
|
|
|
82,641
|
|
|
|
93,398
|
|
Cash (used in) provided by on-going hospital operations(6)
|
|
|
(354
|
)
|
|
|
12,267
|
|
Liquidation of corporate held assets(7)
|
|
|
10,152
|
|
|
|
12,691
|
|
Corporate income tax refunds, net(8)
|
|
|
48,356
|
|
|
|
39,749
|
|
Corporate operating expenses after March 31, 2011(9)
|
|
|
(29,917
|
)
|
|
|
(27,197
|
)
|
Severance and retention bonuses after March 31, 2011(10)
|
|
|
(7,007
|
)
|
|
|
(7,007
|
)
|
Income tax liability for stock based compensation(11)
|
|
|
(2,280
|
)
|
|
|
(2,280
|
)
|
Contract termination costs(12)
|
|
|
(4,016
|
)
|
|
|
(3,416
|
)
|
Insurance(13)
|
|
|
(3,980
|
)
|
|
|
(3,618
|
)
|
Professional fees(14)
|
|
|
(6,574
|
)
|
|
|
(5,074
|
)
|
Reserve for unanticipated claims and contingencies(15)
|
|
|
(21,867
|
)
|
|
|
(6,662
|
)
|
|
|
|
|
|
|
|
|
|
Total Net Estimated Cash Proceeds
|
|
$
|
85,154
|
|
|
$
|
126,406
|
|
|
|
|
|
|
|
|
|
|
Estimated Cash to Distribute to Stockholders
|
|
|
305,381
|
|
|
|
346,633
|
|
|
|
|
|
|
|
|
|
|
Assumed Shares Outstanding(16)
|
|
$
|
20,436
|
|
|
$
|
20,444
|
|
Estimated Per Share Distribution
|
|
$
|
14.94
|
|
|
$
|
16.96
|
|
|
|
|
|
|
|
|
|
|
46
|
|
|
(1)
|
|
Reflects the cash balance at March 31, 2011 as reflected in
the pro forma balance sheet reflecting the recent sale of
MedCath Partners, Heart Hospital of New Mexico and Arkansas
Heart Hospital.
|
|
(2)
|
|
Estimated cash on hand to be distributed to the minority
partners as a result of our various sales transactions.
|
|
(3)
|
|
Estimated cash generated from the liquidation of all assets and
liabilities retained as of March 31, 2011 related to Heart
Hospital of New Mexico. The low end assumes lower than
anticipated collection of outstanding accounts receivable.
|
|
(4)
|
|
Estimated cash generated from the liquidation of all assets and
liabilities in discontinued operations at March 31, 2011.
We will continue to keep this cash at the partnerships to cover
any potential unknown contingencies and for required escrow
balances until such time the Company believes the risk of
unknown claims and the escrow periods have passed.
|
|
(5)
|
|
Reflects the aggregate estimate of sales proceeds allocable to
MedCath from the four Remaining Assets within the hospital
division. The high end assumes the sale of the assets at our
best estimate of current fair market value. The aggregate low
end is the current carrying value of the remaining assets as of
March 31, 2011.
|
|
(6)
|
|
Includes cash generated from hospitals still in operation up to
an assumed date of sale. Includes cash generated from Arkansas
Heart Hospital and Heart Hospital of New Mexico until
July 31, 2011, the sale date for these assets. High end
assumes all remaining assets are sold by September 30,
2011. The low end also assumes that the date of sale for certain
of our hospitals does not occur until September 2012. Additional
costs are expected to be incurred to operate these hospitals for
a longer period of time.
|
|
(7)
|
|
Includes the liquidation of corporate held assets at our best
estimate of fair market value including accounts receivable,
property, plant and equipment and our investment in a medical
office building.
|
|
(8)
|
|
Includes tax benefit related to vesting of restricted stock,
refunds related to carry-back of estimated losses on corporate
operations and net tax benefits related to future sale
transactions. Refund amounts included in this calculation assume
that all tax refunds are realized.
|
|
(9)
|
|
Corporate operating expenses expected to be incurred after
March 31, 2011 and for a period of three years (the
expected length of the wind down and liquidation process).
Includes the following estimated expenses:
|
|
|
|
|
|
|
|
High End
|
|
|
Salaries, Wages & Benefits
|
|
$
|
7,822
|
|
Legal & Other Professional Fees
|
|
|
8,257
|
|
Insurance Health & Other
|
|
|
3,462
|
|
IT (outsourced)
|
|
|
1,821
|
|
Contractual Wages
|
|
|
1,834
|
|
Board Fees and Expenses
|
|
|
3,085
|
|
Lease Expense
|
|
|
840
|
|
Office Expenses
|
|
|
1,414
|
|
Central Business Office (outsourced)
|
|
|
541
|
|
Storage
|
|
|
717
|
|
Interest Expense
|
|
|
124
|
|
|
|
|
|
|
|
|
$
|
29,917
|
|
|
|
|
|
|
|
|
|
|
|
The low end of the range assumes the expenses are 10% above the
Companys estimate.
|
|
(10)
|
|
Severance and stay-on bonus expense based on known employee
contracts and commitments in place at March 31, 2011 with
the expectation that the severance and bonuses will be paid.
|
|
(11)
|
|
Withholding tax liability paid upon the vesting of employee
restricted stock.
|
47
|
|
|
(12)
|
|
Company will incur an expense to terminate certain corporate
contracts, including the leased corporate office space. The high
end assumes the Company is successful in finding a tenant to
sublease the corporate office space, but provides for an amount
paid to satisfy tenant uplifts and discounts and lease expense
that may be incurred for a short-term period for remaining
employees.
|
|
(13)
|
|
Includes the payment of all required insurance programs during
the wind down period and purchase of tail insurance after the
wind down period. The expense is primarily related to directors
and officers insurance.
|
|
(14)
|
|
Includes an estimate for attorney, audit, consultant and
regulatory fees to be incurred during the wind down period. The
low end assumes we will hold our remaining assets longer than we
anticipate and the potential legal costs to dispose of the asset
at a later date. The low end also assumes we do not receive
relief from the SEC regarding our filing requirements and we
continue to incur costs in connection with filings with the SEC
for a longer period of time. We will not seek relief from the
SEC of our filing requirements until the Filing date.
|
|
(15)
|
|
Estimated range of cash for potential claims and contingencies.
This estimate includes potential reimbursement claims as the
result of Recovery Audit Consultant (RAC) reviews,
potential cost report adjustments based on the ability to obtain
disproportionate share (DSH) reimbursement, an
estimate for the settlement of outstanding legal claims, an
estimate of potential tax audit claims, and a $2,000,000
estimate for claims related to events in which we cannot predict
or estimate. Other than the $2,000,000, the estimates were
derived using historical adjustments and outcomes on claims and
are not based on any known knowledge that these expenses will be
incurred. The estimate does not include expenses related to
events or claims that we cannot reasonably quantify or predict
and which may be material, including the cost and expenses
related to the ICD Investigation. See Risk
Factors Risks Related to the Dissolution Proposal
(Proposal No. 2).
|
|
(16)
|
|
Includes all outstanding shares as of March 31, 2011 plus
an estimate for restricted shares that will vest as well as
in-the-money
stock options as of the distribution date.
|
48
Estimated
First Liquidating Distribution
The table set forth below represents the Companys
calculation of the First Liquidating Distribution that will be
paid if the Asset Sale Complete Liquidation Proposal
and the Dissolution Proposal are approved and no currently
unknown material liabilities of the Company arise prior thereto.
The First Liquidating Distribution represents a portion of the
aggregate amount of the liquidating distributions discussed in
the table set forth above. We estimate that we will make this
First Liquidating Distribution prior to the end of our quarter
ending December 31, 2011 to stockholders as of the record
date for such distribution. The estimate of the First
Liquidating Distribution is based on the low end of the
estimated liquidating distributions to stockholders as reflected
in the above table to ensure enough cash remains to cover all
estimated expenses of the Company that may occur. Future
distributions will be made when the Company generates cash from
future sales, recognizes tax benefits and has provided for all
known and unknown liabilities and contingencies of the Company.
Estimated
First Liquidating Distribution to Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated First
|
|
|
|
|
|
|
|
|
|
Liquidating
|
|
|
|
Low
|
|
|
High
|
|
|
Distribution
|
|
|
|
(In thousands, except for per share amounts)
|
|
|
Pro Forma Cash and Cash Equivalents as of March 31, 2011
|
|
$
|
220,227
|
|
|
$
|
220,227
|
|
|
$
|
220,227
|
|
Estimated Cash Proceeds and (Outlays)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash attributable to minority partners
|
|
|
(6,314
|
)
|
|
|
(5,683
|
)
|
|
|
(6,314
|
)
|
Liquidation of net working capital after sale of HHNM
|
|
|
2,956
|
|
|
|
3,284
|
|
|
|
*
|
|
Liquidation of net working capital of discontinued operations
|
|
|
23,359
|
|
|
|
25,954
|
|
|
|
*
|
|
Proceeds from sale of remaining assets
|
|
|
82,641
|
|
|
|
93,398
|
|
|
|
*
|
|
Cash (used in) provided by on-going hospital operations
|
|
|
(354
|
)
|
|
|
12,267
|
|
|
|
(354
|
)
|
Liquidation of corporate held assets
|
|
|
10,152
|
|
|
|
12,691
|
|
|
|
*
|
|
Corporate income tax refunds, net
|
|
|
48,356
|
|
|
|
39,749
|
|
|
|
*
|
|
Corporate operating expenses after March 31, 2011
|
|
|
(29,917
|
)
|
|
|
(27,197
|
)
|
|
|
(29,917
|
)
|
Severance and retention bonuses after March 31, 2011
|
|
|
(7,007
|
)
|
|
|
(7,007
|
)
|
|
|
(7,007
|
)
|
Income tax liability for stock based compensation
|
|
|
(2,280
|
)
|
|
|
(2,280
|
)
|
|
|
(2,280
|
)
|
Contract termination costs
|
|
|
(4,016
|
)
|
|
|
(3,416
|
)
|
|
|
(4,016
|
)
|
Insurance
|
|
|
(3,980
|
)
|
|
|
(3,618
|
)
|
|
|
(3,980
|
)
|
Professional fees
|
|
|
(6,574
|
)
|
|
|
(5,074
|
)
|
|
|
(6,574
|
)
|
Reserve for unanticipated claims and contingencies
|
|
|
(21,867
|
)
|
|
|
(6,662
|
)
|
|
|
(21,867
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Cash to Distribute to Stockholders
|
|
|
|
|
|
|
|
|
|
$
|
137,918
|
|
Assumed Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
20,436
|
|
Estimated Per Share Distribution
|
|
|
|
|
|
|
|
|
|
$
|
6.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Cash is not available for distribution until the occurrence of
future events described elsewhere in this proxy statement.
|
Notwithstanding the foregoing, uncertainties as to the precise
net value of our assets and the ultimate amount of our
liabilities make it impossible to predict with certainty the
aggregate net amounts that will ultimately be available for
distribution to stockholders or the timing of any such
distribution. Such amount and timing will depend on a number of
factors, which cannot be determined at this time, including:
|
|
|
|
|
the ultimate amount of our known, unknown and contingent debts
and liabilities, including, without limitation, liabilities
arising from the ICD Investigation which could be material;
|
49
|
|
|
|
|
the purchase prices we receive upon the sale or liquidation of
our Remaining Assets;
|
|
|
|
the timing and amounts of tax refunds;
|
|
|
|
the fees and expenses incurred by us in connection with the
transactions contemplated by the Asset Sale-Complete Liquidation
Proposal and estimated fees and expenses incurred by us to
liquidate our remaining assets and dissolve the Company;
|
|
|
|
whether the potential buyers in the sales of our Remaining
Assets meet their obligations to perform and discharge the
obligations and liabilities assumed by them in such
sales; and
|
|
|
|
the amount of funds necessary to sustain corporate operations
and cover operating expenses during the wind down period.
|
As a result, the amount of cash remaining following the
completion of the Dissolution could vary significantly from our
current estimates.
The Board is currently exploring various alternatives with
respect to the treatment of outstanding stock options in
connection with the Dissolution of the Company. The effect of
the treatment of stock options has been taken into account in
the Companys estimate of the aggregate amount that may be
distributed to stockholders referred to in this proxy statement.
Under Section 275 of the DGCL, our Board of Directors must
mail notice of its resolution to dissolve MedCath Corporation
and convene a meeting of the stockholders to act upon such
resolutions. This proxy statement serves as such notice. The
current plan of Complete Liquidation and the Plan of Dissolution
provides that, following approval of the Dissolution by
stockholders holding a majority of the outstanding voting power
of our common stock, the Board of Directors, without further
action by the stockholders, may:
|
|
|
|
|
dissolve MedCath Corporation;
|
|
|
|
liquidate MedCaths remaining assets;
|
|
|
|
pay, or provide for the payment of, any remaining, legally
enforceable obligations of MedCath; and
|
|
|
|
distribute any remaining assets to the stockholders.
|
Certain material features of the Plan of Dissolution are
summarized below. This summary is qualified in its entirety by
reference to the complete text of the Plan of Dissolution. A
complete copy of the Plan of Dissolution is attached hereto as
Annex A. Stockholders should carefully read the Plan of
Dissolution.
Liquidation
and Dissolution Procedure
Following approval of the Asset Sale-Complete Liquidation
Proposal and the Dissolution Proposal by our stockholders,
consummation of the sale of a substantial portion of, but not
necessarily all of, our Remaining Assets, satisfaction of the
Additional Distribution Conditions, making the First Liquidating
Distribution and, if the Board of Directors deems advisable, one
or more Additional Liquidating Distributions, we will take the
steps necessary to make the Filing on or about the Outside
Filing Date, as may be extended to the Extended Filing Date,
with the Delaware Secretary of State and wind down our affairs
as described below at such times as the Board of Directors, in
its absolute discretion, deems necessary, appropriate or
advisable to maximize the value of our assets upon liquidation.
The dissolution will be effective upon the filing of the
certificate of dissolution with the Delaware Secretary of State
or upon such later date as may be specified in the certificate
of dissolution. Once our certificate of dissolution is filed and
effective, we will continue to operate any facilities we still
own but will cease to conduct other business, except for the
purpose of winding down our affairs, and we will close our
transfer books. Under the DGCL, the Company will continue to
exist for three years after the dissolution becomes effective,
or for such longer period as the Delaware Court of Chancery
shall direct, for the purposes of prosecuting and defending
suits, whether civil, criminal or administrative, by or against
it, and enabling it to gradually settle and close its business,
to dispose of and convey its property, to discharge its
liabilities and to distribute to its stockholders any remaining
assets, but not for the purpose of continuing the business for
which the Company was organized.
50
Revocation
of the Plan of Dissolution
By approving the Dissolution, stockholders will also be granting
the Board of Directors the authority, notwithstanding
stockholder approval of the Dissolution, to abandon or defer the
Dissolution prior to the Filing without further stockholder
action, if the Board of Directors determines that liquidation
and dissolution are not in the best interests of the Company and
our stockholders. After the Filing, the Board of Directors may
revoke the Dissolution if holders of a majority of the voting
power of the Companys common stock entitled to vote on the
Dissolution Proposal approve a resolution adopted by the Board
of Directors recommending such revocation.
Dissolution
Process
The Plan of Dissolution provides that the Board of Directors
will dissolve the Company and liquidate our assets in accordance
with the provisions of Sections 280 and 281(a) of the DGCL.
