As filed with the Securities and Exchange Commission on July 11, 2011

Registration No. 333-      

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

 

 

 

Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

 

 

 

 

METROPOLITAN HEALTH NETWORKS, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

 

 

 

 

 

777 Yamato Road, Suite 510
Boca Raton, Florida 33431
Telephone: (561) 805-8500
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

Michael M. Earley
Chief Executive Officer
777 Yamato Road, Suite 510
Boca Raton, Florida 33431
Telephone: (561) 805-8500
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

 

Copies to:

 

 

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

 

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

 

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

 

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

 

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

 

(Do not check if a smaller reporting company)

 

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

 

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

 

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

 

CALCULATION OF REGISTRATION FEE

 

 

 

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

 

 

 

SUBJECT TO COMPLETION, DATED JULY 11, 2011

 

PRELIMINARY PROXY STATEMENT/PROSPECTUS

 

 

MERGER PROPOSED — YOUR VOTE IS VERY IMPORTANT

 

The boards of directors of Continucare Corporation, which is referred to as “Continucare,” and Metropolitan Health Networks, Inc., which is referred to as “Metropolitan,” have each approved an agreement and plan of merger, which is referred to as the “merger agreement,” which provides for the combination of the two companies. The boards of directors of Continucare and Metropolitan, which are referred to as the Continucare Board and Metropolitan Board, respectively, believe that the combination of the two companies will provide strategic and financial benefits to their respective shareholders. Pursuant to the terms of the merger agreement, CAB Merger Sub, Inc., a wholly owned subsidiary of Metropolitan, which is referred to as “merger subsidiary,” will merge with and into Continucare, and Continucare will continue as a wholly owned subsidiary of Metropolitan, which is referred to as the “merger.”

 

In the merger, each issued and outstanding share of common stock, par value $0.0001, of Continucare (other than any shares owned by Continucare or Metropolitan) will automatically be converted into the right to receive $6.25 per share in cash, without interest, and 0.0414 of a share of Metropolitan common stock, par value $0.001. No fractional shares of Metropolitan common stock will be issued in the merger, and Continucare shareholders will receive cash in lieu of fractional shares, if any, of Metropolitan common stock. Each share of Metropolitan common stock outstanding immediately before the effective time of the merger will remain outstanding and will not be affected by the merger.

 

After completion of the merger, Continucare will be a wholly owned subsidiary of Metropolitan, with Continucare shareholders receiving approximately 5.8% of the outstanding common stock of the combined company and existing Metropolitan shareholders retaining approximately 94.2% of the outstanding common stock of the combined company.

 

The common stock of Continucare currently trades on the New York Stock Exchange, which is referred to as the “NYSE,” under the symbol “CNU.” The common stock of Metropolitan currently trades on the NYSE Amex under the symbol “MDF.” On June 27, 2011, the date the proposed merger was publicly announced, the closing price per share of the common stock of Continucare and Metropolitan as reported by the NYSE and NYSE Amex was $6.25 and $4.75, respectively. You are urged to obtain current market quotations for the shares of Continucare and Metropolitan shares. The shares of the combined company will be traded on the NYSE Amex under the symbol “MDF.”

 

After careful consideration, the Continucare Board has unanimously approved, adopted, and declared advisable the merger agreement and the transactions contemplated thereby and has determined that the merger agreement and the transactions contemplated thereby are fair to, and in the best interests of the shareholders of Continucare. Accordingly, the Continucare Board unanimously recommends that Continucare shareholders vote “FOR” the approval of the merger agreement. No action is required or being asked of the Metropolitan shareholders in connection with the proposed merger.

 

Continucare will hold a special meeting of its shareholders, which is referred to as the “special meeting,” in order to obtain the shareholder approval necessary to consummate the merger. At this meeting Continucare will ask its shareholders to approve the merger agreement. The obligations of Continucare and Metropolitan to complete the merger are also subject to the satisfaction (or, to the extent permissible, waiver) of several other conditions to the merger set forth in the merger agreement and described in this proxy statement/prospectus. More information about Continucare, Metropolitan, and the proposed merger is contained in this proxy statement/prospectus. We urge you to read this proxy statement/prospectus, and the documents incorporated by reference into this proxy statement/prospectus, carefully and in their entirety. In particular, we urge you to read carefully “Risk Factors” beginning on page 24.

 

We are excited about the opportunities the proposed merger brings to the shareholders of Continucare and Metropolitan, and we thank you for your consideration and continued support.

 

 

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

 

This proxy statement/prospectus is dated  • , 2011, and, together with the accompanying proxy card, is first being mailed to Continucare shareholders on or about  • , 2011.

 

REFERENCES TO ADDITIONAL INFORMATION

 

Except where we indicate otherwise, as used in this proxy statement/prospectus, “Continucare” refers to Continucare Corporation and its consolidated subsidiaries, “Metropolitan” refers to Metropolitan Health Networks, Inc. and its consolidated subsidiaries, and “merger subsidiary” refers to CAB Merger Sub, Inc. This proxy statement/prospectus incorporates important business and financial information about Continucare and Metropolitan from documents that each company has filed with the Securities and Exchange Commission, which we refer to as the “SEC,” that have not been included in or delivered with this proxy statement/prospectus. For a list of documents incorporated by reference into this proxy statement/prospectus and how you may obtain them, see “Where You Can Find More Information.”

 

This information is available to you without charge upon your written or oral request. You can also obtain the documents incorporated by reference into this proxy statement/prospectus by accessing the SEC’s website maintained at www.sec.gov.

 

In addition, Continucare’s and Metropolitan’s filings with the SEC may also be obtained for free by accessing, respectively, Continucare’s website at www.continucare.com and clicking on the “Investor Relations” link and then clicking on the link for “SEC Filings” or by accessing Metropolitan’s website at www.metcare.com and clicking on the “About Us” link then clicking on the “For Investors” link and then clicking on the link for “EDGAR Filings — ALL.” Information contained on Continucare’s website, Metropolitan’s website, or any other website is not incorporated by reference into this proxy statement/prospectus, and you should not consider information contained on those websites as part of this proxy statement/prospectus.

 

Continucare will provide you with copies of this information relating to Continucare, without charge, if you request them in writing or by telephone from:

 

Continucare Corporation
7200 Corporate Center Drive, Suite 600
Miami, Florida 33126
Telephone: (305) 500-2000

 

Metropolitan will provide you with copies of this information relating to Metropolitan, without charge, if you request them in writing or by telephone from:

 

Metropolitan Health Networks, Inc.
777 Yamato Road, Suite 510
Boca Raton, Florida 33431
Telephone: (561) 805-8500

 

If you would like to request documents, please do so by  • , 2011 in order to receive them before the Continucare special meeting.

 

Continucare has supplied all information contained in or incorporated by reference in this proxy statement/prospectus relating to Continucare and Metropolitan has supplied all information contained in or incorporated by reference in this proxy statement/prospectus relating to Metropolitan.

 

 

CONTINUCARE CORPORATION
7200 Corporate Center Drive, Suite 600
Miami, Florida 33126
Telephone: (305) 500-2000

 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

 

TO BE HELD ON

 

 • , 2011

 

To the Shareholders of Continucare Corporation:

 

NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Continucare Corporation, a Florida corporation, which is referred to as “Continucare,” will be held at  • , Eastern Time on  • ,  • , 2011, at  • , to consider and vote on the following proposals:

 

 

The Continucare Board has unanimously approved, adopted, and declared advisable the merger agreement and the transactions contemplated thereby and has unanimously determined that the merger agreement and the transactions contemplated thereby are fair to, and in the best interests of, Continucare and Continucare shareholders. The Continucare Board unanimously recommends that you vote “FOR” the approval of the merger agreement and “FOR” the adjournment of the Continucare special meeting, if necessary, to solicit additional proxies in favor of the foregoing proposal.

 

Only shareholders of record at the close of business on July 11, 2011 are entitled to notice of the special meeting and to vote at the special meeting and any adjournments or postponements of the special meeting. The merger cannot be completed unless the merger agreement is approved by the affirmative vote of the holders of a majority of the outstanding shares of Continucare common stock as of the record date.

 

Continucare directs your attention to the proxy statement/prospectus accompanying this notice for more information regarding the matters proposed to be acted upon at the Continucare special meeting. You are encouraged to read the entire proxy statement/prospectus carefully including the merger agreement, which is included as Annex A to the proxy statement/prospectus, and the section discussing “Risk Factors” beginning on page 24.

 

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

 

Your vote is very important. Whether or not you plan to attend the special meeting in person, please complete, sign and date the enclosed proxy card(s) as soon as possible and return it in the postage-prepaid envelope provided. Submitting a proxy now will not prevent you from being able to vote at the special meeting by attending in person and casting a vote. However, if you do not return or submit your proxy or vote in person at the Continucare special meeting, the effect will be the same as a vote against the merger agreement.

 

By order of the board of directors,

 

Fernando L. Fernandez

Senior Vice President — Finance, Chief Financial Officer,
Treasurer and Secretary

 

 

 

Miami, Florida, • , 2011

 

TABLE OF CONTENTS

 

 

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

 

 

 

 

 

SUMMARY

 

The Companies

 

Risk Factors (page 24)

 

The Merger (page 33)

 

Continucare’s Reasons for the Merger (page 41)

 

Metropolitan’s Reasons for the Merger (page 64)

 

The Continucare Special Meeting (page 108)

 

Interests of Continucare Directors and Executive Officers in the Merger (page 61)

	•	the fact that stock options held by Continucare’s directors and executive officers will fully vest and the directors and executive officers will be entitled to a cash payment in connection with cancellation of such stock options;
	•	the fact that Richard C. Pfenninger, Chairman and Chief Executive Officer of Continucare, and Fernando Fernandez, Chief Financial Officer of Continucare, will receive change in control or severance payments pursuant to agreements between such officers and Metropolitan; and
	•	the fact that Continucare’s directors and executive officers will be entitled to continued indemnification and insurance coverage by Metropolitan for acts or omissions occurring prior to the merger for a period of six years following the effective time.

