<PAGE>
===============================================================================
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
TOTAL RENAL CARE HOLDINGS, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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<PAGE>
[LOGO OF TOTAL RENAL CARE HOLDINGS, INC.]
TOTAL RENAL CARE HOLDINGS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
July 25, 2000
To Our Stockholders:
We will hold our 2000 annual meeting of the stockholders of Total Renal
Care Holdings, Inc., or TRCH, a Delaware corporation, on Tuesday, July 25, 2000
at 9:00 a.m., Los Angeles time, at the Torrance Marriott, 3635 Fashion Way,
Torrance, California 90503. As further described in the accompanying Proxy
Statement, at this meeting we will:
(a) Elect six directors to our board of directors to serve for a
term of one year or until their successors are duly elected
and qualified;
(b) Consider and act upon a proposal to approve the proposed
amendment of our Certificate of Incorporation to change our
name from Total Renal Care Holdings, Inc. to DaVita, Inc.; and
(c) Transact other business as may come properly before the
meeting or any meetings held upon adjournment of the meeting.
Our board of directors has fixed the close of business on June 16, 2000
as the record date for the determination of stockholders entitled to vote at
the meeting or any meetings held upon adjournment of the meeting. Only record
holders of our common stock at the close of business on that day will be
entitled to vote. A copy of our 1999 annual report to stockholders is enclosed
with this notice, but is not part of the proxy soliciting material.
We invite you to attend the meeting and vote in person. If you cannot
attend, to assure that you are represented at the meeting, please sign and
return the enclosed proxy card as promptly as possible in the enclosed postage
prepaid envelope. If you attend the meeting, you may vote in person, even if
you previously returned a signed proxy.
By order of the board of directors,
Steven J. Udicious
Vice President, Secretary
and General Counsel
Torrance, California
June 22, 2000
<PAGE>
[TOTAL RENAL CARE HOLDINGS, INC. LOGO]
TOTAL RENAL CARE HOLDINGS, INC.
21250 Hawthorne Boulevard
Torrance, California 90503
----------------
PROXY STATEMENT
----------------
GENERAL INFORMATION
We are sending you this proxy statement on or about June 22, 2000 in
connection with the solicitation of proxies by our board of directors. The
proxies are for use at our 2000 annual meeting of stockholders, which we will
hold at 9:00 a.m., Los Angeles time, on Tuesday, July 25, 2000, at the
Torrance Marriott, 3635 Fashion Way, Torrance, California 90503. The proxies
will remain valid for use at any meetings held upon adjournment of that
meeting. The record date for the meeting is the close of business on June 16,
2000. All holders of record of our common stock on the record date are
entitled to notice of the meeting and to vote at the meeting and any meetings
held upon adjournment of that meeting. Our principal executive offices are
located at 21250 Hawthorne Boulevard, Torrance, California 90503, and our
telephone number is (310) 792-2600.
A proxy form is enclosed. Whether or not you plan to attend the meeting
in person, please date, sign and return the enclosed proxy as promptly as
possible, in the postage prepaid envelope provided, to ensure that your shares
will be voted at the meeting. You may revoke your proxy at any time prior to
its use by filing with our secretary an instrument revoking it or a duly
executed proxy bearing a later date or by attending the meeting and voting in
person.
Unless you instruct otherwise in the proxy, any proxy, if not revoked,
will be voted at the meeting:
. for our board's slate of nominees;
. to approve the proposed amendment of our Certificate of Incorporation
to change our name from Total Renal Care Holdings, Inc. to DaVita,
Inc.; and
. as recommended by our board with regard to all other matters, in its
discretion.
Our only voting securities are the outstanding shares of our common
stock. At the record date, we had approximately 81,544,000 shares of common
stock outstanding and approximately 2,200 stockholders of record. If the
stockholders of record present in person or represented by their proxies at
the meeting hold at least a majority of our outstanding shares of common
stock, a quorum will exist for the transaction of business at the meeting.
Stockholders of record who abstain from voting, including brokers holding
their customers' shares who cause abstentions to be recorded, are counted as
present for quorum purposes.
For each share of common stock you hold on the record date, you are
entitled to one vote on all matters that we will consider at this meeting. You
are not entitled to cumulate your votes. Brokers holding shares of record for
their customers generally are not entitled to vote on some matters unless
their customers give them specific voting instructions. If the broker does not
receive specific instructions, the broker will note this on the proxy form or
otherwise advise us that it lacks voting authority. The votes that the brokers
would have cast if their customers had given them specific instructions are
commonly called "broker non-votes."
1
<PAGE>
The voting requirements for the proposals we will consider at the meeting
are:
. Election of directors. The six candidates who receive the highest
number of affirmative votes will be elected. Votes against a
candidate and votes withheld from voting for a candidate will have no
effect on the election.
. Approval of the proposed amendment of our Certificate of
Incorporation to change our name. A majority of the outstanding
shares entitled to vote on this matter must vote for approval of the
proposed amendment for the stockholders to approve the proposed
amendment. Abstentions and broker non-votes have the effect of
negative votes.
We will pay for the cost of preparing, assembling, printing and mailing
this proxy statement and the accompanying form of proxy to our stockholders, as
well as the cost of soliciting proxies relating to the meeting. We may request
banks and brokers to solicit their customers who beneficially own our common
stock listed of record in names of nominees. We will reimburse these banks and
brokers for their reasonable out-of-pocket expenses regarding these
solicitations. We have also retained Corporate Investor Communications, Inc.,
or CIC, to assist in the distribution and solicitation of proxies and to verify
records related to the solicitation at a fee of $8,000 plus expenses. CIC and
our officers, directors and employees may supplement the original solicitation
by mail of proxies by telephone, telegram and personal solicitation. We will
pay no additional compensation to our officers, directors and employees for
these activities. We will indemnify CIC against liabilities and expenses
arising in connection with the proxy solicitation, including liabilities under
the federal securities laws, unless caused by CIC's gross negligence or willful
misconduct.
2
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
As of June 22, 2000, we have authorized a six member board of directors,
all of whom are to be elected annually.
At the meeting, you will elect six directors to serve for a term of
office consisting of the coming year or until their respective successors are
elected and qualified. Our board has nominated the six individuals named below
for election as directors. Each nominee has consented to being named in this
proxy statement as a nominee and has agreed to serve as a director if elected.
The persons named as proxies in the accompanying form of proxy have
advised us that at the meeting they intend to vote the shares covered by the
proxies for the election of the nominees named below. If one or more of the
nominees are unable to serve, or for good cause will not serve, the persons
named as proxies may vote for the election of the substitute nominees that our
board may propose. The accompanying form of proxy contains a discretionary
grant of authority with respect to this matter. The persons named as proxies
may not vote for a greater number of persons than the number of nominees named
below.
No arrangement or understanding exists between any nominee and any other
person or persons pursuant to which any nominee was or is to be selected as a
director or nominee. None of the nominees has any family relationship with any
other nominee or with any of our executive officers.
Information concerning nominees to our board of directors
The following table sets forth information concerning the nominees to our
board of directors:
<TABLE>
<CAPTION>
Name Age Position
------------------------ --- -----------------------------------------------------------
<S> <C> <C>
Kent J. Thiry........... 44 Chairman of the Board, Chief Executive Officer and Director
Maris Andersons......... 63 Director
Richard B. Fontaine..... 56 Director
Peter T. Grauer......... 54 Director
C. Raymond Larkin,
Jr. ................... 52 Director
Shaul G. Massry......... 69 Director
</TABLE>
Kent J. Thiry became our Chairman of the Board and Chief Executive
Officer in October 1999. From June 1997 until he joined us, Mr. Thiry served as
Chairman of the Board and Chief Executive Officer of Vivra Holdings, Inc.,
which was formed to operate the non-dialysis business of Vivra Incorporated, or
Vivra, after Gambro AB acquired the dialysis services business of Vivra in June
1997. At the time, Vivra was the second largest provider of dialysis services
in the United States. From September 1992 to June 1997, Mr. Thiry was the
President and Chief Executive Officer of Vivra. From April 1992 to August 1992,
Mr. Thiry served as President and co-Chief Executive Officer of Vivra, and from
September 1991 to March 1992, as President and Chief Operating Officer of
Vivra. From 1983 to 1991, Mr. Thiry was associated with Bain & Company, first
as a Consultant, and then as Vice President. Mr. Thiry is also a director of
Oxford Health Plans, Inc.
Maris Andersons has been one of our directors since August 1994. Mr.
Andersons was a Senior Vice President and Senior Advisor, Corporate Finance, of
Tenet Healthcare Corporation, or Tenet, until his retirement in 1997. Mr.
