<PAGE> 1
FORM 10--Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________________ to __________________
Commission file number 0-8527
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DIALYSIS CORPORATION OF AMERICA
---------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-1757642
- --------------------------------------------- -----------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
2337 West 76th Street, Hialeah, Florida 33016
- --------------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
(305) 364-1308
--------------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] or No [ ]
Common Stock Outstanding
Common Stock, $.01 par value --3,587,844 shares as of October 31, 1996.
<PAGE> 2
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
INDEX
PART I -- FINANCIAL INFORMATION
The Consolidated Condensed Statements of Operations (Unaudited) for the
three months and nine months ended September 30, 1996 and September 30, 1995
include the accounts of the Registrant and its subsidiaries.
Item 1. Financial Statements
1) Consolidated Condensed Statements of Operations for the three months
and nine months ended September 30, 1996 and September 30, 1995.
2) Consolidated Condensed Balance Sheets as of September 30, 1996 and
December 31, 1995.
3) Consolidated Condensed Statements of Cash Flows for the nine months
ended September 30, 1996 and September 30, 1995.
4) Notes to Consolidated Condensed Financial Statements as of September
30, 1996.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
PART II -- OTHER INFORMATION
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE> 3
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Medical service revenue $ 968,705 $ 671,092 $2,839,730 $1,568,291
Interest and other income 103,534 83,433 210,029 307,300
---------- ---------- ---------- ----------
1,072,239 754,525 3,049,759 1,875,591
Cost and expenses:
Cost of medical services 639,437 450,494 1,872,937 1,038,554
Selling, general and administrative expenses 388,733 264,580 1,138,374 742,480
Interest expense 22,461 16,248 64,316 47,566
---------- ---------- ---------- ----------
1,050,631 731,322 3,075,627 1,828,600
---------- ---------- ---------- ----------
(Loss) income before income taxes
and minority interest 21,608 23,203 (25,868) 46,991
Income tax provision 7,000 17,000
---------- ---------- ---------- ----------
(Loss) income before minority interest 14,608 23,203 (42,868) 46,991
Minority interest in loss (income) of
consolidated subsidiary 4,532 3,112 6,943 16,348
---------- ---------- ---------- ----------
Net (loss) income $ 19,140 $ 26,315 $ (35,925) $ 63,339
========== ========== ========== ==========
Net (loss) income per common share $ .01 $ .01 $ (.01) $ .03
========== ========== ========== ==========
Weighted average shares 3,585,453 2,432,844 3,119,304 2,432,844
========== ========== ========== ==========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE> 4
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995(A)
------------- -------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $4,538,115 $1,061,351
Restricted cash 137,190 131,889
Accounts receivable, less allowances of $120,000 at
September 30, 1996 and $128,000 at December 31, 1995 500,095 503,584
Inventories 109,242 88,323
Prepaid expenses and other current assets 67,817 21,021
---------- ----------
Total current assets 5,352,459 1,806,168
Property and Equipment:
Land 168,358 168,358
Buildings and improvements 1,184,806 1,158,591
Machinery and equipment 1,095,605 1,041,264
Leasehold improvements 265,556 264,301
---------- ----------
2,714,325 2,632,514
Less accumulated depreciation 775,410 637,971
---------- ----------
1,938,915 1,994,543
Deferred expenses and other assets 43,451 171,156
---------- ----------
$7,334,825 $3,971,867
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 68,928 $ 326,165
Accrued expenses 152,893 219,952
Current portion of long-term debt 558,000 609,000
Income taxes payable 17,000
---------- ----------
Total current liabilities 796,821 1,155,117
Long-term debt, less current portion 124,503 151,942
Advances from parent company 345,010
Minority interest in subsidiary 82,917 95,967
Commitments and Contingencies
Stockholder's Equity
Common stock, $.01 par value, authorized 20,000,000
shares; issued and outstanding 3,587,844 shares at
September 30, 1996 and 2,432,844 shares at
December 31, 1995 35,878 24,328
Capital in excess of par value 3,747,105 305,997
Retained earnings 2,202,591 2,238,516
---------- ----------
Total stockholders' equity 5,985,574 2,568,841
---------- ----------
$7,334,825 $3,971,867
========== ==========
</TABLE>
(A) Reference is made to the Company's Registration Statement on Form
SB-2 declared effective by the Securities and Exchange Commission in April 1996
which includes audited financial statements for the year ended December 31,
1995.
See notes to consolidated condensed financial statements.
<PAGE> 5
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1996 1995
---- ----
<S> <C> <C>
Operating activities:
Net (loss) income $ (35,925) $ 63,339
Adjustments to reconcile net (loss) income to net
cash used in by operating activities:
Depreciation 145,101 71,474
Amortization 7,879 9,158
Bad debt expense 103,734 25,772
Minority interest (6,943) (16,348)
Increase (decrease) relating to operating
activities from:
Accounts receivable (100,245) (387,154)
Inventories (20,919) (26,827)
Prepaid expenses and other current assets (46,796) (29,356)
Accounts payable (257,237) 127,705
Accrued expenses (67,059) (16,942)
Income taxes payable 17,000 (5,009)
---------- ---------
Net cash used in operating activities (261,410) (184,188)
Investing activities:
Additions to property and equipment, net of minor disposals (89,473) (508,237)
Proceeds from restricted cash 333,314 318,693
Restricted cash (338,615) (323,566)
Deferred expenses and other assets 119,826 (96,339)
Purchase portion of minority interest in subsidiary (15,000)
---------- ---------
Net cash provided by (used in) investing activities 25,052 (624,449)
Financing activities:
Net proceeds from securities offering 3,445,158
Advances from parent company 345,010 281,264
Payments on long-term debt (78,439) (62,870)
Proceeds from exercise of stock options 7,500
Dividend payment to minority shareholder (6,107)
---------- ---------
Net cash provided by financing activities 3,713,122 218,394
---------- ---------
Increase (decrease) in cash and cash equivalents 3,476,764 (590,243)
Cash and cash equivalents at beginning of period 1,061,351 686,707
---------- ---------
Cash and cash equivalents at end of period $4,538,115 $ 96,464
========== =========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE> 6
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of Dialysis
Corporation of America ("DCA") and its subsidiaries, collectively referred to
as the "Company". All material intercompany accounts and transactions have
been eliminated in consolidation. The Company is a 67.2% owned subsidiary of
Medicore, Inc. (the "Parent"), having been 99.1% owned by the Parent until the
completion of the Company's public offering. See Notes 5 and 7.
GOVERNMENT REGULATION
Most of the Company's revenues are attributable to payments received under
Medicare, which is supplemented by Medicaid or comparable benefits in the
states in which the Company operates. Reimbursement rates under these programs
are subject to regulatory changes and governmental funding restrictions.
Although the Company is not aware of any future rate changes, significant
changes in reimbursement rates could have a material effect on the Company's
operations.
INTEREST AND OTHER INCOME
Interest and other income is comprised as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- --------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Rental income $ 26,912 $22,438 $ 75,919 $104,082
Interest income from Medicore 56,286 179,837
Other interest income 57,091 4,511 111,265 17,639
Other 19,531 198 22,845 5,742
-------- ------- -------- --------
$103,534 $83,433 $210,029 $307,300
======== ======= -------- ========
</TABLE>
RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 financial statements to
conform to the 1996 presentation.
LONG-LIVED ASSETS
In 1996, the Company has adopted the provisions of FAS 121-Accounting for the
Impairment of Long-Lived Assets. FAS 121 requires impairment losses to be
recorded on long-lived assets when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. Based on current circumstances, the Company is
not aware of any significant impairment losses.
