<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 23, 1998
REGISTRATION NO. 333-42653
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
TOTAL RENAL CARE HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 8092 51-0354549
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
21250 HAWTHORNE BOULEVARD, SUITE 800
TORRANCE, CALIFORNIA 90503
(310) 792-2600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
JOHN E. KING
CHIEF FINANCIAL OFFICER
TOTAL RENAL CARE HOLDINGS, INC.
21250 HAWTHORNE BOULEVARD, SUITE 800
TORRANCE, CALIFORNIA 90503
(310) 792-2600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
<TABLE>
<S> <C>
CYNTHIA M. DUNNETT, ESQ. RICHARD HALL, ESQ.
RIORDAN & MCKINZIE CRAVATH, SWAINE & MOORE
300 SOUTH GRAND AVENUE, 29TH FLOOR WORLDWIDE PLAZA, 825 EIGHTH AVENUE
LOS ANGELES, CALIFORNIA 90071 NEW YORK, NEW YORK 10019
(213) 629-4824 (212) 474-1000
</TABLE>
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If the form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT THEREAFTER SHALL BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
[LOGO OF TOTAL RENAL CARE]
TOTAL RENAL CARE HOLDINGS, INC.
January 26, 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Total Renal Care Holdings, Inc., a Delaware corporation ("TRCH"), at the
Torrance Marriott located at 3635 Fashion Way, Torrance, California 90503 on
February 26, 1998, at 10:00 a.m., local time (the "TRCH Special Meeting").
On November 18, 1997, TRCH entered into an Agreement and Plan of Merger (the
"Merger Agreement"), with Nevada Acquisition Corp., a Delaware corporation and
wholly owned subsidiary of TRCH (the "Merger Sub"), and Renal Treatment
Centers, Inc., a Delaware corporation ("RTC"), pursuant to which, among other
things, Merger Sub will be merged with and into RTC (the "Merger"), with RTC
surviving as a wholly owned subsidiary of TRCH. Upon consummation of the
Merger, each share of RTC common stock, par value $0.01 per share, outstanding
immediately prior to the effective time of the Merger will be converted into
the right to receive 1.335 (the "Exchange Ratio") shares of common stock, par
value $0.001 per share, of TRCH (the "TRCH Common Stock").
At the TRCH Special Meeting, you will be asked to approve (i) the issuance,
pursuant to the Merger Agreement, of shares of TRCH Common Stock (estimated to
be approximately 35.2 million shares) (the "Share Issuance"), (ii) an
amendment to TRCH's Amended and Restated Certificate of Incorporation to
increase the number of authorized shares of TRCH Common Stock from 55,000,000
shares to 195,000,000 shares (the "Charter Amendment"), and (iii) an amendment
to TRCH's 1997 Equity Compensation Plan (the "1997 Plan") increasing by
3,000,000 the number of shares of TRCH Common Stock authorized for issuance
under the 1997 Plan (the "1997 Plan Amendment").
FOR THE REASONS SET FORTH IN THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS, THE TRCH BOARD OF DIRECTORS (THE "TRCH BOARD")
UNANIMOUSLY BELIEVES THAT THE SHARE ISSUANCE, THE CHARTER AMENDMENT AND THE
1997 PLAN AMENDMENT ARE IN THE BEST INTERESTS OF THE STOCKHOLDERS OF TRCH AND,
ACCORDINGLY, UNANIMOUSLY RECOMMENDS THAT TRCH'S STOCKHOLDERS VOTE IN FAVOR OF
APPROVAL AND ADOPTION OF SUCH PROPOSALS.
In making its determination as to the fairness of the Merger and the
Exchange Ratio, the TRCH Board received and considered the opinion, dated
November 17, 1997, of Donaldson, Lufkin & Jenrette Securities Corporation (the
"DLJ Opinion") to the effect that, as of such date, the Exchange Ratio was
fair to the stockholders of TRCH from a financial point of view. A copy of the
complete DLJ Opinion, including the assumptions, qualifications and other
matters contained therein, is included in the accompanying Joint Proxy
Statement/Prospectus as Annex B thereto.
Consummation of the Merger is subject to certain conditions, including the
approval of the Share Issuance and the Charter Amendment by TRCH's
stockholders, the approval and adoption of the Merger Agreement and the other
transactions contemplated thereby by RTC's stockholders, and the review by, or
receipt of certain approvals from, regulatory authorities.
If you have any questions prior to the TRCH Special Meeting or need further
assistance, please call The Financial Relations Board, Inc., our proxy
solicitor, at (212) 661-8030.
The enclosed Notice and Joint Proxy Statement/Prospectus contain details
concerning the Merger, the Charter Amendment and the 1997 Plan Amendment. We
urge you to read and consider these documents carefully. Whether or not you
plan to attend the TRCH Special Meeting, please be sure to sign, date and
return the enclosed proxy card in the enclosed, postage-paid envelope as
promptly as possible so that your shares may be represented at the TRCH
Special Meeting and voted in accordance with your wishes. It is important that
your shares be represented at the TRCH Special Meeting. Your vote is important
regardless of the number of shares you own.
Sincerely,
/s/ Victor M.G. Chaltiel
Victor M.G. Chaltiel
Chairman, Chief Executive Officer and
President
<PAGE>
[Map of TRCH and RTC Facility Locations]
<PAGE>
[LOGO OF TOTAL RENAL CARE]
NOTICE OF
SPECIAL MEETING OF STOCKHOLDERS OF
TOTAL RENAL CARE HOLDINGS, INC.
TO BE HELD FEBRUARY 26, 1998
----------------
To the Stockholders of Total Renal Care Holdings, Inc.:
A Special Meeting of Stockholders (the "TRCH Special Meeting") of Total
Renal Care Holdings, Inc., a Delaware corporation ("TRCH"), will be held on
February 26, 1998 at 10:00 a.m., local time, at the Torrance Marriott located
at 3635 Fashion Way, Torrance, California 90503 for the following purposes:
1. To consider and vote upon a proposal to approve the issuance of shares
of Common Stock, par value $0.001 per share, of TRCH (the "TRCH Common
Stock") (estimated to be approximately 35.2 million shares) (the "Share
Issuance"), in accordance with the terms of the Agreement and Plan of
Merger, dated as of November 18, 1997 (the "Merger Agreement"), by and
among TRCH, Nevada Acquisition Corp., a Delaware corporation and wholly
owned subsidiary of TRCH ("Merger Sub"), and Renal Treatment Centers, Inc.,
a Delaware corporation ("RTC"), pursuant to which, among other things: (i)
Merger Sub will merge with and into RTC (the "Merger"), with RTC surviving
as a wholly owned subsidiary of TRCH; and (ii) each share of common stock,
par value $0.01 per share, of RTC (the "RTC Common Stock") outstanding
immediately prior to the effective date of the Merger will be converted
into the right to receive 1.335 shares of TRCH Common Stock;
2. To consider and vote upon a proposal to amend TRCH's Amended and
Restated Certificate of Incorporation, to increase the number of authorized
shares of TRCH Common Stock from 55,000,000 shares to 195,000,000 shares
(the "Charter Amendment");
3. To consider and vote upon a proposal to approve an amendment to TRCH's
1997 Equity Compensation Plan (the "1997 Plan") increasing by 3,000,000 the
number of shares of TRCH Common Stock authorized for issuance under the
1997 Plan (the "1997 Plan Amendment"); and
4. To transact such other business as may properly come before the TRCH
Special Meeting or any adjournment thereof.
Approval of each of the Share Issuance and the 1997 Plan Amendment requires
the affirmative vote of a majority of the votes cast with respect to such
proposal; provided that the total number of votes cast on each such proposal
represents more than 50% of the outstanding shares of TRCH Common Stock
entitled to vote thereon at the TRCH Special Meeting. Approval of the Charter
Amendment requires the affirmative vote of a majority of all outstanding
shares of TRCH Common Stock. Approval of the Share Issuance is conditioned on
approval of the Charter Amendment.
The board of directors of TRCH (the "TRCH Board") unanimously recommends
that stockholders vote FOR approval of the Share Issuance, the Charter
Amendment and the 1997 Plan Amendment.
The TRCH Board has fixed the close of business on January 20, 1998 as the
record date for the determination of stockholders entitled to notice of, and
to vote at, the TRCH Special Meeting or any adjournment thereof. Only holders
of record of TRCH Common Stock at the close of business on the record date are
entitled to notice of, and to vote at, the TRCH Special Meeting. A complete
list of such stockholders will be available for examination by any TRCH
stockholder, for any purpose related to the TRCH Special Meeting at the
offices of TRCH in Torrance, California, during normal business hours for a
period of ten days prior to the Special Meeting.
<PAGE>
STOCKHOLDERS ARE URGED, WHETHER OR NOT THEY PLAN TO ATTEND THE TRCH SPECIAL
MEETING, TO SIGN, DATE AND MAIL THE ENCLOSED PROXY CARD IN THE POSTAGE-PAID
RETURN ENVELOPE PROVIDED. THE GIVING OF YOUR PROXY WILL NOT AFFECT YOUR RIGHT
TO VOTE IN PERSON IF YOU ATTEND THE MEETING. If a stockholder who has returned
a proxy attends the TRCH Special Meeting in person, such stockholder may
revoke the proxy and vote in person on all matters submitted for a vote of
stockholders at the TRCH Special Meeting.
By Order of the Board of Directors
/s/ Barry C. Cosgrove
Barry C. Cosgrove
Vice President, General Counsel and
Secretary
Torrance, California
January 26, 1998
<PAGE>
[LOGO OF TOTAL RENAL CARE]
RENAL TREATMENT CENTERS, INC.
January 26, 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Renal Treatment Centers, Inc. ("RTC") at the Sheraton Great Valley Hotel, 707
Lancaster Pike, Frazer, Pennsylvania 19355, on February 26, 1998 at 1:00 p.m.,
local time. The purpose of the Special Meeting is set forth below and in the
accompanying Notice of Special Meeting of Stockholders, and is described in
detail in the accompanying Joint Proxy Statement/Prospectus.
On November 18, 1997, RTC entered into an Agreement and Plan of Merger (the
"Merger Agreement"), with Total Renal Care Holdings, Inc. ("TRCH") and Nevada
Acquisition Corp., a wholly owned subsidiary of TRCH ("Merger Sub"), pursuant
to which Merger Sub will be merged with and into RTC (the "Merger"), with RTC
surviving as a wholly owned subsidiary of TRCH. Upon consummation of the
Merger, each share of RTC common stock will be converted into the right to
receive 1.335 shares of TRCH common stock. In order to accomplish the Merger,
stockholders of RTC are being asked to approve and adopt the Merger Agreement
and the transactions contemplated thereby.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS FAIR
TO AND IN THE BEST INTERESTS OF RTC AND ITS STOCKHOLDERS. ACCORDINGLY, THE
BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND RELATED TRANSACTIONS
AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
You are urged to read the accompanying Joint Proxy Statement/Prospectus,
which provides you with a description of the terms of the proposed
transaction. A copy of the Merger Agreement is included as Annex A to the
Joint Proxy Statement/Prospectus.
It is important that your shares be represented at the Special Meeting.
Whether or not you plan to attend the Special Meeting in person, you are urged
to complete, date and sign the enclosed proxy card and return it in the
enclosed postage paid envelope as promptly as possible.
If you have any questions prior to the Special Meeting or need further
assistance, please call Georgeson & Company Inc., our proxy solicitor, at
(800) 223-2064.
Thank you for your time and attention to the accompanying Notice of Special
Meeting and Joint Proxy Statement/Prospectus.
Very truly yours,
/s/ Robert L. Mayer, Jr.
Robert L. Mayer, Jr.
Chairman, Chief Executive Officer
and President
<PAGE>
[Map of TRCH and RTC Facility Locations]
<PAGE>
[LOGO OF TOTAL RENAL CARE]
RENAL TREATMENT CENTERS, INC.
NOTICE OF
SPECIAL MEETING OF STOCKHOLDERS OF
RENAL TREATMENT CENTERS, INC.
TO BE HELD FEBRUARY 26, 1998
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Special
Meeting") of Renal Treatment Centers, Inc., a Delaware corporation ("RTC"),
will be held at the Sheraton Great Valley Hotel, 707 Lancaster Pike, Frazer,
Pennsylvania 19355, on February 26, 1998, beginning at 1:00 p.m., local time,
for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of November 18, 1997 (the "Merger
Agreement"), by and among RTC, Total Renal Care Holdings, Inc., a Delaware
corporation ("TRCH"), and Nevada Acquisition Corp., a Delaware corporation
and a wholly owned subsidiary of TRCH ("Merger Sub"), and the transactions
contemplated thereby, including, among other things, the merger ("Merger")
of Merger Sub with and into RTC and the conversion of each share of common
stock, par value $0.01 per share, of RTC (the "RTC Common Stock") into the
right to receive 1.335 (the "Exchange Ratio") shares of common stock, par
value $0.001 per share, of TRCH ("TRCH Common Stock"). The Merger and
related matters are described in greater detail in, and a copy of the
Merger Agreement is attached as Annex A to, the accompanying Joint Proxy
Statement/Prospectus; and
2. To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
Only stockholders of record at the close of business on January 20, 1998,
the record date for the Special Meeting, will be entitled to vote at the
Special Meeting.
Approval of the proposal described in item 1 above requires the affirmative
vote of the holders of a majority of the outstanding shares of RTC Common
Stock entitled to be voted with respect to such proposal.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, YOU ARE URGED
TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN THE
ENCLOSED POSTAGE-PAID ENVELOPE AS PROMPTLY AS POSSIBLE. Any stockholder who
signs and mails a proxy may revoke such proxy by delivering written notice of
such revocation to the Secretary of RTC prior to the time voting is declared
closed or by attending the Special Meeting and voting in person. Please see
the accompanying Joint Proxy Statement/Prospectus for further details
regarding the treatment of proxies at the Special Meeting.
Please do not mail any stock certificates at this time.
By Order of the Board of Directors
/s/ Thomas J. Karl
Thomas J. Karl
Vice President, General Counsel and
Secretary
Berwyn, Pennsylvania
January 26, 1998
<PAGE>
TOTAL RENAL CARE HOLDINGS, INC.
RENAL TREATMENT CENTERS, INC.
JOINT PROXY STATEMENT
---------------
TOTAL RENAL CARE HOLDINGS, INC.
PROSPECTUS
---------------
This Joint Proxy Statement/Prospectus (the "Joint Proxy
Statement/Prospectus") relates to the proposed merger of Nevada Acquisition
Corp. ("Merger Sub"), a Delaware corporation and wholly owned subsidiary of
Total Renal Care Holdings, Inc., a Delaware corporation ("TRCH"), with and
into Renal Treatment Centers, Inc., a Delaware corporation ("RTC"), pursuant
to an Agreement and Plan of Merger, dated as of November 18, 1997, by and
among TRCH, Merger Sub and RTC (the "Merger Agreement"). The merger
contemplated by the Merger Agreement is referred to herein as the "Merger."
As a result of the Merger, RTC will become a wholly owned subsidiary of TRCH
and each share of common stock, par value $0.01 per share, of RTC (the "RTC
Common Stock") outstanding immediately prior to the effective time of the
Merger (other than treasury shares and shares held by TRCH or Merger Sub,
which shares will be cancelled) will be converted into the right to receive
1.335 (the "Exchange Ratio") shares of common stock, par value $0.001 per
share, of TRCH (the "TRCH Common Stock"). Cash will be paid in lieu of any
fractional shares of TRCH Common Stock.
This Joint Proxy Statement/Prospectus is being furnished to the holders of
TRCH Common Stock and RTC Common Stock in connection with the solicitation of
proxies by the respective Boards of Directors of TRCH and RTC for use at a
special meeting of stockholders of TRCH to be held on February 26, 1998, and
any and all adjournments and postponements thereof (the "TRCH Special
Meeting") and at a special meeting of the stockholders of RTC to be held on
February 26, 1998, and any and all adjournments and postponements thereof (the
"RTC Special Meeting" and, together with the TRCH Special Meeting, the
"Special Meetings").
At the TRCH Special Meeting, holders of TRCH Common Stock will be asked to
consider proposals to: (i) approve the issuance, pursuant to the Merger
Agreement, of shares of TRCH Common Stock (estimated to be approximately 35.2
million shares) (the "Share Issuance"); (ii) approve an amendment to TRCH's
Amended and Restated Certificate of Incorporation to increase the number of
authorized shares of TRCH Common Stock from 55,000,000 shares to 195,000,000
shares (the "Charter Amendment"); and (iii) approve an amendment to TRCH's
1997 Equity Compensation Plan (the "1997 Plan") to increase by 3,000,000 the
number of shares of TRCH Common Stock authorized for issuance under the 1997
Plan (the "1997 Plan Amendment"). The consummation of the Merger is not
conditioned upon approval of the 1997 Plan Amendment.
At the RTC Special Meeting, holders of RTC Common Stock will be asked to
consider a proposal to approve and adopt the Merger Agreement and the
transactions contemplated thereby.
This Joint Proxy Statement/Prospectus also constitutes the prospectus of
TRCH with respect to the shares of TRCH Common Stock to be issued to the
stockholders of RTC pursuant to the Merger Agreement filed as part of a
Registration Statement on Form S-4 (the "Registration Statement") with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Securities Act"). TRCH will apply to have the shares
of TRCH Common Stock issued pursuant to the Merger listed on the New York
Stock Exchange (the "NYSE").
On November 18, 1997, the last full day of trading prior to the announcement
of the execution of the Merger Agreement, the last reported sale prices of
TRCH Common Stock and RTC Common Stock, as reported on the NYSE, were $31.125
and $38.25, respectively. On January 22, 1998, the last trading day prior to
the date of this Joint Proxy Statement/Prospectus, the last reported sale
prices of TRCH Common Stock and RTC Common Stock, as reported on the NYSE,
were $24.88 and $32.47, respectively.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to stockholders of TRCH and stockholders of RTC on or
about January 26, 1998.
---------------
THE SHARES OF TRCH COMMON STOCK TO BE ISSUED IN CONNECTION WITH THE MERGER
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR A DISCUSSION OF CERTAIN
MATTERS THAT SHOULD BE CONSIDERED BY THE STOCKHOLDERS OF TRCH
AND THE STOCKHOLDERS OF RTC WITH RESPECT TO THE MERGER.
---------------
The date of this Joint Proxy Statement/Prospectus is January 23, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION...................................................... i
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................ ii
SUMMARY.................................................................... 1
RISK FACTORS............................................................... 15
THE SPECIAL MEETINGS....................................................... 21
The TRCH Special Meeting................................................. 21
The RTC Special Meeting.................................................. 22
THE MERGER................................................................. 25
Background of the Merger................................................. 25
TRCH's Reasons for the Merger; Recommendations of the TRCH Board......... 28
RTC's Reasons for the Merger; Recommendations of the RTC Board........... 29
Opinion of DLJ, Financial Advisor to TRCH................................ 31
Opinion of UBS Securities, Financial Advisor to RTC...................... 36
The Merger Agreement..................................................... 42
Resale of Shares of TRCH Common Stock Issued in the Merger; Affiliates... 48
RTC's Subordinated Notes................................................. 49
Certain Federal Income Tax Consequences.................................. 49
Accounting Treatment of the Merger....................................... 50
Interests of Certain Persons in the Merger............................... 50
Appraisal Rights......................................................... 53
Regulatory Approval...................................................... 53
Stock Exchange Listing................................................... 53
Delisting and Deregistration of RTC Common Stock......................... 53
Comparative Stock Prices................................................. 54
COMPARATIVE RIGHTS OF STOCKHOLDERS......................................... 55
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION............... 59
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET.............. 61
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME....... 69
PROPOSED TRCH SHARE ISSUANCE............................................... 70
PROPOSED TRCH CHARTER AMENDMENT............................................ 70
PROPOSED AMENDMENT TO 1997 EQUITY COMPENSATION PLAN........................ 71
LEGAL MATTERS.............................................................. 77
EXPERTS.................................................................... 77
FUTURE STOCKHOLDER PROPOSALS............................................... 78
</TABLE>
ANNEXES
<TABLE>
<S> <C>
ANNEX A: AGREEMENT AND PLAN OF MERGER....................................... A-1
ANNEX B: OPINION OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION..... B-1
ANNEX C: OPINION OF UBS SECURITIES LLC...................................... C-1
ANNEX D: PROPOSED AMENDED AND RESTATED 1997 EQUITY COMPENSATION PLAN........ D-1
</TABLE>
<PAGE>
AVAILABLE INFORMATION
TRCH and RTC are each subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports, proxy statements, registration statements
and other information with the Commission. The reports, proxy statements,
registration statements and other information filed by TRCH and RTC with the
Commission may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's Regional Offices at Seven World Trade Center,
13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material may
be obtained by mail from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission also maintains a Web Site at http://www.sec.gov which contains
reports, proxy statements, registration statements and other information
regarding registrants that file electronically with the Commission. The TRCH
Common Stock is listed on the NYSE under the symbol "TRL." The RTC Common
Stock is listed on the NYSE under the symbol "RXT." Reports, proxy statements
and other information filed by TRCH and RTC may be inspected at the offices of
the NYSE, 20 Broad Street, New York, New York 10005.
TRCH has filed with the Commission the Registration Statement with respect
to the TRCH Common Stock to be issued pursuant to the Merger Agreement, of
which this Joint Proxy Statement/Prospectus constitutes a part. The
information contained herein with respect to TRCH and its affiliates has been
provided by TRCH, and the information contained herein with respect to RTC and
its affiliates has been provided by RTC. This Joint Proxy Statement/Prospectus
does not contain all of the information set forth in the Registration
Statement, certain items of which were omitted in accordance with the rules
and regulations of the Commission. For further information, reference is
hereby made to the Registration Statement. Any statements contained herein
concerning the contents of any contract, agreement or other document referred
to herein and filed as an exhibit to the Registration Statement or otherwise
filed with the Commission are not necessarily complete. With respect to each
such contract, agreement or other document filed with the Commission as an
exhibit, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement is qualified in its entirety by
such reference.
i
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed with the Commission pursuant
to the Exchange Act, are incorporated herein by reference:
1. For TRCH (Commission File Number 1-4034), its:
(a) Annual Report on Form 10-K for the fiscal year ended December 31,
1996 (the "TRCH 10-K");
(b) Quarterly Reports on Form 10-Q for the quarters ended March 31,
1997, June 30, 1997 and September 30, 1997 (the "TRCH 10-Qs");
(c) Current Reports on Form 8-K dated November 18, 1997, December 19,
1997 and January 22, 1998; and
(d) The description of the TRCH Common Stock contained in the
Registration Statement on Form 8-A dated October 23, 1995.
2. For RTC (Commission File Number 1-14142), its:
(a) Annual Report on Form 10-K for the fiscal year ended December 31,
1996 (the "RTC 10-K");
(b) Quarterly Reports on Form 10-Q for the quarters ended March 31,
1997, June 30, 1997 and September 30, 1997 (the "RTC 10-Qs"); and
(c) Current Reports on Form 8-K dated February 5, 1997, October 6,
1997, November 18, 1997 and December 19, 1997.
All documents filed by TRCH or RTC pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Joint Proxy
Statement/Prospectus and prior to the date of the Special Meetings shall be
deemed to be incorporated by reference herein and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Joint Proxy
Statement/Prospectus to the extent that a statement contained herein or in any
other subsequently filed document that also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Joint Proxy Statement/Prospectus.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH
DOCUMENTS, OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY
INCORPORATED BY REFERENCE THEREIN, ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON
TO WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR
ORAL REQUEST TO, IN THE CASE OF DOCUMENTS RELATING TO TRCH, TOTAL RENAL CARE
HOLDINGS, INC., SUITE 800, 21250 HAWTHORNE BOULEVARD, TORRANCE, CALIFORNIA
90503, (310) 792-2600, AND IN THE CASE OF DOCUMENTS RELATING TO RTC, RENAL
TREATMENT CENTERS, INC., BUILDING TWO, SUITE 300, 1180 WEST SWEDESFORD ROAD,
BERWYN, PENNSYLVANIA 19312, (610) 722-6100. IN ORDER TO ENSURE TIMELY DELIVERY
OF THE DOCUMENTS, ANY REQUEST SHOULD BE RECEIVED BY TRCH OR RTC, AS THE CASE
MAY BE, BY FEBRUARY 19, 1998.
----------------
NO PERSON IS AUTHORIZED BY TRCH OR RTC TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATION, OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS, IN CONNECTION WITH THE SOLICITATION AND THE OFFERING
ii
<PAGE>
MADE BY THIS JOINT PROXY STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE THE
SOLICITATION OF A PROXY OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO
PURCHASE, ANY SECURITIES IN ANY JURISDICTION IN WHICH SUCH SOLICITATION OR
OFFERING MAY NOT LAWFULLY BE MADE.
NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL IMPLY THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF TRCH OR RTC
SINCE THE DATE HEREOF.
WHEN USED IN THIS JOINT PROXY STATEMENT/PROSPECTUS, STATEMENTS CONTAINING
THE WORDS "EXPECTS," "ANTICIPATES," "ESTIMATES," "BELIEVES" AND WORDS OF
SIMILAR IMPORT MAY CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING
OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. SUCH
STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES, INCLUDING THOSE SET FORTH
UNDER "RISK FACTORS" AND ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS,
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED. FOR
A DISCUSSION OF SUCH RISKS, SEE "RISK FACTORS." READERS ARE CAUTIONED NOT TO
PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS
OF THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS.
iii
<PAGE>
SUMMARY
This summary highlights selected information from this Joint Proxy
Statement/Prospectus and may not contain all of the information that is
important. To understand the Merger fully and for a more complete description
of the legal terms of the Merger, stockholders should read carefully this
entire document, including the annexes, and the documents incorporated by
reference. See "Available Information" and "Incorporation of Certain Documents
by Reference." Stockholders should also carefully consider the information set
forth below in "Risk Factors." The term "the Company" refers to Total Renal
Care Holdings, Inc. and its subsidiaries, including Renal Treatment Centers,
Inc., on a combined basis after the Merger. All share and per share data of
TRCH and of RTC in this Joint Proxy Statement/Prospectus reflect the stock
splits of TRCH and of RTC effected prior to the date hereof.
THE COMPANIES
TRCH
TRCH is the third largest, and largest independent, provider of dialysis and
related services in the United States for patients suffering from chronic
kidney failure, also known as end stage renal disease ("ESRD"). TRCH currently
provides high quality dialysis and ancillary services to approximately 16,200
patients through a network of 203 outpatient dialysis facilities in 20 states,
as well as Washington, D.C., Guam, Puerto Rico, Italy and the United Kingdom.
In addition, TRCH provides inpatient dialysis services at 124 hospitals. TRCH
has implemented an aggressive, yet disciplined, growth strategy since its
recapitalization and change in ownership in August 1994 (the
"Recapitalization"), adding 166 outpatient dialysis facilities to its network
as well as 96 hospital inpatient contracts. Sixty-three of the outpatient
dialysis facilities and 35 of these hospital inpatient contracts have been
added in 1997. TRCH's in-house ancillary services include ESRD laboratory and
pharmacy facilities, as well as vascular access management, transplant services
and ESRD clinical research programs.
TRCH has achieved significant growth in revenues and profitability. Since the
Recapitalization, net patient revenue and operating income have increased from
$80.5 million and $10.9 million, respectively, in the year ended May 31, 1994,
to $272.9 million and $48.8 million, respectively, in the year ended December
31, 1996. TRCH believes that it has achieved this revenue and profit growth by
pursuing an aggressive, yet disciplined, acquisition strategy, achieving same-
center volume growth in excess of industry growth rates through innovative
managed care and Quality Management Programs, expanding same-center revenues by
offering high quality ancillary and other value-added services and maintaining
an efficient cost structure through effective operating and management control
systems.
TRCH's growth strategy is focused on establishing strong regional networks of
clustered facilities that provide high quality comprehensive care for ESRD
patients. TRCH believes that this approach enhances its operating efficiency
and positions TRCH to be a leader in a healthcare environment increasingly
influenced by managed care. TRCH believes that managed care payors will
increasingly favor providers able to offer a full range of clinical programs
and services as well as significant geographic coverage for their membership.
TRCH strives to continue its growth and margin improvement by (i) expanding its
existing networks and by creating new regional facility networks through
acquisition, the development of new facilities ("de novo" developments) and the
formation of hospital alliances both domestically and internationally; (ii)
forming strategic alliances with managed care organizations; (iii) expanding
the range of ancillary services it provides to patients; (iv) continuously
improving the quality of care provided through TRCH's innovative Quality
Management Program and (v) maximizing operating efficiencies and capacity
utilization. As part of TRCH's growth strategy, it has recently begun the
development and acquisition of operations in selected, highly fragmented
international dialysis markets.
1
<PAGE>
Merger Sub, which is a wholly owned subsidiary of TRCH, was incorporated in
Delaware on November 13, 1997, solely for the purpose of engaging in the
transactions contemplated by the Merger Agreement and has engaged in no
business other than incident to its creation and the Merger Agreement and the
transactions contemplated by the Merger Agreement.
TRCH and Merger Sub have their executive offices at Suite 800, 21250
Hawthorne Boulevard, Torrance, California 90503.
RTC
RTC is a leading, high quality provider of dialysis treatments and ancillary
services to patients suffering from chronic kidney failure, primarily in its
freestanding outpatient dialysis treatment centers or in the patient's home.
RTC currently operates 186 outpatient dialysis facilities in 24 states, the
District of Columbia and the Republic of Argentina. As of the date of this
Joint Proxy Statement/Prospectus, RTC provides dialysis services to
approximately 13,200 patients. RTC also provides ancillary medications and
services to patients, including erythropoietin ("EPO"), a protein used to treat
anemia, a complication experienced by most dialysis patients. In addition, RTC
currently provides inpatient acute dialysis services to over 130 hospitals
located in its service areas. RTC has expanded rapidly, primarily through
acquisitions, increasing the number of dialysis facilities in its network from
78, as of December 31, 1995, to its current level of 186 facilities.
RTC has achieved significant growth in revenues and profitability in recent
years. Net patient revenue has increased from $54.0 million in 1992 to $235.4
million in 1996, and net income has increased from $3.5 million in 1992 to
$19.3 million in 1996. RTC believes it has achieved this financial performance
due primarily to the successful completion and integration of acquisitions, the
growth of same-center revenues, and the high quality of its dialysis services.
RTC's strategy is to continue expanding its dialysis services business while
maintaining the high quality of its clinical care, by: (i) acquiring existing
dialysis facilities; (ii) pursuing same-center growth; (iii) maximizing
operating efficiencies and utilization within its network; (iv) developing new
dialysis facilities; (v) creating services and products tailored to managed
care organizations and (vi) negotiating additional contracts to provide
inpatient acute dialysis services to hospitals. When considering acquisitions,
RTC seeks to develop regional clusters in locations with favorable demographics
and payor mixes.
RTC has its executive offices at Building Two, Suite 300, 1180 West
Swedesford Road, Berwyn, Pennsylvania 19312.
Operations after the Merger
The combination of TRCH and RTC will provide the combined company with a
platform to accelerate TRCH's aggressive, yet disciplined, growth plan
domestically and internationally. The Merger will solidify the Company's
position as the largest independent provider of dialysis services with a total
of 389 centers serving approximately 29,400 patients worldwide. In the United
States, as of the date of this Joint Proxy Statement/Prospectus, the Company
would operate 349 facilities serving approximately 27,400 patients. The
addition of RTC will add 13 new markets to TRCH's existing domestic operations,
and will increase its penetration in 11 existing markets. Following the Merger,
the Company will have strong market positions in 11 states: California,
Colorado, Florida, Georgia, Kansas, Maryland, Minnesota, North Carolina,
Oklahoma, Pennsylvania and Texas. Outside the United States, the Company will
provide dialysis services to approximately 2,000 patients through 40 facilities
in Argentina, Italy and the United Kingdom. Approximately 585,000, or 72%, of
the 815,000 ESRD patients worldwide are located outside of the United States.
TRCH has identified pre-tax cost savings and synergies (net of incremental
costs) of $8.2 million in 1998 and $22.8 million per year in 1999 and
thereafter, which may be realized by the Company as a result of the Merger.
TRCH expects to achieve these costs savings and synergies from: (i) the
elimination of duplicative
2
<PAGE>
overhead expenses; (ii) improved drug and supply utilization; (iii) enhanced
purchasing efficiencies; (iv) improvements in labor productivity and skill mix;
(v) enhanced revenue growth through applying TRCH's ancillary and value-added
services (i.e., lab, pharmacy, etc.) to RTC's patients and (vi) increased
revenue potential resulting from a recent legislative change in Medicare as
secondary payor. Many of these cost savings and synergies will be achieved by
applying TRCH's existing programs to RTC's business. After giving effect to
these expected cost savings and synergies resulting from the Merger, the Merger
is expected by TRCH to be accretive to its earnings in the year ending December
31, 1998 and thereafter. TRCH believes that additional net cost savings and
synergies may be realized in 1998 and beyond. See "The Merger--TRCH's Reasons
for the Merger; Recommendations of the TRCH Board." No assurances can be made,
however, as to the actual amount and timing of cost savings and synergies, if
any, that will be realized.
THE SPECIAL MEETINGS
TRCH Special Meeting
Purpose. At the TRCH Special Meeting, TRCH stockholders will be asked to (i)
approve the Share Issuance; (ii) approve the Charter Amendment; (iii) approve
the 1997 Plan Amendment and (iv) transact any other business that properly may
come before the meeting or any adjournments or postponements thereof.
Time, Place and Date. The TRCH Special Meeting will be held at the Torrance
Marriott, located at 3635 Fashion Way, Torrance, California 90503 on February
26, 1998, at 10:00 a.m., local time.
Record Date; Quorum; Votes Required. Holders of shares of TRCH Common Stock
as of the close of business on January 20, 1998, which has been set as the
"record date," will be entitled to vote at the TRCH Special Meeting. As of the
Record Date, 44,678,625 shares of TRCH Common Stock were outstanding and
entitled to vote, of which 2.8% was beneficially owned by the directors and
executive officers of TRCH. The presence in person or by proxy of a majority of
the outstanding shares of TRCH Common Stock at the Special Meeting constitutes
a quorum, thus enabling the stockholders to transact business at the TRCH
Special Meeting. Approval of each of the Share Issuance and the 1997 Plan
Amendment requires the affirmative vote of a majority of the votes cast with
respect to each such proposal; provided, that the total number of votes cast on
each such proposal represents more than 50% of the outstanding shares of TRCH
Common Stock entitled to vote at the TRCH Special Meeting. Approval of the
Charter Amendment requires the affirmative vote of a majority of all
outstanding shares of TRCH Common Stock. The consummation of the Merger is not
conditioned upon approval of the 1997 Plan Amendment. See "The Special
Meetings--The TRCH Special Meeting."
RTC Special Meeting
Purpose. At the RTC Special Meeting, RTC's stockholders will be asked to (i)
approve and adopt the Merger Agreement and the transactions contemplated
thereby and (ii) transact any other business that properly may come before the
meeting or any adjournments or postponements thereof.
Time, Place and Date. The RTC Special Meeting will be held at the Sheraton
Great Valley Hotel, 707 Lancaster Pike, Frazer, Pennsylvania 19355, on February
26, 1998, at 1:00 p.m., local time.
Record Date; Quorum; Votes Required. Holders of shares of RTC Common Stock as
of the close of business on January 20, 1998, which has been set as the "record
date," will be entitled to vote at the RTC Special Meeting. As of the Record
Date, 25,080,287 shares of RTC Common Stock were outstanding and entitled to
vote, of which 1.7% was beneficially owned by directors and executive officers
of RTC. The presence in person or by proxy of a majority of the outstanding
shares of RTC Common Stock constitutes a quorum, thus enabling the stockholders
to transact business at the meeting. Approval of the Merger Agreement and the
transactions contemplated thereby requires the affirmative vote of the holders
of a majority of all outstanding shares of RTC Common Stock. See "The Special
Meetings--The RTC Special Meeting."
3
<PAGE>
THE MERGER
Reasons for the Merger
The TRCH board of directors (the "TRCH Board") and the RTC board of directors
(the "RTC Board") unanimously approved the Merger Agreement for several
reasons. Both the TRCH Board and the RTC Board believe that the dialysis
services industry is currently undergoing significant consolidation and that by
joining the operations of TRCH and RTC, the Merger will create a stronger, more
geographically diverse company. The Merger will solidify the Company's position
as the largest independent provider of dialysis services in the United States,
well positioned to continue growing in existing and new markets domestically
and internationally. The critical mass, strong regional networks and integrated
clinical programs of the Company will make it an attractive provider of
services to managed care networks seeking a broad range of services and
geographic coverage. The Company's size will provide it enhanced operating and
purchasing efficiencies. TRCH has identified pre-tax cost savings and synergies
(net of incremental costs) of $8.2 million in 1998 and $22.8 million per year
in 1999 and thereafter, which may be realized as a result of the Merger. After
giving effect to these expected cost savings and synergies resulting from the
Merger, the Merger is expected by TRCH to be accretive to its earnings in the
year ending December 31, 1998 and thereafter. The Company believes that
additional net cost savings and synergies may be realized in 1998 and beyond.
See "The Merger--TRCH's Reasons for the Merger; Recommendations of the TRCH
Board." No assurances can be made, however, as to the actual amount and timing
of cost savings and synergies, if any, that will be realized.
In reaching a decision to recommend the Merger, each of the TRCH and RTC
Boards of Directors considered a number of factors in addition to those set
forth above. See "The Merger--TRCH's Reasons for the Merger; Recommendations of
the TRCH Board" and "The Merger--RTC's Reasons for the Merger; Recommendations
of the RTC Board."
Recommendations to TRCH Stockholders
THE TRCH BOARD BELIEVES THAT THE SHARE ISSUANCE, THE CHARTER AMENDMENT AND
THE 1997 PLAN AMENDMENT ARE IN THE BEST INTERESTS OF TRCH AND ITS STOCKHOLDERS
AND THE TRCH BOARD UNANIMOUSLY RECOMMENDS THAT TRCH'S STOCKHOLDERS VOTE FOR THE
PROPOSALS TO APPROVE THE SHARE ISSUANCE, THE CHARTER AMENDMENT AND THE 1997
PLAN AMENDMENT. SEE "THE MERGER--TRCH'S REASONS FOR THE MERGER; RECOMMENDATIONS
OF THE TRCH BOARD."
Recommendations to RTC Stockholders
THE RTC BOARD BELIEVES THAT THE MERGER IS FAIR TO AND IN THE BEST INTERESTS
OF RTC AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT RTC STOCKHOLDERS
VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY. SEE "THE MERGER--RTC'S REASONS FOR THE
MERGER; RECOMMENDATIONS OF THE RTC BOARD."
Board of Directors and Management Following the Merger
TRCH's current officers and directors are expected to remain in their current
positions following the Merger. The number of directors on the TRCH Board will
be expanded from five to six after the Merger, and Robert L. Mayer, Jr.,
Chairman, Chief Executive Officer and President of RTC, will become a member of
the TRCH Board to assist in the integration of the two companies.
Other Interests of Officers in the Merger
In considering the RTC Board's recommendation that RTC stockholders vote in
favor of the Merger Agreement and the transactions contemplated thereby, RTC
stockholders should be aware that the executive
4
<PAGE>
officers of RTC have employment and severance agreements and benefit plans that
provide them with interests in the Merger (including the acceleration of stock
options, bonuses, non-competition payments and severance benefits) that are
different from, or in addition to, the interests of RTC stockholders. Certain
of these executive officers will receive significant compensation if the Merger
is consummated. See "The Merger--Interests of Certain Persons in the Merger."
In considering the TRCH Board's recommendation that TRCH stockholders vote in
favor of the Share Issuance, the Charter Amendment and the 1997 Plan Amendment,
TRCH stockholders should be aware that the TRCH Board intends to provide
certain officers of TRCH with significant compensation if the Merger is
consummated that provides them with interests in the Merger that are different
from, or in addition to, the interests of TRCH stockholders, although the
specific form and amount of such compensation has not been determined by the
TRCH Board. See "The Merger--Interests of Certain Persons in the Merger."
Opinions of Financial Advisors
In deciding to approve the Merger, the TRCH Board considered, among other
things, the written opinion of its financial advisor, Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ"), dated November 17, 1997, to the effect
that, as of such date, the Exchange Ratio was fair, from a financial point of
view, to the TRCH stockholders. In deciding to approve the Merger, the RTC
Board considered, among other things, the oral opinion of its financial
advisor, UBS Securities LLC ("UBS Securities"), delivered on November 17, 1997
(subsequently confirmed by delivery of a written opinion dated November 18,
1997), to the effect that, as of such date, the Exchange Ratio was fair, from a
financial point of view, to the stockholders of RTC (other than TRCH and its
affiliates). The full texts of the written opinions of DLJ and UBS Securities
are attached to this Joint Proxy Statement/Prospectus as Annex B and Annex C,
respectively. Stockholders of TRCH and RTC are encouraged to read these
opinions in their entirety as these opinions set forth the assumptions made,
the procedures followed, the matters considered and the limitations on the
reviews undertaken by each of DLJ and UBS Securities in arriving at their
respective opinions. See "The Merger--Opinion of DLJ, Financial Advisor to
TRCH" and "The Merger--Opinion of UBS Securities, Financial Advisor to RTC."
Federal Income Tax Consequences
The Merger is expected to be a tax-free reorganization for federal income tax
purposes under Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), so that neither RTC nor its respective stockholders will
recognize any gain or loss for Federal income tax purposes in the Merger
(except for any cash received by RTC stockholders in lieu of fractional
shares). Consummation of the Merger is conditioned upon the receipt of a legal
opinion confirming that the Merger will be treated as a tax-free reorganization
for Federal income tax purposes. See "The Merger--Certain Federal Income Tax
Consequences."
Accounting Treatment
The Merger is expected to qualify as a pooling of interests for financial
reporting purposes in accordance with generally accepted accounting principles
("GAAP"), which means that TRCH will restate its historical consolidated
financial statements to include the assets, liabilities, stockholders' equity
and results of operations of RTC. Consummation of the Merger is conditioned
upon receipt of the opinions of each of TRCH's and RTC's independent public
accountants that the Merger will qualify for pooling of interests accounting
treatment. See "The Merger--Accounting Treatment of the Merger."
Appraisal Rights
Under Delaware law, neither TRCH nor RTC stockholders have any right to an
appraisal of the value of their shares in connection with the Merger and the
transactions contemplated thereby. See "The Merger--Appraisal Rights."
5
<PAGE>
THE MERGER AGREEMENT
A copy of the Merger Agreement is attached as Annex A to this Joint Proxy
Statement/Prospectus. Stockholders are strongly encouraged to read the Merger
Agreement as it is the legal document that governs the Merger.
Terms of the Merger Agreement
The Merger Agreement provides that, following the approval of the Charter
Amendment and the Share Issuance by the stockholders of TRCH and following the
approval and adoption of the Merger Agreement and the transactions contemplated
thereby by the stockholders of RTC and the satisfaction or waiver of certain
other conditions, Merger Sub will be merged with and into RTC. As a result, RTC
will become a wholly owned subsidiary of TRCH. The Merger shall become
effective immediately upon the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware in accordance with Section 251 of
the Delaware General Corporation Law (the "DGCL"), or at such other time as
TRCH and RTC shall agree and specify in the Certificate of Merger (the
"Effective Date"). See "The Merger--The Merger Agreement."
As a result of the Merger, RTC stockholders will receive 1.335 shares of TRCH
Common Stock for each share of RTC Common Stock that they own. No fractional
shares will be issued. Instead, RTC stockholders will receive cash in lieu of
any fractional shares of TRCH Common Stock. See "The Merger--The Merger
Agreement."
RTC STOCKHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES UNTIL INSTRUCTED
TO DO SO AFTER THE MERGER IS FINAL.
TRCH stockholders will retain ownership of their existing shares of TRCH
Common Stock.
Conditions to the Merger
Completion of the Merger depends upon the satisfaction of a number of
conditions, including, but not limited to, the following:
(a) the approval and adoption of the Merger Agreement and the
transactions contemplated thereby by the stockholders of RTC;
(b) the approval of the Charter Amendment and the Share Issuance by the
stockholders of TRCH;
(c) the approval for listing on the NYSE of the TRCH Common Stock
issuable to the stockholders of RTC pursuant to the Merger Agreement;
(d) the execution and delivery by TRCH and RTC of a Supplemental
Indenture (the "Supplemental Indenture") in connection with RTC's 5 5/8%
Convertible Subordinated Notes due 2006 (the "RTC Subordinated Notes");
(e) the approval of certain governmental authorities and
(f) the receipt of an opinion by each of TRCH's and RTC's independent
public accountants that the Merger will qualify for pooling of interests
accounting treatment.
Certain conditions to the Merger may be waived by the party entitled to
assert the condition. See "The Merger--The Merger Agreement--Conditions" and
"The Merger--Regulatory Approval."
6
<PAGE>
Termination of the Merger Agreement
TRCH and RTC may agree, by mutual written consent, to terminate the Merger
Agreement without completing the Merger. In addition, either TRCH or RTC may
terminate the Merger Agreement if, among other things, any of the following
occurs:
(a) the Board of Directors of either company determines, under certain
circumstances and before the approval of the Merger by its stockholders,
that the Board of Directors' fiduciary obligations require acceptance of an
offer from a third party to enter into a significant transaction with that
third party;
(b) the other party breaches any of its representations and warranties
and such breach cannot reasonably be anticipated to be cured by such party
within 60 days of notice thereof;
(c) the Merger is not completed on or before June 30, 1998;
(d) a court or governmental authority permanently prohibits the Merger;
(e) the requisite approval of the stockholders of either company is not
received or
(f) by either party, if such party receives written notice from its
respective accounting firm that such firm is unable to render an opinion
that the Merger qualifies for pooling of interests accounting treatment.
Termination Fees
The Merger Agreement requires TRCH or RTC to pay to the other, as the case
may be, a termination fee of, depending upon the circumstances, $50.0 million
or $25.0 million if the Merger Agreement is terminated for certain reasons,
including if the Share Issuance, Charter Amendment or RTC Proposal is not
approved. See "The Merger--The Merger Agreement--Termination Fees."
Stock Exchange Listing
TRCH will apply to have the shares of TRCH Common Stock to be issued in the
Merger listed on the NYSE. The listing on the NYSE of the TRCH Common Stock
issuable in the Merger is a condition to RTC's obligation to consummate the
Merger. See "The Merger--Stock Exchange Listing."
Resale Restrictions
All shares of TRCH Common Stock received by RTC stockholders in the Merger
will be freely transferable, except that the stockholders deemed "affiliates"
of RTC at the time the Merger becomes final are subject to certain regulatory
restrictions regarding the resale of their shares of TRCH Common Stock. See
"The Merger--Resale of Shares of TRCH Common Stock Issued in the Merger;
Affiliates."
RTC'S SUBORDINATED NOTES
RTC currently has outstanding $125,000,000 principal amount of 5 5/8%
Convertible Subordinated Notes due 2006 which are convertible into RTC Common
Stock at a conversion price of $34.20 per share. The RTC Subordinated Notes
were issued pursuant to an Indenture dated as of June 12, 1996 between RTC and
PNC Bank, National Association, as trustee (the "Indenture"). As required by
the Indenture, upon the consummation of the Merger, TRCH will execute a
supplemental indenture pursuant to which it will agree to issue shares of TRCH
Common Stock upon conversion of the RTC Subordinated Notes and which will
provide for a conversion price of approximately $25.62 (i.e., $34.20 divided by
the Exchange Ratio). Under certain circumstances, each holder of RTC
Subordinated Notes will have the right, which will be exercisable for a limited
period of time following the Merger, to require RTC to purchase such holder's
RTC Subordinated Notes at par (the "Put Right"). See "The Merger--The Merger
Agreement--Cooperation Under Certain Circumstances" and "The Merger--RTC's
Subordinated Notes."
RISK FACTORS
The information set forth under "Risk Factors" should be reviewed and
carefully considered by the stockholders of TRCH and the stockholders of RTC in
evaluating the Merger Agreement, the Share Issuance and the Charter Amendment.
7
<PAGE>
SELECTED FINANCIAL DATA OF
TOTAL RENAL CARE HOLDINGS, INC. AND SUBSIDIARIES
The following tables set forth selected financial data of TRCH for each of
the years in the four year period ended May 31, 1995, for the seven month
periods ended December 31, 1994 and 1995, for the years ended December 31, 1995
and 1996, for the nine month periods ended September 30, 1996 and 1997 and for
the three month period ended September 30, 1997 and as of May 31, 1992, 1993,
1994 and 1995, as of December 31, 1995 and 1996 and as of September 30, 1997.
The selected financial data as of and for each of the years in the four year
period ended May 31, 1995, as of and for the seven month period ended December
31, 1995 and as of and for the year ended December 31, 1996 have been derived
from the audited consolidated financial statements of TRCH. The selected
financial data for the seven month period ended December 31, 1994, for the year
ended December 31, 1995, for the nine month periods ended September 30, 1996
and 1997 and as of and for the three month period ended September 30, 1997 are
unaudited and include all adjustments, consisting solely of normal recurring
adjustments, necessary to present fairly TRCH's financial position and results
of operations for the periods indicated.
All information included in the following tables should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in the TRCH 10-K and the TRCH 10-Qs, each of which
has been incorporated herein by reference, and with the audited consolidated
financial statements and related notes included in the TRCH 10-K and with the
condensed consolidated financial statements and related notes included in the
TRCH 10-Qs. See "Incorporation of Certain Documents by Reference."
<TABLE>
<CAPTION>
SEVEN
MONTHS ENDED YEAR ENDED NINE MONTHS ENDED THREE
YEAR ENDED MAY 31, DECEMBER 31, DECEMBER 31,(1) SEPTEMBER 30, MONTHS ENDED
------------------------------- --------------- -------------------- -------------------- SEPTEMBER 30,
1992 1993 1994 1995 1994 1995 1995 1996 1996 1997 1997
------- ------- ------- ------- ------- ------- -------- -------- -------- -------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:(2)
Net operating
revenues....... $63,888 $71,576 $80,470 $98,968 $53,593 $89,711 $134,843 $272,947 $188,153 $307,450 $113,668
Facility
operating
expenses....... 45,599 49,440 56,828 65,583 36,012 57,406 86,977 183,987 126,121 205,512 75,505
General and
administrative
expenses(3).... 4,819 5,292 7,457 9,115 4,916 7,645 11,844 19,267 13,644 20,997 7,614
Provision for
doubtful
accounts....... 2,118 2,050 1,550 2,371 1,363 1,811 2,819 5,496 3,892 6,292 2,411
Depreciation and
amortization... 3,167 3,434 3,752 4,740 2,586 4,383 6,537 15,368 10,263 18,902 7,141
------- ------- ------- ------- ------- ------- -------- -------- -------- -------- --------
Total operating
expenses....... 55,703 60,216 69,587 81,809 44,877 71,245 108,177 224,118 153,920 251,703 92,671
------- ------- ------- ------- ------- ------- -------- -------- -------- -------- --------
Operating
income......... 8,185 11,360 10,883 17,159 8,716 18,466 26,666 48,829 34,233 55,747 20,997
Interest
expense, net... 110 9 13 7,203 3,300 5,584 9,244 5,175 3,862 7,738 3,526
------- ------- ------- ------- ------- ------- -------- -------- -------- -------- --------
Income before
income taxes,
minority
interests and
extraordinary
item........... 8,075 11,351 10,870 9,956 5,416 12,882 17,422 43,654 30,371 48,009 17,471
Income taxes.... 2,875 4,129 4,106 3,511 1,933 4,631 6,209 16,351 11,537 18,255 6,751
------- ------- ------- ------- ------- ------- -------- -------- -------- -------- --------
Income before
minority
interests and
extraordinary
item........... 5,200 7,222 6,764 6,445 3,483 8,251 11,213 27,303 18,834 29,754 10,720
Minority
interests in
income of
consolidated
subsidiaries... 535 775 1,046 1,593 833 1,784 2,544 3,578 2,296 3,193 850
------- ------- ------- ------- ------- ------- -------- -------- -------- -------- --------
Income before
extraordinary
item........... $ 4,665 $ 6,447 $ 5,718 $ 4,852 $ 2,650 $ 6,467(4) $ 8,669(4) $ 23,725(4) $ 16,538(4) $ 26,561 $ 9,870
======= ======= ======= ======= ======= ======= ======== ======== ======== ======== ========
Income per share
before
extraordinary
item(5)........ -- -- -- -- -- $ 0.22(4) $ 0.31(4) $ 0.55(4) $ 0.39(4) $ 0.59 $ 0.22
Weighted average
number of
common shares
and equivalents
outstanding(5). -- -- -- -- -- 29,707 27,990 42,988 42,348 45,146 45,631
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
MAY 31, DECEMBER 31,
-------------------------------- ----------------- SEPTEMBER 30,
1992 1993 1994 1995 1995 1996 1997
------- ------- ------- -------- -------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(2):
Working capital......... $ 8,508 $14,609 $20,064 $ 14,971 $ 54,691 $ 99,299 $143,193
Total assets............ 32,509 36,003 43,621 77,558 163,998 374,080 554,817
Long-term debt
(including current
portion)............... 437 267 198 88,142 55,894 104,616 255,005
Mandatorily redeemable
common stock(6)........ -- -- -- 3,990 -- -- --
Stockholders' equity.... 22,568 29,015 34,733 (30,879)(7) 82,804 230,966 261,657
</TABLE>
- -------
(1) In 1995, TRCH changed its year end to December 31 from May 31.
(2) The Recapitalization and subsequent acquisitions had a significant impact
on TRCH's capitalization and equity securities and on TRCH's results of
operations. Consequently, the Balance Sheet Data as of May 31, 1995, as of
December 31, 1995 and 1996 and as of September 30, 1997 and the Income
Statement Data for the year ended May 31, 1995, for the seven months ended
December 31, 1994 and 1995, for the years ended December 31, 1995 and 1996,
for the nine months ended September 30, 1996 and 1997 and for the three
months ended September 30, 1997 are not directly comparable to
corresponding information as of prior dates and for prior periods,
respectively.
(3) General and administrative expenses for the years ended May 31, 1992, 1993
and 1994 include overhead allocations by TRCH's former parent of $662,000,
$235,000 and $1,458,000, respectively. The overhead allocations for the
years ended May 31, 1992 and 1993 were made using a different methodology
than that used in the year ended May 31, 1994 and the substantial increase
in that year reflects this change in methodology rather than a change in
the level of services provided. No overhead allocation was made for the
period from March 1, 1994 through the closing of the Recapitalization, at
which time TRCH began to record general and administrative expenses as
incurred on a stand-alone basis. General and administrative expenses for
the year ended May 31, 1994 reflect $458,000 in expenses relating to a
terminated equity offering.
(4) In December 1995, TRCH recorded an extraordinary loss of $2,555,000, or
$0.08 per share, net of tax, on the early extinguishment of debt. In July
and September 1996, TRCH recorded a combined extraordinary loss of
$7,700,000 or $0.18 per share, net of tax, on the early extinguishment of
debt.
(5) Income per share before extraordinary item for periods prior to the seven
months ended December 31, 1995 is not presented as the Recapitalization
occurred during or after these periods.
(6) This represents shares of TRCH Common Stock issued in certain acquisitions
subject to put options that terminated upon the completion of TRCH's
initial public offering.
(7) In connection with the Recapitalization, TRCH paid a dividend to Tenet
Healthcare Corporation of $75.5 million.
9
<PAGE>
SELECTED FINANCIAL DATA OF
RENAL TREATMENT CENTERS, INC. AND SUBSIDIARIES
The following tables set forth selected financial data of RTC for each of the
years in the five year period ended December 31, 1996, for the nine month
periods ended September 30, 1996 and 1997 and for the three month period ended
September 30, 1997 and as of December 31, 1992, 1993, 1994, 1995 and 1996 and
as of September 30, 1997. The selected financial data for each of the five
annual periods have been derived from the audited consolidated financial
statements of RTC. The selected financial data as of September 30, 1997, for
the nine month periods ended September 30, 1996 and 1997 and for the three
month period ended September 30, 1997 are unaudited and include all
adjustments, consisting solely of normal recurring adjustments, necessary to
present fairly RTC's financial position and results of operations for the
periods indicated.
All information included in the following tables should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in the RTC 10-K and RTC 10-Qs, each of which has
been incorporated herein by reference, and with the audited consolidated
financial statements and related notes included in the RTC 10-K and unaudited
consolidated financial statements and related notes included in the RTC 10-Qs.
See "Incorporation of Certain Documents by Reference."
