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As filed with the Securities and Exchange Commission on April 14, 1999
Registration No. 333-69227
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2
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)
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Delaware 51-0354549
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
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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)
JOHN E. KING
Chief Financial Officer
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)
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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. [_]
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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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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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--April 14, 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 April , 1999, the last reported
sales price for the common stock was $ per share.
. Selling securityholders
The notes and common stock are being offered for resale by the selling
securityholders listed on page 11. We will not receive any proceeds from
these resales.
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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
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Page
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Our Business............................................................... i
Risk Factors............................................................... 1
Use of Proceeds............................................................ 10
Ratio of Earnings to Fixed Charges......................................... 10
Selling Securityholders.................................................... 11
Description of Notes....................................................... 15
Description of Capital Stock............................................... 27
Description of Debt........................................................ 29
U.S. Federal Tax Considerations............................................ 32
Plan of Distribution....................................................... 38
Disclosure Regarding Forward-Looking Statements............................ 39
Market Data................................................................ 39
Incorporation by Reference................................................. 39
Legal Matters.............................................................. 39
Experts.................................................................... 40
Where to Learn About Us.................................................... 40
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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.
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RISK FACTORS
In addition to the other information set forth in this prospectus, you should
carefully consider the following factors.
Order of payment--If we become insolvent, we must pay our senior debt and,
effectively, all liabilities of our subsidiaries, before you receive any
payments on the notes. Any remaining money may not be enough to repay all of
our obligations to you.
The notes are general, 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.
This means that 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.
As of December 31, 1998, the notes were subordinate to approximately $777.6
million of senior debt, including our credit facilities. We had an aggregate of
$1,433.8 million of liabilities as of December 31, 1998, $153.1 million of
which is debt of our subsidiaries. Also, the indenture permits us and our
subsidiaries to incur additional senior or other debt or liabilities. For more
details, see the heading "How the notes rank in comparison to our other debt"
in the "Description of Notes" section.
Outstanding debt--The large amount of our total outstanding debt and our
obligation to service that debt could divert funds from operations, limit our
ability to obtain financing for future needs and expose us to interest rate
risks, and covenants in our credit facilities may prevent us from taking
advantage of business opportunities.
We are highly leveraged, which means that the amount of our outstanding debt
is large compared to the net book value of our assets, and have substantial
repayment obligations under our outstanding debt. As of December 31, 1998 we
had:
. Total consolidated debt of approximately $1.25 billion; and
. Stockholders' equity of approximately $481.8 million.
In addition, as of December 31, 1998, our borrowing availability under our
credit facilities was approximately $596.4 million.
Our debt agreements contain numerous financial and operating covenants that
limit our ability, and the ability of most of our subsidiaries, to undertake
certain transactions. These covenants require that we meet certain interest
coverage, net worth and leverage tests. Our debt agreements also permit us and
our subsidiaries to incur or guarantee additional debt, subject to certain
limitations in the case of the credit facilities.
Our level of debt and the limitations imposed on us by our debt agreements
could have other important consequences to you, including the following:
. We will have to use a portion of our cash flow from operations 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;
. The debt under our credit facilities is at a variable interest rate,
making us vulnerable to increases in interest rates; and
. We could be less able to take advantage of significant business
opportunities, including acquisitions, and react to changes in market or
industry conditions.
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Additional borrowings--We and our subsidiaries may incur substantially more
debt. If our future cash flow is not large enough to meet our payment
obligations with regard to both our existing and future borrowings, we could be
forced into bankruptcy.
We and our subsidiaries may be able to incur substantial additional debt in
the future, including debt that is senior to the notes. The indenture governing
the notes does not prohibit us or our subsidiaries from doing so. If new debt
is added to our current debt levels, the related risks that we now face could
intensify. These risks include the possibility that unforeseen changes in the
nature of our competition, the price or availability of erythropoietin, or EPO,
and other supplies, or the reimbursement rates of public or private insurers
may leave us unable to generate enough cash to meet our debt payment
obligations. If that were to happen, we could be forced into bankruptcy and may
not have enough cash to repay our obligations to you after paying our other
creditors. For more details, see the "Description of Notes" and "Description of
Debt" sections.
Holding company structure--As a holding company, we depend upon our
subsidiaries for cash flow. We could not make payments on the notes if our
subsidiaries were prohibited by law or contract from making payments to us.