 

Voting Agreement (page 63)

 

Exclusivity Agreement (page 64)

 

Board of Directors and Management of Metropolitan Following the Merger (page 79)

 

Listing of Metropolitan Common Stock Issued for Share Consideration; De-listing and Deregistration of Continucare Common Stock (page 79)

 

Litigation Related to the Merger (page 79)

 

Conditions to Completion of the Merger (page 102)

	•	the approval of the merger agreement by the shareholders of Continucare;
	•	the absence of any order, injunction, decree or other legal restraint issued by any governmental authority, or other rule or regulation that is in effect and prevents or prohibits the consummation of the merger;
	•	Metropolitan having the amount of cash proceeds necessary to consummate the merger from the financing and/or any alternative financing and/or the unrestricted cash available to Continucare and Metropolitan;
	•	the expiration or termination of the waiting periods applicable to the consummation of the merger under the HSR Act and the absence of any proceeding, investigation or inquiry initiated by a governmental authority that is challenging or seeking to prevent or prohibit consummation of the merger or seeking to impose any undertaking, condition or consent decree to compel any material divestiture or operational restriction that Metropolitan would not be obligated to agree to under the merger agreement;
	•	the authorization for listing on the NYSE Amex, subject to official notice of issuance, of the shares of Metropolitan common stock to be issued in the merger;

	•	the effectiveness of the registration statement on Form S-4 of which this proxy statement/prospectus forms a part and absence of any stop order by the SEC, or proceedings of the SEC seeking a stop order, suspending the effectiveness of such registration statement; and
	•	the accuracy of the representations and warranties of the parties and compliance by the parties with their respective obligations under the merger agreement.

	•	pay Continucare shareholders and optionholders amounts due to them under the merger agreement, which based upon the shares (and Continucare’s other equity-based interests) outstanding as of June 30, 2011 would total approximately $404 million; and
	•	pay fees and expenses related to the merger and the debt financing,

	•	receipts from the debt financing (or alternative financing) in an aggregate principal amount of approximately $355 million; and
	•	existing cash balances of Continucare and Metropolitan.

 

Regulatory Approvals Required for the Merger (page 77)

 

Termination of the Merger Agreement (page 104)

	•	by mutual written agreement of Continucare and Metropolitan;
	•	by either Continucare and Metropolitan if:

	–	the merger has not been consummated on or before the outside date of November 1, 2011, provided that the right to terminate pursuant to this section is not available to a party if the failure to consummate the merger by the outside date results from the failure of the party seeking to terminate to fulfill in all material respects all of its obligations under the merger agreement;

	–	at the meeting of Continucare’s shareholders, the beneficial owner of Continucare common stock that is a party to the voting agreement does not vote in accordance with the voting agreement and the Continucare shareholders do not approve the merger agreement; or
	–	(i) all conditions to the obligations of Metropolitan and Continucare to effect the merger have been satisfied (other than the conditions relating to the authorization of Metropolitan common stock for listing on the NYSE Amex, the delivery of a certificate signed by an executive officer of Continucare, the delivery of a tax certificate from Continucare and the availability of financing and unrestricted cash), (ii) Metropolitan has failed to satisfy the financing condition described above by the calendar day that is immediately prior to November 1, 2011, and (iii) Continucare stands ready, willing and able to consummate the closing following satisfaction of the conditions described above for five consecutive business days (or such lesser number of days as may be remaining through the date that is immediately prior to November 1, 2011).

	•	by Metropolitan if:

	–	Continucare breaches its representations or warranties or fails to perform any covenants set forth in the merger agreement (in each case disregarding and without giving effect to all qualifications and exceptions contained therein related to materiality or material adverse effect or any similar standard or qualification), which breach or failure would cause any of the conditions to the closing not to be satisfied and such breach, if curable, is not cured by the earlier of the outside date or 15 days after the receipt of written notice thereof or the day immediately prior to the outside date;
	–	the Continucare Board has effected a Continucare adverse recommendation change;
	–	a third party commences a tender or exchange offer relating to Continucare securities, and Continucare does not disclose a recommendation that its shareholders reject such tender or exchange offer;
	–	after an acquisition proposal has been made, the Continucare Board fails to publicly confirm its recommendation within three business days of a request by Metropolitan that it do so; or
	–	the minimum cash condition is not satisfied on or before the fourth business day prior to November 1, 2011.

	•	by Continucare if:

	–	Continucare receives a superior proposal and the Continucare Board reasonably determines in good faith, after consulting with outside nationally recognized legal counsel, that there is a reasonable likelihood that it is necessary to terminate the merger agreement and enter into an agreement to effect the superior proposal in order to comply with the board of directors’ fiduciary duties under applicable law, provided that

	°	Continucare did not violate its non-solicitation obligations under the merger agreement;
	°	Continucare provides Metropolitan with a written notice of the Continucare Board’s determination;
	°	Continucare thereafter satisfies its obligations to reasonably cooperate with Metropolitan during a five-business day period following the written notice, to make adjustments to the terms and conditions of the merger agreement;
	°	the Continucare Board continues to determine in good faith, after consultation with nationally recognized outside counsel, after such five business day period, that there is a reasonable likelihood that it is necessary to terminate the merger agreement and enter into an agreement to effect the superior proposal in order to comply with its fiduciary duties under applicable law;
	°	Continucare, prior to the termination of the merger agreement, pays to Metropolitan the expense reimbursement and termination fee discussed under “— Termination Fees and Expenses;” and

	°	simultaneously or substantially simultaneously with such termination, Continucare enters into a definitive acquisition, merger or similar agreement to effect the superior proposal or the tender offer or exchange offer that constitutes the superior offer is commenced (if it has not already been commenced); or

	–	Metropolitan breaches its representations or warranties or fails to perform any covenants set forth in the merger agreement (in each case disregarding and without giving effect to all qualifications and exceptions contained therein related to materiality or material adverse effect or any similar standard or qualification), which breach or failure would cause any of the conditions to the closing not to be satisfied and such breach, if curable, is not cured by the earlier of the outside date or 15 days after the receipt of written notice thereof or the day immediately prior to the outside date.

 

Termination Fees and Expenses (page 105)

	•	Continucare may be obligated to pay to Metropolitan a termination fee of either $9 million or $12 million and to reimburse Metropolitan for up to $1.5 million of its out-of-pocket costs and expenses incurred in connection with the merger agreement; or
	•	Metropolitan may be obligated to pay Continucare a termination fee of $12 million and to reimburse Continucare for up to $1.5 million of its out-of-pocket costs and expenses incurred in connection with the merger agreement.

 

Material United States Federal Income Tax Consequences (page 84)

 

Accounting Treatment (page 83)

 

Comparison of Rights of Shareholders (page 116)

 

Continucare Shareholders’ Rights of Appraisal (page 80)

 

FINANCIAL SUMMARY

 

Selected Historical Consolidated Financial Data of Continucare

		For the Nine
		Months Ended
		March 31								For the Years Ended June 30,
		2011				2010				2010				2009				2008				2007				2006
		(Unaudited)
Revenue		$	244,908			$	231,503			$	310,791			$	281,270			$	254,440			$	217,146			$	132,991
Operating expenses:
Medical services:
Medical claims			157,892				155,062				208,857				199,168				181,097				161,154				97,782
Other direct costs			28,826				23,425				31,484				28,456				26,943				22,920				13,137
Total medical services			186,718				178,487				240,341				227,624				208,040				184,074				110,919
Administrative payroll and employee benefits			12,055				12,261				16,309				12,656				12,119				9,192				6,538
General and administrative			16,369				13,771				18,021				16,261				16,414				13,990				7,584
Total operating expenses			215,142				204,519				274,671				256,541				236,573				207,256				125,041
Income from operations			29,766				26,984				36,120				24,729				17,867				9,890				7,950
Other income (expense):
Interest income			58				46				66				174				603				356				331
Interest expense			133				(111	)			(116	)			(22	)			(68	)			(50	)			(13	)
Income before income tax provision			29,957				26,919				36,070				24,881				18,402				10,196				8,268
Income tax provision			10,709				10,421				13,894				9,600				7,132				3,893				2,930
Net income		$	19,248			$	16,498			$	22,176			$	15,281			$	11,270			$	6,303			$	5,338
Net income per common share:
Basic		$	.32			$	.28			$	.37			$	.25			$	.16			$	.10			$	.11
Diluted		$	.31			$	.27			$	.36			$	.24			$	.16			$	.10			$	.10
CONSOLIDATED BALANCE SHEET DATA:
Total assets		$	172,533			$	145,866			$	153,866			$	125,303			$	118,490			$	116,938			$	41,994
Long-term obligations, including current portion		$	175			$	364			$	326			$	205			$	196			$	331			$	196

 

Selected Historical Consolidated Financial Data of Metropolitan

		For the Three Months Ended March 31								For the Years Ended December 31,
		2011				2010				2010				2009				2008				2007				2006
		(Unaudited)
Statement of Operations Data
Revenue		$	94,666			$	93,042			$	368,186			$	354,407			$	317,212			$	277,577			$	228,216
Operating income (loss)		$	12,774			$	11,198	(2)		$	41,284	(2)		$	22,981	(2)		$	16,541	(1)		$	8,072			$	(233	)
Income before income taxes		$	12,952			$	11,391			$	41,585			$	23,349			$	16,619			$	9,441			$	826
Net income		$	7,965			$	7,129			$	25,700			$	14,449			$	10,204			$	5,914			$	473
Basic earnings per share		$	0.20			$	0.18			$	0.65			$	0.32			$	0.21			$	0.12			$	0.01
Diluted earnings per share		$	0.19			$	0.17			$	0.62			$	0.31			$	0.20			$	0.11			$	0.01
Weighted average common shares outstanding — basic			39,770				39,039				39,195				44,496				49,093				50,573				50,033
Weighted average common shares outstanding — diluted			41,961				40,792				41,509				45,941				50,354				51,796				51,473
Cash dividend declared			—				—				—				—				—				—				—
Balance Sheet Data
Cash and equivalents		$	8,633			$	5,476			$	10,596			$	6,795			$	2,701			$	38,682			$	23,110
Short-term investments		$	39,667			$	24,822			$	38,949			$	27,036			$	33,641			$	—			$	—
Total current assets		$	67,477			$	40,192			$	60,975			$	35,715			$	40,867			$	44,764			$	30,465
Total assets		$	82,308			$	53,880			$	74,724			$	51,332			$	49,144			$	53,811			$	41,841
Total current liabilities		$	5,307			$	6,826			$	6,815			$	8,009			$	6,340			$	15,545			$	10,912
Total liabilities		$	5,520			$	7,223			$	6,974			$	8,406			$	6,340			$	15,545			$	10,912
Total working capital		$	62,170			$	33,366			$	54,160			$	27,706			$	34,528			$	29,219			$	19,553
Long — term obligations, including current portion		$	818			$	716			$	477			$	716			$	—			$	—			$	—
Total shareholders’ equity		$	76,788			$	46,657			$	67,750			$	42,926			$	42,805			$	38,266			$	30,930

(1)		Includes a gain on the sale of a health maintenance organization (the “HMO”) of $5.9 million and related stay bonuses and termination costs of $1.6 million.
(2)		Includes an incremental gain on the sale of the HMO of $62,000 in 2010 and $1.3 million in 2009.

