DEFM14A 1 nt10015735x2_defm14a.htm DEFM14A

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A
(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant ☒
Filed by a Party other than the Registrant
Check the appropriate box:
 Preliminary Proxy Statement
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
☒ Definitive Proxy Statement
 Definitive Additional Materials
 Soliciting Material Pursuant to §240.14a-12
American Renal Associates Holdings, Inc.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
No fee required.
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
 
(1)
Title of each class of securities to which transaction applies:
 
 
 
 
(2)
Aggregate number of securities to which transaction applies:
 
 
 
 
(3)
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
 
 
 
 
(4)
Proposed maximum aggregate value of transaction:
 
 
 
 
(5)
Total fee paid:
 
 
 
Fee paid previously with preliminary materials:
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
 
(1)
Amount previously paid:
 
 
 
 
(2)
Form, Schedule or Registration Statement No.:
 
 
 
 
(3)
Filing Party:
 
 
 
 
(4)
Date Filed:
 
 
 

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American Renal Associates Holdings, Inc.
NOTICE & PROXY STATEMENT
Special Meeting of Stockholders
December 15, 2020
To our fellow Stockholders:
You are cordially invited to attend a special meeting of the stockholders (the “Special Meeting”) of American Renal Associates Holdings, Inc., a Delaware corporation (“ARA,” the “Company,” “we,” “us” or “our”), to be held on Thursday, January 14, 2021, at 9:00 a.m., Eastern Time. The Special Meeting will be a completely virtual meeting of stockholders conducted solely online via live webcast. If you plan to attend the Special Meeting, please follow the instructions in the “General Information” section of the accompanying proxy statement (the “Proxy Statement”). The Proxy Statement is dated December 15, 2020 and, together with the enclosed form of proxy card, is first being sent or provided to stockholders of the Company on or about December 15, 2020.
On October 1, 2020, we entered into an Agreement and Plan of Merger (as it may be amended from time to time, the “Merger Agreement”) with IRC Superman Midco, LLC, a Delaware limited liability company (“IRC”) and an affiliate of Nautic Partners, LLC, and Superman Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of IRC (“Merger Sub”). The Merger Agreement provides that, among other things and upon the terms and subject to the satisfaction or waiver of the conditions set forth therein, Merger Sub will be merged with and into ARA, with ARA surviving as a wholly owned subsidiary of IRC (the “Merger”).
At the Special Meeting, you will be asked to consider and vote on a proposal to adopt the Merger Agreement and approve the transactions contemplated thereby, including the Merger (the “Merger Proposal”). The affirmative vote of the holders of a majority of the shares of ARA common stock outstanding and entitled to vote as of the close of business on December 4, 2020, the record date for the determination of stockholders entitled to vote at the Special Meeting (the “Record Date”), is required to approve the Merger Proposal.
At the Special Meeting, you will also be asked to consider and vote on a proposal to approve the continuation, postponement or adjournment of the Special Meeting to a later date or dates, if necessary or appropriate, including to solicit additional proxies if there are insufficient votes to approve the Merger Proposal at the time of the Special Meeting (the “Adjournment Proposal”).
If the Merger is consummated, you will be entitled to receive $11.50 in cash (the “Per Share Merger Consideration”), without interest and less any applicable withholding taxes, for each share of ARA common stock that you own (unless you do not vote in favor of the Merger Proposal and you are entitled to demand and have properly made a demand for appraisal and do not thereafter fail to perfect, or do not effectively withdraw, or otherwise lose, your right to appraisal under Delaware law with respect to such shares). The Per Share Merger Consideration represents a premium of approximately 66% over the ARA common stock closing price of $6.92 per share on October 1, 2020, the last trading day before the public announcement that ARA entered into the Merger Agreement.
The Board of Directors of ARA (the “Board”) has unanimously determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable, fair to and in the best interests of ARA and its stockholders and has unanimously approved the Merger Agreement and the transactions contemplated thereby, including the Merger. The Board unanimously recommends that ARA stockholders vote “FOR” the Merger Proposal. In addition, the Board unanimously recommends that ARA stockholders vote “FOR” the Adjournment Proposal.

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On October 1, 2020, Centerbridge Capital Partners, L.P. and certain of its affiliates (collectively, the “Centerbridge Stockholders”), which together represent ownership of approximately 51% of the outstanding shares of ARA common stock, entered into a voting and support agreement with IRC pursuant to which, among other things and subject to the terms and conditions therein, the Centerbridge Stockholders agreed to vote their shares of ARA common stock in favor of the Merger Proposal and the Adjournment Proposal.
The Notice of Special Meeting and Proxy Statement on the following pages further describe the matters to be presented at the Special Meeting and provide details regarding how to attend the meeting online. We encourage you to read the Proxy Statement and its appendices, including the Merger Agreement, carefully and in their entirety. You may also obtain more information about ARA from documents we file with the Securities and Exchange Commission from time to time.
Whether or not you attend the Special Meeting, it is important that your shares be represented and voted at the Special Meeting. Therefore, I urge you to promptly vote and submit your proxy by phone, via the Internet, or by signing, dating and returning the enclosed proxy card in the enclosed envelope, which requires no postage if mailed in the United States. Instructions on how to vote your shares are included in the Proxy Statement and proxy card. If you decide to attend the Special Meeting, you will be able to vote online at the Special Meeting even if you have previously submitted your proxy, as your proxy is revocable at your option.
Thank you for your support.
Sincerely,

Joseph A. Carlucci
Chairman and Chief Executive Officer
Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved of the transactions described in this document, including the Merger, or determined if the information contained in this document is accurate or adequate. Any representation to the contrary is a criminal offense.

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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON JANUARY 14, 2021
The special meeting of the stockholders (the “Special Meeting”) of American Renal Associates Holdings, Inc., a Delaware corporation (“ARA,” the “Company,” “we,” “us” or “our”), will be held at 9:00 a.m., Eastern Time, on Thursday, January 14, 2021, for the following purposes:
Proposal No. 1 – To consider and vote on a proposal to adopt the Agreement and Plan of Merger (as it may be amended from time to time, the “Merger Agreement”), dated October 1, 2020, by and among ARA, IRC Superman Midco, LLC, a Delaware limited liability company (“IRC”) and an affiliate of Nautic Partners, LLC, and Superman Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of IRC (“Merger Sub”), and approve the transactions contemplated thereby, including the merger of Merger Sub with and into ARA, with ARA surviving as a wholly owned subsidiary of IRC (such merger, the “Merger” and such proposal, the “Merger Proposal”); and
Proposal No. 2 – To consider and vote on a proposal to approve the continuation, postponement or adjournment of the Special Meeting to a later date or dates, if necessary or appropriate, including to solicit additional proxies if there are insufficient votes to approve the Merger Proposal at the time of the Special Meeting (the “Adjournment Proposal”).
In addition, we will consider the transaction of any other business properly brought at the Special Meeting or any adjournment or postponement thereof.
The Special Meeting will be held solely in a virtual meeting format online at www.meetingcenter.io/247826643. If you plan to attend the Special Meeting, please follow the instructions in the “General Information” section of the attached proxy statement (the “Proxy Statement”). The Special Meeting may be continued, postponed or adjourned from time to time without notice other than by announcement at the Special Meeting. Any action on the items of business described above may be considered at the Special Meeting at the time and on the date specified above or at any time and date to which the Special Meeting may be properly continued, adjourned or postponed. A list of stockholders entitled to vote at the Special Meeting will be available in our offices located at 500 Cummings Center, Suite 6550, Beverly, Massachusetts 01915, during regular business hours for a period of at least 10 days before the Special Meeting and will be available on the meeting website at www.meetingcenter.io/247826643 during the Special Meeting.
Only holders of record of our common stock, par value $0.01 per share (“Common Stock”), at the close of business on December 4, 2020 (the “Record Date”) are entitled to notice of and to vote at the Special Meeting or any continuation, postponement or adjournment of the Special Meeting. To ensure your shares are voted, you may submit your vote over the Internet, by telephone or by completing, signing and returning a proxy card. Voting procedures are described in the “Proxy Voting Methods” section below.
Your vote is very important, regardless of the number of shares of Common Stock that you own. Whether or not you plan to attend the Special Meeting, we urge you to vote your shares via the toll-free telephone number or over the Internet as described in the Proxy Statement, or you may sign, date and mail the proxy card in the enclosed return envelope. Promptly voting your shares will ensure the presence of a quorum at the Special Meeting and will save us the expense of further solicitation. Submitting your proxy now will not prevent you from voting your shares online at the Special Meeting if you desire to do so, as your proxy is revocable at your option.
The Proxy Statement contains, among other things, detailed information about the Merger Proposal and the Adjournment Proposal. We encourage you to read the Proxy Statement, including its appendices and all documents incorporated by reference therein, carefully and in its entirety.
The affirmative vote of the holders of a majority of all of the outstanding shares of our Common Stock entitled to vote as of the close of business on the Record Date is required to approve the Merger Proposal. The affirmative

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vote of the holders of a majority of the voting power of the shares of our Common Stock present in person or represented by proxy and entitled to vote is required to approve the Adjournment Proposal.
The failure of any stockholder of record to submit a signed proxy card, grant a proxy electronically over the Internet or by telephone or to vote electronically at the Special Meeting will have the same effect as a vote “AGAINST” the Merger Proposal. If you hold your shares in “street name,” the failure to instruct your broker, bank or other nominee on how to vote your shares of Common Stock will have the same effect as a vote “AGAINST” the Merger Proposal but will not have an effect on the outcome of the vote on the Adjournment Proposal. Abstentions will have the same effect as a vote “AGAINST” each of the Merger Proposal and the Adjournment Proposal.
The holders of record of a majority of the voting power of the issued and outstanding shares of Common Stock entitled to vote at the Special Meeting must be present in person or represented by proxy to constitute a quorum for the Special Meeting. Abstentions, if any, will be counted as present for purposes of determining the existence of a quorum. Shares held in “street name” for which the applicable broker, bank or nominee receives no instructions regarding how to vote on any of the proposals before the Special Meeting will not be counted as present at the Special Meeting for quorum purposes. Shares held in “street name” for which the applicable broker, bank or nominee receives instructions regarding how to vote on one but not all of the proposals before the Special Meeting will be counted as present at the Special Meeting for quorum purposes.
Stockholders who do not vote in favor of the Merger Proposal and who otherwise meet the requirements of Section 262 of the General Corporation Law of the State of Delaware (the “DGCL”) will have the right to seek appraisal of the fair value of their shares of Common Stock, as determined in accordance with Section 262 of the DGCL. In addition to not voting in favor of the Merger Proposal, any stockholder wishing to exercise its appraisal rights must deliver a written demand for appraisal to ARA before the vote on the Merger Proposal and must comply in all respects with the requirements of Section 262 of the DGCL.
You may revoke your proxy at any time before the vote at the Special Meeting by following the procedures outlined in the accompanying proxy statement.
The Board unanimously recommends that you vote:
1.
“FOR” the Merger Proposal; and
2.
“FOR” the Adjournment Proposal.
 
By Order of the Board of Directors,
 


 
Victoria A. Labriola
 
Vice President, General Counsel and Secretary
Important Notice Regarding the Availability of Proxy Materials for the Special Meeting of Stockholders To Be
Held on January 14, 2021:
This Proxy Statement is available at
www.envisionreports.com/ARA

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PROXY VOTING METHODS
If, at the close of business on the Record Date, you were a stockholder of record, you may grant a proxy to vote your shares over the Internet, by telephone or by mail, as described in detail below, or you may attend the Special Meeting and vote your shares.
If you hold shares through a broker, bank or other nominee, please refer to information from your broker, bank or other nominee for voting instructions, or you may attend the Special Meeting and vote your shares. Please refer to the “General Information” section of this Proxy Statement for information regarding how to attend the Special Meeting and vote your shares.
To vote by proxy if you are a stockholder of record:
BY INTERNET

Go to the website www.investorvote.com/ARA and follow the instructions, 24 hours a day, seven days a week.

You will need the 15-digit number included on your proxy card.
BY TELEPHONE

From a touch-tone telephone, dial 1-800-652-8683 and follow the recorded instructions, 24 hours a day, seven days a week.

You will need the 15-digit number included on your proxy card in order to vote by telephone.
BY MAIL

Mark your selections on the proxy card.

Date and sign your name exactly as it appears on your proxy card.

Mail the proxy card in the enclosed postage-paid envelope provided to you.
Mailed proxy cards must be received no later than 5:00 p.m. Eastern Time on January 13, 2021.
YOUR VOTE IS IMPORTANT TO US. THANK YOU FOR VOTING.
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Proxy Statement Summary
This summary highlights information contained elsewhere in this proxy statement (this “Proxy Statement”). This summary does not contain all of the information that you should consider in advance of the meeting, and we encourage you to read the entire Proxy Statement and its appendices, including the Merger Agreement, before voting. Except where the context requires otherwise, references to “ARA,” “we,” “us,” “our” and similar terms refer to American Renal Associates Holdings, Inc.
Special Meeting of Stockholders
Time and Date
9:00 a.m., Eastern Time, on Thursday, January 14, 2021
Place
Online via live webcast at www.meetingcenter.io/247826643
Record Date
Close of business on December 4, 2020
Voting
Stockholders will be entitled to one vote at the Special Meeting for each share of ARA common stock they owned as of the Record Date.
Outstanding Common Stock
34,543,295 shares as of the Record Date.
Voting Matters and Board Recommendations
Proposal
Board Recommendation
1
Approval of the Merger Proposal (page 84)
FOR
2
Approval of the Adjournment Proposal (page 85)
FOR
How to Cast Your Vote
Even if you currently plan to attend the Special Meeting, we recommend that you also submit your proxy as described below so that your vote will be counted if you later decide not to attend the meeting. Submitting your proxy via Internet, telephone or mail does not affect your right to vote at the Special Meeting.
If, at the close of business on the Record Date, you were a stockholder of record, you may grant a proxy to vote your shares over the Internet, by telephone or by mail, as described in detail below, or you may attend the Special Meeting and vote your shares.
Without Attending the Special Meeting
At the Special Meeting
Internet: www.investorvote.com/ARA
Internet: Joining the Special Meeting at www.meetingcenter.io/247826643. See “General Information” for additional requirements.
Telephone: 1-800-652-8683
 
 
Mail: Completed, signed and returned proxy card no later than 5:00 p.m. Eastern Time on January 13, 2021.
 
