<PAGE>
As filed with the Securities and Exchange Commission on October 8, 1999
Registration No. 333-69227
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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TOTAL RENAL CARE HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 51-0354549
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
</TABLE>
Suite 800
21250 Hawthorne Boulevard
Torrance, California 90503-5517
(310) 792-2600
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
Barry C. Cosgrove
Senior Vice President, Secretary and General Counsel
Total Renal Care Holdings, Inc.
Suite 800
21250 Hawthorne Boulevard
Torrance, California 90503-5517
(310) 792-2600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
CYNTHIA M. DUNNETT
RONN S. DAVIDS
Riordan & McKinzie
29th Floor
300 South Grand Avenue
Los Angeles, California 90071
(213) 629-4824
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Approximate date of commencement of proposed sale to the public: From time
to time after this registration statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities being offered only in connection with dividend or
interest reinvestment plans, please check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said section
8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+We will amend and complete the information in this prospectus. This +
+prospectus is not an offer to sell these securities or our solicitation of +
+your offer to buy these securities, nor will we sell them or accept your +
+offer to buy them, in any state or other jurisdiction where that would not be +
+permitted or legal prior to registration or qualification in that state or +
+other jurisdiction. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION--October 8, 1999
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Prospectus
, 1999
[Logo of Total Renal Care Holdings, Inc.]
Total Renal Care Holdings, Inc.
$345,000,000 Principal Amount
7% Convertible Subordinated Notes due 2009
10,515,087 Shares of Common Stock
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. Maturity
The notes are due on May 15, 2009.
. Conversion
You may convert the notes into shares of our common stock at any time, in
whole or in part, at $32.81 per share, subject to adjustment.
. Redemption
We may redeem the notes on or after November 15, 2001.
. Mandatory offer to repurchase
If we sell all or substantially all of our assets or experience specific
kinds of changes in control, we must offer to repurchase the notes.
. Ranking
The notes are general, unsecured obligations, junior to all of our existing
and future senior debt and, effectively, all existing and future liabilities
of our subsidiaries.
. Interest
Interest on the notes is payable on May 15 and November 15 of each year at
the rate of 7% per year, commencing on May 15, 1999.
. Markets for our securities
The notes trade on the PORTAL market. The common stock trades on the New York
Stock Exchange under the symbol "TRL." On , 1999, the last reported
sales price for the common stock was $ per share.
. Selling securityholders
The selling securityholders listed on page 9 are offering the notes and
common stock for resale.
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This investment involves risk. See "Risk Factors" beginning on page 1.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
----
<S> <C>
Our Business............................................................... i
Risk Factors............................................................... 1
Use of Proceeds............................................................ 8
Ratio of Earnings to Fixed Charges......................................... 8
Selling Securityholders.................................................... 9
Description of Notes....................................................... 13
Description of Capital Stock............................................... 25
Description of Debt........................................................ 27
U.S. Federal Tax Considerations............................................ 30
Plan of Distribution....................................................... 36
Disclosure Regarding Forward-Looking Statements............................ 37
Market Data................................................................ 37
Incorporation by Reference................................................. 37
Legal Matters.............................................................. 37
Experts.................................................................... 38
Where to Learn About Us.................................................... 38
</TABLE>
OUR BUSINESS
We are the largest worldwide independent provider of integrated dialysis
services for patients suffering from chronic kidney failure, also known as end
stage renal disease, or ESRD. We provide dialysis and ancillary services to our
patients through a network of outpatient dialysis facilities. In addition, we
provide inpatient dialysis services at hospitals. We also offer ancillary
services including ESRD laboratory and pharmacy services, physician network
development and management, pre- and post-transplant services, ESRD clinical
research programs, and vascular access management, which is the care of the
entry site to a patient's bloodstream.
Our principal executive offices are located at Suite 800, 21250 Hawthorne
Boulevard, Torrance, California 90503-5517 and our telephone number is (310)
792-2600.
i
<PAGE>
RISK FACTORS
In addition to the other information set forth in this prospectus, you should
carefully consider the following factors.
If we become insolvent, we may not have sufficient assets to pay our debt to
you.
If we become insolvent, file for bankruptcy, reorganize our business or close
it down, we will have to repay all of the debt senior to the notes before we
can pay the amounts we owe to you. If we default on payments due on any of our
debt, or if our debt under the notes is accelerated because we have violated a
covenant in the indenture governing the notes, we must repay all of our senior
debt before we repay you. If any of these things happen, our assets may not be
sufficient to repay all of the debt we owe to you.
The notes are unsecured obligations, junior to all of our existing and future
senior debt, including our credit facilities, and, effectively, all existing
and future liabilities, including trade payables, of our subsidiaries. As of
June 30, 1999, the notes were subordinate to approximately $956.2 million of
senior debt, primarily our credit facilities. We had an aggregate of $1.63
billion of liabilities as of June 30, 1999, $158.4 million of which is debt of
our subsidiaries.
The indenture governing the notes does not prevent us or our subsidiaries
from incurring substantial additional debt in the future, including debt senior
to the notes. As of June 30, 1999, our borrowing availability under our credit
facilities was approximately $116.5 million. If new debt is added to our
current debt levels, the risks described above could intensify. For more
details, see the "Description of Debt" section and the heading "How the notes
rank in comparison to our other debt" in the "Description of Notes" section.
We may not have sufficient cash flow from our business to pay the notes.
The amount of our outstanding debt is large compared to the net book value of
our assets, and we have substantial repayment obligations under our outstanding
debt. As of June 30, 1999 we had:
. Total consolidated debt of approximately $1.4 billion;
. Stockholders' equity of approximately $479 million; and
. A ratio of earnings to fixed charges of 1.04.
The following chart shows our aggregate interest and principal payments due
on all of our currently outstanding debt for each of the next five fiscal
years. Under interest swap agreements covering $700 million of debt, the
interest rate under our credit facilities varies based on the amount of debt we
incur relative to our assets and equity. Accordingly, the amount of these
interest payments could fluctuate in the future.
<TABLE>
<CAPTION>
Interest Payments Principal Payments
----------------- ------------------
<S> <C> <C>
For the year ending December 31:
1999 $110,023,000 $ 19,561,000
2000 108,927,000 10,534,000
2001 100,860,000 94,580,000
2002 87,782,000 153,567,000
2003 72,391,000 300,059,000
</TABLE>
Due to the large amount of these principal and interest payments, we may not
have enough cash to pay the interest on the notes as it becomes due.
1
<PAGE>
. If our subsidiaries could not make payments to us, we could not make
payments on the notes.
TRCH is a holding company, and our only material assets are the stock of our
subsidiaries. Our subsidiaries conduct all of our operations and own almost all
of our assets. Consequently, our operating cash flow and our ability to repay
our debt, including the notes, depends upon the operating cash flow of our
subsidiaries and their payment of funds to us. In addition, the ability of our
subsidiaries to make payments to us depends on applicable law and restrictions
under our credit facilities and other present or future contracts of our
subsidiaries. These contracts may include requirements to maintain minimum
levels of working capital and other assets. The notes do not limit the ability
of our subsidiaries to agree to these contractual restrictions in the future.
The large amount and terms of our outstanding debt may prevent us from taking
actions we would otherwise consider in our best interest.
Our credit facilities contain numerous financial and operating covenants that
limit our ability, and the ability of most of our subsidiaries, to engage in
activities such as incurring additional senior debt and disposing of our
assets. These covenants require that we meet interest coverage, net worth and
leverage tests.
Additionally, we are highly leveraged and, if we are not in compliance with
our covenants, we may be required to renegotiate the terms of our credit
facilities on terms that are more unfavorable including: higher interest rates,
shorter maturities or more restrictive borrowing terms; all of which may have
an adverse impact on net income. Currently, as a result of the waivers granted
by our lenders, we are in compliance with our credit facility covenants.
Our level of debt and the limitations our credit facilities impose on us
could have other important consequences to you, including:
. We will have to use a portion of our cash flow from operations,
approximately $129.6 million in 1999 and $119.5 million in 2000, for debt
service rather than for our operations;
. We may not be able to obtain additional debt financing for future working
capital, capital expenditures, acquisitions or other corporate purposes;
. We could be less able to take advantage of significant business
opportunities, including acquisitions, and react to changes in market or
industry conditions.
For additional information regarding our credit facilities, see the
"Description of Debt" section.
If a change of control occurs, we may not have sufficient funds to repurchase
your notes.
Upon a change of control, generally the sale or transfer of a majority of our
voting stock or almost all of our assets, you may require us to repurchase all
or a portion of your notes. If a change of control occurs, we may not be able
to pay the repurchase price for all of the notes submitted for repurchase. In
addition, the terms of our credit facilities generally prohibit us from
purchasing any notes until we have repaid all debt outstanding under these
credit facilities. Future credit agreements or other agreements relating to
debt may contain similar provisions. We may not be able to secure the consent
of our lenders to repurchase the notes or refinance the borrowings that
prohibit us from repurchasing the notes. If we do not obtain a consent or repay
the borrowings, we could not repurchase the notes.
For more details, see the heading "You may require us to repurchase your
notes if we go through a change of control" in the "Description of Notes"
section.
If we default on any of our outstanding debt, this will result in automatic
defaults under our credit facilities, making it more difficult to repay our
obligations to you.
A default under the indenture governing the notes is an event of default
under our credit facilities. This further default could result in all or part
of the debt outstanding under our credit facilities, which is senior to the
notes, becoming immediately payable in full. Similarly, if we default in the
payment of any other obligation of more than $10 million, this would also be a
default under the indenture. This default under the indenture would permit the
holders of at least 25% in aggregate principal amount of the notes to declare
all of the notes immediately payable in full. Any acceleration of our
obligations as a result of these cross-default provisions would make it more
difficult for us to repay the notes. We would have to pay any senior debt that
has become
2
<PAGE>
payable in full before paying you. We might not have sufficient assets to
satisfy all of these obligations. For more details, see the heading "Events of
default and remedies" in the "Description of Notes" section and the heading
"Credit facilities" in the "Description of Debt" section.
A public market for the notes is unlikely to develop, which may restrict your
ability to sell the notes at the price you expect, or at all.
There is currently no public market for the notes. An active public market
will likely never develop for the notes because the notes are not investment
grade and we will not apply to list the notes on any exchange or Nasdaq. As a
result, you may be required to bear the financial risk of your investment in
the notes for an indefinite period of time.
If we fail to build adequate internal systems and controls then our revenue and
net income may be adversely affected.
We have experienced rapid growth in the last five years, and especially in
1998, as a result of our business strategy to acquire, develop and manage a
large number of dialysis centers. We also intend to continue to acquire,
develop and manage additional dialysis centers, both in the U.S. and
internationally. This historical growth and business strategy subjects us to
the following risks:
. Our billing and collection structures, systems and personnel may prove
inadequate to collect all amounts owed to us for services we have
rendered, resulting in a lack of sufficient cash flow;
. We may require additional management, administrative and clinical
personnel to manage and support our expanded operations, and we may not
be able to attract and retain sufficient personnel;
. Our assessment of the requirements of our growth on our information
systems may prove inaccurate, and we may have to spend substantial
amounts to enhance or replace our information systems;
. Our expanded operations may require cash expenditures in excess of the
cash available to us after paying our debt service obligations;
. We may inaccurately assess the historical and projected results of
operations of acquisition candidates, which may cause us to overpay for
acquisitions;
. We may inaccurately assess the historical and projected results of
operations of existing and recently acquired facilities, which may cause
us not to achieve the results of operations expected for these
facilities; and
. We may not be able to integrate acquired facilities as quickly or
smoothly as we expect, which may cause us not to achieve the results of
operations expected for these acquired facilities.
These risks are enhanced when we acquire entire regional networks or other
national dialysis providers, such as Renal Treatment Centers, Inc., or RTC, or
enter into multi-facility management agreements.
Future declines, or the lack of an increase, in Medicare reimbursement rates
could substantially decrease our net income.
We are reimbursed for dialysis services primarily at fixed rates established
in advance under the Medicare ESRD program. Unlike many other Medicare
programs, which receive periodic cost of living increases, these rates have not
increased since 1991. Increases in operating costs that are subject to
inflation, such as labor and supply costs, have occurred and continue to occur
without a compensating increase in reimbursement rates. In addition, if
Medicare should begin to include in its composite reimbursement rate any
ancillary services that it currently reimburses separately, our revenue would
decrease to the extent there was not a corresponding increase in that composite
rate. We cannot predict whether future rate changes will be made. Approximately
50% of our net operating revenues in the first six months of 1999 was generated
from patients who had Medicare as the primary payor.
3
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The Department of Health and Human Services, or HHS, has recommended, and the
Clinton administration has included in its fiscal year 2000 budget proposal to
the Congress, a 10% reduction in Medicare reimbursement for erythropoietin, or
EPO. We cannot predict whether this proposal or other future rate or
reimbursement method changes will be made. Approximately 14% of our net
operating revenues in the first six months of 1999 was generated from EPO
reimbursement through Medicare and Medicaid programs. Consequently, any
reduction in the rate of EPO reimbursement through Medicare and Medicaid
programs could materially reduce our revenues and net income.
Medicare separately reimburses us for other outpatient prescription drugs
that we administer to dialysis patients at the rate of 95% of the average
wholesale price of each drug. The Clinton administration has also included in
its fiscal year 2000 budget proposal to the Congress a reduction in the
reimbursement rate for outpatient prescription drugs to 83% of average
wholesale price. We cannot predict whether Congress will approve this rate
change, or whether other reductions in reimbursement rates for outpatient
prescription drugs will be made. If such changes are implemented, they could
have a material adverse effect on our revenues and net income.
Many Medicaid programs base their reimbursement rates for the services we
provide on the Medicare reimbursement rates. Any reductions in the Medicare
rates could also result in reductions in the Medicaid reimbursement rates.
Approximately 5% of our net operating revenues in the first six months of 1999
was generated from patients who had Medicaid or comparable state programs as
the primary payor.
If Medicare changes its ESRD program to a capitated reimbursement system, our
revenues and profits could be materially reduced.