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS
YEAR ENDED DECEMBER 31, SEPTEMBER 30, ENDED
------------------------------------------ ----------------- SEPTEMBER 30,
1992 1993 1994 1995 1996 1996 1997 1997
------- ------- -------- -------- -------- -------- -------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net patient revenue.... $54,041 $73,043 $115,457 $164,568 $235,397 $169,248 $234,940 $86,559
Operating costs and
expenses:
Patient care costs..... 27,854 37,172 57,096 79,451 114,804 82,425 111,486 40,487
General and
administrative........ 16,083 20,756 32,622 41,382 58,472 42,309 58,020 21,272
Provision for doubtful
accounts.............. 967 1,551 3,121 4,761 6,621 4,962 6,516 2,277
Depreciation and
amortization.......... 3,123 4,145 7,603 12,066 17,077 12,375 19,121 7,053
Merger expenses........ -- -- -- 2,088 2,808 2,808 -- --
------- ------- -------- -------- -------- -------- -------- -------
Income from operations. 6,014 9,419 15,015 24,820 35,615 24,369 39,797 15,470
Interest, net.......... 1,433 1,536 648 2,557 4,384 2,978 7,095 3,117
------- ------- -------- -------- -------- -------- -------- -------
Income before income
taxes................. 4,581 7,883 14,367 22,263 31,231 21,391 32,702 12,353
Provisions for income
taxes................. 1,052 2,102 4,316 7,632 11,941 8,300 12,277 4,694
------- ------- -------- -------- -------- -------- -------- -------
Net income............. $ 3,529 $ 5,781 $ 10,051 $ 14,631 $ 19,290 $ 13,091 $ 20,425 $ 7,659
======= ======= ======== ======== ======== ======== ======== =======
Pro forma net income
per common share and
common stock
equivalent(1)......... -- $ 0.36 -- -- -- -- -- --
Pro forma weighted
average shares used in
computing net income
per common share and
common stock
equivalent(1)......... -- 16,064 -- -- -- -- -- --
Primary net income per
common share and
common stock
equivalent............ -- -- $ 0.47 $ 0.65 $ 0.77 $ 0.52 $ 0.79 $ 0.29
Weighted average common
shares and common
stock equivalents
outstanding........... -- -- 21,161 22,413 25,068 25,018 25,706 26,143
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------------------------ SEPTEMBER 30,
1992 1993 1994 1995 1996 1997
------- ------- -------- -------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 3,960 $13,709 $ 27,947 $ 43,380 $ 94,284 $ 94,394
Total assets............ 37,035 60,007 140,523 174,868 302,720 427,740
Long-term debt.......... 12,389 18,070 28,744 42,576 130,574 229,228
Cumulative redeemable
preferred stock........ 9,528 -- -- -- -- --
Stockholders' equity.... 2,478 30,658 92,628 110,358 136,741 163,441
</TABLE>
- --------
(1) Pro forma net income is computed by adjusting net income to reflect the
reduction in interest expense (net of tax effect) related to the payment of
certain indebtedness with initial public offering proceeds. Pro forma net
income per common share is computed based upon the weighted average number
of shares of RTC Common Stock and common stock equivalents and including
the number of shares of RTC Common Stock issued upon the conversion of
preferred stock and exercise of RTC Common Stock warrants, and
3,700,000 shares issued in connection with RTC's initial public offering in
July 1993 as if such shares were issued or converted as of January 1, 1993.
The proceeds from the issuance of 3,700,000 shares were utilized to redeem
RTC Series A preferred stock, pay RTC Series B preferred stock dividends,
and to pay down certain indebtedness.
11
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined income statement data for the
years ended May 31, 1994 and 1995, the seven month period ended December 31,
1995, the year ended December 31, 1996 and the nine month periods ended
September 30, 1996 and 1997 and the unaudited pro forma combined balance sheet
data as of September 30, 1997 are based upon the historical consolidated
financial statements and pro forma adjustments relating to Form 8-K filings of
TRCH and RTC as previously filed with the Commission under the Exchange Act,
and incorporated by reference in this Joint Proxy Statement/Prospectus, and
should be read in conjunction with those consolidated financial statements,
their related notes and the Form 8-K filings. The unaudited pro forma financial
information is not necessarily indicative of the operating results that would
have been achieved had the Merger been consummated as of the beginning of the
periods being presented and should not be construed as representative of future
operating results. The unaudited pro forma financial information gives effect
to the Merger by combining the results of operations of TRCH and RTC using the
pooling of interests method of accounting. The unaudited pro forma combined
income statement data does not include the impact of (i) cost savings and
synergies which may be realized by the Company as a result of the Merger or
(ii) Merger-related expenses. TRCH has identified pre-tax cost savings and
synergies (net of incremental costs) of $8.2 million in 1998 and $22.8 million
per year in 1999 and thereafter, which may be realized by the Company as a
result of the Merger. TRCH believes that additional net cost savings and
synergies may be realized in 1998 and beyond. See "The Merger--TRCH's Reasons
for the Merger; Recommendations of the TRCH Board." No assurances can be made,
however, as to the actual amount and timing of cost savings and synergies, if
any, that will be realized.
<TABLE>
<CAPTION>
YEAR ENDED SEVEN MONTHS NINE MONTHS ENDED
----------------------- ENDED YEAR ENDED ---------------------------
MAY 31, MAY 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1994(1)(3) 1995(2)(3) 1995(3) 1996(4) 1996(4) 1997(4)
---------- ---------- ------------ ------------ ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net operating revenues.. $153,513 $214,425 $189,902 $700,168 $507,457 $651,032
Total operating
expenses............... 133,211 182,251 154,402 612,734 445,596 552,860
-------- -------- -------- -------- -------- --------
Operating income........ 20,302 32,174 35,500 87,434 61,861 98,172
Interest expense, net... 1,549 7,851 7,041 37,067 27,660 31,153
-------- -------- -------- -------- -------- --------
Income before income
taxes, minority
interests and
extraordinary item..... 18,753 24,323 28,459 50,367 34,201 67,019
Income taxes............ 6,208 7,827 10,553 18,453 12,745 25,014
-------- -------- -------- -------- -------- --------
Income before minority
interests and
extraordinary item..... 12,545 16,496 17,906 31,914 21,456 42,005
Minority interests in
income of consolidated
subsidiaries........... 1,046 1,593 1,784 3,569 2,294 3,176
-------- -------- -------- -------- -------- --------
Income before
extraordinary item..... $ 11,499 $ 14,903 $ 16,122 $ 28,345 $ 19,162 $ 38,829
======== ======== ======== ======== ======== ========
Income per share before
extraordinary item (6). -- (5) -- (5) $ 0.27 $ 0.37 $ 0.25 $ 0.49
Weighted average number
of common shares and
equivalents outstanding
Primary................ -- (5) -- (5) 60,070 77,254 76,547 79,464
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
1997(4)
-------------
<S> <C>
BALANCE SHEET DATA:
Working capital................................................... $ 190,573
Total assets...................................................... 1,194,226
Long term debt (including current portion)........................ 720,277
Stockholders' equity.............................................. 370,218
</TABLE>
- -------
(1) Financial information included under the heading "Year ended May 31, 1994"
represents the combination of TRCH's results for the year ended May 31,
1994 with RTC's results for the year ended December 31, 1993.
(2) Financial information included under the heading "Year ended May 31, 1995"
represents the combination of TRCH's results for the year ended May 31,
1995 with RTC's results for the year ended December 31, 1994.
(3) Reflects historical financial information for each respective period.
(4) Reflects historical financial information after giving effect to the pro
forma financial information related to significant acquisitions.
(5) Reflects periods prior to the Recapitalization or in which the
Recapitalization occurred.
(6) Fully diluted income per share before extraordinary item equals primary
income per share except for the seven months ended December 31, 1995, for
which it is $0.25.
12
<PAGE>
COMPARATIVE PER SHARE DATA
The following table presents certain historical, pro forma and pro forma
equivalent per share financial data for TRCH Common Stock and RTC Common Stock.
The pro forma data does not purport to be indicative of the results of future
operations or the results that would have occurred had the Merger been
consummated at the beginning of the periods presented. The information
presented herein should be read in conjunction with the Unaudited Pro Forma
Condensed Combined Financial Information, including the notes thereto,
appearing elsewhere in this Joint Proxy Statement/Prospectus. Neither TRCH nor
RTC has paid cash dividends on their respective common stock for the periods
presented except as discussed in footnote (5) below.
<TABLE>
<CAPTION>
YEAR
ENDED MAY
31, SEVEN MONTHS ENDED YEAR ENDED NINE MONTHS ENDED
--------- DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1994 1995 1995 1996 1997
---- ---- ------------------ ------------ -----------------
<S> <C> <C> <C> <C> <C>
TOTAL RENAL CARE
HOLDINGS, INC.
Income from continuing
operations per share:
Historical............ -- -- (7) $0.22(6) $0.55(6) $0.59
Pro forma combined for
purchase acquisitions
in 1996 and 1997(1).. -- -- -- 0.31 0.44
Pro forma combined for
purchase acquisitions
in 1996 and 1997 and
the merger with RTC
for all periods
presented(2)......... -- -- (7) 0.27 0.37 0.49
Book value per share at
period end:
Historical............ -- -- -- 5.37 5.80
Pro forma combined for
purchase acquisitions
in 1996 and 1997(1).. -- -- -- 5.27 5.80
Pro forma combined for
purchase acquisitions
in 1996 and 1997 and
the merger with RTC
for all periods
presented(2)......... -- -- -- 4.76 5.35
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, NINE MONTHS ENDED
----------------- SEPTEMBER 30,
1994 1995 1996 1997
----- ----- ----- -----------------
<S> <C> <C> <C> <C>
RENAL TREATMENT CENTERS, INC.
Net income per share:
Historical............................... $0.47 $0.65 $0.77 $0.79
Pro forma combined for purchase
acquisitions in 1996 and 1997(3)........ -- -- 0.62 0.75
Pro forma equivalent(4).................. -- -- 0.49 0.65
Book value per share at period end:
Historical............................... -- -- 5.45 6.36
Pro forma combined for purchase
acquisitions in 1996 and 1997(3)........ -- -- 5.45 6.36
Pro forma equivalent(4).................. -- -- 6.35 7.14
</TABLE>
- -------
(1) Pro forma combined income from continuing operations per share for the
years ended May 31, 1994 and 1995 and for the seven months ended December
31, 1995 is not presented as these periods are prior to the
Recapitalization. Pro forma combined income from continuing operations per
common share and pro forma combined book value per share as of and for the
year ended December 31, 1996 and as of and for the nine months ended
September 30, 1997 are based upon the historical consolidated financial
statements after giving effect to Form 8-K filings related to acquisitions
and the financing thereof.
(2) The pro forma combined income from continuing operations per share is based
on the combined weighted average number of common and common equivalent
shares of TRCH Common Stock and RTC Common Stock outstanding for each
period and on the Exchange Ratio. The pro forma combined book value per
share is based on the pro forma number of shares outstanding at the end of
each period. Pro forma combined income from continuing operations is based
upon the historical consolidated financial statements for the seven months
ended December 31, 1995 after giving effect to the Merger for all periods
presented. The pro forma combined income from continuing operations and pro
forma combined book value as of and for the year ended December 31, 1996
and as of and for the nine months ended September 30, 1997 are based upon
the historical consolidated financial statements after giving effect to
Form 8-K filings related to acquisitions and the financing thereof and the
Merger for those periods presented.
(3) Pro forma combined net income per share and pro forma combined book value
as of and for the year ended December 31, 1996 and as of and for the nine
months ended September 30, 1997 are based upon the historical consolidated
financial statements after giving effect to Form 8-K filings related to
acquisitions and the financing thereof.
(4) The RTC equivalent pro forma per share amounts are derived by multiplying
the respective pro forma combined per share amounts for purchase
acquisitions in 1996 and 1997 and the Merger for all periods presented by
the Exchange Ratio.
13
<PAGE>
(5) TRCH paid a dividend of $75.5 million in connection with the
Recapitalization. Such dividend has not been included in this table.
(6) In December 1995, TRCH recorded an extraordinary loss of $2,555,000, or
$0.08 per share, net of tax, on the early extinguishment of debt. In July
and September 1996, TRCH recorded a combined extraordinary loss of
$7,700,000 or $0.18 per share, net of tax, on the early extinguishment of
debt.
(7) Income from continuing operations per share for the year ended May 31, 1995
is not presented as the Recapitalization occurred during this year.
MARKETS AND MARKET PRICES
The TRCH Common Stock is listed on the NYSE under the symbol "TRL" and the
RTC Common Stock is listed on the NYSE under the symbol "RXT." The following
table sets forth the closing price per share of TRCH Common Stock and the
closing price per share of RTC Common Stock, each as reported on the NYSE
Composite Tape, and the "equivalent per share price" (as defined below) of RTC
Common Stock as of: (i) November 18, 1997, the date preceding public
announcement of the Merger; and (ii) January 22, 1998, the last practicable
date prior to the date of this Joint Proxy Statement/Prospectus. The
"equivalent per share price" of RTC Common Stock as of any date equals the
closing price per share of TRCH Common Stock on such date multiplied by the
Exchange Ratio.
<TABLE>
<CAPTION>
TRCH RTC EQUIVALENT
COMMON COMMON PER SHARE
STOCK STOCK PRICE
------ ------ ----------
<S> <C> <C> <C>
MARKET PRICE PER SHARE AS OF
November 18, 1997...................................... $31.13 $38.25 $41.55
January 22, 1998....................................... 24.88 32.47 33.21
</TABLE>
Because the Exchange Ratio is fixed, a change in the market price of TRCH
Common Stock before the Effective Date will affect the implied market value of
the TRCH Common Stock to be received in the Merger in exchange for the RTC
Common Stock. THERE CAN BE NO ASSURANCE AS TO THE MARKET PRICE OF THE TRCH
COMMON STOCK AT ANY TIME BEFORE, AT OR AFTER THE EFFECTIVE DATE. STOCKHOLDERS
ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR TRCH COMMON STOCK AND RTC
COMMON STOCK.
Following the Merger, the RTC Common Stock will no longer exist and, as a
result, will no longer be listed on the NYSE. The TRCH Common Stock issued in
connection with the Merger will be listed on the NYSE.
14
<PAGE>
RISK FACTORS
In considering whether to approve and adopt the Merger Agreement and the
transactions contemplated thereby or to approve the Share Issuance, the
Charter Amendment and the 1997 Plan Amendment, as the case may be, following
are certain factors that should be considered by the stockholders of TRCH and
RTC. This Joint Proxy Statement/Prospectus contains, in addition to historical
information, "forward-looking statements" within the meaning of Section 27A of
the Securities Act and Section 21E of the Exchange Act.
FIXED EXCHANGE RATIO DESPITE POSSIBLE CHANGE IN STOCK PRICES
The Exchange Ratio is expressed in the Merger Agreement as a fixed ratio.
Accordingly, the Exchange Ratio will not be adjusted in the event of any
increase or decrease in the price of either TRCH Common Stock or RTC Common
Stock. The price of either TRCH Common Stock or RTC Common Stock at the
Effective Date may vary from such price at the date of this Joint Proxy
Statement/Prospectus and at the dates of the Special Meetings, possibly by a
material amount. Such variations may be the result of changes in the business,
operations or prospects of TRCH or RTC, market assessments of the likelihood
that the Merger will be consummated and the timing thereof, regulatory
considerations, general market and economic conditions, factors affecting the
healthcare industry in general and other factors. Because the Effective Date
may occur at a date later than the Special Meetings, there can be no assurance
that the price of either TRCH Common Stock or RTC Common Stock on the date of
the Special Meetings will be indicative of such price at the Effective Date.
The Effective Date is expected to occur as soon as practicable following the
Special Meetings. Stockholders of TRCH and RTC are urged to obtain current
market quotations for TRCH Common Stock and RTC Common Stock. See "The
Merger--Comparative Stock Prices."
UNCERTAINTIES IN INTEGRATING BUSINESS OPERATIONS AND ACHIEVING COST SAVINGS
TRCH has never made an acquisition the size of the Merger. The process of
integrating the TRCH and RTC operations will present a significant challenge
to the Company's management and may lead to unanticipated costs. There can be
no assurance that the Company will be successful in completing this
integration. In addition, the integration of the TRCH and RTC operations and
accounting, personnel, administrative, legal and other functions involves the
risk that key employees, who cannot be easily replaced, may leave even when
offered continuing employment. The integration of TRCH and RTC will require
the devotion of a significant amount of time by senior executives, which may
detract from the business operations and development of the Company.
In determining that the Merger is in the best interests of its stockholders,
each of the TRCH Board and the RTC Board considered the cost savings,
operating efficiencies and other synergies expected to result following the
consummation thereof. See "The Merger--TRCH's Reasons for the Merger;
Recommendations of the TRCH Board" and "The Merger--RTC's Reasons for the
Merger; Recommendations of the RTC Board." There can be no assurance that any
of such cost savings, operating efficiencies or other synergies will be
accomplished as rapidly as currently expected or at all.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the RTC Board's recommendation that RTC stockholders vote in
favor of the Merger Agreement and the transactions contemplated thereby, RTC
stockholders should be aware that the executive officers of RTC have
employment and severance agreements and benefit plans that provide them with
interests in the Merger (including the acceleration of stock options, bonuses,
non-competition payments and severance benefits) that are different from, or
in addition to, the interests of RTC stockholders. Certain of these executive
officers will receive significant compensation if the Merger is consummated.
Such interests, together with other relevant factors, were considered by the
RTC Board in making its recommendation and approving the Merger Agreement.
15
<PAGE>
In considering the TRCH Board's recommendation that TRCH stockholders vote
in favor of the Share Issuance, the Charter Amendment and the 1997 Plan
Amendment, TRCH stockholders should be aware that the TRCH Board intends to
provide certain officers of TRCH with significant compensation if the Merger
is consummated that provides them interests in the Merger that are different
from, or in addition to, the interests of TRCH stockholders, although the
specific form and amount of such compensation has not been determined by the
TRCH Board. Such potential interests, together with other relevant factors,
were considered by the TRCH Board in making its recommendation.
DEPENDENCE ON MEDICARE, MEDICAID AND OTHER SOURCES OF REIMBURSEMENT
The Company is reimbursed for dialysis services primarily at fixed rates
established in advance under the Medicare End Stage Renal Disease program.
Under this program, once a patient becomes eligible for Medicare
reimbursement, Medicare is responsible for payment of 80.0% of the composite
rates determined by the Health Care Financing Administration ("HCFA") for
dialysis treatments. Since 1972, qualified patients suffering from ESRD have
been entitled to Medicare benefits regardless of age or financial
circumstances. Approximately 60.0% of the Company's combined pro forma net
patient revenues during the fiscal year ended December 31, 1996, and
approximately 59.0% during the nine months ended September 30, 1997, were
funded by Medicare. Since 1983, numerous Congressional actions have resulted
in changes in the Medicare composite reimbursement rate from a national
average of $138 per treatment in 1983 to a low of $125 per treatment on
average in 1986 and to approximately $126 per treatment on average at present.
No prediction can be made as to whether future rate changes will be made.
Reductions in composite rates could have a material adverse effect on the
Company's revenues and net earnings. Furthermore, increases in operating costs
that are subject to inflation, such as labor and supply costs, without a
compensating increase in prescribed rates, may adversely affect the Company's
earnings in the future. No prediction can be made as to whether certain
services, for which the Company is currently separately reimbursed, may in the
future be included in the Medicare composite rate.
Since June 1, 1989, the Medicare ESRD program has provided reimbursement for
the administration to dialysis patients of EPO. EPO is beneficial in the
treatment of anemia, a medical complication frequently experienced by dialysis
patients. Most of the Company's dialysis patients receive EPO. The Company had
combined pro forma revenues from the administration of EPO (the substantial
majority of which are reimbursed through Medicare and Medicaid programs) of
approximately 21.0% of combined pro forma net patient revenues, in the fiscal
year ended December 31, 1996, and 20.0% of combined pro forma net patient
revenues, during the nine months ended September 30, 1997. EPO reimbursement
significantly affects the Company's net income. Medicare reimbursement for EPO
was reduced from $11 to $10 per 1,000 units for services rendered after
December 31, 1993. The Office of the Inspector General recently recommended
that Medicare reimbursement for EPO be reduced from $10 to $9 per 1,000 units
and the Department of Health and Human Services has concurred with this
recommendation; however, the Department of Health and Human Services has not
determined whether it will pursue this change through the rulemaking process
or as a legislative initiative in the President's fiscal 1999 budget.
Recently, HCFA notified providers that reimbursement of EPO administration for
a patient with a hematocrit measurement exceeding 36% would be available only
if the 90-day rolling hematocrit measurement for such patient was 36.5% or
less. If the 90-day rolling average hematocrit measure exceeded 36.5%,
reimbursement for EPO administration would be denied, except in very limited
instances. In connection with this notification, HCFA instructed its fiscal
intermediaries to review the rolling three month hematocrit averages and to
ascertain compliance therewith. As a result, beginning with November 1997
bills, 25.0% of TRCH's billings to Medicare with respect to EPO were placed in
medical review. The Company does not expect this change in reimbursement or
this medical review to have a material adverse effect on the Company's
revenues. No prediction can be made as to whether future rate or reimbursement
method changes will be made. Furthermore, EPO is produced by a single
manufacturer, and any interruption of supply or product cost increases could
adversely affect the Company's operations.
All of the states in which the Company currently operates dialysis
facilities provide Medicaid (or comparable) benefits to qualified recipients
to supplement their Medicare entitlement. Approximately 5.0% of
16
<PAGE>
the Company's combined pro forma net patient revenues during the fiscal year
ended December 31, 1996 and 6.0% of combined pro forma net patient revenues
during the nine month period ended September 30, 1997 were funded by Medicaid
or comparable state programs. The Medicaid programs are subject to statutory
and regulatory changes, administrative rulings, interpretations of policy and
governmental funding restrictions, all of which may have the effect of
decreasing program payments, increasing costs or modifying the way the Company
operates its dialysis business.
Approximately 35.0% of the Company's combined pro forma net patient revenues
during the fiscal year ended December 31, 1996, and 35.0% of the Company's
combined pro forma net patient revenues during the nine months ended September
30, 1997 were from sources other than Medicare and Medicaid. These sources
include payments from third-party, non-government payors, at rates that
generally exceed the Medicare and Medicaid rates, and payments from hospitals
with which the Company has contracts for the provision of acute dialysis
treatments. Any restriction or reduction of the Company's ability to charge
for such services at rates in excess of those paid by Medicare would adversely
affect the Company's net operating revenues and net income. The Company is
unable to quantify or predict the degree, if any, of the risk of reductions in
payments under these various payment plans. The Company is a party to
nonexclusive agreements with certain third-party payors and termination of
such third-party agreements could have an adverse effect on the Company.
OPERATIONS SUBJECT TO GOVERNMENT REGULATION
The Company is subject to extensive regulation by both the federal
government and the states in which the Company conducts its business. The
Company is subject to the illegal remuneration provisions of the
Social Security Act and similar state laws, which impose civil and criminal
sanctions on persons who solicit, offer, receive or pay any remuneration,
directly or indirectly, for referring a patient for treatment that is paid for
in whole or in part by Medicare, Medicaid or similar state programs. The
federal government has published regulations that provide exceptions or "safe
harbors" for certain business transactions. Transactions that are structured
within the safe harbors are deemed not to violate the illegal remuneration
provisions. Transactions that do not satisfy all elements of a relevant safe
harbor do not necessarily violate the illegal remuneration statute, but may be
subject to greater scrutiny by enforcement agencies. Neither the arrangements
between the Company and the physician directors of its facilities ("Medical
Directors") nor the minority ownership interests of referring physicians in
certain of the Company's dialysis facilities meet all of the necessary
requirements to obtain full protection afforded by these safe harbors.
Although neither TRCH nor RTC has ever been challenged under these statutes
and the Company believes it complies in all material respects with these and
all other applicable laws and regulations, there can be no assurance that the
Company will not be required to change its practices or relationships with its
Medical Directors or with referring physicians holding minority ownership
interests or that the Company will not experience material adverse effects as
a result of any such challenge.
The Omnibus Budget Reconciliation Act of 1989 includes certain provisions
("Stark I") that restrict physician referrals for clinical laboratory services
to entities with which a physician or an immediate family member has a
"financial relationship." HCFA has published regulations interpreting Stark I.
The regulations specifically provide that services furnished in an ESRD
facility that are included in the composite billing rate are excluded from the
coverage of Stark I. The Company believes that the language and legislative
history of Stark I indicate that Congress did not intend to include laboratory
services provided incidental to dialysis services within the Stark I
prohibition; however, laboratory services not included in the Medicare
composite rate could be included within the coverage of Stark I. Violations of
Stark I are punishable by civil penalties which may include exclusion or
suspension of a provider from future participation in Medicare and Medicaid
programs and substantial fines. Due to the breadth of the statutory
provisions, it is possible that the Company's practices might be challenged
under this law. A broad interpretation of Stark I would apply to the Company's
competitors as well.
The Omnibus Budget Reconciliation Act of 1993 includes certain provisions
("Stark II") that restrict physician referrals for certain "designated health
services" to entities with which a physician or an immediate family member has
a "financial relationship." The Company believes that the language and
legislative history of Stark II indicate that Congress did not intend to
include dialysis services and the services and items provided
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incident to dialysis services within the Stark II prohibitions; however,
certain services, including the provision of, or arrangement and assumption of
financial responsibility for, outpatient prescription drugs, including EPO,
and clinical laboratory services, could be construed as designated health
services within the meaning of Stark II. Violations of Stark II are punishable
by civil penalties, which may include exclusion or suspension of the provider
from future participation in Medicare and Medicaid programs and substantial
fines. Due to the breadth of the statutory provisions and the absence of
regulations or court decisions addressing the specific arrangements by which
the Company conducts its business, it is possible that the Company's practices
might be challenged under these laws. A broad interpretation of Stark II to
include dialysis services and items provided incident to dialysis services
would apply to the Company's competitors as well.
It is unlawful in California for a physician who has, or a member of whose
immediate family has, a financial interest with or in an entity to refer a
person to that entity for, among other services, laboratory services. The
Company currently operates centers in California which account for a
significant percentage of net operating revenues. Although the Company does
not believe that the statute is intended to apply to laboratory services that
are provided incident to dialysis services, it is possible that the statute
could be interpreted to apply to such laboratory services. If the California
statute were so interpreted, the Company would be required to restructure some
or all of its relationships with referring physicians who serve as Medical
Directors of the Company's facilities and with the physicians who hold
minority interests in certain of the Company's facilities. The Company also
operates dialysis facilities and provides laboratory services in Alabama,
Colorado, Delaware, Florida, Georgia, Hawaii, Illinois, Kansas, Maryland,
Michigan, Minnesota, Missouri, Nebraska, Nevada, New Jersey, New York,
Oklahoma and Puerto Rico, all of which have so-called "fraud and abuse"
statutes which regulate the Company's relationships with physicians.
At present, ESRD patients eligible for California's Medicaid program,
MediCal, are reimbursed for their transportation costs relating to ESRD
treatments. If this practice is deemed to violate applicable federal or state
law, the Company may be forced to halt that practice and the Company cannot
predict the effect the foregoing would have on the desire of such patients to
use the Company's services.
The Company's licensed clinical laboratories are also subject to extensive
federal and state regulation of performance standards, including the
provisions of The Clinical Laboratory Improvement Act of 1967 and The Clinical
Laboratory Improvement Amendments of 1988 Act, as well as the federal and
state regulations described above. One of the Company's laboratory operations
is presently the subject of a third-party carrier review. The third party
carrier has requested medical and billing records for certain patients, and
the Company has provided the requested records. The third party carrier has
not informed the Company of the reason for or the nature or scope of its
review.
A number of proposals for healthcare reform have been made in recent years,
some of which have included radical changes in the healthcare system.
Healthcare reform could result in material changes in the financing and
regulation of the healthcare business, and the Company is unable to predict
the effect of such changes on its future operations. It is uncertain what
legislation on healthcare reform, if any, will ultimately be implemented or
whether other changes in the administration or interpretation of governmental
healthcare programs will occur. There can be no assurance that future
healthcare legislation or other changes in the administration or
interpretation of governmental healthcare programs will not have a material
adverse effect on the results of operations of the Company.
RISKS INHERENT IN GROWTH STRATEGY
The Company's business strategy depends in significant part on its ability
to acquire or develop additional dialysis centers. This strategy is dependent
on the continued availability of suitable acquisition candidates and subjects
the Company to the risks inherent in assessing the value, strengths and
weaknesses of acquisition candidates, the operations of acquired companies and
identifying suitable locations for additional facilities. The Company's growth
is expected to place significant demands on the Company's financial and
management resources. In recent years, acquisition prices and competition for
facilities has increased. To the extent the
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Company is unable to acquire or develop facilities in a cost-effective manner,
its ability to expand its business and enhance results of operations would be
adversely affected. In addition, although the Company believes it has a
demonstrable track record of integrating the operations of acquired companies,
the process for integrating acquired operations, particularly for newly
acquired regional clusters, presents a significant challenge to the Company's
management and may lead to unanticipated costs or a diversion of management's
attention from day-to-day operations. There can be no assurance that the
Company will be able to continue its growth strategy or that this strategy
will ultimately prove successful. A failure to successfully continue its
growth strategy could have an adverse effect on the Company's results of
operations.
COMPETITION
The dialysis industry is fragmented and highly competitive, particularly in
terms of acquisitions of existing dialysis facilities and developing
relationships with referring physicians. Competition for qualified physicians
to act as Medical Directors is also high. Competition for acquisitions has
increased the cost of acquiring existing dialysis facilities. The Company has
also from time to time experienced competition from referring physicians who
have opened their own dialysis facilities. A portion of the Company's business
consists of monitoring and providing supplies for ESRD treatments in patients'
homes. Certain physicians also provide similar services and, if the number of
such physicians were to increase, the Company could be adversely affected.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon the services and management experience of the
Company's executive officers, and accordingly has entered into employment
agreements with, and provided a variety of equity incentives to, these
executives. The Company's continued growth depends upon its ability to attract
and retain skilled employees, in particular highly skilled nurses, for whom
competition is intense. The Company believes that its future success will also
be significantly dependent on its ability to attract and retain qualified
physicians to serve as Medical Directors of its dialysis facilities. The
Company does not carry key-man life insurance on any of its officers.
DEPENDENCE ON PHYSICIAN REFERRALS
The Company's facilities are dependent upon referrals of ESRD patients for
treatment by physicians specializing in nephrology and practicing in the
communities served by the Company's dialysis facilities. As is generally true
in the dialysis industry, at each facility one or a few physicians account for
all or a significant portion of the patient referral base. The loss of one or
more key referring physicians at a particular facility could have a material
adverse effect on the operations of that facility and could adversely affect
the Company's overall operations. Referring physicians own minority interests
in certain of the Company's dialysis facilities. If such interests are deemed
to violate applicable federal or state law, such physicians may be forced to
dispose of their ownership interests. The Company cannot predict the effect
such dispositions would have on its business. See "Risk Factors--Operations
Subject to Government Regulation."
OPERATIONS OUTSIDE THE UNITED STATES
Operations outside the United States accounted for approximately 0.5% and
6.0% of the Company's combined pro forma consolidated revenue for fiscal year
1996 and the nine months ended September 30, 1997, respectively. The Company's
non-U.S. operations are subject to certain political, economic and other
uncertainties not encountered in U.S. operations, including risks of civil
disturbances (or other risks that may limit or disrupt markets),
expropriations and general hazards associated with the assertions of national
sovereignty over certain areas in which operations are conducted. The
Company's operations outside the United States may face the additional risk of
fluctuating currency values, hard currency shortages, controls of currency
exchange and difficulty in repatriation of income or capital. No prediction
can be made as to what governmental regulations may be enacted in the future
that could adversely affect the international dialysis industry.
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VOLATILITY OF STOCK PRICE
The trading price and volume of the TRCH Common Stock historically has been
and could in the future be subject to significant fluctuations in response to
many factors, including quarter-to-quarter variations in operating results,
changes in earnings estimates by analysts, changes in federal or state
regulation of services provided by the Company or reimbursement rates for such
services, competition, general market conditions and other events or factors.
ANTITAKEOVER PROVISIONS
TRCH's Amended and Restated Certificate of Incorporation and Bylaws include
several provisions which may have the effect of deterring hostile takeovers,
delaying or preventing changes in control or changes in management of the
Company, or limiting the ability of stockholders to approve transactions that
they may deem to be in their best interests, including (i) a provision
requiring that any action required or permitted to be taken by stockholders of
TRCH must be effected at a duly called annual or special meeting of
stockholders and may not be effected by written consent and (ii) a provision
requiring at least 60 days' advance notice by a stockholder of a proposal or
director nomination which such stockholder desires to present at any annual or
special meeting of stockholders. In addition, pursuant to TRCH's Amended and
Restated Certificate of Incorporation, the Board of Directors has the
authority to issue up to 5,000,000 shares of preferred stock and to determine
the rights and preferences of such preferred stock without the need for
further stockholder approval. TRCH has no present plans to issue any shares of
preferred stock.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Joint Proxy Statement/Prospectus,
including without limitation statements containing the words "believes,"
"anticipates," "intends," "expects" and words of similar import, constitute
"forward-looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
that may cause the actual results, performance or achievements of TRCH, RTC or
the Company or industry results to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Such factors include, among others, the following: general
economic and business conditions, both nationally and in the regions in which
TRCH, RTC or the Company operate; industry capacity; demographic changes;
existing government regulations and changes in, or the failure to comply with,
governmental regulations; legislative proposals for healthcare reform; the
ability to enter into managed care provider arrangements on acceptable terms;
changes in Medicare and Medicaid reimbursement levels; liability and other
claims asserted against TRCH, RTC or the Company; competition; dependence on
physician referrals; changes in business strategy or development plans; the
ability to attract and retain qualified personnel, including physicians; the
lack of assurance that the cost savings, growth opportunities and synergies
expected from the Merger will be achieved; the lack of assurances as to the
future performance of the combined companies; the availability and terms of
capital to fund the expansion of the Company's business, including the
acquisition of additional facilities; and other factors referenced in this
Joint Proxy Statement/Prospectus. Certain of these factors are discussed in
more detail elsewhere in this Joint Proxy Statement/Prospectus, including
without limitation under the captions "Summary," "Risk Factors" and "Unaudited
Pro Forma Condensed Combined Financial Information." GIVEN THESE
UNCERTAINTIES, THE STOCKHOLDERS OF TRCH AND RTC ARE CAUTIONED NOT TO PLACE
UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS. Each of TRCH and RTC
disclaim any obligation to update any such factors or to publicly announce the
result of any revisions to any of the forward-looking statements contained
herein to reflect future events or developments.
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THE SPECIAL MEETINGS
TRCH and RTC are furnishing this Joint Proxy Statement/Prospectus to holders
of TRCH Common Stock and holders of RTC Common Stock, respectively, in
connection with the solicitation of proxies by the TRCH Board and the RTC
Board for use at the Special Meetings. This Joint Proxy Statement/Prospectus
and accompanying form of proxy are first being mailed to the respective
stockholders of TRCH and RTC on or about January 26, 1998.
THE TRCH SPECIAL MEETING
Purpose; Time and Place. At the TRCH Special Meeting, holders of TRCH Common
Stock will be asked to vote upon proposals (the "TRCH Proposals") to approve
the Share Issuance, the Charter Amendment and the 1997 Plan Amendment and to
transact such other matters as may properly come before the TRCH Special
Meeting. The TRCH Special Meeting will be held at the Torrance Marriott
located at 3635 Fashion Way, Torrance, California 90503, on February 26, 1998,
starting at 10:00 a.m., local time.
The TRCH Board has unanimously determined that the Merger, the Share
Issuance, the Charter Amendment and the 1997 Plan Amendment are in the best
interests of TRCH and the stockholders of TRCH and has approved the Merger
Agreement, the Share Issuance, the Charter Amendment and the 1997 Plan
Amendment. THE TRCH BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF TRCH
VOTE "FOR" APPROVAL OF THE SHARE ISSUANCE, THE CHARTER AMENDMENT AND THE 1997
PLAN AMENDMENT. See "The Merger--TRCH's Reasons for the Merger;
Recommendations of the TRCH Board."
For a discussion of the potential interests that certain officers of TRCH
may have with respect to the Merger that are different from, or in addition
to, the interests of stockholders of TRCH generally, see "The Merger--
Interests of Certain Persons in the Merger." Such interests, together with
other relevant factors, were considered by the TRCH Board in making its
recommendation.
Voting Rights; Votes Required for Approval. The TRCH Board has fixed the
close of business on January 20, 1998, as the record date for voting at the
TRCH Special Meeting (the "TRCH Record Date"). Only holders of record of
shares of TRCH Common Stock on the TRCH Record Date are entitled to notice of
and to vote at the TRCH Special Meeting. On the TRCH Record Date, there were
44,678,625 shares of TRCH Common Stock outstanding and entitled to vote at the
TRCH Special Meeting, held by approximately 652 stockholders of record. Each
holder of record of TRCH Common Stock, as of the TRCH Record Date, is entitled
to cast one vote per share. The presence, in person or by proxy, of the
holders of a majority of the outstanding shares of TRCH Common Stock at the
TRCH Special Meeting shall constitute a quorum at the TRCH Special Meeting. In
the event that a quorum is not present at the TRCH Special Meeting, it is
expected that such meeting will be adjourned or postponed to solicit
additional proxies. Approval of each of the Share Issuance and the 1997 Plan
Amendment requires the affirmative vote of a majority of the votes cast with
respect to such proposal; provided that the total number of votes cast on such
proposal represents more than 50% of the outstanding shares of TRCH Common
Stock entitled to vote thereon at the TRCH Special Meeting. Approval of the
Charter Amendment requires the affirmative vote of a majority of all
outstanding shares of TRCH Common Stock. Consummation of the Merger is not
conditioned on approval of the 1997 Plan Amendment.
Share Ownership of Management. At the close of business on the TRCH Record
Date, directors and executive officers of TRCH, as a group, were the
beneficial owners of an aggregate of 1,251,783 shares (approximately 2.8%) of
the TRCH Common Stock then outstanding.
Proxies. All shares of TRCH Common Stock represented by properly executed
proxies received prior to or at the TRCH Special Meeting and not revoked will
be voted in accordance with the instructions indicated in such proxies. If no
instructions are indicated on a properly executed returned proxy, such proxies
will be voted FOR the approval of the TRCH Proposals. A properly executed
proxy marked "ABSTAIN," although counted for purposes of determining whether
there is a quorum and for purposes of determining the aggregate voting
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power and number of shares represented and entitled to vote at the TRCH
Special Meeting, will not be voted and will have the effect of a vote against
the Charter Amendment. In accordance with NYSE rules, brokers and nominees are
precluded from exercising their voting discretion with respect to the approval
and adoption of the TRCH Proposals and thus, absent specific instructions from
the beneficial owner of such shares, are not empowered to vote such shares
with respect to the approval and adoption of such proposals. Therefore,
because the affirmative vote of a majority of the shares of TRCH Common Stock
outstanding on the TRCH Record Date is required to approve the Charter
Amendment and the affirmative vote of a majority of the shares of TRCH Common
Stock represented in person or by proxy and entitled to vote on the Share
Issuance and the 1997 Plan Amendment proposals is required to approve such
proposals, a "broker non-vote" (i.e., shares held by brokers or nominees which
are represented at a meeting but with respect to which the broker or nominee
is not empowered to vote on a particular proposal) will have the effect of a
vote against the Charter Amendment and will not be counted as a vote cast on
the Share Issuance and the 1997 Plan Amendment. Shares represented by "broker
non-votes" will, however, be counted for purposes of determining whether there
is a quorum at the TRCH Special Meeting.
The TRCH Board is not currently aware of any business to be acted upon at
the TRCH Special Meeting other than as described herein. If, however, other
matters are properly brought before the TRCH Special Meeting, or any
adjournments or postponements thereof, the persons appointed as proxies will
have discretion to vote or act thereon according to their judgment. Such
adjournments may be for the purpose of soliciting additional proxies. Shares
represented by proxies voting against the approval and adoption of the TRCH
Proposals will not be voted with respect to any proposal to adjourn the TRCH
Special Meeting for the purpose of soliciting additional proxies.
A stockholder may revoke his or her proxy at any time prior to its use by
delivering to the Secretary of TRCH a signed notice of revocation or a later-
dated signed proxy or by attending the TRCH Special Meeting and voting in
person. Attendance at the TRCH Special Meeting will not in itself constitute
the revocation of a proxy.
It is the policy of TRCH to keep confidential proxy cards, ballots and
voting tabulations that identify individual stockholders, except where
disclosure is mandated by law and in other limited circumstances.
The cost of the solicitation of proxies will be paid by TRCH for TRCH
proxies. In addition to solicitation by mail, arrangements will be made with
brokerage houses and other custodians, nominees and fiduciaries to send proxy
materials to beneficial owners, and TRCH will, upon request, reimburse them
for their reasonable expenses. TRCH has retained The Financial Relations
Board, Inc. ("FRB") to aid in the solicitation of proxies and to verify
certain records related to the solicitation at a fee of $10,000 plus expenses.
To the extent necessary in order to ensure sufficient representation at the
TRCH Special Meeting, TRCH may request by telephone or telegram the return of
proxy cards. The extent to which this will be necessary depends entirely upon
how promptly proxy cards are returned. Stockholders are urged to send in their
proxies without delay. TRCH will indemnify FRB against certain liabilities and
expenses in connection with the proxy solicitation, including liabilities
under the federal securities laws.
TRCH STOCKHOLDERS DO NOT NEED TO TAKE ANY ACTION WITH RESPECT TO THEIR STOCK
CERTIFICATES, WHICH WILL CONTINUE TO EVIDENCE THE SAME NUMBER OF SHARES OF
TRCH COMMON STOCK FOLLOWING THE MERGER.
THE RTC SPECIAL MEETING
Purpose; Time and Place. At the RTC Special Meeting, holders of RTC Common
Stock will be asked to vote upon a proposal (the "RTC Proposal") to approve
and adopt the Merger Agreement and the transactions contemplated thereby. The
RTC Special Meeting will be held at the Sheraton Great Valley Hotel, 707
Lancaster Pike, Frazer, Pennsylvania 19355, on February 26, 1998, starting at
1:00 p.m., local time.
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The RTC Board has unanimously determined that the Merger is fair to and in
the best interests of RTC and its stockholders and has approved the Merger
Agreement. THE RTC BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF RTC
VOTE "FOR" THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AT THE RTC SPECIAL MEETING. See "The
Merger--RTC's Reasons for the Merger; Recommendations of the RTC Board."
For a discussion of (i) the interests that the executive officers of RTC
have with respect to the Merger that are different from, or in addition to,
the interests of stockholders of RTC generally and (ii) information regarding
the treatment of options to purchase RTC Common Stock and other rights of
certain directors and executive officers of RTC, see "The Merger--Interests of
Certain Persons in the Merger." Such interests, together with other relevant
factors, were considered by the RTC Board in making its recommendation and
approving the Merger Agreement.
Voting Rights; Votes Required for Approval. The RTC Board has fixed the
close of business on January 20, 1998, as the record date for voting at the
RTC Special Meeting (the "RTC Record Date"). Only holders of record of shares
of RTC Common Stock on the RTC Record Date are entitled to notice of and to
vote at the RTC Special Meeting. On the RTC Record Date, there were 25,080,287
shares of RTC Common Stock outstanding and entitled to vote at the RTC Special
Meeting, held by approximately 118 stockholders of record. Each holder of
record, as of the RTC Record Date, of RTC Common Stock is entitled to cast one
vote per share. The presence, in person or by proxy, of the holders of a
majority of the outstanding shares of RTC Common Stock entitled to vote is
necessary to constitute a quorum at the RTC Special Meeting. The affirmative
vote, in person or by proxy, of the holders of a majority of the shares of RTC
Common Stock outstanding on the RTC Record Date is required to approve and
adopt the RTC Proposal.
Share Ownership of Management. At the close of business on the RTC Record
Date, directors and executive officers of RTC, as a group, were the beneficial
owners of an aggregate of 427,507 shares (approximately 1.7%) of the RTC
Common Stock then outstanding.
Proxies. All shares of RTC Common Stock represented by properly executed
proxies received prior to or at the RTC Special Meeting and not revoked will
be voted in accordance with the instructions indicated in such proxies. If no
instructions are indicated on a properly executed returned proxy, however,
such proxies will be voted FOR the approval of the RTC Proposal. A properly
executed proxy marked "ABSTAIN," although counted for purposes of determining
whether there is a quorum and for purposes of determining the aggregate voting
power and number of shares represented and entitled to vote at the RTC Special
Meeting, will not be voted and will have the effect of a vote against the RTC
Proposal. In accordance with NYSE rules, brokers and nominees are precluded
from exercising their voting discretion with respect to the approval and
adoption of the RTC Proposal and thus, absent specific instructions from the
beneficial owner of such shares, are not empowered to vote such shares with
respect to the approval and adoption of such proposals. Therefore, because the
affirmative vote of a majority of the shares of RTC Common Stock outstanding
on the RTC Record Date is required to approve the RTC Proposal, a "broker non-
vote" with respect to the RTC Proposal will have the effect of a vote against
such proposal. Shares represented by "broker non-votes" will, however, be
counted for purposes of determining whether there is a quorum at the RTC
Special Meeting.
The RTC Board is not currently aware of any business to be acted upon at the
RTC Special Meeting other than as described herein. If, however, other matters
are properly brought before the RTC Special Meeting, or any adjournments or
postponements thereof, the persons appointed as proxies will have discretion
to vote or act thereon according to their judgment. Such adjournments may be
for the purpose of soliciting additional proxies. Shares represented by
proxies voting against the approval and adoption of the RTC Proposal will not
be voted with respect to any proposal to adjourn the RTC Special Meeting for
the purpose of soliciting additional proxies.
A stockholder may revoke his or her proxy at any time prior to its use by
delivering to the Secretary of RTC a signed notice of revocation or a later-
dated signed proxy or by attending the RTC Special Meeting and voting in
person. Attendance at the RTC Special Meeting will not in itself constitute
the revocation of a proxy.
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It is the policy of RTC to keep confidential proxy cards, ballots and voting
tabulations that identify individual stockholders, except where disclosure is
mandated by law and in other limited circumstances.
The cost of the solicitation of proxies will be paid by RTC for RTC proxies.
In addition to solicitation by mail, arrangements will be made with brokerage
houses and other custodians, nominees and fiduciaries to send proxy materials
to beneficial owners; and RTC will, upon request, reimburse them for their
reasonable expenses. RTC has retained Georgeson & Company Inc. ("Georgeson")
to aid in the solicitation of proxies and to verify certain records related to
the solicitation at a fee of $7,500, plus expenses. To the extent necessary in
order to ensure sufficient representation at the RTC Special Meeting, RTC may
request by telephone or telegram the return of proxy cards. The extent to
which this will be necessary depends entirely upon how promptly proxy cards
are returned. Stockholders are urged to send in their proxies without delay.
RTC will indemnify Georgeson against certain liabilities and expenses in
connection with the proxy solicitation, including liabilities under the
federal securities laws.
STOCKHOLDERS SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS. A TRANSMITTAL FORM WITH INSTRUCTIONS FOR THE SURRENDER OF STOCK
CERTIFICATES FOR RTC COMMON STOCK WILL BE MAILED TO FORMER RTC STOCKHOLDERS AS
SOON AS PRACTICABLE AFTER THE CONSUMMATION OF THE MERGER.
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THE MERGER
BACKGROUND OF THE MERGER
Initiation of discussions between TRCH and RTC was principally a response to
the consolidation of the dialysis services industry. This consolidation has
occurred for several reasons. First, reimbursement rates for dialysis services
on a real dollar basis have consistently declined, making it difficult for
smaller, independent operators and hospitals to compete against the larger
chain providers. Second, independent physician owners are becoming
increasingly burdened with administrative tasks and the need to maintain a
current knowledge of government regulations, and thus the managerial skills of
the chain providers (such as TRCH and RTC) are value-added. Third, the growing
presence of managed care payors has increased the demand for dialysis
facilities that are high quality, cost-efficient providers of dialysis
services with extensive geographic coverage. Finally, the larger chain
providers' ability to leverage fixed costs over a larger patient base and
offer ancillary services to patients has enabled these providers to increase
the profitability of acquired facilities immediately.
As a result of these factors and the achievement by TRCH of a critical size,
the TRCH Board and TRCH's senior management began to consider the possibility
of entering into a business combination with another large dialysis provider
such as RTC. After consulting with the TRCH Board and TRCH's legal and
financial advisors, Victor M.G. Chaltiel, TRCH's Chairman, Chief Executive
Officer and President, contacted Robert L. Mayer, Jr., RTC's Chairman, Chief
Executive Officer and President on August 15, 1997, to discuss consolidation
in the industry and the possibility of a combination of the two companies.
At a meeting held on August 19, 1997, the RTC Board discussed Mr. Chaltiel's
approach to Mr. Mayer, the current state of the dialysis industry and the
prospects for RTC's continued growth in a consolidating industry. At this
meeting, the RTC Board authorized RTC management to evaluate possible business
combinations with other leading dialysis companies and to retain
UBS Securities to advise it with respect to a possible business combination.
On September 17, 1997, Mr. Chaltiel, Mr. Mayer, Frederick C. Jansen, RTC's
Executive Vice President, and representatives from DLJ, TRCH's financial
advisor, and UBS Securities met to discuss issues relating to a potential
business combination between the two companies, including the dialysis
industry in general, the relative strengths and weaknesses of the two
companies and an overview of the general business philosophies and strategies
of each of TRCH and RTC. As a result of the meeting, the parties determined
that additional discussions regarding the respective business strengths and
operational strategies of the two companies and an exchange of certain
confidential information would be useful to facilitate further discussions
regarding a possible business combination.
On September 24, 1997, TRCH and RTC entered into a confidentiality
agreement. Over the weeks that followed, TRCH and RTC and their respective
advisors prepared and exchanged preliminary due diligence information,
including certain non-public information, and discussed issues relating to a
potential business combination, including potential realizable cost savings
and synergies and the market perception of a potential transaction between
TRCH and RTC.
On September 25, 1997, RTC management discussed with the RTC Board the
results of its preliminary evaluation of possible business combinations as
well as other strategic alternatives. Management recommended, and the RTC
Board approved, further evaluation of a possible business combination with
TRCH.
On October 7, 1997, representatives from DLJ met with Mr. Chaltiel to
discuss issues relating to a potential business combination, including the
recent stock market performances of TRCH and RTC and the potential cost
savings and synergies which might result from a combination of the two
companies.
During the month of October, the senior management of TRCH and RTC
separately evaluated the merits of a strategic transaction, reviewed their
respective strategic and operational plans and considered other strategic and
financial alternatives.
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On October 24, 1997, John E. King, TRCH's Chief Financial Officer, along
with other representatives from TRCH and DLJ, met in New York with Mr. Jansen,
Ronald H. Rodgers, Jr., RTC's Chief Financial Officer, and representatives
from UBS Securities, to discuss the respective business strengths, operational
strategies and financial results of each of TRCH and RTC, potential cost
savings and synergies which might result from a combination of the two
companies and procedural matters with respect to a potential transaction. At
this time the parties determined to proceed with discussions and detailed due
diligence investigations of the respective companies.
During the week of October 27, 1997, representatives from TRCH and its legal
and financial advisors began to conduct a detailed review of RTC's business,
examining operational, financial and legal information. Simultaneously,
representatives from RTC and its legal and financial advisors began a similar
review of TRCH's operational, financial and legal information.
On October 28, 1997, the TRCH Board met for a regularly scheduled board
meeting. At the request of Mr. Chaltiel, DLJ made a presentation to the TRCH
Board discussing dialysis industry dynamics, including the recent acceleration
of the consolidation trend, and TRCH's discussions with RTC with respect to a
potential transaction, including a review of the business, operating and
financial results and prospects of RTC, TRCH's and RTC's initiation of
detailed due diligence investigations and the potential strategic and
financial benefits of such a transaction. The TRCH Board authorized Mr.
Chaltiel to continue TRCH's investigation of RTC and to begin negotiations
with RTC at Mr. Chaltiel's discretion.
On October 30, 1997, at a meeting of the RTC Board, representatives of RTC
management discussed their views with the RTC Board as to the prevailing
conditions in the dialysis services industry, the strategic options available
to RTC, the likelihood of future consolidation in the industry and the
potential strategic, financial and operational benefits of a potential
business combination. Representatives of UBS Securities reviewed with the RTC
Board information concerning the business, results of operations, financial
position and prospects of each of RTC and TRCH and various matters relevant to
the RTC Board's consideration of a potential transaction with TRCH. Coopers &
Lybrand L.L.P. ("Coopers & Lybrand") discussed with the RTC Board certain
accounting issues that might arise in connection with any transaction with
TRCH. The outside directors of RTC also met, not in the presence of Mr. Mayer,
Mr. Jansen or any other members of RTC management, to discuss various
management issues arising in connection with a potential transaction.
On November 7, 1997, Mr. Chaltiel and Mr. King from TRCH and Mr. Mayer, Mr.
Jansen and Mr. Rodgers from RTC, along with representatives from DLJ and UBS
Securities, met to discuss the terms and structure of a possible transaction,
including the form of consideration, valuation, and certain management and
organizational issues. At this meeting, Mr. Chaltiel and Mr. Mayer discussed a
stock-for-stock transaction with a fixed exchange ratio of 1.335 shares of
TRCH Common Stock for each share of RTC Common Stock.
From November 5, 1997 through November 7, 1997, RTC management spoke
individually with each member of the RTC Board regarding the status of the
potential transaction with TRCH. On November 7, 1997, the outside directors of
RTC discussed the most recent developments in the negotiations between RTC and
TRCH, including the proposed exchange ratio and the request from TRCH for
substantial non-competition agreements from the senior employees of RTC, and
reviewed the material terms of the existing employment, bonus, non-competition
and severance arrangements with senior management.
On November 11, 1997, Mr. Chaltiel conducted a conference call with the TRCH
Board and DLJ to update the TRCH Board with respect to the November 7, 1997
meeting. The TRCH Board authorized Mr. Chaltiel to continue negotiations with
RTC.
On November 12, 1997 and November 13, 1997, Mr. Chaltiel met with Mr. Mayer
and other senior members of RTC's management for further discussions regarding
various operational and organizational issues relating to the proposed
business combination.
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During the period between November 12, 1997 and November 14, 1997, RTC
management spoke individually with each member of the RTC Board regarding the
status of the negotiations with TRCH. A meeting of the Compensation Committee
of the RTC Board was held on November 14, 1997. At this meeting, the
Compensation Committee reviewed with RTC's legal counsel the proposed non-
competition covenants and related payments.
On November 15, 1997, representatives from TRCH and its financial advisors
met to begin finalizing TRCH's detailed due diligence. Over the next several
days, representatives from TRCH, RTC and their respective legal and financial
advisors discussed the remaining operational and organizational issues
relating to the proposed transaction.
On November 16, 1997, a special meeting of the RTC Board was held. The RTC
Board discussed with management and representatives of UBS Securities the
principal economic terms of the proposed transaction, in particular, the
concepts of a fixed exchange ratio and the absence of any "collar" mechanism.
RTC's legal counsel discussed with the RTC Board the proposed terms of the
draft Merger Agreement. The representatives of RTC management and RTC's
financial and legal advisors then discussed with the RTC Board the significant
open issues with respect to the proposed transaction, including issues
relating to each party's due diligence, confirmation of the availability of
pooling of interests accounting treatment, various matters relating to the
draft Merger Agreement and TRCH's continued request for significant non-
competition agreements from a number of the senior employees of RTC. The RTC
Board adjourned to the afternoon of November 17, 1997, at which time an
additional meeting was held to review additional developments and to consider
and vote upon the proposed transaction. The RTC Board received a detailed
report from UBS Securities regarding the fairness opinion of such firm with
respect to the Exchange Ratio, background information regarding each of RTC
and TRCH and a pro forma overview of the combined entity. UBS Securities
delivered its oral opinion to the RTC Board that, as of such date, the
Exchange Ratio was fair, from a financial point of view, to the stockholders
of RTC (and such oral opinion was subsequently confirmed by delivery of the
written opinion of UBS Securities dated November 18, 1997). RTC's legal
counsel reviewed with the RTC Board the material changes to the proposed terms
of the Merger Agreement as well as the various non-competition and employment
agreements that were being sought by TRCH. Based on the foregoing, the
RTC Board unanimously resolved that the Merger and the Merger Agreement were
fair to and in the best interests of RTC and its stockholders, approved the
Merger, the Merger Agreement and the related transactions and recommended that
the holders of RTC Common Stock approve and adopt the Merger Agreement.
On November 17, 1997, the TRCH Board held a special meeting to consider the
terms of the proposed transaction. Members of TRCH's senior management, TRCH's
legal advisor and representatives of DLJ made presentations to TRCH's Board
and discussed with the members certain operational, financial and legal
analyses of various aspects of the proposed merger and certain strategic
benefits and post-merger operational efficiencies, including potential cost
savings and synergies, resulting therefrom. During the course of such meeting,
the TRCH Board raised certain questions regarding specific terms of the draft
Merger Agreement and the related transactions and instructed TRCH's legal
advisors to continue negotiations. At this point, the TRCH Board adjourned and
subsequently reconvened to consider and vote upon the proposed transaction.
Following additional presentations by members of TRCH's senior management,
legal and financial advisors, including DLJ's delivery of its opinion that the
Exchange Ratio was fair to the stockholders of TRCH from a financial point of
view, and a summary of the results of the negotiations, and after extensive
consideration, the TRCH Board determined by a unanimous vote that (i) the
transactions contemplated by the Merger Agreement were in the best interests
of TRCH and (ii) the Exchange Ratio is fair to the stockholders of TRCH from a
financial point of view. Subsequently, the TRCH Board adopted and approved the
Merger Agreement and the transactions contemplated thereby.