These procedures would require the Company to:
|
|
|
|
|
publish notice of the Dissolution and mail notice of the
Dissolution to all persons known to have a claim against us and
provide for the acceptance or rejection of any such claims in
accordance with Section 280 of the DGCL;
|
|
|
|
offer to any claimant on a contract whose claim is contingent,
conditional or unmatured, security in an amount sufficient to
provide compensation to the claimant if the claim matures and
petition the Delaware Court of Chancery to determine the amount
and form of security sufficient to provide compensation to any
claimant who rejects our offer of security in accordance with
Section 280 of the DGCL;
|
|
|
|
petition the Delaware Court of Chancery to determine the amount
and form of security which would be reasonably likely to be
sufficient to provide compensation for claims that are subject
of pending litigation against us and claims that have not been
made known to us at the time of dissolution but are likely to
arise or become known within five years (or a longer period not
to exceed ten years in the discretion of the Delaware Court of
Chancery), each in accordance with Section 280 of the DGCL;
|
|
|
|
pay, or make adequate provision for payment, of all claims made
against us and not rejected, including all expenses of the sale
of assets and of the liquidation and dissolution provided for by
the Plan of Dissolution in accordance with Section 280 of
the DGCL;
|
|
|
|
post all security offered to claimants holding contingent,
conditional or unmatured contractual claims if not rejected by
such claimant and all security ordered by the Delaware Court of
Chancery in accordance with Section 280 of the
DGCL; and
|
|
|
|
pay, or make adequate provision for payment, of all other claims
that are mature, known and uncontested or that have been finally
determined to be owing by us.
|
Our Board of Directors and our remaining officers will oversee
our liquidation and dissolution. As compensation for the
foregoing, our remaining officers will continue to receive
salary and benefits as determined by the Board of Directors. We
also anticipate that members of our Board of Directors will
receive compensation during this period, although the form and
amount of such compensation has not been finally determined. We
may also elect to reduce the size of our Board of Directors at
any time before or after the Filing.
Authority
to Sell any Remaining Assets
The Plan of Dissolution gives the Board of Directors, to the
fullest extent permitted by law, the authority to liquidate all
of our assets in the manner that is in the best interest of the
Companys stockholders after the Filing. Accordingly,
stockholder approval of the Dissolution Proposal will
constitute, to the fullest extent permitted by law, approval of
our sale of any and all of our Remaining Assets after the
Filing, on such terms and conditions as the Board of Directors,
in its absolute discretion and without further stockholder
approval, may determine.
51
The Board of Directors currently intends to continue to consider
a number of scenarios for disposing of MedCaths remaining
assets to maximize stockholder value. See
Proposal No. 1 Sale of All or
Substantially All of the Remaining Assets of the Company and
Complete Liquidation.
Distributions
to Stockholders
Claims, liabilities and expenses from operations, including
operating costs, salaries and benefits, income taxes, payroll
and local taxes, and miscellaneous office expenses, will
continue to be incurred following approval of the Dissolution.
We anticipate that expenses for professional fees and other
expenses of liquidation may be significant. These expenses will
reduce the amount of assets available for ultimate distribution
to our stockholders.
If the Asset Sale-Complete Liquidation Proposal and the
Dissolution Proposal are approved by our stockholders, and no
currently unknown or unanticipated material liabilities of the
Company arise, we anticipate making the First Liquidating
Distribution to our stockholders of $6.75 per share of common
stock prior to December 31, 2011. Thereafter, subject to
the risks and conditions outlined throughout this proxy
statement, including without limitation the Additional
Distribution Conditions, the Company will seek to make one or
more Additional Liquidating Distributions prior to the Filing.
The potential additional amount available for distribution,
following the First Liquidity Distribution, may be, in the
aggregate, in the range of up to $8.19 to $10.21 per share. That
range does not include a reserve or estimate for any liabilities
arising out of the ICD Investigation, other currently unknown or
unanticipated liabilities or a reserve of such additional amount
as the Board of Directors determines to be necessary or
appropriate under the DGCL with respect to additional
liabilities that may arise after the Filing. Those amounts may
be material and may materially reduce the amount of any
Additional Liquidating Distributions. Additionally, to the
extent that prior to the Outside Filing Date (as may be extended
to the Extended Filing Date) the Company has not successfully
sold all or substantially all of our Remaining Assets, or the
net proceeds from the sale of all or substantially all of our
Remaining Assets are less than the Companys current
estimates, or all potential Tax Attributes are not realized,
then the amount of any Additional Liquidating Distributions
which may be made prior to the Filing may be reduced and the
Company will seek to make post-Filing Additional Liquidating
Distributions to the extent funds are finally available
therefore, the final amount of which may also be reduced as a
result of the risks and conditions discussed above. We currently
anticipate that any post-Filing Additional Liquidating
Distributions would be made no sooner than at least the date
which is approximately nine months after the Filing and may not
occur, if at all, until several years after the Filing. See
Risk Factors Risks Related to the Dissolution
Proposal (Proposal No. 2) and
Proposal No. 2
Dissolution Plan of Dissolution and Estimate of Cash
Distributable to Stockholders.
It is not currently possible to predict with certainty the
portion of any Additional Liquidating Distributions which will
be made before the Filing and the portion of any Additional
Liquidating Distributions which will be made after the Filing.
Following the Filing, we will pay and discharge, or make
adequate provision for the payment, satisfaction and discharge
of all known and uncontested liabilities and obligations,
including costs and expenses incurred and anticipated to be
incurred in connection with the sale of any assets remaining
after the certificate of dissolution is effective. We will
reserve assets in a contingency reserve deemed by management and
the Board of Directors to be adequate to provide for such
pending liabilities and obligations that have not arisen but
might arise. The amount of any contingency reserve is also
subject to the approval of the Delaware Court of Chancery. The
amount of any contingency reserve will be materially impacted by
any liabilities arising from the ICD Investigation, which
liabilities the Company cannot currently estimate and which may
be material.
Our Board of Directors will determine, in its sole discretion
and in accordance with applicable law, the timing, the amount
and kind of, and the record date for, any distribution made to
stockholders, subject to the approval of the Delaware Court of
Chancery. The First Liquidating Distribution and any Additional
Liquidating Distributions will be made to stockholders on a pro
rata basis. Although the Board of Directors has not established
a firm timetable for any distribution to stockholders, the Board
of Directors currently anticipates, subject to the risks and
conditions described in this proxy statement, including without
limitation the
52
Additional Distribution Conditions, (i) making the First
Liquidating Distribution prior to December 31, 2011,
(ii) seeking to make one or more Additional Liquidating
Distributions prior to the Filing on or about the Outside Filing
Date, as may be extended to the Extended Filing Date, and
(iii) subject to the exigencies discussed above inherent in
winding up our business and which are described elsewhere
herein, seeking to make further Additional Liquidating
Distributions following the Filing.
Stockholders should not send their stock certificates with the
enclosed proxy.
SEC
Reporting Requirements
Whether or not our Dissolution is approved, MedCath has an
obligation to continue to comply with the applicable reporting
requirements of the Exchange Act, even if compliance with such
reporting requirements is economically burdensome. If the
Dissolution is approved by our stockholders, after the Filing,
in order to curtail expenses, we expect to seek relief from the
SEC from the reporting requirements under the Exchange Act, but
there can be no assurances that such relief will be granted by
the SEC. If such relief is granted, the Company currently
intends to continue to provide stockholders with financial
statements that would be filed periodically on our website.
Liquidating
Trusts or Limited Liability Companies
Although no decision has been made, if deemed advisable by the
Board of Directors for any reason, we may, following the
effectiveness of the certificate of dissolution, transfer any of
our unsold assets to one or more trusts or limited liability
companies established for the benefit of stockholders, subject
to the claims of creditors. Thereafter, these assets will be
sold or distributed on terms approved by the trustees of the
trusts or managers of the limited liability companies or trusts,
as applicable. Our Board of Directors is authorized to appoint
one or more trustees of each liquidating trust or one or more
managers of each limited liability company and to cause the
Company to enter into a liquidating trust agreement or limited
liability company agreement with the trustee(s) or manager(s) of
each such trust or limited liability company on such terms and
conditions as may be approved by the Board of Directors. Our
Board of Directors and management may determine to transfer
assets to a liquidating trust or limited liability company in
circumstances where the nature of an asset is not susceptible to
distribution (for example, interests in intangibles) or where
our Board of Directors determines that it would not be in the
best interests of the Company and our stockholders for those
assets to be distributed directly to the stockholders at that
time. If all of our assets (other than the contingency reserve)
are not sold or distributed prior to the third anniversary of
the effectiveness of the Dissolution, we may transfer in final
distribution those remaining assets to a liquidating trust or
limited liability company, or we may petition the Delaware Court
of Chancery to extend the three year period. Our Board of
Directors may also elect in its discretion to transfer the
contingency reserve, if any, to a liquidating trust or limited
liability company. Our Board of Directors believes the
flexibility provided by the Plans of Complete Liquidation and
Dissolution with respect to the liquidating trusts or limited
liability companies to be advisable. The trust or limited
liability company would be evidenced by a trust agreement or
limited liability company agreement, as applicable, between the
trustees or mangers and us. The purpose of the trust or limited
liability company would be to serve as a temporary repository
for the trust or limited liability company property prior to its
disposition or distribution to our stockholders. The transfer to
the trust or limited liability company and distribution of
interests therein to our stockholders would enable us to divest
ourselves of the trust or limited liability company property and
permit our stockholders to enjoy the economic benefits of
ownership of the trust or limited liability company property.
Pursuant to a trust agreement or limited liability company
agreement, as applicable, the trust or limited liability company
property would be transferred to the trustees or managers
immediately prior to the distribution of interests in the trust
or limited liability company to our stockholders, to be held for
the benefit of the stockholder beneficiaries subject to the
terms of the trust agreement or limited liability company
agreement, as applicable. Stockholder approval of the Asset
Sale-Complete
Liquidation Proposal or the Dissolution Proposal will also
constitute approval of any such appointment and any liquidating
trust agreement or limited liability company agreement. See
Proposal No. 2
Dissolution Material U.S. Federal Income Tax
Consequences of the Complete Liquidation and Dissolution.
53
Potential
Creditor Claims if Reserves Insufficient
If a court holds at any time that we have failed to make
adequate provision for our expenses and liabilities or if the
amount ultimately required to be paid in respect of such
liabilities exceeds the amount available from the contingency
reserve, our creditors could seek an injunction against the
making of distributions on the grounds that the amounts to be
distributed are needed to provide for the payment of our
expenses and liabilities. Any such action could delay or
substantially diminish the amount of any cash distributions to
stockholders.
If we fail to create an adequate contingency reserve for payment
of our expenses and liabilities, creditors could assert claims
against each stockholder receiving a distribution or dividend
for the payment of any shortfall, up to the amounts previously
received by the stockholder in distributions or dividends from
us.
Accounting
Treatment
Upon approval of the Dissolution, we will change our basis of
accounting from the going-concern basis which contemplates
realization of assets and satisfaction of liabilities in the
normal course of business to the liquidation basis. Under the
liquidation basis of accounting, assets are stated at their
estimated net realizable values and liabilities are stated at
their estimated settlement amounts. Recorded liabilities will
include the estimated costs associated with carrying out the
Plan of Dissolution. For periodic reporting, a statement of net
assets in liquidation will summarize the liquidation value per
outstanding share of common stock. Valuations presented in the
statement will represent managements estimates, based on
present facts and circumstances, of the net realizable values of
assets and costs associated with carrying out the Plan of
Dissolution based upon management assumptions.
The valuation of assets and liabilities will necessarily require
many estimates and assumptions, and there will be substantial
uncertainties in carrying out the provisions of the Plan of
Dissolution. Ultimate values of assets and settlement amounts
for liabilities are expected to differ from estimates recorded
in interim statements.
Authority
of Directors and Officers
We expect that the current members of the Board of Directors (or
a subset thereof) and our officers will continue in their
positions for the purpose of winding up the business and affairs
of the Company until such time as their services are no longer
necessary. The Board of Directors may appoint officers, hire
employees and retain independent contractors and agents in
connection with the wind down process, and is authorized to pay
compensation to or otherwise compensate the Companys
directors, officers, employees, independent contractors and
agents above their regular compensation levels in recognition of
the extraordinary efforts they may be required to undertake in
connection with the successful implementation of the Plan of
Dissolution. Approval of the Dissolution Proposal by the
requisite vote of our stockholders will constitute approval by
our stockholders of any such cash or non-cash compensation.
The approval of the Dissolution Proposal by our stockholders
also will authorize, without further stockholder action, our
Board of Directors to do and perform, or to cause our officers
to do and perform, any and all acts and to make, execute,
deliver or adopt any and all agreements, resolutions,
conveyances, certificates and other documents of every kind that
our Board of Directors deems necessary, appropriate or
desirable, in the absolute discretion of the Board of Directors,
to implement the Plans of Complete Liquidation and Dissolution
and the transactions contemplated thereby, including without
limitation all filings or acts required by any federal, state or
local law or regulation to wind down its affairs.
Indemnification
of Directors and Officers
We anticipate that certain of our current directors and officers
will continue to serve in these capacities after the approval of
the Dissolution by our stockholders. Under the DGCL, directors
remaining in office may owe fiduciary duties to creditors as
well as to our stockholders during the dissolution process.
54
Pursuant to the Plan of Dissolution, we will continue to
indemnify our officers and directors for actions taken generally
and in connection with the Dissolution and the Plan of
Dissolution and the winding up of our affairs in accordance with
our certificate of incorporation, bylaws, existing
indemnification agreements, our existing directors and
officers liability insurance policy and applicable law.
Any claims arising in respect of such indemnification could be
satisfied out of the contingency reserve or out of assets
transferred to a liquidating trust, if any.
Our Board of Directors has obtained and our Board of Directors
and the trustees of any liquidating trust are authorized to
obtain and maintain insurance as may be necessary to cover our
indemnification obligations.
Final
Record Date
If the Dissolution is approved by our stockholders and our Board
of Directors, we will close our transfer books on the date the
Filing is made, in accordance with the DGCL (the Final
Record Date). After the Final Record Date, we will not
record any further transfers of our common stock except pursuant
to the provisions of a deceased stockholders will,
intestate succession or operation of law and we will not issue
any new stock certificates, other than replacement certificates.
The Company will not retain a transfer agent after the Final
Record Date. We intend to provide our stockholders notice of the
date we intend to make the Filing with the Delaware Secretary of
State by public announcement and by filing a current report on
Form 8-K,
no less than 20 calendar days prior to the Filing.
Regulatory
Matters
Except for the Filing and the payment of all franchise taxes due
to or assessable by the State of Delaware, we are not subject to
any Federal or state regulatory requirements in connection with
the Dissolution, and are not required to obtain any Federal or
state approval in order to consummate the Dissolution. Approvals
related to the HSR Act may be necessary in connection with
future asset sales by the Company.
Absence
of Appraisal Rights
Under the DGCL, appraisal rights are not provided to
stockholders in connection with the Dissolution.
Material
U.S. Federal Income Tax Consequences of the Complete Liquidation
and Dissolution
The following discussion is a general summary of the material
U.S. Federal income tax consequences of the complete
liquidation and dissolution of the Company pursuant to the
Complete Liquidation and the Dissolution to the Company and its
stockholders who hold their shares of Company stock as a capital
asset, but does not purport to be a complete analysis of all the
potential tax effects. The discussion addresses neither the tax
consequences that may be relevant to particular categories of
investors subject to special treatment under certain
U.S. Federal income tax laws (such as dealers in
securities, banks, insurance companies, tax-exempt
organizations, and foreign individuals and entities) nor any tax
consequences arising under the laws of any state, local or
foreign jurisdiction.
The discussion is based upon the Internal Revenue Code of 1986,
as amended, Treasury Regulations, administrative rulings and
judicial decisions now in effect, all of which are subject to
change at any time, either prospectively or retrospectively, by
legislative, administrative or judicial action. The following
discussion has no binding effect on the Internal Revenue
Service, or IRS, or the courts. No ruling has been requested
from the IRS with respect to the anticipated tax treatment of
the liquidation and dissolution of the corporation pursuant to
the Complete Liquidation and the Dissolution, and we will not
seek an opinion of counsel with respect to the anticipated tax
treatment summarized herein.
The term complete liquidation is not defined in the
Internal Revenue Code. The approval of the Asset
Sale Complete Liquidation Proposal does not ensure
that the First Liquidating Distribution or any Additional
Liquidating Distributions the Company intends to make will be
treated as distributions in complete liquidation by
the Internal Revenue Service. The Internal Revenue Service has a
policy of not issuing private letter rulings regarding the tax
effect to stockholders of corporate liquidations when the
distributions in liquidation are to be made over a period in
excess of three years. The Company has not sought a private
letter ruling.
55
The case law on complete liquidations does not require that a
complete liquidation be completed within three years. The
Company will seek to make the First Liquidating Distribution and
any Additional Liquidating Distributions to its stockholders
within a three year period, but there are no assurances it will
be able to do so. Either the failure to complete the sale of the
Remaining Assets or to pay, or establish reserves to pay, all of
the Companys creditors or the various requirements of the
DGCL could make it impossible to complete the liquidating
distributions within a three year period.
