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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTIONProxy Statement Pursuant to Section 14(a) OF THE SECURITIES EXCHANGE ACT OFof the Securities
Exchange Act of 1934 (AMENDMENT NO.(Amendment No. )
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[_] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULEConfidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] DEFINITIVE PROXY STATEMENTDefinitive Proxy Statement
[_] DEfinitiveDefinitive Additional Materials
[_] SOLICITING MATERIAL PURSUANT TO SECTIONSoliciting Material Pursuant to (S) 240.14a-11(c) OR SECTIONor (S) 240.14a-12
TOTAL RENAL CARE HOLDINGS, INC.
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(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
N/A(Name of Registrant as Specified In Its Charter)
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(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
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TOTAL RENAL CARE HOLDINGS, INC.
[LOGO OF TOTAL RENAL CARE HOLDINGS, INC.]
TOTAL RENAL CARE HOLDINGS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
December 17, 1999
TO OUR STOCKHOLDERS:July 25, 2000
To Our Stockholders:
We will hold our 19992000 annual meeting of the stockholders of Total Renal
Care Holdings, Inc., or TRCH, a Delaware corporation, on Friday, December 17,
1999Tuesday, July 25, 2000
at 9:3000 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 fivesix directors to our board of directors to serve for a
term of one year or until their successors are duly elected
and qualified.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. 1999 Equity Compensation Plan.to DaVita, Inc.; and
(c) Consider and act upon a proposal to increase the number of shares
authorized to be issued under our Employee Stock Purchase Plan.
(d) 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 November 4, 1999June 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 19981999 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,
Barry C. Cosgrove
SeniorSteven J. Udicious
Vice President, Secretary
and General Counsel
and Secretary
Torrance, California
November 15, 1999June 22, 2000
[LOGO OF TOTAL[TOTAL RENAL CARE HOLDINGS, INC.] LOGO]
TOTAL RENAL CARE HOLDINGS, INC.
21250 Hawthorne Boulevard
Torrance, California 90503
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PROXY STATEMENT
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GENERAL INFORMATION
We are sending you this proxy statement on or about November 15, 1999June 22, 2000 in
connection with the solicitation of proxies by our board of directors. The
proxies are for use at our 19992000 annual meeting of stockholders, which we will
hold at 9:3000 a.m., Los Angeles time, on Friday, December 17, 1999,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 November 4, 1999.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 insureensure 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. 1999 Equity Compensation
Plan;
. to approve the increase in the number of shares authorized under our
Employee Stock Purchase Plan;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 81,188,80081,544,000 shares of common
stock outstanding and approximately 1,9002,200 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 certainsome 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
The voting requirements for the proposals we will consider at the meeting
are:
. Election of directors. The fivesix 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 1999 Equity Compensation Plan.the proposed amendment of our Certificate of
Incorporation to change our name. A majority of the outstanding
shares present
in person or by proxy at the meeting and entitled to vote on this matter must vote for approval of the
planproposed amendment for the stockholders to approve the plan.proposed
amendment. Abstentions and broker non-votes have the effect of
negative votes. Broker non-votes will
not affect the outcome, as they represent shares that are not entitled to
vote on this matter.
. Approval of increase in shares for Employee Stock Purchase Plan. A majority
of the shares present in person or by proxy at the meeting and entitled to
vote on this matter must vote for approval of the increase in the number of
shares that may be issued under the plan for the stockholders to approve
the increase. Abstentions have the effect of negative votes. Broker non-
votes will not affect the outcome, as they represent shares that are not
entitled to vote on this matter.
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.
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PROPOSAL NO. 1
ELECTION OF DIRECTORS
As of November 15, 1999,June 22, 2000, we have authorized a sevensix member board of directors,
all of whom are to be elected annually.
Two of the current
directors, Victor M.G. Chaltiel and Regina E. Herzlinger, have decided not to
stand for re-election at the 1999 annual meeting. Accordingly, we will reduce
the number of authorized directors to five immediately prior to the 1999 annual
meeting.
At the meeting, you will elect fivesix directors to serve for a term of
office consisting of the coming year or until their respective successors are
elected and qualified. Our board intends to nominatehas nominated the fivesix 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 other than under the shareholders agreement described in the
"Certain Relationships and Related Transactions" section of this proxy
statement.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:
Name Age Position
----- ------------------------ --- -------------------------------------------------------------------
Kent J. Thiry............ 43Thiry........... 44 Chairman of the Board, Chief Executive Officer and Director
Maris Andersons.......... 62Andersons......... 63 Director
Richard B. Fontaine......Fontaine..... 56 Director
Peter T. Grauer..........Grauer......... 54 Director
C. Raymond Larkin,
Jr. ................... 52 Director
Shaul G. Massry.......... 68Massry......... 69 Director
Kent J. Thiry became our Chairman of the Board and Chief Executive
Officer onin October 18, 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 has held various senior executive offices with Tenet since 1976.
Prior to joining Tenet, Mr. Andersons served as a Vice President of Bank of
America.
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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
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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 Ameriserve
Food Distribution, Inc., DecisionOne Holdings Corporation, Doane
Pet Care Enterprises, Inc., Formica Corporation, Nebco Evans Holding Co., 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 concerning current directors not standing for re-election
The following table sets forth information concerning the members of our
board of directors who are not standing for re-election at the 1999 annual
meeting:
Name Age Position
---- --- --------
Victor M.G. Chaltiel..... 58 Director
Regina E. Herzlinger..... 55 Director
Victor M.G. Chaltiel has been one of our directors since August 1994. He
also served as our Chairman and CEO from August 1994 until August 1999 and as
our President from August 1994 until May 1999. Mr. Chaltiel served as President
and CEO of Abbey Healthcare Group, Inc., or Abbey, from November 1993 to
February 1994 and prior thereto as Chairman, CEO and President of Total
Pharmaceutical Care, Inc., or TPC, from March 1989 to November 1993, when Abbey
completed its acquisition of TPC.
Regina E. Herzlinger has been one of our directors since July 1997. Ms.
Herzlinger, the Nancy R. McPherson Professor of Business Administration Chair at
the Harvard Business School, has been a member of the faculty at the Harvard
Business School since 1971. Ms. Herzlinger is a director of C.R. Bard, Inc.,
Cardinal Health, Inc., Deere & Company, and Schering-Plough Corporation.
Information regarding our board of directors and its committees
Our board of directors met four32 times during 1998.1999. 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 1998.1999.
In 1998,1999, 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 consultsmonitors the integrity of our financial reporting process and meets withsystems
of internal controls, monitors the independence and performance of our
independent auditors and our Chief Financial Officerinternal auditing department and other financeprovides an avenue of
communication among the independent auditors, management, the internal auditing
department and accounting personnel,
reviews potential conflict of interest situations and reports and makes
recommendations to our full board of directors regarding these matters.directors. The audit committee held one meetingmet twice during
1998.
4
1999.
In 1998,1999, our compensation committee consisted of Maris Andersons, Peter
T. Grauer and Regina E. Herzlinger.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 certain of ourseveral other
executive officers. The compensation committee also establishes policies
relating to the compensation of our executive officers and other key employees
and administers our stock option plans.employees.
The compensation committee held four
meetingsmet once during 1998.
In July 1999, in connection with the resignation1999.
4
Compensation of our chief financial
officer, the board appointed a new finance committee, consisting solely of Maris
Andersons. The finance committee was formed to oversee our finance functions
and the transitioning of our finance functions to a new chief financial officer.
As of the date of this proxy statement, we have yet to appoint a new chief
financial officer.
In August 1999, following the resignation of our chief executive officer,
the board appointed an executive committee consisting of Maris Andersons, Regina
E. Herzlinger and Shaul G. Massry. The executive committee was formed to
oversee our day-to-day operational issues and to interface with the members of
our senior management team pending the hiring of a new chief executive officer.
We hired a new chief executive officer, Mr. Thiry, in October 1999.
In October 1999, the board appointed a nominating committee consisting of
Kent J. Thiry, Maris Andersons and Regina E. Herzlinger to recommend to the
board a slate of directors to stand for election at our 1999 annual meeting of
stockholders. The committee's recommended slate of directors was subject to the
approval of the board as a whole. The committee recommended, and the full board
approved, the slate of nominees that we are submitting to our stockholders at
our 1999 annual meeting. The nominating committee will consider nominees
recommended by holders of our common stock. Stockholders should submit any
recommendations in writing to the Secretary of TRCH at TRCH's principal
executive offices.
Director compensation
Directors who are our employees or officers do not receive compensation
for service on theour board of directors or any committee of the board. EachEffective
in December 1999 each of our directors who is not one of our officers or
employees is entitled to receive $60,000$30,000 per year and additional compensation
of $2,500 for each board meeting attended includingin 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 telephone.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 for 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.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 these options,the board, however, were accelerated and
became fully vested upon the hiring of Mr. Thiry as our new Chief Executive
Officer.Officer in October 1999.
In addition to these standard arrangements, in August 1999 Mr. Andersons,
Ms.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
vestvested over four years at an annual rate of 25% beginning on the first
anniversary of the date of grant, but will bewere accelerated and becomebecame fully vested
when we hirehired a new Chief Financial Officer.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
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS,
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding the ownership of our
common stock as of October 31, 1999June 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.proxy statement.
Except as otherwise noted under the "Certain Relationships and Related
Transactions,"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.
Number of Percentage
shares Percentage of shares
beneficially beneficially
Name of beneficial owner beneficially owned beneficially owned
- ---------------------------------------------------------------------- --------------------------------------------------------------------------------------------- ------------ ------------
Massachusetts Financial Services Company(1)........................... 9,569,751 11.8%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. Rowe Price Associates, Inc. (2).................................... 8,176,733 10.1%
100 East Pratt Street
Baltimore, MD 21202Grauer (5)................................. 72,500 *
C. Raymond Larkin, Jr............................... -- *
Shaul G. Massry (6)................................. 124,862 *
Kent J. Thiry (3)..................................................... 12,500(7)................................... 87,500 *
George B. DeHuff (4).................................................. 150,000Joseph C. Mello .................................... -- *
Barry C. Cosgrove (5)................................................. 173,982Richard K. Whitney (8).............................. 92,259 *
Stan M. Lindenfeld (6)................................................ 158,607(9).............................. 269,971 *
Victor M.G. Chaltiel (7).............................................. 1,200,857 1.5%
Maris Andersons (8)................................................... 109,055Gary W. Beil........................................ 40,000 *
Shaul G. Massry (9)................................................... 119,862John J. McDonough (10).............................. 50,189 *
Regina E. Herzlinger (10)............................................. 122,500 *
Peter T. GrauerSteven J. Udicious (11).................................................. 72,500 *
Richard B. Fontaine................................................... --............................. 18,681 *
All directors and executive officers as a group (10(12
persons) (12)..... 2,119,863 2.6%...................................... 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 (13)..................................................(15)................................ 287,488 *
John E. King (14)..................................................... 153,051(16)................................... 38,163 *
_____________________- --------
* Amount represents less than 1% of our common stock.
(1) Based upon information contained in aAmendment No. 1 to Schedule 13G filed
with the SEC on April 20, 1999.February 11, 2000. The number of shares beneficially owned
includes 122,21960,957 shares which may be acquired upon the conversion of our
convertible notes.
6
(2) Based upon information contained in Amendment No. 1 to a Schedule 13G filed with the SEC on
May 10, 1999.February 23, 2000.
(3) All shares are heldBased upon information contained in a family trust.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 150,000121,417 shares issuable upon the exercise of options which are
exercisable as of, or will become exercisable within 60 days of, October
31, 1999.June 15,
2000.
(5) Includes 127,38872,500 shares issuable upon the exercise of options which are
exercisable as of, or will become exercisable within 60 days of, October
31, 1999.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, October
31, 1999.
(7) Includes 166,667 shares issuable uponJune 15,
2000. Based on information available to us at the exercisetime of the employee's
resignation.
(16) No options which are exercisable as of, or will become exercisable within 60
days of, October
31, 1999.
(8) Includes 89,278 shares issuable uponJune 15, 2000. Based on information available to us at the exercisetime
of options which are
exercisable as of, or will become exercisable within 60 days of, October
31, 1999.
(9) Includes 119,862 shares issuable upon the exercise of options which are
exercisable as of, or will become exercisable within 60 days of, October
31, 1999.
(10) Includes 122,500 shares issuable upon the exercise of options which are
exercisable as of, or will become exercisable within 60 days of, October
31, 1999.
(11) Includes 72,500 shares issuable upon the exercise of options which are
exercisable as of, or will become exercisable within 60 days of, October
31, 1999.
