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Item 1.01
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Entry into a Material Definitive Agreement.
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Agreement and Plan of Merger
On October 1, 2020, American Renal Associates Holdings, Inc., a Delaware corporation (“ARA”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with
IRC Superman Midco, LLC, a Delaware limited liability company (“Parent”) and an affiliate of Nautic Partners, LLC, and Superman Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Parent
(“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 merge with and into ARA (the “Merger”), with ARA continuing as the surviving corporation
in the Merger as a wholly owned subsidiary of Parent. The board of directors of ARA (the “ARA Board”) has unanimously approved the Merger Agreement and the transactions contemplated thereby (including the Merger) and has directed that the Merger
Agreement be submitted to the stockholders of ARA for their adoption.
Pursuant to the terms of the Merger Agreement, at the effective time of the Merger (the “Effective Time”) and as a result of the Merger, each share of common stock of
ARA issued and outstanding immediately prior to the Effective Time (other than (i) shares owned by Parent, Merger Sub or any other direct or indirect wholly owned subsidiary of Parent immediately prior to the Effective Time and shares owned by ARA,
including shares held in treasury by ARA, and in each case not held on behalf of third parties, and (ii) shares as to which the holders thereof have properly demanded appraisal with respect thereto under Delaware law and have not effectively
withdrawn such demand) will be converted automatically into and will thereafter represent the right to receive $11.50 in cash, without interest (the “Per Share Merger Consideration”). In addition, immediately prior to the Effective Time and as a
result of the Merger, (a) each option to purchase shares of ARA common stock that is outstanding and unexercised immediately prior to the Effective Time will automatically become immediately vested and, at the Effective Time, will automatically be
converted into the right to receive a cash payment equal to the product of (x) the total number of shares subject to the option multiplied by (y) the excess, if any, of the Per Share Merger Consideration over the exercise price per share under such
option, and (b) each outstanding award of restricted stock and each outstanding award of restricted stock units that is outstanding immediately prior to the Effective Time will automatically become immediately vested and, at the Effective Time, will
automatically be converted into the right to receive a cash payment equal to the product of (x) the total number of shares subject to such award immediately prior to the Effective Time multiplied by (y) the Per Share Merger Consideration, in each
case of (a) and (b) without interest and less applicable taxes required to be withheld.
The consummation of the Merger is subject to customary closing conditions, including, among others, the following conditions to the obligations of either party: (i) the
adoption of the Merger Agreement by the holders of a majority of ARA’s outstanding shares of common stock; (ii) the absence of any applicable law or governmental order prohibiting, restraining or enjoining the consummation of the Merger; (iii) the
expiration or termination of any applicable waiting period (and extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and receipt of any required approvals thereunder; (iv) the accuracy of the other party’s
representations and warranties in the Merger Agreement, subject to customary exceptions; and (v) the other party’s performance and compliance with its covenants and obligations under the Merger Agreement in all material respects. Furthermore, the
consummation of the Merger is subject to the following additional conditions to the obligations of Parent and Merger Sub: (i) the absence of a “Material Adverse Effect” (as defined in the Merger Agreement) with respect to ARA and its subsidiaries,
taken as a whole, and (ii) the receipt of certain specified healthcare regulatory approvals.
The Merger Agreement contains customary representations, warranties and covenants, including covenants obligating ARA to conduct its business in the ordinary course and
not engage in certain specified transactions or activities without Parent’s prior consent. In addition, the Merger Agreement obligates ARA to call and hold a meeting of its stockholders for the purpose of adopting the Merger Agreement and, subject to
certain exceptions, requires the ARA Board to recommend to the ARA stockholders that they vote in favor of the adoption of the Merger Agreement and approval of the Merger (and not withdraw, rescind or materially adversely change or qualify such
recommendation). However, subject to the satisfaction of certain terms and conditions, ARA and the ARA Board, as applicable, are permitted to take certain actions which may, as more fully described in the Merger Agreement, include changing the ARA
Board’s recommendation and entering into a definitive agreement with respect to a Superior Proposal (as defined in the Merger Agreement) if, among other things, the ARA Board (or a duly authorized committee thereof) has determined after consultation
with its outside legal counsel and financial advisors that the failure to take such action would be reasonably likely to be inconsistent with its fiduciary duties under applicable law. The Merger Agreement also contains a “go-shop” provision pursuant
to which ARA retains the right to initiate, solicit, facilitate and encourage any inquiry or acquisition proposal from third parties and engage in discussions and negotiations with respect to such alternative acquisition proposals through November
10, 2020 (the “No-Shop Period Start Date”).
From the No-Shop Period Start Date until the Effective Time, ARA has agreed not to initiate, solicit, knowingly facilitate or knowingly encourage 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 (as defined in the Merger Agreement), or take certain other restricted actions in connection
therewith. Notwithstanding the foregoing, if ARA receives a bona fide Acquisition Proposal that did not result from a material breach of the non-solicitation provisions of the Merger Agreement that the ARA Board (or a duly authorized committee
thereof) determines in good faith, after consultation with its financial advisors and outside legal counsel, constitutes a Superior Proposal, ARA may take certain actions to participate in discussions and negotiations and furnish information with
respect to such Acquisition Proposal, after providing written notice to Parent of such determination.