The Health Care Financing Administration, or HCFA, has initiated a pilot
demonstration project, expected to end in 2001, to test the feasibility of
allowing managed care plans to participate in the Medicare ESRD program on a
capitated basis. Under a capitated plan we or managed care plans would receive
a fixed periodic payment for servicing all of our Medicare-eligible ESRD
patients regardless of certain fluctuations in the number of services provided
in that period or the number of patients treated. Under the current
demonstration project, Medicare is paying managed care plans a capitated rate
equal to 95% of Medicare's current average cost of treating dialysis patients.
If HCFA considers this pilot program successful, HCFA or Congress could lower
the average Medicare reimbursement for dialysis.
If we charge private payors at rates less than our current rates, then our
revenues and net income could be substantially reduced.
Approximately 35% of our net operating revenues in the first six months of
1999 was generated from patients who had domestic private payors as the primary
payor. Domestic private payors, particularly managed care payors, have become
more aggressive in demanding contract rates approaching or at Medicare
reimbursement rates. We believe that the financial pressures on private payors
to decrease the rates at which they reimburse us will continue to increase and
could have a material impact on our revenues and net income.
If our assumptions regarding the beneficial life of our goodwill prove to be
inaccurate, or subsequently change, our current earnings may be overstated and
future earnings also may be affected.
Our balance sheet has an amount designated as "goodwill" that represents 47%
of our assets and 203% of our stockholders' equity at June 30, 1999. Goodwill
arises when an acquiror pays more for a business than the fair value of the
tangible and separately measurable intangible net assets. Generally accepted
accounting
4
<PAGE>
principles require the amortization of goodwill and all other intangible assets
over the period benefited. The current average useful life is 34 years for our
goodwill and 21 years for all of our intangible assets that relate to business
combinations. We have determined that most acquisitions after December 31, 1996
will continue to provide a benefit to us for no less than 40 years after the
acquisition. In making this determination, we have reviewed with our
independent accountants the significant factors that we considered in arriving
at the consideration we paid for, and the expected period of benefit from,
acquired businesses.
We continuously review the appropriateness of the amortization periods we are
using and change them as necessary to reflect current expectations. This
information is also reviewed with our independent accountants. If the factors
we considered, and which give rise to a material portion of our goodwill,
result in an actual beneficial period shorter than our determined useful life,
earnings reported in periods immediately following some acquisitions would be
overstated. In addition, in later years, we would be burdened by a continuing
charge against earnings without the associated benefit to income. Earnings in
later years could also be affected significantly if we subsequently determine
that the remaining balance of goodwill has been impaired.
Interruption in the supply of, or cost increases in, EPO could materially
reduce our net income and affect our ability to care for our patients.
A single manufacturer, Amgen Corporation, produces EPO. In the future, Amgen
may be unwilling or unable to supply us with EPO. Additionally, shortages in
the raw materials or other resources necessary to manufacture EPO, or simply an
arbitrary decision on the part of this sole supplier, may increase the
wholesale price of EPO. Interruptions of the supply of EPO or increases in the
price we pay for EPO could have a material adverse effect on our financial
condition as well as our ability to provide appropriate care to our patients.
If we fail to identify, assess and respond successfully to the unique
attributes of each of our foreign operations, our net income could be adversely
affected.
We only recently commenced operations outside the U.S., and expect to enter
additional foreign markets in the next few years. Our failure to identify,
understand and respond to the unique attributes of any of the foreign markets
that we enter could cause us to:
. Overpay for acquisitions of foreign dialysis centers;
. Fail to integrate foreign acquisitions into our operations successfully;
and
. Assess the performance of our foreign operations incorrectly.
The unique attributes of our foreign operations include:
. Differences in payment and reimbursement rules and procedures, including
unanticipated slowdowns in payments from large payors in Argentina;
. Differences in accepted clinical standards and practices;
. Differences in management styles and practices;
. The unfamiliarity of foreign companies with U.S. financial reporting
standards; and
. Local laws that restrict or limit employee discharges and disciplinary
actions.
If we fail to adhere to all of the complex government regulations that apply to
our business, we could incur substantial fines or be excluded from
participating in government reimbursement programs.
Our dialysis operations are subject to extensive federal, state and local
government regulations in the U.S. and to extensive government regulation in
every foreign country in which we operate. Any of the following could adversely
impact our revenues:
. Loss of required government certifications;
5
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. Loss of authorizations to participate in or exclusion from government
reimbursement programs, such as the Medicare ESRD Program and Medicaid
programs;
. Suspension of payments from government programs;
. Loss of licenses required to operate health care facilities in some of
the states in which we operate; and
. Any challenge to the relationships we have structured in some foreign
countries to comply with barriers to direct foreign ownership of
healthcare businesses.
The regulatory scrutiny of healthcare providers has increased significantly
in recent years. For example, the Office of Inspector General of HHS has
reported that it recovered $1.2 billion in fiscal year 1997 and $480 million in
fiscal year 1998 from health care fraud investigations.
. We may never collect the revenues from the payments suspended as a result
of an investigation of our laboratory subsidiary
Our Florida-based laboratory subsidiary is the subject of a third-party
carrier review relating to claims the laboratory submitted for Medicare
reimbursement. In May 1998, the carrier suspended all further Medicare payments
to this laboratory. Medicare revenues from this laboratory represent
approximately 2% of our net revenues. For the review periods the carrier has
identified, January 1995 to April 1996 and May 1996 to March 1998, the carrier
has alleged that the prescribing physician's medical justification did not
properly support approximately 97% of the tests this laboratory performed. The
carrier has determined that it overpaid this laboratory $5.6 million for the
period from January 1995 to April 1996 and $14.2 million for the period from
May 1996 to March 1998. The suspension of payments relates to all payments due
after the suspension started, regardless of when this laboratory performed the
tests. The carrier had withheld approximately $23 million as of June 30, 1999,
which has adversely affected our cash flow. We may never recover the amounts
withheld.
. Our failure to comply with federal and state fraud and abuse statutes
could result in sanctions
Neither our arrangements with the medical directors of our facilities nor the
minority ownership interests of referring physicians in some of our dialysis
facilities meet all of the requirements of published safe harbors to the anti-
kickback provisions of the Social Security Act and similar state laws. These
laws impose civil and criminal sanctions on anyone who receives or makes
payments for referring a patient for any service reimbursed by Medicare,
Medicaid or similar federal and state programs. Arrangements within published
safe harbors are deemed not to violate these provisions. Enforcement agencies
may subject arrangements that do not fall within a safe harbor to greater
scrutiny. If we are challenged under these statutes, we may have to change our
relationships with our medical directors and with referring physicians holding
minority ownership interests.
The laws of several states in which we do business prohibit a physician from
making referrals for laboratory services to entities with which the physician,
or an immediate family member, has a financial interest. We currently operate a
large number of facilities in these states, which account for a significant
percentage of our business. These state statutes could apply to laboratory
services incidental to dialysis services. If so, we may have to change our
relationships with referring physicians who serve as medical directors of our
facilities or hold minority interests in any of our facilities.
We may experience material unanticipated negative consequences beginning in the
year 2000 due to undetected computer defects.
The Year 2000, or Y2K, issue concerns the potential exposures related to the
automated generation of incorrect information from the use of computer programs
which have been written using two digits, rather than four, to define the
applicable year of business transactions. Due to the overall complexity of the
Y2K issues and the uncertainty surrounding third party responses to Y2K issues,
we cannot assure you that undetected errors or defects in our or third party
systems or our failure to prepare adequately for the results of those errors or
defects will not cause us material unanticipated problems or costs.
6
<PAGE>
The extent and magnitude of the Y2K problem as it will affect us, both
before, and for some period after, January 1, 2000, are difficult to predict or
quantify for a number of reasons. Among the most important are:
. Our lack of control over third party systems that are critical to our
operations, including those of telecommunications and utilities companies
and governmental and non-governmental payors;
. The complexity of testing interconnected internal and external computer
networks, software applications and dialysis equipment; and
. The uncertainty surrounding how others will deal with liability issues
raised by Y2K-related failures.
Moreover, the estimated costs of implementing our plans for fixing Y2K
problems do not take into account the costs, if any, that we might incur as a
result of Y2K-related failures that occur despite our implementation of these
plans.
While we are developing contingency plans to address possible computer
failure scenarios, we recognize that there are "worst case" scenarios which may
occur. We may experience the extended failure of external and internal computer
networks and equipment that control
. Medicare, Medicaid and other third party payors' ability to reimburse us;
. Regional infrastructures, such as power, water and telecommunications
systems;
.Equipment and machines that are essential for the delivery of patient
care; and
. Computer software necessary to support our billing process.
If any one of these events occurs, our cash flow could be materially reduced.
Even in the absence of a failure of these networks and equipment, we will
likely continue to incur costs related to remediation efforts, the replacement
or upgrade of equipment, continued efforts regarding contingency planning,
increased staffing for the periods immediately preceding and after January 1,
2000 and the possible implementation of alternative payment schemes with our
payors.
Provisions in our charter documents may deter a change of control which our
stockholders may otherwise determine to be in their best interests.
Our certificate of incorporation and bylaws and the Delaware General
Corporation Law, or DGCL, include provisions which may deter hostile takeovers,
delay or prevent changes in control or changes in our management, or limit the
ability of our stockholders to approve transactions that they may otherwise
determine to be in their best interests. These provisions may have a negative
impact on your investment in our common stock, should you choose to convert
your notes. These provisions include:
. A provision requiring that our stockholders may take action only at a
duly called annual or special meeting of our stockholders and not by
written consent;
. A provision requiring a stockholder to give at least 60 days' advance
notice of a proposal or director nomination that the stockholder desires
to present at any annual or special meeting of stockholders; and
. A provision granting our board of directors the authority to issue up to
five million shares of preferred stock and to determine the rights and
preferences of the preferred stock without the need for further
stockholder approval. The existence of this "blank-check" preferred stock
could discourage an attempt to obtain control of us by means of a tender
offer, merger, proxy contest or otherwise. Furthermore, this "blank-
check" preferred stock may have other rights, including economic rights,
senior to our common stock. Therefore, issuance of the preferred stock
could have an adverse effect on the market price of our common stock.
We may, in the future, adopt other measures that may have the effect of
delaying, deferring or preventing an unsolicited takeover, even if such a
change in control were at a premium price or favored by a majority of
unaffiliated stockholders. We may adopt certain of these measures without any
further vote or action by our stockholders.
7
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USE OF PROCEEDS
As the notes and any shares of common stock issuable upon conversion of the
notes, sometimes referred to in this prospectus as conversion shares, are
offered by the selling securityholders and not by us, we will not receive any
proceeds from the resale of the notes or any conversion shares.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges is computed by dividing fixed charges
into earnings. Earnings is defined as pretax income from continuing operations
adjusted by adding fixed charges and excluding interest capitalized during the
period. Fixed charges means the total of interest expense and amortization of
financing costs, the estimated interest component of rental expense on
operating leases and preferred stock dividends. In 1995, we changed our fiscal
year end to December 31 from May 31.
The following table sets forth our ratio of earnings to fixed charges for
each of the periods indicated.
<TABLE>
<CAPTION>
Year Seven months
ended May ended Year ended Six months
31, December 31, December 31, ended
--------- ------------- ------------------- June 30,
1994 1995 1994 1995 1995 1996 1997 1998 1999
---- ---- ------ ------ ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to
fixed charges.......... 6.06 2.97 3.17 3.48 3.22 3.96 3.47 1.59 1.04
</TABLE>
8
<PAGE>
SELLING SECURITYHOLDERS
The selling securityholders may, from time to time, offer and sell any or all
of the notes and the conversion shares under this prospectus. All of the notes
and the conversion shares offered pursuant to this prospectus are offered by
the selling securityholders. Any sales of the notes or the conversion shares
will be for the account of the selling securityholders and we will not receive
any of the proceeds from these sales.
The information in the following table is as of October 7, 1999 and assumes
that no selling securityholder beneficially owns any shares of our common stock
other than shares issuable pursuant to the conversion of the notes. In
addition, the information in the table assumes the conversion of all notes
owned by each selling securityholder at the initial conversion price of $32.81
per share. This initial conversion price may be adjusted under certain
circumstances. As a result, the number of shares issuable upon conversion of
the notes may increase or decrease. Under the terms of the indenture governing
the notes, cash will be paid instead of issuing fractional shares upon
conversion. The selling securityholders listed below provided us the
information contained in the following table with respect to themselves and the
respective principal amount of notes that may be sold by each of them under
this prospectus. We have not independently verified this information. For more
details, see the section "Description of Notes."
<TABLE>
<CAPTION>
Principal amount of Shares of common Percentage of
notes owned that Percentage stock that may common stock
Name may be sold of notes be sold outstanding(1)
---- ------------------- ---------- ---------------- --------------
<S> <C> <C> <C> <C>
AAFES Medical Dental &
Life Insurance......... $ 350,000 * 10,667 *
AAFES Ret. Annuity Basic
Plan................... 1,800,000 * 54,861 *
AAFES Supplemental
Deferred Compensation
Plan................... 185,000 * 5,638 *
Alpine Associates....... 6,600,000 1.9% 201,158 *
Alpine Partners, LP..... 450,000 * 13,715 *
Alta Partners Holdings,
LDC.................... 1,500,000 * 45,717 *
Argent Classic
Convertible Arbitrage
Fund (Bermuda) L.P. ... 25,960,000 7.5% 791,222 *
Argent Classic
Convertible Arbitrage
Fund L.P. ............. 21,516,000 6.2% 655,775 *
Argent Convertible
Arbitrage Fund Ltd. ... 2,500,000 * 76,196 *
Aristeia International,
Ltd. .................. 859,000 * 26,181 *
Aristeia Trading, LLC... 641,000 * 19,536 *
Associated Electric &
Gas Insurance Services,
Ltd.................... 300,000 * 9,143 *
Automobile Club of
Southern California.... 150,000 * 4,571 *
Automobile Club Pension
Plan................... 300,000 * 9,143 *
BancBoston Robertson
Stephens............... 3,000,000 * 91,435 *
Bank of America Pension
Plan................... 1,100,000 * 33,526 *
BBT Fund, L.P. ......... 9,500,000 2.8% 289,545 *
Bear, Stearns & Co. .... 900,000 * 27,430 *
BNP Arbitrage SNC....... 7,500,000 2.2% 228,588 *
Brookside Capital
Partners Fund LP....... 5,000,000 1.4% 152,392 *
BT Alex Brown, Inc...... 4,900,000 1.4% 149,344 *
BT Holdings Corp........ 2,000,000 * 60,957 *
Canadian Imperial
Holdings, Inc.......... 1,500,000 * 45,717 *
Century National
Insurance Co. ......... 500,000 * 15,239 *
Chase Vista Growth &
Income Fund............ 10,000,000 2.9% 304,785 *
Classic IC Co. LTD...... 1,500,000 * 45,717 *
Common Fund for
NonProfit
Organizations.......... 1,245,000 * 37,945 *
Conseco Direct Life..... 500,000 * 15,239 *
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Principal amount of Shares of common Percentage of
notes owned that Percentage stock that may common stock
Name may be sold of notes be sold outstanding(1)
---- ------------------- ---------- ---------------- --------------
<S> <C> <C> <C> <C>
Continental Assurance
Co..................... 800,000 * 24,382 *
Continental Casualty
Co..................... 5,200,000 1.5% 158,488 *
CPR (USA) Inc........... 165,000 * 5,028 *
Deeprock & Co........... 2,100,000 * 64,004 *
Deutsche Bank AG........ 34,700,000 10.1% 1,057,604 1.3%
Donaldson, Lufkin &
Jenrette Securities
Corp.(4)............... 12,445,000 3.6% 379,305 *
Double Black Diamond
Offshore, LDC.......... 1,611,000 * 49,100 *
Duckbill & Co........... 850,000 * 25,906 *
Equity Trustees Ltd.