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 the form of loans, dividends
or likewise. These payments may not be adequate to pay interest and principal
on the notes when due. 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 to which our subsidiaries are
parties. 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.
Each of our subsidiaries is a separate entity. Our right to the assets of any
subsidiary is subject to the prior claims of the creditors, including trade
creditors, of that subsidiary. As a result, the notes are effectively junior to
the claims of those creditors.
Financing change of control offer--We may not have the ability to raise the
funds necessary to repurchase your notes upon a change of control as required
by the indenture.
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 some of our existing debt agreements, including our
credit facilities, generally prohibit us from purchasing any notes until all
debt under these agreements is paid in full. 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 our repurchasing the notes. If we do not obtain a
consent or repay the borrowings, we could not repurchase the notes. Our failure
to repurchase submitted notes would be an event of default under the indenture.
This would, in turn, be a further default under certain of our existing or
future debt agreements, including our credit facilities. This further default
could result in this debt becoming immediately payable in full. We might not
have sufficient assets to satisfy all of our obligations under our credit
facilities and the notes.
For more details, see the heading "Credit facilities" in the "Description of
Debt" section and the heading "You may require us to repurchase your notes if
we go through a change of control" in the "Description of Notes" section.
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Lack of public market--An active public market may never develop for the notes
so you may have to hold the notes until they mature or sell them at a price
lower than the price you originally paid.
There is currently no public market for the notes. An active public market
may never develop for the notes. If a public market were to exist, the notes
might trade at prices higher or lower than their initial offering price. The
trading price would depend on many factors, including interest rates, the
market for similar securities, general economic conditions and our financial
condition, performance and prospects. The notes are not investment-grade debt.
Historically, the market for debt that is not investment grade has been subject
to disruptions that have caused large changes in the prices of these
securities. You may be required to bear the financial risk of an investment in
the notes for an indefinite period of time. We do not intend to apply for
listing or quotation of the notes on any public market.
The investment banking firms that originally purchased the notes have
informed us that they intend to make a market in the notes. However, they are
not obligated to do so, and they may discontinue this market-making activity at
any time without notice. In addition, market-making is subject to limitations
imposed by the Securities Act of 1933 and the Securities Exchange Act of 1934,
and may be limited during the pendency of this shelf registration statement.
For more details, see the sections "Description of Notes" and "Plan of
Distribution."
Dependence on Medicare and Medicaid--Future declines in reimbursement rates
will affect a substantial portion of our revenues.
We are reimbursed for dialysis services primarily at fixed rates established
in advance under the Medicare ESRD program. Reductions in these rates could
materially reduce our net operating revenues and profits because approximately
51% of our net operating revenues in 1998 was funded by Medicare. Since 1983,
Congress has changed the Medicare composite reimbursement rate from a national
average of $138 per treatment in 1983 to a low of $125 per treatment on average
in 1986 and to approximately $126 per treatment on average at present. We
cannot predict whether future rate changes will be made. Also, increases in
operating costs that are subject to inflation, such as labor and supply costs,
may occur without a compensating increase in reimbursement rates.
Approximately 13% of our net operating revenues in 1998 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 net income. From time to time, EPO
reimbursement programs have been, and in the future may be, subject to various
legislative or administrative proposals to reduce the EPO reimbursement rate.
For example, the Department of Health and Human Services, or HHS, and the
Clinton administration have endorsed a 10% reduction in Medicare reimbursement
for EPO. We cannot predict whether future rate or reimbursement method changes
will be made. If such changes are implemented, they could have a material
adverse effect on our business, results of operations or financial condition.
Medicare separately reimburses us for other outpatient prescription drugs
that we administer to dialysis patients at the rate of 95% of the actual
average wholesale price of each drug. The Clinton administration has proposed a
reduction in the reimbursement rate for outpatient prescription drugs to 83% of
actual 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 business, results of
operations or financial condition.
All of the states in which we operate dialysis facilities currently provide
benefits to qualified patients to supplement their Medicare entitlement.
Approximately 4% of our net operating revenues in 1998 was funded by Medicaid
or comparable state programs. The Medicaid programs are subject to statutory
and regulatory changes which may have the effect of decreasing program
payments, increasing costs or modifying the way we operate our dialysis
business.
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Possible changes in Medicare's method of reimbursement--If certain services
that currently are separately reimbursed are included in the Medicare composite
reimbursement rate or Medicare changes its ESRD program to a capitated
reimbursement system, our revenues and profits could be materially reduced.