Andersons also held various senior executive offices with Tenet since 1976.
Prior to joining Tenet, Mr. Andersons served as a Vice President of Bank of
America.
Richard B. Fontaine has been one of our directors since November 1999.
Mr. Fontaine has been an independent health care consultant since 1992. Mr.
Fontaine has also been an adjunct instructor at Westminster College since 1992.
From June 1995 to September 1995, he served as interim Chief Executive Officer
of
3
<PAGE>
Health Advantage, Inc., a subsidiary of VIVRA Specialty Partners, Inc. In 1993,
he served as interim Chief Executive Officer of Vivocell Therapy, Inc. From
1988 to 1992, he served as Senior Vice President of CR&R Incorporated. From
1984 to 1988, he served as Vice President, Business Development, of Caremark,
Inc. Mr. Fontaine is also a director of Celeris Corp.
Peter T. Grauer has been one of our directors since August 1994. Mr.
Grauer has been a Managing Director of DLJ Merchant Banking, Inc., or DLJMB,
since September 1992. From April 1989 to September 1992, he was a Co-Chairman
of Grauer & Wheat, Inc., an investment firm specializing in leveraged buyouts.
Prior thereto Mr. Grauer was a Senior Vice President of Donaldson, Lufkin &
Jenrette Securities Corporation, or DLJ. Mr. Grauer is also a director of Doane
Pet Care Enterprises, Inc., Formica Corporation, and Thermadyne Holdings
Corporation.
C. Raymond Larkin, Jr. has been one of our directors since December 1999.
Mr. Larkin has been a principal of 3x NELL, which invests in and provides
consulting services to the medical device, biotechnology and pharmaceutical
industries, since July 1998. From 1983 to March 1998, he held various executive
positions with Nellcor Incorporated, a medical products company, for which he
served as President and Chief Executive Officer from 1989 until August 1995,
when he became President and Chief Executive Officer of Nellcor Puritan Bennett
Incorporated upon the merger of Nellcor Incorporated with Puritan-Bennett
Corporation. Mr. Larkin is also a director of Arthrocare Corporation and
Neuromedical Systems, Inc.
Shaul G. Massry has been one of our directors since April 1997. Dr.
Massry has been a Professor of Medicine, Physiology and Biophysics and Chief,
Division of Nephrology, at the University of Southern California School of
Medicine since 1974. Dr. Massry served as the president of the National Kidney
Foundation from 1990 through 1992.
Information regarding our board of directors and its committees
Our board of directors met 32 times during 1999. Each of our directors
attended 75% or more of the total number of meetings of the board and meetings
of the committees of the board on which he or she served during 1999.
In 1999, our audit committee consisted of Maris Andersons, Peter T.
Grauer and Shaul G. Massry. In December 1999, C. Raymond Larkin, Jr. replaced
Mr. Grauer as a member of the audit committee. Mr. Andersons is the chairperson
of the audit committee. Each of these members of our audit committee is
independent in accordance with the listing standards of the New York Stock
Exchange. Our board of directors has adopted a written charter for our audit
committee, which is included with this proxy statement as Exhibit A. Our audit
committee monitors the integrity of our financial reporting process and systems
of internal controls, monitors the independence and performance of our
independent auditors and internal auditing department and provides an avenue of
communication among the independent auditors, management, the internal auditing
department and our board of directors. The audit committee met twice during
1999.
In 1999, our compensation committee consisted of Maris Andersons, Peter
T. Grauer and Regina E. Herzlinger, who is no longer a director. In December
1999, Richard B. Fontaine and C. Raymond Larkin, Jr. replaced Mr. Andersons and
Ms. Herzlinger as members of the compensation committee. Mr. Fontaine is the
chairperson of the compensation committee. Our compensation committee reviews
the compensation of our Chief Executive Officer and reviews the recommendations
of our Chief Executive Officer relating to compensation of several other
executive officers. The compensation committee also establishes policies
relating to the compensation of our executive officers and other key employees.
The compensation committee met once during 1999.
4
<PAGE>
Compensation of directors
Directors who are our employees or officers do not receive compensation
for service on our board of directors or any committee of the board. Effective
in December 1999 each of our directors who is not one of our officers or
employees is entitled to receive $30,000 per year and additional compensation
of $2,500 for each board meeting attended in person and $1,000 for each meeting
held via telephone conference. For committee meetings, additional compensation
is paid as follows: $1,500 if attended in person, and $1,000 per telephone
meeting for committee members; $2,500 if attended in person, and $1,000 per
telephone meeting for committee chairpersons. The chairperson of the
compensation committee also receives an additional $10,000 per year. Prior to
December 1999, each of our directors who was not one of our officers or
employees was entitled to receive $60,000 per year and $2,500 per meeting
attended, including telephone conference meetings. We also reimburse our
directors for their reasonable out-of-pocket expenses in connection with their
travel to and attendance at the meetings of the board.
In addition, each director who is not one of our officers or employees is
entitled to receive options to purchase 25,000 shares of our common stock each
year they are elected to serve on our board. These options have an exercise
price equal to the fair market value of our common stock on the date of grant
and generally vest over four years at an annual rate of 25% beginning on the
first anniversary of the date of grant, with acceleration of vesting upon a
change in control of TRCH. All options granted prior to December 1999 for a
director's service as a member of the board, however, were accelerated and
became fully vested upon the hiring of Mr. Thiry as our new Chief Executive
Officer in October 1999.
In addition to these standard arrangements, in August 1999 Mr. Andersons,
Regina E. Herzlinger, who is no longer a director, and Dr. Massry each received
additional options to purchase 25,000 shares of our common stock at an exercise
price of $8.50 per share, the fair market value of our common stock on the date
of grant. Ms. Herzlinger's and Dr. Massry's options fully vested upon the
hiring of Mr. Thiry as our new Chief Executive Officer. Mr. Andersons' options
vested over four years at an annual rate of 25% beginning on the first
anniversary of the date of grant, but were accelerated and became fully vested
when we hired a new Chief Financial Officer in February 2000. Also, in October
1999 Ms. Herzlinger received an additional option to purchase 25,000 shares at
an exercise price of $6.06 per share, the fair market value of our common stock
on the date of grant. This option was fully vested on the date of grant.
Each director who is not one of our officers or employees also received
additional options to purchase 12,000 shares of our common stock in March 2000.
The exercise price of these options was the fair market value of our common
stock on the grant date. The options vest over four years at an annual rate of
25% beginning on the first anniversary of the date of grant and will remain
exercisable for five years.
Each member of the board of directors is also required to purchase at
least $50,000 of our stock in the open market by December 17, 2000.
For additional information regarding amounts received by Mr. Andersons
and Dr. Massry, in addition to compensation received as a board member, see the
"Certain Relationships and Related Transactions" section of this proxy
statement.
5
<PAGE>
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS,
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding the ownership of our
common stock as of June 15, 2000 by (a) all those persons known by us to own
beneficially more than 5% of our common stock, (b) each of our directors and
executive officers, (c) all directors and executive officers as a group and (d)
each of the executive officers named in the "Summary Compensation Table"
included in the "Executive Compensation" section of this proxy statement.
Except as otherwise noted under the "Certain Relationships and Related
Transactions" section of this proxy statement, we know of no agreements among
our stockholders which relate to voting or investment power over our common
stock or any arrangement the operation of which may at a subsequent date result
in a change of control of us.
<TABLE>
<CAPTION>
Number of Percentage
shares of shares
beneficially beneficially
Name of beneficial owner owned owned
---------------------------------------------------- ------------ ------------
<S> <C> <C>
Massachusetts Financial Services Company (1) ....... 10,478,067 12.8%
500 Boylston Street
Boston, Massachusetts 02116
Maverick Capital Ltd (2)............................ 5,528,200 6.8%
300 Crescent Court, Suite 1850
Dallas, Texas 75201
Ardsley Advisory Partners and Philip J. Hempleman
(3)................................................ 4,752,500 5.8%
646 Steamboat Road
Greenwich, Connecticut 06836
Maris Andersons (4)................................. 141,194 *
Richard B. Fontaine................................. 15,000 *
Peter T. Grauer (5)................................. 72,500 *
C. Raymond Larkin, Jr............................... -- *
Shaul G. Massry (6)................................. 124,862 *
Kent J. Thiry (7)................................... 87,500 *
Joseph C. Mello .................................... -- *
Richard K. Whitney (8).............................. 92,259 *
Stan M. Lindenfeld (9).............................. 269,971 *
Gary W. Beil........................................ 40,000 *
John J. McDonough (10).............................. 50,189 *
Steven J. Udicious (11)............................. 18,681 *
All directors and executive officers as a group (12
persons) (12)...................................... 912,156 1.0%
Barry C. Cosgrove (13).............................. 306,426 *
Victor M.G. Chaltiel (14)........................... 1,200,857 1.5%
George B. DeHuff, III............................... -- *
Leonard W. Frie (15)................................ 287,488 *
John E. King (16)................................... 38,163 *
</TABLE>
--------
* Amount represents less than 1% of our common stock.