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TRCH'S REASONS FOR THE MERGER; RECOMMENDATIONS OF THE TRCH BOARD
The TRCH Board believes the terms of the Merger Agreement and the
transactions contemplated thereby are in the best interests of TRCH and its
stockholders. Accordingly, the TRCH Board has unanimously approved the Merger.
In the course of regularly scheduled TRCH Board meetings over the past two
years, the TRCH Board discussed the consolidation in the dialysis industry and
TRCH's participation in such consolidation. Recently, these discussions have
centered around the possibility of TRCH making a significantly larger
acquisition than the ones it had theretofore completed. Though no actions were
taken with respect to any specific transaction, the TRCH Board charged
management with the ongoing responsibility of assessing potential acquisitions
of significant size which would allow TRCH to continue its aggressive, yet
disciplined, growth strategy and leverage its quality dialysis services,
ancillary programs and corporate infrastructure.
In connection with its consideration of the Merger and the Merger Agreement,
the TRCH Board consulted with TRCH management, as well as its financial and
legal advisors, and considered a number of factors. Many of these factors
relate to the ability of the combined company to take advantage of achieving
its position as the largest independent provider of dialysis services in the
United States while continuing to grow aggressively, in a disciplined manner,
with respect to geographic presence, patients and revenues. In particular, the
Merger strengthens TRCH's position in eleven existing markets and adds 13 new
markets to grow its domestic presence and also provides a platform for
significant international growth. The following details some, but not all, of
the factors considered by the TRCH Board:
(i) that the Merger will solidify TRCH's position as the largest
independent provider of dialysis services in the U.S., making TRCH a more
attractive partner for future acquisitions and strategic alliances;
(ii) that the addition of RTC's facilities in complementary market areas
as well as its clustered facility networks in new areas, improves the
combined company's ability to pursue strategic acquisitions and
partnerships and to form managed care alliances in the future;
(iii) that the size of the combined company will enable it to achieve
enhanced operating and purchasing efficiencies;
(iv) that the combination with RTC will provide TRCH with the ability to
devote greater resources to expand into selected, highly fragmented
international dialysis markets, an area that TRCH and RTC believe will form
a significant portion of the combined company's future growth;
(v) that TRCH has identified pre-tax cost savings and synergies (net of
incremental costs) expected to be realized as a result of the Merger of
$8.2 million in 1998 and $22.8 million per year in 1999 and thereafter,
mainly derived from: (i) the elimination of duplicative overhead expenses;
(ii) rationalized drug and supply utilization; (iii) enhanced purchasing
efficiencies; (iv) improvements in labor productivity and skill mix; (v)
enhanced revenue growth through applying TRCH's ancillary and value-added
services (i.e., lab, pharmacy, etc.) to RTC's patients and (vi) increased
revenue potential resulting from a recent legislative change in Medicare as
secondary payor, and that TRCH believes that there are also other
additional cost savings and synergies which may be realized in 1998 and
beyond;
(vi) that after giving effect to the expected pre-tax cost savings and
synergies, the Merger is expected by TRCH to be accretive to its earnings
in the year ending December 31, 1998 and thereafter;
(vii) that by providing TRCH with the opportunity to combine with a
company having an extensive dialysis facilities network in markets TRCH
does not currently operate in, the Merger will create a stronger, more
geographically diverse company that will be attractive to managed care
networks seeking broad geographic coverage;
(viii) information with respect to the financial condition, business,
operations and prospects of both TRCH and RTC on a historical and
prospective basis, including certain information reflecting the two
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companies on a pro forma combined basis, and treating the Merger as a
pooling of interests for accounting purposes;
(ix) the tax-free nature of the Merger;
(x) the financial presentation and opinion of DLJ;
(xi) the terms of the noncompetition agreements entered into by certain
members of RTC management and
(xii) the terms of the Merger Agreement.
The foregoing list of the information and factors considered by the TRCH
Board is not intended to be exhaustive. In view of the variety of factors
considered in connection with its evaluation of the Merger, the TRCH Board did
not find it practicable to and did not quantify or otherwise assign relative
weights to the specific factors considered in reaching its determination. In
addition, individual members of the TRCH Board may have given different
weights to different factors.
THE TRCH BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF TRCH VOTE
"FOR" THE APPROVAL OF THE SHARE ISSUANCE AND THE CHARTER AMENDMENT.
RTC'S REASONS FOR THE MERGER; RECOMMENDATIONS OF THE RTC BOARD
The RTC Board believes that the United States dialysis services industry
currently is undergoing significant change in response to competitive
pressures from customers, service providers and suppliers. The RTC Board
expects that the current growth and national expansion of health maintenance
organizations and other managed care providers, the pressure to reduce the
costs to the federal government and the taxpayers of the Medicare and Medicaid
programs and the ongoing national debate regarding healthcare reform will lead
over time to a significant increase in the percentage of ultimate purchasers
of dialysis services who are driven primarily, if not solely, by price as the
governing factor, without regard to relationships with doctors, quality of
service or convenience. At the same time, physicians and medical technicians
are becoming increasingly aware that the traditional sole practitioner model
for medical practice is economically marginal and, as evidenced by the growth
in physician practice management companies in other areas of the healthcare
industry, physicians and medical technicians are combining their resources to
improve their own bargaining power. Finally, increasing consolidation in the
pharmaceutical and medical technology industries has resulted in substantial
companies with significant bargaining power providing key products and
services to the providers of dialysis services.
In response to these competitive pressures, the RTC Board believes that
substantial consolidation is inevitable in the dialysis services industry.
Historically, RTC has been at the forefront of this consolidation and has
expanded rapidly, primarily through acquisitions, increasing the number of
dialysis centers in its network from 78 as of December 31, 1995 to its current
level of 186 centers. However, the RTC Board believes that it is very
important for RTC to maintain its current growth rate if it is to continue to
deliver earnings growth to stockholders while countering the competitive
pressures imposed by larger customers, more vertically integrated service
providers and larger suppliers.
The RTC Board believes that the Merger represents a unique opportunity to
create a preeminent, independent dialysis services company with broad
geographic diversification, strong growth potential and the ability to compete
effectively in the new environment. The Merger will create the leading
independent provider of dialysis services in the United States, as well as
provide the financial strength to the combined company necessary to allow it
to expand rapidly into selected, highly fragmented international dialysis
markets.
For the foregoing reasons, the RTC Board unanimously believes that the
Merger and the Merger Agreement are fair to and in the best interests of RTC
and its stockholders. The following are the material factors considered by the
RTC Board in reaching its conclusion, certain of which factors contain both
positive and negative elements:
(i) the judgment, advice and analysis of its management and UBS
Securities with respect to the conditions in the dialysis services
industry, the strategic options available to RTC, the likelihood of future
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consolidation in the industry and the strategic, financial and operational
benefits of the Merger, which benefits include, among others, the enhanced
ability of the combined company to compete nationally and internationally;
(ii) information concerning the business, results of operations,
financial condition and prospects of each of RTC and TRCH;
(iii) the enhanced ability of the combined company to pursue strategic
acquisitions and partnerships where there is an opportunity to enhance the
combined company's operations and to better respond to challenges that
healthcare providers are expected to face as a result of continued
healthcare reform;
(iv) current economic and market conditions;
(v) advice from Coopers & Lybrand, RTC's independent accountants, with
respect to the availability of pooling of interests accounting treatment
for the transaction; and analysis and advice from RTC management and UBS
Securities with respect to the pro forma impact of the Merger on the
combined financial statements of RTC and TRCH, and the potential
efficiencies and cost savings expected to be realized by TRCH as a result
of the combination of the operations of RTC and TRCH;
(vi) information concerning the current and historical stock price
performance of RTC and TRCH, including the fact that the TRCH Common Stock
has, in general, traded at higher financial multiples than the RTC Common
Stock, reflecting, among other things, an expectation on the part of the
securities markets that TRCH is likely to maintain a higher rate of growth
in the future than RTC;
(vii) the fact that Mr. Mayer, the Chairman, Chief Executive Officer and
President of RTC, would be a director of TRCH following the Merger, and
information showing that there was significant overlap between the
stockholders of RTC and the stockholders of TRCH, which the RTC Board
interpreted as reflecting confidence on the part of RTC's existing
stockholders in the current board of directors of TRCH;
(viii) the advice of its counsel that the transaction could be
accomplished on a tax-free basis for federal income tax purposes;
(ix) the fact that the Merger Agreement and related documentation
provides that certain officers of RTC, including Mr. Mayer, Mr. Jansen, Mr.
Rodgers, Thomas J. Karl, Vice President, General Counsel and Secretary,
Barbara A. Bednar, Vice President and Chief Operating Officer of Dialysis
Services, and Mark Zawiski, Vice President of Reimbursement Programs and
Managed Care, would be subject to constructive discharge at the
consummation of the Merger, thus resulting in those individuals becoming
entitled to terminate their employment with RTC and receive certain
payments in connection therewith (see "The Merger--Interests of Certain
Persons in the Merger" for a more detailed discussion of the amounts to be
paid to these officers as well as a description of the other material
interests of these officers in the Merger);
(x) the financial presentation of UBS Securities and the written opinion
of such firm that, as of November 18, 1997, and subject to certain
considerations set forth therein, the Exchange Ratio was fair to the
holders of RTC Common Stock (other than TRCH and its affiliates), from a
financial point of view;
(xi) the absence of any "collar" or termination right on the part of RTC
linked to the TRCH stock price, which the RTC Board concluded was
appropriate in light of the relative size of RTC and TRCH, the overlapping
ownership and the fact that both companies were in the same line of
business and
(xii) the provisions of the Merger Agreement, including those that would
restrict the ability of the RTC Board to solicit or negotiate alternative
proposals, would require the RTC Board to recommend the Merger to its
stockholders, would (in certain limited circumstances) allow RTC to
terminate the Merger Agreement and would require RTC under certain
circumstances to pay a termination fee to TRCH.
The foregoing list of the information and factors considered by the RTC
Board is not intended to be exhaustive. In view of the variety of factors
considered in connection with its evaluation of the Merger, the
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RTC Board did not find it practicable to and did not quantify or otherwise
assign relative weights to the specific factors considered in reaching its
determination. In addition, individual members of the RTC Board may have given
different weights to different factors.
THE RTC BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF RTC VOTE "FOR"
THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY.
OPINION OF DLJ, FINANCIAL ADVISOR TO TRCH
TRCH selected DLJ as its exclusive financial advisor with respect to the
Merger because DLJ is an internationally recognized investment banking firm
that has substantial experience in the healthcare industry and is familiar
with, and has had a prior investment banking relationship with, TRCH. As part
of its investment banking business, DLJ is regularly engaged in the valuation
of businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes.
As part of its role as financial advisor to TRCH, DLJ was asked to render an
opinion to the Board of Directors of TRCH as to the fairness from a financial
point of view to the stockholders of TRCH of the Exchange Ratio. On November
17, 1997, DLJ delivered to the TRCH Board its written opinion (the "DLJ
Opinion") to the effect that, as of such date, and based upon and subject to
the assumptions, limitations and qualifications set forth in such opinion, the
Exchange Ratio as set forth in the Merger Agreement was fair to the
stockholders of TRCH from a financial point of view.
A COPY OF THE DLJ OPINION IS ATTACHED HERETO AS ANNEX B. HOLDERS OF TRCH
COMMON STOCK ARE URGED TO READ THE DLJ OPINION IN ITS ENTIRETY FOR THE
PROCEDURES FOLLOWED, THE ASSUMPTIONS MADE, THE MATTERS CONSIDERED AND THE
LIMITS OF THE REVIEW MADE BY DLJ IN CONNECTION WITH SUCH OPINION. THE DLJ
OPINION WAS PREPARED FOR THE TRCH BOARD AND IS DIRECTED ONLY TO THE FAIRNESS
OF THE EXCHANGE RATIO TO THE STOCKHOLDERS OF TRCH FROM A FINANCIAL POINT OF
VIEW. THE DLJ OPINION DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER
AS TO HOW TO VOTE ON THE MERGER, NOR DID IT CONSTITUTE A RECOMMENDATION TO ANY
MEMBER OF THE TRCH BOARD AS TO HOW SUCH MEMBER SHOULD HAVE VOTED ON THE
MERGER.
The DLJ Opinion does not constitute an opinion as to the prices at which
TRCH Common Stock will actually trade at any time, including the Effective
Date. DLJ was not requested to, and did not, recommend the amount of the
Exchange Ratio and was not requested to, and did not, participate in
negotiating the terms of the Merger or any other aspect of the Merger. DLJ was
requested to evaluate, from a financial point of view, the fairness of the
Exchange Ratio to the stockholders of TRCH. The type and amount of
consideration offered in the Merger was determined in arm's-length
negotiations between TRCH and RTC. No restrictions or limitations were imposed
by TRCH upon DLJ with respect to the investigations made or the procedures
followed by DLJ in rendering the DLJ Opinion. In addition, DLJ received no
instructions to, and did not, seek or solicit alternative transactions.
In arriving at its opinion, DLJ reviewed, among other things, a draft of the
Merger Agreement dated November 17, 1997, including exhibits thereto. DLJ also
reviewed financial and other information that was publicly available or
furnished to it by TRCH and RTC, including information provided during
discussions with their respective managements. Included in the information
provided to DLJ were certain financial projections of TRCH and RTC prepared by
management of TRCH and RTC, respectively. In addition, DLJ compared certain
financial and securities data of TRCH and RTC with various other companies
whose securities are traded in the public markets, reviewed historical stock
prices and trading volumes of TRCH Common Stock and RTC Common Stock, analyzed
the impact of the Merger on the historical and projected financial results of
TRCH,
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examined the relative contribution of the financial results of TRCH and RTC to
their combined operations, reviewed prices and premiums paid in certain other
business combinations, prepared a discounted cash flow valuation of RTC and
conducted such other financial studies, analyses and investigations as DLJ
deemed appropriate for the purposes of its opinion.
In rendering the DLJ Opinion, DLJ, with the consent of the Board of
Directors of TRCH, relied upon and assumed the accuracy, completeness and
fairness of all of the financial and other information that was available to
it from public sources, that was provided to it by TRCH and RTC or their
respective representatives or that was otherwise reviewed by DLJ. DLJ also,
with the consent of the Board of Directors of TRCH, assumed that the financial
projections supplied to it were reasonably prepared on bases reflecting the
best currently available estimates and judgments of the managements of TRCH
and RTC as to the future operating and financial performance of TRCH and RTC,
respectively, and of the operating synergies and other cost reductions
achievable as a result of the Merger. DLJ did not make any independent
investigation of any legal matters affecting TRCH or RTC, and assumed the
correctness of all legal advice given to each of them and to the TRCH Board,
including advice as to the tax consequences of the Merger. DLJ has not assumed
any responsibility for making any independent evaluation or appraisal of the
assets or liabilities of TRCH or RTC or for making any independent
verification of any information reviewed by it.
The DLJ Opinion is necessarily based on economic, market, financial and
other conditions as they existed on, and on the information made available to
it as of, the date of the DLJ Opinion and does not speak to any date other
than the date on which the DLJ Opinion was delivered. Although subsequent
developments may affect its opinion, DLJ does not have any obligation to
update, revise or reaffirm its opinion as a result of changes in such
conditions or otherwise.
The following is a brief summary of the principal financial analyses
performed by DLJ to arrive at its opinion dated November 17, 1997. This
summary does not purport to be a complete description of the analyses
performed by DLJ. DLJ drew no specific conclusions from any of these analyses
but subjectively factored its observations from these analyses into its
qualitative assessment of the relevant facts and circumstances:
Analysis of Certain Other Publicly Traded Companies. To provide contextual
data and comparative market information, DLJ compared selected historical and
projected financials and operating data and ratios for RTC to corresponding
data and ratios of certain companies in the dialysis industry whose securities
are publicly traded. In conducting its analysis, DLJ compared the ratios
implied by the Exchange Ratio to the ratios implied from the market valuation
of publicly traded companies selected by DLJ based upon qualitative factors
which DLJ deemed relevant based upon its experience in the healthcare
industry, which included Renal Care Group, Inc. ("RCGI") and TRCH
(collectively, the "Selected Dialysis Companies"). The Selected Dialysis
Companies are the only two pure-play publicly traded dialysis service
providers with sales in excess of $50 million for the latest twelve months, as
of the date of this analysis for which public information is available.
Data and ratios considered included: the ratio of enterprise value to latest
quarter annualized ("LQA") revenues; LQA earnings before interest, taxes,
depreciation, and amortization ("EBITDA"); LQA earnings before interest and
taxes ("EBIT"); and number of patients; the ratio of market price per share to
1997 projected earnings per share; and the ratio of market price per share to
1998 projected earnings per share. Because companies in this industry make a
significant number of acquisitions each quarter, the cash flows of these
companies are not consistent over a twelve month period. However, because any
given facility will have steady cash flows over the course of the year, it is
possible to annualize the latest quarter's financial performance to gauge the
overall performance of a company's facilities. As a result, the ratios
presented were based on latest quarter annualized as opposed to the latest
twelve months results. All projected information for the Selected Dialysis
Companies was obtained from First Call Research Direct, a third-party service
which summarizes the estimates made by analysts employed by several investment
banking firms and from the published reports of research analysts employed by
investment banking firms, including analysts employed by DLJ. Enterprise value
was defined as the sum of the principal amount of a company's debt and
minority interests in consolidated subsidiaries plus the market value of its
equity securities less cash in excess of working capital requirements. EBITDA
was selected for analysis by DLJ because it is a widely used estimate of cash
flows generated by
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operations. EBIT was selected by DLJ because it is a measure of operating
performance. Historical financial information used in connection with the
ratios provided below with respect to the Selected Dialysis Companies and RTC
was as of the most recent financial statements publicly available for each
company as of November 14, 1997.
This analysis resulted in: (i) ratios of enterprise value to LQA revenues of
4.0x for RCGI and 3.8x for TRCH compared to 3.9x for RTC at the Exchange
Ratio, (ii) ratios of enterprise value to LQA EBITDA of 19.9x for RCGI and
15.2x for TRCH compared to 15.0x for RTC at the Exchange Ratio, (iii) ratios
of enterprise value to LQA EBIT of 25.2x for RCGI and 20.4x for TRCH compared
to 21.8x for RTC at the Exchange Ratio, (iv) ratios of enterprise value to
total patients of $108,121 for RCGI and $122,358 for TRCH compared to $115,083
for RTC at the Exchange Ratio, (v) ratios of market price to LQA earnings per
share of 39.8x for RCGI and 35.4x for TRCH compared to 35.8x for RTC at the
Exchange Ratio and (vi) ratios of market price to 1997 and 1998 projected
earnings per share of 41.7x and 29.2x, respectively, for RCGI and 38.4x and
26.6x, respectively, for TRCH compared to 37.1x and 25.6x, respectively, for
RTC at the Exchange Ratio.
No company utilized in the comparable company analysis is identical to RTC.
Accordingly, an analysis of the results of the foregoing necessarily involves
complex considerations and judgments concerning differences in financial and
operating characteristics of RTC and other factors that could affect the
public trading value of the Selected Dialysis Companies or Company to which
they are being compared.
Common Stock Trading Price History. DLJ analyzed the history of trading
prices for the RTC Common Stock over the twelve months ended November 17,
1997. Over the 52 weeks prior to November 17, 1997, the date DLJ delivered its
opinion to TRCH's Board of Directors, RTC Common Stock traded between $20.00
and $37.75 per share and had a price immediately prior to this date of $37.75
per share. DLJ also reviewed the history of trading prices for the RTC Common
Stock for the periods 90 days and 30 days prior to November 17, 1997. Over the
90 days prior to this date, RTC Common Stock traded between $26.69 and $37.75
per share. Over the 30 days prior to this date, RTC Common Stock traded
between $30.75 and $37.75 per share.
Historical Exchange Ratio Analysis. DLJ compared the Exchange Ratio to the
ratio implied by dividing the RTC Common Stock closing stock price by the TRCH
Common Stock closing stock price over several time periods during the twelve
months ended November 14, 1997. The time periods selected for analysis were as
follows: last twelve months, last 90 days, last 60 days, last 30 days and last
10 days. The average implied exchange ratio for each aforementioned time
period was 1.22, 1.18, 1.17, 1.11, and 1.13, respectively.
Pro Forma Earnings Per Share Impact Analysis. DLJ analyzed certain pro forma
effects resulting from the Merger. In conducting its analysis, DLJ relied upon
the assumptions described above and the financial projections (including
synergies) provided by the managements of TRCH and RTC. Using the financial
information and projections provided to DLJ by RTC's and TRCH's respective
managements, DLJ reviewed the impact on TRCH's 1998 and 1999 projected
earnings per share resulting from the Merger. DLJ's analysis considered
accretion/dilution after giving effect to the synergies and other cost
reductions estimated by TRCH's management. The pre-tax synergies and other
cost reductions estimated by TRCH's management were $8.2 million and $22.8
million in 1998 and 1999, respectively. This analysis revealed that the Merger
would be accretive to 1998 and 1999 projected earnings per share, excluding
one-time Merger-related expenses.
Relative Contribution Analysis. DLJ reviewed the relative contribution to
TRCH after the Merger of TRCH, as a standalone enterprise, and RTC, as a
standalone enterprise. DLJ relied upon estimates of 1997 and 1998 financial
information provided by TRCH's and RTC's respective managements in performing
this analysis. As of November 14, 1997 TRCH and RTC provided 54.2% and 45.8%,
respectively, of the combined enterprise value and 54.0% and 46.0%,
respectively of the combined equity value. Based on projected fiscal year
ending December 31, 1997, TRCH's treatments, revenues, EBITDA, EBIT and net
income represent 55.2%, 56.7%, 55.7%, 58.6% and 56.6%, respectively of the
combined entity, without including the impact of synergies and other cost
reductions. Based on projected fiscal year ending December 31, 1998, TRCH's
treatments, revenues,
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EBITDA, EBIT and net income represent 54.0%, 55.1%, 53.3%, 56.2% and 56.1%,
respectively, of the combined entity, without including the impact of
synergies and other cost reductions.
Comparable Transaction Analysis. DLJ reviewed the implied valuation
multiples of two transactions in the dialysis industry: (i) Incentive AB's
acquisition of Vivra in 1997 (the "Vivra Transaction") and (ii) Gambro AB's
acquisition of Ren Corporation in 1995 (the "Ren Corp. Transaction"). DLJ made
the analysis referred to in (i) above because it is the most recent, completed
acquisition of a dialysis service provider and in (ii) above because it is the
only other acquisition transaction of a publicly traded dialysis service
provider for which valuation material is publicly available. The consideration
received in both the Vivra Transaction and the Ren Corp. Transaction was cash
and both acquisitions were accounted for under the purchase method of
accounting. In addition, the Ren Corp. Transaction involved Gambro AB
acquiring the remaining 47% of Ren Corp. it did not already own. In reviewing
the multiples in the transactions set forth above, DLJ compared the ratios
implied by the Exchange Ratio to the ratios implied by the Vivra Transaction
and the Ren Corp. Transaction. This analysis resulted in: (i) ratios of
enterprise value implied by the consideration paid to LQA revenues of 2.4x for
the Vivra Transaction and 2.5x for the Ren Corp. Transaction and 3.9x for the
Merger at the Exchange Ratio, (ii) ratios of enterprise value implied by the
consideration paid to LQA EBITDA of 13.1x for the Vivra Transaction, 11.8x for
the Ren Corp. Transaction and 15.0x for the Merger at the Exchange Ratio,
(iii) ratios of enterprise value implied by the consideration paid to LQA EBIT
of 17.3x for the Vivra Transaction, 18.1x for the Ren Corp. Transaction and
21.8x for the Merger at the Exchange Ratio, (iv) ratios of enterprise value
implied by the consideration paid to total patients of $95,886 for the Vivra
Transaction, $70,713 for the Ren Corp. Transaction and $115,083 for the Merger
at the Exchange Ratio and (v) ratios of equity value implied by the
consideration paid to LQA net income of 26.2x for the Vivra Transaction, 33.3x
for the Ren Corp. Transaction and 35.8x for the Merger at the Exchange Ratio.
The consideration paid in (i) through (iv) is deemed to include the debt (net
of cash) assumed in the respective transactions and in (i) through (v) above,
in the case of the Ren Corp. Transaction, the consideration paid is deemed to
include the equity stake previously owned by Gambro AB.
No transaction utilized in the comparable transaction analysis is identical
to the Merger. Accordingly, an analysis of the results of the foregoing
necessarily involves complex considerations and judgments concerning
differences in financial and operating characteristics of TRCH and RTC and
other factors that could affect the acquisition value of the companies to
which they are being compared.
Premium Analysis. DLJ performed a comparison of the premium represented by
the Exchange Ratio to publicly available information regarding premiums over
market price offered in (i) selected healthcare services transactions since
January 1, 1996, (ii) the Vivra Transaction and (iii) the Ren Corp.
Transaction. DLJ reviewed the consideration paid in each such transaction in
terms of the percentage premium represented by the offer prices (represented,
in the case of a transaction in which all or part of the consideration was in
the form of common stock of the acquiror, that portion of the consideration
offered in the form of common stock which was represented by the acquirors'
stock price on the day prior to the announcement of the transaction multiplied
by the exchange ratio) over the market prices one day, one week and one month
prior to the announcement date of each respective transaction. DLJ indicated
that for the selected healthcare services transactions, the average premiums
paid to the market price one day, one week and one month prior to announcement
were 19.8%, 25.3% and 34.0%, respectively. In addition, the premiums paid to
Vivra's stock price one day, one week and one month prior to announcement were
26.1%, 41.8% and 35.7%, respectively. Finally, the premiums paid to Ren
Corp.'s stock price one day, one week and one month prior to announcement were
27.0%, 20.3% and 26.0%, respectively. DLJ calculated the premium, represented
by multiplying TRCH's stock price by the Exchange Ratio to RTC's closing stock
prices one day, one week and one month prior to November 17, 1997, the date
DLJ delivered its opinion to TRCH's Board of Directors. The Exchange Ratio
would have represented premiums of 10.1%, 22.0% and 25.9%, respectively, for
one day, one week and one month prior to, November 17, 1997.
Discounted Cash Flow Valuation Analysis. DLJ performed a discounted cash
flow analysis for the five-year period ending with the 2002 fiscal year on the
standalone unlevered free cash flows of RTC. DLJ performed its analysis using
RTC's management's estimates of future performance and the future results of
operations of RTC.
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Unlevered free cash flows were calculated as the after-tax operating earnings
of RTC plus depreciation, amortization and other non-cash items, minus (or
plus) net increases (or decreases) in non-cash working capital, minus
projected capital expenditures. DLJ calculated terminal values at the end of
the period by applying a range of selected terminal exit multiples to EBITDA
in the year 2002. DLJ chose a high range of EBITDA exit multiples based on the
LQA EBITDA multiples implied by the current market valuations of the Selected
Dialysis Companies and RTC and the forecasted EBITDA growth of RTC over the
next five years. However, DLJ then applied a discount to these multiples to
reflect the lower expected growth rate after five years and arrived at a range
of multiples from 8.0 to 11.0 times EBITDA. The unlevered free cash flows and
terminal values were then discounted to the present using a range of discount
rates from 11.0% to 15.0%, representing an estimated range of the weighted
average cost of capital of RTC based upon DLJ's subjective judgments about,
among other things, the capital markets, RTC's prospects and the dialysis
industry. The terminal exit multiple represents an estimate of the value of
RTC's earnings at the end of five years, representing the three year period
covered by RTC's management projections and an additional two year period
covered by an extrapolation of RTC's management projections by DLJ. This
analysis implied a per share value of RTC ranging from $31.80 to $60.60.
Certain Assumptions. In performing the discounted cash flow valuation, pro
forma earnings per share impact analysis and relative contribution analysis
described above, DLJ relied on projections prepared by the respective
managements of RTC and TRCH as to cash flows and certain other performance
measures. DLJ was informed by the management of TRCH that its projections were
based on certain assumptions with respect to same center growth in number of
patients and revenues, number of acquired patients and the related capital
cost, number of de novo facilities and the level of ancillary usage. DLJ was
informed by the management of RTC that its projections were based on certain
assumptions with respect to same center growth in number of patients and
revenues, number of acquired patients and the related capital cost, number of
de novo facilities and the level of ancillary usage. In rendering its opinion,
DLJ did not independently verify the projections provided to it by the
respective managements of TRCH and RTC's, or the assumptions underlying such
projections.
The summary set forth above does not purport to be a complete description of
the analyses performed and factors considered by DLJ. The preparation of a
fairness opinion involves various determinations as to the most appropriate
and relevant methods of financial analysis and the application of these
methods to the particular circumstances and, therefore, such an opinion is not
readily susceptible to summary description. Accordingly, notwithstanding the
separate factors summarized above, DLJ believes that its analysis must be
considered as a whole and that selecting portions of its analysis and the
factors considered by it, without considering all analyses and factors, could
create an incomplete view of the evaluation process underlying its opinions.
Furthermore, in arriving at its fairness opinion, DLJ did not attribute any
particular weight to any analysis, or factor considered by it, but rather made
subjective and qualitative judgments as to the significance and relevance of
each analysis and factor. In performing its analyses, DLJ made numerous
assumptions with respect to industry performance, business and economic
conditions and other matters. The analyses performed by DLJ are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses.
Pursuant to the terms of an engagement letter dated November 12, 1997, DLJ
is entitled to (i) a fee of $750,000 for rendering its fairness opinion, and
(ii) a transaction fee of $4,250,000, less the amounts set forth in (i) above,
upon consummation of the Merger. Additionally, in the event that TRCH does not
consummate the Merger and TRCH receives any termination fees from RTC, DLJ
shall receive the lesser of (i) 20% of such termination fees received by TRCH
and (ii) $4,250,000. TRCH has also agreed to reimburse DLJ for its reasonable
out-of-pocket expenses (including the reasonable fees and expenses of DLJ's
counsel) incurred in connection with its engagement, and to indemnify DLJ and
certain of its related persons against certain liabilities in connection with
its engagement, including liabilities under the federal securities laws. The
terms of the fee arrangement with DLJ, which DLJ and TRCH believe are
customary in transactions of this nature, were negotiated at arm's length
between TRCH and DLJ, and DLJ and the TRCH Board were aware of such
arrangement, including the fact that a significant portion of the aggregate
fee payable to DLJ is contingent upon consummation of the Merger.
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DLJ has performed investment banking and other services for TRCH in the past
and received usual and customary compensation in connection with such
services. These services included: (i) underwriting four equity offerings
including TRCH's initial public offering in November 1995 and three subsequent
follow-on offerings in April 1996, October 1996 and August 1997, (ii) acting
as documentation agent in connection with a $400 million senior credit
facility in September 1996 and (iii) together with certain of its affiliates,
acting as syndication agent and co-arranger in connection with a $1.05 billion
senior credit facility in October 1997 (and certain consents have been
provided or may be requested by TRCH of DLJ or such affiliates in connection
with the Merger). In addition, Peter T. Grauer, an employee of DLJ Merchant
Banking Partners, L.P. ("DLJMBP"), an affiliate of DLJ, has been a director of
TRCH since August 1994. In August 1994, DLJMBP acquired a majority interest in
TRCH and until November 1995, at which point its interest was reduced to
25.9%, DLJMBP had the right to appoint a majority of TRCH's Board of
Directors. DLJMBP has had no ownership interest in TRCH since August 20, 1997.
DLJ provides a full range financial, advisory and brokerage services and, in
the ordinary course of business, actively trades the equity securities of TRCH
and RTC for its own account and for the accounts of its customers and,
accordingly, may at any time hold a long or short position in such securities.
OPINION OF UBS SECURITIES, FINANCIAL ADVISOR TO RTC
On November 17, 1997, at the request of the RTC Board, UBS Securities
rendered its oral opinion to the RTC Board (subsequently confirmed by delivery
of a written opinion dated November 18, 1997) to the effect that, as of the
date of such opinion, and subject to the various assumptions and limitations
set forth in such opinion, the Exchange Ratio was fair, from a financial point
of view, to the stockholders of RTC (other than TRCH or any of its
affiliates).
THE FULL TEXT OF THE OPINION OF UBS SECURITIES, DATED NOVEMBER 18, 1997,
WHICH SETS FORTH, AMONG OTHER THINGS, THE ASSUMPTIONS MADE, PROCEDURES
FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY UBS
SECURITIES, IS ATTACHED AS ANNEX C HERETO AND IS INCORPORATED HEREIN BY
REFERENCE. HOLDERS OF RTC COMMON STOCK ARE URGED TO READ THIS OPINION IN ITS
ENTIRETY. THE OPINION OF UBS SECURITIES IS DIRECTED ONLY TO THE EXCHANGE RATIO
AND DOES NOT ADDRESS THE UNDERLYING DECISION BY RTC TO ENGAGE IN THE MERGER
AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF RTC COMMON STOCK AS
TO HOW SUCH HOLDER SHOULD VOTE WITH RESPECT TO THE MERGER. FURTHERMORE, UBS
SECURITIES EXPRESSES NO VIEW AS TO THE PRICE OR TRADING RANGE FOR SHARES OF
TRCH COMMON STOCK FOLLOWING THE CONSUMMATION OF THE MERGER. THE SUMMARY SET
FORTH HEREIN OF THE OPINION OF UBS SECURITIES IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE OPINION ATTACHED HERETO AS ANNEX C.
In connection with its opinion, UBS Securities reviewed and considered such
financial and other matters as it deemed relevant, including, among other
things: (i) the Merger Agreement; (ii) certain publicly available information
for RTC and TRCH, including the RTC 10-K and the TRCH 10-K, and each of the
quarterly reports of RTC and TRCH filed on Form 10-Q for the quarter ended
September 30, 1997; (iii) certain internal financial analyses, financial
forecasts, reports and other information concerning RTC and TRCH furnished to
UBS Securities by the respective managements of RTC and TRCH; (iv) discussions
UBS Securities has had with certain members of the managements of each of RTC
and TRCH concerning the historical and current business operations, financial
conditions and prospects of RTC and TRCH and such other matters UBS Securities
deemed relevant; (v) the reported price and trading histories of the shares of
RTC Common Stock and TRCH Common Stock as compared to the reported price and
trading histories of certain publicly traded companies UBS Securities deemed
relevant; (vi) the respective financial conditions of RTC and TRCH as compared
to the financial conditions of certain other companies UBS Securities deemed
relevant; (vii) certain financial terms of the Merger
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as compared to the financial terms of selected other business combinations UBS
Securities deemed relevant; and (viii) such other information, financial
studies, analyses and investigations and such other factors that UBS
Securities deemed relevant for the purposes of this opinion.
In conducting its review and arriving at its opinion, UBS Securities, with
RTC's consent, assumed and relied, without independent investigation, upon the
accuracy and completeness of all financial and other information that was
provided to UBS Securities by RTC and TRCH, respectively, or publicly
available, and UBS Securities did not undertake any responsibility for the
accuracy, completeness or reasonableness of, or independently to verify, such
information. UBS Securities, with RTC's consent, assumed that the financial
forecasts which it examined were reasonably prepared by the respective
managements of RTC and TRCH on bases reflecting the best currently available
estimates and good faith judgments of such managements as to the competitive,
operating and regulatory environments and the related financial performance of
RTC and TRCH, as the case may be, for the relevant periods. UBS Securities was
informed by RTC, and assumed, that the Merger will be recorded as a pooling of
interests under generally accepted accounting principles and will qualify as a
reorganization within the meaning of Section 368(a) of the Code. UBS
Securities did not make or obtain any independent evaluations, valuations or
appraisals of the assets or liabilities of RTC or TRCH, nor was it furnished
with any such materials. UBS Securities' services to RTC with respect to the
Merger were comprised solely of providing financial advisory services, as
described in the UBS Securities Engagement Letter (as defined below). The
opinion of UBS Securities is necessarily based upon economic and market
conditions and other circumstances as they existed and could be evaluated by
UBS Securities on the date thereof. Additionally, UBS Securities was not
authorized or requested to, and did not, solicit alternative offers for RTC or
its assets.
In connection with rendering its opinion to the RTC Board, UBS Securities
performed a variety of financial analyses which are summarized below. The
following summary does not purport to be a complete description of all the
analyses performed and factors considered by UBS Securities in connection with
its opinion. UBS Securities believes that its analyses must be considered as a
whole and that selecting portions of its analyses and the factors considered
by it, without consideration of all factors and analyses, could create a
misleading view of the analyses and the processes underlying UBS Securities'
opinion. UBS Securities arrived at its ultimate opinion based on the results
of all the analyses undertaken by it and assessed as a whole, and it did not
draw conclusions from or with regard to any one method of analysis. The
preparation of a fairness opinion is a complex process involving subjective
judgments and is not necessarily susceptible to partial analysis or summary
description. With respect to the analysis of selected publicly traded
companies and the analysis of selected acquisitions summarized below, no
company utilized as a comparison is either identical or directly comparable to
RTC or TRCH and such analyses necessarily involve complex considerations and
judgments concerning the differences in financial and operating
characteristics of the companies and other factors that could affect the
public trading or acquisition values of the companies concerned. The estimates
of future performance of RTC and TRCH provided by the respective managements
of RTC and TRCH in or underlying UBS Securities' analyses are not necessarily
indicative of future results or values, which may be significantly more or
less favorable than such estimates. In performing its analyses, UBS Securities
made numerous assumptions with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond
the control of RTC or TRCH. Estimates of values of companies or assets do not
purport to be appraisals or necessarily to reflect the prices at which
companies or their securities actually may be sold. None of the analyses
performed by UBS Securities was assigned a greater significance by UBS
Securities than any other.
UBS Securities discussed with the respective managements of RTC and TRCH
internal earnings estimates for RTC and TRCH, respectively, and certain other
prospective information. RTC and TRCH do not publicly disclose internal
management estimates of the type provided to UBS Securities in connection with
its review of the financial terms of the Merger. Such estimates were
preliminary in nature, prepared solely for internal purposes, and are
subjective in many respects and are, therefore, susceptible to interpretations
and periodic revisions based on actual experience and business developments.
Such estimates were based on numerous variables and assumptions that are
inherently uncertain, including, without limitation, factors related to
general economic, regulatory and competitive conditions. Accordingly, actual
results could vary significantly from those reflected in such estimates.
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The following is a brief summary of the analyses performed by UBS Securities
and reviewed with the RTC Board in connection with its opinion.
Comparative Stock Price Performance. UBS Securities reviewed the recent
stock market performance of RTC Common Stock and TRCH Common Stock and
compared such performance to that of the S&P 500 Index, the S&P Diversified
Healthcare Index and a group of selected publicly traded companies deemed
relevant by UBS Securities for the purposes of its analysis: Fresenius Medical
Care AG, Renal Care Group, Inc., RTC and TRCH (collectively, the "Dialysis
Services Companies"). UBS Securities observed that over the period from
October 31, 1995, to November 14, 1997, RTC Common Stock underperformed TRCH
Common Stock by 44.9%, over the period from July 22, 1993 to November 14,
1997, outperformed the S&P 500 Index and the S&P Diversified Healthcare Index
by 462.3% and 367.0%, respectively, and over the period from November 14,
1996, to November 14, 1997, outperformed an equal-weighted index of the common
stocks of the Dialysis Services Companies (excluding RTC) and the S&P 500
Index by 21.1% and 10.5%, respectively, and performed in line with the S&P
Diversified Healthcare Index. UBS Securities also observed that over the
period from October 31, 1995, to November 14, 1997, TRCH Common Stock
outperformed the S&P 500 Index and the S&P Diversified Healthcare Index by
95.0% and 67.7%, respectively, and over the period from November 14, 1996, to
November 14, 1997, outperformed an equal-weighted index of the Dialysis
Services Companies (excluding TRCH), the S&P 500 Index and the S&P Diversified
Healthcare Index by 29.0%, 16.9% and 6.4%, respectively.
Analysis of Selected Publicly Traded Companies. UBS Securities compared
certain financial information and operating statistics of RTC with
corresponding financial information and operating statistics of each of the
Dialysis Services Companies (excluding RTC), and certain financial information
and operating statistics of TRCH with corresponding financial information and
operating statistics for each of the Dialysis Services Companies (excluding
TRCH). Such financial information and operating statistics included, among
other things, certain historical profitability margins, certain historical and
projected growth rates, market values of equity, total enterprise values and
certain implied financial multiples. Among other things, this analysis
indicated that the implied financial multiples for (i) the Dialysis Services
Companies, excluding RTC, were as follows: (a) total enterprise value as a
multiple of last twelve months net revenues ranged from 4.19x to 2.26x, with
an average of 3.54x; (b) total enterprise value as a multiple of estimated
calendar 1997 net revenues ranged from 3.76x to 2.13x, with an average of
3.17x; (c) total enterprise value as a multiple of estimated calendar 1998 net
revenues ranged from 2.85x to 1.89x, with an average of 2.45x; (d) total
enterprise value as a multiple of last twelve months earnings before interest,
taxes, depreciation and amortization ("EBITDA") ranged from 22.2x to 11.4x,
with an average of 17.0x; (e) total enterprise value as a multiple of
estimated calendar 1997 EBITDA ranged from 19.8x to 10.4x, with an average of
15.1x; (f) total enterprise value as a multiple of estimated calendar 1998
EBITDA ranged from 12.9x to 8.1x, with an average of 10.3x; (g) total
enterprise value as a multiple of last twelve months earnings before interest
and taxes ("EBIT") ranged from 28.3x to 19.4x, with an average of 23.6x; (h)
total enterprise value as a multiple of estimated calendar 1997 EBIT ranged
from 25.4x to 17.7x, with an average of 21.1x; (i) total enterprise value as a
multiple of estimated calendar 1998 EBIT ranged from 15.6x to 12.4x, with an
average of 13.6x; (j) market price as a multiple of last twelve months
earnings per share ("EPS") ranged from 49.1x to 41.4x, with an average of
45.1x; (k) market price as a multiple of estimated calendar 1997 EPS ranged
from 42.2x to 39.0x, with an average of 40.7x; and (l) market price as a
multiple of estimated calendar 1998 EPS ranged from 29.2x to 23.2x, with an
average of 25.9x; and (ii) for the Dialysis Services Companies, excluding
TRCH, were as follows: (a) total enterprise value as a multiple of last twelve
months net revenues ranged from 4.19x to 2.26x, with an average of 3.47x; (b)
total enterprise value as a multiple of estimated calendar 1997 net revenues
ranged from 3.76x to 2.13x, with an average of 3.16x; (c) total enterprise
value as a multiple of estimated calendar 1998 net revenues ranged from 2.85x
to 1.89x, with an average of 2.45x; (d) total enterprise value as a multiple
of last twelve months EBITDA ranged from 22.2x to 11.4x, with an average of
16.5x; (e) total enterprise value as a multiple of estimated calendar 1997
EBITDA ranged from 19.8x to 10.4x, with an average of 14.8x; (f) total
enterprise value as a multiple of estimated calendar 1998 EBITDA ranged from
12.9x to 8.1x, with an average of 10.1x; (g) total enterprise value as a
multiple of last twelve months EBIT ranged from 28.3x to 19.4x, with an
average of 23.7x; (h) total enterprise value as a multiple of estimated
calendar 1997 EBIT ranged from 25.4x to 17.7x, with an average of 21.3x; (i)
total
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enterprise value as a multiple of estimated calendar 1998 EBIT ranged from
15.6x to 12.4x, with an average of 13.8x; (j) market price as a multiple of
last twelve months EPS ranged from 49.1x to 35.6x, with an average of 43.2x;
(k) market price as a multiple of estimated calendar 1997 EPS ranged from
42.2x to 33.4x, with an average of 38.8x; and (l) market price as a multiple
of estimated calendar 1998 EPS ranged from 29.2x to 23.0x, with an average of
25.1x. UBS Securities observed that the implied financial multiples (i) for
RTC were as follows: (a) total enterprise value as a multiple of last twelve
months net revenues of 3.96x (4.48x based on the Exchange Ratio and a closing
price for TRCH Common Stock of $31.13 on November 14, 1997); (b) total
enterprise value as a multiple of estimated calendar 1997 net revenues of
3.60x (4.07x based on the Exchange Ratio and a closing price for TRCH Common
Stock of $31.13 on November 14, 1997); (c) total enterprise value as a
multiple of estimated calendar 1998 revenues of 2.61x (2.95x based on the
Exchange Ratio and a closing price for TRCH Common Stock of $31.13 on November
14, 1997); (d) total enterprise value as a multiple of last twelve months
EBITDA of 15.9x (18.0x based on the Exchange Ratio and a closing price for
TRCH Common Stock of $31.13 on November 14, 1997); (e) total enterprise value
as a multiple of estimated calendar 1997 EBITDA of 14.1x (16.0x based on the
Exchange Ratio and a closing price for TRCH Common Stock of $31.13 on November
14, 1997); (f) total enterprise value as a multiple of estimated calendar 1998
EBITDA of 9.4x (10.7x based on the Exchange Ratio and a closing price for TRCH
Common Stock of $31.13 on November 14, 1997); (g) total enterprise value as a
multiple of last twelve months EBIT of 23.4x (26.4x based on the Exchange
Ratio and a closing price for TRCH Common Stock of $31.13 on November 14,
1997); (h) total enterprise value as a multiple of estimated calendar 1997
EBIT of 20.9x (23.6x based on the Exchange Ratio and a closing price for TRCH
Common Stock of $31.13 on November 14, 1997); (i) total enterprise value as a
multiple of estimated calendar 1998 EBIT of 13.5x (15.2x based on the Exchange
Ratio and a closing price for TRCH Common Stock of $31.13 on November 14,
1997); (j) market price as a multiple of last twelve months EPS of 35.6x
(39.1x based on the Exchange Ratio and a closing price for TRCH Common Stock
of $31.13 on November 14, 1997); (k) market price as a multiple of estimated
calendar 1997 EPS of 33.4x (36.8x based on the Exchange Ratio and a closing
price for TRCH Common Stock of $31.13 on November 14, 1997); and (l) market
price as a multiple of estimated calendar 1998 EPS of 23.0x (25.3x based on
the Exchange Ratio and a closing price for TRCH Common Stock of $31.13 on
November 14, 1997); and (ii) for TRCH were as follows: (a) total enterprise
value as a multiple of last twelve months net revenues of 4.16x; (b) total
enterprise value as a multiple of estimated calendar 1997 net revenues of
3.62x; (c) total enterprise value as a multiple of estimated calendar 1998 net
revenues of 2.61x; (d) total enterprise value as a multiple of last twelve
months EBITDA of 17.3x; (e) total enterprise value as a multiple of estimated
calendar 1997 EBITDA of 15.1x; (f) total enterprise value as a multiple of
estimated calendar 1998 EBITDA of 10.0x; (g) total enterprise value as a
multiple of last twelve months EBIT of 23.2x; (h) total enterprise value as a
multiple of estimated calendar 1997 EBIT of 20.1x; (i) total enterprise value
as a multiple of estimated calendar 1998 EBIT of 13.0x; (j) market price as a
multiple of last twelve months EPS of 41.4x; (k) market price as a multiple of
estimated calendar 1997 EPS of 39.0x; and (l) market price as a multiple of
estimated calendar 1998 EPS of 25.3x. All estimated data for the Dialysis
Services Companies were based on publicly available, independent estimates of
selected investment banking firms.
Analysis of Selected Acquisitions. UBS Securities reviewed 27 selected
merger and acquisition transactions involving alternate site healthcare
services companies, all of which were announced since the beginning of 1990
(the "Selected Acquisitions"), and 6 of such Selected Acquisitions which
involved dialysis services companies (the "Selected Dialysis Services
Acquisitions"). UBS Securities analyzed the equity purchase price, total
enterprise value, certain implied financial multiples and the premiums over
prevailing market prices based on certain public information for each of the
Selected Acquisitions and the Selected Dialysis Services Acquisitions. This
analysis indicated that the implied financial multiples of the Selected
Acquisitions were as follows: (a) total enterprise value as a multiple of last
twelve months net revenues ranged from 5.57x to 0.52x, with a median of 1.57x
and an average of 1.91x; (b) total enterprise value as a multiple of last
twelve months EBITDA ranged from 23.3x to 7.6x, with a median of 11.8x and an
average of 13.0x; (c) total enterprise value as a multiple of last twelve
months EBIT ranged from 34.7x to 10.4x, with a median of 16.6x and an average
of 18.9x; and (d) equity purchase price as a multiple of last twelve months
net income ranged from 47.6x to 20.1x, with a median of 25.0x and an average
of 29.2x. Additionally, this analysis indicated that the premiums represented
by
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the purchase price to the market price of the subject company in the Selected
Acquisitions one day and four weeks prior to the announcement of the subject
transaction ranged from 102.6% to (0.5)%, with a median of 27.4% and an
average of 36.5%, and from 113.9% to (6.7)%, with a median of 42.7% and an
average of 48.5%, respectively. This analysis also indicated that the implied
financial multiples of the Selected Dialysis Services Acquisitions were as
follows: (a) total enterprise value as a multiple of last twelve months net
revenues ranged from 3.58x to 1.05x, with a median of 2.36x and an average of
2.38x; (b) total enterprise value as a multiple of last twelve months EBITDA
ranged from 15.5x to 10.2x, with a median of 11.9x and an average of 12.5x;
(c) total enterprise value as a multiple of last twelve months EBIT ranged
from 21.8x to 14.4x, with a median of 15.4x and an average of 16.7x; and (d)
equity purchase price as a multiple of last twelve months net income ranged
from 38.4x to 20.1x, with a median of 29.3x and an average of 29.2x.
Additionally, this analysis indicated that the premiums represented by the
purchase price to the market price of the subject company in the Selected
Dialysis Services Acquisitions one day and four weeks prior to the
announcement of the subject transaction ranged from 27.8% to 23.0%, with a
median of 27.0% and an average of 25.9%, and from 38.2% to 24.0%, with a
median of 33.0% and an average of 31.7%, respectively. UBS Securities observed
that the financial multiples of RTC implied by the Exchange Ratio, based on a
closing price for TRCH Common Stock of $31.13 on November 14, 1997, were: (i)
total enterprise value as a multiple of last twelve months net revenues of
4.48x; (ii) total enterprise value as a multiple of last twelve months EBITDA
of 18.0x; (iii) total enterprise value as a multiple of last twelve months
EBIT of 26.4x; and (iv) equity purchase price as a multiple of last twelve
months net income of 42.3x. Additionally, UBS Securities observed that the
premiums to the market price of RTC Common Stock on November 14, 1997, and
four weeks prior to November 14, 1997, implied by the Exchange Ratio, based on
a closing price for TRCH Common Stock of $31.13 on November 14, 1997, were
10.1% and 25.9%, respectively.
In addition, UBS Securities reviewed 99 selected merger and acquisition
transactions involving publicly traded healthcare companies, all of which were
announced since the beginning of 1995 (the "Selected Publicly Traded
Healthcare Company Acquisitions"), and 31 of such Selected Publicly Traded
Healthcare Company Acquisitions which were stock-for-stock merger transactions
(the "Selected Healthcare Stock Merger Transactions"), and analyzed the
premiums paid over prevailing market prices in such transactions. UBS
Securities also reviewed 22 of such Selected Publicly Traded Healthcare
Company Acquisitions involving healthcare services companies (the "Selected
Publicly Traded Healthcare Services Company Acquisitions"), and 10 of such
Selected Publicly Traded Healthcare Services Company Acquisitions which were
stock-for-stock merger transactions (the "Selected Healthcare Services Stock
Merger Transactions"), and analyzed the premiums over prevailing market prices
paid in such transactions. This analysis indicated that the median and average
premiums represented by the purchase price to the market price of the subject
company one day and four weeks prior to the announcement of the subject
transaction for the Selected Publicly Traded Healthcare Company Acquisitions
were 15.4% and 21.1%, respectively, and 25.8% and 30.2%, respectively; for the
Selected Healthcare Stock Merger Transactions were 9.9% and 14.1%,
respectively, and 22.2% and 24.1%, respectively; for the Selected Publicly
Traded Healthcare Services Company Acquisitions were 11.6% and 16.2%,
respectively, and 24.5% and 28.6%, respectively; and for the Selected
Healthcare Services Stock Merger Transactions were 10.4% and 10.6%,
respectively, and 18.2% and 15.3%, respectively. UBS Securities observed that
the premiums to the market price of RTC Common Stock on November 14, 1997, and
four weeks prior to November 14, 1997, implied by the Exchange Ratio, based on
a closing price for TRCH Common Stock of $31.13 on November 14, 1997, were
10.1% and 25.9%, respectively.
Exchange Ratio Analysis. UBS Securities reviewed the ratios of the prices of
RTC Common Stock to TRCH Common Stock over various periods ending November 14,
1997, and calculated the premium represented by the Exchange Ratio to these
ratios. The ratios of closing stock prices of RTC Common Stock to TRCH Common
Stock for the various periods ending November 14, 1997, were 1.215 for the
average of the previous year, 1.181 for the average of the previous six
months, 1.171 for the average of the previous three months, 1.136 for the
average of the previous two months, 1.092 for the average of the previous one
month, 1.014 for the 52-week low, 1.433 for the 52-week high, 1.074 for the
day four weeks prior to November 14, 1997, and 1.213 on November 14, 1997. UBS
Securities observed that the Exchange Ratio represented premiums/(discounts)
of
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9.9%, 13.1%, 14.0%, 17.5%, 22.3%, 31.7%, (6.8)%, 24.2% and 10.1%,
respectively, to the aforementioned ratios of the prices of RTC Common Stock
to TRCH Common Stock.
Contribution Analysis. UBS Securities analyzed the pro forma contribution of
each of RTC and TRCH to the resultant combined company if the Merger were to
be consummated. Such analysis was based on historical information and the
estimates of the respective managements of RTC and TRCH. Such analysis
indicated that for the calendar years 1995, 1996, 1997, 1998 and 1999, RTC
would contribute approximately 55.0%, 46.3%, 43.3%, 42.8% and 38.6%,
respectively, of the net revenues of the combined company; approximately
54.0%, 46.4%, 44.3%, 45.0% and 41.6%, respectively, of the EBITDA of the
combined company; approximately 50.2%, 44.0%, 41.4%, 42.2% and 39.6%,
respectively, of the EBIT of the combined company; and approximately 65.1%,
47.5%, 43.4%, 42.0% and 36.3%, respectively, of the net income of the combined
company. UBS Securities observed that the Exchange Ratio implied pro forma
ownership of the outstanding common stock of the combined company of 42.8% for
holders of RTC Common Stock, pro forma ownership of the outstanding common
stock of the combined company, adjusted to include options outstanding for
each of RTC and TRCH, of 42.6% for holders of RTC Common Stock, and pro forma
ownership of the outstanding common stock of the combined company, adjusted to
include options outstanding for each of RTC and TRCH and shares of RTC Common
Stock issuable upon conversion of the RTC Subordinated Notes, of 45.6% for
holders of RTC Common Stock.
Pro Forma Merger Analysis. UBS Securities analyzed certain pro forma
financial effects resulting from the Merger, including the impact of the
Merger on TRCH's projected earnings per share for the calendar years 1997,
1998 and 1999. Based on the estimates of the respective managements of RTC and
TRCH and the Exchange Ratio, and assuming that the Merger is treated as a
pooling of interests for accounting purposes, the results of the pro forma
merger analysis suggest that, in the absence of any potential operating
synergies that may result from the Merger, the Merger will not materially
impact TRCH's EPS in each of the calendar years 1997 and 1998, and will be
moderately dilutive to TRCH's EPS in the calendar year 1999. The actual
results achieved by the combined company could vary from projected results and
the variations could be material.
RTC and UBS Securities have entered into a letter agreement, dated September
24, 1997 (the "UBS Securities Engagement Letter"), relating to the services to
be provided by UBS Securities to RTC in connection with the Merger. Pursuant
to the UBS Securities Engagement Letter, RTC has agreed to pay UBS Securities
for its services: (i) a retainer fee of $100,000, payable upon execution of
the UBS Securities Engagement Letter; (ii) a fee of $250,000 in connection
with the delivery of the opinion of UBS Securities, payable upon the delivery
by UBS Securities of its opinion; and (iii) a transaction fee of (a) 0.5% of
the aggregate consideration which results from a per share purchase price
received in a transaction up to and including $39.25 per share of RTC Common
Stock, or (b) 0.6% of the aggregate consideration which results from a per
share purchase price received in a transaction greater than $39.25 per share
of RTC Common Stock, payable at the closing of the Merger, less any amounts
payable pursuant to (i) and (ii) above. In addition, RTC has agreed to
reimburse UBS Securities for its expenses, including the reasonable fees and
disbursements of its counsel. Pursuant to an additional letter agreement dated
September 24, 1997, RTC also has agreed to indemnify UBS Securities against
certain liabilities, including liabilities under the federal securities laws
arising in connection with its engagement by RTC.
UBS Securities is an internationally recognized investment banking and
financial advisory firm. UBS Securities, as part of its investment banking
business, is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. In the
ordinary course of its business, UBS Securities and its affiliates actively
trade the shares of RTC Common Stock and TRCH Common Stock for their own
accounts and for the accounts of their customers and, accordingly, may at any
time hold a long or short position in such securities. In the past, UBS
Securities has provided other investment banking and financial advisory
services to RTC and TRCH for which UBS Securities has received compensation.