The Company will also endeavor to ensure that any liquidating
trust or limited liability company formed to be the transferee
of certain of the assets of the Company will be treated for tax
purposes as a liquidating trust, or in the case of a limited
liability company as a partnership, for Federal income tax
purposes. However, there can be no assurance that any
liquidating trust or limited liability company, if created, will
be treated as a liquidating trust or a partnership for Federal
income tax purposes, or that the First Liquidating Distribution
and any Additional Liquidating Distributions, if any, will be
treated as liquidating distributions. If the liquidating trust
or the limited liability company are not treated as a trust or a
partnership, as the case may be, but are instead treated as a
continuation of the existing corporation for Federal income tax
purposes, the liquidating distributions would likely not be
treated as distributions in complete liquidation for tax
purposes and would likely be treated as taxable dividends to the
extent of the Companys earnings and profits.
The Company intends to accomplish the Complete Liquidation and
the Dissolution of the Company in a manner that will qualify the
Complete Liquidation and the Dissolution as a complete
liquidation within the meaning of Section 346(a) of
the Internal Revenue Code, but there can be no assurance that
its efforts to do so will be successful. The remainder of this
Material U.S. Federal Income Tax Consequences of the
Complete Liquidation and Dissolution will assume that all the
distributions by the Company to its stockholders after a vote of
the stockholders approving the complete liquidation of the
Company will be treated for Federal income tax purposes as
distributions in complete liquidation of the Company.
U.S.
Federal Income Tax Consequences to the Company
Even if we liquidate, the Company will continue to be subject to
income tax on our taxable income until the liquidation and
dissolution is complete (i.e., until all of our Remaining Assets
have been sold or distributed to our stockholders or the
liquidating trust). The Company will recognize gain or loss upon
any liquidating distribution of property (other than cash) to
stockholders or to the liquidating trust or limited liability
company for the benefit of the stockholders as if such property
were sold for its fair market value. Ordinarily, corporate gain
or loss (unless certain exceptions to loss recognition apply) is
recognized in an amount equal to the difference between the
Companys adjusted tax basis for each asset and the
assets sale price, if the asset is sold, or the
assets fair market value on the date of distribution if
the asset is distributed to, or for the benefit of, its
stockholders.
The Company estimates that the Remaining Assets, in the
aggregate, will be sold at a net loss. We expect that all or a
substantial portion of such losses, and wind down operating
losses, will be incurred in fiscal 2012 and fiscal 2013 will be
carried back for income tax purposes to the Companys
fiscal year ending September 30, 2011, and the Company will
be entitled to a refund of a significant portion of the income
taxes that were paid or will be paid in connection with the
asset sales completed prior to the Special Meeting. If, however,
there should be an ownership change under and as
defined in Section 382 of the Internal Revenue Code of
1986, as amended,, a possibility that the Company believes is
unlikely, there may be little or no such refund of income taxes.
U.S.
Federal Income Tax Consequences to our
Stockholders
If we effect the Complete Liquidation of the Company, a
stockholder will recognize gain or loss separately on each block
of stock owned by the stockholder. All distributions in
liquidation will be deemed to be made proportionately with
respect to each of his outstanding blocks of the Companys
stock. Gain on the distributions in liquidation of the Company
will be recognized with respect to a block only when the amount
of the aggregate distributions (in money or in the fair market
value of property distributed to the stockholder or on his
behalf) with respect to such block exceeds the tax basis in such
block. After the stockholder has
56
received distributions with respect to a block that equals his
tax basis in such block, all distributions with respect to such
block will be taxable as capital gain.
A stockholder will recognize a loss with respect to each of his
blocks of stock in the Company only in the tax year in which the
final distribution to him is made, and only if the stockholder
has not received distributions equal to the stockholders
tax basis in such blocks. The amount of the loss will be equal
to the difference between the amount by which the
stockholders basis in such block exceeds the amount of
distributions that the stockholder has received with respect to
such block.
Currently, long-term capital gain realized by a stockholder that
is an individual, estate or trust is generally taxed at a
maximum rate of 15%, but that maximum rate is scheduled to
increase to 20% in 2013. Also, starting in 2013 the Medicare tax
of 3.8% will apply to capital gain income for high income
individuals, estates and most trusts. For individuals, high
income is income in excess of modified adjusted gross income of
between $125,000 and $250,000 depending on the individuals
circumstances. A capital gain or loss will be long term with
respect to stock that has been held by a stockholder for more
than one year. Although there is very little precedent, the
Company (consistently with such precedent) believes that with
respect to each distribution a stockholders holding period
for capital gain purposes ends on the date such distribution is
actually or constructively received. Capital losses can
generally be used to offset capital gains and, for individuals,
estates or trusts, up to $3,000 of ordinary income. The tax
basis of any property, other than cash, either received by each
stockholder or by a liquidating trust or limited liability
company on the stockholders behalf upon our Complete
Liquidation will be the fair market value of the property at the
time of the distribution.
If a stockholder has paid taxes on amounts previously
distributed and is required to repay an amount previously
distributed which is $3,000 or less, it is possible that the
stockholder will incur greater taxes than if he had never
received the amount the stockholder was required to repay.
If we effect the Complete Liquidation, we will, after the close
of each calendar year, provide stockholders and the IRS with a
statement of the amount of cash and our best estimates of the
fair market value of any property distributed to the
stockholders (or transferred to the liquidating trust) during
that year as determined by us, at such time and in such manner
as required by the Treasury Regulations.
If we do not effect the Complete Liquidation it is expected that
all distributions to stockholders will be treated as dividends
to the extent of the Companys earnings and profits.
Dividends are currently taxed at a maximum rate of 15%, but the
maximum tax rate for dividends is scheduled to increase to 39.6%
in 2013. Also, starting in 2013 the Medicare tax of 3.8% will
apply to dividend income for high income individuals, estates
and most trusts. For individuals, high income is income in
excess of modified adjusted gross income of between $125,000 and
$250,000 on the individuals circumstances. Dividends in
excess of the Companys earnings and profits would be tax
free to stockholders to the extent of their tax basis in their
shares, and thereafter would be taxable as capital gains.
U.S.
Income Tax Consequences of a Liquidating Trust or Limited
Liability Company
If the Company transfers assets to a liquidating trust in
connection with the Complete Liquidation and the Dissolution, we
currently intend to structure such trust so that stockholders
will be treated for tax purposes as having received a final
distribution from the Company at the time of transfer of their
pro rata share of money and the fair market value of property
other than money transferred to the liquidating trust, reduced
by the amount of known liabilities assumed by the liquidating
trust or to which the property transferred is subject, and then
having contributed such property to the trust. The distribution
will be treated as the final distribution in complete
liquidation of the stockholders common stock.
Upon formation of a liquidating trust, stockholders, as owners
of the trust, must take into account for U.S. Federal
income tax purposes their pro rata portion of any income,
expense, gain or loss recognized by the liquidating trust. The
income, expense, gain or loss recognized by the liquidating
trust will not affect the stockholders basis in his or her
common stock.
57
If we transfer assets to a limited liability company in
connection with the Dissolution, we currently intend to
structure such limited liability company so that stockholders
will be treated for tax purposes as having received a final
distribution from the Company at the time of transfer of their
pro rata share of money and the fair market value of property
other than money transferred to the limited liability company,
reduced by the amount of known liabilities assumed by the
limited liability company or to which the property transferred
is subject, and then having contributed such property to the
limited liability company. The distribution will be treated as
the final distribution in complete liquidation of the
stockholders common stock.
As a result of the transfer of property to a liquidating trust,
and the ongoing activities of the liquidating trust,
stockholders should be aware that they may be subject to tax
whether or not they have received any actual distributions from
the liquidating trust with which to pay such tax. The
liquidating trust itself should not be subject to income tax.
As a result of the transfer of property to a limited liability
company and the ongoing activities of the limited liability
company, stockholders should be aware that they may be subject
to tax whether or not they have received any actual
distributions from the limited liability company with which to
pay such tax. The limited liability company itself should be
treated as a partnership and should not be subject to income tax.
Notwithstanding the above, there can be no absolute assurance
that a liquidating trust or limited liability company which
receives assets from the Company will not be treated as the
corporate alter ego of the Company, and thus disqualifying the
treatment of the distributions from the Company as distributions
in complete liquidation of the Company.
U.S.
Income Tax Consequences of Backup Withholding
Unless a stockholder complies with certain reporting
and/or
certification procedures or is an exempt recipient under
applicable provisions of the Code and Treasury Regulations, he,
she or it may be subject to
back-up
withholding tax with respect to any payments received under the
liquidation. The
back-up
withholding tax is currently imposed at a rate of 28%, but is
scheduled to increase to 31% in 2013.
Back-up
withholding generally will not apply to payments made to some
exempt recipients such as a corporation or financial institution
or to a stockholder who furnishes a correct taxpayer
identification number or provides a certificate of foreign
status and provides certain other required information. If
back-up
withholding applies, the amount withheld is not an additional
tax, but is credited against the stockholders
U.S. Federal income tax liability.
Certain
U.S. State and Local Income Tax Consequences of the Complete
Liquidation and Dissolution
We may be subject to liability for state and local taxes with
respect to the sale of assets. Stockholders may also be subject
to liability for state and local taxes with respect to the
receipt of liquidating distributions and their interests in the
liquidating trust. State and local tax laws may differ in
various respects from Federal income tax law. Stockholders
should consult their tax advisors with respect to the state and
local tax consequences of the proposed liquidation and
dissolution pursuant to the Complete Liquidation and the Plan of
Dissolution.
Taxation
of Other
Non-United
States Stockholders
FOREIGN CORPORATIONS OR PERSONS WHO ARE NOT CITIZENS OR
RESIDENTS OF THE UNITED STATES SHOULD CONSULT THEIR TAX ADVISORS
WITH RESPECT TO THE U.S. AND
NON-U.S. TAX
CONSEQUENCES OF THE COMPLETE LIQUIDATION AND THE DISSOLUTION.
Taxation
Generally
THE FOREGOING SUMMARY OF CERTAIN INCOME TAX CONSEQUENCES OF THE
COMPLETE LIQUIDATION AND DISSOLUTION IS INCLUDED FOR GENERAL
INFORMATION ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE TO ANY
STOCKHOLDER. THE TAX CONSEQUENCES OF THE COMPLETE LIQUIDATION
AND THE DISSOLUTION MAY VARY DEPENDING UPON THE PARTICULAR
CIRCUMSTANCES OF THE STOCKHOLDER. WE STRONGLY RECOMMEND THAT
58
EACH STOCKHOLDER CONSULT HIS OR HER OWN TAX ADVISOR REGARDING
THE TAX CONSEQUENCES OF THE COMPLETE LIQUIDATION AND THE
DISSOLUTION.
The
approval of Proposal No. 2 is not contingent on
approval of Proposal No. 1.
THE BOARD
OF DIRECTORS RECOMMENDS A VOTE FOR
PROPOSAL NO. 2.
PROPOSAL NO. 3
NON-BINDING
ADVISORY VOTE ON CERTAIN COMPENSATION AND OTHER
PAYMENTS
TO EXECUTIVES
In the event there is a change in control and our named
executive officers are employed at the time of the change in
control, all of the named executive officers unvested
restricted stock shall become fully vested on the date of such
change in control. Generally, if within 12 months of the
change in control the Company terminates the employment of any
of the Companys named executive officers without cause, or
the named executive officers terminate their employment with
good reason, the Company will be obligated to pay the named
executive officers an amount equal to the sum of one or two
times his or her annual base salary (depending on his or her
position) and his or her target annual incentive compensation,
payable in installments over a 12- month period. The named
executive officers will each continue to receive benefits and
perquisites for a period of 12 months. A change in control
for purposes of the foregoing will occur upon: (i) the
consummation of a tender offer for the ownership of more than
80% of the Companys outstanding voting securities;
(ii) the sale of all or substantially all of the
Companys assets; or (iii) the acquisition of more
than 50% of the Companys outstanding voting securities by
a person. The completion of the sale of all or substantially all
of the Remaining Assets as described in
Proposal No. 1
,
will constitute a change in
control of the Company and trigger the full vesting of the named
executive officers unvested restricted stock.
The SEC rules require MedCath to disclose and conduct an
advisory vote on the compensation that would be payable to our
named executive officers in the event of a change in control of
the Company and the executives were terminated immediately
thereafter without cause or resigned for good reason. That
compensation is shown in the table below. This proposal gives
MedCath stockholders, the opportunity to endorse or not endorse
the payments our named executive officers will be entitled to
receive upon the sale or all or substantially all of
MedCaths assets and the dissolution of the Company. The
details of these payments are set forth below.
Golden
Parachute Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension/
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Qualified
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
Prequisites/
|
|
Tax
|
|
|
|
|
Name
|
|
Cash
|
|
Equity(3)
|
|
Compensation
|
|
Benefits(7)
|
|
Reimbursement
|
|
Other
|
|
Total
|
|
O. Edwin French
|
|
$
|
1,770,313
|
(1)
|
|
$
|
2,429,285
|
(4)
|
|
$
|
|
|
|
$
|
15,797
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,215,393
|
|
President, Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James A. Parker
|
|
|
901,250
|
(1)
|
|
$
|
666,767
|
(5)
|
|
|
|
|
|
|
21,966
|
|
|
|
|
|
|
|
|
|
|
$
|
1,589,982
|
|
Executive Vice President,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Bussone(8)
|
|
|
|
|
|
$
|
500,649
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
500,649
|
|
Executive Vice President and
President Operations Division
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joan McCanless
|
|
|
633,888
|
(1)
|
|
$
|
283,616
|
|
|
|
|
|
|
|
8,467
|
|
|
|
|
|
|
|
|
|
|
$
|
925,970
|
|
Senior Vice President and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Clinical and Compliance Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dan Perritt
|
|
|
375,435
|
(2)
|
|
$
|
110,813
|
|
|
|
|
|
|
|
3,949
|
|
|
|
|
|
|
|
|
|
|
$
|
490,195
|
|
Senior Vice President, Finance
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
|
|
|
(1)
|
|
Two times salary plus one times target annual incentive
compensation
|
|
(2)
|
|
One times salary plus one times target annual incentive
compensation
|
|
(3)
|
|
Based on the average stock close price the five days subsequent
to May 9, 2011, which was the date of the public
announcment of the Companys plan to seek stockholder
approval of dissolution
|
|
(4)
|
|
Includes 100,636 shares that have vested, but that contain
sales restrictions that will be lifted upon a technical change
in control
|
|
(5)
|
|
Includes 26,347 shares that have vested, but that contain
sales restrictions that will be lifted upon a technical change
in control
|
|
(6)
|
|
Includes 34,671 shares that have vested, but that contain
sales restrictions that will be lifted upon a technical change
in control
|
|
(7)
|
|
Includes extended healthcare benefits after termination as the
result of a change in control
|
|
(8)
|
|
Mr. Bussones employment with the Company was
terminated in December 2010
|
With respect to the Companys named executive officers, all
payments set forth above, other than equity awards, are
considered double trigger benefits meaning that in
order for these named executive officers to receive such payment
there would need to be a change in control and such named
executive officer would have to be terminated other than for
cause or would have to resign for good reason. The equity awards
for the named executive officers are single trigger
meaning the unvested portion of the awards will be fully vested
and immediately exercisable upon the occurrence of a change in
control.
As a condition of receiving the benefits outlined, each of the
Companys named executive officers agreed to a prohibition
on the disclosure of the Companys confidential information
at all times following the officers termination, with
certain limited exceptions, and not to compete with the Company
for a period of either one year or eighteen months, depending on
the officers position. Additionally, Mr. French
agreed not to disparage the Company following his termination.
The Company believes that it is in the best interest of the
stockholders for key management individuals to remain with the
Company in the event of a change in control and that the
payments described above are designed to encourage retention of
the named executive officers.
OUR BOARD
OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR PROPOSAL
NO. 3.
PROPOSAL NO. 4
ADJOURNMENT
At the Special Meeting, we may ask our stockholders to vote on a
proposal to adjourn the Special Meeting if necessary or
appropriate in the sole discretion of our Board of Directors,
including to solicit additional proxies for one or more
proposals in the event that there are not sufficient votes at
the time of the Special Meeting or any adjournment thereof to
approve one or more of the proposals.