STOCK-BASED COMPENSATION
In 1996, the Company adopted the provisions of FAS 123-Accounting for
Stock-Based Compensation. The Company will continue to account for stock-based
compensation plans under the provisions of APB 25-Accounting for Stock Issued
to Employees. The Company will disclose the pro forma information required for
stock-based compensation plans in its annual reports in accordance with FAS
123.
<PAGE> 7
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
SEPTEMBER 30, 1996
(UNAUDITED)
NOTE 2--INTERIM ADJUSTMENTS
The financial summaries for the three months and nine months ended September 30,
1996 and September 30, 1995 are unaudited and include, in the opinion of
management of the Company, all adjustments (consisting of normal recurring
accruals) necessary to present fairly the earnings for such periods. Operating
results for the three months and nine months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 1996.
While the Company believes that the disclosures presented are adequate to make
the information not misleading, it is suggested that these Consolidated
Condensed Financial Statements be read in conjunction with the financial
statements and notes included in the Company's audited financial statements for
the year ended December 31, 1995.
NOTE 3--LONG TERM DEBT
In December 1988, the Company obtained a $480,000 fifteen-year mortgage through
November 2003 on its building in Lemoyne, Pennsylvania with interest at 1% over
the prime rate. The remaining principal balance under this mortgage amounted
to approximately $232,000 and $256,000 at September 30, 1996 and December 31,
1995, respectively. In December 1988, the Company also obtained a $600,000
fifteen-year mortgage through November 2003 on its building in Easton, Maryland
with interest at 1% over the prime rate. The remaining principal balance under
this mortgage amounted to approximately $290,000 and $320,000 at September 30,
1996 and December 31, 1995, respectively. The bank has the right to demand
repayment on the outstanding balance of the borrowings under these mortgages
which have accordingly been classified as current liabilities. At December 31,
1995, the Company was in violation of certain covenants under these loans
principally relating to net worth and debt service ratio requirements. The
lender waived compliance with these covenants through December 31, 1996.
The Company has an equipment purchase agreement for kidney dialysis machines for
its new facilities in Pennsylvania. Monthly payments are $4,435 commencing
September 1995, including principal and interest, through September 2000 with
interest at 12%. The initial principal balance of $195,130, after a down
payment of $8,870, represents a noncash financing activity which is a
supplemental disclosure required by FAS 95. The remaining principal balance
under this agreement amounted to approximately $161,000 and $185,000 at
September 30, 1996 and December 31, 1995, respectively.
The prime rate was 8.25 % as of September 30, 1996 and 8.5% as of December 31,
1995.
The carrying amount of borrowings approximate their fair value.
Interest payments on long-term debt amounted to approximately $18,000 and
$55,000 for the three months and nine months ended September 30, 1996 and
$15,000 and $47,000 for the same periods of the preceding year..
NOTE 4--INCOME TAXES
The Company was included in the consolidated federal and state income tax
returns of the Parent until the completion of its public offering in April
1996. The Company had a net operating loss carryforward of approximately
$567,000 at December 31, 1995, which was available to offset consolidated
taxable income. Subsequent to the completion of the Company's public offering,
the Company will file separate federal and state income tax returns with the
income tax liability reflected on a separate return basis with its available
net operating loss carryforwards having been utilized prior to completion of
its public offering.
<PAGE> 8
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
SEPTEMBER 30, 1996
(UNAUDITED)
NOTE 4--INCOME TAXES--CONTINUED
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company had deferred
tax liabilities of approximately $60,000 at September 30, 1996, consisting
primarily of tax over book depreciation and amortization, and deferred tax
assets of approximately $60,000, consisting primarily of differences in book and
tax basis of receivables.
There were no income tax payments for the nine months ended September 30, 1996
or September 30, 1995.
NOTE 5--TRANSACTIONS WITH PARENT
The Parent provides certain administrative services to the Company including
office space and general accounting assistance. These expenses and all other
central operating costs are charged on the basis of direct usage, when
identifiable, or on the basis of time spent. In the opinion of management, this
method of allocation is reasonable. The amount of expenses allocated by the
Parent totaled approximately $60,000 and $180,000 for the three months and nine
months ended September 30, 1996, and for the same periods of the preceding year.
On October 4, 1995, the Parent repaid approximately $1,000,000 of the advances
due to the Company.
On November 10, 1995, the Company's Board of Directors authorized the
declaration of a $1.30 per share dividend (after giving effect to a 50% stock
dividend also authorized by the Board) for which the Parent's portion related to
its 99.1% ownership interest in the Company amounted to approximately $3,134,000
which was paid via a reduction in the intercompany receivable from the Parent.
As a result of this dividend and repayments by the Parent, the intercompany
receivable from the Parent, on which the Company had been earning interest
income, was repaid. The intercompany receivable from the Parent bore interest
at the short-term Treasury bill rate commencing January 1, 1994. Interest on
these advances amounted to $56,000 and $180,000 for the three months and nine
months ended September 30, 1995 and was included in the intercompany receivable
from Medicore.
As of September 30, 1996, the Company had an intercompany advance payable to the
Parent of approximately $345,000 which bears interest at the short-term Treasury
Bill rate. Interest on this intercompany advance amounted to approximately
$5,000 and $10,000 for the three months and nine months ended September 30,
1996 which is included in the intercompany advance payable. The Parent has
agreed not to require repayment of the intercompany advances prior to October 1,
1997 and therefore, the advances have been classified as long-term at September
30, 1996.
NOTE 6--STOCK OPTIONS
In November, 1995, the Company adopted a stock option plan for up to 250,000
options. Pursuant to this plan, in November, 1995, the board of directors
granted 210,000 options to certain of its officers, directors, employees and
consultants of which 197,000 options were outstanding at September 30, 1996.
These options are exercisable for a period of five years through November 9,
2000 at $1.50 per share.
In August 1995, the board of directors granted 15,000 options to the medical
directors at its three kidney dialysis centers. These options are exercisable
for a period of 3 years through August 18, 1999 at $4.75 per share.
<PAGE> 9
NOTE 7--COMMON STOCK
In April 1996, the Company completed a public offering providing it with net
proceeds including the exercise of the underwriters' overallotment option of
approximately $3,445,000. See Item 2, "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
Upon completion of its public offering, the Company retained the underwriter to
provide financial consulting services pertaining to the Company's business, at a
monthly fee of $3,000 per month for a period of 18 months, which was paid in
full at the closing of the offering.
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Medical service revenue increased approximately $298,000 (44%) and
$1,271,000 (81%) for the three months and nine months ended September 30, 1996
compared to the same periods of the preceding year. The increase included the
commencement of treatments at the Company's new dialysis centers in Lemoyne,
Pennsylvania in June 1995 and Wellsboro, Pennsylvania in October 1995, which
accounted for approximately $487,000 and $1,300,000 in revenues for the three
months and nine months ended September 30, 1996 with the new Lemoyne center
having revenues of $186,000 and $224,000 for the three months and nine months
ended September 1995. Revenues attributable to the Company's Florida dialysis
center decreased $3,000 and increased $196,000 for the three months and nine
months ended September 30, 1996 compared to the same periods of the preceding
year. Although the new Lemoyne and Wellsboro, Pennsylvania centers are
expected to result in increased revenues, during their developmental stage,
these centers will adversely affect the Company's results of operations.
As a result of the dividend to the Parent and advance repayment by the
Parent (see "Liquidity and Capital Resources below), the intercompany
receivable from the Parent on which the Company had been earning interest
income was repaid. Interest income from the Parent, which is included in
interest and other income amounted to approximately $56,000 and $180,000 for
the three months and nine months ended September 30, 1995.
Cost of medical services sales were relatively stable amounting to 66% for
the three months and nine months ended September 30, 1996, compared to 67% and
66% for the same periods of the preceding year.