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THE MERGER AGREEMENT
The following is a brief description of certain terms and provisions set
forth in the Merger Agreement. This description does not purport to be
complete and is qualified in its entirety by reference to the Merger
Agreement, which is attached hereto as Annex A and is incorporated herein by
reference. Capitalized terms used herein without definition shall have the
respective meanings ascribed thereto in the Merger Agreement.
At the Effective Date, (i) Merger Sub will be merged with and into RTC, (ii)
each outstanding share of the common stock of Merger Sub will be converted
into one share of common stock of the surviving corporation (the "Surviving
Corporation"), and (iii) the separate existence of the Merger Sub will cease
and RTC will succeed to all the rights and be responsible for all the
obligations of Merger Sub in accordance with the DGCL. RTC will remain as the
Surviving Corporation in the Merger and will continue to exist as a wholly
owned subsidiary of TRCH.
At the Effective Date, each share of RTC Common Stock then issued and
outstanding will be converted into the right to receive 1.335 shares of TRCH
Common Stock (the "Per Share Merger Consideration"). Notwithstanding the
foregoing, all treasury shares and any shares of RTC Common Stock owned by
TRCH or Merger Sub will be cancelled pursuant to the Merger Agreement. No
fractional shares of TRCH Common Stock will be issued in the Merger. Rather,
holders of RTC Common Stock whose shares are converted in the Merger will be
entitled to a cash payment in lieu of fractional shares as described under "--
Exchange of Certificates" and "--Fractional Shares."
A description of certain material differences between the rights of holders
of TRCH Common Stock and RTC Common Stock is set forth under "Comparative
Rights of Stockholders."
Effective Date. The Merger shall become effective immediately upon the
filing of the Certificate of Merger with the Secretary of State of the State
of Delaware in accordance with Section 251 of the DGCL, or at such other time
as TRCH and RTC shall agree and specify in the Certificate of Merger.
Directors and Officers of the Surviving Corporation. The Merger Agreement
provides that the directors and officers of Merger Sub immediately prior to
the Effective Date will, after the Effective Date, be the initial directors
and officers of the Surviving Corporation. Each of these directors and
officers will hold office from the Effective Date until their respective
successors have been duly elected and qualified in accordance with the
Certificate of Incorporation and Bylaws of the Surviving Corporation.
Directors of TRCH. Promptly following the Effective Date, pursuant to the
Merger Agreement, TRCH will take all steps necessary to increase the size of
the Board of Directors of TRCH from five members to six members. TRCH will
then cause the additional director created by the increase in the Board of
Directors to be Robert L. Mayer, Jr. Mr. Mayer is currently a director of RTC,
and he has consented to serve as a director of TRCH, if nominated, to assist
in the integration of the two companies. See "The Merger--Interests of Certain
Persons in the Merger--Directors of the Combined Company."
Exchange of Certificates. RTC STOCKHOLDERS SHOULD NOT SUBMIT THEIR STOCK
CERTIFICATES EVIDENCING SHARES OF RTC COMMON STOCK FOR EXCHANGE UNLESS AND
UNTIL THE TRANSMITTAL INSTRUCTIONS AND A FORM OF LETTER OF TRANSMITTAL ARE
RECEIVED OR OBTAINED FROM THE EXCHANGE AGENT (AS DEFINED BELOW).
Prior to the filing of the Certificate of Merger, TRCH shall deposit, or
cause to be deposited, in trust with The Bank of New York, as exchange agent
(the "Exchange Agent"), (i) such number of shares of TRCH Common Stock as
shall equal the product obtained by multiplying (A) the number of shares of
RTC Common Stock outstanding (and not owned of record by TRCH or Merger Sub)
immediately prior to the Effective Date by (B) the Per Share Merger
Consideration and (ii) cash in an amount reasonably estimated to be sufficient
to pay cash in lieu of fractional shares (as described below), as provided by
the Merger Agreement. As soon as practicable after the Effective Date, the
Exchange Agent shall send a notice and transmittal form to each holder of
record of RTC Common Stock immediately prior to the Effective Date advising
such holder of the
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effectiveness of the Merger and the procedure for surrendering to the Exchange
Agent the certificate or certificates to be exchanged pursuant to the Merger.
Holders of RTC Common Stock will not be entitled to receive dividends on such
shares from TRCH until such certificates are so surrendered. When such
certificates are surrendered, the holders of the TRCH certificates issued in
exchange therefor will be paid, without interest, any dividends which may have
become payable with respect to such shares of TRCH Common Stock between the
Effective Date and the time of such surrender.
Fractional Shares. No certificates or scrip representing a fractional share
interest in TRCH Common Stock will be issued. In lieu of any such fractional
share interest, each holder of RTC Common Stock who otherwise would be
entitled to receive a fractional share interest in TRCH Common Stock in the
Merger will be paid cash upon surrender of the fractional share of RTC Common
Stock in an amount equal to the product of such fraction multiplied by the
closing sale price of one share of TRCH Common Stock as reported by the NYSE
for composite transactions on the NYSE trading day immediately preceding the
Effective Date.
Representations and Warranties. The Merger Agreement contains various
customary representations and warranties relating to, among other things: (a)
each of RTC's and TRCH's and certain of their respective subsidiaries'
organization and similar corporate matters; (b) each of RTC's and TRCH's
capital structure and subsidiaries; (c) the authorization, execution, delivery
and enforceability of the Merger Agreement and related matters; (d)(i) the
absence of the need (except as specified) for governmental or other filings,
permits, authorizations, consents or approvals with respect to the Merger
Agreement and the transactions contemplated thereby, (ii) the absence of
conflicts under charter documents or bylaws, (iii) required consents or
approvals and (iv) the absence of violations of laws; (e) documents filed by
each of TRCH and RTC with the Commission and the accuracy of the information
contained therein; (f) subject to certain exceptions, the absence of certain
specified material changes or events; (g) litigation; (h) labor matters; (i)
with respect to RTC, employee benefit matters, including certain employment
agreements, and matters relating to the Employee Retirement Income Security
Act of 1974, as amended; (j) with respect to RTC, certain real property; (k)
environmental matters; (l) tax matters; (m) the accuracy of information to be
supplied by each of TRCH and RTC in connection with the Registration Statement
and the Joint Proxy Statement/Prospectus; (n) the vote of TRCH stockholders
necessary to approve the Share Issuance and the Proposed Certificate of
Amendment; (o) the vote of RTC stockholders necessary to approve and adopt the
Merger Agreement; (p) certain accounting matters; (q) the hiring of brokers or
finders and (r) the opinion of the respective financial advisors of RTC and
TRCH.
Business of RTC and TRCH Pending the Merger. RTC has agreed that, among
other things, prior to the Effective Date, unless TRCH otherwise agrees in
writing or unless otherwise contemplated by the Merger Agreement or the RTC
Disclosure Letter, the business of RTC and of its subsidiaries will be
conducted in the ordinary course and in all material respects consistent with
past practices, and RTC will not (i) amend its Certificate of Incorporation or
Bylaws; (ii) declare, set aside or pay any dividend; (iii) make any
redemption, retirement or purchase of its capital stock; (iv) split, combine
or reclassify its outstanding shares of capital stock or (v) issue any shares
of its capital stock, except as contemplated by the Merger Agreement, upon
exercise of existing options and with respect to up to 100,000 shares of RTC
Common Stock issued in connection with the acquisition of related businesses
unless such issuance would preclude TRCH from accounting for the business
combination contemplated by the Merger Agreement as a pooling of interests or
would materially delay, or materially reduce the likelihood of, the
consummation of the Merger. In addition, RTC will not: (a) fail to use
reasonable efforts to preserve intact its business organization; (b) increase
compensation payable to any officer or director; (c) enter into any employment
or other payment agreement or any employee compensation plan; (d) amend any
employment agreement; (e) make any loan or advance to any officer or director
except in the ordinary course of business consistent with past practice; (f)
assume, guarantee or endorse any material obligations; (g) make any material
investment of a capital nature; (h) enter into, modify, amend or terminate any
material contract; (i) waive, release, grant or transfer any rights of
material value; (j) transfer, lease, license, sell, mortgage, pledge, dispose
of or encumber any material asset except in the ordinary course of business
consistent with past practice; (k) effect any increase in prevailing list
prices for dialysis products and services, including prescription drugs; (l)
commence the provision of reimbursable services through RTC's laboratory
facility in
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Las Vegas; (m) take any action, other than reasonable and usual actions in the
ordinary course of business and consistent with past practice, with respect to
accounting policies or procedures, except for changes required by GAAP; (n)
grant any stock options or stock appreciation rights or (o) settle or
compromise any tax proceeding or audit.
TRCH has agreed that, among other things, prior to the Effective Date,
unless RTC otherwise agrees in writing or unless otherwise contemplated by the
Merger Agreement or the TRCH/Newco Disclosure Letter, the business of TRCH and
of its subsidiaries will be conducted in the ordinary course and in all
material respects consistent with past practices, and TRCH will not (i) amend
its Certificate of Incorporation (except as contemplated by the proposed
Certificate of Amendment) or bylaws; (ii) declare, set aside or pay any
dividend; (iii) make any redemption, retirement or purchase of its capital
stock; (iv) split, combine or reclassify its outstanding shares of capital
stock; or (v) issue any shares of its capital stock, except as contemplated by
the Merger Agreement, upon exercise of existing options and with respect to
shares of TRCH Common Stock issued in connection with the acquisition of
related businesses unless such issuance would preclude TRCH from accounting
for the business combination contemplated by the Merger Agreement as a pooling
of interests, or would materially delay, or materially reduce the likelihood
of, the consummation of the Merger. In addition, TRCH will not: (a) fail to
use reasonable efforts to preserve intact its business organization; (b)
transfer, lease, license, sell, mortgage, pledge, dispose of or encumber any
material asset except in the ordinary course of business consistent with past
practice; or (c) take any action, other than reasonable and usual actions in
the ordinary course of business and consistent with past practice, with
respect to accounting policies or procedures, except for changes required by
GAAP.
Acquisition Proposals. TRCH and RTC have each agreed that, except in
furtherance of the transactions contemplated by the Merger Agreement, prior to
the Effective Date, (i) neither of them nor any of their respective affiliates
shall, and each of them shall direct and use its best efforts to cause its
respective directors, officers, employees, representatives or agents not to,
initiate, solicit or encourage any inquiries or the making or implementation
of any proposal or offer (including, without limitation, any proposal or offer
to its stockholders), with respect to any merger, acquisition, consolidation,
share exchange, business combination or other transaction involving, or which
would result in, (A) the acquisition of a majority of the outstanding equity
securities of TRCH or RTC, respectively; (B) the issuance by such party, in a
single transaction or a series of related transactions, of equity securities
which would represent, following issuance, a majority of the outstanding
equity securities of TRCH or RTC, respectively or (C) the acquisition of a
majority of the consolidated assets of such party (an "Acquisition Proposal"),
or engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with, any person or entity
relating to an Acquisition Proposal, or otherwise facilitate any effort or
attempt to make or implement an Acquisition Proposal. The Merger Agreement,
however, does not prohibit the Board of Directors of TRCH or RTC from, prior
to the date of the TRCH Meeting or the RTC Meeting, as applicable, (x)
furnishing information to or entering into discussions or negotiations with
any person or entity that makes an unsolicited bona fide Acquisition Proposal
if, and only to the extent that, (A) a majority of the disinterested members
of the Board of Directors of such party determines in good faith (with the
advice of independent legal counsel) that such action is required for the
Board of Directors to comply with its fiduciary duties to its stockholders
imposed by law; (B) prior to furnishing such information to, or entering into
discussions or negotiations with, such person or entity such party provides
written notice to the other party to the Merger Agreement to the effect that
it is furnishing information to, or entering into discussions or negotiations
with, such person or entity and enters into a confidentiality agreement with
such person or entity (which such party determined in good faith was required
to be executed in order for the Board of Directors to comply with its
fiduciary duties to its stockholders imposed by law) and (C) subject to the
confidentiality provisions of such confidentiality agreement, such party keeps
the other party to the Merger Agreement informed of the status and the
material terms of any such discussions or negotiations, and (y) to the extent
applicable, complying with Rule 14e-2 promulgated under the Exchange Act with
regard to any Acquisition Proposal.
Treatment of RTC Stock Options. RTC has undertaken (or, if appropriate, any
committee administering the RTC Stock Plans, as defined below) to adopt such
resolutions or take other actions as may be required to effect
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the following: (i) adjust the terms of all outstanding options to purchase
shares of RTC Common Stock ("RTC Stock Options") granted under any plan or
arrangement providing for the grant of options to purchase shares of RTC
Common Stock to current or former officers, directors, employees or
consultants of RTC (the "RTC Stock Plans"), whether vested or unvested, as
necessary to provide that, at the Effective Date, each RTC Stock Option
outstanding immediately prior to the Effective Date shall be amended and
converted into an option to acquire, on the same terms and conditions as were
applicable under the RTC Stock Option, the number of shares of TRCH Common
Stock determined by multiplying the number of shares of RTC Common Stock
subject to such RTC Stock Option by the Exchange Ratio, at a price per share
of TRCH Common Stock equal to the exercise price per share of RTC Common Stock
previously purchasable pursuant to such RTC Stock Option divided by the
Exchange Ratio (each, as so adjusted, an "Adjusted Option") and (ii) make such
other changes to the RTC Stock Plans as TRCH and RTC may agree are appropriate
to give effect to the Merger. Any adjustments with respect to any RTC Stock
Options that are "incentive stock options" as defined in Section 422 of the
Code are to be effected in a manner which is consistent with Section 424(a) of
the Code. TRCH has undertaken to adopt an option plan which will provide for
the issuance of the Adjusted Options at the Effective Date by virtue of the
Merger and without the need of any further corporate action, whereby TRCH will
assume all obligations of RTC under the RTC Stock Plans, including with
respect to the RTC Stock Options outstanding at the Effective Date. In
addition, TRCH has undertaken to prepare and file with the Commission a
registration statement on Form S-8 (or another appropriate form) registering a
number of shares of TRCH Common Stock equal to the number of shares subject to
the Adjusted Options. Such registration statement shall be kept effective by
TRCH at least for so long as any Adjusted Options may remain outstanding. TRCH
has committed to deliver to the holders of RTC Stock Options appropriate
notices setting forth such holders' rights pursuant to the respective RTC
Stock Plans and that such RTC Stock Options will be assumed by TRCH on the
same terms and conditions.
RTC has represented to TRCH that each of the holders of RTC Stock Options
who has a "cash in lieu" right with respect to such RTC Stock Options has
agreed not to exercise such right.
Certain Employee Benefits. TRCH has agreed to cause RTC to pay in full all
amounts owing to certain officers of RTC under employment agreements,
severance agreements and non-competition agreements. TRCH has agreed to cause
RTC to honor all of its binding obligations under any and all severance
agreements and employment agreements to which RTC or any RTC Subsidiary is a
party.
Indemnification and Insurance. Under the Merger Agreement, for a period of
six years from the Effective Date, TRCH has agreed to ensure and guarantee
that all provisions with respect to indemnification as set forth in RTC's or
certain of its subsidiaries' certificates of incorporation, bylaws or other
agreements in each case, as in effect on the date of the Merger Agreement, in
favor of persons who served as directors, officers, employees or agents of RTC
and certain of its subsidiaries shall not be amended, repealed or modified.
The Merger Agreement also provides that TRCH will cause to be maintained in
effect for a period ending not sooner than the sixth anniversary of the
Effective Date, directors' and officers' liability insurance providing at a
minimum equivalent coverage with respect to RTC's officers and directors as
the policies maintained by RTC on behalf of such directors and officers of RTC
as of the date of the Merger Agreement, and containing terms and conditions
which are no less advantageous with respect to matters occurring on or prior
to the Effective Date; provided that in no event will TRCH be required to
expend in order to maintain or procure such insurance coverage, any amount per
annum in excess of the Maximum Premium (as defined in the Merger Agreement)
with respect to such insurance. If the cost of such coverage exceeds the
Maximum Premium, TRCH will maintain the most advantageous policies obtainable
that can be purchased or maintained for the Maximum Premium.
Expenses and Fees. If the Merger is consummated, all reasonable fees and
expenses incurred in connection with the Merger and the transactions
contemplated thereby will be paid by the Surviving Corporation. If the Merger
Agreement is terminated and the Merger is not consummated for any reason, each
party shall bear its own fees and expenses. However, the parties have agreed
that the following fees and expenses shall be paid one-half by TRCH and one-
half by RTC: (i) the filing fee paid to the Commission with respect to the
Registration
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Statement; and (ii) the printing and mailing expenses incurred with respect to
the Joint Proxy Statement/Prospectus and the Registration Statement.
Pooling of Interests. TRCH and RTC have agreed not to, nor to permit their
respective affiliates to, take any actions which could have the effect of
precluding TRCH from accounting for the business combination contemplated by
the Merger Agreement as a pooling of interests.
Financial Statements. As soon as reasonably practicable, but in no event
later than 30 days after the end of the first full calendar month occurring
after the Effective Date, TRCH has agreed to publish financial statements
setting forth 30-day combined results of operations in such detail as may be
required under the Commission's Accounting Series Release No. 135.
Cooperation under Certain Circumstances. The Merger is expected to qualify
as a pooling of interests for financial reporting purposes. In order to so
qualify, a number of conditions must be satisfied. TRCH and RTC have been
advised by their respective independent accountants that, if the RTC
Subordinated Notes are deemed to represent essentially common stock equity
interests and the conditions giving rise to the Put Right occur (see "The
Merger--RTC's Subordinated Notes"), exercise of the Put Right by holders of
RTC Subordinated Notes could, under certain very limited circumstances which
TRCH and RTC do not currently anticipate will occur, possibly jeopardize
TRCH's ability to account for the business combination contemplated by the
Merger as a pooling of interests. To enable TRCH and RTC to evaluate and
minimize this concern prior to consummating the Merger, the Merger Agreement
permits the parties, under certain circumstances, to delay the consummation of
the Merger for up to 90 days if the exercise of the Put Right could adversely
affect or otherwise jeopardize TRCH's ability to account for the Merger as a
pooling of interests. Neither TRCH nor RTC currently anticipates exercising
this right to delay consummation of the Merger. In the very unlikely event the
Merger is consummated and the subsequent exercise of the Put Right by holders
of RTC Subordinated Notes results in TRCH being unable to account for the
merger as a pooling of interests, TRCH will not be able to rescind the Merger.
The unavailability of pooling of interests accounting treatment would have a
material adverse effect on TRCH's reported earnings and earnings per share.
Conditions. The respective obligations of TRCH and RTC to effect the Merger
are subject to the satisfaction of the following conditions at or prior to the
Effective Date: (a) the expiration or termination of any waiting period
applicable to the consummation of the Merger under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act"); (b) the effectiveness of
the Registration Statement, of which this Joint Proxy Statement/Prospectus is
a part, and the absence of a stop order or proceedings seeking a stop order;
(c) the approval and adoption of the Merger Agreement and the transactions
contemplated thereby by the requisite vote of RTC stockholders; (d) the
Proposed Certificate of Amendment and Share Issuance shall have been
authorized by the requisite vote of the TRCH stockholders; (e) the filing of
the Proposed Certificate of Amendment with the Delaware Secretary of State;
(f) the absence of any statute or regulation enacted by any Federal or state
governmental authority or of a preliminary or permanent injunction or other
order by any Federal or state court in the United States prohibiting
consummation of the Merger; (g) the authorization for listing of the shares of
TRCH Common Stock on the NYSE upon official notice of issuance; (h) the
absence of any action or proceeding by or before any court or governmental
authority or other regulatory or administrative agency or commission which
would require either party to take any action which would result in a material
adverse effect to their respective businesses; (i) the execution and delivery
of the Supplemental Indenture and (j) the receipt by TRCH and RTC of a letter
from Price Waterhouse LLP ("Price Waterhouse"), TRCH's independent
accountants, and Coopers & Lybrand, RTC's independent accountants,
respectively, dated the Effective Date, stating that the Merger will properly
be accounted for as a pooling of interests transaction in accordance with GAAP
and the published rules, regulations and policies of the Commission.
In addition, the obligations of RTC to effect the Merger are subject to the
satisfaction at or prior to the Effective Date of the following additional
conditions: (a) each of TRCH and Merger Sub shall have performed in all
material respects its obligations under the Merger Agreement required to be
performed by it on or prior to the Effective Date; (b) the representations and
warranties of TRCH and Merger Sub contained in the Merger
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Agreement shall be true and correct in all material respects as if such
representations and warranties were made as of the Effective Date, except as
contemplated by the Merger Agreement; (c) there shall not have been any
material adverse change in the financial condition, results of operations,
properties or business of TRCH or Merger Sub; (d) RTC shall have received a
certificate of the President or Vice President of TRCH with respect to clauses
(a), (b) and (c); (e) the Exchange Agent shall have certified that TRCH has
made the requisite deposit into the Exchange Fund and (f) RTC shall have
received an opinion of counsel as to federal income tax treatment of the
transaction.
The obligations of TRCH and Merger Sub to effect the Merger are subject to
the satisfaction at or prior to the Effective Date of the following additional
conditions: (a) RTC shall have performed in all material respects its
obligations under the Merger Agreement required to be performed by it on or
prior to the Effective Date; (b) the representations and warranties of RTC
contained in the Merger Agreement shall be true and correct in all material
respects as if such representations and warranties were made as of the
Effective Date, except as contemplated by the Merger Agreement; (c) there
shall not have been any material adverse change in the financial condition,
results of operations, properties or business of RTC or certain of its
subsidiaries; (d) TRCH and Merger Sub shall have received a certificate of the
President or Vice President of RTC with respect to clauses (a), (b) and (c)
and (e) each affiliate of RTC shall have executed and delivered an Affiliates
Agreement.
Termination. The Merger Agreement may be terminated at any time prior to the
Effective Date by either TRCH or RTC, before or after the approval by the
stockholders of TRCH or RTC in a number of circumstances which include, among
others: (a) by mutual consent of TRCH and RTC; (b) by TRCH on written notice
to RTC, if (i) an unsolicited Acquisition Proposal with respect to TRCH has
been made and not withdrawn, (ii) a majority of disinterested members of the
TRCH Board determines in good faith that (A) as a result of such Acquisition
Proposal, such termination is required in order to comply with its fiduciary
duties to TRCH's stockholders, (B) such Acquisition Proposal is superior for
TRCH's stockholders to the transaction contemplated by the Merger Agreement
and (C) there is a substantial possibility that TRCH's stockholders' approval
of (x) the Share Issuance and (y) the Proposed Certificate of Amendment will
not be obtained by reason of the existence of such Acquisition Proposal, (iii)
a majority of the disinterested directors of the TRCH Board has, after written
notice to RTC, again made the determinations referred to in clause (ii) above,
and (iv) the TRCH Board concurrently approves, and TRCH concurrently enters
into, a definitive agreement providing for the implementation of such
Acquisition Proposal; (c) by RTC on written notice to TRCH, if (i) an
unsolicited Acquisition Proposal with respect to RTC has been made and not
withdrawn, (ii) a majority of disinterested members of RTC's Board of
Directors determines in good faith that (A) as a result of such Acquisition
Proposal, such termination is required in order to comply with its fiduciary
duties to RTC's stockholders, (B) such Acquisition Proposal is superior for
RTC's stockholders to the transaction contemplated by the Merger Agreement and
(C) there is a substantial possibility that RTC's stockholders' adoption of
the Merger Agreement will not be obtained by reason of the existence of such
Acquisition Proposal, (iii) a majority of the disinterested directors of the
RTC Board has, after written notice to TRCH, again made the determinations
referred to in clause (ii) above, and (iv) the RTC Board concurrently
approves, and RTC concurrently enters into, a definitive agreement providing
for the implementation of such Acquisition Proposal; (d) by TRCH on 48 hours'
written notice to RTC, if there is a breach of any of the representations and
warranties of RTC or if RTC fails to comply in any material respect with any
of its covenants or agreements and such breach or failure cannot reasonably be
anticipated to be cured within sixty days of the date of such notice; (e) by
RTC on 48 hours' written notice to TRCH, if there is a breach of any of the
representations and warranties of TRCH or Merger Sub or if TRCH or Merger Sub
fails to comply in any material respect with any of its covenants or
agreements and such breach or failure cannot reasonably be anticipated to be
cured within sixty days of the date of such notice; (f) by either TRCH or RTC
on written notice to the other party, if the Merger shall not have been
consummated on or before June 30, 1998; provided, however, that neither party
may terminate if such failure to consummate the Merger is the result of a
failure to satisfy any of the conditions to such party's obligation to effect
the Merger; (g) by either TRCH or RTC on written notice to the other party, if
a United States federal or state court of competent jurisdiction or United
States federal or state governmental, regulatory or administrative agency or
commission shall have issued an order, decree or ruling or taken any other
action permanently restraining, enjoining or otherwise prohibiting the
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transactions contemplated by the Merger Agreement and such order, decree,
ruling or other action has become final and non-appealable; (h) by either TRCH
or RTC on written notice to the other party, if (A) upon a vote at the RTC
Meeting, RTC's stockholders do not adopt the Merger Agreement or (B) upon a
vote at the TRCH Meeting, TRCH's stockholders do not approve the Share
Issuance or the Proposed Certificate of Amendment; (i) by either TRCH or RTC
on written notice to the other party, if, at any time prior to the Effective
Date, Price Waterhouse and/or Coopers & Lybrand shall have indicated in
writing to TRCH and RTC that such firm is unable to render the letter required
by the Merger Agreement and (j) by TRCH on written notice to RTC if the Merger
has not been consummated due to the possibility that exercise of the
Repurchase Right could adversely affect or otherwise jeopardize TRCH's ability
to account for the business combination contemplated by this Agreement as a
pooling of interests.
Termination Fees. If the Merger Agreement is terminated (i) by TRCH pursuant
to clause (b) above, (ii) by either TRCH or RTC, pursuant to clause (f) above
prior to approval of the Share Issuance and the Proposed Certificate of
Amendment by TRCH's stockholders, and any person has made an Acquisition
Proposal with respect to TRCH which has not been withdrawn prior to the date
which is 60 days prior to the Outside Date (as defined in the Merger
Agreement) or (iii) by either TRCH or RTC pursuant to clause (h)(B) above and
either (A) any person has made an Acquisition Proposal with respect to TRCH
which has not been withdrawn prior to the date of the TRCH Meeting or (B)
RTC's stockholders shall have, on or prior to the date of such termination,
adopted the Merger Agreement and TRCH shall not have given a valid notice of
termination of the Merger Agreement pursuant to clause (d) above prior to the
date of the TRCH Meeting, then, in any such case, TRCH shall pay to RTC
$50,000,000 in immediately available funds.
If the Merger Agreement is terminated (i) by RTC pursuant to clause (c)
above, (ii) by either RTC or TRCH pursuant to clause (f) above prior to
adoption of the Agreement and any person has made an Acquisition Proposal with
respect to RTC which has not been withdrawn prior to the date which is 60 days
prior to the Outside Date (as defined in the Merger Agreement) or (iii) by
either RTC or TRCH pursuant to clause (h)(A) above and either (A) any person
has made an Acquisition Proposal with respect to RTC which has not been
withdrawn prior to the date of the RTC Meeting or (B) TRCH's stockholders
shall have, on or prior to the date of such termination, approved the Share
Issuance and the Proposed Certificate of Amendment and RTC shall not have
given a valid notice of termination of the Merger Agreement pursuant to clause
(e) above prior to the date of the RTC Meeting, then, in any such case, RTC
shall pay to TRCH $50,000,000 in immediately available funds. If the Merger
Agreement is terminated by TRCH pursuant to clause (j) above, RTC shall pay to
TRCH $25,000,000 in immediately available funds; provided, however, that RTC
shall not be obligated to pay such termination fee if RTC has indicated in
writing prior to such termination that RTC reasonably believes that the risk
that the business combination contemplated by this Agreement will not properly
be accounted for as a pooling of interests is such that RTC is willing to
consummate the Merger despite such risk.
Amendment and Waiver. Subject to applicable law, the Merger Agreement may be
amended by TRCH and RTC solely by action of their respective Boards of
Directors. Any such amendment must be in writing and signed by both of the
parties. At any time prior to the Effective Date, the parties may by action of
their respective Boards of Directors (i) extend the time for the performance
of any of the obligations or other acts of the other parties to the Merger
Agreement, (ii) waive any inaccuracies in the representations and warranties
of the other party and (iii) waive compliance by the other party with any of
the agreements or conditions to the Merger Agreement. Any agreement on the
part of such a party to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
RESALE OF SHARES OF TRCH COMMON STOCK ISSUED IN THE MERGER; AFFILIATES
The shares of TRCH Common Stock to be issued in the Merger will be freely
transferable, except that shares issued to any RTC stockholder who may be
deemed to be an "affiliate" (as defined under the Securities Act, and
generally including, without limitation, directors, certain executive officers
and beneficial owners of 10.0% or more of a class of capital stock) of RTC for
purposes of Rule 145 under the Securities Act may be resold by them only in
transactions permitted by the resale provisions of Rule 145 or as otherwise
permitted
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under the Securities Act. The Merger Agreement provides that RTC shall use its
reasonable efforts to cause each such affiliate to deliver to TRCH prior to
the time this Joint Proxy Statement/Prospectus is mailed to RTC's
stockholders, a letter agreement to the effect that such affiliate will not
offer or sell or otherwise dispose of any shares of TRCH Common Stock issued
to such affiliate in or pursuant to the Merger in violation of the Securities
Act or the rules and regulations promulgated thereunder. This Joint Proxy
Statement/Prospectus does not cover resales of shares of TRCH Common Stock
received by any person who may be deemed to be an affiliate of RTC.
RTC'S SUBORDINATED NOTES
The RTC Subordinated Notes currently outstanding are convertible into RTC
Common Stock at a conversion price of $34.20. As required by the Indenture,
upon the consummation of the Merger, TRCH will execute a supplemental
indenture pursuant to which it will agree to issue shares of TRCH Common Stock
upon conversion of the RTC Subordinated Notes and which will provide for a
conversion price of approximately $25.62 (i.e., $34.20 divided by the Exchange
Ratio). Under certain circumstances, each holder of RTC Subordinated Notes
will have the Put Right, which requires RTC to purchase such holder's RTC
Subordinated Notes at par if, during the 20 Trading Days (as such term is
defined in the Indenture) ending immediately before the anticipated Effective
Date, the Closing Price (as such term is defined in the Indenture) per share
of the RTC Common Stock has not exceeded $35.91, i.e., 105% of the conversion
price rounded up to the nearest reported price, on at least ten of such
Trading Days. Such holders will not have the Put Right, however, if the value
of the TRCH Common Stock received in respect of each share of RTC Common
Stock, based on the average closing price of the TRCH Common Stock during the
ten consecutive Trading Days commencing with the sixth Trading Day following
consummation of the Merger is at least $26.90, i.e., 105% of $34.20 (i.e.,
$35.91) divided by the Exchange Ratio. If the holders of the RTC Subordinated
Notes have the Put Right, TRCH will be required by the terms of the Indenture
to give such holders notice thereof within 30 days following the consummation
of the Merger and holders electing to exercise the Put Right must do so within
30 days of the date of such notice. RTC's Subordinated Notes have traded at a
premium to par in all recent periods. Consequently, even if the holders of
RTC's Subordinated Notes have the Put Right, TRCH does not anticipate that
such holders will exercise such right, which requires TRCH to pay par for the
RTC Subordinated Notes. In the event any holder of RTC Subordinated Notes does
exercise the Put Right, TRCH anticipates that it will be able to fund the
purchase price with borrowings under its existing Credit Agreement. See "The
Merger--The Merger Agreement--Cooperation Under Certain Circumstances."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the principal federal income tax
consequences of the Merger to holders of RTC Common Stock who hold RTC stock
as a capital asset (generally, property held for investment). The discussion
does not address the individual tax position of any holder of RTC Common Stock
nor does it address the tax consequences that may be relevant to holders of
RTC Common Stock with special tax status, including insurance companies,
financial institutions, dealers in securities, holders that are not citizens
or residents of the United States, tax-exempt entities, holders that acquired
RTC Common Stock upon the exercise of employee stock options or otherwise as
compensation and holders who hold RTC Common Stock as part of a hedge,
straddle or conversion transaction. Moreover, the discussion does not address
any consequences arising under the laws of any state, locality or foreign
jurisdiction. Finally, the tax consequences to holders of stock options are
not discussed. The following discussion is based on the Code, Treasury
Regulations thereunder, and administrative rulings and court decisions as of
the date hereof. All of the foregoing are subject to change, possibly with a
retroactive effect, and any such change could affect the accuracy of the
following discussion. No ruling has been or will be sought from the Internal
Revenue Service (the "IRS") concerning the tax consequences of the Merger.
HOLDERS OF RTC COMMON STOCK ARE URGED TO CONSULT WITH THEIR TAX ADVISORS
REGARDING THE TAX CONSEQUENCES OF THE MERGER TO THEM, INCLUDING THE EFFECTS OF
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
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Cravath, Swaine & Moore, counsel to RTC, has delivered to RTC an opinion,
dated on or about the date hereof (which will be confirmed as of the Effective
Date), to the effect that the Merger will constitute a "reorganization" for
federal income tax purposes within the meaning of section 368(a) of the Code
and that TRCH, Merger Sub and RTC will each be a party to such reorganization
within the meaning of Section 368(b) of the Code. It is a condition to the
obligation of RTC to effect the Merger that such opinion is confirmed as of
the Effective Date. Based upon such opinion, for federal income tax purposes:
(i) no gain or loss will be recognized by the stockholders of RTC upon
the exchange of their RTC Common Stock for shares of TRCH Common Stock
pursuant to the Merger, except that a holder of RTC Common Stock who
receives cash in lieu of a fractional share of TRCH Common Stock will
recognize gain or loss equal to the difference between the amount of such
cash and the tax basis allocated to such stockholder's fractional share of
TRCH Common Stock. Such gain or loss will constitute long-term capital gain
or loss if, at the Effective Date, such stockholder has held the RTC Common
Stock with respect to which he has received cash in lieu of a fractional
share of TRCH Common Stock for more than one year. In the case of a holder
who is an individual, such long-term capital gain generally will be subject
to tax at a maximum rate of 28%, and will be taxed at a 20% rate if the RTC
Common Stock has been held for more than 18 months at the Effective Date;
(ii) the aggregate tax basis of the TRCH Common Stock received by the
stockholders of RTC pursuant to the Merger (including fractional shares of
TRCH Common Stock for which cash is received) will be the same as the
aggregate tax basis of such stockholders' RTC Common Stock exchanged
therefor; and
(iii) the holding period of the TRCH Common Stock in the hands of the RTC
stockholders will include the holding period of such stockholders' RTC
Common Stock exchanged therefor pursuant to the Merger.
The opinion of Cravath, Swaine & Moore discussed above is subject to certain
assumptions, limitations and qualifications and is based on current law and,
among other things, certain representations of TRCH and RTC. Reference is made
to the full text of such opinion, which sets forth the assumptions made and
matters considered in connection therewith, a copy of which has been filed as
an exhibit to TRCH's Registration Statement on Form S-4 of which this Joint
Proxy Statement/Prospectus forms a part. Opinions of counsel are not binding
on the IRS and do not preclude the IRS from adopting a contrary position. In
addition, if any of such representations or assumptions are inconsistent with
the actual facts, the tax-free status of the Merger could be adversely
affected.
ACCOUNTING TREATMENT OF THE MERGER
The Merger is expected to qualify as a pooling of interests for financial
reporting purposes in accordance with GAAP, which means that TRCH will restate
its historical consolidated financial statements to include the assets,
liabilities, stockholders' equity and results of operations of RTC. See "The
Merger--The Merger Agreement--Cooperation Under Certain Circumstances."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In reviewing the actions of the RTC Board with respect to the Merger
Agreement and the transactions contemplated thereby, RTC stockholders should
be aware that certain members of RTC's management and the RTC Board have
interests in the Merger that are different from, or in addition to, the
interests of RTC stockholders generally.
Bonuses. Each of Mr. Mayer, Mr. Jansen, Mr. Rodgers, Mr. Karl, Ms. Bednar,
Mr. Zawiski and John A. Chambers, Vice President of Corporate Development, is
party to an employment agreement ("Employment Agreement") with RTC and each of
Mr. Rodgers, Mr. Karl, Ms. Bednar, Mr. Zawiski and Mr. Chambers is a party to
a severance agreement ("Severance Agreement") with RTC (as amended through the
date hereof, collectively, the "Employment and Severance Agreements").
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The Employment Agreements permit, in the discretion of the Compensation
Committee of the Board of Directors, the pre-payment of annual incentive
bonuses prior to the end of the calendar year in which such bonuses were
earned. On November 17, 1997, in connection with the approval of the execution
of the Merger Agreement, the Compensation Committee of the RTC Board approved
the pre-payment of 1997 incentive bonuses in the following amounts for the
following officers: Mr. Mayer, $226,875; Mr. Jansen, $189,750; Mr. Rodgers,
$135,000; Mr. Karl, $135,000; Ms. Bednar, $135,000 and Mr. Zawiski, $97,500.
These amounts reflect the previously approved bonus amounts of 75% of base
salary for each officer and were paid on December 1, 1997.
Certain of the Employment and Severance Agreements were amended in
connection with the execution of the Merger Agreement to provide, in addition
to the foregoing, for the payment of a bonus in consideration of the
significant contributions of certain RTC employees in originating, negotiating
and consummating the Merger (a "Merger Bonus"). A Merger Bonus was paid, in
cash, to the following RTC employees in the following amounts on December 1,
1997: Mr. Mayer, $1,502,125; Mr. Jansen, $1,407,250; Mr. Rodgers, $855,000 and
Mr. Karl, $855,000.
Severance Payments. The Employment Agreements for Mr. Mayer and Mr. Jansen
provide that if (a) the employer terminates such officer's employment other
than for cause, death or permanent disability and such termination occurs
within the 270-day period preceding or after the consummation of a change in
control (the "Change in Control Period"), (b) the Employment Agreement is
terminated as a result of the death or permanent disability of such officer
within the Change in Control Period or (c) such officer terminates his
employment for good reason within the Change in Control Period, the employer
must pay such officer, within 30 days after the event giving rise to such
payment, an amount equal to the sum of (x) the value of such officer's accrued
salary and benefits through the date of his termination and (y) a severance
payment equal to two times such officer's annual base salary as in effect on
the date of termination.
The Merger will constitute a "change in control" under the Mayer and Jansen
Employment Agreements. "Good reason" under the Employment Agreements means,
among other things, a material diminution in such officer's authority, duties
and responsibilities. Mr. Mayer and Mr. Jansen would necessarily experience
such a diminution as a result of the Merger. Thus, Mr. Mayer and Mr. Jansen
will be entitled to, and are expected to, resign following the consummation of
the Merger and to receive their full severance pay under the Employment
Agreements. On November 17, 1997, in connection with the approval of the
Merger Agreement, the Compensation Committee of the RTC Board approved the
pre-payment in fiscal year 1997 of severance pay for Mr. Mayer in the amount
of $605,000 and for Mr. Jansen in the amount of $506,000, subject to the
receipt by RTC of satisfactory undertakings to return such pre-paid severance
if the employment of the recipient is not terminated by June 30, 1998. These
amounts reflect the previously agreed upon severance payments and were paid on
December 1, 1997.
Pursuant to the Severance Agreements for Mr. Rodgers, Mr. Karl, Ms. Bednar,
Mr. Zawiski and Mr. Chambers, such officers have the right, following a change
of control, to terminate their employment for good reason or by reason of
constructive discharge and to receive their full severance benefits under the
Severance Agreements. The Merger will constitute a "change of control"
pursuant to the Severance Agreements. "Good reason" and "constructive
discharge" mean, generally, a material diminution in an officer's functions,
duties, responsibilities or compensation. As the consummation of the Merger
will constitute an event of constructive discharge with respect to Mr.
Rodgers, Mr. Karl, Ms. Bednar, Mr. Chambers and Mr. Zawiski, each of such
officers will be entitled to resign following consummation of the Merger and
receive the following amounts under their Severance Agreements (assuming a
closing of the Merger on or after March 2, 1998): Mr. Rodgers, $375,000;
Mr. Karl, $210,000; Ms. Bednar, $405,000; Mr. Chambers, $100,000 and Mr.
Zawiski, $260,000.
Covenants not to Compete. In addition to the foregoing arrangements, the
Employment and Severance Agreements provide for a payment, upon consummation
of the Merger, of $4,125,000 to Mr. Mayer in exchange for a ten-year covenant
not to compete; $4,050,000 to Mr. Jansen in exchange for a ten-year covenant
not to
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compete and $675,000 to Ms. Bednar in exchange for a two-year covenant not to
compete. In addition, each of Mr. Rodgers, Mr. Karl, Mr. Zawiski and Mr.
Chambers has agreed not to compete with RTC for a two-year period commencing
with consummation of the Merger.
Under the Merger Agreement, TRCH has agreed to cause RTC to pay in full all
amounts owing to such officers of RTC under the Employment and Severance
Agreements. TRCH has agreed to cause RTC to honor all of its binding
obligations under any and all severance agreements and employment agreements
to which RTC or any of its subsidiaries is a party.
Stock Option Plans. Upon consummation of the Merger, each option to purchase
one share of RTC Common Stock will be converted into an option to purchase
1.335 shares of TRCH Common Stock. See "The Merger--The Merger Agreement--
Treatment of RTC Stock Options." Pursuant to the terms of various agreements,
unvested RTC Stock Options held by the senior officers of RTC will become
vested and exercisable upon consummation of the Merger. On the date of this
Joint Proxy Statement/Prospectus, the following RTC employees held the
following unvested RTC Stock Options under the RTC Stock Plans: Mr. Mayer,
303,335 options with an average exercise price of $19.59 per share of RTC
Common Stock; Mr. Jansen, 106,667 options with an average exercise price of
$13.90 per share of RTC Common Stock; Mr. Rodgers, 100,156 options with an
average exercise price of $19.59 per share of RTC Common Stock; Mr. Karl,
112,000 options with an average exercise price of $22.34 per share of RTC
Common Stock; Ms. Bednar, 97,000 options with an average exercise price of
$20.60 per share of RTC Common Stock and Mr. Zawiski, 48,400 options with an
average exercise price of $22.55 per share of RTC Common Stock.
Certain outstanding RTC stock option agreements provide for the right to pay
the exercise price thereunder by delivery of shares of RTC Common Stock (or
TRCH Common Stock following the Merger). Under certain circumstances, if the
holder of such an option exercises such option by delivering shares of RTC
Common Stock (or TRCH Common Stock, as the case may be) which such holder has
held for less than six months, such exercise will result in a one-time,
noncash, merger-related compensation charge for financial reporting purposes.
The amount of such charge would be dependent on the number of stock options
exercised, the number of such shares delivered and the Company's stock price
at the time of exercise.
Consequences under Section 280G. The RTC Employment and Severance Agreements
for Mr. Mayer, Mr. Jansen, Mr. Rodgers, Mr. Karl, Ms. Bednar, Mr. Zawiski and
Mr. Chambers provide that if payment to one of these officers will be subject
to any excise tax under Section 4999 of the IRC, a "gross-up" payment will be
made to place the officer in the same net after-tax position as would have
been the case if no excise tax had been payable. Taking into account the pre-
payment in 1997 of certain amounts, assuming a closing date of February 28,
1998 and a transaction price of $32.47 (based upon the closing price of RTC
Common Stock on January 22, 1998), RTC does not expect any "gross-up" payments
for anyone other than Mr. Mayer and Mr. Jansen, and the aggregate cost to RTC
of such "gross-up" payments with respect to these officers is expected to be
approximately $2,000,000.
Directors of the Combined Company. Pursuant to the Merger Agreement, TRCH
has agreed to cause Mr. Mayer to be appointed to the TRCH Board promptly
following the Merger. Mr. Mayer has informed TRCH and RTC that he intends to
accept appointment to the TRCH Board to assist in the integration of the two
companies.
Indemnification; Directors' and Officers' Liability Insurance. Under the
Merger Agreement, for a period of six years from the Effective Date, TRCH has
agreed to ensure and guarantee that all provisions with respect to
indemnification as set forth in RTC's, or certain of its subsidiaries,
certificates of incorporation, bylaws or indemnification agreements in each
case as in effect on the date of the Merger Agreement, in favor of persons who
served as directors, officers, employees or agents of RTC and certain of its
subsidiaries on or before the Effective Date shall not be amended, repealed or
modified.
The Merger Agreement also provides that TRCH will cause to be maintained in
effect for a period ending not sooner than the sixth anniversary of the
Effective Date, directors' and officers' liability insurance providing
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at a minimum equivalent coverage with respect to RTC's officers and directors
as the policies maintained by RTC on behalf of such directors and officers of
RTC as of the date of the Merger Agreement, and containing terms and conditions
which are no less advantageous with respect to matters occurring on or prior to
the Effective Date; provided that in no event will TRCH be required to expend
in order to maintain or procure such insurance coverage, any amount per annum
in excess of the Maximum Premium (as defined in the Merger Agreement) with
respect to such insurance, or, if the cost of such coverage exceeds the Maximum
Premium, the maximum amount of coverage that can be purchased or maintained for
the Maximum Premium.
In reviewing the actions of the TRCH Board with respect to the Share
Issuance, the Charter Amendment and the 1997 Plan Amendment, TRCH stockholders
should be aware that certain officers of TRCH may have interests in the Merger
that are different from, or in addition to, the interests of TRCH stockholders
generally. Such interests may include the receipt of significant compensation
if the Merger is consummated, although the specific form and amount of such
compensation has not been determined by the TRCH Board.
APPRAISAL RIGHTS
Under the DGCL, neither the stockholders of TRCH nor the stockholders of RTC
are entitled to appraisal rights in the event the Merger is consummated.
REGULATORY APPROVAL
Under the HSR Act and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Merger may not be consummated until notification
and certain information has been furnished to the FTC and the Antitrust
Division of the Department of Justice (the "Antitrust Division") and specified
waiting period requirements have been satisfied.
On December 8, 1997, TRCH and RTC each filed notification and report forms
with respect to the Merger under the HSR Act with the FTC and the Antitrust
Division. The required waiting period with respect to the Merger expired at
11:59 p.m. on January 5, 1998. At any time before or after consummation of the
Merger, the Antitrust Division 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 or seeking
divestiture of substantial assets of TRCH or RTC or any of their respective
subsidiaries. At any time before or after the Effective Date, and
notwithstanding that the HSR Act waiting period has expired, any state could
take such action under its antitrust laws as it deems necessary or desirable.
Such action could include seeking to enjoin the consummation of the Merger or
seeking divestiture of substantial assets of TRCH or RTC or the Surviving
Corporation. Private parties also may seek to take legal action under the
antitrust laws under certain circumstances.
STOCK EXCHANGE LISTING
It is a condition to the consummation of the Merger that the shares of TRCH
Common Stock issuable to the stockholders of RTC pursuant to the terms of the
Merger Agreement be authorized for listing on the NYSE upon official notice of
issuance.
DELISTING AND DEREGISTRATION OF RTC COMMON STOCK
If the Merger is consummated, RTC Common Stock will be delisted from the NYSE
and will be deregistered under the Exchange Act.
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COMPARATIVE STOCK PRICES
TRCH Common Stock has been traded on the NYSE under the symbol "TRL" since
October 31, 1995. RTC Common Stock has been traded on the NYSE under the
symbol "RXT" since December 20, 1995. Prior to such time, the RTC Common Stock
was traded on the Nasdaq National Market under the symbol "RXTC."
The following table sets forth, for the calendar periods indicated, the high
and low trading prices per share of TRCH Common Stock and RTC Common Stock as
reported by the NYSE and the Nasdaq National Market, as the case may be. The
prices per share have been adjusted to reflect the five-for-three stock split
of the TRCH Common Stock in the fourth quarter of 1997 and the two-for-one
stock split of the RTC Common Stock in the first quarter of 1996.
<TABLE>
<CAPTION>
TRCH RTC
COMMON STOCK COMMON STOCK
------------- -------------
HIGH LOW HIGH LOW
------ ------ ------ ------
<S> <C> <C> <C> <C>
1995
First Quarter.................................... -- -- $13.25 $10.50
Second Quarter................................... -- -- 13.13 10.38
Third Quarter.................................... -- -- 18.63 11.25
Fourth Quarter................................... $18.00 $10.43 23.50 16.13
1996
First Quarter.................................... 19.35 16.20 27.63 18.75
Second Quarter................................... 27.30 18.60 34.88 23.50
Third Quarter.................................... 25.58 19.20 34.38 24.38
Fourth Quarter................................... 27.83 19.20 33.38 22.38
1997
First Quarter.................................... 22.58 17.93 29.88 22.00
Second Quarter................................... 24.30 16.80 30.63 20.00
Third Quarter.................................... 30.53 21.75 36.44 25.69
Fourth Quarter................................... 34.38 24.38 40.13 29.38
1998
First Quarter (through January 22, 1998)......... 27.50 23.69 36.31 31.06
</TABLE>
TRCH has not paid cash dividends on TRCH Common Stock since its initial
public offering in October 1995 and has no intention of paying such dividends
in the foreseeable future. TRCH's existing credit facilities prohibit the
payment of cash dividends. RTC has not paid any cash dividends on RTC Common
Stock. RTC's existing credit facilities prohibit the payment of cash
dividends.
The reported closing sale price of TRCH Common Stock on the NYSE on November
18, 1997, the last full day of trading for TRCH Common Stock prior to the
announcement by TRCH and RTC of the execution of the Merger Agreement, was
$31.125 per share. The closing sale price of RTC Common Stock on the NYSE on
such date was $38.25 per share. On an equivalent per share basis calculated by
multiplying the closing sale price of TRCH Common Stock on November 18, 1997,
by the Exchange Ratio, the value of the Merger Consideration to be received by
holders of RTC Common Stock was approximately $41.55 per share of RTC Common
Stock.
On January 22, 1998, the last trading day prior to the date of this Joint
Proxy Statement/Prospectus, the last reported sale prices of TRCH Common Stock
and RTC Common Stock, as reported on the NYSE, were $24.88 per share and
$32.47 per share, respectively.
Because the Exchange Ratio is fixed and because the market price of TRCH
Common Stock is subject to fluctuation, the market value of the shares of TRCH
Common Stock that holders of RTC Common Stock will receive in the Merger may
increase or decrease prior to and following the Merger. STOCKHOLDERS ARE URGED
TO OBTAIN CURRENT MARKET QUOTATIONS FOR BOTH THE TRCH COMMON STOCK AND THE RTC
COMMON STOCK.
54
<PAGE>
Following the Merger, TRCH Common Stock will continue to be traded on the
NYSE. At such time, RTC Common Stock will cease to be quoted on the NYSE, and,
since RTC will be a wholly owned subsidiary of TRCH, there will be no further
market for such stock. See "The Merger--Delisting and Deregistration of RTC
Common Stock."
COMPARATIVE RIGHTS OF STOCKHOLDERS
Upon consummation of the Merger, the stockholders of RTC will become
stockholders of TRCH, a Delaware corporation, and their rights will be
governed by TRCH's Amended and Restated Certificate of Incorporation (the
"TRCH Charter") and bylaws (the "TRCH Bylaws"), which differ in certain
material respects from RTC's Restated Certificate of Incorporation, as amended
(the "RTC Charter"), and bylaws, as amended (the "RTC Bylaws"). As
stockholders of TRCH, the rights of the former stockholders of RTC will
continue to be governed by the DGCL.
The following comparison of the TRCH Charter and the TRCH Bylaws, on the one
hand, and the RTC Charter and the RTC Bylaws, on the other, is not intended to
be complete and is qualified in its entirety by reference to the TRCH Charter,
the TRCH Bylaws, the RTC Charter and the RTC Bylaws. Copies of the TRCH
Charter and the TRCH Bylaws are available for inspection at the offices of
TRCH, and copies will be sent to the holders of RTC Common Stock upon request.
Copies of the RTC Charter and the RTC Bylaws are available for inspection at
the principal executive offices of RTC, and copies will be sent to holders of
RTC Common Stock upon request.
Number of Directors. The DGCL provides that a corporation's board of
directors shall consist of at least one member and that the authorized number
of directors may be fixed in the corporation's certificate of incorporation or
in the bylaws. The TRCH Bylaws provide that the authorized number of directors
constituting the TRCH Board shall be not less than one nor more than the
maximum authorized by law and currently is set at five. The RTC Bylaws provide
that the RTC Board shall consist of not less than one nor more than such
number as the RTC Board or the stockholders shall determine. The RTC Board
currently consists of five members. Pursuant to the Merger Agreement, TRCH
will take such action as may be required to increase the authorized number of
TRCH directors from five to six and to elect Robert L. Mayer, Jr. to fill the
vacancy so created.
The number of directors of TRCH may be changed by the affirmative vote of a
majority of the TRCH Board entitled to vote or by the affirmative vote of a
majority of the shares in a meeting where the holders of those shares
constitute a quorum. The RTC Bylaws provide that the number of directors
constituting the whole RTC Board and the number of directors constituting each
class of directors can be changed by a vote of the majority of the RTC Board
at the time of the vote.
Classification. The RTC Bylaws provide that the RTC Board will be divided
into three classes, and each class serves for a term of three years. The term
of only one class of directors expires annually, so it is only possible to
elect one class of the Board of Directors (or approximately one-third) in any
one year. The TRCH Board is not classified.
Removal of Directors; Filling Vacancies on the Board of Directors. Under the
DGCL, any director or the entire board of directors generally may be removed,
with or without cause, by the holders of a majority of the shares entitled to
vote at an election of directors, provided, however, that directors serving on
a classified board may be removed only for cause unless the corporation's
charter provides otherwise. The TRCH Bylaws provide that any director may be
removed, with or without cause, by the majority vote of the stockholders. As
the RTC Charter contains no provision concerning removal of directors, under
the DGCL, RTC stockholders representing a majority of the outstanding shares
entitled to vote at an election of directors may remove an RTC director only
for cause.
55
<PAGE>
The DGCL generally provides that all vacancies on the board of directors,
including vacancies caused by an increase in the number of authorized
directors, may be filled by a majority of the remaining directors even if they
constitute less than a quorum. The TRCH Bylaws provide that the affirmative
vote of a majority of the remaining directors is required to fill such
vacancies so long as such remaining directors constitute a quorum. All
vacancies where the number of directors is less than a quorum must be filled
by the stockholders. The RTC Bylaws, however, provide that all vacancies on
the RTC Board, including vacancies caused by an increase in the number of
authorized directors, may be filled by the affirmative vote of a majority of
the remaining directors or by the stockholders.
Limitation on Directors' Liability. The DGCL permits a corporation to limit
the personal liability of its directors, with specified exceptions. The DGCL
permits a corporation to include in its certificate of incorporation a
provision limiting or eliminating the liability of its directors to such
corporation or its stockholders for monetary damages arising from a breach of
fiduciary duty, except for: (i) a breach of the duty of loyalty to the
corporation; (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) a declaration of a
dividend or the authorization of the repurchase or redemption of stock in
violation of the DGCL or (iv) any transaction from which the director derived
an improper personal benefit. Both the TRCH Charter and the RTC Charter
eliminate director liability to the maximum extent permitted by the DGCL.
Indemnification. The DGCL provides in general that a corporation may
indemnify any person, including its directors, officers, employees and agents,
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than actions by or in the right of the
corporation) by reason of the fact that he or she is or was a representative
of or serving at the request of the corporation, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her in connection with the action, suit or
proceeding if he or she acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal proceeding, had no reasonable
cause to believe his or her conduct was unlawful. The DGCL permits similar
indemnification in the case of actions by or in the right of the corporation.
In general, no indemnification for expenses in derivative actions is permitted
under the DGCL where the person has been adjudged liable to the corporation,
unless a court finds him or her entitled to such indemnification. However, to
the extent that a present or former director or officer of a corporation has
been successful on the merits or otherwise in defense of any action, suit or
proceeding, or in defense of any claim, issue or matter, he or she shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection therewith. The DGCL also
provides that the indemnification permitted or required by the DGCL is not
exclusive of any other rights to which a person seeking indemnification may be
entitled.
The RTC Charter provides that RTC shall indemnify any person acting as
director or officer of RTC to the fullest extent permitted by the DGCL. The
language in the TRCH Bylaws provides for indemnification of directors and
officers to the full extent permitted by the DGCL and provides that TRCH shall
enter into indemnification agreements with each of its directors and officers
providing a contractual right of indemnification to the maximum extent
permitted by law.
Restrictions on Business Combinations/Corporate Control. Section 203 of the
DGCL applies to a broad range of business combinations (as defined in the
DGCL) between a Delaware corporation and an interested stockholder (as
defined). The DGCL definition of "business combination" includes mergers,
sales of assets, issuance of voting stock and certain other transactions. An
"interested stockholder" is defined as any person who owns, directly or
indirectly, 15.0% or more of the outstanding voting stock of a corporation.
The DGCL prohibits a corporation from engaging in a business combination with
an interested stockholder for a period of three years following the date on
which the stockholder became an interested stockholder, unless (i) the board
of directors approved the business combination before the stockholder became
an interested stockholder, or the board of directors approved the transaction
that resulted in the stockholder becoming an interested stockholder; (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder,
56
<PAGE>
such stockholder owned at least 85.0% of the voting stock outstanding when the
transaction began other than shares held by directors who are also officers
and by certain employee stock plans or (iii) the board of directors approved
the business combination after the stockholder became an interested
stockholder and the business combination was approved at a meeting by at least
two-thirds of the outstanding voting stock not owned by such stockholder. Both
TRCH and RTC are subject to the provisions of Section 203 of the DGCL. Neither
TRCH nor Merger Sub is an interested stockholder of RTC for purposes of
Section 203.
