AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 12,15, 1997
REGISTRATION NO. 333-
================================================================================333-33381
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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TOTAL RENAL CARE HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 8092 51-0354549
(PRIMARY STANDARD (I.R.S. EMPLOYER
(STATE OR OTHER INDUSTRIAL IDENTIFICATION NO.)
JURISDICTION OF CLASSIFICATION CODE
INCORPORATION OR NUMBER)
ORGANIZATION)
21250 HAWTHORNE BOULEVARD
TORRANCE, CALIFORNIA 90503-5517
(310) 792-2600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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JOHN E. KING
CHIEF FINANCIAL OFFICER
TOTAL RENAL CARE HOLDINGS, INC.
21250 HAWTHORNE BOULEVARD, SUITE 800
TORRANCE, CALIFORNIA 90503-5517
(310) 792-2600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
CYNTHIA M. DUNNETT JONATHAN H. GRUNZWEIG
RIORDAN & MCKINZIE SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
300 SOUTH GRAND AVENUE, 29TH FLOOR 300 SOUTH GRAND AVENUE, SUITE 3400
LOS ANGELES, CALIFORNIA 90071 LOS ANGELES, CALIFORNIA 90071
(213) 629-4824 (213) 687-5000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As promptly
as practicable following the effective date of this Registration Statement.
If the only securities being registered on this Form S-3 are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being offered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER SHARE(1) PRICE(1) FEE
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Common Stock, par value
$0.001 per share...... 2,750,000 shares $45.75 $125,812,000 $38,125
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, based on the
average of the high and low sales prices, $47.125 and $44.375,
respectively, on August 8, 1997, as reported on the New York Stock
Exchange.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A)8(a) OF THE SECURITIES ACT OF 1933 OR ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A)8(a), MAY DETERMINE.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 12,15, 1997
PROSPECTUS
AUGUST , 1997
2,595,5242,600,524 SHARES
[LOGO OF TRC APPEARS HERE] TOTAL RENAL CARE HOLDINGS, INC. APPEARS HERE]
COMMON STOCK
The 2,595,5242,600,524 shares of Common Stock being offered hereby (the "Offering")
are being sold by the Selling Stockholders. See "Selling Stockholders." Total
Renal Care Holdings, Inc. (the "Company") will not receive any proceeds from
the sale of Common Stock by the Selling Stockholders.
The Common Stock is listed on the New York Stock Exchange under the symbol
"TRL." On August 8,13, 1997 the closing price for the Common Stock as reported on
the New York Stock Exchange was $45.3125$43.4375 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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PRICE UNDERWRITING PROCEEDS TO
TO THE DISCOUNTS AND THE SELLING
PUBLIC COMMISSIONS(1) STOCKHOLDERS(2)
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Per Share............................ $ $ $
Total................................ $ $ $
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(1) The Company and the Selling Stockholders have agreed to indemnify the
UnderwritersUnderwriter against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses estimated at $200,000, all of which are payable
by the Selling Stockholders.
The shares of Common Stock are being offered by the Underwriter, subject to
prior sale when, as and if delivered to and accepted by the Underwriter and
subject to various prior conditions, including their right to reject orders in
whole or in part. It is expected that delivery of share certificates will be
made in New York, New York on or about August , 1997.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITER MAY BID FOR AND PURCHASE SHARES OF COMMON STOCK
IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, and in accordance therewith files reports and other
information with the Securities and Exchange Commission (the "Commission"). A
copy of the reports and other information filed by the Company with the
Commission may be inspected without charge at the offices of the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the following Regional Offices of the Commission: the Midwest Regional
Office at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511; and the Northeast Regional Office at 13th Floor, 7 World
Trade Center, New York, New York 10048. Copies of such material can be
obtained from the Public Reference Section of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
Such reports and other information concerning the Company are also available
for inspection at the offices of the New York Stock Exchange, 20 Broad Street,
New York, New York 10005. In addition the Commission maintains an Internet
site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants, including the Company,
that file electronically with the Commission.
The Company has filed with the Commission a registration statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act. This Prospectus does not contain all of
the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is made to the Registration
Statement.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996;
(2) The Company's Quarterly Report on Form 1O-Q for the three-month periodquarter ended March
31, 1997;
(3) The Company's Quarterly Report on Form 1O-Q for the quarter ended June
30, 1997;
(4) The description of the Common Stock contained in the Company's Form 8-A
dated October 23, 1995; and
(4)(5) All documents subsequently filed by the Company with the Commission
pursuant to Section 13(a), (c), 14 or 15(d) of the Exchange Act and prior to
the termination of this offering shall be deemed to be incorporated by
reference in this Prospectus. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that a statement contained herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
Copies of all documents which are incorporated herein by reference (not
including the exhibits to such information, unless such exhibits are
specifically incorporated by reference in such information) will be provided
without charge to each person, including any beneficial owner, to whom this
Prospectus is delivered, upon written or oral request. Copies of this
Prospectus, as amended or supplemented from time to time, and any other
documents (or parts of documents) that constitute part of the Prospectus under
Section 10(a) of the Securities Act will also be provided without charge to
each such person, upon written or oral request. Requests should be directed to
Total Renal Care Holdings, Inc., Attention: John E. King, 21250 Hawthorne
Boulevard, Suite 800, Torrance, California 90503-5517, telephone number (310)
792-2600.
2
THE COMPANY
Total Renal Care Holdings, Inc. is the third largest provider of high-
quality dialysis and related services in the United States for patients
suffering from chronic kidney failure, also known as end stage renal disease
("ESRD"). As of the date of this Prospectus, the Company provides dialysis and
ancillary services to more than 12,900 patients through a network of 167171
outpatient dialysis facilities in 17 states, as well as Washington, D.C., Guam
and the United Kingdom. In addition, the Company provides inpatient dialysis
services at 117118 hospitals. The Company has implemented an aggressive growth
strategy since its recapitalization and change in ownership in August 1994,
adding 130134 outpatient dialysis facilities to its network as well as 6190
hospital inpatient contracts. 3332 of the outpatient dialysis facilities and 30
of these hospital inpatient contracts have been added in the first six months
of 1997. The Company has also expanded its in-house ancillary services to
include ESRD laboratory and pharmacy facilities, as well as vascular access
management, transplant services programs and ESRD clinical research programs.