If at the Special Meeting the number of shares of our common
stock present or represented by proxy and voting in favor of
either of the Asset Sale-Complete Liquidation Proposal or the
Dissolution Proposal is insufficient to approve those proposals,
then our Board of Directors currently intends to move to adjourn
the Special Meeting in order to solicit additional proxies in
favor of the proposals. If at the Special Meeting the number of
shares of our common stock present or represented by proxy and
voting in favor of either of the Asset Sale-Complete Liquidation
Proposal or the Dissolution Proposal is insufficient to approve
such proposal (but where sufficient votes are received to
approve the other proposal), then our Board of Directors may
take a vote and close the polls on the proposal which has
received the requisite stockholder approval, but adjourn the
meeting in order to solicit additional votes solely with respect
to the proposal as to which there are insufficient votes to
approve the proposal. For example, if MedCath has received
proxies sufficient to approve the Asset Sale-Complete
Liquidation Proposal but not the Dissolution Proposal, then our
Board of Directors may elect to take a vote and close the polls
on the Asset Sale-Complete Liquidation Proposal while adjourning
the Special Meeting to solicit additional votes with respect to
the Dissolution Proposal. This would enable MedCath to proceed
with its efforts to complete the sale of all or substantially
all of the Remaining Assets even if we
60
elected to adjourn the Special Meeting to seek additional votes
to approve the Dissolution Proposal. Voting in favor of the
adjournment proposal will allow MedCath to take such actions.
Alternatively, even if there are sufficient shares of our common
stock present or represented by proxy voting in favor of the
Asset Sale-Complete Liquidation Proposal and the Dissolution
Proposal, our Board of Directors may hold a vote on the
adjournment proposal if, in its sole discretion, it determines
that it is necessary or appropriate for any reason to adjourn
the Special Meeting to a later date and time. In that event,
MedCath will ask its stockholders to vote only upon the
adjournment proposal and not the Asset Sale-Complete Liquidation
Proposal or the Dissolution Proposal.
Any adjourned meeting may be convened without additional notice
(if the adjournment is not for more than thirty days and a new
record date is not fixed for the adjourned meeting), other than
by an announcement made at the Special Meeting of the time, date
and place of the adjourned meeting.
Any adjournment of the Special Meeting will allow our
stockholders who have already sent in their proxies to revoke
them at any time prior to their use at the Special Meeting as
adjourned. Where a vote has been taken (and the polls have been
closed) with respect to one proposal at the Special Meeting, but
where the Special Meeting has been adjourned solely with respect
to the other proposal, then a stockholder may revoke a proxy
only with respect to the proposal as to which the Special
Meeting was adjourned.
If we adjourn the Special Meeting to a later date, we will
transact the same business and, unless we must fix a new record
date, only the stockholders who were eligible to vote at the
original meeting will be permitted to vote at the adjourned
meeting.
THE BOARD
OF DIRECTORS RECOMMENDS A VOTE FOR
PROPOSAL NO. 4.
61
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents information concerning the
beneficial ownership of the shares of MedCath common stock
outstanding as of August 4, 2011 for:
|
|
|
|
|
each person who is known by the Company to be the beneficial
owner of more than five percent of the outstanding shares of
MedCaths common stock,
|
|
|
|
each named executive officer of the Company,
|
|
|
|
each director of the Company, and
|
|
|
|
MedCaths executive officers and directors as a group.
|
Beneficial ownership is determined under the rules of the SEC
and generally includes voting or investment power over
securities. Except as indicated in the footnotes to this table,
MedCath believes each stockholder identified in the table
possesses sole voting and investment power over all shares of
common stock shown as beneficially owned by the stockholder.
Shares of common stock subject to options that are exercisable
within 60 days of August 4, 2011 are considered
outstanding and beneficially owned by the person holding the
options for the purpose of computing the percentage ownership of
that person but are not treated as outstanding for the purpose
of computing the percentage ownership of another person.
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
Common
|
|
|
Number of Shares
|
|
Stock
|
Name of Beneficial Owner
|
|
Beneficially Owned(1)
|
|
Outstanding
|
|
Nierenberg Investment Management Company, Inc.(2)
|
|
|
2,924,777
|
|
|
|
14
|
%
|
Dimensional Fund Advisors LP(3)
|
|
|
1,691,949
|
|
|
|
8
|
%
|
PAR Capital Management, Inc.(4)
|
|
|
1,650,100
|
|
|
|
8
|
%
|
WS Capital Management LP(5)
|
|
|
1,500,000
|
|
|
|
7
|
%
|
BlackRock Fund Advisors(6)
|
|
|
1,410,344
|
|
|
|
7
|
%
|
O. Edwin French
|
|
|
798,353
|
|
|
|
4
|
%
|
James A. Parker
|
|
|
125,161
|
|
|
|
1
|
%
|
Joan McCanless
|
|
|
56,416
|
|
|
|
*
|
|
David Bussone
|
|
|
34,671
|
|
|
|
*
|
|
Paul Daniel Perritt
|
|
|
8,710
|
|
|
|
*
|
|
Jacque J. Sokolov, MD
|
|
|
35,720
|
|
|
|
*
|
|
John T. Casey
|
|
|
36,405
|
|
|
|
*
|
|
Robert S. McCoy, Jr.
|
|
|
32,405
|
|
|
|
*
|
|
Pamela G. Bailey
|
|
|
21,905
|
|
|
|
*
|
|
Woodrin Grossman
|
|
|
21,905
|
|
|
|
*
|
|
James A. Deal
|
|
|
12,800
|
|
|
|
*
|
|
Directors and executive officers, as a group (11 persons)
|
|
|
1,184,451
|
|
|
|
6
|
%
|
|
|
|
*
|
|
Represents holdings of less than 1%.
|
|
(1)
|
|
The following shares of common stock subject to options that are
currently exercisable or exercisable within 60 days of
August 4, 2011: O. Edwin French, 570,000; James A. Parker,
57,500; Joan McCanless, 16,000; Jacque J. Sokolov, 10,500;
and Robert S. McCoy, Jr., 10,500.
|
|
(2)
|
|
The address of this stockholder is 19605 N.E. 8th Street, Camas,
Washington 98607. The Schedule 13F filed by this
stockholder on May 31, 2011 indicates that this
stockholder, in its capacity as investment advisor, may be
deemed to have defined voting and dispositive power over
2,924,777 shares.
|
|
(3)
|
|
The address of this stockholder is 6300 Bee Cave Road, Building
One, Austin, Texas 78746. The Schedule 13F filed by this
stockholder on March 31, 2011 indicates that this
stockholder, in its capacity as investment advisor, may be
deemed to have defined voting and dispositive power over
1,691,949 shares.
|
|
(4)
|
|
The address of this stockholder is PAR Capital Management, Inc.,
One International Place, Suite 2401, Boston, MA 02110. The
schedule 13F filed by this stockholder on March 31,
2011 indicates that this
|
62
|
|
|
|
|
stockholder, in its capacity as investment advisor, may be
deemed to have sole voting and dispositive power over
1,650,100 shares.
|
|
(5)
|
|
The address of this stockholder is 300 Crescent Court,
Suite 1111, Dallas, Texas 75201. The Schedule 13F
filed by this stockholder on March 31, 2011 indicates that
this stockholder, in its capacity as investment advisor, may be
deemed to have sole voting and dispositive power over
1,500,000 shares.
|
|
(6)
|
|
The address of this stockholder is 400 Howard Street,
San Francisco, California 94105. The Schedule 13F
filed by this stockholder on June 30, 2011 indicates that
this stockholder, in its capacity as investment advisor, may be
deemed to have sole voting and dispositive power over
1,410,344 shares.
|
INTERESTS
OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Upon the completion of the sale of all or substantially all of
the remaining assets of the Company, the equity awards held by
our executive officers will become fully vested and exercisable.
In addition, if within 12 months of such sale, the Company
terminates the employment of any named executive officer of the
Company without cause or any such named executive officer
resigns with good reason, the named executive officer will be
entitled to receive severance payments and continued benefits
and perquisites. The equity award vesting and severance benefits
are described in more detail in
Proposal No. 3 Non-Binding Advisory
Vote on Certain Compensation and Other Payments To
Executives.
OTHER
MATTERS
Stockholder
Proposals
If we hold a 2012 annual meeting of the stockholders, proposals
of stockholders intended to be presented at the Companys
2012 annual meeting and included in the Companys proxy
materials relating to that meeting must be received by the
Company at its principal executive offices addressed to the
Secretary of the Company no later than the close of business on
February 28, 2012. Proposals of stockholders intended to be
presented at the 2012 annual meeting that the Company may not be
required to include in its proxy materials relating to the
meeting or nominations of persons for election to the Board by a
stockholder, must be delivered to or mailed and received at the
Companys principal executive offices addressed to the
Secretary of the Company no earlier than May 12, 2012 and
no later than June 11, 2012.
Expenses
and Solicitation
The Company will bear the entire cost of this proxy
solicitation, including the preparation, printing, and mailing
of the proxy statement, the proxy and any additional soliciting
materials sent by the Company to stockholders. The Company may
reimburse brokerage firms and other persons representing
beneficial owners of shares for reasonable expenses incurred by
them in forwarding proxy soliciting materials to such beneficial
owners. In addition to solicitations by mail, certain of the
Companys directors, officers, and regular employees,
without additional remuneration, may solicit proxies by
telephone, facsimile, and personal interviews. Solicitation by
officers and employees of the Company may also be made of some
stockholders in person or by mail, telephone, or facsimile
following the original solicitation.
Delivery
of Proxy Statements
As permitted by the Exchange Act, only one copy of this proxy
statement is being delivered to stockholders residing at the
same address, unless such stockholders have notified us of their
desire to receive multiple copies of the proxy statement.
We will promptly deliver, upon oral or written request, a
separate copy of this proxy statement to any stockholder
residing at a shared address to which only one copy was mailed.
Requests for additional copies of this proxy statement, requests
to receive multiple copies of future proxy statements or annual
reports and requests to receive only one copy of future proxy
statements or annual reports should be directed to James A.
Parker, Secretary, at MedCaths principal executive
offices, 10720 Sikes Place, Suite 200, Charlotte,
North Carolina 28277,
(704) 815-7700.
63
INCORPORATION
BY REFERENCE
The following documents, which have been filed by the Company
with the SEC, copies of which can be found on the SECs
website at
http://www.sec.gov,
are incorporated into this proxy statement by reference thereto:
|
|
|
|
|
The Companys Annual Report on
Form 10-K
for the fiscal year ended September 30, 2010 filed with the
SEC on December 14, 2010 (other than the information
included in Items 6 and 8 to such report, which has been
superseded by the Current Report on
Form 8-K
filed by the Company on May 27, 2011) and amended by
our Annual Report on
Form 10-K/A
filed with the SEC on January 28, 2011.
|
|
|
|
The Companys Quarterly Report on
Form 10-Q
for the fiscal quarter ended December 31, 2010 filed with
the SEC on February 9, 2011.
|
|
|
|
The Companys Quarterly Report on
Form 10-Q
for the fiscal quarter ended March 31, 2011 filed with the
SEC on May 10, 2011.
|
|
|
|
The Companys Current Reports on
Form 8-K
filed with the SEC on October 5, 2010, November 5,
2010, November 9, 2010, November 15, 2010,
November 26, 2010, December 22, 2010, January 6,
2011, May 12, 2011, May 27, 2011, June 16, 2011,
June 16, 2011, July 27, 2011 and August 4, 2011.
|
|
|
|
The Companys Definitive Proxy Statement on
Schedule 14A filed with the SEC on June 27, 2011.
|
Other than the current report on
Form 8-K
listed above that is hereby expressly incorporated by reference,
we are not incorporating by reference any current reports that
are not deemed to be filed for purposes of
Section 18 of the Exchange Act, and will not incorporate by
reference future filings of current reports on
Form 8-K
into a filing under the Securities Act of 1933, as amended, or
the Exchange Act or into this proxy statement that are not
deemed to be filed for purposes of Section 18
of the Exchange Act.
All documents filed by the Company under Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act, after the
date hereof and before the date of the Special Meeting are
deemed to be incorporated by reference into and to be a part of
this proxy statement from the date of filing of those documents.
Any statement contained in a document incorporated or deemed to
be incorporated in this proxy statement by reference will be
deemed to be modified or superseded for purposes of this proxy
statement to the extent that a statement contained in this proxy
statement or any other subsequently filed document that is
deemed to be incorporated in this proxy statement by reference
modifies or supersedes the statement. Any statement so modified
or superseded will not be deemed, except as so modified or
superseded, to constitute a part of this proxy statement.
WHERE YOU
CAN FIND ADDITIONAL INFORMATION
The Company files annual, quarterly and current reports, proxy
statements and other information with the SEC. You may read and
copy any reports, proxy statements or other information that we
file with the SEC at the following location of the SEC, Public
Reference Room, 100 F Street, N.E.,
Washington, D.C. 20549.
Please call the SEC at
1-800-SEC-0330
for further information on the public reference rooms. You may
also obtain copies of this information by mail from the Public
Reference Section of the SEC, 100 F Street, N.E.,
Washington, D.C. 20549, at prescribed rates. The
Companys public filings are also available to the public
from document retrieval services and the Internet website
maintained by the SEC at www.sec.gov.
Any person, including any beneficial owner, to whom this proxy
statement is delivered may request copies of reports, proxy
statements or other information concerning us, including any
information incorporated into this proxy statement by reference,
without charge, by written or telephonic request directed to us
at MedCath Corporation, 10720 Sikes Place, Suite 200,
Charlotte, North Carolina 28277, Telephone:
(704) 815-7700,
Attention: James A. Parker, Secretary.
No persons have been authorized to give any information or to
make any representations other than those contained in this
proxy statement and, if given or made, such information or
representations must not be relied upon as having been
authorized by us or any other person. You should not assume that
the information contained in this proxy statement is accurate as
of any date other than the date on which this proxy statement is
first mailed to stockholders, and the mailing of this proxy
statement to our stockholders shall not create any implication
to the contrary.
64
MedCath
Corporation
Unaudited
Pro Forma Consolidated Financial Statements
Pro Forma
Financial Statements
The following presents our unaudited pro forma statements of
operations for the fiscal year ended September 30, 2010,
2009 and 2008 and as of and for the three and six months ended
March 31, 2011 and 2010 and our unaudited pro forma balance
sheet as of March 31, 2011. The pro forma statements of
operations give effect to the sale of Heart Hospital of New
Mexico and Arkansas Heart Hospital, which occurred on
August 1, 2011, as if each had occurred at October 1,
2009. The unaudited pro forma balance sheet as of March 31,
2011 has been prepared as if the sale of Heart Hospital of New
Mexico and Arkansas Heart Hospital and the net proceeds had
occurred on that date.
The unaudited pro forma financial information is for
informational purposes only and does not purport to present what
our results would actually have been had these transactions
actually occurred on the dates presented or to project our
results of operations or financial position for any future
period. You should read the information set forth below together
with (i) MedCath Corporations consolidated financial
statements as of September 30, 2010 and 2009 and for each
of the years in the three-year period ended September 30,
2010, including the notes thereto, included in MedCath
Corporations Annual Report on
Form 8-K
for the fiscal year ended September 30, 2010, and
(ii) MedCath Corporations unaudited consolidated
financial statements as of March 31, 2011 and for each of
the three and six-month periods ended March 31, 2011 and
2010, including the notes thereto, included in MedCath
Corporations
Form 10-Q.