(12) All directorsemployee's resignation and executive officers in office on November 10, 1999.
Includes 989,472 shares issuable upon the exercise of options which are
exercisable as of, or will become exercisable within 60 days of, October
31, 1999.
(13) Includes 207,943 shares issuable upon the exercise of options which are
exercisable as of, or will become exercisable within 60 days of, October
31, 1999.
(14) Includes 135,721 shares issuable upon the exercise of options which are
exercisable as of, or will become exercisable within 60 days of, October
31, 1999.
6subsequent option exercises.
7
EXECUTIVE OFFICERS, COMPENSATION
AND OTHER INFORMATION
ExecutiveInformation concerning our executive officers
The following table sets forth certain information concerning our executive
officers as of November 15, 1999:officers:
Name Age Position
----- -------------------------- --- ---------------------------------------------------------
Kent J. Thiry......... 43Thiry............. 44 Chairman of the Board and Chief Executive Officer
George B. DeHuff...... 46 President andJoseph C. Mello........... 41 Chief Operating Officer
Barry C. Cosgrove..... 42 Senior Vice President, General Counsel and SecretaryRichard K. Whitney........ 32 Chief Financial Officer
Stan M. Lindenfeld....Lindenfeld........ 52 Senior Vice President Quality Management 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
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 nominees tomembers of our board of directors" under
"Proposal No. 1, Election of Directors."
George B. DeHuff has beenabove.
Joseph C. Mello became our President and Chief Operating Officer since
May 1999. He also served as our interim Chief Executive Officer from August
1999 to October 1999.in June 2000. Prior to
joining us, from April 1998, Mr. DeHuffMello served as an executive
officer of American Medical Response, including President and Chief Executive
Officer from September 1997 to March 1999, Chief Operating Officer from August
1995 to August 1997 and Chief Executive Officer of American Medical Response
West from September 1994 to July 1995. From July 1991 to July 1994, he was
President and Chief Operating Officer of LifeFleet, Inc. From 1989 to 1991, he
was the President and Chief Executive
Officer of EECO Inc. PriorVivra Asthma & Allergy. He will continue in this role while
transitioning to 1989,his new position with us. From August 1994 to April 1998, Mr.
DeHuffMello held executivevarious positions with Price Waterhouse and HI-TEK Corporation.
Barry C. Cosgrove was promoted toMedPartners, Inc., including Senior Vice
President in October 1998President/Chief Operating Officer--Southeastern Region from Vice President, a position he held since August 1994. Mr. Cosgrove is also
our General Counsel and Secretary, positions he has held since August 1994.March 1997 to April
1998. Prior to joining us,MedPartners, Inc., Mr. Mello was a partner with KPMG
Peat Marwick LLC, from May 19911984 to April 1994,1994.
Richard K. Whitney became our Chief Financial Officer in February 2000.
From September 1998 until his appointment as Chief Financial Officer, Mr.
Cosgrove served as Vice
President, General Counsel and Secretary of TPC. From February 1988 to 1991,
Mr. CosgroveWhitney served as Vice President and General CounselManager of McGaw Laboratories,
Inc., a subsidiaryour International
Operations. Mr. Whitney joined us in June 1995 and has also served as Director
of the Kendall Company.Corporate Development and Vice President of Corporate Development. Prior to
February of 1988,joining us, Mr. CosgroveWhitney was associated with the Kendall Company for seven years in numerous corporate,
legalRFE Investment Partners, a private
equity investment firm, and management positions, including Assistant to the General Counsel.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 1981.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
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 ourthe executive officers has any family relationship with any other
executive officer or with any nominee toof our board of directors.
Section 16(a) beneficial ownership reporting compliance
Section 16(a) of the Securities Exchange Act of 1934 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 thesesuch forms we have received andby 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 1998.
71999.
9
Executive compensationCompensation
The following table sets forth the compensation we have paid to our chief
executive officer and to each of our four most highly compensated executive
officersor accrued by us for
each of the fiscal years in the three-year period ended December 31, 1998:1999 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
Long Term Compensation
------------------------------------------------------------------------------
Annual Compensation Awards Payouts
-------------------------------------- --------------------------------------------------------------------------------- --------------------- -------
Restricted Securities
Other Restricted Annual Stock SecuritiesUnderlying LTIP All Other
Name and Compen-Salary Bonus Compensation Award(s) UnderlyingOptions Payouts Compensation
Principal Position Year Salary ($)* Bonus($)** sation ($) ($) Options($) ($) (#)+ ($) ($)
- ----------------------------- ------ ----------- ------------------------------------- ---- -------- ---------- --------- ------------ ---------- ---------- ------- -----------------------
Victor M.G. Chaltiel 1998 $315,026 $8,250,000(1) 3,536(2) - 1,000,000(3)Kent J. Thiry........... 1999 $ 83,074 -- $ 5,598(4)
Director and former-- -- 500,000 -- --
Chairman 1997 288,652 890,409(5) -- - 333,334(3) -- 5,522(6) of the Board
and Chief 1996 285,186 419,728 -- - 166,667 -- 5,366(7)
Executive
Officer (1)
George B. DeHuff, III... 1999 190,768 -- -- -- 450,000 -- --
Former President and
Chief Operating
Officer (2)
Barry C. Cosgrove 1998 182,309 490,004(8)Cosgrove....... 1999 184,374 $ 456,000(3) -- - 200,000(9) -- 40,293(10)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(11)
Counsel11,582(7)
and Secretary
1996 145,189 111,655 -- - 116,083 -- 10,556(12)
Stan M. Lindenfeld 1998 273,883 382,211(13)Lindenfeld...... 1999 262,028 375,000(8) -- - 150,000(14) -- 425(15)200,000 -- 30,883(9)
Senior Vice President Quality1998 273,883 382,211(10) -- -- 150,000 -- 425(11)
and Chief Medical 1997 214,791 169,020 -- --- 58,333 -- --
ManagementOfficer
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 1996 121,647 85,302 -- - 136,916 -- 192,520(16)
MedicalFinancial Officer
Leonard W. FrieFrie......... 1999 122,250 276,390(25) -- -- 100,000 -- 285,584(26)
Former Executive Vice 1998 200,410 321,254(17)321,254(27) -- --- 150,000 -- 13,197(18)
Former Executive Vice13,197(28)
President and Chief 1997 182,245 143,754 -- --- 111,916 -- 14,153(19)
President and Chief14,153(29)
Operations 1996 181,484 139,568 -- - 159,140 -- 26,914(20)
Officer,
West
John E. King 1998 181,154 487,500(21) -- - 200,000 -- 8,620(22)
Former Senior Vice President, 1997 130,504 112,500 -- - 111,916 -- 14,089(23)
Finance and Chief Financial 1996 99,533 93,750 -- - 74,417 -- 15,509(24)
Officer
_____________________- --------
* Consists of actual salary earned from January 1 through December 31. Due to
salary increases within a fiscal year, the listed amounts may not reflect
the officers' year-end salaries.
** Consists of cash payments made in the indicated year. Bonuses earned in any
given year typically are paid in March of the following year as a
percentage of the officers' then-current salaries.
+ Includes options repriced in April 1997.
(1) Consists entirelyMr. 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
(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 Renal Treatment Centers, Inc., or RTC,
completed in February 1998.
(2) Paid as a gross-up adjustment to offset the personal income tax resulting
from Mr. Chaltiel's personal use of our leased corporate jet.
(3) 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.RTC.
(4) 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.
(5) Mr. Chaltiel's 1997 bonus of $451,776 was prepaid in December 1997.
(6) Includes (a) automobile allowance of $5,002,$7,800 and (b) $520 paid by us for
an umbrella insurance policy.
(7) Includes (a) an automobile allowance of $4,846, and (b) $520 paid by us for
an umbrella insurance policy.
(8)(5) Includes the first installment, in the amount of $375,000, related to an
additionala
special bonus received for services rendered in connection with the merger
with RTC.
(9) In September 1999, Mr. Cosgrove surrendered all 200,000 of the options
granted to him in 1998.
(10)(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.
8
(11)(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.
(12) Includes (a) an automobile allowance of $7,800, (b) $520 paid by us for an
umbrella insurance policy, and (c) $2,236 in deferred interest income.
(13)(8) Includes the firstsecond installment, in the amount of $187,500,$375,000, related to an
additionala
special bonus received for services rendered in connection with the merger
with RTC.
(14) In September 1999, Dr. Lindenfeld surrendered all 150,000 of the options
granted to him in 1998.
(15) Consists entirely of(9) Includes (a) $850 for a waiver of medical insurance premiums.
(16) Includes (a) $192,000 in medical director feespremiums and (b)
$520$30,033 in payment of cash value of accrued paid by us for
an umbrella insurance policy.
(17)time off.
(10) Includes the first installment, in the amount of $187,500, related to an
additionala
special bonus received for services rendered in connection with the merger
with RTC.
(18) Includes(11) Consists entirely of a waiver of medical insurance premiums.
(12) Consists entirely of a relocation allowance.
(13) Include (a) an automobile allowance of $8,827, (b) $520 paid by us for an umbrella insurance policy, and (c) $3,850 in deferred compensation.
(19) 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.
(20) Includes (a) an automobile allowance of $8,500, (b) $520 paid by us for an
umbrella insurance policy, (c) $4,894 in deferred compensation, and (d)
$13,000$19,061
in payment of cash value of accrued paid time off.
(21) Includes the first installment,off and (c) $766,580 in
the amountseverance.
(14) Consists entirely of $375,000, related to an
additionala 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.
(23)(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.
(24)(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 $7,800,$5,231, (b) $520 paid by us for an
umbrella insurance policy, (c) housing reimbursement of $3,624, and$197,423 in severance, (d) $3,565$27,277 in
payment of cash value of accrued paid time off.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) $5,133 in deferred compensation.
11
The following table sets forth information concerning options we granted to
each of the named executive officers in 1998:
during 1999:
Option/SAR Grants in Last Fiscal Year
Individual Grants
- -----------------------------------------------------------------------------------------------------------------------------------------------------------
Number of % of Total
Securities Options/
Number of SARs
SecuritiesUnderlying Granted to Underlying EmployeesExercise or Grant Date
Options/SARs Employees in Fiscal Exercise or Base Price Expiration Present Value
Name Granted(#)Granted (#)(1) Fiscal Year Price ($/sh)Sh) Date ($)(2)
- ---------------------------- --------------------------------------- -------------- ------------ ----------- ---------------- ---------- ---------------------------
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........ 1,000,000 (3) 18.0% 32.1875 2/27/08 14,236,900
Barry C. Cosgrove........... 200,000 (4) 3.6 32.1875 2/27/08 2,847,380
Stan M. Lindenfeld.......... 150,000 (5) 2.7 32.1875 2/27/08 2,135,535Chaltiel.... -- -- -- -- --
John E. King............ 100,000(4) 2.2 9.0625 3/11/09 445,530
Leonard W. Frie............. 150,000 2.7 32.1875 2/27/08 2,135,535
John E. King................ 200,000 3.6 32.1875 2/27/08 2,847,380Frie......... 100,000(3) 2.2 9.0625 3/11/09 445,530
_____________________- --------
(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 5.632%5.50% to 6.17% per annum; (d)
volatility of 34.241.64% to 68.22% calculated using the daily prices of our
common stock; and (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
9
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) In February 1999,These options were canceled upon resignation of employment and are no
longer outstanding.
(4) Pursuant to the terms of Mr. Chaltiel voluntarilyKing'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, all 1,000,000 of the
options granted to him in 1998.
(4) In September 1999, Mr. Cosgrove surrendered all 200,000 of the options
granted to him in 1998.
(5) In September 1999, Dr. Lindenfeld surrendered all 150,000 of the options
granted to him in 1998.and are no longer outstanding.
12
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 in 1998:during 1999:
Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values
Number of Securities
Underlying Value of Unexercised
Number of unexercisedUnexercised Options In-the-Money Shares Acquired on Value Realized Options Options
Exercise (#) ($)
at FY-End at FY-End
Exercisable/ Exercisable/-------------------- --------------------
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable($)(1) Unexercisable(#) Unexercisable($(#) Unexercisable ($)(1)
- ------------------------ --------------- ------------ -------------------- ------------------ ------------------- ------------------- -----------------------------------------
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..Chaltiel.... -- /-- 166,667/ -- -- / --
97,222/1,236,112(2) 929,685/2,257,820
Barry C. Cosgrove..... -- /John E. King............ -- -- /135,721/107,445 120,570/ --
94,944/279,472(3) 2,023,525/759,950
Stan M. Lindenfeld.... -- /Leonard W. Frie......... -- -- /141,227/ -- 81,055/285,027(3) 1,146,955/1,291,194
Leonard W. Frie.......610,899/ -- / -- -- / -- 137,999/229,472 3,203,770/759,950
John E. King.......... -- / -- -- / -- 53,277/279,472 881,328/759,950
_____________________- --------
(1) Value is determined by subtracting the exercise price from the fair market
value of $28.3125$6.6875 per share, the closing price for our common stock on
December 31, 1998 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.
