OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
REN CORPORATION-USA
AT
$20.00 NET PER SHARE
BY
REN ACQUISITION CORP.
AN INDIRECT WHOLLY OWNED SUBSIDIARY OF
GAMBRO AB
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON TUESDAY, OCTOBER 17, 1995, UNLESS THE OFFER IS EXTENDED.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST A
MAJORITY OF THE THEN OUTSTANDING SHARES, OTHER THAN SHARES OWNED BENEFICIALLY BY
OR OF RECORD BY GAMBRO OR ANY OF ITS AFFILIATES.
THE BOARD OF DIRECTORS OF REN CORPORATION-USA, ACTING ON THE UNANIMOUS
RECOMMENDATION OF A SPECIAL COMMITTEE OF INDEPENDENT DIRECTORS, UNANIMOUSLY HAS
DETERMINED THAT EACH OF THE OFFER AND THE MERGER AND THE TRANSACTIONS
CONTEMPLATED BY THE MERGER AGREEMENT IS FAIR TO, AND IN THE BEST INTERESTS OF,
THE STOCKHOLDERS OF REN CORPORATION-USA OTHER THAN GAMBRO AND ITS AFFILIATES,
AND RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES
PURSUANT TO THE OFFER.
-------------------
IMPORTANT
Any stockholder desiring to tender all or any portion of his shares of
Common Stock, no par value (the "Shares"), of REN Corporation-USA should either
(1) complete and sign the Letter of Transmittal (or a facsimile thereof) in
accordance with the instructions in the Letter of Transmittal and mail or
deliver it together with the certificate(s) evidencing tendered Shares, and any
other required documents, to the Depositary or tender such Shares pursuant to
the procedure for book-entry transfer set forth in "THE TENDER OFFER -- Section
3. Procedures for Accepting the Offer and Tendering Shares" or (2) request his
broker, dealer, commercial bank, trust company or other nominee to effect the
transaction for him. Any stockholder whose Shares are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee must contact
such broker, dealer, commercial bank, trust company or other nominee if he
desires to tender such Shares.
A stockholder who desires to tender Shares and whose certificates evidencing
such Shares are not immediately available, or who cannot comply with the
procedure for book-entry transfer on a timely basis, may tender such Shares by
following the procedure for guaranteed delivery set forth in "THE TENDER
OFFER -- Section 3. Procedures for Accepting the Offer and Tendering Shares".
Questions or requests for assistance may be directed to the Information
Agent or to the Dealer Manager at their respective addresses and telephone
numbers set forth on the back cover of this Offer to Purchase. Additional copies
of this Offer to Purchase, the Letter of Transmittal and the Notice of
Guaranteed Delivery may also be obtained from the Information Agent or from
brokers, dealers, commercial banks or trust companies.
-------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE
ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
-------------------
The Dealer Manager for the Offer is:
UBS SECURITIES INC.
September 19, 1995
TABLE OF CONTENTS
PAGE
----
INTRODUCTION.......................................................................... -1-
SPECIAL FACTORS....................................................................... -3-
Background of the Offer and the Merger............................................ -3-
Recommendation of the Special Committee and the Company's Board of Directors;
Fairness of the Offer and the Merger............................................. -8-
Presentation and Opinion of Financial Advisor to the Special Committee............ -9-
Position of Gambro, COBE and Purchaser Regarding Fairness of the Offer and the
Merger.......................................................................... -12-
Report of Financial Advisor to COBE............................................... -12-
Purpose and Effects of the Offer and the Merger................................... -14-
Plans for the Company After the Offer and the Merger.............................. -15-
Appraisal Rights of Stockholders.................................................. -16-
Interests of Certain Persons in the Offer and the Merger.......................... -17-
The Merger Agreement.............................................................. -19-
Certain U.S. Federal Income Tax Consequences...................................... -23-
Certain Litigation Relating to the Offer and the Merger........................... -24-
Fees and Expenses................................................................. -24-
THE TENDER OFFER...................................................................... -25-
1. Terms of the Offer; Expiration Date................................................ -25-
2. Acceptance for Payment and Payment for Shares...................................... -26-
3. Procedures for Accepting the Offer and Tendering Shares............................ -27-
4. Withdrawal Rights.................................................................. -28-
5. Price Range of Shares.............................................................. -29-
6. Certain Information Concerning the Company......................................... -30-
7. Certain Information Concerning Purchaser, COBE, Gambro and Incentive............... -33-
8. Financing of the Offer and the Merger.............................................. -37-
9. Dividends and Distributions........................................................ -40-
10. Certain Conditions of the Offer................................................... -40-
11. Fees and Expenses................................................................. -41-
12. Effect of the Offer on the Market for the Shares, Exchange Listing and Exchange
Act Registration...................................................................... -41-
13. Certain Legal Matters and Regulatory Approvals.................................... -42-
14. Miscellaneous..................................................................... -44-
SCHEDULE I DIRECTORS AND EXECUTIVE OFFICERS OF PURCHASER, COBE,
GAMBRO AND INCENTIVE
SCHEDULE II TEXT OF CHAPTER 23 OF THE TENNESSEE BUSINESS CORPORATION ACT
SCHEDULE III FINANCIAL INFORMATION CONCERNING REN CORPORATION-USA
SCHEDULE IV OPINION OF ALEX. BROWN & SONS INCORPORATED
To the Holders of Common Stock of
REN Corporation-USA:
INTRODUCTION
REN Acquisition Corp., a Tennessee corporation ("Purchaser") and a wholly
owned subsidiary of COBE Laboratories, Inc., a Colorado corporation ("COBE"),
hereby offers to purchase all outstanding shares of Common Stock, no par value
(the "Shares"), of REN Corporation-USA, a Tennessee corporation (the "Company"),
other than Shares owned beneficially by or of record by Gambro (as defined
below), COBE, Purchaser or any of their affiliates, at a price of $20.00 per
Share (the "Per Share Amount"), net to the seller in cash, upon the terms and
subject to the conditions set forth in this Offer to Purchase and in the related
Letter of Transmittal (which together constitute the "Offer").
COBE is a Colorado corporation. Its principal executive offices are located
at 1185 Oak Street, Lakewood, Colorado 80215. COBE and its subsidiaries design,
develop, manufacture, distribute, sell and service medical and therapeutic
systems for four medical market segments: cardiovascular, nephrology, apheresis
and blood banking. COBE is a direct wholly owned subsidiary of Gambro GmbH, a
German corporation, which is a direct wholly owned subsidiary of Gambro AB, a
Swedish corporation ("Gambro"). Gambro GmbH's principal executive offices are
located at Holger Crafoord, Strasse 26, Postfach 1323, D7450, Hechingen,
Germany. Gambro is a global medical technology company engaged principally in
the design, development, production, distribution, sale and service of medical
and therapeutic systems and products in three areas: renal care; cardiovascular
surgery; and blood component technology. Gambro's principal executive offices
are located at P.O. Box 10101 Magistratsvagen 16, S-220 10 Lund, Sweden.
Incentive AB, a Swedish corporation ("Incentive"), owns shares representing
approximately 58.4% of the total voting power of Gambro. Incentive is an
international industrial group engaged principally in the following areas:
medical technology; engineering and manufacturing for the automative industry;
the manufacture of indoor environment control and monitoring products and
systems; and the production, sale and service of materials handling equipment,
especially for marine cargo. Incentive's principal executive offices are located
at Hamngatan 2, P.O. Box 7373, 10391, Stockholm, Sweden.
Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, except as otherwise provided in Instruction 6 of the Letter of
Transmittal, stock transfer taxes with respect to the purchase of Shares by
Purchaser pursuant to the Offer. Purchaser will pay all charges and expenses of
UBS Securities Inc. ("UBS"), which is acting as Dealer Manager for the Offer (in
such capacity, the "Dealer Manager"), Bank of New York (the "Depositary") and
Georgeson & Company Inc. (the "Information Agent") incurred in connection with
the Offer. See "THE TENDER OFFER -- Section 11. Fees and Expenses".
THE BOARD OF DIRECTORS OF THE COMPANY (THE "BOARD"), ACTING ON THE UNANIMOUS
RECOMMENDATION OF A SPECIAL COMMITTEE OF INDEPENDENT DIRECTORS OF THE BOARD (THE
"SPECIAL COMMITTEE"), UNANIMOUSLY HAS DETERMINED THAT EACH OF THE OFFER AND THE
MERGER AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT IS FAIR TO, AND
IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF THE COMPANY OTHER THAN GAMBRO,
COBE, PURCHASER AND THEIR AFFILIATES, AND RECOMMENDS THAT STOCKHOLDERS ACCEPT
THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER.
The Special Committee's financial advisor, Alex. Brown & Sons Incorporated
("Alex. Brown"), has delivered to the Special Committee its written opinion that
the $20.00 per Share cash consideration to be received by the holders of Shares,
other than Gambro, Purchaser, COBE or any of their affiliates, pursuant to the
Merger Agreement is fair to the holders of such Shares from a financial point of
view as of the date of delivery of such opinion. A copy of the opinion of Alex.
Brown is set forth in Schedule IV hereto and is contained in the Company's
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9"),
which is being mailed to stockholders herewith. See "SPECIAL
FACTORS -- Presentation and Opinion of Financial Advisor to the Special
Committee".
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST A
MAJORITY OF THE THEN OUTSTANDING SHARES, OTHER THAN SHARES OWNED BENEFICIALLY BY
OR OF RECORD BY GAMBRO, COBE, PURCHASER OR ANY OF THEIR AFFILIATES (THE "MINIMUM
CONDITION"). THE MINIMUM CONDITION MAY NOT BE WAIVED WITHOUT THE PRIOR WRITTEN
CONSENT OF THE SPECIAL COMMITTEE. SEE "THE TENDER OFFER -- SECTION 10. CERTAIN
CONDITIONS OF THE OFFER", WHICH SETS FORTH IN FULL THE CONDITIONS TO THE OFFER.
The Offer is being made pursuant to an Agreement and Plan of Merger dated as
of September 12, 1995 (the "Merger Agreement"), among Gambro, COBE, Purchaser
and the Company. The Merger Agreement provides that, among other things, as
promptly as practicable after the purchase of Shares pursuant to the Offer and
the satisfaction of the other conditions set forth in the Merger Agreement and
in accordance with the relevant provisions of the Tennessee Business Corporation
Act ("Tennessee Law"), Purchaser will be merged with and into the Company (the
"Merger"). Following consummation of the Merger, the Company will continue as
the surviving corporation (the "Surviving Corporation") and will become a wholly
owned subsidiary of COBE. At the effective time of the Merger (the "Effective
Time"), each Share outstanding immediately prior to the Effective Time (other
than Shares held by the Company or owned by Purchaser, COBE or any direct or
indirect wholly owned subsidiary of COBE or of the Company, and other than
Shares held by stockholders who shall have demanded and perfected appraisal
rights under Tennessee Law) will be cancelled and converted automatically into
the right to receive $20.00 in cash, or any higher price that may be paid per
Share in the Offer, without interest (the "Merger Consideration"). The Merger
Agreement is more fully described in "SPECIAL FACTORS -- The Merger Agreement".
The consummation of the Merger is subject to the satisfaction or waiver of
certain conditions, including the purchase by Purchaser of all Shares validly
tendered in the Offer and the approval and adoption of the Merger and the Merger
Agreement by the affirmative vote of the holders of a majority of the
outstanding Shares, as required by Tennessee Law and the Charter of the Company.
See "SPECIAL FACTORS -- Purpose and Effects of the Offer and the Merger". The
Company has advised Purchaser that as of September 13, 1995, there were
18,951,834 Shares issued and outstanding, 530 record holders of Shares, 542,225
shares of Common Stock subject to options (the "Options") granted pursuant to
the Company's Non-Statutory Stock Option Plan of 1988, as amended (the "Stock
Option Plan"), 9,344 shares of Common Stock subject to Options granted pursuant
to the Company's Employee Stock Purchase Plan, as amended, of July 1, 1994 (the
"ESPP") and warrants (the "Warrants") to acquire 74,000 shares of Common Stock.
On September 12, 1995, COBE contributed to the capital of Purchaser all the
Shares owned by COBE. Accordingly, Purchaser presently owns 10,036,221 of the
outstanding Shares, constituting approximately 53% of the outstanding Shares.
Pursuant to the Merger Agreement, Gambro, COBE and Purchaser have agreed to
cause all Shares owned by them and their subsidiaries to be voted in favor of
the approval and adoption of the Merger and the Merger Agreement and the
transactions contemplated thereby at any meeting of stockholders at which such
matters are to be voted upon. Even if all of the outstanding Options and
Warrants were to be exercised, thereby resulting in the issuance of 625,569
additional Shares, Purchaser will have sufficient voting power to approve and
adopt the Merger and the Merger Agreement without the approval of any other
stockholder of the Company. However, because it is a condition to the Merger
that Purchaser have purchased all Shares validly tendered in the Offer and the
Minimum Condition is a condition to the Offer, the Merger cannot be consummated
unless the Minimum Condition is satisfied or waived. The Minimum Condition
cannot be waived without the prior written consent of the Special Committee.
Under Tennessee Law, if Purchaser acquires (pursuant to the Offer or
otherwise) at least 90% of the then outstanding Shares, Purchaser will be able
to approve and adopt the Merger Agreement and the transactions contemplated
thereby, including the Merger, without calling a meeting of the Company's
stockholders and without the approval of the Company's stockholders. In
accordance with Tennessee Law, in the event that Purchaser acquires at least 90%
of the then outstanding Shares, Gambro, COBE, Purchaser and the Company have
agreed to take, at the request of Purchaser, all necessary and appropriate
action to cause the Merger to become effective as soon as reasonably practicable
after such acquisition, without a meeting and approval by vote of the Company's
stockholders. If, however, Purchaser does not acquire at least 90% of the then
outstanding Shares pursuant to the Offer or otherwise and a meeting and the
approval of the Company's stockholders is required under Tennessee Law, as
described in the preceding paragraph, a significantly longer period of time will
be required to effect the Merger. See "SPECIAL FACTORS -- Purpose and Effects of
the Offer and the Merger".
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
2
SPECIAL FACTORS
BACKGROUND OF THE OFFER AND THE MERGER
Pursuant to three stock purchase agreements described below (collectively,
the "Stock Purchase Agreements") between COBE and the Company, COBE purchased
from the Company a total of 9,337,399 Shares, representing approximately 51.1%
of the Shares. The Stock Purchase Agreements referred to in the preceding
sentence are (i) the Stock Purchase Agreement, dated as of May 11, 1991, as
amended through April 26, 1994, (ii) the Stock Purchase Agreement, dated as of
February 9, 1992, as amended through March 17, 1992 and (iii) the Stock Purchase
Agreement, dated as of July 2, 1992, as amended through September 15, 1992. In
addition, pursuant to Letter Agreements dated as of July 14, 1993, COBE acquired
204,020 Shares from Elizabeth G. Tannenbaum, individually and as custodian and
trustee, and 489,280 Shares from Jerome S. Tannenbaum, M.D., the Company's
former Chairman, President and Chief Executive Officer, in privately negotiated
transactions at a price of $16 per Share, or an aggregate purchase price of
$11,092,800. Of this amount, $9,092,800 was paid in cash and $2 million was paid
by a promissory note to Dr. Tannenbaum. COBE currently owns 10,036,221 Shares,
representing approximately 53% of the total outstanding Shares.
The Stock Purchase Agreements provide that, subject to certain exceptions,
during the time period specified therein, COBE shall not directly or indirectly
acquire or agree, offer, seek or propose to acquire, or cause to be acquired,
ownership of any securities of the Company, unless specifically requested to do
so in writing in advance by the Board (the "Standstill Provision").
On July 13, 1995, the boards of directors of Gambro and COBE approved an
acquisition of all of the Shares which COBE did not already own at $18.00 per
Share and authorized Mr. Mats Wahlstrom, who is the Chairman of the Board and
also the President of COBE, to present a proposal for an acquisition on those
terms to the Board.
Later on July 13, 1995, the Board held a meeting at which Mr. Wahlstrom
informed the Board that COBE was interested in purchasing all of the remaining
Shares that COBE did not already own. Mr. Wahlstrom expressed that COBE believed
that COBE and the Company must grow, by acquisition or otherwise, to compete
effectively in the healthcare industry and that this growth could be achieved
more effectively if the Company becomes a wholly owned subsidiary of COBE.
Mr. Wahlstrom discussed the terms on which COBE was willing to make a
proposal and explained that the Standstill Provision prevented COBE from making
a proposal to acquire Shares unless the Board requested it to do so in writing.
Mr. Wahlstrom also stated that, if the Board were to invite COBE to make such a
proposal, a special committee of independent directors of the Board to represent
the interests of stockholders other than COBE or its affiliates should be
established and that that committee should consist of Dr. J. Kenneth Jacobs and
Dr. Juha P. Kokko, who are not affiliated with COBE or Gambro.
The Board unanimously determined to waive the Standstill Provision for the
limited purpose of allowing COBE to deliver a proposal to the Company on the
terms discussed by Mr. Wahlstrom. However, the Standstill Provision continued to
prohibit COBE or its affiliates from actually acquiring Shares without a further
waiver. The Board then established the Special Committee, consisting of Dr.
Jacobs and Dr. Kokko, for the purpose of considering, negotiating and submitting
a recommendation to the Board concerning the terms of the proposal to be made by
COBE.
The Company then delivered the following letter to COBE:
July 13, 1995
COBE Laboratories, Inc.
1185 Oak Street
Lakewood, Colorado 80215
Attention: Mats Wahlstrom
Re: Request for Proposal to Acquire Common Stock
3
Gentlemen:
As of the date hereof and pursuant to Section 5.11 of the Stock Purchase
Agreement dated as of May 24, 1991 between REN Corporation-USA (the
"Corporation") and COBE Laboratories, Inc. ("COBE"), as amended as of October 1,
1992 (the "Stock Purchase Agreement"), the Corporation, pursuant to the duly
authorized action of its Board of Directors, hereby permits COBE to submit its
proposal to acquire all the common shares, no par value, of the Corporation that
COBE does not currently own pursuant to the letter attached hereto from COBE
addressed to the Board of Directors of the Corporation and dated as of July 13,
1995.
Very truly yours,
REN CORPORATION-USA
By: /s/ LAWRENCE J. CENTELLA
..................................
Name: Lawrence J. Centella
Title: President and Chief
Executive Officer
COBE delivered the following letter to the Board containing its proposal
(the "Proposed Transaction"):
July 13, 1995
Board of Directors of REN Corporation-USA
Gentlemen:
I am pleased to offer on behalf of COBE Laboratories, Inc. ("COBE"), to
acquire the equity interest represented by all of the issued and outstanding
common shares, no par value, of REN Corporation-USA ("REN") not currently owned
by COBE including all common shares that may be issued upon the exercise of
options and warrants outstanding on the date hereof (the "Public Shares"). The
principal terms of our offer are as follows:
1. The transaction would be a cash merger in which each holder of a Public
Share would receive $18 per share, or an aggregate of approximately $170
million based on the number of Public Shares outstanding on July 12,
1995.
2. Consummation of the acquisition would be subject to among other things,
approval by the Board of Directors of REN and other conditions customary
in a transaction of this type.
3. COBE proposes to finance the acquisition of the Public Shares from bank
borrowings.
4. We anticipate that, upon completion of the acquisition, COBE will cause
the common shares of REN to be delisted from trading on the NASDAQ
National Market System and to cause deregistration of such common shares
with the Securities and Exchange Commission.
We believe that our offer is fair to, and in the best interests of, REN and
its public shareholders. The proposed acquisition price is equivalent to an 18%
premium over the average closing price of the common shares on the NASDAQ
National Market System over the 60 trading days ended July 12, 1995.
We believe that the investment by COBE in REN has been beneficial to COBE
and its parent, Gambro AB, and also to REN's public shareholders. However, COBE
and REN are facing an increasingly competitive environment and the prospect of
industry-wide consolidation. We believe that COBE and REN must grow, by
acquisition or otherwise, to compete effectively in this rapidly changing
environment and that this growth can be achieved much more effectively if REN
becomes a wholly owned subsidiary.
4
We wish to make it clear that we are not interested under any circumstances
in selling our interest in REN and that there is thus no prospect of a sale of
controlling interest to a third party. Our offer is made pursuant to your letter
dated as of July 13, 1995 to COBE.
We understand that you may wish to deliberate on this offer through a
special committee of independent directors and that such committee may wish to
retain its own advisors to assist in those deliberations. We invite your
representatives to meet with our advisors to discuss this proposal at your
earliest convenience.
We hope you will give this proposal your prompt attention. We reserve the
right to amend or withdraw this proposal at any time in our discretion.
Sincerely,
/s/ MATS WAHLSTROM
......................................
Mats Wahlstrom
President
COBE Laboratories, Inc.
The Company issued the following press release, dated July 14, 1995, in
connection with the Proposed Transaction:
"COBE LABORATORIES, INC. PROPOSES TO BUY PUBLIC INTEREST IN ITS
REN CORPORATION-USA SUBSIDIARY FOR $18.00 PER SHARE.
COBE Laboratories, Inc., a wholly-owned subsidiary of Gambro AB, today
announced a proposal to acquire all of the equity interests in REN
Corporation-USA (NASDAQ National Market System: RENL) not currently owned by
COBE Laboratories, Inc., including all common shares that may be issued upon the
exercise of options and warrants outstanding on July 12, 1995.
Under the proposed transaction, the public shareholders of REN
Corporation-USA would receive $18.00 a share in cash, or an aggregate of
approximately $170.2 million for all the shares of common stock, no par value
(the "Common Stock"), of REN Corporation-USA held by the public. As of the date
hereof, COBE Laboratories, Inc. owns approximately 53% of the Common Stock of
REN Corporation-USA.
The offer is subject to the approval of the Board of Directors of REN
Corporation-USA, and other conditions customary in transactions of this type.
The offer also noted that the proposed acquisition price is equivalent to an
approximately 17.9% premium over the average closing price of REN
Corporation-USA Common Stock on the NASDAQ National Market System over the 60
trading days ended July 12, 1995.
In response to the offer by COBE Laboratories, Inc., the Board of REN
Corporation-USA has established a special committee of its independent directors
to consider the terms of the offer and to make recommendations in connection
with the offer to the Board of Directors of REN Corporation-USA.
UBS Securities, Inc. is acting as financial advisor to COBE Laboratories,
Inc. in connection with the proposed transaction.
July 14, 1995"
In the second half of July 1995, the Special Committee retained Alex. Brown
as its financial advisor and also retained independent legal counsel. Beginning
at the end of July 1995, the Special Committee's financial and legal
5
advisors commenced an investigation of the Company and its business. As part of
that investigation, officers of the Company met with, and supplied information
to, the Special Committee's financial and legal advisors.
On August 8, 1995, the Special Committee held a telephonic meeting with its
financial and legal advisors. At that meeting, the Special Committee discussed
the results of the investigation of the Company and its business (which was
still ongoing) that the Special Committee's financial and legal advisors were
conducting and the possible structure and terms of any agreement that might be
reached with COBE. Between August 8 and August 28, 1995, the financial and legal
investigation of the Company and its business continued.
On August 28, 1995, the Special Committee held a meeting in Nashville,
Tennessee with its financial and legal advisors. The Special Committee reviewed
and discussed with its counsel its fiduciary duties and the rights and powers of
the Special Committee under applicable law, the Charter and By-laws of the
Company and under the Stock Purchase Agreement. The Special Committee was
advised that its purpose was to negotiate at arm's length with COBE in order to
protect the interests of the Company's stockholders other than COBE and its
affiliates. The Special Committee was further advised that it was under no
obligation to reach any agreement at all with COBE unless the Special Committee
determined that such an agreement was in the best interests of the Company's
stockholders other than COBE and its affiliates. The Special Committee also
discussed the possibility, and the benefits and detriments, of the use of forms
of consideration other than cash in a transaction with COBE and discussed the
possible structure of a transaction with COBE, including the benefits and
detriments of the use of a tender offer and of a single-step merger transaction
and the possibility of requiring majority of the minority tendering or voting
conditions.
At the August 28, 1995 meeting, Alex. Brown made a financial presentation
about the Company to the Special Committee, which included various analyses,
including a review of the reported price and trading activity for the Shares, a
comparison of certain financial and stock market information for the Company
with similar information for certain other companies whose securities are
publicly traded, a review of the financial terms of certain recent business
combinations and a discounted cash flow analysis. The Special Committee also
received a presentation from its legal advisors on certain proposed and pending
federal legislative and regulatory initiatives, including in the Medicare
reimbursement area, and discussed and considered the possible impact of those
initiatives on the Company. The Special Committee's legal advisors also
discussed with the Committee the terms of a draft merger agreement that had been
submitted to the Special Committee's legal advisors by COBE's legal advisors.
In light of the foregoing, the Special Committee discussed at the August 28,
1995 meeting whether any transaction with COBE would be desirable at this time
and determined that it would be in the best interests of the Company's
shareholders other than COBE or its affiliates to enter into negotiations with
COBE regarding a possible transaction. At the August 28, 1995 meeting, the
Special Committee authorized its financial advisors to approach COBE's financial
advisors with a proposal for a transaction at $22.00 per Share. The Special
Committee also authorized its legal advisors to attempt to negotiate open issues
with respect to the non-financial terms of a merger agreement with COBE's legal
advisors. The Special Committee's legal advisors commenced that process
following the August 28 meeting.
On August 30, 1995, the financial advisors for COBE and the Special
Committee met, at which time the Special Committee's financial advisors proposed
a price of $22.00 per Share and also requested COBE to consider a transaction in
which Gambro stock would be used as consideration, possibly in addition to cash.
COBE's financial advisors stated that a price of $22.00 per Share price was far
too high and also stated that COBE and Gambro were unwilling to use Gambro stock
instead of cash.
On September 6, 1995, COBE's financial advisors proposed to the Special
Committee's financial advisors that the transaction be effected through a cash
tender offer, followed by a merger, at $19.25 per Share. During the next several
days, the members of the Special Committee discussed that proposal with their
financial and legal advisors and representatives of the Special Committee held
discussions with representatives of COBE.
On September 9, 1995, the Special Committee held a telephonic meeting to
discuss COBE's proposal at $19.25 per Share. The Special Committee decided to
reject COBE's $19.25 per Share proposal and negotiate for a higher price. The
Special Committee also discussed the advantages and disadvantages of effecting a
transaction through a tender offer.
6
On September 10, 1995, the Special Committee and Mr. Wahlstrom, representing
COBE, met with their respective financial advisors. After some discussion and an
unsuccessful effort by Mr. Wahlstrom to persuade the Special Committee to accept
a price of less than $20.00 per Share, Mr. Wahlstrom proposed a price of $20.00
per Share in a transaction effected through a tender offer. Mr. Wahlstrom stated
that COBE would not pay a higher price. The Special Committee indicated that it
would accept this proposal subject to negotiation of the terms of a definitive
merger agreement. Following that meeting, the Special Committee authorized its
legal advisors to continue negotiations on the terms of a definitive merger
agreement, including the terms and conditions of the proposed tender offer,
subject to approval by the Special Committee and the Board. Those negotiations
took place during September 11 and 12, 1995.
On September 12, 1995, the Special Committee held a telephonic meeting with
its financial and legal advisors. The Special Committee reviewed the Merger
Agreement as it had been finally negotiated between its legal advisors and
COBE's legal advisors. Alex. Brown rendered its oral opinion that the
consideration of $20.00 per Share, in cash, to be received by the Company's
stockholders, other than Gambro, COBE, Purchaser and their affiliates, pursuant
to the Merger Agreement was fair from a financial point of view to such
shareholders as of the date of the opinion. That opinion has since been
confirmed in writing and is attached hereto as Schedule IV.
After reviewing the foregoing analysis and receiving the oral opinion of
Alex. Brown, the Special Committee recommended that the Board approve and adopt
the Merger Agreement and approve and consent to the Offer.
Also on September 12, 1995, and immediately following the Special Committee
meeting, the Board held a telephonic meeting at which the opinion of Alex. Brown
and the recommendations of the Special Committee were presented and the Board
approved and adopted the Merger Agreement.
On September 12, 1995, the Board also delivered to the Board of COBE the
following letter requesting that Gambro, COBE and Purchaser enter into the
Merger Agreement and consummate the transactions contemplated thereby in
accordance with the terms and conditions of the Merger Agreement:
September 12, 1995
COBE Laboratories, Inc.
1185 Oak Street
Lakewood, Colorado 80215
Attention: Mats Wahlstrom
Re: Request for Proposal to Acquire Common Stock
Gentlemen:
As of the date hereof and pursuant to Section 5.11 of the Stock Purchase
Agreement dated as of May 24, 1991 between REN Corporation-USA (the
"Corporation") and COBE Laboratories, Inc. ("COBE"), as amended through April
26, 1994, the Corporation, pursuant to the duly authorized action of its Board
of Directors, hereby requests Gambro AB, a Swedish company ("Gambro"), COBE, a
wholly owned indirect subsidiary of Gambro, and REN Acquisition Corp., a
Tennessee corporation and a wholly owned subsidiary of COBE ("Purchaser"), to
enter into an Agreement and Plan of Merger, dated as of September 12, 1995,
among Gambro, COBE, Purchaser and the Corporation and to consummate the
transactions contemplated thereby in accordance with the terms and conditions
thereof.
Very truly yours,
REN CORPORATION-USA
By: /s/ LAWRENCE J. CENTELLA
..................................
Name: Lawrence J. Centella
Title: President and Chief
Executive Officer
7
The Merger Agreement was executed and delivered by the parties thereto on
September 12, 1995 and the transaction was announced on the morning of September
13, 1995. The Company issued the following press release, dated September 13,
1995, in connection with the Merger Agreement:
"REN CORPORATION-USA ANNOUNCES SIGNING OF DEFINITIVE MERGER AGREEMENT
NASHVILLE, Tenn., September 13, 1995--REN Corporation-USA, a Tennessee
corporation (NASDAQ: RENL), today announced that it has signed a definitive
merger agreement with Gambro AB (NASDAQ: GAMBY) and COBE Laboratories, Inc., the
Lakewood, Colorado-based wholly owned subsidiary of Gambro ("COBE"), providing
for the acquisition of REN's publicly held shares at a price of $20 per share,
net to the seller in cash. Pursuant to the merger agreement, a newly formed
wholly owned subsidiary of COBE ("Purchaser") will commence a tender offer for
all of the issued and outstanding shares of common stock of REN not currently
owned by COBE. Purchaser will commence the tender offer no later than September
19, 1995. Following the tender offer, Purchaser will be merged into REN, and all
REN shares not purchased pursuant to the tender offer will be converted into a
right to receive $20 per share in cash in a second-step merger to be consummated
as soon as practicable after the tender offer. Upon consummation of the merger,
REN will become a wholly owned subsidiary of COBE and an indirect wholly owned
subsidiary of Gambro.
The tender offer will be conditioned upon, among other things, at least a
majority of the REN shares, other than the REN shares owned by COBE or its
affiliates, being validly tendered and not withdrawn prior to the expiration of
the tender offer. COBE and its affiliates presently own approximately 53% of the
outstanding REN shares.
The merger agreement has been unanimously approved by a special committee of
independent directors of REN and, based on the recommendation of the special
committee, the Board of Directors of REN has unanimously approved the merger
agreement and recommended that holders tender their REN shares pursuant to the
tender offer.
UBS Securities Inc. is acting as financial advisor to COBE in connection
with the transaction and is acting as sole Dealer Manager in connection with the
tender offer.
Alex. Brown & Sons Incorporated is acting as financial advisor to the
special committee and has rendered an opinion that the consideration to be
received by the public shareholders of REN pursuant to the merger agreement is
fair from a financial point of view.
REN is the nation's fourth largest provider of kidney dialysis services. REN
owns and operates 68 dialysis centers, located across 18 states and the District
of Columbia. Several of these centers are associated with prominent academic
institutions. Overall, the company has over 1,150 treatment stations servicing
approximately 5,700 patients. In 1994, REN performed 646,000 dialysis
treatments. REN also performs blood and urine testing services for its centers
and others."
RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE COMPANY'S BOARD OF DIRECTORS;
FAIRNESS OF THE OFFER AND THE MERGER
The Company, acting through the Board acting upon the unanimous
recommendation of the Special Committee, has approved of and consented to the
Offer and has represented that the Board, acting upon the unanimous
recommendation of the Special Committee, at a meeting duly called and held on
September 12, 1995, has unanimously (A) determined that the Merger Agreement and
the transactions contemplated thereby, including each of the Offer and the
Merger, are fair to and in the best interests of the holders of Shares other
than COBE or its affiliates, (B) approved and adopted the Merger Agreement, the
execution of the Merger Agreement and the transactions contemplated by the
Merger Agreement (which approval includes the approval of a majority of the
Company's disinterested directors, as required both by Tennessee Law and by
Article X of the Company's By-laws), and (C) recommended that the stockholders
of the Company accept the Offer and approve and adopt the Merger Agreement and
the transactions contemplated thereby. The Company has been advised by each of
its directors and executive officers that they intend either to tender all
Shares beneficially owned by them to Purchaser pursuant to
8
the Offer or to vote such Shares in favor of the approval and adoption by the
stockholders of the Company of the Merger Agreement and the transactions
contemplated thereby.