The increase in the number of facilities and hospital contracts, combined with
the enhancement of the Company's ancillary businesses, has resulted in an
increase in net operating revenues of 68.8% to $193.8 million in the six
months ended June 30, 1997 as compared to the same period in the previous
year. Since the Company's most recent equity offering in November 1996 the
Company has acquired 7929 facilities servicing 3,300more than 3,200 patients,
including 3four facilities servicing approximately 230340 patients since July 1,
1997.
The Company's growth strategy is focused on establishing strong regional
networks of clustered facilities that provide comprehensive care for ESRD
patients. The Company believes that this approach enhances its operating
efficiency and positions the Company to be a leader in a health care
environment increasingly influenced by managed care. The Company strives to
continue its growth and margin improvement by (i) expanding its existing
networks and by creating new regional facility networks through acquisitions,
the development of new facilities ("de novo" developments) and the formation
of hospital alliances, (ii) forming strategic alliances with physicians and
managed care organizations, (iii) expanding the range of ancillary services it
provides to patients, (iv) continuously improving the quality of care provided
through the Company's Quality Management Program and (v) maximizing operating
efficiencies and utilization. As part of the Company's growth strategy, it has
begun development of operations in various overseas markets.
RECENT EVENTS
Six-Month Financial Results. Revenues increased 69% to $193.8 million in the
first six months of 1997 from $114.8 million in the corresponding period of
1996. Earnings increased 67% to $16.7 million, up from $10.0 million for the
corresponding period of 1996, and earnings per share increased 53% to $0.61 on
27.2 million weighted average shares outstanding for the six-month period
ended June 30, 1997, compared with earnings per share of $0.40 on 24.8 million
weighted average shares outstanding for the six-month period ended June 30,
1996.
Acquisitions/New Programs. Since July 1, 1997, the Company has acquired 3four
facilities servicing approximately 230340 patients in separate transactions. The
Company has also signed definitive agreements to acquire facilities servicing
approximately 660 additional patients. In addition, the Company has entered
into 7six agreements in principle to acquire facilities servicing approximately
1,100870 patients. Although there can be no assurance that the transactions will be
consummated, the Company currently expects that each transaction for which a
definitive agreement has been signed will close in the third quarter and the
balance over the remainder of the year.
The Company recently acquired the Drug Evaluation Unit from the Minneapolis
Medical Research Foundation and thereby created Total Renal Pharmaceutical
Research, Inc.
("TRR"). TRR is a leading ESRD clinical research company specializing in renal
and renal-related studies. Headquartered in Minneapolis, Minnesota, TRR has
its core clinical site in the Hennepin County Medical Center and plans to
expand to multiple sites, initially throughout the U.S. TRR conducts tolerance
and pharmokineticspharmocokinetics studies as well as Phase I through IV clinical trials.
3
The Company has recently committed to utilizing, system-wide and worldwide,
Health Outcomes Management Evaluation and Research ("HOMER") software from SSI
Health Systems, Inc. With its process-centered approach, HOMER relates
treatment parameters to patient problems, creating a versatile and powerful
outcomes database for clinical patient encounters. Management expects that
managed care reporting, outcomes analysis and risk assessment will be natural
extensions of HOMER.
Credit Facilities. In August 1997, the Company entered into a commitment to
replace its $400 million bank credit facility with an aggregate of $1 billion
in two senior bank facilities (the "Senior Credit Facilities"). The Senior
Credit Facilities consist of a seven-year $800 million revolving credit
facility and a ten-year $200 million term facility. The Company has also
committed to enter into an additional forward interest swap agreement with a
notional amount of $200 million for a ten-year period beginning September 30,
1997. In November 1996, the Company entered into a seven-year $100 million
interest swap, of which $15 million was on a forward basis commencing in
February 1997. There can be no assurance that the Company will consummate the
transactions related to the Senior Credit Facilities or the swap agreement.
See "Underwriting."
1997 Federal Budget. The Balanced Budget Act signed August 5, 1997 by
President Clinton included provisions: (1) providing for a permanent extension
to thirty months (from eighteen months) of the Medicare secondary payor
requirement for items and services furnished to ESRD patients by their
existing Employer Group Health Plan;Plan ("EGHP"), effective for all patients who
are still in their eighteen month EGHP coordination period as of August 5,
1997; and (2) specifying that where payment for drugs (other than EPO (defined
below)) is not made on a cost or prospective payment basis, the payment would
equal 95% of the Average Wholesale Price (as defined in federal laws and
regulations).
The Company is a Delaware corporation. The Company's offices are located at
21250 Hawthorne Boulevard, Torrance, California 90503-5517 and its telephone
number is (310) 792-2600.
4
RISK FACTORS
In evaluating the Company and its business, prospective investors should
carefully consider the following risk factors in addition to the other
information contained herein. This Prospectus and the materials incorporated
herein by reference contain statements that constitute "forward-looking"
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements relate to future events or the future
financial performance of the Company and involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Such factors include, among other things, those discussed
below, and such factors could cause actual results to differ materially from
those indicated by such forward-looking statements. The Company undertakes no
obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise. In light
of these risks and uncertainties, there can be no assurance that the forward-
looking information contained in this Prospectus or the materials incorporated
herein by reference will in fact transpire.
DEPENDENCE ON MEDICARE, MEDICAID AND OTHER SOURCES OF REIMBURSEMENT
The Company is reimbursed for dialysis services primarily at fixed rates
established in advance under the Medicare End Stage Renal Disease program.
Under this program, once a patient becomes eligible for Medicare
reimbursement, Medicare is responsible for payment of 80% of the composite
rates determined by the Health Care Financing Administration ("HCFA") for
dialysis treatments. Since 1972, qualified patients suffering from ESRD have
been entitled to Medicare benefits regardless of age or financial
circumstances. The Company estimates that approximatelyApproximately 61% of itsthe Company's net patient revenues during
its fiscal year ended December 31, 1996, and approximately 59% during the six
months ended June 30, 1997 were funded by Medicare. Since 1983, numerous
Congressional actions have resulted in changes in the Medicare composite
reimbursement rate from a national average of $138 per treatment in 1983 to a
low of $125 per treatment on average in 1986 and to approximately $126 per
treatment on average at present. The Company is not able to predict whether
future rate changes will be made. Reductions in composite rates could have a
material adverse effect on the Company's revenues and net earnings.
Furthermore, increases in operating costs that are subject to inflation, such
as labor and supply costs, without a compensating increase in prescribed
rates, may adversely affect the Company's earnings in the future. The Company
is also unable to predict whether certain services, as to which the Company is
currently separately reimbursed, may in the future be included in the Medicare
composite rate.