65
MedCath
Corporation Financial Information
Index
|
|
|
|
|
|
|
Page
|
|
Unaudited Pro Forma Financial Statements:
|
|
|
|
|
|
|
|
67
|
|
|
|
|
69
|
|
|
|
|
71
|
|
|
|
|
73
|
|
|
|
|
75
|
|
|
|
|
77
|
|
|
|
|
79
|
|
|
|
|
81
|
|
66
MEDCATH
CORPORATION
REFLECTING THE SALE OF HEART HOSPTIAL OF NEW
MEXICO & ARKANSAS HEART HOSPITAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
|
|
|
|
|
|
|
Sale of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of
|
|
|
Coastal
|
|
|
|
|
|
|
|
|
HHNM
|
|
|
AHH
|
|
|
|
|
|
|
Company
|
|
|
MedCath
|
|
|
Carolina
|
|
|
Repayment
|
|
|
Company
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
Company
|
|
|
|
Historical(1)
|
|
|
Partners(2)
|
|
|
Heart(3)
|
|
|
of Debt(4)
|
|
|
Recast
|
|
|
Adjustments(5)
|
|
|
Adjustments(6)
|
|
|
Pro Forma
|
|
|
|
(In thousands, except share data)
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
119,735
|
|
|
$
|
15,801
|
|
|
$
|
3,064
|
|
|
$
|
(30,166
|
)
|
|
$
|
108,434
|
|
|
$
|
51,798
|
|
|
$
|
59,995
|
|
|
$
|
220,227
|
|
Accounts receivable, net
|
|
|
49,748
|
|
|
|
(1,403
|
)
|
|
|
509
|
|
|
|
|
|
|
|
48,854
|
|
|
|
(10,688
|
)
|
|
|
(14,079
|
)
|
|
|
24,087
|
|
Income tax receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical supplies
|
|
|
10,373
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
10,364
|
|
|
|
(1,842
|
)
|
|
|
(3,454
|
)
|
|
|
5,068
|
|
Deferred income tax assets
|
|
|
8,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,500
|
|
|
|
|
|
|
|
|
|
|
|
8,500
|
|
Prepaid expenses and other current assets
|
|
|
12,949
|
|
|
|
(61
|
)
|
|
|
|
|
|
|
|
|
|
|
12,888
|
|
|
|
(1,939
|
)
|
|
|
(2,524
|
)
|
|
|
8,425
|
|
Current assets of discontinued operations
|
|
|
46,619
|
|
|
|
1,403
|
|
|
|
|
|
|
|
|
|
|
|
48,022
|
|
|
|
10,688
|
|
|
|
|
|
|
|
58,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
247,924
|
|
|
|
15,731
|
|
|
|
3,573
|
|
|
|
(30,166
|
)
|
|
|
237,062
|
|
|
|
48,017
|
|
|
|
39,938
|
|
|
|
325,017
|
|
Property and equipment, net
|
|
|
153,469
|
|
|
|
(6,207
|
)
|
|
|
|
|
|
|
|
|
|
|
147,262
|
|
|
|
(26,892
|
)
|
|
|
(39,022
|
)
|
|
|
81,348
|
|
Other assets
|
|
|
18,484
|
|
|
|
(545
|
)
|
|
|
(605
|
)
|
|
|
|
|
|
|
17,334
|
|
|
|
(1,471
|
)
|
|
|
(59
|
)
|
|
|
15,804
|
|
Non-current assets of discontinued operations
|
|
|
1,152
|
|
|
|
2,546
|
|
|
|
|
|
|
|
|
|
|
|
3,698
|
|
|
|
253
|
|
|
|
|
|
|
|
3,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
421,029
|
|
|
$
|
11,525
|
|
|
$
|
2,968
|
|
|
$
|
(30,166
|
)
|
|
$
|
405,356
|
|
|
$
|
19,907
|
|
|
$
|
857
|
|
|
$
|
426,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
16,633
|
|
|
$
|
(83
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
16,550
|
|
|
$
|
(3,131
|
)
|
|
$
|
(5,267
|
)
|
|
$
|
8,152
|
|
Income tax payable
|
|
|
3,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,205
|
|
|
|
|
|
|
|
|
|
|
|
3,205
|
|
Accrued compensation and benefits
|
|
|
14,775
|
|
|
|
(314
|
)
|
|
|
|
|
|
|
|
|
|
|
14,461
|
|
|
|
(1,679
|
)
|
|
|
(3,450
|
)
|
|
|
9,332
|
|
Other accrued liabilities
|
|
|
15,503
|
|
|
|
(150
|
)
|
|
|
|
|
|
|
|
|
|
|
15,353
|
|
|
|
(2,496
|
)
|
|
|
(3,449
|
)
|
|
|
9,408
|
|
Current portion of long-term debt and obligations under capital
leases
|
|
|
32,793
|
|
|
|
(112
|
)
|
|
|
|
|
|
|
(30,166
|
)
|
|
|
2,515
|
|
|
|
(2,070
|
)
|
|
|
(55
|
)
|
|
|
390
|
|
Current liabilities of discontinued operations
|
|
|
14,174
|
|
|
|
333
|
|
|
|
|
|
|
|
|
|
|
|
14,507
|
|
|
|
5,278
|
|
|
|
|
|
|
|
19,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
97,083
|
|
|
|
(326
|
)
|
|
|
|
|
|
|
(30,166
|
)
|
|
|
66,591
|
|
|
|
(4,098
|
)
|
|
|
(12,221
|
)
|
|
|
50,272
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations under capital leases
|
|
|
5,191
|
|
|
|
(443
|
)
|
|
|
|
|
|
|
|
|
|
|
4,748
|
|
|
|
(3,850
|
)
|
|
|
(147
|
)
|
|
|
751
|
|
Other long-term obligations
|
|
|
2,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,804
|
|
|
|
(1,218
|
)
|
|
|
(53
|
)
|
|
|
1,533
|
|
Long-term liabilities of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
105,078
|
|
|
|
(769
|
)
|
|
|
|
|
|
|
(30,166
|
)
|
|
|
74,143
|
|
|
|
(9,166
|
)
|
|
|
(12,421
|
)
|
|
|
52,556
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interest
|
|
|
7,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,356
|
|
|
|
|
|
|
|
(7,356
|
)
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, 10,000,000 shares
authorized; none issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 50,000,000 shares
authorized; 22,281,828 issued and 20,327,467 outstanding at
March 31,
|
|
|
216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
216
|
|
|
|
|
|
|
|
|
|
|
|
216
|
|
Paid-in capital
|
|
|
458,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
458,573
|
|
|
|
|
|
|
|
|
|
|
|
458,573
|
|
Accumulated deficit
|
|
|
(116,247
|
)
|
|
|
12,294
|
|
|
|
2,968
|
|
|
|
|
|
|
|
(100,985
|
)
|
|
|
32,818
|
|
|
|
20,634
|
|
|
|
(47,533
|
)
|
Accumulated other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock, at cost; 1,954,361 shares at March 31,
2011
|
|
|
(44,797
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44,797
|
)
|
|
|
|
|
|
|
|
|
|
|
(44,797
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MedCath Corporation stockholders equity
|
|
|
297,745
|
|
|
|
12,294
|
|
|
|
2,968
|
|
|
|
|
|
|
|
313,007
|
|
|
|
32,818
|
|
|
|
20,634
|
|
|
|
366,459
|
|
Noncontrolling interest
|
|
|
10,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,850
|
|
|
|
(3,745
|
)
|
|
|
|
|
|
|
7,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
308,595
|
|
|
|
12,294
|
|
|
|
2,968
|
|
|
|
|
|
|
|
323,857
|
|
|
|
29,073
|
|
|
|
20,634
|
|
|
|
373,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
421,029
|
|
|
$
|
11,525
|
|
|
$
|
2,968
|
|
|
$
|
(30,166
|
)
|
|
$
|
405,356
|
|
|
$
|
19,907
|
|
|
$
|
857
|
|
|
$
|
426,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67
|
|
|
(1)
|
|
As reported in the Companys
Form 8-K
on May 27, 2011.
|
|
(2)
|
|
Reflects the sale of MedCath Partners, which was effective on
May 1, 2011, including the reclassification of retained
assets and liabilities as discontinued operations and the net
proceeds from the sale.
|
|
(3)
|
|
Reflects the net proceeds from the sale of Coastal Carolina
Heart, which was effective on May 6, 2011.
|
|
(4)
|
|
Reflects the impact of the repayment of debt under the credit
facility, which was repaid and terminated on May 9, 2011.
|
|
(5)
|
|
Impact of the August 1, 2011 sale of Heart Hospital of New
Mexico with the retained assets and liabilities reflected as
discontinued operations.
|
|
(6)
|
|
Impact of the August 1, 2011 sale of Arkansas Heart
Hospital. The AHH transaction is an equity sale with no retained
assets or liabilities.
|
68
MEDCATH
CORPORATION
REFLECTING THE SALE OF HEART HOSPTIAL OF NEW
MEXICO & ARKANSAS HEART HOSPITAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended September 30, 2010
|
|
|
|
|
|
|
Reclassification of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MedCath
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners as a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Discontinued
|
|
|
Company
|
|
|
Sale of
|
|
|
Sale of
|
|
|
Company
|
|
|
|
Historical(1)
|
|
|
Operation(2)
|
|
|
Recast(3)
|
|
|
HHNM(4)
|
|
|
AHH(5)
|
|
|
Pro Forma
|
|
|
|
(In thousands, except per share data)
|
|
|
Net revenue
|
|
$
|
376,926
|
|
|
$
|
(11,440
|
)
|
|
$
|
365,486
|
|
|
$
|
(81,232
|
)
|
|
$
|
(117,843
|
)
|
|
$
|
166,411
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel expense
|
|
|
128,663
|
|
|
|
(3,606
|
)
|
|
|
125,057
|
|
|
|
(22,032
|
)
|
|
|
(36,291
|
)
|
|
|
66,734
|
|
Medical supplies expense
|
|
|
91,931
|
|
|
|
(461
|
)
|
|
|
91,470
|
|
|
|
(21,213
|
)
|
|
|
(36,847
|
)
|
|
|
33,410
|
|
Bad debt expense
|
|
|
40,620
|
|
|
|
(22
|
)
|
|
|
40,598
|
|
|
|
(5,438
|
)
|
|
|
(11,355
|
)
|
|
|
23,805
|
|
Other operating expenses
|
|
|
91,635
|
|
|
|
(4,950
|
)
|
|
|
86,685
|
|
|
|
(17,166
|
)
|
|
|
(16,060
|
)
|
|
|
53,459
|
|
Pre-opening expenses
|
|
|
866
|
|
|
|
|
|
|
|
866
|
|
|
|
|
|
|
|
|
|
|
|
866
|
|
Depreciation
|
|
|
23,675
|
|
|
|
(3,186
|
)
|
|
|
20,489
|
|
|
|
(2,934
|
)
|
|
|
(5,334
|
)
|
|
|
12,221
|
|
Amortization
|
|
|
32
|
|
|
|
|
|
|
|
32
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
Impairment of long-lived assets and goodwill
|
|
|
66,822
|
|
|
|
(800
|
)
|
|
|
66,022
|
|
|
|
|
|
|
|
|
|
|
|
66,022
|
|
Loss (gain) on disposal of property, equipment and other assets
|
|
|
(36
|
)
|
|
|
49
|
|
|
|
13
|
|
|
|
(43
|
)
|
|
|
(24
|
)
|
|
|
(54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
444,208
|
|
|
|
(12,976
|
)
|
|
|
431,232
|
|
|
|
(68,858
|
)
|
|
|
(105,911
|
)
|
|
|
256,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(67,282
|
)
|
|
|
1,536
|
|
|
|
(65,746
|
)
|
|
|
(12,374
|
)
|
|
|
(11,932
|
)
|
|
|
(90,052
|
)
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(4,278
|
)
|
|
|
18
|
|
|
|
(4,260
|
)
|
|
|
311
|
|
|
|
14
|
|
|
|
(3,935
|
)
|
Interest and other income, net
|
|
|
82
|
|
|
|
112
|
|
|
|
194
|
|
|
|
(66
|
)
|
|
|
(41
|
)
|
|
|
87
|
|
Loss on note receivable
|
|
|
(1,507
|
)
|
|
|
|
|
|
|
(1,507
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,507
|
)
|
Equity in net earnings of unconsolidated affiliates
|
|
|
7,267
|
|
|
|
(1,908
|
)
|
|
|
5,359
|
|
|
|
|
|
|
|
|
|
|
|
5,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
1,564
|
|
|
|
(1,778
|
)
|
|
|
(214
|
)
|
|
|
245
|
|
|
|
(27
|
)
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(65,718
|
)
|
|
|
(242
|
)
|
|
|
(65,960
|
)
|
|
|
(12,129
|
)
|
|
|
(11,959
|
)
|
|
|
(90,048
|
)
|
Income tax (expense) benefit
|
|
|
(26,178
|
)
|
|
|
(93
|
)
|
|
|
(26,271
|
)
|
|
|
(3,687
|
)
|
|
|
(3,347
|
)
|
|
|
(33,305
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(39,540
|
)
|
|
|
(149
|
)
|
|
|
(39,689
|
)
|
|
|
(8,442
|
)
|
|
|
(8,612
|
)
|
|
|
(56,743
|
)
|
Less: income (loss) attributable to noncontrolling interest
|
|
|
(12,389
|
)
|
|
|
|
|
|
|
(12,389
|
)
|
|
|
2,530
|
|
|
|
3,245
|
|
|
|
(6,614
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss attributable to MedCath Corporation
|
|
$
|
(51,929
|
)
|
|
$
|
(149
|
)
|
|
$
|
(52,078
|
)
|
|
$
|
(5,912
|
)
|
|
$
|
(5,367
|
)
|
|
$
|
(63,357
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income from continuing operations attributable to MedCath
Corporation common stockholders, net of taxes
|
|
$
|
(50,485
|
)
|
|
$
|
(149
|
)
|
|
$
|
(50,634
|
)
|
|
$
|
(5,912
|
)
|
|
$
|
(5,367
|
)
|
|
$
|
(61,913
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share, basic
|
|
$
|
(2.55
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(2.55
|
)
|
|
$
|
(0.30
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(3.12
|
)
|
Loss per share, diluted
|
|
$
|
(2.55
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(2.55
|
)
|
|
$
|
(0.30
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(3.12
|
)
|
Weighted average number of shares, basic
|
|
|
19,842
|
|
|
|
19,842
|
|
|
|
19,842
|
|
|
|
19,842
|
|
|
|
19,842
|
|
|
|
19,842
|
|
Dilutive effect of stock options and restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares, diluted
|
|
|
19,842
|
|
|
|
19,842
|
|
|
|
19,842
|
|
|
|
19,842
|
|
|
|
19,842
|
|
|
|
19,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69
|
|
|
(1)
|
|
As reported in the Companys
Form 8-K
on May 27, 2011.
|
|
(2)
|
|
Includes the historical results of MedCath Partners, which was
effective May 1, 2011. The reclassification does not
include the proforma effects of the net gain related to the sale
as it would be reported in discontinued operations.
|
|
(3)
|
|
Represents the Companys historical financial statements
recast to exclude the historical operations of MedCath Partners.
|
|
(4)
|
|
Impact of the August 1, 2011 sale of Heart Hospital of New
Mexico as though the sale occurred at the beginning of the
reporting period.
|
|
(5)
|
|
Impact of the August 1, 2011 sale of Arkansas Heart
Hospital as though the sale occurred at the beginning of the
reporting period.