In reaching their conclusions, the Special Committee considered a number of
factors (some of which had been discussed at earlier meetings), including,
without limitation, the following:
(i) The price of $20.00 per Share represents a substantial premium over the
market price of the Shares prior to the announcement of the Proposed
Transaction and was higher than the highest historical market price for
the Shares prior to such announcement.
(ii) The fact that stock market prices, both for the Company and in the
United States in general, are at or near historic highs, indicating
that the timing of a transaction is not unfavorable for the minority
stockholders.
(iii) The Special Committee's perception, after consultation with its
financial advisors, that $20.00 per Share is, based on a number of
tests, including a comparison of recent comparable transactions
involving the buy-out of minority stockholders, a reasonable price for
the minority stockholders' Shares.
(iv) The Special Committee's knowledge of the Company's business, measured
against the possibility of changes in the legal and regulatory climate
in the healthcare industry and other factors that might affect the
Company's business.
(v) The existence of the Standstill Provision prohibiting COBE and its
affiliates from purchasing Shares and a covenant not to compete with the
Company by COBE and its affiliates in the Stock Purchase Agreements,
Article X of the Company's By-laws (prohibiting a transaction between
the Company and an affiliate without the approval of a majority of
disinterested directors), the fact that the Standstill Provision will
expire on May 24, 1996 and that the Company's By-laws can be amended by
the holders of two-thirds of the Shares.
(vi) The possibility that, because of a decline in the Company's business,
the trading price of the Shares or the stock market in general, the
consideration that the minority stockholders would obtain for their
Shares in a future transaction might be less advantageous than the
consideration they would receive pursuant to the Offer and the Merger.
(vii) The opinion of Alex. Brown that the consideration to be received by
the stockholders of the Company other than Gambro, COBE, Purchaser and
their affiliates pursuant to the Merger Agreement was fair from a
financial point of view to such stockholders as of the date of the
opinion.
None of the factors considered by the Special Committee, including the
foregoing factors, was dispositive to the Special Committee's conclusions, nor
did the Special Committee assign any relative priority to the various factors
considered.
PRESENTATION AND OPINION OF FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE
Alex. Brown delivered to the Special Committee its oral opinion, which
opinion was subsequently confirmed in writing, that, as of September 12, 1995,
the consideration to be received by the holders of Shares, other than Gambro,
COBE, Purchaser and their affiliates, pursuant to the Merger Agreement was fair
from a financial point of view to such holders. No limitations were imposed by
the Special Committee upon Alex. Brown with respect to the investigations made
or procedures followed by it in rendering its opinion. Alex. Brown relied, with
the permission of the Special Committee, on the statement made by COBE that it
would not dispose of its Shares or vote its Shares in favor of any transaction
involving the sale of the Company and Alex. Brown was not requested or
authorized to solicit, and did not solicit, interest from any party with respect
to the acquisition of the Shares or the assets of the Company or any of its
constituent businesses.
The full text of the opinion of Alex. Brown dated as of September 12, 1995,
which sets forth the assumptions made, matters considered and limitations on the
review undertaken, is attached as Schedule IV. Holders of Shares are urged to
read this opinion in its entirety. Alex. Brown's opinion is directed only to the
fairness from a financial point of view of the consideration to be received by
the holders of Shares and does not constitute a recommendation
9
to any holder of Shares as to whether such holder should tender Shares in the
Offer. The following summary of the opinion of Alex. Brown is qualified in its
entirety by reference to the full text of such opinion.
In connection with its opinion, Alex. Brown reviewed the Merger Agreement
and certain publicly available financial information concerning the Company.
Alex. Brown also reviewed certain internal financial analyses and other
information, including financial projections furnished to it by the Company and
held discussions with members of the senior management of the Company regarding
the business and prospects of the Company. In addition, Alex. Brown (i) reviewed
the reported prices and trading activity for the Shares, (ii) compared certain
financial and stock market information for the Company with similar information
for certain other companies whose securities are publicly traded, (iii) reviewed
the financial terms of certain recent business combinations and (iv) performed
such other studies and analyses and considered such other factors as it deemed
appropriate.
As described in the opinion, Alex. Brown assumed, without independent
verification, the accuracy and completeness of the information that it reviewed
and relied upon for purposes of rendering its opinion. With respect to the
financial projections furnished to it, Alex. Brown assumed that they had been
reasonably prepared on bases reflecting the best currently available estimates
and judgements of the senior management of the Company as to the likely future
financial performance of the Company. In addition, Alex. Brown did not make an
independent valuation or appraisal of the assets of the Company, nor was it
furnished with any such valuation or appraisal. Alex. Brown's opinion stated
that such opinion was based on market, economic, financial and other conditions
as they existed and could be evaluated as of the date of the opinion.
The following is a summary of the report presented by Alex. Brown to the
Special Committee on September 12, 1995 (the "Alex. Brown Report") in connection
with its September 12, 1995 opinion.
Stock Trading History. Alex. Brown reviewed the historical trading volume
and market prices for the Shares. In addition, Alex. Brown reviewed and analyzed
the relationship between movements of the price of the Shares and movements in
the Standard & Poor's average of 500 stocks and movements in the prices of
companies considered by Alex. Brown to be reasonably similar to the Company.
This analysis showed that the $20.00 per Share offer price was 20.3% higher than
the highest closing price for the Shares prior to announcement of the Proposed
Transaction by COBE on July 14, 1995.
Comparison of the Company with Selected Publicly Traded Companies. Alex.
Brown compared certain financial information for the Company with corresponding
data and ratios for the following group of six publicly traded health care
services companies: American Medical Response, Inc., HEALTHSOUTH Corporation,
Lincare Holdings Inc., Renal Treatment Centers, Inc., Surgical Care Affiliates,
Inc. and Vivra Incorporated. Such financial information included market value,
aggregate market value (market value adjusted by adding debt and subtracting
cash and marketable securities), profitability, returns, growth rates and
implied multiples of revenues, operating cash flow (earnings before
depreciation, amortization, interest and taxes less minority interest),
operating income (earnings before interest and taxes less minority interest),
net income and estimated future earnings per share (as reported by I/B/E/S) for
the calendar years 1995 and 1996. This analysis showed that on September 8,
1995, the ratio of stock price to projected calendar 1995 earnings per share for
the six companies listed above ranged from 16.5x to 25.3x and with a mean of
20.7x and the ratio of stock price to projected calendar 1996 earnings per share
ranged from 13.7x to 19.9x with a mean of 16.9x. The implied equity value per
share based on the mean multiples and the Company's projected calendar 1995 and
1996 net income was $14.14 and $16.61, respectively. Alex. Brown noted that the
ratio of the $20.00 offer price to the Company's projected calendar 1995
earnings per Share was 29.4x and the ratio of the offer price to the Company's
projected calendar 1996 earnings per Share was 20.4x.
Analysis of Selected Health Care Merger and Acquisition Transactions. Alex.
Brown analyzed, based on thirteen recent mergers and acquisitions in the
alternate-site health care delivery market, the financial multiples of equity
purchase price to last twelve months' net income and to forward twelve months'
net income and the multiples of aggregate purchase price (equity purchase price
adjusted by adding debt and subtracting cash and marketable securities) to last
twelve months' revenues, operating cash flow and operating income. Alex. Brown
also analyzed the premiums of the purchase price over stock prices prior to
transaction announcement in these transactions. Alex. Brown calculated the
implied equity value per share of the Company by applying the Company's actual
and forecasted financial results to the mean multiple for each of the measures
derived from this analysis. For the thirteen
10
transactions in the alternate-site health care delivery market, the implied
equity value per Share ranged from $15.25 to $23.72.
Analysis of Selected Minority Buyouts. Using publicly available information,
Alex. Brown analyzed the purchase prices and premiums of the purchase price over
stock prices prior to transaction announcement paid in 31 minority buyout
transactions with values greater than $25.0 million since 1990. This analysis
resulted in a range of purchase price premiums to the stock price one day prior
to announcement of (9.8%) to 66.7%, with a mean purchase price premium of 26.6%
and a median purchase price premium of 24.3%. Alex. Brown also analyzed the
range of purchase price premiums to the stock price one month prior to
transaction announcement which indicated a range of 16.5% to 88.6% with a mean
purchase price premium of 32.7% and a median purchase price premium of 28.9%.
Alex. Brown calculated the implied Company purchase price per Share based on
these premiums. This analysis implied purchase prices per Share of $19.94 and
$19.58 based on the mean and median premiums, respectively, to the stock price
one day prior to announcement, and implied purchase prices per Share of $19.58
and $19.01 based on the mean and median premiums, respectively, to the stock
price one month prior to announcement.
Discounted Cash Flow Analysis. Using a discounted cash flow analysis, Alex.
Brown calculated the present value of the future cash flows that the Company
could produce over a five-year period from 1996 through the end of 2000 under
various assumptions. The cash flows were based on financial forecasts prepared
by the Company's management for 1995 through 1998 and estimates for 1999 and
2000 which were based on an extrapolation of the 1998 data and were reviewed
with the Company's management. Alex. Brown discounted these cash flows to
September 30, 1995, at discount rates ranging from 11.0% to 15.0% based upon the
consideration of a number of factors, including cost of capital, required rates
of return to investors and risks attributable to the uncertainty of achieving
the projected cash flows. The terminal value was computed based on projected
earnings before depreciation, amortization, interest and taxes less minority
interest in calendar year 2000 and a range of terminal multiples of 7.0x to
9.0x. The foregoing analysis resulted in a present value range for the Company
of $18.63 to $27.63 per share.
The summary set forth above does not purport to be a complete description of
the presentation by Alex. Brown of the Alex. Brown Report to the Special
Committee or the analyses performed and factors considered by Alex. Brown in
connection with its opinion dated September 12, 1995. A copy of the Alex. Brown
Report has been filed as an Exhibit to the Schedule 13E-3. Alex. Brown believes
that its analyses and the summary set forth above must be considered as a whole
and that selecting portions of its analyses, without considering all analyses,
or selecting portions of the above summary, without considering all factors and
analyses, could create an incomplete view of the process underlying the analyses
set forth in the opinion and the Alex. Brown Report. In performing its analyses,
Alex. Brown made numerous assumptions with respect to industry performance,
general business, economic, market and financial conditions and other matters,
many of which are beyond the control of the Company. The analyses performed by
Alex. Brown are not necessarily indicative of actual values or future results,
which may be significantly more or less favorable than those which are suggested
by such analyses.
Alex. Brown is a nationally recognized investment banking firm and, as a
customary part of its investment banking business, is engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, private placements and valuations for corporate and
other purposes. Alex. Brown regularly publishes research reports regarding the
health care industry and the businesses and securities of publicly traded
companies in that industry.
Pursuant to a letter agreement dated as of August 10, 1995 (the "Alex. Brown
Engagement Letter") between the Special Committee, the Company and Alex. Brown,
the Company paid Alex. Brown a fee of $100,000 in consideration of its services
as the Special Committee's financial advisor. In addition, the Company agreed to
pay Alex. Brown an additional fee of $800,000 for its services as the Special
Committee's financial advisor upon the earlier to occur of (i) the conclusion of
the Special Committee's work with regard to the Proposed Transaction (regardless
of whether there was an agreement regarding any business combination transaction
or whether any business combination transaction was consummated), (ii) the
execution of a definitive agreement for a business combination transaction or
(iii) 90 days from the date of the Alex. Brown Engagement Letter. The Alex.
Brown Engagement Letter also provides that if Alex. Brown is requested to
deliver any additional opinions with respect to
11
amended or revised offers, the Company will pay Alex. Brown an additional fee of
$100,000 upon delivery of each such additional opinion. The Company also agreed
to indemnify and hold harmless Alex. Brown and each of its directors, officers,
agents, employees and controlling persons against any losses, claims, damages or
liabilities related to or arising out of Alex. Brown's engagement. If such
indemnification is not available, the Company agreed to contribute to the
losses, claims, damages or liabilities in proportion to the relative benefits
received by the Company and the party seeking contribution as well as in
proportion to the relative faults of the Company and the party seeking
contribution. The Company also agreed to pay all of Alex. Brown's reasonable
out-of-pocket expenses, including reasonable fees and disbursements of counsel.
POSITION OF GAMBRO, COBE AND PURCHASER REGARDING FAIRNESS OF THE OFFER AND THE
MERGER
Gambro, COBE and Purchaser regard the acquisition of the Company as the most
feasible means of improving the long-term viability of, and protecting the value
of their investment in, the Company. Gambro, COBE and Purchaser believe that the
Company and COBE must in the future grow, by acquisition or otherwise, to
compete effectively in an increasingly competitive and rapidly changing
healthcare marketplace, which is characterized by industry-wide consolidation.
Gambro, COBE and Purchaser believe that this growth can be achieved much more
effectively if the Company becomes a wholly owned subsidiary of COBE.
Gambro, COBE and Purchaser believe that the consideration to be received by
the Company's stockholders under the Offer and in the Merger is fair to the
Company's stockholders. Gambro, COBE and Purchaser base their belief on (i) the
fact that the Board, acting upon the unanimous recommendation of the Special
Committee, and the Special Committee, based on the factors considered by the
Special Committee as set forth above, concluded that the Offer and Merger are
fair to and in the best interests of the Company's stockholders, (ii) the fact
that Gambro, COBE and Purchaser and their financial and legal advisors
negotiated the Merger Agreement with the Special Committee on an arm's-length
basis, (iii) the financial analysis of UBS provided to certain senior executives
of COBE as described below, (iv) the current and historical market prices for
the Shares and fact that the consideration to be paid in the Offer and the
Merger represents a premium of approximately 27% over the closing price for the
Shares on the National Association of Securities Dealers Automated
Quotation--National Market System ("NASDAQ") on July 13, 1995, the last trading
day prior to the public announcement of the Proposed Transaction and (v) the
fact that COBE is not interested under any circumstances in selling its interest
in the Company and that there is thus no prospect for the sale of a controlling
interest in the Company to a third party. Gambro, COBE and Purchaser have
reviewed the factors considered by the Special Committee in support of its
decision, as described above, and had no basis to question their consideration
of or reliance on those factors. Neither Gambro, COBE nor Purchaser found it
practicable to assign, nor did any of them assign, relative weights to the
individual factors considered in reaching their conclusion as to fairness.
REPORT OF FINANCIAL ADVISOR TO COBE
UBS was retained by COBE to act as its financial advisor in connection with
the transactions contemplated hereby. On July 6, 1995, representatives of UBS
met with certain senior executives of COBE and presented certain financial
analyses of the Company (the "UBS Presentation"). UBS was not requested to, and
did not, render any opinion with respect to the fairness of the consideration to
be received by holders of Shares pursuant to the Offer or the Merger, nor does
UBS express any opinion thereon.
In preparing its report and making its analyses, UBS assumed and relied
without independent verification upon the accuracy and completeness of the
information reviewed by it for purposes of its report and analyses. UBS assumed
that the financial forecasts supplied by the Company had been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the future financial performance of the Company. UBS did not make,
nor was it provided with, any independent valuation appraisals. UBS' analyses
were based on economic, market and other conditions on the date of the
presentation and the information made available to UBS as of such date. The UBS
Presentation was one of many factors taken into consideration by COBE in making
its determination to present the Offer. Consequently, the UBS Presentation
should not be viewed as determinative of COBE's decision to proceed with the
Offer.
12
The following is a summary of certain of the analyses performed by UBS in
connection with the UBS Presentation:
Historical Stock Price Performance. UBS reviewed the historical stock market
performance of the Shares and of the common shares of Renal Treatment Centers,
Inc. and Vivra Incorporated (the "Selected Companies"), publicly traded
companies that UBS deemed relevant for the purposes of its analyses, over
approximately a three-year period (from June 26, 1992 to June 30, 1995) and a
twelve-month period (from June 30, 1994 to June 30, 1995). UBS compared the
market prices for the Shares to an index comprised of the Selected Companies
weighted by market capitalization and to the Standard & Poor's 500 Index over
the aforementioned time periods.
Analysis of Selected Companies. UBS compared certain financial information
and operating statistics of the Company with corresponding financial information
and operating statistics of the Selected Companies, based upon the most recent
publicly available information. Such financial information and operating
statistics included, among other things, certain historical and projected growth
rates, certain historical margins, market values of equity, total enterprise
values and certain market multiples. The analysis of such financial information
and operating statistics yielded implied per Share values ranging from $9.77 to
$20.70.
Discounted Cash Flow Analysis. UBS performed a discounted cash flow analysis
using financial forecasts furnished by the Company's management for 1995 through
1998 and an estimate for 1999 based upon an extrapolation of 1998 data. Based on
such forecasts, UBS calculated the Company's earnings before interest, taxes,
depreciation and amortization ("EBITDA") and free cash flow (determined for this
purpose as forecasted unleveraged net income adjusted for forecasted
depreciation and amortization, forecasted capital expenditures and forecasted
working capital requirements) for 1995 through 1999. UBS discounted such stream
of free cash flows back to June 30, 1995, using discount rates ranging from
10.0% to 14.0%. To estimate the residual value of the Company at the end of
1999, UBS applied terminal multiples of 6.5x to 7.5x to the forecasted 1999
EBITDA and discounted such value estimates back to June 30, 1995, using discount
rates ranging from 10.0% to 14.0%. UBS determined the range of discount rates
and terminal multiples based on a variety of factors, including, among other
things, analyses of the estimated cost of capital of the Company, the range of
market multiples for the Selected Companies and general market conditions. UBS
then added the present values of the free cash flows and the present values of
the residual values to derive a range of implied enterprise values for the
Company. These calculations resulted in implied per Share values ranging from
$16.95 to $22.41.
Analysis of Selected Minority Buyout Transactions. UBS reviewed 22 selected
acquisitions of minority shareholdings valued at more than $10 million since
January 1990 and evaluated the premiums over the prevailing market prices paid
by buyers in such acquisitions. The analysis indicated that the premiums
represented by the purchase price over the market prices of the subject
companies one day and one month prior to the announcement of the subject
transaction ranged from 2.2% to 57.1%, with a median of 22.8% (which resulted in
an implied per Share value of $19.49), and 4.8% to 61.1%, with a median of 31.1%
(which resulted in an implied per Share value of $18.52).
The UBS Presentation summarized above was prepared solely for internal use
and not with a view to public disclosure. The foregoing summary of the UBS
Presentation is included in this Offer to Purchase solely because such
information was furnished by UBS to COBE. In performing its analyses, UBS made
numerous assumptions with respect to industry performance, general business and
economic conditions and other matters, many of which are beyond the control of
COBE or the Company. The analyses performed by UBS are not necessarily
indicative of actual values, which may be significantly more or less favorable
than those which are suggested by such analyses. Such analyses do not purport to
be appraisals or to reflect the prices at which the Shares might actually be
sold.
The foregoing summary does not purport to be a complete description of the
UBS Presentation or of UBS' oral presentation to certain senior executives of
COBE on July 6, 1995. A copy of the UBS Presentation has been filed as an
Exhibit to the Schedule 13E-3, and copies thereof will be made available for
inspection and copying at the principal executive offices of the Company during
regular business hours by any interested shareholder of the Company or any
representative designated in writing and may also be obtained in the manner
described under "THE TENDER OFFER -- Section 6. Certain Information Concerning
the Company" (except that copies are not available at the regional offices of
the Commission).
13
No limitations were placed by COBE on UBS with respect to the investigations
made or the procedures followed by UBS.
UBS is an internationally recognized investment banking and advisory firm.
UBS, 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. COBE retained UBS as its financial advisor based on UBS'
qualifications, experience and expertise. In the ordinary course of its
business, UBS actively trades the Shares for its own account and for the
accounts of its customers, and, accordingly, may at any time hold long or short
positions in such securities.
A summary of the terms under which UBS has been engaged by COBE as its
financial advisor in connection with the Proposed Transaction is set forth in
"THE TENDER OFFER -- Section 11. Fees and Expenses".
PURPOSE AND EFFECTS OF THE OFFER AND THE MERGER
The Offer and the Merger are being made pursuant to the Merger Agreement.
The purpose of the Offer and the Merger is for COBE to acquire the entire equity
interest in the Company. In order to facilitate a prompt and orderly transfer of
ownership to COBE of the Shares owned by public shareholders, the acquisition
transaction has been structured as a cash tender offer followed by a merger of
Purchaser with and into the Company in which the remaining equity interest in
the Company not acquired by Purchaser pursuant to the Offer will be converted
into the right to receive the Merger Consideration and will thus be indirectly
acquired by COBE.
As a result of the Offer, the interest of COBE in the Company's net book
value and net income will increase to the extent of the number of Shares
acquired under the Offer. If the Merger is consummated, COBE's interest in such
items will increase to 100% and COBE and its subsidiaries will be entitled to
all benefits resulting from that interest, including all income generated by the
Company's operations and any future increase in the Company's value. Similarly,
COBE will also bear the risk of any decrease in the income or value of the
Company after the Merger.
Under Tennessee Law, the approval of the Board and the affirmative vote of
the holders of a majority of the outstanding shares of Common Stock is required
to approve and adopt the Merger Agreement and the transactions contemplated
thereby, including the Merger. The Board has unanimously approved and adopted
the Merger Agreement and the transactions contemplated thereby (which approval
includes the approval of a majority of the Company's disinterested directors, as
required both by Tennessee Law and by Article X of the Company's By-laws) and,
unless the Merger is consummated pursuant to the short-form merger provisions
under Tennessee Law described below, the only remaining corporate action of the
Company required for the consummation of the Merger is the approval and adoption
of the Merger Agreement and the transactions contemplated thereby by the
affirmative vote of the holders of a majority of the Shares. In the Merger
Agreement, the Company has agreed to take all action necessary to convene a
meeting of its stockholders as soon as practicable after the consummation of the
Offer for the purpose of considering and taking action on the Merger Agreement
and the transactions contemplated thereby.
The consummation of the Merger is subject to the satisfaction or waiver of
certain conditions, including the approval and adoption of the Merger and the
Merger Agreement by the affirmative vote of the holders of a majority of the
outstanding Shares, as required by Tennessee Law and the Charter of the Company,
and the purchase by the Purchaser of all Shares validly tendered in the Offer.
See "SPECIAL FACTORS -- The Merger Agreement -- Conditions to the Merger". The
Company has advised Purchaser that as of September 13, 1995, there were
18,951,834 Shares issued and outstanding, 530 record holders of Shares, 542,225
shares of Common Stock subject to Options granted pursuant to the Stock Option
Plan, 9,344 shares of Common Stock subject to Options granted pursuant to the
ESPP and Warrants to acquire 74,000 shares of Common Stock. On September 12,
1995, COBE contributed to Purchaser all the Shares owned by COBE. Accordingly,
Purchaser presently owns 10,036,221 of the outstanding Shares, constituting
approximately 53% of the outstanding Shares. Pursuant to the Merger Agreement,
Gambro, COBE and Purchaser have agreed to cause all Shares owned by them and
their subsidiaries to be voted in favor of the approval and adoption of the
Merger Agreement and the transactions contemplated thereby at any meeting of the
Company's stockholders at which such matters are to be voted upon. Accordingly,
assuming that all
14
of the outstanding Options and Warrants were to be exercised, thereby resulting
in the issuance of 625,569 additional Shares, Purchaser will have sufficient
voting power to approve and adopt the Merger and Merger Agreement without the
approval of any other stockholder of the Company. However, because it is a
condition to the Merger that Purchaser have purchased all Shares validly
tendered in the Offer and the Minimum Condition is a condition to the Offer, the
Merger cannot be consummated unless the Minimum Condition is satisfied or
waived. The Minimum Condition cannot be waived without the prior written consent
of the Special Committee.
Under Tennessee Law, if Purchaser acquires (pursuant to the Offer or
otherwise) at least 90% of the outstanding Shares, Purchaser will be able to
approve and adopt the Merger Agreement and the transactions contemplated
thereby, including the Merger, without calling a meeting of the Company's
stockholders and without the approval of the Company's stockholders. In
accordance with Tennessee Law, in the event that Purchaser acquires at least 90%
of the then outstanding Shares, Gambro, COBE, Purchaser and the Company have
agreed in the Merger Agreement to take, at the request of Purchaser, all
necessary and appropriate action to cause the Merger to become effective as soon
as reasonably practicable after such acquisition, without a meeting and approval
by vote of the Company's stockholders. If, however, Purchaser does not acquire
at least 90% of the outstanding Shares pursuant to the Offer or otherwise and a
meeting and the approval of the Company's stockholders is required under
Tennessee Law, as described in the preceding paragraph, a significantly longer
period of time would be required to effect the Merger.
Pursuant to the Offer and the Merger, the Company's stockholders will
receive a cash price of $20.00 per Share which represents a premium of
approximately 27% over the $15.75 closing price of the Shares on July 13, 1995,
the last full trading day prior to the public announcement of the Proposed
Transaction. On September 12, 1995, the last full trading day prior to the
announcement of the execution of the Merger Agreement and of Purchaser's
intention to commence the Offer, the closing price per Share was $19 25/32. The
closing price per Share on September 18, 1995, the last full trading day prior
to commencement of the Offer, was $19.75. See "THE TENDER OFFER -- Section 5.
Price Range of Shares".
Following consummation of the Offer, the Shares may cease to be listed on
NASDAQ and registration of the Shares under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), may be terminated. Upon consummation of the
Merger, the Surviving Corporation will become a wholly owned subsidiary of COBE.
Accordingly, for the Company's stockholders other than Gambro, COBE, Purchaser
and their affiliates, the Merger will result in a termination of their rights as
stockholders. They will not participate in the earnings and growth of the
Surviving Corporation after the Merger and will not have any right to vote on
corporate matters. Similarly, such stockholders will not face the risk of
decline in the value of the Company after the Merger. See "THE TENDER
OFFER -- Section 12. Effect of the Offer on the Market for the Shares, Exchange
Listing and Exchange Act Registration" for further information concerning the
effect of the de-listing and de-registration of the Shares.
PLANS FOR THE COMPANY AFTER THE OFFER AND THE MERGER
It is expected that, initially following the Merger, the business and
operations of the Company will, except as set forth in this Offer, be continued
by the Surviving Company substantially as they are currently being conducted.
Gambro, COBE and Purchaser will continue to evaluate the business and operations
of the Company during the pendency of the Offer and after the consummation of
the Offer and the Merger, and will take such actions as it deems appropriate
under the circumstances then existing. Gambro and COBE intend to conduct a
comprehensive review of the Surviving Company's business, operations,
capitalization and management with a view to optimizing exploitation of the
Surviving Company's potential in conjunction with COBE's businesses. It is
expected that the business and operations of the Surviving Company will form an
important part of COBE's future business plans. Gambro and COBE believe that the
Company and COBE must in the future grow, by acquisition or otherwise, to
compete effectively in an increasingly competitive and rapidly changing
environment in which industry-wide consolidation is taking place. Gambro and
COBE believe that this growth can be achieved much more effectively if the
Company becomes a wholly owned subsidiary of COBE.
15
APPRAISAL RIGHTS OF STOCKHOLDERS
No appraisal rights are available in connection with the Offer. However, if
the Merger is consummated, stockholders may, if certain statutory procedures are
complied with, have certain rights under the Tennessee Law to dissent and demand
appraisal of, and to receive payment in cash of the fair value of, their Shares.
Pursuant to Section 48-23-102(c) of the Tennessee Law, no shareholder may
dissent as to any shares of a security which, as of the date of the effectuation
of a transaction that would otherwise give rise to dissenters' rights, is listed
on an exchange registered under Section 6 of the Exchange Act or is a "national
market system security." However, the purchase of the Shares pursuant to the
Offer may result in the Shares no longer meeting the standards for continued
inclusion in the NASDAQ. Accordingly, in the event that prior to the effective
date of the Merger, the Shares are no longer included in the NASDAQ,
stockholders will have certain rights under Tennessee Law to dissent and demand
payment for the fair value of their Shares if the Merger is consummated. See
"THE TENDER OFFER -- Section 12. Effect of the Offer on the Market for the
Shares, Exchange Listing and Exchange Act Registration" regarding the possible
de-listing of the Shares from NASDAQ.
Such rights to dissent, if the statutory procedures are complied with, could
lead to a judicial determination of the fair value of the Shares, as of the time
immediately before the effectuation of the Merger or similar business
combination to which the dissenter objects (excluding any appreciation or
depreciation in anticipation of the corporate action), which value is required
to be paid in cash to such dissenting holders for their Shares. In addition,
such dissenting stockholders would be entitled to receive payment of interest
(at the average auction rate paid on United States treasury bills with a
maturity of six (6) months (or the closest maturity thereto) as of the auction
date for such treasury bills closest to the date of the consummation of the
Merger) from the date of the consummation of the Merger on the amount determined
to be the fair value of their Shares. Therefore, the value so determined in any
appraisal proceeding could be the same, more or less than the purchase price per
Share in the Offer or the Merger Consideration.
Under the Tennessee Law, any minority shareholder is entitled to dissent and
to receive the fair value of his or her shares under the circumstances specified
under Tennessee Law. Under Tennessee Law, stockholders are entitled to dissent
from, and obtain payment of the fair value of their Shares in the event of
certain corporate actions, including the Merger. Under Tennessee Law, within ten
days of any corporate action creating dissenters' rights which was taken without
a vote of stockholders, such as the Merger, the corporation is required to
notify all stockholders entitled to assert dissenters' rights that the action
was taken and to provide the following information in a dissenters' notice (the
"Dissenters' Notice") sent to all stockholders: (i) where the payment demand
must be sent and where and when certificates for certified shares must be
deposited; (ii) the extent to which the transfer of the uncertificated shares
will be restricted after the payment demand is received; (iii) a form for
demanding payment; (iv) a set date (no later than one nor more than two months
from delivery of the Dissenters' Notice) by which the corporation must receive
the payment demand after the Dissenters' Notice; and (v) a copy of Section 23 of
the Tennessee Law. Unless the stockholder complies with this statutory
procedure, his dissenters' rights will be forfeited.
In order properly to effect his dissenters' rights, a stockholder who
receives a Dissenters' Notice must demand payment and deposit his certificates
in accordance with the Dissenters' Notice. A demand for payment may only be
withdrawn with the consent of the corporation. Except as provided below, as soon
as the corporate action creating dissenters' rights is effectuated, or upon
receipt of a payment demand, whichever is later, the corporation shall pay each
dissenter the amount the corporation estimates to be the fair value of his
shares, plus accrued interest. The payment must be accompanied by, among other
things, certain financial information regarding the corporation, a statement of
the corporation's estimate of the fair value of shares, an explanation of how
the interest was calculated and a statement of the dissenter's right to demand
payment if the stockholder is dissatisfied with the payment offer. A dissenter
may notify the corporation in writing of his own estimate of the fair value of
his shares, plus accrued interest, and demand payment of his estimate, or reject
the corporation's offer and demand payment of the fair value of his shares and
interest due, if (i) the dissenter believes that the amount paid or offered by
the corporation is less than the fair value of his shares or that the interest
due is incorrectly calculated, (ii) the corporation fails to make payment within
two months after the date set for demanding payment, or (iii) the corporation,
having failed to effectuate the proposed action, does not return the deposited
certificates or release the transfer restrictions imposed
16
on uncertificated shares within two months after the date set for demanding
payment. If a demand for payment remains unsettled, the corporation shall
commence a proceeding within two months after receiving the payment demand and
petition the court to determine the fair value of the shares and accrued
interest. If the corporation does not commence the proceeding within the
two-month period, it shall pay each dissenter whose demand remains unsettled the
amount demanded. Each dissenter made a party to the proceeding is entitled to
judgment for the amount, if any, by which the court finds the fair value of his
shares, plus accrued interest, exceeds the amount paid by the corporation. A
dissenter waives his right to demand payment unless he notifies the corporation
of his demand in writing within one month after the corporation made or offered
payment for his shares.
In 1983, in the case Blasingame v. American Materials, the Tennessee Supreme
Court adopted the Delaware block valuation method for determining the fair value
of corporate shares. Under the Delaware block method, the value of the
dissenters' shares are calculated using the following three separate measures of
stock value: investment or earnings value, asset value, and market value. The
investment or earnings value "relates to the earning capacity of the corporation
and involves an attempt to predict its future income based primarily on its
previous earnings record." The asset value "looks to the net assets of the
corporation valued as a 'going concern,' each share having a pro rata value of
the net assets." The market value is "the value of the share on the basis of the
price for which a share is selling or could be sold to a willing buyer." The
Tennessee Supreme Court noted that once the three values are determined, an
appropriate weight is assigned to each, taking into consideration "the type of
business, the objectives of the corporation, and other relevant factors." The
sum of the three weighted values equals the fair value of the shares.
However, the Delaware block method of valuation was rejected by the Delaware
Supreme Court in Weinberger v. UOP, Inc., in favor of "a more liberal approach
[which] must include proof of value by any techniques or methods which are
generally considered acceptable in the financial community and otherwise
admissible in court." Subsequent Tennessee cases suggest that the Delaware block
method as applied by Tennessee courts is not a rigid valuation method but in
practice offers a more liberal construction of fair value than the historical
Delaware block method. In 1994, the Tennessee Court of Appeals in American
Network Group, Inc. v. Kostyk, stated that "while the formulaic Delaware rule is
prescribed by Blasingame, our Supreme Court made it clear that other methodology
might be more justiciable in differing circumstances." See Schedule II attached
hereto which contains a copy of the text of Chapter 23 of the Tennessee Business
Corporation Act.