Since June 1, 1989, the Medicare ESRD program has provided reimbursement for
the administration to dialysis patients of erythropoietin ("EPO"). EPO is
beneficial in the treatment of anemia, a medical complication frequently
experienced by dialysis patients. Many of the Company's dialysis patients
receive EPO. Revenues from EPO (the substantial majority of which are
reimbursed through Medicare and Medicaid programs) were approximately $55.1
million, or 20% of net patient revenues, in its fiscal year ended December 31,
1996, and were $38.9 million, or 20% of net patient revenues, during the six
months ended June 30, 1997. EPO reimbursement significantly affects the
Company's net income. Medicare reimbursement for EPO was reduced from $11 to
$10 per 1,000 units for services rendered after December 31, 1993. EPO is
produced by a single manufacturer, and any interruption of supply or product
cost increases could adversely affect the Company's operations. Prices paid
for EPO by the Company, its public competitors, and other dialysis providers
are presently the subject of a pricing survey being conducted on behalf of
HCFA.
All of the states in which the Company currently operates dialysis
facilities provide Medicaid (or comparable) benefits to qualified recipients
to supplement their Medicare entitlement. The Company estimates that
approximatelyApproximately 6% of itsthe Company's
net patient revenues during the fiscal year ended December 31, 1996 and 8% of
its net patient revenues during the six month period ended June 30, 1997 were
funded by Medicaid or comparable state programs. The Medicaid programs are
subject to statutory and regulatory changes, administrative rulings,
interpretations of policy and governmental funding restrictions, all of which
may have the effect of decreasing program payments, increasing costs or
modifying the way the Company operates its dialysis business.
5
Approximately 33% of the Company's net patient revenues during the fiscal
year ended December 31, 1996, and 33% of the Company's net patient revenues
during the six months ended June 30, 1997 were from sources other than
Medicare and Medicaid. These sources include payments from third-party, non-
government payors, at rates that generally exceed the Medicare and Medicaid
rates, and payments from hospitals with which the Company has contracts for
the provision of acute dialysis treatments. Any restriction or reduction of
the Company's ability to charge for such services at rates in excess of those
paid by Medicare would adversely affect the Company's net operating revenues
and net income. The Company is unable to quantify or predict the degree, if
any, of the risk of reductions in payments under these various payment plans.
The Company is a party to non-exclusive agreements with certain third-party
payors and termination of such third-party agreements could have an adverse
effect on the Company.
OPERATIONS SUBJECT TO GOVERNMENT REGULATION
The Company is subject to extensive regulation by both the federal
government and the states in which the Company conducts its business. The
Company is subject to the illegal remuneration provisions of the Social
Security Act and similar state laws, which impose civil and criminal sanctions
on persons who solicit, offer, receive or pay any remuneration, directly or
indirectly, for referring a patient for treatment that is paid for in whole or
in part by Medicare, Medicaid or similar state programs. In July 1991 and
November 1992, the federal government published regulations that provide
exceptions or "safe harbors" for certain business transactions. Transactions
that are structured within the safe harbors are deemed not to violate the
illegal remuneration provisions. Transactions that do not satisfy all elements
of a relevant safe harbor do not necessarily violate the illegal remuneration
statute, but may be subject to greater scrutiny by enforcement agencies.
Neither the arrangements between the Company and the physician directors of
its facilities ("Medical Directors") nor the minority ownership interests of
referring physicians in certain of the Company's dialysis facilities meet all
of the necessary requirements to obtain full protection afforded by these safe
harbors. Although the Company has never been challenged under these statutes
and believes it complies in all material respects with these and all other
applicable laws and regulations, there can be no assurance that the Company
will not be required to change its practices or relationships with its Medical
Directors or with referring physicians holding minority ownership interests or
that the Company will not experience material adverse effects as a result of
any such challenge.
The Omnibus Budget Reconciliation Act of 1989 includes certain provisions
("Stark I") that restrict physician referrals for clinical laboratory services
to entities with which a physician or an immediate family member has a
"financial relationship." In August 1995, HCFA published regulations
interpreting Stark I. The regulations specifically provide that services
furnished in an ESRD facility that are included in the composite billing rate
are excluded from the coverage of Stark I. The Company believes that the
language and legislative history of Stark I indicate that Congress did not
intend to include laboratory services provided incidental to dialysis services
within the Stark I prohibition; however, laboratory services not included in
the Medicare composite rate could be included within the coverage of Stark I.
Violations of Stark I are punishable by civil penalties which may include
exclusion or suspension of a provider from future participation in Medicare
and Medicaid programs and substantial fines. Due to the breadth of the
statutory provisions, it is possible that the Company's practices might be
challenged under this law. A broad interpretation of Stark I would apply to
the Company's competitors as well.
The Omnibus Budget Reconciliation Act of 1993 includes certain provisions
("Stark II") that restrict physician referrals for certain "designated health
services" to entities with which a physician or an immediate family member has
a "financial relationship." The Company believes that the language and
legislative history of Stark II indicate that Congress did not intend to
include dialysis services and the services and items provided incident to
dialysis services within the Stark II prohibitions; however, certain services,
including the provision of, or arrangement and assumption of financial
responsibility for, outpatient prescription drugs, including EPO, and clinical
laboratory services, could be construed as designated health services within
the meaning of Stark II. Violations of Stark II are punishable by civil
penalties, which may include exclusion or suspension of the provider from
future participation in Medicare and Medicaid programs and substantial fines.
Due to the breadth of the statutory provisions and the absence of regulations
or court decisions addressing the specific arrangements
6
by which the Company conducts its business, it is possible that the Company's
practices might be challenged under these laws. A broad interpretation of
Stark II to include dialysis services and items provided incident to dialysis
services would apply to the Company's competitors as well.
A California statute that became effective January 1, 1995 makes it unlawful
for a physician who has, or a member of whose immediate family has, a
financial interest with or in an entity to refer a person to that entity for,
among other services, laboratory services. The Company currently operates
centers in California, which account for a significant percentage of net
operating revenues. Although the Company does not believe that the statute is
intended to apply to laboratory services that are provided incident to
dialysis services, it is possible that the statute could be interpreted to
apply to such laboratory services. If the California statute were so
interpreted, the Company would be required to restructure some or all of its
relationships with referring physicians who serve as Medical Directors of the
Company's facilities and with the physicians who hold minority interests in
certain of the Company's facilities. The Company also operates dialysis
facilities and provides laboratory services in Virginia, Georgia, Florida,
Illinois, Minnesota, Maryland, Michigan, New York and Puerto Rico all of which
have so-called "fraud and abuse" statutes which regulate the Company's
relationships with physicians.