The Merger Agreement also contains certain termination rights for ARA and Parent, including the right of ARA to terminate the Merger Agreement to accept a Superior
Proposal after complying with certain requirements. In addition, either party may terminate the Merger Agreement if the Merger is not consummated on or before March 1, 2021 (subject to extension as set forth in the Merger Agreement). The Merger
Agreement further provides that, in the event of the termination of the Merger Agreement in connection with an Acquisition Proposal that the ARA Board determines is a Superior Proposal and in other certain specified circumstances, ARA may be required
to pay Parent a termination fee of approximately $12.1 million or, under certain specified circumstances in connection with a bona fide written Acquisition Proposal received prior to the No-Shop Period Start Date, a termination fee of approximately
$5 million. The Merger Agreement also provides that Parent may be required to pay ARA a reverse termination fee of approximately $32.2 million under certain specified circumstances.
Parent has obtained financing commitments for the purpose of financing the transactions contemplated by the Merger Agreement 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 Parent, prior to the closing of the Merger (the “Closing”), with an aggregate equity
contribution of up to $450 million, subject to the terms and conditions set forth in an equity commitment letter. Investments funds and accounts managed by HPS Investments Partners, LLC (the “Lenders”) have agreed to provide Parent and Merger Sub
with committed debt financing in an aggregate principal amount of up to $150 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 Parent 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. The Merger is not conditioned on Parent’s receipt of the Financing.
This summary of the principal terms of the Merger Agreement and the copy of the Merger Agreement filed as an exhibit to this report are intended to provide information
regarding the terms of the Merger Agreement and are not intended to modify or supplement any factual disclosures about ARA in its public reports filed with the Securities and Exchange Commission (“SEC”). In particular, the Merger Agreement and
related summary are not intended to be, and should not be relied upon as, disclosures regarding any facts and circumstances relating to ARA, Parent or Merger Sub or their respective affiliates.
The foregoing description of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement,
which is filed as Exhibit 2.1 hereto and incorporated herein by reference. The Merger Agreement and the foregoing description thereof have been included to provide investors and stockholders with information regarding the terms of the Merger
Agreement. They are not intended to provide any other factual information about ARA. The representations, warranties and covenants contained in the Merger Agreement were made only as of specified dates for the purposes of such agreement, were solely
for the benefit of the parties to such agreement and may be subject to qualifications and limitations agreed upon by such parties. In particular, in reviewing the representations, warranties and covenants contained in the Merger Agreement and
discussed in the foregoing description, it is important to bear in mind that such representations, warranties and covenants were negotiated with the principal purpose of allocating risk between the parties, rather than establishing matters as facts.
Such representations, warranties and covenants 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 are also qualified in important
part by a confidential disclosure schedule delivered by ARA to Parent in connection with the Merger Agreement. Investors and stockholders are not third-party beneficiaries under the Merger Agreement. Accordingly, investors and stockholders should not
rely on such representations, warranties and covenants as characterizations of the actual state of facts or circumstances described therein. Information concerning the subject matter of such representations, warranties and covenants may change after
the date of the Merger Agreement, which subsequent information may or may not be fully reflected in the parties’ public disclosures.
Voting and Support Agreement
Concurrently with the execution of the Merger Agreement, Centerbridge Capital Partners, L.P. and certain of its affiliates (collectively, the “Centerbridge
Stockholders”), which together beneficially own approximately 53.4% of the outstanding shares of common stock of ARA, entered into a Voting and Support Agreement with Parent (the “Voting Agreement”) 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 (i) in favor of the adoption and approval of the Merger Agreement and the transactions contemplated thereby, including the Merger, (ii)
against any action or agreement that would reasonably be expected to result in a breach of any obligation of ARA or any of its subsidiaries or affiliates under the Merger Agreement or that would reasonably be expected to result in any of the
conditions to ARA’s or any of its subsidiaries’ or affiliates’ obligations under the Merger Agreement not being fulfilled, and (iii) against (a) any Acquisition Proposal, (b) any agreement, transaction or other matter intended to or reasonably
expected to materially and adversely affect the consummation of the transactions contemplated by the Merger Agreement, including the Merger, (c) any reorganization, recapitalization, dissolution or liquidation of ARA or its subsidiaries, (d) any
change in the majority of the ARA Board, and (e) any material change in ARA’s capitalization or corporate structure. In addition, each Centerbridge Stockholder waived appraisal rights.
The Centerbridge Stockholders have also agreed, to the extent requested by the ARA Board (or an independent committee of disinterested members of the ARA Board) in
connection with any Acquisition Proposal which the ARA Board or such committee has determined in good faith, after consultation with its financial advisors and outside legal counsel, constitutes a Superior Proposal, 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 Parent on the date hereof, pursuant to which the
Centerbridge Stockholders agreed, subject to the limitations therein, to reimburse the Company for fifty percent of any fines, penalties or reasonable and documented out-of-pocket expenses incurred in connection with the SEC investigation previously
disclosed by the Company in its public reports filed with the SEC, subject to a $5 million aggregate reimbursement cap.
The Voting Agreement terminates upon the earliest to occur of (i) the Effective Time, (ii) the termination of the Merger Agreement in accordance with its terms, (iii) in
the event the Merger Agreement is amended without the prior consent of the Centerbridge Stockholders and such amendment (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) mutual consent by the Centerbridge Stockholders and Parent, (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 have been voted as specified therein, or (vi) the ARA Board changing its recommendation that ARA’s stockholders adopt the Merger Agreement
in accordance with the terms of and to the extent permitted by the Merger Agreement.
The foregoing description of the Voting Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Voting Agreement,
which is filed as Exhibit 10.1 hereto and incorporated herein by reference.