We cannot predict whether certain services which Medicare currently
reimburses separately may in the future be included in the Medicare composite
rate. If, in the future, Medicare includes in its composite reimbursement rate
any of the ancillary services presently reimbursed separately, we could not
seek separate reimbursement for these services. This would reduce our revenue
to the extent there was not a corresponding increase in the Medicare composite
rate.
The Health Care Financing Administration, or HCFA, already has initiated a
pilot demonstration project 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 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.
Other sources of reimbursement--Restrictions on our ability to charge for
current services at current rates could materially affect our business.
Approximately 45% of our net operating revenues in 1998 was from sources
other than Medicare and Medicaid. These sources include payments from third-
party, non-government payors, at rates that generally exceed the Medicare and
Medicaid rates, payments from hospitals which we contract with to provide
inpatient dialysis treatments and payments from governments and private payors
in overseas markets. Any restriction on our ability to charge for our domestic-
market services at rates in excess of those Medicare pays would adversely
affect our business, results of operations and financial condition. We also
have nonexclusive agreements with certain third-party payors, and the
termination of certain of these agreements could have an adverse effect on our
business, results of operations or financial condition.
Source of EPO--Only one company manufactures EPO. Interruption of supply or
cost increases could materially reduce our net income and affect our ability to
care for our patients.
EPO is produced by a single manufacturer, Amgen Corporation. 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.
Operations subject to government regulation--Our failure to meet current or
future government regulations could cause us to incur sanctions or could
prevent us from participating in certain government programs or operating in
certain geographical areas.
Our dialysis operations are subject to extensive federal, state and local
governmental regulations in the U.S. and to extensive government regulation in
virtually every country in which we operate. U.S. and non-U.S. regulations are
designed to accomplish the same objectives: the provision of quality healthcare
for patients, the maintenance of occupational, health, safety and environmental
standards and the provision of accurate reporting and billing for government
payments and/or reimbursement. Any loss of federal certifications,
authorization to participate in the Medicare or Medicaid programs, or licenses
under the laws of any state or governmental authority in which we generate
substantial revenue would adversely impact our business. Our industry will
continue to be subject to intense governmental regulation at the state and
federal levels, the scope and effect of which are difficult to predict. This
regulation could adversely impact us in a material way. In addition, various
governmental authorities periodically may review or challenge us. This could
have a material adverse effect on our business, results of operations or
financial condition.
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In addition, each foreign country in which we operate has its own payment and
reimbursement rules and procedures. Our failure to understand these
reimbursement systems could cause us to assess the performance of our
operations in other countries incorrectly or cause us to overpay for
acquisitions of dialysis centers. Some countries prohibit foreign interests
from owning healthcare providers, or establish other regulatory barriers to
direct foreign ownership. Failure to comply with these regulations could have a
material adverse effect on our business, results of operations or financial
condition. In addition, foreign regulators may challenge the relationships we
have structured, or may structure in the future, to overcome these regulatory
barriers.
. Our failure to comply with 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 certain of our dialysis
facilities meet all of the requirements of published safe harbors to the
illegal remuneration provisions of the Social Security Act and similar state
laws. These laws impose civil and criminal sanctions on persons who receive or
make payments for referring a patient for treatment that is paid for in whole
or in part by Medicare, Medicaid or similar state programs. Transactions
structured within published safe harbors are deemed not to violate these
provisions. Transactions that do not fall within a relevant safe harbor may be
subject to greater scrutiny by enforcement agencies. If we are challenged under
these statutes, we may have to change our practices or relationships with our
medical directors or with referring physicians holding minority ownership
interests.
California law prohibits a physician from making referrals for laboratory
services to entities with which they, or their immediate family members, have a
financial interest. We currently operate a large number of facilities in
California which account for a significant percentage of our business. It is
possible that the California statute could apply to laboratory services
incidental to dialysis services. If so, we would be required to restructure
some relationships with referring physicians who serve as medical directors of
our facilities and with the physicians who hold minority interests in some of
our facilities. We also provide laboratory services incidental to dialysis
services in many other states which have fraud and abuse statutes regulating
our relationships with physicians.