At present, ESRD patients eligible for California's Medicaid program,
MediCal, are reimbursed for their transportation costs relating to ESRD
treatments. If this practice is deemed to violate applicable federal or state
law, the Company may be forced to halt this practice and the Company cannot
predict the effect the foregoing would have on the desire of such patients to
use the Company's services.
The Company's two licensed clinical laboratories are also subject to
extensive federal and state regulation of performance standards, including the
provisions of The Clinical Laboratory Improvement Act of 1967 and The Clinical
Laboratory Improvement Amendments of 1988 Act, as well as the federal and
state regulations described above. The Company's laboratory subsidiary is
presently the subject of a third-party carrier review and a State of Florida
Medicaid review. The reviewing entities have requested medical and billing
records for certain patients, and the Company has provided the requested
records. Neither the third-party carrier nor Florida Medicaid has informed the
Company of the reason for or the nature or scope of its review.
A number of proposals for health care reform have been made in recent years,
some of which have included radical changes in the health care system. Health
care reform could result in material changes in the financing and regulation
of the health care business, and the Company is unable to predict the effect
of such changes on its future operations. It is uncertain what legislation on
health care reform, if any, will ultimately be implemented or whether other
changes in the administration or interpretation of governmental health care
programs will occur. There can be no assurance that future health care
legislation or other changes in the administration or interpretation of
governmental health care programs will not have a material adverse effect on
the results of operations of the Company.
RISKS INHERENT IN GROWTH STRATEGY
Beginning after the recapitalization in August 1994, which effected a change
in ownership, the Company has had an aggressive growth strategy. This growth
strategy is dependent on the continued availability of suitable acquisition
candidates and subjects the Company to the risks inherent in assessing the
value, strengths and weaknesses of acquisition candidates, the operations of
acquired companies and identifying suitable locations for additional
facilities. The Company's growth is expected to place significant demands on
the Company's financial and management resources. In recent years, acquisition
prices and competition for facilities has increased. To the extent the Company
is unable to acquire or develop facilities in a cost-effective manner, its
ability to expand its business and enhance results of operations would be
adversely affected. In addition, although the Company believes it has a
demonstrable track record of integrating the operations of acquired companies
with its historic operations, the process for integrating acquired operations,
particularly for newly acquired regional clusters, presents a significant
challenge to the Company's management and may lead to unanticipated costs or a
diversion of management's attention from day-to-day operations. There can be
no assurance that the Company will be able to continue its growth strategy or
that this strategy will ultimately prove successful. A failure to successfully
continue its growth strategy could have an adverse effect on the Company's
results of operations.
7
COMPETITION
The dialysis industry is fragmented and highly competitive, particularly in
terms of acquisitions of existing dialysis facilities and developing
relationships with referring physicians. Certain of the Company's competitors
have substantially greater financial resources than the Company and may
compete with the Company for acquisitions of facilities in markets targeted by
the Company. Competition for acquisitions has increased the cost of acquiring
existing dialysis facilities. The Company has from time to time experienced
competition from referring physicians who have opened their own dialysis
facilities. A portion of the Company's business consists of monitoring and
providing supplies for ESRD treatments in patients' homes. Certain physicians
also provide similar services and, if the number of such physicians were to
increase, the Company could be adversely affected.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon the services and management experience of the
Company's executive officers, and accordingly has entered into employment
agreements with, and provided a variety of equity incentives to, each of these
executives. The Company's continued growth depends upon its ability to attract
and retain skilled employees, in particular highly skilled nurses, for whom
competition is intense. The Company believes that its future success will also
be significantly dependent on its ability to attract and retain qualified
physicians to serve as Medical Directors of its dialysis facilities. The
Company does not carry key-man life insurance on any of its officers.
DEPENDENCE ON PHYSICIAN REFERRALS
The Company's facilities are dependent upon referrals of ESRD patients for
treatment by physicians specializing in nephrology and practicing in the
communities served by the Company's dialysis facilities. As is generally true
in the dialysis industry, at each facility one or a few physicians account for
all or a significant portion of the patient referral base. The loss of one or
more key referring physicians at a particular facility could have a material
adverse effect on the operations of that facility and could adversely affect
the Company's overall operations. Referring physicians own minority interests
in certain of the Company's dialysis facilities. If such interests are deemed
to violate applicable federal or state law, such physicians may be forced to
dispose of their ownership interests. The Company cannot predict the effect
such dispositions would have on its business. See "--Operations Subject to
Government Regulation."
POSSIBLE VOLATILITY OF STOCK PRICE
The trading price and volume of the Common Stock historically has been and
could in the future be subject to significant fluctuations in response to many
factors, including quarter-to-quarter variations in operating results, changes
in earnings estimates by analysts, changes in federal or state regulation of
services provided by the Company or reimbursement rates for such services,
competition, general market conditions and other events or factors.
ANTITAKEOVER PROVISIONS
The Company's Certificate of Incorporation and Bylaws include several
provisions which may have the effect of deterring hostile takeovers, delaying
or preventing changes in control or changes in management of the Company, or
limiting the ability of stockholders to approve transactions that they may
deem to be in their best interests, including (i) a provision requiring that
any action required or permitted to be taken by stockholders of the Company
must be effected at a duly called annual or special meeting of stockholders
and may not be effected by written consent, and (ii) a provision requiring at
least 60 days' advance notice by a stockholder of a proposal or director
nomination which such stockholder desires to present at any annual or special
meeting of stockholders. In addition, pursuant to the Company's Certificate of
Incorporation the Board of Directors has the authority to issue up to
5,000,000 shares of Preferred Stock and to determine the rights and
preferences of such Preferred Stock without the need for further stockholder
approval. The Company has no present plans to issue any shares of Preferred
Stock.
8
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Substantially all of the shares of Common Stock that are outstanding are
available for immediate sale in the public market (subject to certain resale
limitations under Rule 144 of the Securities Act). Sales of substantial
amounts of Common Stock into the public market or the perception that such
sales could occur, could adversely affect the prevailing market price for the
Common Stock and the ability of the Company to raise equity capital. The
Company can make no prediction as to the effect, if any, that sales of shares
of its Common Stock, or the availability of shares for future sale, will have
on the market price of the Common Stock prevailing from time to time. Such
sales may also make it more difficult for the Company to sell equity
securities or equity-related securities at a time and price that it deems
appropriate. Certain stockholders of the Company are also entitled to
registration rights. See "Selling Stockholders."