INTERESTS OF CERTAIN PERSONS IN THE OFFER AND THE MERGER
In considering the recommendation of the Board with respect to the Offer and
the Merger and the fairness of the consideration to be paid under the Offer and
in the Merger, stockholders of the Company should be aware that certain officers
and directors of the Company have interests in the Offer and the Merger,
including those referred to below that present them with potential conflicts of
interest. The Special Committee and the Board were aware of these potential
conflicts prior to the execution of the Merger Agreement.
Under the Stock Purchase Agreements, so long as COBE owns a majority of the
Shares, COBE may designate a majority of the members of the Board. See "THE
TENDER OFFER -- Section 7. Certain Information Concerning Purchaser, COBE,
Gambro and Incentive". Accordingly, as a result of COBE's ownership of
approximately 53% of the Shares, COBE has designated three members of the Board,
namely, Jan Gustavsson, Herbert S. Lawson and Mats Wahlstrom. At present, the
Company's Board consists of six members.
Mr. Gustavsson was elected to the Board in April 1993. Since March 1993, Mr.
Gustavsson has served as Chief Financial Officer of Gambro. Since November,
1993, Mr. Gustavsson has been a member of the Board of Directors of COBE.
Mr. Lawson was elected to the Board in October 1992. Since July 1992, Mr.
Lawson has served as Vice President and Treasurer of COBE.
Mr. Wahlstrom was elected to the Board in May 1991 and currently serves as
Chairman of the Board. Between 1985 and 1993, Mr. Wahlstrom served as the Chief
Financial Officer of Gambro and since March 1993 has served as Executive Vice
President of Gambro. Since June 1990, Mr. Wahlstrom has been a member of the
17
Board of Directors of COBE and has served as Executive Vice President of COBE.
Since May 1991, Mr. Wahlstrom has also served as President of COBE.
Mr. Lawrence J. Centella was elected to the Board in October 1992 and has
served as the President and Chief Executive Officer of the Company since July
1993. From July 1990 to July 1993, Mr. Centella was the President of COBE Renal
Care, Inc., a subsidiary of COBE, and from April 1989 to June, 1990, Mr.
Centella was the President of Gambro-Hospital, Inc., a subsidiary of Gambro.
Pursuant to the Employment Agreement dated as of July 14, 1993 between Mr.
Centella and the Company, the Company agreed to employ Mr. Centella as its
President and Chief Executive Officer from the date thereof until December 31,
1996. Furthermore, the Company has the option of extending the term of the
agreement for an additional three years. The Company shall (i) pay Mr. Centella
a base salary of $250,000 per year, (ii) enter into a qualified deferred
compensation agreement, effective from January 1, 1994, to defer $9,000 of the
base salary for 1994 for 10 years, and (iii) commencing with the Company's 1994
fiscal year, pay Mr. Centella certain performance related bonuses. The Company
also agreed to grant Mr. Centella Options to purchase up to 200,000 Shares in
certain circumstances.
Compensation of Directors; Consultation Agreement; Special Committee Fee. As
Chairman of the Board, Mr. Wahlstrom receives annual compensation of $40,000 per
year. All other directors of the Company currently receive $20,000 per annum for
serving as a member of the Board. In addition, each member of the Board receives
$2,500 for each meeting of the Board attended in person and $1,000 for each
committee meeting attended in person. The committees of the Board consist of an
Audit Committee, composed of Messrs. Lawson and Gustavsson and Drs. Jacobs and
Kokko; a Compensation Committee, composed of Mr. Lawson and Drs. Jacobs and
Kokko; and an Executive Committee, composed of Dr. Kokko and Messrs. Centella,
Lawson and Wahlstrom. Directors are entitled to participate in the Company's
Stock Option Plan. See "SPECIAL FACTORS -- Interests of Certain Persons in the
Offer and the Merger--Beneficial Ownership of Common Stock" setting forth the
beneficial ownership of Common Stock by directors of the Company.
Dr. Kokko was elected to the Board in July 1993 and is a member of the
Special Committee. Pursuant to a letter dated as of September 14, 1992
(approximately three years prior to the date Dr. Kokko was appointed to serve on
the Special Committee), from the Company to Dr. Kokko, Dr. Kokko was retained by
the Company as a consultant and, in accordance with such letter, currently
receives $4,000 per month from the Company for services rendered to the Company
as a consultant.
Each member of the Special Committee, Drs. Kokko and Jacobs, will be paid a
fee of $30,000 by the Company for their services as members of the Special
Committee. In addition, each member of the Special Committee will be reimbursed
by the Company for any expenses attributable to service in the capacity as a
member of the Special Committee in addition to their regular compensation for
serving as a director of the Company.
Beneficial Ownership of Common Stock. The following table sets forth certain
information, as of September 13, 1995, regarding the ownership of Common Stock
by each person known by the Company to be the beneficial owner of more than five
percent of the outstanding Common Stock, each director of the Company, the Chief
Executive Officer of the Company, and the four most highly compensated officers
of the Company, and all executive officers and directors of the Company as a
group:
AMOUNT AND NATURE
NAME OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP PERCENT OF CLASS
--------------------------------------------------------- ----------------------- ----------------
REN Acquisition Corp.(1)................................. 10,036,221 53.0%
1185 Oak Street
Lakewood, CO 80215
Lawrence J. Centella(2).................................. 207,138 *
Jan Gustavsson(3)........................................ 10,036,221 53.0%
Magistratsvagen 16 Box 10101
S-220 10 Lund, Sweden
M. Stephen Harrison(4)................................... 39,507 *
J. Kenneth Jacobs, M.D.(5)............................... 91,100 *
Juha P. Kokko, M.D., Ph.D.(6)............................ 15,000 *
Herbert S. Lawson(7)..................................... 10,037,721 53.1%
18
AMOUNT AND NATURE
NAME OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP PERCENT OF CLASS
--------------------------------------------------------- ----------------------- ----------------
Ralph Z. Levy, Jr.(8).................................... 10,105,727 *
Lowell F. Martin(9)...................................... 21,705 *
Mats Wahlstrom(7)........................................ 10,038,721 53.1%
1185 Oak Street
Lakewood, CO 80215
Bradley S. Wear(11)...................................... 95,459 *
All Officers and Directors as a Group (13 Persons)....... 10,135,416 53.6%
------------
* Less than one percent.
(1) REN Acquisition Corp. is a direct wholly owned subsidiary of COBE. COBE is
a direct wholly owned subsidiary of Gambro GmbH, a German corporation,
which is a direct wholly owned subsidiary of Gambro AB, a Swedish
corporation. Shares representing approximately 58.5% of the total voting
power of Gambro AB are held by Incentive AB, a Swedish corporation.
(2) Includes 200,000 options to purchase Shares and 356 Options granted
pursuant to the ESPP.
(3) Includes 10,036,221 Shares owned by REN Acquisition Corp. Mr. Gustavsson is
an employee of Gambro AB. Mr. Gustavsson disclaims any beneficial ownership
of such Shares.
(4) Includes 37,500 Options to purchase common stock of the Company.
(5) Includes 15,000 Options to purchase common stock of the Company.
(6) Includes 15,000 Options to purchase common stock of the Company.
(7) Includes 10,036,221 Shares owned by REN Acquisition Corp., of which Messrs.
Lawson and Wahlstrom, who are directors of the Company, are directors.
Messrs. Lawson and Wahlstrom disclaim any beneficial ownership of such
shares.
(8) Includes 10,036,221 Shares owned by REN Acquisition Corp., of which Mr.
Levy is a director. Mr. Levy disclaims any beneficial ownership of such
Shares. Includes 67,500 options to purchase common stock of the Company and
227 Options to purchase common stock of the Company granted pursuant to the
ESPP.
(9) Includes 20,000 Options to purchase common stock of the Company and 199
Options to purchase common stock of the Company granted pursuant to the
ESPP.
(10) Includes 95,000 Options to purchase common stock of the Company.
THE MERGER AGREEMENT
The following is a summary of the Merger Agreement, a copy of which is filed
as an Exhibit to the Schedule 14D-1 and the Schedule 13E-3 filed by Purchaser,
COBE, Gambro and Incentive with the Commission in connection with the Offer.
Such summary is qualified in its entirety by reference to the Merger Agreement.
The Offer. The Merger Agreement provides for the commencement of the Offer
as promptly as reasonably practicable, but in no event later than five business
days after the initial public announcement of Purchaser's intention to commence
the Offer. The obligation of Purchaser to accept for payment and pay for Shares
tendered pursuant to the Offer is subject to the satisfaction of the conditions
that are described in "THE TENDER OFFER -- Section 10. Certain Conditions of the
Offer" hereof. Purchaser and COBE have agreed that no change in the Offer may be
made which decreases the price per Share payable in the Offer or which reduces
the maximum number of Shares to be purchased in the Offer or which imposes
conditions to the Offer in addition to those set forth in "THE TENDER
OFFER -- Section 10. Certain Conditions of the Offer" hereof.
The Merger. The Merger Agreement provides that, upon the terms and subject
to the conditions thereof and in accordance with Tennessee Law, at the Effective
Time, Purchaser shall be merged with and into the Company. As a result of the
Merger, the separate corporate existence of Purchaser will cease and the Company
will continue as the Surviving Corporation and will become a wholly owned
subsidiary of COBE after the Merger. Upon consummation of the Merger, each
issued and then outstanding Share (other than any Shares held by the Company, or
owned by Purchaser, COBE or any direct or indirect wholly owned subsidiary of
COBE or of the Company and any Shares
19
which are held by stockholders who have not voted in favor of the Merger or
consented thereto in writing and who shall have demanded properly an appraisal
for such stockholders' Shares in accordance with Tennessee Law) shall be
cancelled and converted automatically into the right to receive the Merger
Consideration.
Pursuant to the Merger Agreement, each share of common stock, par value $.01
per share, of Purchaser issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one share of Common
Stock of the Surviving Corporation.
The Merger Agreement provides that the directors of the Company immediately
prior to the Effective Time will be the directors of the Surviving Corporation
immediately following the Merger and that the officers of the Company
immediately prior to the Effective Time will be the officers of the Surviving
Corporation immediately following the Merger. The Merger Agreement provides
that, at the Effective Time, the Charter of the Company, as in effect
immediately prior to the Effective Time, will be the Charter of the Surviving
Corporation. The Merger Agreement also provides that the By-laws of the Company,
as in effect immediately prior to the Effective Time, will be the By-laws of the
Surviving Corporation.
The Merger Agreement also provides that each holder of an Option to purchase
shares of Company Common Stock under the Company's Stock Option Plan which
Option is outstanding immediately prior to the Effective Time (whether or not
then exercisable) shall, pursuant to the Cancellation of Options Agreements,
entered into by the Company with each holder of Options, be entitled to receive,
and shall receive, in settlement and cancellation thereof, an amount in cash
equal to the product of (i) the excess, if any, of the amount of the Per Share
Amount over the exercise price of each such Option and (ii) the number of shares
of Company Common Stock covered by such Option. All payments by the Company in
respect of Options, other than Options granted within six months prior to the
Effective Time, shall be made promptly following the Effective Time. Payments in
respect of Options granted within six months prior to the Effective Time shall
be made six months and one day after the date of grant of such Options. The
Company shall cause the Stock Option Plan to terminate as of the Effective Time
and certificates evidencing Options shall be deemed to be cancelled as of the
Effective Time, and thereafter the only rights of participants therein shall be
the right to receive the consideration described above. Under the Merger
Agreement, the Company has agreed that prior to the Effective Time, the Company
shall use its reasonable best efforts to cause each holder of an outstanding
Option to acknowledge in writing the cancellation of such Option and to release
the Company from any obligation in respect thereof in consideration for the
payment provided herein and shall take such other action as may be necessary to
carry out the foregoing terms.
The Merger Agreement also provides that each holder of a Warrant to purchase
shares of Company Common Stock, which Warrant is outstanding immediately prior
to the Effective Time (whether or not then presently exercisable), shall,
pursuant to the Cancellation of Warrant Agreements entered into by the Company
with each of the Warrant holders, be entitled to receive, and shall receive, in
settlement and cancellation thereof, an amount in cash equal to the product of
(i) the excess, if any, of the Per Share Amount over the exercise price of each
such Warrant and (ii) the number of shares of Company Common Stock covered by
such Warrant. The Company shall cause each such Warrants to which it is a party
to terminate as of the Effective Time, and thereafter the only rights of the
holders of the Warrants shall be the right to receive the consideration
described above. Under the Merger Agreement, the Company has agreed that prior
to the Effective Time, the Company shall use its reasonable best efforts to
cause each holder of an outstanding Warrant to acknowledge in writing the
termination of such Warrants and to release the Company from any obligation in
respect thereof in consideration for the payment provided herein and shall take
such other action as may be necessary to carry out the foregoing terms.
The Merger Agreement also provides that the Company shall terminate the ESPP
effective September 30, 1995 (the "Termination Date") pursuant to which (i) all
further payroll deductions from each Participant (as defined in the ESPP) shall
cease, (ii) the amount (the "Plan Amount") credited to the account of each
Participant as of the Termination Date shall at the election of each Participant
either (A) be paid by the Company to such Participant (without interest) as soon
as administratively practicable or (B) be applied as of the Termination Date to
the purchase of Shares in an aggregate amount equal to each Participant's Plan
Amount at a price per Share equal to 85% of the lower of the Fair Market Value
(as defined in the ESPP) per share of Common Stock on July 1, 1995 or on the
Termination Date (rounded up to the next whole dime), in accordance with the
terms of the current phase under the ESPP, and (iii) for purposes of the current
phase, the Termination Date shall be treated for all purposes of
20
the ESPP as the last day of such phase. Under the Merger Agreement, in the event
that a Participant makes no election under clause (ii) above, such Participant
shall be deemed to have elected as of the Termination Date to apply such
Participant's Plan Amount to the purchase of Shares in accordance with the
provisions of clause (ii)(B) above.
Agreements of COBE, Purchaser and the Company. Pursuant to the Merger
Agreement, if required by applicable law in order to consummate the Merger, the
Company, acting through the Board acting upon the unanimous recommendation of
the Special Committee, shall, in accordance with applicable law and the
Company's Charter and By-laws, (i) duly call, give notice of, convene and hold
an annual or special meeting of its stockholders as soon as practicable
following consummation of the Offer for the purpose of considering and taking
action on the Merger Agreement and the transactions contemplated thereby (the
"Stockholders' Meeting"). Purchaser presently owns 10,036,221 Shares
constituting approximately 53% of the Shares. If all of the outstanding Options
and Warrants were to be exercised, Purchaser will have sufficient voting power
to approve and adopt the Merger and the Merger Agreement without the approval of
any other holder of Shares.
The Merger Agreement provides that the Company shall, if required by
applicable law, as promptly as practicable following consummation of the Offer,
file with the Commission under the Exchange Act, and use its reasonable best
efforts to have cleared by the Commission, a proxy statement and related proxy
materials (the "Proxy Statement") with respect to the Stockholders' Meeting. The
Company has agreed, unless in breach of its fiduciary duties under applicable
law as advised by outside counsel, to include in the Proxy Statement the
unanimous recommendation of the Board, acting upon the unanimous recommendation
of the Special Committee, that the stockholders of the Company approve and adopt
the Merger Agreement and the transactions contemplated thereby and to use its
reasonable best efforts to obtain such approval and adoption. At such
Stockholders' Meeting, Gambro, COBE and Purchaser have agreed to cause all
Shares then owned by them and their subsidiaries to be voted in favor of
approval and adoption of the Merger Agreement and the transactions contemplated
thereby.
The Merger Agreement further provides that COBE shall cause the Surviving
Corporation to keep in effect the provisions in its Charter and By-laws
containing the provisions with respect to exculpation of director and officer
liability and indemnification set forth in the Charter and By-laws of the
Company on the date of this Agreement to the fullest extent permitted under
applicable law, which provisions shall not be amended, repealed or otherwise
modified except as required by applicable law or except to make changes
permitted by applicable law that would enlarge the exculpation or rights of
indemnification thereunder. Under the Merger Agreement, from and after the
Effective Time, Gambro and COBE each agree, jointly and severally, to guarantee
and to cause the Surviving Corporation to perform all of its obligations under
the Charter and By-laws of the Company with respect to indemnification. The
Merger Agreement provides that to the extent that the foregoing or the
provisions of the Charter or By-laws of the Surviving Corporation shall not
serve to indemnify and hold harmless each present and former director and
officer or the Company (the "Indemnified Parties"), after the Effective Time,
Gambro and COBE shall, subject to the terms set forth in the Merger Agreement,
indemnify and hold harmless, to the fullest extent permitted under applicable
law (and shall also advance expenses as incurred to the fullest extent permitted
under applicable law provided the person to whom expenses are advanced provides
an undertaking to repay such advances if it is ultimately determined that such
person is to entitled to indemnification), each Indemnified Party against any
costs or expenses (including reasonable attorneys' fees), judgments, fines,
losses, claims, damages, liabilities and amounts and paid in settlement in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of or pertaining
to the transactions contemplated by the Merger Agreement for a period of six
years after the date of the Merger Agreement; provided, that in the event any
claim or claims are asserted or made within such six-year period, all rights to
indemnification in respect of any such claim or claims shall continue until
final disposition of any and all such claims.
The Merger Agreement provides that COBE shall cause the Surviving
Corporation to use its best efforts to maintain in effect for six years from the
Effective Time, if available, the coverage provided by current directors' and
officers' liability insurance policies maintained by the Company (provided that
the Surviving Corporation may substitute therefor policies of at least the same
coverage containing terms and conditions which are not materially less
favorable) with respect to matters occurring prior to the Effective Time.
21
The Merger Agreement provides that, subject to its terms and conditions,
each of the parties thereto shall use its reasonable best efforts to take, or
cause to be taken, all appropriate action, and to do or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by the Merger
Agreement, including, without limitation, using its reasonable best efforts to
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities and parties to contracts
with the Company and its subsidiaries as are necessary for the consummation of
the transactions contemplated by the Merger Agreement and to fulfill the
conditions to the Offer and the Merger.
The Merger Agreement provides that in case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
the Merger Agreement, the proper officers and directors of each party to the
Merger Agreement are required to use their reasonable best efforts to take all
such action.
The Merger Agreement provides that Gambro guarantees the performance by COBE
and Purchaser of their agreements and obligations under the Merger Agreement.
Representations and Warranties. The Merger Agreement contains certain
customary representations and warranties of the parties thereto.
Conditions to the Merger. Under the Merger Agreement, the respective
obligations of each party to effect the Merger are subject to the satisfaction
at or prior to the Effective Time of the following conditions: (a) the Merger
Agreement and the transactions contemplated thereby shall have been approved and
adopted by the affirmative vote of the stockholders of the Company to the extent
required by Tennessee Law and the Company's Charter; (b) the parties to the
Merger Agreement shall have performed or complied in all material respects with
all agreements and covenants required by the Merger Agreement to be performed or
complied with by them on or prior to the Effective Time; (c) no governmental
authority or other agency or commission or court of competent jurisdiction shall
have enacted, issued, promulgated, enforced or entered any law, rule,
regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) which is then in effect and has the effect
of making the acquisition of Shares by Gambro, COBE or Purchaser or any
affiliate of either of them illegal or otherwise restricting, preventing or
prohibiting consummation of the transactions contemplated by the Merger
Agreement; and (d) Purchaser or its permitted assignee shall have purchased all
Shares validly tendered and not withdrawn pursuant to the Offer; provided,
however, that this conditions shall not be applicable to the obligations of
Gambro, COBE or Purchaser if, in breach of the Merger Agreement or the terms of
the Offer, Purchaser fails to purchase Shares validly tendered and not withdrawn
pursuant to the Offer.
Termination; Fees and Expenses. The Merger Agreement provides that it may be
terminated and the Merger and the other transactions contemplated by the Merger
Agreement may be abandoned at any time prior to the Effective Time,
notwithstanding any requisite approval and adoption of the Merger Agreement and
the transactions contemplated by the Merger Agreement by the stockholders of the
Company: (a) by mutual written consent of Gambro, COBE, Purchaser and the
Special Committee; (b) by either COBE, Purchaser or the Special Committee if (i)
the Effective Time shall not have occurred on or before March 31, 1996;
provided, however, that the right to terminate the Merger Agreement shall not be
available to any party whose failure to fulfill any obligation under the Merger
Agreement has been the cause of, or resulted in, the failure of the Effective
Time to occur on or before such date or (ii) any court of competent jurisdiction
or other governmental authority shall have issued an order, decree or ruling or
taken any other action restraining, enjoining or otherwise prohibiting the
Merger and such order, decree, ruling or other action shall have become final
and nonappealable; (c) by COBE if (i) due to an occurrence or circumstance that
would result in a failure to satisfy any condition set forth in "THE TENDER
OFFER -- Section 10. Certain Conditions of the Offer" hereof, Purchaser shall
have (A) failed to commence the Offer within 60 days following the date of the
Merger Agreement, (B) terminated the Offer without having accepted any Shares
for payment thereunder, or (C) failed to pay for Shares pursuant to the Offer
within 90 days following the commencement of the Offer, unless such failure to
pay for Shares shall have been caused by or resulted from the failure of Gambro,
COBE or Purchaser to perform in any material respect any material covenant or
agreement of either of them contained in the Merger Agreement or the material
breach by Gambro, COBE or Purchaser of any material representation or warranty
of either of them contained in the Merger Agreement or (ii) prior to the
purchase of Shares pursuant to the Offer, the Special Committee, acting on
behalf of the Company, shall have withdrawn or modified in a manner adverse to
Purchaser or COBE its approval or recommendation of the Offer, the
22
Merger Agreement, the Merger or any other transaction contemplated by the Merger
Agreement or shall have recommended another merger, consolidation, business
combination with, or acquisition of, the Company or its assets or another tender
offer for Shares, or shall have resolved to do any of the foregoing; (d) by the
Special Committe acting on behalf of the Company, Purchaser shall have (A)
failed to commence the Offer within 60 days following the date of the Merger
Agreement, (B) terminated the Offer without having accepted any Shares for
payment thereunder or (C) failed to pay for Shares pursuant to the Offer within
90 days following the commencement of the Offer, unless such failure to pay for
Shares shall have been caused by or resulted from the failure of the Company to
perform in any material respect any material covenant or agreement of it
contained in the Merger Agreement or the material breach by the Company of any
material representation or warranty of it contained in the Merger Agreement; (e)
prior to the purchase of Shares pursuant to the Offer, by the Special Committee,
acting on behalf of the Company, (i) if any representation or warranty of
Gambro, Parent or Purchaser was untrue or incorrect in any material respect when
made and on and as of the expiration of the Offer, except for changes
contemplated by the Merger Agreement, with the same force and effect as if made
on and as of the date of such expiration, or in the case of a representation or
warranty made or given as of a specified time, if such representation or
warranty was untrue or incorrect in any material respect as of such time, or
(ii) if Parent, Purchaser or Gambro has failed to perform or comply with, in any
material respect, any of their covenants and agreements in the Merger Agreement;
or (f) by either Parent, Purchaser or the Special Committee, acting on behalf of
the Company, if the conditions to the Merger are not reasonably capable of being
satisfied on or before March 31, 1996.
In the event of the termination of the Merger Agreement, the Merger
Agreement provides that it shall forthwith become void and there shall be no
liability thereunder on the part of any party thereto except under the
provisions of the Merger Agreement related to fees and expenses described below
and under certain other provisions of the Merger Agreement which survive
termination.
All fees, costs and expenses incurred in connection with the Merger
Agreement and the Transactions shall be paid by the party incurring such
expenses, whether or not any such transaction is consummated; provided, however,
that the Purchaser and the Company shall each pay for one-half of all fees,
costs and expenses incurred in connection with the Merger Agreement and the
transactions contemplated thereby which are payable to the Commission and to any
financial or other printer.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The receipt of cash for Shares pursuant to the Offer, in the Merger or
pursuant to the exercise of dissenters' appraisal rights will be a taxable
transaction for federal income tax purposes and may also be a taxable
transaction under applicable state, local, foreign or other tax laws. In
general, a stockholder will recognize gain or loss for federal income tax
purposes equal to the difference between the amount of cash received in exchange
for the Shares sold and such stockholder's adjusted tax basis in such Shares.
Assuming the Shares constitute capital assets in the hands of the stockholder,
such gain or loss will be capital gain or loss. The gain or loss will be
long-term capital gain or loss, if, as of the date of the exchange, the holder
has held such shares for more than one year. There are limitations on the
deductibility of capital losses.
In recent months, various legislative proposals have been introduced in
Congress, which would reduce the rate of federal income taxation of certain
capital gains. Such legislation, if enacted, might apply only to gain realized
on sales occurring after a date specified in the legislation. It cannot be
predicted whether any such legislation ultimately will be enacted and, if
enacted, what its effective date will be.
THE FOREGOING DISCUSSION MAY NOT BE APPLICABLE TO CERTAIN TYPES OF
STOCKHOLDERS, SUCH AS FINANCIAL INSTITUTIONS, BROKER-DEALERS, STOCKHOLDERS WHO
ACQUIRED SHARES PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE
AS COMPENSATION, INDIVIDUALS WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED
STATES, FOREIGN CORPORATIONS AND PERSONS WHO RECEIVED PAYMENTS IN RESPECT OF
OPTIONS OR WARRANTS TO ACQUIRE SHARES.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND IS BASED UPON PRESENT LAW. STOCKHOLDERS ARE URGED TO
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE
23
SPECIFIC TAX CONSEQUENCES OF THE OFFER AND THE MERGER TO THEM, INCLUDING THE
APPLICATION AND EFFECT OF THE ALTERNATIVE MINIMUM TAX, AND STATE, LOCAL AND
FOREIGN TAX LAWS.
CERTAIN LITIGATION RELATING TO THE OFFER AND THE MERGER
On August 4, 1995, a minority shareholder of the Company filed a securities
class action entitled Harbor Finance Partners v. COBE Laboratories, et al. in
the Circuit Court for Davidson County, Tennessee against Gambro, COBE, Purchaser
and a number of individual defendants. The action sought damages and/or
injunctive relief relating to the Proposed Transaction. The complaint alleged
that Gambro and COBE breached their fiduciary duties to minority stockholders in
failing to provide adequate procedural safeguards to protect minority
stockholders in the independent committee which will consider the Offer and in
offering inadequate consideration for the minority shareholdings of $18.00 per
Share.
Following meetings among the Special Committee and its financial advisor,
Alex. Brown, and COBE and its financial advisor, UBS, at which the Special
Committee unanimously agreed to recommend the Offer and Merger at the increased
Per Share Amount of $20.00 per Share, and following meetings among attorneys and
financial advisors for the parties to the action, the parties to the action have
reached an agreement in principle to settle all such actions with prejudice,
based on the terms of the Merger. The settlement is subject to negotiation of a
stipulation of settlement and approval by the Court following notice to the
Company's stockholders. In connection with the proposed settlement, the
plaintiffs intend to apply for an award of attorneys' fees and litigation
expenses in the amount of $300,000. The defendants have agreed not to oppose
this application.
The defendants have denied, and continue to deny, that they have committed
or have threatened to commit any violation of law or breaches of duty to the
plaintiffs or the purported class. The defendants have agreed to the proposed
settlement because, among other reasons, such settlement would eliminate the
burden and expense of further litigation and would facilitate the consummation
of a transaction that they believe to be in the best interests of the Company
and its stockholders.
FEES AND EXPENSES
The following is an estimate of fees and expenses to be incurred in
connection with the Offer and the Merger including the fees and expenses of UBS
(see "THE TENDER OFFER -- Section 11. Fees and Expenses") and the fees and
expenses of Alex. Brown (see "SPECIAL FACTORS -- Presentation and Opinion of
Financial Advisors to the Special Committee"). The Merger Agreement provides
that all fees, costs and expenses incurred in connection with the Merger
Agreement and the transactions contemplated thereby shall be paid by the party
incurring such fees, costs and expenses, whether or not the transactions
contemplated by the Merger Agreement are consummated, provided, however, that
Purchaser and the Company shall each pay for one-half of all fees, costs and
expenses incurred in connection with the Merger Agreement and the transactions
contemplated thereby which are payable to the Commission and to any financial or
other printer. The Company is responsible for paying the legal fees of counsel
to the Special Committee estimated at $200,000, all fees and expenses payable to
the Special Committee and approximately $25,000 of miscellaneous fees and
expenses. Purchaser is responsible for paying its own legal fees, advertising,
depositary fees, information agent fees and approximately $25,000 of
miscellaneous fees and expenses.
Estimate of Fees and Expenses
Legal Fees................................................................... 550,000
Investment Banker Fees....................................................... 2,400,000
Special Committee Fees and Expenses.......................................... 75,000
Printing and Mailing......................................................... 100,000
Advertising.................................................................. 20,000
Filing Fees.................................................................. 40,000
Depositary Fees.............................................................. 10,000
Information Agent Fees....................................................... 10,000
Miscellaneous................................................................ 50,000
---------
Total................................................................ 3,255,000
24
THE TENDER OFFER
1. Terms of the Offer; Expiration Date. Upon the terms and subject to the
conditions of the Offer (including, if the Offer is extended or amended, the
terms and conditions of such extension or amendment), Purchaser will accept for
payment and pay for all Shares validly tendered prior to the Expiration Date (as
hereinafter defined) and not withdrawn as permitted by "THE TENDER
OFFER -- Section 4. Withdrawal Rights". The term "Expiration Date" means 12:00
midnight, New York City time, on Tuesday, October 17, 1995, unless and until
Purchaser, in its sole discretion (but subject to the terms and conditions of
the Merger Agreement), shall have extended the period during which the Offer is
open, in which event the term "Expiration Date" shall mean the latest time and
date at which the Offer, as so extended by Purchaser, shall expire. The Offer is
subject to the Minimum Condition and to certain other conditions. See "THE
TENDER OFFER -- Section 10. Certain Conditions of the Offer".
Purchaser expressly reserves the right, in its sole discretion (but subject
to the terms and conditions of the Merger Agreement), at any time and from time
to time, to extend for any reason the period of time during which the Offer is
open, including the occurrence of any of the conditions specified in "THE TENDER
OFFER -- Section 10. Certain Conditions of the Offer", by giving oral or written
notice of such extension to the Depositary. During any such extension, all
Shares previously tendered and not withdrawn will remain subject to the Offer,
subject to the rights of a tendering stockholder to withdraw his Shares. See
"THE TENDER OFFER -- Section 4. Withdrawal Rights".
Subject to the applicable regulations of the Commission, Purchaser also
expressly reserves the right, in its sole discretion (but subject to the terms
and conditions of the Merger Agreement), at any time and from time to time, (i)
to delay acceptance for payment of, or, regardless of whether such Shares were
theretofore accepted for payment, payment for, any Shares pending receipt of any
regulatory approval specified in "THE TENDER OFFER -- Section 13. Certain Legal
Matters and Regulatory Approvals", (ii) to terminate the Offer and not accept
for payment any Shares upon the occurrence of any of the conditions specified in
"THE TENDER OFFER -- Section 10. Certain Conditions of the Offer" and (iii) to
waive any condition or otherwise amend the Offer in any respect, by giving oral
or written notice of such delay, termination, waiver or amendment to the
Depositary and by making a public announcement thereof. The Merger Agreement
provides that the Minimum Condition may not be waived except with the prior
written consent of the Special Committee. The Merger Agreement provides that
Purchaser will not (i) decrease the price per Share payable pursuant to the
Offer, (ii) reduce the maximum number of Shares to be purchased in the Offer or
(iii) impose conditions to the Offer in addition to those set forth in "THE
TENDER OFFER -- Section 10. Certain Conditions of the Offer". Purchaser
acknowledges that (i) Rule 14e-1(c) under the Exchange Act requires Purchaser to
pay the consideration offered or to return the Shares tendered promptly after
the termination or withdrawal of the Offer and (ii) Purchaser may not delay
acceptance for payment of, or payment for (except as provided in clause (i) of
the first sentence of this paragraph), any Shares upon the occurrence of any of
the conditions specified in "THE TENDER OFFER -- Section 10. Certain Conditions
of the Offer" without extending the period of time during which the Offer is
open.
Any such extension, delay, termination, waiver or amendment will be followed
as promptly as practicable by public announcement thereof, such announcement in
the case of an extension to be made no later than 9:00 a.m., New York City time,
on the next business day after the previously scheduled Expiration Date. Subject
to applicable law (including Rules 14d-4(c) and 14d-6(d) under the Exchange Act,
which require that material changes be promptly disseminated to stockholders in
a manner reasonably designed to inform them of such changes) and without
limiting the manner in which Purchaser may choose to make any public
announcement, Purchaser shall have no obligation to publish, advertise or
otherwise communicate any such public announcement other than by issuing a press
release to the Dow Jones News Service.
If Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer, or if it waives a material condition of the
Offer, Purchaser will extend the Offer to the extent required by Rules l4d-4(c)
and l4d-6(d) under the Exchange Act.