Stockholder Action by Written Consent; Special Meetings. The DGCL provides
that, unless otherwise provided in a company's certificate of incorporation,
any action that may be taken or is required to be taken at any annual or
special meeting of stockholders may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action
so taken, is signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. The TRCH Charter provides that no action required to be taken or
which may be taken at any annual or special meeting of stockholders may be
taken without a meeting, and the power of stockholders to consent in writing,
without a meeting, to the taking of any action is specifically denied. The RTC
Charter currently permits such action without a meeting.
Under the DGCL, a special meeting of the stockholders may be called by the
board of directors or such other person as may be authorized by the
certificate of incorporation or bylaws. The TRCH Bylaws provide that special
meetings of stockholders may be called by the President, the Chairman of the
Board, the holders of shares entitled to cast not less than 10% of the votes
at such meeting or by the TRCH Board. The RTC Bylaws provide that special
meetings of the stockholders of the corporation may be called only by the RTC
Board, a majority of the directors acting without a meeting, the President or
upon the written request of stockholders holding not less than one-third of
all the outstanding shares of RTC entitled to vote for directors.
Amendment or Repeal of the Charter and Bylaws. Under the DGCL, a corporation
may amend its certificate of incorporation, from time to time, in any and as
many respects as may be desired, so long as its certificate of incorporation
as amended would contain only such provisions as it would be lawful and proper
to insert in an original certificate of incorporation. The DGCL also provides
that a certificate of incorporation may confer on the board of directors the
power to amend the bylaws. Additionally, under the DGCL, a corporation's
bylaws may be amended by the stockholders entitled to vote, which power may
not be divested or limited where the board also has such power. The TRCH
Bylaws provide that such Bylaws may be amended or repealed in accordance with
the DGCL and the TRCH Charter confers on the Board the power to amend the TRCH
Bylaws. The RTC Bylaws provide that the RTC Bylaws may be altered, amended or
repealed or new bylaws may be adopted by the affirmative vote of the holders
of 66 2/3% of the shares of stock then entitled to vote or by unanimous
affirmative vote of the entire Board and the RTC Charter confers on the RTC
Board the power to amend the RTC Bylaws.
Cumulative Voting. Under the DGCL, cumulative voting of stock applies only
when so provided in the certificate of incorporation of a corporation. Neither
the TRCH Charter nor the RTC Charter provides for cumulative voting.
Stockholder Vote for Merger. Except with respect to certain mergers between
parent and subsidiary corporations, the DGCL generally requires the
affirmative vote of a majority of the outstanding shares of the constituent
corporations in a merger; provided, that where a corporation's certificate of
incorporation provides for more or less than one vote per share on any matter,
the required vote is a majority of the combined voting power of the
corporation's stock. Under the DGCL, holders of stock which is not by its
terms entitled to vote on such a transaction are entitled to notice of the
meeting at which the proposed transaction is considered. The DGCL does not
require, unless provided for in a corporation's charter (and neither the TRCH
Charter nor the RTC Charter so provides), a stockholder vote of the surviving
corporation in a merger, however, if (a) the merger agreement does not amend
the existing certificate of incorporation; (b) each outstanding or treasury
share of the surviving corporation before the merger is unchanged after the
merger; (c) the number of shares to be issued by the surviving corporation in
a merger does not exceed 20.0% of the shares outstanding immediately prior to
such
57
<PAGE>
issuance and (d) certain other conditions are satisfied. Neither the TRCH
Charter nor the RTC Charter or the TRCH Bylaws nor RTC Bylaws provides for any
additional notice or voting requirement with respect to a merger other than
those required by the DGCL.
Appraisal Rights in Mergers. The DGCL provides that stockholders have the
right, in some circumstances, to dissent from certain corporate
reorganizations and to instead demand payment of the fair cash value of their
shares. The DGCL does not provide for appraisal rights in connection with a
merger or consolidation (unless the certificate of incorporation so provides,
which the RTC Charter does not) to the holders of shares of a constituent
corporation (i) listed on a national securities exchange (or designated as a
national market system security by the National Association of Securities
Dealers, Inc.) or (ii) held of record by more than 2,000 stockholders (such as
RTC Common Stock), unless the applicable agreement of merger or consolidation
requires the holders of such shares to receive, in exchange for such shares,
any property other than (a) shares of stock of the resulting or surviving
corporation; (b) shares of stock of any other corporation listed on a national
securities exchange (or designated as described above) or held of record by
more than 2,000 holders; (c) cash in lieu of fractional shares or (d) any
combination of the foregoing. The DGCL generally does not provide for
appraisal rights if no vote of the stockholders of the surviving corporation
is required. Under the DGCL, there are no such rights of appraisal with
respect to other mergers, a sale or transfer of all or substantially all of
such corporation's assets or an amendment to such corporation's certificate or
articles of incorporation, unless otherwise provided in such corporation's
certificate or articles of incorporation. Neither the RTC Charter nor the TRCH
Charter provides for such rights of appraisal.
Dividends. The DGCL permits a corporation to pay dividends out of surplus
(defined as the excess, if any, of net assets over capital) or, if no surplus
exists, out of its net profits for the fiscal year in which such dividends are
declared and/or for its preceding fiscal year, provided, that dividends may
not be paid out of net profits if the capital of such corporation is less than
the aggregate amount of capital represented by the outstanding stock of all
classes having a preference upon the distribution of assets. Neither the TRCH
Charter nor the TRCH Bylaws mentions any dividend policy. Therefore, TRCH's
dividend policy is governed by the DGCL. TRCH has not declared or paid cash
dividends on the TRCH Common Stock since its initial public offering and does
not intend to pay such dividends in the foreseeable future. TRCH's existing
credit facility restricts the payment of dividends. According to the RTC
Bylaws, holders of shares of RTC Common Stock are entitled to receive such
dividends as may be declared from time to time by the RTC Board out of funds
legally available for such purpose. RTC has not declared or paid cash
dividends on the RTC Common Stock and does not intend to pay dividends prior
to the consummation of the Merger.
58
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined balance sheet as of
September 30, 1997 and the pro forma condensed combined statements of income
for the nine months ended September 30, 1997 and September 30, 1996 and the
year ended December 31, 1996, are based upon the historical consolidated
financial statements after giving effect to Form 8-K filings by TRCH and RTC
related to acquisitions and the financing thereof. The unaudited pro forma
condensed combined statements of income for the seven months ended December
31, 1995 and the years ended May 31, 1995 and May 31, 1994 are based upon the
historical consolidated financial statements of TRCH and RTC. These documents
have been previously filed with the Commission under the Exchange Act and are
incorporated by reference in this Joint Proxy Statement/Prospectus. The
unaudited pro forma financial statements should be read in conjunction with
those consolidated financial statements, their related notes and the Form 8-K
filings. These unaudited pro forma condensed combined financial statements are
not necessarily indicative of the operating results that would have been
achieved had the Merger been consummated as of the beginning of the periods
presented and should not be construed as representative of future operating
results. These unaudited pro forma condensed combined financial statements
give effect to the Merger by combining the results of operations of TRCH and
RTC using the pooling of interests method of accounting.
The unaudited pro forma condensed combined statements of income do not
include the impact of (i) cost savings and synergies which may be realized by
the Company as a result of the Merger or (ii) merger-related expenses. TRCH
has identified pretax cost savings and synergies (net of incremental costs) of
$8.2 million in 1998 and $22.8 million per year in 1999 and thereafter, which
may be realized by the Company as a result of the Merger. TRCH expects to
achieve these cost savings and synergies from: (i) the elimination of
duplicative overhead expenses; (ii) improved drug and supply utilization;
(iii) improved drug capture; (iv) enhanced purchasing efficiencies; (v)
improvements in labor productivity and skill mix; (vi) enhanced revenue growth
through applying TRCH's ancillary and value-added services (i.e., lab,
pharmacy, etc.) to RTC's patients and (vii) increased revenue potential
resulting from a recent legislative change in Medicare as secondary payor.
Many of these cost savings and synergies will be achieved by applying TRCH's
existing programs to RTC's business. TRCH believes that additional net cost
savings and synergies may be realized in 1998 and beyond. See "The Merger--
TRCH's Reasons for the Merger; Recommendations of the TRCH Board." No
assurances can be made, however, as to the actual amount and timing of cost
savings and synergies, if any, that will be realized.
The unaudited pro forma financial information is based on certain
assumptions and adjustments described in the Notes to the unaudited pro forma
financial information included in this Joint Proxy Statement/Prospectus and
should be read in conjunction therewith and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and the
consolidated financial statements of TRCH and RTC and the related Notes
thereto, in the TRCH 10-K and the RTC 10-K and the Condensed Consolidated
Financial Statements in the TRCH 10-Qs and RTC 10-Qs, each of which is
incorporated by reference.
Financial information provided for the years ended May 31, 1995 and May 31,
1994 combines TRCH's results for the years ended May 31, 1995 and May 31,
1994, respectively, with RTC's results for the years ended December 31, 1994
and December 31, 1993, respectively.
59
<PAGE>
TOTAL RENAL CARE HOLDINGS, INC. AND SUBSIDIARIES
RENAL TREATMENT CENTERS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
TRCH RTC
PRO PRO MERGER PRO FORMA
FORMA FORMA ADJUSTMENTS COMBINED
-------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents.. $ 15,455 $ 8,767 $(19,550)(3)(4) $ 4,672
Accounts receivable, net... 133,375 109,311 -- 242,686
Other current assets....... 24,778 12,111 -- 36,889
-------- -------- -------- ----------
Total current assets....... 173,608 130,189 (19,550) 284,247
Property and equipment,
net....................... 95,033 68,453 (13,376)(3) 150,110
Intangible assets, net..... 394,537 343,091 8,850 (4) 746,478
Other assets............... 11,784 2,807 (1,200)(5) 13,391
-------- -------- -------- ----------
Total assets............... $674,962 $544,540 $(25,276) $1,194,226
======== ======== ======== ==========
Current liabilities........ $ 28,999 $ 35,071 $ 29,604 (2)(3)(5) $ 93,674
Long-term debt............. 371,164 346,028 -- 717,192
Other long-term
liabilities............... 2,856 -- -- 2,856
Minority interests......... 10,286 -- -- 10,286
Common stock............... 44 250 (217)(1) 77
Additional paid-in capital. 260,157 94,153 (171)(1) 354,139
Notes receivable from
stockholders.............. (2,975) -- -- (2,975)
Retained earnings.......... 4,431 69,426 (54,880)(2)(3)(5) 18,977
Treasury stock............. -- (388) 388 (1) --
-------- -------- -------- ----------
Total stockholders' equity. 261,657 163,441 (54,880) 370,218
-------- -------- -------- ----------
Total liabilities and
stockholders' equity...... $674,962 $544,540 $(25,276) $1,194,226
======== ======== ======== ==========
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
60
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
1. The pro forma condensed combined balance sheet gives effect to the proposed
merger of TRCH and RTC by combining the respective balance sheets of the
two companies as of September 30, 1997 on a pooling of interests basis. As
shown above, the capital accounts have been adjusted as if 33,364,062
shares of common stock of TRCH (survivor) were issued in exchange for all
of the outstanding shares of RTC. The difference between the par value of
RTC shares received in exchange and the par value of TRCH's shares issued
has been debited to additional paid in capital. The pro forma adjusting
entry is as follows:
<TABLE>
<CAPTION>
DEBIT CREDIT
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Common stock............................................. $ 217
Additional paid-in capital............................... 171
Treasury stock........................................... $ 388
2. Merger-related expenses anticipated to be recorded are included in the pro
forma condensed combined balance sheet as of September 30, 1997. Merger-
related expenses expected to be recorded by the Company are summarized in
the following table (in thousands):
Severance and management payments........................ $ 13,080
Other expenses........................................... 33,902
--------
Total expenses......................................... 46,982
Tax benefit.............................................. (7,268)
--------
Net expenses........................................... $ 39,714
========
Other expenses are expected to include investment advisory fees and legal,
accounting and other professional fees. The pro forma adjusting entry is as
follows:
<CAPTION>
DEBIT CREDIT
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Retained earnings--net expense........................... $ 39,714
Current liabilities--accrued expenses and current tax
benefit................................................. $ 39,714
3. Estimated costs associated with the closing of duplicative RTC facilities,
write-off of duplicative systems assets, system conversion costs, and buyout
of TRCH laboratory management contract expected to be recorded are included
in the pro forma condensed combined balance sheet. The pro forma adjusting
entry is as follows:
<CAPTION>
DEBIT CREDIT
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Retained earnings--net expense........................... $ 14,446
Current liabilities--current tax benefit................. 9,630
Cash and cash equivalents--facility costs, systems
conversion costs, buyout of laboratory contract, net
of cash received on sale of assets.................... $ 10,700
Property and equipment, net--write-off of assets....... 13,376
4. Covenants not-to-compete are included in the pro forma condensed combined
balance sheet as of September 30, 1997. The pro forma adjusting entry is as
follows:
<CAPTION>
DEBIT CREDIT
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Intangible assets, net--covenants not-to-compete......... $ 8,850
Cash and cash equivalents--covenants not-to-compete
payments.............................................. $ 8,850
</TABLE>
61
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET--(CONTINUED)
5. Due to the anticipated extinguishment of the RTC line of credit by
borrowings under the TRCH line of credit (at similar interest rates), debt
issue costs to be expensed are included in the pro forma condensed combined
balance sheet as of September 30, 1997. The pro forma adjusting entry is as
follows:
<TABLE>
<CAPTION>
DEBIT CREDIT
----- ------
(IN
THOUSANDS)
<S> <C> <C>
Retained earnings--net expense................................. $720
Current liabilities--current tax benefit....................... 480
Other assets--debt issue costs............................... $1,200
</TABLE>
62
<PAGE>
TOTAL RENAL CARE HOLDINGS, INC. AND SUBSIDIARIES
RENAL TREATMENT CENTERS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
TRCH RTC PRO
PRO PRO MERGER FORMA
FORMA FORMA ADJUSTMENTS COMBINED
-------- -------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Net operating revenues................. $380,801 $270,231 -- $651,032
Total operating expenses............... 325,730 226,264 $(866)(1) 552,860
-------- -------- ----- --------
Operating income....................... 55,071 43,967 (866) 98,172
Interest expense, net.................. 18,098 13,055 -- 31,153
-------- -------- ----- --------
Income before income taxes and minority
interests............................. 36,973 30,912 (866) 67,019
Income taxes........................... 13,755 11,605 346 (1) 25,014
-------- -------- ----- --------
Income before minority interests....... 23,218 19,307 (520) 42,005
Minority interests in income of
consolidated subsidiaries............. 3,176 -- -- 3,176
-------- -------- ----- --------
Net income............................. $ 20,042 $ 19,307 $(520) $ 38,829
======== ======== ===== ========
Earnings per common share.............. $ 0.44 $ 0.75 $ 0.49
======== ======== ========
Weighted average number of common
shares and equivalents outstanding.... 45,146 25,706 8,612 79,464
======== ======== ===== ========
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
63
<PAGE>
TOTAL RENAL CARE HOLDINGS, INC. AND SUBSIDIARIES
RENAL TREATMENT CENTERS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
TRCH PRO RTC MERGER PRO FORMA
FORMA PRO FORMA ADJUSTMENTS COMBINED
-------- ---------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net operating revenues.............. $296,423 $211,034 -- $507,457
Total operating expenses............ 260,564 184,166 $(866)(1) 445,596
-------- -------- ----- --------
Operating income.................... 35,859 26,868 (866) 61,861
Interest expense, net............... 17,284 10,376 -- 27,660
-------- -------- ----- --------
Income before income taxes and
minority interests and
extraordinary item................. 18,575 16,492 (866) 34,201
Income taxes........................ 6,692 6,399 346 (1) 12,745
-------- -------- ----- --------
Income before minority interests and
extraordinary item................. 11,883 10,093 (520) 21,456
Minority interests in income of
consolidated subsidiaries.......... 2,294 -- -- 2,294
-------- -------- ----- --------
Income before extraordinary item.... $ 9,589 $ 10,093 $(520) $ 19,162
======== ======== ===== ========
Earnings per common share before
extraordinary item................. $ 0.22 $ 0.40 $ 0.25
======== ======== ========
Weighted average number of common
shares and equivalents outstanding. 43,148 25,018 8,381 76,547
======== ======== ===== ========
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
64
<PAGE>
TOTAL RENAL CARE HOLDINGS, INC. AND SUBSIDIARIES
RENAL TREATMENT CENTERS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
TRCH RTC PRO
PRO PRO MERGER FORMA
FORMA FORMA ADJUSTMENTS COMBINED
-------- -------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Net operating revenues................ $412,183 $287,985 -- $700,168
Total operating expenses.............. 362,691 248,888 $(1,155)(1) 612,734
-------- -------- ------- --------
Operating income...................... 49,492 39,097 (1,155) 87,434
Interest expense, net................. 23,266 13,801 -- 37,067
-------- -------- ------- --------
Income before income taxes, minority
interests and extraordinary item..... 26,226 25,296 (1,155) 50,367
Income taxes.......................... 9,243 9,672 462 (1) 18,453
-------- -------- ------- --------
Income before minority interests and
extraordinary item................... 16,983 15,624 (693) 31,914
Minority interests in income of
consolidated subsidiaries............ 3,569 -- -- 3,569
-------- -------- ------- --------
Income before extraordinary item...... $ 13,414 $ 15,624 $ (693) $ 28,345
======== ======== ======= ========
Earnings per common share before
extraordinary item................... $ 0.31 $ 0.62 $ 0.37
======== ======== ========
Weighted average number of common
shares and equivalents outstanding... 43,788 25,068 8,398 77,254
======== ======== ======= ========
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
65
<PAGE>
TOTAL RENAL CARE HOLDINGS, INC. AND SUBSIDIARIES
RENAL TREATMENT CENTERS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE SEVEN MONTHS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRO
MERGER FORMA
TRCH RTC ADJUSTMENTS COMBINED
------- -------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Net operating revenues................... $89,711 $100,191 -- $189,902
Total operating expenses................. 71,245 83,157 -- 154,402
------- -------- ----- --------
Operating income......................... 18,466 17,034 -- 35,500
Interest expense, net.................... 5,584 1,457 -- 7,041
------- -------- ----- --------
Income before income taxes, minority
interests and extraordinary item........ 12,882 15,577 -- 28,459
Income taxes............................. 4,631 5,922 -- 10,553
------- -------- ----- --------
Income before minority interests and
extraordinary item...................... 8,251 9,655 -- 17,906
Minority interests in income of
consolidated subsidiaries............... 1,784 -- -- 1,784
------- -------- ----- --------
Income before extraordinary item......... $ 6,467 $ 9,655 -- $ 16,122
======= ======== ===== ========
Earnings per common share before
extraordinary item...................... $ 0.22 $ 0.43 $ 0.27
======= ======== ========
Weighted average number of common
shares and equivalents outstanding...... 29,707 22,413 7,950 60,070
======= ======== ===== ========
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
66
<PAGE>
TOTAL RENAL CARE HOLDINGS, INC. AND SUBSIDIARIES
RENAL TREATMENT CENTERS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED MAY 31, 1995
<TABLE>
<CAPTION>
PRO
TRCH YEAR ENDED RTC YEAR ENDED MERGER FORMA
MAY 31, 1995 DECEMBER 31, 1994 ADJUSTMENTS COMBINED
--------------- ----------------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net operating revenues.. $98,968 $115,457 -- $214,425
Total operating
expenses............... 81,809 100,442 -- 182,251
------- -------- ------ --------
Operating income........ 17,159 15,015 -- 32,174
Interest expense, net... 7,203 648 -- 7,851
------- -------- ------ --------
Income before income
taxes, minority
interests and
extraordinary item..... 9,956 14,367 -- 24,323
Income taxes............ 3,511 4,316 -- 7,827
------- -------- ------ --------
Income before minority
interests and
extraordinary item..... 6,445 10,051 -- 16,496
Minority interests in
income of consolidated
subsidiaries........... 1,593 -- -- 1,593
------- -------- ------ --------
Income before
extraordinary item..... $ 4,852 $ 10,051 -- $ 14,903
======= ======== ====== ========
Earnings per common
share before
extraordinary item..... -- (5) -- (5)
======= ========
Weighted average number
of common shares and
equivalents
outstanding............ -- (5) -- (5)
======= ========
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
67
<PAGE>
TOTAL RENAL CARE HOLDINGS, INC. AND SUBSIDIARIES
RENAL TREATMENT CENTERS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED MAY 31, 1994
<TABLE>
<CAPTION>
TRCH
YEAR RTC
ENDED YEAR ENDED PRO
MAY 31, DECEMBER 31, MERGER FORMA
1994 1993 ADJUSTMENTS COMBINED
------- ------------ ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net operating revenues............... $80,470 $73,043 -- $153,513
Total operating expenses............. 69,587 63,624 -- 133,211
------- ------- ------ --------
Operating income..................... 10,883 9,419 -- 20,302
Interest expense, net................ 13 1,536 -- 1,549
------- ------- ------ --------
Income before income taxes, minority
interests and extraordinary item.... 10,870 7,883 -- 18,753
Income taxes......................... 4,106 2,102 -- 6,208
------- ------- ------ --------
Income before minority interests and
extraordinary item.................. 6,764 5,781 -- 12,545
Minority interests in income of
consolidated subsidiaries........... 1,046 -- -- 1,046
------- ------- ------ --------
Income before extraordinary item..... $ 5,718 $ 5,781 -- $ 11,499
======= ======= ====== ========
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
68
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
1. Amortization of covenants not-to-compete of $1,155,000 for the year ended
December 31, 1996 and $866,000 for each of the nine month periods ended
September 30, 1997 and 1996 is included in the pro forma condensed combined
statements of income. The related reduction in tax expense for this
amortization was $462,000 for the year ended December 31, 1996 and $346,000
for each of the nine month periods ended September 30, 1997 and 1996.
2. Merger-related expenses anticipated to be recorded are not included in the
pro forma condensed combined statements of income for any period presented.
Merger-related expenses expected to be recorded by the Company are
summarized in the following table (in thousands):
<TABLE>
<S> <C>
Severance and management payments................................. $13,080
Other expenses.................................................... 33,902
-------
Total expenses.................................................. 46,982
Tax benefit....................................................... (7,268)
-------
Net expenses.................................................... $39,714
=======
</TABLE>
3. Estimated costs associated with the closing of duplicative RTC facilities,
write-off of duplicative systems assets, system conversion costs, and
buyout of TRCH laboratory management contract expected to be recorded are
not included in the pro forma condensed combined statements of income for
any period presented. These costs expected to be recorded total
$14,446,000, net of tax benefit.
4. In December 1995, TRCH recorded an extraordinary loss of $2,555,000, net of
tax, on the early extinguishment of debt. In July and September 1996, TRCH
recorded a combined extraordinary loss of $7,700,000, net of tax, on the
early retirement of the remaining outstanding senior subordinated discount
notes.
5. Earnings per common share before extraordinary item and the weighted
average number of common shares and equivalents outstanding is not
presented as the Recapitalization occurred during this period.
69
<PAGE>
PROPOSED TRCH SHARE ISSUANCE
At the TRCH Special Meeting, TRCH stockholders will be asked to consider and
vote upon a proposal to approve the Share Issuance, which will permit the
issuance pursuant to the Merger Agreement of shares of TRCH Common Stock. The
Merger Agreement provides for the conversion of each share of RTC Common Stock
into the right to receive 1.335 shares of TRCH Common Stock. Cash will be paid
in lieu of any fractional shares of TRCH Common Stock. As of the Record Date,
25,080,287 shares of RTC Common Stock were outstanding. Based upon such number
of outstanding shares of RTC Common Stock and currently exercisable stock
options to purchase shares of RTC Common Stock, 35,224,112 shares of TRCH
Common Stock have been registered for issuance to the stockholders of RTC upon
consummation of the Merger. A total of 2,426,951 shares of RTC Common Stock
were available for purchase upon the exercise of stock options. Assuming none
of these options are exercised prior to the Merger, they will be converted
into options to purchase an aggregate of 3,239,979 shares of TRCH Common
Stock.
REASON FOR AUTHORIZATION
The rules of the NYSE require stockholder approval if the number of shares
of TRCH Common Stock to be issued in any transaction (such as the Merger) or
series of related transactions, other than a public offering for cash, would
equal or exceed 20.0% of the number of shares of TRCH Common Stock outstanding
immediately prior to such issuance.
VOTE REQUIRED
The rules of the NYSE require the affirmative vote of a majority of the
votes cast in person or by proxy at the TRCH Special Meeting to approve the
Share Issuance; provided that the total number of votes cast on the Share
Issuance represents more than 50% of the outstanding shares of TRCH Common
Stock entitled to vote thereon at the TRCH Special Meeting. The TRCH Board has
unanimously determined that the Merger and the Share Issuance are in the best
interests of TRCH and the stockholders of TRCH and has approved the Merger
Agreement and the Share Issuance. THE TRCH BOARD UNANIMOUSLY RECOMMENDS THAT
THE TRCH STOCKHOLDERS VOTE "FOR" THE APPROVAL OF THE SHARE ISSUANCE.
PROPOSED TRCH CHARTER AMENDMENT
The TRCH Board has approved and adopted, subject to stockholder approval,
the Charter Amendment which provides for the amendment to TRCH's Amended and
Restated Certificate of Incorporation to increase the authorized number of
shares of TRCH Common Stock from 55,000,000 to 195,000,000 shares.
REASONS FOR AMENDMENT
At the close of business on the TRCH Record Date, there were 44,678,625
shares of TRCH Common Stock outstanding and entitled to vote. If the Charter
Amendment and the 1997 Plan Amendment are approved and the Merger is
consummated, it is expected that there will be approximately 78,160,808 shares
of TRCH Common Stock outstanding (assuming no options with respect to RTC
Common Stock or TRCH Common Stock are exercised after the relevant record
date). Based on such assumptions, following the Merger, TRCH would have
available for future issuance approximately 116,839,192 authorized shares of
TRCH Common Stock. Of such authorized but unissued shares, 15,280,205 shares
of TRCH Common Stock (as of the close of business on the TRCH Record Date)
would be reserved for issuance under TRCH's employee equity compensation plans
(including in connection with the exercise of outstanding options and
substitute options issued to RTC employees upon consummation of the Merger).
Such authorized but unissued shares would be available for issuance without
further action by stockholders except as required by law or applicable stock
exchange requirements.
TRCH does not currently have available a sufficient number of authorized but
unissued shares of TRCH Common Stock to effect the issuance of such shares to
the stockholders of RTC pursuant to the Merger
70
<PAGE>
Agreement. Additionally, the TRCH Board believes it is desirable to authorize
additional shares of TRCH Common Stock so that there will be sufficient shares
available for issuance after the Merger for purposes that the TRCH Board may
hereafter determine to be in the best interests of TRCH and its stockholders.
Such purposes could include the offer of shares for cash, acquisitions,
employee benefit programs and other general corporate purposes. In many
situations, prompt action may be required which would not permit seeking
stockholder approval to authorize additional shares for a specific transaction
on a timely basis. The TRCH Board believes it is important that the Board have
the flexibility to act promptly in the best interests of stockholders. The
terms of any future issuance of shares of TRCH Common Stock will depend
largely on market and financial conditions and other factors existing at the
time of issuance. Other than opportunistic acquisitions of dialysis
facilities, TRCH does not have any immediate plans, agreements, arrangements,
commitments or understandings with respect to the issuance of any of the
additional shares of TRCH Common Stock that would be authorized by the Charter
Amendment.
PRINCIPAL EFFECTS
The additional shares of TRCH Common Stock to be authorized by the Charter
Amendment would have rights identical to those of the currently outstanding
TRCH Common Stock. Adoption of the Charter Amendment would not affect the
rights of the holders of currently outstanding TRCH Common Stock, except for
effects incidental to increasing the number of shares of TRCH Common Stock
outstanding upon the issuance of newly authorized shares of TRCH Common Stock.
If the Charter Amendment is approved by the TRCH stockholders, it will become
effective upon the filing of a Certificate of Amendment to TRCH's Amended and
Restated Certificate of Incorporation with the Secretary of State of the State
of Delaware, which is expected to be filed promptly after the TRCH Special
Meeting and, in any event, prior to the consummation of the Merger.
VOTE REQUIRED
Approval of the Charter Amendment requires the affirmative vote of a
majority of the shares of TRCH Common Stock outstanding as of the TRCH Record
Date. Approval of the Charter Amendment is not conditioned on approval of the
Share Issuance. The TRCH Board has unanimously determined that the Charter
Amendment is advisable and in the best interests of TRCH and the stockholders
of TRCH. THE TRCH BOARD UNANIMOUSLY RECOMMENDS THAT TRCH STOCKHOLDERS VOTE
"FOR" APPROVAL OF THE CHARTER AMENDMENT.
PROPOSED AMENDMENT TO 1997 EQUITY COMPENSATION PLAN
The 1997 Plan provides for the granting of stock options to purchase shares
of TRCH Common Stock ("Options"), and the issuance of shares of TRCH Common
Stock subject to contractual restrictions ("Restricted Stock") to participants
in the 1997 Plan ("Participants"). The purpose of the 1997 Plan is to promote
the interests of TRCH and its stockholders by enabling TRCH to offer
Participants an opportunity to acquire an equity interest in TRCH so as to
better attract, retain and reward employees, directors, and other persons
providing services to TRCH, and accordingly, to strengthen the mutuality of
interests between Participants and TRCH's stockholders by providing
Participants with a proprietary interest in pursuing TRCH's long-term growth
and financial success. If approved by TRCH stockholders, the 1997 Plan
Amendment would increase by 3,000,000 the number of shares of TRCH Common
Stock authorized for issuance under the 1997 Plan.
The Existing Plan was approved by the TRCH stockholders on July 1, 1997. At
the recommendation of the TRCH Compensation Committee (the "Compensation
Committee"), the 1997 Plan Amendment was approved by the TRCH Board on January
21, 1998. TRCH believes that it is necessary to adopt the 1997 Plan Amendment
at this time in order to provide an adequate pool for the grant of stock-based
incentive awards in the future. If the Merger is consummated, more shares will
be needed to make grants in the ordinary course of business and thus
accomplish TRCH's goals of attracting, motivating and retaining qualified
executives who can maximize long-term stockholder returns in the rapidly-
changing healthcare industry.
71
<PAGE>
The primary features of the 1997 Plan, as amended, are summarized below.
This summary is qualified in its entirety by reference to, and subject to, the
terms of the Amended and Restated 1997 Plan, a copy of which is attached
hereto as Annex D to this Joint Proxy Statement/Prospectus.
SHARES AVAILABLE UNDER THE AMENDED AND RESTATED 1997 PLAN
Upon approval of the 1997 Plan Amendment by TRCH's stockholders, there will
be an aggregate of 6,759,440 shares of TRCH Common Stock available for
issuance pursuant to incentive awards under the 1997 Plan. Such shares may be
either authorized but unissued shares or previously issued shares reacquired
by TRCH, including shares purchased on the open market. The 3,000,000
additional shares authorized for issuance pursuant to the 1997 Plan Amendment
constitute approximately 3.8% of the total number of shares of TRCH Common
Stock outstanding, assuming the Merger is consummated. The closing price per
share of TRCH Common Stock on January 22, 1998 was $24.88.
Subject to adjustments to reflect certain corporate events as described
below, the maximum number of shares of TRCH Common Stock in respect of which
awards of Options or Restricted Stock ("Awards") may be granted under the 1997
Plan (as amended) is equal to the sum of (i) 7,166,667 shares plus (ii) up to
833,333 "Spill-Over Shares" from the TRCH 1995 Compensation Plan (the "1995
Plan") as described below. TRCH intends to utilize the 1997 Plan in lieu of
the 1995 Plan in the future. To ensure that the shares previously authorized
and approved for issuance under the 1995 Plan are available for use by TRCH,
the number of shares authorized for issuance under the 1997 Plan includes up
to 833,333 "Spill-Over Shares" from the 1995 Plan. "Spill-Over Shares" are
defined as (i) 66,526 shares of TRCH Common Stock which remained available for
issuance under the 1995 Plan on the date the 1997 Plan was approved by TRCH's
stockholders, and (ii) shares of TRCH Common Stock which would otherwise
become available for issuance under the 1995 Plan due to the expiration or
termination of options which were granted under the 1995 Plan prior to
stockholder approval of the 1997 Plan. An aggregate of 1,666,666 shares of
TRCH Common Stock have been authorized for issuance under the 1995 Plan.
As of the Record Date, options to purchase an aggregate of 407,227 shares of
TRCH Common Stock had been granted under the 1997 Plan. No awards of
restricted stock have been granted under the 1997 Plan. If an Option granted
under the 1997 Plan expires or terminates without having been exercised in
full, the shares of TRCH Common Stock remaining unissued under such Option
will again become available for issuance under the 1997 Plan. Similarly, if
shares of Restricted Stock issued under the 1997 Plan are forfeited by the
Participant or repurchased by TRCH, such shares will again become available
for issuance under the 1997 Plan. The shares of TRCH Common Stock to be issued
under the 1997 Plan are issued directly by TRCH from its authorized but
unissued shares of TRCH Common Stock.
ELIGIBILITY AND PARTICIPATION
All employees, directors, and other persons providing bona fide services
(other than persons only providing services in connection with the offering or
sale of securities in a capital raising transaction) to TRCH or any subsidiary
of TRCH are eligible to receive Awards under the 1997 Plan. Subject to
adjustments described below, the maximum number of shares of TRCH Common Stock
which may be issuable pursuant to Awards granted to any Participant during any
calendar year may not exceed 833,333 shares. The number of persons who will be
eligible to participate in the 1997 Plan has not been determined at this time.
In addition, no determination has been made at this time as to the individuals
who are to receive Awards, the Awards that will be granted to any individual
or group of individuals, nor the amounts to be payable with respect to Awards.
ADMINISTRATION OF THE 1997 PLAN
The 1997 Plan is administered by the TRCH Board or by a committee consisting
of two or more members of the TRCH Board appointed by the TRCH Board (the
entity administering the 1997 Plan at any time, whether the full TRCH Board or
a committee thereof, is referred to below as the "Committee"). The Committee
has the
72
<PAGE>
authority to interpret the 1997 Plan and to adopt rules and procedures
relating to the administration of the 1997 Plan. Currently, the 1997 Plan is
administered by the TRCH Board.
OPTIONS
Options granted under the 1997 Plan may be either Incentive Stock Options
("ISO's") or Nonqualified Stock Options ("NQSO's"). The terms and conditions
of each Option will be determined by the Committee and set forth in a written
agreement between the individual and TRCH. The terms of each Option shall set
forth, in addition to such other terms and conditions as may be established by
the Committee, (i) the per share exercise price of such Option (which will
generally be, but is not required to be, the closing price of a share of TRCH
Common Stock as reported on the NYSE on the date of grant or, for options
granted prior to the close of trading, on the day prior to the date of grant);
(ii) the termination date of such Option, which shall not be later than ten
years after the date of grant and (iii) the effect on such Option of the
termination of the Participant's employment. Options are not transferable
during the individual's lifetime, and may be transferred in the event of death
only by will or the laws of descent and distribution.
Although the Committee has broad discretion in determining the terms and
conditions of Options, to the extent an Option is intended to qualify as an
ISO, such Option is required to have terms and conditions consistent with the
requirements for such treatment under the Code. As currently in effect, ISO's
are subject to the following special restrictions under the Code: (i) ISO's
may only be granted to employees of TRCH or any subsidiary; (ii) the exercise
price for an ISO must be at least equal to 100% (110%, in the case of
stockholders holding more than 10% of the total combined voting power of all
classes of stock of TRCH or of a subsidiary of TRCH) of the fair market value
of the TRCH Common Stock, determined on the date of the grant; (iii) the
aggregate fair market value of the shares of TRCH Common Stock issuable upon
exercise of all ISO's (determined at the time the ISO is granted) held by a
Participant that become exercisable (for the first time) during a calendar
year cannot exceed $100,000 and (iv) ISO's must terminate no later than the
first to occur of (A) ten years (five years for stockholders holding more than
10% of the total combined voting power of all classes of stock of TRCH or of a
subsidiary) from the date of grant and (B) three months following the
termination of the Participant's employment, unless such termination is the
result of the Participant's death or disability or if the Participant dies
during the three month period following such termination, in which case other
rules apply.
RESTRICTED STOCK
The Committee may issue grants of Restricted Stock to Participants under the
1997 Plan upon such terms and conditions, and subject to such restrictions, as
it may deem appropriate. There is no requirement that the Participant pay fair
market value for shares of Restricted Stock, but the Participant will be
required to pay at least the minimum consideration required by law, if any.
Generally, the shares of TRCH Common Stock issued pursuant to a Restricted
Stock grant will be subject to certain restrictions on transfer and certain
repurchase rights for the benefit of TRCH. Such restrictions will lapse upon
the satisfaction of the vesting requirements specified in the grant.
Participants holding Restricted Stock will generally be able to vote the
shares of TRCH Common Stock and receive any dividends paid with respect
thereto even prior to the date on which the restrictions imposed on such
shares may lapse.
MODIFICATION OF AWARDS
The Committee has the authority to modify any outstanding Award as it deems
appropriate, including, without limitation, the authority to modify the
exercise price of any Option, accelerate the right to exercise any Option and
modify any restrictions with respect to any Restricted Stock award; provided,
however, that the Committee may not modify any Award in a manner adverse to
the Participant holding such Award without such Participant's consent.
73
<PAGE>
ADJUSTMENTS
In addition, in connection with certain types of corporate events (such as
stock splits, stock dividends, recapitalizations, reorganizations, mergers,
consolidations and spinoffs), the Committee may make appropriate and equitable
adjustments to (i) the aggregate number and kind of shares for which Awards
can be granted under the 1997 Plan; (ii) the number and kind of shares covered
by outstanding Awards and (iii) the per share exercise price of outstanding
Options and the per share repurchase price of outstanding Restricted Stock. In
connection with any merger or consolidation of TRCH with or into another
entity in which TRCH is not the surviving corporation or as a result of which
the TRCH Common Stock ceases or will cease to be publicly traded, the
Committee may, but shall not be required to, authorize the termination of all
outstanding Options upon the consummation of such merger or consolidation,
provided that, as a condition to such termination, all restrictions on the
exercisability of such Options (i.e., vesting provisions) shall be eliminated
and the holder thereof shall be given at least 20 days prior to such
termination to exercise such Options without any regard to any such
restrictions.
TAX MATTERS
TRCH is authorized to withhold such amounts from the compensation of the
Participants as may be necessary to satisfy the tax withholding obligations
arising as a result of the operation of the 1997 Plan. Any award which is
intended to constitute "qualified performance-based compensation" as such term
is defined in the regulations promulgated under Section 162(m) of the Code, is
required to be granted in such manner and made subject to such terms and
conditions as may be required for such Option to so qualify.
COMPLIANCE WITH SECURITIES LAWS
TRCH is not obligated to issue any TRCH Common Stock under the 1997 Plan if
it determines that the issuance would violate applicable state or federal
securities laws. TRCH has filed a registration statement on Form S-8 to
register the issuance of shares under the 1997 Plan, and intends to file an
additional Form S-8 with respect to the additional shares available for
issuance as a result of the 1997 Plan Amendment, if approved.
TERMINATION OR AMENDMENT OF THE 1997 PLAN
The 1997 Plan may be terminated by the TRCH Board at any time. Unless
earlier terminated by the TRCH Board, the 1997 Plan will terminate as of the
close of business on the day prior to the tenth anniversary of the effective
date of the 1997 Plan. No Options may be granted under the 1997 Plan after the
date on which the 1997 Plan terminates. No termination of the 1997 Plan shall
adversely affect the rights of any Participant with respect to any Award
outstanding as of the time of such termination. The TRCH Board may at any time
amend the 1997 Plan; provided, however, that no such amendment may adversely
affect the rights of any Participant with respect to any outstanding Award
without such Participant's consent.
FEDERAL INCOME TAX CONSEQUENCES OF THE 1997 PLAN
The following general discussion of the principal federal income tax
consequences of participation in the 1997 Plan is based upon the statutes and
regulations existing as of December 19, 1997, which are subject to
modification at any time. In addition, participating in the 1997 Plan may have
foreign, state and local tax consequences. Participants should consult with
their own tax advisors with respect to the tax consequences of participating
in the 1997 Plan.
Incentive Stock Options. No taxable income will be recognized by the
Participant upon the grant or the exercise of an ISO under the 1997 Plan, and
TRCH is not entitled to an income tax deduction as the result of the grant or
exercise of an ISO. Any gain or loss resulting from the subsequent sale of
shares of TRCH Common Stock acquired upon exercise of an ISO will be long-term
capital gain or loss if the sale is made after the later of (i) two years from
the date of grant of the ISO or (ii) one year from the date of exercise of the
ISO. If the
74
<PAGE>
Participant sells TRCH Common Stock acquired upon exercise of any ISO prior to
the expiration of such periods (a "Disqualifying Disposition"), the
Participant will generally recognize ordinary income in the year of the sale
in an amount equal to the difference between the exercise price of the ISO and
the fair market value of the shares of TRCH Common Stock on the date of
exercise (if, however, such sale is a transaction in which a loss, if
sustained, would have been recognized by the Participant, the amount of
ordinary income recognized by the Participant will not exceed the excess, if
any, of the amount realized on the sale over the exercise price). TRCH will be
entitled to an income tax deduction equal to the amount taxable to the
Participant. Any excess gain recognized by the Participant upon the
Disqualifying Disposition will be taxable as long-term capital gain if the
shares of TRCH Common Stock have been held for more than one year after the
date of exercise or short-term capital gain if the shares of TRCH Common Stock
have been held for less than one year after the date of exercise. The amount
by which the fair market value (determined on the date of exercise) of the
shares of TRCH Common Stock purchased upon exercise of an ISO exceeds the
exercise price constitutes an item of tax preference that may be subject to
alternative minimum tax in the year that the ISO is exercised, depending on
the facts and circumstances involved.
Nonqualified Stock Options. As with an ISO, no taxable income will be
recognized by the Participant upon the grant of an NQSO under the 1997 Plan,
and TRCH is not entitled to an income tax deduction as the result of the grant
of an NQSO. Unlike an ISO, however, upon the exercise of an NQSO, the
Participant generally will recognize ordinary income, and TRCH will be
entitled to an income tax deduction, in the amount by which the fair market
value of the shares of TRCH Common Stock purchased upon such exercise
(determined as of the date of exercise) exceeds the exercise price. Such
income constitutes "wages" with respect to which TRCH is required to deduct
and withhold federal and state income tax and pay other compensation-based
taxes and withholding. Upon the sale of shares of TRCH Common Stock acquired
upon the exercise of an NQSO, the Participant will recognize capital gain or
loss in an amount equal to the difference between the proceeds received upon
disposition and the fair market value of the shares on the date of exercise.
If the shares have been held for more than one year at the time of the
disposition, the capital gain or loss will be long-term, otherwise the capital
gain will be short-term.
Restricted Stock. Generally, due to the conditions and restrictions placed
on Restricted Stock, such Restricted Stock will be deemed to be subject to "a
substantial risk of forfeiture" as such phrase is used in Section 83 of the
Code (e.g., TRCH will have the right to repurchase such shares at cost prior
to the date such shares vest). Consequently, under Section 83 of the Code, a
Participant receiving Restricted Stock will not recognize taxable income upon
issuance of the Restricted Stock but will recognize ordinary income in the
amount of the fair market value of the Restricted Stock at such time as such
Restricted Stock is no longer subject to a substantial risk of forfeiture.
TRCH will be entitled to an income tax deduction in the amount taxable to the
Participant. If shares of Restricted Stock are sold after they cease to be
subject to a substantial risk of forfeiture, the Participant will recognize
long-term or short-term capital gain or loss (using a holding period which
generally begins when the risk of forfeiture lapses) which will generally
equal the difference between the sale price and the fair market value of the
shares on the date the risk of forfeiture lapsed. A Participant may, however,
elect, under Section 83(b) of the Code (a "Section 83(b) Election"), within 30
days of the grant of the Restricted Stock, to recognize taxable ordinary
income on the date of grant equal to the excess of the fair market value of
the shares of Restricted Stock (determined without regard to the restrictions)
over the purchase price of such shares. TRCH will be entitled to an income tax
deduction in the amount taxable to the Participant. If the shares of
Restricted Stock are subsequently forfeited, the Participant will not be
entitled to a deduction, refund, or loss for the amount previously included in
income by reason of the Section 83(b) Election. Also, if the Participant makes
a Section 83(b) Election, the Participant's holding period commences on, and
the tax basis will be equal to the fair market value of shares on, the date of
grant.
Acceleration of Stock Options Upon a Transfer of Control. If, upon a
reorganization, merger, sale or other transaction resulting in a change in
control of TRCH or of a substantial portion of its assets, the exercisability
of stock options held by certain employees (generally officers, stockholders
and highly compensated employees of TRCH) is accelerated (or payments are made
to cancel unexercisable options of such employees), such acceleration or
payment will be determined to be a "parachute payment" for federal income tax
purposes. If the
75
<PAGE>
present value of all of the Participant's parachute payments exceeds three
times the Participant's average compensation for the past five years, the
Participant will be subject to a 20% excise tax on the amount of such
parachute payment which is in excess of the greater of such average
compensation of the Participant or an amount which the Participant establishes
as reasonable compensation. In addition, TRCH will not be allowed a deduction
for such excess parachute payment.
Capital Gains and Ordinary Income Tax. Long-term capital gains are currently
taxed at a maximum federal rate of 20%, mid-term capital gains are currently
taxed at a maximum federal rate of 28% and short-term capital gains and
ordinary income are taxed at marginal federal rates of up to 39.6%.
Section 162(m) Limitation. If the compensation attributable to Options or
Restricted Stock awards granted under the 1997 Plan to persons subject to
Section 162(m) of the Code is not "qualified performance-based compensation"
as defined in the regulations promulgated under Section 162(m) of the Code,
TRCH may not be permitted to deduct such compensation to the extent the
individual's aggregate compensation exceeds $1,000,000 in any year. To
constitute "qualified performance-based compensation," a number of
requirements must be met, some of which are subject to interpretation. There
can be no assurance that all compensation attributable to Awards under the
1997 Plan will constitute "qualified performance-based compensation" under
Section 162(m).
NEW 1997 PLAN BENEFITS
It is not possible to determine at this time the awards that will be granted
in connection with the additional shares of TRCH Common Stock reserved for
issuance under the 1997 Plan. For informational purposes, the table below sets
forth the number of Options awarded under the 1997 Plan during fiscal year
1997 to TRCH's most senior executive officers, all current executive officers
as a group (the "Executive Group"), all current TRCH directors who are not
executive officers as a group (the "Non-Executive Director Group") and all
TRCH employees, including all current officers who are not executive officers,
as a group (the "Employee Group").
<TABLE>
<CAPTION>
SHARES
UNDERLYING
NAME AND POSITION OPTION AWARDS
----------------- -------------
<S> <C>
Victor M.G. Chaltiel.......................................... --
Chairman, Chief Executive Officer and President
Leonard W. Frie............................................... --
Executive Vice President and Chief Operating Officer
Barry C. Cosgrove............................................. --
Vice President, General Counsel and Secretary
John E. King.................................................. --
Vice President, Finance and Chief Financial Officer
Executive Group............................................... --
Non-Executive Director Group.................................. 22,500
Employee Group................................................ 301,672
</TABLE>
REASON FOR AUTHORIZATION
The proposed 1997 Plan Amendment is being submitted for stockholder approval
pursuant to Section 162(m) of the Code and the rules of the NYSE.
VOTE REQUIRED
The rules of the NYSE require the affirmative vote of a majority of the
votes cast, in person or by proxy, at the TRCH Special Meeting to approve the
1997 Plan Amendment, provided that the total numbers of votes cast on the
proposal to approve the 1997 Plan Amendment represents more than 50% of the
outstanding shares of TRCH Common Stock entitled to vote thereon at the TRCH
Special Meeting. Approval of the 1997 Plan
76
<PAGE>
Amendment is not conditioned on approval of the Share Issuance or the Charter
Amendment. If the stockholders do not approve the 1997 Plan Amendment, the
TRCH Board will consider whether to adopt some alternative arrangement based
on its assessment of TRCH's needs. THE TRCH BOARD HAS DETERMINED THAT THE 1997
PLAN AMENDMENT IS IN THE BEST INTERESTS OF TRCH AND THE STOCKHOLDERS OF TRCH
AND HAS APPROVED UNANIMOUSLY THE 1997 PLAN AMENDMENT. THE TRCH BOARD
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE APPROVAL OF THE 1997
PLAN AMENDMENT.
LEGAL MATTERS
The validity of the issuance of the shares of TRCH Common Stock being
offered hereby will be passed upon for TRCH by Barry C. Cosgrove, General
Counsel, Total Renal Care Holdings, Inc. Mr. Cosgrove holds stock and options
to purchase stock granted under TRCH's employee stock plans which in the
aggregate represent less than 1% of the TRCH Common Stock.
EXPERTS
The consolidated financial statements incorporated in this Joint Proxy
Statement/Prospectus by reference to the TRCH Annual Report on Form 10-K for
the years ended December 31, 1996 and May 31, 1995 and the seven month period
ended December 31, 1995 have been so incorporated in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting. The financial statements of
Dialysis Care of North Carolina for the year ended December 31, 1996; the
financial statements of the Renal Dialysis Business of The Rogosin Institute,
Inc. for the year ended December 31, 1996; the financial statements of New
West Dialysis Clinics, Inc. for the year ended December 31, 1996; the combined
financial statements of Southfield Dialysis Facility, P.C., North Oakland
Dialysis Facility, P.C., Macomb Kidney Center, P.C. and Novi Kidney Center,
P.C. for the year ended December 31, 1996; the financial statements of the
Nephrology Services Business of Caremark International Inc. for the years
ended December 31, 1995 and 1994 and for the one month ended December 31,
1993, incorporated in this Joint Proxy Statement/Prospectus by reference to
TRCH's Form 8-K dated December 19, 1997, have been so incorporated in reliance
on the reports of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The consolidated statements of income, stockholders' equity and cash flows
of Total Renal Care Holdings, Inc. and subsidiaries for the year ended May 31,
1994 and the related financial statement schedule have been incorporated by
reference herein and in the Registration Statement in reliance on the reports
of KPMG Peat Marwick LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.
The financial statements of South Brooklyn Nephrology Center, Inc. (a
Subchapter S Corporation) for the years ended December 31, 1996 and 1995 have
been incorporated in this Joint Proxy Statement/Prospectus by reference to
TRCH's Form 8-K dated January 22, 1998 in reliance on the report of Maier
Markey & Menashi LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The consolidated balance sheets of RTC and its subsidiaries as of December
31, 1996 and 1995 and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996 incorporated by reference in this Joint Proxy
Statement/Prospectus have been incorporated by reference herein in reliance on
the report, which includes references to information audited by other
auditors, of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing, which report is
also incorporated by reference herein.
77
<PAGE>
RTC acquired Wichita Dialysis Group and Healthcare Corporation and
Affiliates in business combinations which have both been accounted for using
the pooling of interests method of accounting. The financial statements of
Wichita Dialysis Group and Healthcare Corporation and Affiliates for the year
ended December 31, 1994 were audited by Baird, Kurtz & Dobson and Deloitte &
Touche LLP, respectively, as stated in their reports incorporated by reference
herein, and have been so incorporated in reliance upon the reports of such
firms given upon their authority as experts in accounting and auditing. Baird,
Kurtz & Dobson and Deloitte & Touche LLP are independent auditors. The report
of Coopers & Lybrand, insofar as it relates to the amounts included for
Wichita Dialysis Group and Healthcare Corporation and Affiliates for the year
ended December 31, 1994, is based solely on the reports of Baird, Kurtz &
Dobson and Deloitte & Touche LLP, respectively.
RTC acquired Satellite Affiliated Companies in a business combination that
has been accounted for using the purchase method of accounting. The combined
balance sheets of Satellite Affiliated Companies as of December 31, 1996 and
1995 and the related combined statements of income, changes in owners' equity
and cash flows for the years then ended incorporated by reference in this
Prospectus have been incorporated by reference herein in reliance on the
report of Frank, Rimerman & Co., LLP, independent accountants, given on the
authority of that firm as experts in accounting and auditing, which report is
also incorporated by reference herein.
FUTURE STOCKHOLDER PROPOSALS
Any TRCH stockholder who intends to submit a proposal for inclusion in the
proxy materials for the 1998 annual meeting of TRCH must submit such proposal
to the Secretary of TRCH by January 26, 1998.
RTC expects to hold an annual meeting of stockholders in the second quarter
of 1998 unless the Merger is completed prior thereto. Rules of the Commission
set forth standards as to what stockholder proposals are required to be
included in a proxy statement. Any RTC stockholder who intends to submit a
proposal for inclusion in the proxy materials for the 1998 annual meeting of
RTC must have submitted such proposal to the Secretary of RTC by December 1,
1997.
78
<PAGE>
ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Execution Copy
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
TOTAL RENAL CARE HOLDINGS, INC.,
NEVADA ACQUISITION CORP.
AND
RENAL TREATMENT CENTERS, INC.
DATED AS OF NOVEMBER 18, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION I--THE MERGER...................................................... A-5
1.1 The Merger......................................................... A-5
1.2 Filing............................................................. A-5
1.3 Effective Date of the Merger....................................... A-5
1.4 Certificate of Incorporation and Bylaws............................ A-5
1.5 Directors and Officers............................................. A-5
SECTION II--CONVERSION OF AND SURRENDER AND PAYMENT FOR RTC COMMON STOCK... A-6
2.1 Conversion......................................................... A-6
2.2 Closing of Transfer Books.......................................... A-6
2.3 Surrender of Certificates.......................................... A-6
2.4 Exchange Agent..................................................... A-7
SECTION III--CERTAIN EFFECTS OF THE MERGER................................. A-8
3.1 Effect of the Merger............................................... A-8
3.2 Further Assurances................................................. A-8
SECTION IV--REPRESENTATIONS AND WARRANTIES OF TRCH AND NEWCO............... A-8
4.1 Corporate Organization............................................. A-8
4.2 TRCH Subsidiaries.................................................. A-9
4.3 Capital Stock...................................................... A-9
4.4 Options and Other Rights........................................... A-9
4.5 Authority Relative to this Agreement............................... A-9
4.6 No Violation....................................................... A-10
4.7 Governmental Authorizations........................................ A-10
4.8 No Conflicts; Compliance With Law.................................. A-10
4.9 Litigation......................................................... A-11
4.10 Financial Statements and Reports................................... A-11
4.11 Absence of Certain Changes or Events............................... A-11
4.12 Environmental Matters.............................................. A-12
4.13 Tax Matters........................................................ A-12
4.14 Labor Matters...................................................... A-13
4.15 Registration Statement; Blue Sky Filings; Joint Proxy Statement.... A-13
4.16 Stockholder Vote Required.......................................... A-13
4.17 Accounting Matters................................................. A-14
4.18 Brokers............................................................ A-14
4.19 Board Action; Opinion of Financial Advisor......................... A-14
SECTION V--REPRESENTATIONS AND WARRANTIES OF RTC........................... A-14
5.1 Corporate Organization............................................. A-14
5.2 RTC Subsidiaries................................................... A-14
5.3 Capital Stock...................................................... A-14
5.4 Options and Other Rights........................................... A-15
5.5 Authority Relative to this Agreement............................... A-15
5.6 No Violation....................................................... A-15
5.7 Governmental Authorizations........................................ A-15
5.8 No Conflicts; Compliance With Law.................................. A-16
5.9 Litigation......................................................... A-16
5.10 Financial Statements and Reports................................... A-16
5.11 Absence of Certain Changes or Events............................... A-16
</TABLE>
A-2
<PAGE>
TABLE OF CONTENTS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
5.12 Employment Agreements............................................. A-17
5.13 ERISA............................................................. A-17
5.14 Real Property..................................................... A-18
5.15 Environmental Matters............................................. A-18
5.16 Tax Matters....................................................... A-19
5.17 Labor Matters..................................................... A-19
5.18 Registration Statement; Blue Sky Filings; Joint Proxy Statement... A-19
5.19 Stockholder Vote Required......................................... A-20
5.20 Accounting Matters................................................ A-20
5.21 Brokers........................................................... A-20
5.22 Board Action; Opinion of Financial Advisor........................ A-20
SECTION VI--COVENANTS AND AGREEMENTS...................................... A-20
6.1 Joint Proxy Statement; Registration Statement; Stockholders
Meetings.......................................................... A-20
6.2 Conduct Prior to the Effective Date............................... A-21
6.3 Notification...................................................... A-22
6.4 Access to Properties and Records.................................. A-22
6.5 Negotiations...................................................... A-22
6.6 Stock Options..................................................... A-23
6.7 Indemnification................................................... A-24
6.8 Confidentiality................................................... A-25
6.9 Affiliates Agreements............................................. A-25
6.10 Pooling of Interests.............................................. A-25
6.11 Employee Benefits................................................. A-25
6.12 Requisite Consents Under TRCH Senior Credit Facilities............ A-25
6.13 Commercially Reasonable Efforts................................... A-25
6.14 Financial Statements.............................................. A-26
6.15 Cooperation Under Certain Circumstances........................... A-26
6.16 Representation on TRCH's Board of Directors....................... A-26
6.17 Tax Treatment; Tax Opinion........................................ A-26
SECTION VII--CONDITIONS PRECEDENT......................................... A-27
7.1 Conditions to Each Party's Obligation to Effect the Merger........ A-27
7.2 Conditions to the Obligation of RTC to Effect the Merger.......... A-28
7.3 Conditions to Obligation of TRCH and Newco to Effect the Merger... A-28
SECTION VIII--TERMINATION, AMENDMENT AND WAIVER........................... A-29
8.1 Termination....................................................... A-29
8.2 Effect of Termination............................................. A-30
8.3 Termination Fees.................................................. A-30
8.4 Amendment......................................................... A-31
8.5 Waiver............................................................ A-31
SECTION IX--MISCELLANEOUS................................................. A-31
9.1 Survival.......................................................... A-31
9.2 Expenses and Fees................................................. A-31
9.3 Notices........................................................... A-32
9.4 Headings.......................................................... A-33
9.5 Publicity......................................................... A-33
9.6 Entire Agreement.................................................. A-33
9.7 Assignment........................................................ A-33
</TABLE>
A-3
<PAGE>
TABLE OF CONTENTS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
9.8 Counterparts....................................................... A-33
9.9 Severability....................................................... A-33
9.10 Governing Law...................................................... A-33
</TABLE>
EXHIBITS
<TABLE>
<S> <C>
EXHIBIT--CERTIFICATE OF MERGER............................................. A-34
EXHIBIT--FORM OF PROPOSED CERTIFICATE OF AMENDMENT......................... A-35
EXHIBIT--FORM OF AFFILIATE'S AGREEMENT..................................... A-36
EXHIBIT--RTC REPRESENTATION LETTER......................................... A-39
EXHIBIT--TRCH REPRESENTATION LETTER........................................ A-42
</TABLE>
A-4
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into as of
November 18, 1997 by and among Total Renal Care Holdings, Inc., a Delaware
corporation ("TRCH"), Nevada Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of TRCH ("Newco"), and Renal Treatment Centers, Inc.,
a Delaware corporation ("RTC").