USE OF PROCEEDS
All of the Shares offered hereby being offered by the Selling Stockholders
and, accordingly, the Company will receive none of the proceeds therefrom.
9
THE SELLING STOCKHOLDERS
The following table sets forth, with respect to the Selling Stockholders,
the number of shares of Common Stock owned by each Selling Stockholder prior
to this offering, the number of shares of Common Stock offered for each
Selling Stockholder's account and the number of shares held by each Selling
Stockholder after the anticipated completion of this offering.
SHARES OF
SHARES OF COMMON COMMON
STOCK OWNED PRIOR STOCK SHARES AFTER COMPLETION
TO THIS OFFERING OFFERED OF THIS OFFERING
------------------ --------- ---------------------------
NAME OF SELLING
STOCKHOLDER NUMBER PERCENTAGE NUMBER NUMBER PERCENTAGE
--------------- ------- ---------- --------- ------------- -------------
Victor M.G. Chaltiel
(1).................... 910,514 3.4% 350,000 560,514 2.1%
Leonard W. Frie (2)..... 87,441 * 40,000 47,441 *
Mary Ellen Chambers
(3).................... 76,316 * 50,000 26,316 *
Barry C. Cosgrove (4)... 80,670 * 60,000 20,670 *
Sidney J. Kernion (5)... 32,693 * 15,000 17,693 *
John E. King (6)........ 24,112 * 15,000 9,112 *
Stan M. Lindenfeld, M.D.
(7).................... 30,402 * 21,290 9,11226,290 4,112 *
Lois A. Mills, R.N.
(8).................... 36,047 * 20,000 16,047 *
DLJ Merchant Banking
Partners, L.P. and
related stockholders (9)
DLJ Merchant Banking
Partners, L.P. ...... 951,588 3.6% 951,588 0 --
DLJ International
Partners, C.V........ 427,134 1.6% 427,134 0 --
DLJ Offshore Partners,
C.V. ................ 24,765 * 24,765 0 --
DLJ First ESC, LLC.... 237,711 * 237,711 0 --
DLJ Merchant Banking
Funding, Inc. ....... 383,036 1.4% 383,036 0 --
- --------
* Amount represents less than 1% of the Company's Common Stock.
(1) Mr. Chaltiel has been the Chairman, CEO and President and a director of
the Company since August 1994.
(2) Mr. Frie has been Executive Vice President and Chief Operating Officer of
the Company since August 1994.
(3) Ms. Chambers has been Vice President, Managed Care for the Company since
August 1994.
(4) Mr. Cosgrove has been Vice President, General Counsel and Secretary of the
Company since August 1994.
(5) Mr. Kernion has served as Vice President, Operations--Eastern Division of
the Company since August 1994.
(6) Mr. King has been Vice President, Finance and Chief Financial Officer of
the Company since April 1994.
(7) Dr. Lindenfeld has served as Vice President, Quality Management and
Integrated Programs of the Company since January 1995 and has served as a
Medical Director for the Company or its subsidiary since 1981.
(8) Ms. Mills has been a Vice President, Operations--Western Division of the
Company since August 1994.
(9) Each of these stockholders is a related investor (collectively, the
"Related Investors") and is affiliated with Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ"). The Company, DLJ Merchant Banking
Partners, L.P. ("DLJMBP"), certain members of management and NME
Properties Corp. ("NME"), a wholly-owned subsidiary of Tenet Healthcare
Corporation ("Tenet"), entered into a shareholders' agreement (as amended,
the "Shareholders' Agreement") in August 1994 pursuant to which, among
other provisions, DLJMBP had the right to nominate four of the five
members of the Company's board of directors. Although this right has
terminated, an affiliate of DLJMBP continues to serve on the Company's
board of directors. The Shareholders' Agreement further provides for
certain registration rights (including in favor of the Related Investors)
and for restrictions on transfers of Common Stock, certain rights of first
refusal in favor of DLJMBP in the event NME proposes to transfer shares of
Common Stock and certain rights and obligations of NME to participate in
transfers of shares by DLJMBP (which have been waived in connection with
this offering). DLJ and certain of its affiliates from time to time
perform various investment banking and other services for the Company, for
which the Company pays customary consideration. See "Underwriting."
10
SELECTED FINANCIAL AND OPERATING DATA
The following table presents selected consolidated financial and operating
data of the Company for the periods indicated. The consolidated financial data
as of May 31, 1992, 1993, 1994 and 1995 and as of December 31, 1995 and 1996
and for each of the years in the four year period ended May 31, 1995, the
seven month period ended December 31, 1995, and the year ended December 31,
1996 have been derived from the Company's audited consolidated financial
statements. The consolidated financial data as of June 30, 1997 and for the
seven months ended December 31, 1994, the year ended December 31, 1995 and the
six month periods ended June 30, 1996 and 1997 are unaudited and include all
adjustments consisting solely of normal recurring adjustments necessary to
present fairly the Company's results of operations for the period indicated.
The results of operations for the six month periods ended June 30, 1996 and
1997 are not necessarily indicative of the results which may occur for the
full fiscal year. The following financial and operating data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Consolidated Financial Statements
and the notes thereto and the other information incorporated herein by
reference. See "Documents Incorporated by Reference."