Selling, general and administrative expenses increased approximately
$124,000 and $396,000 for the three months and nine months ended September 30,
1996 compared to the same periods of the preceding year reflecting increases
associated with the new Pennsylvania dialysis centers. Selling, general and
administrative expenses as a percentage of medical service revenues amounted to
40% for the three months and nine months ended September 30, 1996 compared to
39% and 47% the same periods of the preceding year.
Interest expense increased approximately $6,000 and $17,000 for the three
months and nine months ended September 30, 1996 compared to the same periods of
the preceding year including increases as a result of the equipment purchase
agreements for dialysis machines at the new Pennsylvania centers and interest
of approximately $5,000 and $10,000 for the three months and nine months ended
September 30, 1996 on the intercompany advance payable to the Parent with
interest at the short-term Treasury Bill rate. The prime rate was 8.25% at
September 30, 1996 and 8.5% at December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Working capital totaled $4,556,000 at September 30, 1996, which reflected
an increase of approximately $3,905,000 during the nine months ended September
30, 1996, largely as a result of the Company's security offering completed
during the second quarter of 1996. Included in the changes in components of
working capital was an increase in cash and cash equivalents of $3,477,000
which included net cash used in operating activities of $261,000, net cash
provided by investing activities of $25,000 and net cash provided by financing
activities of $3,713,000 (including proceeds from the Company's security
offering of $3,445,000, advances from Parent of $345,000 and debt repayments of
$78,000).
During 1988, the Company obtained mortgages totaling $1,080,000 on its two
buildings, one in Lemoyne, Pennsylvania and the other in Easton, Maryland, each
of which housed the Company's dialysis centers. These centers were sold in
October, 1989. The mortgages had a combined remaining balance of $522,000 and
$576,000 at September 30, 1996 and December 31, 1995 respectively. The Company
was in default of certain covenants principally relating to net worth and debt
service ratio requirements under these loan agreements as of December 31, 1995.
The lender has waived compliance with these covenants through December 31, 1996.
<PAGE> 11
The bank has liens on the real and personal property of the Company,
including a lien on all rents due and security deposits from the rental of
these properties. The loans contain a provision allowing the bank mandatory
repayment upon 90 days written notice after five years. The five year period
has elapsed; accordingly, while no notice has been given, the unpaid principal
balance is carried as a current liability. The unaffiliated Maryland dialysis
center continues to lease space from the Company in its building. The
Pennsylvania center relocated during 1995 and the Company constructed its own
new dialysis center at that property which commenced treatments in June
1995. The Company also opened a new dialysis center in a leased facility in
Wellsboro, Pennsylvania in October 1995.
In November, 1995, the board of directors authorized a 50% stock dividend
which increased the outstanding Common Stock to 2,432,844 shares. The board
also authorized the declaration of a $1.30 per share dividend for which the
Parent's portion related to its 99.1% ownership interest in the Company
amounted to approximately $3,134,000, which was paid by a reduction in the
intercompany advances receivable from the Parent, and the minority interest
portion of approximately $29,000 was paid in cash.
In October, 1995, the Parent repaid approximately $1,000,000 of the
indebtedness due to the Company.
The Company believes that current levels of working capital, including the
proceeds of its security offering, will enable it to successfully meet its
liquidity demands for at least the new twelve months.
Net proceeds of the Company's security offering were approximately
$3,445,000 including the over-allotment option exercise. The Company, having
operated on a larger scale in the past, is seeking to expand its outpatient
dialysis treatment facilities and inpatient dialysis care. Such expansion,
whether through acquisition of existing centers, or the development of its own
dialysis centers, requires capital, which was the basis for the Company's
security offering. No assurance can be given that the Company will be
successful in implementing its growth strategy or that the funds from its
securities offering will be adequate.
The Company has entered into agreements for medical directors, and is
negotiating building leases and construction contracts for two new dialysis
centers which it intends to establish, one in New Jersey and one in
Pennsylvania. It is anticipated that the new centers would become operational
in the second quarter of 1997. Development of new centers is estimated to cost
from $600,000 to $750,000 per dialysis center, including working capital
requirements. After the new centers commence operations, during their
developmental stage, they are expected to adversely affect the Company's results
of operations.
INFLATION
Inflationary factors have not had a significant effect on the Company's
operations, although the Company can experience increased costs of supplies,
salaries and general and administrative expenses.
A substantial portion of the Company's revenue is subject to reimbursement
rates established and regulated by the federal government. These rates do not
automatically adjust for inflation. Any rate adjustments relate to legislation
and executive and Congressional budget demands, and have little to do with the
actual cost of doing business. Therefore, dialysis services revenues cannot be
voluntary increased to keep pace with increases in nursing and other patient
care costs.
<PAGE> 12
PART II-OTHER INFORMATION
Item 5. Other Information
A key factor in the success of a dialysis facility is its relationship
with area nephrologists. An End Stage Renal Dialysis ("ESRD") patient
generally seeks treatment near such patient's home and where such patient's
nephrologist has practice privileges. The conditions of participation in the
Medicare ESRD program mandate that treatment at a dialysis facility be "under
the general supervision of a Director who is a physician". The Company has
engaged by written agreement qualified physicians to serve as Medical Directors
("Directors") for each of its facilities ("MD Agreement"). The loss of a
Director or an important referring physician at a particular center could have
a material adverse effect on the operations of that facility and the Company.
Compensation of Directors is separately negotiated for each facility and
generally depends on competitive factors in the local market, the physician's
qualifications and the size of the facility.
The Company recently established two new subsidiaries to operate dialysis
centers in their specific geographic areas, one being Dialysis Services of NJ,
Inc.-Manahawkin ("DSNJ") and the other, Dialysis Services of PA, Inc.-Carlisle
("Carlisle"). Each has entered into an MD Agreement. DSNJ has an MD Agreement
with a professional association for five years through September, 2001 with a
five year renewal privilege. The MD Agreement specifies the Director and
establishes the compensation of the Director, who remains an independent
consultant. Under the MD Agreement, the Director elects the alternate
reimbursement plan under the ESRD program whereby the physician's fee for
services is billed to the government payment authority on a direct basis, and
such fee is paid directly to the physician or professional association as the
case may be. The Director (or professional association) maintains its own
medical malpractice insurance. The MD Agreement provides for non-competition
for one year in a limited area related to the dialysis center. The MD
Agreement does not prohibit the physician from providing direct patient care
services at other locations, and consistent with law, such MD Agreement does
not require a physician to refer patients to the Company's dialysis center.
During the first through the third year of the MD Agreement, DSNJ has the
opportunity to determine if the continued operation of the dialysis center is
feasible and may re-negotiate the terms of the MD Agreement or terminate the MD
Agreement.
The Carlisle, Pennsylvania center is seeking its licenses and approvals to
provide dialysis treatments in that area. It has retained a physician as its
Director on a short-term basis until that center is approved by federal and
state authorities to initiate dialysis services, at which time it will
negotiate an MD Agreement with that nephrologist, who is a Director of another
dialysis facility owned by the Company.
<PAGE> 13
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Part I Exhibits
(11) Statements re: computation of per share earnings.
Part II Exhibits
(10)(i) MD Agreement between Dialysis Services of NJ, Inc.-
Manahawkin and Oceanview Medical group, P.A. dated September 5, 1996 [*].
(10)(ii) MD Agreement between Dialysis Services of PA., Inc.-
Carlisle and Herb Soller, M.D. dated October 1, 1996 [*].
(27) Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the quarter ended September
30, 1996.