. Our practices may be subject to challenge under Stark I and Stark II
The Omnibus Budget Reconciliation Act of 1989 includes certain provisions,
known as Stark I, that restrict physicians from making referrals for clinical
laboratory services to entities with which they or their immediate family
members have a "financial relationship." It is unclear whether certain
laboratory services that we provide, which are incidental to dialysis services,
fall within the Stark I prohibition. The Omnibus Budget Reconciliation Act of
1993 includes certain provisions, known as Stark II, that restrict physicians
from making referrals for certain "designated health services" to entities with
which they or their immediate family members have a "financial relationship."
It is unclear whether some of the services which we provide fall within the
Stark II prohibitions.
Violations of Stark I and Stark II are punishable by civil penalties, which
may include exclusion or suspension of the provider from future participation
in Medicare and Medicaid programs and substantial fines. Regulatory authorities
might challenge our practices under these laws.
Reimbursement of transportation costs--ESRD patients may stop using our
services if state programs stop reimbursing their transportation costs.
At present, ESRD patients eligible for the Medicaid programs of certain
states, including California, are reimbursed for their transportation costs
relating to ESRD treatments. If this practice is changed or deemed to violate
applicable federal or state law, our patients may no longer receive this
service. We cannot predict the effect this would have on the desire or ability
of patients to use our services.
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Investigations--We continuously are subject to regulatory scrutiny and payments
of revenues under investigation may be suspended and possibly never collected.
In the ordinary course of business, our operations continuously are subject
to regulatory scrutiny, supervision and control. This regulatory scrutiny often
includes inquiries, investigations, examinations, audits, site visits and
surveys, both routine and non-routine. If we are found to have engaged in
improper practices, regulatory authorities could seek civil, administrative, or
criminal fines, penalties or restitutionary relief, and reimbursement
authorities could also seek our suspension or exclusion from participation in
their programs.
Our Florida-based laboratory subsidiary is the subject of a third-party
carrier review relating to certain claims the laboratory submitted for Medicare
reimbursement. We understand that other providers' laboratory activities in
Florida and elsewhere are the subject of similar reviews. The carrier has
alleged that 99.3% of the tests this laboratory performed for the review period
it initially identified, from January 1995 to April 1996, were not properly
supported by the prescribing physicians' medical justification. The carrier
subsequently requested billing records with respect to the additional period
from May 1996 to March 1998. The carrier has issued a formal overpayment
determination in the amount of $5.6 million and has suspended all payments of
claims related to this laboratory. The carrier has withheld approximately $11
million to date. In addition, the carrier has informed the local offices of the
Department of Justice and HHS of this matter. In February 1999, our Florida-
based laboratory subsidiary filed a complaint against the carrier and HHS
seeking a court order to lift the payment suspension. Any determination adverse
to us in this, or other potential, future investigations, could have an adverse
impact on our business, results of operations or financial condition.
Risks inherent in growth strategy--The acquisition and development of
additional dialysis facilities vital to our business strategy may strain our
existing resources and present integration problems or may never be completed.
Our business strategy depends significantly on our ability to acquire or
develop, and successfully integrate, a large number of additional dialysis
facilities. This strategy subjects us to the risk that:
.Suitable acquisition candidates may not be available;
.We may not be able to consummate future acquisitions on acceptable terms;
.We may not be able to integrate future acquisitions successfully;
.We may be inaccurate in assessing the value, strengths and weaknesses of
acquisition candidates;
.We may be inaccurate in identifying suitable locations to develop
additional facilities;
. Businesses that we acquire may never achieve revenues and profitability
that justify our investment in them; and
.Additional financing may not be available to finance future acquisitions.
Our inability to acquire or develop facilities in a cost-effective manner
could adversely affect our ability to expand our business and enhance our
results of operations and financial condition. In addition, integrating
acquired operations, particularly newly acquired regional networks and large
scale acquisitions, such as our acquisition of Renal Treatment Centers, Inc.,
or RTC, presents a significant challenge and may lead to unanticipated costs or
a diversion of management's attention from day-to-day operations. Despite the
pooling of TRCH's and RTC's historical operating results, we have conducted
operations as a combined entity only since February 1998. This pooling of the
historic results of operations and financial condition of TRCH and RTC on a
stand-alone basis may differ from our actual combined results in the future.
6
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Our growth is expected to place significant demands on our financial and
management resources and will require us to develop further the management
skills of our managers and supervisors, and to continue to train, motivate and
effectively manage our employees. There are risks that:
. Our operations and future acquisitions may require additional personnel,
assets and cash expenditures and we may not be able to manage effectively
the expansion of our operations;
. We may not be able to anticipate and respond to all of the changing
demands that our expanding operations, including our acquisition of RTC,
will and could continue to have on our management, and information,
financial and operating systems; and
. Acquisitions could result in disruptions and unanticipated expenses.