SEVEN MONTHS
ENDED YEAR ENDED SIX MONTHS ENDED
YEARS ENDED MAY 31, DECEMBER 31,(1) DECEMBER 31, JUNE 30,
------------------------------- ------------------ -------------------- -----------------
1992 1993 1994 1995 1994 1995 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT
DATA:(2)
Net operating
revenues.......... $63,888 $71,576 $80,470 $98,968 $53,593 $89,711 $134,843 $272,947 $114,820 $193,782
------- ------- ------- ------- ------- ------- -------- -------- -------- --------
Facility operating
expenses.......... 45,599 49,440 56,828 65,583 36,012 57,406 86,977 183,987 76,647 130,007
General and
administrative
expenses(3)....... 4,819 5,292 7,457 9,115 4,916 7,645 11,844 19,267 8,701 13,383
Provision for
doubtful
accounts.......... 2,118 2,050 1,550 2,371 1,363 1,811 2,819 5,496 2,333 3,881
Depreciation and
amortization...... 3,167 3,434 3,752 4,740 2,586 4,383 6,537 15,368 6,032 11,761
------- ------- ------- ------- ------- ------- -------- -------- -------- --------
Total operating
expenses.......... 55,703 60,216 69,587 81,809 44,877 71,245 108,177 224,118 93,713 159,032
------- ------- ------- ------- ------- ------- -------- -------- -------- --------
Operating income... 8,185 11,360 10,883 17,159 8,716 18,466 26,666 48,829 21,107 34,750
Interest expense,
net............... 110 9 13 7,203 3,300 5,584 9,244 5.175 2,537 4,212
------- ------- ------- ------- ------- ------- -------- -------- -------- --------
Income before
income taxes,
minority interests
and extraordinary
item.............. 8,075 11,351 10,870 9,956 5,416 12,882 17,422 43,654 18,570 30,538
Income taxes....... 2,875 4,129 4,106 3,511 1,933 4,631 6,209 16,351 7,151 11,504
------- ------- ------- ------- ------- ------- -------- -------- -------- --------
Income before
minority interests
and extraordinary
item.............. 5,200 7,222 6,764 6,445 3,483 8,251 11,213 27,303 11,419 19,034
Minority interests
in income of
consolidated
subsidiaries...... 535 775 1,046 1,593 833 1,784 2,544 3,578 1,417 2,343
------- ------- ------- ------- ------- ------- -------- -------- -------- --------
Income before
extraordinary
item.............. $ 4,665 $ 6,447 $ 5,718 $ 4,852 $ 2,650 $ 6,467(4) $ 8,669(4) $ 23,725(4) $ 10,002 $ 16,691
======= ======= ======= ======= ======= ======= ======== ======== ======== ========
Income per share
before
extraordinary
item.............. $ 0.22(5) $ 0.08(5) $ 0.36(4) $ 0.52(4) $ 0.92(4) $ 0.40 $ 0.61
======= ======= ======= ======== ======== ======== ========
11
SEVEN MONTHS
YEARS ENDED MAY 31, ENDED YEAR ENDED SIX MONTHS
------------------------------- DECEMBER 31, DECEMBER 31, ENDED
1992 1993 1994 1995 1995(1) 1996 JUNE 30, 1997
------- ------- ------- ------- ------------ ------------ -------------
OPERATING DATA:
Outpatient facilities
(at period end)........ 35 36 37 57 68 134 166
Treatments(6)........... 349,736 379,397 423,353 481,537 390,806 1,169,023 826,714
Hospitals receiving
inpatient services
(at period end)........ 33 32 28 48 55 87 117
MAY 31, DECEMBER 31,
------------------------------ --------------- JUNE 30,
1992 1993 1994 1995 1995 1996 1997
------ ------- ------- ------- ------- ------- --------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:(2)
Working capital......... $8,508 $14,609 $20,064 $14,971 $54,691 $99,299 $118,951
Total assets............ 32,509 36,003 43,621 77,558 163,998 374,080 486,196
Long-term debt
(including current
portion)............... 437 267 198 88,142 55,894 104,616 193,180
Mandatorily redeemable
Common Stock(7)........ 3,990
Stockholders' equity
(deficit).............. 22,568 29,015 34,733 (30,879)(8) 82,804 230,966 250,305
- --------
(1) In 1995, the Company changed its fiscal year end to December 31 from May
31.
(2) The organization of the holding company and sale of approximately 75% of
the Company in August 1994 by Tenet to DLJMBP and certain of its
affiliates, management of the Company and certain holders of debt
securities of the Company (the "August 1994 Transaction") and subsequent
acquisitions had a significant impact on the Company's capitalization and
equity securities and on the Company's results of operations.
Consequently, the Balance Sheet Data as of May 31, 1995, as of December
31, 1995 and 1996 and as of June 30, 1997 and the Income Statement Data
for the fiscal year ended May 31, 1995, for the seven months ended
December 31, 1995, the year ended December 31, 1996 and the six month
periods ended June 30, 1996 and 1997 are not directly comparable to
corresponding information as of prior dates and for prior periods,
respectively.
(3) General and administrative expenses for the fiscal years ended May 31,
1992, 1993 and 1994 include overhead allocations by the Company's former
parent of $662,000, $235,000 and $1,458,000, respectively. The overhead
allocations for the fiscal years ended May 31, 1992 and 1993 were made
using a different methodology than that used in the fiscal year ended May
31, 1994 and the substantial increase in that year reflects this change in
methodology rather than a change in the level of services provided. No
overhead allocation was made for the period from March 1, 1994 through the
closing of the August 1994 Transaction, at which time the Company began to
record general and administrative expenses as incurred on a stand-alone
basis. General and administrative expenses for the fiscal year ended May
31, 1994 reflect $458,000 in expenses relating to a terminated equity
offering.
(4) In December 1995, the Company recorded an extraordinary loss of
$2,555,000, or $0.14 per share, net of tax, on the early extinguishment of
debt. In July and September 1996, the Company recorded a combined
extraordinary loss of $7,700,000 or $0.30 per share, net of tax, on the
early retirement of the remaining outstanding Senior Subordinated Discount
Notes.
(5) Income per share before extraordinary item for the year ended May 31, 1995
and for the seven months ended December 31, 1994 is presented on a pro
forma basis to give effect to the August 1994 Transaction as if it had
occurred on June 1, 1994.
(6) Represents dialysis treatments provided in outpatient facilities, at home
and in acute care hospitals. Home dialysis treatments are stated in
hemodialysis equivalents. Only treatments rendered by the Company after
the acquisition of a facility are included.
(7) Mandatorily redeemable Common Stock represents shares of Common Stock
issued in certain acquisitions subject to put options that terminated upon
the completion of its initial public offering of Common Stock in October
1995.
(8) In connection with the August 1994 Transaction, the Company paid a
dividend to Tenet of $75.5 million.
12
DESCRIPTION OF CAPITAL STOCK
The following summary is a description of certain provisions of the
Company's Certificate of Incorporation, as amended and restated (the
"Certificate of Incorporation"). Such summary does not purport to be complete
and is subject to, and is qualified in its entirety by, all of the provisions
of the Certificate of Incorporation.
The Company's authorized capital stock consists of 55,000,000 shares of
Common Stock, $0.001 par value, and 5,000,000 shares of Preferred Stock,
$0.001 par value ("Preferred Stock").
COMMON STOCK
As of August 1, 1997, there were 26,662,657 shares of Common Stock issued
and outstanding. The Company does not anticipate paying any cash dividends on
the Common Stock in the foreseeable future. The Company is subject to certain
restrictions on its ability to pay dividends on the Common Stock under the
Senior Credit Facility.
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. There are no
cumulative voting rights applicable to the Common Stock.