Common Fund No. 8
(Global High Yield).... 400,000 * 12,191 *
Family Service Life
Insurance Co. ......... 500,000 * 15,239 *
Fidelity Advisor Series
I: Fidelity Advisor
Asset Allocation
Fund(2)................ 20,000 * 609 *
Fidelity Advisor Series
II: Fidelity Advisor
Strategic Income Fund.. 960,000 * 29,259 *
Fidelity Advisor Series
II: Fidelity Advisor
High Yield Fund........ 20,740,000 6.0% 632,124 *
Fidelity Charles Street
Trust: Fidelity Asset
Manager(2)............. 8,390,000 2.4% 255,714 *
Fidelity Charles Street
Trust: Fidelity Asset
Manager: Growth(2)..... 4,230,000 1.2% 128,924 *
Fidelity Charles Street
Trust: Fidelity Asset
Manager: Income(2)..... 470,000 * 14,324 *
Fidelity Financial
Trust: Fidelity
Convertible Securities
Fund................... 2,000,000 * 60,957 *
Fidelity Fixed-Income
Trust: Fidelity High
Income Fund(2)......... 13,680,000 4.0% 416,946 *
Fidelity Global Asset
Allocation Fund(2)..... 370,000 * 11,277 *
Fidelity Management
Trust Company on behalf
of accounts managed by
it(3).................. 12,650,000 3.7% 385,553 *
Fidelity School Street
Trust: Fidelity
Strategic Income Fund.. 100,000 * 3,047 *
First Delta Securities,
Inc. .................. 200,000 * 6,095 *
First Mercury Insurance
Co. ................... 30,000 * 914 *
General Motors Employee
Domestic Group Pension
Trust.................. 6,160,000 1.8% 187,747 *
General Motors Welfare
Benefit Trust.......... 850,000 * 25,906 *
GM Pension.............. 2,395,000 * 72,996 *
Goldman Sachs and
Company................ 665,000 * 20,268 *
Guardian Life Insurance
Company of America..... 9,000,000 2.6% 274,306 *
Guardian Master Pension
Trust.................. 500,000 * 15,239 *
Hamilton Partners
Limited LDC............ 5,000,000 1.5% 152,392 *
HBK Cayman LP........... 350,000 * 10,667 *
Highbridge Capital
Corp. ................. 2,500,000 * 76,196 *
Interinsurance Exchange
of the Automobile
Club................... 1,560,000 * 47,546 *
International Paper
Company................ 765,000 * 23,316 *
Iowa Public Employees'
Retirement System...... 3,890,000 1.1% 118,561 *
JMG Convertible
Investments, LP........ 1,750,000 * 53,337 *
LB Series Fund Inc. .... 1,500,000 * 45,717 *
Libertyview Plus Fund... 335,000 * 10,210 *
Lincoln National
Convertible Securities
Fund................... 2,205,000 * 67,205 *
LLT Limited............. 350,000 * 10,667 *
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Principal amount of Shares of common Percentage of
notes owned that Percentage stock that may common stock
Name may be sold of notes be sold outstanding(1)
---- ------------------- ---------- ---------------- --------------
<S> <C> <C> <C> <C>
Lutheran Brotherhood.... 1,800,000 * 54,861 *
McMahan Securities
Company, LP............ 147,000 * 4,480 *
Merrill Lynch P.F.S. ... 4,195,000 1.2% 127,857 *
MFS Series Trust V--MFS
Total Return Fund...... 3,000,000 * 91,435 *
Millennium Trading Co,
LP..................... 500,000 * 15,239 *
Monticello Service
Agency, Inc. .......... 500,000 * 15,239 *
Monumental Life
Insurance Co.
(Teamsters--Camden Non-
enhanced).............. 4,000,000 1.2% 121,914 *
Morgan Stanley Dean
Witter Convertible
Securities Trust....... 3,000,000 * 91,435 *
NationsBanc Montgomery
Securities............. 1,100,000 * 33,526 *
NMS Services, Inc....... 10,000,000 2.9% 304,785
Norinchukin High Yield.. 650,000 * 19,811 *
Northrop Grumman
Corporation Master
Trust.................. 500,000 * 15,239 *
Northwestern Mutual Life
Insurance Company...... 10,000,000 2.9% 304,785 *
OCM High Yield Limited
Partnership............ 7,535,000 2.2% 229,655 *
Orrington International
Fund Ltd............... 1,300,000 * 39,622 *
Orrington Investments
Limited Partnership.... 1,950,000 * 59,433 *
Pacific Gas & Electric
Bargained Veba......... 185,000 * 5,638 *
Pacific Gas & Electric
Company Retirement
Plan................... 2,750,000 * 83,815 *
Pacific Life Insurance
Company................ 1,000,000 * 30,478 *
Palladin Securities
LLC.................... 500,000 * 15,239 *
PIMCO GIS plc High Yield
Bond Fund.............. 300,000 * 9,143 *
PIMCO High Yield Fund... 20,100,000 5.8% 612,618 *
PVIT High Yield Bond
Fund................... 800,000 * 24,382 *
Quattro Global Capital,
LLC.................... 500,000 * 15,239 *
Ramius Fund, Ltd........ 2,000,000 * 60,957 *
Raphael, L.P. .......... 1,000,000 * 30,478 *
Reserve Convertible
Securities Fund........ 500,000 * 15,239 *
Retail Clerks Pension
Trust.................. 1,100,000 * 33,526 *
Sage Capital............ 2,000,000 * 60,957 *
San Francisco City &
County Employee
Retirement System...... 3,710,000 1.1% 113,075 *
South Dakota Retirement
System................. 4,000,000 1.2% 121,914 *
Southport Management
Partners, LP........... 900,000 * 27,430 *
Southport Partners
International, Ltd. ... 1,750,000 * 53,337 *
Texas County & District
Retirement System...... 895,000 * 27,278 *
Tribeca Investments,
LLC.................... 8,000,000 2.3% 243,828 *
Trigon Healthcare
Inc. .................. 500,000 * 15,239 *
Trigon Insurance
Company................ 750,000 * 22,858 *
Triton Capital
Investments, Ltd....... 1,750,000 * 53,337 *
United Methodist
Church................. 1,795,000 * 54,708 *
United Parcel Service... 500,000 * 15,239 *
University of Virginia.. 600,000 * 18,287 *
Variable Insurance
Products Fund II: Asset
Manager: Growth
Portfolio(2)........... 460,000 * 14,020 *
Variable Insurance
Products Fund: High
Income Portfolio(2).... 13,680,000 4.0% 416,946 *
Variable Insurance
Products Fund II: Asset
Manager Portfolio(2)... 2,690,000 * 81,987 *
Walker Art Center....... 295,000 * 8,991 *
Worldwide Transactions,
Ltd. .................. 187,000 * 5,699 *
Xerox Retirement........ 1,890,000 * 57,604 *
</TABLE>
11
<PAGE>
- ---------------------
* Less than 1%.
(1) Based on 81,182,310 shares of our common stock outstanding at August 1,
1999. In accordance with the rules of the Securities and Exchange
Commission, or SEC, the percentage of common stock outstanding owned by
each selling securityholder is computed as follows: (a) the numerator is
the number of shares of common stock held by that selling securityholder
upon conversion of all notes owned by that selling securityholder and (b)
the denominator includes the number of shares of common stock outstanding
and the number of shares of common stock held by that selling
securityholder upon conversion of all notes owned by that selling
securityholder.
(2) The selling securityholder is either an investment company or a portfolio
of an investment company registered under Section 8 of the Investment
Company Act of 1940, as amended, or a private investment account advised by
Fidelity Management & Research Company, or FMR. FMR is an investment
advisor registered under Section 203 of the Investment Advisers Act of
1940, as amended, and provides investment advisory services to the selling
securityholder and to other registered investment companies and to certain
other funds which are generally offered to a limited group of investors.
FMR is a wholly-owned subsidiary of FMR Corp.
(3) The securities owned by the selling securityholder are owned directly by
various private investment accounts, primarily employee benefit plans for
which Fidelity Management Trust Company, or FMTC, serves as trustee or
managing agent. FMTC is a wholly-owned subsidiary of FMR Corp.
(4) Donaldson, Lufkin & Jenrette Securities Corporation and certain of its
affiliates from time to time perform various investment banking and other
services for us, for which we pay customary consideration. Peter T. Grauer,
an affiliate of Donaldson, Lufkin & Jenrette Securities Corporation, serves
on our board of directors.
12
<PAGE>
DESCRIPTION OF NOTES
The notes were issued pursuant to an indenture dated as of November 18, 1998
between TRCH and United States Trust Company of New York, as trustee.
The following description of the terms of the indenture and the related
registration rights agreement is a summary. It summarizes only those portions
of the indenture which we believe will be most important to your decision to
invest in the notes. You should keep in mind, however, that it is the
indenture, and not this summary, which defines your rights as a noteholder.
There may be other provisions in the indenture which are also important to you.
You should read the indenture itself for a full description of the terms of the
notes. We will provide a copy, at no charge, if you contact us. The indenture
is also an exhibit to the registration statement we filed with the SEC. For
details on how you can view or copy the exhibits to our registration statement,
see "Where to Learn About Us" on page 40 of this prospectus.
General description of the notes
The notes:
. Are our general, unsecured obligations;
. Are limited in aggregate principal amount to $345.0 million;
. Are junior in right of payment to all our existing and future senior
debt;
. Are effectively junior to all of the liabilities of our subsidiaries;
. Mature on May 15, 2009;
. Bear interest at the rate of 7% per year, payable twice a year on May 15
and November 15 to record holders of the notes; and
. Accrue interest calculated on the basis of a 360-day year consisting of
twelve 30-day months.
United States Trust Company of New York is the trustee under the indenture.
It will also perform the following services for you on our behalf:
. mail all payments we owe you on the notes
. convert the notes into common stock at your request
. register the transfer or exchange of your notes at your request
The trustee's address is:
United States Trust Company of New York
114 West 47th Street
New York, New York 10036-1532
We may pay interest and damages on the notes by mailing a check to you. You
will not have to pay a service charge for any registration of transfer or
exchange of notes, but we may require you to pay any related tax or other
governmental charge.
The indenture does not contain any financial covenants, or any restrictions
on our ability to:
. Pay dividends;
.Issue or repurchase securities; or
.Incur debt, including senior debt.
The indenture defines our debt broadly to include all liabilities and
obligations:
. Relating to borrowed money;
. Under credit or loan agreements, bonds, notes, debentures, letters of
credit or similar instruments;
. Under bankers' acceptances, bank guarantees or similar instruments issued
or accepted by banks;
13
<PAGE>
. For the payment of money relating to a capitalized lease obligation if
generally accepted accounting principles require us to treat the
obligations as debt;
. Relating to the deferred purchase price of property or services;
. Under interest swap and hedging obligations;
. That we have guaranteed or that are otherwise our legal liability; and
. That are secured by a lien on our property.
The definition of debt in the indenture does not include:
. Trade account payables or accrued liabilities arising in the ordinary
course of our business; and
. Carriers', warehousemens', mechanics', repairmens' or other similar
statutory liens arising in the ordinary course of our business.
"Senior debt" includes any debt that we incur, assume or guarantee, including
our obligations under our credit facilities and certain of our interest swap
and hedging obligations.
Senior debt does not include:
. Debt that expressly provides that it is not senior in right of payment to
the notes or ranks equally or junior to the notes;
. Debt owed to any of our subsidiaries;
. Any trade account payable that we incur in the ordinary course of our
business;
. Any liability for taxes of us or any of our subsidiaries; or
. The notes.
The indenture allows us to incur additional debt and sell or transfer a
majority of our voting stock or almost all of our assets, except as described
below under "You may require us to repurchase your notes if we go through a
change of control."
You may convert your notes into shares of our common stock
You will have the right to convert the notes you hold, in $1,000 increments,
into shares of our common stock at the conversion price of $32.81 per share.
This right will expire on May 15, 2009. The right to convert a note that we
have chosen to repurchase or that you have delivered for repurchase and not
withdrawn will terminate on the day before the repurchase date for that note,
unless we subsequently fail to pay you the repurchase price.
If you convert a note into shares of our common stock after the record date
for an interest payment but on or before the interest payment date, we will pay
the interest to the holder of that note on the record date. To convert a note
during that time period, unless we have chosen to repurchase the note, you must
pay to us an amount equal to the interest we must pay on the note. However,
this payment is not required with respect to interest payable on November 15,
2001. As a result, if you surrender notes for conversion on a date that is not
an interest payment date, you will not receive any interest for the most recent
interest payment period, except for notes that we choose to repurchase on a
date between a record date and the corresponding interest payment date.