Our failure to meet the challenges of expansion and to manage our prior and
future growth could have an adverse effect on our business, results of
operations or financial condition.
Dependence on physician referrals--The loss of key referring physicians could
reduce our patient base and our revenues.
We depend upon referrals of ESRD patients from physicians specializing in
nephrology and practicing in the communities we serve. As generally is true in
the dialysis industry, one or a few physicians refer all or a significant
portion of the patients at each facility. The loss of one or more key referring
physicians at a particular facility could materially reduce the revenues of
that facility. Referring physicians own minority interests in certain of our
dialysis facilities. If these interests are deemed to violate applicable
federal or state law, these physicians may be forced to dispose of their
ownership interests. We cannot predict the effect these dispositions would have
on our continuing relationships with these physicians or our business.
Operations outside the United States--Certain attributes of foreign companies
may disrupt their integration into our operations.
We are entering certain international markets for the first time and we may
not be able to integrate international acquisitions effectively. Certain
attributes of foreign companies and their operations may disrupt their
integration into our operations. These attributes include:
. Differences in accepted clinical standards and practices;
. Differences in management styles and practices;
. The unfamiliarity of foreign companies with United States generally
accepted accounting principles; and
. Local laws that restrict or limit employee discharges and disciplinary
actions.
Any failure to integrate efficiently foreign acquisitions or to realize
expected synergies and cost savings could have a material adverse effect on our
business, results of operations and financial condition.
Antitakeover provisions--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 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;
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. 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.
Year 2000 issues--We may experience material unanticipated negative
consequences beginning in the year 2000 due to undetected computer defects.
The following discussion about the implementation of our "Year 2000," or Y2K,
program and the results we expect to achieve constitutes forward-looking
information. As noted below, there are many uncertainties involved in the Y2K
issue, including the extent to which we can provide adequately for
contingencies that may arise, as well as the broader scope of the Y2K issue as
it may affect third parties. Accordingly, the results of our Y2K program and
the extent of any impact on our results of operations could vary materially
from those disclosed.
The 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. We are not currently aware of any material
operational issues associated with preparing our internal computer systems,
facilities and equipment for Y2K. We cannot assure you, however, due to the
overall complexity of the Y2K issues and the uncertainty surrounding third
party responses to Y2K issues, 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.
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 networks and applications that
depend on third-party networks; 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.
Goodwill amortization--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 50%
of our assets and 197% of our stockholders' equity at December 31, 1998.
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
8
<PAGE>
accounting principles require the amortization of goodwill and all other
intangible assets over the period benefited. The current blended 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.
If the factors we considered, and which give rise to a material portion of
our goodwill, result in an actual beneficial period which is shorter than our
determined useful life, earnings reported in periods immediately following
certain 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.
9
<PAGE>
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
31, December 31, December 31,
--------- ------------- -------------------
1994 1995 1994 1995 1995 1996 1997 1998
---- ---- ------ ------ ---- ---- ---- ----
<S> <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
</TABLE>
10
<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 April 9, 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. ... 16,000,000 4.6% 487,656 *
Argent Classic
Convertible Arbitrage
Fund L.P. ............. 11,500,000 3.3% 350,502 *
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 *
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 *
Carrigaholt Capital
(Bermuda) L.P.......... 2,500,000 * 76,196 *
CFW-C, L.P.............. 5,000,000 1.4% 152,392 *
Chase Vista Growth &
Income Fund............ 10,000,000 2.9% 304,785 *
Common Fund for
NonProfit
Organizations.......... 1,245,000 * 37,945 *
Conseco Direct Life..... 500,000 * 15,239 *
</TABLE>
11
<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 *
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)............... 3,492,000 1.0% 106,430 *
Double Black Diamond
Offshore, LDC.......... 1,611,000 * 49,100 *
Duckbill & Co........... 850,000 * 25,906 *
Family Service Life
Insurance Co. ......... 500,000 * 15,239 *
Fidelity Advisor Series
I: Fidelity Advisor
Asset Allocation
Fund(2)................ 60,000 * 1,828 *
Fidelity Advisor Series
II: Fidelity Advisor
High Yield Fund........ 13,060,000 3.8% 398,049 *
Fidelity Charles Street
Trust: Fidelity Asset
Manager(2)............. 13,430,000 3.9% 409,326 *
Fidelity Charles Street
Trust: Fidelity Asset
Manager: Growth(2)..... 6,770,000 2.0% 206,339 *
Fidelity Charles Street
Trust: Fidelity Asset
Manager: Income(2)..... 750,000 * 22,858 *
Fidelity Global Asset
Allocation Fund(2)..... 590,000 * 17,982 *