(2) In February 1999, Mr. Chaltiel voluntarily canceled 1,166,667 of these
options.
(3) Mr. Cosgrove and Dr. Lindenfeld have surrendered a portion of these options,
as described in footnotes (4) and (5) to the table "Option/SAR Grants in
Last Fiscal Year" above.
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 theour 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 would not be reduced by tax obligations possibly
imposed by sections 280G or 4999 of the Internal Revenue Code of 1986.
On May 17, 1999, we entered into an employment agreement with George B.
DeHuff. The employment agreement provides for an initial term through May 16,
2001 and will continue thereafter with no further action by either party for
successive one year terms. Mr. DeHuff's annual compensation will be subject to
annual increases consistent with the California consumer price index. Mr.
DeHuff will be entitled to receive a bonus of up to 100% 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 the
compensation committee. In the first year of Mr. DeHuff's employment agreement
he is guaranteed a minimum bonus of $155,000. In the event of a constructive
discharge following a change in control or a termination for any reason other
than material cause, Mr. DeHuff will be entitled to a lump sum payment equal to
his then-current base salary. Any additional compensation payable to Mr. DeHuff
10
upon a change in controlTRCH 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 theour 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-
currentthen-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
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. Each of Messrs. DeHuff, Cosgrove, McDonough, and Dr.
Lindenfeld were selected to participate in this program. The program guaranteesguaranteed
each executive a stay bonus, ranging from$100,000 for Mr. Cosgrove, $75,000 to $150,000,for Dr.
Lindenfeld, and $50,000 for Mr. McDonough, if he continuescontinued his employment with
us through January 1, 2000. The program also guaranteesguaranteed payment of 50% of each
executive's target bonus amount for 1999, if he continuescontinued 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 or her 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 providesprovided 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 our 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
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.
Pursuant to Mr. Chaltiel's employment agreement and our 1994 Equity
Compensation Plan, Mr. Chaltiel purchased 1,855,557 shares of common stock at
$0.90 per share during the fiscal year ended May 31, 1995. Mr. Chaltiel paid
$835,000 of the purchase price in cash, with the remainder evidenced by a four-
year promissory note bearing interest at the lesser of the prime rate or 8% per
annum. This note was secured by a pledge of shares of our stock owned by Mr.
Chaltiel. In July 1995, the board approved a one-year deferral of all scheduled
principal and accrued interest payments under all outstanding promissory notes
from our officers, including this four-year promissory note. Mr. Chaltiel also
was granted options pursuant to our 1994 Equity Compensation Plan representing a
total of approximately 1,477,778 shares of common stock. The options had an
exercise price of
11
$0.90. By their terms, half of the options were to vest over a four-year period
and the other half were to vest on the ninth anniversary of the date of grant,
subject to accelerated vesting in the event that we satisfied EBITDA performance
targets. In September 1995, our board and our stockholders approved an agreement
with Mr. Chaltiel pursuant to which the vesting schedule for these options was
accelerated so that all of Mr. Chaltiel's outstanding options became vested and
exercisable immediately. In connection with this agreement, Mr. Chaltiel agreed
to exercise at that time all of his options to purchase 1,477,778 shares of
common stock. Mr. Chaltiel paid the exercise price pursuant to a $1,330,000
four-year promissory note bearing interest at the lesser of the prime rate or
8%. This note was subject to repayment, in part or in full, to the extent of the
receipt of any proceeds received by Mr. Chaltiel upon disposition of such shares
of common stock, and Mr. Chaltiel pledged these shares as collateral for
repayment of this note. We also agreed to advance Mr. Chaltiel funds of up to
$1,521,520 relating to Mr. Chaltiel's tax liability in connection with the
exercise of such options. The amount advanced was evidenced by two additional
promissory notes executed by Mr. Chaltiel. The first note for $1,348,447 was
executed concurrently with Mr. Chaltiel's exercise of his options. The second
note for $173,073 was executed in April 1996. Simultaneously with the execution
of the agreement, we entered into a Release and Pledge Agreement with Mr.
Chaltiel whereby we released 1,855,555 shares of common stock owned by Mr.
Chaltiel from the previous pledge agreement and substituted the newly acquired
1,477,778 shares of common stock. On March 31, 1998, Mr. Chaltiel repaid his
outstanding loan balances with us and we released those shares held as
collateral under the Release and Pledge Agreement.
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 providesprovided 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 one week after we hire a new Chief
Financial Officer, or until December 31, 1999 whichever occurs first, Mr. King
will continuecontinued to provide services to us on an as-needed, non-exclusive basis.
During this period, Mr. King will bewas compensated at the rate of $1,000 per day for
services rendered. Mr. King is not required to provide services for more
than 80 hours per month. We arewere 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: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 suchthat 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 option vests,options vest;
and to accelerate the vesting of his options that would otherwise vest before
July 16, 2000 in the event of a change ofin 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-
currentthen-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, Cosgrove, 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 priceprices of the options rangesrange from $0.90 per share to
$32.1875 per share.
On December 14, 1995,Options granted to our board amended the stock option agreement of each
executive officer, other than Mr. Chaltiel, toofficers provide for the immediate
vesting of all of such officers'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 any of such officers'their
employment is terminated for any reason.
1215
REPORT OF THE COMPENSATION COMMITTEE
REGARDING COMPENSATION
The compensation committee oversees TRCH's generalof 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 policieswith the yearly and ourlong-term goals of
the company, with an emphasis on variable (vs. fixed) compensation
tied to corporate and stock incentive plans, establishesindividual performance.
Executive compensation
Towards the compensationend of each fiscal year or at the beginning of the following
fiscal year, a compensation review is conducted by our Chief Executive Officer
(Mr. Chaltiel during 1998),for each executive officer. Annual salary and reviews the Chief
Executive Officer'sbonus recommendations asare then
made to and reviewed and voted upon by the compensation levelscommittee 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 other
executive officers.
Compensation policybeginning of the
fiscal year for each executive. The goalfinancial objectives consist of
our executive compensation program is to provide a strong, direct
link among stockholder value,improvements in company performancenet operating profit, return on total capital and
executive compensation
through the designrevenue growth. The non-financial objectives consist of improvements in quality
of care, selection and implementation of a soundfinancial 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 program that will
attract and retain highly qualified personnel. Compensation programs are
intended to complement TRCH's short- and long-term business objectives and to
focus executive efforts on the fulfillment of these objectives. We believe that
cash compensation in the form of salary and performance-based bonuses provides
TRCH's executives with short-term rewards for successfully fulfilling TRCH's
business objectives. We also believe that long-term incentive compensation,
through the award of restricted stock and stock options, encourages growth in
management stock ownership which increases management's stake in TRCH's long-
term performance and success. In 1998, we engaged the services of an
independent consulting firm to analyze the compensation arrangements TRCH has
with its executives and other key employees and make recommendations regarding
these arrangements, to ensure that we meet our compensation objectives. In
1998, we carefully evaluated the consultant's recommendations and adjusted the
compensation packages of our executives to reflect the current market for
executives in the healthcare industry more closely and to continue to fulfill
our objectives.
Base Salary. In establishing 1998 base salary levels for executive officer
positions, we considered the terms of the relevant employment agreements and the
recommendations of the outside compensation consultant. For 1998, TRCH's
executive officers other than Mr. Chaltiel, generally received raises in their
annual base salary from approximately 4% to approximately 31%. Our philosophy
is still to reward executive officers throughincluded cash bonuses stock and
stock options. Increases in base salaryCompensation was weighted toward these variable components, with
the long-term objective of shifting to more variable pay for 1998 were, however, slightly larger than
in years past. This was dueperformance.
Bonuses ranged from $32,500 to both the consultant's recommendations, and$456,000, excluding that for our recognition of the executive officers' increased job responsibilities as a
result of the rapid increase in the size of TRCH in 1998.
Bonus. AnnualChief Executive
Officer. 1999 bonuses for executive officers are intended to reflect our
belief that management's contribution to stockholder returns comes from
maximizing earnings andseveral executives also included the qualityfinal
installment of those earnings. Bonus awards are based
largely on TRCH's attainment of earnings per share performance targets
established in each executive officer's employment agreement. Each executive
officer's target bonus is fixed as a percentage of his base salary. In 1998,
annualspecial bonuses paid to our executive officers, other than Mr. Chaltiel, for 1997
ranged from $115,004 to $194,711, or 75% of the executive officers' base
salaries. Furthermore, based upon the recommendation of the independent
consulting firm noted above, each executive officer was granted an additional,
one-time bonus for services rendered in connection with theour merger
with RTC.
These bonuses, other than Mr. Chaltiel's, ranged from $375,000 to $750,000 and
were granted in March 1998 but actually were paid, other than with regard to Mr.
Chaltiel, in two equal installments. The executive officers, other than Mr.
Chaltiel, received the first installment of this bonus in March 1998 and the
second installment in March 1999, at the same time as the annual bonuses for
1998 performance. The payment of the second installment was contingent on
continued employment. We deferred one-half of these bonuses to minimize the
impact on our cash flow and to incentivize the executive officers to retain
their focus on successfully completing the integration of RTC into TRCH. As a
result of TRCH's failure to achieve expected earnings for the fourth quarter of
1998, annual bonuses paid to our executive officers in 1999 for 1998 performance
were limited to 45% of their base salaries, with the exception of Dr. Lindenfeld
who received 75% of his base salary.
Restricted stock and stock options. On August 5, 1994, TRCH adopted the 1994
Equity Compensation Plan. The purpose of the 1994 plan is to provide incentives
and reward the contributions of key employees and officers towards the
achievement of long-term company performance goals, as measured by earnings per
share and the market value of the common stock. The board set guidelines for
the number and terms of stock option or restricted stock awards based on factors
similar to those considered with respect to the other components of our
13
compensation program. The awards under the 1994 plan are designed to align the
interests of executives with those of the stockholders. Generally, stock
options become exercisable at the end of nine years, but they may vest over a
period of four years based on company performance. An individual forfeits any
installment which has not vested during the period of his or her employment. No
awards were made to the executive officers under the 1994 plan in 1998 and the
board terminated the 1994 plan as of May 31, 1999.
On October 24, 1995, TRCH established the 1995 Equity Compensation Plan. The
purpose of the 1995 plan is to offer stock compensation to employees, directors,
and other persons providing services to TRCH and, accordingly, to strengthen the
mutuality of interests between those persons and TRCH's stockholders by
providing those persons with a proprietary interest in TRCH'S long-term growth
and financial success. No awards were made to the executive officers under the
1995 plan in 1998 and the board terminated the 1995 plan as of May 31, 1999.
On May 15, 1997, TRCH established the 1997 Equity Compensation Plan. The
purpose of the 1997 plan is to promote the interests of TRCH and its
stockholders by enabling TRCH to offer employees, directors, and other persons
providing services to TRCH an opportunity to acquire an equity interest in TRCH
so as to attract, retain and reward such persons. Also, the 1997 plan was
designed to strengthen the mutuality of interests between these persons and
TRCH's stockholders by providing these persons with a proprietary interest in
pursuing TRCH's long-term growth and financial success. In 1998, the executive
officers received individual awards under the 1997 plan of options to purchase
150,000 to 1,000,000 shares of TRCH stock, all with an exercise price of
$32.1875. Option grants in 1998 were larger than in years past, due to both the
consultant's recommendations and our recognition of the executive officers'
increased responsibilities as a result of the rapid increase in the size of TRCHRenal Treatment Centers, Inc. completed in 1998.
Compensation ofCEO compensation
Mr. Thiry's current compensation was negotiated with him when he agreed
to become our new Chairman of the Board and Chief Executive Officer
TheOfficer. Within the framework of
Mr. Thiry's employment agreement, the compensation committee believed that Victor M.G. Chaltiel, TRCH's Chairman ofhas some latitude
in setting future salary and bonus levels and granting stock options.
Philosophically, the Board
and Chief Executive Officer during 1998, provided valuable servicescompensation committee is attempting to TRCH and
that hisrelate executive
compensation should therefore be competitiveto those variables over which the individual executive generally
has control.
In October 1999, we entered into an employment agreement with that paid to
executives at comparable companies. In addition,Mr. Thiry.