 
If you hold shares through a broker, bank or other nominee, please refer to information from your broker, bank or other nominee for voting instructions, or you may attend the Special Meeting and vote your shares. Please refer to the “General Information” section of this Proxy Statement for information regarding how to attend the Special Meeting and vote your shares.
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Proposal 1. Approval of Merger Proposal
We are asking stockholders to consider and vote on a proposal to adopt the Merger Agreement, and approve the transactions contemplated thereby, including the merger of Merger Sub with and into ARA, with ARA surviving as a wholly owned subsidiary of IRC.
Proposal 2. Approval of Adjournment Proposal
We are asking stockholders to consider and vote on a proposal to approve the continuation, postponement or adjournment of the Special Meeting to a later date or dates, if necessary or appropriate, including to solicit additional proxies if there are insufficient votes to approve the Merger Proposal at the time of the Special Meeting.
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SUMMARY
This summary discusses the material information contained in this Proxy Statement, including with respect to the Merger and the Merger Agreement. This summary may not contain all of the information that is important to you. To understand the Merger more fully and for a more complete description of the legal terms, you should read carefully this entire Proxy Statement, the appendices, including the Merger Agreement, and the documents we incorporate by reference to this Proxy Statement. You may obtain the documents and information incorporated by reference to this Proxy Statement without charge by following the instructions in the section entitled “Where You Can Find More Information” of this Proxy Statement. The Merger Agreement is attached as Appendix A to this Proxy Statement.
THE COMPANIES (PAGE 23)
American Renal Associates Holdings, Inc.
ARA is a Delaware corporation with principal executive offices located at 500 Cummings Center, Suite 6550, Beverly, Massachusetts 01915, telephone number (978) 922-3080. ARA is a leading provider of outpatient dialysis services in the United States for patients suffering from chronic kidney failure (also known as end stage renal disease) and other kidney diseases. As of September 30, 2020, ARA operated 248 dialysis clinic locations in 27 States and the District of Columbia serving approximately 16,900 patients. ARA operates principally through a physician partnership model, in which it partners with local nephrologists to develop, own and operate dialysis clinics. ARA’s Core Values emphasize taking good care of patients, providing physicians with clinical autonomy and support, hiring the best possible staff and providing best practices management. Our Common Stock is listed on the New York Stock Exchange under the symbol “ARA”. See the section entitled “The Companies—American Renal Associates Holdings, Inc.” of this Proxy Statement. Additional information about ARA is contained in certain of its public filings that are incorporated by reference herein. See the section entitled “Where You Can Find More Information” of this Proxy Statement.
IRC Superman Midco, LLC
IRC is a Delaware limited liability company and affiliate of Nautic Partners, LLC (“Nautic”), a middle-market private equity firm with a history of investing in healthcare businesses, and Innovative Renal Care, LLC (“Innovative Renal Care”), a platform entity funded by Nautic focused on building a more integrated and patient-centric kidney care business. IRC’s mailing address is IRC Superman Midco, LLC c/o Nautic Partners, 50 Kennedy Plaza, 17th Floor, Providence, RI 02903, telephone number: (401) 278-6387. Innovative Renal Care’s offices are located at 3102 West End Avenue, Suite 1100, Nashville, TN 37203. See the section entitled “The Companies—IRC Superman Midco, LLC” of this Proxy Statement.
Superman Merger Sub, Inc.
Merger Sub is a Delaware corporation and a wholly owned subsidiary of IRC. It was formed on September 28, 2020 solely for the purpose of entering into the Merger Agreement and effecting the transactions contemplated thereby, including the Merger. Merger Sub’s mailing address is Superman Merger Sub, Inc. c/o Nautic Partners, 50 Kennedy Plaza, 17th Floor, Providence, RI 02903, telephone number: (401) 278-6387. See the section entitled “The Companies—Superman Merger Sub, Inc.” of this Proxy Statement.
THE SPECIAL MEETING (PAGE 24)
This Proxy Statement is furnished in connection with the solicitation by the Board of proxies to be voted at a Special Meeting of ARA stockholders to be held on Thursday, January 14, 2021, at 9:00 a.m., Eastern Time.
At the Special Meeting, we will ask our stockholders of record as of the Record Date to vote on (i) the Merger Proposal and (ii) the Adjournment Proposal.
THE MERGER PROPOSAL (PAGE 84)
You will be asked to consider and vote upon the proposal to adopt the Merger Agreement and approve the transactions contemplated thereby, including the Merger. The Merger Agreement provides, among other things, that, upon the terms and subject to the satisfaction or waiver of the conditions set forth therein, Merger Sub will merge with and into ARA, with ARA continuing as the surviving corporation and a wholly owned subsidiary of IRC, and
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that at the Effective Time (as defined in the section entitled “General Information” of this Proxy Statement, below) and as a result of the Merger, each share of our Common Stock issued and outstanding immediately prior to the Effective Time (other than shares owned by ARA, IRC, any subsidiary of IRC or any stockholder who properly exercises and perfects appraisal of his, her or its shares under the General Corporation Law of the State of Delaware (the “DGCL”)) will be automatically cancelled and converted into the right to receive the Per Share Merger Consideration (as defined in the section entitled “Summary—Merger Consideration” of this Proxy Statement, below), without interest and less any applicable withholding taxes.
Following the Merger, our Common Stock will no longer be publicly traded, and existing ARA stockholders will cease to have any ownership interest in ARA.
RECORD DATE; SHARES ENTITLED TO VOTE; QUORUM (PAGE 24)
You are entitled to receive notice of and to vote at the Special Meeting if you owned shares of our Common Stock as of the close of business on December 4, 2020, the Record Date for the Special Meeting.
A quorum of stockholders is necessary to transact business at the Special Meeting. The presence at the Special Meeting, by remote communication or represented by proxy, of the holders of a majority of the shares of Common Stock outstanding and entitled to vote as of the Record Date will constitute a quorum at the Special Meeting, permitting ARA to transact business at the Special Meeting.
VOTE REQUIRED (PAGE 24)
Each share of Common Stock issued and outstanding as of the close of business on the Record Date is entitled to one vote at the Special Meeting.
Approval of the Merger Proposal requires the affirmative vote of holders of a majority of the shares of Common Stock outstanding and entitled to vote as of the close of business on the Record Date. Failure to vote your shares, an abstention from voting your shares or a broker non-vote, if any, will have the same effect as a vote “AGAINST” the Merger Proposal.
As of the Record Date, there were 34,543,295 shares of our Common Stock outstanding and entitled to vote at the Special Meeting.
Approval of the Adjournment Proposal requires the affirmative vote of the holders of our Common Stock representing a majority of the voting power of the shares of our Common Stock present in person or represented by proxy and entitled to vote on the matter at the Special Meeting.
The failure of any ARA stockholder of record to submit a signed proxy card, grant a proxy electronically over the Internet or by telephone or to vote electronically at the Special Meeting will have the same effect as a vote “AGAINST” the Merger Proposal. For shares held in “street name,” the failure of any ARA stockholder to instruct the broker, bank or other nominee on how to vote such shares of Common Stock will have the same effect as a vote “AGAINST” the Merger Proposal. Abstentions will have the same effect as a vote “AGAINST” the Merger Proposal.
The failure of any ARA stockholder of record to submit a signed proxy card, grant a proxy electronically over the Internet or by telephone or to vote electronically at the Special Meeting will not have an effect on the Adjournment Proposal. For shares held in “street name,” the failure of any ARA stockholder to instruct the broker, bank or other nominee on how to vote such shares of Common Stock will not have an effect on the Adjournment Proposal. Abstentions will have the same effect as a vote “AGAINST” the Adjournment Proposal.
RECOMMENDATION OF THE BOARD AND REASONS FOR THE MERGER (PAGE 40)
The Board, after consulting with its financial advisors and outside legal counsel and considering various factors described in the section entitled “The Merger—Recommendation of the Board and Reasons for the Merger” of this Proxy Statement, unanimously determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable, fair to and in the best interests of ARA and its stockholders, and directed that the Merger Agreement be submitted to our stockholders for their adoption.
The Board unanimously recommends that you vote “FOR” the Merger Proposal. In addition, the Board unanimously recommends that you vote “FOR” the Adjournment Proposal.
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VOTING AND SUPPORT AGREEMENT (PAGE 56)
On October 1, 2020, Centerbridge Capital Partners, L.P. and certain of its affiliates (collectively, the “Centerbridge Stockholders”), which together beneficially owned approximately 51% of the outstanding shares of our Common Stock, entered into a voting and support agreement (the “Voting Agreement”) with IRC, pursuant to which, among other things and subject to the terms and conditions therein, the Centerbridge Stockholders agreed to vote their shares of Common Stock in favor of the Merger Proposal and against any alternative proposal (including an Acquisition Proposal (as defined in the section entitled “The Merger Agreement—Stockholders Meeting and Related Actions” of this Proxy Statement, below)), any action or agreement that would reasonably be expected to result in a breach under the Merger Agreement or any other action, agreement or transaction intended to impede or interfere with the Merger or the other transactions contemplated by the Merger Agreement. In addition, each stockholder party to the Voting Agreement waived its appraisal rights under the DGCL.
The Centerbridge Stockholders also agreed, to the extent requested by the Board (or a duly authorized committee thereof) in connection with any Acquisition Proposal which the Board or such committee has determined in good faith, after consultation with its financial advisors and outside legal counsel, constitutes a Superior Proposal (as defined in the section entitled “The Merger Agreement—Other Covenants and Agreements—No Solicitation of Other Proposals; Change of Recommendation” of this Proxy Statement, below), to enter into a supplemental agreement in favor of the person or group that submitted such Acquisition Proposal on the same terms and conditions as the supplemental agreement that the Centerbridge Stockholders entered into with IRC on October 1, 2020, pursuant to which the Centerbridge Stockholders agreed, subject to the limitations therein, to reimburse ARA for 50% of any fines, penalties or reasonable and documented out-of-pocket expenses incurred in connection with the Securities and Exchange Commission (“SEC”) investigation previously disclosed by ARA in its public reports filed with the SEC, subject to a $5 million aggregate reimbursement cap.
The Voting Agreement will terminate upon the earliest to occur of (i) the Effective Time, (ii) the termination of the Merger Agreement in accordance with its terms, (iii) the amending of the Merger Agreement without the prior consent of the Centerbridge Stockholders in a manner that (a) decreases the Per Share Merger Consideration, (b) changes the form of consideration payable under the Merger Agreement to the Centerbridge Stockholders, (c) imposes any additional material restrictions on or additional conditions on the payment of the Per Share Merger Consideration to ARA’s stockholders, (d) imposes any additional material restrictions or obligations on the Centerbridge Stockholders, or (e) otherwise materially and adversely affects the Centerbridge Stockholders, (iv) the Centerbridge Stockholders and IRC mutually agreeing to such termination, (v) the conclusion of the vote in favor of the adoption and approval of the Merger Agreement and the transactions contemplated thereby and the shares held by the Centerbridge Stockholders having been voted as specified therein, or (vi) a Change of Recommendation (as defined below in the section entitled “The Merger Agreement—Other Covenants and Agreements—No Solicitation of Other Proposals; Change of Recommendation” of this Proxy Statement, below).
FAIRNESS OPINION OF ARA’S FINANCIAL ADVISOR: GOLDMAN SACHS & CO. LLC (PAGE 44)
At the meeting at which the Board voted to approve the Merger, Goldman Sachs & Co. LLC (“Goldman Sachs”) rendered to the Board its oral opinion, which was subsequently confirmed by delivery of a written opinion, to the effect that, as of October 1, 2020 and based upon and subject to the factors and assumptions set forth in such written opinion, the $11.50 in cash per share of Common Stock to be paid to the holders (other than IRC and its affiliates) of the shares of Common Stock pursuant to the Merger Agreement, was fair from a financial point of view to such holders.
The full text of the written opinion of Goldman Sachs, dated October 1, 2020, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Appendix B. Goldman Sachs provided advisory services and its opinion for the information and assistance of the Board in connection with its consideration of the Merger. The Goldman Sachs opinion is not a recommendation as to how any holder of the shares of Common Stock should vote with respect to the Merger or any other matter. Pursuant to an engagement letter between ARA and Goldman Sachs, ARA has agreed to pay Goldman Sachs a transaction fee that is estimated, based on the information available as of the date of announcement, to be approximately $12.4 million, $2.5 million of which became payable at announcement of the entry into the Merger Agreement, and the remainder of which is contingent upon consummation of the Merger.
See Appendix B and the section entitled “The Merger—Fairness Opinion of ARA’s Financial Advisor: Goldman Sachs & Co. LLC” of this Proxy Statement.
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CERTAIN EFFECTS OF THE MERGER ON ARA (PAGE 31)
Upon the terms and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into ARA, with ARA continuing as the surviving corporation and a wholly owned subsidiary of IRC.
The Effective Time will occur, if it occurs, upon the filing of the certificate of merger with the Secretary of State of the State of Delaware (or at such later date and time as we and IRC may agree and specify in the certificate of merger). If the Merger is consummated, you will no longer own any shares of the capital stock of ARA as of the Effective Time, and instead will only be entitled to receive the Per Share Merger Consideration described in “The Merger—Merger Consideration” on page 31 of this Proxy Statement (unless you are entitled to and have properly demanded appraisal for your shares in accordance with, and have complied in all respects with, Section 262 of DGCL, in which case you will be entitled only to those rights granted under Section 262 of the DGCL as described in “The Merger—Appraisal Rights” on page 58 of this Proxy Statement and Appendix C to this Proxy Statement).
Our Common Stock is currently registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and is listed on the New York Stock Exchange under the symbol “ARA”. If the Merger is consummated, ARA will cease to be a publicly traded company and will become a wholly owned subsidiary of IRC, and our Common Stock will be delisted from the New York Stock Exchange and deregistered under the Exchange Act.
EFFECT ON ARA IF THE MERGER IS NOT CONSUMMATED (PAGE 31)
If the Merger Proposal is not approved by ARA stockholders or if the Merger is not consummated for any other reason, ARA stockholders will continue to hold their shares of Common Stock and will not receive any payment for such shares. Instead, ARA will remain a public company, our Common Stock will continue to be listed and traded on the New York Stock Exchange, and we will continue to be registered under the Exchange Act and file periodic reports with the Securities and Exchange Commission (the “SEC”). Under specified circumstances, upon termination of the Merger Agreement, ARA may be required to pay IRC a termination fee, or may be entitled to receive a reverse termination fee from IRC, as described in the section entitled “The Merger Agreement—Termination Fees” of this Proxy Statement.
Furthermore, if the Merger is not consummated, and depending on the circumstances that would have caused the Merger not to be consummated, it is possible the price of our Common Stock may decline significantly. If that were to occur, it is uncertain when, if ever, the price of our Common Stock would return to the price at which it trades as of the date of this Proxy Statement.
MERGER CONSIDERATION (PAGE 31)
Upon consummation of the Merger, at the Effective Time, by virtue of the Merger and without any action on the part of IRC, Merger Sub or ARA or their respective stockholders, each outstanding share of our Common Stock (but excluding (i) shares held by IRC or any subsidiary of IRC (including Merger Sub) immediately prior to the Effective Time and shares owned by ARA, including shares held in treasury by ARA (“Cancelled Shares”) and (ii) Dissenting Shares (as defined in the section entitled “General Information” of this Proxy Statement, below)) will be converted into the right to receive $11.50 in cash (the “Per Share Merger Consideration”) without interest and less any applicable withholding taxes. From and after the Effective Time, all of the shares of Common Stock converted into the right to receive the Per Share Merger Consideration, without interest and less any applicable withholding taxes, will no longer be outstanding and will automatically be cancelled and retired and will cease to exist, and each holder of a non-certificated share of Common Stock represented by book-entry (each, a “Book-Entry Share”) outstanding immediately prior to the Effective Time previously representing any such shares of Common Stock will thereafter cease to have any rights with respect to such securities other than the right to receive, upon surrender of such Book-Entry Shares, the Per Share Merger Consideration, without interest and less any applicable withholding taxes.
As described further in the section entitled “The Merger Agreement—Payment for Common Stock” of this Proxy Statement, prior to the Effective Time, IRC will deposit or cause to be deposited, with a recognized financial institution as paying agent (selected by IRC with ARA’s prior written approval), cash in an amount necessary to pay the aggregate Merger Consideration payable to all of the holders of Common Stock (including Book-Entry Shares but excluding Cancelled Shares) outstanding immediately prior to the Effective Time and holders of ARA options,
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restricted stock unit awards and restricted stock awards. Promptly following the Effective Time and in any event no later than the second business day following the Effective Time, you will receive a letter of transmittal specifying instructions for transfer of your Book-Entry Shares to the paying agent in order to receive the Per Share Merger Consideration, without interest and less any applicable withholding taxes, for each share of our Common Stock represented by such Book-Entry Shares.
After the Merger is consummated, under the terms of the Merger Agreement, you will have the right to receive the Per Share Merger Consideration, without interest and less any applicable withholding taxes, but you will no longer have any rights as an ARA stockholder as a result of the Merger (except with respect to Dissenting Shares), nor will you be entitled to receive any shares in IRC or the surviving corporation.
TREATMENT OF ARA EQUITY AWARDS IN THE MERGER (PAGE 52)
Under the Merger Agreement, immediately prior to the Effective Time, each option to purchase shares of our Common Stock under any Company Stock Plan (as defined in the Merger Agreement) that is outstanding and unexercised immediately prior to the Effective Time will be cancelled and converted into the right to receive a cash payment equal to the product of the total number of shares of our Common Stock underlying the option multiplied by the excess, if any, of the Per Share Merger Consideration over the applicable per share exercise price of the option, less applicable withholding taxes. Options with a per share exercise price equal to or exceeding the Per Share Merger Consideration will be cancelled without payment.
The Merger Agreement also provides that, immediately prior to the Effective Time, each award of restricted stock and restricted stock units covering shares of Common Stock that is outstanding immediately prior to the Effective Time, whether vested or unvested, will vest in full (to the extent unvested) and will be cancelled and converted into the right to receive a cash payment equal to the product of the Per Share Merger Consideration and the aggregate number of shares of our Common Stock subject to the award, less applicable withholding taxes.
INTERESTS OF THE DIRECTORS AND EXECUTIVE OFFICERS OF ARA IN THE MERGER (PAGE 52)
In considering the recommendation of the Board that you vote to approve the Merger Proposal, you should be aware that our directors and executive officers may have interests in the Merger that are different from, or in addition to, your interests as a stockholder. The Board was aware of these interests and considered them, among other matters, in evaluating and approving the Merger Agreement and the Merger and in recommending that the Merger Proposal be approved by our stockholders. These interests include the following:
certain of our directors and executive officers hold outstanding Common Stock, stock options and restricted stock awards that will be cancelled and converted into the right to receive the Per Share Merger Consideration, net of any applicable exercise price (and subject to applicable tax withholding);
our executive officers are parties to arrangements with ARA that provide for severance benefits in the event of certain qualifying terminations of employment in connection with the Merger; and
consummation of the Merger provides for continued indemnification and directors’ and officers’ liability insurance to be provided by IRC and the surviving corporation for a period of six (6) years thereafter.
If the Merger Proposal is approved by our stockholders and the Merger closes, any shares of our Common Stock held by our directors and executive officers will be treated in the same manner as outstanding shares of our Common Stock held by all other ARA stockholders entitled to receive the Per Share Merger Consideration.
FINANCING OF THE MERGER (PAGE 57)
The Merger Agreement is not conditioned upon IRC’s receipt of financing. We anticipate that the total amount of funds necessary to consummate the Merger and the related transactions, not including fees and expenses, will be approximately $853 million, including the estimated funds needed to (i) pay our stockholders the aggregate Per Share Merger Consideration due to them under the Merger Agreement; (ii) make payments in respect of outstanding ARA stock options, restricted stock unit awards and restricted stock awards pursuant to the Merger Agreement; and (iii) pay the outstanding net indebtedness of ARA.
IRC has obtained financing commitments for the purpose of financing the transactions contemplated by the Merger Agreement, including the Merger, and paying related fees and expenses (the “Financing”). Nautic Partners
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VIII, L.P., Nautic Partners VIII-A, L.P., Nautic Partners IX, L.P. and Nautic Partners IX-A, L.P. have committed to capitalize IRC, prior to the Effective Time, with an aggregate equity contribution of up to $450 million, subject to the terms and conditions set forth in an equity commitment letter. Investment funds and accounts managed by HPS Investment Partners, LLC (the “Lenders”) have agreed to provide IRC and Merger Sub with committed debt financing in an aggregate principal amount of up to $515 million on the terms set forth in a debt commitment letter. The obligations of the Lenders to provide debt financing under the debt commitment letter are subject to customary terms and conditions. The Merger Agreement provides that IRC and Merger Sub will use reasonable best efforts to take all actions and do all things necessary, proper or advisable to arrange, obtain and consummate the Financing on or prior to the Closing (as defined in the Merger Agreement).
APPRAISAL RIGHTS (PAGE 58)
Pursuant to Section 262 of the DGCL, stockholders who do not vote in favor of adoption of the Merger Agreement and who comply fully with and properly demand appraisal under the applicable requirements of Section 262 and do not otherwise withdraw or lose the right to appraisal under the DGCL, have the right to seek appraisal of the fair value of their shares, as determined by the Delaware Court of Chancery, if the Merger is consummated. The “fair value” of shares as determined by the Delaware Court of Chancery may be more than, less than, or equal to the value of the Per Share Merger Consideration that the stockholders would otherwise be entitled to receive under the terms of the Merger Agreement. Stockholders also should be aware that an investment banking opinion as to the fairness, from a financial point of view, of the consideration payable in a sale transaction, such as the Merger, is not an opinion as to, and does not otherwise address, “fair value” under Section 262. Stockholders who wish to preserve any appraisal rights they may have, must so advise ARA by submitting a written demand for appraisal prior to the vote to adopt the Merger Agreement and approve the transactions contemplated thereby, including the Merger, and must otherwise follow fully the procedures prescribed by Section 262. For a description of the rights of such holders and of the procedures to be followed in order to assert such rights and obtain payment of the fair value of their shares of Common Stock, see the section entitled “The Merger—Appraisal Rights” of this Proxy Statement and the text of Section 262, which is reproduced in its entirety as Appendix C to this Proxy Statement.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (PAGE 62)
The receipt of cash by a U.S. Holder (as defined in the section entitled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” of this Proxy Statement, below) in exchange for such U.S. Holder’s shares of Common Stock in the Merger generally will result in the recognition of gain or loss in an amount measured by the difference between the cash such U.S. Holder receives in the Merger (determined before deduction for any applicable withholding taxes) and such U.S. Holder’s adjusted tax basis in the shares of Common Stock surrendered in the Merger. A Non-U.S. Holder generally will not be subject to U.S. federal income tax with respect to the exchange of our Common Stock for cash in the Merger unless such Non-U.S. Holder has certain connections to the United States. Stockholders should refer to the discussion in the section entitled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” of this Proxy Statement and consult their tax advisors concerning the U.S. federal income tax consequences relating to the Merger in light of their particular circumstances and any consequences arising under the laws of any state, local or foreign taxing jurisdiction or other tax laws.
REGULATORY APPROVALS REQUIRED FOR THE MERGER (PAGE 64)
Under the Merger Agreement, the Merger cannot be consummated until the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), has expired or been terminated. ARA and IRC and their respective affiliates filed their respective HSR Act notifications on October 8, 2020, and refiled such notifications on November 9, 2020. The waiting period under the HSR Act expired on December 9, 2020. In addition, ARA and IRC have agreed that consummation of the Merger is conditioned upon receipt of certain consents, waivers, approvals or certificates from, and/or providing notice to, applicable state healthcare regulatory agencies in connection with the Merger.
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GO-SHOP PERIOD (PAGE 70)
During the forty (40) calendar day period beginning on the date of the Merger Agreement and continuing until 11:59 p.m. (New York City time) on November 10, 2020 (the “No-Shop Period Start Date”), ARA and its subsidiaries and their respective directors, officers, employees, investment bankers, attorneys, accountants and other representatives (collectively, “Representatives”) had the right to, directly or indirectly (the following activities, collectively, the “Go-Shop Activities”):
initiate, solicit, facilitate and encourage any inquiry or the making of any proposal or offer that constitutes, could constitute, or could reasonably be expected to lead to an Acquisition Proposal (as defined in the section entitled “The Merger Agreement—Other Covenants and Agreements—No Solicitation of Other Proposals; Change of Recommendation” of this Proxy Statement, below), including by providing information (including non-public information and data) regarding, and affording access to the business, properties, assets, books, records and personnel of, ARA and its subsidiaries to any third party, and its Representatives, including potential financing sources, subject to the entry into, and in accordance with, an acceptable confidentiality agreement; provided that ARA will make available to IRC and Merger Sub any non-public information or data concerning ARA or its subsidiaries that is provided to any third party given such access that was not previously made available to IRC or Merger Sub promptly (and in any event within forty-eight (48) hours) after the time it is provided to such third party; and
engage in, enter into or otherwise participate in any discussions or negotiations with any third parties (and their respective Representatives, including potential financing sources) with respect to any Acquisition Proposals (or inquiries, proposals or offers or other efforts that constitute, could constitute, or could reasonably be expected to lead to an Acquisition Proposal, including any third party that has informed ARA or its Representatives of an intention to make or has publicly announced an intention to make an Acquisition Proposal) and cooperate with or assist or participate in or facilitate or encourage any such inquiries, proposals, offers, discussions or negotiations or any effort or attempt to make any Acquisition Proposals, including granting a waiver, amendment or release under any confidentiality or pre-existing standstill or similar provision with respect to ARA or its subsidiaries;
provided, that ARA and its subsidiaries were not permitted to pay or cause to be paid or reimburse the expenses of any such third party in connection with any Acquisition Proposals or any inquiries, discussions or requests with respect to or the making of any proposal or offer that constitutes or would reasonably be expected to lead to an Acquisition Proposal.
NO SOLICITATION OF OTHER PROPOSALS; CHANGE OF RECOMMENDATION (PAGE 71)
From the No-Shop Period Start Date until the Effective Time or, if earlier, the termination of the Merger Agreement, except with respect to any Excluded Party (as defined in the section entitled “The Merger Agreement—Other Covenants and Agreements—No Solicitation of Other Proposals; Change of Recommendation” of this Proxy Statement, below) or as expressly permitted by the Merger Agreement, ARA will not (and will cause its subsidiaries not to and direct its Representatives not to):
initiate, solicit, knowingly facilitate or knowingly encourage an Acquisition Proposal or inquiries or discussions that would likely result in an Acquisition Proposal;
engage in, enter into, continue or otherwise participate in any discussions or negotiations with a third party, or provide access to ARA’s business, properties, books and records or any non-public information to, any third party relating to an Acquisition Proposal;
approve, endorse, or publicly propose to approve or recommend, any Acquisition Proposal;
execute or enter into, any merger agreement, acquisition agreement or similar binding agreement or understanding (other than an acceptable confidentiality agreement) with respect to an Acquisition Proposal; or
authorize, commit to, agree or publicly propose to do any of the foregoing.
Except with respect to any Excluded Party, immediately following 11:59 p.m. (New York City time) on the No-Shop Period Start Date, ARA will cease (and will cause its subsidiaries to cease, and direct its Representatives to cease) any solicitations, discussions or negotiations with any third party in connection with any Acquisition Proposal and request each third party that has executed a confidentiality agreement in connection with a potential
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Acquisition Proposal to return or destroy all confidential information provided to such third party and notify IRC in writing of the receipt of any Acquisition Proposal after the No-Shop Period Start Date, which notice will include a copy of any such Acquisition Proposal and other terms made in writing and a written summary of any such Acquisition Proposal not made in writing. ARA is required to keep IRC reasonably informed of the status and material terms of any such Acquisition Proposal including any material changes thereto.
Notwithstanding the commencement of the No-Shop Period Start Date, prior to receiving the Company Requisite Vote (as defined in the section entitled “The Merger Agreement—Other Covenants and Agreements—No Solicitation of Other Proposals; Change of Recommendation” of this Proxy Statement, below), ARA, its subsidiaries and their respective Representatives may continue to engage in the Go-Shop Activities with respect to any Excluded Party so long as such Excluded Party remains an Excluded Party.
Except as otherwise provided in the Merger Agreement, neither the Board nor any committee of the Board is permitted to take any action constituting a Change of Recommendation (as defined and described in the section entitled “The Merger Agreement—Other Covenants and Agreements—No Solicitation of Other Proposals; Change of Recommendation” of this Proxy Statement, below) or adopt or approve, or cause or permit ARA to enter into or otherwise resolve or agree to any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement or other definitive agreement with respect to any Acquisition Proposal (other than an acceptable confidentiality agreement).
At any time prior to obtaining the Company Requisite Vote (and whether before or after the No-Shop Period Start Date), if an Intervening Event (as defined and described in the section entitled “The Merger Agreement—Other Covenants and Agreements—No Solicitation of Other Proposals; Change of Recommendation” of this Proxy Statement, below) occurs or the Board (or a duly authorized committee thereof) receives an Acquisition Proposal that did not result from a material breach of the obligations described above and the Board (or a duly authorized committee thereof) determines in good faith (after consultation with its financial advisors and outside legal counsel) that such proposal constitutes a Superior Proposal, the Board may effect a Change of Recommendation or terminate the Merger Agreement to enter into a definitive agreement with respect to such Superior Proposal; provided that:
prior to or simultaneously with any such termination by ARA, ARA pays to IRC any termination fee required pursuant to the Merger Agreement (as further described in the section entitled “The Merger Agreement—Termination Fees” of this Proxy Statement, below), and
after consultation with its financial advisors and outside legal counsel, the Board (or a duly authorized committee thereof) determines that the failure to make a Change of Recommendation or to terminate the Merger Agreement would be reasonably likely to be inconsistent with its fiduciary duties under applicable law;
ARA delivers to IRC a written notice (a “Company Notice”), at least four (4) business days before the Board (or a duly authorized committee thereof) takes such action, advising IRC that the Board (or a duly authorized committee thereof) proposes to take such action and containing the material details of such Intervening Event or the material terms and conditions of the Superior Proposal (and includes a copy of the available proposed transaction agreement to be entered into in respect of such Superior Proposal); and
at or after 5:00 p.m. (New York City time) on the fourth (4th) business day immediately following delivery of the Company Notice (such period from the time the Company Notice is provided until 5:00 p.m. New York City time on the fourth (4th) business day immediately following the day on which the Company Notice is provided, the “Notice Period”), the Board (or a duly authorized committee thereof) determines in good faith (after consultation with its outside counsel and financial advisors) that, after taking into account any changes to the terms of the Merger Agreement agreed to in writing by IRC during the Notice Period, the failure to make a Change of Recommendation or to terminate the Merger Agreement would be reasonably likely to be inconsistent with its fiduciary duties under applicable law or, in the case of an Acquisition Proposal, that such Acquisition Proposal continues to constitute a Superior Proposal.
For a further discussion of the limitations on solicitation of Acquisition Proposals from third parties, the limitations on Changes of Recommendation and approving or recommending a Superior Proposal, see the section entitled “The Merger Agreement—Other Covenants and Agreements—No Solicitation of Other Proposals; Change of Recommendation” of this Proxy Statement.
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CONDITIONS TO THE MERGER (PAGE 79)
The respective obligations of ARA, IRC and Merger Sub to consummate the Merger and the transactions contemplated by the Merger Agreement are subject to the satisfaction (or written waiver by all parties, if permissible) at or prior to the Effective Time of each of the following conditions:
ARA obtaining the Company Requisite Vote (as defined in the section entitled “The Merger Agreement—Other Covenants and Agreements—No Solicitation of Other Proposals; Change of Recommendation” of this Proxy Statement, below);
the expiration or termination of any applicable waiting period (and any extension thereof) under the HSR Act; and
no law (whether temporary, preliminary or permanent) having been enacted, entered or enforced by any governmental entity which prohibits, restrains or enjoins the consummation of the Merger, and that remains in effect.
The obligations of IRC and Merger Sub to consummate the Merger and the transactions contemplated by the Merger Agreement are subject to the satisfaction (or waiver by IRC and Merger Sub, if permissible) at or prior to the Effective Time, of the following additional conditions:
the accuracy of the representations and warranties made by ARA in the Merger Agreement, subject in some instances to materiality qualifiers or in other instances to de minimis inaccuracies, at and as of the Effective Time (except for representations and warranties that expressly relate to a specific date or time);
ARA’s performance of and compliance with each of its covenants and obligations under the Merger Agreement required to be performed or complied with at or prior to the Effective Time, in all material respects;
since the date of the Merger Agreement, there having been no Material Adverse Effect (as defined in the section entitled “The Merger Agreement—Representations and Warranties” of this Proxy Statement, below);
IRC receiving a certificate executed by an executive officer of ARA to the effect that the conditions described in the three (3) preceding bullet points have been satisfied; and
each of the consents, waivers, approvals or certificates from, and/or notices to, applicable state healthcare regulatory agencies in connection with the Merger having been provided or obtained, as applicable.
The obligations of ARA to consummate the Merger and the transactions contemplated by the Merger Agreement are subject to the satisfaction (or waiver by ARA, if permissible under applicable law), at or prior to the Effective Time, of the following additional conditions:
the accuracy of the representations and warranties made by IRC and Merger Sub in the Merger Agreement at and as of the Effective Time (except for representations and warranties that expressly relate to a specific date or time), subject in some instances to materiality qualifiers and exceptions and, in other instances, except where the failure to be true and correct would not reasonably be expected to, in the aggregate, prevent, materially delay or materially impede the consummation of the Merger;
IRC’s and Merger Sub’s performance of and compliance with each of their respective covenants and obligations under the Merger Agreement required to be performed or complied with at or prior to the Effective Time, in all material respects; and
ARA receiving a certificate executed by an executive officer of IRC to the effect that the conditions described in the two (2) preceding bullet points have been satisfied.
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TERMINATION (PAGE 80)
The Merger Agreement may be terminated and the Merger and the other transactions contemplated by the Merger Agreement may be abandoned at any time prior to the Effective Time irrespective of approval of the Merger Agreement by the stockholders of ARA:
by mutual written consent of IRC, Merger Sub and ARA;
by either IRC or ARA:
if the Merger is not consummated on or before 5:00 p.m. (Eastern time) on March 1, 2021 (the “End Date”) which End Date may be extended to May 10, 2021 by:
(i) ARA if, by March 1, 2021, all conditions to the Merger have been satisfied or waived, other than the condition that (A) no order or judgment as a result of a proceeding brought by, or the inaction of, a governmental entity prohibits, restrains or enjoins the consummation of the Merger and/or (B) the applicable waiting period (and any extension thereof) under the HSR Act has expired or terminated and/or (C) all approvals or consents from state healthcare regulatory agencies required in connection with the Merger are received; or
(ii) IRC if, by March 1, 2021, all conditions to the Merger have been satisfied or waived, other than the condition that (A) no order or judgment resulting from the failure to receive healthcare regulatory approvals and consents prohibits, restrains or enjoins the consummation of the Merger and/or (B) all approvals or consents from state healthcare regulatory agencies required in connection with the Merger are received;
in each case so long as the terminating party’s action or failure to perform its obligations under the Merger Agreement is not the primary cause of the failure to consummate the Merger on or before the End Date;
if any court of competent jurisdiction or other governmental entity in the U.S. has issued any final and non-appealable order or taken any other final action, so long as the terminating party used standard efforts to prevent, oppose and remove such restraint, injunction or other prohibition; or
if the Company Requisite Vote is not obtained at the Stockholders Meeting (as defined in the section entitled “The Merger Agreement—Stockholders Meeting and Related Actions” of this Proxy Statement, below) or at any adjournment or postponement thereof, at which a vote on the adoption of the Merger Agreement was taken;
by ARA:
if IRC or Merger Sub has breached any representation, warranty, covenant or agreement set forth in the Merger Agreement such that the conditions to the Merger to the benefit of ARA cannot be satisfied at the Effective Time and is not cured on or prior to the by the applicable cure date;
before obtaining the Company Requisite Vote, in order to enter into a definitive agreement with respect to a Superior Proposal, so long as ARA has complied with the non-solicitation and related provisions in the Merger Agreement described in the section entitled “The Merger Agreement—Other Covenants and Agreements—No Solicitation of Other Proposals; Change of Recommendation” of this Proxy Statement and ARA pays to IRC the termination fee described below; or
if IRC and Merger Sub fail to consummate the Merger within the permitted time after the closing conditions have been satisfied and ARA has notified IRC in writing that it is ready, willing and able to consummate the Merger;
by IRC:
if ARA has breached any representation, warranty, covenant or agreement set forth in the Merger Agreement such that the conditions to the Merger to the benefit of IRC and Merger Sub cannot be satisfied at the Effective Time and is not cured by the applicable cure date; or
if prior to obtaining the Company Requisite Vote, the Board makes a Change of Recommendation in a manner adverse to IRC or Merger Sub.
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EFFECT OF TERMINATION (PAGE 81)
Except as described in the section entitled “The Merger Agreement—Termination Fees” of this Proxy Statement, in the event the Merger Agreement is terminated under the terms thereof (as described in the section entitled “The Merger Agreement—Termination” of this Proxy Statement, below), the Merger Agreement will become void and have no effect, without any liability on the part of any party thereto or its respective affiliates, officers, directors or stockholders, other than liability of ARA, IRC or Merger Sub resulting from any intentional and willful breach or intentional and willful failure to perform the provisions of the Merger Agreement occurring prior to such termination.
TERMINATION FEES (PAGE 81)
ARA must pay to IRC a termination fee of $5,037,136 if, but only if, the Merger Agreement is validly terminated:
by ARA before obtaining the Company Requisite Vote, in order to enter into a definitive agreement with respect to a Superior Proposal with an Excluded Party (as defined in the section entitled “The Merger Agreement—Other Covenants and Agreements—No Solicitations of Other Proposals; Change of Recommendation” of this Proxy Statement, below).
ARA must pay to IRC a termination fee of $12,089,126 if the Merger Agreement is validly terminated:
by ARA before obtaining the Company Requisite Vote, in order to enter into a definitive agreement with respect to a Superior Proposal with anyone other than an Excluded Party;
by IRC if the Board has made a Change of Recommendation prior to obtaining the Company Requisite Vote in a manner adverse to IRC or Merger Sub;
(i) by either IRC or ARA if the Company Requisite Vote has not been obtained at the Stockholders Meeting or on such later date due to any adjournment or postponement thereof or (ii) by IRC if ARA has breached any representation, warranty, covenant or agreement set forth in the Merger Agreement such that the conditions to the Merger to the benefit of IRC and Merger Sub cannot be satisfied at the Effective Time and the breach is not cured on or prior to applicable cure date, and:
(A) at any time after the date of the Merger Agreement and prior to the Special Meeting an Acquisition Proposal has been made directly to ARA’s stockholders, the Board or has otherwise become publicly known or, and has not been withdrawn prior to the Special Meeting, or in the case of a termination pursuant to a breach of any representation, warranty, covenant or agreement on the part of ARA, prior to the breach that forms the basis of such termination; and
(B) within nine (9) months after such termination, ARA has consummated an Acquisition Proposal or entered into a definitive agreement with respect to an Acquisition Proposal (which is subsequently consummated).
For purposes of determining whether a termination fee is due pursuant to accepting an Acquisition Proposal, all references in the definition of the term Acquisition Proposal in the Merger Agreement to “15% or more” will be deemed to be references to “more than 50%”.
Generally, subject to the specific performance remedies described in the Merger Agreement, IRC’s right to receive from ARA the termination fee referenced above will constitute the sole and exclusive remedy of IRC and Merger Sub against ARA and certain of its related parties and representatives. See the section entitled “The Merger Agreement—Termination Fees” of this Proxy Statement.
IRC must pay to ARA a termination fee of $32,237,669 if, but only if, the Merger Agreement is validly terminated:
by either IRC or ARA:
pursuant to a final non-appealable judgment or order arising in connection with a legal action or proceeding brought or initiated by, or which results from the inaction of, a governmental entity which prohibits the Merger;
because the Merger has not been consummated by the End Date and either (i) there is an order or judgment resulting from a legal action brought or initiated by, or which results from the inaction of, a governmental entity or the approvals under the HSR Act (the “HSR Approval”) have not been
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obtained (or there is an agreement not to consummate the transaction contemplated by the Merger Agreement with any governmental entity with authority over the HSR Approval) or the consents, waivers, approvals or certificates required from applicable state healthcare regulatory agencies in connection with the Merger have not been satisfied or otherwise waived by IRC or (ii) ARA could have terminated the Merger Agreement pursuant to one of the following two (2) bullet points;
by ARA if IRC or Merger Sub has breached any representation, warranty, covenant or agreement set forth in the Merger Agreement such that the conditions to the Merger to the benefit of ARA cannot be satisfied at the Effective Time, and such breach is not cured by IRC or Merger Sub by the applicable cure date; or
by ARA if IRC and Merger Sub fail to consummate the Merger within the permitted time after the closing conditions have been satisfied and ARA has notified IRC in writing that it is ready, willing and able to consummate the Merger.
Generally, subject to (i) IRC’s indemnification and reimbursement obligations in connection with ARA’s cooperation obligations in respect of IRC’s financing efforts under the Merger Agreement and (ii) an order of specific performance as and only to the extent expressly permitted under the terms of the Merger Agreement, ARA’s right to terminate the Merger Agreement under the terms of the Merger Agreement and receive from IRC the termination fee referenced above will, in the event IRC and Merger Sub fail to consummate the Merger or otherwise breach the Merger Agreement, constitute the sole and exclusive remedy of ARA against IRC, Merger Sub and certain of its related parties and representatives. See the section entitled “The Merger Agreement—Termination Fees” of this Proxy Statement.
Generally, if ARA actually receives the foregoing termination fee, IRC will have no further liability to ARA under the Merger Agreement.
EXPENSES GENERALLY (PAGE 82)
Generally, whether or not the Merger is consummated, ARA and IRC are each responsible for all of their respective costs and expenses incurred in connection with the Merger and the transactions contemplated by the Merger Agreement. Expenses incurred in connection with obtaining any consent, approval, authorization or permit shall be borne by IRC. Expenses incurred in connection with the filing, printing and mailing of this Proxy Statement shall be shared equally by IRC and ARA.
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American Renal Associates Holdings, Inc.
500 Cummings Center
Suite 6550
Beverly, Massachusetts 01915
Telephone: 978-922-3080