[*] Confidential portions omitted have been filed separately with the
Securities and Exchange Commission.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIALYSIS CORPORATION OF AMERICA
By: /s/ DANIEL R. OUZTS
-----------------------------------
DANIEL R. OUZTS, Vice President/Finance
Controller and Principal Financial Officer
Dated: November 8, 1996
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No.
- --------
<S> <C>
Part I Exhibits
(11) Statement re: computation of per share (loss) earnings
Part II Exhibits
(10) Material Contracts
(i) MD Agreement between Dialysis Services of NJ, Inc.- Manahawkin and
Oceanview Medical group, P.A. dated September 5, 1996 [*].
(ii) MD Agreement between Dialysis Services of PA., Inc.- Carlisle and
Herb Soller, M.D. dated October 1, 1996 [*].
(27) Financial Data Schedule (for SEC use only).
</TABLE>
<PAGE> 1
DIALYSIS CORPORATION OF AMERICA AND SUBSIDIARIES
EXHIBIT 11 -- COMPUTATION OF (LOSS) EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
PRIMARY AND FULLY DILUTED
Weighted average shares outstanding 3,585,453 2,432,844 3,119,304 2,432,844
========== ========== ========== ==========
Net (loss) income $ 19,140 $ 26,315 $ (35,925) $ 63,339
========== ========== ========== ==========
Net (loss) income per share $ .01 $ .01 $ (.01) $ .03
========== ========== ========== ==========
</TABLE>
<PAGE> 1
EXHIBIT(10)(i)
CONFIDENTIAL TREATMENT
MEDICAL DIRECTOR AGREEMENT
THIS MEDICAL DIRECTOR AGREEMENT ("Agreement") made as of September 5, 1996
<TABLE>
<S> <C>
Between OCEANVIEW MEDICAL GROUP, P.A.
a New Jersey professional corporation with offices at
9 Hospital Drive
Suite C2
Toms River, NJ 08755
hereinafter referred to as the "Director"
And DIALYSIS SERVICES OF NEW JERSEY, INC.-MANAHAWKIN
a New Jersey corporation with offices at
TO BE DETERMINED
hereinafter referred to as the "Company".
</TABLE>
The Director and the Company may hereafter be referred to individually as a
"Party" and collectively as the "Parties".
WITNESSETH:
WHEREAS, the Company intends to develop, own and operate one or more renal
dialysis facilities as provided in attached Annex A (individually or
collectively, if more than one, the "Facility");
WHEREAS, the Director is a professional corporation wholly owned by Dr. Guy D.
Sbar;
WHEREAS, the Director retains duly licensed physician(s) under the laws of the
State of New Jersey, specializing in the treatment of kidney disease and
experienced in the medical administration of a renal dialysis facility;
WHEREAS, the Company through the Facility seeks: to provide to persons having
end-stage renal disease (ESRD) and other forms of renal failure the care they
need; to encourage proper distribution and effective utilization of ESRD
treatment while maintaining or improving the quality of care; to promote the
efficient delivery of ESRD care; and to encourage transplantation or
self-dialysis for the maximum practical number of patients who are medically,
socially, and psychologically suitable candidates for such treatment;
[ * ] Confidential portions omitted have been filed separately with the
Securities and Exchange Commission.
<PAGE> 2
WHEREAS, the Company desires to contract with the Director to provide certain
services as defined herein and the Director desires to render such services to
the Company; and
WHEREAS, the Parties desire to enter into this Agreement in order to provide a
full statement of their respective responsibilities as they exist in connection
with the provision of services during the term of this Agreement;
NOW THEREFORE, in consideration of the mutual covenants and promises contained
herein and intending to be legally bound hereby the Parties hereto agree as
follows:
1. CONTRACT FOR SERVICES
The Company hereby contracts with the Director to provide services at the
Facility as required by 42 CFR 405.2100 et seq., or any successor regulations,
including those services as provided in Section 3 of this Agreement. Director
represents, warrants and agrees that there will be available to the Facility
during its operations, the services of a qualified, licensed Chief Medical
Director as per Section 2. Director shall be responsible for planning,
organizing, conducting and directing the professional ESRD services at the
Facility. All services to be provided by the Director hereunder are
hereinafter sometimes collectively referred to as "Services". The Director
hereby agrees to provide such Services under and subject to the terms and
conditions as provided in this Agreement.
2. MEDICAL STAFF AND COVERAGE
2.1 Physicians. The Services of the Director shall be coordinated by Dr.
Guy D. Sbar, who is hereby appointed by the Company to serve as the Chief
Medical Director of the Facility throughout the term of this Agreement, unless
the Director shall designate some other physician to assume the duties of Chief
Medical Director. Any candidate recommended by the Director to serve as Chief
Medical Director will be subject to the approval of Company which approval will
not be unreasonable withheld. The Chief Medical Director may hereinafter be
referred to as the "Physician".
2.2 Coverage. The Director need not devote full-time to the provision of
Services but shall devote sufficient time as necessary to fulfill its
responsibilities hereunder. The Director shall provide for Physician coverage
for all hours of Facility's operation and 24 hour emergency on-call coverage.
The Company acknowledges that Director and Chief Medical Director are
engaged in the practice of medicine in the Toms River, New Jersey area, in
particular the private practice of nephrology and/or internal medicine, and
that each such persons may continue to be so engaged during the term of this
Agreement and may perform services for and on behalf of their respective
patients in addition to but non-competitive with those services which are
required of him to be performed for the Facility as provided for in this
Agreement, provided, the same does not unreasonably interfere with the
performance of their respective obligations hereunder. Services deemed
non-competitive include and are limited to treatment of patients other than for
dialysis treatment and other than acute dialysis Services which the Facility
may perform.
2.3 Physicians.
2.3.1 License and Certification. Each Physician (i) represents to and
shall be licensed to practice medicine and to dispense narcotics in accordance
with the laws of the State of New Jersey; (ii) represents to and shall be Board
certified or Board eligible in internal medicine or Board eligible or Board
certified in nephrology; (iii) represents to and shall have at least 12 months
of experience or training in the care of patients at ESRD facilities; and (iv)
represents to and shall have experience in medical administration of a renal
dialysis facility.
2.3.2 Medical Staff Appointment. Each Physician shall apply for, be
awarded and maintain appointment in good standing on the medical staff of the
Facility in accordance with Facility's policies as well as applicable Facility
and medical staff bylaws, rules and regulations.
2.3.3 Program Eligibility. Each Physician shall be and remain eligible
to participate in the Medicare program and the state medical assistance program.
<PAGE> 3
2.3.4 Agreement to be Bound. The Director and the Chief Medical Director
represent and warrant that he(she) shall use his(her) best efforts and skills
in fulfilling their responsibilities and duties as provided in this Agreement.
The Director shall not utilize any Physician to provide Services under this
Agreement unless such Physician has been appointed Chief Medical Director as
provided in Section 2.1, and has executed a document, legally obligating such
Physician individually to abide by the terms and conditions of this Agreement,
including Article 7, in form as provided in Exhibit 2.3.4 or as otherwise
reasonably requested by Company.