Under the committee believed that a
significant portion of his compensation should be based on company performance.employment agreement, Mr. Chaltiel's baseThiry's annual salary was determined pursuantestablished at
$500,000 subject to his employment agreement.
Mr. Chaltiel received a 3%, or $9,048, increase in his year end base salary from
1997 to 1998,annual increases consistent with the general increase in the cost of living. Under
his employment agreement,California consumer
price index and annual review for merit increases. Mr. Chaltiel wasThiry will be entitled
to receive a yearly bonus of up to 150% of his base salary each year, based upon our
achieving earnings per shareachievement of performance targets. He also couldgoals to be awarded an additionalmutually agreed upon by Mr. Thiry and
the compensation committee. For the year 2000, Mr. Thiry is guaranteed a
minimum bonus atof $500,000.
In accordance with the discretionterms of the
committee if the earnings per share targets were exceeded by more than 15%. Mr.
Chaltiel received no cash in 1998 related to the bonus provisions in his employment agreement, asMr. 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
fair market value on the amountdate of his 1997 bonusgrant) and one of which was paidgranted on January
27, 2000 entitling him to him in advance
in December 1997. He did, however, receivepurchase 500,000 shares of our common stock at an
additional bonus of $8,250,000 in
1998 for services rendered in connection with the merger with RTC. The amount
of this bonus was based upon the recommendationexercise price equal to $5.14 per share (the average of the independent consulting
firm noted above.
Internal Revenue Code sectionlast 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)
Under section 162 of the Internal Revenue Code the amount of compensation
paid to certain executives that is deductible with respect to TRCH's corporate
taxes is limited to $1,000,000 annually. It is the current policy of the board
to maximize, to the extent consistent with the best interests of TRCH and its
stockholders, TRCH's ability to obtaingenerally disallows a corporate tax
deduction for compensation paid to a company's senior executive officers in
excess of TRCH. Nevertheless, approximately
$7,500,000$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 Mr. Chaltiel's additional bonus for services rendered in
connection withstock options which meet established criteria.
While we generally intend to qualify payment of compensation under section
162(m), we reserve the merger with RTC isright to pay compensation to our executives from time to
time that may not deductible for corporatebe tax purposes.deductible.
COMPENSATION COMMITTEE
Richard B. Fontaine
Peter T. Grauer
Chair
Maris Andersons
Regina E. Herzlinger
14C. Raymond Larkin, Jr.
17
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Chaltiel has received loans from us as described above under "Employment
Agreements." CertainSeveral of our other officers and employees also 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 November 1999,June 2000, Barry C. Cosgrove had a loan outstanding
from us within the amount of $80,000 including principal and accrued interest.
Richard K. Whitney has a loan outstanding from us in the principal amount
of $50,000.$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, serveshas 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 October 31, 1999,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 is also receivingreceived consulting fees from us of $25,000 per month$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. These
additional fees commenced in September 1999 and will continuelenders
until we hirehired a new chief financial officer.officer in February 2000.
Shaul G. Massry, one of our directors, servesformerly served as a consultant to
us. In addition to receiving compensation as a member of the board, Dr. Massry
also receiveswas entitled to receive $120,000 per year, $70,000 of which iswas an advance
against the
commissions described below,resulting from acquisitions that he introduced to us, and
has been grantedreceived 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 October 31, 1999,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.
Also, for acquisitions that he introduces
to us and materially assists in closing the transaction, Dr. Massry receives a
commission of 1.0% to 1.5% of the purchase price, depending on the amount of the
purchase price. The commission on any single transaction cannot exceed
$100,000.
We entered into a shareholders' agreement with DLJ Merchant Banking Partners,
L.P., or DLJMBP, certain members of management and NME Properties Corporation, a
wholly-owned subsidiary of Tenet, in August 1994 pursuant to which, among other
provisions, DLJMBP had the right to nominate four of the five members of our
board. Although this right has terminated, an affiliate of DLJMBP, Peter T.
Grauer, continues to serve on our board. The shareholders' agreement further
provides for certain registration rights and for restrictions on transfers of
our common stock, certain rights of first refusal in favor of DLJMBP in the
event NME proposes to transfer shares of our common stock and certain rights and
obligations of NME to participate in transfers of shares by DLJMBP. Affiliates
of DLJMBPits 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
NoNone of our executive officerofficers or director of TRCHdirectors 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 TRCH'sour board. During 1998, Mr.1999,
Messrs. Thiry, Chaltiel was one of our officers and employees and Mr. Andersons and Dr. Massry provided consulting services to us. No one other thanwere our officers,
employees or consultants. Messrs. Andersons, andFontaine, 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 1998. Mr. Grauer is an affiliate of DLJMBP. Affiliates of DLJMBP from
time to time perform various investment banking and other services for us, for
which we pay customary consideration. In addition, affiliates of DLJMB are
included in the syndicate of lenders under our credit facilities.
151999.
18
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[PERFORMANCE GRAPH APPEARS HERE ]HERE]
October 31, December December December29, December 31, 29,December 31, December 31, December 31,
1995 1995 1996 1997 1998 - -----------------------------------------------------------------------------------------------1999
----------- ------------ ------------ ------------ ------------ ------------
Total Renal Care
Holdings, Inc. ........ 100.00 147.24 177.91 224.95 241.82 - ----------------------------------------------------------------------------------------------54.70
Peer group indexindex........ 100.00 116.87 136.82 212.41 280.34
- ----------------------------------------------------------------------------------------------138.47 213.85 281.29 228.20
S&P MidCap 400 IndexIndex.... 100.00 105.44 127.19 163.95 216.25
- ----------------------------------------------------------------------------------------------104.12 124.12 164.13 195.51 224.27
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.
1619
PROPOSAL NO. 2
APPROVALAMENDMENT TO OUR
CERTIFICATE OF THE
1999 EQUITY COMPENSATION PLAN
At the annual meeting, weINCORPORATION
TO CHANGE OUR NAME
Our board of directors has approved, subject to stockholder approval, an
amendment to our Certificate of Incorporation which will askeffect a change in our
stockholders to approve thename from Total Renal Care Holdings, Inc. 1999 Equity Compensation Plan. Our board adopted the 1999
plan on May 3, 1999. A summary descriptionto DaVita, Inc. The complete text of
the 1999 planamendment is set forth below.
This summary descriptionas Exhibit B to this proxy statement. Our board of
directors believes that it is incompletein our best interest to effect the name change in
order to make a statement to our employees, patients, suppliers and
stockholders that we encourage youare in many respects a new company setting a different
course with a different operating approach.
The amendment will be presented to readstockholders in the full
textform of a
resolution as follows:
RESOLVED, that Article I of the 1999 plan, which is included with this proxy statement as Exhibit A.
Summary DescriptionAmended and Restated Certificate of
Incorporation of the 1999 Plan
PurposeCorporation be amended so that such Article, as
amended, shall be and read as follows:
"The name of the 1999 plan. The 1999 plan allows us to grant to participants
stock options to purchase sharescorporation is DaVita, Inc. (the "Corporation")."
If the amendment is approved by the requisite vote of our common stock. The purposestockholders,
the name change will be effective upon the close of business on the date of
filing of the 1999
plan is to enable us to offer participants an opportunity to acquire an equity
interest in us. We believe that this will improve our ability to attract,
retain and reward employees, directors and other persons providing services to
us. It will also strengthen the mutuality of interests between plan
participants and our stockholders by providing those participants with a
proprietary interest in pursuing our long-term growth and financial success.
Eligibility and participation. Generally, all employees, directors, and other
persons providing bona fide services to us or any of our subsidiaries are
eligible to receive awards of options under the 1999 plan. However, persons
providing services to us only in connectionamendment with the offering or saleDelaware Secretary of securities in a capital raising transaction areState, which filing is
expected to take place shortly after the annual meeting. If this proposal is
not eligible to receive awards.
Subject to the adjustments described below, we may not issue more than 500,000
shares of common stock pursuant to awards granted to any single participant
during any calendar year. Currently, we have over 12,000 employees. We have
not, however, determined the number of persons who will be eligible to
participate in the 1999 plan at this time. In addition, we have not determined
the individuals who will receive awards, the awards that we will grant to any
individual or group of individuals, or the amounts to be payable with respect to
awards.
Administration of the 1999 plan. Our board or a committee appointed by our
board consisting of two or more members of our board will administer the 1999
plan. The board or the committee has the authority to interpret the 1999 plan
and to adopt rules and procedures relating to the administration of the 1999
plan.
Effective date of the 1999 plan. The 1999 plan will become effective on
December 17, 1999 if it is approved by our stockholders, atthen the annual meeting.
If our stockholders do not approve the 1999 plan, it will not become effective.
We may not grant any awards under the 1999 plan prior to its effective date.
Shares subject to the 1999 plan. Subject to adjustments to reflect certain
corporate events that are described below, we may grant awards with respect to a
maximum number of 3,000,000 shares of our common stock under the 1999 plan. We
may not increase this maximum number of shares without the approval of our
stockholders. If an option granted under the 1999 plan expires or terminates
without having been exercised in full, the shares of common stock remaining
unissued under that option will again become available for issuance under the
1999 plan. We will issue the shares of common stock to be issued under the 1999
plan directly from our authorized but unissued shares of common stock.
Options. Options granted under the 1999 plan may be either incentive stock
options, or ISOs, or nonqualified stock options, or NQSOs. We will determine
the terms and conditions of each option and include them in a written agreement
between the individual and us. The terms of each option will set forth:
. the per share exercise price of the option, which will generally be the
closing price of a share of our common stock as reported on the New York
Stock Exchange on the date of grant;
17
. the termination date of the option, whichamendment will not be later than seven
years after the datefiled.
Recommendation and required vote
Our board of grant; and
. the effect on the optiondirectors has unanimously approved this amendment. A
majority of the termination of the participant's
employment.
Each option will also contain other terms and conditions that we may
establish. The closing priceoutstanding shares entitled to vote on this matter must vote
for our common stock as reported on the New York
Stock Exchange on November 1, 1999 was $7.81 per share. Options are not
transferable during the individual's lifetime.
To the extent an option is intended to qualify as an ISO, the option is
required to have terms and conditions consistent with the requirements for that
treatment under the Internal Revenue Code. ISOs are subject to the following
special restrictions:
. ISOs may only be granted to our, or our subsidiaries', employees;
. the exercise price for an ISO must be at least equal to 100%, or 110% in
the case of stockholders holding more than 10% of the total combined
voting power of all classes of our stock, of the fair market value of our
common stock, determined on the date of the grant;
. the aggregate fair market value of the shares of common stock issuable
upon exercise of all ISOs granted to a participant, determined at the
time each ISO is granted, that become exercisable for the first time
during a calendar year cannot exceed $100,000; and
. ISOs must terminate no later than the first to occur of:
(1) ten years, or five years for stockholders holding more than 10% of
the total combined voting power of all classes of our stock, from
the date of grant; and
(2) three months following the termination of the participant's
employment, unless the termination is the result of the
participant's death or disability or if the participant dies
during the three month period following the termination, in which
case other rules apply.
Modification of awards. We have the authority to modify any outstanding
award as we consider appropriate, including the authority to modify the exercise
price of any option, accelerate the right to exercise any option, and extend or
renew any option. However, we may not modify any award in a manner adverse to
the participant holding that award without that participant's consent.
Furthermore, we may not reduce the exercise price of any outstanding option
without first obtaining the approval of our stockholders.
Adjustments. In connection with certain types of corporate events like
stock splits, stock dividends, recapitalizations, reorganizations, mergers,
consolidations and spinoffs, we may make appropriate and equitable adjustments
to:
. the aggregate number and kind of shares for which we can grant awards
under the 1999 plan;
. the number and kind of shares covered by outstanding awards; and
. the per share exercise price of outstanding options.
In connection with any merger or consolidation in which we are not the
surviving corporation, or as a result of which our common stock ceases to be
publicly traded, we may, but are not required to, terminate all outstanding
options upon the consummation of that merger or consolidation. However, as a
condition to the termination, we must eliminate all restrictions on the
exercisability of the options and give the participant at least 20 days prior to
the termination to exercise those options without any regard to any of these
restrictions.
18
Tax matters. We are authorized to withhold from the compensation of the
participants amounts necessary to satisfy the tax withholding obligations
arising from the 1999 plan. If we intend any award to qualify as "qualified
performance-based compensation," as defined in the regulations promulgated under
section 162(m) of the Internal Revenue Code, we will grant the award in a manner
and subject to terms and conditions required for the award to so qualify.
Compliance with securities laws. We are not obligated to issue any common
stock under the 1999 plan if we determine that the issuance would violate
applicable state or federal securities laws. We intend to file a registration
statement on Form S-8 to register the issuance of shares under the 1999 plan
promptly following the approval of the 1999 plan by our stockholders.