Subject to the terms of the Merger Agreement, if, prior to the Expiration
Date, Purchaser should decide to increase the consideration being offered in the
Offer, such increase in the consideration being offered will be applicable to
all stockholders whose Shares are accepted for payment pursuant to the Offer
and, if at the time notice
25
of such increase in the consideration being offered is first published, sent or
given to holders of such Shares, the Offer is scheduled to expire at any time
earlier than the period ending on the tenth business day from and including the
date that such notice is first so published, sent or given, the Offer will be
extended at least until the expiration of such ten business day period. For
purposes of the Offer, a "business day" means any day other than a Saturday,
Sunday or federal holiday and consists of the time period from 12:01 a.m.
through 12:00 midnight, New York City time.
The Company has provided Purchaser with the Company's stockholder list and
security position listings for the purpose of disseminating the Offer to holders
of Shares. This Offer to Purchase and the related Letter of Transmittal will be
mailed to record holders of Shares whose names appear on the Company's
stockholder list and will be furnished, for subsequent transmittal to beneficial
owners of Shares, to brokers, dealers, commercial banks, trust companies and
similar persons whose names, or the names of whose nominees, appear on the
stockholder list or, if applicable, who are listed as participants in a clearing
agency's security position listing.
2. Acceptance for Payment and Payment for Shares. Upon the terms and subject
to the conditions of the Offer (including, if the Offer is extended or amended,
the terms and conditions of any such extension or amendment), Purchaser will
accept for payment, and will pay for, all Shares validly tendered prior to the
Expiration Date and not properly withdrawn promptly after the later to occur of
the Expiration Date and the satisfaction or waiver of the conditions to the
Offer set forth in "THE TENDER OFFER -- Section 10. Certain Conditions of the
Offer". Subject to applicable rules of the Commission, Purchaser expressly
reserves the right to delay acceptance for payment of, or payment for, Shares
pending receipt of any regulatory approvals specified in "THE TENDER
OFFER -- Section 13. Certain Legal Matters and Regulatory Approvals" or in order
to comply in whole or in part with any other applicable law.
In all cases, payment for Shares tendered and accepted for payment pursuant
to the Offer will be made only after timely receipt by the Depositary of (i) the
certificates evidencing such Shares (the "Share Certificates") or timely
confirmation (a "Book-Entry Confirmation") of a book-entry transfer of such
Shares into the Depositary's account at The Depository Trust Company, the
Midwest Securities Trust Company or the Philadelphia Depository Trust Company
(each, a "Book-Entry Transfer Facility" and, collectively, the "Book-Entry
Transfer Facilities") pursuant to the procedures set forth in "THE TENDER
OFFER -- Section 3. Procedures for Accepting the Offer and Tendering Shares",
(ii) the Letter of Transmittal (or a facsimile thereof), properly completed and
duly executed, with any required signature guarantees and (iii) any other
documents required under the Letter of Transmittal.
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment (and thereby purchased) Shares validly tendered and not properly
withdrawn as, if and when Purchaser gives oral or written notice to the
Depositary of Purchaser's acceptance for payment of such Shares pursuant to the
Offer. Upon the terms and subject to the conditions of the Offer, payment for
Shares accepted for payment pursuant to the Offer will be made by deposit of the
purchase price therefor with the Depositary, which will act as agent for
tendering stockholders for the purpose of receiving payments from Purchaser and
transmitting such payments to tendering stockholders whose Shares have been
accepted for payment. Under no circumstances will interest on the purchase price
for Shares be paid, regardless of any delay in making such payment.
If any tendered Shares are not accepted for payment for any reason pursuant
to the terms and conditions of the Offer, or if Share Certificates are submitted
evidencing more Shares than are tendered, Share Certificates evidencing
unpurchased Shares will be returned, without expense to the tendering
stockholder (or, in the case of Shares tendered by book-entry transfer into the
Depositary's account at a Book-Entry Transfer Facility pursuant to the procedure
set forth in "THE TENDER OFFER -- Section 3. Procedures for Accepting the Offer
and Tendering Shares", such Shares will be credited to an account maintained at
such Book-Entry Transfer Facility), as promptly as practicable following the
expiration or termination of the Offer.
Purchaser reserves the right to transfer or assign, in whole or from time to
time in part, to one or more of its affiliates, the right to purchase all or any
portion of the Shares tendered pursuant to the Offer, but any such transfer or
assignment will not relieve Purchaser of its obligations under the Offer and
will in no way prejudice the rights of tendering stockholders to receive payment
for Shares validly tendered and accepted for payment pursuant to the Offer.
26
3. Procedures for Accepting the Offer and Tendering Shares. In order for a
holder of Shares validly to tender Shares pursuant to the Offer, the Letter of
Transmittal (or a facsimile thereof), properly completed and duly executed,
together with any required signature guarantees and any other documents required
by the Letter of Transmittal, must be received by the Depositary at one of its
addresses set forth on the back cover of this Offer to Purchase and either (i)
the Share Certificates evidencing tendered Shares must be received by the
Depositary at such address or such Shares must be tendered pursuant to the
procedure for book-entry transfer described below and a Book-Entry Confirmation
must be received by the Depositary, in each case prior to the Expiration Date,
or (ii) the tendering stockholder must comply with the guaranteed delivery
procedures described below.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED
DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT
THE OPTION AND RISK OF THE TENDERING STOCKHOLDER, AND THE DELIVERY WILL BE
DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY
MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY.
Book-Entry Transfer. The Depositary will establish accounts with respect to
the Shares at the Book-Entry Transfer Facilities for purposes of the Offer
within two business days after the date of this Offer to Purchase. Any financial
institution that is a participant in the system of any Book-Entry Transfer
Facility may make a book-entry delivery of Shares by causing such Book-Entry
Transfer Facility to transfer such Shares into the Depositary's account at such
Book-Entry Transfer Facility in accordance with such Book-Entry Transfer
Facility's procedures for such transfer. However, although delivery of Shares
may be effected through book-entry transfer at a Book-Entry Transfer Facility,
the Letter of Transmittal (or a facsimile thereof), properly completed and duly
executed, together with any required signature guarantees and any other required
documents, must, in any case, be received by the Depositary at one of its
addresses set forth on the back cover of this Offer to Purchase prior to the
Expiration Date, or the tendering stockholder must comply with the guaranteed
delivery procedure described below. DELIVERY OF DOCUMENTS TO A BOOK-ENTRY
TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
Signature Guarantees. Signatures on all Letters of Transmittal must be
guaranteed by a firm which is a member of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., or by a
commercial bank or trust company having an office or correspondent in the United
States (each of the foregoing being referred to as an "Eligible Institution"),
except in cases where Shares are tendered (i) by a registered holder of Shares
who has not completed either the box entitled "Special Payment Instructions" or
the box entitled "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. If a Share Certificate is
registered in the name of a person other than the signer of the Letter of
Transmittal, or if payment is to be made, or a Share Certificate not accepted
for payment or not tendered is to be returned, to a person other than the
registered holder(s), then the Share Certificate must be endorsed or accompanied
by appropriate stock powers, in either case signed exactly as the name(s) of the
registered holder(s) appear on the Share Certificate, with the signature(s) on
such Share Certificate or stock powers guaranteed by an Eligible Institution.
See Instructions 1 and 5 of the Letter of Transmittal.
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and such stockholder's Share Certificates evidencing such Shares are
not immediately available or such stockholder cannot deliver the Share
Certificates and all other required documents to the Depositary prior to the
Expiration Date, or such stockholder cannot complete the procedure for delivery
by book-entry transfer on a timely basis, such Shares may nevertheless be
tendered, provided that all the following conditions are satisfied:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form made available by Purchaser, is received
prior to the Expiration Date by the Depositary as provided below; and
(iii) the Share Certificates (or a Book-Entry Confirmation) evidencing
all tendered Shares, in proper form for transfer, in each case together with
the Letter of Transmittal (or a facsimile thereof), properly completed and
duly executed, with any required signature guarantees, and any other
documents required by the Letter of
27
Transmittal are received by the Depositary within three NASDAQ trading days
after the date of execution of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or mail or
transmitted by telegram, telex or facsimile transmission to the Depositary and
must include a guarantee by an Eligible Institution in the form set forth in the
form of Notice of Guaranteed Delivery made available by Purchaser.
In all cases, payment for Shares tendered and accepted for payment pursuant
to the Offer will be made only after timely receipt by the Depositary of the
Share Certificates evidencing such Shares, or a Book-Entry Confirmation of the
delivery of such Shares, and the Letter of Transmittal (or a facsimile thereof),
properly completed and duly executed, with any required signature guarantees,
and any other documents required by the Letter of Transmittal.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any tender
of Shares will be determined by Purchaser in its sole discretion, which
determination shall be final and binding on all parties. Purchaser reserves the
absolute right to reject any and all tenders determined by it not to be in
proper form or the acceptance for payment of which may, in the opinion of its
counsel, be unlawful. Purchaser also reserves the absolute right to waive any
condition of the Offer or any defect or irregularity, in the tender of any
Shares of any particular stockholder, whether or not similar defects or
irregularities are waived in the case of other stockholders. No tender of Shares
will be deemed to have been validly made until all defects and irregularities
have been cured or waived. None of Purchaser, COBE, Gambro, Incentive, the
Dealer Manager, the Depositary, the Information Agent or any other person will
be under any duty to give notification of any defects or irregularities in
tenders or incur any liability for failure to give any such notification.
Purchaser's interpretation of the terms and conditions of the Offer (including
the Letter of Transmittal and the instructions thereto) will be final and
binding.
Other Requirements. By executing the Letter of Transmittal as set forth
above, a tendering stockholder irrevocably appoints designees of Purchaser as
such stockholder's proxies, each with full power of substitution, in the manner
set forth in the Letter of Transmittal, to the full extent of such stockholder's
rights with respect to the Shares tendered by such stockholder and accepted for
payment by Purchaser (and with respect to any and all other Shares or other
securities issued or issuable in respect of such Shares on or after September
12, 1995). All such proxies shall be considered coupled with an interest in the
tendered Shares. Such appointment will be effective when, and only to the extent
that, Purchaser accepts such Shares for payment. Upon such acceptance for
payment, all prior proxies given by such stockholder with respect to such Shares
(and such other Shares and securities) will be revoked without further action,
and no subsequent proxies may be given nor any subsequent written consent
executed by such stockholder (and, if given or executed, will not be deemed to
be effective) with respect thereto. The designees of Purchaser will, with
respect to the Shares for which the appointment is effective, be empowered to
exercise all voting and other rights of such stockholder as they in their sole
discretion may deem proper at any annual or special meeting of the Company's
stockholders or any adjournment or postponement thereof, by written consent in
lieu of any such meeting or otherwise. Purchaser reserves the right to require
that, in order for Shares to be deemed validly tendered, immediately upon
Purchaser's payment for such Shares, Purchaser must be able to exercise full
voting rights with respect to such Shares.
The acceptance for payment by Purchaser of Shares pursuant to any of the
procedures described above will constitute a binding agreement between the
tendering stockholder and Purchaser upon the terms and subject to the conditions
of the Offer.
TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING WITH RESPECT TO PAYMENT TO
CERTAIN STOCKHOLDERS OF THE PURCHASE PRICE OF SHARES PURCHASED PURSUANT TO THE
OFFER, EACH SUCH STOCKHOLDER MUST PROVIDE THE DEPOSITARY WITH SUCH STOCKHOLDER'S
CORRECT TAXPAYER IDENTIFICATION NUMBER AND CERTIFY THAT SUCH STOCKHOLDER IS NOT
SUBJECT TO BACKUP FEDERAL INCOME TAX WITHHOLDING BY COMPLETING THE SUBSTITUTE
FORM W-9 IN THE LETTER OF TRANSMITTAL. SEE INSTRUCTION 9 OF THE LETTER OF
TRANSMITTAL.
4. Withdrawal Rights. Tenders of Shares made pursuant to the Offer are
irrevocable except that such Shares may be withdrawn at any time prior to the
Expiration Date and, unless theretofore accepted for payment by
28
Purchaser pursuant to the Offer, may also be withdrawn at any time after
November 17, 1995. If Purchaser extends the Offer, is delayed in its acceptance
for payment of Shares or is unable to accept Shares for payment pursuant to the
Offer for any reason, then, without prejudice to Purchaser's rights under the
Offer, the Depositary may, nevertheless, on behalf of Purchaser, retain tendered
Shares, and such Shares may not be withdrawn except to the extent that tendering
stockholders are entitled to withdrawal rights as described in this Section 4.
Any such delay will be by an extension of the Offer to the extent required by
law.
For a withdrawal to be effective, a written, telegraphic, telex or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover page of this Offer to Purchase.
Any such notice of withdrawal must specify the name of the person who tendered
the Shares to be withdrawn, the number of Shares to be withdrawn and the name of
the registered holder of such Shares, if different from that of the person who
tendered such Shares. If Share Certificates evidencing Shares to be withdrawn
have been delivered or otherwise identified to the Depositary, then, prior to
the physical release of such Share Certificates, the serial numbers shown on
such Share Certificates must be submitted to the Depositary and the signature(s)
on the notice of withdrawal must be guaranteed by an Eligible Institution,
unless such Shares have been tendered for the account of an Eligible
Institution. If Shares have been tendered pursuant to the procedure for
book-entry transfer as set forth in "THE TENDER OFFER -- Section 3. Procedures
for Accepting the Offer and Tendering Shares", any notice of withdrawal must
specify the name and number of the account at the Book-Entry Transfer Facility
to be credited with the withdrawn Shares.
All questions as to the form and validity (including time of receipt) of any
notice of withdrawal will be determined by Purchaser, in its sole discretion,
whose determination will be final and binding. None of Purchaser, COBE, the
Dealer Manager, the Depositary, the Information Agent or any other person will
be under any duty to give notification of any defects or irregularities in any
notice of withdrawal or incur any liability for failure to give any such
notification.
Any Shares properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the Offer. However, withdrawn Shares may be
re-tendered at any time prior to the Expiration Date by following one of the
procedures described in "THE TENDER OFFER -- Section 3. Procedures for Accepting
the Offer and Tendering Shares".
5. Price Range of Shares. The Shares are listed and principally traded on
NASDAQ under the symbol RENL. The following table sets forth, for the quarters
indicated, the high and low sales prices per Share on NASDAQ as reported by the
Dow Jones News Service.
HIGH LOW
---------------- ----------------
1993:
First Quarter............................................................. $ 14 1/2 $ 9 1/4
Second Quarter............................................................ 12 1/4 9 1/2
Third Quarter............................................................. 12 9
Fourth Quarter............................................................ 11 7 1/4
1994:
First Quarter............................................................. $ 11 $ 7 1/2
Second Quarter............................................................ 10 1/4 8 1/2
Third Quarter............................................................. 10 5/8 8 1/4
Fourth Quarter............................................................ 14 1/2 10
1995:
First Quarter............................................................. $ 16 3/8 $ 13
Second Quarter............................................................ 16 3/4 12 1/4
Third Quarter (through September 18, 1995)................................ 20 15 3/4
On July 13, 1995, the last trading day prior to the announcement of the
Proposed Transaction, the closing price per Share as reported on NASDAQ was
$15.75. On September 12, 1995, the last full trading day prior to the
announcement of the execution of the Merger Agreement and of Purchaser's
intention to commence the Offer, the
29
closing price per Share as reported on NASDAQ was $19 25/32. On September 18,
1995, the last full trading day prior to the commencement of the Offer, the
closing price per Share as reported on NASDAQ was $19.75. As of September 18,
1995, no cash dividends have been paid by the Company on the Shares or declared
as payable on a future date.
Since June 30, 1994, the market prices for the Shares and an index comprised
of the Selected Companies weighted by market capitalization have both
outperformed the Standard & Poor's 500 Index. In addition, since June 30, 1994,
the market prices for the Shares have outperformed such index of the Selected
Companies. See "SPECIAL FACTORS--Report of Financial Advisor to COBE" for a
discussion of the review by UBS of the historical stock market performance of
the Shares and the shares of the Selected Companies.
STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES.
6. Certain Information Concerning the Company. Except as otherwise set forth
herein, the information concerning the Company contained in this Offer to
Purchase, including financial information, has been furnished by the Company or
has been taken from or based upon publicly available documents and records on
file with the Commission and other public sources. None of Purchaser, COBE,
Gambro or Incentive assumes any responsibility for the accuracy or completeness
of the information concerning the Company furnished by the Company or contained
in such documents and records or for any failure by the Company to disclose
events which may have occurred or may affect the significance or accuracy of any
such information but which are unknown to Purchaser, COBE, Gambro or Incentive.
General. The Company is a Tennessee corporation with its principal executive
offices located at 6820 Charlotte Pike, Nashville, TN. According to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994
(the "Company's 10-K"), the Company is engaged primarily in providing renal
dialysis and related services to patients suffering from chronic kidney failure.
As of September 13, 1995, the Company provided dialysis services at 68
freestanding outpatient REN Centers located in 18 states and the District of
Columbia. The Company also provides outpatient dialysis services to patients in
their homes and inpatient dialysis services through contracts with hospitals. In
addition, the Company performs laboratory testing services for its REN Centers
as well as for independent dialysis facilities and industry at its clinical
laboratory. The Company was founded in 1986.
Financial Information. Set forth below is certain selected consolidated
financial information relating to the Company and its subsidiaries which has
been excerpted or derived from the audited financial statements contained in the
Company's Annual Report on the Company's 10-K and the unaudited financial
statements contained in the Company's Quarterly Report on Form 10-Q, as amended,
for the quarter ended June 30, 1995 (the "Company's 10-Q"). Copies of the
financial statements and related information set forth in the Company's 10-K and
the Company's 10-Q are set forth in Schedule III. More comprehensive financial
information is included in the Company's 10-K, the Company's 10-Q and other
documents filed by the Company with the Commission. The financial information
that follows is qualified in its entirety by reference to such reports and other
documents, including the financial statements and related notes contained
therein. Such reports and other documents may be examined and copies may be
obtained from the offices of the Commission in the manner set forth below.
30
REN CORPORATION--USA
Selected Consolidated Financial Information
(United States dollars in thousands, except per share data)
FISCAL YEAR ENDED DECEMBER SIX MONTHS ENDED
31, JUNE 30,
----------------------------- -----------------
1994 1993 1992 1995 1994
-------- -------- ------- ------- -------
(UNAUDITED)
INCOME STATEMENT DATA:
Revenue.......................................... $131,815 $105,188 $80,814 $81,532 $61,925
Income (Loss) from Operations.................... 14,922 (5,439) 10,082 11,086 5,540
Income (Loss) Before Income Tax Expense and
Minority Interest.............................. 14,081 (5,989) 8,296 10,673 5,153
Net Income (Loss)................................ 8,511 (3,758) 5,355 6,057 3,123
Weighted Average, Common Shares and Common Shares
Equivalents Outstanding.......................... 18,899 18,777 14,472 19,022 18,889
Net Income (Loss) Per Common Share and Common
Share Equivalent................................. $0.45 $(0.20) $0.38 $0.32 $0.17
AT DECEMBER 31,
--------------------
1994 1993 AT JUNE 30, 1995
-------- -------- ----------------
(UNAUDITED)
BALANCE SHEET DATA:
Current Assets.......................................... $ 31,776 $ 32,296 $ 30,506
Total Assets............................................ 134,314 126,140 150,487
Current Liabilities..................................... 14,839 9,738 18,313
Long-Term Liabilities................................... 4,732 11,910 10,991
Shareholders' Equity.................................... 114,696 104,421 121,159
Ratio of Earnings to Fixed Charges; Book Value per Share. The Company's
ratio of earnings to fixed charges for the fiscal year ended December 31, 1994
was 14.5. The ratio of earnings to fixed charges for the fiscal year ended
December 31, 1993 was 6.7. The ratio of earnings to fixed charges for the fiscal
half-year ended June 30, 1995 was 17.6. For purposes of this paragraph,
"earnings" is the Company's pre-tax income from continuing operations adjusted
for the profit/loss input of items considered in fixed costs and "fixed costs"
is the Company's (i) interest (whether expensed or capitalized), (ii)
amortization of debt expense, discounts, or premiums, (iii) such portion of rent
expense representative of interest and (iv) preferred stock dividends due
majority owned interests.
The book value per share and common share equivalent was $6.07 per Share for
the year ended December 31, 1994 and $6.37 per Share for the quarter ended June
30, 1995.
Certain Forecasts and Other Information. The Company does not, as a matter
of course, make public its business plans or its forecasts as to future earnings
or financial performance. However, as a result of having representatives on the
Company's Board, COBE has received, among other things, the Company's financial
forecasts for the remainder of the Company's 1995 fiscal year and the Company's
1996, 1997 and 1998 fiscal years (the "Company Forecasts"). Certain excerpts
from, and the significant assumptions used in developing, the Company Forecasts
are set forth in the table below.
31
CERTAIN INFORMATION DERIVED FROM
COMPANY FORECASTS (1)
(United States dollars in thousands)
YEARS ENDED DECEMBER 31,
--------------------------------------------
1995 1996 1997 1998
-------- -------- -------- --------
Revenue............................................ $167,271 $199,928 $239,368 $287,648
Income from Operations............................. 24,092 32,424 40,739 49,293
Net Income......................................... 13,034 19,186 25,154 31,222
Free Cash Flow (2)................................. 5,173 15,713 14,291 17,039
------------
(1) The Company Forecasts do not take into account any of the transactions
contemplated by the Merger Agreement.
(2) Free cash flow represents net income plus depreciation and amortization less
capital expenditures less working capital requirements.
The Company Forecasts assume that revenue grows 26.9% in 1995, 19.5% in
1996, 19.7% in 1997 and 20.2% in 1998, primarily due to assumed additions of new
patients at existing dialysis centers and assumed acquisitions of new dialysis
centers. Also, the Company Forecasts assume that the income from operations
margin is 14.4% in 1995, and increases to 16.2% in 1996, 17.0% in 1997 and 17.1%
in 1998. The increase in such margin is due primarily to certain assumed cost
reductions and the distribution of certain fixed costs over a larger base of
revenue.
The Company Forecasts do not give effect to the Offer or the Merger and
should be read together with the information contained in the financial
statements of the Company and its consolidated subsidiaries set forth in
Schedule III hereto.
THE COMPANY FORECASTS ARE BASED UPON NUMEROUS ESTIMATES AND ASSUMPTIONS
ABOUT COMPLEX ECONOMIC AND OPERATING FACTORS WITH RESPECT TO INDUSTRY
PERFORMANCE, GENERAL BUSINESS AND ECONOMIC CONDITIONS, TAXES AND OTHER MATTERS
THAT CANNOT BE PREDICTED ACCURATELY AND THAT ARE SUBJECT TO CONTINGENCIES OVER
WHICH NEITHER THE COMPANY, COBE, GAMBRO, INCENTIVE NOR PURCHASER HAVE CONTROL.
ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT THE PROJECTED RESULTS ARE INDICATIVE
OF FUTURE PERFORMANCE OR THAT ACTUAL RESULTS WILL NOT BE MATERIALLY HIGHER OR
LOWER THAN THOSE FORECAST. IN ADDITION, THE COMPANY FORECASTS WERE NOT PREPARED
WITH A VIEW TO PUBLIC DISCLOSURE OR IN COMPLIANCE WITH THE PUBLISHED GUIDELINES
OF THE COMMISSION OR THE GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS REGARDING FORECASTS OR PROJECTIONS. THE COMPANY
FORECASTS ARE ONLY BEING PROVIDED BECAUSE SUCH INFORMATION WAS PROVIDED TO COBE.
ERNST & YOUNG LLP, INDEPENDENT PUBLIC ACCOUNTANTS FOR THE COMPANY, HAS
NEITHER EXAMINED, REVIEWED NOR COMPILED THE COMPANY FORECASTS AND, CONSEQUENTLY,
DOES NOT EXPRESS AN OPINION OR ANY OTHER FORM OF ASSURANCE WITH RESPECT THERETO.
GAMBRO, COBE, PURCHASER AND THE COMPANY BELIEVE THAT HOLDERS OF SHARES SHOULD
NOT RELY ON THE COMPANY FORECASTS.
The Company is subject to the informational filing requirements of the
Exchange Act and, in accordance therewith, is required to file periodic reports,
proxy statements and other information with the Commission relating to its
business, financial condition and other matters. Information as of particular
dates concerning the Company's directors and officers, their remuneration, stock
options granted to them, the principal holders of the Company's securities and
any material interest of such persons in transactions with the Company is
required to be disclosed in proxy statements distributed to the Company's
stockholders and filed with the Commission. Such reports, proxy statements and
other information should be available for inspection at the public reference
facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and also should be available for inspection at the
Commission's regional offices located at 75 Park Place, 14th Floor, New York,
New York 10007 and the Klucyzinski Federal Building, 230 South Dearborn Street,
Room 3190, Chicago, Illinois 60604. Copies of such materials may also be
obtained by mail, upon payment of the Commission's customary fees, by writing to
its principal office at Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549.
32
7. Certain Information Concerning Purchaser, COBE, Gambro and
Incentive. Purchaser is a newly incorporated Tennessee corporation organized in
connection with the Offer and the Merger and has not carried on any activities
other than in connection with the Offer and the Merger. The principal offices of
Purchaser are located at 1185 Oak Street, Lakewood, CO 80215. Purchaser is a
wholly owned subsidiary of COBE and an indirect wholly owned subsidiary of
Gambro. Purchaser owns 10,036,221 Shares, representing approximately 53% of the
18,951,834 Shares outstanding, all of which were contributed by COBE to the
capital of Purchaser on September 12, 1995.
Until immediately prior to the time that Purchaser purchases Shares pursuant
to the Offer, it is not anticipated that Purchaser will have any significant
assets or liabilities or engage in activities other than those incident to its
formation and capitalization and the transactions contemplated by the Offer and
the Merger. Because Purchaser is newly formed and has minimal assets and
capitalization, no meaningful financial information regarding Purchaser is
available.
The name, citizenship, business address, principal occupation or employment,
and five-year employment history for each of the directors and executive
officers of Purchaser, COBE, Gambro and Incentive and certain other information
are set forth in Schedule I hereto.
Financial Information Concerning Gambro. Set forth below are certain
selected consolidated financial data relating to Gambro and its subsidiaries for
Gambro's last three fiscal years, which have been excerpted or derived from the
audited financial statements contained in Gambro's Annual Report on Form 20-F
(the "Gambro Form 20-F") for the fiscal year ended December 31, 1994 filed by
Gambro with the Commission. More comprehensive financial information is included
in such reports and other documents filed by Gambro with the Commission, and the
following financial data is qualified in its entirety by reference to such
reports and other documents, including the financial information and related
notes contained therein. Such reports and other documents may be inspected and
copies may be obtained from the offices of the Commission in the same manner as
set forth with respect to information about the Company in "THE TENDER
OFFER -- Section 6. Certain Information Concerning the Company".
The Gambro Form 20-F has been prepared in conformity with generally accepted
accounting principles applicable in Sweden ("Swedish GAAP"), which practices are
described in the notes to the financial statements included in such Form 20-F.
Swedish GAAP differs in certain significant respects from generally accepted
accounting principles applicable in the United States ("US GAAP"). A summary of
the principal differences between US GAAP and Swedish GAAP and the necessary
adjustments to reconcile Swedish GAAP net income and shareholders' equity to US
GAAP net income and shareholders' equity is also set forth below.
33
GAMBRO AB1
SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA
(Swedish kronor in millions ("SEK"), except
where otherwise indicated in United States
dollars in millions ("$"), and
except per share data)
FISCAL YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1994 1994 1993 1992
-------- ----------- ----------- -----------
INCOME STATEMENT DATA:
Sales.................................. $ 1,270 SEK 9,807 SEK 9,046 SEK 6,312
Operating Income....................... 183 1,412 1,320 972
Income Before Income Taxes............. 150 1,155 976 753
Minority Interest...................... (4) (28) 2 (1)
Net Income............................. 89 690 600 454
Average Shares Outstanding (in
thousands)........................... 117,985 117,985 113,580 109,472
Earnings Per Share..................... 0.76 5.85 5.21 4.04
AT DECEMBER 31,
--------------------------------
1994 1994 1993
------ --------- ---------
BALANCE SHEET DATA:
Current Assets............................................ $ 676 SEK 5,043 SEK 6,002
Total Assets.............................................. 1,195 8,917 9,942
Current Liabilities....................................... 400 2,985 3,986
Long-Term Liabilities..................................... 223 1,668 2,205
Shareholders' Equity...................................... 518 3,861 3,347
------------
1 In this summary of consolidated financial data, Swedish kronor ("SEK") are
translated into U.S. dollars solely for the convenience of the reader. Unless
otherwise stated, such translations of income statement information of Gambro
have been made using an average exchange rate for the year equal to 7.72
kronor per dollar. Translations of balance sheet information have been made
using a closing rate on December 31, 1994 of 7.46 kronor per dollar.
Principal Differences Between Swedish and United States Generally Accepted
Accounting Principles. The financial information provided above was prepared in
accordance with Swedish GAAP, which differs in certain significant respects from
US GAAP. A description of those accounting policies under Swedish GAAP which
differ significantly in certain respects from US GAAP is as follows:
(i) Income taxes. The tax effects of differences between the accounting
and income tax base of assets and liabilities (temporary differences) are
considered in determining net income in accordance with US GAAP. Under US
GAAP the taxes to be incurred upon repatriation of earnings by foreign
subsidiaries should be accounted for in the same period that such earning
are included in the consolidated statement of income, unless such earnings
are considered to be permanently invested in such foreign country. In Sweden
there is no tax on dividends received from foreign subsidiaries and the
withholding tax incurred at the local subsidiary level is recorded in the
period the dividend is paid. Tax effects of basis differences from
acquisitions have been netted against related assets in Gambro's balance
sheet. The effect of adopting Statement No. 190 of the Financial Accounting
Standards Board as of January 1, 1993 is to gross up property, plant and
equipment and intangible assets by approximately SEK 258 million and to
record a deferred tax liability for an equal amount. The effect on net
income is not material.
(ii) Accounting for acquisitions. The acquisition by Gambro of Hospal AG
in 1987 has been accounted for under the Swedish pooling of interests method
for Swedish GAAP purposes as described in Note 2 of the Notes to the
Financial Statements of the Gambro Form 20-F. Under US GAAP, the acquisition
would be accounted for using the purchase method. Accordingly, the purchase
price would be allocated to the fair value of assets acquired less
liabilities assumed with the excess accounted for as goodwill which would be
amortized
34
over its economical life of 40 years. The goodwill arising from the
acquisition of Gambro by COBE has been written off directly against
shareholders' equity. Under US GAAP goodwill would be capitalized and
amortized over its economical life of 40 years.
The application of the above US GAAP together with other differences of
minor significance would have had the following approximate effect on
consolidated net income, net income per share and shareholders' equity:
JANUARY 1-DECEMBER 31,
----------------------------------
1992 1993 1994 1994
----- ----- ----- ----
(SEK) (SEK) (SEK) ($)
(IN MILLIONS, EXCEPT PER SHARE
DATA)
Net income*.................................................... 454 600 690 89
Increase/decrease for:
Accounting for business combinations........................... (37 ) (37 ) (37 ) (5)
Taxes on anticipated dividends from foreign subsidiaries....... (5 ) (10 ) -- --
Other.......................................................... -- -- -- --
----- ----- ----- ----
Approximate net income in accordance with US GAAP.............. 412 573 653 84
----- ----- ----- ----
----- ----- ----- ----
Approximate income per share in accordance with US GAAP........ 3.67 4.98 5.53 0.72
----- ----- ----- ----
----- ----- ----- ----
------------
* as reported in the consolidated statement of income
DECEMBER 31,
----------------------
1993 1994 1994
----- ----- ----
(SEK) (SEK) ($)
(IN MILLIONS)
Shareholders' equity**.................................................. 3,347 3,861 518
Increase/decrease for:
Accounting for business combinations, intangible assets................. 1,293 1,256 168
Deferred income taxes................................................... (76) (76) (10 )
----- ----- ----
Approximate shareholders' equity in accordance with US GAAP............. 4,564 5,041 676
----- ----- ----
----- ----- ----
------------
** as reported in the consolidated balance sheet
Other than the increase in property, plant and equipment, intangible assets
and deferred income taxes, as noted above, no other balance sheet captions would
be materially changed at December 31, 1993 and 1994.
The consolidated statement of changes in financial position is substantially
the same as the statement of cash flows pursuant to US GAAP except for certain
subtotals which are not contemplated by Statement No. 95 of Financial Accounting
Standards Board and the non-cash conversion of debentures into shares, SEK 23
million in 1993 and SEK 22 million in 1994.
If the currency translation requirements of the Swedish Financial Accounting
Standards Council No. 95 were followed the following adjustments would be made
to the consolidated statement of changes in financial position:
1993 1994
----- -----
(SEK) (SEK)
(IN MILLIONS)
Net cash flow from operations.................................................. 243 (301)
Net cash flow from investing activities........................................ (13) (1)
Foreign currency translation adjustment........................................ 193 (173)
Net cash flow from financing activities........................................ (451) 403
----- -----
Effect of exchange rates on cash and cash equivalents.......................... 100 (10)
----- -----
Supplements disclosure of cash flow information:
Interest cost paid............................................................. (296) (246)
Income tax payments............................................................ (330) (329)
----- -----
----- -----
35
Set forth below are certain unaudited selected consolidated financial data
prepared in conformity with Swedish GAAP relating to Gambro and its subsidiaries
as of June 30, 1995.