(1) Based upon information contained in Amendment No. 1 to Schedule 13G filed
with the SEC on February 11, 2000. The number of shares beneficially owned
includes 60,957 shares which may be acquired upon the conversion of our
convertible notes.
6
<PAGE>
(2) Based upon information contained in a Schedule 13G filed with the SEC on
February 23, 2000.
(3) Based upon information contained in a Schedule 13G filed with the SEC on
February 14, 2000. By virtue of his position as managing partner of Ardsley
Advisory Partners, Mr. Hempleman may be deemed to have the shared power to
vote or dispose of these shares held by the discretionary accounts managed
by Ardsley and Mr. Hempleman. Therefore, Mr. Hempleman may be deemed the
beneficial owner of these shares.
(4) Includes 121,417 shares issuable upon the exercise of options which are
exercisable as of, or will become exercisable within 60 days of, June 15,
2000.
(5) Includes 72,500 shares issuable upon the exercise of options which are
exercisable as of, or will become exercisable within 60 days of, June 15,
2000.
(6) Includes 124,862 shares issuable upon the exercise of options which are
exercisable as of, or will become exercisable within 60 days of, June 15,
2000.
(7) All shares are held in a family trust.
(8) Includes 74,334 shares issuable upon the exercise of options which are
exercisable as of, or will become exercisable within 60 days of, June 15,
2000.
(9) Includes 230,665 shares issuable upon the exercise of options which are
exercisable as of, or will become exercisable within 60 days of, June 15,
2000.
(10) Includes 45,000 shares issuable upon the exercise of options which are
exercisable as of, or will become exercisable within 60 days of, June 15,
2000.
(11) Includes 18,350 shares issuable upon the exercise of options which are
exercisable as of, or will become exercisable within 60 days of, June 15,
2000.
(12) All directors and executive officers in office on June 15, 2000. Includes
687,128 shares issuable upon the exercise of options which are exercisable
as of, or will become exercisable within 60 days of, June 15, 2000.
(13) Includes 209,832 shares issuable upon the exercise of options which are
exercisable as of, or will become exercisable within 60 days of, June 15,
2000.
(14) Includes 166,667 shares issuable upon the exercise of options which are
exercisable as of, or will become exercisable within 60 days of, June 15,
2000. Based on information available to us at the time of the employee's
resignation.
(15) Includes 141,277 shares issuable upon the exercise of options which are
exercisable as of, or will become exercisable within 60 days of, June 15,
2000. Based on information available to us at the time of the employee's
resignation.
(16) No options are exercisable as of, or will become exercisable within 60
days of, June 15, 2000. Based on information available to us at the time
of the employee's resignation and subsequent option exercises.
7
<PAGE>
EXECUTIVE OFFICERS, COMPENSATION
AND OTHER INFORMATION
Information concerning our executive officers
The following table sets forth information concerning our executive
officers:
<TABLE>
<CAPTION>
Name Age Position
-------------------------- --- -------------------------------------------------
<S> <C> <C>
Kent J. Thiry............. 44 Chairman of the Board and Chief Executive Officer
Joseph C. Mello........... 41 Chief Operating Officer
Richard K. Whitney........ 32 Chief Financial Officer
Stan M. Lindenfeld........ 52 Senior Vice President and Chief Medical Officer
Gary W. Beil.............. 48 Vice President and Controller
John J. McDonough......... 36 Vice President
Steven J. Udicious........ 32 Vice President, Secretary and General Counsel
</TABLE>
Our executive officers are elected by and serve at the discretion of our
board of directors. Set forth below is a brief description of the business
experience of all executive officers other than Mr. Thiry, who is also a
director. See "Information concerning members of our board of directors" above.
Joseph C. Mello became our Chief Operating Officer in June 2000. Prior to
joining us, from April 1998, Mr. Mello served as President and Chief Executive
Officer of Vivra Asthma & Allergy. He will continue in this role while
transitioning to his new position with us. From August 1994 to April 1998, Mr.
Mello held various positions with MedPartners, Inc., including Senior Vice
President/Chief Operating Officer--Southeastern Region from March 1997 to April
1998. Prior to joining MedPartners, Inc., Mr. Mello was a partner with KPMG
Peat Marwick LLC, from 1984 to 1994.
Richard K. Whitney became our Chief Financial Officer in February 2000.
From September 1998 until his appointment as Chief Financial Officer, Mr.
Whitney served as Vice President and General Manager of our International
Operations. Mr. Whitney joined us in June 1995 and has also served as Director
of Corporate Development and Vice President of Corporate Development. Prior to
joining us, Mr. Whitney was associated with RFE Investment Partners, a private
equity investment firm, and Deloitte & Touche.
Stan M. Lindenfeld, a nephrologist, was promoted to Senior Vice
President, Quality Management in October 1998 from Vice President, Quality
Management and Integrated Programs, a position he held since August 1994. Dr.
Lindenfeld has also served as our Chief Medical Officer since January 1995 and
as one of our medical directors. Since 1988 he has held the position of
Clinical Professor of Medicine at the University of California Medical Center
in San Francisco. Dr. Lindenfeld developed the Office of Clinical Resources
Management at the University of California Medical Center in San Francisco and
served as its director from July 1993 until July 1997.
Gary W. Beil has been our Vice President and Controller since November
1999. Prior to joining us, from April 1999 to October 1999, Mr. Beil was an
independent business consultant. From March 1996 to March 1999 Mr. Beil served
as Vice President and Controller of The Boeing Company, and from 1979 to 1996
held a variety of divisional and corporate finance positions with The Boeing
Company.
John J. McDonough became our Vice President in March 1999. From August
1998, when Mr. McDonough joined us, to March 1999, Mr. McDonough served as
Divisional Vice President of Finance and Accounting. During 1996, Mr. McDonough
served as Vice President and Chief Financial Officer of Palatin Technologies,
Inc. From 1992 through 1995, Mr. McDonough held a variety of positions,
including Vice President and Chief Financial Officer, at MedChem Products, Inc.
8
<PAGE>
Steven J. Udicious became our Vice President, Secretary and General
Counsel in April 2000. Mr. Udicious served as our Assistant General Counsel
from February 1998 until February 2000, when he became Secretary and Acting
General Counsel. Mr. Udicious served as Assistant General Counsel with Renal
Treatment Centers, Inc. from March 1997 until its merger with us in February
1998. Prior to joining Renal Treatment Centers, Inc., Mr. Udicious was
associated with Duane, Morris & Heckscher, LLP in Philadelphia, Pennsylvania.
None of the executive officers has any family relationship with any other
executive officer or with any of our directors.
Section 16(a) beneficial ownership reporting compliance
Section 16(a) of the Exchange Act requires "insiders," including our
executive officers, directors and beneficial owners of more than 10% of our
common stock, to file reports of ownership and changes in ownership of our
common stock with the Securities and Exchange Commission and the New York Stock
Exchange, and to furnish us with copies of all Section 16(a) forms they file.
Based solely on our review of the copies of such forms received by us, or
written representations from certain reporting persons that no Form 5's were
required for those persons, we believe that our insiders complied with all
applicable Section 16(a) filing requirements during 1999.
9
<PAGE>
Executive Compensation
The following table sets forth the compensation paid or accrued by us for
each of the fiscal years in the three-year period ended December 31, 1999 to
the following persons:
. each individual who served as our chief executive officer or acted in
a similar capacity during 1999--Messrs. Thiry, DeHuff and Chaltiel;
. our four most highly compensated executive officers other than our
chief executive officer at December 31, 1999--Messrs. DeHuff,
Cosgrove, McDonough and Dr. Lindenfeld; and
. two former executive officers who would have been among the four most
highly compensated executive officers at December 31, 1999 if they
were still serving as executive officers at December 31, 1999--
Messrs. King and Frie.