PROXY STATEMENT
Special Meeting of Stockholders
January 14, 2021
GENERAL INFORMATION
The following questions and answers are intended to briefly address some commonly asked questions you may have regarding the Special Meeting, the Merger Agreement and the transactions contemplated thereby, including the Merger. These questions and answers may not address all questions that may be important to you as a stockholder of ARA. Please refer to the more detailed information contained elsewhere in this Proxy Statement, the appendices to this Proxy Statement and the documents incorporated by reference or referred to in this Proxy Statement, which you should read carefully and in their entirety.
Why am I being provided with these materials?
On October 1, 2020, ARA entered into the Agreement and Plan of Merger (as it may be amended from time to time, the “Merger Agreement”), by and among ARA, IRC Superman Midco, LLC, a Delaware limited liability company (“IRC”) and an affiliate of Nautic Partners, LLC, and Superman Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of IRC (“Merger Sub”). The Merger Agreement provides that, upon the terms and subject to the satisfaction or waiver of the conditions set forth therein, Merger Sub will be merged with and into ARA, with ARA surviving as a wholly owned subsidiary of IRC (such merger, the “Merger”).
We are providing this proxy statement (this “Proxy Statement”) to you in connection with the solicitation by ARA’s board of directors (the “Board” or “Board of Directors”) of proxies to be voted at our Special Meeting of Stockholders to be held on Thursday, January 14, 2021 (the “Special Meeting”) in a virtual meeting format online at www.meetingcenter.io/247826643 and at any postponements or adjournments of the Special Meeting. ARA is holding the Special Meeting in order to obtain stockholder approval of the Merger Proposal and the Adjournment Proposal (each as defined below). We cannot complete the Merger and the other transactions contemplated by the Merger Agreement unless the Merger Proposal is approved by the affirmative vote of the holders of a majority of the shares of our Common Stock outstanding and entitled to vote as of the close of business on the Record Date.
This Proxy Statement includes important information about the Merger and the Special Meeting. ARA stockholders should read this information carefully and in its entirety. A copy of the Merger Agreement is attached as Appendix A to this Proxy Statement.
We mailed to each stockholder entitled to vote at the Special Meeting this Proxy Statement and a proxy card in paper format.
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What am I voting on?
There are two proposals scheduled to be voted on at the Special Meeting:
Proposal No. 1: To consider and vote on a proposal to adopt the Merger Agreement, and approve the transactions contemplated thereby, including the Merger (the “Merger Proposal”); and
Proposal No. 2: To consider and vote on a proposal to approve the continuation, postponement or adjournment of the Special Meeting to a later date or dates, if necessary or appropriate, including to solicit additional proxies if there are insufficient votes to approve the Merger Proposal at the time of the Special Meeting (the “Adjournment Proposal”).
What is the proposed transaction?
The proposed transaction is the acquisition of ARA by IRC through the merger of Merger Sub with and into ARA, with ARA surviving as a wholly owned subsidiary of IRC. Following the date and time the certificate of merger is duly filed with the Secretary of State of the State of Delaware (or at such later date and time as ARA and IRC may agree and specify in the certificate of merger) (the “Effective Time”), ARA will be privately held as a wholly owned subsidiary of IRC. If the Merger is consummated, each share of our Common Stock (other than shares owned by stockholders who did not vote in favor of the Merger Proposal and who are entitled to demand and have properly made a demand for appraisal and do not thereafter fail to perfect, or do not effectively withdraw, or otherwise lose, their appraisal rights in accordance with Section 262 of the General Corporation Law of the State of Delaware (the “DGCL”) (“Dissenting Shares”)) will automatically be cancelled and you will not own any shares of the capital stock of the surviving corporation or IRC.
What will I receive if the Merger is consummated?
Upon consummation of the Merger, you will be entitled to receive $11.50 in cash (the “Per Share Merger Consideration”), without interest and less any applicable withholding taxes, for each share of our Common Stock that you own, unless you do not vote in favor of the Merger Proposal and you are entitled to demand and have properly made a demand for appraisal and do not thereafter fail to perfect, or do not effectively withdraw, or otherwise lose, your right to appraisal in accordance with Section 262 of the DGCL with respect to such shares. You will not be entitled to receive shares in the surviving corporation or in IRC as a result of the Merger.
How does the Per Share Merger Consideration compare to the market price of our Common Stock prior to the public announcement of the Merger Agreement and as of a recent trading date?
The Per Share Merger Consideration represents a premium of approximately 66% over the closing price of our Common Stock on the New York Stock Exchange of $6.92 per share on October 1, 2020, the last trading day before the public announcement that ARA entered into the Merger Agreement. On December 8, 2020, the last practicable day before the printing of this Proxy Statement, the closing price of our Common Stock on the New York Stock Exchange was $11.43 per share. You are encouraged to obtain current market quotations for our Common Stock.
What factors did the Board consider in deciding to enter into the Merger Agreement and recommending the approval of the Merger Proposal and Adjournment Proposal?
In reaching its decision to approve the Merger Agreement and the transactions contemplated thereby, including the Merger, and to recommend our stockholders approve the Merger Proposal and the Adjournment Proposal, the Board consulted with our management, as well as our legal and financial advisors, and considered the terms of the proposed Merger Agreement and the transactions contemplated thereby, including the Merger, as well as other alternatives. For a more detailed description of these factors, see the section entitled “The Merger—Recommendation of the Board and Reasons for the Merger” of this Proxy Statement.
Who is entitled to vote?
Only stockholders as of the close of business on December 4, 2020 (the “Record Date”) may vote at the Special Meeting. As of the Record Date, there were 34,543,295 shares of our Common Stock outstanding and entitled to vote.
Stockholder of Record: Shares Registered in Your Name
If on the Record Date your shares were registered directly in your name with our transfer agent, Computershare Ltd. (“Computershare”), then you are a stockholder of record (also known as a “record holder”). As a stockholder
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of record, you may attend and vote at the Special Meeting or vote by proxy. Whether or not you plan to attend the Special Meeting, we urge you to fill out and return the enclosed proxy card, or vote by proxy over the telephone or on the Internet as instructed below, to ensure your vote is counted.
Beneficial Owner: Shares Registered in the Name of a Broker, Bank or Other Nominee
If on the Record Date your shares were not registered directly in your name with Computershare but instead held by broker, bank or other nominee, then you are the beneficial owner of shares held in “street name”. The organization holding your account is considered to be the stockholder of record for purposes of voting at the Special Meeting. As a beneficial owner, you have the right to direct your broker, bank or other nominee regarding how to vote the shares in your account. You are also invited to attend the Special Meeting. However, since you are not the stockholder of record, you may not attend the meeting or vote your shares during the meeting unless you request and obtain a “legal proxy” from your broker, bank or other nominee as described under “How do I attend and vote at the Special Meeting?
How many votes do I have?
On each matter, you have one vote for each share of our Common Stock you owned as of the Record Date.
Will my shares of Common Stock held in “street name” or another form of record ownership be combined for voting purposes with shares I hold as the stockholder of record?
No. Because any shares of Common Stock you may hold in “street name” will be deemed to be held by a different stockholder than any shares of Common Stock you hold as the stockholder of record, any shares of Common Stock held in “street name” will not be combined for voting purposes with shares of Common Stock you hold as the stockholder of record. Similarly, if you own shares of Common Stock in various registered forms, such as jointly with your spouse, as trustee of a trust or as custodian for a minor, you will receive, and will need to sign and return, a separate proxy card for those shares of Common Stock because they are held in a different form of record ownership. Shares of Common Stock held by a corporation or business entity must be voted by an authorized officer of the entity. Shares of Common Stock held in an individual retirement account must be voted under the rules governing the account.
If I hold my shares of Common Stock in “street name,” will my broker, trustee or other nominee vote my shares for me on the proposals to be considered at the Special Meeting?
Not without your direction. Your broker, bank or other nominee is only permitted to vote your shares of Common Stock on “non-routine” proposals if you instruct such nominee on how to vote. Under applicable stock exchange rules, brokers, trustees or other nominees only have the discretion to vote your shares on routine matters if you do not instruct such nominee on how to vote your shares with respect to such matters. Each of the proposals in this Proxy Statement are non-routine matters, and therefore brokers, trustees and other nominees cannot vote on these proposals without your instructions. Therefore, it is important that you instruct your broker, bank or other nominee on how you wish to vote your shares.
You should follow the procedures provided by your broker, bank or other nominee to instruct them, as applicable, to vote your shares of Common Stock. Without such instructions your shares will not be voted at the Special Meeting, which will have the same effect as a vote “AGAINST” the Merger Proposal, but will not have an effect on the Adjournment Proposal.
How can I find the voting results of the Special Meeting?
We plan to announce preliminary voting results at the Special Meeting, and we will report final results in a Current Report on Form 8-K, which will be filed with the Securities and Exchange Commission (“SEC”) shortly after the Special Meeting. All reports that we file with the SEC are publicly available when filed. See the section entitled “Where You Can Find More Information” of this Proxy Statement.
What constitutes a quorum?
The holders of record of a majority of the voting power of the issued and outstanding shares entitled to vote at the Special Meeting must be present in person or represented by proxy to constitute a quorum for the Special Meeting. In accordance with Delaware law, the Board has authorized that the Special Meeting be held solely in virtual meeting
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format, and accordingly, stockholders and proxy holders virtually attending the Special Meeting are deemed present in person for purposes of determining the presence of a quorum. Abstentions are considered as present for the purpose of determining the presence of a quorum. If you hold your shares in “street name” and you fail to provide your broker, bank or nominee with instructions how to vote on any of the proposals before the Special Meeting, your shares will not be present at the Special Meeting for quorum purposes. If you provide your broker with instructions how to vote on one but not all of the proposals before the Special Meeting, your shares will be present at the Special Meeting for quorum purposes.
What vote is required to approve the Merger Proposal?
The affirmative vote of the holders of a majority of the shares of our Common Stock outstanding and entitled to vote as of the close of business on the Record Date is required to approve the Merger Proposal.
The failure of any stockholder of record to submit a signed proxy card, grant a proxy electronically over the Internet or by telephone or to vote electronically at the Special Meeting will have the same effect as a vote “AGAINST” the Merger Proposal. If you hold your shares in “street name,” the failure to instruct your broker, bank or other nominee on how to vote your shares of our Common Stock will have the same effect as a vote “AGAINST” the Merger Proposal. Abstentions will have the same effect as a vote “AGAINST” the Merger Proposal.
Pursuant to a voting and support agreement entered into on October 1, 2020 with IRC (the “Voting Agreement”), the Centerbridge Stockholders agreed, among other things and subject to certain terms and conditions, to vote a total of 17,615,836 shares of our Common Stock, or approximately 51% of the outstanding shares of our Common Stock entitled to vote at the Special Meeting, “FOR” the Merger Proposal and the Adjournment Proposal and against any alternative proposal (including any Acquisition Proposal, as defined in the section entitled “The Merger Agreement—Other Covenants and Agreements—No Solicitation of Other Proposals; Change of Recommendation” of this Proxy Statement, below) or any other action, agreement or transaction intended to impede or interfere with the Merger or the other transactions contemplated by the Merger Agreement or the performance of such stockholders under the Voting Agreement.
The Voting Agreement will terminate upon the earliest to occur of (i) the Effective Time, (ii) the termination of the Merger Agreement in accordance with its terms, (iii) the amending of the Merger Agreement without the prior consent of the Centerbridge Stockholders in a manner that (a) decreases the Per Share Merger Consideration, (b) changes the form of consideration payable under the Merger Agreement to the Centerbridge Stockholders, (c) imposes any additional material restrictions on or additional conditions on the payment of the Per Share Merger Consideration to ARA’s stockholders, (d) imposes any additional material restrictions or obligations on the Centerbridge Stockholders, or (e) otherwise materially and adversely affects the Centerbridge Stockholders, (iv) the Centerbridge Stockholders and IRC mutually agreeing to such termination, (v) the conclusion of the vote in favor of the adoption and approval of the Merger Agreement and the transactions contemplated thereby and the shares held by the Centerbridge Stockholders having been voted as specified therein, or (vi) a Change of Recommendation (as defined in the section entitled “The Merger Agreement—Other Covenants and Agreements—No Solicitation of Other Proposals; Change of Recommendation” of this Proxy Statement, below).
What vote is required to approve the Adjournment Proposal?
The affirmative vote of the holders of a majority of the voting power of the shares of our Common Stock present in person or represented by proxy and entitled to vote at the Special Meeting is required to approve the Adjournment Proposal.
The failure of any stockholder of record to submit a signed proxy card, grant a proxy electronically over the Internet or by telephone or to vote electronically at the Special Meeting will not have an effect on the Adjournment Proposal. If you hold your shares in “street name,” the failure to instruct your broker, bank or other nominee on how to vote your shares will not have an effect on the Adjournment Proposal. Abstentions will have the same effect as a vote “AGAINST” the Adjournment Proposal.
What is an abstention and how will abstentions be treated?
An “abstention” represents a stockholder’s affirmative choice to decline to vote on a proposal. Abstentions are counted as present and entitled to vote for purposes of determining a quorum at the Special Meeting. Abstentions will have the same effect as a vote “AGAINST” each of the Merger Proposal and the Adjournment Proposal.
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What is a “broker non-vote”?
A broker non-vote occurs when shares held through a broker are voted on certain proposals but are not voted on other proposals because the broker (i) has not received voting instructions from the stockholder who beneficially owns the shares and (ii) lacks the authority to vote the shares at the broker’s discretion on such proposals. Under New York Stock Exchange rules, the Merger Proposal and the Adjournment Proposal are considered to be non-routine matters, and brokers will lack the authority to vote uninstructed shares at their discretion on such proposals. Accordingly, we do not expect any broker non-votes at the Special Meeting. Broker non-votes, if any, will have the same effect as a vote “AGAINST” the Merger Proposal, but will not have an effect on the Adjournment Proposal.
How are votes counted?
For both the Merger Proposal and the Adjournment Proposal, you may vote “FOR,” “AGAINST” or “ABSTAIN.” Abstentions will have the same effect as a vote “AGAINST” each of the Merger Proposal and the Adjournment Proposal. The failure of any stockholder of record to submit a signed proxy card, grant a proxy electronically over the Internet or by telephone or to vote electronically at the Special Meeting will have the same effect as a vote “AGAINST” the Merger Proposal. If you hold your shares in “street name,” the failure to instruct your broker, bank or other nominee on how to vote your shares will have the same effect as a vote “AGAINST” the Merger Proposal, but will not have an effect on the Adjournment Proposal.
What if I return a proxy card or otherwise vote but do not make specific choices?
If you complete and submit your proxy card, the individuals named as proxies will follow your instructions. If you are a stockholder of record and you submit your proxy card but do not direct how to vote on each proposal, the individuals named as proxies will vote as the Board recommends on each proposal. The individuals named as proxies will vote on any other matters properly presented at the Special Meeting in accordance with their best judgment.
How does the Board recommend that I vote?
The Board recommends that you vote your shares:
FOR” the approval of the Merger Proposal; and
FOR” the approval of Adjournment Proposal.
Who will count the vote?
Representatives of Computershare will tabulate the votes and act as inspectors of election.
Why did the Board decide to adopt an online format for the Special Meeting?
After consideration of the appropriate format of our Special Meeting, the Board chose a virtual meeting format for the Special Meeting in an effort to facilitate stockholder attendance and participation by enabling stockholders to participate fully, and equally, from any location around the world, at no cost. The virtual meeting format will allow our stockholders to engage with us at the Special Meeting from any geographic location, using any convenient Internet-connected devices, be it a phone, tablet or computer. We will be able to engage with all stockholders as opposed to just those who can afford to travel to Beverly, Massachusetts to attend an in-person meeting. During the current outbreak of the novel coronavirus (COVID-19), a virtual meeting reduces the costs and health risks associated with holding an in-person meeting and prioritizes the health and well-being of employees, stockholders and other community members.
How do I attend and vote at the Special Meeting?
Stockholders of record at the close of business on the Record Date will be able to attend the Special Meeting, vote, and submit questions during the Special Meeting by visiting www.meetingcenter.io/247826643 at the meeting date and time. We encourage you to access the Special Meeting prior to the start time. Online access will begin at 8:45 a.m., Eastern Time. The two items of information needed to access the Special Meeting from the website are the following:
Username: the 15-digit control number located in the shaded bar on the proxy card
Meeting password: ARA2020
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Please have the proxy card in hand when you access the website and then follow the instructions. If you are a stockholder of record, you are already registered for the virtual meeting. If you hold your shares beneficially in street name, you must register in advance to attend the virtual meeting, vote and submit questions. To register in advance you must obtain a legal proxy from the broker, bank, or other nominee that holds your shares giving you the right to vote the shares. You must forward a copy of the legal proxy along with your email address to Computershare. Requests for registration should be directed to:
Computershare
American Renal Associates Holdings, Inc. Legal Proxy
P.O. Box 43001
Providence, RI 02940-3001
Requests for registration must be labeled as “Legal Proxy” and be received no later than 5:00 p.m., Eastern Time, on January 4, 2021. Even if you plan to attend the Special Meeting, we recommend that you also submit your proxy or voting instructions as described below so that your vote will be counted if you later decide not to attend the meeting.
Stockholders of record and beneficial owners who duly registered to attend the Special Meeting will be able to vote their shares and submit questions at any time during the virtual meeting by following the instructions on the website above.
If you have technical difficulties or trouble accessing the virtual meeting at any time after online access commences at 8:45 a.m., Eastern Time, on the date of the Special Meeting, please access the support link provided on the website.
How do I vote my shares without attending the Special Meeting?
Stockholder of Record: Shares Registered in Your Name
If you are a stockholder of record, you may authorize a proxy to vote on your behalf at the Special Meeting. Specifically, you may authorize a proxy:
By Internet—You may submit your proxy by going to www.investorvote.com/ARA and by following the instructions on how to complete an electronic proxy card. You will need the 15-digit number included on your proxy card in order to vote by Internet.
By Telephone—You may submit your proxy by dialing 1-800-652-8683 and by following the recorded instructions. You will need the 15-digit number included on your proxy card in order to vote by telephone.
By Mail—You may vote by mail by signing and dating the enclosed proxy card where indicated and by returning the card in the postage-paid envelope provided to you. You should sign your name exactly as it appears on the proxy card. If you are signing in a representative capacity (for example, as guardian, executor, trustee, custodian, attorney or officer of a corporation), indicate your name and title or capacity. Proxy cards with respect to shares held of record must be received no later than 5:00 p.m. Eastern Time on January 13, 2021.
Beneficial Owner: Shares Registered in the Name of Broker, Bank or Other Nominee
If you are a beneficial owner of shares registered in the name of your broker, bank or similar organization, you should have received voting instructions from that organization rather than from us. Simply complete and mail the voting instruction form to ensure that your vote is counted. Alternatively, you may vote by telephone or over the Internet as instructed by your broker, bank or other nominee. Follow the instructions from your broker, bank or other nominee included with this Proxy Statement, or contact your broker, bank or other nominee to request a proxy form.
What does it mean if I receive more than one proxy card on or about the same time?
It generally means you hold shares registered in more than one account. To ensure that all your shares are voted, please vote once for each proxy card you receive.
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May I change my vote or revoke my proxy?
Whether you have voted by Internet, telephone or mail, if you are a stockholder of record, you may change your vote and revoke your proxy by:
voting by Internet or telephone at a later time than your previous vote and prior to the vote at the Special Meeting;
mailing a properly signed proxy card that has a later date than your previous vote and that is received no later than 5:00 p.m. Eastern Time on January 13, 2021;
delivering, by no later than 5:00 p.m. Eastern Time on January 13, 2021, a written statement to that effect to our Secretary at our offices at American Renal Associates Holdings, Inc., 500 Cummings Center, Suite 6550, Beverly, Massachusetts 01915, prior to your shares being voted; or
attending the Special Meeting and voting. Any stockholder of record as of the Record Date attending the Special Meeting may vote his or her shares electronically at the Special Meeting, whether or not a proxy has been previously given, but the presence (without further action) of a stockholder at the Special Meeting will not constitute revocation of a previously given proxy.
If your shares are held by your broker, bank or similar organization, please refer to information from that organization on how to revoke or submit new voting instructions.
Please note that if you want to revoke your proxy by mailing a new proxy card to ARA or by sending a written notice of revocation to ARA, you should ensure that you send your new proxy card or written notice of revocation in sufficient time for it to be received by ARA before the Special Meeting. Please note that to be effective, your new proxy card, Internet or telephonic voting instructions or written notice of revocation must be received by our Secretary prior to the Special Meeting and, in the case of Internet or telephonic voting instructions, must be received before 5:00 p.m. Eastern Time on January 13, 2021.
Could other matters be decided at the Special Meeting?
As of the date of this Proxy Statement, we do not know of any matters to be raised at the Special Meeting other than the Merger Proposal and the Adjournment Proposal. If other matters are properly presented at the Special Meeting for consideration and you are a stockholder of record and have voted by Internet, telephone or mail, the named proxies will have the discretion to vote on those matters for you.
Who will pay for the cost of this proxy solicitation?
ARA will pay the cost of soliciting proxies. Proxies may be solicited on our behalf by our directors, officers or employees (for no additional compensation) in person or by telephone, e-mail or other means of communication. Brokers and other nominees will be requested to solicit proxies or authorizations from beneficial owners and will be reimbursed for their reasonable expenses.
What happens if I do not vote?
The required vote to approve the Merger Proposal is based on the total number of shares of Common Stock outstanding and entitled to vote as of the close of business on the Record Date, not just the shares that are voted at the Special Meeting. If you do not vote, it will have the same effect as a vote “AGAINST” the Merger Proposal.
The required vote to approve the Adjournment Proposal is based on the total number of shares that are present in person or represented by proxy and entitled to vote at the Special Meeting. As a result, if a quorum is otherwise present but you are not present in person or represented by proxy and do not vote, it will not have an effect on the Adjournment Proposal.
What is the deadline for voting my shares?
If you hold shares as the stockholder of record, your vote must be received before the polls close during the Special Meeting. Internet and telephone voting by proxy will close at 11:59 p.m., Eastern Time, on January 13, 2021, the day before the Special Meeting.
If you are the beneficial owner of shares held through a broker, bank or other nominee, please follow the voting instructions provided by your broker, trustee or nominee.
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What is a proxy?
A proxy is your legal designation of another person, referred to as a “proxy,” to vote your shares of Common Stock. The written document describing the matters to be considered and voted on at the Special Meeting is called a “proxy statement.” The document used to designate a proxy to vote your shares of Common Stock is called a “proxy card.”
If a stockholder gives a proxy, how are the shares voted?
Regardless of the method you choose to vote, the individuals named on the enclosed proxy card, known as your proxies, will vote your shares in the way that you indicate. When completing the Internet or telephone process, or when filling out your proxy card, you may specify whether your shares should be voted “FOR” or “AGAINST” or to abstain from voting on all, some or none of the specific items of business to come before the Special Meeting.
If you properly submit a proxy but do not indicate how your shares should be voted on a matter, the shares represented by your properly signed proxy will be voted “FOR” each of the Merger Proposal and the Adjournment Proposal, in accordance with the recommendations of the Board.
Is my vote confidential?
Proxy instructions, ballots and voting tabulations that identify individual stockholders are handled in a manner that protects your voting privacy. Your vote will not be disclosed, either within ARA or to third parties, except: (i) as necessary to meet applicable legal requirements; (ii) to allow for the tabulation of votes and certification of the votes; and (iii) to facilitate a successful proxy solicitation. Occasionally, stockholders provide written comments on their proxy card, which are then forwarded to management.
What if I do not specify how my shares are to be voted?
If you properly submit a proxy but do not indicate how your shares should be voted on a matter, the shares represented by your properly signed proxy will be voted “FOR” each of the Merger Proposal and the Adjournment Proposal, in accordance with the recommendations of the Board.
What happens if I sell or otherwise transfer my shares of Common Stock before the consummation of the Merger?
If you sell or transfer your shares of our Common Stock before the consummation of the Merger, you will have transferred your right to receive the Per Share Merger Consideration, without interest and less any applicable withholding taxes, in the Merger. You will also lose the right to demand appraisal in connection with the Merger. In order to receive the Per Share Merger Consideration, without interest and less any applicable withholding taxes, you must hold your shares of our Common Stock through consummation of the Merger.
The Record Date for stockholders entitled to vote at the Special Meeting is earlier than the date the Merger is anticipated to be consummated. Accordingly, if you sell or transfer your shares of Common Stock after the Record Date but before the Special Meeting, unless special arrangements (such as provision of a proxy) are made between you and the person to whom you sell or otherwise transfer your shares and each of you notifies ARA in writing of such special arrangements, you will transfer the right to receive the Per Share Merger Consideration, without interest and less any applicable withholding taxes, if the Merger is consummated, to the person to whom you sell or transfer your shares of our Common Stock, but you will have retained your right to vote these shares at the Special Meeting. Even if you sell or otherwise transfer your shares of Common Stock after the Record Date, we encourage you to complete, date, sign and return the enclosed proxy card or vote your shares via the Internet or telephone.
When do you expect the Merger to be consummated?
We currently anticipate that the Merger will be consummated in the first quarter of 2021, assuming satisfaction or waiver of all of the conditions to the Merger. However, because the Merger is subject to certain conditions, it is possible that factors outside the control of ARA and IRC could result in the Merger being consummated at a later time or not at all.
What effects will the Merger have on ARA?
We are currently registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and our Common Stock is listed on New York Stock Exchange under the symbol “ARA”. If the Merger is consummated, ARA will cease to be a publicly traded company and will become a wholly owned subsidiary of IRC, and our Common Stock will be delisted from the New York Stock Exchange and deregistered under the Exchange Act.
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What happens if the Merger is not consummated?
If the Merger Proposal is not approved by our stockholders or if the Merger is not consummated for any other reason, ARA stockholders will retain their shares of our Common Stock and will not receive any payment for such shares. Instead, ARA will remain a publicly traded company, our Common Stock will continue to be listed and traded on the New York Stock Exchange, and we will continue to be registered under the Exchange Act and file periodic reports with the SEC.
Furthermore, if the Merger is not consummated, and depending on the circumstances that would have caused the Merger not to be consummated, it is possible that the price of our Common Stock may decline significantly. If that were to occur, it is uncertain when, if ever, the price of our Common Stock would return to the price at which it trades as of the date of this Proxy Statement.
Under specified circumstances, we may be required to pay IRC a termination fee, or may be entitled to receive a reverse termination fee from IRC, upon the termination of the Merger Agreement as described in the section entitled “The Merger Agreement—Termination Fees” of this Proxy Statement.
Do any directors or executive officers have interests in the Merger that may differ from those of ARA stockholders generally?
In considering the recommendation of the Board with respect to the Merger Proposal, you should be aware that our directors and executive officers may have interests in the Merger that are different from, or in addition to, your interests as a stockholder. The Board was aware of these interests and considered them, among other matters, in evaluating and approving the Merger Agreement and the Merger and in recommending that the Merger Proposal be approved by our stockholders. For a description of the interests of our directors and executive officers in the Merger, see “The Merger—Interests of the Directors and Executive Officers of ARA in the Merger.
Will I be subject to U.S. federal income tax upon the exchange of Common Stock for cash pursuant to the Merger?
The exchange of our Common Stock for cash pursuant to the Merger generally will require a “U.S. Holder” (as defined in the section entitled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” of this Proxy Statement, below) to recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the amount of cash received by such U.S. Holder pursuant to the Merger (determined before deduction for any applicable withholding taxes) and such U.S. Holder’s adjusted tax basis in the shares of our Common Stock surrendered pursuant to the Merger. A “Non-U.S. Holder” (as defined in the section entitled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” of this Proxy Statement, below) generally will not be subject to U.S. federal income tax with respect to the exchange of our Common Stock for cash in the Merger unless such Non-U.S. Holder has certain connections to the United States. We recommend that you consult your own tax advisor to determine the U.S. federal income tax consequences relating to the Merger in light of your own particular circumstances and any consequences arising under the laws of any state, local or foreign taxing jurisdiction or other tax laws. A further discussion of the material U.S. federal income tax consequences of the Merger for holders of Common Stock is provided in the section entitled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger.
What will the holders of ARA stock options, restricted stock and restricted stock unit awards receive in the Merger?
Immediately prior to the Effective Time, each option to purchase shares of our Common Stock that is outstanding and unexercised immediately prior to the Effective Time will be cancelled and converted into the right to receive a cash payment equal to the product of the total number of shares of our Common Stock underlying the option multiplied by the excess, if any, of the Per Share Merger Consideration over the applicable per share exercise price of the option, less applicable withholding taxes. Options with a per share exercise price equal to or exceeding the Per Share Merger Consideration will be cancelled without payment.
Immediately prior to the Effective Time, each award of restricted stock and restricted stock units covering shares of our Common Stock that is outstanding immediately prior to the Effective Time will vest in full (to the extent unvested) and will be cancelled and converted into the right to receive a cash payment equal to the product of the Per Share Merger Consideration and the aggregate number of shares of our Common Stock subject to the award, less applicable withholding taxes.
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Am I entitled to appraisal rights instead of receiving the Per Share Merger Consideration for my shares of Common Stock under the DGCL?
Yes. As a holder of Common Stock, you are entitled to exercise appraisal rights under Section 262 of the DGCL in connection with the Merger if you take certain actions and meet certain conditions. Under the DGCL, stockholders who do not vote for the adoption of the Merger Agreement have the right to seek appraisal of the fair value of their shares of Common Stock as determined by the Delaware Court of Chancery, but only if they comply fully with all applicable requirements of the DGCL, which are summarized in this Proxy Statement. Any appraisal amount determined by the court could be more than, the same as, or less than the value of the Per Share Merger Consideration. Any stockholder intending to exercise appraisal rights must, among other things, submit a written demand for appraisal to ARA before the vote on the adoption of the Merger Agreement and must not vote or otherwise submit a proxy in favor of adoption of the Merger Agreement. Failure to follow exactly the procedures and requirements specified under the DGCL will result in the loss of appraisal rights. The discussion of appraisal rights contained in this Proxy Statement is not a complete statement of the law pertaining to appraisal rights under the DGCL and is qualified in its entirety by the full text of Section 262, which is attached to this Proxy Statement as Appendix C. Because of the complexity of the DGCL relating to appraisal rights, if you are considering exercising your appraisal rights, we encourage you to seek the advice of your own legal counsel. See the section entitled “The Merger—Appraisal Rights” of this Proxy Statement.
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THE COMPANIES
American Renal Associates Holdings, Inc.
ARA is a Delaware corporation with principal executive offices located at 500 Cummings Center, Suite 6550, Beverly, Massachusetts 01915, telephone number (978) 922-3080. ARA is a leading provider of outpatient dialysis services in the United States for patients suffering from chronic kidney failure (also known as end stage renal disease) and other kidney diseases. As of September 30, 2020, ARA operated 248 dialysis clinic locations in 27 States and the District of Columbia serving approximately 16,900 patients. ARA operates principally through a physician partnership model, in which it partners with local nephrologists to develop, own and operate dialysis clinics. ARA’s Core Values emphasize taking good care of patients, providing physicians with clinical autonomy and support, hiring the best possible staff and providing best practices management. Our Common Stock is listed on the New York Stock Exchange under the symbol “ARA”. Additional information about ARA is contained in certain of its public filings that are incorporated by reference herein. See the section entitled “Where You Can Find More Information” of this Proxy Statement.
IRC Superman Midco, LLC
IRC is a Delaware limited liability company and affiliate of Nautic Partners, LLC (“Nautic”), a middle-market private equity firm with a history of investing in healthcare businesses, and Innovative Renal Care, LLC (“Innovative Renal Care”), a platform entity funded by Nautic focused on building a more integrated and patient-centric kidney care business. IRC’s mailing address is IRC Superman Midco, LLC c/o Nautic Partners, 50 Kennedy Plaza, 17th Floor, Providence, RI 02903, telephone number: (401) 278-6387. Innovative Renal Care’s offices are located at 3102 West End Avenue, Suite 1100, Nashville, TN 37203.
Superman Merger Sub, Inc.
Merger Sub is a Delaware corporation and a wholly owned subsidiary of IRC. It was formed on September 28, 2020 solely for the purpose of entering into the Merger Agreement and effecting the transactions contemplated thereby, including the Merger. Merger Sub’s mailing address is Superman Merger Sub, Inc. c/o Nautic Partners, 50 Kennedy Plaza, 17th Floor, Providence, RI 02903, telephone number: (401) 278-6387.
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THE SPECIAL MEETING
We are furnishing this Proxy Statement to the ARA stockholders as part of the solicitation of proxies by the Board for use at the Special Meeting or any adjournment or postponement thereof. This Proxy Statement provides the ARA stockholders with the information they need to know to be able to vote or instruct their vote to be cast at the Special Meeting or any adjournment or postponement thereof.
DATE AND TIME OF THE SPECIAL MEETING
This Proxy Statement is being furnished to our stockholders as part of the solicitation of proxies by the Board for use at the Special Meeting to be held on Thursday, January 14, 2021 at 9:00 a.m., Eastern Time, or at any adjournment or postponement thereof. The Special Meeting will be held online at www.meetingcenter.io/247826643.
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, we will ask our stockholders of record as of the Record Date to vote on (i) the Merger Proposal and (ii) Adjournment Proposal. If our holders of Common Stock fail to adopt the Merger Agreement by approving the Merger Proposal, the Merger will not occur. A copy of the Merger Agreement is attached to this Proxy Statement as Appendix A, and the material provisions of the Merger Agreement are described under the section entitled “The Merger Agreement” of this Proxy Statement.
This Proxy Statement and the enclosed form of proxy are first being mailed to our stockholders on or about December 15, 2020.
RECORD DATE; SHARES ENTITLED TO VOTE; QUORUM
Only stockholders of record as of the close of business on December 4, 2020, the Record Date for the Special Meeting, are entitled to notice of and to vote at the Special Meeting or any adjournments or postponements thereof. A list of stockholders entitled to vote at the Special Meeting will be available in our offices located at 500 Cummings Center, Suite 6550, Beverly, Massachusetts 01915, during regular business hours for a period of at least 10 days before the Special Meeting and will be available on the Special Meeting website at www.meetingcenter.io/247826643 during the Special Meeting.
As of the Record Date, there were 34,543,295 shares of our Common Stock outstanding and entitled to vote at the Special Meeting.
A quorum of stockholders is necessary to transact business at the Special Meeting. Our Amended and Restated Bylaws (the “Bylaws”) provide that the presence at the Special Meeting, by remote communication (if authorized by the Board) or represented by proxy, of the holders of record of a majority of the shares of our Common Stock outstanding and entitled to vote at the meeting (17,271,648 shares) will constitute a quorum for ARA to transact business at the Special Meeting. In general, shares of our Common Stock represented by a properly signed and returned proxy card will be counted as shares present and entitled to vote at the Special Meeting for purposes of determining a quorum. Shares represented by proxies received but marked “ABSTAIN” will be included in the calculation of the number of shares considered to be present at the Special Meeting for purposes of determining a quorum. If you hold your shares of Common Stock in “street name” and you fail to provide your broker, bank or nominee with instructions how to vote such shares of Common Stock on any of the proposals before the Special Meeting, your shares of Common Stock will not be deemed to be present at the Special Meeting for quorum purposes. If you provide your broker, bank or nominee with instructions how to vote on one but not all of the proposals before the Special Meeting, your shares of Common Stock will be deemed to be present at the Special Meeting for quorum purposes.
In the event that a quorum is not present at the Special Meeting, it is expected that the meeting would be adjourned to a later date to solicit additional proxies, and a quorum will have to be established at such adjourned date.
VOTE REQUIRED
Each share of Common Stock issued and outstanding as of the close of business on the Record Date is entitled to one vote at the Special Meeting.
Approval of the Merger Proposal requires the affirmative vote of the holders of a majority of the shares of our Common Stock outstanding and entitled to vote as of the close of business on the Record Date. Adoption of the Merger Agreement by our stockholders is a condition to the closing of the Merger.
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Approval of the Adjournment Proposal requires the affirmative vote of the holders of our Common Stock representing a majority of the voting power of the shares of our Common Stock present in person or represented by proxy and entitled to vote on the matter at the Special Meeting.
The failure of any ARA stockholder of record to submit a signed proxy card, grant a proxy electronically over the Internet or by telephone or to vote electronically at the Special Meeting will have the same effect as a vote “AGAINST” the Merger Proposal. For shares held in “street name,” the failure of any ARA stockholder to instruct the broker, bank or other nominee on how to vote such shares of Common Stock will have the same effect as a vote “AGAINST” the Merger Proposal. Abstentions will have the same effect as a vote “AGAINST” the Merger Proposal.
The failure of any ARA stockholder of record to submit a signed proxy card, grant a proxy electronically over the Internet or by telephone or to vote electronically at the Special Meeting will not have an effect on the Adjournment Proposal. For shares held in “street name,” the failure of any ARA stockholder to instruct the broker, bank or other nominee on how to vote such shares of Common Stock will not have an effect on the Adjournment Proposal. Abstentions will have the same effect as a vote “AGAINST” the Adjournment Proposal.
SHARES HELD BY DIRECTORS AND EXECUTIVE OFFICERS
As of the close of business on the Record Date, directors and executive officers of ARA and their affiliates beneficially owned and were entitled to vote, in the aggregate, 2,162,656 shares of our Common Stock, which represented approximately 6.3% of the shares of our Common Stock that would have been entitled to vote at the Special Meeting if held as of that date. Our directors and executive officers have informed us that they currently intend to vote all of their shares of Common Stock (i) “FOR” the Merger Proposal and (ii) “FOR” the Adjournment Proposal, although none of them is obligated to do so.
On October 1, 2020, certain direct and indirect stockholders of ARA representing ownership of approximately 51% of the outstanding shares of our Common Stock (the “Centerbridge Stockholders”), entered into the Voting and Support Agreement with IRC, pursuant to which, among other things and subject to the terms and conditions therein, such stockholders agreed to vote their shares of our Common Stock in favor of the Merger Proposal and against any alternative proposal (including an Acquisition Proposal (as defined in the section entitled “The Merger Agreement—Stockholders Meeting and Related Actions” of this Proxy Statement, below)) or any other action, agreement or transaction intended to impede or interfere with the Merger or the other transactions contemplated by the Merger Agreement or the performance of such stockholders under the Voting Agreement.
VOTING; PROXIES
Attendance
Stockholders of record at the close of business on the Record Date will be able to attend the Special Meeting, vote, and submit questions during the Special Meeting by visiting www.meetingcenter.io/247826643 at the meeting date and time. We encourage you to access the Special Meeting prior to the start time. Online access will begin at 8:45 a.m., Eastern Time. The two items of information needed to access the Special Meeting from the website are the following:
Username: the 15-digit control number located in the shaded bar on the proxy card
Meeting password: ARA2020
Please have the proxy card in hand when you access the website and then follow the instructions. If you are a stockholder of record, you are already registered for the virtual meeting. If you hold your shares beneficially in street name, you must register in advance to attend the virtual meeting, vote and submit questions. To register in advance you must obtain a legal proxy from the broker, bank, or other nominee that holds your shares giving you the right to vote the shares. You must forward a copy of the legal proxy along with your email address to Computershare. Requests for registration should be directed to:
Computershare
American Renal Associates Holdings, Inc. Legal Proxy
P.O. Box 43001
Providence, RI 02940-3001
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Requests for registration must be labeled as “Legal Proxy” and be received no later than 5:00 p.m., Eastern Time, on January 4, 2021. Even if you plan to attend the virtual meeting, we recommend that you also submit your proxy or voting instructions as described above so that your vote will be counted if you later decide not to attend the meeting.
Stockholders of record and beneficial owners who duly registered to attend the Special Meeting will be able to vote their shares and submit questions at any time during the virtual meeting by following the instructions on the website above.
If you have technical difficulties or trouble accessing the virtual meeting at any time after online access commences at 8:45 a.m., Eastern Time, on the date of the Special Meeting, please access the support link provided on the website.
Providing Voting Instructions by Proxy
To ensure that your shares of Common Stock are voted at the Special Meeting, we recommend that you provide voting instructions by proxy as soon as possible, whether or not you plan to attend the virtual Special Meeting.
Shares of Common Stock Held by a Record Holder
If you are a stockholder of record and your shares of Common Stock are registered in your name with our transfer agent, Computershare, you may provide voting instructions by proxy using one of the methods described below.
Submit a Proxy by Telephone or via the Internet. This Proxy Statement is accompanied by a proxy card with instructions for submitting voting instructions. You may vote by telephone by calling the toll-free number or via the Internet by accessing the Internet address as specified on the enclosed proxy card. Your shares of Common Stock will be voted as you direct in the same manner as if you had completed, signed, dated and returned your proxy card, as described below. You must have the enclosed proxy card available, and follow the instructions on the proxy card, in order to submit a proxy electronically over the Internet or by telephone.
Submit a Proxy Card. If you complete, sign, date and return the enclosed proxy card by mail so that it is received in time for the Special Meeting, your shares of Common Stock will be voted in the manner directed by you on your proxy card.