Fidelity Fixed-Income
Income Trust: Fidelity
High Income Fund(2).... 11,670,000 3.4% 355,684 *
Fidelity Management
Trust Company on behalf
of accounts managed by
it(3).................. 6,720,000 1.9% 204,815 *
First Delta Securities,
Inc. .................. 200,000 * 6,095 *
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................ 100,000 * 3,047 *
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 *
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 *
Lincoln National
Convertible Securities
Fund................... 2,205,000 * 67,205 *
LLT Limited............. 350,000 * 10,667 *
</TABLE>
12
<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.... 1,000,000 * 30,478 *
McMahan Securities
Company, LP............ 2,650,000 * 80,768 *
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 *
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 *
Northwestern Mutual Life
Insurance Company...... 10,000,000 2.9% 304,785 *
OCM High Yield Limited
Partnership............ 7,525,000 2.2% 229,350 *
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 *
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 *
Triton Capital
Investments, Ltd....... 1,750,000 * 53,337 *
United Methodist
Church................. 1,795,000 * 54,708 *
University of Virginia.. 600,000 * 18,287 *
Variable Insurance
Products Fund II: Asset
Manager: Growth
Portfolio(2)........... 720,000 * 21,944 *
Variable Insurance
Products Fund: High
Income Portfolio(2).... 15,680,000 4.5% 477,903 *
Variable Insurance
Products Fund II: Asset
Manager Portfolio(2)... 4,310,000 1.2% 131,362 *
Walker Art Center....... 295,000 * 8,991 *
Worldwide Transactions,
Ltd. .................. 187,000 * 5,699 *
Xerox Retirement........ 1,890,000 * 57,604 *
</TABLE>
- ---------------------
* Less than 1%.
(1) As of April , 1999, there were shares of our common stock
outstanding. In accordance with the rules of the Securities and Exchange
Commission, or SEC, the percentage of common stock
13
<PAGE>
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.
14
<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 terms
of the indenture are the result of our negotiations with the initial purchasers
of the notes.
The following description of the terms of the indenture and the related
registration rights agreement is a summary and contains the information
required by the federal securities laws. However, it does not restate the
indenture or the registration rights agreement and excludes the definitions and
complex legal terminology contained in those agreements. While we believe this
summary contains provisions of the notes that are important to you in making
your decision to purchase the notes, it does not include all of the provisions
of the notes that you may feel are important to your investment decision. The
indenture, and not this summary, defines your rights as a note holder. If you
would like to read the indenture or the registration rights agreement, we have
filed a copy of each of these documents as an exhibit to the registration
statement that contains this prospectus. In addition, copies of the indenture
and the registration rights agreement may be obtained from us upon request. For
more details, see the section "Where to Learn About Us."
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;
. 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.
Until otherwise designated by us, the corporate trust office of the trustee,
presently located at 114 West 47th Street, New York, New York 10036-1532, will
be our office or agency for the following purposes:
. Payment of principal of, premium on, interest on, and damages with
respect to the notes;
. Conversion of the notes; and
. Registration of a transfer or exchange of the notes.
We may pay interest and damages on the notes by check mailed to you at your
address as set forth in our registry books. 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
that limit 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;
. For the payment of money relating to a capitalized lease obligation if
generally accepted accounting principles require us to treat the
obligations as debt;
. Issued or assumed as the deferred purchase price of property or services;
15
<PAGE>
. Under interest swap and hedging obligations; and
. Of third parties of the kind described above that we have guaranteed or
that are otherwise our legal liability, or which are secured by a lien on
our property.
The indenture does not include in our debt:
. 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 does not protect you from a transaction that requires us to
accumulate a large amount of debt or results in the sale or transfer of 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 any period
after the interest payment date immediately before the date of conversion,
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;
. Issue to our stockholders rights, options or warrants to purchase common
stock at less than the then current market price for our common stock;
provided, that if these rights, options or warrants are only exercisable
upon certain triggering events, then we will not adjust the conversion
price until the triggering events occur;
16
<PAGE>
. Subdivide, combine or reclassify our outstanding common stock;
. Distribute to our stockholders evidences of debt, 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 certain 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, under certain conditions, 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 certain 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 that may be required on our part in connection
with the conversion of the notes. If at any time before November 19, 2000 the
registration statement
17
<PAGE>
containing this prospectus is not effective, or cannot be used, you may not
sell or transfer conversion shares 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 may not 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 the maturity of any designated senior debt has
been accelerated.