Messrs. DeHuff, Chaltiel, King and Frie are no longer associated with us.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
---------------------------------
Annual Compensation Awards Payouts
------------------------------------ --------------------- -------
Restricted Securities
Other Annual Stock Underlying LTIP All Other
Name and Salary Bonus Compensation Award(s) Options Payouts Compensation
Principal Position Year ($) ($) ($) ($) (#) ($) ($)
------------------------ ---- -------- ---------- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kent J. Thiry........... 1999 $ 83,074 -- -- -- 500,000 -- --
Chairman of the Board
and Chief Executive
Officer (1)
George B. DeHuff, III... 1999 190,768 -- -- -- 450,000 -- --
Former President and
Chief Operating
Officer (2)
Barry C. Cosgrove....... 1999 184,374 $ 456,000(3) -- -- 200,000 -- $ 8,320(4)
Senior Vice President, 1998 182,309 490,004(5) -- -- 200,000 -- 40,293(6)
Former General Counsel 1997 149,817 115,004 -- -- 111,916 -- 11,582(7)
and Secretary
Stan M. Lindenfeld...... 1999 262,028 375,000(8) -- -- 200,000 -- 30,883(9)
Senior Vice President 1998 273,883 382,211(10) -- -- 150,000 -- 425(11)
and Chief Medical 1997 214,791 169,020 -- -- 58,333 -- --
Officer
John J. McDonough....... 1999 152,692 32,500 -- -- 100,000 -- 35,000(12)
Vice President 1998 49,561 -- -- -- 80,000 -- --
Victor M.G. Chaltiel.... 1999 190,912 279,209 -- -- -- -- 786,161(13)
Former Chairman of the 1998 315,026 8,250,000(14) 3,536(15) -- 1,000,000(16) -- 5,598(17)
Board, Chief Executive 1997 288,652 890,409(18) -- -- 333,334(16) -- 5,522(19)
Officer, President and
Director
John E. King............ 1999 100,385 456,000(20) -- -- 100,000 -- 40,566(21)
Former Senior Vice 1998 181,154 487,500(22) -- -- 200,000 -- 8,620(23)
President, Finance and 1997 130,504 112,500 -- -- 111,916 -- 14,089(24)
Chief Financial Officer
Leonard W. Frie......... 1999 122,250 276,390(25) -- -- 100,000 -- 285,584(26)
Former Executive Vice 1998 200,410 321,254(27) -- -- 150,000 -- 13,197(28)
President and Chief 1997 182,245 143,754 -- -- 111,916 -- 14,153(29)
Operations Officer,
West
</TABLE>
--------
* Includes options repriced in April 1997.
(1) Mr. Thiry became our Chairman of the Board and Chief Executive Officer in
October 1999.
(2) Mr. DeHuff served as our interim Chief Executive Officer from August 1999
to October 1999.
10
<PAGE>
(3) Includes the second installment, in the amount of $375,000, related to a
special bonus received for services rendered in connection with the merger
with RTC.
(4) Includes (a) an automobile allowance of $7,800 and (b) $520 paid by us for
an umbrella insurance policy.
(5) Includes the first installment, in the amount of $375,000, related to a
special bonus received for services rendered in connection with the merger
with RTC.
(6) Includes (a) an automobile allowance of $8,100, (b) $520 paid by us for an
umbrella insurance policy, and (c) $31,673 in the payment of cash value of
accrued paid time off.
(7) Includes (a) an automobile allowance of $7,800, (b) $520 paid by us for an
umbrella insurance policy, and (c) $3,262 in deferred interest income.
(8) Includes the second installment, in the amount of $375,000, related to a
special bonus received for services rendered in connection with the merger
with RTC.
(9) Includes (a) $850 for a waiver of medical insurance premiums and (b)
$30,033 in payment of cash value of accrued paid time off.
(10) Includes the first installment, in the amount of $187,500, related to a
special bonus received for services rendered in connection with the merger
with RTC.
(11) Consists entirely of a waiver of medical insurance premiums.
(12) Consists entirely of a relocation allowance.
(13) Include (a) $520 paid by us for an umbrella insurance policy, (b) $19,061
in payment of cash value of accrued paid time off and (c) $766,580 in
severance.
(14) Consists entirely of a special bonus received for services rendered in
connection with the merger with RTC.
(15) Paid as a gross-up adjustment to offset the personal income tax resulting
from Mr. Chaltiel's personal use of our leased corporate jet.
(16) In February 1999, Mr. Chaltiel voluntarily canceled all 1,000,000 of the
options granted to him in 1998 and 166,667 of the options granted to him
in 1997 to increase the number of options available for grant under our
existing stock option plans.
(17) Includes (a) $520 paid by us for an umbrella insurance policy, and (b)
$5,078 representing imputed income from Mr. Chaltiel's personal use of our
leased corporate jet.
(18) Mr. Chaltiel's 1997 bonus of $451,776 was prepaid in December 1997.
(19) Includes (a) an automobile allowance of $5,002, and (b) $520 paid by us
for an umbrella insurance policy.
(20) Includes the second installment, in the amount of $375,000, related to a
special bonus received for services rendered in connection with the merger
with RTC.
(21) Includes (a) an automobile allowance of $4,500, (b) $520 paid by us for an
umbrella policy and (c) $35,546 in payment of cash value of accrued paid
time off. Mr King also received a severance payment of $180,000 in January
2000.
(22) Includes the first installment, in the amount of $375,000, related to a
special bonus received for services rendered in connection with the merger
with RTC.
(23) Includes (a) an automobile allowance of $8,100 and (b) $520 paid by us for
an umbrella insurance policy.
(24) Includes (a) an automobile allowance of $7,800, (b) $520 paid by us for an
umbrella insurance policy, and (c) $5,769 in payment of cash value of
accrued paid time off.
(25) Includes the second installment, in the amount of $187,500, related to a
special bonus received for services rendered in connection with the merger
with RTC.
(26) Includes (a) an automobile allowance of $5,231, (b) $520 paid by us for an
umbrella insurance policy, (c) $197,423 in severance, (d) $27,277 in
payment of cash value of accrued paid time off and (e) $5,133 in deferred
compensation.
(27) Includes the first installment, in the amount of $187,500, related to a
special bonus received for services rendered in connection with the merger
with RTC.
(28) Includes (a) an automobile allowance of $8,827, (b) $520 paid by us for an
umbrella insurance policy, and (c) $3,850 in deferred compensation.
(29) Includes (a) an automobile allowance of $8,500, (b) $520 paid by us for an
umbrella insurance policy, and (c) $5,133 in deferred compensation.
11
<PAGE>
The following table sets forth information concerning options granted to
each of the named executive officers during 1999:
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or Grant Date
Options/SARs Employees in Base Price Expiration Present Value
Name Granted (#)(1) Fiscal Year ($/Sh) Date ($)(2)
------------------------ -------------- ------------ ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Kent J. Thiry........... 500,000 10.9 6.00 10/18/09 1,966,650
George B. DeHuff, III... 300,000(3) 6.6 14.875 5/17/09 2,839,770
150,000 3.3 8.3125 8/26/09 817,379
Barry C. Cosgrove....... 200,000 4.4 9.0625 3/11/09 891,060
Stan M. Lindenfeld...... 200,000 4.4 9.0625 3/11/09 891,060
John J. McDonough....... 100,000 2.2 9.0625 3/11/09 445,530
Victor M.G. Chaltiel.... -- -- -- -- --
John E. King............ 100,000(4) 2.2 9.0625 3/11/09 445,530
Leonard W. Frie......... 100,000(3) 2.2 9.0625 3/11/09 445,530
</TABLE>
--------
(1) All options are nonqualified stock options and were granted under our 1997
Equity Compensation Plan. The options vest over four year periods at an
annual rate of 25% beginning on the first anniversary of the date of grant.
(2) The estimated grant date present value reflected in the above table was
determined using the Black-Scholes model. The material assumptions and
adjustments incorporated in the Black-Scholes model in estimating the value
of the options reflected in the above table include the following: (a) the
respective option exercise price for each individual grant, equal to the
fair market value of the underlying stock on the date of grant; (b) the
exercise of options within six years of the date that they become
exercisable; (c) a risk-free interest rate of 5.50% to 6.17% per annum; (d)
volatility of 41.64% to 68.22% calculated using the daily prices of our
common stock; (e) a dividend yield of 0%, and (f) an assumed forfeiture
rate of 5.0% for all periods. The ultimate values of the options will
depend on the future market price of our common stock, which cannot be
forecasted with reasonable accuracy. The actual value, if any, an optionee
will realize upon exercise of an option will depend on the excess of the
market value of our common stock over the exercise price on the date the
option is exercised. We cannot assure that the value realized by an
optionee will be at or near the value estimated by the Black-Scholes model
or any other model applied to value the options.