Subject to the preferences applicable to shares of Preferred Stock
outstanding at any time, holders of shares of Common Stock are entitled to
dividends, if, when and as declared by the Board of Directors from funds
legally available therefor and are entitled, in the event of liquidation, to
share ratably in all assets remaining after payment of liabilities and
preferred stock preferences, if any.
The authorized but unissued shares of Common Stock are available for
issuance without further action by the Company's stockholders, unless such
action is required by applicable law or the rules of any stock exchange on
which the Common Stock may be listed. Shares of Common Stock are not
redeemable and there are no sinking fund provisions.
PREFERRED STOCK
The Certificate of Incorporation authorizes the Company's Board of Directors
to establish series of Preferred Stock and to determine, with respect to any
series of Preferred Stock, the voting powers, or no voting powers, and such
designations, preferences and relative, participating, optional or other
special rights and such qualifications, limitations or restrictions thereof,
as are stated in the resolutions of the Board of Directors providing for such
series.
The authorized but unissued shares of Preferred Stock are available for
issuance without further action by the Company's stockholders. This will allow
the Company to issue shares of Preferred Stock without the expense and delay
of a special stockholders' meeting, unless such action is required by
applicable law or the rules of any stock exchange on which the Company's
securities may be listed. The Company believes that the Preferred Stock will
provide flexibility in structuring possible future financing and acquisitions,
and in meeting other corporate needs. Although the Company's Board of
Directors has no intention at the present time of doing so, it could issue a
series of Preferred Stock, the terms of which, subject to certain limitations
imposed by the securities laws, impede the completion of a merger, tender
offer or other takeover attempt. The Company's Board of Directors will make
any determination to issue such shares based on its judgment as to the best
interests of the Company and its stockholders at the time of issuance. The
Company's Board of Directors, in so acting, could issue Preferred Stock having
terms that could discourage an acquisition attempt or other transaction that
some, or a majority, of the stockholders might believe to be in their best
interests or in which stockholders might receive a premium for their stock
over the then market price of such stock.
TRANSFER AGENT
The Company's registrar and transfer agent for the Common Stock is The Bank
of New York.
13
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting Agreement
(the "Underwriting Agreement"), DLJ (the "Underwriter") has agreed to purchase
from the Selling Stockholders an aggregate of 2,595,5242,600,524 shares of Common
Stock.
The Underwriting Agreement provides that the obligations of the Underwriter
to accept delivery of the shares of Common Stock offered hereby are subject to
approval of certain legal matters by counsel and to certain other conditions.
If any shares of Common Stock are purchased by the Underwriter pursuant to the
Underwriting Agreement, all such shares must be purchased.
The Underwriter has advised the Selling Stockholders that it proposes to
offer the shares of Common Stock in part directly to the public initially at
the Price to the Public set forth on the cover page of this Prospectus and in
part to certain dealers at such price less a concession not in excess of $
per share; that the Underwriter may allow, and such dealers may reallow, a
concession not in excess of $ per share on sales to other dealers; and that
after this offering, the Price to the Public, concession and discount to
dealers may be changed by the Underwriter.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriter may be
required to make in respect thereof.
Subject to certain exceptions (including certain issuances by the Company of
Common Stock in connection with acquisitions), the Company, all of its
executive officers and directors and certain stockholders of the Company each
have agreed not to, directly or indirectly, offer, sell, contract to sell,
grant any option to purchase or otherwise dispose of any Common Stock or any
securities convertible into or exercisable or exchangeable for such Common
Stock or cause to be filed with the Securities and Exchange Commission a
registration statement under the Securities Act to register any shares of the
Common Stock or, in any manner, transfer all or a portion of the economic
consequences associated with the ownership of the Common Stock without the
prior written consent of DLJ for a period of 90 days after the date of this
Prospectus.
The provisions of Rule 2720 of the Conduct Rules of the National Association
of Securities Dealers, Inc. (the "NASD") apply to this offering. Under such
rules, when a NASD member such as DLJ distributes an affiliated company's
equity securities, one of the following two criteria must be met: (1) the
price of such equity security can be no higher than that recommended by a
"qualified independent underwriter" or (2) the offering is of a class of
equity securities for which a "bona fide independent market" exists. See
"Selling Stockholders." Because the shares of Common Stock are traded on the
New York Stock Exchange, the aggregate trading volume for the twelve months
immediately preceding the filing of the registration statement of which this
Prospectus forms a part was at least 100,000 shares and the Company had
outstanding for the twelve month period immediately preceding the filing of
such registration statement a minimum of 250,000 publicly held shares, a "bona
fide independent market" exists. Accordingly, the price of the Common Stock
will not be passed upon by a "qualified independent underwriter."
Pursuant to the provisions of Rule 2720 of the Conduct Rules, NASD members
may not execute transactions in the shares of Common Stock offered hereby in
discretionary accounts without the prior written approval of the customer.
DLJ and certain of its affiliates from time to time perform various
investment banking and other services for the Company, for which the Company
pays customary consideration. See "Selling Stockholders." An affiliate of DLJ
is presently a participant in and/or co-lead agent for certain of the
Company's bank financing arrangements, for which it received customary
consideration, and expects to do so in connection with certain proposed
refinancings thereof. See "The Company."
In connection with this offering, the Underwriter may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock.
Specifically, the Underwriter may bid for and purchase shares
14
of Common Stock in the open market to stabilize the price of the Common Stock.
These activities may stabilize or maintain the price of the Common Stock.
These activities may stabilize or maintain the price of the Common
Stock above independent market levels. The Underwriter is not required to
engage in these activities, and may end these activities at any time.
LEGAL MATTERS
Certain legal matters with respect to the legality of the Shares offered
hereby will be passed upon for the Company by Barry C. Cosgrove, General
Counsel of the Company. Certain legal matters will be passed upon for the
Underwriter by Skadden, Arps, Slate, Meagher & Flom LLP, Los Angeles,
California.
EXPERTS
The financial statements incorporated in this Prospectus by reference to the
Annual Report on Form 10-K of Total Renal Care Holdings, Inc. for the year
ended December 31, 1996 have been so incorporated in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The consolidated statements of income, stockholders' equity and cash flows
of Total Renal Care Holdings, Inc. and subsidiaries for the year ended May 31,
1994 and the related financial statement schedule have been incorporated by
reference herein and in the Registration Statement in reliance on the reports
of KPMG Peat Marwick LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.