Voting instructions are included on your proxy card. All shares represented by properly executed proxies received in time for the Special Meeting will be voted at the Special Meeting in accordance with the instructions of the stockholder. If you sign, date and return your proxy card without indicating how you wish to vote, your proxy will be voted “FOR” each of the Merger Proposal and the Adjournment Proposal. If you fail to return your proxy card and you are a holder of record as of the close of business on the Record Date, the effect of such failure to vote will be that your shares of Common Stock will not be considered present at the Special Meeting for purposes of determining whether a quorum is present at the Special Meeting, will have the same effect as a vote “AGAINST” the Merger Proposal and will not have an effect on the vote regarding the Adjournment Proposal.
Shares of Common Stock Held in “Street Name”
If your shares of Common Stock are held in “street name” through a broker, bank or other nominee, your broker, bank or other nominee will send you instructions as to how to provide voting instructions for your shares. You may vote through your broker, bank or other nominee by completing and returning the voting instruction form provided by your broker, bank or other nominee, or over the Internet or by telephone through your broker, bank or other nominee if such a service is provided by them to you. To vote via the Internet or telephone through your broker, bank or other nominee, you should follow the instructions on the voting form provided by your broker, bank or other nominee.
Under applicable stock exchange rules, banks, brokers or other nominees have the discretion to vote your shares on “routine” matters if you fail to instruct your broker, bank or other nominee on how to vote your shares with respect to such matters. Each of the Merger Proposal and the Adjournment Proposal are “non-routine” matters. Therefore, your broker, bank or other nominee cannot vote on these proposals without your instructions. If you hold your shares of Common Stock in “street name” and you fail to instruct your broker, bank or other nominee on how to vote your shares, this will have the same effect as a vote “AGAINST” the Merger Proposal but will not have an effect on the Adjournment Proposal, and such shares will not be deemed to be present at the Special Meeting for quorum purposes. Abstentions will have the same effect as a vote “AGAINST” the Merger Proposal and the Adjournment Proposal but will be deemed to be present at the Special Meeting for quorum purposes.
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REVOCABILITY OF PROXIES
Whether you have voted by Internet, telephone or mail, if you are a stockholder of record, you may change your vote and revoke your proxy by:
voting by Internet or telephone at a later time than your previous vote and prior to the vote at the Special Meeting;
mailing a properly signed proxy card that has a later date than your previous vote and that is received no later than 5:00 p.m. Eastern Time on January 13, 2021;
delivering, by no later than 5:00 p.m. Eastern Time on January 13, 2021, a written statement to that effect to our Secretary at our offices at American Renal Associates Holdings, Inc., 500 Cummings Center, Suite 6550, Beverly, Massachusetts 01915, prior to your shares being voted; or
attending the Special Meeting and voting. Any stockholder of record as of the Record Date attending the Special Meeting may vote his or her shares electronically at the Special Meeting, whether or not a proxy has been previously given, but the presence (without further action) of a stockholder at the Special Meeting will not constitute revocation of a previously given proxy.
If your shares of Common Stock are held in “street name” by your broker, bank or similar organization, please refer to information from that organization on how to revoke or submit new voting instructions.
Please note that if you want to revoke your proxy by mailing a new proxy card to ARA or by sending a written notice of revocation to ARA, you should ensure that you send your new proxy card or written notice of revocation in sufficient time for it to be received by ARA before the Special Meeting. Please note that to be effective, your new proxy card, Internet or telephonic voting instructions or written notice of revocation must be received by our Secretary prior to the Special Meeting and, in the case of Internet or telephonic voting instructions, must be received before 5:00 p.m. Eastern Time on January 13, 2021.
ABSTENTIONS
An abstention occurs when a stockholder attends a meeting, either by remote communication or represented by proxy, but does not vote or affirmatively votes “ABSTAIN” on a proposal. Abstentions will be included in the calculation of the number of shares of Common Stock represented at the Special Meeting for purposes of determining whether a quorum has been achieved. Abstaining from voting will have the same effect as a vote “AGAINST” the Merger Proposal and the Adjournment Proposal.
ADJOURNMENTS AND POSTPONEMENTS
Although it is not currently expected, subject to certain restrictions in the Merger Agreement, the Special Meeting may be adjourned or postponed for the purpose of soliciting additional proxies. Under our Bylaws, the Special Meeting may be postponed by the Board at any time in advance of the meeting, or by the chairperson of the Special Meeting, whether or not a quorum is present. If the Board fixes a new record date for the adjourned meeting, or if the adjournment is for more than 30 days, a notice of the adjourned meeting will be given to each stockholder of record entitled to vote at the adjourned meeting as of such new record date. In addition, the Board could postpone the Special Meeting before it commences. If the Special Meeting is adjourned or postponed to solicit additional proxies, stockholders who have already submitted their proxies will be able to revoke them at any time prior to their use at the Special Meeting as so adjourned or postponed.
In the event that there is present at the Special Meeting, by remote communication or represented by proxy, sufficient favorable voting power to secure the vote of our stockholders necessary to adopt the Merger Agreement by approving the Merger Proposal, we do not anticipate that we will adjourn or postpone the Special Meeting.
BOARD RECOMMENDATION
The Board, after considering various factors described under the section entitled “The Merger—Recommendation of the Board and Reasons for the Merger” of this Proxy Statement, unanimously determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable, fair to and in the best interests of ARA and its stockholders, and directed that the adoption of the Merger Agreement and the approval of the transactions contemplated thereby, including the Merger, be submitted to the stockholders of ARA for their adoption.
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The Board unanimously recommends that you vote (i) “FOR” the Merger Proposal and (ii) “FOR” the Adjournment Proposal.
SOLICITATION OF PROXIES
The Board is soliciting your proxy, and we will bear the cost of this solicitation of proxies, including the preparation, assembly and mailing of the proxies and soliciting material, as well as the charges and expenses of brokerage firms and others for forwarding solicitation material to beneficial owners of our Common Stock.
Proxies may be solicited by mail, personal interview, e-mail, telephone, facsimile or via the Internet, without additional compensation, by certain of ARA’s directors, officers and employees.
ANTICIPATED DATE OF CONSUMMATION OF THE MERGER
We currently anticipate that the Merger will be consummated no later than the first quarter of 2021, assuming satisfaction or waiver of all of the conditions to the Merger. However, because the Merger is subject to certain conditions, it is possible that factors outside the control of ARA and IRC could result in the Merger being consummated at a later time or not at all.
HOUSEHOLDING OF SPECIAL MEETING MATERIALS
Some banks, brokers and other nominees may be participating in the practice of “householding” proxy statements. This means that only one copy of this Proxy Statement may have been sent to multiple stockholders in each household. We will promptly deliver a separate copy of this Proxy Statement to any stockholder upon written or oral request to American Renal Associates Holdings, Inc., Attention: Corporate Secretary, 500 Cummings Center, Suite 6550, Beverly, Massachusetts 01915, telephone: (978) 922-3080. Any stockholder who wants to receive separate copies of proxy materials in the future, or any stockholder who is receiving multiple copies and would like to receive only one copy per household, should contact such stockholder’s broker, bank or other nominee, or the stockholder may contact ARA at the above address and phone number.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Proxy Statement, the documents that we refer to in this Proxy Statement and information included in oral statements or other written statements made or to be made by us or on our behalf contains certain information, including financial estimates and statements as to, among other things, the expected timing, completion and effects of the proposed merger between ARA and IRC, which may constitute forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties, and actual results may materially differ. All statements other than statements of historical fact or relating to present facts or current conditions included in this Proxy Statement, the documents to which we refer in this Proxy Statement and information included in oral statements or other written statements made or to be made by us or on our behalf are forward-looking statements. Such forward-looking statements include, among others, ARA’s current expectations and projections relating to its financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “seek,” “plan,” “intend,” “believe,” “will,” “may,” “could,” “continue,” “likely,” “should” and other similar words.
The forward-looking statements contained in this Proxy Statement, the documents to which we refer in this Proxy Statement and information included in oral statements or other written statements made or to be made by us or on our behalf, including without limitation statements regarding the anticipated benefits and effects of the anticipated merger of ARA and IRC, are based on assumptions that ARA has made in light of its industry experience and its perceptions of historical trends, current conditions, expected future developments and other factors that ARA believes are appropriate under the circumstances. These statements are not guarantees of performance or results. These assumptions and ARA’s future performance or results involve risks and uncertainties, many of which are beyond ARA’s control. Such risks and uncertainties include, among others:
the inability to consummate the Merger within the anticipated time period, or at all, due to any reason, including the failure to obtain required regulatory approvals or the failure to satisfy the other conditions to the consummation of the Merger; the failure by IRC or Merger Sub to obtain the necessary debt and equity financing arrangements set forth in the commitment letters received in connection with the Merger;
the risk that the Merger Agreement may be terminated in circumstances requiring ARA to pay a termination fee;
the risk that the Merger disrupts ARA’s current plans and operations or diverts management’s attention from its ongoing business;
the effect of the announcement of the Merger on the ability of ARA to retain and hire key personnel and maintain relationships with its customers, suppliers, physician partners and others with whom it does business;
the effect of the announcement of the Merger on ARA’s operating results and business generally;
the amount of costs, fees and expenses related to the Merger;
the risk that ARA’s stock price may decline significantly if the Merger is not consummated;
the nature, cost and outcome of any litigation and other legal proceedings, including any such proceedings related to the Merger and instituted against ARA and others;
the effect of the ongoing COVID-19 pandemic and responses thereto;
the effect of the restatement of ARA’s previously issued financial results and related matters and the related investigation by the Securities and Exchange Commission (the “SEC”);
ARA’s ability to remediate material weaknesses in ARA’s internal control over financial reporting;
continuing decline in the number of patients with commercial insurance or any regulatory or other changes leading to changes in the ability of patients with commercial insurance coverage to receive charitable premium support;
decline in commercial payor reimbursement rates; reduction of government-based payor coverage and reimbursement rates or insufficient rate increases or adjustments that do not cover all of ARA’s operating costs;
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ARA’s ability to successfully develop de novo clinics, acquire existing clinics and attract new nephrologist partners;
ARA’s ability to compete effectively in the dialysis services industry; the performance of ARA’s joint venture subsidiaries and their ability to make distributions to ARA;
federal or state healthcare laws that could adversely affect ARA;
ARA’s ability to comply with all of the complex federal, state and local government regulations that apply to its business, including those in connection with federal and state anti-kickback laws and state laws prohibiting the corporate practice of medicine or fee-splitting;
heightened federal and state investigations and enforcement efforts;
changes in the availability and cost of erythropoietin-stimulating agents and other pharmaceuticals used in ARA’s business;
development of new technologies or government regulation that could decrease the need for dialysis services or decrease ARA’s in-center patient population;
ARA’s ability to timely and accurately bill for ARA’s services and meet payor billing requirements;
claims and losses relating to malpractice, professional liability and other matters; the sufficiency of ARA’s insurance coverage for those claims and rising insurances costs, and negative publicity or reputational damage arising from such matters;
loss of any members of ARA’s senior management;
damage to ARA’s reputation or ARA’s brand and ARA’s ability to maintain brand recognition;
ARA’s ability to maintain relationships with its medical directors and renew its medical director agreements;
shortages of qualified skilled clinical personnel, or higher than normal turnover rates; competition and consolidation in the dialysis services industry;
deterioration in economic conditions, particularly in states where we operate a large number of clinics, or disruptions in the financial markets or the effects of natural or other disasters, public health crises or adverse weather events;
the participation of ARA’s physician partners in material strategic and operating decisions and ARA’s ability to favorably resolve any disputes;
ARA’s ability to honor obligations under the joint venture operating agreements with its physician partners were they to exercise certain put rights and other rights;
unauthorized disclosure of personally identifiable, protected health or other sensitive or confidential information;
ARA’s ability to meet its obligations and comply with restrictions under its substantial level of indebtedness; and
the ability of ARA’s principal stockholder, whose interests may conflict with yours, to strongly influence or effectively control ARA’s corporate decisions.
For additional information, please see ARA’s filings with the SEC. Additional factors or events that could cause ARA’s actual performance to differ from these and other forward-looking statements may emerge from time to time, and it is not possible for ARA to predict all of them. Should one or more of these risks or uncertainties materialize, or should any of its assumptions prove incorrect, ARA’s actual financial condition, results of operations, future performance and business may vary in material respects from the performance projected in these forward-looking statements.
Any forward-looking statement made in this Proxy Statement, the documents to which we refer in this Proxy Statement and information included in oral statements or other written statements made or to be made by us or on our behalf speaks only as of the date on which it is made. ARA undertakes no obligation, and expressly disclaims any obligation, to update, alter or otherwise revise any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise, except as may be required by law.
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THE MERGER
This discussion of the Merger does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement, which is attached to this Proxy Statement as Appendix A and incorporated by reference into this Proxy Statement. You should read the entire Merger Agreement carefully as it is the legal document that governs the Merger.
CERTAIN EFFECTS OF THE MERGER ON ARA
If the Merger Agreement is adopted by the ARA stockholders and all other conditions to the closing of the Merger are either satisfied or waived, Merger Sub will merge with and into ARA, with ARA continuing as the surviving corporation and a wholly owned subsidiary of IRC.
At the Effective Time, each share of our Common Stock issued and outstanding immediately prior to the Effective Time (other than Cancelled Shares (as defined in the section entitled “Summary—Merger Consideration” of this Proxy Statement, above) and Dissenting Shares (as defined in the section entitled “General Information” of this Proxy Statement, below)) will be converted automatically into the right to receive the Per Share Merger Consideration (as defined in the section entitled “The Merger—Merger Consideration” of this Proxy Statement, below), without interest and less any applicable withholding taxes. If the Merger is consummated, you will no longer own any shares of capital stock of ARA as of the Effective Time.
Our Common Stock is currently registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and is listed on the New York Stock Exchange under the symbol “ARA”. If the Merger is consummated, ARA will cease to be a publicly traded company and will become a wholly owned subsidiary of IRC, and our Common Stock will be delisted from the New York Stock Exchange and deregistered under the Exchange Act.
EFFECT ON ARA IF THE MERGER IS NOT CONSUMMATED
If the Merger Agreement is not adopted by our stockholders or if the Merger is not consummated for any other reason, ARA stockholders will continue to hold their shares of Common Stock and will not receive any payment for such shares of Common Stock. Instead, ARA will remain a public company, our Common Stock will continue to be listed and traded on the New York Stock Exchange, and we will continue to be registered under the Exchange Act and file periodic reports with the Securities and Exchange Commission (the “SEC”).
Furthermore, if the Merger is not consummated, and depending on the circumstances that would have caused the Merger not to be consummated, it is possible that the price of our Common Stock may decline significantly. If that were to occur, it is uncertain when, if ever, the price of our Common Stock would return to the price at which it trades as of the date of this Proxy Statement.
Accordingly, if the Merger is not consummated, there can be no assurance as to the effect of these risks and opportunities on the future value of your shares of our Common Stock. If the Merger is not consummated, the Board will continue to evaluate and review our business operations, assets, operating results, financial condition, prospects and business strategy, among other things, and make such changes as are deemed appropriate and continue to seek to enhance stockholder value. If the Merger Agreement is not adopted by our stockholders or if the Merger is not consummated for any other reason, there can be no assurance that any other transaction acceptable to ARA or its stockholders will be offered or that our business, prospects or results of operations will not be adversely impacted.
In addition, under specified circumstances, we may be required to pay IRC a termination fee upon the termination of the Merger Agreement, as described under the section entitled “The Merger Agreement—Termination Fees” of this Proxy Statement.
MERGER CONSIDERATION
Upon consummation of the Merger, at the Effective Time, by virtue of the Merger and without any action on the part of IRC, Merger Sub or ARA or their respective stockholders, each outstanding share of our Common Stock (excluding Cancelled Shares and Dissenting Shares), will be converted into the right to receive $11.50 in cash (the “Per Share Merger Consideration”), without interest and less any applicable withholding taxes. From and after the Effective Time, all of the shares of Common Stock converted into the right to receive the Per Share Merger Consideration, without interest and less any applicable withholding taxes, will no longer be outstanding and will
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automatically be cancelled and retired and will cease to exist, and each holder of a Book-Entry Share outstanding immediately prior to the Effective Time previously representing any such shares of Common Stock will thereafter cease to have any rights with respect to such securities other than the right to receive, the Per Share Merger Consideration, without interest and less any applicable withholding taxes.
As described further under the section entitled “The Merger Agreement—Payment for Common Stock” of this Proxy Statement, prior to the Effective Time, IRC will deposit or cause to be deposited, with a recognized financial institution as paying agent (selected by IRC with ARA’s prior written approval), cash in an amount necessary to pay the aggregate Merger Consideration payable to all of the holders of Common Stock (including Book-Entry Shares but excluding Cancelled Shares) outstanding immediately prior to the Effective Time, and holders of ARA options, restricted stock unit awards and restricted stock awards. Promptly following the Effective Time and in any event no later than the second business day following the Effective Time, you will receive a letter of transmittal specifying instructions for transfer of your shares of Common Stock (including Book-Entry Shares but excluding Cancelled Shares) to the paying agent in order to receive the Per Share Merger Consideration, without interest and less any applicable withholding taxes, for each share of our Common Stock.
After the Merger is consummated, under the terms of the Merger Agreement, you will have the right to receive the Per Share Merger Consideration, without interest and less any applicable withholding taxes, but you will no longer have any rights as an ARA stockholder as a result of the Merger (except with respect to Dissenting Shares), nor will you be entitled to receive any shares in IRC or the surviving corporation.
BACKGROUND OF THE MERGER
The Board and management continually evaluate the Company’s business and financial plans and prospects. As part of this evaluation, the Board and management also periodically consider strategic alternatives to maximize value for the Company’s stockholders. In particular, the Board and management have considered a number of potential strategic transactions, including at times evaluating a potential sale of the Company, to seek to enhance value for the Company’s stockholders.
In December 2019, the Board established a transaction committee of the Board (the “Transaction Committee”), initially composed of Mr. Thomas Erickson, Mr. Jared Hendricks and Mr. Steven Silver, to assist the Board in fulfilling its responsibilities relating to the review, evaluation and negotiation of potential strategic alternatives that could be available to the Company, including the review of the Company’s standalone business plan. The remaining members of the Board were invited to attend any meetings of the Transaction Committee.
Between late December 2019 and late February 2020, Nautic Partners, LLC (“Nautic”) submitted multiple letters to the Board containing written non-binding proposals from Nautic and its affiliates (including its wholly-owned platform company Innovative Renal Care, LLC (“IRC”)) to acquire all of the outstanding common stock of the Company. The per share purchase price reflected in such proposals ranged from $13 per share in cash to $14.25 per share in cash (representing a 34.6% to 52.9% premium over the Company’s then-most recent closing share price), with all of the Company’s stockholders to receive the same per-share merger consideration. During such period the Board evaluated Nautic’s proposals and from time to time provided feedback to Nautic with respect to such proposals. Nautic’s proposals indicated that Fresenius Medical Care Holdings, Inc. (“Fresenius”) would participate in the debt financing and that Nautic had been engaged in discussions with Fresenius concerning a back-to-back sale of certain of the Company’s clinics to Fresenius (the “Subsequent Transaction”) in conjunction with the proposed transaction. Nautic also proposed that the definitive merger agreement include (i) a 40-day go-shop period, (ii) a two-tiered termination fee, with a lower termination fee payable by the Company for terminations during the go-shop period of an amount equal to 1.25% of equity value and a higher termination fee payable by the Company for terminations following the go-shop period of an amount equal to 3% of equity value, and (iii) a reverse termination fee payable by Nautic if the transaction did not close of an amount equal to 6% of equity value.
In December 2019, the Board determined to invite Goldman Sachs & Co. LLC (“Goldman Sachs”), in light of Goldman Sachs’ expertise and experience with the healthcare industry and its qualifications and reputation in the investment community, to advise the Board concerning Nautic’s offer and other strategic alternatives and, at the direction of the Board, to evaluate the solicitation of interest from potential third-party acquirers in order to further inform the Board’s decision-making.
On December 26, 2019 and January 27, 2020, the Company negotiated and entered into a customary confidentiality agreement with each of Nautic (the “Nautic NDA”) and Fresenius (the “Fresenius NDA”),
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respectively, to facilitate further discussions with respect to a potential strategic transaction. The Nautic NDA was later amended to clarify limitations on Nautic’s ability to disclose certain information to Fresenius. Each of the Nautic NDA and the Fresenius NDA included a customary standstill provision. The Company subsequently provided diligence information and conducted in-person due diligence meetings with representatives of Nautic.
On January 13, 2020, representatives of Goldman Sachs delivered a relationship disclosure letter to the Board providing information regarding certain of Goldman Sachs’ relationships with Centerbridge and Fresenius, and certain of their affiliates and portfolio companies, which the Board did not believe would adversely affect its independence.
On January 27, 2020 after Nautic increased its proposal to $14.25 per share in cash, the Company negotiated and entered into an exclusivity agreement with Nautic, pursuant to which the Company agreed to work exclusively with Nautic with respect to a potential transaction until February 25, 2020. The parties agreed, among other things, that the closing of the transaction would not be conditioned upon the signing, approval or closing of the Subsequent Transaction (or any other matter related to a transaction with Fresenius) or any transaction with any other person, and that Nautic’s exclusivity would terminate upon Nautic’s failure to continue to negotiate the transaction at a price per share of $14.25, with Nautic required to reaffirm that price per share weekly to continue exclusivity.
On February 4, 2020, the Company negotiated and entered into a customary clean team confidentiality agreement with Nautic (on behalf of itself and its affiliates, including IRC) and Fresenius and opened the “clean room” of the Company’s online data room in order to share additional highly confidential information of the Company with a limited pool of representatives of Nautic and Fresenius.
Also on February 4, 2020, at the direction of the Board, representatives of the Company delivered to representatives of Nautic an initial draft merger agreement for an acquisition of all of the outstanding common stock of the Company.
On February 17, 2020, Nautic submitted a revised proposal to the Board, including a mark-up of the draft merger agreement, with respect to the proposed transaction that indicated a reduced purchase price of $13.00 per share in cash (which represented a 44.1% premium over the Company’s closing share price of $9.02 on February 14, 2020). Nautic’s proposal indicated that the per share offer had been reduced from their prior bid due to additional operating expense identified in business due diligence. The proposal also reflected that Nautic expected the closing of the proposed transaction and the Subsequent Transaction to be cross-conditioned on each other. In light of the reduced valuation relative to Nautic’s prior proposal and the increased closing risk in conditioning a transaction on a sale of clinics to Fresenius, the Board determined to cease negotiations and terminate exclusivity with Nautic and instruct Nautic and Fresenius to return or destroy all copies of the Company’s proprietary information pursuant to the terms of their respective confidentiality agreements. Nautic subsequently requested an extension of the document destruction deadline and proposed on March 9th to continue negotiating a potential transaction. The Board decided not to reengage in discussions with Nautic and Fresenius and directed the Company’s management to focus on its stand-alone operations and market volatility.
In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. As a provider of essential healthcare services, the Company was significantly exposed to the health and economic effects of COVID-19 and had seen a significant impact on its employees, patients and business operations. Between March 2020 and early July 2020, the Company focused on executing its standalone business plan against the backdrop of the COVID-19 pandemic.
On July 9, 2020, Nautic submitted a letter to the Company containing a written non-binding proposal (the “July 9 Proposal”) to acquire all of the outstanding common stock of the Company for $10.00 per share in cash (representing a 51.3% premium over the Company’s closing share price of $6.61 on July 8, 2020). The July 9 Proposal contemplated that each of HPS Investment Partners, LLC (“HPS”) and Fresenius would provide debt financing, and that the Subsequent Transaction with Fresenius would occur following the closing of Nautic’s acquisition of the Company and that the transaction and the Subsequent Transaction would not be cross-conditioned.
On July 10, 2020, the Transaction Committee held a special telephonic meeting to discuss the July 9 Proposal. The Transaction Committee determined that following the departure of Steven Silver from the Board, Dr. Jeremy Gelber would fill Mr. Silver’s seat on the Transaction Committee in light of Dr. Gelber’s experience in transactional work and the healthcare industry.
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On July 11, 2020, the Board held a special telephonic meeting, at which certain members of Company management and representatives of Latham & Watkins LLP (“Latham & Watkins”), the Company’s outside legal counsel, were present, to discuss the July 9 Proposal. Representatives of Latham & Watkins provided an overview of the Board’s fiduciary duties under Delaware law, including with respect to the July 9 Proposal. Members of the Board then discussed the valuation included in the July 9 Proposal, as well as conditionality and deal certainty. The Board directed the Transaction Committee to further evaluate the July 9 Proposal and to explore whether it presented a viable transaction opportunity for the Company.
Between July 12, 2020 and July 17, 2020, the Board and management further discussed the July 9 Proposal with the Company’s advisors and instructed them to negotiate for higher value, increased closing certainty, and reduced regulatory approval risk. In particular, the Board focused on potential regulatory approval risk attributable to the Subsequent Transaction and Fresenius providing debt financing in connection with the proposed transaction. The Board was concerned that review of the Subsequent Transaction and Nautic’s acquisition of the Company together would introduce regulatory scrutiny that would not be faced if evaluating Nautic’s acquisition of the Company on its own. During this period, Dr. Gelber and representatives of Latham & Watkins discussed the views of the Board with Nautic, Fresenius and their respective advisors, including with respect to deal certainty, valuation and structure.
On July 18, 2020 Nautic submitted a revised proposal (the “July 18 Proposal”) with an increased valuation for the Company at $10.50 per share (representing a 53.5% premium over the Company’s closing share price of $6.84 on July 17, 2020). Nautic indicated in the July 18 Proposal that no debt financing would be provided by Fresenius but that Nautic was still considering a Subsequent Transaction for the sale of up to 40 clinics to Fresenius. Nautic also proposed enhanced antitrust clearance procedures in the July 18 Proposal intended to reduce regulatory approval risk and increase deal certainty given the proposed Subsequent Transaction. In particular, Nautic indicated that it would agree to a “hell-or-high water” type antitrust covenant in the merger agreement by which Nautic would agree to whatever conditions necessary to ensure the requisite antitrust approvals. In addition, Nautic proposed that the Company would be entitled to terminate the Nautic-Company transaction and receive the 6% of equity value reverse termination fee in the event that either (a) the outside date, which was proposed to be 270 days from signing of a definitive agreement, is reached and the transaction would be able to close but for antitrust approval or (b) the receipt of a decision from the FTC that it intended to sue to enjoin the Nautic-Company transaction. The July 18 Proposal indicated that Nautic would target signing the proposed transaction by August 14, 2020. On July 19, 2020, the Transaction Committee met telephonically to discuss the July 18 Proposal and decided not to recommend the July 18 Proposal to the Board, instead deciding to recommend to the Board that Nautic be instructed to improve its proposal, including higher value and increased deal certainty.
Later on July 19, 2020, the Transaction Committee reported to the Board its view that the valuation proposed in the July 18 Proposal was not reflective of the potential value of the Company’s business and that it did not recommend the July 18 Proposal. After weighing certain issues relating to deal certainty, the relatively low valuation reflected in the July 18 Proposal and the Company’s standalone operations, the Board determined that Nautic would need to improve its proposal in terms of valuation, structure and deal certainty.
Between July 19, 2020 and July 29, 2020 at the direction of the Board, Dr. Gelber discussed the July 18 Proposal with representatives of Nautic and informed Nautic that it would need to improve the value and deal certainty reflected in its proposal before the Board would engage with respect to a potential transaction.
On July 29, 2020 Nautic submitted a revised proposal (the “July 29 Proposal”) with a valuation for the Company at $10.50 per share (representing a 62% premium over the Company’s closing share price of $6.48 on July 29, 2020), including modifications as to the overall timeline for a transaction at the same per-share purchase price reflected in the July 18 Proposal. The July 29 Proposal indicated that Nautic would target signing the proposed transaction by August 31, 2020. The Transaction Committee again determined that Nautic would need to improve its proposal in terms of valuation and structure.
Between July 29, 2020 and August 6, 2020, at the direction of the Transaction Committee, Dr. Gelber discussed the July 29 Proposal with representatives of Nautic and informed Nautic that it would need to further improve the value and deal certainty reflected in its proposal before the Board would engage with respect to a potential transaction.
On August 6, 2020, Nautic submitted a revised proposal (the “August 6 Proposal”) with an increased valuation for the Company of $11.25 per share (representing a 76.1% premium over the Company’s closing share price of $6.39 on August 5, 2020), an equity commitment letter from IRC, and a “highly confident” financing letter from HPS.
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Nautic included enhanced regulatory clearance procedures in the August 6 Proposal intended to reduce antitrust risk and increase deal certainty given the proposed Subsequent Transaction, including a reduction in the number of clinics contemplated to be sold to Fresenius from 40 clinics to no more than 10 clinics. The August 6 Proposal indicated that Nautic would target signing the proposed transaction by September 8, 2020.
On August 7, 2020, the Transaction Committee held a special telephonic meeting to discuss the August 6 Proposal. The Transaction Committee determined that the Board should not respond to Nautic in respect of the August 6 Proposal until after the Company’s impending earnings release. Following the meeting, Dr. Gelber briefed the Board on recent developments and reported the Transaction Committee’s recommendation.
On August 10, 2020, the Company reported second quarter earnings per share of $0.07, and $0.8 million net income (as compared to a net loss of $8.2 million in the second quarter of 2019). The Company’s results also included an increase in total dialysis treatments over the second quarter of 2019.
On August 12, 2020, the Board held a special telephonic meeting, at which certain members of Company management and representatives of Latham & Watkins were present. The Board discussed the latest offers submitted by Nautic, including the increased valuation. The Board decided to ask Goldman Sachs to conduct a financial analysis for the Board’s review at a future meeting. The Board also discussed conditionality and deal certainty, including the removal of Fresenius as a debt financing source to enable a more traditional buyout structure, the enhanced antitrust clearance procedures described in the offers, and the proposed September 8, 2020 signing date. Members of the Board further discussed the Company’s business prospects and performance as well as its share price relative to the prior offer from Nautic. The Board and members of the Company’s management then discussed the appropriate response to the latest offer. Following discussion, the Board authorized Latham & Watkins and the Transaction Committee to provide Nautic with feedback on the proposed transaction structure (including an increase in value), reaffirm the anticipated transaction timeline and request a mark-up of the bid contract.
Following the August 12 Board meeting, members of the Board received a revised proposal from Nautic dated August 11, 2020 (the “August 11 Proposal”) with an increased valuation for the Company of $11.50 per share in cash (representing a 74.8% premium over the Company’s closing share price of $6.58 on August 11, 2020). The August 11 Proposal indicated that Nautic would target signing the proposed transaction by September 8, 2020.
On August 18, 2020, the Board held a special telephonic meeting, at which certain members of Company management and representatives of Goldman Sachs and Latham & Watkins were present. Representatives of Goldman Sachs proceeded to advise the Board on current market conditions, the performance of the healthcare sector generally over the last six months, market forecasts, and the impact of the pandemic and the pending presidential election with respect to the foregoing. The meeting participants discussed the August 11 Proposal, including the increased valuation, Nautic’s ability to financially support its proposal and the improved transaction structure reflected in the proposal. The Board also discussed its historical evaluation of potential strategic transactions for the Company, the low likelihood of a competing third-party offer and the risk to the business of leaks. With the assistance of Goldman Sachs, Mr. Joseph Carlucci then provided an overview of management projections, which were reviewed in detail by the Board. Following discussion, the Board determined that the Transaction Committee should continue to assist the Board in its review of the standalone plan of the Company and potential strategic alternatives, including Nautic’s latest offer, and that Goldman Sachs would encourage Nautic to increase its offer and instructed Goldman Sachs to do so. The Board also determined, and subsequently notified Nautic, that it would not be willing to enter into an exclusivity agreement.
Later on August 18, representatives of Goldman Sachs contacted representatives of Nautic regarding the August 11 Proposal and instructed Nautic to increase its offer.
Between August 19, 2020 and August 26, 2020, Latham & Watkins and Goodwin Procter LLP (“Goodwin Procter”), Nautic’s outside legal counsel, met telephonically on several occasions to discuss the merger agreement as well as diligence and antitrust matters (in particular with respect to the proposed sale of up to 10 clinics to Fresenius). Latham & Watkins and Goodwin Procter discussed the potential impact of the Subsequent Transaction on the regulatory clearance process for the Nautic-Company transaction.
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On August 24, 2020, Goodwin Procter delivered a revised draft of the merger agreement to Latham & Watkins. The revised merger agreement proposed (i) a 30-day go-shop period that deleted the rights of the Company to waive any existing standstills, (ii) that Nautic would be required to terminate the Subsequent Transaction only if the remaining condition to closing as of 90 days following the signing date is antitrust clearance and (iii) an appraisal rights closing condition.
Between August 26, 2020 and September 4, 2020, the Company, Nautic and their respective advisors met telephonically to discuss various diligence matters. The Company and its advisors provided information via diligence calls and in an online data room format to Nautic, Fresenius and their advisors in response to their diligence requests and additional highly confidential information of the Company in a separate “clean room” of the Company’s online data room to a limited pool of representatives of Nautic and Fresenius.
On August 27, 2020, Goodwin Procter informed Latham & Watkins that the number of clinics subject to the Subsequent Transaction would be reduced from 10 clinics to 9 clinics.
On September 2, 2020, the Board held a special telephonic meeting, at which certain members of Company management and representatives of each of Goldman Sachs and Latham & Watkins were present, for a status update on the proposed transaction. The Board reviewed the Company’s approach to regulatory approvals in connection with the proposed transaction, including the steps taken by Nautic to reduce the antitrust risk to the proposed transaction presented by the Subsequent Transaction. The Board also reviewed a history of the negotiation of the merger agreement, including Company-favorable terms such as the go-shop provision, which would give the Company flexibility to solicit a possible transaction with various other potential counterparties following announcement of a deal.
On September 4, 2020, the Transaction Committee held a special telephonic meeting, at which certain members of Company management and representatives of each of Latham & Watkins and Goldman Sachs were present, for a status update on Latham & Watkins’ negotiation of the transaction documentation with Goodwin Procter. The Transaction Committee gave direction to Latham & Watkins for the negotiation of open matters.
On September 7, 2020, Latham & Watkins delivered a revised draft of the merger agreement and an initial draft of the related disclosure schedules to Goodwin Procter. The revised draft of the merger agreement proposed a 35-day go-shop period with the Company having the right to waive any existing standstills and a number of other Company-favorable terms, such as (i) limiting Nautic’s ability to enter into any agreement involving the Company or its assets with Fresenius or any other third party, (ii) providing the Company with flexibility to take certain actions otherwise prohibited by the interim operating covenants in response to the COVID-19 pandemic, (iii) deleting the appraisal rights closing condition and (iv) requiring Nautic to terminate the Subsequent Transaction if FTC clearance of the transaction was not obtained within 45 days of signing.
On September 8, 2020 and September 10, 2020, the Transaction Committee held special telephonic meetings, at which other members of the Board and representatives of each of Latham & Watkins and Goldman Sachs were present, for a status update on Latham & Watkins’ negotiation of the transaction documentation with Goodwin Procter. Latham & Watkins and the Transaction Committee discussed Nautic’s request for a 90-day period following signing of the proposed transaction to obtain FTC clearance for the proposed transaction before being required to terminate the Subsequent Transaction, as well as a condition that all required state regulatory approvals be obtained on or prior to closing. The Transaction Committee directed Latham & Watkins to revise the transaction documentation to improve closing certainty.
On September 10, 2020, representatives of Goldman Sachs delivered an updated relationship disclosure letter to the Board providing information regarding certain of Goldman Sachs’ relationships with Centerbridge and Fresenius, and certain of their affiliates and portfolio companies, which the Board did not believe would adversely affect its independence.
On September 11, 2020, Dr. Gelber and representatives of Latham & Watkins, Goodwin Procter and Goldman Sachs met telephonically to discuss various open issues.
On September 12, 2020, representatives of Goodwin Procter delivered a revised draft of the merger agreement to representatives of Latham & Watkins. The revised draft of the merger agreement proposed, among other things, (i) to limit the Company’s specific performance remedies against Nautic, (ii) a “force the vote” provision which
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would require the Board to convene a stockholders meeting to approve the transaction even if the Board decided to change its recommendation in respect of the transaction and (iii) that the parties discuss whether to accelerate payments due under the existing tax receivable agreement between the Company and Centerbridge.
On September 13, 2020 and September 26, 2020, representatives of Goodwin Procter delivered to representatives of Latham & Watkins a draft of the purchase agreement between Nautic and Fresenius (the “Fresenius Agreement”) relating to the Subsequent Transaction, which draft included the automatic termination provision negotiated between Nautic and the Company – specifically, that the Fresenius Agreement would terminate if the Nautic-Company transaction had not received antitrust clearance within 90 days after signing.
On September 16, 2020, Latham & Watkins and Goodwin Procter met telephonically to discuss open issues in the merger agreement, including conditionality, regulatory approvals, the “force the vote” provision, the tax receivable agreement and the voting agreement with Centerbridge. During the September 16 call, Goodwin Procter confirmed that the only arrangement that would separate Centerbridge from the Company’s public stockholders would be the voting agreement (which provides no benefit to Centerbridge) and that Nautic would not request an acceleration of payments under the tax receivable agreement or otherwise make any other request of Centerbridge in connection with the proposed transaction. The Transaction Committee gave direction to Latham & Watkins for the negotiation of open matters.
Also on September 16, 2020, representatives of the Company discussed with representatives of Nautic the Company’s expectation that the parties make substantial progress on the transaction documentation in short order.
Between September 18, 2020 and October 1, 2020, Latham & Watkins and Goodwin Procter exchanged multiple drafts of the merger agreement and related transaction documentation and continued to negotiate various open issues. Also during this period, Nautic participated in additional diligence calls with Company management. Throughout the process, the Transaction Committee reminded Nautic and Company management that there should be no discussions between Company management and Nautic regarding employment or compensation in connection with any possible transaction until after a definitive agreement had been executed, if any, and after the conclusion of any go-shop period.
On September 21, 2020, representatives of Nautic informed Dr. Gelber that they were intending to reduce the per share consideration offered because of certain diligence issues, unless Centerbridge, as the Company’s controlling stockholder, was willing to indemnify Nautic for the cost of any penalties assessed against the Company in connection with the ongoing SEC investigation. Dr. Gelber promptly informed the other members of the Transaction Committee and Latham & Watkins. The Transaction Committee determined that such a proposal would treat the Company’s shareholders differently and would be unacceptable.
Between September 21, 2020 and September 26, 2020, the Transaction Committee, Latham & Watkins, and Dr. Gelber had several discussions with Nautic and its legal and financial advisors regarding the proposed Centerbridge indemnity and indicated to Nautic and its advisors that such proposal was unacceptable to the Board.
On September 25, 2020, representatives of Nautic followed up with Dr. Gelber with respect to its September 21, 2020 proposal and informed Dr. Gelber that Nautic’s investment committee’s approval of the proposed transaction would be contingent upon either a reduction in the per share consideration or Centerbridge’s agreement to bear some of the potential financial ramifications of the ongoing SEC investigation. Nautic specifically requested that Centerbridge bear 50% of the cost of any fines, penalties or other out-of-pocket costs in connection with the SEC investigation and that Nautic would bear the remaining 50% of the cost, with the public stockholders receiving the previously offered $11.50 per share.
On September 26, 2020, the Board held a special telephonic meeting, at which certain members of Company management and representatives of each of Latham & Watkins and Goldman Sachs were present. Dr. Gelber reported to the rest of the members of the Board that Nautic had completed its business due diligence, and that at the request of the Transaction Committee to provide its “best and final” offer, Nautic reaffirmed its $11.50-per-share offer, agreed to close the transaction even if the FTC were to deny the Subsequent Transaction, and reaffirmed its insistence on the Centerbridge cost-sharing arrangement. The Transaction Committee reported that it continued to view the proposed transaction with Nautic as a transaction that would be in the best interests of all of the Company’s stockholders, relative to the Company’s standalone plan. Dr. Gelber also informed the Board of the proposal he received from Nautic on September 21, 2020. Dr. Gelber explained that Centerbridge was willing to share in the cost of any fines, penalties or other reasonable and documented out-of-pocket costs relating to the ongoing SEC