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 effectiveness of the previous notice.
18
<PAGE>
We must promptly notify holders of our senior debt if payment of the notes
becomes due because of an event of default.
In the event that 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 hold that payment or distribution in trust for the benefit of the
holders of senior debt, and 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 shall 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
it 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 at the
holder's last address in the registry books of the registrar. 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.
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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
shall 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;
. Certain 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 certain assets in an amount greater
than $10 million for 30 days after the trustee gives
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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;
. 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 as of any date of determination:
. Any of our subsidiaries that have aggregate total assets in an amount in
excess of 10% of our consolidated total assets at the date of
determination; 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 before the date of determination, 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 certain events of 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 on
behalf of all the holders:
. Any default, 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.
Subject to the provisions of the indenture:
. 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; and
. The holders of a majority in aggregate principal amount of the notes
outstanding will have the right to:
(1) Direct the time, method and place of conducting any proceeding for
any remedy available to the trustee; or
(2) Exercise any trust or power given to the trustee.
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You may not 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;
. 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 certain
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 owner of it for all
purposes.
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Book entry, delivery and form of the notes
All of the notes are evidenced by one or more global notes which we have
deposited with, or on behalf of, The Depository Trust Company, as the
depositary, and registered in the name of Cede & Co. 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, as defined in Rule 144A under the
Securities Act of 1933, 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.
Transfers between these participants will be effected in accordance with the
depositary's rules and will be settled in same-day funds.
The depositary has advised us that it is a limited-purpose trust company that
was 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, including the initial purchasers of the notes, banks and trust
companies, clearing corporations and certain other organizations. 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 evidenced by the global notes will be shown on, and
the transfer of that ownership will be effected only through, records
maintained by the depositary, the participants and the indirect participants.
The laws of some states require that certain persons 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. Consequently, the ability to transfer notes
evidenced by the global notes will be limited to that extent.
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 certificated
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.
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
evidencing 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. Payments by the participants and the indirect
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participants to the beneficial owners of notes will be governed by standing
instructions and customary practice and will be the responsibility of the
participants or the indirect participants.
Holders who desire to convert their notes into conversion shares 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.
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 certificated
notes under the indenture, then, upon surrender by the depositary of the global
notes, certificated 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, subject to certain conditions, 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 certificated notes. Upon
issuance, the trustee is required to register those certificated notes in the
name of that person, and cause them to be delivered. All certificated 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 the 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 for effecting
resales of notes and conversion shares in certain circumstances 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 certain 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.
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Governing law
The indenture, the notes and the registration rights agreement are governed
by the laws of the State of New York, without regard to choice of laws
provisions.
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 certain limitations on the rights of the trustee, in
the event it becomes our creditor, to obtain payment of claims in certain
cases, or to realize on certain 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 April , 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 April , 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 certain 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, for borrowings
under the term facility only, a margin that ranges from 0.5% to 0.75%
depending on our leverage ratio; or
. The rate at which The Bank of New York is offering dollar deposits in the
interbank eurodollar market, adjusted for statutory reserves, plus a
margin that ranges from 0.45% to 1.75% in the case of the revolving
facility and 1.75% to 2.00% in the case of the term facility depending on
our leverage ratio.
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, 2008. 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, 2005.
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.
29
<PAGE>
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 certain 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.
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;
. Certain events of bankruptcy and insolvency;
. Certain 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 certain circumstances.
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
7.03%.
30
<PAGE>
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.
31
<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
33
<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.
34
<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."
35
<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.
36
<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.
37
<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
38
<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
. 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 John E. King, 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.
39
<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.
40
<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...................................................... 100,000
Trustee's and transfer agent's fees................................ 5,000
Accounting fees and expenses....................................... 100,000
Legal fees and expenses............................................ 150,000
Miscellaneous...................................................... 10,000
--------
Total.............................................................. $460,915
========
</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.++
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.
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 April 14, 1999.
TOTAL RENAL CARE HOLDINGS, INC.