(3) These options were canceled upon resignation of employment and are no
longer outstanding.
(4) Pursuant to the terms of Mr. King's severance agreement, 25,000 option
shares vested on March 11, 2000 and remained exercisable for 90 days after
March 11, 2000. These options were not exercised in the permitted time. The
25,000 option shares, as well as the remaining 75,000 option shares, have
been canceled, and are no longer outstanding.
12
<PAGE>
The following table sets forth information concerning the aggregate
number of options exercised by and year-end option values for each of the named
executive officers during 1999:
Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised Options In-the-Money Options
at FY-End at FY-End
-------------------- --------------------
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable (#) Unexercisable ($)(1)
------------------------ --------------- ------------ -------------------- --------------------
<S> <C> <C> <C> <C>
Kent J. Thiry........... -- -- -- /500,000 -- /343,750
George B. DeHuff, III... -- -- 150,000/300,000 -- / --
Barry C. Cosgrove....... -- -- 127,388/247,028 361,718/ --
Stan M. Lindenfeld...... -- -- 141,277/274,805 120,570/ --
John J. McDonough....... -- -- 20,000/160,000 -- / --
Victor M.G. Chaltiel.... -- -- 166,667/ -- -- / --
John E. King............ -- -- 135,721/107,445 120,570/ --
Leonard W. Frie......... -- -- 141,227/ -- 610,899/ --
</TABLE>
--------
(1) Value is determined by subtracting the exercise price from the fair market
value of $6.6875 per share, the closing price for our common stock as
reported by the New York Stock Exchange as of December 31, 1999, and
multiplying the remainder by the number of underlying shares of common
stock.
Employment agreements
On October 18, 1999, we entered into an employment agreement with Kent J.
Thiry. The employment agreement provides for an initial term through December
31, 2001 and will continue thereafter with no further action by either party
for successive one year terms. Mr. Thiry's annual compensation will be subject
to annual increases consistent with the California consumer price index. Mr.
Thiry will be entitled to receive a bonus of up to 150% of his base salary each
year, based upon our achievement of performance goals to be mutually agreed
upon by Mr. Thiry and our compensation committee. For the year 2000, Mr. Thiry
is guaranteed a minimum bonus of $500,000. In the event of a constructive
discharge following a change in control or a termination for any reason other
than material cause, Mr. Thiry will be entitled to a lump sum payment equal to
his then-current base salary. Any additional compensation payable to Mr. Thiry
upon a change in control of TRCH would not be reduced by tax obligations
possibly imposed by sections 280G or 4999 of the Internal Revenue Code of 1986.
On March 2, 1998 we entered into new employment agreements with each of
Barry C. Cosgrove and Stan M. Lindenfeld. These employment agreements provide
for an initial term through December 31, 1998 and will continue thereafter with
no further action by either party for successive one year terms. Each of these
executive officers' base salaries will be subject to annual increases
consistent with the California consumer price index. Each of these executive
officers also will be entitled to receive a bonus of up to 75% of his base
salary each year. Fifty percent of this bonus will be based upon our
achievement of earnings per share targets and 50% will be granted at the
discretion of our compensation committee. In the event of a constructive
discharge following a change in control of TRCH or a termination for any reason
other than material cause, each of these executive officers will be entitled to
a lump sum payment equal to his then-current base salary. Any additional
compensation payable to these executive officers upon a change in control would
not be reduced by tax obligations possibly imposed by sections 280G or 4999 of
the Internal Revenue Code of 1986.
On March 1, 1998 we entered into an employment agreement with John J.
McDonough. The agreement continues until either party terminates the agreement.
Mr. McDonough's employment with the Company can be terminated by either the
Company or Mr. McDonough with or without cause at any time.
13
<PAGE>
Mr. McDonough's base salary will be subject to annual increases consistent with
the consumer price index for the most proximate geographic area in which Mr.
McDonough is employed. Mr. McDonough will also be entitled to receive a bonus
of up to 50% of his base salary each year. Fifty percent of this bonus will be
based upon our achievement of earnings per share targets and 50% will be
granted at the discretion of our compensation committee. In the event of
discharge for any reason other than material cause, disability or death, Mr.
McDonough will be entitled to a lump sum payment equal to one-half his then-
current base salary and any bonus provided for under his employment agreement.
In September 1999 we implemented a key employee retention program
approved by our board of directors. Messrs. Cosgrove, McDonough, and Dr.
Lindenfeld were selected to participate in this program. The program guaranteed
each executive a stay bonus, $100,000 for Mr. Cosgrove, $75,000 for Dr.
Lindenfeld, and $50,000 for Mr. McDonough, if he continued his employment with
us through January 1, 2000. The program also guaranteed payment of 50% of each
executive's target bonus amount for 1999, if he continued his employment with
us through March 1, 2000. In order to be eligible to participate in this plan,
each key employee was required to relinquish voluntarily his stock options with
an exercise price in excess of $30.00 per share, if any. Messrs Cosgrove,
McDonough, and Dr. Lindenfeld received these bonus amounts in 2000.
George B. DeHuff resigned as our President and Chief Operating Officer
effective March 15, 2000. Mr. DeHuff will receive, as severance, twelve months
of base salary, payable in bi-weekly installments. This severance will be
offset by Mr. DeHuff's earnings from other employment or consulting services
during this twelve-month period.
On May 17, 1999 we had entered into an employment agreement with Mr.
DeHuff. The employment agreement provided for an initial term through May 16,
2001, to continue thereafter with no further action by either party for
successive one year terms. Mr. DeHuff's annual compensation was subject to
annual increases consistent with the California consumer price index. Mr.
DeHuff was entitled to receive a bonus of up to 100% of his base salary each
year. Fifty percent of this bonus was to be based upon our achievement of
earnings per share targets and 50% was to be granted at the discretion of the
compensation committee. In the first year of Mr. DeHuff's employment agreement
he was guaranteed a minimum bonus of $155,000 which was paid on March 1, 2000.
In the event of a constructive discharge following a change in control of TRCH
or a termination for any reason other than material cause, Mr. DeHuff was
entitled to a lump sum payment equal to his then-current base salary.
Victor M.G. Chaltiel resigned as our Chairman of the Board and Chief
Executive Officer effective August 4, 1999. On October 6, 1999, we entered into
a severance agreement with Mr. Chaltiel. The severance agreement provided for a
separation payment to Mr. Chaltiel of $766,580, which was paid to Mr. Chaltiel
on October 26, 1999, and the payment of $9,000 to Mr. Chaltiel to reimburse him
for his legal fees incurred in connection with the negotiation of the severance
agreement and related matters. Also, Mr. Chaltiel's option to purchase up to
166,667 shares of common stock was amended so that the unvested portion of the
option, covering 55,555 shares, became fully vested as of August 4, 1999, and
to provide that the option will remain exercisable until August 4, 2002.
Mr. Chaltiel had entered into an employment agreement with us on August
14, 1994, pursuant to which he was employed for an initial term of three years,
with one year automatic extensions at the end of each year. We could terminate
this agreement at any time, subject, among other things, to severance payments
as provided in the employment agreement. His base salary paid during 1998 was
$315,026 and was subject to annual review by our board for possible increases,
with a minimum increase tied to the California consumer price index. Until May
31, 1999, Mr. Chaltiel was entitled to a yearly bonus of up to 150% of his base
salary based upon our achieving certain EBITDA performance targets. He also
could be awarded an additional bonus at the discretion of our board of
directors if EBITDA targets were exceeded by more than 15%. After May 31, 1999,
Mr. Chaltiel would be awarded bonuses in a manner as determined in the sole
discretion of the board, on a basis reasonably consistent with past bonuses for
similar performance.
14
<PAGE>
On March 2, 1998 we amended Mr. Chaltiel's employment agreement to ensure
that any additional compensation payable to Mr. Chaltiel upon a change in
control of TRCH would not be reduced by tax obligations possibly imposed by
sections 280G or 4999 of the Internal Revenue Code of 1986.
John E. King resigned as our Senior Vice President, Finance and Chief
Financial Officer effective July 16, 1999. On October 18, 1999 we entered into
a severance agreement with Mr. King. The severance agreement provided for a
severance payment to Mr. King of $180,000, to be paid on January 3, 2000, and
for Mr. King to provide services to us on the following terms. From July 16,
1999 through August 18, 1999, Mr. King provided services to us on a full-time,
exclusive basis and received compensation for his services at the rate of
$5,000 per week. From September 13, 1999 until December 31, 1999 Mr. King
continued to provide services to us on an as-needed, non-exclusive basis.