We will not issue fractional shares upon conversion of a note. Instead, we
will pay cash for the fractional shares based on the market price of our common
stock at the close of business on the day of conversion.
We will adjust the conversion price if we:
. Declare a dividend in common stock on any class of our capital stock;
14
<PAGE>
. Issue to our stockholders rights, options or warrants to purchase common
stock at less than the then current market price for our common stock;
unless these rights, options or warrants are only exercisable upon
certain triggering events, in which case we will not adjust the
conversion price until the triggering events occur;
. Subdivide, combine or reclassify our outstanding common stock;
. Distribute to our stockholders any debt instruments, shares of capital
stock other than common stock, cash or other assets, excluding
distributions in connection with our liquidation and excluding dividends
and distributions that we pay exclusively in cash and in mergers and
consolidations;
. Distribute cash to all or almost all holders of our common stock that,
combined with:
(1) All other all-cash distributions we have made in the prior 12 months
for which no adjustment has been made; and
(2) The fair market value of consideration paid or payable for any tender
offer by us or any of our subsidiaries for common stock concluded
within the prior 12 months for which no adjustment has been made,
exceeds 15% of the market value of our then-outstanding common stock on
the record date of that distribution; and
. Complete a tender offer for our common stock, or any of our subsidiaries
completes a tender offer for our common stock, if the aggregate
consideration, together with:
(1) Any consideration payable in other similar tender offers expiring
within the 12 months before the expiration of the tender offer for
which no adjustment has been made; and
(2) The aggregate amount of any all-cash distributions to all holders of
our common stock within the 12 months before the expiration of the
tender offer for which we have made no adjustments,
exceeds 15% of the market value of our then-outstanding common stock on
the expiration of the tender offer.
If we distribute to our stockholders any other rights, warrants or options to
purchase securities, we will either adjust the conversion price of the notes
or, when you convert your notes, we will issue you shares of common stock, plus
the appropriate number of those rights, warrants or options. We are not
required to adjust the conversion price until all required adjustments together
amount to one percent or more of the conversion price.
We may reduce the conversion price for a period of at least 20 business days,
if the reduction is permitted by law and our board of directors has determined
that the reduction would be in our best interests. We must give at least 15
days' notice of any reduction to the trustee and to you. We may make other
reductions in the conversion price that our board of directors believes are
appropriate to reduce federal income taxes to holders of our common stock that
result from a dividend or distribution of stock.
If we:
. Reclassify or change our outstanding shares of common stock issuable upon
conversion of the notes;
. Consolidate or merge with another entity, with limited exceptions; or
. Sell or transfer most of our assets,
we will issue to you, when you convert your notes, the kind and amount of
securities, cash and other property from that event that you would have
received had you converted your notes into common stock immediately prior
to that event.
We will use all reasonable efforts to make all registrations with, and to
obtain any approvals from, any governmental authority under any federal or
state law of the United States required of us in connection with the
15
<PAGE>
conversion of the notes. If at any time before November 19, 2000 the
registration statement containing this prospectus is not effective, or cannot
be used, you may not sell or transfer shares received upon conversion of the
notes except in accordance with, or pursuant to an exemption from, the
registration requirements of the Securities Act of 1933.
How the notes rank in comparison to our other debt
If we declare bankruptcy, become insolvent, liquidate, dissolve, reorganize
or institute a similar proceeding, or if our senior debt becomes due, all of
our senior debt will have the right to be paid in full before we can make any
payment to you on the notes. Any borrowings under our credit facilities will be
senior debt. The credit facilities provide for aggregate borrowings of $1.35
billion. In addition, the notes also are effectively second in right of payment
to all existing and future liabilities, including trade payables, of our
subsidiaries. The indenture does not restrict our ability, or the ability of
our subsidiaries, to borrow more money or incur liabilities. It also generally
does not restrict our ability to transfer assets or business operations to our
subsidiaries.
We also cannot make any payment on the notes if:
. We have failed to make any payment due on designated senior debt or
payments due on senior debt at maturity; or
. We have committed another type of default on designated senior debt that
permits the holders of the designated senior debt to require immediate
payment in full of that debt and the trustee receives a notice describing
the default from us or the holders of the designated senior debt.
"Designated senior debt" is:
. Any debt outstanding under any of our credit facilities; and
. Any other senior debt of at least $10 million that we have expressly
designated as "designated senior debt."
The payment of cash, property or securities, other than junior securities,
upon conversion of a note is considered a payment on a note, and will be
subject to these subordination provisions.
"Junior securities" mean our capital stock and any of our debt that:
. We have authorized and issued pursuant to a plan of reorganization where
the authorization states that the securities authorized are junior to all
of our senior debt;
. Is second in right of payment to all of our senior debt to at least the
same extent as the notes are second in right of payment to senior debt;
and
. Contains terms, provisions, covenants and default provisions that do not
benefit you more than the holders of our senior debt.
We will resume payments on the notes as follows:
. In the case of a payment default, on the date on which we are no longer
in default; and
. In case of any other default, the earlier of the date on which we are no
longer in default or 179 days after the date on which we received the
notice of default, unless any designated senior debt has become
immediately payable.
At the end of the 179-day period, we must pay to you all regularly scheduled
payments on the notes that we did not pay during the 179-day period.
No new notice of a default may be delivered until 365 days have elapsed since
the previous notice became effective.
16
<PAGE>
We must promptly notify holders of our senior debt if payment of the notes
becomes due because of an event of default.
If you or the trustee receive any payment or distribution of our assets or
those of any of our subsidiaries, other than junior securities, at a time when
the indenture prohibits that payment or distribution, you or the trustee must
pay or deliver that payment or distribution to the holders of any senior debt
remaining unpaid.
As a result of these provisions, in the event that we liquidate, declare
bankruptcy, reorganize, become insolvent, or institute a similar proceeding,
you may receive a lower percentage of the total amount we owe to you than other
creditors.
We have an option to repurchase the notes
We may repurchase, or redeem, the notes after November 14, 2001 at our
option, in whole or in part, at the following prices, expressed as percentages
of the principal amount. Except as noted under "You may convert your notes into
shares of our common stock" above, we will pay to you accrued and unpaid
interest and damages due on the notes upon repurchase in addition to the
repurchase price.
<TABLE>
<CAPTION>
12-month
period
commencing
November 15, Percentage
------------ ----------
<S> <C>
2001.................... 104.90%
2002.................... 104.20%
2003.................... 103.50%
2004.................... 102.80%
</TABLE>
<TABLE>
<CAPTION>
12-month
period
commencing
November 15, Percentage
------------ ----------
<S> <C>
2005.................... 102.10%
2006.................... 101.40%
2007.................... 100.70%
2008 and thereafter..... 100.00%
</TABLE>
In the case of a partial repurchase, the trustee will select the notes or
portions of notes you own for repurchase based on the amount of notes you own
compared to the total amount of notes outstanding, by lot or in another manner
the trustee deems appropriate and fair. We may repurchase the notes in part
only in $1,000 increments.
We will send, not less than 30 nor more than 60 days in advance, a notice of
any repurchase to the holder of each note we intend to repurchase. The notice
of repurchase, or redemption, must state the repurchase date, the repurchase
price and the amount of accrued interest and damages we will pay. Any notice
that relates to a note we will repurchase only in part must state the portion
of the principal amount we will repurchase and must state that on and after the
repurchase date, upon surrender of the note, we will issue a new note or notes
in principal amount equal to the portion of that note not repurchased. On and
after the repurchase date, interest will cease to accrue on the notes or
portions of notes called for repurchase, unless we default in our repurchase
obligations. The notes do not have the benefit of any sinking fund.
You may require us to repurchase your notes if we go through a change of
control
Upon a change of control we generally must make an irrevocable and
unconditional offer to purchase all notes. The repurchase date generally will
be no later than 45 business days after the change of control. The repurchase
price, which we will pay in cash, will be equal to 100% of the principal amount
of the notes, together with accrued and unpaid interest and damages due. You
may accept the repurchase offer with respect to all or a portion of your notes.
We will make the repurchase offer within 25 business days following a change of
control. The offer will remain open for 20 business days, unless a longer
period is required by law. At the end of the repurchase offer period, we must
purchase all notes tendered in response to the repurchase offer.
17
<PAGE>
A change of control requiring us to make a repurchase offer will occur if:
. Any entity, or group or syndicate of entities, other than us or our
wholly owned subsidiaries, acquires ownership, directly or indirectly, by
any means, of more than 50% of the total voting power of all shares of
our capital stock; or
. We consolidate with, or merge into, any other entity, or another entity
merges into us, or we sell or transfer all or substantially all of our
assets to another entity, unless that merger or sale of assets:
(1) Does not result in a material reclassification, conversion,
exchange, or cancellation of outstanding shares of our capital
stock;
(2) Only changes our jurisdiction of incorporation and results in a
reclassification, conversion, or exchange of our outstanding
shares of common stock only into shares of common stock;
(3) Does not result in our stockholders immediately before the
transaction owning, directly or indirectly, immediately following
the transaction, less than 50% of the combined total voting power
of all shares of capital stock of the entity that is the survivor
in the transaction; or
(4) Does not trigger prepayment rights for lenders under the
provisions of our credit facilities.
Furthermore, a transaction in which at least 90% of the consideration to be
received by the holders of our common stock consists of shares of equity
securities traded on a national securities exchange or quoted on the Nasdaq
National Market, will not trigger a repurchase offer if, as a result of that
transaction, the notes become convertible into those other equity securities.
Whether a sale or transfer of "all or substantially all" of our assets has
occurred will likely depend on facts and circumstances. As a result, there may
be a degree of uncertainty in determining whether a sale or transfer of "all or
substantially all" of our assets has occurred.
If we are required to make a repurchase offer, we will:
. Accept notes or portions of notes properly surrendered for payment;
. Deposit with a paying agent enough cash to pay the repurchase price,
together with accrued and unpaid interest and other amounts due, of all
notes surrendered; and
. Deliver to the trustee the notes accepted, together with an officers'
certificate listing the notes or portions of the notes we are purchasing.
The paying agent promptly will mail to the holders of those notes properly
surrendered, the payment owed. The trustee promptly will authenticate and mail
or deliver to those holders a new note or notes equal in principal amount to
any unpurchased portion of the notes surrendered. We will promptly mail or
deliver to you any notes not accepted in the repurchase offer. We will announce
publicly the results of the repurchase offer on or as soon as practicable after
the repurchase date.
Except as follows, no modification of the indenture limiting your repurchase
right is permissible without your consent. Holders of more than two-thirds of
the outstanding principal amount of the notes may choose, at any time following
a change of control and before the repurchase date, to waive the repurchase
right for all holders of notes. In that event:
. We will not be required to make the repurchase offer;
. To the extent we have already made the repurchase offer, it will be
deemed revoked; and
. To the extent any holders have already surrendered notes, the surrender
will be cancelled and we will promptly return the notes surrendered to
the former holders.
We will comply with the tender offer rules under any securities laws, and
will file any schedule required under those rules, in connection with any offer
we make to repurchase notes at your option.
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Limitation on merger, sale or consolidation
We may not, directly or indirectly, consolidate with or merge with or into,
or sell, lease or otherwise dispose of all or substantially all of our assets
to another entity or group of affiliated entities, other than to our wholly
owned subsidiaries, unless:
. Either:
(1) In the case of a merger or consolidation, we are the surviving
entity; or
(2) The resulting, surviving or transferee entity is a corporation
organized under the laws of any state in the United States or the
District of Columbia and expressly assumes by supplemental indenture
all of our obligations in connection with the notes and the
indenture; and
. No event of default exists immediately before or after the merger or
consolidation.
Upon any consolidation or merger or any transfer of all or substantially all
of our assets, the successor corporation may exercise all of our rights and
powers under the indenture and we will be released from our obligations under
the indenture and the notes, except for obligations that arise from that
transaction.
The transfer by lease, assignment or sale of all or substantially all of the
properties and assets of one or more of our subsidiaries, which properties and
assets, if we held them directly, would constitute all or substantially all of
our properties and assets, will be considered the transfer of all or
substantially all of our properties and assets.
Reports
Whether or not the SEC requires us to file the following documents, we will
deliver to the trustee, within 15 days of the date we are, or otherwise would
be, required to file them:
. Annual and quarterly consolidated financial statements similar to those
required in Forms 10-K and 10-Q, including, with respect to annual
information only, a certified independent public accountants' report and,
in each case, a management's discussion and analysis of financial
condition and results of operations; and
For so long as the notes or conversion shares are not freely tradeable under
federal securities laws, if we cease to be subject to the reporting
requirements of the Exchange Act, we will continue to provide the information
specified by Rule 144A(d)(4) to you.
Events of default and remedies
The indenture defines an "event of default" as:
. Our failure to pay any installment of interest on the notes when due
for 30 days;
. Our failure to pay any part of the principal of, or premium on, the notes
when due;
. Our failure to perform our covenants and agreements regarding any
conversion of notes for 30 days;
. Our failure to observe or perform any other covenant or agreement
contained in the notes or the indenture, subject to certain exceptions,
for a period of 60 days after the trustee gives written notice to us or
the holders of at least 25% in aggregate principal amount of the notes
outstanding give written notice to us and the trustee;
. Events of bankruptcy, insolvency or reorganization in respect of us or
any of our significant subsidiaries;
. Our failure to make any payment at final stated maturity on any debt for
which our liability is not limited to specific assets in an amount
greater than $10 million for 30 days after the trustee gives written
notice to us or the holders of at least 25% in aggregate principal amount
of notes outstanding give written notice to us and the trustee;
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. Any default on any debt for which our liability is not limited to certain
assets resulting in more than $10 million of that debt becoming
immediately due, unless waived or postponed, for 30 days after the
trustee gives written notice to us or the holders of at least 25% in
aggregate principal amount of notes outstanding give written notice to us
and the trustee; and
. A court awards amounts which are not covered by insurance in excess of
$10 million against us or any of our significant subsidiaries, and these
amounts are not stayed, bonded or discharged within 60 days.