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investigation up to a $10 million aggregate cap (with each of Nautic and Centerbridge bearing a maximum liability of $5 million) in order to preserve the per share merger consideration. Dr. Gelber explained that Centerbridge did not want Nautic’s request to result in a reduction of the purchase price or jeopardize the transaction that is in the best interests of the Company and its stockholders, and therefore was prepared to agree to Nautic’s request. The members of the Board unaffiliated with Centerbridge then met in executive session with Latham & Watkins and Goldman Sachs. Following discussion, the unaffiliated directors determined that it would be prudent for the Board to form a committee of disinterested directors (an “Independent Committee”) that (i) would be empowered to evaluate and negotiate any aspects of the proposed transaction or any alternative acquisition proposal that the Independent Committee concludes treats Centerbridge differently from other stockholders of the Company, and (ii) if the transaction with Nautic was entered into, would be empowered to retain its own legal and financial advisors, oversee the go-shop process and evaluate any alternative acquisition proposals. The members of the Board unaffiliated with Centerbridge then met in executive session with Latham & Watkins and Goldman Sachs and without members of Company management present.
On September 28, 2020, the Company contacted representatives of BofA Securities, Inc. (“BofA Securities”) regarding a potential engagement as financial advisor to the Independent Committee, given BofA Securities’ relationship history with the Company.
On the evening of September 28, 2020, Goodwin Procter delivered to Latham & Watkins a revised draft of the Fresenius Agreement and an initial draft of a side letter to be entered into between Centerbridge and Nautic in respect of the proposed Centerbridge cost-sharing proposal. Over the following week, the terms of the side letter were negotiated between Nautic and Centerbridge. The side letter was the only agreement entered into between Nautic and Centerbridge (other than the voting agreement). The parties affirmed in the side letter that it was not being entered into in connection with or as consideration for any other act or arrangement (past or future) by either party.
Later in the evening on September 28, 2020, Latham & Watkins delivered a revised draft of the merger agreement to Goodwin Procter.
On September 29, 2020, the Board held a special telephonic meeting, at which certain members of Company management and representatives of each of Latham & Watkins and Goldman Sachs were present. The Board reviewed the key terms of the draft merger agreement and the ancillary agreements that had been negotiated between the parties since the September 26, 2020 Board meeting, including certain enhancements to the go-shop mechanics in light of Nautic’s proposal that Centerbridge share in the cost of any penalties arising from the ongoing SEC investigation and Nautic’s agreement to remove the “force the vote” provision, including an increase in the length of the go-shop period from 35 days to 40 days, among other technical improvements. The Board also reviewed a key provision being negotiated in the Centerbridge voting agreement that would provide the Board with additional flexibility to change its recommendation in favor of the proposed transaction with Nautic (and for Centerbridge to walk away from its commitments under the voting agreement) if an unforeseeable event were to occur after a definitive agreement with Nautic is signed. Latham & Watkins also provided an overview of the antitrust process and a status update on discussions with legal counsel to Nautic and Fresenius with respect to the FTC clearance process. Goldman Sachs reviewed with the Board the proposed go-shop process. The Board reviewed management projections with members of management and with the assistance of Goldman Sachs. Representatives of Goldman Sachs also reviewed Goldman Sachs’ financial analysis of the proposed transaction with the Board. In light of the proposal Nautic submitted on September 21, 2020 with respect to Centerbridge sharing in the cost of any penalties arising from the ongoing SEC investigation, the Board and its advisors determined that it would be prudent to promptly establish the Independent Committee to oversee the go-shop process empowered to retain its own advisors and to monitor the go-shop process for any potential or actual conflicts of interest between Centerbridge and the Company’s public stockholders, among other duties and responsibilities to be determined. Goldman Sachs then left the meeting and, following discussion, the Board unanimously approved the engagement letter with Goldman Sachs.
Following the meeting, the Board and the Company executed an engagement letter with Goldman Sachs on the terms presented to the Board.
Between September 29, 2020 and November 11, 2020, the Independent Committee held special telephonic meetings to discuss the transaction and the go-shop process. On September 29, 2020, the Independent Committee held its first telephonic meeting, during which the Independent Committee held discussions with BofA Securities and Richards, Layton & Finger, P.A. (“RLF”) to determine whether to hire BofA Securities as its independent financial advisor and RLF as its independent legal advisor.
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On September 30, 2020, the Independent Committee held a telephonic meeting. During the meeting, the Independent Committee determined to retain BofA Securities based on BofA Securities’ expertise and experience in the industry, as well as BofA Securities’ familiarity with the Company. The Independent Committee was apprised of BofA Securities’ previous relationships with the Company, and did not believe that they would adversely affect its independence. The Independent Committee also determined to retain RLF because of RLF’s experience and independence. The Independent Committee also discussed with RLF and Latham & Watkins, the independence of the committee’s members, determined that Mr. Fish would be chair of the Independent Committee and reviewed and discussed the proposed side letter between the Company and Centerbridge that (1) would provide for a cost-sharing arrangement between Centerbridge and the Company with respect to costs incurred in connection with the proposed transaction, (2) included indemnification for the Company of up to 50% (with a cap of $10 million) of any fines, penalties and certain expenses incurred in connection with the ongoing SEC investigation into the Company and (3) included a covenant by Centerbridge to support the Nautic proposal or any other acquisition proposal that was superior to the Nautic bid.
Also on September 30, 2020, Latham & Watkins delivered a revised draft of the voting agreement to Goodwin Procter. The revised draft contemplated that Centerbridge would agree to offer the same limited financial support in respect of the ongoing SEC investigation to bidders who submit a competing acquisition proposal.
On October 1, 2020, the Compensation Committee resolved to recommend to the Board that the Board approve a form of transaction bonus agreement in connection with the grant of transaction bonuses to certain members of senior management in order to incentivize them to remain with the Company to execute the closing.
On the evening of October 1, 2020, the Board held a special telephonic meeting, at which all members of the Board, certain members of Company management and representatives of each of Goldman Sachs, Latham & Watkins and RLF were present. Latham & Watkins reviewed with the members of the Board their fiduciary duties, generally and in connection with material transactions, including a potential sale of the Company. The Board discussed the derivative litigation pending against the Company and the Board’s view that the litigation did not constitute an “asset” that had any value in the proposed transaction with Nautic. Representatives of Goldman Sachs informed the Board that there were no changes from the financial analysis described during the September 29, 2020 Board meeting, other than changes to reflect updated market data. Management reported to the Board its recommendation that the Board approve the transaction. Representatives of Goldman Sachs then rendered to the Board the oral opinion of its firm (which was subsequently confirmed in writing by delivery of a written opinion dated October 1, 2020) that, as of October 1, 2020, and based on and subject to the factors and assumptions set forth in the written opinion, the $11.50 in cash per share of Common Stock to be paid to the holders (other than Nautic and its affiliates) of shares of Common Stock pursuant to the Merger Agreement was fair, from a financial point of view, to such holders. The Board discussed the proposed transaction and the presentations and, following such discussion, the Board determined that it would be advisable and in the best interest of the Company’s stockholders to accept $11.50 per share as compared to continuing as a standalone public company or continuing to evaluate other alternatives. The merger consideration of $11.50 per share in cash reflected an approximate premium of 66% over the Company’s closing share price of $6.92 on October 1, 2020. The Board unanimously (i) adopted the Merger Agreement and approved the transactions contemplated thereby, including the Merger, (ii) determined that the Merger Agreement and the transactions contemplated by the Merger Agreement are advisable, fair to and in the best interests of the Company and our stockholders, (iii) approved the execution, delivery and performance by the Company of the Merger Agreement, (iv) directed that the adoption of the Merger Agreement be submitted to a vote of our stockholders, (v) established the Independent Committee, composed of Mr. Erickson, Mr. Fish and Mr. Jureller, and empowered the Independent Committee to evaluate, negotiate and make recommendations to the Board regarding the go shop and any other matters related to the evaluation, negotiation, approval or consummation of a potential strategic transaction that the Independent Committee concludes represent, or may represent, a conflict of interest between Centerbridge and its affiliates (other than the Company and its subsidiaries), on the one hand, and the other stockholders of the Company, on the other hand.
Later that evening on October 1, 2020, the Company and Nautic executed and delivered the merger agreement and related transaction documents.
The morning of October 2, 2020, prior to the commencement of trading hours, the Company and Nautic issued a joint press release announcing the execution of the Merger Agreement.
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Beginning on October 2, 2020, as directed by the Board and overseen by the Independent Committee, representatives of Goldman Sachs and BofA Securities began contacting third parties to solicit alternative transaction proposals, ultimately contacting 72 parties approved by the Board and the Independent Committee, including 22 potential strategic and 50 potential financial acquirers, to solicit alternative transaction proposals that the Board might find to be superior to the proposed transaction with Nautic.
On October 7, 2020, the Independent Committee held a telephonic meeting, during which BofA Securities reported on BofA Securities’ and Goldman Sachs’ outreach to potential acquirers. Of the 72 potential acquirers, BofA Securities reported that four parties had expressed interest in exploring a potential transaction and had executed, or were in the process of executing, customary non-disclosure agreements (“NDAs”), and several others were in the process of evaluating their interest in a potential transaction.
On October 14, 2020, the Independent Committee held another telephonic meeting, during which BofA Securities gave an update on the go-shop process. BofA Securities reported that one party had executed an NDA and was actively doing diligence, four parties were in the process of negotiating NDAs and four other parties were in the process of evaluating their interest in a potential transaction. The Independent Committee discussed that at this point potential bidders would be required to bid independently and would not be permitted to pair up.
On October 21, 2020, the Independent Committee held another telephonic meeting, during which BofA Securities updated the Independent Committee on progress in the go-shop process. BofA Securities reported that of the 72 contacted parties, only one had performed due diligence in the Company’s data room after executing an NDA with the Company. BofA Securities reported that such party had recently informed BofA Securities that it was no longer interested in pursuing a potential transaction with the Company. BofA Securities reported that such party did not think it could offer a better price than Nautic. Additionally, BofA Securities noted that four other parties had executed NDAs but had not yet begun performing diligence in the data room. BofA Securities also reported that certain potential acquirers were considering pairing up with other potential acquirers to make an offer.
On October 28, 2020, the Board held a regularly scheduled telephonic meeting, for a status update to the Board on the steps taken and the progress made in the go-shop process.
On November 4, 2020, the Independent Committee held a telephonic meeting. During the meeting, BofA Securities reported that certain parties that had previously shown potential interest in a transaction with the Company had dropped out of the process. BofA Securities also reported that of the original 72 parties that BofA Securities and Goldman Sachs contacted, only three parties remained potentially interested. Of those remaining parties, BofA Securities also noted that each of such parties were not interested in making an offer on its own but rather was considering pairing up with another party to make a proposal. The Independent Committee discussed potential acquirers pairing up with one another and directed BofA Securities to inform the potential acquirers that they could pair up with another potential acquirer to make a proposal.
On November 11, 2020, the Independent Committee held a telephonic meeting. During the meeting, BofA Securities reported that the remaining parties were no longer interested in pursuing a potential transaction with the Company and that no other parties had expressed any interest in pursuing a potential transaction with the Company.
The Company did not receive any alternative transaction proposals during the go-shop period, which ended at 11:59 p.m. (Eastern Time) on November 10, 2020. Starting at 12:00 a.m. (Eastern Time) on November 11, 2020, the Company became subject to customary no-shop provisions that limit its ability to solicit alternative transaction proposals from third parties or to provide confidential information to third parties, subject to customary fiduciary out provisions.
RECOMMENDATION OF THE BOARD AND REASONS FOR THE MERGER
The Board evaluated, with the assistance of its legal and financial advisors, the Merger Agreement and the transactions contemplated thereby, including the Merger, and unanimously determined that the Merger Agreement and the transactions contemplated thereby are advisable, fair to and in the best interests of ARA and our stockholders. The Board unanimously approved the Merger Agreement and the Merger and unanimously recommends that you vote “FOR” the Merger Proposal and “FOR” the Adjournment Proposal.
On October 1, 2020, the Board unanimously (i) adopted the Merger Agreement and approved the transactions contemplated thereby, including the Merger, (ii) determined that the Merger Agreement and the transactions contemplated by the Merger Agreement are advisable, fair to and in the best interests of ARA and our stockholders,
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(iii) approved the execution, delivery and performance by ARA of the Merger Agreement, (iv) directed that the adoption of the Merger Agreement be submitted to a vote of our stockholders and (v) resolved to make the recommendation that the stockholders of ARA adopt the Merger Agreement.
In the course of reaching its determination to approve the Merger Agreement and the Merger, and in recommending that our stockholders vote their shares of our Common Stock in favor of the Merger Proposal, the Board considered a number of reasons, including the following (not necessarily in order of relative importance):
Attractive Value. The Board’s belief that the Per Share Merger Consideration represents an attractive value for the shares of our Common Stock, taking into account the Board’s familiarity with our business, operations, assets, operating results, financial condition, prospects and business strategy, and the Board’s belief, based on the course and history of the negotiations between IRC and ARA, that the Per Share Merger Consideration represented the highest consideration that IRC was willing to pay.
Best Alternative for Maximizing Stockholder Value. The Board considered that the Per Share Merger Consideration was more favorable to our stockholders than the potential value that might result from other alternatives reasonably available to ARA, including the potential stockholder value based on our business plan that could be expected to be generated from remaining an independent public company, the possibility of being acquired by other companies, the possibility of acquisitions of or mergers with other companies and other transactions, as well as the potential benefits, risks and uncertainties associated with such alternatives.
Risks Relating to Remaining a Stand-Alone Company. The Board reviewed our business, operations, assets, operating results, financial condition, prospects, business strategy, competitive position, and industry, including the potential impact (which cannot be quantified numerically) of those factors on the trading price of our Common Stock, to assess the prospects and risks associated with remaining an independent, stand-alone public company. The Board believed that the acquisition of ARA by IRC for $11.50 per share in cash was more favorable to our stockholders than the value of remaining an independent public company, after accounting for the risks and uncertainties associated with achieving and executing upon our business and financial plans in the short- and long-term as a stand-alone company.
Certainty of Value. The Per Share Merger Consideration consists solely of cash, which provides immediate liquidity and certainty of value to our stockholders compared to remaining an independent stand-alone company or any transaction in which our stockholders would receive shares of an acquirer’s stock. The Board weighed the certainty of realizing a compelling value for shares of our Common Stock by virtue of the Merger against the uncertain prospect that the trading value for our Common Stock would approach the Per Share Merger Consideration in the foreseeable future, as well as the risks and uncertainties associated with our business, including those described above and the other risks and uncertainties discussed in ARA’s public filings with the SEC. See the section entitled “Where You Can Find More Information” of this Proxy Statement.
Historical Value. The Board considered the value represented by the Per Share Merger Consideration compared against the current and historical trading prices of our Common Stock, including the market performance of our Common Stock relative to those of other participants in ARA’s industry and general market indices, and the fact that the Per Share Merger Consideration represented a premium of approximately 66% over the Common Stock closing price of $6.92 per share on October 1, 2020, the last trading day before the public announcement that ARA entered into the Merger Agreement.
Review Process and Go-Shop. The Board considered the fact that it had engaged in extensive discussions with ARA’s management team, representatives of financial advisers and outside legal counsel, and also took into consideration the financial expertise and prior industry experience held by a number of directors. The Board also considered its historical evaluation of strategic alternatives prior to the signing of the Merger Agreement, as well as the opportunity afforded by the “go shop” process for additional bidders to submit acquisition proposals. The Board further considered that the Independent Committee (as defined in the section entitled “The Merger – Background of the Merger” of this Proxy Statement) was formed to oversee and manage the “go shop” process and was authorized to retain, and did so retain prior to signing of the Merger Agreement, its own financial and legal advisors.
Ability to Respond to Acquisition Proposals (as defined in the section entitled “The Merger Agreement—Stockholders Meeting and Related Actions” of this Proxy Statement, below). The Board
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considered the “fiduciary out” provisions of the Merger Agreement that, subject to the terms and conditions thereof, permit ARA to furnish information to and conduct negotiations with third parties that make Acquisition Proposals under certain circumstances, to change its recommendation to stockholders regarding the Merger Agreement and to terminate the Merger Agreement in order to approve a Superior Proposal, subject to payment of a termination fee in favor of IRC. The Board further considered the fact that the approximately $5 million termination fee payable by ARA if the Merger Agreement is terminated due to ARA accepting a Superior Proposal from an Excluded Party (as defined in the section entitled “The Merger Agreement—Other Covenants and Agreements—No Solicitation of Other Proposals; Change of Recommendation” of this Proxy Statement, below) and the approximately $12.1 million termination fee payable by ARA if the Merger Agreement is terminated due to ARA accepting a Superior Proposal from a party who is not an Excluded Party (i) are reasonable in light of the overall terms of the Merger Agreement and the benefits of the Merger and (ii) would not preclude another party from making a competing proposal.
Terms of the Merger Agreement. The Board considered all of the terms and conditions of the Merger Agreement, including the structure of the transaction, the all-cash form of the Per Share Merger Consideration, the limited scope of the conditions to closing, the customary nature of the representations, warranties, and the covenants and agreements of the parties and the right, prior to 11:59 p.m. (New York City time) on November 10, 2020 (the “No-Shop Period Start Date”), for the Board (or a duly authorized committee thereof) to solicit Acquisition Proposals from third parties and to engage in discussions or negotiations with regard to any Acquisition Proposal made by such third parties, and the fact that if the Board (or a duly authorized committee thereof) receives a bona fide written Acquisition Proposal prior to the No-Shop Period Start Date that the Board (or a duly authorized committee thereof) determines in good faith, after consultation with its financial advisors and outside legal counsel, constitutes or could reasonably be expected to constitute, result in or lead to a Superior Proposal, the Board (or a duly authorized committee thereof) may continue to engage in the foregoing activities with any such third party regarding such Acquisition Proposal following the No-Shop Period Start Date. The Board also considered its ability to change its recommendation to stockholders regarding the Merger Agreement and to terminate the Merger Agreement in response to an Intervening Event (as defined in the section entitled “The Merger Agreement—Other Covenants and Agreements—No Solicitation of Other Proposals; Change of Recommendation” of this Proxy Statement, below), subject to payment of a termination fee in favor of IRC. The Board further considered the course and nature of negotiations with IRC, which were conducted at arm’s length and during which the Transaction Committee of the Board and the Board were advised by independent legal and financial advisors. These negotiations ultimately resulted in terms that (i) provide for a significant premium over the trading price of our Common Stock and (ii) provide robust provisions to increase certainty of the consummation of the Merger, absent certain prohibitive events or the submission of a Superior Proposal. The Board believed, based on these negotiations, that these were the most favorable terms available to ARA and our stockholders on which IRC, or an alternative purchaser, would be willing to transact.
Voting Agreement. The Board viewed favorably the willingness of Centerbridge Capital Partners, L.P. and certain of its affiliates (collectively, the “Centerbridge Stockholders”), who together hold approximately 51% of the shares of our Common Stock outstanding, to commit to vote in favor of the Merger Proposal by entry into the Voting Agreement. The Board also considered the fact that the Voting Agreement terminates upon a Change of Recommendation by the Board and upon any termination of the Merger Agreement, including upon ARA’s termination to accept a Superior Proposal, such that the existence of the Voting Agreement would not be likely to deter or inhibit a Superior Proposal.
Fairness Opinion. The Board considered the financial analysis presented to the Board by Goldman Sachs and the opinion of Goldman Sachs rendered to the Board to the effect that, as of October 1, 2020 and based upon and subject to the factors and assumptions set forth in Goldman Sachs’ written opinion, the $11.50 in cash per share of Common Stock to be paid to the holders (other than IRC and its affiliates) of the shares of Common Stock pursuant to the Merger Agreement was fair from a financial point of view to such holders. For more information, see the sections entitled “The Merger—Fairness Opinion of ARA’s Financial Advisor: Goldman Sachs & Co. LLC” of this Proxy Statement.
Likelihood of Consummation. The Board considered the likelihood that the Merger will be consummated, based on, among other things, the limited number of conditions to the Merger, the absence of a financing
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condition, the relative likelihood of obtaining required regulatory approvals, the remedies available under the Merger Agreement to ARA in the event of various breaches by IRC, the equity commitment of certain affiliates of Nautic as detailed in the equity commitment letter addressed to IRC, the debt commitment of HPS Investment Partners, LLC as detailed in the debt commitment letter addressed to Merger Sub, and IRC’s and Nautic’s financial capacity to complete an acquisition of this size, which the Board believed supported the conclusion that a transaction with IRC could be completed relatively quickly and in an orderly manner.
Stockholder Approval; Appraisal Rights. The Board considered that the Merger would be subject to the approval of our stockholders, that stockholders would be free to reject the Merger, other than those who entered into the Voting Agreement, and that stockholders who do not vote to adopt the Merger Agreement and who follow certain prescribed procedures are entitled to dissent from the Merger and receive the appraised fair value of their shares, as provided under Delaware law.
The Board also considered and balanced against the potentially positive factors a number of uncertainties, risks and other potentially negative factors in its deliberations concerning the Merger and the transactions contemplated by the Merger Agreement, including the following (not necessarily in order of relative importance):
No Stockholder Participation in Future Earnings or Growth. The Board considered the fact that ARA will no longer exist as an independent company, and accordingly, our stockholders will no longer participate in any future growth ARA may experience or any potential future appreciation in the value of shares of our Common Stock, and will not participate in any potential future sale of ARA’s business to a third party.
Inability to Solicit Other Takeover Proposals. The Board considered that the Merger Agreement includes a covenant prohibiting ARA from initiating, soliciting, knowingly facilitating or knowingly encouraging any inquiries or discussions with respect to, or the making of, any proposal or offer that constitutes or would be reasonably likely to result in an Acquisition Proposal following the No-Shop Period Start Date. The Board also considered, but did not consider preclusive, the fact that the right afforded to IRC under the Merger Agreement to re-negotiate the terms of the Merger Agreement in response to a Superior Proposal may discourage other parties that might otherwise have an interest in a business combination with, or an acquisition of, ARA.
Termination Fees. The Board considered the fact that ARA may be required to pay a termination fee of approximately $12.1 million if the Merger Agreement is terminated in connection with an Acquisition Proposal that the Board determines is a Superior Proposal and in other certain specified circumstances, and approximately $5 million if the Merger Agreement is terminated under certain specified circumstances in connection with a bona fide written Acquisition Proposal received prior to the No-Shop Period Start Date, and that the amounts of the termination fees are comparable to termination fees in transactions of a similar size, were reasonable, would not likely deter competing bids and would not likely be required to be paid unless ARA entered into a more favorable transaction. The Board also recognized that the provisions in the Merger Agreement relating to these fees were insisted upon by IRC as a condition to entering into the Merger Agreement.
Effect of Public Announcement. The Board considered the effect of the public announcement of ARA entering into the Merger Agreement on our operations, including our relationships with physician partners, customers, patients, suppliers and employees, as well as our ability to attract and retain key personnel while the proposed transaction is pending and the potential adverse effects on our financial results as a result of that disruption, as well as the possibility of any suit, action or proceeding in respect of the Merger Agreement or the transactions contemplated thereby, including the Merger.
Opportunity Costs and Interim Operating Covenants. The Board considered that the focus and resources of our management may become diverted from other important business opportunities and operational matters while working to implement the Merger, which could adversely affect our business. The Board also considered the restrictions on the conduct of our business during the pendency of the Merger, which may delay or prevent ARA from undertaking potential business opportunities that may arise or may negatively affect our ability to attract, retain and motivate key personnel.
Risk the Merger May Not Be Consummated. The Board considered the fact that consummation of the Merger is subject to the satisfaction of certain closing conditions that are not within our control, including receipt of the necessary regulatory clearances and approvals and that no Material Adverse Effect (as defined in the section entitled “The Merger Agreement—Representations and Warranties” of this Proxy Statement,
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below) on ARA has occurred. There can be no assurance that all conditions to the parties’ obligations to consummate the Merger will be satisfied, and as a result, it is possible that the Merger may not be consummated even if the Merger is approved by our stockholders. The Board considered the fact that if the Merger is not consummated (i) we will have incurred significant transaction and opportunity costs, including the possibility of disruption to our operations, diversion of management and employee attention, employee attrition and a potentially negative effect on our business and customer relationships; (ii) the trading price of our Common Stock could be adversely affected; and (iii) the market’s perceptions of our prospects could be adversely affected.
Litigation. The Board considered the potential for distracting litigation from stockholder suits in connection with the Merger.
Transaction Costs. The Board considered the fact that we have incurred and will continue to incur significant transaction costs and expenses in connection with the Merger, regardless of whether the Merger is consummated.
Potential Differing Interests of Directors and Officers. The Board considered the risk that certain of our directors and executive officers may have interests in the transactions contemplated by the Merger Agreement, including the Merger, as individuals that are in addition to, or that may be different from, the interests of our stockholders. See the section entitled “The Merger—Interests of the Directors and Executive Officers of ARA in the Merger” of this Proxy Statement.
Tax Treatment. The Board considered the fact that the Merger will be a taxable transaction to our stockholders that are U.S. Holders for U.S. federal income tax purposes; and, therefore, such stockholders generally will be required to pay U.S. federal income tax on any gains they recognize as a result of the Merger.
The Board believed that, overall, the risks and uncertainties associated with the Merger were outweighed by the potential benefits of the Merger to our stockholders.
The foregoing discussion of factors considered by the Board is not intended to be exhaustive, but summarizes the material factors considered by the Board. In light of the variety of factors considered in connection with their evaluation of the Merger, the Board did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determinations and recommendations. Moreover, each member of the Board applied his or her own personal business judgment to the process and may have given different weight to different factors. The Board did not undertake to make any specific determination as to whether any factor, or any particular aspect of any factor, supported or did not support its ultimate determination and recommendation. The Board based its recommendation on the totality of the information presented, including its discussions with, and questioning of, our senior management and outside financial advisor and legal counsel. The Board unanimously recommends that you vote “FOR” the Merger Proposal. It should be noted that this explanation of the reasoning of the Board and certain information presented in this section is forward-looking in nature and should be read in light of the factors set forth in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” of this Proxy Statement.
FAIRNESS OPINION OF ARA’S FINANCIAL ADVISOR: GOLDMAN SACHS & CO. LLC
At the meeting at which the Board voted to approve the proposed transaction, Goldman Sachs rendered to the Board its oral opinion, which was subsequently confirmed by delivery of a written opinion, to the effect that, as of October 1, 2020 and based upon and subject to the factors and assumptions set forth in such written opinion, the $11.50 in cash per share of Common Stock to be paid to the holders (other than IRC and its affiliates) of the shares of Common Stock pursuant to the Merger Agreement was fair from a financial point of view to such holders.
The full text of the written opinion of Goldman Sachs, dated October 1, 2020, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Appendix B. Goldman Sachs provided advisory services and its opinion for the information and assistance of the Board in connection with its consideration of the Merger. The Goldman Sachs opinion is not a recommendation as to how any holder of the shares of Common Stock should vote with respect to the Merger, or any other matter.
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In connection with rendering the opinion described above and performing its related financial analyses, Goldman Sachs reviewed, among other things:
the Merger Agreement;
annual reports to stockholders and Annual Reports on Form 10-K of ARA for the two (2) years ended December 31, 2019;
ARA’s Registration Statement on Form S-1, including the prospectus contained therein dated April 20, 2016 relating to an initial public offering of the shares of Common Stock;
certain interim reports to stockholders and Quarterly Reports on Form 10-Q of ARA;
certain other communications from ARA to its stockholders;
certain publicly available research analyst reports for ARA; and
certain internal financial analyses and forecasts for ARA prepared by its management, as approved for Goldman Sachs’ use by ARA (the “Company Forecasts”), as described in the section entitled “The Merger—Certain Financial Forecasts” of this Proxy Statement, below.
Goldman Sachs also held discussions with members of the senior management of ARA regarding its assessment of the past and current business operations, financial condition and future prospects of ARA; reviewed the reported price and trading activity for the shares of Common Stock; compared certain financial and stock market information for ARA with similar information for certain other companies the securities of which are publicly traded; reviewed the financial terms of certain recent business combinations in the dialysis industry and in other industries; and performed such other studies and analyses, and considered such other factors, as Goldman Sachs deemed appropriate.
For purposes of rendering this opinion, Goldman Sachs has, with ARA’s consent, relied upon and assumed the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by, it, without assuming any responsibility for independent verification thereof. In that regard, Goldman Sachs assumed with ARA’s consent that the Company Forecasts have been reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of ARA. Goldman Sachs did not make an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or other off-balance-sheet assets and liabilities) of ARA or any of its subsidiaries and has not been furnished with any such evaluation or appraisal. Goldman Sachs assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the Merger will be obtained without any adverse effect on the expected benefits of the Merger in any way meaningful to its analysis. Goldman Sachs has also assumed that the Merger will be consummated on the terms set forth in the Merger Agreement, without the waiver or modification of any term or condition the effect of which would be in any way meaningful to its analysis.
Goldman Sachs’ opinion does not address the underlying business decision of ARA to engage in the Merger, or the relative merits of the Merger as compared to any strategic alternatives that may be available to ARA; nor does it address any legal, regulatory, tax or accounting matters. Goldman Sachs was not requested to solicit, and did not solicit, interest from other parties with respect to an acquisition of, or other business combination with, ARA or any other alternative transaction prior to the date of the Merger Agreement. Goldman Sachs’ opinion addresses only the fairness from a financial point of view to the holders (other than IRC and its affiliates) of shares of Common Stock, as of the date of the opinion, of the $11.50 in cash per share of Common Stock to be paid to such holders pursuant to the Merger Agreement. Goldman Sachs’ opinion does not express any view on, and does not address, any other term or aspect of the Merger Agreement or the Merger or any term or aspect of any indemnification or other agreement or instrument contemplated by the Merger Agreement or entered into or amended in connection with the Merger, including, the fairness of the Merger to, or any consideration received in connection therewith by, the holders of any other class of securities, creditors, or other constituencies of ARA; nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of ARA, or class of such persons, in connection with the Merger, whether relative to the $11.50 in cash per share of Common Stock to be paid to the holders (other than IRC and its affiliates) of shares of Common Stock pursuant to the Merger Agreement or otherwise. In addition, Goldman Sachs does not express any opinion as to the potential effects of volatility in the credit, financial and stock markets on ARA or the Merger, or as to the impact of the Merger on the solvency or viability of ARA or IRC or the ability of ARA or IRC to pay their respective obligations when they come due. Goldman Sachs’ opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to it as of, the date of the opinion and Goldman Sachs assumed no
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responsibility for updating, revising or reaffirming its opinion based on circumstances, developments or events occurring after the date of its opinion. Goldman Sachs’ advisory services and its opinion were provided for the information and assistance of the Board in connection with its consideration of the Merger and such opinion does not constitute a recommendation as to how any holder of shares of Common Stock should vote with respect to the Merger or any other matter. Goldman Sachs’ opinion was approved by a fairness committee of Goldman Sachs.
The following is a summary of the material financial analyses delivered by Goldman Sachs to the Board in connection with rendering the opinion described above. The following summary, however, does not purport to be a complete description of the financial analyses performed by Goldman Sachs, nor does the order of analyses described represent relative importance or weight given to those analyses by Goldman Sachs. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of Goldman Sachs’ financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before September 30, 2020, the last completed trading day before the date of Goldman Sachs’ opinion, and is not necessarily indicative of current market conditions.
Historical Stock Trading Analysis. Goldman Sachs reviewed the historical trading prices for the shares of Common Stock for the one-year period ended September 30, 2020. In addition, Goldman Sachs analyzed the consideration to be paid to holders of shares of Common Stock pursuant to the Merger Agreement in relation to (i) the closing price per share of Common Stock on September 30, 2020, the last trading day before public announcement of the Merger, (ii) the high and low closing price per share of Common Stock for the 52-week period ended September 30, 2020, (iii) the median analyst price target per share of Common Stock, and (iv) the volume weighted average price (“VWAP”) per share of Common Stock for the preceding thirty- and ninety-trading day periods ended September 30, 2020.
This analysis indicated that the price per share of Common Stock to be paid to Company stockholders pursuant to the Merger Agreement represented:
a premium of 66.7% based on the closing price per share of Common Stock of $6.90 on September 30, 2020;
a premium of 10.9% based on the highest closing price per share of Common Stock of $10.37 for the fifty-two (52)-week period ended September 30, 2020;
a premium of 99.0% based on the lowest closing price per share of Common Stock of $5.78 for the fifty-two (52)-week period ended September 30, 2020;
a premium of 64.3% based on the median analyst price target per share of Common Stock of $7.00;
a premium of 79.1% based on the VWAP per share of Common Stock of $6.42 for the thirty (30)-trading day period ended September 30, 2020; and
a premium of 79.7% based on the VWAP per share of Common Stock of $6.40 for the ninety (90)-trading day period ended September 30, 2020.
Illustrative Discounted Cash Flow Analysis. Using the Company Forecasts, Goldman Sachs performed an illustrative discounted cash flow analysis on ARA. Using discount rates ranging from 7.0% to 8.5%, reflecting estimates of ARA’s weighted average cost of capital, Goldman Sachs discounted to present value as of August 31, 2020 (i) estimates of unlevered free cash flow for ARA for the years 2020 through 2024 as derived from the Company Forecasts and (ii) a range of illustrative terminal values for ARA, which were calculated by applying exit terminal year EBITDA – non-controlling interest (“NCI”) multiples ranging from 7.5x to 8.5x to a terminal year estimate of the EBITDA – NCI of ARA, as derived from the Company Forecasts (which analysis implied perpetuity growth rates ranging from 2.6% to 4.6%). Goldman Sachs derived such discount rates by application of the Capital Asset Pricing Model (“CAPM”), which requires certain company-specific inputs, including ARA’s target capital structure weightings, the cost of long-term debt, after-tax yield on permanent excess cash, if any, future applicable marginal cash tax rate and a beta for ARA, as well as certain financial metrics for the United States financial markets generally. The range of exit terminal year EBITDA – NCI multiples was estimated by Goldman Sachs utilizing its professional judgment and experience, taking into account the Company Forecasts.
Goldman Sachs derived ranges of illustrative enterprise values for ARA by adding the ranges of present values it derived above. Goldman Sachs then subtracted ARA’s net debt (excluding clinic-level debt not guaranteed by ARA and clinic-level cash not owned by ARA) (“Owned Net Debt”) of $460 million as of August 31, 2020, as
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provided by the management of ARA, from the range of illustrative enterprise values it derived for ARA, to derive a range of illustrative equity values for ARA. Goldman Sachs then divided the range of illustrative equity values it derived by the number of fully diluted outstanding shares of Common Stock as of September 28, 2020 using the treasury stock method, as provided by the management of ARA, to derive a range of illustrative present values per share of Common Stock ranging from $8.03 to $11.47.
Illustrative Present Value of Future Share Price Analysis. Goldman Sachs performed an illustrative analysis of the implied present value of an illustrative future value per share of Common Stock. For this analysis, Goldman Sachs used the Company Forecasts to derive a range of theoretical future enterprise values for ARA for each of the fiscal years 2020 to 2023, by applying a range of illustrative multiples of enterprise value to next twelve months (“NTM”) EBITDA less NCI (“NTM EV / EBITDA – NCI”) of 7.5x to 8.5x to NTM EBITDA – NCI estimates for ARA, based on the Company Forecasts. These illustrative multiple estimates were derived by Goldman Sachs utilizing its professional judgment and experience, taking into account historical NTM EV / EBITDA - NCI multiples for the shares of Common Stock and selected companies in the dialysis sector as summarized below under “Selected Publicly Traded Companies Analysis” during the three-year period ended September 30, 2020. Goldman Sachs then derived a range of theoretical future values per share of Common Stock for each of the fiscal years 2020 to 2023 by subtracting ARA’s Owned Net Debt as of that date, and dividing the result by the estimated fully diluted shares of Common Stock outstanding as of that date, all as reflected in the Company Forecasts. Using an illustrative discount rate of 8.0%, reflecting Goldman Sachs’ estimate of ARA’s cost of equity, Goldman Sachs discounted to present value the range of theoretical future values per share of Common Stock it derived for each of the fiscal years 2020 to 2023. Goldman Sachs derived the illustrative discount rate of 8.0% by application of CAPM, which requires certain company-specific inputs, including a beta for ARA, as well as certain financial metrics for the United States financial markets generally. This analysis resulted in a range of illustrative present values per share of Common Stock of $5.66 to $11.52.
Selected Precedent Transactions Analysis. Goldman Sachs analyzed certain information relating to the selected transactions listed below announced since 2004 involving target companies in the dialysis sector.
For each of the selected transactions, Goldman Sachs calculated and compared the enterprise value as a multiple of the target company’s EBITDA as reported or calculated using publicly available financial information for the relevant twelve-month period less NCI (“EV / EBITDA – NCI multiples”) of the applicable transaction. While none of the companies that participated in the selected transactions are directly comparable to ARA and none of the selected transactions are directly comparable to the Merger, the companies that participated in the selected transactions are companies with operations that, for the purposes of analysis, may be considered similar to certain of ARA’s results, market size and product profile.
The following table presents the results of this analysis:
Date
Target
Acquiror
Implied
EV /
EBITDA
– NCI
Multiple
July 2004
Physicians Dialysis
DaVita
N/A
December 2004
Gambro Healthcare US
DaVita
10.4x
May 2005
Renal Care Group
Fresenius
13.1x
July 2005
DaVita – 70 Clinics
Renal America
N/A
February 2006
Fresenius – 105 Clinics
National Renal Institutes
N/A
November 2008
National Renal Alliance
Renal Advantage
N/A
March 2010
American Renal Associates
Centerbridge Partners
9.2x
April 2010
Liberty Dialysis
KRG Capital
11.0x
April 2010
Dialysis Corp of America
USRC
12.7x
November 2010
Renal Advantage
Liberty Dialysis
11.0x
February 2011
DSI Renal
DaVita
10.0x
August 2011
Liberty / RAI
Fresenius
11.4x
April 2012
Fresenius / Liberty – 54 Clinics
DSI Renal
N/A
April 2012
USRC
LGP
N/A
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Date
Target
Acquiror
Implied
EV /
EBITDA
– NCI
Multiple
July 2013
Ambulatory Services of America
USRC
N/A
August 2015
DSI Renal
USRC
N/A
February 2019
USRC
Bain, Summit, Revelstoke
N/A
Based on the results of the foregoing calculations of EV / EBITDA – NCI multiples and Goldman Sachs’ professional judgment and experience, Goldman Sachs applied an illustrative range of EV / EBITDA – NCI multiples of 9.0x to 13.0x to last twelve months (“LTM”) EBITDA – NCI of ARA for the twelve-month period ended August 31, 2020 as provided by the management of ARA to derive a range of implied enterprise values for ARA. Goldman Sachs subtracted from this range of implied enterprise values ARA’s Owned Net Debt as of August 31, 2020, as provided by the management of ARA, and divided the result by the fully diluted outstanding shares of Common Stock as of September 28, 2020 using the treasury stock method, as provided by the management of ARA, to derive a range of implied values per share of Common Stock of $8.87 to $18.46.
Premia Analysis. Goldman Sachs reviewed and analyzed, using publicly available information, the acquisition premia for all-cash acquisition transactions announced from January 1, 2010 to September 22, 2020 involving targets that were public healthcare companies based in the United States and acquirers that were based in the United States where the disclosed enterprise values for the Merger were between $100 million and $1.5 billion. This analysis excluded transactions in the biotech and pharmaceutical sectors. For the entire period, using publicly available information, Goldman Sachs calculated the median, 25th percentile and 75th percentile premiums of the price paid in the transactions relative to the target’s last undisturbed closing stock price prior to announcement of the Merger. This analysis indicated a median premium of approximately 41% across the period. This analysis also indicated a 25th percentile premium of 24.0% and 75th percentile premium of 55.2% across the period. Using this analysis and Goldman Sachs’ professional judgment and experience, Goldman Sachs applied a reference range of illustrative premiums of 24.0% to 55.2% to the undisturbed closing price per share of Common Stock as of September 30, 2020 and calculated a range of implied equity values per share of Common Stock of $8.56 to $10.71.
Selected Publicly Traded Companies Analysis. Using publicly available information, Goldman Sachs reviewed and compared, for reference only, EV / NTM EBITDA – NCI multiples for ARA and the following selected group of publicly traded companies in the dialysis sector, which are referred to in this section as the “selected companies”:
DaVita Inc.
Fresenius Medical Care AG & Co. KGaA
Goldman Sachs calculated the average of the EV / NTM EBITDA – NCI multiples for each of ARA and the selected companies, for reference only, over the period from February 17, 2020 to September 30, 2020, and the periods of six months, one year, two years and three years prior to September 30, 2020, the results of which are as follows:
 