WHEREAS, the Boards of Directors of TRCH, Newco and RTC deem it advisable
and in the best interests of their respective corporations and the
stockholders of their respective corporations to merge Newco with and into RTC
(the "Merger") upon the terms and conditions set forth herein and in
accordance with the General Corporation Law of the State of Delaware (the
"General Corporation Law") (RTC and Newco being hereinafter sometimes
collectively referred to as the "Constituent Corporations" and RTC, following
the effectiveness of the Merger, being hereinafter sometimes referred to as
the "Surviving Corporation");
WHEREAS, the Boards of Directors of TRCH, Newco and RTC (and TRCH, in its
capacity as sole stockholder of Newco) have approved the Merger upon the terms
and subject to the conditions set forth herein; and
WHEREAS, for federal income tax purposes, it is intended that the Merger
will qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "IRC").
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants, agreements and conditions contained herein, and in order to set
forth the terms and conditions of the Merger and the mode of carrying the same
into effect, the parties hereby agree as follows:
SECTION I
THE MERGER
1.1 The Merger. Upon the terms and conditions hereinafter set forth and in
accordance with the General Corporation Law, at the Effective Date (as defined
in Section 1.3), Newco shall be merged with and into RTC and thereupon the
separate existence of Newco shall cease, and RTC, as the Surviving
Corporation, shall continue to exist under and be governed by the General
Corporation Law.
1.2 Filing. Upon the satisfaction (or, to the extent permitted by law, the
waiver) of the conditions set forth in Section 7, Newco and RTC will cause a
Certificate of Merger, in substantially the form of Exhibit A attached hereto
(the "Certificate of Merger"), to be executed and filed with the Secretary of
State of the State of Delaware as provided in Section 251 of the General
Corporation Law.
1.3 Effective Date of the Merger. The Merger shall become effective
immediately upon the filing of the Certificate of Merger with the Secretary of
State of the State of Delaware in accordance with Section 251 of the General
Corporation Law, or at such other time as TRCH and RTC shall agree and specify
in the Certificate of Merger. The effective time of the Merger is herein
sometimes referred to as the "Effective Date."
1.4 Certificate of Incorporation and Bylaws. Upon the effectiveness of the
Merger, the Certificate of Incorporation of RTC as in effect immediately prior
to the Effective Date shall be the certificate of incorporation of the
Surviving Corporation and the Bylaws of RTC as in effect on the date hereof
shall be the Bylaws of the Surviving Corporation.
1.5 Directors and Officers. The persons who are directors and officers of
Newco immediately prior to the Effective Date shall, after the Effective Date,
serve as the directors and officers of the Surviving Corporation until their
successors have been duly elected and qualified in accordance with the
Certificate of Incorporation and Bylaws of the Surviving Corporation.
A-5
<PAGE>
SECTION II
CONVERSION OF AND SURRENDER AND
PAYMENT FOR RTC COMMON STOCK
2.1 Conversion. At the Effective Date, by virtue of the Merger and without
any action on the part of the holders thereof:
(a) The Exchange Ratio. Each issued and outstanding share of common
stock, $.01 par value per share, of RTC ("RTC Common Stock"), other than
(i) shares of RTC Common Stock, if any, owned of record by TRCH or Newco
and (ii) shares of RTC Common Stock, if any, held in the treasury of RTC,
shall be automatically converted into, and certificates formerly
representing such shares of RTC Common Stock shall represent, the right to
receive consideration (the "Per Share Merger Consideration") consisting of
1.335 shares of common stock, $0.001 par value per share, of TRCH ("TRCH
Common Stock"). The ratio of 1.335 shares of TRCH Common Stock to one share
of RTC Common Stock (1.335:1) is hereinafter referred to as the "Exchange
Ratio" and the shares of TRCH Common Stock issuable in connection with the
Merger and cash payable in lieu of fractional shares in connection with the
Merger are generally referred to as the "Merger Consideration."
(b) Conversion of Newco Common Stock. Each issued and outstanding share
of common stock, $0.01 par value per share, of Newco ("Newco Common Stock")
shall be converted into one share of common stock, $.01 par value per
share, of the Surviving Corporation ("Surviving Corporation Common Stock").
(c) Cancellation of Certain RTC Common Stock. All shares of RTC Common
Stock which are held by RTC as treasury shares or which are owned of record
by TRCH or Newco shall be canceled and retired and cease to exist, without
any conversion thereof or payment with respect thereto.
(d) RTC's Convertible Notes. On the Effective Date, RTC's 5 5/8%
Convertible Subordinated Notes due 2006 (the "RTC Notes") issued pursuant
to that certain Indenture dated as of June 12, 1996 (the "Indenture") by
and between RTC and PNC Bank, National Association (the "Trustee") shall,
as provided in the supplemental indenture to be executed by RTC, TRCH and
the Trustee on the Effective Date as provided in Section 7.1(h) (the
"Supplemental Indenture") cease to be convertible into RTC Common Stock and
shall, from and after the Effective Date, be convertible into TRCH Common
Stock as provided in the Supplemental Indenture.
(e) Fractional Shares. No fraction of a share of TRCH Common Stock will
be issued in the Merger, but, in lieu thereof, each holder of RTC Common
Stock who would otherwise be entitled to a fraction of a share of TRCH
Common Stock (after aggregating all fractional shares of TRCH Common Stock
to be received by such holder) will be entitled to receive from TRCH an
amount of cash (rounded to the nearest whole cent) equal to the product of
(i) such fraction multiplied by (ii) the closing price of one share of TRCH
Common Stock as reported by the New York Stock Exchange (the "NYSE") for
composite transactions on the NYSE trading day immediately preceding the
Effective Date.
2.2 Closing of Transfer Books. At the Effective Date, the stock transfer
books of RTC shall be closed, and no transfer of shares of RTC Common Stock
shall thereafter be made. If, after the Effective Date, certificates
previously representing shares of RTC Common Stock are presented to the
Surviving Corporation or the Exchange Agent (as defined in Section 2.3), they
shall be canceled and exchanged for the Merger Consideration as provided in
Section 2.1(a).
2.3 Surrender of Certificates.
(a) Exchange of Certificates Representing RTC Common Stock. From and after
the Effective Date, such bank and trust company as TRCH, at least five days
prior to the mailing of the Joint Proxy Statement (as defined in Section 6.1),
shall designate and RTC shall approve (which approval shall not be
unreasonably withheld) shall act as exchange agent (the "Exchange Agent") in
effecting the exchange for TRCH Common Stock of certificates that, prior to
the Effective Date, represented shares of RTC Common Stock which were
converted into the right to receive the Merger Consideration pursuant to
Section 2.1(a). As soon as practicable after the
A-6
<PAGE>
Effective Date, the Exchange Agent shall send a notice and transmittal form to
each holder of record of RTC Common Stock immediately prior to the Effective
Date advising such holder of the effectiveness of the Merger and the procedure
for surrendering to the Exchange Agent (who may appoint forwarding agents with
the approval of TRCH) the certificate or certificates to be exchanged pursuant
to the Merger. Upon the surrender for exchange of such a certificate, together
with such letter of transmittal duly completed and properly executed in
accordance with instructions thereto and such other documents as may be
required pursuant to such instructions, the holder of such certificate shall
be paid promptly, without interest thereon, the number of shares of TRCH
Common Stock and any cash in lieu of fractional shares to which such holder is
entitled hereunder, and such certificate shall forthwith be canceled. Until so
surrendered and exchanged, each certificate which immediately prior to the
Effective Date represented outstanding shares of RTC Common Stock (other than
treasury shares and shares of RTC Common Stock owned by TRCH or Newco) shall
(i) be deemed not outstanding and (ii) shall represent solely the right to
receive the TRCH Common Stock into which the RTC Common Stock it theretofore
represented shall have been converted into the right to receive pursuant to
Section 2.1(a) and cash in lieu of fractional shares pursuant to Section
2.1(e). Until such time as a certificate representing TRCH Common Stock is
issued to, or at the direction of, the holder of a surrendered certificate,
such TRCH Common Stock shall be deemed not outstanding and shall not be
entitled to vote on any matter. No dividends or other distributions with
respect to TRCH Common Stock with a record date after the Effective Date shall
be paid to the holder of any certificate formerly representing RTC Common
Stock with respect to shares of TRCH Common Stock issuable upon surrender
thereof, and no cash payment in lieu of fractional shares shall be paid to any
such holder pursuant to Section 2.1(e) until the surrender of such certificate
in accordance with this Section 2.3(a). Subject to applicable law, following
surrender of any such certificate, there shall be paid to the holder of the
certificate representing whole shares of TRCH Common Stock issued in exchange
therefor, without interest, (i) at the time of such surrender, the amount of
any cash payable in lieu of a fractional share of TRCH Common Stock to which
such holder is entitled pursuant to Section 2.1(e) and the amount of dividends
or other distributions with a record date after the Effective Date theretofore
payable with respect to such whole shares of TRCH Common Stock, and (ii) at
the appropriate payment date, the amount of dividends or other distributions
with a record date after the Effective Date but prior to such surrender and a
payment date subsequent to such surrender payable with respect to such whole
shares of TRCH Common Stock. If the TRCH Common Stock issued with respect to
any RTC Common Stock is to be delivered to a person other than the person in
whose name the certificates for such RTC Common Stock are registered, it shall
be a condition of such delivery that the person requesting such delivery shall
pay to the Exchange Agent any transfer or other taxes required by reason of
the delivery of such certificates to a person other than the registered holder
of the certificates surrendered or shall establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not applicable.
(b) Exchange of Certificates Representing Newco Common Stock. TRCH, as the
sole stockholder of Newco, shall, upon surrender to the Surviving Corporation
of certificates formerly representing Newco Common Stock, receive a
certificate representing the number of shares of Surviving Corporation Common
Stock into which such shares of Newco Common Stock shall have been converted
pursuant to Section 2.1(b).
2.4 Exchange Agent. Prior to the Effective Date, TRCH, Newco and RTC shall
enter into an agreement (the "Exchange Agreement") with the Exchange Agent
which shall govern the exchange of certificates formerly representing RTC
Common Stock for certificates representing TRCH Common Stock as provided
herein. Prior to the filing of the Certificate of Merger, TRCH shall deposit
or cause to be deposited with the Exchange Agent, (i) such number of shares of
TRCH Common Stock as shall equal the product obtained by multiplying (A) the
number of shares of RTC Common Stock outstanding (and not owned of record by
TRCH or Newco) immediately prior to the Effective Date by (B) the Per Share
Merger Consideration and (ii) cash in an amount reasonably estimated to be
sufficient to pay cash in lieu of fractional shares as provided in Section
2.1(e). The deposit made by TRCH pursuant to the preceding sentence is
hereinafter referred to as the "Exchange Fund." The Exchange Agreement shall
provide, among other things, that (i) the Exchange Agent shall maintain the
Exchange Fund as a separate fund to be held for the benefit of the holders of
certificates formerly representing RTC Common Stock entitled thereto, which
shall be promptly applied by the Exchange Agent to make the payments provided
for in Section 2.3, (ii) any portion of the Exchange Fund that has not been
paid to holders of certificates formerly representing RTC Common Stock
pursuant to Section 2.3 prior to that date which is
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six months from the Effective Date shall be returned to the Surviving
Corporation, and any holders of certificates formerly representing RTC Common
Stock who shall not have theretofore complied with Section 2.3 shall
thereafter look only to the Surviving Corporation for payment of the Merger
Consideration to which they are entitled under this Agreement, (iii) the
Exchange Fund shall not be used for any purpose that is not provided for
herein, (iv) the Exchange Agent shall make payment of the Merger Consideration
to any holder who validly delivers certificates formerly representing at least
25,000 shares of RTC Common Stock in the Merger on or after the Effective
Date, by overnight courier, insured, on the next business day after the later
of the Effective Date or the date of such delivery of such certificates and
(v) all expenses of the Exchange Agent shall be paid directly by TRCH.
Promptly following the date which is six (6) months from the Effective Date,
the Exchange Agent shall return to the Surviving Corporation any remaining
portion of the Exchange Fund and any other instruments in its possession
relating to the transactions described in this Agreement, and the Exchange
Agent's duties shall terminate. Thereafter, each holder of a certificate
formerly representing RTC Common Stock may surrender such certificate to the
Surviving Corporation and (subject to applicable abandoned property, escheat
and similar laws) receive in exchange therefor the Merger Consideration
payable in respect thereto pursuant to Section 2.1(a), without interest, but
shall have no greater rights against the Surviving Corporation than may be
accorded to general creditors of the Surviving Corporation under the General
Corporation Law.
SECTION III
CERTAIN EFFECTS OF THE MERGER
3.1 Effect of the Merger. The Merger shall have the effects set forth in
Section 259 of the General Corporation Law.
3.2 Further Assurances. If, at any time after the Effective Date, the
Surviving Corporation shall consider or be advised that any further deeds,
assignments or assurances in law or any other acts are necessary, desirable or
proper (i) to vest, perfect or confirm, of record or otherwise, in the
Surviving Corporation, the title to any property or right of the Constituent
Corporations acquired or to be acquired by reason of, or as a result of, the
Merger, or (ii) otherwise to carry out the purposes of this Agreement, the
Surviving Corporation and its proper officers and directors shall execute and
deliver all such deeds, assignments and assurances in law and do all acts
necessary, desirable or proper to vest, perfect or confirm title to such
property or right in the Surviving Corporation and otherwise to carry out the
purposes of this Agreement, and the proper officers and directors of the
Surviving Corporation are fully authorized to take any and all such action.
SECTION IV
REPRESENTATIONS AND WARRANTIES OF TRCH AND NEWCO
Except as otherwise disclosed to RTC in a letter delivered to it prior to
the execution hereof (which letter shall contain appropriate references to
identify the representations and warranties herein to which the information in
such letter relates) (the "TRCH/Newco Disclosure Letter"), TRCH and Newco
jointly and severally represent and warrant to RTC as follows:
4.1 Corporate Organization. Each of TRCH and Newco is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware, with all requisite corporate power and authority to own, operate
and lease its properties and to carry on its business as it is now being
conducted, and is qualified or licensed to do business and is in good standing
in each jurisdiction in which the character of its properties owned or leased
or the nature of its activities makes such qualification or licensure
necessary, except to the extent any failure to be so qualified or licensed, in
the aggregate, would not have a material adverse effect on the financial
condition, results of operations, properties or business of TRCH and the TRCH
Subsidiaries (as defined in Section 4.2), taken as a whole (a "TRCH Material
Adverse Effect"). Newco has not engaged in any business nor has it incurred
any liabilities or obligations since it was incorporated other than in
connection with the transactions contemplated by this Agreement.
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4.2 TRCH Subsidiaries. The TRCH/Newco Disclosure Letter sets forth a list of
all corporations, partnerships, limited liability companies, joint ventures or
other business associations or entities, foreign or domestic, in which TRCH
owns, directly or indirectly, 50% or more of the shares of capital stock or
other equity interests (including, without limitation, partnership interests)
(each, a "TRCH Subsidiary" and, collectively, the "TRCH Subsidiaries") and
each other corporation, partnership, limited liability company, joint venture
or other business association or entity, foreign or domestic, in which TRCH
owns, directly or indirectly, 20% or more of the shares of capital stock or
other equity interests (including, without limitation, partnership interests)
indicating in each case the form of legal entity, the jurisdiction of
incorporation or formation, the outstanding equity interests and the equity
interest owned by TRCH. Each TRCH Subsidiary is duly organized, validly
existing and in good standing under the laws of the state or country of its
incorporation or formation, with all requisite power and authority to own,
operate and lease its properties and to carry on its business as it is now
being conducted, and is qualified or licensed to do business and is in good
standing in each jurisdiction in which the character of its properties owned
or leased or the nature of its activities makes such qualification or
licensure necessary, except to the extent any failure to be so qualified or
licensed, in the aggregate, would not have a TRCH Material Adverse Effect.
4.3 Capital Stock. As of the date of this Agreement, the authorized capital
stock of TRCH consists of (i) 55,000,000 shares of TRCH Common Stock, of which
44,547,994 shares are issued and outstanding and (ii) 5,000,000 shares of
preferred stock, $0.001 par value per share, none of which are issued and
outstanding. The authorized capital stock of Newco consists of 1,000 shares of
Newco Common Stock, all of which are issued and outstanding. All of the
outstanding shares of capital stock of Newco are owned beneficially and of
record by TRCH. All of the outstanding shares of capital stock of TRCH and
Newco have been validly issued and are fully paid and nonassessable. The Board
of Directors of TRCH has authorized and approved an amendment to TRCH's
Certificate of Incorporation to increase the authorized number of shares of
TRCH Common Stock to 195,000,000 shares, a copy of which is attached hereto as
Exhibit B (the "Proposed Certificate of Amendment"), has declared the
advisability of such increase and has directed that the Proposed Certificate
of Amendment be submitted to TRCH's stockholders at the TRCH Meeting (as
defined in Section 6.1). Upon the approval of the Proposed Certificate of
Amendment by the stockholders of TRCH, the filing thereof with the Secretary
of State of the State of Delaware and the effectiveness of such filing, the
shares of TRCH Common Stock to be issued in connection with the Merger will be
duly authorized and, when issued as contemplated hereby at and after the
Effective Date, will be validly issued, fully paid and nonassessable.
4.4 Options and Other Rights. Except as set forth in the TRCH/Newco
Disclosure Letter or as contemplated by this Agreement, there are no
outstanding rights, subscriptions, warrants, calls, unsatisfied preemptive
rights, options or other agreements or arrangements of any kind to purchase or
otherwise to receive from TRCH any shares of capital stock or any other
security of TRCH, and there are no outstanding securities of any kind
convertible into or exchangeable for such capital stock.
4.5 Authority Relative to this Agreement. TRCH and Newco have full corporate
power and authority to execute and deliver this Agreement and to consummate
the transactions contemplated hereby. The execution and delivery by TRCH and
Newco of this Agreement and the consummation of the transactions contemplated
on their part hereby have been duly authorized by all necessary corporate
action on the part of TRCH and Newco, subject only to the requirement to
obtain the approval of TRCH's stockholders with respect to (i) the issuance,
pursuant to this Agreement, of shares of TRCH Common Stock to the stockholders
of RTC (the "Share Issuance") and (ii) the Proposed Certificate of Amendment.
This Agreement has been duly executed and delivered by each of TRCH and Newco,
and constitutes a legal, valid and binding obligation of each of TRCH and
Newco, enforceable against each of them in accordance with its terms, except
to the extent that its enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or other laws affecting the enforcement of
creditors' rights generally or by general equitable principles, and subject to
the requirement to obtain the approval of TRCH's stockholders with respect to
(i) the Share Issuance and (ii) the Proposed Certificate of Amendment.
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4.6 No Violation. Except as set forth in the TRCH/Newco Disclosure Letter,
the execution, delivery and performance of this Agreement by TRCH and Newco
and the consummation by them of the transactions contemplated hereby, will not
(i) violate or conflict with any provision of any material law applicable to
TRCH or any TRCH Subsidiary or by which any property or asset of TRCH or any
TRCH Subsidiary is bound, (ii) require the consent, waiver, approval, license
or authorization of or any filing by TRCH or any TRCH Subsidiary with any
public authority (other than (A) the filing of a pre-merger notification
report under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations promulgated thereunder (the "HSR Act"),
(B) in connection with or in compliance with the provisions of the Securities
Exchange Act of 1934 (the "Exchange Act"), the Securities Act of 1933, as
amended (the "Securities Act"), the General Corporation Law, the "takeover" or
"blue sky" or "environmental" laws of various states or the NYSE, and (C) any
other filings and approvals expressly contemplated by this Agreement) or (iii)
violate, conflict with, result in a breach of or the acceleration of any
obligation under, constitute a default (or an event which with notice or the
lapse of time or both would become a default) under, give to others any right
of termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or other encumbrance on any property or asset of TRCH or
any TRCH Subsidiary pursuant to any provision of, any (x) charter or bylaw, or
(y) indenture, mortgage, lien, lease, agreement, contract, instrument, order,
judgment, ordinance, regulation or decree to which TRCH or any TRCH Subsidiary
is subject or by which TRCH or any TRCH Subsidiary or any of their respective
properties or assets are bound, except, in the case of (y) above, to the
extent the failure to give such notice, make such filings, or obtain such
authorizations, consents or approvals, or to the extent such violations,
conflicts, breaches or defaults, in the aggregate, would not have a TRCH
Material Adverse Effect or materially and adversely affect TRCH's and Newco's
ability to consummate the transactions contemplated hereby.
4.7 Governmental Authorizations. Except as set forth in the TRCH SEC Filings
(as defined in Section 4.10), TRCH and the TRCH Subsidiaries hold all
governmental licenses, permits and other authorizations necessary to conduct
their respective businesses (collectively, the "TRCH Permits") and are in
compliance with all requirements of all TRCH Permits, except to the extent the
failure to hold any TRCH Permit or noncompliance with any TRCH Permit, in the
aggregate, would not have a TRCH Material Adverse Effect. Without limiting the
generality of the foregoing, TRCH and the TRCH Subsidiaries are certified as
providers under all applicable Medicare and Medicaid programs to the extent
required to be so certified, except to the extent any failure to be so
certified would not have a TRCH Material Adverse Effect. The TRCH Permits are
valid and sufficient in all material respects for all business currently
carried on by TRCH and the TRCH Subsidiaries, and no suspension, cancellation
or invalidation of any TRCH Permit is pending or, to the knowledge of TRCH,
threatened which, in the aggregate, could have a TRCH Material Adverse Effect.
4.8 No Conflicts; Compliance With Law. Except as set forth in the TRCH SEC
Filings, neither TRCH nor any TRCH Subsidiary is in conflict with, or is in
default or violation of, (i) its respective charter or bylaws (or other
organizing documents), (ii) any law, rule, regulation, order, judgment,
ordinance, regulation or decree applicable to TRCH or such TRCH Subsidiary or
by which any of their respective properties or assets are bound or affected,
or (iii) any indenture, mortgage, lien, lease, agreement, instrument,
contract, note, bond, license, permit, franchise or other authorization or
obligation to which TRCH or any TRCH Subsidiary is a party or by which TRCH or
any TRCH Subsidiary or any of their properties or assets are bound or
affected, except, in the cases of clauses (ii) and (iii), to the extent such
conflicts, defaults or violations, in the aggregate, would not have a TRCH
Material Adverse Effect or materially and adversely affect TRCH's and Newco's
ability to consummate the transactions contemplated hereby. Neither TRCH nor
any TRCH Subsidiary is in conflict with, or is in default or violation of any
provision of federal or state laws or regulations relating to restrictions on
physician referrals or claims for payment under the Medicare, Medicaid or
other programs for the furnishing of health services, including, but not
limited to, the illegal remuneration provisions of the Social Security Act and
the provisions of the Omnibus Budget Reconciliation Act of 1989 and the
Omnibus Budget Reconciliation Act of 1993 restricting physician referrals,
that could, in the aggregate, reasonably be expected to have a TRCH Material
Adverse Effect.
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4.9 Litigation. Except as may be disclosed in the TRCH SEC Filings, there
are no suits, investigations, arbitrations, mediations, actions, proceedings,
unfair labor practice complaints or grievances pending or, to the knowledge of
TRCH, threatened against TRCH or any TRCH Subsidiary or with respect to any of
their respective properties or assets before any court, arbitrator,
administrator or governmental or regulatory authority or body which, in the
aggregate, are likely to have a TRCH Material Adverse Effect. Neither TRCH nor
any TRCH Subsidiary, nor any of their respective properties or assets, are
subject to any orders, judgments, injunctions or decrees which, in the
aggregate, could have a TRCH Material Adverse Effect.
4.10 Financial Statements and Reports. TRCH has heretofore delivered to RTC
true and complete copies of (i) TRCH's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 (the "TRCH 10-K") as filed with the
Securities and Exchange Commission (the "Commission"), (ii) TRCH's Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1997, June 30, 1997 and
September 30, 1997, (iii) TRCH's proxy statement relating to the annual
meeting of its stockholders held on July 1, 1997, and (iv) all other reports,
statements and registration statements (including Current Reports on Form 8-K,
but excluding any preliminary proxy material), if any, filed by TRCH with the
Commission pursuant to the Exchange Act subsequent to the filing of the TRCH
10-K. The reports, statements and registration statements referred to in the
immediately preceding sentence (including, without limitation, any financial
statements or schedules or other information incorporated by reference
therein) are referred to in this Agreement as the "TRCH SEC Filings." As of
the respective times such documents were filed or, as applicable, became
effective, the TRCH SEC Filings complied as to form and content, in all
material respects, with the requirements of the Securities Act and the
Exchange Act, as the case may be, and the rules and regulations promulgated
thereunder, except such noncompliance which, in the aggregate, would not have
a TRCH Material Adverse Effect, and, taken as a whole, the TRCH SEC Filings do
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of TRCH included in the TRCH SEC
Filings were prepared in accordance with generally accepted accounting
principles ("GAAP") (as in effect from time to time) applied on a consistent
basis and (except as may be indicated therein or in the notes thereto) present
fairly the consolidated financial position, results of operations and cash
flows of TRCH and its consolidated subsidiaries as of the dates and for the
periods indicated therein, subject, in the case of unaudited interim
consolidated financial statements, to normal recurring year-end adjustments
and any other adjustments described therein.
4.11 Absence of Certain Changes or Events. From September 30, 1997, to the
date of this Agreement, except as disclosed in the TRCH/Newco Disclosure
Letter, the business of TRCH and of each TRCH Subsidiary has been conducted in
the ordinary course, and there has not been (i) any material adverse change in
the financial condition, results of operations, properties or business of TRCH
and the TRCH Subsidiaries, taken as a whole, excluding any such change or
changes caused by a general change in the economy or in the dialysis industry
in general; (ii) any material indebtedness incurred by TRCH or any TRCH
Subsidiary for money borrowed, except material indebtedness for borrowed money
incurred under credit facilities existing as of the date hereof, or any other
material transaction entered into by TRCH or any TRCH Subsidiary, other than
in the ordinary course of business; (iii) any damage, destruction or losses,
whether covered by insurance or not, which, in the aggregate, could have a
TRCH Material Adverse Effect; (iv) any declaration, setting aside or payment
of any dividend (whether in cash, stock or property) with respect to the TRCH
Common Stock; (v) any increase in the compensation payable or to become
payable by TRCH or any TRCH Subsidiary to any employee, officer or director or
in any bonus, insurance, pension or other employee benefit plan, payment or
arrangement made to, for or with any such employee, officer or director (other
than as provided in employment agreements and welfare and benefit plans set
forth in the TRCH Disclosure Letter, and except for increases consistent with
past practice or other increases which are reasonably necessary); (vi) any
material revaluation by TRCH or any TRCH Subsidiary of any asset (including,
without limitation, any writing down of the value of inventory or writing off
of notes or accounts receivable), other than in the ordinary course of
business consistent with past practice; (vii) any entry by TRCH or any TRCH
Subsidiary into any commitment or transaction out of the ordinary course of
business which is material to TRCH and the TRCH Subsidiaries taken as a whole;
or (viii) any change by TRCH in accounting principles or methods except
insofar as may be required by a change in GAAP.
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4.12 Environmental Matters.
(a) Compliance with Environmental Laws. TRCH, the TRCH Subsidiaries and each
of the real properties owned or leased by TRCH or any of the TRCH Subsidiaries
(each, a "TRCH Real Property" and, collectively, the "TRCH Real Properties")
are in compliance with all applicable Environmental Laws (as defined below),
except to the extent the failure to be in such compliance could not reasonably
be expected to have a TRCH Material Adverse Effect. None of TRCH, any of the
TRCH Subsidiaries or any TRCH Real Property has been alleged in writing by any
governmental agency or third party to be in violation of, to be liable under,
or to be subject to any administrative or judicial proceeding pursuant to, any
Environmental Law, which alleged violation, if true, would have a TRCH
Material Adverse Effect. Neither TRCH nor any TRCH Subsidiary has disposed, or
arranged for any third party to dispose, of any Hazardous Materials (as
defined below) in a manner which, in the aggregate, could reasonably be
expected to have a TRCH Material Adverse Effect. Neither TRCH nor any TRCH
Subsidiary has received written notice that it is a potentially responsible
party for investigation of, or remedial action at, a federal or state site or
sites or for response or remedial actions under any Environmental Law with
respect to any matters which, in the aggregate, would have a TRCH Material
Adverse Effect. TRCH has made available to RTC copies of all audits,
environmental assessments or environmental studies undertaken in the past five
(5) years by or in the possession of TRCH or any TRCH Subsidiary with respect
to their operations or any TRCH Real Property.
(b) Definitions. For purposes of this Agreement the following terms shall
have the following meanings: (i) "Hazardous Materials" shall mean asbestos,
petroleum products, and all other materials, substances or wastes defined as
"hazardous substances", "hazardous wastes", "toxic substances", "solid
wastes", or listed or regulated pursuant to the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C.
(S)9601 et seq. ("CERCLA"); the Resource Conservation and Recovery Act, 42
U.S.C. (S)(S)6901 et seq. ("RCRA"), and any amendments thereto; the Hazardous
Materials Transportation Act, 49 U.S.C. (S)(S)1801 et seq. ("HMTA"); the Clean
Water Act, the Safe Drinking Water Act; the Atomic Energy Act; the Federal
Insecticide, Fungicide, and Rodenticide Act; the Clean Air Act; and any other
similar federal, state or local statute, regulation, ordinance, order, decree,
or any other law or binding and applicable decision based on common law; and
(ii) "Environmental Laws" shall mean any and all applicable federal, state and
local laws (including, without limitation, common law), statutes, ordinances,
rules, regulations, judgments, orders, decrees, permits, licenses, or other
binding governmental restrictions or requirements relating to pollution, the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), the release or threatened
release, discharge or emission of any Hazardous Materials or otherwise
relating to the treatment, storage, disposal, transport or handling of
Hazardous Materials, including, without limitation, CERCLA, RCRA and the HMTA.
4.13 Tax Matters. TRCH has paid, or TRCH's balance sheet as of September 30,
1997 (the "TRCH Balance Sheet") contains adequate provision in accordance with
GAAP for, all federal, state, local, foreign or other governmental income,
franchise, payroll, F.I.C.A., unemployment, withholding, real property,
personal property, sales, payroll, disability and all other taxes imposed on
TRCH or any TRCH Subsidiary or with respect to any of their respective
properties, or otherwise payable by them (including as a result of being a
member of an affiliated, consolidated, combined or unitary group), including
interest and penalties, if any, in respect thereof (collectively, "TRCH
Taxes"), for taxable periods ended on September 30, 1997 and all fiscal
periods of TRCH prior thereto. TRCH Taxes paid and/or incurred from September
30, 1997 until the Closing Date include only TRCH Taxes incurred in the
ordinary course of business determined in the same manner as in the taxable
period ending on September 30, 1997. TRCH and each TRCH Subsidiary have timely
filed all income tax, excise tax, sales tax, use tax, gross receipts tax,
franchise tax, employment and payroll related tax, property tax, and all other
tax returns and reports which TRCH and/or any TRCH Subsidiary (as the case may
be) are required to file ("TRCH Tax Returns"), and all such TRCH Tax Returns
are complete and correct in all material respects, or requests for extensions
to file such returns or reports have been timely filed, granted and have not
expired, and TRCH and each TRCH Subsidiary has paid all the amounts shown to
be due thereon, except to the extent such failure to make such timely filings
or to be complete or correct, in the aggregate, would not have a TRCH Material
Adverse Effect. Neither TRCH nor any TRCH Subsidiary (i) has filed or entered
into, or is otherwise
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bound by, any election, consent or extension agreement that extends any
applicable statute of limitations with respect to taxable periods of TRCH or
any TRCH Subsidiary or (ii) is a party to any contractual obligation requiring
the indemnification or reimbursement of any person with respect to the payment
of any TRCH Tax. No claim has ever been made or threatened by an authority in
a jurisdiction in which TRCH or any TRCH Subsidiary do not file TRCH Tax
Returns that they are or may be subject to taxation by that jurisdiction,
except for any such claims as, in the aggregate, would not have a TRCH
Material Adverse Effect. No issues have been raised by the relevant taxing
authorities on audit that are of a recurring nature and that would have a TRCH
Material Adverse Effect. No action or proceeding is pending or, to the
knowledge of TRCH, threatened by any governmental authority for any audit,
examination, deficiency, assessment or collection from TRCH or any TRCH
Subsidiary of any TRCH Taxes that are not adequately reserved for, no
unresolved claim for any deficiency, assessment or collection of any TRCH
Taxes has been asserted against TRCH or any TRCH Subsidiary, and all resolved
assessments of TRCH Taxes have been paid or are adequately provided for in the
TRCH Balance Sheet, except for any of the foregoing which, in the aggregate,
would not have a TRCH Material Adverse Effect. Neither TRCH nor any TRCH
Subsidiary has taken any action or knows of any fact, agreement, plan or other
circumstance that is reasonably likely to prevent the Merger from qualifying
as a reorganization within the meaning of Section 368(a) of the IRC.
4.14 Labor Matters. There are no pending or, to the knowledge of TRCH,
threatened claims in respect of any laws relating to the employment of labor,
including, without limitation, any provisions thereof relating to wages,
hours, collective bargaining, the payment of social security and similar
taxes, equal employment opportunity, employment discrimination or employment
safety, except such claims which, in the aggregate, would not have a TRCH
Material Adverse Effect.
4.15 Registration Statement; Blue Sky Filings; Joint Proxy
Statement. Neither the Registration Statement nor the Blue Sky Filings nor the
Joint Proxy Statement (as such terms are defined in Section 6.1), will, at the
respective times such documents are filed or, as applicable, declared
effective, and, with respect to the Joint Proxy Statement, when first
published, sent or given to stockholders of TRCH or RTC, be false or
misleading with respect to any material fact, or omit to state any material
fact necessary in order to make the statements therein not misleading or, in
the case of the Joint Proxy Statement or any amendment thereof or supplement
thereto, at the time of the TRCH Meeting or at the time of the RTC Meeting
(each as defined in Section 6.1), be false or misleading with respect to any
material fact, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of any
proxy for such meetings. If, at any time prior to the later of the respective
dates of the TRCH Meeting and the RTC Meeting, any event relating to TRCH or
any of its affiliates, officers or directors is discovered by TRCH that should
be set forth in an amendment to the Registration Statement or the Blue Sky
Filings or a supplement to the Joint Proxy Statement, TRCH will promptly
inform RTC, and such amendment or supplement will be promptly filed with the
Commission and appropriate state securities administrators, and disseminated
to the stockholders of TRCH and RTC, to the extent required by applicable
federal and state securities laws. All documents which TRCH files or is
responsible for filing with the Commission and any regulatory agency in
connection with the Merger (including, without limitation, the Joint Proxy
Statement) will comply as to form and content in all material respects with
the provisions of applicable law. Notwithstanding the foregoing, TRCH makes no
representations or warranties with respect to any information that is supplied
by RTC or its auditors, attorneys, financial advisors, other consultants or
advisors specifically for use in the Registration Statement, the Blue Sky
Filings, the Joint Proxy Statement, or in any other documents to be filed with
the Commission or any regulatory agency in connection with the transactions
contemplated hereby.
4.16 Stockholder Vote Required. Approval of the Share Issuance will require
the approval of a majority of the total votes cast in person or by proxy at
the TRCH Meeting. Approval of the Proposed Certificate of Amendment by the
stockholders of TRCH will require the affirmative vote of the holders of a
majority of the outstanding shares of TRCH Common Stock.
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4.17 Accounting Matters. To TRCH's knowledge, neither TRCH nor any of its
affiliates has taken or agreed to take any action that would prevent TRCH from
accounting for the business combination contemplated by this Agreement as a
pooling of interests.
4.18 Brokers. Neither TRCH nor any TRCH Subsidiary has paid or become
obligated to pay any fee or commission to any broker, finder, investment
banker or other intermediary in connection with this Agreement, except that
TRCH has retained Donaldson, Lufkin & Jenrette ("DLJ") as its financial
advisor for the transactions contemplated hereby pursuant to a Letter
Agreement between DLJ and TRCH dated October 3, 1997, which sets forth, among
other things, the compensation payable for such financial advisory services
(the "DLJ Letter"). A true and complete copy of the DLJ Letter has been
delivered to RTC.
4.19 Board Action; Opinion of Financial Advisor. The Board of Directors of
TRCH has unanimously determined that the transactions contemplated by this
Agreement are fair to and in the best interests of TRCH and TRCH's
stockholders and has resolved to recommend in the Joint Proxy Statement the
approval by TRCH's stockholders of (i) the Share Issuance and (ii) the
Proposed Certificate of Amendment. TRCH has received the opinion of DLJ,
TRCH's financial advisor, dated the date of this Agreement, substantially to
the effect that the Exchange Ratio is fair to TRCH's stockholders from a
financial point of view.
SECTION V
REPRESENTATIONS AND WARRANTIES OF RTC
Except as otherwise disclosed to TRCH and Newco in a letter delivered to
them prior to the execution hereof (which letter shall contain appropriate
references to identify the representations and warranties herein to which the
information in such letter relates) (the "RTC Disclosure Letter"), RTC
represents and warrants to TRCH and Newco as follows:
5.1 Corporate Organization. RTC is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, with
all requisite corporate power and authority to own, operate and lease its
properties and to carry on its business as it is now being conducted, and is
qualified or licensed to do business and is in good standing in each
jurisdiction in which the character of its properties owned or leased or the
nature of its activities makes such qualification or licensure necessary,
except to the extent any failure to be so qualified or licensed, in the
aggregate, would not have a material adverse effect on the financial
condition, results of operations, properties or business of RTC and the RTC
Subsidiaries (as defined in Section 5.2), taken as a whole (a "RTC Material
Adverse Effect").
5.2 RTC Subsidiaries. The RTC Disclosure Letter sets forth a list of all
corporations, partnerships, limited liability companies, joint ventures or
other business associations or entities, foreign or domestic, in which RTC
owns, directly or indirectly, 50% or more of the shares of capital stock or
other equity interests (including, without limitation, partnership interests)
(each, a "RTC Subsidiary" and, collectively, the "RTC Subsidiaries"), and each
other corporation, partnership, limited liability company, joint venture or
other business association or entity, foreign or domestic, in which RTC owns,
directly or indirectly, 20% or more of the shares of capital stock or other
equity interests (including, without limitation, partnership interests)
indicating in each case the form of legal entity, the jurisdiction of
incorporation or formation, the outstanding equity interests and the equity
interest owned by RTC. Each RTC Subsidiary is duly organized, validly existing
and in good standing under the laws of the state or country of its
incorporation or formation, with all requisite power and authority to own,
operate and lease its properties and to carry on its business as it is now
being conducted, and is qualified or licensed to do business and is in good
standing in each jurisdiction in which the character of its properties owned
or leased or the nature of its activities makes such qualification or
licensure necessary, except to the extent any failure be so qualified or
licensed, in the aggregate, would not have a RTC Material Adverse Effect.
5.3 Capital Stock. As of the date of this Agreement, the authorized capital
stock of RTC consists of (i) 45,000,000 shares of RTC Common Stock, of which
24,991,807 shares are issued and outstanding and
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36,598 shares are held in RTC's treasury, and (ii) 5,000,000 shares of
preferred stock, $.01 par value per share, none of which are issued and
outstanding. All of the outstanding shares of RTC Common Stock have been
validly issued and are fully paid and nonassessable.
5.4 Options and Other Rights. Except as set forth in the RTC Disclosure
Letter, there are no outstanding rights, subscriptions, warrants, calls,
unsatisfied preemptive rights, options or other agreements or arrangements of
any kind to purchase or otherwise to receive from RTC any shares of capital
stock or any other security of RTC, and there are no outstanding securities of
any kind convertible into or exchangeable for such capital stock.
5.5 Authority Relative to this Agreement. RTC has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery by RTC of this
Agreement and the consummation of the transactions contemplated on its part
hereby have been duly authorized by all necessary corporate action on the part
of RTC, subject only to the requirement to obtain the approval of RTC's
stockholders to the adoption of this Agreement. This Agreement has been duly
executed and delivered by RTC, and constitutes a legal, valid and binding
obligation of RTC, enforceable against RTC in accordance with its terms,
except to the extent that its enforceability may be limited by applicable
bankruptcy, insolvency, reorganization or other laws affecting the enforcement
of creditors' rights generally or by general equitable principles, and subject
to the requirement to obtain the approval of RTC's stockholders to the
adoption of this Agreement.
5.6 No Violation. Except as set forth in the RTC Disclosure Letter, the
execution, delivery and performance of this Agreement by RTC and the
consummation by it of the transactions contemplated hereby will not
(i) violate or conflict with any provision of any material law applicable to
RTC or any RTC Subsidiary or by which any property or asset of RTC or any RTC
Subsidiary is bound, (ii) require the consent, waiver, approval, license or
authorization of or any filing by RTC or any RTC Subsidiary with any public
authority (other than (A) the filing of a pre-merger notification report under
the HSR Act, (B) in connection with or in compliance with the provisions of
the Exchange Act, the Securities Act, the General Corporation Law, the
"takeover" or "blue sky" or "environmental" laws of various states or the NYSE
and (C) any other filings and approvals expressly contemplated by this
Agreement) or (iii) violate, conflict with, result in a breach of or the
acceleration of any obligation under, constitute a default (or an event which
with notice or the lapse of time or both would become a default) under, give
to others any right of termination, amendment, acceleration or cancellation
of, or result in the creation of a lien or other encumbrance on any property
or asset of RTC or any RTC Subsidiary pursuant to any provision of, any (x)
charter or bylaw, or (y) indenture, mortgage, lien, lease, agreement,
contract, instrument, order, judgment, ordinance, regulation or decree to
which RTC or any RTC Subsidiary is subject or by which RTC or any RTC
Subsidiary or any of their respective properties or assets are bound, except,
in the case of (y) above, to the extent the failure to give such notice, make
such filings, or obtain such authorizations, consents or approvals, or to the
extent such violations, conflicts, breaches or defaults, in the aggregate,
would not have a RTC Material Adverse Effect or materially and adversely
affect RTC's ability to consummate the transactions contemplated hereby.
5.7 Governmental Authorizations. Except as set forth in the RTC Disclosure
Letter or in the RTC SEC Filings (as defined in Section 5.10), RTC and the RTC
Subsidiaries hold all governmental licenses, permits and other authorizations
necessary to conduct their respective businesses (collectively, the "RTC
Permits") and are in compliance with all requirements of all RTC Permits,
except to the extent the failure to hold any RTC Permit or noncompliance with
any RTC Permit, in the aggregate, would not have a RTC Material Adverse
Effect. Without limiting the generality of the foregoing, RTC and the RTC
Subsidiaries are certified as providers under all applicable Medicare and
Medicaid programs to the extent required to be so certified, except to the
extent any failure to be so certified would not have a RTC Material Adverse
Effect. The RTC Permits are valid and sufficient in all material respects for
all business currently carried on by RTC and the RTC Subsidiaries, and no
suspension, cancellation or invalidation of any RTC Permit is pending or, to
the knowledge of RTC, threatened which, in the aggregate, could have a RTC
Material Adverse Effect.
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5.8 No Conflicts; Compliance With Law. Except as set forth in the RTC
Disclosure Letter or in the RTC SEC Filings, neither RTC nor any RTC
Subsidiary is in conflict with, or is in default or violation of, (i) its
respective charter or bylaws (or other organizing documents), (ii) any law,
rule, regulation, order, judgment, ordinance, regulation or decree applicable
to RTC or such RTC Subsidiary or by which any of their respective properties
or assets are bound or affected, or (iii) any indenture, mortgage, lien,
lease, agreement, instrument, contract, note, bond, license, permit, franchise
or other authorization or obligation to which RTC or any RTC Subsidiary is a
party or by which RTC or any RTC Subsidiary or any of their properties or
assets are bound or affected, except, in the cases of clauses (ii) and (iii),
to the extent such conflicts, defaults or violations, in the aggregate, would
not have a RTC Material Adverse Effect or materially and adversely affect
RTC's ability to consummate the transactions contemplated hereby. Neither RTC
nor any RTC Subsidiary is in conflict with, or is in default or violation of
any provision of federal or state laws or regulations relating to restrictions
on physician referrals or claims for payment under the Medicare, Medicaid or
other programs for the furnishing of health services, including, but not
limited to, the illegal remuneration provisions of the Social Security Act and
the provisions of the Omnibus Budget Reconciliation Act of 1989 and the
Omnibus Budget Reconciliation Act of 1993 restricting physician referrals,
that could, in the aggregate, reasonably be expected to have a RTC Material
Adverse Effect.
5.9 Litigation. Except as set forth in the RTC Disclosure Letter or as may
be disclosed in the RTC SEC Filings, there are no suits, investigations,
arbitrations, mediations, actions, proceedings, unfair labor practice
complaints or grievances pending or, to the knowledge of RTC, threatened
against RTC or any RTC Subsidiary or with respect to any of their respective
properties or assets before any court, arbitrator, administrator or
governmental or regulatory authority or body which, in the aggregate, are
likely to have a RTC Material Adverse Effect. Neither RTC nor any RTC
Subsidiary, nor any of their respective properties or assets, are subject to
any orders, judgments, injunctions or decrees which, in the aggregate, could
have a RTC Material Adverse Effect.
5.10 Financial Statements and Reports. RTC has heretofore delivered to TRCH
true and complete copies of (i) RTC's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 (the "RTC 10-K") as filed with the
Commission, (ii) RTC's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997, June 30, 1997 and September 30, 1997, (iii) RTC's proxy
statement relating to the annual meeting of its stockholders held on May 7,
1997, and (iv) all other reports, statements and registration statements
(including Current Reports on Form 8-K, but excluding any preliminary proxy
material), if any, filed by RTC with the Commission pursuant to the Exchange
Act subsequent to the filing of the RTC 10-K. The reports, statements and
registration statements referred to in the immediately preceding sentence
(including, without limitation, any financial statements or schedules or other
information incorporated by reference therein) are referred to in this
Agreement as the "RTC SEC Filings." As of the respective times such documents
were filed or, as applicable, became effective, the RTC SEC Filings complied
as to form and content, in all material respects, with the requirements of the
Securities Act and the Exchange Act, as the case may be, and the rules and
regulations promulgated thereunder, except such noncompliance which, in the
aggregate, would not have a RTC Material Adverse Effect, and, taken as a
whole, the RTC SEC Filings do not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of RTC included
in the RTC SEC Filings were prepared in accordance with GAAP (as in effect
from time to time) applied on a consistent basis and (except as may be
indicated therein or in the notes thereto) present fairly the consolidated
financial position, results of operations and cash flows of RTC and its
consolidated subsidiaries as of the dates and for the periods indicated
therein, subject, in the case of unaudited interim consolidated financial
statements, to normal recurring year-end adjustments and any other adjustments
described therein.
5.11 Absence of Certain Changes or Events. From September 30, 1997, to the
date of this Agreement, except as disclosed in the RTC Disclosure Letter, the
business of RTC and of each RTC Subsidiary has been conducted in the ordinary
course, and there has not been (i) any material adverse change in the
financial condition, results of operations, properties or business of RTC and
the RTC Subsidiaries, taken as a whole, excluding any such change or changes
caused by a general change in the economy or in the dialysis industry in
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general; (ii) any material indebtedness incurred by RTC or any RTC Subsidiary
for money borrowed, except material indebtedness for borrowed money incurred
under credit facilities existing as of the date hereof, or any other material
transaction entered into by RTC or any RTC Subsidiary, other than in the
ordinary course of business; (iii) any damage, destruction or losses, whether
covered by insurance or not, which, in the aggregate, could have a RTC
Material Adverse Effect; (iv) any declaration, setting aside or payment of any
dividend (whether in cash, stock or property) with respect to the RTC Common
Stock; (v) any increase in the compensation payable or to become payable by
RTC or any RTC Subsidiary to any employee, officer or director or in any
bonus, insurance, pension or other employee benefit plan, payment or
arrangement made to, for or with any such employee, officer or director (other
than as provided in employment agreements and welfare and benefit plans set
forth in the RTC Disclosure Letter, and except for increases consistent with
past practice or other increases which are reasonably necessary); (vi) any
material revaluation by RTC or any RTC Subsidiary of any asset (including,
without limitation, any writing down of the value of inventory or writing off
of notes or accounts receivable), other than in the ordinary course of
business consistent with past practice; (vii) any entry by RTC or any RTC
Subsidiary into any commitment or transaction out of the ordinary course of
business which is material to RTC and the RTC Subsidiaries taken as a whole;
or (viii) any change by RTC in accounting principles or methods except insofar
as may be required by a change in GAAP.
5.12 Employment Agreements. The RTC Disclosure Letter sets forth a true and
complete list of all written employment agreements with any officer of RTC or
of any RTC Subsidiary and all bonus, incentive compensation, deferred
compensation, profit sharing, stock option, stock bonus, stock purchase,
savings, severance, salary continuation, material consulting, retirement
(including health and life insurance benefits provided after retirement)
agreements and arrangements with or for the benefit of any officer, employee
or other person, or for the benefit of any group of officers, employees or
other persons, other than employee benefit plans required to be disclosed
pursuant to Section 5.13. To its knowledge, except as disclosed in the RTC
Disclosure Letter, neither RTC nor any RTC Subsidiary has made, or entered
into any agreement to make, any payment that becomes payable as a result of
the consummation of the transactions contemplated by this Agreement which
would be treated as an "excess parachute payment" as defined in Section 280G
of the IRC.
5.13 ERISA.
(a) Employee Benefit Plans. The RTC Disclosure Letter sets forth a true and
complete list of all employee benefit plans, as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), but
without regard to whether any such plan is in fact subject to ERISA, that are
sponsored, or are being maintained or contributed to, by RTC or any RTC
Subsidiary (the "RTC Employee Benefit Plans"). RTC has furnished or made
available to TRCH (i) a true and complete copy of the plan document and
summary plan description for each RTC Employee Benefit Plan, (ii) a true and
complete copy of the most recently filed Form 5500 (including the related
schedules) with respect to each RTC Employee Benefit Plan for which such form
is required to be filed, (iii) a true and complete copy of any trust
agreement, insurance contract or other agreement or arrangement serving as a
source of funding for any benefits payable under any RTC Employee Benefit
Plan, and (iv) the most recently issued financial statement and actuarial
report, if any, for each RTC Employee Benefit Plan. With respect to each of
the RTC Employee Benefit Plans that is intended to qualify for favorable
income tax treatment under Section 401(a) of the IRC, except as otherwise set
forth in the RTC Disclosure Letter, (i) the Internal Revenue Service (the
"IRS") has issued a favorable determination letter with respect to such plan;
and (ii) RTC has furnished TRCH with a copy of the determination letter most
recently issued by the IRS with respect to such plan and the application filed
with the IRS for such determination letter.
(b) Compliance with Law. Each RTC Employee Benefit Plan has been
administered in compliance with the applicable requirements of ERISA and the
IRC (it being acknowledged by TRCH that ERISA and the IRC do not apply to the
foreign RTC Subsidiaries), and in compliance with all other applicable
provisions of law, except for such noncompliance, if any, that, in the
aggregate, would not have a RTC Material Adverse Effect. Without limiting the
generality of the foregoing, (i) no "prohibited transactions" (as such term is
defined in Section 4975 of the IRC, or in Part 4 of Subtitle B of Title I of
ERISA) have occurred with respect to any RTC Employee Benefit Plan that could
result in the imposition of taxes or penalties that, in the aggregate, could
have
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a RTC Material Adverse Effect and (ii) RTC has complied with all applicable
provisions of Section 4980B of the IRC except for such noncompliance, if any,
that, in the aggregate, would not have a RTC Material Adverse Effect. Neither
RTC nor any RTC Subsidiary has incurred liabilities with respect to any RTC
Employee Benefit Plan which, in the aggregate, could have a RTC Material
Adverse Effect as a result of the violation of or the failure to comply with
any applicable provision of ERISA, the IRC, any other applicable provision of
law, or any provision of such plan. Neither RTC nor any RTC Subsidiary has
failed to make any contribution to, or to make any payment under, any RTC
Employee Benefit Plan that it was required to make pursuant to the terms of
the plan or pursuant to applicable law in any amount which, in the aggregate,
could have a RTC Material Adverse Effect. There is no pending or, to the
knowledge of RTC, threatened legal action, proceeding or investigation against
or involving any RTC Employee Benefit Plan which could result in liabilities
to such RTC Employee Benefit Plan, RTC or any RTC Subsidiary that, in the
aggregate, could have a RTC Material Adverse Effect.
(c) Pension Plans. None of the RTC Employee Benefit Plans which is an
"employee pension benefit plan," as that term is defined in Section 3(2) of
ERISA (a "RTC Employee Pension Benefit Plan"), has incurred an "accumulated
funding deficiency," within the meaning of Section 302 of ERISA or Section 412
of the IRC which, in the aggregate, could have a RTC Material Adverse Effect.
No "reportable events," with respect to which a notice must be filed with the
Pension Benefit Guaranty Corporation (the "PBGC"), have occurred with respect
to any RTC Employee Pension Benefit Plan subject to Title IV of the ERISA
which events, in the aggregate, could have a RTC Material Adverse Effect. No
proceedings by the PBGC to terminate any RTC Employee Pension Benefit Plan
pursuant to Subtitle C of Title IV of ERISA have been instituted or threatened
which, in the aggregate, could have a RTC Material Adverse Effect. Except for
any liabilities in an amount which, in the aggregate, would not have a RTC
Material Adverse Effect, neither RTC nor any RTC Subsidiary (i) has incurred
any liability to the PBGC in connection with any RTC Employee Pension Benefit
Plan, including any liability under Section 4069 of ERISA and any penalty
imposed under Section 4071 of ERISA, (ii) has terminated any RTC Employee
Pension Benefit Plan, or ceased operations at any facility or withdrawn from
any RTC Employee Pension Benefit Plan, in a manner that could subject it to
liability or any liens under Section 4062, 4063, 4064 or 4068 of ERISA or
(iii) has any knowledge as to the existence of any state of facts, or as to
the occurrence of any transactions, that might reasonably be anticipated to
result in any liability of RTC or any RTC Subsidiary to the PBGC under any
other provision of Title IV of ERISA.
5.14 Real Property. The RTC Disclosure Letter sets forth a true and complete
list of all (i) real property owned by RTC or any RTC Subsidiary; (ii) real
property leased by RTC or any RTC Subsidiary; (iii) real property with respect
to which RTC or any RTC Subsidiary is the lessor or sublessor; and (iv)
options or contractual obligations on the part of RTC or any RTC Subsidiary to
acquire or dispose of any interest in any real property (each, a "RTC Real
Property" and, collectively, the "RTC Properties"). Except as set forth in the
RTC Disclosure Letter, as of the date of this Agreement, there are no
defaults, disputes, complaints or grievances pending or, to the knowledge of
RTC, threatened against RTC or any RTC Subsidiary with respect to any RTC Real
Property which could materially and adversely affect the continued use of such
RTC Real Property by RTC.