 

Selected Unaudited Pro Forma Condensed Combined Financial Information

In thousands (except		Pro Forma as of
per share amounts)		March 31, 2011
Balance sheet data:
Cash and cash equivalents(1)		$	—
Working capital			12,405
Total assets			461,811
Note payable(1)			4,430
Long-term debt, including current portion			330,818
Stockholders’ equity			80,014

(1)		For purposes of the March 31, 2011 pro forma balance sheet additional cash is required to close the transaction and we assumed the use of the revolving credit facility. For purposes of the pro forma income statements, we assumed that sufficient cash would be available at closing to fund the transaction and funding from the revolving credit facility will not be required.

		Pro Forma Year				Pro Forma Three Months
		Ended December 31, 2010				Ended March 31, 2011
Statement of operations data:
Revenues		$	651,609			$	171,299
Total expenses			580,476				150,248
Operating income			71,195				21,051
Net income			27,430				9,858
Adjusted EBITDA(1)			88,027				25,990
Diluted earnings per common share		$	0.62			$	0.22

(1)		Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, and amortization, a Non-GAAP financial measure within the meaning of Regulation G promulgated by the Securities and Exchange Commission. Stock-based compensation amortization expense is considered an amortization item to be excluded in the Adjusted EBITDA calculation. We believe that Adjusted EBITDA provides useful information to investors because it excludes transactions not related to the core cash operating business activities. We believe that excluding these transaction allows investors to meaningfully trend and analyze the performance of our core cash operations.
		The following table reconciles Adjusted EBITDA (Non-GAAP measure) to the reported net income for the pro forma year ended December 31, 2010 and the pro forma three months ended March 31, 2011 (in thousands):

		Pro Forma Year				Pro Forma Three Months
		Ended December 31, 2010				Ended March 31, 2011
Net income		$	27,430			$	9,858
Add back:
Interest expense			26,817				6,412
Income tax expense			16,920				4,776
Depreciation and amortization expense			12,962				3,515
Stock-based compensation expense			3,898				1,429
Adjusted EBITDA		$	88,027			$	25,990

 

UNAUDITED COMPARATIVE PER SHARE INFORMATION

														Continucare
		Metropolitan				Continucare				Metropolitan				Equivalent
		Historical				Historical				Pro Forma				Pro Forma
For the year ended December 31, 2010:
Income per common share:
Basic		$	0.65			$	0.39			$	0.66			$	0.03
Diluted		$	0.62			$	0.38			$	0.62			$	0.03
Cash dividends declared per common share		$	—			$	—			$	—			$	—
As of or for the three months ended March 31, 2011:
Income per common share:
Basic		$	0.20			$	0.12			$	0.23			$	0.01
Diluted		$	0.19			$	0.12			$	0.22			$	0.01
Cash dividends declared per common share		$	—			$	—			$	—			$	—
Book value of stockholders’ equity per common share		$	1.87			$	2.59			$	1.85			$	0.08

 

COMPARATIVE MARKET PRICE DATA AND DIVIDENDS

		Metropolitan												Continucare
		Price Range of Common Stock								Dividends				Price Range of Common Stock								Dividends
Year Ended		High				Low				Paid				High				Low				Paid
December 31, 2009:
First Quarter		$	1.78			$	1.20				—			$	2.06			$	1.61				—
Second Quarter			2.19				1.46				—				2.53				1.71				—
Third Quarter			2.49				2.01				—				3.20				2.36				—
Fourth Quarter			2.21				1.85				—				4.42				2.62				—
December 31, 2010:
First Quarter			3.23				2.00				—				5.07				3.72				—
Second Quarter			4.31				3.01				—				4.20				3.35				—
Third Quarter			3.95				3.44				—				4.20				3.25				—
Fourth Quarter			4.80				3.70				—				5.01				3.95				—
December 31, 2011:
First Quarter			5.26				4.23				—				5.66				4.00				—
Second Quarter			4.99				3.83				—				6.25				4.14				—
Third Quarter (through July 8, 2011)			4.77				4.59				—				6.24				6.17				—

 

COMPARATIVE MARKET VALUE INFORMATION

	•	the closing prices per share of Metropolitan common stock and Continucare common stock, based on the last reported sales prices as reported by the NYSE Amex and NYSE, respectively, on June 24, 2011, the last trading day prior to the public announcement of the proposed merger, and July 8, 2011, the last trading day for which this information could be calculated prior to the date of this proxy statement/prospectus; and
	•	the implied value of the merger consideration for each share of Continucare common stock, which was calculated by adding the cash portion of the merger consideration of $6.25 to the product obtained by multiplying the closing price of a share of Metropolitan common stock on those dates by 0.0414, the exchange ratio.

		Metropolitan				Continucare				Implied Value of
		Common Stock				Common Stock				Continucare Common Stock
June 24, 2011		$	4.88			$	4.77			$	6.45
July 8, 2011		$	4.65			$	6.22			$	6.44

 

In deciding whether to vote for the approval of the merger agreement, we urge you to consider carefully all of the information included or incorporated by reference in this proxy statement/prospectus. See “Where You Can Find More Information.” You should also read and consider the risks associated with each of the businesses of Continucare and Metropolitan because these risks will also affect the combined company after the effective date. The risks associated with the business of Continucare can be found in the Continucare Annual Report on Form 10-K for the year ended June 30, 2010, which is incorporated by reference in this proxy statement/prospectus. The risks associated with the business of Metropolitan can be found in the Metropolitan Annual Report on Form 10-K for the year ended December 31, 2010, which is incorporated by reference in this proxy statement/prospectus.

 

There can be no assurance that the merger will be consummated. The announcement and pendency of the merger, or the failure of the merger to be consummated, could have an adverse effect on Continucare’s and Metropolitan’s stock price, business, financial condition, results of operations or prospects.

 

The merger is subject to a number of conditions to closing including, (i) the approval of the merger agreement by the Continucare shareholders at the Continucare special meeting; (ii) the absence of legal prohibitions on the consummation of the merger; (iii) the expiration or early termination of the waiting periods applicable to the consummation of the merger under the HSR Act; (iv) Metropolitan’s consummation on the terms and conditions set forth, and receipt of the proceeds from the debt financing described, in the debt commitment letter from the debt commitment party, which financing is subject to the satisfaction of a number of closing conditions set forth in the debt commitment letter; (v) the authorization for listing on the NYSE Amex, subject to official notice of issuance, of the shares of Metropolitan common stock to be issued in the merger; (vi) the effectiveness of the registration statement on Form S-4 of which this proxy statement/prospectus forms a part and absence of any stop order by the SEC, and proceedings of the SEC seeking a stop order, suspending the effectiveness of such registration statement; (vii) the accuracy of the representations and warranties of the parties and compliance by the parties with their respective obligations under the merger agreement; and (viii) Continucare’s satisfaction of the minimum cash condition. See “The Merger Agreement — Conditions to Completion of the Merger” and “The Merger — Financing Relating to the Merger.”

 

If the Continucare shareholders fail to approve the merger agreement, Continucare and Metropolitan will not be able to complete the merger. Additionally, if the other closing conditions set forth in the merger agreement are not met or waived, the companies will not be able to complete the merger.

 

If the merger agreement is terminated in certain circumstances described under “The Merger Agreement — Termination of the Merger Agreement,” Continucare or Metropolitan may be required to pay the other a termination fee of up to $12 million, as well as to reimburse the other party for up to $1.5 million of its out-of-pocket costs and expenses incurred in connection with the merger agreement, but would, in general, have no further obligations to the other party, even if the merger agreement is terminated as a result of an intentional breach by a party.

 

Further, the announcement and pendency of the merger could disrupt Continucare’s and Metropolitan’s businesses, in any of the following ways, among others:

 

 

Continucare and Metropolitan may face additional challenges in competing for new business and retaining or renewing business. These disruptions could be exacerbated by a delay in the completion of the merger or termination of the merger agreement.

 

For the foregoing reasons, there can be no assurance that the announcement and pendency of the merger, or the failure of the merger to be consummated, will not have an adverse effect on Continucare’s or Metropolitan’s stock price, business, financial condition, results of operations or prospectus.

 

The price of Metropolitan common stock might decline before the completion of the merger, which would decrease the value of the merger consideration to be received by Continucare shareholders in the merger.

 

Upon completion of the merger, Continucare shareholders will be entitled to receive for each share of Continucare common stock that they own, $6.25 in cash and 0.0414 of a share of Metropolitan common stock. The exchange ratio will not be adjusted to reflect stock price changes prior to the completion of the merger.

 

The market price of Metropolitan common stock at the time the merger is completed may vary significantly from the price on the date of the merger agreement or from the price on the date of the Continucare special meeting. On June 24, 2011, the last full trading day prior to the public announcement of the proposed merger, Metropolitan common stock closed at $4.88 per share as reported on the NYSE Amex. From June 27, 2011 (the next trading day following June 24, 2011), through  • , 2011 (the last trading day prior to the printing of this proxy statement/prospectus for which it was practicable to include this information), the trading price of Metropolitan common stock ranged from a low of $ •  per share to a high of $ •  per share.

 

Metropolitan and Continucare have agreed to use their reasonable efforts to complete the transaction as promptly as practicable and expect that the transaction will be completed during the third calendar quarter. Because the date when the transaction is completed will be later than the date of the Continucare special meeting, Metropolitan and Continucare shareholders will not know the exact value of the Metropolitan common stock that will be issued in the merger at the time they vote on the proposal to approve the merger agreement. As a result, if the market price of Metropolitan common stock upon the completion of the merger is lower than the market price on the date of the Continucare special meeting, the market value of the merger consideration received by Continucare shareholders in the merger will be lower than the market value of the merger consideration at the time of the vote by the Continucare shareholders. Moreover, during this interim period, events, conditions or circumstances could arise that could have a material impact or effect on Metropolitan, Continucare, or the industries in which they operate.