GAMBRO AB
SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA
(Swedish kronor in millions ("SEK"), except per share data)
JAN. 1--JUNE JAN. 1--JUNE
30, 1995 30, 1994
--------------- ---------------
INCOME STATEMENT DATA:
Sales....................................................... SEK 5,135 SEK 4,889
Operating Income............................................ 776 723
Income Before Income Taxes.................................. 662 582
Net Income.................................................. 387 349
Average Shares Outstanding (in thousands)................... 118,056 117,913
Earnings Per Share, full tax................................ 3.28 2.96
Except as described in this Offer, (i) none of Purchaser, COBE, Gambro,
Incentive nor, to the best knowledge of Purchaser and COBE, any of the persons
listed in Schedule I to this Offer or any associate or majority-owned subsidiary
of Purchaser, COBE, Gambro, Incentive or any of the persons so listed
beneficially owns or has any right to acquire, directly or indirectly, any
Shares and (ii) none of Purchaser, COBE, Gambro, Incentive nor, to the best
knowledge of Purchaser, COBE, Gambro and Incentive, any of the persons or
entities referred to above nor any director, executive officer or subsidiary of
any of the foregoing has effected any transaction in the Shares during the past
60 days.
Except as provided in the Merger Agreement, the Disclosure Schedules thereto
and as otherwise described in this Offer, none of Purchaser, COBE, Gambro,
Incentive nor, to the best knowledge of Purchaser, COBE, Gambro and Incentive,
any of the persons listed in Schedule I to this Offer, has any contract,
arrangement, understanding or relationship with any other person with respect to
any securities of the Company, including, but not limited to, any contract,
arrangement, understanding or relationship concerning the transfer or voting of
such securities, joint ventures, loan or option arrangements, puts or calls,
guaranties of loans, guaranties against loss or the giving or withholding of
proxies. Except as set forth in this Offer, since January 1, 1992, neither
Purchaser, COBE, Gambro, Incentive nor, to the best knowledge of Purchaser,
COBE, Gambro and Incentive and any of the persons listed on Schedule I hereto,
has had any business relationship or transaction with the Company or any of its
executive officers, directors or affiliates that is required to be reported
under the rules and regulations of the Commission applicable to the Offer.
Except as set forth in this Offer, since January 1, 1992, there have been no
contacts, negotiations or transactions between any of Purchaser, COBE, Gambro,
Incentive or any of their respective subsidiaries or, to the best knowledge of
Purchaser, COBE, Gambro and Incentive, any of the persons listed in Schedule I
to this Offer, on the one hand, and the Company or its affiliates, on the other
hand, concerning a merger, consolidation or acquisition, tender offer or other
acquisition of securities, an election of directors or a sale or other transfer
of a material amount of assets.
The Stock Purchase Agreements. COBE and the Company are parties to the Stock
Purchase Agreements pursuant to which COBE purchased from the Company, and the
Company issued Shares to COBE. Copies of the Stock Purchase Agreements are filed
as an Exhibit to the Schedule 13E-3. See "SPECIAL FACTORS -- Background of the
Offer and the Merger" for a description of the purchase of Shares by COBE under
the Stock Purchase Agreements. Under the Stock Purchase Agreements, so long as
COBE owns a majority of the issued and outstanding Common Stock, COBE may
designate a majority of the members of the Board. Under the Stock Purchase
Agreements, COBE agreed that for five years after May 24, 1991, the closing date
of the purchase of Shares by COBE pursuant to one of the Stock Purchase
Agreements which was dated as of May 11, 1991, COBE would not directly or
indirectly, unless specifically requested to do so in writing in advance by the
Board, (i) acquire or agree, offer, seek or propose to acquire, or cause to be
acquired, beneficial ownership of any securities of the Company, any debt claims
of the Company, any securities convertible or exchangeable into or exercisable
into or exercisable for any securities or assets of the Company, or any rights
or options to acquire such ownership, except pursuant to COBE's preemptive
rights (described below); (ii) propose to enter into any merger or business
36
combination involving the Company, except and unless the Company enters into a
definitive agreement with a third party contemplating a merger, consolidation or
similar transaction in which all or a majority of the Company's equity
securities or substantially all of its assets are to be acquired by such third
party, in which case COBE may make a Financially Superior Offer (as defined in
such Stock Purchase Agreement); (iii) make, directly or indirectly, any
"solicitation" of "proxies" (as such terms are used in the Exchange Act) to vote
any securities of the Company; (iv) form, join or participate in a "group"
(within the meaning of Section 13(d)(3) of the Exchange Act) with respect to any
securities of the Company; (v) otherwise act, alone or in concert with others,
to seek to control or exercise (other than through its representation on the
Board) a controlling influence over the management, Board or the business of the
Company; (vi) call a meeting of the Company's stockholders; and (vii) enter into
any discussions, negotiations, arrangements or understandings with any third
party with respect to any of the foregoing.
The Stock Purchase Agreements provide that so long as COBE owns more than
15% of the then outstanding Shares, COBE shall, in the event the Company issues
Shares or any other voting securities, have the option to purchase from the
Company sufficient Shares or other voting securities to permit COBE to maintain
its percentage ownership of Shares or of the total voting power it had
immediately prior to such issuance. Furthermore, the Company is required to
notify COBE within 15 days of the end of each calendar quarter of the number of
Shares and the number of voting securities outstanding as of such date. In
general terms, at the end of each calendar quarter COBE has the option to
purchase from the Company additional Shares to the extent necessary to permit
COBE to maintain 50.1% of the Company's total voting power. The per Share
purchase price for such Shares shall be the average of the closing bid and asked
prices of the Shares on each day during such calendar quarter.
The Stock Purchase Agreements set forth a supply arrangement under which the
Company and its subsidiaries agreed to purchase a minimum of 75% of their
requirements for renal dialysis machines and all bloodlines used therewith from
COBE on overall terms and conditions no less favorable than those offered by
COBE to independent third parties. However, the 75% minimum specified above
shall be reduced to the extent that medical directors in charge of facilities
which have generated more than 25% of the Company's aggregate purchases of renal
dialysis machines have delivered written objections to the use of such machines.
Under the Stock Purchase Agreements, the foregoing supply arrangement terminates
on the earlier of (i) May 24, 1997, being the sixth anniversary of the closing
date of one of the Stock Purchase Agreements which was dated as of May 11, 1991
or (ii) at such time that COBE owns less than 20% of the Shares for a period of
45 consecutive days after any calendar quarter. During 1994, 1993 and 1992, the
Company paid $7,845,189, $6,801,258 and $3,071,739, respectively, for equipment
and supplies received from COBE. The Stock Purchase Agreements also provide that
during the time that COBE owns 15% or more of the Shares and for one year
thereafter (i) COBE shall not, without the Company's consent, engage in
providing, or invest in any entity that provides, renal dialysis services and
related laboratory services in North America within a 75 mile radius of the
Company's existing facilities ("Existing Regions") or in locations identified by
the Company ("Identified Regions") as a location of likely expansion, (ii) COBE
shall disclose to the Company all acquisition opportunities of renal dialysis
services centers in North America outside the Existing Regions and Identified
Regions and shall engage in good faith discussions with the Company regarding
strategic business ventures concerning such acquisition opportunities, provided,
however, that the Company shall not acquire such acquisition opportunities
without COBE's written consent, which consent shall be given if COBE is no
longer actively pursuing such acquisition opportunity, and (iii) COBE, the
Company and their respective affiliates shall not solicit or entice away any of
their respective employees or employ any such employee until one year after such
employee leaves the employ of such company or affiliate.
Under the Stock Purchase Agreements, COBE received two "demand" registration
rights and certain "piggyback" registration rights in respect of Shares, subject
to customary "cutbacks". Under the Stock Purchase Agreements, so long as
directors designated by COBE constitute a majority of the Board, no amendment to
any of the Stock Purchase Agreements will be effective unless it is approved by
a majority of the Company's directors who were not designated by COBE.
8. Financing of the Offer and the Merger. The total amount of funds required
by Purchaser to consummate the Offer and the Merger and to pay related fees and
expenses is estimated to be approximately $190 million. Purchaser will obtain
all of such funds from Gambro and COBE. Gambro will provide to Purchaser to
finance the Offer and the Merger (i) $75 million from the Revolving Credit
Facility, dated as of May 11, 1993 (the "1993 Credit Facility") among Gambro,
BNP Capital Markets Limited (as Arranger), certain banks named in the 1993
37
Credit Facility and Banque Nationale de Paris (as Agent) and (ii) $75 million
from the Revolving Credit and Term Facility, dated as of November 30, 1994 (the
"1994 Credit Facility") among Gambro, BNP Capital Markets Limited (as Arranger),
certain banks named in the 1994 Credit Facility and Banque Nationale de Paris
(as Agent). COBE will provide to Purchaser to finance the Offer and the Merger
(i) $10 million from the Uncommitted Line of Credit Agreement, dated as of
January 14, 1991, as amended through September 25, 1992 (the "1991 Line of
Credit"), between COBE and Union Bank of Switzerland, New York Branch ("UBSNY"),
(ii) $5 million from the Revolving Credit Facility (the "1995 Credit Facility")
and $5 million from the Line of Credit Facility (the "1995 Line of Credit"),
each dated as of April 28, 1995, between COBE and Commerzbank, Los Angeles
Branch ("Commerzbank"), (iii) $10 million from the Uncommitted Revolving Credit
Facility (the "1991 Uncommitted Credit Facility") dated as of January 7, 1991,
as amended through March 29, 1994, between COBE and Societe Generale, New York
Branch and (iv) $6.5 million from the Committed Revolving Credit Facility (the
"1995 Committed Credit Facility") and $3.5 million from the Discretionary Line
of Credit (the "1995 Discretionary Line"), each dated as of July 29, 1995
between COBE and The First National Bank of Boston. Copies of the 1993 Credit
Facility, the 1994 Credit Facility, the 1991 Line of Credit, the 1995 Credit
Facility, the 1995 Line of Credit, the 1991 Uncommitted Credit Facility, the
1995 Committed Credit Facility, and the 1995 Discretionary Line are set forth in
exhibits to the Schedule 13E-3.
Purchaser, COBE and Gambro anticipate that any indebtedness incurred through
borrowings under the foregoing credit facilities will be repaid from a variety
of sources, which may include, but may not be limited to, funds generated
internally by COBE, Gambro and their affiliates (including, following the
Merger, funds generated by the Surviving Corporation), bank refinancing, and the
public or private sale of debt or equity securities. No decision has been made
concerning the method COBE and Gambro will employ to repay such indebtedness.
Such decision will be made based on a review from time to time of the
advisability of particular actions, as well as on prevailing interest rates and
financial and other economic conditions and such factors as COBE and Gambro may
deem appropriate.
The 1993 Credit Facility. In general terms, under the 1993 Credit Facility,
Gambro and its designated subsidiaries may borrow up to a total of $75 million
from the banks who are signatories thereto. The total commitments of the banks
shall however be automatically reduced by $25 million on each of on May 11, 1996
and May 11, 1997. All loans under the 1993 Credit Facility must be repaid in
full by May 11, 1998, but may also be voluntarily prepaid (with applicable
interest) in whole or in part. The undrawn amount of the total commitments may
also be cancelled in whole or in part. The annual rate of interest on loans made
under the 1993 Credit Facility is the aggregate of the following: (i) 0.50% per
annum, (ii) LIBOR (as defined in the 1993 Credit Facility) in the case of loans
not denominated in Sterling or EIBOR (as defined in the 1993 Credit Facility) in
the case of loans denominated in Sterling, and (iii) Reserve Asset Costs (as
defined in the 1993 Credit Facility) when applicable to such loan. Loan
obligations under the 1993 Credit Facility rank at least pari passu with all the
obligor's other present and future unsecured and unsubordinated obligations,
except for obligations which are mandatorily preferred by law. Subject to
certain exceptions, an obligor under the 1993 Credit Facility shall not create
or permit to subsist any security interest on any of its assets.
The 1994 Credit Facility. In general terms, under the 1994 Credit Facility,
Gambro and its designated subsidiaries may borrow up to a total of $100 million
in Facility A Loans and $100 million in Facility B Loans (as such terms are
defined in the 1994 Credit Facility) from the banks who are signatories thereto.
All loans under the 1994 Credit Facility must be repaid in full by November 30,
2001 but may also be voluntarily prepaid (with applicable interest) in whole or
in part. The undrawn amount of the Total A Commitments (as defined in the 1994
Credit Facility) may also be cancelled in whole or in part. Any amount of
Facility A Loans prepaid may subsequently be reborrowed. No amount of Facility B
Loans prepaid may subsequently be reborrowed. Total A Commitments cancelled
under the 1994 Credit Facility may subsequently be reinstated. The annual rate
of interest on loans made under the 1994 Credit Facility is the aggregate of the
following: (i) 0.30% per annum from November 30, 1994 until November 30, 1999,
and 0.35% per annum thereafter, (ii) LIBOR (as defined in the 1994 Credit
Facility) in the case of loans not denominated in Sterling or EIBOR (as defined
in the 1994 Credit Facility) in the case of loans denominated in Sterling, and
(iii) MLA Costs (as defined in the 1994 Credit Facility) when applicable to such
loan. Loan obligations under the 1994 Credit Facility rank at least pari passu
with all the obligor's other present and future unsecured and unsubordinated
obligations, except for obligations which are
38
mandatorily preferred by law. Subject to certain exceptions, an obligor under
the 1994 Credit Facility shall not create or permit to subsist any security
interest on any of its assets.
The 1995 Credit Facility and the 1995 Line of Credit. Under the 1995 Credit
Facility, Commerzbank has made available to COBE a committed revolving credit
facility of $5 million, the availability of which is subject to Gambro
delivering a letter of comfort in favor of Commerzbank in form and substance
satisfactory to Commerzbank. Under the 1995 Credit Facility, (i) Eurodollar Rate
Loans shall be repaid on the last day of the interest period applicable therefor
with accrued interest, and are at an annual interest rate of the Eurodollar Rate
plus 1/4 of 1% per annum, and (ii) Prime Rate Loans may be for an agreed-upon
period or without a fixed maturity date as the parties may agree, and are at an
annual interest rate equal to the Commerzbank fluctuating Prime Rate (in each
case, as such terms are defined in the 1995 Credit Facility). Each advance under
the 1995 Credit Facility may be prepaid with accrued interest to the date of
prepayment, and all advances must be repaid by April 26, 1996. COBE has agreed
to pay Commerzbank a facility fee of 1/8 of 1% per annum on the total amount of
the line of credit under the 1995 Credit Facility. So long as any credit is
outstanding under the 1995 Credit Facility, COBE will ensure that its
obligations thereunder constitute its unconditional general obligations ranking
at least pari passu with all its other obligations for money borrowed or
contingent obligations in respect thereto.
Under the 1995 Line of Credit, Commerzbank holds available to COBE a line of
credit not exceeding $5 million until further notice. The 1995 Line of Credit is
not a commitment to lend, but rather sets forth options for loans and other
credit which Commerzbank may make available to COBE. The availability of any
credit under the 1995 Line of Credit is subject to Gambro delivering a letter of
comfort in favor of Commerzbank in form and substance satisfactory to
Commerzbank. Under the 1995 Line of Credit, (i) Eurodollar Rate Loans shall be
repaid on the last day of the interest period applicable therefor or, if
earlier, upon demand by Commerzbank, in each case with accrued interest, and the
annual interest rate for each Eurodollar Rate Loan will be negotiated, and (ii)
Prime Rate Loans may be for an agreed-upon period or without a fixed maturity
date as the parties may agree at an annual interest rate equal to the
Commerzbank fluctuating Prime Rate (in each case, as such terms are defined in
the 1995 Line of Credit). Each advance under the 1995 Line of Credit may be
prepaid with accrued interest to the date of prepayment.
The 1991 Line of Credit. Under the 1991 Line of Credit, UBSNY established an
uncommitted line of credit in favor of COBE pursuant to which UBSNY is prepared
to consider making loans, in its discretion, to COBE upon the following terms in
an amount up to $15 million. COBE may utilize the 1991 Line of Credit by making
either (i) domestic dollar loans, payable on demand, bearing an interest rate
per annum of the higher of (A) UBSNY's floating prime lending rate as announced
from time to time or (B) 0.375% in excess of the cost to UBSNY of maintaining
such loans, or (ii) Eurodollar loans, with maturities of 1, 2, 3, 6, 9 or 12
months, bearing an interest rate per annum as agreed between COBE and UBSNY at
the time of making such loans (in each case as such terms are defined in the
1991 Line of Credit). COBE may prepay any loans under the 1991 Line of Credit
with accrued interest to the date of prepayment and any sum required to
compensate UBSNY for any loss incurred in connection therewith. Subject to
certain exceptions, COBE shall not create, incur, assume or suffer to exist any
mortgage, pledge, lien or other encumbrance upon any security interest in any of
its assets.
The 1991 Uncommitted Credit Facility. Under the 1991 Uncommitted Credit
Facility, an uncommitted revolving credit facility of $10 million was made
available to COBE. Under this facility, COBE may make Eurodollar borrowings for
periods of, at COBE's option, overnight or up to 6 months at an interest rate
equal to a rate per annum that is the interbank Eurodollar market rate quoted to
Societe Generale for deposits of a corresponding amount and duration, plus a
margin acceptable to Societe Generale at such time. If accepted by COBE, such
interest rate shall be in effect for the duration of the borrowing, which period
shall be determined by COBE. With limited exceptions, prepayments of principal
are not permitted prior to the end of such period. COBE shall have the option of
repaying the Eurodollar borrowing at the end of the period or continuing such
borrowing for a further duration to be set by COBE.
The 1995 Committed Credit Facility and the 1995 Discretionary Line. Under
the 1995 Committed Credit Facility, The First National Bank of Boston (the "Bank
of Boston") made available to COBE a $10 million unsecured line of credit for
general corporate purposes, commencing on July 31, 1995 and expiring on July 30,
1996, unless extended by mutual agreement. COBE may elect in its request for a
loan to have interest thereon accrue at any of the following rates: (i) a per
annum rate (the "Base Rate") equal to the greater of (A) the rate of
39
interest announced from time to time by the Bank of Boston and (B) the weighted
average of the published rates on overnight Federal Funds transactions with
members of the Federal Reserve System, plus 1/2%; (ii) the prevailing rate (the
"Eurodollar Rate") per annum at which U.S. dollar deposits are offered to the
Bank of Boston by first class banks in the interbank Eurodollar market two
business days before the date of the requested loan in an amount and for an
interest period approximately equal to that of the requested loan, adjusted for
reserves, if any, plus 1/2% per annum; or (iii) a rate (the "Money Market Rate")
quoted by the Bank of Boston in its sole discretion as the fixed rate of
interest at which it is willing to make a "Money Market" advance in the amount
and for the period of the requested loan. Base Rate loans and Eurodollar Rate
loans are payable on demand. COBE may prepay Base Rate Loans, in whole or in
part, at any time and without prepayment penalties, but no prepayments of
Eurodollar Rate loans or Money Market Rate loans are permitted. COBE shall pay a
facility fee of 1/4% per annum on the unused amount of the line of credit. Under
the 1995 Discretionary Line, the Bank of Boston has made available to COBE a $5
million demand, discretionary line of credit for general corporate purposes,
commencing on July 31, 1995 and expiring on July 30, 1996, unless extended by
mutual agreement. The terms of the 1995 Discretionary Line are substantially the
same as those of the 1995 Committed Credit Facility described above, except that
the 1995 Discretionary Line does not provide for Money Market Rate loans and no
facility fee is payable.
9. Dividends and Distributions. As of the date hereof, the Company has not,
and does not intend to, declare or pay any dividends or make any distributions.
10. Certain Conditions of the Offer. Notwithstanding any other provision of
the Offer, Purchaser shall not be required to accept for payment or pay for any
Shares tendered pursuant to the Offer, and may terminate or amend the Offer and
may postpone the acceptance for payment of and payment for Shares tendered, if
the Minimum Condition shall not have been satisfied or at any time on or after
September 12, 1995, and prior to the acceptance for payment of Shares, any of
the following conditions shall exist:
(a) there shall have been any action taken, or any statute, rule,
regulation, legislation, interpretation, judgment, order or injunction
enacted, entered, enforced, promulgated, amended, issued or deemed
applicable to COBE, the Company or any subsidiary or affiliate of Gambro,
COBE or the Company restraining or prohibiting the consummation of the Offer
or the Merger and that has a Material Adverse Effect. When used in
connection with the Company, Gambro, COBE or Purchaser or any of their
subsidiaries, the term "Material Adverse Effect" means any change or effect
that is or is reasonably likely to be materially adverse to the business,
operations, properties or financial condition of the Company, Gambro, COBE
or Purchaser or any of their subsidiaries taken as a whole;
(b) (i) the Board, with the consent of the Special Committee, shall have
withdrawn or modified in a manner adverse to Gambro, COBE or Purchaser the
approval or recommendation of the Offer, the Merger, the Merger Agreement,
or approved or recommended any takeover proposal or any other acquisition of
Shares other than the Offer or the Merger or (ii) the Board, with the
consent of the Special Committee, shall have resolved to do any of the
foregoing;
(c) any representation or warranty of the Company in the Merger
Agreement which is qualified as to materiality shall not be true and correct
or any such representation or warranty that is not so qualified shall not be
true and correct in any material respect, in each case either when made or
on and as of the Expiration Date, except for changes contemplated by the
Merger Agreement, with the same force and effect as if made on and as of the
Expiration Date, or in the case of a representation or warranty made on or
given as of a specified time, if such representation or warranty was untrue
or incorrect as of such time;
(d) the Company shall have failed to perform in any material respect any
obligation or to comply in any material respect with any agreement or
covenant of the Company to be performed or complied with by it under the
Merger Agreement;
(e) the Merger Agreement shall have been terminated in accordance with
its terms; or
(f) Purchaser and the Company shall, with the consent of the Special
Committee, have agreed that Purchaser shall terminate the Offer or postpone
the acceptance for payment of or payment for Shares thereunder;
40
which, in the reasonable judgment of Purchaser in any such case, and regardless
of the circumstances (including any action or inaction by COBE or any of its
affiliates) giving rise to any such condition, makes it inadvisable to proceed
with such acceptance for payment or payment.
The foregoing conditions are for the sole benefit of Purchaser and COBE and
may be asserted by Purchaser or COBE regardless of the circumstances giving rise
to any such condition or may be waived by Purchaser or COBE in whole or in part
at any time and from time to time in their sole discretion; provided however,
that the Minimum Condition may not be waived except with the prior written
consent of the Special Committee. The failure by Gambro, COBE or Purchaser at
any time to exercise any of the foregoing rights shall not be deemed a waiver of
any such right; the waiver of any such right with respect to particular facts
and other circumstances shall not be deemed a waiver with respect to any other
facts and circumstances; and each such right shall be deemed an ongoing right
that may be asserted at any time and from time to time.
11. Fees and Expenses. Except as set forth below, Purchaser will not pay any
fees or commissions to any broker, dealer or other person for soliciting tenders
of Shares pursuant to the Offer.
UBS is acting as Dealer Manager in connection with the Offer and has
provided certain financial advisory services in connection with the acquisition
of the Shares pursuant to the Offer, the Merger and the Merger Agreement. COBE
has agreed to pay UBS a retainer fee of $100,000 and a transaction fee (against
which the foregoing retainer fee will be credited) of $1,500,000, which will
become payable at the closing of the Merger. COBE has also agreed to reimburse
UBS for all out-of-pocket expenses incurred by UBS, including the fees of its
counsel, and to indemnify UBS against certain liabilities and expenses in
connection with its engagement, including certain liabilities under the federal
securities laws.
Purchaser and COBE have retained Georgeson & Company Inc., as the
Information Agent, and Bank of New York, as the Depositary, in connection with
the Offer. The Information Agent may contact holders of Shares by mail,
telephone, telex, telecopy, telegraph and personal interview and may request
banks, brokers, dealers and other nominee stockholders to forward materials
relating to the Offer to beneficial owners.
As compensation for acting as Information Agent in connection with the
Offer, Georgeson & Company Inc. will be paid a fee of $10,000 and will also be
reimbursed for certain out-of-pocket expenses and may be indemnified against
certain liabilities and expenses in connection with the Offer, including certain
liabilities under the federal securities laws. Purchaser will pay the Depositary
reasonable and customary compensation for its services in connection with the
Offer, plus reimbursement for out-of-pocket expenses, and will indemnify the
Depositary against certain liabilities and expenses in connection therewith,
including under federal securities laws. Brokers, dealers, commercial banks and
trust companies will be reimbursed by Purchaser for customary handling and
mailing expenses incurred by them in forwarding material to their customers.
12. Effect of the Offer on the Market for the Shares, Exchange Listing and
Exchange Act Registration. The purchase of Shares pursuant to the Offer will
reduce the number of such Shares that might otherwise trade publicly and the
number of holders of such Shares and could adversely affect the liquidity and
market value of the remaining Shares held by the public.
According to the Company's 10-K, the Company estimates that as of March 15,
1995, there were approximately 500 beneficial owners of Shares. The Company has
represented in the Merger Agreement that as of September 12, 1995, there were
18,951,834 Shares issued and outstanding, 542,225 Shares subject to Options
granted pursuant to the Stock Option Plan, 9,344 Shares granted pursuant to the
ESPP and Warrants to acquire 74,000 Shares.
Depending upon the number of Shares purchased pursuant to the Offer, the
Shares may no longer meet the standards for continued inclusion in NASDAQ.
According to the NASDAQ published guidelines, the Shares would not be eligible
to be included for listing if, among other things, the number of Shares falls
below 200,000 publicly held Shares, the number of holders of Shares falls below
400 or the aggregate market value of such publicly held Shares does not exceed
$1,000,000. If these standards are not met, quotations might continue to be
published in the over-the-counter "additional list" or in one of the "local
lists", but if the number of holders of the Shares falls below 300, or if the
number of publicly held Shares falls below 100,000, or there is not at least one
market maker for the Shares, National Association of Securities Dealers rules
provide that the securities would no longer be
41
"authorized" for NASDAQ reporting, and NASDAQ would cease to provide any
quotations. Shares held directly or indirectly by an officer or director of the
Company or by any beneficial owner of more than 10% of the Shares will
ordinarily not be considered as being publicly held for this purpose. The extent
of the public market for the Shares and the availability of continuing
quotations for the Shares through NASDAQ would depend upon the number of holders
remaining after the Offer, the interest in maintaining a market in the Shares on
the part of securities firms, the possible termination of registration of the
Shares under the Exchange Act as described below and other factors.
If as a result of the purchase of Shares pursuant to the Offer or otherwise
the Shares no longer meet the requirements of NASDAQ for continued quotation and
the quotation of the Shares is discontinued, the market for the Shares could be
adversely affected. Purchaser cannot predict whether or to what extent the
reduction in the number of Shares that might otherwise trade publicly would have
an adverse or beneficial effect on the market price for or marketability of the
Shares or whether it would cause future prices to be greater or less than the
Merger Consideration.
The Shares are currently "margin securities", as such term is defined under
the rules of the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board"), which has the effect, among other things, of allowing brokers
to extend credit on the collateral of the Shares. Depending upon factors similar
to those described above with respect to listing and market quotations,
following the Offer it is possible that the Shares would no longer constitute
"margin securities" for the purposes of the margin regulations of the Federal
Reserve Board and, therefore, could no longer be used as collateral for loans
made by brokers.
The Shares are currently registered under the Exchange Act. Such
registration may be terminated upon application by the Company to the Commission
if the Shares are not listed on a national securities exchange and there are
fewer than 300 record holders. The termination of the registration of the Shares
under the Exchange Act would substantially reduce the information required to be
furnished by the Company to holders of Shares and to the Commission and would
make certain provisions of the Exchange Act, such as the short-swing profit
recovery provisions of Section 16(b), the requirement of furnishing a proxy
statement in connection with stockholders' meetings and the requirements of Rule
13e-3 under the Exchange Act with respect to "going private" transactions, no
longer applicable to the Shares. In addition, "affiliates" of the Company and
persons holding "restricted securities" of the Company may be deprived of the
ability to dispose of such securities pursuant to Rule 144 promulgated under the
Securities Act of 1933, as amended (the "Securities Act"). If registration of
the Shares under the Exchange Act were terminated, the Shares would no longer be
"margin securities" or be eligible for NASDAQ reporting. Purchaser currently
intends to seek to cause the Company to terminate the registration of the Shares
under the Exchange Act as soon after consummation of the Offer as the
requirements for termination of registration are met.
13. Certain Legal Matters and Regulatory Approvals.
Rule 13e-3. The Commission has adopted Rule 13e-3 under the Exchange Act
which is applicable to the Merger and other such "going private" transactions in
which a purchaser seeks to acquire the remaining shares not held by it. Rule
13e-3 requires, among other things, that certain financial information
concerning the Company and certain information relating to the fairness of the
proposed transaction and the consideration offered to minority stockholders in
such transaction, be filed with the Commission and disclosed to stockholders
prior to consummation of the transaction.
General. Neither Purchaser nor COBE is aware of any license or other
regulatory permit that appears to be material to the business of the Company and
the Subsidiaries, taken as a whole, which might be adversely affected by the
acquisition of Shares by Purchaser pursuant to the Offer or, except as set forth
below, of any approval or other action by any domestic (federal or state) or
foreign governmental, administrative or regulatory authority or agency which
would be required prior to the acquisition of Shares by Purchaser pursuant to
the Offer. Should any such approval or other action be required, it is
Purchaser's present intention to seek such approval or action. Purchaser does
not currently intend, however, to delay the purchase of Shares tendered pursuant
to the Offer pending the outcome of any such action or the receipt of any such
approval (subject to Purchaser's right to decline to purchase Shares if any of
the conditions in "THE TENDER OFFER -- Section 10. Certain Conditions of the
Offer" shall have occurred). There can be no assurance that any such approval or
other action, if needed, would be obtained without substantial conditions, or
that adverse consequences might not result to the business of the
42
Company, Purchaser, COBE, Gambro or Incentive or other substantial conditions
complied with in order to obtain such approval or other action or in the event
that such approval was not obtained or such other action was not taken.
Purchaser's obligation under the Offer to accept for payment and pay for Shares
is subject to certain conditions, including conditions relating to the legal
matters discussed in this Section 13. See "THE TENDER OFFER -- Section 10.
Certain Conditions of the Offer".
State Takeover Laws. The Company is incorporated under the laws of the State
of Tennessee. There are certain statutory provisions under the Tennessee Law
applicable to Tennessee corporations that may be deemed "anti-takeover"
statutes, including, the Tennessee Business Combination Act, the Tennessee
Control Share Acquisition Act and the Tennessee Investor Protection Act. In
general, the Tennessee Business Combination Act prevents an "interested
shareholder" (generally a person who owns or has the right to acquire 10% or
more of a corporation's outstanding voting stock, or an affiliate or associate
thereof) from engaging in a "business combination" (defined to include mergers
and certain other transactions) with a Tennessee corporation for a period of
five years following the date such person became an interested stockholder
unless, among other things, prior to such date the board of directors of the
corporation approved either the business combination or the transaction in which
the interested stockholder became an interested stockholder. On May 23, 1991,
the Board, by unanimous vote of all directors present at a meeting held on such
date, approved the sale and issuance by the Company to COBE of Shares and
certain preferred stock pursuant to the Stock Purchase Agreements, which
resulted in COBE becoming an "interested shareholder" for purposes of the
Tennessee Business Combination Act. Accordingly, the Tennessee Business
Combination Act is inapplicable to the Offer and the Merger.
In general, the Tennessee Control Share Acquisition Act provides that unless
the acquisition of certain threshold percentages of voting control of a
publicly-held Tennessee corporation is approved by a majority of the
disinterested shareholders of the corporation, the shares acquired above that
threshold will not be entitled to voting rights. Pursuant to the Stock Purchase
Agreements, COBE's acquisition of Shares in excess of the highest threshold set
forth in the Tennessee Control Share Acquisition Act, namely, a 50% threshold,
was approved by the Company's shareholders on September 15, 1992 in accordance
with the provisions of the Tennessee Control Share Acquisition Act. Accordingly,
the Tennessee Control Share Acquisition Act is inapplicable to the Offer and the
Merger.
In general, the Tennessee Investor Protection Act applies only to "takeover
offers" and provides that, in connection with such a "takeover offer", a
registration statement must be filed with the offeree company and the
commissioner of commerce and insurance of Tennessee, containing such information
as the commissioner may by rule prescribe. However, the Tennessee Investor
Protection Act provides that "takeover offer" does not include an offer to
acquire any equity security of an offeree company pursuant to an offer made on
substantially equal terms to all stockholders and as to which the offeree
company, acting through its board of directors, has recommended acceptance to
such stockholders. Because the Offer is made on substantially equal terms to all
stockholders of the Company and because the Board has recommended acceptance of
the Offer to such stockholders, the Tennessee Investor Protection Act does not
apply to Purchaser's acquisition of Shares pursuant to the Offer.