3. SERVICES
The Services of the Director shall include:
3.1 Being in charge of and responsible for all medical aspects of the
Facility's operation to provide high quality medical treatment, providing the
proper coordination and functioning of all medical services, and being
responsible for adequate supervision of dialysis treatments in accordance with
federal regulation and/or any and all other applicable state and/or local
regulations now in existence or hereafter passed applicable to the operation of
the Facility;
3.2 Consulting with and advising the executive management of the Facility
on matters including, but not limited to, the hiring and firing of medical,
para-medical and technical personnel employed by the Facility and the type of
equipment and supplies to be used in the Facility for patient care;
3.3 Participating in the selection of a suitable treatment modality, i.e.,
transplantation or dialysis, and dialysis setting, for all patients served by
the Facility;
3.4 Assuring adequate monitoring of the patient and the dialysis process,
including for self-dialysis patients, assuring periodic assessment of patient
performance of dialysis tasks;
3.5 Assuring the development and availability of a patient care policy and
procedures manual and its implementation; at a minimum, the manual shall
describe the types of dialysis used in the Facility and the procedures
following in performance of such dialysis; hepatitis prevention and procedures
for handling an individual with hepatitis; and a disaster preparedness plan
(e.g., patient emergency, fire, flood);
3.6 Assuring that patient teaching materials are available for the use of
all trainees during training and at times other than during the dialysis
procedure when self-dialysis training or home dialysis training is offered;
3.7 Participating in the development and maintenance of a system of
patient care evaluation (quality assurance) including peer review and audit;
3.8 Aiding in the recruitment of qualified doctors and nurses to be
associated with and/or employed by and as required by the executive management
of the Facility;
3.9 Supervising the nursing, technical and medical staff;
3.10 Establishing and supervising a training program in dialysis
techniques for medical, nursing and technical employees of the Facility;
3.11 Serving as the chairman of the Medical Review Board of the Facility;
3.12 Assisting in working out affiliation agreements with acute-care
hospitals and transplant centers;
3.13 Consulting with other medical and governmental agencies and
facilities needed to further the interests, operating and progress of the
Facility;
3.14 Supervising the maintenance of all appropriate medical records
relating to medical services rendered at the Facility;
3.15 Developing and supervising a preventative maintenance training
program for staff personnel pertaining to the maintenance of all equipment;
<PAGE> 4
3.16 Being available and present at the Facility during times of
inspection by regulatory agencies;
3.17 Acting as spokesperson and coordinator for the Facility during any
Certificate of Need process in connection with the establishment and approval
processes for the Facility and any future expansion thereof and assisting the
Facility in obtaining all necessary approvals and consents for additional
dialysis stations;
3.18 Establishing review and monitoring of water quality for dialysis;
3.19 Instituting and supervising a dialyzer re-use program in compliance
with recognized medical standards;
3.20 Evaluating laboratory procedures and services;
3.21 Establishing, maintaining and monitoring infection control policies;
3.22 Serving the Facility in such other capacities as shall from time to
time reasonably be required by the Company and the Facility;
3.23 Assuring and warranting that the Chief Medical Director, Assistant
Medical Director(s) and Physician(s) have the proper credentials and maintain
the necessary licenses and/or approvals to participate in all federal, state
and local kidney disease programs governing the operation and/or reimbursement
for the Facility in which the Facility participates;
3.24 Helping to establish hospital in-patient dialysis agreements and
assuring that the Facility meets all licensing and other requirements for any
hospital or other entity in which the Facility has an affiliated in-patient
agreement, and promote the goals of the Company and the Facility in maintaining
such agreements;
3.25 Serving as the chairman and implementing reasonable guidelines and
procedures for the Facility's quality assurance program;
3.26 Insuring that Physician rounds are made at the Facility at frequent
intervals so that all patients are seen, at a minimum during a one week period.
4. COMPENSATION
4.1 Amount of Compensation. For the Director's services hereunder, the
Company will pay the Director and the Director accepts as full and sufficient
compensation thereof the following amounts ("Compensation").
4.1.1 During the First and Second Agreement Years the sum of [ * ] per
Agreement Year. During the Third Agreement Year the sum of [ * ] per
Agreement Year; during the Fourth Agreement Year the sum of [ * ] per
Agreement Year; and during the Fifth Agreement Year the sum of [ * ] per
Agreement Year. For purposes of this Agreement, the "First Agreement Year"
shall mean the period of one (1) year commencing with the Commencement Date (as
defined in Section 9.2 hereof), and each subsequent Agreement Year shall be the
successive one-year period thereafter.
4.1.2 Provided the Director and the Chief Medical Director have
fulfilled heir obligations and responsibilities under this Agreement and have
not defaulted or breached under the terms and conditions of the Agreement, then
this Agreement is automatically renewed for five more years provided neither
party gives the other parties no less than one (1) year written notification
prior to the end of the Term, of its, his or her intent to terminate at the
expiration of the Term. Compensation for the renewal period shall be at the
same level as the Fifth Agreement Year, with a cost-of-living increase each
renewal year based upon the CPI for the first fiscal calendar month of the
Fifth Agreement Year compared to the first fiscal calendar month of the subject
Agreement Year in the renewal period or as to be negotiated between the parties.
[ * ] Confidential portions omitted have been filed separately with the
Securities and Exchange Commission.
<PAGE> 5
4.2 Payment. The Company shall pay Compensation under this Agreement to
Director on the last day of each month in each Agreement Year, allowing for ten
business days check processing time, an amount equal to one twelfth (1/12th) of
the Compensation required to be paid to Director pursuant to this Article 4 in
such Agreement Year, by check drawn to the order of Director and mailed to the
Address specified for Director set forth on Exhibit 13.8 attached hereto, or
such other address as designated in writing.
4.3 Physician's Fees. It is agreed and understood that Director and all
other Physicians involved in patient care at the Facility shall elect, be
subject to and governed by the federal government's alternate reimbursement
plan under the ESRD Program wherein the Physician's fee for services rendered
will be billed to the government payment authority (intermediary) on a direct
basis by Director, the Chief Medical Director, or such other Physician, and
such Physician's fee shall be paid directly to Director, the Chief Medical
Director, or other billing Physician as the case may be.
4.4 Economical Services. Director represents and warrants that the
Services shall be performed in an economical and professional manner, and that
it shall attempt to maintain the costs of operating the Facility at reasonable
and efficient levels subject to the exercise of good medical judgment. This
representation and warranty is a material inducement to the Company in entering
into this Agreement.
5. INSURANCE
5.1 Required Coverage. The Director shall maintain for itself and shall
require any Physician who provides Services pursuant to this Agreement to
maintain basic limits professional malpractice liability insurance during the
term of this Agreement and thereafter covering all Services provided pursuant to
this Agreement in amounts not less than $1,000,000 per occurrence and $3,000,000
per annual aggregate. The Director's obligation under this Section 5.1 shall
survive for three (3) years following termination of this Agreement. Upon
failure of Director or any Physician to obtain such professional malpractice
liability insurance, in addition to being a breach of the Agreement, the Company
shall have the option, not the obligation, to obtain the same for the Director
and any such Physician(s), to pay the premiums and charge the same together with
any administrative and service fees and charges to Director and Director shall
immediately pay such sum to the Company. Director shall give the Company at
least 30 days prior written notice of any modification or cancellation of such
professional malpractice liability insurance.
5.2 Certificate of Insurance. The Director shall provide to the Company
prior to commencing or continuing Services hereunder certificates of insurance
evidencing the coverage required hereby and to notify the Company immediately
of the cancellation or termination of such insurance coverage.
5.3 Company Insurance. The Company shall provide and maintain professional
liability insurance for its employees who perform services at or in connection
with the Facility.
5.4 Indemnification. Director shall hold harmless and indemnify the
Company, the Facility and its Affiliates (as defined in section 7), their
shareholders, successors and assigns, from and against any and all liabilities,
costs, damages, expenses and attorney's fees resulting from or attributable to
any and all acts and omissions of Director, the Chief Medical Director, and any
Physician providing Services.
6. RULES AND REGULATIONS
6.1 Laws, Rules and Regulations. The Director and each Physician shall at
all times render Services in compliance with all applicable federal, state and
local laws, rules and regulations and in compliance in all material respects
with the Facility's bylaws, rules and regulations.