 

Metropolitan and Continucare must obtain governmental and regulatory approvals to consummate the merger, which, if delayed, not granted or granted with unacceptable conditions, may jeopardize or delay the consummation of the merger, result in additional expenditure of time and resources, reduce the anticipated benefits of the acquisition or cause the failure of the completion of the merger.

 

The merger is conditioned on the receipt of certain governmental authorizations, consents, orders and approvals, including clearance under the HSR Act. If such approvals are not received, or are not received on terms that satisfy the conditions set forth in the merger agreement, then the Continucare and Metropolitan will not be obligated to consummate the merger.

 

The governmental authorities from which Continucare and Metropolitan must seek these regulatory approvals have broad discretion in their review of the transaction. As a condition to their approval of the merger, the governmental authorities may impose requirements, limitations or costs on the combined company, require divestitures of the combined company or place restrictions on the conduct of the business of the combined company. These requirements, limitations, costs, divestitures or restrictions could jeopardize or delay the consummation of the merger, could reduce its anticipated benefits to Metropolitan, or cause the failure of the completion of the merger. Continucare and Metropolitan cannot make any assurances that all of the required regulatory approvals will be obtained or that such approvals will be obtained on any particular terms. See “The Merger — Regulatory Approvals Required for the Merger.”

The condition of the financial markets, including volatility and weakness in the equity, capital and credit markets, could limit the availability and terms of debt and equity financing sources to fund the capital and liquidity requirements of Metropolitan’s businesses, including financing Metropolitan must undertake in connection with the merger.

 

In connection with the merger, Metropolitan obtained the debt commitment letter from the debt commitment party. These funds, in addition to existing cash balances, will be sufficient to finance the cash consideration to Continucare shareholders and to refinance certain existing Metropolitan and Continucare debt. Subject to certain conditions, Metropolitan expects to have in place approximately $355 million of long-term financing, of which approximately $330 million is expected to be outstanding at the time of consummation of the merger. Metropolitan cannot make assurances that it will be able to refinance indebtedness under its revolving credit facility on terms acceptable to Metropolitan, if at all. If an event of default was to occur under its revolving credit facility, Metropolitan’s lenders would be entitled to take various actions, including all actions permitted to be taken by a secured creditor. In addition, Metropolitan may not be able to complete the planned financing of the merger on the terms and the timetable that Metropolitan and Continucare anticipate. If Metropolitan were unable to complete these financings, Metropolitan would likely be unable to consummate the merger and, depending on the circumstances, could be required to pay a $12 million termination fee to Continucare, which would materially adversely affect Metropolitan’s business, financial position, results of operations and liquidity. See “The Merger Agreement — Termination of the Merger Agreement” and “The Merger Agreement — Termination Fees and Expenses.”

 

The merger agreement limits Continucare’s ability to pursue an alternative acquisition proposal and requires Continucare to pay a termination fee of up to $12 million, plus expenses, if it does.

 

The merger agreement prohibits Continucare from soliciting, initiating or encouraging alternative merger or acquisition proposals with any third party. The merger agreement also provides for the payment by Continucare to Metropolitan of a termination fee of up to $12 million, plus up to $1.5 million in fees and expenses, if the merger agreement is terminated in certain circumstances in connection with a competing acquisition proposal for Continucare or the withdrawal by the Continucare Board of its recommendation that the Continucare shareholders vote in favor of the proposal required to consummate the merger, as the case may be. See “The Merger Agreement — Termination Fees and Expenses.”

 

There may be a long delay between Continucare receiving the necessary shareholder approval for the merger and the closing of the merger, during which time Continucare will lose the ability to consider and pursue alternative acquisition proposals, which might otherwise be superior to the merger.

 

Following the Continucare special meeting, the merger agreement prohibits Continucare from taking any actions to review, consider or recommend any alternative acquisition proposals, including those that could be superior to Continucare’s shareholders when compared to the merger. Given that there could be a delay between the shareholder approval and closing, the time during which Continucare could be prevented from reviewing, considering or recommending such proposals could be significant.

 

If the merger is not consummated on or before November 1, 2011, either Continucare or Metropolitan may choose not to proceed with the merger.

 

Either Continucare or Metropolitan may terminate the merger agreement if the merger has not been completed on or before November 1, 2011, unless the failure of the merger to be completed on or before November 1, 2011 has resulted from the failure of the party seeking to terminate the merger agreement to fulfill in all material respects all of its obligations under merger agreement.

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

 

The financial forecasts of Continucare and Metropolitan included or referred to in this proxy statement/prospectus involve risks, uncertainties and assumptions and are not a guarantee of future performance. The future financial results of Continucare and Metropolitan may materially differ from those expressed in the financial forecasts due to factors that are beyond Continucare’s and Metropolitan’s ability to control or predict. Neither Continucare nor Metropolitan can provide any assurance that Continucare’s or Metropolitan’s financial forecasts will be realized or that Continucare’s or Metropolitan’s future financial results will not materially vary from the financial forecasts. The financial forecasts cover multiple years, and the information by its nature becomes subject to greater uncertainty with each successive year. The financial forecasts do not take into account any circumstances or events occurring after they were prepared. More specifically, the financial forecasts:

 

 

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

 

When considering the recommendation of the Continucare Board with respect to the merger, Continucare shareholders should be aware that some directors and executive officers of Continucare have interests in the merger that might be different from, or in addition to, their interests as shareholders and the interests of shareholders of Continucare generally. These interests include, among others, potential payments to each of Messrs. Pfenniger and Fernandez pursuant to the Change in Control and Separation Agreements entered into between each of them and Metropolitan on June 26, 2011, cash payments in respect of stock options in connection with the merger and the right to continued indemnification and insurance coverage by Metropolitan for acts or omissions occurring prior to the merger. See “The Merger — Interests of Continucare Directors and Executive Officers in the Merger.”

 

As of the close of business on July 11, 2011, Continucare directors and executive officers were entitled to vote approximately  • % of the then-outstanding shares of Continucare common stock. See “The Merger — Stock Ownership of Directors and Executive Officers of Continucare.”

 

Continucare shareholders will have a significantly reduced ownership and voting interest after the merger and will exercise less influence over the management and policies of Metropolitan than they do over Continucare.

 

Continucare shareholders currently have the right to vote in the election of the Continucare Board and on other matters affecting Continucare. When the merger occurs, each Continucare shareholder that receives shares of Metropolitan common stock will become a shareholder of Metropolitan with a percentage ownership of the combined company that is much smaller than the shareholder’s percentage ownership of Continucare. It is expected that the former shareholders of Continucare as a group will own approximately 5.8% of the outstanding shares of Metropolitan immediately after the merger, based on the number of shares of Metropolitan and Continucare common stock issued and outstanding as of June 30, 2011. Because of this, Continucare shareholders will have less influence over the management and policies of Metropolitan than they now have over the management and policies of Continucare.

The rights of Continucare shareholders will change when they become shareholders of Metropolitan upon completion of the merger.

 

Upon completion of the merger, Continucare shareholders will become Metropolitan shareholders. There are numerous differences between the rights of a shareholder of Continucare and the rights of a shareholder of Metropolitan. For a detailed discussion of these differences, see “Comparison of Rights of Shareholders.”

 

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

 

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

 

 

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

Metropolitan may be unable to realize projected cost synergies or may incur additional and unexpected costs in order to realize them.

 

Metropolitan projects that it will realize approximately $5.0 million of operating synergies per year following the completion of the merger, beginning in 2012. Metropolitan may be unable to realize all of these cost synergies within the timeframe expected, or at all, and Metropolitan may incur additional and unexpected costs in order to realize them.

 

Metropolitan expects to incur substantial indebtedness to finance the merger and may not be able to meet its substantial debt service requirements.

 

Metropolitan intends to incur substantial indebtedness in connection with the merger. If Metropolitan is unable to generate sufficient funds to meet its obligations under the new debt financing to be entered into pursuant to the debt commitment letter, Metropolitan may be required to refinance, restructure or otherwise amend some or all of such obligations, sell assets or raise additional cash through the sale of its equity. Metropolitan cannot make any assurances that it would be able to obtain such refinancing on terms as favorable as those set forth in the debt commitment letter or that such restructuring activities, sales of assets or issuances of equity can be accomplished or, if accomplished, would raise sufficient funds to meet these obligations. In addition, upon consummation of the merger the new debt financing entered into pursuant to the debt commitment letter will require Metropolitan to:

 

 

These provisions:

 

 

Certain material terms of the debt financing contemplated by the debt commitment letter are subject to change at the sole discretion of the debt commitment party to the extent deemed necessary to successfully syndicate the financing, which may result in more restrictive and/or less favorable provisions to Metropolitan than those contemplated by the debt commitment letter. In addition, subject to certain conditions (including the prior consent of Continucare under certain circumstances), under the merger agreement Metropolitan may amend, replace or otherwise modify, or waive its rights under the debt commitment letter and/or substitute other debt or equity financing for all or any portion of the financing contemplated by the debt commitment letter, from the same and/or alternative financing sources. Any alternative debt financing of Metropolitan may contain similar or more restrictive provisions than those contemplated by the debt commitment letter, and any equity financing would dilute the ownership interests of existing Metropolitan shareholders.

Metropolitan and Continucare will incur significant transaction and merger-related integration costs in connection with the merger.

 

Metropolitan and Continucare expect to incur a number of costs associated with completing the merger and integrating the operations of the two companies. The substantial majority of these costs are projected to be non-recurring expenses and primarily consist of transaction costs related to the merger and employment-related costs. Additional unanticipated costs may be incurred in the integration of the businesses of Metropolitan and Continucare. Although Metropolitan and Continucare expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, may offset incremental transaction and merger-related costs over time, this net benefit may not be achieved in the near term, or at all.

 

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

 

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

 

The price of the common stock of the combined company may be affected by factors different from those affecting the price of Continucare common stock or Metropolitan common stock independently.

 

After completion of the merger, as the combined company integrates the businesses of Continucare and Metropolitan, the results of operations as well as the stock price of the combined company may be affected by factors different than those factors affecting Continucare and Metropolitan as independent stand-alone entities. The combined company may face additional risks and uncertainties not otherwise facing each independent company prior to the merger. For a discussion of Continucare’s and Metropolitan’s businesses and certain factors to consider in connection with their respective businesses, see the respective sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Continucare’s Annual Report on Form 10-K for the year ended June 30, 2010 and Metropolitan’s Annual Report on Form 10-K for the year ended December 31, 2010 and other documents incorporated by reference into this proxy statement/prospectus.