Termination orproposed amendment of the 1999 plan. Our board may terminate the
1999 plan at any time. Unless earlier terminated by our board, the 1999 plan
will terminate on the tenth anniversary of the effective date of the 1999 plan.
We cannot grant awards under the 1999 plan after its termination date.
Termination of the 1999 plan will not affect the rights of any participant with
respect to any award outstanding as of the time of the termination. Our board
may also amend the 1999 plan at any time. However, no amendment may adversely
affect the rights of any participant with respect to any outstanding award
without that participant's consent.
Federal income tax consequences of the 1999 plan
The following general discussion of the principal United States federal
income tax consequences of participation in the 1999 plan is based on the
statutes and regulations existing as of October 31, 1999. In addition,
participation in the 1999 plan may have state and local tax consequences. We
encourage participants to consult their own tax advisors with respect to the tax
consequences of their participation in the 1999 plan.
Incentive stock options. A participant will not recognize taxable income
upon the grant or the exercise of an ISO, and we are not entitled to an income
tax deduction as the result of the grant or exercise of an ISO. Any gain or
loss resulting from the subsequent sale of shares of common stock acquired upon
exercise of an ISO will be long-term capital gain or loss if the sale is made
after the later of:
. two years from the date of grant of the ISO; or
. one year from the date of exercise of the ISO.
If a participant sells common stock acquired upon the exercise of an ISO
prior to the expiration of both of these periods, the sale will be a
"disqualifying disposition" under the federal tax laws. The participant will
generally recognize ordinary income in the year of the disqualifying disposition
in an amount equal to the difference between the exercise price of the ISO and
the fair market value of the shares of our common stock on the date of exercise
of the ISO. However, the amount of ordinary income recognized by the
participant generally will not exceed the difference between the amount realized
on the sale and the exercise price. We will be entitled to an income tax
deduction equal to the amount taxable to the participant. Any additional gain
recognized by the participant upon the disqualifying disposition will be taxable
as long-term capital gain if the shares of common stock have been held for more
than one year before the disqualifying disposition or short-term capital gain if
the shares of common stock have been held for less than one year before the
disqualifying disposition.
The amount by which the fair market value, determined on the date of
exercise, of the shares of common stock purchased upon exercise of an ISO
exceeds the exercise price is also an item of tax preference that may be subject
to alternative minimum tax in the year that the ISO is exercised.
Nonqualified stock options. As with an ISO, a participant will not
recognize taxable income on the grant of an NQSO, and we are not entitled to an
income tax deduction as the result of the grant of an NQSO. Unlike an ISO,
however, upon the exercise of an NQSO, the participant generally will recognize
ordinary income, and we will be entitled to an income tax deduction, in the
amount by which the fair market value of the shares of common stock purchased
upon exercise, determined as of the date of exercise, exceeds the exercise
price. This income is part of
19
the participant's "wages" for which we are required to withhold federal and
state income as well as employment taxes.
Upon the sale of shares of common stock acquired upon the exercise of an
NQSO, the participant will recognize capital gain or loss in an amount equal to
the difference between the proceeds received upon sale and the fair market value
of the shares on the date of exercise. If the participant has held the shares
for more than one year at the time of the sale, the capital gain or loss will be
long-term, otherwise the capital gain will be short-term.
Acceleration of stock options upon a transfer of control. Upon a change in
control of us or a transfer of a substantial portion of our assets, the
exercisability of stock options held by certain of our employees, generally
officers, stockholders and highly compensated employees, may be accelerated.
Alternatively, we may make payments to cancel unexercisable options of these
employees. The acceleration of exercisability or this type of payment is a
"parachute payment" for federal income tax purposes. If the present value of
all of a participant's parachute payments equals or exceeds three times the
participant's average compensation for the past five years,stockholders to approve this
proposed amendment. Abstentions and broker non-votes will have the participant also
will owe a 20% excise tax on the amounteffect of
the parachute payment which is in
excess of the greater of:
. the average compensation of the participant for the past five years; or
. an amount which the participant establishes as reasonable compensation.
In addition, we will not be allowed to deduct any excess parachute
payments.
Capital gains and ordinary income tax. Long term capital gains are
currently taxed at a maximum federal rate of 20% and short term capital gains
and ordinary income are taxed at marginal federal rates of up to 39.6%.
Section 162(m) limitation. We generally cannot deduct compensation paid to
certain key executives in excess of $1,000,000 per year unless certain
conditions are satisfied. In general, only our five highest paid executive
officers are subject to this limitation. The income that an executive would
recognize by reason of the exercise of an NQSO is subject to this deduction
limitation. However, this limitation does not apply if:
. the 1999 plan is approved by our stockholders;
. the exercise price of options granted is at least equal to the fair
market value of the common stock upon the date of the grant; and
. the options are granted by a committee composed exclusively of members of
ournegative votes. Our board of directors who are not our employees or employees of one of
our subsidiaries.
Applicability of ERISA
The 1999 plan is not subject to any of the provisions of the Employee
Retirement Income Security Act of 1974opinion that this amendment is
advisable and it is not a tax-qualified retirement
plan under Section 401(a) of the Internal Revenue Code.
Benefits to be received by or allocated to directors and executive officers
We cannot determine at this time either the benefits that we will allocate
to our directors and executive officers participating in the 1999 plan and to
other participants or the benefits that these persons will actually receive
because the amount and value of awards that we will grant to any participant are
within our discretion, subject to certain limitations as set forth above.
Recommendation of our board of directors
Our board believes that approval of the 1999 plan is in our best interests and the best interests of our stockholders and unanimously recommends a vote "for"FOR the approval of
this proposal. Youramendment. All proxies will be voted forto approve this proposalamendment unless you specifically indicate otherwise.
20
PROPOSAL NO. 3a
contrary vote is indicated on the enclosed proxy card.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
APPROVAL OF AN INCREASE IN THE NUMBERAMENDMENT TO EFFECT THE CHANGE OF SHARES AUTHORIZED FOR ISSUANCE UNDER
THE EMPLOYEE STOCK PURCHASE PLAN
The Employee Stock Purchase Plan, which was adopted byOUR NAME, AND YOUR PROXY WILL
BE SO VOTED UNLESS YOU SPECIFY OTHERWISE.
INDEPENDENT ACCOUNTANTS
Our audit committee is exploring the board on October
24, 1995 and ratified bypossibility of appointing a new
accounting firm to serve as our stockholders on June 6, 1996, provides for the
granting to employees of rights to purchase common stock, or purchase rights.
The stockholders are being asked to approve an amendment to the Employee Stock
Purchase Plan to increase the number of shares of our stock authorized for
issuance under the Employee Stock Purchase Plan by 800,000 shares. As of the
date of this proxy statement, the number of shares remaining available for
issuance under the Employee Stock Purchase Plan is less than 33,000. The
closing priceindependent auditors for our common stock as reported on The New York Stock Exchange on
November 1, 1999 was $7.81 per share. At2000 financial
statements. PricewaterhouseCoopers LLP, our independent auditors since 1995,
remain our independent auditors at this price level, the shares remaining
will be insufficient to fulfill the currently outstanding purchase rights for
our common stock.
A summary description of the Employee Stock Purchase Plan, as amended, is
set forth below. This summary description is not complete and we encourage you
to read the full text of the Employee Stock Purchase Plan, as amended, which is
included with this proxy statement as Exhibit B.
Summary description of the Employee Stock Purchase Plan
The Employee Stock Purchase Plan is intended to qualify for favorable
income tax treatment under Internal Revenue Code section 423.
Purpose of the Employee Stock Purchase Plan. The purpose of the Employee
Stock Purchase Plan is to provide financial incentives for employees to purchase
our common stock.
Administration of the Employee Stock Purchase Plan. The board or a
committee of the board administers the Employee Stock Purchase Plan. Members of
any such committee serve at the discretion of the board.
Administrative expenses. We pay all expenses of establishing and
administering the Employee Stock Purchase Plan.
Eligibility and participation. All of our employees are eligible to
participate in the Employee Stock Purchase Plan provided:
. They are regularly scheduled to work at least twenty hours per week;
and
. They have worked continuously for us for at least three months prior
to the first day of the applicable purchase right period (as described
below). However, no employee may participate if he or she owns five
percent or more of our stock or the stock of a subsidiary of us
(determined using the constructive ownership rules contained in the
Internal Revenue Code).
Currently, we have over 12,000 employees.
Shares subject to the Employee Stock Purchase Plan. Initially, the maximum
number of shares of common stock that we could issue under the Employee Stock
Purchase Plan was 200,000 shares. In October 1997, we paid a dividend on our
common stock of two shares for every three shares then outstanding. As a result
of this stock dividend, and in accordance with the terms of the Employee Stock
Purchase Plan, the total number of shares available for issuance under the
Employee Stock Purchase Plan was automatically adjusted to 333,333 shares. As
of the date of this proxy statement, there were approximately 32,400 shares
remaining available for issuance under the Employee Stock Purchase Plan.
The number of shares available is subject to further adjustment in the
event of any future stock dividend or other change in our outstanding stock,
such as a stock split, reverse stock split, recapitalization, merger or other
similar transaction.
21
The Employee Stock Purchase Plan generally will purchase the stock directly
from us.
Purchase right periods. The Employee Stock Purchase Plan generally offers
two purchase right periods each year, from January 1 to December 31, and from
July 1 to December 31. Which purchase right period will apply to a participant
will depend on when he or she elects to start making contributions for the year.
Participating employees are required to elect how much they will contribute
towards their purchase rights prior to the start of the purchase right period.
Purchase right price. The price at which a participating employee will
purchase each share covered by a purchase right will be the lower of:
. 100% of the fair market value of a share of common stock on the first
day of the applicable purchase right period; or
. 85% of the fair market value of a share of common stock on the last
day of that purchase right period.
However, the maximum number of shares that a participating employee may
purchase in any purchase right period is 25,000.
The closing price of our common stock on the day in question as reported in
the Wall Street Journal is used as its fair market value.
Payroll withholding. The amount a participating employee will pay for our
common stock is accumulated from payroll withholdings and/or by a lump sum
contribution by the participant at the beginning of the purchase right period.
Once chosen, the participant cannot change the dollar amount of his or her
contributions for a purchase right period without terminating his or her
purchase right.
The aggregate maximum dollar amount that a participant may designate to be
applied to the purchase of shares under the Employee Stock Purchase Plan for any
calendar year may not exceed $25,000. The minimum contribution per payroll
period is $10.
No interest is credited on the amounts contributed to the Employee Stock
Purchase Plan.
Exercise of purchase rights. Unless earlier terminated, purchase rights
will be exercised automatically on the last day of the purchase right period.
Within forty-five (45) days after the date of the exercise, each participant
will receive a certificate for the number of shares of common stock that were
purchased on his or her behalf. We will not issue fractional shares.
If the funds a participant contributes exceed the purchase price of a whole
number of shares, we will apply surplus funds to the next purchase right period,
unless the participant requests a refund. Of course, if the employee does not
elect to participate in the next purchase right period, we will automatically
refund those excess amounts to the employee.
Termination of purchase rights. A participant may elect to terminate his
or her purchase right and receive a refund of all of his or her contributions at
any time prior to the last day of the purchase right period. To do so, the
participant must complete the form designated for this purpose, and submit it to
our human resources department at our corporate office in Torrance, California.
A participant's purchase right also will terminate automatically if the
individual ceases to be our employee for any reason (including death, disability
or retirement) prior to the last day of the purchase right period. However, an
approved leave of absence is not treated as termination of employment for this
purpose if it does not exceed 90 days (unless reemployment is guaranteed under
law or an employment contract).
22
Non-transferability. Participants may not sell or otherwise transfer the
purchase rights they receive under the Employee Stock Purchase Plan.
Adjustment upon changes in capitalization. If the outstanding shares of
our common stock are increased, decreased, or exchanged for different securities
through a reorganization, merger, etc., a proportionate adjustment will be made
in the number, price, and kind of shares subject to outstanding purchase rights.
Termination events. All purchase rights shall be automatically exercised
immediately preceding:
. A transaction in which TRCH will cease to be an independent publicly-
owned corporation; or
. A sale or other disposition of all or substantially all the assets of
TRCH. In such a case, the fair market value of our common stock on the
date of exercise will be deemed to be the consideration paid for the
common stock in the transaction.
Rights as stockholder. No person will have any rights with respect to
shares covered by a purchase right until a stock certificate for the shares is
issued. We will not make any adjustments for cash dividends or other rights for
which the record date is prior to the date of the issuance of the stock
certificate.