6.2 Requirements and Standards. The Director and all Physicians shall
maintain such standards and meet such requirements as will, at all times,
continue certification of the Facility as an ESRD dialysis facility under the
Federal Medicare program and continuance of any license or operating
certificate of the Facility.
<PAGE> 6
7. RESTRICTIVE COVENANT
7.1 General and Definitions
7.1.1 Purpose. The Parties acknowledge that the Services are of a
special and unique character and that the Director and each Physician has and
will receive substantial economic benefit and valuable business information as a
result of association with the Company and the Facility; that the Company will
incur expense in the development and promotion of the Facility; and that if the
Director or a Physician is permitted to engage in Restricted Activity during
the Restricted Period (as hereinafter defined) the Company will suffer
substantial economic injury.
7.1.2 Restricted Activity. As used in this Agreement "Restricted
Activity" shall mean participation or involvement, direct or indirect, either
as principal, agent, proprietor, shareholder, director, creditor, subcontractor,
administrator, physician director, medical director, officer, employee,
consultant or otherwise, in any entity, trade or business other than Company
providing Services within the "Restricted Area" as provided in this Agreement;
provided however such Restricted Activity shall not include: (i) a Physician's
direct patient care services to ESRD, other dialysis patients or any other
patients; or (ii) the ownership of five percent (5%) or less of the issued and
outstanding stock of a public company.
7.1.3 Services. As used in this Agreement "Services" shall be as
defined in this Agreement, particularly Sections 1 and 3, as well as generally
including the provision of outpatient dialysis treatment, inpatient dialysis
treatment, or dialysis equipment and supplies; provided such does not include
dialysis involving a medical problem which the Facility is unable to handle
which requires hospitalization, but inclusive of those acute and chronic
dialysis patients requiring hospitalization and other patients of an
institution or hospital who may require dialysis treatment if the Facility or
the Company has an affiliation agreement to provide such in-patient dialysis
services with such local institution or hospital, including but not limited to
staff assisted hemodialysis, continuous ambulatory peritoneal dialysis and home
training staff assisted dialysis treatments.
7.1.4 Restricted Area. As used in this Agreement, "Restricted Area"
shall mean
(a) during the Term: any location; and
(b) following the Term: any location within a 50 mile radius of
the Facility.
7.1.5 Restricted Period. As used in this Agreement "Restricted Period"
shall mean the Term of this Agreement and one (1) year thereafter, provided
however, in the event of any violation of this Article 7 the Restricted Period
shall be extended by a period of time equal to that period beginning when the
violation commenced and ending when the violation terminated.
7.2 Competition. During the Restricted Period the Director and/or any
Physician shall not engage in any Restricted Activity.
7.3 Employees and Contractors. During the Restricted Period, Director or
any Physician shall not directly or indirectly induce, or attempt to influence,
any employee or contractor of the Company or the Facility to terminate a
relationship with the Company or the Facility or to enter into any employment
or other business relationship with any other person, firm, or corporation,
including the Director or any Physician.
7.4 Scope of Covenants. It is expressly understood and agreed that the
scope of the various covenants in this Article 7 are reasonable both in time
and area and are fair and necessary to protect the legitimate interests of
Company and the Facility against the material adverse effects which would
result from the violation of any of these covenants.
7.5 Divisibility of Covenants. The covenants of this Article 7 shall be
regarded as divisible and shall be given the greatest operative effect
possible. If any part of them is declared invalid or unenforceable in any
respect, the validity and enforceability of the remainder shall not be
affected. If the Restricted Activity, Restricted Area and/or Restricted
Period, as provided herein, should be adjudged unreasonable in any judicial
proceeding, then the Restricted Activity, Restricted Area and/or Restricted
Period shall be reduced as is deemed necessary to allow this Article 7 to be
enforced.
<PAGE> 7
7.6 Remedies. It is understood that in the event of any violation of the
covenants of this Article 7, the Company and/or the Facility shall suffer
irreparable injury not compensable by monetary damages and the Company, the
Facility and their Affiliates shall be entitled to seek preliminary and
permanent injunctive relief from any court of competent jurisdiction in
addition to any other remedies available under this Agreement or at law or in
equity. The Company, the Facility and/or the Affiliates shall be entitled to
reasonable attorney's fees and other costs it or they may incur in connection
with protecting their rights in the event of a breach as contemplated and
provided herein.
7.7 Bankruptcy. The covenants and restrictions contained in this Section
7 shall not be applicable upon a final declaration of bankruptcy of the Company
or the abandonment of the Facility by the Company which term shall mean the
intentional giving up of the Facility by the Company and not the termination of
operations or this Agreement as otherwise provided herein.
7.8 Independent Covenant. The restrictive covenants, particularly the
covenant not to compete on the part of the Director and Physicians, shall be
construed as an agreement independent of any other provision of this Agreement,
and the existence of any claims or cause of action of the Director or Physician
against the Company or the Facility, whether based upon this Agreement or
otherwise, shall not constitute a defense to or a repeal or cancellation of the
enforcement by the Company, the Facility or the Affiliates of this covenant not
to compete.
8. CONTRACTUAL RELATIONSHIP
8.1 Independent Contractor. The Director and any Physician shall, at all
times, be independent contractors and not employees of the Company or the
Facility, and the Director and any Physician shall not hold itself or the
Physicians out as employees of the Company or the Facility. In furtherance
thereof, the Company and Facility and Director covenant and agree that one is
neither the employee, employer, principal or agent of the other, except that
the Director is an independent contractor to the Company and the Facility.
However, it is understood that nothing in this section or elsewhere in this
Agreement shall be deemed not to subject the Director to the supervision of the
executive management or the Board of Directors of the Company and the
administrator of the Facility and to their directions and control, except such
doctors and professional employees shall have independent control over the
medical practice, unless as to the latter, the same is determined to be
improper and violative of federal, state, local rules, codes, or regulations,
or such medical practices are otherwise unethical.
Director and all other Physicians understand and agree that personnel
employed at the Facility are employees of the Company and are not to be
considered or viewed as employees or servants of Director. No demands or
requests will be made or placed upon such employees for secretarial duties,
patient scheduling, etc., other than for dialysis as to be provided by the
Facility.
8.2 Obligations. The Director and each Physician shall be liable for the
payment or provision for payment of all their required withholding, social
security and other taxes or benefits. It is further understood and agreed that
there is no obligation on behalf of the Company or the Facility to provide to
any Physician benefits such as but not limited to group health insurance,
dental benefits, life insurance, etc., other than those specifically provided
in this Agreement.
8.3 Withholding. Neither the Company nor the Facility shall withhold, on
behalf of the Director or any Physician, any sums for income tax, unemployment
insurance, social security or any other withholding or benefit.
8.4 Control. Nothing in the Agreement is intended, and shall not be
construed, to create an employer/employee relationship, a partnership or a
joint venture relationship. The interest of the Company is to ensure that the
Services of the Director and the Physicians are rendered and performed in a
competent, efficient and satisfactory manner and in accordance with this
Agreement and all rules and regulations of the Facility.
8.5 Governmental Review. In the event the Internal Revenue Service or any
other governmental agency shall, at any time, question or challenge the
independent contractor relationship between the Company and the Director or the
Physicians, both the Company and the Director, upon receipt by either of them of
notice from the Internal Revenue Service or any other governmental agency, shall
promptly notify the other Party and afford the other Party the opportunity to
participate in any discussion or negotiation with the Internal Revenue Service
or other governmental agency, irrespective of whom or by whom such discussions
or negotiations are initiated. The other Party shall participate in any such
discussions or negotiations to the extent permitted by the Internal Revenue
Service or other governmental agency. The provisions of this Section 8.5 shall
apply only to issues arising from the independent contractor relationship
described herein and not to any other tax matter involving either Party.