A number of other states have adopted laws and regulations applicable to
attempts to acquire securities of corporations which are incorporated, or have
substantial assets, stockholders, principal executive offices or principal
places of business, or whose business operations otherwise have substantial
economic effects, in such states. In Edgar v. MITE Corp., the Supreme Court of
the United States invalidated on constitutional grounds the Illinois Business
Takeover Statute, which, as a matter of state securities law, made takeovers of
corporations meeting certain requirements more difficult. However, in 1987 in
CTS Corp. v. Dynamics Corp. of America, the Supreme Court held that the State of
Indiana may, as a matter of corporate law and, in particular, with respect to
those aspects of corporate law concerning corporate governance, constitutionally
disqualify a potential acquiror from voting on the affairs of a target
corporation without the prior approval of the remaining stockholders. The state
law before the Supreme Court was by its terms applicable only to corporations
that had a substantial number of stockholders in the state and were incorporated
there.
The Company, directly or through subsidiaries, conducts business in a number
of states throughout the United States, some of which have enacted takeover
laws. Purchaser does not know whether any of these laws will, by their terms,
apply to the Offer or the Merger and has not complied with any such laws. Should
any person seek to apply any state takeover law, Purchaser will take such action
as then appears desirable, which may include challenging the validity or
applicability of any such statute in appropriate court proceedings. In the event
it is
43
asserted that one or more state takeover laws is applicable to the Offer or the
Merger, and an appropriate court does not determine that it is inapplicable or
invalid as applied to the Offer, Purchaser might be required to file certain
information with, or receive approvals from, the relevant state authorities. In
addition, if enjoined, Purchaser might be unable to accept for payment any
Shares tendered pursuant to the Offer, or be delayed in continuing or
consummating the Offer, and the Merger. In such case, Purchaser may not be
obligated to accept for payment any Shares tendered. See "THE TENDER
OFFER -- Section 10. Certain Conditions of the Offer".
14. Miscellaneous. Purchaser is not aware of any jurisdiction where the
making of the Offer is prohibited by any administrative or judicial action
pursuant to any valid state statute. If Purchaser becomes aware of any valid
state statute prohibiting the making of the Offer or the acceptance of Shares
pursuant thereto, Purchaser will make a good faith effort to comply with any
such state statute. If, after such good faith effort, Purchaser cannot comply
with any such state statute, the Offer will not be made to (nor will tenders be
accepted from or on behalf of) the holders of Shares in such state. In any
jurisdiction where the securities, blue sky or other laws require the Offer to
be made by a licensed broker or dealer, the Offer shall be deemed to be made on
behalf of Purchaser by the Dealer Manager or by one or more registered brokers
or dealers licensed under the laws of such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF PURCHASER OR THE COMPANY NOT CONTAINED IN THIS OFFER
TO PURCHASE OR IN THE LETTER OF TRANSMITTAL, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
Pursuant to Rule 14d-3 of the General Rules and Regulations under the
Exchange Act, COBE and Purchaser have filed with the Commission the Schedule
14D-1, together with exhibits, furnishing certain additional information with
respect to the Offer; COBE, Purchaser and Company have filed with the Commission
the Schedule 13E-3, together with exhibits, with respect to the Offer; and the
Company has filed with the Commission the Solicitation/Recommendation Statement
on Schedule 14D-9, together with exhibits, with respect to the Offer. The
Company's recommendation with respect to the Offer and other information
required to be disseminated to shareholders of the Company pursuant to Rule
14d-9 is contained in this Offer to Purchase. Such statements, including
exhibits and any amendments thereto, which furnish certain additional
information with respect to the Offer, may be examined and copies may be
obtained at the same places and in the same manner set forth in "THE TENDER
OFFER -- Section 6. Certain Information Concerning the Company" (except that
they will not be available at regional offices of the Commission). The Schedule
14D-1 and any amendments thereto and the Schedule 13E-3 and any amendments
thereto, including exhibits, may be inspected at, and copies may be obtained
from, the same places and in the same manner as set forth in "THE TENDER
OFFER -- Section 6. Certain Information Concerning the Company" (except that
they will not be available at the regional offices of the Commission).
REN ACQUISITION CORP.
September 19, 1995
44
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF
PURCHASER, COBE, GAMBRO AND INCENTIVE
1. Directors and Executive Officers of Purchaser. The following table sets
forth the name, current business address, citizenship and present principal
occupation or employment, and material occupations, positions, offices or
employments and business addresses thereof for the past five years of each
director and executive officer of Purchaser. Unless otherwise indicated, the
current business address of each person is 1185 Oak Street, Lakewood, Colorado
80215. Unless otherwise indicated, each such person is a citizen of the United
States of America and has held the positions as set forth below for the past
five years. Unless otherwise indicated, each occupation set forth opposite an
individual's name refers to employment with Purchaser.
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT; MATERIAL POSITIONS HELD
DURING THE PAST FIVE YEARS AND
NAME BUSINESS ADDRESSES THEREOF
--------------------------------------------- ---------------------------------------------
Directors and Executive Officers of Purchaser
Mats Wahlstrom (Sweden) Chairman of the Board, President, Assistant
Treasurer and Assistant Secretary since
September 1995; Director of REN
Corporation-USA, 6820 Charlotte Pike,
Nashville, TN 37209, since July 1993. See
Directors and Executive Officers of Gambro
and COBE.
Herbert S. Lawson Director, Treasurer, Vice President and
Assistant Secretary since September 1995;
Director of REN Corporation-USA, 6820
Charlotte Pike, Nashville, TN 37209, since
October 1992. See Directors and Executive
Officers of COBE.
Ralph Z. Levy, Jr. Director, Vice President, Secretary and
Assistant Treasurer since September 1995;
Executive Vice President, General Counsel and
Secretary of REN Corporation-USA, 6820
Charlotte Pike, Nashville, TN 37209 since
November 1992; Partner, Wyatt, Tarrant &
Combs, Suite 1500, 511 Union Street,
Nashville, TN 37219 prior to November 1992.
2. Directors and Executive Officers of COBE. The following table sets forth
the name, current business address, citizenship and present principal occupation
or employment, and material occupations, positions, offices or employments and
business addresses thereof for the past five years of each director and
executive officer of COBE. Unless otherwise indicated, the current business
address of each person is 1185 Oak Street, Lakewood, Colorado 80215. Unless
otherwise indicated, each such person is a citizen of the United States of
America and has held his or her present position as set forth below for the past
five years. Unless otherwise indicated, each occupation set forth opposite an
individual's name refers to employment with COBE.
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT; MATERIAL POSITIONS HELD
DURING THE PAST FIVE YEARS AND
]NAME BUSINESS ADDRESSES THEREOF
--------------------------------------------- ---------------------------------------------
Directors and Executive Officers of COBE
Randall F. Bellows Director since 1966, Retired Executive Vice
President; Private Investor.
Robert M. Collins Director since 1966, Retired President;
Private Investor.
Edward J. Giachetti Director since March 1991, Vice President
since prior to 1990. See Directors and
Executive Officers of Gambro.
Alain Granger (France) Director since July 1990; President of Hospal
AG, Hospal S.A., 188 Av. Jean-Jaures,
F-69007, Lyon, France.
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT; MATERIAL POSITIONS HELD
DURING THE PAST FIVE YEARS AND
NAME BUSINESS ADDRESSES THEREOF
--------------------------------------------- ---------------------------------------------
Ugo Grondelli (Italy) Director since July 1990; President of Gambro
SpA., Via Aldo Moro I/A, I-43035, Felino
(PR), Italy. See Directors and Executive
Officers of Gambro.
Berthold Lindqvist (Sweden) Director since July 1990. See Directors and
Executive Officers of Gambro.
Ingmar Magnusson (Sweden) Director since July 1990. See Directors and
Executive Officers of Gambro.
Mats Wahlstrom (Sweden) Director since June 1990, President since May
1991, Executive Vice President from June 1990
to May 1991; Director of REN Corporation-USA,
6820 Charlotte Pike, Nashville, TN 37209
since July 1993. See Directors and Executive
Officers of Purchaser and Gambro.
Edward C. Wood, Jr. Director since March 1991; President of COBE
BCT, Inc., 1201 Oak Street, Lakewood, CO
80215-4498 since October 1990. See Directors
and Executive Officers of Gambro.
Teresa Blandford Vice President since July 1994, Director of
Human Resources prior to July 1994.
Wendell J. Gardner Senior Vice President since July 1994,
Director of COBE prior to July 1994.
Herbert S. Lawson Chief Financial Officer, Vice President, and
Treasurer since July 1992, Director of Taxes
prior to July 1992; Director of REN
Corporation-USA, 6820 Charlotte Pike,
Nashville, TN 37209 since October 1992. See
Directors and Executive Officers of
Purchaser.
Curtin L. Wagner Vice President since July 1992, Director of
Logistics prior to July 1992.
3. Directors and Executive Officers of Gambro. The following table sets
forth the name, current business address, citizenship and present principal
occupation or employment, and material occupations, positions, offices or
employments and business addresses thereof for the past five years of each
director and executive officer of Gambro. Unless otherwise indicated, the
current business address of each person is P.O. Box 10101, Magistratsvagen 16,
S-220 10 Lund, Sweden. Unless otherwise indicated, each such person is a citizen
of Sweden and has held his or her present position as set forth below for the
past five years. Unless otherwise indicated, each occupation set forth opposite
an individual's name refers to employment with Gambro.
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT; MATERIAL POSITIONS HELD
DURING THE PAST FIVE YEARS AND
NAME BUSINESS ADDRESSES THEREOF
--------------------------------------------- ---------------------------------------------
Directors and Executive Officers of Gambro
Mikael Lilius Chairman since 1994. See Directors and
Executive Officers of Incentive.
Lennart Nilsson Director since 1984, Chairman from 1984 until
1994; President and Chief Executive Officer
of Cardo AB, Box 486, S-20124, Malmo, Sweden
since 1986; Director of Frigoscandia, Box
912, S-251 09 Helsingborg, Sweden until 1991;
Chairman of Bilspedition AB, S-412 97
Goteborg, Sweden, since before 1991; Chairman
of Skane Gripen AB, Box 4028, S-201 11 Malmo,
Sweden, since before 1990; Director of
Trelleborg AB, S-231 81, Trelleborg, Sweden,
since before 1990.
I-2
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT; MATERIAL POSITIONS HELD
DURING THE PAST FIVE YEARS AND
NAME BUSINESS ADDRESSES THEREOF
--------------------------------------------- ---------------------------------------------
Tore Daun Director since 1987, President of Molnlycke
AB, Molndal, S-405 03 Goteborg, Sweden until
1987; Director of Skandinaviska Enskilda
Banken, S-103 90 Stockholm, Sweden since
before 1992; Director of BASF Svenska AB, Box
53008, S-400 14 Goteborg, Sweden, since 1991;
Director of Molnlycke AB since before 1990.
Margareta Nilsson Vice Chairman since 1985; Chairman of
Crafoord Foundation, Box 137, S-220 10 Lund,
Sweden since before 1990.
Berthold Lindqvist Director and Member of Management Board since
1984, President and Chief Executive Officer
since 1984; Director of Besam AB, Box 131,
S-261 22 Landskrona, Sweden since 1990;
Director of PLM AB, Box 836, S-201 80 Malmo,
Sweden since 1991; Director of Volvo
Lastvagnar AB, S-405 08 Goteborg, Sweden
since 1994; Director of Pharmacia AB, A-171
97 Stockholm, Sweden since 1994; Director of
Securitas AB, Box 12307, S-102 28 Stockholm,
Sweden, since 1994. See Directors and
Executive Officers of COBE.
Anitha Svensson-Grane Employee Representative on Board since 1995,
Payroll Clerk, Gambro Lundia AB, Box 10101,
S-220 10 Lund, Sweden, since 1975.
Gosta Gahrton Director since 1994; Professor of Medicine,
Karolinska Institute, S-171 77 Stockholm,
Sweden since before 1990; Senior Physician
and Chief of Department of Medicine, S-141 86
Huddinge, Sweden.
Karl Olof Tell Employee Representative on Board since 1993,
Engineering Worker, Gambro Lundia AB, Box
10101, S-220 10 Lund, Sweden since 1968.
Soren Mellstig Director since 1995; see Directors and
Executive Officers of Incentive.
Claes Wilhelmsson Director of Gambro Board since 1995;
Executive Vice President Research &
Development, Astra AB, Astra AB, S-151 85
Sodertalje, Sweden from 1991 to 1995;
Managing Director, Astra Draco, Box 34, S-221
00 Lund, Sweden prior to 1991.
Jan Gustavsson Member of Management Board and Chief
Financial Officer since 1993; Chief Financial
Officer of Getinge Industrier AB, S-310 44,
Getinge, Sweden prior to 1993; Director of
REN Corporation-USA, 6820 Charlotte Pike,
Nashville, TN 37209 since 1993.
Ugo Grondelli (Italy) Member of Management Board since 1984, Senior
Executive Vice President and Deputy Managing
Director since 1988, Deputy Director since
1988; Chairman of Hospal AG and Sopamed AG,
Dornacherstrasse 8, CH-4008 Basel,
Switzerland since 1987; President of Gambro
SpA, Via Aldo Moro 1/A, I-43035 Felino (PR)
Italy since 1972. See Directors and Executive
Officers of COBE.
Leif Smeby Member of the Management Board and Research
Director of Gambro since 1986.
I-3
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT; MATERIAL POSITIONS HELD
DURING THE PAST FIVE YEARS AND
NAME BUSINESS ADDRESSES THEREOF
--------------------------------------------- ---------------------------------------------
Alain Granger (France) Member of Management Board since prior to
1990; President of Hospal AB,
Dornacherstrasse 8, CH-4008 Basel,
Switzerland since before 1990; President of
Hogamed SA, Hogamed 188 SA, Jean-Jaures,
F-69007 Lyon, France since 1990.
Mats Wahlstrom Member of Management Board since 1984
Executive Vice President since March 1993,
Chief Financial Officer prior to March 1993;
Director of REN Corporation-USA, 6820
Charlotte Pike, Nashville, TN 37209 since
July 1993. See Directors and Executive
Officers of Purchaser and COBE.
Jan-Olof Olsson Member of Management Board since 1986,
President of Gambro Lundia AB, Box 10101,
S-220 10 Lund, Sweden since 1986; President
of Gambro Dialysatoren GmbH Co. KG,
Holger-Crafoord-Strasse 26, D-73279
Hechingen, Germany since 1990.
Edward C. Wood, Jr. (USA) Member of Board of Management since 1994,
President of COBE BCT Inc., 1201 Oak Street,
Lakewood, CO 80215-4498 since October 1990.
See Directors and Executive Officers of COBE.
Edward J. Gianchetti (USA) Member of Board of Management since 1994. See
Directors and Executive Officers of COBE.
Lawrence J. Centella (USA) Member of Board of Management since 1994;
Director, President and Chief Financial
Officer of the Company since July 1993;
President of COBE Renal Care, Inc. prior to
July 1993.
4. Directors and Executive Officers of Incentive. The following table sets
forth the name, current business address, citizenship and present principal
occupation or employment, and material occupations, positions, offices or
employments and business addresses thereof for the past five years of each
director and executive officer of Incentive. Unless otherwise indicated, the
current business address of each person is Hamngatan 2, P.O. Box 7373, S-10391,
Stockholm, Sweden. Unless otherwise indicated, each such person is a citizen of
Sweden and has held his or her present position as set forth below for the past
five years. Unless otherwise indicated, each occupation set forth opposite an
individual's name refers to employment with Incentive.
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT; MATERIAL POSITIONS HELD
DURING THE PAST FIVE YEARS AND
NAME BUSINESS ADDRESSES THEREOF
--------------------------------------------- ---------------------------------------------
Directors and Executive Officers of Incentive
Anders Scharp Chairman since 1992; Chairman of the Boards
of: Electrolux, S-105 45, Stockholm, Sweden
since 1992; Saab-Scania AB, S-581-88
Linkoping, Sweden from 1990 to 1995; Saab AB,
S-581-88 Linkoping, Sweden since 1995; Scania
AB, S-151 87 Sodertalje and SKF, S-145 00
Goteborg, Sweden since 1992; Vice Chairman of
the Boards of Investor, S-103 32 Stockholm,
Sweden since 1988 and Atlas Copco S-105 23
Stockholm, Sweden since 1992; Director of
Email Ltd (Australia), Waterloo, NSW 2017,
Australia since 1987; Director of Swedish
Employers' Confederation, S.
Blasieholmshamnen 4A, S-103 30 Stockholm,
Sweden since 1987; Director of Federation of
Swedish Industries, Storgatan 19, S-114 85
Stockholm, Sweden since 1992.
I-4
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT; MATERIAL POSITIONS HELD
DURING THE PAST FIVE YEARS AND
NAME BUSINESS ADDRESSES THEREOF
--------------------------------------------- ---------------------------------------------
Claes Dahlback Director since 1991; President of Investor
S-103 32 Stockholm, Sweden since 1978;
Chairman of the Board of Vin & Spirit AB,
P.O. Box 47319, S-100 74 Stockholm, Sweden
since 1994; Vice Chairman of the Board of
ASEA, P.O. Box 7373, S-103 91, Stockholm,
Sweden since prior to 1990; Director of AAB,
S-151 85 Sodertalje, Sweden since prior to
1990; Director of Astra, S-581 88 Linkoping,
Sweden since prior to 1990; Director of
Electrolux, S-105 45 Stockholm, Sweden since
prior to 1990; Director of Ericsson 126 25
Stockholm, Sweden since prior to 1990;
Director of Saab-Scania, S-581 88 Linkoping,
Sweden since prior to 1990; Director of SKF,
S-415 50 Goteborg, Sweden since prior to
1990; Director of STORA, S-791 80 Falun,
Sweden since prior to 1990.
Casimir Ehrnrooth (Finnish) Director since 1991; Chairman of Kymmene
Corporation, P.O. Box 1079, SF-00101
Helsinki, Finland since 1991; Director of
Nokia Group, P.O. Box 226, SF-00101 Helsinki,
Finland since 1992. Director of Unitas Oy,
P.O. Box 84, SF-00101 Helsinki, Finland since
1992; Director of Continental AG, Post Fach
169, D-3001 Hannover, Germany since 1995.
Lennart Hagelin Director since 1992; Chairman of Svenska
Dagbladot, S-105 17 Stockholm, Sweden since
1992; Chairman of Grand Hotel Holdings, S 103
27 Stockholm, Sweden since 1993; Director of
Skandia, S-103 50 Stockholm, Sweden since
prior to 1990; Director of Axel Johnson AB,
P.O. Box 26008, S-100 41 Stockholm, Sweden
since prior to 1990.
Lief Johansson Director since 1992; President and Chief
Executive Officer of Electrolux, S-105 45
Stockholm, Sweden since 1991.
Mikael Lilius (Finnish) Director since 1991, President and Chief
Executive Officer since 1991; Chairman of
Garphyttan Industrier P.O. Box 7200, S-103 88
Stockholm, Sweden since 1992; Director of
Huhtamaki Oy, Etelaranta 8, SF-00130
Helsinki, Finland since prior to 1990. See
Directors and Executive Officers of Gambro.
Karl-Erik Sahlberg Director since 1995; Chairman of Perstorp AB,
S-284 80 Perstorp, Sweden since 1991;
Chairman of Investment AB Cardo, P.O. Box
486, S-201 24 Malmo, Sweden since 1986;
Chairman of Vattenfall AB, S-162 87
Stockholm, Sweden since 1992; Vice Chairman
of Skandinaviska Ensklida Banken, S-106 40
Stockholm, Sweden since prior to 1990;
Director of Tetra Laval Group,
Landerigranden, S-221 86 Lund, Sweden since
1993; Chairman of Skoogs AB, S-205 70 Malmo,
Sweden since prior to 1990.
I-5
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT; MATERIAL POSITIONS HELD
DURING THE PAST FIVE YEARS AND
NAME BUSINESS ADDRESSES THEREOF
--------------------------------------------- ---------------------------------------------
Sven Soderberg Director since 1991; Chairman of Skandia,
S-103 50 Stockholm, Sweden since prior to
1990; Chairman of Ratos, P.O. Box 1661, S-111
96 Stockholm, Sweden since 1994; Director of
ASEA, P.O. Box 7373, S-103 91 Stockholm,
Sweden since prior to 1990; Director of
STORA, S-791 80 Falun, Sweden since prior to
1990; General Counsel of Norway since prior
to 1990.
Marcus Wallenberg Director since 1994; Executive Vice President
of Investor, S-103 32 Stockholm, Sweden since
1993; Vice Chairman of Astra, S-151 85
Sodertalje, Sweden since 1993; Vice Chairman
of Saab AB, S-581 88 Linkoping, Sweden since
1993; Vice Chairman of the Knut and Alice
Wallenberg Foundation, S-104 60 Stockholm,
Sweden since prior to 1990; Deputy Director
of SKF, S-415 00 Goteborg, Sweden since 1993.
Tore Burstrom Employee Representative on Board since 1991
(Swedish Federation of Salaried Employees in
Industry and Services); Employee of Skega AB,
S-934 81 Ersmark, since prior to 1990.
Ake Jacobsson Employee Representative on Board since 1991
(the Swedish Confederation of Trade Unions);
Member of the Board of the Electricians'
Local Union; Employee of Yngeredsfors Kraft
AB, P.O. Box 10250, S-434 23 Kungsbacka,
since prior to 1990.
Bengt-Ola Nygren Employee Representative on Board since 1991
(the Swedish Confederation of Trade Unions);
Employee of Munters Component AB, P.O. Box
29, S-740 61 Tobo, since prior to 1990.
Hakan Lindh Employee Representative on Board since 1991
(Swedish Federation of Salaried Employees in
Industry and Services); Employee of
Yngeredsfors Kraft AB, P.O. Box 10250, S-434
23 Kungsbacka, since prior to 1990.
Jan Marklund Employee Representative on Board since 1993
(the Swedish Confederation of Trade Unions);
Employee of Skega B, S-934 81 Ersmark, since
prior to 1990.
Dan Nilsson Employee Representative on Board since 1991
(Swedish Federation of Salaried Employees in
Industry and Service), Employee of Hagglunds
Vehicle AB, S-891 81 Ornskoldsvik, since
prior to 1990.
Lars Fahlen Senior Vice President, Personnel since 1992;
Director of Personnel, ITT Flygt AB, P.O. Box
1309, S-171 25 Solna, from 1985 to 1992, from
1985 to 1992.
Anders Fraggstedt Executive Vice President since 1991;
President of ABB Relays AB, S-721 83
Vaster deg.as, since prior to 1991.
Anders Jagraeus Executive Vice President since 1995;
President of STORA AB S-791 80 Falun, Sweden
from 1988-1991; President of AB Carl Munters
P.O. Box 430, S-191 24 Sollentuna, Sweden
from 1991-1995; Director of Garphyttan AB
P.O. Box 7200, S-103 88 Stockholm, Sweden
since 1995.
Sverker Lundkvist Senior Vice President, Finance, since 1993;
Executive Vice President, Skandia
International, S-103 50 Stockholm, Sweden
from prior to 1991.
I-6
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT; MATERIAL POSITIONS HELD
DURING THE PAST FIVE YEARS AND
NAME BUSINESS ADDRESSES THEREOF
--------------------------------------------- ---------------------------------------------
Soren Mellstig Senior Vice President, Corporate Control
since 1994; Senior Vice President Nobel
Industries (Chemicals), P.O. Box 11500, S-100
61 Stockholm, Sweden from 1993 to 1994;
Senior Vice President EKA Nobel (chemicals),
S-445 80 Bohus prior to 1993; Director of
Akzo Nobel AB P.O. Box 11500, S-100 60
Stockholm, Sweden from prior to 1993. See
Directors and Executive Officers of Gambro.
Bengt Modeer Senior Vice President, Corporate
Communications since 1987.
Kjell Spangbeg Senior Vice President, Business Development
and M&A since 1992; Consultant since prior to
1992.
I-7
SCHEDULE II
TEXT OF TITLE 48, CHAPTER 23 OF THE TENNESSEE BUSINESS CORPORATION ACT
CHAPTER 23. BUSINESS CORPORATIONS -- DISSENTERS' RIGHTS.
PART 1 -- RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
48-23-101 DEFINITIONS.
(1) "Beneficial shareholder" means the person who is a beneficial owner of
shares held by a nominee as the record shareholder;
(2) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer;
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Sec.48-23-102 and who exercises that right when and in
the manner required by Sec.Sec.48-23-201 -- 48-23-209;
(4) "Fair value", with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action;
(5) "Interest" means interest from the effective date of the corporate
action that gave rise to the shareholder's right to dissent until the date of
payment, at the average auction rate paid on United States treasury bills with a
maturity of six (6) months (or the closest maturity thereto) as of the auction
date for such treasury bills closest to such effective date;
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation; and
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
48-23-102 RIGHT TO DISSENT.
(a) A shareholder is entitled to dissent from, and obtain payment of the
fair value of his shares in the event of, any of the following corporate
actions:
(1) Consummation of a plan of merger to which the corporation is a
party:
(A) If shareholder approval is required or the merger by
Sec.48-21-103 or the charter and the shareholder is entitled to vote on
the merger; or
(B) If the corporation is a subsidiary that is merged with its parent
under Sec.48-21-104;
(2) Consummation of a plan of share exchange to which the corporation is
a party as the corporation whose shares will be acquired, if the shareholder
is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than in the usual and regular course
of business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially
all of the net proceeds of the sale will be distributed to the shareholders
within one (1) year after the date of sale;
(4) An amendment of the charter that materially and adversely affects
rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any matter,
or to cumulate votes, other than a limitation by dilution through
issuance of shares or other securities with similar voting rights; or
(E) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share is to be acquired for cash
under Sec.48-16-104; or
(5) Any corporate action taken pursuant to a shareholder vote to the
extent the charter, bylaws, or a resolution of the board of directors
provides that voting or nonvoting shareholders are entitled to dissent and
obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this chapter may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent; with respect to the
shareholder or the corporation.
(c) Notwithstanding the provisions of subsection (a), no shareholder may
dissent as to any shares of a security which, as of the date of the effectuation
of the transaction which would otherwise give rise to dissenters' rights, is
listed on an exchange registered under Sec.6 of the Securities Exchange Act of
1934, as amended, or is a "national market system security," as defined in rules
promulgated pursuant to the Securities Exchange Act of 1934, as amended.
48-23-103 DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
(a) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one (1) person and notifies the corporation in writing
of the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered in
the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares of
any one (1) or more classes held on his behalf only if:
(1) He submits to the corporation the record shareholder's written
consent to the dissent not more later than the time the beneficial
shareholder asserts dissenters' rights; and
(2) He does so with respect to all shares of the same class of which he
is the beneficial shareholder or over which he has power to direct the vote.
PART 2 -- PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
48-23-201 NOTICE OF DISSENTERS' RIGHTS.
(a) If proposed corporate action creating dissenters' rights under
Sec.48-23-102 is submitted to a vote at a shareholders' meeting, the meeting
notice must state that shareholders are or may be entitled to assert dissenters'
rights under this chapter and be accompanied by a copy of this chapter.
(b) If corporate action creating dissenters' rights under Sec.48-23-102 is
taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in Sec.48-23-203.
(c) A corporation's failure to give notice pursuant to this section will not
invalidate the corporate action.
II-2
48-23-202 NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under
Sec.48-23-102 is submitted to a vote at a shareholders' meeting, a shareholder
who wishes to assert dissenters' rights:
(1) Must deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed action
is effectuated; and
(2) Must not vote his shares in favor of the proposed action. No such
written notice of intent to demand payment is required of any shareholder to
whom the corporation failed to provide the notice required by Sec.48-23-201.
(b) A shareholder who does not satisfy the requirements of subsection (a) is
not entitled to payment for his shares under this chapter.
48-23-203 DISSENTERS' NOTICE.
(a) If proposed corporate action creating dissenters' rights under
Sec.48-23-102 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of Sec.48-23-202.
(b) The dissenters' notice must be sent no later than ten (10) days after
the corporate action was authorized by the shareholders or effectuated,
whichever is the first to occur, and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the principal terms
of the proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not he acquired beneficial ownership
of the shares before that date;
(4) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than one (1) nor more than two (2) months after
the date the subsection (a) notice is delivered; and
(5) Be accompanied by a copy of this chapter if the corporation has not
previously sent a copy of this chapter to the shareholder pursuant to
Sec.48-23-201.
48-23-204 DUTY TO DEMAND PAYMENT.
(a) A shareholder sent a dissenters' notice described in Sec.48-22-203 must
demand payment, certify whether he acquired beneficial ownership of the shares
before the date required to be set forth in the dissenters' notice pursuant to
Sec.48-23-203(b)(3), and deposit his certificates in accordance with the terms
of the notice.
(b) The shareholder who demands payment and deposits his share certificates
under subsection (a) retains all other rights of a shareholder until these
rights are cancelled or modified by the effectuation of the proposed corporate
action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenter's notice, is
not entitled to payment for his shares under this chapter.
(d) A demand for payment filed by a shareholder may not be withdrawn unless
the corporation with which it was filed, or the surviving corporation, consents
thereto.
II-3
48-23-205 SHARE RESTRICTIONS.
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is effectuated or the restrictions released under Sec.48-23-207.
(b) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are
cancelled or modified by the effectuation of the proposed corporate action.
48-23-206 PAYMENT.
(a) Except as provided in Sec.48-23-208, as soon as the proposed corporate
action is effectuated, or upon receipt of a payment demand, whichever is later,
the corporation shall pay each dissenter who complied with Sec.48-23-204 the
amount the corporation estimates to be the fair value of his shares, plus
accrued interest.
(b) The payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen (16) months before the date of payment, an
income statement for that year, a statement of changes in shareholders'
equity for that year, and the latest available interim financial statements,
if any;
(2) A statement of the corporation's estimate of the fair value of the
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under
Sec.48-23-209; and
(5) A copy of this chapter if the corporation has not previously sent a
copy of this chapter to the shareholder pursuant to Sec.Sec.48-23-201 or
48-23-203.
48-23-207 FAILURE TO TAKE ACTION.
(a) If the corporation does not effectuate the proposed action that gave
rise to the dissenters' rights within two (2) months after the date set for
demanding payment and depositing share certificates, the corporation shall
return the deposited certificates and release the transfer restrictions imposed
on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation effectuates the proposed action, it must send a
new dissenters' notice under Sec.48-23-203 and repeat the payment demand
procedure.
48-23-208 AFTER-ACQUIRED SHARES.
(a) A corporation may elect to withhold payment required by Sec.48-23-206
from a dissenter unless he was the beneficial owner of the shares before the
date set forth in the dissenters' notice as the date of the first announcement
to news media or to shareholders of the principal terms of the proposed
corporate action.
(b) To the extent the corporation elects to withhold payment under
subsection (a), after effectuating the proposed corporate action, it shall
estimate the fair value of the shares, plus accrued interest, and shall pay this
amount to each dissenter who agrees to accept it in full satisfaction of his
demand. The corporation shall send with its offer a statement of its estimate of
the fair value of the shares, an explanation of how the interest was calculated,
and a statement of the dissenter's right to demand payment under Sec.48-23-209.
48-23-209 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(a) A dissenter may notify the corporation in writing of his own estimate of
the fair value of his shares and amount of interest due, and demand payment of
his estimate (less any payment under Sec.48-23-206), or reject the corporation's
offer under Sec.48-23-208 and demand payment of the fair value of his shares and
interest due, if:
II-4
(1) The dissenter believes that the amount paid under Sec.48-23-206 or
offered under Sec.48-23-208 is less than the fair value of his shares or
that the interest due is incorrectly calculated;
(2) The corporation fails to make payment under Sec.48-23-206 within two
(2) months after the date set for demanding payment; or
(3) The corporation, having failed to effectuate the proposed action,
does not return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within two (2) months after
the date set for demanding payment.
(b) A dissenter waives his right to demand payment under this section unless
he notifies the corporation of his demand in writing under subsection (a) within
one (1) month after the corporation made or offered payment for his shares.
PART 3 -- JUDICIAL APPRAISAL OF SHARES
48-23-301 COURT ACTION.
(a) If a demand for payment under Sec.48-23-209 remains unsettled, the
corporation shall commence a proceeding within two (2) months after receiving
the payment demand and petition the court to determine the fair value of the
shares and accrued interest. If the corporation does not commence the proceeding
within the two-month period, it shall pay each dissenter whose demand remains
unsettled the amount demanded.
(b) The corporation shall commence the proceeding in a court of record
having equity jurisdiction in the county where the corporation's principal
office (or, if none in this state, its registered office) is located. If the
corporation is a foreign corporation without a registered office in this state,
it shall commence the proceeding in the county in this state where the
registered office of the domestic corporation merged with or whose shares were
acquired by the foreign corporation was located.
(c) The corporation shall make all dissenters (whether or not residents of
this state) whose demands remain unsettled parties to the proceedings as in an
action against their shares and all parties must be served with a copy of
the petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced under
subsection (b) is plenary and exclusive. The court may appoint one (1) or more
persons as appraisers to receive evidence and recommend decision on the question
of fair value. The appraisers have the powers described in the order appointing
them, or in any amendment to it. The dissenters are entitled to the same
discovery rights as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to judgment:
(1) For the amount, if any, by which the court finds the fair value of
his shares, plus accrued interest, exceeds the amount paid by the
corporation; or
(2) For the fair value, plus accrued interest, of his after-acquired
shares for which the corporation elected to withhold payment under
Sec.48-23-208.