15
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCK-
HOLDER OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECU-
RITIES TO WHICH IT RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE SO-
LICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JU-
RISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
---------------
TABLE OF CONTENTS
PAGE
----
Available Information...................................................... 2
Documents Incorporated by Reference........................................ 2
The Company................................................................ 3
Risk Factors............................................................... 5
Use of Proceeds............................................................ 9
The Selling Stockholders................................................... 10
Selected Financial and Operating Data...................................... 11
Description of Capital Stock............................................... 13
Underwriting............................................................... 14
Legal Matters.............................................................. 15
Experts.................................................................... 15
===============================================================================
===============================================================================
2,595,524================================================================================
================================================================================
2,600,524 SHARES
[LOGO OF TOTAL RENAL CARE HOLDINGS, INC. APPEARS HERE]
TOTAL RENAL CARE HOLDINGS, INC.
COMMON STOCK
-------------
PROSPECTUS
-------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
AUGUST , 1997
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
SEC registration fee............................................. $ 38,125
NASD filing fee.................................................. 13,082
Blue Sky fees and expenses....................................... 5,000*
Accounting fees and expenses..................................... 20,000*
Legal fees and expenses.......................................... 75,000*
Miscellaneous.................................................... 48,793*
--------
Total............................................................ $200,000
========
All such expenses will be borne by the Selling Stockholders.
- --------
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware Corporation Law provides that a Delaware
corporation may indemnify any person against expenses, judgments, fines and
settlements actually and reasonably incurred by any such person in connection
with a threatened, pending or completed action, suit or proceeding in which he
is involved by reason of the fact that he is or was director, officer,
employee or agent of such corporation, provided that (i) he acted in good
faith and in a manner reasonably believed to be in or not opposed to the best
interests of the corporation and (ii) with respect to any criminal action or
proceeding, he had no reasonable cause to believe his conduct was unlawful. If
the action or suit is by or in the name of the corporation, the corporation
may indemnify any such person against expense actually and reasonably incurred
by him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, except that no
indemnification may be made in respect to any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation for
negligence or misconduct in the performance of his duty to the corporation,
unless and only to the extent that the Delaware Court of Chancery or the court
in which the action or suit is brought determines upon application that,
despite the adjudication of liability but in view of all of the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for
such expense as the court deems proper.
Article XI, Section 1 of the Company's By-Laws provides for indemnification
of its directors and officers to the fullest extent permitted by the Delaware
Corporation Law. In accordance with the Delaware Corporation Law, the
Company's Certificate of Incorporation, as amended, limits the personal
liability of its directors for violations of their fiduciary duty. The
Certificate of Incorporation eliminates each director's liability to the
Company or its stockholders for monetary damages except (i) for any breach of
the director's duty of loyalty to the Company or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under the section of the Delaware law
providing for liability of directors for unlawful payment of dividends or
unlawful stock purchases or redemptions, or (iv) for any transaction from
which a director derived any improper personal benefit. The effect of this
provision is to eliminate the personal liability of directors for monetary
damages for actions involving a breach of their fiduciary duty of care,
including any such actions involving gross negligence.
This provision will not, however, limit in any way the liability of
directors for violations of the Federal officers to indemnify them to the
maximum extent permitted by Delaware law.
The form of Underwriting Agreement, filed as Exhibit 1 hereto, provides for
the indemnification of the Company, its control persons, its directors and
certain of its officers by the Underwriters against certain liabilities,
including liabilities under the Securities Act.
II-1
ITEM 16. EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION
------- -----------
1 Form of Underwriting Agreement.+
5 Opinion of Barry C. Cosgrove.+
23.1 Consent of Price Waterhouse LLP.+
23.2 Consent of KPMG Peat Marwick LLP.+
23.3 Consent of Barry C. Cosgrove (included in Exhibit 5).+
24 Power of Attorney with respect to the Company (see page II-4).Company.+
27 Financial Data Schedule.+
- --------
+ Included inPreviously filed as an exhibit to this filing.Registration Statement on Form S-3.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Securities and Exchange Commission by the registrant pursuant to Section 13 or
Section 15(d) of the Exchange Act that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(4) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be
a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(5) To deliver or cause to be delivered with the prospectus, to each person
to whom the prospectus is sent or given, the latest annual report to security
holders that is incorporated by reference in the prospectus and furnished
pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the
Exchange Act.
(6) That for purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective; and
II-2
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT NO. 1
TO REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED IN THE CITY OF TORRANCE, STATE OF CALIFORNIA ON THE
11TH14TH DAY OF AUGUST, 1997.
TOTAL RENAL CARE HOLDINGS, INC.
By /s/ John E. King
-----------------------------------
JOHN E. KING Vice President,
Finance and Chief Financial
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Victor M.G. Chaltiel, Barry C. Cosgrove
By___________________________________
Barry C. Cosgrove
Vice President, General Counsel
and John E. King, and each of them his true and lawful attorneys-in-fact and
agents with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all
amendments to this Registration Statement, including any post-effective
amendments as well as any related registration statement (or amendment
thereto) filed in reliance upon Rule 462(b) under the Securities Act of 1933,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Victor M.G. Chaltiel Chairman of the
* Board, Chief August 11,14, 1997
- ------------------------------------- Board, ChiefExecutive Officer,
VICTOR M.G. CHALTIEL Executive Officer, President and
Director (Principal
Executive Officer)
Vice President,
/s/ John E. King Vice President,Finance and Chief August 11,14, 1997
- ------------------------------------- Finance and ChiefFinancial Officer
JOHN E. KING Financial Officer (Principal
Financial Officer
and Principal
Accounting Officer)
/s/ Maris Andersons Director
* August 11,14, 1997
- -------------------------------------
MARIS ANDERSONS
/s/ Peter T. Grauer Director
* August 11,14, 1997
- -------------------------------------
PETER T. GRAUER
/s/ Regina E. Herzlinger Director
* August 11,14, 1997
- -------------------------------------
REGINA E. HERZLINGER
/s/ Shaul G. Massry Director
* August 11,14, 1997
- -------------------------------------
SHAUL G. MASSRY, M.D
/s/ Barry C. Cosgrove
* By: __________________________
Barry C. Cosgrove
Attorney-in-Fact
II-4
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
1 Form of Underwriting Agreement.+
5 Opinion of Barry C. Cosgrove.+
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Barry C. Cosgrove (included in Exhibit 5).+
24 Power of Attorney with respect to the Company (see page II-4).Company.+
27 Financial Data Schedule.+
- --------
+ Previously filed as an Exhibit to this Registration Statement on Form S-3.