"Significant subsidiary" means:
. Any of our subsidiaries that have total assets exceeding 10% of our
consolidated total assets; or
. Any of our subsidiaries for which the net income of that subsidiary and
its subsidiaries, determined on a consolidated basis in accordance with
generally accepted accounting principles, during the four fiscal quarters
most recently ended, exceeded 10% of our consolidated net income during
that period.
If a default occurs and is continuing, the trustee must, within 90 days after
receiving actual notice of the default, give to the holders notice of that
default. The trustee may, however, withhold notice if it in good faith
determines that withholding the notice is in the interest of the holders,
except in the case of a default regarding any payment due on the notes.
If an event of default arises from our bankruptcy, insolvency or
reorganization or that of any of our significant subsidiaries, all amounts due
on all outstanding notes immediately will be due and payable without any act on
the part of the trustee or the holders. If any other event of default occurs
and is continuing then, unless the principal of all of the notes is already due
and payable, either the trustee or the holders of at least 25% in aggregate
principal amount of the notes may declare all principal, premium, accrued
interest and damages on or with respect to the notes due and payable
immediately. The holders of a majority in principal amount of the notes
generally are authorized to rescind this acceleration if we have cured, or the
holders have waived, all existing events of default that caused the
acceleration, unless the acceleration resulted from the non-payment of amounts
due on the notes.
Prior to the acceleration of the maturity of the notes, the holders of a
majority in principal amount of the notes at the time outstanding may waive any
default on behalf of all the holders, except:
. A default regarding any payment due on the notes, which we have not yet
cured; or
. A default with respect to any provision that cannot be modified without
the consent of the holder of each outstanding note affected.
The trustee does not have to exercise any of its rights or powers under the
indenture at your request, order or direction, unless you have offered the
trustee reasonable security or indemnity. The holders of a majority in
aggregate principal amount of the notes outstanding will have the right to:
. Direct the time, method and place of conducting any proceeding for any
remedy available to the trustee; or
. Exercise any trust or power given to the trustee.
You may not directly pursue any remedy under the indenture, except for a
default in any payment due on the notes, unless:
. You give to the trustee written notice of a continuing event of default;
. The holders of at least 25% in principal amount of the outstanding notes
make a written request to the trustee to pursue the remedy;
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. You offer to indemnify the trustee against any loss, liability or
expense;
. The trustee does not comply with the request within 60 days after receipt
of the request and the offer of indemnity; and
. The trustee has not received a contrary direction from the holders of a
majority in principal amount of the outstanding notes.
Amendments and supplements to the indenture
We and the trustee may enter into a supplemental indenture for limited
purposes without your consent. With the consent of the holders of a majority in
principal amount of the outstanding notes, we and the trustee may amend the
indenture or modify or waive your rights. However, no modification may, without
the consent of each holder affected:
. Change the stated maturity or reduce the principal amount of any note;
. Change the rate or extend the time for payment of interest on the notes;
. Change any premium payable upon the repurchase of a note;
. Change the place of payment where, or the currency in which, any note or
any premium or interest is payable;
. Impair the right to bring suit for the conversion of any note or the
enforcement of any payment;
. Reduce the repurchase price that we must pay for the notes;
. Weaken the repurchase offer;
. Reduce the percentage in principal amount of the outstanding notes
required to make any amendment, supplemental indenture or waiver provided
for in the indenture; or
. Weaken your right to convert notes or weaken the protection against
dilution provided to you in the form of adjustments to the conversion
price.
A supplemental indenture entered into in compliance with the covenant
described above under "Limitation on merger, sale or consolidation" would not
require your consent.
No personal liability of stockholders, officers, directors and employees
None of our stockholders, employees, officers or directors or those of any
successor corporation will have any personal liability regarding our
obligations under the indenture or the notes by reason of their status as a
stockholder, employee, officer or director.
Transfer and exchange of the notes
You may transfer or exchange the notes in accordance with the indenture. We
or the trustee may require you, among other things, to furnish appropriate
endorsements, legal opinions and transfer documents, and to pay any taxes and
fees required by law or permitted by the indenture. We are not required to
transfer or exchange any notes selected for repurchase. Also, we are not
required to transfer or exchange any notes for a period of 15 days before the
mailing of a repurchase offer or notice of repurchase.
The registered holder of a note may be treated as the note's owner for all
purposes.
Book entry, delivery and form of the notes
We have deposited one or more global notes, representing all of the notes,
with, or on behalf of, The Depository Trust Company, as the depositary, and
registered the global notes in the name of Cede & Co.
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as the depositary's nominee. Except as set forth below, the global notes may be
transferred, in whole or in part, only to another nominee of the depositary or
to a successor of the depositary or its nominee.
Qualified institutional buyers, or QIBs, may hold their interests in the
global notes:
. directly through the depositary, if those holders are participants in the
depositary; or
. indirectly through organizations which are participants in the
depositary.
The Depositary's rules will govern all transfers between participants.
Transfers will be settled in same-day funds.
The depositary has advised us that it is a limited-purpose trust company
created to hold securities for its participants and to facilitate the clearance
and settlement of transactions in those securities between participants through
electronic book-entry changes in accounts of its participants. The depositary's
participants include securities brokers and dealers, banks and trust companies,
and clearing corporations. Access to the depositary's system is also available
to other entities such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a participant, either
directly or indirectly. QIBs may elect to hold notes purchased by them through
the depositary. QIBs who are not participants may beneficially own securities
held by or on behalf of the depositary only through participants or indirect
participants.
Ownership of the notes represented by the global notes will be shown on, and
transferred through, records maintained by the depositary, the participants and
the indirect participants.
As long as the depositary or its nominee is the registered owner of a note,
the depositary or that nominee will be considered the sole owner or holder of
the notes represented by the global notes for all purposes under the indenture.
Except as provided below, owners of beneficial interests in a global note will
not:
. Be entitled to have notes represented by that global note registered in
their names;
. Receive or be entitled to receive physical delivery of certificates
representing notes; and
. Be considered the owners or holders of the notes under the indenture for
any purpose, including the giving of any directions, instructions or
approvals to the trustee.
The laws of some states require some persons to take physical delivery of
certificates representing securities that they own and that security interests
in negotiable instruments can only be perfected by the delivery of certificates
representing the instruments. As a result, the ability of a person having a
beneficial interest in notes represented by a global note to pledge his or her
interest to persons that do not participate in the depositary's system, or to
otherwise take actions with respect to that interest, may be affected by the
lack of a physical certificate representing that interest.
Neither we nor the trustee have any responsibility or liability for any
aspect of the depositary's records relating to the notes, or payments made on
account of the notes by the depositary, or for maintaining, supervising or
reviewing any records of the depositary relating to the notes.
The trustee will make payments with respect to any note represented by a
global note on the applicable record date to, or at the direction of, the
depositary or its nominee in its capacity as the registered holder of the
global notes. Under the terms of the indenture, we and the trustee may treat
the persons in whose names the global notes are registered as the owners of the
notes for all purposes. Consequently, neither we nor the trustee will have any
responsibility or liability for any direct payment to beneficial owners of the
notes or the crediting of the account of the relevant participants with any
payments. Standing instructions and customary practice govern payments by the
participants and the indirect participants to the beneficial owners of notes.
These payments will be the responsibility of the participants or the indirect
participants.
Holders who desire to convert their notes should contact their brokers or
other participants or indirect participants to obtain information on
procedures, including proper forms and cut-off times, for submitting requests.
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If we notify the trustee in writing that (1) the depositary is no longer
willing or able to act as a depositary and we are unable to locate a qualified
successor within 90 days or (2) we elect to cause the issuance of certificates
representing notes under the indenture, then, upon surrender by the depositary
of the global notes, certificates representing notes will be issued to each
person that the depositary identifies as the beneficial owner of the notes
represented by the global notes. In addition, any person having a beneficial
interest in a global note may, upon request to the trustee, exchange that
beneficial interest for notes in the form of certificates representing notes.
Upon issuance, the trustee is required to register those certificates
representing notes in the name of that person, and cause them to be delivered.
All certificates representing notes shall bear appropriate legends restricting
their transferability.
Neither we nor the trustee will be liable for any delay by the depositary or
any participant or indirect participant in identifying the beneficial owners of
the notes. We and the trustee will also be protected in relying on instructions
from the depositary for all purposes.
Registration rights regarding the notes and the conversion shares
Under the registration rights agreements, we agreed to file with the SEC, on
or prior to February 16, 1999, a shelf registration statement under the
Securities Act of 1933 to cover resales of the notes and shares of common stock
issued upon conversion of the notes, or conversion shares. Accordingly, we have
filed the registration statement containing this prospectus. We will use our
reasonable best efforts to keep the shelf registration statement effective
until the earlier of
. November 18, 2000; or
. The date all notes and conversion shares covered by the shelf
registration statement have been sold or there are no longer any notes
and conversion shares outstanding.
If the shelf registration statement containing this prospectus ceases to be
effective or this prospectus ceases to be usable for more than 90 days during
any 365-day period, damages will accrue in favor of each holder of notes and
conversion shares. During the first 90-day period immediately following the
default, these damages will accrue at a rate of $0.05 per week per $1,000
principal amount of notes or, if applicable, on an equivalent basis per share
for conversion shares held by that holder. The rate of accrual will increase by
an additional $0.05 per week per $1,000 principal amount of notes or, if
applicable, by an equivalent amount per week per share for conversion shares
for each subsequent 90-day period until all defaults have been cured. A maximum
amount of $0.25 per week per $1,000 principal amount of notes or, if
applicable, an equivalent amount per week per share for conversion shares, may
be accrued. These damages are adjusted for stock splits, stock recombinations
and stock dividends. We will pay all accrued damages to the holders of notes or
conversion shares in the same manner as interest payments on the notes.
We may suspend the use of the shelf registration statement covering resales
of notes and conversion shares in some instances, as described in the
registration rights agreement, upon notice to the holders of the notes and
conversion shares. The holders of notes and conversion shares will receive
damages if the aggregate number of days of these suspensions in any 365-day
period exceeds 90 days.
We will provide copies of this prospectus to each holder of notes and
conversion shares included in the shelf registration statement. We will also
notify each holder of the notes when the shelf registration statement has
become effective and take other actions as are required to permit resales of
the notes and conversion shares. If you sell notes and conversion shares
pursuant to the shelf registration statement, you generally must be named as a
selling securityholder in this prospectus. You also must deliver this
prospectus to purchasers, and will be bound by the provisions of the
registration rights agreement.
Governing law
The laws of the State of New York govern the indenture, the notes and the
registration rights agreement.
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The trustee
United States Trust Company of New York is the trustee under the indenture. A
successor trustee may be appointed in accordance with the terms of the
indenture.
The indenture contains limitations on the rights of the trustee, in the event
it becomes our creditor, to obtain payment of claims, or to realize on property
received in respect of any claim. The trustee is permitted to engage in other
transactions with us and our subsidiaries as long as there is no conflict of
interest.
In case an event of default occurs under the indenture and is not cured or
waived, the trustee in the exercise of its powers must use the same degree of
care as a prudent person in the conduct of its own affairs. Subject to these
provisions, the trustee will have no obligation to exercise any of its rights
or powers under the indenture at your request, unless you have offered the
trustee reasonable security or indemnity.
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DESCRIPTION OF CAPITAL STOCK
This summary highlights certain provisions of our certificate of
incorporation and our bylaws.
Our authorized capital stock is 200 million shares, consisting of 195
million shares of common stock and five million shares of preferred stock.
Common stock
As of October , 1999, we had shares of common stock issued and
outstanding. We do not anticipate paying any cash dividends on our common
stock in the foreseeable future and we are subject to certain restrictions on
our ability to pay dividends on the common stock under our credit facilities.
Holders of our common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. There are no
cumulative voting rights applicable to the common stock.
The rights, preferences and privileges of holders of our common stock are
subject to, and may be adversely affected by, the rights of the holders of
shares of any series of preferred stock which we may designate and issue in
the future. Subject to the preferences applicable to shares of preferred stock
outstanding at any time, holders of shares of common stock are entitled to
receive dividends ratably, if, when and as declared by our board of directors,
from funds legally available. These holders are also entitled, in the event of
liquidation, to share ratably in all assets remaining after payment of
liabilities and preferred stock preferences, if any. Holders of common stock
have no preemptive, subscription, redemption or conversion rights and there
are no sinking fund provisions relating to these shares.
The authorized but unissued shares of common stock are available for
issuance by us without further action by our stockholders, unless such action
is required by applicable law or the rules of any stock exchange on which the
common stock may be listed.
The outstanding shares of our common stock are, and the conversion shares
will be, when issued and paid for, fully paid and non-assessable.
Preferred stock
Our certificate of incorporation authorizes our board of directors to
establish series of preferred stock and to determine, with respect to any
series of preferred stock, the voting powers, or no voting powers, and
designations, preferences and relative, participating, optional or other
special rights and qualifications, limitations or restrictions thereof, as are
stated in the resolutions of our board of directors providing for a series.
As of October , 1999, we had no shares of preferred stock issued and
outstanding. The authorized but unissued shares of preferred stock are
available for issuance by us without further action by our stockholders. This
allows us to issue shares of preferred stock without the expense and delay of
a special stockholders' meeting, unless such action is required by applicable
law or the rules of any stock exchange on which our securities may be listed.
We believe that the preferred stock will provide flexibility in structuring
possible future financings and acquisitions, and in meeting other corporate
needs.
Although our board of directors has no intention at the present time of
doing so, it could issue a series of preferred stock, the terms of which,
subject to certain limitations imposed by the securities laws, could impede
the completion of a merger, tender offer or other takeover attempt. Our board
of directors will make any determination to issue such shares based on its
judgment as to our best interests and the best interests of our stockholders
at the time of issuance. Our board of directors, in so acting, could issue
preferred stock having terms that could discourage an acquisition attempt or
other transaction that some, or a majority, of the stockholders might believe
to be in their best interests or in which stockholders might receive a premium
for their stock over the then market price of that stock.