 

This proxy statement/prospectus includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (which we refer to as the “Securities Act”) and Section 21E of the Exchange Act. All statements regarding Continucare’s and Metropolitan’s expected future financial position, results of operations, cash flows, financing plans, business strategy, budgets, capital expenditures, competitive positions, growth opportunities, plans and objectives of management and statements containing words such as “anticipate,” “approximate,” “believe,” “plan,” “estimate,” “expect,” “project,” “could,” “should,” “will,” “intend,” “may” and other similar expressions, are forward-looking statements. These forward-looking statements are made based upon expectations and beliefs concerning future events affecting Continucare, Metropolitan, and merger subsidiary and are subject to uncertainties and factors relating to their respective operations and business environment, all of which are difficult to predict and many of which are beyond their control, that could cause their actual results to differ materially from those matters expressed or implied by these forward-looking statements. In particular, the unaudited pro forma condensed combined financial information included in this proxy statement/prospectus reflect assumptions and estimates by the management of Continucare and Metropolitan as of the date specified in the unaudited pro forma condensed combined financial information. In addition, the forecasts by Continucare and Metropolitan management included or referred to in this proxy statement/prospectus reflect assumptions and estimates by the management of Continucare or Metropolitan, respectively, as of the date specified in the forecasts or the date of any document incorporated by reference in this proxy statement/prospectus. While Continucare and Metropolitan, as applicable, believe these assumptions and estimates regarding their respective forecasts to be reasonable in light of the facts and circumstances known as of the date hereof, the forecasts are necessarily speculative in nature. Many of these assumptions and estimates are driven by factors beyond the control of Continucare or Metropolitan, and it can be expected that one or more of them will not materialize as expected or will vary significantly from actual results. No independent accountants have provided any assurance with respect to these forecasts. Moreover, neither Continucare nor Metropolitan undertakes any obligation to update the forecasts and neither intends to do so. Accordingly, you should not place undue reliance on these forecasts or any of the other forward-looking statements in this proxy statement/prospectus, which are likewise subject to numerous uncertainties, and you should consider all of such information in light of the various risks identified in this proxy statement/prospectus and in the reports filed by Continucare and Metropolitan with the SEC, as well as the other information that Continucare and Metropolitan provide with respect to the merger.

 

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

 

 

 

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

 

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

 

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

 

 

The Continucare Board and the Metropolitan Board have each unanimously approved the merger agreement and the transactions contemplated by the merger agreement. Pursuant to the merger agreement, merger subsidiary will merge with and into Continucare, and Continucare will continue as the surviving corporation and a wholly owned subsidiary of Metropolitan. As a result of the merger, Continucare will cease to be a publicly traded company.

 

Continucare Shareholders

 

At the effective time, each share of Continucare common stock outstanding immediately before the effective time, other than shares owned by Metropolitan or Continucare or their respective wholly owned subsidiaries, or shares owned by shareholders who have properly exercised and perfected appraisal rights under Florida law, will be converted into the right to receive $6.25 in cash, without interest, and 0.0414 of a share of Metropolitan common stock. The exchange ratio is a fixed ratio. Therefore, the number of shares of Metropolitan common stock to be received by holders of Continucare common stock as a result of the merger will not change between now and the time the merger is completed.

 

No fractional shares of Metropolitan common stock will be issued in the merger. Instead, holders of Continucare common stock will receive cash in lieu of fractional shares of Metropolitan common stock. The amount of cash to be received (rounded up to the nearest whole cent and without interest) will be determined by multiplying the fractional share interest by the average closing price (rounded to the nearest one-tenth of a cent) of one share of Metropolitan common stock on the NYSE Amex for the five trading days immediately prior to the closing date of the merger.

 

Metropolitan Shareholders

 

Each share of Metropolitan common stock outstanding immediately prior to the effective time will remain outstanding and will not be altered by the merger.

 

After completion of the merger, Continucare will be a wholly owned subsidiary of Metropolitan, with Continucare shareholders receiving approximately 5.8% of the outstanding common stock of the combined company and Metropolitan shareholders retaining approximately 94.2% of the outstanding common stock of the combined company.

 

Before November 2010, the management of Continucare and Metropolitan engaged in several informal discussions regarding potential combination scenarios since 2003. All of these discussions were terminated early in the process with no formal proposals being issued by either party. In December 2006, the parties entered into a confidentiality agreement with respect to their informal discussions. The confidentiality agreement, which has no set term, was amended three times, in March and April 2008 and in February 2010.

 

In September 2010, a representative of Party A contacted Gemma Rosello, Executive Vice President — Operations of Continucare, for the purpose of suggesting an introductory meeting between Richard Pfenniger, President and Chief Executive Officer of Continucare, and the President of a division of Party A. Ms. Rosello and the representatives of Party A agreed to schedule such a meeting.

On September 30, 2010, a meeting was held among Continucare and Party A. In attendance representing Continucare were Mr. Pfenniger, Fernando Fernandez, Executive Vice President and Chief Financial Officer of Continucare, Ms. Rosello, and Dr. Alfredo Ginory, Chief Medical Officer of Continucare. The sole purpose of the meeting was to introduce the parties and their respective business to one another at a high level. All information discussed at the meeting was non-confidential.

 

As a result of this initial meeting, on October 7, 2010, Party A sent Continucare a Non-Disclosure Agreement, which Continucare revised and executed on October 12. The parties agreed to schedule a second meeting to discuss a possible strategic transaction between Party A and Continucare.

 

On November 9, 2010, at a regularly scheduled meeting, Mr. Pfenniger informed the Continucare Board of the contact by Party A and Party A’s potential interest in a strategic transaction. Mr. Pfenniger said he would keep the board apprised of any further conversations with Party A regarding a transaction between the companies.

 

On November 11, 2010, a second meeting was held among Continucare and Party A. Messrs. Pfenniger and Fernandez, Dr. Ginory, and Ms. Rosello represented Continucare. At the meeting, the parties further discussed the possibility of a strategic transaction, however no specific terms for a potential transaction were presented or proposed. Following this meeting, representatives of Party A expressed interest in further discussions and requested the opportunity to meet Dr. Phillip Frost, a director and 43% shareholder of Continucare.

 

Following a determination by the Metropolitan Board that Metropolitan should more proactively pursue external growth opportunities, in November 2010, a representative of Morgan Joseph TriArtisan, Metropolitan’s financial advisor, contacted Mr. Pfenniger to inquire as to Continucare’s interest in resuming discussions regarding a possible business combination between Continucare and Metropolitan, and indicated likely interest by Metropolitan in acquiring Continucare. Mr. Pfenniger acknowledged an interest in resuming such discussions and the parties agreed to have an informal meeting to explore the potential benefits of a business combination of Continucare and Metropolitan.

 

On December 9 and 10, 2010, representatives of Continucare, including Messrs. Pfenniger and Fernandez, Dr. Ginory, and Ms. Rosello and representatives of Party A met over dinner and at Continucare’s executive offices, and visited two Continucare medical centers. The purpose of these meetings was to provide Party A an opportunity to learn more about the business and strategy of Continucare. As a result of these meetings, Party A requested a further meeting to introduce Continucare to other executives of Party A. Following the meetings, Mr. Pfenniger took the representatives of Party A to meet Dr. Frost at his home in Miami.

 

On December 14, 2010, a meeting was held between Continucare and Metropolitan at the Miami offices of Morgan Joseph TriArtisan. In attendance representing Continucare were Messrs. Pfenniger and Fernandez and Ms. Rosello. In attendance representing Metropolitan were Michael Earley, Chairman and Chief Executive Officer of Metropolitan, Robert Sabo, Chief Financial Officer of Metropolitan, and a representative of Morgan Joseph TriArtisan. At the meeting, the parties informally discussed the potential benefits to Continucare of an acquisition by Metropolitan and the strategic benefits to Metropolitan as the acquiror. The parties also reviewed financial information regarding Continucare, which had been provided to Metropolitan’s representatives in advance of the meeting. The information included a preliminary three-year financial forecast prepared by the management of Continucare, a June 30 fiscal year-end company, to conform to Metropolitan’s years ending December 31, 2011, 2012, and 2013. Continucare’s management also provided Metropolitan an estimate of potential annual cost savings that could be realized in a merger of the two companies resulting from elimination of (i) Continucare’s public company costs and (ii) certain senior executive positions at Continucare in connection with a merger.

 

On December 28, 2010, another meeting was held among Continucare and Party A. Mr. Pfenniger and Ms. Rosello represented Continucare. Among other representatives, the Chief Executive Officer of Party A attended. At this meeting, Continucare provided a general review of its business to the executives of Party A, some of whom had not attended prior meetings. The attendees also visited two Continucare medical centers.

Following the day’s meetings, Dr. Frost joined Mr. Pfenniger, Ms. Rosello, and the representatives of Party A for an informal and primarily introductory dinner meeting.

 

In early January 2011, a representative of Morgan Joseph TriArtisan advised Mr. Pfenniger that Metropolitan was interested in exploring further an acquisition of Continucare. The representative reiterated from their prior discussion that Metropolitan was proactively pursuing external growth opportunities more aggressively than it had in the past and that Metropolitan’s perceived access to financing had improved over the last few years as Metropolitan’s financial performance improved and the capital markets had improved simultaneously. The representative of Morgan Joseph TriArtisan suggested two possible deal structures for the parties to consider for discussion purposes, one all cash consideration and one consisting of cash and as much as 50% stock consideration, but provided no other specifics regarding a possible transaction. Mr. Pfenniger indicated, based on his prior informal discussions with members of the Continucare Board regarding possible strategic transactions, that he believed the Continucare Board would prefer an all cash or primarily cash deal. The representative of Morgan Joseph TriArtisan agreed to communicate this preference to Metropolitan and that Metropolitan would begin exploring the availability of financing for such a transaction.

 

Also during January 2011, Party A indicated to Continucare its continued interest in pursuing a strategic transaction. In a call on January 5, a representative of Party A discussed with Mr. Pfenniger in general terms valuation considerations without setting forth a specific price or other possible deal parameters. Mr. Pfenniger emphasized that, although Continucare did not consider itself for sale at this time, the company was willing to participate in further discussions based on the continued interest of Party A. During the balance of January, Continucare provided Party A with basic due diligence information, including financial forecasts of Continucare and conducted telephonic meetings to discuss the exchanged information.