<PAGE> 8
9. TERM
9.1 Term. The term ("Term") of this Agreement shall commence on the
Commencement Date as provided in Section 9.2 and continue thereafter (unless
sooner terminated as provided for in this Agreement) for an initial term of
five (5) years from such date; and thereafter pursuant to the automatic five
year renewal as per Section 4.1.2 unless either Party, gives timely written
notice to the other Parties of its intention to terminate this Agreement at the
conclusion of the Term as per section 4.1.2.
9.2 Commencement Date. The term of this Agreement shall commence
("Commencement Date") on the effective date of certification of the Facility as
a Medicare-certified end-stage renal disease facility ("Certification"). If
the Certification does not occur on or before the 180th day following the date
of this Agreement, then this Agreement shall be void and of no force and effect
and neither party shall have any right or obligation hereunder.
10. TERMINATION
10.2 Termination Without Fault
10.1.1 Death. This Agreement shall terminate upon the death of the
Chief Medical Director unless within ten (10) days of the death of Chief Medical
Director, Director has appointed a substitute Chief Medical Director, which is
the obligation of Director, approved by the Company, and such substitute Chief
Medical Director agrees to be bound by this Agreement and executes Exhibit 2.
3. 4.
10.1.2 Disability. If the Chief Medical Director becomes mentally or
physically unable to perform the Services required under this Agreement for a
continuous period of one hundred twenty (120) days and the Director fails to
appoint a substitute Chief Medical Director, which is the obligation of
Director, approved by the Company, which substitute Chief Medical Director
agrees to be bound by this Agreement, such shall be deemed a breach of this
Agreement and the Company may terminate this Agreement on thirty (30) days
written notice.
10.1.3 Feasibility. If during the First through Third Agreement
Years these Company determines in good faith that the continued operation of
the Facility under this Agreement is not feasible and notifies the Director in
writing of its determination, the parties shall thereafter engage in good faith
discussions for a period of 60 days from the date of such notice in an attempt
to re-negotiate the terms and conditions of this Agreement. In the event the
parties are unable to agree the Company may terminate this Agreement on thirty
(30) days written notice and neither Party shall have any further obligation
hereunder except for obligations accruing prior to the date of termination.
10.2 Right to Terminate Upon Default. Except as otherwise provided in
Section 10.1, a Party shall have the right as provided in this Section 10.2, to
terminate this Agreement at any time upon the occurrence of any of the
following events:
10.2.1 In the event the Director violates either of Sections 5.1 or
5.2, the Company may terminate this Agreement immediately;
10.2.2 In the event the Director or any of its appointed Physicians
violate Sections 2.3.1 or 2.3.3, the Company may terminate this Agreement
immediately; and
10.2.3 In the event a Party violates any other material term or
condition of this Agreement which violation is not cured within thirty (30)
days after written notice to the breaching Party of such violation or if the
violation cannot reasonable be cured within such thirty (30) days, the
breaching party has not commenced within such thirty (30) days and thereafter
diligently pursued action reasonably necessary to cure such violation, the
other Party may terminate this Agreement.
<PAGE> 9
10.3 Cumulative Remedies. The specific remedies provided in this
Agreement shall be in addition to and not in substitution for the rights and
remedies which would otherwise be vested in the Parties under the Agreement, at
law or in equity, all of which rights and remedies are specifically reserved by
the Parties. Failure of a Party to exercise any remedy shall not constitute a
waiver of the Party's rights for that default nor of any further or future
default.
11. GOVERNING BODY OF FACILITY
11.1 Authority of Governing Body. This Agreement shall not be construed
or interpreted as derogating or limiting the ultimate legal authority and
responsibility of the governing body of the Facility.
12. MEDICAL CONVENTIONS AND SEMINARS
12. The Parties acknowledge that it is in the best interests of the
Facility to have a well informed Chief Medical Director and to be represented
at various regional and national conventions and seminars dealing with
nephrology, renal failure, dialysis or kidney transplantation. Accordingly,
when the Chief Medical Director and the executive management of the Company and
the administrator of the Facility determine that it is in the best interests of
the Facility to have representation at any such convention or seminar, then the
Facility shall pay the direct expenses associated with attendance at such
convention or seminar of the Chief Medical Director, provided said expenses are
documented and reasonable. However, in no event shall such expenses exceed the
sum of $2,000 per year in the aggregate. This Section 12 shall be effective
and shall commence one year from the Commencement Date.
13. GENERAL PROVISIONS
13.1 Assignment. The Director shall not assign, sell or transfer this
Agreement, its obligations hereunder or any interest herein. Throughout the
Term of this Agreement the Chief Medical Director shall retain at least 51
percent of the shares of stock of the Director and shall retain control of the
business and affairs of Director. This Agreement may be assigned in whole or in
part by the Company.
13.2 Governing Law. This Agreement shall be deemed to have been made and
shall be construed and interpreted in accordance with the laws of the State of
New Jersey, conflicts of law provisions notwithstanding.
13.3 Severability. If any term or provision of this Agreement or in the
application thereof to any person or circumstances shall to any extent be
invalid or unenforceable, the remainder of this Agreement on the application of
such term or provision to persons or circumstances other than those to which it
is held invalid or unenforceable shall not be affected thereby, and each term
and provision of the Agreement shall be valid and enforceable to the fullest
extent permitted by law.
13.4 Integrated Agreement. This Agreement constitutes the entire
understanding and agreement between the Parties concerning the subject matter
hereof. This Agreement supersedes all prior written or oral agreements or
understanding existing between the Parties concerning the subject matter
hereof.
13.5 Captions. Captions contained in this Agreement are inserted only as
a matter of convenience and in no way define, limit, or extend the scope or
intent of this Agreement or any provision hereof.
13.6 Gender. Any noun or pronoun used in this Agreement shall be
construed in masculine, feminine or neuter as its sense and use may require.
13.7 Waivers and Amendments. No waiver of any term, provision, or
condition of this Agreement, whether by conduct or otherwise in any one or more
instances, shall be deemed to be or construed as a further and continuing
waiver of any such term, provision or condition of this Agreement. No
amendment to any provision of this Agreement shall be effective unless in
writing and signed by each Party.
<PAGE> 10
13.8 Notices. All notices pursuant to this Agreement shall be in writing
and shall be given by hand delivery or by depositing said notices in the United
States registered or certified mails, return receipt requested, addressed to a
party at the addresses as provided in attached Exhibit 13.8, or to such other
address as may hereafter be specified in writing by one Party notifying all
other Parties in the manner set forth herein. All notices given in the manner
prescribed in this Section shall be deemed properly served upon receipt.
13.9 Access to Books and Records. This Section is included herein because
of the possible application of Section 1861 (v) (1) (I) of the Social Security
Act to this Agreement; if that section should not be found applicable to this
Agreement under the terms of such section then this Section shall be deemed not
to be a part of this Agreement and shall be null and void.
13.9.1 Director. Until the expiration of four (4) years after the
furnishing of Services pursuant to this Agreement, the Director shall make
available upon written request of the Secretary of Health and Human Services or
the United States Controller General or any of their duly authorized
representatives, this Agreement, and any books, documents and records of the
Director that are necessary to certify the nature and extent of costs incurred
by the Company under this Agreement.
13.9.2 Subcontractors. If the Director carries out any of the duties
of this Agreement with a value of Ten Thousand Dollars ($10,000) or more over a
twelve (12) month period through a subcontract with a related organization or
person, such subcontract must be approved by the Company and must contain a
clause similar to that set forth in subsection 13.9.1 above.