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Certain charter and bylaw provisions
Pursuant to the provisions of the DGCL, we have adopted provisions in our
certificate of incorporation and bylaws which require us to indemnify our
officers and directors to the fullest extent permitted by law, and eliminate
the personal liability of our directors to us or our stockholders for monetary
damages for breach of their duty of due care except for;
. Any breach of the duty of loyalty;
. Acts or omissions not in good faith or which involve intentional
misconduct or knowing violations of law;
. Liability under Section 174 of the DGCL (relating to certain unlawful
dividends, stock repurchases or stock redemptions); or
. Any transaction from which the director derived any improper personal
benefit.
These provisions do not eliminate a director's duty of care. Moreover, these
provisions do not apply to claims against a director for violation of certain
laws, including federal securities laws. We believe that these provisions will
assist us in attracting or retaining qualified individuals to serve as
directors and officers.
Our certificate of incorporation includes a provision which allows our board
of directors to issue up to five million shares of preferred stock with voting,
liquidation and conversion rights that could be superior to and adversely
affect the voting power of holders of our common stock. We have no present
plans to issue any shares of preferred stock.
Delaware anti-takeover law
We are a Delaware corporation that is subject to Section 203 of the DGCL.
Under Section 203 certain "business combinations" between a Delaware
corporation, whose stock generally is publicly traded or held of record by more
than 2,000 stockholders, and an "interested stockholder" are prohibited for a
three-year period following the date that stockholder became an interested
stockholder, unless:
. The corporation has elected in its certificate of incorporation not to be
governed by Section 203 (we have not made this election);
. The business combination was approved by the board of directors of the
corporation before the other party to the business combination became an
interested stockholder;
. Upon consummation of the transaction that made it an interested
stockholder, the interested stockholder owned at least 85% of the voting
stock of the corporation outstanding at the commencement of the
transaction (excluding voting stock owned by directors who are also
officers or held in employee benefit plans in which the employees do not
have a confidential right to tender or vote stock held by the plan); or
. The business combination is approved by the board of directors of the
corporation and ratified by two-thirds of the voting stock which the
interested stockholder did not own.
The three-year prohibition also does not apply to business combinations
proposed by an interested stockholder following the announcement or
notification of certain extraordinary transactions involving the corporation
and a person who had not been an interested stockholder during the previous
three years or who became an interested stockholder with the approval of a
majority of the corporation's directors. The term "business combination" is
defined generally to include mergers or consolidations between a Delaware
corporation and an interested stockholder, transactions with an interested
stockholder involving the assets or stock of the corporation or its majority-
owned subsidiaries, and transactions which increase an interested stockholder's
percentage ownership of stock. The term "interested stockholder" is defined
generally as those stockholders who become beneficial owners of 15% or more of
a Delaware corporation's voting stock, together with the affiliates or
associates of that stockholder.
Transfer agent
The registrar and transfer agent for our common stock is The Bank of New
York.
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DESCRIPTION OF DEBT
This summary highlights certain provisions of our debt instruments.
Credit facilities
We may borrow an aggregate of $1.35 billion under our credit facilities. Our
credit facilities are with DLJ Capital Funding, Inc., as syndication agent, The
Bank of New York, as administrative agent and various banks, as lenders. The
following is a summary description of the principal terms of our credit
facilities.
Structure
Our credit facilities provide for a ten-year $400 million senior term
facility and a seven-year $950 million revolving senior credit facility. Under
the revolving facility, up to $100 million may be used in connection with
letters of credit, and up to $15 million in short-term funds may be borrowed
the same day that notice is given to the banks under a "swing line" facility.
Security; Guarantees
The obligations under our credit facilities are guaranteed by each of our
existing direct and indirect material subsidiaries and future direct and
indirect material domestic subsidiaries. Our credit facilities and the
guarantees are, subject to certain exceptions, secured by all of the capital
stock, or similar equity interests, of our existing direct and indirect
material subsidiaries and future direct and indirect material domestic
subsidiaries.
Interest rate
In general, borrowings under our credit facilities bear interest at one of
two floating rates selected by us:
. The alternate base rate, defined as the higher of The Bank of New York's
prime rate or the federal funds rate plus 0.5%, plus a margin ranging
from 0% to 1.5% for borrowings under the revolving credit facility and
1.0% to 1.75% for borrowings under the term loan facility; or
. Adjusted LIBOR, defined as the 30-, 60-, 90- or 180-day London Interbank
Offered Rate, adjusted for statutory reserves, plus a margin ranging from
1.25% to 2.75% for borrowings under the revolving credit facility and
2.25% to 3.00% for borrowings under the term loan facility.
The applicable margin used in determining the interest rate is based on our
leverage ratio. Currently, the applicable margin is at the top of the ranges
listed above.
Swing line borrowings bear interest at either a rate negotiated by us and The
Bank of New York, as the swing line lender, at the time of borrowing or, if no
rate is negotiated and agreed upon, the alternate base rate.
Maturity
We are required to repay the amount borrowed under the term facility in
yearly installments of $4 million beginning on September 30, 1998 and
continuing through September 30, 2007. The remaining balance of $360 million is
due when the term facility matures on March 31, 2006. The term facility may be
prepaid at any time upon proper notice, but the redemption price will be 101.5%
of the outstanding balance if prepayment is made on or prior to April 30, 1999
and 100.75% of the outstanding balance if prepayment is made from May 1, 1999
to April 30, 2000. The revolving facility terminates on March 31, 2003.
Fees
We are required to pay the banks which are party to our credit facilities a
commitment fee based on the daily average unused portion of the revolving
facility which accrues from the closing date of our credit facilities. We are
also obligated to pay letter of credit fees on the aggregate stated amount of
outstanding letters of credit.
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Covenants
Our credit facilities contain a number of covenants, in addition to the
financial covenants, that, among other things, restrict our ability and that of
our subsidiaries to:
. Dispose of assets;
. Incur additional debt;
. Prepay other debt, including the notes, subject to certain exceptions, or
amend certain debt instruments, including the indenture;
. Pay dividends;
. Create liens on assets;
. Amend our certificate of incorporation or bylaws;
. Make investments, loans or advances;
. Make acquisitions;
. Engage in mergers or consolidations;
. Change the business conducted by us or our subsidiaries;
. Make capital expenditures or engage in transactions with affiliates; and
. Otherwise restrict certain corporate activities.
In addition, our credit facilities contain financial covenants that require
us to maintain, on a consolidated basis, specified financial tests including a
minimum interest coverage ratio, a minimum net worth test, a minimum cash flow
ratio and a maximum leverage ratio.
The lenders under our credit facilities have waived compliance with a
financial covenant that requires us to maintain a specified leverage ratio.
This waiver expires March 15, 2000. The lenders also have waived our violation
of a covenant that placed a limit on our aggregate borrowings for international
acquisitions, which we had exceeded. The terms of the waiver:
. Reduce our permitted borrowings under the revolving credit facility from
$950 million to $650 million during the waiver period;
. Commencing after July 1, 1999, limit the amount of additional borrowings
that we may use for acquisitions, de novo developments and expansion or
relocation of existing dialysis centers;
. Accelerated the maturity dates on the term loan and revolving credit
facilities by two years, to March 31, 2006 and March 31, 2003,
respectively; and
. Increased the applicable margins used to determine the interest rates for
our borrowings under the credit facilities.
Other than the issues specifically addressed in the waiver agreement, all
other covenants and conditions of the credit facilities remain unchanged.
Events of default
Our credit facilities contain customary events of default, including:
. Nonpayment of principal, interest or fees;
. Material inaccuracy of representations and warranties;
. Violation of covenants;
. Cross-defaults to certain other debt;
. Events of bankruptcy and insolvency;
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. Employee Retirement Income Security Act of 1974 matters;
. Material judgments;
. Invalidity of any guaranty or security interest; and
. A change of control of us.
In addition, if we or any of our subsidiaries become ineligible for
participation in, or are suspended from receiving reimbursement under, Medicare
or Medicaid programs resulting in a material decrease in our consolidated net
operating revenues, we will be in default under the credit facilities.
Swap agreements
During the quarter ended June 30, 1998, we entered into forward interest rate
cancelable swap agreements with various financial institutions with a combined
notional amount of $800 million. The lengths of the agreements are between
three and ten years with cancelation clauses at the financial institutions'
option from one to seven years. The underlying blended interest rate is fixed
at approximately 5.65% plus an applicable margin based upon our current
leverage ratio. Currently, the effective interest rate for these swaps is
8.53%. During the second quarter of 1999, we received notification from two of
our swap agreement counterparties that they had exercised their right to cancel
agreements in the aggregate notional amount of $100 million. The remaining $700
million of swap agreements with maturities from the years 2003 through 2008 and
cancellation option dates from the years 2001 through 2005 are still in effect.
5 5/8% convertible notes and related guaranty
We have guaranteed the $125 million outstanding 5 5/8% convertible
subordinated notes due 2006 of Renal Treatment Centers, Inc., our wholly-owned
subsidiary. These notes are convertible into shares of our common stock at an
effective conversion price of $25.62 per share. Although these notes do not
mature until 2006, Renal Treatment Centers, Inc. may repurchase them at its
option subsequent to July 16, 1999. The repurchase price, expressed as a
percentage of the principal amount of the notes, is shown below for 12-month
periods beginning July 15:
<TABLE>
<CAPTION>
Year Percentage Year Percentage
---- ---------- ---- ----------
<S> <C> <C> <C>
1999.................... 103.94% 2003.................... 101.69%
2000.................... 103.38% 2004.................... 101.13%
2001.................... 102.81% 2005.................... 100.56%
2002.................... 102.25% 2006.................... 100.00%
</TABLE>
Our guaranty of these notes ranks equally with trade payables and is junior
to our credit facilities and any future debt we may incur, unless it otherwise
states. The notes offered by this prospectus are effectively junior to these
notes.
29
<PAGE>
U.S. FEDERAL TAX CONSIDERATIONS
The following discussion summarizes the material U.S. federal tax
considerations of the acquisition, ownership, conversion and disposition of the
notes by beneficial owners of the notes and the ownership and disposition of
conversion shares. Riordan & McKinzie, a professional law corporation, counsel
to us, has rendered its opinion to us on these material tax considerations as
set forth in this section. This discussion does not consider all aspects of
U.S. federal income taxation that may be relevant to a prospective investor in
light of that investor's personal circumstances. This discussion does not
address the U.S. federal income tax consequences of ownership of the notes or
conversion shares not held as capital assets within the meaning of Section 1221
of the current U.S. Internal Revenue Code, or the IRC, or the U.S. federal
income tax consequences to investors subject to special treatment under the
U.S. federal income tax laws, such as:
. Dealers in securities or foreign currency;
. Tax-exempt entities, financial institutions, insurance companies;
. Persons that hold the notes or conversion shares as part of a straddle,
hedge, conversion or synthetic security transaction;
. Persons that have a functional currency other than the U.S. dollar; and
. Investors in pass-through entities.
Moreover, the effect of any applicable state, local or foreign tax laws is
not discussed. This discussion is based upon the IRC, existing regulations
under the IRC, and current administrative rulings and judicial decisions. All
of the foregoing is subject to change, possibly on a retroactive basis, and
that could affect the continuing validity of this discussion. We encourage
prospective investors to consult their tax advisors concerning the application
of U.S. federal income tax laws, as well as the laws of any state, local or
foreign taxing jurisdiction, to the acquisition, ownership, conversion and
disposition of the notes and the ownership and disposition of the conversion
shares.
U.S. holders
A "U.S. holder" means a beneficial owner of a note or conversion shares that
is, for U.S. federal income tax purposes:
. A citizen or resident of the United States as defined in Section
7701(b)(1) of the IRC;
. A corporation or other entity taxable as a corporation organized under
the laws of the United States or any of its political subdivisions;
. An estate the income of which is subject to U.S. federal income tax
regardless of its source;
. A trust, with respect to which a court within the U.S. is able to
exercise primary supervision over its administration and one or more U.S.
persons have the authority to control all its substantial decisions; or
. A person whose worldwide income or gain is subject to U.S. federal income
tax on a net income basis.
A "non-U.S. holder" means a holder of a note or conversion shares that is not a
U.S. holder.
Conversion of the notes
In general, no gain or loss will be recognized on a conversion of the notes
into conversion shares except to the extent of cash paid in lieu of a
fractional share of common stock, as discussed below under the heading
"Disposition of notes and conversion shares." The adjusted basis of the
conversion shares received upon conversion will equal the adjusted basis of the
note converted, reduced by the portion of adjusted basis allocated to any
fractional share of common stock exchanged for cash. The holding period of a
U.S. holder in the conversion shares will include the period during which the
converted notes were held.
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<PAGE>
Dividends on conversion shares
The amount of any distribution by us in respect of conversion shares will be
equal to the amount of cash and the fair market value, on the date of
distribution, of any property distributed. Generally, distributions will be
treated as a dividend, subject to tax as ordinary income, to the extent of our
current and accumulated earnings and profits, then as a tax-free return of
capital to the extent of the U.S. holder's adjusted tax basis in the conversion
shares and thereafter as capital gain. Dividends paid to holders that are U.S.
corporations may qualify for the dividends-received deduction.
Adjustment of conversion price
If at any time we make a distribution of property to our stockholders that
would be taxable to those stockholders as a dividend for U.S. federal income
tax purposes and, in accordance with the antidilution provisions of the notes,
the conversion price of the notes is decreased, the amount of that decrease may
be deemed to be the payment of a taxable dividend to holders of the notes. For
example, a decrease in the conversion price in the event of distributions of
our debt or assets generally will result in deemed dividend treatment to
holders of the notes, but generally a decrease in the event of stock dividends
or the distribution of rights to subscribe for our common stock will not. See
the heading "You may convert your notes into shares of our common stock" in the
"Description of Notes" section.
Amortizable bond premium
If a U.S. holder of a note acquires the note at a cost that is in excess of
the amount payable at maturity, after reducing that cost by an amount equal to
the value of the conversion option, the U.S. holder may elect under Section 171
of the IRC to amortize the excess cost, as an offset to interest income, on a
constant interest rate basis over the term of the note. However, because the
notes may be redeemed at our option at a price in excess of their principal
amount, a U.S. holder may be required to amortize any bond premium based on the
earlier call date and the call price payable at that time. If the U.S. holder
makes an election to amortize bond premium, the tax basis of all the U.S.
holder's notes will be reduced by the allowable bond premium amortization. The
amortization election would apply to all debt instruments held or subsequently
acquired by the electing purchaser and cannot be revoked without permission
from the Internal Revenue Service. On conversion of a note into conversion
shares, no additional amortization of any bond premium would be allowed, and
any remaining premium would be added to the U.S. holder's tax basis in the
common stock received.