 

On February 17, 2011, a telephonic meeting was held between Continucare and Metropolitan for the purpose of reviewing Continucare’s updated preliminary three-year financial forecast, which had been previously prepared by Continucare’s management to conform to Metropolitan’s years ending December 31, 2011, 2012, and 2013. The forecast had been sent to Morgan Joseph TriArtisan and Metropolitan’s management in advance of the meeting. In attendance representing Continucare was Mr. Fernandez. In attendance representing Metropolitan were Mr. Earley, Mr. Sabo, and representatives of Morgan Joseph TriArtisan.

 

At a board meeting for Continucare held on February 24, 2011, Mr. Pfenniger updated the board regarding potential proposals forthcoming from both Metropolitan and Party A. Mr. Pfenniger advised the board of the meetings and discussion Continucare had engaged in with the two parties, as set forth above. He also addressed a concern that a potential proposal from Party A could result in an adverse reaction from Continucare’s third-party payors, including the largest such payor, which represented approximately 70% of the company’s revenue. The board concurred that this was an important issue with respect to any proposal from Party A. Mr. Pfenniger reiterated, and the board agreed, that although the company would invite proposals from both parties, the company was not for sale at this time. At the meeting, Akerman Senterfitt, outside legal counsel to the company, advised the Board of its fiduciary duties owed to the shareholders of Continucare under circumstances in which a potential sale of the company was involved. At the meeting, the board also discussed and approved the engagement of UBS, based on UBS’ experience and reputation in the healthcare industry, to act as lead financial advisor for the company in a potential sale transaction. The board also discussed and approved the engagement of BRAI, based on their knowledge of Continucare resulting from four years of providing analyst coverage on the company, to provide a fairness opinion in connection with a potential sale transaction.

 

On February 28, 2011, at a regularly scheduled meeting of the Metropolitan Board, the board discussed the possibility of a transaction with Continucare. The board authorized Metropolitan’s management, with the assistance of Morgan Joseph TriArtisan and Metropolitan’s legal advisors, Greenberg Traurig, to prepare and submit to Continucare a non-binding term sheet regarding a proposed acquisition, subject to certain parameters discussed by the board.

 

On March 9, 2011, a meeting was held between Continucare and Metropolitan at the Miami offices of Morgan Joseph TriArtisan. Mr. Pfenniger and a UBS representative (who participated telephonically) attended

this meeting. Mr. Earley and a representative of Morgan Joseph TriArtisan represented Metropolitan. At the meeting, Metropolitan presented to Continucare a non-binding term sheet that set forth certain proposed terms and conditions in which it would acquire Continucare. Under the proposal, each outstanding share of Continucare common stock would be exchanged for $5.75 per share in cash. Each outstanding Continucare option would be deemed immediately vested and be converted into the right to receive $5.75 in cash less the exercise price of such option. The proposal required that Dr. Frost, as the holder of 43% of Continucare’s outstanding common stock, enter into a voting agreement, agreeing to vote his shares in favor of the merger. The proposal was subject to a financing condition.

 

On March 16, 2011, Metropolitan, through Morgan Joseph TriArtisan, provided Continucare with a presentation outlining its plan for securing financing for the proposed merger. Metropolitan contemplated it would finance the proposed merger with cash held by Metropolitan and Continucare and by incurring $307 million of indebtedness.

 

On March 17, 2011, Party A sent Mr. Pfenniger a written proposal to acquire Continucare for total cash consideration of $343.6 million, or $5.50 per share in cash. No financing contingency was included with this proposal, however Party A required, before entering into a transaction with Continucare, that Continucare seek the consent of Continucare’s major third-party payors to such a transaction. Also, Party A requested, as a condition to completing a transaction, that key executives enter into agreements that included five-year non-competition and non-solicitation restrictions.

 

On March 21, 2011, Continucare held a board meeting for the purpose of reviewing and discussing the proposals of Metropolitan and Party A. Akerman Senterfitt reviewed the board’s fiduciary obligation in connection with a sale transaction, but also pointed out that no determination had yet been made that the company was for sale. UBS reviewed the material financial terms of both proposals as set forth above. The board directed management, with the assistance of UBS, to engage in a dialogue with Metropolitan and Party A, with the objective of improving their respective proposals.

 

The board, with the assistance of management and Continucare’s advisors, also considered whether it should contact other potential parties at this point. After discussion, the board determined this would not be an advisable course of action because: (1) no determination had been made by the board that the company was for sale; (2) approaching third parties could result in rumors that could be disruptive to the business, with respect to Continucare’s existing payor relationships, and employees, and could chill further discussion with Metropolitan and Party A before the board had determined that Continucare was for sale, and (3) few parties were considered as potentially interested in acquiring Continucare. The board concluded that a private equity fund would likely not have an interest in acquiring Continucare given the fact that, using the Metropolitan term sheet as a benchmark, the internal rate of return of Continucare on a stand-alone basis would fall below the threshold projected return normally required by private equity funds. The board also determined that approaching potential strategic acquirors that were either third-party payors or hospital systems could significantly and adversely impact Continucare’s business relationships with its current payors that might view such a combination as a threat to their interests.

 

After the meeting, Mr. Pfenniger contacted both Metropolitan and Party A, advising each that the Continucare Board did not consider Continucare to be for sale at this time and their respective proposals did not cause the Continucare Board to consider a sale of Continucare as such proposals did not in the Continucare’s board view represent a fair price to its shareholders. Mr. Pfenniger also advised each party that Continucare had one other potential suitor that had made a proposal to Continucare, without identifying the other suitor.

 

On March 31, 2011, a telephonic meeting was held between Continucare and Metropolitan. Mr. Fernandez and UBS represented Continucare and Mr. Earley, Mr. Sabo, and representatives from Morgan Joseph TriArtisan represented Metropolitan. The parties discussed Metropolitan’s financing plan and reviewed Continucare’s further updated three-year financial forecast, which had been previously prepared by Continucare’s management to conform to Metropolitan’s years ending December 31, 2011, 2012, and 2013. These updated forecasts were provided to Metropolitan’s management and Morgan Joseph TriArtisan on March 29, 2011.

In early April 2011, in anticipation of possible due diligence requests, Continucare began assembling an electronic data room.

 

On April 7, 2011, in accordance with the directive of the Continucare Board, Morgan Joseph TriArtisan was provided with additional financial information prepared by Continucare’s management reflecting the estimated impact of the Center for Medicare and Medicaid Service’s (“CMS”) April 4, 2011 announcement of final Medicare Advantage capitation rates for 2012. Continucare reviewed the 2012 rates for each of its counties of operation against those included in the forecast Continucare had provided to Metropolitan on March 29, 2011 and estimated the impact of the rate variances on Continucare’s forecasted EBITDA to conform to Metropolitan’s years ending December 31, 2012 and 2013.

 

On April 14, 2011, Metropolitan presented Continucare with a revised term sheet, which reflected an increased purchase price of $6.25 per share in cash. The revised proposal remained subject to a financing condition. Metropolitan followed up this proposal on April 22, 2011 with an updated financing plan and confirmed it had no financing commitment letter at that time.

 

On April 25, 2011, representatives of Party A contacted Mr. Pfenniger and UBS to discuss Party A’s continued interest in pursuing a strategic transaction with Continucare. During these conversations, Party A advised that it was prepared to propose a purchase price range of between $6.00 and $6.50 per outstanding share of Continucare common stock, but confirmed that the specific price would be at neither the upper nor lower end of such range.

 

On May 4, 2011, Continucare held a board meeting for the purpose of reviewing and discussing the revised proposals of Metropolitan and Party A. After reviewing Metropolitan’s written proposal and Party A’s verbal response, the board discussed its primary concerns with both proposals. Although the pricing terms of both proposals had increased, the board wanted better clarity as to the specific price Party A was prepared to offer and also wanted to confirm whether the current proposals of both parties reflected each party’s respective best offer. The board noted that while Metropolitan’s proposal remained subject to a financing condition, Metropolitan had advised UBS of its belief that it was two to three weeks away from securing a financing commitment. With respect to Party A, the proposal continued to include a request that Continucare approach its largest third-party payors, including its largest third-party payor, to seek each such payor’s consent to a business combination between Continucare and Party A, and the board recognized the possibility of an unfavorable response from such third-party payors and potential chilling effect on Continucare’s ongoing relationship with such third-party payors. Party A’s proposal also continued to include a requirement, as condition to completing a transaction, that key executives of Continucare enter into agreements including five-year non-competition and non-solicitation restrictions. The board was concerned that these conditions presented significant risks to the completion of a transaction. The board also reaffirmed its prior decision that no determination to sell Continucare had been made, and that it was not an advisable course of action to contact other parties at this time for the reasons previously discussed at the March 21^st meeting. After discussion of both proposals, the board directed management, with the assistance of UBS, to approach Metropolitan and Party A with the objective of seeking clarification as to each of the foregoing matters.

 

After the meeting, in accordance with the board’s directives, Continucare’s management and UBS contacted Metropolitan and Party A to advise both parties of the Continucare Board’s reaffirmation that it had not yet determined that Continucare was for sale and express the Continucare Board’s concerns described above regarding each party’s respective proposal. On May 6, 2011, Party A advised UBS that it was terminating discussions regarding a potential transaction with Continucare citing its renewed emphasis on other priorities.

 

On May 6, 2011, a representative of Morgan Joseph TriArtisan indicated to UBS that Metropolitan remained interested in pursuing a strategic transaction with Continucare and would submit a revised term sheet by May 20, 2011, which term sheet would include Metropolitan’s proposed financing sources.

 

On May 9, 2011, the Metropolitan Board held a meeting, with representatives from Morgan Joseph TriArtisan and Greenberg Traurig participating, to discuss the status of the discussions with Continucare, as well as the status of discussions with various potential financing sources.

On May 10, 2011, Continucare provided Metropolitan with access to its data room for purposes of legal and business due diligence.

 

On May 16, 2011, Continucare, Metropolitan, and their respective financial advisors held a meeting with GE Healthcare Financial Services, Inc., or “GE Healthcare,” Metropolitan’s prospective lead lender, to discuss the financing of the proposed merger and to enable GE Healthcare to perform initial due diligence.

 

On May 17, 2011, Continucare’s management, at the request of Metropolitan’s management, provided to Metropolitan an additional two years of financial forecasts, prepared by Continucare to conform to Metropolitan’s years ending December 31, 2014 and 2015.