5.15 Environmental Matters. RTC, the RTC Subsidiaries and each of the RTC
Real Properties are in compliance with all applicable Environmental Laws,
except to the extent the failure to be in such compliance could not reasonably
be expected to have a RTC Material Adverse Effect. None of RTC, any of the RTC
Subsidiaries or any RTC Real Property has been alleged in writing by any
governmental agency or third party to be in violation of, to be liable under,
or to be subject to any administrative or judicial proceeding pursuant to, any
Environmental Law, which alleged violation, if true, would have a RTC Material
Adverse Effect. Neither RTC nor any RTC Subsidiary has disposed, or arranged
for any third party to dispose, of any Hazardous Materials in a manner which,
in the aggregate, could reasonably be expected to have a RTC Material Adverse
Effect. Neither RTC nor any RTC Subsidiary has received written notice that it
is a potentially responsible party for investigation of, or remedial action
at, a federal or state site or sites or for response or remedial actions under
any Environmental Law with respect to any matters which, in the aggregate,
would have a RTC Material Adverse Effect. RTC has made available to TRCH
copies of all audits, environmental assessments or environmental studies
undertaken in the past five (5) years by or in the possession of RTC or any
RTC Subsidiary with respect to their operations or any RTC Real Property.
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5.16 Tax Matters. RTC has paid, or RTC's balance sheet as of September 30,
1997 (the "RTC Balance Sheet") contains adequate provision in accordance with
GAAP for, all federal, state, local, foreign or other governmental income,
franchise, payroll, F.I.C.A., unemployment, withholding, real property,
personal property, sales, payroll, disability and all other taxes imposed on
RTC or any RTC Subsidiary or with respect to any of their respective
properties, or otherwise payable by them (including as a result of being a
member of an affiliated, consolidated combined or unitary group), including
interest and penalties, if any, in respect thereof (collectively, "RTC
Taxes"), for taxable periods ended on September 30, 1997 and all fiscal
periods of RTC prior thereto. RTC Taxes paid and/or incurred from September
30, 1997 until the Closing Date include only RTC Taxes incurred in the
ordinary course of business determined in the same manner as in the taxable
period ending on September 30, 1997. RTC and each RTC Subsidiary have timely
filed all income tax, excise tax, sales tax, use tax, gross receipts tax,
franchise tax, employment and payroll related tax, property tax, and all other
tax returns and reports which RTC and/or any RTC Subsidiary (as the case may
be) are required to file ("RTC Tax Returns"), and all such RTC Tax Returns are
complete and correct in all material respects, or requests for extensions to
file such returns or reports have been timely filed, granted and have not
expired, and RTC and each RTC Subsidiary has paid all the amounts shown to be
due thereon, except to the extent such failure to make such timely filings or
to be complete or correct, in the aggregate, would not have a RTC Material
Adverse Effect. Except as set forth in the RTC Disclosure Letter, neither RTC
nor any RTC Subsidiary (i) has filed or entered into, or is otherwise bound
by, any election, consent or extension agreement that extends any applicable
statute of limitations with respect to taxable periods of RTC or any TRCH
Subsidiary, or (ii) is a party to any contractual obligation requiring the
indemnification or reimbursement of any person with respect to the payment of
any RTC Tax. No claim has ever been made or threatened by an authority in a
jurisdiction in which RTC or any RTC Subsidiary do not file RTC Tax Returns
that they are or may be subject to taxation by that jurisdiction, except for
any such claims as, in the aggregate, would not have a RTC Material Adverse
Effect. No issues have been raised by the relevant taxing authorities on audit
that are of a recurring nature and that would have a RTC Material Adverse
Effect. No action or proceeding is pending, or to the knowledge of RTC,
threatened by any governmental authority for any audit, examination,
deficiency, assessment or collection from RTC or any RTC Subsidiary of any RTC
Taxes that are not adequately reserved for, no unresolved claim for any
deficiency, assessment or collection of any RTC Taxes has been asserted
against RTC or any RTC Subsidiary, and all resolved assessments of RTC Taxes
have been paid or are adequately provided for in the RTC Balance Sheet, except
for any of the foregoing which, in the aggregate, would not have a RTC
Material Adverse Effect. Neither RTC nor any RTC Subsidiary has taken any
action or knows of any fact, agreement, plan or other circumstance that is
reasonably likely to prevent the Merger from qualifying as a reorganization
within the meaning of Section 368(a) of the IRC.
5.17 Labor Matters. Except as set forth in the RTC Disclosure Letter,
neither RTC nor any RTC Subsidiary is a party to any collective bargaining
agreement and none of the employees of RTC or any RTC Subsidiary are
represented by any labor union. Except as set forth in the RTC Disclosure
Letter, there are no pending or, to the knowledge of RTC, threatened claims in
respect of any laws relating to the employment of labor, including, without
limitation, any provisions thereof relating to wages, hours, collective
bargaining, the payment of social security and similar taxes, equal employment
opportunity, employment discrimination or employment safety, except such
claims which, in the aggregate, would not have a RTC Material Adverse Effect.
5.18 Registration Statement; Blue Sky Filings; Joint Proxy
Statement. Neither the Joint Proxy Statement nor any of the information
supplied or to be supplied in writing by RTC for inclusion which are included
in either the Registration Statement or the Blue Sky Filings will, at the
respective times such documents are filed, or, as applicable, declared
effective, and, with respect to the Joint Proxy Statement, when first
published, sent or given to stockholders of RTC or TRCH, be false or
misleading with respect to any material fact, or omit to state any material
fact necessary in order to make the statements therein not misleading or, in
the case of the Joint Proxy Statement or any amendment thereof or supplement
thereto, at the time of the RTC Meeting or at the time of the TRCH Meeting, be
false or misleading with respect to any material fact, or omit to state any
material fact necessary to correct any statement in any earlier communication
with respect to the solicitation of any proxy for such meetings. If, at any
time prior to the later of the respective dates of the TRCH Meeting and the
RTC
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Meeting, any event relating to RTC or any of its affiliates, officers or
directors is discovered by RTC that should be set forth in an amendment to the
Registration Statement or the Blue Sky Filings or a supplement to the Joint
Proxy Statement, RTC will promptly inform TRCH, and such amendment or
supplement will be promptly filed with the Commission and appropriate state
securities administrators, and disseminated to the stockholders of RTC and
TRCH, to the extent required by applicable federal and state securities laws.
All documents which RTC files or is responsible for filing with the Commission
and any regulatory agency in connection with the Merger (including, without
limitation, the Joint Proxy Statement) will comply as to form and content in
all material respects with the provisions of applicable law. Notwithstanding
the foregoing, RTC makes no representations or warranties with respect to any
information that is supplied by TRCH or Newco, or their auditors, attorneys,
financial advisors, other consultants or advisors specifically for use in the
Registration Statement, the Blue Sky Filings, the Joint Proxy Statement, or in
any other documents to be filed with the Commission or any regulatory agency
in connection with the transactions contemplated hereby.
5.19 Stockholder Vote Required. Adoption of this Agreement by the
stockholders of RTC will require the affirmative vote of the holders of a
majority of the outstanding shares of RTC Common Stock.
5.20 Accounting Matters. To RTC's knowledge, neither RTC nor any of its
affiliates has taken or agreed to take any action that would prevent TRCH from
accounting for the business combination contemplated by this Agreement as a
pooling of interests.
5.21 Brokers. Neither RTC nor any RTC Subsidiary has paid or become
obligated to pay any fee or commission to any broker, finder, investment
banker or other intermediary in connection with this Agreement, except that
RTC has retained UBS Securities LLC ("UBS") as its financial advisor for the
transactions contemplated hereby pursuant to a Letter Agreement between UBS
and RTC dated September 24, 1997, which sets forth, among other things, the
compensation payable for such financial advisory services (the "UBS Letter").
A true and complete copy of the UBS Letter has been delivered to TRCH.
5.22 Board Action; Opinion of Financial Advisor. The Board of Directors of
RTC has unanimously determined that the transactions contemplated by this
Agreement are fair to and in the best interests of RTC and RTC's stockholders
and has resolved to recommend in the Joint Proxy Statement the adoption of
this Agreement by RTC's stockholders. RTC has received the opinion of UBS,
RTC's financial advisor, dated the date of this Agreement, substantially to
the effect that the Exchange Ratio is fair to RTC's stockholders from a
financial point of view.
SECTION VI
COVENANTS AND AGREEMENTS
6.1 Joint Proxy Statement; Registration Statement; Stockholders Meetings. As
soon as practicable after the date of this Agreement, RTC shall submit this
Agreement to its stockholders for adoption at a special stockholders meeting
duly called and held pursuant to Section 251(c) of the General Corporation Law
(the "RTC Meeting"), and TRCH shall submit the Share Issuance and the Proposed
Certificate of Amendment to its stockholders for approval at a special meeting
of stockholders (the "TRCH Meeting" and, collectively with the RTC Meeting,
the "Meetings"). Unless otherwise agreed by TRCH and RTC, the Meetings shall
be held on the same day and at the same time. As promptly as practicable after
the execution of this Agreement, TRCH and RTC will file with the Commission
preliminary proxy materials relating to the adoption of this Agreement by the
stockholders of RTC and the Share Issuance and the Proposed Certificate of
Amendment by the stockholders of TRCH. TRCH and RTC shall respond promptly to
any comments made by the Commission with respect to such preliminary proxy
materials and cause a definitive joint proxy statement (the "Joint Proxy
Statement") and proxy to be mailed to their respective stockholders at the
earliest practicable time. The Board of Directors of TRCH shall recommend in
the Joint Proxy Statement the approval of (i) the Share Issuance and (ii) the
Proposed Certificate of Amendment by its stockholders, and the Board of
Directors of RTC shall recommend in the Joint
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Proxy Statement the adoption of this Agreement by its stockholders. Such
recommendation may not be amended or modified in any manner adverse to the
other parties to this Agreement or withdrawn. Either concurrently with the
preparation and filing of the preliminary proxy materials or as promptly as
practicable after comments are received from the Commission with respect to
the preliminary proxy materials, TRCH will (i) file with the Commission a
registration statement on Form S-4 (as amended or supplemented, the
"Registration Statement") relating to the registration under the Securities
Act of the shares of TRCH Common Stock to be issued in the Merger, and (ii)
file with appropriate state securities administrators such registration
statements or other documents as may be required under applicable blue sky
laws to qualify or register the shares of TRCH Common Stock to be issued in
the Merger in such states as are designated by RTC (the "Blue Sky Filings").
TRCH will use its reasonable efforts to cause the Registration Statement to
become effective as soon as practicable.
6.2 Conduct Prior to the Effective Date.
(a) Ordinary Course of Business. From and after the date of this Agreement
through the Effective Date, except as set forth in the RTC Disclosure Letter
or the TRCH/Newco Disclosure Letter, RTC shall, and shall cause each RTC
Subsidiary to, and TRCH shall, and shall cause each TRCH Subsidiary to,
conduct their respective businesses (including acquisitions of related
businesses) in the ordinary course and consistent in all material respects
with past practice.
(b) Certain Actions Relating to Capital Stock. From and after the date of
this Agreement through the Effective Date, neither RTC nor TRCH shall, without
the prior written consent of the other, (i) amend its Certificate of
Incorporation (except as contemplated by the Proposed Certificate of
Amendment) or Bylaws, (ii) declare, set aside or pay any dividend or other
distribution or payment in cash, stock or property in respect of shares of its
capital stock, (iii) make any direct or indirect redemption, retirement,
purchase or other acquisition of any of its capital stock, (iv) split, combine
or reclassify its outstanding shares of capital stock, or (v) issue or agree
to issue, or permit any RTC Subsidiary or TRCH Subsidiary, as the case may be,
to issue or agree to issue, any shares of, or rights of any kind to acquire
any shares of its capital stock except (A) as contemplated by this Agreement
(including the RTC Disclosure Letter and the TRCH/Newco Disclosure Letter),
(B) shares issued upon the exercise or conversion of securities (including,
but not limited to, stock options) outstanding on the date hereof, (C) with
respect to options granted by TRCH under existing option plans, (D) shares of
TRCH Common Stock issued or to be issued by TRCH, and up to 100,000 shares of
RTC Common Stock issued or to be issued by RTC, in connection with
acquisitions of related businesses; provided, however, that in no event shall
TRCH or RTC effect any issuance or agree to effect any issuance pursuant to
this clause (D) if such issuance or agreement would preclude TRCH from
accounting for the business combination contemplated by this Agreement as a
pooling of interests or would materially delay, or materially reduce the
likelihood of, the consummation of the Merger.
(c) Preserve Businesses. From and after the date of this Agreement and
through the Effective Date, RTC and TRCH shall use their reasonable efforts to
preserve intact their respective business organizations, to keep available the
services of their respective operating personnel and to preserve the goodwill
of those having business relationships with each of them, including, without
limitation, suppliers and customers.
(d) Certain Prohibited Actions. From and after the date of this Agreement
and through the Effective Date, except as set forth in the RTC Disclosure
Letter, RTC shall not, and shall not permit any RTC Subsidiary to, without the
prior written consent of TRCH, directly or indirectly, (i) increase the
compensation payable or to become payable to any officer or director except in
accordance with employment agreements or benefit plans set forth in the RTC
Disclosure Letter and except for increases consistent with past practice or
other increases which are reasonably necessary for the operation of the
business of RTC and the RTC Subsidiaries, (ii) except as permitted by the
foregoing clause (i), adopt or enter into any stock option, bonus, profit
sharing, pension, retirement, deferred compensation, employment or other
payment or employee compensation plan, agreement or arrangement, (iii) grant
any stock options or stock appreciation rights, (iv) amend any employment
agreement disclosed in the RTC Disclosure Letter, (v) make any loan or advance
to, or enter into any contract, lease or commitment with, any officer or
director of RTC or any RTC Subsidiary, except in the ordinary course of
business consistent with past practice, (vi) assume, guarantee, endorse or
otherwise become responsible for any
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material obligations of any other individual, firm or corporation or make any
material loans or advances to any individual, firm or corporation, (vii)
except for investments in equipment and other assets in the ordinary course of
business consistent with existing capital expenditure budgets, make any
material investment of a capital nature either by purchase of stock or
securities, contributions to capital, property transfers or otherwise, or by
the purchase of any property or assets of any other individual, firm or
corporation, (viii) enter into, modify or amend in any material respect or
take any action to terminate any material contract, except in the ordinary
course of business, (ix) waive, release, grant or transfer any rights of
material value, except in the ordinary course of business, (x) transfer,
lease, license, sell, mortgage, pledge, dispose of or encumber any material
assets other than in the ordinary course of business and consistent with past
practice, (xi) effect any increase in prevailing list prices for dialysis
products and services, including prescription drugs, (xii) commence the
provision of reimbursable services through RTC's laboratory facility in Las
Vegas, Nevada, (xiii) take any action, other than reasonable and usual actions
in the ordinary course of business and consistent with past practice, with
respect to accounting policies or procedures, except for changes required by
GAAP, (xiv) settle or compromise any material federal, state, local or foreign
income tax proceeding or audit, or (xv) enter into an agreement to do any of
the foregoing. From and after the date of this Agreement and through the
Effective Date, TRCH shall not, and shall not permit any TRCH Subsidiary to
directly or indirectly, (x) transfer, lease, license, sell, mortgage, pledge,
dispose of or encumber any material assets other than in the ordinary course
of business and consistent with past practice, (y) take any action, other than
reasonable and usual actions in the ordinary course of business and consistent
with past practice, with respect to accounting policies or procedures, except
for changes required by GAAP or (z) enter into an agreement to do any of the
foregoing.
6.3 Notification. RTC shall promptly advise TRCH in writing of any RTC
Material Adverse Effect, any breach of RTC's representations or warranties, or
any breach of a covenant contained herein of which RTC has knowledge. TRCH
shall promptly advise RTC in writing of any TRCH Material Adverse Effect, any
breach of TRCH's or Newco's representations or warranties, or any breach of a
covenant contained herein of which TRCH has knowledge.
6.4 Access to Properties and Records. Each party shall afford to the other
and their respective accountants, counsel and representatives, reasonable
access during normal business hours throughout the period prior to the
Effective Date to all of their respective properties, books, contracts,
commitments and written records, and shall make reasonably available their
respective officers and employees to answer fully and promptly questions put
to them (so long as such questions are not outside of the scope of purpose of
this Section 6.4); provided that no investigation pursuant to this Section 6.4
shall alter any representations or warranties of any party hereto or
conditions to the obligation of the parties hereto; and provided, further,
that such access shall not unreasonably interfere with the normal business
operations of either party. Any such investigations shall be specifically
related to this Agreement and to the transactions contemplated hereby. Each
party shall provide the other with reasonable notice prior to visiting any
such property for the purpose of any such investigation, including notice of
the purpose and reason for such investigation.
6.5 Negotiations.
(a) Except in the furtherance of the transactions contemplated hereby, prior
to the Effective Date, TRCH and RTC each agree that (i) neither of them nor
any of their respective affiliates shall, and each of them shall direct and
use its best efforts to cause its respective directors, officers, employees,
representatives or agents (including, without limitation, any investment
banker, attorney or accountant retained by it or any of its affiliates) not
to, directly or indirectly, initiate, solicit or encourage any inquiries or
the making or implementation of any proposal or offer (including, without
limitation, any proposal or offer to its stockholders), with respect to any
merger, acquisition, consolidation, share exchange, business combination or
other transaction involving, or which would result in, (A) the acquisition of
a majority of the outstanding equity securities of TRCH or RTC, respectively,
(B) the issuance by such party, in a single transaction or a series of related
transactions, of equity securities which would represent, following issuance,
a majority of the outstanding equity securities of TRCH or RTC, respectively
or (C) the acquisition of a majority of the consolidated assets of such party
(any such proposal
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or offer being hereinafter referred to as an "Acquisition Proposal"), or
engage in any negotiations concerning, or provide any confidential information
or data to, or have any discussions with, any person or entity relating to an
Acquisition Proposal, or otherwise facilitate any effort or attempt to make or
implement an Acquisition Proposal; (ii) it shall immediately cease and cause
to be terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing, and it
shall take the necessary steps to inform any such parties of the obligations
undertaken in this Section 6.5; and (iii) it shall notify the other party to
this Agreement immediately if any such inquiries or proposals are received by,
any such information is requested from, or any such negotiations or
discussions are sought to be initiated or continued with, it; provided,
however, that nothing contained in this Section 6.5 shall prohibit the Board
of Directors of TRCH or RTC from, prior to the date of the TRCH Meeting or the
RTC Meeting, as applicable, (x) furnishing information to or entering into
discussions or negotiations with, in each case for a period of twenty (20)
business days commencing with the delivery of the notice pursuant to clause
(iii) above, any person or entity that makes an unsolicited bona fide
Acquisition Proposal if, and only to the extent that, (A) a majority of the
disinterested members of the Board of Directors of such party determines in
good faith (with the advice of independent legal counsel) that such action is
required for the Board of Directors to comply with its fiduciary duties to its
stockholders imposed by law, (B) prior to furnishing such information to, or
entering into discussions or negotiations with, such person or entity such
party provides written notice to the other party to this Agreement to the
effect that it is furnishing information to, or entering into discussions or
negotiations with, such person or entity and enters into a confidentiality
agreement with such person or entity (which such party determined in good
faith was required to be executed in order for the Board of Directors to
comply with its fiduciary duties to its stockholders imposed by law) with
terms no less favorable to such party than those in the Confidentiality
Agreement referred to in Section 6.8, and (C) subject to the confidentiality
provisions of such confidentiality agreement, such party keeps the other party
to this Agreement informed of the status and the material terms of any such
discussions or negotiations, and (y) to the extent applicable, complying with
Rule 14e-2 promulgated under the Exchange Act with regard to any Acquisition
Proposal. Nothing in this Section 6.5 shall (i) permit either party to
terminate this Agreement (except as specifically provided in Section 8), (ii)
permit either party to enter into any agreement with respect to an Acquisition
Proposal during the term of this Agreement (it being agreed that during the
term of this Agreement, neither party shall enter into any agreement with any
person or entity that provides for, or in any way facilitates, an Acquisition
Proposal, other than a confidentiality agreement in customary form), or (iii)
affect any other obligation of any party under this Agreement.
(b) Neither the Board of Directors of TRCH nor the Board of Directors of
RTC, nor any committee of either such Board, shall (i) withdraw or modify, or
propose to withdraw or modify, the approval or recommendation by such Board or
any such committee of, in the case of RTC, the adoption of this Agreement or,
in the case of TRCH, the approval of the Stock Issuance or the Proposed
Certificate of Amendment, (ii) approve any letter of intent, agreement in
principle, acquisition agreement or similar agreement relating to any
Acquisition Proposal or (iii) approve or recommend, or propose to approve or
recommend, any Acquisition Proposal.
6.6 Stock Options.
(a) As soon as practicable following the date of this Agreement, the Board
of Directors of RTC (or, if appropriate, any committee administering the RTC
Stock Plans, as defined below) shall adopt such resolutions or take other
actions as may be required to effect the following: (i) adjust the terms of
all outstanding options to purchase shares of RTC Common Stock ("RTC Stock
Options") granted under any plan or arrangement providing for the grant of
options to purchase shares of RTC Common Stock to current or former officers,
directors, employees or consultants of RTC (the "RTC Stock Plans"), whether
vested or unvested, as necessary to provide that, at the Effective Date, each
RTC Stock Option outstanding immediately prior to the Effective Date shall be
amended and converted into an option to acquire, on the same terms and
conditions as were applicable under the RTC Stock Option, the number of shares
of TRCH Common Stock (rounded down to the nearest whole share) determined by
multiplying the number of shares of RTC Common Stock subject to such RTC Stock
Option by the Exchange Ratio, at a price per share of TRCH Common Stock equal
to the exercise price per share of RTC Common Stock previously purchasable
pursuant to such RTC Stock Option divided by
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the Exchange Ratio (each, as so adjusted, an "Adjusted Option"); provided
that, such exercise price shall be rounded up to the nearest whole cent; and
(ii) make such other changes to the RTC Stock Plans as TRCH and RTC may agree
are appropriate to give effect to the Merger.
(b) The adjustments provided herein with respect to any RTC Stock Options
that are "incentive stock options" as defined in Section 422 of the IRC shall
be and are intended to be effected in a manner which is consistent with
Section 424(a) of the IRC.
(c) Prior to the Effective Date, TRCH shall adopt an option plan which shall
provide for the issuance of the Adjusted Options at the Effective Date by
virtue of the Merger and without the need of any further corporate action,
TRCH shall assume all obligations of RTC under the RTC Stock Plans, including
with respect to the RTC Stock Options outstanding at the Effective Date.
(d) No later than the Effective Date, TRCH shall prepare and file with the
SEC a registration statement on Form S-8 (or another appropriate form)
registering a number of shares of TRCH Common Stock equal to the number of
shares subject to the Adjusted Options. Such registration statement shall be
kept effective (and the current status of the initial offering prospectus or
prospectuses required thereby shall be maintained) at least for so long as any
Adjusted Options may remain outstanding.
(e) As soon as practicable after the Effective Date, TRCH shall deliver to
the holders of RTC Stock Options appropriate notices setting forth such
holders' rights pursuant to the respective RTC Stock Plans and the agreements
evidencing the grants of such RTC Stock Options and that such RTC Stock
Options and agreements shall be assumed by TRCH and shall continue in effect
on the same terms and conditions (subject to the adjustments required by this
Section 6.6 after giving effect to the Merger).
(f) Except as otherwise contemplated by this Section 6.6 and except to the
extent required under the respective terms of the RTC Stock Options or other
applicable agreements, all restrictions or limitations on transfer and vesting
with respect to RTC Stock Options awarded under the RTC Stock Plans or any
other plan, program or arrangement of RTC, to the extent that such
restrictions or limitations shall not have already lapsed, shall remain in
full force and effect with respect to such options after giving effect to the
Merger and the assumption by TRCH as set forth above.
(g) RTC hereby represents and warrants to TRCH that each of the holders of
RTC Stock Options who has a "cash in lieu" right with respect to such RTC
Stock Options has agreed not to exercise such right, other than the holders
specified in the RTC Disclosure Letter.
6.7 Indemnification.
(a) TRCH shall ensure and guarantee that all provisions with respect to
indemnification by RTC or any RTC Subsidiary, or with respect to limitation of
liability to RTC or any RTC Subsidiary, now existing in favor of any present
or former director, officer, employee or agent (and their respective heirs and
assigns) of RTC or any RTC Subsidiary, respectively (the "Indemnified
Parties"), as set forth in their respective Certificates of Incorporation or
Bylaws or pursuant to other agreements, in each case, as in effect on the date
hereof, shall survive the Merger, shall not be amended, repealed or modified
and shall continue in full force and effect for a period of at least six years
from the Effective Date. This Section 6.7 shall survive the closing of all of
the transactions contemplated hereby, is intended to benefit RTC, each RTC
Subsidiary, the Surviving Corporation and each of the Indemnified Parties
(each of whom shall be entitled to enforce this Section 6.7 against TRCH or
the Surviving Corporation, as the case may be) and shall be binding on all
successors and assigns of TRCH and the Surviving Corporation.
(b) For a period of six years after the Effective Date, TRCH shall cause to
be maintained in effect the current policies of directors' and officers'
liability insurance maintained by RTC (provided that TRCH may substitute
therefor policies with reputable and financially sound carriers of at least
the same coverage and amounts containing terms and conditions which are no
less advantageous) with respect to claims arising from or related to facts or
events which occurred at or before the Effective Date; provided, however, that
TRCH shall
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not be obligated to make annual premium payments for such insurance to the
extent such premiums exceed 150% of the annual premiums paid as of the date
hereof by RTC for such insurance (such 150% amount, the "Maximum Premium"). If
such insurance coverage cannot be obtained at all, or can only be obtained at
an annual premium in excess of the Maximum Premium, TRCH shall maintain the
most advantageous policies of directors' and officers' insurance obtainable
for an annual premium equal to the Maximum Premium.
6.8 Confidentiality. The parties each agree that the Confidentiality
Agreement, dated September 24, 1997, between RTC and TRCH shall continue in
full force and effect until the Effective Date, and if this Agreement is
terminated or if the Merger is not consummated for any reason whatsoever, such
Confidentiality Agreement shall thereafter remain in full force and effect in
accordance with its terms.
6.9 Affiliates Agreements. Prior to the Effective Date, RTC shall deliver to
TRCH a list of all persons who RTC deems to be "affiliates" for purposes of
Rule 145 under the Securities Act and within the meaning of the rules and
regulations pertaining to pooling of interests transactions. RTC shall use
reasonable efforts to obtain from each such person an agreement in
substantially the form attached hereto as Exhibit C (an "Affiliates
Agreement") prior to the time the Joint Proxy Statement is mailed to RTC's
stockholders.
6.10 Pooling of Interests. Neither RTC nor TRCH shall, nor shall they permit
any of their respective affiliates to, take any actions which could have the
effect of precluding TRCH from accounting for the business combination
contemplated by this Agreement as a pooling of interests.
6.11 Employee Benefits. On the Effective Date, RTC shall, and TRCH shall
cause RTC to, pay in full all amounts owing to certain officers of RTC under
employment agreements, severance agreements, any restricted shareholders
agreement, non-competition agreements and minority stockholder buyout
agreements specified in the RTC Disclosure Letter and shall perform all other
obligations described therein (including those specified in the RTC Disclosure
Letter) which are required to be performed on or prior to the Effective Date.
The parties agree that any such payments as set forth in the RTC Disclosure
Letter shall not constitute a violation of any other provision of this
Agreement, including, without limitation, Section 6.2. Following the Effective
Date, TRCH shall cause RTC and each RTC Subsidiary to honor all of its binding
obligations under any and all severance agreements and employment agreements
to which RTC or such RTC Subsidiary is a party.
6.12 Requisite Consents Under TRCH Senior Credit Facilities. TRCH shall use
commercially reasonable efforts to obtain as soon as practicable after (and in
any event, within ten (10) business days of) the date hereof, all such
consents, amendments and waivers as may be required (the "Requisite Consents")
to consummate the transactions contemplated by this Agreement without
violating or creating an event of default under (i) that certain $800,000,000
Revolving Credit Agreement by and among TRCH and the Lenders party thereto,
DLJ Capital Funding, Inc., as Syndication Agent, First Union National Bank, as
Documentation Agent, The Bank of New York as Administrative Agent, and BNY
Capital Markets, Inc. and Donaldson, Lufkin & Jenrette Securities Corporation,
as Co-Arrangers (the "TRCH Revolving Credit Agreement") or (ii) that certain
$250,000,000 Term Loan Agreement by and among TRCH and the Lenders party
thereto, DLJ Capital Funding, Inc., as Syndication Agent, The Bank of New
York, as Administrative Agent and BNY Capital Markets, Inc. and Donaldson,
Lufkin & Jenrette Securities Corporation, as Co-Arrangers (the "TRCH Term
Loan"). TRCH represents and warrants to RTC that TRCH has been orally informed
by each of the Co-Arrangers that it is reasonably likely that TRCH will be
able to obtain the Requisite Consents within such ten (10) business day
period. In the event TRCH is unable to obtain the Requisite Consents within
such ten (10) business day period, TRCH shall have the right, on written
notice to RTC, to terminate this Agreement; provided, however, that upon any
such termination, TRCH shall pay to RTC $25,000,000 in immediately available
funds concurrently with such termination; provided, however, that TRCH shall
not utilize such termination right to the extent RTC agrees to extend such ten
(10) business day period from time-to-time by up to an aggregate of thirty
(30) additional days.
6.13 Commercially Reasonable Efforts. Subject to the terms and conditions
hereof, each of the parties hereto agrees to use their commercially reasonable
efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary to satisfy the conditions set forth herein as soon
as practicable. No party
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hereto will take any action for the purpose of delaying, impairing or impeding
the receipt of any required consent, authorization, order or approval or the
making of any required filing or registration.
6.14 Financial Statements. As soon as reasonably practicable, but in no
event later than thirty (30) days after the end of the first full calendar
month occurring after the Effective Date, TRCH shall publish (including,
without limitation, by means of a press release) financial statements setting
forth 30-day combined results of operations in such detail as may be required
under the Commission's Accounting Series Release No. 135.
6.15 Cooperation Under Certain Circumstances. RTC and TRCH acknowledge that
each holder of RTC Notes will have a right to require RTC to repurchase such
holder's RTC Notes, subject to certain terms and conditions set forth in the
Indenture (the "Repurchase Right"), if, during the twenty (20) Trading Days
(as such term is defined in the Indenture) ending immediately before the
anticipated Effective Date, the Closing Price (as such term is defined in the
Indenture) per share of the RTC Common Stock has not equaled or exceeded on at
least ten (10) of such Trading Days 105% of the Conversion Price (as such term
is defined in the Indenture) in effect on each such Trading Day. RTC and TRCH
also acknowledge that they have been advised by their respective independent
accountants that, under certain circumstances, the exercise of the Repurchase
Right could adversely affect or otherwise jeopardize TRCH's ability to account
for the business combination contemplated by this Agreement as a pooling of
interests. Accordingly, in furtherance of the obligations of the parties set
forth in Section 6.13, the parties agree that, in the event (x) the
consummation of the Merger as of a particular day will result in the holders
of RTC Notes having the Repurchase Right, and (y) the parties are advised by
their respective independent accountants that the exercise of the Repurchase
Right may adversely affect or otherwise jeopardize TRCH's ability to account
for the business combination contemplated by this Agreement as a pooling of
interests, the Merger will not be consummated on such day, and TRCH and RTC
shall take such commercially reasonable actions as may be necessary,
including, without limitation, delaying the consummation of the Merger for a
period of time not to exceed ninety (90) days, such that (i) the holders of
the RTC Notes will not have the Repurchase Right or (ii) the parties are
advised by their respective independent accountants that the exercise of the
Repurchase Right will not adversely affect or otherwise jeopardize TRCH's
ability to account for the business combination contemplated by this Agreement
as a pooling of interests.
6.16 Representation on TRCH's Board of Directors. Promptly following the
Effective Date, TRCH shall take all steps necessary to increase the size of
its Board of Directors by one and to elect Robert L. Mayer, Jr. to fill the
vacancy so created.
6.17 Tax Treatment; Tax Opinion. Each of TRCH and RTC shall use best efforts
to cause the Merger to qualify as a reorganization under the provisions of
Section 368(a) of the IRC. Each of TRCH and RTC shall cooperate with each
other in obtaining the opinion of Cravath, Swaine & Moore, counsel to RTC,
dated as of the Effective Date, to the effect that the Merger will constitute
a reorganization within the meaning of Section 368(a) of the IRC. In
connection therewith, each of TRCH, Newco and RTC shall deliver to Cravath,
Swaine & Moore representation letters in the form of Exhibit D and Exhibit E
hereto, in form and substance reasonably satisfactory to such counsel, and RTC
shall use its best efforts to obtain any representation letters from
appropriate stockholders and shall deliver any such letters obtained to
Cravath, Swaine & Moore (the representation letters referred to in this
sentence are collectively referred to as the "Tax Certificates").
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SECTION VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Date of the following conditions:
(a) The Registration Statement. The Registration Statement shall have
been declared effective, and no stop order suspending the effectiveness of
the Registration Statement shall have been issued by the Commission or
shall be continuing to be in effect, and no proceedings for that purpose
shall have been initiated or threatened by the Commission.
(b) Stockholder Approval. The stockholders of RTC shall have adopted this
Agreement by the requisite vote, and RTC shall have delivered to TRCH a
certificate of RTC's Secretary setting forth the number of shares of RTC
Common Stock voted in favor of adoption of this Agreement and certifying
that this Agreement was adopted by a majority of the outstanding shares of
RTC Common Stock. The TRCH stockholders shall have approved the Share
Issuance and the Proposed Certificate of Amendment by the requisite vote,
and TRCH shall have delivered to RTC a certificate of TRCH's Secretary
setting forth the number of shares of TRCH Common Stock voted in favor of
the Share Issuance and the Proposed Certificate of Amendment and certifying
that the Proposed Certificate of Amendment was approved by a majority of
the outstanding shares of TRCH Common Stock and that the Share Issuance was
approved by a majority of the total votes cast in person or by proxy at the
TRCH Meeting.
(c) Filing of the Proposed Certificate of Amendment. The Proposed
Certificate of Amendment shall have been duly filed with the Secretary of
State of the State of Delaware and become effective.
(d) No Injunctions. No United States or state governmental authority or
other agency or commission or United States or state court of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered
any statute, rule, regulation, injunction or other order (whether
temporary, preliminary or permanent) which is in effect and has the effect
of making illegal or otherwise prohibiting consummation of the transactions
contemplated by this Agreement.
(e) HSR. Any waiting period applicable to the Merger under the HSR Act
shall have expired or been terminated.
(f) NYSE Listing. The shares of TRCH Common Stock issuable in the Merger
or thereafter as contemplated by this Agreement shall have been authorized
for listing on the NYSE, upon official notice of issuance.
(g) No Proceedings. There shall not have been instituted or pending any
action or proceeding by or before any court or governmental authority or
other regulatory or administrative agency or commission, domestic or
foreign, by any government or governmental authority, nor shall there be
any determination by any government, governmental authority, regulatory or
administrative agency or commission which, in either case, would require
either party to take any action or do anything in connection with the
foregoing which would result in a material adverse effect to their
respective businesses or materially impair TRCH's or the Surviving
Corporation's ownership or operation of all or a material portion of the
business or assets of RTC and the RTC Subsidiaries, taken as a whole, or
compel TRCH to dispose of all or a material portion of the business or
assets of TRCH and the TRCH Subsidiaries, taken as a whole.
(h) Supplemental Indenture. RTC, TRCH and the Trustee shall have executed
and delivered the Supplemental Indenture in accordance with the
requirements of the Indenture, which shall provide for the adjustment of
the Conversion Price set forth in the RTC Notes from $34.20 to such price
as is required pursuant to Article XI of the Indenture and shall contain
such other terms and conditions as may be required under the Indenture.
(i) Opinion of Accountants. TRCH and RTC shall have received an opinion
from each of Price Waterhouse LLP and Coopers & Lybrand LLP addressed to
each of them, respectively, and dated the
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Effective Date to the effect that the business combination contemplated by
this Agreement would properly be accounted for as a pooling of interests in
accordance with GAAP and the published rules, regulations and policies of
the Commission.
7.2 Conditions to the Obligation of RTC to Effect the Merger. The obligation
of RTC to effect the Merger shall be subject to the fulfillment on or prior to
the Effective Date of the following additional conditions:
(a) Performance. TRCH and Newco shall have performed in all material
respects their respective obligations under this Agreement required to be
performed by them on or prior to the Effective Date pursuant to the terms
hereof.
(b) Representations and Warranties. All representations and warranties of
TRCH and Newco in this Agreement which are qualified with respect to a TRCH
Material Adverse Effect or materiality shall be true and correct, and all
representations and warranties of TRCH and Newco in this Agreement that are
not so qualified shall be true and correct in all material respects, in
each case as if such representations and warranties were made as of the
Effective Date, except to the extent any such representation or warranty is
made as of a specified date, in which case such representation or warranty
shall have been true and correct as of such specified date.
(c) No Material Adverse Change. Since the date of this Agreement, there
shall not have been any material adverse change in the financial condition,
results of operations, properties or business of TRCH and the TRCH
Subsidiaries, taken as a whole, excluding any such change caused by a
general change in the economy or in the dialysis industry generally or
arising from the transactions contemplated hereby.
(d) Officers Certificate. Each of TRCH and Newco shall have delivered a
certificate of its President or Vice President to the effect set forth in
paragraphs (a), (b) and (c) of this Section 7.2.
(e) Deposit of Exchange Fund. An officer of the Exchange Agent shall have
certified in writing to RTC that the deposit required to be made by TRCH
into the Exchange Fund pursuant to Section 2.4 hereof has been made.
(f) Tax Opinion. RTC shall have received from its legal counsel an
opinion dated the Effective Date to the effect that the Merger will be
treated for Federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the IRC, and that TRCH, Newco, and RTC will
each be a party to such reorganization within the meaning of Section 368(b)
of the IRC. In rendering such opinion, counsel for RTC may require delivery
of and rely on the Tax Certificates.
7.3 Conditions to Obligation of TRCH and Newco to Effect the Merger. The
obligation of TRCH and Newco to effect the Merger shall be subject to the
fulfillment on or prior to the Effective Date of the following additional
conditions:
(a) Performance. RTC shall have performed in all material respects each
of its obligations under this Agreement required to be performed by it on
or prior to the Effective Date pursuant to the terms hereof.
(b) Representations and Warranties. All representations and warranties of
RTC in this Agreement which are qualified with respect to a RTC Material
Adverse Effect or materiality shall be true and correct, and all
representations and warranties of RTC in this Agreement that are not so
qualified shall be true and correct in all material respects, in each case
as if such representations and warranties were made as of the Effective
Date, except to the extent any such representation or warranty is made as
of a specified date, in which case such representation or warranty shall
have been true and correct as of such specified date.
(c) No Material Adverse Change. Since the date of this Agreement, there
shall not have been any material adverse change in the financial condition,
results of operations, properties or business of RTC and the RTC
Subsidiaries, taken as a whole, excluding any such change caused by a
general change in the economy or in the dialysis industry generally or
arising from the transactions contemplated hereby.
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<PAGE>
(d) Officers Certificate. RTC shall have delivered a certificate of its
President or Vice President to the effect set forth in paragraphs (a), (b)
and (c) to this Section 7.3.
(e) Affiliates Agreements. Each affiliate of RTC identified as such by
RTC pursuant to Section 6.9 shall have executed and delivered an Affiliates
Agreement.
SECTION VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated and the Merger
contemplated herein may be abandoned at any time prior to the Effective Date,
whether before or after approval by the stockholders of RTC or TRCH:
(i) by the mutual consent of TRCH and RTC;
(ii) by TRCH on written notice to RTC, if (i) an Acquisition Proposal
with respect to TRCH has been made and not withdrawn, (ii) a majority of
disinterested members of TRCH's Board of Directors determines in good faith
(with the advice of independent financial advisors and legal counsel) that
(A) as a result of such Acquisition Proposal, such termination is required
in order to comply with its fiduciary duties to TRCH's stockholders, (B)
such Acquisition Proposal is superior for TRCH's stockholders to the
transaction contemplated by this Agreement and (C) there is a substantial
possibility that TRCH's stockholders' approval of (x) the Share Issuance
and (y) the Proposed Certificate of Amendment will not be obtained by
reason of the existence of such Acquisition Proposal, (iii) TRCH has
notified RTC in writing of the determinations described in clause (ii)
above, (iv) at least five (5) business days have elapsed following receipt
by RTC of such written notice and (taking into account any revised proposal
made by RTC since receipt of such written notice) a majority of the
disinterested directors of TRCH's Board of Directors has again made the
determinations referred to in clause (ii) above, (v) TRCH is in compliance
with Section 6.5, (vi) TRCH concurrently pays the fee due under Section
8.3(a) and (vii) TRCH's Board of Directors concurrently approves, and TRCH
concurrently enters into, a definitive agreement providing for the
implementation of such Acquisition Proposal;
(iii) by RTC on written notice to TRCH, if (i) an Acquisition Proposal
with respect to RTC has been made and not withdrawn, (ii) a majority of
disinterested members of RTC's Board of Directors determines in good faith
(with the advice of independent financial advisors and legal counsel) that
(A) as a result of such Acquisition Proposal, such termination is required
in order to comply with its fiduciary duties to RTC's stockholders, (B)
such Acquisition Proposal is superior for RTC's stockholders to the
transaction contemplated by this Agreement and (C) there is a substantial
possibility that RTC's stockholders' adoption of this Agreement will not be
obtained by reason of the existence of such Acquisition Proposal, (iii) RTC
has notified TRCH in writing of the determinations described in clause (ii)
above, (iv) at least five (5) business days have elapsed following receipt
by TRCH of such written notice and (taking into account any revised
proposal made by TRCH since receipt of such written notice) a majority of
the disinterested directors of RTC's Board of Directors has again made the
determinations referred to in clause (ii) above, (v) RTC is in compliance
with Section 6.5, (vi) RTC concurrently pays the fee due under Section
8.3(b) and (vii) RTC's Board of Directors concurrently approves, and RTC
concurrently enters into, a definitive agreement providing for the
implementation of such Acquisition Proposal;
(iv) by TRCH on forty eight (48) hours' written notice to RTC, if there
is a breach of any of the representations and warranties of RTC which are
qualified with respect to a RTC Material Adverse Effect or materiality or
if RTC shall have breached in any material respect any of such
representations or warranties which are not so qualified, or if RTC fails
to comply in any material respect with any of its covenants or agreements
contained herein, which breaches or failures, as the case may be, are, in
the aggregate, material in the context of the transactions contemplated by
this Agreement and cannot reasonably be anticipated to be cured by RTC
within sixty (60) days of the date of such notice;
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<PAGE>
(v) by RTC on forty eight (48) hours' written notice to TRCH, if there is
a breach of any of the representations and warranties of TRCH or Newco
which are qualified with respect to a TRCH Material Adverse Effect or
materiality or if TRCH or Newco shall have breached in any material respect
any of such representations or warranties which are not so qualified, or if
TRCH or Newco fails to comply in any material respect with any of its
covenants or agreements contained herein, which breaches or failures, as
the case may be, are, in the aggregate, material in the context of the
transactions contemplated by this Agreement and cannot reasonably be
anticipated to be cured by TRCH or Newco as the case may be within sixty
(60) days of the date of such notice;
(vi) by either TRCH or RTC on written notice to the other party, if the
Merger shall not have been consummated on or before June 30, 1998 (the
"Outside Date"); provided, however, that (A) TRCH may not terminate this
Agreement pursuant to this clause (vi) if such failure to consummate the
Merger is the result of a failure to satisfy any of the conditions to RTC's
obligation to effect the Merger set forth in Section 7.2 and (B) RTC may
not terminate this Agreement pursuant to this clause (vi) if such failure
to consummate the Merger is the result of a failure to satisfy any of the
conditions to TRCH's obligation to effect the Merger set forth in Section
7.3;
(vii) by either TRCH or RTC on written notice to the other party, if a
United States federal or state court of competent jurisdiction or United
States federal or state governmental, regulatory or administrative agency
or commission shall have issued an order, decree or ruling or taken any
other action permanently restraining, enjoining or otherwise prohibiting
the transactions contemplated by this Agreement and such order, decree,
ruling or other action has become final and non-appealable; provided, that
the party seeking to terminate this Agreement pursuant to this clause (vii)
must have used all reasonable efforts to remove such injunction, order or
decree;
(viii) by either TRCH or RTC on written notice to the other party, if (A)
upon a vote at the RTC Meeting, RTC's stockholders do not adopt this
Agreement, or (B) upon a vote at the TRCH Meeting, TRCH's stockholders do
not approve the Share Issuance or the Proposed Certificate of Amendment;
(ix) by either TRCH or RTC on written notice to the other party, if, at
any time prior to the Effective Date, Price Waterhouse LLP and/or Coopers &
Lybrand L.L.P. shall have indicated in writing to TRCH and RTC that such
firm is unable to render the opinion required by Section 7.1(i) and that it
cannot reasonably be anticipated that such firm will be able to render such
opinion within sixty (60) days of the date of such writing; provided,
however, that, in the event such firm is unable to render such opinion as a
result of a breach by either party of any representation, warranty or
covenant in this Agreement, such breaching party may not terminate this
Agreement pursuant to this clause (ix); and
(x) by TRCH on written notice to RTC, if, after complying with Section
6.15, the Merger has not been consummated within the ninety (90) day period
referred to in the final sentence of such Section 6.15 due to the
possibility that exercise of the Repurchase Right could adversely affect or
otherwise jeopardize TRCH's ability to account for the business combination
contemplated by this Agreement as a pooling of interests.
8.2 Effect of Termination. In the event of any termination of this Agreement
pursuant to Section 6.12 or pursuant to clause (i), (ii), (iii), (vi), (vii)
(viii), (ix) or (x) of Section 8.1, no party hereto (or any of its directors
or officers) shall have any liability or further obligation to any other party
to this Agreement, except the obligation to pay the fees, if any, provided in
Section 6.12 and Section 8.3, and except that the parties shall each pay one-
half of certain expenses as provided in Section 9.2. In the event of any
termination of this Agreement pursuant to clauses (iv) or (v) of Section 8.1,
such termination shall not limit or affect in any way the ability of the non-
breaching party to seek damages from the breaching party for any breach of
this Agreement (including the right to seek recovery of the portion of the
expenses paid by the non-breaching party pursuant to Section 9.2).
8.3 Termination Fees.
(a) Termination Fee Payable by TRCH. If this Agreement is terminated (i) by
TRCH pursuant to clause (ii) of Section 8.1, (ii) by either TRCH or RTC,
pursuant to clause (vi) of Section 8.1 prior to approval of
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the Share Issuance and the Proposed Certificate of Amendment by TRCH's
stockholders, and any person has made an Acquisition Proposal with respect to
TRCH which has not been withdrawn prior to the date which is 60 days prior to
the Outside Date, or (iii) by either TRCH or RTC pursuant to clause (viii) (B)
of Section 8.1 and either (A) any person has made an Acquisition Proposal with
respect to TRCH which has not been withdrawn prior to the date of the TRCH
Meeting, or (B) RTC's stockholders shall have, on or prior to the date of such
termination, adopted this Agreement and TRCH shall not have given a valid
notice of termination of this Agreement pursuant to clause (iv) of Section 8.1
prior to the date of the TRCH Meeting, then, in any such case, TRCH shall pay
to RTC $50,000,000 in immediately available funds.
(b) Termination Fee Payable by RTC. If this Agreement is terminated (i) by
RTC pursuant to clause (iii) of Section 8.1, (ii) by either RTC or TRCH
pursuant to clause (vi) of Section 8.1 prior to adoption of this Agreement and
any person has made an Acquisition Proposal with respect to RTC which has not
been withdrawn prior to the date which is sixty (60) days prior to the Outside
Date or (iii) by either RTC or TRCH pursuant to clause (viii)(A) of Section
8.1 and either (A) any person has made an Acquisition Proposal with respect to
RTC which has not been withdrawn prior to the date of the RTC Meeting, or (B)
TRCH's stockholders shall have, on or prior to the date of such termination,
approved the Share Issuance and the Proposed Certificate of Amendment and RTC
shall not have given a valid notice of termination of this Agreement pursuant
to clause (v) of Section 8.1 prior to the date of the RTC Meeting, then, in
any such case, RTC shall, pay to TRCH $50,000,000 in immediately available
funds. If this Agreement is terminated by TRCH pursuant to clause (x) of
Section 8.1, RTC shall pay to TRCH $25,000,000 in immediately available funds;
provided, however, that RTC shall not be obligated to pay such termination fee
if RTC has indicated in writing prior to such termination that RTC reasonably
believes that the risk that the business combination contemplated by this
Agreement will not properly be accounted for as a pooling of interests is such
that RTC is willing to consummate the Merger despite such risk.
8.4 Amendment. Subject to the applicable provisions of the General
Corporation Law, this Agreement may be amended by the parties hereto solely by
action taken by their respective Boards of Directors. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
8.5 Waiver. At any time prior to the Effective Date, the parties hereto, by
action taken by their respective Boards of Directors, may (i) extend the time
for the performance of any of the obligations or other acts of the other
parties hereto, (ii) waive any inaccuracies in the representations and
warranties of the other party contained herein or in any documents delivered
pursuant hereto, and (iii) waive compliance by the other party with any of the
agreements or conditions herein. Any agreement on the part of a party hereto
to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
SECTION IX
MISCELLANEOUS
9.1 Survival. All representations and warranties contained in Sections IV
and V of this Agreement shall terminate and be extinguished on the Effective
Date. Upon the termination of this Agreement pursuant to Section 6.12 or
Section 8.1 of this Agreement, all representations, warranties, covenants and
agreements contained in this Agreement, other than (i) the provisions of the
Confidentiality Agreement referred to in Section 6.8 and (ii) Section 8.2,
Section 8.3 and this Section IX, shall remain in full force and effect, and
such termination shall not limit or affect in any way the ability of any non-
breaching party terminating this Agreement pursuant to clause (iv) or clause
(v) of Section 8.1 of this Agreement to seek damages from the breaching party
for any breach of this Agreement.
9.2 Expenses and Fees. If the Merger is consummated, all reasonable fees and
expenses incurred in connection with the Merger and the transactions
contemplated hereby will be paid by the Surviving Corporation. If this
Agreement is terminated and the Merger is not consummated for any reason, each
party hereto shall, subject to the provisions of Section 8.3, bear its own
fees and expenses; provided, however, that the following
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<PAGE>
fees and expenses shall be paid one-half by TRCH and one-half by RTC: (i) the
filing fee paid to the Commission with respect to the Registration Statement;
and (ii) the printing and mailing expenses incurred with respect to the Joint
Proxy Statement and the Registration Statement. In the event of any
termination of this Agreement pursuant to clause (iv) or clause (v) of Section
8.1, the non-breaching party may assert a claim for payment of the portion of
such fees paid by the non-breaching party as one element of the damages
suffered by such non-breaching party.
9.3 Notices. All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been given or made if
in writing and (i) delivered personally, (ii) mailed by registered or
certified mail (postage prepaid, return receipt requested) or (iii) sent by
telecopier to the parties as follows:
(a)if to Newco or TRCH to:
Total Renal Care Holdings, Inc.
Suite 800
21250 Hawthorne Boulevard
Torrance, CA 90503
Attention: Barry C. Cosgrove, Esq.
Telecopier No.: (310) 792-0044
with copies to:
Riordan & McKinzie
695 Town Center Drive, Suite 1500
Costa Mesa, California 92626
Attention: James W. Loss, Esq.
Telecopier No.: (714) 549-3244
(b)if to RTC, to:
Renal Treatment Centers, Inc.
Building 2, Suite 300
1180 West Swedesford Road
Berwyn, PA 19312
Attention: Thomas J. Karl, Esq.
Telecopier No.: (610) 722-6023
with copies to:
Duane, Morris & Heckscher, LLP
One Liberty Place
Philadelphia, PA 19103-7396
Attention: Kathleen M. Shay, Esq.
Telecopier No.: (215) 979-1020
and:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Attention: Richard Hall, Esq.
Telecopier No.: (212) 474-3700
or at such other addresses as shall be furnished by the parties by like
notice, and such notice or communication shall be deemed to have been given or
made as of the date so delivered, mailed or sent.
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<PAGE>
9.4 Headings. The headings contained in this Agreement are inserted for
convenience only and do not constitute a part of this Agreement.
9.5 Publicity. No party shall, or shall cause or permit any of its
affiliates to, issue or cause the publication of any press release or other
announcement with respect to the Merger or this Agreement except (i) with the
consent and approval of the other party, or (ii) to the extent such party
believes that such disclosure is required by applicable law, in which event,
such party shall, to the extent possible, consult with the other party prior
to any such press release or announcement.
9.6 Entire Agreement. This Agreement, the Exhibits hereto and the other
agreements referred to herein, including, without limitation, the TRCH/Newco
Disclosure Letter, the RTC Disclosure Letter, and the Confidentiality
Agreement referred to in Section 6.8, constitute the entire agreement among
the parties, and supersede all other prior agreements and understandings, both
written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
9.7 Assignment. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefits of the parties hereto and their
respective successors and permitted assigns. Neither this Agreement nor any of
the rights, interests or obligations shall be assigned by any of the parties
hereto without the prior written consent of the other parties. This Agreement,
other than Section 6.6, Section 6.7 and Section 6.14, is not intended to
confer upon any other person any rights or remedies hereunder.
9.8 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
9.9 Severability. In the event that any provision of this Agreement shall be
deemed contrary to law, void, voidable or invalid or unenforceable in any
respect by a court of competent jurisdiction, the remaining provisions shall
remain in full force and effect to the extent that such provisions can still
reasonably be given effect in accordance with the intentions of the parties,
and the void, voidable, invalid or unenforceable provisions shall be deemed,
without further action on the part of the parties, modified, amended and
limited solely to the extent necessary to render the same valid and
enforceable.
9.10 Governing Law. The validity and interpretation of this Agreement shall
be governed by the laws of the State of Delaware, without reference to the
conflict of laws principles thereof.
IN WITNESS WHEREOF, Total Renal Care Holdings, Inc., Nevada Acquisition
Corp. and Renal Treatment Centers, Inc. have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
TOTAL RENAL CARE HOLDINGS, INC. RENAL TREATMENT CENTERS, INC.
By: __________________________________ By: __________________________________
Title: _______________________________ Title: _______________________________
NEVADA ACQUISITION CORP.
By: __________________________________
Title: _______________________________
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<PAGE>
EXHIBIT A
CERTIFICATE OF MERGER
OF NEVADA ACQUISITION CORP. WITH AND INTO
RENAL TREATMENT CENTERS, INC.
UNDER SECTION 251 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
Pursuant to Section 251 of the General Corporation Law of the State of
Delaware, Renal Treatment Centers, Inc., a Delaware corporation ("RTC"),
hereby certifies to the following information relating to the merger of Nevada
Acquisition Corp., a Delaware corporation ("Newco"), with and into RTC (the
"Merger"):
1. The names and states of incorporation of RTC and Newco, which are the
constituent corporations in the Merger (the "Constituent Corporations"),
are as follows:
<TABLE>
<CAPTION>
STATE OF
NAME INCORPORATION
---- -------------
<S> <C>
Nevada Acquisition Corp. .................................... Delaware
RTC.......................................................... Delaware
</TABLE>
2. The Agreement and Plan of Merger, dated as of November 18, 1997, among
TRCH, a Delaware corporation and the sole stockholder of Newco, Newco and
RTC (the "Merger Agreement"), setting forth the terms and conditions of the
Merger, has been approved, adopted, certified, executed and acknowledged by
each of the Constituent Corporations in accordance with the provisions of
Section 251 of the General Corporation Law of the State of Delaware.
3. The name of the corporation surviving the Merger is RTC.
4. The certificate of incorporation of RTC, as in effect immediately
prior to the time of filing of this Certificate of Merger, shall be the
certificate of incorporation of the surviving corporation.
5. An executed Merger Agreement is on file at the principal place of
business of the surviving corporation, which is located at Suite 300, 1180
West Swedesford Road, Building 2, Berwyn, PA.
6. A copy of the Merger Agreement will be furnished by the surviving
corporation, on request and without cost, to any stockholder of either of
the Constituent Corporations.
7. This Certificate of Merger shall be effective immediately upon filing.
IN WITNESS WHEREOF, this Certificate of Merger has been executed on this
day of , 1998.
ATTEST: RENAL TREATMENT CENTERS, INC.
By: _________________________________ By: _________________________________
Title: ______________________________ Title: ______________________________
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<PAGE>
EXHIBIT B
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
TOTAL RENAL CARE HOLDINGS, INC.
Total Renal Care Holdings, Inc. (the "Corporation"), a corporation organized
and existing under and by virtue of the General Corporation Law of the State
of Delaware, does hereby certify:
FIRST: That the Corporation was originally incorporated under the name
Medical Ambulatory Care Delaware, Inc., and the date of the filing of the
Corporation's original Certificate of Incorporation with the Delaware
Secretary of State was April 4, 1994.