|
70
MEDCATH
CORPORATION
REFLECTING THE SALE OF HEART HOSPTIAL OF NEW
MEXICO & ARKANSAS HEART HOSPITAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended September 30, 2009
|
|
|
|
|
|
|
Reclassification of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MedCath
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners as a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Discontinued
|
|
|
Company
|
|
|
Sale of
|
|
|
Sale of
|
|
|
Company
|
|
|
|
Historical(1)
|
|
|
Operation(2)
|
|
|
Recast(3)
|
|
|
HHNM(4)
|
|
|
AHH(5)
|
|
|
Pro Forma
|
|
|
|
(In thousands, except per share data)
|
|
|
Net revenue
|
|
$
|
343,849
|
|
|
$
|
(16,645
|
)
|
|
$
|
327,204
|
|
|
$
|
(75,425
|
)
|
|
$
|
(117,650
|
)
|
|
$
|
134,129
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel expense
|
|
|
114,893
|
|
|
|
(6,187
|
)
|
|
|
108,706
|
|
|
|
(21,295
|
)
|
|
|
(36,346
|
)
|
|
|
51,065
|
|
Medical supplies expense
|
|
|
84,366
|
|
|
|
(794
|
)
|
|
|
83,572
|
|
|
|
(19,576
|
)
|
|
|
(34,860
|
)
|
|
|
29,136
|
|
Bad debt expense
|
|
|
33,177
|
|
|
|
(25
|
)
|
|
|
33,152
|
|
|
|
(5,303
|
)
|
|
|
(13,058
|
)
|
|
|
14,791
|
|
Other operating expenses
|
|
|
77,000
|
|
|
|
(6,435
|
)
|
|
|
70,565
|
|
|
|
(17,366
|
)
|
|
|
(15,470
|
)
|
|
|
37,729
|
|
Pre-opening expenses
|
|
|
3,563
|
|
|
|
|
|
|
|
3,563
|
|
|
|
|
|
|
|
|
|
|
|
3,563
|
|
Depreciation
|
|
|
19,299
|
|
|
|
(3,849
|
)
|
|
|
15,450
|
|
|
|
(2,824
|
)
|
|
|
(5,150
|
)
|
|
|
7,476
|
|
Amortization
|
|
|
891
|
|
|
|
(859
|
)
|
|
|
32
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
Impairment of long-lived assets and goodwill
|
|
|
42,000
|
|
|
|
|
|
|
|
42,000
|
|
|
|
(14,000
|
)
|
|
|
(11,000
|
)
|
|
|
17,000
|
|
Loss (gain) on disposal of property, equipment and other assets
|
|
|
93
|
|
|
|
32
|
|
|
|
125
|
|
|
|
(91
|
)
|
|
|
4
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
375,282
|
|
|
|
(18,117
|
)
|
|
|
357,165
|
|
|
|
(80,487
|
)
|
|
|
(115,880
|
)
|
|
|
160,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(31,433
|
)
|
|
|
1,472
|
|
|
|
(29,961
|
)
|
|
|
5,062
|
|
|
|
(1,770
|
)
|
|
|
(26,669
|
)
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(3,184
|
)
|
|
|
13
|
|
|
|
(3,171
|
)
|
|
|
117
|
|
|
|
1
|
|
|
|
(3,053
|
)
|
Interest and other income, net
|
|
|
214
|
|
|
|
(5
|
)
|
|
|
209
|
|
|
|
(21
|
)
|
|
|
(11
|
)
|
|
|
177
|
|
Loss on early extinguishment of debt
|
|
|
(6,702
|
)
|
|
|
|
|
|
|
(6,702
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,702
|
)
|
Equity in net earnings of unconsolidated affiliates
|
|
|
9,057
|
|
|
|
(3,785
|
)
|
|
|
5,272
|
|
|
|
|
|
|
|
|
|
|
|
5,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
(615
|
)
|
|
|
(3,777
|
)
|
|
|
(4,392
|
)
|
|
|
96
|
|
|
|
(10
|
)
|
|
|
(4,306
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from before income taxes
|
|
|
(32,048
|
)
|
|
|
(2,305
|
)
|
|
|
(34,353
|
)
|
|
|
5,158
|
|
|
|
(1,780
|
)
|
|
|
(30,975
|
)
|
Income tax benefit
|
|
|
(169
|
)
|
|
|
(877
|
)
|
|
|
(1,046
|
)
|
|
|
(2,746
|
)
|
|
|
(3,602
|
)
|
|
|
(7,394
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(31,879
|
)
|
|
|
(1,428
|
)
|
|
|
(33,307
|
)
|
|
|
7,904
|
|
|
|
1,822
|
|
|
|
(23,581
|
)
|
Less: Net income attributable to noncontrolling interest
|
|
|
(17,527
|
)
|
|
|
21
|
|
|
|
(17,506
|
)
|
|
|
1,694
|
|
|
|
3,401
|
|
|
|
(12,411
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss income attributable to MedCath Corporation
|
|
$
|
(49,406
|
)
|
|
$
|
(1,407
|
)
|
|
$
|
(50,813
|
)
|
|
$
|
9,598
|
|
|
$
|
5,223
|
|
|
$
|
(35,992
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Income from continuing operations attributable to MedCath
Corporation common stockholders, net of taxes
|
|
$
|
(41,252
|
)
|
|
$
|
(1,407
|
)
|
|
$
|
(42,659
|
)
|
|
$
|
9,598
|
|
|
$
|
5,223
|
|
|
$
|
(27,838
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share, basic
|
|
$
|
(2.09
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(2.17
|
)
|
|
$
|
0.49
|
|
|
$
|
0.27
|
|
|
$
|
(1.41
|
)
|
Loss per share, diluted
|
|
$
|
(2.09
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(2.17
|
)
|
|
$
|
0.49
|
|
|
$
|
0.27
|
|
|
$
|
(1.41
|
)
|
Weighted average number of shares, basic
|
|
|
19,684
|
|
|
|
19,684
|
|
|
|
19,684
|
|
|
|
19,684
|
|
|
|
19,684
|
|
|
|
19,684
|
|
Dilutive effect of stock options and restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares, diluted
|
|
|
19,684
|
|
|
|
19,684
|
|
|
|
19,684
|
|
|
|
19,684
|
|
|
|
19,684
|
|
|
|
19,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71
|
|
|
(1)
|
|
As reported in the Companys
Form 8-K
on May 27, 2011.
|
|
(2)
|
|
Includes the historical results of MedCath Partners, which was
effective May 1, 2011. The reclassification does not
include the proforma effects of the net gain related to the sale
as it would be reported in discontinued operations.
|
|
(3)
|
|
Represents the Companys historical financial statements
recast to exclude the historical operations of MedCath Partners.
|
|
(4)
|
|
Impact of the August 1, 2011 sale of Heart Hospital of New
Mexico as though the sale occurred at the beginning of the
reporting period.
|
|
(5)
|
|
Impact of the August 1, 2011 sale of Arkansas Heart
Hospital as though the sale occurred at the beginning of the
reporting period.
|
72
MEDCATH
CORPORATION
REFLECTING THE SALE OF HEART HOSPTIAL OF NEW
MEXICO & ARKANSAS HEART HOSPITAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended September 30, 2008
|
|
|
|
|
|
|
Reclassification of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MedCath
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners as a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Discontinued
|
|
|
Company
|
|
|
Sale of
|
|
|
Sale of
|
|
|
Company
|
|
|
|
Historical(1)
|
|
|
Operation(2)
|
|
|
Recast(3)
|
|
|
HHNM(4)
|
|
|
AHH(5)
|
|
|
Pro Forma
|
|
|
|
(In thousands, except per share data)
|
|
|
Net revenue
|
|
$
|
337,769
|
|
|
$
|
(18,070
|
)
|
|
$
|
319,699
|
|
|
$
|
(72,752
|
)
|
|
$
|
(114,314
|
)
|
|
$
|
132,633
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel expense
|
|
|
112,236
|
|
|
|
(5,712
|
)
|
|
|
106,524
|
|
|
|
(19,499
|
)
|
|
|
(35,322
|
)
|
|
|
51,703
|
|
Medical supplies expense
|
|
|
81,632
|
|
|
|
(1,519
|
)
|
|
|
80,113
|
|
|
|
(18,390
|
)
|
|
|
(32,452
|
)
|
|
|
29,271
|
|
Bad debt expense
|
|
|
24,515
|
|
|
|
(28
|
)
|
|
|
24,487
|
|
|
|
(4,707
|
)
|
|
|
(9,003
|
)
|
|
|
10,777
|
|
Other operating expenses
|
|
|
72,104
|
|
|
|
(7,258
|
)
|
|
|
64,846
|
|
|
|
(14,831
|
)
|
|
|
(15,713
|
)
|
|
|
34,302
|
|
Pre-opening expenses
|
|
|
786
|
|
|
|
|
|
|
|
786
|
|
|
|
|
|
|
|
|
|
|
|
786
|
|
Depreciation
|
|
|
17,896
|
|
|
|
(4,066
|
)
|
|
|
13,830
|
|
|
|
(2,598
|
)
|
|
|
(4,612
|
)
|
|
|
6,620
|
|
Amortization
|
|
|
32
|
|
|
|
|
|
|
|
32
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
Loss (gain) on disposal of property, equipment and other assets
|
|
|
82
|
|
|
|
153
|
|
|
|
235
|
|
|
|
(84
|
)
|
|
|
(145
|
)
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
309,283
|
|
|
|
(18,430
|
)
|
|
|
290,853
|
|
|
|
(60,141
|
)
|
|
|
(97,247
|
)
|
|
|
133,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
28,486
|
|
|
|
360
|
|
|
|
28,846
|
|
|
|
(12,611
|
)
|
|
|
(17,067
|
)
|
|
|
(832
|
)
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(10,464
|
)
|
|
|
37
|
|
|
|
(10,427
|
)
|
|
|
158
|
|
|
|
|
|
|
|
(10,269
|
)
|
Interest and other income, net
|
|
|
1,904
|
|
|
|
(10
|
)
|
|
|
1,894
|
|
|
|
(110
|
)
|
|
|
(20
|
)
|
|
|
1,764
|
|
Equity in net earnings of unconsolidated affiliates
|
|
|
7,891
|
|
|
|
(2,157
|
)
|
|
|
5,734
|
|
|
|
|
|
|
|
|
|
|
|
5,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
(669
|
)
|
|
|
(2,130
|
)
|
|
|
(2,799
|
)
|
|
|
48
|
|
|
|
(20
|
)
|
|
|
(2,771
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from before income taxes
|
|
|
27,817
|
|
|
|
(1,770
|
)
|
|
|
26,047
|
|
|
|
(12,563
|
)
|
|
|
(17,087
|
)
|
|
|
(3,603
|
)
|
Income tax (benefit) expense
|
|
|
6,636
|
|
|
|
(716
|
)
|
|
|
5,920
|
|
|
|
(3,716
|
)
|
|
|
(4,809
|
)
|
|
|
(2,605
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Loss) Income from continuing operations
|
|
|
21,181
|
|
|
|
(1,054
|
)
|
|
|
20,127
|
|
|
|
(8,847
|
)
|
|
|
(12,278
|
)
|
|
|
(998
|
)
|
Less: Net income attributable to noncontrolling interest
|
|
|
(21,858
|
)
|
|
|
(95
|
)
|
|
|
(21,953
|
)
|
|
|
2,889
|
|
|
|
4,568
|
|
|
|
(14,496
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss attributable to MedCath Corporation
|
|
$
|
(677
|
)
|
|
$
|
(1,149
|
)
|
|
$
|
(1,826
|
)
|
|
$
|
(5,958
|
)
|
|
$
|
(7,710
|
)
|
|
$
|
(15,494
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income from continuing operations attributable to MedCath
Corporation common stockholders, net of taxes
|
|
$
|
7,982
|
|
|
$
|
(1,149
|
)
|
|
$
|
6,833
|
|
|
$
|
(5,958
|
)
|
|
$
|
(7,710
|
)
|
|
$
|
(6,835
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) per share, basic
|
|
$
|
0.40
|
|
|
$
|
(0.06
|
)
|
|
$
|
0.34
|
|
|
$
|
(0.30
|
)
|
|
$
|
(0.39
|
)
|
|
$
|
(0.34
|
)
|
Income (Loss) per share, diluted
|
|
$
|
0.40
|
|
|
$
|
(0.06
|
)
|
|
$
|
0.34
|
|
|
$
|
(0.30
|
)
|
|
$
|
(0.38
|
)
|
|
$
|
(0.34
|
)
|
Weighted average number of shares, basic
|
|
|
19,996
|
|
|
|
19,996
|
|
|
|
19,996
|
|
|
|
19,996
|
|
|
|
19,996
|
|
|
|
19,996
|
|
Dilutive effect of stock options and restricted stock
|
|
|
73
|
|
|
|
73
|
|
|
|
73
|
|
|
|
73
|
|
|
|
73
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares, diluted
|
|
|
20,069
|
|
|
|
20,069
|
|
|
|
20,069
|
|
|
|
20,069
|
|
|
|
20,069
|
|
|
|
20,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
|
|
|
(1)
|
|
As reported in the Companys
Form 8-K
on May 27, 2011.
|
|
(2)
|
|
Includes the historical results of MedCath Partners, which was
effective May 1, 2011. The reclassification does not
include the proforma effects of the net gain related to the sale
as it would be reported in discontinued operations.
|
|
(3)
|
|
Represents the Companys historical financial statements
recast to exclude the historical operations of MedCath Partners.
|
|
(4)
|
|
Impact of the August 1, 2011 sale of Heart Hospital of New
Mexico as though the sale occurred at the beginning of the
reporting period.
|
|
(5)
|
|
Impact of the August 1, 2011 sale of Arkansas Heart
Hospital as though the sale occurred at the beginning of the
reporting period.
|
74
MEDCATH
CORPORATION
REFLECTING SALE OF HEART HOSPITAL OF NEW
MEXICO & ARKANSAS HEART HOSPITAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2011
|
|
|
|
|
|
|
Reclassification of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MedCath
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners as a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Discontinued
|
|
|
Company
|
|
|
Sale of
|
|
|
Sale of
|
|
|
Company
|
|
|
|
Historical(1)
|
|
|
Operation(2)
|
|
|
Recast(3)
|
|
|
HHNM(4)
|
|
|
AHH(5)
|
|
|
Pro Forma
|
|
|
|
(In thousands, except per share data)
|
|
|
Net revenue
|
|
$
|
97,163
|
|
|
$
|
(2,057
|
)
|
|
$
|
95,106
|
|
|
$
|
(18,991
|
)
|
|
$
|
(32,216
|
)
|
|
$
|
43,899
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel expense
|
|
|
33,859
|
|
|
|
(642
|
)
|
|
|
33,217
|
|
|
|
(5,510
|
)
|
|
|
(9,397
|
)
|
|
|
18,310
|
|
Medical supplies expense
|
|
|
23,189
|
|
|
|
(33
|
)
|
|
|
23,156
|
|
|
|
(4,986
|
)
|
|
|
(9,523
|
)
|
|
|
8,647
|
|
Bad debt expense
|
|
|
10,006
|
|
|
|
(1
|
)
|
|
|
10,005
|
|
|
|
(1,071
|
)
|
|
|
(2,961
|
)
|
|
|
5,973
|
|
Other operating expenses
|
|
|
22,843
|
|
|
|
(569
|
)
|
|
|
22,274
|
|
|
|
(4,260
|
)
|
|
|
(3,729
|
)
|
|
|
14,285
|
|
Depreciation
|
|
|
4,630
|
|
|
|
(562
|
)
|
|
|
4,068
|
|
|
|
(794
|
)
|
|
|
(1,120
|
)
|
|
|
2,154
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
(8
|
)
|
Impairment of long-lived assets and goodwill
|
|
|
19,548
|
|
|
|
|
|
|
|
19,548
|
|
|
|
|
|
|
|
|
|
|
|
19,548
|
|
Loss (gain) on disposal of property, equipment and other assets
|
|
|
178
|
|
|
|
5
|
|
|
|
183
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
114,253
|
|
|
|
(1,802
|
)
|
|
|
112,451
|
|
|
|
(16,635
|
)
|
|
|
(26,730
|
)
|
|
|
69,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(17,090
|
)
|
|
|
(255
|
)
|
|
|
(17,345
|
)
|
|
|
(2,356
|
)
|
|
|
(5,486
|
)
|
|
|
(25,187
|
)
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(997
|
)
|
|
|
15
|
|
|
|
(982
|
)
|
|
|
90
|
|
|
|
3
|
|
|
|
(889
|
)
|
Interest and other income, net
|
|
|
50
|
|
|
|
|
|
|
|
50
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
42
|
|
Gain on sale of unconsolidated affiliates
|
|
|
179
|
|
|
|
|
|
|
|
179
|
|
|
|
|
|
|
|
|
|
|
|
179
|
|
Equity in net earnings of unconsolidated affiliates
|
|
|
1,258
|
|
|
|
(213
|
)
|
|
|
1,045
|
|
|
|
|
|
|
|
|
|
|
|
1,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
490
|
|
|
|
(198
|
)
|
|
|
292
|
|
|
|
82
|
|
|
|
3
|
|
|
|
377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(16,600
|
)
|
|
|
(453
|
)
|
|
|
(17,053
|
)
|
|
|
(2,274
|
)
|
|
|
(5,483
|
)
|
|
|
(24,810
|
)
|
Income tax benefit
|
|
|
(7,695
|
)
|
|
|
(185
|
)
|
|
|
(7,880
|
)
|
|
|
(692
|
)
|
|
|
(1,508
|
)
|
|
|
(10,080
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(8,905
|
)
|
|
|
(268
|
)
|
|
|
(9,173
|
)
|
|
|
(1,582
|
)
|
|
|
(3,975
|
)
|
|
|
(14,730
|
)
|
Less: Net income attributable to noncontrolling interest
|
|
|
(3,189
|
)
|
|
|
(29
|
)
|
|
|
(3,218
|
)
|
|
|
473
|
|
|
|
1,558
|
|
|
|
(1,187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss attributable to MedCath Corporation
|
|
$
|
(12,094
|
)
|
|
$
|
(297
|
)
|
|
$
|
(12,391
|
)
|
|
$
|
(1,109
|
)
|
|
$
|
(2,417
|
)
|
|
$
|
(15,917
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations attributable to MedCath
Corporation common stockholders, net of taxes
|
|
$
|
(12,341
|
)
|
|
$
|
(297
|
)
|
|
$
|
(12,638
|
)
|
|
$
|
(1,109
|
)
|
|
$
|
(2,417
|
)
|
|
$
|
(16,164
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share, basic
|
|
$
|
(0.61
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.63
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.12
|
)
|
|
$
|
(0.80
|
)
|
Loss per share, diluted
|
|
$
|
(0.61
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.63
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.12
|
)
|
|
$
|
(0.80
|
)
|
Weighted average number of shares, basic
|
|
|
20,208
|
|
|
|
20,208
|
|
|
|
20,208
|
|
|
|
20,208
|
|
|
|
20,208
|
|
|
|
20,208
|
|
Dilutive effect of stock options and restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares, diluted
|
|
|
20,208
|
|
|
|
20,208
|
|
|
|
20,208
|
|
|
|
20,208
|
|
|
|
20,208
|
|
|
|
20,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75
|
|
|
(1)
|
|
As reported in the Companys
Form 8-K
on May 27, 2011.