Average EV / NTM EBITDA - NCI
Periods Prior to September 30, 2020
 
Since
February
17, 2020
Six Months
One
Year
Two Years
Three Years
Company
7.7x
7.7x
7.9x
7.6x
7.7x
DaVita
8.0x
8.0x
7.9x
7.3x
7.5x
Fresenius
7.3x
7.4x
7.4x
8.1x
8.7x
Although none of the selected companies are directly comparable to ARA, Goldman Sachs selected these companies because they are publicly traded companies that operate in the dialysis sector with certain operations that for purposes of analysis may be considered similar to certain operations of ARA.
General. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Goldman Sachs' opinion. In arriving at its fairness determination, Goldman Sachs considered the results of all of its analyses and did
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not attribute any particular weight to any factor or analysis considered by it. Rather, Goldman Sachs made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. No company or transaction used in the above analyses as a comparison is directly comparable to ARA, IRC or the Merger.
Goldman Sachs prepared these analyses for purposes of Goldman Sachs’ providing its opinion to the Board as to the fairness from a financial point of view of the $11.50 in cash per share of Common Stock to be paid to the holders (other than IRC and its affiliates) of shares of Common Stock pursuant to the Merger Agreement. These analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of ARA, IRC, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecast.
The Per Share Merger Consideration was determined through arm’s-length negotiations between ARA and IRC and was approved by the Board. Goldman Sachs provided advice to ARA during these negotiations. Goldman Sachs did not, however, recommend any specific amount of consideration to ARA or the Board or that any specific amount of consideration constituted the only appropriate consideration for the Merger.
As described above, Goldman Sachs’ opinion to the Board was one of many factors taken into consideration by the Board in making its determination to approve the Merger Agreement. The foregoing summary does not purport to be a complete description of the analyses performed by Goldman Sachs in connection with the fairness opinion and is qualified in its entirety by reference to the written opinion of Goldman Sachs attached as Appendix B.
Goldman Sachs and its affiliates are engaged in advisory, underwriting and financing, principal investing, sales and trading, research, investment management and other financial and non-financial activities and services for various persons and entities. Goldman Sachs and its affiliates and employees, and funds or other entities they manage or in which they invest or have other economic interests or with which they co-invest, may at any time purchase, sell, hold or vote long or short positions and investments in securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments of ARA, IRC, any of their respective affiliates and third parties, including Centerbridge Capital Partners, L.P. (“Centerbridge”), a significant shareholder of ARA, Fresenius Medical Care Holdings Inc. (“Fresenius”), an affiliate of which (the “Subsequent Transaction Buyer”) Goldman Sachs understands has entered into an agreement with IRC to purchase certain clinics in connection with the Merger, and their respective affiliates and, as applicable, portfolio companies, or any currency or commodity that may be involved in the Merger. Goldman Sachs acted as financial advisor to ARA in connection with, and participated in certain of the negotiations leading to, the Merger. Goldman Sachs has provided certain financial advisory and/or underwriting services to Centerbridge and/or its affiliates and portfolio companies from time to time for which its Investment Banking Division has received, and may receive, compensation, including having acted as financial advisor to Centerbridge Partners, L.P., an affiliate of Centerbridge, in connection with the acquisition of Civitas Solutions, Inc. (“Civitas”) in March 2019; as a financial advisor to Canopius Managing Agents Limited, a portfolio company of an affiliate of Centerbridge, in connection with the acquisition of Amtrust’s Lloyds syndicates in October 2019; as lead arranger in connection with a bank loan (aggregate principal amount $100 million) to Civitas in October 2019; as financial advisor to Great Wolf Resorts Inc., a portfolio company of an affiliate of Centerbridge, in connection with the sale of a controlling interest to Blackstone in November 2019; as lead arranger in connection with a bank loan (aggregate principal amount $205 million) to Civitas in February 2020; and as joint bookrunner in connection with the initial public offering of 45,425,000 common shares of GoHealth, LLC, a portfolio company of an affiliate of Centerbridge, in July 2020. During the two (2)-year period ended October 1, 2020, Goldman Sachs has recognized compensation for financial advisory and/or underwriting services provided by its Investment Banking Division to Centerbridge and/or its affiliates and its and their portfolio companies of approximately $38.3 million. Goldman Sachs has also provided certain financial advisory and/or underwriting services to affiliates of Fresenius from time to time for which its Investment Banking Division has received, and may receive, compensation, including having acted as joint bookrunner in connection with a public offering by Fresenius SE & Co. KGaA (“Fresenius SE”), an affiliate of Fresenius, of its 2.875% Notes due 2029 and 1.875% Notes due 2025 (aggregate principal amount €1 billion) in January 2019; and as joint bookrunner in connection with a public offering by Fresenius SE of its 0.375% Notes due 2026 and 1.125% Notes due 2033 (aggregate principal amount €1 billion) in September 2020. During the two (2)-year period ended October 1, 2020, Goldman Sachs has recognized compensation for financial advisory and/or underwriting services provided by its Investment Banking Division to affiliates of Fresenius of
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approximately $1.1 million. During the two (2)-year period ended October 1, 2020, the Investment Banking Division of Goldman Sachs has not been engaged by ARA, IRC, or their respective affiliates (other than Centerbridge and Fresenius as described above) to provide financial advisory or underwriting services for which Goldman Sachs has recognized compensation. Goldman Sachs may also in the future provide financial advisory and/or underwriting services to ARA, IRC, Centerbridge, Fresenius and their respective affiliates and, as applicable, portfolio companies for which its Investment Banking Division may receive compensation. Affiliates of Goldman Sachs also may have co-invested with Centerbridge and its affiliates from time to time and may have invested in limited partnership units of affiliates of Centerbridge from time to time and may do so in the future.
The Board selected Goldman Sachs as its financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the Merger. Pursuant to a letter agreement dated September 29, 2020, ARA engaged Goldman Sachs to act as its financial advisor in connection with the Merger. The engagement letter between ARA and Goldman Sachs provides for a transaction fee that is estimated, based on the information available as of the date of announcement, to be approximately $12.4 million, $2.5 million of which became payable at announcement of the Merger, and the remainder of which is contingent upon consummation of the Merger. In addition, ARA has agreed to reimburse certain of Goldman Sachs’ expenses arising, and indemnify Goldman Sachs against certain liabilities that may arise, out of its engagement by ARA.
CERTAIN FINANCIAL FORECASTS
ARA’s senior management prepares projections of ARA’s expected financial performance as part of its ongoing management of the business. Other than guidance in connection with its regularly scheduled earnings releases, as a matter of course, these projections are not publicly disclosed due to the inherent unpredictability of the underlying assumptions and estimates. However, ARA is including certain unaudited prospective financial information, which we refer to as the “Company Forecasts,” in this Proxy Statement in order to provide stockholders access to a summary of certain nonpublic unaudited prospective financial information.
In connection with the Board’s review of ARA’s strategic alternatives, including the consideration and evaluation of a potential transaction with IRC, ARA’s senior management prepared and provided to the Board and Goldman Sachs the Company Forecasts. The Company Forecasts were reviewed by the Board and shared with Goldman Sachs. At the direction of the Board, Goldman Sachs used and relied upon the Company Forecasts in connection with its financial analyses for purposes of its opinion, as summarized in the section entitled “The Merger—Fairness Opinion of ARA’s Financial Advisor: Goldman Sachs & Co. LLC” of this Proxy Statement. For these reasons, ARA has elected to summarize the Company Forecasts in this Proxy Statement.
The Company Forecasts were not prepared with a view toward public disclosure and reflect subjective judgment in many respects and, therefore, are susceptible to multiple interpretations and frequent revisions based on actual results and business developments.
ARA’s internal financial forecasts, such as the Company Forecasts, and the assumptions upon which the Company Forecasts were based, are subjective in many respects and thus subject to interpretation. Although presented with numerical specificity, the Company Forecasts are forward-looking statements and are based upon a variety of estimates and numerous assumptions made by ARA’s senior management with respect to, among other matters, industry performance, general business, economic, market and financial conditions and other matters, including the factors described under the section entitled “Cautionary Statement Regarding Forward-Looking Statements” in this Proxy Statement and other risk factors described in ARA’s filings with the SEC, many of which are difficult to predict, are inherently uncertain, are beyond ARA’s control, are subject to significant economic and competitive uncertainties and may not reflect current prospects for ARA’s business, changes in general business, economic, market and financial conditions and other matters, transactions or events that have occurred or that may occur and that were not anticipated when the Company Forecasts were prepared. In addition, since the Company Forecasts cover multiple years, such information by its nature becomes less reliable with each successive year. As a result, there can be no assurance that the estimates and assumptions made in preparing the Company Forecasts will prove accurate, that the projected results will be realized or that actual results will not be significantly higher or lower than projected. In addition, the Company Forecasts do not take into account the transactions contemplated by the Merger Agreement, including the Merger, that might also cause actual results to differ materially. ARA’s stockholders are urged to review ARA’s filings with the SEC for a description of ARA’s actual reported results of operations and financial condition.
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The Company Forecasts are not intended to comply with, and include financial metrics that were not prepared in accordance with, United States generally accepted accounting principles (“GAAP”), the published guidelines of the SEC regarding financial projections and the use of non-GAAP measures or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial projections and forecasts. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and non-GAAP financial measures as used by ARA may not be comparable to similarly titled measures used by other companies. Financial measures included in projections provided to a financial advisor and a board of directors in connection with a business combination transaction, such as the Company Forecasts, are excluded from the definition of “non-GAAP financial measures” under the rules of the SEC, and therefore such projections are not subject to SEC rules regarding disclosures of non-GAAP financial measures, which would otherwise require a reconciliation of a non-GAAP financial measure to a GAAP financial measure. Accordingly, we have not provided a reconciliation of the financial measures included in the Company Forecasts to the relevant GAAP financial measures. Neither Ernst & Young, ARA’s independent registered public accounting firm, nor any other independent registered public accounting firm has examined, compiled or performed any procedures with respect to the Company Forecasts, and, accordingly, neither Ernst & Young nor any other public accounting firm expresses an opinion or any other form of assurance with respect to the Company Forecasts. Reports by Grant Thornton LLP incorporated by reference into this Proxy Statement relate solely to ARA’s historical financial information. They do not extend to the prospective financial information and should not be read to do so.
ARA defines “Adjusted EBITDA” as net income before stock-based compensation and associated payroll taxes, depreciation, amortization and impairment, interest expense, net, income taxes and other non-income-based tax, change in fair value of income tax receivable agreement, certain legal and other matters, severance, executive retirement and related costs and gain or loss on sale or closure of clinics. ARA’s senior management believes Adjusted EBITDA is useful because it provides meaningful supplemental information about ARA’s operating performance and facilitates period-to-period comparisons without regard to our financing methods, capital structure or other items that ARA believes are not indicative of ARA’s ongoing operating performance.
No one has made or makes any representation regarding the information included in the Company Forecasts. Stockholders and other readers of this Proxy Statement are cautioned not to rely unduly, if at all, on the Company Forecasts. Some or all of the assumptions that have been made regarding, among other things, the timing of certain occurrences or effects, may have changed since the date the Company Forecasts were prepared. ARA has not updated or otherwise revised, and does not intend to update or otherwise revise, the Company Forecasts to reflect circumstances existing after the date when prepared or to reflect the occurrence or non-occurrence of events after the date when prepared, even if any or all of the assumptions on which the Company Forecasts were based are shown to be inaccurate. Subject to the foregoing qualifications, set forth below is a summary of the Company Forecasts.
 