During this period, Mr. King was compensated at the rate of $1,000 per day for
services rendered. We were also required to reimburse Mr. King for his
reasonable out-of-pocket expenses incurred in providing these services, subject
to our Chief Executive Officer's approval. Mr. King also remains obligated
under his employment agreement with us to provide up to 120 hours per year of
additional services until July 16, 2001. Furthermore, Mr. King's options to
purchase our common stock were amended as follows: to allow them to continue to
vest for one year following his resignation as if Mr. King was still our
employee during that period; to extend until July 16, 2000 the exercise period
of his options that were already vested on July 19, 1999; to allow him to
exercise any portion of his options that vests after his resignation as if he
had been terminated for cause effective on the date on which the options vest;
and to accelerate the vesting of his options that would otherwise vest before
July 16, 2000 in the event of a change in control of TRCH before July 16, 2000.
In connection with the termination of his employment effective August 9,
1999, Leonard W. Frie received a lump sum payment of $197,423, the amount of
his then-current base annual salary. Mr. Frie was entitled to receive this
payment under his employment agreement.
The terms of the employment agreements we had with Messrs. King and Frie
were similar to our employment agreements with Mr. Cosgrove and Dr. Lindenfeld,
which are described above.
Each of Messrs. Thiry, Barry, Cosgrove, DeHuff, Frie, King, McDonough and
Dr. Lindenfeld also have been granted options pursuant to our equity
compensation plans. These options generally vest at a rate of 25% per year over
four years. The exercise prices of the options range from $0.90 per share to
$32.1875 per share.
Options granted to our executive officers provide for the immediate
vesting of all of their stock options at any time following the sale of 50% or
more (40% or more in the case of Mr. Thiry) of our stock or assets, or upon a
merger, consolidation or reorganization in which we do not survive, if their
employment is terminated for any reason.
15
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
REGARDING COMPENSATION
The compensation committee of the board of directors is currently
composed of three independent, nonemployee directors. The committee regularly
meets once each year and holds special meetings as required.
Compensation objectives
We have two primary objectives in setting executive officer compensation:
. Attract and retain outstanding leadership; and
. Align executive compensation with the yearly and long-term goals of
the company, with an emphasis on variable (vs. fixed) compensation
tied to corporate and individual performance.
Executive compensation
Towards the end of each fiscal year or at the beginning of the following
fiscal year, a compensation review is conducted by our Chief Executive Officer
for each executive officer. Annual salary and bonus recommendations are then
made to and reviewed and voted upon by the compensation committee at the
regular year-end meeting.
Included in the committee's criteria for approval of recommended salary
adjustments, and particularly bonuses and stock option awards, are achievements
against annual financial and non-financial targets set at the beginning of the
fiscal year for each executive. The financial objectives consist of
improvements in company net operating profit, return on total capital and
revenue growth. The non-financial objectives consist of improvements in quality
of care, selection and implementation of financial and clinical information
systems, enhancement of management performance throughout our organization and
advancement of business initiatives which enhance our mission to be the
provider, partner and employer of choice.
For 1999, compensation for executive officers included cash bonuses and
stock options. Compensation was weighted toward these variable components, with
the long-term objective of shifting to more variable pay for performance.
Bonuses ranged from $32,500 to $456,000, excluding that for our Chief Executive
Officer. 1999 bonuses for several executives also included the final
installment of special bonuses paid for services in connection with our merger
with Renal Treatment Centers, Inc. completed in 1998.
CEO compensation
Mr. Thiry's current compensation was negotiated with him when he agreed
to become our new Chairman and Chief Executive Officer. Within the framework of
Mr. Thiry's employment agreement, the compensation committee has some latitude
in setting future salary and bonus levels and granting stock options.
Philosophically, the compensation committee is attempting to relate executive
compensation to those variables over which the individual executive generally
has control.
In October 1999, we entered into an employment agreement with Mr. Thiry.
Under the employment agreement, Mr. Thiry's annual salary was established at
$500,000 subject to annual increases consistent with the California consumer
price index and annual review for merit increases. Mr. Thiry will be entitled
to receive a bonus of up to 150% of his base salary each year, based upon our
achievement of performance goals to be mutually agreed upon by Mr. Thiry and
the compensation committee. For the year 2000, Mr. Thiry is guaranteed a
minimum bonus of $500,000.
In accordance with the terms of his employment agreement, Mr. Thiry has
received two nonqualified stock options under our 1997 Equity Compensation
Plan, one of which was granted on October 18, 1999 entitling him to purchase up
to 500,000 shares of our common stock at an exercise price of $6.00 per share
(the
16
<PAGE>
fair market value on the date of grant) and one of which was granted on January
27, 2000 entitling him to purchase 500,000 shares of our common stock at an
exercise price equal to $5.14 per share (the average of the last sale price for
our common stock on January 19, 2000 through January 26, 2000). Each of these
stock options will vest 25% on each anniversary of the date of Mr. Thiry's
employment agreement, so that all of the stock options will be fully vested on
October 18, 2003.
Long-term incentive compensation
To be competitive in attracting and retaining qualified executive
officers and to provide them with performance incentives in addition to salary
and bonuses, we adopted the 1997 and 1999 equity compensation plans. In
approving stock option grant recommendations, the compensation committee
considers primarily the impact the executive is expected to have on increasing
stockholder value, and recent performance toward specific goals that contribute
to that result. Such specific goals differ among executives, but all relate to
the speed and effectiveness with which the company is positioned for becoming
the provider, partner and employer of choice.
$1 million pay cap
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction for compensation paid to a company's senior executive officers in
excess of $1 million per person in any year. Excluded from the $1 million
limitation is compensation which meets pre-established performance criteria or
results from the exercise of stock options which meet established criteria.
While we generally intend to qualify payment of compensation under section
162(m), we reserve the right to pay compensation to our executives from time to
time that may not be tax deductible.
COMPENSATION COMMITTEE
Richard B. Fontaine
Peter T. Grauer
C. Raymond Larkin, Jr.
17
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Several of our officers and employees have received loans from us in
connection with the purchase of shares of our common stock. All of the loans
have similar terms. The loans bear interest at the lower of 8% or the prime
rate, and are secured by all of the borrower's interests in our common stock,
including all vested stock options. When made, the loans had a four-year term
and one quarter of the original principal amount thereof plus all accrued
interest thereon had to be paid annually, subject to the limitation that the
borrower was not required to make any payment that exceeded 50% of the after-
tax proceeds of such borrower's bonus from us, based on maximum tax rates then
in effect. To date, our board has approved deferrals of all scheduled principal
and accrued interest payments under all such loans. No other terms of the loans
have been changed. As of June 2000, Barry C. Cosgrove had a loan outstanding
from us in the amount of $80,000 including principal and accrued interest.
Richard K. Whitney has a loan outstanding from us in the principal amount
of $65,000. This loan bears interest at 7% per annum and is secured by Mr.
Whitney's options to purchase our common stock. Interest is being paid monthly
on this loan and the principal balance is due in full in July 2002.
Maris Andersons, one of our directors, has also served as a consultant to
us. In addition to receiving compensation as a member of the board, Mr.
Andersons has been granted options, vesting over four years, to purchase an
aggregate of 76,972 shares of our common stock in consideration for these
services. As of June 15, 2000, Mr. Andersons had exercised 55,555 of these
options leaving a balance of 21,417 options to purchase shares of our common
stock. Mr. Andersons also received consulting fees from us of $100,000 in
consideration of the substantial time and energy required of him in overseeing
our financial operations and his role in negotiations with our senior lenders
until we hired a new chief financial officer in February 2000.
Shaul G. Massry, one of our directors, formerly served as a consultant to
us. In addition to receiving compensation as a member of the board, Dr. Massry
also was entitled to receive $120,000 per year, $70,000 of which was an advance
against commissions resulting from acquisitions that he introduced to us, and
received options, vesting over four years, to purchase an aggregate of 87,222
shares of our common stock in consideration for these services. This consulting
agreement was terminated effective in June 2000. As of June 15, 2000, Dr.
Massry had exercised 11,110 of these options leaving a balance of 76,112
options to purchase shares of our common stock.
DLJ and certain of its affiliates from time to time perform various
investment banking and other services for us, for which we pay customary
consideration. In addition, affiliates of DLJMBP are included in the syndicate
of lenders under our credit facilities. An affiliate of DLJMBP, Peter T.
Grauer, serves on our board.