Market discount
Investors acquiring notes after their original issuance should consider that
the resale of those notes may be adversely affected by the market discount
provisions of Sections 1276 through 1278 of the IRC. Except as described below,
gain recognized on the disposition of a note that has accrued market discount
will be treated as ordinary income, and not capital gain, to the extent of the
accrued market discount. "Market discount" is defined generally as the excess
of the principal amount of the note over the tax basis of the note in the hands
of the U.S. holder immediately after its acquisition.
Under a de minimis exception, there is no market discount if the excess of
the principal amount of the obligation over the U.S. holder's tax basis in the
obligation is less than 0.25% of the principal amount multiplied by the number
of complete years after the acquisition date to the obligation's date of
maturity. Unless the U.S. holder elects to accrue market discount on a constant
yield basis, the accrued market discount generally would be the amount
calculated by multiplying the market discount by a fraction, the numerator of
which is the number of days the obligation has been held by the U.S. holder and
the denominator of which is the number of days after the U.S. holder's
acquisition of the obligation up to and including its maturity date.
If a U.S. holder of a note acquired with market discount disposes of that
note in any transaction other than a sale, exchange or involuntary conversion,
the U.S. holder will be deemed to have realized an amount equal to
31
<PAGE>
the fair market value of the note and will be required to recognize as ordinary
income any accrued market discount. See the discussion below under the
subheading "Disposition of notes and conversion shares" for the tax
consequences of a sale or exchange. A partial principal payment on a note will
be includable as ordinary income upon receipt to the extent of any applicable
accrued market discount on that note. Although it is not free from doubt, any
accrued market discount not previously taken into income prior to a conversion
of a note into conversion shares should carry over to the conversion shares
received on conversion and be treated as ordinary income upon a subsequent
disposition of those conversion shares, to the extent of any gain recognized on
that disposition. Unless the election described below is in effect, a U.S.
holder of a note acquired at a market discount also may be required to defer
the deduction of all or a portion of the interest on any debt incurred or
maintained to purchase or carry the note until the maturity of the note or the
earlier disposition of the note in a taxable transaction.
A U.S. holder of a note acquired at a market discount may elect to include
the market discount in income as it accrues, on either a straight-line basis or
a constant yield basis. This election would apply to all market discount
obligations acquired by the electing U.S. holder on or after the first day of
the first year to which the election applies. The election may be revoked only
with the consent of the Internal Revenue Service. If a U.S. holder of a note
elects to include market discount in income currently, the rules discussed
above regarding ordinary income recognition resulting from a sale and certain
other disposition transactions and deferral of interest deductions would not
apply.
Disposition of notes and conversion shares
Generally, upon the disposition of a note or conversion shares, including
cash received in lieu of a fractional share of common stock, by sale, exchange
or redemption, a U.S. holder will recognize capital gain or loss equal to the
difference between:
. The amount realized on the disposition, other than, in the case of a
disposition of a note, amounts attributable to accrued but unpaid stated
interest not previously included in income; and
. The U.S. holder's adjusted tax basis in the note or conversion shares.
A U.S. holder's adjusted tax basis in a note generally will equal the cost of
the note to that holder, less any principal payments received by that holder
and increased by any market discount previously included in income by that
holder. Special rules may apply to redemptions of common stock which may result
in dividend, rather than sale or exchange, treatment in respect of the proceeds
received pursuant to that redemption. Net capital gain, i.e., capital gain in
excess of capital loss, recognized by an individual upon a disposition of notes
or conversion shares that have been held for more than 12 months generally will
be subject to a maximum tax rate of 20% or, in the case of notes or conversion
shares that have been held for 12 months or less, will be subject to tax at
ordinary income tax rates.
Non-U.S. holders
Interest on the notes, dividends on conversion shares and gain on the sale,
exchange or other disposition of the notes and conversion shares will be
considered "U.S. trade or business income" if that interest, dividend or gain
is:
. Effectively connected with the conduct of a U.S. trade or business; or
. In the case of a treaty resident, attributable to a U.S. permanent
establishment, or to a fixed base, in the U.S.
32
<PAGE>
Stated interest
Generally, interest received by a non-U.S. holder of a note that is not U.S.
trade or business income will not be subject to U.S. federal income or
withholding tax if:
. The non-U.S. holder does not actually or constructively own 10% or more
of the total voting power of all our voting stock and is not a
"controlled foreign corporation" with respect to which we are a "related
person" within the meaning of the IRC; and
. The non-U.S. holder, under penalties of perjury, certifies that the non-
U.S. holder is not a U.S. person and the certificate provides the non-
U.S. holder's name and address.
Interest received on the notes that constitutes U.S. trade or business income
will be subject to tax on a net income basis at regular U.S. federal income tax
rates and, if the non-U.S. holder is a foreign corporation, it may be subject
to a branch profits tax equal to 30%, or a lower rate if specified by an
applicable income tax treaty, of its U.S. effectively connected earnings and
profits that are actually or deemed to have been repatriated. The Treasury
Department has issued final regulations relating to withholding, information
reporting and backup withholding that unify current certification procedures
and forms and clarify reliance standards. These final regulations generally
will be effective with respect to payments made after December 31, 1999. Under
these final regulations, a non-U.S. holder who is claiming the benefits of a
tax treaty or exemption from withholding from U.S. trade or business income may
be required to obtain a U.S. taxpayer identification number and to provide
certain documentary evidence issued by foreign governmental authorities to
prove residence in the foreign country. Moreover, certain special procedures
are provided in these final regulations for payments through qualified
intermediaries.
Conversion of the notes
In general, no U.S. federal income tax or withholding tax will be imposed on
the conversion of the notes into conversion shares by a non-U.S. holder, except
in the case of the receipt of cash in lieu of a fractional share of common
stock as discussed below under the heading "Disposition of notes and conversion
shares." The adjusted basis of the common stock received on conversion will
equal the adjusted basis of the note converted, reduced by the portion of
adjusted basis allocated to any fractional share of common stock exchanged for
cash.
Dividends on conversion shares
Dividends paid, including dividends deemed to have been paid as described
above under the heading "Adjustment of conversion price", to a non-U.S. holder
of conversion shares will be subject to a U.S. withholding tax at a rate of
30%, or a lower rate if specified by an applicable income tax treaty, of the
gross amount of the dividend, unless the dividends constitute U.S. trade or
business income. Currently, for purposes of determining whether tax is to be
withheld at the 30% rate or at a reduced treaty rate, we ordinarily will
presume that dividends paid to an address in a foreign country are paid to a
resident of such country, absent knowledge that such presumption is not
warranted. Under the final regulations for withholding effective for payments
after December 31, 1999, holders will be required to satisfy certain applicable
certification requirements to claim treaty benefits.
Except to the extent otherwise provided under an applicable treaty, dividends
that constitute U.S. trade or business income are subject to U.S. federal
income tax on a net income basis at regular U.S. federal income tax rates, and
are not generally subject to withholding if the holder complies with certain
certification and disclosure requirements. In the case of any dividends
received by a foreign corporation that are effectively connected with the
conduct by such corporation of a U.S. trade or business, such dividends may
also be subject to the 30% branch profits tax as described above under the
heading "Stated interest."
33
<PAGE>
Disposition of notes and conversion shares
Except as described below, and subject to the discussion concerning backup
withholding, any gain realized by a non-U.S. holder on the sale, exchange or
redemption of a note or conversion shares, including cash received in lieu of a
fractional share, generally will not be subject to U.S. federal income or
withholding tax, unless:
. Such gain is U.S. trade or business income; or
. The non-U.S. holder is an individual who holds the notes as a capital
asset, is present in the United States for 183 days or more in the
taxable year of the disposition and meets certain other requirements.
Special rules may apply to redemptions of conversion shares which may result
in dividend, rather than sale or exchange, treatment in respect of the proceeds
received.
Federal estate tax
Notes or conversion shares held, or treated as held, by an individual who is
a non-U.S. holder at the time of his or her death will not be subject to U.S.
federal estate tax, provided that:
. In the case of notes, the individual did not actually or constructively
own 10% or more of the total voting power of all classes of voting stock;
and
. Income on the notes or conversion shares was not U.S. trade or business
income.
Information reporting and backup withholding
We must report annually to the Internal Revenue Service and to each non-U.S.
holder any interest and dividends that are subject to federal withholding tax,
regardless of whether any tax was actually withheld. Copies of these
information returns may also be made available under the provisions of a
specific treaty or agreement to the tax authorities of the country in which the
non-U.S. holder resides.
Backup withholding and information reporting generally will not apply to
payments of principal or interest on the notes and dividends on the conversion
shares to a non-U.S. holder, if the holder certifies as to its non-U.S. status
under penalties of perjury or otherwise establishes an exemption, provided that
neither we nor our paying agent has actual knowledge that the holder is a U.S.
holder or that the conditions of any other exemption are not, in fact,
satisfied.
The payment of the proceeds from the disposition of notes or conversion
shares to or through the U.S. office of any broker, U.S. or foreign, will be
subject to information reporting and possible backup withholding unless the
non-U.S. holder certifies as to its non-U.S. status under penalties of perjury
or otherwise establishes an exemption, provided that the broker does not have
actual knowledge that the holder is a U.S. holder or that the conditions of any
other exemption are not, in fact, satisfied.
The payment of proceeds from the disposition of notes or conversion shares to
or through a non-U.S. office of a broker that is:
. A U.S. person;
. A "controlled foreign corporation" for U.S. federal income tax purposes;
. A foreign person 50% or more of whose gross income from all sources for a
specified three-year period is derived from activities that are
effectively connected with the conduct of a U.S. trade or business; or
. After December 31, 1999, a foreign partnership if either more than 50% of
the income or capital interest of such partnership is owned by U.S.
holders or such partnership has certain connections to the United States,
will be subject to information reporting, unless the broker has documentary
evidence in its files that the non-U.S. holder is a non-U.S. person and the
broker has no actual knowledge to the contrary.
34
<PAGE>
Before January 1, 2000, the payment of the proceeds from the disposition of
notes or conversion shares to or through a non-U.S. office of a broker
generally will not be subject to backup withholding. After December 31, 1999,
such payment will be subject to backup withholding if information reporting is
required. After December 31, 1999, payments through a non-U.S. intermediary
satisfying certain requirements will not be subject to either backup
withholding or information reporting.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from a payment to a non-U.S. holder may be allowed as
a refund or a credit against such non-U.S. holder's U.S. federal income tax
liability, provided the required information is furnished to the Internal
Revenue Service.
35
<PAGE>
PLAN OF DISTRIBUTION
This prospectus relates to the resale of $345 million of notes issued in a
private placement on November 13, 1998 and the resale of 10,515,087 conversion
shares, plus any additional conversion shares that may be issuable pursuant to
the antidilution provisions of the notes. The registration statement, of which
this prospectus is a part, does not cover the issuance of shares of common
stock upon conversion of the notes into the conversion shares.
The selling securityholders may sell or distribute the notes and the
conversion shares directly to purchasers as principals or through one or more
underwriters, brokers, dealers or agents from time to time in one or more
transactions, which may involve crosses or block transactions:
. On any exchange or in the over-the-counter market;
. In transactions otherwise than in the over-the-counter market; or
. Through the writing of options, whether such options are listed on an
options exchange or otherwise, on, or in settlement of short sale of the
notes or the conversion shares.
The selling securityholders may also loan or pledge the notes or the
conversion shares to broker-dealers that in turn may sell such securities.
Any of these transactions may be effected at market prices prevailing at the
time of sale, at prices related to such prevailing market prices, at varying
prices determined at the time of sale or at negotiated or fixed prices, in each
case as determined by the selling securityholder or by agreement between the
selling securityholder and underwriters, brokers, dealers or agents, or
purchasers. If the selling securityholders sell the notes or the conversion
shares to or through underwriters, brokers, dealers or agents, those
underwriters, brokers, dealers or agents may receive compensation in the form
of discounts, concessions or commissions from the selling securityholders or
commissions from purchasers of the notes or the conversion shares for whom they
may act as agent. These discounts, concessions or commissions may be in excess
of those customary in the types of transactions involved. The selling
securityholders and any brokers, dealers or agents that participate in the
distribution of the notes or the conversion shares may be considered
underwriters, and any profit on the sale of the notes or the conversion shares
by them and any discounts, concessions or commissions received by any
underwriters, brokers, dealers or agents may be considered underwriting
discounts and commissions under the Securities Act of 1933.
To the extent required, the aggregate principal amount of notes and number of
conversion shares, the names of the selling securityholders, the purchase
price, the name of any agent, dealer or underwriter and any applicable
commissions, discounts or other terms constituting compensation with respect to
a particular offer will be set forth in an accompanying prospectus supplement.
The aggregate proceeds to the selling securityholders from the sale of the
notes or conversion shares will be the purchase price of such notes or
conversion shares less any discounts and commissions.
Our common stock is listed on the New York Stock Exchange, and the conversion
shares have been authorized for listing on the New York Stock Exchange. There
is no assurance that any trading market will develop for the notes.
In order to comply with the securities laws of certain states, if applicable,
the notes and the conversion shares will be sold in those jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
states the notes and the conversion shares may not be sold unless they have
been registered or qualified for sale or exempted from registration or
qualification.
We will not receive any of the proceeds from the selling securityholders'
sale or distribution of the notes and the conversion shares. We have agreed
with the selling securityholders to indemnify each other against certain
liabilities arising under the Securities Act of 1933. We have agreed to pay all
expenses related to the
36
<PAGE>
selling securityholders' offer and sale of the notes and the conversion shares
to the public, other than selling commissions and fees.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains statements that are forward-looking statements
within the meaning of the federal securities laws. These include statements
about our expectations, beliefs, intentions or strategies for the future, which
we indicate by words or phrases such as "anticipate," "expect," "intend,"
"plan," "will," "believe" and similar language. These statements involve known
and unknown risks, including risks resulting from economic and market
conditions, the regulatory environment in which we operate, competitive
activities and other business conditions, and are subject to uncertainties and
assumptions set forth elsewhere in this prospectus. Our actual results may
differ materially from results anticipated in these forward-looking statements.