|
|
(2)
|
|
Includes the historical results of MedCath Partners, which was
effective May 1, 2011. The reclassification does not
include the proforma effects of the net gain related to the sale
as it would be reported in discontinued operations.
|
|
(3)
|
|
Represents the Companys historical financial statements
recast to exclude the historical operations of MedCath Partners.
|
|
(4)
|
|
Impact of the August 1, 2011 sale of Heart Hospital of New
Mexico as though the sale occurred at the beginning of the
reporting period.
|
|
(5)
|
|
Impact of the August 1, 2011 sale of Arkansas Heart
Hospital as though the sale occurred at the beginning of the
reporting period.
|
76
MEDCATH
CORPORATION
REFLECTING
SALE OF HEART HOSPITAL OF NEW MEXICO & ARKANSAS HEART
HOSPITAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2010
|
|
|
|
|
|
|
Reclassification of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MedCath
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners as a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Discontinued
|
|
|
Company
|
|
|
Sale of
|
|
|
Sale of
|
|
|
Company
|
|
|
|
Historical(1)
|
|
|
Operation(2)
|
|
|
Recast(3)
|
|
|
HHNM(4)
|
|
|
AHH(5)
|
|
|
Pro Forma
|
|
|
|
(In thousands, except per share data)
|
|
|
Net revenue
|
|
$
|
96,777
|
|
|
$
|
(2,785
|
)
|
|
$
|
93,992
|
|
|
$
|
(21,031
|
)
|
|
$
|
(29,139
|
)
|
|
$
|
43,822
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel expense
|
|
|
33,150
|
|
|
|
(951
|
)
|
|
|
32,199
|
|
|
|
(5,455
|
)
|
|
|
(9,067
|
)
|
|
|
17,677
|
|
Medical supplies expense
|
|
|
23,581
|
|
|
|
(150
|
)
|
|
|
23,431
|
|
|
|
(5,688
|
)
|
|
|
(8,943
|
)
|
|
|
8,800
|
|
Bad debt expense
|
|
|
9,931
|
|
|
|
(13
|
)
|
|
|
9,918
|
|
|
|
(1,213
|
)
|
|
|
(2,690
|
)
|
|
|
6,015
|
|
Other operating expenses
|
|
|
22,296
|
|
|
|
(1,151
|
)
|
|
|
21,145
|
|
|
|
(4,446
|
)
|
|
|
(3,775
|
)
|
|
|
12,924
|
|
Pre-opening expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
6,124
|
|
|
|
(785
|
)
|
|
|
5,339
|
|
|
|
(604
|
)
|
|
|
(1,355
|
)
|
|
|
3,380
|
|
Impairment of long-lived assets and goodwill
|
|
|
14,700
|
|
|
|
(114
|
)
|
|
|
14,586
|
|
|
|
|
|
|
|
|
|
|
|
14,586
|
|
Loss (gain) on disposal of property, equipment and other assets
|
|
|
(69
|
)
|
|
|
76
|
|
|
|
7
|
|
|
|
(8
|
)
|
|
|
(7
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
109,713
|
|
|
|
(3,088
|
)
|
|
|
106,625
|
|
|
|
(17,414
|
)
|
|
|
(25,837
|
)
|
|
|
63,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(12,936
|
)
|
|
|
303
|
|
|
|
(12,633
|
)
|
|
|
(3,617
|
)
|
|
|
(3,302
|
)
|
|
|
(19,552
|
)
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(1,054
|
)
|
|
|
|
|
|
|
(1,054
|
)
|
|
|
40
|
|
|
|
3
|
|
|
|
(1,011
|
)
|
Interest and other income, net
|
|
|
15
|
|
|
|
|
|
|
|
15
|
|
|
|
(8
|
)
|
|
|
6
|
|
|
|
13
|
|
Gain on sale of unconsolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on note receivable
|
|
|
(1,507
|
)
|
|
|
|
|
|
|
(1,507
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,507
|
)
|
Equity in net earnings of unconsolidated affiliates
|
|
|
3,092
|
|
|
|
(1,488
|
)
|
|
|
1,604
|
|
|
|
|
|
|
|
|
|
|
|
1,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
546
|
|
|
|
(1,488
|
)
|
|
|
(942
|
)
|
|
|
32
|
|
|
|
9
|
|
|
|
(901
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(12,390
|
)
|
|
|
(1,185
|
)
|
|
|
(13,575
|
)
|
|
|
(3,585
|
)
|
|
|
(3,293
|
)
|
|
|
(20,453
|
)
|
Income tax benefit
|
|
|
(5,639
|
)
|
|
|
(455
|
)
|
|
|
(6,094
|
)
|
|
|
(1,082
|
)
|
|
|
(919
|
)
|
|
|
(8,095
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(6,751
|
)
|
|
|
(730
|
)
|
|
|
(7,481
|
)
|
|
|
(2,503
|
)
|
|
|
(2,374
|
)
|
|
|
(12,358
|
)
|
Less: Net income attributable to noncontrolling interest
|
|
|
(2,524
|
)
|
|
|
(2,663
|
)
|
|
|
(5,187
|
)
|
|
|
769
|
|
|
|
900
|
|
|
|
(3,518
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to MedCath Corporation
|
|
$
|
(9,275
|
)
|
|
$
|
1,933
|
|
|
$
|
(12,668
|
)
|
|
$
|
(1,734
|
)
|
|
$
|
(1,474
|
)
|
|
$
|
(15,876
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income from continuing operations attributable to MedCath
Corporation common stockholders, net of taxes
|
|
$
|
(8,970
|
)
|
|
$
|
1,933
|
|
|
$
|
(7,037
|
)
|
|
$
|
(1,734
|
)
|
|
$
|
(1,474
|
)
|
|
$
|
(10,245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income per share, basic
|
|
$
|
(0.45
|
)
|
|
$
|
0.10
|
|
|
$
|
(0.35
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.52
|
)
|
(Loss) Income per share, diluted
|
|
$
|
(0.45
|
)
|
|
$
|
0.10
|
|
|
$
|
(0.35
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.52
|
)
|
Weighted average number of shares, basic
|
|
|
19,829
|
|
|
|
19,829
|
|
|
|
19,829
|
|
|
|
19,829
|
|
|
|
19,829
|
|
|
|
19,829
|
|
Dilutive effect of stock options and restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares, diluted
|
|
|
19,829
|
|
|
|
19,829
|
|
|
|
19,829
|
|
|
|
19,829
|
|
|
|
19,829
|
|
|
|
19,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
|
|
|
(1)
|
|
As reported in the Companys
Form 8-K
on May 27, 2011.
|
|
(2)
|
|
Includes the historical results of MedCath Partners, which was
effective May 1, 2011. The reclassification does not
include the proforma effects of the net gain related to the sale
as it would be reported in discontinued operations.
|
|
(3)
|
|
Represents the Companys historical financial statements
recast to exclude the historical operations of MedCath Partners.
|
|
(4)
|
|
Impact of the August 1, 2011 sale of Heart Hospital of New
Mexico as though the sale occurred at the beginning of the
reporting period.
|
|
(5)
|
|
Impact of the August 1, 2011 sale of Arkansas Heart
Hospital as though the sale occurred at the beginning of the
reporting period.
|
78
MEDCATH
CORPORATION
REFLECTING
SALE OF HEART HOSPITAL OF NEW MEXICO & ARKANSAS HEART
HOSPITAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31, 2011
|
|
|
|
|
|
|
Reclassification of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MedCath
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners as a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Discontinued
|
|
|
Company
|
|
|
Sale of
|
|
|
Sale of
|
|
|
Company
|
|
|
|
Historical(1)
|
|
|
Operation(2)
|
|
|
Recast(3)
|
|
|
HHNM(4)
|
|
|
AHH(5)
|
|
|
Pro Forma
|
|
|
|
(In thousands, except per share data)
|
|
|
Net revenue
|
|
$
|
186,063
|
|
|
$
|
(4,285
|
)
|
|
$
|
181,778
|
|
|
$
|
(38,604
|
)
|
|
$
|
(60,435
|
)
|
|
$
|
82,739
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel expense
|
|
|
66,313
|
|
|
|
(1,337
|
)
|
|
|
64,976
|
|
|
|
(10,763
|
)
|
|
|
(18,158
|
)
|
|
|
36,055
|
|
Medical supplies expense
|
|
|
42,411
|
|
|
|
(56
|
)
|
|
|
42,355
|
|
|
|
(9,386
|
)
|
|
|
(16,238
|
)
|
|
|
16,731
|
|
Bad debt expense
|
|
|
19,715
|
|
|
|
|
|
|
|
19,715
|
|
|
|
(2,817
|
)
|
|
|
(5,299
|
)
|
|
|
11,599
|
|
Other operating expenses
|
|
|
46,959
|
|
|
|
(1,402
|
)
|
|
|
45,557
|
|
|
|
(8,495
|
)
|
|
|
(8,664
|
)
|
|
|
28,398
|
|
Depreciation
|
|
|
9,517
|
|
|
|
(1,170
|
)
|
|
|
8,347
|
|
|
|
(1,615
|
)
|
|
|
(2,323
|
)
|
|
|
4,409
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
(16
|
)
|
Impairment of long-lived assets and goodwill
|
|
|
19,548
|
|
|
|
(209
|
)
|
|
|
19,339
|
|
|
|
|
|
|
|
|
|
|
|
19,339
|
|
Loss (gain) on disposal of property, equipment and other assets
|
|
|
271
|
|
|
|
(21
|
)
|
|
|
250
|
|
|
|
(7
|
)
|
|
|
(23
|
)
|
|
|
220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
204,734
|
|
|
|
(4,195
|
)
|
|
|
200,539
|
|
|
|
(33,099
|
)
|
|
|
(50,705
|
)
|
|
|
116,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(18,671
|
)
|
|
|
(90
|
)
|
|
|
(18,761
|
)
|
|
|
(5,505
|
)
|
|
|
(9,730
|
)
|
|
|
(33,996
|
)
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(2,079
|
)
|
|
|
|
|
|
|
(2,079
|
)
|
|
|
188
|
|
|
|
6
|
|
|
|
(1,885
|
)
|
Interest and other income, net
|
|
|
539
|
|
|
|
31
|
|
|
|
570
|
|
|
|
(18
|
)
|
|
|
(406
|
)
|
|
|
146
|
|
Gain on sale of unconsolidated affiliates
|
|
|
15,570
|
|
|
|
|
|
|
|
15,570
|
|
|
|
|
|
|
|
|
|
|
|
15,570
|
|
Equity in net earnings of unconsolidated affiliates
|
|
|
1,860
|
|
|
|
(693
|
)
|
|
|
1,167
|
|
|
|
|
|
|
|
|
|
|
|
1,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
15,890
|
|
|
|
(662
|
)
|
|
|
15,228
|
|
|
|
170
|
|
|
|
(400
|
)
|
|
|
14,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(2,781
|
)
|
|
|
(752
|
)
|
|
|
(3,533
|
)
|
|
|
(5,335
|
)
|
|
|
(10,130
|
)
|
|
|
(18,998
|
)
|
Income tax benefit
|
|
|
(3,213
|
)
|
|
|
(300
|
)
|
|
|
(3,513
|
)
|
|
|
(1,611
|
)
|
|
|
(2,790
|
)
|
|
|
(7,914
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from continuing operations
|
|
|
432
|
|
|
|
(452
|
)
|
|
|
(20
|
)
|
|
|
(3,724
|
)
|
|
|
(7,340
|
)
|
|
|
(11,084
|
)
|
Less: Net income attributable to noncontrolling interest
|
|
|
(14,615
|
)
|
|
|
(29
|
)
|
|
|
(14,644
|
)
|
|
|
1,142
|
|
|
|
2,865
|
|
|
|
(10,637
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss attributable to MedCath Corporation
|
|
$
|
(14,183
|
)
|
|
$
|
(481
|
)
|
|
$
|
(14,664
|
)
|
|
$
|
(2,582
|
)
|
|
$
|
(4,475
|
)
|
|
$
|
(21,721
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations attributable to MedCath
Corporation common stockholders, net of taxes
|
|
$
|
(5,179
|
)
|
|
$
|
(481
|
)
|
|
$
|
(5,660
|
)
|
|
$
|
(2,582
|
)
|
|
$
|
(4,475
|
)
|
|
$
|
(12,717
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share, basic
|
|
$
|
(0.26
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.28
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.63
|
)
|
Loss per share, diluted
|
|
$
|
(0.26
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.28
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.63
|
)
|
Weighted average number of shares, basic
|
|
|
20,075
|
|
|
|
20,075
|
|
|
|
20,075
|
|
|
|
20,075
|
|
|
|
20,075
|
|
|
|
20,075
|
|
Dilutive effect of stock options and restricted stock
|
|
|
6
|
|
|
|
6
|
|
|
|
6
|
|
|
|
6
|
|
|
|
6
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares, diluted
|
|
|
20,081
|
|
|
|
20,081
|
|
|
|
20,081
|
|
|
|
20,081
|
|
|
|
20,081
|
|
|
|
20,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
|
|
|
(1)
|
|
As reported in the Companys
Form 8-K
on May 27, 2011.
|
|
(2)
|
|
Includes the historical results of MedCath Partners, which was
effective May 1, 2011. The reclassification does not
include the proforma effects of the net gain related to the sale
as it would be reported in discontinued operations.
|
|
(3)
|
|
Represents the Companys historical financial statements
recast to exclude the historical operations of MedCath Partners.
|
|
(4)
|
|
Impact of the August 1, 2011 sale of Heart Hospital of New
Mexico as though the sale occurred at the beginning of the
reporting period.
|
|
(5)
|
|
Impact of the August 1, 2011 sale of Arkansas Heart
Hospital as though the sale occurred at the beginning of the
reporting period.