Indemnification of the board. We will indemnify each member of the board
and any other employee with duties under the Employee Stock Purchase Plan
against expenses (including any amount paid in settlement or in satisfaction of
a judgment) reasonably incurred in connection with any claims against him or her
by reason of the performance of his or her duties with respect to the Employee
Stock Purchase Plan.
Amendment or termination. The board may at any time alter, amend, suspend
or discontinue the Employee Stock Purchase Plan. However, the board may not,
without the approval of our stockholders, adopt any amendment that would:
. Increase the number of shares subject to the Employee Stock Purchase
Plan; or
. Modify the class of individuals eligible to participate in the
Employee Stock Purchase Plan.
Restriction on resale
Affiliates. Our affiliates, that is, persons who directly or indirectly
control, are controlled by, or are under common control with us, may resell
shares of common stock they purchase under the Employee Stock Purchase Plan
only:
. Pursuant to a registration statement under the Securities Act of 1933;
. Under an applicable exemption from the registration requirements under
the Securities Act of 1933; or
. In compliance with Rule 144 promulgated by the Securities and Exchange
Commission, except that the person need not meet the one-year holding
period requirements of Rule 144. Sales under Rule 144 must be in
accordance with the volume and transactional limitations of Rule 144
and we must satisfy Securities Exchange Act of 1934 reporting
requirements. We have no contractual obligation to any participant in
the Employee Stock Purchase Plan to comply with those reporting
requirements.
Non-affiliates. Participants who are not our affiliates may freely resell
the shares that they acquire under the Employee Stock Purchase Plan. We intend
to file a registration statement on Form S-8 to register the issuance of the
additional shares under the Employee Stock Purchase Plan promptly following the
approval of the increase by our stockholders.
23
Section 16. Under section 16(b) of the Securities Exchange Act of 1934,
should any of our directors, executive officers, or 10% stockholders realize any
profit from any purchase and sale (or sale and purchase) of common stock within
any period of less than six months (without regard to whether the purchase and
sale involved the same shares), we can recover the profit.
So long as the Employee Stock Purchase Plan meets the requirements of Rule
16b-3 under the Securities Exchange Act of 1934, the exercise of a purchase
right by any of our directors, executive officers or 10% stockholders is an
"exempt purchase" for purposes of section 16. Thus, the purchase of stock under
the Employee Stock Purchase Plan would not be matched with other sales for
purposes of section 16(b) liability.
Federal income tax consequences of the Employee Stock Purchase Plan
The following general discussion of the principal United States federal
income tax consequences of participating in the Employee Stock Purchase Plan is
based on the statutes and regulations existing as of October 31, 1999. In
addition, there may be state and local tax consequences to employees as a result
of participating in the Employee Stock Purchase Plan. We encourage participants
to consult their own tax advisors with respect to the tax consequences of
participation in the Employee Stock Purchase Plan, the exercise of purchase
rights and the sale of common stock acquired upon the exercise of purchase
rights.
Grant and exercise. The Employee Stock Purchase Plan is intended to
qualify as an "Employee Stock Purchase Plan" within the meaning of section 423
of the Internal Revenue Code. The Employee Stock Purchase Plan is not a tax-
---
qualified retirement plan under section 401(a) of the Internal Revenue Code.
As such, participants will not recognize any income either at the time of
the grant of purchase rights or the time of the issuance of shares of common
stock upon the exercise of purchase rights. Correspondingly, we will not be
entitled to a federal income tax deduction as the result of the grant or the
exercise of any purchase right.
Capital gains treatment. Gain or loss that a participant recognizes upon
the sale or other disposition of common stock acquired upon the exercise of a
purchase right will generally be long-term capital gain or loss if such sale is
made after the later of:
. Two years from the date of the grant of the purchase right; or
. One year from the date of the exercise of the purchase right.
Premature disposition. If a participant sells or otherwise disposes of
common stock purchased under the Employee Stock Purchase Plan prior to the
expiration of the one- and two-year holding periods, the participant will
generally recognize ordinary income in the year of sale or other disposition in
an amount equal to the excess of the fair market value of the shares on the last
day of the purchase right period, over the price the participant paid for the
shares.
The amount of ordinary income the participant so recognizes is added to the
participant's basis in the common stock received upon exercise of the purchase
right. Any remaining gain or loss recognized upon the disposition of the common
stock will either be long-term or short-term capital gain or loss, depending
upon whether the participant's holding period for the common stock exceeds one
year.
If the participant disposes of the common stock prior to the expiration of
the holding periods, we will be entitled to a deduction in the year of such a
premature disposition equal to the amount of ordinary income the participant
must recognize. Accordingly, the participant is required to notify us in the
event of such a premature disposition.
Tax rates. If a sale of stock received upon exercise of a purchase right
qualifies for long-term capital gain treatment, the amount of any gain from such
sale is currently taxed at a maximum federal rate of 20%. Short-term capital
gains and ordinary income are currently taxed at marginal rates of up to 39.6%.
24
Applicability of ERISA
The Employee Stock Purchase Plan is not subject to any of the provisions of
the Employee Retirement Income Security Act of 1974.
Benefits to be received by or allocated to directors and executive officers
Directors and executive officers who are also our employees are entitled to
participate in the Employee Stock Purchase Plan on the same terms and conditions
as all of our employees. The purchase rights that we will grant to any director
or executive officer who elects to participate will depend entirely upon the
individual's decisions as to the extent of his or her participation.
Recommendation of our board of directors
Our board believes that the approval of the increase in the number of
shares authorized for issuance under the Employee Stock Purchase Plan is in our
best interests and the best interests of our stockholders and unanimously
recommends a vote "for" approval of this proposal. Your proxies will be voted
for this proposal unless you specifically indicate otherwise.
25
INDEPENDENT ACCOUNTANTStime. The audit committee of the boardis soliciting
proposals from several large firms, but no firm has been selected PricewaterhouseCoopers LLP as
independent accountants to audit our consolidated financial statements for 1999.
PricewaterhouseCoopers LLP has audited our financial statements since 1995.date. A
member of that firmPricewaterhouseCoopers 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. If PricewaterhouseCoopers LLP should decline to act
or otherwise become incapablequestions regarding their audit of acting, or if PricewaterhouseCoopers LLP's
engagement is discontinued for any reason, the audit committee will appoint
another accounting firm to serve as our
independent public accountants for 1999.1999 financial statements.
20
STOCKHOLDER PROPOSALS FOR 20002001 ANNUAL MEETING
If you wish to present a proposal for action at the 20002001 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, 20002001 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 20002001 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 20002001 annual meeting. However,
if we do not notify you, or otherwise publicly disclose, the date of the 20002001
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 20002001 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 19992000
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 19981999 annual report is being mailed to each stockholder of
record together with this proxy statement. The 19981999 annual report includes our
annual report on Form 10-K for the year ended December 31, 1998,1999, 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
Barry C. Cosgrove
SeniorSteven J. Udicious
Vice President, Secretary
and General Counsel
and Secretary
Torrance, California
November 15, 1999
26June 22, 2000
21
EXHIBIT A
TOTAL RENAL CARE HOLDINGS, INC.
1999 EQUITY COMPENSATION PLAN
1. Purpose.AUDIT COMMITTEE CHARTER
June 8, 2000
I. Audit Committee Purpose
The purpose of the Total Renal Care Holdings, Inc. 1999
-------
Equity Compensation Plan ("Plan")Audit Committee is to promote the interests of Total Renal
Care Holdings, Inc. ("Company") and its stockholdersappointed by enabling the Company to
offer Participants an opportunity to acquire an equity interest in the Company
so as to better attract, retain, and reward employees, directors, and other
persons providing services to the Company and, accordingly, to strengthen the
mutuality of interests between Participants and the Company's stockholders by
providing Participants with a proprietary interest in pursuing the Company's
long-term growth and financial success.
2. Definitions. For purposes of this Plan, the following terms shall
-----------
have the meanings set forth below.
(a) "Board" means the Board of Directors to assist the
Board of Total Renal Care Holdings,
Inc.
(b) "Code" meansDirectors in fulfilling its oversight responsibilities. The Audit
Committee's primary duties and responsibilities are to:
. Monitor the Internal Revenue Codeintegrity of 1986,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 applicable
regulations thereunder. ReferenceBoard 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 specific sectioninvestigation
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 CodeAudit Committee shall meet the requirements of the
New York Stock Exchange. The Audit Committee shall be deemedcomprised 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 be a reference to any successor provision.
(c) "Committee" meansread and understand fundamental financial statements, and at
least one member of the committeeAudit Committee shall have accounting or related
financial management expertise.
Audit Committee members shall be appointed by the Board if any, to
administer this Plan as permitted by Section 5 below or, if no such
committee is appointed,of Directors. If
the Board.
(d) "Common Stock" means the common stock of Total Renal Care
Holdings, Inc. or any security issued in substitution, exchange, or in lieu
thereof.
(e) "Company" means Total Renal Care Holdings, Inc., a Delaware
corporation, or any successor corporation. Except where the context
indicates otherwise, the term "Company" shall include the Subsidiaries of
Total Renal Care Holdings, Inc.
(f) "Exchange Act" means the Securities Exchange Act of 1934.
(g) "Incentive Stock Option" means an option to purchase Common Stock
that is an incentive stock option under Code Section 422.
(h) "Non-Qualified Stock Option" means any Option thatCommittee 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 Incentive Stock Option.
(i) "Option" means an Incentive Stock Optionagenda 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
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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
Non-Qualified Stock
Option.
(j) "Participant" meansmaterial 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 person who has been granted an Option.
(k) "Plan" means this Total Renal Care Holdings, Inc. 1999 Equity
Compensation Plan.
(l) "Rule 16b-3" means Rule 16b-3 promulgatedsummary 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.
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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 Exchange Act.
(m) "Subsidiary" means any corporation (other thanname
Medical Ambulatory Care Delaware, Inc., and the Company) in an
unbroken chaindate of corporations beginningthe filing of the
Corporation's original Certificate of Incorporation with the Company if eachDelaware Secretary
of State was April 4, 1994.
SECOND: That the Board of Directors of the corporations (other thanCorporation adopted a
resolution proposing and declaring advisable the last corporation infollowing amendment to the
unbroken chain) owns
stock possessing fifty percent (50%) or moreCorporation's Certificate of Incorporation:
"NOW, THEREFORE, BE IT RESOLVED, that Article I of the total combined voting
powerAmended and
Restated Certificate of all classes of stock in oneIncorporation of the other corporations inCorporation be amended so
that such Article, as amended, shall be and read as follows:
"The name of the chain, as determinedcorporation 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 rulesapplicable
provisions of Code Section 424(f).
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3. Eligibility. All employees, directors, and other persons providing
-----------
bona fide services (other than persons only providing services in connection
with the offering or sale of securities in a capital raising transaction) to the
Company or any Subsidiary are eligible to receive Options under this Plan.
However, Incentive Stock Options may only be granted to employees242 of the Company
or of a Subsidiary.
4. Substitute Options. In the event that the Company acquires another
------------------
entity, the Committee may authorize the issuance of Options ("Substitute
Options") to employees, directors and other persons in substitution of stock
options previously granted to them upon such terms and conditions as the
Committee shall determine, taking into account the limitations of Code Section
424(a) in the case of any Substitute Option that is intended to be an Incentive
Stock Option.
5. Administration.
--------------
(a) This Plan shall be administered by the Board or by a committee
consisting of two or more members of the Board appointed by the Board to
administer this Plan. To the extent possible and advisable, the Committee
shall be composed of individuals who satisfy the requirements of Rule 16b-3
under the Exchange Act and of Code Section 162(m).
(b) The Committee is authorized to interpret this Plan and to adopt
rules and procedures relating to the administration of this Plan. All
actions of the Committee in connection with the interpretation and
administration of this Plan shall be binding upon all parties. Subject to
the limitations set forth below, the Committee is expressly authorized to
make such modifications to this Plan and the Options granted hereunder as
are necessary to effectuate the intent of this Plan as a result of any
changes in the tax, accounting, or securities laws treatment of
Participants and the Plan. The Committee may delegate its responsibilities
to others under such conditions and limitations as it may prescribe.
(c) If the Company enters into a transaction that is intended to
qualify for the pooling of interests method of accounting, but it is
determined that one or more Options (or an aspect of an Option) could
preclude such treatment, then the Committee may modify (to the minimum
extent required) or revoke (if necessary) the Option or Options (or any
provision or provisions thereof) to the extent necessary for the
transaction to be subject to pooling of interests method of accounting.