13.10 No Discrimination. Each Party agrees that, in the performance
of this Agreement, services will be provided without discrimination toward any
patients, employees, or other persons regardless of their race, creed, color or
ethnic background. Both Parties are equal opportunity employers. Both Parties
shall comply with all requirements and provisions of the Civil Rights Act of
1964, 42 U.S.C.A. Section 2000 et seq. and other applicable federal and state
law.
13.11 Recovery of Litigation Costs. Subject to Section 7 hereof, if
any legal action or other proceeding is brought for the enforcement of this
Agreement, or because of an alleged dispute, breach, default, or
misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing party or parties shall be entitled to recover
reasonable attorneys fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it or they may be
entitled.
13.12 Confidentiality. This Agreement and its terms and provisions
shall be kept confidential and shall not be disclosed to any other party, nor
shall this Agreement or any part thereof be reproduced or summarized, except
to the extent as required by law.
13.13 Binding Agreement. All of the terms and provisions of this
Agreement shall be binding upon, inure to the benefit of and be enforceable by
each of the Parties hereto, their respective legal representatives and their
permitted successors and assigns.
IN WITNESS WHEREOF the Parties hereto have executed this Agreement as of
the day and year first above written.
OCEANVIEW MEDICAL GROUP, P.A.
By: /s/ GUY D. SBAR
-----------------
Name: Dr. Guy D. Sbar
Title: President
By: /s/ BART PELSTRING
------------------
Name: Bart Pelstring
Title: President
<PAGE> 11
ANNEX A
LIST OF FACILITIES
The Facility (or each Facility if more than one) will be an ESRD facility
meeting the conditions of coverage for such facilities of the Medicare ESRD
program as well as the requirements of other applicable law and will otherwise
be as follows:
Location: The Facility will be located in or about Manahawkin, Ocean, County,
State of New Jersey with such specific location as the Company may select.
Services: The Facility shall provide: in-facility hemodialysis services at no
less than 9 hemodialysis stations; and home peritoneal dialysis services,
supplies and training (directly or through an affiliated Method II supply
company).
Name: The Facility shall be known as DIALYSIS SERVICES OF NEW JERSEY,
INC.-MANAHAWKIN
Plans and Specifications: The Facility will be developed according to plans
and specifications prepared by Company and its architect and engineers, with
review by but not approval of the Director.
<PAGE> 12
EXHIBIT 2.3.4
CHIEF MEDICAL DIRECTOR
I, Dr. Guy D. Sbar, Chief Medical Director
- -------------------------------------------------------------------------------
In order to induce the Company to execute this Agreement, to appoint the
undersigned as Chief Medical Director and to permit the undersigned to provide
Services; in consideration of the amounts to be paid as provided in this
Agreement to Director; and intending to be legally bound hereby, the undersigned
agrees to be bound personally by the Agreement, including the restrictions set
forth in Article 7 of this Agreement.
Date: September 5, 1996
ACKNOWLEDGED and AGREED
this 5th day of September, 1996
DR. GUY D. SBAR
By: /s/ GUY D. SBAR
---------------
DR. GUY D. SBAR
<PAGE> 13
EXHIBIT 13.8
NOTICES
<TABLE>
<S> <C>
To Company: DSNJ Corporation
c/o Dialysis Corporation of America
Bart Pelstring, President
P.O. Box 1878
Easton, Maryland 21601
With a copy to: Lawrence E. Jaffe, Esq.
777 Terrace Avenue
Hasbrouck Heights, New Jersey 07604
To Director: OCEANVIEW MEDICAL GROUP P.A.
9 Hospital Drive
Suite C2
Toms River, New Jersey 08755
With a copy to:
Andrew Kimmel, Esq.
P.O. Box 567
Cedar Knolls, NJ 07927
</TABLE>
<PAGE> 1
EXHIBIT (10)(ii)
CONFIDENTIAL TREATMENT
DIALYSIS SERVICES OF PA., INC-CARLISLE
Dr. Herbert Soller
(Address)
Dear Dr. Soller:
Dialysis Service of Pa., Inc.-Carlisle(the "Corporation") was recently
incorporated in the State of Pennsylvania and wishes to retain you as its
Medical Director for its new dialysis facility(the "Center") to be established
in or about the Carlisle, Pennsylvania area. You will be retained on a [ * ]
basis for consideration of [ * ] commencing upon the Center obtaining its
provider number and all licenses and approvals of federal, state and local
regulatory agencies in order to provide dialysis services to kidney dialysis
patients.
You are currently under contract as a Medical Director with an affiliated
company to the Corporation, Dialysis Services of Pennsylvania, Inc.-Lemoyne
dated January 30, 1995(the "Lemoyne MDA"), another subsidiary of our common
Parent, Dialysis Corporation of America. Your responsibilities as Medical
Director of the Center are outlined in Section 3 of the Lemoyne MDA which are
incorporated herein by reference.
The Corporation acknowledges that you are engaged in the practice of
medicine in Lemoyne, Pennsylvania area, in particular, the private practice of
nephrology, and agrees that you may continue to be so engaged during the term
of this MDA letter agreement and may continue to perform services on behalf of
your patients as well as under the Lemoyne MDA.
In serving the Center you will be acting as an independent contractor and
not an employee of the Center or the Corporation and the last two paragraphs of
Section 4 of the Lemoyne MDA are hereby incorporated by reference.
You agree to be subject to and governed by the federal governments
alternative reimbursement plan under the End Stage Renal Disease Program and
your physicians fee for services rendered under this Letter Agreement will be
billed to the government payment authority on a direct basis by yourself and
such physicians fee shall be paid directly to you as Medical Director.
Your retention herein as Medical Director of the Center is not deemed to
be in conflict with Section 7 of the Lemoyne MDA and you agree otherwise to be
subject to the terms and restrictions contained therein which are hereby
incorporated by reference.
[ * ] Confidential portions omitted have been filed separately with the
Securities and Exchange Commission.
<PAGE> 2
It is further agreed that the following Sections of the Lemoyne-MDA are
hereby incorporated by reference: Indemnity and Malpractice Insurance, Section
9; Social Security Act, Section 10; and Confidentiality, Section 16.
This MDA Letter Agreement shall be construed and interpreted in accordance
with and governed by the laws of the Commonwealth of Pennsylvania.
If this MDA Letter Agreement and its terms meet with your understanding,
agreement and approval please execute below.
DIALYSIS SERVICES OF PA., INC.-CARLISLE
BY: /s/ BART PELSTRING
----------------------------
BART PELSTRING, PRESIDENT
REVIEWED, AGREED TO AND ACCEPTED
HERBERT I. SOLLER, MD
BY: /s/ HERBERT I. SOLLER
---------------------------
DR. HERBERT I. SOLLER
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,538,115
<SECURITIES> 0
<RECEIVABLES> 500,095<F1>
<ALLOWANCES> 0
<INVENTORY> 109,242
<CURRENT-ASSETS> 5,352,459
<PP&E> 2,714,325
<DEPRECIATION> 775,410
<TOTAL-ASSETS> 7,334,825
<CURRENT-LIABILITIES> 796,821
<BONDS> 124,503
0
0
<COMMON> 35,878
<OTHER-SE> 5,949,696
<TOTAL-LIABILITY-AND-EQUITY> 7,334,825
<SALES> 2,839,730
<TOTAL-REVENUES> 3,049,759
<CGS> 1,872,937
<TOTAL-COSTS> 1,872,937
<OTHER-EXPENSES> 1,138,374
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64,316
<INCOME-PRETAX> (25,868)
<INCOME-TAX> 17,000
<INCOME-CONTINUING> (35,925)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (35,925)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> 0
<FN>
<F1>ACCOUNTS RECEIVABLE ARE NET OF ALLOWANCE OF $120,000 AT SEPTEMBER 30, 1996.
</FN>
</TABLE>