 

On May 19, 2011, the Metropolitan Board held a meeting, with representatives from Morgan Joseph TriArtisan and Greenberg Traurig participating, to discuss the status of the discussions with Continucare and various potential financing sources, including the material terms of a revised proposal being prepared by Metropolitan’s management.

 

On May 20, 2011, Mr. Earley contacted Mr. Pfenniger to advise that Metropolitan continued working on its proposal and expected to deliver it in a few more days.

 

On May 24, 2011, the Metropolitan Board held a meeting, with representatives from Morgan Joseph TriArtisan and Greenberg Traurig participating, to discuss the status of the discussions with Continucare and potential financing sources, including Metropolitan’s submission of a revised term sheet to Continucare. After discussing the material terms that would be included in such a revised term sheet with representatives from Morgan Joseph TriArtisan and Greenberg Traurig, Metropolitan’s board directed management to continue its negotiations with Continucare, including the submission of a revised proposal having terms consistent with those discussed at the meeting.

 

On May 24, 2011, Metropolitan submitted a revised term sheet at a purchase price of $6.35 per share, consisting of $6.10 per share in cash and $0.25 per share in Metropolitan stock. Although the term sheet continued to include a financing condition, the proposal package included a “highly confident” financing letter from GE Healthcare supporting Metropolitan’s revised bid, an indicative summary of terms with respect to the proposed financing from GE Healthcare and a financing plan indicating that Metropolitan expected to be in a position to enter into a financing commitment letter simultaneous with the parties’ execution of a definitive merger agreement. The indicative summary of terms contemplated up to a $355 million credit facility consisting of a $240 million senior term loan, a $90 million second-lien term loan and a $25 million revolving credit facility. The availability of such leverage amounts was expected to be subject to Metropolitan and Continucare collectively generating certain targeted amounts of earnings before interest, taxes, depreciation and amortization in the twelve-month period preceding the merger. The term sheet also included a request that the parties enter into an exclusivity agreement of not less than 60 days and an automatic extension of 10 additional days if either party reasonably believed that definitive transaction documents could be completed during such an extension.

 

On May 24, 2011, Mr. Pfenniger advised Mr. Earley that he believed the lower cash amount in the revised proposal would likely not be viewed favorably by the Continucare Board.

 

During the next three days, Continucare, Metropolitan, and their respective legal and financial advisors discussed Metropolitan’s term sheet, primarily focusing on (i) price, to determine whether the May 24th term sheet represented Metropolitan’s best offer, and (ii) the exclusivity provisions, the proposed terms of which were not acceptable to Continucare. On May 27, 2011, Metropolitan revised its May 24^th term sheet further to provide for a proposed purchase price of $6.45 per share, consisting of $6.25 per share in cash and $0.20 per share in Metropolitan stock. Metropolitan subsequently agreed to Continucare’s request that exclusivity be a 14-day exclusivity period with two automatic, seven-day extension periods if either party provided written notice that negotiations could be advanced during such extensions. The May 27^th Metropolitan term sheet expressly provided that it was not intended to create a legally binding agreement.

 

On June 1, 2011, the Metropolitan Board held a meeting, with representatives from Morgan Joseph TriArtisan and Greenberg Traurig participating, to discuss the status of the discussions with Continucare and

potential financing sources, including the May 27^th term sheet. After considering a broad range of strategic and financial factors, including the potential benefits and risks of the proposed merger, Metropolitan’s board asked management to inform Continucare of Metropolitan’s willingness to seek to negotiate a merger agreement consistent with the terms and conditions set forth in the May 27^th term sheet.

 

On June 2, 2011, Continucare held a board meeting for the purpose of reviewing and discussing Metropolitan’s May 27^th term sheet. In light of the progress in negotiations with Metropolitan, the Continucare Board authorized management to enter into an exclusivity agreement with Metropolitan and directed management, with the assistance of Continucare’s advisors, to negotiate definitive documentation in respect of a transaction with Metropolitan based on Metropolitan’s May 27^th term sheet.

 

On June 2, 2011, Continucare and Metropolitan entered into an exclusivity agreement whereby Continucare agreed that neither it nor its representatives would solicit offers from, participate in any discussions with, furnish any information to or cooperate in any way with any person regarding a potential acquisition of Continucare. The agreement provided for a 14-day term, starting on June 2 and ending on June 16, 2011. The agreement provided for two extension periods of 7 days each, upon written notice from either party that it reasonably believed that the negotiations and/or drafting of a definitive agreement with respect to a proposed transaction could be advanced during such extension period. During the extension periods, Continucare was permitted to enter into discussions with an unsolicited bidder that had not previously contacted Continucare, if the Continucare Board determined in good faith that the unsolicited bid could be superior to Metropolitan’s offer.

 

On June 7, 2011, Metropolitan’s outside legal counsel, Greenberg Traurig, circulated a draft merger agreement and, during the following several weeks, representatives of each parties’ management teams and advisors met, conducted due diligence, and continued negotiations of the merger agreement and related documents based on Metropolitan’s May 27^th term sheet.

 

On June 7, 2011, Metropolitan entered into an engagement letter (the “GE Engagement Letter”) with GE Healthcare pursuant to which Metropolitan retained GE Healthcare and GE Capital Markets, Inc. on an exclusive basis, with GE Capital Markets, Inc. as sole lead underwriter, sole lead arranger, and sole book runner, in connection a fully underwritten commitment on specified terms and conditions.

 

On June 7, 2011, Mr. Earley and Mr. Sabo met with Mr. Pfenniger to discuss current business development activities underway at Continucare. Following this meeting, Mr. Earley and Mr. Pfenniger discussed the willingness and availability of certain Continucare executives to participate in post-closing transitional roles. It was noted that Continucare’s executives did not have employment contracts with the company. Mr. Pfenniger indicated that he believed certain executives may be willing to continue their employment following completion of the proposed merger or otherwise assist with transitional matters on some basis, but no specifics were discussed. There was then a general, non-employee specific discussion about severance arrangements for any Continucare employees that might be terminated as a result of the merger. Mr. Earley then suggested that a follow-on meeting be held to discuss Continucare’s organization chart, which discussion would focus on key management members.

 

On June 14, 2011, Metropolitan and Continucare, by a letter agreement, confirmed the effectiveness of their original confidentiality agreement and permitted GE Healthcare and its affiliates to disclose to a limited number of potential lenders certain information about the proposed merger.

 

On June 14, 2011, the Metropolitan Board held a meeting, with representatives from Morgan Joseph TriArtisan and Greenberg Traurig participating, to discuss the status of the proposed transaction, including the status of the negotiations with respect to the merger agreement, the voting agreement, the proposed financing commitment and transition planning. The Metropolitan Board reviewed with Morgan Joseph TriArtisan and Greenberg Traurig the material terms of the GE Engagement Letter and the commitment letter terms contemplated therein. With respect to the merger agreement, Greenberg Traurig reported that the most material business terms of the May 27^th Metropolitan term sheet had already been incorporated into the merger agreement. The Metropolitan Board reviewed with Morgan Joseph TriArtisan the financial aspects of the

proposed transaction and Morgan Joseph TriArtisan then described the types of financial analyses it expected to prepare and use as the basis for its fairness opinion.

 

On June 16, 2011, Metropolitan’s legal counsel provided a draft voting agreement, the primary purpose of which was to secure the agreement of Dr. Frost and certain entities related to Dr. Frost to vote their shares of Continucare common stock (representing approximately 43% of all Continucare shares eligible to vote) in favor of the merger agreement at the Continucare special meeting. Over the next couple of weeks, the parties negotiated the terms of the voting agreement with Dr. Frost.

 

On June 17, 2011, Continucare’s management provided to Metropolitan financial forecasts for the quarterly periods ending September 30, 2011 and December 31, 2011, which information substantively conformed with the calendar year forecasts provided to Metropolitan on March 29, 2011.

 

On June 19, 2011, Continucare’s management provided to Metropolitan historical financial information related to an anticipated immaterial acquisition by Continucare and discussed with Metropolitan the potential opportunities resulting from such acquisition.

 

On June 20, 2011, Mr. Earley and Dr. Guethon met with Mr. Pfenniger and Mrs. Rosello in the Miami offices of Morgan Joseph TriArtisan to discuss Continucare’s key management personnel. No other matters were discussed at this meeting.

 

On June 23, 2011, Continucare’s board held a meeting to review progress of the potential transaction with Metropolitan to date. Akerman Senterfitt advised that the merger agreement was substantively complete with respect to all business terms, reflected in Metropolitan’s May 27^th term sheet and reviewed with the board the material provisions of the proposed merger agreement, a copy of which is included as Annex A to this proxy statement/prospectus. Also, at this meeting, both UBS and BRAI reviewed with the Continucare Board financial aspects of the transaction. The board adjourned the meeting with members of the board agreeing to meet during the weekend to consider final approval of the merger and merger agreement.

 

On June 24, 2011, Continucare’s legal counsel circulated to Metropolitan’s outside legal counsel draft change in control and severance agreements between Metropolitan and Messrs. Pfenniger and Fernandez. Over the next three days, Metropolitan’s management team and outside legal counsel had discussions with Mr. Pfenniger, Mr. Fernandez, and Continucare’s legal counsel regarding the terms of the separation agreements. See “Agreements with Executive Officers.”

 

On June 25, 2011 and June 26, 2011, Metropolitan’s outside legal counsel circulated to Continucare’s outside legal counsel drafts of the proposed commitment letter between General Electric Capital Corporation, GE Capital Markets, Inc. and Metropolitan.