For the Fiscal Year Ended December 31,
 
2020E
2021E
2022E
2023E
2024E
 
(in millions)
Patient service operating revenues
$811.6
$824.0
$889.4
$955.2
$1,034.9
Total operating expenses(1)
$720.2
$723.9
$783.4
$842.7
$913.0
Net income
$47.8
$55.2
$60.7
$66.9
$75.6
Adjusted EBITDA(2)
$139.1
$141.3
$149.7
$158.7
$171.1
Adjusted EBITDA less NCI (2)(3)
$91.0
$92.4
$97.8
$103.4
$111.2
Capital expenditures
$20.9
$28.8
$38.3
$48.3
$56.6
Unlevered free cash flow(4)
$39.1
$38.6
$31.1
$34.8
$33.0
Total ending clinics
249
259
273
290
310
(1)
Total operating expenses includes patient care costs, general and administrative expenses, depreciation, amortization and impairment, and certain legal and other matters.
(2)
Excludes stock-based compensation expense and associated payroll taxes, depreciation, amortization and impairment, interest expense, net income tax expense or benefit and other non-income-based taxes, change in fair value of income tax receivable agreement, costs related to certain legal and other matters, severance, executive retirement and related costs and the gain or loss on sale or closure of clinics. Includes the estimated impact of the Coronavirus Aid, Relief and Economic Security Act ( the “CARES Act”) reimbursements for COVID-19 related reduction in patient service operating revenues, net of direct patient care costs in 2020E and COVID-19 related operating expenses.
(3)
Adjusted EBITDA less NCI equals Adjusted EBITDA minus the share of net income attributable to noncontrolling interests.
(4)
Unlevered free cash flow equals Adjusted EBITDA less NCI reduced by stock based compensation expense, one-time legal expenses,
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income tax expense (estimated rate of 26%), capital expenditures and settlement payments due to UnitedHealth Group Incorporated, increased by cash from divestitures and a one time tax benefit related to CARES Act legislation in 2020E, and adjusted for changes in net working capital. 2020E represents estimated cash flows expected from September through December 2020.
INTERESTS OF THE DIRECTORS AND EXECUTIVE OFFICERS OF ARA IN THE MERGER
In considering the recommendation of the Board with respect to the Merger Proposal, you should be aware that our directors and executive officers may have interests in the Merger that are different from, or in addition to, your interests as a stockholder. The Board was aware of these interests and considered them, among other matters, in evaluating and approving the Merger Agreement and the Merger and in recommending that the Merger Proposal be approved by our stockholders. See the sections entitled “The Merger—Background of the Merger” and “The Merger—Recommendation of the Board and Reasons for the Merger” of this Proxy Statement. You should take these interests into account in deciding whether to vote “FOR” the Merger Proposal.
The dates used below to quantify these interests have been selected for illustrative purposes only and do not necessarily reflect the dates on which certain events will occur.
Note that, in accordance with SEC rules we are required to include this information on behalf of any individual who was an executive officer of ARA at any time since January 1, 2019, and therefore includes information with respect to Jason Boucher, who previously was an executive officer but who is no longer employed by ARA.
Treatment of ARA Equity Awards in the Merger
Certain of our directors and executive officers hold outstanding ARA stock options and ARA restricted stock awards. Under the Merger Agreement, immediately prior to the Effective Time, each option to purchase shares of our Common Stock that is outstanding and unexercised immediately prior to the Effective Time, will be cancelled and converted into the right to receive a cash payment equal to the product of the total number of shares of our Common Stock underlying the option multiplied by the excess, if any, of the Per Share Merger Consideration (as defined in the Merger Agreement) over the applicable per share exercise price of the option, less applicable withholding taxes. Options with a per share exercise price equal to or exceeding the Per Share Merger Consideration (if any) will be cancelled without payment.
The Merger Agreement also provides that, immediately prior to the Effective Time, each award of restricted stock and restricted stock units covering shares of our Common Stock that is outstanding immediately prior to the Effective Time, whether vested or unvested, will vest in full (to the extent unvested) and will be cancelled and converted into the right to receive a cash payment equal to the product of the Per Share Merger Consideration multiplied by the aggregate number of shares of our Common Stock subject to the award, less applicable withholding taxes.
The following table sets forth for each executive officer and director the aggregate number of shares of our Common Stock owned or subject to vested and unvested ARA stock options with an exercise price that does not exceed the Per Share Merger Consideration and unvested ARA restricted stock awards, in each case as of December 4, 2020. None of our current or former directors or executive officers hold outstanding restricted stock unit awards.
Name
Vested
Stock
Options (#)(1)
Value of
Vested
Stock
Options(2)
Unvested
Stock
Options
(#)(3)
Value of
Unvested
Stock
Options(4)
Unvested
Restricted
Stock
(#)(5)
Value of
Unvested
Restricted
Stock(6)
Shares of
Common
Stock (#)
Value of
Common
Stock(6)
Current or Former Non-Employee Directors
Michael E. Boxer
0
$0
0
$0
17,151
$197,237
83,317(7)
$958,146
Susanne V. Clark
0
$0
0
$0
0
$0
0
$0
Thomas W. Erickson
0
$0
0
$0
17,151
$197,237
50,604(7)
$581,946
Jeremy W. Gelber
0
$0
0
$0
0
$0
0
$0
Robert H. Fish
0
$0
0
$0
17,151
$197,237
26,054
$299,621
Jared S. Hendricks
0
$0
0
$0
0
$0
0
$0
Christopher J. Hocevar
0
$0
0
$0
18,679
$214,809
0
$0
John M. Jureller
0
$0
0
$0
17,151
$197,237
32,284
$371,266
Steven M. Silver
0
$0
0
$0
0
$0
0
$0
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Name
Vested
Stock
Options (#)(1)
Value of
Vested
Stock
Options(2)
Unvested
Stock
Options
(#)(3)
Value of
Unvested
Stock
Options(4)
Unvested
Restricted
Stock
(#)(5)
Value of
Unvested
Restricted
Stock(6)
Shares of
Common
Stock (#)
Value of
Common
Stock(6)
Current or Former Executive Officers
Joseph A. Carlucci
199,307
$1,002,514
0
$0
174,774
$2,009,901
1,070,390(7)
$12,309,485
Syed T. Kamal
199,307
$1,002,514
0
$0
184,840
$2,125,660
1,106,396
$12,723,554
Don E. Williamson
17,695
$151,115
0
$0
247,121
$2,841,892
60,161
$691,852
Victoria A. Labriola
3,047
$3,992
22,041
$91,470
59,193
$680,720
5,376
$61,824
Mark Herbers
0
$0
0
$0
0
$0
0
$0
Jason Boucher(8)
0
$0
0
$0
0
$0
N/A
N/A
(1)
Messrs. Carlucci, Kamal, Boxer, Erickson and Jureller, Dr. Williamson and Ms. Labriola also hold 105,000, 48,000, 11,450, 11,450, 11,450, 53,020 and 13,356 vested stock options, respectively, that have a per share exercise price greater than the Per Share Merger Consideration of $11.50.
(2)
Dollar values are calculated based on the difference between the Per Share Merger Consideration of $11.50 per share and the weighted average exercise price of each executive officer’s vested stock options that are in the money. Messrs. Carlucci’s and Kamal’s vested in the money options have a weighted average exercise price of $6.47. Dr. Williamson’s vested in the money options have a weighted average exercise price of $2.96. Ms. Labriola’s vested in the money options have a weighted average exercise price of $10.19.
(3)
Messrs. Carlucci and Kamal also hold 595,253 and 218,639 unvested stock options, respectively, with a per share exercise price that is greater than the Per Share Merger Consideration of $11.50.
(4)
Dollar value is calculated based on the difference between the Per Share Merger Consideration of $11.50 per share and $7.35, the weighted average exercise price of Ms. Labriola’s unvested stock options that are in the money.
(5)
For Mr. Carlucci, this consists of 158,405 unvested restricted shares and 16,369 performance-based restricted shares that are earned but unvested. For Mr. Kamal, this consists of 78,280 unvested restricted shares, 7,614 performance-based restricted shares that are earned but unvested and 98,946 unvested performance-based restricted shares. For Dr. Williamson, this consists of 107,189 unvested restricted shares, 8,375 performance-based restricted shares that are earned but unvested and 131,557 unvested performance-based restricted shares. For Ms. Labriola, this consists of 30,325 unvested restricted shares and 28,868 unvested performance-based restricted shares.
(6)
Dollar values are calculated based on the Per Share Merger Consideration of $11.50.
(7)
Common stock includes shares beneficially held by Messrs. Boxer, Erickson and Carlucci.
(8)
Mr. Boucher is no longer employed by us; accordingly, information related to Mr. Boucher’s current ownership of shares, if any, is not readily determinable.
Director and Executive Officer Compensation Arrangements
Emerging Growth Company Status
ARA qualifies as an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act of 1933, as amended, as modified by the Jumpstart Our Business Startups Act of 2012. As a result, ARA is permitted to rely on, and does rely on, exemptions from certain disclosure requirements that are applicable to other companies that are not emerging growth companies. Specifically, as an emerging growth company, ARA is not required to conduct votes seeking shareholder approval on an advisory basis of (1) the compensation of ARA’s “named executive officers” or the frequency with which such votes must be conducted or (2) compensation arrangements and understandings in connection with merger transactions, known as “golden parachute” arrangements. Accordingly, ARA has not included a tabular compensation information for such “golden parachute” arrangements.
Employment Agreements
Each of Messrs. Joseph A. Carlucci and Syed T. Kamal and Dr. Don E. Williamson has entered into an employment agreement and, in the case of Mr. Carlucci, a transition services agreement, with ARA that provides the executive with the following payments and benefits if the executive’s employment is terminated by ARA without “cause” or by the executive for “good reason,” subject to the executive’s execution and non-revocation of a release of claims in favor of ARA and continued compliance with restrictive covenants:
For Mr. Carlucci:
continued base salary at the annualized rate of $904,203 for twenty-four (24) months, payable in installments in accordance with our normal payroll practices;
continued health, life and disability benefits at the same levels as provided to active employees until the earlier of (A) twenty-four (24) months following the date of termination and (B) such time that Mr. Carlucci
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becomes eligible for comparable benefits from a different employer, or, if provision of such benefits is not practicable, a monthly cash payment in an amount equal to our normal monthly cost of coverage for an active employee for a period of twenty-four (24) months; and
a pro-rated annual cash incentive bonus in respect of the calendar year during which his services with ARA terminates, subject to the delivery of our final audited financial statements with respect to such year.
In addition, pursuant to Mr. Carlucci’s transition services agreement with ARA, if Mr. Carlucci has already been terminated without cause or resigned for good reason and is serving as a consultant at the time of a “change in control” (as defined in his employment agreement, which includes the Merger), any remaining salary continuation will immediately come due and will be paid to him in one lump sum upon the effective date of the “change in control”.
For Mr. Kamal and Dr. Williamson:
continuation of base salary, at the then-current level, for a period of twenty-four (24) months, payable in installments in accordance with our normal payroll practices;
continuation of employee group health, life and disability plans until the earlier of (A) twenty-four (24) months following the date of termination and (B) the date the executive is or becomes eligible for comparable coverage under health, life and disability plans of another employer; and
a pro rata portion of the executive’s bonus for the then-current fiscal year based upon actual performance, payable at the time at which bonuses are normally paid.
Dr. Williamson would also be entitled to the severance payments described above in the event that the buyer in a “change of control” fails to assume his employment agreement.
The term “cause” generally means the named executive officer’s (i) conviction of, or plea of guilty to, a crime if, as a result of his continued association with us, such crime is injurious to our business or reputation, (ii) breach of duty of loyalty that is detrimental to us and involves his personal profit, (iii) willful failure to perform his duties or to follow lawful directives of the Board, or (iv) gross negligence or willful misconduct in the performance of his duties.
The term “good reason” generally means any substantial diminution of or substantial detrimental change in the named executive officer’s responsibilities, salary or benefits, or relocation of the named executive officer’s principal office from the metropolitan Boston area.
Mr. Carlucci is subject to non-competition, non-solicitation of employees and no-hire covenants that apply during his employment and consulting term with us and through the third anniversary of the date on which Mr. Carlucci becomes a consultant (in the case of the non-compete) and the third anniversary of the end of his consulting term (in the case of the non-solicit of employees and no-hire. Mr. Kamal is subject to non-competition, non-solicitation of employees and no-hire covenants that apply during his employment with us and through the third anniversary of the date of his termination of employment. However, solely in the case of a change in control, the restrictive period applicable to Mr. Kamal will end on the later of (i) the third (3rd) anniversary of the change in control (which includes the Merger) and (ii) the first (1st) anniversary of the date of termination of employment. In addition, solely in the case of a change in control, we have the right to extend the restrictive period applicable to Mr. Kamal until the later of (x) the fifth (5th) anniversary of the change in control and (y) the first (1st) anniversary of the date of termination if we make a timely election and pay Mr. Kamal an amount equal to 300% of his then current base salary in a lump sum. Dr. Williamson is subject to six (6) month post-termination non-competition and one (1) year post-termination non-solicitation of employees and customers covenants. Each of Messrs. Carlucci and Kamal and Dr. Williamson is also subject to customary confidentiality and invention assignment covenants.
Herbers Engagement Letter
In connection with the appointment of Mr. Herbers as Interim Chief Financial Officer and Interim Chief Accounting Officer on March 21, 2019, ARA entered into an engagement letter, dated as of March 21, 2019 (the “Engagement Letter”), with AP Services, LLC (“APS”), an affiliate of AlixPartners, LLP, where Mr. Herbers has been employed since 2014. Mr. Herbers is expected to serve until ARA appoints a permanent chief financial officer and principal accounting officer. Pursuant to the Engagement Letter, Mr. Herbers will continue to be employed by APS during the term of his service to ARA and will not receive any compensation directly from ARA or participate
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in any of ARA’s employee benefit plans. ARA will instead pay APS an hourly rate of $875 per hour for the services provided by Mr. Herbers and will reimburse APS for reasonable out-of-pocket expenses. The Engagement Letter may be terminated by either party at any time by written notice to the other party, subject to the payment of fees and expenses incurred by APS through the effective date of the termination. The Engagement Letter also contains certain covenants, including a one-year non-solicitation provision applicable to ARA with respect to the solicitation of APS employees, subject to certain exceptions as provided in the Engagement Letter.
Change of Control and Severance Protection Agreement
Ms. Labriola is not party to an employment agreement with ARA; however, she is party to a Change of Control and Severance Protection Agreement (a “Change of Control Severance Protection Agreement”) that entitles her a lump sum payment equal to one (1) year of her then-current base salary if she is terminated without “cause” or resigns for “good reason” during the period that begins on the date a change of control agreement is entered into and ends one year following the closing of such change of control. Payment under the Change of Control Severance Protection Agreement may be reduced by the amount of Ms. Labriola’s retention bonus (as described below in the section entitled “The Merger—Interests of the Directors and Executive Officers of ARA in the Merger—Retention Program” of this Proxy Statement, below) and is subject to Ms. Labriola’s execution and non-revocation of a release of claims in favor of ARA. In addition, Ms. Labriola is subject to a one-year post-termination non-solicitation of employees and customers covenant and a perpetual confidentiality covenant.
The terms “cause” and “good reason” have the same definitions as those set forth above under the employment agreements for Messrs. Carlucci, Kamal and Williamson.
Assuming that each of the executive officers is terminated by us without “cause” or resigns for “good reason” immediately following the effective time of the Merger (which for these purposes is assumed to be December 31, 2020), then the value of the estimated payments and benefits under Mr. Carlucci’s transition services agreement, Mr. Kamal’s and Dr. Williamson’s employment agreements and Ms. Labriola’s Change of Control Severance Protection Agreement, as applicable, for each individual would be:
Name
Value of Cash
Severance ($)(1)
Value of
Contribution for
Health Benefits ($)(2)
Value of Pro-Rated
Bonus ($)(3)
Value of
Retention
Bonus ($)(4)
Total ($)
Joseph A. Carlucci
$1,808,406
$52,648
$904,203
$0
$2,765,257
Syed T. Kamal
$1,541,856
$37,323
$770,928
$0
$2,350,107
Don E. Williamson
$1,500,000
$40,420
$750,000
$0
$2,290,420
Victoria A. Labriola
$200,000
$0
$0
$200,000
$400,000
(1)
The value of cash severance includes: with respect to Messrs. Carlucci and Kamal and Dr. Williamson, two times base salary on the assumed termination date; and with respect to Ms. Labriola, the difference between (a) base salary and (b) retention bonus amount. Base salaries reflect the base salary in effect for 2020 without giving effect to COVID-19 related reductions. Accordingly, if any executive officer’s base salary is increased, the actual payments such executive officer may receive may be greater than those set forth in the table above.
(2)
The value of ARA's contribution for health benefits includes: estimated contributions towards the executive officers’ health insurance for 24 months based on current participation levels and premium rates.
(3)
The value of the pro-rated bonus assumes target bonuses for 2020 for each executive officer.
Consulting Agreement with Board Member
ECG Ventures, Inc., an entity wholly owned by Thomas W. Erickson, a member of the Board, provided consulting services to ARA during the three months ended September 30, 2020 in exchange for a payment in the amount of $275,000.
Treatment of Equity Awards in the Event of Change of Control
The grant agreements between ARA and each of Messrs. Carlucci and Kamal and Dr. Williamson and Ms. Labriola governing the treatment of all outstanding stock options and shares of restricted stock subject solely to time-based vesting conditions provide for immediate vesting of any unvested portion of equity grants upon a change of control, whether a termination event has occurred or not. In the case of performance vesting restricted stock, in the event any of the individuals are involuntarily terminated without cause or resigns for good reason, in either case within twenty-four (24) months of the occurrence of a “change in control” (a “Qualifying Termination”), such
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restricted stock will immediately fully vest on the date of such termination or resignation. Further, in the case of Dr. Williamson’s performance based restricted stock, if a “change in control” occurs but there is no Qualifying Termination, the portion of the performance-based restricted stock that would otherwise remain eligible to vest based on Adjusted EBITDA in respect of any fiscal years ending after the date of the “change of control” will instead remain outstanding and eligible to vest on the basis of Dr. Williamson’s continued employment through the last day of each such fiscal year without regard to our Adjusted EBITDA for such year.
As described above, all outstanding equity awards (whether vested or unvested) will automatically vest and be cancelled for cash payments in accordance with the Merger Agreement.
Employee Benefits
The Merger Agreement requires IRC (or the surviving corporation) to continue to provide certain compensation and benefits for a period of one year following the Effective Time for certain continuing ARA employees, and to take certain actions in respect of employee benefits provided to ARA’s employees. For a detailed description of these requirements, please see the section entitled “The Merger Agreement—Other Covenants and Agreements—Employee Matters” of this Proxy Statement.
Retention Program
ARA established a cash-based retention program in the aggregate amount of approximately $1.7 million to promote retention and to incentivize efforts to consummate the closing of the transactions contemplated by the Merger Agreement (the “Retention Program”), including a $200,000 retention bonus for Ms. Labriola. Neither Messrs. Carlucci nor Kamal nor Dr. Williamson are participating in the Retention Program. Payments under the Retention Program will be made at the Effective Time or on ARA’s first regular payroll date following the Effective Time; provided that, to the extent applicable, any amounts paid under the Retention Program to an employee will reduce, dollar for dollar, the amount of any severance payments payable to such employee under the respective Change of Control and Severance Protection Agreement to which he or she is party. ARA may re-allocate the Retention Program bonuses among employees after consulting in good faith with IRC before taking such actions so long as the aggregate amount of bonuses payable under the Retention Program does not exceed approximately $1.7 million, and, to the extent any bonuses under the Retention Program are forfeited by any employees, ARA may reallocate such forfeited bonuses to other employees after consulting in good faith with IRC before taking such actions.
Insurance and Indemnification of Directors and Executive Officers
From and after the Effective Time until the sixth (6th) anniversary of the Effective Time, IRC has agreed that it and the surviving corporation will indemnify and hold harmless each present and former director, officer and employee of ARA and its subsidiaries against any costs or expenses incurred in connection with any claim or proceeding occurring at or prior to the Effective Time to the fullest extent that ARA and its subsidiaries would have been required by applicable law and their respective organizational documents or indemnification agreements, in effect as of the date of the Merger Agreement, to indemnify such persons.
Prior to the Effective Time, ARA will purchase a pre-paid, non-cancelable 6-year “tail” policy, of directors’ and officers’ liability insurance with respect to matters arising on or before the Effective Time.
Post-Go Shop Discussions about Continuing Roles and Related Matters
Between November 11, 2020 and November 12, 2020, following the completion of the go-shop period, representatives of Nautic held separate in-person meetings with each of Messrs. Joseph Carlucci, Syed Kamal and Don Williamson to discuss, for the first time, the potential that each of them would continue to serve in a role with the surviving corporation and/or its affiliates following the closing, related cash and/or incentive equity compensation, as well as the potential for a rollover in connection with the transaction of all or a portion of their equity in the Company into equity of a holding company for Nautic’s investment in the Company. Nautic also offered Messrs. Carlucci and Kamal a seat on the board of managers of the same holding company following the closing. No agreement has been reached on any aspect of those conversations, including future role (whether board seats, employment or otherwise), any aspect of compensation or an equity rollover.
VOTING AND SUPPORT AGREEMENT
On October 1, 2020, the Centerbridge Stockholders, which together beneficially owned approximately 51% of the outstanding shares of our Common Stock entered into the Voting Agreement with IRC, pursuant to which, among
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other things and subject to the terms and conditions therein, the Centerbridge Stockholders agreed to vote their shares of Common Stock in favor of the Merger Proposal and against any alternative proposal (including an Acquisition Proposal), any action or agreement that would reasonably be expected to result in a breach under the Merger Agreement or any other action, agreement or transaction intended to impede or interfere with the Merger or the other transactions contemplated by the Merger Agreement. In addition, each stockholder party to the Voting Agreement waived its appraisal rights under the General Corporation Law of the State of Delaware (the “DGCL”).
The Centerbridge Stockholders also agreed, to the extent requested by the Board (or a duly authorized committee thereof) in connection with any Acquisition Proposal which the Board or such committee has determined in good faith, after consultation with its financial advisors and outside legal counsel, constitutes a Superior Proposal (as defined in the section entitled “The Merger Agreement—Other Covenants and Agreements—No Solicitation of Other Proposals; Change of Recommendation” of this Proxy Statement, below), to enter into a supplemental agreement in favor of the person or group that submitted such Acquisition Proposal on the same terms and conditions as the supplemental agreement that the Centerbridge Stockholders entered into with IRC on October 1, 2020, pursuant to which the Centerbridge Stockholders agreed, subject to the limitations therein, to reimburse ARA for 50% of any fines, penalties or reasonable and documented out-of-pocket expenses incurred in connection with the Securities and Exchange Commission (“SEC”) investigation previously disclosed by ARA in its public reports filed with the SEC, subject to a $5 million aggregate reimbursement cap.
The Voting Agreement will terminate upon the earliest to occur of (i) the Effective Time, (ii) the termination of the Merger Agreement in accordance with its terms, (iii) the amending of the Merger Agreement without the prior consent of the Centerbridge Stockholders in a manner that (a) decreases the Per Share Merger Consideration, (b) changes the form of consideration payable under the Merger Agreement to the Centerbridge Stockholders, (c) imposes any additional material restrictions on or additional conditions on the payment of the Per Share Merger Consideration to ARA’s stockholders, (d) imposes any additional material restrictions or obligations on the Centerbridge Stockholders, or (e) otherwise materially and adversely affects the Centerbridge Stockholders, (iv) the Centerbridge Stockholders and IRC mutually agreeing to such termination, (v) the conclusion of the vote in favor of the adoption and approval of the Merger Agreement and the transactions contemplated thereby and the shares held by the Centerbridge Stockholders having been voted as specified therein, or (vi) a Change of Recommendation (as defined below in the section entitled “The Merger Agreement—Other Covenants and Agreements—No Solicitation of Other Proposals; Change of Recommendation” of this Proxy Statement, below).
FINANCING OF THE MERGER
The Merger Agreement is not conditioned upon IRC’s receipt of financing. We anticipate that the total amount of funds necessary to consummate the Merger and the related transactions, not including fees and expenses, will be approximately $853 million, including the estimated funds needed to (i) pay our stockholders the Per Share Merger Consideration due to them under the Merger Agreement; (ii) make payments in respect of outstanding ARA stock options, restricted stock unit awards and restricted stock awards pursuant to the Merger Agreement; and (iii) pay the outstanding net indebtedness of ARA.
IRC has obtained financing commitments for the purpose of financing the transactions contemplated by the Merger Agreement, including the Merger, and paying related fees and expenses (the “Financing”). Nautic Partners VIII, L.P., Nautic Partners VIII-A, L.P., Nautic Partners IX, L.P. and Nautic Partners IX-A, L.P. have committed to capitalize IRC, prior to the Effective Time, with an aggregate equity contribution of up to $450 million, subject to the terms and conditions set forth in an equity commitment letter. Investment funds and accounts managed by HPS Investment Partners, LLC (the “Lenders”) have agreed to provide IRC and Merger Sub with committed debt financing in an aggregate principal amount of up to $515 million on the terms set forth in a debt commitment letter. The obligations of the Lenders to provide debt financing under the debt commitment letter are subject to customary terms and conditions. The Merger Agreement provides that IRC and Merger Sub will use reasonable best efforts to take all actions and to do all things necessary, proper or advisable to arrange, obtain and consummate the Financing on or prior to the Closing (as defined in the Merger Agreement).
CLOSING AND EFFECTIVE TIME OF THE MERGER
The closing of the Merger will take place at the offices of Latham & Watkins LLP, 885 Third Avenue, New York, NY 10022, at 9:00 a.m. (Eastern time) on the date which is two (2) business days after the date on which all of the closing conditions set forth in the Merger Agreement (as described under the section entitled “The Merger
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Agreement—Conditions to the Merger” of this Proxy Statement, below) have been satisfied or waived (other than those conditions that by their terms are to be satisfied immediately prior to or at the closing, but subject to the satisfaction or waiver of such conditions), unless another time, date or place is agreed to in writing by ARA and IRC.
Concurrently with, or as promptly as practicable after, the closing, ARA will cause to be filed with the Delaware Secretary of State an appropriate, executed certificate of merger with respect to the Merger in accordance with the DGCL. The Merger will become effective upon the filing of such certificate of merger, or at such later date and time as is agreed by IRC and ARA and specified in such certificate of merger.
APPRAISAL RIGHTS
If the Merger is consummated, ARA’s stockholders will be entitled to appraisal rights in connection with the Merger under Section 262 of the DGCL, provided they comply with the conditions established by Section 262.
The following discussion is not a complete statement of the law pertaining to appraisal rights under the DGCL and is qualified in its entirety by the full text of Section 262, which is attached to this Proxy Statement as Appendix C. The following summary does not constitute any legal or other advice nor does it constitute a recommendation that stockholders exercise their appraisal rights under Section 262.
Under Section 262, record holders of Common Stock who make the demand described below with respect to such shares, do not vote in favor of the Merger Proposal, continuously hold such shares through the Effective Time, and otherwise comply with the statutory requirements of Section 262 will be entitled to an appraisal of their shares of our Common Stock and to receive payment in cash for the fair value of their shares as of the Effective Time, exclusive of any element of value arising from the accomplishment or expectation of the Merger, as determined by the Delaware Court of Chancery, together with interest, if any, to be paid upon the amount determined to be fair value. The fair value of the shares of our Common Stock as determined by the Delaware Court of Chancery may be more than, less than, or equal to the Per Share Merger Consideration per share that holders thereof are otherwise entitled to receive under the terms of the Merger Agreement. Stockholders should be aware that an investment banking opinion as to the fairness, from a financial point of view, of the consideration payable in a sale transaction, such as the Merger, is not an opinion as to, and does not otherwise address “fair value” under Section 262 of the DGCL. All references in this summary of appraisal rights to a “stockholder” or “holders of shares” are to the record holder or holders of such shares of our Common Stock.
Under Section 262, when a merger agreement is to be submitted by a corporation’s board of directors for adoption at a meeting of such corporation’s stockholders, not less than 20 days before such meeting, the corporation submitting the matter to a vote of stockholders must notify the stockholders who were stockholders on the record date for notice of such meeting with respect to shares for which appraisal rights will be available pursuant to Section 262 that such appraisal rights will be available. A copy of Section 262 must be included with such notice. This Proxy Statement constitutes ARA’s notice to its stockholders that appraisal rights are available in connection with the Merger and the full text of Section 262 is attached to this Proxy Statement as Appendix C, in compliance with the requirements of Section 262. Stockholders who wish to exercise such appraisal rights should carefully review the text of Section 262 contained in Appendix C. Failure to comply timely and properly with the requirements of Section 262 may result in the loss of such stockholder’s appraisal rights under the DGCL. Moreover, because of the complexity of the procedures for exercising appraisal rights, ARA believes that a stockholder considering the exercise of such rights should seek the advice of legal counsel.
Stockholders who wish to exercise their appraisal rights of their shares of our Common Stock must deliver to ARA a written demand for appraisal of the holder’s shares before the vote is taken to approve the Merger Proposal. The demand must reasonably inform ARA of the identity of the holder of record of shares who intends to demand appraisal of his, her or its shares. A stockholder seeking appraisal of his, her or its shares may not vote or submit a proxy in favor of the Merger Proposal. If a stockholder fails to deliver such written demand or votes or submits a proxy in favor of the Merger Proposal, such stockholder may remain entitled to receive the Per Share Merger Consideration, without interest and less any applicable withholding taxes, for his, her or its shares of our Common Stock but will not have appraisal rights with respect to such shares. In addition, a holder of shares wishing to exercise appraisal rights must hold of record the shares on the date the written demand for appraisal is made and must continue to hold such shares of record through the Effective Time.
A proxy that is submitted and does not contain voting instructions will, unless properly revoked, be voted “FOR” the Merger Proposal, and it may result in the loss of the stockholder’s right of appraisal and nullify any previously delivered written demand for appraisal. Therefore, a stockholder who submits a proxy and who wishes to
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exercise appraisal rights must either submit a proxy containing instructions to vote “AGAINST” the Merger Proposal or “ABSTAIN” from voting on the Merger Proposal. Voting against or failing to vote on the Merger Proposal by itself does not constitute a demand for appraisal within the meaning of Section 262. The written demand for appraisal must be in addition to and separate from any proxy or vote on the Merger Proposal.
All demands for appraisal should be addressed to:
American Renal Associates Holdings, Inc.
500 Cummings Center
Suite 6550
Beverly, Massachusetts 01915
and must be delivered to ARA before the vote is taken to approve the Merger Proposal at the Special Meeting, and must be executed by, or on behalf of, the stockholder. The demand will be sufficient if it reasonably informs ARA of the identity of the stockholder and the intention of the stockholder to demand appraisal of the “fair value” of his, her or its shares of our Common Stock. A stockholder’s failure to deliver to ARA the written demand prior to the taking of the vote on the Merger Proposal at the Special Meeting may result in the loss of appraisal rights.
Only a holder of record is entitled to demand an appraisal of the shares registered in that holder’s name. Accordingly, to be effective, a demand for appraisal by a stockholder must be made by, or on behalf of, the record stockholder. The demand should set forth, fully and correctly, the record stockholder’s name as it appears in the transfer agent’s records and should specify the stockholder’s mailing address and the number of shares registered in the stockholder’s name. The demand must state that the person intends thereby to demand appraisal of the stockholder’s shares in connection with the Merger. The demand cannot be made by the person having a beneficial interest in such shares if he or she does not also hold such shares of record. A person having a beneficial interest in shares that are held of record in the name of another person, such as a broker, fiduciary, bank or other nominee, must act promptly to cause the record holder to follow the steps summarized herein properly and in a timely manner to perfect appraisal rights. If shares are owned of record by a person other than the beneficial owner, including a broker, fiduciary (such as a trustee, guardian or custodian), bank or other nominee, such demand must be executed by or for the record owner. If a stockholder holds shares through a broker, bank or other nominee who in turn holds the shares through a central securities depository nominee, a demand for appraisal of such shares must be made by or on behalf of the depository nominee and must identify the depository nominee as record holder. If a stockholder holds through a broker, bank or other nominee and wishes to exercise appraisal rights, such stockholder should consult with his, her or its broker, bank or other nominee to determine the appropriate procedures for the making of a demand for appraisal by the nominee.
If shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of a demand for appraisal must be made in that capacity. If the shares are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand must be executed by or for all joint owners. An authorized agent, including an authorized agent for two or more joint owners, may execute the demand for appraisal for a stockholder of record; however, the agent must identify the record owner or owners and expressly disclose the fact that, in executing the demand, he or she is acting as agent for the record owner. A record owner, such as a broker, bank or other nominee, who holds shares as a nominee for others, may exercise his or her right of appraisal with respect to the shares held for one or more beneficial owners, while not exercising this right for other beneficial owners. In that case, the written demand should state the number of shares as to which appraisal is sought. Where no number of shares is expressly mentioned, the demand will be presumed to cover all shares held in the name of the record owner.
Within 10 days after the Effective Time, the surviving corporation in the Merger must give written notice of the Effective Time to each stockholder who has demanded appraisal in accordance with Section 262 and who did not vote in favor of the Merger Proposal. At any time within 60 days after the Effective Time, any stockholder who has not commenced an appraisal proceeding or joined a proceeding as a named party may withdraw his, her or its demand and accept the Per Share Merger Consideration, without interest and less any applicable withholding taxes, for his, her or its shares of our Common Stock by delivering to the surviving corporation a written withdrawal of such demand for appraisal. However, any such attempt to withdraw the demand made more than 60 days after the Effective Time will require the written approval of the surviving corporation. No appraisal proceeding in the Delaware Court of Chancery will be dismissed as to any stockholder without the approval of the Delaware Court of Chancery, with such approval conditioned upon such terms as the Delaware Court of Chancery deems just, provided, however that
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such court approval shall not be required for any stockholder who has not commenced an appraisal proceeding or joined such a proceeding as a named party and who withdraws such stockholder’s demand for appraisal within 60 days of the Effective Time. If the surviving corporation does not approve a request to withdraw a demand for appraisal when that approval is required, or, except with respect to any stockholder who withdraws such stockholder’s right to appraisal in accordance with the proviso in the immediately preceding sentence, if the Delaware Court of Chancery does not approve the dismissal of an appraisal proceeding, the stockholder will be entitled to receive only the appraised value of his, her or its shares of our Common Stock determined in any such appraisal proceeding, which value may be more than, less than, or equal to the Per Share Merger Consideration per share, without interest and less any applicable withholding taxes.
Within 120 days after the Effective Time, but not thereafter, either the surviving corporation or any stockholder who has complied with the requirements of Section 262 and is entitled to appraisal rights under Section 262 may commence an appraisal proceeding by filing a petition in the Delaware Court of Chancery demanding a determination of the fair value of the shares held by all such stockholders. Upon the filing of the petition by a stockholder, service of a copy of such petition shall be made upon the surviving corporation. The surviving corporation has no obligation to file such petition and has no present intention to file a petition and holders should not assume that the surviving corporation will file a petition. In the event that the surviving corporation does not file such petition, it is the obligation of the holders of our Common Stock to initiate all necessary action to perfect their appraisal rights with respect to shares within the time prescribed in Section 262. In addition, within 120 days after the Effective Time, any stockholder who has theretofore complied with the applicable provisions of Section 262 will be entitled to receive from the surviving corporation, upon written request, a statement setting forth the aggregate number of shares not voted in favor of the Merger Proposal and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. A person who is the beneficial owner of shares held either in a voting trust or by a nominee on behalf of such person and for which appraisal has been properly demanded may, in such person’s own name, file a petition for appraisal or request from the surviving corporation such statement. The statement must be given to the stockholder within 10 days after such written request has been received by the surviving corporation or within 10 days after the expiration of the period for delivery of demands for appraisal, whichever is later.
If a petition for appraisal is duly filed by a stockholder and a copy of the petition is delivered to the surviving corporation, then the surviving corporation will be obligated, within 20 days after receiving service of a copy of the petition, to file with the Delaware Register in Chancery in which the petition was filed a duly verified list containing the names and addresses of all stockholders who have demanded an appraisal of their shares and with whom agreements as to the value of their shares have not been reached. After notice to stockholders who have demanded appraisal from the Delaware Register in Chancery, if such notice is ordered by the Delaware Court of Chancery, the Delaware Court of Chancery will conduct a hearing upon the petition and determine those stockholders who have complied with Section 262 and who have become entitled to the appraisal rights provided by Section 262. Additionally, because our Common Stock will have been publicly listed on the New York Stock Exchange, the Delaware Court of Chancery is required under Section 262 to dismiss the proceedings as to all holders of such shares who are otherwise entitled to appraisal rights unless (i) the total number of shares entitled to appraisal exceeds 1% of the outstanding shares of our Common Stock or (ii) the value of the Per Share Merger Consideration for such total number of shares of our Common Stock exceeds $1 million.
After determination of the stockholders entitled to appraisal of their shares, the Delaware Court of Chancery will appraise the shares, determining their fair value as of the Effective Time after taking into account all relevant factors exclusive of any element of value arising from the accomplishment or expectation of the Merger, together with interest, if any, to be paid upon the amount determined to be the fair value. When the fair value has been determined, the Delaware Court of Chancery will direct the payment of such value by the surviving corporation to the stockholders entitled thereto. Unless the Delaware Court of Chancery in its discretion determines otherwise for good cause shown, and except as provided in the following sentence, interest from the Effective Time through the date of payment of the judgment shall be compounded quarterly and shall accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the Effective Time and the date of payment of the judgment. At any time before the entry of judgment in the appraisal proceeding, the surviving corporation may pay to each stockholder entitled to appraisal an amount in cash, in which case interest shall accrue thereafter as provided in the preceding sentence only upon the sum of (i) the difference, if any, between the amount so paid and the fair value of shares as determined by the Delaware Court of Chancery and (ii) interest theretofore accrued, unless paid at that time.
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Neither ARA nor IRC anticipates offering more than the Per Share Merger Consideration provided for in the Merger Agreement to any stockholder exercising appraisal rights and they reserve the right to assert, in any appraisal proceeding, that, for purposes of Section 262, the “fair value” of a share of our Common Stock is less than the Per Share Merger Consideration. In determining “fair value,” the Delaware Court of Chancery is required to take into account all relevant factors. In Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983), the Delaware Supreme Court discussed the factors that could be considered in determining fair value in an appraisal proceeding, stating that “proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court” should be considered and that “[f]air price obviously requires consideration of all relevant factors involving the value of a company.” The Delaware Supreme Court has stated that in making this determination of fair value, the court must consider market value, asset value, dividends, earnings prospects, the nature of the enterprise and any other facts that could be ascertained as of the date of the merger that throw any light on future prospects of the merged corporation. Section 262 provides that fair value is to be “exclusive of any element of value arising from the accomplishment or expectation of the merger.” In Cede & Co. v. Technicolor, Inc., 634 A.2d 345 (Del. 1993), the Delaware Supreme Court stated that such exclusion is a “narrow exclusion [that] does not encompass known elements of value,” but which rather applies only to the speculative elements of value arising from such accomplishment or expectation. In Weinberger, the Delaware Supreme Court also stated that “elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered.”
Costs of the appraisal proceeding (which do not include attorneys’ fees or the fees and expenses of experts) may be determined by the Delaware Court of Chancery and imposed upon the surviving corporation and the stockholders participating in the appraisal proceeding by the Delaware Court of Chancery, as it deems equitable in the circumstances. Each dissenting stockholder is responsible for his, her or its attorneys and expert witness expenses, although upon the application of a dissenting stockholder, the Delaware Court of Chancery may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts used in the appraisal proceeding, to be charged pro rata against the value of all shares entitled to appraisal. Any stockholder who demanded appraisal rights will not, after the Effective Time, be entitled to vote shares subject to that demand for any purpose or to receive payments of dividends or any other distribution with respect to those shares other than with respect to dividends or distributions payable to stockholders of record at a date which is prior to the Effective Time.
At any time within 60 days after the Effective Time, any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party will have the right to withdraw such demand for appraisal and to accept the terms offered in the Merger; after this period, the stockholder may withdraw such demand for appraisal only with the consent of the surviving corporation. If no petition for appraisal is filed with the Delaware Court of Chancery within 120 days after the Effective Time, or if the stockholder otherwise fails to perfect, successfully withdraws or loses such holder’s right to appraisal, then the stockholder’s right to appraisal shall cease, and such stockholder will be entitled to receive the Per Share Merger Consideration, without interest and less any applicable withholding taxes. Inasmuch as the surviving corporation has no obligation to file such a petition, and has no present intention to do so, any holder of shares who desires such a petition to be filed is advised to file it on a timely basis. As indicated above, any stockholder may withdraw such stockholder’s demand for appraisal by delivering to the surviving corporation a written withdrawal of his, her or its demand for appraisal and acceptance of the Per Share Merger Consideration, without interest and less any applicable withholding taxes, except (i) that any such attempt to withdraw made more than 60 days after the Effective Time will require the written approval of the surviving corporation and (ii) that no appraisal proceeding in the Delaware Court of Chancery shall be dismissed as to any stockholder without the approval of the Delaware Court of Chancery, and such approval may be conditioned upon such terms as the Delaware Court of Chancery deems just, provided, however, that the preceding clause (ii) shall not affect the right of any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party to withdraw such stockholder’s demand for appraisal and to accept the Per Share Merger Consideration, without interest and less any applicable withholding taxes, on terms offered upon the Merger within 60 days after the Effective Time.
Failure to comply strictly with all of the procedures set forth in Section 262 may result in the loss of a stockholder’s statutory appraisal rights. In that event, you will be entitled to receive the Per Share Merger Consideration for your shares of our Common Stock in accordance with the Merger Agreement.
THE PROCESS OF DEMANDING AND EXERCISING APPRAISAL RIGHTS REQUIRES STRICT COMPLIANCE WITH THE TECHNICAL PREREQUISITES OF SECTION 262 OF THE DGCL. IF YOU WISH
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TO EXERCISE YOUR APPRAISAL RIGHTS, YOU SHOULD CONSULT WITH YOUR OWN LEGAL COUNSEL. TO THE EXTENT THERE ARE ANY INCONSISTENCIES BETWEEN THE FOREGOING SUMMARY AND SECTION 262 OF THE DGCL, THE DGCL WILL GOVERN.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion is a summary of the material U.S. federal income tax consequences of the Merger that generally are relevant to holders of shares of Common Stock whose shares are converted into the right to receive cash pursuant to the Merger. This discussion is based upon the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations promulgated under the Code, court decisions, published positions of the Internal Revenue Service (the “IRS”), and other applicable authorities, all as in effect on the date of this Proxy Statement and all of which are subject to change or differing interpretations, possibly with retroactive effect. Any such change or differing interpretation could affect the accuracy of the statements and conclusions set forth in this discussion. This discussion is limited to holders who hold their shares of Common Stock as “capital assets” within the meaning of Section 1221 of the Code (generally, property held for investment purposes). This summary does not describe any of the tax consequences arising under the laws of any state, local or foreign tax jurisdiction and does not consider any aspects of U.S. federal tax law other than U.S. federal income taxation (e.g., estate, gift or alternative minimum tax or the Medicare net investment income surtax). In addition, this summary does not address the U.S. federal income tax consequences to holders of shares of Common Stock who exercise appraisal rights under the DGCL. For purposes of this discussion, a “holder” means either a U.S. Holder or a Non-U.S. Holder or both, as the context may require.