We have entered into indemnity agreements with each of our directors and
all of our officers, which agreements require us, among other things, to
indemnify them against certain liabilities that may arise by reason of their
status or service as our directors, officers, employees or agents, other than
liabilities arising from conduct in bad faith or which is knowingly fraudulent
or deliberately dishonest, and, under certain circumstances, to advance their
expenses incurred as a result of proceedings brought against them.
Compensation committee interlocks and insider participation
None of our executive officers or directors serves as a member of the
board of directors or compensation committee of any other entity which has one
or more executive officers serving as a member of our board. During 1999,
Messrs. Thiry, Chaltiel and Andersons and Dr. Massry were our officers,
employees or consultants. Messrs. Andersons, Fontaine, Grauer, and Larkin and
Ms. Herzlinger, who is no longer a director, each served as a member of the
compensation committee of our board of directors during 1999.
18
<PAGE>
STOCK PRICE PERFORMANCE
The following graph shows a comparison of our cumulative total returns,
the Standard & Poor's MidCap 400 Index and a peer group index that we
constructed. The graph assumes that the value of an investment in our common
stock and in each such index was $100 on October 31, 1995, the date our common
stock was registered under Section 12 of the Securities Exchange Act of 1934,
and that all dividends have been reinvested. The peer group index consists of
the following companies: Renal Care Group, Renal Treatment Centers and Vivra,
adjusted to reflect the cessation of trading in Vivra's stock as of June 12,
1997, and Renal Treatment Centers' stock as of February 27, 1998. We believe
that the companies in the peer group index were or are our primary competitors.
The peer group index is weighted for the market capitalization of each company
within the group.
The comparison in the graph below is based on historical data and is not
intended to forecast the possible future performance of our common stock.
Comparison of Cumulative Total Return Among
Total Renal Care Holdings, Inc., the Standard & Poor's MidCap 400 Index,
and Total Renal Care Holdings, Inc.'s Self-Constructed Peer Group
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
October 31, December 29, December 31, December 31, December 31, December 31,
1995 1995 1996 1997 1998 1999
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Total Renal Care
Holdings, Inc. ........ 100.00 147.24 177.91 224.95 241.82 54.70
Peer group index........ 100.00 116.87 138.47 213.85 281.29 228.20
S&P MidCap 400 Index.... 100.00 104.12 124.12 164.13 195.51 224.27
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The information contained above under the captions "Report of the
compensation committee regarding compensation" and "Stock price performance"
will not be considered "soliciting material" or to be "filed" with the
Securities and Exchange Commission, nor will that information be incorporated
by reference into any future filing under the Securities Act of 1933 or the
Securities Exchange Act of 1934, except to the extent that we specifically
incorporate it by reference into a filing.
19
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PROPOSAL NO. 2
AMENDMENT TO OUR
CERTIFICATE OF INCORPORATION
TO CHANGE OUR NAME
Our board of directors has approved, subject to stockholder approval, an
amendment to our Certificate of Incorporation which will effect a change in our
name from Total Renal Care Holdings, Inc. to DaVita, Inc. The complete text of
the amendment is set forth as Exhibit B to this proxy statement. Our board of
directors believes that it is in our best interest to effect the name change in
order to make a statement to our employees, patients, suppliers and
stockholders that we are in many respects a new company setting a different
course with a different operating approach.
The amendment will be presented to stockholders in the form of a
resolution as follows:
RESOLVED, that Article I of the Amended and Restated Certificate of
Incorporation of the Corporation be amended so that such Article, as
amended, shall be and read as follows:
"The name of the corporation is DaVita, Inc. (the "Corporation")."
If the amendment is approved by the requisite vote of our stockholders,
the name change will be effective upon the close of business on the date of
filing of the amendment with the Delaware Secretary of State, which filing is
expected to take place shortly after the annual meeting. If this proposal is
not approved by our stockholders, then the amendment will not be filed.
Recommendation and required vote
Our board of directors has unanimously approved this amendment. A
majority of the outstanding shares entitled to vote on this matter must vote
for approval of the proposed amendment for the stockholders to approve this
proposed amendment. Abstentions and broker non-votes will have the effect of
negative votes. Our board of directors is of the opinion that this amendment is
advisable and in our best interests and recommends a vote FOR the approval of
this amendment. All proxies will be voted to approve this amendment unless a
contrary vote is indicated on the enclosed proxy card.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
APPROVAL OF THE AMENDMENT TO EFFECT THE CHANGE OF OUR NAME, AND YOUR PROXY WILL
BE SO VOTED UNLESS YOU SPECIFY OTHERWISE.
INDEPENDENT ACCOUNTANTS
Our audit committee is exploring the possibility of appointing a new
accounting firm to serve as our independent auditors for our 2000 financial
statements. PricewaterhouseCoopers LLP, our independent auditors since 1995,
remain our independent auditors at this time. The audit committee is soliciting
proposals from several large firms, but no firm has been selected to date. A
member of PricewaterhouseCoopers LLP is expected to be present at the annual
meeting, will have an opportunity to make a statement if so desired, and will
be available to respond to appropriate questions regarding their audit of our
1999 financial statements.
20
<PAGE>
STOCKHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
If you wish to present a proposal for action at the 2001 annual meeting
of stockholders and wish to have it set forth in the proxy statement and form
of proxy that management will prepare, you must notify us no later than
February 22, 2001 in the form required under the rules and regulations
promulgated by the SEC. Otherwise, your proposal will not be included in
management's proxy materials.
If you wish to present a proposal for action at the 2001 annual meeting
of stockholders, even though it will not be included in management's proxy
materials, our bylaws require that you must notify us no earlier than 90 days,
and no later than 60 days, before the date of the 2001 annual meeting. However,
if we do not notify you, or otherwise publicly disclose, the date of the 2001
annual meeting at least 70 days before the date of the meeting, you may notify
us of the proposal you wish to present within ten days after the day on which
we mail notice of, or otherwise publicly disclose, the date of the 2001 annual
meeting. Your notice must be in the form required by our bylaws.
OTHER MATTERS
Our board does not know of any other matters to be presented at the 2000
annual meeting of stockholders but, if other matters do properly come before
the meeting, it is intended that the persons named as proxies in the proxy will
vote on them in accordance with their best judgment.
A copy of our 1999 annual report is being mailed to each stockholder of
record together with this proxy statement. The 1999 annual report includes our
annual report on Form 10-K for the year ended December 31, 1999, as amended.
This report contains detailed information about us and our operations,
supplementary financial information and certain schedules. The annual report
and Form 10-K are not part of our proxy soliciting material.
By order of the board of directors
Steven J. Udicious
Vice President, Secretary
and General Counsel
Torrance, California
June 22, 2000
21
<PAGE>
EXHIBIT A
TOTAL RENAL CARE HOLDINGS, INC.
AUDIT COMMITTEE CHARTER
June 8, 2000
I. Audit Committee Purpose
The Audit Committee is appointed by the Board of Directors to assist the
Board of Directors in fulfilling its oversight responsibilities. The Audit
Committee's primary duties and responsibilities are to:
. Monitor the integrity of the Company's financial reporting process
and systems of internal controls regarding finance, accounting, and
legal compliance.
. Monitor the independence and performance of the Company's independent
auditors and internal auditing department. The independent auditors
are ultimately accountable to the Audit Committee and the Board of
Directors.
. Provide an avenue of communication among the independent auditors,
management, the internal auditing department, and the Board of
Directors.
The Audit Committee has the authority to conduct any investigation
appropriate to fulfilling its responsibilities, and it has direct access to the
independent auditors as well as anyone in the Company. The Audit Committee has
the ability to retain, at the Company's expense, special legal, accounting, or
other experts it deems necessary in the performance of its duties.
II. Audit Committee Composition and Meetings
The composition of the Audit Committee shall meet the requirements of the
New York Stock Exchange. The Audit Committee shall be comprised of three or
more directors as determined by the Board of Directors, each of whom shall be
independent nonexecutive directors, free from any relationship that would
interfere with the exercise of his or her independent judgment. All members of
the Audit Committee shall have a basic understanding of finance and accounting
and be able to read and understand fundamental financial statements, and at
least one member of the Audit Committee shall have accounting or related
financial management expertise.
Audit Committee members shall be appointed by the Board of Directors. If
the Committee Chair is not designated or present, the members of the Audit
Committee may designate a Committee Chair by majority vote.
The Audit Committee shall meet at least four times annually, or more
frequently as circumstances dictate. The Committee Chair shall prepare and/or
approve an agenda in advance of each meeting. The Audit Committee shall meet in
executive session and separately with each of the following at least annually:
management, the Vice President of Audit and Compliance, and the independent
auditors. In addition, the Audit Committee, the Committee Chair, or another
Audit Committee member designated by the Audit Committee shall communicate with
management and the independent auditors quarterly to review the Company's
financial statements and significant findings based upon the auditors' limited
review procedures.