 

On June 26, 2011, the Metropolitan Board held a meeting, with representatives of Greenberg Traurig and Morgan Joseph TriArtisan participating, to discuss the proposed merger and related financing. At the meeting, the Metropolitan Board discussed and approved an amendment to the terms of Metropolitan’s engagement with Morgan Joseph TriArtisan based on its experience and reputation in the healthcare industry, and its knowledge of the business and affairs of Metropolitan. After the board reviewed the perceived strategic advantages and disadvantages to the proposed merger and related transactions, representatives of management, and Greenberg Traurig reported that the merger agreement, commitment letter, voting agreement and severance agreements, copies of which were provided to the directors in anticipation of the meeting were in a form that had been agreed to by both parties. The board reviewed with management and Greenberg Traurig the merger-related documents, including the limited differences between the various merger-related documents and material business terms contained in Metropolitan’s May 27^th proposal and the GE Engagement Letter. Morgan Joseph TriArtisan delivered to the board its oral opinion (subsequently confirmed in writing on June 26, 2011) to the effect that, as of June 26, 2011 and based on and subject to various assumptions, matters considered and limitations described in its opinion, the consideration to be paid by Metropolitan in the proposed transaction was fair, from a financial point of view and as of the date of the opinion, to Metropolitan. After detailed discussions with Metropolitan’s legal counsel and financial advisors regarding the terms of the proposed transaction, the potential risks associated with the transaction and the anticipated benefits of the transaction (including those discussed in “Metropolitan’s Reasons for the Merger”), and after

considering resolutions that had been circulated to the board in anticipation of the meeting, the Metropolitan Board determined that the merger was advisable and in the best interest of Metropolitan and its shareholders and approved of the merger and the merger agreement, the commitment letter, the voting agreement and the separation agreements.

 

Also on June 26, 2011, the Continucare Board held a telephonic meeting to review progress of the potential transaction with Metropolitan since the June 23^rd meeting. Mr. Pfenniger was advised that the board of Metropolitan had met earlier that day and approved the merger of Metropolitan and Continucare in accordance with the terms of the merger agreement reviewed by the board at its June 23^rd meeting. The board discussed the terms of Metropolitan’s financing and was informed that a financing commitment letter had been or was expected to be executed between Metropolitan and its lenders. Next, Akerman Senterfitt advised that final terms of the merger agreement had been agreed to by both parties and that no material business points in the deal had changed from the prior draft delivered to the board and discussed at the June 23^rd meeting. Also at this meeting, UBS reviewed with Continucare’s board of directors UBS’ financial analysis of the merger consideration and delivered to Continucare’s board of directors an oral opinion, which opinion was confirmed by delivery of a written opinion dated June 26, 2011, to the effect that, as of that date and based on and subject to various assumptions, matters considered and limitations described in its opinion, the per share consideration to be received in the merger by holders of Continucare common stock, other than certain excluded holders, was fair, from a financial point of view, to such holders.

 

Next, BRAI discussed its formal opinion, which was delivered verbally, but would be confirmed in writing by a letter dated June 26, 2011, to the effect that the aggregate merger consideration to be received by the holders of the Continucare’s common stock was fair, as of June 26, 2011, and based on and subject to various assumptions, matters considered and limitations described in its opinion, from a financial point of view, to such holders.

 

The Continucare Board next considered resolutions that had previously been provided to the board regarding approval of the merger and the merger agreement, and all necessary and appropriate actions relating to the completion of the merger. After discussion of the resolutions and the matters under consideration, the board approved the merger and the merger agreement.

 

On the evening of June 26, 2011, the merger agreement was executed by Metropolitan and Continucare, the commitment letter was executed by General Electric Capital Corporation, GE Capital Markets, Inc. and Metropolitan, the voting agreement was executed by Metropolitan, Dr. Frost and his affiliated entities, and the separation agreements were executed by Metropolitan and the applicable executives of Continucare.

 

On June 27, 2011, prior to the commencement of trading on the NYSE, Metropolitan and Continucare issued a joint press release announcing the signing of the merger agreement and held a conference call to discuss the transaction.

 

On July 1, 2011, a putative class action was filed in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida by Kathryn Karnell, Trustee and the Aaron and Kathryn Karnell Revocable Trust U/A Dtd 4/9/09 against Continucare, the members of the Continucare Board, individually, Metropolitan, and the merger subsidiary. Also on July 1, 2011, a second putative class action was filed in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida by Steven L. Fuller against Continucare, the members of the Continucare Board, individually, Metropolitan, and the merger subsidiary. On July 6, 2011, a third putative class action was filed in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida by Hilary Kramer against Continucare, the members of the Continucare Board, individually, Metropolitan, and the merger subsidiary. Each of these suits seeks to enjoin the proposed transaction between Continucare and Metropolitan, as well as attorneys’ fees. The Fuller and Kramer suits also seek rescissory and other money damages.

 

 

At a meeting on June 26, 2011, after careful consideration, the Continucare Board unanimously determined that the merger is fair to, and in the best interests of, Continucare and its shareholders and approved and declared advisable the merger agreement, the merger and other transactions contemplated by the

merger agreement. The Continucare Board resolved that the merger agreement be submitted for consideration by the Continucare shareholders at a special meeting of its shareholders, and recommended that the Continucare shareholders vote “FOR” the approval of the merger agreement. The merger agreement was finalized and executed on behalf of Continucare on June 26, 2011.

 

In evaluating the merger agreement and the merger, the Continucare Board consulted with certain members of Continucare’s senior management and Continucare’s legal and financial advisors and reviewed a significant amount of information and considered a number of factors, including the material factors discussed below, which factors are not presented in any relative order of importance.

 

Strategic Considerations

 

The Continucare Board considered the following strategic advantages of a merger in comparison to a stand-alone strategy:

 

 

Financial Considerations

 

The Continucare Board considered financial aspects of the merger including, the following factors:

 

 

 

 

Other Considerations

 

The Continucare Board also considered the following factors:

 

 

 

 

 

Consideration of Risks and Other Potentially Negative Factors

 

The Continucare Board also considered the following risks and other potentially negative factors of a merger with Metropolitan

 

 

 

 

 

In view of the number and wide variety of factors considered in connection with its evaluation of the merger and the complexity of these matters, the Continucare Board did not find it practicable to, nor did it attempt to, quantify, rank or otherwise assign relative weights to the specific factors that it considered. In addition, the Continucare Board did not undertake to make any specific determination as to whether any particular factor was favorable or unfavorable to the Continucare Board ultimate determination or assign any particular weight to any factor, but conducted an overall review of the factors described above, including discussions with Continucare’s management and legal and financial advisors. In considering the factors described above, individual members of the Continucare Board may have given different weight to different factors.

 

The Continucare Board considered all these factors together and considered them in their totality to be favorable to, and to support, its determination to approve the merger and the merger agreement and recommend approval by Continucare shareholders of the merger agreement.

 

The Continucare Board unanimously recommends that you vote “FOR” the proposal to approve the merger agreement and “FOR” the proposal to adjourn or postpone the special meeting, if necessary or appropriate, to solicit additional proxies.

 

The Continucare shareholders should be aware that Continucare’s directors and executive officers have interests in the merger that are different from, or in addition to, the Continucare shareholders. The Continucare Board was aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger, and in recommending that the merger agreement be approved by the Continucare shareholders, as described below in “— Interests of Continucare Directors and Executive Officers in the Merger.”

 

Continucare does not as a matter of course publicly disclose forecasts as to future performance, earnings, or other results. In connection with discussions concerning the proposed merger transaction, the management of Continucare prepared and furnished to the Continucare Board and Continucare’s financial advisors the financial forecasts set forth below as the “CNU Base Forecast.” Also, the management of Continucare prepared two sensitivity cases (set forth below as “Sensitivity Case 1” and “Sensitivity Case 2”), which management directed UBS and BRAI to use, in addition to the CNU Base Forecast, in connection with their respective opinions, as described below in — “Opinions of Continucare’s Financial Advisors.” The sensitivity cases recognize the risks and uncertainties inherent in any long-term forecast, and in particular, a long-term forecast relating to the health care industry, and the potential impact of such risks and uncertainties on the assumptions underlying the CNU Base Forecast. The sensitivity cases were prepared by Continucare to provide Continucare’s board with a range of possible financial results for purposes of evaluating the proposed transaction. None of the CNU Base Forecast, sensitivity cases, or the calendar year forecasts provided to Metropolitan’s management or advisors include transaction-related expenses that Continucare expects to incur in connection with the proposed merger transaction with Metropolitan that is the subject of this proxy statement/prospectus.

 

The inclusion of financial forecasts in this proxy statement/prospectus should not be regarded as an indication that Continucare or its board considered, or now considers, these forecasts to be material to a shareholder or necessarily predictive of actual future performance, earnings, or results. You should not place undue reliance on the financial forecasts contained in this proxy statement/prospectus. Please read carefully “— Important Information about the Financial Forecasts” below.

 

The CNU Base Forecast is based upon management’s evaluation of macroeconomic trends as well as industry and company-specific economic trends, and the impact of these trends primarily on Medicare and Medicaid revenue and medical claims expenses, which together represent approximately 94% and 99% of Continucare’s total revenue and medical claims expenses, respectively. In developing the CNU Base Forecast, management also considered the potential impact of recent healthcare reform and legislation, which management assumes will have a net positive affect on projected Medicare Per Member Per Month (“PMPM”) premiums.

 

The CNU Base Forecast represents the financial objectives toward which Continucare is managing its business, based on and assuming a continuing favorable economic environment and the continued effective and efficient management of the company’s business, as well as consistency in health and well-being related trends. Sensitivity Case 1 and Sensitivity Case 2 recognize the possibility of less favorable economic conditions and the financial assumptions are adjusted accordingly, however neither of the sensitivity cases addresses all of the financial or operational risks to which Continucare is or may be subject.

 

The key assumptions in the financial forecasts primarily address Medicare PMPM premiums and Medicare PMPM medical claims expenses as well as projected Medicare membership growth rates because approximately 87% of the company’s revenue and approximately 90% of the company’s medical claims expenses in fiscal year 2011 were generated by Medicare patients. For purposes of the CNU Base Forecast, Medicare PMPM premiums are projected to increase at an average annual growth rate of approximately 5% based on projected increases in Medicare benchmark rates and Medicare risk adjustment scores.

 

For purposes of the CNU Base Forecast, Medicare PMPM medical claims expenses are projected to increase at an average annual rate of approximately 5% based on (1) projected inflationary trends in the heath care industry of approximately 3.5% annually, which management believes is consistent with historical and expected inflationary trends, and (2) the effect of projected enhanced benefits, typically resulting from increased competition among providers, that may be offered by our HMO affiliates. Projected increases in other operating expenses are primarily based on historical trends.

 

 

 

 

For purposes of Sensitivity Case 1, management assumes no change in projected revenue from the CNU Base Forecast, but assumes a greater increase in Medicare PMPM medical claims expenses due mainly to the effect of a greater degree of projected enhancements in benefits offered by our HMO affiliates. As a result, for purposes of Sensitivity Case 1, Medicare PMPM medical claims expenses are projected to increase at an average annual rate of approximately 6%.