6. Effective Date of this Plan. This Plan shall be effective on December
---------------------------
17, 1999, provided it is approved by the holders of a majority of the Company's
common stock, at the Company's 1999 Annual Meeting. If the Plan is not approved
by the stockholders at that meeting, the Plan and all Options issued under the
Plan will terminate. The approval by the stockholders must relate to:
(a) The class of individuals who are entitled to receive Incentive
Stock Options; and
(b) The maximum number of shares of Common Stock that may be issued
under the Plan, except as adjusted pursuant to Section 12 of this Plan.
If either of those items is changed, the approval of the stockholders must again
be obtained.
7. Termination of Plan. This Plan shall terminate on December 16, 2009,
-------------------
except with respect to Options then outstanding. However, the Board may elect
to terminate the Plan on a prior date. The termination of this Plan shall not
adversely affect the rights of any Participant with respect to any Option
outstanding as of the time of such termination.
8. Shares Subject to this Plan.
---------------------------
(a) The maximum number of shares of Common Stock which may be issued
pursuant to this Plan shall be three million (3,000,000). Upon the
expiration or termination of any Option granted under this Plan which shall
not have been exercised in full, the shares of Common Stock remaining
unissued under such Option shall again become available for granting under
the Plan.
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(b) The maximum number of shares of Common Stock which may be issuable
pursuant to Options granted during any calendar year to any Participant is
five hundred thousand (500,000) shares. For purposes of determining the
maximum number of shares that may be issued to a single Participant, shares
subject to a terminated Option shall be considered outstanding.
(c) In the event a Participant pays part or all of the exercise price
of an Option by surrendering shares of Common Stock that the Participant
previously acquired, only the number of shares issuable to the Participant
in excess of those surrendered shall be taken into account for purposes of
determining the maximum number of shares that may be issued under the Plan,
both as to that Participant and in the aggregate (to all Participants).
9. Form of Options.
---------------
(a) Options shall be granted under this Plan on such terms and in such
form as the Committee may approve, which shall not be inconsistent with the
provisions of this Plan, but which need not be the same for each such
grant. Options may be either Nonqualified Stock Options or Incentive Stock
Options.
(b) The terms and conditions of each Option shall include, in addition
to such other terms and conditions as may be established by the Committee,
(i) the per share exercise price of such Option (ii) the termination date
of such Option, which shall not be later than seven (7) years after the
date of grant, and (iii) the effect on such Option of the termination of
the Participant's employment.
(c) Any Option which is intended, as evidenced by its designation, as
an Incentive Stock Option shall be made subject to such terms and
conditions as may be required for such Option to qualify as an Incentive
Stock Option. Incentive Stock Options granted under this Plan shall also
include a requirement that the Participant receiving such Incentive Stock
Option must notify the Company if he or she disposes of Common Stock
acquired pursuant to the exercise thereof prior to the expiration of the
holding periods prescribed in Section 422(a)(1) of the Code.
(d) If an Option is intended to be exempt from the million dollar
compensation deduction limitation of Code Section 162(m), the option price
must be at least equal to the Fair Market Value of the Common Stock on the
date of the grant and the grant must be made by a committee composed
exclusively of two (2) or more "outside directors" as that term is defined
under Code Section 162(m).
10. Modification of Options.
-----------------------
(a) The Committee may modify any outstanding Option as it deems
appropriate. Such authority shall include, without limitation, the right
to accelerate the right to exercise any Option, extend or renew any Option,
as well as to modify any restrictions with respect to any Option. However,
in no event will the exercise price of any outstanding Option be reduced
without first obtaining stockholder approval.
(b) No modification may be made to any Option that would adversely
affect the rights of the Participant with respect to any outstanding Option
without such Participant's consent.
(c) In the event that the Board amends the terms of an Option so that
it no longer qualifies as an Incentive Stock Option, the limitations
imposed upon the Option under the Code and the Plan by virtue of it
(formerly) qualifying as an Incentive Stock Option shall no longer apply,
to the extent specified in the amendment.
(d) Whether a modification of an existing Incentive Stock Option will
be treated as the issuance of a new Incentive Stock Option will be
determined in accordance with the rules of Code Section 424(h). Whether a
modification of an existing Option previously granted will be treated as a
new
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grant for purposes of Section 16 of the Exchange Act will be determined
in accordance with Rule 16b-3 under the Exchange Act.
11. Transfer Restrictions. Options granted to such Participant under this
---------------------
Plan are exercisable only by the Participant and are not assignable or
transferable, except by will or the laws of descent and distribution.
12. Adjustments. In the event of any stock split, reverse stock split,
-----------
stock dividend, recapitalization, combination, reclassification, reorganization,
merger, combination, consolidation, exchange of Common Stock or spinoff or other
distribution of Company assets to stockholders (other than normal cash
dividends), the Committee may, in such manner and to such extent, if any, as it
deems appropriate and equitable, authorize such adjustments with respect to (a)
the aggregate number and kind of shares for which Options may be granted under
this Plan, (b) the number and kind of shares covered by outstanding Options, and
(c) the per share exercise price of outstanding Options.
13. Change in Control. In connection with any merger or consolidation of
-----------------
the Company with or into another entity in which the Company is not the
surviving corporation or as a result of which the Common Stock ceases or will
cease to be publicly traded, the Committee may, but shall not be required to,
authorize the termination of all outstanding Options upon the consummation of
such merger or consolidation. However, as a condition to such termination, all
restrictions on the exercisability of such Options (i.e., vesting provisions)
shall be eliminated and the holders thereof shall be given at least twenty (20)
days prior to such termination to exercise their Options without regard to any
such restrictions.
14. Amendment of this Plan. The Board may amend this Plan at any time.
----------------------
However, no such amendment may adversely affect the rights of any Participant
with respect to any outstanding Option without the Participant's consent.
15. Tax Withholding. The Company shall have the right to take such
---------------
actions as may be necessary to satisfy its tax withholding obligations arising
because of the operation of this Plan.
16. No Additional Rights.
--------------------
(a) Neither the adoption of this Plan nor the granting of any Option
shall (i) affect or restrict in any way the power of the Company to
undertake any corporate action otherwise permitted under applicable law,
(ii) confer upon any Participant the right to continue performing services
for the Company, or (iii) interfere in any way with the right of the
Company to terminate the services of any Participant at any time, with or
without cause, subject to such other contractual obligations which may
exist.
(b) No Participant shall have any rights as a stockholder with respect
to any shares covered by an Option granted to the Participant until the
date a certificate for such shares has been issued to the Participant
following the exercise of the Option.
17. SecuritiesGeneral Corporation Law Restrictions.
---------------------------
(a) No shares of Common Stock shall be issued under this Plan unless
the Committee shall be satisfied that the issuance will be in compliance
with applicable federal and state securities laws, as well as the
requirements of any stock exchange or quotation system upon which the
Common Stock is listed or quoted.
(b) The Committee may require certain investment or other
representations and undertakings by the person exercising an Option in
order to comply with applicable law.
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(c) Certificates for shares of Common Stock delivered under this Plan
may be subject to such restrictions as the Committee may deem advisable.
The Committee may cause a legend to be placed on the certificates to refer
to these restrictions.
18. Indemnification.
---------------
(a) To the maximum extent permitted by law, the Company shall
indemnify each member of the Committee and of the Board, as well as any
other employee of the Company with duties under this Plan, against expenses
and liabilities (including any amount paid in settlement) reasonably
incurred by the individual in connection with any claims against the
individual by reason of the performance of the individual's duties under
this Plan, unless the losses are due to the individual's gross negligence
or lack of good faith.
(b) The Company will have the right to select counsel and to control
the prosecution or defense of the suit.
(c) In the event that more than one person who is entitled to
indemnification is subject to the same claim, all such persons shall be
represented by a single counsel, unless such counsel advises the Company in
writing that he or she cannot represent all such persons under applicable
rules of professional responsibility.
(d) The Company will not be required to indemnify any person for any
amount incurred through any settlement unless the Company consents in
writing to the settlement.
19. Governing Law. This Plan and all actions taken thereunder shall be
-------------
governed by and construed in accordance with the laws of the State of
Delaware.
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EXHIBIT BFOURTH: 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.
EMPLOYEE STOCK PURCHASE PLAN
Article I
Purpose and Effective Date
The purpose of the Plan is to provide incentives for, and to encourage
stock ownership by, Employees of Total Renal Care Holdings, Inc. or any of its
Subsidiaries whose Employees participate in the Plan in order to increase their
proprietary interest in the success of the Company.
The effective date of this 1999 Amendment and Restatement of the Plan is
November 9, 1999.
Article II
Definitions
Whenever capitalized in the text, the following terms shall have the
meanings set forth below.
2.1 "Account" shall mean the account established pursuant to Section 35 to
-------
hold a Participant's contributions to the Plan.
2.2 "Board" shall mean the Board of Directors of Total Renal Care
-----
Holdings, Inc.
2.3 "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
Reference to any specific section of the Code shall be deemed to be a reference
to any successor provision.
2.4 "Committee" shall mean the Board of Total Renal Care Holdings, Inc. or
---------
a committee designated by the Board to administer the Plan.
2.5 "Common Stock" shall mean the common stock of Total Renal Care
------------
Holdings, Inc.
2.6 "Company" shall mean Total Renal Care Holdings, Inc.,
a Delaware -------
corporation
as well as any Subsidiary whose employees participate in the Plan
with the consent of the Board.
2.7 "Continuous Employment" shall mean employment without interruption by
---------------------
the Company. Employment shall not be considered interrupted because of:
(a) Transfers of employment between the CompanyBy: ___________________________
Steven J. Udicious,
Vice President, General Counsel
and a Subsidiary (or
vice versa); or
(b) Any Leave of Absence.
2.8 "Employee" shall mean any person employed by the Company. This term
--------
does not include directors unless they are employed by the Company in a position
in addition to their duties as a director.
2.9 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
2.10 "Fair Market Value" shall mean, on any given day, the closing price
-----------------
for the Common Stock on that day, or if the Common Stock was not traded on that
day, on the next preceding day on which the Common Stock was traded, determined
in accordance with the following rules.Secretary
B-1
(a) If the Common Stock is admitted to trading or listed on a national
securities exchange, the closing price for any day shall be the last
reported sale price regular way, or if no such reported sale takes place on
that day, the average of the last reported bid and ask prices regular way,
in either case on the principal national securities exchange on which the
Common Stock is admitted to trading or listed.
(b) If not listed or admitted to trading on any national securities
exchange, the last sale price on that day of the Common Stock reported on
the Nasdaq National Market of the Nasdaq Stock Market ("Nasdaq National
Market") or, if no such reported sale takes place on that day, the average
of the closing bid and ask prices on that day.
(c) If not included in the Nasdaq National Market, the average of the
closing bid and ask prices of the Common Stock on that day reported by The
Nasdaq Stock Market, or any comparable system on that day.
(d) If the Common Stock is not included in the Nasdaq Stock Market or
any comparable system, the closing bid and ask prices on that day as
furnished by any member of the National Association of Securities Dealers,
Inc. selected from time to time by the Company for that purpose.
2.11 "Leave of Absence" shall mean an unpaid leave of absence taken in
----------------
accordance with the Company's leave of absence policy. A Participant will not
be considered to have incurred a break in Continuous Employment because of a
Leave of Absence that does not exceed ninety (90) days. If the Leave of Absence
exceeds ninety (90) days, the Participant will be deemed to have incurred a
break in Continuous Employment on the ninety-first (91st) day, unless the
Participant's rights to reemployment are guaranteed by statute or contract.
2.12 "Participant" shall mean an Employee who has been granted a Purchase
-----------
Right under the Plan.
2.13 "Plan" shall mean the 1999 Amendment and Restatement of the Total
----
Renal Care Holdings, Inc. Employee Stock Purchase Plan.
2.14 "Purchase Right" shall mean a right to purchase Common Stock granted
--------------
pursuant to the Plan.
2.15 "Purchase Right Period" shall mean the period beginning on January 1
---------------------
or July 1 (whichever is applicable) and terminating on the immediately following
December 31. (But see Section 43 for special rules regarding the termination of
a Purchase Right Period.)
2.16 "Stockholders" shall mean the holders of Common Stock.
------------
2.17 "Subsidiary" shall mean any corporation (other than the Company) in an
----------
unbroken chain of corporations beginning with the Company if each of the
corporations (other than the last corporation in the unbroken chain) owns stock
possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in the chain.
Article III
Eligibility and Participation
3.1 Eligibility.
-----------
(a) All Employees of the Company who are scheduled to work at least
twenty (20) hours per week are eligible to participate in the Plan,
provided they have completed at least three (3) months of Continuous
Employment prior to the first day of the Purchase Right Period.