This discussion is for general information only and does not address all of the tax consequences that may be relevant to holders in light of their particular circumstances, including:
holders who may be subject to special treatment under U.S. federal income tax laws, such as: financial institutions, tax-exempt organizations, S corporations, partnerships and any other entities or arrangements treated as partnerships, or any other pass-through entities for U.S. federal income tax purposes or any investors in or owners of any such S corporation, partnership, entity or arrangement, insurance companies, mutual funds, dealers in stocks and securities, traders in securities that elect to use the mark-to-market method of accounting for their securities, regulated investment companies, real estate investment trusts, certain expatriates or former long-term residents of the United States;
or holders holding shares of Common Stock as part of a hedging, constructive sale or conversion, straddle or other risk reducing transaction;
holders that received their shares of Common Stock in a compensatory transaction;
holders that are “controlled foreign corporations” or “passive foreign investment companies”, as those terms are used in the Code;
holders that have held at any time, directly, indirectly or constructively, more than 5% of our Common Stock;
holders who own an equity interest, actually or constructively, in IRC or the surviving corporation; or
holders whose “functional currency” is not the U.S. dollar.
If an entity or arrangement treated as a partnership for U.S. federal income tax purposes is an owner of shares of Common Stock, the tax treatment of a partner in such partnership will generally depend upon the status of the partner and the activities of the partnership. Partnerships holding shares of Common Stock and partners therein should consult their tax advisors regarding the consequences of the Merger.
We have not sought, and do not intend to seek, any ruling from the IRS with respect to the statements made and the conclusions reached in the following summary. No assurance can be given that the IRS will agree with the views expressed in this summary, or that a court will not sustain any challenge by the IRS in the event of litigation.
THIS DISCUSSION IS PROVIDED FOR GENERAL INFORMATION ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE TO ANY HOLDER. A HOLDER SHOULD CONSULT ITS TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME TAX CONSEQUENCES RELATING TO THE MERGER IN LIGHT OF ITS PARTICULAR CIRCUMSTANCES AND ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION OR OTHER TAX LAWS.
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U.S. Holders
For purposes of this discussion, a “U.S. Holder” is a beneficial owner of shares of Common Stock who or that is for U.S. federal income tax purposes:
An individual who is a citizen or resident of the United States;
A corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States or any state thereof or the District of Columbia;
An estate, the income of which is subject to U.S. federal income taxation regardless of its source; or
A trust (i) that is subject to the primary supervision of a court within the United States and the control of one or more United States persons as defined in section 7701(a)(30) of the Code or (ii) that has a valid election in effect under applicable Treasury regulations to be treated as a United States person.
The receipt of cash by a U.S. Holder in exchange for shares of Common Stock pursuant to the Merger will be a taxable transaction for U.S. federal income tax purposes. In general, such U.S. Holder’s gain or loss will be equal to the difference, if any, between the amount of cash received pursuant to the Merger (determined before deduction for any applicable withholding taxes) and the U.S. Holder’s adjusted tax basis in the shares of Common Stock surrendered pursuant to the Merger. A U.S. Holder’s adjusted tax basis generally will equal the amount that such U.S. Holder paid for the shares of Common Stock. Such gain or loss generally will be capital gain or loss and will be long-term capital gain or loss if such U.S. Holder’s holding period in such shares is more than 1 year at the time of the consummation of the Merger, reduced by the amount of any distributions received in respect of such shares that were treated as nontaxable returns of capital. A reduced tax rate on capital gain generally will apply to long-term capital gain of a non-corporate U.S. Holder (including individuals). There are limitations on the deductibility of capital losses. If a U.S. Holder acquired different blocks of Common Stock at different times and different prices, that U.S. Holder must determine its, his or her gain or loss, adjusted tax basis and holding period separately with respect to each block of Common Stock.
Non-U.S. Holders
For purposes of this discussion, the term “Non-U.S. Holder” means a beneficial owner of shares of Common Stock who or that is not a U.S. Holder or partnership for U.S. federal income tax purposes.
Any gain realized by a Non-U.S. Holder pursuant to the Merger generally will not be subject to U.S. federal income tax unless:
the gain is effectively connected with a trade or business of such Non-U.S. Holder in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment maintained by such Non-U.S. Holder in the United States), in which case such gain generally will be subject to U.S. federal income tax at rates generally applicable to U.S. persons, and, if the Non-U.S. Holder is a corporation, such gain may also be subject to the branch profits tax at a rate of 30% (or a lower rate under an applicable tax treaty);
such Non-U.S. Holder is an individual who is present in the United States for 183 days or more in the taxable year of that disposition, and certain other specified conditions are met, in which case such gain (net of certain losses) will be subject to U.S. federal income tax at a rate of 30% (or a lower rate under an applicable tax treaty); or
ARA is or has been a “United States real property holding corporation” as such term is defined in Section 897(c) of the Code (a “USRPHC”), at any time within the shorter of the five-year period preceding the Merger or such Non-U.S. Holder's holding period with respect to the applicable shares of Common Stock (referred to as the “relevant period”) and such Non-U.S. Holder owns or has owned (directly, indirectly or constructively) more than five percent of the shares of Common Stock at any time during the relevant period, in which case such gain will be subject to U.S. federal income tax at rates generally applicable to U.S. persons (as described in the first bullet point above), except that the branch profits tax will not apply. Although there can be no assurances in this regard, ARA believes that it is not, and has not been, a USRPHC at any time during the five-year period preceding the Merger.
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Information Reporting and Backup Withholding
Payments made in exchange for shares of Common Stock pursuant to the Merger may be subject, under certain circumstances, to information reporting and backup withholding (currently at a rate of 24%). To avoid backup withholding, a U.S. Holder that does not otherwise establish an exemption should complete and return IRS Form W-9, certifying that such U.S. Holder is a U.S. person, the taxpayer identification number provided is correct, and such U.S. Holder is not subject to backup withholding. In general, a Non-U.S. Holder will not be subject to backup withholding with respect to cash payments to the Non-U.S. Holder pursuant to the Merger if the Non-U.S. Holder has provided a duly completed IRS Form W-8BEN or IRS Form W-8BEN-E, as applicable (or an IRS Form W-8ECI if the Non-U.S. Holder’s gain is effectively connected with the conduct of a U.S. trade or business or other applicable IRS Form W-8).
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be refunded or credited against a holder’s U.S. federal income tax liability, if any, provided that such holder furnishes the required information to the IRS in a timely manner.
THIS SUMMARY OF MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER IS FOR GENERAL INFORMATION PURPOSES ONLY AND IS NOT TAX ADVICE. HOLDERS OF SHARES OF COMMON STOCK SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE APPLICATION OF THE U.S. FEDERAL TAX LAWS TO THEIR PARTICULAR SITUATION AND THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND ANY OTHER TAX LAWS AND TAX TREATIES.
REGULATORY APPROVALS REQUIRED FOR THE MERGER
HSR Act and U.S. Antitrust Matters
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), and the rules promulgated thereunder by the Federal Trade Commission (the “FTC”), the Merger cannot be consummated until ARA and IRC each file a notification and report form with the FTC and the Antitrust Division of the Department of Justice under the HSR Act and the applicable waiting period thereunder has expired or been terminated. A transaction notifiable under the HSR Act may not be completed until the expiration of a 30-calendar-day waiting period following the parties’ filing (or refiling) of their respective HSR Act notification forms or the early termination of that waiting period. ARA and IRC and its affiliates filed their respective HSR Act notifications on October 8, 2020 and refiled such notifications on November 9, 2020. The waiting period under the HSR Act expired on December 9, 2020.
At any time before or after consummation of the Merger, notwithstanding the expiration or termination of the waiting period under the HSR Act, the Antitrust Division of the Department of Justice or the FTC could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the consummation of the Merger, seeking divestiture of substantial assets of the parties or requiring the parties to license, or hold separate, assets or terminate existing relationships and contractual rights. At any time before or after the consummation of the Merger, and notwithstanding the expiration or termination of the waiting period under the HSR Act, any state could take such action under the antitrust laws as it deems necessary or desirable in the public interest. Such action could include seeking to enjoin the consummation of the Merger or seeking divestiture of substantial assets of the parties. Private parties may also seek to take legal action under the antitrust laws under certain circumstances.
In connection with obtaining any approval or consent related to any applicable law, IRC has agreed to take, or cause to be taken (including by its subsidiaries and affiliates), any and all actions necessary or advisable to resolve, avoid or eliminate any impediments or objections that may be asserted with respect to the transactions contemplated by the Merger Agreement or under any antitrust law or in connection with any required consents, waivers, approvals or certificates from, and/or provide notice to, applicable state healthcare regulatory agencies in connection with the Merger or the issuance of any governmental order that would prevent, prohibit, restrict or delay the consummation of the transactions contemplated by the Merger Agreement.
In addition, on October 1, 2020, IRC entered into a definitive agreement with the Subsequent Transaction Buyer (as defined in the section entitled “The Merger—Fairness Opinion of ARA’s Financial Advisor: Goldman Sachs & Co. LLC” of this Proxy Statement, above) concerning a back-to-back sale of certain of ARA’s clinics (the “Subsequent Transaction”), which would not occur until after the consummation of the Merger. Although such transaction is not reportable under the HSR Act, it was described and presented to the FTC in connection with the
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Merger. In the event that the Merger does not receive HSR clearance within ninety (90) days after execution of the Merger Agreement, the agreement for such back-to-back sale will terminate automatically, with no further action by any party.
Other Regulatory Matters
In addition, state laws and regulations may require that ARA or IRC obtain consents, waivers, approvals or certificates from, file new license and/or permit applications with, and/or provide notice to, applicable healthcare and other governmental entities in connection with the Merger. As a condition to IRC’s obligations under the Merger Agreement, the parties must comply with such state laws and regulations and obtain any required consents, waivers or approvals.
DELISTING AND DEREGISTRATION OF COMMON STOCK
Our Common Stock is currently registered under the Exchange Act and is listed on the New York Stock Exchange under the symbol “ARA”. If the Merger is consummated, ARA will cease to be a publicly traded company and will become a wholly owned subsidiary of IRC and our Common Stock will be delisted from the New York Stock Exchange and deregistered under the Exchange Act.
The following summary describes certain material provisions of the Merger Agreement. This summary is not complete and is qualified in its entirety by reference to the Merger Agreement, which is attached to this Proxy Statement as Appendix A and incorporated into this Proxy Statement by reference. We encourage you to read the Merger Agreement carefully in its entirety because this summary may not contain all the information about the Merger Agreement that is important to you. The rights and obligations of the parties are governed by the express terms and conditions of the Merger Agreement and not by this summary or any other information contained in this Proxy Statement.
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THE MERGER AGREEMENT
Explanatory Note Regarding the Merger Agreement
The Merger Agreement and this summary of its terms have been included to provide you with information regarding the terms of the Merger Agreement. Factual disclosures about ARA contained in this Proxy Statement or in ARA’s public reports previously filed with the Securities and Exchange Commission (the “SEC”) that are incorporated by reference into this Proxy Statement may supplement, update or modify the factual disclosures about ARA contained in the Merger Agreement and described in this summary. The representations, warranties and covenants made in the Merger Agreement by ARA, IRC and Merger Sub were made only for purposes of the Merger Agreement and as of specified dates and were qualified and subject to important limitations agreed to by ARA, IRC and Merger Sub in connection with negotiating the terms of the Merger Agreement. In particular, in your review of the representations and warranties contained in the Merger Agreement and described in this summary, it is important to bear in mind that the representations and warranties were negotiated solely for the benefit of the parties to the Merger Agreement with the principal purpose of contractually allocating risk between the parties to the Merger Agreement, rather than establishing matters as facts. The representations and warranties may also be subject to a contractual standard of materiality different from those generally applicable to stockholders and reports and documents filed with the SEC, and in some cases were qualified by confidential disclosures that were made by each party to the other, which disclosures are not reflected in the Merger Agreement. Moreover, information concerning the subject matter of the representations and warranties, which do not purport to be accurate as of the date of this Proxy Statement, may have changed since the date of the Merger Agreement and subsequent developments or new information qualifying a representation or warranty may have been included in this Proxy Statement or in the public filings made by ARA with the SEC. Accordingly, the representations and warranties and provisions of the Merger Agreement should not be read alone, but instead should be read together with the information provided elsewhere in this Proxy Statement and the documents incorporated by reference into this Proxy Statement. You should not rely on the representations, warranties, and covenants or any descriptions thereof as characterizations of the actual statement of facts or conditions of the parties thereto or any of their respective subsidiaries or affiliates.
Additional information about ARA may be found elsewhere in this Proxy Statement and ARA’s other public filings. See the section entitled “Where You Can Find More Information” of this Proxy Statement.
When the Merger Becomes Effective
The closing of the Merger will take place at the offices of Latham & Watkins LLP, 885 Third Avenue, New York, NY 10022, at 9:00 a.m. (Eastern time) on the date which is two (2) business days after the date on which all of the closing conditions set forth in the Merger Agreement (as described in the section entitled “The Merger Agreement—Conditions to the Merger” of this Proxy Statement) have been satisfied or waived (other than those conditions that by their terms are to be satisfied immediately prior to or at the closing, but subject to the satisfaction or waiver of such conditions), unless another time, date or place is agreed to in writing by ARA and IRC.
Concurrently with, or as promptly as practicable after the closing, ARA and IRC will cause to be filed with the Delaware Secretary of State an appropriate, executed certificate of merger with respect to the Merger in accordance with the General Corporation Law of the State of Delaware (the “DGCL”). The Merger will become effective upon the filing of such certificate of merger, or at such later date and time as is agreed by ARA and IRC and specified in such certificate of merger.
Structure of the Merger; Certificate of Incorporation; Bylaws; Directors and Officers
Upon the terms and conditions of the Merger Agreement, at the Effective Time, Merger Sub will merge with and into ARA and the separate corporate existence of Merger Sub will cease, with ARA continuing as the surviving corporation and a wholly owned subsidiary of IRC. At the Effective Time, the Certificate of Incorporation of ARA will, by virtue of the Merger, be amended and restated in its entirety to be identical to the certificate of incorporation of Merger Sub in effect immediately prior to the Effective Time except that the name of the corporation therein will be changed to the name of ARA, and such amended and restated certificate of incorporation will be the certificate of incorporation of the surviving corporation until thereafter amended. At the Effective Time, the bylaws of ARA will be amended and restated in their entirety to be identical to the bylaws of Merger Sub, in effect immediately before the Effective Time except that the name of the corporation therein will be changed to the name of ARA, and such amended and restated bylaws will be the bylaws of the surviving corporation until thereafter amended. From and after
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the Effective Time, the officers and directors of Merger Sub immediately before the Effective Time will be the officers and directors of the surviving corporation and, in each case, will hold office until their respective successors are duly elected, designated or qualified, or until their earlier death, resignation or removal, in accordance with the surviving corporation’s certificate of incorporation and bylaws.
Effect of the Merger on our Common Stock
At the Effective Time, by virtue of the Merger and without any action on the part of IRC, Merger Sub or ARA or their respective stockholders, each share of Common Stock issued and outstanding immediately prior to the Effective Time (but excluding any Cancelled Shares (as defined in the section entitled “Summary—Merger Consideration” of this Proxy Statement, above) and Dissenting Shares (as defined in the section entitled “General Information” of this Proxy Statement, above)) will be converted into the right to receive the Per Share Merger Consideration (as defined in the section entitled “The Merger—Merger Consideration” of this Proxy Statement, above), without interest and less any applicable withholding taxes. From and after the Effective Time, such shares of Common Stock will no longer be outstanding, will automatically be cancelled and retired, and will cease to exist, and each holder of a share of Common Stock will cease to have any rights with respect thereto, except the right to receive, upon surrender of Book-Entry Shares, the Per Share Merger Consideration.
At the Effective Time, any shares of Common Stock that are Cancelled Shares will automatically be cancelled and retired without any conversion thereof and will cease to exist, and no consideration or payment will be delivered in exchange for such shares.
The Per Share Merger Consideration will be adjusted appropriately to provide the same economic effect as contemplated in the Merger Agreement to reflect the effect of any reclassification, recapitalization, exchange, stock split (including reverse stock split) or combination or readjustment of shares or any stock dividend or stock distribution with a record date occurring on or after the date of the Merger Agreement and prior to the Effective Time.
Treatment of Equity Awards
Options. Under the Merger Agreement, each ARA option to purchase shares of our Common Stock under any Company Stock Plan (as defined in the Merger Agreement) that is outstanding and unexercised immediately prior to the Effective Time will, by virtue of the Merger and without any action on the part of the holders thereof, be cancelled as of immediately prior to the Effective Time and converted into the right to receive a cash payment equal to the product of the total number of shares of our Common Stock underlying the option multiplied by the excess, if any, of the Per Share Merger Consideration over the applicable per share exercise price of the option, less applicable withholding taxes. Options with a per share exercise price equal to or exceeding the Per Share Merger Consideration will be cancelled without payment.
Restricted Stock Awards and Restricted Stock Unit Awards. The Merger Agreement also provides that each ARA restricted stock award and ARA restricted stock unit award covering shares of Common Stock that is outstanding immediately prior to the Effective Time, whether unvested or vested, will (i) vest in full (to the extent unvested), and (ii) by virtue of the Merger and without any action on the part of the holders thereof, be cancelled as of immediately prior to the Effective Time and converted into the right to receive an amount in cash equal to the product of the Per Share Merger Consideration and the aggregate number of shares of our Common Stock subject to the award, less applicable withholding taxes.
Payment for Common Stock
Prior to the Effective Time, IRC will deposit, or cause to be deposited, with a recognized financial institution as paying agent (selected by IRC with ARA’s prior written approval), cash in an amount necessary to pay the aggregate Merger Consideration payable to all of the holders of Common Stock, including Common Stock represented by a Book-Entry Share outstanding immediately prior to the Effective Time, other than the Cancelled Shares, and holders of ARA options, restricted stock unit awards and restricted stock awards.
Promptly following the Effective Time and in any event no later than the second business day following the Effective Time, IRC will cause the paying agent to mail to each holder of record of Book-Entry Shares that immediately prior to the Effective Time represented outstanding shares of Common Stock (other than the Cancelled Shares and except for any Dissenting Shares) (i) a letter of transmittal, which will specify how to effect delivery of each stockholder’s shares of Common Stock and passing of risk of loss and title and (ii) instructions for effecting the surrender of such shares of Common Stock in exchange for cash in an amount equal to the Per Share Merger Consideration multiplied by the number of shares of Common Stock held by such stockholder.
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Representations and Warranties
The Merger Agreement contains representations and warranties of each of ARA, IRC and Merger Sub, subject to certain qualifications or exceptions in the Merger Agreement and the disclosure schedules delivered in connection with the Merger Agreement, as to, among other things:
corporate organization, existence, good standing and corporate power and authority;
corporate power and authority to enter into the Merger Agreement and to perform thereunder;
the absence of certain violations, defaults or consent requirements under certain contracts, organizational documents and law, in each case arising out of the execution, delivery or performance of, consummation of the transactions contemplated by, or compliance with any of the provisions of the Merger Agreement;
required regulatory filings or actions and authorizations, consents or approvals of governmental entities and other persons;
the absence of certain litigation, orders and judgments and governmental proceedings and investigations related to IRC and its subsidiaries or ARA and its subsidiaries (as applicable);
matters relating to information to be included in required filings with the SEC in connection with the Merger, including this Proxy Statement; and
the absence of any fees owed to investment bankers or brokers in connection with the Merger.
The Merger Agreement also contains representations and warranties of ARA, subject to certain qualifications or exceptions in the Merger Agreement and the disclosure schedules delivered in connection with the Merger Agreement, as to, among other things:
the capitalization and authorized issuance of ARA’s equity securities, including the authorized capital stock, outstanding options, restricted stock awards and restricted stock unit awards;
the equity securities owned by ARA in its subsidiaries and clinic joint ventures;
the timeliness and accuracy of ARA’s filings with the SEC and of financial statements included in its SEC filings;
ARA’s disclosure controls and procedures and internal control over financial reporting and compliance with the Sarbanes-Oxley Act;
the absence of certain events or changes in the business of ARA between June 30, 2020 and October 1, 2020, including that there has not been a “Material Adverse Effect” (as defined below);
the absence of undisclosed liabilities;
certain categories of specified material contracts, including as to effectiveness and lack of breach or default for such contracts and the absence of any material claims or disputes pending or threatened under such material contracts;
the compliance by ARA and its subsidiaries with applicable law and licenses, permits and other authorizations;
real property owned or leased by ARA or any of its subsidiaries;
the ownership of or rights with respect to, and lack of infringement with respect to, intellectual property owned or used by ARA and its subsidiaries;
insurance policies of ARA or any of its subsidiaries;
the payment of taxes, the filing of tax returns, lack of tax audits or proceedings and other tax matters related to ARA and its subsidiaries;
ARA’s employee benefit plans and other agreements with its employees;
labor matters related to ARA and its subsidiaries and their respective employees;
environmental matters and compliance with environmental laws by ARA and its subsidiaries;
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certain contracts with the U.S. government and the lack of violations thereof;
the Board’s recommendation to stockholders in favor of the Merger and the required stockholder approval in order to effect the Merger;
the receipt by the Board of the opinion of Goldman Sachs as to the fairness of the Per Share Merger Consideration, from a financial point of view, to the holders (other than IRC and its affiliates) of shares of Common Stock;
regulatory matters and compliance with health care laws by ARA and its subsidiaries; and
the absence of certain affiliate transactions.
The Merger Agreement also contains representations and warranties of IRC and Merger Sub, subject to certain qualifications or exceptions in the Merger Agreement and the disclosure schedules delivered in connection with the Merger Agreement, as to, among other things:
the debt and equity financing commitments received by IRC and Merger Sub, and the sufficiency of the funds committed to be provided therein;
the absence of agreements with third parties regarding ARA or the Merger that would limit IRC’s or Merger Sub’s ability to comply with its obligations under the Merger Agreement;
the solvency of IRC following the consummation of the Merger; and
the ownership by IRC of all of the issued and outstanding capital stock of Merger Sub.
Some of the representations and warranties in the Merger Agreement are qualified by materiality qualifications or a “Material Adverse Effect”.
For purposes of the Merger Agreement, a “Material Adverse Effect” means any fact, event, development, change, effect, circumstance or occurrence that, individually or in the aggregate, when taken together with any such other fact, event, development, change, effect, circumstance or occurrence:
has had or reasonably would be expected to have a material adverse effect on or with respect to the business, results of operation or financial condition of ARA and its subsidiaries taken as a whole; provided, however, that no fact, event, development, change, effect, circumstance or occurrence relating to, arising out of or in connection with or resulting from any of the following will be deemed, either alone or in combination, to constitute or contribute to, a “Material Adverse Effect” (subject to the limitations set forth below):
general changes or developments in the economy, political conditions in the United States or elsewhere in the world (including protests or political unrest) or the financial, debt, capital, credit, commodities or securities markets in the United States or elsewhere in the world (collectively, General Effects”);
general changes or developments in the industries in which ARA or its subsidiaries operate (collectively, “Industry Effects”);
the negotiation, execution or delivery of the Merger Agreement or the public announcement or pendency of the Merger or other transactions contemplated by the Merger Agreement, including any impact thereof on relationships, contractual or otherwise, with customers, suppliers, patients, payors, regulators, lenders, partners, employees, joint venture partners or similar relationships of ARA and its subsidiaries, or the compliance with the terms of the Merger Agreement and the transactions contemplated thereby, including compliance with the covenants set forth herein;
any action taken or omitted to be taken by ARA at the written request of or with the written consent of IRC or Merger Sub or expressly required by the Merger Agreement;
changes or prospective or anticipated changes, occurring after the date of the Merger Agreement, in any applicable laws (including any health care laws) or applicable accounting regulations or principles or interpretation or enforcement thereof (collectively, “Changes in Laws”);
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any hurricane, tornado, earthquake, flood, tsunami, mudslide or other natural disaster, weather condition, explosion or fire or other force majeure event or act of God or other comparable events or outbreak or escalation of hostilities or war (whether or not declared), military actions or any, act of sabotage, terrorism, epidemics or pandemics (including COVID-19), disease outbreaks or national or international political or social conditions (including social unrest) or any escalation or worsening relating to the foregoing, including any escalation or worsening of any stoppages or shutdowns, or any response of any governmental entity (including requirements for business closures or “sheltering-in-place”), related to any of the foregoing (collectively, “Acts of God”);
any matter (including actions taken by the SEC or the Department of Justice (the “DOJ”)) relating to the restatement of ARA’s financial statements filed in ARA’s Annual Report on Form 10-K on September 5, 2019 or the underlying causes thereof and all related claims, investigations, proceedings, actions or actions taken by a governmental entity with respect thereto;
any change in the market price or trading volume of the shares of Common Stock or the credit rating of ARA or any of its subsidiaries;
any failure by ARA to meet any published analyst estimates or expectations of ARA’s revenue, earnings or other financial performance or results of operations for any period, in and of itself, or any failure by ARA to meet its internal or published projections, budgets, plans or forecasts of its revenues, earnings or other financial performance or results of operations, in and of itself (it being understood that the underlying facts, events or circumstances giving rise to or contributing to such change or failure may be deemed to constitute, and may be taken into account in determining, whether there has been a Material Adverse Effect);
any determination or decision by, or delay of a determination or decision by, or any recommendation, statement or other pronouncement made or proposed by, any governmental entity or any panel or advisory body empowered or appointed thereby with respect to the uses, reimbursement scheme, pricing, or status for any services offered by ARA or any of its subsidiaries, or any such determinations, decisions, recommendations, statements or pronouncements with respect thereto (collectively, “Governmental Determinations”); or
any matter disclosed in the ARA Disclosure Schedule (as defined in the Merger Agreement); except in the cases of (i) General Effects, (ii) Industry Effects, (iii) Changes in Laws, (iv) Acts of God or (v) Governmental Determinations, to the extent that ARA and its subsidiaries, taken as a whole, are materially disproportionately affected thereby as compared with other participants operating in the industry in which ARA and its subsidiaries conduct business (in which case solely the incremental disproportionate impact or impacts may be taken into account in determining whether there has been a Material Adverse Effect); or
would reasonably be expected to prevent or materially delay the consummation of the Merger past the End Date (as defined below).
Other Covenants and Agreements
Access and Information
Subject to certain exceptions and limitations, until the Effective Time, ARA will, and will cause its subsidiaries and their respective representatives to, (upon reasonable notice) afford IRC, Merger Sub and their financing sources and their respective affiliates and representatives reasonable access, during normal business hours, in such a manner as to not unreasonably interfere with the normal operation of ARA and its subsidiaries, to the principal personnel, applicable representatives, properties, offices, other facilities and books and records of ARA and its subsidiaries.
Go-Shop Period
During the forty (40) calendar day period beginning on the date of the Merger Agreement and continuing until 11:59 p.m. (New York City time) on November 10, 2020 (the “No-Shop Period Start Date”), ARA and its subsidiaries and their respective directors, officers, employees, investment bankers, attorneys, accountants and other advisors or representatives (collectively, “Representatives”) had the right to, directly or indirectly (the following activities collectively, the “Go-Shop Activities”):
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initiate, solicit, facilitate and encourage any inquiry or the making of any proposal or offer that constitutes, could constitute, or could reasonably be expected to lead to an Acquisition Proposal (as defined below), including by providing information (including non-public information and data) regarding, and affording access to the business, properties, assets, books, records and personnel of, ARA and its subsidiaries to any third party, and its Representatives, including potential financing sources, subject to the entry into, and in accordance with, an acceptable confidentiality agreement; provided that ARA will make available to IRC and Merger Sub any non-public information or data concerning ARA or its subsidiaries that is provided to any third party given such access that was not previously made available to IRC or Merger Sub promptly (and in any event within forty-eight (48) hours) after the time it is provided to such third party; and
engage in, enter into or otherwise participate in any discussions or negotiations with any third parties (and their respective Representatives, including potential financing sources) with respect to any Acquisition Proposals (or inquiries, proposals or offers or other efforts that constitute, could constitute, or could reasonably be expected to lead to an Acquisition Proposal, including any third party that has informed ARA or its Representatives of an intention to make or has publicly announced an intention to make an Acquisition Proposal) and cooperate with or assist or participate in or facilitate or encourage any such inquiries, proposals, offers, discussions or negotiations or any effort or attempt to make any Acquisition Proposals, including granting a waiver, amendment or release under any confidentiality or pre-existing standstill or similar provision with respect to ARA or its subsidiaries;
provided, that ARA and its subsidiaries were not permitted to reimburse the expenses of any such third party in connection with any Acquisition Proposals or any inquiries, discussions or requests with respect to or the making of any proposal or offer that constitutes or would reasonably be expected to lead to an Acquisition Proposal.
No Solicitation of Other Proposals; Change of Recommendation
Beginning at 11:59 p.m. (New York City time) on the No-Shop Period Start Date until the Effective Time or, if earlier, the termination of this Merger Agreement, except with respect to any Excluded Party (as defined below) or as expressly permitted by the Merger Agreement, ARA will not (and will cause its subsidiaries not to and direct its Representatives not to):
initiate, solicit, knowingly facilitate or knowingly encourage an Acquisition Proposal or inquiries or discussions that would likely result in an Acquisition Proposal;
engage in, enter into, continue or otherwise participate in any discussions or negotiations with a third party, or provide access to ARA’s business, properties, books and records or any non-public information to, any third party relating to an Acquisition Proposal;
approve, endorse, or publicly propose to approve or recommend, any Acquisition Proposal;
execute or enter into, any merger agreement, acquisition agreement or similar binding agreement or understanding (other than an acceptable confidentiality agreement) with respect to an Acquisition Proposal; or
authorize, commit to, agree or publicly propose to do any of the foregoing.
Except with respect to any Excluded Party, immediately following 11:59 p.m. (New York City time) on the No-Shop Period Start Date ARA will cease (and will cause its subsidiaries to cease, and direct its Representatives to cease) any solicitations, discussions or negotiations with any third party in connection with any Acquisition Proposal and request each third party that has executed a confidentiality agreement in connection with a potential Acquisition Proposal to return or destroy all confidential information provided to such third party.
Except with respect to an Excluded Party, ARA will promptly notify IRC in writing of the receipt of any Acquisition Proposal after the No-Shop Period Start Date, which notice will include a copy of any such Acquisition Proposal and other terms made in writing and a written summary of any terms not made in writing. ARA is required to keep IRC reasonably informed of the status and material terms of any such Acquisition Proposal including any material changes thereto.
ARA may grant a waiver or release under any confidentiality or standstill agreement to allow for a confidential Acquisition Proposal to be made to ARA or the Board (or a duly authorized committee thereof) so long as ARA promptly notifies IRC thereof after granting any such waiver or release and, if requested by IRC, grants IRC an equivalent waiver or release under IRC’s confidentiality agreement with ARA, if applicable.
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Notwithstanding the commencement of the No-Shop Period Start Date, prior to receiving the Company Requisite Vote (as defined below), ARA, its subsidiaries and their respective Representatives may continue to engage in the Go-Shop Period Activities with respect to any Excluded Party so long as such Excluded Party remains an Excluded Party.
Except as otherwise provided in the Merger Agreement, the Board and any committee thereof will not:
A.
withdraw or rescind (or change or qualify, in a manner materially adverse to IRC or Merger Sub), or publicly propose to withdraw or rescind (or change or qualify, in a manner materially adverse to IRC or Merger Sub) its recommendation that the stockholders of ARA adopt the Merger Agreement (the “Recommendation”) in a manner materially adverse to IRC,
B.
fail to include the recommendation in this Proxy Statement,
C.
approve, adopt or recommend or publicly propose to approve, adopt or recommend, any Acquisition Proposal,
D.
fail to announce publicly, within ten (10) business days after a tender offer or exchange offer relating to any securities of ARA has been commenced, that the Board (or a duly authorized committee thereof) recommends rejection of such tender or exchange offer (each such action set forth in clauses (A) through (D) being a “Change of Recommendation”), or
E.
authorize, cause or permit ARA to enter into a merger agreement, binding letter of intent, share purchase agreement, asset purchase agreement, share exchange agreement or other similar binding agreement (other than any acceptable confidentiality agreement) relating to any Acquisition Proposal or recommend any tender offer providing for, with respect to, or in connection with any Acquisition Proposal.
At any time prior to obtaining the Company Requisite Vote (as defined below), and whether before or after the No-Shop Period Start Date, if an Intervening Event (as defined below) occurs or the Board (or a duly authorized committee thereof) receives an Acquisition Proposal that did not result from a material breach of the obligations described above and the Board (or a duly authorized committee thereof) determines in good faith (after consultation with its financial advisors and outside legal counsel) that such proposal constitutes a Superior Proposal, the Board may effect a Change of Recommendation or terminate the Merger Agreement to enter into a definitive agreement with respect to such Superior Proposal; provided that:
prior to or simultaneously with any such termination by ARA, ARA pays to IRC any termination fee required pursuant to the Merger Agreement (as further described in the section entitled “The Merger Agreement—Termination Fees” of this Proxy Statement, below), and
after consultation with its financial advisors and outside legal counsel, the Board (or a duly authorized committee thereof) determines that the failure to make a Change of Recommendation or to terminate the Merger Agreement would be reasonably likely to be inconsistent with its fiduciary duties under applicable law;
ARA delivers to IRC a written notice (a “Company Notice”), at least four (4) business days before the Board (or a duly authorized committee thereof) takes such action, advising IRC that the Board (or a duly authorized committee thereof) proposes to take such action and containing the material details of such Intervening Event or the material terms and conditions of the Superior Proposal (and includes a copy of the available proposed transaction agreement to be entered into in respect of such Superior Proposal); and
at or after 5:00 p.m. (New York City time) on the fourth (4th) business day immediately following delivery of the Company Notice (such period from the time the Company Notice is provided until 5:00 p.m. New York City time on the fourth (4th) business day immediately following the day on which the Company Notice is provided, the “Notice Period”), the Board (or a duly authorized committee thereof) determines in good faith (after consultation with its outside counsel and financial advisors) that, after taking into account any changes to the terms of the Merger Agreement agreed to in writing by IRC during the Notice Period, the failure to make a Change of Recommendation or to terminate the Merger Agreement would be reasonably likely to be inconsistent with its fiduciary duties under applicable law or, in the case of an Acquisition Proposal, that such Acquisition Proposal continues to constitute a Superior Proposal.
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In the event of any change to the financial terms or any other material terms or conditions of the Superior Proposal in response to changes to the Merger Agreement offered and agreed to in writing by IRC during the Notice Period, ARA is required to deliver a new Company Notice and provide an additional two (2) business day Notice Period. If requested by IRC, ARA is required to engage in good faith negotiations with IRC during the Notice Period to make any adjustments to the terms and conditions of the Merger Agreement so that, (A) in the case of an Acquisition Proposal, such Acquisition Proposal would no longer constitute a Superior Proposal and (B) in the case of an Intervening Event, the failure of the Board (or a duly authorized committee thereof) to make a Change of Recommendation would no longer be reasonably likely to be inconsistent with its fiduciary duties under applicable law.
For purposes of the Merger Agreement:
Acquisition Proposal” means any proposal or offer from any person or entity (each, a “Person”) or group of Persons (other than IRC, Merger Sub or their respective affiliates) relating to (A) any direct or indirect acquisition, purchase, sale, lease or other disposition of assets of ARA or its subsidiaries, in one transaction or a series of related transactions, that constitutes 15% or more of the consolidated revenues, net income or assets of ARA and its subsidiaries, taken as a whole, (B) any issuance of shares of Common Stock representing 15% or more of the total voting power of the equity securities of ARA, (C) any tender offer or exchange offer that if consummated would result in any Person beneficially owning 15% or more of the total voting power of the equity securities of ARA, (D) any merger, reorganization, consolidation, share exchange, business combination, recapitalization, liquidation, dissolution or similar business combination transaction involving the equity of ARA, or (E) any combination of the foregoing.
Company Requisite Vote” means the affirmative vote (in person or by proxy) of the holders of a majority of all of the outstanding share of Common Stock entitled to vote thereon at the Stockholders Meeting (as defined in the section entitled “The Merger Agreement—Stockholders Meeting and Related Actions” of this Proxy Statement, below), or any adjournment or postponement thereof, to adopt the Merger Agreement.
Excluded Party” means any Person or group of Persons from whom ARA, the Board (or a duly authorized committee thereof) or any of their respective Representatives has received a bona fide written Acquisition Proposal after the execution of the Merger Agreement and prior to the No-Shop Period Start Date that the Board (or a duly authorized committee thereof) determines in good faith (such determination to be made prior to the No-Shop Period Start Date and after consultation with its outside counsel and financial advisor) constitutes or is reasonably likely to result in a Superior Proposal; provided that any Person shall immediately and irrevocably cease to be an Excluded Party (and the provisions of the Merger Agreement applicable to Excluded Parties shall cease to apply with respect to such Person) if the Acquisition Proposal submitted by such Person is withdrawn or terminated (it being understood that a modification of an Acquisition Proposal submitted by such Person or group of Persons shall not, in and of itself, be deemed to be a withdrawal or termination of an Acquisition Proposal submitted by such Person or group of Persons).
Intervening Event” means any material event, occurrence, development or change in circumstances with respect to ARA and its subsidiaries, taken as a whole, which (A) (i) was unknown to, and was not reasonably foreseeable by, the Board (or a duly authorized committee thereof) as of the date hereof, or (ii) if known to, or reasonably foreseeable by, the Board (or a duly authorized committee thereof) as of the date hereof, the material consequences of which were not known and reasonably foreseeable to the Board (or a duly authorized committee thereof) as of the date hereof and (B) becomes known to or by the Board (or a duly authorized committee thereof) prior to the time the Company Requisite Vote is obtained; provided, however, that none of the following will alone constitute an Intervening Event: changes in the market price or trading volume of the shares of Common Stock or the fact that ARA meets or exceeds internal or published projections, budgets, forecasts or estimates of revenues, earnings or other financial results for any period (provided, however, that the underlying causes of such changes or fact shall not be excluded by the foregoing).
Superior Proposal” means a bona fide written Acquisition Proposal (except that the references therein to “15%” shall be replaced by “50%”), in each case, that the Board (or a duly authorized committee thereof) in good faith determines, after consultation with its outside legal counsel and financial advisor, after taking
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into account all such factors and matters deemed relevant in good faith by the Board (or a duly authorized committee thereof), including legal, financial (including the financing terms of any such proposal), regulatory (including antitrust), timing or other aspects of such proposal or offer (including any break-up fee, expense reimbursement provisions, and conditions to consummation) and the transactions contemplated hereby and after taking into account any changes to the terms of the Merger Agreement proposed in writing by IRC in response to such Superior Proposal pursuant to, and in accordance with the terms of the Merger Agreement, to be more favorable from a financial point of view to the stockholders of ARA than the transactions contemplated hereby.
The Merger Agreement provides that nothing therein will prohibit ARA or the Board (or a duly authorized committee thereof), from (i) disclosing to ARA stockholders a position contemplated by Rules 14d-9 and 14e-2(a) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), (ii) making any “stop, look and listen” communication to its stockholders pursuant to Rule 14d-9(f) under the Exchange Act or (iii) making any other legally required disclosure to its stockholders with regard to the transactions contemplated by the Merger Agreement or an Acquisition Proposal; provided that neither ARA or the Board (or a duly authorized committee thereof) will make a Change of Recommendation unless otherwise permitted by the Merger Agreement.
Nothing in the Merger Agreement will prohibit ARA or the Board, prior to obtaining the Company Requisite Vote, from contacting and participating and engaging in any negotiations or discussions with any Person or group (and their respective Representatives) who has made a bona fide written Acquisition Proposal that was not solicited in material breach of the No-Shop Period if the Board (or a duly authorized committee thereof) will have determined in good faith, after consultation with its outside legal counsel and financial advisors, that such Acquisition Proposal constitutes or could reasonably be expected to constitute, result in or lead to a Superior Proposal.
Stockholders Meeting and Related Actions
Unless the Board (or a duly authorized committee thereof) has made a Change of Recommendation and pursuant to the Merger Agreement and in accordance with ARA’s organizational documents, applicable law and the rules of the New York Stock Exchange, ARA is required to promptly call, give notice of, convene and hold a meeting of its stockholders for the purpose of adopting the Merger Agreement (including any adjournment or postponement thereof permitted by the Merger Agreement, the “Stockholders Meeting”); provided that ARA may postpone, recess or adjourn such meeting for up to thirty (30) days.
ARA is required to (a) include in this Proxy Statement the Recommendation and Goldman Sachs’ written fairness opinion (subject to Goldman Sachs’ consent) and (b) use its reasonable best efforts to obtain the Company Requisite Vote; provided following any Change of Recommendation by the Board as described above, ARA will not be required to include the Recommendation in this Proxy Statement or use such reasonable best efforts. Notwithstanding anything to the contrary contained in the Merger Agreement, ARA will not be required to hold the Stockholders Meeting if the Merger Agreement is terminated.
Employee Matters
For a period of one (1) year following the Effective Time, IRC will provide, or will cause the surviving corporation to provide, to each continuing employee:
salary, wage rate and target bonus opportunity for each continuing employee immediately prior to the Effective Time that are no less favorable in the aggregate than the salary, wage rate and target bonus opportunity that was provided to such continuing employee immediately prior to the Effective Time;
welfare and other retirement benefits that are substantially comparable in the aggregate to the welfare and other retirement benefits provided to such continuing employee immediately prior to the Effective Time; and