48-23-302 COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under Sec.48-23-301 shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of appraisers appointed by the court. The court shall assess the costs
against the corporation, except that the court may assess costs against all or
some of the dissenters, in amounts the court finds equitable, to the extent the
court finds the dissenters acted arbitrarily, vexatiously, or not in good faith
in demanding payment under Sec.48-23-209.
(b) The court may also assess the fees expenses of counsel and experts for
the respective parties, in amounts the court finds equitable:
II-5
(1) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the
requirements of Sec.Sec.48-23-201 -- 48-23-209; or
(2) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses
are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by this chapter.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded to
the dissenters who were benefited.
II-6
SCHEDULE III
INDEPENDENT AUDITORS'S REPORT
To the Board of Directors and Shareholders of
REN Corporation-USA:
We have audited the consolidated balance sheet of REN Corporation-USA and
subsidiaries as of December 31, 1993, and the related consolidated statements of
operations, changes in shareholders' equity, and cash flows for each of the
years in the two-year period ended December 31, 1993. In connection with our
audits of these consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index appearing under
Item 14(a)(2), as of December 31, 1993 and for each of the years in the two-year
period ended December 31, 1993. These consolidated financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of REN
Corporation-USA and subsidiaries as of December 31, 1993, and the results of
their operations and their cash flows for each of the years in the two-year
period ended December 31, 1993, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole presents fairly, in all material respects, the information set forth
therein.
KPMG PEAT MARWICK LLP
Nashville, Tennessee
January 25, 1994
REN CORPORATION-USA
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31,
1994 1993
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 644,231 654,845
Accounts receivalble less allowances for uncollectibles and
contractual adjustments of $12,885,262 and $12,863,514 at
December 31, 1994 and 1993, respectively.................... 22,251,792 20,676,857
Estimated third-party settlements, net........................ 59,653 530,075
Inventory..................................................... 3,382,071 2,683,106
Income taxes receivable....................................... -- 1,887,716
Prepaid expense............................................... 974,242 1,482,405
Current deferred taxes, net................................... 3,078,875 1,957,196
Other current assets.......................................... 1,385,107 2,423,635
------------ ------------
Total current assets........................................ 31,775,971 32,295,835
Property, plant and equipment, net.............................. 51,915,880 41,198,497
Intangible assets, net.......................................... 47,459,639 50,523,650
Notes receivable................................................ 1,794,792 574,149
Other assets.................................................... 1,367,659 1,548,231
------------ ------------
Total assets................................................ $134,313,941 126,140,362
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilites:
Current maturities of long-term debt and capital lease
obligations................................................. $ 87,308 441,593
Accounts payable (including related party payables of $743,874
and $244,594 at December 31, 1994 and 1993, respectively)... 6,541,241 3,220,597
Accrued expenses.............................................. 2,938,799 3,496,244
Accrued wages and benefits.................................... 3,750,532 2,579,733
Income taxes payable.......................................... 1,520,918 --
------------ ------------
Total current liabilities................................... 14,838,798 9,738,167
------------ ------------
Long-term debt and capital lease obligations, less current
maturities...................................................... 342,364 10,704,079
Deferred taxes,net.............................................. 4,300,587 1,179,846
Other liabilities............................................... 88,730 26,325
------------ ------------
Total long-term liabilities................................. 4,731,681 11,910,250
------------ ------------
Redeemable common stock; 12,000 and 18,000 shares issued and
outstanding at December 31, 1994 and 1993, respectively......... 47,000 70,500
------------ ------------
Commitments and contingencies (notes 11,12,13,and 15)
Shareholders' equity:
Common stock; no par value, authorized 60,000,000 shares;
18,898,546 and 18,753,095 shares issued and outstanding at
December 31, 1994 and 1993, respectively.................... 101,840,512 100,897,680
Additional paid-in capital.................................... 4,224,488 4,224,488
Retained earnings............................................. 8,649,560 138,656
Less unearned stock grant compensation........................ (18,098) (839,379)
------------ ------------
Total shareholders' equity.................................. 114,696,462 104,421,445
------------ ------------
Total liabilities and shareholders' equity.................. $134,313,941 126,140,362
------------ ------------
------------ ------------
See accompanying notes to consolidated financial statements
III-2
REN CORPORATION--USA
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
1994 1993 1992
------------ ----------- ----------
Revenue:
Dialysis services.................................. $120,428,465 93,866,393 70,345,357
Laboratory services................................ 11,386,250 11,321,502 10,468,987
------------ ----------- ----------
131,814,715 105,187,895 80,814,344
------------ ----------- ----------
Direct operating expense:
Dialysis services (including related party
transactions of $7,996,855, $6,895,998 and
$3,071,739, respectively)............................ 85,861,893 70,502,931 45,170,081
Laboratory services (including related party
transactions of $22,479, $0 and $80,500,
respectively)........................................ 5,579,207 6,551,743 8,823,066
------------ ----------- ----------
91,441,100 77,054,674 53,993,147
------------ ----------- ----------
Gross operating profit:
Dialysis services.................................. 34,566,572 23,363,462 25,175,276
Laboratory services................................ 5,807,043 4,769,759 1,645,921
------------ ----------- ----------
40,373,615 28,133,221 26,821,197
Indirect operating expense:
General, administrative and operations support
(including related party transactions of
$619,607, $176,613 and $387,231, respectively)... 11,360,801 13,011,061 8,184,995
Employee severance................................... -- 1,722,747
Stock-based compensation............................. -- 4,224,488
Writeoff of organization and development cost........ -- 968,000 122,889
Provision to carry assets at estimated fair value.... -- 800,000 --
Depreciation and amortization........................ 10,878,728 9,880,123 7,003,445
Bad debt expense..................................... 2,823,015 2,042,328 1,151,353
Equity in loss of investee........................... 270,000 323,000 --
Loss on disposal of assets........................... 119,376 600,000 276,123
------------ ----------- ----------
Income (loss) from operations........................ 14,921,695 (5,438,526) 10,082,392
Non-operating (income) expense:
Interest income.................................... (203,072) (226,701) (1,037,469)
Interest expense................................... 1,043,863 776,780 2,653,241
Writeoff of costs of suspended financing........... -- 170,207
------------ ----------- ----------
Income (loss) before income tax expense.............. 14,080,904 (5,988,605) 8,296,413
Income tax expense (benefit)......................... 5,570,000 (2,230,122) 2,941,624
------------ ----------- ----------
Net income (loss).................................... $ 8,510,904 (3,758,483 5,354,789
------------ ----------- ----------
------------ ----------- ----------
Net income (loss) per common share and common share
equivalent........................................... $ 0.45 (0.20) 0.38
------------ ----------- ----------
------------ ----------- ----------
Weighted average common shares and common share
equivalents outstanding.............................. 18,898,831 18,777,322 14,472,227
------------ ----------- ----------
------------ ----------- ----------
See accompanying notes to consolidated financial statements.
III-3
REN CORPORATION-USA
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
RETAINED
COMMON ADDITIONAL EARNINGS UNEARNED
------------------------- PAID-IN (ACCUMULATED STOCK GRANT
SHARES AMOUNT CAPITAL DEFICIT) COMPENSATION TOTAL
---------- ------------ ---------- ------------ ------------ -----------
December 31, 1991............ 11,293,434 $ 30,551,315 -- (1,446,671) (1,520,211) 27,584,433
Net income................... -- -- -- 5,354,789 -- 5,354,789
Issuance of common stock for:
Cash........................ 6,670,732 63,371,992 -- -- -- 63,371,992
Other assets................ 36,043 405,000 -- -- -- 405,000
Conversion of debt.......... 82,352 700,000 -- -- -- 700,000
Exercise of stock options.... 35,350 158,888 -- -- -- 158,888
Exercise of warrants......... 67,700 203,100 -- -- -- 203,100
Redemption of common stock... (120,000) (850,000) -- -- -- (850,000)
Amortization of unearned
stock grant compensation.... -- -- -- -- 350,680 350,680
Accretion of redeemable
common stock................ -- -- -- (10,979) -- (10,979)
---------- ------------ ---------- ------------ ------------ -----------
December 31, 1992............ 18,065,611 94,540,295 -- 3,897,139 (1,169,531) 97,267,903
Net loss..................... -- -- -- (3,758,483) -- (3,758,483)
Issuance of common stock for
conversion of debt........... 249,484 2,120,615 -- -- -- 2,120,615
Exercise of stock options,
including $504,271 tax
benefit of stock options
exercised.................... 251,000 2,794,770 -- -- -- 2,794,770
Amortization of unearned
stock grant compensation.... -- -- -- -- 330,152 330,152
Other contributed capital.... -- -- 4,224,488 -- -- 4,224,488
Expiration of redeemable
common stock................ 187,000 1,442,000 -- -- -- 1,442,000
---------- ------------ ---------- ------------ ------------ -----------
December 31, 1993............ 18,753,095 100,897,680 4,224,488 138,656 (839,379) 104,421,445
Net income................... -- -- -- 8,510,904 -- 8,510,904
Cancellation of common
stock........................ (12,000) (159,000) -- -- -- (159,000)
Issuance of common stock for
stock purchase plan......... 25,539 191,543 -- -- -- 191,543
Exercise of stock options
including $193,260 tax
benefit of stock options
exercised 125,912 886,789 -- -- -- 886,789
Expiration of redeemable
common stock................ 6,000 23,500 -- -- -- 23,500
Amortization of unearned
stock grant compensation.... -- -- -- -- 222,673 222,673
Reclassification of unearned
stock grant compensation to
intangibles.................. -- -- -- -- 598,608 598,608
---------- ------------ ---------- ------------ ------------ -----------
December 31, 1994............ 18,898,546 $101,840,512 4,224,488 8,649,560 (18,098) 114,696,462
---------- ------------ ---------- ------------ ------------ -----------
---------- ------------ ---------- ------------ ------------ -----------
See accompanying notes to consolidated financial statements.
III-4
REN CORPORATION--USA
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
1994 1993 1992
------------ ----------- -----------
Cash flows from operating activities:
Net income (loss).................................. $ 8,510,904 (3,758,483) 5,354,789
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization expense............ 10,878,728 9,880,123 7,003,445
Amortization of unearned stock grant
compensation......................................... 222,673 330,152 350,680
Writeoff of costs of suspended financings........ -- -- 170,207
Stock based compensation......................... -- 4,224,488 --
Provision to carry equipment at estimated fair
value................................................ -- 800,000 --
Loss on asset disposals.......................... 119,376 600,000 276,123
Equity in loss of investee....................... 270,000 323,000 --
Writeoff of organization and development cost.... -- 968,000 122,889
Deferred income taxes............................ 1,999,062 (1,770,552) 338,896
Effect on cash of change in operating assets and
liabilities, net of effects from acquisitions:
Accounts receivable and estimated third party
settlements.......................................... (1,104,513) (582,710) (8,845,431)
Inventory........................................ (698,965) (70,143) (783,912)
Income taxes receivable.......................... 1,887,716 (1,887,716) --
Prepaid expenses and other current assets........ 1,546,691 (1,785,953) 409,181
Notes receivable and other assets................ 189,929 (1,608,916) (664,525)
Accounts payable................................. 3,320,644 (2,209,117) 1,242,130
Accrued payroll expenses and income taxes........ 2,196,676 (1,391,397) (3,768,953)
Other, net....................................... -- (5,326) 28,101)
------------ ----------- -----------
Net cash provided by operating activities...... 29,338,921 2,055,450 1,177,418
------------ ----------- -----------
Cash flows from investing activities:
Proceeds from sale of short-term investments....... -- -- 90,123,421
Purchase of short-term investments................. -- -- (39,833,929)
Purchases of property, plant and equipment......... (19,634,675) (14,573,757) (11,830,675)
Acquisitions, net of cash acquired................. -- (1,850,000) (30,775,000)
Intangible assets acquired......................... (1,272,440) (6,763,175) (3,773,587)
Net book value of assets sold...................... 2,854,247 -- 125,000
------------ ----------- -----------
Net cash provided by (used in) investing
activities........................................... (18,052,868) (23,186,932) 4,035,230
------------ ----------- -----------
Cash flows from financing activities
Repayment of repurchase agreement.................. -- -- (90,123,421)
Proceeds from repurchase agreement................. -- -- 39,833,929
Proceeds from issuance of long-term debt........... 34,882,660 16,675,000 34,025,000
Principal payments on long-term debt and capital
lease obligations................................ (45,598,660) (6,280,019) (39,772,021)
Issuance of note receivable........................ (1,500,000) -- --
Repayment of notes payable......................... -- (7,025,000) (142,892)
Net proceeds from issuance of common stock......... 191,543 -- 63,371,992
Proceeds from common stock options and warrants
exercised............................................ 886,790 2,794,770 361,988
Redemption of redeemable common stock.............. -- -- (195,755)
Redemption of common stock......................... (159,000) -- (850,000)
------------ ----------- -----------
Net cash provided by (used in) financing
activities........................................... (11,296,667) 6,164,751 6,508,820
------------ ----------- -----------
Net increase (decrease) in cash and cash
equivalents.......................................... (10,614) (14,966,731) 11,721,468
Cash and cash equivalents at beginning of year....... 654,845 15,621,576 3,900,108
------------ ----------- -----------
Cash and cash equivalents at end of year............. $ 644,231 654,845 15,621,576
------------ ----------- -----------
------------ ----------- -----------
See accompanying notes to consolidated financial statements.
III-5
REN CORPORATION--USA
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
Supplemental disclosures of cash flow information:
YEAR ENDED
DECEMBER 31,
------------------------------------
1994 1993 1992
---------- --------- ---------
Cash paid during the period for:
Interest................................................ $ 748,431 569,453 2,752,081
Income taxes............................................ $1,840,800 1,805,934 3,005,132
Supplemental schedule of noncash investing and financing activities:
During the year ended December 31, 1993, the Company acquired certain
assets, principally goodwill and agreements not to compete, of North County
Dialysis Inc. and West Coast Medical Specialties for an aggregate purchase price
of $1,850,000. During the year ended December 31, 1992, the Company acquired
certain assets, principally goodwill and equipment of the Institute for
Laboratory Medicine, Inc (ILM), Southwest Kidney Institute, Inc. (SKI) Orlando
Dialysis, Inc. (ODI), and West Orange Dialysis, Inc. (WODI) for an aggregate
puchase price of $24,775,000 plus the assumption of certain specified
liabilities. The Company also purchased, during 1992, certain assets of a
Memphis hospital dialysis clinic for total cash consideration of $6,000,000. In
connection with these acquisitions, the following liabilities were assumed:
YEAR ENDED
DECEMBER 31,
------------------------------------
1994 1993 1992
------- ---------- -----------
Fair market value of assets acquired...................... $ -- 1,850,000 35,249,444
Issuance of notes......................................... -- (175,000) (7,025,000)
Cash paid................................................. -- (1,675,000) (23,750,000)
------- ---------- -----------
Liabilities assumed..................................... $ -- -- 4,474,444
------- ---------- -----------
------- ---------- -----------
During 1994, redemption rights on 6,000 shares of common stock for $23,500
expired.
During 1994, common stock was increased by $193,260 for the estimated tax
benefit of stock options exercised.
During 1994, unearned stock grant compensation was decreased by $598,608
related to an agreement with one of the facility medical directors which was
reclassified to intangibles.
During 1993, in conjunction with severance agreements with former officers
of the Company, additional paid-in capital of $4,224,488 was recorded on the
books of the Corporation. This amount represents the excess paid over market
value of the Company's common shares held by former officers. These shares were
purchased by the Company's majority shareholder. No Company funds were used in
the purchase.
During 1993, pursuant to the provisions of certain Convertible Promissory
Notes, $2,120,615 of long term debt was converted to shareholders' equity
through the issuance of 249,484 shares of common stock at $8.50 per share.
During 1992, pursuant to the provisions of a Convertible Promissory Note,
$700,000 of long-term debt was converted to shareholders' equity through the
issuance of 82,352 shares of common stock at $8.50 per share.
During 1993, redemption rights on 187,000 shares of common stock for
$1,442,000 expired.
During 1992, the Company issued 20,000 shares of common stock with a market
value of $255,000 pursuant to an agreement regarding dialysis services with a
university medical school.
During 1992 the Company issued 16,043 shares of common stock with a market
value of $150,000 pursuant to non-compete agreements with medical directors.
During 1992 the Company redeemed 15,598 shares of redeemable common stock at
a redemption price of $195,755.
III-6
REN CORPORATION--USA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
REN Corporation-USA (the Company) was organized in 1987 to operate kidney
dialysis clinics and provide related medical services. The Company also operates
a clinical testing laboratory.
CONSOLIDATION POLICY
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany transactions have
been eliminated. The Company's minority ownership interest in two entities is
insignificant in relation to the consolidated financial statements. The
Company's investment in one center, in which the Company owns more than 20%, but
less than 50%, is accounted for by the equity method.
REVENUE
During 1994, 1993 and 1992, the Company received approximately 72%, 66%, and
75%, respectively, of its dialysis revenue from Medicare and Medicaid
reimbursement programs. The Company received approximately 88%, 83%, and 83% of
its laboratory revenue from Medicare and Medicaid during 1994, 1993 and 1992,
respectively. The remaining balance of 1994, 1993 and 1992 revenue was from
insurance, private and other third party payors. The Medicare and Medicaid
programs reimburse the Company at amounts different from the Company's
established rates. Contractual adjustments under these programs represent the
difference between the amounts billed for these services and the amounts allowed
by third-party payors. A summary of the basis for reimbursement with these
payors follows:
Medicare
The Company is paid by the Medicare program on a prospective payment system
for dialysis services. Each facility receives a composite rate that is adjusted
to account for geographic differences in the cost of labor. The prospectively
determined composite rates are not subject to retroactive adjustments. The
Company is paid for its laboratory services based on a fee schedule.
Medicaid
Medicaid is a state administered program; therefore, reimbursement rates
vary between states. The programs administered by Alabama, Georgia, Kentucky,
Missouri, North Carolina, Oklahoma, Texas and Virginia reimburse the Company for
dialysis services based on prospective payment rates. The Tennessee Medicaid
program reimburses the Company at tentative reimbursement rates. Final
reimbursement rates for Tennessee are determined after submission of annual cost
reports by the Company. Medicaid reimburses the Company for laboratory services
based on a fee schedule. In Arizona, the Company receives reimbursement from the
Arizona Health Care Cost Containment System (AHCCCS).
The Company does not believe that there are any significant credit risks
associated with receivables from the Medicare and Medicaid programs. The
allowance for uncollectibles and contractual adjustments consists of
management's estimate of amounts that may prove uncollectible as a result of
contractual adjustments arising from established rates of reimbursement set by
Medicare, Medicaid and other third-party payors and uncollectible receivables.
Provisions for contractual allowances are recorded as a reduction of revenue
while bad debts are reported separately.
III-7
REN CORPORATION--USA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, cash on deposit at banks and
investments which mature within seven days from the date of purchase. The
carrying amount reflected on the balance sheet at December 31, 1994 and 1993,
respectively, approximates fair value.
INVENTORIES
Inventories of supplies are stated at the lower of cost or market, with cost
being determined on a first-in, first-out basis.
PROPERTY, PLANT AND EQUIPMENT
Property, plant, and equipment are reported at cost or estimated fair value
when acquired as part of a business combination and include improvements that
significantly add to productive capacities or extend useful lives.
Property, plant, and equipment are depreciated by the straight-line method
over their estimated useful lives. The general range of useful lives is fifteen
to thirty years for buildings and leasehold improvements (limited to the term of
the lease) and five to seven years for other plant and equipment. Interest
expense incurred in connection with the construction of dialysis centers is
capitalized as part of the building until the center is operational, at which
time depreciation begins using the straight line method over the estimated
useful life of the building.
INTANGIBLE ASSETS
Acquisition related intangible assets arose from acquisitions by the
Company. The Company has adopted the following useful lives and methods to
amortize acquisition related intangibles: goodwill--twenty-five years on a
straight-line basis; dialysis center patient lists--three to four years on a
straight-line basis; laboratory customer lists--twenty-seven years on an
accelerated method; and covenants not to compete--over the life of the agreement
on a straight-line basis.
Organization and development costs represent direct expenditures for legal,
market research, marketing to prospective medical directors, licensing and
pre-opening costs (training, hiring, etc.) associated with new dialysis centers
and laboratories. If efforts to establish a new center or laboratory are
abandoned, the related costs are charged to operations. When a new center or
laboratory is opened, the related organization and development costs are
amortized on a straight-line basis over five years.
Software costs are amortized by the straight-line method over five years.
The carrying value of goodwill (excess of purchase price over net assets
acquired) is reviewed if the facts and circumstances suggest that it may be
impaired. If this review indicates that goodwill will not be recoverable, as
determined based on the undiscounted cash flows of the entity acquired over the
remaining amortization period, the Company's carrying value of goodwill is
reduced by the estimated shortfall of cash flows.
INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. Under the
asset and liability method of SFAS No. 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are
III-8
REN CORPORATION--USA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Under SFAS No. 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes the
enactment date.
ESTIMATED MALPRACTICE COSTS
It is the Company's policy that provision for estimated malpractice costs be
made based upon the Company's experience. Provision for such malpractice claims
includes estimates of the ultimate costs for both reported claims and claims
incurred but not reported. Professional liability insurance coverage is
maintained to hedge against the risk of significant losses.
EARNINGS PER SHARE
Earnings per share has been computed by dividing net income (loss) after
adjustment for the tax-effected interest expense related to convertible
promissory notes by the weighted average number of common shares and common
share equivalents outstanding during the year.
Common share equivalents included in determining earnings per share include
shares issuable upon assumed exercise of warrants, stock options issued to
employees, medical directors and members of the Board of Directors (note 8),
common stock redeemable at the option of the shareholder (note 7), and shares
issuable upon the conversion of certain promissory notes.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1993 and 1992 consolidated
financial statements to conform to current year presentation.
(2) BUSINESS COMBINATIONS
1993 ACQUISITIONS
On May 31, 1993, the Company purchased certain assets, principally goodwill
and agreements not to compete, of North County Dialysis Center, Inc. for
$1,500,000. North County Dialysis Center, Inc. operated a dialysis center in
Escondido, California.
On June 4, 1993, the Company purchased certain assets, primarily agreements
not to compete, of West Coast Medical Specialties for $350,000. West Coast
Medical Specialties was a provider of acute services for seven hospitals in
Southern California.
The following pro forma summary financial information has been prepared as
though the 1993 acquisitions discussed above had occurred at the beginning of
1992. This financial information is not necessarily indicative of the actual
results that would have occurred had the purchases been made at the beginning of
the year.
III-9
REN CORPORATION--USA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
(2) BUSINESS COMBINATIONS--(CONTINUED)
UNAUDITED PRO FORMA FINANCIAL DATA
YEAR ENDED DECEMBER 31,
--------------------------
1993 1992
------------ ----------
Total revenues....................... $107,241,000 84,039,000
Operating profit..................... 28,953,000 29,060,000
Income (loss) before income tax
expense.............................. (5,797,000) 8,707,000
Net income (loss).................... (3,644,000) 5,601,000
Earnings (loss) per share............ (0.19) .39
Weighted average shares.............. 18,777,322 14,472,227
1992 ACQUISITIONS
On January 2, 1992, the Company acquired certain assets, principally
goodwill and equipment, of the Institute for Laboratory Medicine, Inc. (ILM) for
$6,000,000. In addition, the Company assumed certain specified liabilities,
principally consisting of existing employment arrangements and lease agreements,
in connection with the purchase which approximated $3,073,000. ILM operated a
general reference medical laboratory in Florida with branch offices in eight
separate locations throughout the State.
On April 29, 1992, the Company purchased substantially all of the operating
assets of Southwest Kidney Institute, Inc. (SKI) for $11,500,000 in cash and
assumed liabilities of approximately $520,000 for total consideration of
$12,020,000. SKI operated four dialysis centers in and around Tucson, Arizona.
On July 31, 1992, the Company purchased certain assets of a Memphis hospital
dialysis clinic for cash consideration of $6,000,000.
On December 31, 1992, the Company purchased substantially all of the
operating assets of Orlando Dialysis, Inc. (ODI) and West Orange Dialysis, Inc.
(WODI) for $250,000 in cash and $7,025,000 in promissory notes. The notes were
repaid in January 1993. In addition, the Company assumed certain specified
liabilities consisting of bank notes and accounts payable in connection with the
purchase which approximated $900,000. Prior to the purchase, the Company managed
both dialysis clinics.
The above acquisitions were accounted for as purchase transactions with the
purchase price being allocated to each asset and liability based on respective
estimated fair values at the date of acquisition. The excess of the purchase
price over net assets or goodwill acquired in 1993 and 1992 was $1,400,000 and
$26,328,000, respectively. The goodwill is included in intangible assets and is
being amortized over twenty-five years on a straight-line basis.
III-10
REN CORPORATION--USA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
(3) PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment and related accumulated
depreciation at December 31 is as follows:
1994 1993
----------- ----------
Land.................................. $ 4,048,874 2,593,900
Buildings............................. 12,418,649 8,041,989
Leasehold improvements................ 15,013,442 11,863,402
Equipment............................. 36,422,583 29,964,821
Furniture and fixtures................ 3,052,369 2,597,248
Transportation equipment.............. 122,399 265,674
----------- ----------
71,078,316 55,327,034
Less accumulated depreciation..... 19,162,436 14,128,537
----------- ----------
Total property, plant & equipment,
net................................... $51,915,880 41,198,497
----------- ----------
----------- ----------
Depreciation expense for the years ended December 31, 1994, 1993, and 1992,
was $6,088,825, $5,141,838, and $3,591,138, respectively.
(4) INTANGIBLE ASSETS
Intangible assets consists of goodwill and other identifiable intangibles. A
summary of intangible assets and related accumulated amortization at December 31
is as follows:
1994 1993
----------- ----------
Acquisition related intangibles:
Goodwill............................ $32,227,056 31,912,700
Patient and customer lists.......... 8,330,827 8,280,837
Covenants not to compete............ 15,305,180 14,706,573
Other............................... 40,589 268,579
----------- ----------
55,903,652 55,168,689
Less accumulated amortization....... 12,357,227 9,430,882
----------- ----------
43,546,425 45,737,807
----------- ----------
----------- ----------
Organization and development costs:
Operating facilities................ 5,083,525 4,709,415
Less accumulated amortization....... 3,462,185 2,535,553
----------- ----------
1,612,340 2,173,862
Facilities under development........ 313,185 141,586
----------- ----------
1,934,525 2,315,448
----------- ----------
Software costs........................ 3,346,034 3,126,169
Less accumulated amortization....... 1,367,345 655,774
----------- ----------
1,978,689 2,470,395
----------- ----------
Total intangibles, net................ $47,459,639 50,523,650
----------- ----------
----------- ----------
III-11
REN CORPORATION--USA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
(4) INTANGIBLE ASSETS--(CONTINUED)
Acquisition related intangible assets arose from the acquisitions referred
to in note 2. Amortization expense for acquisition related intangibles for the
years ended December 31, 1994, 1993, and 1992, amounted to $2,906,265,
$3,085,940, and $2,484,780, respectively.
Amortization expense for organization and development costs for the years
ended December 31, 1994, 1993 and 1992, amounted to $1,058,662, $989,741, and
$777,143, respectively. Additional organization and development costs charged to
operations during 1993 and 1992 relating to abandoned dialysis or laboratory
facilities amounted to $968,000, and $122,889, respectively.
Amortization expense for software costs for the years ended December 31,
1994, 1993, and 1992 was $711,571, $496,218 and $150,384, respectively.
(5) NOTES RECEIVABLE
Notes receivable at December 31 consist of the following:
1994 1993
---------- --------
Notes related to sale of laboratory
assets................................... $ 169,466 $340,228
Notes related to sale of Corp. office
bldg. ................................... 1,500,000 --
Other.................................. 125,326 233,921
---------- --------
$1,794,792 $574,149
---------- --------
---------- --------
(6) LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations at December 31 consist of the
following:
1994 1993
---------- ----------
Acquisition and project development
loan with bank....................... $ -- 10,500,000
Other.................................. -- 175,000
---------- ----------
-- 10,675,000
Capital lease obligations (note 10).... 429,672 470,672
---------- ----------
429,672 11,145,672
Less current maturities................ 87,308 441,593
---------- ----------
$ 342,364 10,704,079
---------- ----------
---------- ----------
The aggregate annual maturities of long-term debt and capital lease
obligations at December 31, 1994, are as follows:
YEAR ENDING
DECEMBER 31,
-------------
1995......... $ 87,308
1996......... 101,565
1997......... 90,973
1998......... 90,896
1999......... 58,930
-----------
$ 429,672
-----------
III-12
REN CORPORATION--USA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
(6) LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS--(CONTINUED)
BANK CREDIT FACILITY
On May 4, 1993, the Company replaced its existing credit agreement with a
new agreement with a consortium of banks. Terms of the credit agreement provide
the Company with a six year reducing revolving credit facility in the amount of
$60,000,000. The revolving facility is available in full until August 30, 1995,
when the availability begins to reduce by $3,750,000 each quarter until fully
reduced on May 31, 1999. Borrowings under the facility will bear interest at
either the bank prime rate or, at the Company's option, at a LIBOR rate plus an
increment of 75 basis points to 125 basis points, depending on the ratio of debt
to equity in accordance with a predetermined schedule.
At December 31, 1994, there were no funds drawn under the credit facility.
The Company's borrowing rate at December 31, 1994 was 8.5%. The weighted average
interest rate for 1994 was 5.6%.
The Agreement is subject to numerous restrictive covenants, including the
payment of dividends, additional indebtedness, and the maintenance of various
financial ratios. Both the Term Loan and the Revolving Credit Note are subject
to certain borrowing base limitations. At December 31, 1994, the Company had
waivers for or was in compliance with all loan covenants.
(7) REDEEMABLE COMMON STOCK
During January 1991, the Company entered into an agreement with a university
renal division which requires, for a period of five years, the renal division to
provide medical director services for one of the Company's dialysis facilities.
As partial payment for this arrangement, the Company issued to the university
30,000 shares of the Company's redeemable common stock at a value of $3.75 per
share and $20,000. Shares issued in connection with this agreement are
redeemable at the option of the holder ratably over a five-year period at $3.50
per share. During 1994, redemption rights on 6,000 shares for $23,500 expired.
At December 31, 1994, the redemption privilege remained for 12,000 of these
shares.
(8) SHAREHOLDERS' EQUITY
Common Stock
Pursuant to compensation agreements, the Company issued an aggregate of
36,043 and 55,000 shares of common stock to five of the Company's medical
directors for the years ended December 31, 1992 and 1991, respectively. Forty
thousand of the shares issued in 1991 were issued in connection with
compensation arrangements for services to be performed for varying periods
through 1994. Shares issued under such agreements are to vest ratably over the
period services are to be performed. The market value of shares awarded has been
recorded as unearned stock grant compensation and is shown as a separate
component of shareholders' equity. The unearned compensation is being charged to
operations over the period services are to be performed. If the agreements are
terminated any unvested shares will be forfeited. At December 31, 1994, an
unamortized balance of $598,608 was transferred to intangibles, as one of the
agreements was deemed to be an agreement not to compete.
On March 17, 1992, pursuant to the provisions of a Stock Purchase Agreement,
the Company completed the sale of 1,170,732 shares of Common Stock to COBE
Laboratories, Inc. (COBE), at a price of $10.25 per share or an aggregate
purchase price of $12,000,003. As a result of this sale, together with shares
acquired during 1991, COBE increased its ownership to approximately 30% of the
Company's outstanding voting stock.
On October 1, 1992, the Company completed the sale of 5,500,000 shares of
the Company's common stock to COBE at a price of $9.75 per share, pursuant to
the Stock Purchase Agreement, dated July 2, 1992, between the
III-13
REN CORPORATION--USA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
(8) SHAREHOLDERS' EQUITY--(CONTINUED)
Company and COBE. Net proceeds from the sale totaling $51,371,989 were credited
to common stock. As a result of the sale, COBE owned an aggregate of 9,342,921
shares of Common Stock, representing beneficial ownership of 51.1% of the Common
Stock of the Company.
During July 1993, COBE purchased an additional 693,300 shares of the
Company's common stock from the Company's former Chairman, President and Chief
Executive Officer and the former Senior Vice President of Administration and
Reimbursement. In connection with this purchase of common stock by COBE, the
Company recognized as additional paid-in capital and as compensation expense,
$4,224,488, representing the difference paid by COBE and the market value of the
stock purchased by COBE from the Company's former Chairman, President and Chief
Executive Officer and the Company's former Senior Vice President of
Administration and Reimbursement, coincident to their resignations. With this
purchase, COBE increased its ownership of common shares to 53.5%.