(b) No Employee may be granted a Purchase Right if the Employee would
immediately thereafter own, directly or indirectly, five percent (5%) or
more of the combined voting power or value of
B-2
all classes of stock of the Company or of a Subsidiary. For this purpose,
an Employee's ownership interest shall be determined in accordance with the
constructive ownership rules of Code Section 424(d).
3.2 Payroll Withholding.
-------------------
(a) Employees who have satisfied the eligibility conditions of Section
31 may enroll as Participants by executing prior to the commencement of
each Purchase Right Period a form provided by the Committee on which they
designate:
(i) The dollar amount (not a percentage of compensation) to be
deducted from their paychecks and contributed to their Accounts for
the purchase of Common Stock, which shall not be less than ten dollars
($10) per payroll period; and/or
(ii) The amount of funds, if any, which they will deposit at the
beginning of the Purchase Right Period for the purchase of Common
Stock.
(b) Once chosen, the rate of contributions for a Purchase Right Period
cannot be decreased or increased without terminating the Purchase Right.
However, pursuant to rules and procedures prescribed by the Committee, a
Participant may make additional contributions to make up for amounts that
he or she failed to make while on a Leave of Absence if the Participant
returns to active employment and contributes those amounts before the end
of the Purchase Right Period.
3.3 Limitations.
-----------
(a) Notwithstanding anything herein to the contrary, a Participant may
not accrue a right to purchase shares of Common Stock at a rate that
exceeds twenty-five thousand dollars ($25,000) per calendar year,
determined in a manner consistent with Code Section 423(b)(8).
(b) This limitation shall apply to the Participant's right to purchase
Common Stock under the Plan and under all other employee stock purchase
plans described in Code Section 423 that are maintained by the Company and
its Subsidiaries.
(c) This dollar limitation applies to the Fair Market Value of Common
Stock determined at the time the Purchase Right is granted.
3.4 Granting of Purchase Rights. The price at which each share covered by
---------------------------
a Purchase Right will be purchased will in all instances be the lesser of:
(a) One hundred percent (100%) of the Fair Market Value of a share of
Common Stock on the first day of the applicable Purchase Right Period; or
(b) Eighty-five percent (85%) of the Fair Market Value of a share of
Common Stock on the last day of that Purchase Right Period.
However, in no event will the maximum number of shares that can be purchased
pursuant to the provisions of this Section 34 in a single Purchase Right Period
exceed twenty-five thousand (25,000).
3.5 Establishment of Accounts.
-------------------------
(a) All amounts contributed by the Participant to the Plan (whether by
means of payroll withholding or a lump sum advance contribution) will be
deposited into a separate Account maintained for the Participant.
(b) No interest will be earned on those contributions.
B-3
(c) A Participant may not withdraw any amounts from his or her Account
without terminating his or her Purchase Right pursuant to Section 41 below.
Article IV
Purchase Rights
4.1 Termination of Purchase Rights.
------------------------------
(a) A Participant may withdraw from the Plan at any time prior to the
last day of the Purchase Right Period by submitting a form prescribed by
the Committee to the Human Resources Department of the Company at the
Corporate Office in Torrance, California. The Participant's Purchase Right
shall terminate upon withdrawal from the Plan.
(b) A Purchase Right shall terminate automatically if the Participant
holding the Purchase Right ceases to be employed by the Company for any
reason (including death, disability, or retirement) prior to the last day
of the Purchase Right Period.
(c) Upon the termination of a Purchase Right, all amounts held in the
Participant's Account shall be refunded to the Participant.
4.2 Exercise of Purchase Rights.
---------------------------
(a) Unless previously terminated, Purchase Rights will be exercised
automatically on the last day of the Purchase Right Period.
(b) Except as provided in Paragraph (b) of Section 32 above, payment
for shares to be purchased at the termination of the Purchase Right Period
may only be made from funds:
(i) Deposited at the beginning of a Purchase Right Period;
and/or
(ii) Accumulated through payroll deductions made during the
Purchase Right Period.
(c) If the amount in the Participant's Account at the end of the
Purchase Right Period is insufficient to purchase all the shares covered by
the Purchase Right granted to the Participant, those funds will be used to
purchase as many whole shares as possible.
(d) If the balance of the Participant's Account on the date of
purchase exceeds the purchase price of the whole number of shares to be
acquired, the surplus shall be applied to the next Purchase Right Period,
unless the Participant elects to receive a refund by submitting a form
prescribed by the Committee to the Human Resources Department of the
Company at the Corporate Office in Torrance, California.
(e) Stock certificates will be distributed within forty-five (45) days
following the date of the exercise of the Purchase Right.
4.3 Termination Event. The following provisions of this Section 43 shall
-----------------
apply, notwithstanding anything herein to the contrary.
(a) A "Termination Event" shall be deemed to occur as a result of (i)
a transaction in which the Company will cease to be an independent
publicly-owned corporation or (ii) a sale or other disposition of all or
substantially all the assets of the Company.
(b) All Purchase Rights shall be automatically exercised immediately
preceding the Termination Event. In such an event, for purposes of
applying the rules of Paragraph (b) of Section 3.4,
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the Fair Market Value of the Common Stock on that date shall be deemed to
be the consideration paid for the Common Stock in the transaction.
4.4 Non-Transferability of Purchase Rights. A Purchase Right may not be
--------------------------------------
assigned or alienated other than by will and the laws of descent and
distribution.
Article V
Common Stock
5.1 Shares Subject to Plan.
----------------------
(a) Effective November 9, 1999, the maximum number of shares of Common
Stock which may be issued under the Plan is one million, three hundred
thirty-three thousand, three hundred and three (1,133,333). The number of
these shares shall be subject to adjustment under Section 52 below.
(b) If any outstanding Purchase Right is terminated for any reason
prior to its exercise, the shares subject to the Purchase Right will again
become subject to purchase under the Plan.
(c) The Common Stock issuable under the Plan may be previously
unissued or may have been reacquired by the Company in the open market (or
otherwise).
5.2 Adjustment Upon Changes in Capitalization. Subject to the provisions
-----------------------------------------
of Section 43, a proportionate adjustment shall be made by the Committee in the
number, price, and kind of shares subject to outstanding Purchase Rights if the
outstanding shares of Common Stock are increased, decreased, or exchanged for
different securities, through reorganization, merger, consolidation,
recapitalization, reclassification, stock split, stock dividend, or other
similar transaction.
Article VI
Plan Administration
6.1 Administration.
--------------
(a) The Plan shall be administered by the Committee. The Committee
shall have authority to:
(i) Interpret the Plan;
(ii) Prescribe rules and procedures relating to the Plan; and
(iii) Take all other actions necessary or appropriate in
connection with the administration of the Plan.
(b) A majority of the members of the Committee shall constitute a
quorum, and any action shall constitute the action of the Committee if it
is authorized by a majority of the members:
(i) Present at any meeting; or
(ii) In writing without a meeting.
(c) All decisions of the Committee shall be final and binding on all
Participants.
(d) No member of the Committee shall be liable for any action or
inaction taken in good faith with respect to the Plan or any Purchase Right
granted under it.
B-5
6.2 Indemnification.
---------------
(a) To the maximum extent permitted by law, the Company shall
indemnify each member of the Committee and each other member of the Board,
as well as any other Employee with duties under the Plan, against expenses
(including any amount paid in settlement or in satisfaction of a judgment)
reasonably incurred by the individual in connection with any claims against
the individual by reason of the performance of the individual's duties
under the Plan. This indemnity shall not apply, however, if:
(i) It is determined in the action, lawsuit, or proceeding that
the individual is guilty of gross negligence or intentional misconduct
in the performance of those duties; or
(ii) The individual fails to assist the Company in defending
against any such claim.
(b) Notwithstanding the above, the Company shall have the right to
select counsel and to control the prosecution or defense of the suit.
Furthermore, the Company shall not be obligated to indemnify any individual
for any amount incurred through any settlement or compromise of any action
unless the Company consents in writing to the settlement or compromise.
Article VII
Amendment and Termination
7.1 Amendment and Termination. The Board may amend or terminate the Plan
-------------------------
at any time by means of written action, except with respect to outstanding
Purchase Rights.
7.2 Stockholder Approval. No additional shares of Common Stock shall be
--------------------
issued solely as a result of the adoption of the 1999 Amendment and Restatement
of the Plan unless the Plan is approved by the Stockholders within twelve (12)
months before or after the date of its adoption by the Board, which is November
9, 1999. If the 1999 Amendment and Restatement is not approved by the
Stockholders within that time period, the prior version of the Plan will remain
in effect. The approval by the Stockholders must relate to:
(a) The class of individuals eligible to participate; and
(b) The aggregate number of shares to be granted under the Plan.
If either of those items are changed, approval of the Stockholders must again be
obtained.
Article VII
Miscellaneous Matters
8.1 Uniform Rights and Privileges. The rights and privileges of all
-----------------------------
Participants under the Plan shall be the same.
8.2 Application of Proceeds. The proceeds received by the Company from
-----------------------
the sale of Common Stock pursuant to Purchase Rights may be used for any
corporate purpose.
8.3 Notice of Disqualifying Disposition. A Participant must notify the
-----------------------------------
Company if the Participant disposes of stock acquired pursuant to the Plan prior
to the expiration of the holding periods required to qualify for capital gains
treatment on the sale.
8.4 No Additional Rights.
--------------------
(a) Neither the adoption of this Plan nor the granting of any Purchase
Right shall:
(i) Affect or restrict in any way the power of the Company to
undertake any corporate action otherwise permitted under applicable
law; or
B-6
(ii) Confer upon any Participant the right to continue to be
employed by the Company, nor shall it interfere in any way with the
right of the Company to terminate the employment of any Participant at
any time, with or without cause.
(b) No Participant shall have any rights as a Shareholder with respect
to any shares covered by a Purchase Right granted to the Participant until
the Common Stock is actually issued to the Participant.
(c) No adjustments will be made for cash dividends or other rights for
which the record date is prior to the issuance of the Common Stock.
8.5 Governing Law.
-------------
(a) The Plan and all actions taken under it shall be governed by and
construed in accordance with the laws of the State of Delaware.
(b) The provisions of this Plan shall be interpreted in a manner that
is consistent with this Plan satisfying the requirements of Code Section
423.
B-7
- --------------------------------------------------------------------------------
TOTAL RENAL CARE HOLDINGS, INC.
TOTAL RENAL CARE HOLDINGS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS - DECEMBER 17, 1999JULY 25, 2000
TO OUR STOCKHOLDERS
We will hold our 19992000 annual meeting of the stockholders of Total Renal
Care Holdings, Inc., or TRCH, a Delaware corporation, on Friday December 17,
1999July 25, 2000 at 9:3000
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 fivesix 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. 1999 Equity Compensation Plan.to DaVita, Inc.
3. Consider and act upon a proposal to increase the number of shares
authorized to be issued under our Employee Stock Purchase Plan.
4. Transact other business as may come properly before the meeting or any
meetingmeetings held upon adjournment of the meeting.
Our board of directors has fixed the close of business on November 4, 1999June 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 19981999 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,
/s/ Barry C. Cosgrove
Barry C. Cosgrove
SeniorSteven J. Udicious
Vice President,
Secretary and General Counsel
and Secretary
Torrance, California
November 15, 1999June 22, 2000
-- Detach Proxy Card Here --
- --------------------------------------------------------------------------------
[ ]
The Directors recommendedrecommend a vote FOR all Nominees listed in Proposal 1 and
approval of Proposal 2 and Proposal 3.1.
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 withheldwithhold 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 1999 Equity Compensation Plan.Certificate of
Incorporation to change the Company's name to DaVita, Inc.
FOR [_] AGAINST [_] ABSTAIN [_]
3. Proposal to increase the number of shares authorized to be issued under the
Company's Employee Stock Purchase Plan.
FOR [_] AGAINST [_] ABSTAIN [_]
4. 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: , 1999
---------------------------2000
--------------------------
--------------------------------------
Signature(s)
--------------------------------------
Signature(s)
Votes must be indicated
[X] in Black or Blue Ink. [_]
Please mark, sign, date and return thethis Proxy in the accompanying prepaid
envelope.
Please Detach Here
You Must Detach This Portion of the Proxy Card
Before Returning Itit in the Enclosed Envelope.Envelope
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 Barry C. Cosgrove,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 9:3000 A.M., Pacific Time, on December 17, 1999July 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 and Proposal 3.2. 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 November 15, 1999June 22, 2000 is hereby acknowledged.
TOTAL RENAL CARE HOLDINGS, INC.
P.O. BOX 11308
NEW YORK, N.Y. 10203-0308