We base our forward-looking statements on information currently available to
us, and we assume no obligation to update these statements.
MARKET DATA
Market data used throughout this prospectus, including information relating
to our relative position in the dialysis industry, is based on the good-faith
estimate of our management based upon their review of internal surveys,
independent industry publications and other publicly available information.
Although we believe that these sources are reliable, the accuracy and
completeness of this information is not guaranteed and has not been
independently verified.
INCORPORATION BY REFERENCE
The SEC allows us to "incorporate by reference" into this prospectus the
documents we file with them, which means that we can disclose important
information to you by referring you to these documents. The information that we
incorporate by reference into this prospectus is considered to be part of this
prospectus, and information that we file later with the SEC automatically
updates and supersedes any information in this prospectus. We incorporate by
reference into this prospectus the documents listed below:
. Our annual report on Form 10-K for the year ended December 31, 1998 and
Amendment No. 1 to the annual report on Form 10-K/A;
. Our quarterly report on Form 10-Q for the quarter ended March 31, 1999
and Amendment No. 1 to the quarterly report on Form 10-Q/A;
. Our quarterly report on Form 10-Q for the quarter ended June 30, 1999;
and
. All documents subsequently filed by us pursuant to sections 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934 prior to the
termination of this offering.
We will provide without charge to each person, including any prospective
investor to whom this prospectus has been delivered, upon written or oral
request, a copy of any and all of the documents referred to above that are or
may be incorporated by reference into this prospectus, other than exhibits,
unless these exhibits are specifically incorporated by reference into this
prospectus. Requests should be directed to Total Renal Care Holdings, Inc.,
attention Barry C. Cosgrove, Suite 800, 21250 Hawthorne Boulevard, Torrance,
California 90503-5517, telephone number (310) 792-2600.
LEGAL MATTERS
Barry C. Cosgrove, our General Counsel, has passed upon certain legal matters
with respect to the legality of the notes. Mr. Cosgrove holds stock and options
to purchase stock granted under our employee stock plans that in the aggregate
represent less than 1% of our common stock.
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<PAGE>
EXPERTS
The financial statements for the years ended December 31, 1996, 1997 and 1998
incorporated in this prospectus by reference to our Annual Report on Form 10-K
have been so incorporated in reliance on the report of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
WHERE TO LEARN ABOUT US
We are subject to the informational requirements of the Securities Exchange
Act of 1934, and we file reports, proxy statements and other information with
the SEC. You may inspect and copy these reports, proxy statements and other
information at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549 or on the SEC's Web Site located at http://www.sec.gov.
You may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. You may also inspect these reports, proxy
statements and other information at the office of the New York Stock Exchange,
20 Broad Street, New York, New York 10005.
38
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999
[LOGO OF TOTAL RENAL CARE HOLDINGS, INC.]
Total Renal Care Holdings, Inc.
$345,000,000 Principal Amount
7% Convertible Subordinated Notes due 2009
10,515,087 Shares of Common Stock
-----------------------------------------------
PROSPECTUS
-----------------------------------------------
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor
any sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or our affairs have not
changed since the date hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.*
<TABLE>
<S> <C>
SEC registration fee............................................. $ 95,915
Printing fees.................................................... 175,000
Trustee's and transfer agent's fees.............................. 5,000
Accounting fees and expenses..................................... 600,000
Legal fees and expenses.......................................... 200,000
Miscellaneous.................................................... 10,000
----------
Total............................................................ $1,085,915
==========
</TABLE>
None of the above expenses will be borne by the selling securityholders.
- ---------------------
* Estimated.
Item 15. Indemnification of Directors and Officers.
Section 145 of the DGCL provides that a Delaware corporation may indemnify
any person against expenses, judgments, fines and settlements actually and
reasonably incurred by any such person in connection with a threatened, pending
or completed action, suit or proceeding in which he or she is involved by
reason of the fact that he or she is or was director, officer, employee or
agent of such corporation, provided that (1) such person acted in good faith
and in a manner such person reasonably believed to be in or not opposed to the
best interests of the corporation and (2) with respect to any criminal action
or proceeding, such person had no reasonable cause to believe his or her
conduct was unlawful. If the action or suit is by or in the name of the
corporation, the corporation may indemnify any such person against expense
actually and reasonably incurred by such person in connection with the defense
or settlement of such action or suit if such person acted in good faith and in
a manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification may be made in
respect to any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation, unless and only to the extent that
the Delaware Court of Chancery or the court in which the action or suit is
brought determines upon application that, despite the adjudication of liability
but in view of all of the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expense as the court deems proper.
Article XI, Section I of our bylaws provides for indemnification of our
directors and officers to the fullest extent permitted by the DGCL. In
accordance with the DGCL, our certificate of incorporation limits the personal
liability of our directors for violations of their fiduciary duty. The
certificate of incorporation eliminates each director's liability to us or our
stockholders for monetary damages or breach of fiduciary duty as a director
except:
. For any breach of the director's duty of loyalty to us or our
stockholders;
. For acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. Under the section of the Delaware law providing for liability of
directors for unlawful payment of dividends or unlawful stock purchases
or redemptions; or
. For any transaction from which a director derived any improper personal
benefit.
The effect of this provision is to eliminate the personal liability of
directors for monetary damages for actions involving a breach of their
fiduciary duty of care, including any such actions involving gross negligence.
This provision will not, however, limit in any way the liability of directors
for violations of the federal securities laws. We have entered into
indemnification agreements with each of our directors and officers to indemnify
them to the maximum extent permitted by Delaware law.
II-1
<PAGE>
The registration rights agreement and the purchase agreement executed in
connection with the private placement of the notes and filed as Exhibit 4.4 and
Exhibit 4.5, respectively, hereto provide for the indemnification of our
directors and certain of our officers by the initial purchasers and the selling
securityholders, respectively, against certain liabilities, including
liabilities under the Securities Act of 1933.
Item 16. Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
4.1 Shareholders Agreement, dated August 11, 1994, between DLJ Merchant
Banking Partners, L.P., DLJ International Partners, C.V., DLJ
Offshore Partners, C.V., DLJ Merchant Banking Funding, Inc., NME
Properties Corp., Continental Bank, as voting trustee, and TRCH.+++
4.2 Agreement and Amendment, dated as of June 30, 1995, between DLJMBP,
DLJIP, DLJOP, DLJMBF, DLJ First Esc, LLC, Tenet Healthcare
Corporation, TRCH, Victor M.G. Chaltiel, the Putnam Purchasers, the
Crescent Purchasers and the Harvard Purchasers, relating to the
Shareholders Agreement dated as of August 11, 1994 between DLJMB,
DLJIP, DLJOP, DLJMBF, NME Properties, Continental Bank, as voting
trustee, and TRCH.+++
4.3 Indenture, dated as of November 18, 1998, between TRCH and the trustee
and Form of Note.++
4.4 Registration Rights Agreement, dated as of November 18, 1998, between
TRCH and the initial purchasers of the notes.++
4.5 Purchase Agreement, dated as of November 12, 1998, between TRCH and
the initial purchasers of the notes.++
5.1 Opinion of Barry C. Cosgrove.++
8.1 Opinion of Riordan & McKinzie.++
12.1 Computation of Ratio of Earnings to Fixed Charges.+
23.1 Consent of PricewaterhouseCoopers LLP.+
23.2 Consent of Barry C. Cosgrove (included in Exhibit 5.1).++
23.3 Consent of Riordan & McKinzie (included in Exhibit 8.1).++
24.1 Power of Attorney with respect to TRCH.++
25.1 Statement of Eligibility of Trustee under the Trust Indenture Act of
1939 on Form T-1.++
</TABLE>
- ---------------------
+ Filed herewith.
++ Previously filed as an exhibit to this Registration Statement.
+++ Filed on August 29, 1995 as an exhibit to our Form 10-K for the year ended
May 31, 1995.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or Section 15(d) of the
Exchange Act that are incorporated by reference in the registration statement.
II-2
<PAGE>
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(4) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(5) That for purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, we have duly
caused this Amendment No. 2 to the Registration Statement to be signed on our
behalf by the undersigned, thereunto duly authorized, in the City of Torrance,
State of California, on October 8, 1999.
TOTAL RENAL CARE HOLDINGS, INC.
/s/ George DeHuff
By: _________________________________
George DeHuff
President and Interim
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ George DeHuff President and Interim October 8, 1999
____________________________________ Chief Executive Officer
George DeHuff (Principal Executive
Officer)
/s/ Maris Andersons Director and Chairman, October 8, 1999
____________________________________ Finance Committee of
Maris Andersons the Board of Directors
(Principal Financial
Officer)
/s/ John J. McDonough Vice President and Chief October 8, 1999
____________________________________ Accounting Officer
John J. McDonough (Principal Accounting
Officer)
* Director October 8, 1999
____________________________________
Victor M.G. Chaltiel
* Director October 8, 1999
____________________________________
Peter T. Grauer
* Director October 8, 1999
____________________________________
Regina E. Herzlinger
* Director October 8, 1999
____________________________________
Shaul G. Massry
/s/ Barry C. Cosgrove
*By: _______________________________
Barry C. Cosgrove
Attorney-in-Fact
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
4.1 Shareholders Agreement, dated August 11, 1994, between DLJ Merchant
Banking Partners, L.P., DLJ International Partners, C.V., DLJ
Offshore Partners, C.V., DLJ Merchant Banking Funding, Inc., NME
Properties Corp., Continental Bank, as voting trustee, and TRCH.+++
4.2 Agreement and Amendment, dated as of June 30, 1995, between DLJMBP,
DLJIP, DLJOP, DLJMBF, DLJ First Esc, LLC, Tenet Healthcare
Corporation, TRCH, Victor M.G. Chaltiel, the Putnam Purchasers, the
Crescent Purchasers and the Harvard Purchasers, relating to the
Shareholders Agreement dated as of August 11, 1994 between DLJMB,
DLJIP, DLJOP, DLJMBF, NME Properties, Continental Bank, as voting
trustee, and TRCH.+++
4.3 Indenture, dated as of November 18, 1998, between TRCH and the Trustee
and Form of Note.++
4.4 Registration Rights Agreement, dated as of November 18, 1998, between
TRCH and the initial purchasers of the notes.++
4.5 Purchase Agreement, dated as of November 12, 1998, between TRCH and
the initial purchasers of the notes.++
5.1 Opinion of Barry C. Cosgrove.++
8.1 Opinion of Riordan & McKinzie.++
12.1 Computation of Ratio of Earnings to Fixed Charges.+
23.1 Consent of PricewaterhouseCoopers LLP.+
23.2 Consent of Barry C. Cosgrove (included in Exhibit 5.1).++
23.3 Consent of Riordan & McKinzie (included in Exhibit 8.1).++
24.1 Power of Attorney with respect to TRCH.++
Statement of Eligibility of Trustee under the Trust Indenture Act of
25.1 1939 on Form T-1.++
</TABLE>
- ---------------------
+ Filed herewith.
++ Previously filed as an exhibit to this Registration Statement.
+++ Filed on August 29, 1995 as an exhibit to our Form 10-K for the year ended
May 31, 1995.
<PAGE>
EXHIBIT 12.1
TOTAL RENAL CARE HOLDINGS, INC.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges is computed by dividing fixed charges
into earnings. Earnings is defined as pretax income from continuing operations
adjusted by adding fixed charges and excluding interest capitalized during the
period. Fixed charges means the total of interest expense, amortization of
financing costs and the estimated interest component of rental expense on
operating leases. In 1995, we changed our fiscal year end to December 31 from
May 31.
<TABLE>
<CAPTION>
Seven months
Years ended ended
May 31, December 31, Years ended December 31,
--------------- --------------- --------------------------------- Six months ended
1994 1995 1994 1995 1995 1996 1997 1998 June 30, 1999
------- ------- ------- ------- ------- ------- -------- -------- ----------------
(in thousands, except for ratio data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income before income
taxes, minority
interest, extraordinary
items and cumulative
effect of a charge in
accounting principle .. $18,753 $24,323 $14,174 $26,436 $39,685 $60,945 $99,741 $64,085 $ 7,121
Minority interest....... 1,046 1,593 878 1,784 2,544 3,578 4,502 7,163 4,839
------- ------- ------- ------- ------- ------- -------- -------- -------
17,707 22,730 13,296 24,652 37,141 57,367 95,239 56,922 2,282
------- ------- ------- ------- ------- ------- -------- -------- -------
Fixed Charges:
Interest expense and
amortization of debt
issuance costs and
discounts on all
indebtedness........... 1,575 9,087 4,676 8,007 13,375 14,075 30,289 83,710 47,137
Interest portion of
rental expense......... 1,926 2,475 1,438 1,950 3,347 5,301 8,196 12,992 8,065
------- ------- ------- ------- ------- ------- -------- -------- -------
Total fixed charges..... 3,501 11,562 6,114 9,957 16,722 19,376 38,485 96,702 55,202
------- ------- ------- ------- ------- ------- -------- -------- -------
Earnings before income
taxes, extraordinary
items, cumulative
effect of a change in
accounting principle
and fixed charges...... $21,208 $34,292 $19,410 $34,609 $53,863 $76,743 $133,724 $153,624 $57,484
======= ======= ======= ======= ======= ======= ======== ======== =======
Ratio of earnings to
fixed charges.......... 6.06 2.97 3.17 3.48 3.22 3.96 3.47 1.59 1.04
======= ======= ======= ======= ======= ======= ======== ======== =======
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Amendment No. 3 to Form S-3 of our report dated March 29, 1999
relating to the financial statements, which appears in the Total Renal Care
Holdings, Inc.'s Annual Report on Form 10-K/A (Amendment No. 1) for the year
ended December 31, 1998. We also consent to the incorporation by reference of
our report dated March 29, 1999 relating to the financial statement schedule,
which appears in such Annual Report on Form 10-K/A (Amendment No. 1). We also
consent to the reference to us under the heading "Experts" in such Registration
Statement.
PricewaterhouseCoopers LLP
Seattle, Washington
October 8, 1999