|
80
MEDCATH
CORPORATION
REFLECTING
SALE OF HEART HOSPITAL OF NEW MEXICO & ARKANSAS HEART
HOSPITAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31, 2010
|
|
|
|
|
|
|
Reclassification of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MedCath
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners as a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Discontinued
|
|
|
Company
|
|
|
Sale of
|
|
|
Sale of
|
|
|
Company
|
|
|
|
Historical (1)
|
|
|
Operation(2)
|
|
|
Recast(3)
|
|
|
HHNM(4)
|
|
|
AHH(5)
|
|
|
Pro Forma
|
|
|
|
(In thousands, except per share data)
|
|
|
Net revenue
|
|
$
|
184,607
|
|
|
$
|
(6,121
|
)
|
|
$
|
178,486
|
|
|
$
|
(41,145
|
)
|
|
$
|
(54,673
|
)
|
|
$
|
82,668
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel expense
|
|
|
64,786
|
|
|
|
(1,926
|
)
|
|
|
62,860
|
|
|
|
(11,062
|
)
|
|
|
(17,912
|
)
|
|
|
33,886
|
|
Medical supplies expense
|
|
|
45,688
|
|
|
|
(309
|
)
|
|
|
45,379
|
|
|
|
(10,921
|
)
|
|
|
(17,996
|
)
|
|
|
16,462
|
|
Bad debt expense
|
|
|
17,437
|
|
|
|
(23
|
)
|
|
|
17,414
|
|
|
|
(2,764
|
)
|
|
|
(3,436
|
)
|
|
|
11,214
|
|
Other operating expenses
|
|
|
44,640
|
|
|
|
(2,550
|
)
|
|
|
42,090
|
|
|
|
(8,701
|
)
|
|
|
(7,753
|
)
|
|
|
25,636
|
|
Pre-opening expenses
|
|
|
866
|
|
|
|
|
|
|
|
866
|
|
|
|
|
|
|
|
|
|
|
|
866
|
|
Depreciation
|
|
|
12,064
|
|
|
|
(1,681
|
)
|
|
|
10,383
|
|
|
|
(1,227
|
)
|
|
|
(2,719
|
)
|
|
|
6,437
|
|
Impairment of long-lived assets and goodwill
|
|
|
14,700
|
|
|
|
(114
|
)
|
|
|
14,586
|
|
|
|
|
|
|
|
|
|
|
|
14,586
|
|
Loss (gain) on disposal of property, equipment and other assets
|
|
|
27
|
|
|
|
4
|
|
|
|
31
|
|
|
|
(8
|
)
|
|
|
(24
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
200,208
|
|
|
|
(6,599
|
)
|
|
|
193,609
|
|
|
|
(34,683
|
)
|
|
|
(49,840
|
)
|
|
|
109,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(15,601
|
)
|
|
|
478
|
|
|
|
(15,123
|
)
|
|
|
(6,462
|
)
|
|
|
(4,833
|
)
|
|
|
(26,418
|
)
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(1,999
|
)
|
|
|
1
|
|
|
|
(1,998
|
)
|
|
|
99
|
|
|
|
7
|
|
|
|
(1,892
|
)
|
Interest and other income, net
|
|
|
85
|
|
|
|
|
|
|
|
85
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
68
|
|
Gain on sale of unconsolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on not receivable
|
|
|
(1,507
|
)
|
|
|
|
|
|
|
(1,507
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,507
|
)
|
Equity in net earnings of unconsolidated affiliates
|
|
|
4,608
|
|
|
|
(2,129
|
)
|
|
|
2,479
|
|
|
|
|
|
|
|
|
|
|
|
2,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
1,817
|
|
|
|
(2,128
|
)
|
|
|
(941
|
)
|
|
|
82
|
|
|
|
7
|
|
|
|
(852
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(14,414
|
)
|
|
|
(1,650
|
)
|
|
|
(16,064
|
)
|
|
|
(6,380
|
)
|
|
|
(4,826
|
)
|
|
|
(27,270
|
)
|
Income tax benefit
|
|
|
(6,976
|
)
|
|
|
(634
|
)
|
|
|
(7,610
|
)
|
|
|
(1,937
|
)
|
|
|
(1,361
|
)
|
|
|
(10,908
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(7,438
|
)
|
|
|
(1,016
|
)
|
|
|
(8,454
|
)
|
|
|
(4,443
|
)
|
|
|
(3,465
|
)
|
|
|
(16,362
|
)
|
Less: Net income attributable to noncontrolling interest
|
|
|
(3,064
|
)
|
|
|
(2,663
|
)
|
|
|
(5,727
|
)
|
|
|
1,337
|
|
|
|
1,283
|
|
|
|
(3,107
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss attributable to MedCath Corporation
|
|
$
|
(10,502
|
)
|
|
$
|
(3,679
|
)
|
|
$
|
(14,181
|
)
|
|
$
|
(3,106
|
)
|
|
$
|
(2,182
|
)
|
|
$
|
(19,469
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations attributable to MedCath
Corporation common stockholders, net of taxes
|
|
$
|
(10,872
|
)
|
|
$
|
(3,679
|
)
|
|
$
|
(14,551
|
)
|
|
$
|
(3,106
|
)
|
|
$
|
(2,182
|
)
|
|
$
|
(19,839
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share, basic
|
|
$
|
(0.55
|
)
|
|
$
|
(0.19
|
)
|
|
$
|
(0.74
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(1.00
|
)
|
Loss per share, diluted
|
|
$
|
(0.55
|
)
|
|
$
|
(0.19
|
)
|
|
$
|
(0.74
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(1.00
|
)
|
Weighted average number of shares, basic
|
|
|
19,786
|
|
|
|
19,786
|
|
|
|
19,786
|
|
|
|
19,786
|
|
|
|
19,786
|
|
|
|
19,786
|
|
Dilutive effect of stock options and restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Weighted average number of shares, diluted
|
|
|
19,786
|
|
|
|
19,786
|
|
|
|
19,786
|
|
|
|
19,786
|
|
|
|
19,786
|
|
|
|
19,786
|
|
|
|
|
|
|
|
|
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81
|
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|
(1)
|
|
As reported in the Companys
Form 8-K
on May 27, 2011.
|
|
(2)
|
|
Includes the historical results of MedCath Partners, which was
effective May 1, 2011. The reclassification does not
include the proforma effects of the net gain related to the sale
as it would be reported in discontinued operations.
|
|
(3)
|
|
Represents the Companys historical financial statements
recast to exclude the historical operations of MedCath Partners.
|
|
(4)
|
|
Impact of the August 1, 2011 sale of Heart Hospital of New
Mexico as though the sale occurred at the beginning of the
reporting period.
|
|
(5)
|
|
Impact of the August 1, 2011 sale of Arkansas Heart
Hospital as though the sale occurred at the beginning of the
reporting period.
|
82
PLAN OF
DISSOLUTION OF
MEDCATH
CORPORATION
This Plan of Dissolution (the Plan) is intended to
accomplish the complete liquidation and dissolution of MedCath
Corporation, a Delaware corporation (the Company),
in accordance with Sections 280 and 281(a) of the General
Corporation Law of the State of Delaware (the DGCL).
1.
Approval of Plan.
The Board of
Directors of the Company (the Board) has adopted
this Plan and presented the Plan to the Companys
stockholders to take action on the Plan. If the Plan is adopted
by the requisite vote of the Companys stockholders, the
Plan shall constitute the adopted Plan of the Company.
2.
Certificate of Dissolution.
Subject to
Section 15 hereof, after the stockholders approve the
dissolution of the Company and at such time as the Board of
Directors deems appropriate, the Company shall file with the
Secretary of State of the State of Delaware a certificate of
dissolution (the Certificate of Dissolution) in
accordance with the DGCL (the time of such filing, or such later
time as stated therein, the Effective Time).
3.
Cessation of Business
Activities.
After the Effective Time, the Company
shall not engage in any business activities except to the extent
necessary to preserve the value of its assets, wind up its
business affairs, and distribute its assets in accordance with
this Plan.
4.
Continuing Employees and
Consultants.
For the purpose of effecting the
dissolution of the Company, the Company may hire or retain, at
the discretion of the Board, such employees, consultants and
advisors as the Board deems necessary or desirable to supervise
or facilitate the dissolution and winding up of the Company.
5.
Dissolution Process
.
From and after the Effective Time, the Company (or any successor
entity of the Company) shall proceed, in a timely manner, to
liquidate the Company in accordance with the procedures set
forth in Sections 280 and 281(a) of the DGCL. In this
respect, the Company shall follow the procedures set forth in
Section 280 of the DGCL, and in conformity with the
requirements of Section 281(a) of the DGCL:
(a) Shall pay the claims made and not rejected in
accordance with Section 280(a) of the DGCL;
(b) Shall post the security offered and not rejected
pursuant to Section 280(b)(2) of the DGCL;
(c) Shall post any security ordered by the Delaware Court
of Chancery in any proceeding under Section 280(c) of the
DGCL; and
(d) Shall pay or make provision for all other claims that
are mature, known or uncontested or that have been finally
determined to be owing by the Company.
Such claims or obligations shall be paid in full and any such
provision for payment shall be made in full if there are
sufficient assets. If there are insufficient assets, such claims
and obligations shall be paid or provided for according to their
priority, and, among claims of equal priority, ratably to the
extent of assets available therefor. Any remaining assets shall
be distributed to the stockholders of the Company in accordance
with the provisions of the Companys Amended and Restated
Certificate of Incorporation; provided, however, that such
distribution shall not be made before the expiration of
150 days from the date of the last notice of rejections
given pursuant to Section 280(a)(3) of the DGCL. In the
absence of actual fraud, the judgment of the Board as to the
provision made for the payment of all obligations under
paragraph (d) of this Section shall be conclusive.
Notwithstanding anything contained herein to the contrary, the
Company (or any successor entity of the Company) may opt to
dissolve the Company in accordance with the procedures set forth
in Section 281(b) of the DGCL.
A-1
6.
Liquidating Trust.
If deemed
necessary, appropriate or desirable by the Board, in its
absolute discretion, in furtherance of the liquidation and
distribution of the Companys assets to the stockholders,
as a final liquidating distribution or from time to time, the
Company may transfer to one or more liquidating trustees, for
the benefit of the stockholders (the Trustees),
under a liquidating trust (the Trust), all, or a
portion, of the assets of the Company. If assets are transferred
to the Trust, each stockholder shall receive an interest (an
Interest) in the Trust pro rata to its interest in
the assets of the Company on that date. All distributions from
the Trust will be made pro rata in accordance with the
Interests. The Interests shall not be transferable except by
operation of law or upon death of the recipient. The Board is
hereby authorized to appoint one or more individuals,
corporations, partnerships or other persons or entities, or any
combination thereof, including, without limitation, any one or
more officers, directors, employees, agents or representatives
of the Company, to act as the initial Trustee or Trustees for
the benefit of the stockholders and to receive any assets of the
Company. Any Trustees appointed as provided in the preceding
sentence shall succeed to all right, title and interest of the
Company of any kind and character with respect to such
transferred assets and, to the extent of the assets so
transferred and solely in their capacity as Trustees, shall
assume all of the liabilities and obligations of the Company,
including, without limitation, any unsatisfied claims and
unascertained or contingent liabilities. Further, any conveyance
of assets to the Trustees shall be deemed to be a distribution
of property and assets by the Company to the stockholders. Any
such conveyance to the Trustees shall be in trust for the
stockholders of the Company. The Company, as authorized by the
Board, in its absolute discretion, may enter into a liquidating
trust agreement with the Trustees, on such terms and conditions
as the Board, in its absolute discretion, may deem necessary,
appropriate or desirable. Adoption of this Plan by the holders
of the requisite vote of the holders of the outstanding capital
stock of the Company shall constitute the approval of the
stockholders of any such appointment and any such liquidating
trust agreement as their act and as a part hereof as if herein
written.
7.
Cancellation of Stock.
The
distributions to the Companys stockholders pursuant to
Section 5 hereof shall be in complete cancellation of all
of the outstanding shares of stock of the Company. From and
after the Effective Time, and subject to applicable law, each
holder of shares of capital stock of the Company shall cease to
have any rights in respect thereof, except the right to receive
distributions, if any, pursuant to and in accordance with
Section 5(ii) hereof. As a condition to receipt of any
distribution to the Companys stockholders, the Board, in
its absolute discretion, may require the Companys
stockholders to (i) surrender their certificates evidencing
their shares of stock to the Company, or (ii) furnish the
Company with evidence satisfactory to the Board of the loss,
theft or destruction of such certificates, together with such
surety bond or other security or indemnity as may be required by
and satisfactory to the Board. The Company will close its stock
transfer books and discontinue recording transfers of shares of
stock of the Company at the Effective Time, and thereafter
certificates representing shares of stock of the Company will
not be assignable or transferable on the books of the Company
except by will, intestate succession, or operation of law.
8.
Conduct of the Company Following Approval of the
Plan.
Under Delaware law, dissolution is
effective upon the filing of a certificate of dissolution with
the Secretary of State of the State of Delaware or upon such
future effective date as may be set forth in the certificate of
dissolution. Section 278 of DGCL provides that a dissolved
corporation continues to exist for three (3) years after
the date of dissolution for purposes of prosecuting and
defending suits by or against the corporation and enabling it to
settle and close its business and dispose of and convey its
remaining assets, but not for the purpose of continuing the
business of the corporation as a going concern. A corporation
can continue to exist beyond the three (3) year period, if
ordered by a court, for the sole purpose of prosecuting or
defending any action, suit or proceeding that was brought before
or during the three (3) year period after the date of
dissolution, until any judgments, orders or decrees are fully
executed. The powers of the directors continue during this time
period in order to allow them to take the necessary steps to
wind-up
the
affairs of the corporation.
9.
Absence of Appraisal Rights.
Under
Delaware law, the Companys stockholders are not entitled
to appraisal rights for their shares of capital stock in
connection with the transactions contemplated by the Plan.
10.
Abandoned Property.
If any
distribution to a stockholder cannot be made, whether because
the stockholder cannot be located, has not surrendered
certificates evidencing the capital stock as required hereunder
or for any other reason, the distribution to which such
stockholder is entitled shall be transferred, at
A-2
such time as the final liquidating distribution is made by the
Company, to the official of such state or other jurisdiction
authorized by applicable law to receive the proceeds of such
distribution. The proceeds of such distribution shall thereafter
be held solely for the benefit of and for ultimate distribution
to such stockholder as the sole equitable owner thereof and
shall be treated as abandoned property and escheat to the
applicable state or other jurisdiction in accordance with
applicable law. In no event shall the proceeds of any such
distribution revert to or become the property of the Company.
11.
Stockholder Consent to Sale of
Assets.
Adoption of this Plan by the requisite
vote of the outstanding capital stock of the Company shall
constitute the approval of the stockholders of the sale,
exchange or other disposition in liquidation of all of the
property and assets of the Company, whether such sale, exchange
or other disposition occurs in one transaction or a series of
transactions, and shall constitute ratification of all contracts
for sale, exchange or other disposition that are conditioned on
adoption of this Plan.
12.
Expenses of Dissolution.
In
connection with and for the purposes of implementing and
assuring completion of this Plan, the Company may, in the
absolute discretion of the Board, pay any brokerage, agency,
professional and other fees and expenses of persons rendering
services to the Company in connection with the collection, sale,
exchange or other disposition of the Companys property and
assets and the implementation of this Plan.
13.
Compensation.
In connection with and
for the purpose of implementing and assuring completion of this
Plan, the Company may, in the absolute discretion of the Board,
pay the Companys officers, directors, employees, agents
and representatives, or any of them, compensation or additional
compensation above their regular compensation, including
pursuant to severance and retention agreements, in money or
other property, in recognition of the extraordinary efforts
they, or any of them, will be required to undertake, or actually
undertake, in connection with the implementation of this Plan.
Adoption of this Plan by the requisite vote of the outstanding
capital stock of the Company shall constitute the approval of
the Companys stockholders of the payment of any such
compensation.
14.
Indemnification.
The Company shall
continue to indemnify its officers, directors, employees, agents
and trustee in accordance with its Amended and Restated
Certificate of Incorporation, Bylaws, and contractual
arrangements as therein or elsewhere provided, the
Companys existing directors and officers
liability insurance policy and applicable law, and such
indemnification shall apply to acts or omissions of such persons
in connection with the implementation of this Plan and the
winding up of the affairs of the Company. The Board is
authorized to obtain and maintain insurance as may be necessary
to cover the Companys indemnification obligations.
15.
Modification or Abandonment of the
Plan.
Notwithstanding authorization or consent to
this Plan and the transactions contemplated hereby by the
stockholders, the Board may modify, amend or abandon this Plan
and the transactions contemplated hereby without further action
by the stockholders to the extent not prohibited by the DGCL.
16.
Authorization.
The Board is hereby
authorized, without further action by the stockholders, to do
and perform or cause the officers of the Company, subject to
approval of the Board, to do and perform, any and all acts, and
to make, execute, deliver or adopt any and all agreements,
resolutions, conveyances, certificates and other documents of
every kind that are deemed necessary, appropriate or desirable,
in the absolute discretion of the Board, to implement this Plan
and the transaction contemplated hereby, including, without
limiting the foregoing, all filings or acts required by any
state or federal law or regulation to wind up its affairs.
A-3
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