III. Audit Committee Responsibilities and Duties
1. Review and reassess the adequacy of this Charter at least annually.
Submit this Charter to the Board of Directors for approval and have
it published at least every three years in accordance with Securities
and Exchange Commission regulations.
2. Determine the integrity of the Company's financial reporting
processes and controls through consultation with management, the
independent auditors, and the internal auditors. Discuss
A-1
<PAGE>
significant risk areas and the steps management has taken to monitor,
control, and report such exposures. Review significant findings
prepared by the independent auditors and the internal auditing
department together with management's responses.
3. Review with management and the independent auditors the Company's
annual audited financial statements prior to filing or distribution.
Discuss significant issues regarding accounting principles, practices
and judgments, and other matters required to be communicated to audit
committees in accordance with AICPA SAS 61.
4. Review with management and the independent auditors the Company's
quarterly financial results prior to the release of earnings and the
Company's quarterly financial statements prior to filing or
distribution. Discuss any significant changes to the Company's
accounting principles and any items required to be communicated by
the independent auditors in accordance with AICPA SAS 61. The
Committee Chair or another designated Audit Committee member may
represent the entire Audit Committee for purpose of this review.
5. Review the independence and performance of the auditors. Annually
recommend to the Board of Directors the appointment of the
independent auditors, and approve any discharge of the independent
auditors when circumstances warrant. Approve the fee schedules and
other significant compensation to be paid to the independent
auditors, and review all significant relationships they have with the
Company or other matters that could bear on the independent auditors'
independence.
6. Review the independent auditors' audit plan including scope
considerations, staffing, and reliance upon internal audit.
7. Review the budget, plan, activities, organizational structure, and
qualifications of the Audit and Compliance department, as needed.
Review the appointment, and performance of the Vice President of
Audit and Compliance.
8. Review with the Company's counsel any legal matters that may have a
material impact on the Company's financial statements, the Company's
compliance with applicable laws and regulations, and material reports
or inquiries received from governmental agencies.
9. Review the Company's Code of Conduct and associated compliance
monitoring at least annually.
10. Review a summary of related party transactions and potential
conflicts of interests with regard to directors and officers at
least annually.
11. Prepare a report to shareholders as required by the Securities and
Exchange Commission, for inclusion in the Company's annual proxy
statement.
12. Perform any other activities consistent with this Charter, the
Company's by-laws and applicable laws as the Audit Committee or the
Board of Directors deems necessary or appropriate.
A-2
<PAGE>
EXHIBIT B
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
TOTAL RENAL CARE HOLDINGS, INC.
Total Renal Care Holdings, Inc. (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of
the State of Delaware, does hereby certify:
FIRST: That the Corporation was originally incorporated under the name
Medical Ambulatory Care Delaware, Inc., and the date of the filing of the
Corporation's original Certificate of Incorporation with the Delaware Secretary
of State was April 4, 1994.
SECOND: That the Board of Directors of the Corporation adopted a
resolution proposing and declaring advisable the following amendment to the
Corporation's Certificate of Incorporation:
"NOW, THEREFORE, BE IT RESOLVED, that Article I of the Amended and
Restated Certificate of Incorporation of the Corporation be amended so
that such Article, as amended, shall be and read as follows:
"The name of the corporation is DaVita, Inc. (the "Corporation")."
THIRD: That the foregoing amendment was duly adopted by all of the duly
elected directors of the Corporation in accordance with the applicable
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: The foregoing amendment was duly adopted by a majority of the
outstanding shares of stock of the Corporation in accordance with the
applicable provisions of Section 242 of the General Corporation Law of the
State of Delaware and the Corporation's Certificate of Incorporation.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by Steven J. Udicious, its Vice President, General Counsel and
Secretary, this day of July, 2000.
TOTAL RENAL CARE HOLDINGS, INC.,
a Delaware corporation
By: ___________________________
Steven J. Udicious,
Vice President, General Counsel
and Secretary
B-1
<PAGE>
TOTAL RENAL CARE HOLDINGS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS - JULY 25, 2000
TO OUR STOCKHOLDERS
We will hold our 2000 annual meeting of the stockholders of Total Renal
Care Holdings, Inc., a Delaware corporation, on Friday July 25, 2000 at 9:00
a.m., Los Angeles time, at the Torrance Marriott, 3635 Fashion Way, Torrance,
California 90503. As further described in the accompanying Proxy Statement, at
this meeting we will:
1. Elect six directors to our board of directors to serve for a term of
one year or until their successors are duly elected and qualified.
2. Consider and act upon a proposal to approve the proposed amendment of
our Certificate of Incorporation to change our name from Total Renal
Care Holdings, Inc. to DaVita, Inc.
3. Transact other business as may come properly before the meeting or any
meetings held upon adjournment of the meeting.
Our board of directors has fixed the close of business on June 16, 2000
as the record date for the determination of stockholders entitled to vote at
the meeting or any meetings held upon adjournment of the meeting. Only record
holders of our common stock at the close of business on that day will be
entitled to vote. A copy of our 1999 annual report to stockholders is enclosed
with this notice, but is not part of the proxy soliciting material.
We invite you to attend the meeting and vote in person. If you cannot
attend, to assure that you are represented at the meeting, please sign and
return the enclosed proxy card as promptly as possible in the enclosed postage
prepaid envelope. If you attend the meeting, you may vote in person, even if you
previously returned a signed proxy.
By order of the board of directors,
Steven J. Udicious
Vice President,
Secretary and General Counsel
Torrance, California
June 22, 2000
-- Detach Proxy Card Here --
--------------------------------------------------------------------------------
[ ]
The Directors recommend a vote FOR all Nominees listed in Proposal 1.
1. Election of Directors
FOR all nominees [_] WITHHOLD AUTHORITY to [_] EXCEPTIONS [_]
listed below vote for all nominees
listed below
Nominees: Maris Andersons, Richard B. Fontaine, Peter T. Grauer, C. Raymond
Larkin, Jr., Shaul G. Massry, Kent J. Thiry
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark
the "Exceptions" box and write that nominee's name in the space provided
below.)
Exceptions
------------------------------------------------------------------
2. Proposal to approve the amendment of the Company's Certificate of
Incorporation to change the Company's name to DaVita, Inc.
FOR [_] AGAINST [_] ABSTAIN [_]
3. Such other matters as may properly come before the meeting.
Change of Address and or
Comments Mark Here [_]
Please sign exactly as your name appears
hereon. When signing as attorney, executor,
administrator, trustee, guardian, or
corporate officer, please indicate full
title.
Dated: , 2000
--------------------------
--------------------------------------
Signature(s)
--------------------------------------
Signature(s)
Votes must be indicated
[X] in Black or Blue Ink. [_]
Please mark, sign, date and return this Proxy in the accompanying prepaid
envelope.
Please Detach Here
You Must Detach This Portion of the Proxy Card
Before Returning it in the Enclosed Envelope
<PAGE>
TOTAL RENAL CARE HOLDINGS, INC.
COMMON STOCK PROXY BOARD OF DIRECTORS
This Proxy is solicited on behalf of the Board of Directors of TOTAL RENAL
CARE HOLDINGS, INC.
The undersigned hereby appoints Kent J. Thiry or Steven J. Udicious or either
of them, the true and lawful attorneys and proxies of the undersigned, with full
power of substitution to vote all shares of the Common Stock, $0.001 par value
per share, of TOTAL RENAL CARE HOLDINGS, INC., which the undersigned is entitled
to vote at the annual meeting of the stockholders of TOTAL RENAL CARE HOLDINGS,
INC., to be held at 9:00 A.M., Pacific Time, on July 25, 2000 at the
Torrance Marriott, 3635 Fashion Way, Torrance, California and any and all
adjournments thereof, on the proposals set forth below and any other matters
properly brought before the meeting.
Unless a contrary direction is indicated, this Proxy will be voted FOR all
nominees listed in Proposal 1 and FOR approval of Proposal 2. If specific
instructions are indicated, this Proxy will be voted in accordance therewith.
All Proxies to vote at said meeting or any adjournment heretofore given by the
undersigned are hereby revoked. Receipt of Notice of Annual Meeting and Proxy
Statement dated June 22, 2000 is hereby acknowledged.
TOTAL RENAL CARE HOLDINGS, INC.
P.O. BOX 11308
NEW YORK, N.Y. 10203-0308