The Company has granted to COBE an option to purchase sufficient shares of
the Company's Common Stock as may be necessary to prevent dilution of its
percentage ownership of outstanding Common Stock of the Company and voting power
below 50.1% in the event the Company proposes to issue additional voting
securities. Among other things, the Stock Purchase Agreement provides that, in
the event the Company proposes to issue any voting securities, COBE has the
option to purchase any shares necessary to prevent dilution of its equity and
voting rights. The agreement further provides that the Company and COBE enter
into a six-year supply agreement pursuant to which, subject to certain
restrictions, the Company will purchase 75% of its requirements for renal
dialysis machines and 100% of the associated blood lines from COBE on terms no
less favorable than COBE offers to third parties.
During 1992, 67,700 previously issued warrants were exercised at $3.00 per
share.
During 1993, redemption rights totaling $1,442,000 on 187,000 shares expired
without exercise. Common stock was increased and redeemable common stock was
decreased as a result.
During 1994, the Board of Directors approved an employee stock purchase plan
(the "Plan"). Under the Plan all employees who work at least 20 hours per week
and with at least one year of service may be granted the opportunity to purchase
common stock at 85% of market value on the first or last business day of the six
month payment period, whichever is lower. There were 25,539 shares issued at a
price of $7.50 per share during the year ended December 31, 1994. Common shares
reserved for future employee purchases were 374,461 shares at December 31, 1994.
There have been no charges to income in connection with the Plan other than
incidental expenses related to the issuance of the shares.
During 1994, 12,000 shares of stock previously owned by a medical director
were canceled for payment of a $159,000 promissory note executed between the
medical director and the Company.
During 1994, 25,000 previously issued warrants were exercised at $3.50 per
share.
The Board of Directors approved a stock option plan in December 1988 for
500,000 shares of common stock to be granted to key employees and directors.
During 1992, an additional 250,000 shares were approved by the Company's
shareholders for issuance under the Company's stock option plan. In accordance
with the terms of agreements made under the stock option plan, one-quarter of
the total shares covered by the agreements shall become exercisable during each
twelve month period following the anniversary of granting and shall accumulate
if not exercised in that year. The term of each option is ten years.
III-14
REN CORPORATION--USA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
(8) SHAREHOLDERS' EQUITY--(CONTINUED)
A summary of the option transactions is:
OPTION ACTIVITY PRICE RANGE
--------------- ---------------
Options Outstanding, December 31, 1991........................ 275,525 $3.00 to $ 8.81
Options granted............................................. 378,500 $8.13 to $15.00
Less options exercised...................................... 35,350 $3.00 to $ 6.50
Less options canceled....................................... 5,050
-------
Options outstanding, December 31, 1992........................ 613,625 $3.00 to $15.00
Options granted............................................. 235,000 $7.94 to $13.56
Less options exercised...................................... 251,000 $3.00 to $13.69
Less options canceled....................................... 17,900
-------
Options outstanding, December 31, 1993........................ 579,725 $3.00 to $15.00
Options granted............................................... 97,500 $8.75 to $20.00
Less options exercised........................................ 96,912 $3.00 to $13.69
Less options canceled......................................... 64,088
-------
Options outstanding, December 31, 1994........................ 516,225 $3.00 to $20.00
-------
-------
Options exercisable at December 31, 1994, 1993 and 1992, are 170,613,
164,275 and 91,350 shares, respectively.
In January 1992, the Board of Directors approved the issuance of a stock
warrant to a former employee of the Corporation in recognition of services
rendered. The warrant, issued on January 30, 1992 is for 4,000 shares of common
stock, is exercisable upon issuance at $9.97 per share and expires January 30,
1997. The Board of Directors approved the issuance of a stock warrant to an
independent contractor of the Corporation in recognition of services rendered.
The warrant, issued October 14, 1992, is for 20,000 shares of common stock, is
exercisable upon issuance at $11.75 per share and expires October 13, 2002.
(9) INCOME TAXES
Components of federal and state income tax expense (benefit) from operations
are as follows:
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1993 1992
---------- ---------- ---------
Current provision:
Federal................................................. $3,187,392 (907,243) 2,000,845
State................................................... 383,546 34,820 601,883
---------- ---------- ---------
3,570,938 (872,423) 2.602,728
---------- ---------- ---------
Deferred provision:
Federal................................................. 1,412,429 (1,278,755) 377,990
State................................................... 586,633 (78,944) (39,094)
---------- ---------- ---------
1,999,062 (1,357,699) 338,896
---------- ---------- ---------
$5,570,000 (2,230,122) 2,941,624
---------- ---------- ---------
---------- ---------- ---------
III-15
REN CORPORATION--USA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
(9) INCOME TAXES--(CONTINUED)
Actual income tax expense (benefit) differs from the "expected" income tax
expense (benefit) (computed by applying the federal corporate rate of 34%) as
follows:
1994 1993 1992
---------- ---------- ---------
Computed expected Federal income tax expense (benefit).... $4,787,507 (2,036,119) 2,820,780
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal benefit.............. 640,318 (29,122) 371,440
Alternative minimum tax utilized........................ (499,100)
Goodwill amortization................................... 72,754 (167,573) 245,515
Other................................................... 69,421 2,692 2,989
---------- ---------- ---------
Provision for income taxes................................ $5,570,000 (2,230,122) 2,941,624
---------- ---------- ---------
---------- ---------- ---------
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1994 and
1993 are as follows:
1994 1993
----------- ----------
Deferred tax assets:
Accounts receivable. principally due to allowance for doubtful
accounts............................................................ $ 1,607,243 637,124
Compensation obligations, principally due to accrual for financial
reporting purposes.............................................. 431,391 482,623
Self-Insurance claim reserve principally due to accrual for
financial reporting purposes.................................... 520,910 301,967
Financial statement accrued expenses not deductible for tax
purposes............................................................ 519,759 576,847
State net operating loss carryforwards............................ 410,190 460,859
Assets under lease principally due to capital lease obligations... 27,699 188,158
Alternative minimum tax credit.................................... -- 373,839
Federal net operating loss carryforward........................... -- 1,801,928
Accumulated loss of foreign operations............................ 234,532 --
Other............................................................. 19,056 48,621
----------- ----------
Total gross deferred tax assets............................... 3,770,780 4,871,966
Less valuation allowance...................................... (410,190) (431,326)
----------- ----------
Net deferred tax assets....................................... 3,360,590 4,440,640
----------- ----------
Deferred tax liabilities:
Property, plant and equipment and intangible assets, principally
due to differences in depreciation and amortization............. (4,340,769) (3,521,366)
Installment sale, principally due to accrual for financial
reporting purposes.................................................. (41,604) (70,701)
Other............................................................. (199,929) (71,223)
----------- ----------
Total gross deferred tax liabilities.......................... (4,582,302) (3,663,290)
----------- ----------
Net deferred tax asset (liability)............................ $(1,221,712) 777,350
----------- ----------
----------- ----------
The valuation allowance relates to state tax net operating loss
carryforwards of certain of the Company's subsidiaries. The net change in the
total valuation allowance for the year ended December 31, 1994, was a decrease
of $21,136. The Company believes that more likely than not, the deferred tax
assets, net of the valuation allowance, will be realized.
III-16
REN CORPORATION--USA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
(9) INCOME TAXES--(CONTINUED)
At December 31, 1994, the Company had net operating loss carryforwards for
state income tax purposes of approximately $5,000,000, which are available to
offset future taxable income in certain state jurisdictions through 2008.
(10) CAPITALIZED LEASES
The Company has entered into various equipment lease arrangements that have
been recorded as capital leases as follows:
DECEMBER 31,
---------------------
1994 1993
-------- ---------
Cost of equipment..................................... $763,763 1,303,121
Less accumulated depreciation......................... 143,162 824,566
-------- ---------
$620,601 478,555
-------- ---------
-------- ---------
Interest rates on capital lease obligations range from 10.75% to 13.48%. The
assets are being depreciated on a straight-line basis over their estimated
useful lives not to exceed the related lease term, and depreciation expense for
the years ended December 31, 1994, 1993 and 1992, was $88,362, $265,099, and
$274,950, respectively.
Future minimum annual lease payments are as follows:
YEAR ENDING
DECEMBER 31,
-----------------------------------------------------------------
1995............................................................. $137,855
1996............................................................. 140,786
1997............................................................. 117,337
1998............................................................. 105,612
1999............................................................. 61,607
--------
563,197
Less amounts representing interest............................... (133,525)
--------
Present value of minimum lease payments.......................... $429,672
--------
--------
The Company leases certain dialysis equipment from a medical director. The
lease and related liability were capitalized at the estimated fair market value
of the underlying equipment of $172,510. Lease payments in excess of fair market
value rental of $2,931 per month are charged to lease expense as paid. The
Company paid an aggregate of $52,412 under this agreement during each of the
years ended December 31, 1994, 1993, and 1992. The lease terminates in 1997.
(11) OPERATING LEASES
Leases from Nonrelated Parties
The Company leases real estate under noncancelable operating leases expiring
in various years through 2017. Certain operating leases provide for renewal
options over various periods at the fair rental value at the time of renewal. In
the normal course of business, operating leases are generally renewed or
replaced by other leases. In addition, the Company leases personal property
under operating leases expiring in 1996.
III-17
REN CORPORATION--USA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
(11) OPERATING LEASES--(CONTINUED)
Leases from Related Parties
The Company leases certain real estate under noncancelable operating leases
from related parties. Such operating leases provide for renewal options over
various periods at the fair rental value at the time of renewal. Rental expense
for the years ended December 31, 1994, 1993, and 1992, under related party
operating leases was $0, $94,740, and $255,878, respectively.
Future Minimum Rental Payments
Future minimum rental payments under noncancelable operating leases for each
of the next five years and thereafter in the aggregate are:
YEAR ENDING
DECEMBER 31,
-------------------------------------------------------------------------------
1995........................................................................... $ 4,226,946
1996........................................................................... 3,236,966
1997........................................................................... 2,718,424
1998........................................................................... 2,476,507
1999........................................................................... 2,309,672
Thereafter..................................................................... 7,502,377
-----------
$22,470,892
-----------
-----------
Rental expense for the years ended December 31, 1994, 1993, and 1992, under
all operating leases amounted to $4,506,117, $4,505,321, and $3,404,104,
respectively.
(12) RELATED PARTY TRANSACTIONS
On August 31, 1992, the Company sold substantially all of the operational
assets of its drug testing laboratory to a shareholder and former director of
the Company for $125,000 cash and a note for $125,000 at bank prime plus 1%.
Under the terms of the note, principal payments of $50,000 and $25,000 were paid
on January 1, 1994, and 1993, respectively, and the remaining principal of
$50,000 is due on January 1, 1995. A loss on the sale of $276,123 was recognized
on the transaction in 1992.
In 1991, the Company entered into a six-year supply agreement with COBE,
pursuant to which, subject to certain restrictions, the Company will purchase
75% of its requirements for renal dialysis machines and 100% of the associated
blood line supplies on terms no less favorable than are offered to third
parties. During 1994, 1993 and 1992, the Company incurred $7,845,189,
$6,801,258, and $3,071,739, respectively, for equipment and supplies to COBE who
owns 53.5% of the Company's outstanding voting stock (see note 8) and who
appoints five of the members to the Board of Directors. In addition, during
1994, 1993 and 1992 the Company incurred $161,809, $86,877, and $114,560,
respectively, for director fees and other expense reimbursements to COBE.
Included in accounts payable and accrued expenses at December 31, 1994 is
$743,874 payable to COBE.
During 1994, 1993 and 1992, the Company incurred $631,943, $26,502, and
$176,875, respectively, for travel expense arranged through an agency in which a
partner is the spouse of a director of the Company.
III-18
REN CORPORATION--USA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
(13) SAVINGS AND PROFIT SHARING PLAN
REN Corporation-USA Savings and Profit Sharing Plan (the "401K Plan"),
amended and restated effective July 1, 1994, covers all employees over 21 years
of age with a minimum of 1,000 hours of compensated service in the 12 month
period preceding either of the 401K Plan entrance dates (January 1 or July 1).
The 401K Plan allows participants to contribute before tax earnings up to limits
established by the IRS ($9,240 for 1994). The 401K Plan earnings and gains
accumulate tax deferred as long as the employee remains a participant.
All participant contributions are fully vested to each individuals account.
All employer contributions (matching deposits and discretionary contributions)
also fully vest when granted.
Employer contributions are discretionary. The Company will determine
annually the amount of matching contributions for the following plan year and
this amount will be allocated based on participation. In addition, the Company
may decide to make further discretionary contributions. Employer discretionary
contributions may be made for all eligible employees based on compensation.
For the years ending December 31, 1994, 1993, and 1992, contributions
expense was $197,800, $0, and $125,000, receptively.
(14) QUARTERLY OPERATING RESULTS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations
for the years ended December 31 (in thousands, except per share data):
1ST 2ND 3RD 4TH
1994 QUARTER QUARTER QUARTER QUARTER
---------------------------------------------------------- ------- ------- ------- -------
Revenue................................................... $30,287 31,638 34,123 35,767
Gross operating profit.................................... 8,586 9,150 10,955 11,683
Income from operations.................................... 2,251 3,288 4,665 4,717
Income before income taxes................................ 2,062 3,091 4,416 4,512
Net income................................................ 1,238 1,885 2,666 2,722
Net income per common and common equivalent share......... $ 0.07 0.10 0.14 0.14
1TH 2ND 3RD 4TH
1993 QUARTER QUARTER QUARTER QUARTER
--------------------------------------------------------- ------- ------- ------- -------
Revenue.................................................. $25,475 26,296 23,229 30, 188
Gross operating profit................................... 8,464 8,378 2,881 8,410
Income (loss) from operations............................ 2,818 (4,683) (5,545) 1,971
Income (loss) before income taxes........................ 2,818 (4,797) (5,785) 1,775
Net income (loss)........................................ 1,631 (3,002) (3,435) 1,048
Net income per common and common equivalent share........ $ 0.09 (0.16) (0.19) 0.06
(15) COMMITMENTS AND CONTINGENCIES
Final determination of amounts earned under prospective payment and
cost-reimbursement activities is subject to review by appropriate governmental
authorities or their agents. In the opinion of management, adequate provision
has been made for any adjustments that may result from such reviews.
III-19
REN CORPORATION--USA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
(15) COMMITMENTS AND CONTINGENCIES--(CONTINUED)
The Company has been named a defendant in various legal actions arising from
its normal business activities. In the opinion of management, any liability that
may arise from such actions will not have a material adverse effect on the
Company's financial position or results of operations.
The Company has negotiated an agreement with an unrelated vendor to provide
supplies at a specified cost for a period of five years. At December 31, 1994,
the Company's commitment under the terms of this agreement amounts to
approximately $1,400,000.
HCFA has indicated the possibility of revisions to the Omnibus Budget
Reconciliation Act (OBRA) of 1993. The proposed revision provides that when a
Medicare entitlement based on age or disability occurs prior to Medicare
eligibility based on end-stage renal disease (ESRD) criteria, and the plan has
permissibly taken into account Medicare entitlement based on age or disability,
the Medicare Secondary Payor (MSP) statute as amended by OBRA 1993, would not
require a benefit coordination reversal. Based on written documentation from
Medicare entitlement, REN has required a benefit coordination reversal since
September 1993.
(16) SUBSEQUENT EVENTS
During January 1995, the Company acquired majority interest in Greater
Milwaukee Dialysis Center (GMDC), a Wisconsin general partnership, for
approximately $3,870,000 and the assumption of liabilities totaling
approximately $130,000. The partnership operates three outpatient hemodialysis
clinics and one training center for continuous ambulatory peritoneal dialysis.
The four clinics treat approximately 350 patients in the metropolitan area.
Simultaneously with the acquisition of GMDC, the Company purchased all of
the assets, rights, and contracts of the acute dialysis program operated by GMDC
for approximately $744,000.
During January 1995, the Company agreed to acquire the chronic and acute
dialysis programs operated by George Washington University for approximately
$5,000,000. The programs currently treat approximately 160 patients in the
Washington, D.C. area.
During January 1995, the Company sold its interest in a foreign entity
engaged in providing dialysis services, to Hospital Medica Sur for total
consideration of approximately $914,000. A loss on the sale of $100,000 has been
included in the Company's 1994 financial results.
III-20
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
REN Corporation -- USA
We have audited the consolidated financial statements of REN
Corporation -- USA and subsidiaries as of December 31, 1994, and for the year
then ended, and have issued our report thereon dated January 23, 1995 (included
elsewhere in this Annual Report on Form 10-K). Our audit also included the
financial statement schedule listed in Item 14(a) of this Annual Report on Form
10-K. This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audit. The schedule of REN
Corporation -- USA for the years ended December 31, 1993 and 1992, was audited
by other auditors whose report dated January 25, 1994, expressed an unqualified
opinion on that schedule.
In our opinion, the 1994 financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Nashville, Tennessee
January 23, 1995
III-21
REN CORPORATION--USA
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31,
1995 1994
----------- ------------
(UNAUDITED)
Current assets:
Cash and cash equivalents......................................... $ 92 $ 644
Accounts receivable less allowance for uncollectibles and
contractual adjustments of $15,022 and $12,885 at June 30, 1995
and December 31, 1994, respectively............................. 20,488 22,252
Estimated third-party settlements, net............................ 431 60
Inventory......................................................... 3,922 3,382
Prepaid expense................................................... 1,622 974
Current deferred taxes, net....................................... 3,729 3,079
Other current assets.............................................. 222 1,385
----------- ------------
Total current assets.......................................... 30,506 31,776
Property, plant and equipment, net............................ 55,163 51,916
Intangible assets, net........................................ 56,448 47,460
Notes receivable.............................................. 32,667 31,795
Other assets.................................................. 5,703 1,368
----------- ------------
Total assets.................................................. $ 150,487 $134,315
----------- ------------
----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank notes payable................................................ $ 875 $ --
Current maturities of long-term debt and capital lease
obligations......................................................... 92 87
Accounts payable.................................................. 8,722 6,541
Accrued expenses.................................................. 4,383 2,939
Accrued wages and benefits........................................ 3,842 3,751
Income taxes payable.............................................. 399 1,521
----------- ------------
Total current liabilities..................................... 18,313 14,839
Long-term debt and capital lease obligations, less current
maturities.......................................................... 5,394 342
Deferred taxes, net................................................. 4,974 4,301
Minority interest in consolidated subsidiaries...................... 623 89
----------- ------------
Total long-term liabilities................................... 10,991 4,732
Redeemable common stock; 6,000 and 12,000 shares issued and
outstanding at June 30, 1995 and December 31, 1994,
respectively........................................................ 24 47
Commitments and contingencies
Shareholders' equity:
Common stock; no par value, authorized 60,000,000 shares;
18,936,659 and 18,898,546 shares issued and outstanding at June
30, 1995 and December 31, 1994, respectively.................... 102,229 101,841
Additional paid-in capital........................................ 4,224 4,224
Retained earnings................................................. 14,706 8,650
Less unearned stock grant compensation............................ -- $ (18)
----------- ------------
Total shareholders' equity.................................... 121,159 114,697
----------- ------------
Total liabilities and shareholders' equity.................... $ 150,487 $134,315
----------- ------------
----------- ------------
See accompanying notes to consolidated financial statements.
III-22
REN CORPORATION--USA
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
1995 1994 1995 1994
------------ ------------ ------------ ------------
Revenue:
Dialysis services...................... $ 38,714 $ 28,872 $ 73,793 $ 56,309
Laboratory services.................... 4,204 2,766 7,739 5,616
------------ ------------ ------------ ------------
42,918 31,638 81,532 61,925
------------ ------------ ------------ ------------
Direct operating expense:
Dialysis services...................... 28,783 21,027 54,437 41,289
Laboratory services.................... 1,318 1,461 2,802 2,901
------------ ------------ ------------ ------------
30,101 22,488 57,239 44,190
------------ ------------ ------------ ------------
Gross operating profit:
Dialysis services...................... 9,931 7,845 19,356 15,020
Laboratory services.................... 2,886 1,305 4,937 2,715
------------ ------------ ------------ ------------
12,817 9,150 24,293 17,735
Indirect operating expense:
Corporate office general,
administrative and operations
support.................................. 2,818 2,499 5,534 5,629
Depreciation and amortization.......... 3,207 2,675 6,069 5,269
Bad debt expense....................... 1,018 687 1,542 1,202
Loss of unconsolidated subsidiary...... 17 0 62 95
------------ ------------ ------------ ------------
Income from operations........... 5,757 3,289 11,086 5,540
Non-operating (income) expense:
Interest income........................ (141) (39) (229) (106)
Interest expense....................... 349 237 642 493
------------ ------------ ------------ ------------
Income before income taxes....... 5,549 3,091 10,673 5,153
Income tax expense....................... 2,274 1,206 4,375 2,030
Minority interest in income of
consolidated subsidiary, net of income
tax expense of $62 and $167 for the
quarter and six months ended June 30,
1995..................................... 91 -- 241 --
------------ ------------ ------------ ------------
Net income............................. $ 3,184 $ 1,885 $ 6,057 $ 3,123
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income per common share and comon
share equivalent......................... $ 0.17 $ 0.10 $ 0.32 $ 0.17
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average common shares and common
share equivalents outstanding............ 19,027,576 18,886,187 19,021,789 18,868,932
See accompanying notes to consolidated financial statements.
III-23
REN CORPORATION--USA
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
COMMON ADDITIONAL UNEARNED
--------------------- PAID-IN RETAINED STOCK GRANT
SHARES AMOUNT CAPITAL EARNINGS COMPENSATION TOTAL
---------- -------- ---------- -------- ------------ --------
December 31, 1994................. 18,898,546 $101,841 $4,224 $ 8,650 $ (18) $114,696
Net income........................ -- -- -- 6,057 -- 6,057
Issuance of common stock for
employee stock purchase plan.... 20,038 224 -- -- -- 224
Exercise of stock options......... 12,075 140 -- -- -- 140
Amortization of unearned stock
grant compensation.............. -- -- -- -- 18 18
Expiration of redeemable common
stock............................. 6,000 24 -- -- -- 24
---------- -------- ---------- -------- ------ --------
June 30, 1995..................... 18,936,659 $102,229 $4,224 $ 14,707 $-- $121,159
---------- -------- ---------- -------- ------ --------
---------- -------- ---------- -------- ------ --------
See accompanying notes to consolidated financial statements.
III-24
REN CORPORATION--USA
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
--------------------
1995 1994
-------- --------
Cash flows from operating activities:
Net income............................................................ $ 6,057 $ 3,123
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization expense............................... 6,069 5,269
Amortization of unearned stock grant compensation................... 18 122
Deferred income taxes............................................... 23 --
Effect on cash of change in operating assets and liabilities, net of
effects from acquisitions:
Accounts receivable and estimated third party settlements........... 1,392 1,600
Inventory........................................................... (540) (621)
Income taxes receivable............................................. -- --
Prepaid expenses and other current assets........................... 515 3,508
Notes receivable and other assets................................... (5,207) 1
Accounts payable.................................................... 2,181 4,059
Accrued expenses and income taxes................................... 948 1,391
-------- --------
Net cash provided by operating activities....................... 11,456 18,452
-------- --------
Cash flows from investing activities:
Acquisitions, net of cash acquired.................................... (10,837) --
Purchase of property, plant and equipment............................. (6,334) (11,229)
Intangible assets acquired............................................ (1,136) (235)
Net book value of assets sold......................................... 2 --
-------- --------
Net cash used in investing activities........................... (18,305) (11,464)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt.............................. 44,100 4,000
Principal payments on long-term debt and capital lease obligations.... (38,168) (11,062)
Proceeds from common stock options and warrants exercised............. 365 506
Redemption of common stock............................................ -- (159)
-------- --------
Net cash provided by (used in) financing activities 6,297 (6,715)
-------- --------
Net increase (decrease) in cash and cash equivalents.................... (552) 273
Cash and cash equivalents at beginning of period........................ $ 644 $ 655
-------- --------
Cash and cash equivalents at end of period.............................. $ 92 $ 928
-------- --------
-------- --------
See accompanying notes to consolidated financial statements.
III-25
REN CORPORATION--USA
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
SIX MONTHS
ENDED
JUNE 30,
--------------
1995 1994
------ ----
(IN THOUSANDS)
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest................................................................... $ 530 $373
Income taxes............................................................... 5,310 1
Supplemental schedule of noncash investing and financing activities:
During the six months ended June 30, 1995 the Company acquired certain
assets, principally goodwill and agreements not to compete, of two dialysis
clinics operated by The George Washington University, a 51% ownership in certain
assets, principally goodwill and equipment, of Greater Milwaukee Dialysis
Corporation, and a 53.3% ownership interest in certain assets, principally
goodwill and equipment of Rocky Mountain Kidney Center for an aggregate purchase
price of approximately $12 million.
During January of both 1995, and 1994, redemption rights on 6,000 shares of
common stock for $23,500 expired.
III-26
REN CORPORATION--USA
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying interim financial statements have been prepared in
conformity with generally accepted accouting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10.01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of Management, the interim consolidated financial
statements include all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of the results of the interim periods. The
interim financial statements should be read in conjunction with the 1994 audited
consolidated financial statements and related notes. The results of operations
for the interim periods may not be indicative of the operating results for the
year ending December 31, 1995.
(2) INCOME TAXES
Actual income tax expense for the six months ended June 30, 1995, differs
from the "expected" income tax expense (computed by applying the federal
corporate rate of 35%) as follows:
(IN THOUSANDS)
--------------
Computed expected federal income tax expense..................................... $3,736
Increase in income tax resulting from:
State income tax expense, net of federal benefit............................... 486
Other.......................................................................... 153
------
Income Tax Expense........................................................... $4,375
------
------
(3) BANK CREDIT FACILITY
During 1993, the Company replaced its existing credit agreement with a new
agreement with a consortium of banks. Terms of the credit agreement provide the
Company with a six-year reducing revolving credit facility in the amount of $60
million. The revolving facility is available in full until August 30, 1995 when
the availability begins to reduce by $3.75 million each quarter until fully
reduced on May 31, 1999. Borrowings under the facility will bear interest at
either the bank prime rate or, at the Company's option, at a LIBOR rate plus an
increment of 75 basis points to 125 basis points depending on the ratio of debt
to equity in accordance with a predetermined schedule. At June 30, 1995, the
Company had waivers for or was in compliance with all loan covenants. The
Company had $4 million outstanding under the Credit Agreement at June 30, 1995.
(4) COMMITMENTS AND CONTIGENCIES
The Company has been named a defendant in various legal actions arising from
its normal business activites. In the opinion of management after consultation
with counsel, any liability that may arise from such actions will not have a
material adverse effect on the Company.
On April 24, 1995, the U.S. Health Care Financing Administration (HCFA)
advised Associate Regional Adminstrators for Medicare of a contemplated change
in the government's interpretation of the amendment to the Medicare Secondary
Payor (MSP) End Stage Rental Disease (ESRD) provision of the Social Security Act
contained in the Omnibus Budget Reconciliation Act of 1993 (OBRA 93). An
upcoming Program Instruction will officially advise Medicare Intermediaries that
prior guidance by HCFA was erroneous and direct the Intermediaries to apply the
reinterpretation of the Law retractively and prospective to all ESRD claims
after August 10, 1993.
The effect of this reinterpretation of the Law is to make Medicare the
primary payor in cases where a Medicare beneficiary is entitled to Medicare
benefits on the bases of either age or disability and ESRD and where the
entitlement other than ESRD precedes the ESRD diagnosis. According to previous
memorandum issued by
III-27
REN CORPORATION--USA
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4) COMMITMENTS AND CONTIGENCIES--(CONTINUED)
Medicare Intermediaries, the MSP provisions would apply irrespective of whether
the ESRD diagnosis was before or after the Medicare entitlement other than ESRD.
Because commercial rates are normally in excess of the Medicare allowable
rates, the change in the application of the MSP provisions may result in a
reduction of dialysis revenue going forward for those patients whose Medicare
entitlement other than ESRD preceded their ESRD diagnosis.
Because the reinterpretation of the MSP provisions to OBRA 93 is retroactive
to August 10, 1993, the Company may be required to refund amount paid by
commercial payors and bill Medicare as the primary payor for patients whose
Medicare eligibility preceded their eligibility due to ESRD. It is not possible
to predict at this time the financial consequences of such refund requests, net
of any available reserves.
III-28
SCHEDULE IV
[ALEX. BROWN & SONS LETTERHEAD]
September 12, 1995
Special Committee of the
Board of Directors
REN Corporation--USA
6820 Charlotte Pike
Nashville, TN 37209
Dear Sirs:
REN Corporation--USA ("REN"), Gambro AB ("Gambro"), COBE Laboratories, Inc.,
a Colorado corporation and indirect wholly owned subsidiary of Gambro
("Parent"), and REN Acquisition Corp., a wholly owned subsidiary of Parent
("Purchaser"), have entered into an Agreement and Plan of Merger dated as of
September 12, 1995 (the "Agreement") pursuant to which Purchaser shall make a
tender offer (the "Offer") to purchase all the issued and outstanding shares of
common stock, no par value, of REN (the "Common Stock") at a price of $20.00 per
share, net to the seller in cash. The Agreement also provides that, following
the Offer, Purchaser shall be merged with and into REN (the "Merger"), and that
each then outstanding share of Common Stock, other than shares held by Parent,
Purchaser and their affiliates, will be converted into the right to receive
$20.00 in cash. You have requested our opinion regarding the fairness, from a
financial point of view, of the cash consideration to be received by the
stockholders of REN, other than Gambro, Parent, Purchaser and their affiliates,
pursuant to the Agreement.
Alex. Brown & Sons Incorporated, as a customary part of its investment
banking business, is engaged in the valuation of businesses and their securities
in connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of securities, private placements, and valuations for corporate
and other purposes. We have served as financial advisor to the Special Committee
of the Board of Directors of REN in connection with the transaction contemplated
by the Agreement and will receive a fee for our services. We regularly publish
research reports regarding the health care industry and the businesses and
securities of publicly owned companies in that industry.
In connection with this opinion, we have reviewed the Agreement and certain
publicly available financial information concerning REN. We have reviewed
certain internal financial analyses of REN made available to us by the
management of REN and have held discussions with members of the senior
management of REN regarding the business and prospects of REN. In addition, we
have (i) reviewed the reported price and trading activity for the Common Stock
of REN, (ii) compared certain financial and stock market information for REN
with similar information for certain other companies whose securities are
publicly traded, (iii) reviewed the financial terms of certain recent business
combinations, and (iv) performed such other studies and analyses and took into
account such other matters as we deemed necessary.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by us for purposes of this
opinion. With respect to the financial projections used in our analyses, we have
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the REN senior management as to
the likely future performance of REN. In addition, we have not made an
independent valuation or appraisal of the assets of REN, nor have we been
furnished with any such valuation or appraisal. We have relied, with your
permission, on the statement made by Parent that Parent would not consent to the
sale of REN and we were not requested or authorized to solicit, and did not
solicit, interest from any party with respect to the acquisition of the Common
Stock, REN or any of its constituent businesses. Our opinion is based on market,
economic, financial and other conditions as they exist and can be evaluated as
of the date of this letter.
IV-1
It is understood that this letter is for the benefit and use of the Special
Committee of the Board of Directors of REN only and may not be used for any
other purpose without our prior written consent, provided, however, that we
hereby consent to the inclusion of this opinion in any offer to purchase,
Schedule 14D-9, Schedule 13E-3 or proxy statement used in conjunction with the
Offer or the Merger.
Based on the analysis described above and subject to the foregoing
limitations and qualifications, it is our opinion that the cash consideration to
be received by the stockholders of REN other than Gambro, Parent, Purchaser and
their affiliates pursuant to the Agreement is fair from a financial point of
view to such stockholders as of the date of delivery of this letter.
Very truly yours,
ALEX. BROWN & SONS INCORPORATED
IV-2
Facsimiles of the Letter of Transmittal will be accepted. The Letter of
Transmittal and certificates evidencing Shares and any other required documents
should be sent or delivered by each stockholder or his broker, dealer,
commercial bank, trust company or other nominee to the Depositary at one of its
addresses set forth below.
The Depositary for the Offer is:
BANK OF NEW YORK
By Mail: By Facsimile Transmission: By Hand or Overnight Courier:
Tender & Exchange (212) 815-6213 Tender & Exchange
Department Department
P.O. Box 11248 Confirm by Telephone: 101 Barclay Street
Church Street Station (800) 507-9357 Receive and Deliver Window
New York, NY 10286-1248 New York, NY 10286
Questions or requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective addresses and telephone numbers
listed below. Additional copies of this Offer to Purchase, the Letter of
Transmittal and the Notice of Guaranteed Delivery may be obtained from the
Information Agent. A stockholder may also contact brokers, dealers, commercial
banks or trust companies for assistance concerning the Offer.
The Information Agent for the Offer is:
[LOGO]
Toll Free: 1-800-223-2064
United States: Europe:
Wall Street Plaza Georgeson and Company
New York, New York 10005 10th Floor
Banks and Brokers call collect Moor House
(212) 440-9800 119 London Wall
London EC2Y 5ET
Telephone 171-454-7100
or Call Collect:
The Dealer Manager for the Offer is:
UBS SECURITIES INC.
299 Park Avenue, 35th Floor
New York, New York 10171-0026
(212) 821-4000 (Collect)