SECOND: That the Board of Directors of the Corporation adopted a resolution
proposing and declaring advisable the following amendment to the Corporation's
Certificate of Incorporation:
"NOW, THEREFORE BE IT RESOLVED, that the first paragraph of Article
Fourth of the Company's Certificate of Incorporation be amended in its
entirety as follows (the "Amendment"):
"A. SHARES AUTHORIZED. The total number of shares of all classes of
stock which the Corporation shall have the authority to issue is Two
Hundred Million (200,000,000) shares consisting of One Hundred Ninety-
Five Million (195,000,000) shares of Common Stock, par value $0.001 per
share (the "Common Stock"), and Five Million (5,000,000) shares of
Preferred Stock, par value $0.001 per share (the "Preferred Stock")." "
THIRD: That the foregoing amendment was duly adopted by all of the duly
elected directors of the Corporation in accordance with the applicable
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: The foregoing amendment was duly adopted by a majority of the
outstanding shares of stock of the Corporation in accordance with the
applicable provisions of Sections 228 and 242 of the General Corporation Law
of the State of Delaware and the Corporation's Certificate of Incorporation.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed
by John E. King, its Vice President, Finance and Chief Financial Officer, and
Barry C. Cosgrove, its Vice President, General Counsel and Secretary, this
day of , 1997.
TOTAL RENAL CARE HOLDINGS, INC.,
a Delaware corporation
By: _________________________________
John E. King,
Vice President, Finance
and Chief Financial Officer
Attest: _____________________________
Barry C. Cosgrove
Vice President, General Counsel
and Secretary
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<PAGE>
EXHIBIT C
FORM OF AFFILIATE'S AGREEMENT
Total Renal Care Holdings, Inc.
21250 Hawthorne Boulevard, Suite 800
Torrance, CA 90503-5517
RE: AGREEMENT AND PLAN OF MERGER
Ladies and Gentlemen:
The undersigned refers to the Agreement and Plan of Merger (the "Merger
Agreement") dated as of November , 1997, among Total Renal Care Holdings,
Inc., a Delaware corporation ("TRCH"), Nevada Acquisition Corp., a Delaware
corporation, and Renal Treatment Centers, Inc., a Delaware corporation
("RTC"). Capitalized terms used but not defined in this letter have the
meanings given to such terms in the Merger Agreement.
The undersigned, as a holder of shares of RTC Common Stock, will be entitled
to receive shares of TRCH Common Stock pursuant to the Merger. The undersigned
acknowledges that the undersigned may be deemed an "affiliate" of RTC within
the meaning of Rule 145 ("Rule 145") promulgated under the Securities Act of
1933, as amended (the "Securities Act") or Accounting Series Releases 130 and
135, as amended (the "Releases"), of the Securities and Exchange Commission
(the "SEC"), although nothing contained herein should be construed as an
admission of such fact.
If, in fact, the undersigned were to be deemed to be an affiliate under the
Securities Act, the undersigned's ability to sell, assign or transfer the
shares of TRCH Common Stock to be received by the undersigned pursuant to the
Merger would be restricted unless such transaction is registered under the
Securities Act or an exemption from such registration is available. The
undersigned (i) understands that such exemptions are limited and that TRCH is
not under any obligation to effect such registration and (ii) has obtained
advice of counsel as to the nature and conditions of such exemptions,
including information with respect to the applicability to the sale of such
securities of Rules 144 and 145(d) promulgated under the Securities Act.
The undersigned hereby covenants with TRCH that the undersigned will not
sell, assign or transfer any shares of TRCH Common Stock to be received by the
undersigned pursuant to the Merger except (i) pursuant to an effective
registration statement under the Securities Act or (ii) in a transaction that,
in the opinion of counsel reasonably satisfactory to TRCH or as described in a
"no-action" or interpretive letter from the Staff of the SEC, is not required
to be registered under the Securities Act.
In the event of a sale or other disposition by the undersigned pursuant to
Rule 145 of TRCH Common Stock received pursuant to the Merger, the undersigned
will provide TRCH with evidence of compliance with Rule 145 by means of a
letter in the form of Annex I hereto and the opinion of counsel or no-action
letter referred to above. The undersigned understands that TRCH may instruct
its transfer agent to withhold the transfer of any TRCH Common Stock disposed
of by the undersigned, but that upon receipt of such evidence of compliance
the transfer agent shall effectuate the transfer of the TRCH Common Stock sold
as indicated in the letter.
The undersigned acknowledges that the Merger is to be accounted for as a
pooling of interests and that such accounting treatment is material to TRCH.
In compliance with the requirements for such accounting treatment, the
undersigned covenants and agrees with TRCH that the undersigned will not (i)
between the date hereof and the Effective Date, sell, transfer or otherwise
dispose of, or reduce the undersigned's risk (within the meaning of the
Releases) with respect to, any shares of RTC Common Stock held by the
undersigned or (ii) sell, transfer or otherwise dispose of, or reduce the
undersigned's risk (within the meaning of the Releases) with
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<PAGE>
respect to, any TRCH Common Stock received pursuant to the Merger until after
such time as a report including results covering at least 30 days of combined
operations of the RTC and TRCH has been published by TRCH. Without limiting
the generality of the foregoing, TRCH and the undersigned acknowledge and
agree that de minimis sales by the undersigned of RTC Common Stock or TRCH
Common Stock during the periods referred to in the immediately preceding
sentence are permitted under the SEC's interpretations of the Releases and the
undersigned shall be free to effect any such de minimis sales during such
periods; provided, however, that no sale of RTC Common Stock or TRCH Common
Stock may be made by the undersigned in reliance on such de minimis exception
except in reliance upon a written statement from TRCH's independent
accountants that such sale is permitted under such exception.
The undersigned acknowledges and agrees that appropriate legends will be
placed on certificates representing the shares of TRCH Common Stock to be
received by the undersigned pursuant to the Merger or held by a transferee
thereof, which legends will be removed by delivery of substitute certificates
upon receipt of an opinion in form and substance reasonably satisfactory to
TRCH from counsel reasonably satisfactory to TRCH to the effect that such
legends are no longer required for purposes of the Securities Act.
The undersigned acknowledges that (i) the undersigned has carefully read
this letter and understands the requirements hereof and the limitations
imposed upon the distribution, sale, transfer or other disposition of TRCH
Common Stock to be received by the undersigned pursuant to the Merger and (ii)
the receipt by TRCH of this letter as an inducement and a condition to TRCH's
obligation to consummate the Merger.
Very truly yours,
Dated: -------------------------------------
--------------------------------- Signature
-------------------------------------
Print or Type Name
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<PAGE>
ANNEX I
TO EXHIBIT C
Total Renal Care Holdings, Inc.
21250 Hawthorne Boulevard, Suite 800
Torrance, CA 90503-5517
To whom it may concern:
On , the undersigned sold shares (the "Shares") of the
Common Stock of Total Renal Care Holdings, Inc. ("TRCH"). The Shares were
received by the undersigned in connection with the merger of Nevada
Acquisition Corp, a subsidiary of TRCH, with and into RTC.
Based upon the most recent report or statement filed by TRCH with the
Securities and Exchange Commission, the Shares sold by the undersigned were
within the prescribed limitations set forth in Rule 144(e) promulgated under
the Securities Act of 1933, as amended (the "Securities Act").
The undersigned hereby represents that the Shares were sold in one or more
"brokers' transactions," within the meaning of such term as defined in Section
4(4) of the Securities Act, or in one or more transactions directly with a
"market maker," as that term is defined in Section 3(a)(38) of the Securities
Exchange Act of 1934, as amended. The undersigned further represents that the
undersigned has not solicited or arranged for the solicitation of orders to
buy the Shares, and that the undersigned has not made any payment in
connection with the offer of sale of the Shares to any person other than to
the broker who executed the order in respect of such sale.
Very truly yours,
Dated: ______________________________ -------------------------------------
Signature
-------------------------------------
Print or Type Name
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<PAGE>
EXHIBIT D
[Letterhead of Renal Treatment Centers, Inc.]
, 1997
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019-9475
Dear Ladies and Gentlemen:
In connection with the opinion to be delivered pursuant to the Agreement and
Plan of Merger (the "Merger Agreement") dated as of November 18, 1997, by and
among Total Renal Care Holdings, Inc., a Delaware corporation ("Parent"),
Renal Treatment Centers, Inc., a Delaware corporation (the "Company"), and
Nevada Acquisition Corp., a Delaware corporation and a wholly owned subsidiary
of Parent ("Sub"), the undersigned certifies and represents on behalf of the
Company and as to the Company, after due inquiry and investigation, as follows
(any capitalized term used but not defined herein shall have the meaning given
to such term in the Merger Agreement):
1. The facts relating to the contemplated merger (the "Merger") of Sub
with and into the Company pursuant to the Merger Agreement, as described in
the Merger Agreement, the documents described in the Merger Agreement and
the joint proxy statement/prospectus prepared by Parent and the Company,
are, insofar as such facts pertain to the Company, true, correct and
complete in all material respects.
2. Neither the Company nor any of its subsidiaries has acquired any
shares of common stock of the Company ("Company Common Stock") in
contemplation of the Merger, or otherwise as part of a plan of which the
Merger is a part. For purposes of this representation, Company Common Stock
acquired in the ordinary course of business in connection with employee
incentive and benefit plans, programs or arrangements in existence on the
date hereof shall not be treated as an acquisition in contemplation of the
Merger or otherwise as part of a plan of which the Merger is a part.
3. There is no present plan or intention on the part of the stockholders
of the Company that owns 5% or more of the Company Common Stock, and the
Company knows of no present plan or intention on the part of the remaining
holders of Company Common Stock, to sell, exchange or otherwise dispose of,
reduce the risk of loss (by short sale or otherwise) of the holding of,
enter into any contract or other arrangement with respect to, the sale,
exchange or other disposition of (each of the foregoing, a "disposition"),
any interest in the shares of Parent Common Stock received in the Merger in
exchange for such Company Common Stock that would reduce the ownership of
Parent Common Stock by former holders of Company Common Stock to a number
of shares having a value, as of immediately prior to the Merger, of less
than 50% of the value of all of the outstanding shares of Company Common
Stock as of such date. For purposes of this representation, any
"disposition" (as defined above) of Parent Common Stock will be treated as
a reduction in ownership thereof. In addition, for purposes of this
representation, shares of Company Common Stock exchanged by holders of
Company Common Stock for cash in lieu of fractional shares of Parent Common
Stock will be treated as outstanding Company Common Stock immediately prior
to the Merger. Moreover, for purposes of this representation, shares of
Company Common Stock and shares of Parent Common Stock received in the
Merger and sold, redeemed or disposed of prior to or subsequent to the
Merger, in contemplation thereof or as part of a plan therewith, will be
considered in making this representation.
4. The Company and the stockholders of the Company will each pay their
respective expenses (including transfer taxes), if any, incurred in
connection with the Merger. The Company has not agreed to
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<PAGE>
assume, nor will it directly or indirectly assume, any expense or other
liability, whether fixed or contingent, of any holder of Company Common
Stock.
5. Following the Merger, the Company will hold at least 90 percent of the
fair market value of the net assets and at least 70 percent of the fair
market value of the gross assets the Company held immediately prior to the
Merger. For purposes of this representation, Company assets used to pay its
reorganization expenses and all redemptions and distributions (except for
regular, normal dividends) made by the Company immediately preceding, or in
contemplation of, the Merger will be included as assets of the Company
prior to the Merger.
6. Except as provided in Section 5.4 of the Merger Agreement, immediately
prior to the time of the Merger, the Company will not have outstanding any
warrants, options, convertible securities or any other type of right
pursuant to which any person could acquire stock of the Company ("Company
Stock").
7. In the Merger, shares of Company Stock representing at least 80% of
the total combined voting power of all classes of Company stock outstanding
on the date of the Merger, and at least 80% of the total number of each
other class of Company Stock outstanding on the date of the Merger will be
exchanged solely for Parent Common Stock. For purposes of this
representation, shares of Company Stock exchanged for cash or other
property originating with Parent, Sub or any subsidiary of Parent will be
treated as outstanding stock of the Company on the date of the Merger.
8. The Company is not an investment company as defined in Section 368 (a)
(2) (F) (iii) and (iv) of the Internal Revenue Code of 1986, as amended
(the "Code").
9. The Company will not take, and the Company is not aware of any plan or
intention of Company stockholders to take, any position on any Federal,
state or local income or franchise tax return, or take any other tax
reporting position, that is inconsistent with the treatment of the Merger
as a reorganization within the meaning of Section 368 (a) of the Code,
unless otherwise required by a "determination" (as defined in Section 1313
(a) (1) of the Code) or by applicable state or local income or franchise
tax law.
10. None of the compensation received by any stockholder-employee of the
Company in respect of periods at or prior to the Effective Date represents
separate consideration for, or is allocable to, any of their Company Common
Stock. None of the Parent Common Stock that will be received by Company
stockholder-employees in the Merger represents separately bargained for
consideration which is allocable to any employment agreement or
arrangement. The compensation paid to any stockholder-employees will be for
services actually rendered and will be determined by bargaining at arms-
length.
11. There is no intercorporate indebtedness existing between Parent and
the Company or between Sub and the Company that was issued or acquired, or
will be settled, at a discount.
12. The Company is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368 (a) (3) (A) of the Code.
13. The Merger Agreement and the documents described in the Merger
Agreement represent the entire understanding of the Company, Parent and Sub
with respect to the Merger.
14. The Company Common Stock will be surrendered pursuant to the Merger
in an arms-length exchange, and the Parent Common Stock received in
exchange therefor represents the sole bargained-for consideration therefor
(other than cash in lieu of fractional shares).
15. No assets of the Company have been sold, transferred or otherwise
disposed of which would prevent Parent from continuing the historic
business of the Company or from using a significant portion of the historic
business assets in its business following the merger.
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<PAGE>
16. At the Effective Date, the total fair market value of the assets of
the Company exceeds the total liabilities of the Company, including the
amount of any liabilities to which the assets of the Company are subject.
17. No holders of Company Common Stock have dissenters' rights with
respect to the Merger under applicable laws.
Very truly yours,
RENAL TREATMENT CENTERS, INC.
By: _________________________________
Title _______________________________
A-41
<PAGE>
EXHIBIT E
[Letterhead of Total Renal Care Holdings, Inc.]
, 1997
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019-9475
Dear Ladies and Gentlemen:
In connection with the opinion to be delivered pursuant to the Agreement and
Plan of Merger (the "Merger Agreement") dated as of November 18, 1997, by and
among Total Renal Care Holdings, Inc., a Delaware corporation ("Parent"),
Renal Treatment Centers, Inc., a Delaware corporation (the "Company"), and
Nevada Acquisition Corp., a Delaware corporation and a wholly owned subsidiary
of Parent ("Sub"), the undersigned certifies and represents on behalf of
Parent and sub and as to Parent and Sub, after due inquiry and investigation,
as follows (any capitalized term used but not defined herein shall have the
meaning given to such term in the Merger Agreement):
1. The facts relating to the contemplated merger (the "Merger") of Sub
with and into the Company pursuant to the Merger Agreement, as described in
the Merger Agreement, the documents described in the Merger Agreement and
the joint proxy statement/prospectus prepared by Parent and the Company,
are, insofar as such facts pertain to Parent and Sub, true, correct and
complete in all material respects.
2. Except in the Merger, neither Parent nor Sub (nor any other subsidiary
of Parent) has acquired or prior to the Merger will acquire, or has owned
in the past five years, any shares of common stock of the Company ("Company
Common Stock").
3. Cash payments to be made to stockholders of the Company in lieu of
fractional shares of common stock of Parent ("Parent Common Stock") that
would otherwise be issued to such stockholders in the Merger will be made
for the purpose of saving Parent the expense and inconvenience of issuing
and transferring fractional shares of Parent Common Stock, and do not
represent separately bargained for consideration.
4. Prior to the Merger, Parent will own all the capital stock of Sub. No
capital stock of Sub will be issued in the Merger. Parent has no plan or
intention to cause the Company to issue additional shares of its stock that
would result in Parent owning less than all the capital stock of the
Company after the Merger.
5. Parent has no plan or intention, following the Merger, to reacquire
any of the Parent Common Stock issued in the Merger, other than through a
stock purchase program meeting the requirements of Section 4.05 (1) (b) of
Revenue Procedure 96-30.
6. Parent has no plan or intention, following the Merger, to liquidate
the Company, to merge the Company with and into another corporation, to
sell or otherwise dispose of any of the stock of the Company, or to cause
the Company to sell or otherwise dispose of any of the assets held by the
Company at the time of the Merger, except for dispositions of such assets
in the ordinary course of business; provided, however, that Parent may
transfer assets or stock of the Company in a manner that is consistent with
Section 368 (a) (2) (C) of the Internal Revenue Code of 1986, as amended
(the "Code").
7. Parent and Sub will each pay their respective expenses, if any,
incurred in connection with the Merger. Neither Parent nor Sub has paid,
directly or indirectly, any expenses (including transfer taxes) incurred by
any holder of Company Common Stock in connection with or as part of the
Merger or any related transactions. Neither Parent nor Sub has agreed to
assume any expense of any holder of Company Common Stock.
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<PAGE>
8. Parent will acquire Company Common Stock solely in exchange for Parent
Common Stock. For purposes of this representation, Company Common Stock
redeemed for cash or other property furnished by Parent will be considered
as acquired by Parent. Further, no liabilities of the Company or the
stockholders of the Company will be assumed by Parent, nor will any of the
Company Common Stock be subject to any liabilities.
9. Following the Merger, Parent intends to cause the Company to continue
its historic business or use a significant portion of its historic business
assets in a business.
10. Neither Parent nor Sub is an investment company as defined in Section
368 (a) (2) (F) (iii) and (iv) of the Code.
11. Neither Parent nor Sub will take any position on any Federal, state
or local income or franchise tax return, or take any other tax reporting
position, that is inconsistent with the treatment of the Merger as a
reorganization within the meaning of Section 368 (a) of the Code, unless
otherwise required by a "determination" (as defined in Section 1313 (a) (1)
of the Code) or by applicable state or local income or franchise tax law.
12. None of the compensation received by any stockholder-employee of the
Company in respect of periods after the Effective Date represents separate
consideration for, or is allocable to, any of their Company Common Stock.
None of the Parent Common Stock that will be received by Company
stockholder-employees in the Merger represents separately bargained for
consideration which is allocable to any employment agreement or
arrangement. The compensation paid to any stockholder-employees will be for
services actually rendered and will be determined by bargaining at arms-
length.
13. There is no intercorporate indebtedness existing between Parent and
the Company or between Sub and the Company that was issued or acquired, or
will be settled, at a discount.
14. The Merger Agreement and the documents described in the Merger
Agreement represent the entire understanding of the Company, Parent and Sub
with respect to the Merger.
15. Sub is a corporation newly formed for the purpose of participating in
the Merger and at no time prior to the Merger has had assets (other than
nominal assets contributed upon the formation of Sub, which assets will be
held by the Company following the Merger) or business operations. Sub will
have no material liabilities assumed by the Company, and will not transfer
to the Company any assets subject to material liabilities in the Merger.
16. The Company Common Stock will be surrendered pursuant to the Merger
in an arms-length exchange, and the Parent Common Stock received in
exchange therefor represents the sole bargained-for consideration therefor
(other than cash in lieu of fractional shares).
Very truly yours,
TOTAL RENAL CARE HOLDINGS, INC.
By: _________________________________
Title _______________________________
A-43
<PAGE>
[LOGO DONALDSON, LUFKIN & JENRETTE]
ANNEX B
OPINION OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
November 17, 1997
Board of Directors
Total Renal Care Holdings, Inc.
21250 Hawthorne Boulevard
Suite 800
Torrance, CA 90503
Dear Sirs:
You have requested our opinion as to the fairness from a financial point of
view to the stockholders of Total Renal Care Holdings, Inc. (the "Company") of
the exchange ratio set forth in the Agreement and Plan of Merger, dated as of
November 17, 1997 (the "Agreement"), among the Company, Renal Treatment
Centers, Inc. ("RTC") and Nevada Acquisition Corp. ("Merger Sub"), a wholly
owned subsidiary of the Company, pursuant to which Merger Sub will be merged
(the "Merger") with and into RTC.
Pursuant to the Agreement, each share of common stock, par value of $0.01 per
share, of RTC will be converted into the right to receive 1.335 shares (the
"Exchange Ratio") of common stock, par value of $0.001 per share, of the
Company.
In arriving at our opinion, we have reviewed the Agreement. We also have
reviewed financial and other information that was publicly available or
furnished to us by the Company and RTC, including information provided during
discussions with their respective managements. Included in the information
provided during discussions with the respective managements were certain
financial projections of RTC for the period beginning October 1, 1997 and
ending December 31, 2000 prepared by the management of RTC and certain
financial projections of the Company for the period beginning October 1, 1997
and ending December 31, 2000 prepared by the management of the Company. In
addition, we have compared certain financial and securities data of the Company
and RTC with various other companies which we deemed appropriate whose
securities are traded in public markets, reviewed the historical stock prices
and trading volumes of the common stock of RTC and the Company, reviewed prices
and premiums paid in certain other business combinations which we deemed
appropriate, prepared a discounted cash flow valuation of RTC, analyzed the
impact of the Merger on the historical and projected financial results of the
Company, examined the relative contribution of the financial results of the
Company and RTC to their combined operations and conducted such other financial
studies, analyses and investigations as we deemed appropriate for purposes of
this opinion.
In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available
to us from public sources, that was provided to us by the Company and RTC or
their respective representatives, or that was otherwise reviewed by us. In
particular, we have relied upon the estimates of the management of the Company
of the operating synergies achievable as a result of the Merger and upon our
discussion of such synergies with the management of RTC and the Company. With
respect to the financial projections supplied to us, we have assumed that they
have been reasonably prepared on the basis reflecting the best currently
available estimates and judgments of the management of the Company and RTC as
to the future operating and financial performance of the Company and RTC. We
have not assumed any responsibility for making any independent evaluation of
any assets or liabilities or for making any independent verification of any of
the information reviewed by us. We have relied as to certain legal matters on
advice of counsel to the Company.
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<PAGE>
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as
of, the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. We are expressing no opinion herein as to the
prices at which the Company's securities will actually trade at any time. Our
opinion does not address the relative merits of the Merger and the other
business strategies being considered by the Company's Board of Directors, nor
does it address the Board's decision to proceed with the Merger. Our opinion
does not constitute a recommendation to any stockholder as to how such
stockholder should vote on the proposed transaction.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of
businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. DLJ has
performed investment banking and other services for the Company in the past
and received usual and customary compensation in connection with such
services. These services included: (i) underwriting four equity offerings
including the Company's initial public offering in November 1995 and three
subsequent follow-on offerings in April 1996, October 1996 and August 1997,
(ii) acting as documentation agent in connection with a $400 million senior
credit facility in September 1996 and (iii) together with certain of its
affiliates, acting as syndication agent and co-arranger in connection with a
$1.05 billion senior credit facility in October 1997 (and certain consents
have been provided or may be requested by the Company of DLJ or such
affiliates in connection with the Merger). In addition, Peter Grauer, an
employee of DLJ Merchant Banking Partners, L.P. ("DLJMBP"), an affiliate of
DLJ, has been a director of the Company since August 1994. In August 1994,
DLJMBP acquired a majority interest in the Company and until November 1995 had
the right to appoint a majority of the Company's Board of Directors.
Currently, DLJMBP has no ownership interest in the Company.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the Exchange Ratio is fair to the stockholders of the
Company from a financial point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
/s/ David L. Dennis
By: _________________________________
David L. Dennis
Managing Director
B-2
<PAGE>
[LETTERHEAD OF UNION BANK OF SWITZERLAND]
ANNEX C
OPINION OF UBS SECURITIES LLC
November 18, 1997
Board of Directors
Renal Treatment Centers, Inc.
1180 West Swedesford Road
Building Two, Suite 300
Berwyn, PA 19312
Members of the Board of Directors:
You have requested our opinion as to the fairness, from a financial point of
view, to the stockholders of Renal Treatment Centers, Inc., a Delaware
corporation (the "Company"), of the Exchange Ratio (as defined below) provided
for pursuant to that certain Agreement and Plan of Merger, dated as of
November 18, 1997, by and among Total Renal Care Holdings, Inc., a Delaware
corporation ("Total Renal Care"), Nevada Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of Total Renal Care ("Newco"), and
the Company (together with all exhibits thereto, the "Merger Agreement"). The
Merger Agreement provides, among other things, for the merger of Newco with
and into the Company (the "Merger"). In the Merger, each share of common
stock, $.01 par value per share, of the Company (the "Company Common Stock")
outstanding at the Effective Date (as defined in the Merger Agreement) shall
be converted into the right to receive 1.335 (the "Exchange Ratio") shares of
common stock, $.001 par value per share, of Total Renal Care (the "Total Renal
Care Common Stock"). The terms and conditions of the Merger are more fully set
forth in the Merger Agreement.
UBS Securities LLC ("UBS Securities"), as part of its investment banking
business, is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. In the
ordinary course of our business, we and our affiliates actively trade the
securities of the Company and Total Renal Care for our own account and for the
accounts of our customers and, accordingly, may at any time hold a long or
short position in such securities. We are acting as exclusive financial
advisor to the Board of Directors of the Company in connection with the Merger
and will receive a fee from the Company for our services pursuant to the terms
of our engagement letter with the Company, dated as of September 24, 1997 (the
"Engagement Letter"). In the past, UBS Securities has provided other
investment banking and financial advisory services to the Company and Total
Renal Care for which we have received compensation.
C-1
<PAGE>
Renal Treatment Centers, Inc.
November 18, 1997
Page 2
In connection with our opinion, we have reviewed and considered such
financial and other matters as we have deemed relevant, including, among other
things: (i) the Merger Agreement; (ii) certain publicly available information
for the Company and Total Renal Care, including each of the annual reports of
the Company and Total Renal Care filed on Form 10-K for the year ended
December 31, 1996, and each of the quarterly reports of the Company and Total
Renal Care filed on Form 10-Q for the quarter ended September 30, 1997; (iii)
certain internal financial analyses, financial forecasts, reports and other
information concerning the Company and Total Renal Care furnished to us by the
respective managements of the Company and Total Renal Care;
(iv) discussions we have had with certain members of the managements of each
of the Company and Total Renal Care concerning the historical and current
business operations, financial conditions and prospects of the Company and
Total Renal Care and such other matters we deemed relevant; (v) the reported
price and trading histories of the shares of the Company Common Stock and
Total Renal Care Common Stock as compared to the reported price and trading
histories of certain publicly traded companies we deemed relevant; (vi) the
respective financial conditions of the Company and Total Renal Care as
compared to the financial conditions of certain other companies we deemed
relevant; (vii) certain financial terms of the Merger as compared to the
financial terms of selected other business combinations we deemed relevant;
and (viii) such other information, financial studies, analyses and
investigations and such other factors that we deemed relevant for the purposes
of this opinion.
In conducting our review and arriving at our opinion, we have, with your
consent, assumed and relied, without independent investigation, upon the
accuracy and completeness of all financial and other information provided to
us by the Company and Total Renal Care, respectively, or publicly available,
and we have not undertaken any responsibility for the accuracy, completeness
or reasonableness of, or independently to verify, such information. We have,
with your consent, assumed that the financial forecasts which we examined were
reasonably prepared by the respective managements of the Company and Total
Renal Care on bases reflecting the best currently available estimates and good
faith judgments of such managements as to the competitive, operating and
regulatory environments and the related financial performance of the Company
and Total Renal Care, as the case may be, for the relevant periods. You have
informed us, and we have assumed, that the Merger will be recorded as a
pooling of interests under generally accepted accounting principles and will
qualify as a reorganization within the meaning of section 368(a) of the
Internal Revenue Code of 1986, as amended. We have not made or obtained any
independent evaluations, valuations or appraisals of the assets or liabilities
of the Company or Total Renal Care, nor have we been furnished with such
materials. Our services to the Company in connection with the Merger have been
comprised solely of financial advisory services, as described in the
Engagement Letter. Our opinion is necessarily based upon economic and market
conditions and other circumstances as they exist and can be evaluated by us on
the date hereof. Additionally, we have not been authorized or requested to,
and did not, solicit alternative offers for the Company or its assets.
It is understood that this letter is intended for the benefit and use of the
Board of Directors of the Company in its consideration of the Merger and may
not be used for any other purpose or reproduced, disseminated, quoted or
referred to at any time, in any manner or for any purpose without our prior
written consent; provided, however, that this letter may be included in its
entirety
C-2
<PAGE>
Renal Treatment Centers, Inc.
November 18, 1997
Page 3
and referred to in any filing with the Securities and Exchange Commission of
the Joint Proxy Statement/Prospectus of the Company and Total Renal Care
relating to the Merger. Our opinion does not address the underlying decision
by the Company to engage in the Merger and does not constitute a
recommendation to any stockholder as to how such stockholder should vote with
respect to the Merger. Furthermore, we express no view as to the price or
trading range for Total Renal Care Common Stock following the consummation of
the Merger.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, it is our opinion that, as of the date
hereof, the Exchange Ratio is fair, from a financial point of view, to the
stockholders of the Company (other than Total Renal Care or any of its
affiliates).
Very truly yours,
UBS SECURITIES LLC
C-3
<PAGE>
ANNEX D
TOTAL RENAL CARE HOLDINGS, INC.
AMENDED AND RESTATED
1997 EQUITY COMPENSATION PLAN
1. Purpose. The purpose of the Amended and Restated Total Renal Care
Holdings, Inc. 1997 Equity Compensation Plan (this "Plan") is to promote the
interests of Total Renal Care Holdings, Inc. (the "Company") and its
stockholders by enabling the Company to offer Participants an opportunity to
acquire an equity interest in the Company so as to better attract, retain, and
reward employees, directors, and other persons providing services to the
Company and, accordingly, to strengthen the mutuality of interests between
Participants and the Company's stockholders by providing Participants with a
proprietary interest in pursuing the Company's long-term growth and financial
success.
2. Definitions. For purposes of this Plan, the following terms shall have
the meanings set forth below.
(a) "Award" means an Option granted under this Plan or Restricted Stock
issued under this Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended, and the
applicable regulations thereunder. Reference to any specific section of the
Code shall be deemed to be a reference to any successor provision.
(d) "Committee" means the committee appointed by the Board, if any, to
administer this Plan as permitted by Section 4 below or, if no such
committee is appointed, the Board.
(e) "Common Stock" means the common stock of Total Renal Care Holdings,
Inc. or any security issued in substitution, exchange, or in lieu thereof.
(f) "Company" means Total Renal Care Holdings, Inc., a Delaware
corporation, or any successor corporation. Except where the context
indicates otherwise, the term "Company" shall include the Subsidiaries of
Total Renal Care Holdings, Inc.
(g) "Incentive Stock Option" means an option to purchase Common Stock
that is an incentive stock option under Section 422 of the Code.
(h) "1995 Plan" means the Company's 1995 Equity Incentive Plan.
(i) "Non-Qualified Stock Option" means any Option that is not an
Incentive Stock Option.
(j) "Option" means an Incentive Stock Option or a Non-Qualified Stock
Option.
(k) "Participant" means a person who has been granted an Option or
Restricted Stock.
(l) "Plan" means this 1997 Equity Compensation Plan of the Company, as it
may be amended from time to time.
(m) "Restricted Stock" means shares of Common Stock issued pursuant to
this Plan that are subject to contractual restrictions.
(n) "Spill-Over Shares" means (i) 66,526 shares of Common Stock which
remained available for issuance under the 1995 Plan on the date this Plan
was approved by the Company's stockholders, and (ii) shares of Common Stock
which would otherwise have become available for issuance under the 1995
Plan due to the expiration or termination of options granted under the 1995
Plan prior to stockholder approval of the 1997 Plan.
(o) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations (other than the last corporation in the
D-1
<PAGE>
unbroken chain) owns stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in the chain, as determined in accordance with the rules of
Section 424(f) of the Code.
3. Eligibility. All employees, directors, and other persons providing bona
fide services (other than persons only providing services in connection with
the offering or sale of securities in a capital raising transaction) to the
Company or any Subsidiary are eligible to receive Awards under this Plan;
provided, however, that Incentive Stock Options may only be granted to
employees of the Company or any Subsidiary. In the event that the Company
acquires another entity, the Committee may authorize the issuance of Awards
("Substitute Awards") to employees, directors and other persons in
substitution of stock options or restricted stock grants previously granted to
such employees, directors and other persons in connection with their
performance of services for the acquired entity upon such terms and conditions
as the Committee shall determine, taking into account the limitations of Code
Section 424(a) in the case of any Substitute Award that is intended to be an
Incentive Stock Option.
4. Administration. This Plan shall be administered by the Board or by a
committee consisting of two or more members of the Board appointed by the
Board to administer this Plan. The Committee is authorized to interpret this
Plan and to adopt rules and procedures relating to the administration of this
Plan. All actions of the Committee in connection with the interpretation and
administration of this Plan shall be binding upon all parties. Subject to the
limitations set forth below, the Committee is expressly authorized to make
such modifications to this Plan and the Awards granted hereunder as are
necessary to effectuate the intent of this Plan as a result of any changes in
the tax, accounting, or securities laws treatment of Participants and the
Plan. The Committee may delegate its responsibilities to others under such
conditions and limitations as it may prescribe.
5. Effective Date of this Plan. This Plan shall be effective as of July 1,
1997. This Plan may be terminated by the Board at any time. Unless earlier
terminated by the Board, this Plan shall terminate as of the close of business
on the day prior to the tenth anniversary of the effective date of this Plan.
The foregoing notwithstanding, no termination of this Plan shall adversely
affect the rights of any Participant with respect to any Award outstanding as
of the time of such termination.
6. Shares Subject to this Plan. The aggregate number of shares of Common
Stock which may be issued pursuant to this Plan shall be equal to the sum of
(i) 7,166,667 shares plus (ii) up to 833,333 Spill-Over Shares from the 1995
Plan. This aggregate number may be adjusted from time to time as set forth in
Section 11 below. Subject to adjustments as provided in Section 11 below, the
maximum number of shares of Common Stock which may be issuable pursuant to
Awards granted during any calendar year to any Participant is 833,333 shares.
Upon the expiration or termination of any Option granted under this Plan which
shall not have been exercised in full, the shares of Common Stock remaining
unissued under such Option shall again become available for granting under the
Plan. Upon the repurchase or forfeiture of any shares of Restricted Stock
issued hereunder, such repurchased shares of Common Stock shall again become
available for issuance under this Plan.
7. Form of Options. Options shall be granted under this Plan on such terms
and in such form as the Committee may approve, which shall not be inconsistent
with the provisions of this Plan, and which need not be the same for each such
grant. Options may be either Nonqualified Stock Options or Incentive Stock
Options. The terms and conditions of each Option shall include, in addition to
such other terms and conditions as may be established by the Committee, (i)
the per share exercise price of such Option (ii) the termination date of such
Option, which shall not be later than ten years after the date of grant, and
(iii) the effect on such Option of the termination of the Participant's
employment. Any Option which is intended, as evidenced by its designation, as
an Incentive Stock Option shall be made subject to such terms and conditions
as may be required for such Option to qualify as an Incentive Stock Option
under the Code. Incentive Stock Options granted under this Plan shall also
include as a requirement that the Participant receiving such Incentive Stock
Option notify the Company if
D-2
<PAGE>
he or she disposes of Common Stock acquired pursuant to the exercise thereof
prior to the expiration of the holding period prescribed in Section 422(a)(1)
of the Code. Any Option which is intended to constitute "qualified
performance-based compensation" as such term is defined in the regulations
promulgated under Section 162(m) of the Code shall be granted in such manner
and made subject to such terms and conditions as may be required for such
Option to so qualify as "qualified performance-based compensation."
8. Restricted Stock. The Committee may issue Restricted Stock upon such
terms, restrictions and conditions as it may deem appropriate, which need not
be the same for each grant. Restricted Stock may be issued for such
consideration as the Committee may determine; provided, however, that in no
case shall shares of Restricted Stock be issued for less than the minimum
consideration required by law, if any.
9. Modification of Awards. The Committee may modify any outstanding Award as
it deems appropriate. Such authority shall include, without limitation, the
right to decrease the exercise price of any Option, accelerate the right to
exercise any Option and modify any restrictions with respect to any Restricted
Stock; provided, however, that no modification may be made to any Award that
would adversely affect the rights of the Participant with respect to any
outstanding Award without such Participant's consent. In the event that the
Board amends the terms of an Option so that it no longer qualifies as an
Incentive Stock Option, the limitations imposed upon the Option under the Code
and the Plan by virtue of it (formerly) qualifying as an Incentive Stock
Option shall no longer apply, to the extent specified in the amendment.
Whether a modification of an existing Incentive Stock Option will be treated
as the issuance of a new Incentive Stock Option will be determined in
accordance with the rules of Code Section 424(h).
10. Transfer Restrictions. During the lifetime of the Participant, Options
granted to such Participant under this Plan are exercisable only by the
Participant and are not assignable or transferable, except by will or the laws
of descent and distribution. Shares of Restricted Stock shall be subject to
such restrictions on transferability as may be imposed by the Committee.
11. Adjustments. In the event of any stock split, reverse stock split, stock
dividend, recapitalization, combination, reclassification, reorganization,
merger, combination, consolidation, exchange of Common Stock or spinoff or
other distribution of Company assets to stockholders (other than normal cash
dividends), the Committee may, in such manner and to such extent, if any, as
it deems appropriate and equitable, authorize such adjustments with respect
to: (i) the aggregate number and kind of shares for which Awards may be
granted under this Plan; (ii) the number and kind of shares covered by
outstanding Awards; and (iii) the per share exercise price of outstanding
Options and the per share repurchase price of outstanding Restricted Stock. In
connection with any merger or consolidation of the Company with or into
another entity in which the Company is not the surviving corporation or as a
result of which the Common Stock ceases or will cease to be publicly traded,
the Committee may, but shall not be required to, authorize the termination of
all outstanding Options upon the consummation of such merger or consolidation,
provided that, as a condition to such termination, all restrictions on the
exercisability of such Options (i.e., vesting provisions) shall be eliminated
and the holders thereof shall be given at least 20 days prior to such
termination to exercise such Options without regard to any such restrictions.
12. Amendment of this Plan. The Board may amend this Plan at any time;
provided, however, that no such amendment may adversely affect the rights of
any Participant with respect to any outstanding Award without the
Participant's consent.
13. Tax Withholding. The Company shall have the right to take such actions
as may be necessary to satisfy its tax withholding obligations arising because
of the operation of this Plan.
14. No Additional Rights. Neither the adoption of this Plan nor the granting
of any Option or the issuance of any Restricted Stock shall (i) affect or
restrict in any way the power of the Company to undertake any corporate action
otherwise permitted under applicable law, (ii) confer upon any Participant the
right to continue performing services for the Company, or (iii) interfere in
any way with the right of the Company to terminate
D-3
<PAGE>
the services of any Participant at any time, with or without cause, subject to
such other contractual obligations which may exist. No Participant shall have
any rights as a shareholder with respect to any shares covered by an Option
granted to the Participant until the date a certificate for such shares has
been issued to the Participant following the exercise of the Option.
15. Securities Law Restrictions. No shares of Common Stock shall be issued
under this Plan unless the Committee shall be satisfied that the issuance will
be in compliance with applicable federal and state securities laws, as well as
the requirements of any stock exchange on which the Common Stock is traded.
The Committee may require certain investment or other representations and
undertakings by the person exercising an Option or purchasing Restricted Stock
in order to comply with applicable law. Certificates for shares of Common
Stock delivered under this Plan may be subject to such restrictions as the
Committee may deem advisable. The Committee may cause a legend to be placed on
the certificates to refer to these restrictions.
16. Indemnification. To the maximum extent permitted by law, the Company
shall indemnify each member of the Committee and each other member of the
Board, as well as any other employee of the Company with duties under this
Plan, against expenses (including any amount paid in settlement, provided such
settlement is approved by the Company) reasonably incurred by the individual
in connection with any claim against the individual by reason of the
performance of the individual's duties as a member of the Committee, unless
the losses are due to the individual's gross negligence or lack of good faith;
provided, however, that the Company shall be entitled to control the defense
of any such claim and shall be entitled to engage counsel for such defense;
and provided further, that if more than one member of the Committee or such
other employee is subject to such claim, or if the Company or other parties
entitled to indemnification by the Company are also subject to such claim, the
Company, if applicable, and all such parties shall be represented by a single
counsel selected by the Company and no member or other party shall be entitled
to be represented by separate counsel at the Company's expense unless counsel
selected by the Company advises the Company in writing that such counsel
cannot represent such member or other party under applicable rules of
professional responsibility.
17. Governing Law. This Plan and all actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of
Delaware.
D-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL provides that a Delaware corporation may indemnify
any person against expenses, judgments, fines and settlements actually and
reasonably incurred by any such person in connection with a threatened,
pending or completed action, suit or proceeding in which he is involved by
reason of the fact that he is or was a director, officer, employee or agent of
such corporation, provided that (i) such person acted in good faith and in a
manner reasonably believed to be in or not opposed to the best interests of
the corporation and (ii) with respect to any criminal action or proceeding,
such person had no reasonable cause to believe such person's conduct was
unlawful. If the action or suit is by or in the name of the corporation, the
corporation may indemnify any such person against expense actually and
reasonably incurred by such person in connection with the defense or
settlement of such action or suit if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation for negligence or misconduct in the
performance of such person's duty to the corporation, unless and only to the
extent that the Delaware Court of Chancery or the court in which the action or
suit is brought determines upon application that, despite the adjudication of
liability but in view of all of the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expense as the court
deems proper.
Article XI, Section 1 of the TRCH Bylaws provides for indemnification of its
directors and officers to the fullest extent permitted by the DGCL. In
accordance with the DGCL, the TRCH Charter , as amended, limits the personal
liability of its directors for violations of their fiduciary duty. The
Certificate of Incorporation eliminates each director's liability to TRCH or
its stockholders for monetary damages except (i) for any breach of the
director's duty of loyalty to TRCH or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) under the section of the Delaware law
providing for liability of directors for unlawful payment of dividends or
unlawful stock purchases or redemptions or (iv) for any transaction from which
a director derived any improper personal benefit. The effect of this provision
is to eliminate the personal liability of directors for monetary damages for
actions involving a breach of their fiduciary duty of care, including any such
actions involving gross negligence. This provision will not, however, limit in
any way the liability of directors for violations of the federal securities
laws. TRCH has entered into indemnification agreements with each of its
directors and officers to indemnify them to the maximum extent permitted by
Delaware law.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
2.1 Agreement and Plan of Merger dated as of November 18, 1997 by and among
TRCH, Merger Sub, and RTC (incorporated by reference from Annex A to
the Joint Proxy Statement/Prospectus constituting Part I of this
Registration Statement).*
5.1 Opinion of Barry C. Cosgrove, General Counsel, Total Renal Care
Holdings, Inc.*
8.1 Form of opinion of Cravath, Swaine & Moore pursuant to Section 7.2(f)
of the Merger Agreement.*
8.2 Form of tax disclosure opinion of Cravath, Swaine & Moore.*
11.1 Statement regarding computation of earnings per share.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of KPMG Peat Marwick, LLP.
23.3 Consent of Coopers & Lybrand L.L.P.
23.4 Consent of Baird, Kurtz & Dobson.
23.5 Consent of Deloitte & Touche LLP.
23.6 Consent of Frank, Rimerman & Co., LLP.
23.7 Consent of Barry C. Cosgrove, General Counsel, Total Renal Care
Holdings, Inc. (included in the opinion filed as Exhibit 5.1 hereto).*
23.8 Consent of Robert L. Mayer, Jr. to act as a director of Registrant.*
23.9 Consent of Maier Markey & Menashi LLP.
24.1 Power of Attorney (contained on page II-4 hereto).*
99.1 Form of TRCH Proxy.*
99.2 Form of RTC Proxy.
99.3 Opinion of Donaldson, Lufkin & Jenrette Securities Corporation
(incorporated by reference from Annex B to the Joint Proxy
Statement/Prospectus constituting Part I of this Registration
Statement).*
99.4 Opinion of UBS Securities LLC (incorporated by reference from Annex C
to the Joint Proxy Statement/Prospectus constituting Part I of this
Registration Statement).*
</TABLE>
- --------
*Previously filed as an exhibit to this Registration Statement on Form S-4.
(b) Financial Statement Schedules
Not Applicable.
ITEM 22. UNDERTAKING
The undersigned registrant hereby undertakes:
(1) That for purposes of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant to section
13(a) or section 15(d) of the Exchange Act (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to section
15(d) of the Exchange Act) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(2) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
II-2
<PAGE>
(3) That every prospectus (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(4) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(5) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
(6) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(7) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(8) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(9) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Torrance, State of California, on January 22, 1998.
TOTAL RENAL CARE HOLDINGS, INC.
/s/ John E. King
By __________________________________
John E. King
Vice President, Finance and Chief
Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the Board, Chief January 22, 1998
____________________________________ Executive Officer,
Victor M.G. Chaltiel President and Director
(Principal Executive
Officer)
/s/ John E. King Vice President, Finance and January 22, 1998
____________________________________ Chief Financial Officer
John E. King (Principal Financial
Officer and Principal
Accounting Officer)
* Director January 22, 1998
____________________________________
Maris Andersons
* Director January 22, 1998
____________________________________
Peter T. Grauer
* Director January 22, 1998
____________________________________
Regina E. Herzlinger
* Director January 22, 1998
____________________________________
Shaul G. Massry
</TABLE>
/s/ John E. King
By: ___________________________
John E. King
Attorney-in-fact
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 Agreement and Plan of Merger dated as of November 18, 1997 by and
among TRCH, Merger Sub, and RTC (incorporated by reference from Annex
A to the Joint Proxy Statement/Prospectus constituting Part I of this
Registration Statement).*
5.1 Opinion of Barry C. Cosgrove, General Counsel, Total Renal Care
Holdings, Inc.*
8.1 Form of opinion of Cravath, Swaine & Moore pursuant to Section 7.2(f)
of the Merger Agreement.*
8.2 Form of tax disclosure opinion of Cravath, Swaine & Moore.*
11.1 Statement regarding computation of earnings per share.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of KPMG Peat Marwick, LLP.
23.3 Consent of Coopers & Lybrand L.L.P.
23.4 Consent of Baird, Kurtz & Dobson.
23.5 Consent of Deloitte & Touche LLP.
23.6 Consent of Frank, Rimerman & Co., LLP.
23.7 Consent of Barry C. Cosgrove, General Counsel, Total Renal Care
Holdings, Inc. (included in the opinion filed as Exhibit 5.1
hereto).*
23.8 Consent of Robert L. Mayer, Jr. to act as a director of Registrant.*
23.9 Consent of Maier Markey & Menashi LLP.
24.1 Power of Attorney (contained on page II-4 hereto).*
99.1 Form of TRCH Proxy.*
99.2 Form of RTC Proxy.
99.3 Opinion of Donaldson, Lufkin & Jenrette Securities Corporation
(incorporated by reference from Annex B to the Joint Proxy
Statement/Prospectus constituting Part I of this Registration
Statement).*
99.4 Opinion of UBS Securities LLC (incorporated by reference from Annex C
to the Joint Proxy Statement/Prospectus constituting Part I of this
Registration Statement).*
</TABLE>
- --------
* Previously filed as an exhibit to this Registration Statement on Form S-4.
<PAGE>
EXHIBIT 11.1
TOTAL RENAL CARE HOLDINGS, INC.
COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEVEN MONTHS NINE MONTHS NINE MONTHS
ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1996 1997
TRCH ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Income before
extraordinary item:
As reported............. $ 6,467 $13,414 $9,589 $20,042
======= ======= ====== =======
Applicable common shares:
Average outstanding
during the period...... 27,728 42,625 41,967 44,382
Outstanding stock
options................ 2,107 1,293 1,313 896
Reduction in shares in
connection with notes
receivable from
employees.............. (128) (130) (132) (132)
------- ------- ------ -------
Adjusted weighted
average number of
common and common
share equivalent
shares outstanding... 29,707 43,788 43,148 45,146
------- ------- ------ -------
Income before
extraordinary item per
common share............ $ 0.22 $ 0.31 $ 0.22 $ 0.44
======= ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
SEVEN MONTHS NINE MONTHS
ENDED YEAR ENDED ENDED NINE MONTHS
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, ENDED
---------------- ------------ ------------- SEPTEMBER 30,
1995 1995 1996 1996 1997
------- ------- ------------ ------------- -------------
FULLY
PRIMARY DILUTED
<S> <C> <C> <C> <C> <C>
PRO FORMA INCLUDING RTC
Income before
extraordinary item:
As reported........... $16,122 $16,122 $28,345 $19,162 $38,829
Add back interest on
earn out note, tax
effected............. -- 158 -- -- --
------- ------- ------- ------- -------
Net income available
to common
stockholders....... $16,122 $16,280 $28,345 $19,162 $38,829
======= ======= ======= ======= =======
Applicable common
shares:
Average outstanding
during the period.... 57,066 57,066 74,973 74,226 77,536
Outstanding stock
options.............. 3,132 3,719 2,411 2,453 2,060
Average shares
assumed issued upon
conversion of earn
out note............. -- 856 -- -- --
Reduction in shares
in connection with
notes receivable
from employees....... (128) (128) (130) (132) (132)
------- ------- ------- ------- -------
Adjusted weighted
average number of
common and common
share equivalent
shares outstanding. 60,070 61,513 77,254(1) 76,547(1) 79,464(1)
------- ------- ------- ------- -------
Income per common share
before extraordinary
item.................. $ 0.27 $ 0.26 $ 0.37(1) $ 0.25(1) $ 0.49(1)
======= ======= ======= ======= =======
</TABLE>
- --------
Note: Shares assumed issued upon conversion of RTC convertible notes are not
included in the fully diluted net income per common share calculation as
the effect is anti-dilutive.
(1) Fully diluted income per common share before extraordinary item equals
primary income per share.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Joint Proxy
Statement/Prospectus constituting part of this Amendment No. 1 to Registration
Statement on Form S-4 of Total Renal Care Holdings, Inc. of our report dated
February 13, 1997, which appears on page F-1 of Total Renal Care Holdings,
Inc.'s Annual Report on Form 10-K for the year ended December 31, 1996. We
also consent to the incorporation by reference of our report on the Financial
Statement Schedule, which appears on page S-1 of such Annual Report on Form
10-K. We also consent to the reference to us under the heading "Experts" in
such Joint Proxy Statement/Prospectus. We also hereby consent to the
incorporation by reference in the Joint Proxy Statement/Prospectus
constituting part of this Registration Statement on Form S-4 of our report
dated February 28, 1996 on the Nephrology Services Business of Caremark
International Inc. for the years ended December 31, 1995 and 1994 and for the
one month ended December 31, 1993; of our report dated June 18, 1997 on the
financial statements of New West Dialysis Clinics, Inc. for the year ended
December 31, 1996; of our report dated November 20, 1997 on the combined
financial statements of Southfield Dialysis Facility, P.C., North Oakland
Dialysis Facility, P.C., Macomb Kidney Center, P.C. and Novi Kidney Center,
P.C. for the year ended December 31, 1996; of our report dated December 12,
1997 on the financial statements of Dialysis Care of North Carolina for the
year ended December 31, 1996; and of our report dated December 18, 1997 on the
financial statements of the Renal Dialysis Business of The Rogosin Institute,
Inc. for the year ended December 31, 1996. These reports appear on pages F-2,
F-13, F-24, F-35, and F-43, respectively, of Total Renal Care Holdings, Inc.'s
Current Report on Form 8-K dated December 19, 1997.
Price Waterhouse LLP
Seattle, Washington
January 22, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Total Renal Care Holdings, Inc.:
We consent to incorporation herein by reference of our reports dated July 8,
1994, relating to the consolidated statements of income, stockholders' equity,
and cash flows of Total Renal Care Holdings, Inc. and subsidiaries for the
year ended May 31, 1994, and the related financial statement schedule, which
reports appear in the December 31, 1996 annual report on Form 10-K of Total
Renal Care Holdings, Inc.
KPMG Peat Marwick LLP
Seattle, Washington
January 22, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Joint Proxy
Statement/Prospectus on Amendment No. 1 to Form S-4 of our reports dated
February 7, 1997, which includes reference to information audited by other
auditors for which the dates of their reports are July 14, 1995 and March 31,
1995, on our audits of the financial statements and financial statement
schedule of Renal Treatment Centers, Inc. and Subsidiaries as of December 31,
1996 and 1995 and for each of the three years in the period ended December 31,
1996. We also consent to the reference in this registration statement on Form
S-4 to our firm under the caption "Experts."
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
January 21, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Joint Proxy
Statement/Prospectus on Amendment No. 1 to Form S-4 of our report dated July
14, 1995, except for Note 9 as to which the date is July 24, 1995, of our
audits of the Wichita Dialysis Group as of December 31, 1994 and for the year
then ended, appearing in the Annual Report on Form 10-K of Renal Treatment
Centers, Inc. and Subsidiaries for the year ended December 31, 1996. We also
consent to the reference in this registration statement on Form S-4 to our
firm under the caption "Experts".
Baird, Kurtz & Dobson
Wichita, Kansas
January 21, 1998
<PAGE>
EXHIBIT 23.5
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement No. 333-42653 of Total Renal Care Holdings, Inc. of our
report dated March 31, 1995, on the combined financial statements of
Healthcare Corporation and Affiliates for the year ended December 31, 1994
(not presented separately herein), appearing in the Annual Report on Form 10-K
of Renal Treatment Centers, Inc. and Subsidiaries for the year ended
December 31, 1996 and to the reference to us under the heading "Experts" in
the Prospectus, which is part of this Registration Statement.
DELOITTE & TOUCHE LLP
Nashville, Tennessee
January 22, 1998
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Joint Proxy
Statement/Prospectus on Amendment No. 1 to Form S-4 of our report dated
September 24, 1997, of our audits of the combined financial statements of
Satellite Affiliated Companies as of December 31, 1996 and 1995 and for each
of the two years in the period ended December 31, 1996. We also consent to the
reference in this registration statement on Form S-4 to our firm under the
caption "Experts".
Frank, Rimerman & Co. LLP
Menlo Park, California
January 21, 1998
<PAGE>
EXHIBIT 23.9
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Joint Proxy
Statement/Prospectus on Amendment No. 1 to Form S-4 of our report dated March
14, 1997, on the financial statements of South Brooklyn Nephrology Center,
Inc. (a Subchapter S Corporation) for the years ended December 31, 1996 and
1995 which appears on page F-1 of Total Renal Care Holdings, Inc.'s Current
Report on Form 8-K dated January 22, 1998. We also consent to the reference in
this Joint Proxy Statement/Prospectus on Amendment No. 1 to Form S-4 to our
firm under the caption "Experts."
Maier Markey & Menashi LLP
Larchmont, New York
January 22, 1998
<PAGE>
EXHIBIT 99.2
RENAL TREATMENT CENTERS, INC.
COMMON STOCK PROXY BOARD OF DIRECTORS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF RENAL TREATMENT
CENTERS, INC.
The undersigned hereby appoints Robert L. Mayer, Jr. or Thomas J. Karl, or
either of them, the true and lawful attorneys and proxies of the undersigned,
with full power of substitution to vote all shares of the Common Stock, $0.01
par value per share ("Common Stock"), of RENAL TREATMENT CENTERS, INC., which
the undersigned is entitled to vote at the Special Meeting of the Stockholders
of RENAL TREATMENT CENTERS, INC., to be held at 1:00 P.M., Eastern Standard
Time, on February 26, 1998 at the Sheraton Great Valley Hotel, 707 Lancaster
Pike, Frazer, Pennsylvania 19355 and any and all adjournments thereof, on the
proposal set forth below and any other matters properly brought before the
Meeting.
Unless a contrary direction is indicated, this Proxy will be voted FOR
approval of Proposal 1; if specific instructions are indicated, this Proxy will
be voted in accordance therewith.
All Proxies to vote at said Meeting or any adjournment heretofore given by
the undersigned are hereby revoked. Receipt of Notice of Special Meeting and
Joint Proxy Statement/Prospectus dated January 23, 1998, is hereby
acknowledged.
(See Reverse Side)
RENAL TREATMENT CENTERS, INC.
THE DIRECTORS RECOMMEND A VOTE FOR THE APPROVAL OF PROPOSAL 1.
1. Proposal to approve and adopt the Agreement and Plan of Merger, dated as of
November 18, 1997, by and among the Company, Total Renal Care Holdings,
Inc., a Delaware corporation ("TRCH"), and Nevada Acquisition Corp., a
Delaware corporation and a wholly owned subsidiary of TRCH ("Merger Sub"),
and the transactions contemplated thereby, including, among other things,
the merger of Merger Sub with and into the Company and the conversion of
each share of common stock, par value $0.01 per share of the Company into
the right to receive 1.335 shares of common stock, par value $0.001 per
share, of TRCH.
FOR [_] AGAINST [_] ABSTAIN [_]
Change of Address and
or Comments [_]
2. Such other matters as may properly come before the Meeting.
Please sign exactly as
your name appears
hereon. When signing
as attorney, executor,
administrator,
trustee, guardian, or
corporate officer,
please indicate full
title.
Dated____________,:1998
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Signature(s)
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Signature(s)
Please mark, sign, date and return this Proxy in the accompanying prepaid
envelope.
Votes must be [X]