/s/ John E. King
By: _________________________________
John E. King
Senior Vice President, Finance
and
Chief Financial 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>
* Chairman of the Board, April 14, 1999
____________________________________ Chief Executive
Victor M.G. Chaltiel Officer, President and
Director (Principal
Executive Officer)
/s/ John E. King Senior Vice President, April 14, 1999
____________________________________ Finance and Chief
John E. King Financial Officer
(Principal Financial
Officer)
/s/ John J. McDonough Vice President and Chief April 14, 1999
____________________________________ Accounting Officer
John J. McDonough (Principal Accounting
Officer)
* Director April 14, 1999
____________________________________
Maris Andersons
* Director April 14, 1999
____________________________________
Peter T. Grauer
* Director April 14, 1999
____________________________________
Regina E. Herzlinger
* Director April 14, 1999
____________________________________
Shaul G. Massry
/s/ John E. King
*By: _______________________________
John E. King
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 8.1
RIORDAN & McKINZIE
300 South Grand Avenue
Los Angeles, California 90071
April 14, 1999
Total Renal Care Holdings, Inc.
21250 Hawthorne Boulevard
Torrance, California 90503-5517
Re: Total Renal Care Holdings, Inc. on Form S-3 File No. 333-69227
Dear Ladies and Gentlemen:
You have requested our opinion concerning material federal income tax
considerations of the acquisition, ownership, conversion and disposition of 7%
Convertible Subordinated Notes (the "Notes") due 2009 of Total Renal Care
Holdings, Inc. (the "Issuer") issued pursuant to an indenture dated as of
November 18, 1998 between the Issuer and United States Trust Company of New
York, as trustee. The Notes have been registered under the Securities Act of
1933, as amended, in connection with the Registration Statement on Form S-3
filed with the Securities and Exchange Commission (the "Commission") on
December 18, 1998 (File No. 333-69227), as amended (as amended, the
"Registration Statement").
The facts, as we understand them, and upon which with your permission we rely
in rendering the opinion expressed herein, are as set forth in the Registration
Statement. Based on such facts, it is our opinion that the U.S. federal tax
considerations set forth under the heading "U.S. Federal Tax Considerations" in
the Registration Statement are accurate in all material respects. No opinion is
expressed as to any matter not discussed therein.
This opinion is based on various statutory provisions, regulations
promulgated thereunder and interpretations thereof by the Internal Revenue
Service and the courts having jurisdiction over such matters, all of which are
subject to change either prospectively or retroactively. Also, any variation or
difference in the facts from those set forth in the Registration Statement may
affect the conclusion stated herein.
This opinion is rendered to you solely for use in connection with the
Registration Statement. We consent to your filing this opinion as an exhibit to
the Registration Statement.
Very truly yours,
/s/ Riordan & McKinzie
<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,
--------------- --------------- ---------------------------------
1994 1995 1994 1995 1995 1996 1997 1998
------- ------- ------- ------- ------- ------- -------- --------
(in thousands, except for ratio data)
<S> <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
Minority interest....... 1,046 1,593 878 1,784 2,544 3,578 4,502 7,163
------- ------- ------- ------- ------- ------- -------- --------
17,707 22,730 13,296 24,652 37,141 57,367 95,239 56,922
------- ------- ------- ------- ------- ------- -------- --------
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
Interest portion of
rental expense......... 1,926 2,475 1,438 1,950 3,347 5,301 8,196 12,992
------- ------- ------- ------- ------- ------- -------- --------
Total fixed charges..... 3,501 11,562 6,114 9,957 16,722 19,376 38,485 96,702
------- ------- ------- ------- ------- ------- -------- --------
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
======= ======= ======= ======= ======= ======= ======== ========
Ratio of earnings to
fixed charges.......... 6.06 2.97 3.17 3.48 3.22 3.96 3.47 1.59
======= ======= ======= ======= ======= ======= ======== ========
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the prospectus
constituting part of this Registration Statement on Form S-3 Amendment No. 2 of
our report dated March 29, 1999 appearing on page F-1 of the Total Renal Care
Holdings, Inc. Annual Report on Form 10-K for the year ended December 31, 1998.
We also consent to the incorporation by reference of our report on the
Financial Statement Schedule, which appears on page S-1 of that Form 10-K. We
also consent to the reference to us under the heading "Experts" in this
prospectus.
PricewaterhouseCoopers LLP
Seattle, Washington
April 12, 1999
